Court Opinion

ID: 4389171
Source: CourtListenerOpinion
Date Created: 2019-04-19 17:00:18.093143+00
Date Added: 2024-06-11T14:23:05.484282
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                               ________________

                                      No. 18-2316
                                   ________________

          CABLE LINE, INC.; MCLAUGHLIN COMMUNICATIONS, INC.,

                                                        Appellants

                                             v.

       COMCAST CABLE COMMUNICATIONS OF PENNSYLVANIA, INC.;
                   DECISIVE COMMUNICATIONS;
      VITEL COMMUNICATIONS, a Subsidiary of JNET Communications, LLC

                                   ________________

                       Appeal from the United States District Court
                         for the Middle District of Pennsylvania
                         (D.C. Civil Action No. 3-16-cv-01000)
                       District Judge: Honorable Robert D. Mariani
                                    ________________

                                  Argued March 8, 2019

           Before: AMBRO, RESTREPO, and GREENBERG, Circuit Judges

                              (Opinion filed April 19, 2019)
                                  ________________

                                       OPINION*
                                   ________________

AMBRO, Circuit Judge

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
       Cable Line, Inc., and McLaughlin Communications, Inc., were companies that

installed coaxial cable, fiber-optic cable, and related devices in the homes and businesses

of broadband internet customers in and around Pennsylvania. They claim that defendant-

appellees Comcast Cable Communications, Decisive Communications, and Vitel

Communications drove them out of business, in violation of state and federal antitrust

laws, by forming a conspiracy to restrain trade in the market for cable installation in parts

of the mid-Atlantic area. They also claim that Comcast discriminated against them based

on their race in the selection of its cable installation subcontractors in violation of 42

U.S.C. § 1981. The District Court dismissed the federal claims on the pleadings and

declined jurisdiction over the state claims. We affirm.

       I.     Background
       We take the facts from plaintiffs’ Complaint as true and construe them in the light

most favorable to them, drawing all inferences in their favor. See Vorchheimer v. Phila.

Owners Ass’n, 903 F.3d 100, 105 (3d Cir. 2018).

       Before going out of business, Cable Line and McLaughlin were cable installation

companies that worked primarily for Comcast, the dominant provider of internet service

in the mid-Atlantic area. In 2009 Comcast launched a nationwide “subcontractor

reduction” plan with the goal to reduce its cable installation suppliers. As part of that

plan, Comcast administered a request for proposal (RFP) process “to determine the

lowest amount that Comcast could pay Plaintiffs and the other cable installation

companies.”

                                               2
       During this process, a Comcast representative suggested that Cable Line and

McLaughlin should “ramp up” their operations, which they understood to mean they had

competed “successfully” in the RFP process. Both Cable Line and McLaughlin did so by

investing in new warehouse facilities, purchasing new vehicles, and hiring and training

new technicians.

       Neither Cable Line nor McLaughlin received a long-term contract from Comcast

at the end of the RFP process. Instead Comcast selected co-defendants Decisive and

Vitel—two competing cable installation companies—to serve as Comcast’s exclusive

cable installers in Comcast’s “Freedom,” “Beltway,” and “Keystone” regions (the

“Regions”), which cover Pennsylvania, Washington, D.C., and parts of Virginia,

Maryland and Delaware. Plaintiffs’ businesses suffered when Comcast chose Decisive

and Vitel as its exclusive cable installers in the Regions. More broadly, Comcast reduced

its cable installation suppliers from 176 in 2009 to just 39 in 2012.

       Plaintiffs allege several theories for why Comcast reduced the number of its cable

installers and chose Decisive and Vitel as its exclusive installers in the Regions. They

say Comcast wanted to induce consolidation in the cable installation market to increase

its margins in that market, realign capital and human resources in the cable installation

market by inducing companies like plaintiffs to “ramp up” investment and then

foreclosing them from the market, choose the lowest-cost cable installers in Decisive and

Vitel, choose the subcontractors with the best performance metrics even though it knew

those metrics were manipulated, choose subcontractors who were willing to help

Comcast defraud shareholders by under-reporting service follow-up calls, and increase

                                              3
the percentage of its subcontractors that are owned by “diverse” individuals, such as

Vitel, which is an African-American owned company.

       Based on these allegations, the Complaint asserts one claim against all defendants

under Section 1 of the Sherman Act, 15 U.S.C. § 1, analogous claims under state antitrust

laws, and one claim against Comcast under 42 U.S.C. § 1981 for discrimination based on

race. The District Court dismissed both federal claims and declined to assert

supplemental jurisdiction over the state claims. It held the antitrust claim failed because

plaintiffs did not adequately allege (1) antitrust injury, (2) conspiracy, and

(3) anticompetitive effects. It held the discrimination claim failed because, although

plaintiffs pointed to a race-based selection criterion in Comcast’s computer system, their

other allegations undermine the theory that Comcast chose Vitel based on race.

       II.    Discussion

              A. Antitrust Claim

       To state a claim under Section 1 of the Sherman Act, “a plaintiff must allege

(1) an agreement (2) to restrain trade unreasonably.” Lifewatch Servs. Inc. v. Highmark

Inc., 902 F.3d 323, 331 (3d Cir. 2018). A private plaintiff must also allege (3) “antitrust

standing” by showing its “injury is of the type the antitrust laws were intended to prevent

and . . . flows from that which makes defendants’ acts unlawful.” Id. (quotation and

alterations omitted).

       According to plaintiffs, the Complaint alleges either an unlawful monopsony or an

unlawful hub-and-spoke conspiracy. We address each theory in turn.

                                              4
       A “monopsony” exists when a market is controlled by one buyer. See Lifewatch,
902 F.3d at 332 n.4. Put another way, monopsony power is “market power on the buy

side of the market.” Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549
U.S. 312, 320 (2007). In limited circumstances, a showing of wrongful conduct by a

monopsonist can result in antitrust liability. See id. at 314. To plead a monopsony claim,

a plaintiff must allege monopsony power and conduct by the monopsonist that excludes

its rivals—i.e., other buyers in the same market. See id. at 322 n.3. Ordinarily, a

monopsony claim is brought under Section 2 of the Sherman Act because it is a form of

monopoly, which is the domain of Section 2. See id.1 The monopsony theory of

plaintiffs’ claim could be denied on that ground alone: they invoked Section 2 for the

first time in their reply brief on appeal. (Pls.’ Reply Br. at 1.)

       Even if we considered the merits of plaintiffs’ monopsony theory, we would not

sustain it. Plaintiffs acknowledge that Comcast is not the only buyer of cable installation

services in the Regions. Notwithstanding that concession, the Complaint does not allege

any facts concerning those other companies and how, if at all, Comcast unlawfully

excluded them from the market for cable installation. Absent those allegations, the

Complaint does not adequately allege the relevant market, which is fatal to their claim.

See Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 726 (3d Cir. 1991). At bottom,

plaintiffs ask us to impose antitrust “monopsony” liability merely because a purchaser

1
 Section 2 of the Sherman Act makes it unlawful to “monopolize, or attempt to
monopolize, or combine or conspire with any other person or persons, to monopolize any
part of the trade or commerce among the several States, or with foreign nations.”
15 U.S.C. § 2.
                                           5
with market power in a vaguely defined market decided to reduce the number of its

suppliers. They do not point to any authority for extending antitrust liability so broadly,

and our role is not to imagine that extension for them.

       A “hub-and-spoke” conspiracy “involves a hub, generally the dominant purchaser

or supplier in the relevant market, and the spokes, made up of the distributors involved in

the conspiracy. The rim of the wheel is the connecting agreements among the horizontal

competitors (distributors) that form the spokes.” Howard Hess Dental Labs. Inc. v.

Dentsply Int’l, Inc., 602 F.3d 237, 255 (3d Cir. 2010). Plaintiffs contend that Comcast,

Decisive, and Vitel formed a hub-and-spoke conspiracy to restrain trade in the cable

installation market for the Regions, but their own allegations defeat that claim. The

Complaint not only does not allege facts to infer an agreement between Decisive and

Vitel, it directly acknowledges that they did not know Comcast was aiming to induce

consolidation in the cable installation market until Comcast completed its RFP process:

“Regional installation companies like Defendants Vitel and Decisive subsequently

became aware of Comcast’s strategy, the end goal of the elimination of installation

companies, and their role in absorbing competitors’ assets.” (Compl. ¶ 123 (emphasis

added).) We thus join the District Court in concluding that plaintiffs have not adequately

alleged the agreement element of a hub-and-spoke conspiracy. Accordingly, we need not

address the other elements of Section 1 for plaintiffs’ hub-and-spoke theory.

       Prior to oral argument, we asked the parties to be prepared to address whether

plaintiffs’ antitrust claim should be viewed through the lens of tying and exclusive

dealing, as in the Supreme Court’s decision in Jefferson Parish Hospital District No. 2 v.

                                             6
Hyde, 466 U.S. 2 (1984).2 In that case, a hospital agreed by contract to use an exclusive

anesthesiology firm to provide a service (anesthesiology) that was tied to a service the

hospital provided (surgeries). See id. at 6–7. Rival suppliers who were excluded (other

anesthesiologists) sued under Section 1 of the Sherman Act, but their claim failed

because they did not show the hospital had power in the market for surgeries. See id. at

28–29. There could perhaps be a parallel between Jefferson Parish and this case, but

plaintiffs did not allege a tying theory in their Complaint or pursue a Jefferson Parish

analogy in the District Court or here, so we conclude that theory is not fairly before us.

We thus express no view on whether an antitrust claim could be made against Comcast

based on allegations that it extracts monopoly-like margins in the cable installation

market by using exclusive cable installers and tying their service to a service over which

it may have monopoly power (cable service).

              B. Discrimination Claim

       In addition to their antitrust claims, Plaintiffs allege that Comcast violated 42

U.S.C. § 1981 by choosing Vitel as an exclusive cable installer because it is an African-

American-owned business. They do not allege that Decisive received any similar

preference. The District Court dismissed the claim because the Complaint, as a whole,

failed to allege facts allowing a plausible inference that Comcast chose Vitel based on a

2
  “A tying arrangement may be defined as an agreement by a party to sell one product or
service but only on the condition that the buyer also purchases a different (or tied)
product or service, or at least agrees that he will not purchase that product or service from
any other supplier.” Avaya Inc., RP v. Telecom Labs, Inc., 838 F.3d 354, 397 (3d Cir.
2016). An exclusive dealing arrangement is an “agreement in which a buyer agrees to
purchase certain goods or services only from a particular seller for a certain period of
time.” Eisai, Inc. v. Sanofi Aventis U.S., LLC, 821 F.3d 394, 403 (3d Cir. 2016).
                                               7
racial preference. In their opening brief, plaintiffs devote less than a page to their § 1981

claim, fail to state the applicable legal standard, and cite neither the Complaint as to this

issue nor any legal authority. They do not mention the claim in their reply brief.

Comcast asserts that plaintiffs waived the claim on appeal by failing to present argument

and authority to support it. We agree. See Norman v. Elkin, 860 F.3d 111, 129 (3d Cir.

2017).

                                *      *      *       *      *

         We thus affirm the District Court’s dismissal of the Complaint.

                                              8