Consolidated Gas Co. of Florida, Inc. v. City Gas Co. of Florida, 87-6108

• Decision Date: 10 August 1989
• Docket Number: No. 87-6108,87-6108
• Citation: 880 F.2d 297
• Parties: 1989-2 Trade Cases 68,704 CONSOLIDATED GAS COMPANY OF FLORIDA, INC., Plaintiff-Appellee, v. CITY GAS COMPANY OF FLORIDA, a Florida corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 297

880 F.2d 297

1989-2 Trade Cases 68,704

CONSOLIDATED GAS COMPANY OF FLORIDA, INC., Plaintiff-Appellee, v. CITY GAS COMPANY OF FLORIDA, a Florida corporation,

Defendant-Appellant.

No. 87-6108.

United States Court of Appeals, Eleventh Circuit.

Aug. 10, 1989.

James J. Kenny, Scott E. Perwin, Michael Nachwalter, Miami, Fla., for defendant-appellant.

Sylvia H. Walbolt, Tampa, Fla., for Florida Power amicus.

William H. Harrold, Tallahassee, Fla., for Florida Pub. Ser. Comm'n amicus.

James R. Atwood, Washington, D.C., for Florida Power & Light amicus.

Philip A. Allen III, Edward T. O'Donnell, William J. Dunaj, Teresa Ragatz, Miami, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before RONEY, Chief Judge, COX, Circuit Judge, and MORGAN, Senior Circuit Judge.

RONEY, Chief Judge:

City Gas Company of Florida appeals from a $4.76 million dollar judgment entered against it after the district court found City Gas violated federal antitrust laws by agreeing with another Dade County natural gas supplier not to compete in each other's territory, and by refusing to deal with appellee Consolidated Gas Company in its effort to convert from retail sales of liquid petroleum gas to natural gas. We affirm, essentially for the reasons stated in the district court's extremely thorough opinion. Consolidated Gas Co. of Fla. v. City Gas Co. of Fla., 665 F.Supp. 1493 (S.D.Fla.1987).

The district court's opinion contains a complete recitation of the facts and procedural history of this case. Only a brief recount is necessary here.

Consolidated Gas began business in 1957 as a retail supplier of liquid petroleum (LP) gas to the home and businesses of the Bel Aire/Point Royale subdivision in southern Dade County. Appellant City Gas is essentially the only retail supplier of natural gas in its service area, which includes this subdivision. By March 1982, Consolidated determined it needed to convert to natural gas to survive in the marketplace, because rising oil costs had caused the retail cost of LP gas, which is derived from oil, to nearly double the retail cost of natural gas.

Consolidated applied for an allocation from the Federal Energy Regulatory Commission (FERC) and asked that it order the Florida Gas Transmission Company (FGT), the State's only wholesale pipeline supplier of natural gas, to provide and construct a new delivery point to connect FGT's facilities with those of Consolidated and to sell Consolidated all of its required natural gas.

FGT opposed the application contending that less costly alternatives were available, such as allowing City Gas to sell gas to the subdivision, and that its tariff required Consolidated to bear the cost of constructing a pipeline. Peoples Gas System intervened and objected to Consolidated's application, because it feared that if the application were granted it might diminish the supply of natural gas to FGT's existing customers which included Peoples. City Gas also intervened and objected on the same grounds.

Consolidated then explored the possibility of using City Gas' pipes to transport gas purchased from FGT or of buying gas directly from City Gas. During the FERC proceedings, City Gas indicated it would sell gas to Consolidated but the parties never came to an agreement on terms. Consolidated then sought an injunction to prevent City Gas from extending its pipelines any further into Consolidated's territory, recognizing that City Gas already had begun delivering gas to some customers within the subdivision. Although the state circuit court granted a preliminary injunction, it was later dissolved when the court ruled that Consolidated's so-called exclusive easements granting it the right to be the sole provider of gas to the subdivision could not be enforced as against public policy. This ruling was affirmed on appeal, although on slightly different grounds. Consolidated Gas Co. of Fla. v. City Gas Co. of Fla., 447 So.2d 351 (Fla. 3d DCA), rev. denied, 456 So.2d 1181 (Fla.1984).

During this time, Consolidated and City Gas also engaged in unsuccessful negotiations for the purchase of Consolidated's assets by City Gas. When this also failed, Consolidated sued in federal district court alleging that City Gas had engaged in exclusionary conduct in violation of federal antitrust laws on a variety of grounds.

After a bench trial, the district court found in favor of Consolidated on its monopolization claim, holding that section 2 of the Sherman Act was violated by City Gas' territorial agreement with Peoples Gas, its only real competitor in South Florida, and that the City Gas offer to sell gas to Consolidated at an unreasonably high price amounted to a refusal to deal, also in violation of the Act. Compensatory damages were determined to be $1,587,065, which when trebled pursuant to section 4 of the Clayton Act, 15 U.S.C.A. Sec. 15(a), amounted to $4.76 million.

The district court ordered City Gas to sell or transport natural gas to Consolidated at a reasonable price. The court rejected City Gas' counterclaim in which it alleged antitrust violations by Consolidated in its development of a subdivision where the deeds covenanted that gas would be purchased only from it.

City Gas does not challenge the factual findings made by the district court, but rather appeals the legal principles applied to those facts. City Gas first contends that it does not have the monopoly power to "control prices or exclude competition," because it is a regulated industry, whose rates and competitors are governed by the Florida Public Service Commission. It argues that it cannot violate section 2 of the Sherman Act, because under the Florida statutes and case law, the power to control prices and determine the degree of competition in the natural gas industry in Florida is lodged exclusively in the Florida Public Service Commission. City Gas has no power to determine its own prices, much less the market price of natural gas. It likewise lacks the power to exclude competition. It follows, the argument goes, that City Gas is not a monopolist.

The district court properly dealt with this argument. The mere fact that City Gas is regulated does not automatically exempt it from compliance with federal antitrust provisions. "Activities which come under the jurisdiction of a regulatory agency nevertheless may be subject to scrutiny under the antitrust laws." Otter Tail Power Co. v. United States, 410 U.S. 366, 372, 93 S.Ct. 1022, 1027, 35 L.Ed.2d 359 (1973). The natural gas industry is subject to antitrust legislation. See Southern Louisiana Area Rate Cases v. Federal Power Comm'n, 428 F.2d 407, 442 n. 112 (5th Cir.), cert. denied, 400 U.S. 950, 91 S.Ct. 243, 27 L.Ed.2d 257 (1970).

As the district court stated, however, the presence of a system of regulation does diminish the effectiveness of one of the analytical tools frequently used by the courts in determining the existence of monopoly power, that is, a presumption that monopoly power exists if the market share enjoyed by the particular defendant exceeds 70 to 80 percent. In a regulated industry, "[a] predominate market share may merely be the result of regulation, and regulatory control may preclude the exercise of monopoly power." Southern Pacific Communications Co. v. American Tel. & Tel. Co., 740 F.2d 980, 1000 (D.C.Cir.1984), cert. denied, 470 U.S. 1005, 105 S.Ct. 1359, 84 L.Ed.2d 380 (1985). Thus, the entire regulatory scheme must be examined to determine whether a defendant, although regulated, still retained power to control prices or restrict entry into the market. Id. at 1001.

The district court first found that City Gas had monopoly power in the wholesale market for the resale of natural gas. It found that, like AT & T in Southern Pacific, the procedure was for City Gas to propose the rates at which it desires to sell gas, obtain an agreement with the buyer company, and then submit the agreement to the Commission for its approval. The court observed that because the Florida statute provides that natural gas utilities are not required to resell gas, it is "unclear" whether the Commission could compel City Gas to sell at any particular rate, although certainly it could withhold approval of a rate proposed by City Gas. The district court noted that FERC, which is the federal regulator of wholesale natural gas, does not control intrastate sales of natural gas and that City Gas therefore was "able to resell gas at will, essentially without regulatory intervention." 665 F.Supp. at 1520.

City Gas, although not disputing its authority to sell gas for resale, nevertheless argues that it has never done so and thus cannot be found to have monopoly power in the wholesale market. City Gas had, in fact, entered into a contract with a third party to sell its gas for resale, but no gas was ever actually sold under this agreement. The rather fortuitous circumstance however, that City Gas never actually sold any gas under this agreement does not obscure the fact that it had the power to do so. The district court was not clearly erroneous in finding that City Gas had monopoly power in the wholesale market.

Nor did the court err in its conclusion that City Gas also possessed monopoly power in the retail market. City Gas asserts that the fact that its rates are regulated by the Commission is dispositive of the monopoly issue. Yet, as the district court found, although the Commission must approve the rates at which natural gas is sold, it has allowed widely differing prices--proposed by the utility--with no apparent reason for the price difference. Thus, although the rates are subject to approval, there seems to be considerable authority vested in the utility to set the prices at which it will do business. The district court was not clearly erroneous in finding that this amounts to monopoly power.

Finally, there are high entry and exit barriers to this industry, which also lend...