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USA Petroleum Co. v. Atlantic Richfield Co.

filed: August 12, 1992.

USA PETROLEUM CO., PLAINTIFF-APPELLANT,
v.
ATLANTIC RICHFIELD CO., DEFENDANT-APPELLEE.



D.C. No. CV 83-3508-WPG.

Before: Arthur L. Alarcon, Dorothy W. Nelson, and Stephen Reinhardt, Circuit Judges. Opinion by Judge D.w. Nelson; Dissent by Judge Alarcon.

Author: Nelson

D.W. Nelson, Circuit Judge:

Atlantic Richfield Co. ("ARCO") is one of the "major" oil companies; USA Petroleum Co. ("USA") is an "independent" gasoline marketer. USA alleges that ARCO and its dealers conspired to drive USA and other independents out of the retail gasoline market by agreeing to set retail gasoline prices below market levels. USA alleges that this vertical agreement to fix maximum resale prices violates section 1 of the Sherman Act, 15 U.S.C. § 1.

USA appealed from the decision of the district court granting summary judgment in favor of defendant ARCO on the antitrust claims. We reversed, holding that USA had standing to challenge ARCO's alleged vertical maximum resale price maintenance scheme. USA Petroleum v. Atlantic Richfield Co., 859 F.2d 687, 697 (9th Cir. 1988). The Supreme Court in turn reversed the judgment of this court, holding that a competitor does not have standing to challenge such a scheme unless the prices fixed were predatory. Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 339, 109 L. Ed. 2d 333, 110 S. Ct. 1884 (1990). On remand, USA argues that the grant of summary judgment still must be reversed on the alternative ground that the district court wrongly dismissed USA's predatory pricing claims. We agree, and we therefore reverse the judgment of the district court and remand for further proceedings.

I. Facts

USA filed this antitrust action in 1983, alleging that ARCO had agreed with its independent dealers to set below-market prices in the retail gasoline market in an effort to drive independent producers like USA out of business. USA alleged that ARCO's conduct violated the antitrust laws in two ways. First, an agreement to set maximum resale prices is illegal per se under section 1 of the Sherman Act, regardless of the prices set. Second, USA alleged that ARCO's prices were "predatory"*fn1 and constituted an attempt to monopolize in violation of section 2 of the Sherman Act, 15 U.S.C. § 2. On April 28, 1986, USA voluntarily dismissed its section 2 attempted monopolization claim because it could not show the "dangerous probability of success" necessary to prevail on that claim. USA continued to press its section 1 claim, however.

On June 30, 1986, ARCO moved for partial summary judgment on USA's section 1 claim. ARCO offered two arguments in support of this motion. First, it argued that USA had no standing to assert the claim because it could not suffer antitrust injury from a conspiracy to set maximum prices unless those prices were predatory. Second, it argued that USA could not prove ARCO's prices were predatory because it could not show a dangerous probability of successful monopolization. At no time did ARCO controvert USA's claim that ARCO had set its prices below cost. USA responded to the motion for summary judgment by asserting that it did not need to show either antitrust injury or a dangerous probability of success. The district court granted ARCO's motion for summary judgment. It held that, "even assuming that USA can establish a vertical conspiracy to maintain low prices, it cannot satisfy the 'antitrust injury' requirement of Clayton Act § 4, without showing such prices to be predatory." It held that USA could not show that ARCO's prices were predatory because ARCO did not possess market power and therefore was unlikely to succeed in monopolizing the market.

We reversed the district court. We held that USA did have standing to challenge a conspiracy to set maximum prices under section 1. USA Petroleum, 859 F.2d at 689. Because such a conspiracy is per se illegal regardless of whether the price is predatory, we did not reach the issue of whether ARCO had engaged in predatory pricing. The Supreme Court in turn reversed. The Court held that "although a vertical, maximum-price-fixing agreement is unlawful under § 1 of the Sherman Act, it does not cause a competitor antitrust injury unless it results in predatory pricing." Atlantic Richfield, 495 U.S. at 339 (emphasis added). The Court then remanded the case to this court for "proceedings consistent with this opinion." Id. at 346.

II. Jurisdiction

At the outset, ARCO argues that we should not reach the question of whether ARCO engaged in predatory pricing for two reasons. First, ARCO claims that USA explicitly abandoned its predatory pricing claims before the district court. This claim is belied by the record. In its complaint, USA alleged, among others, the following violations of section 1: "Arco and its co-conspirators have organized a resale price maintenance scheme," "Arco and its co-conspirators have implemented severe and predatory price cuts," and "Arco has extended to its co-conspirators and others prices on gasoline which are below cost. These prices have facilitated the maintenance of retail prices at artificially low and uncompetitive levels." In addition, USA also alleged resale price maintenance and predatory pricing claims under section 2 of the Sherman Act. USA later agreed to dismiss its section 2 claims, leaving only its section 1 claims to be disposed of by the court. Among those section 1 claims remaining for resolution were USA's allegations of a predatory pricing conspiracy.

In granting ARCO's motion for summary judgment, the district court reasoned as follows: "It seems to me that there would only be . . . an antitrust injury if the defendant sought to establish predatory prices, otherwise there would only be a conspiracy to compete. . . . And the definition of predatory prices, as I understand it from the papers, is that - one which creates a dangerous probability of successful monopoly." In response, counsel for USA repeatedly argued that dangerous probability of success applied only to section 2 claims, not the section 1 predatory pricing claim before the court.

It is clear from the record that the district court considered USA's section 1 predatory pricing claims. The court disposed of USA's claims on two grounds. First, as to all claims except the predatory pricing claims, it found that USA lacked standing because it could not prove antitrust injury. Second, as to the predatory pricing claims, it found that USA could not prove dangerous probability of successful monopolization. Thus, contrary to ARCO's suggestion, USA asserted its section 1 predatory pricing claims before the district court, and the district court in fact resolved those claims on the merits.

ARCO's second argument is that the Supreme Court's decision in this case forecloses any further consideration by this court. A review of the Ninth Circuit and Supreme Court opinions reveals otherwise. In its original appeal to this court, USA argued both that it had standing to bring its resale price maintenance claims and that the district court erred in dismissing its predatory pricing claims. Indeed, it spend several pages in its 1987 opening brief discussing the predatory pricing issue. See Appellant's Brief at 7, 15-20 ("By requiring USA to show . . . a dangerous probability of successful monopolization before ARCO's vertical price-fixing could be anticompetitive and cause USA antitrust injury, the district court contravened Supreme Court authority and impermissibly engrafted Section 2 elements onto USA's Section 1 price-fixing case."); Appellant's Reply Brief at 15-23.*fn2 We reached only the antitrust injury issue, however: "The question on appeal is whether in the absence of proof of predatory pricing a competitor can recover damages because of a maximum resale price maintenance agreement." USA Petroleum, 859 F.2d at 689 (emphasis added). We concluded that USA did have standing to bring its maximum resale price maintenance claims; we therefore reversed and remanded the case without reaching the predatory pricing issue.*fn3

In reversing, the Supreme Court held that "although a vertical, maximum-price-fixing agreement is unlawful under § 1 of the Sherman Act, it does not cause a competitor antitrust injury unless it results in predatory pricing." Atlantic Richfield, 495 U.S. at 339 (emphasis added). Far from resolving the question of whether predatory pricing had occurred here, the Supreme Court expressly did not reach that issue. Noting that the Ninth Circuit had not reached that issue, the Court said: "For purposes of this case we likewise assume that petitioner's pricing was not predatory in nature." Id. at 333 n.3. Neither the Ninth Circuit nor the Supreme Court, therefore, ever resolved the predatory pricing claim USA raised.

The Dissent offers two additional reasons not to reach the predatory pricing issue in this case. First, the Dissent finds in the Supreme Court's opinion a "clear direction . . . to this court to enter an order affirming the district court." Dissent, at 9689. The Supreme Court said no such thing. Instead, it explicitly remanded the case to this court for further "proceedings consistent with this opinion." 495 U.S. at 346. This mandate is completely consistent with the Court's decision on the merits, which was that USA could suffer antitrust injury, but only if ARCO's prices were predatory. The Court left open the same question we had previously left unresolved - whether ARCO's prices were predatory in this case.

Second, the Dissent argues that we should reject USA's predatory pricing claim on our own motion because USA presented no proof that ARCO's prices were predatory. It is true that USA did not offer proof that ARCO had priced below cost, but that is because ARCO never put that claim in issue. USA's complaint alleged that ARCO had priced below cost. ARCO's motion for summary judgment did not controvert that claim.*fn4 Instead, ARCO sought summary judgment on the predatory pricing allegation solely on the grounds that USA could not prove dangerous probability of success. The district court granted summary judgment on that basis alone. Because ARCO never argued in its motion for summary judgment that its prices were above cost, USA was under no obligation to come forward with evidence proving that element of its case. It is axiomatic that "a party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). To conclude otherwise would be to hold that a defendant could put the plaintiff to its proof on every element of its claim before trial, merely by invoking the magical words "summary judgment."

In short, USA was given no opportunity before the district court to prove that ARCO had priced predatorily, because the district court believed that USA was required to and could not establish dangerous probability of success. USA properly challenged the district court's ruling on its initial appeal to this court, devoting five pages of its brief to the issue. Because of our resolution of the case, we did not reach that issue. To refuse to reach it now, as the Dissent would have us do, would be to deny USA any opportunity to appeal the district court's decision on predatory pricing because of our earlier erroneous decision in USA's favor on the antitrust injury issue. Nothing in the Supreme Court's mandate or the law of summary judgment compels such a perverse result.

Because the Supreme Court has held that USA has standing only to pursue a predatory pricing claim, we must now decide whether the district court properly dismissed that predatory pricing claim.

III. Standard of Review

We review the district court's grant of summary judgment de novo. Thurman Indus., Inc. v. Pay 'n Pak Stores, Inc., 875 F.2d 1369, 1373 (9th Cir. 1989). We must determine whether, viewing the evidence in the light most favorable to USA, there are genuine issues of material fact and whether the district court correctly applied the substantive law. Id.

IV. Section 1 Predatory Pricing Claim

The antitrust laws contain a fundamental distinction between unilateral and concerted action. Unilateral action is governed by section 2 of the Sherman Act, and is illegal only if it constitutes actual or threatened monopolization. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767, 81 L. Ed. 2d 628, 104 S. Ct. 2731 (1984). Concerted action, by contrast, falls within section 1 of the Sherman Act, and is Judged more sternly. Many categories of concerted action are illegal per se - that is, without regard to their market effect. Id. at 767-68.

In this case, USA alleged concerted action in violation of section 1 - namely, a conspiracy between ARCO and its dealers to fix maximum prices above which the dealers could not resell ARCO gasoline. Vertical agreements to fix prices are illegal per se, regardless of whether the prices so fixed are predatory. Atlantic Richfield, 495 U.S. at 335; Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 724, 99 L. Ed. 2d 808, 108 S. Ct. 1515 (1988); Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 761, 79 L. Ed. 2d 775, 104 S. Ct. 1464 (1984); Albrecht v. Herald Co., 390 U.S. 145, 153, 19 L. Ed. 2d 998, 88 S. Ct. 869 (1968). Because the predatory pricing conspiracy alleged in this case is such an agreement to fix prices, it must be evaluated under the per se rule. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986) (horizontal conspiracy to predate treated as a per se violation); Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 342-48, 73 L. Ed. 2d 48, 102 S. Ct. 2466 (1982) (vertical and horizontal agreements to set prices are illegal per se regardless of the price set); P. Areeda & H. Hovenkamp, Antitrust Law Par. 711.2, at 616 (Supp. 1991) (same); Jorde & Lemley, Summary Judgment in Antitrust Cases: Understanding Monsanto and Matsushita, 36 Antitrust Bull. 271, 287 (1991) ("Section 2 [predatory pricing] cases are subject to the rule of reason, which means that a defendant will have a chance to defend its conduct as procompetitive. Because the plaintiffs. . . alleged a conspiracy to price below cost, however, their claim arises under section 1 and is subject to a per se rule.") (emphasis added).

In this case, the district court rejected USA's predatory pricing claim because it held that USA could not prove that ARCO had a dangerous probability of successful monopolization. The district court erred in applying the "dangerous probability of success" standard in a per se section 1 case. Dangerous probability of success is an element of an attempted monopolization claim under section 2. See Wm. Inglis & Sons v. ITT Continental Baking Co., 668 F.2d 1014, 1027 (9th Cir. 1981), cert. denied, 459 U.S. 825, 74 L. Ed. 2d 61, 103 S. Ct. 57, 103 S. Ct. 58 (1982); E. Fox & L. Sullivan, Antitrust Law 162 (1989). It has never been required, however, to prove a section 1 claim. Indeed, the Supreme Court has on several occasions expressly rejected the very argument ARCO makes here. See, e.g., Copperweld, 467 U.S. at 767-68 ("Section 1 of the Sherman Act, in contrast [to section 2], reaches unreasonable restraints of trade effected by a 'contract, combination, or conspiracy'. . . . It is not necessary to prove that concerted activity threatens monopolization."); United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224-25, 84 L. Ed. 1129, 60 S. Ct. 811 (1940) ("The group making [price-fixing] agreements may or may not have power to control the market. . . . Whatever economic justification particular price-fixing agreements may be thought to have, the law does not permit an inquiry into their reasonableness. They are all banned because of their actual or potential threat to the central nervous system of the economy.").

Further, this circuit has rejected the attempt to import the dangerous probability test into section 1 predatory pricing cases. For example, in Western Concrete Structures v. Mitsui & Co., 760 F.2d 1013, 1016-18 (9th Cir.), cert. denied, 474 U.S. 903, 88 L. Ed. 2d 229, 106 S. Ct. 230 (1985), we distinguished between the elements required to prove a section 1 predatory pricing claim and those required to prove a section 2 claim. There, we said that predatory pricing under section 2 "differs from section 1, which requires a conspiracy, but does not require monopolizing or attempting to monopolize." Id. at 1017. Indeed, this is the basic distinction between a section 1 claim and a section 2 claim. A section 1 plaintiff is required to prove the existence of a conspiracy.*fn5 Once the plaintiff has done so, however, it is relieved of the burden of proving actual or potential monopolization.

We have found no case in this circuit or any other that has applied the dangerous probability requirement to conduct which is illegal per se under section 1. We reject ARCO's argument that dangerous probability should be required in this case. To require such a showing would be tantamount to saying that a conspiracy to predate violates section 1 only if it also violates section 2. Such a holding would in essence abolish the long-standing rule that a predatory pricing conspiracy is illegal without regard to its actual or potential market effect. The Supreme Court has reaffirmed that rule in this very case, see Atlantic Richfield, 495 U.S. at 335, and we have no occasion to second-guess that judgment.*fn6

IV. Conclusion

The district court erred in requiring that USA prove a dangerous probability of successful monopolization in order to proceed to trial on its section 1 predatory pricing claim. It did not consider whether USA could demonstrate that ARCO had in fact engaged in predatory pricing - that is, pricing below cost - in this case. On remand, USA is entitled to attempt to prove that ARCO conspired to set predatory prices. The judgment of the district court is REVERSED and REMANDED.

ALARCON, Circuit Judge, Dissenting:

I respectfully Dissent.

I would carry out the mandate of the United States Supreme Court and enter a brief order affirming the district court's order.

I.

Prefatory Statement

The district court granted summary judgment in favor of the Atlantic Richfield Company (ARCO). It held that the USA Petroleum Company (USA) was not entitled to damages for a violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, because it had failed to demonstrate "antitrust injury."

On October 7, 1988, Judges Nelson and Reinhardt reversed "the decision of the district court and remanded the case for further proceedings consistent with this opinion." USA Petroleum Co. v. Atlantic Richfield Co., 859 F.2d 687, 697 (9th Cir. 1988). Presumably the majority's somewhat inscrutable mandate directed the district court to proceed to trial. The majority appeared to have ruled that USA demonstrated "antitrust injury," entitling it to recover damages if it can meet the requisite standard of persuasion at trial. Id.

On May 14, 1990, the Supreme Court reversed this court's decision. Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 109 L. Ed. 2d 333, 110 S. Ct. 1884 (1990). The Court's holding is stated in words that are free from ambiguity.

Respondent argues that, as a competitor, it can show anti-trust injury from a vertical conspiracy to fix maximum prices that is unlawful under § 1 of the Sherman Act, even if the prices were set above predatory levels. In addition, respondent maintains that any loss flowing from a per se violation of § 1 automatically satisfies the antitrust injury requirement. We reject both contentions and hold that respondent has failed to meet the antitrust injury test in this case. We therefore reverse the judgment of the Court of Appeals.

Id. at 335.

Thus, the Supreme Court reversed the judgment of the majority of this panel that the district court erred in holding that USA could not recover damages under Section 1 of the Sherman Act for failure to show "antitrust injury." Notwithstanding the clear direction of the Supreme Court to this court to enter an order affirming the district court, on November 13, 1991, USA filed a document styled as a "Motion for Clarification On Remand From Supreme Court" in which it boldly requested this court to " reverse the district court's grant of summary judgment." For reasons that find no support in the Supreme Court's decision in this matter, the majority has declined to enter an order affirming the district court's dismissal of this action for failure to demonstrate antitrust injury, and again reversed the order granting partial summary judgment on the Section 1 claim. I cannot join in the majority's opinion. My oath of office requires me to follow the mandate of the Supreme Court.

II.

THE DISTRICT COURT MUST BE AFFIRMED BECAUSE USA FAILED TO INTRODUCE EVIDENCE ...


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