Antitrust Law Daily Wrap Up, ANTITRUST—EDPa: Road Maintenance Contractors Fail to State Antitrust Claims Against Competitor over Alleged Collusion with Pennsylvania Municipalities, (Apr 1, 2013)

By Tobias J. Gillett, J.D., LL.M.

Two road maintenance contractors failed to state antitrust claims against a third contractor over alleged collusion with municipalities to require products only the third contractor could provide due to its exclusive agreements with suppliers of those products, the federal district court in Philadelphia has ruled (Asphalt Paving Systems, Inc. v. Asphalt Maintenance Solutions , LLC, March 28, 2013, Rufe, C.).

The parties to the action were New Jersey contractors engaged in paving and roadway maintenance services for municipal government entities in the Lehigh County, Berks County, and Bucks County, Pennsylvania area. Pennsylvania law requires municipal entities to solicit bids for any paving or roadway maintenance contract in excess of $18.500, and to award the contract to the lowest responsive and responsible bidder. They cannot require the use of specific products when equivalent alternatives are available, and cannot show favoritism to any bidder.

Asphalt Maintenance Solutions, LLC (AMS) is the sole authorized distributor of Grip Tight, a fog seal coating for spraying on roads, in the Northeast United States, although AMS’s competitors had access to alternative products. AMS had also entered into an agreement with Silver Hill Quarry, the sole source in the region of a type of stone necessary to produce high performance chip seal (HPCS), to purchase the quarry’s entire yield for 2012. Trucking stone in from outside the area would be prohibitively expensive. AMS was also the only company employing a 22 foot spreader for applying chip seal.

In 2011 and 2012, various municipalities in the three-county region solicited bids for road maintenance projects that required the use of Grip Tight, HPCS, and/or a 22-foot spreader, frequently without permitting the substitution of alternative products. Asphalt Paving Systems, Inc. (APS) and Dosch-King Co., Inc. (DKC), two of AMS’s competitors, alleged that these solicitations limited bids on the projects, since AMS was the only contractor capable of satisfying them.

APS and DKC filed suit, asserting that AMS had violated the Sherman and Clayton Acts, among other claims. AMS moved to dismiss.

Agreements with suppliers. APS and DKC initially asserted that AMS had violated Section 1 of the Sherman Act through its exclusive agreements with the manufacturer of Grip Tight and Silver Hill Quarry. The court rejected this argument, finding that APS and DKC had not shown that AMS and its suppliers had entered into the agreements with the object of restraining trade. Moreover, both APS and DKC had access to equivalent products, meaning that, in the absence of the municipalities’ bid specifications, the agreements would not have the effect of restraining trade. Therefore, they did not violate the Sherman Act, in the court’s view.

Agreements with municipalities. The court also rejected APS’s and DKC’s contention that AMS had violated Section 1 of the Sherman Act through colluding with the municipalities to formulate bid solicitations designed to limit the number of bidders that could submit bids, concluding that the claims were barred by the Noerr-Pennington doctrine. The court explained that the Noerr-Pennington doctrine “immunizes private parties against antitrust liability based on the petitioning of government entities, even if there is an improperly anti-competitive motive or purpose behind the petition.”

Here, APS and DKC contended that the Noerr-Pennington doctrine did not immunize AMS’s conduct because the municipalities did not engage in “valid government action,” since their specification of name brand products in their solicitations and their refusal to accept alternative products violated state bidding rules. The court observed that the Third Circuit “focuses on whether the petitioning activity is valid,” not whether the government action was invalid, and that APS and DKC had not alleged improper petitioning activity. Moreover, APS and DKC did not allege that bid process was invalid for reasons other than those “directly tied to the anti-competitive conduct at issue.”

Furthermore, APS’s and DKC’s allegations that AMS misled the municipalities by informing them that the Pennsylvania Department of Transportation (PennDOT) approved the use of Grip Tight when PennDOT actually prohibited the use of all fog seal products did not change the result. The court explained that the Noerr-Pennington doctrine immunized even deliberate deceptions of public officials where the officials are not “wholly dependent upon the antitrust official for the factual information on which the decision is based.” The municipalities here were not dependent on AMS for information about PennDOT’s regulations.

Finally, the allegations were not sufficient to state a claim even if the claim was not barred by the Noerr-Pennington doctrine, in the court’s view. AMS had not prevented its competitors from petitioning the public officials themselves, nor had it “usurped the municipal decision-making process.” The municipalities controlled the decision, and could have rejected AMS’s proposed specifications.

Sherman Act Section 2 claims. The court also determined that APS and DKC had not stated Sherman Act Section 2 claims because they had not shown that AMS had a “dangerous probability of achieving monopoly power.” They had not pled facts that would “support an inference that [AMS] can obtain a significant market share of the municipal road work in Pennsylvania through unilateral action,” and any anti-competitive effects flowing from government action were immunized under the Noerr-Pennington doctrine.

Exclusive dealing contracts. Finally, the court dispensed with APS’s and DKC’s contention that AMS had violated the Clayton Act’s prohibition on exclusive dealing contracts that substantially lessen competition or tend to create a monopoly. Although AMS’s agreements gave it exclusive access to Grip Tight and locally available stone for HPCS, APS and DKC had access to equivalent products. AMS’s contracts only limited competition in conjunction with the municipalities’ specifications. Since the Noerr-Pennington doctrine immunized anti-competitive effects from municipal action, it also provided immunity against the Clayton Act claims. The court also rejected claims under 42 U.S.C. § 1983 and state law, and granted AMS’s motion to dismiss with prejudice.

The case is Civil Action No. 12-2370.

Attorneys: Colin G. Bell (Hankin Sandman & Palladino) for Asphalt Paving Systems, Inc. Steven E. Hoffman (Norris McLaughlin & Marcus, PC) for Asphalt Maintenance Solutions, LLC.

Companies: Asphalt Paving Systems, Inc.; Asphalt Maintenance Solutions, LLC; Dosch-King, Inc.

Cases: Antitrust PennsylvaniaNews