Amicus Curiae Brief — Lease Lights, Inc. v. Public Service Co.

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S $ No. 88-785

*

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

LEASE LIGHTS, INC., JACK R. SEAY, d/b/a

SEAY ELECTRIC COMPANY, KNIGHT LIGHTS

COMPANY, INC., and PROTECTIVE LIGHTING, INC.,

Petitioners,

V.

PUBLIC SERVICE COMPANY OF OKLAHOMA,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Tenth Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

AND BRIEF AMICUS CURIAE

IN SUPPORT OF PETITIONER

JOHN HENRY LEWIN, JR.

JEFFREY D. KNOWLES

VENABLE, BAETJER, HOWARD

& CIVILETTI

1301 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 662-4300

Attorneys for The Alliance

for Fair Competition,

Amicus Curiae

SATEEN ORATOR LRN eI iy REET LS RIT Ss

WILSON - Eres PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

No. 88-785

LEASE LIGHTS, INC., JACK R. SEAY, d/b/a

SEAY ELECTRIC COMPANY, KNIGHT LIGHTS

COMPANY, INC., and PROTECTIVE LIGHTING, INC.,

. Petitioners,

PUBLIC SERVICE COMPANY OF OKLAHOMA,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Tenth Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

The Alliance for Fair Competition (“Alliance”) re

spectfully moves for leave to file the attached brief amicus

curiae. The consent of the attorney for the petitioner

has been obtained. The consent of the attorney for the

respondent was requested but refused.

As explained more fully in the attached brief amicus

curiae, the interest of the Alliance arises primarily from

two facts. First, its members are threatened by the in-

creasingly anticompetitive conduct of public utilities mov-

ing beyond their publicly regulated activities to private,

commercial business ventures, some of which have been

endorsed by the Tenth Circuit in the instant case. Sec-

ond, the Eastern Oklahoma Chapter of the National

Electrical Contractors Association, Inc., a founding mem-

ber of the Alliance, was a party in Public Serv. Co. of

Okla. v. Oklahoma Corp. Comm’n, 688 P.2d 1274 (Okla.

1983), a case involving the same parties here in which

the Supreme Court of Oklahoma held that outdoor light-

ing was not a part of the electric utility business and

that it was a separate business beyond the jurisdiction

of the Oklahoma Corporation Commission to regulate.

In the instant case, the Court of Appeals, relying on

a strained and overreaching interpretation of the consti-

tution of the State of Oklahoma, erroneously extended

blanket antitrust immunity to the Public Service Com-

pany of Oklahoma’s (‘‘PSO”) purely voluntary participa-

tion in the private, commercial leased outdoor lighting

business. Moreover, ignoring PSO’s anticompetitive con-

duct and the manifest absence of a clear intent by the

State of Oklahoma to supplant competition with regula-

tion in the leased outdoor lighting market, the Court of

Appeals found that “there should be a defense for those

reasonably relying on the appearance of legality when a

state agency’s exercise of power is unauthorized.” Lease

Lights, Inc. v. Public Serv. Co. ef Okla., 849 F.2d 1330,

1334 (10th Cir. 1988).

Since it is likely that respondent will pursue the same

line of argument in this Court, it is believed that the

brief which amicus curiae is requesting permission to

file will contain a more complete argument on those

issues.

Respectfully submitted,

JOHN HENRY LEWIN, JR.

JEFFREY D. KNOWLES

VENABLE, BAETJER, HOWARD

& CIVILETTI

1301 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 662-4300

Attorneys for The Alliance

for Fair Competition,

December 14, 1988 Amicus Curiae

TABLE OF CONTENTS

Page

INTEREST AND CONCERN OF THE AMICUS........ 1

SUMMARY OF THE ARGUMENT ................ sadeanimaiag 4

Sg AEST Ee re CE a 5

State-Action Immunity Is Not An Affirmative De-

fense To Antitrust Liability, Where A Public Util-

ity Seeks To Protect Its Anticompetitive Conduct

Through Reliance Upon The Unauthorized And

Illegal Action Of A State Agency 0.00000 5

AE ee aT ae i)

ii

TABLE OF AUTHORITIES

Cases Page

Bates v. State Bar of Arizona, 433 U.S. 350

II thea ic adel liad ada 7,8

Cantor v. Detroit Edison Co., 428 U.S. 579 (1976)... 8-9

Consolidated Edison Co. of N.Y., Ine. v. Public

Serv. Comm'n of N.Y., 447 U.S. 530 (1980) -.-..... 3

Lease Lights, Inc. v. Public Serv. Co. of Okla.,

849 F.2d 1330 (10th Cir. 1988) .......................... 5, 6, 7,8

Llewellyn v. Crothers, 765 F.2d 769 (9th Cir.

MINIT -sicisddsaesisida sida dciecadbiectlisidiaaabaescdaliaimaaeioneiduieeaenaaens 7

Parker v. Brown, 317 US. see 7

Preferred Communications, Inc. v. City of Los

Angeles, 754 F.2d 1396 (9th Cir. 1985) -............ 7,8

Public Serv. Co. of Okla. v. Oklahoma Corp.

Comm’n, 688 P.2d 1274 (Okla. 1984) -.................. 6

Treatises

P. Areeda & H. Hovenkamp, Antitrust Law (Supp.

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

No. 88-785

LEASE LIGHTS, INC., JACK R. SEAY, d/b/a

SEAY ELECTRIC COMPANY, KNIGHT LIGHTS

COMPANY, INC., and PROTECTIVE LIGHTING, INC.,

Petitioners,

Vv.

PUBLIC SERVICE COMPANY OF OKLAHOMA,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Tenth Circuit

BRIEF AMICUS CURIAE IN SUPPORT OF PETITIONER

INTEREST AND CONCERN OF THE AMICUS

Amicus curiae The Alliance for Fair Competition (“AI-

liance”’) hereby submits this brief in support of the Peti-

tion for Writ of Certiorari to review the opinion and

judgment of the United States Court of Appeals for the

Tenth Circuit. The Alliance is an umbrella organization

comprised primarily of national trade associations. Its

members include:

2

Air Conditioning Contractors of America

American Supply Association

Carolinas Electrical Contractors Association

Eastern Illinois Chapter, NECA

Michigan Chapter, ACCA

National Association of Plumbing, Heating &

Cooling Contractors

National Association of Wholesalers-Distributors

National Electrical Contractors Association

Petroleum Marketers Association of America

Sheet Metal Contractors of Iowa, Inc.

Sheet Metal & Air Conditioning Contractors

National Association

SMACNA Metropolitan Detroit Chapter

The Alliance and its members have made themselves

available to work cooperatively with small businesses and

other interested parties in an effort to eliminate tinfair

and anticompetitive practices by public utility companies.

A significant proportion of the membership of the asso-

ciations comprising the Alliance are small, independent

businesses.

In recent years, utilities throughout the United States

have entered into a host of different businesses outside

their publicly regulated activities as producers and dis-

tributors of gas and electricity. For example, utilities

now sell appliances, plumbing, heating and cooling equip-

ment, storm doors and windows, offer service contracts,

make home improvements, market and service solar and

other conservation devices, perform energy audits and

provide a variety of other products and services. These

products and services have traditionally been provided

primarily by small businesses, many of which are mem-

bers of the trade associations comprising the Alliance.

‘In July 1988, the Alliance published and began distributing to

its members and the public a fifty-page handbook entitled “Con-

fronting Unfair Utility Competition: A Blueprint for Action at the

State Level.”

3

Small, independent companies are simply unable to

compete against their larger, better-financed utility com-

petitors, particularly if some or all of the utilities’ costs

are cross-subsidized by the ratepayers. The basic advan-

tages enjoyed by utilities as protected monopolies enable

them to offer reduced prices for services and products by

using their regulated rate-base (funded by individual

ratepayers) to subsidize unregulated activities. Cross-

subsidization occurs when direct or joint costs of the un-

regulated activity are misallocated to a utility’s regu-

lated business. See Consolidated Edison Co. of N.Y., Ine.

v. Public Serv. Comm’n of N.Y., 447 U.S. 530, 549-555

(1980) (Blackmun, J., dissenting).

Due to the protected monopoly status of public utili-

ties, few small businesses can match the enormous, com-

petitive advantages which utilities bring to any private,

commercial business venture. The United States Small

Business Administration, in two separate studies, has de-

tailed the impact of new utility business ventures on com-

petition in the private sector, the elements of utility sub-

sidization of these unregulated activities, and the subtle,

but powerful, advantages that public utilities enjoy over

their small business competitors.”

The Alliance and its members are vitally interested in

the Tenth Circuit’s immunization of the Public Service

Company of Oklahoma from antitrust liability for its

purely voluntary, private business activities. The Alli-

ance is also deeply concerned about the uniform and or-

derly application of the antitrust laws to discriminatory

and anticompetitive conduct by public utilities, and urges

reversal of the Tenth Circuit’s decision.

2“Utility Competition with Small Business: Recommendations for

States on Utility Energy-Related Programs in the Commercial and

Apartment Conservation Service Program” (1984); and “Final Re-

port: Utility Competition with Small Business” (1986).

ee eerer”_”—-—————

4

SUMMARY OF THE ARGUMENT

The Alliance for Fair Competition supports and en-

dorses the arguments set forth in the Petition for Cer-

tiorari, and submits this brief amicus curiae to enhance

and supplement those arguments.

The opinion and judgment of the Tenth Circuit expand

the scope of state-action antitrust immunity. The Court

of Appeals’ holding subordinates the significant federal

interest in vigorous private antitrust enforcement to a

public utility’s interest in engaging in a private, non-

utility related business. The Tenth Circuit has allowed a

private entity to shield its anticompetitive conduct by in-

voking the affirmative defense of state-action immunity,

where that immunity is based upon the illegal actions of

a state public service commission. According to the Tenth

Cireuit, a defense should be recognized extending state-

action immunity to the private, commercial activities of

public utility companies where they reasonably rely upon

state action, even if that action is not authorized by state

law. Despite this Court’s frequent pronouncements on

state-action immunity, such a defense has never been

recognized.

For all of these reasons, elaborated upon in this brief,

this Court should grant the Writ of Certiorari, reverse

the Tenth Circuit and reinstate the judgment of the dis-

trict court.

5

ARGUMENT

State-Action Immunity Is Not An Affirmative Defense To

Antitrust Liability, Where A Public Utility Seeks To Pro-

tect Its Anticompetitive Conduct Through Reliance Upon

The Unauthorized And Illegal Action Of A State Agency.

The Court of Appeal’s opinion subordinates the fed-

era] interest in enforcing the antitrust laws to a public

utility’s interest in pursuing a purely private, commercial

business that has been protected by the Oklahoma Cor-

poration Commission (“the Commission”). Over many

years the Commission’s protection, in the form of

sporadic orders and tacit approvals of tariffs which ex-

ceeded its jurisdiction, allowed the Public Service Com-

pany of Oklahoma (“PSO”) to engage in a host of anti-

competitive acts including refusals to deal, territorial ex-

clusions, price manipulation and predatory pricing tactics.

The relevant market is outdoor lighting equipment—

poles, lamps, etc.—leased to commercial and industrial

customers (primarily for nighttime security purposes) in

the City of Tulsa, Oklahoma. From 1969 to 1983, PSO’s

market share swelled from 24% to nearly 65%, while

the plaintiffs’ shares declined from nearly 24% to 13%,

froin 13% to 5%, from 23% to 6% and from 9% to 8%

over the same period. See Petitioner’s Appendix, at E-2.

Two competitors went out of business entirely. The Com-

mission’s protection of PSO’s pricing and other activities

created a deteriorating competitive market for a service

not offered to the public generally but to only a few com-

mercial and industrial customers.

The starting-point for the Tenth Circuit’s faulty analy-

sis is its finding that “. . . we believe there exists a

clearly articulated state policy to regulate the market for

leased outdoor lights.” Lease Lights, Inc. v. Public Serv.

Co. of Okla., 849 F.2d 1330, 1333 (10th Cir. 1988). This

is based upon the word “light”, in that portion of Okla-

6

homa’s constitution which confers power upon the Com-

mission to regulate public service corporations (not pub-

lic utilities) where they are defined as “all gas, electric,

heat, /ight and power companies .. .” Jd. (quoting Okla.

Const. Art. IX § 34) (emphasis added by the Court of

Appeals!. While it may be true that state law does not

have to “explicitly authorize the challenged conduct,” it

must at least indicate a clear intent to supplant regula-

tion for competition there. Lease Lights, Inc., 849 F.2d

at 1333. There is simply no adequate support for the

Court of Appeals’ finding that the State of Oklahoma

had clezrly preferred regulation over competition in the

market for leased outdoor lighting, simply because the

Commission is given broad statutory authority to regu-

late the public business of a public utility.

The Commission allowed PSO to include within its

general rate-base its investment in the outdoor lighting

program despite the fact that the program served only a

small proportion of the public and constituted a separate

business venture not used by the ratepayers as a whole.

It should have seemed obvious to the Commission that in

seeking its approval of submitted tariffs, PSO was entic-

ing the Commission to regulate conduct beyond its juris-

diction.

It was not until October 1984, however, when the ob-

vious was finally spelled out. In the case of Public Serv.

Co. of Okla. v. Oklahoma Corp. Comm'n, 688 P.2d 1274

‘Okla. 1984), the Supreme Court of Oklahoma held that

it was improper for the Commission to allow PSO to in-

clude the investment in the private business venture of

leasing outdoor lighting to commercial customers within

the general rate-base because it would force ali rate-

payers to subsidize a service used by only a few. This

Was analogous to the selling of appliances by a public

utility. In short, the Commission had no justification to

regulate this aspect of PSO’s business, since it was pri-

vate and not public.

7

Implicit in the decision of the Oklahoma Supreme

Court is the clear and unmistakable message that the

State of Oklahoma does not have, and never did have,

any interest in regulation of the leased outdoor lighting

market.

Despite the Oklahoma Supreme Court’s decision, the

Tenth Circuit found that PSO was still required to “com-

ply with the rates mandated by the Commission before

1984.” Lease Lights, Inc., 849 F.2d 1330, 1334. As a

result, the Court of Appeals held that PSO’s reliance on

the Commission’s actions, whether those actions were law-

ful or not, was sufficient to confer state-action antitrust

immunity upon the utility. The Tenth Circuit ruled that

this immunity shielded PSO because the illegality of the

“attempted state regulation is not an appropriate basis

for disregarding state action immunity.” Jd. The Court

of Appeals cited Llewellyn v. Crothers, 765 F.2d 769

(9th Cir. 1985) in support of its holding. The situation

presented by the instant case, however, is not analogous

to the one confronting the Llewellyn court. This is not

an instance where the Commission has committed some

procedural irregularity in the adoption of a state regula-

tion. The Commission’s orders and its tacit approvals

of tariffs were not merely “ordinary errors or abuses,”

and, as a result, PSO could not reasonably have relied upon

their obvious illegality. Jd. at 774 (citations omitted).

The Court of Appeals’ reliance upon the Llewellyn

court’s assertion that “even the constitutional invalidity

of the attempted state regulation is not an appropriate

basis for disregarding the immunity conferred by

Parker(v. Brown, 317 U.S. 341 (1943)],” is misplaced.

765 F.2d at 774. In Llewellyn, as in the instant case,

the respective courts of appeals mistakenly extended

Parker immunity by allowing private, regulated entities

to retain immunity in the face of illegal state regulation.

In Preferred Communications, Inc. v. City of Los An-

geles, 754 F.2d 1396 (9th Cir. 1985), and Bates v. State

Bar of Arizona, 433 U.S. 350 (1977), the cases relied

8

upon by the Llewellyn court, the issue was whether or

not state-action immunity should be afforded to govern-

mental authorities, not private, regulated business con-

cerns. Preferred Communications and Bates extended

immunity to the sovereign acts of state governments,

their political subdivisions, or their regulatory agencies.

See Preferred Communications, 754 F.2d at 1415 (ex-

tending immunity to the actions of the City of Los

Angeles) ; and Bates, 350 U.S. at 361 (“Here appellants’

claims are against the State.’’).

Moreover, the Tenth Circuit found “there should be a

defense for those reasonably relying on the appearance

of legality when a state agency’s exercise of power is

unauthorized.” Lease Lights, Inc., 849 F.2d at 1334

(citing P. Areeda & H. Hovenkamp, Antitrust Law,

212.4b, at 1382 (Supp. 1987) (hereinafter “Areeda &

Hovenkamp”). However, where PSO, a private business

entity operating as a public utility, relies upon an action

of a state agency, state-action immunity remains intact

only where the agency action reasonably appears “to be

lawful both in relation to the antitrust laws ... and in

relation to the scope of the agency’s authority under

state law.” Areeda & Hovenkamp, { 212.4b, at 132-33.

Even assuming the viability of a “reliance upon state

action” defense for private entities, PSO’s reliance upon

the actions of the Commission was unreasonable. Clearly

the regulation of leased outdoor lighting by the Commis-

sion, where that regulation extended only to those en-

tities also engaged in the provision of electric power,

does not reasonably appear to be a lawful method of

regulation either under the antitrust laws or in relation

to the scope of authority delegated to the Commission

under state law.

It is well settled that when a state decides to regulate

an area of economic activity, its intention must be to sup-

plant competition with regulation in order to preclude

the application of the federal antitrust laws. See Cantor

9

v. Detroit Edison Co., 428 U.S. 579, 595-96 (1976). The

Commission, however, did not move to regulate the entire

leased outdoor lighting market; rather it only extended

its ordinary regulation of utilities to their non-public

business activities. If public utilities, such as PSO, are

permitted to avail themselves of state-action antitrust

immunity merely by seeking state agency ratification of

their non-public business activities, the antitrust laws

will be eviscerated.

CONCLUSION

The Tenth Circuit has extended the reach of state-

action antitrust immunity under Parker and its progeny

by allowing a private, regulated entity to immunize itself

by seeking ratification of its monopolistic behavior. If

the Tenth Circuit’s holding is permitted to stand, all

private business undertakings of otherwise state-

regulated public utilities will receive antitrust immunity

regardless of the manner in which they are conducted,

so long as a state agency has taken some action related to

those practices. Immunity will attach even where the

state agency has exceeded its authority under state law.

For the reasons expressed herein, this Court should

grant the Petition for Writ of Certiorari, reverse the

decision of the Court of Appeals and reinstate the judg-

ment of the district court.

Respectfully submitted,

JOHN HENRY LEWIN, JR.

JEFFREY D. KNOWLES

VENABLE, BAETJER, HOWARD

& CIVILETTI

1301 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 662-4300

Attorneys for The Alliance

for Fair Competition,

December 14, 1988 Amicus Curiae