Crossroads v. Orange & Rockland ( 1998 )

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
10-27-1998
Crossroads v. Orange & Rockland
Precedential or Non-Precedential:
Docket 97-5470
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Recommended Citation
"Crossroads v. Orange & Rockland" (1998). 1998 Decisions. Paper 252.
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Filed October 27, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 97-5470
CROSSROADS COGENERATION CORPORATION
Appellant
v.
ORANGE & ROCKLAND UTILITIES, INC.
On Appeal From the United States District Court
For the District of New Jersey
(D.C. Civil Action No. 96-cv-05287)
Argued April 23, 1998
BEFORE: STAPLETON and NYGAARD, Circuit Judges,
and SCHWARTZ,* District Judge
(Opinion Filed October 27, 1998)
William Harla (Argued)
DeCotiis, FitzPatrick & Gluck
500 Frank W. Burr Boulevard
Glenpointe Centre West
Teaneck, NJ 07666
Attorney for Appellant
_________________________________________________________________
* Hon. Murray M. Schwartz, Senior United States District Judge for the
District of Delaware, sitting by designation.
Glen R. Stuart (Argued)
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
Attorneys for Appellee
OPINION OF THE COURT
STAPLETON, Circuit Judge:
This appeal is from the dismissal of all counts of a
complaint filed by Crossroads Cogeneration Corporation
("Crossroads") against Orange and Rockland Utilities, Inc.
("O&R"). The district court dismissed Crossroads' breach of
contract claim and related claims on the ground that they
were barred by issue and claim preclusion, and dismissed
Crossroads' antitrust claims for failure to state a claim
upon which relief could be granted. We will reverse in part
and affirm in part.
I.
Crossroads, a Delaware company, is an independent
producer of electric power that owns and operates a
cogeneration facility in Mahwah, New Jersey, its principal
place of business. O&R is a New York corporation that
operates as a public utility in four counties in New York,
New Jersey, and Pennsylvania. In each county in which
O&R operates, it is virtually the sole retail provider of
electric power to residential, commercial, and industrial
customers. Most of the energy O&R provides to customers
is purchased from relatively small, independent generators
of energy, such as Crossroads. This dispute arises from a
power purchase agreement governing the sale to O&R of
electricity generated by Crossroads. Before examining the
dispute in any detail, however, it is first necessary to review
the regulatory context of the agreement.
A.
Under the Federal Power Act, 16 U.S.C. S 791a et seq.,
the Federal Energy Regulatory Commission ("FERC") is
2
responsible for regulating "public utilities" that offer electric
power in interstate commerce. In the midst of a national
energy crisis in 1978, Congress modified the Federal Power
Act by enacting the Public Utility Regulatory Policies Act
("PURPA"), 16 U.S.C. S 823a et seq. Congress' overall
strategy was to "control power generation costs and ensure
long-term economic growth by reducing the nation's
reliance on oil and gas and increasing the use of more
abundant, domestically produced fuels." Freehold
Cogeneration Associates, L.P. v. Board of Regulatory
Comm'rs of New Jersey, 44 F.3d 1178, 1182 (3d Cir. 1995).
One chosen means to this broad end was to encourage the
development of cogeneration facilities, which produce both
electric and thermal energy from a single fuel source.
Developing a market for cogeneration facilities required
overcoming both the reluctance of traditional electric
utilities to purchase power from independent providers and
the financial burden of state and federal regulation on
nontraditional facilities. See FERC v. Mississippi, 456 U.S.
742, 750-51 (1982). To address the first barrier, PURPA
creates incentives by requiring FERC to prescribe "such
rules as it determines necessary to encourage cogeneration
and small power production," including rules to"require
electric utilities to offer to . . . purchase electric energy from
[cogeneration] facilities." 16 U.S.C. S 824a-3(a). At the same
time, to address the burden of regulation, PURPA requires
FERC to prescribe rules to exempt small production
facilities from many provisions of the Federal Power Act and
"from State laws and regulations respecting the rates, or
respecting the financial or organizational regulation, of
electric utilities." 16 U.S.C. S 824a-3(e).
Acting pursuant to its authority under PURPA, FERC has
promulgated regulations governing transactions between
cogeneration facilities and electric utilities, including
provisions requiring electric utilities to purchase energy
from qualifying facilities ("QFs") at a rate up to the utility's
full avoided cost.1 In addition, FERC has also promulgated
regulations exempting QFs from state regulatory
_________________________________________________________________
1. In order to qualify as a QF, a cogeneration facility must meet
requirements established by FERC. See 18 C.F.R. S 292.101 et seq.
3
requirements. Those regulations provide, in relevant part,
that:
Any qualifying facility shall be exempted . . . from State
law or regulation respecting:
(i) The rates of electric utilities; and
(ii) The financial and organizational regulation of
electric utilities.
18 C.F.R. S 292.602(c)(1).
Despite the existence of FERC regulations governing QFs
and the exemption of QFs from certain federal and state
regulations applicable to traditional electric utilities, state
regulatory authorities are required to implement FERC
rules. See 16 U.S.C. S 824a-3(f). Thus state agencies are
actively involved in the formation and performance of
contracts between traditional utilities and QFs; in
particular, state authorities must review and approve power
purchase agreements before they take effect.
B.
In October 1987, O&R entered into a contract with a QF
for the purchase of electric energy for a period of twenty
years. In 1990, Crossroads purchased the QF 's facility and
it assigned the agreement to Crossroads.2 Pursuant to
FERC regulations, the agreement required approval by the
New York Public Service Commission ("NYPSC"), the state
agency responsible for regulating electric utilities. After
several changes were made at the NYPSC's request, the
required approval was granted in December of 1988. The
agreement provided that Crossroads' predecessor would
supply energy to O&R from a cogeneration facility that
"initially will be designed to generate nominally 3.3 MW of
capacity and to generate approximately 26,300 MWH of
electric energy annually." App. at 65. The facility was
initially constructed with three combustion engines, each of
which had a generating capacity of approximately 1.1 MW.
However, the agreement anticipated that the plant might
_________________________________________________________________
2. It is undisputed that Crossroads is a "qualifying facility."
4
eventually grow in size, and the parties accordingly agreed
upon the disposition of any capacity in excess of 3.3 MW:
[Crossroads] shall deliver and sell to [O&R] and [O&R]
shall accept and purchase from [Crossroads], subject
to the terms and conditions of this agreement, all the
capacity produced by the Plant, up to a maximum of 4
MW, and all energy associated with such capacity, net
of that capacity and energy used from time to time to
operate the Plant. No change in the amount of capacity
committed hereunder shall be permitted without the
written consent of [O&R] and [Crossroads].
[Crossroads] shall have the right to sell to third parties
or make alternate dispositions of all the capacity
produced by the Plant in excess of 4 MW and all energy
associated with such excess capacity; provided,
however, that [O&R] shall have a right offirst refusal to
purchase such excess capacity and energy for the price
set forth herein.
App. at 70.
Thus, despite the 3.3 MW initial capacity, the agreement
(1) requires O&R to purchase at the contract price all
energy produced up to 4 MW; (2) reserves to O&R a right of
first refusal in allocating any energy in excess of 4 MW; and
(3) provides that Crossroads may sell on the open market
any energy above 4 MW that O&R refuses.
This dispute arose in May 1996, when Crossroads
constructed and began operating a new gas turbine at the
facility, capable of generating 5 MW of power. O&R refused
to pay the contract price for energy generated by the new
turbine, while Crossroads claimed that O&R was obligated
under the agreement to purchase all energy generated by
the original or new equipment up to a capacity of 4 MW.
O&R filed a petition with the NYPSC asking for a
declaratory ruling that it was not obligated to"purchase
energy produced by the [new] Turbine at the prices set forth
in the Agreement." App. at 63. Though acknowledging that
the terms of the agreement required it to purchase "all the
capacity produced by the Plant up to a maximum of 4 MW,"
App. at 57, O&R argued that it would nonetheless be unfair
to require it to purchase energy from the new turbine.
5
O&R's petition contended that the rates set forth in the
agreement are substantially higher than the market would
bear today, a result of policies in the 1980s that provided
subsidies to cogeneration facilities. Since the plant's
capacity was 3.3 before addition of the new turbine, O&R
had not been paying for the full 4 MW of energy prior to
addition of the new turbine. With the new turbine,
Crossroads would easily fulfill the 4 MW that O&R was
obliged to purchase under the agreement. Because O&R is
locked into what it perceives is above-market rates, it
charged that Crossroads was "seek[ing] to circumvent the
terms and spirit of the Agreement by supplementing the
availability of the Original Generators with the output from
the Turbine." App. at 61. O&R estimated that it would be
required to pay an additional $4.2 million to Crossroads for
the additional energy over the life of the contract,
concluding that "[r]equiring [its] ratepayers to subsidize
Crossroads [was] simply inappropriate." App. at 61.
Crossroads opposed O&R's petition before the NYPSC.
Citing a decision of this Circuit, Freehold Cogeneration
Associates v. Board of Regulatory Comm'rs of New Jersey,
44 F.3d 1178 (3d Cir. 1995), Crossroads argued that once
a state utility commission approves the terms of a power
purchase agreement, "any action . . . to reconsider its
approval" is preempted by PURPA. 44 F.3d at 1194.
Crossroads also cited NYPSC precedent suggesting that the
agency usually refused to get involved in contract disputes
between utilities and their suppliers. Finally, Crossroads
contended that the issue was more complex than O&R's
petition made it out to be, and requested an opportunity to
supplement the record should the Commission decide to
exercise jurisdiction.
The NYPSC granted O&R's petition. The Commission
determined that it had authority to review the petition
because of its power to "interpret [its] power purchase
contract approvals." App. at 172. The NYPSC found that
O&R's petition could be read as a request for it to explain
and interpret whether the earlier approval of the contract
included the additional capacity created by the new
turbine. The Commission concluded that "[u]nder the
approval . . . Crossroads may not supplement electricity
6
produced by its [original] engine capacity with electricity
produced from its new turbine capacity." App. at 173.
Thus, the Commission ordered that electricity generated by
the new turbine could not be priced at the contract rate.
Crossroads then filed this action, seeking recovery for
breach of contract and antitrust violations.3 O&R moved to
dismiss Crossroads' claims under Fed. R. Civ. P. 12(b)(6) for
failure to state a claim. Crossroads cross-moved for
summary judgment on all claims. The district court granted
O&R's motion and denied Crossroads' motion. The district
court determined that: (1) the contract claims4 all are
"premised on [Crossroads'] contention that[O&R] breached
its obligations under the terms of the Agreement by
refusing to pay the contract price for energy generated by
the new gas turbine," Op. at 15; (2) Crossroads is barred by
principles of issue and claim preclusion from litigating the
issue of whether the agreement requires purchase of energy
from the new turbine because that issue was litigated and
determined before the NYPSC; (3) Crossroads' argument
that the NYPSC did not have jurisdiction to construe the
contract is also barred by operation of the "jurisdictional
finality" rule of issue preclusion; and (4) Crossroads failed
to sufficiently allege antitrust violations. After dismissing all
Crossroads' claims, the district court then denied its cross-
motion for summary judgment as moot. This appeal followed.5
II.
We will reverse the judgment of the district court with
respect to Crossroads' contract claims.
_________________________________________________________________
3. Crossroads has preserved its right to appeal the NYPSC's
determination by filing an appeal in the appropriate New York state
court. The parties have by stipulation stayed that proceeding pending
the outcome of this case.
4. The claims involved are Crossroads' First, Second, Third, and Fourth
causes of action, for breach of contract, breach of the covenant of good
faith and fair dealing, anticipatory repudiation, and declaratory
judgment.
5. The district court had jurisdiction pursuant to 28 U.S.C. SS 1332 &
1337. We have jurisdiction from the district court'sfinal order pursuant
to 28 U.S.C. S 1291.
7
A.
Issue preclusion, also known as collateral estoppel, bars
relitigation of issues adjudicated in a prior action. Federal
courts are required to give preclusive effect to state court
judgments by virtue of the Full Faith and Credit Act, which
provides that "Acts, records and judicial proceedings . . .
shall have the same full faith and credit in every [federal]
court . . . as they have by law or usage in the courts of
such State . . . from where they are taken." 28 U.S.C.
S 1738; see Swineford v. Snyder County, 15 F.3d 1258,
1266 (3d Cir. 1994). By its terms, S 1738 applies only to
state court decisions, and the Supreme Court has
determined that the statute does not apply to
administrative agency decisions that have not beenfirst
reviewed by a state court. See University of Tennessee v.
Elliott, 478 U.S. 788, 794 (1986). However, the Court has
"frequently fashioned federal common-law rules of
preclusion in the absence of a governing statute." Id. Thus,
we must determine whether an unreviewed decision of the
NYPSC should be given preclusive effect.
Though the Supreme Court has not yet addressed the
preclusive effect of decisions of state agencies responsible
for utility regulation, we are guided by several generally
applicable criteria. The Court has determined that, unless
a federal statute specifically indicates that state agency
decisions should not be considered conclusive, as in the
context of Title VII, Elliott, 478 U.S. at 795-96, and the Age
Discrimination Act, Astoria Fed. Sav. & Loan Ass'n v.
Solimino, 501 U.S. 104, 110-11 (1991), factualfindings of
state agencies should be given the same preclusive effect
they would be accorded in the courts of that state. See
Elliott, 478 U.S. at 797; Edmundson v. Borough of Kennett
Square, 4 F.3d 186, 192 (3d Cir. 1993). In addition,
applying preclusive effect to legal conclusions made by
state agencies "is favored as a matter of general policy,
[though] its suitability may vary according to the specific
context of the rights at stake, the power of the agency, and
the relative adequacy of agency procedures." Astoria, 501
U.S. at 109-10.
In this case, we determine that the factual findings and
legal conclusions of the NYPSC should be given preclusive
8
effect to the extent afforded under New York law. Unlike
Astoria or Elliott, we find no provision of PURPA that seeks
to limit common law rules of preclusion from applying to
state agency decisions relating to utility regulation. Though
PURPA does limit the authority of state agencies in some
respects, e.g., by exempting cogeneration facilities from
some regulation, PURPA still provides a substantial role to
state agencies in regulating energy contracts between
utilities and cogenerators. Indeed, state agencies are
specifically required by federal law to implement FERC
regulations. Given the substantial role given state utility
agencies by Congress in enacting PURPA, we conclude
Congress did not intend to prevent application of common
law rules of preclusion. Thus, we will give preclusive effect
to the NYPSC decision to the same extent as would the New
York courts. Accord Long Island Lighting Co. v. IMO
Industries, Inc., 6 F.3d 876, 885 (2d Cir. 1993) (decision of
NYPSC given preclusive effect).
Crossroads also contends that, in particular, the NYPSC's
determination that it had jurisdiction over O&R's petition
should not be given preclusive effect in this action. Though
recognizing that, generally speaking, a tribunal's
determination of its own jurisdiction is accorded the same
status for issue preclusion purposes as the merits of a
dispute, see Durfee v. Duke, 375 U.S. 106, 114 (1963),
Crossroads contends an exception to the rule applies in a
case like this where a federal statute, PURPA, preempts the
state agency from acting altogether. This more limited
argument of Crossroads presents, in our judgment, a close
question. We conclude that we need not resolve it, however,
in light of our determination in subsection C below that the
NYPSC decided an issue distinct from that to be decided in
this case, and our determination in subsection D below
that Crossroads' contract claims are not barred by claim
preclusion. Accordingly, we assume, without deciding, that
the Commission had the jurisdiction it purported to
exercise with respect to O&R's petition.
B.
Under New York law, an issue adjudicated in a prior
proceeding will have preclusive effect where (1) the "issue in
9
the present proceeding [is] identical to that necessarily
decided in a prior proceeding" and (2) "in the prior
proceeding the party against whom preclusion is sought
was accorded a full and fair opportunity to contest the
issue." Allied Chemical v. Niagara Mohawk Power Corp.,
528 N.E.2d 153, 155 (N.Y. 1988).6 The district court, after
examining the NYPSC decision, determined that these
requirements were met and concluded that Crossroads'
claims were precluded by the prior determination. See Op.
at 19. On appeal, Crossroads challenges the determination
that they were provided a "full and fair" opportunity to
litigate before the NYPSC. See Appellant's Br. at 26, 33-35.
Under New York law:
A determination whether the first action or proceeding
genuinely provided a full and fair opportunity requires
consideration of "the ``realities of the [prior] litigation',
including the context and other circumstances which
. . . may have had the practical effect of discouraging
or deterring a party from fully litigating the
determination which is now asserted against him".
(People v. Plevy, 52 N.Y.2d 58, 65, 436 N.Y.S.2d 224,
417 N.E.2d 518.) Among the specific factors to be
considered are the nature of the forum and the
importance of the claim in the prior litigation, the
incentive and initiative to litigate and the actual extent
of litigation, the competence and expertise of counsel,
the availability of new evidence, the differences in the
applicable law and the foreseeability of future litigation.
(Gilberg v. Barbieri, 53 N.Y.2d 285, 292, 441 N.Y.S.2d
49, 423 N.E.2d 807; Schwartz v. Public Administrator,
24 N.Y.2d 65, 72, 298 N.Y.S.2d 955, 246 N.E.2d 725.)
_________________________________________________________________
6. In addition, when applying issue preclusion to an administrative
agency, New York courts are required to ascertain that the agency
proceeding was "quasi-judicial" in nature; i.e., whether (1) the agency
has the power to act adjudicatively, (2) the agency follows adequate fact-
finding procedures, (3) the issue was fully aired, and (4) the parties
expect to be bound by the decision. See Allied, 528 N.E.2d at 155. In
Allied, New York's highest court determined that, judged by these
criteria, a decision of the NYPSC was "quasi-judicial." The district court
in this case agreed, and Crossroads provides no persuasive reason on
appeal to conclude differently.
10
Ryan v. New York Telephone Co., 467 N.E.2d 487, 491 (N.Y.
1984). These requirements are intended to make certain
that the first tribunal carefully considered the issues
litigated, and that the party against whom preclusion is
sought had a chance to offer vigorous argument for its
position. In this case, two issues of "full and fair"
opportunity arise from the litigation before the NYPSC: (1)
whether Crossroads was given a "full and fair" chance to
argue the issue of the NYPSC's jurisdiction to address
O&R's petition; and (2) whether Crossroads was given a
"full and fair" opportunity to litigate the merits of the
petition.
The issue of whether Crossroads had a "full and fair"
opportunity to argue, before the NYPSC, the issue of the
NYPSC's own jurisdiction is straightforward. The parties
both submitted briefs before the NYPSC outlining their view
of the jurisdictional issue, including Crossroads'
contentions that PURPA, FERC regulations, and the
NYPSC's own practice prohibited jurisdiction over the
interpretation of the contract. Crossroads' brief before the
NYPSC mirrors the arguments made before us on appeal.
The NYPSC opinion deciding the issue carefully considered
each of Crossroads' arguments and reflects a considered
analysis of its jurisdictional predicate. Reading the parties'
submissions before the NYPSC, and the resulting decision,
we believe, leads to the conclusion that Crossroads had a
full and fair opportunity to litigate the issue of the agency's
jurisdiction.
The more debatable issue is whether Crossroads had a
full and fair opportunity to litigate the merits of O&R's
petition. In addition to determining that it had jurisdiction
over O&R's petition, the NYPSC also proceeded to grant the
petition, holding that "[u]nder [its] approval of the contract
for the Crossroads site, [Crossroads] may not expand the
generation production entitled to the contract pricing. . . .
As a result, the expanded production made possible by
Crossroads' new turbine is beyond the terms and
conditions approved for this contract." App. at 173.
In this appeal, Crossroads briefly argues that the
NYPSC's consideration of the merits of O&R's petition did
not offer Crossroads a "full and fair" opportunity to contest
11
the issue. Crossroads contends that it did not seek relief
from the NYPSC or participate voluntarily in the agency's
proceedings, that it solely contested the jurisdictional issue,
and that it requested, and was denied, an opportunity to
supplement the record before the NYPSC. Despite these
arguments, we believe that Crossroads had a full and fair
opportunity to litigate the merits of O&R's petition for
declaratory relief before the NYPSC.
Crossroads' argument that it did not seek relief before the
NYPSC and did not voluntarily participate before the agency
is not legally relevant to whether it had a full and fair
opportunity to litigate the merits issue. Moreover, contrary
to its assertion in its brief, Crossroads' submission before
the NYPSC did argue the merits of the petition. Crossroads
contended that the agreement could not be read to suggest
that the original set of three 1.1 MW generators was the
only capacity assumed by the parties, pointing to language
in the agreement and exhibits demonstrating the intent of
the parties at the time the contract was signed. That these
arguments were not accepted by the NYPSC does not mean
that Crossroads had an inadequate opportunity to present
them.
Crossroads also argues that the NYPSC did not heed its
request to file additional materials before it rendered its
decision on the merits of the petition. In its submission to
the agency, Crossroads requested that "[s]hould the
Commission determine that it will entertain O&R's request
for a declaratory ruling, CROSSROADS respectively
reserves its right to make a further submission that more
fully describes the matters in dispute . . . ." App. at 120.
However, the fact that Crossroads asked for a second
opportunity to argue the issue does not establish that it did
not have a "full and fair" first opportunity. Moreover,
Crossroads has not pointed to any additional materials or
arguments that it would have made before the NYPSC.
Since Crossroads has not suggested that it would have
made any additional arguments before the NYPSC, it is
difficult to conclude that it did not have a full and fair
opportunity to litigate on this ground.
More importantly, looking only to Crossroads' opportunity
to litigate before the NYPSC is not the legally relevant
12
perspective. The issue of a "full and fair" opportunity to
litigate includes the possibility of a chain of appellate
review. See, e.g., Kremer v. Chemical Construction Corp.,
456 U.S. 461, 484 (1982); Reubens v. New York City Dep't
of Juvenile Justice, 930 F. Supp. 887, 892 (S.D.N.Y. 1996).
Crossroads has an opportunity to appeal the NYPSC's
decision through the state court system, and Crossroads
will presumably have an opportunity in those proceedings
to raise its claims regarding the merits of O&R's petition, as
well as its contention that the NYPSC improperly denied its
application to supplement the record. In short, in
determining whether a litigant has been given a"full and
fair" opportunity to litigate a claim, we must take into
account the possibility of appellate review. Since such
review is available in this case, and there is no allegation
that it would be inadequate to consider Crossroads'
arguments,7 Crossroads has been given a full and fair
opportunity for preclusion purposes.
C.
In addition to the requirement of an opportunity to argue
the merits, issue preclusion applies only when the issue in
the present proceeding is "identical" to that decided in the
prior proceeding. Allied, 528 N.E.2d at 155. Thus,
application of claim preclusion is appropriate here only if it
can be said that the issue decided by the NYPSC is the
same issue that Crossroads, by filing its contract claims,
has asked the district court to decide. Resolution of this
issue requires that we examine with some care the law
applicable to those claims and the specific grounds upon
which the NYPSC rested its decision on the jurisdictional
and merits issues.
As we noted above, under PURPA and the regulations
_________________________________________________________________
7. At oral argument Crossroads suggested that a restrictive standard of
review in the New York state courts might limit its ability to litigate
its
position. However, these comments were not raised before oral
argument. Moreover, we find no reason to believe that the standard of
review applied by an appellate court would impair the ability of
Crossroads to meaningfully make the arguments it has advanced before
us.
13
adopted by the FERC, qualifying facilities like Crossroads
are exempt from state utility-type regulation, including
regulation of "rates of electric utilities." 18 C.F.R.
S 292.602(c)(1). We have interpreted these regulations to
prevent state regulatory commissions from modifying the
terms of a power purchase agreement between a utility and
cogeneration facility after it has been approved by the state.
In other words, while PURPA allows the appropriate state
regulatory agency to approve a power purchasing
agreement, once such an agreement is approved, the state
agency is not permitted to modify the terms of the
agreement. To do so would be to engage in the utility-type
regulation from which PURPA exempts QFs.
This principle was recently articulated in Freehold
Cogeneration Associates, L.P. v. Board of Regulatory
Comm'rs of New Jersey, 44 F.3d 1178 (3d Cir. 1995).
Freehold involved facts similar to those before us. A utility
and cogenerator reached a twenty-year power purchase
agreement at certain specified rates. The agreement was
approved by the New Jersey regulatory board responsible
for reviewing such agreements. After a year had passed
under the contract, the utility, in response to lower costs
for obtaining electrical power, notified the state board that
it wished to modify the pricing structure of the agreement.
The cogenerator rejected suggestions to renegotiate or agree
to a buy-out offer to end the contract. The regulatory board
then directed the cogenerator to renegotiate the rates under
the agreement or agree to a buy-out. The cogeneratorfiled
a complaint in the district court, seeking a declaratory
judgment exempting it from the board's attempts to modify
the agreement. The district court denied relief. On appeal,
after determining jurisdiction, ripeness, and other
challenges, we proceeded to discuss whether PURPA
preempted the state regulatory board's order requiring
renegotiation of the agreement.
Noting that "PURPA and the implementing regulations
establish an extensive federal system to encourage and
regulate the sale of electrical energy by QFs," we
determined that FERC, and not state regulatory agencies,
were responsible for establishing the parameters governing
power purchase agreements between utilities and qualifying
14
facilities. 44 F.3d at 1191. Though FERC did allow state
agencies to approve such agreements, the implementation
authority of state agencies end once an agreement is
approved. After approval has been granted, "attempt[s] to
either modify the [agreement] or revoke [state agency]
approval is ``utility-type' regulation -- exactly the type of
regulation from which [a qualifying facility] is immune
under [PURPA]." Id. at 1192. Thus, unless the qualifying
authority waives its PURPA rights in the agreement, the
federal law prevents the state from "reconsideration of its
prior approval." Id.Not surprisingly, Crossroads cited our Freehold decision
to the NYPSC in support of its contention that the
Commission lacked jurisdiction to interpret the power
purchase agreement. In response, the NYPSC expressly
recognized the "contract non-interference policy" inherent
in PURPA and acknowledged that it lacked jurisdiction to
interpret the agreement. It carefully drew a distinction,
however, between interpreting the agreement between the
parties and interpreting its approval of that agreement,
holding that it possessed jurisdiction to do the latter:
As was recently reaffirmed, it is within our authority
to interpret our power purchase contract approvals,
and that jurisdiction has been upheld by the courts.
The precedents involving interpretation of past policies
and approvals, and not the contract non-interference
policy that Crossroads cites, control here. As a result,
the approval of the original contract for the Crossroads
site may be explained and interpreted, and O&R's
petition may be construed as requesting that relief.
That approval was limited to a project consisting of
three reciprocating engines, sized at a net capacity of
3.3 MW, with an estimated annual electrical output of
26,300 MWh. Under the approval, therefore,
Crossroads may not supplement electricity produced
by its reciprocating engine capacity with electricity
produced from its new turbine capacity.
App. at 172-73 (footnotes omitted) (emphasis supplied).
The opinion of the NYPSC is devoid of any reference to
the text of the agreement. In reaching its conclusion that its
15
"approval was limited to a project consisting of three
reciprocating engines, sized at a net capacity of 3.3 MW,"
the Commission cites solely to a memorandum from its
staff that describes the then existing cogeneration plant as
"consist[ing] of three dual fuel engine-generator sets." App.
at 137, 173. Consistent with its ruling on jurisdiction, the
Commission's holding was carefully circumscribed to reflect
only an interpretation of its approval:
Accordingly, we find and declare that the petition of
Orange and Rockland Utilities, Inc. is granted in part,
to the extent that the December 2, 1988 approval of
Contract No. E-139 between O&R and Onsite
(Crossroads' predecessor) is construed as limiting the
contract pricing to electric production from the three
reciprocating engine facility that was installed in 1987,
and does not extend to production from the gas-fired
turbine that was installed in 1996.
App. at 174. The referenced "December 2, 1988 approval" is
a Commission letter to the parties informing them that it
had "accepted the contract and supplement" thereto
"contingent upon . . . the contract being amended" in two
detailed respects not relevant here. Neither side maintains
before us that the required amendments were not made.
It is thus apparent that the NYPSC, because of the
limitations it perceived on its own jurisdiction, deliberately
excluded from its deliberation any interpretation of the
contract it approved on December 2, 1988. As a result, we
conclude that it did not decide the issue presented by the
contract claim in this case.
As we understand the federal law applicable here,
although a PURPA-governed agreement is unenforceable
prior to approval by the relevant state agency, the rights of
the parties, once their agreement receives such approval,
are to be determined by applying normal principles of
contract interpretation to their agreement. Thus, the
district court in this case is being asked to determine from
the approved agreement of the parties their intention with
respect to O&R duty to purchase new capacity. This is an
issue that the NYPSC expressly declined to address.
16
We do not suggest that a court asked to enforce a state
approved PURPA governed agreement will never have
occasion to consider the terms of the agency's approval. In
some cases, those terms may be highly relevant in
determining the parties' understanding of their respective
rights and duties under the contract. Nothing in the
approval granted here is helpful in that respect, however.
Moreover, when those terms have relevance, they are
relevant only in the context of the understanding of the
parties as reflected in an objective reading of the agreement
and its approval. An inquiry into the issues focused on by
the Commission and its staff as reflected in its internal
records is not relevant.
Accordingly, we conclude that the issue decided by the
NYPSC does not have preclusive effect with respect to the
issues presented by Crossroads' contract claims.
D.
In addition to issue preclusion, the district court also
determined that Crossroads' contract claims were barred by
claim preclusion. Operation of claim preclusion, or res
judicata, enforces the principle that a final judgment of a
claim on the merits between the same parties resolves both
that claim and all others arising out of the same
transaction. See Ryan v. New York Telephone Co., 467
N.E.2d 487, 489-90 (N.Y. 1984). Applying this doctrine, the
district court concluded that Crossroads' contract claims
"were already litigated between these parties before the
NYPSC, which reached a final determination of those claims
on the merits." Op. at 18. We disagree.
New York courts have adopted a "transactional" approach
to res judicata, meaning that "once a claim is brought to a
final conclusion, all other claims arising out of the same
transaction or series of transactions are barred, even if
based upon different theories or if seeking a different
remedy." O'Brien v. City of Syracuse, 429 N.E.2d 1158,
1159 (N.Y. 1981); see also Schuylkill Fuel Corp. v. B. & C.
Nieberg Realty Corp., 165 N.E. 456, 457 (N.Y. 1929)
(Cardozo, C.J.) ("A judgment in one action is conclusive in
a later one, not only as to any matters actually litigated
17
therein, but also as to any that might have been so litigated
. . . ."). This principle has been applied by New York courts
in cases where a defense or counterclaim used in one
action is asserted in a later action. See, e.g. , Board of
Managers of Windridge Condominiums One v. Horn, 651
N.Y.S.2d 326 (N.Y. App. Div. 1996); Lippman v. Lippman,
612 N.Y.S.2d 532 (N.Y. App. Div. 1994). Thus, if O&R had
brought its declaratory judgment action in a New York
court of general jurisdiction, rather than the NYPSC, asking
for a declaration that it had no duty to buy additional
power under the agreement, Crossroads would have to
come forward with any and all grounds it might have to
assert that this duty exists. If so, then under traditional
claim preclusion principles Crossroads would be bound by
an adverse declaratory judgment whether or not the court
expressly ruled on the meaning of the contract.
Nevertheless, we predict that New York courts would not
apply claim preclusion in the circumstances now before us.
Crossroads was taken involuntarily before the NYPSC, and
it asserted a jurisdictional argument there. The
Commission, as we have read its opinion above, accepted
that defense to the extent that O&R was asking for a
contract interpretation. It went out of its way to hold that
it was without jurisdiction to grant such relief but that it
did have jurisdiction to interpret its approval. Accordingly,
we think this is a situation of the kind described in the
Restatement (Second) of Judgments:
S 26. Exceptions to the General Rule Concern ing
Splitting
(1) When any of the following circumstances exists, the
general rule of S 24 does not apply to extinguish the
claim, and part or all of the claim subsists as a
possible basis for a second action by the plaintiff
against the defendant: . . .
(c) The plaintiff was unable to rely on a cert ain
theory of the case or to seek a certain remedy or form
of relief in the first action because of the limitations on
the subject matter jurisdiction of the courts or
restrictions on their authority to entertain multiple
theories or demands for multiple remedies or forms of
18
relief in a single action, and the plaintiff desires in the
second action to rely on that theory or to seek that
remedy or form of relief . . . .
New York courts, applying this provision, have created an
exception to claim preclusion in situations where the first
tribunal lacks jurisdiction to offer the relief sought in the
second proceeding. Compare Handy v. Westbury Teachers
Ass'n, 104 A.D.2d 923, 925-26 (N.Y. App. Div. 1984) (state
agency that "declined to adjudicate [plaintiffs] contentions
on these issues . . . holding that it lacked . . . jurisdiction
leaves plaintiffs free to raise those same contentions in
[later] action") with Pauk v. Board of Trustees of the City
Univ. of N.Y., 111 A.D.2d 17, 21 (N.Y. App. Div. 1985) (res
judicata applies where grounds for recovery "was entirely
available to plaintiff as a basis for relief " in the prior
proceeding). Because the contract claims were unavailable
to Crossroads before the NYPSC, we hold that claim
preclusion was improperly applied in this case.
E.
In reaching the conclusion that the district court is free
to decide Crossroads' contract claims on their merits, we
are mindful of the fact that the NYPSC's opinion ultimately
declared that O&R owes no duty to purchase at the
contract rate energy generated by Crossroads in excess of
3.3 MW but less than 4 MW. This can be, and in most
circumstances would properly be, viewed as a declaration
on the same issue presented to the district court by
Crossroads' contract claims. Had the Commission regarded
itself as having jurisdiction to consider the terms of the
contract, the district court would clearly be barred from
proceeding on the contract claims by both issue and claim
preclusion. But the Commission's opinion makes it
indisputably clear that it drew a careful distinction between
interpreting the intent of the parties as reflected in their
approved agreement and interpreting the intent of the
Commission and then concluded that it had no jurisdiction
to do the former. Given that Crossroads' contract claims
rest solely on the intent of the parties as reflected in the
contract, we can remain faithful to the principles
underlying S 26 of the Restatement and the New York cases
19
embracing it only by looking beneath the Commission's
ultimate conclusion to its foundation., i.e., its
determination that in 1988 it had considered and
subjectively approved only the sale of energy from the
existing facilities at the contract price. Because the
Commission considered itself without jurisdiction to
consider the argument that Crossroads was making,
Crossroads remains entitled to its day in the district court.
III.
In its fifth cause of action, Crossroads accuses O&R of
monopolization and attempted monopolization, in violation
of S 2 of the Sherman Act, 15 U.S.C. S 2, and price
discrimination, in violation of S 2 of the Clayton Act, as
amended by the Robinson-Patman Act, 15 U.S.C. S 13.
Crossroads alleges that O&R's refusal to purchase energy
from Crossroads pursuant to the agreement has helped
unfairly solidify O&R's monopoly position in its service
area. In addition, Crossroads alleges that O&R has impeded
its attempts to sell its excess energy to customers in O&R's
service area by offering those customers lower prices. The
district court dismissed Crossroads cause of action on both
theories for failure to state a claim. On appeal, Crossroads
contends that its complaint is sufficient to survive
dismissal. We agree with this aspect of the district court's
decision.
The district court correctly determined that Crossroads'
Sherman Act claims should be dismissed. Section 2 of the
Sherman Act provides that "[e]very person who shall
monopolize, or attempt to monopolize . . . any part of the
trade or commerce among the several States . . . shall be
deemed guilty of a felony . . . ." 15 U.S.C.S 2. To state a
claim for monopolization, a plaintiff must allege "(1) the
possession of monopoly power in the relevant market and
(2) the willful acquisition or maintenance of that power as
distinguished from growth or development as a
consequence of a superior product, business acumen, or
historical accident." Schuylkill Energy Resources v.
Pennsylvania Power & Light Co., 113 F.3d 405, 412-13 (3d
Cir.) (quotations omitted), cert. denied, 118 S. Ct. 435(1997). To state a claim for attempted monopolization, a
20
plaintiff must allege "(1) that the defendant has engaged in
predatory or anticompetitive conduct with (2) a specific
intent to monopolize and (3) a dangerous probability of
achieving monopoly power." Schuylkill, 113 F.3d at 413.
The district court determined that Crossroads had failed
to allege a relevant market or sufficient monopoly power to
state a claim under the Sherman Act. The court held that:
[P]laintiff fails, as a matter of law, to sufficiently allege
monopoly power. Plaintiff merely states that defendant
is the sole provider of electricity to certain customers in
the counties it services. . . . Plaintiff fails to allege such
necessary facts as defendant's market share in the
markets in which plaintiff is a competitor or that
barriers that exist which prevent plaintiff 's entry into
such markets. These deficiencies in the Complaint
mandate dismissal of plaintiff 's Sherman Act claims.
See Barr Lab, Inc. v. Abbott Lab, 978 F.2d 98, 112-13
(3d Cir. 1992).
Op. at 9. We agree with the district court's reasoning.
Alleging market share alone is not sufficient to state a
claim under the Sherman Act. Monopolization or threatened
monopolization requires something more, which may
include "the strength of competition, probable development
of the industry, the barriers to entry, the nature of the anti-
competitive conduct, and the elasticity of consumer
demand." Barr Labs, 978 F.2d at 112. Crossroads has not
alleged any of these factors. Nor is it likely that it could
have done so. Crossroads admits that it acts as a
competitor to O&R in selling its excess capacity in O&R's
service area, and it provides no reason why it is prevented
from doing so in the future. The complaint simply fails to
allege anything to suggest monopolization by O&R
cognizable by the Sherman Act.
The district court also did not err in dismissing
Crossroads' price discrimination claim under the Robinson-
Patman Act. Crossroads alleges that O&R approached its
excess capacity customer and offered to sell it electricity at
a lower price than that offered by Crossroads, that the
reduced price was not offered to all customers, and that
such action constitutes a violation of the Robinson-Patman
21
Act. The Robinson-Patman Act, which amended the Clayton
Act, prohibits price discrimination "where the effect of such
discrimination may be substantially to lessen competition
or tend to create a monopoly." 15 U.S.C. S 13(a). In order to
state a claim under the Robinson-Patman Act, a plaintiff
must allege facts to demonstrate that (1) the defendant
made at least two contemporary sales of the same
commodity at different prices to different purchasers; and
(2) the effect of such discrimination was to injure
competition. See Brooke Group Ltd. v. Brown & Williamson
Tobacco Corp., 509 U.S. 209, 219-27 (1993).
The district court dismissed Crossroads' claim because it
failed to allege that O&R made any sales of energy at
different prices. The complaint merely alleges that O&R has
"offered" to sell electricity at a rate lower than that charged
by Crossroads. Crossroads does not deny this infirmity, but
contends that since O&R is virtually the sole provider of
electricity in its service area that there is "danger" that O&R
will abuse its market power in competing with smaller
suppliers like Crossroads. See Appellant's Br. at 47. This
position is not supported by any citation to authority and
suggests that Crossroads' claim is based on at a speculative
threat of future competitive injury, which would not be ripe
for determination in any event. Merely offering lower prices
to a customer does not state at a price discrimination claim.8
Even if the offer of lower prices were sufficient to survive
dismissal, Crossroads has failed to sufficiently plead the
second element of a price discrimination claim: injury to
competition. Crossroads has made no allegation of
predatory conduct in any offers to customers that O&R has
made, nor has it alleged any other competitive effect of
O&R's offer. The mere fact of O&R's market share does not
mean that approaching Crossroads' customer is an
antitrust violation, so something additional must be alleged
in order to survive dismissal. See Barr Labs, 978 F.2d at
106-07. Crossroads has not alleged any anticompetitive
_________________________________________________________________
8. As the district court noted, at least two other circuits have required
dismissal when two sales are not alleged. See Terry's Floor Fashions, Inc.
v. Burlington Indus., 763 F.2d 604, 615 (4th Cir. 1985); Fusco v. Xerox
Corp., 676 F.2d 332, 337 (8th Cir. 1982).
22
effect, such as below-market prices, or any other indicia of
anticompetitive behavior. Crossroads' monopolization and
price discrimination claims simply come up short.
IV.
The judgment of the district court will be reversed, and
the matter will be remanded for further proceedings
consistent with this opinion.9
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
9. As we noted above, the district court denied Crossroads' cross-motion
for summary judgment as moot. In light of our decision, the motion is no
longer moot, but we decline to reach its merits since it has not been
briefed before us nor first addressed by the district court.
23