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Alarm Detection Systems, Inc. v. Village of Schaumburg

United States Court of Appeals, Seventh Circuit

July 15, 2019

Alarm Detection Systems, Incorporated, an Illinois corporation, et al., Plaintiffs-Appellants,
v.
Village of Schaumburg, a municipal corporation, et al., Defendants-Appellees.

          Argued April 8, 2019

          Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. l:17-cv-02153 - Rebecca R. Pallmeyer, Chief Judge.

          Before Wood, Chief Judge, and Scudder and St. Eve, Circuit Judges.

          ST. EVE, CIRCUIT JUDGE.

         This appeal is one of two we decide today regarding the market for commercial fire-alarm services in Chicago's suburbs. The current case takes us to the Village of Schaumburg.

         In 2016, Schaumburg passed an ordinance that requires commercial buildings to send fire-alarm signals directly to the local 911 dispatch center. That decision, sensible as it may seem, comes at an economic cost: as implemented, the ordinance threatens to exclude from the market all but one alarm-system provider. This is because the area's dispatch center, Northwest Central Dispatch System ("NWCDS"), has an almost decade-old exclusive arrangement with Tyco Integrated Security, LLC. To send signals to NWCDS, then, local buildings must also use Tyco equipment-or at least that is what Schaumburg has told local building owners.

         A few of Tyco's competitors (the "Alarm Companies" or "Companies") see in these facts a profit-driven conspiracy among Schaumburg, NWCDS, and Tyco to centralize the local market for fire-alarm services. The Alarm Companies filed this suit charging violations of constitutional, antitrust, and state tort law. The district court, however, dismissed the case, concluding that the complaint's allegations failed to state a claim.

         We agree in large part. With one exception, the claims, and the underlying conspiracy, are not pleaded with enough facts to cross the line from speculative to plausible. We therefore affirm in large part and reverse and remand in part.

         I. Background

         This case comes to us on a motion to dismiss, so we draw the following facts from the complaint's well-pleaded allegations.

         In Schaumburg, local law requires commercial buildings and apartment complexes to maintain fire-alarm systems. The buildings and complexes-or "accounts," as the parties call them-contract directly with alarm-system providers to install and maintain the systems. These systems, as a general matter, must comply with the National Fire Protection Association's National Fire Alarm and Signaling Code ("NFPA 72"), a nationwide safety standard.

         The logistics of the fire-alarm systems are important to this appeal. Each system has three components: heat and smoke detectors, a panel, and a transmitter. When a detector goes off, it sends an alert to the panel. The panel then connects to the transmitter. Before 2016, the accounts' transmitters would route the signals to one of two places: (1) a central-supervising station run by the alarm-system provider (the "CSS model"); or (2) a remote-supervising station operated by the local emergency dispatch center (the "RSS model"). NWCDS is the dispatch center for Schaumburg. It is an "intergovernmental cooperation," see 5ILCS 220/3, of which Schaumburg is a municipal member.

         Both the CSS model and the RSS model comply with NFPA 72. See NFPA 72: National Fire Alarm and Signaling Code §§ 3.3.282.1, 3.3.282.3 (2016 ed.). If the parties have arranged for the signal to go to the CSS, a CSS operator will address the signal. If the signal was in fact an alarm signal, and not a trouble or maintenance alert, the CSS calls the dispatch center, which in turn sends help. If, however, the signal goes directly from the account to the RSS, the RSS either contacts the account or sends help. For an RSS to receive signals directly from an account, the RSS must have signal-receiving equipment that is compatible with the account's transmitters.

         In 2011, NWCDS and Tyco entered into an agreement for this signal-receiving equipment. NWCDS granted Tyco the "exclusive right to install, own, maintain and service all alarm signal receiving and processing equipment and systems located at the NWCDS Operations Center and the covered agencies." This exclusive agreement covered Schaumburg, among other areas, and it has a ten-year term with automatic one-year renewals. Per the agreement, Tyco pays NWCDS an administrative fee of $23 per month for each account it connects to the equipment at NWCDS. Before 2016, there were about 50 such accounts in Schaumburg, for which Tyco provided equipment and NWCDS directly monitored. The complaint implies that Schaumburg's other accounts, of which there are more than 1, 000, operated under the CSS model.

         Things changed in August 2016, when Schaumburg adopted Ordinance No. 16-078. The Ordinance states that "[a]ll new fire alarm and fire suppression systems shall transmit fire, supervisory, and trouble signals to the Village of Schaumburg's designated remote supervising station" - NWCDS-"via a wireless transmitter in accordance with NFPA 72." As the complaint explains, the Ordinance effectively mandates accounts to use the RSS model and "requires all" accounts "to contract with Tyco to obtain" their fire-alarm systems.

         Following the Ordinance's adoption, Schaumburg sent a notice (the "Notice," as we will refer to it) in September 2016 to the area's accounts. The Notice cited the Ordinance and advised that "[t]he NWCDS-contracted fire alarm vendor, Tyco Integrated Security, is the authorized installer of the radio equipment required for fire alarm systems monitored by NWCDS." It explained further that Schaumburg had adopted the Ordinance to increase the reliability of fire-alarm monitoring, to eliminate the possibility for transmission delays, and to improve response times. Existing systems, according to the Notice, had until the earliest of one of three dates to begin sending signals directly to NWCDS through Tyco equipment: "(a) [w]hen an existing contract with a monitoring agency (central station) ends; (b) [w]hen the existing fire alarm equipment is modified or replaced; [or] (c) [p]rior to August 31, 2019," subject to possible extensions. The Notice added that accounts would be charged $81 per month to rent Tyco's radio transmitters and for the monitoring service.

         The Ordinance and the Notice were not well received, according to the Alarm Companies. Tyco's fee is about 47 percent higher than its competitors' fees for comparable services, and one account has said that switching to Tyco will cost it more than $7, 500 per month. Schaumburg, NWCDS, and Tyco, on the other hand, stand to benefit from the Ordinance and the Notice. The complaint estimates that the reduction in competition will result in a $1, 000, 000 annual profit for Tyco. Tyco's $23-per-customer fee to NWCDS will then grow, and in turn Schaumburg also profits. The village receives a credit from NWCDS in the amount of the fees Tyco pays NWCDS, and Schaumburg anticipates now receiving more than $300, 000 each year.

         The Companies filed this suit and sought to enjoin preliminarily the Ordinance's enforcement in March 2017. The complaint brought many claims, including for violations of the Contracts Clause of Article I and the Equal Protection and Due Process Clauses of the Fourteenth Amendment, pursuant to 42 U.S.C. § 1983. The complaint also claimed violations of the Sherman Act, 15 U.S.C. §§ 1, 2, the Clayton Act, 15 U.S.C. § 18, and state tort law. The various claims derive from the same theory: Schaumburg, working with NWCDS and Tyco, passed the Ordinance to exclude the Companies from the market and collect monopoly rents. The Companies also argue (but did not allege) that even if the Ordinance was lawful, the Notice was not. Tyco's competitors can operate in a RSS system, the Companies say, by automatically retransmitting signals from their CSS to the RSS. The Companies add that this court has twice thwarted attempts to concentrate a similar market, in decisions we will explain below. See ADT Sec. Servs., Inc. v. Lisle-Woodridge Fire Prot. Dist., 672 F.3d 492 (7th Cir. 2012) (ADT T); ADT Sec. Sews., Inc. v. Lisle-Woodridge Fire Prot. Dist, 724 F.3d 854 (7th Cir. 2013) (ADT II).

         The district court found the Alarm Companies' claims wanting. It first denied the Companies' motion for a preliminary injunction after a hearing, finding that none of the claims was likely to succeed. The court then offered the Companies a chance to replead. They declined-opting instead to file a motion for reconsideration, which the district court also denied. The defendants moved to dismiss and the court granted those motions, concluding that the Companies had inadequately pleaded their federal claims. See Fed. R. Civ. P. 12(b)(6). It held the same with respect to the state-law claims against Tyco, and it relinquished jurisdiction over the remaining state-law claims against Schaumburg and NWCDS. See 28 U.S.C. § 1367(c).

         The Alarm Companies appeal. We consolidated their case with Alarm Detection Sys., Inc. v. Orland Fire Prot. Dist., No. 18-2926, which concerns a similar market and ordinance. But deciding the appeals requires addressing different legal, factual, and procedural questions, so we issue this opinion independently.

         II. Discussion

         The Alarm Companies submit that the district court erred both in denying their request for a preliminary injunction and in granting the motions to dismiss. We review the legal conclusions of a preliminary-injunction denial de novo, as we do a Rule 12(b)(6) dismissal. GEFT Outdoors, LLC v. City of Westfield, 922 F.3d 357, 364 (7th Cir. 2019); Bd. of Forensic Document Exam'rs, Inc. v. Am. Bar Ass'n 922 F.3d 827, 830 (7th Cir. 2019). With one exception, which we explain below, our analysis of the motion-to-dismiss decision resolves this appeal.

         The requirements for surviving a motion to dismiss are now familiar. The complaint must contain allegations that collectively "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Ml Corp. v. Twombly, 550 U.S. 544, 570 (2007)). We accept all well-pleaded allegations of fact as true and draw all reasonable inferences in the plaintiffs' favor. Erickson v. Pardus, 551 U.S. 89, 94 (2007). Legal conclusions do not get the same benefit; those we may disregard. McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011). If the well-pleaded allegations plausibly suggest-as opposed to possibly suggest-that the plaintiffs are entitled to relief, the case enters discovery. Iqbal, 566 U.S. at 678; Yeftich v. Navistar, Inc., 722 F.3d 911, 917 (7th Cir. 2013). If, however, the allegations fail to raise the right to relief "above the speculative level," dismissal is appropriate. Twombly, 550 U.S. at 555. This may be the case, for example, if there is an "obvious alternative explanation" for the complaint's factual allegations. Iqbal, 556 at 682; Twombly, 550 U.S. at 567; Smoke Shop, LLC v. United States, 761 F.3d 779, 785 (7th Cir. 2014).

         Before asking whether the claims before us pass this test, one issue is worth addressing at the outset. Throughout their briefing, the Companies thematically cite ADT I and ADT II and insist that this case, like those cases, warrants enjoining a local effort to ...


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