In Re: Western States Wholesale Natural Gas Antitrust Litigation (MDL 1566)

Filing 1959

ORDER Denying 1806 Defendants' Motion for Judgment. Signed by Judge Philip M. Pro on 11/3/10. (Copies have been distributed pursuant to the NEF - EDS)

In Re: Western States Wholesale Natural Gas Antitrust Litigation (MDL 1566)

Doc. 1959

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 UNITED STATES DISTRICT COURT D IS T R IC T OF NEVADA *** IN RE: WESTERN STATES ) W H O L E S A L E NATURAL GAS ) A N T IT R U S T LITIGATION ) ___________________________________ ) ) R E O R G A N IZ E D FLI, INC., ) ) P la in tif f , ) ) v. ) ) THE WILLIAMS COMPANIES, INC., et ) a l., ) ) Defendants. ) ) M D L 1566 2 :0 3 -C V -0 1 4 3 1 -P M P -P A L B A S E FILE

2 :0 5 -C V -0 1 3 3 1 -P M P -P A L

O R D E R RE: DEFENDANTS' MOTION F O R JUDGMENT ON THE P L E A D IN G S (Doc. #1806)

P re se n tly before the Court is Defendants' Motion for Judgment on the Pleadings (D o c . #1806), filed on October 5, 2009. Plaintiff filed an Opposition (Doc. #1873) on D e c e m b e r 8, 2009. Defendants filed a Reply (Doc. #1888) on January 7, 2010. I. BACKGROUND T h is case is one of many in consolidated Multidistrict Litigation arising out of the e n e rg y crisis of 2000-2001. Plaintiff originally filed this action in the District Court of W ya n d o tte County, Kansas. (Notice of Removal, [2:05-CV-01331-PMP-PAL, Doc. #1] at 2 .) Defendants removed the case to the United States District Court for the District of K a n s a s. (Id.) The Judicial Panel on Multidistrict Litigation entered a Transfer Order p u rs u a n t to 28 U.S.C. § 1407 centralizing the foregoing action in this Court for coordinated o r consolidated pretrial proceedings. ///

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P la in tif f Reorganized FLI, Inc. ("RFLI"), is a Kansas corporation with its p rin c ip a l place of business in Kansas City, Missouri. (Am. Compl. [Doc. #11 in 2:05-CV0 1 3 3 1 -P M P -P A L ] at 3.) RFLI is a successor in interest to Farmland Industries, Inc. (" F a rm la n d " ), a Kansas corporation. (Id. at 3-4.) Farmland had commercial business o p e ra tio n s in Muncie, Kansas, as well as fertilizer production facilities in Lawrence, C o f f e yv ille , and Dodge City, Kansas. (Id.) Farmland also had fertilizer production f a c ilitie s in Oklahoma, Nebraska, Iowa, and Louisiana. (Id.) Farmland's day-to-day m a n a g e m e n t of its fertilizer operations were centralized and run from offices located in L a w re n c e , Kansas during the relevant period. (Id.) Specifically, RFLI alleges that for its f e rtiliz e r operations, "corporate activities such as budgeting, forecasting, capital spending a u th o riz a tio n s , executing annual purchasing contracts, accounting, distribution, and setting p ro d u c tio n " were run from Farmland's Kansas offices. (Id.) RFLI used natural gas for its b u s in e s s during the relevant period, and purchased natural gas from one or more of D e f e n d a n ts during the relevant period. (Id. at 4.) According to the Amended Complaint, Defendants are natural gas companies that b u y, sell, transport, and store natural gas, including their own and their affiliates' p ro d u c tio n , in the United States and in the State of Kansas. (Id. at 4-33.) In this litigation, P la in tif f alleges Defendants conspired to engage in anti-competitive activities with the in te n t to manipulate and artificially increase the price of natural gas for consumers. (Id. at 4 -4 3 .) Specifically, Plaintiff alleges Defendants, directly and through their affiliates, c o n s p ire d to manipulate the natural gas market by knowingly delivering false reports c o n c e rn in g trade information to trade indices and engaging in wash trades, in violation of K a n s a s Statutes Annotated § 50-101, et seq. (Id.) Plaintiff seeks as relief a refund of the a m o u n ts it paid to Defendants for any natural gas paid at manipulated or controlled prices. (Id. at 43.) Plaintiff seeks this relief under Kansas's antitrust statutes, which provide for a f u ll consideration remedy. (Id. (citing Kan. Stat. Ann. § 50-115).) 2

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D e f e n d a n ts now move for judgment on the pleadings. Defendants contend that u n d e r a choice of law analysis, Plaintiff's claim is governed by Missouri law, not Kansas la w , and Missouri does not allow for a full consideration remedy. Plaintiff responds that D e f e n d a n ts have waived the choice of law analysis by not raising it earlier in the p ro c e e d in g s . Plaintiff argues that in any event, Kansas law controls. I I . LEGAL STANDARD " A judgment on the pleadings [under Federal Rule of Civil Procedure 12(c)] is p ro p e rly granted when, taking all allegations in the pleadings as true, the moving party is e n title d to judgment as a matter of law." Nelson v. City of Irvine, 143 F.3d 1196, 1200 (9th C ir. 1998). A motion for judgment on the pleadings brought pursuant to Federal Rule of C iv il Procedure 12(c) may be brought "[a]fter the pleadings are closed ­ but early enough n o t to delay trial . . . ." Fed. R. Civ. P. 12(c). I I I . DISCUSSION A s a federal court sitting in diversity, this Court applies "the forum state's choice o f law rules to determine the controlling substantive law." Fields v. Legacy Health Sys., 4 1 3 F.3d 943, 950 (9th Cir. 2005) (quotation omitted). Kansas applies the law of the forum " u n le s s it is expressly shown that a different law governs, and in case of doubt, the law of th e forum is preferred." Layne Christensen Co. v. Zurich Canada, 38 P.3d 757, 767 (Kan. C t. App. 2002) (citing Shutts v. Phillips Petroleum Co., 679 P.2d 1159, 1181 (Kan. 1984), re v 'd in part on other grounds, 472 U.S. 797 (1985)); Sys. Design & Mgmt. Info. Inc. v. K a n . City Post Office Employees Cred. Union, 788 P.2d 878, 881 (Kan. Ct. App. 1990). "Generally the party seeking to apply the law of a jurisdiction other than the forum has the b u rd e n to present sufficient facts to show that other law should apply." Layne Christensen C o ., 38 P.3d at 767. Kansas follows the Restatement (First) of Conflict of Laws. Brenner v. O p p e n h e im e r & Co. Inc., 44 P.3d 364, 374 (Kan. 2002). Under the First Restatement 3

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§ 378, the "law of the place of wrong determines whether a person has sustained a legal in ju ry." Thus, in tort cases,1 Kansas applies "the law of the state where the tort occurred." L in g v. Jan's Liquors, 703 P.2d 731, 735 (Kan. 1985). The "place of wrong" is "the state w h e re the last event necessary to make an actor liable for an alleged tort takes place." Restatement (First) of Conflict of Laws § 377. Because a tortious act "is not complete until th e injury has occurred," Kansas deems a tortious act "to have occurred in the state where th e injury occurs." Merriman v. Crompton Corp., 146 P.3d 162, 180 (Kan. 2006) (quotation o m itte d ). Kansas has not addressed where the tort occurs when a corporation alleges in ju rie s arising out of a price fixing conspiracy. "Where the state's highest court has not d e c id e d an issue, the task of the federal courts is to predict how the state high court would re s o lv e it." Giles v. Gen. Motors Acceptance Corp., 494 F.3d 865, 872 (9th Cir. 2007) (q u o ta tio n omitted). "In answering that question, this court looks for `guidance' to d e c is io n s by intermediate appellate courts of the state and by courts in other jurisdictions." Id. (quotation omitted). Although Kansas has not addressed this issue directly, Kansas has suggested, in e v a lu a tin g its long-arm statute, that an antitrust price-fixing injury "occurs at the place of s a le because the consumer is injured when he or she pays the artificially inflated price." Merriman, 146 P.3d at 181. In Merriman, the Kansas Supreme Court was addressing w h e th e r a price-fixing antitrust claim sufficed to support exercising jurisdiction over a nonre s id e n t defendant under Kansas's long-arm statute which provided for the exercise of

Plaintiff argues its antitrust claim is not a tort, but a statutory claim which is not subject to Kansas's usual choice of law rules. Because the Court concludes Kansas law controls even if Plaintiff's claim is characterized as a tort, the Court need not address this issue. However, in the context of applying its long-arm statute, Kansas has referred to antitrust claims as akin to torts. See Merriman v. Crompton Corp., 146 P.3d 162, 181 (Kan. 2006) ("We hold that a price-fixing conspiracy may be a tortious act under K.S.A. 60-308(b)(2)."). 4

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ju ris d ic tio n where the non-resident defendant committed a tortious act in the state. Id. at 1 8 0 -8 1 . The defendants argued that price-fixing is not a tort, as it was not recognized as s u c h at common law. Id. at 181. The Kansas Supreme Court rejected that argument, noting th a t other courts have concluded that price fixing acts are tortious in nature, and that the " in ju ry occurs at the place of sale because the consumer is injured when he or she pays the a rtif ic ia lly inflated price." Id. (citing cases from other jurisdictions). Based on this re a s o n in g , the Kansas Supreme Court held that "a price-fixing conspiracy may be a tortious a c t" in the state under the long-arm statute. Id. T h e Court concludes Kansas similarly would hold under its choice of law a n a lys is that a plaintiff asserting a price-fixing antitrust claim, whether it is a natural person o r a corporation, is injured at the place of sale, because that is where the plaintiff pays the m a n ip u la te d price. The Kansas Supreme Court was persuaded by this reasoning in the c o n te x t of determining whether a defendant commits a tortious act within the state under the s ta te 's long-arm statute, and nothing in Kansas law suggests it would find this same re a s o n in g unpersuasive in its choice of law analysis.2 Such a rule also is consistent with the F irs t Restatement, as the state where the sale occurs is the state where the last event n e c e s s a ry to make an actor liable for an alleged tort takes place, as the last act supporting a n titru s t liability occurs when the plaintiff is injured upon paying the manipulated price. H e re , Plaintiff alleges it purchased gas from Defendants in Kansas, Oklahoma, N e b ra sk a , Iowa, and Louisiana. (Am. Compl. at 36.) Plaintiff also alleges a different kind o f injury occurring within the state of Kansas. Plaintiff alleges that due to Defendants' p ric e manipulation, Plaintiff was "deprived of the right to make risk management, resource

Defendants agree with this proposition, stating that "the inquiry presented under the long-arm statute turns on the same facts as the conflict of law rules ­ where a tortious injury occurs. [Plaintiff] offers no authority to suggest that place of injury is determined differently in the two scenarios." (Defs.' Reply to Pl.'s Resp. to Mot. for J. on the Pleadings Regarding Choice of Law (Doc. #1888) at 7 n.5.) 5

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a llo c a tio n and other financial decisions in a full and free competitive market for natural g a s ." (Id. at 40-41.) Plaintiff alleges that decisions about budgeting, forecasting, capital s p e n d in g authorization, executing annual purchasing contracts, accounting, distribution, and s e ttin g production were made out of the Kansas office. (Id. at 3-4.) Consequently, to the e x te n t Defendants' alleged antitrust violations caused injury to Plaintiff's business by d is ru p tin g its ability to make critical business decisions in a full and free competitive m a rk e t, Plaintiff felt such injury in Kansas, where it made those types of decisions. Consequently, the Court concludes that Kansas law applies to Plaintiff's claim. In several decisions, the United States District Court for the District of Kansas h a s held that where the alleged injury at issue was economic, the plaintiff corporation felt th e financial harm at its principal place of business.3 These cases do not alter the Court's

See Alpine Atl. Asset Mgmt. AG v. Comstock, 552 F. Supp. 2d 1268, 1279 (D. Kan. 2008) ("Because the wrong here involves financial harm, the court would look to the law of the place where Alpine felt the alleged financial harm, which is the location of its principal place of business in Switzerland."); Carolina Indus. Prods., Inc. v. Learjet, Inc., 189 F. Supp. 2d 1147, 1163 n.12 (D. Kan. 2001) (holding the plaintiffs' tortious interference claim was governed by Georgia law where one plaintiff was a Georgia limited liability company, another was a Georgia resident, and the third was incorporated in North Carolina but its sole owner resided in Georgia and the court "presume[d]" the plaintiff's principal place of business was Georgia); ORI, Inc. v. Lanewala, 147 F. Supp. 2d 1069, 1078 n.9 (D. Kan. 2001) (holding that where the plaintiff alleged financial injury, it felt such injury at its principal place of business in Kansas); Bushnell Corp. v. ITT Corp., 973 F. Supp. 1276, 1286 n.2 (D. Kan. 1997) (holding the plaintiff's defamation and tortious interference claims were governed by Kansas law because the plaintiff alleged financial harm which the plaintiff would have felt at its principal place of business in Kansas); Lawrence-Leiter & Co. v. Paulson, 963 F. Supp. 1061, 1062, 1065 (D. Kan. 1997) (holding in defamation case that corporation incorporated in Missouri but with principal place of business in Kansas felt the harm in Kansas); St. Paul Furniture Mfg. Co. v. Bergman, 935 F. Supp. 1180, 1187 (D. Kan. 1996) (holding Illinois law applied where the plaintiffs, an Illinois corporation and an Illinois resident, alleged financial harm); Old Colony Ventures I, Inc. v. SMWNPF Holdings, Inc., 910 F. Supp. 543, 545 (D. Kan. 1995) (noting the plaintiff, an Illinois corporation, did not plead where it felt the injury, but the parties agreed Kansas law applied) Atchison Casting Corp. v. Dofasco, Inc., 889 F. Supp. 1445, 1455-56 (D. Kan. 1995) (holding that the "only evidence before the court" indicated that the plaintiff felt pecuniary damages from a misrepresentation at its principal place of business in Kansas); Corinthian Mortg. Corp. v. First Sec. Mortg. Co., 716 F. Supp. 527, 529-30 (D. Kan. 1989) (holding, in the context of determining whether a defendant committed a tortious act within the state under Kansas's long-arm statute, that the plaintiff suffered harm from an 6

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c o n c lu s io n . In several of these cases, the parties either conceded or did not address which la w applied. See, e.g., ORI, Inc. v. Lanewala, 147 F. Supp. 2d 1069, 1078 n.9 (D. Kan. 2 0 0 1 ); St. Paul Furniture Mfg. Co. v. Bergman, 935 F. Supp. 1180, 1187 (D. Kan. 1996); O ld Colony Ventures I, Inc. v. SMWNPF Holdings, Inc., 910 F. Supp. 543, 545 (D. Kan. 1 9 9 5 ). In others, it is unclear whether the parties disputed which law governed the claims at is su e , but from the court's decision it appears the parties either agreed about which law a p p lie d , or they did not address the matter. Bushnell Corp. v. ITT Corp., 973 F. Supp. 1 2 7 6 , 1286 n.2 (D. Kan. 1997); Lawrence-Leiter & Co. v. Paulson, 963 F. Supp. 1061, 1 0 6 2 , 1065 (D. Kan. 1997). In those cases where the parties disputed the choice of law, the dispute was b e tw e e n either the principal place of business and the state of incorporation, or the p rin c ip a l place of business and the location of the defendant or the defendant's alleged to rtio u s acts. See Alpine Atl. Asset Mgmt. AG v. Comstock, 552 F. Supp. 2d 1268, 1279 (D . Kan. 2008); Carolina Indus. Prod., Inc. v. Learjet, Inc., 189 F. Supp. 2d 1147, 1163 n.12 (D . Kan. 2001); Atchison Casting Corp. v. Dofasco, Inc., 889 F. Supp. 1445, 1455-56 (D. K a n . 1995); Corinthian Mortg. Corp. v. First Sec. Mortg. Co., 716 F. Supp. 527, 529-30 (D. K a n . 1989). None of these cases involved a price fixing conspiracy. Nor did any of the c a s e s involve a factual scenario similar to that alleged in the present action, where the c o rp o ra tio n had its principal place of business in one state, but was incorporated in another s ta te and also conducted operations within its state of incorporation out of which the

alleged fraudulent misrepresentation at its principal place of business in Kansas). But see Kansas Mun. Gas Agency v. Vesta Energy Co., Inc., 840 F. Supp. 814, 822-23 (D. Kan. 1993) (holding that "the law of the state in which a party receives the allegedly fraudulent misrepresentations will be applicable to the party's common law fraud claims"); Raymark Indus., Inc. v. Stemple, 714 F. Supp. 460, 465 (D. Kan. 1988) (holding that the wrong in a misrepresentation case was felt in Kansas where the plaintiff received the defendants' misrepresentations that certain claimants were entitled to proceeds from a settlement fund in Kansas, the settlement monies were kept in Kansas, and the funds were paid to Kansas claimants). 7

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p a rtic u la r claim arose. The one case which is factually similar supports choosing Kansas law in this c a s e . In Seitter v. Schoenfeld, the counterdefendant moved to dismiss a negligent m isre p re s e n ta tio n counterclaim. 678 F. Supp. 831, 835 (D. Kan. 1988). The c o u n te rc la im a n t sought to apply Kansas law to its counterclaim because the counterclaimant lo a n e d the money to the counterdefendant in Kansas, the counterdefendant defaulted on the lo a n in Kansas where the counterdefendant was located, the collateral securing the loan was lo c a te d in Kansas, the counterdefendant foreclosed on the counterdefendant's assets in K a n s a s, and the counterdefendant incurred expenses in liquidating those assets in Kansas. Id. at 835-36. The federal district court rejected the application of Kansas law, however, n o tin g that although the "cause of [the counterclaimant's] injuries may have occurred in K a n s a s, . . . the effects of [the counterdefendant's] alleged actions were felt in Illinois" w h e re the counterclaimant had its offices. Id. In holding that the counterclaimant felt its injury at its offices in Illinois, the court re je c te d the argument that the counterclaimant felt its injuries at its "corporate headquarters in New York." Id. at n.2. "All negotiations took place with Illinois personnel in the Illinois o f f ic e s . Notice of default was also sent to Illinois. The transaction was plainly centered a ro u n d [the counterclaimant's] Illinois location, and the location of the company's national h e a d q u a rte rs is not controlling in this factual situation." Id. Here, as in Seitter, the relevant activity related to the underlying price-fixing c la im occurred in Kansas. Accepting the Amended Complaint's uncontroverted allegations a s true, Plaintiff made decisions related to its fertilizer operations in Kansas, and made a c tu a l purchases of natural gas from Defendants in Kansas. Although Plaintiff made p u rc h a s e s in other states as well, it did not make any such purchases in Missouri, its p rin c ip a l place of business. Further, Plaintiff alleges harm separate from financial losses f ro m the sales themselves. Plaintiff also alleges that due to Defendants' price manipulation, 8

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P la in tif f was deprived of the ability to make certain business decisions in a full and free c o m p e titiv e market for natural gas. As the Amended Complaint alleges these decisions w e re made in Kansas, Plaintiff felt this injury, if anywhere, in Kansas. The Court therefore concludes that Kansas law applies to Plaintiff's claim. Because Kansas provides for a full consideration remedy, the Court will deny Defendants' m o tio n for judgment on the pleadings. I V . CONCLUSION IT IS THEREFORE ORDERED that Defendants' Motion for Judgment on the P le a d in g s (Doc. #1806) is hereby DENIED.

D A T E D : November 3, 2010 _______________________________ PHILIP M. PRO United States District Judge

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