Russo v. Texaco, Inc., 85-CV-1246(JBW).

• Decision Date: 21 February 1986
• Docket Number: No. 85-CV-1246(JBW).,85-CV-1246(JBW).
• Citation: 630 F. Supp. 682
• Parties: Michael A. RUSSO, T/A Nor-Bridge Service Center, Inc. and Robert A. Loringer, T/A Bob's Getty Service Station, on behalf of themselves and all others similarly situated, Plaintiffs, v. TEXACO, INC., a Delaware corporation, and Power Test Corporation, a Delaware corporation, Defendants.
• Court: U.S. District Court — Eastern District of New York

630 F. Supp. 682

Michael A. RUSSO, T/A Nor-Bridge Service Center, Inc. and Robert A. Loringer, T/A Bob's Getty Service Station, on behalf of themselves and all others similarly situated, Plaintiffs, v. TEXACO, INC., a Delaware corporation, and Power Test Corporation, a Delaware corporation, Defendants.

No. 85-CV-1246(JBW).

United States District Court, E.D. New York.

February 21, 1986.

Arnold P. Azarow, Westbury, N.Y., Kohn, Milstein, Cohen & Hausfeld by Jerry S. Cohen, Patricia F. Bak, Washington, D.C., Zarwin, Baum, Resnick & Cohen by Norman Zarwin, Philadelphia, Pa., for plaintiffs.

Kaye, Scholer, Fierman, Hays & Handler by Milton J. Schubin, Randolph S. Sherman, Claire Shows Hancock, New York City, for defendant Texaco, Inc.

Texaco, Inc. by David A. Luttinger, John F. Carberry, White Plains, N.Y.

Dewey, Ballantine, Bushby, Palmer & Wood by John F. Collins, Saul P. Morgenstern, New York City, Greenbaum, Rowe, Smith, Ravin, Davis & Bergstein by Michael B. Himmel, Woodbridge, N.J., for defendant Power Test Corp.

MEMORANDUM and ORDER

WEINSTEIN, Chief Judge.

Two service station operators bring this action on their own behalf and as a proposed class action on behalf of others. They seek damages and other relief under section 4 of the Clayton Act and the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. §§ 15, 2801 et seq. The dispute arises out of Texaco's 1984 acquisition of the Getty Oil Company and its divestiture of franchise relationships with Getty service station dealers in the Northeast and Mid-Atlantic regions by transfers to Power Test Corporations. Texaco and Power Test move for summary judgment on the PMPA claims.

For reasons indicated below partial summary judgment must be granted. Rule 56(e), Federal Rules of Civil Procedure. Further discovery is unlikely to reveal any relevant information. Almost all the critical information is in Federal Trade Commission files, the Federal Register and court files subject to judicial notice. Rule 201, Federal Rules of Evidence; 44 U.S.C. § 1507.

FACTS

In January 1984, Texaco, through a series of agreements, sought to acquire the shares and assets of Getty which included, among other things, virtually all of the Getty gasoline station assets in the Northeast and Mid-Atlantic regions of the United States. Because of the size of the transaction—approximately $10.1 billion—FTC review was required under the Hart-Scott-Rodino Anti-Trust Improvements Act. 15 U.S.C. § 18a.

The FTC's investigation of the acquisition identified certain potential antitrust problems that the merger of the two companies might create. For example, the FTC focused on the overlap in gasoline marketing assets of the two companies in the Northeast and Mid-Atlantic areas of the United States. Texaco and Getty had many retail outlets in this area and some of them served the same potential customers. The FTC advised Texaco that, in its judgment, the proposed acquisition of Getty assets would, among other things, increase the "levels of concentration" in the "wholesale distribution of gasoline and middle distillates" in the relevant market.

The parties to the merger and the FTC proposed that the merger be approved if Texaco agreed to take specific remedial actions to address these areas of concern. Plaintiffs contend that the divestiture suggestions come from Texaco rather than from the FTC. As indicated below, nothing turns on who suggested divestiture as a remedy for approval. What is critical is that the FTC approved the deal with divestiture as a condition.

With regard to Getty's Northeast and Mid-Atlantic marketing assets (including those which are the subject of this lawsuit), the FTC required absolute divestiture as a condition of the merger's approval. The FTC's concerns and the proposed remedy were embodied in a draft complaint and a proposed consent agreement, published in the Federal Register in early March 1984. Texaco Inc. and Getty Oil, Proposed Consent Agreement With Analysis to Aid Public Comment, 49 Fed.Reg. 8550-8564 (March 7, 1984). In addition, the Federal Register included the FTC's analysis of the proposed order to aid the public in making comments, as well as Texaco's undertaking to "hold separate" the Getty assets, i.e., to preserve the status quo, pending entry of the final order.

One of the principal concerns addressed by the FTC, and a stated purpose of the proposed consent order, was that the assets required to be divested by Texaco continue to be used as part of an "ongoing, viable enterprise." The FTC had identified as a potential antitrust problem the concentration of the ownership of wholesale gasoline terminals in six specific Northeast and Mid-Atlantic markets (49 Fed.Reg. at 8555), hence, the Commission's proposed order required Texaco to divest Getty's wholesale gasoline terminals in these areas.

To ensure the continued viability of these terminals as part of an "ongoing, viable enterprise," the FTC added the requirement that the Getty retail stations served by the terminals also be divested:

The retail stations are included in the ... divestiture package solely to assure the continued viability of Getty's Northeast wholesale operations after divestiture.

FTC Analysis, 49 Fed.Reg. at 8559. As Timothy J. Muris, Director of the FTC's Bureau of Competition, testified before the House of Representatives Small Business Committee on April 11, 1984:

To assure that Texaco could make an adequate divestiture of the wholesale terminals, the order also requires Texaco to divest some 1900 retail gasoline stations that the wholesale terminals supply. Once again, the Commission must approve in advance the buyers of these properties.

Future of Independent Marketers in the Post-Merger Petroleum Marketplace: Joint Hearing before the Subcommittee on Energy and Subcommittee on General Oversight of the House Committee on Small Business, 98th Cong., 2d Sess. 77, 81 (1984).

On January 27, 1984, Texaco—anticipating that it would be necessary to divest certain assets in order to pass FTC scrutiny — entered into a Memorandum of Agreement with Power Test. Texaco agreed to sell to Power Test virtually all of the Getty gasoline station assets, supply contracts and franchise agreements in the Northeastern and Mid-Atlantic regions for $90 million. Notwithstanding this agreement, the FTC insisted that Commission approval of that divestiture be obtained, and that it would not decide whether to approve until the Power Test divestiture was scrutinized on the merits:

The proposed consent requires prior Commission approval of any acquirer, including Power Test. The Commission has not granted any such approval. If the proposed order is accepted finally, the Commission will decide whether to approve proposed acquirer(s) following a review of written comments submitted by interested persons during a separate, 30-day public comment period....

FTC Analysis, 49 Fed.Reg. at 8559.

The FTC "duly considered" public comments on the proposed order and, on July 9, 1984, a final consent order was executed. Texaco Inc. and Getty Oil Company, Prohibited Trade Practices and Affirmative Corrective Actions ("Order"), 49 Fed.Reg. 30059-65 (July 26, 1984). That order "comprehensively regulated the merger between Texaco and Getty on a nationwide basis." Van de Kamp v. Texaco, Inc., 3 Civ. 24506, slip op. at 8, (Cal.Ct.App., Nov. 8, 1985).

With particular reference to the subject of this sale, the FTC Order required that:

Within 12 months of the date of service of this Order, Texaco shall divest, absolutely and in good faith, the Schedule A Properties.

Order, II(A), 49 Fed.Reg. at 30060. Schedule A included the Getty retail gasoline properties that are the subject of this lawsuit and the Getty tradename and trademark:

Getty's petroleum-related assets, including the `Getty' brand name, `Getty' trademark, and product inventories located in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland, West Virginia, and the District of Columbia, other than the Getty refinery located in Delaware and the Getty inventories, crude handling facility, product pipeline and terminal connected to the refinery, and 30 of the properties listed in Schedule C.

Order, Schedule A(1), 49 Fed.Reg. at 30062.

Not only was "absolute" divestiture of these properties mandated, but the FTC required that both the manner of the divestiture and the acquirer receive prior Commission approval to ensure that the divested assets continued as part of an "ongoing, viable enterprise" and that the Commission's perceived antitrust concerns were remedied:

Divestiture of the Schedule A properties shall be made only to an acquirer or acquirers, and only in a manner, that receive the prior approval of the Federal Trade Commission. The purpose of the divestiture of the Schedule A properties is to ensure the continuation of the assets as an ongoing, viable enterprise, engaged in the same business in which the properties are presently employed and to remedy the lessening of competition resulting from the Texaco Acquisition of Getty....

Order, II(B), 49 Fed.Reg. at 30060.

Until a suitable purchaser was approved, Texaco was prohibited from impairing any of the assets to be divested and was required, as already noted, to hold them "separate and apart." Order, II(E) and II(F), 49 Fed.Reg. at 30061. The order also required Texaco to submit "a full description of contracts or negotiations for divestiture" as well as "all written communications to and from potential acquirers, and all internal memoranda, reports, and recommendations concerning divestiture." Order, III, 49 Fed.Reg. at 30061.

The FTC's review of the divestiture to Power Test is a matter of public record. Briefly, the proposed divestiture was submitted for 30 days of public comments. FTC News, July 25, 1984. Many comments were submitted by Getty dealers, distributors, or those representing Getty dealers and...