Yeager's Fuel, Inc. v. Pennsylvania Power & Light Co.

• Decision Date: 05 October 1992
• Docket Number: 92-2359.,Civ. A. No. 91-5176
• Parties: YEAGER'S FUEL, INC.; Atlantic Oil and Heating Company; Mansfeld Fuel Oil Company; Deiter Brothers Fuel Company, Inc.; Ralph D. Weaver, Inc.; C.A. Lessig, Inc.; Harned Durham Oil Company, Inc.; Schwanger Brothers & Company, Inc.; Sico Company; Whitlock & Woerth, Inc.; Zongora Fuel, Inc.; Senick, Inc.; Carlos R. Leffler, Inc.; H. John Davis, Inc.; Arthur J. Ulrich, Inc.; Union Fuel Company; Guy Heavener, Inc.; Desousa Oil and Service Corp.; W.C. Reichenbach & Sons, Inc.; Apgar Oil Company, Inc.; and Freyman's Fuel Oil Company, Inc. v. PENNSYLVANIA POWER & LIGHT COMPANY. LOSCH BOILER SALES & SERVICE, CO., Individually and on behalf of All Persons Similarly Situated v. PENNSYLVANIA POWER & LIGHT COMPANY.
• Court: U.S. District Court — Eastern District of Pennsylvania

804 F. Supp. 700

YEAGER'S FUEL, INC.; Atlantic Oil and Heating Company; Mansfeld Fuel Oil Company; Deiter Brothers Fuel Company, Inc.; Ralph D. Weaver, Inc.; C.A. Lessig, Inc.; Harned Durham Oil Company, Inc.; Schwanger Brothers & Company, Inc.; Sico Company; Whitlock & Woerth, Inc.; Zongora Fuel, Inc.; Senick, Inc.; Carlos R. Leffler, Inc.; H. John Davis, Inc.; Arthur J. Ulrich, Inc.; Union Fuel Company; Guy Heavener, Inc.; Desousa Oil and Service Corp.; W.C. Reichenbach & Sons, Inc.; Apgar Oil Company, Inc.; and Freyman's Fuel Oil Company, Inc. v. PENNSYLVANIA POWER & LIGHT COMPANY.

LOSCH BOILER SALES & SERVICE, CO., Individually and on behalf of All Persons Similarly Situated v. PENNSYLVANIA POWER & LIGHT COMPANY.

Civ. A. Nos. 91-5176, 92-2359.

United States District Court, E.D. Pennsylvania.

September 8, 1992.

As Amended October 5, 1992.

David L. Pennington, Catherine Panchou Cox, Brian P. Kirby, Robert Thomas Connor, Harvey, Pennington, Herting & Renneisen, Ltd., Philadelphia, Pa., for plaintiffs in No. 91-CV-5176.

Harold E. Kohn, Wayne M. Thomas, Kohn, Savett, Klein & Graf, P.C., Philadelphia, Pa., for movants in No. 91-CV-5176.

Wayne M. Thomas, Kohn, Savett, Klein & Graf, P.C., Philadelphia, Pa., for plaintiff in No. 92-CV-2359.

Jeffrey H. Howard, Christopher C. Fennell, Crowell & Moring, Washington, D.C., for defendant in Nos. 91-CV-5176, 92-CV-2359.

OPINION

PADOVA, District Judge.

This consolidated action concerns a dispute over who will supply the heat to Pennsylvania homeowners when they reach for their thermostats—fuel oil dealers or an electric utility. Plaintiffs, fuel oil dealers and related heating equipment suppliers, claim that defendant, an electric utility, has been increasing its share of the home heating market within its service area through methods that violate federal antitrust and racketeering laws and state laws. Moving for summary judgment of plaintiffs' federal claims, defendant responds that the conduct challenged by plaintiffs is part and parcel of the Commonwealth of Pennsylvania's energy conservation policies; hence plaintiff is immune from federal antitrust and racketeering liability under Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943).¹ Because I have determined that defendant's alleged anti-competitive conduct has been conducted pursuant to a clearly articulated state policy and under active state supervision, I will grant defendant's motion for summary judgment under Parker as to plaintiffs' federal antitrust claims. Because plaintiffs have failed to state a cause of action under the federal racketeering statute, I will grant defendant's motion on that claim as well. Finally, because I will discharge each of plaintiffs' federal claims, I will exercise my discretion to dismiss plaintiffs' pendent state law claims.

BACKGROUND

I. FACTUAL ALLEGATIONS²

Defendant Pennsylvania Power & Light Company ("PP & L") is essentially the sole source of electric power for residences in Allentown, Pennsylvania and the surrounding area. Yeager Amended Complaint at ¶ 24; Losch Complaint at ¶¶ 7, 14. Plaintiffs sell heating oil and related heating equipment primarily to homeowners living within PP & L's service area. Yeager Amended Complaint at ¶¶ 3-24; Losch Complaint at ¶¶ 6, 9.

Some time after 1978, PP & L began promoting the use of electric heat pumps as energy conservation devices for use in new residential construction throughout its service area. Yeager Amended Complaint at ¶ 26. To encourage the use of electric heat pumps in new homes, PP & L offers "cash incentives" or "rebates" to builders and developers who install electric heat pumps (approximately $1,000 per heat pump) and reduced electric rates for a limited time to those who purchase homes equipped with these devices. Yeager Amended Complaint at ¶¶ 28-29, 31; Losch Complaint at ¶¶ 15-16, 18.

PP & L approaches builders and developers with its electric heat pump cash incentive offer early in the building process, when arrangements are made to supply electricity during construction. Losch Complaint at ¶ 15. To receive the cash incentive, builders or developers must order the electric heat pumps and have them installed by heat pump manufacturing and installation firms selected by PP & L. Yeager Amended Complaint at ¶ 29; Losch Complaint at ¶ 16.

PP & L approaches new homeowners with its reduced electric rate offer through the builders and developers as well. PP & L offers to designate new homes that utilize electric heat pumps installed through the cash incentive program as "Four Star" homes, entitling the new homeowners to reduced electric rates. Yeager Amended Complaint at ¶ 31; Losch Complaint at ¶ 18. This rate discount is termed the "RTS Rate." Id. Apart from their obvious attraction to homeowners, the "Four Star" designation and the RTS Rate are presumably added incentives to builders and developers, who can number among the selling points of their homes discounts on electric utility bills. Yeager Amended Complaint at ¶ 31; Losch Complaint at ¶ 18.

By plaintiffs' estimates, the result of PP & L's cash incentive and reduced electric rate programs is that between 70 and 85 percent of the new homes constructed in PP & L's service area since the early 1980s have been built with electric heat pumps, rather than fuel oil or other heating systems. Yeager Amended Complaint at ¶ 32; Losch Complaint at ¶ 20. Moreover, plaintiffs assert that the owners of these electrically heated homes are effectively "locked into" electric heat because of the high cost of converting to other heating systems. Losch Complaint at ¶ 22.

The apparent success of PP & L's programs, plaintiffs contend, has had a severe anti-competitive impact on the markets for heating fuel and related heating equipment in new residential construction within PP & L's service area. Yeager Amended Complaint at ¶ 33; Losch Complaint at ¶ 28. Plaintiffs claim that PP & L's programs have foreclosed competition in these markets and that consequently they have been injured in their business and property. Yeager Amended Complaint at ¶ 33; Losch Complaint at ¶¶ 28, 30. Plaintiffs ultimately attribute the anti-competitive impact of PP & L's electric heat pump incentive programs to PP & L's misuse of

(a) its status as the sole provider of electricity in its geographical area; (b) its advance knowledge of all new construction in its geographical area; (c) general ratepayer revenues to pay subsidies to contractors, builders and developers to purchase electric heat pumps; and (d) its payment from general ratepayer revenues to pay subsidies to new homeowners in "Four Star" homes....

Losch Complaint at ¶ 24.

II. PERTINENT PROCEDURAL HISTORY

A. The Yeager case

In August 1991, twenty-one fuel oil and/or fuel oil heating equipment dealers filed a complaint, subsequently amended, in this Court against PP & L based upon the above factual allegations. This civil action is docketed as No. 91-5176 and will be referred to as the Yeager case. The Yeager amended complaint alleges violations of section 1 of the Sherman Act, 15 U.S.C.A. § 1 (West Supp.1992) (unlawful restraint of trade); section 2 of the Sherman Act, 15 U.S.C.A. § 2 (West Supp.1992) (unlawful monopolization); section 2(c) of the Robinson-Patman Act, 15 U.S.C.A. § 13(c) (West 1973) (unlawful payment of commission, brokerage or other compensation); section 3 of the Clayton Act, 15 U.S.C.A. § 14 (West 1973) (unlawful product tying arrangement); and section 1962(c) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C.A. § 1962(c) (West 1984) (unlawful racketeering activity).

In November 1991, PP & L moved to dismiss this amended complaint pursuant to Fed.R.Civ.P. 12(b)(6), asserting immunity from antitrust and RICO liability under the so-called state action doctrine, set forth in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), and challenging each of plaintiffs' causes of action for failure to state a claim. Because PP & L submitted with its motion a number of materials outside of the pleadings, particularly with regard to state action immunity, the Honorable Franklin S. Van Antwerpen of this Court ordered that PP & L's motion to dismiss be converted into a motion for summary judgment and granted plaintiffs an additional ninety days to take discovery and respond to the motion.³

On April 9, 1992, Judge Van Antwerpen dismissed PP & L's converted summary judgment motion without opinion and without prejudice to PP & L's right to reassert fully the motion at a later date. Relying solely upon the papers it filed in support of its November 1991 motion to dismiss, PP & L reasserted this converted motion for summary judgment 4 days later, on April 13. It is this motion for summary judgment as to plaintiffs' federal antitrust and racketeering claims that is presently before the Court.

B. The Losch case

In April 1992, plaintiff Losch Boiler Sales & Service Co., a fuel oil and related heating equipment dealer, filed a complaint against PP & L in this Court on behalf of itself and all persons similarly situated. This civil action is docketed at No. 92-2359 and will be referred to as the Losch case.⁴ Like Yeager, Losch is based upon the above factual allegations. With respect to specific causes of action, the Losch complaint is virtually identical to the Yeager amended complaint, except as follows: (1) the Losch complaint alleges violations of sections 2 and 3 of the Robinson-Patman Act, 15 U.S.C.A. §§ 13 and 13a (West 1973) (unlawful price, rebate and discount discrimination); (2) the Losch complaint does not allege a RICO violation; and (3) the Losch complaint contains a claim of civil conspiracy and unfair competition under Pennsylvania state law.⁵

On May 12, 1992, the Losch plaintiff filed a motion for class determination, which remains undecided. In response, PP & L moved to stay Losch, pending a decision on its motion for summary judgment in Yeager. Opposed to...