Antitrust Law Daily Wrap Up, ANTITRUST—9th Cir.: Convention center shielded under state action doctrine from cleaning service's claims, (May 15, 2014)

By Jeffrey May, J.D.

The state action immunity doctrine shielded the operator of the San Diego convention center from the antitrust claims of a vendor of trade show cleaning services that objected to the convention center’s decision to use internal staff for cleaning, the U.S. Court of Appeals in San Francisco has ruled. Judgment in favor of convention center operator on the antitrust claims was affirmed (United National Maintenance, Inc. v. San Diego Convention Center Corp., May 14, 2014, Farris, J.).

The complaining cleaning service took issue with a convention center policy, mandating that the convention center operator would be the “exclusive provider of cleaning services staffing.” The policy also required companies that provided decorator services for the events held at the center (providers that contracted with the complaining cleaning service) to pay one half of all booth cleaning revenue that they received as well as a $17 per hour wage for the center employees that provided cleaning services. Although the complaining cleaning service continued to perform on its contracts with decorators using convention center personnel, the new requirements significantly increased the costs of performance for these contracts. As a result, the cleaning service filed suit, alleging, among other things, antitrust violations and interference with contract.

The convention center operator's decision to hire cleaning staff internally was immune from antitrust attack under the state action doctrine. The challenged conduct flowed from a clearly articulated and affirmatively expressed state policy. Moreover, because the convention center operator was an extension of the municipality of San Diego, its conduct did not have to be actively supervised for the doctrine to apply.

The California legislature authorized San Diego to create a commission that would “manage the use” of the convention center. This type of managerial authorization was more than a general grant of corporate authority that would not be shielded. It was foreseeable that an operator of the convention center might exclusively provide cleaning staff, the court explained.

Active supervision requirement. The cleaning service unsuccessfully argued that the state action doctrine's active supervision requirement applied to the convention center operator’s actions. The cleaning service contended that the operator needed to show that its conduct was actively supervised because it was not a municipality. According to the cleaning service, the convention center operator was a public, non-profit corporation that needed to be actively supervised to benefit from state action immunity.

The convention center operator was an extension of the municipality of San Diego and thus did not require active supervision, the court ruled. San Diego’s municipal code defined the city itself as including the convention center operator, the court noted. Moreover, the convention center operator's relationship with San Diego also showed that it acted as an instrument of the city.

The court also pointed out that the specific facts of the case indicated that there was no need for the evidentiary function of active supervision. For instance, there was no evidence that the convention center operator entered into a price fixing arrangement with other convention center operators.

Intentional interference with contractual relations. A new trial was warranted on the cleaning service's claim for intentional interference with contractual relationship, however. The appellate court reversed the lower court's judgment in favor of the defendant on the cleaning service's claim that the convention center operator, in implementing its new policy, interfered with contracts the cleaning service and providers of trade show decorator services. The lower court's decision to add an additional requirement to the claim—that the tort of intentional interference only applied to parties that lack any “legitimate interest . . . in the underlying contract”—was not justified.

Concurring opinion. In a concurring opinion, Circuit Judge Andrew D. Hurwitz noted that rejection of the antitrust claim could also be affirmed on the ground that the convention center operator would not have engaged in monopolization or attempted monopolization by mandating that its own employees clean its own building. The majority decision did not consider this alternative district court holding on the merits of the antitrust claim.

For purposes of the monopoly claims, the relevant geographic market for cleaning services could not be limited to a single customer—the San Diego Convention Center, according to the concurring opinion. In the broader cleaning services market for convention and meeting facilities in the San Diego area, the convention center operator had only a 43 percent share, and that was not enough to establish actual monopolization. Further, the operator did not act anticompetitively or without a legitimate business purpose by using its own employees to clean its own building for purposes of an attempted monopolization claim.

The case is No. 12-56809.

Attorneys: Leonard J. Feldman (Stoel Rives LLP) and James R. Lance (Kirby Noonan Lance & Hoge LLP) for United National Maintenance, Inc. Joseph T. Ergastolo (Wright & L’Estrange) for San Diego Convention Center Corp.

Companies: United National Maintenance, Inc.; San Diego Convention Center Corp.

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