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SECURITY FIRE DOOR COMPANY, a corporation, Plaintiff-Appellant, v. COUNTY OF LOS ANGELES et al., Defendants-Appellees

United States Court of Appeals for the Ninth Circuit1973-09-07No. No. 71-2654
484 F.2d 1028

Summary

Holding. The judgment is affirmed. A purchaser's selection of one supplier's product based on specifications does not state a claim for antitrust conspiracy under the Sherman Act or California's Cartwright Act when the selection was made in an atmosphere of free competition among suppliers, even if the selection precluded competitive bidding or violated a competitive bid statute.

Security Fire Door Company sued Los Angeles County and others, alleging they conspired to write hospital construction specifications in a way that excluded all competitors except Guilbert, Inc., for dumbwaiter systems. Security claimed this violated federal and California antitrust laws and sought treble damages. The county and its representatives moved to dismiss on jurisdictional and pleading grounds.

The court held that the complaint failed to allege an antitrust conspiracy. A purchaser's decision to select one supplier's product does not constitute an illegal restraint of trade merely because the choice was made before a bidding process or based on product features rather than price. The court reasoned that purchasers are free to choose products they prefer without becoming antitrust conspirators, so long as their choice was made in an atmosphere where suppliers could freely compete to influence that choice. The complaint alleged no facts suggesting the county's preference for Guilbert resulted from anticompetitive factors like coercion or agreements between suppliers to avoid competing.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

  • Whether a purchaser and supplier can conspire to restrain trade under antitrust law
  • Whether specifications favoring one product constitute a restraint of trade when competitors could influence the specifications through free competition
  • Relationship between violations of competitive bid statutes and antitrust violations

Procedural posture

Security Fire Door Company appealed the district court's dismissal of its antitrust complaint for lack of subject-matter jurisdiction and failure to state a claim.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion

majority opinion

MERRILL, Circuit Judge:

Security Fire Door Company (“Security”) has brought this private antitrust action alleging a conspiracy among the defendants-appellees to prepare specifications for a county hospital construction project in such a manner as to exclude all competition upon the dumbwaiter system to be installed as a part of the project, with the result that defendant-appellee Guilbert, Inc., was the only supplier qualified to bid. Security asserts that this conduct violates § 1 of the Sherman Act, 15 U.S.C. § 1, and California’s Cartwright Act, Cal.Bus. & Prof.Code § 16720. It seeks treble damages. Upon motion of defendants-appellees, the action was dismissed for lack of subject-matter jurisdiction, Fed. R.Civ.P. 12(b)(1), and failure to state a claim upon which relief could be granted, Fed.R.Civ.P. 12(b)(6). This appeal followed.

Defendants-appellees, other than the County and Guilbert, were architects and representatives of the County who prepared plans and specifications for the hospital project. The complaint alleges that defendants-appellees conspired to, and did in fact, prepare dumbwaiter specifications as follows:

“General-Automatic Loading Specifications:

The Dumbwaiter Contractor shall provide the dumbwaiter with a Guilbert Cargomaster System, or a system by Security, Peele or Lamson, of a design which has been in successful use for at least three years and arranged for automatic handling of cars, including the following materials and services: (Guilbert Cargomaster System No’s and Specifications used to establish quality, operations, size and function).”

It is alleged that the specifications were “intentionally and deliberately drawn and interpreted by said defendants in such a manner so as: to exclude from public competition on said project all manufacturers and producers of dumbwaiters, save and except defendant, GUILBERT, INC.; to discriminate against all manufacturers and producers of dumbwaiter systems, save and except defendant, GUILBERT, INC.; to create a facade of free competition among manufacturers when, in fact, there was none. * * *”

The question presented is whether this complaint alleges a conspiracy in restraint of trade in violation of § 1 of the Sherman Act and the California Cartwright Act. We hold that it does not and accordingly affirm.

The alleged conspiracy here was between the supplier of a product and the purchaser (and its representatives). It is difficult to conceive how such a “conspiracy” can effect a restraint of trade in the antitrust sense.

Once a purchaser’s choice of product has been exercised competition is, of course, at an end. However, a purchaser is free to choose the product he desires without rendering himself an antitrust conspirator. The proscription against restraint of trade in this context seeks only to assure that the choice of product has been made freely under circumstances where the play of competition has been available rather than in response to anticompetitive factors such as coercion on the part of the supplier or agreements between suppliers not to compete with each other. If anticompetitive factors have foreclosed a free choice by the purchaser, he is not thereby converted into a conspirator. He is, instead, a victim.

Here the choice of product by the purchaser, Los Angeles County, was expressed in the specifications. There is nothing alleged in the complaint to suggest that this choice was made other than in an atmosphere of free competition among suppliers. So far as the complaint alleges, each supplier was perfectly free to tout the virtues of his particular dumbwaiter system in an effort to secure favorable specifications. It would appear that the architects simply favored the Guilbert system. In doing so they and their principals can hardly be charged with an antitrust conspiracy.

Security’s complaint appears to be that under California’s competitive bid statute the choice should not have been made at that time, and it should not have been based upon the characteristics and features specified as desirable; rather the choice should have awaited the outcome of the bidding procedure, and it should have been based upon factors of cost.

The competitive bid statute may well serve to limit the freedom of public purchasers to make specific choices on the basis of preference rather than cost. However, a violation of the letter or spirit of a competitive bid statute, unaccompanied by anticompetitive factors bearing upon the exercise of choice of product, does not create an antitrust problem. Even a direct contract for the Guilbert system, without any pretense of putting the job out to bid (and thus a clear violation of the competitive bid statute), would not in itself have constituted a restraint of trade under the Sherman Act if the selection of Guilbert had been made in an atmosphere free from anticompetitive restraints.

Judgment affirmed.

. The Cartwright Act was patterned after the Sherman Act. All parties agree that if a Sherman Act violation is alleged in this complaint, a Cartwright Act violation is also and that the reverse is true. Accord, Wid-dows v. Koch, 263 Cal.App.2d 288, 69 Cal. Rptr. 464 (4th Dist. 1968).

. The District Court did not reach this question. It held that since the alleged restraint of trade was pursuant to governmental action, recovery was precluded by Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 D.Ed. 315 (1943), where government action by a state was exempted from application of the Sherman Act. Appellees support the judgment of the District Court upon that ground and also upon the ground that Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961), and United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965), provide exemption from application of the antitrust laws in cases involving efforts to secure favorable policy decisions through influencing public officials. In response, appellants contend that these exemptions do not apply under the circumstances of this case, relying on George R. Whitten, Jr., Inc. v. Paddock Tool Builders, Inc., 424 F.2d 25 (1st Cir.), cert, denied, 400 U.S. 850, 91 S.Ct. 54, 27 L.Ed.2d 88 (1970), where it was held that the Parker v. Brown and Noerr/Pennington exemptions do not apply in cases involving commercial dealings with government; that those engaged in such dealings should be subject to the same antitrust limitations as apply in dealings with private consumers. The court there reversed summary judgment for defendants and remanded for a determination of whether an antitrust violation had occurred.

Since we hold that no antitrust violation is alleged, we need not reach the question of exemption. We assume, arguendo, that Whitten correctly holds that the exemptions do not apply in a case such as this.

. Whitten (supra note 2) is quite a different case involving a different sort of conspiracy ■ — one between the supplier and its dealers and representatives to eliminate competition and thus to achieve a favorable exercise of choice by the purchaser not based on the free play of competition. A violation of § 2 of the Sherman Act as well as § 1 was alleged. In remanding to the District Court to ascertain whether a violation of the Sherman Act had occurred, the court noted that “Paddock’s conduct may on inspection prove to be the muscle flexing of a budding monopolist or it may prove to be no more than a vigorous selling effort. * * * ” 424 F.2d at 34.