Montana-Dakota Utilities Co. v. Williams Electric Coop., 16014.

• Citation: 263 F.2d 431
• Decision Date: 10 February 1959
• Docket Number: No. 16014.,16014.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)
• Parties: MONTANA-DAKOTA UTILITIES CO., Appellant, v. WILLIAMS ELECTRIC COOPERATIVE, Inc., Appellee.

263 F.2d 431 (1959)

MONTANA-DAKOTA UTILITIES CO., Appellant, v. WILLIAMS ELECTRIC COOPERATIVE, Inc., Appellee.

No. 16014.

United States Court of Appeals Eighth Circuit.

February 10, 1959.

William R. Pearce, Bismarck, N. D. (Armin M. Johnson, Minneapolis, Minn., Cox, Pearce & Engebretson, Bismarck, N. D., and Faegre & Benson, Minneapolis, Minn., were with him on the brief), for appellant.

Frank F. Jestrab, Williston, N. D. (Harry M. Pippin and Bjella, Jestrab & Neff, Williston, N. D., were with him on the brief), for appellee.

Before JOHNSEN, VOGEL and MATTHES, Circuit Judges.

MATTHES, Circuit Judge.

This is an action for damages for alleged breach of a contract in which Williams Electric Cooperative, Inc., a North Dakota corporation, plaintiff below, recovered a jury verdict and judgment for $35,000 against Montana-Dakota Utilities Co., a Delaware corporation. Failing in its effort to obtain favorable action on its after trial motion for judgment, the defendant has brought the case to this court.

On July 21, 1952, plaintiff and defendant entered into the contract, here in question, in which it was recited that the Cooperative (plaintiff) and the Company (defendant) have electric facilities available for the distribution of electricity in the Williston, North Dakota, community, and with expansion and growth in that community taking place, a dispute has arisen between the parties concerning the right to serve customers in that area. In order to settle differences between the parties amicably, they agreed, inter alia:

"1. That the map attached hereto marked Exhibit `A\' and made a part hereof is a true representation of the Williston community and surrounding area experiencing growth and development wherein the dispute exists between the parties as to the right to serve new customers with electricity and there is indicated thereon by a heavy red line the boundary to be observed by the parties, the Cooperative to render electric service to new customers situated to the west, north and east of said red line and the Company to render electric service to new customers within the boundaries of said line."

"4. Neither party will solicit the customers of the other party for electric service."

After the contract was entered into, events occurred which form the basis for this litigation, in that defendant, upon formal consumer request to do so, extended its facilities whereby it was enabled to and did furnish service to three electric consumers that were located in the area designated by the contract as plaintiff's territory. This provoked a dispute between the two companies and ultimately resulted in plaintiff's filing a complaint before the Public Service Commission of North Dakota in which that agency was requested to issue an order restraining defendant from serving present and prospective customers in the prohibited area. In support of its complaint before the Commission, plaintiff relied, first, on the contract here in question, and second, on the charge that defendant was acting within the disputed area without authority of a certificate of public convenience and necessity, contrary to § 49-0301 N.D.R.C., 1943, 1953 Supp. The Commission dismissed the complaint and this action was subsequently affirmed in all respects by the Supreme Court of North Dakota, which ruled that the extensions of service by defendant, although made without a certificate of public necessity, were lawful within the exceptions of Paragraph 3 of § 49-0301, supra, which allowed extensions without certificates "* * * into territory contiguous to that already occupied by it and not receiving similar service from another utility, or electric cooperative * * * or if no certificate of public convenience and necessity has been issued to any other public utility."¹ Williams Electric Co-op., Inc., v. Montana-Dakota Utilities Co., N. D., 79 N.W. 2d 508. The court further held that the Commission properly declined to determine the contractual rights of the parties, this being a judicial function for the courts, stating at page 517: "If any contractual rights exist between the appellant and the respondent under the agreement dated July 21, 1952, which we do not determine, the enforcement of such rights must be sought in the courts of this state." (Emphasis supplied.)

Being unsuccessful in its effort to force defendant to discontinue furnishing electric service in its claimed territory, plaintiff instituted this action for damages, thus bringing the question of the validity of the contract squarely into issue.

Defendant contends that since the contract in question has for its principal object the dividing of trade territory between parties affected with a public interest, it is contrary to public policy and is therefore void and unenforceable. This position is sound and must be sustained.²

In general, a contract which unreasonably restrains trade is contrary to public policy and void. This is such an elementary and universally recognized rule of law that citation of authorities should not be necessary. For discussion and survey of the principle both at common law and under more modern statutes, see United States v. Addyston Pipe & Steel Co., 6 Cir., 85 F. 271, modified 175 U.S. 211, 20 S.Ct. 96, 44 L.Ed. 136, and consult Corbin on Contracts, Vol. 6, Chap. 80; Vol. II, Restatement of the Law of Contracts, §§ 513-517; Williston on Contracts, Rev.Ed., Vol. 5, § 1633 et seq.; 17 C.J.S. Contracts § 238. North Dakota, like many states, has outlawed such contracts by statute. Section 9-0806, N.D.R.C. 1943, provides:

"Every contract by which anyone is restrained from exercising a lawful profession, trade or business of any kind is to that extent void, except * * * (Two exceptions not here present are set out)."

See also § 51-0801 et seq. N.D.R.C. 1943, relating to Pools and Trusts.

Plaintiff does not dispute the foregoing principle, but takes the position that under the "rule of reason," the contract does not constitute an unreasonable restraint on trade. As a corollary proposition, plaintiff suggests that the public policy of North Dakota, as exemplified by the enactment of Chapter 235, S.L. N.D.1927, now § 49-0301 N.D.R.C.1943, 1953 Supp., supra, "is unalterably opposed to unrestricted competition between corporations engaged in the transmission and distribution of electrical power and, on the contrary, supports firmly any method of eliminating competition without detriment to the consuming public." We agree that, with the exception of certain "illegal per se" situations,³ resort must be had to the "rule of reason" in determining liability under the Sherman Act, 15 U.S.C.A. § 1 et seq., and analogous statutes. As this court said in Adams Dairy Company v. St. Louis Dairy Company, 8 Cir., 260 F.2d 46, at page 53: "(T)he principle is firmly entrenched that in determining whether a restraint is unreasonable and therefore illegal and violative of the Sherman Act, resort must be had to the Rule of Reason." The rule has been adhered to since its promulgation by the Supreme Court in 1911 in Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619, and was applied by the Supreme Court of Minnesota to a state statute modeled after the Sherman Act in Pittsburgh Plate Glass Co. v. Paine & Nixon Co., 182 Minn. 159, 234 N.W. 453, where a manufacturer had agreed not to solicit work in a particular locality.

However, of paramount importance to our case is a consideration of the nature of the business of the contracting parties. One is a public utility, the other, an electrical cooperative corporation — quasi public in character — both engaged in supplying a commodity to the public in the territory they are authorized to serve. In determining the relative freedom to contract and the validity of contracts which tend to restrict trade, the courts have definitely distinguished the limited powers of corporations impressed with a public trust and duty, from the greater freedom allowed to private enterprise. By the great weight of authority in this country, the rule has been promulgated and consistently applied that contracts between quasi-public corporations, having for their object the division of territory between such companies, are against public policy, and being so, are absolutely void, untempered by any application of the "rule of reason." A concise summation of the pronouncements made on this precise question is the following in 36 Am.Jur., Monopolies, Combinations, etc., § 97:

"Many cases hold that all contracts, combinations, and agreements between competing carriers and other public utilities for the elimination of competition, fixing of rates, division of territory, or pooling of profits, are illegal and void as tending toward monopoly or the restraint of trade and competition to the public detriment; and this is held to be true regardless of the fact that the restraint is partial and without regard to whether or not actual injury has resulted to the public." (Emphasis supplied.)

Typical of such holdings is Chicago Gas-Light & Coke Co. v. People's Gas-Light & Coke Co., 121 Ill. 530, 13 N.E. 169, where the contract purported to divide the city of Chicago between two gas companies, each having charters to serve all of the city, and actually undertaking so to serve, prior to the contract under which one covenanted not to serve a particular section of the city. In a thorough and well-reasoned opinion, the court refused specific performance, stating at page 175 of 13 N.E.

"The ordinary rule, that contracts in partial restraint of trade are not invalid, does not apply to corporations like appellant and appellee, because they were engaged in a public business, and in furnishing that which was a matter of public concern to all the inhabitants of the city."

In Gibbs v. Baltimore Gas Co., 130 U.S. 396, 399, 9 S.Ct. 553, 554, 32 L.Ed. 979, the Supreme Court was concerned with a contract between two gas companies, which contained,...