Oahu Gas Serv., Inc. v. Pacific Resources, Inc.

• Decision Date: 15 November 1978
• Docket Number: Civ. No. 77-0444.
• Citation: 460 F. Supp. 1359
• Parties: OAHU GAS SERVICE, INC., Plaintiff, v. PACIFIC RESOURCES, INC., and Gasco, Inc., Defendants.
• Court: U.S. District Court — District of Hawaii

460 F. Supp. 1359

OAHU GAS SERVICE, INC., Plaintiff, v. PACIFIC RESOURCES, INC., and Gasco, Inc., Defendants.

Civ. No. 77-0444.

United States District Court, D. Hawaii.

November 9, 1978.

As Amended November 15, 1978.

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A. Bernard Bays, Tom C. Ingledue, KeChing Ning, Carlsmith, Carlsmith, Wichman & Case, Honolulu, Hawaii, for plaintiff.

John Sparks, Brobeck, Phleger & Harrison, San Francisco, Cal., Arthur B. Reinwald, Hoddick, Reinwald, O'Connor & Marrack, Honolulu, Hawaii, for defendants.

DECISION ON MOTION TO DISMISS

I. STATEMENT OF FACTS

SAMUEL P. KING, Chief Judge.

Plaintiff Oahu Gas Service, Inc. ("OGS") is a Hawaii corporation engaged in the business of selling and distributing liquid petroleum gas ("LP-gas"), commonly referred to as propane, on the island of Oahu. Defendants Pacific Resources, Inc. ("PRI") and Gasco, Inc. ("Gasco") are Hawaii corporations. Gasco is a wholly-owned subsidiary of PRI and is engaged in the business of selling and distributing petroleum products, including LP-gas and synthetic natural gas ("SN-gas"), in the State of Hawaii.¹

On November 4, 1977, OGS filed a Complaint which alleges that Gasco, while under the direction and control of PRI, engaged in certain conduct and practices which violated federal and state antitrust and trade regulation statutes. OGS alleges that Gasco (a) intentionally monopolized trade and commerce in LP-gas and SN-gas in the State of Hawaii; (b) unreasonably restrained trade and commerce in these markets; (c) entered into illegal exclusive dealing and tying arrangements with its customers; and (d) engaged in price discrimination between purchasers of LP-gas of like grade.² OGS claims that Defendants' alleged activities caused severe injury to OGS' business and property, and seeks treble damages, injunctive relief, and reasonable attorney's fees and costs.

On January 16, 1978, PRI and Gasco (hereinafter collectively referred to as "Gasco") moved to dismiss the Complaint on the ground that OGS had failed to state claims upon which relief could be granted. More specifically, Gasco contends that the congressionally-created federal regulation of propane is so pervasive that a total or "blanket" immunity from the antitrust laws must be implied.³ Gasco's alternative argument is that even if a total or blanket immunity is inapplicable, most of the allegations in the Complaint must be stricken because the activities challenged therein are subject to specific agency regulation and are therefore immune from the antitrust laws. Gasco also asserts that insofar as any of its activities are subject to regulation by the Hawaii Public Utilities Commission ("PUC"), those activities are likewise exempt from antitrust scrutiny, under the "state action" exemption developed in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), and subsequent cases. Finally, Gasco claims that its activities before the Federal Energy Administration, whereby Gasco sought and received an increased propane allocation and opposed such an increase sought by OGS, were protected by the privilege of inducing governmental action recognized in Eastern Railroad Presidents Conference v. Noerr Motor Freight Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961).

OGS rejects all of Gasco's contentions, and the issues have been both well briefed and well argued. In fact, both when and after the motion to dismiss was filed, the parties filed numerous memoranda, exhibits and tables to aid the Court in the determination of the issues. Since these are matters outside the pleadings which have not been excluded by the Court, I must and do treat this motion as a motion for summary judgment made pursuant to Rule 56 of the Civil Rules. Fed.R.Civ.P. 12(b); Smith v. United States, 362 F.2d 366 (9th Cir. 1966).

II. MOTION TO DISMISS

A. THE HAWAII GAS INDUSTRY

Before beginning an analysis of the legal issues raised by Gasco's dismissal motion, it is necessary to examine the Hawaii gas industry and market to define the context in which these issues arise. This is especially necessary where, as here, the complaint alleges monopolistic and other anticompetitive conduct. The following description of the Hawaii gas industry emerges from the pleadings and memoranda on file.

LP-gas, commonly called propane, is a compressed liquid gas which is a mixture of liquid hydrocarbons containing primarily the chemical propane (C3H8). LP-gas is extensively used as a fuel for industrial, commercial, agricultural and residential purposes. Propane may be produced by refining crude oil or may be recovered by precipitating liquid hydrocarbons out of the "wet gas" flowing from natural gas wells. All of the propane marketed by plaintiff OGS and a large quantity of the propane marketed by defendant Gasco is refined in Hawaii by Chevron, U.S.A., Inc. ("Chevron"), from oil imported from foreign sources or from states other than Hawaii. Gasco also purchases some LP-gas directly from foreign sources.

LP-gas is distributed in Hawaii by either a non-utility or utility method. Non-utility LP-gas is distributed by tank trucks to tanks rented from the supplier and installed on the customer's premises. Utility LP-gas is distributed by separate networks of pipelines called rural utility systems. Each rural utility system consists of a central storage site from which metered pipelines carry LP-gas to users within the system. Rural utility systems, unless entirely contained within private property, are regulated by the Hawaii PUC.⁴

Casco and OGS are currently the only wholesale purchaser-resellers of LP-gas in the State of Hawaii.⁵ Before OGS began its operations in December of 1972, Gasco was the sole supplier of LP-gas in the state. Now, OGS alleges (upon information and belief), Gasco owns and operates at least 39 rural utility systems in Hawaii. OGS serves but one such system, supplying a single, privately-owned subdivision on Oahu. OGS has also alleged that in 1976 Gasco generated about $12,000,000 in total revenues from its LP-gas distribution. This figure is claimed to represent in excess of ninety-five percent (95%) of the LP-gas market in Hawaii.

Gasco also sells synthetic natural gas to customers on the island of Oahu. SN-gas is a gas fuel which, for all practical purposes, is used interchangeably with LP-gas as a source of fuel.⁶ SN-gas is distributed in gaseous form by pipeline directly to customers. OGS does not distribute SN-gas, but has alleged that Gasco's allegedly illegal activities also affected the SN-gas market to OGS's detriment.

This, then, is the field from which the battle has moved into the courts. Hoping to deflect OGS's volley of antitrust claims, Gasco has raised the shield of antitrust immunity. To determine the validity of that defense, I now consider the merits of Gasco's dismissal motion.⁷

B. ANTITRUST IMMUNITY DUE TO FEDERAL REGULATION

1. Blanket Immunity For Activities Relating to LP-Gas

Gasco argues that all of the challenged activities related to LP-gas are exempt from judicial scrutiny due to pervasive federal regulation which has impliedly repealed the antitrust laws. This pervasive regulation, it is argued, evidences a congressional intent to supplant the antitrust laws in order to effect the policies of the regulatory program. Gasco also contends that an implied immunity from the antitrust laws is necessary to make the regulatory scheme work.

As noted in Phonotele, Inc. v. American Telephone and Telegraph Company, 435 F.Supp. 207, 210 (C.D.Cal.1977),

the goals of the regulatory laws and antitrust statutes often are in conflict. The former usually are predicated on the assumption that unrestrained interaction of competitive forces in a particular industry will disserve the public interest; while the latter are founded on the premise that such unrestrained interaction will yield the best allocation of economic resources.

The problem is not a new one, and the Supreme Court cases have laid down certain well-established guidelines.

Initially, I note the oft-repeated caution that repeal of the antitrust laws by implication from regulatory statutes are strongly disfavored and not casually to be inferred. E.g., Carnation Co. v. Pacific Westbound Conference, 383 U.S. 213, 217-18, 86 S.Ct. 781, 15 L.Ed.2d 709 (1966); California v. Federal Power Commission, 369 U.S. 482, 485, 82 S.Ct. 901, 8 L.Ed.2d 54 (1962). Such repeals have been found only where there is a "plain repugnancy" between the antitrust and regulatory provisions, United States v. Philadelphia National Bank, 374 U.S. 321, 350-51, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963); United States v. Borden Co., 308 U.S. 188, 197-206, 60 S.Ct. 182, 84 L.Ed. 181 (1939), and even where such a plain repugnancy exists, the antitrust laws only give way to the regulatory scheme pro tanto to the extent of the repugnancy. Georgia v. Pennsylvania R. R., 324 U.S. 439, 457, 65 S.Ct. 716, 84 L.Ed. 1051 (1945). Furthermore, repeal is to be regarded as implied only if necessary to make the regulatory scheme work, and even then, only to the minimum extent necessary. The proper approach is an analysis which reconciles the operation of both statutory schemes with one another rather than holding one completely ousted. Silver v. New York Stock Exchange, 373 U.S. 341, 357, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963).

These general legal guidelines suggest that the analytical strategy of a court faced with the antitrust immunity issue should be as follows: first, the court must determine whether there is a conflict amounting to a "plain repugnancy" between the regulatory scheme and the antitrust laws regarding the conduct at issue; then, given the requisite repugnancy, the court must decide how Congress intended that the conflict be resolved. See Essential Communications Systems, Inc. v. American Telephone & Telegraph Co., 446 F.Supp. 1090 (D.N.J.1978). Accordingly, I now examine the...