PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

VIRGINIA VERMICULITE, LIMITED,
Plaintiff-Appellant,

and

M.F. PEERS, JR.; NORMA PEERS,
Plaintiffs,                              No. 97-1698

v.

W.R. GRACE & COMPANY -
CONNECTICUT,
Defendant-Appellee.

M.F. PEERS, JR.; NORMA PEERS;
VIRGINIA VERMICULITE, LIMITED,
Plaintiffs-Appellants,

v.                               No. 97-1699

W.R. GRACE & COMPANY -
CONNECTICUT,
Defendant-Appellee.
VIRGINIA VERMICULITE, LIMITED,
Plaintiff-Appellant,

v.

W.R. GRACE & COMPANY -
CONNECTICUT; THE HISTORIC GREEN
                                                                            No. 97-1807
SPRINGS, INCORPORATED,
Defendants-Appellees.

NATIONAL TRUST FOR HISTORIC
PRESERVATION; THE LAND TRUST
ALLIANCE,
Amici Curiae.

Appeals from the United States District Court
for the Western District of Virginia, at Charlottesville.
James H. Michael, Senior District Judge.
(CA-96-12-3-C, CA-96-13-3-C, CA-95-15-3-C)

Argued: December 4, 1997

Decided: September 1, 1998

Before LUTTIG and WILLIAMS, Circuit Judges, and
MERHIGE, Senior United States District Judge for the
Eastern District of Virginia, sitting by designation.*

_________________________________________________________________

Reversed and remanded by published opinion. Judge Luttig wrote the
opinion, in which Judge Williams joined.
_________________________________________________________________

*Senior Judge Merhige participated in the hearing of this case at oral
argument but retired before the decision was filed. The decision is filed
by a quorum of the panel. See 42 U.S.C.§ 46(a).

                     2
COUNSEL

ARGUED: Einer Richard Elhauge, HARVARD LAW SCHOOL,
Cambridge, Massachusetts, for Appellants. Charles Hubert Montange,
Seattle, Washington; Randolph S. Sherman, KAYE, SCHOLER,
FIERMAN, HAYS & HANDLER, New York, New York, for Appel-
lees. ON BRIEF: David Z. Izakowitz, Jane Champion Clarke,
WOODS, ROGERS & HAZLEGROVE, P.L.C., Charlottesville, Vir-
ginia, for Appellant Virginia Vermiculite; Roger S. Martin, MARTIN
& WOODARD, P.L.C., Charlottesville, Virginia, for Appellants
Peers. David S. Copeland, KAYE, SCHOLER, FIERMAN, HAYS &
HANDLER, New York, New York; Thomas E. Albro, Patricia D.
McGraw, TREMBLAY & SMITH, Charlottesville, Virginia, for
Appellee W.R. Grace.

_________________________________________________________________

OPINION

LUTTIG, Circuit Judge:

Plaintiffs Virginia Vermiculite, Limited and M.F. Peers, Jr. and
Norma Peers appeal from the district court's dismissal of their claims
against defendants W.R. Grace & Company and Historic Green
Springs, Incorporated, brought under section 1 of the Sherman Anti-
trust Act, 15 U.S.C. § 1, and Virginia law. Reviewing the district
court's dismissal de novo, Chisolm v. TranSouth Financial Corp., 95
F.3d 331, 334 (4th Cir. 1996), we reverse.

I.

Appellant Virginia Vermiculite, Limited ("VVL") and appellee
W.R. Grace & Company ("Grace") are the only domestic producers
of vermiculite, a unique mineral used in fire safety, energy conserva-
tion, construction, environmental protection, food processing, and
horticulture. Appellee Historic Green Springs, Incorporated ("HGSI")
is a nonprofit organization that seeks to protect the Green Springs
National Historic Landmark District in western Virginia. For approxi-
mately twenty years, HGSI has conducted a campaign to prevent ver-
miculite mining in the Green Springs region. Appellants Peerses are

                    3
family members who sold land containing vermiculite deposits to
Grace, subject to royalty agreements.

Vermiculite is a relatively rare mineral. Only two states, South Car-
olina and Virginia, have known and usable vermiculite reserves.
Grace mines vermiculite only in South Carolina; VVL, only in Vir-
ginia. Until 1976, Grace was the sole producer of vermiculite in the
United States. From 1972 to 1976, Grace purchased mining rights to
over 80% of the known vermiculite deposits in Virginia. Grace
acquired some of this land from members of the Peers family, includ-
ing appellants Peerses, in return for a lump sum and royalties on any
vermiculite mined from the land. In exchange for these royalties, the
Peerses agreed in writing that Grace, and its successors in interest,
would retain "sole discretion" over whether to mine the land. Grace,
however, never mined any of its Virginia deposits and consequently
did not pay the Peerses any royalties.

In 1976, VVL entered the vermiculite market by obtaining rights
to one of the few Virginia deposits not already held by Grace. By the
early 1990s, VVL's share of the domestic vermiculite market had
grown to approximately 23%. Grace, however, owned more than 80%
of the mining rights to known vermiculite deposits in the United
States, while VVL was rapidly depleting the deposits to which it had
access.

In 1991, Grace invited VVL to make an offer to purchase Grace's
vermiculite holdings in Virginia. VVL duly made an offer, which was
rejected by Grace. Grace thereafter donated its holdings to HGSI.
These holdings, comprising over 40% of the known vermiculite
deposits in the United States, covered almost 1400 acres of land
located in and around the Green Springs region. VVL alleges that the
purpose of the donation was to prevent VVL from obtaining access
to the vermiculite deposits on the land.

Grace made its donation in two parts. In 1992, Grace conveyed
1152 acres to HGSI, accompanied with restrictive covenants barring
vermiculite mining on the land. Although the covenants bound HGSI
and its successors in interest, Grace retained the right to waive them.
However, a Virginia court subsequently struck down one of these
covenants. See HGSI v. Brandy Farm, Ltd. , 32 Va. Cir. 98, 102-03

                    4
(Louisa Cty. 1993), petition refused, No. CH-4872 (Va. June 20,
1994). Consequently, when Grace transferred the final 229 acres to
HGSI in 1994, it omitted any similar covenants. VVL alleges, how-
ever, that Grace executed this second part of the donation on the
unwritten understanding that HGSI would not allow vermiculite min-
ing on the land.

As a result of this donation, on February 21, 1995, VVL brought
suit against Grace and HGSI ("the VVL suit"). VVL's complaint
included six counts. Count I alleged that Grace and HGSI entered into
an agreement, combination, or conspiracy in restraint of trade in vio-
lation of section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. Count
II alleged that Grace engaged in monopolization in violation of sec-
tion 2 of the Sherman Act, id. § 2. Count III alleged that Grace
attempted to engage in monopolization, also in violation of section 2.
Count IV alleged that Grace and HGSI entered into a conspiracy to
monopolize, again in violation of section 2. Count V alleged that
Grace and HGSI violated analogous provisions of the Virginia Anti-
trust Act, Va. Code §§ 59.1-9.1 to 59.1-9.18. Count VI alleged that
Grace and HGSI engaged in a conspiracy to injure another in trade,
business, or profession, in violation of Virginia law, id. § 18.2-499.

On March 12, 1996, VVL, which had obtained interests in the
claims of various members of the Peers family, and appellants Peerses
brought two additional lawsuits against Grace ("the Peers suits"). The
two suits included essentially identical counts. Counts I to V alleged
that Grace's donation of the land sold to it by the Peerses violated
various state laws. Count VI alleged that the donation violated section
1 of the Sherman Act.

The district court referred all of these suits to a magistrate judge,
and, on September 19, 1995, the magistrate recommended dismissing
Counts I, II, and III of the VVL suit for failure to state a claim, Fed.
R. Civ. P. 12(b)(6), and dismissing Counts V and VI for want of juris-
diction, 28 U.S.C. § 1367(c). On September 19, 1996, the magistrate
recommended dismissing the Peers suits in their entirety on similar
grounds.

The district court adopted the magistrate's recommendations in
part. 965 F. Supp. 802 (W.D. Va. 1997). First, the district court con-

                    5
cluded that VVL and the Peerses had failed to state a claim for an
agreement, combination, or conspiracy in restraint of trade under sec-
tion 1 of the Sherman Act. Id. at 819-21. Consequently, it dismissed
Count I of the VVL suit, Count V of the same suit to the extent that
it relied on the same theory, and Count VI of the Peers suits. Id. at
821. Second, the district court held that HGSI was entitled to an
exemption from the antitrust laws. Id. at 813. It thus dismissed HGSI
from the VVL suit entirely. Id. at 818. Third, the district court con-
cluded that VVL and the Peerses had failed to state a claim under Vir-
ginia law in the Peers suits. Id. at 829-32. Therefore, it dismissed the
remainder of those suits. Id. VVL and the Peerses subsequently
brought this consolidated appeal, challenging all three rulings.

II.

Appellants first assert that the district court erred in finding that
they failed to state a claim under section 1 of the Sherman Act. We
agree.

The district court dismissed appellants' section 1 claims on the
ground that appellants failed to demonstrate a sufficient causal rela-
tionship between their alleged injury and appellees' alleged violation
of the antitrust laws. 965 F. Supp. at 819. Specifically, the court rea-
soned that any injury to appellants was unavoidable because HGSI,
or its successors in interest, would not have allowed vermiculite min-
ing on the donated lands even absent the nonmining agreements
between HGSI and Grace. Id. at 820. This reasoning is faulty for two
reasons.

First, appellants sufficiently alleged that HGSI, or its successors in
interest, might eventually have allowed vermiculite mining on the
donated lands in the absence of the nonmining agreements. In this
regard, of course, appellants need only make a "colorable" showing
that it was "reasonably probable" that the behavior in question caused
their injury. Advanced Health-Care Servs., Inc. v. Radford Commu-
nity Hosp., 910 F.2d 139, 149 (4th Cir. 1990). Such a low standard
is particularly justified in this context because"in antitrust cases,
where `the proof is largely in the hands of the alleged conspirators,'
dismissals prior to giving the plaintiff ample opportunity for discov-
ery should be granted very sparingly." Hospital Bldg. Co. v. Trustees

                     6
of the Rex Hosp., 425 U.S. 738, 746 (1976) (quoting Poller v. CBS,
368 U.S. 464, 473 (1962)) (citation omitted).

Appellants meet this standard. VVL acknowledged in its complaint
that eliminating vermiculite mining was "one of HGSI's avowed
goals." J.A. at 575. It also claimed, however, both that HGSI had
other goals and that its management and members had financial inter-
ests of their own in the land in question. Id . By alleging that HGSI
had goals beyond eliminating vermiculite mining and that its manage-
ment and members individually had financial interests in the land in
question, appellants sufficiently raised the specter either of possible
mining by HGSI or its agents or of sale of the land to another for min-
ing. As appellants observe, it is not at all implausible that HGSI might
have chosen to mine the reserves in order to pursue other of its goals
or even to preserve its financial stability. Indeed, appellants represent
that HGSI has already sold some of the land. See Br. of Appellants
at 40. The fact that the parties saw the need to enter into the nonmin-
ing agreements at all yet further supports the inference that HGSI had
other goals beyond preservation, as the nonmining agreements would
have been superfluous to the donation were HGSI committed solely
to the elimination of mining.

Second, the district court simply misconstrued the nature of appel-
lants' section 1 allegations. Rather than asserting that the nonmining
agreements alone constituted an agreement, combination, or conspir-
acy in violation of section 1, both VVL and the Peerses alleged that
the entire transaction between Grace and HGSI -- comprising both
the donation of the lands and the nonmining agreements -- consti-
tuted such an agreement, combination, or conspiracy. See J.A. at 575-
76 (VVL complaint); id. at 129, 141 (Peers complaints). Conse-
quently, the relevant question for causal purposes is not whether
HGSI would have allowed mining in the absence of the nonmining
agreements, but rather whether Grace would have allowed mining in
the absence of both the donation and the nonmining agreements.
Absent its transaction with HGSI, Grace may even have been
required to grant VVL access to its Virginia holdings, on the ground
that failure to do so would constitute an improper unilateral refusal to
deal. See Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S.
585 (1985); Eastman Kodak Co. v. Image Technical Servs., Inc., 504
U.S. 451, 483 n.32 (1992). Further, even if Grace lawfully could have

                     7
donated the lands to HGSI without the nonmining agreements, it is
foreclosed from challenging causation simply on the basis that it
could have achieved the same result through lawful means. See Lee-
Moore Oil Co. v. Union Oil Co., 599 F.2d 1299, 1302 (4th Cir. 1979)
(holding that, when an antitrust plaintiff alleged damages resulting
from the defendant's concerted refusal to deal,"the fact that [the
defendant] might have caused the same damages by a lawful [unilat-
eral] cancellation of the contract is irrelevant"). For these reasons, the
district court erred in dismissing appellants' section 1 claims.1

III.

Appellants next argue that the district court erred in dismissing
their claims against HGSI. We agree.

The district court dismissed appellants' claims against HGSI on the
ground that HGSI is exempt from the antitrust laws because it is a
nonprofit organization pursuing noncommercial, sociopolitical objec-
tives. 965 F. Supp. at 815. We hold that, regardless of whether an "ex-
emption" for nonprofit organizations exists, HGSI does not qualify
for such an exemption here because the transaction between HGSI
and Grace was fundamentally commercial.

Section 1 of the Sherman Act includes no reference to an exemp-
tion for nonprofit organizations, stating instead that "[e]very person"
who acts in restraint of trade or commerce falls within its scope. 15
U.S.C. § 1. In interpreting section 1, the Supreme Court has repeat-
edly confirmed that nonprofit organizations are not exempt from the
section's reach. See NCAA v. Board of Regents, 468 U.S. 85, 100 n.22
(1984) ("There is no doubt that the sweeping language of § 1 applies
_________________________________________________________________
1 Grace argues that the Peerses lack standing to assert antitrust claims
against it. Whether the Peerses have antitrust standing turns primarily on
whether their injuries are direct or indirect, an inquiry that in turn
depends on whether other, more directly affected parties exist. See, e.g.,
Associated Gen. Contractors v. California State Council of Carpenters,
459 U.S. 519, 541-42 (1983); Illinois Brick Co. v. Illinois, 431 U.S. 720,
730-31 (1977). Because the Peerses directly supplied mining rights to
Grace, with no intervening party more directly implicated, we hold that
they do have standing.

                     8
to nonprofit entities, and in the past we have imposed antitrust liabil-
ity on nonprofit entities which have engaged in anticompetitive con-
duct." (citations omitted)); American Soc'y of Mechanical Eng'rs,
Inc. v. Hydrolevel Corp., 456 U.S. 556, 576 (1982) ("[I]t is beyond
debate that nonprofit organizations can be held liable under the anti-
trust laws."); Goldfarb v. Virginia State Bar, 421 U.S. 773, 786-87
(1975) ("We cannot find support for the proposition that Congress
intended any such sweeping exclusion.").

A number of our sister circuits have held that, in certain circum-
stances, nonprofit organizations are not subject to antitrust liability.
See, e.g., Dedication and Everlasting Love to Animals v. Humane
Soc'y, 50 F.3d 710, 712 (9th Cir. 1995) (refusing to apply antitrust
laws to solicitation of contributions by charity); Marjorie Webster
Junior College, Inc. v. Middle States Ass'n of Colleges and Second-
ary Sch., Inc., 432 F.2d 650, 654-55 (D.C. Cir. 1970) (likewise for
accreditation of educational institution by regional association). When
these cases are examined closely, however, this seeming "exemption"
is not really an exemption at all, but a straightforward interpretation
of the plain language of section 1, which prohibits only restraints of
"trade or commerce," not noncommercial behavior. See, e.g., United
States v. Brown Univ., 5 F.3d 658, 666 (3d Cir. 1993) (applying anti-
trust laws to nonprofit universities on the ground that payment of
tuition in return for education constitutes "quintessential commercial
transaction," with classification of transaction as commercial based on
"totality of surrounding circumstances"); cf. NOW v. Scheidler, 968
F.2d 612, 622-23 (7th Cir. 1992) (refusing to apply antitrust laws to
abortion protests even though defendants were not nonprofit organiza-
tions, on ground that behavior was noncommercial).

Regardless of how the "exemption" for nonprofit organizations
engaging in noncommercial behavior is characterized, however,
HGSI is subject to the antitrust laws in this case because the transac-
tion between HGSI and Grace was essentially commercial. We
emphasize that the dispositive inquiry is whether the transaction is
commercial, not whether the entity engaging in the transaction is
commercial. Ample evidence suggests the commercial nature of the
transaction here. First, as the district court recognized, the transaction
between HGSI and Grace had obvious effects on the commercial mar-
ket for vermiculite: by constraining the supply of vermiculite, the

                     9
transaction increased the price of the mineral. 965 F. Supp. at 815.
Further, as the district court also acknowledged, the transaction had
direct commercial benefits for HGSI itself: by receiving hundreds of
acres of land, HGSI not only realized a substantial"pecuniary gain,"
id. at 809, but also protected the alleged commercial interests of its
management and members, which might be affected by mining of the
land, J.A. at 575.

Even were we to hold that HGSI was somehow "exempt" from the
antitrust laws by virtue of being a nonprofit organization, the
Supreme Court has held, in the context of other exemptions, that an
organization that would otherwise be exempt from the antitrust laws
loses its exemption by conspiring with a nonexempt party. See Allen
Bradley Co. v. Local Union No. 3, 325 U.S. 797, 809-10 (1945)
(labor exemption); United States v. Borden Co., 308 U.S. 188, 204-05
(1939) (agriculture exemption). Moreover, it is not necessary that
HGSI have shared Grace's alleged anticompetitive motive in entering
into a proscribed restraint; it is sufficient that HGSI, regardless of its
own motive, merely acquiesced in the restraint with the knowledge
that it would have anticompetitive effects. See Hydrolevel, 456 U.S.
at 573-74 (holding nonprofit organization liable regardless of whether
its agents acted with intent to benefit organization, provided restraint
had anticompetitive effects); United States v. Paramount Pictures,
Inc., 334 U.S. 131, 161 (1948) ("[A]cquiescence in an illegal scheme
is as much a violation of the Sherman Act as the creation and promo-
tion of one."); Duplan Corp. v. Deering Milliken Inc., 594 F.2d 979,
982 (4th Cir. 1979) (per curiam) ("Where, as here, the [defendants]
were knowing participants in a scheme whose effect was to restrain
trade, the fact that their motives were different from or even in con-
flict with those of the other conspirators is immaterial."). In assessing
whether HGSI is subject to the antitrust laws for its participation in
the transaction with Grace, the only relevant inquiry is into the nature
of the transaction, not the nature of HGSI's motive. Because the
transaction at issue in this case was fundamentally commercial, the
district court erred in dismissing HGSI as a defendant.2
_________________________________________________________________
2 In its brief, see Br. of Appellee HGSI at 23-25, HGSI makes the
related, but discrete, argument that it should be immune from antitrust
liability because its conduct in entering into the transaction with Grace

                    10
IV.

Finally, appellants argue that the district court erred in finding that
they failed to state a claim under Virginia state law in the Peers suits.
Again, we agree.

The district court rested its dismissal of appellants' state law claims
primarily on its interpretation of the provision in the contract between
the Peerses and Grace that vested Grace with "sole discretion" to
decide whether to mine the land. 965 F. Supp. at 831-32. It ruled that
Grace had no implicit contractual duty under state law to use good
faith in exercising its discretion as to whether to mine. Id. at 831. Not
only was this ruling incorrect as a matter of standard contract law, but
it also failed to take into consideration a prior Virginia case ruling on
a virtually identical contract.

First, it is a basic principle of contract law in Virginia, as else-
where, that although the duty of good faith does not prevent a party
from exercising its explicit contractual rights , a party may not exer-
cise contractual discretion in bad faith, even when such discretion is
vested solely in that party. See Steven J. Burton & Eric G. Anderson,
Contractual Good Faith 46-47 (1995) ("The courts could leave all
discretion in performance unbridled. . . . No U.S. court now takes this
approach . . . . Thus, contractual discretion is presumptively bridled
by the law of contracts -- by the covenant of good faith implied in
every contract."). Neither of the cases on which the district court
relied is inconsistent with this rule. See Charles E. Brauer Co. v.
NationsBank, 251 Va. 28, 35 (1996) (holding that exercise of explicit
_________________________________________________________________
was protected by the First Amendment, see NAACP v. Claiborne Hard-
ware Co., 458 U.S. 886, 907-15 (1982) (holding that politically moti-
vated boycott was not subject to antitrust laws). We reject this argument
for two reasons. First, HGSI simply does not identify any "speech" that
would be restricted if HGSI were subject to the antitrust laws. Second,
the Supreme Court has since limited its reasoning in Claiborne to cases
in which the defendant is financially disinterested. See FTC v. Superior
Court Trial Lawyers Ass'n, 493 U.S. 411, 425-28 (1990). As we noted
above, see supra Part II, appellants have sufficiently alleged that HGSI
was financially interested in the transaction with Grace.

                     11
contractual right by bank against debtor was not bounded by good
faith); Mahoney v. NationsBank, 249 Va. 216, 219-21 (1995) (same).

Second, the Virginia courts have already ruled, in earlier litigation
involving a conveyance of vermiculite mining rights to Grace and a
donation of those rights from Grace to HGSI, that a nearly identical
contractual provision carries with it an implicit duty of good faith.
Brandy, 32 Va. Cir. at 102. In Brandy, as here, a private landowner
conveyed mining rights to Grace in return for a lump sum and royalty
payments.3 Id. at 98-99. The landowner, again as here, agreed in writ-
ing that Grace would retain "sole discretion" over whether to mine the
property. Id. at 101. The court in Brandy concluded that such a provi-
sion entailed an implicit duty of good faith. Id . at 102 ("[T]he implied
duty of good faith is particularly important in the context of mining
leases, where the landowners must necessarily leave the decision-
making process to the expertise of mining companies."). Moreover,
the court held that Grace's donation of the rights at issue to HGSI
constituted a breach of that duty. Id. at 102-03.

In predicting how the Virginia courts would construe this contrac-
tual provision, we refuse to presume either that they would deviate
from a fundamental premise of contract law or that they would
change their minds so soon after interpreting a nearly identical provi-
sion in a nearly identical context. Accordingly, we hold that the dis-
trict court erred in dismissing appellants' state law claims.4
_________________________________________________________________

3 Grace argues that Brandy should be distinguished because the transac-
tion at issue involved a lease, rather than a sale, of land. See Br. of
Appellee Grace at 21. We find this distinction unpersuasive. Indeed, the
argument for implying a duty of good faith may even be stronger in the
latter case, because the original landowner in the former case could at
least choose not to renew the lease were it unsatisfied with how Grace
had exercised its discretion.

4 Because we hold that appellants have sufficiently alleged that Grace
breached its implicit contractual duty to act in good faith, we express no
view on appellants' theory that Grace also violated the explicit terms of
the contract by entering into the nonmining agreements with HGSI. See
Br. of Appellants at 30-31.

                    12
CONCLUSION

The judgment of the district court is reversed, and the case
remanded for further proceedings consistent with this opinion.

REVERSED AND REMANDED

                    13
