Grason Elec. Co. v. Sacramento Mun. Utility Dist., 84-2395

• Decision Date: 04 September 1985
• Docket Number: No. 84-2395,84-2395
• Citation: 770 F.2d 833
• Parties: 1985-2 Trade Cases 66,795 GRASON ELECTRIC COMPANY, a California Corporation, Luppen and Hawley, Inc., a California Corporation, M and M Electric Company, a California Corporation, et al., Plaintiffs/Appellees, v. SACRAMENTO MUNICIPAL UTILITY DISTRICT, Defendant/Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 833

770 F.2d 833

1985-2 Trade Cases 66,795

GRASON ELECTRIC COMPANY, a California Corporation, Luppen and Hawley, Inc., a California Corporation, M and M Electric Company, a California Corporation, et al Plaintiffs/Appellees, v. SACRAMENTO MUNICIPAL UTILITY DISTRICT, Defendant/Appellant.

No. 84-2395.

United States Court of Appeals Ninth Circuit.

Argued and Submitted May 15, 1985.

Decided Sept. 4, 1985.

Robert A. Susk (argued), Leslie J. Mann, Law Offices of Robert A. Susk, G. Joseph Bertain, Jr., San Francisco, Cal., for plaintiffs/appellees.

J. Keith McKeag, D. Steven Blake, Thomas N. Cooper, Downey, Brand, Seymour, & Rohwer, Sacramento, Cal., Ronald F. Lipp, Cloverdale, Cal., for defendant/appellant.

Appeal from the United States District Court for the Eastern District of California.

Before POOLE, NELSON and BRUNETTI, Circuit Judges.

NELSON, Circuit Judge:

Sacramento Municipal Utility District ("SMUD") appeals from the district court's grant of partial summary judgment striking its state action immunity defense and denial of its summary judgment motion seeking dismissal of the action on the ground of state action immunity, in this antitrust action brought by thirteen electrical contractors ("plaintiffs"). Especially in light of the Supreme Court's recent decision in Town of Hallie v. City of Eau Claire, --- U.S. ----, 105 S.Ct. 1713, 85 L.Ed.2d 24 (1985), we reverse the grant of partial summary judgment and the denial of SMUD's summary judgment motion. Because we find that SMUD is entitled, as a matter of law, to state action immunity, we remand to the district court with instructions to dismiss the action on that ground.

ISSUES PRESENTED

The broad issue is whether the district court erred in striking SMUD's state action immunity defense and in refusing to dismiss plaintiffs' action on the ground of state action immunity.

While the parties differ somewhat on specific formulation, both agree that final resolution of the broader issue raised depends on the resolution of two "sub-issues:" (1) whether the statutory scheme here evidences a sufficiently clear and affirmative state policy to displace competition,

and (2) whether a municipality must show "active state supervision" of its anticompetitive conduct.

FACTUAL AND PROCEDURAL BACKGROUND

SMUD is a public entity created pursuant to state statute and is virtually the exclusive supplier of retail electricity in and around Sacramento, California. Plaintiffs are thirteen electrical contractors who do business in the same geographical area. Plaintiffs construct electrical distribution systems on private property, as well as street and outdoor lighting systems.

The plaintiffs brought an antitrust action against SMUD, alleging that SMUD violated sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1 and 2, by monopolizing the markets for electrical distribution systems on private property and for street and outdoor lighting systems. Plaintiffs do not appear to allege that SMUD's monopoly in the electrical energy market is illegal, but rather that it used that monopoly to gain an anticompetitive advantage in two related markets.

The procedural history of the motions involved in this appeal is somewhat convoluted. SMUD filed a motion for judgment on the pleadings on its state-action immunity defense on June 12, 1981. On the same day, plaintiffs filed a motion for summary judgment, in the alternative a motion for partial summary judgment to strike SMUD's defenses ("plaintiffs' motion to strike"). The district court, Hon. Raul Ramirez, denied SMUD's motion for judgment on the pleadings and certified his order for interlocutory appeal pursuant to 28 U.S.C. Sec. 1292(b). Grason Electric Co. v. Sacramento Municipal Utility District, 526 F.Supp. 276, 280 (E.D.Cal.1981). Judge Ramirez did not rule on the plaintiffs' motion to strike, instead ordering a three-month continuance. Id. at 281.

Before plaintiffs' motion could be heard, however, Judge Ramirez recused himself and the matter was reassigned to the Honorable Lawrence K. Karlton. In September, 1983, Judge Karlton issued an order denying plaintiffs' motion for summary judgment on issues not here on appeal. Grason Electric Co. v. Sacramento Municipal Utility District, 571 F.Supp. 1504 (E.D.Cal.1983). Plaintiffs' motion to strike remained pending. Judge Karlton authorized SMUD to file a cross-motion for summary judgment on the state action defense. On April 30, 1984, Judge Karlton issued an order granting plaintiffs' motion to strike and denying SMUD's cross-motion. SMUD sought section 1292(b) certification, and the court filed the required certification statement on July 17, 1984. SMUD petitioned this court on July 23, 1984, for permission to appeal, and on August 30, 1984, permission was granted.

STANDARD OF REVIEW

The district court's determination of the applicability of state action immunity is a question of law subject to de novo review. Golden State Transit Corp. v. City of Los Angeles, 726 F.2d 1430, 1432 (9th Cir.1984), cert. denied, --- U.S. ----, 105 S.Ct. 1865, 85 L.Ed.2d 159 (1985). The district court's interpretation of state law is reviewed de novo. In re McLinn, 739 F.2d 1395, 1397-1403 (9th Cir.1984) (en banc).

We also review the district court's grant or denial of a summary judgment de novo. See, e.g., Castelli v. Douglas Aircraft Co., 752 F.2d 1480, 1482 (9th Cir.1985). Summary judgment is proper when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Arizona Laborers Local 395 Health & Welfare Trust Fund v. Conquer Cartage Co., 753 F.2d 1512, 1515 (9th Cir.1985); Fed.R.Civ.P. 56(c).

DISCUSSION

I. CLEARLY ARTICULATED STATE POLICY REQUIREMENT

A. Introduction: the legal test

This Circuit has stated that

to qualify for Parker v. Brown [317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), i.e., state action] immunity, a city need only Tom Hudson & Associates, Inc. v. City of Chula Vista, 746 F.2d 1370, 1373 (9th Cir.1984), cert. denied, --- U.S. ----, 105 S.Ct. 3503, 87 L.Ed.2d 634 (1985). Accord, Preferred Communications, Inc. v. City of Los Angeles, 754 F.2d 1396, 1411-12 (9th Cir.1985); Lorrie's Travel & Tours, Inc. v. SFO Airporter, Inc., 753 F.2d 790, 793 (9th Cir.1985); Springs Ambulance Service v. City of Rancho Mirage, 745 F.2d 1270 (9th Cir.1984).

show that it is acting pursuant to a clearly articulated and affirmatively expressed state policy to displace competition, and that the legislature contemplated that that policy might be implemented by the kind of actions challenged as anticompetitive.

This test was most recently used by the Supreme Court in Town of Hallie v. City of Eau Claire, --- U.S. ----, 105 S.Ct. 1713, 85 L.Ed.2d 24 (1985). In Town of Hallie, the Court concluded that the relevant Wisconsin statutes

evidence a "clearly articulated and affirmatively expressed" state policy to displace competition with regulation in the area of municipal provision of sewerage services. These statutory provisions plainly show that " 'the legislature contemplated the kind of action complained of.' " City of Lafayette [v. Louisiana Power & Light Co., 435 U.S. 389, 415, 98 S.Ct. 1123, 1138, 55 L.Ed.2d 364 (1978) ] (quoting the decision of the Court of Appeals, 532 F.2d 431, 434 [ (5th Cir.1976) ]. This is sufficient to satisfy the clear articulation requirement of the state action test.

105 S.Ct. at 1719 (footnote omitted).

B. The district court's flawed legal analysis

An analysis of the district court's reasoning is somewhat difficult here because Judge Karlton provided only a brief explanation of his thoughts concerning the state action immunity issue, and referred only in passing to Judge Ramirez, statements on the same issue. In his ruling from the bench, Judge Karlton said that "although this Court's analysis would be somewhat different from that undertaken by Judge Ramirez, if I had to start all over again, I am certain that the result articulated by Judge Ramirez is the right result.... The Court is satisfied that under the law of the case, ¹ it would be necessary to grant summary judgment [for plaintiffs]." Before he recused himself, Judge Ramirez found that the state action immunity defense was inapplicable because the statutes were permissive rather than compulsory, 526 F.Supp. at 278-79, and because the requisite state policy cannot be shown by inference, id. at 280.

Judge Ramirez' two stated rationales are legally incorrect: the statutes need not be compulsory, and state policy may be inferred from the "broad authority to regulate," 105 S.Ct. at 1718. The Court in Town of Hallie found sufficiently "clear articulation" where the state statutes "clearly contemplate that a city may engage in anticompetitive conduct." Id. (emphasis added). Writing for a unanimous Court, Justice Powell stated that

[i]t is not necessary ... for the state legislature to have stated explicitly that it expected the City to engage in conduct that would have anticompetitive effects. Applying the analysis of City of Lafayette [v. Louisiana Power & Light Co]., [435 U.S. 389, 98 S.Ct. 1123, 55 L.Ed.2d 364 (1978),] it is sufficient that the statutes authorized the City to provide sewage services and also to determine the areas to be served. We think it is clear that anticompetitive effects logically would result from this broad authority to regulate.

Id. The Court thus made clear that the state statutes need not "compel" anticompetitive conduct; rather, said the Court, "although compulsion affirmatively expressed may be the best evidence of state

                policy, it is by no means a prerequisite to a finding that a municipality acted pursuant to a clearly articulated state policy."    Id. at 1720
                

C. Analysis of state statutory scheme

The constitutional authority for municipalities to create public utilities is found in the California Constitution, article XI, section 9, which provides that "[a] municipal corporation may establish,...