Appealability of State Action Immunity: Navigating Federal Courts past the Crossroads Where Parker Immunity Meets the Collateral Order Doctrine.

• Date: 01 January 2019
• Author: Redd, Christopher Joseph

"A subordinate state government body is not ipso facto exempt from the operation of the antitrust laws. Rather, a district court must ask whether the state legislature contemplated a certain type of anticompetitive restraint.... Whether a government body's actions are comprehended within the powers granted to it by the legislature is, of course, a determination which can be made only under the specific facts in each case." (1)

1. Introduction

   Title 28, [section] 1291 of the United States Code states that federal appeals courts have jurisdiction to review "final decisions" of district courts. (2) Appeals are ordinarily not available under [section] 1291 until the district court enters a final judgment on the merits of the case. (3) However, the collateral order doctrine--which is understood as a "practical construction" of [section] 1291--permits interlocutory appeals from a small set of orders that "have [a] final and irreparable effect on the rights of the parties." (4) Inherent in the collateral order doctrine is a concern for the effective preservation of rights and benefits that an asserted defense affords a party, which would be lost but for a prompt interlocutory appeal. (5)

   Federal antitrust law, under the Sherman Antitrust Act (Sherman Act), is intended to protect the public by promoting a stable market and preventing market failure caused by conduct that tends to destroy competition. (6) In Parker v. Brown, (7) decided in 1943, the Supreme Court held that actions taken by state governments were exempt from antitrust restrictions under the Sherman Act, thereby creating the "state action immunity" doctrine. (8) Inherent in state action immunity is the desire to preserve federalism and state independence in regulating market stability. (9)

   Federal circuit courts are split as to whether a defendant can immediately appeal a denial of state action immunity through the collateral order doctrine. (10) The circuit split stems from one simple yet controlling proposition: Is state action immunity an absolute immunity from suit, or merely a defense to liability? (11) If construed as an immunity from suit, then the denial of a motion to dismiss for lack of immunity would be deemed to have an "irreparable effect" on the rights of the movant, which in turn would allow for an interlocutory appeal under the collateral order doctrine. (12) On the other hand, if state action immunity is interpreted as merely a defense to liability, the denial of a motion to dismiss could be effectively reviewed on appeal after final judgment, and the collateral order doctrine would not apply. (13)

   The Supreme Court has not yet decided whether a denial of state action immunity can be the subject of an interlocutory appeal under the collateral order doctrine. (14) The most recent federal appellate case addressing the issue is SolarCity Corp. v. Salt River Project Agricultural & Power District, (15) in which the Ninth Circuit dismissed an interlocutory appeal from a denial of state action immunity asserted in a motion to dismiss, reasoning that state action immunity is not an immunity from suit. (16) On December 1, 2017, the Supreme Court granted the case certiorari, and would have likely settled the circuit split stemming from this issue. (17) However, the parties engaged in settlement discussions, and on March 20, 2018, the case was dismissed pursuant to the United States Supreme Court Rule 46.1. (18)

   This Note begins by explaining the history of the final judgment rule and the collateral order doctrine. (19) Next, this Note clarifies the function of state action immunity in the realm of antitrust litigation. (20) Then, after analyzing each circuit's precedent on state action immunity, this Note argues that state action immunity should be considered a mere defense to liability and, therefore, denial does not warrant an interlocutory appeal pursuant to the collateral order doctrine. (21) This Note uses SolarCity to frame its analysis and focus its perspective on antitrust litigation. (22) Ultimately, this Note proposes that only denials of a sovereign state's assertion of state action immunity are immediately appealable under the collateral order doctrine, and any entity acting on a state's behalf must wait to appeal until a final judgment is issued on the merits of the case. (23)

2. HISTORY

   1. Appellate Court Jurisdiction: Balancing Judicial Efficiency and Justice

      1. The Finality Requirement Under [section] 1291: Promoting Judicial Efficiency

      Article III, Section 1 of the United States Constitution vests federal judicial power in one Supreme Court and the inferior courts that Congress "may from time to time" create, while Article III, Section 2 gives Congress the power to confer federal jurisdictional authority. (24) In creating the federal judicial system, Congress granted to the appellate courts jurisdiction over "final decrees and judgments." (25) This final judgment principle is currently codified in [section] 1291 of the United States Code. (26) Congress enacted [section] 1291 to promote judicial efficiency and safeguard effective trial and appellate review. (27) The final judgment rule, or final decision principle, promotes efficiency by preventing the circuit courts from becoming inundated by appeals from non-dispositive lower court rulings. (28)

      The Supreme Court has strictly interpreted the final judgment rule, holding that an order "end[ing] the litigation on the merits and leav[ing] nothing for the court to do but execute the judgment" is required for appellate jurisdiction. (29) The Court, however, will depart from its strict construction of the final judgment rule and allow an appeal if waiting until the end of litigation on the merits would essentially "defeat the right to any review at all." (30) In deciding whether such a departure is warranted, the Court weighs its desire to promote judicial efficiency and avoid piecemeal review against the danger of impeding justice for the litigants. (31)

      Because both Congress and the Supreme Court have recognized that unwavering adherence to the final judgment principle poses a significant threat to justice, they have each created exceptions that permit interlocutory appeals of trial court decisions. (32) For example, Congress has promulgated two types of interlocutory appeals through [section] 1292 of the United States Code: entitled interlocutory appeals, also known as interlocutory appeals as of right, and permissive interlocutory appeals. (33) Entitled interlocutory appeals under [section] 1292(a) include appeals from district courts granting, continuing, modifying, refusing, or dissolving injunctions; appeals from appointments of receivership; and appeals from determinations of rights and liabilities in admiralty law. (34)

      Permissive interlocutory appeals under [section] 1292(b) are a limited class of appeals "involv[ing] a controlling question of law as to which there is a substantial ground for difference of opinion"; these appeals are only allowed upon certification by the district court and subsequent permission by the appellate court. (35)

      2. The Collateral Order Doctrine: The Supreme Court's Means of Safeguarding Justice

      The Supreme Court, concerned with the undue burden litigation may impose on parties, has permitted certain departures from the final judgment rule, with the collateral order doctrine being the most important. (36) The collateral order doctrine is a judicially constructed application of the final judgment rule that establishes particular circumstances where interlocutory orders, not otherwise appealable under the final judgment rule, are appealable. (37) The collateral order doctrine finds its roots in the Supreme Court's decision in Cohen v. Beneficial Industrial Loan Corp., (38) where a shareholder pursued a derivative action in federal court against a corporation's officers and directors. (39) New Jersey had a statute that predicated a shareholder derivative suit on the condition that the plaintiff post a bond covering the defendant's potential, reasonable litigation expenses. (40) The defendant moved to compel the plaintiff to post the statutorily mandated bond, but the court held New Jersey law did not apply and denied the motion. (41) The defendant appealed the court's order; the Third Circuit reversed; and the plaintiff filed for a writ of certiorari, which the Supreme Court granted. (42)

      The Supreme Court held that the order denying the motion was immediately appealable because the right to the security bond was a "serious and unsettled question" that "fall[s] in that small class which finally determine[s] claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated." (43) The Court reasoned that the district court's decision did not constitute a step towards, nor would it merge with, a judgment on the merits because it merely turned on whether state law applied in federal court. (44) Ultimately, the defendant would have irreparably lost its right to the pretrial securities bond if the court did not permit an interlocutory appeal. (45)

      a. Development of the Collateral Order Doctrine

      After Cohen, the Supreme Court refrained from rigorously applying the collateral order doctrine, which resulted in the doctrine's natural expansion. (46)

      which was intended to regulate an abuse by the corporate officers, created an avenue for the shareholders to reciprocate the abuse by using strategic litigation to coerce the officers. Id. These suits motivated by nuisance value were known as "strike suits." Id. New Jersey enacted a statute that made plaintiffs of an unsuccessful shareholder derivative lawsuit liable for the defendant's "reasonable" expenses in litigation. Id. at 544-45, 544 n.1. This served as a deterrent from claims intended to "capitalize ... on [the]...