Opinion ID: 1272032
Heading Depth: 1
Heading Rank: 10

Heading: applicability of new mexico antitrust act

Text: The last issue we consider concerning the propriety of the trial court's discovery orders involves the applicability of the New Mexico Antitrust Act, Sections 57-1-1 to 57-1-3, N.M.S.A. 1978. [59] Although GAC filed a counterclaim alleging that United had violated the New Mexico Antitrust Act, it now contends that that Act may not be applied to the specific commerce at issue in this case (the 1973 and 1974 Supply Agreements and the I&M contract) and to the activities of the international uranium cartel. GAC argues that if the Act does not apply, discovery orders pertaining to allegations of violations of the Act could not be entered, and therefore, sanctions could not be imposed for a failure to comply with such orders. [60] 1. The Commerce Clause GAC's first contention is that the Commerce Clause of the United States constitution [61] bars the application of state antitrust laws to activities which occur exclusively or overwhelmingly in interstate and foreign commerce. GAC argues that the supply and utility contracts in this case have no immediate relationship to the State of New Mexico, and therefore, that they involve only interstate commerce. Further, GAC argues that the cartel's operations were concerned solely with foreign commerce. It is well-settled that the federal power to regulate commerce is not exclusive, and that states have the inherent police power to regulate commerce within their borders, even though such activities may include or affect interstate and foreign commerce. Merrill Lynch, Pierce, Fenner & Smith v. Ware, 414 U.S. 117, 140, 94 S.Ct. 383, 396, 38 L.Ed.2d 348 (1973); Cities Service Co. v. Peerless Co., 340 U.S. 179, 186, 71 S.Ct. 215, 219, 95 L.Ed. 190 (1950); Southern Pacific Co. v. Arizona, 325 U.S. 761, 766-67, 65 S.Ct. 1515, 1518-19, 89 L.Ed. 1915 (1945); K.S.B. Tech. Sales v. North Jersey, Etc., 75 N.J. 272, 381 A.2d 774, 784 (1977). Specifically, a state may exercise its power by removing restraints on the trade and commerce of that state even though interstate commerce may thereby be affected. Giboney v. Empire Storage Co., 336 U.S. 490, 495, 69 S.Ct. 684, 687, 93 L.Ed. 834 (1949); Watson v. Buck, 313 U.S. 387, 403-04, 61 S.Ct. 962, 967, 85 L.Ed. 1416 (1941); J. Flynn, Federalism and State Antitrust Regulation 63 (1964). The following standards for the states' power to regulate commerce were established in Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970): Where the [state] statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits... If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities. See also Philadelphia v. New Jersey, 437 U.S. 617, 624, 98 S.Ct. 2531, 2536, 57 L.Ed.2d 475 (1978). Thus, the first inquiry is whether the state regulation effectuates a legitimate local public interest. There are two aspects to this requirement. First, the type of regulation-here antitrust-must be one within the state's inherent police powers. Second, the specific activity to which the state regulation is applied in a particular case must involve a matter of local concern which is local in character and effect. Southern Pacific Co. v. Arizona, supra, 325 U.S. at 767, 65 S.Ct. at 1519. It has consistently been held that the type of regulation at issue here-the prevention of anti-competitive, monopolistic and predatory trade practices-is a legitimate exercise of the state's inherent police powers. See United Nuclear Corp. v. General Atomic Co., supra, 93 N.M. at 124-27, 597 P.2d at 309-12 (1979); Giboney v. Empire Storage Co., supra ; German Alliance Ins. Co. v. Hale, 219 U.S. 307, 316-17, 31 S.Ct. 246, 55 L.Ed. 229 (1911); J. Flynn, supra, at 76-77. GAC's principal argument is that the second element of a legitimate local public interest is not present in this case because the specific contracts at issue and the uranium cartel are not local in character and effect. GAC relies on four points to support its position. First, the cartel had no immediate relationship to New Mexico and never conducted meetings in this state. GAC contends that cartel operations were plainly in foreign commerce outside the United States. Second, none of the entities involved in this case are incorporated in New Mexico. Third, the 1973 Supply Agreement was not executed in and does not require the performance of any act in New Mexico. Fourth, the uranium market is national in scope. We are not persuaded that the matters at issue in this case occurred exclusively in interstate and foreign commerce and had no significant local aspects. It has been recognized that state antitrust laws may reach up to include the regulation of interstate commerce. See R.E. Spriggs Co. v. Adolph Coors Company, 37 Cal. App.3d 653, 112 Cal. Rptr. 585, 589 (1974); J. Flynn, supra, at 71, and cases cited therein at n. 251; Wechsler, 9 N.M.L.Rev. at 3. As the Massachusetts Supreme Judicial Court stated: If State laws have no force as soon as interstate commerce begins to be affected, a very large area will be fenced off in which the States will be practically helpless to protect their citizens without, so far as we can perceive, any corresponding contribution to the national welfare. (Citation omitted.) Commonwealth v. McHugh, 326 Mass. 249, 93 N.E.2d 751, 762 (1950) (citation omitted). [62] We cannot agree that the outer limit of the exercise of that power-activity of a wholly interstate nature-has been exceeded in this case. The contracts at issue may be regarded as having no immediate relationship to New Mexico only by relying upon the formalities-the domicile of the parties to the contracts, the place of performance, and the place the contracts were entered into-and ignoring the practical realities. United alleges that the 1973 and 1974 Supply Agreements were part of a conspiracy to monopolize uranium reserves in the United States and to eliminate it as a competitor in the uranium market. As of 1975, over one-half of the uranium reserves of the United States were located in New Mexico. In all but one year from 1966 to 1976, in excess of forty percent of the annual production of uranium in the United States came from New Mexico mines. As of 1976, over fifty percent of the uranium mining work force in this country and nearly forth percent of the uranium milling work force were located in New Mexico. Nearly one-half of the capacity of American uranium production mills is in this State. Gulf's New Mexico Mt. Taylor uranium reserves constitute the largest uranium ore body in the United States. United's mine at Churchrock, New Mexico, which GAC is alleged to have attempted to gain control of as part of the monopolistic conspiracy, is the largest underground uranium mine in the United States. Therefore, it would be impossible to monopolize the American uranium market without having an immediate relationship to, and a substantial effect on, the trade and commerce of this State. Although the 1973 Supply Agreement does not formally require any activity to take place here, almost all of United's uranium production is from New Mexico mines. New Mexico is also the site of its only uranium mill, which is the place of delivery under the terms of the 1974 Supply Agreement. In its brief on appeal, GAC conceded that New Mexico is the state in which [United's] operation is located. The uranium sales efforts of GAC and its predecessors were based on Gulf production in New Mexico, foreign uranium imports, and purchases on the open market. Those purchases also included substantial amounts of New Mexico uranium. See Section II B, supra. It is simply not the case that this litigation involves exclusively interstate commerce and that this State has no interest in its adjudication. United Nuclear Corp. v. General Atomic Co., supra, 90 N.M. at 101-02, 560 P.2d at 165-66. Therefore, we hold that the State of New Mexico has a legitimate local public interest in the application of its antitrust laws to this case. The remaining inquiries are whether the state law as applied here (1) regulates evenhandedly and (2) has only incidental effects on interstate commerce. There is clearly nothing in the New Mexico Antitrust Act or in its application to this case which entails any discrimination against interstate goods or which favors local commerce over the commerce of sister states. Compare Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 125-26, 98 S.Ct. 2207, 2213-14, 57 L.Ed.2d 91 (1978) with Dean Milk Co. v. Madison, 340 U.S. 349, 71 S.Ct. 295, 95 L.Ed. 329 (1951). GAC makes no contention to the contrary. [63] Further, GAC has made no showing whatsoever that the application of state antitrust laws to this case will have any adverse effects on the free flow of commerce across state lines. Southern Pacific Co. v. Arizona, supra, 325 U.S. at 770, 65 S.Ct. at 1521. The very purpose of these laws is to remove privately created restraints on free trade. Consequently, it would be difficult to prove that a policy which removes privately instituted interferences, delays, interruptions, and inconveniences with interstate commerce, is itself a delay, interference, interruption, and inconvenience to interstate commerce when enforced at the local level by the states. J. Flynn, supra, at 84. GAC nevertheless contends that because the uranium market is national in scope, and because uranium is vital to the military posture of the United States and to federal energy policy, legal and policy questions involving uranium in the uranium industry must be addressed uniformly by the federal government. GAC argues that application of state antitrust laws to such matters is too fraught with a potential for inconsistent results, lack of uniformity, and consequent burdens upon interstate commerce. GAC places principal reliance on Flood v. Kuhn, 407 U.S. 258, 92 S.Ct. 2099, 32 L.Ed.2d 728 (1972), aff'g, 443 F.2d 264 (2nd Cir.1971), aff'g, 316 F. Supp. 271 (S.D.N.Y. 1970), in which the Supreme Court upheld lower court rulings that the reserve clause in professional baseball contracts was not subject to challenge under state antitrust laws. Previous decisions of the Supreme Court had held that professional baseball was not subject to federal antitrust laws. Toolson v. New York Yankees, 346 U.S. 356, 74 S.Ct. 78, 98 L.Ed. 64 (1953); Federal Club v. National League, 259 U.S. 200, 42 S.Ct. 465, 66 L.Ed. 898 (1922). In Flood the lower courts had held that the nationwide character of organized baseball combined with the necessary interdependence of the teams requires that there be uniformity in any regulation of baseball and its reserve system. 316 F. Supp. at 279-80. See 443 F.2d at 267-68. In affirming the lower courts' decisions, the Supreme Court did not adopt any broad or rigid limitations on the applicability of state antitrust laws to transactions involving interstate commerce. The Court upheld those holdings [a]s applied to organized baseball, and in the light of this Court's observations and holdings in Federal Baseball, [and] in Toolson ... . 407 U.S. at 284, 92 S.Ct. at 2113. We believe that Flood is readily distinguishable from this case. First, the time honored, though unusual, exemption from federal antitrust laws which professional baseball enjoys would be meaningless if state antitrust laws were not also inapplicable. Thus, in Flood there was a clear conflict between federal and state antitrust enforcement policies. Second, professional baseball is significantly different from the uranium market. Baseball involves [a] complex web of franchises, farm teams and recruiters ... 443 F.2d at 267. Baseball clubs are organized into leagues and are dependent on the league playing schedule... . Therefore, it is the league structure at which any state antitrust regulation must be aimed ... [E]ach league extends over many states, and ..., if state regulation were permissible, the internal structure of the leagues would require compliance with the strictest state antitrust standard. Id. at 267-68. No single state has a particularly significant interest in the operation of nationwide professional sports. However, this State has a very substantial relationship to uranium production, and therefore, a significant interest in preventing anti-competitive practices in the uranium industry. Moreover, in energy-related matters, unlike professional baseball, there is uniformity of treatment of anti-competitive practices under both federal and state law. Challenging such activities is federal policy. Challenging the uranium cartel and Gulf's role therein was the federal practice. [64] The fact that the uranium market is nationwide in scope does not require a different result. In Flood, state antitrust regulations would have directly affected the entire complex web of professional baseball, and would have been aimed at league structure. In this case, the state law has been applied solely to private contracts for the sale of specific goods. In Flood the reserve clause being challenged was a recognized practice in the sport. Here, the alleged conspiracy was a secret attempt to dominate an industry, a practice condemned by the Congress, the Justice Department, and the courts. If the fact that the commerce at issue involved a national market were enough to render state law invalid, the states' power to regulate anti-competitive practices would be effectively destroyed. In Exxon Corp. v. Governor of Maryland, supra , the United States Supreme Court rejected a similar argument advanced by Gulf and other oil companies regarding the national scope of the petroleum industry and a state statute that regulated aspects of that industry in Maryland. The Court said: [W]e cannot adopt appellants' novel suggestion that because the economic market for petroleum products is nationwide, no State has the power to regulate the retail marketing of gas. Appellants point out that .. . the cumulative effect of this sort of legislation may have serious implications for their national marketing operations. While this concern is a significant one, we do not find that the Commerce Clause, by its own force, pre-empts the field of retail gas marketing... . [T]his Court has only rarely held that the Commerce Clause itself pre-empts an entire field from state regulation, and then only when a lack of national uniformity would impede the flow of interstate goods... . In the absence of a relevant congressional declaration of policy, or a showing of a specific discrimination against, or burdening of, interstate commerce, we cannot conclude that the States are without power to regulate in this area. 437 U.S. at 128-29, 98 S.Ct. at 2215. (citations and footnote omitted). No showing has been made that application of New Mexico law entails a specific discrimination against, or burdening of, interstate commerce. No embargo has been placed on interstate shipments of uranium. Compare Penna. v. West Virginia, 262 U.S. 553, 43 S.Ct. 658, 67 L.Ed. 1117 (1923) and West v. Kansas Natural Gas Co., 221 U.S. 229, 31 S.Ct. 564, 55 L.Ed. 716 (1911). Unlike other situations in which state regulations have been invalidated under the Commerce Clause, [65] there is little likelihood that in the area of state antitrust laws an excessive cost of compliance will be imposed by piecemeal state regulation. The cost of compliance is nothing more than refraining from the kind of anti-competitive, predatory trade practices which federal law and the laws of virtually all states condemn. The pervasiveness of antitrust regulation in the economy demonstrates a uniformity between state and federal laws which was not present in Exxon Corp. v. Governor of Maryland, supra . Therefore, the New Mexico Antitrust Act was applied consistently with the Commerce Clause of the federal constitution. 2. Preemption by Sherman Antitrust Act GAC's second claim is that the New Mexico Antitrust Act is preempted by the Sherman Antitrust Act in the context of this case. Congress has the unquestioned power to preempt state regulations in the field of interstate and foreign commerce. [66] Preemption may be ascertained from the express language of the federal statute, [67] by reference to the statute's legislative history, [68] or from a clear inconsistency, repugnancy, or serious danger of conflict between the state and federal regulations. [69] However, none of these sources evidence a Congressional intent to preempt state antitrust laws in the circumstances present in this case. We begin with the well-established principle that in a field which the States have traditionally occupied, the historic police powers of the States [are] not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress. (Citations omitted.) Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947). See also Florida Avocado Growers v. Paul, supra, 373 U.S. at 146, 83 S.Ct. at 1219. Nothing in the language of the Sherman Act expresses any intent to preempt state antitrust laws, many of which were enacted prior to the Sherman Act. See United Nuclear Corp. v. General Atomic Co., supra, 93 N.M. at 125, 597 P.2d at 310; J. Flynn, supra at 90-91. The legislative history of the Sherman Act indicates that, rather than intending to supersede state antitrust laws, Congress was seeking to supplement the enforcement of those laws. See remarks of Senator Sherman quoted in United Nuclear Corp. v. General Atomic Co., supra, 93 N.M. at 125, 597 P.2d at 310. See also H.R.Rep. No. 1707, 51st Cong., 1st Sess. 1 (1890). This legislative history has been interpreted as evidence of a lack of an intent to preempt state antitrust laws. United Nuclear Corp. v. General Atomic Co., supra, 93 N.M. at 125, 597 P.2d at 310; R.E. Spriggs Co. v. Adolph Coors Co., supra, 112 Cal. Rptr. at 589. Preemption may also be inferred where the scheme of federal regulation is so pervasive as to make reasonable the inference that Congress left no room for the states to regulate, [70] or where the state act touches a field in which the federal interest is so dominate that state regulation might interfere with the federal purposes, [71] or where there is a direct and positive conflict or repugnancy between the state and federal laws. [72] GAC points to no direct and positive conflict between state and federal antitrust laws in general, or as the state law has been applied in this case. However, it suggests that if state antitrust laws are applied to interstate commerce of the nature involved in this case, intolerable burdens would be imposed on that commerce because of differing limitations upon competition in each jurisdiction where goods might be produced, transported or sold. In Exxon v. Governor of Maryland, supra , the Supreme Court rejected a similar argument, stating that the existence of such potential conflicts is entirely too speculative ... to warrant preemption. 437 U.S. at 131, 98 S.Ct. at 2216. The Court went on to say that it is not only generally reluctant to infer pre-emption, but also, that it would be particularly inappropriate to do so where the basic purposes of the state and federal statutes are similar. Id. at 132, 98 S.Ct. at 2217. The basic purposes of the state and federal antitrust laws in question here are not merely similar; they are identical-to establish a `public policy of first magnitude'; that is, promoting the national interest in a competitive economy. United Nuclear Corp. v. General Atomic Co., supra, 93 N.M. at 125, 597 P.2d at 310 (citation omitted). See also J. Flynn, supra, at 138. The state act in question uses substantially the same language as the Sherman Act. J. Flynn, supra, at 139. The state act has been applied consistently with federal actions regarding the cartel and Gulf's role therein. See n. 50, supra, and accompanying text. There is thus no clash of competing fundamental policies. United Nuclear Corp. v. General Atomic Co., supra, 93 N.M. at 125, 597 P.2d at 310. GAC suggests that even in the absence of direct and positive conflicts between state and federal antitrust laws, the dominate federal interest in foreign commerce precludes application of state antitrust laws to cartel activities. However, we are not interested in this case in regulating foreign commerce; we are concerned with practices that allegedly were aimed at restraining trade in this State. Without full cartel disclosure, we cannot determine to what commerce the cartel's activities extended. We will not cast aside laws designed to protect the trade of this State without the necessary factual predicate upon which to base a finding that they have been preempted by federal law, particularly where the bad faith conduct of the party charged with violations of those laws has been found to be largely responsible for the missing factual material. See Section III, infra. GAC also argues that the dominate federal interest in energy matters warrants a finding that state antitrust laws are preempted insofar as they may be applied to anti-competitive practices in the field of energy. However, the concept of preemption based on federal dominance of a subject matter rests on the likelihood that state regulations in the area will interfere with the federal purposes. See City of Burbank v. Lockheed Air Terminal, supra ; Head v. New Mexico Board, 374 U.S. 424, 429-30, 83 S.Ct. 1759, 1762-63, 10 L.Ed.2d 983 (1963). The promotion of anti-competitive trade practices in uranium marketing is not part of any federal energy program. See n. 50, supra, and accompanying text, and n. 64, supra. Thus, the prevention of such practices by the states poses no significant possibility of conflict with federal policy. Therefore, we find no basis upon which to hold that the New Mexico antitrust laws, as applied to the contracts for the sale of uranium at issue in this case, have been preempted by the federal antitrust laws. 3. Scope of the New Mexico Antitrust Act GAC's third argument as to the inapplicability of the New Mexico Antitrust Act is that the Act only applies to contracts which are illegal on their face. GAC contends that ordinary purchase and sale contracts-such as the Supply Agreements at issue here-which are fair and enforceable on their face, are valid even if they are related in some peripheral way to an antitrust violation. GAC relies on State v. Electric City Supply Company, 74 N.M. 295, 393 P.2d 325 (1964) and Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959). We find both cases distinguishable from this case. First, unlike the Sherman Antitrust Act at issue in Kelly v. Kosuga , the New Mexico Act does contain an explicit provision voiding contracts which have as their object or operate to restrict or monopolize any part of the trade or commerce of New Mexico. Section 57-1-3, N.M.S.A. 1978 (current version at § 57-1-3, N.M.S.A. 1978 (1979 Supp.)) states: All contracts and agreements in violation of the foregoing two sections [57-1-1, 57-1-2 NMSA 1978] shall be void, and the person or persons, corporation or corporations, association or associations who shall violate the provisions of either of said sections shall be civilly liable to the party injured for any and all damage occasioned by such violation, and any purchaser of any commodity from any individual, corporation or association transacting business in violation of such sections shall not be liable for the payment for such commodity. By recognizing the defense of contract illegality in this case, we are, rather than creating a new remedy, merely giving effect to the express provisions of the antitrust laws of this State. [73] Second, in both Kelly v. Kosuga and Electric City Supply Company, the contracts sued upon had been fully performed, and the courts refused to permit one party to avoid its obligation to pay for the goods it received. [74] Thus, in those cases the courts furthered the general policy, as Justice Holmes put it, of preventing people from getting other people's property for nothing when they purport to be buying it. Continental Wall Paper Co. v. Louis Voight & Sons Co., 212 U.S. 227, 271, 29 S.Ct. 280, 296, 53 L.Ed. 486 (1909) (dissenting). See Kelly v. Kosuga, 358 U.S. at 520-21, 79 S.Ct. at 431-432. This policy controlled the Kelly case. See Viacom Intern. Inc. v. Tandeum Productions, Inc., 526 F.2d 593, 599 (2nd Cir.1975); Comment, The Defense of Antitrust Illegality in Contract Actions, 27 U.Chi.L.Rev. 758, 769 (1960). No such policy is involved here, for United is not seeking to avoid its obligation to deliver the uranium and yet at the same time recover the contract price for it. In the case of executory contracts, such as those at issue here, the policy of avoiding the unjust enrichment which would result from recognition of an antitrust defense simply is not relevant. See 27 U.Chi.L.Rev. at 769-71; Lockhart, Violation of the Antitrust Laws as a Defense in Civil Actions, 31 Minn.L.Rev. 507, 573 (1947). Compare Atlantic Richfield Co. v. Malco Petroleum, Inc., 471 F.2d 1258, 1260-61 (6th Cir.1972) with Associated Press v. Taft-Ingalls Corporation, 340 F.2d 753, 769 (6th Cir.1965), cert. denied, 382 U.S. 820, 86 S.Ct. 47, 15 L.Ed.2d 66 (1965). Third, the Supply Agreements at issue here are alleged to be one of the means by which GAC and Gulf sought to monopolize the uranium market of the United States. If proven, United's allegations would establish that the Supply Agreements, rather than being collateral to or independent of the alleged monopolistic conspiracy, were essential parts of a general plan or scheme which the law condemns. Compare Connolly v. Union Sewer Pipe Co., 184 U.S. 540, 546-49, 22 S.Ct. 431, 434-35, 46 L.Ed. 679 (1902) with Continental Wall Paper Co. v. Louis Voight & Sons Co., supra, 212 U.S. at 258-62, 29 S.Ct. at 290-292 (1909). Under such circumstances, the refusal to recognize an antitrust defense would place the court in the position of enforcing the precise conduct made unlawful by the [antitrust laws]. Kelly v. Kosuga, 358 U.S. at 520, 79 S.Ct. at 432. It would be contrary to the public policy of this State to enforce a sale which was in execution or aid of an illegal price-fixing, anti-competitive, monopolistic conspiracy where recovery would aid the alleged law violator to accomplish the very purpose of his illegal agreement. Finally, we do not read the words in Electric City Supply Company that the contract sued on must itself [be] tainted with [the] illegality to mean that the contract must overtly call for some illegal act on its face before the antitrust laws can provide a defense. To the extent that that decision can be so construed, it is inconsistent with the language of Section 57-1-3. See generally Bruce's Juices v. Amer. Can. Co., 330 U.S. 743, 763-64, 67 S.Ct. 1015, 1024-25, 91 L.Ed. 1219 (1947) (Murphy, J., dissenting); 31 Minn.L.Rev. at 547, n. 211. [75] Based on the foregoing reasons, we find that the contracts at issue and United's antitrust allegations are within the scope of the New Mexico Antitrust Act.