Denver Petroleum Corporation v. Shell Oil Company

• Decision Date: 14 August 1969
• Docket Number: Civ. A. 66-C-650.
• Parties: DENVER PETROLEUM CORPORATION, a corporation, Denver, Colorado and Basin Pipeline, Inc., a corporation, Denver, Colorado, Plaintiffs, v. SHELL OIL COMPANY, a corporation, Denver, Colorado, Defendant.
• Court: U.S. District Court — District of Colorado

306 F. Supp. 289

DENVER PETROLEUM CORPORATION, a corporation, Denver, Colorado and Basin Pipeline, Inc., a corporation, Denver, Colorado, Plaintiffs, v. SHELL OIL COMPANY, a corporation, Denver, Colorado, Defendant.

Civ. A. 66-C-650.

United States District Court D. Colorado.

August 14, 1969.

COPYRIGHT MATERIAL OMITTED

Jones & Bastian, by Tilford A. Jones, Washington, D. C., McKean & Whitehead, by David J. McKean, Washington, D. C., and John J. Gaudio, Denver, Colo., for plaintiffs.

Boesche, McDermott & Eskridge, by Richard B. McDermott and Donald E. Hammer, Tulsa, Okl., and John D. Lawyer and Joseph C. Spalding, Denver, Colo., for defendant.

MEMORANDUM OPINION WITH FINDINGS OF FACT AND CONCLUSIONS OF LAW

ARRAJ, Chief Judge.

This action is to recover treble damages under section 4 of the Clayton Act, 15 U.S.C. § 15, for defendant's alleged violation of section 2 of the Sherman Act, 15 U.S.C. § 2. The matter has been tried to the Court, proposed findings have been submitted by the parties and legal questions have been extensively briefed and argued. We begin with a summary of the basic claims of the contestants.

While plaintiffs initially complained of a monopoly in the purchase, transport and sale of crude oil and condensate in a certain area, evidence and arguments presented at trial have narrowed the claim to the charge that defendant has attempted to monopolize and has monopolized the purchase of those materials in the particular area. The alternative geographic areas of monopolization proposed by plaintiffs are 1) the "Basin-Rio Arriba oil production area," 2) Rio Arriba County, 3) McKinley, Sandoval and Rio Arriba Counties, or 4) McKinley, Sandoval, Rio Arriba and San Juan Counties, of the state of New Mexico. Plaintiffs do not claim that defendant initially created the monopoly situation. Rather, their contention is that defendant acquired a monopoly by purchase of certain properties in Northwest New Mexico and then actively maintained and enhanced the unlawful position originated by its predecessor in the area.

The means used to maintain and nurture the alleged monopoly is defendant's operation as a private carrier of the Northwest New Mexico crude oil pipeline system it acquired. Plaintiffs contend that defendant refused to transport oil other than its own on these lines and wrongly and intentionally failed to operate them as common carriers in violation of section 28 of the Mineral Leasing Act, 30 U.S.C. § 185, and the right of way grants issued thereunder. As a result of this operation, plaintiffs urge, defendant was able to control prices and exclude competition in the area and did so to plaintiffs' injury.

Consequently, plaintiff Denver Petroleum Corporation seeks to recover lost potential profits due to its alleged preclusion from engaging in the business of purchase and resale of crude oil and condensate in the Basin-Rio Arriba oil production area of Northwest New Mexico. Plaintiff Basin Pipeline, Inc., a wholly owned subsidiary of Denver Petroleum, seeks to recover for diminution of the value of its pipeline in Rio Arriba County allegedly caused by defendant's monopoly.

Defendant's basic positions, other than that plaintiffs have simply failed to prove their case in certain particulars, are that in the first place it just does not possess monopoly power in a relevant market. While denying the power to control prices or exclude competition in any area, defendant submits that the charge of monopoly must be tested in terms of the nationwide market in crude oil and condensate. Alternatively, the Four Corners area of Utah, Colorado, Arizona and New Mexico or this Four Corners area plus California are advanced as being the relevant market for analysis of monopoly power. In this connection, defendant suggests that if the relevant market be confined to Northwest New Mexico or some particular subdivision thereof as contended by plaintiffs, the interstate commerce element falls out of the case precluding application of the federal antitrust laws.

Regarding the economic situation in Northwest New Mexico, defendant urges that competition is vigorous and that prices show no sign of monopoly power, any variations in pricing being the result of supply and demand.

As to its Northwest New Mexico crude oil pipeline system, defendant advances contentions directed toward the conclusion that all obligations under both state and federal law have been fulfilled and that the manner of operation of these lines was in no way wrongful: 1) The obligation imposed by section 28 of the Mineral Leasing Act is discharged by operation as either a common carrier or a common purchaser. Defendant acted as a common purchaser thus fulfilling this duty as well as complying with the New Mexico common purchaser statute. 2) The pipeline system is an intrastate gathering system and thus need not, and did not, operate as a common carrier. 3) Any common carrier obligation regarding plaintiffs never accrued since plaintiffs never tendered any oil for transport and did not invoke available and required administrative processes.

Defendant's final contentions concern standing to recover treble damages and the question of damages. Defendant urges that plaintiff Denver Petroleum had no business or property within the meaning of the antitrust laws in the area in which to be injured and accordingly lacks standing to recover treble damages for any antitrust violation there might be. Plaintiff Basin Pipeline's claim to recover for injury to property is challenged under the rule against indirect injury requiring that only the party first and directly injured may recover treble damages. Defendant further questions the causation of any injuries as well as attacking the damage claims as to amount and speculativeness.

Having heard and considered all the evidence, the Court renders the following findings and conclusions:

I. FINDINGS OF FACT

1. Defendant Shell Oil Company (hereinafter referred to as Shell) is a Delaware corporation, with principal offices in New York, New York, which transacts business and is found in the District of Colorado. Shell is an integrated oil company engaged in the production of crude oil and gas, the purchase of those materials, their transportation, the refining of crude oil and gas and the marketing of resultant products. Included within its area of operations is Northwest New Mexico where, since March 9, 1964, it has owned a refinery and certain pipelines for the transportation of crude oil and condensate.

2. Plaintiff Denver Petroleum Corporation (hereinafter referred to as DPC) is a Wyoming corporation incorporated in February of 1961. Originally formed under the name of Mountain Crude Marketers, Inc., its name was changed to Denver Petroleum Corporation on October 15, 1964. Its business was the purchase of crude oil from producers and other intermediates and its resale. DPC engaged in this business primarily in Montana and Wyoming with some activity in Colorado until approximately mid-1964. In April of 1963 DPC acquired Basin Pipeline, Inc., by stock purchase and thereafter commenced certain efforts toward establishing itself as a buyer and seller of crude oil and condensate in the area of the Basin Pipeline in Rio Arriba County, New Mexico. Since shortly after its formation, DPC has been in poor financial condition and from September 24, 1964 has been operating under a chapter XI bankruptcy arrangement in this Court, No. 38824, under its previous name. All operations of DPC ceased on August 1, 1966.

3. Basin Pipeline, Inc., (hereinafter referred to as Basin) has been a wholly owned subsidiary of DPC since April of 1963. It is a New Mexico corporation formed to construct and operate the Basin Pipeline in Rio Arriba County, New Mexico, which was completed in 1961. That line was virtually its sole asset and its only business was the transportation of crude oil and condensate through the line. Basin too has had a poor financial history, having sustained a net operating loss in every year of operation, and all activities ceased on August 1, 1966 with the forced sale of the Basin Pipeline in the DPC chapter XI bankruptcy proceeding.

4. With the exception of crude oil purchasing in the Bisti Field, Shell was not active in Northwest New Mexico prior to March 9, 1964. On that date Shell entered the area on a large scale with the acquisition of certain properties from El Paso Natural Gas Products Company and on April 1, 1964 Shell took over operation of these properties. Included in the purchase was the Ciniza Refinery located in McKinley County, New Mexico, and a crude oil pipeline system, a primary function of which is to supply the refinery with crude oil and condensate.

5. The components of this Northwest New Mexico crude oil pipeline system which are relevant to this case are as follows:

a. The Pettigrew-Apache-Lybrook-Hospah line (known as the Hospah-Pettigrew line) is a four inch pipe located in Rio Arriba, Sandoval and McKinley Counties.

b. The Bloomfield-Bisti-Ciniza line (known as the Bloomfield-Ciniza line) is a six inch line approximately 98 miles long located in McKinley and San Juan Counties. While Shell purchased only a segment of this line adjacent to the Ciniza Refinery, it holds the remainder of the line under a lease from El Paso Natural Gas Products Company and operates the entire Bloomfield-Ciniza line.

c. The Jicarilla Crossover, a six inch line, runs for approximately 39 miles in Rio Arriba and San Juan Counties connecting the Hospah-Pettigrew line at Apache Junction with the Bloomfield-Ciniza line d. The Bisti-Four Corners delivery line is a short section of pipe connecting Bisti Station on the Bloomfield-Ciniza line with the Four Corners Pipeline.

6. The flow of oil in these lines is as follows: Oil entering the Hospah-Pettigrew line at Pettigrew Station flows in a general southerly direction to Apache Junction, while oil entering that line at Hospah or Lybrook Stations flows in...