Appeal from a judgment of the United States District Court for the Western District of New York, John T. Elfvin, J., in favor of plaintiff under § 1 of the Sherman Act, 15 U.S.C. § 1, and the analogous provision of the New York Donnelly Act, N.Y. Gen. Bus. Law § 340 (McKinney 1968). Judgment reversed and remanded.
Feinberg, Chief Judge, Cardamone, Circuit Judge and Sand, District Judge.*fn*
National Fuel Gas Distribution Corporation ("Distribution") and Flint Oil & Gas Company, Inc. ("Flint") appeal from a judgment of the United States District Court for the Western District of New York (Elfvin, J.) awarding plaintiff Venture Technology, Inc. ("Venture") $1,500,000 in trebled damages. After an eight week trial, and one week of deliberation, the jury found that the appellants had violated § 1 of the Sherman Act, 15 U.S.C. § 1, and the analogous provision of the New York Donnelly Act, N.Y. Gen. Bus. Law § 340 (McKinney 1968),*fn1 but that there was no violation of § 2 of the Sherman Act, 15 U.S.C. § 2. Defendants' motions for a directed verdict, judgment n. o. v., and a new trial were denied as to Distribution and Flint, and judgment was entered on January 13, 1981.
Venture alleged, and the jury found, that Flint and Distribution conspired, in violation of the antitrust laws, to prevent Venture from entering the western New York gas production business and that Venture suffered substantial damages as a result.
Distribution and Flint raise several significant issues on appeal. First, the appellants contend that the evidence presented at trial was insufficient as a matter of law to permit an inference of conspiracy. Second, they assert that the court below erroneously instructed the jury as to per se violations of the antitrust laws, rather than charging according to the general rule of reason standard. The appellants claim that the trial judge committed reversible error by giving per se charges on a refusal to deal or group boycott theory, on a horizontal price fixing theory, and on an essential facility theory. Third, the appellants contend that Venture failed to prove that the defendants' conduct was a material and proximate cause of its alleged injury. They further assert that there was insufficient evidence at trial from which the jury could make a rational determination of damages and that the verdict was an impermissible compromise between liability and damages.
A plaintiff in a civil action, in order to sustain its claim under § 1 of the Sherman Act, must prove the existence of a "contract, combination . . ., or conspiracy."*fn2 In light of our conclusion that there was not sufficient evidence to prove the existence of such a relationship in this case, we do not reach the appellants' other contentions.
The record shows that Distribution, a wholly owned subsidiary of co-defendant National Fuel Gas Company, is a public utility which supplies natural gas to consumers in western New York, western Pennsylvania, and a portion of Ohio.*fn3 At the time of the operative events in this case, Distribution received a small portion of its gas supply from local sources and about 90% of its gas supply from interstate pipelines, originating primarily in the southwestern United States.
In the early 1970s, Distribution's predecessor, Iroquois Gas Company ("Iroquois"), sought to induce independent companies to drill wells and produce the gas which Iroquois would purchase. Iroquois therefore began to assign, or "farm out," some of its acquired gas leases to independent production companies. This purchase program was later administered by Distribution under the management of John Fox, the assistant secretary and director of gas purchases for Distribution.
Flint was formed in the early 1970s, and by 1975 it had drilled between 100 and 200 wells and was one of the largest sellers of western New York natural gas to Distribution. There was substantial contact between officers of Distribution and officers of Flint, particularly by Fox. Fox attended some of the meetings Flint held to attract investors and answered questions about the natural gas purchase program. He helped Flint obtain a number of its well sites and regularly visited Flint's offices and met with its board of directors to provide "advice and counsel."
Fox reaped substantial financial benefits from his relationship with Flint. Fox and his wife operated Priority Acquisitions, Inc. ("Priority"), a real estate agency which acquired approximately 200 leases for Flint, and which was paid one dollar per acre by Flint for each lease. Priority never secured such leases for other producers in the western New York area. In 1973, Priority arranged the sale of a 167 acre parcel located in Alden, New York to Flint for $100,460, the same price that had been offered by another prospective purchaser. The property had been purchased by the seller in 1971 for $50,000. Flint sold the property in January, 1980 for $102,000. Priority's commission on the sale to Flint was more than $17,000. It is undisputed that Distribution was aware of the Priority/Flint relationship and approved of it.
Venture was formed by William L. Waytena to engage in the gas production business. Waytena had previously been an investor in several of Flint's drilling projects, and he continued his investments in Flint activities at least through the time of the trial. Waytena testified that it was his intention to have Venture drill a few successful wells, thereby demonstrating Venture's capability, and then to launch a well drilling program financed by outside investors.
By November, 1975, Venture had made plans for wells on five leased sites, known as the Boyd, Grant, Frey, Bennett, and Nickerson sites. Venture commenced work, apparently assuming that any gas it produced would be purchased by Distribution. However, none of Venture's officers approached ...