A new Ninth Circuit opinion shows that Twombly-style pleadings scrutiny may help energy producers defend antitrust claims premised on common practices such as locational swaps and price reporting.

On December 2, 2009, the Ninth Circuit surprisingly reversed its own prior decision and affirmed a district court’s dismissal of a putative antitrust class action against several major oil companies. William O. Gilley Enterprises, Inc. v. Atlantic Richfield Co., No. 06-56059, 2009 WL 4282914 (9th Cir. 2009). Originally having reinstated the plaintiff’s case over a strongly-worded dissent, a Ninth Circuit panel revisited its prior Twombly analysis and concluded that the plaintiff’s allegations that the major oil producers in California had colluded to raise the price of gasoline were insufficient to state a viable claim under Section 1 of the Sherman Act.

At the time of the Ninth Circuit’s decision, Gilley had been pending for more than a decade. In 1998, William Gilley filed a class action against several major oil producers on behalf of himself and other wholesale purchasers of CARB gasoline (a clean-burning fuel required only in California). Gilley alleged that the defendants had conspired to limit the supply and raise the prices of CARB gasoline in California through, among other things, the use of exchange agreements.¹ These allegations were substantially similar to those made in Aguilar v. Atlantic Richfield Co.,² a class action filed in California state court in 1996 on behalf of retail gasoline purchasers. As a result of these similar allegations, the federal district court stayed Gilley pending the outcome of Aguilar. After extensive discovery and briefing, the Aguilar court granted summary judgment in favor of the defendants, ruling that there was insufficient evidence that the defendants had conspired to restrain trade.

In Aguilar, the California Supreme Court affirmed the trial court’s decision, holding that the oil companies had presented evidence that their pricing and production decisions were the result of independent, and not collusive, conduct.³ The California Supreme Court held that, in contrast, the plaintiff did not carry her burden to make a prima facie showing of collusion. The California Supreme Court rejected plaintiff’s arguments that the following constituted evidence of collusion:

• The gathering and dissemination of capacity, production, and pricing information by each oil company through sources such as OPIS. The court noted that widespread dissemination of this type of market information serves the public interest, tends to stabilize markets and prices, and generally leads to freer competition, and thus did not imply collusion.⁴
• The use of common consultants. The court noted that there are very few consultants who possess the expertise necessary to advise on CARB production, capacity, and pricing issues and thus it was merely practical that defendants would use the same consultants. The court also noted that the consultants typically signed confidentiality agreements with each defendant and there was no evidence that the consultants shared confidential information with other defendants.⁵
• The use of exchange agreements. The court noted that exchange agreements are common in the petroleum industry and are generally “procompetitive in purpose and effect,” as they allow companies to compete in markets “in which they otherwise could not or would not compete as efficiently or at all.” The exchange agreements were thus not evidence of collusion.⁶

After the decision in Aguilar and related motions practice, Gilley amended his claim to avoid the collateral impact of Aguilar, and newly alleged that 44 bilateral exchange agreements between the defendants and others had the cumulative effect of restraining competition for CARB, in violation of Section 1. The district court granted the defendants’ motion to dismiss, ruling that Gilley had still failed to allege that the exchange agreements, when considered individually, produced any anticompetitive effects; indeed, the district court noted that Gilley had not alleged any theory as to how the individual exchange agreements, each of which reflected only a small portion of the CARB market, could impact the price of CARB gasoline.

The Ninth Circuit initially reversed and remanded, holding that because Aguilar only addressed a conspiracy to fix prices, the judgment did not preclude a claim that the exchange agreements, individually or in the aggregate, adversely affected competition under the rule of reason.⁷ Judge Callahan, dissenting, pointed out that the California Supreme Court had also rejected a conspiracy claim under California’s unfair competition law, holding that there was no triable issue of fact on this claim. Judge Callahan argued that this holding was broad enough to preclude any conspiracy claim under Section 1, whether premised on a per se violation or a claim under the rule of reason.⁸

Defendants then moved for rehearing, and on December 2, 2009, the Ninth Circuit withdrew its April 3, 2009, opinion and issued a new, per curiam opinion affirming the dismissal.⁹ In this opinion, the court held that Aguilar barred all conspiracy claims, and because Gilley had not alleged that the bilateral exchange agreements individually restrained trade, the court affirmed the trial court’s dismissal of the claims under Twombly. The court stated simply that the “pleading requirements stated in Twombly apply in all civil cases, including this one” and that, under Twombly, a plaintiff’s allegations must raise the plaintiff’s right to relief “above the speculative level.”¹⁰ 

Together, Aguilar and Gilley should give energy companies important tools to contest speculative antitrust conspiracy claims, especially where those claims arise out of common efficiency-enhancing practices such as exchange agreements with competitors and the gathering and disseminating of data to price reporting agencies.
 
For more information, please contact Vinson & Elkins lawyers Jeffrey Johnston or Stacy Neal. Visit our website to learn more about V&E's Antitrust practice. Get a .pdf of this issue of Antitrust News & Notes e-newsletter here.