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R.C. Dick Geothermal Corp. v. Thermogenics, Inc.
Citations: 890 F.2d 139; 1989 WL 126567Docket: Nos. 85-2573, 85-2589
Court: Court of Appeals for the Ninth Circuit; October 24, 1989; Federal Appellate Court
The plaintiff, a lessor of geothermal steam, filed an antitrust lawsuit against its lessees, but the district court ruled in favor of the defendants after a trial and summary judgment on separate claims. The primary product in this case is geothermal steam, predominantly used for electricity generation at The Geysers, a geothermal field in Northern California. The main consumer of this steam has been Pacific Gas and Electric Company (PG&E), which has been the sole purchaser from 1970 to 1983. The Geysers feature fumaroles rather than geysers, with a deep reservoir of heated water believed to be sourced from volcanic activity. This geothermal resource is depletable, with individual wells and whole fields declining in productivity as they are used. PG&E began utilizing geothermal steam in the 1960s, opening its first power plant in 1960, and expanded its capacity through additional plants despite environmental and regulatory challenges that increased construction costs. By the end of the 1970s, PG&E faced a significant delay between steam well confirmation and operational power plant status, reflecting the complexities of developing geothermal energy in the region. Geothermal heat requires proximity between wells and plants due to rapid energy loss during transportation. In June 1979, PG&E's Unit No. 15 began operation, supplied by a defendant. By May 1980, Aminoil USA Inc. provided steam to a PG&E unit, and by 1982, several companies, including Aminoil and Shell Oil Co., were developing projects in The Geysers, with PG&E remaining the sole steam purchaser until 1983. Megawatt output increased significantly from 78 in 1970 to 1310 in 1983, with a projected capacity of 2,300 megawatts. In 1964, Ronald C. Dick leased 1,100 acres in Sonoma County from Alex and Audrey Rorabaugh, later assigning the lease to his company, R.C. Dick Mercury Mines Corporation (Dick Mines), which did not drill wells for over two years. In October 1966, Dick Mines subleased to Geothermal Resources Inc. (GRI), which agreed to pay various fees, including a 7% royalty to the Rorabaughs and 3% to Dick Mines. The lease was valid for two years and could extend until June 30, 2063, contingent on steam production or ongoing drilling. In 1970, GRI transferred steam rights to Resources Investment Company (RIC), while retaining a royalty interest. R.C. Dick Geothermal Corporation (Dick Geothermal) was established in 1971 as a subsidiary of Dick Mines, inheriting the lease. Thermogenics, Inc. (TGI) and Pacific Energy Corporation (PEC) later acquired development rights from RIC. PEC entered a contract with PG&E on July 12, 1973, to construct a 55-megawatt power unit, supply steam, and explore the property’s steam reserves. PG&E’s payment was linked to fossil fuel costs but not less than 2 mills per kilowatt hour, with termination rights for both parties based on economic feasibility. No termination date was specified for the agreements in question. In 1979, Dick Geothermal acquired the fee from the Rorabaughs, which included their 7 percent royalty interest. The defendants in this case include sublessees such as GRI, HAC, and their subsidiaries, alongside Callón and his companies, all of whom either held leases or worked for leaseholders. Dick Geothermal has been the sole landlord for these defendants since 1979 and an intermediary landlord prior to that year. The historical timeline indicates that in 1964, Ronald C. Dick leased from the Rorabaughs and subsequently assigned the lease to Dick Mines, which did not drill wells until 1966 when it subleased to GRI. Following alleged conspiratorial actions beginning in 1970, GRI transferred its steam rights to RIC, which later transferred its rights to TGI and PEC. By 1973, PEC had contracted with PG&E for the construction of a 55 megawatt plant, and by June 1979, PG&E began utilizing steam from the property. The plaintiff's case revolved around two distinct markets: one for the buying and selling of steam and another for rights to steam-producing properties. The district court determined the geographic scope of these markets to encompass the full 378,500 acres of The Geysers, a decision subject to de novo review. The burden of proof regarding the market's establishment fell on the plaintiff, as established by precedent. Dick Geothermal argued that the relevant geographic market included properties within 1 to 2 miles of steam wellheads, asserting that geothermal steam cannot be transported effectively beyond this distance. They also suggested that the market should be limited to wells near steam-generating units not already committed to a buyer. However, the district court found these definitions problematic. Dick Geothermal's arguments were based on a static view of power plant development and did not adequately account for the dynamic nature of steam production and power plant construction, leading to a failure in proving the proposed market definitions. The district court determined that the market for steam and steam-producing properties encompassed the entire 378,500 acres of The Geysers. Dick Geothermal filed a lawsuit against the defendants under Sections One and Two of the Sherman Act, alleging that they conspired to hide the steam capacity of subleased property, hindering Dick Geothermal's ability to develop the property and reduce its royalty revenues. This conspiracy allegedly signaled to potential buyers that adjacent lands were of low quality, adversely affecting Dick Geothermal's competitive position in the steam rights market. Under Section Two, Dick Geothermal claimed the defendants attempted and conspired to monopolize the steam market. The district court separated the issue of anticompetitive effects for trial, ultimately finding no such effects and thus no violation of Section One. Summary judgment was also granted for the defendants regarding the claim of restraint of competition in the steam rights market, as evidence showed active competition during the relevant period. Regarding Section Two claims, the court concluded that Dick Geothermal did not prove the defendants possessed market power or engaged in anticompetitive behavior, nor did it provide evidence of specific intent to monopolize. Only the Section One claims were appealed, and the appellate panel affirmed the district court's decision. The case was later taken en banc. The court also addressed the standing of Dick Geothermal to bring the antitrust suit, emphasizing that the injury it sought to remedy must align with the intentions of antitrust laws, framing this as a critical but non-jurisdictional question that can be raised at any litigation stage. The excerpt outlines the legal principles surrounding standing in antitrust cases. It asserts that if a plaintiff fails to establish a necessary element of their case, their claim cannot prevail. The dissent argues against addressing standing since it was not contested at trial, but this position contradicts the rule that standing can be challenged at any stage. The appellant did not argue that standing could not be assessed based on the existing record and waived any objections regarding record inadequacy. The district court, while not explicitly ruling on standing, made relevant factual findings that allow for a determination of standing now. The court can review these findings under a clear error standard and address standing de novo, as the factual basis has been established without dispute. Antitrust standing requires an analysis beyond constitutional standing, and if it is not found, the plaintiff's case fails. The plaintiff must establish standing as a critical element, akin to touching first base in baseball. Dick Geothermal argued that its standing was previously affirmed by cases Mulvey v. Samuel Goldwyn Productions and Steiner v. 20th Century-Fox Film Corp. However, these precedents were set before the Supreme Court clarified standing restrictions, particularly in California State Council v. Associated General Contractors, which rejected the "target area" approach that Mulvey and Steiner relied upon. The dissent's characterization of Associated General Contractors as unremarkable is countered by its significance in shaping current standing analysis, indicating that the previous methods are no longer applicable. Thus, the rejection of those earlier cases is not merely an isolated incident but a broader shift in antitrust law within the circuit. Antitrust standing requires a plaintiff to demonstrate a direct relationship between their injury and the alleged antitrust violation, as clarified by the Supreme Court in *Associated General Contractors*. The Court emphasized that not every injured party has standing; congressional intent must guide the interpretation of the Clayton Act. Key factors for evaluating standing include: 1) the specific intent of conspirators; 2) the directness of the injury; 3) the nature of damages (including risks of duplicative recovery and complexity of apportionment); 4) the presence of more appropriate plaintiffs; and 5) the nature of the plaintiff's claimed injury. No single factor is decisive; the court must weigh them collectively. In the case of Dick Geothermal, it argues that the intent factor supports its standing claim, alleging that defendants intentionally deprived it of revenues. However, the assertion of intent does not suffice if no actual injury occurred. The directness factor also favors Dick Geothermal, as its lost royalties are deemed close in the chain of causation. Nonetheless, most of its claimed damages stem from an inability to compete in markets due to the loss of royalties, complicating the assessment of direct injury. Damages claimed by Dick Geothermal are characterized as indirect, similar to a stockholder’s losses due to corporate injuries from monopolistic practices, which do not confer antitrust standing. Dick Geothermal alleges a loss of resources for investment due to alleged royalty losses, which the court views as an indirect consequence. The damages claimed for lost royalties are deemed identifiable, non-duplicative, and calculable based on defendants’ concession regarding the operation of a 55 MW power plant, despite defendants denying any restraint on geothermal production. The defendants accepted, for the sake of the motion, the plaintiff's claim that they agreed to underproduce Unit 15 by 30 MW and that they failed to utilize the remainder of the lease, although they dispute these claims as false. The court notes that if damages were to become central to the case, the defendants could retract their concession, necessitating a determination of production capabilities and contractual readiness by PG&E. While Dick Geothermal claims damages for not producing steam independently and for lost opportunities to buy steam rights, there is no supporting evidence that it would have produced steam or that misinformation from the defendants affected the market or its ability to finance purchases. The district court found no adverse impact on market competition or pricing for steam rights, and Dick Geothermal failed to present evidence to contest these findings on appeal. Consequently, the court concludes that Dick Geothermal has not substantiated claims of injury from misinformation and lacks antitrust standing, with its only identifiable damages resembling those of a landlord owed rent. Allowing broader claims based on indirect damages would undermine the integrity of antitrust standing requirements. The fourth factor in evaluating antitrust injury is the presence of identifiable individuals likely to suffer such injury, who have the motivation to pursue antitrust enforcement. In this context, PG&E is seen as a more direct victim of antitrust injury than Dick Geothermal, particularly in the steam market, where sellers of steam rights would also be better positioned to advocate for antitrust enforcement. The fifth factor emphasizes the nature of the injury, which must be linked to anticompetitive behavior, requiring the injured party to participate in the same market as the alleged wrongdoers. Dick Geothermal, as a landlord of the defendants, was not a competitor or consumer in the steam market. While it claimed to be a potential seller and an actual purchaser of steam rights, it failed to demonstrate any production or marketing of steam from its leases. The district court found that the Rorabaugh property was not available for development by Dick Geothermal due to an exclusive lease with GRI, which stipulates that if GRI discovered steam, Dick Geothermal would only extend the lease rather than become a producer. Therefore, the alleged conspiracy by the defendants could have potentially allowed Dick Geothermal to reclaim and develop its property, contradicting its claims that the conspiracy impeded its development efforts. Ultimately, the evidence showed that Dick Geothermal could not substantiate its claims of antitrust injury. Dick Geothermal could not become a producer of steam on the Rorabaugh property without a breach of lease. The evidence did not support claims of competitive injury to Dick Geothermal or others, nor did it demonstrate that defendants’ actions inhibited entry into the steam rights market. Although economic experts testified that steam production on nearby land could influence property prices, the district court deemed this abstract theory insufficient as evidence. Dick Geothermal's purchase of the Rorabaugh property in 1979 presented two scenarios: if bought at true value, the alleged conspiracy had no effect; if at a bargain, Dick Geothermal benefited from the supposed conspiracy. The complaint claimed the defendants’ actions decreased the property's value, yet Dick Geothermal failed to show any reduction in value by 1979. The company had information indicating the land’s higher production capability, contradicting its claim of injury from misinformation. The acquisition of Rorabaugh property not only disproved claims of being misled but also increased royalty income and purchasing power for adjacent land. The district court found no support for the assertion that the defendants' conduct had anti-competitive effects, a conclusion the reviewing panel affirmed, recognizing that Dick Geothermal did not provide significant evidence of value distortion in the steam rights market. R.C. Dick Geothermal Corp. appealed a district court ruling that allegedly misconstrued evidence related to its misinformation theory. The district court determined that Dr. McNitt, a geothermal consultant for Dick Geothermal, did not alter his advice due to the lack of drilling on the Rorabaugh property, a finding disputed by Dick Geothermal based on Dr. McNitt's general statements about land value. However, the court noted that Dr. McNitt's specific testimony indicated the Rorabaugh property's development status did not influence his advice, allowing the court to rely on this more precise evidence. Additionally, the court found that competitor Claude Jenkins was not misled by the absence of drilling, a conclusion Dick Geothermal challenged by claiming it was based on an unsworn outline rather than Jenkins' deposition testimony. The appellate court held that Dick Geothermal failed to demonstrate any injury in the steam rights market and that any alleged injury was not linked to competitive harm. The district court's findings were deemed not clearly erroneous, affirming its conclusion of no injury to competition. Dick Geothermal contended that it had alleged a “naked, concerted restraint on output,” arguing that the district court improperly required proof of the defendants' market power, contrary to established Supreme Court precedent. It invoked NCAA v. Board of Regents to assert that output limitations are typically seen as anti-competitive. However, the court noted that the defendants’ statements did not amount to an admission of anti-competitive behavior, and Dick Geothermal's interpretation was flawed. The court expressed confusion over the purpose of a trial if the defendants had already conceded to an illegal restriction, highlighting that Dick Geothermal had misconstrued the nature of the defendants' concession. Defendants acknowledged that they agreed to produce 30 megawatts less than their capacity and declined to produce an additional 60 megawatts on the plaintiffs' property, thus conceding to a total agreed reduction of 90 megawatts. However, they contended that this concession was contrary to fact and did not extend to the period before the operational commencement of Unit 15 in June 1979. While Dick Geothermal argued that this concession indicated steam suppression from 1973-1980, it only confirmed that the defendants did not maximize steam production once Unit 15 was online. This concession did not constitute evidence of a broader agreement to limit steam output in The Geysers, as the alleged suppression pertained solely to one property rather than the overall market. Furthermore, Union Oil remained the primary steam supplier in The Geysers, and PG&E's ability to acquire more steam was unimpeded by any defendants' restrictions. There was no evidence of market-wide output curtailment or price manipulation. The distinction between per se violations and rule of reason analysis was highlighted, with references to case law indicating that per se rules apply in contexts where anti-competitive outcomes are consistently evident. In this situation, however, there was no established precedent for the effects of restricting production at a single producer's property in the geothermal steam market, leading to the conclusion that no per se violation occurred, and the district court's rule of reason analysis was deemed appropriate. The district court identified PG&E as a monopsonist purchaser of steam, setting prices in relation to its other fuel costs, with no harmful effects from the alleged conspiracy. Dick Geothermal's claims that restricting steam output influenced PG&E’s fuel costs were deemed speculative and unproven. Consequently, the court found no injury to competition, as the price paid by PG&E actually decreased due to the defendants’ non-maximizing production. The court also granted summary judgment regarding the market for steam leases, noting a vibrant market existed post-1973 with significant companies acquiring steam rights. By 1983, 23 companies were active in this market, undermining Dick Geothermal’s position that the defendants’ production levels negatively impacted competitors' investment decisions. Moreover, Dick Geothermal's acquisition of the Rorabaugh property suggested its belief in the value of steam production, contradicting its claims. The court concluded that the defendants’ market share (9.7%) lacked sufficient power to influence prices, which depended on the broader market dynamics, including other buyers and sellers. Buyer behavior was influenced by steam prices and the time required for new power plants, while sellers considered the depletion of their limited steam resources. Overall, Dick Geothermal failed to demonstrate that the defendants' actions affected competition in steam rights or pricing. Dick Geothermal, which does not produce steam, failed to provide evidence demonstrating that the defendants’ steam production in June 1979 had any anti-competitive impact on the monopsonistic steam market. As a minor purchaser of steam rights, Dick Geothermal could not show that the defendants’ actions adversely affected competition in the steam-producing properties market. Consequently, there was no injury to competition connected to its claimed injuries. The court emphasized that establishing standing is a prerequisite for advancing a plaintiff's case, necessitating an assessment of the antitrust nature of the claimed injuries and their connection to competition injuries. The court affirmed the district court's findings that no anti-competitive effects were caused by the defendants in either the steam market or the steam rights market, concluding that there was no clear error in the district court's determinations. The ruling was affirmed.