438 F.2d 1286 (5th Cir. 1971), 28763, Woods Exploration & Producing Co. v. Aluminum Co. of America

Docket Nº:28763, 29487.
Citation:438 F.2d 1286
Party Name:WOODS EXPLORATION & PRODUCING COMPANY, Inc., et al., Plaintiffs-Appellants, v. ALUMINUM COMPANY OF AMERICA et al., Defendants-Appellees.
Case Date:January 05, 1971
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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438 F.2d 1286 (5th Cir. 1971)

WOODS EXPLORATION & PRODUCING COMPANY, Inc., et al., Plaintiffs-Appellants,


ALUMINUM COMPANY OF AMERICA et al., Defendants-Appellees.

Nos. 28763, 29487.

United States Court of Appeals, Fifth Circuit.

January 5, 1971

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Arthur J. Mandell, Mandell & Wright, Levert J. Able, Houston, Tex., for plaintiffs-appellants.

Leroy Jeffers, Ross Sterling, Robert E. Morse, Jr., Charles T. Newton, Jr., Houston, Tex., for defendants-appellees Aluminum Co. of America, Crown Central Petroleum Corp. and Lavaca Pipeline Co.; Vinson, Elkins, Searls & Connally, Houston, Tex., of counsel.

Before JOHN R. BROWN, Chief Judge, GOLDBERG and CLARK, Circuit judges.

GOLDBERG, Circuit Judge:

This battle-scarred antitrust case and its antecedents, both lineal and collateral, have been in litigation without surcease, armistice, or truce since the early 1960's. The war today continues on two fronts-- federal and state. Preserving for later the intimate factual details revealed in the myriad documents and testimony adduced below, we now sketch in the

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main historical contours of the present dispute.

The trouble among the parties centers around their activities in the Appling Natural Gas Field in Jackson and Calhoun Counties, Texas. Defendants, Aluminum Company of America (Alcoa), Crown Central Petroleum Corporation (Crown), Lavaca Pipe Line Company (Lavaca), and alleged co-conspirators, F. E. Appling (Appling), Carl E. Siegesmund (now Pocantico Oil & Gas Corporation), and Houston Pipe Line Company (Houston), control nearly 90% of the 4,000 acre surface of the Appling Field. Plaintiffs, Woods Exploration & Producing Company (Woods Exploration), Stanley C. Woods (Woods), and Southeastern Pipeline Company (Southeastern), have in combination an interest in various small tracts in the Field which comprise a much smaller percentage of the total acreage. Competition over the extraction of natural gas from this common field is at the heart of the dispute.

Production from the Appling Field is regulated by the Texas Railroad Commission, and its regulatory activities have given birth to several suits between the parties with regard to Commission production allowables. Railroad Commission v. Aluminum Co. of America, Tex.1964, 380 S.W.2d 599, rev'g Tex.Civ.App.1963, 368 S.W.2d 818; Railroad Commission v. Woods Exploration & Producing Co., Tex.1966, 405 S.W,2d 313. In 1962 plaintiffs filed a state antitrust action alleging a combination or conspiracy on the part of defendants to eliminate or thwart plaintiffs from competing in the production of gas from the Appling Field. Shortly thereafter, in December 1962, plaintiffs filed the instant federal antitrust suit against defendants seeking injunctive relief and treble damages for alleged violations of the Sherman and Clayton Acts, 15 U.S.C.A. §§ 1, 2, 15, 26. By their complaint plaintiffs charged that defendants and their alleged co-conspirators had restrained trade in the production and marketing of natural gas from the Appling Field, 15 U.S.C.A. § 1, 1 and that defendants and their alleged co-conspirators had monopolized, attempted to monopolize, or combined and conspired to monopolize the production and marketing of gas from the Field, 15 U.S.C.A. § 2. 2 Acts charged in furtherance of the allegations in both the state and federal suits were of two basic types: (1) the filing of false nomination forecasts by defendants with the Texas Railroad Commission so as to reduce plaintiffs' production allowables; and (2) the thwarting of plaintiffs' gas production by defendants' refusal to deal, and by defendants' harassment and interference with plaintiffs' operations. Defendants responded in the instant suit with a motion to dismiss for failure to state a claim, and, in the alternative, a motion for summary judgment. Both motions were overruled by then District Judge Ingraham, Woods Exploration & Producing Co. v. Aluminum Company of America, S.D.Tex.1963, 36 F.R.D. 107. Several months later the Texas Court of Civil Appeals held that plaintiffs' state suit allegations set forth a cause of action under state law and ordered the case to trial. Woods Exploration & Producing Co. v. Aluminum Company of America, Tex.Civ.App.1964, 382 S.W.2d 343, writ ref. n.r.e. That case is still pending.

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The present issues arose after the transferral of the federal action to the court of District Judge Singleton as a docket equalization measure in 1966. In Woods Exploration & Producing Co. v. Aluminum Company of America, S.D.Tex.1968, 284 F.Supp. 582, Judge Singleton, in a carefully written opinion, granted summary judgment for defendants with respect to plaintiffs' allegation of damages due to the filing of false nomination forecasts. The other allegations then proceeded to trial and were submitted to a jury upon special interrogatories. Although finding no restraint of trade in violation of section 1 of the Sherman Act, the jury found that defendants had monopolized, attempted to monopolize, or conspired to monopolize in violation of section 2, and awarded damages of $142,759 to Southeastern, and $500 to Woods Exploration. That verdict is reproduced in the margin. 3

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Finding this result unsupported by the evidence, the court below granted defendants' motion for judgment notwithstanding the verdict. Woods Exploration & Producing Co. v. Aluminum Company of America, S.D.Tex.1969, 304 F.Supp. 845. Moreover, the court also issued an injunction enjoining plaintiffs from prosecuting their action then pending in the state court. The present appeal is a consolidation of plaintiffs' separate appeals from the decisions below. Disagreeing with the district court, we reverse and remand in part. In order to facilitate the explanation of our ruling, we consider in separate sections the various grounds raised on appeal.


Plaintiffs' first specification of error involves the partial summary judgment granted by the court below. In their complaint plaintiffs sought to recover as damages the loss of production from their wells in the Appling Field which had been occasioned by the entry of orders by the Texas Railroad Commission setting production allowables for plaintiffs' wells at levels lower than plaintiffs thought they should have received. Liability was alleged against defendants on the ground that the Railroad Commission orders had been based in part on false nomination forecasts and reports filed by defendants with the Commission. While the trial court found that it was 'clear that there are disputed issues of fact on whether defendants actually conspired together and whether they deliberately filed the false nominations,' it granted summary judgment for defendants, since it found that 'even if plaintiffs' allegations in these respects are true, plaintiffs would still not be entitled to recover damages for these activities.' We disagree.

Free competition among well producers is limited by Texas law in order to prevent waste. The allowable production which each well in the Appling Field is permitted to produce is set monthly by order of the Texas Railroad Commission. The Commission is mandated to limit total production from the field to the reasonable market demand for gas made upon the field. See Vernon's Ann.Tex.Rev.Civ.Stat. art. 6008 3(h). Each producing well is entitled to its fair share of the total allowable field production, an amount roughly proportional to the volume of gas in place under the tract on which the well is drilled. Id. § 12; see Brown v. Humble Oil & Ref. Co., 1935, 126 Tex. 296, 83 S.W.2d 935, 944.

While no statutory provision prescribes the procedure by which market demand is to be determined, the Commission has usually followed the procedures described in its Statewide Rule 31. Under that rule, market demand is determined primarily on the basis of producer's Forecasts filed with the Commission by operators having wells in the field. These nominations state the volume of gas which each producer expects to be able to market from his wells the following month. The nominations are totaled and, if the Commission concludes that their total accurately reflects market demand, the total becomes the field allowable. If the Commission disagrees with the forecasts, it is empowered to consider other factors, such as average production for the previous twelve months, or nominations filed by purchasers of gas. See Railroad Commission v. Woods Exploration & Producing Co., Tex.1966, 405 S.W.2d 313.

After determining the total allowable for the field, the Commission has followed the practice of calculating the allowable for each well by application of a one-third-- two-third proration formula. One-third of the field allowable is divided among the wells in the proportion to which the surface acreage attached to the well bears to the combined surface acreage of all wells in the field. Two-thirds of the field allowable is divided among the wells in the proportion that each well bears to the total number of wells. This heavy emphasis upon the well factor has meant that producers with wells on small tracts have been permitted to extract far more gas than their

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acreage would justify. This effect is compounded by the fact that many wells on large tracts, although producing at full capacity, have been unable to produce the allowable assigned to them under the formula. As a result the amount they have been unable to produce has been allocated by the Commission to the small-tract wells not already producing at full capacity. Because of its inequitable effect on large tract owners, the one-third-- two thirds formula was declared invalid by the Texas Supreme Court. Atlantic Ref. Co. v. Railroad Commission, Tex.1962, 346 S.W.2d 801. However, the formula retains its vitality in the Appling Field because of Railroad...

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