Tekton, Inc., a Utah Corporation, Paulsen Construction Co., a Utah General Partnership, and Rocky Mountain Contractors, Inc., a Utah Corporation, Cross-Appellants v. Builders Bid Service of Utah, Inc., a Utah Nonprofit Corporation, and Utah Sub-Contractors Bid Service, a Utah Nonprofit Corporation, Cross-Appellees

Citations: 676 F.2d 1352; 1982 U.S. App. LEXIS 19549Docket: 81-1060

Court: Court of Appeals for the Tenth Circuit; May 4, 1982; Federal Appellate Court

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Builders Bid Service of Utah, Inc. (BBS) and Utah Sub-Contractors Bid Service (USBS) appealed a district court ruling that deemed specific operating rules invalid under the Sherman Act, leading to an injunction against their enforcement. BBS and USBS are nonprofit corporations managing construction bid depositories aimed at streamlining the bidding process and reducing issues like bid shopping and peddling. The court focused on Article X(B) of USBS Rules, which mandated that general contractors who accept outside bids must submit those bids to the depository before the closing time to be eligible for bids through the service. All general contractors and subcontractors licensed in Utah can participate, submitting sealed bids within a four-hour window before general contractors' bids are due. General contractors must agree in writing to follow depository rules and cannot consider late outside bids. Violations of these rules may result in suspension from the depository, and subcontractors can instruct that their bids not be sent to contractors who use outside bids. Notifications of rule violations are sent to subcontractors, allowing them to boycott offending contractors.

Tekton, Inc., Paulsen Construction Co., and Rocky Mountain Contractors, Inc., filed a lawsuit against USBS and BBS, claiming their operating rules violated Sections 1 and 2 of the Sherman Act and sought an injunction against their enforcement. The plaintiffs moved for summary judgment, asserting the rules were per se violations of the Sherman Act, but the court denied this motion. After hearing evidence, the court determined several rules, including Article X(B), were indeed violative of the Sherman Act, prompting the appellants to seek an amendment to uphold Article X(B), which was also denied. BBS and USBS are appealing the court's declaration regarding Article X(B), while the plaintiffs cross-appeal the denial of their summary judgment motion. The court noted that declaratory relief is within its discretion and will not be overturned unless there’s an abuse of discretion. The appellants argue that Article X(B) is necessary to maintain the integrity of the sealed bid system, which is beneficial to competition. They contend that not all restraints on interstate trade violate the Sherman Act, only those deemed "unreasonably" restrictive of competition. The court must evaluate the nature and effects of the restraint to determine if it promotes or suppresses competition. The appellants assert their rules aim to mitigate issues like bid shopping and bid peddling, thereby enhancing competition rather than restraining it. However, the rules must be assessed based on their actual effects on interstate commerce, regardless of the appellants' intentions.

Article X(B) mandates that general contractors report all outside bids to the depository before its closing time and prohibits them from accepting bids after the depository closes, under threat of suspension from future use of the depository. This requirement compels general contractors to engage with the depository, effectively limiting their ability to consider bids from the majority of subcontractors in Utah who participate in this process. Even if contractors obtain bids directly, failure to report these bids to the depository can result in their exclusion from future participation. Additionally, subcontractors face pressure to participate in the depository or risk being overlooked in the bidding process. They may also face suspension if they submit bids to general contractors that do not participate in the depository.

The court referenced the case Christiansen v. Mechanical Contractors Bid Depository, where similar restrictions were found to violate the Sherman Act due to their anti-competitive nature. Despite amendments made to the depository's rules, the court noted continued enforcement of restrictive practices that hindered competition. The current ruling found that Article X(B) similarly restricts general contractors from freely obtaining bids and pressures them into using the depository, thereby violating the Sherman Act. The appellants’ attempts to promote competition through these rules were deemed ineffective and detrimental to interstate commerce. The court also addressed cross-appeals from Tekton, Paulsen, and Rocky Mountain, who argued that Article X(B) was a clear violation of the Sherman Act, asserting that summary judgment was warranted due to the absence of material factual disputes.

Denial of a motion for summary judgment is classified as interlocutory and is generally non-appealable, barring limited exceptions, which do not apply in this case, leading to the affirmation of the lower court's ruling. The term "bid shopping" describes a general contractor's attempts to get a subcontractor to underbid a competitor before the construction contract is awarded, while "bid chiseling" refers to similar actions taken post-award. "Bid peddling" involves a subcontractor trying to undercut a competing bid with a lower offer. All such practices are scrutinized under antitrust laws, specifically Sections 1 and 2, which deem contracts that restrain trade or monopolize illegal. The court referenced a California Supreme Court ruling, highlighting that bid peddling can represent healthy price competition that benefits consumers by enabling lower bids. The trial court found that the principles from a prior case, Christiansen, supported a determination that Article X(B) violated the Sherman Act, a conclusion with which the reviewing court concurred.