Kansas v. Utilicorp United Inc.

by Anthony Kennedy

United States Supreme Court

497 U.S. 199

Kansas  v.  Utilicorp United Inc.

No. 88-2109  Argued: April 16, 1990. --- Decided: June 21, 1990

Syllabus

The respondent-an investor-owned public utility operating in the petitioner States-and other utilities and natural gas purchasers filed suit in the District Court against a pipeline company and five gas producers under § 4 of the Clayton Act, which authorizes any person injured by a violation of the antitrust laws to sue for treble damages. The utilities alleged that the defendants had unlawfully conspired to inflate the price of gas that they supplied to the utilities, and sought treble damages for both the amount overcharged and the decrease in sales to customers caused by the overcharge. The petitioner States filed separate § 4 actions in the District Court against the same defendants for the alleged antitrust violation, asserting, inter alia, parens patriae claims on behalf of all natural persons residing in the States who had purchased gas from any utility at inflated prices. The court consolidated all of the actions and granted the utilities partial summary judgment with respect to the defendants' defense that, since the utilities had passed through all of the alleged overcharge to their customers, the utilities lacked standing because they had suffered no antitrust injury as required by § 4. In light of its conclusion that, under Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231, and Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707, the utilities had suffered antitrust injury as direct purchasers but their customers, as indirect purchasers, had not, the court dismissed the States' parens patriae claims. The Court of Appeals affirmed the dismissals.

Held: When suppliers violate antitrust laws by overcharging a public utility for natural gas, and the utility passes on the overcharge to its customers, only the utility has a cause of action under § 4 because it alone has suffered antitrust injury. Pp. 206-219.

1. Three rationales underlie the indirect purchaser rule adopted in Hanover Shoe and Illinois Brick: (1) establishing the amount of an overcharge shifted to indirect purchasers would normally prove insurmountable in light of the wide range of considerations influencing a company's pricing decisions; (2) a pass-on defense would reduce the effectiveness of § 4 actions by diminishing the recovery available to any potential plaintiff; and (3) allowing suits by indirect purchasers would risk multipleliability because the alleged antitrust violators could not use a pass-on defense in an action by the direct purchasers. Pp. 206-208.

2. The aforesaid rationales compel the conclusion that no exception to the indirect purchaser rule should be made for suits involving regulated public utilities that pass on all of their costs to their customers. Pp. 208-217.

(a) Allowing indirect suits in such cases might necessitate complex cost apportionment calculations, since a utility bears at least some portion of a passed-on overcharge to the extent that it could have sought and gained state permission to raise its rates in the absence of the overcharge, cf. Hanover Shoe, supra, 392 U.S. at 493, and n. 9, 88 S.Ct., at 2231, and n. 9, and since various factors, such as the need to seek regulatory approval, may delay the passing-on process and thereby require the utility, in the interim, to bear some of the overcharge's costs in the form of lower earnings. Here, the certified question leaves unclear whether the respondent could have raised its prices prior to the overcharge, whether it had passed on "most or all" of its costs at the time of its suit, and even the means by which the pass through occurred. Proof of these preliminary issues, which are irrelevant to the defendants' liability, would turn upon the intricacies of state law, and, if it were determined that respondent had borne some of the costs, would require the adoption of an apportionment formula, the very complexity that Hanover Shoe and Illinois Brick sought to avoid. Moreover, creating an exception in such cases would make little sense when, in light of all its difficulty, its practical significance is diminished by the fact that some States require utilities to pass on at least some of the recovery obtained in a § 4 suit to their customers. Pp. 208-212.

(b) Even if the risk of multiple recoveries would be eliminated by allowing the petitioners to recover only the amount of the overcharge and the respondent to recover only damages for its lost sales in a single lawsuit, the additional complexity thereby introduced into a case that already has become quite complicated argues strongly for retaining the indirect purchaser rule. See Illinois Brick, supra, 431 U.S., at 731, n. 11, 97 S.Ct., at 2067, n. 11. Pp. 212-213

(c) Allowing indirect suits by utility customers would not better promote the goal of vigorous enforcement of the antitrust laws. The petitioners' argument that utilities lack incentives to sue overcharging suppliers is unpersuasive, since utilities may bring § 4 actions in some instances for fear that regulators will not allow them to shift known and avoidable overcharges on to their customers; since there is no authority indicating that utilities, which may have to pass on § 4 damages recovered, would also have to pay the entire exemplary portion of these damages to customers; and since utilities, in fact, have an established record of diligent and successful antitrust enforcement. On the other hand, indirect purchaser actions might be ineffective because consumers may lack the expertise and experience necessary to detect improper pricing by a utility's suppliers, while state attorneys general may hesitate to exercise the parens patriae device in cases involving smaller, more speculative harm to consumers, and, in any event, may sue only on behalf of resident natural persons, leaving nonresidents and small businesses to fend for themselves. Pp. 214-216.

(d) Although the rationales of Hanover Shoe and Illinois Brick may not apply with equal force in all instances, ample justifications exist for the Court's stated decision not to carve out exceptions to the indirect purchaser rule for particular types of markets. Illinois Brick, supra, at 744-745, 97 S.Ct., at 2073-2074. Even assuming that any economic assumptions underlying the rule might be disproved in a specific case, it would be an unwarranted and counterproductive exercise to litigate a series of exceptions. Pp. 2160-217.

3. The suggestion in Hanover Shoe, supra, 392 U.S., at 494, 88 S.Ct., at 2232, and Illinois Brick, supra, 431 U.S., at 736, 97 S.Ct., at 2069, that a departure from the indirect purchaser rule may be necessary when such a purchaser buys under a pre-existing cost-plus contract does not justify an exception in this case, since the respondent did not sell gas to its customers under such a contract. Even if an exception could be created for situations that merely resemble those governed by such contracts, that exception could not be applied here, since there is no certainty that the respondent has borne no portion of the overcharge and otherwise suffered no injury. Pp. 217-218.

4. Section 4C of the Hart-Scott-Rodino Antitrust Improvements Act of 1976-which authorizes States to bring parens patriae actions on behalf of resident natural persons to secure monetary relief for property injury sustained by reason of certain antitrust violations-does not authorize the petitioners to sue on behalf of consumers notwithstanding the consumers' status as indirect purchasers. Section 4C did not establish any new substantive liability, but simply created a new procedural device to enforce existing rights of recovery under § 4 of the Clayton Act, Illinois Brick, supra, at 734, n. 14, 97 S.Ct., at 2068, n. 14, which rights belong to the respondent in this case. Pp. 218-219

866 F.2d 1286 (CA 10 1989), affirmed.

KENNEDY, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and STEVENS, O'CONNOR, and SCALIA, JJ., joined. WHITE, J., filed a dissenting opinion, in which BRENNAN, MARSHALL, and BLACKMUN, JJ., joined, post, p. 219.

Thomas J. Greenan, Seattle, Wash., for petitioners.

Floyd R. Finch, Jr., Kansas City, Mo., for respondent.

Lawrence S. Robbins, Washington, D.C., for U.S., as amicus curiae, supporting respondent, by special leave of Court.

[Amicus Curiae Information from pages 202-204 intentionally omitted]

Justice KENNEDY delivered the opinion of the Court.

Notes