On Friday, in United National Maintenance, Inc. v. San Diego Convention Center, Inc., the Ninth Circuit ruled that the San Diego Convention Center can clean itself with its own employees.
The San Diego Convention Center Corporation (SDC) is a nonprofit public benefit corporation that manages the San Diego Convention Center. The city council has given SDC “exclusive authority to operate, market, and promote the Center.” SDC is wholly owned by the City of San Diego, it’s defined as being part of the city by the San Diego Municipal Code, its board is chosen by the mayor and city council, and it gets funding from the city.
United National Maintenance is a company that provides trade show cleaning services; it has cleaning contracts with SDC and also offers its services to trade show “decorators” who coordinate events held at the center. Decorator services for most of the Center’s events are provided by three general services decorators: Champion, Freeman, and GES. SDC approached Champion and GES at one point, asking them to use SDC personnel for cleaning services; Champion and GES declined, and soon after, SDC adopted a new policy mandating that SDC would be the “exclusive provider of cleaning services staffing”.
UNM sued, alleging the state-law torts of interference with contract and prospective economic advantage, as well as antitrust claims. I’ll skip over the state-law claims and go straight to the antitrust claim. [UPDATE: Note that the case is still ongoing for the state-law interference claims; this post only addresses the narrow issue of the antitrust claims.] The Ninth Circuit panel (Senior Judge Farris, joined by recent appointee Andrew Hurwitz and Eighth Circuit Senior Judge Bright sitting by designation) held that SDC had state-action immunity. (For my posts on state action immunity, see my post here and other posts under the “Antitrust” category.)
For private parties to get state action immunity from antitrust law, “the challenged restraint must be one clearly articulated and affirmatively expressed as state policy.” The Ninth Circuit found this to be satisfied by the general authorization for SDC to “manage the use” of the convention center, which, it said, more specifically contemplated deciding who would provide cleaning services that the sort of general corporate authority found to be insufficient in the Supreme Court’s recent FTC v. Phoebe Putney case. (See here for my post on Phoebe Putney.)
Next, “the policy must be actively supervised by the State itself.” This sort of supervision would be lacking here, but the Court has held that this second step is lacking for municipalities; it serves mainly an evidentiary purpose to make sure the policy is really authorized by the state, but this isn’t necessary for municipalities because they have less of an incentive than do private parties “to pursue their own self-interest under the guise of implementing state policies”.
Ah, but isn’t SDC not really the city but just a corporation? True, it’s a nonprofit corporation, and it’s owned (and its board is appointed) by the city, but the Ninth Circuit did find that the state legislature, in setting all this up, contemplated “that the convention center [would] be operated in order to generate profits for the municipality”. It’s nonprofit in the sense that the corporation itself can’t distribute its gains, but its excess money goes to the city, so it’s “for-profit” from the city’s point of view. Doesn’t this money-making orientation mean we can expect it to engage in anticompetitive behavior if that’ll be profitable for the city?
No, the Ninth Circuit said: SDC operates as the “instrument” of San Diego, because of the board member appointments, the fact that SDC’s assets revert to San Diego, and the fact that “SDC must publicly account for its operations”. SDC “is an extension of the municipality of San Diego and thus does not require active supervision by the state in order to retain its immunity from antitrust liability.”
Judge Hurwitz concurred, stating that in addition to state action immunity, SDC would win anyway on the antitrust claims because “[n]o jury could reasonably find that SDC engaged either in monopolization or an attempt to monopolize by mandating that its own employees clean its building.” SDC had no market power in “trade show cleaning services for exhibition and meeting spaces in the San Diego area”–it only had 43% of that cleaning services market, which “is not enough to establish actual monopolization”.
For more on the antitrust state action immunity doctrine (though not in a way that would be directly relevant to this case), see the North Carolina Board of Dental Examiners v. FTC case, coming soon to the Supreme Court–I’ve blogged about it here.