Antitrust Law Daily Wrap Up, ANTITRUST—Cal. App.: Rejection of gas station’s below-cost sales claims upheld, (Oct 30, 2013)

By Tobias J. Gillett, J.D., LL.M.

A California trial court did not abuse its discretion in requiring a gas station to file a supplemental complaint in order to recover damages allegedly resulting from a competitor’s below-cost sales occurring after the filing of the original complaint, a California appellate court has ruled. The court also decided that the competitor sufficiently pleaded and proved its good faith competition defense to the below-cost sales claims. Thus, judgment in favor of the competitor was affirmed (Andy’s BP, Inc. v. Shirazi, October 28, 2013, Mihara, N.).

Andy’s BP, Inc. operates a gas station called Gas and Shop in San Jose, California, while Amir Shirazi operates a gas station called Moe’s Stop at the same intersection. Andy’s BP alleged that Gas and Shop’s prices were set with reference to the prices of gas sold in the vicinity of the gas station, including at Moe’s Stop, and that Gas and Stop was closed “lots of times” rather than sell its gas below its invoice cost. Andy’s BP provided testimony from an economics expert that Moe’s sold its gas below invoice cost 21 percent of the time between April 2005 and March 31, 2011, and below its cost of doing business at least 61 percent of the time.

Shirazi alleged that he set Moe’s prices through reviews of daily gas price surveys at other gas stations, including Gas and Shop. If not much gas was being sold, he would lower prices if his costs and inventory would permit him to do so. When prices were rising, he would not sell below Gas and Shop’s prices, to maintain inventory, but when prices were decreasing and his volume was low he would set his prices lower than those at Gas and Shop.

Andy’s BP filed suit, alleging that Moe’s sold gas below cost from April 1, 2005 to April 1, 2008, and asserting claims for unfair trade practices, unlawful sales of loss leaders, unlawful competition, unfair competition, interference with prospective business advantage, and conspiracy to defraud. Shirazi filed an answer asserting various defenses, not including a good faith competition defense. Shirazi later filed a cross-complaint alleging that Andy’s BP had sold gas below cost from April 1, 2004 to April 1, 2008, and asserting claims for unfair trade practices and interference with prospective economic advantage. Andy’s BP’s answer to the cross-complaint included a good faith competition defense.

Prior to trial, Andy’s BP filed a motion in limine to exclude all evidence as to any affirmative defense not pleaded in Shirazi’s answer, including the good faith competition defense, and the court granted that motion. However, the parties disputed whether damages on Andy’s BP’s claims would have to precede the filing of the complaint in April 2008, or would extend through April 30, 2011. Andy’s BP argued that supplemental pleading was not required “when the issue is just really damages,” but the trial court observed that the damages after April 1, 2008, would be based on below-cost sales occurring after that date, and therefore the issue was Shirazi’s conduct as well as damages. Therefore, the trial court invited the parties to file supplemental complaints. Andy’s BP then filed a supplemental complaint requesting damages through April 30, 2011. Shirazi declined to file a supplemental complaint, but filed an answer that included a good faith competition defense. Andy’s BP objected that Shirazi had failed to plead or prove the defense, but the objection was overruled. The jury found in favor of Shirazi on Andy’s BP’s complaint, and in favor of Andy’s BP on Shirazi’s cross-complaint. Andy’s BP appealed.

Supplemental complaint. The appellate court affirmed the trial court’s requirement that Andy’s BP file a supplemental complaint in order to recover damages for the period following April 1, 2008. The appellate court observed that the trial court did not mandate that Andy’s BP file a supplemental complaint and that Andy’s BP could have chosen to proceed on its original complaint and file a second lawsuit to recover later damages. However, since Andy’s BP did file a supplemental complaint and present evidence of damages in connection with sales occurring until April 30, 2011, the trial court did not abuse its discretion in allowing the parties to file supplemental pleadings regarding conduct occurring after the complaint was filed.

The court rejected Andy’s BP’s argument that California Civil Code § 3283 provided that “[d]amages may be awarded, in a judicial proceeding, for detriment resulting after the commencement thereof, or certain to result in the future,” and therefore that Andy’s BP was not required to file a supplemental complaint in order to recover damages accruing after the filing of its complaint. The court noted that Andy’s BP’s expert calculated damages for each day Moe’s sold gas below cost, and did not include future losses caused by that conduct. Since Andy’s BP “did not suffer any loss after the filing of the complaint as a result of [Moe’s] sales of below-cost gas prior to the filing of the complaint, Civil Code section 3283 is inapplicable,” according to the court.

Good faith competition defense. The court also rejected Andy’s BP’s contention that Shirazi’s good faith competition defense only applied to events occurring after the filing of the original complaint. Even assuming the supplemental complaint did not replace the original complaint, Andy’s BP had forfeited the issue by failing to object on that ground before the trial court.

Andy’s BP’s contention that Shirazi had failed to allege sufficient facts to support the good faith competition defense also did not require reversal of the trial court’s decision, because Shirazi’s answer incorporated the allegations related to the good faith competition defense that Andy’s BP had made in its answer to Shirazi’s cross-complaint.

Finally, the court concluded that sufficient evidence supported Shirazi’s assertion of the good faith competition defense. California Bus. & Prof. Code § 17050 provided that the prohibition on sales below cost did not apply to sales made “in an endeavor made in good faith to meet the legal prices of a competitor selling the same article or product, in the same locality or trade area and in the ordinary channels of trade.” Here, Shirazi had testified that he had set his prices “based on the market, cost, and inventory.” When prices rose, he did not sell gas below Gas and Stop’s prices, to maintain inventory, but when prices fell, and his volume was low, he sold his gas below Gas and Stop’s prices. “Thus, there was sufficient evidence for the jury to find that Shirazi acted in good faith to meet [Andy’s BP’s] legal prices,” according to the court.

The case is H037797.

Attorneys: James Dombroski (Law Office of James M. Dombroski) for Andy’s BP, Inc. Gary B. Wesley for Amir Shirazi.

Companies: Andy’s BP, Inc.; Moe’s Stop

Cases: Antitrust CaliforniaNews