The opinion of the court was delivered by: BROTMAN
Plaintiffs David Garshman and Donald Frank, general partners for Tarbell I ("Tarbell"), a Pennsylvania limited partnership which invests in oil and gas exploration, bring this proposed class action alleging antitrust violations and breach of contract against several companies which finance their drilling operations with investors' funds and against the pipeline company which services those wells and purchases most of the fuel produced. Defendant Columbia Gas Transmission Corporation ("Columbia"), now moves to dismiss the complaint for failure to state a claim for which relief can be granted. Fed. R. Civ. P. 12(b)(6). Columbia also challenges plaintiffs' standing to bring claims under the Sherman and the Clayton Antitrust Acts, 15 U.S.C. §§ 1, 2, 15 and 26. Columbia's motion is joined by defendant U.S. Energy Development Corporation ("U.S. Energy"). Plaintiffs oppose Columbia's motion and move for leave to file an amended complaint. Jurisdiction is based on 28 U.S.C. § 1337, 15 U.S.C. § 4, and theories of pendent jurisdiction.
The complaint alleges causes of action under Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1, 2; Sections 4 and 16 of the Clayton Antitrust Act, 15 U.S.C. §§ 15, 26; and the doctrine of pendent jurisdiction over state law claims for breach of contract and civil conspiracy. Briefly stated, plaintiffs' claim is that all defendants conspired to fix the prices which Columbia would pay for natural gas produced by the wells in which plaintiffs held a significant financial interest at lower levels than provided for in existing contracts.
The complaint's legal sufficiency must be examined in light of the facts it pleads, and all factual allegations in the complaint must be accepted as true for purposes of this motion to dismiss. Associated Gen. Contractors of Cal., Inc. v. California State Council of Carpenters, 459 U.S. 519, 526, 74 L. Ed. 2d 723, 103 S. Ct. 897 (1983).
According to the complaint, Columbia contracts for new supplies of natural gas and transmits the gas through its pipeline system for later sale to residential and commercial users in several states. Columbia is a wholly owned subsidiary of defendant The Columbia Gas System, Inc. ("Columbia System"), which is in the business of finding, producing, purchasing, transmitting, storing and delivering natural gas. Defendant Universal Resources Holding, Inc. ("Universal"), provides the material and personnel required to drill gas wells and transmit the extracted gas to a pipeline for eventual distribution. Defendants Universal, U.S. Energy and Chatauqua Energy, Inc., are known in the industry as producers. Like other producers, Universal generally sells the rights to the expected production of gas to investors, normally limited partnerships like Tarbell, who pay the producers fees for exploration, fees for successfully bringing the wells into production, and periodic payments based on the value of the production realized over the life of the wells.
Columbia and Universal entered into a contract on November 23, 1981, under which Universal agreed to produce and Columbia agreed to purchase natural gas from certain wells in western New York State through 1986 at the maximum lawful price applicable. That agreement sprang from and reflected a complex mix of market and regulatory forces, the crucial elements of which were a severe undersupply of natural gas during the mid-1970s and the enactment of the Natural Gas Policy Act of 1978 ("NGPA"), 15 U.S.C. §§ 3301 et seq., which sought to ameliorate the shortage through partial decontrol of prices.
Under the contract with Universal, Columbia leased to Universal a tract of land in Chautauqua County, New York, on the condition that Universal deliver all of the natural gas produced on the land to Columbia. Columbia, in turn, obligated itself in any given year to take or pay for at least 75 percent of the wells' estimated yearly output of gas. Such an agreement is referred to as a "take or pay" contract and is standard in the natural gas industry. The price to be paid was the "maximum lawful price applicable" under federal statutory and regulatory authority. Columbia, or its parent company, operates the only pipeline in the western New York/northwestern Pennsylvania region which is the subject of this lawsuit.
On June 21, 1983, Universal entered into an agreement assigning all of its rights and duties under the "take or pay" contract to Garshman, the managing general partner of Tarbell. However, Universal retained a financial interest in the wells that varied with the volume and price of gas sold to Columbia and with the number of wells that were drilled. The assignment was to take effect after Universal completed work on the wells and Garshman made obligatory payments.
Subsequently, the market for the production and sale of natural gas changed significantly. Falling oil prices enhanced that fuel's attractiveness and successful conservation efforts coupled with a decline in industrial activity led to a drop in usage and demand for natural gas. On the supply side, the higher prices imposed by the NGPA's regulatory scheme prompted new exploration and development. As exploration under the form of contract drawn between Universal and Columbia became increasingly productive, Columbia's liability to "pay" for gas produced but not "taken" began to approach $2 billion or more.
Faced with this dramatic shift in the market, and saddled with overwhelming contractual obligations through 1986, Columbia sought to renegotiate the prices it paid to producers like Universal in order to bring those prices in line with market levels. Columbia allegedly coerced producers into renegotiating price terms by threatening that it would not assign leases for future exploration to producers who did not renegotiate existing contracts. Columbia also allegedly threatened to curtail the amount of gas it took from those producers by cutting production allocation and manipulating pressure in the pipeline. In other words, Columbia allegedly threatened to refuse to deal in the future with producers who failed to comply with its present demands.
Universal eventually capitulated and a new price clause was incorporated into its contract with Columbia by an agreement dated August 29, 1984. Columbia has purchased gas under that contract pursuant to its terms since that time. Plaintiffs claim that they were never notified of this renegotiation and that because of the assignment of that contract, Universal had no authority to renegotiate on their behalf. Plaintiffs further claim economic injury as a result of the renegotiated price clause.
II. PLAINTIFFS' MOTION TO AMEND THE COMPLAINT
Plaintiffs seek to amend their complaint under Fed. R. Civ. P. 15(a) to add allegations of facts which came to their attention after they filed the original complaint. Rule 15(a) provides that leave to amend "shall be freely given when justice so requires." Additionally, federal courts have generally recognized that a liberal amendment policy enables controversies to be decided on their merits. Foman v. Davis, 371 U.S. 178, 9 L. Ed. 2d 222, 83 S. Ct. 227 (1962); United States v. E. B. Hougham, 364 U.S. 310, 5 L. Ed. 2d 8, 81 S. Ct. 13 (1960). Accordingly, the court will allow plaintiffs to amend the complaint. All references to the "complaint" in this Opinion shall be to the amended complaint.
III. DEFENDANT COLUMBIA'S MOTION TO DISMISS THE COMPLAINT
A. The Rule 12(b)(6) Standard
A Rule 12(b)(6) motion addresses the legal sufficiency of the complaint. Under Fed. R. Civ. P. 8(a)(2), the complaint must include only a "short and plain statement of the claim" whose purpose is to give defendant fair notice of the nature and substance of the claim. See Conley v. Gibson, 355 U.S. 41, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). The Third Circuit has held specifically that neither evidence nor an exhaustive array of facts must be pleaded. Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977). As a general rule, courts must construe pleadings liberally; this is especially true of antitrust complaints. Capital City Pub. Co. v. Trenton Times Corp., 575 F. Supp. 1339, 1342 (D.N.J. 1983) (Ackerman, J.). Justice Marshall has noted that "in anti-trust cases where the proof is largely in the hands of the alleged conspirators, . . . dismissals should be granted sparingly." Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 746, 48 L. Ed. 2d 338, 96 S. Ct. 1848 (1976).
Recently, however, courts have focused on "the heavy costs of modern federal litigation, especially antitrust litigation, and the mounting caseload pressure on the federal courts," and made clear that some minimal and reasonable particularity in pleading is required to sustain a claim of violation of the Sherman Act. Sutliff, Inc. v. Donovan Co., 727 F.2d 648, 654 (7th Cir. 1984); see In Re Plywood Antitrust Litigation, 655 F.2d 627, 641-42 (5th Cir. 1981), cert. dismissed, 462 U.S. 1125, 103 S. Ct. 3100, 77 L. Ed. 2d 1358 (1983). As the Sutliff court explained:
The pleader will not be allowed to evade this requirement by attaching a bare legal conclusion to the facts that he narrates: if he claims an antitrust violation, but the facts he narrates do not at least outline or adumbrate such a violation, he will get nowhere merely by dressing them up in the language of antitrust.
With these standards firmly in mind, the court concludes that plaintiffs in the case at bar could prove no set of facts in support of their ...