State action immunity, municipalities, and the unique case of eminent domain.

• Author: Motto, Joseph L.

1. INTRODUCTION II. BACKGROUND A. Initial Development of the State Action Doctrine: Maintaining State Sovereignty B. Application and Development of Parker: Tailoring the Limits of Sovereignty 1. Defining the Parker Analysis 2. The Process-Oriented Approach of Midcal 3. Refining the Midcal Approach C. Expansion of Parker: Renewal of Economic Federalism D. Improper Motive and Eminent Domain III. ANALYSIS A. The Conflicting Values of Antitrust and Federalism 1. Participation, Politics, and Capture 2. Experimentation, Decentralization, and Regulatory Competition B. Reassessing the Current State Action Doctrine 1. Requiring Active State Supervision 2. Creating a Market Participant Exception 3. Purpose and the Unique Case of Eminent Domain IV. CONCLUSION I. INTRODUCTION

   In Pennsylvania v. Susquehanna Area Regional Airport Authority (SARAA I), the U.S. District Court for the Middle District of Pennsylvania held that the Susquehanna Area Regional Airport Authority (SARAA or "the airport authority"), a municipal authority operating under a broad enabling act, may exercise its power of eminent domain to condemn a privately owned airport parking service in direct competition with its own parking service without being subject to suit for violations of federal antitrust law. (1) The private lot at issue in SARAA I was the airport authority's sole competitor for parking services provided to travelers flying in and out of the Harrisburg International Airport (HIA). (2) The condemnation will therefore provide SARAA with a monopoly over parking services at the HIA. Despite acknowledging the flagrantly anticompetitive effect of SARAA's conduct, (3) the district court found that SARAA was exempt from antitrust liability under the state action doctrine. (4) Responding to the plaintiff's claim that SARAA was acting with an improper motive--namely, to monopolize the parking services market rather than to serve the public interest--the court suggested that eminent domain proceedings were the appropriate forum for addressing motive. (5)

   Eight months later, SARAA was once again in front of the district court, this time for allegedly entering into anticompetitive, exclusive dealings contracts with a taxi service. (6) However, this time the court found that state action immunity did not exempt the airport authority from antitrust liability. (7) In each case, SARAA acted pursuant to the same enabling act, although in SARAA I, the airport authority exercised its grant of eminent domain, (8) and in SARAA II, the airport authority exercised its power to execute contracts convenient for carrying on its business. (9) The court distinguished the two cases on the grounds that the exercise of eminent domain will inevitably result in the displacement of competition, whereas anticompetitive effects are not the logical result of the state grant of freedom to contract. (10) This distinction was dispositive because, in order to receive state action immunity, anticompetitive conduct by a municipality must be the foreseeable result of a clearly articulated state policy. (11)

   SARAA I highlights the ease with which a municipal actor may receive state action immunity. Taken alone, SARAA I demands a reassessment of the current state action doctrine. Taken together with SARAA II, SARAA I demonstrates that eminent domain is a particularly problematic issue within the greater discussion regarding municipalities and antitrust exemption. As the SARAA I court noted, the condemnation of land well-suited for a particular purpose, project, or facility obviously has the potential to negatively impact market competition. (12) Because the likelihood of competitive fallout is so obvious, the exercise of eminent domain should presumably meet the foreseeability test every time, absent clear expression of a contrary intent on the part of the legislature. The outcome of SARAA I--the apparent monopolization of a market with little or no justification--and the dubious motives underlying the airport authority's activities in that case raise the question of whether this is a desirable state of affairs.

   This Note offers a reassessment of the state action doctrine as it applies to the anticompetitive conduct of municipal actors like the airport authority in the SARAA cases, with particular focus on the exercise of eminent domain. Part II of the Note briefly outlines the fundamentals of federal antitrust law before turning to a discussion of the creation and development of the state action doctrine. Part II.D provides an overview of the law of eminent domain as well, for use in determining whether the principles of that law adequately address the concerns raised by cases like SARAA I. Part III then proceeds to analyze the relative interests served and sacrificed by a lenient exemption doctrine, addressing and comparing various reforms that have been proposed from the time state action began resembling its modern day form. Part IV concludes by suggesting that courts require municipalities to meet additional requirements before granting immunity from federal antitrust.

2. BACKGROUND

   The Supreme Court has described the antitrust laws as a "consumer welfare prescription," (13) which is another way of saying that they are intended to promote allocative efficiency. (14) The understanding that the maximization of consumer welfare is synonymous with the efficient allocation of society's resources rests upon the idea that when goods and services are provided under conditions of pure competition, resources will be distributed in accordance with their most valued use. (15) As firms compete for business, prices are driven downward toward the cost of supplying a product,16 meaning that ideally no consumer who values a product for more than its cost is denied that product. (17) In a perfectly competitive setting, consumer valuation dictates the distribution of resources, and resources are thereby allocated in the most efficient manner. (18) Thus, the "principle implicit in the antitrust laws is that a competitive market economy will maximize efficiency or, stated otherwise, maximize the welfare of consumers." (19)

   If, for whatever reason, a firm is able to suppress competition, alleviating the natural depression of price toward cost, it will have an incentive to reduce its output and raise prices in order to maximize profit. (20) This is possible because, where price is set by competition to meet consumer demand, there will normally be consumers willing to pay more than the competitive price. (21) Even though demand for a product will decrease as its price rises, a firm will still be able to make sales to some consumers. This means that, if possible, a rational profit-seeking firm will reduce its output and set higher prices to the extent each reduction in output and corresponding increase in price results in a higher overall profit. (22)

   Where price is driven above cost, some consumers who value a product at more than the cost of supplying it will nonetheless be unwilling to purchase it. (23) Consumers are denied products that they could purchase in a competitive market, meaning resources are not allocated efficiently. (24) Efficiency is reduced to the extent consumers value goods that they are unable to purchase more than it costs to supply those goods. (25)

   Government regulation, by its nature, displaces competition. (26) "Displacement is the purpose, indeed the definition, of regulation." (27) Therefore, regulation of markets will presumably injure consumers purely with respect to their interest in competitive pricing, regardless of the public interest purportedly advanced by the regulation, and notwithstanding that the regulation might seek to correct market failure. (28) There is thus a conflict between the stated aim of federal antitrust, namely, competitive markets, and the functions of almost any regulatory body concerned with more than merely competitive markets. (29)

   Under the Supremacy Clause, conflicts between state and federal law are resolved in favor of national legislation. (30) Professor John E. Lopatka posits two ways in which municipal regulation can injure consumer welfare in a manner concerning antitrust: (1) by regulating the market so that the price of a product exceeds the cost, thereby enabling a monopoly profit to be earned, or (2) by creating a scenario (by perhaps granting a monopoly) in which a product is supplied by an inefficient firm. (31) In the second scenario, the product may still be supplied at cost, meaning no monopoly profit is earned, but the resulting price is higher than that at which the product could be provided by a more efficient producer. (32) Of course, SARAA may simultaneously injure consumers in both ways by providing itself with a monopoly over HIA parking. Why then, given the Supremacy Clause, was the condemnation not an antitrust violation? As the Court explained in Exxon Corp. v. Governor of Maryland, "[I]f an adverse effect on competition were ... enough to render [state action] invalid, the states' power to engage in economic regulation would be destroyed." (33) As the following discussion demonstrates, the judiciary has largely accommodated state law at the expense of federal antitrust. (34)

   1. Initial Development of the State Action Doctrine: Maintaining State Sovereignty

      Section 1 of the Sherman Act makes unlawful "every contract, combination ... or conspiracy, in restraint of trade or commerce among the several States." (35) Section 2 makes it unlawful to "monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States." (36) Prior to Parker v. Brown, (37) the Supreme Court had not explicitly recognized immunity for state government activities which violated the Sherman Act or any other federal antitrust provisions. (38)

      In Parker, a California raisin producer and packager challenged the validity of the California...