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TATE v. PACIFIC GAS & ELECTRIC COMPANY

September 26, 2002

RAYMON TATE, LIBERTY FUELS, INC., DALE SOBEK, AND 6000 S CORPORATION, PLAINTIFFS,
V.
PACIFIC GAS & ELECTRIC COMPANY, DEFENDANT.



The opinion of the court was delivered by: William Alsup, United States District Judge

ORDER GRANTING MOTION FOR PARTIAL SUMMARY JUDGMENT AND DISMISSING STATE CLAIMS

INTRODUCTION

In this antitrust and RICO case with supplemental state claims for relief, this is the final order in a series of orders addressing the federal claims. This order GRANTS defendant's motion for partial summary judgment and eliminates plaintiffs' claims under the Sherman Act. The state claims held in abeyance until now are all DISMISSED without prejudice to re-file in state court.

STATEMENT

On October 25, 2001, plaintiffs Raymon Tate, Liberty Fuels, Inc., Dale Sobek and 6000 S Corporation filed this action. They sued nine defendants, including various utilities, their respective holding companies, a retailer of natural gas for refueling natural-gas vehicles, and a vehicle manufacturer. The only defendant now left is Pacific Gas and Electric Company, a provider of natural gas and electricity in Northern California.

The complaint included eleven claims for relief. On November 30, plaintiffs filed the first amended complaint. The same claims were reasserted. In brief, plaintiffs alleged that defendants engaged in an unlawful monopolization, restraint of trade and conspiracy to quash competition in the natural-gas vehicles industry to prevent them from successfully going to market with the Liberty Station 2000, a small-scale, natural-gas liquefier and refueling station used for dispensing liquefied natural gas (LNG) to vehicles.

On February 11, 2002, defendants moved to dismiss the first amended complaint. Since that complaint was disorganized, the Court withheld immediate ruling on the merits of the motions to dismiss, giving plaintiffs a choice of standing on their pleading or taking one more opportunity to plead their best case on the federal antitrust and RICO claims, taking into account the many arguments made to dismiss. Plaintiffs chose to amend. The state claims were held in abeyance.

On April 18, plaintiffs filed the second amended complaint. On May 8, the parties stipulated to the dismissal of all defendants without prejudice, except for PG&E, Southern California Gas Company, and San Diego Gas & Electric Company. The three utilities then collectively moved to dismiss the federal claims. On June 17, an order issued granting in part and denying in part that motion. All claims against Southern California Gas and San Diego Gas & Electric were dismissed. The second amended complaint failed to state any claim against them. Only bald and conclusory allegations were directed their way.

With respect to PG&E, the outcome was different. Well-pled facts were levied. Indulging all reasonable inferences and assuming true all well-pled facts, that order held that plaintiffs adequately pled a relevant market and monopoly power. The order eliminated, however, all alleged predation based on false grant applications for public funding and based on product disparagement. The only cognizable predation, a necessary element of a Section 2 claim, was based on alleged refusals to deal. Thus, the only antitrust claims that survived were the monopolization or attempted-monopolization claims based on alleged refusals to deal. The order stated:

Given that PG&E dominated both the relevant downstream market and upstream utility market, it would have been predatory for PG&E to frustrate interconnections or to impose substantial conditions not imposed on others, where the intent or effect was to suppress competition in the downstream market, at least where such an installation would have been permissible under the relevant utility law, the interconnection was properly requested, and no valid business justification existed for a refusal. Aspen Skiing Co. v. Skiing Corp., 472 U.S. 585, 595-96 (1985); Oahu Gas Serv., Inc., v. Pacific Resources, Inc., 838 F.2d 360, 367-68 (9th Cir. 1988).

Additionally, the order held that plaintiffs had failed to allege any proper RICO claims. One fatal flaw was the lapse in pleading the predicate acts of mail and wire fraud with specificity. Concurrently, another order directed discovery on the issue of gas supply, the supposed subject of the refusal to deal. The order gave priority to discovery on the federal claims. Milestones where set for the parties to complete discovery on the gas-supply issue. That completed, PG&E now moves for partial summary judgment on the remaining federal issue.

Now defunct and in bankruptcy, plaintiff Liberty Fuels was formed in 1998 to market and manufacture the Liberty Station 2000 and other natural-gas vehicle equipment. The Liberty Station 2000 is a small-scale, natural-gas liquefier and refueling station used for dispensing LNG to natural-gas vehicles. It is a large and mobile unit about the size of a train locomotive that connects to a dispenser that looks like an ordinary gas pump at a service station. Plaintiff Raymon Tate is the co-founder and chairman of Liberty Fuels. Plaintiff 6000 S Corporation is a real-estate management and holding company and an investor in Liberty Fuels. Plaintiff Dale Sobek is the founder and controlling shareholder of 6000 S Corporation.

The idea was that the Liberty Station 2000 could be moved to and operated at, for example, various yards servicing commercial and municipal fleets. The Liberty Station 2000 required a supply of natural gas. Specifically, the Liberty Station 2000 needed 50 pounds per-square-inch gauge ("psig") of inlet pressure to operate properly and efficiently. Liberty Fuels contacted PG&E to obtain the necessary gas supply. To avoid repetition, the relevant facts surrounding their dealings will appear in the analysis below. Distilled to its essence, the allegation is that PG&E, anticipating its own entry into the natural-gas refueling market, refused to supply gas to Liberty Fuels as a way to destroy it before it emerged as a successful competitor.

With a utility monopoly over its territorial-service region in Northern California, PG&E is regulated by the California Public Utilities Commission ("CPUC"). To service its customers, PG&E imports gas through transmission pipelines. These transmission lines operate at pressures of 60 to over 2,100 psig. To actually deliver gas to customers' point-of-service, PG&E uses distribution lines. Different lines within the distribution system operate at different pressures. Certain high-pressure distribution lines operate between ten to sixty psig.

Under the requirements adopted by the CPUC, PG&E is required to install delivery facilities to provide gas service at "standard delivery pressure." Standard delivery pressure is one-quarter psig. A customer, however, may request that PG&E install "special facilities" to handle the supply of gas at pressures in excess of one-quarter psig. Where new facilities are to be installed for a customer's use as special facilities, the customer must advance to PG&E the estimated installation costs. This is the difference in costs between special facilities and standard facilities.

Since 1933, PG&E has had in place various standard practices regarding the supply of gas at high pressures. At the relevant time herein, Distribution & Customer Service Standard D-S0449, entitled "Supply of Gas at High Pressure to Customers," was in effect. It outlined the conditions under which domestic, commercial and industrial customers would be supplied with gas at other than standard delivery pressure. It stated that the maximum pressure to be delivered to customers was five psig from a distribution system operating at pressures from 25 to 60 psig. Beyond this, Standard D-S0449 stated (emphasis added):

When the conditions set forth on Page 1 "Purpose," have been met, consideration will be given to the furnishing of high-pressure service from distribution facilities to customers, upon request, if:
1. The customer's equipment requires high pressure for proper operation;
2. It would substantially reduce the customer's expense to install or replace yard or house piping required to supply equipment at Standard Delivery Pressure, or
3. The Senior Gas Engineer and the Service Planning Supervisor have approved delivery at high pressure for other substantial reasons.

As stated, plaintiffs needed at least 50 psig from PG&E. Plaintiffs successfully obtained it for a previous installation in Santa Cruz after submitting the required application materials. Telephone conversations then ensued concerning two prospective alternative locations, one in San Francisco and one in San Jose, which form the basis for this action.

ANALYSIS

1. LEGAL STANDARD.

Summary judgment shall be rendered if "there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." FRCP 56(c). Summary judgment is not granted if the dispute about a material fact is "genuine" — that is, if the evidence is such that a reasonable trier of fact could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "The evidence, and all reasonable inferences therefrom must be viewed in the light most favorable to the non-moving party." T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630-31 (9th Cir. 1987).

"[A] moving party without the ultimate burden of persuasion at trial thus may carry its initial burden of production by either of two methods. The moving party may produce evidence negating an essential element of the nonmoving party's case or, after suitable discovery, the moving party may show that the nonmoving party does not have enough evidence of an essential element of its claim or defense to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Companies, Inc., 210 F.3d 1099, 1106 (9th Cir. 2000). Once the moving party meets its burden, the nonmoving party must "go beyond the pleadings and by her own affidavits, or by depositions, answers to interrogatories and admissions on file, designate specific facts showing there is a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986) (internal quotations omitted).

2. THE INADEQUACY OF PROOF ON PREDATION.

As stated, where the requirements of a relevant market are satisfied, it can be predatory for a monopoly holder to impose substantial conditions on sales to a competitor not imposed on others. Put differently, the seller must deal on substantially equal terms. If the seller refuses to deal on substantially equal terms, then the conduct can be predatory. But there must actually be conduct amounting to a refusal to deal on substantially equal terms. "A demand and refusal is a prerequisite to a claim of concerted refusal to deal. A plaintiff can have no relief when his failure to obtain a desired product is attributable to his own failure to make a request." Clearly v. Nat'l Distillers and Chem. Corp., 505 F.2d 695, 697 (9th Cir. 1974) (citations omitted); Wells Real Estate, Inc. v. Greater Lowell Board of Realtors, 850 F.2d 803, 816 (1st Cir. 1988).*fn1

Here, the fatal gap in plaintiffs' proof is the failure to show that PG&E refused to deal. The evidence boils down to conversations over the telephone about two sites, both potential locations for the Liberty Station 2000. On this record, the most that a reasonable jury could conclude is that the brief and causal telephone calls between the two companies were preliminary discussions. They did not constitute specific requests for service. They did not amount to any refusal to supply gas. There was no letter from plaintiffs requesting supply. Nor was there any written application for supply. There was no letter wherein PG&E refused to supply gas. Nor was there any telephone call wherein PG&E refused to supply gas. Plaintiffs have not demonstrated that it would have been futile to follow-up with a specific demand to PG&E for gas or at least a request for clarification. Here are the details.

A. Santa Cruz Site.

The Santa Cruz story lends meaning to the critical later events. In 1998, Liberty Fuels inquired about obtaining gas service at 50 psig for its Mission Street site in Santa Cruz. Initially, PG&E told Liberty Fuels that 50 psig was not available from the closest distribution line to the proposed site. Upon further inquiries to PG&E, however, Liberty Fuels learned of another distribution line with the required psig and of a nearby transmission line (Snowden Dep. 160-61). Liberty Fuels then obtained the requisite elevated gas-pressure service from the second distribution line. To do so, Liberty Fuels completed the documents PG&E required (id. at 194; Lee Dep. 142). It did so in addition to paying PG&E about $18,000 to access the distribution line (Snowden Dep. 162). Having obtained the requisite service at Mission Street and another previous location, Liberty Fuels was aware of the process for obtaining elevated gas-pressure service from PG&E.*fn2

B. DeSoto Site (San Francisco).

The first controverted site was in San Francisco. In 1999, plaintiffs were considering a prospective installation at a taxi cab company in San Francisco in conjunction with the possible conversion of its fleet to LNG. The taxi cab company was DeSoto Taxi Cab Company. At a meeting on October 14, 1999, Liberty Fuels informed Norman Stone of PG&E that the Liberty Station 2000 would need 50 psig of inlet pressure at the DeSoto site (Stone Decl. ¶¶ 5-6). (Coincidentally, this occurred at a meeting wherein plaintiffs threatened to sue PG&E.) Stone encouraged Liberty Fuels to follow-up and to contact PG&E. He then assigned Efrain Ornelas, a PG&E senior program manger, to handle Liberty Fuels' service-coordination issues (id. at ¶ 7). On October 17, Ornelas called Liberty Fuels. He spoke with Harold Lee of Liberty Fuels to request basic information (Ornelas Decl. ¶¶ 6-7). After inquiry, he telephoned Lee a few days later. This order assumes, as it must, that plaintiffs' sworn version of the conversation is correct. During this one-to-two minute conversation, Ornelas told Lee (Lee Dep. 148-50):

"Yes, we have high pressure lines, but on that location, we can't guarantee that you will get more than 20 pounds per square inch."

In addition to informing Lee about the option of accessing a high-pressure line, Ornelas told Lee that to receive a firm estimate regarding costs would require an application and an engineering deposit (Ornelas Decl. ¶ 13).

Thereafter, another PG&E representative forwarded a cover letter and the standard package of application materials to Lee on November 18 (Zeller Decl. ¶ 10). Lee received both. In relevant part, the cover letter stated (Zeller Decl. Exh. C):

Enclosed you will find a rather substantial package of documents that will be necessary in order to process your request for gas service at an elevated pressure. Please fill them out completely. This will expedite the process of getting your gas service installed.
It is our understanding that your project will serve Liquefied Natural Gas (LNG) to the DeSoto Taxi Cab Company who is the 21 owner of the property. If this is the case, we will also need a letter from De Soto authorizing the project.
If you have any questions regarding the enclosed forms or of this process, please call ...

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