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IN RE URANIUM ANTITRUST LITIGATION

September 24, 1982

IN RE URANIUM ANTITRUST LITIGATION. IN RE TENNESSEE VALLEY AUTHORITY URANIUM ANTITRUST LITIGATION.


The opinion of the court was delivered by: Prentice H. Marshall, District Judge.

MEMORANDUM ORDER

In this multidistrict litigation, plaintiff Tennessee Valley Authority ("TVA") seeks damages from defendants Gulf Oil Corporation and Gulf Minerals Canada, Ltd. ("Gulf ") under § 1 of the Sherman Act, 15 U.S.C. § 1 (1976), which prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade. . . ."*fn1 TVA alleges that Gulf was a member of an international uranium cartel which conspired to set the price of uranium at artificially high levels. Because TVA is a consumer of uranium, it has allegedly been forced to pay higher prices for uranium because of the existence of the cartel. TVA brings this action pursuant to § 4 of the Clayton Act, which permits "[a]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws" to sue for treble damages. 15 U.S.C. § 15 (1976).

TVA maintains that it was the victim of an unlawful boycott in which members of the cartel refused to bid at TVA's invitation on contracts for the sale of uranium to TVA at anything other than artificially high, cartel-set prices in November, 1973, forcing TVA to purchase its uranium through negotiated contracts, develop its own source of supply, and incur other substantial expenses, all of which it asserts are recoverable.

Gulf has moved for partial summary judgment, arguing that TVA's claims for damages caused by purchases at higher than competitive prices from nondefendants or entities not alleged to be members of the cartel are barred by the rule of Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). In order to rule on the motion, we must first examine the holding in Illinois Brick.

Illinois Brick finds its roots in the decision of the Supreme Court in Hawaii v. Standard Oil Co., 405 U.S. 251, 92 S.Ct. 885, 31 L.Ed.2d 184 (1972). There, the state of Hawaii sued under § 4 of the Clayton Act to recover damages to its general economy caused by antitrust violations. The Court held that the damages were not recoverable. The measure of damages in such a case would be impossibly speculative, posing insurmountable problems of proof. Moreover, allowing recovery would create an unacceptable risk of duplicative recoveries if both the state and individual antitrust plaintiffs were permitted to sue.

Five years later, the Court decided Illinois Brick. There the plaintiffs claimed that the antitrust defendants had charged higher than competitive prices to middlemen, who had passed on those cost increases to plaintiffs, who were the ultimate consumers. Relying on Hawaii v. Standard Oil Co., the Court refused to permit such claims by indirect purchasers. The Court began by noting that, in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968), the Court had held those who sell goods at artificially high prices in violation of the antitrust laws cannot defend an action brought by a direct purchaser on the ground that the direct purchaser passed on the overcharge to its customers. The Court had rejected this defense first because it was unwilling to complicate suits under § 4 with the difficulties inherent in attempting to trace the effects of an overcharge on the purchaser's prices, sales, costs and profits, and second because it was unwilling to permit antitrust defendants to retain the fruits of their illegality since indirect purchasers might be less likely to sue for damages caused by overcharges. Illinois Brick Co. v. Illinois, 431 U.S. 720, 724-25, 97 S.Ct. 2061, 2064, 52 L.Ed.2d 707 (1977). The Court then noted that consistency required that the Court either abandon Hanover Shoe, or permit antitrust defendants to use its rationale as a defense to suits brought by indirect purchasers, since the same difficulties are present whenever a "pass-on" theory is used, be it by the plaintiff or the defendant. See 431 U.S. at 729-37, 97 S.Ct. at 2066-70. The Court concluded that it would follow Hanover Shoe and not permit actions by indirect purchasers, in light of the risk of duplicative recovery created if both direct and indirect purchasers could sue, see id. at 737-41, 97 S.Ct. at 2070-72, and the difficulties of tracing overcharges through various levels in the distribution chain, see id. at 741-47, 97 S.Ct. at 2072-75.

Thus, Illinois Brick represents an attempt to avoid the type of antitrust claim likely to lead to unfair or unworkable results. Where there is no danger of those results, the rationale of Illinois Brick is plainly inapplicable. To evaluate claims in light of Illinois Brick, it is essential to examine the claim to determine whether it creates a risk of duplicative recovery or the problems associated with tracing the effects of an overcharge through the distribution chain. Where these dangers are not present, Illinois Brick does not operate as a bar to an antitrust claim. See Blue Shield of Virginia v. McCready, ___ U.S. ___, 102 S.Ct. 2540, 2546, 73 L.Ed.2d 149 (1982); In re Mid-Atlantic Toyota Antitrust Litigation, 516 F. Supp. 1287 (D.Md. 1981); McCarty Farms, Inc. v. Burlington Northern, Inc., 91 F.R.D. 486, 490-91 (D.Mont. 1981); Zenith Radio Corp. v. Matsushita Electric Industrial Co., 494 F. Supp. 1246, 1255-56 (E.D.Pa. 1980); In re Folding Carton Antitrust Litigation, 88 F.R.D. 211, 218 (N.D.Ill. 1980); Dart Drug Corp. v. Corning Glass Works, 480 F. Supp. 1091, 1101 (D.Md. 1979); In re Uranium Antitrust Litigation, 473 F. Supp. 393, 403 (N.D.Ill. 1979).

Gulf acknowledges that the actual holding of Illinois Brick is not applicable here, since TVA was a direct purchaser of uranium, and the problems associated with the status of indirect purchasers that the Court relied on in Illinois Brick are not applicable here. However, Gulf asserts that claims against nondefendants and nonmembers of the cartel pose the same difficulties that concerned the Court in Illinois Brick, and therefore should be barred under its rationale. In support of its position, Gulf relies on Mid-West Paper Products Co. v. Continental Group, Inc., 596 F.2d 573 (3d Cir. 1979). There, the court held that an antitrust plaintiff may not recover overcharges from members of a cartel incurred when the plaintiff purchased goods from competitors of the cartel members. In Mid-West, the plaintiff argued that the defendant cartel members should be liable for the artificially high prices charged by their competitors, since the existence of the cartel created a "price umbrella" which enabled nonconspirators to charge artificially high prices. Judge Adams, writing for a divided court,*fn2 concluded that this theory posed the same problems that were present in Illinois Brick. Specifically, he reasoned that it would be practically impossible to determine the effect of the cartel on the pricing policies of nonconspirators, given the wide variety of factors which influence pricing policies. See 596 F.2d at 584. Moreover, the court concluded that Illinois Brick represents a judgment that the objectives of the antitrust laws are fulfilled when the defendant is required to disgorge the fruits of its illegalities. Once that occurs, there is no need to go further and force antitrust defendants to pay for overcharges of others such as nonconspirators. See id. at 585-86. Finally, the court noted that permitting recovery for nonconspirators' overcharges creates a risk of ruinous recoveries, since it would create liability well in excess of the antitrust defendants' ill-gotten gains. See id. at 586-87.*fn3

TVA's initial response to Gulf's Illinois Brick/Mid-West Paper argument is to claim that its complaint alleges an unlawful refusal to deal, rather than a simple case of price fixing. TVA goes on to argue that Illinois Brick applies only to price fixing cases, and not to boycott cases. Gulf joins the issue by arguing that this is not a boycott case,*fn4 and from there the parties proceed to engage in a semantic dispute over whether TVA's claims should be characterized as relating to a "boycott" or "price fixing."

In our judgment, the question of whether the complaint alleges a "boycott" or "price fixing" is entirely irrelevant to the issue at hand. Illinois Brick is not a case about semantics. It addresses intensely practical concerns associated with avoiding unfair or unworkable results in antitrust litigation. If the underlying policy concerns which motivated the result in Illinois Brick are applicable, then we believe Illinois Brick should be applied, regardless of the label that is attached to plaintiff's claims. See Reading Industries v. Kennecott Copper Corp., 631 F.2d 10, 14 (2d Cir. 1980), cert. denied, 452 U.S. 916, 101 S.Ct. 3051, 69 L.Ed.2d 420 (1981); In re Beef Industry Antitrust Litigation, 600 F.2d 1148, 1157-60 (5th Cir. 1979), cert. denied, 449 U.S. 905, 101 S.Ct. 280, 66 L.Ed.2d 137 (1980); Mid-West Paper Products Co. v. Continental Group, Inc., 596 F.2d 573, 578, 582-83 (3d Cir. 1979); Callahan v. Scott Paper Co., 541 F. Supp. 550 (E.D.Pa. 1982).*fn5

First, we turn to Gulf's claim that Illinois Brick precludes recovery for overcharges paid to cartel members not named as defendants. This claim is puzzling since Gulf seems to concede that it is liable for overcharges paid to its co-conspirators who are named as defendants. Indeed this is the case; nothing in Illinois Brick precludes liability for overcharges directly paid to members of a price-fixing conspiracy. See, e.g., Blue Shield of Virginia v. McCready, ___ U.S. ___, 102 S.Ct. 2540, 2546, 2550-51, 73 L.Ed.2d 149 (1982); Reiter v. Sonotone Corp., 442 U.S. 330, 99 S.Ct. 2326, 60 L.Ed.2d 931 (1979); Illinois Brick Co. v. Illinois, 431 U.S. 720, 729, 97 S.Ct. 2061, 2066, 52 L.Ed.2d 707 (1977); Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 294 (2d Cir. 1979), cert. denied, 444 U.S. 1093, 100 S.Ct. 1061, 62 L.Ed.2d 783 (1980); In re Sugar Industry Antitrust Litigation, 579 F.2d 13 (3d Cir. 1978); Chatham Brass Co. v. Honeywell, Inc., 512 F. Supp. 108, 116 (S.D.N.Y. 1981); Go-Tane Service Stations, Inc. v. Ashland Oil Co., 508 F. Supp. 200 (N.D.Ill. 1981); In re Coordinated Pretrial Proceedings in Petroleum Antitrust Litigation, 497 F. Supp. 218, 225-26 (C.D.Cal. 1980); Vermont International Petroleum Co. v. Amerada Hess Corp., 492 F. Supp. 429, 438-39 (N.D.N.Y. 1980); Reiter v. Sonotone Corp., 486 F. Supp. 115, 119-20 (D.Minn. 1980); Dart Drug Co. v. Corning Glass Works, 480 F. Supp. 1091, 1101 (D.Md. 1979); Hecht Co. v. Southern Union Co., 474 F. Supp. 1022, 1027-28 (D.N.M. 1979); Florida Power Corp. v. Granlund, 78 F.R.D. 441, 443-44 (M.D.Fla. 1978); Gas-A-Tron of Arizona v. Shell Oil Co., 1977-2 Trade Cas. (CCH) ¶ 61,789 (D.Ariz. 1977). Apparently, Gulf attaches some significance to whether the overcharge was paid to a cartel member who is not named as a defendant, arguing that Illinois Brick permits recovery for overcharges paid to conspiring defendants but not to conspiring nondefendants. However, Gulf never explains why anything should turn on this distinction, and cites no authority for the distinction. None of the policies underlying Illinois Brick are affected by whether or not the overcharge is paid to a named defendant or a non-defendant co-conspirator. To the contrary, it has long been the law that an antitrust defendant is jointly and severally liable for the acts of its co-conspirators, see e.g., In re Uranium Antitrust Litigation, 617 F.2d 1248, 1257 (7th Cir. 1980); see also Havoco of America, Ltd. v. Shell Oil Co., 626 F.2d 549, 554 (7th Cir. 1980). Under this rule of law, Gulf is liable for any act of its co-conspirators in furtherance of the alleged price fixing conspiracy, whether or not that co-conspirator is named as a defendant. See Ambook Enterprises v. Time, Inc., 612 F.2d 604, 620 (2d Cir. 1979); National Wrestling Alliance v. Myers, 325 F.2d 768, 775 (8th Cir. 1963); Walker Distributing Co. v. Lucky Lager Brewing Co., 323 F.2d 1, 8 (9th Cir. 1963); Northwestern Oil Co. v. Socony-Vacuum Oil Co., 138 F.2d 967, 970 (7th Cir. 1943), cert. denied, 321 U.S. 792, 64 S.Ct. 790, 88 L.Ed. 1081 (1944); City of Atlanta v. Chattanooga Foundry & Pipeworks, 127 F. 23, 25 (6th Cir. 1903), aff'd, 203 U.S. 390, 27 S.Ct. 65, 51 L.Ed. 241 (1906); Chatham Brass Co. v. Honeywell, Inc., 512 F. Supp. 108, 116 (S.D.N.Y. 1981); In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust Litigation, 497 F. Supp. 218, 225-26 (C.D.Cal. 1980); Reiter v. Sonotone Corp., 486 F. Supp. 115, 119 n. 3 (D.Minn. 1980); Evanston Motor Co. v. Mid-Southern Toyota Distributors, Inc., 436 F. Supp. 1370, 1372 n. 1 (N.D.Ill. 1977); Wainwright v. Kraftco Corp., 58 F.R.D. 9, 11-12 (N.D.Ga. 1973); Washington v. American Pipe & Construction Co., 280 F. Supp. 802, 804-05 (W.D.Wash. 1968); Rohlfing v. Cat's Paw Rubber Co., 107 F. Supp. 549 (N.D.Ill. 1952); Martin v. Chandler, 85 F. Supp. 131 (S.D.N.Y. 1949). Gulf has cited no authority to the contrary.*fn6 We conclude that TVA may maintain its claims for overcharges paid to nondefendant co-conspirators.*fn7

Second, we turn to TVA's claims involving overcharges paid to nondefendant nonconspirators. These are the types of claims that were addressed by the Third Circuit in Mid-West Paper. If we decide to follow Mid-West by concluding that the problems posed by attempting to prove that the prices charged by nonconspirators were inflated by the existence of the uranium cartel are insurmountable, then these claims are barred.

Mid-West has received considerable attention from both courts and commentators. A number of courts have found its reasoning persuasive. See In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust Litigation, 497 F. Supp. 218, 227-28 (C.D.Cal. 1980); In re Folding Carton Antitrust Litigation, 88 F.R.D. 211, 219-20 (N.D.Ill. 1980); Reading Industries, Inc. v. Kennecutt Copper Corp., 477 F. Supp. 1150, 1158, 1160-61 (S.D.N.Y. 1979), aff'd, 631 F.2d 10 (2d Cir. 1980), cert. denied, 452 U.S. 916, 101 S.Ct. 3051, 69 L.Ed.2d 420 (1981);*fn8 Liang v. Hunt, 477 F. Supp. 891, 896-97 (N.D.Ill. 1979). However, Mid-West has not received universal acceptance; a number of courts have rejected its reasoning. See In re Beef Industry Antitrust Litigation, 600 F.2d 1148, 1166 n. 24 (5th Cir. 1979), cert. denied, 449 U.S. 905, 101 S.Ct. 280, 66 L.Ed.2d 137 (1980); In re Bristol Bay, Alaska, Salmon Fisheries Antitrust Litigation, 530 F. Supp. 36 (W.D.Wash. 1981); Strax v. Commodity Exchange, Inc., 524 F. Supp. 936, 939-40 (S.D.N.Y. 1981); Pollock v. Citrus Associates of the New York Cotton Exchange, 512 F. Supp. 711, 718-19 (S.D.N.Y. 1981); Chatham Brass Co. v. Honeywell, Inc., 512 F. Supp. 108, 116 (S.D.N.Y. 1981); Illinois v. Ampress Brick Co., 67 F.R.D. 461, 468 (N.D.Ill. 1975), rev'd, 536 F.2d 1163 (7th Cir. 1976), rev'd sub nom. Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977); Wall Products Co. v. National Gypsum Co., 357 F. Supp. 832, 846 (N.D.Cal. 1973); Washington v. American Pipe & Construction Co., 280 F. Supp. 802 (W.D.Wash. 1968). See also Mid-West Paper, 596 F.2d at 595-599 (Higginbotham, J., dissenting in part).*fn9 In light of this split of authority, we must examine the question whether Mid-West is a sound interpretation ofIllinois Brick.*fn10

As our earlier discussion of Illinois Brick indicates, a major theme underlying that opinion is the unacceptable risk of duplicative recovery created when both direct and indirect purchasers are permitted to sue under the antitrust laws. However, in this case, no risk of duplicative recovery exists. If TVA cannot recover for the overcharges it has paid nonconspirators, no one can. Far from eliminating a risk of duplicative recovery, a denial of standing in this case, assuming TVA can prove at trial that nonconspirators' prices were affected by the existence of the cartel, "would also result in the denial of ...


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