The Federal Government filed suit under § 7 of the Clayton Act
charging that the acquisition by a natural gas company, then the
sole out of state supplier to California, of the stock and assets
of another gas company, one of the two major interstate pipelines
serving the trans-Rocky Mountain States, which had made some
efforts to enter the California market, "may be substantially to
lessen competition." The District Court, without a written opinion,
dismissed the complaint after trial, adopting verbatim the findings
of fact and conclusions of law submitted by counsel for
appellees.
Held:
1. A trial judge's findings will stand if supported by evidence
even where they are not his own work product,
United States v.
Crescent Amusement Co., 323 U. S. 173, but
such findings are less helpful on judicial review than those
prepared by the trial judge himself. Pp.
376 U. S.
656-657.
2. A review of the record, composed mainly of undisputed
evidence, clearly shows that the "effect of such acquisition may be
substantially to lessen competition" in California under § 7 of the
Act. Pp.
376 U. S.
657-662.
(a) The production, transportation and sale of natural gas is a
"line of commerce," and California is a "section of the country,"
as used in § 7. P.
376 U. S.
657.
(b) The words "may be substantially to lessen competition" in §
7 manifest Congress' concern with probabilities, and not with
either certainties or ephemeral possibilities. P.
376 U. S.
658.
(c) Although the acquired company had not gained entry into
California for its gas, its effect as a potential supplier made it
a substantial competitive factor in that continuously expanding
market. Pp.
376 U. S.
658-659.
3. Since appellees have been on notice of the antitrust charge
almost from the inception of the merger plans, the District Court
is directed to order divestiture without delay. P.
376 U. S.
662.
Reversed.
Page 376 U. S. 652
Opinion of the Court by MR. JUSTICE DOUGLAS, announced by MR.
JUSTICE CLARK.
This is a civil suit charging a violation of § 7 of the Clayton
Act, [
Footnote 1] by reason of
the acquisition of the stock and assets of Pacific Northwest
Pipeline Corp. (Pacific Northwest) by El Paso Natural Gas Co. (El
Paso). The District Court dismissed the complaint after trial,
making findings of fact and conclusions of law, but not writing an
opinion. The case is here on direct appeal. 15 U.S.C. § 29. We
noted probable jurisdiction, 373 U.S. 930.
The ultimate issue revolves around the question whether the
acquisition substantially lessened competition in the sale of
natural gas in California -- a market of which El Paso was the sole
out-of-state supplier at the time of the acquisition. [
Footnote 2]
Page 376 U. S. 653
In 1954, Pacific Northwest received the approval of the Federal
Power Commission to construct and operate a pipeline from the San
Juan Basin, New Mexico, to the State of Washington, to supply gas
to the then unserved Pacific Northwest area. Later it was
authorized to receive large quantities of Canadian gas, and to
enlarge its system for that purpose. In addition, Pacific Northwest
acquired Rocky Mountain reservoirs along its route. At the end of
1957, it had an estimated 3.51 trillion cubic feet of gas reserves
owned outright in the San Juan Basin; 1.04 trillion under contract
in the San Juan Basin; 1.59 trillion under contract in the Rocky
Mountain area; and 2.33 trillion under contract in Canada -- 8.47
trillion in all. By 1958, one-half of its natural gas sales were of
gas from Canada.
In 1954, Pacific Northwest entered into two gas exchange
contracts with El Paso -- one to deliver 250 million cubic feet per
day to El Paso in Idaho for transportation to California via
Nevada, the other to gather gas jointly in the San Juan Basin for a
five-year period. Under the latter agreement, El Paso loaned gas to
Pacific Northwest from its wells in the San Juan Basin; to avoid
duplication of facilities, Pacific Northwest agreed to gather gas
with its own facilities from El Paso's wells in the eastern portion
of the basin, and El Paso agreed to perform the same service for
Pacific Northwest in the western portion. At the same time, Pacific
Northwest undertook to purchase 300 million cubic feet per day from
West-coast Transmission Co., Ltd., a Canadian pipeline.
An executive of Pacific Northwest called these agreements a
"treaty" to "solve the major problems which have been confronting
us." A letter from Pacific Northwest to its stockholders
stated:
"This tri-party deal will benefit all concerned. It will give
Westcoast what they have been fighting for -- a pipeline. It will
mean that Pacific will expand
Page 376 U. S. 654
its facilities, be a larger company, will protect its market
from future competition by a Canadian pipeline, and it caused the
dismissal of the law suit of Westcoast against Pacific's present
certificate.
It means that El Paso's California market will be
protected against future competition, and, further, it results in
all parties' now working together for a common end, rather than
fighting each other."
(Italics added.)
El Paso, however, could not get Commission approval to build the
pipeline necessary to deliver the 250 million cubic feet of gas to
California. Consequently, a new agreement on that aspect was
negotiated in 1955 whereby El Paso undertook to purchase 50 million
cubic feet a day to be delivered on an exchange basis in Colorado.
Pacific Northwest, still obligated to take 300 million cubic feet
per day from Westcoast, disposed of the balance in its own market
areas.
Prior to these 1954 and 1955 agreements, Pacific Northwest had
tried to enter the rapidly expanding California market. It prepared
plans regarding the transportation of Canadian gas to California,
where it was to be distributed by Pacific Gas & Electric (PGE).
That effort -- suspended when the 1954 agreements were made -- was
renewed when the new agreement with El Paso was made in 1955, and
the negotiation of the 1955 contract with El Paso was conceived by
Pacific Northwest as the occasion for "lifting of all restrictions
on the growth of Pacific." In 1956, it indeed engaged in
negotiations for the sale of natural gas to Southern California
Edison Co. (Edison). The latter, largest industrial user of natural
gas in Southern California, used El Paso gas, purchased through a
distributor. It had, however, a low priority from that distributor,
being on an "interruptible" basis,
i.e., subject to
interruption during periods of peak demand for domestic uses.
Edison wanted a firm contract
Page 376 U. S. 655
and, upon being advised that it was El Paso's policy to sell
only to distributors, started negotiations with Pacific Northwest
in May, 1956. The idea was for Pacific Northwest to deliver to
Edison at a point on the California-Oregon border 300 million cubic
feet of Canadian gas a day. In July, 1956, they reached a tentative
agreement. Edison thereupon tried to develop within California an
integrated system for distributing Canadian gas supplied by Pacific
Northwest to itself and others. El Paso decided to fight the plan
to the last ditch, and succeeded in getting (through a distributor)
a contract for Edison's needs. Edison's tentative agreement with
Pacific Northwest was terminated. Before Edison terminated that
agreement with Pacific Northwest, Edison had reached an agreement
with El Paso for firm deliveries of gas; and while the original El
Paso offer was 40� per Mcf, the price dropped to 38� per Mcf, then
to 34�, and finally to 30�. Thereafter, and while the merger
negotiations were pending, Pacific Northwest renewed its efforts to
get its gas into California.
El Paso had been interested in acquiring Pacific Northwest since
1954. The first offer from El Paso was in December, 1955 -- an
offer Pacific Northwest rejected. Negotiations were resumed by El
Paso in the summer of 1956, while Pacific Northwest was trying to
obtain a California outlet. The exchange of El Paso shares for
Pacific shares was accepted by Pacific Northwest's directors in
November, 1956, and, by May, 1957, El Paso had acquired 99.8% of
Pacific Northwest's outstanding stock. In July, 1957, the
Department of Justice filed its suit charging that the acquisition
violated § 7 of the Clayton Act. In August, 1957, El Paso applied
to the Federal Power Commission for permission to acquire the
assets of Pacific Northwest. On December 23, 1959, the Commission
approved, and the merger was effected on December 31, 1959. In
1962, we set aside the Commission's order, holding that
Page 376 U. S. 656
it should not have acted until the District Court had passed on
the Clayton Act issues.
California v. Federal Power
Comm'n, 369 U. S. 482.
Meanwhile (in October, 1960), the United States amended its
complaint so as to include the asset acquisition in the charged
violation of the Clayton Act.
There was a trial, and, after oral argument, the judge announced
from the bench [
Footnote 3]
that judgment would be for appellees, and that he would not write
an opinion. He told counsel for appellees "Prepare the findings and
conclusions and judgment." They obeyed, submitting 130 findings of
fact and one conclusion of law, all of which, we are advised, the
District Court adopted verbatim. Those findings, though not the
product of the workings of the district judge's mind, are formally
his; they are not to be rejected out of hand, and they will stand
if supported by evidence.
United States v. Crescent Amusement
Co., 323 U. S. 173,
323 U. S.
184-185. Those drawn with the insight of a disinterested
mind are, however, more helpful to the appellate court. [
Footnote 4]
See 2B Barron
Page 376 U. S. 657
and Holtzoff, Federal Practice and Procedure (Wright ed. 1961),
§ 1124. Moreover, these detailed findings were "mechanically
adopted," to use the phrase of the late Judge Frank in
United
States v. Forness, 125 F.2d 928, 942, and do not reveal the
discerning line for decision of the basic issue in the case. On
review of the record -- which is composed largely of undisputed
evidence -- we conclude that "the effect of such acquisition may be
substantially to lessen competition" within the meaning of § 7 of
the Clayton Act.
There can be no doubt that the production, transportation, and
sale of natural gas is a "line of commerce" within the meaning of §
7. There can also be no doubt that California is a "section of the
country" as that phrase is used in § 7. The sole question,
therefore, is whether, on undisputed facts, the acquisition had a
sufficient tendency to lessen competition or is saved by the
findings that Pacific Northwest, as an independent entity, could
not have obtained a contract from the California distributors,
Page 376 U. S. 658
could not have received the gas supplies or financing for a
pipeline project to California, or could not have put together a
project acceptable to the regulatory agencies. Those findings are
irrelevant.
As we said in
Brown Shoe Co. v. United States,
370 U. S. 294,
370 U. S.
323:
"Congress used the words '
may be substantially to
lessen competition' (emphasis supplied), to indicate that its
concern was with probabilities, not certainties. Statutes existed
for dealing with clear-cut menaces to competition; no statute was
sought for dealing with ephemeral possibilities. Mergers with a
probable anticompetitive effect were to be proscribed by this
Act."
See also United States v. Philadelphia National Bank,
374 U. S. 321,
374 U. S.
362.
Pacific Northwest, though it had no pipeline into California, is
shown by this record to have been a substantial factor in the
California market at the time it was acquired by El Paso. At that
time, El Paso was the only actual supplier of out-of-state gas to
the vast California market,
a market that expands at an
estimated annual rate of 200 million cubic feet per day.
[
Footnote 5] At that time,
Pacific Northwest
Page 376 U. S. 659
was the only other important interstate pipeline west of the
Rocky Mountains. Though young, it was prospering, and appeared
strong enough to warrant a "treaty" with El Paso that protected El
Paso's California markets.
Edison's search for a firm supply of natural gas in California,
when it had El Paso gas only on an "interruptible" basis,
illustrates what effect Pacific Northwest had merely as a potential
competitor in the California market. Edison took its problem to
Pacific Northwest, and, as we have seen, a tentative agreement was
reached for Edison to obtain Pacific Northwest gas. El Paso
responded, offering Edison a firm supply of gas and substantial
price concessions. We would have to wear blinders not to see that
the mere efforts of Pacific Northwest to get into the California
market, though unsuccessful, had a powerful influence on El Paso's
business attitudes within the State. We repeat that one purpose of
§ 7 was
"to arrest the trend toward concentration, the tendency to
monopoly, before the consumer's alternatives disappeared through
merger. . . ."
United States v. Philadelphia National Bank, 374 U.S.
at
374 U. S.
367.
This is not a field where merchants are in a continuous daily
struggle to hold old customers and to win new ones over from their
rivals. In this regulated industry, a natural gas company (unless
it has excess capacity) must
Page 376 U. S. 660
compete for, enter into, and then obtain Commission approval of
sale contracts in advance of constructing the pipeline facilities.
In the natural gas industry, pipelines are very expensive, and, to
be justified, they need long-term contracts for sale of the gas
that will travel them. Those transactions with distributors are few
in number. For example, in California, there are only two
significant wholesale purchasers -- Pacific Gas & Electric in
the north and the Southern Companies in the south. Once the
Commission grants authorization to construct facilities or to
transport gas in interstate commerce, once the distributing
contracts are made, a particular market is withdrawn from
competition.
The competition then is for the new increments of
demand that may emerge with an expanding population and with an
expanding industrial or household use of gas.
The effect on competition in a particular market through
acquisition of another company is determined by the nature or
extent of that market and by the nearness of the absorbed company
to it, that company's eagerness to enter that market, its
resourcefulness, and so on. Pacific Northwest's position as a
competitive factor in California was not disproved by the fact that
it had never sold gas there. Nor is it conclusive that Pacific
Northwest's attempt to sell to Edison failed. That might be weighty
if a market presently saturated showed signs of petering out. But
it is irrelevant in a market like California, where incremental
needs are booming. That is underscored in the case by a memorandum
dated October 18, 1956, which summarized a meeting at which terms
of the acquisition were negotiated. It recited that Pacific
Northwest had substantially concluded additional contracts for
Canadian gas, and that "Pacific plans on selling this additional
volume of gas to the California market. . . ." On November 5, 1956,
just three days prior to approval by the directors of Pacific
Northwest of the
Page 376 U. S. 661
stock exchange, it made a firm offer to PGE to supply up to 350
million cubic feet a day for 20 years. Even after that approval and
before the actual exchange, the chief executive of Pacific
Northwest, writing November 22, 1956, said:
"I do not think, for the present moment, we should confuse the
sale of gas from our system to California with El Paso's taking
part of the gas through their present system to California. Reason
for this: should the El Paso-Pacific deal collapse, we would have
nothing of substance with California."
Pacific Northwest had proximity to the California market -- 550
miles distant in Wyoming, even nearer in Idaho, only 250 miles away
in Oregon. Moreover, it had enormous reserves in the San Juan
Basin, the Rocky Mountains, and Western Canada. Had Pacific
Northwest remained independent, there can be no doubt it would have
sought to exploit its formidable geographical position
vis-a-vis California. No one knows what success it would
have had. We do know, however, that two interstate pipelines in
addition to El Paso now serve California -- one of the newcomers
being Pacific Gas Transmission Co., bringing down Canadian gas. So
we know that opportunities would have existed for Pacific Northwest
had it remained independent.
Unsuccessful bidders are no less competitors than the successful
one. The presence of two or more suppliers gives buyers a choice.
Pacific Northwest was no feeble, failing company; [
Footnote 6] nor was it inexperienced and
lacking in resourcefulness. It was one of two major interstate
pipelines serving the trans-Rocky Mountain States; it had raised
$250 million for its pipeline that extended 2,500 miles through
rugged terrain. It had adequate reserves and managerial skill. It
was so strong and militant that it was viewed with concern, and
coveted, by El
Page 376 U. S. 662
Paso. If El Paso can absorb Pacific Northwest without violating
§ 7 of the Clayton Act, that section has no meaning in the natural
gas field. For normally there is no competition -- once the lines
are built and the long-term contracts negotiated -- except as
respects the incremental needs.
Since appellees have been on notice of the antitrust charge from
almost the beginning -- indeed, before El Paso sought Commission
approval of the merger -- we not only reverse the judgment below,
but direct the District Court to order divestiture without delay.
[
Footnote 7]
Reversed.
MR. JUSTICE WHITE took no part in the consideration or decision
of this case.
[
Footnote 1]
Section 7 of the Clayton Act, 38 Stat. 731, as amended in 1950
by the Celler-Kefauver Anti-Merger Act, 64 Stat. 1125, 15 U.S.C. §
18, provides in relevant part:
"No corporation engaged in commerce shall acquire, directly or
indirectly, the whole or any part of the stock or other share
capital and no corporation subject to the jurisdiction of the
Federal Trade Commission shall acquire the whole or any part of the
assets of another corporation engaged also in commerce, where in
any line of commerce in any section of the country, the effect of
such acquisition
may be substantially to lessen
competition, or to tend to create a monopoly."
(Italics added.)
[
Footnote 2]
In 1956, El Paso supplied more than 50% of all gas consumed in
the State, the remainder coming from intrastate sources.
[
Footnote 3]
"The Court. Judgment will be for the defendant in this case.
Prepare the findings and conclusions and judgment."
"How much time do you want within which to submit it?"
"Mr. Harrison. Does the court have a rule, your Honor?"
"The Court. No, I have no rule about that."
"Mr. Harrison. Could we have twenty days, your Honor?"
"The Court. Twenty days to prepare the findings and conclusions
and judgment. I shan't write an opinion in this case."
"Mr. Harrison. I didn't hear you."
"The Court. I don't intend to write an opinion in this case. I
think it is a factual matter. I think we have taken a full, fair
look at the evidence and the factual issues, and I am not satisfied
that the Government has discharged its burden."
[
Footnote 4]
Judge J. Skelly Wright, of the Court of Appeals for the District
of Columbia, recently said:
"Who shall prepare the findings? Rule 52 says the court shall
prepare the findings. 'The court shall find the facts specially and
state separately its conclusions of law.' We all know what has
happened. Many courts simply decide the case in favor of the
plaintiff or the defendant, have him prepare the findings of fact
and conclusions of law, and sign them. This has been denounced by
every court of appeals save one. This is an abandonment of the duty
and the trust that has been placed in the judge by these rules. It
is a noncompliance with Rule 52 specifically, and it betrays the
primary purpose of Rule 52 -- the primary purpose being that the
preparation of these findings by the judge shall assist in the
adjudication of the lawsuit."
"I suggest to you strongly that you avoid as far as you possibly
can simply signing what some lawyer puts under your nose. These
lawyers, and properly so, in their zeal and advocacy and their
enthusiasm, are going to state the case for their side in these
findings as strongly as they possibly can. When these findings get
to the courts of appeals, they won't be worth the paper they are
written on as far as assisting the court of appeals in determining
why the judge decided the case."
Seminars for Newly Appointed United States District Judges
(1963), p. 166.
[
Footnote 5]
California, in a brief
amicus curiae, pp. 5-6, tells
us:
"The dependence of California upon natural gas as a fuel is
unique among the states. California does not possess coal deposits
sufficient for energy requirements. It is dependent upon natural
gas for its energy needs, and approximately three quarters of the
natural gas utilized in California comes from out-of-state sources.
Ninety per cent of all homes in California are heated by natural
gas, and California industry depends upon natural gas as a fuel. In
California, the percentage of total energy provided by natural gas
is substantially greater than for the nation as a whole."
"During 1962, California Gas distributing utilities purchased
over 745,000,000,000 cubic feet of natural gas at a cost somewhat
in excess of $266,850,000. California takes in excess of ten per
cent of all of the natural gas moving in interstate commerce
throughout the United States, and exceeds the volume of gas
imported by any other state."
"The interest of California in this proceeding is evident. More
than 80 percent of the customers of El Paso before merger resided
in the State of California, and California ratepayers bear most of
the costs of service of El Paso."
"California, alone, consumes more natural gas than the Middle
Atlantic states combined, more than half as much as the highly
industrialized, thickly populated East North-Central states of
Illinois, Indiana, Michigan, Ohio and Wisconsin, and as much as the
seven states that make up the West North-Central area. Out-of-state
deliveries to California averaged three billion cubic feet per day
in 1961. At a price of slightly more than thirty cents per thousand
cubic feet (Mcf), this business was worth then about $1,000,000 per
day."
[
Footnote 6]
Cf. International Shoe Co. v. Federal Trade Comm'n,
280 U. S. 291.
[
Footnote 7]
Cf. Wisconsin v. Illinois, 281 U.
S. 179,
281 U. S.
197.
MR. JUSTICE HARLAN (concurring in part and dissenting in
part).
I
Contrary to what I had first thought, the Government is not
asking in this case, as it did in
United States v. Yellow Cab
Co., 338 U. S. 338,
that we "in effect . . . try the case
de novo,"
id. at
338 U. S. 340.
Rather, it contends that on the undisputed facts of record the
ultimate determination below was clearly erroneous.
See
id., at
338 U. S.
341-342. For reasons given in the Court's opinion, I
agree that a violation of § 7 of the Clayton Act has been
established, and that the District Court erred in deciding
otherwise . On this score, I shall comment only on two matters.
First. The Court's strictures concerning the District
Court's findings seem to me to miss the mark. Findings of fact
should, of course, be the product of the conscientious and
independent judgment of the district judge. Nevertheless, if they
are supported by evidence, they are not rendered suspect simply
because the trial court, as
Page 376 U. S. 663
here, has accepted
in toto the findings proposed by one
side or the other. The real lack in this case is that the District
Court wrote no opinion setting forth the reasoning underlying any
of the subsidiary findings on disputed issues of fact or connecting
the subsidiary findings with its ultimate determination that the
Clayton Act had not been violated by this merger.
Both as a practitioner and as a judge, I have more than once
felt that a closely contested government antitrust case, decided
below in favor of the defendant, has foundered in this Court for
lack of an illuminating opinion by the District Court. District
Courts should not forget that such cases, the trials of which
usually result in long and complex factual records, come here
without the benefit of any sifting by the Courts of Appeals. The
absence of an opinion by the District Court has been a handicap in
this instance.
Second. This case affords another example of the
unsatisfactoriness of the existing bifurcated system of antitrust
and other regulation in various fields. In this case, the Federal
Power Commission had indicated its approval of this merger as being
in the public interest. The Department of Justice, however,
considered the merger to be violative of the antitrust laws, and,
for that reason alone, against the public interest. This Court,
under the present scheme of things, has no choice on this record
* but to sustain
the position of the Department of Justice, as indeed it has felt
constrained to do, albeit in my view with less justification, in
other recent cases involving dual regulation.
Cf. United States
v. Philadelphia National Bank,
374 U.
S. 321;
United States v. First National Bank &
Trust Co., 376 U. S. 665, any
my dissenting opinions in those cases. It would be unrealistic not
to recognize that this state of affairs has
Page 376 U. S. 664
the effect of placing the Department of Justice in the driver's
seat even though Congress has lodged primary regulatory authority
elsewhere.
It does seem to me that the time has come when this duplicative,
and, I venture to say, anachronistic system of dual regulation
should be re-examined. Had the subtle and necessarily speculative
questions involved in assessing the short-term and long-term
effects of this merger been subject to appraisal by a single
agency, under congressionally established standards marking the
relationship between the different and often competing objectives
of the antitrust laws and those governing the regulation of
"interstate" natural gas, who can say that this case might not have
called for a different outcome?
II
While I agree with the Court's decision on the merits, I dissent
from its peremptory ordering of divestiture. "The framing of"
appropriate relief "should take place in the District, rather than
in Appellate, Courts."
International Salt Co., Inc., v. United
States, 332 U. S. 392,
332 U. S. 400
(footnote omitted).
United States v. E. I. du Pont De Nemours
& Co., 366 U. S. 316, is
not to the contrary; that case had already been here before on the
merits (
353 U. S. 353 U.S.
586), and, when it came here again at the relief stage, the Court
observed that "the District Courts [have] the responsibility
initially to fashion the remedy. . . ." 366 U.S. at
366 U. S. 323.
I know of no case where this Court has in the first instance itself
directed divestiture or any other particular kind of relief. The
fact that these appellees have been "on notice,"
ante, p.
376 U. S. 662,
of the charges against them affords no justification for this
departure from normal practice.
See the cases cited in the
second
du Pont case, 366 U.S. at
366 U. S.
322.
I would remand the case to the District Court for the fashioning
of appropriate relief.
* This Court has not had the benefit of an
amicus brief
from the Federal Power Commission.