376 U.S. 651 (1964), 94, United States v. El Paso Natural Gas Co.

Docket Nº:No. 94
Citation:376 U.S. 651, 84 S.Ct. 1044, 2 L.Ed.2d 12
Party Name:United States v. El Paso Natural Gas Co.
Case Date:April 06, 1964
Court:United States Supreme Court
 
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Page 651

376 U.S. 651 (1964)

84 S.Ct. 1044, 2 L.Ed.2d 12

United States

v.

El Paso Natural Gas Co.

No. 94

United States Supreme Court

April 6, 1964

Argued February 25-26, 1964

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF UTAH

Syllabus

The Federal Government filed suit under § 7 of the Clayton Act charging that the acquisition by a natural gas company, then the sole out of state supplier to California, of the stock and assets of another gas company, one of the two major interstate pipelines serving the trans-Rocky Mountain States, which had made some efforts to enter the California market, "may be substantially to lessen competition." The District Court, without a written opinion, dismissed the complaint after trial, adopting verbatim the findings of fact and conclusions of law submitted by counsel for appellees.

Held:

1. A trial judge's findings will stand if supported by evidence even where they are not his own work product, United States v. Crescent Amusement Co., 323 U.S. 173, but such findings are less helpful on judicial review than those prepared by the trial judge himself. Pp. 656-657.

2. A review of the record, composed mainly of undisputed evidence, clearly shows that the "effect of such acquisition may be substantially to lessen competition" in California under § 7 of the Act. Pp. 657-662.

(a) The production, transportation and sale of natural gas is a "line of commerce," and California is a "section of the country," as used in § 7. P. 657.

(b) The words "may be substantially to lessen competition" in § 7 manifest Congress' concern with probabilities, and not with either certainties or ephemeral possibilities. P. 658.

(c) Although the acquired company had not gained entry into California for its gas, its effect as a potential supplier made it a substantial competitive factor in that continuously expanding market. Pp. 658-659.

3. Since appellees have been on notice of the antitrust charge almost from the inception of the merger plans, the District Court is directed to order divestiture without delay. P. 662.

Reversed.

Page 652

DOUGLAS, J., lead opinion

Opinion of the Court by MR. JUSTICE DOUGLAS, announced by MR. JUSTICE CLARK.

This is a civil suit charging a violation of § 7 of the Clayton Act,1 by reason of the acquisition of the stock and assets of Pacific Northwest Pipeline Corp. (Pacific Northwest) by El Paso Natural Gas Co. (El Paso). The District Court dismissed the complaint after trial, making findings of fact and conclusions of law, but not writing an opinion. The case is here on direct appeal. 15 U.S.C. § 29. We noted probable jurisdiction, 373 U.S. 930.

The ultimate issue revolves around the question whether the acquisition substantially lessened competition in the sale of natural gas in California -- a market of which El Paso was the sole out-of-state supplier at the time of the acquisition.2

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In 1954, Pacific Northwest received the approval of the Federal Power Commission to construct and operate a pipeline from the San Juan Basin, New Mexico, to the State of Washington, to supply gas to the then unserved Pacific Northwest area. Later it was authorized to receive large quantities of Canadian gas, and to enlarge its system for that purpose. In addition, Pacific Northwest acquired Rocky Mountain reservoirs along its route. At the end of 1957, it had an estimated 3.51 trillion cubic feet of gas reserves owned outright in the San Juan Basin; 1.04 trillion under contract in the San Juan Basin; 1.59 trillion under contract in the Rocky Mountain area; and 2.33 trillion under contract in Canada -- 8.47 trillion in all. By 1958, one-half of its natural gas sales were of gas from Canada.

In 1954, Pacific Northwest entered into two gas exchange contracts with El Paso -- one to deliver 250 million cubic feet per day to El Paso in Idaho for transportation to California via Nevada, the other to gather gas jointly in the San Juan Basin for a five-year period. Under the latter agreement, El Paso loaned gas to Pacific Northwest from its wells in the San Juan Basin; to avoid duplication of facilities, Pacific Northwest agreed to gather gas with its own facilities from El Paso's wells in the eastern portion of the basin, and El Paso agreed to perform the same service for Pacific Northwest in the western portion. At the same time, Pacific Northwest undertook to purchase 300 million cubic feet per day from West-coast Transmission Co., Ltd., a Canadian pipeline.

An executive of Pacific Northwest called these agreements a "treaty" to "solve the major problems which have been confronting us." A letter from Pacific Northwest to its stockholders stated:

This tri-party deal will benefit all concerned. It will give Westcoast what they have been fighting for -- a pipeline. It will mean that Pacific will expand

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its facilities, be a larger company, will protect its market from future competition by a Canadian pipeline, and it caused the dismissal of the law suit of Westcoast against Pacific's present certificate. It means that El Paso's California market will be protected against future competition, and, further, it results in all parties' now working together for a common end, rather than fighting each other.

(Italics added.)

El Paso, however, could not get Commission approval to build the pipeline necessary to deliver the 250 million cubic feet of gas to California. Consequently, a new agreement on that aspect was negotiated in 1955 whereby El Paso undertook to purchase 50 million cubic feet a day to be delivered on an exchange basis in Colorado. Pacific Northwest, still obligated to take 300 million cubic feet per day from Westcoast, disposed of the balance in its own market areas.

Prior to these 1954 and 1955 agreements, Pacific Northwest had tried to enter the rapidly expanding California market. It prepared plans regarding the transportation of Canadian gas to California, where it was to be distributed by Pacific Gas & Electric (PGE). That effort -- suspended when the 1954 agreements were made -- was renewed when the new agreement with El Paso was made in 1955, and the negotiation of the 1955 contract with El Paso was conceived by Pacific Northwest as the occasion for "lifting of all restrictions on the growth of Pacific." In 1956, it indeed engaged in negotiations for the sale of natural gas to Southern California Edison Co. (Edison). The latter, largest industrial user of natural gas in Southern California, used El Paso gas, purchased through a distributor. It had, however, a low priority from that distributor, being on an "interruptible" basis, i.e., subject to interruption during periods of peak demand for domestic uses. Edison wanted a firm contract

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and, upon being advised that it was El Paso's policy to sell only to distributors, started negotiations with Pacific Northwest in May, 1956. The idea was for Pacific Northwest to deliver to Edison at a point on the California-Oregon border 300 million cubic feet of Canadian gas a day. In July, 1956, they reached a tentative agreement. Edison thereupon tried to develop within California an integrated system for distributing Canadian gas supplied by Pacific Northwest to itself and others. El Paso decided to fight the plan to the last ditch, and succeeded in getting (through a distributor) a contract for Edison's needs. Edison's tentative agreement with Pacific Northwest was terminated. Before Edison terminated that agreement with Pacific Northwest, Edison had reached an agreement with El Paso for firm deliveries of gas; and while the original El Paso offer was 40¢ per Mcf, the price dropped to 38¢ per Mcf, then to 34¢, and finally to 30¢. Thereafter, and while the merger negotiations were pending, Pacific Northwest renewed its efforts to get its gas into California.

El Paso had been interested in acquiring Pacific Northwest since 1954. The first offer from El Paso was in December, 1955 -- an offer Pacific Northwest rejected. Negotiations were resumed by El Paso in the summer of 1956, while Pacific Northwest was trying to obtain a California outlet. The exchange of El Paso shares for Pacific shares was accepted by Pacific Northwest's directors in November, 1956, and, by May, 1957, El Paso had acquired 99.8% of Pacific Northwest's outstanding stock. In July, 1957, the Department of Justice filed its suit charging that the acquisition violated § 7 of the Clayton Act. In August, 1957, El Paso applied to the Federal Power Commission for permission to acquire the assets of Pacific Northwest. On December 23, 1959, the Commission approved, and the merger was effected on December 31, 1959. In 1962, we set aside the Commission's order, holding that

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it should not have acted until the District Court had passed on the Clayton Act issues. California v. Federal Power Comm'n, 369 U.S. 482. Meanwhile (in October, 1960), the United States amended its complaint so as to include the asset acquisition in the charged violation of the Clayton Act.

There was a trial, and, after oral argument, the judge announced from the bench3 that judgment would be for appellees, and that he would not write an opinion. He told counsel for appellees "Prepare the findings and conclusions and judgment." They obeyed, submitting 130 findings of fact and one conclusion of law, all of which, we are advised, the District Court adopted verbatim. Those findings, though not the product of the workings of the district judge's mind, are formally his; they are not to be rejected out of hand, and they will stand if supported by evidence. United States v. Crescent Amusement Co., 323 U.S. 173, 184-185. Those drawn with the insight of a disinterested mind are, however, more helpful to the appellate court....

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