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GREATER ROCKFORD ENERGY v. SHELL OIL

April 24, 1992

GREATER ROCKFORD ENERGY AND TECHNOLOGY CORP., SHEPHERD OIL INC., VIDALIA ETHANOL, LTD., ALPEBO, INC., SHREVEPORT ETHANOL, INC., LAKEFIELD ETHANOL, INC., A.E. MONTANA, INC., CEPO, INC., TEXAS ETHANOL PRODUCERS, WURSTER OIL CO., HIGH PLAINS CORPORATION, CAJUN ENERGY, INC., PUBLIC TERMINALS, INC., AND PEOPLE OF THE STATE OF ILLINOIS, PLAINTIFFS,
v.
SHELL OIL COMPANY, MARATHON PETROLEUM COMPANY, AMOCO OIL COMPANY, CHEVRON, U.S.A., INC., ATLANTIC RICHFIELD CO., B.P. AMERICA, CITGO PETROLEUM CORP., DIAMOND SHAMROCK R & M, INC., EXXON COMPANY USA, MOBIL CORPORATION AND SINCLAIR OIL CORP., DEFENDANTS.



The opinion of the court was delivered by: Richard Mills, District Judge:

  OPINION

The arcane mysteries of antitrust standing.

And — like all legal concepts — there is a chameleon quality to this principle.

Antitrust law might be summarized as a great, albeit maddeningly imprecise, panacea of the anticompetitive ailments of free enterprise.

"Antitrust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms." United States v. Topco Associates, Inc., 405 U.S. 596, 610, 92 S.Ct. 1126, 1135, 31 L.Ed.2d 515 (1972).

"One problem presented by the language of § 1 of the Sherman Act is that it cannot mean what it says. The statute says that 'every' contract that restrains trade is unlawful. But, as Mr. Justice Brandeis perceptively noted, restraint is the very essence of every contract; read literally, § 1 would outlaw the entire body of private contract law. . . ." National Soc. of Professional Engineers v. United States, 435 U.S. 679, 687-688, 98 S.Ct. 1355, 1363, 55 L.Ed.2d 637 (1978) (footnotes omitted).

While the Supreme Court has stated that "it is virtually impossible to announce a black-letter rule that will dictate the result in every case," the Supreme Court has identified the relevant factors to be considered. Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 536, 103 S.Ct. 897, 908-911, 74 L.Ed.2d 723 (1983).

This matter is before the Court on a joint summary judgment motion on behalf of all Defendants based on Plaintiffs' alleged lack of antitrust injury and standing.

The bottom line: Allowed. Case dismissed.

I. BACKGROUND

Parties

More than 70 lawyers have now appeared in this case. Over 750 pleadings have been filed producing a case file which, if placed in a single stack, would exceed twelve feet in height.

Since this case presents a classic example of the saying "you can't tell the players without a program," we start with a review of that "program."

Plaintiffs and Plaintiff-Intervenors (hereafter referred to collectively as "Plaintiffs") fall into three basic groups: ethanol producers, gasohol blenders, and the State of Illinois.

Plaintiffs Greater Rockford Energy and Technology Corporation, Shepherd Oil, Inc., Vidalia Ethanol, Ltd., Alpebo, Inc., Shreveport Ethanol, Inc., Lakefield Ethanol, Inc., A.E. Montana, Inc., CEPO, Inc. and Texas Ethanol Producers, are ethanol producers and/or sellers. Plaintiff-Intervenor Wurster Oil Company, Inc. is a gasohol blender and has sold to distributors, but it is apparently suing only in its capacity as a seller of ethanol.

Plaintiff-Intervenors Cajun Energy, Inc. and Public Terminals, Inc. are gasohol blenders who sell to distributors and dealers.

Plaintiff State of Illinois has intervened as a Plaintiff "on behalf of all Illinois citizens, the State of Illinois and its political subdivisions."

The Defendants are major oil companies and all are members of the American Society for Testing and Materials (ASTM) and the American Petroleum Institute (API). Defendants are Shell Oil Company, Marathon Petroleum Co., Amoco Oil Company, Chevron U.S.A., Inc., Atlantic Richfield Co., B.P. America, Exxon Company U.S.A. and Mobil Corporation.

In addition to the parties described above, three parties made unsuccessful attempts to intervene as Plaintiffs and several Defendants settled out. Furthermore, diversity between the Plaintiffs and the Defendants is not complete.

Complaints

The complaints of all Plaintiffs contain essentially the same five counts:

  Count I alleges a contract, combination or
  conspiracy in violation of section 1 of the
  Sherman Antitrust Act.
  Count II alleges violations of section 26a of the
  Clayton Antitrust Act (the Gasohol Competition Act
  of 1980).
  Count III alleges monopolization activities in
  violation of section 2 of the Sherman Antitrust
  Act.
  Count IV alleges violations of the Illinois Fraud
  and Deceptive Practices Act and monopolization
  activities in violation of the Illinois Antitrust
  laws.
  Count V alleges commercial disparagement in
  violation of the Illinois Fraud and Deceptive
  Practices Act.

Plaintiffs seek treble damages in the amount of 2.85 billion dollars as well as various injunctive relief.

The original complaint was filed on June 1, 1988 in the Danville Division of the Central District of Illinois by Plaintiffs Greater Rockford Energy and Technology Corporation, Shepherd Oil, Inc., Vidalia Ethanol, Ltd., Alpebo, Inc., Shreveport Ethanol, Inc., Lakefield Ethanol, Inc. and A.E. Montana, Inc. All of these original Plaintiffs are — or were — ethanol producers. Other Plaintiffs were allowed to intervene later, including the State of Illinois which filed its complaint on March 2, 1990. This case was reassigned to this judge and division on May 21 of the same year.

The State of Illinois claims to have been injured as follows:

  a. Illinois motorists and motorists nationwide
  have been forced to pay higher prices at the pump
  for motor fuel than they would have had to pay, if
  defendants had not suppressed competition between
  gasohol and gasoline in the motor fuel
  marketplace.
  b. Illinois citizens engaged in the production,
  distribution and sale of ethanol and gasohol have
  lost jobs and profits as a result of defendants'
  illegal activities.
  c. Illinois farmers and others connected with the
  agricultural economy of Illinois have lost jobs
  and profits as a result of the decreased
  production and sale of corn, [more] than would
  have occurred had defendants not substantially
  prevented the widespread entry of ethanol and
  gasohol into the mainstream of the motor fuel
  industry.
  d. The quality of the environment and the public
  health have been adversely affected by defendants'
  exclusionary activities. Gasoline blended with 10%
  ethanol significantly reduces harmful emissions of
  carbon monoxide from motor vehicles into the
  atmosphere. In addition, ethanol is a more
  efficient and safer octane enhancer than those
  used by defendants. Due to the suppression of
  ethanol from the motor fuel market, Illinois
  citizens and citizens across the nation have been
  deprived of the health benefits of gasohol.
  e. The local governments of Illinois, the State of
  Illinois itself and ultimately Illinois taxpayers
  have had to expend larger sums of money and will
  have to spend even greater sums of money to comply

  with the federal Clean Air Standards because of
  the greater pollution of the atmosphere from the
  burning of gasoline as opposed to gasohol.
  f. The general economy of the State of Illinois
  has been injured and damaged because of the loss
  of economic development that the State would have
  enjoyed if the ethanol industry had not been
  severely crippled by defendants' conduct. Illinois
  is now and has been capable of producing hundreds
  of millions of gallons of fuel ethanol annually.
  New investment in plant and equipment in Illinois
  required to produce the ethanol necessary to meet
  the increased demand in a free and competitive
  motor fuel market would approximate one (1)
  billion dollars. The ripple effect of this new
  capacity upon the Illinois economy would be
  enormous. These effects include jobs created in
  the construction, plant operations,
  transportation, seed and feed industrial
  stimulation, fertilizer manufacturing, and other
  economic benefits.

The only monetary relief sought by the State of Illinois were Illinois statutory penalties. But those prayers for statutory civil penalties were dismissed by an earlier court order, leaving the State of Illinois in this suit only to pursue injunctive relief.

Prior Motions Based on Standing

At a hearing on April 14, 1989, Judge Baker denied Defendants' motion to dismiss for lack of standing to sue. In a short order entered on April 17, 1989, the Court concluded that "the allegations of the pleadings, fairly read, show that the plaintiffs are competitors of the defendants in the market for non-diesel automotive fuels, and that the plaintiffs have alleged direct antitrust injury."

On May 21, 1990, Judge Baker recused himself and the case was reassigned this case to the Springfield Division. On November 9, 1990, this Court denied a subsequent motion to dismiss stating that "on the limited record before us we cannot determine whether Plaintiffs are in fact actual competitors of the Defendants or merely more remote suppliers of direct competitors. At the conclusion of discovery, and upon a more complete record, we can revisit this issue."

The Current Motion

Discovery has now closed and the record is no longer limited — in fact, it is so voluminous that it would fill a five-drawer filing cabinet. Defendants have now moved for summary judgment based on Plaintiffs' lack of antitrust standing and injury. Because standing determinations are factually intense, we review the record, particularly Plaintiffs' Final Statement of Contentions and Proof in excruciatingly painful detail.

Contentions and Proof

Plaintiffs were ordered to file both a preliminary and a final statement of contentions and proof. The contents of their Final Statement of Contentions and Proof (hereafter "Final Statement") are generally not organized or identified on a count-by-count basis. They quote at length from the Senate and House reports on the Gasohol Competition Act of 1980 and argue that the Act, as well as actions by other government agencies, show government acceptance of 10% ethanol blended fuels as quality fuels. The contentions which follow are drawn from Plaintiffs' Final Statement.

Plaintiffs broadly complain that Defendants "flouted Congress' intent and will expressed in the Gasohol Competition Act of 1980, and undertook a concerted and ruthless program of lawlessness, unfair competition, and anti-competitive conduct."

They state that each of the Defendants market their motor fuel through branded, vertically integrated distribution systems in competition with ethanol producers and blenders. They then contend that they "compete with defendants at every level of the integrated petroleum industry from refining down the stream." By way of example, Plaintiffs state that "in distilling ethanol with gasoline to make gasohol, plaintiffs engage or engaged in activities equivalent to defendants' operations that made crude oil into gasoline. In seeking customers for ethanol, or gasohol for distribution or resale, plaintiffs compete with defendants' distribution and marketing operations."

Plaintiffs also contend, rather incredibly, that "[s]ince defendants manufacture and market motor fuels throughout the country, plaintiffs compete with defendants in 48 contiguous states."

They opine that Defendants subjected their dealers to "economic serfdom" through interrelated agreements including a lease, a product supply contract and the trademark license. Plaintiffs state that branded franchising affords the Defendants "a great degree of certainty about how much crude oil and refined product" they will move. They also asseverate that branded franchising "effectively precludes the system of 'open supply.'" Plaintiffs then assert that "[t]he Gasohol Competition Act of 1980 to a substantial degree could have created an open supply system."

They argue that "Defendants had an understanding to discriminate against and to disparage ethanol and gasohol so as to eliminate competition from ethanol and gasohol in the motor fuels market in violation of the antitrust laws." Apparently, the Court is to consider this alleged "understanding" as being a "contract, combination or conspiracy in violation of section 1 of the Sherman Antitrust Act" as alleged in Count I of Plaintiffs' complaint.

Plaintiffs avow four bases for their assertion of Defendants' understanding and/or their assertion that Defendants violated the Gasohol Competition Act of 1980. It is claimed that:

  (A) each Defendant engaged in conduct that
  unreasonably discriminated against or limited the
  sale, resale, or transfer of gasohol, in violation
  of 15 U.S.C. § 26a;
  (B) Defendants unlawfully limited the use of
  credit card instruments in transactions involving
  the sale, resale or transfer of gasohol;
  (C) Defendants further unreasonably discriminated
  against or unreasonably limited the sale, resale,
  or transfer of gasohol through other anti-alcohol
  activities which decreased public acceptance of
  gasohol and deterred dealers and jobbers from
  selling gasohol;
  (D) Defendants communicated among themselves and
  other co-conspirators sensitive competitive
  information about the marketing of motor fuels
  including ethanol and gasohol.

We examine each of Plaintiffs' four asserted bases in turn.

A. Unreasonable Restrictions on Gasohol

In support of their contention that "each Defendant engaged in conduct that unreasonably discriminated against or limited the sale, resale, or transfer of gasohol, in violation of 15 U.S.C. § 26a," Plaintiffs declare that:

(1) Defendants refused to permit use of existing tanks and pumps, regardless of ownership, for storage and dispensing of gasohol.

In support of this assertion, Plaintiffs' provide approximately four pages of quotes from House and Senate Reports dealing with past actions by major oil companies that the Gasohol Competition Act of 1980 was intended to address.

Plaintiffs further aver that "defendants through contractual agreements and the terms thereof ["contracts" for short], as well as other communications to jobbers and dealers, have uniformly prohibited the use of existing tanks and pumps for gasohol." In an accompanying footnote, the various methods of prohibiting dealers from using existing tanks for gasohol are listed, including the use of supply agreements requiring the dealer to purchase minimum quantities from the oil company (Exxon), requiring dealers to sell all three grades of the oil company's gasoline leaving, in most cases, no underground storage tanks available for gasohol (Shell), and prohibiting dealers from "splash blending" ethanol with branded gasoline and selling it as a branded product (Chevron).

(2) Defendants either failed to inform their dealers and jobbers of company gasohol policies or continued to change gasohol policies which left the dealers and jobbers in the dark about the conditions under which they could market gasohol if they chose to do so.

(3) Defendants exhibited a strong antigasohol attitude, coupled with strongly worded suggestions that the dealers and jobbers must check with company representatives before they began marketing gasohol.

(4) Through their debranding policies, Defendants imposed unreasonable labeling requirements on their dealers and jobbers which substantially impaired and unreasonably limited them in marketing gasohol.

(5) Defendants either threatened to terminate the franchises of dealers who sold gasohol or issued subtle threats which had the effect of discouraging their sale of gasohol.

The only evidence presented in support of this allegation were quotes from a Senate Report dealing with conduct of oil companies before the passage of the Act.

B. Credit Card Instruments

To support their contention that "Defendants unlawfully limited the use of credit card instruments in transactions involving the sale, resale or transfer of gasohol," Plaintiffs maintain that Gulf Oil Company, which was purchased by BP America and Chevron U.S.A., and Amoco refused to allow their credit cards to be used for the purchase of gasohol (except insofar as Amoco allowed its card to be used to purchase Amoco branded gasohol, where it marketed gasohol), while Shell imposed a 3 1/2% charge on gasohol purchases, and Atlantic Richfield "and others" required that special procedures be followed and that notations be made on credit card receipts for the sale of gasohol, all allegedly in violation of the Gasohol Competition Act of 1980.

C. Other Antigasohol Activities

In support of the contention that "Defendants further unreasonably discriminated against or unreasonably limited the sale, resale, or transfer of gasohol through other anti-alcohol activities which decreased public acceptance of gasohol and deterred dealers and jobbers from selling gasohol," Plaintiffs assert that:

(1) Defendants engaged in an anti-alcohol campaign which had the effect of discouraging the motoring public from buying gasohol and discouraging dealers and jobbers from selling gasohol.

Plaintiffs claim that gasohol, which they parenthetically define as "ethanol enriched fuels" (although the term actually refers to gasoline blended with either ethanol or methanol), was a well accepted, high quality motor fuel. Between 1980 and 1986, ethanol sales increased steadily from 50 million gallons per year to eight hundred million gallons per year. Defendants realized that ethanol was useful from the standpoint of adding octane to fuel, especially in light of the need to phase-out lead which also boosted octane. Chevron purchased a majority interest in a Kentucky ethanol production facility and blended its own gasohol which it sold in Kentucky and portions of Tennessee. During that time, Chevron touted "the product" as being a high quality motor fuel. Amoco purchased ethanol directly from refiners, blended it with Amoco gasolines, and sold it as a branded product in certain parts of the Midwest, including Iowa, Nebraska, North Dakota and South Dakota. In the areas that Amoco marketed gasohol, Amoco touted its high quality.

It is argued by Plaintiffs that "[t]he Gasohol Competition Act allowed branded dealers to handle the product at branded locations by simply debranding the pump and continuing to use existing tanks and pumps."

Defendants, beginning with Shell, Amoco, Marathon and Chevron allegedly began to "disparage ethanol" by disseminating misleading information. "The most obvious and conspicuous campaign was the practice by which the defendants' adorned their branded stations with point of sale sign materials which shouted that the product sold . . . contained no alcohol, ethanol or methanol." [Plaintiffs' accompanying 5-page endnote makes reference to numerous signs stating "No Alcohol" and does not mention a single sign specifically referring to ethanol or methanol.] ...


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