USCA1 Opinion
March 1, 1995
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 94-1711
SAS OF PUERTO RICO, INC.,
Plaintiff, Appellant,
v.
PUERTO RICO TELEPHONE COMPANY,
Defendant, Appellee.
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ERRATA SHEET
ERRATA SHEET
The opinion of this Court issued on February 21, 1995, is amended
as follows:
On page 8, line 18, the word "pendant" should be "supplemental".
On page 10, note 2, the footnote should read: "Illinois Brick
______________
Co. v. Illinois, 431 U.S. 720 (1977). Compare Hanover Shoe, Inc. v.
___ ________ _______ ___________________
United Shoe Mach. Corp., 392 U.S. 481 (1968).".
_______________________
Page 10, note 4, line two of note, "Brunswich" should be
"Brunswick".
UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
____________________
No. 94-1711
SAS OF PUERTO RICO, INC.,
Plaintiff, Appellant,
v.
PUERTO RICO TELEPHONE COMPANY,
Defendant, Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jose Antonio Fuste, U.S. District Judge]
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____________________
Before
Torruella, Chief Judge,
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Boudin, Circuit Judge,
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and Boyle,* Senior District Judge.
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Laurence Z. Shiekman with whom M. Duncan Grant, Frank M.
______________________ _________________ __________
Rapoport, Michael A. Ceramella and Pepper, Hamilton & Scheetz were on
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brief for appellant.
Philip J. Mause with whom Joaquin A. Marquez and Drinker Biddle &
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Reath were on brief for appellee.
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____________________
February 21, 1995
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*Of the District of Rhode Island, sitting by designation.
BOUDIN, Circuit Judge. SAS of Puerto Rico, Inc.
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("SAS"), brought an antitrust suit in federal district court
in Delaware against Puerto Rico Telephone Company ("PRTC").
After the suit was transferred to the district court in
Puerto Rico, the district court granted PRTC's motion to
dismiss on the ground that SAS did not adequately assert
"antitrust injury." We agree and affirm.
I.
In April 1993 SAS filed its original complaint in
Delaware district court. After the case was transferred to
Puerto Rico, the site of most of the events that underlie the
case, an amended complaint was filed. Since the amended
complaint was later dismissed on the pleadings, we accept the
allegations as true for purposes of this appeal. Berkovitz
_________
v. United States, 486 U.S. 531, 540 (1988). What follows is
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SAS's version of the facts, supplemented by information not
reasonably disputable.
PRTC is a Delaware corporation that provides about 90
percent of the telephone service within Puerto Rico and
operates over 95 percent of the pay phones in Puerto Rico.
Although once a subsidiary of ITT, all of the stock of PRTC
was acquired about 20 years ago by the Puerto Rico Telephone
Authority ("the Authority"), a public corporation and
government instrumentality of the Commonwealth. The
Authority also owns the stock of the Puerto Rico
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Communications Corporation ("PRCC") which provides telephone
service and operates pay phones in those areas of Puerto Rico
not served by PRTC. (PRTC's brief says that it and PRCC have
now merged.)
Long distance service between Puerto Rico and the U.S.
mainland was for some years provided by an ITT subsidiary
interconnecting on the mainland with AT&T, but in the 1980's
the Federal Communications Commission took steps to
facilitate competition for Puerto Rico's long distance
traffic.1 To participate in this new environment, the
Authority created yet another wholly owned subsidiary called
Telfonica Larga Distancia ("TLD"). In 1990, the Commonwealth
adopted legislation designed to facilitate the Authority's
sale of TLD's stock.
After its formation, TLD rapidly became the carrier for
about 80 percent of the long distance telephone calls made
from pay phones in Puerto Rico. Although the mechanics are
not described in the complaint, they can readily be inferred.
Pay phones are commonly located on streets or other public
property by the local telephone company or they may be
located on private property such as in a store or hotel
lobby; in the latter instance, the instrument is usually
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1E.g., All America Cables & Radio, Inc. v. FCC, 736 F.2d
____ ________________________________ ___
752 (D.C. Cir. 1984); Common Carrier Facilities Off of the
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Island of Puerto Rico, 2 F.C.C.R. 6600 (1987), on recons.,
______________________ __________
FCC 92-529 (1992).
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(although not always) furnished by the local telephone
company by arrangement with the property owner.
As long distance competition developed over the past
three decades, telephone subscribers have ordinarily been
able to select the long distance carrier through which their
calls would be routed. A small percentage of modern pay
phones make it easy for the caller to select his or her
preferred long distance carrier by pushing a single button;
but in many pay phones, a pre-designated long distance
carrier automatically receives the traffic unless the caller
"dials" a complex access code to reach another long distance
carrier.
According to the complaint, in Puerto Rico many of the
pay phones used (or were connected through) older technology
that prevented a caller from using a long distance carrier--
other than the pre-designated one--except by the cumbersome
means of calling an operator and asking to be routed to a
different long distance carrier. The pre-designated carrier
for a pay phone is normally selected by the local telephone
company or the premises owner. In short order TLD began to
carry most of the long distance calls from Puerto Rico pay
phones.
SAS was formed as a Puerto Rico corporation in 1991 in
the hope of contracting with PRTC and PRCC to upgrade
equipment and maintain service at Puerto Rico's pay phones.
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The complaint explains that "[t]he principals of SAS were
experienced in the installation and operation of `intelligent
paystations' and, in fact, had successfully assisted in
improving the pay phone system in the United States Virgin
Islands." Such intelligent pay phones, embodying what are
effectively computers, can provide various advantages to
callers (e.g., speed dialing) and to the local telephone
____
company (e.g., remote diagnosis of failure).
____
The intelligent pay phones to be supplied by SAS would
also increase competition among long distance carriers. SAS
expected to negotiate with such carriers, as agent for the
local telephone company or premises owner, presumably to
secure the most favorable terms for the position of pre-
assigned long distance carrier at the pay phone. In addition
the intelligent pay phone would greatly simplify the task of
the caller who desired to route his or her own call through a
long distance carrier other than the pre-assigned carrier.
On January 31, 1992, after "substantial negotiation and
investment of considerable time and money," SAS signed an
"agency agreement" with both PRTC and PRCC to provide and
maintain pay telephones in Puerto Rico. As to PRTC, the
agreement provided for SAS to act as PRTC's agent to upgrade
a minimum of 1,500 of PRTC's pay phones at tourist and
business centers. The agreement included authority for SAS
to negotiate with the premises owner to alter the pre-
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designated long distance carrier for the intelligent pay
phones to be installed on the premises. SAS hoped to obtain
better terms from such carriers through competition.
Ten days after the January 31 agreement, the Authority
reached an agreement with Telefonica de Espana, the
international subsidiary of Spain's telephone company, to
sell it control of TLD. Part of the value of TLD lay in its
position as the pre-designated long distance carrier at most
of Puerto Rico's pay phones. This position was threatened by
the SAS-PRTC agreement. According to the complaint, PRTC
thereafter "engaged in a course of conduct designed to delay,
disrupt and derail the installation of the 1,500 intelligent
paystations in Puerto Rico."
The complaint does not describe this conduct beyond
asserting generally that PRTC failed to carry out unspecified
obligations under the contract while making new demands on
SAS. On June 18, 1992, SAS agreed with PRTC and PRCC to
modifications in the original agreement and shortly
thereafter PRTC told SAS to proceed with installation. SAS
then obtained a $500,000 line of credit and began to purchase
the new pay phone equipment. In October 1992 PRTC told SAS
to stop operations. More negotiations followed and a second
contract revision followed, but after further steps by SAS to
implement the program, SAS was again instructed to halt work.
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In April 1993, SAS began the present lawsuit in the
district court in Delaware, PRTC's state of incorporation.
The complaint (as later amended) says that after the case
began, PRTC in late 1993 or early 1994 sought bids to replace
some or all of the pay phones that SAS had contracted to
replace; PRTC later accepted one of the bids; and PRTC
thereafter contracted for pay phones with some of the same
manufacturers or suppliers who had agreed to supply them to
SAS when the latter was seeking to fulfill its own contract
with PRTC.
The complaint alleges, in its first three counts, that
the acts described constituted monopolization and attempted
monopolization of two different markets and conspiracy to
restrain trade in the same markets, all in violation of the
Sherman Act. 15 U.S.C. 1-2. PRTC was alleged to have
monopoly power in "the market for the provision of pay phone
service in Puerto Rico"; and PRTC, PRCC and TLD as a "single
economic entity" were alleged to have such power in "the
market for the provision of long distance service from pay
phones in Puerto Rico."
In the antitrust conspiracy count Telefonica de Espana
was named as a co-conspirator. In addition to the conduct
already described, SAS alleged that PRTC had discussed with
Telefonica de Espana the impact that the SAS upgrading of pay
phones would have and that PRTC had impeded and delayed the
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agreement with SAS in order to avoid an adverse impact on the
value of TLD.
Additional counts of the complaint charged PRTC with
fraud, breach of contract, and tortious interference with
contracts between SAS and makers or suppliers of pay
stations. On the antitrust counts, the complaint sought
injunctive relief, treble damages and attorney's fees; on the
non-federal counts, it asked for compensatory damages and
attorney's fees. In the injunctive relief request, SAS asked
that PRTC be required to complete its contract with SAS.
After the transfer to Puerto Rico, SAS of Puerto Rico v.
__________________
Puerto Rico Tel. Co., 833 F. Supp. 450 (D. Del. 1993), PRTC
_____________________
moved to dismiss the antitrust claims on the ground that it
was protected by the state action doctrine, see Parker v.
___ ______
Brown, 317 U.S. 341 (1943), or, in the alternative, that
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antitrust injury had not been alleged. PRTC also contended
that it was shielded from damage liability for antitrust
violations by the Local Government Antitrust Act of 1984, 15
U.S.C. 34-36. In an opinion and order entered May 9,
1994, the district court rejected the state action and
statutory arguments but dismissed the antitrust claims for
lack of antitrust injury.
Having found that SAS had failed to state a claim under
the antitrust laws, the district court declined to exercise
supplemental jurisdiction under state law as to the fraud,
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contract and tortious interference claims. See 28 U.S.C.
___
1367. An order was entered dismissing the complaint, and
this appeal followed. Because we agree with the position on
antitrust injury taken in the district court's opinion, we
confine our discussion to that issue.
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II.
Despite its statutory framework, antitrust law is
largely the handiwork of federal judges and antitrust
enforcers, and the resulting case law offers much to admire.
The corner of antitrust law with which we are concerned here
is an exception. As one commentator has observed, "the
courts have never been able to create an intelligible theory
of private antitrust standing capable of being applied across
the full range of potential cases." H. Hovenkamp, Federal
_______
Antitrust Policy 543 (1994). Cf. Associated General
_________________ ___ ___________________
Contractors v. Carpenters, 459 U.S. 519, 536 (1983) (no black
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letter rule).
The underlying problem is not unique to antitrust law.
Common law tort claims have been limited by various slippery
rubrics (e.g., proximate cause), so that not everyone
____
remotely harmed by a violation is entitled to recover. From
the outset, federal antitrust courts have devised counterpart
limitations under various headings (e.g., standing, antitrust
____
injury) and through a variety of subordinate rules (e.g.,
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restrictions on suits by stockholders or indirect
purchasers), metaphors (e.g., "inextricably intertwined,"
____
"target area"), abstractions (direct versus remote injury),
and multi-factor tests. See Associated General Contractors,
___ _______________________________
459 U.S. 519; Sullivan v. Tagliabue, 25 F.3d 43 (1st Cir.
________ _________
1994).
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One reason for the confusion in antitrust cases is that
courts sometimes have difficulty, well justified in certain
cases, in separating standing or antitrust injury issues from
two other problems: whether there has been an antitrust
violation at all, and whether the plaintiff has suffered any
injury causally (in the "but for" sense) related to the
challenged conduct. Standing or antitrust injury involves a
different concept: even where a violation exists and a
plaintiff has been damaged by it, the courts--for reasons of
prudence--have sought to limit the right of private parties
to sue for damages or injunctions.
The prudential concerns, however, are multiple, and the
variety of situations endless. One set of limitations has
been based on fear of duplicative recovery and excessively
complex litigation.2 Another is concerned with the
remoteness of the injury and the speculative character of the
injury or the connection.3 Another set reflects an
unwillingness to award antitrust damages to one who suffered
from pro-competitive or irrelevant effects of an otherwise
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2Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).
___________________ ________
Compare Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392
_______ ___________________ ________________________
U.S. 481 (1968).
3Associated General Contractors, 459 U.S. at 543; Hawaii
______________________________ ______
v. Standard Oil Co., 405 U.S. 251, 262-63 n.14 (1972).
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anticompetitive transaction.4 These elements sometimes
overlap; and the list is not exhaustive. It is not
surprising that no simple rule has emerged for choosing the
best antitrust plaintiff and deciding when second-best
plaintiffs should be barred.
Nevertheless, there are patterns in the antitrust
standing cases that offer considerable guidance. One of
those patterns involves the supplier who suffers because an
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antitrust violation curtails a business that would otherwise
have purchased from the supplier. In general such a supplier
(including an employee who supplies labor) is held not to
have suffered "antitrust injury"; while there may be a
violation and causal harm to the supplier, the failed
business is the immediate victim and the preferred plaintiff.
II P. Areeda & H. Hovenkamp, Antitrust Law 375 (rev. ed.
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1995) (collecting numerous cases).
This is not because suppliers are automatically improper
antitrust plaintiffs; a seller may well have a claim if
victimized by a price-fixing ring composed of buyers that
lowered the market price: in such a case the seller is a
participant in the very market where competition is impaired.
But if the supplier's customer fails because of an antitrust
________
violation, usually the conduct was deemed an antitrust
____________________
4Cargill v. Montfort of Colorado, 479 U.S. 104 (1986);
_______ ____________________
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477
________________ ________________________
(1977).
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violation because of the threat to the customer, not the
supplier.
Here, the situation is not quite parallel: SAS was not
injured because its customer failed due to an antitrust
violation by a third party; rather, the customer (PRTC) in
the course of its own violation allegedly breached its
agreement to use SAS as a supplier. But if the breach played
a part in an antitrust violation, the conduct itself was an
antitrust violation because of the anticompetitive threat
posed to other potential plaintiffs, not SAS. Like the
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happenstance supplier to a customer felled by a violation,
SAS was coincidentally involved.
SAS's complaint alleged that PRTC's conduct harmed or
threatened harm to competition in two different markets: the
provision of pay phone service in Puerto Rico and the
provision of long distance service from such pay phones.
Assuming arguendo that either or both is a proper "relevant
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market" for antitrust purposes, Spectrum Sports v. McQuillan,
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113 S. Ct. 884, 892 (1993), the presumptively "proper"
plaintiff is a customer who obtains services in the
threatened market or a competitor who seeks to serve that
market. Associated General Contractors, 459 U.S. at 538-39.
_______________________________
SAS is not suing in either capacity.
SAS was not a premises owner aiming to obtain a better
pay phone in its hotel or restaurant, or a caller who might
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use such a pay phone for ordinary or long distance service.
Nor was SAS a competitor seeking access to the network for
its pay phones in competition with the primary provider,
PRTC; SAS' aim was to supply such phones to or for PRTC.
Finally, despite some vague allusions in its brief, nothing
in the complaint suggests that SAS was, or was about to
become, a long distance carrier who might be benefitted by
easier customer access.
SAS argues that the district court failed to give it the
benefit of a favorable reading of its complaint, and that it
is entitled to such a reading. It says, in particular, that
the district court chose to characterize the wrong as a
simple contract claim rather than viewing it as a potential
antitrust claim as well. Certainly, an individual act of
misconduct can be the gravamen of more than one wrong to a
single plaintiff. Not every antitrust claim in a contract
case is simply a contract claim masquerading as a candidate
for treble damages.
But the problem here is not that a plaintiff is
automatically limited to one cause of action. It is that the
central conduct here involved--PRTC's failing to carry
through a plan to broaden access--is wrongful as to SAS only
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insofar as it may be a common (or civil) law wrong. Insofar
as the same conduct is also an antitrust violation, that
____
violation does not infringe any interest of SAS protected by
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the antitrust laws. This is almost certainly all that the
district court meant in saying that SAS's claim was really
one for breach of contract.
If competitors and consumers are favored plaintiffs in
antitrust cases, the list of those presumptively disfavored
is far longer. The list of those who may be derivatively
injured, but are usually denied standing to sue includes
"employees of the violator, and stockholders, creditors,
landlords, and employees of victims." Hovenkamp, supra, at
_________ _____
554. It is hardly surprising to afford similar treatment to
an incidentally injured supplier to a victim or, as here, the
supplier to a supposed violator. But "presumptively" does
not mean always; there can be exceptions, for good cause
shown. See generally Sullivan, 25 F.3d at 49.
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The most obvious reason for conferring standing on a
second-best plaintiff is that, in some general category of
cases, there may be no first best with the incentive or
ability to sue. Cf. Associated General Contractors, 459 U.S.
___ ______________________________
at 542. That is hardly likely here: those threatened by the
market injury alleged by SAS include various potential
plaintiffs, above all, long distance carriers, who should
have ample incentive and ability to challenge violations that
foreclose their access to customers. If there is any other
reason for stretching to confer standing in this case on an
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incidentally connected plaintiff like SAS, it does not occur
to us.
We have concerned ourselves thus far primarily with the
question whether SAS is a competitor or consumer in the
market threatened by the alleged violation or has any other
protectable interest under the antitrust law. But there is a
second element in the antitrust standing cases that works
against SAS in this case. As already noted, one of the
reasons for limiting standing concerns the speculative
character of either the injury or the relationship between
the violation and injury. This concern may operate even in
cases, like this one, where no duplicative recovery is
threatened. Sullivan, 25 F.3d at 52.
________
At first blush it may seem as if PRTC's antitrust
violation, if violation it was, clearly deprived SAS of
whatever profits it might have made by carrying through the
contract. But more carefully identifying the supposed
violation raises substantial doubts. Assuming arguendo that
________
PRTC had or assumed some duty under the antitrust laws to
upgrade its pay phones, it is not clear that the breach of
that duty is meaningfully connected to the failure to carry
through the contract with SAS.
After all, supposing that the antitrust laws impose on
PRTC a duty to upgrade, they certainly do not require that
the upgrading be done by SAS or any other specific vendor.
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SAS would have been no less damaged if PRTC had breached the
contract but installed improved pay phones of its own on the
same timetable, thereby enhancing long distance competition.
Conversely, once SAS got the contract and PRTC then allegedly
breached it, SAS faced injury--but the injury would have
existed even if no antitrust violation arose from the failure
to upgrade. Thus, the connection here between "antitrust"
and "injury" is suspect in more ways than one.
It remains to say something about the Supreme Court's
decision in Blue Shield v. McCready, 457 U.S. 465 (1982), on
___________ ________
which SAS relies heavily throughout its brief. There, by a
five-to-four decision, the Supreme Court held that a consumer
of health services could sue under the antitrust laws to
redress a supposed conspiracy, between her insurance plan and
Virginia psychiatrists, to exclude psychologists from
receiving compensation under the plan. Although not the
immediate target of the supposed boycott, McCready herself--a
plan beneficiary who had used a psychologist and been denied
reimbursement--was held to have standing under the antitrust
laws.
In language much stressed by SAS, the Supreme Court said
that McCready's injury "was inextricably intertwined with the
injury the conspirators sought to inflict on psychologists
and the psychotherapy market." 457 U.S. at 484. McCready is
________
also useful to SAS for a larger reason, namely, that it may
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be an instance in which standing was extended to a plaintiff
who was only derivatively injured, there by an alleged
boycott directed against psychologists for the benefit of
psychiatrists. But McCready can also be read as a case in
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which the plaintiff was a purchaser in the very market
directly distorted by the antitrust violation, see Areeda &
___
Hovenkamp, supra, 364f, something that cannot even arguably
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be said of SAS.
Thus, the only real link between McCready and the
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present case is the very general "inextricably intertwined"
language of the former. It is doubtful that this language--
if taken as physical image--was ever intended as a legal test
of standing. Quite apart from difficulties in application,
such a test would certainly be very hard to square with the
longstanding limitations on claims by stockholders, employees
and even indirect purchasers. Nothing in McCready suggests
________
that it intended to overrule those limitations even though it
would be very easy to describe such injuries as inextricably
intertwined in the ordinary suggestive sense of the phrase
In all events, the Supreme Court simply reinterpreted
the phrase as a legal conclusion in Associated General
___________________
Contractors, saying (after a reference to the phrase): "In
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this case [Associated General Contractors], however, the
________________________________
Union was neither a consumer nor a competitor in the
[restrained] market . . . ." 459 U.S. at 539. It did the
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same thing more recently in Atlantic Richfield v. USA
___________________ ___
Petroleum Co., 495 U.S. 328, 345 (1990) (injury not
______________
"inextricably intertwined" because competitor not injured by
"the anticompetitive effects" of the challenged conduct). We
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do not think that anything more need be said about the
matter.
III.
Having assumed throughout that an antitrust violation
may have occurred, it is prudent to stress that this
assumption is very much open to debate; the purported
"essential facilities" doctrine is something less than a
self-executing formula.5 We have also supposed the
existence of causation of harm "in fact", see Sullivan v.
___ ________
NFL, 34 F.3d 1091, 1103 (1st Cir. 1994); but for reasons
___
suggested at the end of our standing discussion, a serious
question exists whether the alleged "antitrust violation"--
when more carefully defined--can be described as the but-for
cause of the harm suffered by SAS.
In all events, even where there is a harm-causing
antitrust violation, not every injured party is entitled to
claim under the antitrust laws. In this case, supposing an
antitrust violation occurred, it was not a violation directed
against SAS and SAS is not an appropriate plaintiff to obtain
____________________
5See generally Interface Group, Inc. v. Massachusetts
______________ ______________________ _____________
Port Auth., 816 F.2d 9, 12 (1st Cir. 1987) (Breyer, J.);
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Hovenkamp, supra, 7 (critiquing the doctrine).
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antitrust relief. SAS's remedies, if the allegations of the
complaint are true, lie in contract and the other pertinent
non-federal claims asserted in its complaint.
Affirmed.
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