Dagher v. Saudi Refining, Inc.
| Decision Date | 01 June 2004 |
| Docket Number | No. 02-56509.,02-56509. |
| Citation | 369 F.3d 1108 |
| Parties | Fouad N. DAGHER; Bisharat Enterprises Inc.; Alfred Buczkowski; Esequiel Delagado; Mahwash Farzaneh; Nasser El-Radi; G.G. & R. Petroleum Inc.; H.J.F. Inc.; Kaleco Co.; Carlos Marquez; Sami Merhi, Edgardo R. Parungao; Ron Abel Serv. Center, Inc.; Gullermo Ramirez; Jerry'S Shellserv. Center, Inc.; Leopoloo Ramirez; Nazar Sheibaini; Sitara Management Corporation; Tinsel Enterprises Inc.; Quang Truong; Steven Ray Vezerian; Los Feliz Shell, Inc.; Nassim Hanna, Plaintiffs-Appellants, v. SAUDI REFINING INC., (SRI); Texaco Inc.; Shell Oil Company, Defendants-Appellees, and Motiva Enterprises LLC; Equilon Enterprises, Llc; Equiva Trading Company; Equiva Services LLC, Defendants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Daniel R. Shulman, Gregory Merz, Gray, Plant, Mooty, Mooty & Bennett, P.A., Minneapolis, MN; Joseph M. Alioto (argued), Angelina Alioto-Grace, Joseph M. Alioto, Jr., Alioto Law Firm, San Francisco, CA, for appellants.
Stuart N. Senator, Munger, Tolles & Olson LLP, Los Angeles, California, for appellee Shell Oil Co.
Patricia G. Bulter, Howrey, Simon, Arnold & White LLP, Washington, DC, for appellee Texaco Inc.
Bryan A. Merryman, White & Case LLP, Los Angeles, CA, for appellee Saudi Refining, Inc.
Appeal from the United States District Court for the Central District of California George H. King, District Judge, Presiding. D.C. No. CV-99-06114-GHK.
Before REINHARDT, FERNANDEZ, and RAWLINSON, Circuit Judges.
Plaintiffs Fouad N. Dagher, et al., appeal from the district court's award of summary judgment to the defendants, Texaco, Inc., Shell Oil Co., and Saudi Refining, Inc. (SRI), et al. The plaintiffs represent a class of 23,000 Texaco and Shell service station owners who allege that the defendants conspired to fix the nationwide prices for the Shell and Texaco brands of gasoline through the creation of a national alliance consisting of two joint ventures. The district court granted two summary judgment motions: one to dismiss defendant SRI because the plaintiffs lacked antitrust standing; the other to dismiss the complaint against the remaining defendants because the plaintiffs failed to raise a triable issue of fact as to whether the Sherman Antitrust Act's per se prohibition against price fixing is applicable to the economic arrangements between the defendants. We affirm the district court's ruling as to the plaintiffs' standing to sue SRI, but reverse the district court's decision that the plaintiffs failed to create a triable issue of fact under the Sherman Act.
Texaco, Inc., and Shell Oil Co. were once fierce competitors in the national oil and gasoline markets. They competed at both wholesale and retail levels, and in both upstream and downstream operations.1 The two companies generally operated by independently refining gasoline and then selling the gas either to licensed Texaco and Shell service stations or to wholesale distributors.
From 1989 to 1998, defendants Saudi Refining, Inc. (SRI) and Texaco sold gas on the East Coast through Star Enterprise, a joint venture "engaged in the refining and marketing of gasoline under the Texaco brand." Both Shell and Texaco sensed intensified competition in the downstream operations of their industry — they similarly believed that "the oil industry was about to enter a period of consolidation." To respond to the heightened competition in the oil and gas industry, Shell approached Texaco in 1996 about several potential corporate combinations designed to enhance efficiency and reduce competition between the two companies with respect to the downstream refining and marketing of gasoline. In 1998, preliminary discussions yielded an agreement to form a nationwide alliance (hereinafter: "the alliance")2 consisting of two separate joint ventures.3 One joint venture was named "Equilon Enterprises" (Equilon); it combined Shell's and Texaco's downstream operations in the western United States. The other venture, formed by Texaco, Shell, and SRI, was named "Motiva Enterprises" (Motiva); it combined the three companies' downstream operations in the eastern United States. The alliance had a national market share of 15% of all gasoline sales, and on the West Coast, Equilon's market share exceeded 25%.
There is a voluminous record documenting the economic justifications for creating the joint ventures. After analysis by teams made up of representatives of all three companies, the defendants concluded that numerous synergies and cost efficiencies would result. The defendants concluded that nationwide there would be up to $800 million in cost savings annually. The Federal Trade Commission and several State Attorneys General approved the formation of the joint ventures, subject to modifications demanded by both the federal agency and the various Attorneys General.
The creation of the alliance ended competition between Shell and Texaco throughout the nation in the areas of downstream refining and marketing of gasoline. Texaco and Shell signed non-competition agreements which prohibited them from competing with either Equilon or Motiva and committed them "not to engage in the manufacturing and marketing of certain products in the [relevant] geographic area[s], including fuel, synthetic gasoline, and electricity." The two joint ventures established fixed ratios for profit sharing and for bearing the risk of losses. In Equilon, Shell has a 56% interest while Texaco owns 44%. In Motiva, Shell owns 35%, while SRI and Texaco each own 32.5%.
Despite the collective assumption of risk and resource pooling in the joint ventures, Shell and Texaco continued to operate as distinct corporations. Each retained its own trademarks and kept control over its own brands pursuant to separate Brand Management Protocols, each of which prohibited the joint ventures from giving preferential treatment to either brand. Under the joint venture agreements, Equilon and Motiva market Shell and Texaco gasoline under licensing agreements governing both the sale of the products and the use of the Shell and Texaco trademarks. Each company maintained its ability to return to individual sales and marketing — the joint ventures contain provisions allowing for dissolution at any time by mutual consent or, after five years time, by unilateral dissolution with two years advance notice.
The various agreements between the oil companies allowed Texaco and Shell to consolidate and unify the pricing of the Texaco and Shell gasoline brands within the Equilon and Motiva joint ventures. Before creating the two joint ventures, Shell, Texaco, and Star all independently set prices for their wholesale and retail sales, generally through decisions made by their corporate pricing units. Testimony in the record reveals that, either immediately before the formation of the joint ventures or sometime shortly thereafter, "a decision was made that the Shell and Texaco brands would have the same price in the same market areas." The decision to charge the same price for the two distinct brands "was developed as sort of an operating requirement right from the very start or near to the very start of the alliance." Equilon and Motiva integrated this pricing decision into a project named "The Strategic Marketing Initiative" (SMI), which sought to develop ways in which the alliance could produce and promote both brands more competitively. There is some evidence in the record establishing that the decision to set one price for the two brands was conceived of in the SMI even before Motiva was formed.4
The alliance consolidated pricing of the Texaco and Shell brands such that a single individual at each joint venture was responsible for setting a coordinated price for the two brands. The joint ventures did, however, continue to adjust the pegged price of the brands to each unique geographic sale area. The pricing was consolidated despite the fact that Texaco and Shell maintained each brand as a distinct product — each brand has its own unique chemical composition (the gasoline is differentiated by separate packages of "additives"), trademark, and marketing strategy — and competed for customers "at the pump." The companies, and the joint ventures, continued to target each brand at a different customer base — "Texaco customers tend to be more blue-collared and rural than Shell customers, who are more affluent and urban."
The price optimization program may have allowed Equilon and Motiva to raise gasoline prices at a time when the price of crude oil was low and stable. During a time when crude oil prices reached near-historic lows — the price of crude oil decreased from $12 to $10 per barrel between September 1998 and February 1999 — Equilon raised its prices $.40 per gallon in Los Angeles and $.30 per gallon in both Seattle and Portland.
The plaintiffs commenced this civil action in the United States District Court for the Central District of California. They brought suit on behalf of themselves and approximately 23,000 Shell and Texaco service station owners, alleging that defendants SRI, Texaco, Shell, Motiva, Equilon, Equiva Trading Co., and Equiva Services, LLC, engaged in a price fixing scheme to raise and fix gas prices through the alliance and the two joint ventures, Motiva and Equilon, in violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. The plaintiffs disclaimed any reliance on the traditional "rule of reason" test, instead resting their entire claim on either the per se rule or a "quick look" theory of liability.
The defendants moved to dismiss under Fed. R. Civ. P. 12(b)(6). The issue with respect to the 12(b)(6) motion was "whether the alleged agreement among Saudi, Shell, and Texaco is an unreasonable restraint of trade ... under either the per se rule or a `quick look' rule...
To continue reading
Request your trial
-
Medical Supply Chain, Inc. v. Neoforma, Inc.
...ventures, Equilon Enterprises LLC and Motiva Enterprises condemned for per se Sherman I prohibited conduct in Dagher v. Saudi Refining Inc., 369 F.3d 1108, 1114 (9th Cir.2004). 424. Medical Supply Chain, Inc. has been excluded from the hospital supply market with agreements between UHA and ......
-
In re Processed Egg Prods. Antitrust Litig.
... ... Anderson v. Liberty Lobby Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; InterVest, ... 2006) ; Texaco Inc. v. Dagher , 547 U.S. 1, 7 n. 2, 126 S.Ct. 1276, 164 L.Ed.2d 1 (2006) ). An ... Saudi Ref ... , Inc. , 369 F.3d 1108, 1113 (9th Cir. 2004), rev'd sub nom ... ...
-
U.S. v. Daily Gazette Co.
...prices. It was a separate entity; a fact that the Independent Operators seem unable or unwilling to grasp. Dagher v. Saudi Refining, Inc., 369 F.3d 1108, 1125-26 (9th Cir.2004), Fernandez, J., dissenting, rev'd 547 U.S. 1, 126 S.Ct. 1276, 164 L.Ed.2d 1 (2006) (emphasis supplied). As noted, ......
-
Brennan v. Concord Efs, Inc.
...The further decision to fix support fees does not. Id. at 1157 (citation omitted). The same point is made in Dagher v. Saudi Refining, Inc., 369 F.3d 1108 (9th Cir.2004), petition for cert pending. Dagher concerned a joint venture between the oil refining and marketing companies Texaco and ......
-
Legal Analysis of Joint Venture Formation and Conduct
...independent of the blanket licenses. 53 47. Texaco, Inc. v. Dagher , 547 U.S. 1, 8 (2006). 48. Id. at 1. 49. Dagher v. Saudi Ref., 369 F.3d 1108 (9th Cir. 2004), rev’d sub nom , Dagher , 547 U.S. 1. 50. Dagher , 547 U.S. at 8. 51. 441 U.S. 1 (1979). 52. Broadcast Music , 441 U.S. at 23. 53.......
-
Table of cases
...Cir. 1998), 111 Crossroads Cogeneration Corp. v. Orange & Rockland Utils., 159 F.3d 129 (3d Cir. 1998), 111, 123 D Dagher v. Saudi Ref., 369 F.3d 1108 (9th Cir. 2004), rev’d sub nom. Texaco Inc. v. Dagher, 547 U.S. 1 (2006), 135 Daisy Mountain Fire Dist. v. Microsoft Corp., 547 F. Supp. 2d ......
-
Thomas A. Piraino, Jr., the Antitrust Analysis of Joint Ventures After the Supreme Court's Daugher Decision
...a joining of independent resources to which Section 1 (and Section 7 of the Clayton Act) surely applied."). 9 15 U.S.C. Sec. 2 (2006). 10 369 F.3d 1108 (9th Cir. 2004), rev'd sub nom. Texaco Inc. v. Dagher, 547 U.S. 1 (2006). 11 Dagher v. Saudi Ref. Co., 369 F.3d 1108, 1110 (9th Cir. 2004),......
-
Table of cases
...Cir. 1998), 156 Crossroads Cogeneration Corp. v. Orange & Rockland Utils., 159 F.3d 129 (3d Cir. 1998), 172 D Dagher v. Saudi Ref., Inc., 369 F.3d 1108 (9th Cir. 2004), rev’d sub nom. Texaco Inc. v. Dagher, 547 U.S. 1 (2006), 112, 113 Daisy Mountain Fire Dist. v. Microsoft Corp., 547 F. Sup......