On Appeal from the United States District Court for the Western District of Pennsylvania, District Court No. 83-653.
Mansmann, Greenberg and Scirica, Circuit Judges
Thomas Englert, doing business as Northeast Electrical Inspection Agency, brought this action against the City of McKeesport, Pennsylvania, and the Middle Department Inspection Agency (MDIA), a private contractor, under sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 & 2, and under the Pennsylvania Constitution as a pendent claim. The district court granted summary judgment on the Sherman Act claims and dismissed the pendent Pennsylvania constitutional claim with prejudice by an opinion and order of November 3, 1988.
Inasmuch as we conclude that Englert did not and cannot prove concerted action between the defendants, an essential element of his Sherman Act claims, we will affirm the granting of the summary judgment. We will, however, vacate the judgment to the extent it dismissed the pendent state constitutional claim with prejudice and we will remand the matter for entry of an order dismissing that claim without prejudice.
Notwithstanding the extended length of this litigation, the facts, insofar as material to this appeal, are neither complicated nor in dispute. MDIA has for some time been engaged in the business of providing electrical inspections in McKeesport and elsewhere. McKeesport requires such inspections on much of the electrical work within the city and unless it has the inspection results will not issue an occupancy permit where one is required.
Englert was an electrical inspector employed by MDIA until August 27, 1981, when he was fired.*fn1 See Englert v. City of McKeesport, 698 F. Supp. 99, 100 (W.D. Pa. 1988). In September, 1981, Englert founded Northeast Electrical Inspection Agency and began to compete with MDIA for business in Western Pennsylvania. When Englert went into business, persons needing electrical inspections were free to select an electrical inspector of their choice in McKeesport. Englert was initially successful in McKeesport as he received fees of $2,539 there during his first eight months of business while MDIA received fees of $3,714 in McKeesport over the same period. See id.
Shortly after Englert went into business, McKeesport contemplated making MDIA its exclusive inspector. Accordingly, Robert Jaworski, the city electrician, met with Theodore E. Javorsky, the MDIA inspector assigned to the geographic area encompassing McKeesport, and told him of McKeesport's plans and asked for an explanation of how MDIA functioned. Javorsky testified that this was the only exchange he had with McKeesport officials concerning MDIA becoming McKeesport's exclusive inspector. Javorsky testified, however, that Jaworski contacted him and asked him to attend a meeting of the city council on May 5, 1982, at which the council would consider making MDIA the city's exclusive inspector and he did so. He further testified that he sat with Jaworski at the meeting but was asked no questions.
At the meeting, the city council enacted a resolution*fn2 designating MDIA as the only entity authorized to perform electrical inspections in the city. The district court found, and it is undisputed, that thereafter McKeesport would not issue an occupancy permit unless MDIA had performed the electrical inspection. See Englert, 698 F. Supp. at 100. The resolution stated:
WHEREAS, the City of McKeesport, under its broad police powers may designate an individual or firm as its electrical inspector to ensure that all electrical work performed in the City of McKeesport is done pursuant to federal, state and local regulations; and
NOW, THEREFORE, BE IT RESOLVED, by the City of McKeesport, in Council Assembled . . . That the proper City Officials be and are hereby authorized and directed to enter into an agreement with Middle Department Inspection Agency to provide for all electrical inspections for all electrical work done within the City of McKeesport.
McKeesport asserts that it enacted the resolution "in an effort to tighten up its enforcement of its building codes," Englert, 698 F. Supp. at 100, selecting MDIA because it "was uniquely well-qualified and reliable, and because MDIA's record keeping was efficient and beneficial to the City." Id.
Englert argues that McKeesport's selection of MDIA failed to include any procedural safeguards. Specifically, he argues in his brief:
At no time prior to the passage of the May 5, 1982 resolution did McKeesport consider any other entities for inspection work, nor did McKeesport publicly advertise the intent to enact the May 5, 1982 resolution or otherwise publicly notify competitor companies about the availability of the exclusive right to perform electrical inspection work in McKeesport.
Englert set forth in his complaint that pursuant to this resolution "the City . . . did, in fact, enter into an agreement with [MDIA], the essential terms of which are that [MDIA] is granted the exclusive right to perform all electrical inspections on electrical work done within the City of McKeesport" The district court found that the resolution significantly impaired Englert's business in McKeesport but that he was still free to perform some inspections. "If a project required a City Occupancy Permit, the Contractor could not employ plaintiff's firm because the City would only issue the permit upon receipt of an MDIA report. Therefore, plaintiff could only perform inspections on jobs that did not require Occupancy Permits, precluding plaintiff from a large segment of the work available in McKeesport." Englert, 698 F. Supp. at 100. Consequently, Englert had only $1,981 of business in McKeesport from May of 1982, through November, 1986, while MDIA collected $40,147 in fees for inspections in McKeesport over the same period.*fn3
After complaining unsuccessfully to McKeesport about the May 5, 1982, resolution, Englert brought this action on March 18, 1983, in a six count complaint. Count I stated an action for unlawful restraint of trade under section 1 of the Sherman Act. Count II set forth that the exclusive arrangement violated section 2 of the Sherman Act. Count III alleged that MDIA had been engaged in various activities including misrepresentation for a period of several years with the specific intent to obtain a monopoly in western Pennsylvania in violation of section 2 of the Sherman Act. Count IV stated a cause of action for state law unfair competition, commercial disparagement and slander per se. Count V asserted that the alleged agreement between MDIA and McKeesport violated the Fourteenth Amendment protections of due process, privileges and immunities, and equal protection. Count VI asserted that the alleged exclusive agreement violated provisions of the Pennsylvania Constitution.
McKeesport and MDIA filed motions to dismiss for lack of subject matter jurisdiction and for failure to state a claim upon which relief could be granted under Fed. R. Civ. P. 12(b)(1) and 12(b)(6). Each motion included several grounds for relief and both asserted that the complaint insufficiently alleged a nexus with interstate commerce as required for an action under the Sherman Act. In response, Englert filed an amended complaint containing specific allegations with regard to ...