City Communications, Inc. v. City of Detroit

• Decision Date: 22 January 1987
• Docket Number: No. 86-CV-71087-DT.,86-CV-71087-DT.
• Citation: 650 F. Supp. 1570
• Parties: CITY COMMUNICATIONS, INC., a Michigan corporation, Plaintiff, v. CITY OF DETROIT, a Municipal corporation, Barden Cablevision of Detroit, Inc., a Michigan corporation, and Maclean-Hunter, a Canadian corporation, Defendants.
• Court: U.S. District Court — Western District of Michigan

650 F. Supp. 1570

CITY COMMUNICATIONS, INC., a Michigan corporation, Plaintiff, v. CITY OF DETROIT, a Municipal corporation, Barden Cablevision of Detroit, Inc., a Michigan corporation, and Maclean-Hunter, a Canadian corporation, Defendants.

No. 86-CV-71087-DT.

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

January 22, 1987.

COPYRIGHT MATERIAL OMITTED

Schnader, Harrison, Segal & Lewis by Peter S. Greenberg, Lois W. Davis, Philadelphia, Pa., Butzel Long Gust Klein & Van Zile by William M. Saxton, Edward M. Kronk, Detroit, Mich., for plaintiff; Hyde & Mercer, William R. Hyde, Jr., Washington, D.C., of counsel.

Dickinson Wright Van Dusen & Freeman by Fred W. Freeman, W. Gerald Warren, Roger H. Cummings, Elizabeth A. Trickey, Detroit, Mich., for defendant Barden Cablevision of Detroit, Inc.

Honigman Miller Schwartz and Cohn by David A. Ettinger, I.W. Winsten, H.C. Goplerud, William D. Sargent, Detroit, Mich., for defendant City of Detroit.

William J. DeBiasi, P.C. by William J. DeBiasi, Taylor, Mich., for defendant Maclean-Hunter Cable TV, Inc. Incorrectly denominated as MacLean-Hunter.

OPINION

GILMORE, District Judge.

This matter is before the Court upon defendants' motions to dismiss, or for summary judgment. The suit challenges the legality of the City of Detroit's award to defendants of an exclusive cable television franchise for the City of Detroit.

Plaintiff is one of two unsuccessful bidders for the contract to install cable television in the City of Detroit, and has filed this six count complaint seeking compensatory damages of at least $50,000,000, treble damages for antitrust violations, punitive damages, and also an injunction to prevent the installation of defendants' cable system.

Counts I, II and III allege violations of Sections One and Two of the Sherman Act, claiming the defendants conspired to violate the antitrust law. Count IV alleges due process violations by the City in the selection process. Count V alleges a First Amendment violation by the City in awarding only one city-wide cable TV franchise, and Count VI alleges waste of public property.

In April 1981, the Common Council of the City of Detroit passed certain ordinances aimed at the establishment of a cable television system for the City. One ordinance established The Detroit Cable Communications Commission to review all applications and recommend a franchisee to the Mayor.

Subsequently, in August of 1982 the City issued a request for proposals to provide cable television services for the City of Detroit.

Three bidders submitted applications in response to the request for proposals — plaintiff City Communications, Inc. ("City Communications"), defendant Barden Cablevision of Detroit, Inc., ("Barden"), and Detroit Inner-Unity Bell Cable System ("DIUB"). Each bid was accompanied by a payment of $10,000. According to the allegations of the complaint, which must be taken as true for the purposes of this motion, plaintiff's proposal met the requirements set out in the request for proposals, while defendants' proposals failed to meet the requirement of adequate financial backing. Nevertheless, in July of 1983 the City awarded the franchise to Barden. The franchise was to commence on August 31, 1983 and continue until August 31, 1998, unless terminated or forfeited by the City. It was conditioned upon Barden demonstrating an unconditional financial commitment for constructing and operating the cable system, and executing a franchise agreement with the City on or before August 31, 1984.

On July 26, 1983, plaintiff filed suit against the City and Barden in Wayne County Circuit Court seeking to block the award of the franchise to Barden, alleging breach of contract and promissory estoppel.¹ Wayne County Circuit Judge Maureen P. Reilly dismissed the action in November 1983 on the grounds that, under Michigan law, a disappointed bidder lacked standing to challenge the award of a public contract.² Also in July 1983, the other unsuccessful bidder, DIUB, filed an action in United States District Court raising antitrust, constitutional, and state law claims. On August 18, 1983, Judge Guy denied an injunction in that matter on the grounds that discovery had revealed no evidence of conspiracy. The case was later dismissed with prejudice by stipulation on January 17, 1984.

In August of 1984, Barden notified the City that it could not meet the August 31 deadline for executing the cable franchise. The City agreed to extend the deadline from August 31, 1984 to September 30, 1984, so that the Cable Commission could hold public hearings and evaluate Barden's requested modification. The Commission initially recommended that Barden's franchise be terminated. Before the city could act on the Commission's recommendation, Congress passed the Cable Communications Policy Act of 1984, 47 U.S.C. § 521 et seq. The Commission therefore took its recommendation of termination under reconsideration, and ultimately retracted it on October 29, 1984. The City granted Barden additional time to firm up its financing.

Barden requested additional significant modifications in 1985, and in May and December of that year the City agreed to allow Barden to make such modifications. These included elimination of a promised third cable system, elimination of $38,000,000 in proposed grants to the City, reduction of the number of channels in the system from 112 to 78, an increase in the construction time by three years, to five and a half years, elimination of other technical matters, addition of defendant Maclean Hunter for a 40 per cent or greater ownership interest, and reduction by approximately 33 per cent of plaintiff's construction expenditures for the system.

I

The first issue is whether the City and the private defendants fall under the "state action" exemption from antitrust liability. This doctrine was established in 1943 in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). In that case, a raisin producer filed an action against the California Director of Agriculture challenging the state's establishment of a cartel of private raisin producers. The Court upheld the California law against the antitrust challenge, recognizing that the state's program was anticompetitive, but holding that the Sherman Act was not intended to prevent the states from imposing restraints on competition:

The state in adopting and enforcing the prorate program made no contract or agreement and entered into no conspiracy in restraint of trade or to establish monopoly but, as sovereign, imposed the restraint as an act of government which the Sherman Act did not undertake to prohibit.

Id. at 352, 63 S.Ct. at 314.

In Town of Hallie v. City of Eau Claire, 471 U.S. 34, 105 S.Ct. 1713, 85 L.Ed.2d 24 (1985), the Court clarified the application of the state action exemption to municipalities. In Hallie, a group of unincorporated Wisconsin townships alleged that the City of Eau Claire had violated the Sherman Act by acquiring a monopoly over sewage treatment in the area, and by providing sewage treatment only to areas that were willing to be annexed by the city and use its sewage collection services. The Supreme Court held that anticompetitive conduct by a municipality is protected by the state action exemption to the Federal antitrust laws where the city's actions are authorized by state law, even though the state does not compel or actively supervise the anticompetitive conduct, or expressly assert that the law is intended to have an anticompetitive effect. The municipality need only prove that the actions were pursuant to a clearly articulated and affirmatively expressed state policy. The Court said:

In Parker, relying on principles of federalism and state sovereignty, the Court refused to construe the Sherman Act as applying to the anticompetitive conduct of a State acting through its legislature.... Rather, it ruled that the Sherman Act was intended to prohibit private restraints on trade, and it refused to infer an intent to "mullify a state's control over its officers and agents" in activities directed by the legislature.

. . . . .

Municipalities, on the other hand, are not beyond the reach of the antitrust laws by virtue of their status because they are not themselves sovereign. Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 412 98 S.Ct. 1123, 1136, 55 L.Ed.2d 364 (1978) (opinion of Brennan, J.). Rather, to obtain exemption, municipalities must demonstrate that their anticompetitive activities were authorized by the State "pursuant to state policy to displace competition with regulation or monopoly public service." ...

The determination that a municipality's activities constitute state action is not a purely formalistic inquiry; the State may not validate a municipality's anticompetitive conduct simply by declaring it to be lawful.... On the other hand, in proving that a state policy to displace competition exists, the municipality need not "be able to point to a specific, detailed legislative authorization" in order to assert a successful Parker defense to an antitrust suit.... Rather, Lafayette suggested, without deciding the issue, that it would be sufficient to obtain Parker immunity for a municipality to show that it acted pursuant to a "clearly articulated and affirmatively expressed ... state policy" that was "actively supervised" by the state....

. . . . .

It is therefore clear from our cases that before a municipality will be entitled to the protection of the state action exemption from the antitrust laws, it must demonstrate that it is engaging in the challenged activity pursuant to a clearly expressed state policy.

471 U.S. 34 at 38, 105 S.Ct. 1713 at 1716.

In Hallie, the Court found a sufficiently clear articulation of state authority to displace competition with local regulation in the language of the state's enabling legislation for local sewage systems. The legislation specifically allowed cities to refuse to provide sewer service to...