In the

United States Court of Appeals

For the Seventh Circuit

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No. 03-1905

UNITED STATES GYPSUM COMPANY,

Plaintiff-Appellant,

v.

INDIANA GAS COMPANY, INCORPORATED, and

PROLIANCE ENERGY LLC,

Defendants-Appellees.

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Appeal from the United States District Court for the

Southern District of Indiana, Indianapolis Division.

No. IP 00-1675C-Y/K—Richard L. Young, Judge.

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ARGUED NOVEMBER 4, 2003—DECIDED NOVEMBER 24, 2003

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Before EASTERBROOK, ROVNER, and EVANS, Circuit

Judges.

EASTERBROOK, Circuit Judge. Indiana Gas Co. and

Citizens Gas & Coke, two utilities that supply natural gas

to customers in Indiana, formed a joint venture (called

ProLiance Energy) to manage the contracts by which they

purchase gas and transportation services from the interstate pipelines that pass through that state. United States

Gypsum (USG) purchases substantial quantities of gas for

use in manufacturing; it buys gas at the wellhead and deals

directly with the pipelines for transportation. In this

litigation under sections 1 and 2 of the Sherman Act, 15

U.S.C. §§ 1, 2, USG contends that ProLiance is an unlawful
2 No. 03-1905

combination that by contract controls a substantial fraction

of the transport capacity between the gas fields and Indiana, and that it has used this market power to monopolize.

Even though USG buys transportation directly from the

pipelines, it alleges, the price the pipelines can charge for

their services depends on what ProLiance has done with its

portion of the capacity. According to USG, pipelines have

been able to charge more for their residual capacity because

of ProLiance’s existence (and practices) than the pipelines

would have been able to charge in its absence.

Indiana Gas and Citizens Gas have many customers with

firm entitlements to gas. In order to assure delivery,

Indiana Gas and Citizens Gas purchase more pipeline

capacity than needed for daily deliveries; they hold the

excess as reserve for the benefit of the uninterruptible customers during periods of peak demand, such as cold snaps

or a business’s high season. During times of average demand, Indiana Gas and Citizens Gas sold their excess

transport entitlement on the spot market, where USG

bought it at attractive prices and used it to secure gas that

it stored for times when spot market prices were high. After

ProLiance came into existence, however, it ended (or at

least greatly curtailed) these spot-market sales, forcing

USG to pay more for firm capacity from the pipelines (firm

commitments always sell for more than interruptible or

spot purchases).

There are several ways to characterize what happened.

ProLiance contends that, by managing purchases on behalf

of both Indiana Gas and Citizens Gas, it has achieved

efficiencies: when one utility’s demand peaks, the other’s

may be closer to normal, which means that less aggregate

reserve capacity is needed. This is the way in which an

insurer, by pooling many imperfectly correlated risks, creates a portfolio that is less risky than any insured standing

alone. Thus ProLiance needs less standby capacity for peak

periods and can provide more firm, uninterruptible commitments per unit of pipeline capacity than either Indiana Gas
No. 03-1905 3

or Citizens Gas could do on its own. An increase in demand

from the utilities’ customer base then can be met without

an increase in price. The upshot, however, is that third

parties such as USG find fewer bargains in the spot market.

As USG sees matters, however, the higher spot-market

prices stem not from risk pooling but from ProLiance either

holding reserve capacity off the market (a reduction in

output that drives up prices) or bundling the release of

reserve transport capacity with gas (which USG describes

as a monopolistic tie-in sale).

Because all we have to go on is USG’s complaint, it is too

soon to determine whose understanding of these events is

superior. The district judge concluded that it would never be

necessary to examine these issues and dismissed the

complaint, citing Fed. R. Civ. P. 12(b)(6), on three grounds:

first, USG has not suffered antitrust injury because it does

not buy from ProLiance; second, the suit is barred by the

four-year period of limitations in 15 U.S.C. §15b; third,

USG could not prove its claims in light of adverse findings

by the Indiana Utility Regulatory Commission in a proceeding to which USG was a party. None of these is a good

ground on which to dismiss USG’s complaint—and the latter two are not permissible even in principle, because the

statute of limitations and issue preclusion are affirmative

defenses. See Fed. R. Civ. P. 8(c). Complaints need not

anticipate or attempt to defuse potential defenses. See

Gomez v. Toledo, 446 U.S. 635 (1980). A complaint states a

claim on which relief may be granted when it narrates an

intelligible grievance that, if proved, shows a legal entitlement to relief. See Swierkiewicz v. Sorema N.A., 534 U.S.

506 (2002); Bennett v. Schmidt, 153 F.3d 516 (7th Cir.

1998). A litigant may plead itself out of court by alleging

(and thus admitting) the ingredients of a defense, see

Walker v. Thompson, 288 F.3d 1005 (7th Cir. 2002) (applying this principle to the period of limitations), but this
4 No. 03-1905

complaint does not do so; the district judge thought, rather,

that the complaint had failed to overcome the defenses. As

complaints need not do this, the omissions do not justify

dismissal. What is more, all three grounds are unsound in

application as well as in principle.

A private plaintiff must show antitrust injury—which is

to say, injury by reason of those things that make the practice unlawful, such as reduced output and higher prices.

The antitrust-injury doctrine was created to filter out

complaints by competitors and others who may be hurt by

productive efficiencies, higher output, and lower prices, all

of which the antitrust laws are designed to encourage. See,

e.g., Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S.

328 (1990); Cargill, Inc. v. Monfort of Colorado, Inc., 479

U.S. 104 (1986); Brunswick Corp. v. Pueblo Bowl-O-Mat,

Inc., 429 U.S. 477 (1977). A plaintiff who wants something,

such as less competition or higher prices, that would injure

consumers, does not suffer antitrust injury. In Midwest Gas

Services, Inc. v. Indiana Gas Co., 317 F.3d 703 (7th Cir.

2003), we held that the antitrust-injury doctrine prevents

a suit by one of ProLiance’s business rivals. USG, by

contrast, is a consumer of gas; it is in the class of persons

protected from reductions in output and higher prices. And

USG contends that it has been required to pay higher

prices. Its injury (if any) is antitrust injury. That at least

one of ProLiance’s rivals has sued, and that none of its

indirect purchasers (the customers of Indiana Gas and

Citizens Gas) has done so, may be informative, but it does

not prevent USG from attempting to show that ProLiance

has anticompetitive consequences.

Portions of the district court’s opinion equate the antitrust-injury doctrine of Brunswick and its successors with

the direct-purchaser doctrine of Illinois Brick Co. v. Illinois,

431 U.S. 720 (1977), and Hanover Shoe, Inc. v. United Shoe

Machinery Corp., 392 U.S. 481 (1968). USG may suffer from
No. 03-1905 5

higher prices but does not buy from defendants, which the

district judge thought dispositive. If USG were seeking

damages, and ProLiance’s direct or derivative customers

also wanted (or could seek) monetary relief, then defendants would have a point. See Kansas v. UtiliCorp United

Inc., 497 U.S. 199 (1990) (reserving the possibility of suit by

an indirect customer if the direct customer is a participant

in the cartel); cf. Paper Systems Inc. v. Nippon Paper

Industries Co., 281 F.3d 629 (7th Cir. 2002). But the

direct-purchaser doctrine does not foreclose equitable relief,

nor does it apply when no purchaser could obtain damages,

for then there is no risk of double recovery (and no need to

calculate elasticities in order to apportion damages among

multiple tiers).

A cartel cuts output, which elevates price throughout the

market; customers of fringe firms (sellers that have not

joined the cartel) pay this higher price, and thus suffer

antitrust injury, just like customers of the cartel’s members.

We noted and reserved in Loeb Industries, Inc. v. Sumitomo

Corp. of America, 306 F.3d 469 (7th Cir. 2002), a number of

potentially difficult issues about the design of relief when

the customer of a fringe firm sues the (supposed) cartel

members and the injury is derivative. See also Associated

General Contractors of California, Inc. v. California State

Council of Carpenters, 459 U.S. 519 (1983); Blue Shield of

Virginia v. McCready, 457 U.S. 465 (1982). Courts sometimes label this “antitrust standing,” despite the potential

for confusion with Article III standing (which requires only

injury in fact plus redressability.) We did not resolve these

issues in Loeb and need not do so here either. It is enough

to reiterate, as Loeb holds, that the buyers from fringe firms

suffer antitrust injury, that their complaints cannot be

dismissed at the outset under the Illinois Brick doctrine,

and that the potential to establish injury through elevation

of price in the affected market satisfies any distinct “anti-
6 No. 03-1905

trust standing” requirement. See also Metallgesellschaft AG

v. Sumitomo Corp. of America, 325 F.3d 836 (7th Cir. 2003).

Now we turn to the statute of limitations. ProLiance was

formed in March 1996, and USG did not file this suit until

October 2000. The statute of limitations is four years—but,

as the district judge recognized, this time runs from the

most recent injury caused by the defendants’ activities

rather than from the cartel’s inception. See, e.g., Zenith

Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321

(1971); United States v. E.I. du Pont de Nemours & Co., 353

U.S. 586 (1957). Cf. Klehr v. A.O. Smith Corp., 521 U.S.

179, 188-91 (1997) (describing how this approach works).

The district court wrote that the complaint was deficient

because USG failed to “show some injurious overt act within

the limitations period”—but, as we have observed already,

complaints need not allege facts that tend to defeat affirmative defenses. The right question is whether it is possible to

imagine proof of the critical facts consistent with the

allegations actually in the complaint. See Hishon v. King &

Spalding, 467 U.S. 69 (1984); Conley v. Gibson, 355 U.S. 41

(1957). Proof that ProLiance had committed an

anticompetitive act after October 1996 would not contradict

any of the complaint’s allegations. Obviously USG hopes to

show that ProLiance regularly keeps some capacity off the

market, ties gas and transport together, or performs other

acts that could be thought to violate the antitrust laws.

Otherwise what’s the point of USG’s suit?

To the extent that defendants believe that even new

anticompetitive acts and fresh injury within the four years

before suit are insufficient, if the joint activity began

earlier, that position cannot be reconciled with du Pont,

which held that old activity (in du Pont, a stock acquisition

preceding the suit by 30 years) is not immunized, if the potential for a reduction in output is created or realized more

recently as market conditions change. Cooperative ventures
No. 03-1905 7

may begin innocently but acquire market power (or begin to

exercise it) afterward; if this occurs, a suit within four years

of any anticompetitive activity is timely. This is clear

enough if we apply the label “cartel” to what Indiana Gas

and Citizens Gas call a “joint venture.” Choice of terminology does not shorten the time for suit. A merger may be

complete at closing, see Concord Boat Corp. v. Brunswick

Corp., 207 F.3d 1039, 1050-53 (8th Cir. 2000), but a joint

venture or cartel is a continuing cooperative activity that

may be discontinued, or amended, from time to time.

(According to the state agency, ProLiance’s basic agreements had to be renegotiated in 2000. Opinion at 57.) The

parties’ decision to keep a joint venture in operation or

manage the operations in ways that may violate antitrust

rules is one that may be challenged when adverse effects

are felt.

As for issue preclusion (collateral estoppel): USG’s

principal argument is that the state commission did not

have “jurisdiction” to resolve a federal antitrust claim, so as

a matter of federal law its findings must be disregarded.

That’s wrong, for two reasons. First, the preclusive effect of

a state judicial decision depends on state rather than

federal law. See 28 U.S.C. §1738. (A state agency acting in

a judicial capacity is a court for this purpose. See University

of Tennessee v. Elliott, 478 U.S 788, 799 (1986). USG does

not contest the district judge’s conclusion that the Indiana

Utility Regulatory Commission, whose decision was affirmed by the state’s highest court, United States Gypsum,

Inc. v. Indiana Gas Co., 735 N.E.2d 790 (Ind. 2000), was

acting in such a capacity.) State law controls with respect

to preclusion even when a federal court has exclusive

jurisdiction of a federal claim that may be affected by the

state’s decision. Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373 (1985). Second, USG confuses

issue preclusion with claim preclusion. An agency or court
8 No. 03-1905

that lacks authority to decide whether ProLiance has

violated the antitrust laws nonetheless may resolve a

disputed issue—such as whether ProLiance has market

power—that has significance beyond the particular adjudication in which the issue is addressed. Indiana gives

preclusive effect to issues actually and necessarily decided

in a contested adjudication. See McClanahan v. Remington

Freight Lines, Inc., 517 N.E.2d 390, 394 (Ind. 1988). All

doubts about the proper use of Rule 12(b)(6) to one side, the

right question to ask is what, in particular, the state agency

actually decided.

When Indiana Gas and Citizens Gas formed ProLiance,

USG and several other customers asked the Indiana Utility

Regulatory Commission to block the plan. They offered two

lines of argument: first, that ProLiance would itself be a

utility that could not come into existence without the

Commission’s permission; second, that Indiana Gas and

Citizens Gas (which are utilities subject to the Commission’s jurisdiction) did not satisfy the “public interest”

standard when forming ProLiance. The Commission rejected the first on grounds that do not matter to this antitrust litigation. It rejected the second after finding that

ProLiance serves the public interest by enabling Indiana

Gas and Citizens Gas to make better use of their joint

reserve capacity. Petition by Ratepayers of Indiana Gas Co.,

No. 40437 (Sept. 12, 1997), affirmed under the name United

States Gypsum, Inc. v. Indiana Gas Co., 735 N.E.2d 790

(Ind. 2000).

One month after the state Supreme Court’s decision, USG

filed this antitrust action, only to be met by the argument

that the Commission’s decision knocks out essential

elements of the federal claim. The district court wrote that

USG loses because “the issue sought to be precluded—the

improper creation and operation of ProLiance—is the same

as that involved in [the] prior action that was before the”
No. 03-1905 9

Commission. But “the improper creation and operation of

ProLiance” is not an “issue”; that is far too lofty a level of

generality. Putting the matter this way suggests that the

district court has equated issue preclusion with claim

preclusion. Indiana did not require USG to present its federal antitrust claims to the Commission, so the rules of

merger and bar do not block this litigation. Unless the

agency decided some concrete issue that also bears on the

antitrust claim, USG does not encounter a problem with

preclusion.

A finding that “X is in the public interest” is compatible

with subsequent antitrust litigation. See California v. FPC,

369 U.S. 482, 489 (1962); United States v. Radio Corp. of

America, 358 U.S. 334, 351-52 (1959). It might mean simply

that Indiana has decided that cartels serve the public

interest, a conclusion that under the Supremacy Clause

must yield to contrary federal policy. (Antitrust law makes

an exception for state policies that compel monopolistic

organization of regulated industries, see Cantor v. Detroit

Edison Co., 428 U.S. 579 (1976); Parker v. Brown, 317 U.S.

341 (1943), but no one argues that Indiana required the

utilities to form ProLiance.)

Defendants do not rely on the district court’s understanding. Instead they contend that the agency made a favorable,

concrete finding: that ProLiance lacks market power. If that

is so, then USG’s antitrust claim fails at the threshold. See,

e.g., Jefferson Parish Hospital District No. 2 v. Hyde, 466

U.S. 2 (1984); Elliott v. United Center, 126 F.3d 1003 (7th

Cir. 1997); Digital Equipment Corp. v. Uniq Digital Technologies, Inc., 73 F.3d 756 (7th Cir. 1996); Chicago Professional Sports Limited Partnership v. National Basketball

Ass’n, 95 F.3d 593 (7th Cir. 1996); Polk Bros., Inc. v. Forest

City Enterprises, Inc., 776 F.2d 185 (7th Cir. 1985). We have

searched the agency’s decision in vain for such a finding,

however. Although the agency mentioned market power as
10 No. 03-1905

a factor worth consideration, it did not find that ProLiance

has none. What it did say is that (a) the pipelines’ transportation capacity to Indiana is unaffected by ProLiance, so

that no matter how much of the capacity has been committed to ProLiance by contract, total deliverable supplies

cannot fall; and (b) ProLiance had to date acted to make

better use of the existing capacity by pooling amounts held

in reserve.

“To date” is a vital qualifier. The Commission issued its

opinion in September 1997. More than six years have

passed since then. What is ProLiance doing today? It does

not take a leap of fancy to envisage a joint venture behaving

itself long enough to win regulatory approbation, and only

then applying the squeeze in the market. The agency found

that in 1997 ProLiance was beneficial to consumers and

that a “thriving robust . . . secondary market” (opinion at

40) protected third parties such as USG. It wrote: “[m]ost

important to our decision is witness Feingold’s uncontradicted evidence that, post-ProLiance, the market place

continues to function with no ill effects.” Id. at 41. “[T]he

affected markets are as robust after the formation of

ProLiance as they were prior to its formation.” Id. at 55.

That was 1997. What of 2003? The agency recognized that

its record had been compiled quickly and reflected only the

initial months of ProLiance’s operations. “There simply is

little experience with the actual operation of the alliance. . . . [E]xperience under the current agreements may

indicate that their actual operation does not comport with

the public interest even though we find that they do so

now.” Id. at 57. Reviewing this decision, the Supreme Court

of Indiana made a similar point, observing that, if circumstances change, the agency may revisit the subject. 735

N.E.2d at 804. These reservations foreclose any argument

that Indiana would deem the agency’s decision preclusive

with respect to the economic effects of ProLiance in the

period after September 1997. If the findings made in 1997
No. 03-1905 11

would not block Indiana itself from revisiting the subject in

2003—and they don’t—then under §1738 they do not block

adjudication in federal court either. It may be that a fresh

look will lead to the same conclusions reached six years ago,

but nothing in the agency’s decision prevents a federal court

from taking that fresh look in antitrust litigation.

VACATED AND REMANDED

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—11-24-03