United States v. NATIONAL SOC. OF PROFESSIONAL ENG., Civ. A. No. 2412-72.

• Decision Date: 31 December 1974
• Docket Number: Civ. A. No. 2412-72.
• Citation: 389 F. Supp. 1193
• Parties: UNITED STATES of America, Plaintiff, v. NATIONAL SOCIETY OF PROFESSIONAL ENGINEERS, Defendant.
• Court: U.S. District Court — District of Columbia

389 F. Supp. 1193

UNITED STATES of America, Plaintiff, v. NATIONAL SOCIETY OF PROFESSIONAL ENGINEERS, Defendant.

Civ. A. No. 2412-72.

United States District Court, District of Columbia, Civil Division.

December 19, 1974.

Findings of Fact December 31, 1974.

COPYRIGHT MATERIAL OMITTED

Richard J. Favretto, Dept. of Justice Washington, D. C., for plaintiff.

Lee Loevinger, E. Barrett Prettyman, Jr., Hogan & Hartson, Milton F. Lunch, Washington, D. C., for defendant.

OPINION

JOHN LEWIS SMITH, Jr., District Judge.

This is an antitrust suit brought by the United States against the National Society of Professional Engineers (NSPE) under § 1 of the Sherman Act, 15 U.S.C. § 1, which declares illegal every "contract, combination . . . or conspiracy, in restraint of trade or commerce among the several States.. . ." The alleged offense centers on Section 11(c) of defendant's Code of Ethics which prohibits members of NSPE from submitting competitive bids for their engineering services.¹ Plaintiff seeks to enjoin the combination and conspiracy which maintains the prohibition against competitive bidding as well as to have canceled all provisions to the Code of Ethics and other relevant rules or statements of policy which support the bidding ban.

NSPE is a professional society incorporated under the laws of South Carolina with more than 69,000 members located throughout the United States. Membership in NSPE accounts for slightly less than 10 percent of all graduate engineers in the nation holding a collegiate degree in engineering from an institution of higher learning. Upon a demonstration of proficiency, each of the states permits engineers to hold a certificate of registration or license to practice. Approximately 325,000 are so registered of whom 55,000 or 17 percent, are members of NSPE. About half of the registered professional engineers in this country are engaged in offering services to the public as consulting engineers. Although NSPE is a national organization, it is affiliated with professional engineering societies in each of the 50 states, territories and the District of Columbia. When a member joins NSPE, he joins the applicable state society and local chapter at the same time.

Defendant's Board of Directors adopted the present format of the NSPE Code of Ethics in 1964. Section 11(c) of the Code provides that an engineer "shall not solicit or submit engineering proposals on the basis of competitive bidding." The section defines competitive bidding as any measure of compensation "whereby the prospective client may compare engineering services on a price basis prior to the time that one engineer . . . has been selected for negotiations." While Sec. 11(c) advises that disclosure of a recommended state society fee schedule does not constitute competitive bidding, it requires that the engineer "withdraw from consideration for the proposed work" if the prospective client insists on competitive bidding.

In practice, adherence to Sec. 11(c) by the engineer and client means the prospective client will limit his initial search to the engineer whose background and reputation suggests he is the best qualified and most appropriate for the client's needs. Discussion of fees, however, will not be permitted until after the client has actually selected an engineer and discussed the scope of his particular problem. Should the engineer and client be unable to agree upon a satisfactory fee arrangement, the client will withdraw his selection and approach a new engineer. This procedure is known as the traditional method of retaining professional engineering services.

In addition to the Code of Ethics, the defendant has sought to promote its ban on competitive bidding by a variety of other means. These include publication of professional policy statements, issuance of opinions on a case analysis basis by its Board of Ethical Review, distribution of pamphlets to members and clients, personal letters to individual clients suspected of soliciting on a competitive bid basis, and participation with other professional societies in preventing governmental agencies from obtaining price proposals for architect-engineering (A-E) projects by competitive bidding methods.

While NSPE has no authority to terminate an engineer's membership in his state society for unethical conduct, it has played a significant role in coordinating and encouraging state society investigations into suspected misconduct. NSPE has recommended procedures to be followed by state societies upon the filing of charges of unethical conduct against a member, assisted in the conduct of these investigations, and directly warned members of apparent Sec. 11(c) violations.

The policing actions of defendant with respect to Sec. 11(c) have met with apparent success. The record is devoid of any evidence suggesting significant defections by members from the bidding ban. Attempts by at least one federal agency to exchange the traditional method of procuring A-E services for competitive bidding met strong resistance resulting in part from actions of NSPE urging its members to refuse to offer their services.

The nature of engineering services provided by NSPE members covers a wide spectrum embracing the study, design and construction of real property improvements located throughout the United States and abroad. Engineering services include pre-feasibility studies, feasibility studies, planning, preliminary studies, the preparation of drawings, plans, designs, specifications, cost estimates, manuals, and reports, consultations, surveys, and inspections. This work is performed in connection with myriad projects ranging from highway construction, public utilities and communications facilities to commercial structures, transportation means and mining facilities. The list is virtually endless. The clients for whom NSPE members offer their services include governmental agencies at all levels, manufacturing companies, industrial companies and retailing companies operating throughout the United States.

NSPE members practice as sole practitioners, partnerships and corporations ranging upwards in size to 1500 individuals. Individual members are often licensed to perform engineering services in several states at one time. Engineering firms with which NSPE members are affiliated frequently maintain offices in states and foreign countries other than their principal places of business. Such firms perform services on a multi-state, regional or national basis.

Most design and construction projects require the services of both architects and engineers whose services are often provided by a single firm. The engineer's portion of the firm's fee normally accounts for about 5 to 6 percent of the cost of construction. For the year 1972, the 438 largest A-E design firms accounted for approximately $2.2 billion in fees. Profit margins for many firms range as high as 10 to 12 percent. Forty, or approximately 9 percent, of the top 438 A-E design firms were publicly held corporations or affiliated with publicly held corporations, whose fees accounted for approximately 14 percent of the receipts from this group.

In addition to A-E design firms, there is a second significant group of firms performing engineering services known as design/construct firms which differ from typical consulting engineering firms in their added capability of performing construction work as well as traditional A-E design work. In 1972, 30, or approximately 48 percent, of the top 62 design/construct firms in the nation were publicly held corporations or affiliated with such corporations and accounted for 65 percent of the $26 billion of new project contracts awarded this group.

The Government attacks defendant's ethical prohibition against competitive bidding on grounds it constitutes price fixing in per se violation of § 1 of the Sherman Act. Claiming that Sec. 11(c) operates to deny clients access to competitive price information, plaintiff contends the bidding ban illegally tampers with the price structure of engineering services by eliminating all forms of price competition, thereby stabilizing engineering fees. NSPE proffers a three pronged defense contending first, the practice of professional engineering is not trade or commerce within the scope of § 1; second, the ethical prohibition is a reasonable practice in the field of professional engineering; third, the practice of professional engineering is exempt from antitrust attack because it is a state regulated profession. The Court will consider these defenses seriatim.

I

Defendant claims that the practice of professional engineering falls outside the ambit of trade or commerce because it is a so-called "learned profession" governed by self-regulation. The notion that learned professions are not covered by the Sherman Act has its genesis in the construction placed upon the term "restraint of trade" under § 3 of the Sherman Act by the Supreme Court in Atlantic Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 436, 52 S.Ct. 607, 76 L.Ed. 1204 (1932). In giving expansion to the word "trade", the Court quoted with approval from now famous dictum set down by Mr. Justice Story in The Schooner Nymph, 1 Sumn. 516, 517-518, 18 Fed.Cas. pp. 506, 507, No. 10,388 (1834):

"Whenever any occupation, employment, or business is carried on for the purpose of profit, or gain, or a livelihood, not in the liberal arts or in the learned professions, it is constantly called a trade."

Notwithstanding this favorable reference to an early nineteenth century conception of trade, the Supreme Court has never held that a learned profession is exempt from the Sherman Act and has in fact affirmed its intention not to "intimate an opinion on the correctness of the application of the term trade to the professions." United States v. National Ass'n of Real Estate Boards, 339 U.S. 485, 491-2, 70 S.Ct. 711, 715, 94 L.Ed. 1007 (1950).² The only circuit court to declare a learned profession...