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Monday, August 19, 2019

Appeals court: Chicago suburban towns' alarm monopoly didn't violate antitrust laws, alarm company's rights

Federal Court

By Scott Holland | Jul 19, 2019

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CHICAGO — A collection of suburban communities didn't violate antitrust laws by establishing an alarm business monopoly by requiring businesses within their borders to purchase alarm services from one alarm business, a federal appeals court has said.

In two different actions, the U.S. Seventh Circuit Court of Appeals upheld rejections of antitrust claims brought by Alarm Detection Systems against municipal defendants.

At issue were contracts that municipalities, including the villages of Orland Park, Orland Hills and Schaumburg, as well as the Orland Fire Protection District, had signed with fire alarm vendor Tyco Integrated Security.

Seventh Circuit Judge Amy J. St. Eve

In September 2017, U.S. District Judge Rebecca Pallmeyer rejected a temporary injunction in the Schaumburg litigation, ruling that although a 2016 village ordinance led to Tyco becoming the exclusive provider of fire alarm monitoring equipment in the northwest suburban village, “There is no indication that [Northwest Central Dispatch System] or Tyco had any influence on the passage of the ordinance, nor any suggestion that the timing is suspicious. NWCDS and Tyco had operated under their own agreement for five years before the ordinance was passed.”

U.S. District Judge Thomas Durkin issued an August 2018 opinion in the Orland Park and Orland Hills action, which involved a similar ordinance from 2014 that required all commercial buildings to send fire alarm signals to the 911 dispatch center, which had only Tyco equipment.

“Both the villages and Orland FPD have statutory authority to require a direct connect fire alarm monitoring,” Durkin wrote last year. “Further, Orland FPD’s power to contract under the district act necessarily implies the authority to enter into exclusive contracts. Moreover, although a governmental entity’s decision to enter into an exclusive contract ‘inherently involves a kind of discrimination,’ it does not violate the equal protection clause when government actors merely exercise their discretion.”

Seventh Circuit judges Diane Wood, Michael Scudder and Amy St. Eve heard arguments on both cases April 8 and issued separate opinions July 15 in both the Schaumburg and Orland Fire Protection matters. St. Eve wrote both opinions, and said the decisions to enact those direct signal ordinances, albeit sensible, come with an economic cost.

But with respect to the Schaumburg action, she said the panel largely determined ADS’ “claims, and the underlying conspiracy, are not pleaded with enough facts to cross the line from speculative to plausible.” In the other matter, she wrote, the panel affirmed Durkin’s conclusion the federal Sherman Act antitrust "claims fail because they are premised on the unilateral actions of the villages — which ADS did not sue—and that the 14th Amendment claims lacked merit.”

In both issues, the Seventh Circuit judges rejected ADS’ reliance on cases decided under the Illinois Fire Protection District Act as irrelevant. The panel further explored Durkin’s opinion, in which he examined ADS’ contention that its system could meet statutory technical requirements that heat and smoke detectors send signals to a remote-supervising station operated by a dispatch center as opposed to a central-supervising station operated by an alarm system provider. St. Eve wrote that the panel agreed with Durkin’s analysis that the “exclusive arrangement was the only feasible way to carry out” those requirements.

The only area where the panel sided with ADS was its contracts clause claim against Schaumburg. St. Eve wrote the claim was plausible because it was premature for Pallmeyer to determine the village’s “proffered interests [of] public safety, and more specifically, reliability, efficiency, and the prevention of signal delays” justified the impairment to more than 1,000 ADS customers who had to cancel or not renew contracts in order to switch to Tyco as the 2016 ordinance effectively dictated.

The panel said ADS didn’t demonstrate a likelihood that the claim would succeed on its merits, which is required when the preliminary injunction is sought, noting the ordinance gave companies three years to come into compliance. Still, it reversed and remanded dismissal of that claim while otherwise fully affirming Pallmeyer’s opinion.

ADS and the plaintiffs are represented by the firm of Dykema Gossett PLLC of Lisle and Chicago.

NWCDS is represented by Hervas, Condon & Bersani PC of Itasca.

Tyco is represented by James J. Roche and Associates of Chicago and by Pepper Hamilton LLP of Philadelphia.

Schaumburg is represented by the firm of Klein, Thorpe And Jenkins Ltd., of Chicago. And Orland FPD is represented by attorneys James J. Roche, Brittany E. Hartwig, LeeAnn M. Crow and Megan S. Roche of James J. Roche & Associates, of Chicago.

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Organizations in this Story

Alarm Detection Systems, Inc. Dykema Gossett Hervas, Condon and Bersani PC James J. Roche and Associates Klein, Thorpe & Jenkins, Ltd. Orland Fire Protection Pepper Hamilton LLP Tyco Integrated Security LLC U.S. Court of Appeals for the Seventh Circuit U.S. District Court for the Northern District of Illinois Village of Schaumburg

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