City Communications, Inc. v. City of Detroit

660 F. Supp. 932, 1987 U.S. Dist. LEXIS 4213

Opinion

MEMORANDUM OPINION

GILMORE, District Judge.

On January 22, 1987, this Court issued an opinion in this case granting the defendants’ joint motion for summary judgment in part. City Communications, Inc. v. City of Detroit, 650 F.Supp. 1570 (E.D.Mich.1987). On March 2, 1987, the private defendants Barden and MacLean-Hunter filed a motion for reconsideration and/or for certification of certain issues for immediate appeal pursuant to 28 U.S.C. § 1292(b). The City of Detroit also filed a motion to certify or reconsider. Those motions are the subject of this opinion.

This suit challenges the legality of the City of Detroit’s award to the defendants of an exclusive cable television franchise for Detroit. The facts of this case are set forth in some detail in this Court’s opinion of January 22, 1987. The plaintiff is a disappointed bidder for the cable television contract. The claim relevant to this motion is that the City and the successful defendants conspired to violate Sections One and Two of the Sherman Anti-Trust Act, 15 U.S.C. §§ 1, 2. In its January 22 opinion, this Court found that the City of Detroit was immune from any antitrust liability under the “state action doctrine,” but that the private defendants, Barden and Mac-Lean-Hunter, could not benefit from the doctrine. It is the latter ruling that the private defendants wish the Court to reconsider.

In Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), the Supreme Court held that the Sherman Act does not apply to the anticompetitive conduct of a state acting through its legislature. The state action immunity doctrine is based on principles of federalism and state sovereignty, which will not lightly attribute to Congress an intent to “nullify a state’s control over its officers and agents.” Parker, 317 U.S. at 351, 63 S.Ct. at 313; See Garland, Antitrust and State Action: Economic Efficiency and the Political Process, 96 Yale L.J. 486 (1987). Twenty-five years later, the doctrine was extended to protect municipalities insofar as the municipality acted pursuant to a state policy. Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 98 S.Ct. 1123, 55 L.Ed.2d 364 (1978). The Supreme Court added a second prong to the state immunity doctrine as applied to non-state defendants when it held that the challenged restraint must be “ ‘actively supervised’ by the State itself.” California Retail Liquor Dealers Assn v. Midcal Aluminum Inc., 445 U.S. 97, 105, 100 S.Ct. 937, 943, 63 L.Ed.2d 233 (1980). Recently, the Court held that a municipality does not have to satisfy the “active supervision” requirement as it is presumed that a municipality acts in the public interest. Town of Hallie v. City of Eau Claire, 471 U.S. 34, 105 S.Ct. 1713, 85 L.Ed.2d 24 (1985); Southern Motor Carriers Rate Conference Inc. v. United States, 471 U.S. 48, 105 S.Ct. 1721, 85 L.Ed.2d 36 (1985). 1 The City of Detroit was dismissed pursuant to this line of cases as the Court found that Detroit acted pursuant to an articulated state policy when it awarded the cable television contract to the defendants.

Where the conduct of a private party is challenged, the private party is presumed to act on its own behalf, Haillie, 471 U.S. at 45, 105 S.Ct. at 1722, hence must show that its conduct was actively supervised by the state in order to be protected by the state action doctrine. Southern Motor, 471 U.S. at 57, 105 S.Ct. at 1723. Accordingly, this court denied the private defendants’ motion for summary judgment, finding that they had not shown active supervision by the State of Michigan. City Communications, 650 F.Supp. at 1578-79.

The defendants argue that the active state supervision requirement should not be applied to them. They assert that, where a private party is simply regulated by a municipality that is itself immune from antitrust liability and is not the “anti-competitive decision maker,” the private party need not be supervised by the state and should benefit from the state action immunity doctrine.

The Court agrees that the state supervision requirement should not be mechanically applied to all private defendants in municipal antitrust actions. However, there are disputed issues of fact as to whether the City of Detroit or the private defendants were the effective decision makers in this case.

The supervision requirement prevents the State from frustrating the national policy in favor of competition by “casting ... a gauzy cloak of state involvement over what is essentially a private price-fixing arrangement.” Midcal, 455 U.S. at 106, 100 S.Ct. at 943. Midcal affirmed a state court injunction prohibiting officials from enforcing a statute requiring wine producers to establish resale price schedules. The Court found that the state had simply authorized a price setting and market control mechanism established and operated by private parties, without any regulation of the private anticompetitive behavior by the state. Recently, the Supreme Court again struck down a private price maintenance system that operated with state authorization but without state supervision. 324 Liquor Corp. v. Duffy, — U.S. —, 107 S.Ct. 720, 93 L.Ed.2d 667 (1987).

Both Midcal and Duffy involved what have become known as “hybrid” restraints on competition where “nonmarket mechanisms merely enforce private marketing decisions” in which private actors were granted “a degree of private regulatory power.” Fisher v. City of Berkeley, California, 475 U.S. 260, —, 106 S.Ct. 1045, 1050, 89 L.Ed.2d 206, 213 (1986). In Fisher, the Court held that, where there are no private marketing decisions and the municipality unilaterally imposed noncompetitive rent control measures upon the private sector, the Sherman Act is not even implicated so as to activate the state action immunity doctrine. Rejecting the argument that the rent control ordinance formed a combination between the property owners and the City, the Court held that there was no concerted action within the meaning of the statute simply because the private sector obeyed the regulatory commands of the municipality. Fisher, 89 L.Ed.2d at 212-13. Fisher distinguished two cases involving “hybrid” regulation, Midcal, supra, and Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035 (1951), stating that those cases involved a large amount of “free participation by private economic actors.” Fisher, 89 L.Ed.2d at 1050. The Court concluded:

There may be cases in which what appears to be a state or municipality administered price stabilization scheme is really a private price-fixing conspiracy, concealed under a “gauzy cloak of state involvement.” Midcal, supra, at 106, 100 S.Ct. at 943. This might occur even where prices are ostensibly under the absolute control of government officials. However, we have been given no indication that such corruption has tainted the rent controls imposed by Berkeley’s Ordinance. Adopted by popular initiative, the Ordinance can hardly be viewed as a cloak for any conspiracy among landlords or between the landlords and the municipality.

Id. 89 L.Ed.2d at 214.

Once it is determined that the municipality is protected by the state action doctrine, a private party who is merely the beneficiary of the municipality’s exercise of power should also be protected. To hold otherwise would allow the Parker doctrine to be circumvented by artful pleading: “A plaintiff could frustrate any [protected plan] merely by filing suit against the regulated private parties, rather than the state officials who implement the plan.” Southern Motor Carriers, 471 U.S. at 56-57, 105 S.Ct. at 1727.

The Sixth Circuit shares this restrictive application of the state supervision requirement. In remanding a case to the district court for determination of whether the defendants’ conduct fell within the state action doctrine, the Sixth Circuit held that, if the municipality made the “effective decision” resulting in the challenged conduct, the municipality was protected by the state action doctrine since it acted pursuant to a state policy, and the entire action must be dismissed. Riverview Investments, Inc. v. Ottawa Community Improvement Corp., 769 F.2d 324, rev’d, 774 F.2d 162 (6th Cir.1985). Riverview then ruled that the claim against the private party could be maintained only if the private party made the “effective decision” that distressed the plaintiff. Only upon a determination that the private party made the effective decision could evidence be taken as to whether the private party was actively supervised by the state. Id., 769 F.2d at 330, 774 F.2d at 163. Other Circuits have also declined to allow plaintiffs to attack municipal decisions through the “back door,” holding that private parties are entitled to immunity once the municipality is held to be immune:

When the [municipal entity] accomplishes its goal in a protected manner, and the participation of private third parties was reasonably contemplated by the legislature, allowing successful tangential attacks on the [municipality’s] activities through suits against the [private parties] would effectively block the efforts of the [municipality].

Cine 42nd Street Theater Corp. v. Nederlander Organization, 790 F.2d 1032, 1048 (2d Cir.1986); see Charley’s Taxi Radio Dispatch v. Sida of Hawaii, 810 F.2d 869, 878 (9th Cir.1987).

This Court agrees with the defendants that, once it is determined that the municipality is entitled to immunity from the antitrust laws, the private parties who are regulated by the municipality are also entitled to immunity as long as the “effective decision maker” is the municipality rather than the private parties. It is precisely on this issue that the Court is faced with a factual dispute. Were the City of Detroit’s decisions that permitted the defendants to retain their exclusive cable television franchise made by the City, or did Barden and MacLean have so much influence that the decisions were effectively those of the private defendants? 2 As the Sixth Circuit held in Riverview, if the private defendants were the effective decision makers, they will have to demonstrate that they operated under state supervision, while, if the City made the effective decisions, the antitrust claims against the private defendants will have to be dismissed. 3

The defendants argue that, even if the state supervision requirement applies to them, the supervision by the City of Detroit meets the state supervision requirement. While some courts do permit municipal supervision to meet the state supervision requirement, see Trinity Ambulance Service, Inc. v. G. & L. Ambulance Service, Inc., 625 F.Supp. 142 (D.Conn.1985,) aff’d 787 F.2d 86 (2d Cir.1986); Vartan v. Harristown Development Corp., 655 F.Supp. 430, (N.D.Pa.1987), that is not the law of this circuit. In Riverview, the Sixth Circuit expressly held that private parties seeking state action immunity must demonstrate that they have been supervised by the state, not by the municipality. Riverview, 774 F.2d at 163.

The private defendants’ final issue in this motion for reconsideration is that this Court erred in holding that disputed issues of fact prevented it from ruling on the applicability of the Local Government Antitrust Act of 1984. 15 U.S.C. §§ 34 et seq. This act bars antitrust damages claims against municipalities, and as to private defendants stated:

No damages, interest on damages, costs or attorney’s fees may be recovered under Section 15, 15a, or 15c of this title in any claim against a person based on any official action directed by the local government, or official or employee thereof acting in an official capacity.

15 U.S.C. § 36. Legislative history indicates that Congress intended that Parker and its progeny should be used to interpret this section. H.Con.Rep. No. 98-1158, 89th Cong., 2d Sess., reprinted in 1984 U.S. Code Cong. & Admin.News 4602, 4627. Accordingly, just as this Court is unable to determine, from the current record, who was the effective decision maker in this case, so disputed issues of fact remain as to whether these private defendants were really acting under official supervision so as to qualify for protection under the Local Government Antitrust Act.

In summary, disputed issues of fact remain as to the applicability of both the state action immunity doctrine and the Local Government Antitrust Act to Barden .and MacLean-Hunter. Accordingly, their motions for reconsideration are denied. As these are factual, not legal issues, these disputes are obviously not ripe for certification for immediate review pursuant to 28 U.S.C. § 1292(b), and that motion is denied as well.

As to the City’s motion for reconsideration, Count V of the complaint alleges that the City of Detroit violated the First Amendment by awarding only one cable franchise. The defendants’ joint motion for summary judgment argued that the First Amendment claim in Count V, as well as the due process claim in Count IV and the waste claim in Count VI were barred by the doctrine of res judicata. This Court, in its January 22, 1987 opinion, held that the claims were not barred by res judicata. The City of Detroit now moves for reconsideration of that issue or for certification of it for interlocutory appeal. The Court finds no palpable defect in its earlier opinion and no proper basis for certification of the issue. Therefore, the City’s motion is denied as well.

1 . The road an antitrust plaintiff must travel when attacking municipal conduct is not getting easier. Where a municipality unilaterally imposes anticompetitive measures upon the private sector, the action may be dismissed without even reaching the immunity issue unless the plaintiff can show a per se violation of the Sherman Act. Fisher v. City of Berkeley, California, 475 U.S. 260, 106 S.Ct. 1045, 89 L.Ed.2d 206 (1986); See Gifford, The Antitrust State-Action Doctrine After Fisher v. Berkeley, 39 Vanderbuilt L.Rev. 1257 (1986).

2 . Of course, the Noerr-Pennington doctrine protects private parties who lobby governments for their own benefit from the antitrust laws. See Indian Head, Inc. v. Allied Tube & Conduit Corp., 817 F.2d 938 (2d Cir.1987); Independent Taxi, Etc. v. Greater Houston, Etc., 760 F.2d 607 (5th Cir.1985); Garland, Antitrust and State Action: Economic Efficiency and the Political Process, 96 Yale L.J. 486 (1987); Wiley, A Capture Theory of Antitrust Federalism, 99 Harv.L.Rev. 713 (1986).

3 . Whether or not the cable franchise was awarded in strict acceptance with City regulations will not be determinative of this issue. The Sherman Act cannot be used to enforce state or local regulations that can be enforced in state court. Vartan v. Harristown Development Corp., 655 F.Supp 430 (M.D.Pa.1987); Areeda, Antitrust "State Action" After Lafayette, 95 Harv.L.Rev. 435, 453 (1981).

another state, it is established that the judicial power of the United States does not extend to suits against a state by its own citizens.