Appendix — Aluminum Co. of America v. Woods Exploration & Producing Co.

Supreme Court brief1972

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LISRARY ' Supreme Court, WS.

SUPREME COURT, up FILED

MAY 15 1971

E. ROBERT SEAVER, CLERK

In THE

Supreme Court of the United States

Ee 70-173

Auuminum Company oF AMERICA, ET AL,

Petitioners,

Woops Expioration & Propuctne Company, Inc., ET AL,

Respondents.

APPENDIX

To Petition For Writ of Certiorari To The United States

Court of Appeals For The Fifth Circuit

Leroy JEFFELS

Ross N. STeriine

Rosert FE. Morse, Jr.

Cartes T. Newton, JR.

Attorneys for Petitioners

Aluminum Company of America

Crown Central Petroleum

Corporation

Lavaca Pipeline Company

Of Counsel:

Vinson, Exxrins, Szants & Smite |

First City National Bank Building

Houston, Texas 77002 — 225-2411

es IIT Yr waren

CONTENTS

Woods Exploration & Producing Co., Inc. v. Aluminum

Company of America, 284 F. Supp. 082 (S. D. Tex.

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Woods Exploration & Producing Co., Inc. v. Aluminum

Company of America, 304 F. Supp. 845 ‘$.D. Tex.

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Woods Exploration & Producing Co., Inc. v. Aluminum

Company of America, Nos. 28763 and 29487, Slip

Opinion dated January 5, 1971, 1971 CCH Trade

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Woods Exploration & Producing Co., Inc. v. Aluminum

Company of America, rehearing denied per curiam,

Nos. 28763 and 29487, Slip — dated March 17,

1971 . sslscesilah dietetics

Railroad Commission v. Woods thiciieidce & Pro-

dneing Co., Inc., 405 S.W.2d 313 (Tex. 1966) ............

Railroad Commission v. Aluminum Company of

America, 380 S.W.2d 599 (Tex. 1964) oes

Benz-Stoddard v. Aluminum Company of America,

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Article 6008, Texas Revised Civil Statutes Annotated

Sts he HE Ie as 4, Ady 0a

Wooos Exptoration & Propuctine Co., Ine., ET AL.

AnuMinumM CoMPpANy OF AMERICA, ET AL.

Civ. A. No. 14669

United States District Court

S. D. Texas,

Houston, Texas.

March 29, i968

Memorandum and Order

SINGLETON, District Judge.

In December, 1962, plaintiffs, Woods Exploration & Pro-

ducing Company, Stanley C. Woods, and Southeastern Pipe

Line Company, filed the instant antitrust action against

defendants, Aluminum Company of America, Crown Petro-

leum Corporation and Lavaca Pipe Line Company,’ seeking

injunctive relief and treble damages for alleged violations

of the Sherman and Clayton Antitrust Acts, 15 U.S.C.

§§ 1, 2, 15, 26 (1964). By their complaint, plaintiffs charged

that defendants had restrained trade in the production

and marketing of natural gas from the Appling Gas

Field in Jackson and Calhoun Counties, Texas, and that

defendants had monopolized and/or attempted to mo-

nopolize tiie production and marketing of gas from the

field. Plaintiffs sought to recover as dsmages the loss of

production from their wells in the field which had been

occasioned by the entry of orders by the Texas Railroad

Commission setting production allowables for plaintiffs’

wells at levels lower thar plaintiffs thought they should

have received. Plaintiffs sought to ho!d defendants liable

1 Plaintiffs also named as defendants certain employees of the de-

fendant corporations. By stipulation and through the filing of

their Third Amended Complaint, however, plaintiffs have

dropped these parties as defendants.

for this loss on the ground that the Railroad Commission

orders had been based, at least in part, on false nomina-

tion forecasts and repurts filed by defendants with the

Commission.

Defendants responded with a motion to dismiss for fail-

ure to state a claim, and, in the alternative, a motion for

summary judgment. Both motions were overruled by an-

other judge of this district, Woods Exploration & Produc-

ing Co. v. Aluminum Company of America, 36 F.R.D. 107

(S...Tex.1963), and in October, 1963, the Court of Appeals

for the Fifth Circuit denied with the following order

defendants’ attempted interlocutory appeal from the order

overruling their motion to dismiss.

“Since the order sought to be reviewed is mereiy the

denial of a motion to dismiss the complaint, leave to

take interlocutory appeal should be, and it is hereby

DENIED, but without prejudice to an application in

the future from ony appropriate order made by the

District Court after completion of pretrial discovery

or other pretrial procedures revealing the factual basis

for the respective claims and defenses as distinguished

from mere pleadings.” (Emphasis Added.)

In 1966, the case was transferred to this court as a docket

equalization measure. Now, after the completion of ex-

tensive pretrial discovery, defendants have again moved

for summary judgment. After reviewing thoronghly the

numerous briefs filed by each side, as well as conducting

an oral hearing on the motion, I feel compelled to disagree

with the conclusion reached by my brother judge in his 1963

decision.

Before proceeding to the merits of the motion, however,

I feel some comment is in order regarding plaintiffs’ cox-

tention that this Court is without the power to entertain

the motion — that the prior ruling by a different judge has

become the law of the case. In view of the fact that I reach

the merits, needless to say I disagree. The wording of the

appellate court order seems to invite the current motion,

and, moreover, the law does not require a judge who will

ultimately handle a case to decline to make an independent

and objective determination of issues which are properly

raised, Rather, whether to go into the merits of a ques-

tion previously decided in a case prior to final judgment

is a matter within the considered discretion of the judge.

See Beedy v. Washington Water Power Co., 238 F.2d 123,

127 (9th Cir. 1956). See also 3 Barron & Holtzoff, Federal

Practice & Procedure § 1192 (Wright ed. Supp. 1966); 1B

Moore, Federal Practice, Para. 0.404[4], at 452. As stated

by the Court in Ward v. Louisiana Wildlife Comm’n., 224

F.Supp. 252 (E.D.La. 1963),

“A United States district judge is most reluctant to ;

reverse or change a ruling or order of another district

judge, sitting on the same case, in the same court, and

will do so only for the most compelling reasons. How-

ever, the authority of,a judge to overrule a previous

decision of a prior judge, sitting on the same case in

the same court is well established * * * . The United

States Supreme Court has rejected a doctrine of dis-

ability at self correction * * * .” Id. at 255. (Emphasis

Added.)

By amended complaint, plaintiffs have now specified

various ether activities of the defendants taken pursuant

to the alleged conspiracy. In iarge part, these allegations

relate to a course of litigation either initiated by defendants

or which was brought about by defendants’ successful ef-

forts to influence the Railroad Commission in setting field

orders which applied to the Appling Field. Since the same

basic principles which apply to the allegations concerning

the filing of false nominations apply aiike to the latter

allegations, they will also be considered.

After reviewing the numerous depositions and papers

fiied in the case, it is clear that there are disputed issues

of fact on whether defendants actually conspired together

and whether they deliberately filed the false nominations

or brought about the litigation in question as part of a

conspiracy. However, even if plaintiffs’ allegations in these

respects are true, plaintiffs would still not be entitled to

recover damages for these activities. Thus for the purposes

of this motion, I accept plaintiffs’ basic allegations as true.

Liberty Leasing Co., Inc. v. Hillsum Sales Corp., 380 F.2d

1013, 1014-15 (5th Cir. 1967).

FILING OF FALSE NOMINATIONS

A. The Factual Contezt.

Plaintiffs own, operate, or have an economic interest in

wells dri'led on small tracts located within a fifty-nine acre

area lying in the heart of the Appling Gas Field. Most of

plaintiffs’ wells have been drilled as exceptions to the gen-

eral spacing rule which restricts the drilling of wells to

one well every 320 acres.? Defendants, on the other hand,

own or have an interest in wells which have been drilled

2 Statewide Rule 37, Tex. R.R. Comm’n Rules & Regs. 1, at 15,

Oil & Gas Rep. 1320 (1962). See generally Hardwicke & Wood-

ward, Fair Share and the Smal! Tract in Texas, 41 Texas L.Rev.

75 (1962) ; Hardwicke, Oil-Well Spacing Regulations and Pro-

tection of Property Rights in Texas, 31 Texas L.Rev. 99 (1952).

Most of plaintiffs’ wells were drilled on extremely small tracts,

some being located on tracts of less than 2/10 of an acre. De-

fendants’ First Brief in Support of Summary Judgment, p. 3;

Plaintiffs’ First Opposition Brief, p. 2. See generaliy Railroad

Comm’n v. Aluminum Company of America, 380 S.W.2d 599

(Tex.1964), reversing 368 S.W.2d 818 (‘’ex.Civ.App.— Austin

1963).

on large tracts subject to the general spacing rule. The

allowable production which each vvell in the field is per-

mitted to produce is set monthly by order of the Texas

Railroad Commission. For the purpose of preventing waste,

the Commission is charged with the task of limiting total

production from the field to the reasonable market demand

for gas made upon the field. Tex.Rev.Civ.Stat.Ann. art. 6008

§3(h) (1964). Each producing well is entitled to its fair

share of the total allowable field production, id § 12, an

amornt which has been held to be roughly equivalent to

the gas in place under the tract on which the well is drilled.*

In the Appling Field, after first determining the total

allowable for the field, the allewable for each well is

determined bv application of a one-third—two-third pro-

ration formula. One third of the field allowable is divided

equally among the wells, and two-thirds is divided among

the wells in the proportion to which the surface acreage

on which the well is drilled bears to the combined surface

acreage of all wells in the field. The heavy weight given

to the well factor by this formula has meant that producers

with wells on small tracts have been permitted by the

Commission to extract far more gas than that underlying

their tracts, thereby draining gas from beneath the larger

8 Where the lessee or owner of a small tract has been granted a

permit to drill a well as a Rule 37 exception, this means that “it

is the duty of the commission to adjust the allowable, based upon

the potential production, so as to give the owner of such smaller

tract only his just proportion of the oil and gas. By this method,

each person will be entitled to recover a quantity of oil and gas

substantially equivalent in amount ‘o tl.e recoverable oil and gas

under his land.” Brown v. Humble Oil & Ref. Co., 126 Tex. 296,

83 S.W.2d 935, 944 (1935). (Emphasis Added.) See also Manu-

facturer’s Gas & Oil Co. v. Indiana Natural Gas & Oil Co., 155

Ind. 461, 57 N.E . 912, 50 L.R.A. 768 (1900). In some instances,

and particularly in the Appling Field, this “ideal” aliocation

of gas has not been attained. See Notes 4 and 5 infra.

adjoining tracts.‘ The inequitable effect of the formula has

been compounded, moreover, by the fact that many wells

on large tracts, although producing at full capacity, have

been unable to produce even the allowable assigned to them

under the formula. As a result the amount they have been

unable to produce has been allocated by the Commission to

the small-tract wells not already producing at full capa-

city.’ It is in this context that the plaintiffs complained of

S.W.2d 599 (Tex. 1964), however, the court upheld the for mula

insofar as it applied to the Appling Field on the ground that the

the life of the field drain several million dollars worth of

from beneath tracts leased to Aluminum Company of America

alone, id. at 604, it found other factors to be more persuasive

“There are many reasons why stability in respect to pro-

ration formulas is vital to the well being of the industry as a

whole, to the property owners in the field and to the public

at large. It is a matter of common knowledge that well

have invested iz royalties and other oil and gas interests.

Loans have been made with these properties as security, and

taxes have been levied by various municipal and school

authorities. It is well known that the economy of the whole

;

5 Railroad Comm’n v. Woods Exploration

S.W.2d 313, 316 (Tex.1966).

line

inl

completed nt

wells were located on 7.132 acres, while the remaining

situated on a 328 acre unit. * * * The total

all 18 wells was approximately 898,000 MCF per month,

production forecasts results in the determination that reasonable

g288

Fee

defendants’ filing false production forecasts which reduced

the total field allowable.

B. The Nomination Procedure.

As previousiy stated, the total allowable for a field is set

at what the Railroad Commission determines to be the

reasonable market demand for the field’s gas. No statutory

provision prescribes the procedure by which market de-

mand is to be determined, and thus the matter falls under

the rule-making power of the Commission. The usual pro-

cedure which the Commission follows is set out in Statewide

Rule 31. Under its provisions, market demand is ordinarily

determined primarily on the basis of Producer’s Forecasts

filed with the Commission by operators having wells in the

field. These nominations state the volume of gas which

each producer expects to be able to market from his wells

the following month. The nominations are totaled and, if

the Commission concludes that their total accurately re-

flects market demand, the total becomes the field allowable

to which the one-third—two-third formula is applied. If the

Commission disagrees with the forecasts, however, it may

consider other factors such as average production for the

previous twelve months, or nominations filed hy purchasers

of gas. Railroad Comm’n v. Woods Exploration & Pro-

ducing Co., 405 S.W.2d 313, 315 (Tex. 1966). In most in-

stances in the Appling Field the producer’s forecasts are

market demand, and hence the reservoir allowable, for the month

was approximately 880,000 MCF. Under the basic 144 — 2% allo-

eation formula, the large tract well was entitled to an allowable

of 591,000 MCF. * * * The productive capacity of the single

large tract well was only about 34.000 MCF, and in accordance

with the usual Commission procedures some 557,000 MCF were

allocated to the [small tract] wells * * ** in addition to their

shares of the reservoir allowable as determined by application

of the 44 — % formula.” Ibid.

corrected by the difference between the total of the current

nominations and total actual production which was allowed

for the second preceding month.®

C. The Liability Issue.

Whether plaintiffs can recover for the loss of production

they allegedly suffered as a result of the low allowables

set by the Railroad Commission involves a now rather un-

developed area of federal antitrust law. As state regula

tion of the economy increases, however, and particulariy

in the area of conservation, it can easily be predicted that

many questions will arise similar to those raised in the

instant case.’

6 Under this method of determining the field allowable, the follo-r-

ing calculations would be involved.

(a) Total nominations for Second Pr ceding Month 119

Total allowable for non-prorated wells for Second Preced-

ing Month _ 20

Total nominations for Prorated Wells for Second Preced-

ing Month _ 99

Total Actual Production of Prorated Wells in Second Pre-

ceding Month 80

Difference 10

(b) Total Nominations for Current Month 110

Difference Between Total Nominations and Actual Pro-

duction in Second Preceding Month —1)

Total Field Allowable for Current Month for All Wells 100

Tex. R.R. Comm’n Rules & Regs. Appendix, at 39; see

Parris & Edgerton, Non-Associated Gas Proration 4

(1961). See also Weyraouth v. Colorado Interstate Gas

Co., 367 F.2d 84, 98-99 (5th Cir. 1966).

7 In some instances, Congress has recognized that there is a basic

conflict between the competitive thrust of the antitrust laws and

the anticompetitive thrust of state regulatory schemes. For in-

stance, in the area of insurance, Congress has sought to eliminate

friction which might result because of simultaneous application

of state and federal law.

The starting point in this and any other antitrust case

not involving a matter of per se illegality is Standard Oil

Co. of New Jersey v. United States, 221 U.S. 1, 51-52, 31

S.Ct, 502, 55 L.Ed 619 (1911), in which the Supreme Court

announced the “rule of reason” as the test for determining

the applicability of the antitrust laws to a given situation.

Pursuant to this test, it has been held consistently that as

a matter of statutory interpretation the Sherman Act does

not apply to the actions of a state. As stated by the court

in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed.

315 (1943) :

“No Act of Congress shall be construed to invalidate, impair,

or supersede any law enacted by any State for the purpose of

regulating the business of insurance * * * unless such Act

specifically relates to the business of insurance: Provided,

That * * * [the federal antitrust laws] shall be applicable to

the business of insurance to the extent that such business is

not regulated by State law.” (Emphasis Added.)

McCarran Ferguson Act, 15 U.S.C. § 1012(b) (1963) ; see Miley

v. John Hancock Mut. Life Ins. Co., 148 F.Supp. 299 (D.Mass.

1957). A comparable forthright apprcach to resolving similar

conflicts in the oil and gas area would not be inappropriate, for

there are many parallels between state regulation of both indus-

tries, state regulation of both being equally comprehensive and

detailed.

The federal courts have been careful to avoid applying the Sher-

man Act where its application might conflict with the Federal

Power Commission’s regulation of the natural gas industry.

Interstate Nat. Gas Co. v. Southern California Gas Co., 102

F.Supp. 685, 103 F.Supp. 317 (S.D.Cal.1952), aff'd), 209 F.2d

380 (9th Cir. 1953). Moreover, the activities made the subject

matter of the instant suit involve Railroad Commission regula-

tions concerning the production and gathering of natural gas

from the Appling Field, and this subject Congress has chosen to

exempt from federal supervision in favor of state regulation.

Natural Gas Act, 15 U.S.C. §717(b) (1963). Therefore, since

these activities are subject to exclusive regulation by the Texas

Railroad Commission, a like caution and deference should be

shown when the alleged Sherman Act violation involves Railroad

Commission regulations and matters subject to the Commission’s

exclusive jurisdiction.

“(There is] nothing in the language of the Sherman

Act or in its history which suggests that its purpose

was to restrain a state or its officers or agents from —

activities directed by its legislature. In a dual system

of government in which, under the Constitution, the

states are sovereign, save only as Congress may con-

stitutionally subtract from their authority, an unex-

pressed purpose to nullify a state’s control over its

officers and agents is not lightly to be attributed to

Congress.

“The Sherman Act makes no mention of the state as

such, and gives no hint that it was intended to restrain

state action or official action directed by a state.” Id. at

350-351, 63 S.Ct. at 313.

Accordingly, the states have been left free to regulate in-

dustries within their boundaries by curtailing competition

or eliminating it altogether, Asheville Tobacco Board of

Trade, Ine. v. FTC, 263 F.2d 502, 505 (4th Cir. 1959), sub-

ject only to the limitations inherent in the commerce clause

or any restrictions imposed by federal statutes. However,

when a private party as opposed to a state itself has been

sought to be held liable for damages resulting from re-

straints imposed by a state, the cases reflect more than a

little uncertainty on whether, and in what situations, the

private party whose improper conduct is the reason the

state has imposed a trade restraint is immune simply be-

cause the restraint was imposed by the state.®

8 For example, in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 207,

87 L.Ed. 315 (1943), Eastern Railroad President’s Conf. v.

Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d

464 (1961), and United Mine Workers of America v. Penning-

ton, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Bd.2d 626 (1965), three

eases which were finally decided in the Supreme Court, the lower

courts were reversed for imposing liability. Also, there appears

In Eastern Railroad Presidents Conf. v. Noerr Motor

Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5L.Ed.2d 464

(1961), forty-one Pennsylvania truckers and their trade as-

sociation brought suit against twenty-four railroads and

an association composed of the presidents of each railroad.

The truckers charged that the railroads had conspired -to

restrain trade in and monopolize the long-distance freight

business in violation of the Sherman Act. The essence of

the conspiracy was that the railroads had conducted a

publicity campaign against the truckers designed to foster

the adoption and retention of laws and law enforcement

practices destructive of the trucking business. The cam-

paign proved successful, for the railroads persuaded the

governor of the state to veto a “Fair Truck Bill” which

would have permitted the truckers to haul heavier loads

over the state’s highways. Moreover, the publicity campaign

had the additional effect of destroying much of the truckers’

good will. The district court found that the publicity cam-

paign was fraudulent and malicious and that its sole

purpose was to destroy the truckers as competitors even

though no legislation was secured. For this reason, it

awarded substantial damages for the truckers’ loss of good

will. However, the district court was also of the view that

restraints of trade and moncpolizations resulting from

valid governmental action are not actionable under the

Sherman Act and thus refused to award damages for the

loss of business caused by veto of the “Fair Truck Bill.”

to be a conflict on whether joinder of the state official who uses

his office to impose the restraint makes a difference on whether

the private party can be held liable. Compare Harman v. Valley

Nat’l Bank of Arizona, 339 F.2d 564 (9th Cir. 1964), with Miley

v. John Hancock Mut. Life Ins. Co., 148 F.Supp. 299 (D.Mass.

1957). See also E. W. Wiggins Airways, Inc. v. Massachusetts

Port Authority, 362 F.2d 52 (1st Cir. 1966). In the instant

action, there is nv issue concerning the liability of the Railroad

Commission or any individual member thereof.

Noerr Motor Freight, Inc., v. Eastern Railroad President’s

Conf., 166 F.Supp. 163, 172-72 (E.D.Pa. 1958). The Court

of Appeals affirmed with one judge dissenting. Eastern

Railroad President’s Conf. v. Noerr Motor Freight, Inc.,

273 F.2d 218 (3a Cir. 1959). Applying the “rule of reason”,

however, the Supreme Court reversed, holding that the

truckers could as a matter of law recover no damages for

injury sustained because of the efforts of the railroads to

influence governmental action.

In reaching this result, the Court noted that there was

an “essential dissimilarity” between the lobbying activities

conducted by the railroads and the activities normally pro-

hibited by the Act, and that to impose liability for this con-

duct would raise serious constitutional questions and polit-

ical difficulties.

“We think it * * * clear that the Sherman Act does

not prohibit two oz more persons from associating

together in an attempt to persuade the legislature or

the executive to take particular action with respect to

a law that would produce a restraint or a monopoly.

* * * [The railroads’ activities] bear very little if any

resemblance to the combinations normally held viola-

tive of the Sherman Act, combinations ordinarily char-

acterized by an express or implied agreement or un-

derstanding that the participants will jointly give up

their trade freedom, or help one another to take away

the trade freedom of others through the use of such

devices as price-fixing agreements, boycotts, market-

division agreements, and other similar arrangements.

This essential dissimilarity between an agreement

jointly to seek legislation or law enforcement and the

agreements traditionally condemned by § 1 of the Act,

even if not itself conclusive on the question of the

applicability of the Act, does constitute a warning

against treating the defendants’ conduct as though it

amounted to a common-law trade restraint. * * *

(Moreover, to impose liability] would substantially

impair the power of government to take actions through

its legislature and executive that operate to restrain

trade. * * * To hold that the government retains the

power to act in this representative capacity and yet

hold * * * that the people cannot freely inform the

government of their wishes would impute to the Sher-

man Act a purpose to regulate, not business activity,

but political activity, a purpose which would have no

basis whatever in the legislative history of that Act.

Secondly, and of at least equal significance, such a

construction of the Sherman Act would raise important

constitutional questions. The right of pctition is one

of the freedoms protected by the Bill of Rights, and

we cannot, of course, lightly impute to Congress an

intent to invade these freedoms.” Id, 365 U.S. at 136-

138, 81 S.Ct. at 529. (Emphasis Added.)

Plaintiffs seek to distinguish Noerr on the ground that

it exempts only “political activity” from the scope of the

Sherman Act and thus is not controlling for they contend,

the filing of false nomination is properly “business activity”

and not “political activity” protected by Noerr. This prof-

fered distinction, I think, places more emphasis than is

warranted on the phrase “political activity,” as used by

the Court in Noerr. Plaintiffs contend that protected “po-

litical activity” encompasses only lobbying activities or

influence peddling and does not apply to a situation such

as this where the defendants and all other producers are

required by Commission regulations to submit nominations

under oath. There is some doubt whether this line of reason-

ing is accurate. In Sterling Nelson & Sons, Inc. v. Rangen,

Ine., 235 F.Supp. 393,400 (D.Idaho 1964), for example, the

Court held that there was no liability even though the

defendant had bribed a state official to use his position to

impose a trade restraint harmful to the plaintiff. In addi-

tion, it has been held in other cases that there is no lia-

bility although the conduct complained of violates a valid

state penal statute® or even thongh the conduct gives rise

to a civi] cause of action under state law.’ Tf activities of

this character are not within the ambit of the antitrust laws,

then it is difficult to perceive how the activities of the

‘defendants here can be viewed differently. However, it is

unnecessary to resolve the issue on a determination that

the filing of false nominations is or is not political activity.

The mere manipulation of labels does not determine the

outcome of this case, for as made clear by other cases,

liability is precluded if the restraint complained of results

from. otherwise valid governmental action even though

brought about by the improper conduct of a private party.

Plaintiffs limited construction of Noerr ignores the fact

that the Supreme Court did not disapprove the district

court’s holding that the truckers could recover no damages

for injury resulting from any valid action of the state.

See 365 U.S. at 135-136, 60 S.Ct. 982. In Parker v. Brown,

supra, and United States v. Rock Royal Cooperative,, 307

U.S. 533, 59 S.Ct. 993, 83 L.Ed. 1446 (1938), the Suprem;

Court had previously upheld goverment regulatory

schemes involving the production and marketing of milk and

raisins even though the schemes permitted and required

some pa-ticipation by the producers affected. In both cases,

the Court held that the regulation itself was not invalid

because it constituted a restraint on trade and also that the

® E. g., Apex Hosiery Co. v. Leader, 310 U.S. 469, 483, 60 S.Ct. 982,

84 L.Ed. 1311 (1940) ; Parmelee Transportation Co. v. Keeshin,

292 F.2d 794 (7th Cir. 1961) ; Schenley Industries, Inc. v. New

Jersey Wine & Spirit Wholesalers Ass’n., 272 F.Supp. 872 (D.

N.J. 1967).

10 F. g., Hunt v. Crumbock, 325 U.S. 821, 826, 65 S.Ct. 1545, 89

L.Ed. 1954 (1945) ; Apex Hosiery Co. v. Leade., suyra note 9,

310 U.S. at 483, 60 S.Ct. 982; Norville v. Globe Oil & Ref. Co.,

303 F.2d 281 (1962); Parmelee Transportation Co. v. Keeshin,

supra note $, 202 F.2d at 804; Sterling Nelson & Sons, Inc. v.

Rangen, Inc., supra, 235 F.Supp. at 400.

producers who were benefitted by the regulation and who

were instrumental in initiating it could not be held liable

in damages.

In United Mine Workers v. Pennington, 381 U.S. 657,

85 S. Ct. 1585, 14 L.Ed. 2d 626 (1965), decided four years

after Noerr, the Mineworkers’ Union.and several large coal

producers conspired to drive smaller coal producers out of

business, In furtherance of the conspiracy, they persuaded

the Secretary of Labor to set a higher minimum wage for

the employees of coal producers selling to the TVA and

induced the officials of TVA itself to reduce the number of

the TVA’s “spot market” purchases — many of which were

exempt from the minimum wage requirements of the Walsh-

Healey Act. The district court awarded substantial damages,

and the court of appeals affirmed, distinguishing Noerr on

the ground that although the conduct complained of might

be lawful when standing alone, it became unlawful when

shown to be a constituent part of a larger, unlawful conspi-

racy. Pennington v. United Mine Workers, 325 F.2d 804 (6th

C:r. 1963). The Supreme Court reversed, but in doing so

chose not to rest its decision alone on the ground that the

activity was protected “political activity” within the mean-

ing of Noeri. Rather the Court went further and inter-

preted Noerr more broadly:

“There is another reason for remanding this case for

further proceedings in the lower courts. It is clear

under Noerr that Phillips could not collect any damages

under tne Sherman Act for any injury which is suffered

from the action of the Secretory of Labor. The conduct

of the union and the operators did not violate the Act,

the action taken to set a minimum wage for government

purchases of coal was the act of a public official who is

not claimed to be a co-conspirator, and the jury should

have been instructed, as UMW requested, to exclude any

damages which Phiilips may have suffered as a result 0 f

the Secretary’s Walsh-Healey determinations.” Id. 381

U.S. at 671,, 85 S.Ct. at 1594. (Emphasis Added.) See

also United States v. Johns-Manville Corp., 259 F.

Supp. 440 (E.D.Pa.1966).

Perhaps of even more significance than this statement in

the opinion is the fact that the Court cited with approval

the decision of the court of appeals in Okefenokee Rural

Elec. Membership Corp. v. Florida Power & Light Co., 214

F.2d 413 (5th Cir. 1954), a case which is closely in point

with the instant action. In Okefenokee, the plaintiff brought

suit against Florida Light & Power Company and the City

of Jacksonville, Florida, alleging that these defendants had

“engaged in an unlawful combination and conspiracy to

monopolize and exercise exclusive control over the terri-

tory” into which plaintiff was seeking to extend electric

power lines. The only feasible route from an engineering

and economic standpoint along which a new power line

could be built lay along Federal Highway 17. On January

25, 1952, plaintiff staked a proposed line along the highway,

and on February 26, 1952 it applied to the Florida State

Road Department for permission to construct a line along

the route. During this period, however, the defendants con-

structed a “spite line” along the same route for the sole

purpose of defeating plaintiff's application for a permit.

Only two persons could be served by the defendants’ spite

line, and indeed the only wire placed on the line by the

City was a “neutral strand.” In pursuance of the conspiracy,

the City made a false argument before the Road Depart-

ment that a line had already been constructed and that no

new line should be built. As a result of these two actions,

the Road Department denied plaintiff's application. More-

over, the defendants conducted a smear campaign against

plaintiff, thereby causing the County Commissioners of

Duval County to pass discriminatory regulations applicable

only to plaintiff and designed to prohibit plaintiff from

operating in Duval County. The district court dismisse?

the complaint for failure to state a claim. The court of

appeals affirmed, reasoning that since the plaintiff had no

right to use the highway route without a permit from the

state nor any route along the county roads without per-

mission of the Board of County Commissioners, the plaintiff

had suffered no “legal injury.”

I think the principle announced in Pennington and Oke-

fenokee is controlling as to the damages plaintiffs allegedly

suffered because of the allowables set by the Railroad Com-

mission. Plaintiffs, however, have advanced two conten-

tions as a basis for taking their action outside the scope

of these precedents. First, they seek to distinguish Oke-

fenokee on its facts, but this they have not successfully

done. Plaintiffs contend that Okefenokee is distinguishable

because they have been granted a permit to drill and pro-

duce gas whereas the plaintiff in Okefenokee was injured

because of the state’s refusal to grant a permit. This dis-

tinction is tenuous at best, for its thrust is to limit Oke-

fenokee’s application to cases involving the denial of

permits by state agencies, a limitation which is inconsist-

ent with the Court’s reasoning. As stated by Judge Biggs

“implicit in [the Okefenokee] ruling is the legal conclu-

sion that liability under the Sherman Act cannot be sus-

tained by virtue of official action of a State agency, how-

ever inspired by the acts of individual.” Eastern Railroad

President’s Conf. v. Noerr Motor Freight, Inc., 273 F.2d

218, 226 (3rd Cir. 1959) (dissenting opinion) (Emphasis

Added.) Moreover, there are two crucial similarities be-

tween the two cases. In both, the injury complained of

resulted directly from specific action taken by a state ad-

ministrative agency on the basis of false information pro-

vided by private parties. Secondly, just as certainly as the

plaintiff in Okefenokee had no legal right to use a particular

route for the construction of a power line without the con-

sent of the State of Florida, the plaintiffs here have no

legal right to produce an amount of gas in excess of the

specific allowable assigned to them by the State of Texas

acting through the Railroad Commission. See Tex.Rev.

Civ.Stat.Ann.art. 6008 § 16 (1964).

Plaintiffs’ second contention is that, since each producer

is required by the Railroad Commission to submit produc-

tion forecasts under oath so as to provide information on

the basis of which the Commission sets allowables, the pro-

ducers are in effect possessed of broad discretionary powers

by which they set the allowables themselves and thus the

case is controlled by Continental Ore Co. v. Union Carbide

& Carbon Corp., 370 U.S. 690, 82 S.Ct. 1404, 8 L.Ed.2d 777

(1962).

In Continental Ore, the plaintiff brought suit against sev-

eral American corporate defendants alleging that they had

conspired to restrain trade and commerce in the produc-

tion and selling of vanadium and that they had conspired

to monopolize the vanadium market. Among other elements

of damages, plaintiff sought to recover damages which

it had suffered by being eliminated from competition

in the Canadian market. After Canada’s entry into

World War II, the Canadian Government had taken

measures to assure the maximum availability of strategic

metals to private Canadian industries engaged in the war

effort. The Office of Metals Controller was established and

given broad powers to regulate the procurement of mate-

rials and to allocate them to industrial uses. The Metals

Controller delegated to a Canadian corporation, a wholly

owned subsidiary of one of the defendants, the discretionary

power to purchase vanadium and to allocate them to indus-

trial users. In pursuance of the conspiracy, the parent cor-

poration directed its subsidiary in making vanadium rur-

chases so that the plaintiff lost all its customers and was

eliminated from the Canadian market. The district court

refused to award damages for this injury, and the court of

appeals affirmed. Continental Ore Co. v. Union Carbide &

Carbon Corp., 289 F.2d 89 (9th Cir. 1961). The Supreme

Court, however, reversed, and with a unanimous opinion

held that the parent’s use of the subsidiary’s discretionary

power as the agent of a foreign state in order to drive a

competitor out of business was actionable under the anti-

trust laws.

In speaking to the defendants’ contention that they could

not be held liable because the injury was inflicted by an

agent of a foreign state, the Court stated:

“What the petitioners here contend is that the respond-

ents are liable for actions which they themselves jointly

took, as part of their unlawful conspiracy, to influence

or to direct the elimination of Continental from the

Canadian market. * * * From the evidence which peti-

tioners offered it appears that Continental complained

to the Canadian Metals Controller that Continental had

lost its Canadian business. * * * But there is no indica-

tion that the Controllée. or any other official within

the structure of the Canadian Gevernment approved

or would have approved of joint efforts to monopolize

the production and sale of vanadium or directed that

purchases from Continental be stopped. The exclusion

Continental claims, resulted from the action of Electro

Met of Canada [the subsidiary], taken within the area

of its discretionary powers granted by the Metals Con-

troller and in concert with or under direction of the

respondents.” Id. 370 U.S. at page 706, 82 S.Ct. at page

1414. (Emphasis Added.)

Unlike Continental Ore, however, the defendants here

have been delegated no discretionary power to set gas pro-

duction allowables in the Appling Field. The Texas Su-

preme Court made clear in Railroad Comm’n v. Woods Ex-

ploration & Producing Co., 405 S.W.2d 313 (Tex. 1966),

that the Commission alone has the power and the duty to

set allowables. The procedure followed by the Commission

of requiring the producers to submit forecasts before the

allowables are set is no more than a mere “administrative

device.” Jd. at 319. The figures submitted by the individual

producers are not binding on the Commission, and it dves

not have to set allowables based on their mathematical

total. Thus any injury which any producer claims to have

suffered because of the allowable assigned to him is an

injury directly inflicted by the Railroad Commission and

not an injury inflicted by his fellow producers directly or

through the exercise of any discretionary power conferred

upon them by the State.

The injury which plaintiffs complain to have suffered

here because of the allowables assigned by the Railroad

Commission falls under the definition of state action set

forth in Parker v. Brown, supra, and thus does not con-

stitute a recoverable element of damages in a federal anti-

trust action.

“It is the state which has created the machinery for

establishing the prorate program. Although the organ-

ization of a prorate zone is proposed by producers, and

a prorate program, approved by the Commission, must

also be approved by a referendum of producers, it is

the state, acting through the Commission, which adopts

the program and which enforces it with penal sanc-

tions, in the execution of a governmental policy. The

prerequisite approval of the program upon referendum

by a prescribed number of producers is not the im-

postion by them of their will upon the minority by

force of agreement or combination which the Sherman

Act prohibits. The state iself exercises its * * * au-

thority in making the regulation and in prescribing the

conditions of its application.” Id 317 U.S. at 352, 63

S.Ct. at 314. (Emphasis Added.)

As noted by the court of appeals for the Fourth Circuit:

“The teaching of Parker v. Brown is that the antitrust

laws are directed against individual and noi state ac-

tion. When a state has a public policy against free

competitior in an industry important to ti, the state

may regulate that industry in order to control or, in

a proper case, to eliminate competition therein. It may

even permit persons subject to such control to partici-

pate in the regulation, provided their activities are ade-

quately supervised by independent state officials.”

Asheville Tobacco Board of Trade, Inc. vy FTC, 263

F.2d 502, 509 (4th Cir. 1959).

The scheme for settling allowables is adequately controlled

by the Railroad Commisison, and under state law the plain-

tiffs have effective remedies to protect them against any

adverse effects which might flow from the filing of false

nominations. The filings of false nominations itself is a

violation of state nenal law.'! Tex.Rev.Civ.Stat.Ann. art.

6036ce (Supp. 1966). Additionally, the filing of false nomi-

nations will apparently support a cause of action under the

state’s statutory’* and common law.’* Simply by veiling

11 However, a “private antitrust complaint is not the appropriate

vehicle for state criminal laws whose enforcement is entrusted to

state or local prosecutors.” Schenley Industries, Inc. v. New

Jersey Wine & Spirit Wholesale Ass’n., 272 F. Supp. 872, 885

(D.N.J.1967). See also cases cited in note 10 supra.

12 Tex.Rev.Civ.Stat.Ann. art. 6049d § 13 (1964); see Woods Ex-

ploration & Producing Co. v. Aluminum Company of America,

382 S.W.2d 343 (Tex.Civ.App.—Corpus Christi 1964, writ ref’d

n.r.e).

13 See Pan American Petroleum Corp. v. Hardy, 370 S.W.2d 904

(Tex.Civ.App.—Waco 1964, writ ref’d n. r. e.); ef. Lone Star

Gas Co. v. Murchison, 395 8.W.2d 870 (Tex.Civ.App.—Dallas

1962, writ ref’d n. r. e.). The fact that damages are recoverable

in a civil action based on state law does not mean perforce that

damages are recoverable under the Sherman Act upon a similar

showing. As stated by the Supreme Court:

“(The Sherman Act] does not purport to afford remedies for

all torts committed by or against persons engaged in inter-

state commerce. * * * Whether the respondent’s conduct

amounts to an actionable wrong subjecting them to liability

for damages under [state law] is not our concern.” Hunt »

Crumbock, 325 U.S. 821, 826, 65 S.Ct. 1545, 1545, 89

L.Ed.1954 (1945).

their grievance under the penumbra of a conspiracy charge,

however, plaintiff’s cannot convert what are in essence only

violations of state law and what is primarly a matter of

state concern into a federal antitrust violation. Norville v.

Globe Oil & Ref. Co., 303 F.2d 281 (7th Cir. 1962); see

Natural Gas Act, 15 U.S.C. § 717(c) (1963). See also note

7 supra.

THE LITIGATION

The remaining allegations of plaintiffs’ complaint which

are involved in the present motion relate to efforts by de-

fendants taken before the Railroad Commission to bring

about a change in Commission rules and regulations and

to litigation instituted or defended by defendants involv-

ing the validity of certain Commission rules and regula-

tions. As to any efforts taken by defendants before the

Commission to influence the Commission to alter old rules

or promulgate new ones, it is clear that Noerr, Pennington,

and Okefenokee preclude liability. Compare Ramsey v.

United Mine Workers, 265 F.Supp. 388, 422 (E.D.Tenn.

1967). Moreover, if the doctrines set forth by these cases

are to have any meaning, plaintiffs are likewise precluded

from recovering as damages any legal or court costs which

they incurred in setting the rules aside. If defendants can-

not be held liable in the first instance for persuading the

Railroad Commission to enter a new field rule which later

becomes the subject matter of litigation, then it necessar-

ily follows that via the back door they cannot be held liable

for any loss they incurred while an order was in effect or

any costs which they incurred in setting it aside. Cf. Fiu-

mara v. Texaco, Inc., 204 F.Supp. 544 (E.D.Pa. 1962). This

conciusion controls as to any damages which plaintiffs seek

to recover because of the litigation in Railroad Comm’n v.

‘Woods Exploration & Producing Co., supra, in which the

Texas Supreme Court by a six to three decision struck down

a Commission order setting allowables for the field at a

level lower than reasonable market demand.

The remaining litigation identified by the parties in

their briefs was instituted by defendants in an attempt to

stop the dra*nage of gas from beneath their tracts because

of rules prescribed by the Commission. At lease one court

has held that Noerr applies to such joint efforts taken in

the courts by holding that “seeking lawful * * * judicial

actiou does not violate tie anti-trust laws, even if interstate

commerce is involved and even if the purpose and effect is

to curtail compeltion.” Bracken’s Shopping Center, Ine. v.

Ruwe, 273 F. Supp. 606 (S.D.Ill. 1967). But even if Noerr

does not extend this far, the litigation of which plaintiffs

complain cannot afford a recoverable element of damages,

for it is clear that the suits were initiated with probable

cause.

In Benz-Stoddard v. Aluminum Company of America,

368 S.W.2d 94 (Tex. 1963), suit was brought challenging the

validity of a Railroad Commission order, which, by treat-

ing vertically-separate reservoirs for prcration purposes,

allowed small-tract owners raltiple completions from a

single well. There, under the challenged Commission order,

a small-tract owner with a well located on a .115 acre tract

had already produced more than seven times the amount

of gas in place under her tract, and, if the order continued

in effect, would along with cther small-tract owners, be

allowed to further drain gas from beneath the larger, ad-

“ining tracts. In the second suit, Railroad Comm’n v. Alumn-

inum Company of America, 380 S.W.2d 599 (Tex.1964),

suit was brought challenging the validity of the one-third

— two-thirds proration formula as it applied to the Appling

Field. The Purpose of this latter suit was also to stop or

at least curtail the huge drainage of gas from beneath the

larger tracis of defendants. See note 5 supra. Both these

cases raised points of first impression for the Texas courts.

In the first case, the defendants were successful in advanc-

ing their contentions in the court of civil appeals. See

Aluminum Company of America v. Benz-Stoddard, 357 S.W.

2d 809 (Tex.Civ.App.—Austin). In the latter case, the de-

fendants were successful in both the trial court and the

court of civil appeals. Railroad Comm’n v. Aluminum Com-

pany of America, 368 S.W.2d 818 (Tex.Civ.App.—Austin).

The ultimate reversal in both cases by the Texas Supreme

Court does not detract from the conclusion that defendants

had probable cause to file the suits in question. It is not the

final disposition of a case which determines whether prob-

able cause existed at the outset. The judgments of the court

of civil appeals show conclusively that defendants had

probabie cause to believe that the challenged Commission

orders were invalid. Compare Citizen’s Wholesale Supply

Co. v. Snyder, 201 F. 907 (3d Cir. 1913); Bracken’s Shop-

ping Center, Inc. v. Ruwe, supra.

Therefore, it is ordered, adjudged, and decreed that the

plaintiffs in this cause are not entitled to recover as damages

any loss they might have suffered because of false produc-

tion forecasts filed by defendants with the Texas Railroad

Commission or any loss or expense which they might have

suffered as a result of any litigation identified in this opin-

ion concerning the validity of Railroad Commission rules,

regulations, or orders. However, since there are other

allegations in plaintiff’s complaint which, if true, would

entitle them to a favorable judgment, summary judgment in

favor of defendents is limited to the elements of damage

specified above. As to these:

This is a final judgment.

Counsel for defendents will draft and submit an appro-

priate order after first obtaining approval from counsel

for plaintiffs.

Woops Expioration & Propuctne Company, INc., ET AL.

AuLuMiINum Company oF AMERICA, ET AL.

Civ. A. No. 14669.

United States District Court

S. D. Texas,

Houston, Texas.

October 2, 1969.

Memorandum and Opinion

SINGLETON, District Judge.

This case involves alleged violations of section 1 of the

Sherman Antitrust Act! and an attempt to recover treble

dainages under the provisions of the Clayton Act.?

Plaintiff’s are Southeastern Pipe Line Company, a corpo-

ration, which after January 1, 1961, operated a pipeline be- ,

tween Appling Field in Jackson and Calhoun» Counties,

Texas, and the Tennessee Gas Transmission A line to

which it was connected at Francitas, Texas; Woods Ex-

ploration & Producing Compeny, Inc., a corporation which

operated as an oil and gas business; and Mr. Stanley C.

Woods. Mr. Woods owned all of the stock of Woods Ex-

ploration & Producing Company, Inc. and Southeastern

Pipe Line Company.

Defendants are Aluminum Company of America, com- —

monly referred to as “Alcoa,” a corporation that does busi-

ness and has operations in Texas and other state# Alcoa

owned, operated, and marketed gas reserves in Jackson and

Calhoun Counties, Texas, which it owned and operated

with Crown Central Petroleum Corporation, commonly

referred to as “Crown,” including gas reserves in the

Appling Field. Crown primarily manufactures motor gaso-

115 U.S.C. §1 (1963)...

215 U.S.C. § 15 (1963).

line, lubricating and fuel oils, and does business and has

operations in Texas and other states. Lavaca Pipe Line

Company, commonly referred to as “Lavaca,” is a corpo-

ration organized for the purpose of operating a pipeline,

and is a wholly owned subsidiary of Alcoa, and Lavaca

owned and operated a pipeline in the vicinity of the Appling

Field in Calhoun County, Texas.

The co-conspirators in the case are alleged to have been

F. E. Appling, a resident of El Campo, Wharton County,

Texas, Carl E. Siegesmund (Pocantico Oil & Gas Corpora-

tion, long before the suit succeeded to all of Siegesmund’s

interest), and Houston Pipe Line Company, a wholly owned

subsidiary of Houston Natural Gas Corporation, which was

organized for the purpose of operating a pipeline and for

the distribution and processing of natural gas and other

commodities. This company purchased jas produced in the

Appling Field, owned by Alcoa, Crown, and Pocantico and,

accepted delivery at the tail gate of Alcoa’s Point Comfort

Plant, and iransported a portion of such gés to Monsanto

Chemical Conipany in Texas City and Chocolate Bayou,

Texas.

This controversy arises out of the discovery of, the pro-

duction from, and the sale and transporation of natural

gas out of the Appling Field in Calhoun and Jackson Coun-

ties, Texas. This suit was originally filed in December of

1962. Initiall) the thrust of plaintiffs’ lawsuit centered

around the claim by plaintiffs that defendants had conspired

together to file false nominations with the Texas Railroad

Commission in an effort to restrain trade in the production

and marketing of natural gas and monopolized or attempted

to monopolize the production and marketing of gas from

this field. This Court granted defendants’ motion for sum-

mary judgment on this phase of the case.”

3 Woods Exploration & Prod. Co. et al. v. Aluminum Co. of

America et al., 284 F.Supp. 582 (S.D.Tex.1968).

Litigation between the parties arising out of the subject

matter of this suit has been extensive.‘ Trial of the instant

case was held after plaintiffs omitted from the case the

false nominations feature as a result of this Court granting

defendants’ motion for summary judgment. Woods Explora-

tion & Prod. Co. et.al v. Aluminum Co. of America et al.,

supra, and plaintiffs went to trial on their fourth amended

petition. The trial was before a jury. The jury was asked

two basic questions as follows:

Question No. One

Did defendants Alcoa and Crown enter into an illegal

contract, combination, or conspiracy to unduly and

unreasonably restrain the trade or commerce of drilling

for, producing, and transporting gas from the Appling

Field?

“Question No. Two

Did Alcoa and Crown monopolize or attempt to monop-

olize or conspire with F. E. Appling, Carl E. Sieges-

mund, or Houston Pipe Line Company, or any one of

them, to monopolize any appreciable part of the trade

and commerce of drilling for producing, and trans-

porting gas from the Appling Field?”

The Jury enswered Question No, One “No” and answered

Question No. Two “Yes.” There were other questions asked

and answered by the jury as a result of the affirmative an-

swer to Question No. Two, but for the purpose of this

Memorandum Opinion no useful purpose would be served

to detail those questions and the answers of the jury.’ In

4See generally Railroad Comm’n v. Aluminum Co. of America,

380 S.W.2d 599 (Tex.1964), reversing 368 S.W.2d 818 (Tex.

Civ.App.—Austin 1963), and Woods Exp. & Prod. Co. et al v.

Aluminum Co. of America et al., supra.

5 With respect to the jury’s answers to the other questions an-

swered, this Court is of the opinion that there is sufficient

evideace in the record to support the jury’s answers to these

questions.

eee

answer to the damage issue, the jury awarded damages to

plaintiff Southeastern Pipeline Company in the total

amount of $142,759.00, and awarded damages to Woods Ex-

ploration & Producing Company in the amount of $500.00.

This Court grants defendants’ motion for judgment not-

withstanding the verdict of the jury with respect to its

answer to Question No. Two.* In so doing, this Court, for

the reasons sect forth in this opinion, holds that there was

insufficient evidence to support the jury’s findings to Ques-

tion No. Two, and the Court should have granted defend-

ants’ motion for a directed verdict at the close of the evi-

dence.

The natural gas involved in this lawsuit is found in

what is known as the Appling Field in Jackson and Cal-

houn Counties, Texas, and a part of this field lies under

Carancahua Bay in those counties. The Appling Field was

discovered in 1953. The discovery well in this field was

completed as a gas producer in the Mid-Kopnicky in 1953.

Defendants in this case own or have leases on approxi-

lots amounts to considerably less than one-half of one per

cent of the entire acreage of the field. Arvund 1960 plain-

tiffs began leasing up these «mall lots and commenced drill-

ing operations and completed nine or ten gas wells. The

principle sand in the Appling Field is known as the Mid-

Kopnicky, Segment A, and is the deepest producing sand

and contains approximately 80% of the entire gas reserves

in the entire area.

Plaintiffs claim that as a result of the agreements the

defendants had among themselves and with the alleged co-

conspirators, defendants noi only attempted to prevent

plaintiffs from obtaining leases on the town lot sites, but

also after plaintiffs had obtained such leases defendants

refused to deal with plaintiffs to enable plaintiffs to drill

for, complete, transport, and market plaintiffs’ gas, and

defendants harassed plaintiffs in plaintiffs’ efforts to drill

and complete plaintiffs’ wells. As stated, plaintiffs did com-

plete nine or ten gas wells. Plaintiff Southeastern Pipeline

Company built a pipeline and transported through this

pipeline plaintiffs’ gas for marketing purposes. However,

plaintiffs contend that defendants should have allowed

plaintiffs to transport gas through defendant Lavaca Pipe-

line Company's pipeline, or, if not, that in connection with

plaintiffs building its pipeline defendants caused plaintiffs

to spend more money than plaintiffs should have had to

spend by forcing plaintiffs to selec: a longer and more

costly route for its pipeline, and that defendants’ harass-

ment of plaintiffs in connection with plaintiffs’ drilling

operations cost plaintiffs unnecessary additional money.

Plaintiffs allege that the combination or conspiracy and

the attempt to monopolize on the part of the defendants

originated with various agreements executed between

Alcoa, Crown, and Appling. These agreements are sum-

marized in plaintiffs’ Exhibits 2A, 3A, 167A, and 25A.

It is plaintiffs’ contention that after these agreements were

executed, defendants Alcoa and Crown and the alleged co-

conspirator F. E. Appling used the rights they acquired

in connection with ihese agreements, individually and joint-

ly, to effect such a combination or conspiracy to unduly

restrain trade as is forbidden by Section 1 of the Sherman

Antitrust Act, and to monopolize, or attempt to monopo-

lize, or to conspire to monopolize as is forbidden under

Section 2 of the Sherman Antitrust Act.

Another agreement plaintiffs allege to be a part of their

case is the right-of-way agreement executed by F. E. App-

ling and Lumar Gas Pipeline Corporation, plaintiffs’ Ex-

hibit No. 83. Plaintiffs Exhibit 2A, 3A, 167A, and 25A

were summaries dictated by counsel and the Court, sum-

marizing joint operating agreements and amendments be-

tween Alcoa and Crown, agreements relating to transport-

ing defendants’ gas through Lavaca Pipeline Company's

pipeline, as well as the agreements relating to assignments

of leases between the parties, and the basic agreement

between Alcoa and F. E. Appling concerning Mr. Appling’s

leasing to Alcoa of property that he owned in the area and

his work for Alcoa in obtaining leases from other land-

owners and his retention or assignment to him of a royalty

interest in connection with such leases. Plaintiffs’ Exhibit

No. 83 is an agreement between Mr. Appling and Lamar

Gas Corporation in connection with which Mr. Appling

granted to Lumar an easement to lay, construct, maintain,

ete., a six inch pipeline for the transmission of natural gas

over lands belonging to Mr. Appling in Jackson County,

Texas. This agreement contained a provision obligating

Lamar to accept for delivery and transportation, and to

purchase or acquire for delivery and transportation, nat-

ural gas from wells situated in the area, which purchases

were to be made only from the wells which were first ap-

proved and accepted by Mr. Appling ; and if Lumar breached

this particular covenant the right-of-way and easement

would revert to Mr. Appling, together with the pipeline.

Plaintiffs further contend that as a result of the alleged

conspiracy and combination resulting in the agreements

mentioned above, the defendants combined or conspired to

boycott and concertedly refused to deal with plaintiffs

Woods Exploration and Producing Company and Stanley

C. Woods in that defendants refused to unitize any of plain-

tiffs’ leases of various townsite lots with those of defend-

ants in the Appling Field, or to buy or to transport plain-

tiffs’ production from wells drilled by plaintiffs on these

townsite lots; that defendants combined or conspired to

control or attempt to control the terms and conditions of

transporting plaintiffs’ gas from the Appling Field for the

purpose of blocking transportation of the gas from the

Appliug Field; and that F. E. Appling knew of the policy

of defendants io prevent or restrict production from the

townsite lots in the Appling Field, and pursuant to such

knowledge and as a result of the rights he acquired in the

right-of-way agreement, plaintiffs’ Exhibit No. 83, he

caused Lumar Gas Corporation to refuse to enter into a

contract with Southeastern Pipe Line Company, and caused

Lumar Gas Corporation to breach an agreement, if any,

for transporting plaintiffs’ gas over its line, and required

Southeastern Pipeline Company to file condemnation pro-

ceedings for a right-of-way over F. E. Appling’s land.

As pointed out above, plaintiff Southeastern Pipeline

Company did construct its line and in connection therewith

did obtain a right-of-way over Mr. Appling’s land but had

to resort to condemnation proceedings to do so.

With that factual background, we know turn to a con-

sideration of what this Court considers to be its reasoning’

and the law applicable thereto concerning this Court’s con-

clusion that as a matter of law defendants are entitled to

judgment.

Im addition to those already stated in this Court’s opinion in

Woods Exp. & Prod. Co. v. Aluminum Co. of America, 284

F.Supp. 582 (8.D.Tex.1968).

At the outset of this case we are confronted with three

questions: (1) What is the relevant market; (2) was there

in this case monopoly power as defined by the Supreme

Court, that is, power to controi prices or exclude competi-

tion; and (3) was the monopoly power wilfully acquired

and maintained or was it result of an historic accident?

A determination of the relevant market, “both as respects

products and as concerns geographical area” needs to be

made in actions for violation of section 2 of the Sherman

Act. See Case-Swayne v. Sunkist Growers, Inc., 369 F.2d

449 (9th Cir. 1966). There is no question that natural gas

is the relevant product market in the instant suit.

As to the relevant geographic market, this Court loos to

the guidelines laid down by the Supreme Court in Brown

Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8

L.Ed.2d 510 (1962). According to the Brown Shoe case, we

must determine whether or not the Appling Field corre-

sponds to the “commercial realities” of the industry and

whether or not it is economically significant. It is true that

the geographic market involved may be as small as a single-

metropolitan area or even one individual businessman. See

Klor’s, Inc. v. Broadway-Hale Stores, 359 U.S. 207, 79 S.Ct.

705, 3 L.Ed.2d 741 (1959). Considering the “commercial

realities” of the oil and gas industry, however, this Court is

convinced that the Appling Field does not constitute the

relevant geographic market for natural gas in the area

under consideration. All of the gas produced that was not

used for the producer’s own purposes was transported and

sold in other areas. Additionally, due to the heavy regu-

latioas present in the natural gas industry,® neither Alcoa

nor Crown, individually or jointly, or through F. E. Appling

® This Court has already discussed extensively the heavy regula-

tion in the oil and gas industry. See Woods Exp. & Prod. Co. v.

Aluminum Co. of America, 284 F.Supp. 582 (1968).

could establish any economic barriers wich significantly

impeded the entry of Woods or any other operators into-

the Appling Field. See Case-Swayne v. Sunkist Growers,

supra.

The preceding point overlaps into the second question

which concerns monopoly power. In this Court’s opinion

none of the alleged co-conspirators had the power to control

prices or exclude competition in connection with the pro-

duction of natural gas in the Appling Field. It is undisputed

that Mr. Woods produced and marketed all of the gas that

the Texas Railroad Commission permitted him to produce

from the wells he drilled. The lack of monopoly power on

the part of the defendants is apparent.

Plaintiffs rely heavily upon the case of Lessig v. Tide-

water Oil Co., 327 F.2d 459 (9th Cir. 1964), in which the

Ninth Circuit draws a distinction between monopolization

and attempts to monopolize. In attempts to monopolize, the

Court rejected the view that probability of actual monopoli-

zation is an essential element of proof, where it stated:

“Such a probability may be relevant circumstantial

evidence of intent, but the specific intent itself is the

only evidence of dangerous probability the statute re-

quires — perhaps on the not unreasonable assumption

that the actor is better able than others to judge the

practical possibility of achieving his illegal objective.”

Citing Swift & Co. v. United States, 196 U.S. 375, 25

S.Ct. 276, 49 L.Ed. 518 (1906), and other cases.

The cases that Lessig relied on speak in terms of “danger-

ous probability” of the monopoly, etc., coming to nass.

However, Lessig seems to go a step further. It holds that a

finding of specific intent to monopolize is sufficient not-

withstanding the probability of success. This Court refuses

to take that additional step. There is no possibility, let alone

probability, of monopolization in the Appling Field.

i a a saan ae emia eee

The Lessig case involves price fixing, which is far re-

moved factually from the problem presented by this case.

In addition, the circumstantial evidence in this record that

would support a finding of specific intent on the part of the

defendants is not persuasive to this Court.

In the final analysis, this Court must hold that the con-

duct of the defendants does not fit the definition of the

offense condemned by section 2 of the Act. In addition, this

Court holds that the Appling Field is not the relevant

geographic market; that under the definition of the word

“monopoly” these defendants as a matter of law lack the

power to control prices or exclude competition; that what-

ever may have been placed within the control of the

defendants in this case was the consequence of an historic

accident (the discovery of the Appling Field); that their

efforts to protect the natural gas they discovered by this

historic accident was neither exclusionary, unfair, or preda-

tory; and that they, and each of them, were not disempow-

ered to defend their position fairly. This Court would again

say that efforts before the Railroad Commission to prevent

the drainage of gas from under the Appling Field by the

small tract operators, including Woods, was fair. All of the

other acts and conduct attempted to be proved by plaintiffs

amounted to nothing more than conduct for which plaintiffs

might have a cause of action under some tort theory.

Additionally, the agreements which plaintiffs contend

brought about the monopoly and the combination in this

ease are the usual and customary types of agreements used

in the oil and gas industry, that is, joint operating agree-

ments, pooling agreements, unitization agreements, lease

agreements, right-of-way agreements, and such agreements

do not result in a limitation of the supply of gas in interstate

commerce or any price fixing of gas. If the Sherman Anti-

trust Act were to be literally construed as plaintiffs contend,

it would condemn any type of joint operating agreement, or

pooling agreement, or unitizaiion agreement. In considering

the “commercial realities” of this business, such would be

an absurd result.°®

Further, this Court is persuaded by the reasoning of the

Supreme Court in the case of Appalachian Coals v. United

States, 288 U.S. 344, 378, 53 S.Ct. 471, 77 L.Ed. 825 (1932).

This case was an action brought to enjoin a combination

alleged to be in restraint of interstate commerce in bitu-

minous coal and an attempted monopolization of a part of

that commerce in violation of Sections 1 and 2 of the Sher-

man Antitrust Act. The defendants, other than the Appala-

chian Coals, Inc., were 137 producers of bituminous coal in

the Appalachian territory. These producers created an

exclusive selling agency, Appalachian Coals, Inc., and all

of the capital stock of that company was owned by the 137

producers in proportion to their production. The uniform

contracts, separately made, of each of the defendant pro-

ducers constituted the company as an exclusive agent for

the sale of all coal which the producers mined out of the

Appalachian territory. The government in the case con-

tended that the plan adopted by these producers violated

the Sherman Antitrust Act in that it eliminated competition

between defendants themselves and also gave company

power to substantially affect and control prices of bitu-

minous coal in interstate commerce. Although factually the

case is dissimilar, certainly the subject matter involved and

the principles announced by the Supreme Court relating to

® A discussion of this particular problem is found in an article by

Hardwicke, Antitrust Laws, et al. v. Unit Operation of Oil or

Gas Pools (1961); and an article by Searls, “Antitrust and

Other Statutory Restricticns of Unit Agreements”, Third An-

nual Institute on Oil and Gas Law and Taxation, Southwestern

Legal Foundation; and by Jacobs, Unit Operation of Oil and

Fields, 57 Yale L.J. 1207 (1948).

that subject matter seem appropriately similar to the

instant case. What the Supreme Court said about the Sher-

man Antitrust Act, what it was designed to do, and the

necessity of looking at the particular industry involved

support this Court’s reasoning of the application of the

Sherman Antitrust Act to the oil and gas industry and the

activities of the defendants in the instant case. The Supreme

Court reversed the trial court which had granted the injunc-

tion sought by the government, holding that the plan vio-

lated the Sherman Antitrust Act.

“There is no auestion as to the test to be applied in

determining the legality of the defendants’ conduct.

The purpose of the Sherman Antitrust Act is to pre-

vent undue restraints of interstate commerce, to main-

tain its appropriate freedom in the public interest, to

afford protection from the subversive or coercive in-

fluences of monopolistic endeavor. * * * The decisions

establish, said this Court in Nash v. United States, 229

U.S. 373, 376, 57 L.Ed. 1232, 1235, 33 S.Ct. 780, ‘that

only such contracts and combinations are within the

act, as by reason of intent or the inherent nature of

the contemplated acts, prejudice the public interests

by unduly restricting competition or unduly obstruct-

ing the course of trade.’ (Citing num::ous cases.) In

applying this test, a close and objective scrutiny of

particular conditions and purposes is necessary in each

case. Realties must dominate the judgment. The mere

fact that the parties to an agreement eliminate compe-

tition between themselves is not enough to condemn it.

‘The legality of an agreement or regulation cannot be

determined by so simple a test, as whether it restrains

competition. Every agreement concerning trade, every

regulation of trade, restrains.’ * * * The question of

the application of the statute is one of intent and

effect, and is not to be determined by arbitrary assump-

tions. It is therefore necesuury in this instance to con-

sider the economic conditions peculiar to the coal in-

dustry, * * * in relation to market | rices and other

matters affecting the public interest in interstate com-

merce in bituminous coal.”

Finally, this opinion and the Court’s action in this case

must be taken together with this Court’s opinion and reason-

ing in Woods Exploration & Producing Cc. et al., v. Alumi-

num Company of America et al., supra, Simply stated, the

activities of the defendants in this case, when considered

in conjunction with the discovery of, the production of, the

transportation of, and the marketing of oil and gas, do not

lend themselves to a cause of action under the Sherman

Antitrust Act. There is no price fixing or attempt at price

fixing involved. The product dealt with is one that is heavily

regniated both in this case by the State of Texas and, with

respect to marketing and price, by the Federal Power

Commission. Efforts on the part of these agencies to pro-

tect the public in the conservation of this resource is neces-

sary and, of course, monopolistic in a sense.

It would seem to this Court that courts should be reluct-

ant to hold that the Sherman Antitrust Act applies to the

type of agreements used in this case. They are the same

type of agreements used in almost all activities in the oil

and gas field, where the development of the product is

regulated and the output is controlled, and the rights of

the public are well protected. The ultimate recovery of the

product is necessarily controiled, but not for the purpose

of restraining trade or reducing competition of a character

or a type contemplated by the antitrust laws.*°

This Court will grant defendants’ motion for judgment

notwithstanding the verdict as to the jury’s answer to

Question No. Two. Defendants’ attorneys will prepare an

appropriate judgment, submit same to plaintiffs’ attorneys

for approval as to form, and the Court will immediately

sign and enter same.

10 See Hardwicke, supra.

In Tue

UNITED STATES COURT OF APPEALS

For tae Firra Crcurir

Nos. 28763 and 29487

Woops Exrroration & Propuctne Company, Ino., ET AL.,

Plaintif's-Appellants,

Vv.

AtuMiInum Company or AMER'‘CA, ET. AL.,

Defendan!s-Appellees.

Appeals from the United States District Court for the

Southern District of Texas

(January 5, 1971)

Before BROWN, Chief Judge, GOLDBERG and

CLARK, Circuit Judges,

GOLDBERG, Circuit Judge: This battle-scarred anti-

trust case and its antecedents, both lineal and collateral,

have been in litigation without surcease, armistice, or L-uce

since the early 1960’s. The war today continues on two

fronts — federal and state. Preserving for later the inti-

mate factual details revealed in the myriad documents and

testimony adduced below, we now sketch in the main his-

torical contours of the present dispute.

The trouble emong the parties centers around their activi-

ties in the Appling Natural Gas Field in Jackson and Cal-

houn Counties, Texas. Defendants, Aluminum Company

of America ((Alcoa), Crown Central Petroleum Corpora-

tion (Crown), Lavaca Pipe Line Company (Lavaca), and

alleged co-conspirators, F. E. Appling (Appling), Carl E.

Siegesmund (now Pocantico Oil & Gas Corporation), and

Houston Pipe Line Company (Houston), control nearly

90% of the 4,000 acre surface of the Appling Field. Plain-

tiffs, Woods Exploration & Producing Company (Woods

Exploration), Stanley C. Woods (Woods), and Southeast-

ern Pipeline Company (Southeastern), have in combination

an interest in various small tracts in the Field which com-

prise a much smaller percentage of the total acreage. Com-

petition over the extraction of natural gas from this com-

mon field is at the heart of the dispute.

Production from the Appling Field is regulated by the

Texas Railroad Commission, and its regulatory activities

have given birth to several suits between the parties with

regard to Commission production allowables. Railroad Com-

mission v. Aluminum Co. of America, Tex. 1964, 380 S.W.2d

rev’g Tex. Civ. App. 1963, 368 S.W.2d 818, Pvilroad Com-

mission v. Woods Exploration & Producing Co., Tex. 1966,

405 S.W.2d 313. In 1962 plaintiffs filed a state antitrust

action alleging a combination or conspiracy on the part

of defendants to eiiminate or thwart plaintiffs from »om-

peting in the production of gas from the Appling Field.

Shortly thereafter, in December 1962, plaiutiffs filed the

instant federal antitrust suit against defendants seeking

injunctive relief and treble damages for alleged violations

of the Sherman and Clayton Acts, 15 U.S.C.A. §§ 1, 2, 15, 26.

By their complaint plaintiffs charged that defendants and

their alleged co-conspirators had restrained trade in the

production and marketing of natural gas from the Appling

Field, 15 U.S.C.A. § 1,1 and that defendants and their al-

115 U.S.C.A. § 1 provides:

“Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or commerce

among the several States, or with foreign nations, is declared

to be illegal... .”

leged co-conspirators had monopolized, attempted to mo-

nopolize, or combined and conspired to monopolize the pro-

duction and marketing of gas from the Field, 15 U.S.C.A.

§ 2.* Acts charged in furtherance of the allegations in both

the state and federal suits were of two basic types: (1)

the filing of false nomination forecasts by defendants with

the Texas Railroad Commission so as to reduce plaintiffs’

production allowables; and (2) the thwarting of plaintiffs’

gas production by defendants’ refusal to deal, and by de-

fendants’ harassment and interference with plaintiffs’ op-

erations. Defendants responded in the instant suit with a

motion to dismiss for failure to state a claim, and, in the

alternative, a motion for summary judgment. Both motions

were overruled by then District Judge Ingraham, Woods

Exploration & Producing Co. v. Aluminum Company of

America, 8.D. Tex. 1963, 36 F.R.D. 107. Several months

later the Texas Supreme Court held that plaintiffs’ state

suit allegations set forth a cause of action under state law

and ordered the case to trial. Woods Exploration d& Produc-

ing Co. v. Aluminum Company of America, Tex. 1964, 382

S.W.2d 343. That case is still pending.

The present issues arose after the transferral of the fed-

@ Producing Co. +. Aluminum Company of America, 8.D.

Tex. 1968, 284 F Supp. 582, Judge Singleton, in a carefully

written opinion, granted summary judgment for defend-

2715S TSCA. §2 ogee

* to

me 4 OE

ants with respect to plaintiffs’ allegation of damages due

ee ee ee eee Ce Sas

&3 ii

Hye

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e Fis

a ec

rail

, Stanley C

relating to ¢

from the Appling Field?

rer rer

H eh gehs

i Meee

BHT eas

tiffs Southeastern Pi

oe Steen, ee

portation of plaintiffs’ gas

i 88

aftih

odo

damages, if

Nos. 4,

not to

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"2, 1968, which

illegal i

attempt to

ie ee

Hil Aid

QUESTION NO. SEVEN

mpausie plan Seatac, Pipi

1968,

nect with the Tennessee Gas Transmission line, or the cost

of any such line.

Answer this Question No. Seven by stating the amount in

dollars and cents.

Answer: $142,759.00 “1) p emetigk pipe ht

*At the time the verdict “2) 6 wks. loss production

was accepted by the on 16,000 mef/day at

court the foreman of the 11¢/mfe gross + 2 for

jury clarified that the net = $79,200°

figure should be $39,600. “3) Loss of building 2nd

(Tr. 3343-44). pipeline $99,100.”

Weeks Mestamae, Poohadee Compaay for

the damages, if any, canainad tay to the dbo cn cai in

trial began, December 2, 1968, which damages, if any were

proximately caused by the illegal combination or conspiracy

po ReMi choos my | = fae we Sere Sey

spiracy to monopolize, if any?

_If you have answered Question 3(a) “No,” then in connec-

es eee eee then in connection

j concerning this Question No. Eight,

you will not take into consideration any testimony or evidence

relating to an incorrect survey or conflict in surveys in con-

nection with your assessment of damages, if any, to Woods

Exploration & Producing Company.

oe eS eee, Oe ie eaten

with your deliberaiions concerning this Question No. Eight,

you will not take into consideration any testimony or evidence

relating to any harassment or interference with the operations

of Woods Exploration & Producing Company in the Appling

damages, if any,

Finding this result unsupported by the evidence, the court

below granted defendants’ motion for judgment notwith-

standing the verdict. Woods Exploration & Producing Co.

v. Aluminum Company of America, 8.D. Tex. 1969, 304

F.Supp. 845. Moreover, the court also issued an injunction

enjoining plaintiffs from prosecuting their action then

pending in the state court. The present appeal is a consoli-

dation of plaintiffs’ separate appeals from the decisions be-

low. Disagreeing with the district court, we reverse and

remand in part. In order to facilitate our explanation of

our ruling, we consider in separate sections the various

grounds raised on appeal.

Plaintiffs’ first specification of error involves the partial

summary judgment granted by the court below. In their

complaint plaintiffs sought to recover as damages the loss

of production from their wells in the Appling Field which

had been occasioned by the entry of orders by the Texas

Railroad Commission setting production allowables for

plaintiffs’ well sat levels lower than plaintiffs thought they

should have received. Liability was alleged against defend-

ants on the ground that the Railroad Commission orders

had been based in part on false nomination forecasts and

reports filed by defendants with the Commission. While

the trial court found that it was “clear that there are dis-

puted issues of fact on whether defendants actually con-

spired together and whether they deliberately filed the false

nominations,” it granted summary judgment for defend-

ants, since it found that “even if plaintiffs’ allegations in

these respects are true, plaintiffs would still not be entitled

to recover damages for these activities.” We disagree.

Free competition among well producers is limited by

Texas law in order to prevent waste. The allowable produc-

tion which each well in the Appling Field is permitted to

produce is set monthly by order of the Texas Railroad Com-

mission. The Commission is mandated to limit total produc-

tion from the field to the reasonable market demand for gas

made upon the field. See Tex. Rev. Civ. Stat. Ann. art. 6008

§3(h). Each producing well is entitled to its fair share of

the total allowable field production, an amount roughly

proportional to the volume of gas in place under the tract

on which the well is drilled. Jd. 4 12; see Brown v. Humble

Oil é Ref. Co., 1935, 83 S.W. 2d 935, 944.

While no statutory provision prescribes the procedure

by which market demand is to be determined, the Com-

mission has usually foll~wed the procedures described in

its Statewide Rule 31. Under that rule, market demand is

determined primarily on the basis of Producer’s Forecasts

filed with the Commission by operators having wells in the

field. These nominations state the volume of gas which each

producer expects to be able to market from his wells the

following month. The nominations are totaled and, if the

Commission concludes that their total accurately reflects

market demand, the total becomes the field allowable. If

the Commission disagrees with the forecasts, it is empow-

ered to consider other factors, such as average production

for the previous twelve months or nominations filed by

purchasers of gas. See Railroad Commission v. Woods Ex-

ploration € Producing Co., Tex. 1966, 405 S.W.2d 313.

After determining the total allowable for the field, the

Commission has followed the practice of calculating the

allowable for each weil by application of a one-third —

two-thirds proration formula. One-third of the field allow-

able is divided among the wells in the proportion to which

the surface acreage attached to the well bears to the com-

bined surface acreage of all wells in the field. Two-thirds

of the field allowable is divided among the wells in the

proportion that each well bears to the total number of wells.

This heavy emphasis upon the well factor has meant that

producers with wells on small tracts have been permitted

to extract far more gas than their acreage would justify.

This effect is compounded by the fact that many wells on

large tracts, although producing at full capacity, have been

unable to produce the allowable assigned to them under the

formula. As a result the amount they have been unable

to produce has been allocated by the Commission to the

small-tract wells not already producing at full capacity.

Because of its inequitable effect on large tract owners, the

one-third — two-thirds formula was declared invalid by the

Texas Supreme Court. Atlantic Ref. Co. v. Railroad Com-

mission, Tex. 1962, 346 S.W.2d 801. However, the formula

retains its vitality inxthe Appling Field because »f Rail-

road Commission v. Aluminum Company of America, Tex.

1964, 380 S.W.2d 599. The Texas Supreme Court there held

that the formula could not be invalidated with respect to

the Appling Field since large-tract owners were guilty of

laches in attacking it. Although the court recognized the

inequalities in the formula, it found this defect outweighed

because “stability in respect to proration formulas is vital

to the well being of the industry as a whole, to the property

owners in the field and to the public at large.”

It was in this context that plaintiffs alleged that de-

fendants attempted to subvert the effects of the proration

formula by filing false production forecasts to reduce the

total field allowable. The trial court held that even if this

allegation were true there would be no liability on the

ground that the combined action by defendants to influence

the Railroad Commission allowables did not violate the

Sherman Act. It held that “any injury which any producer

claims to have suffered because of the allowable assigned

to him is an injury directly inflicted by the Railroad Com-

mission and not ax injury inflicted by his feliow producers

directly or through the exercise of any discretionary power

conferred upon them by the State.”

The trial court’s theory rests in part en Parker v. Brown,

1943, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315, where the

Supreme Court held that a state agricultural marketing

program was exempt from the Sherman Act, even though

tke program would have violated the Act if effected by a

combination of private parties. Stressing that the program

had been established under state legislation and was ad-

ministered by a group appointed by the Governor and con-

firmed by the State Senate, the Court found that such

direct governmental involvement was outside the pale of

the proscriptions of the antitrust acts.

“We find nothing in the language of the Sherman Act

or in its history which suggests that its purpose was

to restrain a state or its officers or agents from activi-

ties directed by its legislature. In a dual system of

goverzment in which, under the Constitution, the states

are sovereign, seve only as Congress may constitution-

ally subtract from their authority, an unexpressed

purpose to nullify a state’s control over its officers

and agents is not lightly to be attributed to Congress.”

317 U.S. at 350-51.

See also United States v. Rock Royal Cooperative, 1938, 307

U.S. 533, 59 S.Ct. 993, 83 L.Ed. 1446. Defendants assert that

since their nominations become a part of the Commission’s

final production allowable orders, plaintiffs alleged injury

is solely the result of state action. Defendants place prin-

cipal reliance on our decision in Okefenokee Rural Elec.

Membership Corp. v. Florida Power & Light-Co., 5 Cir.

1954, 214 F.2d 413. In Okefenokee the plaintiff brought an

antitrust suit against Florida Light & Power Company and

the City of Jacksonville, Florida, alleging that defendants

Tene Bore oe once seston wall

had unlawfully conspired to exercise exclusive control over

the territory into which plaintiff was seeking to extend

electric power lines. The only feasible route along which a

new power line could be built paralleled Federal Highway

17. Plaintiff applied to the Florida State Road Department

for permission to construct a line along the route. In order

to defeat plaintiff’s application, defendants constructed a

“spite line” along the same route. Despite the fact that this

line served no purpose other than to block plaintiff’s ap-

plication and cculd serve only two persons, defendants

made a misleading argument before the Road Department

that a line had already been constructed and that no new

line should be built. Subsequently, the Road Department

denied plaintiff’s application. The district court dismissed

the complaint for failure to state a claim, and this court

affirmed, stating:

“Tn brief, all of the damages averred in the complaint

and all that are shown to be probable have been suffered

or will accrue from the denial of the right to use this

‘only feasible route,’ which in turn results from the

denial of a permit by the State Road Department of

Florida, and from the rules and regulations governing

the use of County roads by the Board of County Com-

missioners of Duval County, Florida. It is not claimed

that either the State Road Department or the Board

of County Commissioners was acting beyond its respec-

tive jurisdiction, or that for any other reason its action

was invalid.

“As so forcibly illustrated in Keogh v. Chicago &

N. Y. Ry. Co., 260 U.S. 156, 163, 43 S. Ct. 47, 49, 67

L.Ed.183, ‘Injury implies violation of a legal right.’

The plaintiff had no legal right to use the state high-

way without a permit from the State Road Department,

nor tne county roads without permission of the Board

of County Commissioners, and those authorities have

decided against the plaintiff. So long as their decisions

stand the plaintiff has not been legally injured, not

withstanding it may have been irreparably damaged.”

214 F.2d at 418.

We think Okefenokee is distinguishable aud does not com-

pel affirmance of the judgment below. It is true that both

Okefenokee and the instant case involve state participation.

That proposition however, only begins the analysis, for it

is not every governmental act that points a path to an anti-

trust shelter. We reject “the facile conclusion that action *

by any public official automatically confers exemption.”

Georce R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc.,

1 Cir. 1970, 424 F.2d 25, 30. In Asheville Tobacco Board of

Trade, Inc. v. FTC, 4 Cir. 1959, 263 F.2d 502, 509, the court

stated:

“The teaching of Parker v. Brown is that the anti-

trust laws are directed against individual and noi

state action. When a state has a public policy against

free competitio in an industry important to it, the

state may reg..ate that industry in order to control

or, in a proper case, to eliminate competition therein.

It may even permit persons subjct to such control to

participate in the regulation, provided their activities

are adequately supervised by independent state -offi-

cials. Rice v. Chicago Board of Trade, 331 U.S. 247,

253, note 4, 67 S.Ct. 1160, 91 L.Ed. 1468; United States

v. Underwriters Association, 322 U.S. 533, 562, 64 S.Ct.

1162, 88 L.Ed. 1440; Schwegmann Brothers v. Calvert

Distillers Corp., 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed.

1035. See also note in 95 Pa.L.Rev. 223, 229. Both such

action must be state action, not individual action mas-

querading as state action. A state can neither authorize

individuals to perform acts which violate the anti-

trust laws nor declare that such action is lawful.”

See also Costilo, Antitrust’s Newest Quagmire: The Noerr-

Pennington Defense, 66 Mich.L.Rev. 333, 340-43 (1967).

The concept of state action is not susceptible to rigid,

bright-line rules. Each case must be considered on its own

facts in order to determine whether or not the anti-com-

petitive consequence is truly the action of the state. Bearing

this in mind, we think that the exaggerated and misleading

argument made by defendants in Okefenokee is fundamen-

tally differext from the filing of false factuai data with

regard to gas production. While in Okefenokee there was

state action in the sense that the state can be said to have

intended the resulting final order which adversely affected

plaintiffs, the same cannot be said of the consequences

of the Railroad Commission order at issue here. Purasing

the relevant criteria in other terms, the court in Whitten

said:

“Unlike Paddock, we do not read Continental Ore to

mean that any action by a Canadian public official

would have resulted in exemption. An anti-competitive

practice may receive only the most cursory inspectien

by public officials, see Woods Exploration Co. v. Alcoa,

36 F.R.D. 107 (S.D. Texas 1963), or public officiais

may approve conduct without consideration or aware-

ness of its anti-competitive aspects. Cf. Angle v.

Chicago, St. Paul, Minneapolis and Omaha Rwy. Co.,

151 U.S. 1, 14 S.Ct. 240, 38 L.Ed. 55 (1893). The issue

in such cases is not whether the action was in form

‘governmental,’ but the real decision makers were

public officials or private business. See American Bar

Association, 1955-1968 Antitru;t Developments, 211-12

(1968).” 424 F.2d at 33, n. 8.

Thus, while in Okefenokee defendants presented mis-

leading arguments, the pleadings did not allege falsification

of facts. Further, the misstatements that were made were

readily verifiable. Consequently, there was no allegation

that the governing authority’s decision to award the route

to defendants was premised upon faise informatior. The

adverse result with regard to plaintiffs can therefore be

said to have dowed from state rather than private ation.

Conversely, in the case at hand there is an allegation that

the Commission’s production allowable order rested upon

false facts adduced by defendants. There was, moreover,

no opportunity for meaningful supervision or verification.

Because of the amount and character of nomination predic-

tions, the Railroad Commission of necessity must rely on

the truthfulness of the gas producers. Such facts are

usually in the exclusive control of those producers, so the

final order of the Commission often must accept the nomina-

tion at face value. Hence, defendants’ conduct here can

in no way be said to have become merged with the action

of the state since the Commission neither was the real

decision maker nor would have intended its order to be

based on false facts. Indeed, plaintiffs’ basic claim is that

the applicable production allowable formula which the state

would have intended to utilize was subverted to the injury

of plaintiffs by defendants’ filing of false nomination fore-

casts. The situation is analogous to the filing of fraudulent

statements with the Patent Office, which has been held to be

evidence of an antitrust violation. Walker Process Equip.,

Inc. v. Food Mach. & Chem. Corp., 1965, 382 U.S. 172, 86

S.Ct. 347, 15 L.Ed.2d 247. See generally Costilo, supra, at

348-50.

Our case is also similar to Continental Ore Oil v. Union

Carbide € Carbon Corp., 1962, 370 690, 82 S.Ct. 1404, 8

L.Ed.2d 777, where the Supreme Court held that defend-

ants’ anticompetitive activities were not protected under

the Parker rationale. There, a private firm acting as admin-

istrator of Canada’s wartime rationing program used its

discretionary power to exclude a competing processor of

vanadium ore from the Canadian market. In defense of a

private treble damage action, defendants asserted that the

purchasing agent was acting as an administrator of the

Canadian Government and that the conduct was therefore

privileged under Parker. The Supreme Court, stressing

that there was no evidence that the Canadian Government

had approved of the conduct of its agent, held that such

conduct was subject to the Sherman Act. Again, in UMIV v.

Pennington, 1965, 381 U.S. 657, 671, 85 S.Ct. 1585, 14

L.Ed.2d 626, the Court reiterated this rationale and dis-

tinguished Continental Ore on the ground that in that case

there had been no indication that any Can:dian official

“would have approved of joint efforts to mcnopolize the

production and sale of vanadium... .”

Similarly, the Texas regulatory scheme at issue in this

case does not sanction defendants’ alleged conduct. While

the scheme clearly provides for inhibitions upon competi-

tive production, it is the Railroad Commission which is

empowered to set production allowables. In doing so, the

Commission of necessity must rely in part on nomination

forecasts and reports filed by producers. But the disere-

tion accorded the producers is circumscribed; their fore-

casts must be based on the volume of gas which each

expects to be able to market from his wells the following

month. Defendants were not clothed with discretion to sub-

vert this scheme by filing unjustifiably low forecasts in

order to reduce the production allowables. While state

remedies may exist to correct this conduct, such activities

also may state a cause of action under the federal antitrust

laws.*

4 The Railroad Commission scheme itself provides that “nothing

herein shall in any manner affect, alter, diminish, change or

modify the anti-trust and/or monopoly. statutes of this State,

and that no provision of this Act shall in any manner directly

or indirectly authorize a violation of such anti-trust and/or

monopoly statutes. . . .” Tex.Rev.Civ.Stat.Ann. art 6049d, § 13.

Cf. Woods Exploration & Producing Co. v. Aluminum Company

of America, Tex. 1964, 382 S.W.2d 343.

Even if the conduct of defendants cannot be denominated

state action and thus immunized under Parker, defendants

assert that it is immunized by the doctrine of Eastern Ruil-

road Presidents Conference v. Noerr Motor Freight, Inc.,

1960, 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464, and UMW

v. Pennington, supra, which hold that joint efforts to influ-

ence public officials in the passage of laws are beyond the

scope of the antitrust laws.

In Neerr the Supreme Court held that a railroad associa-

tion’s efforts to secure state legislation harmful to truckers

who competed with the railroads were exempt from the

Sherman Act, even though deceptive and intended to re-

duce competition. The decision in Noerr is premised on

the principle that valid legislative or executive action which

results in the restraint or monopolization of trade does

not violate the Sherman Act. See Parker v. Brown, supra.

Consequently, attempts to influence the legislative and

executive branches must also be excluded from the Sher-

man Act because prohibiting such activity

“would substantially impair the power of government

to take actions through its legislature and executive

that operate to restrain trade. In a representative de-

mocracy such as this, these branches of government act

en behalf of the people and, to a very large extent,

the whole concept of representation depends upon the

ability of the people to make their wishes known to

their representatives.” Eastern Railroad Presidents

Conference v. Noerr Motor Freight, Inc., supra, 365

US. at 137.

Basic to Noerr is a belief that regulation of competition

by the political process is legitimate and not proscribed by

the Sherman Act, an enactment which is itself a political

decision. For the political process to be effective there

must be freedom of access, regardless of motive, to ensure

a9)

the “right of the people to inform their representatives in

government of their desires with respect to the passage or

enforcement of laws.” 365 U.S. at 139. See generally, Note,

Application of the Sherman Act to Attempts to Influence

Government Action, 81 Harv. L. Rev. 847 (1968). Where

these pol:tical considerations are absent the Noerr doctrine

is inapplicable. See Note, The Brakes Fail on the Noerr

Doctrine, 57 Calif. L, Rev. 518 (1969). The policies of the

Sherman Act should not be sacrificed simply because de-

fendants employ governmental processes to accomplish

anti-competitive purposes. Otherwise, with governmental

activities abounding about us, government could engineer

many to antitrust havens. We think that the doctrine should

not be extended unless the factors upon which Noerr rested

are present and reqiure the same result. In Trucking Un-

limited v. California Motor Transport Co., 9 Cir. [No.

22,462, October 5, 1970] the Ninth Circuit refused to im-

munize under Noerr a scheme whereby trucking companies

conspired to oppose before state and federal regulatory

commissions all applications by competitors for the issu-

ance, transfer, or registration of operating rights. Charac-

terizing the licensing procedure as adjudicative, the court

felt that the defendants were not seeking to influence a

policymaking function; rather they were attempting to

undermine a well defined policy with regard to licensing

operators by blocking and discouraging access to the gov-

ernmental agencies. Similarly, in the instant case there has

been no attempt by defendants through the filing of false

nominations to influence the policies of the Railroad Com-

mission. The germination of the allowable formuia was

political in the Noerr sense and thus participation in those

rule-making proceedings would have been protected. But

the formula’s subsequent implementation is apolitical. Once

the rule is promulgated, defendants may not plead immunity

in their attempt to undermine its efficacy for anti-competi-

tive purposes. In George R. Whitten, Jr., Inc. v. Paddock

Pool Builders, Inc., supra, 424 F.2d at 32, the court reached

a similar conclusion with regard to a different subject

matter:

“But the efforts of an industry leader to impose his

product specifications by guile, falsity, and threats on

a harried architect hired by a local school board hardly

rise to the dignity of ar effort to influence the passage

or enforcement of laws. By ‘enforcement of laws’ we

understand some significant policy determination in

the application of a statute, not a technical decision

about the best kind of weld to us in a swimming pool

gutter.”

When Judge Ingraham below denied defendants’ motion

for summary judgment on the pleadings, he recognized the

inapplicability of Noerr to the facts of this case:

“As a second ground for dismissal the defendants

argue that the allegedly false nominations were made

in an attempt to influence governmental action, and

therefore, as a matter of law, cannot be a violation of

the antitrust legistlation. The ease of Eastern Railroad

Presidents Conference v. Noerr Motor Freight, Inc.,

265 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1960), is

deemed to be controlling. It was charged in that suit

that the defendant railroads had conspired, through a

concerted publicity campaign, to obtain the passage

of legislation which was detrimental to the interests

of the trucking business. The court found no basis for

imputing to the Sherman Act a purpose to regulate

political activity, and held that the railroads’ activities

were outside the ban of the Act ‘at least insofar as

those activities comprised mere solicitation of govern-

mental action with respect to the passage and enforee-

ment of laws.’ 365 U.S. at 138, 81 S.Ct. at 530.

“First, is the conduct complained of in the instant

case political in nature? If the defendants were en-

ay)

joined from conspiring to submit false nominations to

the Railroad Commission would they be deprived of

any Constitutional right to petition or participate in

the Governmental process? The answer clearly seems

to be that the defendants would only be prohibited from

undertaking certain joint business behaivor. To sub-

ject them to liability under the Sherman Act for con-

spiring to restrict production or to eliminate a com-

petitor would effectuate the purpose of the Sherman

Act and would not remotely infringe upon any. of the

constitutionally protected. freedoms spoken of in

Noerr.” 36 F.R.D. at 111-12.

See also Woods Exploration €& Produciing Co. v. Aluminum

Company of America, Tex. 1964, 382 S.\W.2d 343.

Defendants and the court below, however, argue that

the decision in Pennington, decided subsequent to Judge

Ingraham’s opinion, has extended the Noerr immunity. We

disagree. In Whitten the court faced a similar contention

and found that Pennington posited no extension of the

Noerr rationale:

“Noerr was followed by Pennington, a case involv-

ing an effort by large mine operators and union officials

to persuade the Secretary of Labor to prescribe higher

minimum wages for companies selling coal to the TVA

on long-term contracts. This effort at persuasion would

seem to fall well within the Noerr immunity for at-

tempts to influence the enforcement of laws. The Walsh-

Healy Act, 41 U.S.C.A. § 35 et seg., conferred consider-

able discretion on the Secretary of Labor to set wage

levels in the public interest, and requived the Secretary

to observe the strictures of the Administrative Pro-

cedure Act, including notice, public hearing, and judi-

cial review, in making wage rulings. 41 U.S.C. §§ 35(b),

43a; Costilo, AntiTrust’s Newest Quagmire: The

Noerr-Pennington Defense, 66 Mich.L.Rev. 333, 344+

345 (1967). Nevertheless, the trial court instructed the

jury that efforts to influence the Secretary were illegal

if part of a broader conspiracy to drive small mine-

owners from business. Pennington v. United Mine

Workers, 325 F.2d 804, 817 (6th Cir. 1963). The Court

of Appeals took an even more restrictive view, holding

that Noerr shielded only good-faith attempts to in-

fluence public officials, ‘unaccompanied by © purpose or

intent to further a conspiracy to violate a statute.’ 325

F.2d at 817. In rejecting these restrictive views of

Noerr, the Supreme Court observed:

‘Joint efforts to influence public officials do not violate

the antitrust laws even through intended to eliminate

competition. Such conduct is not illegal, either stand-

ing alone or as part of a broader scheme itself viola-

tive of the Sherman Act.’ 381 U.S. 657 at 670, 85

S.Ct. 1585 at 1593, 14 L.Ed.2d 626.

“Paddock [the plaintiff] seizes on this statement to

buttress its position that efforts to influence any public

official are exempt. In context, however, the Couri’s

emphasis is not on the role of the public officials in-

volved, but rather on the irrelevance of intent or con-

spiracy in applying the Noerr doctrine.” 424 F.2d at

32-33 (footnote omitted).

We therefore find Noerr-Pennington inapplicable to the

alleged filing of false nominations by defendants because

this conduct was not action designed to influence policy,

which is all the Noerr-Pennington rule seeks te protect. In

light of this determination we hold that the abuse of the

administrative process here alleged does not justify anti-

trust immunity. Consequently, we reverse the grant of

summary judgment and remand the issue for an evidentiary

determination of whether or not defendants in fact filed

false nominations, and, if so, what damages plaintiffs sus-

tained therefrom.

II.

Plaintiffs’ next specification of error is that the trial

court erred in granting a judgment notwithstanding the

verdict for plaintiffs on the issue concerning monopoliza-

tion. The plaintiffs had contended that the defendants

violated the Sherman and Clayton Acts by refusing to deal

with the plaintiffs regarding production and transportation

of gas produced from plaintiffs’ wells and by otherwise

interfering with the plaintiffs’ operations in the Appling

Field. After the submission of special issues the trial court

granted judgment for the defendants notwithstanding the

following verdict of the jury:

“Question No. Two

Did Alcoa and Crown monopolize or attempt tc

monopolize or conspire with F. E. Appling, Cai E.

Siegesmurd, or Houston Pipe Line Company, or any

one of them, or either of them, to monopolize any ap-

preciable part of the trade and commerce of drilling

for, producing, and transporting gas from the Appling

Field?

Answer: Yes.”

A. The Statute of Limitations

Defendants first argue, however, that regardless of any

possible substantive errcr in granting the judgment n.o.v.,

plaintiffs are procedurally barred from recovery upon the

affirmative answer given by the jury to the second inter-

rogatory. Appellees entreat us to apply the applicable four-

year statute of limitations® as a lethal blow to appellants’

recovery.

515 U.S.C.A. § 15b provides:

“Any action to enforce any cause of action under sec-

tion 15 or 15a of this title shall be forever barred unless

commenced within four years after the cause of action

accrued.”

60 \

The statute applies, appellees contend, because the fact

added in the 1965-1968 amended complaints — emphasiz-

ing section 2 monopolization — cannot relate back to the

original complaint filed in 1962 — emphasizing false nomi-

nations, We scorn this approach, which would make us

antediluvian in construing Fed. R. Civ. P. 15(c).® Chief

Judge Brown has articulated for this court the liberality

with which we should appreach Ruie 15(c):

“The starting point for our analysis is F.R. Civ.P.

15(c), which deals with the relation back of pleading

amendments. The Rule provides essentially that when-

ever the claim or defense asserted in the amended

pleading arose out of the conduct, transaction, or

occurrence set forth in the original pleading, the

amendment will relate back to the date of the original

pleading. The doctrine of relation back under Ruls

15(c) is liberally applied today in the Federal Courts,

especially if no disadvantage wil! accrue co the oppos-

ing party. 1A Barron & Holtzoff, Federal Practice and

Procedure § 448 (Wright ed. 1960). Rule 15(c) is ‘based

on the idea that a party who is notified of litigation

concerning a given transaction or occurrence is entitled

to no more protection from statutes of limitations than

one who is informed of the precise legal description

6 That rule provides:

“(e) Relation Back of Amendments. Whenever the claim

or defense asserted in the amended pleading arose out of

the conduct, transaction, or occurrence set forth or attempted

to be set forth in the origina) pleading, the amendment

relates back to the date of the oxizinal pleading. An amend-

ment changing the party against whom a claim is asserted

relates back if the foregoing provision is satisfied and,

within the period provided by law for commencing the

action against him, the party to be brought in by amend-

ment (1) has received such notice of the institution of the

action that he will not be prejudiced in maintaining his

defense on the merits, and (2) knew or should have known

that, but for a mistake concerning the identity of the proper

party, the action would have been brought against him.”

of the rights sought to be enforced.’ 3 Moore, Federal

Practice 15.15[2], at 1021.

“Of course, we are committed to the proposition that

leave to amend should be given freely when justice re-

quires. Longbottom v. Swaby, 5 Cir. 1968, 397 F.2d 45;

Lone Star Motor Import, Ine. v. Citroen Cars Corp.,

5 Cir. 1961, 288 F.2d 69.

“Clearly notice is the critical element involved in

Rule 15(c) determinations. Cf. Tiller v. Atlantic Coast

Line R.R. Co., 1945, 323 U.S. 574, 65 S.Ct. 421, 89

L.Ed. 465; New York Cent. & H.R.R. Co. v. Kinney,

1922, 260 U.S. 340, 43 S.Ct. 122, 67 L.Ed. 294. See

generally 1A Barron & Holtzoff, Federal Practice and

Procedure $448 (Wright ed. 1960). This Court, too,

has previously emphasized this. “The Federal rule on

the “relation back” of amendments to pleadings, as

embodied in Federal Rule 15(c) is permissive. As long

as the amended complaint refers to the same trans-

action or occurrence that formed the basis for the

original complaint and the defendant was put on notice

of the claim by the first complaint, there will be no bar

to amendment; even new defendants and new theories

of recovery will be allowed.’ Travelers Ins. Co. v.

Brown, 5 Cir., 1964, 338 F.2d 229, 234.” Williams v.

United States, 5 Cir. 1968, 405. F.2d 234, 236-37 (toot-

note omitted).

This liberality is particularly persuasive in antitrust suits

where there is ample opportunity for discovery and other

pretrial procedures. Cf. Western Geophysical Co. of Amer-

tca v. Bolt Assoc., Inc., D. Conn. 1969, 305 F.Supp. 1248,

1249 (“.. antitrust pleadings need not be in particular

technical form as long as they present ‘a short and plain

statement of the claim showing that the pleader is entitled

to relief’ as required by Fed. R. Civ. P. 8. This is particu-

larly true in a case such as this where there have already

been several pre-trial conferences and extensive discovery

has been taken”). The court below allowed the amendments,

0 othe Died cin piv, Coty ones wwf

6 MB be be

a pee.

ee ee Se a ene ee on

—

and we think that this ruling was well within its discretion.

A fair reading of the initial pleadings clearly shows that

the plaintiffs, ‘n addition to their false nomination claim,

were alleging that the defendants monopolized the extrac-

tion of gas from the Appling Field. Appellees were neither

surprised nor prejudiced, as their extensive fact-ferreting

and myriad defense marshalling testifies. The compendi-

ous record in this case justifies our conclusion that no one

was litigating in darkness. We therefore turn to the factual

background necessary to assess the validity of the judgment

n.0.¥.

B. Factual Background

In 1949 defendants Alcoa and Crown entered into joint

operating agreements covering an area of interest located

within the territory now known as the Appling Field, a

substantial portion of which was owned in fee by F. E.

Appling. After confirming the desirability of the area as

a drilling prospect, Alcoa obtained leases from Appling

and engaged him to obtain oil and gas leases from the

other landowners in the field. Subsequently, Carl Sieges-

mund (now Pocantico Oil Corporation) entered into the

joint agreement for development of the field. By 1957 these

parties owned or held leases on approximately 90% of the

4,000 acre surface of the Appling Field.

Alcoa caused its wholly-owned subsidiary Lavaca to con-

struct a pipeline into the Appling Field to transport iue

gas produced from the field to Alcoa’s aluminum smelter

at Point Comfort, Texas. On July 14, 1955, Alcoa, Crown,

and Pocantico entered into a gas marke‘ing agreement with

Houston Pipe Line Company. This company purchased gas

produced in the Appling Field owned by Alcoa, Crown,

and Pocantico, accepted delivery at Point Comfort, and

transported a portion of such gas to Monsanto Chemical

Company in Texas City and Chocolate Bayou, Texas.

In 1959 plaintiff Wood became interested in the Appling

Field, especially that po:tion known as the Carancahua

Beach Townsite located in Calhoun County, which generally

consisted of small, vacant town lots. The acreage of these

lots amount iv considerably less than one-half of one per-

cent of the entire acreage of the Appling Field. Around 1960

plaintiff Woods Exploration, the stock of which is wholly

owned by plaintiff Woods, began leasing up these small

lots. After defendants refused to unitize or pool drilling

operations, plaintiffs commenced their own drilling, and

completed nine or ten gas wells. Woods and Woods Explor-

ation, in order to sell or transport their gas production from

the wells, attempted to utilize the pipeline of Alcoa’s subsi-

diary, Lavaca, the only evailable outlet. The evidence shows

and the jury found that these efforts were unsuccessful

largely because Lavaca refused to deal with plaintiffs.

Plaintiffs then formed Southeastern Pipeline Company to

transport the gas. Subsequently, Lumar Gas Pipeline Cor-

poration (Lumar) and Appling executed a right-of-way

agreement whereby Lumar was enabled to construct a pipe-

line for the transmission of ratural gas over lands belong-

ing to Appling. This agreement contained a provision obli-

gating Lumar to accept for delivery and transportation,

and to purchase or acquire for delivery or transportation,

natural gas from wells situted in the area, which purchases

were to be made only from the wells which were first ap-

proved and accepted by Appling. When Woods, Woods

Exploration, and Southeastern attempted to utilize the

Lumar Pipeline, they were rebuffed. In particular, Lumar,

relying on its obligation to Appling, refused to execute a

contract with Southeastern which had been in the process

of negotiation. Moreover, during this period Appling re-

fused to grant Southeastern a pipeline easement across his

land unless an overriding royalty was paid on any yas

transported through the pipeline across his land. South-

64 s

eastern eventually was forced to file condemnation proceed-

ings for a right-of-way over Appling’s land and to construct

its own line to transport gas from the Woods’ wells in the

Appling Field to the pipeline of Tennessee Gas (now Ten-

neco). Production and transportation of gas from the

Woods’ wells began on January 1, 1961. As gas was pro-

duced it was sold to Southeastern, which transported the

gas to the Tenneco line, which further transmitted the gas

to Southeastern’s customer, Bayou Hydrocarbons Company

in Houston, Texas.

Plaintiffs’ basic allegations arising out of these facts

were that defendants violated the antitrust laws by refus-

ing to deal with plaintiffs so that plaintiffs could drill for,

transport, and market their gas, and by harassing plaintiffs’

efforts to drill and complete their wells. Thus, plaintiffs

allege that they were injured by (1) defendants’ refusal

to transport plaintiffs’ gas through the Lavaca pipeline,

(2) defendants’ conspiracy with Appling to prevent either

the transportation of gas through the Lumar pipeline or

the grant of a reasonable pipeline easement to Southeastern;

(3) defendants’ refusal to unitize or pool; and (4) defend-

ants’ harassment of plaintiffs in connection with plaintiffs’

After the jury verdict for plaintiff's, the court granted

defendants’ motion for judgment n.o.v. It reasoned as

follows:

“In the final analysis, this Court must hold that the

conduct of the defendants does not fit the definition of

of the offense condemned by section 2 of the Act. In

addition, this Court holds that the Appling Fiela is

not the relevant geographic market; that under the

definition of the word “monopoly” these defendants as

a matter of law lack the power to control prices or

exclude competition; that whatever may have been

placed within the controi of the defendants in this

case was the consequence of an historic accident (the

discovery of the Appling Field); that their efforts

to protect the natural gas they discovered by this

historic accident was neither exclusionary, unfair, or

predatory; and that they, and each of them, were not

disempowered to uefend their position fairly. This

Court would again say that efforts before the Railroad

Commission to prevent the drainage of gas from under

the Appling Field by the small tract operators, in-

cluding Woods, wes fair. All of the other acts and

conduct attempted to be proved by plaintiffs amounted

to nothing more than conduct for which plaintiffs might

have a cause of action under some tort theory.

Additionally, the agreements which plaintiffs con-

tend brought about the monopoly and the combination

in this case are the usual and customary types of

agreements used in the oil and gas industry, that is,

joint operating agreements, pooling agreements, uniti-

zation agreements, lease agreements, right-of-way

agreements, and such agreements do not result in a

limitation of the supply of gas in interstate commerce

or any price fixing of gas. If the Sherman Antitrust Act

were to be literally construed as plaintiffs contend, it

would condemn any type of joint operating agreement,

or pooling agreement, or unitization agreement. In

considering the “commercial realities” of this business,

such would be an absurd result.

Finally, this opinion and the Court's action in this

case must be taken together with this Court’s opinion

and reasoning in Woods Exploration & Producing Co.

et al., v. Aluminum Company of America et al., supra.

Simply stated, the activities of the defendants in this

case, when considered in conjunction with the discovery

of, the production of, the transportation of, and the

marketing of oil and gas, do not lend themselves to

a cause of action under the Sherman Antitrust Act.

There is no price fixing or attempt at price fixing in-

volved. The product dealt with is one that is heavily

regulated both in this case by the State of Texas and,

with respect to marketing and price, by the Federal

Power Commission. Efforts on the part of these agen-

cies to protect the public in the conservation of this

resource is necessary and, of course, monopolistic in

a sense.

It would seem to this Court that courts should be

reluctant to hold that the Sherman Antitrust Act ap-

plies to the type of agreements used in this case. They

are the same type of agreements used in almost all

activities in the oil and gas field, where the development

of the preduct is regulated and the output is controlled,

and the rights of the public are well protected. The

ultimate recovery of the product is necessarily con-

trolled, but not for the purpose of restraining trade or

reducing competition of a character or a type contem-

plated by the antitrust laws.” 304 F.Supp at 850-52

(feotnotes omitted).

C. Possible Exemption from Antitrust Laws

The district court’s opinion seemed to imply that because

of extensive regulation the oil and gas industry is not

susceptible to the strictures of the antitrust laws. We can-

not agree with this determination of the trial court. True

the production, gathering, and transportation of natural

gas in the Appling Field is subject to regalation by the

Texas Railroad Commission. See, e.g., Tex. Rev. Civ. Stat.

art. 6008; 15 U.S.C.A. § 717 (b). The Commission is em-

powered to regulate competition in order to mitigate its

abuse. But this state regulation does not mean that there

is no room for antitrust policies to operate. Our antitrust

laws constitute our economic magna carta, designed to pro-

tect against predatory oppression. Conceived as such a writ

they must not be facilely negated. As the Supreme Court

has reminded us, “immunity from antitrust laws ‘is not

lightly implied.’” United States v. First City Nat’l Bank,

1967, 386 U.S. 361, 368, 87 S.Ct. 1088, 18 L.Ed.2d 151,

quoting California v. FPC, 369 U.S. 482, 485, 82 S.Ct. 901,

8 L.Ed.2d 54. We therefore think it incumbent upon this

court to render both state regulatory and federal antitrust

goals complementary rather than mutually exclusive. As

Judge Wright expressed the matter in Northern Nat. Gas

Co. v. FPC, D.C. Cir. 1968, 399 F.2d 953, 959:

“Despite a continuing debate, it appears that the basic

goal of direct governmental regulation through admin-

istrative bodies and the goal of indirect governmental

regulation in the form of antitrust law is the same —

to achieve the most efficient allocation of resources

possible. For instance, whether a regulatery body is

dictating the selling price or that price is determined

by a market free from unreasonable restraints of trade,

the desired result is to establish a selling price which

covers costs plus a reasonable rate of return on capital,

thereby avoiding monopoly profits. Another example

of their common purpose is that both types of regula-

tion seek to establish an atmosphere which will stimu-

late innovations for better service at a lower cost. This

analysis suggests that the two forms of economic

regulation complement each other.”

Therefore, while we cannot hold that actions taker pur-

suant to Commission regulations violate the antitrust laws,

we can hold that actions taken to subvert the Commission

scheme for anti-competitive purposes are subject to stric-

tures of the antitrust laws. See Tex. Rev. Civ. Stat. Ann.

art. 6049d, § 13; Woods Exploration «< rroducing Co. v.

Aluminum Company of America, Tex. 1964, 382 S.W.2d 343;

ef. Silver v. New York Stock Exchange, 1963, 373 U. S. 341,

83 S.Ct. 1246, 10 L.Ed.2d 389. Considering this distinction,

we think that plaintiffs have alleged conduct which is not

immunized solely because of regulation by the Texas Rail-

road Commission. The state regulatory scheme has estab-

lished yuotas for the production of natural gas from the

Appling Field, Plaintiffs have alleged that the defendants

attempted to subvert this scheme by agreeing among them-

selves to obstruct and frustrate the extraction of gas by

plaintiffs so as to preserve the gas pool for defendants.

While the Commission, through its production allowables,

could restrain defendants’ production of gas, it could not

prevent defendants from inhibiting extraction by plaintiffs.

Moreover, we are reinforced in our view that this conduct

is not immune from federal antitrust regulation by virtue

of the Texas statutory scheme itself, which recognizes the

continued vitality of the antitrust laws within the natural

gas industry. Tex. Rev. Civ. Stat. Ann. art, 6049d, § 13.

D. Sherman Act Section 2

The trial court held that even if the antitrust laws did

apply, plaintiffs’ allegations did not support a violation of

section 2 of the Sherman Act. We now consider that ruling.

In doing so we bear in mind that on reviewing a judgment

notwithstanding the verdict we must “consider all of the

evidence — not just that evidence which supports the non-

mover’s case — but in the light and with all reasonable

inferences most favorable to the party opposed to the mo-

tion.” Boeing Co. v. Shipman, 5 Cir. 1969, 411 F.2d 365,

374 (en banc).

Section 2 of the Sherman Act makes it unlawful to:

“ .. monopolize, or attempt to monopolize, or combine

or conspire with any other person or persons, to mo-

nopolize any part of the trade or commerce among the

several states, or with foreign nations. .. .”

Dispensing first with preliminaries, we think it obvious

that the production, transportation, and sale of natural gas

constitutes a “part of” “trade or commerce” for purposes

‘of the Sherman Act. See United States v. El Paso Nat. Gas

Co., 1964, 376 U.S. 651, 657, 84 S.Ct. 1044, 12 L.Ed.2d 12;

United States v. Grinnell Corp., 1966, 384 U.S. 563, 573, 86

S.Ct. 1698, 16 L.Ed.2d 778. Nor do we tarry long over

defendants’ argument that the complained of activities were

intrastate without adverse impact upon interstate com-

meree. Crown and Alcoa did business in states other than

Texas and were engaged in the production, transportation,

and sale of gas from the Appling Field which entered into

the flow of interstate commerce. The effect on interstate

commerce need not have been gargantuan nor precisely

mathematecized. It is sufficient if it is more than merely

inconsequential, California v. Lo-Vaca Gathering Co., 1965,

379 U.S. 366, 85 S.Ct. 486, 13 L.Ed.2d 357; Mandeville

Islan! Farms v. American Crystal Sugar Co., 1948, 334

U.S. 219, 68 S.Ct. 996, 92 L.Ed. 1328; Cherokee Lab., Inc. v.

Rotary Drilling Services, Inc, 5 Cir 1967, 383 F2d 97, cert.

denied, 1968, 390 U.S. 904; Utah Gas Pipelines Corp. v. El

Paso Nat. Gas Co., D. Utah, 1964, 233 F.Supp. 955.

The difficult question is whether defendants monopolized,

attempted to monopolize, or conspired to monopolize with-

in the intendment of section 2. The offense of monopoliza-

tion has been described by the Supreme Court to consist of

the following elements:

“[T ]he offense of monopoly under Section 2 of the Sher-

man Act has two elements: (1) the possession of mo-

nopoly power in the relevant market and (2) the willful

acquisition or maintenance of that power as distin-

guished from growth or development as a consequence

of a superior product, business acumen, or historic

accident.” United States v. Grinnell Corp., supra, 384

U.S. at 570-71.

The related offenses of attempting to monopolize and com-

bining or conspiring to moncpolize do not require that

actual possession of monopoly power be shown before the

cause of action is established. However, they do require

evidence of a specific intent to destroy competition or to

build a monopoly. Times-Picayune Pub. Co. v. United

States, 1953, 345 U.S. 594, 626, 73 S.Ct. 872, 97 L.Ed. 1277;

Lewis v. Pennington, 6 Cir. 1968, 400 F.2d 806, cert. denied,

1968, 393 U.S. 983; Umted States v. Consolidated Laundries

Corp., 2 Cir. 1961, 291 F.2d 563. There currently exists

some — over whether either attempts to monopolize

or conspiracies to monopolize require proof of the relevant

market or ability to achieve monopoly power.’ Since special

issue number 2 would have permitted the jury to find a

violation of any one of the three elements of Sherman Act

section 2, plaintiffs and defendants devote sizeable portions

of their arguments to this question. We do not resolve this

conflict over the requisites of conspiracies or attempts, for

we find that plaintiffs have satisfied the evidentiary require-

ments of the offense of monopolization. Disagreeing with

the trial court, we hold that the Appling Field clearly con-

stitutes the relevant geographic market, and that the jury

7 Thus, eases have seemingly split as to whether a dangerous prob-

ability of monopolization is an essential element of proof.

Compare Bernard Food Indus., Inc. v. Dietene Co., 7 Cir. 1969,

415 F.2d 1279, 1284, cert. denied, 1970, 397 U.S. 912; Cliff

Food Stores, Inc. v. Kroger, Inc., 5 Cir. 1969, 417 F.2d 203; Hi-

land Dairy, Inc. v. Kroger Co., 7 Cir. 1968, 402 F.Td 968, cert.

denied, 1969, 395 U.S. 961, with Lessig v. Tidewater Oil Co.,

9 Cir., 327 F.2d 459, cert. denied, 1964, 377 U.S. 993; United

Staes v. Consolidated Laundries Corp., supra. See generally

Bleech, Attempt to Monopolize Under Section 2 of the Sher-

man Act: “Dangerous Probability” of Monopolization Within

the “Relevant Market,” 38 Geo. Wash. L. Rev. 215 (1969).

Other cases have held that the requisite specific intent at

least comprehends an intent “to gain control over some relevant

market or to exclude competitors therefrom.” AFL v. NFL,

D.Md. 1962, 205 F.Supp. 60, aff’d, 4 Cir. 1963, 323 F.2d 124.

Compare Bowl America, Inc. v. Fair Lanes, Inc., D.Md. 1969,

299 F.Supp. 1080, 1093, with United States v. Consolidated

Laundries, Corp., supra.

‘

could find that defendants possessed sufficient power in

that market to monopolize the production of natural gas.

Defendants argue that the Appling Field cannot consti-

tute a relevant market for it is a source of supply rather

than a market. This argument, however, fails to recognize

that “relevant market” is simply a short hand phrase used

to describe “the arena within which the strength of com-

petitive forces is measured.” P. Areeda, Antitrust Analysis

] 201, at 71 (1967). It dves not necessarily mean the selling

place.

In Umted States v. Pabst Brewing Co., 1966, 384 U.S.

546, 86 S.Ct. 1665, 16 L.Ed.2d 765, the Supreme Court

reversed a lower court dismissal under §7 of the Clayton

Act, 15 U.S.C.A. § 18, grounded upon failure to prove the

relevant market. The Court’s language is instructive:

“Apparently the District Court thought that in order

to show a violation of §7 it was essential for the

Government to show a “relevant geographic market”

in the same way the corpus delicti must be proved to

establish a crime. But when the Government brings an

action under 47 it must, according to the language of

the statute, prove no more than that there has been a

merger between two corporations engaged in commerce

and that the effect of the merger may be substantially

to .essen competition or tend to create a monopoly in

any line of commerce “in any section of the country.”

(Emphasis suppiied.) The language of this section re-

quires merely that the Government prove the merger

may have a substantial anticompetitive effect some-

where in the United States — “in any section” of the

United States. This phrase does not call for the delinea-

tion of a “section of the country” by metes and bounds

as a surveyor would lay off a plot of ground.* The

Government may introduce evidence which shows that

as a result of a merger competition may be substantially

lessened throughout the country, or on the other hand

it may prove that competition may be substantially

(Pp

lessened only in one or more sections of the country.

In either event a violation of §7 would be proved.

Certainly the failure of the Government to prove by

an army of expert witnesses what constitutes a relevant

“economic” or “geographic” market is not an adequate

ground cn which to dismiss a § 7 case. Compare United

States v. Continental Can Co. 378 US 441, 458, 12

L ed 2d 953, 964, 84 S Ct 1738. Congress did not seem

to be troubled about the exact spot where competition

might be lessened; it simply intended to outlaw mergers

which threatened competition in any or all parts of the

country. Proof of the section of the country where the

anticompetitive effect exists is entirely subsidiary to

the crucial question in this and every § 7 case which is

whether a merger may substantiaily !essen competition

anywhere in the United States.” 384 U.S. at 549-550

(footnote omitted).

Cf. United States v. Grinnell Corp., supra, 384 U.S. at 573

(section 7’s use of “any section of the country” equated to

section 2’s “any part of tlie trade or commerce among the

several states”).

Plaintiffs do not argue that defendants possess or have

attempted to possess monopoly power over the marketing

of natural gas. They instead contend that defendants pos-

sess monopoly power over the extraction of gas from the

Appling Field. An essential fact in the natural gas industry

is that adjoining land owners usually extract gas from a

common gas reservoir. Thus, if one producer can inhibit

or elimiraie the extraction of gas by another, the inhibitor

can prolong the life of the field and enhance his own future

production figures. With regard to extraction of gas —

which is at the zeart of plaintiffs’ complaint — the Appling

Field therefore is the relevant area of competition. It is

the “part” of “trade or commerce” with regard to which

we must measure the power to exclude competitors. See

American Tobacco Co. v. United States, 1946, 328 U.S. 781,

809, 66 S.Ct. 1125, 90 L.Ed. 1575.

Directly in point is the recent decision in Denver Petro-

leum Corp. v. Shell Oil Co., D.Colo. 1969, 306 F. Supp. 289.

In Denver Petroleum plaintiffs alleged that defendant oil

company had attempted to monopolize ard had monopolized

the purchase of crude oil and condensate in a particular oil

production area by refusing to transport oil other than its

own in its pipeline. With regard to the relevant market, the

court stated:

“The next matter for consideration is the problem

of the so-called “relevant market”. Our conclusion has

beer. that for purposes of this case the relevant geo-

graphic area is Rio Arriba County, New Mexico, and

particularly what has been called the Basin-Rio Arriba

oil production area included therein. While it is likely

that defendant’s monopoly power extends as far as

its illegal operation of the pipeline as private carriers

is effective to isolate the crude supply, there is no

real need to expand consideration to the other areas

of Northwest New Mexico. Plaintiffs would have us

believe that they propose to operate in the Basin-Rio

_ Arriba oil production area; if there is not a monopoly

there it matters not in this case that there might ke

monopoly power in other areas, and if there is, as we.

have fennd, a monopoly in that area, it similarly makes

no difference, under our approach, that the monopoly

may encompass a larger area.

Defendant would have us engage in market analysis,

considering the full breadth of “economic and com-

petitive realities,” to determine that the market struc-

ture is, if not nationwide, at least as broad as the entire

Four Corners region. And there is no doubt whatever

that Shell does not possess a monopoly of purchasing

in any of these larger areas considered as a whole.

However, in our opinion, such analysis is unneces-

sary in this case and the “relevant market” is in that

sense irrelevant. We have here a practice illegal in

itself, operation of the pipelines as private carriers,

a purpose and the obvious natural effect of which was

to exclude nonlocal competition from the crude supply

which Shell badly needed. When one must “look” for

a monopoly, determining a relevant market in which to

look and in which to evaluate competitive effects is

obviously an essential first step. But when, with an

illegal practice such as is present here in mind, one can

look at an area and see the existence of monopoly

power, not by inference from market share, but by

determining actual ability to exclude competition and

control prices, there appears no real need to go

further.” 306 F.Supp. at 304.

Likewise in the present case we can look to the Appling

Field and see the existence of a practice “the obvious natu-

ral effect of “hich was to eliminate or thwart competitive

extraction of gas from the Field by plaintiffs. Nor does it

matter that this circumscribed area of competition is small,

or that the effect on the public at the place of ultimate sale

may be minor. In Klor’s v. Broadway-Hale Stores, 1959, 359

U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741, the Supreme Court

considered the sufficiency of allegations under sections 1

and 2. There plaintiff, a single retail store operator, con-

tended that defendants had conspired to boycott and to

refuse to deal by not selling certain brands to plaintiff. The

lower courts had dismissed the complaint because it had

been shown that there were hundreds of other retailers

near Klor’s who sold many of the brands defendants re-

fused to sell to Klor’s. Thus, the courts reasoned, “there

was no charge or proof that by any act of defendants the

price, quantity, or quality, offered the public was affected.”

The Supreme Court reversed:

“This combination takes from Klor’s its freedom to

buy appliances in an open competitive market and

drives it out of business as a dealer in the defendants’

products. It deprives the manufacturers and distribu-

tors of their freedom to sell to Klor’s at the same prices

and conditions made available to Broadway-Hale, and

in some instances forbids them from selling to it on

any terms whatsoever. It interferes with the natural

flow of interstate commerce. It clearly has, by its ‘na-

ture’ and ‘character,’ a ‘monopolistic tendency.’ As such

it is not to be tolerated merely because the victim is

just one merchant whose business is so smal] that his

destruction makes little difference to the economy. Mo-

8 ee ee ee ee

small businessmen, one at a time, as it can by driving

them out in large groups. In recognition of this fact

the Sherman Act has consistently been read to forbid

all contracts and combinations ‘which “tend to create

a monopoly,’” whether ‘the tendency is a creeping one’

or ‘one that proceeds at full gallop.’ International Salt

Co. v. United States, 332 U.S. 392, 396, 92 L ed 20, 26,

68 S Ct 12.” 359 U.S. at 213 (footnotes omitted).

We therefore hold that the trial court erred in finding

that the Appling Field was not a relevant market. Nor do

we hold, as defendants contend, that the issue of the ap-

propriate relevant market should at least have been sent

to the jury. In its instructions to the jury the court assumed

as a matter of law that the Appling Field was the relevant

market. Following the verdict the trial court felt compelled

to change this ruling and granted judgment n.o.v. in part,

reasoning that as a matter of law the Appling Field was

not the relevant market. Since the pertinent facts are not

in dispute, we hold that the Appling Field is a relevant

market for determining monopoly power under section 2

and do not remand this issue for trial.

Viewing the Appling Field as the relevant market, we

think the jury was warranted in finding that defendants

possessed monopoly power in that Field. Defendants con-

tend first that the evidence demonstrates that plaintiffs in

fact were able eventually to produce their production quota*®

so that defendants’ lack of monopoly power is apparent.

We disagree. While plaintiffs did eventually manage to

produce their production quota, they incurred both in-

creased expenditures and lost production due to defendants’

conduct. More important, we do not think that absolute

success in excluding competition is an essential element to

proving monopoly power under section 2. It is enough that

defendants’ market position is such that they have substan-

tial power to thwart competition. The defendants here and

their alleged co-conspirators owned or leased approxi-

mately 90% of the Appling Field. Their holdings were so

situated that they could block transportation from compet-

ing wells. We think that the jury could find on this state

of the facts that defendants possessed monopoly power in

the Appling Field within the meaning of the Act.

Mere monopoly power in a relevant market, however, is

not sufficient in itself to constitute a violajjon of section 2.

Grinnell teaches us that moroply power is actionable only

if it is willfully acquired or maintained. The instant case

does not involve such obvious violations as price fixing or

allocation of markets. Nevertheless, prior cases have amply

demonstrated that conduct designed to barricade access to

markets or inhibit production can constitute a proscribed

means of monopolization. Judge Gewin, speaking for this

court in North Texas Producers Ass'n v. Young, 5 Cir. 1962,

308 F.2d 235, 241, cert. denied, 1963, 372 U.S. 929, summa-

rized some of the types of conduct which have been held

violative of the Act:

“Violations of the act have been manifested in numer-

ous ways as illustrated by the following cases: The act

* Of inti that this justi .

Sseesttene re eee

of a group of motion picture distributors who, together,

have a monopoly in the distribution of pictures, who

combined and conspired to refuse to furnish films to

a particular exhibitor, to cause a breach of contracts

with him and to prevent him from carrying on his busi-

ness, Binderup v. Pathe Exchange, Inc., 263 U.S. 291,

44 S.ct. 96, 68 L.Ed. 308; a conspiracy of competing

appliance retailers and manufacturers and distributors

of appliances who agreed not to sell appliances to the

plaintiff, Klor’s, or to sell only at discriminatory prices

or on unfavorable terms, even though there were oppor-

tunities to buy in a competitive market, Klor’s, Inc. v.

Broadway-Hale Stores, Inc., Admiral Corp., et al., 359

U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741; the exclusion by

a board of trade having monopolistic power, of an

owner of a warehouse from a tobacco market, Amer-

ican Federation of Tobacco Growers, Inc. v. Neal, (4

Cir., 1950) 183 F.2d 869; exclusion of a competitor from

a building and an appropriate market for business

opportunities without justifiable business reasons,

Gamco, Inc. v. Providence Fruit & Produce Building,

Inc., (1 Cir., 1952) 194 F.2d 484; an agreement of brew-

ers of beer not to sell to a particular person or class

of persons, Johnson v. Schlitz, (D.C. E.D.Tenn., 1940)

33 F.Supp. 176; agreement among competitors to fix

minimum resale prices of their products, Kiefer-Stew-

art Co v. Joseph E. Seagram & Sons, (1951) 340 U.S.

211, 71 S.Ct. 259, 95 L.Ed. 219. There are many other

cases which present a myriad of situations demonstrat-

ing ingenuity, disguise, intrigue and subterfuge to

avoid the appearance of law violetion.”

We think that plaintiffs’ allegations come within the

spirit and rationale of these cases. Basically, plaintiffs

contend that defendants violated section 2 by (1) refusal

to unitize or pool; (2) refusal to transport plaintiffs’ gas;

(3) harassment in drilling; and (4) refusal to grant a

right-of-way to Southeastern. In essence, plaintiffs paint a

picture of concerted action by defendants to restrain,

hinder, or eliminate plaintiffs’ extraction of gas from the

common gas reservoir shared with defendants. We are not

saying that pooling, unitization, and joint operating agree-

ments are in themselves maligned under the Sherman Act,

but even if we consider that the Act impliedly immunizes

these collective activities as benign in themselves, they

cannot be the instruments of economic predatism or oppres-

sion. Buying and selling are innocent activities in and of

themselves, but cach can be converted into an antitrust

malefaction. We think that the pattern of conduct alleged

here may be held unlawful under the Sherman Act. Cases

invoiving concerted refusals to deal,® see Klor’s v. Broad-

® Defendanis spend a good deal of time arguing that as a matter

of law there can be no finding of a refusal to deal by Lavaca.

They first argue that since Lavaca is a wholly-owned sub-

sidiary of Alcoa, does not carry gas for anyone else, and does

not compete with Alcoa, any refusal was merely a unilateral

refusal. Secondly, defendants argue that there was insufficient

evidence to show that Woods tendered his gas to Lavaca. Con-

versely, plaintiffs argue that Lavaca did carry gas for other

companies in addition to Aleoa; moreover, plaintiffs contend

that under Texas law Lavaca is both a common purchaser,

Tex. Rev. Stat. Ann. art. 6049a and a common carrier, Tex.

Rev. Civ. Stat. Ann. art. 6050, and thus is under an obligation

to carry plaintiffs’ gas. Finally, plaintiffs allege that the evi-

dence as to Woods’ offer, while disputed, has been resolved

by the jury in favor of plaintiffs.

We quickly dispose of the issue of ihe sufficiency of the evi-

dence. There was here sufficient evidence upon which the jury

might have found both that Woods tendered his gas which was

then refused by Lavaca and that Lavaca carried gas for others.

Likewise, we find without merit defendants’ argument that

the refusal to transport gas was merely a lawful unilateral

refusal by Lavaca. Defendants first fail io realize that while

section 1 or section 2 conspiracies evidenced by refusal to deal

do require a combination or conspiracy between two or more

entities, section 2 monopolization or attempted monopolization

does not. Therefore, even if the refusal is viewed as the act of

Alcoa, it would furnish a basis for finding monopolization or at-

tempted monopolization if it constitutes either a “willful main-

tenance” of monopoly power or a specific intent to obtain mo-

nopoly power. See National Screen Service Corp. v. Poster Ex-

way-Hale Stores, supra; Times-Picayune Publishing Co. v.

United States, supra; National Screen Service Corp. v.

Poster Exchange, Inc., 5 Cir. 1962, 305 F.2d 647, conspiracy

to deny access to markets, see North Texas Producers Ass’n

v. Metzger Dairies, Inc., 5 Cir. 1965, 348 F.2d 189, cert.

denied, 1966, 382 U.S. 977: Premier Electrical Constr. Co.

v. Miller-Davis Co., 7 Cir. 1970, 422 F.2d 1132, and refusal

to permit utilization of facilities, Silver v. New York Stock

Exchange, supra; Denver Petroleum Corp. v. Shell Oil Co.,

supra, support the conclusion here that defendants violated

section 2 of the Sherman Act. At least the jury could so find.

E. Damages

We next turn to the issue of damages. At trial the jury

awarded Woods Exploration $500 and Southeaster:

$142,759.'° Defendants claim this was error by making the

following argument.

change, Inc., supra, 305 F2d at 651-52; Fiumara v. Texaco,

Inc., E.D. Pa. 204 F.Supp. 544, 552, aff'd, 3 Cir. 1962, 310

F.2d 737. However, we think that in any event the alleged

action by Lavaca could not be characterized as a unilateral

refusal to deal. Judge Thornberry has stated the rule with re-

gard to section 1, and we feel it is equally applicable to con-

spiracies under section 2:

“It is settled that ‘common ownership and control does

not liberate corporations from the impact of the antitrust

laws.’ Kiefer-Stewart Co. v. Joseph E. Seagram & Sons,

Ine., 1951, 340 U.S. 211, 215, 71 S.Ct. 259, 261, 95 L.Ed.

219, and subsidiary or affiliate corporations are capable of

of section 1 of the Sherman Act. See, e.g., Timken Roller

Bearing Co. v. United Sattes, 1951, 341 U.S. 593, 598, 71

S.Ct. 971, 95 L.Ed. 1199; United States v. Yellow Cab Co.,

1947, 332 U.S. 218, 67 S.Ct. 1560, 91 L.Ed. 2010.” Cliff Food

Stores Ine. v. Kroger, Inc., supra 417 F.2d at 205-06.

Whether or not Lavaca was a common carrier under Texas

law, the jury would be warranted in finding an illegal con-

spiracy to monopolize the field, evidenced in part by a refusal

to transport plaintiffs’ gas.

1° See note 3, supra, where the jury’s answers to the special issues

are reproduced in full.

“Furthermore, under the uncontroverted evidence all

of the Appling Field gas wells and Appling Field gas

involved was Woods’ gas and not Southeastern’s, and

all dealing with refereuce to transportation of such gas

from such wells was with Woods. Any refusal to deal

by Appellees was limited by Question No. 3(a) to

Woods or Woods Exploration & Producing Company

and any damage award from refusal to deal or causing

refusal to deal was limited by the jury answer to Ques-

tion No. 8 tc $500 to Wocds Exploration & Producing

Company.”

We first note that, contrary to defendants’ contentions, the

answer to Question 3(a), which found that Alcoa and Crown

refused to deal with Wcods and Woods Exploration, does

not preclude any damage award to Southeastern. Damages

to Southeastern were predicated upon a finding that Lumar

refused to transport plaintiffs’ gas because of illegal con-

duct by defendants and Appling after the formation of

Southeastern. The affirmative answer to Question 5 con-

stitutes a jury finding that defendants did indeed prevent

Lumar, acting through Wolcott, from consummating its

deal with Southeastern despite the fact that Question 4

determined that Lumar’s president never signed a contract.

The affirmative answer to Question 3(a) merely constitutes

an additional finding that defendants also refused to deal

with Woods and Woods Exploration, based upon the evi-

dence tending to show that Lavaca refused to transport

Woods’ gas prior to the formation of Southeastern. In Ques-

tion 8 the jury found that the refusal to deal in Question

3(a) damaged Woods to the extent of $500. In Question 7

it found that defendants’ conduct with respect to Lumar

in Question 5 damaged Southeastern to the extent of

$142,759. The latter damages are clearly supported by the

evidence, consisting of (1) the cost of pipe which had been

purchased by Southeastern to connect Woods’ wells: to

Lumar’s line, and which could not be used since Lumar

refused to deal; (2) the unnecessary expense incurred by

Southeastern in building a second pipeline running along-

side the Lumar line; and (3) the loss by Southeastern of

the sale of 16,000 m.c.f. of gas per day occasioned by six

weeks’ loss of gas production due to Lumar’s illegally-

inspired refusal to deal. We therefore reject defendants’

assertion that either damages must be limited to $500 or

at least resubmitted to a jury.

On the other hand, plaintiffs argue that the trial court

erred in eliminating from the jury’s deliberations any

possible damages which might have ariser from the lost

opportunity to participate in the construction of a liquid

extraction plant. Plainiiffs introduced evidence to show

(1) that Southeastern and Lumar reached an agreement

whereby Lumar would erect an extraction plant on its

pipeline, and Southeastern would both share in the invest-

ment and participate in the profits; (2) that defendants

thwarted this agreement to the damage of Southeastern;

(3) that Southeastern reached similar tentative agreements

Graver Oil & Gas Equipment Company and Marler Con-

struction Company for the erection of a plant on the

Southeastern pipeline; and (4) that defendants frustrated

these agreements to the damage of Southeastern. The trial

court, in its charge to the jury, excluded any consideration

of damages flowing from the failure to construct an ex-

traction plant.

This ruling was apparently based upon the fact that

in a treble damage suit under §4 of the Clayton Act,

15 U.S.C.A. $15, plaintiff must allege and prove that he

has been “injured in his business or property” by acts of

the defendant proscribed by the antitrust laws. Since the

extraction plant was simply a proposal and not a tangible

reality, the court »Delow must have felt that it did not

constitute “business or property.” We think this was error.

The rule of this circuit has been well stated by Judge Bell

in Martin v. Phillips Petroleum Co., 5 Cir. 1966, 365 F.2d

629, 633, cert. denied, 1967, 385 U.S. 991:

“There are numerous decisions stating that one

need not have an actual going business to obtain stand-

ing, but an attempt to enter a business is sufficient.

Triangle conduit & Cable Co., Inc. v. National Electric

Products Corporation, 3 Cir., 1945, 152 F.2d 398;

American Banana Co. v. United Fruit Co., 2 Cir. 1908,

166 F.261; Waldron v. British Petroleum Co., Ltd.,

S.D.N.Y., 1964, 231 F.Supp. 72; Delaware Valley Ma-

rine Supply Company v. American Tobacco Company,

E.D.Penn., 1960, 184 F.Supp. 440. However, these de-

cisions lay down two significant requirements. First,

there must be the intention to enter the busness; and

second, there must be a showing of preparedness to

enter the business. This is the rule in this circuit. See

North Texas Producers Association v. Young, 5 Cir.,

1962, 308 F.2d 235, cert. den., 372 U.S. 929, 83 S.Ct.

874, 9 L.Ed 2d 733, where the court stated the rule, and

that the plaintiff there met the business requirement.”

See also Denver Petroleum Corp v. Shell Oil Co., supra,

306 F.Supp. at 307-08. We think that the evidence here

could sapport a finding that plaintiff Southeastern had

both the intention and the preparedness to construct an

extraction plant and that, if the jury so finds, Southeastern

would be entitied to damages. Therefore, upon remand,

plaintiffs should be afforded an opportunity to prove such

damages before a jury.

F. Reconciliation of the Verdict

Defendants finally contend that even if the judgment

n.0.v. was improper, we may not simply reinstate the jury

verdict that defendants monopolized, attempted to mono-

polize, or conspired to monopolize in violation of section

2. Rather, defendants argue, the answers to the special

interrogatories are so hopelessly in conflict that we must

at least reverse and remand for a new trial on liability.

Defendants basically content that the answer of the jury

to question number 1, that Aleoa and Crown had not com-

bined or conspired in restraint of trade, cannot be reconciled

with the affirmative answer to special interrogatory num-

ber 2, that Alcoa and Crown had monopolized, attempted

to monopolize, or combined and conspired to monopolize

in conjunction with one or more of several named persons.

We find this argument without merit. Section 1 requires

a combination or conspiracy. We think that the jury’s

negative answer to question number 1 was simply a recogn-

ition that the interrogatory was incomplete. That is, the

jury found that Alcoa and Crown in combination only with

themselves had not restrained trade. The evidence would

support the conclusion that only with the aid of Appling

and others were Alcoa and Crown enabled to restain trade

through such conduct as refusing to deal with plaintiffs.

This conclusion is wholly consistent with an affirmative

answer to question 2, wherein the jury found that Alcoa

and Crown monopolized, attempted to monopolize, or con-

spired to monopolize with Appling or others. Since the

findings are reconcilable, we must assume that the jury in-

tended this consistency. See generally United States v. Na-

tional City Lines, 7 Cir., 186 F.2d 562, cert denied, 1951,

341 U.S. 916.

For the foregoing reasons, we reverse the judgment n.0o.v.

and order the district court to reins.-te the jury verdict

which found that defendants monopolized, attempted tc

monopolize, or conspired to monopolize with the result that

plaintiff Woods Exploration was damaged to the extent

of $500 and that plaintiff Southeastern was damaged to the

extent of $142,759. We further order the district court to

hold a trial for the purpose of determining if plaintiffs’

allegations with respect to the proposed extraction plant

are true, and, if so, the extent of the damages flowing there-

from.

IIT.

We at last turn to the propriety of the injunction issued

against plaintiffs by the court below which restrained plain-

tiffs from prosecuting their state court suit. That suit.

filed just prior to the instant federal action, sought damages

for (1) violations of the antitrust laws of the State of

Texas; (2) willful misrepresentation to the Texas Railroad

Commission; (3) tortious interference with contracts or

advantageous business relationship and prevention of busi-

ness expansion; and (4) violation of the Texas Common

Purchaser’s Statute. In addition, the plaintiffs sought ex-

emplary damages. The district court, after rendering sum-

mary judgment and judgment n.o.v. in favor of defendants

in the instant suit, enjoined plaintiffs from further prose-

cuting this state court suit.

The starting point for determining the legality of this

action by the trial court is the federal anti-injunction

statute, 28 U.S.C.A. § 2283, which reads:

“A court of the United States may not grant an injunc-

tion to stay proceedings in a state court except as

authorized by Act of Congress, or where necessary in

aid of its jurisdiction, or to protect or effectuate its

judgments.”

While earlier cases under the predecessor of this statute

were t_ the contrary, e.g., Toucey v. New York Life Ins. Co.

1941, 314 U.S. 118, 62 S.Ct. 139, 86 L.Ed. 100, recent cases

have h.ld that the present anti-injunction statute permits

a federal court “to enjoin the relitigation of cases and con-

troversies wuich have been fully adjudicated” in such

court in order “to protect or effectuate its judgment.”

Jackson v. Carter Oil Co., 10th Cir. 1950, 179 F.2d 524,

526-27, cert. denied, 1951, 340 U.S. 812; accord, Jacksonville

Blow Pipe Co. v. RFC, 5th Cir. 1957, £44 F.2d 394; 1A J.

Moore, Federal Practice {0.208 [3.—3], at 2319, Note,

Federal Power to Enjoin State Court Proceedings, 74 Harv.

L. Rev. 726 (1961).

Plaintiffs, however, contend that the decisions in Atlantic

Coast Line R.R. v. Brotherhood of Locomotive Engineers,

TRIG stscmes a « dbintinn — 5 | * Se , 26 L.Ed.2d 234, and

Donovan v. City of Dallas, 1964, 377 U.S. 408, 84 S.Ct. 1579,

12 L.Ed.2d 409, have eroded the “relitigation” exception.

We disagree. Both cases caution against the dangers of

federsl-state friction which might be aroused by injunc-_

tive interference, but neither decision purports to under-

mine the exceptions of § 2283. In Donovan the Supreme

Court held that a state court cannot validly enjoin a person

‘rom prosecuting an in personam action in a federal court

which has jurisdiction of the parties and of the subject mat-

ter. The

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