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VARTAN v. HARRISTOWN DEV. CORP.

June 15, 1987

John O. Vartan, Plaintiff
v.
Harristown Development Corporation and William Keisling, Defendants and Third Party Plaintiffs v. City of Harrisburg, et al., Third Party Defendants



The opinion of the court was delivered by: CALDWELL

 William W. Caldwell United States District Judge.

 Plaintiff, John O. Vartan, has filed a motion for reconsideration of our memorandum and order, dated March 13, 1987, 655 F. Supp. 430, granting defendants, Harristown Development Corporation (Corporation) and William Keisling, summary judgment on Vartan's antitrust and other federal claims. The motion, made pursuant to Local Rule 604, may also be considered as one to alter or amend the judgment pursuant to Fed. Rule Civ. P. 59(e). See DeLong Corporation v. Raymond International, Inc., 622 F.2d 1135 (3d Cir. 1980). It is addressed to our sound discretion. Harsco Corporation v. Zlotnicki, 779 F.2d 906 (3d Cir. 1985), cert. denied, 476 U.S. 1171, 106 S. Ct. 2895, 90 L. Ed. 2d 982 (1986); Florencio Roman Inc. v. Puerto Rico Maritime Shipping Authority, 454 F. Supp. 521 (D. P.R. 1978).

 This case arises from Vartan's failed attempts to construct office buildings on two sites in downtown Harrisburg, referred to in this litigation as the Walnut Street site and the Chestnut Street site, because of the actions of the defendants and third party defendants, the City of Harrisburg, the Harrisburg Redevelopment Authority (HRA), Bernard Hammer, HRA's chairman, and Harrisburg's mayor, Stephen R. Reed, in blocking Vartan's development of the sites. The factual and legal background is set out in greater detail in our previous memorandum. See 655 F. Supp. 430 (M.D. Pa. 1987).

 In that memorandum, we granted the Corporation's and Keisling's motion for summary judgment on the antitrust claims on the basis of the state action doctrine recently discussed in Hancock Industries v. Schaeffer, 811 F.2d 225 (3d Cir. 1987), although we did not cite that case in the memorandum. Under the state action doctrine, we found that the defendants' actions had been taken pursuant to a clearly expressed state policy found in the Pennsylvania Urban Redevelopment Law, despite Vartan's claim that the relationship between the Corporation, HRA and the City was illegal under this Law. Additionally, we found that the Corporation and Keisling had been actively supervised by the City, through Mayor Reed and by HRA, through its Chairman, Bernard Hammer. Thus, it was immaterial that plaintiff claimed the Corporation was a private entity subject to antitrust scrutiny. We therefore concluded that the antitrust laws did not apply to defendants.

 Vartan seeks reconsideration of all the issues decided adversely to him and sets forth new arguments in response to our memorandum. Vartan also relies in the instant motion upon affidavits executed by the third party defendants, Mayor Reed and Chairman Hammer, subsequent to the granting of the summary judgment. We will deal with plaintiff's new arguments below.

 II. Discussion

 A. The Corporation Must Show Active State Supervision to be Entitled to the Protection of the State Action Doctrine.

 Under the state action doctrine, the antitrust laws do not apply to conduct undertaken by a state through its legislature. 324 Liquor Corp. v. Duffy, 479 U.S. 335, 107 S. Ct. 720, 93 L. Ed. 2d 667 (1987). The exemption can apply, however, to other entities as made clear by the Supreme Court's recent decisions in Town of Hallie v. City of Eau Claire, 471 U.S. 34, 105 S. Ct. 1713, 85 L. Ed. 2d 24 (1985) and Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U.S 48, 105 S. Ct. 1721, 85 L. Ed. 2d 36 (1985). For a municipality to obtain the exemption, it must show that its anticompetitive activities were authorized by the state pursuant to a state policy to displace competition with regulation or monopoly public service. Hancock Industries, supra, 811 F.2d 233 (quoting Town of Hallie). A private entity must show, in addition to authorization by a state policy, that the policy was actively supervised by the state itself. Id. at 235. This is the two-pronged Midcal test. See California Retail Liquor Dealers Ass'n v. Midcal Aluminum Inc., 445 U.S. 97, 100 S. Ct. 937, 63 L. Ed. 2d 233 (1980).

 Private decisionmakers must satisfy the second prong because, as noted by the Third Circuit in Hancock Industries :

 
Active supervision is "one way of ensuring that the actor is engaging in the challenged conduct pursuant to state policy." Id. This assurance is required when "a private party is engaging in the anticompetitive activity, [because] there is a real danger that he is acting to further his own interests, rather than the governmental interests of the State." Id at 47, 105 S. Ct. at 1720. The Hallie Court contrasted this private decisionmaking situation with one in which a municipality is engaging in the challenged conduct:
 
Where the actor is a municipality, there is little or no danger that it is involved in a private price-fixing arrangement. The only real danger is that it will seek to further purely parochial public interests at the expense of more overriding state goals. This danger is minimal, however, because of the requirement that the municipality act pursuant to a clearly articulated state policy. Once it is clear that state authorization exists, there is no need to require the State to supervise actively the municipality's execution of what is a properly delegated function. Id.

 Id. at 235 (brackets added in part) (emphasis in Hallie).

 In our previous memorandum, we had declined to pass upon whether the Corporation was a public entity or a private one because we had concluded, in any event, that the Corporation had been actively supervised by HRA and the Mayor. Plaintiff urges us to dispose of this issue so that he can expeditiously pursue his case. We agree that our consideration of this issue would aid the prompt and orderly disposition of this action. We also agree with Vartan that the Corporation must be considered a private entity for the purposes of the state action doctrine.

 But we do not have to look to state law to determine if the Corporation is a public entity. Nor is it relevant that public monies would be threatened. A municipality itself is subject to antitrust liability if it has not acted pursuant to an established state policy. Town of Hallie, supra. The public funds it controls are also threatened. The only reason a municipality need not be actively supervised is because there is little or no danger it is engaged in a private anticompetitive scheme. Although it could pursue purely parochial goals at the expense of overriding state ones, that danger is minimized when the municipality must follow a clearly articulated state policy. Town of Hallie, supra; Hancock Industries, supra. We believe the relevant inquiry should be whether the Corporation is entitled to the same presumption concerning its goal.

 Bearing in mind this consideration, we conclude that the Corporation is a private entity - as presently constituted and organized - which must show active state supervision to claim the protection of the state action doctrine. The conclusive factor is that its Board of Directors, who also act as the Corporation's members, is comprised of private individuals who control, without any input from any public body, membership on the Board. (Plaintiff's appendix at p. 252). This contrasts with the original intent of the Corporation's By-Laws which empowered various public officials to control membership in the Corporation and the Board. *fn1" (See defendants' appendix at p. 40662, By-Laws, Art. IV, §§ 4.1, 4.2 and Art. VI, § 6.1). Additionally, the record indicates that at least one member of the Board has expressed the belief that the Board should not always be in accord with public officials because the latter, being subject to voter approval, often allegedly only have short range goals in mind. Under these circumstances, we cannot presume, as we could with a public body, that there is no danger that the Corporation would engage in a private anticompetitive scheme.

 B. The Active State Supervision Requirement Has Been Satisfied Here.

 1. Supervision By the City and HRA Is Sufficient.

 Vartan argues that we erred in concluding that supervision by the City and HRA is sufficient. He claims only the Commonwealth can provide the requisite supervision. He emphasizes the following language from Midcal, supra :

 
First, the challenged restraint must be "one clearly articulated and affirmatively expressed as state policy"; second, the policy must be " actively supervised" by the State itself. [citation omitted].

 Plaintiff claims that supervision by the state itself is fundamental to the second prong of the Midcal test. Under the state action doctrine, he argues "non-sovereign public actors," presumably municipalities like the City, may exercise delegated authority and remain immune, but those entities cannot confer immunity upon private parties by supervising them. Vartan cites as further support for this position Riverview Investments Inc. v. Ottawa Community Improvement Corp., 774 F.2d 162 (6th Cir. 1985), in which the Sixth Circuit Court of Appeals concluded that the state had to provide the necessary supervision, and City Communications, Inc. v. City of Detroit, 650 F. Supp. 1570 (E.D. Mich. 1987).

 We relied upon Trinity Ambulance Service, Inc. v. G. & L. Ambulance Service, Inc., 625 F. Supp. 142 (D. Conn. 1985), aff'd per curiam, 787 F.2d 86 (2d Cir. 1986), in concluding that supervision by the City and HRA was sufficient to satisfy the second prong of the Midcal test. We remain convinced that the approach taken by the court in Trinity Ambulance and by the case it cites, Gold Cross Ambulance and Transfer v. City of Kansas City, 705 F.2d 1005 (8th Cir. 1983), cert. denied, 471 U.S. 1003, 105 S. Ct. 1864, 85 L. Ed. 2d 158 (1985), is the better one. In Gold Cross, in connection with a municipality's grant of an exclusive ambulance service contract, the court stated:

 
We also believe that requiring active state supervision over a municipal function such as the one present here is unwise. The State of Missouri has authorized its municipalities to provide ambulance service because it believes that such service is a proper local activity. To require the state to supervise Kansas City's ambulance system once the city has elected to exercise its authority to establish the system makes little sense. As the dissent in Community Communications Co. v. City of Boulder, supra, 455 U.S. at 70-71 & n.6, 102 S. Ct. at 850-851 & n.6 (1982) (Rehnquist, J., dissenting), observed in concluding that the state supervision requirement does not apply to municipal conduct, "it would seem rather odd to require municipal ordinances to be enforced by the State rather than the city itself." Finally, requiring state supervision could force the state and its municipalities to ...

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