WEST TEXAS TRANSMISSION, L.P., PETITIONER V. ENRON CORP., ET AL.

   No. 90-990

   In The Supreme Court Of The United States

   October Term, 1990

   On Petition For A Writ Of Certiorari To The United States Court Of
Appeals For The Fifth Circuit

   Brief For The Federal Respondent In Opposition

            TABLE OF CONTENTS
   Question Presented
   Opinions below
   Jurisdiction
   Statement
   Argument
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (Pet. App. 1a-30a) is reported
at 907 F.2d 1554.  The district court's findings of fact and
conclusions of law (Pet. App. 33a-54a) are unreported.

                             JURISDICTION

   The judgment of the court of appeals was entered on August 9, 1990.
 A petition for rehearing was denied on September 17, 1990.  Pet. App.
31a-32.  /1/ The petition for a writ of certiorari was filed on
December 17, 1990.  The jurisdiction of the court is invoked under 228
U.S.C. 1254(1).

                          QUESTION PRESENTED

   Whether the district court erred in denying petitioner's claim for
specific performance, under its contractual right of first refusal, to
purchase respondent Enron Corporation's interest in a natural gas
pipeline.

                               STATEMENT

   1. In 1969, petitioner built the TransTexas Natural Gas Pipeline to
carry natural gas from production areas in the Texas Permian Basin to
New Braunfels, Texas, where a network of pipelines serves the Texas
Gulf Coast.  /2/ In 1985, petitioner sold a 50% undivided interest in
that pipeline to respondent Enron Corporation, Inc., thereby creating
a joint venture to transport and sell natural gas to the Texas Gulf
Coast area.  /3/ Pet. App. 2a, 38a-39a.  Under the terms of the
contract of sale, petitioner and Enron agreed that should either party
decide to sell its interest in the pipeline, the other would have a
"right() of first refusal" to purchase that interest "on the same
terms and conditions" set forth in any third party offer acceptable to
the seller.  Id. at 15a, 16a (Ownership Agreement, Art. IX, Section
9.1).

   Shortly thereafter, Enron announced an agreement to acquire Houston
Natural Gas Corporation (HNG), which owned a 50% interest in a
competing pipeline.  The Federal Trade Commission initiated an
antitrust investigation of Enron's proposed acquisition of HNG.  Pet.
App. 3a-4a, 39a;  see 15 U.S.C. 18 and 45.  In June 1985, the
Commission provisionally accepted a proposed consent order with Enron
and HNG.  Pet. App. 39a-40a.  That proposed order called for Enron to
divest its interest in the TransTexas Pipeline, id. at 71a, and
provided that the Commission must approve Enron's sale of that
interest in order to "ensure the continuation of the assets as
ongoing, viable enterprises engaged in the same business in which the
Properties are presently employed and to remedy the lessening of
competition resulting from the Acquisition as alleged in the
Commission's complaint," id. at 66a.  /4/

   2. As a result of the Commission's consent order, Enron sought
buyers for its interest in the TransTexas Pipeline.  In Januay 1988,
Enron agreed to sell its interest to respondent Teco Pipeline Company,
and therefore submitted the proposed contract for the Commission's
approval.  Enron also notified petitioner of the proposed Teco
contract.  Petitioner, as an owner of the pipeline, exercised its
right of first refusal in March 1988, by signing a contract that was a
copy of the Enron/Teco contract with interlineated revisions to
reflect petitioner as the purchaser.  Petitioner's contract with Enron
included the condition that the sale be subject to approval by the
Commission under the terms of the Commission's previously entered
final order (see note 4, supra).  Pet. App. 7a-9a, 42a.  /5/ As a
result, Enron asked the Commission for approval to divest its pipeline
interest to peitioner under the terms of the contract.  Id. at 42a.
/6/

   In May 1988, the Commission denied Enron's application to divest
its pipeline interest to petitioner. Pet. App. 72a-74a.  Despite
petitioner's efforts to persuade the Commission otherwise, the
Commission determined that

      (d)ivestiture of Enron's TransTexas interest to (petitioner)
      would not achieve an adequate lessening of concentration among
      pipeline companies moving gas out of the Permian Basin.  In
      addition, divestiture of Enron's TransTexas interest to
      (petitioner) would increase the already high concentration
      levels among pipeline companies able to economically supply
      natural gas to the San Antonio area.

Id. at 73a.  The Commission therefore concluded, "based upon the
record in this case, that divestiture * * * to (petitioner) would not
likely satisfy the remedial purposes of the (final consent order)."
Ibid.  On the other hand, the Commission approved Enron's contract
with Teco, concluding that "divestiture to Teco, a new entrant, will
help achieve the remedial goals of the Commission's (final consent)
order." Ibid.

   3. In June 1988, petitioner asked the Commission "to rescind its
disapproval of (petitioner) as a divestee or, in the alternative, to
reopen the consent order proceeding." Pet. App. 44a.  Petitioner
principally contended that the

      Commission lacked authority to approve or disapprove
      (petitioner) as a purchaser of Enron's interest in the pipeline
      in the absence of evidence and a finding that the acquisition by
      (petitioner) would violate Section 7 of the Clayton Act.

Id. at 45a;  see id. at 11a.

   In August 1988, the Commission rejected petitioner's request for
relief.  See Pet. App. 45a-47a.  As the court of appeals summarized
the Commission's reasoning:

      First, (petitioner) had notice of the consent decree and many
      opportunities to present its objections to the FTC before the
      FTC finalized its order.  * * * Second, (petitioner) failed to
      present its objections in a timely fashion to the FTC during the
      approval process for either the first or the second purchase
      contract, again waiving those arguments. Third, the FTC's
      actions did not impinge upon (petitioner's) right of first
      refusal.  (Petitioner) exercised that right twice, signing two
      different purchase agreements which expressly conditioned
      (petitioner's) reacquisition of the pipeline on FTC approval.
      Fourth, sale of the pipeline to (petitioner) would not achieve
      the remedial purposes of the consent decree to eliminate the
      lessening of competition in the Permian basin area.

Id. at 12a.  /7/

   4. In the meantime, in late May 1988, petitioner had filed an
action against Enron in Texas state court.  Petitioner sought specific
performance of its contractual right of first refusal to require Enron
to sell its pipeline interest to petitioner.  On June 9, the state
court temporarily enjoined Enron from selling its pipeline interest to
Teco. Pet. App. 12a-13a, 44a.

   On June 24, Enron removed the state court action to the United
States District Court for the Western District of Texas.  /8/ After
the Commission denied petitioner's request for relief, petitioner
amended its complaint and added the Commission as a party defendant,
alleging that the "Commission's action in denying approval of
(petitioner) as a divestee under the consent order was arbitrary and
capricious and not in accord with the law and constitutes a violation
of (petitioner's) constitutional rights." Pet. App. 47a.

   5. In December 1988, after a bench trial, the district court
rejected petitioner's claims and accordingly dissolved the temporary
injunction.  Pet. App. 33a-54a.  Turning to petitioner's claims for
specific performance, the court found that petitioner "expressly
agreed in Section 1.07 of the Stock Purchase Agreement that its
purchase was subject to FTC approval.  * * * Accordingly, the contract
by which (petitioner) exercised its right of first refusal expressly
conditions (petitioner's) purchase on FTC approval." Id.at 49a.  That
condition, the court determined, "has not been satisfied, and as a
result, Enron is under no contractual obligation to sell its interest
in the pipeline to (petitioner)." Ibid.  The court therefore held that
"Enron did not breach the contract by which (petitioner) could
exercise its right of first refusal." Ibid.

   The court also concluded that the Commission's "action in
disapproving Enron's selling its pipeline interest to (petitioner)
does not constitute a taking of (petitioner's) property." Pet. App.
51a.  /9/ The court pointed out that petitioner's

      rights of first refusal gives (petitioner) nothing more than the
      right to match a third party's good faith offer to purchase
      Enron's pipeline interest.  The FTC's action has not impaired
      that right(;  petitioner) was free to match, and did match,
      Teco's good faith offer.

Id. at 51a-52a.  Moreover, the court concluded that "there has been no
taking of (petitioner's) property because the FTC's action in Docket
C-3168 did not constitute an adjudication of (petitioner's) contract
rights." Id. at 52a.  As the court stated, petitioner "remains free to
assert against Enron whatever legal rights it may have under the terms
and conditions of the Ownership Agreement." Ibid.

   6. In September 1990, the court of appeals affirmed.  Pet. App.
1a-30a.  /10/ In the court of appeals, petitioner contended that "by
insisting on FTC approval as a prerequisite to the agreement, Enron
created an untenable dilemma * * * (that) effectively gutted
(petitioner's) preemptive rights." Id. at 14a.  The court stated that
where, as here, the contract creating the preemptive right of first
refusal requies that the rightholder match "the same terms and
conditions as set forth in (a third party) offer or agreement to
purchase, id. at 16a (quoting 1985 Ownership Agreement), petitioner --
as the rightholder -- must match all conditions "as long as those
conditions are commercially reasonable, imposed in good faith, and not
specifically designed to defeat the preemptive rights," id. at 17a
(citations omitted).

   The court of appeals upheld the district court's finding -- not
challenged by petitioner -- that "Enron and Teco included the approval
term in good faith, without subterfuge or collusion, and without an
ulterior motive to override (petitioner's) right of first refusal."
Pet. App. 18a.  The court also determined that "the approval
requirement is commercially reasonable," noting that "business
venturers routinely subject their contracts to outside approval for
financing or credit-worthiness in order to guarantee the financial
success of venture." Ibid.  (citations omitted).  Accordingly, the
court held that "Enron did not violate (petitioner's) right of first
refusal by incorporating the FTC approval term into the TECO purchase
agreement." Id. at 19a.

   Moreover, the court of appeals rejected petitioner's contention
that it "could exercise its right of first refusal without matching
(the FTC approval) term.' Pet. App. 19a.  The court concluded that

      the comprehensive purchase contract between Enron and TECO
      contains many relevant terms * * *.  (Petitioner's) preemptive
      right requires (petitioner) to meet all (the) relevant terms and
      conditions.

Id. at 20a.  The court also determined that the approval term was "a
material term" of the contract, "since any attempt by (petitioner) to
accept the TECO contract without the FTC approval term would
substantially vary the terms of the sales agreement." Id. at 21a.
Having concluded that no principle of contract law excused
petitioner's compliance with the approval term, the court held that
petitioner "was required to meet all the terms and conditions of the
TECO contract, including the FTC approval term." Id. at 25a.

   In sum, the court of appeals held that petitioner's

      right of first refusal required it to accept (the FTC approval)
      term in order to exercise its preemptive right.  (Petitioner)
      did indeed accept this term when it executed the TECO contract.
      When (petitioner) failed to meet this condition, Enron was no
      longer obliged to reconvey the pipeline to (petitioner).

Id. at 26a-27a.

   Turning to petitioner's claims against the Commission, the court
rejected its contention that the Commission "manipulated
(petitioner's) pre-existing contract rights by requiring Enron to
receive its approval before selling the pipeline to (petitioner)."
Pet. App. 27a.  As the court explained:

      (T)he conditions under which (petitioner) may exercise its right
      of first refusal materialize after Eron receives a valid offer
      from an independent third party.  (Petitioner) may not dictate
      the terms and conditions of its purchase agreement.  Although
      (petitioner's) right of first refusal arose before the consent
      decree, the third-party contract containing the approval term
      was finalized after Enron entered into the consent decree.
      (Petitioner's) right of first refusal required it to match the
      terms in this subsequent contract, including that of FTC
      approval.

Id. at 28a.  In these circumstances, the court determined, the
Commission "did not manipulate the consent decree impermissibly to
reach a third party.  Rather, the interaction between the consent
decree and (petitioner's) right of first refusal subjected
(petitioner) to FTC authority." Ibid.

   Finally, the court concluded that petitioner erred in relying on
Martin v. Wilk, 109 S. Ct. 2180 (1989).  /11/ "Unlike the decree in
Martin," the court noted, "the consent decree between the FTC and
Enron does not directly bind (petitioner)." Pet. App. 29a.  To the
contrary, petitioner "must submit its acceptance to the FTC for
approval because its right of first refusal requires (petitioner) to
meet the terms and conditions of a third party offer." Id. at 29a-30a.
 The court therefore recognized that "it is the Ownership Agreement
and not the consent decree which binds (petitioner)." Ibid.

                               ARGUMENT

   Petitioner contends (Pet. 5-9) that the courts below, in denying
its contractual claim for specific performance to purchase a pipeline
based on the Federal Trade Commission's consent order entered against
third parties, violated the principle recently articulated in Martin
v. Wilks, 109 S. Ct. at 2183, namely, "that a person cannot be
deprived of his legal rights in a proceeding to which he is not a
party." As the previously detailed background of this litigation
shows, petitioner's contention is without merit.  Neither the district
court nor the court of appeals suggested -- much less held -- that the
Commission's consent order involving Enron and HNG bound petitioner or
otherwise stripped the firm of its contractual right of first refusal.
 To the contrary, the courts below correctly recognized that the
consent order did not modify petitioner's contract right, and that
Enron fully honored and complied with petitioner's right of first
refusal.  As the court of appeals succinctly explained:

      Unlike the decree in Martin, * * * the consent decree between
      the FTC and Enron does not directly bind (petitioner).  Rather,
      (petitioner) must submit its acceptance to the FTC for approval
      because its right of first refusal requires (petitioner) to meet
      the terms and conditions of a third party offer.  One of
      conditions happens to be FTC approval.  Enron is bound by the
      consent decree to include that FTC approval term in any purchase
      agreement.  (Petitioner) is bound by the terms of its preemptive
      right to accept that term.  Therefore, it is the Ownership
      Agreement and not the consent decree which binds (petitioner).

Pet. App. 29a-30a.  /12/ Accordingly, the decision below is consistent
with decisions such as Martin v. Wilks, supra, and otherwise warrants
no further review.

                              CONCLUSION

   The petition for a writ of certiorari should be denied.

   Respectfully submitted.

   KENNETH W. STARR

      Solicitor General

   JAMES M. SPEARS

      General Counsel

   JAY C. SHAFFER

      Deputy General Counsel

   ERNEST J. ISENSTADT

      Assistant General Counsel

   JEROLD D. CUMMINGS

      Deputy Assistant General Counsel Federal Trade Commission

   JANUARY 1991

   /1/ The court of appeals treated petitioner's suggestion of
rehearing en banc also as a petition for rehearing.  Pet. App.
31a-32a.

   /2/ Valero Transmission Company, petitioner's precedessor in
interest, built the pipeline.  For convenience, we refer to Valero as
petitioner.

   /3/ NorTex, a wholly owned subsidiary of InterNorth, Inc., Enron's
predecessor in interest, bought the interest in petitioner's pipeline.
 For convenience, we refer to NorTex and InterNorth collectively as
Enron.

   /4/ After publication and expiration of the public comment period,
the proposed consent order became the Commission's final decision in
September 1985.  Pet. App. 55a-71a;  In re InterNorth, Inc., 106
F.T.C. 312 (1985) (Dkt. C-3168).  Petitioner did not object to or
comment on the proposed order.  As the district court found,
petitioner "had actual notice of the terms of the proposed Consent
Order, including the requirement that Enron divest its interest in the
Trans-Texas Pipeline and that the divestiture be made to a purchaser
approved by the FTC." Pet. App. 40a.

   /5/ Section 1.07 of the Enron/petitioner contract provided as
follows:

   Seller's Conditions to Closing.  The obligations of Seller to
proceed with the closing are subject, at the option of the Seller, to
the satisfaction of the conditions that . . . (iii) all approvals
relating to the Federal Trade Commission Decision and Order re
InterNorth, Inc. (Docket C-3168) issued September 30, 1985, insofar as
it relates to the System (as defined in this Agreement) shall have
been obtained.

   /6/ A similar pair of Enron/Teco and Enron/petitioner contracts
(the latter also the result of peitioner's exercising its right of
first refusal and matching an earlier Teco contract) had been
submitted to the Commission in 1987.  These contracts, however, had
expired by their terms before the Commission acted upon Enron's
request that they be approved.  Pet. App. 6a-7a, 41a-42a.

   /7/ In addition, the Commission cited a factor not previously
considered during the earlier administrative proceedings:

      (Petitioner) had disclosed its immediate intention to resell the
      pipeline.  Since the FTC could not monitor this resale
      (petitioner's) reacquisition of the pipeline could undermine the
      consent decree's purposes to increase competition, and to ensure
      the continuation of the assets as ongoing, viable enterprises.

Pet. App. 12a.

   /8/ The temporary injunction issued by the state court remained in
effect under 28 U.S.C. 1450.  Pet. App. 47a.

   /9/ The court also rejected petitioner's contention that the
Commission's disapproval of its acquisition of Enron's pipeline
interest was arbitrary and capricious.  Pet. App. 53a-54a.  Petitioner
sought no further review of that claim.

   /10/ Before petitioner's notice of appeal was filed with the Fifth
Circuit (and in the absence of an injunction pending appeal), Enron
closed its contract with Teco and sold its pipeline interest.  See FTC
C.A. Br. 10;  Enron C.A. Br. 5;  Teco C.A. Br. 3.

   /11/ In Martin v. Wilks, this Court held tha "(j)oinder as a party,
rather than knowledge of a lawsuit and an opportunity to intervene, is
the method by which potential parties are subjected to the
jurisdiction of the court and bound by a judgment or decree." 109 S.
Ct. at 2186.

   /12/ Petitioner asserts in passing (Pet. 7) that the Commission
approval term may not quality its right of first refusal.  The court
of appeals, after canvassing applicable state contract law, rejected
that claim.  See Pet. App. 17a-25a.  Petitioner offers no sound reason
for this Court to depart from its practice of declining to review such
a state law issue.  See Burner v. United States, 440 U.S. 48, 58
(1979);  Huddleston v. Dwyer, 322 U.S. 232, 237 (1944).