Mercatus Group, LLC v. Lake Forest Hospital, No.

10-1665 (7th Circuit, May 26, 2011) The Seventh Circuit recently issued an opinion discussing when misrepresentations will constitute a sham pursuant to the Noerr-Pennington doctrine. The Court concluded that the sham exception did not apply to misrepresentations made to a local government during government proceedings that were political or legislative in nature. Plaintiff Mercatus Group, LLC (Plaintiff) wanted to build a physician office building in Lake Bluff, Illinois. Defendant Lake Forest Hospital (Defendant) would have been in direct competition with this physician office building and sought to prevent Plaintiff from building such a center by a variety of means, including petitions to the Lake Bluff Board of Trustees and a public relations campaign against the new building. Defendant was successful in its efforts and Plaintiff never opened a physician office building in Lake Bluff. Plaintiff brought an action in the U.S. District Court for the Northern District of Illinois for monopolization and/or attempted monopolization in violation of the Sherman Act, 15 U.S.C. 2. The district court held that Defendants acts before the Lake Bluff Board of Trustees (Board) were protected from antitrust liability by the First Amendment right to petition the government for redress of grievances. The district court further held that Defendants other acts were mere misrepresentations and did not give rise to antitrust liability. Plaintiff appealed, and the circuit court affirmed. The issue on appeal was whether the Noerr-Pennington doctrine shelters from antitrust liability a competitors alleged misrepresentations made in local zoning proceedings. Plaintiff argued that a number of the Defendants statements to the Board were false, and therefore the sham exception to the Noerr-Pennington doctrine should apply. The court cited Kottle v. Northwest Kidney Centers, 146 F.3d 1056, 1060-62 (9th Cir. 1998) for the proposition that two types of conduct may trigger the sham exception: 1.) sham lawsuits; and 2.) fraudulent misrepresentations. The court found that misrepresentation may render a proceeding a sham if it 1.) was made intentionally with knowledge of its falsity; and 2.) was material. However, the court also found that the sham exception does not apply outside adjudicative proceedings. The court reasoned that the sham exception should not apply in the political or public sphere because there is an emphasis in these arenas on debate, and such debate can accommodate falsehoods and reveal their falsity. On the other hand, adjudicative proceedings require fair and impartial functioning and cannot accommodate misrepresentations, so the sham exception is necessary. The court found that the proceedings before the Board of Trustees were legislative or political in nature, so the sham exception did not apply. The court attempted to draw a line between when proceedings are adjudicative and when they are legislative in nature. The court listed a number of characteristics from a previous case, Metro Cable Co. v. CATV of Rockford, Inc., 516 F.2d 220 (7th Cir. 1975), that would indicate whether the Boards activities were legislative or adjudicative. The first characteristic considered was the general nature of the authority exercised. Second was the formality of the bodys fact-finding process. Third was the extent to which the fact-finding process was subject to political influences. Other factors were also found to be significant, such as whether the governmental actions at issue were matters of discretionary authority or were instead guided by definite standards susceptible to review, and whether an oath was required before any statements were made before the body. The court found that the Board

acted mainly in a legislative capacity when it declined to approve Plaintiffs physician office building. The process used was primarily political in nature because both parties participated in lobbying efforts before the decision was made. The court also found that the fact-gathering process was very informal because there were no rules governing admissibility. Finally, the court found that there was little or no review process applied to the Boards decision. Therefore, the court found that the proceedings were legislative in nature and that the sham exception did not apply.