Hertz Corp. v. City of New York

• Decision Date: 02 August 1993
• Docket Number: No. 1592,D,1592
• Parties: , 1993-2 Trade Cases P 70,343 The HERTZ CORPORATION, Plaintiff-Appellant, v. The CITY OF NEW YORK, O. Peter Sherwood, in his official capacity as Corporation Counsel of the City of New York, and Mark Green, in his official capacity as Commissioner of Consumer Affairs of the City of New York, Defendants-Appellees. ocket 92-7369.
• Court: U.S. Court of Appeals — Second Circuit

Page 121

1 F.3d 121

62 USLW 2150, 1993-2 Trade Cases P 70,343

The HERTZ CORPORATION, Plaintiff-Appellant, v. The CITY OF NEW YORK, O. Peter Sherwood, in his official

capacity as Corporation Counsel of the City of New York, and

Mark Green, in his official capacity as Commissioner of

Consumer Affairs of the City of New York, Defendants-Appellees.

No. 1592, Docket 92-7369.

United States Court of Appeals,

Second Circuit.

Argued May 6, 1992.

Decided Aug. 2, 1993.

Paul C. Saunders, New York City (Cravath, Swaine & Moore, of counsel), for plaintiff-appellant.

Alan G. Krams, New York City (O. Peter Sherwood, Corp. Counsel of the City of New York, Leonard Koerner, Lawrence S. Kahn, Barry P. Schwartz, June R. Buch, Julie Mertus, of counsel), for defendants-appellees.

Timothy Dyk, Washington, DC (Jones, Day, Reavis & Pogue, of counsel), for amicus curiae Chamber of Commerce of the U.S.

Before: FEINBERG, PRATT and McLAUGHLIN, Circuit Judges.

GEORGE C. PRATT, Circuit Judge:

Hertz Corporation appeals from a judgment of the United States District Court for the Southern District of New York, Whitman Knapp, Judge, that dismissed its complaint which sought to enjoin enforcement of Local Law No. 21 of 1992 of the City of New York, referred to informally as the "Hertz law".

FACTS AND BACKGROUND

On January 2, 1992, Hertz announced that it would increase the daily car-rental rates it charges by $56.00 for residents of the Bronx, $34.00 for residents of Brooklyn, $3.00 for residents of Manhattan, and $15.00 for residents Hertz claims that renting cars to residents of these boroughs had resulted in extremely high liability expenses for the company. Specifically, Hertz alleges that although only about seven percent of Hertz's nationwide rentals occur in the New York area, more than 25 percent of its liability losses have occurred there. As one of the reasons, the company points to a state statute that holds car owners vicariously liable for any monetary damages caused by the operation of their vehicles. See N.Y.Veh. & Traf. Sec. 388 (McKinney 1986). Another cause, says Hertz, is that juries in some of the affected boroughs have a history of awarding high damages to plaintiffs in personal injury cases. Hertz avers that its residency surcharges correspond directly to the average excess liability losses incurred per rental in the affected boroughs.

of Queens. The increased rates were to be charged to persons residing in those four boroughs whenever they rented a car at a Hertz outlet in the New York metropolitan area, New Jersey, Southern Connecticut, or Eastern Pennsylvania. Out-of-city Hertz customers who rented a vehicle in one of these four boroughs would have no increased rates.

Hertz excludes several groups of renters from the increases: (1) those holding contracts with Hertz, such as federal and corporate accounts, and (2) certain other categories of renters--those possessing airline tickets, members of the Manhattan Preferred Renters Club, and Platinum Service customers--felt to be low-risk groups. In addition, members of the "Hertz Gold Club" are excluded, since they do not check in at a rental-car outlet and therefore could not practicably be notified of the increased rate. Hertz also has announced a "Responsible Renter Qualification Program", which permits those otherwise subject to the increased rates to apply for and receive an exemption upon meeting certain qualifications, including a safe driving record.

In response to Hertz's proposed surcharges for residents of four of its boroughs, the City of New York passed Local Law No. 21 of 1992 which amended chapter four of title 20 of the city's administrative code to provide that:

No rental vehicle company shall refuse to rent a motor vehicle to any person otherwise qualified based on that person's residence, nor impose fees or charges based on that person's residence.

Through this local law, the city contends, that it was "exercising its reasoned legislative judgment that the social costs of the [Hertz pricing] practice are too high, given its potential for polarization and the fact that the burden falls hardest on minorities and the working poor."

In addition to enacting Local Law No. 21, the city commenced an action in Supreme Court, New York County, claiming that Hertz's rate increases violated (1) state and local law because of their disparate impact on minorities, and (2) section 396-z(10) of New York's General Business Law. That action is pending.

On March 27, 1992, Hertz commenced this action in the United States District Court for the Southern District of New York. It sought a declaratory judgment that the Hertz law is invalid and an injunction against its enforcement. The complaint alleged that Local Law No. 21(1) is preempted by state law regulating the rental-car industry, and (2) violates several provisions of the United States Constitution: (a) the contract clause, (b) the commerce clause, and (c) the fourteenth amendment's protection for substantive due process and its prohibition against uncompensated takings. Finally, Hertz charged that Local Law No. 21 compels a violation of Sec. 1 of the Sherman Act, 15 U.S.C. Sec. 1 (1988), and therefore is preempted and invalid under the supremacy clause of the United States Constitution.

Four days after it was filed, Hon. Whitman Knapp, ordered Hertz's complaint dismissed, but he enjoined the city from taking any action to effectuate the law pending the outcome of any appeal by Hertz. Hertz appealed the dismissal; the city did not cross-appeal.

Because the determination of Hertz's state-law preemption claim involved issues that were important to the continuing development The case is now before us to review the district court's resolution of the remaining issues: (1) the city's antitrust liability under the Sherman Act, (2) the impact of Local Law No. 21 on interstate commerce, and (3) Hertz's claims under 42 U.S.C. Sec. 1983 (1988) based on takings law, the contract clause, and substantive due process.

of state law and potentially dispositive of this appeal, on June 10, 1992, we certified to the New York State Court of Appeals the question of "whether New York State legislation addressing car rental practices sets forth a sufficiently comprehensive scheme of regulations to preempt further legislation in the field by the municipalities of the state." Hertz v. City of New York, 967 F.2d 54, 57 (2d Cir.1992). On December 22, 1992, the Court of Appeals answered this question in the negative. See Hertz v. City of New York, 80 N.Y.2d 565, 592 N.Y.S.2d 637, 607 N.E.2d 784 (1992).

DISCUSSION

Review of the grant of a motion under Fed.R.Civ.P. 12(b)(6) is de novo, and we must construe in Hertz's favor factual allegations in the complaint. Allen v. Westpoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1991). Our consideration, like the district court's, is limited to facts stated on the face of the complaint and in documents appended to the complaint or incorporated in the complaint by reference, as well as to matters of which judicial notice may be taken. Id. Dismissal of the complaint is proper only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957) (footnote omitted).

A. The Sherman Act.

Section 1 of the Sherman Act provides that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States * * * is declared to be illegal." 15 U.S.C. Sec. 1.

Initially we note that by controlling one aspect of the pricing process for rental cars, the Hertz law on its face restrained trade within the meaning of Sec. 1 of the Sherman act. See National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 692, 98 S.Ct. 1355, 1365, 55 L.Ed.2d 637 (1978) ("Price is the 'central nervous system of the economy,' and an agreement that 'interfere[s] with the setting of price by free market forces' is illegal on its face."). In National Soc'y of Professional Eng'rs, the Supreme Court concluded that an agreement among competitors to refuse to discuss prices with potential customers until after negotiations had resulted in the selection of an engineer restrains trade within the meaning of Sec. 1 of the Sherman Act. The Court aptly noted, "[w]hile this is not price fixing as such, no elaborate industry analysis is required to demonstrate the anticompetitive character of such an agreement." Id. at 692, 98 S.Ct. at 1365. The agreement impeded the ordinary give and take of the market place. Id.

The fact that Local Law No. 21 does impose a restraint on trade only marks the beginning of our analytical journey, however, because the broad language of the Sherman Act precludes only those restraints of trade that are unreasonable. Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723, 108 S.Ct. 1515, 1518, 99 L.Ed.2d 808 (1988); Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768, 104 S.Ct. 2731, 2740, 81 L.Ed.2d 628 (1984); see generally Earl W. Kintner, 2 Federal Antitrust Law Sec. 9.20, at 56 (1980). Unreasonable contracts, combinations, and conspiracies in restraint of trade enacted by state and local governments are unconstitutional as preempted by federal antitrust laws. See generally Phillip E. Areeda and Donald F. Turner, Antitrust Law p 209, at 60 (Supp.1992).

The threshold requirement of the statute is that there be a "contract, combination, * * * or conspiracy" to restrain trade or commerce. This element of the statute is usually clear when the conduct at issue is that of private parties; however, when the actor is a local governmental unit, two additional questions must be answered. The first arises from the Supreme Court's holding in The antitrust issues we must address, therefore, can be summarized as follows: (1) whether there is a contract, combination or...