The Fourth Circuit Overturns Grant of Summary Judgment

Duke Energy Carolinas, LLC, v. NTE Carolinas II, LLC

By Morgan Marmaro

Background. On August 5, 2024, the Fourth Circuit overturned the District Court’s grant of summary judgment in Duke Energy v. NTE Carolinas and remanded the case after finding genuine disputes of material fact.[1]?NTE originally sued Duke for illegal monopoly maintenance of the wholesale power market in the Carolinas in violation of § 2 of the Sherman Act.[2]

NTE alleges?Duke, the incumbent power company, supported its monopoly by preventing a challenger, NTE, from winning a long-term wholesale power supply contract with the City of Fayetteville, a major Duke customer for more than 100 years who had been providing Duke with $100 million in annual net revenue.[3]?NTE alleges Duke did so by (i) providing instructions to suspend payments on a $59 million interconnection agreement that was critical to NTE’s development plans (and to winning Fayetteville business); (ii) unilaterally terminating the interconnection agreement and suing for breach of contract; (iii) submitting incomplete filings and false statements to regulatory bodies; (iv) offering in the aggregate $325 million in retroactive discounts and increased payments for excess energy from Fayetteville — thereby mitigating a public Fayetteville RFP; and (v) purposefully destroying the value of NTE’s planned expansion.[4] NTE claims this was all done as Duke internally worried about NTE’s efficiency. Duke’s 2018 internal projections that its costs were 25-30% higher than NTE’s and that Duke’s systems were “no longer competitive” but the “problem [was] mitigated by [the] long-term nature of [its] contracts.”[5]

Procedural Posture.?On September 6, 2019, Duke sued in North Carolina state court for breach of contract.[6] NTE removed the action to federal court and filed a counterclaim alleging Duke had monopolized or attempted to monopolize the Carolinas wholesale energy market in violation of § 2 of the Sherman Act, North Carolina’s Unfair and Deceptive Trade Practices Act, and for breach of contract.[7] Duke then filed a motion for summary judgment, arguing that NTE failed to present sufficient evidence to show that Duke both held monopoly power and had engaged in illegal exclusionary conduct.[8] On June 24, 2022, the District Court granted summary judgment on the antitrust and unfair competition counterclaims finding that NTE had not demonstrated that Duke had engaged in anticompetitive conduct.[9] NTE then appealed to the Fourth Circuit.

Analysis and Holdings.?The district court, in finding for Duke, had analyzed each type of alleged conduct individually (e.g., refusal to deal or denial of an essential facility, predatory pricing, breach of contract suit as a sham litigation) and found that under the test appropriate to each type of conduct, none of the conduct was anticompetitive.[10] The District Court stated that, if the conduct was individually not anticompetitive, then it could not be aggregated to establish an anticompetitive effect.[11] In its review on appeal, the Fourth Circuit agreed that Duke likely had monopoly power, given its “durably high market share” standing “at or approaching 90%.”[12]

In reversing, the Fourth Circuit held that, on these facts, the District Court should have considered the conduct holistically and said that a Section 2 analysis does “not [focus] on court-made subcategories.”[13] The Court noted that “when a court is faced with allegations of a complex or atypical exclusionary campaign, the individual components of which do not fit neatly within pre-established categories, its application of such specific conduct tests would prove too rigid[,]”[14] citing, e.g., to Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690 (1962) to show it would be a “misapplication of antitrust doctrine” to treat allegations of anticompetitive conduct “as if they were five completely separate and unrelated lawsuits.”[15] The Fourth Circuit found that a holistic review of conduct is appropriate in more “challenging” cases, where two or more individually-lawful practices can be aggregated into a “pattern capable of sustaining a Sherman Act § 2 offense” or where the individual acts are “part of the same scheme to perpetuate dominance or drive the plaintiff from the market” – concluding that at this stage, the conduct should be considered as a single campaign as NTE alleges.[16]

The Court similarly found a genuine factual dispute as to whether “Duke’s Fayetteville offer was designed to cut out a more efficient competitor at consumers’ expense,” precluding summary judgment, and rejecting arguments that the Brooke Group two-prong test must be applied to NTE’s exclusionary-pricing argument.[17] Even under a predatory pricing analysis, a factual dispute still remained – rejecting the argument that the “filed-rate” doctrine bars NTE’s challenge.[18]

The Fourth Circuit also reviewed the leading cases on refusals to deal, including Aspen Skiing, Trinko, and Otter Tail, and found that there was sufficient evidence that Duke might have sacrificed profits and forsaken short-term profits to achieve anticompetitive ends, precluding a grant of summary judgment.[19] The Court found that under the current facts, “FERC’s regulatory oversight would not foreclose antitrust liability” and that Duke forewent a profitable arrangement – distinguishing the current case from Trinko and aligning more with Aspen Skiing.[20]

The Fourth Circuit also emphasized that evidence of Duke’s “anticompetitive malice” bolstered its conclusion that the case should proceed to trial.[21]

In addition, the Court ordered that a new District Judge should oversee the remanded case as Judge Bell, the original District Court Judge had originally recused himself – but did not do so once the case was reassigned to him – and that “for the appearance of impartiality,” “once a judge is recused, the judge is ‘out of service’ insofar as that case is concerned”[22] The Court notes that “[s]uch a Brightline rule can be applied with ease and promotes the goal of ensuring public confidence in the impartiality of the judicial process” and that the “rule serves the judicial process well, and we adhere to it.”[23]

[1] Duke Energy Carolinas, LLC, v. NTE Carolinas II, LLC, No. 22-2168, 2024 WL 3642432, at *4 (4th Cir. Aug. 5, 2024).

[2] Id. at *3

[3] Id. at 7-8.

[4] Id. at 11-20

[5] Id. at 10-11

[6] Id. at *20

[7] Id.

[8] Id. at 20-21.

[9] Id. at *22.

[10] Id. at *23.

[11] Id.

[12] Id. at *25.

[13] Id. at *27.

[14] Id.

[15] Id. at *28.

[16] Id. at 29-30.

[17] Id. at 35-36 (emphasis in original).

[18] Id. at 36, 39-*40.

[19] Id. at 41-49.

[20] Id. at *46.

[21] Id. at *51.

[22] Id. at *53.

[23] Id. at 53-54 (noting that the Court does “not find that Judge Bell acted inappropriately in recusing himself in the first instance, nor do we find that he did not allow sufficient time to pass before abandoning his initial policy.”).