MILLER‘S POND COMPANY, LLC, ET AL. v. CITY OF NEW LONDON ET AL.
(SC 17166)
Supreme Court of Connecticut
Argued January 7—officially released June 7, 2005
273 Conn. 786
Sullivan, C. J., and Borden, Norcott, Palmer and Vertefeuille, Js.
MILLER‘S POND COMPANY, LLC, ET AL. v. CITY OF NEW LONDON ET AL.
(SC 17166)
Sullivan, C. J., and Borden, Norcott, Palmer and Vertefeuille, Js.
Ben A. Solnit, for the appellants (plaintiffs).
Opinion
NORCOTT, J. The principal issue in this appeal is whether the trial court properly determined that the defendants, the city of New London (city), the New London water and water pollution control authority (New London water authority), the town of Waterford, and the Waterford water pollution control authority (Waterford water authority), are immune from antitrust liability under
The record reveals the following facts and procedural history.5 The defendants own water sources and water treatment, transmission and distribution facilities that serve the city, Waterford and other parts of southeastern Connecticut; the New London water authority and the Waterford water authority are the “two dominant water utilities” in southeastern Connecticut. The defendants own every source of freshwater and all related supply facilities that are located within their municipal borders and “capable of serving the [r]egion,” except for Miller‘s Pond (pond), an approximately seventy-seven acre man-made lake located in the northeastern corner of Waterford. Miller‘s Pond Company owns and has exclusive riparian rights to the pond, which is served by several tributaries and receives water from a 9.83 square mile watershed, making it “the only signifi
Since 1988, the plaintiffs have been seeking to sell or develop the pond as a water source for utilities in the region or as a private water supply for industrial or recreational facilities. Indeed, in 1998, Miller‘s Pond Company entered into an agreement with the Connecticut Water Company to develop the sale and distribution of either raw or treated water from the pond in the New London region. The potential market in the region is controlled, however, by the defendants.
The city previously had supplied water to Waterford from sources owned and controlled by the city until December, 1986, when the long-term supply contract expired. During renegotiations of that agreement, Waterford informed the city that it intended to develop its own water supply system using the pond as the primary water source. The city opposed this plan, and in April, 1988, it imposed a moratorium on new water connections in Waterford, which was to remain in place until Waterford signed a new water service agreement with the city. Thereafter, Waterford abandoned its efforts to supply its water independently and, in October, 1988, it signed a new agreement for a term of forty-eight years (1988 agreement).
The 1988 agreement defined the water supply relationship between the city and Waterford. Its stated purpose is “to provide the terms and conditions pursuant to which (1) the [c]ity will supply water to water consumers in [Waterford]; (2) other municipalities in New London County may have the opportunity to receive
The city also has an agreement to supply water to portions of the town of Montville. By its terms, the agreement required Montville to enter into a separate agreement with Waterford for the use of Waterford supply facilities needed for the city to deliver water to Montville.7 Waterford and Montville entered into this agreement in April, 1990 (1990 agreement). The 1990 agreement has several conditions that, inter alia, permit Montville to develop its own water sources only if that “development or purchase does not result in material depletion of any water resources of Waterford [or the
In regulatory submissions to the department of public health addressing planning matters, both Waterford and the city have recognized the pond as an existing or future component of their water supply systems. The city included the pond in its plan in 1988 as a direct response to a notice from a realtor that the pond might be offered for sale on the open market.
As previously noted, the plaintiffs have been attempting to develop the pond either as a water source for the region or as a private supply for industrial or recreational facilities since 1988. They allege, however, that the defendants have, in accordance with the “best efforts to deter the construction and operation of new [i]ndependent [w]ater [s]ystems” clause in the 1988 agreement, interfered with their development efforts in a variety of ways. For example, in December, 1998, the plaintiffs and representatives from the Connecticut Water Company met with the New London water authority and offered to enter into an agreement to sell water to the city. The city rejected this offer and refused to deal; in February, 1999, the chief administrator of the New London water authority threatened to use eminent domain proceedings if the plaintiffs did not sell the pond to the city.8 In April, 2000, Waterford, in accordance with
In February, 1998, the city filed an application with the department of environmental protection to divert waters from Hunts Brook, which is located upstream from the pond. Had that department granted this application, it would have reduced the flow of water into the pond by approximately 8 million gallons per day, and reduced the safe yield of the pond by one third. In May, 1998, the plaintiffs announced their intention to develop the pond similarly, and subsequently, in November, 1998, they filed their own application with the department of environmental protection to develop the pond as a regional water supply source and to dredge the valuable sand and gravel deposits from the basin. The department of environmental protection rejected this application without prejudice in October, 1999, because neither the city nor Waterford, as potential users of the water, had agreed to endorse the plaintiffs’ application or join it.
In December, 1998, the department of environmental protection informed the city that its diversion application was incomplete, and instructed it to report on alternatives to the diversion of Hunts Brook, including obtaining water from the pond as well as from other nearby towns such as Groton and Norwich.9 Consistent with the 1988 agreement, the city has continued to refuse to discuss obtaining water from the pond, the plaintiffs or the Connecticut Water Company.
In January, 1999, the plaintiffs attended a public information meeting at Waterford town hall that was held in conjunction with the department of environmental protection permitting process. The day after that meet
On February 9, 1999, Bowen wrote on the city‘s behalf to the Southeast Water Utility Coordinating Committee. He advised the committee of the city‘s immediate need for water from the pond, as well as the city‘s and Waterford‘s interests in purchasing the pond. Bowen mentioned assurances of future supply that the city had made to Montville, as well the defendants’ opposition to the existence of another water company, like the plaintiffs’ business, in the area.
Several days later, the city and Waterford executed a memorandum of understanding to develop new water sources (memorandum). The memorandum was negotiated through several secret meetings that were held at locations other than regular public facilities, including the dry-cleaning business of the chairman of the New London water authority. This memorandum, drafted in furtherance of the 1988 agreement, states that Waterford “and the [c]ity desire to act in a joint and coordinated manner to pursue the acquisition, development, and management of additional new water supply resources,” through either direct purchase or the use
Thereafter, in May, 2000, the plaintiffs met again with the New London water authority to discuss the city‘s expressed intention to acquire the pond. The city again declined the plaintiffs’ offer to conduct business respecting the pond‘s water, and Bowen again reiterated the city‘s plan to use the power of eminent domain to take the pond if the plaintiffs did not abandon their water business and sell the pond to the city.
The plaintiffs also state that the city has manipulated market conditions by inflating the available safe yield of water. This market manipulation was done in accordance with the terms of the 1988 agreement that restricted Waterford‘s ability to seek water source supplies beyond those provided by the city, particularly by conditioning that ability on the city‘s unilateral declaration of a supply shortage. See footnote 6 of this opinion. Shortly after the execution of the 1988 agreement, the city increased its declared figure for safely available water by 30 percent, from 5.4 million gallons per day to 7 million gallons per day. Both the department of environmental protection and the department of public health have challenged the accuracy of this figure, and an independent department of environmental protection study conducted in April, 1991, calculated that only 5.1 million gallons per day were available as a safe yield. Engineering standards at that time would have justified the declaration of a supply emergency, thus opening up a supply market into which the plaintiffs could have
In August, 2000, the plaintiffs brought this action for damages and injunctive relief, claiming that the defendants’ conduct constituted: (1) restraint of trade in violation of
The trial court, taking as undisputed the facts alleged in the pleadings; see footnote 5 of this opinion; concluded that the defendants were immune from antitrust liability because their activities constituted state action under
On appeal, the plaintiffs claim that the trial court improperly granted the defendants’ motion for summary judgment because: (1) a genuine issue of material fact exists as the trial court failed to consider the existence of the relevant wholesale water market and conducted its analysis in the context of the irrelevant, heavily regulated, retail market; and (2) under Mazzola v. Southern New England Telephone Co., supra, 169 Conn. 344, the defendants are not entitled to state action immunity under
Before we turn to the parties’ specific claims, we set forth the proper standard of review. We will engage in plenary review of all issues raised in this appeal, particularly because the extent to which anticompetitive conduct is “specifically directed or required” by the government is a mixed question of fact and law . . . .” (Citations omitted.) Westport Taxi Service, Inc. v. Westport Transit District, 235 Conn. 1, 26, 664 A.2d 719 (1995); id., 25-26 (declining to review transit district‘s
I
WHETHER § 35-44b INCORPORATES THE FEDERAL STATE ACTION DOCTRINE OF PARKER INTO THE ANTITRUST IMMUNITY PROVIDED BY § 35-31 (b)
We first must determine the correct legal standards to apply to the facts pleaded in the complaint, which entails an examination of the interplay, if any, between federal case law, beginning with Parker v. Brown, supra, 317 U.S. 341, governing state action immunity, and the statutory state action immunity standard set forth by
Section 35-44b, the statute at issue, provides: “It is the intent of the General Assembly that in construing sections 35-24 to 35-46, inclusive, the courts of this state shall be guided by interpretations given by the federal courts to federal antitrust statutes.” We now turn to a review of the two potentially conflicting state and federal legal landscapes.
A
Federal Antitrust Immunity under Parker
In 1943, the United States Supreme Court decided Parker v. Brown, supra, 317 U.S. 341. In Parker, a pro
With respect to the application of state action immunity to municipalities, subsequent decisions of the Supreme Court have held that ”Parker immunity does not apply directly to local governments . . . have recognized . . . that a municipality‘s restriction of compe
B
State Action Immunity under § 35-31 (b)
Connecticut has, however, its own statutory version of state action immunity in the form of
The court began the decision in Mazzola by reviewing the origins of the Connecticut antitrust act, noting that
The court then reviewed the public utility rate-setting process of
This court next mentioned
C
Whether § 35-44b Requires Incorporation of the Federal Immunity Standards into a § 35-31 (b) Analysis
This court decided Westport Tax Service, Inc., in 1995, three years after the enactment of
This court explained
We conclude that
Moreover, the “[t]he General Assembly is always presumed to know all the existing statutes and the effect that its action or non-action will have upon any one of them“; (internal quotation marks omitted) Hatt v. Burlington Coat Factory, 263 Conn. 279, 310, 819 A.2d 260 (2003); as well as “the interpretation which the courts have placed upon one of its legislative enactments and of the effect that its own nonaction, thereafter may have.” (Internal quotation marks omitted.) State v. Ramos, 271 Conn. 785, 797, 860 A.2d 249 (2004); id. (“[t]he legislature‘s failure to act upon our interpretation of [General Statutes]
II
WHETHER THE TRIAL COURT PROPERLY CONCLUDED THAT THE STATUTORY SCHEME “SPECIFICALLY DIRECTED OR REQUIRED” THE DEFENDANTS’ ACTIVITIES
Having concluded that
A
Definition of the Relevant Market
We note at the outset that proper analysis in an antitrust case first requires determination of the “relevant market . . . .” AD/SAT v. Associated Press, 181 F.3d 216, 225 (2d Cir. 1999); id. (“[a]s is frequently the case in antitrust litigation, the [c]ourt‘s definition of the relevant market was dispositive“); accord Westport Taxi Service, Inc. v. Westport Transit District, supra, 235 Conn. 16 (“[m]onopoly power is power to fix or control prices or to exclude or control competition in the relevant market” [internal quotation marks omitted]). “The relevant market for purposes of antitrust litigation is the ‘area of effective competition’ within which the defendant operates.” AD/SAT v. Associated Press, supra, 227. Market definition generally “is a deeply fact-intensive inquiry . . . .” Todd v. Exxon Corp., 275 F.3d 191, 199 (2d Cir. 2001); see also Hayden Publishing Co. v. Cox Broadcasting Corp., 730 F.2d 64, 70 (2d Cir. 1984) (“[i]n our view, there were clearly genuine issues of fact concerning the definition of the relevant market, thus precluding even partial summary judgment“).
The plaintiffs contend, both in their brief and at oral argument before this court, that the trial court improperly conducted its state action analysis in a manner that
Having reviewed the pleadings and factual record in this case in the context of the relevant statutes, we conclude that there is, at the very least, a genuine issue of material fact as to the existence of a wholesale water market in southeastern Connecticut.27 The plaintiffs have pleaded their intention to sell water from the pond to other water utilities, including the defendants, in the New London area for subsequent distribution. Moreover, the difference between the wholesale and retail markets was explained by Schacht in an affidavit submitted to the trial court in connection with the defendants’ motion for summary judgment. In that affidavit, Schacht stated that retail customers are individuals or
B
The Statutory Scheme Relevant to the Defendants’ Activities
Municipalities and other entities in the water business, especially at the retail level, unquestionably are subject to a vast array of statutes and regulations. Nevertheless, the “mere pervasiveness of a regulatory scheme does not immunize an industry from antitrust liability for conduct that is voluntarily initiated.” MCI Communications Corp. v. American Telephone & Tele-
Regulation of water companies begins at their inception. Water companies may not be formed without a special act of the General Assembly after investigation and a report by the department of environmental protection, the department of public health and the department of public utility control into, inter alia, the proposed company‘s financial solvency, its water supply system adequacy and potability, and “the effect on water supplies of other systems . . . .”
The extensive regulatory scheme is in furtherance of the legislative finding and general statement of policy articulated in
Indeed, the regulatory scheme envisioned by the legislature is not toothless, as
The defendants point out correctly that the statutes and regulations do envision a significant degree of cooperation, and indeed, regional coordination of water companies. For example, water utility coordinating committees are required to “prepare a coordinated water system plan in the public water supply management area” that “shall promote cooperation among public water systems,” and to submit that plan to the department of public health.
The statutes also envision extensive planning in conjunction with that coordination. Under
Similar planning occurs on the level of the water utility coordinating committees, who are required to conduct preliminary assessments, in consultation with the department of environmental protection and the department of public health, of water supply conditions and problems in their areas. See
Indeed, “[e]ach water utility coordinating committee shall prepare a coordinated water system plan in the public water supply management area. Such plan shall be submitted to the Commissioner of Public Health for his approval not more than two years after the first meeting of the committee. The plan shall promote cooperation among public water systems and include, but not be limited to, provisions for (1) integration of public water systems, consistent with the protection and enhancement of public health and well-being; (2) integration of water company plans; (3) exclusive service areas; (4) joint management or ownership of services; (5) satellite management services; (6) interconnections between public water systems; (7) integration of land use and water system plans; (8) minimum design standards; (9) water conservation; (10) the impact on other uses of water resources; and (11) acquisition of land surrounding wells proposed to be located in stratified drifts.”37
C
Application of § 35-31 (b) to the Water Company and Supply Statutes
The defendants argue that these statutes and regulations “seek to promote the cooperation and intercon-
“(2) An areawide supplement that shall address areawide water system concerns pertaining to the public water supply management area which are not otherwise included in each water company‘s individual water system plan. The areawide supplement consists of a water supply assessment, exclusive service area boundaries, integrated report, and executive summary. The areawide supplement shall include at least the following:
“(A) Water Supply Assessment
“A water supply assessment shall be developed to evaluate water supply conditions and problems within the public water supply management area. The [water utility coordinating committee] shall prepare a preliminary and then a final water supply assessment. The water supply assessment shall be a factual and concise report including at least the following topics as they relate to public water systems in the public water supply management area:
“(i) Description of existing water systems, including
“(aa) History of water quality, reliability, service, and supply adequacy;
“(bb) General fire fighting capability of the utilities; and
“(cc) Identification of major facilities which need to be expanded, altered, or replaced.
“(ii) Availability and adequacy of any future water source(s).
“(iii) Existing service area boundaries and public water system limits established by statute, special act or administrative decision, including a map of established boundaries, and identification of systems without boundaries.
“(iv) Present and projected growth rates, including population data, land use patterns and trends, and identification of lands available for development.
“(v) Status of water system planning, land use planning and coordination between public water systems. . . .”Regs., Conn. State Agencies § 25-33h-1 (d) .
We note, at the outset, that we need not determine whether a monopoly is the “reasonably foreseeable” result of this statutory scheme. That inquiry would have its basis in the broader state action standards found under federal case law following Parker, and is, therefore, incompatible with the narrower analysis demanded by
Apart from this court‘s leading decision in Mazzola, the case law applying
In Professional Ambulance Service, Inc. v. Blackstone, 35 Conn. Sup. 136, 137, 400 A.2d 1031 (1978), the plaintiff was a private ambulance company who, along with two other private ambulance companies, previously had been dispatched by the East Hartford police department on a rotating basis to provide emergency medical services to the town. The defendant mayor of East Hartford subsequently notified the plaintiff that the state office of emergency medical services and the North Central Emergency Medical Services Council had
The trial court, Covello, J., relied on Mazzola, and concluded that, “the parties sought to be enjoined from alleged antitrust activities are not the officers of a private company regulated by a state agency, but are the officials of the state and municipal agencies themselves, pursuing emergency medical service functions directed by the statutes.” Id., 142. The court stated that the ambulance service regulations at issue were promulgated pursuant to the “totality of the mandate set out” in the emergency medical services statutes. Id., 143. It concluded that the mayor‘s activities “represent the product of specifically directed state action,” namely, regulations restricting ambulance advertising and ambulance primary service areas.40 Id.
We next consider the more recent federal District Court decision, also authored by Judge Covello, in Wheelabrator Environmental Systems, Inc. v. Galante, United States District Court, Docket No. 3:97CV01040, 2000 WL 863029 (D. Conn. March 31, 2000). The plaintiff and the defendants in that case were waste management companies, and the plaintiff had entered into an agreement with the Housatonic Resources Recovery Authority (recovery authority), an organization with eleven member municipalities that had “joined together to arrange for the orderly disposal of municipal solid waste . . . in accordance with state and regional solid waste plans.” Id., *1. The defendants provided waste management services to some of the recovery authority municipalities by processing the waste and delivering it to the plaintiff‘s facilities to be burned and to generate electricity. Id., *2. The plaintiff brought a breach of contract action against the defendants, claiming that they failed to deliver waste to the plaintiff‘s management facility as was required by their contract. Id. The defendants counterclaimed against the plaintiff, arguing that it violated the Connecticut Antitrust Act and the
In addressing the plaintiff‘s argument that the state antitrust counterclaims should be dismissed under
We conclude that the present case is readily distinguishable from Professional Ambulance Service, Inc., and Wheelabrator Environmental Systems, Inc., because, in those cases, the applicable statutes and regulations spoke directly to all of the challenged conduct. In Professional Ambulance Service, Inc., the applicable regulations gave the town no choice except to designate one emergency ambulance service provider, and the advertising ordinance was authorized by a regulation directly on point. Similarly, in Wheelabrator Environmental Systems, Inc., it was the very existence of the waste manager‘s contract with the municipality that was the sole challenged conduct, which was plainly and specifically authorized by statute.
In contrast, the plaintiffs in the present case have alleged sufficient facts, viewed in the context of the
The judgment is reversed and the case is remanded to the trial court with direction to deny the defendants’ motion for summary judgment and for further proceedings according to law.
In this opinion BORDEN, PALMER and VERTEFEUILLE, Js., concurred.
SULLIVAN, C. J., concurring. I agree with the result reached by the majority, but disagree with its method
The defendants argue, in effect, that the plain and unambiguous language of both statutes cannot be given effect and, therefore, federal state action immunity standards should be read into
not yield absurd or unworkable results, extratextual
Notes
Under
“Except as provided in subsection (b) of this section, any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney‘s fee. . . .”
“[This is like] corporate ventures in general, where antitrust laws may pose an obstacle. This would allow them to look to a single case law jurisprudence, in order to know whether they‘re in compliance with our laws or not. Currently, a corporation in Connecticut or elsewhere, may have to look to [fifty] different sets of jurisprudence. This would move towards a national jurisprudence, and I believe it will strongly enhance the international competitiveness of Connecticut, and of American manufacturing and research companies, wherever they may be.” 35 H.R. Proc., Pt. 7, 1992 Sess., pp. 2386-87, remarks of Representative Thomas Moukawsher; see also Conn. Joint Standing Committee Hearings, Commerce and Exportation, Pt. 2, 1992 Sess., p. 735, testimony of Joseph Brennan, vice president of legislative affairs for Connecticut Business and Industry Association (“The Connecticut Antitrust Act, however, is inconsistent in its language and its application to federal antitrust law. The possibility of multiple enforcement by agencies applying different standards can create serious problems for businesses engaged in interstate commerce.“).
We first note that the concurring opinion, while professing to follow strictly
We also disagree with the analysis contained in footnote 3 of the concurring opinion, namely, that “[f]ederal antitrust law pertaining to state action immunity is more lenient than
By way of illustration, the defendants cite several examples of the department of public health‘s extensive jurisdiction over water companies and their properties, such as the requirement of a written permit for the transfer, lease, assignment or change in the use of watershed lands. See General
Indeed, a water company desiring to sell even a potential or abandoned source of water must notify the department of public health, which shall order that company to notify “other water companies that may reasonably be expected to utilize the source, potential source or abandoned source of its intention and the price at which it intends to sell such source. . . .”
“(B) adequate provision for the protection of the quality of future and existing sources;
“(C) comments from state agencies; and
“(D) consistency with state regulations and statutes.”
“(1) The individual water system plan of each public water system within a public water supply management area, required to file such plan pursuant to section 25-32d of the Connecticut General Statutes; and
