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Metro Cable Co. v. Catv of Rockford Inc.

decided: April 2, 1975.

METRO CABLE CO., A DELAWARE CORPORATION, PLAINTIFF-APPELLANT,
v.
CATV OF ROCKFORD, INC., AN ILLINOIS CORPORATION; ROCK RIVER TELEVISION, INC., AN ILLINOIS CORPORATION; HARLEY SWANSON; DAVID S. PADDOCK; EARL W. HICKERSON; HARLEY W. MULLINS; BENJAMIN T. SCHLEICHER; AND DALE M. SKOLROOD, DEFENDANTS-APPELLEES



Appeal from the United States District Court for the Northern District of Illinois, Western Division - No. 72 C 68 William J. Bauer, Judge.

Stevens and Tone, Circuit Judges, and Campbell, Senior District Judge.*fn*

Author: Tone

TONE, Circuit Judge.

This action under the Sherman Act (15 U.S.C. ยงยง 1, 2) arises out of plaintiff's inability to obtain a franchise from the City of Rockford, Illinois, to construct and operate a cable television transmission system within that city. The defendants are the company that did obtain a franchise; its affiliate which operates television broadcasting channel WCEE-TV in Rockford; four individuals who are officers or directors and, with one exception, stockholders of the latter company and also stockholders and, with one exception, officers of the former; and the mayor and an alderman of the city. The District Court granted defendants' motion to dismiss the second amended complaint, Metro Cable Co. v. CATV of Rockford, Inc., 375 F. Supp. 350 (N.D. Ill. 1974), basing its action on the Noerr-Pennington doctrine (Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 5 L. Ed. 2d 464, 81 S. Ct. 523 (1961) and United Mine Workers of America v. Pennington, 381 U.S. 657, 14 L. Ed. 2d 626, 85 S. Ct. 1585 (1965)). We affirm.

The following is a synopsis of plaintiff's arguably material allegations, with some of the pejorative matter expressed in more concrete words:*fn1

Plaintiff operates a cable television transmission system in two small incorporated communities and in unincorporated areas in Winnebago County, Illinois. It receives television signals from the three local television stations in Rockford, the county's principal city, and from other, more distant television stations by means of antenna mounted on a high tower and distributes these signals by cable to subscribers, who pay monthly fees for this service. Defendant Rock River Television, Inc. operates one of the three local stations, Channel WCEE-TV (and will be referred to as "WCEE-TV"), which began broadcasting in September, 1965. WCEE-TV and its stockholders organized defendant CATV of Rockford, Inc. (hereinafter "CATV") to obtain a franchise and operate a cable television transmission system within the City of Rockford.

By an agreement which had its inception in 1964 or 1965, the defendants*fn2 have undertaken to prevent plaintiff from operating a cable television system in Rockford. The result of the agreement has been to give CATV a monopoly of cable television in that city, and, concomitantly to prevent plaintiff from delivering any television signals in that city in competition with WCEE-TV.

WCEE-TV participated in the conspiracy in order to prevent further competition in the television market in Rockford. CATV was formed so it could obtain a cable television franchise and prevent plaintiff from obtaining a franchise. WCEE-TV retained control of CATV after the latter received the only franchise granted by the city, enabling WCEE-TV to determine when and in what areas cable TV would be introduced in Rockford. The two companies have been under common control and have had the same management.

In 1965 and 1966 defendant Schleicher, mayor of the city, defendant Skolrood, an alderman who was chairman of the city council's Planning and Finance Committee, "and other parties as yet unknown" agreed with two of the corporate-officer defendants to use their best efforts to prevent plaintiff from getting a franchise, and "in exchange" each official was given "a substantial sum" as a campaign contribution.*fn3

In April, 1966, the city council's License Committee recommended that plaintiff be granted a cable television franchise, but nine days later the council awarded the franchise to CATV "because of pressure brought on the Council by defendant Schleicher" acting pursuant to the agreement just described.

Plaintiff made a second application in October, 1970, and supported its application with a deposit of $100,000 to guarantee its promise to start construction promptly and an opinion of "independent" counsel that the city could not grant an exclusive franchise. Schleicher and Skolrood "refused to grant plaintiff even a hearing on its petition." (It is not alleged that no hearing was held by the city council or any of its committees, but we assume that to be the fact.) In addition, two of the corporate-officer defendants wilfully misrepresented to the council's Planning and Finance Committee that CATV had bought land and constructed an antenna tower, whereas in fact it was WCEE-TV that had done so. Skolrood, who was a member of the committee (apparently he was no longer chairman), knew this was a misrepresentation.

A third application was submitted by plaintiff in September, 1971. This time an assistant city attorney rendered an opinion that the city had no right to grant an exclusive franchise to CATV. The city council nevertheless refused to grant a hearing on the application. Sometime thereafter the Planning and Finance Committee (of which Skolrood apparently was again chairman) appointed a subcommittee to establish hearing procedures to be followed in awarding a second franchise, but the subcommittee secretly decided to do nothing and to allow only CATV to operate cable television in the city. Skolrood was a member of this subcommittee.

In 1972 Skolrood "voted" (it is not alleged in what capacity or under what circumstances) not to grant additional franchises in the city. In the same year Mayor Schleicher executed a certificate filed with the Federal Communications Commission to the effect that a public proceeding was held by an appropriate committee of the city council as required by FCC regulations when in fact no such proceeding was held.

In 1972 plaintiff wanted to extend its cable system to serve some institutions and homes in unincorporated areas of the county. To reach these potential subscribers, it would have had to erect its cables on utility poles within the city's corporate limits. The city refused to permit this "as a result of the influence of" Schleicher and Skolrood and a misrepresentation by a corporate-officer defendant that Illinois Bell Telephone Company had lines that would be available for plaintiff's use.

Injunctive relief and damages, in the amount of $3,000,000 trebled, are sought.

In substance, then, plaintiff alleges that WCEE-TV and its officers planned to obtain the exclusive cable television franchise in Rockford; organized a company, CATV, for that purpose; induced the mayor and an alderman to oppose plaintiff's application by making a campaign contribution to each of those officers; and succeeded, with the help of the mayor and the alderman, in persuading the city council not only to award the franchise to CATV but to refuse plaintiff's successive applications without affording plaintiff a hearing.

I.

In judging the sufficiency of the allegations of the complaint, as amended, we are governed by the series of Supreme Court decisions beginning with Eastern Railroad Presidents Conference v. Noerr, supra, 365 U.S. 127. An analysis of those cases is the starting point for our decision.

A.

In Noerr Mr. Justice Black, writing for a unanimous Court, held that concerted conduct to induce or to influence public officials to pass or enforce laws is not forbidden by the Sherman Act, regardless of its anti-competitive purpose or effect and regardless of attendant misrepresentations characterized as unethical conduct. That case involved a campaign by a group of railroads to persuade legislative and executive branches of state governments to take action injurious to truckers who were competitors of the railroads for long-haul freight business.

The Court's reasoning in overturning a judgment in favor of the truckers was in substance as follows: Restraint of trade or monopolization that is the result of otherwise valid governmental action does not violate the Sherman Act. Parker v. Brown, 317 U.S. 341, 87 L. Ed. 315, 63 S. Ct. 307 (1943); United States v. Rock Royal Co-op., 307 U.S. 533, 59 S. Ct. 993, 83 L. Ed. 1446 (1939). Given that proposition and the importance in a representative democracy of freedom in the people to communicate their wishes to their representatives, genuine efforts to induce government to take such lawful action are also beyond the Sherman Act. That Congress did not intend that Act to apply to agreements to seek legislation or law enforcement, as opposed to agreements inhibiting "trade freedom," is inferable from the dissimilarity between the two kinds of agreements and confirmed by the effect a contrary construction would have on the operation of a representative democracy: It would impair the power of government to take actions that restrain trade and also raise important constitutional questions, of which one is the right of petition. "For these reasons, we think it clear that the Sherman Act does not apply to the activities of the railroads at least insofar as those activities comprised mere solicitation of governmental action with respect to the passage and enforcement of laws." (365 U.S. at 136-138.)

The Court then proceeded to decide that "the presence in the railroads' publicity campaign of additional factors" did not "take the case out of the area in which the principle is controlling," (id. at 138) holding as follows: The legality of the railroads' campaign to obtain governmental action was not affected by the fact that their sole purpose in seeking passage of legislation was to destroy the truckers as competitors for long-haul freight business. "Unethical business conduct" by the railroads in that publicity campaign, consisting of misrepresentations of the sources of opinions and information was irrelevant so far as the Sherman Act was concerned. Nor did the infliction of direct injury upon the truckers, incidental to the railroads' campaign to influence governmental action but nevertheless intended by the railroads, make the railroads' conduct unlawful, for to hold otherwise would "be tantamount to outlawing all such campaigns." (Id. at 143-144.)

Finally, the Court stated what has come to be known as the "sham exception" to the Noerr rule. To be immune, the concerted conduct must be a genuine effort to influence governmental action and not "a mere sham to cover what is actually nothing more than an attempt to interfere ...


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