Quimbee logo
DMCA.com Protection Status

Antitrust v. The Government: Litigating Government-Induced Competition Problems

4.7 out of 5 Excellent(23 reviews)
Start your FREE 7-day trial
Preview this course and the rest of Quimbee's CLE library for free with a 7-day free trial membership.
Buy this course - $49
Get access to just this course for $49
Play video

Antitrust v. The Government: Litigating Government-Induced Competition Problems

The federal antitrust laws are a longstanding and overriding national policy in favor of competition that has been affirmed and reaffirmed by Congress time and again, and federal law is the supreme law of the land. But then sometimes it isn’t: states have the power to regulate economic activity, and they sometimes do so in ways that are anticompetitive (and sometimes allow private parties to do anticompetitive things). This course covers the most commonly-implicated doctrines when there is state involvement in anticompetitive conduct.


Aaron Gott
Partner and Chief Operating Officer
Bona Law PC


Aaron Gott - Welcome, my name is Aaron Gott, and you are attending Antitrust Versus the Government: Litigating Government Induced Competition Problems with Quimbee CLE. Again, my name is Aaron Gott. I'm an antitrust lawyer and partner at Bono Law PC, and I've been litigating cases involving governments since I first started my career. This is an advanced CLE course involving complex issues that arise in antitrust litigation. If you haven't already, you should check out our antitrust 101 CLE, which will give you a solid foundation of antitrust law. So this course is about litigating antitrust cases against state and local governments, which shows the inherent tension between federal supremacy on the one hand, and dual federalism on the other. The federal antitrust laws are longstanding and overriding national policy in favor of competition. And Congress has affirmed and reaffirmed it over and over again. The federal antitrust laws are the supreme law of the land, but, and this is a but, sometimes it isn't. States have the power to regulate economic activity and unsurprisingly, they do so sometimes in ways that are anti-competitive. And sometimes they even allow private parties to do anti-competitive things. The courts have generally allowed states to do this, but we're gonna talk about the circumstances under which they can, and how to litigate those issues.

This course is going to cover the most commonly-implicated doctrines when there is state involvement in anti-competitive conduct. By the end of this course, participants will learn how government involvement and otherwise actionable anti-competitive conduct, that is an otherwise meritorious antitrust claim, can affect liability and damages in antitrust litigation. Participants will learn the principles and application of the State Action Immunity, and participants will learn about related doctrines that arise in antitrust cases involving government conduct.

Those include the Local Government Antitrust Act of 1984, the Eleventh Amendment in sovereign immunity, Ex parte Young and various abstention doctrines. So I mentioned before that I've been doing this for quite a while. The first antitrust case that I was involved in when I first started my career, was a case involving a state licensing board that had acted anti-competitively. Since that time I've been involved in every Supreme court case to cover the issue, and a good chunk of the US Court of Appeals cases that have dealt with State Action Immunity and related issues as well. I've litigated a number of State Action Immunity cases in trial courts, and advised lots of other clients on issues surrounding government involvement in anti-competitive conduct and the State Action Immunity. Even despite all of that, I still find myself learning new things all the time. This is a really deep subject. And our goal today is to just give you a broad round understanding of the issues that are most likely to arise when you're litigating cases involving the government.

So with that, today, we're going to try to understand how government involvement can affect the application of the antitrust laws. We're going to cover the State Action Immunity. And as part of that, we're going to discuss the backdrop of federal antitrust law, the guiding principles that underpin the State Action Immunity. We're going to talk about the application of the State Action Immunity. And we're also gonna talk about key cases that have decided State Action Immunity issues. We're also going to talk about a couple of related doctrines that often arise in cases involving government conduct. Those are the Local Government Antitrust Act of 1984, the Eleventh Amendment, sovereign immunity, and Ex parte Young, and then abstention doctrines as well.

So most of this course is about the State Action Immunity. Well, what is the State Action Immunity? The State Action Immunity is a doctrine that provides an affirmative defense from liability to an antitrust claim. If the defendant proves the defense, the defendant is exempt from liability. We'll talk a little bit later about what that means. Any defendant can claim this defense, but it is typically raised by a private market participant, a municipality or an other public entity, such as a public utility. Sometimes the defendant is a hybrid entity that is a private market participant, and perhaps a member of a state licensing board, or it could be a municipality that's acting in the marketplace. Public utilities obviously provide services in the market so they often can be both a form of local government and a private market participant. We're going to spend a significant amount of time in this course talking about the various ways that these different types of parties can change the dynamics and the outcome in a court's decision on whether or not the State Action Immunity applies, as well as the applicability of the other doctrines that we are going to discuss. The State Action Immunity defense is available in both private antitrust litigation, as well as in agency enforcement actions. In fact, you will see that a good number of the big cases, the big Supreme court cases are cases involving the Federal Trade Commission.

In order to obtain the State Action Immunity, a defendant must typically show two things. First, they must show that they were acting pursuant to a clearly articulated state policy to displace competition. This is clear articulation. You're gonna hear a lot about clear articulation today. And second, they must also show that they were actively supervised by the state itself in acting anti competitively. This is what we call active supervision. So two requirements, clear articulation and active supervision. You'll see in a little bit, that there are certain circumstances under which the latter element, active supervision isn't required. And you'll see, there is actually one circumstance where neither of these elements are required, but we'll get to that in a little bit. So the backdrop to the State Action Immunity is federal antitrust law. And federal antitrust law has been around for a really long time since the 1890s. It's very uncontroversial that we should have free markets and open competition. There may be some debate about exactly what that means, but generally speaking, we as a society and Congress as a policy has long had faith in the value of competition.

In fact, the Supreme Court has given us plenty of quotes to draw from here. For example, the court said that the central safeguard for the nation's free market structures are the antitrust laws. It's said that the antitrust laws guarantee each and every business, no matter how small, the freedom to compete. The court has said that this national policy in favor of competition has existed and been reaffirmed constantly for more than a century. The court has said that the public interest in vigilant enforcement of the antitrust laws is fundamentally mentally important to the national economy. And it said that the antitrust laws reflect a legislative judgment that ultimately competition will produce not only lower prices, but also better goods and services. In fact, the antitrust laws are so important to the national interest that Congress provided for automatic recovery of three times actual damages in suits by private plaintiffs and Congress trusted the adjudication of antitrust cases to federal courts alone through exclusive federal jurisdiction.

So it's clear from this backdrop that the courts and Congress think that antitrust law is really important. In fact, the antitrust laws are an exercise of Congress's quintessential power, which is to regulate interstate commerce. So you would think that Congress and the courts wouldn't want states getting in the way of that, but there are some other values at play as well. This nation is a constitutional republic with a dual federalist system. What that means in this context, is that states do not have the power to set aside the well settled judgment of Congress in areas where Congress has plenary power to exercise, but states do have residual power to regulate under the 10th amendment. So the Supreme court has ruled that there is a narrow exception to the otherwise Supreme federal antitrust laws. And that is that the Sherman Act does not bar states from imposing restraints as an act of government. And the court first said that in Parker versus Brown in 1943. Now, there was a lot going on at the Supreme court in 1943, and a lot of other changes in the way that we look at. Economic regulation in particular and state power to enact economic regulation. So Parker versus Brown was the first case to find State Action Immunity.

Despite the fact that the Sherman Act had been the law of the land for 50 years at the time, and Parker came in the midst of a sea change in precedent, which involved more deference to government, whether state or federal, particularly when it came to economic regulation. The court didn't want to be seen as getting in the way of economic regulation, even when it meant tilting in favor of the states over the federal policy. Thus, the State Action Immunity was born. Let's talk about some guiding principles. First, the State Action Immunity is not actually an immunity, it's an exemption. It's called an immunity, but it's a misnomer because what it really does is exempts the defendant from liability. The defendant is not immune from suit, like they would be for example, in a qualified immunity, but they are entirely exempt from liability. The Supreme Court has said that the State Action Immunity is really just a reading of the Sherman Act that certain conduct falls outside of it.

So the State Action Immunity itself is an interpretive function of constructing the antitrust laws, but the State Action Immunity is also subject to some canons of construction. First, like all antitrust exemptions, the State Action Immunity is narrowly circumscribed, strictly limited and disfavored. And there are plenty of cases in which the Supreme court and US courts of appeals have said, something like that. Here we have one from the Ninth Circuit that says the State Action Immunity doctrine is disfavored and to be interpreted narrowly because a broad interpretation of the doctrine might inadvertently extend immunity to anti-competitive activity that the states did not intend to sanction. The Supreme court has even countered arguments that it should defer to the anti-competitive conduct of state and local governments. By saying that airing on the side of recognizing immunity is inconsistent with the principle that the State Action Immunity is dis-favored.

 The court said that in 2012, in a case called FTC versus Phoebe Putney, There are some other guiding principles to the State Action Immunity as well. An antitrust defendant may not invoke the Parker immunity unless the actions in question are an exercise of the state's sovereign power. Additionally, a state may not simply declare that its political subdivisions or a resonance are exempt from antitrust liability.

Now there are a couple of corollaries to that. The first is that state's power to attain an end does not include the lesser power to negate the congressional judgment embodied in the Sherman Act. What that means is, that while states have the ability to regulate in their own interest, they don't have the ability to simply say, Congress, we disagree with you. What we're gonna see here is there is often tension between the state's economic regulatory goals and the broader principles of the Sherman Act, which essentially mean that anytime the state is doing something that's anti-competitive, it is sort of saying, Congress, we disagree with your judgment, that the policy should be one in favor of competition. Another corollary is that a state cannot give immunity to those who violate the Sherman Act by authorizing them to violate it, or by declaring that their action is lawful. What this means is, the State Action Immunity is something that courts decide. The courts decide whether or not a state has clearly articulated a policy that happens to displace competition and whether or not the state has actively supervise that conduct. The state cannot simply say that intends to immunize certain conduct, because that would in fact, be a state simply trying to set aside the well settled judgment of Congress.

And one further guiding principle is that in a dual federalist system, there are only really two interests to be balanced, and those are the interests of the state and the interests of the federal government. A lot of State Action Immunity cases involve municipalities and other political subdivisions, entities of the state that are not sovereign. When it comes to those entities, their interests really are not the interests that are supposed to be balanced. So let's apply the State Action Immunity test. Once again, the State Action Immunity test is the defendant must affirmatively show that it acted pursuant to a clearly articulated and affirmatively expressed state policy to displace competition, and the state itself actively supervised the defendant's anti-competitive conduct to ensure that that conduct accords with state policy. That is, unless the defendant is a municipality, a municipality must still always show clear articulation, but a municipality need not show active supervision, at least in most circumstances. I have argued numerous times that clear articulation isn't enough when a municipality is acting as a market participant as well. And that argument has been attractive to even the Supreme court, but it hasn't been settled yet, whether or not there are circumstances in which a municipality must show both clear articulation and active supervision.

There's another exception to applying the State Action Immunity test, and that is, when the defendant is the sovereign state itself. As the Supreme court has said, state legislation and decisions of a state Supreme court acting legislatively rather than judicially, ipso facto are exempt from the operation of the antitrust laws, because they are an undoubted exercise of state sovereign authority. So if you're challenging a statute directly, you're probably going to lose, because a state statute was passed by the state legislature and the state legislature is ipso facto exempt from the federal antitrust laws. It is important to note that the ipso facto exemption does not apply to state agencies, but we'll talk more about that later. So let's dive a little deeper into exactly what clear articulation and active supervision require. Here are some clear articulation basics. A state law or regulatory scheme, cannot be the basis for antitrust immunity unless first, the state has articulated a clear policy to allow the anti-competitive conduct, that's from Ticor Title. The exemption is conferred only out of respect for ongoing regulation by the state.

So there are a couple of questions that we should ask when it comes to clear articulation. First, whether or not an anti-competitive policy is indeed the policy of a state, and second, whether or not the state really intended to allow the defendant to do what it did. You can really break down the clear articulation requirement into a couple of smaller elements. First, you must have a clearly articulated policy. What does that mean? Well, it usually means that there's a state statute that says we want to replace competition with regulation in some way. It might be that the state has a statute that only allows certain services to be performed by dentists, or it might be that the state has allowed for cities to adopt monopolies, whether it's cable monopolies, or ambulance monopolies, the state has enacted a statute that says we're going to allow monopolies to occur in these limited circumstances, because the market wasn't working or there was some specific problem that we need to solve. The second of these smaller elements is that it must be the policy of the state acting as sovereign. So, there's an open question as to whether actions by the governor can be considered sovereign. The court has decided that the Supreme court, when it's acting legislatively, meaning when it's creating rules, that's a sovereign exercise of power. And we know already that the legislature in acting statute is a sovereign exercise of power. The third element is that the policy that is clearly articulated must allow the defendant to act or regulate anti-competitively, and we'll talk a little bit more about that in a little bit.

But let's go back to a clearly articulated policy. What that means is, a policy is clearly articulated where the inherent logical or ordinary result of the policy is the particular anti-competitive conduct that is at issue. There's an important Supreme court case, that's rather recent called FTC versus Phoebe Putney Health System. This case is the leading case on clear articulation, and a lot of scholars have agreed that Phoebe Putney created a new higher bar for clear articulation. And the reason is that before Phoebe Putney, clear articulation was really seen as a matter of foreseeability, whether or not the state could have foreseen that whatever scheme it put in place would result in anti-competitive conduct by defendant. And if you think about it, it's kind of telling what the state of the doctrine was before a Phoebe Putney was decided, and that's because courts were essentially asking themselves, could the state have foreseen how this municipality or this private party was going to misuse state law for its own ends. We'll talk a little bit more about that later under active supervision, but keep that in mind, because the two are inextricably linked.

 Phoebe Putney reversed an Eleventh Circuit decision that granted immunity. What happened there was Phoebe Putney is a local government hospital authority, state law authorized Phoebe Putney to participate in the market and also to acquire hospitals. These were general corporate powers that were put into a statute governing hospital authorities. It's also important to note that the state of Georgia has a certificate of need regime. What this means is, that, and this is the case in a majority of states, in order to operate a hospital or some other healthcare facility, you have to obtain a certificate of need, which means that you can't just go out and decide that the market needs another hospital. You have to get state permission first. So against this highly regulated competitive environment, Phoebe Putney sought to acquire another hospital in the area that would've created a monopoly. Well, the FTC saw that and it sued to block Phoebe Putney from acquiring the hospital. But the district court did not grant the FTCs injunction and dismissed its complaint on the ground that the hospital authority was immune and the Eleventh Circuit agreed.

The Supreme court actually reversed the Eleventh Circuit. Despite the fact that there's this highly regulated regime that replaced competition with regulation. And what it said was, clear articulation is only satisfied where the defendant shows that it has specifically been delegated the authority to act or regulate anticompetitively. Here, all that Phoebe Putney had to rely upon were these general corporate powers that allowed them to participate in the market and to acquire hospitals. That just wasn't enough. Instead, the Supreme court said that the particular challenge conduct must be the inherent logical or ordinary result of the exercise of authority delegated by the state legislature. It's not a given that a legislature giving a hospital authority permission to act in the market and to even acquire other hospitals is about anything anti-competitive at all. And about the certificate of need regime, that wasn't really related to what Phoebe Putney was doing here. The Supreme court said that regulation of an industry, and even the authorization of discreet forms of anti-competitive conduct pursuant to a regulatory structure, does not establish that the state is affirmatively contemplated other forms of anti-competitive conduct that are only tangentially related. So what it was saying there is that, yes, there's a certificate of need regime, but the certificate of need regime does not in any way allow local hospital authorities to acquire monopolies. All it does is require permission to enter the market.

So to summarize what the Supreme court said in Phoebe Putney, a law authorizing a hospital authority to acquire other hospitals is not sufficient for State Action Immunity, over conduct that involves acquiring a monopoly because the power to acquire is not the power to monopolize. And the fact that the state limits competition with certificates of need, does not mean that the state also intended for Phoebe Putney to engage in anti-competitive mergers. Since Phoebe Putney, US Courts of Appeal have had to interpret what it meant. According to the Ninth circuit, clear articulation now has two different parts to its own test. And that is, first that the state authorization must plainly and clearly intend to displace competition. And second, the actual result that occurred must have been foreseeable by the legislature at the time that it enacted the statute. And that's the inherent logical or ordinary result aspect of the test. And the ninth circuit said that in a case called Seattle versus US Chamber of Commerce, which dealt with a Seattle ordinance that required ride share companies such as Uber and Lyft to negotiate in good faith with collective bargaining units comprising drivers. The question in that case was whether or not a state statute that gave municipalities the authority to regulate taxi services or rides for hire also gave municipalities the authority to essentially create authorized unions for drivers that the ride-share companies must negotiate with. Let's talk about active supervision. First, the basics. The state itself must actively supervise the anti-competitive conduct of the defendant that it had authorized. And the reason it must do that is to make the conduct the state's own. And the reason for active supervision is that it provides a realistic assurance that the conduct in question promotes state policy, rather than the interests of the defendant, who's asserting it. The active supervision inquiry is what the Supreme court has called flexible, but with a few constant requirements.

In North Carolina State Board of Dental Examiners, the Supreme court said that the active supervision inquiry is flexible and context dependent, but it must always assure that the non-sovereign actors, anti-competitive conduct promotes state policy rather than merely the party's individual interests. You see that phrase there, non sovereign actor, the Supreme court is using that phrase to contrast the party that's seeking the State Action Immunity from the state itself. We'll get to that in a little bit, but for now, there are a few constant requirements. First, the supervisor must review the substance of the anti-competitive decision, not merely the procedures followed to produce it. That's relevant because a lot of anti-competitive decisions are reviewed by administrative law judges, especially in the licensing context, and a lot of times the review is really procedural, just making sure that the licensing board did what it was supposed to do in terms of state procedure. Second, the supervisor must have the power to veto or modify the conduct to make sure that the conduct accords with state policy, and third, the mere fact that supervision could occur is not enough. There has to actually be supervision in the case at hand. The Federal Trade Commission has released guidance, that further says that active supervision should include an adequate factual record with notice and an opportunity to be heard, a written decision on the merits by the supervising party, and a specific assessment, both quantitative and qualitative of how the conduct comports with a substantive standard of the clearly articulated policy. And finally, it's not in here, but another requirement is that the supervisor be disinterested in the outcome.

So the leading case on the act of supervision requirement of State Action Immunity, is FTC versus North Carolina State Board of Dental Examiners, that case is relatively recent from 2015. And I was actually involved in that case, I represented my party as amicus curiae. So before FTC versus North Carolina Dental Examiners, there wasn't an agreement among the US Courts of Appeal on when active supervision was required. Some courts had held that state agencies should not be required to show active supervision because they're not like private parties, they're state agencies. Well, the Supreme court disagreed with that, but let's talk first about the background. So in North Carolina, like every other state, there is a state licensing board for dentists and a majority of the members of the dental board were practicing dentists, and dentists make a lot of money on teeth whitening. They have for a long time, but more recently, newer modern technology has allowed for mall kiosks to even whiten your teeth safely and cheaply, and mall kiosks were on the rise in North Carolina. Well, the dentists didn't like that. So the dentists on the dental board decided to take a few different actions to keep non-dentists like the mall kiosks from offering teeth whitening services within North Carolina.

Some of those actions included sending strongly worded cease and desist letters that essentially said, you're violating North Carolina law and you need to shut down your teeth whitening kiosk, or we're gonna come after you. Not surprisingly, the FTC sued the board for this blatantly anti-competitive conduct in an administrative proceeding. The board claimed State Action Immunity, and in fact, it went to court and tried to enjoin the FTCs administrative proceeding, claiming that it had sovereign immunity. The courts rejected that and the FTC case went forward. The question presented to the Supreme court was were a majority of state licensing boards members are active participants in the market the board regulates? Does the board need to show active supervision for State Action Immunity to apply? And the Supreme court said, yes, yes. In fact, whenever there are active market participants involved, you have to show active supervision.

What's important here is the Supreme court's reasoning. First, it said that limits on State Action Immunity are most essential when the state seeks to delegate its regulatory power to active market participants. And that's because established ethical standards may blend with private anti-competitive motives in a way difficult even for market participants to discern. I think the Supreme court was being a little bit nice there. The fact is that when people such as dentists get in power, they're going to do things that benefit themselves, that aren't really necessarily in the interests of the state that's giving them the power, but are more for the dentists themselves. And then the Supreme court, in a little bit less nice of a way says that active market participants cannot be allowed to regulate their own markets free from antitrust accountability. That's because they can't be trusted to do so, because they have their own incentives.

So in order to obtain the State Action Immunity, especially those authorized by the state to regulate their own profession, the defendant must demonstrate that their conduct was subject to procedures, that suffice to make it the state's own. That's something we've seen before. What's important in the State Action Immunity is the state owned the conduct. The question isn't really about whether or not what the dental board did was right or wrong, efficient, well functioning or wise, but instead whether or not the state had endorsed that conduct as conforming to its policy to displace competition, because that is what the State Action Immunity is concerned with, the interests of the state. So given North Carolina dental examiners, one would think that whenever there's a municipality acting as a market participant, that it too would have to show active supervision, because municipalities just like any other market participant, will use whatever power they have to benefit and advantage themselves. I've seen that all the time in my career. But so far the Supreme court hasn't given any word on that. And its old cases specifically exempted municipalities from the active supervision requirement.

One of those cases was called City of Eau Claire versus Town of Hallie, and that case is from 1985. In that case, the residents of an unincorporated town of Hallie, sued the city of Eau Claire, because the city of Eau Claire had monopolized the provision of sewer transportation and storage. The Supreme court held that the state had enacted a statute that intended to displace the market for sewage storage and transportation with regulation. And that this, the municipality, because it was a municipality, did not need to show active supervision. The court reasoned that because municipalities are electorally accountable, they don't need to be actively supervised by the state government, because they're already supervised by the citizens of the municipality. But consider that municipalities and their citizens have aligned interests on these issues. Consider when a municipality monopolizes, for example, ambulance markets and makes a whole bunch of money from its monopoly prices that it then does not have to raise as taxes, and even though that monopoly has an effect on interstate commerce and consumers and competitors outside the city limits, they don't get to hold the municipality accountable under town of Hallie.

So even though North Carolina Dental makes clear that market participants cannot regulate their own markets free of antitrust accountability, it's still an open question whether municipalities have to show that they are actively supervised by the state when they're acting as market participants. And the fact is, is that most courts because of the direct Supreme court precedent in town of Hallie and other cases, generally continue to abide by the proposition that municipalities and other local governments don't have to show active supervision. So whether it's you or me, maybe that's something we can work to clarify in the future. So now we've covered both clear articulation and act of supervision.

What other State Action Immunity issues can arise? Well, there's one big one that's come up the most often, and that is whether or not the decision by a district court on State Action Immunity, on for example, a motion to dismiss or at summary judgment is subject to immediate appeal. What we really mean is, denial of the State Action Immunity, because if the State Action Immunity applies, then there probably is going to be a final order. It's going to be a dismissal. But if there's a denial of the State Action Immunity, the question is whether or not the denial is a collateral order. As you may know if you've done any appellate law, there's something called the collateral order doctrine, which says that essentially you either must have a final order for appellate jurisdiction, or you must have a collateral order that is a narrow exception to the final order rule.

A collateral order is immediately appealable, even if it's not final, if it meets three requirements. The first is that the order must be conclusive on the issue decided. Second, it must address a question that is separate from the merits of the case. And third, it must raise some particular value of a higher order, that would evade effective review if not considered immediately appealable. A classic example of a collateral order, is qualified immunity. Courts have held that qualified immunity is immediately appealable because of the fact that qualified immunity is an immunity from suit rather than from liability. Courts have said that because we don't want public officials to spend all their time in court defending the decisions that they've made or the actions they've taken as representatives of the government. They should be immune from suit under qualified immunity, and therefore if they're denied qualified immunity, they should be able to appeal that order because otherwise they're gonna have to litigate the case and they will be deprived of that benefit that they were wrongfully denied by the district court.

So perhaps not surprisingly, plenty of municipalities, local governments, state agencies, et cetera, have argued that the State Action Immunity should also be immediately appealable. The problem is that they confuse the values that are supposed to be protected by the qualified immunity, with those that are intended by the State Action Immunity. There has never been a Supreme court decision on this question, but most circuits who have decided it have decided that the State Action Immunity is not immediately appealable under the collateral order doctrine. For example, the Sixth Circuit held in 1981, in a case called Huron Valley Hospital versus City of Pontiac. The State Action Immunity is not subject to the collateral order doctrine, because the collateral order doctrine only applies when the question on appeal, is separate from the question on the merits. And the sixth circuit saw the State Action Immunity as an affirmative defense to the plaintiff's claim, which is a classic merits question.

Another example is the Fourth Circuit in 2006, in South Carolina state board of dentistry versus FTC. The North Carolina Board of Dentistry, isn't the only board of dentistry that's gotten into trouble. The Fourth Circuit held that the second and third requirements of the collateral order doctrine were not met, but it went even further to identify significant differences between State Action Immunity and the other immunities that are subject to immediate appeal under the collateral order doctrine. Municipalities can invoke State Action Immunity, but they cannot invoke qualified or sovereign immunity, the Fourth Circuit said. It also said that State Action Immunity bars liability, regardless of the relief sought, but qualified and sovereign immunities do not bar certain perspective relief. And third, the Fourth Circuit said that an antitrust defendant can invoke State Action Immunity, even in a lawsuit by the United States or by the FTC, as in that case. The Ninth Circuit also held that the State Action Immunity is not immediately appealable, in a case called Solar City versus Salt River Agricultural Improvement District, for the same reasons that the Sixth and Fourth Circuit had previously held.

The Ninth Circuit in 2017, used the same reasoning as the Sixth Circuit and the Fourth Circuit before. Now, there were two circuits that held that in order denying State Action Immunity is immediately appealable. The first is the Eleventh Circuit. In 1986, the Eleventh Circuit decided for the first time that the State Action Immunity was comparable to qualified immunity and thus should be subject to the collateral order doctrine. And in 1996, the Fifth Circuit similarly held that the State Action Immunity is similar to the other immunities, and that it is an entitlement not to stand trial under certain circumstances. Now, the Ninth Circuit's decision in Solar City case, was actually an opportunity for the Supreme court to finally weigh in. And the Supreme court did in fact, grant the petition for a writ of certiorari that was filed by the Salt River Agricultural Improvement District. Now, by the time it was in the Supreme court, Solar City had been acquired by Tesla. So the case was actually renamed to Tesla Energy versus Salt River Agricultural Improvement District. The problem is the Supreme court never had an opportunity to reach a decision because the parties reached a settlement. But it turns out the Supreme court wouldn't need to weigh in because the conflict was eventually resolved.

This Fifth Circuit corrected itself in 2020, in a case involving the Louisiana Real Estate Appraisers Board. What happened was, is that the Federal Trade Commission brought an administrative action against the appraiser board, saying that the appraiser's board had engaged in anti-competitive conduct. And the appraiser's board sought the State Action Immunity, the FTC denied it, and then the appraiser board tried to appeal directly to the Fifth Circuit immediately. While the fifth circuit decided that the collateral order doctrine did not in fact apply to the State Action Immunity. In fact, State Action Immunity from antitrust liability is not a final decision that is subject to appeal.

And then in 2021, the Eleventh Circuit on Banc decided in SmileDirectClub, LLC versus Battle, that a collateral order doctrine does not apply to denials of so-called State Action Immunity. So now we know for certain that the State Action Immunity when denied is not immediately appealable. Let's talk about the related doctrines that often arise in antitrust litigation involving government. The first of these is the Local Government Antitrust Act of 1984. And that act states that no damages, interest on damages, costs or attorney's fees, may be recovered under section 4, 4A or 4A of the Clayton Act, from any local government or official or employee thereof acting in official capacity. And that's codified at 15 US Code section 35. The same also goes under section 36 for any claim against a person based on any official action directed by a local government or official or employee thereof acting in an official capacity. In other words, a private party that was told to do something by a local government is not subject to damages.

Now, all this means, is immunity from damages. You can still seek injunctive relief, under section 26. Now under section 26, which is not mentioned in the LGAA, when you successfully obtain injunctive relief, you are also entitled to fees and costs. Courts have held that even in cases, when the LGAA applies, if you obtain objective relief as a plaintiff, you are entitled to fees and costs. Now what counts as a local government? Well, it really depends on what state law defines as a local government. In fact, there was recently another case involving the Salt River Agricultural Improvement District. This time concerning class action of residential customers of Salt River, who are up charged for having solar panels, even though Salt River Agricultural Improvement District is really just a utility, it was still a local government as defined under state law.

The next related doctrine that comes up when litigating against the government in antitrust cases is sovereign immunity, the Eleventh Amendment and Ex parte Young. So the Eleventh Amendment, bars suits for damages against state officials in their official capacity, and bars suits for damages against the state itself, but it does not bar suits for injunctive relief against state officials, that comes from Ex parte Young. And it does not bar suits for damages against officials in their individual capacities as private market participants. So this is something that's unique to antitrust. Typically speaking, when you're suing an official, you're suing them because of something that they did as an official and their only connection is that they're an official. But in an antitrust case, when you're suing, for example, a member of a licensing board, you're not just suing them in their official capacity as members of the licensing board, but also in their individual capacity as a private market participant. As someone who is competing as a competitor in the field that they regulate. There is nothing that prevents money damages against those officials.

Now, when determining whether or not sovereign immunity applies in the case of a state agency, you do have to engage in the arm of state analysis to determine whether or not the damages bar applies. And when it comes to injunctive relief against state officials, remember that the relief must be perspective only. A third related doctrine is quasi-prosecutorial or quasi-judicial immunity and qualified immunity. These are not well established immunities, in the context of an antitrust case, and there are a lot of fact intensive issues on which these arguments are going to be based. The only time you're really gonna see it, is in the licensing board context where you've got a licensing board that's making a decision to, for example, suspend a licensee or go after somebody who's not licensed. There they might claim that they are quasi prosecutorial, because they're the ones that pursue those violations. They might claim that they're quasi judicial because they're the ones that decide those violations, or they might even claim qualified immunity because of the fact that they are state officials. Courts have held that these immunities do not apply to antitrust claims, but there are some circumstances where they have held them to apply as well.

Next, we have abstention doctrines. And as you may know, there are a number of abstention doctrines. We're gonna focus on a couple of them here. The first is younger abstention, and by its terms, younger abstention applies only where there are concurrent state proceedings. One of the requirements for younger abstention, is that the state court must have broad and comprehensive concurrent jurisdiction. The problem is that state courts don't have any jurisdiction to hear federal antitrust claims. So those claims can't be raised in state court and therefore a court should not be abstaining from proceeding. The other type of abstention is Beauford abstention, and this is designed to protect complex administrative processes from federal interference. But there are a couple of factors that have to be established. First, there must be a specialized state court system.

Second, the federal issues must be intertwined with the state law issues, such that they cannot easily be separated. And third, it must be established that federal review might disrupt state efforts to establish a coherent policy. And again, there is an argument that they do not apply to antitrust claims. And again, there is an argument that Beauford abstention does not apply to antitrust claims because of exclusive federal jurisdiction. And it is important to remember that federal courts have an unflagging obligation to exercise the jurisdiction that is granted to them. It's also important to note as the Ninth Circuit did in Turf Paradise, that abstention is an abusive discretion and an antitrust case. And that is once again, because of the fact that antitrust cases are exclusively within federal jurisdiction.

By now you've learned how government involvement in otherwise actionable anti-competitive conduct, can affect the liability and damages in antitrust litigation. And that's because government involvement often means that arguments for State Action Immunity, the Local Government's Antitrust Act, the Eleventh Amendment and sovereign immunity, other assertions of immunity, as well as requests that the court abstain from hearing the case under various substantial doctrines often come about. We also took a deep dive into the State Action Immunity to discuss the tension between federal antitrust supremacy and dual federalism. Remember, that while federal antitrust laws represent a congressional policy, that competition is the best policy. States can impose anti-competitive restraints as an act of government. And when they do so, through a clearly articulated policy and active supervision, federal antitrust laws steps aside, we learned about the clear articulation and active supervision requirements, and how those two requirements together provide a realistic assurance that the anti-competitive conduct is the state's own or else it is not immune. We also discussed the municipality exception to showing active supervision, and how that exception is questionable after the Supreme court's most recent active supervision case. Remember too, that there is another exception. The state as sovereign is ipso facto exempt from federal antitrust law, without showing either clear articulation or active supervision.And finally on State Action Immunity, we discussed how the Courts of Appeal have all now universally held that State Action Immunity denials are not immediately appealable orders under the collateral order doctrine.

As to the LGAA, what you need to remember is that you cannot get damages from a local government, but you can get an injunction fees and costs. And what you should remember about the Eleventh Amendment and sovereign immunity is that it could come into play and potentially apply even where the State Action Immunity does not, and that's because of the arm of the state inquiry, which asks different questions. Nevertheless, you can get around that issue by suing the state officials instead. In fact, in the licensing board context, you can Sue the board members in their official capacity to seek perspective injunctive relief under Ex parte Young, and you can Sue them in their individual capacity as competitors in the marketplace to obtain damages. The other immunities aren't likely to apply because they weren't designed for antitrust cases. And even if they do apply, they're quite fact intensive arguments.

Finally, abstention is also unlikely, but the arguments will be made anyway. So remember that they also weren't designed for antitrust cases and federal courts have exclusive jurisdiction to hear antitrust claims anyway.

My name is Aaron Gott, and this has been a presentation on Antitrust Versus the Government, Litigating Government Induced Competition Problems with Quimbee CLE. Thank you for attending this program. If you are interested in learning more about the topics we discussed today, we have some great resources for you on my law firm's blog, www.theantitrustattorney.com. For the most relevant results, click on the State Action Immunity category. Again, thank you and goodbye.

Start your FREE 7-day trial
Preview this course and the rest of Quimbee's CLE library for free with a 7-day free trial membership.
Buy this course - $49
Get access to just this course for $49

Course materials

HandoutSupplemental Materials

Practice areas

Course details

On demand
1h 0m 14s

Credit information