Traweek v. City and County of San Francisco

• Decision Date: 06 December 1990
• Docket Number: No. 88-15465,88-15465
• Citation: 920 F.2d 589
• Parties: 1990-2 Trade Cases 69,262 Richard W. TRAWEEK, an individual; Traweek Investment Company, Inc., a California corporation; Traweek Investment Fund Number 10, Ltd., a California Limited Partnership, Plaintiffs- Appellants, v. CITY AND COUNTY OF SAN FRANCISCO, a Municipal Corporation; Evans-Pacific Realty, Inc., a California corporation; Morris Bernstein, an individual, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 589

920 F.2d 589

1990-2 Trade Cases 69,262

Richard W. TRAWEEK, an individual; Traweek Investment

Company, Inc., a California corporation; Traweek

Investment Fund Number 10, Ltd., a

California Limited Partnership, Plaintiffs- Appellants, v. CITY AND COUNTY OF SAN FRANCISCO, a Municipal Corporation;

Evans-Pacific Realty, Inc., a California

corporation; Morris Bernstein, an

individual, Defendants-Appellees.

No. 88-15465.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 13, 1989.

Decided Dec. 6, 1990.

John I. Alioto, Alioto & Alioto, San Francisco, Cal., for plaintiffs-appellants.

Jerome B. Falk, Jr., Howard, Rice, Nemerovski, Canady, Robertson & Falk, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before CHAMBERS, POOLE and WIGGINS, Circuit Judges.

WIGGINS, Circuit Judge:

Richard Traweek and Traweek Investment Fund No. 10 appeal the dismissal on the merits of their constitutional claims and a grant of summary judgment as to their antitrust claims against the appellee City and County of San Francisco. We have jurisdiction over appellants' timely appeal pursuant to 28 U.S.C. Sec. 1291 (1982).

I. FACTS AND PROCEEDINGS BELOW

In June 1980, Richard Traweek and Traweek Investment Fund No. 10, Ltd. purchased the John Muir apartment complex and took steps to convert that property into condominiums. Their application, pursuant to Municipal Ordinance No. 337-79 (1979), placed them on the "1983 Priority List" and would have allowed them to convert 187 units into condominiums by 1983. However, in December 1982, appellee passed an ordinance which took effect in January 1983 prohibiting condominium conversions by any applicant whose property contains more than 25 units. Municipal Ordinance No. 598-82 (1982) (hereinafter "the 1983 Ordinance"). The 1983 Ordinance effectively prohibited appellants from converting their property into condominiums.

Appellants sued the City and County of San Francisco, the Mayor of San Francisco, and other named individual state officials for conspiracy to violate antitrust laws and for deprivation of federal constitutional rights guaranteed by the takings clause and the due process and equal protection clauses. Traweek v. City and County of San Francisco, 659 F.Supp. 1012, 1017 (N.D.Cal.1984). Appellants alleged that the City responded to private citizens by designing and passing the 1983 Ordinance specifically to block appellants' conversion of apartments into condominiums. In its published opinion, the district court granted the City's motion to dismiss on the merits for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6) as to the constitutional claims, id. at 1022, but denied the motion to dismiss as to the antitrust claims. Id. at 1019. The district court also granted the named individual defendants absolute legislative immunity. Appellants contest the dismissal of their constitutional claims against the City but do not contest the dismissal of the individual defendants. On December 31, 1985, the district court granted appellees' motion for summary judgment pursuant to Fed.R.Civ.P. 56(b) on the ground that state action immunity barred appellants' antitrust claims. Appellants appeal this decision as well.

II. DISCUSSION

A. STANDARD OF REVIEW

We review de novo both the grant of summary judgment pursuant to Fed.R.Civ.P. 56(b) and a dismissal for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir.1989). In a motion for summary judgment, we must determine, viewing the evidence in the light most favorable to the nonmoving party, whether any genuine issues of material fact exist and whether the district court correctly applied the relevant substantive law. Tzung v. State Farm Fire and Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir.1989). In a motion to dismiss, we must determine whether it appears beyond doubt that appellants could prove no set of facts entitling them to relief. Love v. United States, 871 F.2d 1488, 1491 (9th Cir.1989) (dismissal for failure to state a claim).

B. STATE ACTION IMMUNITY

As a general rule, the anticompetitive actions of a state are immune from the reach of antitrust laws. Parker v. Brown, 317 U.S. 341, 350-52, 63 S.Ct. 307, 313-14, 87 L.Ed. 315 (1943). In creating this immunity, the Supreme Court recognized that the free market principles espoused in the Sherman Antitrust Act end where countervailing principles of federalism and respect for state sovereignty begin. Id. at 350-51, 63 S.Ct. at 313. The Court has explicitly extended state action protection to the conduct of municipalities. See Community Communications Co. v. City of Boulder, 455 U.S. 40, 102 S.Ct. 835, 70 L.Ed.2d 810 (1982). In order to obtain immunity, a municipality must demonstrate that the state policy authorizing the challenged action has been clearly articulated. Boone v. Redevelopment Agency of the City of San Jose, 841 F.2d 886, 890 (9th Cir.), cert. denied, 488 U.S. 965, 109 S.Ct. 489, 102 L.Ed.2d 526 (1988); Kern-Tulare Water Dist. v. City of Bakersfield, 828 F.2d 514, 518 (9th Cir.1987), cert. denied, 486 U.S. 1015, 108 S.Ct. 1752, 100 L.Ed.2d 214 (1988). We have adopted a two-part test to determine whether a "clearly articulated" state policy has authorized a municipality's anticompetitive actions. Boone, 841 F.2d at 890. ¹ First, a court must determine whether the legislature authorized the challenged actions of the city. Second the court must determine whether the legislature intended to displace competition with regulation. Id.

Because appellants do not contend that the City lacked authority to regulate or even to prohibit condominium conversion in this instance, ² we need only to determine whether the legislature intended to displace competition with regulation. A state is deemed to have intended to displace competition with regulation if the statutes pursuant to which a city has acted clearly contemplates that it may engage in anticompetitive conduct. Kern-Tulare, 828 F.2d at 520; Grason Elec. Co. v. Sacramento Mun. Util. Dist., 770 F.2d 833, 836 (9th Cir.1985), cert. denied, 474 U.S. 1103, 106 S.Ct. 886, 88 L.Ed.2d 921 (1986). Appellants raise two arguments in support of their contention that the legislature did not intend the City's anticompetitive conduct.

1. MALICE

Appellants contend that although this court's decisions bar consideration of a state's malicious motive after the state action doctrine has been found to apply, a reviewing court may consider bad faith motivation in determining whether or not the legislature intended the City's conduct. They argue that because the legislature could not possibly have intended the City's alleged intentionally anticompetitive conduct, state action immunity does not protect the City's conduct.

We reject appellants' argument. In Llewellyn v. Crothers, 765 F.2d 769 (9th Cir.1985), we stated that:

the availability of [state action] immunity, however, does not depend on the subjective motivations of the individual actors, but rather on the satisfaction of the objective standards set forth in Parker and authorities which interpret it.

Id. at 774. Thus, although the district court in Llewellyn recognized the possibility that the state officer disliked and sought to get rid of chiropractors, id, the court did not rely upon or even consider the plaintiff's complaint of bad faith. Once the Llewellyn court answered the question of whether the state officer acted pursuant to an "express state policy and [his actions] were of a kind contemplated by the statutory scheme ...," id., the analysis ended and immunity attached. Llewellyn governs the instant case. Indeed, the facts relevant to consideration of bad faith motivation in Llewellyn are indistinguishable from the facts of the instant case. Even if appellants could prove bad faith on the part of the City, following Llewellyn, we do not consider this evidence because subjective motivation plays no part at any point in determining whether state action immunity protects the conduct of municipalities.

This is as it should be. Appellants argue in effect that, absent a statutory mandate to act maliciously, evidence of malice on the part of the City in enacting anticompetitive measures prevents the reviewing court from finding that the state intended the anticompetitive measures. Presumably, state action immunity would continue to attach in cases where the state explicitly allowed for malicious enactment of ordinances by the City. But what legislature would enact such a statute? Once a reviewing court starts to consider subjective motivation at all, the principle in Llewellyn collapses.

Furthermore, the policy underlying the state action doctrine mandates our holding. As the Llewellyn court stated, allowing courts to consider subjective motivation would: "compel the federal courts to intrude upon internal state affairs whenever a plaintiff could present colorable allegations of bad faith...." Id. Permitting a reviewing court to consider bad faith motivation in determining whether the legislature intended the City's conduct would require such disfavored inquiry. The attempt to draw a distinction between malicious attempts to cause anticompetitive results and actions taken with neutral intent that necessarily have anticompetitive results may have some intuitive appeal. However, we cannot square this distinction with the important principle underlying Llewellyn.

2. THE ORDINANCE RESULTING IN ANTICOMPETITIVE CONDUCT VIOLATES CALIFORNIA LAW

Appellants next argue that the legislature could not have intended the City's allegedly anticompetitive conduct because: 1) that intent cannot be inferred from the general grant of power to zone housing subdivisions; and 2) the City's actions violated California law.

We reject appellants' invitation to look behind California's general grant of zoning...