Diverse Power, Inc. v. City of Lagrange

• Decision Date: 20 August 2019
• Docket Number: No. 18-11014,18-11014
• Citation: 934 F.3d 1270
• Parties: DIVERSE POWER, INC., Plaintiff-Appellee, v. CITY OF LAGRANGE, GEORGIA, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

934 F.3d 1270

DIVERSE POWER, INC., Plaintiff-Appellee,

v.CITY OF LAGRANGE, GEORGIA, Defendant-Appellant.

No. 18-11014

United States Court of Appeals, Eleventh Circuit.

August 20, 2019

James A. Orr, James R. McGibbon, Stacey McGavin Mohr, Eversheds Sutherland (US) LLP, Atlanta, GA, for Plaintiff-Appellee.

Teresa Bonder, Allison Stephens Thompson, Andrew J. Liebler, Alston & Bird, LLP, Atlanta, GA, Jeffrey Marshall Todd, Lewis Taylor & Todd, PC, LaGrange, GA, for Defendant-Appellant.

Before TJOFLAT, JORDAN and ANDERSON, Circuit Judges.

TJOFLAT, Circuit Judge:

This interlocutory appeal asks us to determine whether the City of LaGrange, Georgia, enjoys state-action immunity when it ties its water-utility service to its natural-gas service for customers in unincorporated Troup County, Georgia. The District Court held that LaGrange was not entitled to state-action immunity and, for the reasons explained below, we affirm.

I.

LaGrange owns and operates a water-utility system that serves customers within LaGrange’s city limits as well as customers beyond its city limits in unincorporated Troup County. For much of unincorporated Troup County, LaGrange is the only provider of water-utility service. LaGrange maintains this monopoly through explicit, market-dividing agreements with other municipalities in the area. In addition to water, LaGrange provides natural gas to customers inside and outside its city limits. As with water, LaGrange’s gas is the only game in town for much of unincorporated Troup County.

Diverse Power is a Georgia corporation that provides electric service throughout much of unincorporated Troup County. While LaGrange also provides electric service, it does so primarily within its city limits. Where Diverse Power’s electric service and LaGrange’s gas service overlap—in much of unincorporated Troup County—the two entities are in direct competition for retail energy customers.

In 2004, the LaGrange City Council enacted Ordinance No. 4-29 (the "Ordinance"), now codified at § 20-15-6 of the LaGrange Code of Ordinances. Titled "Water service outside city limits," the Ordinance provides:

For all new construction outside of the corporate limits of the city, ... water service as set forth in this chapter shall be available only to those customers who install at least one (1) natural gas furnace, one (1) natural gas water heater, and at least one (1) additional natural gas outlet sufficient for potential future use for a clothes dryer, range, grill, pool heater or outdoor lighting fixture.

LaGrange, Ga. Code § 20-15-6 (2004). LaGrange enforces the Ordinance by sending form letters to prospective builders and developers in the area informing them of the Ordinance’s conditions. The letter, headed "IMPORTANT NOTICE CONCERNING WATER SERVICE OUTSIDE THE CITY LIMITS," states:

This letter is to inform you of a utility policy that applies to all new water connections outside of the city limits of LaGrange. In areas where natural gas service is available, new homes or businesses must install gas appliances in order to receive water service from the City. Specifically, at least one gas furnace, one gas water heater, and one gas outlet for a future appliance such as a dryer or stove must be installed. Builders that do not comply with this policy will be denied permanent water service.

The purpose of the Ordinance is clear. As LaGrange’s utility director stated in a 2008 email, "[LaGrange] decided to use water as leverage to require gas" in developments outside LaGrange’s city limits. But for subdivisions within LaGrange’s city limits, the utility director explained that LaGrange "can’t use water as leverage to require gas." For these intracity developments, the director continued, LaGrange uses a combination of rebates and incentives to encourage developers to install gas appliances.

The effect of the Ordinance is equally clear. Consider the Cameron Pointe subdivision, which sits on the north and south sides of Cameron Mill Road in unincorporated Troup County. The houses on the south side of the road were built before the enactment of the Ordinance, and the houses on the north side were built afterward. Predictably, the houses on the south side of the road were built to use electricity for all appliances, while the houses on the north side of the road were built for natural-gas appliances. To be sure, this temporal relationship doesn’t prove that developers switched to natural gas because of the Ordinance. But lest one suspect that market forces drove this strange arrangement, the developer told Diverse Power that, but for the Ordinance, it would have built the houses on the north side of the road to use electric rather than natural-gas appliances.

On March 3, 2017, Diverse Power filed suit against LaGrange for violations of the Sherman and Clayton Antitrust Acts. Specifically, Diverse Power alleged that LaGrange’s practice of conditioning water service on the installation of natural gas appliances constituted an unlawful tying arrangement. LaGrange moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) on several bases, including immunity under the state-action doctrine. The District Court denied LaGrange’s motion. Diverse Power, Inc. v. City of LaGrange , No. 3:17-v-00003-TCB, slip op. at 25 (N.D. Ga. Feb. 21, 2018). LaGrange timely appealed the District Court’s order denying state-action immunity, which we have jurisdiction to review under the collateral order doctrine. See Commuter Transp. Sys., Inc. v. Hillsborough Cty. Aviation Auth. , 801 F.2d 1286, 1289–90 (11th Cir. 1986) (holding that denial of state-action immunity is an appealable collateral order under Cohen v. Beneficial Industrial Loan Corp. , 337 U.S. 541, 69 S. Ct. 1221, 93 L.Ed. 1528 (1949) ).¹

II.

We review de novo the denial of a motion to dismiss based on state-action immunity. Danner Constr. Co. v. Hillsborough County , 608 F.3d 809, 812 (11th Cir. 2010). "On a motion to dismiss, the factual allegations in the complaint are taken as true, even if they are subject to dispute." Devengoechea v. Bolivarian Republic of Venezuela , 889 F.3d 1213, 1220 (11th Cir. 2018). But we are not "bound to accept as true a legal conclusion couched as a factual allegation." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S. Ct. 1955, 1965, 167 L.Ed.2d 929 (2007) (citation omitted).

III.

A.

The doctrine of state-action immunity insulates states from suit under the federal antitrust laws. In Parker v. Brown , 317 U.S. 341, 63 S. Ct. 307, 87 L.Ed. 315 (1943), the Supreme Court held that because "nothing in the language of the Sherman Act or in its history" suggested that Congress meant to restrict the states’ sovereign prerogative to regulate their economies, the Act shouldn’t be read to bar states from engaging in anticompetitive conduct "as an act of government." Id. at 350, 352, 63 S. Ct. at 313–14. But because political subdivisions—like the City of LaGrange—"are not themselves sovereign[,] they do not receive all the federal deference of the States that create them." City of Lafayette v. La. Power & Light Co. , 435 U.S. 389, 412, 98 S. Ct. 1123, 1136, 55 L.Ed.2d 364 (1978) (plurality opinion). Instead, political subdivisions enjoy state-action immunity when they undertake activities "pursuant to a ‘clearly articulated and affirmatively expressed’ state policy to displace competition." F.T.C. v. Phoebe Putney Health Sys., Inc. , 568 U.S. 216, 226, 133 S. Ct. 1003, 1011, 185 L.Ed.2d 43 (2013) (quoting Cmty. Commc’ns Co. v. Boulder , 455 U.S. 40, 52, 102 S. Ct. 835, 841, 70 L.Ed.2d 810 (1982) ). This is commonly known as the clear-articulation requirement.

The clear-articulation requirement is itself anything but pellucid. And unlike clear-statement requirements in other domains of law,² the clear-articulation requirement is often satisfied by articulations that are admittedly less than clear. The Supreme Court has "rejected the contention that [the clear-articulation] requirement can be met only if the delegating statute explicitly permits the displacement of competition." City of Columbia v. Omni Outdoor Advert., Inc. , 499 U.S. 365, 372, 111 S. Ct. 1344, 1350, 113 L.Ed.2d 382 (1991). Instead, state-action immunity applies when a municipality’s anticompetitive conduct is the "foreseeable result" of state legislation. Town of Hallie v. City of Eau Claire , 471 U.S. 34, 42, 105 S. Ct. 1713, 1718, 85 L.Ed.2d 24 (1985).

For example, in City of Columbia v. Omni Outdoor Advertising, Inc. , 499 U.S. 365, 111 S. Ct. 1344, 113 L.Ed.2d 382 (1991), the City of Columbia, South Carolina used its zoning power to protect an entrenched billboard provider—who had 95% market share—against outside competition. Id. at 367–68, 111 S. Ct. at 1347–48. Even though the state zoning statute under which the city promulgated the zoning restrictions had nothing to do with the suppression of competition—much less in the commercial billboard industry—the Supreme Court held that the city’s actions were immune from federal antitrust liability. As the Court explained,

The very purpose of zoning regulation is to displace unfettered business freedom in a manner that regularly has the effect of preventing normal acts of competition, particularly on the part of new entrants. A municipal ordinance restricting the size, location, and spacing of billboards (surely a common form of zoning) necessarily protects existing billboards against some competition from newcomers.

Id. at 373, 111 S. Ct. at 1350.

And Omni isn’t an outlier. In the earlier Hallie case, the Supreme Court held that the City of Eau Claire was immune from federal antitrust liability based on similarly broad state statutes that were facially unrelated to the suppression of competition. In Hallie , a Wisconsin statute authorized cities to construct sewage systems and provided that municipal utilities had no obligation to serve areas outside their corporate limits. 471 U.S. at 41, 105 S. Ct. at 1717. Under these statutes, Eau...