Interface Group, Inc. v. Massachusetts Port Authority

• Decision Date: 30 March 1987
• Docket Number: No. 86-1467,86-1467
• Citation: 816 F.2d 9
• Parties: 1987-1 Trade Cases 67,502 The INTERFACE GROUP, INC., Plaintiff, Appellant, v. MASSACHUSETTS PORT AUTHORITY, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 9

816 F.2d 9

1987-1 Trade Cases 67,502

The INTERFACE GROUP, INC., Plaintiff, Appellant, v. MASSACHUSETTS PORT AUTHORITY, Defendant, Appellee.

No. 86-1467.

United States Court of Appeals, First Circuit.

Argued Oct. 8, 1986.

Decided March 30, 1987.

James C. Burling, with whom Richard J. Innis, Mark G. Matuschak and Hale and Dorr, Boston, Mass., were on brief, for plaintiff, appellant.

Allyn O. Kreps, William T. Drescher and Jones, Day, Reavis & Pogue, Los Angeles, Cal., on brief, for Air Transport Ass'n of America, amicus curiae.

Scott P. Lewis, with whom Thane D. Scott, Anne L. Gero, Palmer & Dodge and Richard J. Lettieri, Mass. Port Authority, Boston, Mass., were on brief, for defendant, appellee.

Before COFFIN, BREYER and TORRUELLA, Circuit Judges.

BREYER, Circuit Judge.

The Massachusetts Port Authority (Massport), which operates Logan airport, will not let the appellant, a charter airline operator called The Interface Group, Inc. (Interface), use Logan's Terminal C. Interface, believing that Massport's refusal violates the federal antitrust laws, 15 U.S.C. Secs. 1, 2 (1982), and several federal aviation statutes, 49 U.S.C.App. Secs. 1349(a), 1513, 2210 (1982), sued Massport in federal district court. Interface also asked the court to assume pendent jurisdiction over two state claims that parallel its antitrust claims. Mass.Gen.L. ch. 93, Secs. 4, 5; ch. 93A, Sec. 2 (1985). The district court dismissed the entire complaint for failure to state a federal claim. Fed.R.Civ.P. 12(b)(6), 631 F.Supp. 483. Interface appeals this dismissal. With one exception, we believe the district court was correct.

I.

Interface's antitrust claims amount to an imaginative, but unsuccessful, effort to dress its facts in the wrong suit of legal clothes. The facts that it asserts, in essence, are the following: (1) Interface bought two L1011 aircraft from TWA to use for charter service during the winter; (2) it leased them back to TWA for TWA's use during the peak summer season; (3) TWA promised Interface that during the winter Interface could use TWA ground services; (4) Massport allows TWA to service itself at Terminal C; (5) Massport permits two other private companies (called "fixed base operators" or "FBOs") to sell ground services at Terminal E; and (6) Massport requires all nontenant charter carriers, such as Interface, to use Terminal E; they cannot use Terminal C.

Interface asserts that Massport's policy, at least as applied in this instance, is unreasonable. Interface's basic legal problem is that it is not seeking judicial review of an unreasonable regulation under the state Administrative Procedure Act (as counsel at oral argument agreed it might have done). See Mass.Gen.L. ch. 30A, Sec. 7 (1985). Rather, it has brought an antitrust claim. And "unreasonableness" in antitrust law has a rather special meaning. It means that the anticompetitive consequences of a particular action or arrangement outweigh its legitimate business purposes. See 7 P. Areeda, Antitrust Law p 1500, at 362-63 (1986). "Anticompetitive" also has a special meaning: it refers not to actions that merely injure individual competitors, but rather to actions that harm the competitive process, Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 1521, 8 L.Ed.2d 510 (1962), a process that aims to bring consumers the benefits of lower prices, better products, and more efficient production methods. Once one recognizes these special meanings of the relevant terms, it becomes difficult if not impossible, to see how the facts alleged in the complaint could make out a violation of the antitrust laws.

Interface says that Massport's requirement that it use Terminal E and the ground services provided there amounts to an unreasonable "exclusive dealing" arrangement between Massport and the FBOs, unlawful under Sherman Act Sec. 1. But "[n]ot all exclusive dealing contracts even by a monopolist are illegal." Smith v. Northern Michigan Hospitals, Inc., 703 F.2d 942, 953 (6th Cir.1983). Because the arrangements often serve legitimate business purposes, courts apply a rule of reason in deciding whether particular instances violate the Sherman Act. See Brown v. Hansen Publications, Inc., 556 F.2d 969, 970-71 (9th Cir.1977) (noting that "exclusive dealing arrangements are not per se illegal" because they "may be procompetitive in purpose"); cf. Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 58-59, 97 S.Ct. 2549, 2561-62, 53 L.Ed.2d 568 (1977) (noting that vertical restrictions are presumptively governed by the rule of reason).

Exclusive dealing arrangements may sometimes be found unreasonable under the antitrust laws because they may place enough outlets, or sources of supply, in the hands of a single firm (or small group of firms) to make it difficult for new, potentially competing firms to penetrate the market. See 3 P. Areeda & D. Turner, Antitrust Law p 732, at 253 (1978). To put the matter more technically, the arrangements may "foreclose" outlets or supplies to potential entrants, thereby raising entry barriers. Cf. Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327-29, 81 S.Ct. 623, 627-29, 5 L.Ed.2d 580 (1961) (applying the stricter standard of Clayton Act Sec. 3). Higher entry barriers make it easier for existing firms to exploit whatever power they have to raise prices above the competitive level because they have less to fear from potential new entrants. Thus, for example, one might worry about long term exclusive dealing contracts between a small group of firms making most of the nation's light bulbs and the firms that make light bulb filaments; if potential light bulb manufacturers are deterred from entering the market by a fear that they will be unable to obtain filaments, the existing light bulb manufacturers may be able to keep prices high. Cf. Standard Oil Co. v. United States, 337 U.S. 293, 69 S.Ct. 1051, 93 L.Ed. 1371 (1949) (finding foreclosure of marketing outlets to be a Sec. 1 violation).

The complaint before us, however, seems inadequate to raise an antitrust controversy. Certainly the kind of antitrust harm typically present in an unlawful exclusive dealing arrangement is missing here. Interface does not claim that the arrangement, by foreclosing entry into the FBO market, makes it easier for Massport to abuse its market power or more difficult for new firms to build competing airports. Nor does it allege any more exotic theory of antitrust harm. Even if we were to concoct on Interface's behalf an analogy between FBOs and dealers to which an important manufacturer assigns exclusive territories, we would not cure the deficiency, because a manufacturer is ordinarily free to decide just how many dealers it will place in any given geographic area. See Packard Motor Car Co. v. Webster Motor Car Co., 243 F.2d 418 (D.C.Cir.), cert. denied, 355 U.S. 822, 78 S.Ct. 29, 2 L.Ed.2d 38 (1957).

When there is no plausible connection between exclusive dealing and antitrust harm, courts have not hesitated to hold that dealing lawful. Thus, courts have explicitly permitted even private firms with effective monopoly control of a transportation facility to maintain exclusive dealing arrangements with even a single supplier. See, e.g., Donovan v. Pennsylvania Co., 199 U.S. 279, 26 S.Ct. 91, 50 L.Ed. 192 (1905) (permitting a private railroad company to enter into an exclusive dealing arrangement with a single taxi company for provision of taxi services at the Chicago railroad station); Export Liquor Sales, Inc. v. Ammex Warehouse Corp., 426 F.2d 251 (6th Cir.1970), cert. denied, 400 U.S. 1000, 91 S.Ct. 460, 27 L.Ed.2d 451 (1971) (dismissing a Sec. 2 claim challenging an exclusive lease between the Detroit & Canada Tunnel Corporation and a company selling duty-free liquor). We have found no case invalidating exclusive dealing arrangements in which the potential harm to competition (in the word's special antitrust sense) appeared as remote as a reasonable reading of the complaint suggests here. The cases Interface cites involved exclusive dealing arrangements with more obviously anticompetitive consequences. See United States v. General Motors Corp., 384 U.S. 127, 144-45, 86 S.Ct. 1321, 1330-31, 16 L.Ed.2d 415 (1966) (finding a Sec. 1 violation when manufacturer elicited agreements from dealers not to do business with discounters); New York Airlines, Inc. v. Dukes County, 623 F.Supp. 1435, 1450-51 (D.Mass.1985) (finding a Sec. 1 claim when plaintiff was excluded altogether from defendant's airport because of a threat by a competing airline to discontinue existing service).

The fact that Massport is a public rather than a private body makes any risk to competition yet more remote. Unlike a private owner, Massport does not directly profit from its ownership of Logan. See Opinion of the Justices, 334 Mass. 721, 734, 136 N.E.2d 223, 231 (1956). It therefore has no economic motive to protect its market power in the airport operating business or to enter into anticompetitive arrangements. Given the absence of plausible allegations suggesting that the case raises the kinds of antitrust concerns typically present in unlawful exclusive dealing cases, and given the complaint's failure to raise any novel theory of illegality, the complaint simply does not state an antitrust exclusive dealing claim. See Donovan, supra; Export Liquor Sales, supra; cf. Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1109-10 (7th Cir.1984) ("[T]he complaint does not in any way set forth facts to support the conclusion that [the replacement of a firm in an exclusive dealing contract] had any anticompetitive effect."), cert. denied, 470 U.S. 1054, 105 S.Ct. 1758, 84 L.Ed.2d 821 (1985).

Interface's alternative antitrust theory suffers from similar problems. Interface says that Massport's failure to make Terminal C ground facilities available to it violates Sherman Act Sec. 2's prohibition of monopolization. It argues that because Massport has a...