R.C. Dick Geothermal Corp. v. Thermogenics, Inc.

• Citation: 890 F.2d 139
• Decision Date: 24 October 1989
• Docket Number: 85-2589,Nos. 85-2573,s. 85-2573
• Parties: , 1989-2 Trade Cases 68,828 R.C. DICK GEOTHERMAL CORP., a corporation, Plaintiff-Appellant, v. THERMOGENICS, INC., a corporation; Pacific Energy Corp., a corporation; Resources Investment Co., a corporation; Hughes Aircraft Co., a corporation; Callon Petroleum Co., a corporation; Geothermal Resources International, Inc., a corporation; L.A. Hyland; Robert S. Reed; and John S. Callon, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 139

890 F.2d 139

58 USLW 2277, 1989-2 Trade Cases 68,828

R.C. DICK GEOTHERMAL CORP., a corporation, Plaintiff-Appellant, v. THERMOGENICS, INC., a corporation; Pacific Energy Corp., a corporation; Resources Investment Co., a corporation Hughes Aircraft Co., a corporation; Callon Petroleum Co., a corporation; Geothermal Resources International, Inc., a corporation; L.A. Hyland; Robert S. Reed; and John S Callon, Defendants-Appellees.

Nos. 85-2573, 85-2589.

United States Court of Appeals Ninth Circuit.

Argued En Banc and Submitted

May 12, 1988.

Decided Oct. 24, 1989.

C. Douglas Floyd and Allan N. Littman, San Francisco, Cal., for plaintiff-appellant.

James L. Hunt, San Francisco, Cal., for defendants-appellees.

Appeals from the United States District Court for the Northern District of California.

Before GOODWIN, BROWNING, ALARCON, NORRIS, BEEZER,

WIGGINS, BRUNETTI, KOZINSKI, NOONAN, THOMPSON, and O'SCANNLAIN, Circuit Judges.

NOONAN, Circuit Judge:

The plaintiff in this case, the lessor of property producing geothermal steam, brought suit under the antitrust laws of the United States against its lessees. After a trial on one set of claims and after giving summary judgment on another, the district court entered judgment for the defendants. We affirm the district court.

BACKGROUND FACTS

Drawing on the opinion of the district court, R.C. Dick Geothermal Corp. v. Thermogenics, Inc., 619 F.Supp. 441 (N.D.Cal.1985), aff'd, 827 F.2d 407 (9th Cir.1987), withdrawn, vacated, rehearing granted en banc, 841 F.2d 1010 (9th Cir.1988), undisputed facts set out in the briefs of the parties, and information in the public domain, we summarize the facts as follows:

The Products.

Water heated by the earth's energy--geothermal steam--is the primary product in play. Its major use in this country has been for one purpose, the production of electricity, and at one place, The Geysers, 378,000 acres in Sonoma and Lake Counties, Northern California. The user, until very recently, has been one company, the Pacific Gas and Electric Company (PG & E), which since the 1950's has taken the lead in the use of geothermal power to produce electricity and which was the sole purchaser of geothermal steam in the period 1970-1983.

The Geysers are a mountainous terrain, marked not by actual geysers but by fumaroles, small openings in porous rock from which white puffs of condensed steam emerge. At levels as great as 10,000 feet beneath this surface a reservoir of heated water, 13.3 miles by 5.3 miles, exists. R.C. Dick, 619 F.Supp. at 447 n. 4. The immediate source of the heat is believed to be magmatic rock at about 32,800 feet. Id. The ultimate source of the heat is most likely volcanic activity. Handbook of Geothermal Energy 93 (L. Edwards et al., eds. 1982).

The water trapped in the reservoir is a depletable resource. There is little recharge after use as steam. R. Denlinger, Geography and The Geysers Geothermal Field, Northern California p. III (Doctoral dissertation, Stanford University, 1979). Individual wells are exhausted by use. P. Kruger and C. Ote, Geothermal Energy 135 (1973); and a whole geothermal field declines as it is used. H.C. Armstead, Geothermal Energy 66 (2nd ed. 1983).

The value of geothermal steam has depended on the willingness of a supplier of electricity to use it. In 1960, after experiments in the 1950's, PG & E opened its first power plant using such steam, Unit 1, with a generating capacity of 12 million watts (12 megawatts). The producer of steam was the Magma-Thermal Power Co. A Reservoir Assessment of The Geysers Geothermal Field 8 (Pub. No. TR 27 of the California Department of Corrections, Division of Oil and Gas, 1981).

In 1963, PG & E opened Unit No. 2, capable of generating 14 megawatts, with Magma-Thermal Power Co. as the producer. Id. From 1967 until June 1979, the Union Oil Company of California, in association with Magma-Thermal or alone, was the only producer of steam in The Geysers, while PG & E remained the only buyer. Id. By the end of 1973, PG & E had built plants with a capacity of 410 megawatts. Id.

The development of more PG & E plants was retarded by the difficulty of meeting environmental controls and licensing requirements. P. Kruger et al., "Utility Industry Estimates of 'Geothermal Electricity', Geothermal Resources Council, Transactions (September 1980) vol. 4, p. 512." There was an accompanying increase in the cost of the power plants designed to deal with the environmental problems, especially the treatment of odiferous H2 S. A capital cost of $12.8 million to construct two plants with a total capacity of 110 megawatts in 1971 rose in 1979 to a capital cost of $25.5 million to construct a single plant, Unit No. 15 with a capacity of 55 megawatts. H.C. Armstead,supra, at 298. In the 1970's it was estimated that there was a five-year time lag in The Geysers between drilling that confirmed the existence of usable steam wells and commercial operation of a power plant. Kruger and Ote, supra, at 135. The wells and the plants had to be close to each other because geothermal heat loses its energy quickly in being transported from the wellheads to the plants. Id. 130.

In June 1979 PG & E's Unit No. 15 went on line, its steam being supplied by a defendant in this case. In May 1980 Aminoil USA Inc. began to supply steam to a PG & E unit with a capacity of 135 megawatts. By 1982 Aminoil, Shell Oil Co., MCR Geothermal Corp., and Occidental Geothermal all had active projects to develop wells and sell steam in The Geysers. A Reservoir Assessment, 8. In addition, Occidental Geothermal planned to become a user of steam. Id. As of 1983 PG & E was still the only actual purchaser of steam; by 1985 five other utilities were also in the market. R.C. Dick, 619 F.Supp. at 455.

Megawatt output increased from 78 megawatts in 1970 to 396 in 1973, 980 in 1980, and 1310 megawatts in 1983. The field's eventual capacity is estimated not to exceed 2,300 megawatts. Id.

The Parties.

In 1964 Ronald C. Dick, an individual, entered into a mining lease for 1,100 acres of land in Sonoma County, California, owned by Alex and Audrey Rorabaugh. He immediately assigned the lease to R.C. Dick Mercury Mines Corporation (Dick Mines), his then wholly-owned company. As the lessee of the property, Dick Mines was entitled to explore and mine all minerals including steam. For two and one half years as lessee of the Rorabaughs' property, Dick Mines drilled no wells and made no geological explorations.

In October 1966 Dick Mines subleased to Geothermal Resources Inc. (GRI). The lease provided that GRI would pay Dick Mines $14,000; that it would pay the Rorabaughs a basic minimum rental of $1,500 per month, the rental required by the master lease; a royalty of 7 percent of the gross proceeds, as required by the master lease, to the Rorabaughs; and an additional 3 percent to Dick Mines. Additionally, GRI agreed to pay the portion of the real and personal property taxes in excess of $2,500 and to pay for general public liability insurance, for worker's compensation insurance and at least $1,000 for fire insurance. The lease was to be in force for two years and thereafter up to June 30, 2063 as long as the premises produced steam in commercial quantities or GRI in good faith continued to conduct drilling on the property. If steam was discovered in commercial quantity, Dick Mines agreed to exercise its option to renew the master lease for 84 years.

In 1970, GRI transferred its steam rights to Resources Investment Company (RIC), a wholly-owned subsidiary of Hughes Aircraft Company (HAC). GRI retained a royalty interest. In 1971 R.C. Dick Geothermal Corporation (Dick Geothermal), the plaintiff in this case, was organized as a wholly-owned subsidiary of Dick Mines. The lease from the Rorabaughs was transferred to Dick Geothermal.

As of 1971 the Rorabaughs were leasing to Dick, whose interest had passed to Dick Mines and then to Dick Geothermal, while GRI and then RIC were the sublessees. Thermogenics, Inc. (TGI), another wholly-owned subsidiary of HAC, and Pacific Energy Corporation (PEC) assumed the development rights held by RIC. The companies used by the sublessees in connection with development of the property were PEC and Callon Petroleum Company, both companies owned by John Callon.

On July 12, 1973 PEC entered into a contract with PG & E. PG & E agreed to construct a power unit (Unit 15) of about 55 megawatts full capability. PEC agreed to provide the steam for this unit and in addition to carry out exploration and development of the property to "define as quickly as practicable the total steam reserves" of the property. PEC further agreed to conduct sufficient drilling to support installation of additional capacity at a rate of at least 100 megawatts per year. The price PG & E was to pay was calculated in terms of a ratio derived from PG & E's costs in using fossil fuels and nuclear fuels but in no event was to be less than 2 mills per kilowatt hour of net output. PG & E was given the right to terminate if costs or the quality of steam made the unit economically impracticable. PEC was given the right to terminate if the operation of the wells became unprofitable. Otherwise no termination date was set.

In 1979 Dick Geothermal bought the fee from the Rorabaughs, securing for itself the Rorabaugh's 7 percent royalty interest.

In the case at bar the defendants are the sublessees--GRI and HAC and HAC's subsidiaries, TGI and RIC; Callon and his companies, PEC and Callon Petroleum; and certain individual officers of the defendants. The defendants, in short, either held leases to the property or worked for these leaseholders. Dick Geothermal related to the defendants as their only landlord in and after 1979 and as their intermediary landlord before 1979.

The history may be summarized as follows:

PRE-CONSPIRACY

1964 Ronald C. Dick leases from Rorabaughs.

1964 Ronald C. Dick assigns lease to Dick Mines.

1964-1966...