Spring 2018 Message from the Chair……………………………………………………………………1 David L. Meyer Ride-Hailing Roundup: A Survey of Antitrust Cases Involving Uber Technologies…………..………………………………………3 Brian Rafkin and Nick Passaro SolarCity: The Supreme Court Misses a Chance to Rule on State Action Immunity Procedure……………………………………..15 Laura Collins State Law and Forced Interconnections: the Common Carrier and Antitrust Issues presented by the Fairway v. Magellan Litigation………..21 J.R. Hand Program Summary: “When HSR Clearance Ain’t Closure – Key Takeaways from Recent Challenges and Settlements” …….………..30 Nicole Sarrine Case Updates / Matters To Watch……………………………………………………..35

Message from the Chair

Welcome to the Spring 2018 edition of the Transportation and Energy Industries Committee’s newsletter. As our name indicates, our committee’s charter embraces the fields of transportation and energy. Although home to familiar and traditionally regulated sectors—railroads, airlines, electric utilities—the transportation and energy landscape is undergoing dramatic and dynamic change. Spurred by technological advances, we are in the midst of an array of potentially revolutionary changes, from ride-sharing and solar energy to autonomous cars and trucks, energy storage solutions, and much

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more. These changes bring business model disruption, challenges to regulated incumbents, and—inevitably—interesting antitrust issues. The TEI Committee will be devoting increased attention to the “non-traditional” developments in the energy and transportation space in coming months. This Newsletter offers a taste, with an article by Brian Rafkin and Nick Passaro that insightfully surveys the antitrust litigation involving Uber, which has encountered resistance from traditionally-regulated transportation service providers. Next up is an article by Laura Collins that analyzes the state action issues raised in Salt River v. SolarCity, another example of antitrust as a lever against alleged resistance by a market incumbent to new forms of competition—here, in the form of electricity generated by rooftop solar panels. Turning to the more traditional sectors, J.R. Hand takes an in-depth look at the unique regulatory regime for pipeline interconnections in Texas, and Nicole Sarrine summarizes the recent program hosted by the TEI Committee that examined instances where state and federal enforcers have diverged in their treatment of proposed mergers, including those in the energy sector. And, of course, we continue to bring you our Case Updates/Matters to Watch feature, which tracks important and interesting developments in the fields of transportation and energy. Noteworthy upcoming events for the Section include:

• Antitrust Section Spring Meeting, April 11-13 • Global Seminar Series Dusseldorf, Germany, May 8 • Antitrust in Asia, May 31-June 1

Our Committee looks forward to seeing you at these events, or to hearing from you on our Connect page or by email. Thank you for reading! David L. Meyer dmeyer@mofo.com Chair, Transportation and Energy Industries Committee 2017-2018

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Ride-Hailing Roundup: A Survey of Antitrust

Cases Involving Uber Technologies

By Brian Rafkin and Nick Passaro0F

1

Despite being founded less than ten years ago, ride-hailing company Uber Technologies, Inc. (“Uber”) has become nearly ubiquitous in that short time. When it was released, the Uber app offered a completely new model for both riders—who traditionally would hail or call a taxi or car service—as well as drivers—who traditionally worked for those same taxicab and car service companies. Remarkably, as of June 2017, Uber had provided 5 billion rides globally. But, due at least in part to Uber’s unique business model and the quick and massive disruption it has brought to the transportation market, litigation has followed. Indeed, the company is facing more than 70 lawsuits in U.S. federal courts alone on a variety of issues,1F

2 including 11 antitrust cases.

The purpose of this article is to survey the federal- and state-law antitrust cases that Uber is or has been involved in.2F

3 In Part I, we review the key cases and identify some common themes. What we find is that while there are 11 antitrust cases involving Uber they can be placed into four distinct categories: (1) predatory pricing claims, (2) claims of obtaining an unfair competitive advantage by avoiding regulation; (3) claims of price fixing among drivers; and (4) limitations on lawsuits. In Part II, we provide a table that summarizes each of the antitrust cases that involve Uber.

1 Brian Rafkin is an associate in Dechert LLP’s Washington, DC office and Nick Passaro is an associate in Dechert LLP’s New York, NY office.

2 See Heather Kelly, Uber’s Never-Ending Stream of Lawsuits, CNN (Aug. 11, 2016), available at, http://money.cnn.com/2016/08/11/technology/uber-lawsuits/index.html.

3 There are several other cases involving state unfair competition claims, but they do not include antitrust allegations and therefore are out of the scope of this article. See, e.g., Togafau v. Uber Technologies, Inc., No. BC686155 (Cal. Super. Ct. Los Angeles Cty., Dec. 8, 2017) (Plaintiff alleged that Uber breached a data server to unfairly position competitors); Williams v. Uber Technologies, Inc., No. BC687257 (Cal. Super. Ct. Los Angeles Cty., Dec. 15, 2017) (Plaintiff alleged that Uber failed to pay wages required because he was an employee); Chadha v. Uber Technologies, Inc., No. BC684994 (Cal. Super. Ct. Los Angeles Cty., Nov. 29, 2017) (Plaintiff class alleged that Uber failed to adequately protect the private identifiable information it solicited); Guzman v. Uber Technologies, Inc., No. 180102233 (Ct. Com. Pl. Philadelphia Cty. Pa., Jan. 15, 2018) (Plaintiff alleged that Uber fraudulently portrayed to potential users that drivers were thoroughly vetted and represented them to be employees); Rosales v. Uber Technologies, Inc., No. BC685555 (Cal. Super. Ct. Los Angeles Cty., Dec. 4, 2017) (Plaintiff alleged that Uber withheld funds, negligently failed to protect sensitive information from hacking, and froze accounts without notifying account holders). Consumer protection cases also are out of the scope of this article.

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PART I

I. Monopolization and Attempted Monopolization

More than half of the antitrust cases brought against Uber rely on a monopolization theory. Within these cases, the alleged anticompetitive conduct that forms the basis for the complaint falls into one of two categories: (1) predatory pricing and (2) avoidance of regulation.

A. Predatory Pricing (Malden, A White and Yellow Cab, Ariekat, DeSoto, Miadeco)

The most common antitrust claims brought against Uber are

predatory pricing claims by taxicab companies alleging that Uber prices below cost in order to gain market share and drive them out of the market. Despite the prevalence of these claims, no plaintiff to date has successfully overcome a motion to dismiss.

In Malden v. Uber Technologies, for example, plaintiff taxicab companies sued Uber in the District of Massachusetts, alleging that it attempted to drive them out of business through the use of its predatorily priced UberX service.3F

4 In December 2017, the district court dismissed the plaintiffs’ predatory pricing claim, explaining that the plaintiffs failed to allege any facts showing that Uber priced its UberX service below its costs. Rather, plaintiffs had offered only conclusory allegations that Uber employed a “below-cost pricing scheme,” that UberX was priced below the cost of a taxi, and that Uber has lost billions of dollars.4F

5 Plaintiffs amended their complaint, and in March 2018, Uber moved to dismiss plaintiffs’ amended complaint on similar grounds as the original complaint.5F

6

Plaintiff taxicab companies in the other four actions likewise have yet to successfully defeat a motion to dismiss. In Miadeco Corp. v. Uber Technologies, Inc., the district court has twice dismissed plaintiffs’ predatory pricing claims on the grounds that they failed to allege any facts showing anticompetitive effect of the alleged scheme.6F

7 The plaintiff taxicab companies in DeSoto Cab Company Inc. v. Uber Technologies, Inc., make similar

4 Malden Transp., Inc. v. Uber Technologies, Inc., 2017 U.S. Dist. LEXIS 213023 (D. Mass. 2017). UberX is Uber’s basic private ride service, which accommodates one to four people in a sedan. See https://www.uber.com/ride/uberx/.

5. Id. at *18.

6 Malden Transp., Inc. v. Uber Technologies, Inc., 1:16-cv-12538, Doc. 110 (D. Mass. Mar. 12, 2018) (moving to dismiss plaintiffs‘ predatory pricing claim on, among other grounds, that they failed to make specific factual allegations that Uber was pricing its UberX service below its costs in the alleged relevant market

7 Miadeco Corp. v. Uber Technologies, Inc., No. 1:15-cv-20356, Doc. 120 (S.D. Fla. Mar. 30, 2017).

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allegations that Uber predatorily priced its UberX service, relying on billions of dollars of venture capital funding, in order to force taxicabs out of the market.7F

8 In its motion to dismiss, which is still pending, Uber responded that it could not recoup its costs from the alleged predatory pricing scheme because barriers to entry are so low that if it raised its prices to supracompetitive levels, new ride-hailing entrants would defeat the price increase.8F

9 In A White and Yellow Cab, the Northern District of California dismissed plaintiff’s predatory pricing claim on procedural grounds because the plaintiff failed to specify which defendant(s) engaged in the alleged conduct.9F

10 And the fourth case, Ariekat v. Uber Technologies, Inc., a state-law predatory pricing action brought by a taxi driver, is pending in San Francisco, California Superior Court.10F

11

So far—as in Malden and Miadeco—the courts have been and most likely will continue to be skeptical of monopolization claims brought by competing taxicab companies. Recent statements by U.S. Department of Justice, Antitrust Division leadership, agree with the view that courts have taken that losing money, even billions of dollars, does not by itself establish a predatory pricing scheme. As Deputy Assistant Attorney General Barry Nigro explained, “Innovative companies – whether they are large tech firms or start-ups – invest millions of dollars. . . It can be years before the firm realizes any type of profit. . . If a firm’s ability to recoup the cost of its investment is diminished, it has less incentive to make that investment.”11F

12 Another hurdle for these competitor-plaintiffs is showing that Uber’s actions have harmed competition, not just themselves. Absent a showing of harm to competition, and therefore to consumers, plaintiffs’ claims are simply that they are losing to a more innovative, more efficient, higher quality competitor—the very essence of competition.12F

13

8 DeSoto Cab Co. Inc. v. Uber Technologies, Inc., No. 3:16-cv-06385, Doc. 1 (N.D. Cal. Nov. 2, 2016).

9 DeSoto Cab Co. Inc. v. Uber Technologies, Inc., No. 3:16-cv-06385, Doc. 22 (N.D. Cal. Dec. 20, 2016).

10 A White and Yellow Cab, Inc., No. 4:15-cv-05163, Doc. 114 at 14 (N.D. Cal. Mar. 5, 2018).

11 Ariekat v. Uber Technologies, Inc., CGC-17-557728 (Cal. Sup. Ct. Mar. 24, 2017).

12 U.S. Department of Justice, Antitrust Division, “Big Data’ and Competition for the Market,” Remarks of Barry Nigro, Deputy Assistant Attorney General, The Capitol Forum and CQ’s Fourth Annual Tech, Media & Telecom Competition Conference (Dec. 13, 2017), available at https://www.justice.gov/opa/speech/file/1017701/download.

13 See Abbott Laboratories v. Teva Pharm. USA, Inc., 432 F. Supp. 2d, 408, 421 (D. Del. 2006) (noting that a court faces a difficult task when trying to distinguish harm that results from anticompetitive conduct from harm that results from innovative competition. “[T]he error costs of punishing technological change are rather high [and] ... [c]ourts should not condemn a product change, therefore, unless they are relatively confident that the conduct in question is anticompetitive.”).

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B. Avoiding Regulation as Unfair Competitive Advantage (A White and Yellow Cab, Philadelphia Taxi Association)

As a variation on the below-cost predatory pricing claim, the second type of monopolization claim relies on allegations that Uber was able to gain an unfair advantage in the market by avoiding costly taxicab regulations that competitor taxicab companies must observe.

In Philadelphia Taxi Association, Inc. v. Uber Technologies, Inc., plaintiff taxi companies alleged that Uber avoided substantial costs by evading regulations that the taxi companies were required to comply with, thus giving Uber an anticompetitive advantage in the market for “vehicle-for-hire transportation within and originating in the City and County of Philadelphia.”13F

14 The Eastern District of Pennsylvania dismissed both the plaintiffs’ first and second amended complaints on the grounds that they failed to demonstrate antitrust injury.14F

15 The court explained that the plaintiffs only alleged injury to themselves (i.e., harm to competitors), not the negative impact on price, quality, or quantity of services that would be indicative of harm to competition.15F

16 The court also noted that the proper legal framework to handle this issue was under the taxicab regulations themselves, not antitrust law.

On appeal, in March 2018, the Third Circuit affirmed the district court’s decision to dismiss the second amended complaint, finding that the plaintiffs failed to allege a monopolization claim.16F

17 First, plaintiffs’ did not allege anticompetitive conduct because “the elimination of medallion taxi competition did not constitute anticompetitive conduct.”17F

18 The court reasoned that even if Uber was reducing its costs by violating regulations, it would be of no concern to the antitrust laws unless it produces an anticompetitive effect, which plaintiffs did not show. Second, the court found that plaintiffs failed to allege specific intent to monopolize because knowledge of the regulation Uber allegedly violated alone does constitute such intent.18F

19 Third, the court explained that plaintiffs’ vague claims that Uber’s conduct would raise barriers to entry and drive out competition did not demonstrate a “dangerous probability of recoupment” of its costs.19F

20 In

14 Philadelphia Taxi Ass’n, Inc. v. Uber Technologies, Inc., No. 2:16-cv-01207, Doc. 27 (E.D. Pa. Nov. 17, 2016).

15 Philadelphia Taxi Ass’n, Inc. v. Uber Technologies, Inc., 218 F. Supp. 3d 389 (E.D. Pa. 2016); Philadelphia Taxi Ass’n, Inc. v. Uber Technologies, Inc., 2017 WL 551593 (E.D. Pa. Mar. 20, 2017).

16 Philadelphia Taxi Ass’n, 218 F. Supp. 3d at 393.

17 Philadelphia Taxi Ass’n, Inc. v. Uber Tech., Inc., 2018 WL 1474373 (3rd Cir. Mar. 27, 2018).

18 Id. at *4-5.

19 Id. at *5.

20 Id. at *6.

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addition, the court found that plaintiffs failed to adequately plead antitrust injury because they presented only evidence of harm to themselves as competitors, rather than harm to competition in the form of reduced options or higher prices.20F

21

In the second case, A White and Yellow Cab, the plaintiff alleged that Uber operated “de facto taxis” without complying with the strict regulations that traditional taxicabs must comply with in violation of California’s Unfair Business Practices statute.21F

22 In March 2018, the Northern District of California dismissed the claim on the grounds that the plaintiff failed to allege sufficient facts to state a claim that Uber’s conduct was either unlawful or unfair under California law.22F

23

II. Price Fixing Among Drivers (Friendly Cab, Swink, Meyer)

Price fixing claims represent the second most common category of antitrust cases involving Uber, the allegations of which are best described in the Meyer v. Uber case.23F

24 In order to determine pricing, Uber uses a dynamic pricing algorithm that incorporates a number of factors including mileage, time, and current rider demand. As demand for Uber’s services increase, its dynamic pricing algorithm results in higher fares. Meyer alleges that Uber drivers “do not individually control their fares. Instead, they relinquish control over fares to Uber with the shared understanding that Uber will set fares without forcing them as drivers to compete with one another.”24F

25 In other words, drivers all agreed to use this algorithm and therefore agreed on the price they would charge. Critically, Uber has maintained publicly in various employee and labor disputes that its drivers are not Uber employees, but rather are independent contractors.25F

26 Using Uber’s publicly-stated position, Meyer alleged that Uber’s then-CEO and founder Travis Kalanick (who would drive for Uber from time to time) conspired with Uber’s independent-contractor drivers to fix prices because they all agreed to use the identical pricing algorithm.26F

27

21 Id. at *7-9.

22 A White and Yellow Cab, Inc., No. 4:15-cv-05163, Doc. 65, First Amended Complaint, at ¶ 2 (N.D. Cal. Mar. 5, 2018).

23 A White and Yellow Cab, Inc., No. 4:15-cv-05163, Doc. 114 at 4-7 (N.D. Cal. Mar. 5, 2018).

24 Meyer v. Kalanick, 174 F. Supp. 3d 817 (S.D.N.Y. 2016).

25 Meyer v. Kalanick, No. 1:15-cv-09796, First Amended Complaint, at ¶ 56 (Jan. 29, 2016).

26 See, e.g., Omri Ben-Sharar, Are Uber Drivers Employees? The Answer Will Shape the Sharing Economy, Forbes (Nov. 15, 2017), available at https://www.forbes.com/sites/omribenshahar/2017/11/15/are-uber-drivers-employees-the-answer-will-shape-the-sharing-economy/#221153b85e55.

27 Meyer, 174 F. Supp. 3d at 821.

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In March 2016, Judge Rakoff of the Southern District of New York ruled that Meyer had adequately pled a hub-and-spoke conspiracy between Kalanick and Uber’s drivers, and thus denied defendants’ motion to dismiss.27F

28 Citing classic hub-and-spoke cases like Interstate Circuit v. United States and United States v. Apple, the court found plausible Meyer’s claim that Uber drivers agreed to use the pricing algorithm with the understanding that they would not compete amongst each other on price.28F

29

As discussed further below in Section III.A, however, this case looks likely to head to arbitration, and other two actions based on the same theory—Swink v. Uber Technologies, Inc. and Friendly Cab Company v. Uber Technologies, Inc.—have not addressed the merits of the claim. But with a claimed hub-and-spoke conspiracy among thousands of drivers, these cases stand out from typical hub-and-spoke conspiracy cases such as Interstate Circuit and Toys “R” Us, which dealt with much smaller groups of alleged conspirators.

III. Limitations on Lawsuits

A. Arbitration Clauses (Meyer)

In addition to the substantive motion to dismiss in Meyer (described in Section II above), Kalanick maintained that the dispute belonged in arbitration because Meyer agreed to the terms and agreements in the Uber app, which included an arbitration clause. District Judge Rakoff found the clause to be unenforceable and denied defendants’ motion to compel arbitration on the grounds that Meyer did not have reasonably conspicuous notice of the arbitration clause in Uber’s User Agreement. Judge Rakoff deemed the idea that consumers waive the right to a jury trial by agreeing to lengthy terms they had no reasonable opportunity to negotiate a “legal fiction.”29F

30 On appeal, however, the Second Circuit vacated the district court’s ruling and found that Uber’s arbitration clause was enforceable because it was “reasonably conspicuous” and Meyer’s manifestation of assent was unambiguous.30F

31 In particular, the court found that “the design of the screen [on the Uber app] and language used render the notice provided reasonable…”31F

32 On remand, in a March 2018 opinion, Judge Rakoff sent the

28 See Meyer v. Uber, No. 1:2015-cv-09796-JSR, Doc. 37 at 22-23 (S.D.N.Y. Mar. 31, 2016).

29 Id. at 11-12.

30 Meyer v. Kalanick, 200 F. Supp. 3d 408, 410, 421 (S.D.N.Y. 2016).

31 Meyer v. Uber Technologies, Inc., 866 F.3d 66, 79080 (2d Cir. 2017).

32 Id. at 78.

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case to arbitration, writing that “[t]his being the law, this judge must enforce it – even if it is based on nothing but factual and legal fictions.”32F

33

B. State Action Immunity (Chamber of Commerce, Wallen)

Of the 11 antitrust cases Uber has been involved in, the two cases in which it has played the role of plaintiff involve challenges to state action immunity from the antitrust laws.

In Chamber of Commerce of the United States of America v. City of Seattle, the U.S. Chamber of Commerce, acting on behalf of its members including Uber and its rival Lyft, sought to enjoin a Seattle city ordinance which provided a mechanism through which for-hire drivers could collectively bargain with the companies that hire, contract with, and/or partner with them.33F

34 The district court dismissed the case, finding that the ordinance was

protected by state action immunity.34F

35 The court first explained that the statute under which the ordinance was enacted clearly articulated and affirmatively expressed state policy to displace competition, as it permitted the legislature to regulate “for hire transportation services without liability under federal antitrust laws.”35F

36 In so finding, the court rejected the Chamber’s argument that its members were not “privately operated for hire transportation services” or “privately operated taxicab transportation services” under the statute, finding that “[t]he fact that plaintiffs use ‘independent contractors’ rather than ‘employees’ – or ‘apps’ rather than telephones – to derive compensation from the transportation of passengers” did not mean that they were not covered by the statute.36F

37 The district court also explained that there was active supervision by the state, as the ordinance required the city’s Director of Finance and Administrative Services to play an active role at various points in the collective bargaining process.37F

38

33 Meyer v. Uber, No. 1:2015-cv-09796-JSR, Doc. 173 at 4; 20-21 (S.D.N.Y. Mar. 5, 2018).

34 2017 U.S. Dist. LEXIS 120884 (W.D. Was. 2017).

35 Id. at *26. Non-sovereign actors, including market participants, can enjoy state action immunity only if they satisfy two requirements: (1) that the challenged restraint of competition be “clearly articulated and affirmatively expressed as state policy”; and (2) that “the policy be actively supervised by the state.” North Carolina State Bd. of Dental Examiners v. FTC, 135 S. Ct. 1101, 1110 (2014) (internal citations omitted).

36 Chamber of Commerce v. City of Seattle, at *11-13.

37 Id. at *20.

38 Id. at *21-27.

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The case is on appeal in the Ninth Circuit, where the court held oral arguments in early February 2018. Notably, DOJ and FTC jointly filed an amicus brief in support of the Chamber of Commerce (and therefore Uber), arguing that the state had not clearly articulated an intent to displace competition with respect to the negotiation of driver contracts.38F

39 In Wallen v. St. Louis Metropolitan Taxicab Commission, plaintiffs (which included Uber) alleged that the defendant taxicab commission, which was composed of market participants, engaged in a conspiracy to prevent competition by refusing to allow Uber (and the other plaintiffs) to operate in St. Louis.39F

40 The taxicab commission filed a motion to dismiss, arguing that its decision was protected state action immunity. In October 2016, the Eastern District of Missouri found that the taxicab commission was not immune from antitrust liability, explaining that in giving the taxicab commission the authority “to regulate and oversee vehicles for hire,” it could not be said the legislature intended to “adopt a policy of anticompetition.”40F

41 The plaintiffs voluntarily dismissed the case in December 2017 following a settlement.

IV. Conclusion

Uber so far has successfully defeated the antitrust actions that have come its way, as no case has gone past a motion to dismiss, and, interestingly is litigating on the same side as the antitrust agencies against assertions of state action immunity. But it is still early—Uber itself is not even 10 years old—and more antitrust lawsuits involving Uber can be expected, especially if a particular theory proves successful.

39 Brief for the United States and the Federal Trade Commission as Amici Curiae, Chamber of Commerce v. City of Seattle, No. 17-35640 (9th Cir. 2017).

40 Wallen v. St. Louis Metro. Taxicab Comm’n, No. 4:15-cv-1432, Complaint, at ¶ 112 (Sept. 18, 2015).

41 Wallen v. St. Louis Metro. Taxicab Comm’n, No. 4:15-cv-1432, Doc. 73, at 9 (Oct. 6, 2016).

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PART II Table: Antitrust Cases Involving Uber Technologies

Case Complaint Date

Venue Antitrust Claims

Summary of Allegations

Disposition

Malden Transp. Inc. v. Uber Tech., Inc.

7 complaints consolidated on Oct. 5, 2017

D. Mass. § 2 – Attempted monopoliza-tion Mass. Con-sumer Protec-tion Act, M.G.L. c. 93A §11

Plaintiff taxi compa-nies alleged that Uber violated city taxi rules, and thus had an unfair ad-vantage in the mar-ket for low-cost, on-demand, ride-hail ground transporta-tion services that originate in the Greater Boston area that seat 3-4 passen-gers. Plaintiff also al-leges Uber engaged in predatory pricing tactics.

The district court dismissed the anti-trust claims on Dec. 29, 2017 on the grounds that plaintiffs failed to allege that Uber was pricing below cost. The Judge found that plaintiffs ade-quately pled their state unfair compe-tition claims be-cause there is a dis-pute over whether Uber drivers are subject to the taxi rules. That claim is still pending. Following plain-tiffs’ filing of an amended com-plaint, Uber filed a motion to dismiss in March 2018 on similar grounds as the original com-plaint.

Friendly Cab Co. v. Uber Tech., Inc.

April 27, 2017 Ala-meda County (Cal.) Superior Court

§ 17043 Cal. Bus. & Prof. Code – Preda-tory Pricing

Plaintiff taxicab com-pany alleged that Uber engaged in predatory pricing, harming competition in the point-to-point ground transporta-tion services market in California.

Pending.

A White and Yel-low Cab, Inc. v. Uber Tech., Inc.

April 26, 2017 N.D. Cal.

§ 17043 Cal. Bus. & Prof. Code – Preda-tory Pricing § 17200 Cal. Bus. & Prof. Code – Unfair Business Prac-tices

Plaintiff taxicab com-pany alleged defend-ants Uber, Raiser, and Raiser-CA en-gaged in predatory pricing and unfairly avoided taxi regula-tions.

On March 5, 2018, the district court granted defend-ants’ motion to dis-miss the predatory pricing claim be-cause plaintiff did not specify which defendant(s) it was allegedly engaged in predatory pric-ing. It also granted defendants’ mo-tion to dismiss the unfair business

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Case Complaint Date

Venue Antitrust Claims

Summary of Allegations

Disposition

practices claim be-cause plaintiff failed to state a claim that defend-ants’ conduct was either unlawful or unfair. The district court granted the plaintiff an oppor-tunity to amend the complaint.

Ariekat v. Uber Tech., Inc.

March 24, 2017

San Fran-cisco County (Cal.) Superior Court

§ 17043 Cal. Bus. & Prof. Code – Preda-tory Pricing

Plaintiff taxi driver alleged that Uber en-gaged in predatory pricing in the point-to-point ground transportation ser-vices market in Cali-fornia in order to gain market share.

Pending.

Chamber of Com-merce of the U. S. v. City of Seattle

March 9, 2017 W.D. Wash.

§ 1 – Restraint of trade

Plaintiffs alleged that the City of Seattle sought to enforce an ordinance that vio-lates antitrust law by allowing drivers for rid-hailing compa-nies—including those that drive for Uber and Lyft— to unionize.

The district court dismissed the case, on the grounds that the city is im-mune from anti-trust liability un-der the state action doctrine. The case is cur-rently on appeal in the Ninth Circuit, with oral argu-ments having taken place on Feb-ruary 5, 2018. The DOJ and FTC filed a joint brief in sup-port of plaintiffs arguing that the state action im-munity should not apply because the statute does not ar-ticulate a clear in-tent to displace competition with respect to the ne-gotiation of driver contracts.

DeSoto Cab Co. Inc. v. Uber Tech., Inc.

Nov. 2, 2016 N.D. Cal.

§ 2 – Monopo-lization § 2 – At-tempted mo-nopolization

Plaintiff taxi compa-nies alleged that Uber predatorily priced its UberX ser-vice, relying on bil-lions of dollars in venture capital fund-ing to offer rides at

Uber filed a mo-tion to dismiss in December 2016 on the grounds that DeSoto failed to al-lege facts demon-strating pricing be-low costs and a

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Case Complaint Date

Venue Antitrust Claims

Summary of Allegations

Disposition

prices below cost to force out taxicab competitors from the market.

dangerous proba-bility that losses would be re-couped. Judge Alsup recused himself from the case in January 2017, and it was re-assigned to Judge White. The motion is still pending.

Swink v. Uber Tech., Inc.

April 22, 2016 S.D. Texas

§ 1 – Restraint of trade

Plaintiff Uber user alleged that Uber or-chestrated a price-fixing conspiracy among the inde-pendent contractor drivers that use its app by requiring that they use its dy-namic pricing algo-rithm.

The district court dismissed the case without prejudice on July 25, 2016 af-ter the plaintiff gave notice of non-suit.

Philadel-phia Taxi Ass’n v. Uber Tech., Inc.

March 15, 2016

E.D. Penn.

§ 2 – Monopo-lization § 2 – At-tempted mo-nopolization

Plaintiff taxi compa-nies alleged that Uber avoided sub-stantial costs by evading regulations, thus giving it an an-ticompetitive ad-vantage in the mar-ket for vehicle-for-hire transportation within and originat-ing in the City and County of Philadel-phia. Specifically, plaintiffs claimed that Uber employed a strategy of not owning vehicles or employing divers which allowed it to evade regulations and compliance standards.

The district court granted Uber’s motion to dismiss on the grounds that plaintiffs lacked antitrust standing. Plaintiffs failed to allege an-titrust injury (re-quired for stand-ing), stating only injury resulting from Uber’s com-petition. On appeal, in March 2018 the Third Circuit up-held the dismissal of the Second Amended Com-plaint, finding that plaintiffs failed to allege a monopoli-zation claim and antitrust injury.

Meyer v. Uber Tech., Inc.

Dec. 16, 2015 S.D.N.Y. § 1 – Restraint of trade

Plaintiff Uber user alleged that Uber or-chestrated a price-fixing conspiracy among the inde-pendent contractor drivers that use its app by requiring

The district court denied Uber’s mo-tion to dismiss ar-guing that the terms of Uber’s app required plaintiff user to ar-bitrate his claim.

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Case Complaint Date

Venue Antitrust Claims

Summary of Allegations

Disposition

that they use its dy-namic pricing algo-rithm.

On appeal, the Sec-ond Circuit ruled that an arbitration clause in Uber’s terms of service compelled arbitra-tion and remanded the case back to the district court to de-cide if Uber waived their right to arbitration by arguing the case on the merits in its motion to dismiss. The district court ruled in Uber’s fa-vor in November 2017, sending the case to arbitration. There has been no appeal yet.

Wallen v. St. Louis Metro. Taxicab Comm’n

Sep. 9, 2015 E.D. Missouri

§ 1 – Restraint of trade

Plaintiffs (including Uber) alleged that defendant taxicab commission (com-posed of market par-ticipants) engaged in a conspiracy to pre-vent competition by refusing to allow it to operate in St. Louis.

The district court denied the taxicab commission’s mo-tion to dismiss, but granted the motion to dismiss from drivers who were not on the commis-sion because plain-tiffs failed to properly plead agency issues. Plaintiffs later vol-untarily dismissed the case following a settlement.

Miadeco Corp. v. Uber Tech., Inc.

April 15, 2015 S.D. Florida

§ 2 – Monopo-lization § 2 – At-tempted mo-nopolization

Plaintiff taxicab com-panies alleged that Uber conspired with its drivers to engage in predatory conduct to acquire a monop-oly in the for-hire transportation in-dustry in Miami-Dade County.

Citing Phil. Taxi Ass’n, the district court dismissed the case on the grounds that plain-tiffs failed to pro-vide sufficient fac-tual allegations to show an anticom-petitive effect or to support antitrust standing because it failed to plead any-thing other than injury to itself.

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SolarCity: The Supreme Court Misses a Chance to Rule on State Action Immunity Procedure

By Laura Collins41F

1

The Supreme Court intended to hear arguments in Salt River Project v. Tesla Energy Operations Inc. fka SolarCity Corp.42F

2 this spring, but the case settled in March.43F

3 Had the case moved forward, the Court would have addressed the question of whether a defendant can appeal an order denying state action immunity immediately under the collateral action doctrine, or whether that issue must wait until there is a final judgment.44F

4

The matter began when SolarCity sued the Salt River Project Agricultural Improvement and Power District (the “Power District”), alleging the Power District violated the Sherman Act, the Clayton Act, and Arizona state law when it altered its rate structure to disfavor electricity customers who used solar energy to meet their power needs in addition to using power from the grid.45F

5 The Power District filed a motion to dismiss based on state action immunity, and that motion was denied by the district court.46F

6 The Power District filed an interlocutory appeal on this point, but the Ninth Circuit found it lacked jurisdiction to hear an interlocutory appeal.47F

7 Certiorari was granted on December 1, 2017.48F

8

While the question before the Supreme Court was focused on procedure, its outcome could have shifted strategy and costs in any antitrust suit potentially involving Parker state action immunity—potentially any

1 Laura Collins is a senior associate in the Washington, DC office of Freshfields, Bruckhaus, Deringer LLP.

2 The docket is available at https://www.supremecourt.gov/docket/docketfiles/html/public/17-368.html.

3 Tesla, the parent of SolarCity, and the Power District announced a settlement agreement on March 20, 2018. See Tim Gallen, SRP, Tesla Settle Lawsuit Brought by SolarCity, PHOENIX BUSINESS JOURNAL.COM (Mar. 21, 2018), https://www.bizjournals.com/phoenix/news/2018/03/21/srp-tesla-settle-lawsuit-brought-by-solarcity.html; Ryan Randazzo, SRP Settlement with Tesla Could Make Solar, Batteries More Affordable, AZCENTRAL.COM (Mar. 5, 2018, 4:58 PM), https://www.azcentral.com/story/money/business/energy/2018/03/05/srp-settlement-tesla-could-make-solar-batteries-more-affordable/396385002/.

4 Petition for Writ of Certiorari, Salt River Project Agric. Improvement & Power Dist. v. Tesla Energy Operations fka SolarCity Corp. (Sept. 7, 2017), http://www.scotusblog.com/wp-content/uploads/2017/10/17-368-petition.pdf.

5 SolarCity Corp. v. Salt River Project Agric. Improvement & Power Dist., No. CV-15-00374-PHX-DLR, 2015 U.S. Dist. LEXIS 146904, *7-8 (Oct. 27, 2015).

6 Id. at *41-42.

7 SolarCity Corp. v. Salt River Project Agric. Improvement & Power Dist., 859 F.3d 720, 722 (9th Cir. 2017).

8 https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/17-368.html.

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antitrust case against a state, municipality, or private party that is acting pursuant to a state policy and is actively supervised by the state.49F

9

Background

This case illustrates what may occur when an older, regulated utility faces disruption—in part—by a newer alternative. Around the country, states and municipalities have passed regulatory legislation based on existing technology to solve problems facing them in a particular moment in time, without necessarily considering how that legislation might interact with technologies yet to be developed. Legislatures have delegated rate authority and maintenance of utilities to a range of entities and have tasked them with the responsibility to maintain service pursuant to the older methods. SolarCity shows what can happen when an older regulated utility confronts new issues brought about by newer disruptive technology.

SolarCity sells and leases rooftop solar panels. These solar panels allow consumers to supply some or all of their own power, instead of acquiring it from the local utility—here, the Power District. However, owning a solar panel does not necessarily obviate the need for a connection to the electrical grid or power from the local utility, as solar panels typically do not produce all of a household’s power requirements. Before the Power District altered the rate structure, the solar panels helped consumers lower their monthly electric bills.50F

10

The Power District supplies electric power to many of SolarCity’s customers in and around Phoenix, Arizona. The Power District “was created in 1903 to take advantage of a federal law that provided interest-free loans for landowners to build reclamation projects to irrigate their lands” and became the local electric utility because “[r]eclamation projects were allowed to sell hydroelectric power to fund those projects.”51F

11 The Power District gained status as a political subdivision when “[d]uring the Great Depression, SRP successfully lobbied the Arizona legislature for a statute denominating SRP a political subdivision so the landowners who ran SRP could avoid income taxes and sell tax-free bonds.”52F

12 It remains a political subdivision of Arizona and the main electric utility in its area, with the authority to set power prices under Arizona state law.

9 S.C. State Bd. of Dentistry v. FTC, 455 F.3d 436, 442 (4th Cir. 2006).

10 SolarCity, 859 F.3d at 722-23.

11 Brief of Respondent SolarCity Corporation in Opposition, Salt River Project Agric. Improvement & Power Dist. v. Tesla Energy Operations fka SolarCity Corp., No. 17-368, at 6 (Oct. 11, 2017), http://www.scotusblog.com/wp-content/uploads/2017/11/17-368-BIO.pdf.

12 Id.

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When Power District customers began to use solar panels, the Power District collected less revenue from the sale of power. Revenue from electricity sales had been used to fund both the generation/acquisition of power and the maintenance of the transmission system. Allegedly to compensate for the use of the electric grid by customers who were now purchasing less power, the Power District adjusted its rate structure and imposed a new fee upon customers who installed solar panels. SolarCity alleged that this new fee was intended help the Power District maintain its monopoly power and that the fee had the effect of forcing SolarCity out of the area.53F

13

Legal Question

In response to SolarCity’s claims, the Power District filed a motion to dismiss, claiming in part that it was entitled to state action immunity as a political subdivision of Arizona. State action immunity “insulates states, and in some instances their subdivisions, from federal antitrust liability when they regulate prices in a local industry or otherwise limit competition, as long as they are acting as states in doing so.”54F

14 This immunity grows out of the idea that “nothing in the language of the Sherman Act or in its history . . . suggest[ed] that its purpose was to restrain a state . . . from activities directed by its legislature.”55F

15

Specifically, Parker v. Brown established this immunity from antitrust suits, which applies to immunize actions in three situations: (i) actions of the state itself through its legislature or court, (ii) actions of municipalities if the municipality can “demonstrate that their anticompetitive activities were authorized by the State pursuant to state policy to displace competition,”56F

16 and (iii) actions of a “private party (1) that acts pursuant to a ‘clearly articulated and affirmatively expressed’ state policy to displace competition and (2) whose actions are ‘actively supervised by the state itself.’”57F

17 The Power District argued that it was entitled to state action immunity as a statutorily created political subdivision.

When the district court denied the Power District’s motion to dismiss, the Power District filed an appeal with the Ninth Circuit, without express leave to do so from the district court. Because there was no certification of this question to the court of appeals, the Power District relied on the

13 SolarCity claimed that “solar panel retailers received ninety-six percent fewer applications for new solar-panel systems in the Power District’s territory after the new rates took effect.” SolarCity, 859 F.3d at 723.

14 Id. at 722.

15 Parker v. Brown, 317 U.S. 341, 350-51 (1943).

16 S.C. State Bd. of Dentistry, 455 F.3d at 442.

17 Id.

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collateral-order doctrine to file its appeal. The collateral-order doctrine permits the appeal of an important narrow issue before the district court has issued a final decision on the case as a whole.58F

18

The Ninth Circuit summarized the collateral-order doctrine’s three requirements: “First, an interlocutory order can be appealed only if it is ‘conclusive.’ … Second, the order must address a question that is ‘separate from the merits’ of the underlying case…. Third, the separate question must raise ‘some particular value of a high order’ and evade effective review if not considered immediately.”59F

19

The collateral-order doctrine has only been applied to a few immunities: Eleventh Amendment immunity, absolute immunity, and qualified immunity have all been admitted to this category by the Supreme Court, and the Ninth Circuit has also permitted appeals from denials of foreign sovereign immunity and tribal sovereign immunity.60F

20 The Ninth Circuit noted that all of these immunities are “immunities from suit, which differ from mere immunities from liability” and that “immunity from liability can be protected by post-judgment appeal.”61F

21

The Ninth Circuit determined that Parker “shows that the state-action doctrine is a defense to liability, not immunity from suit…. [It] recognizes a limit on liability under the Sherman Act rather than a safeguard of state sovereign immunity.”62F

22 The Ninth Circuit noted the ability to meaningfully challenge liability in a post-judgment appeal means the action does not meet the third requirement of the collateral-order doctrine, so it did not address the other two prongs and found that it lacked jurisdiction to hear an appeal regarding the applicability of state action immunity.63F

23

Circuits are currently split regarding the appropriateness of using the collateral action doctrine to allow interlocutory appeals of orders denying state action immunity and other similar immunities. In the Fourth and Sixth Circuits, similar appeals have been denied because prongs two and three of the collateral-order doctrine were not met.64F

24 In the Fifth and Eleventh Circuits, interlocutory appeals regarding state action immunity have been allowed to proceed, under the theory that the state action immunity was

18 SolarCity, 859 F.3d at 725. 19 Id. at 724.

20 Id. at 725.

21 Id.

22 Id. at 726.

23 Id. at 727 n.4.

24 See S.C. State Board of Dentistry, 455 F.3d 436; Huron Valley Hosp., Inc. v. City of Pontiac, 792 F.2d 563 (6th Cir. 1986).

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comparable to other immunities that were already permitted under the collateral-order doctrine.65F

25

Settlement

Due to the abovementioned settlement, the case will not resolve the split on whether the collateral-order doctrine applies to state action immunity. On March 7, 2018, the parties entered into a memorandum of understanding to negotiate a settlement in good faith,66F

26 and on March 20, 2018, the parties settled.67F

27 The settlement terms include the Power District’s purchase of a battery energy storage system from Tesla, the implementation of a trial program that will test demand rates, and the implementation of a program that encourages customers to purchase home energy storage systems.68F

28

This settlement integrates newer energy technologies (battery systems and solar panels) into the existing regulatory framework in one location, but it leaves open the question of how similar quasi-state entities can operate in a changing market moving forward. This ambiguity may lead to future litigation involving the same issues.

Potential Outcomes If This Question Arises Again

While this case will not be decided by the Supreme Court, the Court may grant certiorari on this question in the future.

Should a defendant in the position of the Power District win at the Supreme Court, the timeline for antitrust suits involving any defendant that could raise a state action immunity defense may be lengthened, as immunity could be raised and fully litigated through appeals purely as a delay tactic. Conceivably, quasi-state entities could request that the state-action immunity discovery and trial come first, much as trials are currently bifurcated for liability and damages. By finding in favor of the party in the position of the Power District, the Supreme Court may discourage legitimate suits against

25 See Martin v. Mem’l Hosp., 86 F.3d 1391 (5th Cir. 1996); Commuter Transp. Sys. v. Hillsboro Cty. Aviation Auth., 801 F.32d 1286 (11th Cir. 1986).

26 See Eric M. Fraser, Antitrust State-Action Immunity Argument Postponed Because of Possible Settlement, SCOTUSBLOG.COM (Mar. 9, 2018, 5:27 PM),http://www.scotusblog.com/2018/03/antitrust-state-action-immunity-argument-postponed-possible-settlement/.

27 Barbara Leonard, Arizona Solar-Powered Challenge Ends in Settlement, COURTHOUSENEWS.COM (Mar. 21, 2018), https://www.courthousenews.com/arizona-solar-power-challenge-ends-in-settlement.

28 Tim Gallen, SRP, Tesla Settle Lawsuit Brought by SolarCity, PHOENIX BUSINESS JOURNAL.COM (Mar. 21, 2018), https://www.bizjournals.com/phoenix/news/2018/03/21/srp-tesla-settle-lawsuit-brought-by-solarcity.html; Ryan Randazzo, SRP Settlement with Tesla Could Make Solar, Batteries More Affordable, AZCENTRAL.COM (Mar. 5, 2018, 4:58 PM),https://www.azcentral.com/story/money/business/energy/2018/03/05/srp-settlement-tesla-could-make-solar-batteries-more-affordable/396385002/.

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existing regulators, and it may become more difficult for new technologies to enter the market.

Should a plaintiff in the position of SolarCity win, states and related entities may increasingly face lawsuits from private plaintiffs and spend money on costly antitrust suits before ultimately being found immune to liability. This could potentially lead to higher taxpayer burdens in instances where lower courts initially deny a motion to dismiss based on state action immunity, as the taxpayers may shoulder additional litigation costs. This could happen in any situation where it is clear that, legally, the entity may have the ability to claim immunity, depending on the outcome of the facts.

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State Law and Forced Interconnections: the Common Carrier and Antitrust Issues

presented by the Fairway v. Magellan Litigation By J.R. Hand69F

1

I. Introduction

One goal common to both antitrust law and common carrier regulation is to strike an appropriate balance between protecting consumers from the exercise of excessive market power on the one hand, and preserving the efficiency of market forces, investment in critical infrastructure, and the ability of private entities to make commercially reasonable business decisions on the other—or, as the cover of this newsletter more simply states: to “promote competition” and “protect consumers.” One issue, arranged neatly at the nexus of energy transportation regulation and antitrust law, brings the question of where regulators and lawmakers are willing to strike this balance to the forefront: whether the government should compel interconnections among common carrier liquids pipelines. Although the answer has enormous implications for market participants, it is still an open question with regard to intrastate liquids pipelines at the state level. A recent dispute, brought both as an antitrust action in Texas state court and as a regulatory complaint at the Railroad Commission of Texas (“RRC”), may provide some insight into the considerations involved with answering this question, and the challenges faced by parties seeking clarity on the issue from state governments. To that end, this article explores the regulatory background against which this issue has evolved, briefly describes the federal government’s current jurisprudence on the matter, and discusses how the dispute regarding this issue, Fairway v. Magellan, recently played out in two Texas forums.70F

2

II. Regulatory Background

Two characteristics of liquids pipelines make interconnections, and therefore regulation of them, particularly important.71F

3 First, “oil pipelines

1 J.R. Hand is an associate at Caldwell Boudreaux Lefler PLLC in Houston, Texas. 2 This article refers to the RRC proceeding captioned Fairway Energy Partners LLC Complaint Against Magellan Pipeline Company, LP, GUD No. 10507 (first filed March 24, 2016), and the Harris County District Court proceeding captioned Fairway Energy Partners, LLC v. Magellan Pipeline Company, L.P., et al, Civ. No. 2017-11693 (first filed February 21, 2017) collectively as “Fairway v. Magellan.” 3 As used in this article, an “interconnection” is generally the point at which the transportation route of two common carriers intersect, and where the necessary facilities may be installed such that a shipper or passenger using the service of one carrier may continue transportation using the service of another. A “forced interconnection” is simply an interconnection that one of the two intersecting carriers resists, but is compelled by governmental authority.

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are expensive. In the argot of economists, they are ‘capital-intensive.’ As a result, there is a substantial barrier to entry into the industry in the sense that substantial resources are a prerequisite to entry.”72F

4 Second, once a pipeline has been constructed between two points, it is often capable of dominating the transportation market between those points by servicing much or all of the transportation demand for the foreseeable future; thus providing a significant first mover’s advantage in that market. Consequently, the few entities that are capable of making the initial capital investment needed to construct a pipeline often find themselves the first mover providing dominant service in a market characterized by an extremely high barrier to entry. In those circumstances, incumbent pipelines may be capable of wielding significant market power. Such market power has thus far been mitigated with respect to end users—i.e., with regard to a pipeline’s shippers—through the operation of the economic regulation and anti-discrimination provisions of the Interstate Commerce Act (“ICA”)73F

5 and its state equivalents.

However, the question of forced interconnections raises a slightly different but equally important question; whether and to what extent the goal of guarding shippers against abuses of market power requires similar protections to be extended to a pipeline’s competitors. This is because the two characteristics of the liquids pipeline industry discussed above (a high barrier to entry and a significant first mover’s advantage) also make it, to some extent, a “network industry;” the distinguishing feature of which “is that competing suppliers need to interconnect[] to utilize the facilities of one another to provide services to their final consumers.”74F

6 In such an industry, whether or not an interconnection takes place among carriers can have enormous consequences for the pipeline, its competitors, and its shippers because market power could conceivably be exercised to stifle competition by refusing competitor interconnections. Thus, interconnections could theoretically require regulation in some form—regulation that would have correspondingly enormous consequences for market participants.

4 Williams Pipe Line Co., 21 FERC ¶ 61,260, at 61,570 (1982), vacated and remanded, Farmers Union Central Exchange, Inc. v. FERC, 734 F.2d 1486 (D.C. Cir. 1984), reh’g denied, Opinion No. 154-A, 22 FERC ¶ 61,087 (1983). See also JEFF D. MAKHOLM, THE POLITICAL ECONOMY OF PIPELINES: A CENTURY OF COMPARATIVE INSTITUTIONAL DEVELOPMENT 7 (2012) (describing pipelines as specialized and highly capital intensive). 5 49 U.S.C. app. §§ 1, et seq. (1988). 6 Michael Carter and Julian Wright, Interconnection in Network Industries, REV. INDUS. ORG. 14, 1999, at 1.

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III. Forced Interconnections of Liquids Pipelines at the Federal Level

It is well-settled that the Federal Energy Regulatory Commission (“FERC” or “Commission”) will not mandate interconnections among interstate liquids pipelines within its jurisdiction.75F

7 Despite the facts that FERC’s predecessor entity, the Interstate Commerce Commission (“ICC”), had a long history of compelling railroad interconnections,76F

8 and that under the Natural Gas Act FERC has maintained jurisdiction over interconnections and has developed a comprehensive jurisprudence regarding when it will be exercised,77F

9 when presented with the opportunity to claim jurisdiction over interconnections between liquids pipelines in Plantation Pipe Line Company v. Colonial Pipeline Company, 104 FERC ¶ 61,271 (2003) (“Plantation”), FERC declined.

In Plantation, the refined products transportation systems of two interstate common carriers, Plantation Pipeline Company and Colonial Pipeline Company, ran in parallel, typically only a few miles apart, from Mississippi to North Carolina. Colonial’s system was often capacity-constrained during peak seasons, while Plantation’s was not. The solution, proposed Plantation, was an interconnection between the systems, thereby allowing shippers to use excess capacity on Plantation’s system when Colonial’s was capacity constrained. However, negotiations regarding the interconnection broke down, resulting in Plantation filing a complaint at FERC alleging violations of the ICA and seeking a Commission order directing Colonial to “cooperate in the installation of the interconnection, and upon completion of the interconnection, to afford through routes on Colonial’s system for volumes originating from Plantation at the interconnection.”78F

10

Reasoning that (1) the language of the ICA limits itself to requiring carriers to provide appropriate facilities between existing lines, and therefore does not empower the Commission to order new interconnections; (2) the ICC forced interconnection cases in the railroad context could be distinguished; (3) the Commission, Congress, and the

7 As used in this article, “liquids” means crude oil, petroleum products, and natural gas liquids the Federal Energy Regulatory Commission has determined fall within its jurisdiction under the Interstate Commerce Act of 1887 (“ICA”) and the Hepburn Act of 1906. 8 See e.g., Sturgeon Bay v. Ann Arbor R.R., 313 ICC 13 (1960); Wisconsin Power & Light Co. v. Chicago & North Western Ry., 220 ICC 475 (1937); Keyes Ry. Committee v. Beaver, Meade & Englewood R.R., 214 ICC 526 (1936). 9 See Tennessee Gas Pipeline Company v. Columbia Gulf, 116 FERC ¶ 61,065 (2006) and the test articulated therein. 10 Plantation at P 1.

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courts have demonstrated a continuing intent that oil pipelines should not be subject to the same degree of regulation as other common carriers; and (4) the Commission does not have the authority to regulate abandonment of oil pipelines, therefore it would be illogical for the Commission to order a pipeline to construct an interconnection that it could immediately abandon without consequence, the Commission concluded that it “lacks jurisdiction to compel Colonial to interconnect with Plantation’s pipeline system.”79F

11 Accordingly, the Commission dismissed Plantation’s complaint in its entirety and established a Commission policy that continues today.80F

12

IV. Fairway v Magellan: Forced Interconnections at the State Level

In contrast to this federal certainty, whether and to what extent the authority of state agencies extends to compelling interconnections of intrastate pipelines is a much more open question. A recent dispute that spawned litigation in both the RRC and Texas state court demonstrates just how uncertain the law governing forced interconnections may be at the state level: Fairway v. Magellan. At the onset of the dispute, Fairway Energy Partners LLC (“Fairway”) was constructing an oil storage cavern near two major oil pipeline hubs in Harris County, Texas. Fairway’s plan included connecting the storage facility via a Fairway-owned pipeline to other common carrier pipelines operating at Speed and Genoa Junction, including Magellan Pipeline Company, L.P.’s (“Magellan”) system. Despite negotiations, Fairway and Magellan failed to reach an agreement, and Fairway subsequently filed a complaint with the RRC (the state agency that regulates common carriers, including oil pipelines, in Texas) seeking a ruling requiring “Magellan to show cause why it should not interconnect with Fairway, and order[ing] the requested interconnections between Fairway and Magellan.”81F

13

Forced Interconnection as an Anti-Discrimination Measure

Two of the provisions Fairway invoked, Tex. Nat. Res. Code §§ 111.015 and 111.016, are somewhat typical common carrier anti-discrimination provisions. Together they require common carriers to generally receive and transport crude petroleum without discrimination, and prohibit common carriers from discriminating among shippers “with regard to facilities furnished, services rendered, or rates charged under the same or similar circumstances.”82F

14 Fairway contended that these provisions

11 Plantation at P 28. 12 Plantation at PP 21-28. Followed by, e.g., High Prairie Pipeline, LLC v. Enbridge Energy, Ltd. P'ship, 149 FERC ¶ 61,004 (2014); Enbridge Energy, Ltd. P'ship, 139 FERC ¶ 61,134 (2012). 13 Fairway Energy Partners LLC Complaint Against Magellan Pipeline Company, LP, GUD No. 10507 (filed March 24, 2016) (“Fairway RRC Complaint”), at 2. 14 Tex. Nat. Res. Code §§ 111.015 & 111.016.

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endowed the RRC with the authority to compel an interconnection, and argued Magellan’s refusal to interconnect with Fairway was an unlawful exercise of market power by a common carrier that discriminatorily denied “Fairway and its customers” service.83F

15

In Letter Ruling No. 6, the RRC Hearing Examiner dismissed Fairway’s claims sounding in discrimination for lack of standing. The Hearing Examiner noted that on its face Tex. Nat. Res. Code § 111.015 imposes no obligation upon a common carrier until crude petroleum is actually “delivered” to it, and concluded that, because Fairway was not operational and prepared to deliver product to Magellan, Fairway lacked standing to bring a claim under Tex. Nat. Res. Code § 111.015. Similarly, the Examiner explained that the plain text of Tex. Nat. Res. Code § 111.016 makes it applicable to shippers only, and as a storage facility that had not tendered product to Magellan for shipment, Fairway lacked standing under this section as well.84F

16

Because the Examiner dismissed Fairway’s claims based on the threshold issue of standing, this ruling leaves a number of important questions unanswered. Most importantly, the Examiner never reached the question of whether the relief Fairway sought – a forced interconnection – is within the Commission’s jurisdiction pursuant to the cited provisions. In other words, had the petition been filed by a complainant with standing (presumably, an operational Fairway capable of “delivering” product to Magellan, or a shipper intending to utilize Fairway’s storage facility and ship on Magellan’s system), would the Examiner have read these anti-discrimination provisions to empower the RRC to compel the requested interconnection? Even more importantly, would the RRC have adopted this interpretation, and would the courts have upheld it?

Importantly, the risk inherent in this uncertainty is not exclusive to oil pipelines in Texas. As mentioned above, the anti-discrimination provisions invoked by Fairway are not unique to Texas, and numerous other states with substantial pipeline infrastructure are subject to similar antidiscrimination statutes, including Alaska,85F

17 Oklahoma,86F

18 and North

15 Fairway RRC Complaint at 9. 16 Examiners Letter Order No. 6 Ruling on Magellan’s Motion to Dismiss, GUD No. 10507 (Sept. 1, 2016), at 7-9 (“Letter Order No. 6”). 17 The Alaska Pipeline Act § 42.06.310 (Standard of Service and Facilities) empowers the Commission, in the event it finds service or facilities to be “insufficient, or unreasonably discriminatory[,]” to order “improvements in facilities that are reasonably necessary and proper for the . . . accommodation . . . [of] the users.” 18 52 Okl. St. § 56 states “[e]very corporation . . . or person, engaged in the business of carrying or transporting crude oil or petroleum or any of the products thereof for hire or otherwise, by pipeline, within this state . . . shall be deemed a common carrier thereof as at common law, and no such common

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Dakota.87F

19 However, it does not appear that any of these states have addressed the question of whether their own anti-discrimination provisions create state authority to compel pipeline interconnections. This final fact is doubly noteworthy because, together with Fairway v Magellan, it reveals one additional source of uncertainty for pipelines and their competitors with regard to this issue: the archaic state of common carrier statutes and regulations, and a dearth of precedent interpreting them.

Forced Interconnections in the Public Interest

In its complaint filed with the RRC, Fairway also invoked Tex. Nat. Res. Code § 111.137, a provision that explicitly gives the RRC the authority to:

require by order any common carrier owning or operating pipelines in this state . . . to extend or enlarge those pipelines or storage facilities if the extension or enlargement is found to be reasonable and required in the public interest and the expense involved will not impair the ability of the common carrier . . . to perform its duty to the public.88F

20

To do so, Fairway argued that an interconnection is simply an “extension or expansion” of the pipeline’s facilities, the interconnection it sought was in the public interest, and that because Fairway proposed to pay the cost of the interconnection the “expense involved” could not impair the ability of Magellan to continue service. Over Magellan’s protests that an interconnection neither “extends” the pipeline (i.e., makes it longer), nor “enlarges” it (i.e., increases its capacity),89F

21 the Hearing Examiner ruled that interconnections do come within the statutory “extend or enlarge” language. Moreover, according to the Examiner, this provision does not limit itself to shippers and is not predicated on “delivery” of product to the carrier. Therefore, Fairway had standing to bring the forced interconnection claim, it was ripe for the RRC’s adjudication, and Fairway would have the opportunity to present evidence on the merits of its request during a hearing on the issue.90F

22 Despite this ruling in Fairway’s favor, the

carrier shall allow or be guilty of any unjust or unlawful discrimination, directly or indirectly, in favor of the carriage, transportation, storage or delivery of any crude, stock or storage oil, or any products thereof, in its possession or control, or in which it may be interested, directly or indirectly.” 19 N.D.C.C. §§ 49-19-11 provides that a common carrier pipeline must agree that it will accept, carry or purchase without discrimination oil or gas of any person not the owner of any pipeline operating a lease or purchasing oil and gas at prices and under regulations prescribed by the Public Service Commission. Discriminatory carriage is also prohibited by Sections 49-19-19 and 49-19-20. 20 Tex. Nat. Res. Code §§ 111.037. 21 Magellan Pipeline Company, L.P.’s Response and Motion to Dismiss Fairway Energy Partners LLC’s Complaint, GUD No. 10507 (filed May 20, 2016), at 5. 22 Letter Order No. 6 at 9-10.

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litigation was dismissed by Fairway before any further rulings on this issue could be made, so it remains unclear what the merits of such a request would entail.

Again, the risk inherent in this uncertainty is not limited to pipelines in Texas: a brief review of state common carrier statutes indicates that the codes of at least Alaska91F

23 and Colorado92F

24 contain comparable provisions that allow for state-ordered expansion of facilities under certain circumstances. Also, like Texas prior to the ruling in Fairway v. Magellan, it appears there is a complete lack of jurisprudence exploring the limits of this power—leaving pipelines in those states to speculate about the implications of those provisions for their decisions to request, grant or deny interconnections.

Forced Interconnections as an Antitrust Measure.

As mentioned above, the forced interconnection issue directly implicates antitrust law as well as common carrier regulation. In fact, Fairway made this juxtaposition explicit by filing an antitrust lawsuit in state court concurrently with its complaint at the RRC.93F

25 In the complaint, Fairway alleged that Magellan’s crude oil distribution system “exerts market dominance and controls essential facilities of the movement of crude oil from the Permian Basin to markets in the Houston area, and Magellan has market incentives to keep new entrants out, which conflict with its obligations under antitrust law as well as its duties as a ‘common carrier.’”94F

26 Fairway then characterized its facilities as competition to Magellan’s system, which competition Magellan has attempted to block using market dominance and “refus[ing] to grant an interconnection without extorting Fairway Energy.”95F

27 As such, according to Fairway,

23 The Alaska Pipeline Act at § 42.06.310 (Standard of Service and Facilities) empowers the [name] Commission to order a pipeline to “extend or enlarge its pipeline or storage facilities provided the extension or enlargement shall be found to be reasonable and required in the public interest and that the expense involved will not impair the ability of the common carrier or public utility to perform its duty to the public.” 24 The Colorado Revised Statutes include “pipeline corporations” in the definition of public utilities subject to the Colorado Public Utilities Commission’s jurisdiction, and go on to provide that “[w]henever the commission, after a hearing upon its own motion . . . or upon complaint, finds that the additions, extensions, repairs, or improvements to . . . facilities . . . of any public utility or of any two or more public utilities ought reasonably to be made . . . to secure adequate service or facilities, . . . the commission shall make and serve an order directing that such additions, extensions, repairs, improvements, or changes be made or such structure be erected in the manner and within the time specified in such order.” §§ C.R.S. 40-1-103; 40-4-102-103. 25 Fairway Energy’s Original Petition and Requests for Disclosure, Civ. No. 2017-11693 (filed Feb. 21, 2017) (“Fairway Texas Petition”). 26 Fairway Texas Petition at 2. 27 Fairway Texas Petition at 3.

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“Magellan is liable to Fairway Energy for violations of the Texas Free Enterprise and Antitrust Act, Texas Business and Commerce Code § 15.01 et seq,” which prohibits any person from monopolizing, attempting to monopolize, or conspiring to monopolize any part of trade or commerce.96F

28 For these alleged violations, Fairway sought triple damages on the theory that Magellan’s anticompetitive conduct was willful and malicious.97F

29

Magellan responded procedurally with a plea in abatement, urging the court to abate the state court proceeding until the first-filed and substantively similar RRC action was adjudicated. Magellan also responded substantively by arguing that it is “privileged to engage in business activities that are in Magellan’s best interest . . . that may have an adverse effect on Fairway,” that Fairway in essence seeks a “free ride” on Magellan’s investment in its pipeline network, and by attacking the sufficiency of Fairway’s complaint with respect to various elements of an antitrust violation.98F

30

On May 25, 2017, Fairway and Magellan jointly filed an Agreed Motion to Dismiss with Prejudice Fairway’s causes of action, which was subsequently granted by the court. Although this dismissal occurred before any substantive orders were issued, something may still be learned from the litigation. For example, it has shown that a pipeline’s refusal to grant an interconnection, even to a non-operational storage facility rather than a competing pipeline, presents expensive antitrust litigation risk—including the specter of treble damages for willful misconduct. Importantly, too, the district court denied Magellan’s plea in abatement; demonstrating that, although the facts overlap and the legal theories are conceptually similar, a petition in a state agency seeking a forced interconnection under common carrier regulation may be sufficiently diverse from an antitrust lawsuit that the two actions may be pursued concurrently in both jurisdictions – thus exposing pipelines that refuse interconnections to litigation risk in multiple forums at once. Finally, like the regulatory issues discussed above, this is a threat that pipelines in all states must consider when evaluating interconnection requests, and about which there appears to be no direct judicial guidance. However, the proceeding’s substantive guidance is very limited, making this an important issue to follow as it is presented to courts as an antitrust matter and to administrative agencies as a regulatory concern.

28 Fairway Texas Petition at 3. 29 Fairway Texas Petition at 20. 30 Defendants’ Verified Plea in Abatement, and Subject Thereto, Original Answer, Civ. No. 2017-11693 (filed Mar. 20, 2017), at 1, 7-8.

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V. Conclusion

This article began by identifying a goal shared by both common carrier regulation and antitrust law—achieving a balance between protecting end-users from the exercise of excessive market power on the one hand, and preserving the efficiencies of competition on the other—and positing that the forced interconnection debate is an excellent way to understand the interests residing on both sides of this scale. Indeed, as Fairway v. Magellan demonstrates, proponents of government intervention argue it is a market correction needed to mitigate anticompetitive behavior among competing common carriers for the ultimate benefit of shippers, while opponents insist it is an unnecessary governmental intrusion on market forces and commercial autonomy that will ultimately discourage infrastructure investment. In this, it forces lawmakers to address the fundamental goal of balancing consumer protection and the preservation of competition. Moreover, as the dispute’s associated Harris County antitrust complaint makes clear, the forced interconnection debate is just as relevant to antitrust jurisprudence as it is to common carrier regulation. As the discussion above reveals, some limited but useful conclusions may be drawn from the Fairway v. Magellan proceedings; however, it seems they primarily leave risk and uncertainty in their wake. Therefore, any future disputes regarding this issue should be watched by industry participants and their counsel closely. And of course, as with many other questions that sound in antitrust law or common carrier regulation in the energy sector; the uncertainty that surrounds this issue is not merely an academic concern. Rather, it is one on which millions of dollars depend; thus it most assuredly will not go away until it is answered by state courts or regulators.

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Program Summary: “When HSR Clearance Ain’t Closure – Key Takeaways from Recent Challenges and Settlements”

By Nicole Sarrine99F

1

On January 9, 2018, the Transportation and Energy Industries Committee sponsored an in-person program featuring a panel discussion about the State of New York’s investigation into the Walgreens/Rite Aid merger and the State of California’s challenge of Valero/Plains All American Pipeline. The conversation on these cases led to an engaging and lively dialogue centered on the appropriate role of the states when the Department of Justice and Federal Trade Commission do not bring enforcement actions. While the panel was slated to provide insight into DOJ’s challenge of Parker-Hannifin/Clarcor and the FTC’s lawsuit against Tronox/Cristal, the clock ran out before the panelists could turn to these cases.

The panel, moderated by Karen Kazmerzak, a Partner at Sidley

Austin LLP, featured panelists Beau Buffier, the Antitrust Bureau Chief at the New York State Attorney General’s Office; Mary Lehner, a Partner at Freshfields Bruckhaus Deringer LLP; and Jeffrey Oliver, a Senior Associate at Baker Botts LLP.100F

2 Walgreens/Rite Aid

The panelists began by discussing the Walgreens/Rite Aid merger and the State of New York’s investigation into the transaction. The merger was announced in October 2015 as a $17.2 billion deal under which Walgreens would acquire all outstanding shares of Rite Aid and Rite Aid would be a wholly owned subsidiary of Walgreens.101F

3 As one of the panelists explained, the FTC was not satisfied that offers to divest Rite Aid stores to Fred’s, Inc.102F

4 would remedy the competitive harm. Accordingly, the parties

1 Nicole Sarrine is an Associate in the Washington D.C. office of Hughes Hubbard & Reed LLP.

2 As guests of the panel were asked to treat the contents of the information shared by panelists under the Chatham House Rule, this summary does not provide attributions to specific panelists. See Chatham House Rule description, https://www.chathamhouse.org/about/chatham-house-rule.

3 Press Release, Walgreens Boots Alliance, Walgreens Boots Alliance to Acquire Rite Aid for $17.2 Billion in All-Cash Transaction (Oct. 27, 2015), http://www.walgreensbootsalliance.com/newsroom/news/walgreens-boots-alliance-to-acquire-rite-aid-for-172-billion-in-all-cash-transaction.htm.

4 Press Release, Walgreens Boots Alliance, Walgreens Boots Alliance and Rite Aid Reach Agreement to Sell 865 Rite Aid Stores to Fred’s Pharmacy (Dec. 20, 2016), http://www.walgreensbootsalliance.com/newsroom/news/walgreens-boots-alliance-and-rite-aid-reach-agreement-to-sell-865-rite-aid-stores-to-freds-pharmacy.htm; Press Release, Walgreens Boots Alliance and Rite Aid Enter into Amendment and Extension to Merger Agreement (Jan. 30, 2017),

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abandoned this transaction and entered into a new agreement in June 2017 under which Walgreens would purchase 2,186 Rite Aid stores, three distribution centers, and inventory from Rite Aid,103F

5 refiling for this revised transaction under Hart-Scott-Rodino. The final transaction, which was cleared by the FTC in September 2017, included the purchase of 1,932 Rite Aid stores by Walgreens, along with the three distribution centers and inventory.104F

6 After outlining the transaction in broad strokes, the panelists turned

to the market definition issues. On the product side, it involved retail prescriptions. As to the geographic market, the FTC considered the national market (such as corporations looking for coverage for members), and the states focused on the regional impacts (e.g., in metropolitan areas). A key concern with the merger was the overlap of drugstores in particular regions and localities, and there were also possible geographic footprint and scale issues that were not included in the public filings. For both the FTC and the State of New York, the fact that this was not about direct consumer-facing competition was a central issue. The focal points instead concerned, for example, the fact that these major drugstore chains had unique qualities for payors, PBMs, and plan sponsors.

The panelists then shared their perspectives and analysis regarding different aspects of the merger. For example, one panelist expressed that, since the original deal of a complete merger for Walgreens to acquire the entirety of Rite Aid had been under investigation since October 2015, a pre-election time period, the states took a back seat to investigating it because they trusted that the FTC would “do the right thing.” Another panelist pointed out the weaknesses of the Fred’s, Inc. divestiture proposal, noting that Fred’s was not a pure drugstore chain and instead involved a combination of dollar stores and pharmacies, Fred’s had experienced declining sales for several years, and company leadership had made remarks indicating that Fred’s was not doing well financially. This led the panelist to conclude it “seemed more like a remedial package to save Fred’s from

https://www.riteaid.com/corporate/news?p_p_id=riteaidpressreleases_WAR_riteaidpressreleasesportlet&p_p_lifecycle=0&p_p_state=normal&p_p_mode=view&p_p_col_id=column-3&p_p_col_pos=2&p_p_col_count=3&_riteaidpressreleases_WAR_riteaidpressreleasesportlet_action=getNewsRoomDetail&itemNumber=2025.

5 Press Release, Walgreens Boots Alliance, Walgreens Boots Alliance Enters into Agreement with Rite Aid to Buy 2,186 Rite Aid Stores and Related Assets (June 29, 2017), http://www.walgreensbootsalliance.com/newsroom/news/walgreens-boots-alliance-enters-into-agreement-with-rite-aid-to-buy-2186-rite-aid-stores-and-related-assets.htm (hereinafter Walgreens June 29, 2017 Press Release).

6 Press Release, Walgreens Boots Alliance, Walgreens Boots Alliance Secures Regulatory Clearance for Purchase of Stores and Related Assets from Rite Aid (Sept. 19, 2017), http://www.walgreensbootsalliance.com/newsroom/news/walgreens-boots-alliance-secures-regulatory-clearance-for-purchase-stores-and-related-assets-from-rite-aid.htm.

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bankruptcy” than a solution to the concerns arising from the Walgreens/Rite Aid transaction.

This conversation among the panel provided a natural segue back

towards discussing the actions taken by the states and the FTC concerning the transaction. As one panelist noted, after the states and the FTC concluded that Fred’s was not an acceptable buyer, they geared up to file a complaint. However, the merging parties pulled their original HSR filing before the complaint was filed and announced their revised transaction, claiming the “new transaction addresse[d] competitive concerns previously raised with respect to the prior transaction.”105F

7 As a panelist explained, the “new transaction” still had Walgreens

acquiring most of the Rite Aid stores in New York (456 out of 600 stores). Consequently, the State of New York issued subpoenas, investigated for over a year, and took depositions in case the FTC would not insist on changes to the deal. The panelist conveyed that the FTC staff shared the State of New York’s concerns, put pressure on the companies, and the merging parties recut the deal to leave a significant number of stores with Rite Aid in New York. The panelist remarked that, had that not been the outcome, the State of New York would have sought its own challenge.

In concluding the discussion of the Walgreens/Rite Aid merger, the

panel mentioned that, besides New York, other states had an interest in the transaction. But in the recut deal, the merging parties took care of entire states to alleviate those concerns. The panelists noted that Walgreens did not take any stores in California, and issues that arose in Pennsylvania were also resolved in the final package. Valero/Plains All American Pipeline The second transaction that the panelists discussed was Valero/Plains All American Pipeline, which involved the sale of two petroleum storage terminals in the Bay Area to Valero and a corresponding joint investigation by the FTC and the State of California. Though the FTC closed its investigation, the State of California sued to block the acquisition and early on was unsuccessful in its attempts to obtain a temporary restraining order106F

8 and a preliminary injunction.107F

9

7 Walgreens June 29, 2017 Press Release, supra note 5.

8 Order Den. TRO, Setting Briefing Schedule for Prelim. Inj. Mot., and Granting Ltd. Disc., State of Cal. v. Valero Energy Corp., et al., No. 17-cv-3786 (WHA) (N.D. Ca. July 12, 2017), http://www.mlex.com//Attachments/2017-07-12_USMW6579QQK16C35/order_tro.pdf.

9 Order re Mot. for Prelim. Inj., State of Cal. v. Valero Energy Corp., et al., No. 17-cv-3786 (WHA) (N.D. Ca. Aug. 23, 2017),

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The panelists began by explaining the basics related to this transaction, as well as the concerns of the State of California as evidenced in court documents. In the Bay Area, the refineries and terminals connect to a hub for buyers and sellers, and Valero has a refinery there. In that mix, the terminals and refineries feed the hub, which in turn feeds downstream consumers. Thus, the case theory was a classic vertical one – California worried that by obtaining control of the independent terminals, Valero might squeeze input into the hub and gain pricing power in the downstream market (i.e., raise prices on the finished product). The panel next outlined the relevant background. In 2005, as described in FTC documents from the time, Valero sought a deal involving assets in Northern California, Colorado, and Pennsylvania. A consent order from the FTC permitted the acquisition with a divestiture package that included divestitures in the Bay Area.108F

10 According to the FTC documents, Valero was acquiring four independent terminals, which comprised all of the independent terminals in the Bay Area. The FTC ordered divestiture of two of the terminals, and since then, Valero sold off the two terminals it was allowed to keep. In the present deal, Valero sought to buy back the two terminals it divested in 2005. The panel then assessed the impact of the 2005 FTC order on the recent transaction. As one panelist noted, any time that there is enforcement history in a market with the same assets, it can create a hurdle to the present deal. As indicated in court documents from the recent case, the fact that the consent order expired in 2015 potentially left the impression that Valero was waiting to jump on the assets or “pounce at the right time” with the new transaction.

The panel concluded the discussion of Valero/Plains All American Pipeline by explaining how the matter was resolved. The FTC took no action after its investigation. The State of California filed a complaint in federal court seeking to block the transaction. Although Valero and Plains All American were successful in avoiding a temporary restraining order and a preliminary injunction, the parties abandoned the transaction as California pursued a permanent injunction.109F

11

https://www.oag.ca.gov/system/files/attachments/press_releases/ORDER%20re%20Motion%20for%20Preliminary%20Injunction.pdf.

10 See In re Valero, L.P., Valero Energy Corp., et al., FTC Docket No. C-4141 (FTC Sept. 16, 2005), https://www.ftc.gov/enforcement/cases-proceedings/0510022/valero-lp-valero-energy-corporation-et-al-matter.

11 Press Release, Valero Energy Corporation, Valero Energy Corporation and Plains All American Pipeline, L.P. Elect to Terminate Proposed Acquisition by Valero of Certain Plains Assets (Sept. 18, 2017), http://www.investorvalero.com/phoenix.zhtml?c=254367&p=irol-newsArticle&ID=2301358.

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Panel Debate: The Proper Role of the States

The discussions of the Walgreens/Rite Aid merger and the Valero/Plains All American Pipeline transaction led to a rousing debate over whether or not states should “pick up the slack” when the DOJ and the FTC do not bring enforcement actions. The panel deliberated all sides of this issue, and some of the main arguments put forth by the panelists included:

In favor of state involvement – • States have certain expertise that federal agencies do not (see

hospital merger cases); • States have the authority to enforce the Clayton Act and

injunctions separately from the federal government; and • State interests may differ from the concerns held by federal

agencies.

Against state involvement – • It may be difficult for states to step into a merger review

without it being perceived as political; • Due process at the federal agency level cannot be replicated by

states; and • There is a likelihood of inconsistency if states pursue these

actions.

These points raised by the panelists led some of the guests to contribute their own thoughts and opinions on the topic, which stirred a spirited conversation that engaged the room and took up the remainder of the time set aside for the event. Though time ran out before the panel could turn to the Parker-Hannifin/Clarcor and Tronox/Cristal cases, ending the event with a thought-provoking debate motivated guests to continue the dialogue over post-event networking.

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CASE UPDATES / MATTERS TO WATCH

ENERGY

FTC Requires Divestitures in 7-Eleven, Inc. Parent Company’s Acquisition On January 19, 2018, the FTC announced a settlement of charges that an acquisition by Seven & i Holdings Co., Ltd, the Tokyo-based parent company of the 7-Eleven network of convenience stores, would violate federal antitrust law.110F

1 The company had sought to acquire approximately 1,100 retail fuel outlets at a cost of $3.3 billion. Under the settlement, 7-Eleven will sell 33 retail units to Sunoco, and Sunoco will retain 26 units it otherwise would have transferred under the transaction. The FTC had alleged that the transaction as proposed would have harmed competition in 76 local markets across 20 metropolitan statistical areas. Public comments were received through February 20. Brazilian Authority Blocks Acquisition The Brazilian competition authority, Court of the Administrative Council for Economic Defense (CADE), has blocked a proposed acquisition by Ultragaz’ of Petrobras’ Liquigas for $884 million.111F

2 CADE also manadaged that Ultragaz's distribution unit pay $88.16m to Petrobras. The Brazilian oil company had been seeking to reduce debt by divesting some of its assets. However, the acquisition was challenged in the basis that it would give the company too much market power, as it would eliminate one of four major players in the LPG distribution market. Further, it was perceived that price collusion would be made easier among the three remaining players. Though the parties attempted to offer solutions that would protect competition and allow the transaction to go forward, CADE rejected it outright. Chesapeake Energy Corp. to Face Antitrust Suit in State Court On March 9, 2018, an appeals court held that state-level claims against Chesapeake Energy Corp. could proceed in state court, notwithstanding parallel federal proceedings on the same antitrust violations.112F

3 In 2016,

1 Federal Trade Commission, “FTC Requires Divestitures as Condition of 7-Eleven, Inc. Parent Company’s $3.3 Billion Acquisition of Nearly 1,100 Retail Fuel Outlets from Competitor Sunoco,” at https://www.ftc.gov/news-events/press-releases/2018/01/ftc-requires-divestitures-condition-7-eleven-inc-parent-companys.

2 Energy Business Review, “Brazil antitrust body blocks Ultragaz’ $884m acquisition of Petrobras’ Liquigas ,” at http://utilitiesnetwork.energy-business-review.com/news/cade-blocks-ultragaz-884m-acquisition-of-petrobras-liquigas-010318-6069672.

3 NewsOK, “Oklahoma court to hear claims against Chesapeake Energy,” at http://newsok.com/article/5586537/oklahoma-court-to-hear-claims-against-chesapeake-energy.

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Chesapeake admitted to violations of federal antitrust law and cooperated with a DOJ investigation resulting from the violations. A federal case is also going on in federal district court in Oklahoma, in which the parties are in mediation. However, the federal case does not preempt the state case, the appeals court held, so both proceedings can go forward at this time.

TRANSPORTATION School Bus Company Owners Sentenced to Prison for Bid-rigging/Fraud On February 6, 2018, four owners of school bus transportation services in Puerto Rico were sentenced for conspiring to rig bids and allocate the market for public school bus transportation services from August 2013 to May 2015 in the Municipality of Caguas.113F

4 Luciano Vega Martínez, Alfonso Gonzalez Nevarez, and René Garay Rodríguez were sentenced to twelve months and a day in prison while Gavino Rivera Herrera received two years’ probation, the first six months of which to be served in home confinement—a departure based on Rivera Herrera’s medical condition. At trial, DOJ presented evidence showing the defendants submitted fraudulent certifications intended to defraud the Municipality of Caguas. The DOJ Antitrust Division was joined in the investigation by the District of Puerto Rico U.S. Attorney’s Office, the FBI’s Puerto Rico Field Office, and the U.S. Department of Education Office of Inspector General. DOJ and Parker-Hannifin Reach Negotiated Settlement to Merger Challenge As noted in our Fall 2017 newsletter, the Department of Justice filed suit to challenge Parker-Hannifin’s consummated acquisition of CLARCOR, Inc. The DOJ alleged that the merger eliminated competition between Parker-Hannifin and CLARCOR in aviation fuel filtration systems.114F

5 On December 18, 2017, the DOJ announced that it reached a settlement with Parker-Hannifin, resolving the suit.115F

6 To resolve the DOJ’s concerns, Parker-Hannifin agreed to divest its Facet Filtration Business, which includes microfilters, filter water separators, and filter monitor components used in Parker-Hannifin’s aviation ground fuel filtration business.116F

7 The DOJ touted

4 U.S. Dept. of Justice, “School Bus Company Owners Sentenced to Prison for Bid Rigging and Fraud Involving Puerto Rico Public School Bus Services,” at https://www.justice.gov/opa/pr/four-school-bus-company-owners-sentenced-jail-bid-rigging-and-fraud-involving-puerto-rico.

5 Complaint at 2, United States of America v. Parker-Hannifin Corp., et al., No. 1:17-cv-01354-UNA (D. Del. Sept. 26, 2017) (hereinafter “Parker-Hannifin Complaint”), available at https://www.justice.gov/atr/case-document/file/999341/download

6 Press Release, Dep’t of Justice, Justice Department Reaches Settlement with Parker-Hannifin (Dec. 18, 2017), available at https://www.justice.gov/opa/pr/justice-department-reaches-settlement-parker-hannifin.

7 Competitive Impact Statement, United States of America v. Parker-Hannifin Corp., et al., No. 1:17-cv-01354-UNA, available at https://www.justice.gov/atr/case-document/file/1018651/download.

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the settlement as “restor[ing] competition in the markets for aviation fuel filtration systems.”117F

8 DOJ Requires TransDigm to Divest Airplane Restraint Business Acquired from Takata On February 22, 2017, TransDigm acquired two Takata businesses in a non-reportable transaction.118F

9 The DOJ alleged that the transaction created a monopoly in the market for commercial aviation restraint systems.119F

10 On December 21, 2017, the DOJ announced that it was challenging the consummated transaction, and TransDigm had agreed to divest both businesses to a private equity consortium.120F

11 Car Carriers and Car Parts Suppliers Fined Millions in EU Cartel Settlements The European Commission announced February 21, 2018, that it had reached three separate settlements with car carriers and car parts suppliers for cartel violations.121F

12 Specifically, the EC fined four maritime car carriers €395 million, two suppliers of spark plugs €76 million, and two suppliers of braking systems €75 million, for antitrust violations related to cartel activity. The fines were determined under applicable 2006 guidelines. Certain cartel participants received leniency for revealing the existence of the cartel, or benefited from reduced fines through cooperation. Private actions for damages are also available for individuals harmed by the cartel activity in question.

8 Press Release, Dep’t of Justice, Justice Department Reaches Settlement with Parker-Hannifin (Dec. 18, 2017), available at https://www.justice.gov/opa/pr/justice-department-reaches-settlement-parker-hannifin.

9 Competitive Impact Statement at 1, United States v. TransDigm Group Incorporated, Grp. Inc., No. 1:17-cv-02735 (D.D.C. Dec. 21, 2017), available at https://www.justice.gov/opa/press-release/file/1019801/download

10 Id.

11 Press Release, Dep’t. of Justice, Justice Department Requires TransDigm Group to Divest Airplane Restraint Businesses Acquired From Takata (Dec. 21, 2017), available at https://www.justice.gov/opa/pr/justice-department-requires-transdigm-group-divest-airplane-restraint-businesses-acquired.

12 European Commission, “Antitrust: Commission fines maritime car carriers and car parts suppliers a total of €546 million in three separate cartel settlements,” at http://europa.eu/rapid/press-release_IP-18-962_en.htm.

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Transportation and Energy Industries COMMITTEE OFFICERS

Chair: David L. Meyer Morrison & Foerster LLP Suite 6000 2000 Pennsylvania Avenue, NW Washington, DC 20006 (202) 887-1519 dmeyer@mofo.com

Vice Chairs: Laura Collins Freshfields Bruckhaus Deringer LLP 700 13th Street, NW, Floor 9 Washington, DC 20005 (202) 777-4579 laura.collins@freshfields.com Bret Fulkerson Texas Attorney General’s Office 300 West 15th Street Austin, TX 78701 (512) 463-4012 bret.fulkerson@oag.texas.gov Karen Kazmerzak Sidley Austin LLP 1501 K Street, NW Washington, DC 20005 (202) 736-8068 kkazmerzak@sidley.com Katherine S. Phillips Caldwell Boudreaux Lefler PLLC 1800 West Loop South Suite 1680 Houston, TX 77027 (713) 357-7705 kphillips@CBLpipelinelaw.com Brian Rafkin Dechert LLP 1900 K Street, NW Washington, DC 20006 (202) 261-3318 brian.rafkin@dechert.com

Responsible Council Member: Subrata Bhattacharjee Borden Ladner Gervais LLP Bay Adelaide Centre, East Tower 22 Adelaide Street West Suite 3400 Toronto, ON, Canada (416) 367-6371 sbhattacharjee@blg.com Young Lawyer Representative: Francesca Pisano Arnold & Porter Kaye Scholer LLP 601 Massachusetts Ave., NW Washington, DC 20001 (202) 942-6910 francesca.pisano@apks.com

Please send all submissions for future issues to:

Editors Bret Fulkerson Texas Attorney General’s Office bret.fulkerson@oag.texas.gov

Katherine S. Phillips Caldwell Boudreaux Lefler PLLC kphillips@CBLpipelinelaw.com

DISCLAIMER Transportation, Energy & Antitrust is published by the American Bar Association Section of Antitrust Law’s Transportation and Energy Industries Committee. The views expressed herein are the authors’ only and not necessarily those of the American Bar Association, the Section of Antitrust Law or the Transportation & Energy Industries Committee. If you wish to comment on the contents of Transportation, Energy & Antitrust, please write to the American Bar Association, Section of Antitrust Law, 321 North Clark Street, Chicago, IL 60654-7598. COPYRIGHT NOTICE Copyright 2018 American Bar Association. The contents of this publication may not be reproduced, in whole or in part, without written permission of the ABA. For all reprint requests please visit our website: www.americanbar.org/utility/reprint.