Illinois Village Prevails in Fire Alarm Direct Connection Lawsuit

A lawsuit brought by four fire alarm monitoring companies against the Village of Schaumburg, Illinois challenging an ordinance mandating direct connection of commercial and multi-residential occupancies with the fire department’s dispatch center has been dismissed seven years after it was filed.

In 2017, Alarm Detection Systems, Inc., Illinois Alarm Service, Inc., Nitech Fire & Security Industries, Inc., and SMG Security Systems, Inc. filed suit claiming a 2016 village ordinance violated the Contract Clause of the US Constitution and constituted tortious interference with their businesses. They initially sought an injunction against the enforcement of the ordinance, leading to a Seventh Circuit decision favoring the Village. The case was remanded back to the district court.

The history of what led to the suit is interesting and relevant to the court’s decision.

• Before 2007, the Village operated under a system by which fire-alarm signals were transmitted directly from commercial and multi-family properties to the Village’s in-house 911 call center.
• In 2007, the Village’s in-house 911 call center was transferred to [Northwest Central Dispatch System] NWCDS, a regional dispatch center that services multiple municipalities and villages.
• After the transfer of the call center to NWCDS, property owners could choose to have their alarm signals transmitted directly to NWCDS or could opt to have signals relayed through private supervising stations.
• From at least 2007 through the adoption of the Ordinance in 2016, Alarm Companies provided fire-alarm services to Commercial Accounts in the Village, including alarm installation and maintenance and signal monitoring.
• Once their systems received an alarm signal from a Commercial Account property, the signal would be transmitted wirelessly to a supervising station. An operator there would then call NWCDS to notify them of the alarm activation. A dispatcher at NWCDS would then verify the information and enter it into NWCDS’s computer-aided dispatch system to dispatch appropriate emergency personnel. The operator at the supervising station would also notify the contact person at the Commercial Account property.
• In 2011, NWCDS entered into an exclusive agreement with Tyco Integrated Security, LLC for Tyco to provide and maintain the fire-alarm signal receiving equipment at NWCDS.
• The agreement gave Tyco exclusive rights to the signal-monitoring and processing systems at NWCDS.
• In late 2014 Fire Department officials began noticing that fire-alarm systems had fallen out of service without notice having been given to the Village, so the Village began tracking these events.
• At a public-safety committee meeting on January 15, 2016, the Fire Chief reported that the Department had encountered 18 such occurrences over the previous 15 months. Included were five instances in the three months prior to the meeting that involved two restaurants, a night club, a factory, and a school.
• The minutes from the January 2016 meeting reflect that, through quarterly inspections, the Village had been consistently identifying three to five businesses with out-of-service systems about which the Village had received no notice, causing concern for public safety.
• Fire Department officials indicated that they would continue to monitor the issue.
• On July 25, 2016, the Fire Chief sent a memorandum to the public-safety committee recommending a change to the Village Code that would require all fire-alarm systems to connect directly to the Schaumburg 911 center at NWCDS.
• The Village adopted the Fire Chief’s recommendation and, on August 23, 2016, enacted Ordinance No. 16-078, which mandated a return to direct-connect alarm monitoring. The stated purpose of the Ordinance was that “public safety would be best served to require a supervising station through [NWCDS] due to our experience with alarms being out of service which endangers the health, safety and welfare of the general public.”
• The Ordinance set a series of trigger dates for when existing systems would be required to switch to a direct connection: (1) when an existing contract with a monitoring agency ends; (2) when the existing fire-alarm equipment is modified or replaced; or (3) by August 31, 2019, at the latest. Property owners could seek further extensions of existing contracts beyond August 2019 and through 2021, at the latest, provided that the Fire Chief determined that the public safety would not be affected.

Both sides filed motions for summary judgment. The court rejected the alarm companies’ motion and granted the villages’. In doing so the court took the unusual step of retaining jurisdiction over the two pendant state law claims (tortious interference with a contract and tortious interference with a prospective economic advantage), citing the length of time the case had been pending. Quoting from the decision:

• The Contracts Clause “‘restricts the power of States to disrupt contractual arrangements’ through legislative action… and applies equally to municipal ordinances” enacted by local government entities.
• To succeed on a Contracts Clause claim, a plaintiff must establish that (1) “the state law operated as a substantial impairment of a contractual relationship; and (2) the state law is not drawn in an appropriate and reasonable way that advances significant and legitimate public purpose.”
• The Contracts Clause, as we have said before, is concerned with the “taking away” of “entitlements that predated the change” in legislation. In this case, however, many contracts will simply not be renewed-not prematurely canceled-which makes it less likely that the Companies have a reasonable expectation in those contracts after the Ordinance’s August 2019 cutoff date. The Ordinance, moreover, not only allows for a three-year window from its enactment to its effective date; it also permits accounts with contracts expiring after the August 2019 cutoff to seek an extension. This, then, is not a case of a “sudden, totally unanticipated, and substantial[ly] retroactive” change in the law, with which the Contracts Clause is most concerned.
• Because the Ordinance neither required the immediate cancellation or termination of any contracts nor of law, the Ordinance did not substantially impair Alarm Companies’ contracts. The Village is therefore entitled to summary judgment on this claim and Alarm Companies’ cross-motion must be denied.
• Under Illinois law, a claim for tortious interference with contract requires a plaintiff to establish five facts: “(1) a valid contract, (2) defendant’s knowledge of the contract, (3) defendant’s intentional and unjustified inducement of a breach of the contract, (4) a subsequent breach of contract caused by defendant’s wrongful conduct, and (5) damages.”
• Similarly, a claim for tortious interference with prospective economic advantage requires a plaintiff to establish “(1) a reasonable expectancy of entering into a valid business relationship, (2) the defendant’s knowledge of the expectancy, (3) an intentional and unjustified interference by the defendant that induced or caused a breach or termination of the expectancy, and (4) damage to the plaintiff resulting from the defendant’s interference.”
• The tortious interference with contract claim fails for the reasons stated in the discussion of the Contracts Clause: there is no evidence that the Village interfered with any existing contract.
• There is evidence, however, that Alarm Companies had a reasonable expectancy of entering a valid business relationship with its long-standing customers and that the Village knew that when it enacted the Ordinance. Thus, Alarm Companies must show at least a dispute of material fact that would permit an inference that the Village passed the Ordinance to induce Commercial Accounts not to renew contracts with Alarm Companies.
• It is not enough to establish that the Village acted with the knowledge that it was likely or substantially certain that breaches would occur or that Commercial Accounts would refuse to renew their contracts.
• The Village has proffered abundant evidence, as set out above, to demonstrate that it was not motivated to injure Alarm Companies; rather, its motivation was to improve fire safety in the Village.
• In light of the evidence that the Village pursued legitimate public safety goals in enacting the Ordinance and the paucity of evidence that it intended to induce Commercial Properties to discontinue contracting with Alarm Companies, the court concludes that no reasonable jury would find that the Village’s purpose was to induce property owners to cease doing business with Alarm Companies.

Here is a copy of the decision: