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Commonwealth v. Marathon Petroleum Co. LP

United States District Court, W.D. Kentucky, Louisville Division

September 26, 2018

COMMONWEALTH OF KENTUCKY, Plaintiff,
v.
MARATHON PETROLEUM COMPANY LP, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          David J. Hale, Judge.

         The Commonwealth of Kentucky claims that Defendants Marathon Petroleum Corporation, Marathon Petroleum Company LP, and Speedway LLC are affiliated and have collectively used their dominant position in the Louisville and Northern Kentucky gasoline markets to further their monopoly and thwart competition in violation of federal and state antitrust laws. (Docket No. 88) Marathon Petroleum Corp. argues that the Commonwealth's claims against it should be dismissed for lack of personal jurisdiction. (D.N. 92) Additionally, all three Defendants move to dismiss the Commonwealth's claims pursuant to Federal Rule of Civil Procedure 12(b)(6). (Id.; D.N. 93) For the reasons set forth below, the Court will deny Defendants' motions to dismiss.

         I. Background

         A. Allegations

         The following facts are set out in the complaint and accepted as true for purposes of the pending Rule 12(b)(6) motions.[1] See Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir. 2009) (citing Gunasekera v. Irwin, 551 F.3d 461, 466 (6th Cir. 2009) (citations omitted)).

         Marathon Petroleum Corporation, together with its subsidiaries Marathon Petroleum LP and Speedway LLC, is one of the largest petroleum product refiners, marketers, and transporters in the United States. (D.N. 88, PageID # 1093) “Marathon” is the largest refiner in the Midwest, and owns the only refinery in Kentucky.[2] (Id., PageID # 1089) It is also the largest gasoline supplier in Kentucky and largest reformulated gasoline (RFG) supplier in Louisville and Northern Kentucky.[3] (Id.) Indeed, Marathon's approximate RFG wholesale market share in Louisville and Northern Kentucky is between 90 and 95 percent. (Id., PageID # 1090)

         The Commonwealth claims that Marathon's market share “has allowed it to illegally manipulate and attempt to manipulate the market for RFG in . . . Louisville and [Northern Kentucky].” (Id.) Specifically, the government contends that Marathon maintains its market dominance through a variety of contractual arrangements. (Id.) First, Marathon allegedly executed exchange agreements with its horizontal competitors-i.e., competitors at the same market level-to keep other potential RFG suppliers out of Kentucky.[4] (Id., PageID # 1097) Second, the Commonwealth alleges that Marathon uses supply agreements with unbranded gasoline retailers to “limit the retailers' ability to obtain gasoline from Marathon's competitors . . . [and] require [them] to waive their right to claim that Marathon's pricing is unfair or anticompetitive.”[5] (Id., PageID # 1090) Third, Marathon has allegedly sold numerous retail gas station properties (i.e., its Speedway locations) saddled with deed restrictions that permit gasoline sales on the property only if the gasoline is purchased from Marathon. (Id., PageID # 1099) Indeed, Marathon's website states that it has 280 such properties in 13 states throughout the Midwest and Southeast. (Id., PageID # 1100)

         As a result of these practices, the Commonwealth asserts, Marathon has caused the wholesale and retail prices of RFG to be substantially higher in Kentucky than those found in comparative competitive markets. (Id., PageID # 1101)

         B. Procedural History

         On May 12, 2015, the Commonwealth brought this action against Marathon LP, alleging violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2; the Clayton Act, 15 U.S.C. § 14; and various provisions of the Kentucky Consumer Protection Act. See Ky. Rev. Stat. § 367.175(1), (2); Id. § 367.170(1). (D.N. 1) The government also alleged unjust enrichment. (Id.) Marathon LP moved to dismiss the complaint, arguing that the Commonwealth's antitrust claims were barred by the indirect-purchaser rule established in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). (D.N. 28-1, PageID # 225-29) Additionally, Marathon LP argued that the Commonwealth's unjust-enrichment claim should be dismissed because no one conferred a benefit on Marathon. (Id., PageID # 232-33) In a Memorandum Opinion and Order entered June 8, 2016, the Court dismissed the government's unjust-enrichment claim. Commonwealth of Ky. v. Marathon Petroleum Co., LP, 191 F.Supp.3d 694, 706 (W.D. Ky. 2016). The Court allowed the Commonwealth to proceed with its antitrust claims, however, finding that the indirect-purchaser rule did not bar those claims since the government had sufficiently alleged the “control exception” to the rule. Id. at 699-700, 705. Marathon LP then moved to amend the Order to permit interlocutory appeal. (D.N. 48) The Court denied the motion, concluding: “Given the extent to which the control exception has been applied throughout the various circuits, there is adequate guidance on this issue . . . . Therefore, no substantial ground for difference of opinion exists.” Commonwealth of Ky. v. Marathon Petroleum Co., LP, No. 3:15-cv-354-DJH, 2016 WL 7031904, at *4 (W.D. Ky. Dec. 1, 2016).

         On May 20, 2017, the Commonwealth moved for leave to file a second amended complaint, seeking to add Marathon Corp.-Marathon LP's corporate parent-and Speedway-Marathon LP's sister subsidiary-as defendants. (D.N. 71) The Court granted the amendment, finding that “[t]here is a common question of law and fact that applies to all three proposed defendants (whether they collectively, as branches of the same corporate entity, engaged in a scheme to unlawfully suppress competition and fix prices).” Commonwealth of Ky. v. Marathon Petroleum Co., LP, No. 3:15-CV-354-DJH, 2017 WL 4799816, at *4 (W.D. Ky. Oct. 24, 2017). Marathon Corp. now moves to dismiss the claims against it for lack of personal jurisdiction. (D.N. 92) Marathon Corp., Marathon LP, and Speedway also move to dismiss the complaint pursuant to Rule 12(b)(6). (Id.; D.N. 93)

         II. Marathon Corp.'s Rule 12(b)(2) Motion

         A. Standard

         The burden is on the Commonwealth to show that personal jurisdiction exists as to each defendant. See Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991). “[I]n the face of a properly supported motion for dismissal, the [Commonwealth] may not stand on [its] pleadings but must, by affidavit or otherwise, set forth specific facts showing that the [C]ourt has jurisdiction.” Id. When presented with a Rule 12(b)(2) motion, the Court has three options: (1) “decide the motion upon the affidavits alone, ” (2) “permit discovery in aid of deciding the motion, ” or (3) “conduct an evidentiary hearing to resolve any apparent factual questions.” Id. (citing Serras v. First Tenn. Bank Nat'l Ass'n, 875 F.2d 1212, 1214 (6th Cir. 1989)). Where, as here, no evidentiary hearing has been held, a plaintiff must merely make a prima facie showing of personal jurisdiction. Preferred Capital, Inc. v. Associates in Urology, 453 F.3d 718, 720 (6th Cir. 2006); see also Schneider v. Hardesty, 669 F.3d 693, 697 (6th Cir. 2012). The Court will view the evidence in the light most favorable to the Commonwealth without “weigh[ing] the controverting assertions” of Marathon Corp. Theunissen, 935 F.2d at 1459. Dismissal is proper only “if all of the specific facts . . . alleged collectively fail[] to state a prima facie case for jurisdiction.” Id.

         “A federal court sitting in diversity may exercise personal jurisdiction over an out-of-state defendant only to the extent that a court of the forum state could do so.” Kerry Steel, Inc. v. Paragon Indus., Inc., 106 F.3d 147, 148 (6th Cir. 1997). Under Kentucky law, the Court must first look to Kentucky's long-arm statute to determine whether “the cause of action arises from conduct or activity of the defendant that fits into one of the statute's enumerated categories.” Caesars Riverboat Casino, LLC v. Beach, 336 S.W.3d 51, 57 (Ky. 2011). If the statutory requirements are met, the Court must then apply the constitutional due process test “to determine if exercising personal jurisdiction over the non-resident defendant offends [its] federal due process rights.” Id. Caesars clarified that “Kentucky's long-arm statute is narrower in scope than the federal due process clause.” Cox v. Koninklijke Philips, N.V., 647 Fed.Appx. 625, 628 (6th Cir. 2016) (citing Caesars, 336 S.W.3d at 55-57).

         A. Kentucky Long-Arm Statute

         The Kentucky long-arm statute provides, in relevant part: “A court may exercise personal jurisdiction over a person who acts directly or by agent, as to a claim arising from the person's . . . [c]ontracting to supply services or goods in this Commonwealth.”[6] Ky. Rev. Stat. § 454.210(2)(a). The term “person” includes nonresident commercial entities. § 454.210(1). There is little case law interpreting the meaning of “contracting to supply services or goods” following Caesars. The Kentucky Supreme Court has held, however, that “[a] plain reading of [§ 454.210(2)(a)(2)] produces the interpretation that the contract need not be made or executed ‘in this Commonwealth,' but, rather, only that the contract provide for the supplying of services or goods to be transported into, consumed or used in Kentucky.” Hinners v. Robey, 336 S.W.3d 891, 896 (Ky. 2011). Additionally, the long-arm statute requires that a plaintiff's claims “arise from” the jurisdictional predicate (e.g., the contracting to supply goods). Caesars, 336 S.W.3d at 57. The Kentucky Supreme Court has interpreted “arising from” to mean that “the wrongful acts of the defendant alleged in the plaintiff's complaint must originate from the actions or activities that form the applicable statutory predicate for assertion of long-arm jurisdiction.” Id. at 58-59.

         In support of its motion to dismiss, Marathon Corp. argues that the Commonwealth has failed to establish jurisdiction under Kentucky's long-arm statute. In Marathon Corp.'s view, the Commonwealth's contention that the company is amenable to suit in this jurisdiction stems from its mistaken conflation of Marathon Corp. and its subsidiaries, Marathon LP and Speedway.[7] (D.N. 92-1, PageID # 1154) In an affidavit attached to Marathon Corp.'s motion to dismiss, Molly R. Benson-Vice President, Corporate Secretary, and Chief Compliance Officer of Marathon Corp.-asserts:

Marathon Corp. exists solely as a holding company for direct and indirect subsidiaries, one of which, Marathon LP, is primarily engaged in the business of refining, marketing of petroleum products, and transporting petroleum and petroleum products. Speedway LLC, an indirect subsidiary of Marathon Corp., is in the business of the retail sale of petroleum products. Marathon Corp. does not itself engage in any business relating to the refining, marketing, retailing or transporting of petroleum or petroleum products.

(D.N. 92-2, PageID # 1178) Benson further contends that Marathon Corp. is not incorporated in Kentucky; has no agent for service of process in Kentucky; has no offices, employees, or mailing addresses in Kentucky; has never been licensed to do business in Kentucky; and has no operations or customers in Kentucky. (Id., PageID # 1178-79) Benson also maintains that “Marathon Corp. has never entered into any exchange agreements or supply agreements relating to petroleum in Kentucky (or anywhere else).” (Id., PageID # 1179)

         Based on Benson's affidavit, the Court finds that Marathon Corp. has met its initial burden to show that the Court cannot exercise jurisdiction over the company. Accordingly, the Commonwealth “may not stand on [its] pleadings but must, by affidavit or otherwise, set forth specific facts showing that the [C]ourt has jurisdiction.” Theunissen, 935 F.2d at 1458. In support of its position, the government presents several documents, which, in its view, indicate that Marathon Corp. “repeatedly and systematically conducts business in Kentucky.” (D.N. 101, PageID # 1413) Most notably, the Commonwealth references two renewal supply agreements allegedly entered into by Marathon Corp. that provide for the sale of RFG to unbranded retailers in the Louisville and Northern Kentucky markets. (See D.N. 101-5; D.N. 101-6) As evidence that Marathon Corp. was the contracting party, the government notes that the signatories to the agreements were Marathon Corp. officers, who allegedly signed in their capacities with Marathon Corp. (See id; see also D.N. 101, PageID # 1417-18; D.N. 101-2, PageID # 1470)

         Viewed in the light most favorable to the Commonwealth, these supply agreements establish that Marathon Corp. “[c]ontract[ed] to supply services or goods in this Commonwealth, ” on behalf of either itself or, at the very least, its subsidiary Marathon LP. Ky. Rev. Stat. § 454.210(2)(a). As explained above, “the contract need not be made or executed ‘in this Commonwealth,' but, rather, only . . . provide for the supplying of services or goods to be transported into, consumed or used in Kentucky.” Hinners, 336 S.W.3d at 896. The agreements indicate that the corporate officers who signed them did so in their capacities with Marathon Corp. In light of the signatures, the Commonwealth has made a prima facie showing that Marathon Corp. contracted to supply goods to be transported and consumed in Kentucky. Additionally, because this action arises from Marathon Corp.'s alleged use of supply agreements to maintain its monopoly over the RFG market, the government has set forth sufficient facts indicating a reasonable and direct nexus between the cause of action and the jurisdictional predicate. Caesars, 336 S.W.3d at 59; cf. Modern Holdings, LLC v. Corning Inc., No. 13-405-GFVT, 13-406-GFVT, 2015 WL 1481443, at *8 (E.D. Ky. Mar. 31, 2015) (finding that the action did not arise from the jurisdictional predicate where the holding company's alleged connection to Kentucky was a “sale and supply agreement” that was not the basis for the lawsuit).

         In reply, Marathon Corp. claims that the officers signed the agreements in their capacities with Marathon LP, not Marathon Corp. (D.N. 109, PageID # 2334) However, in determining whether Marathon Corp. has established its prima facie showing, the Court must not “weigh[] the controverting assertions” of the defendants. Theunissen, 935 F.2d at 1459; see also Alexander Assocs., Inc. v. FCMP, Inc., No. 10-12355, 2012 WL 1033464, at *17 (E.D. Mich. Mar. 27, 2012) (“The defendants contend that those visits were made in his capacity as [the resident defendant rather than the non-resident defendant]. However, when relying on the affidavits to determine a motion to dismiss for lack of personal jurisdiction, the court must . . . not weigh ‘the controverting assertions of the party seeking dismissal.'”). If Marathon Corp. wished for this Court to weigh its controverting assertions, it could have requested an evidentiary hearing to determine in what capacity the officers signed the supply agreements at issue. (See D.N. 109)

         The Court may therefore exercise jurisdiction over Marathon Corp. consistent ...


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