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Amerigas Propane, L.P. v. BP America

February 25, 2010

AMERIGAS PROPANE, L.P., FERRELLGAS L.P., TITAN ENERGY PARTNERS, HERITAGE OPERATING, LP, AND INERGY PROPANE, LLC, PLAINTIFFS,
v.
BP AMERICA, INC., BP CORPORATION NORTH AMERICA INC., BP INTERNATIONAL SERVICES COMPANY, BP PRODUCTS NORTH AMERICA INC., BP ENERGY, AND BP AMERICA PRODUCTION COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Judge James B. Zagel

MEMORANDUM OPINION AND ORDER

I. BACKGROUND

There is little dispute regarding the facts in this case. As part of its Deferred Prosecution Agreement with the government,*fn1 Defendants BP America Inc. and BP Products North America, Inc. ("BP Defendants" or "Defendants") admitted that in February 2004, some of its traders manipulated the February 2004 TET propane market, propane stored in and shipped via the Texas Eastern Products Pipeline Company, LLC ("TEPPCO") pipeline system.*fn2 In order to artificially create a lack of supply and raise TET propane prices, BP traders, who trade in gas and power products including propane, purchased more TET propane for February 2004 delivery than BP needed. By doing so, BP traders believed they could force counterparties with short positions*fn3 to pay inflated prices to cover their delivery obligations at month's end. As part of the 36-day manipulation scheme, whatever remained would be sold at a small loss in March.*fn4 BP succeeded in inflating propane prices for 19 days, driving the cost per gallon up to 94 cents from an earlier February low of 61 cents; however, the scheme eventually failed, as many counterparties declined to purchase as anticipated.

Beginning February 26, prices began to drop. As a result of Defendants' conduct, "additional supplies of propane were directed away from the non-TET caverns," increasing supply to the TET cavern, and on March 1, the price plummeted to 61.75 cents per gallon, nearly 25 cents below the February 27 price. BP took a $10 million loss on the propane it sold in March. Plaintiffs, parties who purchased propane directly from producers, allege that as a result of this scheme, they suffered damages by paying artificially inflated prices. They seek restitution as well as damages under the Sherman Act, the Commodity Exchange Act ("CEA"), and common law and statutory fraud.*fn5 BP Defendants move to dismiss the Sherman Act and fraud counts, and the parties filed cross motions for summary judgment on the CEA claim. For the following reasons, Defendants' motion to dismiss is granted in part and denied in part, and the motions for summary judgment are denied.

II. MOTION TO DISMISS

Standard of Review

A Motion to Dismiss under Rule 12(b)(6) requires that I analyze the legal sufficiency of the complaint, and not the factual merits of the case. Autry v. Northwest Premium Servs., Inc., 144 F.3d 1037, 1039 (7th Cir.1998). I must take all facts alleged in Plaintiffs' complaint as true and draw all reasonable inferences from those facts in favor of Plaintiffs. Caldwell v. City of Elwood, 959 F.2d 670, 671 (7th Cir.1992). Plaintiffs, for their part, must do more than solely recite the elements for a violation; they must plead with sufficient particularity so that their right to relief is more than a mere conjecture. Bell Atl., Corp. v. Twombly, 550 U.S. 544, 555 (2007). Plaintiffs must plead their facts so that, when accepted as true, they show the plausibility of their claim for relief. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). Plaintiffs must do more than plead facts that are "consistent with Defendants' liability" because that only shows the possibility, not the plausibility, of their entitlement to relief. Id. (internal quotations omitted).

Discussion

Monopolization Claim Under § 2 of the Sherman Act

Section 2 of the Sherman Act imposes a penalty on persons who monopolize, attempt to monopolize or conspire to monopolize any part of interstate commerce. 15 U.S.C. § 2 (2004). "The offense of monopoly under [§] 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power." U.S. v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). "Monopoly power has long been defined in the courts as the power to exclude competition or to control price[.]" Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1414 (7th Cir. 1989). Plaintiffs may prove market power either (1) "through direct evidence of anticompetitve effects," or (2) "by proving relevant product and geographic markets and by showing that the defendant's share exceeds whatever threshold is important for the practice in that case." Toys "R" Us, Inc. v. F.T.C., 221 F.3d 928, 937 (7th Cir. 2000). "The existence of such power ordinarily may be inferred from the predominant share of the market." Grinnell, 384 U.S. at 571.

In their Third Amended Complaint, Plaintiffs allege that as a result of its unlawful scheme, BP acquired and exercised monopoly power over the February 2004 TET propane market. The BP Defendants maintain that this claim should be dismissed because Plaintiffs fail to allege that (1) Defendants structurally altered the TET propane market; (2) Defendants possessed durable market power; and (3) the existence of significant barriers to entry. I have addressed this precise issue in Thompson's Gas & Electric Services, et al. v. BP Products North America Inc., et al., No. 08 CV 2693. For the reasons set forth in my memorandum opinion and order in that case, I find that Plaintiffs have adequately alleged a monopoly claim under section 2 of the Sherman Act, and Defendants' motion to dismiss this claim is denied.

Attempted Monopolization Claim Under § 2 of the Sherman Act

"To prove attempted monopolization under section 2 of the Sherman Act, a plaintiff must show (1) specific intent to achieve monopoly power, (2) predatory or anticompetitive conduct directed to accomplishing this unlawful purpose, and most important for purposes of this case, (3) a dangerous probability that the attempt to monopolize will be successful." Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1413 (7th Cir. 1989). In evaluating "dangerous probability," courts must consider the firm's "capacity to commit the offense, the scope of its objective, and the character of its conduct. The ultimate concern is the firm's actual or threatened impact on competition in the relevant market." Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 271 (7th Cir. 1981) (citation omitted).

Plaintiffs allege that Defendants acted with specific intent to achieve monopoly power over the markets for April 2003, when it tested its manipulation, and for February 2004 TET propane, when it actually achieved monopoly power. According to Plaintiffs, Defendants "engaged in manipulative and anti-competitive acts directed to accomplishing this unlawful purpose," and there was a dangerous probability that Defendants would succeed in achieving monopoly power in the markets for April 2003 and February 2004 TET propane where Defendants maintained 88% market share.

Defendants argue that the structure of the TET propane market prevented dangerous probability of any monopolization. Defendants maintain that they did not control the available supply to the market, and Plaintiffs, in their complaint, note that there were at least eight major producers of propane during the relevant period.

I have addressed this precise issue in Thompson's Gas & Electric Services, et al. v. BP Products North America Inc., et al., No. 08 CV 2693. For the reasons set forth in my memorandum opinion and order in that case, I find that Plaintiffs have adequately alleged an attempted monopolization claim under section 2 of the Sherman Act, and Defendants' motion to dismiss this claim is denied.

Illinois Consumer Fraud Act

To adequately plead a claim under the Illinois Consumer Fraud Act ("ICFA"), a plaintiff must allege: "(1) a deceptive act or practice by the defendant, (2) the defendant's intent that the plaintiff rely on the deception, (3) the occurrence of the deception in the course of conduct involving trade or commerce, and (4) actual damage to the plaintiff (5) ...


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