UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
decided: February 17, 1983.
TOWN OF HALLIE, TOWN OF SEYMOUR, TOWN OF UNION AND TOWN OF WASHINGTON, WISCONSIN TOWNSHIPS, PLAINTIFFS-APPELLANTS,
CITY OF EAU CLAIRE, A WISCONSIN MUNICIPAL CORPORATION, DEFENDANT-APPELLEE
On Appeal from the United States District Court for the Western District of Wisconsin. No. 80 C 527 -- John C. Shabaz, Judge.
Eschbach, Circuit Judge, Coffey, Circuit Judge, and Wisdom,*fn* Senior Circuit Judge.
WISDOM, Senior Circuit Judge.
Four towns allege that a city is using a monopoly over sewage treatment services in the relevant geographic market to gain a monopoly in the markets for sewage collection and sewage transportation in violation of the Sherman Act, 15 U.S.C. § 1 et seq. (1973), the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq. (1978), and a state common law duty of a utility to serve. On appeal, the towns contend that the district court erred in dismissing their claims under the Sherman Act on the ground that the conduct in question falls within the state action immunity doctrine of Parker v. Brown, 317 U.S. 341, 63 S. Ct. 307, 87 L. Ed. 315 (1943). We conclude that the conduct in question is exempt from the antitrust laws under Parker and Community Communications Company v. City of Boulder, 455 U.S. 40, 102 S. Ct. 835, 70 L. Ed. 2d 810 (1982), and we affirm the district court's decision.
The plaintiffs-appellants -- Town of Hallie, Town of Seymour, Town of Union, and Town of Washington ("Towns") -- are four Wisconsin townships that are adjacent to the City of Eau Claire ("City"). The City used federal funds to build a sewage treatment facility within the city limits, and this sewage treatment facility is the only such facility in the market available to the Towns. As a result, the City enjoys a monopoly in the market for sewage treatment services.*fn1
The City has refused to supply sewage treatment services to the Towns. The district court found that the City has provided sewage treatment services to individual landowners in the Towns only if they will agree to become annexed by the City and thereby obtain sewage collection and transportation services from the City. Town of Hallie v. City of Eau Claire, No. 80-C-527, slip op. at 1 (W.D. Wisc. April 5, 1982). By refusing to provide treatment services to the Towns, the City has prevented the Towns from competing in the markets for sewage collection and transportation. The Towns simply have no means of disposing of the sewage once they collect and transport it, so they do not collect it at all.
In their complaint seeking injunctive relief, the Towns alleged that the City's denial of sewage treatment services to them violated the Sherman Act, the Federal Water Pollution Control Act, and a common law duty of a utility to serve. The City moved to dismiss the complaint pursuant to Fed.R.Civ.Pro. 12(b), and the district court granted the motion. The district court dismissed the antitrust claims on the grounds that the City's conduct was exempt from the Sherman Act under Parker v. Brown.*fn2 The district court dismissed the Federal Water Pollution Control Act claim, holding that the Act does not provide a right to sue, that the Towns failed to pursue administrative remedies, and that the Act does not mandate the action that the Towns seek. After dismissing the federal claims, the district court dismissed the pendent state claim.
On appeal, the Towns contest only the denial of their antitrust claims. The Towns contend that the City's conduct is exempt from the Sherman Act only if it is in furtherance of clearly articulated and affirmatively expressed state policy and it is actively supervised by the State of Wisconsin. The Towns contend that state action immunity is unavailable to the City because it has met neither of these two requirements. The City contends that its denial of services to the Towns is authorized by clearly articulated state policy and that state action immunity protects its conduct.
In Parker v. Brown, 317 U.S. 341, 63 S. Ct. 307, 87 L. Ed. 315 (1943), the Supreme Court addressed the issue whether the federal antitrust laws prohibited the State of California from adopting a program that prevented raisin producers from freely marketing their crop in interstate commerce. The Court held that the marketing program was exempt from the antitrust laws by virtue of limitations in the Sherman Act and concepts of federalism:
We find nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature. In a dual system of government in which, under the Constitution, the states are sovereign, save only as Congress may constitutionally subtract from their authority, an unexpressed purpose to nullify a state's control over its officers and agents is not lightly to be attributed to Congress.
317 U.S. at 350-51, 63 S. Ct. at 313, 87 L. Ed. at 326.
The Supreme Court later addressed the question whether the "state action" immunity exemption of Parker v. Brown was available to a state's municipalities.*fn3 In City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 98 S. Ct. 1123, 55 L. Ed. 2d 364 (1978),*fn4 a private utility company brought suit under the Sherman Act against several Louisiana cities empowered to own and operate electric utility systems and alleged that they had committed various antitrust offenses in their operation of their utility systems. A majority of the Court rejected the contention that Congress did not intend the Sherman Act to apply to local governments, and a plurality of the Court stated:
Cities are not themselves sovereign; they do not receive all the federal deference of the states that create them. Parker's limitation of the exemption to "official action directed by a state, " is consistent with the fact that the States' subdivisions generally have been treated as equivalents of the States themselves. In light of the serious economic dislocation which could result if cities were free to place their own parochial interests above the Nation's economic goals reflected in the antitrust laws, we are especially unwilling to presume that Congress intended to exclude anticompetitive municipal action from their reach.
435 U.S.at 412-413, 98 S. Ct. at 1136, 55 L. Ed. 2d at 382-83. The Court recognized, however, that the state as sovereign might sanction anticompetitive activity by the municipalities and immunize this activity from antitrust liability.*fn5 The Court concluded that "the Parker doctrine exempts only anticompetitive conduct engaged in as an act og government by the State as sovereign, or, by its subdivisions, pursuant to state policy to displace competition with regulation or monopoly public service." Id. at 413, 98 S. Ct. at 1137, 55 L. Ed. 2d at 383.*fn6
The Supreme Court returned to the issue of state action immunity for municipalities in Community Communications Co. v. City of Boulder, 455 U.S. 40, 102 S. Ct. 835, 70 L. Ed. 2d 810 (1982).*fn7 The Court addressed the question whether the Parker immunity extended to a "home rule" municipality that was granted extensive powers in local and municipal matters by the state constitution. The Court concluded that the restraint in question, a moratorium on the expansion of cable television enacted by the City Council of Boulder,*fn8 could not be exempt from antitrust scrutiny unless it constituted the action of the State of Colorado itself in its sovereign capacity or municipal action in furtherance of clearly articulated and affirmatively expressed state policy. The Court held that the guarantee of local autonomy to municipalities through the Home Rule Amendment to the Colorado Constitution did not constitute the "clear articulation and affirmative expression" of state policy necessary for anticompetitive conduct to be protected under Parker. The Court found that the Home Rule Amendment was neutral with respect to the challenged activity and rejected the City's contention that the general grant of power to enact ordinances necessarily implies state authorization to enact specific anticompetitive ordinances.
The issue before the Court is to determine if the refusal of the City of Eau Claire to provide sewage treatment facilities to the Towns falls within the protection of Parker v. Brown as interpreted in City of Lafayette and City of Boulder. The holdings of these cases require that municipalities act pursuant to a clearly articulated and affirmatively expressed state policy. Before determining if such a state policy exists, we must resolve two preliminary issues.
First, the Towns contend that the conduct which must be pursuant to state policy is the City's use of monopoly power in sewage treatment services to monopolize sewage collection and transportation. The Towns argue that the district court erred in characterizing the anticompetitive conduct which must be pursuant to state policy as "the City's decision to provide sewage treatment services to the Towns if and only if they also permit the City to provide sewage collection and transportation services via annexation." According to the Towns, the City must point to a state policy authorizing the City's use of monopoly power over sewage treatment to gain monopolies in sewage collection and transportation.
We reject the Towns' argument that the authorization of the anticompetitive conduct complained of must be as specific as they request. In City of Lafayette, the Court rejected the position "that a political subdivision necessarily must be able to point to a specific, detailed legislative authorization before it may properly assert a Parker defense to an antitrust suit," and the Court went on to state that an adequate state mandate exists when it is found "from the authority given a city to operate in a particular area that the legislature contemplated the kind of action complained of". 435 U.S. at 415, 98 S. Ct. at 1138, 55 L. Ed. 2d at 384. In this case, if we can determine that the state gave the City authority to operate in the area of sewage services and to refuse to provide treatment services, then we can assume that the State contemplated that anticompetitive effects might result from conduct pursuant to that authorization.*fn9 The district court properly focused on determining if authorization for the refusal to provide sewage treatment services exists rather than attempting to find a specific authorization for the monopolizing effect that results from refusing to provide these services. If the state authorizes certain conduct, we can infer that it condones the anticompetitive effect that is a reasonable or foreseeable consequence of engaging in the authorized activity.*fn10
The second preliminary issue is the contention of the Towns that the City must point to a state policy directing or compelling the challenged conduct to gain Parker protection. There has been a great deal of confusion over whether the state must compel a municipality to undertake an anticompetitive activity in order to receive immunity under Parker. This confusion arose because of language in Goldfarb v. Virginia State Bar, 421 U.S. 773, 791, 95 S. Ct. 2004, 2015, 44 L. Ed. 2d 572, 587 (1975), and Cantor v. Detroit Edison Co., 428 U.S. 579, 600, 96 S. Ct. 3110, 3122, 49 L. Ed. 2d 1141, 1155 (1976), which appeared to require state compulsion as a prerequisite for municipal immunity. We conclude that state compulsion is not required. It is clear in City of Lafayette and City of Boulder that the only immunity available to municipalities is that derived from the immunity granted to the states in Parker. The critical inquiry is to determine if the anticompetitive conduct undertaken by a municipality constitutes state action. We hold that any municipality acting pursuant to clearly articulated and affirmatively expressed state policy which evidences an intent of the legislature to displace competition with regulation -- whether compelled, directed, authorized, or in the form of a prohibition -- is entitled to antitrust immunity because conduct pursuant to such a policy would constitute state action.
Recent Supreme Court cases support our conclusion that compulsion is not required. The Court in City of Boulder and City of Lafayette explained that a state must only authorize the municipal activity for the Parker exemption to apply,*fn11 and many commentators have rejected the notion that compulsion is required.*fn12 Obviously, if the state compels or directs a municipality to undertake anticompetitive conduct, this compulsion or direction is strong evidence of a state policy to displace the antitrust laws. We hold that the City must show only that clearly articulated and affirmatively expressed state policy authorizes the City's refusal to provide sewage treatment to the Towns to gain the state action immunity of Parker.
The Towns contend that the City's refusal to extend sewer services to them is not pursuant to clearly articulated and affirmatively expressed state policy. We disagree. Several statutes and court decisions interpreting those statutes give the City authority to decide where to extend sewer services and to insist on annexation as a condition to extending sewer services to the surrounding area.
Section 66.069(2) (c) of the Wisconsin Statutes provides that a city may fix the area in which to extend sewage services, and that a city has no obligation to serve beyond that area.*fn13 This statute authorizes the City to fix the limits of its utility service and expressly provides that the City "shall have no obligation to serve beyond the area so delineated." In addition, section 144.07(lm) of the Wisconsin Statutes provides that the department of natural resources may order a city to extend its sewerage system to a town, but if that town then refused to become annexed to the city, the order becomes void and the city has no obligation to extend the sewerage system.*fn14 This statute is evidence of a state policy to require annexation as a condition to receiving municipal services.
Our conclusion that state policy authorizes the City to refuse sewage treatment services unless the purchaser becomes annexed is strengthened by the holding of Town of Hallie v. City of Chippewa Falls, 105 Wis.2d 533, 314 N.W.2d 321 (1982). The Town of Hallie brought suit against Chippewa Falls under the state antitrust laws for the refusal of Chippewa Falls to provide sewage treatment facilities to the Town of Hallie unless the Town agreed to obtain other municipal services from Chippewa Falls. When the Town did not agree, the City annexed a portion of the Town. The court relied on the broad home rule provisions under Wisconsin law and §§ 66.069(2) (c) and 144.07(lm) to hold that state antitrust law did not apply to this conduct. The court stated:
Although the statutes do not specifically so provide, it seems that the legislature viewed annexation by the city of a surrounding unincorporated area as a reasonable quid pro quo that a city could require before extending sewer services to the area . . . .
While the facts of the present case are clearly not covered by this statute because no DNR order is involved, [sec. 144.07(lm)] is still helpful in indicating that the legislature seems to view annexation as an appropriate prerequisite to the provision of sewage service outside the limits of a city. This seems reasonable because establishing and maintaining sewage treatment facilities can be a very substantial financial burden upon the city taxpayers and residents. If an area is to have the benefit of such services, it may be appropriate for it to be annexed in order to add to the city's tax base and help pay for the cost of providing such services.
314 N.W.2d at 325-26.
The Town of Hallie decision and the statutes that it interprets show that there is a clearly articulated and affirmatively expressed state policy not to burden municipalities with providing services unless they can annex the territory that they service. The City acted pursuant to and in a manner consistent with this policy by refusing to provide sewage treatment services to the Towns unless they agreed to become annexed and acquire the full range of sewage services. We hold that the conduct of the City in refusing to provide these services meets the standards of the City of Boulder requiring that the anticompetitive conduct was in furtherance of clearly articulated and affirmatively expressed state policy.
The Towns contend that the State of Wisconsin must actively supervise the anticompetitive conduct for the City to gain the protection of Parker v. Brown. The "active state supervision" requirement arose in California Retail Liquor Dealers Association v. Midcal Aluminum, 445 U.S. 97, 100 S. Ct. 937, 63 L. Ed. 2d 233 (1980). Midcal involved a California statutory scheme allowing private wine suppliers to establish a program of resale price control to be enforced by the state. The State of California neither established nor reviewed the prices set by these private decision makers. The Supreme Court struck down the state law because it created a private price-setting mechanism that the state did not supervise. The Court concluded, "The national policy in favor of competition cannot be thwarted by casting such a gauzy cloak of state involvement over what is essentially a private price-fixing arrangement." Midcal, 445 U.S. at 106, 100 S. Ct. at 943, 63 L. Ed. 2d at 243.
We do not conclude that Midcal requires active state supervision over the conduct in this case.*fn15 The Midcal case involved private parties that were given power over price and that were free of state supervision. In this context, the requirement of active state supervision ensures that the private parties not abuse the anticompetitive power given to them and act pursuant to the state policy at stake. This case involves a local government performing a traditional municipal function. Supervision is unnecessary because local governments operate pursuant to clearly articulated and affirmatively expressed restraints imposed by the state in its policies and delegation of authority. If the conduct of local government in providing municipal services is authorized by the state and is clearly articulated and affirmatively expressed as state policy, the activity is state action and entitled to immunity even though state supervision does not exist.*fn16
We also conclude that requiring active state supervision over a traditional municipal function would be unwise. A requirement of active state supervision would erode the concept of local autonomy and home rule authority which is expressed in the statutes and constitution of Wisconsin. States would be required to supervise all local actions if municipalities are to avoid antitrust exposure, and courts would have to make the difficult determination of what "active" supervision is in terms of frequency and effectiveness.*fn17 We doubt that the Court in Midcal intended that the states spend their limited resources actively supervising the traditional governmental functions of their municipalities so that they can avoid antitrust liability.
We hold, therefore, that a state is not held to the high standard of active supervision of the conduct of a city performing a traditional municipal function for that city to receive Parker v. Brown immunity.*fn18 The only requirement for receiving immunity when a traditional municipal function is involved is that the challenged restraint must be in furtherance or implementation of clearly articulated and affirmatively expressed state policy. We do not question the holding of Midcal, but we conclude that the Court's concerns with the private price-fixing arrangement in that case are not present when local governments created by state law carry out governmental functions pursuant to clearly articulated and affirmatively expressed state policy.
Our examination of Wisconsin statutes and case law reveals that the challenged conduct is in furtherance of a clearly articulated and affirmatively expressed state policy. On the facts of this case, we conclude that the City must make no other showing to be entitled to immunity under Parker v. Brown. We hold that the district court properly dismissed the antitrust counts against the City, and we affirm the judgment of the district court.