State ex rel. Van de Kamp v. Texaco, Inc.
Decision Date | 07 November 1985 |
Citation | 219 Cal.Rptr. 824,193 Cal.App.3d 8 |
Court | California Court of Appeals Court of Appeals |
Parties | Previously published at 193 Cal.App.3d 8 193 Cal.App.3d 8, 1985-2 Trade Cases P 66,858 STATE of California ex rel John K. VAN DE KAMP, As Attorney General, etc., Plaintiff and Appellant, v. TEXACO, INC., et al., Defendants and Respondents. Civ. 24506. |
John K. Van de Kamp, Atty. Gen., Andrea Sheridan Ordin, Chief Asst. Atty. Gen., Michael J. Strumwasser, Sp. Counsel to the Atty. Gen., Sanford N. Gruskin, Asst. Atty. Gen., Michael I. Spiegel, Owen Lee Kwong, Richard Light and Lawrence R. Tapper, Deputy Attys. Gen., for plaintiff and appellant.
Leslie C. Randall, Kaye, Scholer, Fierman, Hays & Handler, Milton J. Schubin, New York City, and Aton Arbisser; Hefner, Stark & Marois, Sacramento and David G. Yetter, Los Angeles, for defendants and respondents.
The State of California (State), through the Attorney General, brought an action under the Cartwright Act (Bus. & Prof.Code, § 16720 et seq.), and the California unfair competition law (Bus. & Prof.Code, § 17200 et seq.) to enjoin Texaco, Inc., from acquiring the California assets of Getty Oil Company pursuant to a merger between the two companies. The trial court sustained the demurrer of Texaco, Inc., without leave to amend and dismissed State's complaint. On appeal State contends: (1) the court erred in concluding the Cartwright Act does not apply to mergers; (2) the court erred in concluding the merger is not subject to the unfair competition law; (3) State's action is not preempted by federal law, nor does it unduly burden interstate commerce; and (4) it is entitled to a preliminary injunction. We conclude State's action is preempted by federal regulation of the merger; on that basis, we shall affirm.
On January 9, 1984, Texaco, Inc. (Texaco) commenced a tender offer for 35 percent of the voting shares of Getty Oil Company (Getty) with the intention of subsequently completing a merger for the remaining outstanding shares. Prior to the tender offer, Texaco and Getty entered into a merger agreement under which Getty granted Texaco an option to purchase authorized but unissued shares amounting to 10.2 percent of the total Getty shares that would be outstanding after the issuance. Texaco and Getty further entered into two agreements to purchase voting shares constituting, respectively, 11.8 percent and 40.2 percent of the outstanding Getty shares. The total value of the transaction was approximately $10.1 billion and, when consummated, would result in the second largest petroleum company in the United States. (49 Fed.Reg. 8554 (March 7, 1984).)
The Federal Trade Commission (FTC), concerned with potential anticompetitive effects of the merger on the petroleum industry in California and other regions of the country, drafted a complaint charging Texaco with a violation of Section 7 of the Clayton Act (15 U.S.C. § 18) 1 and section 5 of the Federal Trade Commission Act (15 U.S.C. § 45). 2 (Id., at p. 8553.)
As to the effects of the merger on the California petroleum industry FTC alleged, in part, that both Getty and Texaco own oil refineries on the West Coast with Getty's refinery being located in Bakersfield, California; Texaco owns refineries in Wilmington, California and Anacortes, Washington. Getty produces substantially more heavy crude oil from its California oil fields than it can refine in its Bakersfield refinery; Texaco produces substantially less heavy crude oil in California than it can refine in its two West Coast refineries. Getty owns and operates a proprietary pipeline system which gathers heavy crude oil from its fields in the San Joaquin Valley and transports it from Bakersfield to the San Francisco Bay Area.
Texaco's West Coast refineries compete with independent or "non-integrated" refiners in California. 3 Texaco has an incentive to increase its refining capacity and lessen competition from non-integrated refiners. The acquisition of Getty's California oil assets is likely to increase Texaco's incentive and ability to deny heavy crude oil to non-integrated refiners and sever their access to proprietary pipelines. (49 Fed.Reg., supra, at pp. 8554-8555.)
An FTC staff analysis more fully explains the potential adverse effects of the merger on California's non-integrated refiners: "The problem arises because Getty owns substantial heavy crude oil reserves in California. This crude oil is denser (lower in gravity) than most crude oil produced in the world and often has a high nitrogen content. These characteristics make the crude more costly to refine. Getty has 17 percent of the production of such crude oil in the San Joaquin Valley of California, and about 140 MBD [thousand] barrels per day production across the entire state. Getty also has an extensive crude oil gathering and trunkline system capable of transporting heavy crude to California refineries. This includes a heavy crude oil trunkline with about 200 MDB in capacity, linking Bakersfield, California to San Francisco.
To alleviate the enunciated and other potential anticompetitive effects while allowing the merger to proceed, the FTC entered into an agreement with Texaco which comprehensively regulates the merger between Texaco and Getty on a nationwide basis. (Id., at p. 8550; 49 Fed.Reg. 30059 (July 26, 1984).) In summary, the agreement, which was incorporated into a consent order, requires Texaco to divest, within 12 months, all Getty assets listed in an attached schedule, including certain of Getty's petroleum-related assets in the northeastern United States, a Texaco refinery located in the Northeast, and certain Getty petroleum assets in specified Rocky Mountain, midwestern With respect specifically to the acquisition of Getty's California oil reserves and pipeline, the consent order requires Texaco to sell California crude oil of similar grade and quality to that sold by Getty in 1983 to each eligible refiner specified in an attached schedule, in accordance with the terms and conditions listed therein. (Id., at p. 30061.) However, this...
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...580 (1984), in holding that an FTC consent order preempted state statutes. That case is State ex rel. Van de Camp v. Texaco, Inc., 193 Cal.App.3d 8, 219 Cal. Rptr. 824 (Cal.App. 3 Dist.1985), aff'd. on other grounds, 46 Cal.3d 1147, 252 Cal. Rptr. 221, 762 P.2d 385 (Cal.1988). In Van de Cam......
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State ex rel. Van De Kamp v. Texaco, Inc.
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