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
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
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 articulatedwithin
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 States intent to establish an
anticompetitive regulatory program is clear . . . the States 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 foreseeableunder 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 result10 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
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
governments 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
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 Colorados 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 contemplatedthe 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
Commn, 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 officials 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 goalsfor 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

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