Third Circuit: Governmental Process May Not Be Used to Restrain Competition


Recently the Third Circuit delivered an important message: Exploiting the permitting process to obstruct competitor growth will not shield one from antitrust claims. In mid-November, the Third Circuit considered whether a party can suffer an antitrust injury when a competitor uses the governmental permitting process to “frustrate the entry” of the competitor into the marketplace.  Hanover 3201 Realty, LLC, v. Village Supermarkets, Inc., et al. is a case involving a developer’s antitrust claims premised on numerous administrative and court challenges to its permit applications. Vacating the lower court’s ruling, in part, the Court of Appeals concluded that the District Court’s view of antitrust injury was too narrow and that Hanover “can establish that its injury was ‘inextricably intertwined’ with Defendants’ anticompetitive conduct.” The Court of Appeals also held that Hanover sufficiently alleged that the defendants activity “was undertaken without regard to the merits of the claims and for the purpose of using the governmental process to restrain trade.” Accordingly to the Court of Appeals, Hanover can demonstrate that the defendants are not protected by Noerr-Pennington immunity because their conduct falls within the exception for sham litigation. See E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); United Mine Workers of Am. v. Pennington, 381 U.S. 657 (1965).

Hanover entered into an agreement with Wegmans, a New Jersey supermarket company, to develop a “full-service” supermarket on property owned by Hanover in Hanover, New Jersey. The agreement required Hanover to secure all government permits, including environmental permits, before construction began. The project requires a Flood Hazard permit, a Wetlands permit, and a special Street permit because of the impact on traffic. If Hanover did not secure these permits in two years, the agreement could be cancelled.

The defendants or their agents objected to all of these permits—which were granted, with conditions. In its complaint, Hanover alleges that when the defendants, operators of more modest supermarkets located in some proximity to the planned development, caught wind of the project, they decided to file numerous administrative and court challenges to these permit applications simply to “frustrate the entry” of a competitor. Indeed, it alleged that the defendants’ ecological consulting firm even suggested that the project would not be a suitable habitat for the Indiana Bat, which is found in this area of New Jersey. Arguing that these complaints were frivolous, Hanover sued the defendants on antitrust grounds.

The District Court dismissed the suit, holding that Hanover “did not have antitrust standing because it was the wrong plaintiff—it was not a competitor, consumer, or participant in the restrained markets and thus did not sustain the type of injury the antitrust laws were intended to prevent.” As noted above, the Court of Appeals did not agree with the District Court, except that, with respect to the “claim for attempted monopolization of the market for rental space,” it agreed with the District Court correctly that Hanover “does not have standing because it does not compete with Defendants in that market.” The Court of Appeals ultimately affirmed in part and vacated in part the District Court’s ruling, and remanded the case to the District Court for further proceedings.

Developers and others should beware of getting caught up in, and in turn their rights if exposed to, an impermissible use of the governmental process.