The Supreme Court ruled 5 to 4 yesterday that a city may be liable for damages if it engages in anticompetitive activities without authorization by a state legislature.
Congress did not intend to provide municipalities with an automatic exemption under the antitrust law it enacted with in 1890, the court held.
Acting in a case involving two small Louisiana cities that own and operate electric utility systems, the justices left open the question of whether the tripling of antitrust damages required by another antitrust law would apply to local governments.
The two cities were accused of conspiring to require as a condition of continued service that their gas and water consutomers purchase electricity from the city-owned utilities rather than from a private competitor.
Under only one of the antitrust violations alleged by Louisiana Power & Light Co. (P&L) against the cities, Lafayette and Plaquemine, trebled damages would be $540 million - about $28,000 for each family of four in a combined 1970 population of 75,000. Actually, the cities contend, their total potential liability may be $1.5 billion.
The decision "does not threaten the legitimate exercise of governmental power," Justice William J. Brenman Jr. said in announcing the judgment of the court.
Neither does the ruling "preclude municipal government from providing services on a monopoly basis," Brenman said. A state remains free to "direct or authorize" political sub-division "to act n a way which, if it did not reflect state policy, would be inconsistent with the antitrust laws."
Justice Potter Stewart, who for the second day in a row underscored the vigor of his disset by reading much of his opinion aloud, denounced the decision as "an extraordinary intrusion into the operation of state and local government in this country. Its impact can hardly be overstated."
Noting from the bench that the decision comes only two days after President Carter announced his new urban policy, Stewart said, to protect itself, that "a prudent municipality will probably believe itself compelled to seek passage of a state statute requiring it to engage in any activity which might be considered anticompetitive."
He also foresaw "staggering costs" for thousands of municipal governments. A triple-damage award of the magnitude of that in the Louisiana case "would assure bankruptcy for almost any municipality against which it might be rendered," Stewart said. He continued:
"Each time a city grants an exclusive franchise, or chooses to provide a service itself on a monopoly basis, or refuses to grant a zoning variance to a business, or even . . . brings litigation on behalf of its citizens, state legislative action will be necessary to ensure that a federal court will not subsequently decide that the activity was not 'contemplated' by the legislature."STGovernment sources told a reporter that they agreed with the court that Stewart was exaggerating the potential impact of the decision, which generally embodied the position taken by the Justice Department.STBut concern that the ruling "creates a great potential for suits against cities" was expressed by Alan H. Richardson, legislative counsel to the American Public Power Association, which represents municipally owned power systems.
"Now, that they are stripped of immunity from antitrust liability, I expect many will be hit by such suits, and the defense will be time-consuming and costly," he said in a telephone interview.
Richardson termed the decision "an unwarranted interference by the court in the delegation of authority by states to their municipalities." Determining the legislative intent of states in which 2,104 municipalities run electric utilities would be difficult, he said.
The Louisiana case began in 1973 when the two cities filed a lawsuit in Federal Court accusing LPL of violating the Sherman Antitrust Act of 1890 by conspiring to monopolize, and monopolizing, the generation, transmission and distribution of electric power.
The investor-owned utility filed a countersuit accusing Lafayette and Plaquemine of anticompetitive practices including a requirement that LPL customers buy electricity from the cities as a condition of continued water and gas service.
One accusation made by both sides was sham litigation. The cities accused LPL of using it to prevent construction of generating facilities they needed; LPL accused the cities of using it to block or delay a nuclear power plant.
The cities moved for dismissal of the counterclaim. They argued that a 1943 Supreme Court decision immunized them from antitrust suits because it exempted acts of government, or "state action," and because they had been organized under Louisiana Laws empowering them to operate utility systems both within and without their city limits.
The trial judge dismissed the counterclaim. LP&L appealed. The 5th U.S. Circuit Court of Appeals reversed and sent the case back, holding that a political subdivision is not automatically exempt from the antitrust laws. Rather, its challenged conduct must be "clearly within" the intent of the legislature.
The Supreme Court affirmed the appeals tribunal. Congress "sought to establish a regime of competition as the fundamental principle governing commerce," Brennan wrote in a section of the opinion for the court joined by Chief Justice Warren E. Burger and Justices Thurgood Marshall, Lewis F. powell Jr. and John Paul Stevens.
"If municipalities were free to make economic choices counseled solely by their own parochial interests and without regard to their anticompetitive effects, a serious chink in the armor of antitrust protection would be introduced," Brennan wrote.
The cities' effort to block the nuclear plant may benefit their citizens by eliminating a competitive threat to their utilities, but it may also "impose enormous unnecessary costs" on potential customers of the LP&L plant, including those distant from the cities, he said.