APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. D.C. Civil No. 91-05176 and 92-02359
Before: Mansmann, Greenberg and Lewis, Circuit Judges.
This appeal involves two related cases that were consolidated for summary judgment Disposition in the district court. In the first case, Yeager's Fuel, Inc. v. Pennsylvania Power & Light Co., 21 oil dealers and persons who supply related heating equipment sued Pennsylvania Power & Light Co. ("PP&L") alleging violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2; section 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c); section 3 of the Clayton Act, 15 U.S.C. § 14; and section 1962(c) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c). In the second case, Losch Boiler Sales & Service Co. v. PP&L, a fuel oil company which supplies and installs heating equipment brought a class action lawsuit against PP&L alleging violations of sections 1 and 2 of the Sherman Act; sections 2 and 3 of the Robinson-Patman Act, 15 U.S.C. §§ 13, 13a; section 3 of the Clayton Act; and state law claims of unfair competition and civil conspiracy.
We agree with the district court that PP&L is immune from antitrust liability for offering builders and developers cash grants and other incentives, and for offering consumers a special electric rate for installation of high-efficiency electric heating systems. However, we also conclude that PP&L is not immune from antitrust liability to the extent it made these offers contingent upon "all-electric development agreements." Therefore, we will affirm the judgment of the district court except as to the plaintiffs' allegations that PP&L provided benefits to builders and developers in exchange for entry into all-electric development agreements. As to those allegations, we will reverse and remand so that the case may proceed to trial on both those claims and the Losch plaintiffs' state-law claims.
Defendant/appellee PP&L is an electric utility servicing Allentown, Pennsylvania and surrounding areas. In addition to providing the Allentown area with electricity, PP&L competes with the plaintiffs (the "Oil Dealers") and others for customers in the residential heating market in Allentown and surrounding areas. Because of the costs associated with converting from one type of home heating system to another, the most intense competition is in the new construction market. See Losch complaint ("Losch ") P 22, appendix ("app.") at 1040.
According to the Oil Dealers' complaints, PP&L began promoting the use of electric heat pumps as conservation devices for use in new homes in the late 1970s. Yeager's amended complaint ("Yeager's ") P 26, app. at 9. To encourage builders and developers to use electric heat pumps, PP&L offered them cash incentives for each new home in which an electric heat pump was installed. Yeager's PP 28-29, app. at 10; Losch P 15, app. at 1038; see app. at 1265-66, 4184-85. PP&L also provided builders and developers with other benefits by, for example, subsidizing developers' advertising efforts and paying for the installation of high-efficiency electric heat in model homes. See, e.g., app. at 4173, 4176. Although not specifically alleged in the Oil Dealers' complaints, PP&L apparently included in some of its incentive offers provisions such as the following:
Developer must agree that the entire development will consist of only electrically heated units during the term of this Agreement. Completion of a non-electrically heated unit shall void this Agreement and the System grants for future units in the development will revert to whatever applicable program, if any, is in effect at the time.
App. at 1265. See Yeager's P 29, app. at 10. See also app. at 4177, 4185. (We will refer to agreements containing clauses such as this as "all-electric development agreements.")*fn1
PP&L also offered reduced electric rates for a limited time to persons purchasing "Four-Star" homes equipped with electric heat pumps and residential off-peak thermal heating ("RTS") systems.*fn2 Yeager's P 31, app. at 11; Losch PP 18-19, app. at 1038-39. RTS systems promote load management*fn3 by heating water during off-peak hours (times during which the demand for electricity is at the lowest) and storing it for use during peak hours (times of highest demand). PP&L offered a special rate (the "RTS Rate") to homeowners purchasing homes with these units because RTS systems are more expensive than electric baseboard heating.
The Oil Dealers allege that PP&L approached builders and developers about these programs and incentives shortly after receiving requests from them to provide electricity during construction. Losch P 15, app. at 1038. Thus, the Oil Dealers contend that PP&L is using its status as the sole provider of electricity in the Allentown area to monopolize the home heating market in that area. Losch P 25, app. at 1042. As support for this allegation, they allege that more than 70 percent of new homes constructed in the Allentown area since the early 1980s use electric heat rather than oil or other heating systems. Yeager's P 32, app. at 11; Losch P 20, app. at 1039.*fn4
PP&L responded to the Oil Dealers' allegations in part by claiming that it was immune from antitrust liability for the challenged activities under the state action immunity doctrine. See Parker v. Brown, 317 U.S. 341, 87 L. Ed. 315, 63 S. Ct. 307 (1943). The district court agreed with PP&L and dismissed the Oil Dealers' antitrust claims on this basis.*fn5 The Oil Dealers appeal.
We need only address PP&L's state action immunity argument with respect to the RTS Rate and incentive programs which were not offered as part of all-electric development agreements, for PP&L has conceded both in its brief and at oral argument that it does not seek state action immunity for benefits provided to builders and developers pursuant to all-electric development agreements. See PP&L's brief at 41. Instead, PP&L asks us to affirm the district court's grant of summary judgment as to the alleged all-electric development agreements on the merits without resort to the immunity defense. We will first address the state action immunity issue and then turn to PP&L's arguments regarding the all-electric development agreements.
The district court had jurisdiction over this case pursuant to 28 U.S.C. §§ 1331, 1337 and 15 U.S.C. §§ 15, 26. We exercise jurisdiction pursuant to 28 U.S.C. § 1291. Our review of a grant of summary judgment is plenary; we evaluate the evidence using the same standard the district court was to have applied in reaching its decision. Big Apple BMW, Inc. v. BMW of North America, Inc., 974 F.2d 1358, 1362 (3d Cir. 1992). In this case in particular, we exercise plenary review in any event because the state action immunity issue is a question of law. Ticor Title Insurance Co. v. FTC, 922 F.2d 1122, 1129 (3d Cir. 1991) (Ticor I), rev'd on other grounds, 119 L. Ed. 2d 410, 112 S. Ct. 2169 (1992) Ticor II, on remand, 998 F.2d 1129 (3d Cir. 1993) (Ticor III), cert. denied, 62 U.S.L.W. 3612, 3623 (March 21, 1994).*fn6
In Parker, the Supreme Court refused to impose antitrust liability for state action because "nothing in the language of the Sherman Act or its history . . . suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature." Parker, 317 U.S. at 350-51.*fn7 Since then, state action immunity from antitrust liability -- "the doctrine that federal antitrust laws are subject to supersession by state regulatory programs" -- has evolved based upon "the principle of freedom of action for the States, adopted to foster and preserve the federal system." Ticor II, 112 S. Ct. at 2176. Nevertheless, principles of federalism do not justify a broad interpretation of state action immunity; instead, such an interpretation is disfavored. Ticor II, 112 S. Ct. at 2178.
Although Parker did not involve private conduct, subsequent caselaw has made it clear that private entities may claim state action immunity if their challenged activity was directed and supervised by the state. E.g., Ticor II, 119 L. Ed. 2d 410, 112 S. Ct. 2169; Patrick v. Burget, 486 U.S. 94, 100 L. Ed. 2d 83, 108 S. Ct. 1658 (1988); Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48, 85 L. Ed. 2d 36, 105 S. Ct. 1721 (1985). "Private party conduct is immune from antitrust liability under the state action doctrine only if the party claiming immunity shows that its conduct satisfies two requirements." Nugget Hydroelectric, L.P. v. Pacific Gas & Electric Co., 981 F.2d 429, 434 (9th Cir. 1992). See California Retail Liquor Dealers Assoc. v. Midcal Aluminum, Inc., 445 U.S. 97, 105, 63 L. Ed. 2d 233, 100 S. Ct. 937 (1980). "A state law or regulatory scheme cannot be the basis for antitrust immunity unless, first, the State has articulated a clear and affirmative policy to allow the anticompetitive conduct, and second, the State provides active supervision of anticompetitive conduct undertaken by private actors." Ticor II, 112 S. Ct. at 2175. There is a close relationship between the two requirements: "Both are directed at ensuring that particular anticompetitive mechanisms operate because of a deliberate and intended state policy." Id. at 2178.
As a preliminary matter, we must decide whether state action immunity can shield electric utilities from antitrust liability. The Oil Dealers contend that to grant PP&L state action immunity based upon Pennsylvania's statutory scheme would be inconsistent with the Public Utility Regulatory Policies Act of 1978, 16 U.S.C. § 2601 et seq. ("PURPA"). PURPA, which the Pennsylvania statutes implement, provides that nothing in it "affects . . . the applicability of the antitrust laws to any electric utility." 16 U.S.C. § 2603(1). The Oil Dealers thus argue that it is "totally inconsistent with PURPA to use the Pennsylvania legislation implementing [it] to exempt the utility's conduct from the antitrust laws." Oil Dealers' brief at 23. We disagree.
PURPA's plain language, which indicates that it is not intended to affect antitrust laws as they apply to utility companies, necessarily implies that both theories of liability and defenses apply with full force to utilities. Thus, we agree with the district court's holding that the fact that PURPA does not "affect the applicability" of the antitrust laws "cannot mean that PURPA reserves only antitrust liability but not antitrust defenses." Yeager's Fuel, Inc. v. Pennsylvania Power & Light Co., 804 F. Supp. 700, 710 (E.D. Pa. 1992). PURPA's plain statutory language "establishes ...