Source: https://supreme.justia.com/cases/federal/us/376/651/
Timestamp: 2019-04-24 15:53:11+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 376 › United States v. El Paso Natural Gas Co.
The Federal Government filed suit under § 7 of the Clayton Act charging that the acquisition by a natural gas company, then the sole out of state supplier to California, of the stock and assets of another gas company, one of the two major interstate pipelines serving the trans-Rocky Mountain States, which had made some efforts to enter the California market, "may be substantially to lessen competition." The District Court, without a written opinion, dismissed the complaint after trial, adopting verbatim the findings of fact and conclusions of law submitted by counsel for appellees.
1. A trial judge's findings will stand if supported by evidence even where they are not his own work product, United States v. Crescent Amusement Co., 323 U. S. 173, but such findings are less helpful on judicial review than those prepared by the trial judge himself. Pp. 376 U. S. 656-657.
2. A review of the record, composed mainly of undisputed evidence, clearly shows that the "effect of such acquisition may be substantially to lessen competition" in California under § 7 of the Act. Pp. 376 U. S. 657-662.
(a) The production, transportation and sale of natural gas is a "line of commerce," and California is a "section of the country," as used in § 7. P. 376 U. S. 657.
(b) The words "may be substantially to lessen competition" in § 7 manifest Congress' concern with probabilities, and not with either certainties or ephemeral possibilities. P. 376 U. S. 658.
(c) Although the acquired company had not gained entry into California for its gas, its effect as a potential supplier made it a substantial competitive factor in that continuously expanding market. Pp. 376 U. S. 658-659.
3. Since appellees have been on notice of the antitrust charge almost from the inception of the merger plans, the District Court is directed to order divestiture without delay. P. 376 U. S. 662.
Opinion of the Court by MR. JUSTICE DOUGLAS, announced by MR. JUSTICE CLARK.
This is a civil suit charging a violation of § 7 of the Clayton Act, [Footnote 1] by reason of the acquisition of the stock and assets of Pacific Northwest Pipeline Corp. (Pacific Northwest) by El Paso Natural Gas Co. (El Paso). The District Court dismissed the complaint after trial, making findings of fact and conclusions of law, but not writing an opinion. The case is here on direct appeal. 15 U.S.C. § 29. We noted probable jurisdiction, 373 U.S. 930.
In 1954, Pacific Northwest received the approval of the Federal Power Commission to construct and operate a pipeline from the San Juan Basin, New Mexico, to the State of Washington, to supply gas to the then unserved Pacific Northwest area. Later it was authorized to receive large quantities of Canadian gas, and to enlarge its system for that purpose. In addition, Pacific Northwest acquired Rocky Mountain reservoirs along its route. At the end of 1957, it had an estimated 3.51 trillion cubic feet of gas reserves owned outright in the San Juan Basin; 1.04 trillion under contract in the San Juan Basin; 1.59 trillion under contract in the Rocky Mountain area; and 2.33 trillion under contract in Canada -- 8.47 trillion in all. By 1958, one-half of its natural gas sales were of gas from Canada.
In 1954, Pacific Northwest entered into two gas exchange contracts with El Paso -- one to deliver 250 million cubic feet per day to El Paso in Idaho for transportation to California via Nevada, the other to gather gas jointly in the San Juan Basin for a five-year period. Under the latter agreement, El Paso loaned gas to Pacific Northwest from its wells in the San Juan Basin; to avoid duplication of facilities, Pacific Northwest agreed to gather gas with its own facilities from El Paso's wells in the eastern portion of the basin, and El Paso agreed to perform the same service for Pacific Northwest in the western portion. At the same time, Pacific Northwest undertook to purchase 300 million cubic feet per day from West-coast Transmission Co., Ltd., a Canadian pipeline.
its facilities, be a larger company, will protect its market from future competition by a Canadian pipeline, and it caused the dismissal of the law suit of Westcoast against Pacific's present certificate. It means that El Paso's California market will be protected against future competition, and, further, it results in all parties' now working together for a common end, rather than fighting each other."
El Paso, however, could not get Commission approval to build the pipeline necessary to deliver the 250 million cubic feet of gas to California. Consequently, a new agreement on that aspect was negotiated in 1955 whereby El Paso undertook to purchase 50 million cubic feet a day to be delivered on an exchange basis in Colorado. Pacific Northwest, still obligated to take 300 million cubic feet per day from Westcoast, disposed of the balance in its own market areas.
and, upon being advised that it was El Paso's policy to sell only to distributors, started negotiations with Pacific Northwest in May, 1956. The idea was for Pacific Northwest to deliver to Edison at a point on the California-Oregon border 300 million cubic feet of Canadian gas a day. In July, 1956, they reached a tentative agreement. Edison thereupon tried to develop within California an integrated system for distributing Canadian gas supplied by Pacific Northwest to itself and others. El Paso decided to fight the plan to the last ditch, and succeeded in getting (through a distributor) a contract for Edison's needs. Edison's tentative agreement with Pacific Northwest was terminated. Before Edison terminated that agreement with Pacific Northwest, Edison had reached an agreement with El Paso for firm deliveries of gas; and while the original El Paso offer was 40¢ per Mcf, the price dropped to 38¢ per Mcf, then to 34¢, and finally to 30¢. Thereafter, and while the merger negotiations were pending, Pacific Northwest renewed its efforts to get its gas into California.
it should not have acted until the District Court had passed on the Clayton Act issues. California v. Federal Power Comm'n, 369 U. S. 482. Meanwhile (in October, 1960), the United States amended its complaint so as to include the asset acquisition in the charged violation of the Clayton Act.
and Holtzoff, Federal Practice and Procedure (Wright ed. 1961), § 1124. Moreover, these detailed findings were "mechanically adopted," to use the phrase of the late Judge Frank in United States v. Forness, 125 F.2d 928, 942, and do not reveal the discerning line for decision of the basic issue in the case. On review of the record -- which is composed largely of undisputed evidence -- we conclude that "the effect of such acquisition may be substantially to lessen competition" within the meaning of § 7 of the Clayton Act.
could not have received the gas supplies or financing for a pipeline project to California, or could not have put together a project acceptable to the regulatory agencies. Those findings are irrelevant.
See also United States v. Philadelphia National Bank, 374 U. S. 321, 374 U. S. 362.
was the only other important interstate pipeline west of the Rocky Mountains. Though young, it was prospering, and appeared strong enough to warrant a "treaty" with El Paso that protected El Paso's California markets.
"to arrest the trend toward concentration, the tendency to monopoly, before the consumer's alternatives disappeared through merger. . . ."
United States v. Philadelphia National Bank, 374 U.S. at 374 U. S. 367.
compete for, enter into, and then obtain Commission approval of sale contracts in advance of constructing the pipeline facilities. In the natural gas industry, pipelines are very expensive, and, to be justified, they need long-term contracts for sale of the gas that will travel them. Those transactions with distributors are few in number. For example, in California, there are only two significant wholesale purchasers -- Pacific Gas & Electric in the north and the Southern Companies in the south. Once the Commission grants authorization to construct facilities or to transport gas in interstate commerce, once the distributing contracts are made, a particular market is withdrawn from competition. The competition then is for the new increments of demand that may emerge with an expanding population and with an expanding industrial or household use of gas.
"I do not think, for the present moment, we should confuse the sale of gas from our system to California with El Paso's taking part of the gas through their present system to California. Reason for this: should the El Paso-Pacific deal collapse, we would have nothing of substance with California."
Pacific Northwest had proximity to the California market -- 550 miles distant in Wyoming, even nearer in Idaho, only 250 miles away in Oregon. Moreover, it had enormous reserves in the San Juan Basin, the Rocky Mountains, and Western Canada. Had Pacific Northwest remained independent, there can be no doubt it would have sought to exploit its formidable geographical position vis-a-vis California. No one knows what success it would have had. We do know, however, that two interstate pipelines in addition to El Paso now serve California -- one of the newcomers being Pacific Gas Transmission Co., bringing down Canadian gas. So we know that opportunities would have existed for Pacific Northwest had it remained independent.
Paso. If El Paso can absorb Pacific Northwest without violating § 7 of the Clayton Act, that section has no meaning in the natural gas field. For normally there is no competition -- once the lines are built and the long-term contracts negotiated -- except as respects the incremental needs.
In 1956, El Paso supplied more than 50% of all gas consumed in the State, the remainder coming from intrastate sources.
"The Court. Judgment will be for the defendant in this case. Prepare the findings and conclusions and judgment."
"How much time do you want within which to submit it?"
"Mr. Harrison. Does the court have a rule, your Honor?"
"The Court. No, I have no rule about that."
"Mr. Harrison. Could we have twenty days, your Honor?"
"The Court. Twenty days to prepare the findings and conclusions and judgment. I shan't write an opinion in this case."
"Mr. Harrison. I didn't hear you."
"The Court. I don't intend to write an opinion in this case. I think it is a factual matter. I think we have taken a full, fair look at the evidence and the factual issues, and I am not satisfied that the Government has discharged its burden."
"Who shall prepare the findings? Rule 52 says the court shall prepare the findings. 'The court shall find the facts specially and state separately its conclusions of law.' We all know what has happened. Many courts simply decide the case in favor of the plaintiff or the defendant, have him prepare the findings of fact and conclusions of law, and sign them. This has been denounced by every court of appeals save one. This is an abandonment of the duty and the trust that has been placed in the judge by these rules. It is a noncompliance with Rule 52 specifically, and it betrays the primary purpose of Rule 52 -- the primary purpose being that the preparation of these findings by the judge shall assist in the adjudication of the lawsuit."
"I suggest to you strongly that you avoid as far as you possibly can simply signing what some lawyer puts under your nose. These lawyers, and properly so, in their zeal and advocacy and their enthusiasm, are going to state the case for their side in these findings as strongly as they possibly can. When these findings get to the courts of appeals, they won't be worth the paper they are written on as far as assisting the court of appeals in determining why the judge decided the case."
Seminars for Newly Appointed United States District Judges (1963), p. 166.
"The dependence of California upon natural gas as a fuel is unique among the states. California does not possess coal deposits sufficient for energy requirements. It is dependent upon natural gas for its energy needs, and approximately three quarters of the natural gas utilized in California comes from out-of-state sources. Ninety per cent of all homes in California are heated by natural gas, and California industry depends upon natural gas as a fuel. In California, the percentage of total energy provided by natural gas is substantially greater than for the nation as a whole."
"During 1962, California Gas distributing utilities purchased over 745,000,000,000 cubic feet of natural gas at a cost somewhat in excess of $266,850,000. California takes in excess of ten per cent of all of the natural gas moving in interstate commerce throughout the United States, and exceeds the volume of gas imported by any other state."
"The interest of California in this proceeding is evident. More than 80 percent of the customers of El Paso before merger resided in the State of California, and California ratepayers bear most of the costs of service of El Paso."
"California, alone, consumes more natural gas than the Middle Atlantic states combined, more than half as much as the highly industrialized, thickly populated East North-Central states of Illinois, Indiana, Michigan, Ohio and Wisconsin, and as much as the seven states that make up the West North-Central area. Out-of-state deliveries to California averaged three billion cubic feet per day in 1961. At a price of slightly more than thirty cents per thousand cubic feet (Mcf), this business was worth then about $1,000,000 per day."
Cf. International Shoe Co. v. Federal Trade Comm'n, 280 U. S. 291.
Cf. Wisconsin v. Illinois, 281 U. S. 179, 281 U. S. 197.
MR. JUSTICE HARLAN (concurring in part and dissenting in part).
Contrary to what I had first thought, the Government is not asking in this case, as it did in United States v. Yellow Cab Co., 338 U. S. 338, that we "in effect . . . try the case de novo," id. at 338 U. S. 340. Rather, it contends that on the undisputed facts of record the ultimate determination below was clearly erroneous. See id., at 338 U. S. 341-342. For reasons given in the Court's opinion, I agree that a violation of § 7 of the Clayton Act has been established, and that the District Court erred in deciding otherwise . On this score, I shall comment only on two matters.
here, has accepted in toto the findings proposed by one side or the other. The real lack in this case is that the District Court wrote no opinion setting forth the reasoning underlying any of the subsidiary findings on disputed issues of fact or connecting the subsidiary findings with its ultimate determination that the Clayton Act had not been violated by this merger.
Both as a practitioner and as a judge, I have more than once felt that a closely contested government antitrust case, decided below in favor of the defendant, has foundered in this Court for lack of an illuminating opinion by the District Court. District Courts should not forget that such cases, the trials of which usually result in long and complex factual records, come here without the benefit of any sifting by the Courts of Appeals. The absence of an opinion by the District Court has been a handicap in this instance.
the effect of placing the Department of Justice in the driver's seat even though Congress has lodged primary regulatory authority elsewhere.
It does seem to me that the time has come when this duplicative, and, I venture to say, anachronistic system of dual regulation should be re-examined. Had the subtle and necessarily speculative questions involved in assessing the short-term and long-term effects of this merger been subject to appraisal by a single agency, under congressionally established standards marking the relationship between the different and often competing objectives of the antitrust laws and those governing the regulation of "interstate" natural gas, who can say that this case might not have called for a different outcome?
While I agree with the Court's decision on the merits, I dissent from its peremptory ordering of divestiture. "The framing of" appropriate relief "should take place in the District, rather than in Appellate, Courts." International Salt Co., Inc., v. United States, 332 U. S. 392, 332 U. S. 400 (footnote omitted). United States v. E. I. du Pont De Nemours & Co., 366 U. S. 316, is not to the contrary; that case had already been here before on the merits ( 353 U. S. 353 U.S. 586), and, when it came here again at the relief stage, the Court observed that "the District Courts [have] the responsibility initially to fashion the remedy. . . ." 366 U.S. at 366 U. S. 323. I know of no case where this Court has in the first instance itself directed divestiture or any other particular kind of relief. The fact that these appellees have been "on notice," ante, p. 376 U. S. 662, of the charges against them affords no justification for this departure from normal practice. See the cases cited in the second du Pont case, 366 U.S. at 366 U. S. 322.
I would remand the case to the District Court for the fashioning of appropriate relief.
* This Court has not had the benefit of an amicus brief from the Federal Power Commission.

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