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Buccaneer Energy (USA) Inc. v. Gunnison Energy Corporation

United States Court of Appeals, Tenth Circuit

February 3, 2017

BUCCANEER ENERGY (USA) INC., Plaintiff - Appellant,
v.
GUNNISON ENERGY CORPORATION; SG INTERESTS I, LTD.; SG INTERESTS VII, LTD., Defendants-Appellees.

         Appeal from the United States District Court for the District of Colorado (D.C. No. 1:12-CV-01618-RPM)

          Ronald L. Wilcox, Wilcox Law Firm, LLC, Denver, Colorado, for Plaintiff-Appellant.

          L. Poe Leggette (Mark S. Barron with him on the briefs), Baker & Hostetler LLP, Denver, Colorado, for Defendants-Appellees SG Interests I, Ltd. and SG Interests VII, Ltd.

          Timothy R. Beyer (Peter J. Korneffel, Jr., with him on the brief), Bryan Cave LLP, Denver, Colorado, for Defendant-Appellee Gunnison Energy Corporation.

          Before PHILLIPS, McHUGH, and MORITZ, Circuit Judges.

          McHUGH, Circuit Judge.

          I. INTRODUCTION

         This antitrust case arises from a series of interactions among one incipient and two established natural gas producers in a portion of western Colorado known, at least in this litigation, as the Ragged Mountain Area. Buccaneer Energy (USA) Inc. ("Buccaneer") sued SG Interests I, Ltd., SG Interests VII, Ltd. (together, "SG"), and Gunnison Energy Corporation ("GEC") (collectively, "Defendants") after unsuccessfully seeking an agreement to transport natural gas on Defendants' jointly owned pipeline system at a price Buccaneer considered reasonable. Specifically, Buccaneer alleged that by refusing to provide reasonable access to the system, Defendants had conspired in restraint of trade and conspired to monopolize in violation of § 1 and § 2 of the Sherman Act, respectively. See 15 U.S.C. §§ 1-2.

         The district court granted summary judgment to Defendants, concluding that Buccaneer could not establish either of its antitrust claims and that, in any event, Buccaneer lacked antitrust standing. We agree that Buccaneer failed to present sufficient evidence to create a genuine issue of fact on one or more elements of each of its claims, and we therefore affirm on that dispositive basis alone.[1]

          II. BACKGROUND[2]

         A. Factual History

         The Ragged Mountain Area ("RM Area") is a section of oil- and gas-producing land located in Delta and Gunnison Counties, Colorado. The precise boundaries of the RM Area are unclear. At all times relevant to this case, natural gas produced in the RM Area was collected and transported to market through a gas-gathering system, processing facility, and six-inch diameter pipeline collectively referred to here as the Ragged Mountain Gathering System ("RM System"). The RM System carried this gas 20 miles to an interconnection on the Rocky Mountain Natural Gas Pipeline ("Rocky Mountain Pipeline"), a larger intrastate pipeline owned and operated by a regulated gas utility called SourceGas.

         In 2000 or 2001, Defendants separately began acquiring mineral leases in the RM Area and competed with each other in doing so. They drilled wells on their lease properties and began producing gas. Before and during this time, Riviera Drilling and Exploration Company ("Riviera") also owned mineral leases in the RM Area, and gas produced from Riviera's wells was transported on the RM System. Riviera had eleven wells on its substantial leasehold acreage: eight that were producing and three that were considered proved but not producing. Two other entities-Petrox Resources, Inc. ("Petrox") and WillSource Enterprise, LLC ("WillSource")-also held mineral leases in the RM Area.[3]

         In June 2005, Defendants entered into an Area of Mutual Interest Agreement, granting each other an option to purchase a 50 percent interest in any leases or other mineral interests acquired by either party within an "Area of Mutual Interest" that encompassed certain "lands located in Delta, Mesa and Gunnison counties, Colorado." Defendants also granted each other the option to participate equally "in the planning, permitting, construction, operation and ownership" of any pipeline project initiated by the other party, including the Bull Mountain Pipeline, which SG had begun in 2003. The Bull Mountain Pipeline would be a 20-inch diameter pipeline that would travel 25.5 miles from the RM Area to an interconnection with the Questar interstate pipeline, rather than the intrastate Rocky Mountain Pipeline. GEC eventually exercised its option under the Area of Mutual Interest Agreement to participate equally with SG in constructing, operating, and owning the Bull Mountain Pipeline.

         Also in June 2005, Defendants jointly acquired the RM System, plus some nearby mineral leases, from the RM System's former owner. Defendants entered into a Pipeline Operating Agreement, designating GEC as the operator of the RM System but giving ultimate control over pipeline operations to GEC and SG equally. As the operator, GEC was authorized to negotiate transportation agreements with third parties, subject to SG's approval.[4]

         In September 2005, GEC entered into a gas purchase agreement with Riviera, whereby GEC purchased gas from Riviera's wells at a price GEC received for reselling it, less $0.785 per MMBtu for transporting the gas through the RM System (in other words, Riviera paid the transportation rate only). Beginning in early 2006 and continuing into 2007, Defendants expressed and sporadically discussed a mutual interest in buying Riviera's holdings. On September 17, 2007, GEC informed Riviera that GEC was increasing the transportation rate in their purchase agreement from $0.785 per MMBtu to $1.52 per MMBtu and that it would be adjusting the rate quarterly through 2008. If Riviera did not agree to the new rate by October 1, 2007, Riviera's wells would be shut in on October 6, 2007. Riviera decided the new rate made its operation "uneconomic" and therefore did not agree to GEC's new terms. Its wells were then shut in.

         Buccaneer was incorporated in February 2008 for the purpose of acquiring Riviera's leases in the RM Area. Tony Gale, a petroleum engineer and former vice president of oil and gas development at GEC, was appointed Buccaneer's president. In March 2008, Buccaneer and Riviera entered into a Lease and Purchase Agreement ("LPA"), whereby Buccaneer agreed to (1) pay $45, 000 per month for 24 months in exchange for the right to operate and produce gas from Riviera's leases; (2) drill four new gas wells, contingent on its securing a reasonable transportation agreement for gas from the new wells; and (3) use diligent efforts to obtain the transportation agreement, acquire rights of way, and lay pipeline to connect three wells to the RM System. The LPA also gave Buccaneer an option to purchase Riviera's leases, wells, and related assets within the 24-month period for $32 million.

         Buccaneer immediately began pursuing a means for transporting its expected gas production. On March 3, 2008, Mr. Gale sent GEC a formal request for a transportation agreement on the RM System. Mr. Gale followed up on the request several times. He also contacted SG to express Buccaneer's interest in buying into, or securing a transportation agreement on, the Bull Mountain Pipeline, which was expected to be finished in 2009.

         On June 30, 2008, GEC sent Buccaneer a draft transportation agreement that provided for a transportation rate of $1.52 per MMBtu for interruptible service. On July 12, 2008, Buccaneer returned a revised draft that kept GEC's rate but altered the interruptible-service provision such that GEC could interrupt service only if it could not gather Buccaneer's gas using commercially reasonable efforts, rather than at its sole discretion. Buccaneer also added language requiring GEC to comply with the common-carrier obligations of its pipeline operating permit and the Mineral Leasing Act of 1920. GEC responded with another draft on August 5, 2008, this time raising the transportation rate to $3.92 per MMBtu, reinserting the discretionary interruptible-service provision, and removing the common carrier provision. Buccaneer did not counteroffer again.[5]

          In September 2008, Buccaneer sent SG an offer to pay for 15 percent of the cost of constructing the Bull Mountain Pipeline in exchange for a 10 percent ownership interest. SG sent a counteroffer, indicating it would sell a 10 percent interest for 20 percent of the cost, but Buccaneer did not respond.[6]

         From March to October 2008, Buccaneer used much of its investors' capital contributions and loans-which totaled $558, 000-to make its monthly $45, 000 lease payments to Riviera. All told, Buccaneer incurred over $1.2 million in start-up costs. Buccaneer's investors pulled out in late-fall 2008. At the time, Buccaneer had failed to secure a transportation agreement, the country was in the midst of an economic collapse, and natural gas prices had fallen dramatically in recent months. Buccaneer failed to make its November payment to Riviera, and on December 1, 2008, Riviera terminated the LPA. Buccaneer never produced gas from Riviera's leases.

         Riviera filed its own lawsuit against Defendants on November 14, 2008, alleging antitrust and other claims. See Riviera Drilling & Expl. Co. v. Gunnison Energy Corp., No. 08-cv-02486-REB-CBS, 2010 WL 582159, at *1 (D. Colo. Feb. 12, 2010) (unpublished). Buccaneer was not a party to that case. In February 2010, Riviera filed for Chapter 11 bankruptcy, and shortly thereafter, its lawsuit against Defendants was dismissed with prejudice for failure to prosecute. Id. at *3-4.[7] As part of an April 2014 settlement agreement resolving an adversary proceeding connected to Riviera's bankruptcy, GEC obtained all of Riviera's leasehold interests in the RM Area.

         In July 2014, following years of post-construction disputes and delays, the Bull Mountain Pipeline became fully operational. The RM System was decommissioned soon thereafter.

         B. Procedural History

         Buccaneer filed this case on June 21, 2012. Buccaneer asserted that the RM System "was essential to effective competition for production rights and the sale of natural gas from the Ragged Mountain Area" and claimed that, by refusing to provide Buccaneer access to the RM System on reasonable terms, Defendants had engaged in a conspiracy in restraint of trade and a conspiracy to monopolize in violation of § 1 and § 2 of the Sherman Act, respectively.[8]

         Defendants separately moved for summary judgment before discovery was complete, but the district court denied their motions. After discovery concluded, Defendants again separately moved for summary judgment. Each argued, among other things, that Buccaneer (1) lacked antitrust standing and (2) had not presented sufficient evidence of a conspiracy or of harm to competition in a relevant antitrust market and thus could not establish its antitrust claims.

          Buccaneer filed separate responses in opposition to Defendants' motions and submitted with them several expert reports, including the joint report of Drs. Mark Dwyer and Michael Harris. This joint report corroborated Buccaneer's claims of concerted anticompetitive conduct and alleged two distinct harms to competition flowing from that conduct: harm to the market for upstream production rights and harm to the market for downstream sales of natural gas. Dr. Dwyer addressed the former, Dr. Harris the latter. Based on the contents of this report, Buccaneer maintained that it had, at the very least, demonstrated genuine issues of fact on both of its antitrust claims and thus was entitled to a trial. Buccaneer also argued it had antitrust standing, focusing principally on the question of its preparedness to begin gas production operations at the time it allegedly was excluded from the RM System.

         After holding a hearing on the motions, the district court issued a written order granting summary judgment for Defendants on each of Buccaneer's antitrust claims. The district court first found that reasonable jurors could conclude Defendants conspired to deny Buccaneer reasonable access to the RM System and "intentionally blocked Buccaneer from entering into competition with them as producers of gas in the Ragged Mountain Area." Nonetheless, the court concluded Defendants were entitled to judgment "because Buccaneer lacks evidence showing that the defendants caused or were capable of causing injury to competition in a defined market, as opposed to simply harm to Buccaneer, and because Buccaneer has not established antitrust standing." The district court's latter conclusion was based primarily on its finding that Buccaneer, as a nascent competitor, had not carried its burden of demonstrating preparedness to enter the market. Buccaneer timely appealed. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

         III. DISCUSSION

         Buccaneer challenges both of the district court's alternative bases for granting summary judgment in Defendants' favor. First, Buccaneer argues the district court erred in concluding Buccaneer presented insufficient evidence of harm to competition in a relevant market, and for that reason, failed to establish its claims under § 1 and § 2 of the Sherman Act. To the contrary, Buccaneer asserts it did show harm to competition in a relevant market and that, with respect to its § 2 conspiracy claim, it was not required to make that showing. Second, Buccaneer argues the district court erred in concluding Buccaneer was not prepared to enter the market from which it allegedly was excluded and therefore lacked antitrust standing under § 4 of the Clayton Act. See 15 U.S.C. § 15.

         Like Buccaneer (and the district court), we begin with the ultimate issue of whether Buccaneer can survive summary judgment on its antitrust claims. We review the district court's grant of summary judgment on these claims de novo. Ben Ezra, Weinstein, & Co. v. Am. Online Inc., 206 F.3d 980, 984 (10th Cir. 2000). Addressing each of Buccaneer's claims in turn, we conclude Buccaneer failed to present sufficient evidence to survive summary judgment on either one of them, and we therefore affirm the district court's judgment on that basis.[9]

          A. Buccaneer's § 1 Claim

         Section 1 of the Sherman Act prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States." 15 U.S.C. § 1. Despite its semantic breadth, § 1 has long been construed to outlaw only concerted conduct by two or more separate entities that unreasonably restrains trade. See Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 289 (1985) (citing Chicago Bd. of Trade v. United States, 246 U.S. 231, 238 (1918)) (only unreasonable restraints); Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 767-68 (1984) (only multilateral conduct). Thus, a plaintiff asserting a claim under § 1 must prove not only the existence of an agreement or conspiracy between two or more competitors to restrain trade, but also that the restraint is unreasonable. See Systemcare, Inc. v. Wang Labs. Corp., 117 F.3d 1137, 1139 (10th Cir. 1997). Our focus here is limited to this latter requirement.[10]

         There are "two main analytical approaches for determining whether a defendant's conduct unreasonably restrains trade: the per se rule and the rule of reason." Gregory v. Fort Bridger Rendezvous Ass'n, 448 F.3d 1195, 1203 (10th Cir. 2006) (internal quotation marks omitted). The rule of reason is the default approach, and there is a presumption in favor of its application. Id. Under rule-of-reason analysis, courts seek to ascertain the extent to which challenged conduct harms competition and to then determine whether any such harm is nonetheless justified by countervailing procompetitive benefits. See SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 963 (10th Cir. 1994). The per se rule, on the other hand, is reserved for "agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Nw. Wholesale, 472 U.S. at 289 (internal quotation marks omitted). Per se treatment "is appropriate only in 'relat[ion] to conduct that is manifestly ...


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