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FUCHS v. RURAL ELEC. CONVENIENCE CO-OP.

October 30, 1987

ELDON FUCHS, ET AL., PLAINTIFFS,
v.
RURAL ELECTRIC CONVENIENCE COOPERATIVE, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Mills, District Judge:

OPINION ORDER

Is the Illinois Electric Supplier Act unconstitutional?

Does the power service agreement thereunder violate the Sherman Antitrust Act?

No — to both inquiries.

This action is before the Court on Rural Electric Convenience Cooperative's motion for summary judgment and Central Illinois Public Service Company's motion to dismiss under Fed.R.Civ.P. 56 & 12(b)(6) respectively. The pertinent facts are not disputed, and these motions are consolidated for purposes of ruling.

I

Central Illinois Public Service Company (CIPS) is a public utility regulated by the Illinois Commerce Commission (ICC). Rural Electric Convenience Cooperative (RECC) is an unregulated, not-for-profit corporation engaged in the retail distribution of electrical power to its members.*fn1 Plaintiffs are member-owners and customers of RECC.

In 1969, CIPS and RECC, pursuant to the Illinois Electric Supplier Act, Ill.Rev. Stat. ch. 111 2/3, ¶ 406, entered into an agreement which divided up service areas. In compliance with the act, the ICC reviewed and approved the contract. RECC now exclusively services the area where Plaintiffs live at electric rates higher than those charged by CIPS.*fn2 Because of the contract, CIPS refuses to service RECC customers. Due to that refusal, Plaintiffs not only seek damages and an injunction against the retailers invalidating the contract under §§ 1 and 2 of the Sherman Act but also a declaration that the Electric Supplier Act is unconstitutional as violative of the Supremacy Clause.

II

Undoubtedly, the horizontal market allocation in which the suppliers have engaged is a per se violation of applicable federal antitrust laws. See Gainesville Utilities Dept. v. Florida Power & Light Co., 573 F.2d 292, 299 (5th Cir.), cert. denied, 439 U.S. 966, 99 S.Ct. 454, 58 L.Ed.2d 424 (1978). The ultimate issue then is whether the Sherman Act applies to the service area agreement between RECC and CIPS. Defendants assert that the agreement is immune from antitrust scrutiny under the state action doctrine enunciated by the Supreme Court in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943).*fn3 Plaintiffs contend otherwise.

In Parker, a California raisin producer challenged the state's Agricultural Prorate Act under which a cartel of private raisin producers was created to stabilize prices and prevent economic waste. The Court, relying on principles of federalism and state sovereignty "refused to construe the Sherman Act as applying to the anti-competitive conduct of a State acting through its legislature. . . . Rather, it ruled that the Sherman Act was intended to prohibit private restraints on trade, and it refused to infer an intent to `nullify a state's control over its officers and agents' in activities directed by the legislature." Town of Hallie v. City of Eau Claire, 471 U.S. 34, 38, 105 S.Ct. 1713, 1716, 85 L.Ed.2d 24 (1985). Thus, the state action doctrine arose as an exception to antitrust law.*fn4

In City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 410, 413, 98 S.Ct. 1123, 1135, 1136, 55 L.Ed.2d 364 (1978), a suit involving a municipally run electric utility system, the Court enunciated what has become known as the two-prong test of the state action doctrine. Thereafter, in California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980), the Court applied the Lafayette test to a case where the state action exemption was claimed by a private party. In Midcal, the plaintiff challenged California's resale price maintenance and price posting statutes for the wholesale wine trade. The Court, quoting from Lafayette, stated that for the state action doctrine to apply, the challenged restraint (1) must be one clearly articulated and affirmatively expressed as state policy, and (2) must be actively supervised by the state. Id. at 105, 100 S.Ct. at 943.

In LaSalle Nat'l Bank of Chicago v. DuPage County, 777 F.2d 377 (7th Cir. 1985), cert. denied, ___ U.S. ___, 106 S.Ct. 2892, 90 L.Ed.2d 979 (1986), the Seventh Circuit stated of the test's first prong: "[T]he state need not specifically authorize conduct with anti-competitive effects. . . . It is sufficient that anti-competitive effects are a foreseeable consequence of engaging in the authorized activity." Id. at 381. Although LaSalle involved suit against a local government, its principles with respect to the first prong of the test are fully applicable here. Cf. Southern Motor Carriers ...


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