Kansas Power and Light Company et al., Petitioners, v. Federal Power Commission, Respondent, 554 F.2d 1178 (D.C. Cir. 1977)

The issue presented by this petition for review is whether the Federal Power Commission acted correctly in deferring consideration of a statutory merger application under the Federal Power Act, pending final resolution of an antitrust suit seeking to block the merger, filed by a private party in a federal district court. The Commission concluded that postponement of its proceedings was compelled by the Supreme Court's decision in California v. FPC, 369 U.S. 482, 82 S. Ct. 901, 8 L. Ed. 2d 54 (1962), which held that the processing of a merger application under the Natural Gas Act should have been suspended while a Government-initiated antitrust suit challenging the merger was pending in a district court.

For the reasons set forth below, we find that California does not control the course of action to be followed by the Commission in the context of a merger application under the Federal Power Act. Accordingly, we vacate the orders of the Commission suspending proceedings on petitioners' application.

* Petitioners Kansas Power and Light Company ("KPL") and Central Kansas Power Company, Inc. ("CKP") are both electric and gas utility companies operating wholly within the State of Kansas. On January 23, 1975, KPL, CKP, and United Telecommunications, Inc. ("United"), the parent company of CKP, signed an agreement providing for the merger of CKP into KPL. Under the terms of the agreement, which was made conditional upon receipt of any necessary approvals from government regulatory authorities, United would receive cash and preferred stock from KPL in exchange for its shares of the stock of CKP. Although KPL would be the sole surviving company, petitioners have represented that, at least initially, the gas and electrical properties formerly operated by CKP would be maintained and operated as a separate division or department within KPL.

On March 28, 1975, Sunflower Electric Cooperative, Inc. ("Sunflower"), a wholesale customer of CKP, brought suit against KPL, CKP, and United in the United States District Court for the District of Kansas, claiming that the proposed merger would violate section 7 of the Clayton Act, 15 U.S.C. § 18, and section 2 of the Sherman Act, 15 U.S.C. § 2, and resulted from a conspiracy in violation of section 1 of the Sherman Act, 15 U.S.C. § 1. Sunflower's complaint requested a permanent injunction, pursuant to15 U.S.C. § 26, against consummation of the merger.¹  The utility companies responded on June 2, 1975 by filing motions to dismiss Sunflower's complaint, arguing, inter alia, that exclusive, or at least primary, jurisdiction over the merger rests with the Federal Power Commission, and that the challenges to the validity of the merger should therefore either be dismissed or referred to the Commission for initial consideration.² 

On June 11, 1975, in order to satisfy the condition in the merger agreement, KPL and CKP submitted an application to the Commission seeking approval of their merger under section 203 of the Federal Power Act, 16 U.S.C. § 824b. That section provides that no public utility shall directly or indirectly merge or consolidate its facilities with those of any other person, transfer its assets to another company, or acquire the securities of any other public utility, "without first having secured an order of the Commission authorizing it to do so." The section further provides that, " [a]fter notice and opportunity for hearing, if the Commission finds that the proposed [transaction] will be consistent with the public interest, it shall approve the same."³ 

On the same day that KPL and CKP submitted their application under the Federal Power Act, the Commission received a letter dated June 9, 1975 from Sunflower's counsel, informing the Commission about the pending antitrust action and, on the basis of the Supreme Court's action in California, requesting the Commission to defer consideration of the merger application until after a decision on the merits in the antitrust suit. Sunflower also urged California upon the District Court, in response to the antitrust defendants' motion to dismiss on grounds of exclusive or primary jurisdiction. Furthermore, on August 18, 1975, Sunflower moved the District Court for a preliminary injunction against the merger. Petitioners and the other defendants in the antitrust suit argued that the motion for a preliminary injunction was premature, in that the merger could not be consummated without FPC approval, and that it was unlikely that approval would occur prior to a Commission hearing on the matter.

With the countervailing motions of the parties still pending before the District Court, the Commission, without prior notice or hearing, issued an order on September 2, 1975, deferring any action on the merger application until after the District Court renders a final decision in the antitrust proceeding. The order makes clear that the Commission's decision to suspend proceedings followed directly and solely from its understanding of California. First, the Commission read California as establishing the broad proposition that the FPC "should not proceed to a decision on the merits of a merger application when there is pending in the courts a suit challenging the validity of that transaction under the antitrust laws." Second, the Commission recited, almost verbatim, the "practical reasons" given by the Court to support its holding in California, see 369 U.S. at 488-89, 82 S. Ct. 901; id. at 494, 82 S. Ct. 901 (Harlan, J., dissenting), and offered them as an explanation for deferring to the District Court in the instant case:

The practical reasons why the Commission should await a court decision are as follows: (1) if the Commission approves the transaction and the courts in the antitrust suit later hold it to be illegal, an unscrambling is necessary; (2) these unscrambling processes often raise complicated and perplexing problems on tax matters and otherwise; and (3) a transaction consummated under the aegis of the Commission as being a matter of "Public Convenience and Necessity" is bound to carry momentum into the antitrust suit.

In light of the Commission's order, the District Court decided to postpone any action on Sunflower's request for a preliminary injunction "at least until the pending motions to dismiss filed by defendants have been ruled on." At oral argument, we were informed that the District Court has not yet passed upon either the motions to dismiss or the motion for a preliminary injunction, nor does it seem likely that it would do so pending the disposition of this appeal.

On September 26, 1975, counsel for KPL and CKP filed with the Commission a petition for rehearing or reconsideration of the Commission's September 2 order, asserting that California neither requires nor suggests that the Commission should defer all proceedings under section 203 of the Federal Power Act pending resolution of the antitrust action; that there are no viable policy reasons for deferring consideration of the merger; and that the valid interests of all parties would be served if the Commission were to proceed to final decision on the merger application. The Commission denied this petition for rehearing by an order issued October 24, 1975, and reaffirmed the position taken in its earlier order. The Commission found that, notwithstanding petitioners' contentions, California "is still controlling" and "dictates our course of action."

KPL and CKP then brought the instant petition in this court, pursuant to section 313(b) of the Federal Power Act, 16 U.S.C. § 825l (b), seeking review of the Commission's order of September 2, 1975, as well as the order of October 24, 1975 denying rehearing or reconsideration.⁴  Sunflower was granted leave to file a brief as amicus curiae, on its own behalf and that of several interested cities located in Kansas.

II

Petitioners and the Commission apparently agree that the only issue before us is whether California requires the Commission to defer consideration of petitioners' merger application. Whether the Commission has exclusive or primary jurisdiction over the merger is a matter to be decided in the first instance by the District Court in Kansas, since those doctrines relate to the court's obligation to defer to the agency, and a determination of their applicability is not necessary to the decision of whether the agency must defer to the court. See Ashland Oil & Refining Co. v. FPC, 421 F.2d 17, 19-20 (6th Cir. 1970). If the Commission has even concurrent jurisdiction, the orders in this case cannot stand.⁵ 

We turn therefore to an examination of the Supreme Court's decision in California. In that case, El Paso Natural Gas Company acquired the stock of Pacific Northwest Pipeline Corp., and on July 22, 1957, the Justice Department filed suit in the district court seeking to enjoin this stock acquisition as a violation of Sec. 7 of the Clayton Act. On August 7, 1957, El Paso applied to the Federal Power Commission pursuant to Sec. 7(c) of the Natural Gas Act, 15 U.S.C. § 717f(c), for authority to acquire Pacific Northwest's assets and merge them with its own.⁶  The Department of Justice asked the Commission to stay its proceedings pending the outcome of the antitrust suit, but the Commission refused this request and began hearings in September 1958 on the asset acquisition application.

Subsequently, the Justice Department renewed its request, and the Commission agreed to postpone its hearings to a date that would not conflict with the date then scheduled for trial of the antitrust case. But the District Court decided to continue the antitrust suit until the administrative proceedings had been completed, and the Commission therefore resumed its hearings, at the end of which it gave its approval of the asset acquisition. The Commission construed Sec. 7 of the Natural Gas Act, together with Sec. 7 of the Clayton Act, as giving the Commission the power to exempt from the antitrust laws transactions consummated pursuant to Commission authority, and the order of approval therefore purported to immunize the asset acquisition from further attack. The Commission recognized its responsibility to take into account antitrust policies in deciding whether the transaction would further the "public convenience and necessity," but concluded that, with regard to El Paso's application, "any lessening of competition is not substantial." See 369 U.S. at 487-88, 82 S. Ct. at 905.

On review of the Commission's order approving the asset acquisition, the Supreme Court reversed, holding that the Commission should not have proceeded to a decision on the merits of El Paso's application while a suit challenging the validity under the antitrust laws of the prior stock acquisition was pending in the courts. Id. at 487, 82 S. Ct. 901. The Court read section 7 of the Natural Gas Act as conferring jurisdiction only over asset acquisitions--and not over stock acquisitions--of natural gas companies, and concluded that to permit the Commission to go forward under section 7 while a suit against the stock acquisition was pending would allow the Commission in effect to rule on matters over which it has no jurisdiction:

Section 7 of the Clayton Act, so far as material here, prohibits stock acquisitions having a prescribed effect. Section 7 of the Natural Gas Act confers jurisdiction on the Commission over the acquisition of assets of natural gas companies, not over stock acquisitions in them. Had the Commission stayed its hand and had the courts found the stock acquisition unlawful, the entire transaction would have been set aside in limine. Had the courts found the stock acquisition lawful, presumably no problems under Sec. 7 of the Clayton Act would have remained. When the Commission proceeds in the face of a pending but undecided antitrust suit and approves a merger that has been preceded, as this one was, by a stock acquisition, it in substance treats the entire relation of the companies--from the acquisition of stock to the merger--as an integrated transaction. If that administrative action were approved, the Commission would be allowed to do by indirection what it has no jurisdiction to do directly.

Id. at 489-90, 82 S. Ct. at 906 (footnote omitted).

The Court found that the Commission does not have power under Sec. 7 of the Natural Gas Act to immunize mergers from the reach of the antitrust laws and that the Commission had improperly undertaken to make a finding as to whether Sec. 7 of the Clayton Act had been violated, a finding which the Court said is reserved to the courts. See id. at 485-86, 488, 490, 82 S. Ct. 901. And, as the Commission recognized in the orders under review in the instant case, the Court gave two sets of practical reasons for requiring the Commission to suspend its proceedings under the Natural Gas Act: first, "if the Commission approves the transaction and the courts in the antitrust suit later hold it to be illegal, an unscrambling is necessary," and complicated tax and other problems might result; and second, "a transaction consummated under the aegis of the Commission as being a matter of 'public convenience and necessity' is bound to carry momentum into the antitrust suit." Id. at 488-89, 82 S. Ct. at 906.

III

In our view, there is a critical difference between the Commission's authority under Sec. 203 of the Federal Power Act, on the one hand, and Sec. 7 of the Natural Gas Act, on the other, that makes the California precedent inapposite here. Under Sec. 203, the Commission has jurisdiction over stock acquisitions as well as asset acquisitions, and the Commission would therefore be acting wholly within the scope of its regulatory authority in passing upon the merits of petitioners' application. The Commission's proceedings would in no way allow it, in the Supreme Court's words, "to do by indirection what it has no jurisdiction to do directly." Indeed, petitioners may not go forward with any aspect of their merger until they obtain authorization under section 203. Unlike the situation in California where only the antitrust court could block the entire transaction at stake, the Commission here could set aside the proposed acquisition "in limine " if the "public interest" so requires.⁷ 

The "practical reasons" cited by the California Court for deferring administrative proceedings were direct reflections of the Commission's limited jurisdiction in that case, and are not persuasive grounds for requiring the Commission to postpone consideration of petitioners' application under section 203 of the Federal Power Act. Thus, the Court's fear that Commission approval of a merger under the Natural Gas Act would "carry momentum into the antitrust suit" may be understood as an expression of the Court's conclusion that, by ruling on El Paso's asset acquisition, the Commission was in effect exercising authority over the earlier stock acquisition which was beyond its statutory jurisdiction. The Commission has, of course, an obligation under the Federal Power Act to consider antitrust policies in determining whether a merger satisfies section 203's "public interest" standard, see Gulf States Utilities Co. v. FPC, 411 U.S. 747, 757-60, 93 S. Ct. 1870, 36 L. Ed. 2d 635 (1973); Northern Natural Gas Co. v. FPC, 130 U.S.App.D.C. 220, 226-228, 399 F.2d 953, 959-61 (1968), but so long as the Commission is acting within its Sec. 203 jurisdiction, there appears to be little danger of encroachment upon the antitrust court's tasks.⁸  Regardless of the Commission's disposition of this case, the District Court in Kansas is free to exercise its own judgment on the relevant antitrust issues.

Similarly, the California Court's concern about "unscrambling" can be explained by the fact that, given the Commission's narrow jurisdiction under the Natural Gas Act, Commission action on El Paso's asset acquisition could, on balance, only have complicated final resolution of the problems generated by the merger transaction as a whole. Commission approval of the requested asset merger could have led to a need for a broader preliminary injunction, or more extensive and complex relief in the event of ultimate success on the merits, in the Justice Department's antitrust suit. At the same time, since the Commission did not have jurisdiction over the stock acquisition, its proceedings could not possibly have blocked the entire transaction at the outset if it were in violation of applicable law, or saved the antitrust court the time and expense of considering the Government's suit.

Inasmuch as the Commission's authority under section 203 of the Federal Power Act would allow it to block all aspects of petitioners' merger transaction if the merger were deemed not to be consistent with the "public interest,"⁹  the potential for unscrambling problems is attenuated here, and accordingly does not require suspension of Commission proceedings pending resolution of the antitrust action. So long as the Commission makes any order approving petitioners' merger effective only after notice to the antitrust parties and allowance of sufficient time for the District Court to act, the Court's equitable powers should be quite ample to preserve the status quo during the litigation, if the public interest and the interests of the parties make such relief appropriate. The Court could enter a preliminary injunction against all aspects of the merger or, if a less restrictive decree were warranted, the Court might order that the CKP properties continue to be maintained and operated separately pendente lite.

Although the antitrust plaintiff ordinarily must show a significant probability of success on the merits and a balance of equities in favor of immediate relief in order to gain a preliminary injunction, see, e.g., Gulf & Western Industries, Inc. v. Great Atlantic & Pacific Tea Co., 476 F.2d 687, 692-93 (2d Cir. 1973), these requirements are designed to accommodate the legitimate interests of the defendants, and the public, in allowing lawful competitive behavior to continue without interference. Thus, granting what amounts to an automatic preliminary injunction to the antitrust plaintiff by requiring the Commission to postpone consideration of a merger application under the Federal Power Act, upon filing of an antitrust complaint challenging the proposed merger, would not necessarily advance the policies underlying the antitrust laws. The fact that regulatory approval is necessary before a merger of electric and gas utilities can be consummated does not provide a rational basis for awarding automatic preliminary injunctions against such mergers at the behest of antitrust plaintiffs who may or may not have meritorious claims.¹⁰ 

IV

The Supreme Court's decisions before and after California confirm our belief that its precedential value must be evaluated in the light of the particular statutory context in which it arose. In numerous cases involving a potential overlap between an antitrust suit and an agency's regulatory jurisdiction, rather than the agencies being required to defer to the courts, the courts have been compelled to dismiss or defer the antitrust actions pending before them in order to allow the agency to exercise exclusive or primary jurisdiction. United States v. National Ass'n of Securities Dealers, Inc., 422 U.S. 694, 95 S. Ct. 2427, 45 L. Ed. 2d 486 (1975); Hughes Tool Co. v. Trans World Airlines, Inc., 409 U.S. 363, 93 S. Ct. 647, 34 L. Ed. 2d 577 (1973); Ricci v. Chicago Mercantile Exchange, 409 U.S. 289, 93 S. Ct. 573, 34 L. Ed. 2d 525 (1973); Carnation Co. v. Pacific Westbound Conference, 383 U.S. 213, 86 S. Ct. 781, 15 L. Ed. 2d 709 (1966); Pan American World Airways, Inc. v. United States, 371 U.S. 296, 83 S. Ct. 476, 9 L. Ed. 2d 325 (1963); Far East Conference v. United States, 342 U.S. 570, 72 S. Ct. 492, 96 L. Ed. 576 (1952). Moreover, in Otter Tail Power Co. v. United States, 410 U.S. 366, 93 S. Ct. 1022, 35 L. Ed. 2d 359 (1973), although the Court held that the FPC did not have primary or exclusive jurisdiction pursuant to section 202 of the Federal Power Act over interconnections of electric power transmission facilities, the Commission was permitted to go forward with its proceedings concurrently with a related antitrust action in the courts. See id. at 376, 93 S. Ct. 1022; id. at 392 n. 8, 93 S. Ct. 1022 (Stewart, J., concurring in part and dissenting in part).

Respondent has not cited, and we have been unable to find, any case outside the context of the Natural Gas Act in which an agency has been compelled, as a matter of law, to suspend proceedings within its regulatory jurisdiction pending decision of an antitrust action filed in the courts.¹¹  Indeed, in a case under the Natural Gas Act in which it was clear that the FPC was acting within the scope of its statutory responsibilities over matters of rate regulation, the Sixth Circuit held that California did not require the Commission to defer action until the conclusion of a related contract suit which had been brought in a federal district court. Ashland Oil & Refining Co. v. FPC, 421 F.2d 17, 20-22 (6th Cir. 1970) (FPC proceeding pursuant to 15 U.S.C. § 717c).

V

The orders of the Commission deferring consideration of petitioners' merger application pending resolution of the antitrust action in the Kansas District Court are accordingly vacated, and the case is remanded to the Commission.¹²  To accommodate the interests of the parties to the antitrust suit, any order of approval entered by the Commission in this case, while the antitrust action is still pending, shall be effective only upon forty days' notice to the antitrust parties.

It is so ordered.