Paladin Associates, Inc. v. Montana Power Co.

• Decision Date: 13 May 2003
• Docket Number: No. 01-35849.,01-35849.
• Citation: 328 F.3d 1145
• Court: U.S. Court of Appeals — Ninth Circuit
• Parties: PALADIN ASSOCIATES, INC., a Montana corporation; Marie G. Owens, dba Paladin Associates, Inc., Plaintiffs-Appellants, v. MONTANA POWER COMPANY, a Montana corporation; North American Resources Company, a Montana corporation, Defendants-Appellees, and Northridge Petroleum Marketing, Inc., a Canadian corporation; Transcanada Gas Services Limited, a Canadian corporation, fka Northridge Gas Marketing, Inc.; Northridge Petroleum and Transcanada, Defendants.

328 F.3d 1145

PALADIN ASSOCIATES, INC., a Montana corporation; Marie G. Owens, dba Paladin Associates, Inc., Plaintiffs-Appellants, v. MONTANA POWER COMPANY, a Montana corporation; North American Resources Company, a Montana corporation, Defendants-Appellees, and Northridge Petroleum Marketing, Inc., a Canadian corporation; Transcanada Gas Services Limited, a Canadian corporation, fka Northridge Gas Marketing, Inc.; Northridge Petroleum and Transcanada, Defendants.

No. 01-35849.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 7, 2003.

Filed May 13, 2003.

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Thomas P. McMahon, Powers Phillips; Richard L. Fanyo, Dufford & Brown, Denver, CO; Michael J. Uda, Doney Crowley Bloomquist & Uda, Helena, MT, for the plaintiffs-appellants.

Nick S. Verwolf and Alan S. Middleton, Davis Wright Tremaine, Seattle, WA, for the defendants-appellees.

Appeal from the United States District Court for the District of Montana; Donald W. Molloy, District Judge, Presiding. D.C. No. CV-95-00067-DWM.

Before: REINHARDT, W. FLETCHER, and GOULD, Circuit Judges.

OPINION

GOULD, Circuit Judge.

This case involves an array of antitrust law challenges to what we conclude are reasonable and unremarkable business practices. A Montana natural gas marketer sued a Montana natural gas pipeline company for alleged violations of the antitrust laws. The plaintiff marketer claimed that the defendant pipeline company unlawfully monopolized an essential gas pipeline and storage facility in southern Montana, unlawfully tied together the sales of two products, and unlawfully conspired with another natural gas marketer, a competitor of the plaintiff, to organize a group boycott that forced the plaintiff out of business. Viewing the evidence in the light most favorable to the plaintiff, we affirm the judgment of the district court granting summary judgment to the defendants.

I

Plaintiff Paladin Associates, Inc. (Paladin) is a Montana corporation that marketed natural gas to industrial customers within Montana and other western states.¹ Paladin obtained natural gas from producers in Canada and Montana and arranged for the gas to be transported to its customers through a pipeline owned by the defendant, the Montana Power Company (MPC). MPC's pipeline runs from the Montana-Canada border on the north to the Montana-Wyoming border on the south. The pipeline connects to several industrial customers' facilities in Montana.

Gas produced in Canada is delivered into MPC's pipeline via the NOVA Corporation's pipeline in Alberta, Canada. Gas produced in Montana is delivered into MPC's pipeline via another pipeline in north-central Montana. Some of the gas transported interstate across MPC's pipeline is delivered into the Colorado Interstate Gas Company (CIG) pipeline at the "Grizzly Interconnect" in Grizzly, Montana. The CIG pipeline, which receives natural gas from many sources in addition to MPC's Grizzly Interconnect, extends in a southeasterly direction to Texas and the Oklahoma Panhandle and connects with other pipelines that serve markets in California.

Natural gas and natural gas transportation services are sold separately. Natural gas customers can purchase natural gas as a commodity from one seller and then contract with a different seller to transport that gas by pipeline to the customer's location.²

In 1991 and 1992, NOVA, the Canadian pipeline company, at times interrupted gas delivery service, causing customers on MPC's pipeline in Montana to experience shortages. During these interruptions, MPC "covered" customers by providing them excess gas MPC had in storage. After an interruption ended, customers returned to MPC the quantity of excess gas that MPC had advanced the customer during the interruption. Although customers were contractually obliged to pay MPC a "balancing penalty" for extracting gas to which they were not entitled from the MPC pipeline, MPC did not charge customers the balancing penalty for the gas it advanced during the NOVA interruptions.

Before these interruptions, MPC had purchased from NOVA a fifteen-year assignment of 30 million cubic feet per day of non-interruptible gas transportation service on NOVA's pipeline. In June of 1992, MPC notified customers that it was reselling this capacity as five-year assignments of NOVA transportation service. The assignments were attractive to customers because they could purchase Canadian gas from any marketer or producer and have the gas delivered to MPC's pipeline through the NOVA pipeline. With Northridge Petroleum (a natural gas marketer and competitor of Paladin) acting as an intermediary, six of the twelve industrial customers on the MPC pipeline bought five-year assignments of NOVA transportation from MPC. As part of these transactions, Northridge and MPC executed several contracts.³

Like MPC, Paladin had purchased from NOVA 30 million cubic feet per day of non-interruptible transportation service on NOVA's pipeline, in hopes of reselling that capacity to the industrial customers on MPC's pipeline. But once the customers had purchased NOVA transportation from MPC (with Northridge acting as an intermediary), these customers had little incentive to buy transportation from Paladin. As a result, Paladin alleged that it was required to sell its NOVA transportation service to another gas marketer at a reduced price. Paladin claimed that it left the market altogether because of its alleged losses.

Paladin filed suit in the district court alleging federal anti-trust and state-law tort claims. Paladin alleged that MPC and Northridge's collaboration to sell NOVA transportation to customers violated the Sherman Act in two ways. First, Paladin alleged that MPC's assignments to Northridge created an illegal group boycott of Paladin because the assignments had the effect of filling customers' NOVA transportation needs for a five-year period, thereby preventing Paladin from selling its own NOVA capacity to the customers. Second, Paladin alleged that MPC coerced customers to buy its assignments of NOVA transportation service by threatening to stop covering gas shortages caused by interruptions on NOVA's pipeline. Paladin claimed this amounted to an illegal "tying arrangement." Finally, Paladin alleged that the Grizzly Interconnect and the nearby Dry Creek Storage facility together constituted an "essential facility" that MPC and its subsidiary NARCO illegally monopolized.⁴

The district court granted summary judgment to the defendants on the antitrust claims and then exercised its discretion under 28 U.S.C. § 1367(c)(3) to refrain from exercising supplemental jurisdiction over the state-law claims. The district court also ordered Paladin to pay MPC approximately $27,000 in costs and attorneys' fees for twice violating discovery rules.

Paladin appealed.

II

Paladin alleges that MPC and Northridge participated in an indirect boycott designed to persuade industrial customers on MPC's pipeline not to purchase natural gas transportation from Paladin for a period of five years. Paladin contends that the defendants effected an indirect boycott by coercing customers to purchase five-year assignments of NOVA non-interruptible transportation capacity from MPC. Once the customers acquired a five-year assignment of MPC's NOVA non-interruptible transportation capacity, Paladin claims, the customer would not purchase that product from Paladin for a period of five years.

To prove an illegal boycott under § 1 of the Sherman Act in the circumstances here, Paladin must show (1) an agreement, conspiracy, or combination among two or more entities and (2) that the agreement, conspiracy, or combination was unreasonable. Am. Ad. Mgmt. v. GTE Corp., 92 F.3d 781, 788 (9th Cir.1996).⁵ We consider each element in turn.

A

MPC's five-year assignments of NOVA non-interruptible transportation to Northridge were express "agreements." These documents, signed by representatives of MPC and Northridge, are direct evidence of "concerted activity," so the defendants are not entitled to summary judgment on the ground that Paladin has offered no evidence to satisfy the first element of a § 1 claim. Instead, the district court's focus should have been on the second element, whether the agreements were unreasonable.

The district court held, however, that there was no direct evidence of concerted activity. See Paladin Assocs., Inc. v. Montana Power Co., 97 F.Supp.2d 1013, 1030 (D.Mont.2000). We conclude that the district court reached this erroneous conclusion by improperly grafting an additional requirement—specific intent to destroy competition — onto the element of Paladin's prima facie case requiring that the defendants acted in concert.⁶ Our antitrust law is clear that Paladin need not prove intent to control prices or destroy competition to demonstrate the element of "an agreement ... among two or more entities." See Am. Ad. Mgmt., 92 F.3d at 788 (not listing intent as an element of the plaintiff's prima facie case under Sherman Act § 1); T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Assoc., 809 F.2d 626, 632-33 (9th Cir.1987) (same); Eichman v. Fotomat Corp., 880 F.2d 149, 161 (9th Cir.1989) (same); see also McLain v. Real Estate Bd. of New Orleans, 444 U.S. 232, 243, 100 S.Ct. 502, 62 L.Ed.2d 441 (1980) (noting that specific intent to destroy competition is not an element of a civil antitrust claim). Although a defendant's predatory intent may be relevant in determining whether a particular agreement is unreasonable, see Am. Ad. Mgmt., 92 F.3d at 789, it is not required to prove the existence of an agreement.

For this element, it is sufficient that Paladin has offered evidence that MPC and Northridge signed agreements assigning certain contract rights. Thus, Paladin has offered evidence of "an agreement ... among two or more entities."⁷ The district court erred...