Lockyer v. Mirant Corp.

• Decision Date: 10 February 2005
• Docket Number: No. 04-15024.,04-15024.
• Citation: 398 F.3d 1098
• Parties: Bill LOCKYER, Attorney General of the State of California; The State of California, ex rel, Plaintiffs-Appellants, and Department of Water Resources, Plaintiff, v. MIRANT CORPORATION; Mirant Americas, Inc.; Mirant California Investments, Inc.; Mirant California, L.L.C.; Mirant Americas Energy Marketing LP; Mirant Delta, L.L.C.; Mirant Potrero, L.L.C., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

398 F.3d 1098

Bill LOCKYER, Attorney General of the State of California; The State of California, ex rel, Plaintiffs-Appellants, and Department of Water Resources, Plaintiff, v. MIRANT CORPORATION; Mirant Americas, Inc.; Mirant California Investments, Inc.; Mirant California, L.L.C.; Mirant Americas Energy Marketing LP; Mirant Delta, L.L.C.; Mirant Potrero, L.L.C., Defendants-Appellees.

No. 04-15024.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted September 14, 2004.

Filed February 10, 2005.

COPYRIGHT MATERIAL OMITTED

Thomas Greene, Ken Alex, Damon M. Connolly, Paul Stein, Catherine A. Jackson, and Tamar Pachter (argued), Office of the California Attorney General, San Francisco, CA, for the plaintiffs-appellants.

Bryan A. Merryman, Robert P. Pongetti, and John A. Sturgeon, White & Case, Los Angeles, CA; Robert B. Pringle (argued), Thelen Reid & Priest, San Francisco, CA, for the defendants-appellees.

Appeal from the United States District Court for the Northern District of California; Vaughn R. Walker, District Judge, Presiding. D.C. No. CV-02-01787-VRW.

Before: William A. FLETCHER, FISHER, Circuit Judges, and WINMILL,^* District Judge.

WILLIAM A. FLETCHER, Circuit Judge:

The Attorney General of California, Bill Lockyer, sues under section 16 of the Clayton Act, 15 U.S.C. § 26, seeking divestiture by the Mirant defendants (collectively, "Mirant") of three electrical generating plants. The district court granted a stay pursuant to Landis v. North American Co., 299 U.S. 248, 57 S.Ct. 163, 81 L.Ed. 153 (1936), pending the resolution of Mirant's Chapter 11 petitions in a bankruptcy court in Texas. We hold that the district court had jurisdiction to determine whether the automatic stay of the Texas bankruptcy court applied to the Attorney General's suit, and that the Attorney General's suit comes within the "police or regulatory power" exception of 11 U.S.C. § 362(b)(4) to the automatic stay. We further hold, in the circumstances of this case, that a Landis stay is not justified. Accordingly, we vacate the stay and remand to allow the Attorney General's suit to proceed on the merits.

I. Background

In 1996, California passed Assembly Bill 1890, which required large investor-owned utilities to divest certain electrical generating plants as part of the state's deregulation of its electrical generation industry. Pursuant to this mandatory divestiture, Pacific Gas & Electric in 1999 sold its Pittsburg and Contra Costa Power Plants in Contra Costa County, as well as its Potrero Power Plant in San Francisco, to Mirant Delta, LLC and Mirant Potrero, LLC. The Attorney General alleges that the combined generating capacity of these three plants amounts to approximately 44 percent of the northern California wholesale spot electricity market.

On April 15, 2002, the Attorney General sued Mirant in federal district court, alleging that Mirant's ownership of the plants gives it the incentive and ability to exercise market power in violation of section 7 of the Clayton Act. See 15 U.S.C. § 18. The Attorney General sought equitable relief and damages under both the Clayton Act and California Business & Professions Code § 17204. The district court dismissed the claims for violation of California Business & Professions Code § 17204 and for damages under the Clayton Act, but found that the allegations in the complaint were sufficient to state a claim for injunctive relief under section 16 of the Clayton Act. See 15 U.S.C. § 26.

On July 14 and July 15, 2003, Mirant filed voluntary petitions to reorganize under Chapter 11 in the United States Bankruptcy Court for the Northern District of Texas. Subsequently, Mirant moved in the bankruptcy court for an order modifying the automatic stay to allow three suits, including two brought by the Attorney General (both separate from this suit), to proceed in the Ninth Circuit, where they were then pending on appeal.¹ The bankruptcy court granted the motion, but did not determine whether the appeals were, in fact, subject to the automatic stay. Instead, it granted the motion and modified the stay only "to the extent necessary and applicable."

On the same day that Mirant moved in the bankruptcy court to allow the Ninth Circuit appeals to proceed, it also filed a "Suggestion of Stay" in district court in this case, advising the court to "take ... notice that ... actions taken in violation of the [automatic] stay are void" and may result in the "imposition of sanctions by the Bankruptcy Court." The "Suggestion of Stay" did not explicitly argue that the Attorney General's Clayton Act suit was subject to the automatic stay, nor did it request that the district court determine the automatic stay's applicability.

The district court invited a noticed motion in which the parties could present their positions on whether the automatic stay was applicable. The Attorney General moved for a determination that the suit was exempt from the automatic stay because it sought to enforce California's "police or regulatory power" within the meaning of 11 U.S.C. § 362(b)(4). Without taking a position on the applicability of § 362(b)(4), Mirant urged the district court to exercise its discretionary power to stay the action. The district court declined to decide whether the Attorney General's suit came within § 362(b)(4). Citing Mediterranean Enterprises, Inc. v. Ssangyong Corp., 708 F.2d 1458 (9th Cir.1983), it granted the discretionary stay requested by Mirant.

The court relied on three factors in granting the stay. First, it found that its jurisdiction to determine the scope of the "police or regulatory power" exception under § 362(b)(4), and hence the applicability of the automatic stay, was doubtful under Celotex Corp. v. Edwards, 514 U.S. 300, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995), and In re Gruntz, 202 F.3d 1074 (9th Cir.2000) (en banc). Second, it found that the applicability of § 362(b)(4) raised unsettled questions of law. Third, it found that the stay was "efficient for [its] docket," and that it was "the fair and practical course for the parties." The Attorney General timely appealed. We now vacate and remand.

II. Our Jurisdiction to Review the Stay

Before considering the merits, we must first decide whether we have jurisdiction under 28 U.S.C. § 1291 to review the district court's stay. We hold that we have jurisdiction over the appeal because the order puts the Attorney General "effectively out of court" within the meaning of Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 9, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), and Idlewild Bon Voyage Liquor Corp. v. Epstein, 370 U.S. 713, 715 n. 2, 82 S.Ct. 1294, 8 L.Ed.2d 794 (1962), and because the stay is an appealable collateral order under Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949).

A. "Effectively Out of Court"

We first hold that the stay order in the district court is final under what has come to be known as the Moses H. Cone doctrine. In Moses H. Cone, a hospital had sued in state court seeking a declaration that a contract to which it was a party did not confer a right to arbitration. The other party to the contract then filed suit in federal district court seeking an order compelling arbitration. The hospital successfully moved for a stay in federal court pending resolution of the arbitration question in state court. Relying on its earlier decision in Idlewild, the Supreme Court held that the district court's stay order was appealable under § 1291. As a result of the stay, there would be "no further litigation in the federal forum" and the state's judgment on the arbitration issue would be res judicata, leaving the contractor "effectively out of court." Moses H. Cone, 460 U.S. at 9-10, 103 S.Ct. 927.

In Idlewild, plaintiff Idlewild Liquor had sought a declaratory judgment in federal district court that the New York Alcoholic Beverage Law was unconstitutional. Rather than convene a three-judge district court, the one-judge court stayed the action under Railroad Commission v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941), to give the New York state courts the opportunity to address the issue. The Supreme Court held that the stay order was appealable, even though it was entirely possible that Idlewild Liquor would be able to return to federal district court after the state court dealt with state-law questions. Moses H. Cone, 460 U.S. at 10, 103 S.Ct. 927. Even in that circumstance, where the case might well come back to federal district court, Idlewild Liquor was "effectively out of court" for purposes of appealability of the stay order. Idlewild, 370 U.S. at 715 n. 2, 82 S.Ct. 1294.

The stay in this case is much like the stay in Idlewild. In dealing with Mirant's Chapter 11 petitions, the bankruptcy court may well order divestiture of the three power plants as part of a reorganization plan under Chapter 11. If Mirant's Chapter 11 proceeding in the bankruptcy court results in divestiture of the plants, the Attorney General's Clayton Act case in the district court will be mooted, just as Idlewild's federal constitutional claims in the district court would have been mooted if the New York state courts had granted relief on state-law grounds. See Terra Nova Ins. Co. v. 900 Bar, Inc., 887 F.2d 1213, 1219-21 (3d Cir.1989) (concluding that the danger that a stay would render a claim moot was equivalent to res judicata for the purposes of applying the Moses H. Cone test).

Because the bankruptcy court has not yet determined whether Mirant's plants will be divested as a result of the reorganization, we cannot say with certainty that the Attorney General's district court suit will be moot. However, as Idlewild establishes, absolute certainty is not required in order to put a party "effectively out of court" within the meaning of the Moses H. Cone doctrine. See United States v. General Dynamics Corp., 828 F.2d 1356, 1361-62 (9th Cir.1987) (...