Franchise Realty Interstate Corp. v. San Francisco Local Joint Executive Bd. of Culinary Workers

Decision Date17 September 1976
Docket NumberNo. 73-2727,73-2727
Citation542 F.2d 1076
Parties1976-2 Trade Cases 61,102 FRANCHISE REALTY INTERSTATE CORPORATION and McDonald's Systems of California, Inc., Plaintiffs-Appellants, v. SAN FRANCISCO LOCAL JOINT EXECUTIVE BOARD OF CULINARY WORKERS et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Maxwell M. Blecher (argued), of Blecher, Collins & Hecker, Los Angeles, Cal., for plaintiffs-appellants.

John Thomas Bowen (argued), of Davis, Cowell & Bowe, San Francisco, Cal., Michael Rubenstein (argued), San Francisco, Cal., James T. Fousekis (argued) of Steinhart, Goldberg, Feigenbaum & Lader, San Francisco, Cal., for defendants-appellees.

Before BROWNING and DUNIWAY, Circuit Judges, and MARKEY, * Chief Judge, United States Court of Customs and Patent Appeals.

DUNIWAY, Circuit Judge:

Plaintiffs (McDonald's), two subsidiaries of McDonald's Corporation, appeal from a judgment dismissing their first amended complaint without leave to amend, and the action (Rule 12(b)(6), F.R.Civ.P.), and from an order denying their motion, made after the judgment, for leave to file a second amended complaint (Rules 15(a) and 60(b)(6), F.R.Civ.P.). We affirm.

In the first amended complaint, McDonald's alleged that the defendants, two associations of restaurant and hotel employers and a labor union, had combined and conspired, in violation of § 1 of the Sherman Act, 15 U.S.C. § 1, to oppose, repeatedly, baselessly and in bad faith, the granting of building permits by the San Francisco Board of Permit Appeals (Board) for the construction of McDonald's restaurants.

McDonald's first amended complaint alleges that in 1971 McDonald's, which operates two restaurants in San Francisco, applied for licenses for the operation of three more restaurants, that permits were granted by the San Francisco Department of Public Works, and that the defendants "persuaded" the San Francisco Board of Permit Appeals to overrule the issuance of the permits and to deny them.

It then continues:

17. The aforesaid combination and conspiracy has consisted of a continuing agreement and concert of action, the substantial terms of which have been and are:

(a) That each defendant would appear before the Board of Permit Appeals of the City and County of San Francisco and would oppose each and every permit granted to the Company by the San Francisco Department of Public Works;

(b) That each defendant would solicit the appearance before the Board of such of its members and others as it could secure to support its opposition to issuance of each such permit;

(c) That each defendant would threaten lack of political support to each Board member and other city officials who supported the Company.

18. The conduct described in paragraphs 16 and 17 herein was unlawful in that neither defendant was acting in good faith; instead the consistent, repeated and baseless opposition to the permits accorded the Company by the Department of Public Works was the product of a combination and conspiracy entered into with the explicit purpose of insulating restaurant operators in San Francisco from the competition of McDonald's restaurants and each such opposition was sham and frivolous in that by such opposition the defendants intended to and did no more than cover up a plan to foreclose the Company from free and unlimited access to the Department of Public Works and the Board of Permit Appeals of the City and County of San Francisco, and thereby interfere directly with the business activities and relationships of a competitor. Such opposition specifically undertook to injure and suppress the activities of a competitor who offered quality food at low prices in a family atmosphere.

19. Moreover, each defendant knew its activities to be unlawful and knew them to be a sham and frivolous in that each was well aware of the fact that the Company had intended to and did comply with all of the necessary code requirements, ordinances and regulations applicable to the conduct of its proposed restaurants and that the Board of Permit Appeals of the City and County of San Francisco had absolutely no authority, right, duty or responsibility to act as an economic board of review with the power to determine who and on what terms competition shall exist within the confines of San Francisco. Each defendant thus knew that by its plan of systematic, indiscriminate and wanton attack on the Company it was inducing, if not acting in concert with, the Board of Permit Appeals (other than its President), to subvert the constitutional function of that Board and to do no more than frustrate McDonald's restaurants as a competitive factor in the City and County of San Francisco.

Nowhere in the complaint does McDonald's tell us, specifically, how or why or even whether the defendants' alleged efforts to influence the Board have in any way impaired McDonald's ability fully to present its views to the Board. Nowhere is it alleged that McDonald's was prevented from applying for permits, or from having a hearing before the Board.

The mere reversal of the grant of the three applications, at the urging of the defendants, suggests no more than "that the plaintiffs and defendants met head-on before the Board and that plaintiffs lost," as the district court noted in its opinion. The complaint fails to adduce any specific facts to support the conclusory allegation that defendants' opposition before the Board was "sham" or "frivolous." This deficiency is hardly surprising, for we seriously doubt that any argument raised before the Board could be so characterized in view of the extremely broad standards governing the exercise of that body's discretion. Under section 3.651 of the Charter of the City and County of San Francisco, the Board would appear to have the authority to deny a permit whenever in its judgment issuance would adversely affect the "interests or property" of any person, or merely "the general public interest." 1 The absence of more definite standards suggests that the Board is as much a political as an adjudicatory body. The relatively precise legal standards in light of which certain arguments may be characterized as "frivolous" are simply absent from the rough and tumble of the political arena; almost any position, including the self-interested plea of one competitor that another should be denied a permit, may be urged before such a political body. We find it particularly hard to accept the characterization as "baseless" or "frivolous" of opposition which is entirely successful in obtaining the governmental action sought, as apparently was the case here. 2

Be that as it may, the question before us is not whether defendants' arguments were frivolous, but, assuming that they were, whether the defendants' opposition, as alleged in the complaint, is a violation of the Sherman Act. We think not.

In Eastern Railroad Presidents Conference v. Noerr Motor Freight, 1961, 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464, a group of railroads had hired a public relations firm to conduct a two-pronged campaign against competing truckers. One component was a lobbying effort to influence state legislators and executive officers to enact and zealously enforce legislation restricting the trucking industry. The other was a publicity campaign which, according to the truckers, was intended to destroy their general public reputation and the goodwill they had built up with their customers in order to enhance the railroads' share of the long distance freight market.

With respect to the direct lobbying effort, the Supreme Court declared categorically that

the Sherman Act does not prohibit two or more persons from associating together in an attempt to persuade the legislature or the executive to take particular action with respect to a law that would produce a restraint (of trade) or a monopoly. Id. at 136, 81 S.Ct. at 529.

The Court felt that a contrary construction of the Sherman Act would threaten the First Amendment right of petition, and curtail the flow of valuable information to the government from citizens and groups seeking to influence governmental action. See 365 U.S. at 137-38, 81 S.Ct. 523.

For similar reasons, the Court found that the lobbying immunity also encompassed the railroads' publicity campaign, even though the trial court had found that its sole purpose had been to inflict competitive injury and that the tactics employed had been deceptive and unethical:

The right of the people to inform their representatives in government of their desires with respect to the passage or enforcement of laws cannot properly be made to depend upon their intent in doing so. It is neither unusual nor illegal for people to seek action on laws in the hope that they may bring an advantage to themselves and a disadvantage to their competitors. . . . Indeed, it is quite probably people with just such a hope of personal advantage who provide much of the information upon which governments must act. . . .

We . . . hold that, at least insofar as the railroads' campaign was directed towards obtaining governmental action, its legality was not at all affected by any anticompetitive purpose it may have had.

It is inevitable, whenever an attempt is made to influence legislation by a campaign of publicity, that an incidental effect of that campaign may be the infliction of some direct injury upon the interests of the party against whom the campaign is directed. And it seems equally inevitable that those conducting the campaign would be aware of, and possibly even pleased by, the prospect of such injury. To hold that the knowing infliction of such injury renders the campaign itself illegal would thus be tantamount to outlawing all such campaigns. Id. at 139-40, 143-44, 81 S.Ct. at 530-533.

In United Mine Workers v. Pennington, 1965, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626, the Court reaffirmed the Noerr lobbying immunity and particularly emphasized the...

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