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People Ex Rel. Scott v. College Hills Corp.

OPINION FILED JANUARY 7, 1981.

THE PEOPLE EX REL. WILLIAM J. SCOTT, ATTORNEY GENERAL, PLAINTIFF-APPELLANT,

v.

COLLEGE HILLS CORPORATION ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of McLean County; the Hon. JAMES A. KNECHT, Judge, presiding.

MR. JUSTICE GREEN DELIVERED THE OPINION OF THE COURT:

Rehearing denied February 13, 1981.

On August 28, 1979, plaintiff, the Attorney General of the State of Illinois filed an amended complaint in a civil penalty action in the circuit court of McLean County under section 7(4) of the Illinois Antitrust Act (Ill. Rev. Stat. 1977, ch. 38, par. 60-7(4)). Named as defendants were: College Hills Corporation; Complex Development Company (which was subsequently dismissed when merged into College Hills Corporation); Empire Development Company; Lumberlane, Inc.; Washington East Partnership; Vernon E. Prenzler; Phillip E. Baumgart; Richard H. Hundman; and Carl F. Schwulst. A prior similar complaint against the same defendants had been filed on November 8, 1977, and later dismissed on the motion of the defendants. On March 25, 1980, pursuant to a further motion by defendants, the amended complaint was also dismissed, this time in bar of action. Plaintiff appeals.

Count I of the amended complaint alleged that the individual defendants were competitors in the home development industry and that they: (1) formed College Hills, Empire Development, and Washington East as joint ventures; (2) purchased lots from the joint venture and sold the lots to the public at prices agreed upon between themselves; and (3) thereby eliminated price competition between competitors. The count also alleged that College Hills and Washington East were competitors and made an agreement as to the prices they would charge for the sale of certain lots, thus restraining the supply of the lots and reducing the competition in the sale thereof. Count II charged defendants with conspiring to unreasonably restrict competition in the sale of lots and building materials in Bloomington and Normal. Count III charged Lumberlane, Inc., with illegally tying the sale of lots to the sale of home building materials.

Plaintiff maintains that each count stated a cause of action, while defendants assert that each count had substantial defects. We will detail and discuss the alleged defects of each count separately. As we do so, it is well to keep in mind that we are often concerned with the specificity of allegations required and not with the specificity of proof required.

Count I purports to state a violation of section 3(1)(a) of the Act which provides:

"Every person shall be deemed to have committed a violation of this Act who shall:

(1) Make any contract with, or engage in any combination or conspiracy with, any other person who is, or but for a prior agreement would be, a competitor of such person: a. for the purpose or with the effect of fixing, controlling, or maintaining the price or rate charged for any commodity sold or bought by the parties thereto, or the fee charged or paid for any service performed or received by the parties thereto." (Ill. Rev. Stat. 1979, ch. 38, par. 60-3(1)(a).)

The foregoing provision has been said to provide for a per se violation of the Act because a violation is established by proof of the prohibited action having taken place for a prohibited purpose or having the prohibited effect regardless of whether the conduct involved may be reasonable and regardless of whether any precise harm is shown to have resulted from the prohibited conduct. Blake v. H-F Group Multiple Listing Service (1976), 36 Ill. App.3d 730, 345 N.E.2d 18.

Defendants maintain that count I here fails to substantively state a cause of action under the per se theory of section 3(1)(a) because the defendants who were alleged to have fixed prices for lots were alleged only to be competitors in the business of selling building supplies and not in the ancillary business of selling lots. They maintain that under those circumstances a violation of the Act occurs only if the restraint created thereby is unreasonable. That was not alleged in count I. This theory was promulgated by Federal cases decided under similar provisions of section 1 of the Sherman Act (15 U.S.C. § 1 (1964)) upon which section 3(1)(a) was based. In United States v. Columbia Pictures Corp. (S.D.N.Y. 1960), 189 F. Supp. 153, the court found an agreement to be permissible which enabled a small producer of motion pictures to market the television rights to its pictures (then a small part of its business) under a package agreement by which those rights of a major producer were also marketed.

In Parmelee Transportation Co. v. Keeshin (N.D. Ill. 1970), 186 F. Supp. 533, an agreement between 21 railroads using passenger terminals in Chicago to contract with a single carrier to perform all independent transportation services for passengers between the various terminals at fixed rates was also held to be permissible.

In both Columbia Pictures and Parmelee Transportation Co., the agreement questioned not only involved actions ancillary to the principal source of the defendant's business, but the agreement was also deemed reasonably necessary for the parties charged to effectively market the product or furnish the services in issue. This test of necessity has also recently been recognized as an exception to the per se rule in Broadcast Music, Inc. v. Columbia Broadcasting System, Inc. (1979), 441 U.S. 1, 60 L.Ed.2d 1, 99 S.Ct. 1551. There, the United States Supreme Court stated that it was confronted with what technically amounted to price fixing, but the court nevertheless held that the Federal antitrust statutes had not been violated. The composers of over 4 million musical works copyrighted in the United States got together and established a uniform rate allowing a commercial producer to use all of the works. In view of the enormous number of individual contracts which would otherwise be required, the court found the agreement to be reasonably necessary for a legitimate purpose and no broader than necessary. The court also said:

"Joint ventures and other cooperative arrangements are also not usually unlawful, at least not as price-fixing schemes, where the agreement on price is necessary to market the product at all." 441 U.S. 1, 23, 60 L.Ed.2d 1, 18-19, 99 S.Ct. 1551, 1564.

The trial court explained its ruling in the instant case partly upon the basis that no per se violation of the Act was alleged. However, here the complaint alleged that the joint venture had conveyed various lots to their individual members who in turn intended to and did sell them to the public. If this was so the individual defendants became competitors in the sale of lots. No allegation of the complaint negated the existence of a per se violation. For instance, no allegation indicated that a restriction on the sale of lots was necessary to enable any of the defendants to sell building materials. The corporate or partnership defendants were principally engaged in the supplying of building materials. Their sale of lots would ordinarily be ancillary to that of selling building supplies but the sale of the two are closely related. Because of this close relationship and because the ...


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