Englert v. City of McKeesport, 88-3773

• Decision Date: 20 April 1989
• Docket Number: No. 88-3773,88-3773
• Citation: 872 F.2d 1144
• Parties: 1989-1 Trade Cases 68,545 Thomas ENGLERT d/b/a Northeast Electrical Inspection Agency, Appellant, v. CITY OF McKEESPORT and Middle Department Inspection Agency.
• Court: U.S. Court of Appeals — Third Circuit

Page 1144

872 F.2d 1144

1989-1 Trade Cases 68,545

Thomas ENGLERT d/b/a Northeast Electrical Inspection Agency, Appellant, v. CITY OF McKEESPORT and Middle Department Inspection Agency.

No. 88-3773.

United States Court of Appeals, Third Circuit.

Argued March 15, 1989.

Decided April 20, 1989.

James P. Hollihan (argued), Manion McDonough & Lucas, P.C., Pittsburgh, Pa., for appellant.

John F. Cambest (argued), Dattilo, Barry, Fasulo & Cambest, Pittsburgh, Pa., for appellee, City of McKeesport.

P. Christian Hague (argued), Michael J. Boyle, and Ronald D. Morelli, Meyer, Unkovic & Scott, Pittsburgh, Pa., for appellee, Middle Dept. Inspection Agency.

Before MANSMANN, GREENBERG and SCIRICA, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

Thomas Englert, doing business as Northeast Electrical Inspection Agency, brought this action against the City of McKeesport, Pennsylvania, and the Middle Department Inspection Agency (MDIA), a private contractor, under sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1 & 2, and under the Pennsylvania Constitution as a pendent claim. The district court granted summary judgment on the Sherman Act claims and dismissed the pendent Pennsylvania constitutional claim with prejudice by an opinion and order of November 3, 1988.

Inasmuch as we conclude that Englert did not and cannot prove concerted action between the defendants, an essential element of his Sherman Act claims, we will affirm the granting of the summary judgment. We will, however, vacate the judgment to the extent it dismissed the pendent state constitutional claim with prejudice and we will remand the matter for entry of an order dismissing that claim without prejudice.

I. BACKGROUND

Notwithstanding the extended length of this litigation, the facts, insofar as material to this appeal, are neither complicated nor in dispute. MDIA has for some time been engaged in the business of providing electrical inspections in McKeesport and elsewhere. McKeesport requires such inspections on much of the electrical work within the city and unless it has the inspection results will not issue an occupancy permit where one is required.

Englert was an electrical inspector employed by MDIA until August 27, 1981, when he was fired. ¹ See Englert v. City of McKeesport, 698 F.Supp. 99, 100 (W.D.Pa.1988). In September, 1981, Englert founded Northeast Electrical Inspection Agency and began to compete with MDIA for business in Western Pennsylvania. When Englert went into business, persons needing electrical inspections were free to select an electrical inspector of their choice in McKeesport. Englert was initially successful in McKeesport as he received fees of $2,539 there during his first eight months of business while MDIA received fees of $3,714 in McKeesport over the same period. See id.

Shortly after Englert went into business, McKeesport contemplated making MDIA its exclusive inspector. Accordingly, Robert Jaworski, the city electrician, met with Theodore E. Javorsky, the MDIA inspector assigned to the geographic area encompassing McKeesport, and told him of McKeesport's plans and asked for an explanation of how MDIA functioned. Javorsky testified that this was the only exchange he had with McKeesport officials concerning MDIA becoming McKeesport's exclusive inspector. Javorsky testified, however, that Jaworski contacted him and asked him to attend a meeting of the city council on May 5, 1982, at which the council would consider making MDIA the city's exclusive inspector and he did so. He further testified that he sat with Jaworski at the meeting but was asked no questions.

At the meeting, the city council enacted a resolution ² designating MDIA as the only entity authorized to perform electrical inspections in the city. The district court found, and it is undisputed, that thereafter McKeesport would not issue an occupancy permit unless MDIA had performed the electrical inspection. See Englert, 698 F.Supp. at 100. The resolution stated:

WHEREAS, the City of McKeesport, under its broad police powers may designate an individual or firm as its electrical inspector to ensure that all electrical work performed in the City of McKeesport is done pursuant to federal, state and local regulations; and

* * *

NOW, THEREFORE, BE IT RESOLVED, by the City of McKeesport, in Council Assembled ... That the proper City Officials be and are hereby authorized and directed to enter into an agreement with Middle Department Inspection Agency to provide for all electrical inspections for all electrical work done within the City of McKeesport.

McKeesport asserts that it enacted the resolution "in an effort to tighten up its enforcement of its building codes," Englert, 698 F.Supp. at 100, selecting MDIA because it "was uniquely well-qualified and reliable, and because MDIA's record keeping was efficient and beneficial to the City." Id.

Englert argues that McKeesport's selection of MDIA failed to include any procedural safeguards. Specifically, he argues in his brief At no time prior to the passage of the May 5, 1982 resolution did McKeesport consider any other entities for inspection work, nor did McKeesport publicly advertise the intent to enact the May 5, 1982 resolution or otherwise publicly notify competitor companies about the availability of the exclusive right to perform electrical inspection work in McKeesport.

Englert set forth in his complaint that pursuant to this resolution "the City ... did, in fact, enter into an agreement with [MDIA], the essential terms of which are that [MDIA] is granted the exclusive right to perform all electrical inspections on electrical work done within the City of McKeesport." The district court found that the resolution significantly impaired Englert's business in McKeesport but that he was still free to perform some inspections. "If a project required a City Occupancy Permit, the Contractor could not employ plaintiff's firm because the City would only issue the permit upon receipt of an MDIA report. Therefore, plaintiff could only perform inspections on jobs that did not require Occupancy Permits, precluding plaintiff from a large segment of the work available in McKeesport." Englert, 698 F.Supp. at 100. Consequently, Englert had only $1,981 of business in McKeesport from May of 1982, through November, 1986, while MDIA collected $40,147 in fees for inspections in McKeesport over the same period. ³

After complaining unsuccessfully to McKeesport about the May 5, 1982, resolution, Englert brought this action on March 18, 1983, in a six count complaint. Count I stated an action for unlawful restraint of trade under section 1 of the Sherman Act. Count II set forth that the exclusive arrangement violated section 2 of the Sherman Act. Count III alleged that MDIA had been engaged in various activities including misrepresentation for a period of several years with the specific intent to obtain a monopoly in western Pennsylvania in violation of section 2 of the Sherman Act. Count IV stated a cause of action for state law unfair competition, commercial disparagement and slander per se. Count V asserted that the alleged agreement between MDIA and McKeesport violated the Fourteenth Amendment protections of due process, privileges and immunities, and equal protection. Count VI asserted that the alleged exclusive agreement violated provisions of the Pennsylvania Constitution.

McKeesport and MDIA filed motions to dismiss for lack of subject matter jurisdiction and for failure to state a claim upon which relief could be granted under Fed.R.Civ.P. 12(b)(1) and 12(b)(6). Each motion included several grounds for relief and both asserted that the complaint insufficiently alleged a nexus with interstate commerce as required for an action under the Sherman Act. In response, Englert filed an amended complaint containing specific allegations with regard to the impact of the alleged McKeesport-MDIA agreement on interstate commerce. Thereafter, the defendants' motions were renewed.

The district court granted the motions to dismiss, see Englert v. City of McKeesport, 564 F.Supp. 375 (W.D.Pa.1983), explaining that Englert's amended complaint failed adequately to allege the substantial and adverse impact on interstate commerce prerequisite to the applicability of the Sherman Act and to the court's jurisdiction. See id. at 376. In addition, the opinion summarily rejected each of the federal constitutional claims. See id. at 377. The court further concluded that, inasmuch as no federal claims remained, it would not exercise pendent jurisdiction over the state law claims. See id.

We reversed and remanded. See Englert v. City of McKeesport, 736 F.2d 96 (3d Cir.1984). In our opinion we addressed only the dismissal of the Sherman Act claims, ⁴ although we indicated that the district court should reconsider the dismissal of the state law claims on remand. See id. at 97 n. 2. We stated that the "dismissal of Eglert's federal constitutional claims [count V] has not been appealed." Id.

On remand, the defendants filed answers to the amended complaint admitting the content of the May 5, 1982, resolution, but denying that the resolution was the result of any improper activity between them and further denying that they had executed any agreement pursuant to the resolution. They also claimed that inasmuch as Englert had not appealed the dismissal of his federal constitutional claims they were not properly before the court. They asserted that the state action exemption from liability under Sections 1 and 2 of the Sherman Act applied in this case.

Thereafter, MDIA moved for a judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c) on counts I and II of the amended complaint. This motion asserted that "Pennsylvania law authorizes the appointment of an electrical inspector by a municipality such as the City of McKeesport," and that McKeesport was immune from antitrust liability under the state action doctrine. In the...