James Cape & Sons Co. v. Pcc Const. Co.

• Decision Date: 28 June 2006
• Docket Number: No. 05-3894.,05-3894.
• Citation: 453 F.3d 396
• Parties: JAMES CAPE & SONS COMPANY, Plaintiff-Appellant, v. PCC CONSTRUCTION COMPANY (f/k/a Streu Construction Company), Vinton Construction Company, John Streu, Ernest J. Streu, James J. Maples, Michael J. Maples and Daniel Beaudoin, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

453 F.3d 396

JAMES CAPE & SONS COMPANY, Plaintiff-Appellant, v. PCC CONSTRUCTION COMPANY (f/k/a Streu Construction Company), Vinton Construction Company, John Streu, Ernest J. Streu, James J. Maples, Michael J. Maples and Daniel Beaudoin, Defendants-Appellees.

No. 05-3894.

United States Court of Appeals, Seventh Circuit.

Argued June 1, 2006.

Decided June 28, 2006.

Matthew J. Flynn (argued), Quarles & Brady, Milwaukee, WI, for Plaintiff-Appellant.

Andrew W. Erlandson (argued), Hurley, Burish & Milliken, Madison, WI, Michael B. Apfeld (argued), Daniel T. Flaherty, Godfrey & Kahn, Kathryn A. Keppel, Gimbel, Reilly, Guerin & Brown, Milwaukee, WI, for Defendants-Appellees.

Before FLAUM, Chief Judge, and MANION and WILLIAMS, Circuit Judges.

FLAUM, Chief Judge.

Defendants pleaded guilty to rigging bids for State of Wisconsin Department of Transportation construction projects. One of the defendants, Daniel Beaudoin, is a former employee of James Cape & Sons ("Cape"), the plaintiff construction company. Plaintiff alleges that with Beaudoin's help, the defendant construction companies learned of Cape's bids for various construction projects, which is forbidden in Wisconsin's blind bidding process. This knowledge allegedly allowed them to unfairly manipulate the bidding process by underbidding Cape by small increments. Cape filed an antitrust and a civil RICO suit against the defendants. The district court dismissed the case on the pleadings. Cape appeals. For the following reasons, we now affirm.

I. Background

PCC Construction Co., f/k/a Streu Construction Co. ("Streu"), Vinton Construction Co. ("Vinton"), the owners of those companies, and Daniel Beaudoin are the defendants in this action. They have plead guilty to collaborating to rig bids for construction projects for, among others, the State of Wisconsin Department of Transportation ("WisDOT"). WisDOT allocates construction projects through a closed bidding system. WisDOT is required by law to accept the lowest bid from a "competent and eligible bidder." In order to be "eligible," a bidder must submit a sworn statement that the bidder did not collude with competitors or otherwise restrain free bidding.

Beginning in approximately 1997 and continuing until 2004, the defendants began to unfairly rig the WisDOT bidding process. The owners of Streu and Vinton would meet to discuss projects that would soon be up for bid. They would share their companies' bid information, discuss potential competitors, and set bids amongst themselves in an attempt to allocate projects between them.

In late 1996, John Streu of Streu Construction Co. approached defendant Beaudoin and asked him to become part of the bid-rigging scheme. At that time, Beaudoin was an area manager for Cape, and as part of his job, he worked on Cape's bids before they were submitted to WisDOT. Through a series of in-person and telephonic meetings, Beaudoin shared Cape's confidential information with the other defendants, sometimes mere minutes before the companies submitted their bids. This allowed the conspirators to lower or raise their bids to just under the amount that Cape was going to bid.

In 2003, another Cape employee began to suspect that Beaudoin might be revealing confidential bid information to competitors. In March 2003, Plaintiff reported its suspicions about Beaudoin to the United State's Attorney's Office for the Eastern District of Wisconsin. Beaudoin eventually cooperated with the government in its investigation of the bid-rigging scheme.

Cape alleges that because Streu and Vinton were able to inflate their bids on contracts that they were sure they would receive, WisDOT was overcharged by almost two million dollars over the life of the scheme. Cape also alleges that it lost millions of dollars of business because its share of the market was reduced and it was awarded fewer contracts than it otherwise would have been.

Defendants Ernest Streu, John Streu, James Maples, and Michael Maples all pleaded guilty to antitrust violations, and admitted that they met in person and "allocate[d] upcoming construction projects among themselves and [] arrange[d] for each other to submit complementary bids for or refrain from bidding on particular projects." Beaudoin also pleaded guilty, stating that he and his co-conspirators "would cause rigged bids to be submitted from the offices of Vinton and Streu . . . and from Cape's offices in Racine County to WisDOT and other entities," and that, "[d]uring [his] participation in these activities, his employer received contracts totaling in excess of $17.1 million for projects which had been the subject of the conspiracy."

Cape filed a civil antitrust action under 15 U.S.C. § 15, a civil RICO action under 18 U.S.C. § 1964(c), and various state claims against the defendants. The district court granted the defendants' motion to dismiss, finding that Cape had failed to state a claim upon which relief could be granted. The court dismissed the federal counts with prejudice, and the pendant state law claims without prejudice. Cape now appeals that ruling.

II. Discussion

A. Antitrust Claim

The district court dismissed Cape's antitrust claim because it found that Cape had not properly alleged an antitrust injury. The court noted that for a civil litigant to show antitrust injury, it must show injuries that reflect the anticompetitive effect of either the violation or the anticompetitive acts made possible by the violation. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). The court further elaborated that such injury must involve "loss [that] comes from acts that reduce output or raise prices to consumers." Chi. Prof'l Sports Ltd. P'ship v. Nat'l Basketball Ass'n, 961 F.2d 667, 670 (7th Cir. 1992). The court believed that Cape had not shown such injury, because "by undercutting James Cape & Sons[, Defendants] actually provided lower bids to the consumer. That is, their bid-rigging activities actually increased, rather than restricted, competition, albeit in an illegal manner." The court noted that Cape's damages resulted only because its bids were higher than Defendants' bids.

We agree with the district court that consumer injury is not necessarily related to Cape's injury. While Cape may have been injured because, absent a conspiracy, the defendants might have inflated their prices in hopes of receiving more profit from the project and therefore not received the bid, the conspiracy still would have resulted in the consumer paying a price below Cape's bid. Such a loss would not "come[ ] from acts that reduce output or raise prices to consumers." Chi. Prof'l Sports, 961 F.2d at 670.

On appeal, Cape argues that the district court overlooked one form of antitrust injury mentioned in the complaint. Cape claims that it properly alleged that Beaudoin, as a member of the conspiracy, not only shared Cape's bids with the rest of the defendants, but also falsely inflated Cape's bids to allow Streu and Vinton to win the project. Thus, the other defendants' "undercutting" did not necessarily result in lower prices for the state, Cape claims. Defendants respond that Cape did not raise any such allegation in the pleadings that were before the district court.

Cape believes that it did raise this theory in its pleadings below. First, Cape alleged that Beaudoin had the authority to prepare cost estimates that the company would use to prepare its bids.¹ The rest of the theory, Cape submits, can be inferred from Cape's allegations that "Defendants" "rigged" bids. Cape argues that "rigged," since it is used in reference to "Defendants" (which would include Beaudoin), should encompass the inflated estimate scheme alleged on appeal. The language in the complaint that best supports this theory is found in paragraph 85, wherein Cape alleges, "[D]efendants [presumedly including Beaudoin] took various actions, including . . . designating which coconspirator [sic] would submit the low bid for the project and which of the co-conspirators [again, presumedly including Beaudoin] would submit higher, complementary bids for the project."

After reading the complaint, we conclude that the issue was not adequately plead to the district court. Most of the complaint alleges that Streu and Vinton unfairly underbid Cape, and mentions Beaudoin only in the context of accusing him of sharing information with the other defendants so as to allow them to adjust their bids.

Plaintiff's argument that it properly plead its theory that Beaudoin inflated Cape's bids merely by alleging that the "defendants" "rigged" bids is weakened by the way in which Cape uses the word "defendants" throughout its complaint. For example, almost immediately following paragraph 85 is an accusation that "defendants" "[a]ccept[ed] payment from the State of Wisconsin." Including Beaudoin in this group of "defendants" is arguably inconsistent with Cape's own claim for damages. Throughout the complaint, Cape repeatedly refers to "defendants" allocating contracts amongst "themselves," with the clear implication that only Streu and Vinton received the contracts and Cape was excluded. We believe it unfair to expect Defendants to completely ignore the context of the complaint and read the term "defendants" to mean "defendants [including Beaudoin]," as Cape encourages us to do in its brief, when throughout most of the complaint, the allegations make sense only if "defendants" is read to mean "defendants [excluding Beaudoin]."

Therefore, we hold that the district court had no basis from which to reasonably find that the claim that Beaudoin artificially raised Cape's bids was included in the complaint, and was justified in not considering it.

Cape argues that even if it did not properly allege its claim, the district court should have allowed it to amend its complaint before dismissing it with prejudice. Defendants counter that Cape never requested leave to amend its complaint....