873 F.2d 1357 (10th Cir. 1989), 87-1176, Cayman Exploration Corp. v. United Gas Pipe Line Co.

Docket Nº:87-1176.
Citation:873 F.2d 1357
Party Name:RICO Bus.Disp.Guide 7188 CAYMAN EXPLORATION CORPORATION, a Delaware Corporation, Plaintiff-Appellant, v. UNITED GAS PIPE LINE COMPANY, a Delaware Corporation, Defendant-Appellee.
Case Date:April 26, 1989
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

Page 1357

873 F.2d 1357 (10th Cir. 1989)

RICO Bus.Disp.Guide 7188




UNITED GAS PIPE LINE COMPANY, a Delaware Corporation,


No. 87-1176.

United States Court of Appeals, Tenth Circuit

April 26, 1989

Page 1358

Steven M. Harris, William P. McGinnies, and James C. Thomas of Doyle & Harris, Tulsa, Okl., for plaintiff-appellant.

H. Bruce Golden, Adrian L. Steel, Jr., Marc Gary, and Patricia A. McCoy of Mayer, Brown & Platt, Houston, Tex., John L. Arrington, Jr., Robert A. Huffman, Jr., and Caroline B. Benediktson of Huffman, Arrington, Kihle, Gaberino & Dunn, Tulsa, Okl., W. DeVier Pierson and James M. Costan of Pierson, Semmes and Finley, Washington, D.C., of counsel, for defendant-appellee.

Before McKAY, MOORE and EBEL, Circuit Judges.

McKAY, Circuit Judge.

After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed.R.App.P. 34(a); 10th Cir.R. 34.1.9. The cause is therefore ordered submitted without oral argument.

Cayman Exploration Corp. ("Cayman") appeals the district court's dismissal with prejudice under Fed.R.Civ.P. 12(b)(6) of its claims against United Gas Pipe Line Co. ("United") for violation of section 1 of the Sherman Antitrust Act, 15 U.S.C. Sec. 1 (1982), and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Sec. 1962 (1982). We affirm the district court's dismissal.


Cayman sued United in the federal district court for the Northern District of Oklahoma alleging: (1) a price-fixing conspiracy in violation of section 1 of the Sherman Act; (2) RICO violations predicated on mail fraud under 18 U.S.C. Sec. 1341 (1982); (3) breach of contract; and (4) tortious breach of contract. There is no diversity of citizenship between the parties because both are incorporated under the laws of the State of Delaware. Consequently, the first two causes of action provide the bases for federal court jurisdiction; the last two are pendent state claims. For violations of the federal antitrust and RICO statutes, Cayman sought treble damages, costs, and attorneys fees. Plaintiff also sought actual and punitive damages on its two pendent state law claims.

United moved for dismissal for failure to state a claim. Cayman amended its complaint and attempted to initiate discovery. United again moved for dismissal, and the court referred the matter to a magistrate for recommendation. The magistrate recommended dismissal pursuant to Fed.R.Civ.P. 12(b)(6) because he concluded that Cayman had not stated a federal statutory cause of action for either an antitrust violation

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or RICO violation, the bases of the court's subject matter jurisdiction. The district court affirmed the magistrate's recommendation of dismissal. 1


"The sufficiency of a complaint is a question of law which we review de novo." Morgan v. City of Rawlins, 792 F.2d 975, 978 (10th Cir.1986). Dismissal pursuant to Fed.R.Civ.P. 12(b)(6) "requires a legal determination that plaintiff can prove no set of facts in support of its claim that would entitle it to relief." Id. (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957)). In our review, "[a]ll well-pleaded facts, as distinguished from conclusory allegations, must be taken as true." Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir.1984). We recognize that " '[t]he Federal Rules of Civil Procedure erect a powerful presumption against rejecting pleadings for failure to state a claim,' " Morgan, 792 F.2d at 978 (quoting Auster Oil & Gas, Inc. v. Stream, 764 F.2d 381 (5th Cir.1985), cert. dismissed, --- U.S. ----, 108 S.Ct. 2007, 100 L.Ed.2d 237 (1988)), and that granting a motion to dismiss is "a harsh remedy which must be cautiously studied, not only to effectuate the spirit of the liberal rules of pleading but also to protect the interests of justice." Morgan, 792 F.2d at 978. We nevertheless conclude that the district court properly dismissed Cayman's claims under Rule 12(b)(6).


The court's Order makes it amply clear that the court was conscious of the high standard a defendant must meet in order to prevail in a motion to dismiss for failure to state a claim. Nonetheless, the district court correctly noted that "the complaint must allege facts sufficient, if they are proved, to allow the court to conclude that claimant has a legal right to relief." Perington Wholesale, Inc. v. Burger King Corp., 631 F.2d 1369, 1373 (10th Cir.1979). With respect to the antitrust claim, the court concluded that the amended complaint was deficient because it alleged no facts of agreement or conspiracy in restraint of trade or injury to competition. Similarly, the RICO claim was defective because the complaint failed to allege mail fraud with particularity and because it alleged no facts of a pattern of racketeering activity.

On appeal, plaintiff argues strenuously that the policies which support "notice pleading" under the Federal Rules of Civil Procedure justify its minimalist approach in pleading facts. However, plaintiff misapprehends the thrust of the district court's determination: Not only did the court object to the paucity of actual facts alleged in the complaint, it also found that plaintiff's allegations were legally insufficient to state a claim. We find it unnecessary to specify how many facts are sufficient to state a claim under our system of pleading 2 because we agree with the trial court that the plaintiff clearly failed to state a legally cognizable claim.

  1. Antitrust claims.

    Section 1 of the Sherman Act proscribes contracts, combinations or conspiracies in restraint of trade. 15 U.S.C. Sec. 1 (1982). Under section 1 such "agreements" may be

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    illegal if (1) their purpose or effect is to create an unreasonable restraint of trade, or (2) they constitute a per se violation of the statute. See Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 614, 73 S.Ct. 872, 883, 97 L.Ed. 1277 (1953). Cayman made no attempt to establish that United's practice unreasonably restrains trade. Consequently, the sufficiency of Cayman's complaint depends on one of two determinations: (1) whether it has succeeded in stating a claim of per se illegality in accordance with prior precedent, 3 or (2) whether this court concludes that United's "practice facially appears to be one that would always or almost always tend to restrict competition and decrease output" in order to justify finding a new type of per se violation. Broadcast Music, Inc. v. CBS, 441 U.S. 1, 19-20, 99 S.Ct. 1551, 1562, 60 L.Ed.2d 1 (1979).

    1. Vertical price-fixing.

    In order for a complaint to adequately state a vertical price-fixing violation (AKA "resale price maintenance"), plaintiff must allege at least some facts which would support an inference that the parties have agreed that one will set the price at which the other will resell the product or service to third parties. See Albrecht, 390 U.S. at 149, 88 S.Ct. at 871; Sitkin Smelting & Ref. Co. v. FMC Corp., 575 F.2d 440, 446 (3d Cir.), cert. denied, 439 U.S. 866, 99 S.Ct. 191, 58 L.Ed.2d 176 (1978) (violation is "agreement to fix the price to be charged in transactions with third parties, not between the contracting parties themselves"). The critical determination is whether the agreement deprives a trader of the ability to exercise its own judgment in "making independent pricing decisions." World of Sleep, Inc. v. La-Z-Boy Chair Co., 756 F.2d 1467, 1476 (10th Cir.), cert. denied, 474 U.S. 823, 106 S.Ct. 77, 88 L.Ed.2d 63 (1985) (quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 762, 104 S.Ct. 1464, 1470, 79 L.Ed.2d 775 (1984)).

    At best, Cayman alleged that United endeavored to coerce sellers (including Cayman) to accept lower than contract prices by systematically refusing to honor contractual "take-or-pay" clauses and by purchasing natural gas from Canadian suppliers. The district court noted that Cayman made no allegation that United was restricting resale prices to consumers, only that United attempted to fix the price stated in the gas purchase contract. We conclude that these allegations state a claim for breach of contract, but are insufficient to state a claim of vertical price-fixing. The district court correctly refused to transform a state breach of contract claim into a per se violation of federal antitrust laws.

    Not only is there no per se violation under existing precedent, we hold that this case does not warrant the extension of per se illegality to United's alleged activities. The test for determining whether an alleged business practice not previously...

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