General Application of the Doctrine

• Pages: 53-95

CHAPTER IV

GENERAL APPLICATION OF THE DOCTRINE

This chapter addresses various issues and complexities that arise in

applying the two prongs of the Midcal test—“clear articulation” and

“active supervi sion”—under the state action doctrine. This chapter also

examines how different types of state entities may use regulation to

supplant or affect other market forces and how state legislatures may

extend this re gulatory author ity to the executi ve branch, state agencies,

municipalities, or other agencies within the state. In addition, this

chapter considers whether allegations of government corruption alter the

state action analysis and whether the doctrine applies if the state is acting

as a participant in the market, rather than in its governmental capacity.

Finally, this chapter examines preemption challenges to state statutes

under the federal antitrust laws.1

A. The Clear Articulation Requirement

As described earlier in this book, the state action doctrine protects

political subdivisions of a state from the federal antitrust laws where the

subdivisions act pursuant to a “clearly articulated and affirmatively

expressed state policy.”2 Where the state policy is expressed in a statute

granting regulatory authority to a political subdivision, the clear

articulation requirement need not explicitly state the intent to supplant

federal antitrust law. Instead, the Supreme Court has stated that the intent

to displace competition is “sufficiently expressed where the displacement

of competition [is] the inherent, logical, or ordinary result of the exercise

of authority delegated by the state legislature.”3

1. See also ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW

DEVELOPMENTS 1271-83 (7th ed. 2012) (addressing general application of

the state action doctrine).

2. Town of Hallie v. City of Eau Claire, 471 U.S. 34, 44 (1985).

3. FTC v. Phoebe Putne y Health Sys., Inc., 133 S. Ct. 1003, 1012-13

(2013).

54 State Action Practice Manual

In Southern Motor Carriers Rate Conference v. United States,4 the

Supreme Court held that “a state policy that expressly permits, but does

not compel, anticompetitive behavior may be ‘clearly articulated’ within

the meaning of Midcal.”5 The state, therefore, need not authorize

conduct explicitly for the first prong of the Midcal test to be satisfied:

A private party acting pursuant to an antico mpetitive regulatory

program need not “point to a specific, detailed legislative

authorization” for its challenged conduct . . . . Requiring expre ss

authorization for eve ry action that an agenc y might find necessary to

effectuate state policy would diminish, if not destroy, its usefulness.

Therefore, we hold that if the State’s intent to establish an

anticompetitive regulatory program is clear . . . the State’s failure to

describe the implementation of its policy in detail will not subj ect the

program to the restraints of the federal antitrust laws.6

The Supreme Court’s decision in Phoebe Putney in 20137 at least

clarified and arguably narro wed significant ly the standard f or clear

articulation. Prior to Phoebe Putney, the primar y area of conte ntion

under the clear articulation test involved an assessment of whether the

anticompetitive result was “foreseeable” under the authorizing statute. If

the anticompetitive result under the statute was foreseeable, then the

clear articulation test likely would be satisfied.

Under this standard, when not explicit in a statute, the state’s intent

to displace competition could be inferred if anticompetitive conduct

foreseeably resulted from the regulation. In Town of Hallie v. City of Eau

Claire8 the Court rejected the contention that without express mention of

anticompetitive conduct in the statutory language there was no evidence

of a state policy to displace competition.9 Instead, because the challenged

conduct was “a foreseeable result”10 of state statutes allowing municipal

regulation of sewage systems, the Court concluded that “it is clear that

4. 471 U.S. 48 (1985).

5. Id. at 61 (footnote omitted). The Court thus repudiated its conclusion in

Cantor v. Detroit Edison Co., 428 U.S. 579 (1976), that the state action

doctrine protected only compelled activities. See Ch. II.A.2.b for a

discussion of the Cantor decision.

6. 471 U.S. at 64-65 (citation omitted).

7. FTC v. Phoebe Putney Health Sys., Inc., 133 S. Ct. 1003, 1005 (2013).

8. 471 U.S. 34 (1985).

9. Id. at 42.

10. Id.

General Application of the Doctrine 55

anticompetitive effects logically would result from this broad authority to

regulate.”11

In City of Columbia v. Omni Outdoor Advertising,12 the Court

reaffirmed the foreseeability test, holding that state zoning legislation

authorizing the zoning of billboards was sufficiently clear, because limits

on billboard competition were a “foreseeable result” of a city

government’s statutory power to zone the conduct. As the Court

explained, “[t]he very purpose of zoning regulation is to displace

unfettered business freedom in a manner that regularly has the effect of

preventing normal acts of competition, particularly on the part of the new

entrants.”13

In Community Communications Co v. City of Boulder,14 the Supreme

Court indicated that home rule provisions and other very general grants

of regulatory authority would not ordinarily constitute clear

articulation.15 Thereafter, the lower courts differed as to how much

specificity was required. Several very general grants have been found

insufficient,16 but some others have sufficed, at least where the grant

11. Id.

12. 499 U.S. 365 (1991).

13. Id at 373.

14. 455 U.S. 40 (1982).

15. Id. at 40 (finding Colorado’s home rule statute an expression of “mer e

neutrality,” when a state “allows its municipalities to do as they please

[it] can hardly be said to have ‘contemplated’ the specific anticompetitive

actions for which municipal liability is sought.”).

16. See, e.g., Kay Elec. Coop v. City of Newkirk, 647 F.3d 1039, 1043, 1045-

46 (10th Cir. 2011) (authorization of city-owned utilities did not

immunize anticompetitive restraints); Shames v. Cal. Trave l & Tourism

Comm’n, 626 F.3d 1079, 1084 (9th Cir. 2010) (general regulatory

authority of state tourism commission did not i mmunize restraints; “a

foreseeable result cannot create state authorization itself”); First Am.

Title Co. v. Devaugh, 480 F.3d 438, 456 (6th Cir. 2007) (refusal of

country officials to facilitate competing title ser vices by broadly releasing

title records was not foreseeable result of the official’s general statutory

authority); Arroyo-Melecio v. Puerto Rican Am. Ins. Co., 398 F.3d 56, 71

(1st Cir. 2005) (“Mere availability of state insurance regulation is

insufficient to confer Parker immunity.”); Freedom Holdings v. Spitzer,

357 F.3d 205, 227 (2d Cir. 2004) (clear articulation requires a two-prong

approach considering (1) whether there had been “express adoption of an

anticompetitive scheme,” and (2) the “state policy goals” for the creation

of the scheme); Surgical Care Ctr. of Hammond v. Hosp. Serv. Dist. No.

1, 171 F.3d 231, 236 (5th Cir. 1999) (en banc) (mere creation of local

government hospital district did not clearly authorize district to enter