Rio Grande Royalty Co. Inc. v. Partners

• Decision Date: 07 August 2009
• Docket Number: No. H–08–cv–0857.,H–08–cv–0857.
• Citation: 786 F.Supp.2d 1202
• Parties: RIO GRANDE ROYALTY COMPANY, INC., on behalf of itself and all others similarly situated, Plaintiff,v.ENERGY TRANSFER PARTNERS, L.P., Energy Transfer Company, ETC Marketing, Ltd., and Houston Pipeline Company, Defendants.
• Court: U.S. District Court — Southern District of Texas

786 F.Supp.2d 1202

RIO GRANDE ROYALTY COMPANY, INC., on behalf of itself and all others similarly situated, Plaintiff,

v.ENERGY TRANSFER PARTNERS, L.P., Energy Transfer Company, ETC Marketing, Ltd., and Houston Pipeline Company, Defendants.

No. H–08–cv–0857.

United States District Court, S.D. Texas, Houston Division.

Aug. 7, 2009.

Bernard Persky, Gregory Asciolla, William Vincent Reiss, Labaton & Sucharow LLP, New York, NY, Robert A. Chaffin, Chaffin Stiles, Houston, TX, for Plaintiff.Charles W. Schwartz, Skadden Arps et al., Houston, TX, Jerome Hirsch, Skadden Arps et al., New York, NY, Steven Sunshine, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, DC, for Defendants.

MEMORANDUM AND ORDER

KEITH P. ELLISON, District Judge.

Pending before the Court are Plaintiff's Motion For Leave to Amend To Assert a Claim for Common Law Fraud (Doc. No. 31) and Defendants' Cross–Motion To Dismiss the Proposed Class Action Complaint (Doc. No. 33). For the following reasons, Defendants' Motion must be granted and Plaintiff's Motion must be denied.

I. INTRODUCTION

This case involves Sherman Act claims for unlawful monopolization and attempted monopolization in the market for fixed-price natural gas baseload transactions at the Houston Shipping Channel (“HSC”). Plaintiff Rio Grande Royalty Company, Inc. is an energy company that sold natural gas based on the Inside FERC's Gas Market Report ( “Inside FERC” ) HSC Index ¹ during the class period, December 2003 to December 2005 (“Class Period”). (Compl. ¶ 11.) Defendants allegedly dumped natural gas to drive down the price at the HSC and reported that depressed price to Inside FERC to maintain a monopoly in their part of the natural gas market. ( Id. at ¶ 2.) Defendant Energy Transfer Partners, L.P. (“ETP”) is a publicly traded energy company that processes, transports, and stores natural gas. The company also owns pipelines in West Texas, including the Houston Pipeline Company (“HPL”), an intrastate natural gas pipeline system that serves the HSC natural gas market. ( Id. at ¶ 12.) Defendants Energy Transfer Company (“ETC”) and HPL are subsidiaries of ETP that, among other business interests, buy and sell physical and financial natural gas contracts for ETP, sometimes under the name ETC Marketing, Ltd., also a subsidiary of ETP. ( Id. at ¶¶ 13–14.) The relevant facts in Plaintiff's Complaint are detailed in the Court's prior Order ruling on Defendants' first Motion to Dismiss (“Order”).

In the Order, the Court granted Defendant's Motion to Dismiss Plaintiff's Sherman Act Section 1 and Section 2 claims. The Court dismissed Plaintiff's Section 2 attempted monopolization claims because the Complaint failed to allege illegal exclusionary conduct or predatory pricing. Additionally, it dismissed Plaintiff's Section 2 monopolization claim because the Court was unable to determine whether Defendants possessed monopoly power in the relevant market. Also, it found that Plaintiff had not established the anti-trust injury necessary for standing under the Clayton Act. In its Proposed Amended Complaint (“PAC”), Plaintiff now reasserts claims under the Clayton Act (15 U.S.C. §§ 15, 26), alleging that Defendants violated Section 2 of the Sherman Act by attempted and actual monopolization (15 U.S.C. § 2) and seeks leave of Court to add a common law fraud claim. This Court has jurisdiction pursuant to 28 U.S.C. § 1331 and § 1367.

II. MOTION TO DISMISSA. Standards

1. Rule 15(a)

Leave to amend a complaint is freely given when justice so requires. Fed. R. Civ. P. 15(a). “The trial court should consider whether permitting the amendment would cause undue delay in the proceedings or undue prejudice to the nonmoving party, whether the movant is acting in bad faith or with a dilatory motive, or whether the movant has previously failed to cure deficiencies in his pleadings by prior amendments.” Chitimacha Tribe of Louisiana v. Harry L. Laws Co., Inc. 690 F.2d 1157, 1163 (5th Cir.1982). The trial court should also consider prejudice to the opposing party and futility of amendment. See, e.g., Torch Liquidating Trust ex. rel. Bridge Associates L.L.C. v. Stockstill, 561 F.3d 377, 391 (5th Cir.2009); Ellis v. Liberty Life Assur. Co. of Boston, 394 F.3d 262, 268 (5th Cir.2004). When an amended complaint cannot survive a motion to dismiss pursuant to 12(b)(6), however, allowing leave to amend would be futile. Briggs v. Mississippi, 331 F.3d 499, 508 (5th Cir.2003) (citing Lewis v. Fresne, 252 F.3d 352, 360 (5th Cir.2001)).

2. Rule 12(b)(6)

A court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, a court must “accept the complaint's well-pleaded facts as true and view them in the light most favorable to the plaintiff.” Johnson v. Johnson, 385 F.3d 503, 529 (5th Cir.2004). “To survive a Rule 12(b)(6) motion to dismiss, a complaint ‘does not need detailed factual allegations,’ but must provide the plaintiff's grounds for entitlement to relief—including factual allegations that when assumed to be true ‘raise a right to relief above the speculative level.’ ” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir.2007) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). That is, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955).

B. Analysis

1. Plaintiff's Proposed Common Law Fraud Claim

Plaintiff notes that the Court did not attach conditions when it allowed Plaintiff leave to amend its Complaint within 30 days of the entry of the Order. Plaintiff contends that, even if the Order did not explicitly allow Plaintiff to add a common law fraud claim, the Court should give leave to amend to add a common law fraud claim at this time because of the permissive standard of Fed. R. Civ. P. 15(a). Defendants respond that Plaintiff should be denied leave to add a common law fraud claim because Plaintiff fails to plead the elements necessary for Federal Rule 9(b) and the purported claim is largely barred by the statute of limitations. Plaintiff replies that it more than adequately states a common law fraud claim.

To recover on an action for fraud, the party must prove: (1) a misstatement or omission (2) of material fact (3) with the intent to defraud, (4) the speaker made it with the intention that it should be acted upon by the party; (5) on which the plaintiff relied, and (6) which proximately caused the plaintiff's injury. Green Intern., Inc. v. Solis, 951 S.W.2d 384, 390 (Tex.1997), In re Enron Corp. Securities, Derivative & “ERISA” Litigation, 490 F.Supp.2d 784, 792–93 (S.D.Tex.2007). A party may be liable for common law fraud based on the failure to disclose a material fact within the knowledge of that party. Bradford v. Vento, 48 S.W.3d 749, 754–55 (Tex.2001). For allegations of fraud, Rule 9(b) requires that a party “state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b). That is, the plaintiff must plead the “who, what, when, where, and how” of the alleged fraud. Williams v. Bell Helicopter Textron, Inc., 417 F.3d 450, 453 (5th Cir.2005) (quoting U.S. v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir.1997)).

a. Misrepresentation

In the PAC, Plaintiff alleges that Defendants reported false and misleading natural gas trade data to Platts. (PAC ¶ 122.) Defendants aver, however, that this statement is conclusory. Plaintiff's allegations, they contend, are that Defendants accurately provided Platts the price and volume information for sales made.

Plaintiff responds that Defendants intentionally misstated the true market price of natural gas sold at HSC because of their scheme to depress prices. Plaintiff notes that, throughout the PAC, it details how Defendants allegedly manipulated sales of fixed-price natural gas at HSC and then submitted that sales information to Inside FERC. (PAC ¶¶ 36, 62, 70–72, 75, 79, 80–81, 83–84, 122–25.) After reviewing Plaintiff's allegations, however, the Court concludes that Plaintiff alleges only that Defendants purportedly wrongfully manipulated the fixed-price natural gas baseload transactions at HSC, but then truthfully reported the price and volume information from those transactions. Plaintiff's allegations based on Defendants' purported affirmative misstatements must fail.

b. Duty to Disclose

Defendants contend that, because Plaintiff has not pled an affirmative misrepresentation of material fact, Plaintiff's fraud claim rests on fraudulent nondisclosure. Defendants argue that Plaintiff's contention that industry participants use the HSC Index as a reference that may be reflective of market values is not equivalent to an allegation that the Index actually represents the “market forces of supply and demand” sufficient to create a duty to report anything beyond the price and volume for trades. Defendants note that Plaintiff describes the HSC Index as “an index price representative of transactions at [certain trading points].” (PAC ¶ 37.)

Plaintiff avers that Defendants knowingly and intentionally failed to disclose that the prices of HSC fixed-price baseload natural gas that they reported represented the true market forces of supply and demand. Defendants purportedly knew that the purpose of the HSC Index published by Platts was to reflect the actual market conditions at HSC and not an intentionally and artificially depressed price. Plaintiff avers that Defendants' duty arose from their partial disclosure of information.

Specifically, Plaintiff contends that industry contracts often contain a price term that refers to the HSC Index price because it “provides an objective...