Congress voted yesterday to give municipalities protection from liability for damages in antitrust suits, but the measure still provides for the possibility of an injunction against a local government found guilty of antitrust violations.
The legislation partially closes a legal avenue opened by a 1982 Supreme Court decision that found that municipalities can be sued for antitrust violations. That decision opened the way for hundreds of lawsuits, and many of the nation's municipal leaders warned that many cities could be found liable for millions of dollars in damages that would swamp their operating budgets.
In one case, the town of Grays Lake, Ill., was held liable for $28.5 million in treble damages in a case in which a developer was refused permission to connect a sewer line to his new development. The town's entire annual budget was only $1.4 million.
The new legislation also enables the Federal Trade Commission to resume its pursuit of antitrust cases against municipalities. An FTC appropriations bill passed two weeks ago prohibited the commission from spending money on such cases. The new legislation removes that restriction. The FTC has been pursuing a controversial case charging that taxicab operations rules in Minneapolis and New Orleans violated antitrust regulations.
Steven Chapple, general counsel for the U.S. Conference of Mayors, said the new legislation did not give the municipalities the total exemption from antitrust actions they had sought, but it at least offered protection against budget-breaking liabilities.
"It does take away the money damages," he said. "We'll still have suits seeking injunctive relief. But at least we aren't going to have people scared of a huge damage award ." Under the bill, cities could be blocked by courts from engaging in practices found to violate antitrust laws, but the plaintiffs would not be able to collect any damages as a result.
Roughly 300 antitrust suits have been filed against municipalities since the Supreme Court ruled in 1982 that the antitrust protection traditionally afforded state governments did not extend to municipalities unless they had been specifically protected by the states. The court had ruled on a case brought against city officials of Boulder, Colo., in which a cable-television firm alleged that the city government restricted competition by awarding an exclusive cable franchise to one company.
Few of the suits have been decided, but several have been settled by worried city officials, including one in Richmond. The city paid Hilton Hotels a $2 million settlement after refusing permission to Hilton to build a hotel in one section of town because it might hurt business at a Marriott hotel being built in a nearby redevelopment district.
In other cases, state governments have moved to protect municipalities from antitrust actions, as in the case of Fairfax County, which recently won antitrust protection from the Virginia General Assembly in connection with the awarding of an exclusive cable television franchise.
The legislation does not apply retroactively to cases that have already been filed. But Chapple said municipalities may be able to persuade courts not to award damages in ongoing cases on the grounds that Congress has halted the practice.
The legislation does not significantly change the rights that the federal government has had to pursue antitrust cases against local governments: The federal government had previously been blocked from seeking damages, though it too could only file a case if a municipality was not protected by state law.
The FTC has been using the antitrust regulations recently for some actions against municipalities, most notably in the taxicab case. In that issue, which was filed in May, it is challenging local laws that limit the number of cabs on the street or operating hours -- though not taxi-safety laws. Opponents of the case -- including FTC members Michael Pertschuk and Patricia Bailey, who voted against filing it -- had argued that it was an unfair intrusion into local affairs.
But Timothy Muris, director of the FTC's bureau of competition, argues that the lifting of restrictions on taxi operations allows the local market to dictate how many cabs are needed and when.
He cites a Department of Transportation report that found that the taxi-operations restrictions inflate annual taxi costs by $800 million nationwide.
Congressional opponents of the FTC's action moved to strip the commission of its funding to pursue such cases. But pressure from municipalities to receive some protection against liabilities in antitrust suits led to a compromise that allowed the FTC to proceed.