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Antitrust liability of municipalities

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Title:
Antitrust liability of municipalities the impact on land use regulation and early proposals for immunity
Creator:
Pickett, Martha C
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Language:
English
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ii, 80 leaves : ; 28 cm

Subjects

Subjects / Keywords:
Antitrust law -- United States ( lcsh )
Land use -- Law and legislation -- United States ( lcsh )
Municipal home rule -- United States ( lcsh )
Antitrust law ( fast )
Land use -- Law and legislation ( fast )
Municipal home rule ( fast )
United States ( fast )
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bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )

Notes

Bibliography:
Includes bibliographical references.
General Note:
Submitted in partial fulfillment of the requirements for the degree, Master of Planning and Community Development, College of Design and Planning.
Statement of Responsibility:
by Martha C. Pickett.

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University of Colorado Denver
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Auraria Library
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
28141535 ( OCLC )
ocm28141535
Classification:
LD1190.A78 1983 .P545 ( lcc )

Full Text
Pickett
ANTITRUST LIABILITY OF MUNICIPALITIES: THE IMPACT ON LAND USE REGULATION AND EARLY PROPOSALS FOR IMMUNITY
BY
MARTHA C. PICKETT
A thesis presented in partial fulfillment of the requirement for the degree of
MASTERS OF PLANNING AND COMMUNITY DEVELOPMEN
l
UNIVERSITY OF COLORADO Denver, Colorado
May, 1983


ACKNOWLEDGEMENTS
My sincere appreciation is extended to Dave Hill for his time and unfailing confidence, to Gil McNeish for his generous expertise and forewarning of Spring distractions, to Fran Seavy for her perfection of typing skills and inexhaustible encouragement to meet deadlines, and to my partner, Edgell Pyles, for his support, tolerance and endurance, all of which were essential in my completing of this work.


1
CONTENTS
INTRODUCTION............................................... 1
Chapter
I. WHAT IS ANTITRUST LIABILITY?...................... 8
Definition of Antitrust Liability as Interpreted by Antitrust Laws
Sherman Antitrust Act............................. 9
Clayton Act.......................................13
Hart-Scott-Rodino Antitrust Improvements
Act of 1976.....................................14
Federal Trade Commission Act......................14
Colorado Restraint of Trade and Commerce Act......15
Colorado Unfair Practices Act.....................15
II. ARE MUNICIPALITIES IMMUNE FROM FEDERAL
ANTITRUST LAWS?.................................17
An Analysis of Evolving Case Law and the Implications for Municipalities
Parker v. Brown(1943).............................19
Bates v. State Bar of Arizona (1977)..............22
City of Lafayette v. Louisiana Power
and Light Company (1978)........................23
California Retail Liquor Dealers v.
Midcal Aluminum(1980)...........................27
Community Communications Company v.
City of Boulder (1982)..........................29
III. HOW IS LAND USE REGULATION AFFECTED BY A
MUNICIPALITY'S ANTITRUST LIABILITY?.............34
Case Studies: 3rief Discussion of Current Cases and Their Implications
Richmond, Virginia................................36
Cape Girardeau, Missouri..........................38
Sharpsburg, Maryland..............................39
Pitkin County, Colorado...........................41
Grand Lake, Colorado..............................42


11
IV. WHAT ARE CURRENTLY DEVELOPING METHODS
FOR COPING WITH THE ANTITRUST LIABILITY
PROBLEM? WHAT ARE RECOMMENDED APPROACHES.....4 4
A Review and Evaluation of Alternatives for Municipalities
Case by Case Litigation.........................46
Development of and Antitrust Compliance Program.49
Colorado Legislation............................52
Federal Legislation.............................60
Recommended Approach to Municipalities'
Antitrust Liability...........................62
V. SUMMARY AND SUGGESTIONS FOR FURTHER RESEARCH____68
BIBLIOGRAPHY........................................75


INTRODUCTION
"Antitrust is a mixture of law, economics, and social theory some say religion that makes competition a national policy."
E. William Barnett, Chair ABA's Antitrust Section-*-
Municipalities, which are political subdivisions of a state, are responsible for exercising a wide range of regulatory powers. These powers include regulation of the use of public rights-of-way, franchising and licensing regulations, building and fire code regulations, subdivision and other land use regulations. Such regulating measures may be necessary to protect the public health, safety and welfare
of the local citizens, but in light of a recent U.S. Supreme
2
Court decision, these measures may also be considered to be a restriction of competition under antitrust laws.
Purpose
One purpose of this paper is to examine the implications of this Supreme Court decision which rules that municipalities are no longer automatically exempt from antitrust liability. Another purpose of this work is to study and evaluate preliminary recommendations for municipalities regarding how best to approach the problems involved with antitrust liability.
^E. William Barnett, speech given at meeting of the National League of Cities, Dallas, Texas, March, 1982.
2
Community Communications Co., Inc, v. City of Boulder, 102 S.Ct. 835 (1982).


2
On January 13, 1982, the U.S. Supreme Court ruled, in a landmark decision, in Community Communications Co.,Inc, v. City of Boulder, that municipalities, including home rule cities, are not automatically immune to antitrust liability merely because of a broad grant of authority from the state. Under prior court decisions, municipalities were not considered liable for antitrust suits, so the implications of this new exposure of local governments to antitrust liability presents some major concerns for public officials, planning authorities, municipal attorneys, and taxpayers.
Statement of the Problem
The problem emerging out of the Supreme Court opinion in Boulder, supra, is the myriad of lawsuits being threatened and filed against municipalities across the nation. Even if the municipality is successful in its defense of the antitrust lawsuit, there are adverse ramifications involved. The litigation process is lengthy and expensive and will not solve the particular public policy problem at issue. The requirement of federal antitrust suits to be tried only in federal courts presents problems of delays in city projects from injunctions, additional litigation expenses, and the inconvenience and expense of the trial being held at a distance from most municipalities. There is increasing reluctance and fear among public officials and employees to proceed with traditional enforcement or enactment of necessary regulation due to their decisions being subject to antitrust scrutiny. The


3
threat of these individuals being sued, along with the public entity, is a reality which is stifling the decision-making process. Many municipal elected officials face unwanted negative publicity and financial burdens which are potential risks some are unwilling to take.
The major implication of the Supreme Court ruling that
municipalities are not exempt from federal antitrust laws is
the interference with and inhibition of regulation by local
governments required in the public interest. Justice William
R. Rehnquist, in his dissenting opinion in Boulder, supra,
stated that the majority ruling will "impede, if not paralyze,
local governments' efforts to enact ordinances and regulations
aimed at protecting public health, safety and welfare, for
fear of subjecting the local government to liability under the 3
Sherman Act."
Thesis
A major area of local regulation power which is being impacted severely is that of land use regulation. There are numerous court cases arising involving allegations that zoning produced anticompetitive effects or was exercised in a way to show preferential treatment. In some instances, the municipality is being sued in its attempt to implement a comprehensive or urban renewal plan. The thesis of this paper is that as a result of recent U.S. Supreme Court decisions, municipalities are liable under antitrust statutes and, consequently,
3
Community Communications Co., Inc, v. City of Boulder, 102 S.Ct. 835 (1982) .


4
there is an inherent negative impact for land use regulations portion of the paper will offer some initial recommendations for municipalities in providing prevention or management of the problems involved.
Organization
This paper is organized into five chapters. Chapter I will define the concept of antitrust liability as it is interpreted through the Colorado and federal antitrust laws.
A brief explanation of each law will be provided.
Chapter II will be an analysis of relevant case law spanning the years between 1943, Parker v. Brown, and 1982, Community Communications Co., Inc, v. City of Boulder. It is evident, upon review of the majority opinion of each case, that the application of the federal antitrust laws to local governments, has drastically changed. This chapter will also include a discussion of some unanswered questions raised in cases which relate to the immunity of municipalities from antitrust liability. In this chapter, the problem statement will be confirmed by the information revealing that munici-
palities are indeed not immune from federal antitrust laws.
Chapter III contains a brief review of five case studies of municipalities involved in antitrust lawsuits relating to land use regulation. There are two Colorado cases and three cases from other states, providing a wide variety of allegations against municipalities for their zoning decisions .


5
Chapter IV explains three currently developing methods for coping with the problems related to municipalities' antitrust liability. These three methods are: case by case litigation, development of an antitrust compliance program and Colorado and federal legislature measures to immunize local governments from antitrust laws. This chapter also contains an evaluation of each alternative for protecting municipalities and offers recommendations regarding the most feasible and effective approaches.
Chapter V provides a brief summary of the antitrust liability situation. It contains concluding remarks about the impacts on land use regulations and recommendations for avoiding antitrust exposure.
Method and Data
The method used to acquire information for Chapter I was research of literature including the Colorado Revised Statutes and other legal publications.
Cases in Chapter II were chosen from a list of cases compiled after corresponding with two experts in antitrust law, who led a seminar on municipalities' antitrust liability for the American Bar Association in Florida on January 6, 1983. They are Fred Bosselman, Chairperson of the National Chapter of the American Planning Assoc., and attorney with Ross, Hardies, O'Keefe, Babcock, and Parsons of Chicago, Illinois and Arvo Van Alstyne, Professor of Law at the University of Utah. Information was also a product of detailed research of the case law presented, including reading the


6
i
court opinions and articles relating to the cases.
The primary method for researching case studies presented in Chapter III was personal contact, by mail or telephone, with individuals directly involved in each case. In addition, literature regarding each case was researched.
Chapter IV, dealing with proposed approaches to the antitrust liability problems, was information gathered from extensive research of recent studies and articles written by experts in antitrust law and local government.
Scope of Paper
The scope of this work includes a statement of the problem which currently exists for municipalities due to a recent U.S. Supreme Court decision which ruled that a municipality is not exempt from antitrust laws. Antitrust liability is defined according to Colorado and federal antitrust laws. There is an analysis of case law to determine if municipalities are immune from antitrust laws. Then, by examining five case studies, there is an explanation of how land use regulation is being impacted. The proposed approaches to the problem are given as examples of steps currently being taken by various agencies as preventative and responsive techniques in reaction to the emerging trend of antitrust lawsuits.
Limitations of Paper
This paper is limited primarily by the fact that the issue of municipalities being subject to antitrust laws is


4
a young one. The "bombshell" which was dropped upon municipalities by the Boulder decision has created a potentially paralyzing effect upon a municipality's power to regulate land use. This state of paralysis is being caused by the threat of antitrust lawsuits, many of which are still pending, against municipalities and officials.
This paper is also limited to study of the impact of antitrust liability on land use regulation. There are various regulatory activities undertaken by a municipality that might be challenged under antitrust laws. These include: franchising of businesses, such as cable, water, gas, bus, railroad, ambulances, and plumbing, hotels, electricians, waste removal, and theaters; issuing of permits for activities such as construction of new buildings or use of streets by vehicles for business purposes. I have chosen a third major area of antitrust exposure, that of land use regulation by municipalities primarily because of my interest in that area of planning and law. Precautions must now be a prerequisite for any land use regulations in order to prevent exposure to antitrust liability. The proposed recommendations set forth here are preliminary only and are in their earliest stages of development. The methods and recommendations proposed for coping with municipal antitrust liability are from the perspective of the local government rather than from the standpoint of a private entity. This perspective is expressed in this paper primarily as a result of the available
4
The U.S. Supreme Court Drops a Bombshell on Cities," Western City, April, 1982, p. 18.


8
research literature which considered the new antitrust exposure for municipalities to have negative consequence for local governments. After extensive research of the implications for municipalities and the fundamental differences between private enterprise and local government, it is the author's contention that municipalities must have unique treatment. Therefore, the proposed approaches to the antitrust liability issue are for protection of the local government. The study of state laws and proposed legislation is limited to Colorado because of interest and feasibility.


Chapter I
What is Antitrust Liability?
Definition of antitrust liability as interpreted by antitrust laws
"The antitrust laws forbid anticompetitive activity and provide a number of remedies to insure their enforcement."
Cynthis Pols, Legislative Counsel National League of Cities^
There are antitrust statutes on both the state and federal levels. These statutes arose out of a national attitude in the United States in the late nineteenth century, in which there was a public outcry in opposition to the practices of industrial and financial tycoons. The post-Civil War years had brought economic health, but the following industrial boom was a scandalous period of great oppression, primarily due to the existence of trusts and monopolies in the private sector. As a reaction to public demands, many states and the U.S. Congress passed antitrust laws. These laws were deemed to be fundamental in the governing of America's commerce. In the words of the Supreme Court:
"Antitrust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms. And the freedom guaranteed
5Cynthia Pols, Memorandum to the Finance, Administration and Intergovernmental Relations Steering Committee Members, (Washington, D.C., National League of Cities, Sept. 17, 1982), p. 4.


"each and every business, no matter how small, is the freedom to compete to assert with vigor, imagination, devotion, and ingenuity whatever economic muscle it can muster.
The objective of these laws, as viewed during that time, was to prevent anticompetitive practices among private entities. Since it was believed that the American governmental system maintained equal sovereignty for both state and federal governments, the federal antitrust laws were not considered to be mechanisms by which to regulate states. Furthermore, states, state subdivisions, and government officials were not considered subject to the antitrust laws.
Sherman Act
The principal federal antitrust statute is the Sherman Act of 1890. Section One of the Sherman Act prohibits all contracts of conspiracies in restraint of trade. Section One reads:
"Every contract, combination in the form of trust or otherwise, or conspiracy, in the restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal ... Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not to exceed one million dollars if a corporation, or, if any other person, one hundred thousand dollars, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court."7
^United States v. Topco Associates, 405 U.S. 596, 610 (1972).
7Sherman Act, 15 U.S.C. il, 1976.


10
This section refers to mutual agreements among two or more parties; such agreements may be horizontal, which means they are among competitors, or the agreements may be vertical, which means they are made between sellers and buyers.
Section One of the Sherman Act is the most relevant legislation to the antitrust liability issue. An important concept of this statute is that the law does not necessarily apply to all situations in which restraint of trade occurs.
It has been noted by various courts that every contract, or any type of regulation, restrains trade to some extent, because while certain economic interests are benefitted, others are therefore being infringed upon. In 1958, in Northern Pacific Railway Co. v. United States, the court determined that certain conduct' creates unreasonable restraint of trade. These unquestionable restraints include price fixing, exclusive dealing agreements to limit production, division of markets by customer or territory, resale price maintenance with distributors and group boycotts or concerted refusals to deal. These activities were classified as "per se" violations in the 1958 court case when the following rule was adopted:
"There are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the


I
11
"Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a ^ particular restraint has been unreasonable
an inquiry so often wholly fruitless when undertaken3
Per se violations are unlikely to be defensible in an anti-j trust case. The only considerations to be taken by a court
when a per se violation is established are the fine, the term of imprisonment, and the amount of monetary damages ^ for the plaintiff.
The other test of legality used by courts to determine antitrust liability is that of case by case "rule of l reason." This involves consideration of the effect of an
agreement on competition in economic terms, and weighing of the social harms and benefits induced. The following "rule
of reason" concept was adopted by the court in Chicago Board of Trade v. United States in 1918.
"The true test of legality is whether the restraint imposed is such as merely t regulates and perhaps thereby promotes
competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is ap-
> plied; its condition before and after the
restraint was imposed; the nature of the
8
Northern Pacific Railway Co. v. U.S., 356 U.S. 1, 5 (1958) .
^Chicago Board of Trade v. U.S., 246 U.S. 23, 238
(1918) .


12
"restraint and its effect; actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts.
When a court applies the rule of reason test, there is a need for extensive inquiry in order to determine the reason-
ableness of an anticompetitive activity. Such cases necessarily involve broad pretrial research, lengthy trials and a large expense in time and court and attorney fees. Therefore, many of these cases end in settlement to avoid the
burdensome litigation.
Section Two of the Sherman Act prohibits monopolization, including attempts and conspiracies to monopolize. The text of Section Two reads:
"Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons to monopolize any part of the trade or commerce among the several states, or with foreign nations, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding fifty thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court."-*-0
This issue is also judged by the rule of reason test. "The mere fact that an entity possesses a monopoly (defined as power to control price or exclude competition) does not
^Chicago Board of Trade v. U.S., 246 U.S. 23, 238 (1918). ^Sherman Act, 15 U.S.C. §2, 1976.


13
necessarily mean that the antitrust laws have been violated.11 Monopoly power is a violation of the Sherman Act when accompanied by exclusionary conduct with the specific intent and purpose of maintaining or exploiting that position. There-
> fore, a monopoly may not be illegal if it is the outgrowth
of a new and only discovery in the existing market.
Clayton Act
* The Clayton Act, enacted by Congress in 1914, further prohibited certain activities, including price discrimination, which occurs when a product or service is sold at
* different prices to similarly situated buyers; tying arrangements, where a buyer must purchase a particular product in order to receive another; exclusive dealing contracts, which
* exist when a party agrees to stop buying from a seller's competitors. Perhaps the most consequential element of the Clayton Act is its provision for individuals to recover
* treble damages, three times actual damages, in federal court if injured by violation of any antitrust law, including the Sherman Act. Section Four of the Clayton Act reads:
^ "Any person who shall be injured in his
business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the
i defendant resides or is found or has an
1Jane Roberts, "Legalbriefs: Thinking Antitrust," Colorado Municipalities, Vol. 56, No. 2, March/April 1980, p. 10.
12Clayton Act, 15 U.S.C. §15 (1976 ed.).


"agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee."12
Section four of the Clayton Act has remained unchanged and is made applicable to all of the antitrust statutes by section one of the Clayton Act."^
Hart-Scott-Rodino Antitrust Improvements Act
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 amended the Clayton Act to authorize a state attorney general to recover treble damages on behalf of citizens of a state who have sustained monetary losses because of antitrust activity. Such a case, called paren patrige, allows for a way to bring actions in the interest of citizens as a whole when the losses of each individual are too insignificant to warrant individual lawsuits.
Federal Trade Commission Act
A fourth federal statute prohibiting antitrust activity is the Federal Trade Commission Act. It is a very broad statute which prohibits activities which are even potentially harmful to competition and activities that violate the spirit, as well as the letter, of the Sherman or Clayton Acts. It seems to be a catchall statute for any activity that is questionably covered in the other statutes.
13
Ibid, 15 U.S.C. §12.


ft
15
Colorado Restraint of Trade and Commerce Act
^ Colorado has its own antitrust laws which certainly
overlap the context of the federal antitrust laws. The Colorado Restraint of Trade and Commerce Act, often referred
^ to as the "Little Sherman Act" makes illegal "every contract
14
or combination in restraint of trade or commerce." This act also prohibits monopolization as in Section Two of the Sherman Act. Violations of this state statute are considered misdemeanors with individuals being fined between $1,000 and $5,000 and/or imprisonment of up to one year. Businesses which violate the Act are fined between $1,000 and $5,000 for the first offense and up to $10,000 for an additional offense. Recovery of actual damages only are possible for individuals injured by violations of this Act.
Colorado Unfair Practices Act
The Colorado Unfair Practices Act makes pricing practices, including geographical price cutting and selling below cost in order to hurt competition, illegal. Also illegal under this statute, are secret rebates, refunds, and commissions and unearned discounts. Violation of this state statute is also a misdemeanor carrying fines between $100 and $1,000 and/or imprisonment of up to six months. Recovery of treble damages is possible by individuals injured by violation of this Act.
14
Colorado Revised Statutes, 1973, 6-4-101.


Throughout this paper, and in most analyses of antitrust liability situations, the federal antitrust statutes are of primary concern. This arises out of the fact that if an entity is in compliance with federal antitrust laws, it is highly unlikely to face any allegations under state antitrust laws. It is important to note, however, that the state antitrust statutes may provide an avenue of attack for any rare case in which the conduct or activity in question cannot be adequately linked to interstate commerce, which is covered by federal laws.
The following chapter will examine five court cases in which the question of whether or not municipalities are immune from federal antitrust laws is a major issue. By analyzing the decision in each case, and how the courts differ and change in their opinions, it will become evident that many factors are involved, but that municipalities are indeed not immune to antitrust legislation.


17

Chapter II
Are Municipalities Immune from Federal Antitrust Laws?
An Analysis of Evolving Case Law and the Implications for Municipalities
I "It is fair to say that there is no clear
standard for municipal antitrust immunity.
What is clear is that there is no automatic antitrust immunity for a local government due to its status as a state governmental unit."
Management Information Service Report December 1982^5
The previous chapter discussed antitrust liability in general as it is defined by several state and federal antitrust statutes. The most relevant laws to the issue of a municipality's antitrust liability are the Sherman and Clayton Acts enacted by the U.S. Congress.
Over the last forty years, an immense body of case law has evolved addressing the antitrust liability of state subdivisions. This chapter is an examination of five U.S. Supreme Court cases, occurring between 1943 and 1983, to determine how the court in each case interpreted the applicability of the antitrust statutes to municipalities. Each case entails independent facts and issues and, therefore, different criteria which would enable local governments to claim immunity from antitrust laws. 15
15
International City Management Association, Betsy Sherman, Director, Management Information Service Report, "Antitrust Exposure of Local Governments A Guide for Chief Executives," Vol. 14, No. 12, December, 1982, pg. 5.


18
Less than five years after the Sherman Act was enacted,
at least two cases reached the federal courts in which a
public entity was accused of violating the Sherman Act. In
16
Lowenstein v. Evans, it was alleged that a state liquor
monopoly in South Carolina was subject to antitrust suit.
In the decision, the District Court rejected that contention,
holding that governments were not liable under the Sherman
Act. In 1904, in Olsen v. Smith,16 17 18 19 20 a similar suit was
brought against a state pilotage licensing statute in Texas.
Again, the contention was dismissed by the Supreme Court.
The principles of these very early cases were reinforced in
18
Parker v. Brown, which was a landmark case in setting forth the determination that federal antitrust laws do not prohibit
a state, and subgovernments of a state, from imposing anti-
. . . 19
competitive restraints "as an act of government." The
Parker doctrine is significant because many state and municipal activities, including price regulations, production controls, licensing, ratemaking, zoning and franchising,
would be subject to scrutiny and possible liability under
20
federal antitrust laws were it not for Parker.
16
Lowenstein v. Evans, 69 F. 908 (D.S.C. 1895)
1701sen v. Smith, 195 U.S. 332 (1904).
18
Parker v. Brown, 317 U.S. 341 (1943).
19Ibid, p. 388.
20
James M. Nicholson and Philip L. O'Neill,
"Liability of Local and Other Governmental Units Under Federal Antitrust Laws" Special Bulletin, Municipal Finance Officers Association, May 1980, p. 2.


19
Parker v. Brown (1943)
In Parker v. Brown, action was brought by Porter L. Brown against W. B. Parker, Director of Agriculture, the Agricultural Prorate Advisory Commission, Raisin Proration Zone Number One, and others to stop enforcement of a prorate program for raisings in California. The raisin marketing program, which was adopted under the California Agricultural Prorate Act. restricted competition among growers and controlled prices of the agricultural commodities.
Brown alleged that the proration marketing program for raisins, which classified raisins by grade and prohibited them from being sold below the prevailing market price of the same variety and grade on the date of sale, was in violation of the Sherman Act.
The prorate program in question was specifically authorized by the California Legislature and the court states in the Parker v. Brown opinion:
"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 by its legislature."21
The State of California was acting as a sovereign power when it imposed the restraint of trade through the prorate program. The Supreme Court considered the Sherman Act to be a
22
"prohibition of individual and not state action." This 21 22
21Parker v. Brown, 63 S.Ct. 313 (1943).
22
Ibid, p. 314.


20
concept of state action being exempt from antitrust suit was a decisive one for local governments, because the assumption at that time was that political subdivisions of the state were also exempt, according to the language of the court's decision.
In opposition to this view of municipalities being
entitled to thesame protections that states have, is the
proposal that a municipality does not always operate as a 23
state agency. It is asserted that a municipality has the dual character of acting either in a governmental role or a proprietary role; therefore, the characteristic of the particular municipal activity in question should be the distinguishing factor in determining antitrust liability. A municipality acts as an agent of the state when fulfilling public or governmental functions, whereas it acts autonomously, or self-governing, when it conducts activities of proprietary or commercial nature. This dichotomy has long been a confusing issue as courts have experienced difficulty in distinguishing when a municipality is acting in a governmental role as opposed to acting more like a private business corporation. This issue is an important one since traditionally courts have held municipalities immune from liability of municipal torts committed in a governmental 23 *
23
"Antitrust Law and Municipal Corporations: Are
Municipalities Exempt from Sherman Act Coverage Under the
Parker Doctrine?" Georgetown L.J. 65 (1977) Pt. 2, p. 1557.


21
24
capacity opposed to a proprietary capacity. On the other hand, courts have implied that municipalities are independent of the state's control in their proprietary functions
25
and are to be held accountable for their own activities.
It is generally agreed that the antitrust statutes were
originated in order to promote free competition in the
marketplace. In view of the above argument, it is also
agreed upon by some experts that "when the municipality's
role in that marketplace is functionally comparable to that
of any other consumer, it should not receive the protection
of the state action exemption because such conduct is be-
2 6
yond the state's control."
It is also argued that state action is not an acceptable doctrine in protecting municipalities under the Eleventh
Amendment to the U.S. Constitution, which immunizes a state
27
from suits by citizens. Municipalities have not been protected under the Eleventh Amendment because of the view that they are considered separate from the sovereign state.
Since immunity to the Eleventh Amendment has not been extended to municipalities, it has been suggested that immunity should not be extended to municipalities under antitrust statutes.
24Ibid, p. 1581.
^Hunter v. City of Pittsburgh, 207 U.S. 179-81 (1907). 2 6
"Antitrust Law & Municipal Corporations: Are Municipalities Exempt from Sherman Act Coverage Under the Parker Doctrine?" p. 1561. 27 *
27
U.S. Constitution, Amendment XI.


22
In summary, the Parker v. Brown decision set a prece dent which served as a shield for municipalities against antitrust liability for many years. There were few cases over the subsequent thirty-five years which required protection under the state action doctrine of Parker. Yet, when protection was needed, Parker was a sound case with which to dispel any cause of action. However, in retrospect, it has been noted that in that opinion localities
are not sovereign and "do not receive all the federal def-
2 8
erence of the states that create them." Parker v. Brown "actually cracked the door leading to the present predicament and it was only a matter of time before the dictum in
29
Parker would become the basis for decision."
Bates v. State Bar of Arizona (1977) .
In Bates v. State Bar of Arizona, two attorneys claimed that the Arizona Bar violated the Sherman Act because of regulations which restricted advertising by attorneys. In actuality, the attorneys were placing claims against the State of Arizona because it was the Arizona Supreme Court that imposed and enforced the advertising rule out of its authority to regulate the State Bar. This case is important because it established two pertinent criteria for the state action exemption of Parker. These
28
Parker v. Brown, 317 U.S. 351 (1943). 29
29
Howard W. Dobbins, "Reasons and Remedies for Antitrust Anxieties," Virginia Town and City, Vol. 17, No. 7, July, 1982, p. 9.


criteria were that a state policy had to be expressed
clearly and affirmatively and that there must be active
30
state supervision of the policy. The Supreme Court held
that these criteria were present in the Bates case and that
the Parker exemption for state action was applicable.
It is noted by authorities that the decision in
Bates implies that actions having anticompetitive effects
"must be compelled by the state acting as sovereign if it
31 . .
is to be exempt under Parker." The implication remains that there are certain actions which are taken, perhaps by a political subdivision of a state, that are not part of the sovereign capacity of state, and, therefore, should be subject to antitrust liability. However, since the Bates v. State Bar of Arizona case did not involve a municipality as a defendant, it was not clear whether the principles expressed would be applied in cases involving local governments .
City of Lafayette v, Louisiana Power and Light Company (1978).
In 1978, the United States Supreme Court experienced its first opportunity to consider application of the Parker state action exemption specifically to municipalities. Two Louisiana cities, Lafayette and Plaquemine, owned utility systems which operated electricity both inside and outside their city limits. The cities brought suit in federal court against Louisiana Power and Light Company, a private
^Bates v. State Bar of Arizona, 433 U.S. 350, 362 (1977).
31 . .
Antitrust Law and Municipal Corporations: Are Municipalities Exempt from Sherman Act Coverage Under the Parker Doctrine?" p. 1579.


24
competitor, for various antitrust violations. In turn, the private company counterclaimed, alleging antitrust violations by the cities, saying that the cities had required consumers to use their water and gas service in order to get electrical service (a tying arrangement), and further contended that the cities' suit was an attempt to keep the company from selling bonds for financing of a proposed nuclear electric generating plant. The cities moved for dismissal of the counterclaim because of the immunity from antitrust laws provided them in Parker, supra. The ) motion was granted by the District Court. However, the
Court of Appeals reversed and remanded the case for further proceedings.
The United States Supreme Court did not uphold the cities' argument that they were immune from antitrust laws because of their status as a political subdivision of a state. Since the Parker decision held that states are immune to antitrust laws, the general assumption had been that municipalities were equally immune, because of their & authorization of powers from the state. In City of Lafay-
ette v. Louisiana Power and Light Company, the Supreme Court stated:
"In light of the serious economic dislocation which could result if cities were free to place their own parochial interest above the Nation's economic goals reflected in the antitrust laws


25
"... we are especially unwilling to presume that Congress intended to exclude ^ anticompetitive municipal action from
their reach."32
The court ruled in Lafayette, supra, that municipalities are not automatically immune from antitrust laws.
The court discussed the idea that although a city necessarily carries out state policies, it does not have statewide jurisdiction, and may interpret the policy independently of the state. Therefore, a city's policy of anticompetitive restraint may not express the state's preference. In such an instance, the city may not be acting pursuant to "the state's
33
command" or under "the state as sovereign" as given in Parker.
In Lafayette, supra, the court ruled that under these circumstances, the city would be liable under antitrust laws:
"We therefore conclude that the Parker doctrine exempts only anticompetitive conduct engaged in as an act of government by the State as sovereign, or, by its subdivisions, pursuant to state policy to displace competition with regulation or monopoly public service."34
Perhaps the most unique and confusing aspect of the
Lafayette case is that although the majority of the court
clearly rejected the cities' pleas for immunity, there were
five separate opinions written by justices which expressed
very different views. Justice Brennen, joined by Justices
32 .
City of Lafayette v. Louisiana Power and Light Company, 435 U.S. 412-413 (1978).
^Parker v. Brown, 317 U.S. 352 (1943).
34
City of Lafayette v. Louisiana Power and Light Company, 435 U.S. 389, 413 (1978).


26
Powell and Stevens, felt local governments should be exempt
only for those actions directed or authorized by the state,
35
not necessarily authorized by specific legislation. There
would be no exemption if the state policy was neutral.
3 6
Justice Marshall agreed with Brennan, but stiffened the
standard by stating that an anticompetitive restraint must
be mandated by legislature, and further stipulated that the
local governments' actions must prove to be "essential to
37
the state's plan." A major distinction in Burger's opinion was that he was considering only proprietary activities of a
municipality and, thus, implied that governmental activities would be exempt from antitrust liability.
An adamant dissension was written by Justice Stewart, joined by Justices White and Rehnquist to point out some consequences of major concerns for local governments as a result
of the majority opinion. He warned:
"Local governmental entities often take actions that might violate the antitrust laws if taken by private persons, such as ... enacting restrictive zoning ordinances, ... but a city contemplating such action in the interest of its citizens will be able to do so after today only at the risk of discovering too late that a federal court believes that insufficient statutory 'direction' existed, or
nature'. 38
35Ibid, P- 392-395.
36t, Ibid, P- 396.
^Ibid, P- 396
^Ibid, P- 399.


Further warnings were given in Justice Blackmun's dissent of the consequences in relation to municipalities being subject to treble damages under the Clayton Act. He showed the magnitude of the damages by pointing out that the $540,000,000 sought in the suit would be more than $28,000 for each family of four in the population in question. Blackmun did express his opinion that municipalities would not be exempt in situ-
3
ations where they had acted "in concert with private parties."-
The essential test from the varying opinions given seems to be whether or not an action is directly and specifically authorized by the state. This new standard for antitrust immunity was an important one for municipalities. Municipalities could take some comfort in the idea that all of their actions are not automatically exposed to antitrust scrutiny. The court determined that:
"On the other hand, the fact that municipalities, simply by their status as such, are not within the Parker doctrine, does not necessarily mean that all of their anticompetitive activities are subjert to antitrust restrain."4U
California Retail Liquor Dealers v. Midcal Aluminum, Inc.(1980)
The National Commission for the Review of Antitrust
Laws and Procedures noted in its 1979 Report that the Supreme
Court was engaged in a "narrowing of immunity" under the state
41
action doctrine of Parker. Then in the 1980 Midcal case 39 40 41
39Ibid, p. 401
40Ibid, p. 413
41
John T. Morgan, "Antitrust and State Regulation: Standards of Immunity after Midcal," Arkansas Law Review,
Vol. 35, No. 3, 1981, p. 1.


there was an attempt to further clarify antitrust immunity standards as they apply to municipalities. A wine wholesaler, Midcal Aluminum, Inc., was charged with selling wine below the prices set by price schedules and for selling wines without filing a fair trade contract or schedule, requirements set forth in a California statute. In turn, the wholesaler filed suit in the California Court of Appeal to try to receive an injunction against the State's wine pricing system The Court of Appeal ruled that the California wine pricing system violated the Sherman Act, by restraining trade, and granted the injunction.
The United States Supreme Court held, after evaluating the California wine pricing program, that it violated the Sherman Act. The court referred to the two criteria established in prior case law which are to be applied in determining if an activity should be afforded state action exemption from the antitrust laws. These criteria are (1) a
"clearly articulated and affirmatively expressed state policy
. 4 2
and (2) active supervision by the state. In this case, the court ruled that the first criterion was met. Presumably, any state policy specifically under legislative control, will be clearly articulated and affirmatively expressed. The second criterion, that of state supervision, was not satisfied. California authorized price setting, but did not
42
California Liquor Dealers v. Midcal Aluminum, Inc. 445 U.S. 97, 105 (1980).


29
establish prices or review the reasonableness of price schedules. The state did not regulate the fair trade contracts which it authorized; it did not monitor market conditions or evaluate the program. These two criteria required by the court remain somewhat vague, although Midcal is an important case because the court formalized criteria for analysis out of what were previously merely observations by the court. In Midcal, the court makes clearer what actions would be required to meet this criterion. One expert has noted that the state action doctrine should be called the state regulation doctrine. "The Supreme Court looks for a true regulatory process, not merely some state involvement.
Community Communications Co. v. City of Boulder, Colorado (1982)
The most recent United States Supreme Court decision, which addressed municipalities' antitrust liability, was one which directly affected Colorado by enlarging the exposure of local governments to federal antitrust laws. In 1966, Community Communications Company was awarded a cable television franchise by the City of Boulder. The company served only a limited area in the city, and, in 1979, informed the city of plans for expansion of their services. In response, the City of Boulder enacted a ninety-day moratorium in order to have time to draft a model cable television ordinance. The city's 43
43
John T. Morgan, "Antitrust and State Regulation: Standards of Immunity After Midcal," Arkansas Law Review,
Vol. 35, No. 3, 1981, p. 484.


objective of the moratorium and model ordinance was to limit
Community Communications Company's expansion because of the
anticompetitive effect on potential cable television com-44
petitors. Community Communications Company filed suit m district court against the City of Boulder for an injunction to prevent the enforcement of the moratorium, alleging violation of the Sherman Act. The city claimed state action exemption under the Parker doctrine in view of the extensive powers granted Boulder by the state constitution as a home rule municipality. In part, the Home Rule Amendment to the Colorado Constitution states that cities and towns of two
thousand inhabitants have ... "the full right of self-
45
government m both local and municipal matters ..." The amendment provides that a home rule city's charter will supersede any state law in the case of a conflict.
However, the Federal District Court ruled that the city's state action defense was not available and granted a preliminary injunction preventing the moratorium. The Tenth Circuit, United States Supreme Court of Appeals, reversed, holding that Boulder was immune, pointing out that there was no proprietary interest on the part of the city. On January 13, 1982, the United States Supreme Court reversed the Court of Appeals judgment and remanded the case for further
44 .
Community Communications Co. v. City of Boulder, 102 S.Ct. 835, 838 (1982).
45
The Colorado Home Rule Amendment, Colorado Constitution, Article XX, Section 6.


31
proceedings. The case was later settled by the city, partly because of the costs of extended litigation. The City of Boulder was never found guilty of antitrust violations and the Supreme Court decision actually raised some questions concerning how antitrust laws should be applied to municipalities. The Supreme Court decision did, however, have some significant meanings for municipalities. The concept
of home rule cities, which grants autonomy over local con-
46
cerns, was weakened, or perhaps "destroyed." Powers
granted home rule cities, according to the decision, are not
sufficient evidence of contemplation of the actions by the
state legislature, but are merely a result of the state's 47
"neutrality." This position of neutrality was not able to satisfy the requirement that a policy be clearly articulated and affirmatively expressed as set forth in previous case law. The second required standard, that of active state supervision, was never even addressed in the Boulder case.
Another issue which was not addressed in the Boulder decision, since there were no violations of the antitrust statutes tried or found, was what remedies would be appropriate for officials of a municipality. However, in his dissenting opinion, Justice Rehnquist expressed some
46 . .
Community Communications Co. v. City of Boulder, 102 S.Ct. 835, 851 (1982) 47
47
Ibid, p. 843.


32
pessimism:
"It will take a considerable feat of judicial gymnastics to conclude that municipalities are not subject to treble damages .."4
Rehnquist felt that it was unlikely that municipalities would be entitled to relief from the language of the Clayton Act which provides for treble damages for persons injured under any antitrust law.
anticompetitive municipal actions are not automatically in violation of antitrust laws. In fact, Justice Stevens, in his concurring opinion, noted that various issues and facts of the case would have to be closely examined before any attempt would be made to establish whether or not the City of Boulder violated the antitrust laws. In Footnote 20, the court reiterated the stand taken in Lafayette, supra, that certain municipal activities, which would definitely be anticompetitive if maintained by private parties, are likely to be considered in a different light when carried out by municipalities.
trust cases introduces varying opinions as to how municipalities fare in the continuous process of establishing criteria for local governments' immunity. The overriding opinion that municipalities do not possess sovereign powers
As in the Lafayette case, the court stated that
This sequence of United States Supreme Court anti-
48
Ibid, p. 848.


33
and, therefore, are not granted automatic immunity to the antitrust laws, leaves localities openly exposed to antitrust liability. The questions that were raised and left unanswered only complicate the issue for municipalities. Jeffrey H. Howard, a partner in the Washington, D.C. law firm that represented Boulder, says "the loss of immunity
alone has very significant legal, political and practical
49
impacts on local governments." Some of these potential impacts will be seen as realities in the following chapter as specific cases of lawsuits concerning land use regulation are discussed.
49
"Will Your County Join Boulder County News, September 6,
IBM and AT & T?" 1982, p. 9.


34
Chapter III
How is Land Use Regulation Affected by a Municipality1s Antitrust Liability? Case Studies: Analyses and Comparisons of Cases and Their Implications
"The focus on the Boulder decision on precise state statutory language is reminiscent of the caution of Mark Twain that the difference between the right word and the almost right word is like the difference between a lightning bug and lightening. One of the effects of the Boulder case is that in searching for the needed statutory language, many local governments will be struck by lightning for the first time.
Chapter Two contained an analysis and comparison of a body of antitrust case law in order to conclude that municipalities are not immune from antitrust liability. It was shown that U.S. Supreme Court opinions have diverged over various elements of the issue, leaving many questions unanswered, and, yet, providing several definite criteria to be followed if antitrust liability is to be avoided. It was evident that many traditional regulatory actions of a local government may now be challenged because of their anticompetitive effects.
Regulation of land use is an action of higb exposure to antitrust scrutiny. In June, 1982, the National Institute of Municipal Law Officers presented survey results compiled from information gathered from three hundred of 50
50Jeffrey H. Howard, "High Court Decisions Change Antitrust Rules," Public Administration Times, Vol. 5, Number 23, December 1, 1982, p. 8.


35
of the nation's approximately 39,000 local governments.
The survey showed that in the preceding four years, forty-three of the surveyed municipalities, nearly fifteen percent, had been sued for antitrust violations. Nine out of the forty-three cases resulted from land use and zoning decisions. ^ George Liebman, Chairperson of Maryland's Governor's Task Force on Local Governmental Antitrust Liability stated, "Every zoning decision, in a sense, is anticompetitive. The potential for antitrust litigation is
52
virtually unlimited."
This chapter will present brief discussions of five lawsuits which involve antitrust allegations relating to local governments' land use decisions. The facts given of each case explain the type of land use regulation which was challenged and the initial impacts and implications which result from the legal dispute. Each case study is unique in its location and circumstances. However, the type of municipal action being challenged in each case occurs routinely in most municipalities. The population, geographic location or political characteristics have no bearing in antitrust suits. This chapter will afford the reader a broad understanding of the kinds of antitrust allegations
51
"Antitrust Exposure of Local Governments A Guide for the Chief Executive," Management Information Service Report, Volume 14, Number 12, Decekber, 1982, p. 3.
52
Antitrust Law Sought for Towns," Hagerstown Daily Mail, 11 March, 1983, p. 5.


36
being made against municipalities and some of the initial effects being felt. Thorough details and accurate information concerning the status of each case are not available at this time. Also, the general attitude of persons involved who were interviewed was that the complete picture of how the community will be affected by the lawsuit will not be seen for a long period of time.
Richmond, Virginia
In 1981, Richmond Hilton Associates presented a proposed plan to build a hotel on property owned by Canal Square Associates in Richmond, Virginia. The city's Planning Director, Charles T. Peters, Jr., denied approval of the plan on the basis of Richmond's Urban Renewal Plan which barred any project that would interfere with the city's downtown Project One. Project One, sponsored by the Richmond Housing Authority, includes a major hotel being constructed by Marriott. Peters received advice from consultants that both hotels could not operate successfully at the same time and so blocked construction of the Hilton Hotel. The Richmond Planning Commission approved that decision.
James C. Bristow, the project's developer, and Canal Square Associates, owners of the proposed hotel property, sued Richmond for $250,000,000, on grounds that antitrust laws were violated.
As of March 23, 1983, $879,000 had been paid by the city of Richmond to five different law firms retained over


37
the two years to represent the city and/or officials named 53
as defendants. One reason legal fees have been so steep is that the city hired an outside attorney to deal with
matters that the city attorney would handle if he were not
/
a defendant. This is a typical complication in municipal antitrust suits.
Richmond's city attorney, Bill Hefty reports that
the suit has not progressed very far since its filing in
54
1981. He says it is "nowhere close to trial." They are still figuring out who is representing who and also who will be the judge since the original judge disqualified himself.
Two major impacts on land use regulation are being felt by Richmond. A primary one is the financial burden.
The city's 1982-1983 budget originally appropriated only $750,000 for special legal services.^5 This appropriated amount has already been surpassed and money from other funds are being tapped. Undoubtedly, money earmarked for other purposes will have to be utilized for legal services instead.
A second problem is the obvious time being spent on resolving the issue. It is uncertain how much more time will be required and, meanwhile, the city has no indication of what to expect for the Canal Square Associates' property.
~^Tom Campbell and Rob Walker, "Hilton Suit Has Cost City $879,000 So Far," Richmond Times Dispatch, 23 March, 1983, p. 1.
54
Telephone interview with Bill Hefty, City Attorney, Richmond, Virginia, 11 April, 1983.
55
Tom Campbell and Rob Walker, Loc. cit.


38
They cannot predict the implications for the Project One Hotel, now under construction, and the surrounding projects, if the Hilton is allowed or denied construction. Certainly, other developers are waiting to know the outcome before investing near either site, which has endless repercussions in the city's planning efforts.
Cape Girardeau, Missouri
Cape Girardeau, Missouri, considered a "one shopping
5 6
mall town" by two courts, is involved in allegations that it violated antitrust laws in disallowing a second mall to be developed. Westborough Mall sued the city after their zoning status reverted to Residential which prevented their proceeding with construction. Meanwhile, a competing shopping center, West Park Mall, was allowed to pursue construction work even without proper zoning approval. The Westborough zoning reverted to Residential because they did not begin building within three years. However, their zone was exempt from this particular ordinance provision.
The district court ruled in favor of the city and the West Park developers holding that there was no action of a conspiracy or that the city had taken no official action on the zoning reversion. The Court of Appeals, however, reversed that opinion, ruling that there was evidence of conspiracy because of the nature of certain meetings and agreements between the city and West Park developers. The court
5 6
Westborough Mall v. City of Cape Girardeau, 532 F.Supp. 284 (1981).


39
felt that West Park had been given preferential treatment.
The opinion referred to the Boulder case and said that "even
if zoning in general can be characterized a 'state action,'
... a conspiracy to thwart normal zoning procedures and to
directly injure the plaintiffs by illegally depriving them
of their property is not in furtherance of any clearly ar-
57
ticulated state policy."
Cape Girardeau's City Attorney, Fred Boeckmann, explained that there is presently a petition by defendants for a Writ of Certiorari to take the suit to the U.S. Supreme
Court. He, therefore, declined to comment on the potential
5 8
outcome and effects of the lawsuit for the city.
With such opposite opinions offered, it is difficult to understand the complexities of the case. However, whatever the outcome, one message for municipalities must be the increased need to reexamine the procedures and policies associated with land use decisions and establish a formal process that will prohibit any potential preferential treatment by officials. Municipalities must be aware of the consequences and complications involved in meetings which are anything less than formal and certainly of any decisions or procedures that are not authorized or properly official. Sharpsburg, Maryland
Sharpsburg, Maryland, a small historic village of 830 residents, is presently engaged in a two-year lawsuit
57
Ibid.
5 8
Telephone Interview with Fred Boeckmann, City Attorney, Cape Girardeau, Missouri, 11 April, 1983.


40
involving the town's refusal to zone commercial Gary Campbell's dilapidated house from which he hoped to sell tires. Campbell alleges that the town refused his zoning request to favor Willis Baker, the Vice-Mayor, who sold tires from his home.
Gary Campbell is suing Sharpsburg for $96,000. If Campbell wins, he will be entitled to treble damages of $288,000.59
Since no decision of the case has been rendered, it cannot be definite what the full impact on the town will be.
It can already be determined, though, that the suit has negative effects, both politically and financially. The town officials of Sharpsburg are not professional political figures. They are primarily local business folks who perform municipal duties for very little, if any, pay. Understandably, these kinds of individuals will most likely be reluctant to serve in the future in capacities that would expose them to antitrust suits. Even if persons do agree to serve, it is evident that they may not be willing or able to make routine land use decisions for fear of antitrust challenges, and therefore, the public interest may suffer. This reluctance to implement land use decisions is likely to occur in large communities as well.
Damages being sought against Sharpsburg are more than triple the town's total annual budget. Sharpsburg, and
59
"Antitrust Law Sought for Towns," Loc. cit.


probably other small towns facing antitrust suits over mundane regulations, could find themselves bankrupt as a result of such a lawsuit.
Aspen Post Corp. v. Pitkin County
Landowners of 105 acres adjacent to Buttermilk Ski Area near Aspen, Colorado, have sued Pitkin County and officials because of zoning measures which restrict commercial and lodging development on the site. The landowners claim that the 1978 growth management plan adopted by Pitkin County and down-zoning measures taken in 1974 violate antitrust laws. They contend that the zoning decisions are anticompetitive by allowing other ski areas, Aspen and Snow-mass Village, and barring similar development at Buttermilk. The suit is for $45,000,000 in damages, or $135,000,000 if treble damages are available. The suit is still in the discovery stage.
The most potent impact for land use planning authorities from this type of case is the subjection of growth management schemes to antitrust scrutiny. It will be a difficult, if not impossible task, for municipalities to maintain control over or guide the growth trends of their locality without negatively affecting competing businesses.
A very serious challenge arises of how much authority a local government has, or should have, related to comprehensive growth management plans. It is apparent that a totally new parameter must be considered in adoption and


42
implementation of comprehensive plans: one which considers the anticompetitive effects and, thus, antitrust exposure, of the proposals and regulations set forth by the plan.
The other impact, a continually recurring one, is the presence of large monetary damages being sought. Again, it is important to note that communities cannot afford to spend the large sums of money required in antitrust litigation, much less the expenses and damages if they suffer the loss in a lawsuit.
Stauffer v. Town of Grand Lake
A suit currently pending against Grand Lake, Colorado, is a result of the refusal by the town to grant multi-family zoning to a developer for property owned in Grand Lake. The plaintiff in that case is seeking $355,000 in treble damages, which is an unrealistic figure for the town of 382 residents.
The major impact, that of monetary damages sought, is reiterated, because of the constraints which would necessarily be placed on the municipal budget, thereby usurping funds which are otherwise needed for human services.
Again, it is pointed out that a routine discretionary decision by local government officials may, in the dawn of recent Supreme Court decisions, be a prime target for a lengthy, expensive antitrust lawsuit.
A major result of all of the lawsuits discussed above is the burden which is placed upon the financial resources of the municipality. Some localities, particularly small


43
towns, would not be able to meet the expenses of necessary litigation. Those towns, plus most large municipalities would not have the funds available to pay damages if they lost the case. Most municipalities are not even adequately covered by insurance to meet the possible treble damages of an antitrust suit.
It also is apparent that many, perhaps any, routine land use regulation is susceptible to antitrust scrutiny. Municipalities need to educate themselves about the types of allegations being made against others and become aware of how to lessen their own exposure.
The next chapter discusses some methods which are now developing to deal with municipalities' antitrust liability. The present approaches are prioritized according to their effectiveness and feasibility in best coping with the prob-
lems involved.


44
Chapter IV
What Are Currently Developing Methods for Coping with
Municipalities' Antitrust Liability Problem?
A Review and Evaluation of Alternatives for Municipalities
"The state of the law is still uncertain. We know that local governments are no longer automatically immune from antitrust suit, but we do not know what standards the courts will apply and what defenses the local governments will be allowed to assert. Still, it is not too early for local government officials to consider whether regulations need to be rewritten or administrative procedures modified in order to avoid potential lawsuits. Budgets for litigation may have to be supplemented and insurance or risk management programs reconsidered."60
Edith Netter
Staff Attorney and Editor Land Use Law and Zoning Digest American Planning Association
The Previous chapter discussed how land use regulation is being impacted in some communities where the municipality is being sued under antitrust statutes. Several Colorado localities, like many across the country, are experiencing the effects of the Supreme Court's ruling that municipalities are not immune to antitrust liability. As noted in Chapter III, one harmful repercussion for municipalities is the reluctance and uncertainty which now accom-
panies the routine process of regulating land use in the interest of public health, safety and welfare. Obviously,
6 0
Edith Netter, "Antitrust Laws and Land Use Regulation," Land Use Law: Issues for the Eighties, American Planning Association, 1981, p. 49.
i


the most disquieting factor involved is the high costs of time and money for the local government if an antitrust suit is filed in opposition to their regulatory measures.
In reaction to the Supreme Court's principle that municipalities are not immune to antitrust scrutiny and the subsequent threat and filing of lawsuits in various localities, there are three primary methods developing which local governments may pursue for protection. These methods include case by case litigation, when a municipality deals with the antitrust issues as they evolve in a legal suit; generation of an antitrust compliance program, as a technique to avoid antitrust exposure; and legislative proposals for the Colorado and United States legislatures that would immunize local governments from antitrust laws in some or all of their regulatory activities.
All of these methods for contending with municipalities' antitrust liability are in very early stages of development because of the short time which has elapsed since the Boulder decision. This chapter will explain the factors involved in each method and, based on that information, will offer a recommendation for which approach, or combination of approaches, is likely to be most effective and feasible in alleviating some grave complications for local governments. As stated earlier, the perspective of the methods which are available or are needed to deal with municipalities' antitrust liability, is taken from the viewpoint of local governments, not private entities. It is


46
the author's opinion that municipalities are entitled to certain recourses to insure protection against antitrust suits in implementing their regulatory powers which are often necessary and beneficial to the public interest.
Case by Case Litigation
Many communities in Colorado and other states are involved with, or are facing, antitrust suits relating to some land use regulatory decision. As seen from the discussion of evolving case law in Chapter II, it takes many years to clarify and address issues which are pertinent in understanding antitrust liability. Over the past ninety years, court opinions have offered varying decisions as to whether or not municipalities are immune to antitrust statutes, and if so, which standards should apply. Therefore, it seems futile for local governments to rely on this continuous process of legal dispute as a means of guidance and determination of which regulatory activities violate the antitrust laws.
There is no significant pre-existing body of law which provides precedent to define which land use regulations in particular would be deemed per se violations. Each antitrust case which challenges municipal regulatory activities must be tried as a rule of reason case to determine not only if a local government has violated a rule which determines antitrust violation, but also whether there should be a rule that would condemn the practice in question. This type of


47
case involves a time consuming, costly process. The rule of reason procedure is also very limiting for local governments because it requires that the court merely balance the pro-competitive effects with the anticompetitive effects.
It would not necessarily take into consideration the benefits to public health, safety and welfare.
The costs of antitrust litigation is further increased by the fact that motions to dismiss or motions for summary judgments are usually not allowed. That rule began in 1962, when the United States Supreme Court stated that "summary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles ... It is only when the witnesses are present and subject to cross-
examination that their credibility and weight to be given
61
their testimony can be appraised." There are prolonged discovery proceedings in an antitrust case, involving long depositions of each witness. The trial must be held in a federal court which may be a great distance from the defendant municipality. Some municipalities, which do not have access to antitrust lawyers and needed expert witnesses may be forced to settle with the plaintiffs on terms that are
unfavorable to the city and not in the best interest of the 62
citizens.
^Poller v. Columbia Broadcastinq System, 368 U.S.
464 (1962).
6 2
Cynthia Pols, Memo to Finance, Administration and Intergovernmental Relations Steering Committee Members, NLC, September 17, 1982, p. 11.


48
Antitrust violations may very likely be subject to treble damages as provided in the Clayton Act. This fact alone makes antitrust litigation a risky process for local governments. Also, the well-known fact that treble damages may be awarded is a strong incentive for private parties to challenge municipal activities. If treble damages are awarded, it will most likely present a phenomenal financial burden for the municipality. It has been argued by some experts that this remedy is not an appropriate one for local governments, since taxpayers are ultimately the bearers of the burden. "The impact of treble damages would, in effect, constitute a judicially mandated tax on citizens for private benefit with consequential catastrophic results for a
6 3
municipality's fiscal condition."
Another major concern for municipalities in case by
case litigation is that the question of whether or not an
antitrust law was violated may never be addressed, as in
the Boulder case. The Maryland Governor's Task Force on
Local Government Antitrust Liability stated:
"For years, and perhaps decades to come, the case law developed in the federal courts will do little to give Maryland local governments clear guidance as to
their rights and responsibilities."64
6 3
James Nicholson and Philip O'Neill, "Liability of Local and Other Governmental Units Under Federal Antitrust Laws," Municipal Finance Officers Association Special Bulletin May, 1980, p. 5.
64
Report of the Governor's Task Force on Local Government Antitrust Liability, State of Maryland, 1982, p. 9.


49
In addition to the complexity of antitrust litigation because of the time required for settlement or establishment of rules, it is doubtful that the litigation is helpful in advancing the fundamental policies which are the bases of the antitrust laws. It is widely felt that there are more appropriate means for ensuring that municipalities do not abuse their regulatory powers. The next two approaches to be discussed, development of an antitrust compliance program and legislation to protect municipalities are both more practical and sensible ways to deal with the problem at hand. Hopefully, if these two methods are utilized, local governments will be able to avoid exposure to antitrust suits. Without access to these other approaches, however, municipalities will have no alternative but to have their regulation powers strangled and their fiscal resources devoured as they engage in antitrust litigation.
Development of an Antitrust Compliance Program
It is a recommended and routine practice for any private corporation which operates within areas which have potential antitrust exposure to maintain a strict antitrust compliance program. This program includes guidelines as to which types of actions are allowable and which should be cleared by the legal staff before enactment. It is important that all levels of employees are aware of the areas of liability so that precautions can be taken to avoid exposure. An essential part of the compliance program is a formal procedure for documentation and retention of records.


50
Because of the increasingly apparent exposure of local governments to antitrust liability, perhaps such a compliance program should be considered indispensable by every municipality. Each municipality would require a legal audit to identify potential or existing antitrust problems for that particular locality. Therefore, it is impossible to give specific guidelines for a municipality to follow, but there are many general precautionary measures that should be incorporated into any program.
At the Pennsylvania Law Journal-Reporter's First Annual Antitrust Conference on October 26, 1981, Barry Lipson, then Chairperson of the American Bar Association's Antitrust Section, offered five "C" criteria which are necessary for an effective compliance program for a municipality. These five "C" criteria are:
"1. Convince all personnel from the top on down that compliance with the antitrust laws is mandatory and that there is no rational alternative to compliance.
2. Continuing education of all ... personnel in the basic requirements and purposes of the antitrust laws including providing them with clear guidelines for compliance and/or for when to seek experienced antitrust counsel.
3. Consultation with antitrust counsel in advance of any ... action which could raise antitrust questions.
4. Cooperation by antitrust counsel in advising clients: (a) as to the risks involved in continuing or initiating the actions or practices under review; and (b) as to possibly ... safer ways to achieve all or most of the lawful objectives of a doubtful program, practice or action.


51
"5. Conscientious and diligent supervision of the entire effort by antitrust counsel, top management, and the ... governing body, including the taking of punitive action where necessary to assure compliance in the future."65
Mr. Lipson stresses that the risks of nonaction by any entity, whether public or private, are much greater than those associated with the establishment of such a compliance program.
Following is a list of more specific guidelines which should be adhered to in order to avoid antitrust exposure in land use regulations. These guidelines are a compilation of suggestions arising from many different resources:
1. Prepare a written statement which explains and forewarns municipal officials of situations presenting a conflict of interest. This problem occurs whenever an action taken by a municipality is a result of prompting by affected business interests and is detrimental to other affected business interests.
2. Have a complete understanding of the economic significance of any action the probable effects on private business or competitors and consumers. Most importantly, be careful of any action that will affect competing businesses unequally.
3. Keep informal communications to a minimum and observe formal procedures in all decision-making. Every decision should be part of the official record.
4. When ordinances are enacted, be sure the municipal record reflects governmental reasons for actions.
5. Be sure the municipal record reflects how the local government will serve slated governmental or public interest in any action. Show the intended benefit of the public as opposed to increased revenues or limited competition.
Barry J. Lipson, "Take Steps to Insure Against Antitrust Violation," Pennsylvania Law Journal-Reporter, November 16, 1981, p. 5.


52
6. Follow fixed, written policies regarding record retention rather than leaving it to the discretion of department heads.
7. Record destruction should be nondiscriminatory and systematic; documents containing any sensitive antitrust area should never be destroyed. Destruction of such documents creates an appearance of guilt as well as constitutes an offense in some circumstances.
It seems vital that local governments take immediate steps toward developing an antitrust compliance program consisting of these minimum guidelines. Regardless of a municipality's size or attitude toward their susceptibility to antitrust liability, it is paramount that preventative measures be taken. These precautions may eliminate the negative consequences of a lawsuit, which were evident in the cases discussed in Chapter IV.
The third method being proposed to protect municipalities is legislation on both state and federal levels.
Since such legislation takes time to establish, it is even more important that local governments begin adopting compliance programs which will serve as protection in the interim.
Colorado Legislation
Soon after the Supreme Court ruled in the Boulder case that immunity to federal antitrust laws is not automatically extended to municipalities, the Colorado Municipal League, which represents 236 municipalities in Colorado, lobbied intensely for legislation that would immunize local governments in several regulatory areas. An Interim Committee


53
on Local Government was established by the State Legislature to consider recommendations regarding antitrust immunity for municipalities. After meeting over the spring and summer of 1982, the Interim Committee, on September 9, 1982, voted unanimously to recommend that the Legislature not enact a bill immunizing municipalities for antitrust liability. The issue had become entangled with the Denver cable television dispute. At one point, there was an attempt to engage in a full scale investigation into how cable television contracts are awarded. Ironically, this vote of nonsupport came in the same week that Boulder accepted an out-of-court settlement of its antitrust suit after spending $250,000 to defend itself.
New legislation, Senate Bill 211, was drafted and introduced into the Colorado House of Representatives on March 17, 1983. This bill, sponsored by Senator Tom Glass and Representative Chuck Heim is narrower in scope than the legislation of 1982. The new bill is limited to protection of local land use planning and regulation from antitrust allegations. Susan Griffiths, General Counsel to the Colorado Municipal League, and Sam Mamet, the League's Legislative Affairs Coordinator, wrote in a memo to municipal managers, clerks and attorneys regarding support of the bill
"Protection for municipalities and counties from antitrust liability and litigation is particularly important in the land use area.
The state relies on local governments to make local land use decisions for the protection of the public health, safety and welfare.


54
"Local government officials should not be restricted in making those decisions by fear of expensive antitrust lawsuits and the potential of treble damage awards against their taxpayers. The state should not object to providing antitrust protection where it has placed substantial regulatory responsibility."66
Senate Bill 211 proposes an amendment to Section One, Title 29 of the Colorado Revised Statutes 1973, by adding Article 20.5, entitled "Local Governments Exempt from Antitrust
r n
Laws for Land Use Planning or Regulation." The complete text of the proposed Article follows:
6 6
Susan Griffiths and Sam Mamet, Memo to Municipal Managers, Clerks and Attorneys Re: Action Needed Now Expressing Support for S.B. 211, Feb. 19, 1983, p. 2.
67
Senate Bill 211.


First Regular Session Fifty-fourth General Assembly
5 5
LDO NO. 83 0832/1
SENATE BILL NO.
211
STATE OF COLOFtADO
LOCAL GOVERNMENT
BY SENATOR Glass;
also REPRESENTATIVES Heim, Allison, and Bird.
A BILL FOR AN ACT
1 CONCERNING THE EXEMPTION OF LOCAL GOVERNMENTS FROM ANTITRUST
(Note: This summary applies to this bill as introduced and does not necessarily reflect any amendments which may be subsequently adopted.)
Provides that local governments shall be exempt from antitrust violations when engaged in the planning for and regulating of land use within their statutory and constitutional authority. In order to ensure state notice of such land use activities, requires local governments to file a copy of general regulatory measures with the division of local government.
3 Be H enacted by the General Assembly of the State of Colorado:
4 SECTION 1. Title 29, Colorado Revised Statutes 1973,
5 1977 Repl. Vol., as amended, is amended BY THE ADDITION OF A
6 NEW ARTICLE to read:
7 ARTICLE 20.5
8 Local Governments Exempt from
9 Antitrust Laws for Land Use
10 Planning or Regulation
2
LAWS FOR LAND USE PLANNING OR REGULATION.
Bill Summary
Capital letters indicate new material to be added to existing statute. Dashes through the words indicate deletions from existing statute.


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29-20.5-101. Legislative declaration exemption from antitrust laws for land use control. The state of Colorado has long recognized the essential role of local governments in planning and regulating development in the state. The Colorado constitution and statutes have charged and authorized local governments to plan for and regulate the use of land to protect the health, safety, and welfare of the state's citizens. To accomplish these important public purposes, the general assembly hereby determines that local governments should be exempt from liability under any antitrust law, including the provisions of article 4 of title 6, C.R.S. 1973, for their activities in planning for or regulating land use. Therefore, the general assembly hereby finds and declares that the policy of this state is to authorize local governments to displace competition with regulation in planning for or regulating land use pursuant to the powers granted to local governments in articles 65.1 and 67 of title 24, C.R.S. 1973, article 20 of this title, article 28 of title 30, C.R.S. 1973, articles 12, 15, and 23 of title 31, C.R.S. 1973, article XX of the Colorado constitution, or any other statute, or provision of the state constitution. In so doing, local governments and their officers and employees shall partake of the exemption and immunity of the state of Colorado from liability under any antitrust law.
29-20.5-102. Definition. As used in this article "local government" means any statutory or home rule county, any
211
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statutory or home rule city, town, or city and county, or any territorial charter municipality. {
29-20.5-103. Local discretion. When acting to displace competition with regulation in planning for or regulating land use as authorized by the Colorado constitution or statutes, each local government shall proceed according to the judgment of its governing body, authorized boards and commissions, or electors as to the type and degree of regulatory activity deemed to be in the best interest of its citizens.
29-20.5-104. State supervision. (1) Sufficient state supervision of local government land use planning and regulation shall be provided by the availability of judicial review, the availability of initiative and referendum, the
availability of election and recall, the authority of the
%
general assembly to enact and amend statutes, the authority of the people of Colorado to amend the Colorado constitution, and the continuing administrative structure and quasi-judicial procedures available by statute, charter, ordinance, or resolution to implement and review local government land use planning and regulatory activities.
(2) To further ensure an effective state ability to supervise local government land use planning and regulatory activities, a copy of each regulatory measure of general applicability, not including regulatory measures applicable to a specific parcel of land, enacted by a local government shall be filed with the division of local government in the
211
-3-


V '
58
1 department of local affairs not later-than thirty days after
2 the effective date of the measure or after the effective date
3 of this article, whichever is later. The provisions of
4 section 29-2-110 shall govern the timing and methods of filing
5 required by this section. Failure to file a copy of a
6 regulatory measure shall not affect the validity of the
7 measure.
8 29-20.5-105. Scope of article. The antitrust exemption
9 provided in this article shall be in addition to any local
10 government exemption or immunity from antitrust liability
11 which might otherwise exist and shall neither increase nor
12 restrict the land use planning or regulatory authority of
13 local governments. Said exemption shall not be construed -as
14 excluding or limiting any possible local government exemption
15 from antitrust liability for any other local government
16 activity or regulation.
17 SECTION 2. Safety clause. The general assembly hereby
18 finds, determines, and declares that this act is necessary
19 for the immediate preservation of the public peace, health,
20 and safety.
-4-
211


59
Upon introduction into the House of Representatives on March 17, 1983, Senate Bill 211 was assigned to the Local Government and State Affairs Committee. As of April, 1983, it had not been calendared for review. It must be evaluated by this committee before it goes before the House of Representatives for approval.
The proposed legislation for Colorado does not grant any new authority to local governments. It merely helps meet the court's standards that (1) municipal action be a clearly articulated and affirmative expression of state policy by specifically declaring the state's policy to be that local governments may displace competition with regulation in planning for or regulating land use pursuant to existing statutory and constitutional powers; and (2) municipal activities have state supervision. The bill states that Colorado has sufficient state supervision provided in the existing judicial, administrative, electoral and legislative procedures. The new bill also requires a new criteria that local land use regulations of general application must be filed with the division of local government to allow easier state review of local regulations.
Although state legislation would be a major step for
protecting municipalities against antitrust suits, it will
still provide only limited defense for Colorado localities.
This limitation is "because of the unclear and changeable
6 8
nature of the federal court decisions on this subject."
6 8
Kenneth G. Bueche, Executive Director, Colorado Municipal League, Letter to the Honorable William L. Armstrong, U.S. Senator, April 21, 1982, p. 4.


60
There is also some concern that if the state legislation is strong enough to provide adequate immunity to municipalities, it would also mean substantial loss of local powers and even the dissolution of the home rule provision. Since federal laws are an outgrowth of federal policy, it appears to be more appropriate for legislation on the federal level to address the antitrust liability issue for municipalities.
Federal Legislation
There is presently a strong movement to support legislation in the United States Congress that would amend the federal antitrust laws to immunize municipal actions from antitrust challenge and to permit local governments to bring antitrust actions against their suppliers. At the National League of Cities' Legislative Workshop on March 7, 1983, it was announced that Senator Strom Thurmond, a Republican of South Carolina and Chairperson of the Judiciary Committee of the United States Senate, has expressed support for legislation which would extend the state action exemption from antitrust laws to cities. Also,it was announced that Representative Peter Rodino, a Democrat of New Jersey, Chairperson of both the House Judiciary Committee and the Subcommittee on Monopolies and Commercial Law, is to be scheduling hearings in the near future to review the impact of antitrust exposure on cities. The National League of Cities' Board of Directors had adopted


61
a resolution in March, 1982, urging Congress to amend the
antitrust laws to treat cities equally with states in anti-
69
trust allegations.
There is wide support of federal legislation as a resolution to the problems facing municipalities. Federal legislation would not be confined to meeting the state standards of active supervision and clear articulation and affirmative expression of state policy. Federal legislation could also eliminate treble damages as remedies against local governments. As mentioned earlier, since taxpayers ultimately pay the damages, it is perhaps more appropriate to merely provide an injunction where an antitrust violation actually occurs. This would better accomplish the goals of the antitrust laws.
Federal antitrust legislation proposals are in beginning stages now. Cynthia Pols, Legislative Counsel for the National League of Cities reports that there are presently some draft bills in process, but none will be firmed
up until at least mid-May, 1983. She notes that such legis-
70
lation presents a "difficult drafting job" because of the controversial issues involved. Ms. Pols says that the context of the proposed bills are confidential at this time.
6 9
Cynthia Pols, Legislative Counsel, NLC, Memo to Finance, Administration and Intergovernmental Relations Steering Committee Members, Sept. 17, 1982, p. 11.
70
Telephone Interview with Cynthia Pols, Legislative Counsel, National League of Cities, Washington, D.C., 11 April, 1983.


62
She also stated that she has "no guarantees of how the bills
71
will be received," once introduced into Congress. Recommended Approach to Municipalities1 Antitrust Liability In order to consider the most appropriate approach to be taken to resolve the antitrust liability problem of municipalities, one must first understand the obvious distinctions between local governments and private enterprise. Local governments do not operate in order to make a profit. They are, however, charged with the responsibility of regulatory powers, including land use decisions, which are to serve the public interest by protecting public health, safety and welfare. This is a uniquely governmental function which is not performed by private parties. This regulatory power, in addition, places a local government in a posture which has greater exposure to antitrust allegations than most private entities. Furthermore, the reluctance and fear of making land use decisions because of antitrust threats is likely to be more harmful to the public interest than any refusal of private business to make business decisions. Valuable city projects related to challenged land use decisions could be delayed or stopped by a lawsuit. Certain land use decisions may be essential in the best interest of the citizens, but, may also produce anticompetitive effects. Zoning has often been singled out as a necessarily anticompetitive action. "Whenever a local government uses or
71
Ibid.


63
refuses to use its zoning power it may benefit the economic interests of some inhabitants and impinge upon the
7 2
economic interests of others." It seems only fair that, because of the inherent anticompetitive characteristics of zoning, local governments receive unique treatment when antitrust allegations are made in that area.
Another primary difference between local government and private entities is their financial base. Local governments are supported with taxpayers' dollars. It is not in the best public interest to use those tax dollars to pay for antitrust litigation, particularly if treble damages are awarded.
The most significant difference between local government and private enterprise is the existence of checks and remedies in the public sector. These remedies, which serve to prevent and correct invalid and unfair regulatory action by government officials, seem sufficient to control government regulatory powers without the burden of litigation and monetary damages. Municipalities, unlike private businesses, operate in the public subject to various public notices, hearings, meetings and record requirements. "Colorado prescribes that a comprehensive plan be developed, that a hearing be held before any land use regulation is enacted, that land-owners may petition against a proposed change and that an
72
Jonathan Rose, "Municipal Antitrust Liability After City of Lafayette, NIMLO Municipal Law Review, Vol.
42B, 1979, p. 251.


64
administrative appeals procedure reviewable in state court be followed." There is also a right to court review of municipal actions. There is general citizen review of municipal actions provided by the electoral process and rights of initiative, referendum and recall. The people of Colorado or the General Assembly may remove or modify the statutory or constitutional powers of local governments. In addition, there are many constitutional protections from local government actions, including due process, equal protection, and eminent domain.
Addressing this topic of public versus private characteristics, Justice Stewart, in his dissenting opinion in the Lafayette case, wrote:
In the exercise of their powers local government entities often take actions that might violate the antitrust laws if taken by private persons, such as ... enacting restrictive zoning ordinances ...
But a city contemplating such action in the interest of its citizens will be able to do so after today only at the risk of discovering too late that a federal court believes that insufficient statutory 'direction' existed, or that the activity is 'proprietary' in nature.
In view of the discussion of the alternatives facing municipalities which are available for antitrust protection, and the characteristics of local governments that make them distinctly unique from private businesses, it is apparent that the approaches need to be prioritized for effectiveness
73
Norman J. Slawsky, "Can Municipalities Avoid Antitrust Liability?" Urban Law Journal, Winter 1982, p.
98 S.Ct
74
City of Lafayette v. Louisiana Power and Liqht Co. 1123, 1150 (1978)


65
The least effective and most harmful approach to the antitrust problem for municipalities is case by case litigation. The negative aspects, including litigation and attorneys' fees, lengthy court proceedings, inconvenience of the location of the federal court, and most importantly, confusion and frustration created by unanswered questions and unresolved policy issues, by far outweigh the positive aspects. Municipalities, regardless of their size, need to be aware of the consequences related to potential lawsuits. If local governments do not aggressively seek ways to narrow their exposure to antitrust challenges, they will inevitably suffer a great deal of loss in time, money, and political clout as the result of antitrust litigation. These losses will be significant, and perhaps disabling, .even if the municipality successfully defends itself.
The next least favorable solution to municipal antitrust liability is state legislation. Colorado has taken an affirmative step in introducing and considering legislation which would exempt local governments from antitrust violations for actions which accompany planning and regulating the use of land. Although this bill would be helpful in clarifying the immunity of a municipality at the state level and would probably be a strong determent for unwarranted litigation, it is still highly likely that a federal court could require even higher standards of immunity. It is impossible to know what would be considered acceptable


66
state supervision or what would constitute execution of state policy if the matter reached the Supreme Court. State legislation cannot totally protect municipalities in a matter which will be finally decided in federal court.
The most effective and desirable alternative for municipalities in dealing with their exposure to antitrust liability is federal legislation that would actually amend the federal antitrust laws to protect municipalities.
Cynthia Pols, Legislative Counsel to the National League of Cities wrote:
"The primary purpose of the antitrust laws is to encourage competition in the private sector. The federal antitrust laws should be amended to exempt any municipal action which is based on an affirmative municipal policy of replacing competition with regulation or monopoly service from antitrust challenge. "75
If federal legislation successfully modifies federal antitrust laws to extend the same exemption to municipalities that states enjoy, local governments could breathe easier in their exertion of land use regulatory powers. They would still have to meet the existing requirements pertaining to governmental activities listed earlier, but as suggested before, these overviews should satisfy the needs to ensure fairness, equity, and public beneficial effects of all land use decisions.
It is extremely necessary that municipalities make their top priority the development of an antitrust compli-
75
Cynthia Pols, Memo to Finance, Administration and Intergovernmental Relations Steering Committee Members, September 17, 1982, p. 12.


67
ance program. Federal legislation is clearly the best alternative. Nevertheless, generation and adoption of federal
/
legislation is not available immediately. Therefore, a local government must examine closely its vulnerability to antitrust challenges. Creation of a formal program and strict compliance by all departments is a requisite for all local governments if they are to avoid antitrust liability.


68
Chapter V
SUMMARY AND SUGGESTIONS FOR FURTHER RESEARCH
"Although concerns had been mounting earlier because of other judicial rulings, the City of Boulder case and the wave of antitrust claims against local governments which it has spawned have made it imperative for every local government to become more fully aware of the existence of these laws, to examine its practices for potential antitrust problems,7(-and to take steps to deal with those problems."
One of the fundamental regulatory powers which munici
palities exercise is zoning as a tool for regulation of land
use. Zoning is an expression of police power, which is
granted by state legislatures. Police power provides for
the regulation of activity by private persons for the health,
safety and general welfare of the public. For many years,
although zoning was attacked on various grounds for violating
the due process clause, land use regulation by municipalities
was considered immune to antitrust liability because of the
relationship to state authorization. Municipalities were
considered arms of the state and, therefore, covered by
state action immunity, a doctrine established in Parker v 77
Brown. However, with a gradual change in U.S. Supreme
7 6
International City Management Association, Management Information Service Report, "Antitrust Exposure of Local Governments-A Guide for the Chief Executive", Vol. 14, No. 12 December, 1982, pg.l.
"^Parker v Brown, 317 U.S. 352 (1943).


69
Court case law over the past forty years, municipalities are no longer guaranteed such immunity.
There are a number of Colorado and federal antitrust statutes which were written primarily to safeguard against monopolization and restraint of trade by private enterprise. There have been continually changing interpretations of the applicability of the laws to governmental entities. Presently, municipalities are considered liable for antitrust actions, most commonly under the Sherman and Clayton Acts.
Criteria and standards for determining the immunity or liability of antitrust actions by municipalities have been, and are continuing to be, established and affirmed by the U.S. Supreme Court. In 1943, when the Parker doctrine afforded state action immunity to states, it was believed that
municipalities, as state agencies, were also exempt. The
7 8
Bates v State Bar of Arizona confirmed the state action
theory and established the criteria that a state policy
must be clearly and affirmatively expressed and that the
policy must have active state supervision to avoid antitrust
challenge. The specific issue of municipalities being
liable to antitrust allegations arose for the first time in
79
City of Lafayette v Louisiana Power and Light Co. in 1978.
7 8
Bates v State Bar of Arizona, 433 U.S. 350 (1977).
79
City of Lafayette v Louisiana Power and Light Co., 435 U.S. 389 (1978) .


70
Although varying opinions, including dissentions, were expressed, the Supreme Court ruled that municipalities do not necessarily maintain the same antitrust immunity as states. The court did point out that all anticompetitive actions by local governments are not automatically immune, only ones which are not directly and specifically authorized by the state. A fourth case, California Retail Liquor
8 0
Dealers v Midcal Aluminum, Inc.- in 1980, reiterated the criteria established in previous case law for determining municipalities' antitrust liability. The most recent U.S.
Supreme Court case addressing municipal antitrust liability,
81
Community Communication Company v City of Boulder in 1982, confirmed earlier opinions that municipalities are not exempt from antitrust statutes. Boulder took a strong stand when it held that home rule status does not adequately satisfy the requirement that a regulating policy be clearly articulated and affirmatively expressed by the state. Colorado's granting of Boulder's home rule powers was considered merely a reflection of the state's neutrality. The issues of appropriate remedies and active state supervision were not addressed in Boulder and, thus, many questions concerning the requirements and nature of municipal regulatory policies remain unanswered.
8 0
California Retail Liquor Dealers v Midcal Aluminum, Inc., 445 U.S. 97 (1980).
81
Community Communication Company v City of Boulder,
102 S. Ct. 835 (1982).


71
Although municipalities have no clear cut standards by which to evaluate their antitrust exposure, they can be assured that many routine regulatory measures may by challenged under the Sherman Act. Over the past several months, many lawsuits have been filed against municipalities across the United States for actions ranging from implementing an Urban Renewal or Growth Management Plan to enacting, or refusing to enact, an ordinary zoning ordinance. Municipalities of all types and sizes are facing crucial implications as a result of such challenges: unmanageable financial burden and reluctence or inability of officials to carry out a necessary land use decision-making process. Municipalities fear the threat of lawsuit because even if they are not in violation of an antitrust law, they will experience the expense, undesirable publicity, and time constraints which accompany antitrust litigation.
There are three approaches which evolved and are being developed in reaction to municipalities being liable to antitrust laws: case by case litigation, creation of an antitrust compliance program for the municipality and state and federal legislation. Allowing policies and standards to evolve only from case by case litigation is a very risky method for coping with antitrust liability. Not only will local governments suffer much loss in time and money, the outcomes often offer only sketchy mandates and may not address pertinent issues for various localities.


72
Since antitrust liability is a relatively new area of exposure for municipalities, proposals of how best to manage or avoid problems are still developing. It is evident that precautions need to be taken at very early levels of planning to avoid antitruat liability and particulary, litigation. Case by case litigation carries some negative results expense in time, money and political stature. In addition, litigation often ends leaving many unresolved problems, doing little to actually correct or mold policy decisions or to meet the objectives of the antitrust laws.
Precautions, as provided in a formalized antitrust compliance program, are mandatory for local governments to avoid antitrust liability. Such a program would provide knowledge and understanding of the factors involved and the entire planning process would have been scrutinized for potential antitrust problems. Even if antitrust allegations were made, a strong compliance program would require the background and information necessary to articulate and, certainly, defend the actions being challenged.
Legislative action by the Colorado General Assembly is in process and is a possibility for the future. This is a positive initial step and, yet, will not provide a blanket immunity for local governments. Legislation, if it is to be effective, must be generated at the federal level, in order to address the standards and applicability of federal antitrust laws. Such legislation is in premature stages, but


73
has been initiated. Hopefully, Congress will seriously consider amendment of federal antitrust laws to grant the same type of immunity to municipalities that states now have.
This will be necessary to ensure local governments' autonomy and powers to regulate land use without fear of antitrust challenges which carry such punitive damanges.
It is hoped that this paper will offer the reader an awareness of the antitrust liability of municipalities. Knowledge of the antitrust statutes and how they have been interpreted by the Supreme Court is essential in understanding the present dilemma for local governments. It is important that municipalities become educated about the types of allegations being made against other governing bodies and the potential consequences. Most importantly, municipalities must take affirmative action to try to cope with the pending problems and take steps to avoid antitrust challenges.
There are specific aspects of this problem and thesis which require further research for thorough understanding and clarification. A beneficial study would be a follow-up analysis of the case studies in Chapter III. This study would include the court's decisions and the inherent effects for the municipalities from the entire process. It would also be interesting to see a comparison of municipalities facing charges for similar actions and if or how the decisions and effects differ.
A second possible area of research is of the cri-


74
teria and procedures involved in formulating an antitrust compliance program for a municipality. This paper presents only general guidelines which would aid local governments in the initial process. It would be helpful to have a careful examination of all the routine regulatory decisions made by local governments to determine the likelihood of antitrust liabiltiy. Municipalities need concrete information concerning the exposure of their actions and detailed ways to avoid violation of antitrust statutes.
Furthermore, a useful study would scrutinize comprehensive plans to determine how their language and composition could best be suited to provide rationale for the procedures and regulations being enacted. This subject would perhaps be the most crucial part of a municipality's antitrust compliance
program.


75
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77
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Sherman Act," University of Pittsburgh Law Review, 44, Fall, 1982, pp. 1-72.
Wirt, Clay and Steel, Sally, "Antitrust Laws: New Problems for the Old Ways of Doing Business," Virginia Town and City, Vol. 17, No. 7, July 1982, pp. 7-15.
Witt, John W., City Attorney, San Diego, CA., "Minimizing
Litigation Risks in the Planning and Zoning Process: Playing Middle Linebacker in the Municipal Defense Team," Institute on Planning, Zoning and Eminent Domain, The Southwestern Legal Foundation, Dallas, TX, 1981, pp. 139-179.
Witt, John W., "The U.S. Supreme Court Drops a Bombshell on Cities," Western City, April 1, 1982, pp. 18-20.
ARTICLES
"After Boulder: The Risks of Antitrust Liability," Public Management, September 1982, pp. 13-14.
"Antitrust Exposure of Local Governments A Guide for the Chief Executive," Management Information Service Report, Vol. 14, No. 12, December 1982, pp. 1-10.
"Antitrust Law and Municipal Corporations: Are Municipalities Exempt from Sherman Act Coverage Under the Parker Doctrine?" Georgetown Law Journal, Vol. 65, Part 2, 1977, pp. 1547-1592.
"Antitrust Law Sought for Towns," Hagerstown Daily Mail,
March 11, 1983, p. 5.
"Background Information in Support of S.B. 211," Colorado Municipal League Bulletin.
"'Conspiring Entities' Under Section One of the Sherman Act," Harvard Law Review 95, January 1982, pp. 661-682.
"Issues Relating to Local Government Antitrust Immunity and Investment Authority," Memorandum No. 2, Legislative Council Staff to Committee on Local Government,
June 25, 1982.


79
"Municipalities and the Antitrust Laws: Home Rule Authority is Insufficient to Ensure State Action Immunity," Vanderbilt Law Review 35, May 1982, pp. 1041-1076
"Parker v. Brown Revisited: The State Action Doctrine After Goldfarb, Cantor, and Bates," 77 Columbia Law Review, 1977, pp. 898-916.
"Reconciling the Tension Between Anti-Competitive State
Regulations and the Sherman Act," American Business Law Journal 19, Winter 1982, pp. 539-556.
"Report of the Governor's Task Force on Local Government Antitrust Liability," Maryland.
"State Action and the Sherman Antitrust Act: Should the Antitrust Laws Be Given a Preemptive Effect?" Connecticut Law Review 14, Fall 1982, pp. 135-172.
"Senate OK's Land-Use, Tax, Bee Measures," Rocky Mountain News, March 12, 1983.
CASES CITED:
Bates v. State Bar of Arizona,
433 U.S. 350 (1977) .
California Liquor Dealers v. Midcal Aluminum, Inc.,
445 U.S. 97 (1980).
Chicago Board of Trade v. U.S.,
246 U.S. 23 (1918).
City of Lafayette v. Louisiana Power and Light Company, 435 U.S. 389 (1978)
Community Communications Co., Inc. v. City of Boulder, 102 S.Ct. 835 (1982) .
Hunter v. City of Pittsburgh,
207 U.S. 179 (1907).
Lowenstein v. Evans,
69 F. 908 (D.S.C. 1895).
Northern Pacific Railway Co. v. U.S.,
356 U.S. 1 (1958) .
Olsen v. Smith,
195 U.S. 332 (1904) .


Parker v. Brown,
63 S.Ct. 313 (1943).
317 U.S. 341 (1943).
Poller v. Columbia Broadcasting System, 368 U.S. 464 (1962).
OTHER AUTHORITIES:
Clayton Act,
15 U.S.C. Sec. 15 (1976 ed.).
Colorado Home Rule Amendment, Colorado Constitution, Article XX, Section 6.
Colorado Revised Statutes, 1973, as amended,
6-4-101.
Sherman Act,
15 U.S.C. Sec. 1, 1976.
United States Constitution, Amendment XI.