Texaco Inc. v. Dagher
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''Texaco Inc. v. Dagher'', 547 U.S. 1 (2006), was a decision by the
Supreme Court of the United States The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...
involving the application of U.S. antitrust law to a joint venture between oil companies to market gasoline to
gas stations A filling station, also known as a gas station () or petrol station (), is a facility that sells fuel and engine lubricants for motor vehicles. The most common fuels sold in the 2010s were gasoline (or petrol) and diesel fuel. Gasoline ...
. The Court ruled unanimously that the joint venture's unified price for the two companies' brands of gasoline was not a
price-fixing Price fixing is an anticompetitive agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given ...
scheme between competitors in violation of the Sherman Antitrust Act. The Court instead considered the joint venture a single entity that made pricing decisions, in which the oil companies participated as cooperative investors.


Facts

Texaco and
Shell Oil Shell plc is a British multinational oil and gas company headquartered in London, England. Shell is a public limited company with a primary listing on the London Stock Exchange (LSE) and secondary listings on Euronext Amsterdam and the New Yor ...
, historically competitors in the national and international oil and gasoline markets, formed a joint venture in 1998 called "Equilon" to consolidate their operations in the western United States, which ended competition between the two companies in the domestic refining and marketing of gasoline. Under the joint venture agreement, Texaco and Shell agreed to pool their resources and share the risks of and profits from Equilon's activities. Equilon's
board of directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organiz ...
would comprise representatives of Texaco and Shell Oil, and Equilon gasoline would be sold to gas stations under the original Texaco and Shell Oil brand names. The formation of Equilon was approved by consent decree, subject to certain divestments and other modifications, by the
Federal Trade Commission The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction ov ...
, as well as by the state attorneys general of California, Hawaii, Oregon, and Washington. The consent decrees did not impose any restrictions on the prices Equilon charged.


Judgment


District Court proceedings

After Equilon began to operate, a class of 23,000 Texaco and Shell
gas station A filling station, also known as a gas station () or petrol station (), is a facility that sells fuel and engine lubricants for motor vehicles. The most common fuels sold in the 2010s were gasoline (or petrol) and diesel fuel. Gasoline ...
owners filed a class action lawsuit in the United States District Court for the Central District of California, alleging that, by unifying gasoline prices under the two brands, petitioners had violated the ''per se'' rule against price fixing that the Supreme Court had long recognized under ยง 1 of the Sherman Act. The District Court awarded summary judgment to Texaco and Shell Oil. It determined that the
rule of reason The rule of reason is a legal doctrine used to interpret the Sherman Antitrust Act, one of the cornerstones of United States antitrust law. While some actions like price-fixing are considered illegal ''per se', ''other actions, such as poss ...
governed the plaintiffs' claim, under which only "unreasonable restraints of trade" were prohibited by the Sherman Act. Because they had eschewed rule of reason analysis, the plaintiffs had failed to raise a triable issue of fact.


Ninth Circuit decision

The
Ninth Circuit The United States Court of Appeals for the Ninth Circuit (in case citations, 9th Cir.) is the U.S. federal court of appeals that has appellate jurisdiction over the U.S. district courts in the following federal judicial districts: * District o ...
reversed, ruling that the ''per se'' rule against price fixing instead applied, which conclusively presumed that the arrangement was illegal.''Dagher v. Saudi Refining, Inc.'', 369
F.3d The ''Federal Reporter'' () is a case law reporter in the United States that is published by West Publishing and a part of the National Reporter System. It begins with cases decided in 1880; pre-1880 cases were later retroactively compiled by We ...
1108 (2004). Judge Stephen Reinhardt wrote the court's opinion, in which Judge
Johnnie B. Rawlinson Johnnie Blakeney Rawlinson (born December 16, 1952) is a United States circuit judge of the United States Court of Appeals for the Ninth Circuit and a former United States District Judge of the United States District Court for the District of Neva ...
joined. Judge Ferdinand F. Fernandez filed a separate decision concurring in part and dissenting in part.
The Ninth Circuit reached that decision by applying the ancillary restraints doctrine, which provided an exception from the rule of reason whenever a restraint on trade was not ancillary to the main purpose of an agreement. The court did not believe the oil companies had explained why the unified pricing for their two brands of gasoline was necessary to further the legitimate goals of the joint venture, and so reversed summary judgment. Texaco and Shell both petitioned for
certiorari In law, ''certiorari'' is a court process to seek judicial review of a decision of a lower court or government agency. ''Certiorari'' comes from the name of an English prerogative writ, issued by a superior court to direct that the record of ...
to the Supreme Court, which consolidated the petitions and granted certiorari to determine the extent to which the ''per se'' rule against price fixing applies to joint ventures.


Supreme Court

Justice Clarence Thomas delivered the opinion of the U.S. Supreme Court, in which the other seven participating justices joined in reversing the Ninth Circuit. Significant to the outcome of the case was the Court's presumption that the joint venture itself was legal, which it based on the prior approval by the FTC and the several states involved. The Court ruled that the Equilon joint venture pricing decisions were not illegal price-fixing between competitors. Texaco and Shell did not compete with one another in the relevant market, but instead participated in that market jointly through their investments in Equilon. The two companies shared in Equilon's profits, and should be regarded as a single entity competing with other sellers in the market, regardless of the decision to market their gasoline under two brands instead of one. Contrary to the Ninth Circuit's ruling, the Court did not believe that the ancillary restraints doctrine applied because the challenged business practice involved the "core activity" of the joint venture—the pricing of the goods it produced and sold. Even if the doctrine applied, pricing was certainly integral to a business that produced and sold goods.


See also

* US antitrust law *
List of United States Supreme Court cases, volume 547 This is a list of all the United States Supreme Court cases from volume 547 of the ''United States Reports The ''United States Reports'' () are the official record ( law reports) of the Supreme Court of the United States. They include rulings, ...


Notes


External links

* {{DEFAULTSORT:Texaco Inc. V. Dagher United States Supreme Court cases United States Supreme Court cases of the Roberts Court United States antitrust case law United States energy case law Texaco 2006 in United States case law Royal Dutch Shell litigation