Development of the Doctrine

• Pages: 7-42

CHAPTER II

DEVELOPMENT OF THE DOCTRINE

The state action doctrine has grown from a relatively minor part of a

1943 Supreme Court decision into an important antitrust exemption and a

significant component of recent jurisprudence regarding the appropriate

balance of power between both state and national governments and the

judicial and legislative branches. Much of that development took place

in a series of Supreme Court decisions between 1975 and 1992 and in

two important decisions between 2013 to 2015. This chapter examines

the history of the doctrine through the decisions that were most important

to its development.

A. The Doctrine’s Origin

1. Introduction in Parker v. Brown (1943)1

In 1933, the California legislature enacted the Agricultural Prorate

Act to authorize the establishment of programs for the marketing of the

state’s agricultural goods “so as to restrict competition among the

growers and maintain prices in the distribution of their commodities to

packers.”2 The act established a process by which commodity-specific

program committees would be formed with a majority membership of

persons nominated by producers of the commodity. This committee, in

turn, would establish a so-called proration marketing program, which, if

ratified by a supermajority of the producers, would be enforceable by

criminal (misdemeanor) and civil liability sanctions.

1. 317 U.S. 341 (1943). As Justice Stewart explained in his dissent in Cantor

v. Detroit Edison Co., 428 U.S. 579, 615 n.3 (1976) (Cantor), the

progenitor of the state action doctrine was Olsen v. Smith, 195 U.S. 332

(1904), a decision—upholding a Texas statute fixing rates char ged by pilots

operating in the Port of Galveston—relied on by the Parker Court for the

proposition that when a state, acting as sovereign, imposes a restraint on

commerce, such restraint does not violate the Sherman Act. See Parker,

317 U.S. at 352.

2. Parker, 317 U.S. at 346.

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8 State Action Practice Manual

The proration marketing program at issue in Parker required that

raisin producers’ marketing efforts for the 1940 raisin crop be subject to

a variety of restrictions. Porter L. Brown was engaged in producing,

purchasing, and packing raisins for interstate sale and shipment. He

challenged the validity of the raisin program as a violation of the

Commerce Clause and the Sherman Act.3 After a three-judge district

court panel permanently enjoined the program,4 the Supreme Court

granted review.5

The Supreme Court reversed the injunction, finding that the raisin

marketing program was not rendered invalid by the Sherman Act,6 the

Agricultural Marketing Agreement Act of 1937,7 or the Commerce

Clause of the U.S. Constitution.8 In its abbreviated discussion of the

Sherman Act,9 the unanimous Court found “nothing in the language of

the Sherman Act or in its history which suggests that its purpose was to

restrain a state or its officers or agents from activities directed by its

legislature.”10 Because “an unexpressed purpose to nullify a state’s

control over its officers and agents is not lightly to be attributed to

Congress,” the Sherman Act would be interpreted as “a prohibition of

3. Id. at 346-50.

4. Brown v. Parker, 39 F. Supp.895, 902 (S.D. Cal. 1941).

5. 317 U.S. at 345. Petitioner W.B. Parker was the California Director of

Agriculture, a state official i ntegral to the working of the Agricultural

Prorate Act.

6. Id. at 352.

7. Id. at 358. The opinion assumed “that a stabilization program adopted

under the Agricul tural Marketi ng Agreement Act would supersede t he state

act,” but noted that the federal Secretary of Agriculture had “not proposed

or promulgated any order regulating raisins.” Id. at 353. The Court

concluded: “We find no co nflict between t he two acts and no such

occupation of the legislative field by the mere adoption of the Agricultural

Marketing Agreement Act, without the issuance of any order by the

Secretary putting it into effect, as would preclude the effective operation of

the state act.” Id. at 358.

8. Id. at 368 (“[W]hatever effect the operation of the California program may

have on interstate commerce, it is one which it has been the policy of

Congress to aid and encourage . . . . Nor is the effect on the commerce

greater than or s ubstantially di fferent in kind fro m that contemplated by the

stabilization programs authoriz ed by federal statutes.”).

9. See id. at 350-52.

10. Id. at 350-51.

Development of the Doctrine 9

individual and not state action.”11 Determining that the state’s act ion

was critical to the marketing program, the Court noted:

It is the state which has created the mac hinery for establishing the

prorate program. Although the organization of a prorate zone is

proposed by producers, and a prorate program, approved by the

Commission, must also be approved by referendum of producers, it is

the state, acting thro ugh the Commission, which adopts the pro gram

and which enforces it with penal sanctions, in the execution of a

governmental policy . . . . T he state itself exercises its legislative

authority in making the regulation and in pre scribing the conditi ons of

its application.12

California’s involvement in raisin marketing restrictions

distinguished the program from a situation in which a state might attempt

to “give i mmunity to those who violate the Sherman Act by authorizing

them to violate it, or by declaring that their action is lawful,”13 or in

which a state or municipality becomes “a participant in a private

agreement or combination by others for restraint of trade.”14 Instead,

California “imposed the restraint as an act of government which the

Sherman Act did not undertake to prohibit.”15

The Parker holding that the Sherman Act was directed against

“individual not state action” is the bedrock principle of the state action

doctrine. The decision remains consistent with the doctrine as it has

developed over the last seventy years. Furthermore, the opinion

anticipated how the doctrine would evolve, addressing, for instance,

situations in which the state attempts to immunize private

anticompetitive actions by fiat or a governmental actor becomes a

participant in an essentially private anticompetitive scheme.

The Parker opinion, nonetheless, did not expressly consider whether

the raisin program impermissibly conflicted with the policies and goals

of the federal antitrust laws. The Court assumed that the state program

“would violate the Sherman Act if it were organized and made effective

solely by virtue of a contract, combination or conspiracy of private

11. Id. at 351-52.

12. Id. at 352.

13. Id. at 351 (citing N. Sec. Co. v. United States, 193 U.S. 197, 332, 344-47

(1904)).

14. Id. at 351-52 (citing Union Pac. R.R. Co. v. United States, 313 U.S. 450

(1941)).

15. Id. at 352 (citing Olsen v. Smith, 195 U.S. 332, 344-45 (1904);

Lowenstein v. Evans, 69 F. 908, 910 (1895)).