Virginia Vermiculite, Ltd. v. W.R. Grace & Co.

1998-2 Trade Cases ¶ 72,252 (4^th Cir. 1998)

   LUTTIG, Circuit Judge:

   Virginia Vermiculite, Limited and M.F. Peers, Jr. and Norma Peers appeal from the district court’s dismissal of their claims against W.R. Grace & Company and Historic Green Springs, Inc., brought under §1 of the Sherman Antitrust.  Reviewing the district court’s dismissal de novo, we reverse.

I.

   Appellant Virginia Vermiculite, Limited (“VVL”) and appellee W.R. Grace & Company (“Grace”) are the only domestic producers of vermiculite, a unique mineral used in fire safety, energy conservation, construction, environmental protection, food processing, and horticulture. Appellee Historic Green Springs, Incorporated (“HGSI”) is a nonprofit organization that seeks to protect the Green Springs National Historic Landmark District in western Virginia. For approxi­mately twenty years, HGSI has conducted a campaign to prevent vermiculite mining in the Green Springs region. Appellants Peerses are family members who sold land containing vermiculite deposits to Grace, subject to royalty agreements.

   Vermiculite is a relatively rare mineral. Only South Carolina and Virginia have known and usable vermiculite reserves….From 1972 to 1976, Grace purchased mining rights to over 80% of the known vermiculite deposits in Virginia. Grace acquired some of this land from members of the Peers family, including appel­lants Peerses, in return for a lump sum and royalties on any vermiculite mined from the land. In exchange for these royalties, the Peerses agreed in writing that Grace, and its successors in interest, would retain “sole discretion” over whether to mine the land. Grace, however, never mined any of its Virginia deposits and consequently did not pay the Peerses any royalties.

   In 1976, VVL entered the vermiculite market by obtaining rights to one of the few Virginia deposits not already held by Grace. By the early 1990s, VVL’s share of the domestic vermiculite market had grown to approximately 23%. Grace, however, owned more than 80% of the mining rights to known vermicu­lite deposits in the United States, while VVL was rapidly depleting the deposits to which it had access. In 1991, Grace invited VVL to make an offer to purchase Grace’s vermiculite holdings in Virginia. VVL duly made an offer, which was rejected by Grace. Grace thereafter donated its holdings to HGSI. These hold­ings, comprising over 40% of the known vermiculite deposits in the United States, covered almost 1400 acres of land located in and around the Green Springs region. VVL alleges that the purpose of the donation was to prevent VVL from obtaining access to the vermiculite deposits on the land.

   [Grace’s donated land in two parts.  The first (1152 acres) included covenants barring vermiculite mining on the land, which Grace retained the right to waive. A Virginia court later invalidated these covenants.  Consequently, the second transfer to HGSI (229 acres) omitted any such covenants. VVL alleges, however, that Grace and HGSI had an unwritten understanding that HGSI would not allow vermiculite mining on the land]

   [On February 21, 1995], VVL brought suit against Grace and HGSI (“the VVL suit”).  [The complaint alleged violations of §§1 and 2 of the Sherman Act, as well as analogous portions of the Virginia Antitrust Act.]   On March 12, 1996, VVL, which had obtained interests in the claims of various members of the Peers family, and appellants Peerses brought two additional lawsuits against Grace (“the Peers suits”). ...

   The district court concluded that VVL and the Peerses had failed to state a claim for an agreement, combination, or conspiracy in restraint of trade under section 1 of the Sherman Act.  ...  Second, the district court held that HGSI was entitled to an exemption from the antitrust laws.. It thus dismissed HGSI from the VVL suit entirely.  Third, the district court concluded that VVL and the Peerses had failed to state a claim under Virginia law in the Peers suits. Therefore, it dismissed the remainder of those suits.  VVL and the Peerses subsequently brought this consolidated appeal, challenging all three rulings.

II.

    Appellants first assert that the district court erred in finding that they failed to state a claim under §1 of the Sherman Act. We agree. The district court dismissed appellants’ §1 claims on the ground that appellants failed to demonstrate a suffi­cient causal relationship between their alleged injury and appellees’ alleged vio­lation of the antitrust laws.  Specifically, the court reasoned that any injury to appellants was unavoidable because HGSI, or its successors in interest, would not have allowed vermiculite mining on the donated lands even absent the non­mining agreements between HGSI and Grace. This reasoning is faulty for two reasons. First, appellants sufficiently alleged that HGSI, or its successors in interest, might eventually have allowed vermiculite mining on the donated lands in the absence of the nonmining agreements. In this regard, of course, appellants need only make a “colorable” showing that it was “reasonably probable” that the behavior in question caused their injury.  [Citations]  Such a low standard is par­ticularly justified in this context because “in antitrust cases, where ‘the proof is largely in the hands of the alleged conspirators,’ dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly.” Hospital Bldg. Co. v. Trustees of the Rex Hosp., 425 U.S. 738, 746 (1976) (quoting Poller v. CBS, 368 U.S. 464, 473 (1962)) (citation omitted).

   Appellants meet this standard. VVL acknowledged in its complaint that elimi­nating vermiculite mining was “one of HGSI’s avowed goals.” It also claimed, however, both that HGSI had other goals and that its management and members had financial interests of their own in the land in question.  By alleging that HGSI had goals beyond eliminating vermiculite mining and that its management and members individually had financial interests in the land in question, appel­lants sufficiently raised the specter either of possible mining by HGSI or its agents or of sale of the land to another for mining. As appellants observe, it is not at all implausible that HGSI might have chosen to mine the reserves in order to pursue other of its goals or even to preserve its financial stability. Indeed, appel­lants represent that HGSI has already sold some of the land.  The fact that the parties saw the need to enter into the nonmining agreements at all yet further supports the inference that HGSI had other goals beyond preservation, as the nonmining agreements would have been superfluous to the donation were HGSI committed solely to the elimination of mining.

   Second, the district court simply misconstrued the nature of appellants’ §1 allegations. Rather than asserting that the nonmining agreements alone consti­tuted an agreement, combination, or conspiracy in violation of §1, both VVL and the Peerses alleged that the entire transaction between Grace and HGSI—com­prising both the donation of the lands and the nonmining agreements—consti­tuted such an agreement, combination, or conspiracy.  Consequently, the relevant question for causal purposes is not whether HGSI would have allowed mining in the absence of the nonmining agreements, but rather whether Grace would have allowed mining in the absence of both the donation and the nonmining agree­ments. Absent its transaction with HGSI, Grace may even have been required to grant VVL access to its Virginia holdings, on the ground that failure to do so would constitute an improper unilateral refusal to deal. See Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985); Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 483 n. 32 (1992). Further, even if Grace lawfully could have donated the lands to HGSI without the nonmining agreements, it is foreclosed from challenging causation simply on the basis that it could have achieved the same result through lawful means. See LeeMoore Oil Co. v. Union Oil Co., 599 F.2d 1299, 1302 (4^th Cir.1979) (holding that, when an antitrust plaintiff alleged damages resulting from the defendant’s concerted refusal to deal, “the fact that [the defendant] might have caused the same dam­ages by a lawful [unilateral] cancellation of the contract is irrelevant”). For these reasons, the district court erred in dismissing appellants’ §1 claims. 1

III.

   Appellants next argue that the district court erred in dismissing their claims against HGSI. We agree.  The district court dismissed appellants’ claims against HGSI on the ground that HGSI is exempt from the antitrust laws because it is a nonprofit organization pursuing noncommercial, sociopolitical objectives. 965 F.Supp. at 815. We hold that, regardless of whether an “exemption” for nonprofit organizations exists, HGSI does not qualify for such an exemption here because the transaction between HGSI and Grace was fundamentally commercial.

   Section 1 of the Sherman Act includes no reference to an exemption for non­profit organizations, stating instead that “[e]very person” who acts in restraint of trade or commerce falls within its scope. In interpreting §1, the Supreme Court has repeatedly confirmed that nonprofit organizations are not exempt from the section’s reach. See NCAA v. Board of Regents, 468 U.S. 85, 100 n. 22 (1984); American Soc’y of Mechanical Eng’rs, Inc. v. Hydrolevel Corp., 456 U.S. 556, 576 (1982); Goldfarb v. Virginia State Bar, 421 U.S. 773, 786-87 (1975).

   A number of our sister circuits have held that, in certain circumstances, non­profit organizations are not subject to antitrust liability. [Citations]  When these cases are examined closely, however, this seeming “exemption” is not really an exemption at all, but a straightforward interpretation of the plain language of §1, which prohibits only restraints of “trade or commerce,” not noncommercial behavior. See, e.g., United States v. Brown Univ., 5 F.3d 658, 666 (3d Cir.1993) (applying antitrust laws to nonprofit universities on the ground that payment of tuition in return for education constitutes “quintessential commercial trans­action,” with classification of transaction as commercial based on “totality of surrounding circumstances”).  Regardless of how the “exemption” for nonprofit organizations engaging in noncommercial behavior is characterized, however, HGSI is subject to the antitrust laws in this case because the transaction between HGSI and Grace was essentially commercial. We emphasize that the dispositive inquiry is whether the transaction is commercial, not whether the entity engaging in the transaction is commercial. Ample evidence suggests the commercial nature of the transaction here. First, as the district court recognized, the transaction between HGSI and Grace had obvious effects on the commercial market for ver­miculite: by constraining the supply of vermiculite, the transaction increased the price of the mineral.  Further, as the district court also acknowledged, the trans­action had direct commercial benefits for HGSI itself: by receiving hundreds of acres of land, HGSI not only realized a substantial “pecuniary gain,” but also protected the alleged commercial interests of its management and members, which might be affected by mining of the land.

   Even were we to hold that HGSI was somehow “exempt” from the antitrust laws by virtue of being a nonprofit organization, the Supreme Court has held, in the context of other exemptions, that an organization that would otherwise be exempt from the antitrust laws loses its exemption by conspiring with a non­exempt party.  See Allen Bradley Co. v. Local Union No. 3, 325 U.S. 797, 809-10 (1945) (labor exemption); United States v. Borden Co., 308 U.S. 188, 204-05 (1939) (agriculture exemption). Moreover, it is not necessary that HGSI have shared Grace’s alleged anticompetitive motive in entering into a proscribed restraint; it is sufficient that HGSI, regardless of its own motive, merely acqui­esced in the restraint with the knowledge that it would have anticompetitive effects. See Hydrolevel, 456 U.S. at 573-74 (holding nonprofit organization liable regardless of whether its agents acted with intent to benefit organization, pro­vided restraint had anticompetitive effects); United States v. Paramount Pictures, Inc., 334 U.S. 131, 161 (1948) (“[A]cquiescence in an illegal scheme is as much a violation of the Sherman Act as the creation and promotion of one.”); Duplan Corp. v. Deering Milliken Inc., 594 F.2d 979, 982 (4^th Cir.1979) (per curiam) (“Where, as here, the [defendants] were knowing participants in a scheme whose effect was to restrain trade, the fact that their motives were different from or even in conflict with those of the other conspirators is immaterial.”). In assessing whether HGSI is subject to the antitrust laws for its participation in the trans­action with Grace, the only relevant inquiry is into the nature of the transaction, not the nature of HGSI’s motive. Because the transaction at issue in this case was fundamentally commercial, the district court erred in dismissing HGSI as a defendant.2

NOTES and QUESTIONS

   1.    Note that the Court of Appeals renders this opinion based on the assumption that the plaintiffs’ factual allegations in the complaint are true. Looking towards a subsequent motion for summary judgment by defendants, which if any of  the essential factual allegations might be proven untrue?

   2.    Have the defendants now lost definitively on the “causation” issue?

   3. Remember that antitrust law is basically tort law.  What argument(s) might HGSI have that it neither shared Grace’s purpose nor was aware (or should have been aware) that there was a possible anticompetive effect?

   4.    When, if ever, would a party to a contract that serves an anticompetitive purpose for the other party not become subject to a §1 charge?

   5.    Do you agree with the court’s criteria for what constitutes a “commercial” transaction?  Note the evidence it cites on  p. 4 , above.

   6.    What is your prediction as to the outcome of this case?