Alarm Detection Sys., Inc. v. Orland Fire Prot. Dist.

• Decision Date: 02 August 2018
• Docket Number: No. 14 C 876,14 C 876
• Parties: ALARM DETECTION SYSTEMS, INC., Plaintiff, v. ORLAND FIRE PROTECTION DISTRICT and Tyco Integrated Security, LLC, Defendants.
• Court: U.S. District Court — Northern District of Illinois

326 F.Supp.3d 602

ALARM DETECTION SYSTEMS, INC., Plaintiff,

v.ORLAND FIRE PROTECTION DISTRICT and Tyco Integrated Security, LLC, Defendants.

No. 14 C 876

United States District Court, N.D. Illinois, Eastern Division.

Signed August 2, 2018

Bruce Lee Goldsmith, Christina C. Brunty, David Joel Bressler, Jonathan S. Feld, Melanie Jeanne Chico, Michael Frederik Derksen, Molly E. Thompson, Dykema Gossett Rooks Pitts PLLC, Chicago, IL, for Plaintiff.

James J. Roche, Brittany Erin Hartwig, LeeAnn Marie Crow, Megan Shea Roche, James J. Roche & Associates, Mark Thomas Deming, Polsinelli PC, Chicago, IL, Robert L. Hickok, A. Christopher Young, Barbara T. Sicalides, Erica Hall Dressler, Pepper Hamilton LLP, Philadelphia, PA, Michael D. Bersani, Hervas, Condon & Bersani, P.C., Itasca, IL, for Defendants.

FINDINGS OF FACT & CONCLUSIONS OF LAW

Honorable Thomas M. Durkin, United States District Judge

Alarm Detections Systems, Inc. is a company that provides fire alarm services to commercial and multi-unit residential buildings. It alleges that the Orland Fire Protection District ("Orland FPD") and Tyco Integrated Security, LLC have conspired to restrain or monopolize trade in the market for fire alarm system monitoring in violation of the Sherman and Clayton Acts and the Equal Protection and Due Process Clauses of the Fourteenth Amendments. The case proceeded to a bench trial on May 22, 2017, and the Court received evidence through May 26, 2017. Initial post-trial briefing was completed on June 26, 2017, and the Court heard closing arguments on August 10, 2017. The parties submitted supplemental post-trial briefs on June 7, 2018, at the Court's request.

This opinion sets forth the Court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a). These findings are based on the documentary evidence and trial testimony. They are also based on the Court's credibility determinations after observing the witnesses testify. This opinion also addresses Alarm Detection's motion to reconsider the Court's earlier dismissal of part of the Fourteenth Amendment claims. R. 488. For the following reasons, the Court finds in favor of Orland FPD and Tyco on the merits and will enter judgment against Alarm Detection.

Findings of Fact

Companies like Alarm Detection and Tyco install fire alarms (meaning the fire sensors and the transmitters that send alarm signals) in commercial and multi-unit residential buildings, and then monitor the transmitted signals for indications of fire or a need for maintenance of the alarms. Various technological systems can be used to monitor fire alarm signals. The systems relevant to this case are (1) central station and (2) direct connect. In a central station system, an alarm company establishes one facility to receive alarm signals indicating the presence of fire from multiple governmental jurisdictions and then relays those signals to the relevant jurisdiction's fire department 911 dispatch center. In a direct connect system, fire alarm transmitters send alarm signals directly to the relevant 911 dispatch center, without passing through a central station.

Some jurisdictions accommodate both direct connect and central station fire alarm monitoring. At issue in this case, however, are jurisdictions that have enacted ordinances requiring buildings to send fire alarm signals directly to the jurisdiction's 911 dispatch center. The Illinois appellate court has held that Illinois municipalities have statutory authority to mandate a direct connect fire alarm monitoring system. See Alarm Detection Sys., Inc. v. Village of Hinsdale , 326 Ill.App.3d 372, 260 Ill.Dec. 599, 761 N.E.2d 782, 785 (2d Dist. 2001). Similarly, the Seventh Circuit has held that Illinois fire protection districts have statutory authority to mandate direct connect systems. See ADT Sec. Servs., Inc. v. Lisle-Woodridge Fire Protection Dist. , 672 F.3d 492, 501-02 (7th Cir. 2012).

Fire protection districts are governmental entities created pursuant to the Illinois Fire Protection District Act, 70 ILCS 705, to "allow two or more local governments to consolidate fire protection and related services." Lisle-Woodridge , 672 F.3d at 495. A fire protection district is administered by an elected board of trustees. "The Board of Trustees of any fire protection district ... may contract with any corporation organized to furnish fire protection service." 70 ILCS 705/11a. The jurisdictional entities relevant to this case are Defendant Orland FPD and non-parties the Village of Orland Hills and the Village of Orland Park. The Villages of Orland Park and Orland Hills together constitute more than 98% of the geographic territory comprised by Orland FPD. See R. 501 at 1 n.1 (citing R. 472 at 278 (635:18-25) ).

A governmental entity desiring to implement a "direct connect" system for receipt of fire alarm signals at its 911 dispatch center generally hires an alarm company to provide reception equipment, and sometimes staff, at the 911 dispatch center. Fire alarm companies must obtain a license from the FCC to use a certain signal frequency. See R. 472 at 345 (702:7-13). An alarm company's transmission and reception equipment will be calibrated to the frequency the alarm company has licensed. Thus, when a governmental entity hires an alarm company to establish a 911 dispatch center for a direct connect system, the alarm company must also provide the fire alarm transmitters to the commercial buildings, or sub-license other alarm companies to transmit on that frequency.

Fire alarm transmitters and receivers are generally built to transmit or receive only one signal frequency. See R. 475 at 147 (1363:12-21).¹ And in a direct connect system, the governmental entity requires that the signal transmit directly from the fire alarm to 911 dispatch. Thus, even if the other alarm companies not hired to provide the equipment for the 911 dispatch center are interested in reaching an agreement to use the transmission frequency of the company maintaining the 911 dispatch center, those companies do not have access to, and cannot monitor, the signals sent by the alarm transmitters, whether indicating the presence of fire in the building or that the alarm transmitters and sensors require maintenance. See R. 471 at 93 (93:2-8); R. 475 at 146-47 (1362:22–1363:4).

In 2006, Orland FPD adopted an ordinance requiring direct connection to its 911 dispatch center. See Ex. D-140. Orland FPD witnesses testified that they believe that direct connect is safer and more efficient. R. 472 at 218-19 (575:15–576:19); 230 (587:3-24); 253-54 (610:4–611:15).² As far back as 1991, Orland FPD hired Tyco's corporate predecessors to provide alarm monitoring services and equipment for Orland FPD's 911 dispatch center and commercial buildings in Orland FPD. See R. 472 at 250-52 (607:17–609:2).

In 2012 and 2013, the Seventh Circuit issued decisions questioning the authority of fire protection districts to engage in the business of fire alarm monitoring and transmission in a case against the Lisle-Woodridge Fire Protection District. See Lisle-Woodridge , 672 F.3d at 492 ; ADT Sec. Servs., Inc. v. Lisle-Woodridge Fire Protection Dist. , 724 F.3d 854 (7th Cir. 2013). Unlike the defendant Lisle-Woodridge FPD, however, Orland FPD never directly sold or leased alarm transmitters to customers. Nevertheless, apparently in light of the Lisle-Woodridge decisions, and at the suggestion of Tyco, Orland FPD rescinded the direct connect requirement provision of its ordinance. See Ex. D-115. But because Orland FPD officials continued to prefer direct connect fire alarm monitoring to central station monitoring, they lobbied the Villages to enact ordinances mandating a direct connect system for fire alarms in the Villages. See R. 427 at 215-16 (572:14–573:5). Those new ordinances required that Orland FPD's 911 dispatch center be the direct connection reception facility. See Ex. D-143; P-053. Orland FPD also renewed its exclusive agreement with Tyco in 2014. See Ex. J-006.

Alarm Detection alleges that this arrangement between Orland FPD and Tyco illegally precludes Alarm Detection from competing in the fire alarm monitoring business in Orland FPD. See Lisle-Woodridge , 724 F.3d at 865 (expressing in dicta "serious concerns about the anti-competitive effects" of a direct connect system).³ Indeed, Tyco provides the transmitters for, and monitors the fire alarm signals from, nearly 100 percent of the customers in Orland FPD. See R. 475 at 23 (1239:10-13). Although this arrangement does not directly preclude Alarm Detection from installing and maintaining alarm transmitters, Alarm Detection must purchase the alarms it installs in Orland FPD from Tyco for $1580, see R. 472 at 342-43 (699:20–700:3), or the transceiver component of the transmitter for $200, see R. 472 at 346-47 (703:15–704:3); R. 473 at 23 (729:3-7), and then contract with Tyco to send signals directly to the Orland FPD 911 dispatch center. As discussed, this means that even if Alarm Detection buys transmitters from Tyco and contracts with Tyco for monitoring at the Orland FPD 911 dispatch (as is required by ordinance), Alarm Detection cannot receive maintenance signals directly from the alarms, but is reliant on Tyco or Orland FPD to forward those signals to Alarm Detection. Alarm Detection argues that the cost of buying alarm transmitters from Tyco, and its inability to directly monitor alarm signals, means that its services cannot be competitive in Orland FPD, and that it and other alarm companies are effectively precluded from competing for the business of monitoring fire alarms in individual commercial buildings within the Orland FPD.

Alarm Detection also alleges that Tyco's effective monopoly over fire alarm monitoring in Orland FPD causes customers there to pay more for fire alarm monitoring services. Tyco charges $89 to customers in Orland FPD, see R. 472 at 102 (459:10-14), with $23.50 of that fee being remitted to Orland FPD for the right to...