Summary
In Van de Camp, the California Attorney General brought an action under the state antitrust and unfair competition laws to enjoin Texaco from acquiring the California assets of Getty Oil Company pursuant to a merger between the two companies.
Summary of this case from General Motors Corp. v. AbramsOpinion
Review Granted Feb. 27, 1986.
Opinions on pages 1-118 omitted. [*]
[219 Cal.Rptr. 825]John K. Van de Kamp, Atty. Gen., Andrea Sheridan Ordin, Chief Asst. Atty. Gen., Michael J. Strumwasser, Sp. Counsel to the Atty. Gen., Sanford N. Gruskin, Asst. Atty. Gen., Michael I. Spiegel, Owen Lee Kwong, Richard Light and Lawrence R. Tapper, Deputy Attys. Gen., for plaintiff and appellant.
Leslie C. Randall, Kaye, Scholer, Fierman, Hays & Handler, Milton J. Schubin, New York City, and Aton Arbisser; Hefner, Stark & Marois, Sacramento and David G. Yetter, Los Angeles, for defendants and respondents.
CARR, Associate Justice.
The State of California (State), through the Attorney General, brought an action under the Cartwright Act (Bus. & Prof.Code, § 16720 et seq.), and the California unfair competition law (Bus. & Prof.Code, § 17200 et seq.) to enjoin Texaco, Inc., from acquiring the California assets of Getty Oil Company pursuant to a merger between the two companies. The trial court sustained the demurrer of Texaco, Inc., without leave to amend and dismissed State's complaint. On appeal State contends: (1) the court erred in concluding the Cartwright Act does not apply to mergers; (2) the court erred in concluding the merger is not subject to the unfair competition law; (3) State's action is not preempted by federal law, nor does it unduly burden interstate commerce; and (4) it is entitled to a preliminary injunction. We conclude State's action is preempted by federal regulation of the merger; on that basis, we shall affirm.
FACTUAL AND PROCEDURAL BACKGROUND
On January 9, 1984, Texaco, Inc. (Texaco) commenced a tender offer for 35 percent of the voting shares of Getty Oil Company (Getty) with the intention of subsequently completing a merger for the remaining outstanding shares. Prior to the tender offer, Texaco and Getty entered into a merger agreement under which Getty granted Texaco an option to purchase authorized but unissued shares amounting to 10.2 percent of the total Getty shares that would be outstanding after the issuance. Texaco and Getty further entered into two agreements to purchase voting shares constituting, respectively, 11.8 percent and 40.2 percent of the outstanding Getty shares. The total value of the transaction was approximately $10.1 billion and, when consummated, would result in the second largest petroleum company in the United States. (49 Fed.Reg. 8554 (March 7, 1984).)
[219 Cal.Rptr. 826]The Federal Trade Commission (FTC), concerned with potential anticompetitive effects of the merger on the petroleum industry in California and other regions of the country, drafted a complaint charging Texaco with a violation of Section 7 of the Clayton Act (15 U.S.C. § 18) and section 5 of the Federal Trade Commission Act (15 U.S.C. § 45). (Id., at p. 8553.)
Section 7 of the Clayton Act provides, in relevant part: "No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person engaged also in commerce or any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.
Section 5, subdivision (a)(1), of the Federal Trade Commission Act provides: "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful." (15 U.S.C. § 45(a)(1).)
As to the effects of the merger on the California petroleum industry FTC alleged, in part, that both Getty and Texaco own oil refineries on the West Coast with Getty's refinery being located in Bakersfield, California; Texaco owns refineries in Wilmington, California and Anacortes, Washington. Getty produces substantially more heavy crude oil from its California oil fields than it can refine in its Bakersfield refinery; Texaco produces substantially less heavy crude oil in California than it can refine in its two West Coast refineries. Getty owns and operates a proprietary pipeline system which gathers heavy crude oil from its fields in the San Joaquin Valley and transports it from Bakersfield to the San Francisco Bay Area.
Texaco's West Coast refineries compete with independent or "non-integrated" refiners in California. Texaco has an incentive to increase its refining capacity and lessen competition from non-integrated refiners. The acquisition of Getty's California oil assets is likely to increase Texaco's incentive and ability to deny heavy crude oil to non-integrated refiners and sever their access to proprietary pipelines. (49 Fed.Reg., supra, at pp. 8554-8555.)
"Non-integrated" refiners are refiners that are not also producers of crude oil. Both Texaco and Getty are "integrated" or "major" oil companies; that is, they are involved in all aspects of the petroleum industry, including production, transportation, refining and marketing of oil and petroleum products.
An FTC staff analysis more fully explains the potential adverse effects of the merger on California's non-integrated refiners: "The problem arises because Getty owns substantial heavy crude oil reserves in California. This crude oil is denser (lower in gravity) than most crude oil produced in the world and often has a high nitrogen content. These characteristics make the crude more costly to refine. Getty has 17 percent of the production of such crude oil in the San Joaquin Valley of California, and about 140 MBD [thousand] barrels per day production across the entire state. Getty also has an extensive crude oil gathering and trunkline system capable of transporting heavy crude to California refineries. This includes a heavy crude oil trunkline with about 200 MDB in capacity, linking Bakersfield, California to San Francisco.
"Getty's crude oil production is about 100 MBD in excess of the operating capacity of its one small refinery in California. Texaco, on the other hand, refines more crude than it produces on the West Coast, with production of only 33 MBD in California, compared to about 153 MBD in refining capacity in California and Washington.
[219 Cal.Rptr. 827]"At present, Getty is a substantial seller of heavy crude oil to 'non-integrated' California refiners--i.e., refiners that are not also crude oil producers. These non-integrated refiners are to some degree tied to the California heavy crude oil market because of the substantial investment they have made to process this type of crude oil. If such refiners were forced to process lighter, more expensive crude oils, their investment in heavy crude oil processing equipment might no longer be economically viable.
"Non-integrated refiners face an additional problem in gaining access to heavy crude oil. Such crude oil is rarely produced anywhere else in the world and is not imported. The refiners must therefore rely on California production. However, most California producers are tied to pipeline gathering systems that are privately-owned, which are in turn tied to trunkline systems that are also privately-owned. Unlike the systems in most states, California pipelines are not common carriers. Non-integrated California refiners are therefore not guaranteed access to much of the local crude oil production.
"The above factual situation may have led to a 'two-tier' market. Major gatherers may be able to 'post' and buy crude oil at one price, while non-integrated refiners may be required to pay premiums above the posted price for the more limited supplies of crude oil available to them. (The posted price is the price at which major, integrated purchasers offer to buy crude oil from third parties, rather than the price at which sellers offer to sell crude oil to third parties.) For example, non-integrated refiners cite the $2-$3 per barrel premiums that they have offered for crude oil available from the Elk Hills Naval Petroleum Reserve in California. Texaco, with more refining capacity than West Coast crude production, is in fact one of the few major companies to bid at Elk Hills, winning 10 MBD of crude oil at $2.10 premium above the posted price. Most major integrated oil companies have not participated at the Elk Hills' auctions, relying instead on their own production and purchases at the posted price.
"As a result of the acquisition, Texaco may have some incentives to divert the Getty heavy crude oil to its own refining system. This may be more profitable than selling the crude oil to others because of the crude oil Windfall Profit Tax Act of 1980. A sale of the crude oil at a premium over the posted price might, in some situations, increase Texaco's Windfall Profit Tax liability. Alternatively, if Texaco were to process the crude oil internally, it might be able to lower its tax payments by transferring the crude oil into its refinery at the lower posted price and by shifting the profits to its refining subsidiary, where they would be taxed at a lower rate.
"Certain non-integrated California refiners might be vulnerable if Texaco should decide to utilize Getty heavy crude oil in this manner. In particular, non-integrated refiners in the San Francisco area served by the Getty trunkline may have no economic alternative source of supply. If these refineries were to fail and Texaco were to acquire them in order to process additional heavy crude oil, the West Coast refining HHI [Herfindahl-Hirschman Index, a measure of market concentration] would increase by 74 points to 1206. Additional refining failures in other parts of California might result in a greater increase in concentration." (49 Fed.Reg., supra, at pp. 8561-8562; fns. omitted.)
To alleviate the enunciated and other potential anticompetitive effects while allowing the merger to proceed, the FTC entered into an agreement with Texaco which comprehensively regulates the merger between Texaco and Getty on a nationwide basis. (Id., at p. 8550; 49 Fed.Reg. 30059 (July 26, 1984).) In summary, the agreement, which was incorporated into a consent order, requires Texaco to divest, within 12 months, all Getty assets listed in an attached schedule, including certain of Getty's petroleum-related assets in the northeastern United States, a Texaco refinery located in the Northeast, and certain Getty petroleum assets in specified Rocky Mountain, midwestern, [219 Cal.Rptr. 828] and southwestern states. The assets must be sold to an FTC-approved buyer and if not timely sold, a trustee appointed by the court or the FTC will have 18 months to effect complete divestiture. Additionally, for a period of 10 years, Texaco is required to vote its shares in favor of any proposal to increase the capacity or enhance the ability of the Colonial Pipeline Company to transport refined product north of Dorsey Junction, Maryland. Texaco is also required, for 10 years, to offer access to Getty's pipeline from Santa Fe Springs to Los Angeles to any Getty customer using the pipeline in 1983. Texaco may not acquire, without FTC approval, any interest in any concern engaged in the refining or wholesale distribution of gasoline or middle distillate in 12 eastern states and the District of Columbia, and any petroleum product pipeline in or into Colorado. (Id., at pp. 8550, 8558.)
With respect specifically to the acquisition of Getty's California oil reserves and pipeline, the consent order requires Texaco to sell California crude oil of similar grade and quality to that sold by Getty in 1983 to each eligible refiner specified in an attached schedule, in accordance with the terms and conditions listed therein. (Id., at p. 30061.) However, this obligation expires on July 1, 1989. (Id., at p. 30062.) After that date, it is believed offshore crude oil will be available to non-integrated refiners, remedying any access problems they might experience as a result of the merger. (Id., at p. 8562.)
Unsatisfied with the consent order, State filed the present action in the Superior Court for the County of Sacramento, setting forth substantially the same allegations as those contained in the FTC draft complaint, which, for purposes of the demurrer, we accept as true. (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214, 197 Cal.Rptr. 783, 673 P.2d 660.)
As a first cause of action, State alleged Texaco's acquisition of Getty's California assets will violate the Cartwright Act, California's antitrust law (Bus. & Prof.Code, § 16700 et seq.), in that: (1) actual competition between Texaco and Getty in the marketing of California-produced crude oil will be eliminated; (2) actual competition in general between competitors in the relevant product markets in California will be lessened; (3) California non-integrated refiners may be denied access to California crude oil currently supplied by Getty whereby they can profitably operate their refineries; (4) for reasons unrelated to the efficient use of resources, Texaco may have an incentive to and may deny non-integrated refiners access to California crude oil and proprietary pipeline transportation systems, thereby increasing the difficulty of entry into the California refining market and decreasing the competitive significance of non-integrated refiners; (5) the acquisition will result in significantly higher concentration ratios in the relevant market; (6) already high barriers to entry in the California crude oil, refining, pipeline transportation, and retail products markets will be substantially raised; (7) actual competition between Texaco and Getty for transportation of crude oil and refined products by pipeline will be eliminated in California; (8) competition in the marketing of gasoline and other refined products may be substantially lessened in California such that their prices might be affected; (9) competition in the market for California crude oil may be substantially lessened such that its price might be affected; and (10) competition in [219 Cal.Rptr. 829] the transportation of California crude oil by pipelines may be substantially lessened such that its price might be affected.
State specifically alleged violation of Business and Professions Code section 16720, subdivisions (a) and (e)(4), and section 16726. Section 16726 declares: "Except as provided in this chapter, every trust is unlawful, against public policy and void." Section 16720, as relevant to this action, defines a "trust" as "a combination of capital, skill or acts by two or more persons for any of the following purposes: [p] (a) To create or carry out restrictions in trade or commerce.... [p] (e) To make or enter into or execute or carry out any contracts, obligations or agreements of any kind or description, by which they do all or any or any combination or any of the following: ... [p] (4) Agree to pool, combine or directly or indirectly unite any interests that they may have connected with the sale or transportation of any such article or commodity, that its price might in any manner be affected."
As a second cause of action, State incorporated its previous allegations and alleged that the acquisition of Getty's California assets by Texaco constituted an unfair competitive business practice in violation of Business and Professions Code section 17200. State prayed for a declaration that the acquisition is in violation of the Cartwright Act and the unfair competition law; for a temporary restraining order and preliminary injunction requiring Texaco to hold Getty's California assets separate pending the final outcome of this case; for an injunction requiring Texaco to divest itself of Getty's California oil assets (Bus. & Prof.Code, § 16754.5); and for civil penalties (id., § 17206).
Business and Professions Code section 17200 provides "unfair competition shall mean and include unlawful, unfair or fraudulent business practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with section 17500) of Part 3 of Division 7 of the Business and Professions Code."
The trial court denied State's application for a temporary restraining order. Texaco demurred to the complaint on several grounds: first, that the Cartwright Act is inapplicable to mergers; second, that no cause of action is stated for violation of the unfair competition law; third, that the remedy of divestiture is unavailable under California law; fourth, that the relief sought by State would impermissibly burden interstate commerce, in violation of the commerce clause of the United States Constitution (art. I, § 8, cl. 3); and, fifth, that the FTC consent order preempts state action against the Texaco-Getty merger, pursuant to the supremacy clause of the United States Constitution (art. VI, cl. 2).
The trial court sustained Texaco's demurrer without leave to amend and denied State's application for preliminary injunction, determining that the Cartwright Act does not apply to mergers and the complaint irremediably fails to state a cause of action under the unfair competition law. Alternatively, the court found the FTC consent order preempts state regulation of the merger. A dismissal of the complaint was entered, from which this appeal is taken.
DISCUSSION
We initially address the question of whether the FTC consent order preempts regulation of the Texaco-Getty merger under State's antitrust and unfair competition laws. For reasons set forth herein, we conclude State's action is preempted pursuant to the supremacy clause of the United States Constitution. Accordingly, we find it unnecessary to address the other issues presented in this appeal.
Article VI, clause 2: "This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the Judges in every State shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding."
"Under the Supremacy Clause, ... the enforcement of a state regulation may be pre-empted by federal law in several circumstances: first, when Congress, in enacting a federal statute, has expressed a clear intent to preempt state law, [citation]; second, when it is clear, despite the absence of explicit preemptive language, that Congress has intended, by legislating comprehensively, to occupy an entire field of regulation and has thereby 'left no room for the states to supplement' federal law, [citation]; and, finally, when compliance with both state and federal law is impossible, [citation], or when state law 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.' [Citations.]" (Capital Cities Cable, Inc. v. Crisp (1984) 467 U.S. 691, ----, 104 S.Ct. 2694, 2700, 81 L.Ed.2d 580, 588-589; Silkwood v. Kerr-McGee Corp. (1984) 464 U.S. 238, ----, 104 S.Ct. 615, 621, 78 L.Ed.2d 443, 452; Jones v. Rath Packing Co. (1977) 430 U.S. 519, 525-526, 97 S.Ct. 1305, 1309-10, 51 L.Ed.2d 604.)
[219 Cal.Rptr. 830]Federal regulations, rulings, and orders of administrative agencies have no less preemptive effect than federal statutes. (Capital Cities Cable, Inc., supra, 467 U.S. at p. ----, 104 S.Ct. at p. 2700, 81 L.Ed.2d at p. 589; Fidelity Federal S. & L. Assn. v. de la Cuesta (1982) 458 U.S. 141, 153-154, 102 S.Ct. 3014, 3022-23, 73 L.Ed.2d 664, 675; New England T. & T. Co. v. P.U.C. of Maine (D.Maine) 570 F.Supp. 1558, 1571.) When an administrator promulgates a regulation or order intended to preempt state law, the decision will not be disturbed so long as the " 'choice represents a reasonable accommodation of conflicting policies that were committed to the agency's care by the statute, ... unless it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned.' " (Fidelity Federal S. & L. Assn. v. de la Cuesta, supra, 458 U.S. at p. 154, 102 S.Ct. at 3023, 73 L.Ed.2d at p. 675.)
"Pre-emption of state law by federal statute or regulation is not favored 'in the absence of persuasive reasons--either that the nature of the regulated subject matter permits no other conclusion, or that Congress has unmistakably so ordained.' " (Chicago & N.W. Tr. Co. v. Kalo Brick & Tile (1981) 450 U.S. 311, 317, 101 S.Ct. 1124, 1130, 67 L.Ed.2d 258, 264-265.) "Courts are reluctant to infer preemption, and it is the burden of the party claiming that Congress intended to preempt state law to prove it." (Elsworth v. Beech Aircraft Corp. (1984) 37 Cal.3d 540, 548, 208 Cal.Rptr. 874, 691 P.2d 630; Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 937, 216 Cal.Rptr. 345, 702 P.2d 503.)
Texaco does not assert that federal antitrust law generally preempts state antitrust law, nor would such a contention withstand scrutiny. The Cartwright Act, as a prohibition against unreasonable restraints of trade, is within the traditional police power of the states and is not per se preempted by federal antitrust law, even as to transactions affecting interstate commerce. (R.E. Spriggs Co. v. Adolph Coors Co. (1974) 37 Cal.App.3d 653, 660-666, 112 Cal.Rptr. 585; Younger v. Jensen (1980) 26 Cal.3d 397, 405, 161 Cal.Rptr. 905, 605 P.2d 813; Salveson v. Western States Bankcard Ass'n (9th Cir.1984) 731 F.3d 1423, 1427.) The objectives of state and federal antitrust laws are the same; the federal Sherman Antitrust Act was enacted for the avowed purpose of arming the federal courts with antitrust enforcement powers " 'that they may cooperate with the state courts in checking, curbing and controlling' " unreasonable restraints of trade. (R.E. Spriggs v. Adolph Coors Co., supra, 37 Cal.App.3d at p. 660, 112 Cal.Rptr. 585; original italics.) The Cartwright Act is patterned after the Sherman Act and federal cases interpreting the Sherman Act are applicable to questions arising under the Cartwright Act. (Blank v. Kirwan (1985) 39 Cal.3d 311, 320, 216 Cal.Rptr. 718, 703 P.2d 58; R.E. Spriggs v. Adolph Coors Co., supra, 37 Cal.App.3d at p. 659, fn. 5, 112 Cal.Rptr. 585.) Other states have similarly held that federal antitrust law does not preempt state antitrust regulation of matters affecting interstate commerce but having significant local impact. (See State v. Sterling Theatres Co. (1964), 64 Wash.2d 761, 394 P.2d 226; State v. Southeast Tex. Chap. of Nat. Elec. Con. Ass'n (Tex.Civ.App.1962) 358 S.W.2d 711; Leader Theatre Corp. v. Randforce Amusement Corp. (N.Y. Supreme Ct.1945), 186 Misc. 280, 58 N.Y.S.2d 304; Commonwealth v. McHugh (1950), 326 Mass. 249, 93 N.E.2d 751; Peoples Sav. Bank v. Stoddard (1960), 359 Mich. 297, 102 N.W.2d 777; State v. Allied [219 Cal.Rptr. 831] Chemical & Dye Corp. (1960), 9 Wis.2d 290, 101 N.W.2d 133.)
Section 1 of the Sherman Antitrust Act (15 U.S.C. § 1) provides: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding one million dollars if a corporation, or, if any other person, one hundred thousand dollars, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court."
In the case at bar, however, the federal government, through the consent order, has so completely regulated the anticompetitive aspects of the merger as to "occupy the field" to the exclusion of state antitrust and unfair competition laws. The order regulates the entire merger in minute detail and specifically governs those very matters to which State now seeks to apply its antitrust law--acquisition of Getty's California oil fields and pipelines. As to the anticompetitive effects of the merger, the consent order represents a "scheme of federal regulation" of the merger "so pervasive as to make reasonable the inference that [the federal government] left no room for the States to supplement it" with their own laws. (Rice v. Santa Fe Elevator Corp. (1947) 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447, 1459.) In our view, the "regulatory scheme [of the consent order], complete as it is in every detail, was intended to provide the whole and exclusive source of protection" against the anticompetitive effects of the merger. (United States v. Shimer (1961) 367 U.S. 374, 381, 81 S.Ct. 1554, 1559, 6 L.Ed.2d 908, 913.)
When similar and consistent state and federal regulations exist, state action affecting interstate commerce is limited to those instances where "no Federal agency has acted with respect to the particular matter being considered by the State agency...." (Leader Theatre Group v. Randforce Amusement Corp., supra, 58 N.Y.S.2d at p. 308; original italics.) But if, as here, the federal government completely occupies a given field or identifiable portion of it, "the test of pre-emption is whether 'the matter on which the State asserts the right to act is in any way regulated by the Federal Act.' " (Pacific Gas & Elec. v. Energy Resources Comm'n (1983) 461 U.S. 190, 212-213, 103 S.Ct. 1713, 1726, 75 L.Ed.2d 752, 770.) The " 'matter on which the State asserts the right to act' " in this case is and has been specifically regulated by the FTC.
It is irrelevant that the state and federal antitrust laws have the same objectives. If the federal government completely regulates a matter, the determining factor is whether "both [state and federal] regulations can be enforced without impairing the federal superintendence of the field, not whether they are aimed at similar or different objectives." (Florida Lime & Avocado Growers v. Paul (1963) 373 U.S. 132, 142, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248.) Clearly State's action would impair the " 'federal superintendence of the field' " by interfering with a federal consent order designed to closely regulate the merger while authorizing it to proceed.
We conclude that by its specific and comprehensive regulation of the merger, including Texaco's acquisition of Getty's California oil assets, the federal government intended to displace regulation of the merger under state antitrust and unfair competition laws.
State's action poses a direct conflict with federal law by purporting to prohibit that which the federal government has specifically authorized. When the federal government authorizes or permits an activity pursuant to a comprehensive regulatory scheme, a state may not intrude upon the federal government's sphere of authority by invoking its own law to prohibit the activity or condition its continuance on compliance with similar state law. (First Iowa Hydro-Elec. Coop. v. Federal P. Com. (1946) 328 U.S. 152, 164, 66 S.Ct. 906, 911, 90 L.Ed. 1143, 1149; Sperry v. Florida (1963) 373 U.S. 379, 385, 83 S.Ct. 1322, [10 L.Ed.2d 428, 432]; Ventura County v. Gulf Oil Corp. (9th Cir.1979) 601 F.2d 1080, 1084-1085; Granite Rock Co. v. California Coastal Com'n (9th Cir.1985) 768 F.2d 1077, 1081-1083.)
State contends there is no conflict as the consent order does not "require" Texaco to acquire Getty's assets, but merely "permits" it to do so. This distinction is of no moment when, as here, the state intrudes upon a sphere of regulatory authority completely occupied by the federal government. [219 Cal.Rptr. 832] In First Iowa Hydro-Elec. Coop. v. Federal P. Com., supra, 328 U.S. 152, 66 S.Ct. 906, 90 L.Ed. 1143, the Supreme Court held the Federal Power Act, which establishes a federal permit system authorizing the construction of hydroelectric dams, preempted an Iowa law prohibiting such construction unless the petitioner first obtained a state permit, reasoning that "[t]o require the petitioner to secure an actual grant to it of a state permit ... as a condition precedent to securing a federal license for the same project under the Federal Power Act would vest in the Executive Council of Iowa a veto power over the federal project" and "would subordinate to the control of the State the 'comprehensive' planning which the Act provides shall depend upon the judgment of the Federal Power Commission or other representatives of the Federal Government." (Id., at p. 164, 66 S.Ct. at p. 912, 90 L.Ed. at p. 1150.)
In Sperry v. Florida, supra, 373 U.S. 379, 83 S.Ct. 1322, 10 L.Ed.2d 428, the court held a federal patent regulation governing the issuance of federal permits to prepare and prosecute patent applications preempted a state law prohibiting persons from engaging in such activity unless they were licensed to practice law within the state. (Id., at p. 385, 83 S.Ct. at p. 1325, 10 L.Ed.2d at p. 433.)
In Ventura County v. Gulf Oil Corp., supra, 601 F.2d 1080, the County of Ventura attempted to require Gulf Oil Corporation to obtain a permit in compliance with county zoning ordinances governing oil exploration and extraction activities before proceeding under leases and drilling permits acquired from the federal government. The Ninth Circuit Court of Appeals rejected this attempt and found that oil exploration and drilling activities on federal lands are extensively regulated by federal laws designed to protect the environment. In order to proceed with the activity, Gulf Oil Corporation was required to, and did, obtain permission from the Departments of Agriculture and the Interior, subject to numerous and detailed conditions for the protection of the environment. The county, in effect, "demand[ed] the right of final approval." The court determined "[t]he federal Government has authorized a specific use of federal lands, and Ventura cannot prohibit that use, either temporarily or permanently, in an attempt to substitute its judgment for that of Congress." (Id., at p. 1084.)
In a similar case, Granite Rock Co. v. California Coastal Com'n, supra, 768 F.2d 1077, the California Coastal Commission attempted to require Granite Rock Company to obtain a state permit in order to continue mining on federally-owned land, despite the United States Forest Service's previous approval of Granite Rock's five-year plan of operations. The court found the forest service had authority "to prohibit or permit mining in national forests conditioned on meeting environmental protection standards"; thus, "an independent state permit system to enforce state environmental standards would undermine the Forest Service's own permit authority and ... is preempted." (Id., at p. 1083.)
In none of these cases did the federal government require the activity in question but rather authorized the activity under a comprehensive regulatory scheme covering the same or similar ground as state law. State's attempt to prohibit or condition the activity in question, the merger, under state law was preempted because it "intrude[d] into that sphere of authority" occupied by federal regulation. (Granite Rock Co. v. California Coastal Com'n, supra, 768 F.2d at p. 1083.)
The cases upon which State relies are factually inapposite. In Pacific Gas & Elec. v. Energy Resources Comm'n, supra, 461 U.S. 190, 103 S.Ct. 1713, 75 L.Ed.2d 752, the court held the federal Atomic Energy Act of 1954 did not necessarily prohibit California from requiring operators of nuclear power plants to obtain a state permit certifying that adequate storage facilities and means of disposal were available for nuclear wastes. The court reasoned that while the Atomic Energy Act authorized the Nuclear Regulatory Commission to issue building permits if the construction [219 Cal.Rptr. 833] and operation of a nuclear power plant would be safe, the state permit requirement addressed only economic concerns. (Id., at pp. 217-220, 103 S.Ct. at 1728-31, 75 L.Ed.2d at pp. 773-775.) As the Atomic Energy Act did not provide "comprehensive regulation" of the construction of nuclear plants beyond the safety elements, the state's attempt to impose economic regulations on such plants did not intrude upon the federal government's sphere of authority.
Similarly, in Huron Portland Cement Co. v. Detroit (1960) 362 U.S. 440, 80 S.Ct. 813, 4 L.Ed.2d 852, the court upheld application of a local smoke abatement ordinance to a ship whose equipment had been federally licensed. The court determined "there is no overlap between the scope of the federal ship inspection laws and that of the municipal ordinance here involved." (Id., at p. 446, 80 S.Ct. at p. 817, 4 L.Ed.2d at p. 858.)
In Florida Lime & Avocado Growers v. Paul (1963) 373 U.S. 132, 83 S.Ct. 1210, 10 L.Ed.2d 248, the court upheld a California law prohibiting the transportation or sale in California of avocados (in this case, Florida-grown avocados) containing less than eight percent oil by weight. The federal government had established a different measure of maturity and the avocados in question met this federal standard. The federal regulation did not preempt California's regulation as both were directed at a different purpose and different end of commerce. The federal regulation established maturity standards for the introduction of Florida avocados into the stream of interstate commerce; California's regulation was designed for the protection of its consumers. "Federal regulation by means of minimum standards of the picking, processing, and transportation of agricultural commodities, however comprehensive for those purposes that regulation may be, does not of itself import displacement of state control over the distribution and retail sale of those commodities in the interests of the consumers of the commodities within the State. Thus, while Florida may perhaps not prevent the exportation of federally certified fruit by superimposing a higher maturity standard, nothing ... forbids California to regulate their marketing. Congressional regulation of one end of the stream of commerce does not, ipso facto, oust all state regulation at the other end." (Id., at p. 145, 83 S.Ct. at p. 1219, 10 L.Ed.2d at p. 258; original italics.)
In Silkwood v. Kerr-McGee Corp., supra, 464 U.S. 238, 104 S.Ct. 615, 78 L.Ed.2d 443, a state-authorized award of punitive damages resulting from radiation contamination at a federally licensed nuclear facility was upheld notwithstanding the fact that the exclusive regulation of the radiological safety aspects of nuclear facilities was embodied in the Atomic Energy Act. The court reasoned that Congress intended only to regulate the safety of nuclear facilities and not to displace state-law remedies for damages resulting from violation of those safety regulations. (464 U.S. at pp. ---- - ----, 104 S.Ct. at pp. 622-26, 78 L.Ed.2d at pp. 453-458.)
In contrast to the cases on which State relies, in this case the federal and state antitrust and unfair competition laws concern the same project and serve the same purpose. The FTC consent order is designed specifically to regulate the anticompetitive effects of the merger and is directed, in part, at precisely the matter which state seeks to regulate under its similar law.
The FTC has the authority to review the merger between Texaco and Getty (15 U.S.C. § 18a) and take appropriate action, including seeking an injunction in a court of law (15 U.S.C. § 18a(f); § 53(b)), issuing an administrative cease and desist order (15 U.S.C. §§ 21, 45), or, as in this case, negotiating an enforceable consent order (16 C.F.R. §§ 2.31-2.35). The FTC has reviewed the merger and considered, inter alia, its local effect on refiners in the State of California. It has developed a regulatory scheme which, in its judgment, will cure the potential anticompetitive effects of the merger. The consent order authorizes Texaco to acquire Getty's California assets [219 Cal.Rptr. 834] pursuant to the merger in exchange for federal control over Texaco's use of those assets for a specified period of time. State simply disagrees with the FTC's solution. Its present attempt to enjoin the acquisition under California antitrust and unfair competition laws would effectively give the state "veto power" over the consent order and constitute an impermissible "attempt to substitute its judgment for that of" the FTC. (Ventura County v. Gulf Oil Corp., supra, 601 F.2d at p. 1084.)
We are unpersuaded by State's contention that an injunction can be fashioned to avoid a conflict with the consent order. Even if a properly worded injunction could require Texaco to continue providing crude oil to non-integrated refiners in accordance with the consent order, the State's action, if successful, would force Texaco to divest itself of Getty's former California assets. Yet, the FTC has given Texaco permission to acquire these assets, permission which must have been a major inducement for Texaco to agree to the conditions embodied in the consent order.
Aside from directly conflicting with a federal authorization, State's action would, in our view, "stand as an obstacle" to federal efforts to enforce the antitrust laws against large mergers through consent orders. The consent order is a well-established means of settling potential disputes over matters subject to the jurisdiction of the FTC. (See 16 C.F.R. §§ 2.31-2.35; Action On Safety And Health v. F.T.C. (D.C.Cir.1974) 498 F.2d 757, 759.) The ability of the FTC to negotiate consent orders involving large mergers rests, to a significant extent, upon title II of the Hart-Scott-Rodino Antitrust Improvements Act (HSR). (15 U.S.C. § 18a, adding section 7A to the Clayton Act.) HSR generally provides that no merger between businesses having a specified minimum amount of net sales or assets may take place unless the parties thereto file notification pursuant to regulations promulgated by the FTC and wait a specified period of time. (15 U.S.C. § 18a(a).) The notification must contain such material and information as is necessary to enable the FTC and the assistant attorney general to determine whether the merger, if consummated, will violate the federal antitrust laws. (15 U.S.C. § 18a(d).)
The primary purpose of HSR is to "strengthen the enforcement of section 7 [of the Clayton Act] by giving the government antitrust agencies a fair and reasonable opportunity to detect and investigate large mergers of questionable legality before they are consummated," thus providing the government a meaningful chance to take action against the merger "before the assets, technology, and management of the merging firms are hopelessly and irreversibly scrambled together, and before competition is substantially and perhaps irremediably lessened, in violation of the Clayton Act." (H.R.Rep. No. 94-1373, 2nd Sess., p. 5 (1976), U.S.Code Cong. & Admin.News 1976, pp. 2572, 2637.) Congress sought to achieve three goals in enacting HSR. First, it intended to "prevent the consummation of so-called 'midnight' mergers, which are designed to deny the government any opportunity to secure preliminary injunctions." (Id., at p. 11, U.S.Code Cong. & Admin.News 1976, p. 2643.) Further, Congress sought to "ease burdens on the courts by forestalling interminable post-consummation divestiture trials...." (Ibid.) Finally, HSR was intended to "advance the legitimate interests of the business community in planning and predictability, by making it more likely that Clayton Act cases will be resolved in a timely and effective fashion." (Ibid.)
HSR is essential to the effective negotiation of consent orders. Under it the FTC obtains the information necessary to evaluate the merger and develop a plan to alleviate its potential adverse effects before it is consummated and at a time when the FTC has substantial bargaining power. The ability of the FTC to enforce federal antitrust laws by this means would be seriously undermined if, following the execution of a consent order, any state or all states that might be substantially affected by the merger could attack it piecemeal under each state's respective laws. The bargaining power of the federal government--the [219 Cal.Rptr. 835] ability to extract pre-consummation concessions from the merging parties in exchange for a promise not to sue--would be lost. Getty's California oil was the major asset to be acquired by the merger. State cannot disallow that acquisition without unraveling the entire federal regulatory scheme embodied in the order.
Moreover, allowing state action against large mergers may tend to encourage a reluctance on the part of the merging parties to fully and promptly comply with HSR's disclosure requirements and lead to the "midnight mergers" Congress sought to prevent. Finally, state actions would inject uncertainty, unpredictability and delay into the process, in contravention of Congress' intent to "advance the legitimate interests of the business community in planning and predictability, by making it more likely that Clayton Act cases will be resolved in a timely and effective fashion." (H.R.Rep. No. 94-1373, supra, at p. 11, U.S.Code Cong. & Admin.News 1976, p. 2643.)
Our view finds support in federal cases interpreting Clayton Act section 7A, subdivision (h) (15 U.S.C. § 15a(h)), which prohibits "public disclosure" of the premerger information provided thereunder. In two recent opinions, the Courts of Appeal for the Second and Fifth Circuits construed subdivision (h) as precluding disclosure of premerger information to state attorneys general investigating large mergers for violation of state and federal antitrust laws. In Mattox v. F.T.C. (5th Cir.1985) 752 F.2d 116, the court observed Congress may have included subdivision (h) out of concern that disclosures to state law enforcement officials "would be a disincentive to prompt and complete compliance with the premerger notification procedures by potential merger partners." (Id., at p. 122.) Furthermore, "[b]ecause HSR only covers transactions likely to affect the entire national economy, Congress may have wanted to centralize regulation of such mergers in the FTC and the Justice Department. Disclosure to state attorneys general would tend to balkanize that needed centrality." (Ibid.)
In Lieberman v. F.T.C. (2nd Cir.1985) 771 F.2d 32, a case arising out of the Texaco-Getty merger, the Second Circuit agreed with Mattox, observing that "giving state authorities the premerger information and the chance to bring suit more easily might well mean big delays in the fast world of mergers--delays Congress has not countenanced. We doubt if Congress would have intended to have the staffs of fifty state attorneys general sitting as oversight committees reacting to Commission or Justice Department decisions whether to block large-scale mergers of national or international significance." (Id., at p. 40.) Subdivision (h), the court concluded, "plays an important limiting role in a comprehensive regulatory scheme that offers no place for state law enforcement efforts." (Ibid.)
State focuses on a portion of the opinion wherein the court concludes the appeal is not made moot by the consummation of the merger "[s]ince we trust that the attorneys general still could challenge the merger and are still interested in the information, ..." (Id., at p. 37.) This statement is not supported by any authority or analysis, nor does the court purport to consider the effect of the consent order. Furthermore, it is not clear the court is referring to challenges under state law. Finally, the court offered as an alternative ground for its conclusion that "the question presented is 'capable of repetition, yet evading review.' " (Ibid., quoting Southern P. Terminal Co. v. Interstate Com. Comm'n (1911) 219 U.S. 498, 515, 31 S.Ct. 279, 283, 55 L.Ed. 361.)
If providing premerger information to states would unduly "balkanize" federal enforcement efforts aimed at large mergers, allowing states to attack such mergers under state laws after the FTC has negotiated a comprehensive regulatory consent order designed to bring the merger in compliance with federal antitrust and unfair competition laws would have a shattering effect on such federal enforcement efforts.
States are not without remedy against large mergers. States may bring suit in federal court under federal antitrust law, either in their proprietary capacities or in parens patriae, for treble damages resulting from violation of the antitrust laws. (15 U.S.C., §§ 15, 15c; Hawaii v. Standard Oil Co. (1972) 405 U.S. 251, 262-263, 92 S.Ct. 885, 891-92, 31 L.Ed.2d 184, 192-193.) Furthermore, states may sue for injunctive relief against violations of federal antitrust law. (15 U.S.C. § 26; Georgia v. Pennsylvania R. Co. (1945) 324 U.S. 439, 447, 65 S.Ct. 716, 721, 89 L.Ed. 1051; Hawaii v. Standard Oil Co., supra, 405 U.S. at p. 261, 92 S.Ct. at p. 890, 31 L.Ed.2d at pp. 191-192.)
[219 Cal.Rptr. 836]Accordingly, we find the FTC consent order preempts State from taking action against the acquisition of Getty's California assets under the Cartwright Act and the unfair competition law. As there is no possibility State's complaint can be amended to state a cause of action, the trial court properly sustained Texaco's demurrer without leave to amend and dismissed the complaint. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.)
DISPOSITION
The judgment is affirmed.
PUGLIA, P.J., and SIMS, J., concur.
[*] See post, page 1698 for opinions withdrawn and case subsequent histories.
"No person shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of one or more persons engaged in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition, of such stocks or assets, or of the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly." (15 U.S.C. § 18.)
There is a split of authority among federal appellate courts whether the injunctive relief allowed under federal law includes divestiture. The Ninth Circuit Court of Appeals holds divestiture is not available to private parties suing under that provision. (International T. & T. Corp. v. General T. & E. Corp. (9th Cir.1975) 518 F.2d 913, 920; Calnetics Corp. v. Volkswagen of America, Inc. (9th Cir.1976) 532 F.2d 674, 692; cert. den. 429 U.S. 940, 97 S.Ct. 355, 50 L.Ed.2d 309 (1976).) The Sixth Circuit, without analysis, has followed the Ninth Circuit's holding. (Arthur S. Langenderfer, Inc. v. S.E. Johnson Co. (6th Cir.1984) 729 F.2d 1050, 1060, cert. den. 469 U.S. 1036, 105 S.Ct. 511, 83 L.Ed.2d 401 (1984).) The First Circuit came to the opposite conclusion in CIA. Petrolera Caribe, Inc. v. Arco Caribbean, Inc. (1st Cir.1985) 754 F.2d 404, 414-430. We have read the cases and find the First Circuit's analysis more persuasive.