Ajax Aluminum v. GOODWILL INDUS. OF MUSKEGON CTY.

• Decision Date: 16 May 1983
• Docket Number: No. G82-31 CA1.,G82-31 CA1.
• Citation: 564 F. Supp. 628
• Parties: AJAX ALUMINUM, INC., a Michigan corporation, Plaintiff, v. GOODWILL INDUSTRIES OF MUSKEGON COUNTY, a Michigan corporation; Kaufman Industries, a Michigan corporation; Muskegon-Oceana Community Action Program, a political subdivision of the State of Michigan; Allegan Community Action Program, a political subdivision of the State of Michigan; and the State of Michigan, Department of Labor, Bureau of Community Services, Defendants.
• Court: U.S. District Court — Western District of Michigan

564 F. Supp. 628

AJAX ALUMINUM, INC., a Michigan corporation, Plaintiff, v. GOODWILL INDUSTRIES OF MUSKEGON COUNTY, a Michigan corporation; Kaufman Industries, a Michigan corporation; Muskegon-Oceana Community Action Program, a political subdivision of the State of Michigan; Allegan Community Action Program, a political subdivision of the State of Michigan; and the State of Michigan, Department of Labor, Bureau of Community Services, Defendants.

No. G82-31 CA1.

United States District Court, W.D. Michigan, S.D.

May 16, 1983.

David R. Justian, Muskegon, Mich., for plaintiff.

Landman, Luyendyk, Latimer, Clink & Robb by William F. McNally, Muskegon, Mich., for Goodwill Industries.

Marcus, Ruck & Wells, P.C. by Theodore N. Williams, Muskegon, Mich., for Muskegon-Oceana Community Action Program.

Varnum, Riddering, Wierengo & Christenson by Peter Armstrong, Grand Rapids, Mich., for Kaufman Industries.

Frank J. Kelley, Atty. Gen. by Dennis J. Grifka and James D. Mueller, Asst. Attys. Gen., Labor Div., Lansing, Mich., for State of Mich., Dept. of Labor, Bureau of Community Services.

OPINION RE MOTION TO DISMISS

HILLMAN, District Judge.

In this antitrust action, plaintiff, Ajax Aluminum, Inc., (Ajax) alleges that the State of Michigan, through its Department of Labor, Bureau of Community Services, together with Goodwill Industries and other defendants, entered into a conspiracy to restrain and monopolize interstate commerce in violation of sections 1 and 2 of the Sherman Antitrust Act. 15 U.S.C. § 1, et seq. More specifically, plaintiff contends that defendants have conspired to restrain and monopolize commerce in the manufacture, sale and distribution of aluminum storm windows.

Currently before the court is defendant State of Michigan, Department of Labor's (Department of Labor), motion to dismiss pursuant to Rule 12(b) of the Federal Rules of Civil Procedure. The Department of Labor contends that as a state entity, it is immune from the provisions of the Sherman Act. Additionally, the Department contends that since plaintiff's suit for injunctive and monetary relief is directly against the State, plaintiff's suit against the Department is barred by the Eleventh Amendment.

For the reasons that follow, I find that the Department of Labor, in the instant case, is exempt from suit under sections 1 and 2 of the Sherman Act. Therefore, it is unnecessary to determine whether the instant case against the Department is barred by the Eleventh Amendment.

I. STATEMENT OF THE CASE

Plaintiff, a Michigan corporation, is engaged in the manufacture and sale of aluminum storm windows. Defendant Goodwill Industries of Muskegon County, Michigan, is a nonprofit, tax-exempt corporation organized under the laws of the State of Michigan. Plaintiff alleges that defendant Goodwill currently manufactures and sells aluminum storm windows in competition with plaintiff.

The instant dispute arose out of the administration of the Low Income Household Home Weatherization Act. M.C.L.A. § 400.1051, et seq. Under the Act, the State of Michigan provided for a program to be established in order to insulate the homes of low income families. The Act provided, inter alia, provisions for competitive bidding by private and public contractors, provisions establishing criteria for homeowner eligibility, and provisions establishing a review board to hear appeals from contractors who were denied contracts under the program.

Under the Act, the legislature commanded the Bureau of Community Services of the Michigan Department of Labor to establish and administer a weatherization program consistent with the requirements of the Act. M.C.L.A. § 400.1055. Among other duties, the Department of Labor was required to establish quality control standards for workmanship and adequacy of insulation materials. M.C.L.A. § 400.1061.

Plaintiff alleges that in establishing and administering the weatherization program, the Department of Labor encouraged and pressured local community agencies to purchase storm windows from Goodwill Industries. Plaintiff contends that pursuant to that pressure, storm windows were purchased from Goodwill notwithstanding that Goodwill's windows did not comply with mandatory United States Department of Energy Regulations and despite the fact that Goodwill's bid to supply storm windows was higher than plaintiff's.

Plaintiff contends that Goodwill's use of its tax exempt status, its deviated wage system for handicapped workers, and its state funds received for worker rehabilitation have permitted Goodwill to compete unfairly in the market place. Plaintiff asserts that the Department of Labor's conduct in aiding Goodwill's alleged anticompetitive practices involves the Department in a conspiracy to violate the Sherman Act.

II. DEFENDANT'S SHERMAN ACT EXEMPTION

Defendant Department of Labor contends that as a state entity, the Department is exempt from sections 1 and 2 of the Sherman Act. The Department draws support for this contention from Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). In Parker, the Supreme Court, after reviewing the language and legislative history of the Sherman Act stated:

"We find nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature ... There is no suggestion of a purpose to restrain state action in the Act's legislative history."

Id. at 350-351, 63 S.Ct. at 313. Thus, defendant contends Parker's "state action exemption"¹ precludes suit against the Department in the instant case.

In opposing defendant's motion, plaintiff contends that the Parker doctrine is inapplicable to the instant case. Plaintiff contends that for a party to claim exemption under Parker, it is insufficient that the entity being sued is the state. Rather, plaintiff contends that defendant must satisfy a two-fold inquiry, which was established in cases subsequent to Parker v. Brown: first, the challenged conduct must be actively supervised by the State; second, that the challenged conduct is the product of a clearly articulated and affirmatively expressed state policy. See, California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980); Cantor v. Detroit Edison Co., 428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141 (1976); Gambrel v. Kentucky Board of Dentistry, 689 F.2d 612 (6th Cir. 1982), cert. denied, ___ U.S. ___, 103 S.Ct. 1198, 75 L.Ed.2d 441 (1983).

Plaintiff concedes that this suit is brought against the State of Michigan in its sovereign capacity and that the Department of Labor, acting as the State, actively supervised the challenged conduct. Therefore, plaintiff acknowledges that the first prong of the Midcal Aluminum test has been satisfied. However, plaintiff alleges that since the Michigan legislature did not express any state policy regarding the purchase of Goodwill's storm windows when it enacted the Low Income Home Weatherization Act, defendant Department of Labor has not satisfied the second prong of the Midcal Aluminum test. Therefore, plaintiff contends that the Department of Labor is not entitled to antitrust immunity under Parker v. Brown.

Several courts have questioned the applicability of the two-pronged Midcal test to the issue presented in this case. See Horsemens Benevolent and Protective Ass'n v. Pennsylvania Horse Racing Commission, 530 F.Supp. 1098 (E.D.Pa.1982) aff'd, 688 F.2d 821 (3d Cir.1982); Feldman v. Gardner, 661 F.2d 1295 (D.C.Cir.1981) cert. denied, ___ U.S. ___, 102 S.Ct. 3483, 73 L.Ed.2d 1366; State of New Mexico v. American Petrofina, Inc., 501 F.2d 363 (9th Cir.1974). However, neither the Supreme Court nor the Court of Appeals for the Sixth Circuit has considered the applicability of the Midcal inquiry to the precise factual circumstances presented in the instant case. But see Gambrel, supra (holding that the two-pronged Midcal standard was satisfied so that the Kentucky Board of Dentistry and individual dentists did not violate the Sherman Act in forbidding dentists from providing denture prescriptions directly to consumers). Based on my review of Parker's "state action exemption," I find that the two-prong Midcal test is inapplicable to the facts in the instant case. Therefore, following Feldman, supra, and American Petrofina, supra,² I find that a state, acting in its sovereign capacity, cannot be sued for alleged violations of the Sherman Act.

A. Parker and its Progeny.

In Parker v. Brown, supra, the Supreme Court upheld, against an antitrust challenge, the California Agricultural Prorate Act, which authorized state officials to regulate California raisin production. Under a marketing program established pursuant to the Act, the State Director of Agriculture, along with others appointed by the governor, was authorized to restrict raisin output. Under the prorate program, no restriction went into effect unless proposed by private growers and approved by a referendum among them. 317 U.S. at 346-47, 63 S.Ct. at 311. After the Act was implemented, Parker filed suit against Brown, the State Director of Agriculture, to enjoin enforcement of the marketing program.

In holding that the Sherman Act did not invalidate the challenged marketing program, the Parker Court emphasized the legislature's continuing involvement in the challenged conduct and the legislature's stated intent to displace competition with a cartel. 317 U.S. at 350, 63 S.Ct. at 313. Plaintiff in the instant case argues that a state's immunity extends only to those situations where the legislature has specifically authorized or mandated that free competition be displaced by an anticompetitive program. See New Motor Vehicle Board of California v. Orrin W. Fox Co., 439 U.S. 96, 99 S.Ct. 403, 58 L.Ed.2d 361 (1978). Plaintiff alleges that the Department of Labor's anticompetitive conduct was not specifically authorized by the Michigan leg...