City of Long Beach v. Standard Oil Co. of California

• Decision Date: 17 April 1989
• Docket Number: Nos. 86-5859,LITIGATION--MDL,86-5860,s. 86-5859
• Citation: 872 F.2d 1401
• Parties: 1989-1 Trade Cases 68,538 CITY OF LONG BEACH, as trustee for the State of California, Plaintiff-Appellant, v. STANDARD OIL COMPANY OF CALIFORNIA; Texaco, Incorporated; Exxon Corporation; Union Oil Company of California; Mobil Oil Corporation; Shell Oil Company, Defendants-Appellees. STATE OF CALIFORNIA, on behalf of itself and all political subdivisions and special districts within the state similarly situated, Plaintiff-Appellant, v. STANDARD OIL CO., et al., Defendants-Appellees. CITY OF LONG BEACH, Plaintiff-Appellant, v. STANDARD OIL CO., et al., Defendants-Appellees. In re: COORDINATED PRETRIAL PROCEEDINGS IN PETROLEUM PRODUCTS ANTITRUST150.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1401

872 F.2d 1401

1989-1 Trade Cases 68,538

CITY OF LONG BEACH, as trustee for the State of California, Plaintiff-Appellant, v. STANDARD OIL COMPANY OF CALIFORNIA; Texaco, Incorporated;

Exxon Corporation; Union Oil Company of

California; Mobil Oil Corporation;

Shell Oil Company,

Defendants-Appellees.

STATE OF CALIFORNIA, on behalf of itself and all political

subdivisions and special districts within the

state similarly situated, Plaintiff-Appellant, v. STANDARD OIL CO., et al., Defendants-Appellees.

CITY OF LONG BEACH, Plaintiff-Appellant, v. STANDARD OIL CO., et al., Defendants-Appellees.

In re: COORDINATED PRETRIAL PROCEEDINGS IN PETROLEUM

PRODUCTS ANTITRUST LITIGATION--MDL 150.

Nos. 86-5859, 86-5860.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 4, 1988.

Decided April 17, 1989.

Shirley M. Hufstedler, Hufstedler, Miller, Carlson & Beardsley; Royce H. Schulz and Gary L. Halling, Broad, Schulz, Larson & Wineberg, Gary W. Hoecker and M. Brian McMahon, Hoecker, McMahon & Wade, Los Angeles, Cal., for plaintiffs-appellants City of Long Beach and State of Cal.

John R. Calhoun, City Atty., and James N. McCabe, Deputy City Atty., City of Long Beach, Long Beach, Cal., for plaintiff-appellant City of Long Beach.

John K. Van de Kamp, Atty. Gen., Sanford N. Gruskin, Asst. Atty. Gen., Richard N. Light, Deputy Atty. Gen., State of Cal., for plaintiff-appellant State of Cal.

Andrew J. Kilcarr and Maureen O'Bryon, Hogan & Hartson, Washington, D.C., Charles F. Rice, New York City, for the defendant-appellee Mobil Oil Corp.

Anthony P. Brown, Philip L. Judson, Paul R. Griffin, and Craig E. Stewart, Phillsbury, Madison & Sutro, San Francisco, Cal., for defendant-appellee Chevron Corp.

Philip K. Verleger and David A. Destino, McCutchen, Black, Berleger & Shea, Los Angeles, Cal., Kenneth P. Fountain, Houston, Tex., for defendant-appellee Exxon Corp.

John S. Kingdon and Alan M. Grimaldi, Howrey & Simon, Washington, D.C., Raymond V. McCord, Los Angeles, Cal., for defendant-appellee Shell Oil Co.

Milton J. Schubin, Barry Willner and Aton Arbisser, Kaye, Scholer, Fierman, Hays & Handler, New York City, Robert D. Wilson, White Plains, N.Y., for defendant-appellee Texaco, Inc.

Darryl Snider, Henry J. Kupperman, Scott J. Koepke and Michael W. Biren, Brobeck, Phleger & Harrison, and Harold E. Zohner, Los Angeles, Cal., for defendant-appellee Union Oil Co.

Appeals from the United States District Court for the Central District of California.

Before SCHROEDER, FARRIS and POOLE, Circuit Judges.

FARRIS, Circuit Judge:

The City of Long Beach and the State of California appeal the district court's grant of summary judgment to the defendants, six major California oil companies. ¹ The city charged the companies with conspiring to depress the posted price of crude oil in violation of federal and state antitrust laws. ² The record satisfies us that the plaintiffs presented sufficient evidence to establish genuine issues of material fact in support of their claims. We reverse and remand for trial. ³

BACKGROUND

The City of Long Beach, both as trustee for state lands and as proprietor, owns oil produced from the Wilmington Oil Field. See 1964 Cal.Stats., Ch. 138 (1st Extra.Sess.). The field extends 11 miles southeast from the Wilmington District of Los Angeles through Long Beach Harbor and the offshore area of the City of Long Beach. Production from the 7,825 acre onshore portion began in the 1930's. In 1954, the city planned and supervised a seismic survey to determine the extent of the southeasterly offshore portion of the field. Problems with land subsidence arising from the onshore production delayed development of the offshore oil. In February 1962, after the preparation of a comprehensive development plan by the Harbor Department, city voters approved offshore drilling. The California State Lands Commission approved the city's proposal to develop the 6,400 acre offshore area in late 1964.

In order to develop and market the oil from the 1.5 billion barrel field, in March 1965 the city sold interests in its production. The interests were awarded for a 35-year period based on bids for a percentage of the expected market price of the oil. A consortium composed of five of the companies (Texaco, Exxon, Union, Mobil, and Shell) obtained an 80% share, which also obligated the group to perform day-to-day operations as Field Contractor. Chevron and ARCO jointly obtained shares totalling 10% of production. The remaining 10% share went to companies not involved in this litigation. The winning bids ranged from 95.56% for the Field Contractors' share to 100% for a 5% share won by Chevron and ARCO.

A Contractors' Agreement, executed by the parties in March 1965 after two years of preparation and discussion, contained detailed pricing provisions for the oil sold to the companies. ⁴ The price was based substantially upon the arithmetical average of prices "posted" during the month by major purchasers in the Wilmington field and other named fields. Posted prices are prices that a prospective purchaser publicly declares it is willing to pay for crude oil. Chevron, ARCO, Mobil, and Union were the only purchasers to regularly post prices in the Wilmington field.

In 1975, the City of Long Beach and the State of California brought suit against seven major California oil companies charging violations of federal and state antitrust statutes. The city alleges that the companies conspired to fix and maintain uniform, noncompetitive posted prices for the kind of crude oil produced from the Wilmington field, and that those postings were below the prices that buyers in a free, open market would have paid.

The district court granted summary judgment on several alternative grounds. On July 19, 1984, the court entered partial summary judgment for the companies for the period April 12, 1972 to October 1, 1976, concluding that federal price controls supplanted the alleged conspiracy as the effective reason for the crude oil price levels. On December 17, 1984, the court entered partial summary judgment for the period November 1, 1974 through 1977, based on the federal Entitlements Program's effect on the value of the city's oil. On September 19, 1985, the court entered a complete summary judgment for the companies. The court found that the federal Mandatory Oil Import Program precluded recovery for the remaining period of alleged liability, June 27, 1971 to April 12, 1972, and as an alternative ground that the city had failed to present sufficient evidence to prove the alleged antitrust conspiracy.

We review the district court's grant of summary judgment de novo. Harkins Amusement Enterprises, Inc. v. General Cinema Corp., 850 F.2d 477, 482 (9th Cir.1988), cert denied, --- U.S. ----, 109 S.Ct. 817, 102 L.Ed.2d 806 (1989). To overcome summary judgement the non-moving party "must establish that there is a genuine In reviewing the summary judgment motion we accept the city's undisputed allegations as true:

                issue of material fact" and demonstrate more than "some metaphysical doubt as to the material facts."    Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986).  "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.' "    Id. at 587, 106 S.Ct. at 1356 (citing First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 289, 88 S.Ct. 1575, 1593, 20 L.Ed.2d 569 (1968), Fed.R.Civ.P. 56(e))
                

(1) The California oil market is isolated and dominated by the defendant companies. This dominance encompasses the production, transportation, and refining sectors of the industry.

(2) The posted prices for heavy crude oil generally were stable throughout the period of the alleged conspiracy (1961-1977). Price increases did occur in 1969, 1970, and 1973.

(3) The composition of crude oil varies. Heavier-weight crudes generally are less desirable for refinery feed stock than lighter-weight crudes. For a given refinery configuration, the lighter-weight crude can be refined into a larger volume of more valuable "light" products (i.e., gasoline as opposed to fuel oil). Alternatively, a greater capital investment in refinery equipment is required to produce light products from a heavy crude. As a result of this difference in value, lighter weight crude generally is more expensive than heavier weight oil. Crude oil weight is measured on gravity scale in degrees. The difference in price for crude oils of varying weights on a posted price schedule is known as the "gravity price differential." The oil owned by the city was a heavy crude.

(4) The companies engaged in barter transactions, called three-cut exchanges, to move oil from fields to refineries as efficiently as possible. The accounting for the substantial volumes of oil traded in three-cut exchanges was not done on the basis of posted prices, but on refinery product yields adjusted to balance volumes.

(5) In 1961-62, employees of five out of the six defendant companies met to discuss and revise the technical specifications for the three-cut exchanges. The parties disagree over whether the meetings were secret and whether the city was aware of the widespread use of three-cut exchanges.

DISCUSSION

A. Legal Standard

Section 1 of the Sherman Act declares illegal "[e]very contract, combination ... or conspiracy, in restraint of trade or commerce...." 15 U.S.C. Sec. 1. Section 4 of the Clayton Act allows any person "injured in his business or property by reason of anything forbidden in the antitrust laws [to] recover threefold the damages by him sustained...." 15 U.S.C. Sec. 15(a).

To maintain a successful action, the city must show a contract, combination, or conspiracy that restrains trade and causes harm to itself and to competition in general. See Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356; Christofferson...