Court Opinion

ID: 9480771
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:57:49.541031+00
Date Added: 2024-06-11T17:47:53.597687
License: Public Domain

JOHNSON, Circuit Judge,
concurring in part and dissenting in part in which KRAVITCH, Circuit Judge, joins:
While I concur in the Court's opinion that City Gas Company of Florida refused to deal in violation of section 2 of the Sherman Act, 15 U.S.C.A. § 2 (“section 2”), I am constrained to dissent from the Court’s holding that the territorial agreement between City Gas and Peoples Gas Systems, Inc. (“Peoples”) is not immune from section 2 liability under the state action doctrine.
I. FACTS
A. Background
City Gas is a major distributor of natural gas in southern Florida. City Gas purchases natural gas from Florida Gas Transmission Company (“FGT”).1 City Gas then distributes the gas to its approximately 100,000 customers through a network of pipes. City Gas and Peoples are the two largest natural gas utilities in Florida. Both entered the natural gas business in 1960, when they applied for and received *1263allocations (i.e., permits) from the Federal Energy Regulatory Commission (“FERC”) to purchase and resell natural gas from FGT.2
After a brief period of competition for customers, City Gas and Peoples entered into an agreement not to compete (“the territorial agreement”). The territorial agreement provided each party with a service area where the other would not solicit customers. City Gas and Peoples submitted the territorial agreement to the Florida Public Service Commission (“FPSC”),3 and on November 9, 1960, the FPSC entered an order stating:
It is our opinion that territorial agreements which will minimize, and perhaps even eliminate, unnecessary and uneconomical duplication of plant and facilities which invariably accompany expansion into areas already served by a competing utility, are definitely in the public interest and should be encouraged and approved by an agency such as this, which is charged with the duty of regulating public utilities in the public interest.
Florida Railroad and Public Utilities Commission, Order No. 3051 (November 9, 1960) [hereinafter “Order”].
Chapter 366 of the Florida Statutes (“chapter 366”) empowers the FPSC “to regulate and supervise each public utility with respect to its rates and service and the issuance and sale of its securities.” Fla.Stat.Ann. § 366.04.4 In fixing rates, the FPSC is authorized to consider “the efficiency, sufficiency, and adequacy of the facilities provided and the services rendered; the cost of providing such service and the value of such service to the public; [and] the ability of the utility to improve such service and facilities....” Id. at § 366.041. The FPSC may also “require repairs, improvements, additions, and extensions to the plant and equipment of any public utility when reasonably necessary to promote the convenience and welfare of the public_” Id. at § 366.05.
After 1974, the Florida statute expressly provided the FPSC with the power to authorize territorial agreements between electric utilities. Section 366.04(2) provided: “In the exercise of its jurisdiction, the [FPSC] shall have power over rural electric cooperatives and municipal electric utilities for the following purposes: ... (d) To approve territorial agreements between and among rural electric cooperatives, municipal electric utilities, and other electric utilities under its jurisdiction.” Id. at § 366.04(2) (West Supp.1989). The statute said nothing about territorial agreements among natural gas utilities such as City Gas and Peoples.5 In 1965, however, the Florida Supreme Court held that the FPSC had implied authority under chapter 366 to approve or forbid the territorial agreement between Peoples and City Gas. City Gas Co. v. Peoples Gas System, Inc., 182 So.2d 429, 436 (Fla.1965).6
B. Procedural History
1. District Court
On April 23, 1983, Consolidated filed its complaint in the present action. The *1264amended complaint alleged that City Gas’s actions constituted an attempt to monopolize and monopolization in violation of section 2. Consolidated asked for treble damages under 15 U.S.C.A. § 15 and injunctive relief under 15 U.S.C.A. § 26. City Gas counterclaimed that Consolidated’s restrictive covenants and easements in Bel Aire precluded City Gas from competing for Consolidated’s customers in violation of 15 U.S.C.A. §§ 1, 2, and 14.
The district court held a nine-day bench trial in October 1985. The court determined that the territorial agreement violated section 2 and rejected City Gas’s defense that because the FPSC approved the agreement the territorial agreement was exempt from antitrust liability under the state action doctrine of Parker v. Brown, 317 U.S. 341, 351, 63 S.Ct. 307, 313, 87 L.Ed. 315 (1943). Consolidated Gas Co. v. City Gas Co., 665 F.Supp. 1493 (S.D.Fla.1987).
2. Panel Opinion
On appeal, City Gas argued that it was immune from antitrust liability' for the territorial agreement and the refusal to deal with Consolidated under the state action doctrine. The panel unanimously rejected these arguments and affirmed the district court. The panel held that because chapter 366 explicitly authorized territorial agreements between electric utilities without mentioning gas utilities, the statute did not clearly articulate a state policy favoring territorial agreements among gas utilities and, therefore, state action immunity could not apply. Consolidated Gas Co. v. City Gas Co., 880 F.2d 297, 301-02 (11th Cir.1989). The panel rejected City Gas’s argument that the Florida Supreme Court decision in City Gas Co., holding that chapter 366 impliedly authorized territorial agreements among gas companies, was sufficient to invoke the state action doctrine. Id. at 303.
II. ANALYSIS
A person (or corporation) violates section 2 when he (1) possesses monopoly power in the relevant market and (2) willfully acquires or maintains that power through means other than growth or development as a consequence of superior products, business acumen, or historical accident. United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1703-04, 16 L.Ed.2d 778 (1966). In Parker, however, the Supreme Court recognized that in passing the Sherman Act Congress did not intend to restrain state action or official action directed by a state to restrain competition. Parker, 317 U.S. at 351, 63 S.Ct. at 313.
In California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980), the Supreme-Court found that the Parker doctrine applied to private parties who restrain competition in violation-of the Sherman Act if (1) the challenged restraint was implemented pursuant to a clearly articulated and affirmatively expressed state policy, and (2) the policy.was actively supervised by the state. Id. at 105, 100 S.Ct. at 943. In Southern Motor Carriers Rate Conference v. United States, 471 U.S. 48, 105 S.Ct. 1721, 85 L.Ed.2d 36 (1985), the Supreme Court reaffirmed the applicability of the Midcal two-pronged test to private parties’ claims of state action immunity and held that a state policy that permits but does not compel anticompetitive conduct may be clearly articulated for purposes of the first prong of Midcal. Id., 471 U.S. at 61, 105 S.Ct. at 1729.
City Gas argues that the territorial agreement is immune from antitrust liability under Midcal and Southern Motor Carriers. Consolidated argues that the territorial agreement is not entitled to immunity because chapter 366 does not constitute a clearly articulated state policy authorizing such agreements and the state does not actively supervise such a policy.
1. Clearly Articulated State Policy
In Southern Motor Carriers, the United States sued two rate bureaus — groups of private carriers that jointly set rates — for violations of the antitrust laws. Southern Motor Carriers, 471 U.S. at 50, 105 S.Ct. at 1723. The rate bureaus submitted their *1265rate proposals to the public service commissions in each state for approval or rejection. Id. Of the four states involved, three had statutes explicitly permitting collective ratemaking. Id. at 63, 105 S.Ct. at 1730. The Court held that these statutes satisfied the first prong of Midcal. Id. The fourth state, Mississippi, had no statute addressing collective ratemaking. Mississippi statutes did, however, authorize the State Public Service Commission to regulate common carriers and to prescribe just and reasonable rates. Id. (citing Miss.Code Ann. §§ 77-7-1, 221). The Court held that this statute made clear the legislature’s intent that rates should be determined by a regulatory agency rather than by the market. Id. at 63-64, 105 S.Ct. at 1730. This intent, the Court held, was sufficient to pass the first prong of Midcal. Id. at 64-65, 105 S.Ct. at 1730-31.
A private party acting pursuant to an anticompetitive regulatory program need not “point to specific, detailed legislative authorization” for its challenged conduct. As long as the state as sovereign clearly intends to displace competition in a particular field with a regulatory structure, the first prong of the Midcal test is satisfied.
Id. at 64, 105 S.Ct. at 1730. The Court noted that requiring express statutory authorization of every action that an agency might take to implement a policy would diminish the flexibility of agencies and consequently their usefulness to state governments. Id.
In the present case, chapter 366 grants the FPSC broad powers to regulate public utilities, including natural gas distributors. Section 366.05 authorizes the FPSC to regulate repairs and extensions of facilities. See Town of Hallie v. City of Eau Claire, 471 U.S. 34, 42, 105 S.Ct. 1713, 1718, 85 L.Ed.2d 24 (1985) (statute authorizing city to provide sewage services and to determine the areas to be served would logically result in anticompetitive conduct, and, therefore, the legislature must have intended such conduct). The Florida Supreme Court has interpreted chapter 366 to empower the FPSC to authorize territorial agreements between natural gas distributors. City Gas Co., 182 So.2d at 436. This statute, as interpreted by the Florida courts, demonstrates the Florida legislature’s intent to displace competition with a regulatory scheme. Chapter 366, therefore, satisfies the first prong of Midcal.
The Court holds today that the Florida Supreme Court opinion in City Gas Co. is irrelevant under the first prong of Midcal because the applicability of federal antitrust law is an issue of federal law. The Court is correct in part; the issue of whether Midcal is satisfied is one of federal law. The content, however, of the state law to which the federal courts apply the Midcal test is determined under state law. See Cotton States Mut. Ins. Co. v. Anderson, 749 F.2d 663, 667 (11th Cir.1984). Accordingly, this Court must apply the Midcal test to the Florida statute as interpreted by the Florida courts. See City of Eau Claire, 471 U.S. at 44-45 n. 8, 105 S.Ct. at 1719 n. 8 (“Although the Wisconsin Supreme Court’s opinion does not, of course, decide the question presented here of the city’s immunity under the federal antitrust laws, it is instructive on the question of the state legislature’s intent in enacting the statutes_” (emphasis in original)). The Court concludes that the Florida Supreme Court should not have the last word on the proper interpretation of chapter 366 and endorses the district court’s critique of the Florida Supreme Court’s analysis of the Florida statute. Consolidated Gas, 880 F.2d at 303 (recounting district court’s analysis of chapter 366’s language). Because the Florida Supreme Court is the final authority on the meaning of chapter 366, we should not endorse such a critique. Cotton States, 749 F.2d at 667 (“ '[sjtate courts have a right to construe their own statutes,’ and federal courts are bound by that state interpretation.” (citation omitted)).
2. Active Supervision
The Court also holds that the agreement was not actively supervised by the state. The active supervision prong of Midcal stems from the Supreme Court’s recognition that where private parties engage in *1266anticompetitive conduct they are likely to act in their own interests rather than in the interests of the state. Patrick v. Burget, 486 U.S. 94, 100, 108 S.Ct. 1658, 1662, 100 L.Ed.2d 83 (1988). The active supervision prong ensures that the state action doctrine will immunize only the particular activities of private parties that, in the judgment of the state, further state regulatory policies. Id. In Patrick, the Supreme Court stated that in order to satisfy the active supervision requirement, the state must exercise "ultimate control over challenged anticompetitive conduct.” Id. at 101, 108 S.Ct. at 1663.
The active supervision prong of the Mid-cal test requires that state officials have and exercise power to review particular anticompetitive acts of private parties and disapprove those that fail to accord with state policy. Absent such a program of supervision, there is no realistic assurance that a private party’s anticom-petitive conduct promotes state policy, rather than merely the party’s individual interests.

Id.

In Patrick, the plaintiff challenged the peer-review process in a hospital after a peer-review panel threatened to revoke his hospital' privileges. Id. at 97, 108 S.Ct. at 1661. The Supreme Court held that the peer-review process was not entitled to state action immunity because there was no active supervision by the state. Id. at 100, 108 S.Ct. at 1662. The Court rejected the defendants’ arguments that the state actively supervised the peer-review process through the State Health Division, the State Board of Medical Examiners, and the state judiciary because the defendants failed to show that any of these state entities actually reviewed, or even could review, peer-review decisions regarding hospital privileges. Id. at 101, 108 S.Ct. at 1663.7
In the present case, I would hold that the state actively supervised the territorial agreement. The FPSC actually reviewed the territorial agreement and approved it. First, the FPSC found that it had the authority to accept or reject the territorial agreement. The Order stated that because the territorial agreement purported to .impinge on the FPSC’s authority to order additions and extensions to plant and equipment of Peoples and City Gas, the territorial agreement could not be valid without the FPSC’s approval. Order at 1. Second, the Order approved the territorial agreement; the FPSC found that the territorial agreement was consistent with the state’s policy of procuring for the public essential utility services at reasonable costs. Id. Accordingly, FPSC’s Order satisfies the active supervision requirement of Midcal.8
III. CONCLUSION
Because the Florida regulatory scheme satisfied both prongs of Midcal, I believe that the district court erred in holding that the territorial agreement is not entitled to state action immunity.

. FGT operates the only pipeline transporting natural gas into Florida.

. The natural gas industry in Florida is regulated by the FERC and the Florida Public Service Commission ("FPSC"). At the federal level, the FERC regulates the wellhead cost of natural gas (i.e., cost from the producer to the wholesaler) and the wholesale price paid by retail distributors such as City Gas. At the state level, the FPSC regulates the retail rates charged by distributors such as City Gas. Retail rates are determined through a process known as a “rate case.”

. The FPSC was formerly the Florida Railroad and Public Utilities Commission.

. The statute defines "public utility" as including natural gas distributors, but not LP gas distributors. Fla.Stat.Ann. § 366.02.

. Section 366.04 was revised in 1989 and the new statute expressly empowers the FPSC to approve territorial agreements between natural gas utilities. See 1989 Fla.Sess.Law Serv. 89-292 § 2 (West).

. In City Gas Co., Peoples had sued under the territorial agreement to prevent City Gas from selling bottled gas in Peoples service area. City Gas's answer claimed that the territorial agreement was void under state and federal antitrust laws. City Gas Co., 182 So.2d at 431. The Florida Supreme Court held that because the FPSC had the authority to approve the territorial agreement the agreement was not invalid under Florida antitrust laws. The court did not reach the federal issues. Id. at 436.

. The Court found that the judiciary was an inadequate supervisor because no statute expressly provided for judicial review of privilége terminations, and because state courts did not review privilege terminations on the merits for compliance with state policy. Patrick, 486 U.S. at 104-05, 108 S.Ct. at 1664-65.

. The FPSC has reviewed the validity of the territorial agreement on two subsequent occasions. First, in 1965, the FPSC entered an order withdrawing part of its approval of the territorial agreement. Peoples Gas Systems, Inc. v. Mason, 187 So.2d 335, 337 (Fla.1966). The Florida Supreme Court overturned the FPSC's decision because there was no showing of changed circumstances from 1960, when the FPSC promulgated the Order. Id. at 339 (FPSC may,withdraw or modify its approval only after proper notice ’ and hearing, and upon a showing of changed circumstances). Second, in 1972 the FPSC rescinded and then .reaffirmed its approval of the territorial agreement. FPSC Order Nos. 5495, 5800. Accordingly, the FPSC’s active supervision is continuing.