Seventh Circuit Extinguishes Antitrust Conspiracy Claims About Local Fire Alarm Laws
On July 15, 2019, the Seventh Circuit Court of Appeals dismissed claims alleging an antitrust conspiracy between a local municipality, an intergovernmental cooperation association and a private provider of commercial fire-alarm services. Alarm Detection Sys., Inc. v. Vill. of Schaumburg, No. 18-3316, 2019 WL 3071744 (7th Cir. July 15, 2019). The Court held that plaintiffs failed to plausibly plead the existence of an underlying agreement between defendants as required to plead an antitrust conspiracy claim.
The action challenged a local ordinance passed by the Village of Schaumburg (the “Village”). The ordinance regulates fire alarm transmission signals for commercial buildings. Specifically, it requires that all fire alarm and fire systems “transmit fire, supervisory, and trouble signals to the Village of Schaumburg’s designated remote supervising station,” of which there is only one—the Northwest Central Dispatch System (“NWCDS”), an “intergovernmental cooperation.” The NWCDS, in turn, is a party to a ten-year, renewable, exclusive agreement with Tyco, a private fire-alarm services company. In effect, the ordinance requires all commercial buildings to exclusively use Tyco equipment and services to comply with local fire regulations.
Plaintiffs, a group of fire-alarm service providers for commercial buildings, collectively provide alarms and monitoring for multiple buildings (“accounts”) in the Village. Prior to the passage of the ordinance, plaintiffs transmitted all fire signals from their accounts to their own independently-operated central-supervising stations, which would then either address the signal or route it to an emergency dispatch center. Though plaintiffs have the technology to route directly to NWCDS, the exclusivity agreement effectively prohibits the use of this technology.
Plaintiffs alleged that the ordinance excludes them from conducting business in the Village by forcing their customers to terminate or not renew existing contracts, to deal exclusively with Tyco, and to pay Tyco’s higher service costs. Plaintiffs alleged Sherman Act Section 1 and Section 2 claims, and constitutional claims including violations of the contracts, equal protection and due process clauses.
As to the antitrust claims, the Seventh Circuit examined plaintiffs’ complaint for plausible allegations of an “agreement” in restraint of trade. The Court found this element lacking. Plaintiffs alleged that the Village knew that its ordinance would result in a local monopoly and that all defendants benefitted from the ordinance from increased local business, increased fees from the providers and payments from the NWCDS.
The Court held, however, that knowledge of monetary benefits does not plausibly suggest that defendants formed an agreement. While all three defendants may have benefitted from the ordinance, that did not mean they formed an agreement to pass the ordinance. Further, the Court found that the Village, with its independent legislative and taxation power, could independently pass the ordinance without any supporting action. The Court also found that the only allegation of willful, anticompetitive conduct—as required under Section 2—was this alleged conspiracy. Without sufficient allegations of an agreement, plaintiffs could not show any willful, anticompetitive conduct.
Having found that plaintiffs failed to allege the first element—an agreement—the Court dismissed plaintiffs’ Section 1 claims. And having found no “willful, anticompetitive conduct,” the Court also summarily dismissed plaintiffs’ Section 2 claims. The Court also dismissed plaintiffs’ constitutional claims under the equal protection and due process clauses against all defendants and the contract clause claims against the NWCDS and Tyco. However, it found that plaintiffs sufficiently pled a plausible contract clause claim against the Village, and remanded to the district court for proceedings on that claim.