Opinion ID: 1272032
Heading Depth: 1
Heading Rank: 7

Heading: relevancy of the international uranium cartel

Text: The trial court found that information concerning the international uranium cartel was highly relevant to United's antitrust, fraud, and breach of fiduciary duty allegations against GAC. GAC contests this finding, asserting that the cartel, which became the principal focus of discovery, is completely unrelated to the injury allegedly suffered by United. Therefore, GAC urges that its failure to produce documents and other information regarding the cartel could not be the basis for sanctions under N.M.R.Civ.P. 37(b)(2), N.M.S.A. 1978. See Roberson v. Christoferson, 65 F.R.D. 615, 620 (D.N.D. 1975); Annot., 6 A.L.R.3d 713, § 6 (1966). We analyze this question in light of the scope of discovery as defined by N.M.R. Civ.P. 26(b), N.M.S.A. 1978, the nature of United's and I&M's allegations against GAC, and the light shed on those allegations by the presently available cartel evidence. 1. The Legal Standard of Relevancy Rule 26(b) states, in pertinent part, that a deponent may be examined regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the examining party or to the claim or defense of any other party ... It is not ground for objection that the testimony will be inadmissible at the trial if the testimony sought appears reasonably calculated to lead to the discovery of admissible evidence. (Emphasis added.) [20] This language is subject to a broad interpretation. Fort v. Neal, 79 N.M. 479, 481, 444 P.2d 990, 992 (1968). Objections based on alleged irrelevancy must, therefore, be viewed in light of the broad and liberal discovery principle consciously built into the rules of civil procedure. Independent Productions Corp. v. Loew's, Incorporated, 22 F.R.D. 266, 271 (S.D.N.Y. 1958). The boundaries defining information relevant to the subject matter involved in an action are necessarily vague, making it practically impossible to formulate a general rule by which they can be drawn. La Chemise Lacoste v. Alligator Company, Inc., 60 F.R.D. 164, 170 (D.Del. 1973). [21] Because courts are not shackled with strict interpretations of relevancy, Cox v. E.I. Du Pont de Nemours and Company, 38 F.R.D. 396, 398 (D.S.C. 1965), discovery is permitted as to matters that are or may become relevant [22] or might conceivably have a bearing on the subject matter of the action, [23] or where there is any possibility or some possibility that the matters inquired into will contain relevant information. [24] Conversely, courts have said that discovery will be permitted unless the matters inquired into can have no possible bearing upon, [25] or are clearly irrelevant to the subject matter of the action. [26] Not only is the term relevant subject to a broad interpretation as it is generally used in the discovery context, but also it is given a particularly liberal interpretation for purposes of discovery in antitrust cases. [27] 2. Summary of Evidence on the Gulf Uranium Business and the Cartel The allegations of appellees give great weight to the claim that the cartel is relevant to the subject matter of this litigation. As amended, United's complaint named a number of distinct legal bases for the relief it sought  the invalidation of the 1973 and 1974 Supply Agreements. The complaint alleged that (1) in violation of their fiduciary duties, Gulf and GAC withheld material facts which, if disclosed, would have had a bearing on United's decision to enter into Gulf-United and the 1971, 1973 and 1974 Supply Agreements; (2) the 1971, 1973 and 1974 Agreements were illegal and void because they had been procured through Gulf's and GAC's fraud: (3) Gulf mismanaged Gulf-United, refused to provide Gulf-United with uranium and capital, and economically coerced United into a position where it had no viable alternative to accepting Gulf's requirement of the 1973 Supply Agreement; (4) Gulf tried to eliminate United as a competitor in the nuclear fuels industry and to restrict its ability to compete in the uranium business; (5) the sudden increase in the cost of producing uranium, unforeseen to all but GAC and Gulf, rendered United's performance under the 1973 and 1974 Agreements commercially impracticable; and (6) the 1971, 1973 and 1974 Supply Agreements were void because they were in violation of New Mexico's antitrust laws prohibiting price-fixing attempts and conspiracies to monopolize, and actual monopolization of trade and commerce. I&M's counterclaim specifically alleged that by their participation in the cartel, GAC and Gulf had violated the New Mexico Antitrust Act, thereby injuring I&M. I&M also defend against GAC's claim that performance of its obligation to supply I&M with uranium had been rendered commercially impracticable by contending that the cartel was responsible for increases in the price of uranium, and therefore, such price increases were not unforeseen by GAC and Gulf. The evidence which has been produced in this case demonstrates that information on the cartel could be crucial to the proper resolution of this litigation. The following review of some of that evidence should not be considered to reflect a view as to the merits of appellees' substantive claims, but rather, as support for their contention that the cartel is relevant to those claims. In 1967, Gulf entered the uranium market by purchasing the General Atomic business. Over the next five years, Gulf purchased and began to develop various uranium ore bearing properties in the United States and Canada, including the large Mt. Taylor reserves in New Mexico. Thus, by the early 1970s Gulf was in a position to be a leading producer of uranium, nuclear fuel fabricator, and manufacturer of nuclear reactors. See Section I A, supra. It was therefore directly in competition with United. However, in 1971 Gulf and United formed the jointly owned company, Gulf-United, to fabricate fuel for commercial nuclear reactors, and executed the 1971 Supply Agreement. Independently of Gulf-United, Gulf also began to purchase large quantities of uranium from other American producers. Contemporaneously with these activities, Gulf began to participate in early meetings of the cartel. Top officials of Gulf Energy (Rolander, Gallaway, Gregg, Hunter and Hoffman) were informed of the cartel's creation and Gulf's participation in it. Hunter, Gallaway and Rolander were the Gulf officials who negotiated the formation of Gulf-United and the execution of the 1971 Supply Agreement with United. All of these individuals later held key positions in GAC. See Section II A, supra, especially n. 16 and 17, supra. All but Gregg served on the Gulf-United board. One document reflects that Hoffman, along with Zagnoli of Gulf Minerals in Denver, was participating in cartel discussions in Canada as early as February 1972. The same month Hunter informed Hoffman that Gulf Energy would proceed to tie up an additional ten million pounds of uranium. Within weeks, Gulf Energy signed agreements with two American producers to purchase in excess of that amount of uranium. In March, according to Hunter's account, Hoffman informed the board of directors of Gulf Minerals: We've taken low cost supplies now on market... . We've cleaned out cheap material available now. Another document dated in the spring of 1972, which reviewed Gulf-United's financial condition, stated that Gulf's objective was to minimize UNC's [United's] book income. Throughout the spring of 1972, various Gulf officials from the United States attended meetings of the cartel. In late May, Hoffman and Hunter from Gulf Energy, Allen from Gulf Minerals, and Ediger from Gulf Canada, flew to Johannesburg, South Africa for a meeting of the cartel. The available cartel evidence shows that in Johannesburg, the cartelists adopted a set of rules to govern their organization. The rules allocated markets among the participating nations, set minimum prices for uranium, and established a rigged bidding system with a lead bidder and a runner-up bidder. Under a heading labeled Attitude Towards Competitors, the Rules stated: It was agreed that if a supplier not associated with the organization should quote under the minimum price, the leader will not match that quotation and the [cartel's] Operating Committee will review the situation and decide on a course of action as soon as possible. The Rules also provided that all quotations to fuel fabricators and nuclear reactor manufacturers should be made on the basis of the minimum prices. Although the Johannesburg Rules provided for the exclusion of the United States domestic uranium market, one week after the Johannesburg meeting, Hunter, in referring to the agreements which we have reached in the last couple of days with respect to action which we will be taking, told Hoffman that Gulf's overall strategy must reflect the interrelationship existing between foreign and domestic markets. He went on to say that foreign and domestic marketing activities are inseparable and indeed should be treated integrally if we are to optimize the company position. In the following paragraph, Hunter stated: Based on input provided by Gulf Minerals, we conclude that corporation profit is greater if New Mexican production begins in 1978 rather than 1976. Hunter then noted that [i]n order for us to realistically appraise our U[3]O[8] competitive position as well as to effectively sell foreign uranium, it is necessary for us to sell uranium directly to the U.S. utilities. The minutes of a September 5, 1972 cartel meeting indicate that the cartel was considering the prospect of taking anticompetitive actions against the foreign uranium operations of American corporations. The minutes reported: There followed a general discussion of the impact of Westinghouse bidding in Europe... . Some members thought that Westinghouse should be approached directly, whereas other views were that it would be a dangerous move. The consensus finally reached was that if the club was to survive as a viable entity, it would be necessary to delineate where the competition was and the nature of its strength, as a prelude to eliminating it once and for all. (Emphasis added.) In September 1972, a Gulf attorney observed that it is improbable that either the cartel structure or operation will remain static, and warned that the instinctive reaction of the cartel's Operating Committee will likely be to exert pressure to suppress the new competition one way or another. He said: It could well be that the governments involved would tacitly approve (or effectively direct) predatory actions by the cartel producer members to suppress outside competition from any source. . . (Emphasis added.) In March 1973, Hunter, of Gulf Energy, reported that Westinghouse was trying to buy uranium to cover its substantial foreign shortage. Hunter stated that, if successful, the purchase would provide Westinghouse with a potential source for U.S. reactor sales. He said that Gulf Energy would work with GMCL [Gulf Canada] to try to put pressure on the Australians to block the proposed arrangement. [28] Gregg, the Gulf Energy employee who became Gulf's representative on the cartel's Operating Committee, testified in a deposition taken in the Westinghouse uranium litigation that Westinghouse was not necessarily singled out for discussion each and every time. There were others who were discussed from time to time, also; GE [General Electric], KWU in Germany, ASEA in Sweden; other reactor manufacturers, Exxon as a fuel fabricator, Gulf-United as a fuel fabricator, so perhaps Westinghouse was discussed more than any of the others. (Emphasis added.) [29] Beginning in early 1973, United and Gulf entered into negotiations concerning the disposition of Gulf-United. On January 23, 1973, Mr. Henry, the executive vice-president of Gulf Oil in Pittsburgh, informed the president of United: It is our intention that any sale of the shares of Gulf [in Gulf-United], of course, will be done entirely in good faith, on a fair basis, and free of any secret or undisclosed arrangements. GAC alleges that United had independent knowledge of the cartel, but it does not contend that in the negotiations that followed Gulf informed United of its role in the cartel. In June 1973, Gulf executed the 1973 Supply Agreement with United; and in September it bought United's interest in Gulf-United. In November 1973, the GAC partnership was formed, and along with the operations of Gulf Energy, the Gulf-United business was transferred to GAC. Within nine months of the execution of the 1973 Supply Agreement and the buyout of United's interest in Gulf-United, Gulf also purchased several million pounds of uranium from two other American producers. During the same period, it signed definitive contracts with two utilities to formalize the letters of intent United had previously signed and assigned to Gulf-United. By March 1974, Mr. Fowler, a GAC employee reported: What appears to be happening is that the international producers are in effect setting the world price via a) establishing a floor that is higher than the U.S. offers to buy. b) the U.S. producers refuse to sell at any price that doesn't give them a substantial margin above the floor being quoted by the non-U.S. producers. c) Thus, in essence, the international producers can stop any transactions by constantly nudging the floor upward. In the interim, the U.S. buyer becomes increasingly frustrated, offers a higher price in order to get some response and the cycle starts over again. It seems likely that at some point, the mechanism will break down and if it does, there will again be price competition. However, it doesn't appear likely the break will come in the immediate future. Three months later, GAC signed the 1974 Supply Agreement, committing United to supply an additional three million pounds of uranium. We accept none of the available cartel evidence as conclusive. However, where business records such as these are produced from the files of GAC and Gulf, and where it is undisputed that a uranium cartel existed and that Gulf was a member of it, we are satisfied that cartel information is relevant to the subject matter of this litigation in general, and to the specific allegations of the parties. We look with a jaundiced eye upon any claim of irrelevancy made in the background of (1) the common identity of the individuals who negotiated the contracts at issue here and the information of Gulf-United; who participated in meetings of the cartel on behalf of Gulf or were privy to cartel information; and who later formed the top level of management of GAC; (2) the temporal proximity of cartel activities to the purchase by Gulf and GAC of substantial quantities of uranium from several major American producers  including the 1971, 1973 and 1974 Supply Agreements with United; to the formation, the buyout and the dissolution of Gulf-United; and to the creation of GAC; and (3) references to cleaning out and tying up cheap material; to objectives of minimizing UNC's [United's] book income; to the inseparability of domestic and foreign uranium marketing; to Gulf's need to sell uranium directly to the U.S. utilities; to working with Gulf Canada to block a Westinghouse uranium purchase; to the likely need to suppress new competition one way or another; and most striking of all, to the consensus, reached by the cartel in the context of discussing an American corporation, to delineate where the competition was and the nature of its strength as a prelude to eliminating it once and for all. These things are not the stuff of which antitrust irrelevancy is made. Finally, we cannot accept GAC's argument that the cartel is irrelevant to the commercial impracticability issues in this case. [30] We cannot say that such evidence has no possible bearing on United's claim that the cartel itself was responsible for the enormous price increases in uranium that took place contemporaneously with the operation of the cartel. If the cartel is relevant to that claim, it is no less relevant to I&M's defense that GAC is in no position to claim commercial impracticability because, along with Gulf and the other cartelists, it was responsible for, and thus foresaw, those price increases. 3. GAC's Arguments as to the Cartel's Irrelevance GAC argues that the cartel was irrelevant because United has been unable to adduce any evidence whatsoever that the 1973 and 1974 contracts were in any way connected with the activities of the cartel. Obviously this proposition is untenable. United sought cartel evidence in order to establish that the 1973 and 1974 Supply Agreements were connected to cartel activities in one manner or another. It makes no sense whatsoever to say that the cartel is not relevant, and therefore cartel information will not be produced, because the plaintiff who seeks such discovery has failed to produce, from what has been withheld from it, evidence to conclusively establish its case. As the court said in Beler v. Savarona Ship Corporation, 26 F. Supp. 599 (E.D.N.Y. 1939): The requirement of materiality does not ... compel the person seeking discovery definitely to prove materiality before being entitled to a discovery. Such an interpretation of the rule would place upon it a narrow construction which would severely limit the bounds of the discovery procedure. It might compel a party to know what was in the documents before he had seen them. One of the basic purposes of the new Rules is to enable a full disclosure of the facts so that justice might not move blindly. See also Radio Corporation of America v. Rauland Corporation, 18 F.R.D. 440, 444-45 (N.D.Ill. 1955). GAC further argues that the cartel cannot conceivably be relevant because by May 1971, United had locked up the uranium covered by the 1973 Supply Agreement through supply contracts it had directly entered into with the utilities; and second, that the cartel came into existence in 1972. Because United allegedly had committed the uranium previous to the formation of the cartel, GAC concludes that cartel activities could not possibly have been the cause of any competitive injury United might have suffered. There are a number of reasons why this argument must be rejected. In the first place, there is a dispute in this case over the question of whether the uranium covered by the 1973 Supply Agreement was in fact locked up prior to the formation of the cartel, or even prior to the execution of the 1971 Supply Agreement. Over one-half of the uranium at issue here involves the utility agreements with Detroit Edison and Duke Power. Originally, this uranium was covered by letters of intent United signed with the two utilities in 1969 and 1970, respectively. United's contention that these were merely non-binding agreements finds some support in the record. [31] But even if we were to assume that they were binding contracts at the time of the formation of Gulf-United in 1971, and that the cartel was not formed prior to 1972, it would not necessarily follow that cartel evidence has no bearing on the issues in this case. United contends that Gulf did not disclose a slippage in the construction of a Commonwealth Edison reactor which allegedly would have waived Gulf-United's obligation to supply the utility with fuel, and that Gulf signed a secret side-letter with Duke waiving conditions which also allegedly would have denied Duke uranium. These actions were allegedly taken in order that GAC could resell the uranium covered by the 1971 and 1973 Supply Agreements at higher prices. Other allegations which would have a bearing on the case, even if the uranium had all been previously committed by United, are that Gulf wrongfully refused to supply Gulf-United with the uranium needed to fulfill the requirements of the utility contracts, wrongfully blocked Gulf-United's efforts to purchase uranium on the open market, and wrongfully interfered with United's efforts to independently negotiate directly with the utilities for price relief and other conditions of sale. Cartel information is relevant to United's claim that Gulf tied up the cheap material on the market, thus denying United alternative sources of uranium to fulfill its commitments to Gulf-United and driving up uranium prices. United argues that the price increases encouraged new exploration and mining, which increased the competition for limited mining supplies and labor, and in turn caused United to incur far greater uranium production costs than it otherwise would have. We also consider it material to GAC's relevancy argument that Gulf apparently considered it necessary to sell uranium directly to the U.S. utilities in order to maintain its competitive position; and that GAC now contends that although it is not obligated to supply uranium to I&M or the other utilities, [32] United nonetheless remains obligated to supply GAC with at least a substantial portion of the uranium covered by the 1973 Supply Agreement. Finally, even were GAC's position sound as to United's allegations of fraud, breach of fiduciary duty, economic coercion and antitrust violations concerning the 1973 Supply Agreement, it would have no bearing on United's allegations concerning the 1974 Supply Agreement, or on United's and I&M's claims based on commercial impracticability. As to the former, GAC contends that it involved a blind transaction, and since it therefore did not know the seller, neither GAC nor Gulf could have entered into that agreement with illicit intentions towards United. However, that fact does not alone dispose of United's claims, for even such a blind agreement could conceivably have been a part of a scheme to achieve monopoly control over United States uranium reserves. As to the commercial impracticability questions, we have previously noted that even GAC does not advance a persuasive argument of irrelevancy. See n. 30, supra. GAC vehemently contests the merits of each of the foregoing allegations, contending that all are unsubstantiated. [33] But in the discovery context, it is not the function of the trial court or of this Court to try every issue prior to the full disclosure of all relevant information. [34] Nor is it the function of ... counsel to rule with finality on the relevancy or irrelevancy of documents in their exclusive possession and thereby to deprive both Court and opposing counsel of an opportunity to evaluate their contentions. Radio Corporation of America v. Rauland Corporation, supra, 18 F.R.D. at 444. The rules call for something quite different: Unless it is palpable that the evidence sought can have no possible bearing upon the issues, the spirit of the new rules calls for every relevant fact, however, remote, to be brought out for the inspection not only of the opposing party but for the benefit of the court which in due course can eliminate those facts which are not to be considered in determining the ultimate issues. Hercules Powder Co. v. Rohm & Haas Co., 3 F.R.D. 302, 304 (D.Del. 1943). See also La Chemise Lacoste v. Alligator Company, Inc., supra, 60 F.R.D. at 171. At the present stage of the litigation, we are unable to say that information concerning an international uranium cartel, which had as its avowed purpose the fixing of prices for and the allocation of markets in uranium, and which counted a constituent partner of GAC as one of its members, palpably can have no possible bearing upon the subject matter of this action. Therefore, cartel information satisfies the test of relevancy for purposes of discovery under Rule 26(b). C.