Litton Systems, Inc. v. Southwestern Bell Tel. Co.

• Decision Date: 23 September 1976
• Docket Number: No. 75-1065,75-1065
• Citation: 539 F.2d 418
• Parties: 1976-2 Trade Cases 61,084 LITTON SYSTEMS, INC., Plaintiff-Appellant, v. SOUTHWESTERN BELL TELEPHONE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 418

539 F.2d 418

1976-2 Trade Cases 61,084

LITTON SYSTEMS, INC., Plaintiff-Appellant, v. SOUTHWESTERN BELL TELEPHONE COMPANY, Defendant-Appellee.

No. 75-1065.

United States Court of Appeals,

Fifth Circuit.

Sept. 23, 1976.

Fletcher Etheridge, Houston, Tex., Theodore F. Craver, Beverly Hills, Cal., for plaintiff-appellant.

Leroy Jeffers, Richard P. Keeton, David T. Hedges, Jr., James M. Shatto, Houston, Tex., for defendant-appellee.

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

Before WISDOM and THORNBERRY, ^* Circuit Judges, and LYNNE, District Judge.

WISDOM, Circuit Judge:

Litton Systems, Inc. (Litton) brought suit against Southwestern Bell Telephone Co. (Bell) under the Sherman Act, ¹ alleging unlawful tying and predatory pricing, and seeking treble damages and injunctive relief. Litton and Bell both manufacture and sell or lease private branch exchange (PBX) telephone equipment. Bell provides, as well, general telephone service. Litton's complaint charged that Bell was offering a package deal of branch exchange equipment and telephone service together and that Bell was predatorily pricing that package so as to prevent or hamper competition from Litton.

Bell's rates for all services, including the package deal about which Litton complains, are and have been embodied in tariffs filed with and approved by regulatory commissions in Missouri, Kansas, Oklahoma, Arkansas, and Texas. ² Bell moved to dismiss the complaint on the ground that its rates and selling practices were not subject to the Sherman Act because they were the products of state action. See Parker v. Brown, 1943, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315. In the alternative, Bell moved for a stay of proceedings pending the reference of Litton's complaints to the regulatory agencies involved, four statewide agencies (in Missouri, Kansas, Oklahoma, and Arkansas) and about 400 municipal agencies (in Texas). ³ The district court denied the motion to dismiss as premature. It granted, however, Bell's motion to stay proceedings under the doctrine of primary jurisdiction, citing Ricci v. Chicago Mercantile Exchange, 1973, 409 U.S. 289, 93 S.Ct. 573 34 L.Ed.2d 525. Litton appealed and this Court rejected Bell's motions to dismiss for lack of jurisdiction. We now reverse the stay and remand the cause to the district court for further proceedings.

I.

Generally speaking, the doctrine of primary jurisdiction may be applied when a suit is brought in federal court and that court is of the opinion that the suit ought to have been prosecuted exclusively or initially before an administrative body. There are two major reasons for this "ought". First, the statute creating and giving power to the administrative body may have expressly or implicitly withdrawn judicial jurisdiction over the area of the complaint. Second, to accommodate two seemingly conflicting statutes e. g., one bolstering free competition and the other regulating certain aspects of a particular industry the court may want to defer in the first instance to the administrative agency's construction of the regulatory statute the enforcement of which is its responsibility. This case involves the second category of reasons and all future references in this opinion to the doctrine of primary jurisdiction will be limited to that category. ⁴

Bell argues that the doctrine of primary jurisdiction was properly applied in this case. It relies principally on Carter v. American Telephone and Telegraph Co., 5 Cir. 1966, 365 F.2d 486, cert. denied, 385 U.S. 1008, 87 S.Ct. 714, 17 L.Ed.2d 546 and Ricci, supra, to support this position.

In Carter, this Court held that the doctrine of primary jurisdiction was applicable in a suit alleging antitrust violations of a telephone company under the jurisdiction of the Federal Communications Commission. Carter was the manufacturer of a device that connected, via a two-radio communications system, a telephone caller and another person located away from the receiving telephone. The defendant, in a tariff filed with and approved by the FCC, prohibited its customers from attaching devices such as Carter's to the defendant's equipment. We held that "the tariff (was) inescapably at the center of this controversy", that the plaintiff could not attack the defendant's practices without attacking the tariff, and that the FCC, with the power to prescribe practices which were "just, fair and reasonable", 365 F.2d at 494, should be entitled to rule on the plaintiff's contentions before the court would consider them.

Ricci was an antitrust suit against a commodity exchange governed by the Commodity Exchange Act ⁵ and subject to the jurisdiction of the Commodity Exchange Commission. The plaintiff alleged that he had been wrongfully deprived of a seat on the Exchange by the conspiratorial actions of a third party and the Exchange in violation both of the rules of the Exchange and of the Commodity Exchange Act. The Exchange was required by the Act to enforce rules and regulations, not disapproved by the Secretary of Agriculture, which related to terms and conditions in contracts of sale or other trading requirements and which provided minimum financial standards and related reporting requirements. The Supreme Court upheld a stay pending reference to the Commodity Exchange Commission. The stay was necessary because the conduct of which the plaintiff complained was "seemingly within the reach of the antitrust laws (while) . . . also at least arguably protected . . . by another regulatory statute enacted by Congress". The Commission's determination whether the defendants had in fact violated a valid rule of the Exchange would throw important light on the question, for ultimate judicial resolution, of the effect of the Commodity Exchange Act on the antitrust laws in the circumstances of the case.

Both Carter and Ricci are distinguishable from the instant case. Both cases applied the doctrine of primary jurisdiction in the context of an attempt to accommodate federal antitrust policy with federal regulatory policy. Indeed, the Supreme Court characterized the question before it in Ricci as follows:

The problem . . . is recurring. It arises when conduct seemingly within the reach of the antitrust laws is also at least arguably protected or prohibited by another regulatory statute enacted by Congress.

(Footnote omitted; emphasis added.) ⁶ Moreover, most commentators analyzing the problems inherent in the doctrine of primary jurisdiction speak of that doctrine as a means of accommodating the sometimes conflicting goals of the same sovereign. See, e. g., Jaffe, Primary Jurisdiction Reconsidered The Antitrust Laws, 102 U.Pa.L.Rev. 577, 581 (1974); Convisser, Primary Jurisdiction: The Rule and its Rationalizations, 65 Yale L.J. 315, 336-37 (1956). ⁷

It would be easy to end the analysis here, so distinguishing Carter and Ricci, and to declare that the doctrine of primary jurisdiction was never intended to apply to the ordering of responsibility between state and federal tribunals. Although some cases have applied the doctrine in this context, see, e. g., Industrial Communications Systems, Inc. v. Pacific Telephone and Telegraph Co., 9 Cir. 1974, 505 F.2d 152, we do not believe that the question has been decisively answered and we do not answer it here. Instead, assuming arguendo that the doctrine applies when state regulatory agencies are involved, we hold that prior reference was incorrectly ordered in this case.

The Supreme Court has instructed that, in every case involving the possibility of the application of the doctrine, the question is whether the purpose served by the doctrine will be aided by its application. See United States v. Western P. R. R., 1956, 352 U.S. 59, 77 S.Ct. 161, 1 L.Ed.2d 126. We turn then to Ricci for the starting place in our analysis of the purposes served by the doctrine.

The Ricci Court articulated related premises on which rested its determination that a stay of the antitrust action was proper. The Court stated

(1) That it will be essential for the antitrust court to determine whether the Commodity Exchange Act or any of its provisions are "incompatible with the maintenance of an antitrust action," . . . (2) that some facets of the dispute between Ricci and the Exchange are within the statutory jurisdiction of the Commodity Exchange Commission; and (3) that adjudication of that dispute by the Commission promises to be of material aid in resolving the immunity question.

As no argument to the contrary has been made, we assume that premise (2) exists here. Without state agency authority to consider antitrust questions, there could be no meaningful purpose served by prior reference. What is important for us in the Ricci analysis is that the asserted defense of immunity from the antitrust laws was a large factor in the Supreme Court's decision to remit the case to administrative jurisdiction. Had there not been the possibility of immunity of the Commodity Exchange Act overriding in some way the Sherman Act there would have been much less reason to solicit the Commission's view of the dispute. Moreover, prior reference was of material aid in resolving the immunity issue. Here, as in Ricci, the front-line defense against the private antitrust action is one of immunity, ⁸ and one must surmise that reference to the state agencies was considered necessary because of the light such reference might throw on the immunity question.

Bell contends that the states are requiring it to behave the way it does, that state interests would be jeopardized if the antitrust court were to go forward, that uniformity of behavior a value assumably vaunted by the states would cease were the antitrust court to find against the defendant. Although Litton makes a strong case that there is no uniformity in the existing state systems, we do not believe that this is the most important observation that could be made. What should be understood is...