The State Action Immunity Defense

Pages93-114
93
CHAPTER IV
THE STATE ACTION IMMUNITY DEFENSE
A. Introduction
In certain limited circumstances, the state action doctrine may
provide health care organizations with a complete defense to claims that
a merger or acquisition violates the Sherman or Clayton Acts.1 The
doctrine can apply to transactions in which one of the transacting entities
is a public hospital, or where a transaction is reviewed and affirmatively
approved by governmental authorities. In effect, the doctrine suspends
antitrust review where the state has expressed clear intent to displace
competition and exercises an appropriate degree of supervision over
private entities. Numerous courts have reviewed state action immunity
claims in the context of hospital mergers and other health care
arrangements, with varying results.
This chapter examines the origin and development of the doctrine
and its application to hospital mergers.
B. Origin and Nature of the State Action Doctrine
Although the state action doctrine was first formally pronounced in
Parker v. Brown,2 the doctrine is founded in principles of federalism, and
can be traced back to the passage of the Sherman Act in 1890 and
subsequent case law addressing the tensions between the federal antitrust
laws and the states’ ability to regulate commerce.
When Congress passed the Sherman Act, it contemplated a
complementary relationship between federal law and the pre-existing
state laws aimed at activities in restraint of trade. The legislative history
confirms this view, noting that “[n]o attempt is made to invade the
legislative authority of the several States or even to occupy doubtful
1. For more information on the state action doctrine see ABA SECTION OF
ANTITRUST LAW, HANDBOOK ON THE SCOPE OF ANTITRUST (2015); ABA
SECTION OF ANTITRUST LAW, STATE ACTION PRACTICE MANUAL, 2D ED.
(2010).
2. 317 U.S. 341 (1943).
94 Health Care Mergers and Acquisitions Handbook
grounds.”3 Coupled with this limitation, at the time the Sherman Act was
enacted, the scope of Congress’ power under the commerce clause was
far narrower than it is today. Thus, actions that today may be subject to
federal preemption were likely considered to be entirely local in the early
years of federal antitrust enforcement.
The Supreme Court first addressed the tension between state
regulation and federal antitrust law in 1904, in Olsen v. Smith.4 There,
the Court rejected the claim that a Texas law that set rates for pilotage
and required pilots to be appointed by the governor violated the federal
antitrust laws.5 The Court reasoned that the state has the power to
regulate and appoint pilots, and thus “no combination or monopoly in the
legal sense” arose.6 The reasoning of Olsen ultimately grew into the
express exemption articulated in Parker.
Parker involved a challenge to a California law that restricted
competition among raisin producers in order to stabilize prices.7 The
Court upheld the program, holding that state officials were not subject to
antitrust liability when carrying out state-authorized and controlled
regulatory programs.8 In so holding, the Court ruled that the antitrust
laws do not restrict a state’s operations in its own localized economies.
However, the Court recognized that state action immunity has limits. For
example, the state action doctrine would not immunize a state
authorization of private individuals to violate the Sherman Act or state
participation in a private agreement or combination by others for restraint
of trade.9
Under Parker and its progeny, a state acting as a sovereign is ipso
facto exempt from the antitrust laws. For example, the Court has applied
state action immunity to state legislatures adopting legislation,10 to state
supreme courts promulgating rules of conduct,11 state executives
exercising constitutional powers,12 and state executive agencies.13 (Note,
3. H.R. Rep. No. 1707, 51st Cong., 1st Sess. 1 (1890).
4. 195 U.S. 332 (1904).
5. Id. at 344-45.
6. Id. at 345.
7. 317 U.S. at 346.
8. Id. at 352.
9. Id. at 351-52.
10. Hoover v. Ronwin, 466 U.S. 558, 559 (1984).
11. Bates v. State Bar of Ariz., 433 U.S. 350, 362-63 (1977)
12. Hoover, 466 U.S. at 559.
13. Charley’s Taxi Radio Dispatch Corp. v. SIDA of Haw., Inc. , 810 F.2d
869 (9th Cir. 1987); see also Neo Gen Screening, Inc. v. New E ngland

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