Court Opinion

ID: 8962708
Source: CourtListenerOpinion
Date Created: 2022-11-27 09:47:27.833612+00
Date Added: 2024-06-11T17:10:13.965346
License: Public Domain

CUDAHY, Circuit Judge,
concurring:
I concur without reservation in the majority’s application of the Illinois Brick doctrine to the facts of this case. A bar to indirect purchaser suits would make very little sense if it were extended to the regulated natural gas distribution business where full purchased gas cost pass-through is incorporated in the retail rates. The PGA clause transforms the transaction into the very epitome of a cost-plus contract. Likewise, because residential gas demand is inelastic in the short run due to the unavailability to residential customers of substitute fuels, a rough approximation of a fixed quantity term is present, whether or not required by Illinois Brick.
The Natural Gas Pipeline Association of America, in an amicus brief, argues that if the antitrust suit were left to the direct purchaser (CILCO), its regulator (the Illinois Commerce Commission) could and would direct CILCO to pass on the sums recovered to its customers. The customers would, therefore, be in as good a position as if the Attorney General had sued directly on their behalf. I believe this is essentially correct. CILCO has in fact now brought suit in this matter, presumably because the panel decision cast doubt on whether the Attorney General could maintain the action on behalf of consumers.
Under the practical facts of regulation CILCO would ordinarily have a greater incentive to bring this litigation than economic theory suggests. An informal suggestion from its regulators that suit was appropriate to protect customers would ordinarily send CILCO to court. Further, regulation allows CILCO to recognize only its prudently incurred expenses for ratemak-ing purposes. Presumably, a distribution company’s' purchase of pipeline gas at prices inflated by antitrust violations could be challenged as an imprudent incurrence of operating expenses. An antitrust recovery would at least partially offset any imprudence in the initial purchasing decision. In any event, in its next rate case, the distribution company would be hard pressed to justify its payment of illegally inflated prices if neither it nor the Attorney General had sought to press the antitrust claim.
Nonetheless, I suspect that considerations such as the difficulty of settlement might lead CILCO to prefer an Attorney General’s lawsuit to its own. Presumably, a settlement by the state Attorney General with the pipeline supplier would be accepted as fully arm’s length and justifiable. Were CILCO to settle, however, the aggressiveness of its stance might be questioned by the regulators in light of its ongoing relationship with the supplier and, of course, its settlement would in all probability have to be approved by the regulatory authority. It therefore seems to me that, in the final balance, suit by CILCO is not necessarily preferable to suit by the Attorney General on behalf of the residential customers.
FAIRCHILD, Senior Circuit Judge, with whom BAUER, Chief Judge, and CUMMINGS and MANION, Circuit Judges, join, concurring in part, dissenting in part.
I concur in reversal as to the treble damage claims on behalf of industrial customers. I respectfully dissent from affirmance *900with respect to such claims on behalf of residential customers.
The residential customers purchase from CILCO, and are only indirect purchasers from Panhandle, who allegedly overcharged CILCO. Because the rates charged by CILCO reflect, approximately at least,1 the actual cost of gas, it is claimed that the residential customers were “injured” so as to be entitled to treble damages under § 4 of the Clayton Act, 15 U.S.C. § 15,2 by reason of the pass-on of the overcharge.
The Supreme Court has “held that, except in certain limited circumstances, a direct purchaser suing for treble damages under § 4 of the Clayton Act is injured within the meaning of § 4 by the full amount of the overcharge paid by it ...”. Illinois Brick Co. v. Illinois, 431 U.S. 720, 724, 97 S.Ct. 2061, 2064, 52 L.Ed.2d 707 (1977) (footnote omitted) (interpreting the rationale of Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 494, 88 S.Ct. 2224, 2232, 20 L.Ed.2d 1231 (1968)). Hanover Shoe had rejected an attempt by an antitrust defendant to establish that plaintiff direct buyer had not been “injured” within the meaning of § 4 because the direct buyer had passed on any overcharge. In Illinois Brick, plaintiff was asserting a claim on behalf of indirect purchasers that they had been “injured” by a pass-on of an overcharge. The Court reaffirmed Hanover Shoe and decided that its root principle (that, with limited exceptions, the full injury of the overcharge falls upon the direct purchaser) must apply to and prevent treble damage claims on behalf of an indirect purchaser, as well as apply to and permit claims of a direct purchaser.
Both Hanover Shoe and Illinois Brick dealt with the question presented as one of statutory construction of § 4. Indeed in Illinois Brick, the Court said,
In considering whether to cut back or abandon the Hanover Shoe rule, we must bear in mind that considerations of stare decisis weigh heavily in the area of statutory construction, where Congress is free to change this Court’s interpretation of its legislation.
431 U.S. at 736, 97 S.Ct. at 2070.
Illinois Brick described only two exceptions to its general rule that the direct purchaser is injured by the full amount of the overcharge. One, “where the direct purchaser is owned or controlled by its customer,” 431 U.S. at 736, n. 16, 97 S.Ct. at 2070, n. 16, is clearly inapplicable here. The other, which originated in Hanover Shoe, is where an overcharged direct buyer has a pre-existing cost-plus contract for a fixed quantity. 431 U.S. at 736, 97 S.Ct. at 2069.
Judge Posner’s opinion for this court suggests that the reference to “a fixed quantity” does not have controlling significance. Ante, pp. 893 and 894. Particular aspects of the Hanover Shoe and Illinois Brick opinions persuade me otherwise.
The Hanover Shoe opinion, in recognizing that “a preexisting ‘cost-plus’ contract” might provide an exception to its rule against a pass-on defense, did not expressly require a fixed quantity element. 392 U.S. at 494, 88 S.Ct. at 2232. That element may well have been implied, for the Court referred to the cost-plus contract as “thus making it easy to prove that [the direct buyer] has not been damaged.” Ibid. In Illinois Brick, Justice White, who wrote for the Court in both cases, expressly referred to the fixed quantity element and took pains to explain why it was important:
But this Court in Hanover Shoe indicated the narrow scope it intended for any exception to its rule barring pass-on defenses by citing, as the only example of a situation where the defense might *901be permitted, a pre-existing cost-plus contract. In such a situation, the 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 735-36, 97 S.Ct. at 2069-70.
This court’s opinion concedes that no doubt CILCO lost residential sales because of the higher price, and because of the overcharge if there was one. Ante, p. 896. It follows from Hanover Shoe and Illinois Brick that when some injury falls on the direct purchaser because of the overcharge, it all does.
After considering and rejecting proposed exceptions, the Court said “As we have noted, supra at 735-36, [97 S.Ct. at 2069-2070], Hanover Shoe itself implicitly discouraged the creation of exceptions to its rule barring pass-on defenses, and we adhere to the narrow scope of exemption indicated by our decision there.” 431 U.S. at 745, 97 S.Ct. at 2074.
As I read Illinois Brick, the Supreme Court did not leave it to the discretion of the lower courts to create new exceptions for situations which fall within some range of approximation of the exceptions defined by the Court. And that is what this court appears to be doing with respect to the claims of the residential customers.

. The process of adjustment of rates charged by CILCO to rates paid is described in the panel opinion. 839 F.2d at 1208 n. 2.

. Section 4 provides that
[A]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor ... and shall recover threefold the damages by him sustained....