U.S. Gypsum Co. v. Indiana Gas Co., Inc.

• Decision Date: 24 November 2003
• Docket Number: No. 03-1905.,03-1905.
• Citation: 350 F.3d 623
• Parties: UNITED STATES GYPSUM COMPANY, Plaintiff-Appellant, v. INDIANA GAS COMPANY, INCORPORATED, and ProLiance Energy LLC, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

350 F.3d 623

UNITED STATES GYPSUM COMPANY, Plaintiff-Appellant, v. INDIANA GAS COMPANY, INCORPORATED, and ProLiance Energy LLC, Defendants-Appellees.

No. 03-1905.

United States Court of Appeals, Seventh Circuit.

Argued November 4, 2003.

Decided November 24, 2003.

COPYRIGHT MATERIAL OMITTED

Peter M. King, Canel, Davis & King, Chicago, IL, Todd A. Richardson (argued), Lewis & Kappes, Indianapolis, IN, for Plaintiff-Appellant.

Stanley C. Fickle (argued), Barnes & Thornburg, Indianapolis, IN, for Indiana Gas Co.

Wayne C. Turner (argued), McTurnan & Turner, Indianapolis, IN, for ProLiance Energy.

Before EASTERBROOK, ROVNER, and EVANS, Circuit Judges.

EASTERBROOK, Circuit Judge.

Indiana Gas Co. and Citizens Gas & Coke, two utilities that supply natural gas to customers in Indiana, formed a joint venture (called ProLiance Energy) to manage the contracts by which they purchase gas and transportation services from the interstate pipelines that pass through that state. United States Gypsum (USG) purchases substantial quantities of gas for use in manufacturing; it buys gas at the wellhead and deals directly with the pipelines for transportation. In this litigation under sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, USG contends that ProLiance is an unlawful combination that by contract controls a substantial fraction of the transport capacity between the gas fields and Indiana, and that it has used this market power to monopolize. Even though USG buys transportation directly from the pipelines, it alleges, the price the pipelines can charge for their services depends on what ProLiance has done with its portion of the capacity. According to USG, pipelines have been able to charge more for their residual capacity because of ProLiance's existence (and practices) than the pipelines would have been able to charge in its absence.

Indiana Gas and Citizens Gas have many customers with firm entitlements to gas. In order to assure delivery, Indiana Gas and Citizens Gas purchase more pipeline capacity than needed for daily deliveries; they hold the excess as reserve for the benefit of the uninterruptible customers during periods of peak demand, such as cold snaps or a business's high season. During times of average demand, Indiana Gas and Citizens Gas sold their excess transport entitlement on the spot market, where USG bought it at attractive prices and used it to secure gas that it stored for times when spot market prices were high. After ProLiance came into existence, however, it ended (or at least greatly curtailed) these spot-market sales, forcing USG to pay more for firm capacity from the pipelines (firm commitments always sell for more than interruptible or spot purchases).

There are several ways to characterize what happened. ProLiance contends that, by managing purchases on behalf of both Indiana Gas and Citizens Gas, it has achieved efficiencies: when one utility's demand peaks, the other's may be closer to normal, which means that less aggregate reserve capacity is needed. This is the way in which an insurer, by pooling many imperfectly correlated risks, creates a portfolio that is less risky than any insured standing alone. Thus ProLiance needs less standby capacity for peak periods and can provide more firm, uninterruptible commitments per unit of pipeline capacity than either Indiana Gas or Citizens Gas could do on its own. An increase in demand from the utilities' customer base then can be met without an increase in price. The upshot, however, is that third parties such as USG find fewer bargains in the spot market. As USG sees matters, however, the higher spot-market prices stem not from risk pooling but from ProLiance either holding reserve capacity off the market (a reduction in output that drives up prices) or bundling the release of reserve transport capacity with gas (which USG describes as a monopolistic tie-in sale).

Because all we have to go on is USG's complaint, it is too soon to determine whose understanding of these events is superior. The district judge concluded that it would never be necessary to examine these issues and dismissed the complaint, citing Fed.R.Civ.P. 12(b)(6), on three grounds: first, USG has not suffered antitrust injury because it does not buy from ProLiance; second, the suit is barred by the four-year period of limitations in 15 U.S.C. § 15b; third, USG could not prove its claims in light of adverse findings by the Indiana Utility Regulatory Commission in a proceeding to which USG was a party. None of these is a good ground on which to dismiss USG's complaint — and the latter two are not permissible even in principle, because the statute of limitations and issue preclusion are affirmative defenses. See Fed.R.Civ.P. 8(c). Complaints need not anticipate or attempt to defuse potential defenses. See Gomez v. Toledo, 446 U.S. 635, 100 S.Ct. 1920, 64 L.Ed.2d 572 (1980). A complaint states a claim on which relief may be granted when it narrates an intelligible grievance that, if proved, shows a legal entitlement to relief. See Swierkiewicz v. Sorema N.A., 534 U.S. 506, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002); Bennett v. Schmidt, 153 F.3d 516 (7th Cir.1998). A litigant may plead itself out of court by alleging (and thus admitting) the ingredients of a defense, see Walker v. Thompson, 288 F.3d 1005 (7th Cir.2002) (applying this principle to the period of limitations), but this complaint does not do so; the district judge thought, rather, that the complaint had failed to overcome the defenses. As complaints need not do this, the omissions do not justify dismissal. What is more, all three grounds are unsound in application as well as in principle.

A private plaintiff must show antitrust injury — which is to say, injury by reason of those things that make the practice unlawful, such as reduced output and higher prices. The antitrust-injury doctrine was created to filter out complaints by competitors and others who may be hurt by productive efficiencies, higher output, and lower prices, all of which the antitrust laws are designed to encourage. See, e.g., Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 110 S.Ct. 1884, 109 L.Ed.2d 333 (1990); Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986); Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). A plaintiff who wants something, such as less competition or higher prices, that would injure consumers, does not suffer antitrust injury. In Midwest Gas Services, Inc. v. Indiana Gas Co., 317 F.3d 703 (7th Cir.2003), we held that the antitrust-injury doctrine prevents a suit by one of ProLiance's business rivals. USG, by contrast, is a consumer of gas; it is in the class of persons protected from reductions in output and higher prices. And USG contends that it has been required to pay higher prices. Its injury (if any) is antitrust injury. That at least one of ProLiance's rivals has sued, and that none of its indirect purchasers (the customers of Indiana Gas and Citizens Gas) has done so, may be informative, but it does not prevent USG from attempting to show that ProLiance has anticompetitive consequences.

Portions of the district court's opinion equate the antitrust-injury doctrine of Brunswick and its successors with the direct-purchaser doctrine of Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), and Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968). USG may suffer from higher prices but does not buy from defendants, which the district judge thought dispositive. If USG were seeking damages, and ProLiance's direct or derivative customers also wanted (or could seek) monetary relief, then defendants would have a point. See Kansas v. UtiliCorp United Inc., 497 U.S. 199, 110 S.Ct. 2807, 111 L.Ed.2d 169 (1990) (reserving the possibility of suit by an indirect customer if the direct customer is a participant in the cartel); cf. Paper Systems Inc. v. Nippon Paper Industries Co., 281 F.3d 629 (7th Cir.2002). But the direct-purchaser doctrine does not foreclose equitable relief, nor does it apply when no purchaser could obtain damages, for then there is no risk of double recovery (and no need to calculate elasticities in order to apportion damages among multiple tiers).

A cartel cuts output, which elevates price throughout the market; customers of fringe firms (sellers that have not joined the cartel) pay this higher price, and thus suffer antitrust injury, just like customers of the cartel's members. We noted and reserved in Loeb Industries, Inc. v. Sumitomo Corp., 306 F.3d 469 (7th Cir.2002), a number of potentially difficult issues about the design of relief when the customer of a fringe firm sues the (supposed) cartel members and the injury is derivative. See also Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983); Blue Shield of Virginia v. McCready, 457 U.S. 465, 102 S.Ct. 2540, 73 L.Ed.2d 149 (1982). Courts sometimes label this "antitrust standing," despite the potential for confusion with Article III standing (which requires only injury in fact plus redressability.) We did not resolve these issues in Loeb and need not do so here either. It is enough to reiterate, as Loeb holds, that the buyers from fringe firms suffer antitrust injury, that their complaints cannot be dismissed at the outset under the Illinois Brick doctrine, and that the potential to establish injury through elevation of price in the affected market satisfies any distinct "antitrust standing" requirement. See also Metallgesellschaft AG v. Sumitomo Corp. of America, 325 F.3d 836 (7th Cir.2003).

Now we turn to the statute of limitations. ProLiance was formed in March 1996, and USG did not file this suit until October 2000. The statute of limitations is four years — but, as the district...