Arandell Corp. v. Centerpoint Energy Servs., Inc.

• Decision Date: 06 August 2018
• Docket Number: No. 16-17099,16-17099
• Citation: 900 F.3d 623
• Parties: ARANDELL CORP.; Briggs and Stratton Corporation; Carthage College; Ladish Co., Inc.; Merrick’s Inc.; Sargento Foods, Inc., Plaintiffs-Appellants, v. CENTERPOINT ENERGY SERVICES, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

900 F.3d 623

ARANDELL CORP.; Briggs and Stratton Corporation; Carthage College; Ladish Co., Inc.; Merrick’s Inc.; Sargento Foods, Inc., Plaintiffs-Appellants,

v.CENTERPOINT ENERGY SERVICES, INC., Defendant-Appellee.

No. 16-17099

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 16, 2018, San Francisco, California

Filed August 6, 2018

Ryan M. Billings (argued), Amy Irene Washburn, Melinda A. Bialzik, and Robert L. Gegios, Kohner Mann & Kailas S.C., Milwaukee, Wisconsin, for Plaintiffs-Appellants.

Mark Russell Robeck (argued) and Travis G. Cushman, Kelley Drye & Warren LLP, Washington, D.C. for Defendants-Appellees.

Before: Carlos T. Bea and N. Randy Smith, Circuit Judges, and Robert S. Lasnik,^* District Judge.

BEA, Circuit Judge:

Here we have a wholly owned subsidiary company which sold natural gas to Plaintiffs. It asserts that it acted innocently and without knowledge of its parent company’s price-fixing scheme, which had pumped up the price of that gas. Yes, the subsidiary company sold the gas at prices previously rigged by the parent, and yes, the subsidiary sent the profits back to the parent. But the subsidiary asserts there is no evidence that it knew the prices were inflated or that it had the purpose to carry out the price-fixing scheme. Under Wisconsin antitrust law, can the subsidiary be liable to Plaintiffs? Because Supreme Court precedent establishes that "a parent and a wholly owned subsidiary always have a ‘unity of purpose’ " and thus act as a "single enterprise" whenever they engage in "coordinated activity," Copperweld Corp. v. Indep. Tube Corp. , 467 U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984) (emphasis added), we conclude that it can.

I. BACKGROUND

Most consumers of natural gas in North America are individuals or small businesses who buy their gas from local utility companies. However, some larger and more sophisticated businesses bypass their local utility and purchase gas directly from the companies that sell gas to the local utilities. These large commercial customers enter contracts to buy agreed-upon quantities of gas and take delivery via high-volume gas pipelines. While these contracts typically specify the quantity to be delivered, the price is typically left to be determined by reference to the market price at the time of delivery, as reported in the latest price index published by a designated trade publication. For example, a contract might provide that the price of a delivery of natural gas would be "the Inside FERC index plus $x ." Such contracts to purchase gas on the cash market and take physical delivery of natural gas are referred to as "physical" contracts (as opposed to financial or "futures" contracts).¹

In the early 2000s, natural gas prices rose dramatically, due in part to manipulative trading practices of some of the nation’s largest natural gas conglomerates. In March 2003, the Federal Energy Regulatory Commission (FERC) published a report on "whether and, if so, the extent to which California and Western energy markets were manipulated during 2000 and 2001." See FERC, Final Report on Price Manipulation in Western Markets: Fact-Finding Investigation of Potential Manipulation of Electric and Natural Gas Prices , at ES-1 (Mar. 2003), available at https://www.ferc.gov/legal/maj-ord-reg/land-docs/PART-I-3-26-03.pdf ("FERC Final Report"). The report "found significant market manipulation" by gas marketing companies such as Enron, for example. Id. at ES-1–ES-2. In particular, FERC discovered widespread "efforts to manipulate price indices compiled by trade publications" primarily through "[r]eporting of false data" to the trade publications, "wash trading,"² and a trading activity known as "churning."³ Id. at ES-1–ES-5. The report determined that energy trading companies had few, if any, internal controls in place to ensure the accuracy of the data reported to trade publications. FERC Final Report at III-3. Ultimately, the report found that price manipulation was a substantial cause of "[d]ysfunctions in the natural gas market" which led to "extraordinary" increases in gas prices in 2000 and 2001. Id. at ES-1.

Various plaintiff groups filed class-action lawsuits around the country, in both state and federal courts, and alleged that natural gas traders manipulated the price of natural gas by reporting false information to price indices published by trade publications and engaging in wash sales. See In re W. States Wholesale Nat. Gas Antitrust Litig. , 715 F.3d 716, 727 (9th Cir. 2013), aff’d sub nom. Oneok, Inc. v. Learjet, Inc. , ––– U.S. ––––, 135 S.Ct. 1591, 191 L.Ed.2d 511 (2015). These actions were eventually consolidated into a multi-district litigation proceeding in the District of Nevada, In re W. States Wholesale Nat. Gas Antitrust Litig. , MDL No. 1566 (the "MDL"); see also In re W. States , 715 F.3d at 727. The MDL includes the instant action.

Plaintiffs (collectively known in the MDL below as the "Arandell Plaintiffs") filed this action in Wisconsin state court on December 15, 2006, on behalf of a proposed class of "all industrial and commercial purchasers of natural gas" who purchased natural gas "for their own use or consumption ... in Wisconsin" between January 1, 2000, and October 31, 2002 (the "Class Period"). The defendants are ten large natural gas companies, including certain of their subsidiaries and affiliates, who allegedly colluded to fix retail natural gas prices in Wisconsin. The action was removed on the basis of diversity jurisdiction to the Western District of Wisconsin on February 9, 2007. On June 29, 2007, the case was transferred to the MDL in the District of Nevada.

This appeal is from the district court’s grant of summary judgment to one defendant in the Arandell case, CenterPoint Energy Services, Inc. ("CES").⁴ CES sold natural gas and related services to commercial and industrial customers in Wisconsin during the Class Period. From January 1, 2000, to August 31, 2002 (33 of the 34 months in the Class Period), CES was a wholly owned subsidiary of Reliant Energy, Inc. ("Old Reliant").⁵ Within the Reliant family of companies, CES dealt primarily with Reliant Energy Services, Inc. ("RES" and together with Old Reliant and the other Reliant co-defendants collectively "Reliant"), a commonly owned affiliate during most of the Class Period.⁶ Reliant has admitted to engaging in wash trades during the Class Period and has reached settlements with several government agenciesregarding its manipulative trading practices during that time.

In this action, Plaintiffs alleged that certain Reliant entities—including CES, Old Reliant, and RES—conspired with other natural gas conglomerates to fix retail natural gas prices in Wisconsin. Plaintiffs further alleged that CES in particular sold natural gas in Wisconsin at prices that were artificially inflated as a result of the price-fixing conspiracy between Reliant and other, non-Reliant co-conspirators. Plaintiffs alleged two causes of action under Wisconsin’s antitrust statutes, seeking (1) a declaratory judgment that certain natural gas contracts made during the Class period are void under Wisconsin Statute § 133.14, and (2) treble damages for violations of Wisconsin Statute § 133.03, which provides that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce is illegal."

In the MDL, the district court granted CES’s motion for summary judgment against the Plaintiffs’ Third Amended Complaint ("TAC"). CES argued that it was entitled to summary judgment because it was "not alleged to have engaged in any anticompetitive activity or other wrongdoing in or directed to Wisconsin," but rather it was alleged only to have been affiliated with RES and to have sold gas to Wisconsin consumers. The district court agreed that Plaintiffs had not raised a genuine issue of material fact sufficient to support a verdict or judgment under Wisconsin Statute § 133.03(1) because there was "no evidence" that CES knowingly "participated in a conspiracy or direct acts in restraint of trade." In particular, the court ruled that there was no evidence that CES "knowingly" engaged in swaps "in conspiracy with RES" for "the purpose of increasing the price of natural gas," or that CES "knew that RES or others were engaged in such behavior."

On appeal, Plaintiffs summarized their case against CES as follows:

CES (formerly a Reliant company) made an essential contribution to the Reliant companies’ coordinated price-fixing efforts. Each Reliant company played a necessary role. The Reliant trading company (RES) inflated retail natural gas prices through manipulative trading and false reporting of sales data to publishers of benchmark price indices. RES then sold gas at inflated prices to CES, the Reliant sales subsidiary. CES resold the overpriced gas to Wisconsin businesses, collected millions of dollars in overcharges at the expense of the class members, and funneled the revenues from these sales to the Reliant parent. The officers and directors of the Reliant parent orchestrated this scheme, directing RES to manipulate retail prices and instructing CES to send its illegal profits to the Reliant parent.

Plaintiffs argue the district court erred in: (1) determining that Plaintiffs needed to produce evidence that CES intentionally conspired with RES to inflate gas prices in order to raise a triable issue, (2) failing to consider record evidence that CES purposely or knowingly furthered the alleged inter-enterprise conspiracy by selling gas at rigged prices and channeling the proceeds to Old Reliant, and (3) granting summary judgment without considering the Plaintiffs’ Rule 56(d) motion for additional discovery.

II. DISCUSSION

We review the district court’s grant of summary judgment de novo . Kaiser Cement Corp. v. Fischbach & Moore, Inc. , 793 F.2d 1100, 1103 (9th Cir. 1986). "[T]he court’s ultimate inquiry is to determine whether the ‘specific facts’ set forth by the...