UNITED STATES GYPSUM COMPANY, Plaintiff-Appellant, v. INDIANA GAS COMPANY, INCORPORATED, and PROLIANCE ENERGY LLC, Defendants-Appellees.
No. 03-1905
United States Court of Appeals For the Seventh Circuit
ARGUED NOVEMBER 4, 2003—DECIDED NOVEMBER 24, 2003
Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. IP 00-1675C-Y/K—Richard L. Young, Judge.
EASTERBROOK, Circuit Judge. Indiana Gas Co. and Citizens Gas & Coke, two utilities that supply natural gas to customers in Indiana, formed a joint venture (called ProLiance Energy) to manage the contracts by which they purchase gas and transportation services from the interstate pipelines that pass through that state. United States Gypsum (USG) purchases substantial quantities of gas for use in manufacturing; it buys gas at the wellhead and deals directly with the pipelines for transportation. In this litigation under sections 1 and 2 of the Sherman Act,
Indiana Gas and Citizens Gas have many customers with firm entitlements to gas. In order to assure delivery, Indiana Gas and Citizens Gas purchase more pipeline
There are several ways to characterize what happened. ProLiancе contends that, by managing purchases on behalf of both Indiana Gas and Citizens Gas, it has achieved efficiencies: when one utility‘s demand peaks, the other‘s may be closer to normal, which means that less aggregate reserve capacity is needed. This is the way in which an insurer, by pooling many imperfectly correlated risks, creates a portfolio that is less risky than any insured standing alone. Thus ProLiance needs less standby capacity for peak periods and can provide more firm, uninterruptible commitments per unit of pipeline capacity than either Indiana Gas or Citizens Gas could do on its own. An increase in demand from the utilities’ customer base then can be met without an increase in price. The upshot, however, is that third parties such as USG find fewer bargains in the spot market. As USG sees matters, however, the higher spot-market prices stem not from risk pooling but from ProLiance either holding reserve capacity off the market (a reduction in output that drives up prices) or bundling the release of reserve transport capacity with gas (which USG describes as a monopolistic tie-in sale).
Because all we have to go on is USG‘s complaint, it is too soon to determine whose understanding of these events is superior. The district judge concluded that it would never be necessary tо examine these issues and dismissed the complaint, citing
A private plaintiff must show antitrust injury—which is to say, injury by
Portions of the district court‘s opinion equate the antitrust-injury doctrine оf Brunswick and its successors with the direct-purchaser doctrine of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), and Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968). USG may suffer from higher prices but does not buy from defendants, which the district judge thought dispositive. If USG were seeking damages, and ProLiance‘s direct or derivative customers also wanted (or could seek) monetary relief, then defendants would have a point. See Kansas v. UtiliCorp United Inc., 497 U.S. 199 (1990) (reserving the possibility of suit by an indirect customer if the direct customer is а participant in the cartel); cf. Paper Systems Inc. v. Nippon Paper Industries Co., 281 F.3d 629 (7th Cir. 2002). But the direct-purchaser doctrine does not foreclose equitable relief, nor does it apply when no purchaser could obtain damages, for then there is no risk of double recovery (and no need to calculate elasticities in order to apportion damages among multiple tiers).
A cartel cuts output, which elevates price throughout the market; customers of fringe firms (sellers that have not joined the cartel) pay this higher price, and thus suffer antitrust injury, just like customers of the cartel‘s members. We noted and reserved in Loeb Industries, Inc. v. Sumitomo Corp. of America, 306 F.3d 469 (7th Cir. 2002), a number of potentially difficult issues about the design of relief when the сustomer of a fringe firm sues the (supposed) cartel members and the injury is derivative. See also Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983); Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982). Courts sometimes label this “antitrust standing,” despite the potential for confusion with Article III standing (which requires only injury in fact plus redressability.) We did nоt resolve these issues in Loeb and need not do so here either. It is enough to reiterate, as Loeb holds, that the buyers from fringe firms suffer antitrust injury, that their complaints cannot be dismissed
Now we turn to the statute of limitations. ProLiance was formed in March 1996, and USG did not file this suit until October 2000. The statute of limitations is four years—but, as the district judge recognized, this time runs from the most recent injury caused by the defendants’ activities rather than from the cartel‘s inception. See, e.g., Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321 (1971); United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586 (1957). Cf. Klehr v. A.O. Smith Corp., 521 U.S. 179, 188-91 (1997) (describing how this approach works). The district court wrote that the complaint was deficient because USG failed to “show some injurious overt act within the limitations period“—but, as we have observed already, complaints need not allege facts that tend to defeat affirmative defenses. The right question is whether it is possible to imagine proof of the critical facts consistent with the allegations actually in the complaint. See Hishon v. King & Spalding, 467 U.S. 69 (1984); Conley v. Gibson, 355 U.S. 41 (1957). Proof that ProLiance had committed an anticompetitive act after October 1996 would not contradict any of the complaint‘s allegations. Obviously USG hopes to show that ProLiance regularly keeps some capacity off the market, ties gas and transport together, or performs other acts that could be thought to violate the antitrust laws. Otherwise what‘s the point of USG‘s suit?
To the extent that defendants believe that even new anticompetitive acts and fresh injury within the four years before suit are insufficient, if the joint activity began earlier, that position cannot be reconсiled with du Pont, which held that old activity (in du Pont, a stock acquisition preceding the suit by 30 years) is not immunized, if the potential for a reduction in output is created or realized more recently as market conditions change. Cooperative ventures may begin innocently but acquire market power (or begin to exercise it) afterward; if this occurs, a suit within four years of any anticompetitive activity is timely. This is clear enough if we apply the label “cartel” to what Indiana Gas and Citizens Gas call a “joint venture.” Choice of terminology does not shorten the time for suit. A merger may be complete at closing, see Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1050-53 (8th Cir. 2000), but a joint venture or cartel is a continuing cooperative аctivity that may be discontinued, or amended, from time to time. (According to the state agency, ProLiance‘s basic agreements had to be renegotiated in 2000. Opinion at 57.) The parties’ decision to keep a joint venture in operation or manage the operations in ways that may violate antitrust rules is one that may be challenged when adverse effects are felt.
As for issue preclusion (collateral estoppel): USG‘s principal argument is that the state commission did not have “jurisdiction” to resolve a federal antitrust claim, so as a matter of federal law its findings must be disregarded. That‘s wrong, for two reasons. First, the preclusive effect of a state judicial decision depends on state rather than federal law. See
When Indiana Gas and Citizens Gas formed ProLiance, USG and several other customers asked the Indiana Utility Regulatory Commission to block the plan. They offered two lines of argument: first, that ProLiance would itself be a utility that could not come into existence without the Commission‘s permission; second, that Indiana Gas and Citizens Gas (which are utilities subject to the Commission‘s jurisdiction) did not satisfy the “public interest” standard when forming ProLiance. The Commission rejected the first on grounds that do not matter to this antitrust litigation. It rejected the second after finding that ProLiance serves the public interеst by enabling Indiana Gas and Citizens Gas to make better use of their joint reserve capacity. Petition by Ratepayers of Indiana Gas Co., No. 40437 (Sept. 12, 1997), affirmed under the name United States Gypsum, Inc. v. Indiana Gas Co., 735 N.E.2d 790 (Ind. 2000).
One month after the state Supreme Court‘s decision, USG filed this antitrust action, only to be met by the argument that the Commission‘s decision knocks out essential elements of the federal claim. The district court wrote that USG loses because “thе issue sought to be precluded—the improper creation and operation of ProLiance—is the same as that involved in [the] prior action that was before the” Commission. But “the improper creation and operation of ProLiance” is not an “issue“; that is far too lofty a level of generality. Putting the matter this way suggests that the district court has equated issue preclusion with claim preclusion. Indiana did not require USG to present its federal antitrust claims to the Commission, so the rules of merger and bar do not block this litigation. Unless the agency decided some concrete issue that also bears on the antitrust claim, USG does not encounter a problem with preclusion.
A finding that “X is in the public interest” is compatible with subsequent antitrust litigation. See California v. FPC, 369 U.S. 482, 489 (1962); United States v. Radio Corp. of America, 358 U.S. 334, 351-52 (1959). It might mean simply that Indiana has decided that cartels serve the public interest, a conclusion that under the Supremacy Clause must yield to contrary federal policy. (Antitrust law makes an exception for state policies that compel monopolistic organization of
Defendants do not rely on the district court‘s understanding. Instead they contend that the agency made a favorable, concrete finding: that ProLiance lacks market power. If that is so, then USG‘s antitrust claim fails at the threshold. See, e.g., Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984); Elliott v. United Center, 126 F.3d 1003 (7th Cir. 1997); Digital Equipment Corp. v. Uniq Digital Technologies, Inc., 73 F.3d 756 (7th Cir. 1996); Chicago Professional Sports Limited Partnershiр v. National Basketball Ass‘n, 95 F.3d 593 (7th Cir. 1996); Polk Bros., Inc. v. Forest City Enterprises, Inc., 776 F.2d 185 (7th Cir. 1985). We have searched the agency‘s decision in vain for such a finding, however. Although the agency mentioned market power as a factor worth consideration, it did not find that ProLiance has none. What it did say is that (a) the pipelines’ transportation capacity to Indiana is unaffected by ProLiance, so that no matter how much of the capacity has been committed to ProLiance by contract, total deliverablе supplies cannot fall; and (b) ProLiance had to date acted to make better use of the existing capacity by pooling amounts held in reserve.
“To date” is a vital qualifier. The Commission issued its opinion in September 1997. More than six years have passed since then. What is ProLiance doing today? It does not take a lеap of fancy to envisage a joint venture behaving itself long enough to win regulatory approbation, and only then applying the squeeze in the market. The agency found that in 1997 ProLiance was beneficial to consumers and that a “thriving robust . . . secondary market” (opinion at 40) protected third parties such as USG. It wrote: “[m]оst important to our decision is witness Feingold‘s uncontradicted evidence that, post-ProLiance, the market place continues to function with no ill effects.” Id. at 41. “[T]he affected markets are as robust after the formation of ProLiance as they were prior to its formation.” Id. at 55. That was 1997. What of 2003? The agency reсognized that its record had been compiled quickly and reflected only the initial months of ProLiance‘s operations. “There simply is little experience with the actual operation of the alliance. . . . [E]xperience under the current agreements may indicate that their actual operation does nоt comport with the public interest even though we find that they do so now.” Id. at 57. Reviewing this decision, the Supreme Court of Indiana made a similar point, observing that, if circumstances change, the agency may revisit the subject. 735 N.E.2d at 804. These reservations foreclose any argument that Indiana would deem the agency‘s decision preсlusive with respect to the economic effects of ProLiance in the period after September 1997. If the findings made in 1997 would not block Indiana itself from revisiting the subject in 2003—and they don‘t—then under
VACATED AND REMANDED
A true Copy:
Teste:
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Clerk of the United States Court of Appeals for the Seventh Circuit
USCA-02-C-0072—11-24-03