Opposition Brief — Chevron Corp. v. City of Long Beach

Supreme Court, U.S,

eS FILED

JAN 29

No. 89-988 aa

CNS RE: amar. ee aa R.

CLERK

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1989

CHEVRON CORPORATION, et al.,

Petitioners,

VS.

THE City OF LONG BEACH, et al.,

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

Royce H. SCHULZ Gary W. HOECKER

Gary L. HALLING* M. BRIAN MCMAHON

THOMAS D. NEVINS HOECKER, MCMAHON &

BROAD, SCHULZ, WADE

LARSON & WINEBERG 612 S. Flower Street

One California Street, 14th FI. Suite 800

San Francisco, CA 94111 Los Angeles, CA 90017

(415) 986-0300 (213) 617-8133

Counsel for Respondents

* Counsel of Record

[ Additional Counsel Listed on Inside Cover]

BOWNE OF SAN FRANCISCO. INC. + 190 NINTH ST + SF. CA 94103 + (415) 864-2300

4% j

QUESTION PRESENTED

The questions posed by petitioners are not those created by the

record.* The case presents only one question:

Does Caterpillar Inc. v. Williams, 482 U.S. 386 (1987) permit

removal of a state court case in which the complaint does not

facially present a federal question when defendants anticipate

having a federal collateral estoppel defense if interlocutory rulings

in an ongoing federal case result in a judgment?

* Petitioners’ statement of questions presented might be read to imply

that petitioners are seeking review of the Court of Appeals’ reversal of

summary judgment of a pendent claim asserted in the case respondents

filed in federal court (“Long Beach [’). Even if the point is deemed

raised, it is appropriately deemed abandoned because petitioners have

not bnefed it.

TABLE OF CONTENTS

Page

eR Bs re ere ree i

RA Oe I 6 ons vntededesbbevesveeveses ii

pe ee a gs rn iii

ei Fre l

SEAR OMIOE COW BEWE GARIMS coc ccsccccecsscoeses 2

REASONS FOR DENYING THE WRIT............. 7

I. The Well-Pleaded Complaint Rule Defeated Federal

Question Jurisdiction and Foreclosed Removal Of

[A GE Es 6 oda 63 pe thoen ee eae dai aes 7

II. Disposition Of The State Claims Should Not Be

Delayed Pending Disposition Of The Antitrust Peti-

GN 6o cn svveles beiccsevckd saa eee Eee ener 12

ili

TABLE OF AUTHORITIES

Cases

Page

Allen v. McCurry, 449 U.S. 90 (1980) ................. 10

Berkeley Lawn Bowling Club v. City of Berkeley, 42

Cute 0 28 (9970) ....... 5... os... cence sane. 13

Calhoun v. Francise Tax Board, 20 Cal.3d 881 (1978).... 10

California Lettuce Growers, Inc. v. Union Sugar Co., 45

aa nab sks ecb ae ceecndsecse es 12

Caterpillar Inc. v. Williams, 482 U.S. 386 (1987)...... passim

Continental Oil Co. v. United States, 184 F.2d 802 (9th Cir.

er eee weds ck b uk Gao bad a's és aG8 8 13

Cromwell v. Sac County, 94 U.S. 351 (1877) ........... 9,10

E.S. Bills, Inc. v. Tzucanow, 38 Cal.3d 824 (1985) ...... 13

Federated Department Stores, Inc. v. Moitie, 452 U.S.

te SR a. ses penne «84-4 6 4,9, 10, 11

Franchise Tax Board v. Construction Laborers Vacation

ES ON ea sks wandeascerssa® 8, 11

Gully v. First Nat’] Bank in Meridian, 299 U.S. 109 (1936) = 8

Lawior v. National Screen Serv. Corp., 349 U.S. 322 (1955) ..

ee eae CLC wach ys en sey ne cases 5,9

Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987) 8

Montana v. United States, 440 U.S. 147 (1979) ......... 10

Nevada v. United States, 463 U.S. 110 (1983) .......... 10

North Central Airlines, Inc. v. Continental Oil Co., 574 F.2d

EE el 13

Oklahoma Tax Comm’n v. Graham, 489 U.S. __.,

ere 8,9, 10, 11

Perdue v. Crocker Nat’! Bank, 38 Cal.3d 345 (1985), appeal

dism‘d for want of jurisdiction, 475 U.S. 1001 (1986)... 7

Seaman’s Direct Buying Service, Inc. v. Standard Oil Co.,

I i oa so a Gs wie 8 Gx bbe bene os 12

Skelly Oil Co. v. Phillips Petroleum Co.. 339 U.S. 667

Ne gc da ka de be dedi 88. 8

Universal Sales Corp. v. California Press Mfg. Co.,

on 5 hob as seh he ose eso kom 12, 13

iv

TABLE OF AUTHORITES

Federal Statutes

Page

rh 2 CRM BON 5s cancel eke av eave entees 2%

28 US.C.:

PL Cina es od VAEK Roda e ee RRA Sah eee 1,8

I i he os ary ia ee REE 2a cen vay cate I

California Statutes

Cartwright Act, California Business and Professions Code

ET Se as ae Rie ee 3

California Uniform Commercial Code:

I era et ann wer es cL eanris y ae

eI area g Lira en ne ery tb har ates Se »

La tos eal sa pata oa wiadtns eal oe Teele a te 43

Rules

Federal Rules of Civil Procedure 54(b) ................ 11

Other Authorities

Restatement (Second) of Contracts § 205, comment d

PINE sare wha ob ck ca he ee ea ee ek 13

Restatement (Second) of Judgments § 24, illustration 12

PS ier oars aan a tee eee nC aE Cone ea a

No. 89-988

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1989

CHEVRON CORPORATION, et al.,

Petitioners,

VS.

THE City OF LONG BEACH, et al.,

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

Respondents respectfully request that a writ of certioran to

review two judgments of the United States Court of Appeals for

the Ninth Circuit be denied.

Respondents agree with the jurisdictional statement of the

petitioners.

STATUTES INVOLVED

In addition to 28 U.S.C. § 1441(a), cited by petitioners, the

following statutes are also involved:

1. 28 U.S.C. § 1331. Federal Question

The district courts shall have orginal jurisdiction of all

civil actions arising under the Constitution, laws, or treaties

of the United States.

2

2. California Uniform Commercial Code

Sec. 1203. Every contract or duty within this code im-

poses an obligation of good faith in its performance or

enforcement.

Sec. 2103(1)(b). “Good faith” in the case of a

merchant means honesty in fact and the observance of

reasonable commercial standards of fair dealing in the trade.

Sec. 2305(2). A price to be fixed by the seller or by

the buyer means a price for him to fix in good faith.

STATEMENT OF THE CASE

Respondents State of California (“State”) and City of Long

Beach (“City”) brought two actions against these petitioners:

(1) City of Long Beach, et al. v. Standard Oil Company of

California, et al. (‘Long Beach I’), a federal action filed in 1975

seeking damages for the period preceding 1978, and charging

petitioners with conspiracy to fix prices for respondents’ crude oil

in violation of § 1 of the Sherman Act,' with which respondents

joined a pendent contract claim for breach of the implied cove-

nant of good faith under California law; (2) People of the State

of California, et al. v. Chevron Corporation (“Long Beach II")

filed in state court in 1986, the complaint on its face charging no

federal claim, and seeking relief for conduct of the petitioners

during the period 1980-85. A new plaintiff, the People of the

State of California (“People”), brought claims for civil penalties

in Long Beach II.

The district court denied remand of Long Beach I/ to state

court based on petitioners’ arguments that federal jurisdiction was

conferred because Long Beach II was “artfully pleaded” to avoid

adverse interlocutory rulings on the pendent “good faith” contract

' Two certiorari petitions are simultaneously pending to review the

decision of the Court of Appeals reversing summary judgment in favor

of petitioners on the antitrust claims in Long Beach I: Standard Oil

Company of California, et al. v. The City of Long Beach, et al., No. 89-

987 and Exxon Corporation, et al. v. The City of Long Beach, et al., No.

89-990.

3

claim made in Long Beach IJ. App. 89a. These Long Beach I

rulings had not ripened into a judgment when the district court

denied remand of Long Beach II.’ Judgment on the “good faith”

claim in Long Beach I was not entered until July 30, 1987, over

one year after the Long Beach II removal petition was filed.

App. 94a.’

Based on summary judgment on the pendent “good faith”

claim in Long Beach I, the district court granted partial summary

judgment in Long Beach II, dismissing the first five counts of the

complaint and corresponding portions of the tenth count.” The

district court decided that the issues in the dismissed counts of

Long Beach II were sufficiently similar to the claim for breach of

the implied covenant of good faith and fair dealing in Long

Beach | that it applied collateral estoppel. App. 83a, 89a.°

Long Beach II involved new causes of action based on conduct

that took place years after the activities challenged in Long

Beach I. Despite denial of any discovery, respondents produced

abundant evidence of different material facts present in Long

* Respondents’ motion in Long Beach | for reconsideration of the

“good faith” contract rulings was pending at the time of removal, as the

district court’s initial decision denying remand recites. App. 64a.

>The Court of Appeals’ opinion mistakenly states that a summary

judgment had been entered on all Long Beach [ claims before removal of

Long Beach II. E.g., App. 22a, 25a & n. 6. Respondents called the error

to the court’s attention in their reply to petitioners’ petition for rehear-

ing, but the court did not correct it. Respondents’ Response to Petition

for Rehearing, p. 2 & n. 3.

* These state law counts were for unfair competition and breach of

duty to the public trust, breach of contract, breach of the implied

covenant of good faith and fair dealing, fraud, deceit and negligent

misrepresentation.

* The district court refused to find collateral estoppel applicable to the

Cartwright Act antitrust claim, and therefore exercised only pendent

jurisdiction over it. App. 89a-90a. The Cartwright Act claim remains

pending in the district court. The district court remanded respondents’

counts alleging unlawful operation of intrastate crude oil pipelines to the

California Supenor Court.

4

Beach II. For example, different exchange mechanisms were

instituted by petitioners to avoid undervalued posted prices (Long

Beach II ER 806-48, 853-54),° the Federal Trade Commission

(“FTC”) record on the Texaco/Getty merger revealed that

independent refiners complained of paying premiums above

posted prices,’ and Texaco admitted in an FTC filing that posted

prices were “lower than market”. Long Beach II ER 760. Long

Beach II also included a new contract never sued upon before

(the LBOD Agreement) (Long Beach II ER 142-241), a new

party (the People) and different remedies (civil penalties). Long

Beach II raised legal theories never employed in Long Beach I:

E.g., fraud claims for misrepresentations of the value of respon-

dents’ oil following the end of federal price controls in 1980-81,

violation of the California public trust doctrine applicable to the

California tidelands, California statutes forbidding unfair business

practices, and violation of sections of California’s Public Utility

Code and Civil Code governing operation of intrastate crude oil

pipelines.

Respondents appealed the district court’s jurisdictional and

summary judgment rulings, arguing that no federal question was

presented on the face of the complaint in Long Beach II as

required by the well-pleaded complaint rule, and that no judg-

ment existed that could have been given preclusive effect when

the removal petition was filed, citing Caterpillar Inc. v. Williams,

482 U.S. 386 (1987), and distinguishing Federated Department

Stores, Inc. v. Moitie, 452 U.S. 394, 397 n. 2 (1981). On the

menits, respondents contended that even if subject matter juris-

diction had existed, summary judgment in Long Beach II was

erroneous because no identity of issues existed between the two

Cases permitting application of collateral estoppel.

The Court of Appeals reversed the district court’s assertion of

removal junsdiction over Long Beach IJ, concluding that Feder-

*“Long Beach I] ER”, as used in this brief, refers to Excerpts of

Record filed in the Court of Appeals in that case, and “Long Beach !

Contract ER” refers to the excerpts filed in the separate Long Beach /

contract appeal.

” E.g., Long Beach II ER 763-64, 768-81, 784-93.

5

ated Department Stores, Inc. v. Moitie was inapplicable. The

panel stated that it was unclear that any Long Beach | judgment

could preclude Long Beach II due to the new transactions at issue

in a different time period. App. 25a, citing Lawlor v. National

Screen Service Corp., 349 U.S. 322, 328 (1955). The panel also

stated that Moitie was inapplicable because there was no longer

any federal judgment in Long Beach I, and that remand was

compelled by the traditional rules of removal jurisdiction as

recently set forth in Caterpillar Inc. v. Williams, 482 U.S. 386

(1987):

To allow this type of removal except where a final federal

judgment wholly precludes the state court suit would violate

“the paramount policies embodied in the well-pleaded com-

plaint rule—that the plaintiff is the master of the complaint,

that a federal question must appear on the face of the

complaint, and that the plaintiff may, by eschewing claims

based on federal law, choose to have the cause heard in state

court.” Caterpillar, 107 S.Ct. at 2433.

App. 26a.°

The Long Beach I “good faith” claim involved conduct by

petitioners that frustrated the essential purposes of the pricing

provisions of the Contractors’ Agreement, a contract respondent

City, as trustee for the State, entered into in 1965 with a

consortium of petitioners, Texaco Inc. (“Texaco”), Exxon Cor-

poration (“Exxon”, formerly Humble), Union Oil Company of

California (“Union”), Mobil Oil Corporation (“Mobil”), and

Shell Oil Company (“Shell”) to develop and purchase the City’s

production from the Wilmirgton oil field.” The Wilmington field

is one of the largest oil fields in California.

* Petitioners are thus wrong in stating the Court of Appeals “as-

sumed” removal was initially proper under Moitie. Petition, pp. 11, 15.

* Standard Oil of California (“Socal”) (later “Chevron”) and Atlan-

tic Richfield Company (“ARCO”) became non-operating contractors.

The City’s production constituted by far the iargest portion of the

Wilmington field.

6

Petitioners were intimately involved in drafting the Contrac-

tors’ Agreement,’° particularly its pricing provisions.'' Petitioners

repeatedly represented during the negotiations that the use of

average posted prices would best guarantee that the City receive

fair market value for its oil over the thirty-five year term of the

contract.'* The intent of the agreement was that the interrelated

pricing provisions and safeguards would result in the payment of

market prices for respondents’ oil.'?

Petitioners’ own documents contain numerous admissions that,

at the time of negotiations and thereafter, petitioners knew their

posted prices severely undervalued respondents’ oil.'* Following a

series of secret meetings in the early 1960’s, petitioners adopted a

“3-cut” exchange system, unique to California, to provide as

among petitioners, “a pricing basis more nearly reflecting the

actual value of the crude.”'* After the Contractors’ Agreement

was signed, petitioners proceeded systematically to frustrate the

agreement’s pricing safeguard provisions.

'° Eg, Long Beach I Contract ER 640 9 10, 634 97.

‘' E.g, Long Beach I Contract ER 644, 655-57, 660, 652. Socal

provided numerous drafts of the pricing provisions, lobbied hard for

them, and threatened not to bid if they were not accepted. E.g, Long

Beach I Contract ER 669-71, 681.

'? Eg, Long Beach I Contract ER 700, 589, 681, 639 99.

? Eg, Long Beach I Contract ER 638-39 99 4, 8, 696, 6/24/64 SLC

Calendar Item. Petitioners incorrectly state that “a City official” said

that a fair and reasonable price standard would “result in a very

substantial discount of the bid.” Petition, p. 4. This was a statement

made by Mr. Wanvig, an attorney for Socal. Long Beach | Contract

Supp. ER 271, App. Sila.

'* Eg, Long Beach I Contract ER 772, 748, 775, 777, 779.

* Eg, Long Beach I Contract ER 772, 775, 781.

° E.g., petitioners refused to provide pricing information as required

by Article 9(d), thus preventing the City from invoking the most

favored nation clause in Article 9(c). E.g, Long Beach I Contract ER

829-831 995, 6, 9. Using their control over the proprietary intrastate

crude oil pipeline system in California, petitioners prevented other oil

-

After discovering petitioners’ wrongdoing,'’ respondents filed

Long Beach I in the United States district court charging a price

fixing conspiracy in violation of the Sherman Act and alleging

breach of the covenant of good faith and fair dealing implied in

every California contract. Respondents also charged that petition-

ers’ conduct violated the statutory duty of good faith imposed on

them by California Commercial Code §§ 1203, 2103(1)(b) and

2305(2) (requiring a party with power to set prices to do so in

good faith).

The Court of Appeals reversed the district court’s grant of

summary judgment for petitioners on the good faith claim (App.

49a, 53a), recognizing that “California law further requires that a

party granted discretionary power under a contract, including the

discretionary power to set prices, must exercise that power in good

faith.”'* The court rejected petitioners’ argument that their con-

tractuai obligation required payment only of average posted

prices: “Compliance with the letter of the contract’s provisions

does not constitute good faith if one’s bad faith actions render

those provisions invalid or inoperative.” App. 22a.

REASONS FOR DENYING THE WRIT

I

The Well-Pleaded Complaint Rule Defeated Federal Question

Jurisdiction And Foreclosed Removal Of Long Beach II

Remand of Long Beach II to state court is unassailable for a

number of reasons: (1) A state court action cannot be removed to

companies which lacked access to pipelines from competing as “sub-

stantial purchasers” for respondents’ oil under Article 9(b). E.g, Long

Beach | Contract ER 714, 717, 719, 723, 764.

'’ The smoking gun was a Mobil/Union 3-cut cash valuation docu-

ment inadvertently produced by Mobil during an audit in 1974, which

was immediately taken from the hands of respondents auditor by a

Mobil employee. E.g., Long Beach | Contract ER 833-37.

'* App. 20a-21a, citing Perdue v. Crocker Nat'l Bank, 38 Cal.3d 913,

923 (1985), appeal dism‘d for want of jurisdiction, 475 U.S. 1001

(1986), and Cal. Uniform Commercial Code § 2305(2).

8

federal court unless it could have been brought there originally,

and Long Beach II contained no federal claim; (2) a federal

defense cannot be the basis for removal, and petitioners relied

only upon an anticipated collateral estoppel defense; (3) a plain-

tiff is the master of his complaint and may choose to rely

exclusively on state law, as respondents did in Long Beach II.

Each of these principles has been recently reaffirmed by this

Court in a series of unanimous decisions. Oklahoma Tax

Comm'n v. Graham, 489 U.S. _—, 103 L.Ed.2d 924 (1989);

Caterpillar Inc. v. Williams, 482 U.S. 386 (1987); Metropolitan

Life Ins. Co. v. Taylor, 481 U.S. 58 (1987); Franchise Tax Board

v. Construction Laborers Vacation Trust, 463 U.S. 1 (1983)."°

There has never been federal jurisdiction over this case, not at

the time of removal or otherwise. The district court was errone-

ously persuaded by petitioners to apply “artful pleading” to

recharacterize purely state law claims as “arising under the

Constitution, laws or treaties of the United States.” 28 U.S.C.

§ 1331.

Long Beach II couid not have been brought in federai court. It

is black letter law that removal is impermissible unless original

federal jurisdiction is present. Oklahoma Tax Comm'n v. Gra-

ham, 489 U.S. 103 L.Ed.2d 924, 928 (1989); Caterpillar,

482 U.S. at 392. The existence of federal question jurisdiction

under 28 U.S.C. § 1331 is governed by the “well-pleaded com- —

'? These precepts have been established for decades. E.g., Gully v.

First Nat'l Bank in Meridian, 299 U.S. 109, 118 (1936) (Cardozo, J.)

(““We shall be lost in a maze if we put that compass by”); Skelly Oil Co.

v. Phillips Petroleum Co., 339 U.S. 667, 672-73 (1950)

(Frankfurter, J.).

© This Court in Caterpillar, citing the dissent in Moitie, observed:

“Although ‘occasionally the removai court will seek to determine

whether the real nature of the claim is federal. regardless of

plaintiff's characterization, ... most of them correctly confine this

practice to areas of the law pre-empted by federal substantive

law.’”

482 U.S. at 397 n.11, citing Moitie, 452 U.S. at 410 n.6 (Brennan, J.,

dissenting).

9

plaint” rule requiring determination of the presence of federal

question jurisdiction only from the face of plaintiff's statement of

his own claim in state court. Oklahoma Tax Comm'n v. Graham,

103 L.Ed.2d at 928-29. No federal question of any kind existed on

the face of Long Beach II, and petitioners have never contended

otherwise.

Petitioners erroneously persuaded the district court that federal

question jurisdiction could be generated by an anticipated defense

of collateral estoppel based on their hope that the district court

would ultimately enter summary judgment on respondents’ good

faith contract claim in Long Beach I. Even if a judgment had been

entered with respect to that claim in Long Beach [, such a

judgment would have provided no basis for removal of Long

Beach II because it is “settled law that a case may not be removed

to federal court on the basis of a federal defense . . .” Caterpillar,

482 U.S. at 393 (Court’s emphasis); Oklahoma Tax Comm'n,

103 L.Ed.2d at 929.

Petitioners cite Federated Department Stores, Inc. v. Moitie.

452 U.S. 394, 397 n. 2 (1981), where the “artful pleading”

doctrine was invoked to permit removal when a Sherman Act

case was first brought in federal court, lost, never appealed, and

refiled in state court on exactly the same facts. Moitie, a res

judicata (bar) case, did not purport to extend the artful pleading

doctrine to an anticipated collateral estoppel defense. The federal

and state court complaints in Moitie concerned “the same alleged

offenses, and the same time periods,” Moitie, 452 U.S. at 396, and

thus claim preclusion (bar) was present. Long Beach II, on the

other hand, concerns different events and transactions in a differ-

ent time period from Long Beach I, and thus could not be barred.

Lawlor v. National Screen Service Corp., 349 U.S. 322, 328

(1955) (no claim preclusion arises from a judgment concerning

an earlier time period because the judgment “cannot be given the

effect of extinguishing claims which did not even then exist and

which could not possibly have been sued upon in the previous

e ase”) 2!

*" Accord, Cromwell v. Sac County, 94 U.S. 351, 353 (1877); Restate-

ment (Second) of Judgments § 24, illustration 12 (1982). The distinc-

10

Any suggestion that Moitie could be expanded beyond a federal

judgment on a federal claim completely barring a later state

action was effectively foreclosed by Caterpillar, 482 U.S. at 392-

93, and Oklahoma Tax Comm'n, 103 L.Ed.2d at 928-29. The

Court of Appeals correctly rejected petitioners’ argument that

alleged “evasion” can somehow confer federal jurisdiction. Peti-

tion, p. 10. A state court, of course, is competent to, and must

determine the preclusive effect of a federal judgment.” Under the

master of the complaint rule, a plaintiff may choose to “avoid

federal jurisdiction by exclusive reliance on state law.”’ Caterpil-

lar, 482 U.S. at 392. Further, petitioners seek to recast state law

claims as “federal” based on a Long Beach I ruling on a pendent,

state law contract claim.” Under these circumstances, there was

tions between res judicata (bar) and collateral estoppel (issue

preclusion) stated by this Court in Cromwell v. Sac County, 94 U.S. 35]

(1877) are as valid today as when they were written. £.g. Vevada v.

United States, 463 U.S. 110, 130-31 (1983) (relying upon Cromwell for

these very principles).

Had there been a judgment on the Long Beach I good faith claim,

only issue preclusion (or collateral estoppel) could arguably have been

invoked due to the entirely separate time periods involved. Petitioners

make no serious argument that collateral estoppel applies, as, indeed,

they cannot. Identity of facts and law are required. Montana v. United

States, 440 U.S. 147, 155 (1979); Cromwell, 94 U.S. at 360. Petitioners

rested below on the conclusory assertion that Long Beach I] is the same

as Long Beach I, yet plaintiffs made an extensive factual showing of

changed circumstances. Long Beach II ER 663-1034; see p. 4, supra.

2 Principles of comity and federalism prohibit any presumption of

waywardness by state courts. See Allen v. McCurry, 449 U.S. 90, 96

(1980) (courts’ recognition of each other’s judgments “promote[s] the

comity between state and federal courts that has been recognized as a

bulwark of the federal system”); Calhoun v. Franchise Tax Board, 20

Cal.3d 881, 887 (1978) (“A federal judgment is as final in California

courts as it would be in federal courts’’).

See App. 89a-90a.

11

nothing federal to be artfully pled. Finally, respondents proceeded

to and did perfect a successful federal appeal.”

The Court Of Appeals Opinion

Petitioners’ attack on the Court of Appeals’ reasoning cannot

create federal jurisdiction. Petitioners meticulously avoid trying to

justify removal of Long Beach II on the grounds they persuaded

the district court to accept. They do not even mention this Court’s

dispositive decisions in Caterpillar and Oklahoma Tax

Comm'n.” Instead, their whole brief is devoted to explaining why

the Court of Appeals should not have ordered remand of the case

to the state court after it had reversed the summary judgments in

Long Beach I on both the antitrust and good faith claims.

By petitioners’ reasoning, a state law case should remain in

federal court under Moitie “artful pleading” despite the fact that

there has ceased to be any federal court judgment allegedly to be

protected or for respondents to avoid. Whatever the application of

petitioners’ diversity cases to Moitie “artful pleading”, if the

plaintiff gains a reversal, no policy mandates protecting an errone-

ous judgment which has no preclusive effect and which did not

exist at the time of removal.

Petitioners’ own arguments compel denial of their petition.

Petitioners assume that there was jurisdiction at the time of

removal. At that time, there was only an interlocutory ruling on

the Long Beach I good faith claim subject to a then pending

motion for reconsideration. Moitie, which involved a nonappeala-

* Cf. Moitie, 452 U.S. at 396 (“Moitie and Brown, however, chose

not to appeal...”). Contrary to petitioners’ assertions, in October,

1985, the year before Long Beach /I was filed, respondents requested the

district court to enter a final judgment pursuant to Fed.R.Civ.P. 54(b)

on the good faith claim if respondents’ motion for reconsideration on the

merits was denied. See Long Beach I Clerk's Docket 2050, 2051, 2064.

Petitioners successfully opposed that motion.

°> Further, petitioners ignore the fact that a State is the plaintiff in this

case. See Franchise Tax Board, 463 U.S. at 21 n. 22 (“considerations of

comity make us reluctant to snatch cases which a State has brought

from the courts of that State, unless some clear rule demands it’’).

12

ble final judgment, could not apply. The petition must be rejected,

assuming arguendo the applicability of petitioners’ cases, because

the subsequent event of a federal judgment cannot retroactively

confer federal jurisdiction. Petition, pp. 11-14.

II

Disposition Of The State Claims Should Not Be Delayed Pend-

ing Disposition Of The Antitrust Petitions

The Court of Appeals did not “intertwine” the good faith claim

with the Sherman Act claim in Long Beach I as petitioners assert.

The court only stated the rather modest proposition that “the

same anticompetitive price posting that would violate the antitrust

law would also constitute bad faith dealing in violation of the state

law duty of good faith imposed by Cal. Com. Code § 1203.” App.

22a. It is not necessary for respondents to prove a federal antitrust

violation in order to establish petitioners’ liability under the

implied covenant of good faith claim.”

Substantial evidence revealed petitioners’ systematic frustration

of the letter and spirit of the contractual provisions~’ in violation

of the California implied covenant of good faith and fair dealing.~*

© Petitioners cannot seriously contend that the elements of a Sherman

Act Section | violation are identical to those of a good faith contract

claim under California law. Proof of a conspiracy and restraint of trade

are required for a Section | case. In contrast, a violation of good faith

requires only proof of unilateral conduct which frustrates the benefit of a

single contractual bargain. See e.g, Seaman's Direct Buying Service, Inc.

v. Standard Oil Co., 36 Cal.3d 752, 768 (1984).

” See pages 5-7, supra.

> The implied covenant has long been recognized in California in

order to protect the benefit of contractual bargains. See e.g, Universal

Sales Corp. v. California Press Mfg. Co., 20 Cal.2d 751, 771 (1942);

California Lettuce Growers, Inc. v. Union Sugar Co., 45 Cal.2d 474, 484

(1955).

The “covenant requires that neither party do anything which will

deprive the other of the benefits of the agreement”. Seaman's Direct

Buying Service, Inc. v. Standard Oil Co., 36 Cal.3d 752, 768 (1984). It

13

Petitioners’ willful concealment of information concerning the

higher valuations given to respondents’ oil in petitioners’ 3-cut

exchanges alone gives rise to liability here. Restatement (Second)

of Contracts § 205, comment d (1981) (“Subterfuges and eva-

sions violate the obligation of good faith in performance ...”).”

Furthermore, when one party to a contract acquires discretionary

power over price, as here, the covenant of good faith imposes a

duty to set prices “in accordance with reasonable commercial

standards of fair dealing in the trade.” E.S. Bills, Inc. v. Tzuca-

now, 38 Cal.3d 824, 833 (1985). Courts routinely substitute a

reasonable price where a posted price standard fails without

inquiring as to whether a violation of the antitrust laws occurred.”°

The good faith claim is not redundant as petitioners assert. The

rule against double recovery for the same injury has never been

applied to prevent a plaintiff from seeking relief for the same

injury on more than one theory, or to foreclose all recovery if one

theory is rejected. Since petitioners’ sole argument on the Long

Beach I good faith claim is assumed identity to the Long Beach |

antitrust claim and because no such linkage exists, petitioners’

requested relief should be denied.

Petitioners further seek to have Long Beach II held in abeyance

pending disposition of the Long Beach / antitrust petitions.

Petition, pp. 17-18. The lack of subject matter jurisdiction over

Long Beach II cannot be cured even if this Court should grant a

writ of certioran and overturn the antitrust case. The Court of

imposes “the duty to do everything that the contract presupposes that

{each party] will do to accomplish its purpose”. Berkeley Lawn Bowling

Club v. City of Berkeley, 42 Cal.App.3d 280, 286-87 (1974).

°° Universal Sales Corp. v. California Press Mfg. Co., 20 Cal.2d 751.

771-72 (1942) (“withholding information” violated the good faith

covenant).

© E.g., North Central Airlines, Inc. v. Continental Oil Co., 574 F.2d

$82, 593 (D.C. Cir. 1978) (under U.C.C. § 2305, where agreed posted

price standard fails, a reasonable price is substituted); Continental Oil

Co. v. United States, 184 F.2d 802 (9th Cir. 1950) (where defendants in

a contract case had power over crude oil prices due to control of

pipelines, reasonable price substituted).

14

Appeals’ conclusion in this case is compelled by essential princi-

ples of federal jurisdiction which have been recently reaffirmed by

this Court in a series of unanimous decisions.

By erroneously persuading the district court to accept removal

jurisdiction over Long Beach II, petitioners have delayed a state

court trial for years. By erroneously persuading the district court

to grant summary judgment on Long Beach ITs state law claims

based on an erroneous summary judgment in Long Beach I,

petitioners sought to foreclose respondents from ever having a

trial in Long Beach II on the merits in either the state or federal

courts. Having lost in the Court of Appeals, petitioners now seek

the same result in this Court. Failing that, petitioners seek a delay

in ruling on this petition for as long as this Court will tolerate it.

Petitioners’ maneuvering to avoid trial of Long Beach I and Long

Beach II should end now.

15

CONCLUSION

The petition for a writ of certiorari should be denied.

DATED: January 25, 1990

Respectfully submitted,

GARY L. HALLING

Royce H. SCHULZ JOHN K. VAN DE Kamp

Gary L. HALLING* Attorney General

THOMAS °). NEVINS ee

par spiroe gry Chief Assistant Attorney

LARSON & WINEBERG Generel

One California Street, 14th FI.

San Francisco, CA 94111 SANFORD N. GRUSKIN

(415) 986-0300 Assistant Attorney

General

ee 3580 Wilshire Boulevard

HOECKER, MCMAHON & Los Angeles, CA 90010

WADE RICHARD N. LIGHT

612 S. Flower Street Deputy Attorney General

Suite 800 State Building, Room 6000

Los Angeles, CA 90017 350 McAllister Street

(213) 617-8133 San Francisco, CA 94102

JOHN R. CALHOUN

City Attorney

James N. MCCABE

Deputy City Attorney

333 West Ocean Boulevard

Long Beach, CA 90802

Counsel for Respondents

The People of the State of California,

The State of California and The City of Long Beach

* Counsel of Record