NANCY ALLEVATO, ET AL., PETITIONERS V. COUNTIES OF OAKLAND AND OF
MACOMB, MICHIGAN

   THE CITY OF DETROIT, PETITIONER V. COUNTIES OF OAKLAND AND OF
MACOMB, MICHIGAN

   COLEMAN A. YOUNG, MAYOR OF THE CITY OF DETROIT, PETITIONER V.
COUNTIES OF OAKLAND AND OF MACOMB, MICHIGAN

   No. 89-56, No. 89-79, No. 89-101

   In The Supreme Court Of The United States

   October Term, 1989

   On Petition For A Writ Of Certiorari To The United States Court Of
Appeals For The Sixth Circuit

   Brief For The United States As Amicus Curiae

   This brief is submitted in response to the Court's order inviting
the Solicitor General to express the views of the United States.

            TABLE OF CONTENTS
   Questions Presented
   Statement
   Discussion
   Conclusion

                          QUESTIONS PRESENTED

   1. Whether the rule of Hanover Shoe, Inc. v. United Shoe Machinery
Corp., 392 U.S. 481 (1968), and Illinois Brick Co. v. Illinois, 431
U.S. 720 (1977), precludes proof that a direct purchaser has passed on
the full amount of an overcharge caused by a third party's antitrust
violation to its customers.

   2. Whether the Racketeer Influenced and Corrupt Organizations Act,
18 U.S.C. 1964(c), confers standing on a direct purchaser who has
passed on the full amount of any unlawful overcharge to its customers.

   3. Whether a direct purchaser who has passed on the full amount of
an overcharge to its customers has standing under Article III.

                               STATEMENT

   1. Respondents Oakland County and Macomb County brought this action
seeking damages for alleged overcharges by petitioner City of Detroit
arising out of alleged violations of the antitrust laws and of the
Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1961 et
seq. (RICO).  In the Detroit, Michigan area, municipal sewer systems
connect to interceptor sewers built and operated by counties.  The
counties' lines in turn connect to the Detroit system.  Detroit treats
the sewage at its wastewater treatment plant and disposes of the
resulting sludge.

   Relationships among the municipalities, the counties, and the City
of Detroit are governed by contracts entered into pursuant to state
law.  Under those contracts, Detroit bills the counties for services
provided.  /1/ The counties are responsible for paying these bills,
but they in turn bill the municipalities for services based on their
own costs, which include Detroit's charges, costs incurred in
building, operating, and maintaining the county system, and an
allowance for reserves.  Costs are allocated to the municipalities
under a number of formulas, some involving estimates of usage.  The
municipalities in turn bill their residential and commercial customers
in a variety of ways, allocating the county's charges and adding
enough to cover their own local expenses.  Municipal payments to the
counties are segregated in county "enterprise funds," through which
the county systems are operated.  The counties draw their payments to
Detroit from the enterprise funds.  Pet. 3, 4.

   At a time when petitioner Coleman A. Young, the Mayor of Detroit,
was acting as administrator of the wastewater treatment plant under
court order, Detroit entered into various sludge hauling and disposal
contracts.  These transactions eventually led to the convictions of
various individuals and entities in the sludge hauling business for
RICO, Hobbs Act, and mail fraud violations.  Following the criminal
investigation, the respondent counties brought a civil action grounded
on the same transactions.  Respondents sought treble damages under the
Clayton Act, 15 U.S.C. 15 and RICO, alleging that Detroit's bills to
them included unlawfully inflated costs.

   2. The district court, on a slender record, /2/ dismissed for lack
of standing.  The defendants contended that the counties had not been
injured because they had passed on the overcharge to the
municipalities.  Recognizing that Hanover Shoe, Inc. v. United Shoe
Machinery Corp., 392 U.S. 481 (1968), had "severely restricted" the
pass-on defense, the court nevertheless read a Sixth Circuit decision,
Obron v. Union Camp Corp., 477 F.2d 542 (1973) (adopting 355 F. Supp.
902 (E.D. Mich. 1972)), as establishing that the pass-on defense is
valid where "circumstances are such that proof that any overcharged
(direct purchasers) * * * have not been damaged is easy to prove."
89-56 Pet. App. 32a, 33a.

   The court found those circumstances to exist in the structure of
contractual relationships among Detroit, the counties, and the
municipalities.  In an earlier case where Oakland County had sued a
municipality for sewer payments, the Sixth Circuit had found that
"Oakland County served as an intermediary only, depending completely
on payments from the municipalities to meet its obligations to
Detroit," and that "(s)ince Oakland County is a mere conduit for sewer
charges owed to the City of Detroit the failure of any of the
municipalities * * * to pay the charges allocated to them would result
in Detroit's receiving less money for sewage disposal than was assumed
and planned for." County of Oakland v. City of Berkley, 742 F.2d 289,
292, 296 (6th Cir. 1984).  Relying on those statements in Berkley, the
district court found that the counties sustained no injury because
they were only intermediaries and, in effect, were not buyers but only
collection agencies.  89-56 Pet. App. 34a.  /3/ Therefore, the court
held, the counties had not alleged the injury in fact constitutionally
required for standing.

   The court also concluded that an exception to Hanover Shoe would be
appropriate, because there was no problem of tracing the overcharges
to the municipalities and the municipalities would have ample
incentive to sue.  89-56 Pet. App. 34a-35a.  /4/ It further concluded
that under Associated General Contractors v. State Council of
Carpenters, 459 U.S. 519 (1983), the counties were not proper
antitrust plaintiffs, primarily because they had suffered no injury.
89-56 Pet. App. 36a.  In a subsequent order denying a motion to alter
judgment, the court noted that the arrangements in this case are "(i)n
essence" a pre-existing cost plus contract, 89-56 Pet. App. 43a, and
therefore within the cost plus exception to the rule of Hanover Shoe.

   Finally, the court held that the counties lacked standing under
RICO, which provides remedies to anyone "injured in his business or
property by reason of a violation of section 1962." 18 U.S.C. 1964(c).
 The court reasoned that the counties were mere conduits and thus were
not injured.

   3. A unanimous panel of the Sixth Circuit reversed, holding that
the counties had both constitutional and statutory standing.  It first
rejected the district court's suggestion that the counties were not
really buyers, but only agents of the municipalities.  The court of
appeals noted that Detroit had entered into contracts with Oakland,
not the municipalities, and that there was no showing that Detroit was
entitled to look to the municipalities for payment.  89-56 Pet. App.
9a.

   The court of appeals assumed for purposes of its decision that "any
and all overcharges were passed on to the counties' own customers, the
municipalities." 89-56 Pet. App. 11a.  The court nevertheless found
constitutional standing because, under applicable precedent, "(a)
buyer who is induced to pay an unlawfully inflated price for goods or
services obviously suffers an actual injury," and standing is not lost
merely because the overcharge is passed on.  89-56 Pet. App. 12a.
Relying on Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984), the
court found that the counties had alleged injury in fact, because the
counties were liable for the overcharge, whether or not the
municipalities paid.  89-56 Pet. App. 13a-14a.  Moreover, the higher
cost of sewage services to the end user would hamper the counties in
their competition with other counties for residents and businesses.
/5/ Thus, "(i)t would clearly be wrong for us to conclude at the
outset of this litigation, based merely on the pleadings and (one) * *
* affidavit, that the counties could not possibly have suffered any
injury in fact as a result of having been overcharged by the City of
Detroit." 89-56 Pet. App. 15a.

   The court of appeals also found antitrust injury and standing.  It
read Hanover Shoe and Illinois Brick Co. v. Illinois, 431 U.S. 720
(1977), not as establishing exceptions to the indirect purchaser rule,
but only as suggesting that an exception might exist.  89-56 Pet. App.
20a.  /6/ It also held that a cost-plus exception would not preclude
the counties from suing, because permitting the municipalities and/or
the end users to sue would introduce "precisely the sort of
complexities, uncertainties, and other untoward consequences that the
indirect purchaser rule was designed to avoid." 89-56 Pet. App. 21a.
/7/ The court found that its conclusion was "strongly confirmed" by
the Associated General factors, all of which, it concluded, supported
standing for the counties.  89-56 Pet. App. 22a-25a.  /8/

   Finally, the court, noting that the treble damage provision of RICO
was "patterned directly on Section 4 of the Clayton Act," 89-56 Pet.
App. 25a, concluded that most of its antitrust standing analysis
applied to RICO standing as well:  "If the counties are the proper
parties to sue for damages allegedly arising out of violations of the
antitrust laws, it seems clear that the counties are also the proper
parties to sue for damages allegedly arising out of RICO violations."
89-56 Pet. App. 25a.

   On rehearing, the court noted that Illinois v. Panhandle Eastern
Pipe Line Co., 852 F.2d 891 (7th Cir.) (en banc), cert. denied, 109 S.
Ct. 543 (1988), had recently recognized an exception to Hanover Shoe
and Illinois Brick in the context of a pass-on required by state
regulation, notwithstanding the absence of a fixed quantity guarantee.
 The court nevertheless declined to follow the Seventh Circuit's
decision, reasoning that Illinois Brick had limited the possible cost
plus exception to "contracts for a fixed quantity." 89-56 Pet. App.
27a-28a.

                              DISCUSSION

   1. The central issue in this case, the proper scope of any
cost-plus exception to the pass-on rule of Hanover Shoe and Illinois
Brick, is an important question that has created considerable
confusion in the lower courts.  Petitioners contend that their use of
a pass-on defense falls within the cost-plus exception to the rule of
Hanover Shoe and Illinois Brick, even though there is in this case no
preexisting cost-plus contract for a fixed quantity.  E.g., 89-56 Pet.
17.  Assuming there is a cost-plus contract here, /9/ this case
presents the issue of the scope of the cost-plus exception.

   Nevertheless, because of the unusual facts and the undeveloped
state of the record, we believe that this case presents a less
favorable context in which to resolve this issue than another case
pending before this Court, Kansas and Missouri, etc. v. Kansas Power &
Light Company, et al., petition for cert. pending, No. 88-2109.
First, the record here, consisting primarily of a single affidavit,
provides minimal illumination of the factual context.  Thus, the Court
would be required to consider the question essentially in the
abstract.  It is unclear from the record, for example, whether either
contract or statute requires the counties to pass on to the
municipalities the full amount of any cost increases.  It is also
unclear how the counties' costs of administering the sewage system are
passed on to the municipalities.  Consequently, it cannot be
determined whether an increase in Detroit's charges to the counties
might lead the counties to absorb a higher proportion of those
administrative costs.  And it is unclear whether, in the event the
counties do not pay Detroit's charges in full, Detroit is entitled to
look to any county assets other than the enterprise funds.  /10/

   Second, under one plausible reading of the facts here, the issue
presented may be narrower and of more limited applicability than the
issue presented in Kansas.  As we note in our brief in Kansas, much of
the confusion in the lower courts concerns the significance of the
"fixed quantity" requirement in this Court's formulation of the cost
plus exception.  In the absence of a fixed quantity provision, a
direct purchaser may suffer lost profits because its customers
purchase fewer of its products if it raises the price to reflect the
overcharge.  However, the record suggests that Michigan law and the
terms of the contracts may insulate the counties from any such injury
from lost profits as a result of reduced sales of sewage services.
Viewing the record in this way, the Court might be able to decide the
case on a ground of limited significance beyond the confines of this
case.  On the other hand, clarification of the cost plus exception in
the context of the Kansas case is likely to resolve the issues in this
case (to the extent they do not depend on facts not of record).
Accordingly, we urge the Court to grant the petition in the Kansas
case, and respectfully suggest that the Court defer acting on the
petitions here pending disposition of that case.

   2. In our view, neither the RICO issue nor the constitutional issue
presented in the petitions warrants review.  With respect to RICO, the
court of appeals and the district court concluded that the proper
analysis was essentially identical to that required under the Clayton
Act.  We know of no decision of any court reaching a contrary holding.
 Moreover, it seems plain that the court of appeals would have reached
a different result had it concluded that respondents lacked standing
under the Clayton Act.  There is thus no reason for the Court to
decide the RICO standing question now.

   The question of constitutional standing also does not warrant
review by this Court.  If respondents have properly alleged injury to
their business or property under the Clayton Act, RICO, or both, it
seems plain that they have properly alleged injury for purposes of
Article III.  If they have not properly alleged injury under either
the Clayton Act or RICO, it does not matter whether they have properly
alleged injury for the purposes of Article III, since they claim no
cause of action other than under the Clayton Act and RICO.

                              CONCLUSION

   This Court should hold the petition for certiorari pending its
disposition of Kansas and Missouri, etc. v. Kansas Power & Light
Company, et al. No. 88-2109.

   Respectfully submitted.

   KENNETH W. STARR

      Solicitor General

   JAMES F. RILL

      Assistant Attorney General

   THOMAS W. MERRILL

      Deputy Solicitor General

   MICHAEL BOUDIN

      Deputy Assistant Attorney General

   STEPHEN J. MARZEN

      Assistant to the Solicitor General

   CATHERINE G. O'SULLIVAN

   DAVID SEIDMAN

      Attorneys

   DECEMBER 1989

   /1/ Like the court below, we describe facts largely in relation to
respondent Oakland County because respondent Macomb County provided
fewer facts.  See 89-56 Pet. App. 5a-6a.

   /2/ The record consists of the pleadings and one affidavit.

   /3/ The counties are also end users, paying the municipalities for
sewage disposal services, but the court found that the counties had
not sued in that capacity.  89-56 Pet. App. 42a.

   /4/ The court treated the municipalities as consumers, although
they in turn passed overcharges along to other consumers.

   /5/ The counties had not alleged this precise injury, but had
generally alleged that they were injured in their business or
property.

   /6/ The court of appeals said that Illinois Brick had "implicitly
repudiated" its prior decision in Obron, on which the district court
had relied.  89-56 Pet. App. 19a, 20a.

   /7/ The court noted that there were multiple middlemen, that
municipalities attempted to pass the overcharge on to end users, and
that at best the pass on approach would lead to a massive class action
in which ascertaining individuals' damages would be complex and
difficult.  89-56 Pet. App. 21a-22a.

   /8/ The panel's rejection of the district court's conclusions on
this point follow directly from its holding, contrary to that of the
district court, that the counties properly alleged injury from an
antitrust violation.

   /9/ As we note, pp. 7-8 & note 10, infra, it is not clear that
there is any legal requirement that the counties pass on cost
increases to the municipalities.

   /10/ We note that the court below pointed to the incomplete state
of the record in refusing to hold that "the counties could not
possibly have suffered any injury in fact as a result of having been
overcharged by the City of Detroit." 89-56 Pet. App. 15a.