City of Mishawaka, Ind. v. Indiana & Michigan Elec. Co.

• Citation: 560 F.2d 1314
• Decision Date: 16 August 1977
• Docket Number: No. 76-2226,76-2226
• Parties: 1977-2 Trade Cases 61,587 CITY OF MISHAWAKA, INDIANA, et al., Plaintiffs-Appellees, v. INDIANA & MICHIGAN ELECTRIC COMPANY, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1314

560 F.2d 1314

1977-2 Trade Cases 61,587

CITY OF MISHAWAKA, INDIANA, et al., Plaintiffs-Appellees, v. INDIANA & MICHIGAN ELECTRIC COMPANY, Defendant-Appellant.

No. 76-2226.

United States Court of Appeals, Seventh Circuit.

Argued April 28, 1977.

Decided Aug. 16, 1977.

Peter J. Schlesinger, New York City, Thomas W. Yoder, Fort Wayne, Ind., for defendant-appellant.

Thomas R. Ewald, Washington, D. C., R. Wyatt Mick, Jr., James J. Olson, Mishawaka, Ind., for plaintiffs-appellees.

Before CUMMINGS, TONE and BAUER, Circuit Judges.

CUMMINGS, Circuit Judge.

One Michigan and nine Indiana municipalities, members of the Indiana & Michigan Municipal Distributors' Association, filed this antitrust action against defendant, a vertically integrated electric power company which generates, transmits and delivers electric power both to its wholesale customers, including plaintiffs, as well as directly to its own retail customers. Each plaintiff operates its own electric utility through which it purchases wholesale electric power from defendant, then selling and distributing it at retail to industrial, commercial, and residential customers within its corporate limits and in nearby areas.

According to the complaint, defendant is the only firm within its service area that transmits and wholesales electric power and is the plaintiffs' only outside source of supply for wholesale electric power. Eight of the plaintiffs depend on defendant for all the electric power they distribute and sell to their retail customers. The other two plaintiffs, which operate generating facilities, depend on defendant for more than 90% of their requirements for electric power distribution and sale to their retail customers.

Plaintiffs alleged that defendant dominates and controls the distribution and sale of retail electric power within its service area and has acquired four of the twenty municipal electric utilities there since 1957 and unsuccessfully attempted to acquire a fifth. According to plaintiffs,

"The defendant company now controls the distribution and sale of retail electric power in more than 90% of the communities within its service area, while municipally owned and operated electric systems serve retail customers in fewer than 10%." (Complaint P 6.)

Plaintiffs have charged defendant with intentionally monopolizing and attempting to monopolize interstate trade and commerce in the distribution and sale of retail electric power, in violation of Section 2 of the Sherman Act (15 U.S.C. § 2), by requiring them and other municipalities to pay since January 13, 1973, a new wholesale price which is substantially higher than the retail price it charges its own industrial customers. Because of this "price squeeze," the municipalities cannot sell electric power to their own industrial customers at prices that compete with defendant's retail prices. One consequence is that defendant may be able to lease Fort Wayne, Indiana's electric utility system for 35 years. Fort Wayne is the largest city within the defendant's service area which still operates its own electric utility. Other alleged consequences of the new wholesale price are:

1. Plaintiffs' ability to compete with defendant for retail and industrial customers has been impaired.

2. In those municipalities that have absorbed the difference between defendant's higher wholesale price and its lower retail industrial prices, pressure has been put on the municipalities to sell or lease their electric utilities to defendant rather than to continue generating operating losses.

3. In those municipalities that increase their industrial retail prices to the level of the defendant's higher wholesale price to them, the disparity between the municipalities' higher retail industrial prices and defendant's lower retail industrial prices threatens to cause the municipalities' industrial customers to exert pressure on the municipalities to sell or lease their electric utilities to defendant so that those customers can purchase electric power at defendant's lower prices.

By a September 30, 1976, amendment to the complaint, plaintiffs alleged that since July 27, 1976, defendant required them and other municipalities to pay a new higher wholesale price for electric power, resulting in their financial inability to buy power at the defendant's new wholesale price and sell it to industrial customers at prices competitive with defendant's retail prices. In its answer to this amendment, defendant admitted that the Federal Power Commission permitted its higher wholesale rates to become effective on July 27, 1976, subject to refund. ¹

Plaintiffs requested a declaratory judgment that defendant had violated Section 2 of the Sherman Act and an injunction under Section 16 of the Clayton Act (15 U.S.C. § 26) against violating it in the future. They also sought an order ending defendant's present rate structure which requires plaintiffs to pay a higher wholesale price to defendant for electric power than the retail prices at which it sells to its own industrial customers. Under Section 4 of the Clayton Act (15 U.S.C. § 15), plaintiffs claimed damages in excess of $1 million before trebling. The municipalities also sought attorneys' fees.

Subsequently, on May 1, 1974, defendant filed a motion to dismiss the complaint for lack of subject matter jurisdiction or for failure to state a claim or, in the alternative, to stay the court proceedings until the Federal Power Commission should conclude its regulatory proceedings involving defendant's post-January 13, 1973, rates to wholesale customers. Defendant and the Indiana & Michigan Municipal Distributors' Association (of which plaintiffs are members) were parties to these proceedings before the Commission. On May 1, 1975, Judge Grant denied that motion and at the same time filed an extensive opinion disposing of defendant's arguments (App. 11-29). In the opinion, Judge Grant noted that in March 1972, the Indiana Public Service Commission set defendant's new higher retail rates and that in March 1973, the Michigan Public Service Commission approved an increase in defendant's retail rates. Both of these actions were instituted by defendant's July 30, 1971, petitions for new rates filed with each of the state Commissions. In June 1972, defendant submitted proposed increases in the rates charged to its wholesale customers to the Federal Power Commission. The new rates were later made effective on August 13, 1972, ² but the Commission provided that if it determined that said rates were unjust or unreasonable, it might order defendant to refund the excess to its customers. The Commission began its hearings on the lawfulness of these new wholesale rates on January 31, 1974.

Defendant contended that its retail rates, set by the state utility commissions, were immune from attack under the Sherman Act. The court held that under Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315, it did not have authority to intrude upon the Indiana and Michigan Public Service Commissions' approval of defendant's retail rates. However, after distinguishing Ricci v. Chicago Mercantile Exchange, 409 U.S. 289, 93 S.Ct. 573, 34 L.Ed.2d 525, and Pennsylvania Power Company v. Federal Power Commission, 89 U.S.App.D.C. 235, 193 F.2d 230 (1951), affirmed, 343 U.S. 414, 72 S.Ct. 843, 96 L.Ed. 1042, the Court found that it had jurisdiction over the subject matter of the action, citing Georgia v. Pennsylvania R. Co., 324 U.S. 439, 65 S.Ct. 716, 89 L.Ed. 1051; Keogh v. Chicago & N. W. Ry., 260 U.S. 156, 43 S.Ct. 47, 67 L.Ed. 183; and Otter Tail Power Co. v. United States, 410 U.S. 366, 93 S.Ct. 1022, 35 L.Ed.2d 359. In particular, Judge Grant held that

"Just as the Court in Otter Tail was hesitant to conclude that the authority of the Federal Power Commission to order interconnections was intended to 'be a substitute for, or to immunize Otter Tail from, anti-trust regulation for refusing to deal with municipal corporations,' this Court cannot conclude that the Federal Power Commission's authority to review rates was an intended substitute for the anti-trust laws in a situation involving the alleged monopolizing effect of a dual price structure." (mem. op. at 16.)

Judge Grant stated that if the Federal Power Commission finally found the defendant's new wholesale rates to be just, the court might be forced to order defendant to initiate a new rate structure, eliminating the dual price system of higher wholesale prices relative to retail prices. On the other hand, if the Commission should find the new wholesale rate to be unjust, he might only enjoin defendant from any future dual system. Consequently the court held that plaintiff had not failed to state a claim upon which relief could be granted.

In conclusion, Judge Grant refused to stay the action until the Federal Power Commission should hand down a final decision because "the lawfulness of the defendant's wholesale rate is not determinative of the issue before" the court (mem. op. 19). The district court ended its opinion as follows:

"Since it is the initiation of a monopolistic structure that the Court is asked to prohibit and not the rate itself, final action by the agency will not by itself prohibit the problem although it may alleviate it for a time. Furthermore, if the Court found that damages were recoverable in this case and that in determining the damages the final decision of the Commission was necessary and the Commission has not yet ruled on the lawfulness of the wholesale rate the present action could at that time be stayed by the Court for the purpose of awaiting the Commission result." (Id.)

Thereafter the case was reassigned to Judge Sharp. On October 22, 1976, he denied defendant's motion to reconsider Judge Grant's order of May 1, 1975. Thereupon, an interlocutory appeal was taken to this Court and allowed pursuant to 28 U.S.C. § 1292(b). We affirm.

I. Exclusive Jurisdiction

When the district court handed down its opinion...