The opinion of the court was delivered by: William Alsup, United States District Judge
ORDER GRANTING MOTION
FOR PARTIAL SUMMARY
JUDGMENT AND DISMISSING
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.
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
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
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
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
2. It would substantially reduce the customer's
expense to install or replace yard or house piping
required to supply equipment at Standard Delivery
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.
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.
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.
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 ...