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ENGLERT v. CITY OF MCKEESPORT

June 18, 1986

THOMAS ENGLERT, d/b/a NORTHEAST ELECTRICAL INSPECTION AGENCY, Plaintiff,
v.
CITY OF MCKEESPORT and MIDDLE DEPARTMENT INSPECTION AGENCY, INC., Defendants



The opinion of the court was delivered by: WEBER

 This antitrust action alleges that an exclusive arrangement between the City of McKeesport and the Middle Department Inspection Agency (hereinafter "Middle Department") for performance of electrical inspections within the city violates inter alia § 1 and § 2 of the Sherman Act. *fn1" The action is currently before us on Motions for Judgment on the Pleadings as to Counts I and II (The Sherman Act claims) brought by both defendants. Plaintiff has responded in opposition to defendants' motions, and the issues have been briefed by the parties.

 Because defendants have moved for judgment on the pleadings, *fn2" we take as true the allegations of plaintiff's amended complaint. Bryson v. Brand Insulations, Inc., 621 F.2d 556 (3d Cir. 1980). We also draw all inferences to the benefit of plaintiff and against the moving parties. Mortensen v. First Federal Savings & Loan Association, 549 F.2d 884 (3d Cir. 1977).

 In relevant part, the Amended Complaint indicates that on May 5, 1982, the City of McKeesport enacted a resolution by which city officials were authorized and directed to enter into an agreement with Middle Department, a private party which is independant of the city, whereby Middle Department would perform all electrical inspections work for the City of McKeesport. *fn3" Plaintiff alleges that, pursuant to this resolution, Middle Department and McKeesport entered into an agreement whereby Middle Department was granted the exclusive right to perform all electrical inspections on electrical work done within the city. Plaintiff, a competing electrical inspector, claims that the resolution and agreement violate the antitrust laws.

 STATE ACTION IMMUNITY

 The City of McKeesport moves for judgment on the pleadings claiming that its actions as alleged by the plaintiff are immune from antitrust liability since the resolution in question was passed pursuant to a clearly articulated and affirmatively expressed state policy. McKeesport thus alleges that its conduct falls within the "state action" exemption set forth in Parker v. Brown, 317 U.S. 341, 87 L. Ed. 315, 63 S. Ct. 307 (1943). The motion of Middle Department also relies in part on this affirmative defense. We do not agree that defendants have satisfied the requirements necessary for their conduct to be considered immune from antitrust scrutiny as "state action". Accordingly, we will deny defendants' motions based on the following reasoning.

 The scope of "state action" immunity as it pertains to activities undertaken by cities and/or by private parties has recently been clarified by the Supreme Court. To qualify as "state action", anticompetitive activities by a municipality must have been undertaken pursuant to a clearly expressed state policy. Town of Hallie v. City of Eau Claire, 471 U.S. 34, 53 U.S.L.W. 4418, 85 L. Ed. 2d 24, 105 S. Ct. 1713 (1985). A city need not demonstrate that the state "compelled" it to act, to satisfy this "clear articulation" requirement. Rather it is sufficient for a city to show that the state specifically authorized its cities to provide certain services, and that the state has delegated to the cities the express authority to take action that foreseeably will result in anticompetitive effects. Town of Hallie, at 4421. Since the city is a public body exposed to public scrutiny, it is presumed to act in the public interest. For this reason, the Supreme Court decided that in order for a city to claim immunity for its own anticompetitive activities, the only requirement it must satisfy is the "clear articulation" test, Hallie, at 4422.

 This is not the case when the activities being scrutinized are those of a private party such as Middle Department. In that instance, in addition to satisfying the "clear articulation" requirement, the private party must also show that it satisfies a second requirement referred to as "active state supervision." See California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 63 L. Ed. 2d 233, 100 S. Ct. 937 (1980); Southern Motor Carriers Rate Conference, Inc., et al. v. U.S., 471 U.S. 48, 53 U.S.L.W. 4422, 4426, 85 L. Ed. 2d 36, 105 S. Ct. 1721 (1985). Since the activities complained of in this action were not solely undertaken by the city, but also involve a delegation of authority to a private party, it will be necessary for us to examine whether both the "clear articulation" requirement and the "active state supervision" requirement have been satisfied.

 In attempting to establish that McKeesport's actions were taken pursuant to a "clearly articulated and affirmatively expressed state policy," McKeesport relies primarily on statutory provisions of the Pennsylvania Third Class City Code, 53 Pa. Stat. Ann. § 35101, et seq., specifically § 39132. Since McKeesport is a third class city which has adopted a home rule form of government, the city is governed by these provisions of general law, see 53 P.S. § 1-401, unless it adopts alternate provisions of its own. In this case, § 39132 would apply to McKeesport, and it reads as follows:

 
Council may appoint building inspectors, housing inspectors, fire prevention inspectors, electrical inspectors and plumbing inspectors and fix their compensation. Such inspectors shall have the right to enter upon and inspect any and all premises at all reasonable hours for the administration and enforcement of the building ordinances, the housing ordinance, the fire prevention ordinance, the electrical ordinance and plumbing ordinance. Any fees payable to them under the building ordinance, the housing ordinance, the fire prevention ordinance, the electrical ordinance and the plumbing ordinance shall be paid by them to the city treasurer for the use of the City as promptly as may be. (emphasis added)

 We have no doubt that this statute provides a "clearly articulated" state policy authorizing the city to provide electrical inspection services which could foreseeably result in anticompetitive effects. Had the city itself hired persons to do electrical inspection work and had it set any reasonable fee for the provision of such services, our inquiry would end here with a finding of "state action" immunity for the city. Instead the city decided to delegate the function of electrical inspection to a private party.

 Plaintiff claims that this delegation by the city is not within the contemplation of the statute, if for no other reason than the fact that the statute specifically contemplates that fees for electrical inspection services would be set by the city and not by a private party placed in the position of exercising monopoly power. Both McKeesport and Middle Department have admitted that McKeesport exercises no control over the amount of the fee charged by Middle Department for its electrical inspection services. See Answer of Middle Department para. 8; Answer of McKeesport para. 8.


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