Areeda suggests that a court should also consider whether the coerced behavior is actionable under another section of the antitrust laws and whether the coerced party will be protected or punished by a finding that the coercion created a conspiracy. Id. P 1408b.
In this case, the court is reluctant to find the existence of conspiracy when doing so might subject Universal, a possible victim of coercion, to liability for treble damages. However, as the court's later analysis makes clear, this issue is a red herring. Even if the court were to find that the complaint alleged facts sufficient to support a conspiracy theory, its other deficiencies are fatal.
b. Price Fixing
The prevailing standard by which alleged Section 1 conspiracies are judged is the so-called "rule of reason". Continental T.V., Inc. v. G.T.E. Sylvania, Inc., 433 U.S. 36, 53 L. Ed. 2d 568, 97 S. Ct. 2549 (1977). The essential principle behind the rule of reason is that "contractual restraints fall within the prohibition of Section 1 only when their purpose and effect is found to have imposed an undue restraint on commerce." Sitkin Smelting, supra, 575 F.2d at 447. Some restraints on commerce, however, are per se violations of the antitrust laws. Northern Pacific Ry. v. United States, 356 U.S. 1, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958).
The Supreme Court has held that "any combination formed for the purpose and with the effect of raising, depressing, fixing, pegging or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se under § 1 of the Sherman Act." United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 84 L. Ed. 1129, 60 S. Ct. 811 (1940). The Court has specifically condemned horizontal agreements among competitors to fix prices and vertical resale price maintenance agreements. See Pa. Dental Assn. v. Medical Serv. Assn. of Pa., 745 F.2d 248, 256 (1984)(citing cases).
There is an important factual distinction between the case at bar and the typical vertical price fixing case: the prices allegedly fixed by the defendants are the price of the gas produced by Universal and the other producers and sold to Columbia, not the resale price charged to third parties. "The price fixing within the scope of the per se prohibition of § 1, however, is an agreement to fix the price to be charged in transactions with third parties, not between the contracting parties themselves." Sitkin Smelting, supra, 575 F.2d at 446, citing United States v. Parke, Davis & Co., 362 U.S. 29, 4 L. Ed. 2d 505, 80 S. Ct. 503 (1960). As the Third Circuit Court of Appeals has noted, where the facts "differ greatly from the vertical arrangements to restrict resale prices invalidated in Albrecht and [ Kiefer-Stewart Co., v. Joseph Seagram & Sons, 340 U.S. 211, 95 L. Ed. 219, 71 S. Ct. 259 (1951)], we should be hesitant to condemn them under the per se rule." Pa. Dental, supra at 259.
The court concludes that the alleged acts taken to fix prices in the natural gas industry do not make out a per se violation of Section 1 of the Sherman Act. If the price fixing is not per se, the rule of reason applies. Chicago Board of Trade v. United States, 246 U.S. 231, 238, 62 L. Ed. 683, 38 S. Ct. 242 (1918). "Essential to a finding of a § 1 violation is concerted action; unilateral action is not proscribed." Pa. Dental, supra at 255, citing Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 104 S. Ct. 1464, 1468, 79 L. Ed. 2d 775 (1984).
The complaint alleges unilateral actions by Columbia which were taken to coerce the other defendants into accepting a lower price for their gas. Even if plaintiffs were able to prove every allegation, and even if the facts showed the existence of a coerced conspiracy, the court does not believe that the complaint states an actionable price fixing claim under Section 1. The alleged price fixing took the form of bilateral agreements, allegedly coerced by unilateral action. Furthermore, the purpose of the Sherman Act is to promote competition and facilitate the workings of a free market. Nothing in the complaint suggests that Columbia attempted to extort a below-market price through renegotiation. Indeed, the maximum lawful price allowable under the existing regulatory scheme was significantly in excess of the market price, given the tremendous oversupply stimulated by the enactment of the NGPA.
Accordingly, the court finds that the complaint does not allege facts sufficient to support a cause of action against Columbia under Section 1 of the Sherman Act.
2. Section 2 of the Sherman Act: Monopolization
Section 2 of the Sherman Act makes it unlawful to:
monopolize or attempt to monopolize or combine or conspire with any other person or persons to monopolize any part of the trade or commerce among the several States or with foreign nations. . . .
15 U.S.C. § 2. Plaintiffs contend that defendants' alleged conduct, as described above, constitutes a willful acquisition or maintenance of monopoly power. Because the factual allegations refer solely to Columbia, the court will consider the Section 2 monopolization claim as running only against Columbia and not against the producer defendants.
Columbia and its parent company, Columbia System, are regulated as monopolies under the Natural Gas Act, 15 U.S.C. § 717 et seq. Government regulation does not automatically exempt an industry from the ambit of the antitrust laws. Woods Exploration and Pro. Co. v. Aluminum Co. of America, 438 F.2d 1286, 1302 (5th Cir. 1971). Indeed, the Supreme Court has said that "immunity from antitrust laws 'is not lightly implied.'" United States v. First City National Bank, 386 U.S. 361, 368, 18 L. Ed. 2d 151, 87 S. Ct. 1088 (1967), quoting California v. FPC, 369 U.S. 482, 485, 8 L. Ed. 2d 54, 82 S. Ct. 901 (1962).
To succeed under Section 2, a plaintiff must show that a regulated monopolist exercised power "to exclude competitors from . . . trade or commerce among the several states. . . ." American Tobacco Co. v. United States, 328 U.S. 781, 809, 90 L. Ed. 1575, 66 S. Ct. 1125 (1946). See also Mid-Texas Comm. Sys., Inc. v. AT&T, 615 F.2d 1372, 1387 (5th Cir.), cert. denied, 449 U.S. 912, 101 S. Ct. 286, 66 L. Ed. 2d 140 (1980)(regulated monopoly liable under Section 2 only if exclusionary conduct towards competitors shown).
To state an adequate claim of monopolization under Section 2, plaintiffs must allege (1) possession of monopoly power in the relevant geographic and product market, and (2) willful acquisition or maintenance of that power as distinguished from a justifiable business decision. United States v. Grinnell Corp., 384 U.S. 563, 570-71, 16 L. Ed. 2d 778, 86 S. Ct. 1698 (1966). Plaintiffs contend that the relevant market is the natural gas field and the relevant product is the available production of natural gas at the well site. For purposes of this motion to dismiss, the court finds that market description adequate. Compare Woods Exploration, supra.
The complaint also alleges intentional predatory conduct which constitutes "a refusal to deal in order to extend or abuse monopoly power." In particular, the complaint alleges that Columbia threatened Universal and other producers with future refusals to deal if they did not comply with Columbia's renegotiation demands. Absent the purpose or intent to create or maintain a monopoly, the courts will not "restrict the long recognized right of a trader or manufacturer engaged in an entirely private business freely to exercise his own independent judgment as to parties with whom he will deal." United States v. Colgate & Co., 250 U.S. 300, 307, 63 L. Ed. 992, 39 S. Ct. 465 (1919). However, Columbia's intentions are a question for the finder of fact. Accordingly, the court finds that the complaint alleges facts sufficient to state a cause of action under Section 2 of the Sherman Act.
a. Section 4 of the Clayton Act
Although the complaint's factual allegations are adequate to state a monopolization claim, plaintiffs are not the proper parties to maintain this antitrust action. Standing to bring a private antitrust action is conferred by Section 4 of the Clayton Act, which provides that "any person injured in his business or his property by reason of anything forbidden in the antitrust laws" may sue for treble damages. 15 U.S.C. § 15(a). Plaintiffs allege that they lost expected revenue as a result of Columbia's allegedly monopolistic practices. Despite the sweeping language of the statute, courts have not developed a strictly literal interpretation.
In articulating the requirements for standing, the Third Circuit has stated that courts must analyze such factors as "the causal connection between an antitrust violation and the injured party, the nature of the plaintiff's alleged injury, and the directness or indirectness of the asserted injury." Merican, Inc. v. Caterpillar Tractor Co., 713 F.2d 958, 964-65 (3d Cir. 1983). Even if Columbia's alleged conduct did cause some injury to plaintiffs' business or property, plaintiffs nonetheless lack standing to sue because the alleged injury is too remote and does not result from an adverse impact of Columbia's conduct on competition. Id., see also Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 484-89, 50 L. Ed. 2d 701, 97 S. Ct. 690 (1977).
In Associated General Contractors, supra, the Supreme Court held that a labor union had no standing to sue for injuries sustained as a result of an allegedly coerced boycott among general contractors of nonunion contractors and subcontractors because its injuries were too remote. 459 U.S. at 539-43. The Court observed that certain contractors and subcontractors were the principal victims of any improper conspiracy, stating that:
[if] either these firms, or the immediate victims of coercion by defendants, have been injured by an antitrust violation, their injuries would be direct and . . . they would have a right to maintain their own treble damages actions against the defendants. An action on their behalf would encounter none of the conceptual difficulties that encumber the Union's claim. The existence of an identifiable class of persons whose self-interest would normally motivate them to vindicate the public interest in antitrust enforcement diminishes the justification for allowing a more remote party . . . to perform the office of a private attorney general.
Id. at 541-42 (emphasis added).
Here, Universal originally contracted to supply gas to Columbia. Plaintiffs were investors and their interest in the contracts arose by assignment. In addition, Universal itself renegotiated the contract. Universal was the immediate target and apparent victim of any actions by Columbia growing out of or relating to the price reduction. Any adverse impact on plaintiffs derived from whatever direct injury might have been suffered by Universal. Moreover, under the contract and assignment, Universal retains an identifiable and significant interest in the performance of the contract by Columbia and in the price paid for the gas. Additionally, the threats of future refusals to deal, if carried out, would have hurt Universal's business and reputation and would likely not have affected plaintiffs' interest in the present contracts. Certainly, Universal is part of that "identifiable class of persons whose self-interest would normally motivate them . . ." to sue for relief. Id.
In addition to showing that the injury to business or property is direct, a plaintiff must show that the injury allegedly suffered is of the type that "the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful." Brunswick Corp., supra, 429 U.S. at 489.
The court does not believe that the injury allegedly suffered by plaintiffs is an antitrust injury in any sense of the term. Because Universal caved in to Columbia's alleged demands for a lower sale price, plaintiffs were deprived of the difference between what they expected to receive under the assigned contract and what they actually did receive. In essence, they suffered a loss because Universal breached the terms of the assignment agreement and renegotiated the contract without plaintiffs' knowledge or consent.
The antitrust laws were enacted to promote economic competition, not prohibit it. As the complaint itself makes clear, Columbia's conduct arose directly from a rapid and complex shift in market trends, complicated and to some extent caused by Government regulation. In other words, if the market price for natural gas had not plummeted after the NGPA stimulated exploration and production and Columbia arranged supply contracts to avert the severe shortages it experienced in the 1970's, Columbia would probably never have sought to extract a lower price from producers.
Plaintiffs made savvy investment decisions by financing drilling operations in the immediate wake of NGPA's enactment. Similarly, Universal and other producers found themselves on the right end of the deal once the market shifted. Columbia, however, made a serious error in estimating future supply and demand requirements when it entered into its numerous "take or pay" contracts in the early 1980s. When the market shifted, the deal soured and Columbia was saddled with billions of dollars of liabilities under the take or pay contracts. Its efforts to ameliorate that considerable liability may, as alleged, have violated the antitrust laws. But the probable victims of the allegedly predatory practices are the producers of natural gas who depend on Columbia's pipeline for transportation out of the gas field and on Columbia as a primary purchaser of natural gas, not the investors.
Plaintiffs would have an incentive to sue either Columbia or Universal or both to recover damages for the expected profits they never received regardless of how Columbia acted or why Universal decided to renegotiate. Once plaintiffs recover those damages, if indeed they are entitled to them, they will be made whole. They will not suffer in the future even if Columbia did or continues to violate the antitrust laws.
b. Section 16 of the Clayton Act: Injunctive Relief
Plaintiffs also lack standing to sue for injunctive relief under Section 16 of the Clayton Act, 15 U.S.C. § 26. The requirements for standing under Section 16 are "(1) a threatened loss or injury cognizable in equity that is (2) proximately caused by an alleged antitrust violation." Nationwide Mutual Ins. Co. v. Automotive Serv. Councils of Del., Inc., 490 F. Supp. 282, 284 (D. Del. 1980). Plaintiffs meet neither of these requirements. First, plaintiffs' loss is not cognizable in equity. If they continue to be injured, as they allege, from an improper or ineffective renegotiation of the price of the gas, they have adequate legal remedies in other courts. Second, plaintiffs' alleged injury is not proximately caused by Columbia's conduct because there was an "independent factor" -- Universal -- which was capable of "rationally affect[ing] the amount of money flowing from plaintiffs to defendant. . . ." Id. at 285. Therefore, as under Section 4, plaintiffs' injuries are too remote. See Callahan v. Scott Paper Co., 541 F. Supp. 550, 561 n.2 (E.D. Pa. 1982)(denying injunctive relief and treble damages when alleged antitrust violation too remote).
C. The State Law Claims
The complaint states claims for breach of contract and civil conspiracy under state law. Because the court finds that plaintiffs lack standing to pursue their federal antitrust claims, the court cannot exercise its pendent jurisdiction over the state claims. Absent an independent jurisdictional basis, the court must dismiss the state law claims. United Mine Workers of America v. Gibbs, 383 U.S. 715, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966).
For all the foregoing reasons, the court will grant defendant Columbia's motion to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6). Since defendant U.S. Energy joined Columbia's motion, the complaint will also be dismissed against it. The court will also grant plaintiffs' motion to amend the complaint. An appropriate order will be entered.
This matter having come before the court on September 19, 1985 on the motion of defendant Columbia Gas Transmission Corporation to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6); and
The court having considered the arguments and submissions of the parties; and
For the reasons expressed in the court's opinion filed this date;
IT IS on this 3rd day of January, 1986, hereby ORDERED: 1. Plaintiffs' motion to amend the complaint pursuant to Fed. R. Civ. P. 15(a) is GRANTED.
2. Defendant Columbia Gas Transmission Corporation's motion to dismiss the complaint as against itself is GRANTED.
3. The complaint is also DISMISSED against defendant U.S. Energy Development Corporation by virtue of its having joined defendant Columbia Gas Transmission Corporation's motion.
4. No costs.
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