Antitrust Law Daily Carpenters association granted summary judgment in dispute over restrictive subcontractor contract clauses
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Thursday, May 24, 2018

Carpenters association granted summary judgment in dispute over restrictive subcontractor contract clauses

By Jody Coultas, J.D.

A group of construction trade unions, contractors, and trade associations (the Ironworkers) was unable to state Sherman Act claims against the New England Regional Council of Carpenters based on collective bargaining agreements entered into by the Carpenters with construction companies and construction managers that contained restrictive subcontracting clauses, according to the federal district court in Bridgeport, Connecticut. The court concluded that the Ironworkers failed to provide support for the actual adverse effect on competition required to state a claim for violation of the Sherman Act under the rule of reason (Connecticut Ironworkers Employers’ Association v. New England Regional Council of Carpenters, May 23, 2018, Underhill, S.).

The Carpenters entered into collective bargaining agreements (CBAs) with third-party construction companies and construction managers which prohibited signatories from subcontracting work to any employer that has not acceded to a Carpenters’ CBA. The Ironworkers alleged that the CBAs prevented "the Ironworkers from performing the relevant work," thereby "secur[ing] work in the New England area that allegedly belonged to the Ironworkers."

In 2016, the court granted summary judgment for the Carpenters based on its finding that the Carpenters were shielded from antitrust scrutiny by both the non-statutory exemption to the antitrust laws and the construction industry proviso contained in Section 8(e) of the National Labor Relations Act. On appeal, the Second Circuit agreed that the Carpenters’ actions fell within the construction industry proviso, and affirmed with respect to the unfair labor practices claim. However, the appellate court found questions of fact that precluded a decision on whether the conduct fell within the non-statutory exemption, and reversed and remanded with respect to the Sherman Act claim.

Rule of reason. In order to avoid application of the rule of reason, the Ironworkers attempted to obtain the benefit of the per se rule by "forcing the [CBA clauses] into the ‘boycott’ pigeonhole." Most arrangements alleged to violate the antitrust laws are analyzed under the rule of reason, while a few arrangements, such as "group boycotts," are considered unlawful per se. The Supreme Court limited the per se rule in the boycott context to cases involving horizontal agreements among direct competitors. The Ironworkers’ argued that because most of the CBAs were made between the Carpenters and associations of employers, those vertical agreements also operated as "horizontal agreements among the construction managers . . . [who are] parties to th[e] association[s]." The court noted its doubt that a third party’s agreement with an association is by itself enough to establish a horizontal agreement among members of the association.

Regardless of the horizontal vs. vertical agreement issue, this was not a case of a group boycott, the court said. The Ironworkers have not even hinted at any "economic incentive" for the employers to boycott them. It could not be said that the CBA clauses could have improperly raised costs or fixed prices. There is no reason for employers—who purchase labor—to want higher labor prices. Also, even if a large number of employers agreed to the CBA clauses, those employers would not necessarily be able to shut out their rivals who continued to affiliate with the Ironworkers. Not only did the employers lack an incentive to drive the Ironworkers out of the market, but, in practice, they seem to have continued employing the Ironworkers. There was also no evidence from which to infer any agreement among the employers to drive the Ironworkers out of the market. Absent such an agreement, the Carpenters’ allegedly pernicious motives on their own do not suffice to overcome the "presumption in favor of [the] rule-of-reason standard."

The Ironworkers were unable to prove that the CBA clauses are not exclusive dealing agreements, according to the court. An exclusive dealing agreement is "a contract between a [supplier] and a buyer that forbids the buyer from purchasing the contracted [service] from any other seller" and are analyzed under a rule of reason analysis. The Ironworkers argued that "there are no pro-competitive effects or business justifications" to support the CBA clauses; that the Carpenters’ "arrangements with the various [employers] have been in existence for over 20 years;" and that "there was no competitive bidding process before reaching the agreements." This may indicate that the CBA clauses constituted an unreasonable restraint of trade under the rule of reason, but it did not transform those plainly vertical restraints into a horizontal group boycott.

In an attempt to avoid the rule or reason analysis, the Ironworkers invoked the presumption against superfluity. However, the argument that the existence of the non-statutory exemption means that all non-exempt agreements should be regarded as per se violations of the antitrust laws was "flatly wrong," according to the court. The failure of a defendant’s claim for complete antitrust immunity does not mean that plaintiffs are entitled to prevail. Also, the Second Circuit has analyzed non-exempt labor conduct under the antitrust laws, and it has applied the rule of reason as a matter of course.

Unreasonable restraint of trade. Under the rule of reason, the "plaintiff bears the initial burden of showing that the challenged action has had an actual adverse effect on competition as a whole in the relevant market." If the plaintiff "surmounts its first hurdle," then "the burden shifts to the defendant to offer evidence of the pro-competitive ‘redeeming virtues’" of the challenged conduct. If the defendant provides such proof, the burden shifts back to plaintiff for it to show that "the same procompetitive effect could be achieved through alternative means that are less restrictive of competition."

Because the Ironworkers, Sheet Metal Workers, and Glaziers could not show an injury caused by "impairment of the competitive structure of the market," the court concluded they did not suffer an antitrust injury and lacked standing to assert antitrust claims. The clauses at issue are standard in the construction industry. The Ironworkers’ argument—that the Carpenters have used their CBA clauses to enter into exclusive dealing arrangement with employers who formerly had exclusively dealt with the Ironworkers—is merely a battle between two beneficiaries of exclusive dealing arrangements. This is not an issue properly adjudicated under the antitrust laws. The mere fact that the Carpenters and the Ironworkers did not participate in a formal competitive process did not mean that the choice of one over the other was more than "a reshuffling of competitors." When the Carpenters began to obtain the work at issue, traditionally done by the Ironworkers, the Ironworkers may have suffered an "injury [as] a competitor," but that substitution of exclusive contractors did not by itself create "an adverse effect on competition market-wide."

Plaintiffs M.R.S., Barrett, Peterson, Berlin Steel, Connecticut Ironworkers, and Sheet Metal Contractors had standing, but failed to show an adverse effect on competition, according to the court. The Ironworkers expert testified that the restrictive clauses "potentially raise[] the price" of labor by "limit[ing] . . . the number of bidders." However, the report cites no evidence to show that the clauses have had or are likely to have "an actual adverse effect" on prices. There was no evidence that the challenged CBA clauses had an actual adverse effect on competition as a whole in the relevant market.

The Ironworkers also failed to substantiate their Sherman Act claims by showing "market power," according to the court. For exclusive dealing claims, "a plaintiff makes a prima facie case . . . by showing market structure, power, and coverage of the exclusive-dealing arrangement sufficient to create an inference of reduced output and higher prices in the affected market." The Ironworkers’ report on market power did not establish a well-defined market or the Carpenters’ share within it. The court noted that the boundaries of the proposed product market are highly uncertain, and the report did not provide reliable numbers or geographic boundaries that essential for a market power analysis.

The case is No. 3:10-cv-00165 (SRU).

Attorneys: George J. Kelly, Jr. (Siegel O'Connor O'Donnell Beck PC) and Paul C. Hetterman (Bartley Goffstein, LLC) for Connecticut Ironworkers Employers Association, Inc., Associated Sheet Metal & Roofing Contractors of CT Inc. and MRS Enterprises Inc. Bruce Sokler, Keith Carroll, Kevin McGinty, Andrew Nathanson, Michael Ticcioni, and Caitie Hill (Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.) and Christopher N. Souris (Krakow & Souris, LLC) for New England Regional Council of Carpenters.

Companies: Connecticut Ironworkers Employers Association, Inc.; Associated Sheet Metal & Roofing Contractors of CT Inc.; MRS Enterprises Inc.; New England Regional Council of Carpenters

MainStory: TopStory Antitrust ConnecticutNews

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