# Petition for Writ of Certiorari — South Dakota v. Kansas City Southern Railway Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0559%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1990 - **Citation:** 493 U.S. 1023 ## Text IN THE i a ~ | Supreme Court of the Unite Snir OCTOBER TERM, 1989 STATE OF SOUTH DAKOTA, et al., . Petitioners, KANSAS CITY SOUTHERN RAILWAY COMPANY, et al., Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT ROGER A. TELLINGHUISEN E. BARRETT PRETTYMAN, JR.* Attorney General HOGAN & HARTSON JEFFREY P. HALLEM~ 555 Thirteenth St., N.W. M. BRIDGET RYAN Washington, D.C. 20004 Assistant Attorneys General (202) 687-5685 State Capitol Counsel for Petitioners Pierre, SD 57501 (605) 773-3215 THOMAS J. WELK JAMES E. MCMAHON Boyce, MURPHY, MCDOWELL & GREENFIELD Post Office Box 5015 Sioux Falls, SD 57117 (605) 336-2424 GLEN H. JOHNSON BANKS, JOHNSON, JOHNSON, COLBATH & HUFFMAN 3202 West Main Street Rapid City, SD 57702 (605) 348-7300 Of Counsel: DANIEL J. DOYLE 740 Pine Road Carlisle, PA 17013 (717) 486-4106 * Counsel of Record A SATO I ET TET IT ED BIE WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001 2 oer QUESTIONS PRESENTED 1. (a) Should a State be treated like any other com- mercial entity for antitrust standing purposes when the State’s role, and the injury to the State found by the jury to have been caused by the defendants’ anticompeti- tive conduct, directly implicated not simply commercial but also sovereign interests of the State? (b) Should an antitrust plaintiff be denied standing because it was not a direct participant in the market re- strained, as the court below held, contrary to this Court’s rejection of such a “black-letter rule” in Associated Gen- eral Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983)? 2. Is a pattern of litigation activity protected by the Noerr-Pennington doctrine as a matter of law so long as it was motivated in part by a genuine desire to obtain judicial relief, as the court below held, contrary to this Court’s recent express rejection of that absolutist posi- tion in Allied Tube & Conduit Corp. v. Indian Head, Inc., 108 S. Ct. 1931, 1938 (1988) ? _ 8. Under the Seventh Amendment to the United States Constitution, may a Court of Appeals overturn a jury’s determination that a pattern of litigation activity is a sham and that such activity harmed the plaintiff, when the record is replete with evidence supporting the jury verdict? (i) ii PARTIES TO THE PROCEEDINGS Petitioners before this Court and plaintiffs-appellees below are the State of South Dakota and the South Dakota Conservancy District, an agency of the State of South Dakota. Respondents and defendants-appellants below are Kansas City Southern Railway Company and its parent, Kansas City Southern Industries, Ince. TABLE OF CONTENTS Es = yy 6). By) | 4, yy | PARTIES TO THE PROCEEDINGS o.0000000.0000n... ET PUNT OMIED cccscesceictsnersccnsssesecccensssseenss TE corerergeivceivnenncisnitneencanatinhennennntncanmunaantennn IIE iar cicseaesniaaisserteneahacn shasnanameenensnsimesenchascaneene PERTINENT STATUTORY AND CONSTITUTIONAL PROVISIONS ......0.0..000........... STATEMENT OF THE CASE .........0...2......2............... REASONS FOR GRANTING THE WRIT ................... I. THE DECISION BELOW CONFLICTS WITH Il. A RECENT DECISION OF THIS COURT AND AGGRAVATES CLEAR CONFLICTS AMONG THE CIRCUITS ON THE TESTS FOR ANTITRUST STANDING ..0000000000.......... A. The Lower Court Failed To Consider The Special Status Of A Sovereign State —........... B. The Lower Court Treated A Single Issue— Participation In The Market—As Decisive, And Ignored Other Significant Factors........ THE DECISION BELOW CONFLICTS WITH A RECENT DECISION OF THIS COURT AND AGGRAVATES CLEAR CONFLICTS AMONG THE CIRCUITS ON THE SHAM EXCEPTION TO THE NOERR-PENNINGTON IE Silence htnnecninnaseinaneneipnrnainnnanatin A. The Lower Court’s Absolutist Treatment Of Ue 10 10 10 13 16 17 iv TABLE OF CONTENTS—Continued B. The Lower Court’s Absolutist Treatment Of Partial Success ......... sicicccsijaiienieiaibeielantantiiaibaieslbtdit C. The Conflict And Confusion Surrounding The Sham Exception Is Persistent And I i iniicnctntactnnctiicanialitinntninmeniaaninnanniaitinns Ill. THE COURT BELOW VIOLATED THE SEV- ENTH AMENDMENT IN OVERTURNING THE JURY’S FACTUAL FINDINGS THAT SHAM PETITIONING CAUSED THE IN- FU TD SOE EE hhcentitnmnenen CONCLUSION APPENDICES Appendix A: Appendix B: Appendix C: Appendix D: Appendix E: Appendix F: Appendix G: Appendix H: ee ee Opinion of the Court of Appeals for BI III cic ciettescnincticentetinneetinn Judgment of the Court of Appeals for the Eighth Circuit —.......00.00.0000..... Order of the Court of Appeals for the Eighth Circuit denying rehear- ing and amending opinion _.............. Order and Opinion of the District Court for the District of South Dakota (July 26, 1984) 2.000000... Order and Opinion of the District Court for the District of South Dakota (March 6, 1986) ...............00.... Special Verdict Form ........................ Judgment of the District Court for the District of South Dakota _............. Examples of Jury Instructions on the Noerr-Pennington Doctrine ........ Page 21 24 26 29 la 33a 35a 38a ry Vv Vyeue Vv TABLE OF AUTHORITIES Cases Page Adams V. Pan American World Airways, Inc., 828 F.2d 24 (D.C. Cir. 1987), cert. denied, 108 S. Ct. Be I tenihhncscaceddek de nciicsaetdeiieteinhecacanatciiece thin 16 Affiliated Capital Corp. v. City of Houston, 735 ef B&O: | ee reeenareen 28 Alexander v. National Farmers Organization, 687 A B. fC S.C erceeeere 21 Allied Tube & Conduit Corp. v. Indian Head, Inc., Re Se Es EE I cebsiicckcecinataereeotrtmenerceae passim Amey, Inc. V. Gulf Abstract & Title, Inc., 758 F.2d 1486 (llth Cir. 1985), cert. denied, 475 U.S. Be WIE bleiiiecemea etic , 16 Associated General Contractors of California, Inc. v. California State Cowncil of Carpenters, 459 See EE | Lccsactcbistsdanecnemiconiavelinncecieenaniel 13, 15, 16 Bell v. Dow Chemical Co., 847 F.2d 1179 (5th Cir. IIE seonstdhecinnstcrssctiaiSsssantndinnnineasisnitonsndesasaiticacticanaatibseasadelinadaas 15 Bill Johnson’s Restaurants, Inc. v. NLRB, 461 tle EE SUIIIIIIIED 2. cin scetusctacntnoeanansennuuneaiaienandadlaianeiia 26 Blue Shield of Virginia v. McCready, 457 U.S. 465 fips eae AE Ma aaa eh 13, 14 California Motor Transport Co. v. Trucking Un- limited, 404 U.S. 508 (1972) .......022. ee. 17, 22, 28 Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. BR. GH Srveseceseesrdintcdinecsaendeteny soktnestarenetiene 13 Clipper Exxpress V. Rocky Mountain Motor Tariff Bureau, Inc., 690 F.2d 1240 (9th Cir. 1982), cert. denied, 459 U.S. 1227 (1983) —.....0000 2... 23, 28 Coastal States Marketing, Inc. v. Hunt, 694 F.2d I a. = a 18, 24 Columbia Pictures Industries v. Redd Horne, Inc., PY B Fgh | Ren eee 21 Eagle v. Star-Kist Foods, Inc., 812 F.2d 588 (9th IE CUED > cnnbiscsesnheveecthcs Codbeaceditealiptaadaenimtansabssenciaats 15 Eastern Railroad Presidents Conference Vv. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) —........ 16, 17 Eneray Conservation, Inc. Vv. Heliodyne, Inc., 698 of § f £: & Sean we 19 ein vi TABLE OF AUTHORITIES—Continued Page ETSI Pipeline Project v. Burlington Northern, Inc., (E.D. Tex. May 8, 1989), appeal pending (5th Cir.) (No. 89-2561) ...... Et ee 10 Federal Prescription Service, Inc. Vv. American Pharmaceutical Association, 668 F.2d 258 (D.C. Cir. 1981), cert. denied, 455 U.S. 928 (1982)... 21 Gallick v. Baltimore & Ohio Railroad, 372 U.S. 108 AES BS EAE oe" ARR 26 Gorman Towers, Inc. V. Bogoslavsky, 626 F.2d 607 RE EE AE Sn Oe 25 Gregory Marketing Corp. v. Wakefern Food Corp., 787 F.2d 92 (3d Cir.), cert. denied, 479 ares ee re ee ee 15 Grip-Pak, Ine. Vv. Illinois Tool Works, Inc., 694 F.2d 466 (7th Cir. 1982), cert. denied, 461 U.S. RE EEC NNN TE eT Moe oe. aoe 21, 22 Hawaii v. Standard Oil Co. of California, 405 U.S. gk es ee ee SE 11, 12 In re Burlington Northern, 822 F.2d 518 (5th Cir. 1987), cert. denied, 484 U.S. 1007 (1988)......21, 22, 24 In re South Dakota Water Management Board, PA BO! 0 5 Kobe, Inc. v. Dempsey Pump Co., 198 F.2d 416 (10th Cir.), cert. denied, 344 U.S. 887 (1952).. 24 Lavender Vv. Kurn, 8327 U.S. 645 (1946) 0000... 26 Litton Systems, Inc. v. AT&T, 700 F.2d 785 (2d ~ Cir. 1983), cert. denied, 464 U.S. 1078 (1984)... 24 Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 384 U.S. 219 (1948)... 13 MCI Communications Corp. v. AT&T, 708 F.2d 1081 (7th Cir.), cert. denied, 464 U.S. 891 CIEE . ccininnreniintiiaeiibiiaieaiieeeaiiie eae diial 24 Missouri V. Andrews, 586. F. Supp. 1268 (D. Neb. 1984), aff'd, 787 F.2d 270 (8th Cir. 1986), aff'd sub nom. ETSI Pineline Project v. Missouri, 484 U.S. 495 (1988) .... Se Me An eS passim Otter Tail Power Co. v. United States, 410 U.S. 8366 (1973), on remand, 360 F. Supp. 451 (D. Minn. 1973), aff'd, 417 U.S. 901 (1974) q.......... 17 a vii TABLE OF AUTHORITIES—Continued Page Razorback Ready Mix Concrete Co. Vv. Weaver, 761 F.2d 484 (8th Cir. 1985) .............................. 21 Rex Chainbelt, Inc. v. Harco Products, Inc., 512 F.2d 993 (9th Cir.), cert. denied, 423 U.S. 831 COT eoceeeerrttneernssstitieneennsenentnenns 24 Southaven Land Co. v. Malone & Hyde, Inc., 715 8). a he | 16 Tennant v. Peoria & Pekin Union Railway, 321 5S 7 _ a een 26 Trucking Unlimited v. California Motor Transport Co., 1967 Trade Cas. (CCH) { 72,298 (N.D. Cal. 1967), rev'd, 482 F.2d 755 (9th Cir. 1970), 2 ee 8 Ge OF Rn 17 United Mine Workers v. Pennington, 381 U.S. SI nites nenbsoinetnhieneiiinndiantasensintnanntnbanmsciiannem 16 Video International Production, Inc. Vv. Warner- Amex Cable Communications, Inc., 858 F.2d 1075 (5th Cir. 1988), cert. denied, 109 S. Ct. I Ha ccescniacasntteiiddhdiinsiepnniniaiensnaianietieiinanbtinebapeate 24 Webb v. Fury, 282 S.E.2d 28 (W. Va. 1981)... 26 Weiss v. Willow Tree Civic Association, 467 F. OG ee 25 Westmac, Inc. Vv. Smith, T97 F.2d 313 (6th Cir. 1986), cert. denied, 479 U.S. 1035 (1987) ..18, 21, 22, 24 Constitutional Provisions and Statutes or arr a iccenrrininseincidatenciinmniananseenmemnenninn Clayton Act, 15 U.S.C. § 15(a) (1982) iia Sherman Act, 15 U.S.C. §1 (1982) ~..................... bo bo fe te Commentary Areeda & Hovenkamp, Antitrust Law ‘ 203.1 SI ND Seiscttiecniewanecinstennncieenennnenihinninianmniannnaen 22 Calkins, Developments in Antitrust and the First Amendment: The Disaggregation of Noerr, 57 a oe e 2 een 25 viii TABLE OF AUTHORITIES—Continued Fischel, Antitrust Liability for Attempts to In- fluence Government Action: The Basis and Limits of the Noerr-Pennington Doctrine, 45 ££: SSR FO nee Handler & De Sevo, The Noerr Doctrine and Its Sham Exception, 6 Cardozo L. Rev. 1 (1984)... Note, The Misapplication of the Noerr-Pennington Doctrine in Non-Antitrust Right to Petition Cases, 36 Stan. L. Rev. 1243 (1984) .................... Sullivan, Developments in the Noerr Doctrine, 56 pA OU, Page 25 25 25 25 IN THE Supreme Court of the United States OCTOBER TERM, 1989 No. STATE OF SouTH DAKOTA, et al., 7 Petitioners, KANSAS CITY SOUTHERN RAILWAY COMPANY, et el., Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT Petitioners the State of South Dakota and the South Dakota Conservancy District (collectively “the State” or “South Dakota”) respectfully pray that a writ of cer- tiorari issue to review the judgment and opinion of the United States Court of Appeals for the Eighth Circuit entered in the above-entitled proceeding on June 29, 1989. OPINIONS BELOW The opinion of the Court of Appeals is reported at 880 F.2d 40 and is reprinted in the appendix hereto (“App.”) at la. An Order was issued by the Court of Appeals amending its opinion on August 8, 1989; that Order is reprinted at App. 35a. The pertinent opinion of the Dis- trict Court are unreported and are reprinted at App. 38a, 56a. 2 JURISDICTION The judgment of the Court of Appeals was entered on June 29, 1989. App. 33a. A petition for rehearing with suggestion for rehearing en banc was timely filed on July 11, 1989, and denied on August 8, 1989. App. 35a. The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1). PERTINENT STATUTORY AND CONSTITUTIONAL PROVISIONS Section 1 of the Sherman Act, 15 U.S.C. §1 (1982), provides in pertinent part that “[e]very contract, com- bination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal.” Section 4 of the Clayton Act, 15 U.S.C. §15(a) (1982), provides in pertinent part that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States * * *.” The Seventh Amendment to the United States Constitu- tion provides that “[i]n suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law.” STATEMENT OF THE CASE In the early 1970’s, Energy Transportation Systems, Inc. (“ETSI”), a joint venture, sought to design, finance and construct a 1200-mile pipeline from the Powder River Basin coal fields in Wyoming to electric utilities in the south central United States. The pipeline would ship coal slurry, which is a mixture of 50 percent crushed coal and 50 percent water. The ETSI project would have intro- duced the first non-railroad mode of coal transportation 3 into the region and saved electric consumers over $900 million. The guarantee of a sufficient long-term, uninterruptible water supply was an essential prerequisite to the project, and South Dakota had a direct interest in that prerequisi- site. At the time, the State had two serious water prob- lems. One was a shortage of quality drinking and live- stock water in the western half of the State. The other concerned whether the ETSI project would divert much- needed ground water from the State. This second prob- lem caused South Dakota to oppose the initial ETSI pro- posal. A modified proposal to run a water pipeline from South Dakota’s Oahe Reservoir across the State to join with the ETSI pipeline in eastern Wyoming, where the water would be mixed with coal, resolved both problems. The proposed Oahe Reservoir pipeline would provide water to ranchers, farmers, communities, and energy industry users, as well as to ETSI. Money realized from the in- dustrial sales of water would finance the delivery systems to western South Dakota communities and to other state water projects. In 1981 South Dakota secured passage of legislation authorizing a permit which could be assigned to ETSI for Oahe Reservoir water. After this permit was granted, South Dakota and ETSI entered into a long-term contract under which the Oahe Reservoir permit was transferred to ETSI, and ETSI agreed to provide, at no cost, excess capacity in the water pipeline for domestic and livestock needs in western South Dakota, and to pay the State a minimum of $450 million over a term of 50 years. For 10 years, until the whole project was killed as a result of the anticompetitive and illegal acts that formed the basis for this lawsuit, the State of South Dakota played a vital role in the development of the project. Among other things, the State: * saw legislation introduced, passed, and vetoed, and then new legislation passed in a special session of the ———— 4 Legislature which changed the law to allow the project to go forward; * extended powers of eminent domain for transporta- tion of water utilized by out-of-state coal slurry pipeline projects; * through its Governor discussed the project with neighboring States, affected cities, and Indian Tribes; * negotiated with ETSI to ensure water development, quality drinking water, and to provide sales taxes, South Dakota’s principal source of revenue, from the pipeline construction ; ~— * provided a water permit pursuant to contract, and passed legislation to allow ETSI’s use of tax-free bonds; * filed an original lawsuit in this Court in order to establish that Oahe Reservoir water could be marketed; * sought the assistance of Attorneys General in west- tern States in support of South Dakota’s position in the Andrews litigation, discussed below; * through its Conservancy subdistricts, which were es- tablished to facilitate water development within the State, supported the ETSI project as part of the develop- ment of an 11-county area, performed a cost study of the water pipeline from the Oahe Reservoir, and passed ap- propriate resolutions relating thereto; * through its Water Management Board and its De- partment of Water and Natural Resources held hearings on affected water rights; * provided comments to a federal agency on the en- vironmental impact of the project, conducted feasibility studies, reviewed United States geological survey reports, and supported a federal water service contract to ETSI; * formed a Task Force to deal with water marketing issues; * created a Water Facilities Construction Fund in which ETSI payments were deposited and the money from 5 which was used to finance water development projects and resource studies; * made application for one federal water contract that only a public body could apply for; * met with ETSI to design and assign the location of taps for West River communities from the water pipe- line; * requested and achieved an amendment to the ETSI contract to allow South Dakota’s western communities ad- ditional time to determine where distribution taps would be located; and * defended the state water permit that was assigned to ETSI. In re South Dakota Water Management Board, 351 N.W. 2d 119 (S.D. 1984). According to evidence later introduced at trial, respond- ents Kansas City Southern Industries and The Kansas City Southern Railway Company (jointly “KCS’’) con- spired with other railroads to defeat the ETSI pipeline. KCS considered this project to be a serious threat as a nonrail competitor. The railroads’ opposition consisted of a group boycott to deny ETSI crossing rights and a pattern of sham liti- gation that abused the administrative and judicial proc- esses in local, state, and federal forums. Delay was a critical objective of the conspiracy. Construction on this $3 billion capital-intensive construction project could not begin until all major permits were secured. Delay in- creased escalating multimillion capital expenditures and created risks of uncertainty as to delivery by ETSI to utility customers, who were intending to expend millions of dollars on modifications to their plants to allow coal slurry to be burned. Delay also helped maintain the rail- roads’ monopoly profits from hauling coal to the utility customers. For over 10 years KCS carried out many acts in fur- therance of the conspiracy, some aimed directly at South Dakota, even though KCS had no tracks and no presence 6 in the State. Eventually, KCS succeeded in having South Dakota’s contract with ETSI cancelled and the pipeline project killed. The State cannot even begin to summarize here the many acts taken by the railroads to thwart the ETSI pipeline project. A few examples will have to suffice. KCS first conspired with other railroads to deny per- mits needed by ETSI to cross railroad right of ways. Faced with this group boycott, ETSI found “windows,” which were areas where the railroads had only easement interests. When ETSI purchased rights from abutting fee owners and began to obtain the crossing rights in quiet-title actions, the railroads resisted and intentionally prolonged those suits for as long as 5% years. The in- tentional delay occurred despite the railroads’ recognition that there was no legal ground for opposition. Delay, not success, was the object.! In all, ETSI was forced to file 69 “window” suits, including one in South Dakota; ETSI was successful in all of them. Another part of the railroads’ strategy was to oppose on every possible front the required environmental im- pact statement (“EIS”). The railroads’ object was to make the environmental evaluation as difficult as possible and hopefully to bog down the process. SA 1001. KCS even contrived not to disclose fully its objections to the 1 As one KCS attorney wrote, KCS should settle its window litiga- tion unless its “policy is going to remain the same, i.e., delay every way we can their obtaining permits or grants for construction of [ETSI’s] lines * * *.” KCS App. 645. One railroad employee wrote that “if we take a chapter from the environmentalists, there are many situations where litigation can hold up new projects.” Ex. 693. A railroad attorney noted that “our original idea * * * was to create another roadblock in the Commission to afford the railroad industry an opportunity to further delay pipeline construction.” SA 1052. “KCS App.” refers to KCS’s Appendix in the Eighth Circuit. “SA” refers to South Dakota’s Separate Supplemental Appendix in the same court. 7 EIS before the Bureau of Land Management solely to preserve judicial remedies and thereby ensure further delay. KCS App. 609. In addition to the EIS challenge, virtually every sig- nificant permit needed by ETSI was targeted and chal- lenged, dozens of baseless claims were asserted, and with one exception (discussed below), not one was successful. One local commission member was told that if the commissioners did not delay the permitting process, they could be held personally liable. SA 219-221.2 KCS led notices of intent to sue on some permits even before the EPA had acted on them, SA 1197, 1199, and it sent letters to authorities in South Dakota alleging that the Oahe pipeline in South Dakota would transport hazardous wastes, when in fact it would transport only water. Challenges were made at every administrative*® and judicial level, and the resultant delays were bragged about internally. SA 1106; see also KCS App. 725. Since they lacked standing to assert many of the claims they were making, others were solicited to participate, and their participation underwritten. Concurrently, the railroads devised a strategy to pre- vent ETSI from obtaining a secure water source. For ex- ample, they spread falsehoods to downstream States about an alleged violation of (nonexistent) interstate compacts. SA 985-988. With KCS as the spearhead, the railroads stirred up opposition and guided parties through state and federal water permit hearings and litigation in South Dakota so as to ensure lengthy appeals in the courts. KCS filed a complaint against the Federal Government in 1982 containing more than 20 separate causes of ac- 2 This intimidation obviously was not protected by the Noerr- Pennington doctrine discussed infra. Yet such conduct was not even discussed by the Eighth Circuit. 3One such agency termed their written comments not only “puzzling” but “frivolous.” SA 253-236; see also KCS App. 239. 8 tion in the so-called Andrews litigation...As KCS planned this litigation, its executives recognized that it “may achieve delay and nothing more” and that “no one asserts a high level of confidence that we would ultimately pre- vail in the legal arena, once the delays have been ex- hausted.” KCS App. 755. Despite this recognition, one chief executive ordered, “continue to fight.” Jd. KCS obtained only a partial measure of success.‘ Of the more than 20 claims raised, the District Court ruled on only one, the authority of the Bureau of Reclamation to contract for water service, in a manner unfavorable to ETSIL.® Missouri v. Andrews, 586 F. Supp. 1268 (D. Neb. 1984), aff'd, 787 F.2d 270 (8th Cir. 1986), aff'd sub nom. ETSI Pipeline Project v. Missouri, 484 U.S. 495 (1988). Even on this issue, however, the District Court ruled that KCS had no standing, and the relief was granted in favor of other parties. The railroads were wholly successful, however, in de- stroying the ETSI project. After spending $140 million, ETSI terminated the project and cancelled the South Dakota contract, citing the prolonged railroad opposition. SA 1248-49. The continued railroad harassment simply made the $3 bijlion project too risky for investors and backers. The cancellation vitiated all of the sovereign acts taken by the State and deprived the State of tax revenues and $200 million of ETSI payments in present value dol- lars. Also lost was the opportunity for the State to pro- vide high quality drinking water at a reasonable cost to many of the State’s citizens and funding for much needed other state water projects. In 1988, South Dakota brought this suit against KCS, alleging (1) that KCS and others had conspired in viola- 4 A second lawsuit was filed by Missouri, Iowa and Nebraska, and the suits were consolidated. 5 ETSI thereafter worked with South Dakota to obtain a water service contract from the Corps of Engineers consistent with the District Court decision. SA 187, 315-316, 325-327, ee 9 tion of Section 1 of the Sherman Act to prevent the de- velopment and operation of the ETSI project and to pro- hibit the use and shipment of Oahe Reservoir water necessary for the pipeline’s operation,® and (2) that KCS had violated South Dakota law by intentionally inter- fering with contractual relations between South Dakota and ETSI. The trial lasted 10 weeks. The jury was instructed on all elements of Section 1 and intentional interference with contractual relations. It was also instructed on the dif- ference between sham activities and those legitimately protected under the Noerr-Pennington doctrine.’ The jury unanimously returned a special verdict find- ing that KCS violated Section 1 and intentionally inter- fered with South Dakota’s contract. It awarded $200 million in lost contract payments, $10.9 million in lost tax revenues, $8.3 million in prejudgment interest, and $25 million in punitive damages. The District Court over- ruled all of KCS’s post-trial motions. It previously had held that South Dakota had standing because it suffered the direct, foreseeable type of injury the antitrust laws were intended to redress. App. 5la-53a, 61a. The Court of Appeals disagreed, reversed, and ordered the cause dismissed. It held that because the State was not itself a competitor in the coal transportation market, it could not seek redress under the antitrust laws for the harm it suffered at the hands of KCS. App. 15a-16a, 19a- 20a. The court also dismissed the tort claim because KCS was “successful’ in the Andrews litigation, it was deemed to have genuinely sought judicial relief, and therefore the sham exception to Noerr-Pennington did not apply as a matter of law. The court held that “whether [KCS| ® The other railroads involved in the conspiracy were named as co-conspirators. One of them subsequently settled with the State rather than be faced with a separate suit. 7 For examples of these jury instructions, see App. 7la, Ne | 10 also possessed anticompetitive motives is irrelevant.” App. 29a.° oe REASONS FOR GRANTING THE WRIT I. THE DECISION BELOW CONFLICTS WITH A RECENT DECISION OF THIS COURT AND AGGRAVATES CLEAR CONFLICTS AMONG THE CIRCUITS ON THE TESTS FOR ANTITRUST STANDING A. The Lower Court Failed To Consider The Special Status Of A Sovereign State The court below held that “the State of South Dakota has no standing to sue KCS for alleged antitrust viola- tions.” App. 20a. The court treated the State as if it were just another supplier to the victim of an antitrust conspiracy. In so doing, the court disregarded the fact that KCS targeted significant overt acts against the State. It also ignored the fact that the State played a far larger role in the ETSI venture than the ordinary private ven- dor would. South Dakota took major steps in its sover- eign capacity to make the ETSI venture possible, and the State sought to obtain not only commercial but broad social benefits for the welfare of its people. The steps taken by South Dakota were those only a State could take, and the interests it asserted and protected were those for which no private party could possibly be respon- 8In a consolidated companion case in Texas, KCS settled with ETSI and utility plaintiffs for $82 million. ETSI then obtained a directed verdict in its favor on the issue of Conspiracy in a Sherman Act Section 1 lawsuit against one of KCS’s alleged co-conspirators. Thereafter, a jury returned a verdict in ETSI’s favor in the amount of $345 million, before trebling. ETSI Pipeline Project v. Burling- ton Northern, Inc. (E.D. Tex., May 8, 1989), appeal pending (5th Cir., No, 89-2561). 11 sible. Under the circumstances, to treat South Dakota as just another litigant ignores the special status that the States occupy under the Constitution. This Court decided seventeen years ago that the anti- trust laws do not provide a remedy for injuries solely to the sovereign interests of a State. Hawaii v. Standard Oil Co. of California, 405 U.S. 251, 265 (1972). South Dakota, however, does have commercial as well as sover- eign interests to vindicate in this case. It would be per- verse, however, to read the Standard Oil case as author- ity for the proposition that the sovereign involvement of a State is entirely irrelevant in determining whether it has standing to complain. If that were true, a court would have to ignore matters that bear directly on the magni- tude and scope of the harm. South Dakota hardly played a passive role throughout the years when ETSI was attempting to construct the pipeline. To the contrary, its participation was required, and that participation necessitated an entire series of sovereign decisions and acts. See supra at 3-5. These sovereign actions were thwarted by the illegal conduct of KCS and other railroads, and some of that conduct was specifically directed at the State of South Dakota. KCS’s campaign to destroy competition from the ETSI coal slurry pipeline not only deprived South Dakota of the benefits from the ETSI contract, but also deprived the State of the opportunity to participate in ether similar ventures and to develop its resources for its citizens. South Dakota’s former Governor summarized these grave effects: We lost the ability to develop South Dakota in water resources. We lost water for western South Dakota, good water, free water, from the Missouri River. Those are the two things that we lost. [KCS App. 219.] He testified that the State was never again able to sell water, nor did it receive further coal slurry propo- 12 sals.° In other words, KCS did not just kill a single mar- ket opportunity for the State but instead destroyed an entire market and thereby frustrated the ability of a sovereign State to develop its resources for the benefit of its citizens. Vindication of South Dakota’s interests would not re- quire the kinds of speculative calculation that deterred recognition of a remedy in Standard Oil; the damages are easy to compute—as the jury did—and they do not duplicate the damages of ETSI or anyone else. Because of the significant and readily identifiable damage done to a sovereign State by violations of the antitrust laws, this Court should review the judgment below which de- nies that State a remedy. As explained above, Standard Oil does not preclude consideration of the special status of a sovereign State in assessing the standing of that State to vindicate its com- mercial interests. The point is that the status of a State broadens the scope of its commercial interests deserving of protection under the antitrust laws. However, to the extent that language in Standard Oil could be read to prohibit standing by a State in circumstances like those obtaining here, we respectfully request the Court to re- consider that language. Such reconsideration would be both warranted and timely. For a variety of reasons, the Federal Government has not enforced the antitrust laws as actively as it once did. It therefore is imperative that the States be allowed a more significant role in guarding against the detrimen- tal effects of antitrust violations on all their interests— including proprietary activities, processes, commercial in- terests, sovereignty, and interests beyond those of any single citizen or group of citizens. And in this case, as well as throughout the western United States, there could be no interests more vitally in need of protection than ® Janklow Trial Tr., Vol. I, p. 113. ) | : 13 those of water rights, the very life-blood of the State’s citizens. B. The Lower Court Treated A Single Issue—Partici- pation In The Market—As Pecisive, And Ignored Other Significant Factors Whether or not South Dakota is to be treated like any other litigant, the court below committed clear error in giving decisive effect to its finding that South Dakota did not participate in the coal transportation market. This emphasis on a single factor is contrary to the most recent mandate of this Court in Associated General Con- tractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983), and is also contrary to the tests applied in other Circuits. In Associated General Contractors, this Court empha- sized that antitrust standing is a fact-intensive inquiry and that it is “virtually impossible to announce a black- letter rule that will dictate the result in every case.” Jd. at 536. Direct participation by the plaintiff in the re- strained market may be an important factor, to be sure, but it is not decisive.” This factor is important primar- ily because it will shed light on the underlying issue that is really important: namely, whether the plaintiff’s in- terests would be served or disserved by enhanced compe- tition in the market.” Jd. at 539. Obviously, antitrust litigation may produce perverse results if potential plain- tiffs do not have a genuine interest in preserving com- petition. Cf. Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104 (1986). No such risk is present here. The court below gave no consideration to the fact that South Dakota had a vital interest in the preservation of 10 See Blue Shield of Virginia v. McCready, 457 U.S. 465, 472 (1982) (the statute “‘does not confine its protection to consumers, or to purchasers, or to competitors, or to sellers’”) (quoting Mandeville Island Farms, Inc. Vv. American Crystal Sugar Co., 334 U.S. 219, 236 (1948)). 14 competition in the market for the transportation of coal —an interest identical to that of ETSI itself. Only if the coal transportation market were opened to competition from coal slurry pipelines could ETSI and South Dakota benefit. When the potential competition of a coal slurry pipeline was destroyed by the actions of KCS and others, South Dakota was deprived of significant revenues and “an important opportunity to develop its water resources for the benefit of its citizens. Contrary to the characterization in the opinion below, South Dakota was not simply one more supplier of mate- rial to the ETSI pipeline. South Dakota’s role was so critical that even KCS’s counsel concluded that as a re- sult of the State’s contract with ETSI, “ETSI has thus initially resolved the worst problem coal slurry pipelines face: the availability of water.” SA 1116. Cancellation of the contract was therefore not only “inextricably in- tertwined with the injury” to the relevant market,"' but ultimately became a principal objective of KCS’s cam- paign against competition. In these circumstances, it was clear error for the Court of Appeals to find that the in- juries suffered by the State “were ‘purely an incidental result of anti-competitive activity in another segment of the economy * * *’.” App. 18a-19a (citation omitted). It was similarly absurd for the lower court to con- clude: The loss of [South Dakota’s] future revenues clearly flowed from the cancellation of the contract rather than from injury to competition in the market in which it was involved. * * * It is evident that South Dakota would have suffered an identical loss in the event that the railroads had done nothing and ETSI had simply decided to terminate the SDCD/ETSI contract for some other reason. [App. 19a.] Of course the cancellation of the contract was the im- minent cause of South Dakota’s injury, but the destruc- 11 McCready, 457 U.S. at 484. ee 15 tion of competition for coal transportation is what caused the cancellation. A simple hypothetical will demonstrate the fallacy of the lower court’s approach. If a dealer were wrongfully terminated because of an illegal conspiracy between his supplier and a rival dealer, it clearly would be wrong to deny standing on the theory that a valid termination could cause the same injury to the dealer. The theory makes no more sense in this case. The court below acknowledged, but failed to weigh, most of the significant factors fer a determination of standing that this Court identified in Associated General Contractors: that KCS was wrongly motivated to elimi- nate totally all competition from a coal slurry pipeline, that elimination of an entire segment of competition was the very type of injury the antitrust laws were designed to prevent, that the injury to South Dakota directly flowed from that elimination of competition, that the damages were in effect fixed by contract and easy to calculate, and that no complex apportionment of damages would be necessary. Contrary to the mandate of Asso- ciated General Contractors, the lower court focused ex- clusively on one factor, the causal connection between the antitrust violations and South Dakota’s harm. The court then compounded the error by finding that there was no direct causal connection simply because South Dakota did not directly compete in the restrained market. The decision of the Eighth Circuit on this issue is not an isolated misapplication of the principles laid down by this Court in Associated General Contractors. The Ninth Circuit has similarly insisted that an antitrust plaintiff be either “a consumer of the alleged violator’s goods or services or a competitor of the alleged violator in the re- strained market.” Eagle v. Star-Kist Foods, Inc., 812 F.2d 538, 540 (9th Cir. 1987). The Third and Fifth Circuits have applied a similarly restrictive test. Gregory Mktg. Corp. v. Wakefern Food Corp., 787 F.2d 92 (3d Cir. 1986), cert. denied, 479 U.S. 821 (1986); Bell v. Dow Chem, Co., 847 F.2d 1179 (5th Cir. 1988). 16 ~ However, other Circuits have recognized, as Associated General Contractors did, that direct participation by the plaintiff in the restrained market is not a necessary predicate for standing. The decision in Amey, Ine. V. Gulf Abstract & Title, Inc., 758 F.2d 1486 (11th Cir. 1985), cert. denied, 475 U.S. 1107 (1986), granted stand- ing to plaintiffs who were the “targets” of anti-competi- tive activity (as South Dakota was), even though they were not direct participants in the restrained market. In Adams v. Pan American World Airways, Inc., 828 F.2d 24 (D.C. Cir. 1987), cert. denied, 108 S. Ct. 1225 (1988), and Southaven Land Co. v. Malone & Hyde, Inc., 715 F.2d 1079 (6th Cir. 1983), the courts ultimately denied standing, but they applied the Associated General Con- tractors factors and did not simply rest on the fact that plaintiffs were not in the market. It is evident that confusion and conflict still exist in the Courts of Appeals over the appropriate tests for anti- trust standing. The Court should take the opportunity, in this important case, to clarify the tests once and for all. Il. THE DECISION BELOW CONFLICTS WITH A RECENT DECISION OF THIS COURT AND EXACERBATES CLEAR CONFLICTS AMONG THE CIRCUITS ON THE SHAM EXCEPTION TO THE NOERR-PENNINGTON DOCTRINE The “Noerr-Pennington doctrine” is the shorthand label used to describe this Court’s rulings that certain petition- ing activity before the government is immune from scru- tiny under the antitrust laws and other laws regulating commercial behavior. Both Noerr™ and Pennington * involved lobbying efforts seeking governmental action that 12 Wastern R.R. Presidents Conference V. Noerr Motor Freight, Inc., 365 U.S. 127 (1961). 13 United Mine Workers v. Pennington, 381 U.S. 657 (1965). ‘i 17 would injure the lobbyists’ competitors..* This Court ruled that such efforts could not subject the lobbyists to antitrust liability. The Court also recognized that petitioning activity may be “a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor,” in which case application of the antitrust laws “would be justified.” Noerr, 365 U.S. at 144. This sham exception was first applied in California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508 (1972). That case concerned the filing of some 40 administrative actions by motor carriers to block a competitor’s efforts to obtain operating rights. This Court held that the litigation activity was a sham in- tended to burden the competitor and therefore was not entitled to Noerr-Pennington immunity, id. at 515, even though the carriers actually prevailed in 21 of the 40 ad- ministrative actions.’*° Two years later, the Court sum- marily affirmed a lower court finding that an electric company’s use of litigation to block the establishment of competing municipal power systems also fell within the sham exception to Noerr-Pennington." A. The Lower Court’s Absolutist Treatment Of Motive The court below did not dispute that KCS had anti- competitive motives in pursuing its course of litigation, but nonetheless ruled that KCS’s activities were wholly 14Jn this case, tried before Allied Tube and Conduit Corp. Vv. Indian Head, Inc., 108 S. Ct. 1931 (1988), the jury was instructed that the lobbying activities were absolutely protected. KCS App. 515. 15 See Trucking Unlimited v. California Motor Transp. Co., 1967 Trade Cas. (CCH) § 72,298 at 84,744 (N.D. Cal. 1967), rev’d, 432 F.2d 755 (9th Cir. 1970), aff’d, 404 U.S. 508 (1972). 18 Otter Tail Power Co. v. United States, 410 U.S. 366 (1973), on remand, 360 F. Supp. 451 (D. Minn. 1973), aff’d, 417 U.S. 901 (1974). eet 18 protected because KCS genuinely sought judicial relief in the Andrews litigation. App. 27a. Even accepting the court’s premise—contrary to the jury findings—that KCS genuinely sought relief, the Eighth Circuit’s legal analysis was fundamentally flawed and directly contrary to this Court’s guidance.’’ The question presented was succinctly posed by the Fifth Circuit in Coastal States Mktg., Inc. v. Hunt, 694 F.2d 1358, 1371 (5th Cir. 1983) : The usual litigant will base its decision to sue on a number of factors. Some of these considerations may be anticompetitive. Others may involve a genuine desire for judicial relief * * *. The “sham” standard must account for the existence of multiple motiva- tions. In recent years, some Circuits have concluded that litigation activity is protected under Noerr-Pennington unless it is solely motivated by an intent to injure com- petitors, with no genuine desire to obtain judicial relief. These Circuits regard the presence of a genuine desire for judicial relief, even if combined with or overshadowed by anticompetitive motives, as sufficient to invoke the Noerr-Pennington shield. See, e.g., Coastal States Mktzg., Inc., 694 F.2d at 1872 (“anticompetitive motives do not taint a suit filed, at least in part, in hope of judicial relief”); Westmac, Inc. v. Smith, 797 F.2d 313, 317 (6th Cir. 1986), cert. denied, 479 U.S. 1035 (1987) (“the 17 The Eighth Circuit’s extended analysis of the Noerr-Pennington isstie was necessary to its holding. Although the court stated (again contrary to the jury’s findings) that KCS’s efforts to assert standing in the Andrews litigation were not a proximate cause of ETSI’s decision to terminate its contract with the State, the court recognized that KCS’s efforts went beyond assertion of its own standing, and therefore it had to rule on the Noerr-Pennington issue. App. 26a-3la. The court below also engaged in footnoted dicta concerning the jury’s findings on damages, but the discussion was expressly prefaced by the statement that “we do not pass on this issue.” App. 26a, n.28. 19 sham exception does not apply merely because a party files a suit with the principle [sic] purpose of harming his competitor’) ; Energy Conservation, Inc. v. Heliodyne, Inc., 698 F.2d 386, 388 (9th Cir. 1983) (sham exception applies “when the bringing of a suit is solely an effort to interfere directly with a competitor”) (emphasis added). The court below embraced this approach to the problem of mixed motives in applying the sham exception. It stated that the exception only applied if the litigation was “in fact solely intended to cause injury to competitors rather than to obtain governmental action,’ and that “Tslo long as [an actual desire for relief] existed, the issue of whether the petitioners also possessed anticom- petitive motives is irrelevant.” App. 23a, 29a (emphasis added). Although this approach had support in the other Circuits, it was definitively rejected by this Court last year, after the cited cases from the other Circuits but before the decision below. In Allied Tube & Conduit Corp., this Court considered a claim that Noerr-Pennington protected the efforts of a manufacturer to secure passage of product standards and codes that would iniure a competitor. The Court expressly addressed the problem of mixed motives in assessing whether the manufacturer’s conduct was protected, and ruled that the presence of a genuine desire to obtain gov- ernmental relief—in the case before it, to secure legisla- tive enactment of the standards and codes—did not im- munize the manufacturer’s conduct. As the Court stated, “Twle cannot agree with [the manufacturer’s] absolutist position that the Noerr doctrine immunizes every con- certed effort that is genuinely intended to influence gov- ernmental action.” 108 S. Ct. at 1938. There was little dispute that the manufacturer genuinely sought govern- mental action, but this Court held that such an “ultimate aim is not dispositive.” Jd. at 1939. The court below, in contrast, embraced this precise “absolutist” position, ruling that KCS’s pattern of litiga- 20 tion activity was necessarily protected simply because KCS genuinely sought judicial relief in the Andrews case. According to the court below, the presence of anticompeti- tive purpose is wholly “irrelevant” so long as the defend- ant also actually sought to influence governmental action— in the litigation context, to obtain judicial relief. App. 29a. This Court in Allied Tube rejected both this ex- treme and the polar opposite extreme which would make an anticompetitive purpose decisive. On the one hand, the Court made clear that “we do not suggest that the absence of anticompetitive purpose is necessary for Noerr immunity.” 108 S. Ct. at 1941 n.11 (emphasis added). On the other hand, the Court stated that “the mere fact that an anticompetitive activity is also intended to in- fluence governmental action is not alone sufficient to ren- der that activity immune from antitrust liability.” Jd. (emphasis in original). The conduct in Allied Tube was not necessarily protected because it “was at least partially motivated by the desire to lessen competition.” Jd. at 1941 (emphasis added). This is in sharp contrast to the approach of the court below that litigation activity is absolutely protected as a matter of law unless it was “in fact solely intended te cause injury to competitors.” App. 23a (emphasis added). The court below has erected a burden of proof virtually impossible to sustain. There is no easy answer to the problem of mixed mo- tives in applying Noerr-Pennington and the sham excep- tion. As this Court concluded, the answer depends on “the context and nature of the activity,” 108 S. Ct. at 1939—i.e., the entire range of evidence surrounding the defendant’s conduct. Such evidence was put before the jury in this case in the course of a ten-week trial, and that jury concluded that KCS’s pattern of litigation ac- tivity was a sham. The Eighth Circuit overturned that finding on the basis of its “absolutist’” view of Noerr- Pennington. This Court should grant the writ to ensure that its approach to this recurring problem is applied by the lower courts. 21 B. The Lower Court’s Absolutist Treatment Of Partial Success Application of the Allied Tube approach would also put to rest an existing conflict among the Circuits over whether the objective reasonableness and/or success of a party’s position in litigation preclude a finding that the litigation is a sham. Prior to Allied Tube, several Circuits had ruled that reasonable or successful litigation cannot be a sham.'* In contrast, the Fifth Circuit had held that “suc- cess on the merits does not necessarily preclude an anti- trust plaintiff from proving that the defendants’ earlier litigation activities were sham,” ’*® and the Seventh Cir- cuit had ruled that litigation can constitute a sham un- protected by Noerr-Pennington “regardless of its out- come.” ° In ruling that KCS’s activities were protected “as a matter of law,” the court below invoked Eighth Circuit precedent involving “litigation [which] was successful and consequently deemed to preclude a finding of sham or unlawful intent.” *! The court relied upon its conclusion 18 See Columbia Pictures Indus. v. Redd Horne, Inc., 749 F.2d 154, 161 (3d Cir. 1984); Westmac, Inc. v. Smith, 797 F.2d at 318; Razorback Ready Mix Concrete Co. Vv. Weaver, 761 F.2d 484 (8th Cir. 1985); Federal Prescription Serv., Inc. v. American Pharma- ceutical Ass’n, 663 F.2d 253, 266 (D.C. Cir. 1981), cert. denied, 455 U.S. 928 (1982). 19 Jy re Burlington Northern, 822 F.2d 518, 528 (5th Cir. 1987), cert. denied, 484 U.S. 1007 (1988). The dissent argued that a suc- cessful lawsuit cannot under any circumstances constitute a sham. 822 F.2d at 534. 20 Grip-Pak, Inc. v. Illinois Tool Works, Inc., 694 F.2d 466, 472 (7th Cir. 1982), cert. denied, 461 U.S. 958 (1983). 21 App. 29a-30a (emphasis added), citing Razorback Ready Miz Concrete Co. v. Weaver, 761 F.2d at 487. The Seventh Circuit has expressly noted that the Eighth Circuit view “appears to be * * * contrary” to its own on this point. Grip-Pak, 694 F.2d at 473, citing Alexander v. National Farmers Org., 687 F.2d 1178, 1200 (8th 22 that “there was a reasonable basis for the action” in Andrews in immunizing all of KCS’s activities from in- quiry. App. 3la. The Fifth Circuit, on the other hand, considered the same claim on the same facts in In re Burlington Northern, another case arising out of the efforts of the various railroads, including KCS, to block the ETSI pipeline project. Since the Fifth Circuit does not accord the same weight to success on the merits or objective reasonableness in applying the sham exception as does the Eighth Circuit, it held—contrary to the court below—that the railroads’ Andrews activity was not im- mune as a matter of law under Noerr-Pennington, but could be examined to see if it fell within the sham excep- taion. 822 F.2d at 528. The conflict is thus not merely of academic interest; it affects real-world litigation to the extent that identical conduct leads to different results in different Circuits. This conflict should have been resolved by Allied Tube. Since an actual desire for relief alone can no longer be viewed as sufficient for immunity, actual success can like- wise no longer confer talismanic protection from applica- tion of the sham exception. Such success or the objective reasonableness of the claim may or may not reflect the presence of a genuine desire for relief, but such a genuine desire no longer suffices to immunize the litigation ac- tivity. By failing to follow Allied Tube, the court below kept alive and exacerbated a persistent conflict among the Circuits. The Eighth Circuit’s approach was particularly objec- tionable in this case, however, because it immunized KCS’s entire course of conduct on the basis of one “suc- cessful’ piece of litigation. The court itself stated that “one-third of [KCS’s] administrative actions * * * were Cir. 1982). See also Areeda & Hovenkamp, Antitrust Law % 203.1 at 19 (1988 Supp.) (noting conflict between Sixth Circuit Westmac and Seventh Circuit Grip-Pak opinions). li lle et A ae Sg etn el ce al SS ee ee eee ee =< Oe ee 23 \ directly related to the Andrews litigation,” App. 25a, meaning that fully two-thirds were not. The court none- theless devoted its analysis to the one-third, ignored the other two-thirds, further ignored the 19 unsuccessful claims in Andrews, found that the Andrews litigation was not a sham, and then overturned a jury verdict which was based on all the evidence. The Eighth Circuit’s ap- proach is thus not only flawed as a matter of logic, but also is in sharp conflict with this Court’s decisions and those of other Circuits. The clearest conflict is with California Motor, the first decision holding that sham litigation was not protected by Noerr-Pennington. In California Motor, the Court held that the sham exception applied to a course of repeti- tive suits brought “with or without probable cause.” 404 U.S. at 512 (emphasis added). This Court ruled that Noerr-Pennington did not immunize the defendants’ con- duct even though the defendants had prevailed in 21 of the 40 suits alleged to be sham.” The Court did not rule that only the unsuccessful litigation was actionable, and certainly not that the successful litigation somehow “im- munized” that which was not. The Eighth Circuit’s approach also conflicts with the holdings of other Circuits that otherwise-protected litiga- tion which is part of an overall anticompetitive scheme is not entitled to Noerr-Pennington immunity. As the Ninth Circuit held in a leading case: When * * * the petitioning activity is but a part of a larger overall scheme to restrain trade, there is no overall immunity. * * * The defendants’ actions do not enjoy immunity, even though a part of the ac- tions may have involved protected first amendment petitioning. The reach of the Noerr-Pennington doc- trine is not that extensive, and the antitrust laws are not that impotent. [Clipper Exxpress v. Rocky Mountain Motor Tariff Bureau, Inc., 690 F.2d 1240, 22 See n.15 supra. 24 1263, 1265 (9th Cir. 1982), cert. denied, 459 USS. 1227 (1983) .] See also Kobe, Inc. v. Dempsey Pump Co., 198 F.2d 416 (10th Cir.), cert. denied, 344 U.S. 837 (1952); Rex Chainbelt, Inc. v. Harco Prods., Inc., 512 F.2d 993 (9th Cir.), cert. denied, 423 U.S. 831 (1975). But see In re Burlington Northern, 822 F.2d at 526. The court below, in contrast, concluded that because “a part of [KCS’s] actions” were protected (i.e., the one-third involving Andrews), KCS was entitled to “overall immunity.” C. The Conflict And Confusion Surrounding The Sham Exception Is Persistent And Recurring Not surprisingly, the Circuits are in disarray over the scope of the sham exception to the Noerr-Pennington doc- trine. As the Seventh Circuit has noted, “[t]he Noerr and Pennington cases themselves provide little definition of what a ‘sham’ may be other than to indicate immunity for ‘genuine efforts’ and ‘good faith’ attempts to influence governmental bodies.” MCI Communications Corp. V. AT&T, 708 F.2d 1081, 1155 (7th Cir.), cert. denied, 464 U.S. 891 (1983). Indeed, there is a persistent chorus from the various Courts of Appeals themselves seeking guidance on what constitutes sham activity. See, e.g., Coasial States Mktg., Inc. v. Hunt, 694 F.2d at 1371 (“The Supreme Court has never defined with precision the standard for determining when litigation is a sham”); Video Int’l Production, Inc. Vv. Warner-Amex Cable Communications, Inc., 858 F.2d 1075, 1082 (5th Cir. 1988), cert. denied, 109 S. Ct. 3189 (1989) (a “sub- stantial amount of confusion” exists over exceptions to Noerr-Pennington) ; Litton Systems, Inc. v. AT&T, 700 F.2d 785, 813 (2d Cir. 1983), cert. denied, 464 U.S. 1073 (1984) (“the contours of the sham exception are far from clear; the courts have themselves had difficulty de- fining the doctrine”); Westmac, Inc. v. Smith, 797 F.2d at 320 (“the federal courts have struggled to give spe- cific meaning to the Noerr-Pennington doctrine’s sham exception. We need a definition of the sham exception ovate 25 that is clear and analytically sound as well as functional”) (Merritt, J., dissenting). Commentators agree that application of the exception “has been plagued by considerable confusion.” ** As two authors noted recently, “[w]hat is and what is not a sham is the Hamlet-like question that has perplexed the lower courts in the two decades since the Supreme Court * * * enunciated the Noerr doctrine.” ** Another con- cluded that there is “fundamental disagreement over the test by which to identify sham petitioning.” * This confusion is particularly troubling because issues surrounding the sham exception to the Noerr-Pennington doctrine arise with considerable frequency,** and often, as here, in the context of major, large-scale litigation. The Noerr-Pennington doctrine and the corollary sham exception are applicable in a wide variety of contexts, including tortious interference,” antitrust,** civil rights,” 23 Fischel, Antitrust Liability for Attempts to Influence Govern- ment Action: The Basis and Limits of the Noerr-Pennington Doc- trine, 45 U. Chi. L. Rev. 80, 104 (1977). 24 Handler & De Sevo, The Noerr Doctrine and Its Sham Excep- tion, 6 Cardozo L. Rev. 1, 1 (1984). 25 Calkins, Developments in Antitrust and the First Amendment: The Disaggregation of Noerr, 57 Antitrust L. J. 327, 332 (1988). See also Sullivan, Developments in the Noerr Doctrine, 56 Anti- trust L. J. 361, 361 (1987) (Supreme Court cases in area “leave open some broad, general questions”) ; Note, The Misapplication of the Noerr-Pennington Doctrine in Non-Antitrust Right to Petition Cases, 36 Stan. L. Rev. 1243, 1253 (1984) (“judicial construction of the sham exception has been inconsistent’). 26 See Handler & De Sevo, supra at 14, 26 (“In recent years, there has been an explosion of case law involving claims brought under the Noerr doctrine’ with a “dramatic increase ir reliance upon the sham exception’’). 27 See App. 22a-23a & n.24. 28 See, e.g., Allied Tube & Conduit Corp. v. Indian Head, Inc., 108 S. Ct. at 1936-42. 20 See, e.g., Gorman Towers, Inc. Vv. Bogoslavsky, 626 F.2d 607 (8th Cir. 1980); Weiss v. Willow Tree Civic Ass’n, 467 F. Supp. 803, 807 (S.D.N.Y. 1979). 26 . libel,*° and unfair labor claims.*' Both the Noerr- Pennington doctrine itself and the sham exception to it are judicially created doctrines, so only this Court can provide the uniform interpretation which is so clearly lacking. Ill. THE COURT BELOW VIOLATED THE SEVENTH AMENDMENT IN OVERTURNING THE JURY’S FACTUAL FINDINGS THAT SHAM PETITIONING CAUSED THE INJURY TO THE STATE The Seventh Amendment restricts appellate review of a jury’s determination of factual questions. This Court has repeatedly asserted that “it would be an undue in- vasion of the jury’s historic function for an appellate court to weigh the conflicting evidence, judge the credibil- ity of witnesses and arrive at a conclusion opposite from the one reached by the jury.” ** Only when there is a “complete absence of probative facts to support the con- clusion” ** may an appellate court overturn a jury’s findings. The Eighth Circuit below contravened these basic prin- ciples and invaded the province of the jury in at least two significant respects. First, it focused exclusively on KCS’s role in the Andrews litigation in considering KCS’s liability. The jury, however, heard evidence on a broad range of petitioning activity by KCS apart from the Andrews litigation, including the so-called “window liti- gation”, proceedings in connection with the EIS and hearings relating to federal, state and local permits. 3° See, e.g., Webb v. Fury, 282 S.E.2d 28, 36-37 (W. Va. 1981). 3! See, e.g., Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731, 741 (1983). 382 Lavender v. Kurn, 827 U.S. 645, 652-653 (1946). Accord Gallick v. Baltimore & Ohio R.R., 8372 U.S. 108, 116 (1968); Tennant Vv. Peoria & Pekin Union Ry. Co., 321 U.S. 29, 35 (1944). 33 Lavender, 327 U.S. at 653 (emphasis added). 27 Originally, the Court of Appeals sought to justify over- turning the jury’s findings as to the tort claim on the ground that “|(tjhe trial court’s blanket instruction to the jury * * * submitted the question of improper inter- ference without attempting to distinguish between the alleged interference occurring before and after the date of the contract.” App. 25a, n.27. The jury, however, was expressly instructed that it “may only consider evidence as to the defendant’s conduct that occurred after defend- ants had knowledge of the contract between plaintiffs and ETSI” (Jury Instruction 32), and unanimously answered “Yes” to the question whether “the defendant’s actions taken after the defendant knew of the existence of the contract * * * were a proximate cause of the termination of that contract.” App. 66a-67a (Special Verdict 11). In denying rehearing, the court amended its opinion to acknowledge that “the trial court instructed the jury * * * to consider only evidence in the tortious interfer- ence claim that occurred after KCS’s knowledge of the contract.” App. 36a. The court nonetheless persisted in restricting its analysis of sham petitioning to the An- drews litigation, stating ipse dixit that “the post-contract activity predominantly involved Andrews litigation and the opposition by the other states * * *.” App. 37a (em- phasis added). Second, even if KCS’s post-contract activity “predomi- nantly” involved the Andrews case, the lower court erred because the properly-instructed jury had sufficient evi- dence before it to conclude that KCS’s other activities contributed to the harm to South Dakota. The court below acknowledged that the legitimacy of those other activities was “subject to debate.” App. 24a. With respect to “the period in which the contract was in effect,” the court noted that “roughly one-third of the administrative pro- ceedings mentioned above were directly related to the Andrews litigation.” App. 25a. As stated earlier, this means that two-thirds were not, and yet the court simply dismissed that two-thirds as “de minimus.” (sic) App. 28 37a. The question of the weight to accord such ex- tensive proceedings was for the jury, and the court vio- lated the Seventh Amendment in overturning the jury’s verdict. The same is true with respect to the question whether KCS’s activities in connection with Andrews were sham. Other Circuits recognize that whether litigation activity is a “sham” under Noerr-Pennington is a question of fact for the jury.** Indeed, the first case applying the sham exception, California Motor, ruled that the “factfinder” might conclude that the activities at issue in that case constituted a sham. 404 U.S. at 513. The jury here was expressly instructed at length on the Noerr-Pennington doctrine and the sham exception.” It was specifically told that KCS’s litigation activities were protected and could not form the basis for antitrust or tort liability if they were “brought for the true purpose of seeking the relief sought therein.” App. 7la (July In- struction 33). Pursuant to these instructions, the jury returned special verdicts finding that KCS’s actions after it knew of the contract between ETSI and the State were a proximate cause oi the termination of that contract. The court below, however, overturned the jury’s conclu- sions and held that KCS’s Andrews-related litigation ac- tivities, “as a matter of law,” were not sham and were protected by Noerr-Pennington. App. 3la. It did so with- out any discussion of the proper weight to accord the jury’s findings under the Seventh Amendment, without any recognition that the evidence must be viewed in the light most favorable to the State and that the State was entitled to all favorable inferences that might reasonably 3* See, e.g., Clipper Exxpress v. Rocky Mountain Motor Tariff Bureau, Inc., 690 F.2d at 12583 (“[w)hether something is a genuine effort to influence governmental action, or a mere sham, is a ques- tion of fact”) ; Affiliated Capital Corp. v. City of Houston, 735 F.2d 1555, 1567 (5th Cir. 1984) (“[w]hether or not such conduct is within the sham exception is a fact issue for the jury’’). 35 See App. 7la-72a, 29 be drawn from the evidence, and, indeed, without any recognition that the sham question was for the jury at all. The appellate court simply reviewed the massive rec- ord concerning KCS’s activities and motive and reached a conclusion contrary to that of the jury. Certainly where a jury has been properly instructed, as it was in this case, and its determination necessarily takes into account de- tailed evidence about a party’s motives and intent, a Court of Appeals should not be allowed to overturn the jury’s verdict as a matter of law because some small part of the underlying pattern of litigation turned out to be successful. CONCLUSION For the foregoing reasons, this Court should grant the writ and reverse the decision below. ne 30 Respectfully submitted, E. BARRETT PRETTYMAN, JR.* ROGER A. TELLINGHUISEN Attorney General HOGAN & HARTSON JEFFREY P. HALLEM 555 Thirteenth St., N.W. M. BRIDGET RYAN Washington, D.C. 20004 Assistant Attorneys General (202) 637-5685 State Capitol Counsel for Petitioners Pierre, SD 57501 (605) 773-8215 THOMAS J. WELK JAMES E. MCMAHON BoYcE, MURPHY, MCDOWELL & GREENFIELD Post Office Box 5015 Sioux Fal!s, SD 57117 (605) 336-2424 GLEN H. JOHNSON BANKS, JOHNSON, JOHNSON, COLBATH & HUFFMAN 3202 West Main Street Rapid City, SD 57702 (605) 348-7300 Of Counsel: DANIEL J. DOYLE 740 Pine Road Carlisle, PA 17013 (717) 486-4106 * Counsel of Record APPENDICES la APPENDIX A UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT No. 88-2158 STATE OF SOUTH DAKOTA; SOUTH DAKOTA CONSERVANCY DISTRICT, an Agency of the State of South Dakota, y, Appellee, KANSAS CITY SOUTHERN INDUSTRIES, INC., a Foreign Cor- poration; KANSAS CITY SOUTHERN RAILWAY COMPANY, a Foreign Corporation, Appellants. No. 88-5375 STATE OF SOUTH DAKOTA; SOUTH DAKOTA CONSERVANCY DISTRICT, an Agency of the State of South Dakota, v. Appellants, KANSAS CITY SOUTHERN INDUSTRIES, INC., a Foreign Cor- poration; KANSAS CITY SOUTHERN RAILWAY COMPANY, a Foreign Corporation, Appellees. No. 88-5422 STATE OF SOUTH DAKOTA; SOUTH DAKOTA CONSERVANCY DISTRICT, an Agency of the State of South Dakota, y, Appellant, KANSAS CITY SOUTHERN INDUSTRIES, INC., a Foreign Cor- poration; the KANSAS CiTy SOUTHERN RAJLWAY, INC., a Foreign Corporation, Appellees. 2a Appeals from the United States District Court for the District of South Dakota Submitted: December 13, 1988 Filed: June 29, 1989 Before LAY, Chief Judge, HEANEY* and FAGG, Cir- cuit Judges. LAY, Chief Judge. Kansas City Southern Industries and The Kansas City Southern Railway Company ' appeal a judgment in favor of the State of South Dakota and the South Dakota Con- servancy District,” of $600,000,000 which represents a treb- led jury verdict of $200,000.000 based on a federal anti- trust claim. KCS also appeals a verdict of $244,200,000 awarded to SD on a state law claim of tortious interfer- ence with a contractual relationship. KCS claims SD has no standing to assert a federal antitrust action and that any anti-competitive activity KCS may have committed is protected by the Noerr-Pennington doctrine. See infra note 23. KCS also asserts that the contract between SD and Energy Transportation Systems, Inc. (ETSI), cannot be the basis for recovery under either a antitrust or a tort theory because the contract was invalid. KC further *The HONORABLE GERALD W. HEANEY assumed senior status on December 31, 1988. 1 These parties will be jointly referred to hereafter as “KCS.” 2 The plaintiffs who brought this action were the State of South Dakota and its Conservancy District, and will be jointly referred to hereafter as “SD”, “the State”, or “the State of South Dakota.” 8a appeals other issues relating to the jury instructions, the statute of limitations, personal jurisdiction, venue, and the entry of judgment. The State of South Dakota cross- appeals the trial court’s exclusion of its claim for lost tax revenues, failure to properly secure the judgment, and refusal to instruct the jury on certain theories. We re- verse and dismiss the judgment on the antitrust claim for lack of standing. We further reverse and dismiss the judgment on the tortious interference claim for reasons set forth in our opinion. I. Background Energy Transportation Systems, Inc., was created dur- ing the early 1970’s for the purpose of constructing a pipeline through which coal could be transported from mining sites in north central states to utility companies in south central states. This project occurred in response to the energy crisis arising in the oil industry. ETSI, which was a joint venture composed of a number of large corporations,* intended to transport coal in “slurry” form. Coal slurry is a mixture of roughly half coal and half water. Consequently, large quantities of water were re- quired to operate the pipeline. ETSI initially proposed the Madison Formation Aquifer (Madison) as the source of water for the pipeline. The Madison is an enormous, mostly subterranean body of water which exists under several states including South Dakota and Wyoming. The State of South Dakota op- posed this proposal on the grounds that the pipeline’s use of Madison water would be detrimental to its environ- ment and would deplete the water supply of residents in the western part of the state. ETSI nonetheless sought 3The ETSI Pipeline Project was a joint venture created as a partnership under the laws of Delaware by and among Arcoal Transportation, Inc., Bechtel Petroleum, Inc., Lehman Realty Cor- poration, Slurco Corporation, and Texas Eastern Slurry Transport Company. KCS app. at 707. 4a and received Madison water permits from Wyoming au- thorities. The ETSI pipeline project also faced opposition from the railroad industry which opposed the construction of coal slurry pipelines generally. During the mid-1970’s to the end of 1981, this opposition manifested itself in the railroads’ refusal to grant ETSI permission to cross un- der existing railroad tracks. Crossing rights were funda- mental to the construction of the pipeline since there was no way to build around the railroads. ETSI was even- tually forced to litigate for the right to cross under the tracks. After determining that the railroads’ right-of-way interests stemmed from easements rather than from own- ership in fee, ETSI purchased crossing rights from the abutting fee owners. ETSI then filed quiet title actions against the railroads. In defending these cases, the rail- roads pursued full exhaustion of their appellate remedies.* However, their efforts were to no avail. From the middle of 1976 to the end of 1981, ETSI prevailed in all of the more tnan sixty quiet title actions. Well into this period of “window litigation,”* in the late 1970’s, KCS and the other railroads determined that they would also oppose the ETSI pipeline project in the administrative forum. In order to construct the pipeline, ETSI was required to obtain a great number of permits and approvals from local, state, and federal agencies. 4A prime example of this tactic occurred in Oklahoma where KCS’ rights-of-way existed through easements. Oklahoma law clearly disfavored KCS’ position in resisting the quiet title actions. KCS nonetheless pursued the appeals of these cases in the spirit of its professed objective: “delay every way we can [ETSI’s] ob- taining permits or grants for construction of their lines * * *.” KCS app. at 645. 5 This phrase was coined to describe “gaps” in land ownership “where the railroads did not own their rights-of-way in fee but held instead only an easement interest.” SD brief at 4. See also In re Burlington Northern, Inc., 822 F.2d 518, 521 (5th Cir. 1987). et aaa 5a The railroads focused their collective efforts in opposing the pipeline project in proceedings in which ETSI sought the various permits and approvals necessary for construc- tion. Although they were participants in scores of ad- ministrative proceedings, the railroads’ efforts were uni- formly unsuccessful. KCS’ most significant opposition related to the submission by ETSI of its Environmental Impact Statement (EIS). The railroads focused much of their resources toward criticism of this EIS with the intention of making the “environmental evaluation as difficult as possible * * * [and h]opefully, the State Agen- cies (with suggestions from Railroad people) could bog down the study with numerous statistical studies which we would hope to show would have an adverse effect on labor, local communities, and perhaps on other indus- tries.” SD supp. app. at 1001-02 (letter from W.A. Thie to Ed. Dudley, General Counsel, Oklahoma Railways Com- mittee (June 13, 1979)). The State of South Dakota also opposed ETSI in the EIS proceedings, labeling the project “inadequate and almost cavalier in its attitude and treat- ment of impacts to South Dakota” and advising the De- partment of the Interior (Interior) to order the redraft and recirculation of ETSI’s proposed EIS. KCS app. at 540. South Dakota Governor William Janklow joined with the Governors of the States of Wyoming, Montana, and Nebraska to petition the Secretary of the Interior to delay the decision on ETSI. KCS app. at 790. Despite this opposition, the EIS process was completed in the early 1980's. As previously stated, before late 1981 South Dakota also participated in opposition to the pipeline proposal in the administrative forum. This opposition was inspired by SD’s concern that ETSI would use Madison water for the pipeline and thereby deprive residents of western South Dakota of their prime water source. For a long time, South Dakota had also opposed the use of water from the Oahe Reservoir. The Oahe Reservoir is a large body of water located in central South Dakota along the 6a Missouri River. In 1975, Janklow, then SD’s Attorney General, had officially concluded that South Dakota lacked authority to transfer or assign Oahe water rights. KCS app. at 774-786. Subsequently, a proposed sale of Oahe water by South Dakota was vetoed in 1977 by then- Governor Richard Kneip. KCS app. at 787-89. South Dakota officials formally dropped their opposi- tion on December 23, 1981, when the South Dakota Con- servancy District (SDCD) executed an agreement with the ETSI Pipeline Project (SDCD/ETSI contract) in which ETSI agreed to use water from the Oahe Reservoir rather than from the Madison Formation. The SDCD/ ETSI contract provided that the SDCD would issue ETSI a permit to draw 50,000 acre-feet of Oahe water per year. SDCD did obtain such a permit with the aid of the legislature and subsequently transferred this permit to ETSI in February of 1982. In exchange for this permit, ETSI agreed to make payments to SDCD in the following manner: $2,000,000 upon the issuance of the permit; $2,000,000 if SDCD’s authority to issue such a permit was unchallenged or, if challenged, was affirmed by the state’s courts; $3,000,000 on the anniversary of the is- suance of the permit and every anniversary thereon until construction of the pipeline was commenced; $9,000,000 upon commencement of construction; and every year thereafter, for fifty years, payments based on an amount adjusted according to the Fixed-Weighted Price Index for the Gross National Product.* Additionally, * The payments were to be made in accordance with the following formula: A = 0.5 B(1 + (C/D)) where A = amount of payment, provided that no payment shall ever be less than the immediately preceding payment. B = Nine Million Dollars ($9,000,000) for the second payment under this Paragraph A.4., and thereafter the immediately preceding payment under this Paragraph A.4. C = the Fixed-Weighted Price Index for the Gross Na- tional Product for the latest available calendar year at Ja ETSI agreed to pay SDCD $1,500,000 if the West River Aqueduct, which was the pipeline that would carry Oahe water from central South Dakota to Wyoming, was not constructed on or before July 1, 1984. As part of the agreement, residents of western South Dakota would be allowed to tap water for their own consumption from the West River Aqueduct. ETSI retained the right to cancel this contract on thirty days notice where there was pending litigation or if it intended to abandon the pipe- line project, and on sixty days notice if it intended to secure an alternative water source. If ETSI did not in- voke its cancellation rights, this contract had a potential term of fifty years following completion of the pipeline. On July 2, 1982, the ETSI Pipeline Project and the Department of the Interior, through the Bureau of Rec- lamation (BOR), executed a contract which authorized ETSI to withdraw at least 20,000 acre-feet of water an- nually from the Oahe Reservoir (BOR/ETSI contract). The States of Iowa, Missouri, and Nebraska, as well as KCS and several additional interested parties, filed an action to enjoin the contract and sought a declaration that Interior officials violated several federal statutes by their execution of the ETSI contract. The United States District Court for the District of Nebraska permanently enjoned the BOR/ETSI contract on the ground that In- terior was not empowered to furnish Oahe water for in- dustrial use. Missouri v. Andrews, 586 F. Supp. 1268, 1281 (D. Neb. 1984). In reaching its conclusion, the court interpreted the Flood Control Act of 1944, 33 U.S.C. $§ 701-709b (1982 & Supp. 1986), to mean that the Army the time of payment for which the Index has been pub- lished in the “Survey of Current Business” (or successor publication). D = the Fixed-Weighted Price Index for the Gross Na- tional Product for the calendar year immediately preceding the calendar year applicable to “C”, above. KCS app. at 663. 8a Corps of Engineers (Corps) was to build, operate, and control main stem reservoirs while the Department of the Interior, through the Bureau of Reclamation, was to build, operate, and control the irrigation works attached to those reservoirs. Andrews, 586 F. Supp. at 1277. With respect to the Oahe Reservoir, the district court found no evidence that demonstrated specific storage space assigned to irrigation, much less any authority granted to Interior to use or assign Oahe water for a nonirrigation purpose such as industrial projects. Jd. This court affirmed the district court’s decision. Missouri v. Andrews, 787 F.2d 270, 287 (8th Cir. 1986). Ultimately, Andrews was af- firmed by the United States Supreme Court. ETSI Pipe- line Project v. Missouri, 484 U.S. 495 (1988). The Court expressly noted, however, that it did not pass on “the relative interests of the United States and South Dakota in Lake Oahe water.” Jd. at 808 n.2. Soon after the district court permanently enjoined the BOR/ETSI contract in May of 1984, South Dakota re- fused a request by ETSI to postpone contract payments. On July 31, 1984, ETSI, describing the opposition by the railroads as insurmountable, announced its decision to terminate the pipeline project and exercised its unilateral power to cancel its at-will contract with SDCD. Later that year, ETSI attempted to renegotiate an agreement but again South Dakota refused. On May 28, 1985, South Dakota filed an amended complaint * against KCS in fed- * The original complaint had been filed on March 16, 1988. On January 9, 1984, KCS moved to dismiss the original complaint for lack of standing. This motion was granted in part and denied in part on July 26, 1984. See infra note 18. Those plaintiffs who served in a capacity as parens patriae were dismissed. The dis- trict court, the Honorable Andrew W. Bogue presiding, held that: The State is not in the coal transportation business, and the Court sees no argument relating to harm to the State which would result from lack of competition in coal transportation. That claim belongs to ETSI. ETSI is not a party to this action. Therefore, the State’s claim to anti-trust damages hinges on 9a eral district court asserting federal antitrust violations of sections 1 * and 2° of the Sherman Act and a pendant (sic) state claim of tortious interference with a contractual relationship. Motions to dismiss for lack of personal juris- diction, improper venue," and lack of standing filed by its demand for damages resulting from Defendants’ alleged unlawful interference with the contract for sale of water. Janklow v. Kansas City Southern Indus., Inc., No, 83-5046, slip op. at 15 (D.S.D. July 26, 1984) (emphasis added). $15 U.S.C. § 1 (1982). ®15 U.S.C. §2 (1982). South Dakota also asserted state anti- trust violations of S.D. Codified Laws Ann. §§ 37-1-3.1 et seq. This claim, however, was not submitted to the jury. In originally deciding these issues, the district court inter- preted 15 U.S.C. § 22 (1982) to permit both personal jurisdiction and venue in this case. Jank’ow v. Kansas City Southern Indus., Inc., No. 83-5046, slip op. at 5 (D.S.D. Sept. 1, 1983) (Bogue, J.). Section 22 states: Any suit, action, or proceeding under the antitrust laws against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business; and all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found. The district court stated that “[slince Congress provided for nationwide service of process over both Defendants, it intended that the Court would have the authority to enforce a judgment over those same defendants. Accordingly, the Court holds that it does have personal jurisdiction over both Defendants.” Janklow, No. 83-5046, slip op. at 8. However, the application of section 22’s “provision for extra-territorial service must in every case satisfy constitutional due process principles. Satisfaction of the requisite due process standards are [sic] tested by the familiar ‘minimum contacts’ analysis of /nternational Shoe and its progeny.” Reynolds Metals Co. v. Columbia Gas Sys., Inc., 694 F. Supp. 1248, 1250 (E.D. Va. 1988) (original emphasis). The district court provided a detailed consideration of KCS’ contacts with South Dakota in its determination of the venue issue. These contacts included the fact that KCS had injected itself, either directly or indirectly, into a number of state administrative proceedings, that at least three KCS employees are regularly dispatched to make a 10a KCS were all denied by the district court. On April 8, 1988, following a ten week trial, the jury awarded the State of South Dakota $200,000,000 on the federal anti- trust claim, which the court trebled, and $244,200,000 on the state Jaw tortious interference with a contractual re- lationship claim. II. Antitrust Standing The district court found that the State of South Dakota had standing to sue KCS. [T]he harm to [South Dakota] was clearly foresee- able, and indeed is a necessary step in effecting the ends of the alleged conspiracy. Under the holding of [Blue Shield of Virginia v.] McCready [,457 U.S. 465 (1982),] such an integral aspect of the alleged conspiracy is unquestionably the sort of direct injury whicn the antitrust laws were intended to redress. Janklow v. Kansas City Southern Indus., Inc., No. 83- 5046, slip op. at 7 (D.S.D. Mar. 6, 1986). We respect- fully disagree with the district court’s conclusion that the State of South Dakota has standing to raise federal anti- trust claims in this case. In Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982), a subscriber brought an action under section 1 of the Sherman Act attacking the practice of a group health plan which denied reimbursement for psychother- sales calls in South Dakota, that as the result of its operation as a common carrier KCS received approximately $309,000 in revenue from shipments originating from or terminating in South Dakota in 1982, and that KCS has provided 28 of its locomotives to Bur- lington Northern for its regular use in South Dakota. Janklow, No. 83-5046, slip op. at II-T2. We believe that these contacts are sufficient to support the district court’s finding of personal juris- diction and venue in this case. 11The Honorable John B. Jones, United States District Judge for the District of South Dakota. lla apy performed by psychologists but permitted reimburse- ment for comparable treatment when rendered by psy- chiatrists. The Court held that the proper analysis re- quired examination of (1) “the physical and economic nexus between the alleged violation and the harm to the plaintiff’ and, more particularly, (2) “the relationship of the injury alleged with those forms of injury about which Congress was likely to have been concerned in making defendant’s conduct unlawful and in providing a private remedy under § 4.” Jd. at 478. In applying the first criterion, the Court found that McCready’s injury was neither “fortuitous” nor “incidental.” Jd. The harm was “clearly foreseeable; indeed, it was a necessary step in effecting the ends of the alleged illegal conspiracy.” Jd. at 479. The Court further found that, as a consumer of psychotherapy services entitled to reimbursement under the greup health plan, “McCready was within that area of the economy . . . endangered by [that] breakdown of competitive conditions’ * * *.” Jd. at 480-81 (quoting In re Multidistrict Vehicle Air Pollution M.D.L. No. $1, 481 F.2d 122, 129 (9th Cir. 1973)). Turning to the second and more significant criterion, the Court found that as a result of an anticompetitive scheme, McCready, although not a competitor, suffered injuries that were “in- extricably intertwined with the injury the conspirators sought to inflict” on the market. Jd. at 484." 12 Blue Shield argued that McCready could not have standing by virtue of Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977), because her injury “ ‘did not reflect the anticompetitive effect’”’ of the alleged violation. McCready, 457 U.S. at 482. The Court did not accept this interpretation: Brunswick is not so Jimiting. Indeed, as we made clear in a footnote to the relied-upon passage, a §4 plaintiff need not “prove an actual lessening of competition in order to recover. [Clompetitors may be able to prove antitrust injury before they actually are driven from the market and competition is thereby lessened.” Id. (quoting Brunswick, 429 U.S, at 489 n.14). 12a One year after McCready was decided, in Associated General Contractors of Calif., Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983), the Supreme Court again addressed the topic of standing when a num- ber of labor unions alleged that a multiemployer associa- tion coerced its members and certain third parties to do business with nonunion firms. While noting the difficulty in clearly stating standards for determining standing and comparing the level of difficulty of such a task to the articulation of a standard that adequately contains the concept of proximate cause,’* the Court discussed several factors relevant to determining whether a party has standing to raise federal antitrust claims: (1) the causal connection between the alleged antitrust violation and the harm to the plaintiff; (2) the existence of an improper motive; (3) whether the injury was of a type that Con- gress sought to redress with the antitrust laws; (4) the directness of the connection between the injury and the alleged restraint in the relevant market; (5) the specula- tive nature of the damages; and (6) the risk of duplica- tive recoveries or complex apportionment of damages. Id. at 537-545. With regard to the first Associated General factor, it can be argued that South Dakota’s injuries were in some 13 The Court observed that: There is a similarity between the struggle of common-law judges to articulate a precise definition of the concept of “proxi- mate cause,” and the struggle of federal judges to articulate a precise test to determine whether a party injured by an antitrust violation may recover treble damages. It is common ground that the judicial remedy cannot encompass every con- ceivable harm that can be traced to alleged wrongdoing. In both situations the infinite variety of claims that may arise make it virtually impossible to announce a black-letter rule that will dictate the result of every case. Instead, previously decided cases identify factors that circumscribe and guide the exercise of judgment in deciding whether the law affords a remedy in specific circumstances. Associated General, 459 U.S. at 535-37 (footnotes omitted). tecnica ag 13a way causally connected to KCS’ allegedly anticompetitive conduct. However, as the Supreme Court has observed, the determination of whether there is antitrust standing is similar to the determination of whether there is proxi- mate cause. Associated General, 459 U.S. at 535-37; McCready, 457 U.S. at 477. “[A] mere causal connection between an antitrust violation and harm to a plaintiff cannot be the basis for antitrust compensation unless the injury is directly related to the harm the antitrust laws were designed to protect.” McDonald v. Johnson & John- son, 722 F.2d 1370, 1374 (8th Cir. 1983) (citing Bruns- wick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977) ). Furthermore, for the purposes of our analysis, we grant the assumption that KCS’ activities were im- properly motivated.’* Alberta Gas Chems. Ltd. v. E.lI. Du Pont de Nemours & Co., 826 F.2d 1235, 1241 (3d Cir. 1987); McDonald, 722 F.2d at 1374. This enables us to address the factor which both McCready and Asso- ciated General seem to consider paramount: whether SD’s injuries were of a type that Congress sought to redress with the antitrust laws. Without a doubt ETSI, as a competitor in the coal transportation market, and the participating utilities in the south central states, as consumers of that coal, have standing to raise antitrust claims against KCS. See Pinney Dock & Transp. Co. v. Penn Central Corp., 838 F.2d 1445, 1464 (6th Cir. 1988) (Associated General factors include existence of more direct victims) ; Adams v. Pan American World Airways, Inc., 828 F.2d 24, 29-30 _ (D.C. Cir. 1987) (existence of superior plaintiffs who have reached settlements sufficiently viiidicate public in- terest). These parties were obviously participants in the coal transportation market and have been the most directly 14 We, however, express the caveat that “an allegation of im- proper motive * * * is not a panacea that will enable any complaint to withstand a motion to dismiss.” Associated General, 459 U.S. at 537 (footnotes omitted). l4a affected by KCS’ actions.** South Dakota claims that, although it was not a consumer or a competitor,’® it too was a participant in the relevant market. Essentially, SD maintains that it was constructively a member of the ETSI joint venture because it played a vital role in pro- curing a source of water for the pipeline. KCS, of course, claims that SD was at best a supplier existing completely outside the coal transportation market. Resolution of this 15 These parties have in fact brought suit. Thus KCS’ alleged anticompetitive activity has been attacked by market participants. ETSI and a number of the utilities have brought suit against the railroads in the United States District Court for the Eastern District of Texas. ETSI Pipeline Project v. Burlington Northern, Inc., No. B-84-979CA. KCS has since reached a settlement with the plaintiffs and has been released as a defendant in that case. 16 The antitrust laws “were enacted for ‘the protection of com- petition, not competitors.’” Brunswick, 429 U.S. at 488 (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962) (original emphasis) ). This does not mean that the statute confines its protection solely to consumers, competitois, buyers, and sellers. McCready, 457 U.S. at 472 (quoting Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S. 219, 236 (1948)). See also Southaven Land Co. v. Malone & Hyde, Inc., 715 F.2d 1079, 1086 (6th Cir. 1983) (finding that plaintiff is not direct participant in relevant market not dispositive of section 4 standing issue). But see General Indus. Corp. v. The Hartz Mountain Corp., 810 F.2d 795, 809 (8th Cir. 1987) (citing Associated General, 459 U.S. at 539). Standing determinations must be made on a case by case basis. Pocahontas Supreme Coal Co. v. Bethiehem Steel Corp., 828 F.2d 211, 219 (4th Cir. 1987); Los Angeles Memorial Coliseum Comm’n v. National Football League, 791 F.2d 1356, 1363 (9th Cir. 1986); Crimpers Promotions, Inc. v. Home Box Office, Inc., 724 F.2d 290, 293 (2d Cir. 1983). Nevertheless, the fact that a party is not a participant in the relevant market must be weighed heavily against a grant of standing. Lucas v. Bechtel Corp., 800 F.2d 839, 844 (9th Cir. 1986). See also Feeney v. Chamberlain Mfg. Corp., 831 F.2d 93, 96 (5th Cir. 1987); Eagle v. Star-Kist Foods, Inc., 812 F.2d 538, 540 (9th Cir. 1987). 15a dispute requires a close examination of the State of South Dakota’s involvement in the ETSI pipeline project. During the early stages of the project, the State of South Dakota had vigorously opposed the pipeline project because the proposed use of Madison water threatened to deprive residents of western South Dakota of their water source. Furthermore, until 1981, SD even opposed use of Oahe water in the coal slurry pipeline. In late 1981, however, the State of South Dakota and ETSI entered into negotiations in which the State proposed to assign its rights in Oahe water in exchange for an annual fee and the distribution of a portion of that water from the West River Aqueduct. ETSI officials faced the following choice: confront South Dakota’s continuing opposition by using Madison water for which Wyoming had already granted permits or enjoy South Dakota’s cooperation and assist- ance by using Oahe water. Eventually, ETSI decided to use Oahe water. In order to facilitate this decision, the South Dakota legislature enacted a statute authorizing the South Dakota Conserv- ancy District to market water for energy industry use. 1981 $.D. Laws HB 1002 (amendments to S.D. Codified Laws §§ 46-1 et seg.). On December 23, 1981, the SDCD entered into an agreement with ETSI to assign a water right to energy industry use. In the SDCD/ETSI con- tract, SDCD accepted responsibility “for securing the is- suance of the Oahe Permit from the [South Dakota] Wa- ter Management Board.” KCS app. at 657. The SDCD/ ETSI contract placed responsibility for obtaining federal permission to use Oahe water on ETSI. SDCD, however, agreed to “assist and cooperate with ETSI in securing such permission.” Jd. at 669. As the district court had earlier ruled, South Dakota was not an actual participant in the coal transportation market. See supra n.7. We find that, for purposes of the 16a alleged antitrust injury, the State did nothing more than make an assignment of its rights in Oahe water." Tradi- tionally, suppliers of competitors in the relevant market have been denied standing because any alleged injury is considered derivative of the harm sustained by the com- petitor. L. Sullivan, Handbook of the Law of Antitrust § 247, at 773 & n.11 (1977). Because the antitrust laws were intended to protect competition, standing has been generally limited to the actual participants in the relevant market: competitors and consumers. Suppliers are al- lowed standing only if they were directly involved in the market. Compare Volasco Prods. Co. v. Lloyd A. Fry Roofing Co., 308 F.2d 383, 393-95 (6th Cir. 1962) (sup- plier of raw materials to asphalt manufacturer denied standing) with South Carolina Council of Milk Producers, Inc. v. Newton, 360 F.2d 414, 418 (4th Cir. 1966) (stand- ing granted to milk producers who provided essentially the same commodity as homogenized milk eventually sold in market) and Karseal Corp. v. Richfield Oil Corp., 221 F.2d 358, 362-65 (9th Cir. 1955) (manufacturers of fin- ished product as it eventually entered market through distributors deemed to have standing). See also 2 P. Areeda & D. Turner, Antitrust Law 8&§ 340a-340b (1978) ; L. Sullivan, supra § 247. SD’s interest in the success of the coal slurry pipeline was limited to the receipt of annual payments from ETSI in exchange for the assignment of its rights to draw water 17KCS and the State of South Dakota have engaged in ex- tensive debates over whether SD was even a “supplier,” i.e., whether the State had any legal interest in the water it pur- ported to sell or assign, or if the Corps of Engineers had exclusive authority to make such an assignment. See infra discussion at note 28. We decide the standing issue on the antitrust claim with- out reaching this issue. We simply assume for the purposes of our discussion on standing that SD did have Oahe water rights to assign to ETSI. 17a from the Oahe Reservoir.’* At the time of cancellation, SD had already received over $5,000,000 under the terms of the contract. However, as significant as the continu- ance of the payments was, this contractual relationship does not mirror the type of interest a participant has in maintaining competition in the coal transportation mar- ket. The State of South Dakota’s interest is most directly tied to decisions made by the ETSI pipeline project au- thorities and, although the fate of the at-will contract that existed between ETSI and SD may have been influ- enced indirectly by activities in the coal transportation market, the State’s interest does not constitute the in- terest of a competitor in the coal transportation market. Similarly, as the case law makes clear, SD’s role as a supplier does not create such a symbiotic relationship with ETSI that its situation is “inextricably intertwined with the injury” to the relevant market. McCready, 457 U.S. at 484. The State’s role in providing opposition against ETSI prior to December, 1981, does not reflect the actions of a partner in the coal slurry pipeline proj- ect. Furthermore, supplying water for the slurry pipe- line does not place SD in the coal transportation market. The State of South Dakota’s cross-appeal alleges that it was a participant in the “water rights market for coal slurry pipelines.” The existence or nonexistence of 18 When this lawsuit was originally filed, motions were heard by the Honorable Andrew W. Bogue, then Chief Judge, United States District Court for the District of South Dakota. Judge Bogue found that state officials had no standing to bring a parens patriae suit on behalf of the citizens of South Dakota who had been de- prived of a potential source of potable water from the proposed West River Aqueduct. Such an injury was deemed too remote from the alleged anticompetitive activities. Janklow v. Kansas City Southern Indus., Inc., No. 83-5046, slip op. at 14 (D.S.D. July 26, 1984). Thus, the sole injury alleged by SD was the loss of revenue that it would have received but for the cancellation of the SDCD/ ETSI contract. Jd. at 15. 18a a water rights market for coal slurry pipelines does not change the fact that the State was not a participant in the coal transportation market. However, even assuming that SD has proven the existence of a water rights for coal slurry pipelines market, KCS was not a participant in that market. Furthermore, the fact that ETSI needed and contracted for water as a raw material to transport coal does not by any means place the pipeline project in competition with those parties who sold water rights.” SD’s competitors in the water rights market are limited to those entities that were ready, willing, and able to sell the quantity of water needed to operate a coal slurry pipeline. Although the State of South Dakota was allegedly in- jured by KCS’ anticompetitive behavior, its injuries did not result from the anticompetitive nature of these prac- tices. Brunswick, 429 U.S. at 489; Gregory Mkg. Corp. v. Wakefern Food Corp., 787 F.2d 92, 95-96 (38d Cir. 1986). The State’s injuries were “purely an incidental result of anti-competitive activity in another segment of 19 At trial Dr. John Beyer testified that SD was a participant in the coal transportation market in the same way in which the Atomic Energy Commission (AEC) had been a participant in the uranium market due to AEC’s position as the sole source for uranium enrichment. In essence, this argument states that a sup- plier can be so unique and vital to production that its interests are the same as the interests of those competitors who are actually in the market. We do not believe that this model applies to this case. The enrichment of uranium necessarily involves a manufacturing process. Huffman v. Western Nuclear, Inc., 108 S. Ct. 2087, 2088 n.2 (1988). As our previous discussion illustrates, suppliers who are essentially manufacturers of a finished product are certainly more than mere suppliers. Coal slurry, on the other hand, simply describes a transportation process which in no way alters the nat- ural composition of the material that is being transported. The supplier of the water may in no way be deemed to be the manufac- turer of the coal in the way that the AEC was the manufacturer of enriched uranium. The supplier of the water is instead just one supplier of the many components involved in the proposed pipeline transportation of the coal. 19a the economy * * * .” Comet Mechanical Contractors, Inc. v. E.A. Cowen Constr., Inc., 609 F.2d 404, 407 (10th Cir. 1980). The loss of future revenues clearly flowed from the cancellation of the contract rather than from injury to competition in the market in which it was involved. Gregory, 787 F.2d at 96. See also Pocahontas Supreme Coal Co. v. Bethlehem Steel Corp., 828 F.2d 211, 219-220 (4th Cir. 1987); Larry R. George Sales Co. v. Cool Attic Corp., 587 F.2d 266, 272 (5th Cir. 1979). It is evident that South Dakota would have suffered an identical loss in the event that the railroads had done nothing and ETSI had simply decided to terminate the SDCD/ETSI contract for some other reason.”° McDonald, 722 F.2d at 1376-77. Its injuries are connected to the cancellation of the contract which is necessarily an in- direct effect of the alleged anticompetitive behavior. Consequently, we find that there was no proximate causa- tion between the alleged market restraint and the harm sustained by SD. McDonald, 722 F.2d at 1374 (footnote omitted). See also Sundance Land Corp. v. Community First Fed. Sav. & Loan Ass’n, 840 F.2d 653, 660 (9th Cir. 1988). We hold that the State of South Dakota did not suffer an injury which could be characterized as a type that Congress sought to redress by enacting sections 1 and 2 of the Sherman Act.** Consequently, we hold 20 Although ETSI’s professed reasons for terminating the SDCD/ ETSI contract related to the resources necessary to deal with the railroads’ opposition, the record contains a number of different factors which hastened the end of the coal slurry pipeline project. These factors include the decline in the price of oil, the deregulation of the railroad industry, and the remaining federal, state, and local agency authorization that ETSI had yet to obtain. A significant hurdle which yet remained involved securing authorization for use of Oahe water from the Army Corps of Engineers. 2t This finding alone is sufficient to bar standing because where there is no antitrust injury there can be no entitlement to damages. Midwest Communications, Inc. v. Minnesota Twins, Inc., T79 F.2d 444, 450 (8th Cir. 1985). Moreover, this finding of course obviates ‘ 20a that the State of South Dakota has no standing to sue KCS for alleged antitrust violations. III. State Law Claim for Intentional Interference with Contractual Relationship In addition to its verdict for the State of South Dakota on the antitrust claim, the jury awarded $244,200,000 on SD’s state law claim of intentional interference with a contractual relationship. This amount is composed of the sum of $200,000,000 in actual damages; $10,900,000 in loss of sales, use, and contractor’s excise tax that would have been generated from construction of the West River Aqueduct; $8,300,000 in prejudgment interest; and $25,000,000 in punitive damages. The relationship with which KCS allegedly interfered was based on the SDCD/ETSI contract. The State argues that but for KCS’s petitioning activities against ETSI, the pipeline project would have proceeded and South Dakota would have reaped the full worth of its contract with ETSI. KCS, relying on the provisions of the Flood Control Act,” contends that there was not a valid con- tractual relationship which could have been interfered the need to consider KCS’ contention that SD’s antitrust claim should have been dismissed because the statute of limitations had run, 22 Section 708 of the Flood Control Act states: Sale of surplus waters for domestic and industrial uses; dispo- sition of moneys The Secretary of the Army is authorized to make contracts with States, municipalities, private concerns, or individuals, at such prices and on such terms as he may deem reasonable, for domestic and industrial uses for surplus water that may be available at any reservoir under the control of the Department of the Army: Provided, That no contracts for such water shall adversely affect then existing lawful uses of such water. All moneys received from such contracts shall be deposited in the Treasury of the United States as miscellaneous receipts. 33 U.S.C. § 708 (1982). 2la with because South Dakota did not have any water rights in the Oahe water to assign. Although the use of the surplus water within the Oahe Dam was the essential ingredient and sole purpose of the contract, KCS over- looks the fact that the contract provided other benefits to ETSI (for which it has paid substantial consideration). Additionally, South Dakota promised its cooperation and assistance to ETSI in securing a water source. The use of Madison water involved a number of potential diffi- culties, not the least of which would have included South Dakota’s opposition. Furthermore, ownership and con- trol as between state and federal authorities over Oahe water was far from settled. Under the contract, the State not only ended its opposition to the pipeline but in fact agreed to use whatever power it had to assist ETSI’s efforts to secure permission to use Oahe water from the federal authorities. This court has observed that “South Dakota seems to have adopted the Restatement (Second) as its statement of the tort of interference with contractual relations.” Cutter v. Lincoln Nat'l Life Ins. Co., 794 F.2d 352, 356 (8th Cir. 1986) (citing Johnson v. Schmitt, 309 N.W.2d 838 (S.D. 1981)). See also Groseth Int'l, Inc. v. Tenneco, Inc., 410 N.W.2d 159, 172 (S.D. 1987). The Restatement (Second) of Torts § 766B provides: One who intentionally and improperly interferes with another’s prospective contractual relation (except a contract to marry) is subject to liability to the other for the pecuniary harm resulting from loss of the benefits of the relation, whether the interference consists of (a) inducing or otherwise causing a third person not to enter into or continue the prospective relation or 22a (b) preventing the other from acquiring or con- tinuing the prospective relation. The factors to be considered in determining whether the interference was improper include: (a) the nature of the actor’s conduct, (b) the actor’s motive, (c) the interests of the other with which the actor’s conduct interferes, (d) the interests sought to be advanced by the actor, (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other, (f) the proximity or remoteness of the actor’s con- duct to the interference and (g) the relations between the parties. Restatement (Second) of Torts § 767 (1979). For pur- poses of applying the Restatement (Second) of Torts, it is essential to acknowledge the fact that the contractual relationship in the instant case was terminable at will. “One’s interest in a contract terminable at will is pri- marily an interest in future relations between the parties, and he has no legal assurance of them. For this reason, an interference with this interest is closely analogous to interference with prospective contractual relations.” Restatement (Second) of Torts § 766 com- ment g (1979). In the spirit contained in Restatement (Second) of Torts § 767(e), there are certain privileged activities which may result in interference of contractual relation- ships but which shall not incur liability. One such ac- tivity involves the first amendment right to petition the government for redress of grievances. The Noerr- 23a Pennington doctrine* has been applied in evaluating whether this particular activity is entitled to protection from liability.** Missouri v. National Org. for Women, Inc., 620 F.2d 1301, 1317-19 (8th Cir. 1980).*° See also Gorman Towers, Inc. v. Bogoslavsky, 626 F.2d 607, 614- 15 (8th Cir. 1980); Surgidev Corp. v. Eye Technology, Inc., 625 F. Supp. 800, 802-05 (D. Minn. 1986); First Nat’l Bank of Omaha v. The Marquette Nat'l Bank of Minneapolis, 482 F. Supp. 514, 524-25 (D. Minn. 1979). This exemption shall not apply, however, if the petition- ing activities in question were “sham” and in fact solely intended to cause injury to competitors rather than to obtain governmental action. Allied Tube & Conduit Corp. v. Indian Head, Inc., 108 S. Ct. 1931, 1987 n.4 (1988). The “sham exception” shall apply where defendant’s re- sort to the courts and agencies “ ‘is so clearly baseless as to amount to an abuse of process * * * ..” Razorback Ready Mix Concrete Co. v. Weaver, 761 F.2d 484, 487 (8th Cir. 1985) (quoting Chest Hill Co. v. Guttman, 23 The Noerr-Pennington doctrine, which arose out of the United States Supreme Court’s decision in Eastern R.R. Presidents Con- ference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961), and United Mine Workers of Am. v. Pennington, 381 U.S. 657 (1965), exempts from the antitrust laws certain petitioning of courts and administrative agencies that results in anticompetitive effects. California Motor Transp. Co. v. Trucking Unitd., 404 U.S. 508, 510 (1972). 24 This same doctrine has been applied to other areas of litigation. See, e.3., Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731 (1983) (unfair labor practices); Hufsmith v. Weaver, 817 F.2d 455 (8th Cir. 1987) (antitrust). 25 Although National Organization for Women dealt with a politi- cal boycott, one of plaintiff’s complaints alleged intentional infliction of harm without legal excuse. 620 F.2d at 1316. Moreover, the court cited the analysis in Sierra Club v. Butz, 349 F. Supp. 934 (N.D. Cal. 1972) for support of its position. Jd. at 1817. Sierra Club was a nonantitrust case which applied Noerr-Pennington to “interference with advantageous relationship” claims. Sierra Club, 349 F. Supp. at 938. 24a 1981-2 Trade Cas. (CCH) {64,417 (S.D. Ohio May 29, 1981) ). KCS’ initial opposition to the ETSI coal slurry pipe- line project involved its participation in defending the title actions beginning in the mid-1970’s. The railroads failed to prevail in any of these actions. In the late 1970’s, this “window litigation” began to wind down and was replaced by activity in the administrative forum. From that time until the early 1980’s, KCS was involved in over thirty federal and state agency proceedings re- lating to the coal slurry pipeline. KCS’ most significant effort in this regard involved its opposition to ETSI’s proposed Environmental Impact Statement. As discussed earlier, KCS had been joined in this effort by the State of South Dakota until the SDCD/ETSI contract was exe- cuted in December, 1981. To support its allegation of sham petitioning by KCS, SD points to the window litigation and administrative proceedings described above. Certainly the legitimacy of these activities is subject to debate. See In re Burlington Northern, Inc., 822 F.2d 518 (5th Cir. 1987), cert. denied sub nom. Union Pac. R.R. Co. v. Energy Transp. Sys, Inc., 108 S. Ct. 701 (1988).*° However, we find that a determi- nation of whether these pre-December, 1981, activities constitute sham petitioning is irrelevant to the issue of whether the State of South Dakota may raise a claim of improper interference with contractual performance. The SDCD/ETSI contract was not executed until De- 26In Burlington Northern, the Fifth Circuit reviewed ETSI’s claims that the railroads had committed sham petitioning and therefore were not entitled to first amendment protection. The court held: “We believe that ETSI’s claims. if found by the district court to be supported by prima facie evidence, are sufficient to deprive the railroads’ defense of the window litigation of Noerr- Pennington protection.” 822 F.2d at 532. 25a cember 23, 1981. Consequently, regardless of whether KCS’ conduct prior to that date can be characterized as sham, we are confined to consider only those activities that took place between December 23, 1981, and July 31, 1984: the period between the date of execution and date of termination of the SDCD/ETSI contract.” During the period in which the contract was in effect, KCS continued to participate in a number of the ad- ministrative proceedings which had been commenced ear- lier in the decade. Again, its most prominent involve- ment related to the final stages of the EIS proceedings. These activities, however, were gradually being displaced by KCS’ participation in the Andrews litigation which challenged ETSI’s contract with the Bureau of Reclama- tion. The action for a permanent injunction barring per- formance of the BOR/ETSI contract was filed on August 18, 1982. The events in this case moved quickly and, on May 3, 1984, the United States District Court for the District of Nebraska enjoined performance of the con- tract. Missouri v. Andrews, 586 F. Supp. 1268 (D. Neb. 1984), aff'd, 787 F.2d 270 (8th Cir. 1986), aff'd sub nom. ETSI Pipeline Project v. Missouri, 484 U.S. 495 (1988). The record leaves little dispute that the district court’s decision in Andrews was the single most important event immediately preceding the termination of the ETSI coal slurry pipeline project. Similarly, the record makes clear that, in examining KCS’ overall activities between late- 1981 and mid-1984, the Andrews litigation was by far the dominant component of those activities. Indeed, roughly one-third of the administrative actions mentioned above were directly related to the Andrews litigation. 27 The trial court’s blanket instruction to the jury, although not excepted to in this regard, submitted the question of improper in- terference without attempting to distinguish between the alleged interference occurring before and after the date of the contract. ~ 26a We need not reach KCS’ claim that the State’s contract was null and void because only the Corps of Engineers could contract for the use of the water.”®* We hold as a 28 Although we do not pass on this issue, it is clear that a condi- tion precedent to future performance of the SDCD/ETSI contract required that ETSI obtain a contract with the Army Corps of Engineers to use the water in the Oahe dam. The statute, 33 U.S.C. § 708, and the decisions in the Andrews litigation, make this condi- tion clear. It is our impression that obtaining the contract from the Corps was a condition in fact for any future payment by ETSI to SD. The record, however, is silent as to whether the Corps’ approval was obtainable. In the absence of such proof we think it clear that plaintiff’s alleged damages are entirely speculative and not supported by sub- stantial evidence. Dr. Ralph J. Brown, the economic expert retained by South Dakota _ to testify regarding damages, altogether ignored the possibility that ETSI could have invoked the cancellation rights (as it eventually did) in any of a number of situations. Dr. Brown instead treated the SDCD/ETSI contract as if it were a promissory note. He assumed that construction of the pipeline would commence on April 1, 1986, and be completed by June 1, 1988. From the date of the actual cancellation of the contract to Brown’s projected date for the pipeline completion, he testified that SDCD would receive payments totaling $24,100,000. Brown further testified that SDCD would subsequently receive $9,000,000 annually for the next fifty years. Brown added these annual payments to the future sales tax payments that would have accompanied maintenance of the West River Aqueduct, adjusted the entire sum for three percent infla- tion, and reached a present value amount of $210,900,000. The most important consideration relating to the determination of damages in this case is the fact that the SDCD/ETSI contract was terminable at ETSI’s will if certain events should occur. Re- statement (Second) of Torts § 766 comment ¢g (“The fact that the contract is terminable at will * * * is to be taken into account in determining the damages that the plaintiff has suffered by reason of its breach.”). First, should the pipeline project be abandoned, ETSI could terminate the contract on thirty days notice. Even if ETSI were able to attain the Corps’ permission to use Oahe water, the project still faced a number of obstacles in each of the seven states through which the pipeline was to pass. Perhaps ETSI had secured the necessary rights-of-way tuo avoid further window litigation with the railroads. Nonetheless in each of these states ETSI would have to respond to concerns that include the pipeline’s impact on the environment, compliance with safety regulations, 27a matter of law that KCS’ activities following December, 1981, in opposing the pipeline (1) had no significant or proximate causal relation to the cancellation by ETSI of the SDCD/ETSI contract and, even if they did con- tribute to the cancellation of the contract, (2) KCS’ ac- tivities in the Andrews litigation were protected by the Noerr-Pennington doctrine. First, we find that the successful Andrews litigation which enjoined the BOR/ETSI contract for use of the Oahe water never involved the formal adjudication of whether KCS had standing to participate as a party in the litigation. Although the district court originally held KCS did not have standing, it thereafter vacated its effect on the local work force, and proper zoning of the land through which the pipeline would pass. Success in these matters would re- quire cooperation on the part of each state just as obtaining a water source required a great deal of cooperation from South Dakota authorities. In addition, succeeding occurrences in the economy such as the decline of inflation and a severe decrease in oil prices certainly made the coal slury pipeline project a much less lucrative investment. Moreover, the economic experts at trial testi- fied that the deregulation of the transportation industry virtually assured a market situation in which the railroads could transport coal at lower rates than a coal slurry pipeline. Furthermore, we find it entirely speculative that construction of the pipeline would commence by the middle or even late 1980’s. In fact, KCS presented unrefuted testimony by its economic experts that the drastic economic [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0559%3A1. Public record. Not legal advice.