Tuesday, December 3rd, 2013

Recent Case Law Changes the Landscape for Local Government Owned and Operated Fire Alarm Services

The recent Seventh Circuit decision, ADT Security Services, Inc. v. Lisle-Woodridge Fire Protection District, held that a fire protection district’s mandatory requirement that all commercial and multi-family homes have a direct connection to the fire district’s monitoring system was invalid. This decision impacts any fire district currently requiring direct connection to its alarm monitoring system.  The court held that the fire protection district did not have the statutory authority to own or lease fire alarm equipment for use at private businesses.  Furthermore, the court held that the alarm relaying system did not comport with national requirements and was less efficient than systems available on the open market.  The court also strongly suggested that a mandate to use the district’s equipment raised serious federal antitrust concerns.  In light of that decision, many districts and municipalities served by districts which require a similar connection are seeking alternatives to abide by the Lisle interpretation.

One such alternative being considered is for the fire protection district to enter into an intergovernmental agreement whereby one or more municipalities take over the proprietary ownership and leasing of the monitoring system, which could remain mandatory by way of municipal ordinance for all commercial and multi-family properties.  The question raised is whether municipalities have the authority to require direct connection if fire districts do not.

While there is no case directly on point, an argument can be made that municipalities may own, operate, and mandate such systems, based upon Alarm Detection Systems, Inc. v. Village of Hinsdale and statutory authority.

In Hinsdale, a private alarm company, Alarm Detection Systems, Inc. (ADS) sued the Village of Hinsdale wherein the Village (rather than the fire district) had a similar mandatory, direct connect requirement.   ADS challenged the Village’s statutory authority and claimed state antitrust and state constitutional violations.  The court in Hinsdale found in favor of the Village.  The court emphasized the fact that the direct connect would mean a quicker response time leading to fewer injuries and less property damage and held, “Illinois courts have consistently held that [statutory] grants of authority permit municipalities to regulate both the construction of new buildings and the maintenance of existing buildings in order to protect the lives, health, and property of the public.” Based upon the state’s laws empowering municipalities, the court held “a municipality has the authority . . . to amend the national building or fire codes or draft its own codes as it determines is necessary in order to protect the public safety and welfare. . . [and that] the Village had the authority under the Code to enact [an] ordinance requiring that all fire alarm systems in new and existing commercial buildings be tied directly to the Village’s fire board.”

The Hinsdale court further rejected ADS’s argument that the ordinance violated its due process rights under the Illinois constitution, holding that the Village’s ordinance was rationally related to a legitimate government interest, that of fire safety, based upon the fact that the direct connect would mean a quicker response time leading to fewer injuries and less property damage.  The court also rejected ADS’s argument that the ordinance was an unlawful restraint on trade and an illegal exercise of monopoly power under the Illinois Antitrust Act.  The court found that Section 5(15) of the Illinois Antitrust Act specifically exempts activities of a local government.

The Hinsdale case did not deal with federal antitrust laws, but there is support in state statutes that would seem to protect municipalities from federal antitrust claims. The alarm companies point to a U.S. Supreme Court decision wherein it held that only “state action” as opposed to “local government action” is exempt from antitrust liability.  FTC v. Phoebe Putney Health System, Inc. held that state action immunity will only attach to the activities of local governments if they are “undertaken pursuant to a ‘clearly articulated and affirmatively expressed’ state policy to displace competition.”

The Illinois legislature, in reaction to this “state action doctrine” has addressed the antitrust immunity issue in the Illinois Municipal Code, 65 ILCS 5/1-1-10, which provides specific antitrust protection to municipalities acting either pursuant to general home rule power or pursuant to its constitutionally and statutorily prescribed sources of municipal power.  Thus, while this is a complicated issue with no case directly on point, the Hinsdale case along with Section 1-1-10 seems to provide the authority to require a direct connect alarm system.  However, any community contemplating such a mandatory connection requirement should review all aspects of the system with its legal counsel.


Kelly A. Cahill

Author: Kelly A. Cahill