Transcript

IN THE SUPREME COURT OF THE UNITED STATES

KANSAS AND MISSOURI, ETC. Petitioners v. UTILICORP UNITED, INC.

No. 88-2109

April 16, 1990

The above-entitled matter came on for oral argument before the Supreme Court of the United States at 11:02 a.m.

APPEARANCES:

THOMAS J. GREENAN, ESQ., Seattle, Washington; on behalf of the Petitioners.

FLOYD R. FINCH, JR., ESQ., Kansas City, Missouri; on behalf of the Respondent.

LAWRENCE S. ROBBINS, ESQ., Assistant to the Solicitor General, Department of Justice, Washington, D.C.; on behalf of United States, as amicus curiae, supporting Respondent.

PROCEEDINGS

11:02 a.m.

CHIEF JUSTICE REHNQUIST: We'll hear argument next in Number 88-2109, Kansas and Missouri v. UtiliCorp United, Inc.

Mr. Greenan.

ORAL ARGUMENT OF THOMAS J. GREENAN ON BEHALF OF THE PETITIONERS

MR. GREENAN: Mr. Chief Justice, and may it please the Court:

The principal question before the Court this morning is whether or not the rule that has been set forth in Hanover Shoe v. United Shoe Machinery, and in Illinois Brick v. Illinois, that gives the claim for overcharges in an antitrust case to the direct purchaser is entirely without exception. In this instance we are talking about an antitrust case involving the sale of natural gas by regulated utilities from the wellheads in Wyoming to residential consumers in the states of Kansas and Missouri.

We have a situation where formal cost-plus pricing is the rule. We have an extensive system of Federal and state regulation that requires a 100 percent pass-on of any increase or decrease in the cost of natural gas from the wellhead to the burner tip. We have in place a contract in the form of a purchased-gas adjustment mechanism, which provides that that pass-on shall be complete and that it shall be immediate.

QUESTION: Mr. Greenan, you say the 100 percent pass-on is required from the wellhead to the burner. You're saying, then, I take it, the utility corp -- utility commission in the state must require that a utility pass on all of the cost?

MR. GREENAN: Yes, Your Honor. The purchased-gas adjustment mechanism is set forth at Tab 3 of the Addendum to the Joint Brief that was filed in the Tenth Circuit, and it does -- it is -- does mandate that it shall be passed on.

QUESTION: And is that a Federal rule?

MR. GREENAN: That is a state rule. It is also contained in the purchased-gas adjustment mechanism promulgated by the Federal Energy Regulatory Commission, yes, Your Honor.

QUESTION: Well, if it were just a state rule, I suppose some states might have it and some states might not.

MR. GREENAN: No. In this instance the -- the interstate pipeline is regulated by the Federal Energy Regulatory Commission. Their purchased-gas adjustment mechanism requires a pass through. In this particular instance the states of Kansas and Missouri are -- the local utility distributors are regulated by their state commissions, and there are purchased-gas adjustment mechanisms on the state level that have that same requirement.

QUESTION: So what you are speaking then is -- from wellhead to burner, is true of residential consumers in Kansas and Missouri?

MR. GREENAN: I believe that it is established in the brief of the amicus, the State of Illinois, Your Honor, that those are present in 40 states.

QUESTION: 40 states --

MR. GREENAN: 40 states.

QUESTION: -- by virtue of the rulings of public utility commissions?

MR. GREENAN: That is correct, Your Honor.

One particular item of interest in this case is that the states are proceeding parens patriae pursuant to 15 U.S.C. 15(c), and in that instance that they are representing residential consumers who are natural persons in their non-business capacity. These residential consumers, the record is clear, do not have the ability to switch to alternative fuels, at least in the short term. They have in place their heating plants, their natural gas furnaces. And in order for them to make a switch to an alternative type of fuel it would be necessary to change to some other type of heating and to go through --

QUESTION: Well, I guess they could just turn the register down and be a little colder in the winter and a little hotter in the summer.

MR. GREENAN: Certainly.

QUESTION: And might affect the total usage.

MR. GREENAN: That is correct, Your Honor. In fact, I think we have to concede that that in fact has happened.

QUESTION: So this isn't a fixed quantity contract.

MR. GREENAN: It is not a fixed quantity contract.

QUESTION: And the language, at least in Illinois Brick, referred to a fixed quantity pass through.

MR. GREENAN: That is correct. The reference in Illinois Brick was to cost plus a fixed quantity. The reference --

QUESTION: So you propose that -- that the Court find an additional exception in --

MR. GREENAN: No, I think, Your Honor, it is the same exception. What -- the way the Court described it in Illinois Brick was that it was a situation where it would be easy to demonstrate that the direct purchaser had not absorbed any part of the overcharge, but that it had been passed on. And in that instance the regulation that we have in place here operates exactly as does a cost-plus fixed quantity contract.

QUESTION: Do you think we could be assured that the residential consumers would have the same incentive to sue that the Court found was important in Illinois Brick for the -- in this case, direct purchasers, the utilities?

MR. GREENAN: I think yes. One of the concerns of Illinois Brick was that there be vigorous enforcement of the antitrust laws. In this situation we have the attorneys general asking permission to proceed parens patriae on behalf of the residential consumers, so I don't think that that is a concern. We have chief law enforcement officers --

QUESTION: But there would be a general concern by the Court if we are to articulate a general rule. Is there any empirical indication that these indirect purchasers --

MR. GREENAN: I think there is, Your Honor.

QUESTION: -- would vigorously pursue?

MR. GREENAN: Let's put them side by side with the utility. What we have to understand is that in the regulated industry the utility is not really making a profit on buying and selling natural gas. It is not a product that it receives, marks up and passes on. Rather, it carries it through from the point of origin to the consumer. As the -- testimony of Mr. David Black, who was the senior vice president and general counsel for one of the utilities says, we merely perform a transportation service. We take title to the gas for the few hours that it requires for us to get it from the wellhead to the burner tip, and then we charge them penny for penny, dollar for dollar, whatever the cost is to us, and that is shown forth on their bill.

Now, if that is the situation, the utility then does not earn a profit on the sale of natural gas. A utility makes its money by a guaranteed rate of return on its invested capital. It is allowed to earn so much to return that investment, and so much by way of a return on the investment.

QUESTION: Yes, but that -- but that return, as I understand it, unless these rate-making bodies operate quite differently from what I am familiar with, that rate is established now for next year.

MR. GREENAN: That is correct.

QUESTION: Isn't that right? So next year, if I end up selling more gas than the state really expected me to sell, I keep the difference. Right?

MR. GREENAN: That is correct.

QUESTION: I mean, the effect of regulatory lag is that if I sell more gas I get the -- now, the state will get back at me the next time we have a rate making, right, and they will cut it back down. But I get a profit on the basis of selling more gas than the state expected me to sell. And I lose money by selling less gas than the state expected me to sell.

MR. GREENAN: In the short run, that is true, Justice --

QUESTION: Well, but life is in the short run. We are just talking annual profits here.

MR. GREENAN: That -- that situation is unaffected by the facts of this case. The point that I was making was in answer to Justice O'Connor's question as to what was the incentive here. And Your Honor I think just pointed it out well. In the rate-making case, the rates are established based upon what level of sales is necessary in order to achieve that guaranteed rate of return. And as you have observed, if the utility sells more gas than it had expected, it keeps that. If it sells less gas than that it does not achieve its rate of return. So what does it do? It goes back to the utility commission and it files a new rate case, and it says that our historic sales are now below what we had before. We need a higher percentage --

QUESTION: In the future.

MR. GREENAN: In order to get the rate of return.

QUESTION: In the future. But it has lost the money for the past if -- if its volume of sales has gone down because its rates have been higher.

MR. GREENAN: Exactly. And that is what Judge Posner, in the Panhandle Eastern case, said was a lost profits damage that was for sales that were not made, has nothing to do with the overcharge for the sales that were made and were passed on.

QUESTION: Oh, I -- I agree with that.

MR. GREENAN: Okay.

QUESTION: But it does not demonstrate -- you answered Justice O'Connor by saying that the Illinois Brick theory was if you can be sure that the intermediate purchaser has not been harmed it's -- it's okay to apply Illinois Brick. But we can't be sure that the intermediate purchaser here has not been harmed, can we?

MR. GREENAN: I don't believe that Illinois Brick says that you can be sure that the intermediate purchaser not be harmed. What Illinois Brick does say is that we do not want to get involved in the questions as to output determinations and price determinations that exist in the real world, as distinguished from the economist's model. We are not going to get involved in the interplay of supply and demand forces as to what affect prices.

But Illinois Brick itself said if it can be easily demonstrated that the overcharge -- that the direct purchaser did not absorb the overcharge, then it might be that there would be an allowance of a recovery by the indirect purchaser. And that was reaffirmed by the Court recently in the observations that were made in California v. ARC America.

QUESTION: But he does absorb some of the -- of the overcharge, does he not, if he loses sales by reason of the overcharge? If he is selling a product that not as many people buy, and therefore he loses some of the profit he would otherwise have made.

MR. GREENAN: He loses some of the profit. He does not pay any of the overcharge. And that is the point, I think, the real point of distinction. We are looking at several things with Illinois Brick. We want vigorous enforcement of the antitrust laws. We also want to see, if it is possible, that the people who were injured are compensated. In this particular instance there is no difficulty in demonstrating from wellhead to burner tip that that overcharge went down the line and was paid by the people at the end of the line.

Now, if the utility lost profits because of a decline in sales, then that is a claim which the utility has and which the utility can make. This Court has never been concerned with whether there were multiple parties in antitrust litigation. This Court has never said that we are going to only allow claims for overcharges, or that we are only going to allow claims for lost profits.

Going back to Bigelow and Storey Parchment, all of the seminal cases on damages, the Court has recognized that there can be claims for lost profits, that there can be claims for decrease in -- or increase in the amount of operating costs, that there can be claims for loss of investments, and all of these are separate and distinct claims.

In this particular instance, Justice Scalia, the proof will not change one iota by giving the claim to the residential consumer. The utility will still have to make its claims and make its proof with regard to those lost sales.

QUESTION: So you say that you can concede easily that the -- both the utility and the consumer has been hurt, but at least you know for sure, because the law requires the pass-on, exactly how much the consumer has been hurt.

MR. GREENAN: That is correct.

QUESTION: Now, you wouldn't -- you wouldn't -- would you be making the same argument if the law did not require the pass-on?

MR. GREENAN: No, Your Honor, I --

QUESTION: Because then you really would get into a real bog, wouldn't you?

MR. GREENAN: Yes. We -- we in no way, Your Honor, are -- are trying to deviate from what the Court's reasoning was in Illinois Brick. We have here a mandated pass-on where, in the words of the Court, it's easy to prove that the direct purchaser did not absorb the overcharge. And in that instance Illinois Brick, and indeed in the various cases that the Court has referred to Illinois Brick since then, recognized that this might be an appropriate situation.

QUESTION: Your opposition suggests that if the utility recovers, makes the entire recovery, that it would have to pass on to the consumer the windfall.

MR. GREENAN: UtiliCorp concedes that, Your Honor. The government says that they can't concede.

QUESTION: I know. I know, but I would suppose -- do you agree that they would have to?

MR. GREENAN: I think that is a question that is up to the various regulatory bodies.

QUESTION: But if it is, then there would be the problem right there of separating out the two injuries.

MR. GREENAN: If -- if -- that would be a problem on the administrative level if --

QUESTION: Well, it wouldn't be any problem at all if you know precisely how much was passed on.

MR. GREENAN: We -- and we do know, of course, precisely how much is passed on.

The -- the question of what the regulatory agencies are going to do when that is before them is one that we can only speculate on. The government chose to speculate on it in its brief --

QUESTION: But if they would -- but if -- even assuming that they would do that, why then, then the assumption is that you can identify easily how much was passed on.

MR. GREENAN: Certainly. Certainly. You can identify easily how much was passed on in this instance without a doubt.

QUESTION: I guess you can read it off the utility bills to the --

MR. GREENAN: You can read it off the utility bills. You can read it --

QUESTION: -- residential consumer.

MR. GREENAN: Right. There are forms, referred to as Form 2s, that are filed with the Federal Energy Regulatory Commission that shows how much the pipeline passed on. There are filings that are made by the local utility districts of the various state regulators -- regulators that show the volumes to each class of customer and the prices to each class of customer.

Now, one major problem that we have here in this question of vigorous enforcement is that the utilities who brought this litigation do not represent all of the consumers who purchase natural gas that was involved in this alleged illegal price fix. We have a significant number of consumers, some 50,000, maybe as much as 20 percent of the gas consumers in eastern Kansas, who purchased from utilities other than the ones that chose to bring these lawsuits.

QUESTION: Well, we have no indication here that the states would have brought the lawsuit on their own. Didn't they come in after the fact --

MR. GREENAN: Three months later.

QUESTION: -- after the utilities had filed the suit, and kind of piggybacked on their suit?

MR. GREENAN: I would say piggybacking is not correct, Your Honor. We filed three months after the first case was filed. The first case was filed in April of 1985. The state case was filed in July of 1985, I believe. UtiliCorp, the utility that is here before the Court, filed their case in 1985, dismissed it in 1986, for what reason only they can tell us --

QUESTION: Voluntary dismissal?

MR. GREENAN: Voluntary dismissal. And then asked and received permission to file again in October of 1987, very shortly before these motions for summary judgment were brought.

Now, the defendants in the litigation claim that their claims, the claims of UtiliCorp, are time barred. And indeed it appears that they do have very significant statute of limitations problems.

So relying upon the utilities here means, first of all, that there are any number of consumers that are not represented by the utilities. And secondly, if it is the utility UtiliCorp that has this claim, rather than the attorneys general as parens patriae, those claims may well be time barred.

QUESTION: As to the consumers in eastern Kansas that you are -- were they served by a utility which would have had a claim, but the utility --

MR. GREENAN: Yes.

QUESTION: -- simply didn't bring a lawsuit?

MR. GREENAN: Yes, Your Honor. It's Union Natural Gas, and I believe it is at Tab 2 or 3 of the Addendum to our Joint Brief.

QUESTION: Well, if everybody else ends up winning these cases, I assume that the regulating authority could make that utility pay dearly for not -- for not having brought a suit, and simply say you'll -- you'll not be allowed to charge as much next time around, in order that the consumers whose money you have frittered away can be made whole.

MR. GREENAN: But why? But why would the --

QUESTION: But why? It would be considered not sound business practices. You have been running a sloppy operation, not bringing suits for money that you're entitled to.

MR. GREENAN: But why, Your Honor, should I, the utility, bring this suit when you are going to make me disgorge, if that is the situation? Why should I -- why should I bring this suit if in fact it is going to go back to the -- to the end-user? After all, we just perform a transportation service. We just bring this stuff down --

QUESTION: May I interrupt there? Is it clear that treble damages will all go to the end-users if they prevail? Has that ever been decided by --

MR. GREENAN: It has never been decided.

QUESTION: So how can --

MR. GREENAN: The government says -- the government says we don't concede that a regulator would make them give up the double and triple damages. I suggest to the Court then in -- in an instance where they have had a pass through dollar for dollar, where they have the guaranteed rate of return so that they can come back to have their rates adjusted within a short period of time, that it is highly unlikely that any regulators are going to let them keep that, because it will be a total windfall that should have gone to the people that paid for the natural gas. But we don't know. It's -- it's up to the regulators.

QUESTION: Well, it seems to me it's an unresolved question, what happens to the two-thirds profit in treble damage litigation.

MR. GREENAN: That is correct.

QUESTION: Mr. Greenan, what does the state do with the money? You sue as parens patriae, do you get it back to the actual people who were overcharged, or does it go into the general state funds? What -- what happens to it?

MR. GREENAN: Well, those two alternatives exist under 15 U.S.C.15(d), I believe, Your Honor -- or 15(a).

QUESTION: Either one.

MR. GREENAN: Either one. Either that it goes back to the people, or that it goes into the state general fund for the benefit of everyone. In this --

QUESTION: Which wouldn't necessarily be rate payers.

MR. GREENAN: Would not necessarily be rate payers.

QUESTION: And anybody that has moved out of the state since these overcharges were made, they are just out of luck, I guess, if they have moved to New Jersey?

MR. GREENAN: Probably, if they have moved to New Jersey. But the most likely thing --

(Laughter.)

MR. GREENAN: Rather than some other state. But the most likely thing in this instance is that because these people who do now still live within Kansas or Missouri and purchase natural gas within those states are known and can be identified, that the recovery, whatever it may be, can be returned to them, either in the form of dollars or in the form of reduced charges for natural gas purchased down the line.

QUESTION: Do we know, does the record disclose what would happen to the recovery, if any, if the states were allowed to proceed?

MR. GREENAN: All the record shows, Your Honor, is what the authority is under the parens patriae statutes.

QUESTION: Which could be either, keep it or not.

MR. GREENAN: Could be either. Yes, could be either, Your Honor. I am just saying that the most likely, because of the easiness with which to identify them. And I believe that that is up to the Court.

QUESTION: What happens to the commercial purchasers, Mr. Greenan? You say that this is just residential purchasers. What about the overcharges made that were passed through to commercial purchasers? How -- what happens to that if you win this case?

MR. GREENAN: If we win this case, Your Honor, that belongs to the utilities, because the commercial purchasers are neither natural persons in the ordinary sense, and they are businesses which doesn't allow parens patriae recovery. But also --

QUESTION: Could they bring suits on their own, not relying on the state's parens patriae?

MR. GREENAN: They could, Your Honor, they could, but I think they would be faced with Judge Posner's reading, Judge Posner's reasoning as to why he would only allow it to the residential consumers. And that is because in the commercial and industrial area there is a significant number of users that have the ability to switch to alternative fuels, that have the capacity by flicking a switch to go from oil to gas, let's say, or from electricity to gas.

And that ability creates the interplay of supply and demand which does not exist at the residential level, and which was the reason why Judge Posner said I would not allow it for --

QUESTION: What if I am an individual commercial purchaser that doesn't have that capacity? Why shouldn't I be able to sue?

MR. GREENAN: I see no reason to distinguish, Your Honor.

QUESTION: I don't either.

MR. GREENAN: I see no reason to distinguish. In that instance it is easy to demonstrate that the utility did not absorb the overcharge.

QUESTION: But even in the residential consumer, as Justice O'Connor pointed out, there are some people who turn the thermostat down and have to buy an extra sweater.

MR. GREENAN: That's right.

QUESTION: And there is no way they can recover for that sweater.

MR. GREENAN: There is no way that they can recover for that sweater, right. But the cost of new insulation, the cost of putting in storm windows, all of the things that has followed this tremendous increase in the price of fuel, there is no way to recover for those. All we are talking about is the overcharge. All we are talking about is can we trace that overcharge and know exactly where it went. If we can, and we can, then it is easy to demonstrate.

QUESTION: But the problem isn't all that easy, because you don't know what the (inaudible) is.

QUESTION: Until you have a lawsuit.

MR. GREENAN: Until we have a lawsuit, right. But that -- that doesn't change --

QUESTION: You don't know how much the price went up.

MR. GREENAN: No, but that is true in any case, Your Honor. That is --

QUESTION: That may be, but who's going to -- who's going to take on that job of proving the conspiracy and the result on competition?

MR. GREENAN: In this particular instance it is the attorneys general acting parens patriae in the actions that they have brought. We have to prove what the allegedly illegal price was at the -- at the wellhead, and we have to prove what the but-for price would be if they had been competing. But that remains unchanged. Whether -- that problem of proof exists whether UtiliCorp has to do it or whether the state has to do it. The amount of the overcharge in every instance, in every instance, is going to be one that is litigated and proved, unless somebody comes in and says we overcharged them X -- X amount of money.

QUESTION: And as you -- you say that a group of consumers could bring the same suit you could, and they would not be barred by Illinois Brick?

MR. GREENAN: As long as it's easy to demonstrate, Your Honor, it's easy to demonstrate that that overcharge did not rest with the first purchaser.

QUESTION: Well, what do you mean that it was required by law to pass it on?

MR. GREENAN: The Federal -- the purchased-gas adjustment mechanisms which are in force on the Federal and state level require this pass-on. And they are mandatory.

QUESTION: Because they have to -- to set their rate they have to tell --

MR. GREENAN: It has nothing to do with rates. It's -- it's an immediate -- I am glad that you've mentioned this, Your Honor, because it is entirely different from rates. Every time the cost of natural gas goes up by one-tenth of one cent per mcf, that is one mil --

QUESTION: Yes.

MR. GREENAN: -- the purchased-gas adjustment mechanism goes into effect. The utility raises -- is -- the pipeline raises its price to the local utility. The local utility raises its price to the burner tip users.

QUESTION: And you have identified the statutory requirement in your --

MR. GREENAN: We have, at tab 3, Your Honor, set forth the purchased-gas adjustment mechanism.

QUESTION: Okay.

MR. GREENAN: And more than that, it is immediate in this sense, that the local utility district reports to the pipeline each month, after it has received the gas and delivered it, what its volumes have been that it delivered to each of its class of customers. And it is then, and only then, that it is billed for that gas by the pipeline, after it has made delivery. So it is -- it acts immediately that the local utility is billed and it bills -- it bills the end-user.

QUESTION: Does the mechanism also work for price decreases?

MR. GREENAN: Yes. The purchased-gas adjustment mechanism works both ways, Your Honor. Any increase or decrease in the price of natural gas, in the level of one mil per mcf in the purchased-gas adjustment mechanism.

QUESTION: That is just Federal, what you are referring to there?

MR. GREENAN: Yes, Your Honor.

Your Honor, I would like to reserve my remaining time for rebuttal, except to point out that there is the other issue that was raised on the briefs, with regard to 15 U.S.C. Section 4(c), and I would like to rely on what was said in the briefs in connection with that.

QUESTION: Very well, Mr. Greenan.

Mr. Finch.

ORAL ARGUMENT OF FLOYD R. FINCH, JR. ON BEAHLF OF THE RESPONDENT

MR. FINCH: Chief Justice Rehnquist, and may it please the Court:

I must disagree with Mr. Greenan about a number of issues, first about what the issue of Federal antitrust policy is before the Court today. The issue as we see it is whether this Court will continue to consolidate antitrust damage claims in an injured direct purchaser, or whether it will cloud the clear direct purchaser rule of Illinois Brick by creating a regulated utility exception.

There is no need, we submit, in this case to change the direct purchaser rule, which has been clear since 1968 at least, because in this case we have over 85 percent of the antitrust damages being pursued by KPL, which has over 75 percent of the damage claims, by UtiliCorp, with about 5 percent, and by the other municipal utilities which are represented, properly so, we contend --

QUESTION: Well, it does seem to be pretty much a windfall to the utilities, when 100 percent of it is passed on to the customers.

MR. FINCH: Well, Justice O'Connor, if I may, it's not true that 100 percent is passed on to the customers. It simply isn't true, and that's one point --

QUESTION: Well, what if it were?

MR. FINCH: If it were, then, I submit that this is the perfect case not to make an exception, because you would have a utility regulatory commission that can force those overcharges to be passed on to the people who actually paid them.

QUESTION: So you can identify them?

MR. FINCH: They can be identified --

QUESTION: Which is completely different from the Illinois Brick type of case.

MR. FINCH: It is different, but I must point out that there is no precise identification. I must disagree with Mr. Greenan on that score.

QUESTION: Why can't you read it off the utility bills? The increase.

MR. FINCH: Because the utility bills do not reflect all of the overcharge, Justice O'Connor. First, UtiliCorp uses natural gas itself. It is a direct purchaser. It uses it to heat its facilities, and it uses it in peaking units where it generates electricity.

QUESTION: Well, it may be that 100 percent of the damages aren't passed on, but you know to the -- you know the extent to which the consumer has been damaged.

MR. FINCH: We know that the consumers ultimately paid a majority -- by the consumers, I mean all consumers.

QUESTION: You know that the -- that because the price to the utility went up, that the price to the consumer went up also, to some extent.

MR. FINCH: Yes, Justice White, we do know that.

QUESTION: And you know precisely how much.

MR. FINCH: Well, we --

QUESTION: Once you find out what the -- what the price would have been.

MR. FINCH: At the close of discovery in the summer of 1989 our experts were finally able to determine the amount of the overcharge. The suit was filed in 1984, and it took approximately five years for that determination to be made.

QUESTION: But you made it.

MR. FINCH: Yes. Indeed it was made. But one thing that hasn't been made, Justice White, is a determination, an actual factual determination that 100 percent of the overcharge was passed on to all of the customers. That was assumed in the Tenth Circuit opinion. The district court did not find that, and there has never been a finding on that in this case. In fact, I would submit that there -- that not 100 percent of the overcharges were passed on, but some lesser number.

There are, for example, line losses, in that when you have pipes running all over the countryside, gas leaks out. And it doesn't get billed to consumers. UtiliCorp pays for the natural gas when it -- at the wellhead when it purchases gas.

QUESTION: Well, I take it you know, you determined after five years that if it hadn't been for this conspiracy the price would have been lower.

MR. FINCH: Yes, sir.

QUESTION: And so let's assume that it would have been a dollar lower per whatever kind of a unit you are talking about. Now, you say that a hundred -- that it is not clear in this record that 100 percent of that dollar was passed on to the consumer?

MR. FINCH: That is right.

QUESTION: But you do know how much of it was.

MR. FINCH: Well, it could be determined, Justice White. It has not been determined in this case.

QUESTION: Well, I know, but wouldn't it be easy to do?

MR. FINCH: Well, I submit it would not be easy. The purchased-gas adjustment clauses are based on estimates, and what happens is that on a particular day the supplier announces that in 30 days its price is going to go up to X amount per mcf, the word you're looking for, a thousand cubic feet. And the court -- the company then estimates how much its gas cost per customer, per customer class will have to go up. But those are only estimates. And there has to be an additional procedure that is gone through later in the year where you try to true that up. And I will certainly agree that there is an effort to true it up, to make it the same. But it is not something that was determinable at the time this litigation was started.

QUESTION: Well, how would it ever be determinable later if you say that -- let's assume you recover from the pipeline X million dollars, and you say that you know that some of it was passed on. And you say the utility commission could force you to pass on to the consumer part of your recovery.

MR. FINCH: Yes, Justice White, in fact --

QUESTION: Well, wouldn't you have to then determine how much it was?

MR. FINCH: Yes. There will have to be some sort of a determination made at that point, or at least a reasonable estimate. But I think the point is --

QUESTION: Well, then at the end of the year when the utility does make these final adjustments on the customers' bills, you can look at the bill and see how much the overcharge was.

MR. FINCH: If you were to look at each individual customer (inaudible) --

QUESTION: Yes. That's possible to do. It's there.

MR. FINCH: And then -- but I guess my point is, Justice O'Connor, that there is a damage to UtiliCorp. It is an injured direct purchaser.

QUESTION: Yes, but that is a separate question. Admittedly there is some damage, I suppose, to the utility corporation itself. And there are also damages, if you want to look at it that way, by the reduction in demand from the customers. Those could be established, I suppose, based on averages.

MR. FINCH: The plaintiffs in this case have never suggested that residential customers, and indeed industrial and commercial customers, were not damaged to some extent by defendant's action. That is why I go back to my original point, the question is of antitrust policy. Do you want to continue, as in Illinois Brick, concentrating the damage recovery in one party, so that that party will have the greatest incentive to sue, so that you will minimize the complexities that we have been talking about here.

QUESTION: Is there anything in the record to give us an idea of the percentage of these -- of the total damages that were absorbed by the utility directly? When you talk about some of the gas being lost in the pipeline, and the fact that you have to heat your own facilities. I am thinking de minimis, but is there some way you can give me an estimate of what percentage of the damages were absorbed by the utility itself?

MR. FINCH: Justice Kennedy, there is nothing in the record from which that could be determined. It was assumed by the trial court, and there could have been discovery on it. I can give you an idea that you are correct that it would be a relatively small number, that most of the overcharges were then passed on to the customers.

But you get into a problem of allocation. Remember, we are talking about a preliminary question here of, not quite standing, but antitrust injury.

And the way we got into this was at the very beginning of the case we filed a motion for summary judgment against not the states, but against the defendants on the pass-on defense. Because the defendants were saying you don't have a right to recover anything in this case.

And so, instead of having us litigate the issue of allocation which you have raised, and try to determine well, UtiliCorp has got 2 percent of the total overcharges, whatever that number may be, the district court quite properly concluded, under the doctrine of Illinois Brick, that there should just be -- an antitrust damage claim should be concentrated in the direct purchaser.

QUESTION: Mr. Finch --

MR. FINCH: Yes, Justice Scalia?

QUESTION: You say that it is likely to have been minimal, the amount of the overcharge that was passed on. Is it likely to have been minimal the damage suffered by the utilities, which would include the amount of the overcharge that wasn't passed on plus other damages, such as their loss of additional sales that might have been made because of the commercial users who are convertible and switch to some other fuel, and -- and the residential users, if one could ever figure that out, who put on sweaters?

MR. FINCH: Justice Scalia, that is a substantial number. In the case of KPL it is over $15 million, according to the experts. In the case of UtiliCorp it is over $4 million of lost margin damages. Now, that does not include whatever additional damages the utility suffered by paying more for gas that they did not resell to consumers. But it is a substantial number. And though the states make much of our incentive to bring this case, in fact it was KPL, the first direct purchaser, who brought the lawsuit in 1984. And it wasn't until several months later that the states of Missouri and Kansas did join in the suit.

QUESTION: What is in it for you if you have to pass it on to the consumers?

MR. FINCH: Treble damages and protecting our market, Justice Scalia. Because, as you point out, if you are a residential home owner, for example, and you put more insulation in your attic, we are not going to be able to sell you as much gas in the future. It's not just an immediate downturn because we have been able to sell you gas in the past and we'll get that back, because we have lost market for the long term. And that is particularly also true for the commercial and industrial customers.

If a home owner goes out and installs a wood burning fireplace in his house and starts burning a lot of wood, that is demand loss to us. That is a loss to our margin permanently.

Now, Mr. Greenan suggested that we could go back to the utility commissions and try to get some of this margin back. But in fact UtiliCorp, particularly the Missouri public service division, did not have a rate case between 1983 and 1988, the major portion of the damage period. And we do believe that the company suffered substantial damages, and it was certainly enough to cause us to bring this suit.

QUESTION: Well, Mr. Finch, even if we agreed with the states that in this -- under these circumstances the residential consumer should be entitled to recover the pass-through, the utility still would have suffered substantial damage, according to you, and still would have an incentive to be in this suit.

MR. FINCH: Yes, they would. And I guess the question is what incentive is enough, and what level of complexity and what level of expense is enough. Mr. Greenan pointed out that UtiliCorp dropped out of the case for a while. I wasn't privy to that decision; I don't know why it was made. But I suggest that part of the reason may well have been the concern that you just raised, Justice O'Connor, that when you don't know how much of it you are going to be allowed to recover, and when you know there is going to be tremendous expense right up front in the litigation, litigating about whether you can even be involved in the case, that is a tremendous disincentive that this Court frowned upon in Illinois Brick, and should continue to frown upon, we submit.

The question that Justice Scalia raised about who recovers for the industrial and commercial customers should be a significant one on the Court's mind, for, after all, there is some inconsistency here in the states' position. They say well, when it comes to residential customers, we or the consumers themselves, can sue. But when it comes to industrial and commercial customers, then the utilities can sue. As Justice Posner suggested, because perhaps the utilities ate some of the overcharges, didn't pass along all the overcharges. But the fact is that the industrial and commercial customers of these two parties, UtiliCorp and KPL, have not sued, probably, I would submit, in reliance upon Illinois Brick and the fact that they would be entitled under the utility regulatory scheme to get back a large part of their damages. So we have a question of equity and justice here for those customers whose claims would now be barred by the statute of limitations.

QUESTION: Does the parens patriae amendment to the antitrust laws, Mr. Finch, bar a claim by individual consumers?

MR. FINCH: It does not, as I read it, Justice Rehnquist, bar a claim by individual consumers, but the states, when they file their lawsuit, are supposed to have given individual consumers notice so they could opt out. In fact that has never been done in this case, even though the states filed their claims back in 1985 and 1986. So we don't know, if there was such a notice given, how many consumers might well choose to opt out and pursue their own litigation.

QUESTION: You say they are supposed to give notice. Under the statute?

MR. FINCH: Yes, sir. I want to point out, if you -- if the Court would like to discuss the argument that Section 4(c) allows the state attorneys general to bring this case, that it was not raised in the court below. It was not presented in the certiorari petition before this Court. Moreover, I would suggest the Court has already rejected that argument in footnote 14 of Illinois Brick. Indeed it would be an odd statutory construction, if Section 4(c) is based on Section 4, to have a rule like in Illinois Brick, that an indirect purchaser cannot sue under Section 4, but under Section 4(c) a state may sue on behalf of that indirect purchaser. And indeed, the statute doesn't make any sense that way, for if you allow a consumer to opt out under Section 4(c), but you don't give him the right to sue under Section 4, it's just internally inconsistent.

Apparently there was the assumption of some congressman in 1976 that Illinois Brick might have come out the other way. But I think the states have recognized, by their efforts to go back to Congress and get Illinois Brick changed, that in fact Congress did not authorize in Section 4(c) parens patriae suits on behalf of indirect purchasers. Surely the proof that Congress has not acted shows there is no strong sentiment in Congress for changing the direct purchaser rule that this court enunciated in Illinois Brick.

In this case, I contend that the purposes of the antitrust laws is -- are best served by concentrating the recovery in the direct purchaser, instead of splintering the recovery among industrial customers, commercial customers, the state attorney generals or any consumers who may bring their own cases. The incentive should be maximized, so the deterrent will be maximized.

I point out that one of the concerns in Illinois Brick was that the direct purchaser should have the best knowledge, and that is -- does appear to be what happened in this case, in that the Kansas Power and Light Company, the direct purchaser, did the investigation and filed the antitrust suit, and the states, and for that matter UtiliCorp, piggybacked in on KPL's (inaudible) product.

I point out that this is a case in which the utilities have gotten it right. They have sued for treble damages to protect their market, and to some extent, I suppose, out of a sense of public service duty that a public service commission has.

But if this Court were to take away 50 to 95 percent of this recovery, I would ask how much of an enthusiastic plaintiff will a utility be the next time around, the next time there's an antitrust case.

I would submit that the ruling of the Tenth Circuit should be upheld.

QUESTION: Thank you, Mr. Finch.

Mr. Robbins.

ORAL ARGUMENT OF LAWRENCE S. ROBBINS ON BEHALF OF UNITED STATES, AS AMICUS CURIAE, SUPPORTING RESPONDENT

MR. ROBBINS: Thank you, Mr. Chief Justice, and may it please the Court:

With respect, I believe Mr. Greenan has misformulated the question before the Court. The rule of Illinois Brick is not that the direct purchaser is the proper party to sue unless it is easy to demonstrate that there has been no absorption of the overcharge. The rule in Illinois Brick is as follows, that with a cost-plus contract the purchaser is insulated from any decrease in its sales as a result of attempting to pass on the overcharge, because its customer is committed to buying a fixed quantity, regardless of price. Even if it were the case that the regulatory framework in which this case comes before the Court solved the problem of apportionment, that would only be the tip of the iceberg. Illinois Brick is not simply about the apportionment of overcharges.

Instead, Illinois Brick and Hanover Shoe stem from a longer tradition in which this Court has uniformly held that an injured direct purchaser is entitled to sue for the entire overcharge, regardless of whether and to what extent that direct purchaser passes on the overcharge to its customers. It is that tradition that Hanover Shoe and Illinois Brick dealt with when it adverted to the possibility that there might be a cost-plus exception.

Now, one thing is perfectly clear. If there is a cost-plus exception, it does not cover this case, because, as Petitioners freely concede, the direct purchaser in this case was injured. It suffered the loss of profits as a result of having to pass on an overcharge, to whatever extent it did, to its customers.

And so, what is clear beyond, I think, contradiction, is that if there is to be an exception to cover this case, it will be a new exception, an exception that departs from the tradition that has always held that an injured direct purchaser, injured in any form, injured by the overcharge or injured by lost profits, and lost profits are not contravened in this case, is entitled to sue for the entire overcharge.

QUESTION: And keep it.

MR. ROBBINS: And keep it.

Now, it seems to me, Justice White, and this returns also to the question Justice O'Connor raised before: is this a windfall. Well, in one sense I suppose it is a windfall, but it was a windfall that this Court recognized and anticipated the possibility of in Illinois Brick, recognizing that it may well be the case that some indirect purchasers who suffered an injury may not be compensated. But that was anticipated for a reason, anticipated because the Court concluded, as it had in Hanover Shoe, that locating and maximizing the incentive in the direct purchaser is the best policy for the antitrust laws, seeking the maximum deterrence at the most efficient price.

QUESTION: Of course, the language of Section 4 of the Clayton Act doesn't make the distinction the Court has made in Hanover Shoe and Illinois Brick. This is just a Court-created doctrine.

MR. ROBBINS: The language, to be sure, Justice O'Connor, is quite sweeping.

QUESTION: It is.

MR. ROBBINS: But that was equally true, I might suggest, in Associated General Contractors, where the Court took that issue on directly and said that there are a variety of limiting principles that have always been used to constrain what would otherwise be the sweeping embrace of Section 4.

QUESTION: But I guess the real question is whether, in a case like this, the fundamental concerns that motivated the Court in Illinois Brick would be met by permitting the residential consumers to sue.

MR. ROBBINS: I think --

QUESTION: You can separate out the damages that they suffered by the -- by the pass-through of the overcharges. It is possible to do that in this kind of case.

MR. ROBBINS: I think the answer is yes, it's possible. It is not, however, easy. It will be possible after litigation about the very issues that concerned the Court in Illinois Brick. In the first place, it will not be easy to decide even the question of apportionment that is supposedly solved by the regulatory frame work. And, by the way, that is the only policy that is solved at all. So if it doesn't even solve that problem free of litigation, it hasn't done very much. And I would suggest that the --

QUESTION: How difficult is it to look at the utility bills after the fact and say that's how much the residential consumers had to pay that they shouldn't have paid?

MR. ROBBINS: Well, it is not hard to say that, but it won't be correct. And it may not be correct for two reasons. First of all, you are going to have litigation about whether the regulation in fact requires the utility to pass it on. These parties are in dispute about that very question. The -- the PJA clauses throughout the states may be different. They may be hard to read. And you are going to have litigation about whether it is even required.

You will then have litigation about whether it has been complied with. What looks like a dollar-for-dollar pass-through may be nothing more than the postponement of the rate increase that would have come about anyway, a concern which this Court expressly identified in Hanover Shoe. What looks like a pass-through may be an increase for other reasons.

But even if they had solved the apportionment problem, and they haven't -- they haven't solved it with the ease that Hanover Shoe requires, you then have a variety of other problems that they haven't come close to solving, and indeed in some respects have made worse. The complication of litigation. It is not going to go away, it is going to come back fourfold. It's going to come back because you are going to increase the number of litigants in court.

You are going to increase the kinds of damages they are seeking. The indirect purchasers will seek the overcharge. The direct purchasers will sue either for the lost profits and, as Petitioners have conceded this morning, some portion of the overcharge for unrepresented customers that the state's parens patriae can't -- can't represent. Lost profits are very hard to calculate, because they require you to prove the overcharge, and then calculate the effect of the overcharge on the demand curve, how inelastic or elastic is the demand, the very thing this Court wanted to get away from in Illinois Brick.

As a consequence of the proliferation of parties and the complication of the damage theories, you will do a couple of other things. You'll reduce the incentives on direct purchasers --

QUESTION: But won't those same difficulties stand in the way of the utilities' recovering lost profits?

MR. ROBBINS: Well, in our view, Mr. Chief Justice, if the direct purchasers are in that lawsuit alone they may attempt to seek both kinds of damages. But as a practical matter, because the overcharge will always be greater than, or at worst equal to, the lost profits, they will tend in the aggregate to seek only the overcharge. And as a result, the more complicated inquiry for lost profits will in the main wash away.

There will also not be competing claims for the same total recovery, a concern that this Court articulated in ARC America. You will not have two or more categories of plaintiffs suing over a common Federal pot under Section 4. And that competing claim, and the proliferation of theories and parties that will inevitably ensue, and only gets worse under Petitioners' theory, is what is going to ultimately dilute the intended incentive on the direct purchasers to sue.

What is more, finally, I think, if you open the door the crack that they seek this morning, there will be many more exceptions brought to your doorstep. If today it's 100 percent regulation, tomorrow it will be a 95 percent regulation, because in theory there is no greater reason why the 95 percent pass-through plaintiffs shouldn't be in court as well.

And it is precisely that concern, I suggest, that caused this Court to hesitate to even say whether there is any cost-plus exception at all. In each of the Court's cases the suggestion has been that there might be such an exception. And I think that hesitation makes a good deal of sense, because in a case in which it's not required to reach that result, it ought not to be reached.

QUESTION: Do you think the 4(c) issue is here (inaudible)?

MR. ROBBINS: No. I think it is not here. It was not in the question presented, it was not resolved below, and it is not for this Court to decide.

QUESTION: And you don't have any view on it anyway, or do you?

MR. ROBBINS: Well, we think that this Court resolved the question and resolved it correctly in footnote 14 of Illinois Brick. And we think that the same answer on that -- on -- on the merits, if appropriate, should apply here.

QUESTION: Of course, if we don't decide that question the case doesn't mean very much, does it?

MR. ROBBINS: I am sorry, Justice?

QUESTION: If we do not decide the 4(c) issue, there is not much to this lawsuit, as far as for long-run precedential purposes.

MR. ROBBINS: Well, there is still the claim, which we think is mistaken, that Section 4 and the suggested cost-plus exception is sufficient to cover this case even if 4(c) isn't recurred to.

QUESTION: I understand, but if we leave out in the -- if we rule the way you recommend that we rule, and don't decide the 4(c) question, you are going to have this same problem come up again in the next lawsuit.

MR. ROBBINS: It may, with a party that has chosen to rely on 4(c), and at that time I suspect our answer will be the same as to the 4(c) question. But that's not here, and I think for good reason.

Now, it may be that in the end Petitioners' clients bore some or most of the overcharge. And it may also be that the regulatory framework alleviates to some extent some, but hardly all, of the concerns in Illinois Brick. But this Court has anticipated such possibilities and has refused to carve out an exception for particular markets. It has discouraged that venture at every turn. There is every reason to do so this morning.

QUESTION: Thank you, Mr. Robbins.

Mr. Greenan, do you have rebuttal? You have four minutes remaining.

REBUTTAL ARGUMENT OF THOMAS J. GREENAN ON BEHALF OF THE PETITIONERS

MR. GREENAN: I do, Your Honor.

I think it should be clear that the fact-specific arguments that UtiliCorp has made are not before this Court. This action is here based upon summary judgment motions brought by UtiliCorp which were decided before discovery was well underway. The court below assumed that there was a perfect and provable 100 percent pass-on, and that is the facts that are before the Court today.

Justice O'Connor, I agree that you can look at the utility customer's bill and determine what amount they had been charged for what amount of gas. Fortunately, in the parens patriae situation that is not necessary, because the statute clearly provides that the attorneys general may aggregate those claims to make them easily provable so that individual consumers do not have to come in and prove that. That procedural device was specifically spelled out.

When the government says that clearly the court was relying upon a rule without deviation that the direct purchaser recover, it ignores Hanover Shoe, it ignores Illinois Brick, it ignores the discussions that this Court has had with regard to this rule since then. Note 12 in Illinois Brick, referring to the pass-on defense which the Court recognized in Hanover Shoe, said that they recognize that because the preexisting cost-plus contract makes the normally complicated task of demonstrating that the overcharge had not been absorbed -- excuse me, makes easy the normally complicated task of demonstrating that the overcharge had not been absorbed by the direct purchaser. That is the law of Illinois Brick. That is what we are talking about here. This particular situation is one that the Court has always recognized, that the -- would exist.

With regard to whether or not the 4(c) question is here, Your Honor, we have to admit that it was not argued below. But I think that Justice Stevens has -- has put his finger on it, that the -- that the complaints were brought pursuant to 4(c). Only 4(c) permits --

QUESTION: (Inaudible) the answer to 4(c), I suppose, is that if -- is that the consumer under Illinois Brick hasn't suffered any injury.

MR. GREENAN: The answer to 4(c) -- under Illinois Brick, I don't believe the Court specifically addressed that, Your Honor. Under Illinois Brick what the Court said is that you can --

QUESTION: Well, what does -- what does 4(c) authorize?

MR. GREENAN: I think if one looks at the legislative history with regard to the bills that were passed, that it was clearly the intent of Congress that 4(c) allow the attorneys general to proceed parens patriae on behalf of consumers, indirect as well as direct.

QUESTION: Well, they can -- they can attempt to recover the damages that the indirect purchasers couldn't recover themselves. But if the indirect purchasers can't recover any damages, what good is parens patriae action?

MR. GREENAN: Well, Your Honor, I believe that the clear intent of 4(c) is demonstrated by the legislative history that is set forth, particularly in the brief of the amicus, the National Council of -- or National League of State Legislatures, demonstrates that Congress intended that 4(c) provided a separate cause of action for the attorneys general to proceed on behalf of consumers --

QUESTION: To recover what?

MR. GREENAN: To recover damages under the antitrust laws, both indirect and direct.

QUESTION: Well, you have to say both indirect and direct, but that isn't what it says.

MR. GREENAN: It does not say that in so many terms, no, Your Honor. We have to look to the legislative history. I think that the cases of this Court clearly demonstrate that the United States is in error when it says that the Court has always assumed only the direct purchaser.

In the very next term after Hanover Shoe, this Court examined a question in Perkins v. Standard Oil and followed a claim down through several levels in a chain of distribution to allow Perkins to have standing to proceed with that claim in that action. Here, as the Court recently said in the ARC America case, if it is easy to prove the extent to which the overcharge has been passed on to the indirect purchaser, then this Court -- the phrasing in that was might allow an exception.

We believe that this Court should recognize that this exception is within the language set forth in Illinois Brick, and that an affirmance of Illinois Brick would require --

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Greenan.

The case is submitted.

(Whereupon, at 11:58 a.m., the case in the above-entitled matter was submitted.)