California District Court Cuts Cord On Subcontractor’s Antitrust Claims Against Cable Provider
On November 17, 2020, Judge Troy Nunley of the United States District Court for the Eastern District of California granted summary judgment for Comcast, dismissing claims brought by a cable installation subcontractor alleging that Comcast engaged in unlawful anticompetitive activity in violation of state antitrust laws. Clear Connection Corp. v. Comcast Cable Commc’ns. Mgmt., LLC, No. 2:12-cv-02910-TLN-DB (E.D. Cal. Nov. 17, 2020).
Plaintiff Clear Connection provides residential cable installation services and acted as one of defendant’s installation subcontractors in certain areas of California. Defendant Comcast is a nationwide provider of cable, internet, and phone services. Before 2009, defendant used multiple installation contractors in various service areas, in addition to its own in-house installation services. In October 2009, defendant engaged in a realignment plan whereby it reduced the number of contractors it used in California and assigned a single contractor as its “preferred vendor” for cable installation in each service area. As part of this effort, defendant entered into Preferred Vendor Agreements (“PVAs”) with plaintiff and other installation contractors in California. In 2011, after defendant experienced issues with plaintiff’s performance and notified plaintiff regarding its concerns, defendant terminated its PVA with plaintiff.
Following these events, plaintiff filed suit against defendant, alleging (among other claims): defendant’s realignment plan illegally restrained trade in violation of California’s Cartwright Act, which largely mirrors federal antitrust law under the Sherman Act; defendant facilitated and participated in a horizontal civil conspiracy; and defendant’s anticompetitive conduct also violated Cal. Bus. & Prof. Code § 17200 (California’s “Unfair Competition Law”). Defendant moved for summary judgment, arguing that it unilaterally adopted the realignment plan, which did not result in any anticompetitive restraint of trade or foreclosure to competition. Plaintiff argued in opposition that defendant’s conduct constituted a per se antitrust violation.
The Court began its analysis by addressing the Cartwright Act claim. Judge Nunley agreed with defendant that the rule of reason should apply here as law of the case, where the Court’s previous order on a motion for judgment on the pleadings had found that that was the appropriate standard and rejected a per se analysis. Further, the Court emphasized that cases involving vertical restraint require application of the rule of reason, as opposed to horizontal restraint cases where a per se analysis applies. Despite attempts to argue a horizontal restraint, plaintiff claimed facts “consistent [only] with an exclusive dealing arrangement resulting in vertical price restraint, wherein two entities at different levels of production and distribution enter into an exclusive arrangement in an effort to control the market’s price for service.” Although plaintiff argued that defendant’s use of its own in-house installers in addition to subcontractors suggested a kind of hybrid restraint involving vertical and horizontal relationships, the Court found Ninth Circuit precedent persuasive in establishing the rule of reason applied because the relationship remains primarily vertical where “a manufacturer’s relationship with its distributors [also] has a horizontal aspect when it acts as a distributor itself.” Because defendant did nothing to exert control over its contractors’ business activities or force their compliance with its realignment plan, the Court disagreed that plaintiff’s allegations involved horizontal restraint.
Addressing plaintiff’s alternative contention that the relationship between defendant and its contractors constituted a horizontal restraint due to the existence of a hub-and-spoke conspiracy, the Court ruled this argument failed because there was no evidence of any horizontal agreements between the contractors indicating that defendant had coerced coordinated action. Instead, the record suggested that despite relinquishing certain service areas and assets during the realignment, the contractors’ actions amounted to independent business decisions under unilateral vertical realignment plans with defendant. Thus, decisions “to heed similar demands made by a common, important customer” did not imply conspiracy or collusion. And although defendant requested and implemented price-cuts in payments to contractors for installation services, there was no evidence to support any price-fixing agreements that would require a per se analysis.
Applying the rule of reason to determine whether there was an unreasonable restraint on competition, Judge Nunley found that plaintiff failed to cite evidence to support “even a reasonable inference that the realignment plan was anticompetitive.” Notably, plaintiff’s price-fixing allegations failed because it could not show that the realignment plan led to the fixing of prices charged to third party cable consumers. In addition, the Court found that the PVAs were nonexclusive—and, by nature, not anticompetitive—because the contractors could still contract with any other buyer of installation services both inside and outside the contractors’ assigned service areas.
Accordingly, plaintiff’s claims of civil conspiracy and unfair competition also failed because they arose from the same conduct alleged in the Cartwright Act claim. Since there was no evidence of an underlying antitrust violation to support those derivative claims, the Court granted summary judgment and dismissed all claims against defendant.