Petition for Writ of Certiorari — Petrochem Insulation, Inc. v. United Ass'n of Journeymen & Apprentices of the Plumbing & Pipefitting Industry

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IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1993

PETROCHEM INSULATION, INC.,

Petitioner,

NORTHERN CALIFORNIA AND NORTHERN NEVADA

PIPE TRADES COUNCIL, DISTRICT COUNCIL 51 OF THE

UNITED ASSOCIATION OF JOURNEYMEN AND

APPRENTICES OF THE PLUMBING AND PIPEFITTING

INDUSTRY OF THE UNITED STATES AND CANADA,

AFL-CIO; UNITED ASSOCIATION OF TOURNEYMEN AND

APPRENTICES OF THE PLUMBING AND PIPEFITTING

INDUSTRY OF THE UNITED STATES AND CANADA,

AFL-CIO; LOCAL UNIONS 62, 159, 228, 24t, 342, 343, 350,

365, 393, 437, 444, 447, 460, 467, 471, 483, 492, 503, AND

662; THOMAS R. ADAMS; THOMAS R. ADAMS, P.C.;

ADAMS & BROADWELL, P.C.; and THOMAS J. HUNTER,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MARK R. THIERMAN

(Counsel of Record)

THIERMAN LAW PARTNERSHIP

535 Pacific Avenue, 4th Floor

San Francisco, California 94108

(415) 391-9200

December 15, 1993 Counsel for Petitioner.

Wasington OC «¢ THIEL PRESS + (202) 328 3286

;

QUESTIONS PRESENTED

1. Does Plaintiff state sufficient facts to allege a violation of

sections 1 and 2 of the Sherman Act, 15 U.S.C. Sec. 1, 2, by

way of “sham petitioning” under this Court's recent decision of

Professional Real Estate Investors, Inc. v. Columbia Pictures,

Inc., __ U.S. __, 113 S. Ct. 1920 (1993), when Plaintiff alleges

the dates and details of a scheme by union groups to obtain

agreements between owners of projects (who are not engaged in

the construction industry and have no collective bargaining

relationship with the union group), the union groups and union

signatory contractors by which those owners agree to cease

doing business (refuse to deal) with non-union contractors as a

quid pro quo for the union groups not bringing or not pursuing

permit or other environmental objections which are not

meritorious otherwise?

2. Is an allegation of unlawful combination between four

union contractors and the vast majority of the entire market set

of owners to substantially reduce the number of competitors in a

nine member market, the consideration for which anticompetitive

agreement is a promise by unions to forbear from sham

petitioning of environmental and building permit agencies,

sufficient to allege an injury to competition under Section One of

the Sherman Antitrust Act, and, if not, does such an allegation of

an anticompetitive agreement supported by consideration of

forbearing from sham petitioning have such an unmistakable

anticompetitive impact without redeeming social value sufficient

to allege a per se violation of Section One of the Sherman Act

under the Noerr-Pennington doctrine?

QUESTIONS PRESENTED - Continued

3. Should the rule of pleading announced by the United

States Court of Appeals for the Ninth Circuit in Loux v. Rhay,

375 F.2d 55 (9th Cir. 1967), which holds that a party who

amends its complaint, whether or not voluntarily, is prohibited

from appealing the dismissal of claims raised in the original

complaint which are not included in the amended complaint,

even when the party is told under threat of sanction not to

include its prior theory in the amended complaint, be reversed

because it is inconsistent with the principles of the Federal Rules

of Civil Procedure and the law of every other federal circuit

court that has addressed the issue?

4. Does the very object of environmental and permit

petitioning, which is an unlawful agreement between non-

construction industry owners and union signatory contractors to

cease doing business with non-union contractors, a result that

cannot possibly be achieved in that permit or environmental

forum and which agreement violates Section 8(e) of the National

Labor Relations Act, 29 U.S.C. Sec. 158(e), coupled with heavy

advertising to warn others that the petitioning will continue

regardless of the merits of the underlying dispute, state a cause

of action for sham petitioning under the Noerr-Pennington

doctrine per se, and if not, what facts in addition to those already

specified in the Petitioner’s Second Amended Complaint

(Appendix E, infra) must be pleaded to state such a claim

sufficient to survive a motion to dismiss under Federal Rule of

Civil Procedure 12 (b)(6)?

ili

LIST OF PARTIES

The parties to the proceeding below and before this

Court are:

1) Petrochem Insulation, Inc.;

2) Northern California and Northern Nevada Pipe Trades

Council, District Council 51 of the United Association of

Journeymen and Apprentices of the Plumbing and

Pipefitting Industry of the United States and Canada,

AFL-CIO;

3) United Association of Journeymen and Apprentices of

the Plumbing and Pipefitting Industry of the United

States and Canada, AFL-CIO;

4) Local Unions 62, 159, 228, 246, 342, 343, 350, 365,

393, 437, 444, 447, 460, 467, 471, 483, 492, 503, and

662;

5) Thomas R. Adams;

6) Thomas R. Adams, P.C.;

7) Adams & Broadwell, P.C.;

Thomas J. Hunter

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED..................... i

LISTOFPARTIES ...................0.0005- ii

TABLE OF AUTHORITIES.................... vii

OPINIONSBELOW................ eee ee

JURISDICTION ee ee ee 2

STATUTESINVOLVED........... Se 3

STATEMENT OF THECASE oe 3

REASONS FOR GRANTING THE WRIT... 7

I. | THE PETITION FOR WRIT OF CERTIORARI

SHOULD BE GRANTED BECAUSE THIS COURT

SHOULD SPECIFY THE REQUIREMENTS FOR

PLEADING INJURY TO COMPETITION AFTER THE

CASE OF SUMMIT HEALTH V. PINHAS, _ U.S. _, 111

ee Pe ewe 9

IL. THE NINTH CIRCUIT'S RULE THAT SHAM

LITIGATION CANNOT BE EVIDENCE OF

ANTICOMPETITIVE INTENT NECESSARY TO

ALLEGE A VIOLATION OF SECTION ONE OF THE

SHERMAN ACT IS ERROR BECAUSE NO CLEAR

STANDARD EXISTS FOR PLEADING SHAM

ei | re fat 14

TABLE OF CONTENTS - Continued

A. The Scheme Of Union Groups Of Filing

Environmental Objections In The Permit Process In Order

To Obtain [legal Hot Cargo Agreements Is Not The Type

Of Petitioning That Warrants Protection Under The Noerr-

Pennington Doctrine Because The Agreement Between

Owners Not Engaged In The Construction Industry And

Union Contractors And Unions To Cease Doing Business

With Non-Union Contractors Is Unlawful Under The

National Labor Relations Act And This Court’s Doctrine Of

Connell Construction Co. v. Plumbers Local 100, 421 U.S.

CRs onc ss oe bo ev heen eee 17

B. Requiring An Increased Level Of Specificity In

Pleading Injury to Competition in A Section One Antitrust

Claim Is Contrary To Prior Decisions Of This Court And

The Principles Of The Federal Rules Of Civil Procedure, Or,

In The Alternative, Petitioner Has Met Every Reasonable

Standard Of Pleading Under Federal Rule Of Civil

Procedure 8. ....... iio Sk a | 22

Ml. THE COURT SHOULD GRANT THE WRIT OF

CERTIORARI BECAUSE THE RULE OF LOUX V. RHAY

IS INCONSISTENT WITH THE PRINCIPLES OF

PLEADING UNDER THE FEDERAL RULES OF CIVIL

PROCEDURE AND IS IN DIRECT CONFLICT WITH

THE RULES OF OTHER CIRCUIT COURTS. ... 26

ek er nr ee ieee ee 30

TABLE OF CONTENTS - Continued

APPENDIX

A - Petrochem Insulation, Inc. v. United

Association of Journeyman and Apprentices

of the Plumbing and Pipefitting Industry, AFL-CIO,

et al., D.C. No. CV-90-03628-EFL (9th Cir. 1993) la

B - Petrochem Insulation, Inc. v. United

Association of Journeyman and Apprentices

of the Plumbing and Pipefitting Industry, AFL-C1O,

etal., F.Supp. _, 1992 US. Dist. LEXIS 4564,

139 L.R.R.M. 2956 (N_D. Cal. 1992) __.. 9a

C - Order, United States Court of Appeals for

Ninth Circuit, November 19, 1993... .... 36a

D - Order, United States Court of Appeals for the

Ninth Circuit, August 6, 1993 ......... Sa 38a

E - Plaintiff's Second Amended Complaint, filed

ee ree rt er eae _ 40a

F - “A Presentation Of the Northern California Northern

Nevada Pipe Trades” videotape transcript... . . 77a

G - “Participation In The Permit Process” by Tom Hunter

and Ray Forman ................0:.. a 119a

H - “California Pipe Trades Protecting The Environment”

by Chris Bedford, Labor Research Review, Fall 1988 142a

TABLE OF AUTHORITIES

Cases Page

Aetna Life Insurance Co. v. Phillips,

69 F.2d 910 (10th Cir. 1934). ... 27, 29

American Tobacco Co. v. United States,

328 U.S. 781 (1946). . . 10

Associated General Contractors of California v.

California State Council of Carpenters,

459 U.S. $19 (1983). 13

Atlantic Cleaners & Dryers, Inc. v. United States,

286 U.S. 427 (1932) 22

Bastian v. Petres Resources Corp.,

892 F.2d 680 (7th Cir. 1990) 28

Bodine Produce, Inc. v. United Farm

Workers Organizing Committee,

494 F 2d 541 (9th Cir. 1974) 25

Carleton v. Vermont Dairy Herd Improvement Ass'n, Inc.,

782 F.Supp. 926 (D. Vt. 1991) 10, 13

Columbia v. Omni Outdoor Advertising,

499 US. 365 (1991) , 15

Conley v. Gibson,

344 U.S. 41 (1957) .. | 25, 26

Connell Construction Co. v. Plumbers Local 100,

421 U.S. 616(1975)...... : 8, 16, 17

Datagate Inc. v. Hewlett Packard Co.,

941 F.2d 864 (9th Cir. 1991), cert. denied, US. __

112 S. Ct. 1667 (1992) .

Davis v. TXO Production Corp.,

929 F.2d 1515 (10th Cir. 1991) (en banc)

Eastern R. Presidents Conference v.

Noerr Motor Freigat, Inc.,

365 U.S. 127 (1961)

vill

TABLE OF AUTHORITIES - Continued

Page

Eastman Kodak Company v. Image Technical

Services, Inc. et al.,

__ US. _, 112 S. Ct. 2072 (1992)..... ) 23

El Cajon Cinemas, Inc. v. American

Multi-Cinema, Inc. et al.,

1993 WL 406744 (S_D. Cal. 1993). __.. | 13

Grubbs v. Smith,

86 F.2d 275 (6th Cir. 1936), cert. denied,

300 U.S. 658 (1937)..........000..... ver 27

Gulf Oil Corp. v. Copp Paving Co.,

419 U.S. 186 (1974).................. eae 22

Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc.,

mm 627 F.2d 919 (9th Cir. 1980)... 23

Klor's Inc. v. Broadway-Hale Stores, Inc.,

350 U.S. 207(1959).................. 13

The Kroger Company

163 N.L.R.B. No. 59(1965)........ 16

Leggett v. Montgomery Ward & Co.,

178 F.2d 436 (10th Cir. 1949)... .... 29

Les Shockley Racing, Inc. v. National Hot Rod Ass'n,

884 F.2d 504 (9th Cir. 1989).............. oo 1]

Longs Drug Stores, Inc.,

PERE OOO oc Oe. 16

Loux v. Rhay,

375 F.2d 55, 57 (9th Cir. 1967)... ... were te

Lujan v. Defenders of Wildlife,

we) Oe ee re 20

Mandeville Island Farms, Inc. et al. v. American

Crystal Sugar Co.,

334 US. 219 (1948) aaa bie eee ate 22

Maple Flooring Mfrs Ass'n v. United States,

268 U.S. 563 (1925)................... xe 23

TABLE OF AUTHORITIES - Continued

Page

Mid-West Piping Inc.,

op ke Be |) ar rae 8, 19

Oliz v. St. Peter’s Community Hosp.,

861 F.2d 1440 (9th Cir. 1988).............. | 11

Petrochem Insulation, Inc. v. United Association

of Journeyman and Apprentices of the Plumbing

and Pipefitting Industry, AFL-CIO, et ai.,

D.C. No. CV-90-03628-EFL (9th Cir. 1993) . 11, 21, 24

Pinhas v. Summit Health, Ltd.,

894 F.2d 1024 (9th Cir. 1989), aff'd, US _,

Gi aes RS, | ra rare . 4163

Portland Retail Druggists Ass'n v. Kaiser

Foundation Health Plan,

662 F.2d 641 (9th Cir. 1981)................... 25

Professional Real Estate Investors v. Columbia Pictures,

a Sa ee SOU EIeee)........ -.... passim

Radovich v. National Football League,

ne are a 25, 26

Rutman Wine Co. v. E & J Gallo Winery,

829 F.2d 729 (9th Cir. 1987)............. er 11, 24

Summit Health, Ltd. v. Pinhas,

__US._,111S. Ct. 1842 (1991)........ passim

United States v. United States Gypsum Co.,

Ee ic sts hha sere | 9

Varner v. Local 91, Glass Bottle Blowers Association,

674 F.2d 1365 (11th Cir. 1982)............. 28

Walker Distributing Co. v. Lucky Lager Brewing Co.,

ee ae BOE, FED ov ec sig ees 9 23

Wilson v. First Houston Investment Corp.,

556 F.2d 1235 (Sth Cir. 1978),

vacated on other grounds,

444 U.S. 959(1979)... ree Var ahy, 27, 28

TABLE OF AUTHORITIES - Continued

Page

Wolke and Romero Framing, Inc. v. N.L.R.B.,

465 U.S. 645 (1962) ............ ee ot 16

Statutes:

National Labor Relations Act, as amended,

Section 8 (e), 29 U.S.C. Sec. 158 (e)............ 15, 16

Federal Rules of Civil Procedure, as amended:

— SNe re ert ie eee ra 22

8(a)(2) ...... oe Cree 23, 24, 25

Bae seen: ee, Sao aes 25

Be ep ee SG Re Nae: SPE 14, 26

ee). Np Ree | 14, 25

Sherman Antitrust Act, as amended,

Ep Gh as I vr eae ee | -2 2... passim

Publications:

Comment: The Antitrust Liability of Labor Unions for Anti-

Competitive Litigation, 80 Cal. L. Rev. 757 (May, 1992), by

Daralyn J. Durie and Mark A. Lemley............ 17, 18

Patrick Hardin, The Developing Labor Law, 1992... 8

Wright & Miller, Federal Practice and Procedure,

CS a a ee 7 27-28

In The

Supreme Court of the United States

October Term, 1993

No.

Petrochem Insulation, inc.,

Petitioner,

Northern California and Northern Nevada Pipe Trades

Council, District Council 51 of the United Association of

Journeymen and Apprentices of the Plumbing and Pipefitting

Industry of the United States and Canada, AFL-CIO; United

Association of Journeymen and Apprentices of the Plumbing and

Pipefitting Industry of the United States and Canada, AFL-CIO:

Local Unions 62, 159, 228, 246, 342, 343, 350, 365, 393, 437,

444, 447, 460, 467, 471, 483, 492, 503, and 662; Thomas R.

Adams; Thomas R. Adams, P.C.; Adams & Broadwell, P.C., and

Thomas J. Hunter,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Petrochem Insulation, Inc. respectfully prays that a Writ

of Certiorari issue to review the Opinion of United States Court

of Appeals for the Ninth Circuited entered in this proceeding on

September 24, 1993.

OPINIONS BELOW

The unpublished Opinion and Judgment of the United

States Court of Appeals for the Ninth Circuit (Appendix A,

infra), filed September 24, 1993, is recorded at D.C. No. CV-90-

03628 (9th Cir., Sept. 24, 1993). The opinion of the United

States District Court for the Northern Distnct of California

(Appendix B, infra) filed March 19, 1992, is recorded at _

F Supp __, 1992 US. Dist. LEXIS 4564, 139 LRR.M. 2956

(N.D. Cal. 1992).

JURISDICTION

The Judgment and Opinion of the three judge panel of the

United States Court of Appeals for the Ninth Circuit was entered

on September 24, 1993. A timely Motion for Reconsideration En

Banc was filed by Petitioner on October 8, 1993 pursuant to

Federal Rule of Appellate Procedure 35 (b). The Court of

Appeals for the Ninth Circuit issued an Order on November 19,

1993, denying Petitioner’s Motion for Reconsideration. The

jurisdiction of this Court is invoked under 28 U.S.C. Sec. 1254

(1). This Petition is timely filed with this Court under 28 U.S.C

Sec. 2101 (c) and Supreme Court Rule 13 (1).

————— <<

STATUTES INVOLVED

The relevant statutory provisions are:

A. National Labor Relations Act, as amended, Section 8 (e),

29 U.S.C. Section 158 (e).

B. Federal Rules of Civil Procedure 8, 8 (a)(2), 8 (f), 9 and

12 (b)(6).

be Sherman Antitrust Act, 15 U.S.C. Sections | and 2

STATEMENT OF THE CASE

Petrochem Insulation, Inc., is a California Corporation

with its principal place of business in Vallejo, California

Petrochem is a mechanical insulation contractor specializing in

power plant and industrial construction. It is not a signatory to

any collective bargaining agreements. Nor has Petrochem

recognized any labor organization as the majority representative

of its employees.

Respondents Northern California and North Nevada Pipe

Trades Council, District Council 51 of the United Association of

Journeymen and Apprentices of the Plumbing and Pipefitting

Industry of the United States and Canada, AFL-CIO, is a labor

organization with its headquarters in Burlingame, California

District council 51 is an unincorporated association whose

members include the Locals.

Respondents Locals 62, 159, 228, 246, 342, 343, 350,

365, 393, 437, 444, 447, 460, 467, 471, 483, 492, and 503 are all

labor organizations with headquarters throughout Northern

California as described in Petrochem Insulation’s Seconded

Amended Complaint (Appendix E, infra), paragraphs 10-28

Respondent Tom Adams is an individual residing in or

near San Mateo, California. Mr. Adams is the President and sole

shareholder of Thomas R. Adams, P.C. and an officer of Adams

& Broadwell.

Respondent Thomas R. Adams, P.C. is a California

professional law corporation with its principal place of business at

Adams & Broadwell, P.C., in San Mateo, California. Thomas R.

Adams, P.C. is a shareholder in Adams & Broadwell.

Respondent Adams & Broadwell is a California

professional law corporation with its principal place of business in

San Mateo, California.

Respondent Tom Hunter is an individual residing in

Belmont, California. Mr. Hunter is the business manager of

District Council 51.

This case results from the appeal from the grant of a

motion to dismiss the Petitioner’s second amended complaint

under Federal Rule of Civil Procedure 12 (b)(6) for failure to

state a claim in a detailed forty page complaint." The complaint

alleged sham petitioning by Respondent unions in combination

with Petitioner’s competitors to force owners and developers, not

engaged in the construction industry, to enter into agreements to

cease doing business with all non-signatory contractors like

Petitioner, or face environmental objections and administrative

intervention designed to delay and undertaken solely to interfere

with free competition, always without the expectation that this

petitioning would result in any environmental improvements.

This scheme of “environmental extortion” is the Respondents’

| The complaint, attached as Appendix E to this Petition, consists of 112

paragraphs, is forty pages long, and incorporates by reference three exhibits to the

complaint. Exhibit | to the Complaint was the complete transcript of the fifty minute

video in which defendants boast of their successes of continued sham petitioning.

(Appendix F, infra). Exhibit 2 was an article entitled “Participation in the Permit

Process,” wherein the Respondents announced their intentions to use the promise to

withdraw or not file permit objections as the means to coerce “hot cargo” contracts.

(Appendix G, infra). Exhibit 3 to the Complaint was a union publication entitled

“California Pipe Trades Protecting The Environment,” which contained party

admissions as well as an overview of the entire scheme of coercing union-only

agreements by threatening to file permit objections, all the while purportedly in a

effort to protect the environment. (Appendix H, infra).

attempt to increase their economic power in an increasingly

competitive market and by Respondents’ own admission,

eliminate these non-signatory competitors from the market, a plan

which Respondents claim has been very successful in capturing

most of the energy related projects within the Northern California

geographic market.

In the mid-1980s, the insulation contractors with whom

the Respondents had collective bargaining agreements were

losing work to lower priced, non-signatory competitors, like the

Petitioner. In or about 1987, the Respondents developed a plan

for destroying nonunion competition by using and threatening to

use the environmental objection process to coerce union only

agreements from large project developers. (Appendix E,

Complaint, paragraphs 35-74.) Respondents’ scheme, referred to

by Respondents as the “Tom Adams Program,” was to target

project owners and developers who required various permits to

begin or continue their construction projects and to threaten

delay by permit objections unless the developers agreed to use

only union signatory contractors (Petitioner's competitors who

constitute approximately half the firms in the market.)

As a result of the “Tom Adams Program” and similar

activity by the Respondents, Petitioner suffered damages and

competition in the market was injured by the loss of

approximately half the competing firms.

In response to these damages, Petitioner filed a detailed

complaint in the United States District Court for the Northern

District of California under the Racketeering and Corrupt

Organizations Act [18 U.S.C. Secs. 1961 et seq.], and the Hobbs

Act [18 U.S.C. Secs. 1951 et seq] because the Petitioner believed

the Respondents conduct was extortive and economically

coercive under the plain meaning of the Hobbs Act (as well as a

violation of the Sherman Act [15 U.S.C. Secs. 1, 2]). The

District Court had proper jurisdiction over the subject matter of

the case under 28 U.S.C. Secs. 1331 and 1337. The District

Court dismissed this first complaint (with prejudice), but allowed

leave to amend under an antitrust theory.”

Petitioner’s First Amended complaint was met with the

court’s decision that Petitioner must meet a heightened pleading

standard because First Amendment considerations require

evidentiary details beyond the notice pleading standards

articulated in the Federal Rules of Civil Procedure.

Petitioner filed a Second Amended Complaint in the

district court on September 3, 1991. The district court also

dismissed this complaint and issued an opinion which is found at

__ F.Supp__, 1992 US. Dist. LEXIS 4564, 139 L.R.R.M. 2956

(N.D. Cal. 1992).

Petitioner appealed the district court’s decision to the

United States Court of Appeals for the Ninth Circuit. The Court

of Appeals for the Ninth Circuit had proper jurisdiction to hear

the appeal under 28 U.S.C. Sec. 1291. In affirming the district

court’s decision, the Ninth Circuit ruled that Petrochem had not

adequately pleaded a violation of Section One of the Sherman

Antitrust Act. Specifically, the court ruled that Petitioner had not

properly pleaded an “injury to competition.” The Ninth Circuit

rejected each of Petrochem's arguments that it had in fact done

sO, reasoning that Petrochem had only pleaded an injury to one

competitor, itself, which did not necessarily equa! an injury to

competition. The Ninth Circuit held that the Union’s activity,

even if evidence of anticompetitive intent, was protected under

the Noerr-Pennington doctrine. Furthermore, the court ruled

2 Petrochem's original complaint was dismissed without leave to amend the RICO

cause of action. One of the Questions Presented in this Petition is whether the Ninth

Circuit’s rule that required Petrochem to immediately appeal that dismissal before

filing the amended complaint that contained the antitrust causes of action (pursuant

to the district court’s order) or face waiver of the RICO action 1s correct. Although

Petrochem moved for either an amendment of its original complaint, or an order for

certification of the RICO ruling, the Ninth Circuit court denied each of these

requests. The District Court also ordered Petitioner’s tna] counsel, under implied

threat of sanction, not to re-allege the first RICO theory in any amended complaint

even though Petitioner’s counsel argued to do so would preserve the record on

appeal.

that since the charges of sham petitioning amounted only to

unilateral action, they could not form the basis of a Section |

claim. The Ninth Circuit filed its Opinion and Judgment on

September 24, 1993. Petitioner filed a timely Motion for

Reconsideration En Banc on October 8, 1993. This Motion was

denied by the Ninth Circuit on November 19, 1993.

In addition to the litigation involving the second amended

complaint, Petitioner also sought review of the district court’s

order denying the motion to amend the original complaint to

include the RICO cause of action. Respondent’s Motion to

Dismiss the Appeal was granted in part by the circuit court on

August 6, 1993, relying on this circuit’s rule of pleading

announced in Loux v. Rhay, 375 F.2d 55, 57 (9th Cir. 1967).

Petitioner again requested en banc review of this circuit’s rule of

pleading, which was denied on November 19, 1993. (See

Appendix C, infra).

REASONS FOR GRANTING THE WRIT

In addition to the important and fundamental issues of

pleading that this case presents, the underlying controversy

presents an issue of national importance and public policy:

Should unions be able to unlawfully magnify their economic force

in the marketplace by instituting a practice of exchanging permit

or environmental objections for hot cargo agreements? By their

own admission, Respondents are labor unions or the agents of

labor unions, who regularly file or threaten to file permit

objections, regardless of merit, against owners and developers

who use nonunion construction contractors. Respondents,

frankly and openly, engage in this activity and even produce a

videotape that advertises their plan as a direct threat to other

owners considering using non-signatory construction contractors.

These practices have an unmistakable anticompetitive effect

because it forces project owners to sign hot cargo agreements,

agreements to use only signatory contractors while excluding

from the market those competitors who are not signatory

contractors.’ Petitioner alleges that the Respondents’ practice is

violative of Section One of the Sherman Antitrust Act as an

unreasonable restraint on trade.

In the district court complaint, Petitioner described in

detail the offending behavior, its impact on both the Petitioner

and on competition in the Petitioner's market, and attached the

Respondents’ admissions in this regard as exhibits to the

complaint. While it remains to be seen whether Petitioner can

prove its allegations, Petitioner was not even allowed to get past

the pleading stage. Although recent Supreme Court decisions

have addressed the main issues in this case, namely the

requirements for adequately pleading a violation of Section One

of the Sherman Act under Summit Health, Ltd. v. Pinhas, __

U.S. _, 111 S Ct. 1842 (1991), and the requirements for proving

litigation is a sham under Professional Real Estate Investors v.

Columbia Pictures, _ U.S. _, 113 S. Ct. 1920 (1993), there

remain unanswered questions of law and procedure regarding

these causes of action. There is confusion concerning the proper

method of alleging an injury to competition, and there is no real

standard for pleading sham litigation.

In this case, Petitioner contends the sham petitioning is

based upon both the repetitive and meritless petitions filed, the

advertising to others customers in the market that the Unions will

continue this practice regardless of success to punish those who

don’t use union contractors, and finally the agreement sought

itself is unlawful, an agreement between “stranger” unions and

non-construction owners to use only union signatory contractors,

a clear violation of this Court’s decision in Connell Construction

Co. v. Plumbers Local 100, 421 U.S. 616 (1975). Literally

’ Despite the construction industry exception for pre-hire agreements contained in 29

U.S.C. 158(f), it is still unlawful for employers in the construction industry to

become signatory if their employees have affirmatively indicated a desire to not

belong to the union. See, Mid-West Piping Inc., 63 N.L.R.B. 1060, 17 L.R.R.M. 40

(1945), Hardin, The Developing Labor Law, 1992, p. 309-17 (explaining

development of neutrality rule under Midwest Piping.)

billions of dollars of time sensitive projects, mostly in the energy

co-generation field nationwide, are impacted by this conduct.

Finally, the imposition of an agenda of union agreements in

exchange for environmental permit forbearance is inherently

destructive of the environmental hearing process since valid

objections are “bought off’ in exchange for union agreements,

and meritless objections are pursued for anticompetitive, rather

than environmental, reasons. Because the effects of

Respondents’ “Blue Print for the Future” type of anticompetitive

conduct and sham petitioning are of national significance,

Petitioner prays that this Court grant the Writ of Certiorari in

order to immediately resolve these issues.

lL THE PETITION FOR WRIT OF CERTIORARI

SHOULD BE GRANTED BECAUSE THIS COURT

SHOULD SPECIFY THE REQUIREMENTS FOR

PLEADING INJURY TO COMPETITION AFTER THE

CASE OF SUMMIT HEALTH V. PINHAS, _ U.S. _, 111S.

CT. 1842 (1991).

On May 28, 1991, this Court announced the rule of

Summit Health v. Pinhas, __ US. _, 111 S. Ct. 1842, for

pleading injury to competition under Section One of the Sherman

Antitrust Act. In Pinhas this Court clearly stated that "in a civil

action under the Sherman Acct, liability may be established by

proof of either an unlawful purpose or an anticompetitive

effect." Id. at 1847, citing United States v. United States

Gypsum Co., 438 U.S. 422, 436 n.13 (1978) (emphasis supplied).

The crucial question left open by Pinhas is whether a plaintiff, in

order to successfully state an injury to competition, still needs to

plead facts that demonstrate anticompetitive effects within the

relevant market when the plaintiff sufficiently pleads an

anticompetitive and unlawful purpose to the defendants actions,

and specifically, what facts does Plaintiff need to plead

anticompetitive effects.

Although Pinhas is a case about federal jurisdiction, the

rule allowing a plaintiff to plead an injury to competition through

a showing of anticompetitive intent is only sensible. Under the

federal antitrust laws, criminal liability can be shown by

anticompetitive intent alone, even if the conspiracy is a failure.

American Tobacco Co. v. United States, 328 U.S. 781, 810

(1946). Since civil liability follows from any business injury "by

reason of anything forbidden in the antitrust laws" (15 U.S.C.

Sec. 15), it follows that civil liability may also be established by

intent alone, provided that the plaintiff is itself injured as a result

of acts taken in furtherance of that intent. Accordingly, Pinhas

stands for this proposition. And although the Ninth Circuit

completely ignored the standard for pleading an injury to

competition under Pinhas, it has been used by courts for this

reason in a case raising the same issue. See Carleton v. Vermont

Dairy Herd Improvement Ass'n, Inc., 782 F Supp. 926, 933-34

(D.Vt. 1991).

As this Court in Pinhas pointed out, the essence of a

Section 1 claim is the illegal agreement itself, rather than any

overt acts performed in furtherance of it. Pinhas, 111 S. Ct. at

1847. Thus, liability may be established not only by

demonstrating an unreasonable restraint on trade, but by

demonstrating an anticompetitive purpose. In the present case,

Petitioner more than adequately plead an anticompetitive

purpose. (Appendix E, Complaint, paragraphs 39-74).

Furthermore, such purpose is evident from Respondents’ own

script, which was attached as Exhibit One to the Petitioner's

Second Amended Complaint in the district court. (Appendix F,

infra.) Accordingly, the Court of Appeals for the Ninth Circuit

erred in affirming the district court's dismissal of the claim

because Petitioner Petrochem adequately pleaded injury to

competition, or an intent to inflict such injury

Instead of addressing the Pinhas standard for pleading an

injury to competition in the present case, the Ninth Circuit relied

on older cases that require a formalistic application of the

——--::tts—

antitrust laws. Specifically, the Ninth Circuit ruled that

"[iJndespensable to any section | claim is an allegation that

competition has been injured rather than merely competitors.”

Petrochem Insulation, D.C. No. CV-90-03628- EFL, p.2, citing

Rutman Wine Co. v. E & J Gallo Winery, 829 F.2d 729, 734 (9th

Cir. 1987) (emphasis in original). While this may be a valid

requirement, it does not resolve the problem of pleading an injury

to competition

In the present case, Petitioner does not challenge the rule

that an injury to competition is usually necessary to state a claim

for violation of Section One of the Sherman Act. However, since

the issue here is not proof but rather pleading, the crucial

question that is left unanswered by the Ninth Circuit is how a

plaintiff goes about alleging an “injury to competition." The

Ninth Circuit cites Les Shockley Racing, Inc. v. National Hot

Rod Ass'n, 884 F.2d 504, 508 (9th Cir. 1989) for the proposition

that elimination of competitors does not equal injury to market

competition. This is not a hard and fast rule, but rather depends

on the size of the market. In a small market with a small number

of competitors, such as the one pleaded here, elimination of even

one competitor is an injury to competition. Les Shockley Racing,

884 F.2d at 508-509; Oltz v. St. Peter's Community Hosp., 861

F.2d 1440 (9th Cir. 1988). As the Ninth Circuit stated in Les

Shockley. "Of course, convergence of injury to a market

competitor and injury to competition is possible when the

relevant market is both narrow and discreet and the market

participants are few." Les Shockley, 884 F.2d at 508-09

In the case below, Petitioner Petrochem Insulation

pleaded facts which, if allowed to prove, would show that the

defendants’ actions sought to eliminate four out of nine members

of the relevant market. (See Appendix E, Complaint.) In Oltz v.

St. Peter's Community Hosp., 861 F.2d 1440 (9th Cir. 1988), the

Ninth Circuit found an injury to competition when the exclusion

of a single nurse anesthetist from the relevant market reduced the

number of competitors from five to four. /d at 1440. In the

present case, Petitioner alleged a forty-five percent reduction in

the number of subcontractors in the relevant market. (Appendix

E, Complaint, paragraphs 35-39.)

In addition, Petitioner defined almost all the projects

within the market during the last two years in paragraphs 37 and

38 of the Second Amended Complaint (Appendix E, infra), and

then alleges, as Respondents’ proudly boast, that the “vast

majority of which” were performed by union contractors (and not

the four non-union contractors) as a result of Respondents’

agreements between owners, itself and union contractors.

Perhaps it is possible that barriers to entry into the market are so

low that elimination of four of nine competitors has no effect.

However, this is a factual issue, and Petitioner was not allowed to

advance even beyond the pleading stage. Thus, speculation

concerning unpleaded and unproved facts cannot justify dismissal

of the complaint. It is enough at this point that one reasonable

inference from the complaint is that competition has been harmed.

Here, Petitioner alleges it was or would have been the low

bidder on at least four projects, but was precluded from doing the

work by Respondents’ conspiracy. (Appendix E, Complaint,

paras. 54, 55, 61, 74.) The Ninth Circuit Court of Appeals was

confronted with very similar facts in Pinhas v. Summit Health,

Lid., 894 F.2d 1024 (9th Cir. 1989), aff'd, U.S. _, 111 S.Ct.

1842 (1991), and found that the plaintiff, Dr. Pinhas, had

adequately plead an injury to competition:

Pinhas alleges in his complaint that the conspiracy was

intended to boycott his attempts at providing patients with

lower prices as a result of his ability to perform operations

at a rate quicker that that of his competitors. Assuming

Pinhas’s allegation that he provides his services at a rate

cheaper than that of his competitors to be true, the

preclusion of Pinhas from practicing could conceivably

injure competition by allowing other similar doctors to

charge higher prices for their services. Or Pinhas may

show that his preclusion otherwise substantially reduced

total competition in the market. We therefore conclude

that Pinhas has adequately pleaded injury to competition.

Be ..neeiill

Pinhas, 894 F.2d at 1032.

Certainly it is true that antitrust injury may be inferred

from economic data showing decreased output or increased price,

as the district court and Ninth Circuit in this proceeding

apparently would have preferred. However, it is mot true that a

plaintiff must produce this data at the pleading stage. Carleton v.

Vermont Dairy Herd Improvement Ass'n, Inc. 782 F.Supp. 926,

933 (D.Vt. 1991) (declining to dismiss rule of reason boycott

claim for lack of economic data). As the Ninth Circuit stated in

Pinhas, “injury to competitors may be probative of harm to

competition.” Pinhas, 894 F.2d at 1032. In this case, but for

Respondents’ acts, at least four major developers would have

awarded bids to Petitioner Petrochem Insulation. (Appendix E,

Complaint, paragraphs 55, 61, 74.) In other cases, developers

suffered increased costs and decreased options from project

delays or the threat of delay. In each case, the developers were

deprived of the freedom of independent economic choice which

the antitrust laws were designed to protect. Indeed, it is precisely

such deprivation of free economic choice that allows a court to

condemn a practice as a per se violation of the antitrust laws.

Associated General Contractors of California v. California State

Council of Carpenters, 459 U.S. 519, 528 (1983); Kilor's, Inc. v.

Broadway-Hale Stores, Inc., 350 U.S. 207, 210-14 (1959).

The confusion surrounding the requirements for pleading

an injury to competition must be resolved so that competitors

who are injured by violations of Section One of the Sherman

Antitrust Act can properly plead their case and at least have the

opportunity to conduct discovery.“ The present case involving

* At least one court has held that allegations of sham litigation constitute a “per se"

violation of Section 1 of the Sherman Act, relieving the plaintiff of the need to plead

an injury to competition. See El Cajon Cinemas, Inc. v. American Maulti-Cinema,

Inc. et al., 1993 WL 406744 (S.D. Cal. 1993) (". . . sham litigation is a per se

violation of the antitrust laws, for there is no redeeming value to the practice.

Therefore, there is no requirement that AMC and Pacific prove an anticompetitive

effect upon a defined relevant market.) The “heightened pleading standard” must not

be applied to the non-first amendment parts of the complaint, only to the allegations

Petitioner Petrochem Insulation is just one example of the

problem that litigants face when the pleading standards are

unclear and applied inconsistently. The Federal Rules of Civil

Procedure require specific pleading only in cases of capacity,

fraud, mistake, condition of mind, conditions precedent, official

document of act, judgment, and time and place. Fed. R. Civ. Pro.

9. None of these situations are implicated in the present case.

And even though the Petitioner was not faced with a case of

fraud or another Rule 9 exception, the Petitioner’s second

amended complaint consists of over one hundred paragraphs of

facts, two exhibits and a prayer for relief. (Appendix E,

Complaint, infra). What else does the Ninth Circuit require?

This was not a motion for summary judgment, but a motion under

Fed. R. Civ. Pro. 12 (b)(6). If nothing else, it is clear that the

federal district courts need guidance in determining and

identifying when a litigant has adequately plead an injury to

competition.

Il. THE NINTH CIRCUIT'S RULE THAT SHAM

LITIGATION CANNOT BE EVIDENCE OF

ANTICOMPETITIVE INTENT NECESSARY TO ALLEGE

A VIOLATION OF SECTION ONE OF THE SHERMAN

ACT IS ERROR BECAUSE NO CLEAR STANDARD

EXISTS FOR PLEADING SHAM LITIGATION.

Although this Court's recent decision in Professional Real

Estate Investors, Inc. v. Columbia Pictures, Inc., US. _, 113

S. Ct. 1920 (1993) announced a new standard for proving that

litigation is a "sham," the Court's decision did not address any

meaningful standard for the proper way to plead an allegation of

sham litigation.

of sham petitioning. Here, the Ninth Circuit does not find lack of specific reference

to sham petitioning (See Exhibit E, Complaint, paragraph 47, 55, 59, 63, 65, 66, 75,

76-80), but with the non-first amendment requirement of pleading injury to

competition.

In Professional Real Estate Investors this Court required

that if a plaintiff were to succeed on its claim that defendant's

litigation was a “sham,” the plaintiff must first show that the

litigation is “objectively baseless in the sense that no reasonable

litigant could realistically expect success on the merits.” /d. at

1928. Upon a successful demonstration that the questioned

litigation is objectively baseless, a court “may examine the

litigant's subjective motivation. Under this second part of our

definition of sham, the court should focus on whether the baseless

lawsuit conceals ‘an attempt to interfere directly with the business

relationships of a competitor,’ through the ‘use of the

governmental process -- as opposed to the outcome of that

process -- as an anticompetitive weapon.”” /d., citing Columbia

v. Omni Outdoor Advertising, 499 U.S. at --, 111 S. Ct. 1344

(slip op., at 14) (1991). The Court specifically declined to

address the issue of whether this same test would require an

antitrust plaintiff to plead, as a threshold prerequisite, that a sham

lawsuit is baseless as a matter of law.”

Additionally, the Petitioner in this case does not argue

that evidence of anticompetitive intent or purpose alone should

transform otherwise legitimate activity into a sham. Indeed, this

proposition was expressly rejected in Professional Real Estate

Investors. Instead, Petitioner alleges an independent wrongful

object of the Respondents’ conduct of obtaining agreements with

owners, who are not engaged in the construction industry and

who have no relationship with Respondents, to use only union

signatory contractors rather than competitively bid these projects.

This agreement violates both the provisions of Section 8(e) of the

**PRE contends that ‘the Ninth Circuit erred in holding that an antitrust plaintiff

must, as a threshold prerequisite ..., establish that a sham lawsuit is baseless as a

matter of law.’ Brief for Petitioners 14. It invites us to adopt an approach under

which either ‘indifference to ... outcome,’ ibid., or failure to prove that a petition for

redress of grievances ‘would ... have been brought but for {a] predatory motive,’ Tr. of

Oral Arg. 10, would expose a defendant to antitrust liability under the sham

exception. We decline PRE's invitation.” Professional Real Estate Investors, Inc.,

113 S. Ct. at 1925-26.

National Labor Relations Act and Section 1 of the Sherman Act

under this Court’s decision in Connell v. Plumbers Local 100,

421 U.S. 616 (1975).°

As this Court explained in Connell, "this agreement

[between a union and contractor not to use nonunion

subcontractors], which is outside the context of a collective-

bargaining relationship and not restricted to a particular jobsite,

but which nonetheless obligates Connell to subcontract with

Local 100, may be the basis of a federal antitrust suit because it

has the potential for restraining competition in the business

market in ways that would not follow naturally from elimination

of competition over wages and working conditions." Connell

Constr. Co., 421 U.S. at 635. Taking into account the acts of

sham petitioning and the nature of the economic threats alleged

by Petitioner in this case, the Connell Court's conclusion is

equally applicable here that "the methods the union chose [to

obtain 8(e) agreements] are not immune from antitrust sanctions

simply because the goal is legal." Connell Constr. Co., 421 U.S.

at 625. Likewise, an otherwise unlawful agreement combined

with evidence of sham litigation as its consideration should be

sufficient to allow a plaintiff to adequately plead an

anticompetitive intent or purpose under Section One of the

Sherman Act as described in Summit Health v. Pinhas. Clearly,

unlawful conduct can not become lawful when it is accompanied

or effectuated by sham petitioning.

* Subsequent cases dealing with the limitation of the construction industry proviso to

Section 8(¢) like Wolke and Romero Framing, Inc.v. NLRB, 465 U.S. 645 (1982) and

its progeny are not relevant when the owners are clearly alleged not to be engaged in

the construction industry and have no other relationship with the union. Prehire

agreements are unlawful outside the construction industry. Of course, it is a matter

of fact whether some or all of these owners fall within or without the construction

industry proviso, but for pleading purposes, it was specifically alleged that owners

like Chevron, Allied Signal, and others are not in the construction industry. (See

Exhibit E, Complaint, paragraphs 7!, 76, 79.) Unless they directly hire construction

workers, project owners are not engaged in the construction industry for purposes of

the National Labor Relations Act. See Longs Drug Stores, Inc., 278 N.L.R.B. 440

(1986), The Kroeger Company, 163 N.L.R.B. No. 59 (1965).

A. The Scheme Of Union Groups Of Filing

Environmental Objections In The Permit Process In Order to

Obtain legal Hot Cargo Agreements Is Not The Type Of

Petitioning That Warrants Protection Under The Noerr-

Pennington Doctrine Because the Agreement Between

Owners Not Engaged In The Construction Industry And

Unions To Cease Doing Business With Non-Union

Contractors Is Unlawful Under The National Labor

Relations Act And This Court’s Doctrine Of Connell

Construction Co. v. Plumbers Local 100, 421 U.S. 616 (1975).

"Although those who petition the government for redress

are generally immune from antitrust liability, FLastern R.

Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S.

127, such immunity is withheld when petitioning activity

‘ostensibly directed toward influencing governmental action, is a

mere sham to cover . . . an attempt to interfere directly with a

competitor's business relationships.” Professional Real Estate

Investors, Inc. at al. v. Columbia Pictures Industries, Inc. et al.,

__US. _, 113 S. Ct. 1920 (1993). The present case raises the

important issue of whether or not the Noerr-Pennington doctrine

of "Sham Petitioning" can be applied to an attempt by Unions, in

combination with signatory contractors, to file (and/or threaten to

file) baseless environmental and permit objections, in exchange

for agreements by project owners (not engaged in the

construction industry) to cease doing business with non-signatory

contractors. This issue has received national attention, both in

the regular media and in law review articles such as the

Comment: The Antitrust Liability of Labor Unions for Anti-

Competitive Litigation, 80 Cal. L. Rev. 757 (May, 1992), by

Daralyn J. Durie and Mark A. Lemley.

With the passage of the Clean Fuels Act, there are literally

billions of dollars of construction that is now subject to

environmental extortion, which limits competition to signatory

construction firms (less than half of the existing number of

competitors). As the Summary of the above law review article

States:

"Opposing permit applications on environmental or

regulatory grounds is one strategy labor unions have used

to eliminate competing non-union contractors. Job

owners who refuse to use union labor can find their

projects blocked entirely or their costs increased

significantly if their permits are challenged. The authority

argues that unions pursuit of litigation or permit

interference against projects using nonunion contractors

as a means of driving competitors out of business violates

the antitrust laws. The primary objective of such union

strategy is anticompetitive and bears no reflection to the

stated objectives of the threatened litigation or

interference. While the labor exemption and the Noerr-

Pennington immunity limit the application of the antitrust

laws to cases of this type . . . unions can be held

accountable to attempts to coerce market participants [to

use union contractors] by monopolization or group

boycotts."

Id. at 757. In the present case, the Respondents have and

continue to follow just such a practice. Indeed, the Petitioner's

second amended complaint contained a complete transcript of a

videotape produced by Respondents that openly boasts the

success of this scheme, known as the "Tom Adams Program."

(See Exhibit F, infra).

According to the Respondents’ video, the very object of

the petitioning activity is to obtain illegal agreements between

non-construction industry employers to cease doing business with

or refuse to deal with non-union contractors, thus interfering

directly in the business of the developers so as to obtain

agreements requiring the use of union contractors. This was

made explicit and unmistakable in the transcript of the

Respondents’ videotape describing the Tom Adams Program.

According to the Respondents, as explained in their video tape:

Our deal has always been that if you're going to build,

whatever it is your going to build or whatever your going

to do, you're going to do it union or you're not going to

do it at all, Years ago we were able to do that by using

picket lines and other -- through the National Labor

Relations Board. Through politics. We've sort of lost

that. So what we are now doing is, we are doing the

same thing that we did in the past except we're using a

different way of doing it.

(Appendix F, p.83a) (emphasis added).

By pursuing baseless permit and environmental

objections, the Unions seek to use the threat of delay and the

loose forum of the permit process to extort agreements from

owners to cease doing business (refusal to deal or group boycott)

with the competitors of union contractors, thereby reducing the

market to half its present participants.’ Respondents state that

they are not interested in the outcome of any environmental

objections they may file, since no environmental agency can

legally require a developer to enter into an agreement to cease

doing business with non-signatory contractors. As the videotape

further explains, in regard to one particular intervention at a

project involving a developer Allied Signal (a non-construction

industry employer):

What the [Allied Signal] fight did for us was that it

showed these other industnal users that we were not

going to quit. That -- because they must have known, as

we knew when we were half way through the fight we

had a loser. Our deal then was to keep on fighting and to

” Under the National Labor Relations Board’s doctrine in MidWest Piping Inc., 63

N.L.R.B. 1060, 17 L.R.R.M. 40 (1945), it is still unlawful for Petrochem and other

non-signatory contractors to sign union agreements when the employees have clearly

indicated they do not wish representation. This is especially true in cases where the

contractor’s employees are represented by either an independent union, or a union

not part of the AFL-CIO Building Trades Department, as is the case with the

Communication Workers of America representing employees in the low voltage

section of the electrical construction industry, the Teamsters and Steelworkers

representing some contractors employees or other similar cases.

make everybody understand that that was the deal with

us. That there was no -- that there was simply no end to

it. We would just keep on fighting.

(Appendix F, p.92a-93a).

Hence, regardless of the merits of the intervention,

Respondents would forge ahead to show, not only that this

developer (Allied Signal), but others, that the Respondents were

capable of using and abusing the process to harass such project

owners indefinitely. In most cases, Respondents would lack

standing to assert any meritorious claim. See, Lujan v. Defenders

of Wildlife, _ US. _, 112 S. Ct. 2130 (1992). In short,

Respondents used the process itself, not the potential outcome of

any government action, to secure agreements which violated the

antitrust and labor laws.

Indeed, most of the environmental objections made by the

unions during the permitting process were withdrawn or not filed

once the developer agreed to use Petitioner's competitors instead

of Petitioner. Many of the other examples in the videotape

involved no environmental objections at all, but merely the threat

of repeating what Respondents had done to Allied Signal. This

was so, even though both Respondents and developers “must

have known... we had a loser." (Appendix F, p.92a). The threat

to which the developers responded was not the threat of

government action, but the threat of abuse of process. The

danger to developers is not that the unions will prevail in their

opposition to the contended permit, but, as the videotape

declares, "that we simply will not stop." (Appendix F, p.101a).

This pattern is repeated again and again as evidenced in the

videotape. (Appendix F, pp.92a-98a). Thus, in the end, the

environmental objections made by the unions during the

permitting process have no relation to any legitimate goal of the

union. Instead, the union participates in the permit process to get

only what can be described as a pay-off or protection money -- a

ransom to move the project out of the permit phase only if the

developer agrees to exclusively deal with union signatory

contractors and to boycott the non-union contractors.

By participating in the permit procedure and submitting

groundless and sham petitions, the union is attempting to use the

governmental process as compensation for their waning influence

in the modern industrial marketplace. Although Respondents are

entitled to First Amendment freedoms, this type of behavior is

consistent with this Court's definition of "sham" litigation, and

therefore does not warrant First Amendment protection under the

Noerr-Pennington Doctrine.

In Professional Real Estate, this Court described a sham

as “evidenced by repetitive lawsuits carrying the hallmark of

insubstantial claims," “private action that is not genuinely aimed

at procuring favorable government action," and as "a pattern of

repetitive, baseless claims." Professional Real Estate, 113 S. Ct.

at 1927, citing various authorities. While not necessarily focusing

on the subjective intent alone, each of these standards seeks to

curb an abuse of the petitioning and adjudicative process that

tends to interfere with a defendant's right to due process and fair

application of the laws. As such, each one of these descriptions

could fairly describe the activity in which the Respondents have

engaged here.

In the present case, the Ninth Circuit seemed to address

this issue when it stated: “the Noerr-Pennington doctrine shields

legitimate efforts to use the adjudicative or the legislative process

to achieve certain goals from antitrust liability regardless of

anticompetitive intent or purpose." Petrochem Insulation, Inc. v.

United Association of Journeyman and Apprentices of the

Plumbing and Pipefitting Industry, AFL-CIO, et al., D.C. No.

CV-90-03628-EFL, p.3 (9th Cir. 1993) (emphasis o” 7inal).

Although the Ninth Circuit was correct to point out that

subjective intentions are not to control the finding of whether or

not particular actions fall within the sham exception to the Noerr

doctrine, the court begs the question of whether the Unions’

activity is legitimate to begin with. But before even that, this

Court must remember that this is a pleading case - in the opinion

below the Ninth Circuit has effectively required that in order to

plead a “sham litigation" allegation, the plaintiff must plead

ultimate facts of injury to competition that are unavailable at the |

pleading stage of trial. The specific sham is adequately pleaded,

it is only the surrounding elements of common antitrust liability

that now must be alleged with specifically, according to the Ninth

Circuit Court of Appeals.

B. Requiring An Increased Level Of Specificity In

Pleading Injury To Competition In A Section One Antitrust

Claim Is Contrary To Prior Decisions Of This Court And

The Principles Of The Federal Rules Of Civil Procedure, Or,

In The Alternative, Plaintiff Has Met Every Reasonable

Standard Of Pleading Under Federal Rule Of Civil

Procedure 8.

The overarching purpose of the Sherman Antitrust Law is

to promote competition through making illegal certain

agreements and actions that tend to unnaturally restrain

competition. In passing the Sherman Act in 1890, Congress

"meant to deal comprehensively and effectively with the evils

resulting from contracts, combinations and conspiracies in

restraint of trade, and to that end to exercise all the power it

possessed." Atlantic Cleaners & Dryers, Inc. v. Unites States,

286 US. 427, 435 (1932). Furthermore, "[t]he Act is

comprehensive in its terms and coverage, protecting all who are

made victims of the forbidden practices by whomever they may

be perpetrated." Mandeville Island Farms, Inc. et al. v.

American Crystal Sugar Co., 334 U.S. 219 (1948). Thus, one of

the primary underlying purposes of the Sherman Antitrust Act is

to protect market participants who fall victim to forbidden

practices in restraint of trade.

The Supreme Court's application of the Sherman Antitrust

Act has followed this general principle. See Gulf Oil Corp. v.

Copp Paving Co., 419 U.S. 186 (1974). In this regard, the Court

has recently reiterated the policy of flexibility in dealing with

antitrust issues when it stated: "Legal presumptions that rest on

formalistic distinctions rather than actual market realities are

generally disfavored in antitrust law. This court has preferred to

resolve antitrust claims on a case-by-case basis, focusing on the

‘particular facts disclosed by the record. Eastman Kodak

Company v. Image Technical Services, Inc. et al., _. U.S. __,

112 S. Ct. 2072 (1992), quoting Maple Flooring Mfrs Ass'n v.

United States, 268 U.S. 563, 579 (1925).

In the present case, the Court is faced with just this type

of controversy. The Petitioner filed a lawsuit against the

Respondents alleging violations of the Sherman Act, Section 1

and 2, as well as a RICO cause of action. As part of the original

forty page complaint, Petitioner included the transcript of fifty

minute videotape produced by the Respondents in which the

Respondents expressly, openly and notoriously agreed to

combine with Petitioner's competitors to force project owners

and developers to enter into agreements banning nonunion

subcontractors. (Appendix E, Complaint, paragraphs 39-45.)

Despite the long and explicit factual material provided by the

Petitioner, the Ninth Circuit Court of Appeals held that Petitioner

failed to state a claim upon which relief can be granted under

Section 1 of the Sherman Act because Petitioner did not allege

sufficient facts.

However, the Ninth Circuit has also stated that "no

special rule requires more factual specificity in antitrust

pleadings" than are required under FRCP 8(a)(2). Hunt-Wesson

Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919, 924 (9th Cir.

1980). Similarly, the Ninth Circuit has held that if a question is

raised regarding the illegality of a conspiracy, that question

should not be decided from the face of a pleading where the

pleading alleges a conspiracy, unreasonable competition and

direct injury to the plaintiff. Walker Distributing Co. v. Lucky

Lager Brewing Co., 323 F.2d 1, 8 (9th Cir. 1963).

The Ninth Circuit Court of Appeals drifted away from

these principles in this case, however, by holding Petitioner to a

pleading standard that so far has not been required in the federal

system. In its decision affirming the district court, the Ninth

Circuit stated that "intent to harm competition in the relevant

market may state a claim for relief in certain circumstances,

conclusory allegation are insufficient in the absence of

anticompetitive conduct from which specific intent may be

inferred." Petrochem Insulation, D.C. No. CV-90-03628-EFL at

3, citing Rutman Wine Co., 829 F.2d at 735. While not

explaining under what circumstances the Ninth Circuit would

allow a showing of anticompetitive intent to state an antitrust

claim, the Ninth Circuit's ruling ignores the detailed and specific

allegations of the Petitioner's complaint. Petitioner Petrochem

not only provided a highly fact specific complaint to the district

court, but included a transcript of a videotape produced by the

Respondents which announces their intention to harm

competition through a scheme of sham petitioning and claiming

success. Far from conclusory, these facts adequately demonstrate

the unions’ intention to injure competition, its success at harming

competition, and thus its violation of the Sherman Antitrust Act.

The important question in this case is the degree of

specificity and particularity that courts require under the Federal

Rules of Civil Procedure in order for a plaintiff to get past even

the initial stages of a lawsuit. Although Federal Rule of Civil

Procedure 8 (a)(2) requires only a “short and plain statement of

the claim showing that the pleader is entitled to relief," the Ninth

Circuit now seeks to increase that standard by requiring a

heightened burden of pleading for Petitioner under the claim that

the federal antitrust laws require specific facts unavailable to

Petitioner at the iritial stages of the lawsuit, indeed even before

discovery. Nowhere in the Federal Rules is the requirement

stated that a plaintiff set out detailed facts giving the basis for the

claim. Rather, the short and plain statement need only give the

defendant fair notice “of the claim” and the “grounds upon which

it rests.” Conley v. Gibson, 344 U.S. 41, 43 (1957). Broad

opportunities for discovery, which serve to narrow the issues and

more precisely delineate the factual basis of a claim, make notice

pleading possible. /d

No complaint should be dismissed for failure to state a

claim under Fed. R. Civ. P. 12 (b)(6) unless “it appears beyond

doubt that the plaintiff can prove no set of facts in support of his

claim which would entitle him to relief.” Jd At 102. And, when

construing pleadings the court must construe them “as to do

substantial justice.” Fed. R. Civ. P. 8(f). The long-standing rule

of this Court is that a complaint should not be found insufficient

unless it is “wholly frivolous." Radovich v. National Football

League, 352 U.S. 445, 453 (1957). There is no vanance in the

rules for antitrust cases. The factual specificity in an antitrust

complaint need be no greater than that required by Conley

Portland Retail Druggists Ass'n. V. Kaiser Foundation Health

Plan, 662 F.2d 641, 648 (9th Cir. 1981). The allegations need

only be sufficient to meet the liberal pleading requirements of

Rule 8 (a)(2). Datagate Inc. V. Hewlett Packard Co., 941 F.2d

864, 870 (9th Cir. 1991), cert. denied, US. _, 112S.Ct

1667 (1992).

Additionally, when antitrust claims are made against a

union, the pleading standards still do not vary. The plaintiff is

only required to make a short, plain statement as required by Fed.

R. Civ. Proc. 8 (a)(2), and the complaint will not be dismissed

unless there is no set of facts that would support the allegations.

Bodine Produce, Inc. V. United Farm Workers Organizing

Committee, 494 F.2d 541, 556 (9th Cir. 1974). The courts

should have tolerance for claims for relief and a correlating

intolerance regarding motions to dismiss. /d.

Petitioner in this case has met every reasonable pleading

burden under the Federal Rules of Civil Procedure. Petitioner

attached significant supporting documentation with the Second

Amended Complaint. One attached document was a transcript of

a videotape in which the Respondents explicitly detailed the

means of the combination, conspiracy and a large number of

projects where anticompetitive contracts were extorted. That

transcript was, at a minimum, a direct party admission that the

Respondents had engaged in anticompetitive conduct. The two

other exhibits were written articles which further identify those

projects which the Respondents openly admit that the primary

reason they pursued baseless permit objections and sham

administrative petitions was to exclude a competitive group of

bidders, i.e., nonunion competitors such as the Petitioner. Given

the Petitioner’s specificity in the complaint, the district court

prematurely decided that it was “beyond doubt that the plaintiff

can prove no set of facts in support of his claim which would

entitle him to relief.” Conley v. Gibson, 344 U.S. 41, 45-46

(1957); Radovich v. National Football League, 357 U.S. 445,

453 (1957).

The Ninth Circuit and the district court in this case lost

sight of these straightforward principles in a maze of technical

pleading requirements -- requirements which are found nowhere

in the Federal Rules-ef. Civil Procedure. Since antitrust claims do

not fall under the clear exceptions to standard notice pleading of

Federal Rule of Civil Procedure 9, there is simply no legal reason

the Petitioner should be held to a heightened standard.

I. THE COURT SHOULD GRANT THE WRIT OF

CERTIORARI BECAUSE THE RULE OF LOUX V. RHAY

IS INCONSISTENT WITH THE PRINCIPLES OF

PLEADING UNDER THE FEDERAL RULES OF CIVIL

PROCEDURE AND IS IN DIRECT CONFLICT WITH

THE RULES OF OTHER CIRCUIT COURTS.

The case of Loux v. Rhay, 375 F.2d 55, 57 (9th Cir.

1967) holds that 2 party who amends its complaint, whether or

not voluntarily, is prohibited from appealing the dismissal of

claims raised in the original complaint. The Ninth Circuit Court

of Appeals is presently the only federal appellate court which so

a a Oe eee

holds. Because this rule reflects an archaic notion of notice

pleading, it should be reversed.

Loux v. Rhay was an appeal filed in forma pauperis by a

state prisoner acting pro se and cites only two appellate cases for

the relevant proposition: Aetna Life Insurance Co. v. Phillips,

69 F.2d 910 (10th Cir 1934) and Grubbs v. Smith, 86 F.2d 275

(6th Cir. 1936), cert. denied, 300 U.S. 658 (1937)

Aetna Life has recently been reversed on this very point

by the United States Court of Appeals for the Tenth Circuit,

acting en banc. Davis v. TXO Production Corp., 929 F.2d 1515.

(10th Cir. 1991) (en banc). It is not clear whether Grubbs (also

involving a pro se plaintiff) stands for this proposition or whether

the point is dicta.* But, it is clear is that Grubbs is obsolete. It

was decided before the adoption of the Federal Rules of Civil

Procedure in 1938 and reflects a now archaic view of pleading.

Thus, for example, the plaintiffs complaint in Grubbs was

dismissed for misjoinder of legal and equitable causes of action.

The Ninth Circuit now appears to be the only circuit that

adheres to the rule that a party waives objections to dismissal by

subsequent amendment. Other circuits considering this issue

have come to the opposite conclusion.

The Fifth Circuit held in Wilson v. First Houston

Investment Corp., 566 F.2d 1235 (Sth Cir. 1978), vacated on

other grounds, 444 U.S. 959 (1979), that amendment of a

dismissed complaint did not bar a plaintiff from appealing the

"correctness of the dismissal order." /d. at 1238. The court

agreed with Wright & Miller that a rule that the plaintiff waives

his objections to dismissal by choosing to amend is too

mechanical and a “rigid application of the concept that a Rule 15

(a) amendment completely replaces the pleading that it amends."

citing 6 Wright & Miller, Federal Practice and Procedure, Civil

It also appears that both Grubbs and Loux v. Rhay involved plainly fnvolous

claims. Accordingly, it is possible that this is an example of bad facts making bad

law

Sec. 1476 at 393 (1971)? Wright & Miller also point out that if a

motion to dismiss is denied, the defendant may still appeal the

denial of the dismissal after answering and defending on the

merits. /d.

The Fifth Circuit also noted that the rule that plaintiff had

waived objections to dismissal by subsequent amendment of the

complaint would lead to piecemeal appeals. Wilson, supra. The

Eleventh Circuit adopted the Fifth Circuit approach in Varner v.

Local 91, Glass Bottle Blowers Association, 674 F.2d 1365 (11th

Cir. 1982).

The Seventh Circuit has also held that it is not necessary

to re-plead dismissed claims in order to bring them up on appeal

because all rulings adverse to the appellant will be brought up

when a final decision is appealed. Bastian v. Petres Resources

Corp., 892 F.2d 680, 682 (7th Cir. 1990). The court noted "[iJt

is not waiver -- it is prudence and economy -- for parties not to

re-assert a position that the trial judge has rejected." /d. at 682.

In this case, Petitioner tried to restate in shorthand form its

original complaint in the first amended complaint, and was

warned of Rule 11 sanctions if the reference remained in the

complaint. Petitioner told the court that it was required to re-

plead the RICO claim to preserve it for appeal, and the district

court judge rejected the argument as illogical and threatened

sanctions. While Petitioner may have agreed with the district

court’s characterization of the Ninth Circuit rule in Loux v. Rhay,

the Petitioner’s counsel should not have to face sanctions in order

to preserve its appeal rights.

The Tenth Circuit has also addressed the question. In

Davis v. TXO Production Corp., 929 F.2d 1515 (10th Cir 1991),

the court held that a party who amends a pleading after a claim is

dismissed does not waive the right to appeal the dismissal. In

making its decision, the court reviewed three earlier 10th Circuit

decisions discussing the rule. Two of the decisions, Leggett v.

“ Wright & Miller have not changed their position in later editions of this treatise.

See Sec. 1476, p. 560-61 (1990).

Montgomery Ward & Co., 178 F.2d 436 (10th Cir. 1949) and

Aetna Life Insurance Co. V. Phillips, 69 F.2d 901 (10th Cir.

1934) are consistent with Loux v. Rhay. The court found the rule

"formalistic" and overruled Leggett and Aetna. Davis, 929 F.2d

at 1517-18.

The Ninth Circuit's rule, as expressed in Loux v. Rhay and

its progeny, waiving objection to a dismissed complaint if the

party chooses to amend and not re-allege the dismissed claims

should be overturned. Both scholars and other circuits agree that

it is mechanically formalistic, and a trap for the unwary. At a

time when judicial economy is highly valued the rule promotes

form over substance and invites piecemeal appeals.

CONCLUSION

For all the foregoing reasons, it is respectfully submitted

that the Writ of Certioran should issue to resolve these issues and

conflict of federal law.

Respectfully submitted,

Mark R. Thierman*

Thierman Law Partnership

535 Pacific Avenue, 4th Floor

San Francisco, CA 94108-2822

(415) 391-9200

Counsel for Petitioner

December, 1993

* Counsel of Record

APPENDIX A

[Filed Sep 24 1993]

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

No. 92-15511

D.C. No. CV-90-03628-EFL

PETROCHEM INSULATION, INC.,

Plaintiff-Appellant,

UNITED ASSOCIATION OF JOURNEYMEN

& APPRENTICES OF THE PLUMBING &

PIPE FITTING INDUSTRY OF THE UNITED STATES

& CANADA, LOCAL UNION NO. 38, AFL-CIO;

THOMAS R. ADAMS; ADAMS & BROADWELL;

THOMAS J. HUNTER; NORTHERN CALIFORNIA

AND NORTHERN NEVADA PIPE TRADES

COUNCIL, District Council 51, et al; LOCAL

UNIONS 62, 159, 228, 246, 342, 343, 350, 365, 437,

444, 447, 460, 471, 483, 492, 503 AND 662,

Defendants-Appellees.

INTERNATIONAL BROTHERHOOD OF

ELECTRICAL WORKERS, AFL-CIO

LOCAL 302, amicus,

Amicus.

MEMORANDUM*

Appeal from the United States District Court

for the Northern District of California

Eugene F. Lynch, District Judge, Presiding

Argued and Submitted August 12, 1993

San Francisco, California

Before: KOZINSKI, THOMPSON, and T.G. NELSON

Circuit Judges.

’

A. Antitrust Section 1 Claim

We have held that failure to allege injury to competi-

tion is a proper ground for dismissing a §1 claim. Alli-

ance Shippers, Inc. v. Southern Pac. Transp. Co., 858

F.2d 567, 570 (9th Cir. 1988). “Indispensable to any

section 1 claim is an allegation that competition has been

injured rather than merely competitors.” Rutman Wine

Co. v. E & J Gallo Winery, 829 F.2d 729, 734 (9th Cir.

1987) (emphasis in original); see also Les Shockley Rac-

ing, Inc. v. National Hot Rod Ass’n, 884 F.2d 504, 507-

08 (9th Cir. 1989) (affirming 12(b)(6) dismissal for fail-

ure to state a §1 antitrust claim because plaintiff failed

to allege an unreasonable restraint of or injury to com-

petition).

Petrochem has failed to allege injury to competition.

Rather, it merely alleges injury to its own business, either

because it was denied the opportunity to bid on certain

projects, or because it was not awarded certain contracts.

An allegation of injury to its own business interests alone

*This disposition is not appropriate for publication and may not

be cited to or by the courts of this circuit except as provided by

9th Cir. R. 3-63.

is not enough to establish injury to the market as a

whole. See Les Shockley, 884 F.2d at 508.

Petrochem marshals three arguments in response. First,

it asserts that if four open shop contractors are elimin-

ated, there is a substantial numerical reduction in com-

petition. We rejected a similar argument in Les Shock-

ley, reasoning that although removal of one or more com-

petitors from a market necessarily has an effect on com-

petitive conditions within that market, it is only when

such an agreement or other arrangement “becomes

unreasonably disruptive of market functions such as price

setting, resource allocation, market entry, or output

designation” that there may be a potential Sherman Act

violation. 884 F.2d at 508. Petrochem does not allege

detrimental competitive effects. Mere injury to its own

position as a competitor is insufficient to state an anti-

trust claim. See id.; see also Cascade Cabinet Co. v.

Western Cabinet & Millwork, Inc., 710 F.2d 1366, 1373

(9th Cir. 1983) (‘it is injury to the market, not to

individual firms, that is significant’’) (internal quotations

omitted).

Second, Petrochem asserts that this deficiency is

overcome because the complaint sufficiently alleges anti-

competitive intent. Although intent to harm competition

in the relevant market may state a claim for relief under

certain circumstances, conclusory allegations are insuf-

ficient in the absence of anticompetitive conduct from

which such specific intent may be inferred. Rutman

Wine Co., 829 F.2d at 735. Petrochem points to the

allegations of sham petitioning contained in the com-

plaint and Exhibit 1 as proof of anticompetitive intent.

However, the Noerr-Pennington doctrine shields legit-

imate efforts to use the adjudicative (or the legislative)

process to achieve certain goals from antitrust liability

regardless of anticompetitive intent or purpose. See Pro-

fessional Real Estate Investors, Inc. v. Columbia Pictures

Indus., Inc., 113 S.Ct. 1920, 1927 (1993). Moreover,

Petrochem’s sham petitioning claim alleges only unilateral

action, and therefore cannot form the basis of its §1 anti-

trust claim. See T.W. Elec. Serv., Inc. v. Pac. Elec. Con-

tractors Ass’n, 809 F.2d 626, 634 (9th Cir. 1987) (“‘Inde-

pendent action does not fall within the ambit of §1 of

the Sherman Act.”). Section 2 of the Sherman Act

encompasses unilateral action. Jd.

Third, despite the pleading deficiencies noted above,

Petrochem contends that the district court erred in requir-

ing ‘an impossible burden of factual specificity” and that

it should be allowed to obtain such facts through discov-

ery. Petrochem is mistaken. We have previously stated

that a pleader may not evade the §1 antitrust elements

“by merely alleging a bare legal conclusion; if the facts

do not at least outline or adumbrate a violation of the

Sherman Act, the plaintiffs will get nowhere merely by

dressing them up in the language of antitrust.” Rutman

Wine Co., 829 F.2d at 736 (internal quotations omitted)

(affirming 12(b)(6) dismissal because complaint failed to

allege injury to competition); see also Les Shockley, 884

F.2d at 507-08 (same).

Petrochem cites Beltz Travel Serv., Inc. v. International

Air Transp. Ass’n, 620 F.2d 1360, 1366 (9th Cir. 1980),

to support its proposition that discovery may be the only

method by which the facts underlying an alleged agree-

ment would be revealed. Beltz does not relieve Petro-

chem of its burden to present factual allegations. In

Beltz, the complaint alleged numerous acts of the defend-

ants which were in furtherance of the conspiracy and it

established the three §1 prerequisites necessary to state a

§1 claim. Jd. at 1365. The complaint and affidavit in

hg) a RA BATE ROS | 4

Beltz also set forth all the facts regarding the objectives

and accomplishments of the conspiracy. Jd. at 1365-66.

Petrochem also complains that it should not be “‘pun-

ished” because it was unable to obtain wmitten agree-

ments as to each and every conspiracy and that without

such agreements it could not outline the specific details

of those agreements. It is true that the district court’s

order granting leave to amend stated that Petrochem was

to identify the agreements, parties, and terms to the

extent possible as well as attach the agreements, if they

were in Petrochem’s possession. The complaint was not

dismissed because the agreements were not attached.

Rather, it was dismissed because there was insufficient

factual support to indicate that such agreements did in

fact exist.

B. Antitrust Section 2 Claim

Petrochem’s complaint failed to allege that the defend-

ants possess monopoly power in the relevant market, one

of three prerequisites for establishing a monopolization

claim under §2. See Rutman Wine Co., 829 F.2d at 736.

Petrochem defined the relevant market as a pipe and

insulation subcontracting market located in. Northern

and Central California. Petrochem has failed to allege

that the defendants possess monopoly power in that

market. The defendants’ alleged activities under Petro-

chem’s §2 claim are unilateral. Because the defendants

do not possess a share of the relevant market, their

actions alone cannot achieve monopoly power.

Similarly, Petrochem has failed to allege the requisite

elements of an attempted monopolization claim. See id.

C. Alleged RICO Violation.

Because Petrochem has failed to establish a violation of

the LMRA, §186, there is no predicate act upon which

to base a RICO claim. Section 186 prohibits an employer

from paying money to a union. See 29 U.S.C. §186;

Associated Builders & Contractors v. Carpenters Vacation

& Holiday Trust Fund for Northern Ca. (ABC), 700 F.2d

1269, 1274 (9th Cir.), cert. denied, 464 U.S. 825 (1983).

A violation of §186 serves as a predicate act under the

RICO statute, 18 U.S.C. §1961(1)(C). However, the

LMRA provides an exception to §186 which “permits an

employer to transfer money to a union if: (1) the money

is in payment of membership dues; (2) the employer has

received a valid written authorization from the employee;

and (3) the money is deducted from wages.” ABC, 700

F.2d at 1274 (emphasis in original).

Petrochem’s complaint alleges facts which establish

the first and third elements of the exception, i.e., that

BIDS is funded with money in payment of membership

dues and that the money is deducted from wages:

BIDS . .. is funded by money taken out of member-

ship dues and transmitted to Defendants by employ-

ers pursuant to a dues check-off procedure... .

[BIDS is] a sales program, funded by dues, fun-

neled through District Council 51, and paid to the

Council by union contractors payroll deductions.

Further, Petrochem does not allege that the employers

did not receive valid written authorizations from employ-

‘In an order filed August 6, 1993, we dismissed Petrochem’s

RICO extortion claim because Petrochem waived the issue when

it failed to include that claim in its amended complaint. See King

v. Attyeh, 814 F.2d 565, 567 (9th Cir. 1987).

ees. Petrochem has failed to allege a predicate act upon

which to base its RICO claim.

Petrochem contends that the funds transferred to the

union for the BIDS program are not ‘“‘membership dues”’

because the union does not use those dues for permis-

sible purposes, such as organizing activities, contract

bargaining or working condition and wage issues. Petro-

chem asserts that BIDS has two improper uses: (1) col-

lection of project data in order to track projects in the

permit stage; and (2) circulation to union contractors

information as to those construction projects.

We rejected a similar argument in ABC. In that case,

ABC argued that the union used part of the revenue from

“supplemental dues” for impermissible political purposes,

i.e., to hire organizers to combat the open shop move-

ment in the construction industry and to discourage

employers from going non-union. ABC, 700 F.2d at

1275. ABC contended that because membership dues

were used for improper political purposes, they were

“not in payment of membership dues,’”’ and thus there

was a LMRA violation. Jd. We disagreed, holding that

the First and Fourteenth Amendments do not proscribe

a union’s expenditure of dues revenue for political pur-

poses unless the employees who pay those dues affirm-

atively object to that union’s use of their dues. Jd.

(“Money spent on organizing to eliminate competition

from non-union employers is germane to collective bar-

gaining and therefore is not a ‘political’ expenditure for

purposes of first amendment analysis.’’).

Similarly, the dues in this case are used for organizing

to eliminate competition from non-union employers.

The two uses Petrochem challenges, collecting and cir-

culating project data, help the union shops organize and

compete for those projects. Hence, the district court

properly dismissed Petrochem’s RICO claim because

absent the LMRA violation, there is no predicate act

upon which to base this claim.

AFFIRMED.

APPENDIX B

PETROCHEM INSULATION, INC.,

Plaintiff,

NORTHERN CALIFORNIA AND

NORTHERN NEVADA PIPE TRADES

COUNCIL, District Counsel 51 of the United Association

of Journeymen and Apprentices of the Plumbing and

Pipefitting Industry of the United States and Canada,

AFL-CIO; United Association of Journeymen and

Apprentices of the Plumbing and Pipefitting Industry

of the United States and Canada, AFL-CIO;

Local Unions 62, 159, 228, 246, 342, 343, 350, 365,

393, 437, 444, 447, 460, 467, 471, 483, 492, 503, and

662; Thomas R. Adams; Thomas R. Adams, P.C.; Adams

& Broadwell, P.C.; and Thomas J. Hunter,

Defendants.

No. C-90-3628 EFL

United States District Court, N.D. California

March 19, 1992

Mark Thierman, Thierman, Cook, et al., San Francisco,

Cal., for plaintiff.

Jerome Falk, Howard, Rice, et al., San Francisco, oO”

for defendants.

10a

MEMORANDUM AND ORDER GRANTING

DEFENDANTS’ MOTION TO DISMISS

INTRODUCTION

LYNCH, District Judge.

*] The above-captioned matter came before this

Court pursuant to defendants’ motion to dismiss plain-

tiff’s second amended complaint. In that complaint,

plaintiff has attempted to assert five claims for relief.

Plaintiff’s first claim for relief alleges an antitrust viola-

tion regarding “hot cargo agreements.” Plaintiff’s second

claim alleges that defendants monopolized the insulation

subcontracting market through ‘‘sham petitioning” of

certain governmental proceedings. Plaintiff’s third,

fourth and fifth claims allege RICO violations relating to

certain union ‘“‘dues checkoff” procedures. Plaintiff and

defendants vigorously dispute whether or not this action

may be characterized as a “SLAPP” suit, or a “Strategic

Lawsuit Against Public Participation.” In other words,

plaintiff contends that the defendants have abused

certain administrative permit granting processes by mak-

ing baseless environmental objections in an effort to

force project owners to boycott non-union contractors.

Defendants, on the other hand, contend that plaintiff’s

suit infringes on their first amendment right to partici-

pate in public hearings and administrative proceedings.

Accordingly, this case implicates important issues of

public policy.

BACKGROUND

Plaintiff’s second amended complaint represents

plaintiff’s third effort to state a cognizable complaint

attacking defendants’ participation in public govern-

eit Sip Pee Saat erie Ls i!

lla

mental permit proceedings. Plaintiff’s initial complaint

asserted that a RICO conspiracy existed between nine-

teen local unions, a district council, the council’s business

manager, its attorney, and his law firms. In essence, the

original complaint alleged that the conspiractors partici-

pated in the permit process to extort union-only project

agreements from construction developers, resulting in a

violation of Section 8(e) of the National Labor Relations

Act (“NLRA”). The Court granted defendants’ motion

to dismiss that complaint without leave to amend, finding

that plaintiffs RICO claims were preempted by the

NLRA.! At that time, plaintiff requested leave to file an

amended complaint alleging antitrust violations based on

union-only project agreements. The Court allowed plain-

tiff to file a motion for leave to file such an amended

complaint, which plaintiff attempted, adding a new

theory of RICO violation as well, based on certain

employers’ transmittal of union dues in violation of 29

U.S.C. s 186.?

The Court found the first amended complaint facially

inadequate, and denied leave to file it. The Court did

allow plaintiff 45 days to file a second amended com-

1 See Order Dismissing Complaint Without Prejudice, entered

April 30, 1991 (‘April 30 Order’’). The Court held that plaintiff's

RICO claims were preempted by the NLRA because the predicate

act alleged, criminal extortion, was founded upon a violation of the

NLRA which confers jurisdiction on the National Labor Relations

Board.

2 at the time it moved for leave to amend, plaintiff also

moved for reconsideration of the Court’s initial dismissal of the

RICO extortion claims; for amendment of its original complaint

nunc pro tunc to add antitrust claims; and for certification of the

ruling on the RICO extortion claims as a partial final judgment

under Rule 54(b). The Court denied each of these motions. See

July 30 Order at 2.

12a

plaint, but specifically cautioned plaintiff that any RICO

claims would have to conform to the Court’s Standing

Order regarding RICO claims, and that any antitrust

claims would have to be pled with specificity. Plaintiff

filed a second amended complaint, and the defendants

have brought the instant motion to dismiss. The Court

will consider the plaintiff’s RICO claims first, and then

turn to the plaintiff’s antitrust claims.

RICO CLAIMS

1. Plaintiff’s Predicate Act Is Legal.

*2 Plaintiff’s allegations of RICO violations stem from

a program known as “‘BIDS”’ (‘‘Bidder Information and

Directory Service’), a program through which unions

collect information about new or proposed construction

projects. Plaintiff alleges that the unions supply such

information to union personnel for assistance in organ-

izing, and to union contractors to facilitate bidding for

projects that will then employ union labor. Plaintiff does

not contend that it has ever lost a project as a result of

BIDS, nor that any acts undertaken by BIDS are illegal,

but rather that the way BIDS is funded violates labor

laws. Specifically, plaintiff asserts that BIDS is funded

by money taken from membership dues and transmitted

to defendants via a checkoff procedure in violation of

29 U.S.C. s 186. That violation, in turn, serves as the

predicate act for plaintiff’s RICO claims.

Section 186 generally prohibits payments by employ-

ers to labor organizations or their representatives, with

nine enumberated exceptions. One of those exceptions

states that ‘‘[t] he provisions of this section shall not be

applicable . . . (4) with respect to money deducted from

the wages of employees in payment of membership dues

l3a

in a labor organization... .” 29 U.S.C. s186(c)(4)

(“union dues exception’’). This exception recognizes

that dues, while often transmitted for convenience by

employers directly to a union pursuant to a checkoff

procedure, are actually payments to the union from

employees, and not employers.?

Nonetheless, plaintiff alleges that the union dues excep-

tion does not apply because of the uses to which the

dues are put. Those alleged uses are: (1) the collection of

project data and its distribution to union organizers and

contractors; (2) the organizing of employees of non-union

contractors; and (3) combatting the open shop move-

ment. Thus, according to the plaintiff’s theory, these

payments are not union dues with the meaning of s 186

because the funds are not spent on negotiation, collective

bargaining, or union organizing of employees of non-sig-

natory companies. Under the Ninth Circuit’s precedent

in Associated Builders & Contractors v. Carpenters Vaca-

tion & Holiday Trust Fund, 700 F.2d 1269 (9th Cir.),

cert. denied, 464 U.S. 825, (1983) [hereinafter ‘““ABC”’

plaintiff’s argument is misguided: [plaintiff] argues first

that the monies transferred to the Union as ‘supplemental

dues’ are not in payment of ‘membership dues’ because

the Union uses part of the revenues from such supple-

mental dues for ‘political’ purposes, that is, to hire

3 Plaintiff's allegations make clear that the subject funds are

within the union dues exception:

“(T]he BIDS program . . . is funded by money taken

out of membership dues and transmitted to Defendants

by employers pursuant to a dues check-off proced-

ure .... [the BIDS program is] funded by dues, fun-

nelled through District Council 51, and paid to the

Council by union contractor’s payroll deductions.”’

Complaint at para. 95, emphasis added.

l4a

organizers to combat the ‘open shop’ movement in the

Califomia construction industry and to discourage

employers from going non-union. [Plaintiff] contends

that since ‘membership dues’ cannot be expended for

political purposes, the money deducted here is not ‘in

payment of membership dues’ and thus Lloyds is prohib-

ited by [s 186] from transferring such monies to the

union. We disagree. Id. at 1275.

*3 Accordingly, the Ninth Circuit held that dues

checkoff funds used for organizing non-union labor and

promoting union labor were within the union dues excep-

tion and in no way prohibited by s 186. Id. at 1274-75.*

The Court finds this precedent squarely controlling, and

in light of the ABC case, plaintiff’s RICO claims must be

DISMISSED. As the court in ABC noted, “[m] oney

spent on organizing to eliminate competition from non-

union employers is germane to collective bargaining...”

Id. at 1275. Additionally, plaintiff’s theory finds no sup-

port in the text of the labor statute plaintiff attempts to

rely upon. Section 186 in no way limits how such dues

may be spent. Moreover, in Communications Workers of

America v. Beck, 487 U.S. 735 (1988), the Supreme

Court considered the ramifications of restrictions on the

use of union dues. With respect to dues collected from

union members, Beck confirmed that congress viewed

as permissible the full use of union dues, including allo-

cation to activites other than collective bargaining. Id.

at 756.

4the Court stated that: “An expenditure is considered

‘political’ for purposes of first amendment analysis only if it is

not germane to the union’s work in the realm of collective bar-

gaining. Ellis, 685 F.2d at 1072-73. Money spent on organizing

to eliminate competition from non-union employers is germane

to collective bargaining and therefore is not a ‘political’ expendi-

ture for purposes of first amendment analysis.’”” ABC, 700 F.2d

at 1275.

PEST LR eM

ae Rares oc Ant

BD EES EIA LISP DS RIF PAE.

Weis por PS ites ad ig Ali 7

ites irl ots seca tie he Ap LLY ney

15a

Plaintiff argues, however, that Beck and two other

recent cases, Lehnert v. Ferris Faculty Association,

---- U.S. ----, 111 S.Ct. 1950 (1991) and Lucid v. City and

County of San Francisco, 774 F.Supp. 1234 (N.D.Cal.

Oct. 28, 1991) support plaintiff’s argument that the

misallocation of money collected as dues but not used for

collective bargaining within the bargaining unit violates

the law. Those cases, however, are inapplicable. Each

of those cases involved state statutes that compelled

employees in a union shop who did not wish to join the

union to nonetheless pay a ‘“‘service” or “agency” fee.

The theory behind such statutes is that each employee

enjoys the workplace benefits secured by virtue of the

union’s collective bargaining efforts. In such situations,

a balance must necessarily be achieved between that

legitimate goal and the first amendment rights of employ-

ees to be free from compelled support of the union. As

a result, service fees may be collected and disbursed only

in connection with collective bargaining activities. In the

present case, however, only dues from union members

are involved, and case law regarding the legitimate uses-to

which the service fees of non-members may be put are

inapplicable.°

5 Also, plaintiff cites a case by the Wage Appeals Board of

the U.S. Department of Labor as support for the proposition that

monies spent targeting jobs cannot be considered dues. Building

and Construction Unions Job Targeting Programs, 37 Constr.

Labor Rpt. (BNA) 908 (1991). That case, however, merely con-

cerns the legality of certain deductions because they resulted in

employees’ wages going below levels mandated by state law. Thus,

plaintiff garners no real support from that case. In that case,

because an individual employee sees no actual benefit from funds

directed to the job targeting program, the money withheld must

be considered a deduction and not a fringe benefit, triggering

scrutiny of whether the resulting wage falls below mandated levels.

l6a

In sum, then, the practices alleged by plaintiff in this

case are lawful under s 186. Since plaintiff’s RICO claims

are premises solely upon alleged violations of s 186, plain-

tiff’s RICO claims must be DISMISSED.

2. Plaintiff Lacks Standing.

In addition, the Court has determined that there are

two other premises upon which the Court could base

the dismissal of plaintiff’s RICO claims. First, even

assuming a violation of s 186 were properly alleged, plain-

tiff would nonetheless suffer from a lack of standing to

make such an assertion. Section 186 prohibits payments

by employers to labor organizations to inhibit corrupt

practices through which labor representatives might be

induced to betray their trust to their constituents. See,

e.g., Maxwell v. Lucky Constr. Co., 710 F.2d 1395,

1398 (9th Cir. 1983). As a result, the only parties with

a judicially cognizable interest in the enforcement of

s 186 are the paying employers, the unions, their repre-

sentatives or trustees, and their constituent employees.

Plaintiff, who is none of these, has no standing to chal-

lenge an alleged violation.

*4 A case that has directly addressed this issue is

Hibernia Bank v. Intemational Brotherhood of Team-

sters, etc., 411 F.Supp. 478 (N.D.Cal. 1976). In that

case, this Court quoted from Employing Plasterers’

Ass’n v. Journeymen, Plasterers’ Protective & Benevol-

ent Soc., 279 F.2d 92, 99 (7th Cir. 1960):

“The right to test the legality of employer contr-

butions . . . is available to employees and employers

as well as to such other parties as may be directly

concerned with the payment, acceptance, and

administration of the [funds at issue].’’ Hibernia

Bank, 411 F.Supp. at 484.

17a

The Court found the following to be an “apparently

exhaustive enumeration of the basic categories of poten-

tial plaintiffs who have standing to sue under” s 186:

(1) employers who make the payments; (2) unions

whose representatives receive the payments; (3) the

employees represented by such unions; and (4) the trus-

tees of such unions. Id. at 485. This Court today affirms

this approach, and holds that plaintiff lacks standing. If

anything, it is the activities of the BIDS program, and not

its manner of funding that has had any potential affect

on plaintiff. Plaintiff has not provided this Court with

any explanation of how any alleged violation of s 186 has

resulted in a loss to plaintiff.° As mentioned earlier,

plaintiff has not alleged that it has ever submitted a low

bid that was not accepted nor alleged any other damage

linked to any purported violation of s 186.

Plaintiff argues, however, that standing in RICO cases

must be broadly construed. However, Sedima, S.P.R.L.

v. Imrex Co., Inc., 473 U.S. 479, 495 (1985) reiterates

that the compensable injury is the harm caused by the

predicate act. Without a predicate act and harm that has

been proximately and legally caused by that act, a RICO

claim cannot proceed. Securities Investor Protection

Corp. v. Vigman, 908 F.2d 1461, 1467-68 (9th Cir.

1990). See also National Enterprises, Inc. v. Mellon Fin-

ancial Services Corp. Number 7, 847 F.2d 251, 254 (5th

Cir. 1988) (because plaintiff lacks a cognizable injury

resulting from the RICO conduct, plaintiff lacks standing

to bring suit). Thus, in the final analysis, plaintiffs RICO

claim is that BIDS is funded from the wrong source in

Thus, it would appear that plaintiffs in the instant case are

even further removed from standing than the bank that sought, and

was denied, standing in Hibernia. In that case, the bank had han-

dled the deducted funds and suffered a loss due to an overdraft.

18a

violation of s 186. Any injury, however, does not result

from the source of the funds, but rather results ostensibly

from the presence of the program itself. Plaintiff is

neither the source of nor recipient of any such funds,

and without such causation, plaintiff lacks standing, pro-

viding the Court with an additional basis upon which

dismissal could be premised.

3. Failure to Comply With Court Orders.

Finally, this Court finds that there is a third basis upon

which this Court may dismiss plaintiff's RICO claims:

failure to comply with this Court’s previous, specific

orders. In its Order of July 30, 1991, this Court cau-

tioned plaintiff that any RICO claims would have to con-

form with this Court’s Standing Order regarding RICO

cases. That Standing Order directs a RICO plaintiff to,

inter alia:

*5 15. Describe the alleged injury to business or

property.

16. Describe the direct causal relationship between

the alleged injury and the violation of the RICO

statute.

17. List the damages sustained by reason of the vio-

lation of s 1962, indicating the amount for which

each defendant is allegedly liable. Standing Order

at 5.

Plaintiff’s second amended complaint contains no

description whatsoever of what injury plaintiff has suf-

fered in its business or property; no description of dam-

ages; and no description of the direct causal relationsnip

to the commission of any predicate act. The Court has

been enormously patient with the plaintiff, not only

entertaining three attempts to make out a RICO claim,

but providing guidance to plaintiff in that endeavor.

19a

Plaintiff has nonetheless failed to comply with this

Court’s orders, creating a third basis upon which this

Court may dismiss their RICO claims. In sum, then,

plaintiff’s RICO claims are HEREBY DISMISSED because

the predicate acts complained of are legal; the plaintiff

lacks standing; and because plaintiff has failed to comply

with this Court’s orders.

SHERMAN ACT sec. 1 CLAIM

Plaintiff’s first cause of action is for a violation of s 1

of the Sherman Act arising from defendants’ alleged

conspiracy and combination with construction project

owners to enter into unlawful “hot cargo” agreements.

Again, this claim is predicated on the contention that

defendants have entered into union-only project agree-

ments violating s 8(e) of the NLRA, 29 U.S.C. s 158(e).

As explained below, plaintiff still fails to state a cogniz-

able claim for two independent reasons, each of which

has previously been explained to plaintiff, and each of

which plaintiff has failed to cure.

1. Plaintiff Has Not Identified The Parties To And Con-

tents Of Any Contract, Combination Or Conspiracy.

Section 1 of the Sherman Act prohibits contracts,

combinations or conspiracies in restraint of trade. 15

U.S.C. s 1. Accordingly, the first step in as 1 analysis is

to determine the identity of the alleged conspirators and

the content of the alleged conspiracy. T.W. Elec. Serv.,

Inc. v. Pacific Elec. Contractors Ass’n, 809 F.2d 626, 633

(9th Cir. 1987). The identities of the contracting parties

and the contents of such agreements determine their

legality under a number of well-established precepts.

First, under the ‘‘statutory exemption,” unions are

20a

exempt from the antitrust laws unless they combine with

non-labor entities. United States v. Hutcheson, 312 U.S.

219, 232 (1941). Second, while union-only agreements

are generally proscribed by s 8(e), such agreements are

explicitly authorized for the instant industry by the

“construction industry proviso” to s 8(e) when the agree-

ments arise in relation to collective bargaining. 29 U.S.C.

s 158(e); Woelke & Romero Framing, Inc. v. NLRB, 456

U.S. 645, 648 (1982). Such collective bargaining rela-

tionships can be established by a “‘pre-hire” agreement

to use union-only labor, as authorized by s 8(f) of the

NLRA. 29 U.S.C. s 158(f).? Thus, by complying with

these doctrines, unions who desire project agreements can

ensure their legality through the terms of the agreements

and the identities of the parties to them.

*6 In this action, after rejecting the inadequate allega-

tions of a contract, combination or conspiracy in the first

amended complaint, this Court specifically instructed

plaintiff on how plaintiff must allege an antitrust claim:

(a) The specific identity of, and each party to, each

contract, combination, or conspiracy in restraint of

trade to which a non-labor group was allegedly a

member, and in additional shall conform to the

following:

(1) In the event that plaintiff contends any

union-only project agreement or other contract

7 Also, an employer who is largely involved in non-construc-

tion industries may take advantage of s 8(f) [and enter a pre-hire

agreement] if it is sufficiently engaged in construction work at one

site. A.L. Adams Constr. Co. v. Georgia Power Co., 733 F.2d 853,

856-57 (llth Cir. 1984), cert. denied, 471 U.S. 1075 (1985).

Additionally, if a developer acts as its own general contractor, or

has subsidiaries or related entities which employ labor in the con-

struction industry, then union-only project agreements are allowed.

Id. at 857-58.

2la

is an illegal restraint of trade or part thereof, for

each such agreement it shall identify to the extent

possible the agreement, each of the parties to it,

its terms, and shall attach the agreement, if it is

in plaintiff’s possession.

(2) In the event that plaintiff contends that

any combination or conspiracy to restrain trade

exists apart from any contract, plaintiff shall

identify each combination and conspiracy, shall

identify the parties to it by name, shall describe

its common scheme, and shall describe the unlaw-

ful objective.

(b) The acts each defendant performed or under-

took in furtherance of each contract, combination

or conspiracy.

each alleged contract.

(d) The geographic and product market allegedly

monopolized by any defendant, and the acts each

named defendant undertook to pursue monopoliza-

tion of that market. July 30 Order at 2-3.

Clearly, plaintiff has not compled with this Court’s

instructions for pizading a contract in restraint of trade.

Plaintiff refers to four projects for which it was unable

to bid, but in none of these cases does plaintiff's allega-

tions suffice to form a cognizable complaint.

First, plaintiff complains that it was unable to bid for

one project because “General Electric agreed with

Defendants to boycott open-shop contractors.”” Second

amended complaint at paragraph 55. However, plain-

tiff does not identify a single defendant who so agreed;

does not plead the agreement’s terms, nor attach a copy

of it; nor does plaintiff plead what acts any defendant

undertook in furtherance of such an agreement.

22a

Second, plaintiff alleges that it lost an opportunity to

bid when a prime contractor known as Gotaverken

“signed an agreement prohibiting Gotaverken from using

or retaining open-shop contractors.” Second amended

complaint at paragraph 60. This assertion, brought ver-

batim from the first amended complaint, still fails to

state with whom the supposed agreement was made;

what its terms were; why no copy of this signed docu-

ment is attached or available or unavailable; or state what

acts any defendant undertook in furtherance of it.

Third, plaintiff alleges that “Local 549 . . . coerced

GWF into signing a union-only agreement.” Second

amended complaint at paragraph 65. Local 549, how-

ever, is not one of the numerous defendants plaintiff has

named. Additionally, plaintiff fails to state whom this

alleged project agreement was with; what its terms were;

and thé roles of defendants.

*7 Finally, plaintiff has contended that it could not

bid after Chevron “either signed or agreed to sign a man-

datory union-only contract . . . or agreed to retain a gen-

eral contractor who would be required to sign such an

agreement.” Second amended complaint at paragraph

73. Again, the parties to the agreement are not identified;

its terms are not plead; no copy is attached; and there are

no allegations of what acts any defendant undertook in

furtherance of the alleged agreement.

Plaintiff is incorrect in characterizing these funda-

mentals as “‘evidentiary details’? that may be supplied

later through discovery. Without such facts as the

identities of the parties to the alleged agreement, plaintiff

has not adequately plead a violation of the antitrust laws,

since union-only agreements are not intrinsically improper.

Accordingly, plaintiff, on its third attempt, has failed to

sa aaaaeaaaaaa centennial

23a

set forth necessary elements of as 1 antitrust cause of

action, and plaintiff’s s 1 claim must therefore be DIS-

MISSED.

2. Plaintiff Has Not Pleaded Injury to Competition.

The Court notes that there is a second, independent

reason that warrants the dismissal of plaintiff’s s 1 claim:

plaintiff’s failure to plead the injury to competition that

resulted from each alleged contract in restraint of trade.

See July 30 Order at 3. That Order reflects two basis

antitrust precepts: (1) where, as here, the rule of reason

analysis applies, plaintiff must plead injury to competi-

tion; and (2) where, as here, an antitrust claim is alleged

against labor entities, labor’s “‘non-statutory exemption”

requires heightened pleading of injury to competiticn.

Under Ackerman-Chillingworth, Division of Marsh &

McLennan, Inc. v. Pacific Elec. Contractors Ass’n, 405

F.Supp. 99, 114-18 (D. Haw. 1975), aff'd 579 F.2d 484,

490 n.7 (9th Cir. 1978), cert. denied, 439 U.S. 1089

(1979), as 8(e) violation is not per se an illegal boycott.

Accordingly, the rule of reason applies, and a claim must

allege that competition has been injured, rather than

injury to competitors. Rutman Wine Co. v. E. & j. Gallo

Winery, 829 F.2d 729, 734 (9th Cir. 1987). Likewise,

in Les Shockley Racing, Inc. v. National Hot Rod Ass’n,

884 F.2d 504, 508 (9th Cir. 1989), the Ninth Circuit

stated that: “This limitation on the reach of the Sher-

man Act is reflected in our repeated injunctions that

section one claimants must plead and prove a reduction

of competition in the market in general and nor mere

injury to their own positions as competitors in the mar-

ket.’”” That court also noted that “removal of one or a

few competitors need not equate with injury to competi-

tion.” Id.

24a

Plaintiff’s second amended complaint, however, alleges

injury only to plaintiff. At most, it alleges that plaintiff

could not submit bids to four projects out of the approx-

imately 93 projects identified in the complaint. It does

not allege that plaintiff actually submitted a low bid, nor

that any project awarded plaintiff was withdrawn. But

even assuming that plaintiff adequately alleged “injury

to itself, its conclusion that competition has been harmed

thereby does not follow.’’ Rutman Wine, 829 F.2d at

734.

*8 In Les Shockley, for example, the plaintiffs alleged

that they had been excluded from a particular market.

Affirming the district court’s dismissal of that amended

complaint, the Ninth Circuit held that:

Ordinarily, the factual support needed to show

injury to competition must include proof of the

relevant geographic and product markets and

demonstration of the restraint’s anticompetitive

effects within those markets. Avoiding such market

analysis requires proof of actual detrimental com-

petitive effects such as output decreases or price

increases. Les Shockley, 884 F.2d at 508 (citations

omitted).

In much the same manner, the plaintiff in the instant

case has failed, in three opportunities, to include factual

allegations suggesting that the market for insulation

subcontracting has been harmed by the defendants.

There are no allegations of output decreases or price

increases in the market, nor is there any allegation of

any other effect on the “characteristic or function of a

competitive market.” Id. at 509.8

8 Plaintiff's claim that the ‘vast majority” of industrial piping

and insulation projects have been performed by subcontractors

[footnote continued ]

iii

reer

25a

Finally, because plaintiff’s antitrust allegations are

brought against a labor organization, plaintiff must plead

significant injury to competition to avoid the unions’

‘“non-statutory exemption.” This judicially fashioned

exemption “prevents the antitrust laws from being used

to frustrate the primary and legitimate goal of the federal

labor law, which is to permit employees to organize and

act to improve wages and working conditions.” Richards

v. Neilsen Freight Lines, 810 F.2d 898, 905 (9th Cir.

1987) (citing Connell Constr. Co. v. Plumbers & Steam-

fitters Local Union No. 100, 421 U.S. 616, 622 (1975)).

According to Richards, union-imposed restraints that are

designed to improve wages and working conditions are

generally shielded by this exemption ‘“‘unless they pro-

duce significant anti-competitive effects apart from those

that normally result from elimination of competiton over

wages and working conditions.” Id. Plaintiff has failed

to allege such significant anticompetitive effects — noth-

ing in the second amended complaint suggests that the

exclusion of plaintiff would eliminate any competition

beyond whatever advantage plaintiff might derive from

not paying union scale wages.

Accordingly, because plaintiff has failed to identify

the parties to and contends of any alleged combination

and because plaintiff has not sufficiently pleaded injury

to competition, plaintiff’s s 1 antitrust claim must be

DISMISSED for failure to state a claim.

Plaintiff, however, argues that in the instant case, the

rule of reason does not apply, and that any violation of

using union labor is completely insufficient as a market analysis.

Such a statement does not equate with the conclusion that the sub-

contracting market is any less competitive. In fact, the plaintiffs

allegations make clear that at least five different union contractors

compete in this market.

26a

s 8(e) constitutes a per se antitrust violation, for which

injury to competition may be presumed. The Court

disagrees.

Per se antitrust violations have been found in only

exceptional circumstances, and are limited to those agree-

ments or practices whose pernicious effects are so mani-

fest and whose lack of redeeming features so obvious that

they may be presumed unreasonable. Oltz v. St. Peter’s

Community Hosp., 861 F.2d 1440, 1445 (9th Cir. 1988).9

*9 Plaintiff maintains that the rule of reason is inappli-

cable, because defendants’ conduct amounts to a “group

boycott.”’ Use of that term, though, is not enough.!°

Boycotts can take a variety of forms and courts will not

necessarily apply the per se rule, especially where the

impact of the arrangement is not obvious. Oltz, 861 F.2d

at 1445 n.1. Next, the cases plaintiff cites to demon-

strate application of the per se rule to group boycotts

all involve “horizontal boycotts,” situations where one

competitor attempts to exclude others on the same

level. However, the instant case involves a vertical

9 Thus, a certain practice can be said to constitute a per se

violation only after extensive judicial experience has established

that anticompetitive consequences regularly flow from that prac-

tice.

10 The Supreme Court has stated that “‘ ‘[g] roup boycotts’

are often listed among the classes of economic activity that merit

per se invalidation under s 1. Exactly what types of activity fall

within the forbidden category is, however, far from certain.”

Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Print-

ing Co., 472 U.S. 284, 293-94 (1985) (citations omitted).

1] plaintiff cites: United States v. General Motors Corp.,

384 U.S. 127 (1966) (retailers induced manufacturer not to sell

to competing retailers); Fashion Originators’ Guild, Inc. v. FTC,

312 U.S. 457 (1941) (certain manufacturers attempted to induce

retailers to boycott competing manufacturers); Klor’s Inc. v.

Broadway-Hale Stores, Inc., 359 U.S. 207 (1959) (one retailer

sought to eliminate another retailer from a particular market).

27a

agreement between a union and a developer who stands

at least two levels higher in the production system. In

other words, the contracts alleged are not directed at

excluding competitors at the level of either the unions

or developers. In fact, where courts have considered

vertical agreements, per se treatment has regularly

been denied. Rutman Wine Co. v. E. & J. Gallo Winery,

829 F.2d 729, 734-35 (9th Cir. 1987); Gough v. Ross-

moor Corp., 585 F.2d 381, 387 (9th Cir. 1978); R.C.

Dick Geothermal Corp. v. Thermogenics, Inc., 619

F.Supp. 441, 449 (N.D.Cal. 1985) (‘‘an alleged boycott

between vertically related defendants is not per se unlaw-

ful’’). See also Ackerman-Chillingworth, Div. of Marsh

& McLennan, Inc. v. Pacific Elec. Contractors Ass’n,

405 F.Supp. 99, 114-18 (D. Hawaii 1975) aff'd 579

F.2d 484, 490 n.7 (9th Cir. 1978), cert. denied, 439

U.S. 1089 (1979) (section 8(e) violation is not per se

illegal boycott).

Plaintiff also asserts that Connell Construction Co. v.

Plumbers & Steamfitters Local Union No. 100, 421 U.S.

616 (1975) requires application of the per se rule.!?

While that case may be distinguished on its facts, the

l2 tn Connell, the Court held that the antitrust laws are

applicable, though not necessarily violated by, a general con-

tractor’s agreement with a union to exclude any subcontractor

who was not a signatory to a standardized multiemployer agree-

ment with the union. In that case, the agreement specifically dis-

claimed any intent on behalf of the union to organize or represent

the contractor’s employees in collective bargaining. Additionally,

the Connell agreement was not limited to one construction site,

but applied to all projects the contractor pursued. Finally, that

agreement contained a “most favored nation”’ clause that guaran-

teed that each subcontractor would receive the same terms from

the union. These factors, not present in the instant case, had the

effect of eliminating competition.

28a

more fundamental flaw with plaintiff’s argument is that

Connell simply did not speak to the issue of whether or

not the rule of reason or the per se doctrine applies in

such a case. Rather, the Connell court remanded the

action for a determination of whether or not antitrust

liability existed, rather than finding the conduct to be

a per se violation.!> Accordingly, as plaintiff has failed

to allege any activity that falls within those scenarios

justifying per se treatment, the rule of reason applies, !*

and as discussed, plaintiff’s s 1 claims must be DIS-

MISSED.

SHERMAN ACT s 2 CLAIMS

Plaintiff has also attempted to plead a violation of s 2

of the Sherman Act, alleging that the defendants used

sham petitions and meritless environmental objections

to monopolize their market and restrain trade. For three

independent reasons, this claim must also be DISMISSED.

13 applying this, the Court in Larry v. Muko, Inc. v. South-

western Pennsylvania Bldg. and Constr. Trades Council, 670 F.2d

421 (3d Cir. 1982) held that ‘tan agreement which under Connell

is found unprotected by the labor exemption must still be exam-

ined under traditional antitrust analysis to determine if it has a

sufficient anticompetitive effect to constitute an antitrust infrac-

tion. Id. at 427. See also Richards v. Neilsen Freight Lines, 810

F.2d 898, 906 (9th Cir. 1987) (‘Connell does not suggest that

every violation of Section [8(e)] gives rise to an antitrust suit.’’).

14,4, a practical matter, the Court notes that were plaintiff’s

activities so clearly an antitrust violation that per se liability could

be invoked, plaintiff’s initial attempts to fashion a RICO case

from those same activities would be largely inexplicable.

icine icimaaaihtaacaacaiaaaaiaiaiti

29a

1. It Is Legally. Impossible For Labor Unions To

Monopolize The Pipe And Insulation Subcontract

Market.

First, the relevant markets in question, as noted by the

plaintiff, are the “construction sub-contract [markets]

for the installation of piping and insulation.” Defend-

ants, however, are clearly not in the pipe and insulation

subcontracting market. Defendants are labor unions

that provide workers to contractors and sub-contractors

with whom they have collective bargaining agreements.

See Genser v. Int’l Brotherhood of Electrical Workers,

522 F.Supp. 1153, 1155 (N.D.Ill. 1981) (“‘[t] he Union’s

relevant market is labor, not the electrical contracting

business; thus the Union could not unilaterally monopo-

lize or attempt to monopolize the electrical contracting

market’’).

*10 Plaintiff’s claim could potentially be salvaged

were plaintiff able to allege that defendants had con-

spired to monopolize another market with a participant

within that market. See Richter Concrete Corp. v. Hill-

top Basic Resources, Inc., 547 F.Supp. 893, 899 (S.D.

Ohio 1981), aff’d, 691 F.2d 818 (6th Cir. 1982) (“the

fact that [defendant] was not itself engaged in [that

business] does not perforce exclude any claim that it con-

spired with another company that was so engaged...’’).

However, such a claim requires that the unions have con-

spired with a union contractor or any other participant

in the relevant market. The Second amended complaint,

though, does not mention any participation by or con-

spiracy with union contractors or subcontractors in the

sham petitioning activity. Without such allegations, the

claim for conspiracy to monopolize defendants’ market

must fail. Vague and conclusory references to unnamed

conspiractors will not suffice. Plaintiff was made aware

30a

of this requirernents in this Court’s Order of July 30 in

which plaintiff was instructed that “‘plaintiff shall ident-

ify each combination or conspiracy, shall identify the

parties to it by name, shall describe its common scheme,

and shall describe its unlawful objective.” Clearly, plain-

tiff has failed to comply with that Order.

2. Plaintiff Has Failed To Plead The Requisite

Involvement Of Non-Labor Groups Necessary

To Defeat The Statutory Exemption.

Labor benefits from a ‘“‘statutory exemption,” distinct

from the non-statutory exemption discussed earlier, that

immunizes union contract from antitrust laws as “long as

a union acts in its self-interest and does not combine with

non-labor groups.” United States v. Hutcheson, 312 U.S.

219, 232 (1941). If a union aids or abets non-labor

groups creating business monopolies or in controlling

markets, the exemption is lost; but unions acting alone

are beyond the reach of the antitrust laws. Allen Bradley

Co. v. Int’! Brotherhood of Electrical Workers, 325 U.S.

797, 807-08 (1945); Bodine Produce, Inc. v. United Farm

Workers Organizing Comm., 494 F.2d 541, 544-56 (9th

Cir. 1974) (tracing history of statutory exemption).

Plaintiff’s s 2 claim, however, makes no allegation that

defendants have combined with any non-labor group to

engage in the sham petitioning upon which the monopoli-

zation claim is founded.!° Plaintiff complains that the

unions and their at:omeys participated in certain permit

15 plaintiff's conclusory allegation that defendants are ‘‘co-

conspirators” with project developers and union subcontractors is

simply insufficient. There is no pleading of the actual involvement

of any union subcontractor. With regard to the project developers,

not only is the pleading insufficient, but the Court is skeptical that

any developer would actually file sham petitions against their own

projects.

3la

proceedings. Without some allegation that non-labor

groups were involved in the petitioning activity alleged

to constitute a monopoly, that activity is exempt from

the antitrust statutes as a matter of law. See also USS-

Posco Industries v. Contra Costa Bldg. & Constr. Trades

Council, 1990 WL 142457, 1990 U.S. Dist. LEXIS

11,360 (N.D. Cal. 1990) (allegedly sham challenges to

the construction of the UPI plant on environmental

grounds fall within the statutory exemption as long as

unions did not combine with non-labor groups).!®

3. Plaintiff Has Failed To Plead Any Meritless

Proceeding.

*11 Plaintiff has premises its monopolization claim

upon the theory that defendants engaged in sham peti-

tions and baseless environmental objections. The Court

cautioned plaintiff in its April 30 Order that the original

complaint did not provide adequate factual support for

such a claim. Plaintiff’s second amended complaint is

no improvement. It fails to allege that defendants have

threatened or pursued a single meritless objection to any

construction project, much less identify that objection

or allege why such an objection should be considered

meritless.

In Franchise Realty Interstate Corp. v. San Francisco

Local Joint Executive Bd. of Culinary Workers, 542

F.2d 1076, 1079-83 (9th Cir. 1976), cert. denied, 430

U.S. 940 (1977), McDonald’s Restaurants sued labor

unions and associations of employers in antitrust, alleging

16 Again, the Court made plaintiff aware of this requirement

in its Order of July 30, in which plaintiff was directed to plead the

involvement of non-labor groups in order to state an antitrust

claim.

32a

that they opposed each permit granted to McDonald’s in

an attempt to foreclose McDonald’s from access to the

Board of Permit Appeals. In affirming the district court’s

dismissal and denial of leave to amend, the Ninth Circuit

noted that [t]he complaint fails to adduce any specific

facts to support the conclusory allegation that defend-

ants’ opposition before the Board was ‘sham’ or ‘frivo-

lous.’ Id. at 1079.

Rather, mindful of the important issues of first amend-

ment rights implicated in challenges to public participa-

tion, the Franchise Realty court established a procedural

rule requiring the pleading of specific facts in such chal-

lenges: [W]here a plaintiff seeks damages or injunctive

relief, or both, for conduct which is prima facie protected

by the First Amendment, the danger that the mere pen-

dency of the action will chill the exercise of First Amend-

ment rights requires more specific allegations than would

otherwise be required. Id. at 1082-83. See also Boone v.

Redevelopment Agency of San Jose, 841 F.2d 886, 894

(9th Cir.), cert. denied, 488 U.S. 965 (1988).

As in Franchise Realty, plaintiff has failed to allege

facts with particularity. The pleadings with respect to

each of the four projects referred to by plaintiff earlier

are insufficient. For the General Electric Project, plain-

tiff alleges only “threats of permit delay,” not what

threats were made or whether or not they had ment. For

the Gotaverken project, plaintiff alleges that a union

threatened environmental objections, again with no fac-

tion description of the threat, the objection or its ment

or lack thereof. The GWF project contains no reference

to any acts of public participation at all. Finally, for

Chevron, plaintiff only refers to ‘‘environmenta2! ‘mpact

objections as well as other permit objections” without

any further factual descriptions or explanations.

ooo eee

33a

There is simply nothing remotely improper about filing

environmental or other objections. Without something

more, plaintiff fails to satisfy the Franchise Realty rule,

and the continued vitality of this lawsuit would unjustifi-

ably intrude upon defendants’ nights to participate in

public proceedings.

*12 Accordingly, because plaintiff has failed to state a

claim under s 2 of the Sherman Act for the above three

reasons, those claims must be, and are

HEREBY DISMISSED.

DISMISSAL MUST BE WITH PREJUDICE

For the following reasons, plaintiff’s claims are DIS-

MISSED WITH PREJUDICE: multiple amendments have

already been attempted; the Court’s specific admonitions

to the plaintiff have not been heeded; and the potential

chilling effect on the right to petition guaranteed by the

first amendment. First, if this Court were to allow plain-

tiff leave to amend, plaintiff’s next attempt would be its

fourth. See Mir v. Fosburg, 646 F.2d 342, 347 (9th Cir.

1980) (district court has broad discretion to grant or

deny leave to amend, particularly where the court has

already given a plaintiff one or more opportunities to

amend). See also Fidelity Financial Corp. v. Federal

Home Loan Bank, 792 F.2d 1432, 1438 (9th Cir. 1986),

cert. denied, 479 U.S. 1064 (1987) (the district court’s

discretion to deny leave to amend is particularly broad

where the court has already given the plaintiff an oppor-

tunity to amend its complaint).

Moreover, the plaintiff has been unable to cure its

defective pleadings in spite of this Court’s specific instruc-

tions, making dismissal with prejudice proper. Ascon

Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149. 1160-61

34a

(9th Cir. 1989) (where a district court has issued an order

explaining in detail the bases for its dismissal and directed

the plaintiff as to how to properly allege a claim, a sec-

ond amended complaint that still fails to state a claim is

properly dismissed with prejudice); Barger v. Playboy

Enterprises, Inc., 564 F.Supp. 1151, 1155 (N.D. Cal.

1983), aff'd, 732 F.2d 163 (9th Cir.), cert. denied, 469

U.S. 853 (1984) (dismissal with prejudice proper because

plaintiffs had been put on notice by the court of pleading

requirements and failed to cure defects). Plaintiff's fail-

ure to cure these defects despite this Court’s direction

leaves the Court highly skeptical of plaintiff's ability

to allege the facts necessary to state a viable claim.

Finally, the parties have disputed whether or not this

suit may fairly be characterized as a SLAPP suit. Irre-

spective of whether that label fits, the Court is mindful

that the pendency of this suit, both in litigation costs and

threats of treble damages, could have the effect of chill-

ing the defendants’ rights to public participation. As

such, and in view of the ample opportunities afforded

plaintiff to state a cognizable claim, dismissal with pre-

judice is warranted. Franchise Realty, 542 F.2d at 1085-

86 (denying leave to file a second amended complaint

alleging antitrust violations from unicis’ participation in

permit proceedings); Barger, 564 F.Supp. at 1155 (“[iJn

view of the burden on defendant’s exercise of its First

Amendment nights which would be imposed by unneces-

sarily prolonging this litigation, the complaint is dis-

missed with prejudice .. ..”).!’ Accordingly, the above-

17-The Court also notes that in oral argument, plaintiff did

not seek leave to amend, but rather chose to stand on its current

complaint. Plaintiff did so fully aware of the Court's indication in

oral argument that this case ought to be dismissed and an appeal

taken, if necessary.

erected

35a

captioned matter is HEREBY DISMISSED WITH PRE-

JUDICE.

CONCLUSION

*13 For the above stated reasons, defendants’ motion

to dismiss is GRANTED and the complaint is accordingly

DISMISSED WITH PREJUDICE.

IT IS SO ORDERED.

36a

APPENDIX C

[Filed Nov 19 1993]

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

No. 92-15511

D.C. No. CV-90-03628-EFL

PETROCHEM INSULATION, INC.,

Plaintiff-Appellant,

UNITED ASSOCIATION OF JOURNEYMEN &

APPRENTICES OF THE PLUMBING & PIPE

FITTING INDUSTRY OF THE UNITED STATES

& CANADA, LOCAL UNION NO. 38, AFL-CIO;

THOMAS R. ADAMS; ADAMS & BROADWELL;

THOMAS J. HUNTER; NORTHERN CALIFORNIA

AND NORTHERN NEVADA PIPE TRADES

COUNCIL, District Council 51, et al.; LOCAL

UNIONS 62, 159, 228, 246, 342, 343, 350, 365,

437, 444, 447, 460, 471, 483, 492, 503 AND 662,

Defendants-Appellees.

INTERNATIONAL BROTHERHOOD OF ELECTRICAL

WORKERS, AFL-CIO LOCAL 302, amicus,

Amicus.

a aceneeeieeeemmeemaeeneie

37a

ORDER

Before; KOZINSKI, THOMPSON, and T.G. NELSON,

Circuit Judges.

The panel has voted to deny Appeliant’s petition for

rehearing, to reject the suggestion for rehearing en banc,

and to reject the request for en banc cansideration of

this court’s August 6, 1993 order.

The full court has been advised of the suggestions for

rehearing en banc and no active judge has requested a

vote on whether to rehear the matter en banc. Fed. R.

App. P. 35(b).

The petition for rehearing is denied and the suggestions

for rehearing en banc are rejected.

38a

APPENDIX D

[Filed Aug 6 1993]

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

No. 92-15511

D.C. No. CV-90-03628-EFL

PETROCHEM INSULATION, INC.,

Plaintiff-Appellant,

UNITED ASSOCIATION OF JOURNEYMEN &

APPRENTICES OF THE PLUMBING & PIPE

FITTING INDUSTRY OF THE UNITED STATES

& CANADA, LOCAL UNION NO. 38, AFL-CIO;

THOMAS R. ADAMS; ADAMS & BROADWELL;

THOMAS J. HUNTER; NORTHERN CALIFORNIA

“AND NORTHERN NEVADA PIPE TRADES

COUNCIL, District Council 51, et al.; LOCAL

UNIONS 62, 159, 228, 246, 342, 343, 350, 365,

437, 444, 447, 460, 471, 483, 492, 503 AND 662,

Defendants-Appellees.

INTERNATIONAL BROTHERHOOD OF ELECTRICAL

WORKERS, AFL-CIO LOCAL 302, amicus,

Amicus.

39a

ORDER

Before; KOZINSKI, THOMPSON, and T.G. NELSON,

Circuit Judges.

Appellees’ Motion to Dismiss the Appeal is granted in

part. Insofar as the appeal attempts to challenge the val-

idity of the District Court’s order dated April 30, 1991,

it is DISMISSED. Loux v. Rhay, 375 F.2d 55 (9th Cir.

1967). The other issues raised will remain on the oral

argument calendar as previously scheduled.

40a

APPENDIX E

[Filed Sep 3 1991]

Mark R. Thierman

Carole E. Seliger -

THIERMAN, COOK, BROWN & PRAGER

601 California Street, 17th Floor

San Francisco, California 94108

Telephone: (415) 391-9200

Attorneys for Plaintiff

Petrochem Insulation, Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

CIVIL ACTION NO.: C-90-3628-EFL-ENE

PETROCHEM INSULATION, INC.,

Plaintiff,

NORTHERN CALIFORNIA AND NORTHERN

NEVADA PIPE TRADES COUNCIL, District Council

51 of the United Association of Journeymen and

Apprentices of the Plumbing and Pipefitting Industry of

the United States and Canada, AFL-CIO; UNITED

ASSOCIATION OF JOURNEYMEN AND

APPRENTICES OF THE PLUMBING AND

PIPEFITTING INDUSTRY OF THE UNITED STATES

oo nn rere

4la

AND CANADA, AFL-CIO; LOCAL UNIONS 62, 159,

228, 246, 342, 343, 350, 365, 393, 437, 444, 447, 460,

467, 471, 483, 492, 503, and 662; THOMAS R. ADAMS;

_ THOMAS R. ADAMS, P.C.; ADAMS & BROADWELL,

P.C.; and THOMAS J. HUNTER,

Defendants.

SECOND AMENDED COMPLAINT FOR DAMAGES

AND INJUNCTION AGAINST DEMANDING

UNLAWFUL AGREEMENTS IN EXCHANGE FOR

WAIVING ENVIRONMENTAL AND PERMIT

OBJECTIONS (Jury Demanded)

15 U.S.C. § §1-2 and 18 U.S.C. §1961 et seq.

Plaintiff Petrochem Insulation, Inc. (“Petrochem”),

brings this action for damages and permanent injunctive

relief under the federal antitrust laws and anti-racket-

eering laws against Defendants; Northern California and

Northern Nevada Pipe Trades Council, District Council

51 of the United Association of Journeymen and Appren-

tices of the Plumbing and Pipefitting Industry of the

United States and Canada, AFL-CIO (the “‘District Coun-

cil” or “District Council 51”); United Association of

Journeymen and Apprentices of the Plumbing and Pipe-

fitting Industry of the United States and Canada, AFL-

CIO, Local Unions 62, 159, 228, 246, 342, 343, 350,

365, 393, 437, 444, 447, 460, 467, 471, 483, 492, 503,

and 662 (‘Local [number]” or, collectively, the

Locals’); Thomas R. Adams (“Tom Adams’’); Thomas

R. Adams, P.C. (‘“‘Adams, P.C.”); Adams & Broadwell,

P.C. (“Adams & Broadwell’) (Tom Adams, Adams, P.C.,

and Adams & Broadwell are collectively referred to as

42a

“Adams”’); and Thomas J. Hunter (‘Hunter’). Plaintiff

alleges as follows:

JURISDICTION

1. This court has jurisdiction of the subject matter pur-

suant to Sections 4 and 14 of the Clayton Act (15

U.S.C. §§ 4 and 14) for violations of the Sherman Anti-

trust Act, (15 U.S.C. § § 1 and 2) and 18 U.S.C. § 1964(c)

for violations of the Racketeering Influence and Corrupt

Organization Act, (18 U.S.C. § §1962 and 1965(a)).

2. This court also has jurisdiction of the subject matter

by virtue of 28 U.S.C. §§1331 and 1337 in that this is

a civil action arising under the laws of the United States

as set forth above.

VENUE

3. Venue is proper in this court by virtue of 28 U.S.C.

§1391(b) in that the claims asserted herein arose in

material part in this district.

4. Venue is also proper in this court in that the Defend-

ants are found, have agents, or transact their affairs

within this district.

GENERAL NATURE OF THE CASE

5. The first cause of action is for alleged violations of

the federal anti-trust laws by the Defendants’ conspiracy

and combination with construction project owners (who

are not employers in the construction industry, do not

self-perform the construction work, and who have no

collective bargaining relationship with Defendants) to

enter into unlawful “hot cargo” agreements, thereby

precluding the plaintiff from either bidding for or com-

peting for work on large industrial construction projects.

PGMA DERE CEO eed Ee ater fe

43a

6. The second cause of action is an alleged violation

of the federal anti-trust laws arising out of the Defend-

ants’ monopolization of the market and restraint of

trade through the use of sham petitioning, filing environ-

mental objections with or without probable cause, and

regardless of the merits of the cases as a means of impos-

ing delay and cost and adverse publicity and otherwise

attempting to use governmental process, rather than the

result of that process, as an anti-competitive weapon.

7. The remaining causes of action are for violations of

the provisions of the Racketeering Influenced and Cor-

rupted Organizations (RICO) Acts predicated on pay-

ments from employers to a union in violation of the Sec-

tion 302 of the Taft-Hartley Act, 29 U.S.C. §186. The

RICO violation arises from the establishment of the Bid-

der Information and Directory Service (“‘BIDS”), which

functions as a common sales force for signatory contrac-

tors, similar to a labor-management cooperative commit-

tee, but is not separately maintained, nor jointly adminis-

tered. BIDS is financed in whole by funds which are

employer payments to a union in violation of 29 U.S.C.

§ 186.

PARTIES

8. Petrochem is a California Corporation with its prin-

cipal place of business in Vallejo, Solano County, Cali-

fornia. Petrochem maintains branch offices in both

Southern California and the State of Washington. Petro-

chem is a mechanical insulation contractor specializing

in power plant and industrial constriction. It is not sig-

natory to collective bargaining agreements. Nor has

Petrochem recognized any labor organization as the

majority representative of its employees. Although the

majority of Petrochem’s business is conducted within

t4a

California, Petrochem routinely competes for and per-

forms construction and insulation contracts throughout

the entire United States on new and rehabilitated indus-

trial construction projects, as well as maintenance work.

Petrochem routinely submits bidding proposals in com-

petition with other contractors who are both signatory

and not signatory with labor organizations as well as

contractors who are exclusively signatory with the Local

Union Defendants in this action. The projects for which

Petrochem submits bids routinely process goods and

mateiial supplied from outside the State of California

for use both in the State of California and other States.

9. District Council 51 is a labor organization with

headquarters at 1350 Bayshore Highway, Burlingame,

California 94010. District Council 51 is an unincorpor-

ated association whose members include the Locals.

The Council came into existence prior to 1985 as an

informal group consisting of the Locals. At that time it

was known as the Northern California and Northen

Nevada Pipe Trades Council. In 1988, the Council

obtained a charter as District Council Number 51 of the

United Association of Journeymen and Apprentices of

the Plumbing and Pipefitting Industry of the United

States and Canada, AFL-CIO. Thomas Hunter is the

Business Manager of District Council 51.

10. Defendant Local Union 62 is a labor organization

with headquarters at 778 Hawthorne Street, Monterey,

California 93940. John E. Bandarra is the Business Man-

ager of Local 62.

11. Defendant, Local Union 159 is a labor organization

with headquarters at 1308 Roman Way, Martinez, Cali-

fornia 94553. Edward K. Anschutz is the Treasurer of

Local 159.

45a

12. Defendant, Local Union 228 is a labor organization

with headquarters at 719 Sutter Street, Yuba City, Calli-

fornia 95991. William R. Douthat is the Business Mana-

ger of Local 228.

13. Defendant, Local Union 246 is a labor organization

with headquarters at 4831 East Shields Street, Fresno,

California 93726. Robert Ward is the Business Manager

of Local 246.

14. Defendant, Local Union 342 is a labor organiza-

tion with headquarters at 1030 Shary Circle, Concord,

California 94518. John A. Matheis is the Business Man-

ager of Local 342.

15. Defendant, Local Union 343 is a labor organization

with headquarters at 401 Nebraska Street, Val'ejo, Cali-

fornia 94590. Michael Beavers is the Business Manager of

Local 343.

16. Defendant, Local Union 350 is a labor organization

with headquarters at 110 Greg Street, Sparks, Nevada

89431. George Foster is the Business Manager of Local

350. ,

17. Defendant, Local Union 375 is a labor organiza-

tion with headquarters at 2920 Soqual Avenue, Santa

Cruz, California 95062. William Kirby is the Business

Manager of Local 365.

18. Defendant, Local Union 393 is a labor organization

with headquarters at 370 Umbarger Road, San Jose, Cali-

fornia 95111. Robert Duffey is the Business Manager of

Local 393.

19. Defendant, Local Union 437 is a labor organization

with headquarters at 1340 Lone Palm Avenue, Modesto,

California 95351. Preston Oliver is the Business Manager

of Local 437.

46a

20. Defendant, Local Union 444 is a labor organization

with headquarters at 2960 Merced Street, San Leandro,

California 94577. Charles E. Fugel is the Business Man-

ager of Local 444.

21. Defendant, Local Union 447 is a labor organization

with headquarters at 5841 Newman Court, Sacramento,

California 95819. William Rhoten is the Financial Secre-

tary of Local 447.

22. Defendant, Local Union 460 is a labor organization

with headquarters at 6718 Meany Ave., Bakersfield,

California 93308. John J. Mickelson is the Business Man-

ager of Local 460.

23. Defendant, Local Union 467 is a labor organization

with headquarters at 1519 Rollins Road, Burlingame, Cal-

ifornia 94010. Gary Saunder is the Business Manager of

Local 467.

24. Defendant, Local Union 471 is a labor organization

with headquarters at 832 E Street, Eureka, California

95501. Gary Haberman is the Business Manager of Local

471.

25. Defendant, Local Union 483 is a labor organization

with headquarters at 46 Ingold Rd., Suite D, Burlingame,

California 94010. Lloyd Barton is the Business Manager

of Local 483.

26. Defendant, Local Union 492 is a labor organization

with headquarters at 3935 Coronado Avenue, Stockton,

California 95204. Joe Winstead is the Business Manager

of Local 492.

27. Defendant, Local Union 503 is a labor organization

with headquarters at 117 Pajaro Street, Salinas, Califor-

nia 93901. Robert Howard is the Secretary/Treasurer of

Local 503.

47a

28. Defendant, Local Union 662 is a labor organization

with headquarters at 904 Locust St., Rm. S., Redding,

California 96001. Thomas L. Jackson is the Business

Manager of Local 662.

29.Tom Adams is an individual resising in or near

San Mateo, California. Tom Adams’ customary place

of business is at Adams & Broadwell, P.C., 1875 South

Grant Street, Suite 600, San Mateo, California, 94002-

2662. Tom Adams is the President and sole shareholder

of Thomas R. Adams, P.C. and an officer of Adams &

Broadwell.

30. Adams, P.C. is a California professional law corpor-

ation with its principal place of business at Adams &

Broadwell, P.C., 1875 South Grant Street, Suite 600,

San Mateo, California, 94402-2662. Adams, P.C. is a

shareholder in Adams & Broadwell.

31. Adams & Broadwell is a California professional

law corporation with its principal place of business at

1875 South Grant Street, Suite 600, San Mateo, Cali-

fornia, 94402-2662.

32.Tom Hunter is an individual residing at 3334

Lower Loch Street, Belmont, California 94002. Hunter

is Business Manager of District Council 51.

CO-CONSPIRATORS

33. Other labor organizations, and other businesses

not sued as defendants herein, have conspired and con-

tinue to conspire with Defendants in the illegal con-

spiracy in restraint of trade alleged in the first and sec-

ond causes of action. These businesses and labor organ-

izations fall into three categories.

48a

a. The developers or owners of the cogeneration,

industrial and petrochemical construction projects who

are not engaged in the construction industry, do not

self-perform these construction contracts, and who had

no collective bargaining agreements with the defendants

herein prior to entering into the “hot cargo”’ agreements;

b. Subcontractors who are signatory to collective

bargaining agreements with the above listed defendants

or who are signatory with other labor unions but also are

direct competitors of Petrochem’s such as Armstrong

Cork and Supply, Performance Contracting, Plant Insul-

ation, Rogers Insulation and Western MacArthur Com-

pany.

c. Other labor organizations, including regional

building trades councils and labor councils, District Coun-

cil 16 of the Southern California Pipe Trades Council,

all members of the San Francisco, San Mateo and Contra

Costa Building Trades, and Asbestos Workers Local 16,

as well as others not yet known to Plaintiff.

34. When both defendants and such co-conspirators

known and unknown are referred to jointly, they are

called herein ‘‘co-conspirators”’.

RELEVANT MARKET

35. The relevant market is comprised of construction

sub-contracts for the installation of piping and insulation

in industrial, manufacturing, petrochemical, and cogener-

ation facilities throughout Northern and Central Califor-

nia, including maintenance contracts and remodelling

work,

36. Petrochem’s competitors for this market consist

mainly of the following contractors: ACS (Armstrong

Cork and Supply), Performance Insulation, Plant Insula-

49a

tion, Rogers Insulation and Western MacArthur Co.,

which are all union signatory contractors; and Pem

Insulation, Concord Engineering and Pencon Insulation,

which are open shop (non-union) contractors.

37. In the last four years, the vast majority of the pro-

jects within the relevant geographic and product market

are those which were listed in pages 28 through 30 of

the video transcript attached as Exhibit 1. Those projects

are:

Wadham Energy Project, Smith River Biomass, Cal

Ag Biomass, Mendota Biomass Power, Sunflower

Valley Energy, Delano Energy Project, Capco-

Madera Power Project, Capco II, Valley Power Assn.

Hawrwood Cogeneration Facility, Western Forest

Products Biomass Power Plant, Soledad Ecology

Power I, Tedco Biomass, Power Plant, Crockett

Cogeneration Plant, Chevron Richmond Cogenera-

tion, GWF 1, GWF 2, Agrico Cogeneration Plant,

California Agricultural Power Corporation Cogen-

eration, Western Power Systems Development,

Sierra Pacific Industries Cogen, Simpson Paper Com-

pany Cogeneration Power Plant, Rio Bravo Posso,

Rio Bravo Jasmin Cogeneration Plant, U.S. Borax

Cogeneration Plant, South Belridge Cogeneration

Plant, Midway-Sunset Cogeneration Plant, Caterpil-

lar Capitol Cogeneration Plant, University Energy

Cogeneration Plant, Combined Energy Cogeneration

Plant, Mount Posen Cogeneration Plant, Kern Front

Cogeneration Plant, Santa Fe Energy Cogen, High

Sierra Cogen, Kern Island Cogen, J.R. Wood Fruit

Cogen, American Cogen 1, Marport 1 and Marport

2, Agnews Cogen Facility, Station T, California

Bioresources II, Sierra Pacific Industries Cogen,

Sierra Pacific Mill Cogen, San Joaquin Cogen, City

of Tracy Cogen, Basic Américan Cogen, Greenleaf

Power 1 and 2, Norcal Foods Cogen, Navy, Units

50a

II and II, BLM I and II, Navy I, Unit I, West Ford

Fiat Plant, 19, SAI Geothermal Nos. 1, 2 and 3,

PG & E No. 21, Bear Canyon Phase II, Honeylake

Hybrid Power Plant, Mammoth/Chance Project,

Mobil Oil San Ardo Cogen, Tri-Cities Solid Waste,

BARA site 1 and Site 3, Bay Area Resource Recov-

ery Facility, and Modesto Tire to Energy Facility.

38. Other projects within’ the relevant market were

also discussed in the video such as the Allied Signal Corp-

oration’s 50 Megawatt Biomass Power Plant in Shasta

County (known as the: Cottonwood Power Plant), the

General Electric 27 Megawatt Facility at Burney, Califor-

nia (known as the Burney Cogen), the Clear Creek Cogen

south of Redding, the Woodland Cogen Project north of

Sacramento, California, the $400 million NEC plant

expansion in Roseville, the Bakersfield Chevron Cogen,

the China Lake Geo-Thermal Project consisting of six

Cogeneration plants for a company called PS&E, the

GWF cogeneration plant in Hanford, California, and five

other GWF Cogeneration projects in Contra Costa and

Solano Counties, the $400 million Chevron Burnout unit,

and the Benjamin Moore Plant in Solano County, Cali-

fornia. In addition, the relevant market includes several

Chevron Richmond Refinery projects, including the

upcoming modernization. TKC and lube oil/cracker

plants, Unocal Refinery work in Santa Maria, Dow Chem-

ical upgrades in Contra Costa County ‘and the USS-

POSCO project in Pittsburg, California.

MONOPOLIZATION BY SHAM PETITIONING

39. Over the last four years, District Council 51,

Hunter, Adams, the members of District Council 51,

Local Union Numbers 62, 159, 228, 246, 342, 343, 350,

365, 393, 437, 444, 447, 460, 467, 471, 483, 492, 503,

EE EE

5la

662 and others have devised and executed a plan to

exclude open shop contractors like Petrochem in an

attempt to monopolize the relevant market by means of

sham petitioning and threats of sham petitioning directed

at the customers of open shop contractors. Defendants

have named this plan “Job and Community Protection

Program,” or the “Tom Adams Program”. Co-conspira-

tors Asbestos Workers Local 16 as well as all the members

of the San Francisco, San Mateo and Contra Costa Build-

ing Trades agreed to join the Tom Adams program in

1987. |

40. The essence of the Tom Adams Program is sham

petitioning and threats of sham petitioning of local and

state governmental agencies and entities connected with

building and use permit process. The sham petitions

cause, or threaten to cause, delay of the start-up of large

construction projects and the delay, or threat of delay,

is used to economically coerce developers and project

owners to exclude non-union contractors like Petrochem

in exchange for the withdrawal of, or not filing of, envir-

onmental and building, use, or zoning permit objections.

41. Defendants file building, use, zoning or environ-

mental objections to permit applications for the sole and

exclusive purpose of forcing Petrochem’s customers to

enter into agreements, express and implied, with Defend-

ants to cease doing business with Petrochem and other

open shop contractors. The objections are filed in for-

ums that do not have the legal authority to exclude Pet-

rochem as a subcontractor nor are the petitioned govern-

mental agencies directly asked to exclude Petrochem or

other non-union contractors from the market.

42.Instead, the Defendants rely upon publicity

created by the filing of the objections, coupled with the

52a

attendant delay, as well as Defendants’ statements to

owners or developers that they will withdraw the objec-

tions in exchange for agreements to use union-only con-

struction contractors.

43. Defendants not only know that these objections

are not truly intended to achieve a legitimate purpose

but have designed this process in order to skirt labor and

anti-trust laws as a means of securing union-only project

agreements.

44. The project owners and developers in this market

(and who are customers or potential customers of Petro-

chem) are not engaged in the construction industry, are

not construction employers, and do not self-perform the

construction of these projects. Nor do they have past or

current collective bargaining relationships with any of the

defendants herein at the time they filed for building or

use permits.

45. The Locals have agreed, either directly or through

Adams, to intervene in permitting processes incident to

construction projects in Northern California, or to

threaten to intervene in such proceedings, for the purpose

described above. Adams has agreed to act as the agent

for District 51 and for the Locals in advocating objec-

tions before regulatory and administrative agencies with

jurisdiction over such projects, without regard to the

merit of the positions advocated and with knowledge that

the object was not to obtain relief from the agencies, but

to compel project developers and/or general contractors

to require the use of union subcontractors. Defendants

have also expressly threatened to file and to press objec-

tions, regardless of merit, until owners enter into agree-

ments to boycott Plaintiff. Hunter has agreed to coord-

inate the anti-competitive activities described in this com-

plaint and to convey to project developers and general

contractors the threats described above.

53a

PATTERN OF MONOPOLIZATION

46. Allied Signal. One of the earliest targets of the

Tom Adams Program was Allied Signal Corporation. In

1986, Allied Signal, through its subsidiary, Signal Energy

Systems, sought to build a biomass energy facility, to be

known as the Cottonwood Energy F oony=3 in Anderson,

California.

47. District 51 and Local 662 intervened in the air

quality permit proceedings. Adams repeatedly petitioned

the relevant administrative bodies, (for example objec-

tions filed before the California Energy Commission, Case

No. 86-C&I-7, dismissed in 1988), and ultimately the

courts, with a large number of objections. Defendants

were perfectly aware that they “had a loser’’ (to quote

Hunter) on the merits. Nevertheless, Adams continued

with these objections, through various appeals and into

the courts, causing significant delays and inconvenience

to Allied Signal.

48. This effort to harass and delay Allied Signal was

continued long after it was clear that Defendants’ claims

had no merit. According to Defendant Hunter, as stated

in Exhibit 1, the reason for this effort was to demon-

strate to other developers that there was, as Hunter

stated, “no end to it” and that the unions would con-

tinue to harass and delay such projects throughout their

life. In short, Allied Signal was to be an “object lesson”

for the industry.

49. On or about January, 1988, after much litigation

in which Allied prevailed in the lower courts, Allied Sig-

nal entered into a settlement of this case with Defendant

District Council 51, which finally allowed Allied to com-

plete construction and resume operations. In considera-

tion for this settlement, Allied agreed to use only union

54a

signatory contractors to build two additional facilities,

both at the Shasta-Cottonwood projects. In addition,

Allied learned that as a result of Defendants’ sham peti-

tioning, its projects would be significantly delayed and

that it could avoid this type of sham environmental peti-

tioning if its simply agreed to usc union signatory con-

tractors on future work, regardless of the environmental

merits of the project and regardless of the increased cost

to its project.

50. In the Defendants’ own videotape presentation and

press articles, they state that . . . “Though the Shasta

plant was built non-union, Allied Signal agreed to use

union labor in building six other plants in California’’.

According to Defendants, in their press releases, Allied

Signal agreed to install additional construction to be built

by one or more of the Locals in order to prevent the

project from becoming hopelessly delayed. Tom Adams

admitted publicly that the point was not to win this

particular “‘battle’’ but to win the war by intimidating

other developers and owners of similar projects that if

they used non-signatory construction companies, then

their projects would be held up by environmental and

permit objections that would not be filed as long as the

developers used union signatory contractors.

51. According to Defendants, Union threats of inter-

vention in the permitting process have resulted in obtain-

ing union-only contracts for all the projects enumerated

in paragraph 37 and most of the projects listed in para-

graph 38 of this Complaint. On or about May 9, 1991,

Defendant Tom Adams announced at the convention of

the California State Pipe Trades Council that “. . . involve-

ment in permits netted more than 1.2 million hours of

work for members.” According to Defendants, threats

55a

of sham petioning obtained the contracts for all of the

locals enumerated as Defendants in this action.

52. The Burney Cogeneration Project. The pattern

established in Allied Signal was repeated on other pro-

jects. In 1988, shortly after the Allied Signal incident,

officials of Defendant Local 662 discovered that Gen-

eral Electric sought to construct a 27 megawatt energy

facility in Burney, California, a project which would

require some 230,000 man-hours of work. General

Electric originally intended to build this facility using

an open shop contractor.

53. After discussing the matter with District 51, Local

662 contacted the project developer and threatened ‘‘a

major job action’’, including sham petitions, equiva-

lent to the Allied Signal affair, together with mass picket-

ing and violence.

54. By March 28, 1988, Petrochem had already bid

and been awarded three separate insulation contracts at

projects which General Electric Corporation was building.

Those projects, commonly known as CAPCO 1 and

CAPCO 2, were located in El Nido and Chowchilla, Cali-

fornia, respectively and a third plant located at Wesley,

California. Petrochem successfully completed these

projects. As a result, Petrochem was invited to bid on the

General Electric Burney Cogeneration project described

previously.

55. Because of the threats of permit delay by Local

662, acting in concert with the other Defendants, and

pointing to the experience at Allied Signal, General

Electric agreed with Defendants to boycott open-shop

contractors. Petrochem would have received this con-

tract, but as a direct and proximate result of Defendants’

use of the Tom Adams Program, suffered $200,000 in

56a

lost profits. The union contractor which received the

subcontract for this project was Performance Contract-

ing located in Sacramento, California and which is union

signatory.

56. The Woodland Cogeneration Project. In 1988,

Thermo Electron Corporation proposed to build a bio-

mass cogeneration facility in Woodland, California. In

this case, the company had originally projected a $50,-

000,000 cost, with permitting to be completed by early

1988. Due to the efforts of Local 447, Adams, Hunter,

and the District Council, permitting was significantly

delayed until Local 447 contractors obtained the work.

The total ultimate cost of the project was $80,000,000.

On information and belief, Defendants Adams, District

Council 51 and other Defendants were able to take

advantage of the fact that permanent financing for the

project from the Bank of Boston was delayed until the

permit questions had been resolved.

57.On or about July 28, 1988, Petrochem bid and

was awarded a subcontract for insulation work to be per-

formed on a project to be known as the Mendota Biomass

Power Project. The developer of the project was Thermo

Electron Corporation. Thermo Electron hired Gota-

verken Energy Systems of Charlotte, North Carolina to

supply the necessary design and engineering work and to

arrange for the actual construction. Neither Thermo

Electron nor Gotaverken is an employer of construction

labor. The subcontract price for Petrochem’s portion of

the work was $650,000. By the end of January, 1989,

the Mendota project was successfully completed to Gota-

verken’s satisfaction.

58. As noted above, Gotaverken was also selected by

Thermo Electron to play the same role for Thermo Elec-

57a

tron’s biomass cogeneration facility in Woodland, Cali-

fornia, described above. Gotaverken then solicited bids

for this project. The Woodland project was identical in

size, physical plant and construction cost to the Mendota

Biomass project. Because of Petrochem’s excellent past

performance on the Mendota project, Gotaverken

requested that Petrochem bid for the Woodland project.

| 59. Before formal bids could be submitted on the

Woodland Project, and after consulting with Adams,

Hunter, the District Council and Local 447 approached

Gotaverken. William Rhoten, Business Manager of Local

447, threatened Gotaverken that it would file environ-

mental objections and delay the project if Gotaverken

retained Petrochem or any other open-shop contractor.

60. As a result of these threats, on or about September

1, 1988, Gotaverken signed an agreement prohibiting

Got

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