Source: https://m.openjurist.org/497/us/199
Timestamp: 2020-01-24 21:10:22
Document Index: 14435345

Matched Legal Cases: ['§ 1', '§ 1', '§ 4', '§ 4', '§ 15', '§ 4', '§ 15', '§ 4', '§ 4', '§ 4', '§ 15', '§ 15', '§ 4', '§ 4', '§ 15', '§ 4', '§ 15', '§ 4', '§ 15', '§ 4', '§ 4', '§ 4']

497 U.S. 199 - Kansas v. Utilicorp United Inc
497 US 199 Kansas v. Utilicorp United Inc
KANSAS and Missouri, etc., Petitioners
In Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), we applied these considerations to reach a similar result. The State of Illinois sued Illinois Brick and other concrete block manufacturers for conspiring to raise the cost of concrete blocks in violation of § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. § 1. We ruled that the State had suffered no injury within the meaning of § 4 because Illinois Brick had not sold any concrete blocks to it. The company, instead, had sold the blocks to masonry subcontractors, who in turn had sold them to the State's general contractors. We decided that, because Illinois Brick could not use a pass-on defense in an action by direct purchasers, it would risk multiple liability to allow suits by indirect purchasers. See 431 U.S., at 730-731, 97 S.Ct., at 2066-2067. We declined to overrule Hanover Shoe or to create exceptions for any particular industries. See 431 U.S., at 735-736, 744-745, 97 S.Ct., at 2069-2070, 2073-2074.
The petitioners ask us to allow them to press the consumers' claims for three reasons. First, they assert that none of the rationales underlying Hanover Shoe or Illinois Brick exist in cases involving regulated public utilities. Second, they argue that we should apply an exception, suggested in Illinois Brick, for actions based upon cost-plus contracts. Third, they maintain that § 4C of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 90 Stat. 1394, as amended, 15 U.S.C. § 15c, authorizes them to assert claims on behalf of utility customers even if the customers could not assert any claims themselves. Affirming the Court of Appeals, we reject each of these contentions in turn.
In this case, we could not deprive the respondent of its § 4 action without first determining that the passing-on process in fact had allowed it to shift the entire overcharge to its customers. The certified question, however, leaves unclear whether the respondent had passed on "most or all" of its costs at the time of the suit. In addition, even the means by which the passthrough occurred remain unsettled. The petitioners allege that, pursuant to formulas in PGA's filed with the Kansas Corporation Commission and the Missouri Public Service Commission, the respondent "automatically" adjusted some of its rates to reflect increases in the wholesale cost of gas. Brief for Petitioners 5, n. 5. The respondent, however, maintains that PGA's did not govern all of its sales. See Brief for Respondent 17. The difficulties posed by issues of this sort led us to adopt the direct purchaser rule, and we must decline to create an exception that would require their litigation. As we have stated before: "[T]he task of disentangling overlapping damages claims is not lightly to be imposed upon potential antitrust litigants, or upon the judicial system." McCready, 457 U.S., at 475, n. 11, 102 S.Ct., at 2546, n. 11.
This case already has become quite complicated. It involves numerous utilities and other companies operating in several States under federal, state, and municipal regulation and, in some instances, under no rate regulation at all. Even apart from gas sold to customers, the utilities seek damages for lost sales and for gas purchased for their own use. The petitioners, in addition to their parens patriae claims, are asserting direct claims on behalf of numerous state agencies. Other direct purchasers also seek several measures of damages. Allowing the petitioners to proceed on behalf of consumers would complicate the proceedings further. Even if they could represent consumers residing in Kansas and Missouri, they could not represent industrial and commercial purchasers or consumers from other States. See 15 U.S.C. § 15c(a)(1) (extending parens patriae representation only to resident natural persons). These unrepresented consumers might seek intervention and further delay the prompt determination of the suit. The expansion of the case would risk the confusion, costs, and possibility of error inherent in complex litigation. At the same time, however, it might serve little purpose because, as noted above, state regulatory law may provide appropriate relief to consumers even if they cannot sue under § 4. As in Illinois Brick, we continue to believe that "even if ways could be found to bring all potential plaintiffs together in one huge action, the complexity thereby introduced into treble-damages proceedings argues strongly for retaining the Hanover Shoe rule." 431 U.S., at 731, n. 11, 97 S.Ct., at 2067, n. 11. C
Utilities, moreover, have an established record of diligent antitrust enforcement, having brought highly successful § 4 actions in many instances. The well-known group of actions from the 1960's involving overcharges for electrical generating equipment provides an excellent example. In these cases, which involved "a series of horizontal price-fixing conspiracies characterized as the most shocking in the history of the Sherman Act, plaintiff utilities . . . recover[ed] in unprecedented sums" even though some of the utilities "passed on to their own customers whatever higher costs they incurred as a consequence of the alleged conspiracies." Pollock, Standing to Sue, Remoteness of Injury, and the Passing-On Doctrine, 32 A.B.A. Antitrust L.J. 5, 10-11 (1966). The courts in these suits, even before the Hanover Shoe and Illinois Brick decisions, considered the pass-on issue and held that the causes of action were for the utilities to assert. See, e.g., Commonwealth Edison Co. v. Allis-Chalmers Mfg. Co., 335 F.2d 203, 208 (CA7 1964); Ohio Valley Electric Corp. v. General Electric Co., 244 F.Supp. 914, 949-951 (SDNY 1965). Various factors may have prompted these and other utility actions. For example, in addition to the reasons stated above, the respondent asserts that, like any business, an investor-owned utility has an interest in protecting its market. But whatever the motivation for their § 4 suits, this history makes us quite hesitant to take from the utilities the responsibility for enforcing the antitrust laws.
Relying on indirect purchaser actions in utility cases might fail to promote antitrust enforcement for other reasons. Consumers may lack the expertise and experience necessary for detecting improper pricing by a utility's suppliers. See Landes & Posner, The Economics of Passing On: A Reply to Harris and Sullivan, 128 U.Pa.L.Rev. 1274, 1278-1279 (1980). Although state attorneys general have greater expertise, they may hesitate to exercise the parens patriae device in cases involving smaller, more speculative harm to consumers. See Landes & Posner, Should Indirect Purchasers Have Standing to Sue Under the Antitrust Laws? An Economic Analysis of the Rule of Illinois Brick, 46 U.Chi.L.Rev. 602, 613 (1979). See also Illinois Brick, 431 U.S., at 745, 97 S.Ct., at 2074 (stating that, in indirect actions, "the uncertainty of how much of an overcharge could be established . . . [and] the uncertainty of how that overcharge would be apportioned . . . would further reduce the incentive to sue"). And even when state attorneys general decide to bring parens patriae actions, they may sue only on behalf of resident natural persons. See 15 U.S.C. § 15c(a)(1). All others, including nonresidents and small businesses, might fail to enforce their claims because of the insignificance of their individual recoveries. For these reasons, we remain unconvinced that the exception sought by the petitioners would promote antitrust enforcement better than the current Illinois Brick rule.
The preceding conclusions bring us to a broader point. The rationales underlying Hanover Shoe and Illinois Brick will not apply with equal force in all cases. We nonetheless believe that ample justification exists for our stated decision not to "carve out exceptions to the [direct purchaser] rule for particular types of markets." Illinois Brick, 431 U.S., at 744, 97 S.Ct., at 2074. The possibility of allowing an exception, even in rather meritorious circumstances, would undermine the rule. As we have stated:
"[T]he process of classifying various market situations according to the amount of pass-on likely to be involved and its susceptibility of proof in a judicial forum would entail the very problems that the Hanover Shoe rule was meant to avoid. The litigation over where the line should be drawn in a particular class of cases would inject the same 'massive evidence and complicated theories' into treble-damages proceedings, albeit at a somewhat higher level of generality." Id., at 744-745, 97 S.Ct., at 2074.
"We recognize that there might be situations—for instance, when an overcharged buyer has a pre-existing 'cost-plus' contract, thus making it easy to prove that he has not been damaged—where the considerations requiring that the passing-on defense not be permitted in this case would not be present." 392 U.S., at 494, 88 S.Ct., at 2232.
"In [a cost-plus contract] situation, the [direct] purchaser is insulated from any decrease in its sales as a result of attempting to pass on the overcharge, because its customer is committed to buying a fixed quantity regardless of price. The effect of the overcharge is essentially determined in advance, without reference to the interaction of supply and demand that complicates the determination in the general case." 431 U.S., at 736, 97 S.Ct., at 2069-2070.
"Any attorney general of a State may bring a civil action in the name of such state as parens patriae on behalf of natural persons residing in such State . . . to secure monetary relief as provided in this section for injury sustained by such natural persons to their property by reason of any violation of sections 1 to 7 of this title." 15 U.S.C. § 15c(a)(1).
We have rejected this argument before. We stated in Illinois Brick that § 4C did not establish any new substantive liability. Instead, "[i]t simply created a new procedural device—parens patriae actions by States on behalf of their citizens—to enforce existing rights of recovery under § 4 [of the Clayton Act.]." 431 U.S., at 734, n. 14, 97 S.Ct., at 2068, n. 14. Section 4, as noted above, affords relief only to a person "injured in his business or property by reason of anything forbidden in the antitrust laws." 15 U.S.C. § 15(a). State attorneys general may bring actions on behalf of consumers who have such an injury. See, e.g., Pennsylvania v. Mid-Atlantic Toyota Distributors, Inc., 704 F.2d 125, 128 (CA4 1983) (suit on behalf of consumers injured by an alleged conspiracy to fix the price of cars). But here the respondent is the injured party under the antitrust laws, and the predicate for a parens patriae action has not been established. We conclude that the petitioners may not assert any claims on behalf of the customers.
I dissent from the Court's opinion and judgment because it is inappropriate for the Court to deny standing to sue under § 4 of the Clayton Act, 15 U.S.C. § 15, to customers of a regulated utility in circumstances such as those presented in this case. By its plain language, § 4 reflects an " 'expansive remedial purpose.' " Blue Shield of Va. v. McCready, 457 U.S. 465, 472, 102 S.Ct. 2540, 2544, 73 L.Ed.2d 149 (1982) (citation omitted). It does not distinguish between classes of customers, but rather grants a cause of action to "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws. . . ." 15 U.S.C. § 15(a). In enacting § 4, Congress sought to ensure that victims of anticompetitive conduct receive compensation. Blue Shield, supra, at 472, 102 S.Ct. at 2544; Pfizer Inc. v. India, 434 U.S. 308, 314, 98 S.Ct. 584, 588, 54 L.Ed.2d 563 (1978).
The issue in this case is whether Illinois Brick bars a suit by retail customers to whom the utilities have passed on the entire cost of the gas sold to them, including any illegal overcharge. Before the District Court, the utilities moved to dismiss the States as parens patriae, arguing that the States lacked standing because they represented indirectpurchas ers. In response, the States contended that the indirect purchasers were proper plaintiffs because the utilities had passed through the entire overcharge to their residential customers. The District Court found it unnecessary "to wait upon evidence establishing the degree to which the utilities passed on the overcharge," In re Wyoming Tight Sands Antitrust Cases, 695 F.Supp. 1109, 1116 (Kan.1988), for even accepting the States' position that there had been a total pass-on, decisions of this Court were thought to bar the suit. Likewise, in affirming the District Court, the Court of Appeals presumed a "perfect and provable pass-on of the allegedly illegal overcharge." In re Wyoming Tight Sands Antitrust Cases, 866 F.2d 1286, 1293 (CA10 1989). Indeed, the Vice President and General Counsel of one of the respondent utilities is on record as stating that the utility's customers "pay all of any increases in the cost of natural gas [Kansas Power & Light] must purchase to serve them." Affidavit of David S. Black, vice president and general counsel of the Kansas Power & Light Company, Record, Doc. No. 485, Exhibit D (emphasis in original). Rather than embarking, as the Court does, on what amounts to a factfinding mission, which the courts below eschewed, about the fact and probability of this pass-on, we should decide this case on the basis that there has been a complete pass-through of the overcharge. On that basis, it is evident that the concerns underlying the decision in Illinois Brick do not support the judgment below. Rather, we should follow the plain intent of § 4 that the victims of anticompetitive conduct be allowed the remedy provided by the section.
Illinois Brick barred indirect purchaser suits chiefly because we feared that permitting the use of pass-on theories under § 4 would transform these treble-damages actions into massive and inconclusive efforts to apportion the recovery among all potential plaintiffs that could have absorbed part of the overcharge—from direct purchasers to middlemen to ultimate consumers. 431 U.S., at 737, 97 S.Ct., at 2070. As Judge Posner has written: "The optimal adjustment by an unregulated firm to the increased cost of the input will always be a price increase smaller than the increase in input cost, and this means that the increased cost will be divided between the two tiers, the direct and indirect purchasers—but in what proportion will often be hard to determine, even by sophisticated techniques of economic analysis. This is a central insight of the Illinois Brick decision." Illinois ex rel. Hartigan v. Panhandle Eastern Pipe Line Co., 852 F.2d 891, 894 (CA7 1988).
The Court contends that the apportionment problem is not so simple. It maintains that, even where a utility raises its rates to compensate for the overcharge and passes the overcharge through to the indirect purchasers, an apportionment problem still exists because "to show that a direct purchaser has borne no portion of an overcharge, the indirect purchaser would have to prove, among other things, that the direct purchaser could not have raised its rates prior to the overcharge." Ante, at 209. The problem identified by the majority is not peculiar to indirect purchaser suits. In antitrust cases where suppliers increase their prices, courts frequently must separate the price increase attributable to anticompetitive conduct (i.e., the "overcharge") from the price increase attributable to legitimate factors. This type of calculation "has to be done in every case where the plaintiff claims to have lost sales because of the defendant's unlawful conduct and the defendant argues that the loss was due partly or entirely to other factors." Panhandle Eastern, supra, at 897; see Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 66 S.Ct. 574, 90 L.Ed. 652 (1946). The problem identified in Illinois Brick was entirely different: There, we were concerned that it would unduly complicate litigation to require courts to separate the portion of the overcharge absorbed by the direct purchaser from the portion of the overcharge passed onto the indirect purchaser. As argued above, this difficulty is not a concern in the present case.* It is at least very doubtful that a utility that is in position to secure a rate increase on grounds having nothing to do with the price paid for its gas would fail to request a rate increase that included as well the entire amount paid for gas purchased from pipelines and sold to consumers.
Illinois Brick also observed that granting standing to the indirect purchasers in that case would lead to the under-enforcement of the antitrust laws. 431 U.S., at 745-747, 97 S.Ct., at 2074-2075. In the cases where there is "a perfect and provable pass-through," however, the opposite is true for two reasons. First, because the passthrough of the overcharge is complete and easily demonstrated, the indirect purchasers—and the States in their parens patriae capacity—may readily discover their injury. Second, although the utility could sue to recover lost profits resulting from lost sales due to the illegally high price, its injury is not measured by the amount of the illegal overcharge that it has passed on, and hence the utility would have no incentive to seek such a recovery.
The majority argues that, even "[l]eaving aside the apportionment issue" (i.e., assuming that there is no apportionment difficulty as the Tenth Circuit did in affirming summary judgment), the multiple recovery problem identified in Illinois Brick still exists. Ante, at 212-213. I disagree. Illinois Brick "focused on the risk of duplicative recovery engendered by allowing every person along a chain of distribution to claim damages arising from a single transaction that violated the antitrust laws." Blue Shield, 457 U.S., at 474-475, 102 S.Ct. at 2546. The danger of multiple recoveries does not exist aside from the apportionment difficulty; rather, it stems from it. If only defensive use of a pass-through defense were barred, or if it were extremely difficult to ascertain the percentage of an overcharge that the utility passed through, then the supplier of natural gas might potentially have to pay overlapping damages to successive purchasers at different levels in the distribution chain. But where there is no apportionment difficulty, there is no comparable risk.