Electrical Inspectors v. Village of East Hills
| Decision Date | 13 December 2002 |
| Docket Number | Docket No. 01-9483. |
| Parties | ELECTRICAL INSPECTORS, INC., Plaintiff-Counter-Defendant-Appellant, v. VILLAGE OF EAST HILLS, Village of Roslyn and Village of Oyster Bay Cove, Defendants-Counter-Claimants, Village of Islandia, Alexander Pirnie and New York Board of Fire Underwriters, Defendants-Counter-Claimants-Appellees, Village of Island Park, Village of Brookville, Village of North Hills, Village of Flower Hill, Village of Great Neck, Village of Great Neck Estates, Village of Kings Point, Village of Port Washington North, Village of Sea Cliff, Village of Saddle Rock and Village of Baiting Hollow, Defendants. |
| Court | U.S. Court of Appeals — Second Circuit |
Frank Ambrosino, Reilly, Like, Tenty & Ambrosino, Babylon, N.Y., for Defendant-Counter-Claimant-Appellee Village of Islandia.
Donald T. Rave, Jr., Locust Valley, N.Y., for Defendants-Counter-Claimants-Appellees New York Board of Fire Underwriters and Alexander Pirnie.
Ronald C. Burke, Brand, Brand & Burke, New York, N.Y., for Plaintiff-Counter-Defendant-Appellant.
Before: CALABRESI, SACK, and B.D. PARKER, Circuit Judges.
This appeal requires us to determine whether the state-action immunity doctrine shields a municipality and a private corporation from alleged federal antitrust-law violations resulting from the municipality's conferral upon the corporation of exclusivity in the market for government-required electrical inspection services within the municipality.
The defendant Village of Islandia (the "Village") is a municipality located on New York's Long Island. In 1988, the Village adopted a policy of requiring building owners to obtain certificates of occupancy from the Village, and conditioning the issuance of such certificates on the positive results of an electrical wiring inspection conducted by the not-for-profit defendant New York Board of Fire Underwriters (the "Board"). Any property owner who wishes to use or occupy a building is required to submit to and pay the Board for the Board's inspection. The plaintiff, a for-profit corporation that also provides electrical inspection services in the State of New York, brought suit against both the Village and the Board in the United States District Court for the Eastern District of New York alleging that this arrangement resulted in violations of the Sherman Act and other federal and state laws. The district court (Leonard D. Wexler, Judge) concluded that the Village's policy was authorized by an act of the New York State Legislature, and that the actions of the Village and the Board were therefore exempt from the federal antitrust laws under the state-action immunity doctrine. Elec. Inspectors, Inc. v. N.Y. Bd. of Fire Underwriters, 145 F.Supp.2d 271, 279 (E.D.N.Y.2001) ("EII").
We agree with the district court that for purposes of the state-action immunity doctrine, the state authorized the Village to pass the ordinance that gave the Board exclusivity with respect to the performance of wiring inspections in Islandia. We disagree, however, with the district court's holding that this finding is sufficient in itself to support a dismissal of the plaintiff's federal antitrust-law claims. We conclude that such immunity for the Board against the plaintiff's claim for damages, and possibly for the Village against the plaintiff's claim for equitable relief, requires a finding that government officials actively supervised the Board. We therefore vacate the judgment of the district court and remand the case for further proceedings consistent with this opinion.
In 1981, the New York State Legislature enacted the Uniform Fire Prevention and Building Code Act (the "Act"), N.Y. Exec. Law § 370 et seq. The Act required the creation of a state-wide uniform fire code for commercial and residential buildings, id. § 377, and it directed New York's various local governments to "administer and enforce the uniform ... code," id. § 381(2). To facilitate local governments' carrying out of their enforcement responsibilities, the Act directed the New York Secretary of State to "promulgate rules and regulations prescribing minimum standards for administration and enforcement of the uniform ... code," id. § 381(1), and gave the Secretary powers to ensure that local governments enforced the code in compliance with the Secretary's regulations, id. § 381(4). The Act required the regulations issued by the Secretary to address, inter alia, the frequency of building inspections and the number and quality of inspectors. Id. § 381(1).
Pursuant to the Act, the Secretary issued regulations providing that any property owner who wishes to use or occupy a commercial or residential building must obtain a certificate of occupancy from a local government body. N.Y. Comp.Codes R. & Regs. tit. 19, § 429(c)(1) (repealed 1996). Local governments, in turn, were forbidden from issuing a certificate of occupancy for any building unless a designated officer or agent inspected the building's electrical wiring and certified that it complied with the uniform electrical code. Id. § 429(b)(1) (repealed 1996). Finally, the Secretary's regulations (later withdrawn) authorized local governments to pass resolutions designating those who would conduct such inspections. The specified options were (1) "a designated officer or employee of the city, town, or village"; (2) "an employee or agent of another city, town, or village who is qualified to conduct such inspections"; (3) "a person who is qualified to conduct such inspections ... pursuant to a contract with the city, town, or village"; (4) "an employee or agent of the county who is qualified to conduct such inspection"; and (5) "a competent inspector, designated or approved by the city, town, or village." Id. § 429.2(b)(2)(i)-(iv) (repealed 1996).
Pursuant to those regulations and prior to their repeal, on August 4, 1988, the trustees of the Village passed an ordinance resolving that the Village "accepts [the Board] as its only electrical inspecting agency." Thereafter, the Village required all applicants for certificates of occupancy to present proof that the Board had inspected the electrical wiring in their buildings and certified that it complied with the National Electric Code.1
The Board is a not-for-profit corporation that received its charter from the New York State Legislature in 1867.2 Its members are ninety-six insurance companies authorized to write fire insurance policies in New York. According to an affidavit submitted by defendant Alexander Pirnie, the Board's former president,3 the Board engages in two principal activities: It maintains the New York City Fire Patrol, a group of patrolmen who assist New York City's firefighters, and it inspects electrical equipment and issues certificates of compliance with the National Electric Code. Pirnie Aff. ¶¶ 4, 11. Approximately 250 New York municipalities have adopted policies that, like the Village's, effectively require building owners to obtain certificates of compliance from the Board. Id. ¶ 12. The Board charges a fee for inspections to be paid by the property owner.
The plaintiff, Electrical Inspectors, Inc., is a for-profit corporation that, like the Board, inspects electrical wiring in commercial and residential properties in New York State and issues certificates of compliance with the National Electric Code. On March 1, 1999, the plaintiff brought this action in the district court against fifteen New York municipalities including the Village; on September 9, 1999, it amended its complaint to name the Board as a defendant. The plaintiff alleged various violations of the Sherman Act, 15 U.S.C. §§ 1 & 2, the Donnelly Act, N.Y. Gen. Bus. Law § 340(1), its federal due process rights, and its federal and state equal protection rights. According to the amended complaint, the municipalities' policies of conferring monopoly power within their respective boundaries on the Board were unauthorized by state law and had the illegal effect of excluding the plaintiff from local markets for electrical inspection services. Amend. Compl. ¶ 139. The plaintiff also alleged that the Board actively sought and maintained such grants, and abused its exclusive positions by providing low-quality service and by seeking to expand its overall market share by threatening to retaliate in those locations where it has exclusivity against customers who use the plaintiff's services where competition is allowed. Id. ¶¶ 52, 69, 72, 112, 118.4 The plaintiff sought monetary damages against the Board, and injunctive and declaratory relief against the municipalities, for their asserted violation of the federal antitrust laws.
The defendants assert in their answer, inter alia, that they are immune from the plaintiff's federal antitrust-law claims under the state-action immunity doctrine. The plaintiff moved to strike this defense as insufficient pursuant to Federal Rule of Civil Procedure 12(f), and the defendants cross-moved for summary judgment on the federal antitrust law claims.
On March 30, 2001, the district court issued a Memorandum and Order denying the plaintiff's motion to strike and granting the defendants' motion for summary judgment. EII, 145 F.Supp.2d at 279. The court held that the municipalities were immune from federal antitrust liability on the grounds that the Act gave them "broad ... authority over a matter integral to public health and safety," and that appointing exclusive agents to conduct required electrical inspections was "a `foreseeable' consequence of the state delegation of authority." Id. at 277-78. The district court then concluded that the municipalities' immunity under the state-action doctrine extended to the Board. "Because the municipal defendants' decisions appointing the Board as exclusive agent are immune from antitrust liability, the Board is similarly immune...
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