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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1990
- **Citation:** 493 U.S. 1076

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0807%3A3. Public record. Not legal advice.