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MONARCH ENTERTAINMENT BUR., INC. v. NEW JERSEY HWY

June 26, 1989

MONARCH ENTERTAINMENT BUREAU, INC., Plaintiff,
v.
NEW JERSEY HIGHWAY AUTHORITY and various John Does, Defendants



The opinion of the court was delivered by: DEBEVOISE

 DICKINSON R. DEBEVOISE, UNITED STATES DISTRICT JUDGE

 This is an antitrust action brought by an area entertainment promoter against the New Jersey Highway Authority and certain other presumably unknown defendants for violations of Section 1 of the Sherman Act, 15 U.S.C. sec. 1 and unspecified provisions of the Clayton Act, 15 U.S.C. sec. 12 et seq. The complaint alleges that the Authority managed its concert and cultural facility, the Garden States Art Center, in an anticompetitive fashion and conspired with competitors of the plaintiff to deny it access to this venue and to quash its plans to create an alternative open-air concert facility in the same relevant market. This matter comes before the court on a motion by the Authority to dismiss plaintiff's complaint for failure to state a claim upon which relief can be granted, or, in the alternative, for summary judgment based on the Authority's asserted immunity from federal antitrust provisions under the state-action doctrine.

 Background

 The New Jersey Highway Authority (the Authority or Highway Authority) was created in 1952 to "acquire, construct, maintain and operate" certain designated limited access express highways authorized by the legislature. N.J.S.A. sections 27:12B-5(e); 27:12B-3(d) (West Supp. 1988). The Authority is established as a "body corporate and politic, with corporate succession." N.J.S.A. sec. 27:12B-4 (West Supp. 1988). Its enabling legislation also declares that it is "constituted [as] an instrumentality exercising public and essential governmental functions, and the exercise by the authority of the powers conferred by this act in the construction, operation and maintenance of projects shall be deemed and held to be an essential governmental function of the State." Id. Among its powers, the Authority may sue and be sued in its own name, hold property, exercise the power of eminent domain, enter into contracts, float bonds, collect tolls and establish and enforce rules and regulations governing its highway projects. N.J.S.A. sec. 27:12B-5 (West Supp. 1988).

 The Authority is comprised of seven commissioners appointed by the governor with the advice and consent of the senate. N.J.S.A. sec. 27:12B-4 (West Supp. 1988). The commissioners may be removed by the governor for cause. Id. The governor receives copies of the minutes of the Authority's meetings and "no action taken by the Authority shall have force or effect until ten days . . . after such copy of the minutes shall have been delivered or the approval thereof by the Governor prior thereto." Id. If the governor returns a copy of the minutes vetoing any action (except certain actions pertaining to collective bargaining agreements) within ten days, "such action shall be null and of no effect." Id.

 The Authority owns and operates the Garden State Parkway (the Parkway), one of the two major North-South arteries in the state. The Authority also owns and operates the Garden State Arts Center (the Arts Center or the Center) located on the grounds of Telegraph Hill Park alongside the Parkway in Holmdel. The Center is a roofed, open-air amphitheater which can accommodate an audience of over 10,000 in covered seating and on the adjoining lawn. The center offers concerts and other entertainment featuring a variety of popular and cultural artists for a paid admission fee in the late spring, summer, and early fall. The Authority's 1987 annual report indicates that a total audience of 419,207 ticketholders attended 65 "professional" evening performances with an average attendance of 6,314 per performance. The operations of the Center grossed over nine million dollars in 1987; of that sum ticket sales accounted for $ 8,314,184.

 For the last five years, the Authority has retained the services of Ron Delsener and his company, Ardee Festivals, Inc. (Ardee), to book performances at the Center. In 1986, the Authority and Ardee entered into an agreement continuing this relationship through the 1990 season. This agreement provides that Ardee is to be compensated through the payment of a flat management fee, an incentive fee based on average paid attendance and, potentially, a percentage of any revenues gained from corporate sponsorship.

 The Present Action

 Plaintiff Monarch Entertainment Bureau, Inc. (Monarch) is a New Jersey corporation which describes itself as "involved in the scheduling and promotion of musical entertainment, comedic presentations, sporting events, and various other forms of entertainment," presumably in competition with Ardee. Its rather rambling complaint sets forth a number of allegations against the Authority.

 At the outset, I note that the complaint never clearly defines the relevant product or service market (it suggests the "entertainment industry," but this is simply too broad) or the relevant geographic market involved. The complaint does allege that the Arts Center is a unique facility ("No facility with like characteristics and capacity is located within any reasonable radius of the [Arts Center]," para. 28). Because the Center is unique, Monarch alleges that it is "essential" that it have access to the facility if it is to compete in the New Jersey entertainment booking business; without the ability to book the Center, "entertainers who draw large crowds will be forced to terminate their relationship with a given promoter in favor of a promoter who has access to the facility in question in order that they can get 'booked' there." Para. 31.

 Scattered throughout the complaint are a number of factual allegations which, although they are presented as if they were related to one claim, appear as if they might actually constitute separate counts. Monarch argues (1) that the Authority's exclusive agreements with a single promoter have prevented competition and constitute a per se antitrust violation (paras. 20-25), (2) that the Authority conspired with the John Doe defendants (presumably Ardee) to "restrain Plaintiff from producing shows [at the Center]" by entering the exclusive management agreements (para. 30) and (3) that the Authority conspired (with whom it is not specifically alleged) "to prohibit and influence governmental leaders and elected officials to stop Plaintiff" from gaining approval to build an alternative open-air amphitheater on the grounds of Liberty State Park in the City of Jersey City (paras. 42-46). Monarch also sets out an independent state-law claim that the Authority's method of awarding the exclusive management agreement with Ardee violated the New Jersey Open Public Meetings Act, N.J.S.A. sections 10:4-6 through 10:4-21, also known as the state "Sunshine Law."

 The Authority seeks dismissal or summary judgment solely on the grounds of state action antitrust immunity and so, for purposes of the present motion only, I will put aside what appear to be pleading deficiencies in Monarch's complaint and the very real question of whether Monarch has alleged a cognizable antitrust claim, even accepting its allegations as true.

 The State-Action Doctrine

 Almost fifty years ago, in the landmark case of Parker v. Brown, 317 U.S. 341, 87 L. Ed. 315, 63 S. Ct. 307 (1942), the Supreme Court ruled that the Sherman Act was "not intended to restrain state action or official action directed by a state." Id. at 251. At issue in that case was whether California's Agricultural Prorate Act, which restricted competition among raisin growers and maintained prices in the raisin distribution market, violated the Sherman Act. The Court's conclusion was grounded in principles of federalism and the absence of any clear indication in the Act's legislative history that it was meant to apply to the states.

 
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 directed by its legislature. In a dual system of government in which, under the Constitution, the states are sovereign, save only as Congress may subtract from their authority, an unexpressed purpose to nullify a state's control over it officers and agents is not lightly to be attributed to Congress.

 Id. at 351. The Court also concluded that "there is no suggestion of a purpose to restrain state action in the Act's legislative history." Id. Further, although the state act required that the regulatory programs be approved by raisin producers, the Court found that "it is the state, acting through the Commission, which adopts the program and which enforces it with penal sanctions, in the execution of a governmental policy." Id. at 352. The state "in adopting and enforcing the prorate program made no contract or agreement and entered into no conspiracy in restraint of trade or to establish monopoly but, as sovereign, imposed the restraint as an act of government which the Sherman Act did not undertake to prohibit." Id. (citations omitted).

 Since the time of Parker, the Court has had a variety of occasions to consider the application of the state action doctrine to municipalities and private parties acting under state authorization. In Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 55 L. Ed. 2d 364, 98 S. Ct. 1123 (1978), a group of cities which owned and operated electric utility systems brought an antitrust claim against Louisiana Power & Light (LP&L). LP&L counterclaimed against the cities arguing that the city of Plaquemine's policy of contracting to provide gas and water service outside of its city limits only on condition that the customers buy electricity from the city constituted an illegal tying arrangement.

 The Court rejected the cities' argument that they were entitled to unqualified antitrust immunity under the Parker doctrine.

 
Cities are not themselves sovereign; they do not receive all the federal deference of the States that create them . . . . Parker's limitation of the exemption to 'official action directed by a state' . . . is consistent with the fact that the State's subdivisions generally have not been treated as equivalents of the States themselves. In light of the serious economic dislocation which could result if cities were free to place their own parochial interests above the Nation's economic goals reflected in the antitrust laws . . . we are especially unwilling to presume that Congress intended to exclude anticompetitive municipal action from their reach.

 Id. at 412-13 (citations omitted). The Lafayette Court suggested, without deciding, that precedent indicated that municipalities must demonstrate that the "state policy requiring the anticompetitive restraint [on the part of the municipality] as part of a comprehensive regulatory scheme" must be, first, "clearly articulated and affirmatively expressed as state policy" and, second, "actively supervised" by the state. Id. at 410. The Supreme Court applied this test in California Liquor Dealers Ass'n v. Midcal Alum., Inc., 445 U.S. 97, 63 L. Ed. 2d 233, 100 S. Ct. 937 (1980), a case involving a challenge to private parties who established price restraints pursuant to a state-devised regulatory regime.

 Although the relevant state agencies were not parties to the case, the Supreme Court applied the Lafayette test to agency action in determining whether private anticompetitive action was protected by the Parker doctrine in Southern Motor Carriers Rate Conf. v. United States, 471 U.S. 48, 62-63, 85 L. Ed. 2d 36, 105 S. Ct. 1721 (1985). *fn1"

 Two cases subsequent to Lafayette both modify and elucidate the "articulated state policy" prong of the state action doctrine. In Community Communications Co. v. Boulder, 455 U.S. 40, 70 L. Ed. 2d 810, 102 S. Ct. 835 (1982) a private company, Community Communications Co. (CCC), had provided cable television services to one specific Boulder, Colorado neighborhood which was unable to receive normal television transmissions for geographic reasons. These cable services were limited, and consisted primarily of the transmission of television programming broadcast by regional commercial television stations. With the explosion of enhanced cable television services, however, CCC prepared to expand its services. The opportunities presented also attracted competitors who petitioned the City Council to enter the market.

 In response to these petitions, the Boulder City Council declared a three-month moratorium on cable service expansion to permit it to draft a model ordinance and to halt CCC's expansion which it believed would discourage competition. CCC filed suit in federal district court, seeking a preliminary injunction, and arguing that the moratorium scheme was a violation of Section 1 of the Sherman Act. Boulder asserted the state action doctrine as a defense. It argued that the clear articulation standard of Lafayette was fulfilled by the Colorado Home Rule Amendment which vested in the state's municipalities very power theretofore possessed by the legislature . . . in local and municipal affairs." Id. at 52. Boulder argued that the state "'comprehended within the powers granted'" to Boulder the power to enact the cable moratorium and that the state thereby "'contemplated'" Boulder's enactment of a regulatory program. Id. at 55.

 The Supreme Court rejected such an expansive reading of the Amendment. "The requirement of 'clear articulation and affirmative expression' is not satisfied when the State's position is one of mere neutrality respecting the municipal actions challenged as anticompetitive." Id. at 55 (emphasis in original).

 
A State that allows its municipalities to do as they please can hardly be said to have 'contemplated' the specific anticompetitive actions for which municipal liability is sought. Nor can those actions be truly described as 'comprehended within the powers granted,' since the term, 'granted,' necessarily implies an affirmative addressing of the subject by the State. The State did not do so here: The relationship of the State of Colorado to Boulder's moratorium ordinance is one of precise neutrality. . . . Acceptance of such a proposition -- that the general grant of power to enact ordinances necessarily implies state authorization to enact specific anticompetitive ordinances -- would wholly eviscerate the concepts of 'clear articulation and affirmative expression' that our precedents require.

 Id. at 55-56 (emphasis in original).

 The clear articulation standard was revisited three years later in Hallie v. Eau Claire, 471 U.S. 34, 85 L. Ed. 2d 24, 105 S. Ct. 1713 (1985). In Hallie, a number of unincorporated Wisconsin townships filed suit against the adjacent City of Eau Claire, alleging that its policies, like those challenged in Lafayette, constituted an illegal tying arrangement under the Sherman Act. Eau Claire had the only sewage treatment center in the relevant market and refused to provide access to this facility unless the outlying townships agreed through a referendum election to annexation by the city and agreed to use the city's sewage collection and transportation services. Id. at 37.

 Eau Claire asserted immunity under the state action doctrine. It claimed that the clear articulation standard was satisfied by Wisconsin law which permitted cities to construct, add to, alter and repair sewage systems. Id. at 41. This authority included the power to "'describe with reasonable particularity the district to be [served]'" and provided that the municipal utility shall have no obligation to serve beyond the area so delineated.'" Id. The State Department of Natural Resources was empowered to require a city's sewage system to provide for hookups to other municipalities and areas upon condition that any unincorporated area agree to annexation by the city, although it had not so required in the case before the court. Id.

 The Court ruled that this provision clearly satisfied the clear articulation requirement because they made anticompetitive restraints "foreseeable."

 
. . . the statutes clearly contemplate that a city may engage in anticompetitive conduct. Such conduct is a foreseeable result of empowering the City to refuse to serve unannexed areas. It is not necessary, as the Towns contend, for the state legislature to have stated explicitly that it expected that the City to engage in conduct that would have anticompetitive effects. Applying the analysis of Lafayette it is sufficient that the statutes authorized the City to provide sewage services and also to determine the areas to be served. We think it is clear that anticompetitive effects logically would result from this broad authority to regulate. See New Motor Vehicle Bo. v. Orrin W. Fox Co., 439 U.S. 96, 109, 58 L. ...

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