Opinion ID: 424119
Heading Depth: 1
Heading Rank: 5

Heading: Dismissal of Antitrust Claims

Text: 48 Klamath's complaint alleged that the City's anticompetitive actions prevented it from developing its property as planned, including exploitation of its geothermal wells to heat housing units to be constructed on its property, and from marketing geothermal heat to consumers outside of its own development. Klamath brought a claim for the monetary damages under section 4 of the Clayton Act and for injunctive relief pursuant to section 16 of the Clayton Act. The district court granted the City's motion for summary judgment on both claims on the ground that Klamath lacked standing to sue under either of these sections. 49 A. Standing Under Section 4 of the Clayton Act. 50 Section 4 of the Clayton Act, 15 U.S.C. Sec. 15 (Supp. IV 1980), provides a private treble-damage cause of action for parties injured by antitrust violations such as those alleged by Klamath in its complaint: violations of sections 1 and 2 of the Sherman Act. Section 4 provides in part:Any person who shall be injured in his business or property by reasons of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee. 51 Although the statute could be read as affording relief to all persons whose injuries are causally related to an antitrust violation, the parties entitled to relief under this section have been limited by restrictions on standing. See In re Multidistrict Vehicle Air Pollution, 481 F.2d 122, 125-29 (9th Cir.), cert. denied, 414 U.S. 1045, 94 S.Ct. 551, 38 L.Ed.2d 336 (1973). We have held: 52 In order to have standing under section 4 the plaintiff must allege nonconclusory facts establishing that there has been injury to the plaintiff's business or property and that the injury to the plaintiff's business or property occurred by reason of the antitrust violation. The plaintiff's claim may be dismissed for lack of standing as a matter of law, John Lenore & Co. v. Olympia Brewing Co., 550 F.2d 495, 500 (9th Cir.1977), where there is an insufficient showing of causation. However, if the plaintiff states sufficient facts to support his allegations that an antitrust violation has occurred and that he has sustained injury to his business or property, he is generally entitled to go to the jury on the violation and injury issues. These two determinations, unlike causation, are not questions of law; they are questions of fact. 53 Solinger v. A & M Records, Inc., 586 F.2d 1304, 1309 (9th Cir.1978), cert. denied, 441 U.S. 908, 99 S.Ct. 1999, 60 L.Ed.2d 377 (1979). 54 In the present case, the district judge did not find it necessary to decide whether Klamath had stated facts sufficient to support its allegations of an antitrust violation, nor did he pass directly upon the issue of causation. Rather, he concluded that Klamath had not sustained injury to its business or property. In deciding that Klamath failed to establish injury to its business or property, the district judge limited his inquiry to whether Klamath had sustained injury to its business in the market for commercial (off-site) sale of geothermal heat. The district judge excluded consideration of whether Klamath sustained injury to either its residential property development business or its on-site geothermal heating business. He concluded, as a matter of law, that the only injury which could have occurred by reason of the alleged antitrust violations was injury to Klamath's off-site geothermal heating business. Thus, the district court limited its inquiry to the off-site business by an application of causation analysis and then held the City entitled to summary judgment as to that business interest. 55 We have used the target area approach in determining whether a plaintiff's injury occurred by reason of the alleged antitrust violation. John Lenore & Co. v. Olympia Brewing Co., 550 F.2d 495, 499 (9th Cir.1977); In re Multidistrict Vehicle Air Pollution, 481 F.2d at 129. Under this analysis we must first identify the affected area of the economy which is the target of the alleged anticompetitive conduct. Second, it must be determined whether the alleged injury was within that area. Id.; see also Blankenship v. Hearst Corp., 519 F.2d 418, 426 (9th Cir.1975). In determining the target area, we have used a foreseeability analysis when a plaintiff alleges violations of sections 1 and 2 of the Sherman Act. Solinger v. A & M Records, Inc., 586 F.2d at 1311. Thus, a plaintiff must show that the injury occurred within an area of the economy that foreseeably would have been affected by the antitrust violation alleged. See, e.g., In re Western Liquid Asphalt Cases, 487 F.2d 191, 199 (9th Cir.1973), cert. denied, 415 U.S. 919, 94 S.Ct. 1419, 39 L.Ed.2d 474 (1974) (indirect purchaser in the chain of distribution foreseeably injured by price-fixing conspiracy); Hoopes v. Union Oil Co., 374 F.2d 480, 485 (9th Cir.1967) (lessee's interest in certain properties sufficient to allow standing to sue for alleged antitrust violation, despite the fact that the lessor could also have sued). If no clear answer emerges we must determine standing by balancing competing policy interests, principally those of effective enforcement of the antitrust laws on the one hand and avoiding vexatious litigation and excessive liability on the other. Ostrofe v. H.S. Crocker Co., 670 F.2d 1378, 1383-86 (9th Cir.1982), vacated and remanded, --- U.S. ----, 103 S.Ct. 1244, 75 L.Ed.2d 475 (1983); see, Associated General Contractors of California v. California State Council of Carpenters, --- U.S. ---- at ----, 103 S.Ct. 897 at 907-08, 74 L.Ed.2d 723 (1983). 56 In this case, Klamath might have been injured in any or all of three businesses or property interests: the development of residential housing on its northern tract, supplying geothermal heat to that proposed development, or supplying geothermal heat to outside consumers. If, as Klamath alleges, the market that is affected by the City's alleged anticompetitive conduct is the geothermal heat market, then we must agree with the district court that Klamath's inability to develop its property as a residential apartment complex cannot be in that area of the economy. On the other hand, Klamath's proposed off-site geothermal heat business is certainly within that target area. Finally, we cannot agree with the district court that injury to Klamath's on-site geothermal heating business is not within an area of the economy that foreseeably would have been affected by the antitrust violations alleged. 57 The district judge stated that, [s]upplying heat to one's own building is not a 'market' or an 'area of economy' in which there can be competitive or anticompetitive behavior. We can see no justification for this conclusion. Klamath is not seeking to provide heat for its own private consumption. It wishes to supply geothermal heat to future residents of its planned apartment development, but alleges that its efforts have been stifled by the City's anticompetitive acts. These future residents represent potential customers for the City or any other supplier of geothermal heat. The fact that Klamath may own the development in which these potential consumers of geothermal heat live cannot, by itself, foreclose the possibility that these future residents will constitute a portion of the market for which all geothermal heat suppliers will compete. Even if it could be hypothesized that the owner of a given development could create a kind of natural monopoly by physically excluding competing suppliers from offering their heat to residents, this does not mean that these apartments are not part of the potential geothermal market. For instance, Klamath might sell its apartment complex and retain its wells. Thus, even though it might be able initially to foreclose other competitors from supplying heat to residents of its development, once there is a change of apartment ownership it will no longer be assured that other suppliers would not compete for its customers. Even if it remained the owner of both the well sites and the apartment complex, and decided at first to be the sole supplier of the heating for these residents, Klamath could, in the future, welcome an outside supplier of geothermal heat if such a supplier could provide the heat at a discount, thereby making its apartments more attractive to potential renters. Thus, we see no basis for distinguishing between the business of off-site and on-site sale of geothermal heat. If Klamath can support a factual determination that it sustained injury to either such business, it has standing to pursue a treble-damage claim against the City. We therefore turn to whether a material question of fact as to Klamath's injury remained and thus precluded summary judgment. 58 Some courts have held that potential new entrants into a market may not recover under section 4 because the amount of damage sustained is not sufficiently ascertainable, and thus a plaintiff has not suffered tangible injury to his business or property. See, e.g., Duff v. Kansas City Star Co., 299 F.2d 320, 322-23 (8th Cir.1962). However, we have adopted the view that a party who has taken substantial demonstrable steps to enter an industry and who is thwarted in that purpose by antitrust violations, has suffered a possible ascertainable loss. Solinger v. A & M Records, Inc., 586 F.2d at 1309. In making the determination whether a plaintiff is a prospective entrant who has taken substantial demonstrable steps, we suggested the intention and preparedness test, which focuses on the following four factors: 59 1. The background and experience of plaintiff in his prospective business .... 60 2. Affirmative action on the part of plaintiff to engage in the proposed business .... 61 3. The ability of plaintiff to finance the business and the purchase of equipment and facilities necessary to engage in the business .... 62 4. The consummation of contracts by plaintiff ... 63 Id. at 1309-10 (quoting Waldron v. British Petroleum Co., 231 F.Supp. 72, 81-82 (S.D.N.Y.1964)). See also Hecht v. Pro-Football, Inc., 187 U.S.App.D.C. 73, 570 F.2d 982 (D.C.Cir.1976), cert. denied, 436 U.S. 956, 98 S.Ct. 3069, 57 L.Ed.2d 1121 (1978); Quinonez v. National Association of Securities Dealers, Inc., 540 F.2d 824 (5th Cir.1976). 64 The district judge in this case reviewed the affidavits, exhibits, and depositions before him and concluded that there was no genuine issue as to any material fact relevant to Klamath's preparedness to enter the business of off-site sale of geothermal heat. The district judge stated, Plaintiffs' steps were exploratory in nature only and, as a matter of law, do not meet the requirements of the Clayton Act. Klamath argues that it had researched the possibility of geothermal development, obtained geothermal water permits from the State of Oregon, contacted various utility companies about the use of the resources for electrical generation, attended a gasohol conference, applied for a United States Department of Energy grant for resource development (which was rejected), developed engineering plans for off-site use, purchased advertisements in the Wall Street Journal for venture capital, and attempted to apply to the City for a utility franchise. Our question is whether this constitutes affirmative action to engage in the business of supplying geothermal heat or rather is properly characterized, as a matter of law, as steps that are exploratory in nature in developing the off-site business. While the four Solinger factors are neither exclusive nor necessarily applicable in every case, we conclude they are adequate for our review of the issue in this case. 65 Applying the first suggested factor, Klamath has little background or experience. Parks testified in his deposition that neither he nor Ansola had any experience in geothermal development. Parks has had no prior economic interest in a geothermal project. 66 As to the second factor, Klamath's affirmative actions are properly described as essentially preliminary. No tests were made by Klamath to determine the potential of its wells--it merely allowed the City to make some tests. Indeed, Parks' admission in his deposition is telling: 67 Q.    [W]ould it be fair to summarize that in connection with all of these different uses [of geothermal energy], greenhouse, mushroom, piping it down to downtown structures, the ones that you have described, all of them would only be at the present time in what you might call the exploratory stage? 68 A. Yes. 69 As to the third factor, the record does not demonstrate any measurable assurance that the off-site business will be financed. Finally, there is no evidence of any contracts as identified in the fourth factor. Under these circumstances, we conclude the district judge did not err in holding that there was no material question of fact as to whether Klamath had taken sufficient demonstrable steps for entry into the off-site geothermal heat business to meet the standing requirement. 70 This, however, does not end the responsibility of the district court on this issue. Because the district judge mistakenly excluded the on-site geothermal heat business from consideration, on remand he will need to consider whether Klamath has taken sufficient demonstrable steps to enter that business to establish its standing to sue. The decision for the off-site business does not necessarily require the same conclusion for the on-site business. 71 Since Klamath was already in the market of providing space heating by geothermal power to ten residences on its southern tract, the district judge should consider whether it had the background and experience necessary to provide space heating to the proposed apartment complex in the northern tract. Klamath had obtained an oral commitment for a ten-year loan of $5,060,107 for the financing of the apartment complex. It had applied for and received zoning changes which would permit the apartment complex to be constructed. Indeed, the City has set forth no facts in its brief which could dispute Klamath's claim that had it not been for the denial of Klamath's vacation petition, it would have successfully expanded its on-site geothermal heating business by supplying heat to the 214 apartment units to be built on its northern tract. Thus, it was error for the district judge to find for the City at this stage of the proceedings on this aspect of the standing issue. 72 Because of our holding, we should also discuss the district court's decision that it was clear from the pleadings that Klamath's on-site geothermal heating business was not in any way engaged in interstate commerce. We agree with Klamath that the finding by the district court that its on-site heating activities were local in nature does not resolve the jurisdictional question. As the Supreme Court recently stated in McLain v. Real Estate Board of New Orleans, Inc., 444 U.S. 232, 100 S.Ct. 502, 62 L.Ed.2d 441 (1980): 73 The broad authority of Congress under the Commerce Clause has, of course, long been interpreted to extend beyond activities actually in interstate commerce to reach other activities that, while wholly local in nature, nevertheless substantially affect interstate commerce. 74 Id. at 241, 100 S.Ct. at 508 (emphasis in original) (citations omitted). To establish the jurisdictional element of a Sherman Act violation, a plaintiff must demonstrate that the defendant's activity is itself in interstate commerce or, if it is local in nature, that it has an effect on some other appreciable activity demonstrably in interstate commerce. Id. at 242, 100 S.Ct. at 509 (citation omitted). To meet this effect on commerce test, Klamath need only demonstrate that the City's local activity of establishing and operating a geothermal-heating district would have a substantial effect on interstate commerce, not the more particularized showing that the alleged anticompetitive actions against Klamath had a substantial effect on interstate commerce. Id. at 242-43, 100 S.Ct. at 509; Turf Paradise, Inc. v. Arizona Downs, 670 F.2d 813, 818-19 (9th Cir.), cert. denied, 456 U.S. 1011, 102 S.Ct. 2308, 73 L.Ed.2d 1308 (1982). There must be a sufficient nexus between the activity and interstate commerce so that it can be said that as a practical matter of economics there is a not insubstantial effect on the line of commerce involved. Community Builders, Inc. v. City of Phoenix, 652 F.2d 823, 827 (9th Cir.1981). 75 It would be inappropriate on this record to decide whether Klamath has met the jurisdictional requirements of the Sherman Act. The City did not raise this issue in its motion for summary judgment nor was any evidence offered thereon. Klamath argues that the interstate operation of major energy suppliers suggests that a restraint of local competition by the City has effects upon interstate commerce. On remand, it will be necessary for the district court to determine whether there are genuine issues of material fact remaining as to this jurisdictional question and that of whether antitrust violations have occurred, and if not, whether either party is entitled to judgment as a matter of law. 76 B. Standing Under Section 16 of the Clayton Act. 77 Klamath also sought injunctive relief under section 16 of the Clayton Act, 15 U.S.C. Sec. 26 (1976), which provides in part:Any person, firm, corporation, or association shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws, ... when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity, .... 78 We have recognized that the standing requirements of section 16 are broader than those of section 4. State of Hawaii v. Standard Oil Co., 431 F.2d 1282, 1284-85 (9th Cir.1970), aff'd, 405 U.S. 251, 261, 92 S.Ct. 885, 890, 31 L.Ed.2d 184 (1972). The first significant difference is the lack of any mention of business or property in section 16. This omission clearly signals different standing requirements under the two sections. See Hawaii v. Standard Oil Co., 405 U.S. 251, 261, 92 S.Ct. 885, 890, 31 L.Ed.2d 184 (1972). As we observed in In re Multidistrict Vehicle Air Pollution, 481 F.2d at 130, broader standing under section 16 is fully justified because of the difference between the remedies available under each section. In contrast to section 4, section 16 does not involve punitive and potentially disastrous judgments for treble damages and attorneys' fees; neither is there the potential threat of duplicative recoveries. 481 F.2d at 130 (footnote omitted). 79 To demonstrate standing under section 16, a plaintiff must show a threatened loss or injury cognizable in equity proximately resulting from the alleged antitrust violation. City of Rohnert Park v. Harris, 601 F.2d 1040, 1044 (9th Cir.1979), cert. denied, 445 U.S. 961, 100 S.Ct. 1647, 64 L.Ed.2d 236 (1980). In the present case, the district court stated: 80 Insofar as the plaintiffs allege injury to their business, they have not met the Rohnert test. They failed to show that but for the alleged anticompetitive activity by the City, they would have been competitors in the market for geothermal heating. As noted above, they were unprepared for entry into the market, and such entry depended upon a number of factors other than the defendants' actions. 81 (emphasis in original). We infer from this statement that the district judge restricted his inquiry into causation to loss or injury in Klamath's off-site heating business. By so doing, however, the district judge required Klamath's injury to be within the target area of the alleged anticompetitive conduct, an element which is not required under section 16. 82 It is clear from our decisions that the target area approach is irrelevant to the question of standing under section 16. City of Rohnert Park v. Harris, 601 F.2d at 1044; In re Multidistrict Vehicle Air Pollution, 481 F.2d at 130-31. As the district court recently stated in Los Angeles Memorial Coliseum Commission v. National Football League, 468 F.Supp. 154, 160 (C.D.Cal.1979), the very thing that prompted this Circuit to adopt the target area approach--the availability of treble damages under Sec. 4--is absent from a suit for injunctive relief under Sec. 16. Thus, it was improper for the district court to conclude that because Klamath was unprepared to enter the off-site geothermal market, it failed to establish standing under section 16. If, as the record on appeal appears to indicate, Klamath has demonstrated the requisite injury (here to its residential housing business) proximately resulting from the denial of its vacation petition allegedly in violation of the antitrust laws, it would have standing to assert a claim under section 16. However, the district judge has not passed upon this factual inquiry and, upon remand, he will have the opportunity to do so. Our opinion goes no further than the issue of standing and we express no opinion as to the merits of Klamath's antitrust claim.