Reed Smith Shaw & McClay LLP attorneys Thomas L. Allen, Lee A. Rau, and Donna M. Maus secured an important antitrust victory in the U.S. Court of Appeals for the Third Circuit recently on behalf of clients Duquesne Light Company and its parent, DQE, Inc. On June 12, 1998, the Third Circuit upheld the dismissal of a Complaint the City of Pittsburgh had filed against Duquesne Light seeking to enjoin its proposed merger with West Penn Power Company d/b/a Allegheny Power.
The City’s Complaint alleged that Duquesne Light and Allegheny Power violated the Sherman Act (15 U.S.C. § 1) and the Clayton Act (15 U.S.C. § 18) in connection with activities taken at two Redevelopment Zones owned by the Urban Redevelopment Authority of Pittsburgh: the Nine Mile Run and South Side Works projects.
The controversy arose when the City attempted to procure an alternative supplier of electricity for these now-vacant parcels. Despite the fact that only Duquesne Light possesses a Certificate of Public Convenience and Necessity from the Pennsylvania Public Utility Commission ("PUC") to serve customers in Allegheny County, the URA approached Allegheny Power with a request for a "competing bid." Allegheny Power and the City initiated preliminary proceedings before the PUC requesting the PUC’s permission for Allegheny Power to begin competing for customers in the Redevelopment Zones.
Shortly thereafter, Governor Ridge signed into law the Electricity Generation Customer Choice and Competition Act, 66 Pa. C.S.A. § 2801 et seq (the "Retail Competition Act"). This statute changes dramatically the legal landscape for electricity generation in Pennsylvania. The Retail Competition Act provides for a gradual phase-in of competition among electricity generators, in contrast to the many decades in which the activities (and prices) of such companies were closely scrutinized and regulated by the PUC. The Act retains legal regulated monopolies in the market for electricity transmission and distribution.
On April 7, 1997, Duquesne Light and Allegheny Power announced their intention to merge. Two months later, Allegheny Power -- citing the dramatic changes occasioned by the passage of the Retail Competition Act -- petitioned the PUC to withdraw its application to serve future customers in the Redevelopment Zones. That petition was granted, and the PUC never ruled on that application.
The City claimed in its Complaint that Allegheny Power’s withdrawal of its application to the PUC was the product of an illegal conspiracy between Allegheny Power and Duquesne Light to fix prices and allocate customers. The City also alleged that the merger would impermissibly reduce competition among providers of electricity, and sought to enjoin the merger pursuant to 15 U.S.C. § 26.
Duquesne Light and Allegheny Power each moved to dismiss the City’s Complaint for failure to state a claim. Reed Smith argued on behalf of Duquesne Light that (among other things) the City lacked standing to pursue its claims and that the City had not pleaded a cognizable antitrust injury. The district court (Magistrate Judge Robert Mitchell, in a Report and Recommendation accepted by District Judge Gary Lancaster) agreed with Reed Smith’s arguments, and dismissed the City’s Complaint.
The City appealed to the Third Circuit on an expedited basis. A panel comprised of Chief Judge Becker, Judge Rendell, and Judge Heaney (Senior Judge for the Eighth Circuit, sitting by designation), upheld the lower court’s order in a 2-1 decision (with Judge Heaney in the dissent).
The Third Circuit’s opinion should be of interest to all industries that are making the transition from regulation to competition throughout the country. Central to the Court’s conclusion that the City had not suffered a cognizable antitrust injury was its finding that no competition existed in the first instance. The Court rejected the City’s argument that the submission of what it called "bids" and the filing of petitions with the PUC for approval to compete constituted actual competition:
[W]e can determine from the face of the complaint that Allegheny Power never had the certificate from the PUC necessary to permit it to provide power in the Redevelopment Zones. It never did compete and, therefore, any injury to the City did not result from a lessening of competition.
To the contrary, the Court found, the complained-of actions were "competition-neutral," and thus not actionable. The Court concluded that, as a matter of law, "it is the structure of the regulated industry, not the defendants’ conduct, which creates the lack of competition" of which the City was complaining.
The Court also rejected the City’s related argument that the competitive process had been illegally impaired, writing:
The City is really claiming that it would have benefited from competition it hoped would occur. However, [the City] cannot foist [its] version of what might have been on the court under the rubric of antitrust injury.
The Third Circuit’s opinion also makes important points about the standards to be used by a court when ruling on a motion to dismiss. In particular, the Court accepted Reed Smith’s arguments that the district court was not required to accept as true the City’s conclusory allegations of "injury to competition," because those averments were contradicted by the documents the parties had filed in the regulatory proceedings before the PUC and had submitted to the Court. The Court also wrote:
Our courts have an obligation in matters before them to view the complaint as a whole and to base rulings not upon the presence of mere words, but, rather, upon the presence of a factual situation which is or is not justiciable. We do draw on the allegations of the complaint, but in a realistic, rather than a slavish, manner.
The significance of this aspect of the Court’s ruling extends well beyond the arena of antitrust claims, and should be noted by all litigation counsel who practice in the Third Circuit.
The Third Circuit’s opinion can be found at 1998 U.S. App. LEXIS 12703, 1998 WL 310282 and 1998-1 CCH Trade Cases ¶ 72, 178.