Appeals from the United States District Court for the Northern District of Indiana, South Bend Division. Nos. S-74-22, S-75-210, S-77-209 -- Allen Sharp, Judge .
Before Sprecher and Wood, Circuit Judges, and Will, Senior District Judge.*fn*
1. Judge Will made substantial contributions to this opinion and in particular to the section on damages.
Involved is the application of the Sherman Act*fn2 to a vertically integrated investor-owned electric utility, found by the trial court to be a monopoly. The utility's wholesale rates are subject to regulation by the Federal Energy Regulatory Commission*fn3 and its retail rates are subject to regulation either by the State Public Service Commission of Indiana in the instance of nine municipal plaintiffs or Michigan in the instance of one municipal plaintiff. The municipalities which own and operate local transmission systems for retail sale of electricity depend on defendants for their wholesale supply. Because the utility's wholesale rates charged the municipalities during the period 1976-1978 exceeded the retail rates charged to its own retail customers, the utility was found by the trial court to be guilty of a "price squeeze"*fn4 and of related exclusionary acts calculated to force the municipalities out of the retail electric business resulting in the conversion of municipal retail customers into retail customers of the utility. Triple damages were awarded based on rate overcharges and an injunction issued.*fn5 A cross appeal by the municipalities is also before us questioning the failure of the district court to award the municipalities their litigation expenses before the federal commission as an element of antitrust damages. Those commission proceedings involving these same parties considered related issues. This case in its preliminary stages was before us on interlocutory appeal.*fn6 In Mishawaka I, several issues were resolved. This court held that the utility was not immunized from Sherman Act attack and that the federal commission had neither exclusive nor primary jurisdiction over the utility faced with these antitrust charges. For the purposes of this case those issues are settled.
Although this case was well briefed and argued, it remains complex factually and legally.*fn7 Dual regulation, federal and state, of this electric utility, which is also subject to the Sherman Act, generates legal and practical problems in addition to electricity.*fn8 The necessary resolution by the courts of the involved complexities does not render a totally satisfying result. We shall first consider a capsule of the facts found by the district court, and then the various issues which arise.
THE FINDINGS OF THE TRIAL JUDGE
The bench trial lasted three and one-half days supplemented by a lengthy stipulation of facts, numerous depositions and over a thousand exhibits. Following trial the judge filed a Memorandum Opinion, Judgment Order, and Findings of Facts and Conclusions of Law. Those documents, and the Findings of Facts in particular, are attacked by the utility as the work product of the municipal attorneys and not the trial judge. It is therefore argued that a broader scope of review is justified than the clearly erroneous standard ordinarily applied pursuant to Rule 52, Federal Rules of Civil Procedure. We bear that legitimate concern in mind as we consider this case, but after a review of the whole record including pretrial and post trial matters, we see no necessity in the circumstances of this case to abandon our usual standard of review. United States v. El Paso Natural Gas Co., 376 U.S. 651, 84 S. Ct. 1044, 12 L. Ed. 2d 12 (1964).
Further, the utility argues that this is a "paper case" largely founded on the stipulation and other documents in evidence. A broader review standard is therefore urged upon us. Yorke v. Thomas Iseri Produce Co., 418 F.2d 811, 814 (7th Cir. 1969). We more recently considered the prevailing rule in Flowers v. Crouch-Walker Corp., 552 F.2d 1277, 1284 (7th Cir. 1977). In applying a broader rule in that case we noted that the trial evidence consisted almost entirely of the testimony of a single witness whose credibility was not challenged. In the present case nine witnesses were heard including the managing officials of the utility during the times in question. The trial judge in his findings expressed "serious reservations" about the credibility of the utility officials. We cannot better judge the credibility of those witnesses unseen by us than the trial judge. Though the evidentiary documentation is voluminous, we see no need in these circumstances to use that as an excuse to go behind the findings of the trial judge. The testimony of the witnesses and the inferences to be drawn had an obvious impact on the judge's decision. After review of the case we do not have a "definite and firm conviction" that the trial judge made erroneous findings.
However, in reaching the conclusions we do about this case, we do not mean to imply that it results only from a strict application of the "clearly erroneous" standard. We would much prefer to be assured that what we review is the work product resulting from the judge's personal consideration and resolution of the evidence in the case and that it is not merely the disguised product of the successful advocate. We also realize, however, that as a practical matter in these times a busy trial judge may in some circumstances be properly assisted with some of the paper work resulting from his own determination of the issues. This appears to be such a case.
The three related defendant companies will be considered as one for our purposes and referred to as the utility.*fn9 The utility generates, transmits and sells electricity at wholesale to the ten municipal plaintiffs, and also at retail to its own industrial, commercial and residential customers. The plaintiff municipalities may be considered for practical purposes as purchasing all of their wholesale electricity from the utility which in turn they individually distribute at retail to their own local customers through their electric distribution systems. The wholesale rates charged by the utility are subject to federal regulation.*fn10 The wholesale rates filed by the utility become effective, subject to refund, thirty days after filing or after a maximum five-month suspension ordered by the federal commission. However, the retail rates sought by the utility in both Indiana and Michigan under the respective statutes of those states do not go into effect automatically prior to approval, but must await an order of the particular state commission fixing the rates.
In 1968, the municipalities individually entered into new full-requirements contracts with the utility for wholesale electricity. The utility during the period 1968-1978 filed for seven retail rate increases in Indiana, four in Michigan, and three federal requests for wholesale increases. The first of the three federal requests resulted in a refund to the municipalities settled by the utility for $1,678,511 plus about $300,000 interest. The latter two requests remain unresolved. Some of the state retail filings resulted in a degree of increase in retail rates. At least one state filing is undetermined.
As explained by the utility, it anticipated a future energy shortage, and therefore advised the municipalities that full-municipal requirements contracts would not be renewed. The municipalities were further advised to seek alternative sources of wholesale electricity which the utility offered to "wheel."*fn11 The utility has under development several nuclear generators. No municipality has yet been terminated by the utility.
The trial court found that the utility in its service area has a monopoly of retail sales of electricity as well as a monopoly of the supply of wholesale electric power upon which the municipalities depend. Supported by the trial court's findings, the municipalities further point out that the utility and the municipalities are in competition for the right to serve all the customers in a municipality, referred to as "franchise competition." The municipalities claim that the utility has misused its monopoly power and the system of dual regulation. The trial court found that by seeking and permitting the wholesale rates to be higher and out of balance with lower retail rates, the utility was "price squeezing" the municipal systems into financial extinction and thereby was setting the stage for acquisition of municipal retail customers as its own. The trial court further found that the utility's rate program had been supplemented by threats to the continuation of wholesale power to the municipalities. Further the trial court found that competition had in the past been crippled and some municipal systems had been acquired by the utility.
The municipalities contend therefore that the utility has monopolized and attempted to monopolize the distribution and sale of electric power at retail in violation of Section 2 of the Sherman Act. The trial court found that to be the case and assessed treble damages in the amount of $12,148,175.11 computed by using as a basis the excess of wholesale rates over retail rates. In addition to the money judgment, the utility was enjoined "from monopolizing or attempting to monopolize the distribution and sale of electric power," from applying any different standard of energy curtailment on the municipalities than it apples to its own retail customers, and from charging a wholesale rate in excess of its retail rates unless any disparity is first approved by the federal commission. Some of those background facts will be considered in more detail as the legal issues are individually examined.
APPLICABILITY OF NOERR-PENNINGTON DOCTRINE
The Noerr-Pennington doctrine is an outgrowth of Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S. Ct. 523, 5 L. Ed. 2d 464 (1961), and United Mine Workers v. Pennington, 381 U.S. 657, 85 S. Ct. 1585, 14 L. Ed. 2d 626 (1965). It shields from the Sherman Act as a constitutionally protected right of petition a concerted effort to influence public officials, regardless of intent or purpose. Thus the utility argues that its wholesale rate filings with the federal commission are within its constitutional right of petition and therefore immune from the Sherman Act. It was said in Noerr, however, that there may be instances of "mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor and the application of the Sherman Act would be justified." 365 U.S. at 144, 81 S. Ct. at 533. The "mere sham" exception standing alone does not apply to this case. The trial court did not find that the federal tariff filings were "mere sham," but found instead that the utility filed for the highest rate it thought it could justify without any regard for the adverse competitive impact the new wholesale rate would have on the utility's wholesale municipal customers in competition with the utility at retail. The trial court found that to be a violation of Section 205 of the Federal Power Act,*fn12 as interpreted in Federal Power Commission v. Conway Corp., 426 U.S. 271, 96 S. Ct. 1999, 48 L. Ed. 2d 626 (1976). Conway notes that Section 205(b) forbids a utility from granting any undue preference, subjecting anyone to any undue prejudice or disadvantage or maintaining any unreasonable differences in rates or services between classes of services. The federal commission was found to have jurisdiction to weigh and correct discriminatory effects in rate proceedings. There is a utility responsibility to avoid unreasonable differences in rates between classes of service.
In some contrast to that limited Conway finding is the trial court's broader view that all of the utility's acts and practices as a whole, its wholesale rate structure together with its statements threatening the power supply of the municipalities, its expressed preference in favor of its own retail customers and its policy of acquiring municipal distribution systems in distress, evidenced a specific intent to capitalize on and increase its monopoly power at the expense of the municipalities.
The Noerr-Pennington doctrine underwent some modification in California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92 S. Ct. 609, 30 L. Ed. 2d 642 (1972). In that litigation between groups of competing highway carriers, it was charged that one group conspired to monopolize the transportation of goods by instituting various state and federal proceedings in agencies and courts to resist and defeat applications by the other group to acquire or transfer operating rights. The Court discusses the "sham" exception and its possible variations. The Court held that the conspirators sought not "to influence public officials," but to bar their competitors from meaningful participation in the decision-making process. Id. at 512, 92 S. Ct. at 612. The Court recognized that the allegedly conspiring group had a first amendment right of petition to be heard in agencies and courts in opposition to their competitors' applications, but that that right did not necessarily give the conspirators immunity from antitrust laws. The Court further noted that first amendment rights are not immunized from regulation when used to violate a valid statute. Id. at 514, 92 S. Ct. at 613. First amendment rights, the Court further explained, are not to be used as a means or pretext for achieving "substantive evils," and "(i)f the end result is unlawful, it matters not that the means used in violation may be lawful." Id. at 515, 92 S. Ct. at 614.
One claim . . . may go unnoticed; but a pattern of baseless, repetitive claims may emerge which leads the factfinder to conclude that the administrative and judicial processes have been abused. That may be a difficult line to discern and draw. But once it is drawn, the case is established that abuse of those processes produced an illegal result, viz., effectively barring respondents from access to the agencies and courts. Insofar as the administrative or judicial processes are involved, actions of that kind cannot acquire immunity by seeking refuge under the umbrella of "political expression.'
Petitioners, of course, have the right of access to the agencies and courts to be heard on application sought by competitive highway carriers. That right, as indicated, is part of the right of petition protected by the First Amendment. Yet that ...