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SONITROL OF FRESNO, INC. v. AT&T

March 6, 1986

SONITROL OF FRESNO, INC., et al., Plaintiffs
v.
AMERICAN TELEPHONE AND TELEGRAPH COMPANY, et al., Defendants



The opinion of the court was delivered by: GREEN

 This matter is before the Court on the decision or recommendation of special master on motion for partial summary judgment re: state action immunity ("Special Master's Recommendation"); plaintiffs' motion for an order of the district court (1) setting aside the "decision or recommendation of special master on motion for partial summary judgment re: state action immunity" and (2) denying defendants' motion for partial summary judgment and memorandum in support thereof ("Plaintiffs' Motion to Set Aside"); defendants' opposition thereto ("Defendants' Opposition"); plaintiffs' reply; oral arguments on plaintiffs' motion; and the entire record herein.

 For the reasons given below, the Court affirms the Special Master's Recommendation and denies Plaintiffs' Motion to Set Aside.

 I. Background

 Plaintiffs filed the present action under Section 4 of the Clayton Act, 15 U.S.C. § 15, to recover treble damages and the costs of suit against defendants for injuries sustained by plaintiffs resulting from violations of Sections 1, 2, and 3 of the Sherman Act, 15 U.S.C. §§ 1-3. Second Amended Complaint para. 1. Additionally, this action "arises under Section 16 of the Clayton Act, 15 U.S.C. § 26, to enjoin defendants from continuing the violations alleged herein and from entering as a competitor, for a period of three years, any of the [defined] markets. . . ." Id.

 Plaintiffs in this action are 43 Sonitrol companies which "during all or part of the relevant period, . . . engaged in furnishing remote alarm systems to businesses and residences located in their [respective] geographic areas." Amended Complaint para. 8. The plaintiffs conduct business in the States of California, Massachusetts, Rhode Island, Texas, Tennessee, New York, Pennsylvania, Connecticut, Florida, Oklahoma, Colorado, Louisiana, Minnesota, New Mexico, Ohio, Michigan, Indiana, Washington, Oregon, North Carolina, Arizona, and South Carolina.

 Defendants are American Telephone and Telegraph Company ("AT&T") and its present and former subsidiaries *fn1" that, until January 1, 1984, constituted the Bell System. AT&T "is engaged in the business, among others, of providing telecommunications services in the United States." Second Amended Complaint at 12.

 Plaintiffs' complaint alleges, inter alia, that beginning sometime prior to 1971, defendants and their co-conspirators "engaged in an unlawful combination and conspiracy in unreasonable restraint of trade" and "have attempted to monopolize and have conspired to monopolize interstate trade and commerce" in violation of the Sherman Act. Second Amended Complaint para. 48. According to plaintiffs, "defendants have restricted and controlled the growth and development of remote alarm system services in order to obtain for themselves a competitive position in the relevant market and sell defendants' services and equipment." *fn2" Id. para. 53.

 Furthermore, plaintiffs allege that defendants utilized various predatory and anticompetitive acts including, but not limited to,

 
[filing] sham and excessive tariffs with federal, state and local regulatory agencies which, among other things, priced local and interstate private line service required by plaintiffs without regard to the actual cost of such services, required the use of unnecessary interface devices, and imposed unjustified and restrictive terms and conditions for the use of private line services; [and]
 
providing incomplete, misleading and erroneous information to federal, state and local regulatory agencies regarding the purpose, need and justification of the aforesaid tariffs.

 Second Amended Complaint para. 56, subparts n and o.

 As a result of defendants' actions, plaintiffs estimate that they have sustained no less than $200 million in damages from the substantial loss and damage to their business and property. Plaintiffs also seek injunctive relief from the Court to prevent defendants from "continuing to employ similar anticompetitive acts and practices . . . which will cause plaintiffs further and substantial irreparable injury for which there is no adequate remedy at law." Id. P 56.

 Defendants filed an answer which asserts, inter alia, that the activities of which plaintiffs complain are not subject to the antitrust laws because they are regulated pervasively by the Federal Communications Commission under the Communications Act of 1934, as amended, 47 U.S.C. §§ 151 et seq., and by state regulatory agencies under regulatory statutes applicable in the various states where defendant operating companies are located and do business. Defendants contend that their actions "have been and are in accord with the purposes of the regulatory statutes and affirmatively expressed governmental policies whose implementation has been actively supervised by the regulatory agencies." Defendants' Answer at 1-2.

 Defendants also aver that plaintiffs "seek recovery for defendants' participation in the legislative, judicial and regulatory processes, and for other activities which are protected under the antitrust laws." Defendants' Answer at 3.

 Given the complex nature of the case and pursuant to Rule 53 of the Federal Rules of Civil Procedure, the Court appointed Professor Sherman Cohn of Georgetown University Law Center as Special Master in this matter on April 4, 1984. As Special Master, Professor Cohn handles discovery matters and issues recommendations on some substantive claims, one of which is presently before the Court.

 During the course of this complex litigation, defendants filed before the Special Master a motion for partial summary judgment dismissing certain plaintiffs' claims insofar as they claim injury by reason of telephone rates in California, Connecticut, New York, North Carolina, and Ohio. ("Defendants' Motion for Partial Summary Judgment"). *fn4" The basis of defendants' motion was the state action immunity doctrine which shields certain anticompetitive activities from the antitrust laws.

 Defendants argued

 
that the intrastate private line rates charged in all of the states and at all of the times pertinent to this litigation are shielded by the state action doctrine because all such rates have been regulated by public utility commissions under statutory schemes expressly designed to protect the public interest by substituting comprehensive regulation for conventional market forces. All of plaintiffs' claims challenging defendants' rates as excessive, therefore, should ultimately be dismissed.

 Memorandum in Support of Defendants' Motion for Partial Summary Judgment Dismissing Certain Plaintiffs' Claims Insofar as They Claim Injury by Reason of Telephone Rates in California, Connecticut, New York, North Carolina, and Ohio ("Memorandum in Support of Defendants' Motion for Partial Summary Judgment") at 2.

 Plaintiffs opposed defendants' motion and argued (1) that defendants' use of monopoly power in a regulated market to restrain trade in an attempt to monopolize an unregulated market is not state action; therefore, the state action immunity doctrine does not apply, Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion for Partial Summary Judgment Dismissing Certain of Plaintiffs' Claims Insofar as They Claim Injury by Reason of Telephone Rates in California, Connecticut, New York, North Carolina and Ohio ("Plaintiffs' Opposition to Partial Summary Judgment") at 15-25; (2) that even if defendants' private-line pricing satisfied requirements for state action exemption, it would not be exempt state action since it was part and parcel of a larger monopolistic scheme, id. at 29-33; and (3) that defendants' affirmative misrepresentation of key facts to state regulatory bodies vitiates any state action exemption that might otherwise apply. Id. at 34-42.

 The Special Master heard oral arguments on the motion for partial summary judgment and post-hearing memoranda were submitted. After consideration of the voluminous materials before him and the oral arguments, the Special Master granted defendants' motion. It is from this recommendation of the Special Master that plaintiffs appeal and move the Court to set aside the Special Master's recommendation and deny defendants' motion for partial summary judgment.

 In his recommendation, the Special Master found (1) that defendants' actions before the state rate commissions were immune from the antitrust laws under the two-pronged test for state action immunity set forth in California Retail Liquor Dealers v. Midcal Aluminum, 445 U.S. 97, 105, 63 L. Ed. 2d 233, 100 S. Ct. 937 (1980); (2) that defendants' use of regulated activity to affect adversely competitors' unregulated activity falls within state action immunity; (3) that defendants' misrepresentations to state commissions in rate proceedings do not vitiate state action immunity for those rates; and (4) that defendants' actions retain their state action immunity even though they are part and parcel of a larger monopolistic scheme. The Court will consider each finding of the Special Master in order.

 II. Discussion

 A. Applicability of the State Action Immunity Doctrine

 The Supreme Court first enunciated the doctrine of state action immunity to the federal antitrust laws in Parker v. Brown, 317 U.S. 341, 87 L. Ed. 315, 63 S. Ct. 307 (1943). The Court established a two-pronged test to determine the applicability of the doctrine in California Retail Liquor Dealers v. Midcal Aluminum, 445 U.S. at 105. In order to qualify for state action immunity

 
first, the challenged restraint must be "one clearly articulated and affirmatively expressed as state policy;" [and] second, the policy must be "actively supervised" by the State itself.

 Id. (citation omitted). Although the Parker decision involved an action against a state official, the Court made clear recently in Southern Motor Carriers Rate Conference v. U.S., 471 U.S. 48, 105 S. Ct. 1721, 85 L. Ed. 2d 36 (1985), that the ...


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