RC Dick Geothermal Corp. v. Thermogenics, Inc.
| Decision Date | 28 August 1985 |
| Docket Number | No. C-79-3814 EFL.,C-79-3814 EFL. |
| Citation | 619 F. Supp. 441 |
| Parties | R.C. DICK GEOTHERMAL CORPORATION, Plaintiff, v. THERMOGENICS, INC., a corporation, Pacific Energy Corporation, a corporation, Resources Investment Company, a corporation, Hughes Aircraft Company, Inc., a corporation, Callon Petroleum Company, a corporation, Geothermal Resources International, Inc., a corporation, L.A. Hyland, Robert S. Reed, and John S. Callon, Defendants. |
| Court | U.S. District Court — Northern District of California |
COPYRIGHT MATERIAL OMITTED
Allan N. Littman, Pillsbury, Madison & Sutro, San Francisco, Cal., for plaintiff.
James L. Hunt, McCutchen, Doyle, Brown & Enersen, San Francisco, Cal., for defendants.
This lawsuit began as a complex antitrust action with several pendant state claims and counterclaims. The parties voluntarily dismissed the pendant claims, leaving only the Sherman Act antitrust claims. As the plaintiff alleges in its complaint, the defendants have combined and conspired with each other in violation of Section 1 to restrain trade in the development, production and use of geothermal steam located on the plaintiff's property. In addition, the plaintiff alleges attempted monopolization and conspiracy to monopolize under Section 2.
At the heart of this controversy is 1,100 acres of land located in the Geysers district of Sonoma County, California (the "Dick property"). The land was owned originally by Alex and Audrey Rorabaugh. The Rorabaughs leased the land in 1964 to R.C. Dick. Shortly thereafter, Dick transferred the lease to R.C. Dick Mercury Mines Corporation ("Mercury Mines"). Through a series of intra-corporate assignments, a second R.C. Dick company, R.C. Dick Geothermal Corporation, acquired the lease and purchase option to the Rorabaugh land. In 1979, R.C. Dick Geothermal Corporation purchased the 1,100 acres.
For more than a decade prior to the purchase of the Rorabaugh property, R.C. Dick companies leased the land to geothermal developers. In 1966, Mercury Mines signed a lease with Geothermal Resources International ("GRI"). Under this agreement, Mercury Mines assigned its rights to minerals and steam extracted from the property in return for royalty payments on the land. After four years of development, GRI transferred its steam rights to Resources Investment Company ("RIC"), a wholly-owned subsidiary of Hughes Aircraft Company ("Hughes").1 GRI retained only a royalty interest in the Dick property. A second Hughes subsidiary, Thermogenics, Inc. ("TGI") assumed the development rights from RIC in 1973. TGI held the steam and mineral rights on the Dick property until 1982, when Hughes sold its TGI subsidiary and the rights to the Dick property back to GRI.
Adding another layer to the complex development scheme, both GRI and Hughes contracted separately for services associated with the development of the Dick property's steam resources. Between 1971 and 1977, Pacific Energy Corporation ("PEC"), a company owned by John Callon, operated the Dick property wells.2 PEC subcontracted, in turn, with another Callon subsidiary, Callon Petroleum, for the supervision of drilling activities on the Dick property. After 1977, TGI operated the Dick property and retained the Callon companies only as consultants.
The plaintiff has presented the Court with several different theories of antitrust conspiracy. It has been difficult, even during the trial, to get the plaintiff to commit to a definitive set of allegations concerning the defendants' anticompetitive conduct. Based on the complaint and subsequent motions, the following represents what this Court finds the plaintiff's complaint to allege:
1. Section 1
Construing the complaint in its broadest sense, the plaintiff alleges a multipurpose conspiracy. First, the plaintiff alleges that the defendants conspired to obtain control of the Dick property and other geothermal steam rights. The plaintiff also alleges that the defendants conspired to delay or to avoid exploitation of steam resources on this property. In a circular fashion, the plaintiff alleges that the collusion to suppress production directly promoted the interests of the defendants' land-acquisition conspiracy by artificially reducing the price of steam rights on land adjacent to the Dick property.
The plaintiff alleges three anticompetitive effects from these conspiracies. First, existing steam resources were not adequately developed on the 300 acres that supplied generating power to PG & E's Unit 15. Second, the plaintiff alleges that as a result of the conspiracy potential steam resources located on the 800 acre "Culver Baer" portion of the Dick property were not developed, despite the fact that such development was technically and economically feasible. A third ramification of the conspiracy, which the plaintiff suggests in its complaint and has asserted at trial, was to devalue steam rights on the neighboring properties.
2. Section 2
In addition to its Section 1 allegations of conspiracy to restrain the development and production of geothermal steam, the plaintiff also contends that the defendants conspired to and attempted to monopolize the market for geothermal steam in violation of Section 2 of the Sherman Act. Relying on its Section 1 allegations and injuries, the plaintiff argues that the defendants have sought to monopolize the market for geothermal steam located within one and a half to two miles of PG & E's Unit 15
The procedural history of this lawsuit is long and complex. The plaintiff first filed suit in 1979, claiming a violation of Section 1 and two pendant state claims for breach of contract against the defendants. The plaintiff amended its complaint in 1980 to add a Section 2 cause of action and additional state claims. The plaintiff also added defendants at that time.
In January 1982, Judge Weigel granted the defendants' motion for summary judgment on the plaintiff's Sherman Act claims and dismissed the pendant actions as lacking jurisdiction. In his lengthy order, Judge Weigel considered the plaintiff's contention that a suppression of production constituted a per se offense under Section 1. The Judge rejected that argument on two grounds. First, he held that the defendants' alleged conduct did not fit into any of the per se categories identified by the Supreme Court. Finding that a vertical assemblage of title holders was unlikely to have a "pernicious effect on competition," Judge Weigel refused to find that the defendants' alleged conduct constituted a group boycott. Second, Judge Weigel also refused to expand the scope of per se liability in order to reach a vertical combination to suppress production.
Holding that the plaintiff's Section 1 claim must be tested under the rule of reason, Judge Weigel proceeded to consider whether the plaintiff had proved actual harm to competition as required by Kaplan v. Burroughs Corp., 611 F.2d 286, 290 (9th Cir.1979), cert. denied, 447 U.S. 924, 100 S.Ct. 3016, 65 L.Ed.2d 1116 (1980). Judge Weigel, after examining the record before him on summary judgment, concluded that throughout the relevant period competition in the geothermal steam market intensified. Balancing the defendants' need to participate in joint exploitation of geothermal resources against the plaintiff's unproved allegations of anticompetitive effect, the Court held that no Section 1 claim could be made.
Judge Weigel also granted the defendants' motion for summary judgment on the plaintiff's Section 2 claims. In assessing this cause of action, the Court defined the relevant market as the entire Geysers area. The Judge rejected the plaintiff's proposed two-mile geographic market as "mechanistically defined." The market, as determined by that area in which the strength of competitive forces are felt, was defined to include those steam properties where a steam buyer, such as PG & E, could purchase steam. The defendants' competitors, therefore, included all existing and potential suppliers of steam throughout the entire Geysers area.
Within the Geysers area, Judge Weigel found no evidence that the defendants had monopoly power. At most, the defendants had an 8.5 percent share of the geothermal steam market in the Geysers. Such a market share could not, as a matter of law, support the plaintiff's contention that the defendants could exclude competition or control prices.
On the plaintiff's final antitrust claims, attempt and conspiracy to monopolize, Judge Weigel held that the plaintiff failed to allege any facts upon which a reasonable inference of the required intent to control prices or destroy competition could be predicated. The conduct complained about by the plaintiff, including breach of lease contracts, attempt to eliminate the plaintiff from the property title chain and attempt to purchase the property without disclosing its true value, were neither threatening to competition or clearly exclusionary. In addition, the Court held that the plaintiff failed to allege facts from which the defendants' specific intent to monopolize could be inferred.
Shortly after the Court granted the defendants' motion and dismissed the pendant state claims, Judge Weigel disqualified himself and vacated his order. After assignment to this Court, the defendants made a motion to reinstate Judge Weigel's order. The Court denied this motion on August 11, 1982.
As is true of many complex antitrust cases, this litigation has benefited from partial summary adjudication and severance of issues for trial. As each of these separate decisions has shaped the final resolution of the case, the Court takes this opportunity to summarize its holdings and explain its decisions fully.
A threshold issue to be resolved in this litigation was the determination of the relevant market. See Gough v. Rossmoor...
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