Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_07-cv-02174/USCOURTS-casd-3_07-cv-02174-0/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 15:1 Antitrust Litigation

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

MICHAEL SHAMES; GARY

GRAMKOW, on behalf of themselves

and on behalf of all persons similarly

situated,

Plaintiffs,

CASE NO. 07-CV-2174 H

(BLM)

ORDER:

(1) GRANTING THE CTTC’S

MOTION TO DISMISS THE

FIRST AMENDED

COMPLAINT; AND

(2) GRANTING IN PART AND

DENYING IN PART THE

RENTAL CAR DEFENDANTS’

MOTION TO DISMISS THE

FIRST AMENDED

COMPLAINT

[Doc. Nos. 93, 94.]

vs.

THE HERTZ CORPORATION, a

Delaware corporation; DOLLAR

THRIFTY AUTOMOTIVE GROUP,

INC., a Delaware corporation; AVIS

BUDGET GROUP, INC., a Delaware

corporation; VANGUARD CAR

RENTAL USA, INC., an Oklahoma

corporation; ENTERPRISE RENT-ACAR COMPANY, a Missouri

corporation; FOX RENT A CAR,

INC., a California corporation;

COAST LEASING CORP., a Texas

corporation; THE CALIFORNIA

TRAVEL AND TOURISM

COMMISSION,

Defendants.

On May 1, 2008, plaintiffs Michael Shames and Gary Gramkow (“Plaintiffs”)

filed their First Amended Complaint (“FAC”) in this putative class action against

several passenger rental car companies (“the Rental Car Defendants”), and the

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1Plaintiffs did not renew their allegations against CTTC director Caroline Beteta.

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California Travel and Tourism Commission (“CTTC” and, collectively with the Rental

Car Defendants, “Defendants”).1 (Doc. No. 85.) The rental car defendants and the

CTTC each brought motions to dismiss the FAC. (Doc. Nos. 93-94.) On May 30,

2008, Plaintiffs filed oppositions to these motions along with a request for judicial

notice. (Doc. Nos. 99-100.) Defendants filed their reply briefs on July 7, 2008. (Doc.

Nos. 102-03.) The Court held a hearing on these motions on July 14, 2008. Dennis

Stewart, Robert Fellmeth, Donald Rez, and Jennifer Kagan appeared for Plaintiffs.

Gregory Call appeared for Enterprise Rent-A-Car Company and Vanguard Car Rental

USA, Inc., and argued on behalf of the Rental Car Defendants. Thadd Blizzard and

Ronald Ito appeared on behalf of the CTTC. Douglas Adler appeared for Avis Budget

Group, Inc. Jeff LeVee appeared for Dollar Thrifty Automotive Group, Inc. Abraham

Tang appeared for Coast Leasing Corp. John Stephens appeared for Fox Rent a Car,

Inc. Gerald Stein appeared for The Hertz Corporation.

For the reasons below, the Court dismisses all claims against the CTTC and

dismisses only the state law claims against the Rental Car Defendants.

Background

I. Overview of the Allegations

Plaintiffs’ complaint asserts four causes of action: (1) price fixing in violation

of the Sherman Act, 15 U.S.C. § 1; (2) unfair competition in violation of the California

Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq.; (3)

violations of the California Consumer Legal Remedies Act (“CLRA”), Cal. Civ. Code

§ 1750 etseq.; and (4) violations of California’s Bagley-Keene Open Meeting Act, Cal.

Govt. Code § 11120 etseq. Plaintiffs assert the first three claims against all defendants

and the fourth only against the CTTC.

Plaintiffs allege that the Rental Car Defendants, facilitated by the CTTC,

committed a per se violation of federal antitrust law by entering into a horizontal pricefixing agreement concerning automobile rentals at certain California airports. (FAC

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¶ 1.) The alleged agreement has two components. First, Defendants agreed to raise

prices and avoid competition by passing on to consumers a 2.5% assessment paid by

the Rental Car Defendants to fund the CTTC. (FAC ¶ 3.) Second, defendants

conspired to raise and fix prices by passing on to consumers an airport concession fee

of approximately 9%. (FAC ¶ 5.) The parties do not dispute that California law

permits a company to pass on the CTTC assessment, if the company acts individually.

Plaintiffs allege, however, that the defendants unlawfully conspired to pass on these

fees and raise prices in an anticompetitive manner.

Plaintiff’s allege that Defendants misled consumers about the nature of the

CTTC assessment, suggesting that it is owed by consumers, not by the Rental Car

Defendants. (FAC ¶¶ 4, 56, 62.) Furthermore, Plaintiffs allege that the CTTC violated

the Bagley-Keene Open Meeting Act in connection with the purported conspiracy.

(FAC ¶ 6, 65.) They state, for example, that the CTTC failed to provide proper notice

of its meetings and conducted improper closed sessions. (See FAC ¶¶ 66-84.)

Plaintiffs assert jurisdiction for the antitrust claim under 28 U.S.C. §§ 1331,

1337. (FAC ¶ 8.) Plaintiffs assert pendent jurisdiction for the state law claims, and

Class Action Fairness Act jurisdiction in general. (FAC ¶¶ 9-10.)

II. CTTC Overview

The California Tourism Marketing Act (“CTMA”), Cal. Gov’t Code § 13995 et

seq., created the CTTC in 1995 to expand and develop tourism spending for the benefit

of the tourism industry and the state. Under the CTMA, the CTTC may receive

funding from the state general fund and contributions from industry. See, e.g., Cal.

Gov’t Code § 13995.1 (stating general objectives of the CTMA). The CTTC is a

California nonprofit mutual benefit corporation. Cal. Gov’t Code § 13995.40(a). The

Secretaryofthe California Business, Transportation and HousingAgency(“Secretary”)

chairs the CTTC and acts as one of thirty-seven commissioners who also serve as

directors. Cal. Gov’t Code § 13995.40(b). The Governor appoints twelve of the

remaining commissioners, and industry selects the other twenty-four. Id.

Five segments of the tourism industry, including the “passenger car rental

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industry,” elect the twenty-four industry commissioners, without nomination or

approval by public officials. Cal. Gov’t Code § 13995.40(d); see also 10 Cal. Code

Reg. § 5352 (defining the industry segments). The number of commissioners from

each segment is determined by the weighted percentage of assessments paid to the

CTTC from that industry category, though no more than six commissioners may be

from the passenger rental car industry. Cal. Gov’t Code §§ 13995.40(d),

13995.40.5(a). Plaintiffs allege that approximately 79% of the CTTC’s budget comes

from assessments of the passenger car rental industry. (FAC ¶ 34.)

The CTTC recommends its choice of Executive Director, who must be a

“tourism industry marketing professional,” for approval by the Governor. Cal. Gov’t

Code § 13995.43. The Executive Director administers the CTTC and serves at the

pleasure of the commissioners and the Governor. Id.

Plaintiffs allege that the CTTC’s relevant decision-making power is ultimately

controlled by industry. (See FAC ¶¶ 30-34.) They point, for example, to CTTC

materials describing it as “an industry-led public/private partnership.” (FAC ¶ 30, Ex.

C.) The CTTC’s marketing plan is subject to review and approval by the Secretary, but

the commissioners may override the Secretary’s decision by a three-fifths majority.

Cal. Gov’t Code § 13995.45(d). The Secretary oversees the CTTC’s biennial process

of setting assessment levels and electing industry commissioners, though the

commission may exercise this power if the Secretary does not do so. See Cal. Gov’t

Code §§ 13995.51(a), 13995.60. The Secretary “may remove any elected

commissioner following a hearing at which the commissioner is found guilty of abuse

of office or moral turpitude.” Cal. Gov’t Code § 13995.40(e). The elected

commissioners serve four-year terms, limited to two consecutive terms, which end

automatically if they leave their industry segment. Cal. Gov’t Code § 13995.40(f)-(g).

The Secretary has a veto power over the commission in certain circumstances, such as

situations involving a conflict of interest or use of state funds. Cal. Gov’t Code

§ 13995.51(b).

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III. CTTC Assessment Levels

Every two years, the CTTC engages in a referendum process to propose

assessment levels for various segments of the travel and tourism industry. See Cal.

Gov’t Code § 13995.60. Those industry segments then vote on the proposals, and

those receiving the most votes, weighted by business volume, become effective and

enforceable. See Cal. Gov’t Code § 13995.64(a). Businesses operating above a

minimum threshold in each segment must then pay these assessments to the CTTC.

See Cal. Gov’t Code §§ 13995.65(e) 13995.68(a). Between referenda, California

regulations allow the CTTC to modify the assessment rate, without approval by vote,

to meet statutory revenue targets. See 10 Cal. Code Reg. § 5357.1. The CTTC

prepares an annual marketing plan for use of its funding. Cal. Gov’t Code § 13995.45.

In 2006, the Rental Car Defendants proposed changes to bill AB 2592 that

allowed the CTTC to increase its budget greatly while simultaneously returning a $6.7

million contribution to the State general fund. Cal. Gov’t Code § 13995.92(a); (FAC

¶ 36). The Rental Car Defendants obtained certain concessions in exchange for this

increased funding. See Cal. Gov’t Code § 13995.92(a) (requiring passenger car rental

industry to set sufficient assessment rates, which act as a trigger for other provisions

of AB 2592). The rental car industry received six seats on the CTTC. Cal. Gov’t Code

§ 13995.40.5. In addition, the new legislation allowed the Rental Car Defendants to

bill any tourism assessment separately from the base rental rate, effective July 1, 2007.

Cal. Civ. Code § 1936.01(b)(2), (e). The CTMA allows assessed businesses to pass the

assessments on to consumers, though they are not required to do so. Cal. Civ. Code

§ 13995.65(f).

After the legislature passed AB 2592 in the fall of 2006, the Defendants

allegedly agreed to a 2.5% assessment on income from airport rentals, which they

would pass on to consumers. (See, e.g., FAC ¶ 39.) Unlike the original complaint, the

FAC provides documentation of Defendants’ actions and lists specific meeting dates

and individuals involved. As a result of meetings in October, 2006, the Rental Car

Defendants and the CTTC entered into a written agreement to establish assessment

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rates that would meet the funding goals described in Cal. Gov’t Code § 13995.92(a).

(FAC Ex. A.) The written agreement does not refer explicitly to passing on the

assessments to consumers, but Plaintiffs offer other documents to show this aspect of

the agreement. CTTC Executive Committee Meeting minutes from October 3, 2006,

state that “the rental car industry would like to start passing on the fees beginning

January 1, 2007,” and its agenda referred to the topic of “Rental Car Pass through

Fees.” (FAC ¶ 40, Exs. F-G.) In an October 17, 2006, e-mail, counsel for the CTTC

wrote to a Hertz employee: “My recollection from the meeting is that everyone agreed

to continue the funding as long as the pass-through was in place.” (FAC ¶ 39, Ex. D.)

Plaintiffs also offer the CTTC’s November, 2006, ballot regarding the 2.5%

assessment, which passed unanimously and characterized the assessment as a “a

percentage of Revenue to be collected by each passenger car rental company.” (FAC

¶ 40, Ex. E.)

Plaintiffs also offer alleged actions after January, 2007, as confirmation of an

agreement. The CTTC’s website stated that the passenger car rental industry

assessment “shall be passed through to the customer.” (FAC ¶ 41, Ex. H.) On January

16, 2007, an employee of defendant National Car Rental complained to the CTTC that

Avis was “not charging the tourism fee” which “makes us look like our rates are

higher.” (FAC ¶ 41, Ex. I.) In response, the CTTC set an agenda item for its January

25, 2007, Passenger Car Rental Industry Tourism Assessment Meeting entitled

“Airport locations not charging the fee – unfair pricing advantage.” (FAC ¶ 41, Ex. B.)

Furthermore, in January, 2007, average national rental rates fell while those at

California airports rose. (FAC ¶ 43.)

In addition to the alleged agreement, Plaintiffs assert that Defendants

misrepresent the nature of the CTTC assessment. For example, Defendants have

purportedly misled consumers by characterizing these fees as a “Tourist Tax” or

“Governmentally Mandated Charges.” (FAC ¶ 62.)

/ / /

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IV. Airport Concession Fees

California law defines an “airport concession fee” as “a charge collected by a

rental company from a renter that is the renter’s proportionate share of the amount paid

by the rental company to the owner or operator of an airport for the right or privilege

of conducting a vehicle rental business on the airport's premises.” Cal. Civ. Code

§ 1936.01(a)(1). Much like the CTTC assessment, AB 2592 permitted the Rental Car

Defendants to “unbundle” any airport concession fee and itemize it separately from the

base rental rate. Cal. Civ. Code § 1936.01(b)(2). Government Code § 13995.65(f),

which expressly permits an assessed business to pass on the CTTC assessments, does

not refer to airport concession fees. This fee has traditionally amounted to just over 9%

of the rental fee. (FAC ¶ 37.)

Plaintiffs allege that Defendants’ agreement also covered passing on these

airport concession fees to consumers. Unlike the CTTC assessments, Plaintiffs do not

provide direct documentation of any such agreement. Plaintiffs point to the general

context of the legislation and meetings related to the CTTC assessments and the fact

that California rental car prices increased by more than 10% in January, 2007, while

declining throughout the country. (FAC ¶¶ 43-44.)

V. CTTC Meeting Practices

The CTTC is subject to the requirements of the Bagley-Keene Open Meeting

Act, Cal. Govt. Code § 11120 et seq. See Cal. Gov’t Code § 13995.40(q). Plaintiffs

assert a variety of Open Meeting Act violations, including: (1) failure to include an

Internet address in written meeting notices, as required by Cal. Gov’t Code § 11125(a);

(2) failure to adequately post notice and agendas on the Internet, as required by Cal.

Gov’t Code § 11125(a); (3) failure to provide at least ten days notice, as required by

Cal. Gov’t Code § 11125(a); (4) failure to sufficiently describe agenda topics, as

required by Cal. Gov’t Code § 11125(b); (5) requiring improper registration and RSVP

requirements in violation of Cal. Gov’t Code § 11124; (6) meeting in closed session

without citing authority that authorizes a closed session, as required by Cal. Gov’t

Code § 11125(b); and (7) holding teleconference meetings that do not meet

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requirements of Cal. Gov’t Code § 11123, including public accessibility. Plaintiff

offers specific examples of each alleged violation, all related to meetings from August

through December, 2007. (See FAC ¶¶ 66-84.)

Discussion

I. Motion to Dismiss - Legal Standard

Rule 12(b)(6) of the Federal Rules of Civil Procedure permits dismissal of a

claim either where that claim lacks a cognizable legal theory, or where insufficient

facts are alleged to support plaintiff's theory. See Balistreri v. Pacifica Police Dept.,

901 F.2d 696, 699 (9th Cir. 1990). In resolving a Rule 12(b)(6) motion, the court

construes the complaint in the light most favorable to the plaintiff and accepts all

well-pleaded factual allegations as true. See Cahill v. Liberty Mut. Ins. Co., 80 F.3d

336, 337–38 (9th Cir. 1996).

The Supreme Court recently addressed the question of “what a plaintiff must

plead in order to state a claim under § 1 of the Sherman Act.” Bell Atlantic Corp. v.

Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1964 (2007). “While a complaint attacked

by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a

plaintiff’s obligation to provide the grounds of his entitlement to relief requires more

than labels and conclusions, and a formulaic recitation of the elements of a cause of

action will not do.” Id. at 1964-1965. “Factual allegations must be enough to raise a

right to relief above the speculative level on the assumption that all the allegations in

the complaint are true (even if doubtful in fact).” Id. at 1965. Applying “these general

standards” to a claim under the Sherman Act, the Supreme Court held that stating a

claim under section 1 of that Act “requires a complaint with enough factual matter

(taken as true) to suggest that an agreement was made.” Id. “[A]n allegation of parallel

conduct and a bare assertion of conspiracy will not suffice.” Id. at 1966.

II. The Price-Fixing Claim

Section 1 of the Sherman Act prohibits a “contract, combination . . . , or

conspiracy, in restraint of trade or commerce.” 15 U.S.C. § 1. “The crucial question

is whether the challenged anticompetitive conduct stems from independent decision or

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from an agreement.” Twombly, 127 S.Ct. at 1964. To state a section 1 claim, a

plaintiff “must plead not just ultimate facts (such as a conspiracy), but evidentiary facts

which, if true, will prove: (1) a contract, combination or conspiracy among two or more

persons or distinct business entities; (2) by which the persons or entities intended to

harm or restrain trade or commerce . . . ; (3) which actually injures competition.”

Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047 (9th Cir. 2008). Courts have

imposed these pleading standards “because discovery in antitrust cases frequently

causes substantial expenditures and gives the plaintiff the opportunity to extort large

settlements even where he does not have much of a case.” Id. at 1047 (citing

Twombly, 127 S.Ct. at 1966-67.)

A. Whether Plaintiffs Adequately Plead a Contract, Combination, or

Conspiracy in Restraint of Trade or Commerce

The Court dismissed the original complaint, concluding that Plaintiffs had

merely alleged parallel conduct insufficient to overcome the Twombly pleading

threshold. (See Order Granting Defs.’ Mot. Dismiss, Doc. No. 84 at 6-9.) Plaintiffs’

amendments have cured the Court’s concern, at least as it relates to the CTTC

assessments. Plaintiffs attach a written agreement between the CTTC and the Rental

Car Defendants to set the assessment rates. (FAC Ex. A.) This document does not, on

its face, indicate that the Rental Car Defendants would pass on the assessments to

consumers. (See id.) The amended allegations go further, however, and viewed in a

light most favorable to Plaintiffs, they include multiple documented references to an

agreement to pass on the CTTC assessments. CTTC meeting minutes from October,

2006, state that “the rental car industry would like to start passing on the fees beginning

January 1, 2007.” (FAC ¶ 40, Ex. F.) CTTC’s own counsel recalled that “everyone

agreed to continue the funding as long as the pass-through was in place.” (FAC ¶ 39,

Ex. D.) The CTTC’s website states that the passenger car rental industry assessment

“shall be passed through to the customer.” (FAC ¶ 41, Ex. H.) Documents related to

the January 25, 2007, meeting indicate that one rental car company challenged another

for not charging these fees. (FAC ¶ 41, Exs. B, I.) Viewed under the standards of a

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2

In reaching this conclusion, the Court does not rely on the CTTC assessment ballot which

characterized the assessment as a “a percentage of Revenue to be collected by each passenger car rental

company.” (FAC ¶ 40, Ex. E.) The “collected by” language is consistent with the statutory description

of the commission’s assessment and thus does not indicate any intent to pass on fees. See Cal. Civil

Code § 1936.01(a)(3).

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motion to dismiss, this supports the existence of an agreement to pass on the fees, not

merely to pay fees to the CTTC. Plaintiffs identify specific meeting dates and

individuals involved in the alleged agreement. (E.g., FAC ¶ 39.) Furthermore,

average national rental rates fell while those at California airports rose. (FAC ¶ 43.)

The amended allegations make it at least “plausible” that there was an agreement to

pass on the assessments to consumers. See Twombly, 127 S.Ct. at 1965.2

The allegations related to the airport concession fees are weaker. Here, the

Plaintiffs rely on the circumstances surrounding AB 2592 and the rate increases of

early January, 2007. On its own, these allegations would not overcome the original

Complaint’s flaw of alleging mere parallel conduct. See Twombly, 127 S.Ct. at 1965.

Nevertheless, since Plaintiffs have offered sufficient allegations of an agreement to

pass on the CTTC assessment fees, this is not fatal to their claim. Plaintiffs have made

allegations sufficient to go forward, and the cost avoidance purposes of Twombly

would not be served in any significant way by precluding only part of Plaintiffs’ theory.

See id. at 1965-67; Cont’l Ore Co. v. Union Carbide & Carbon Co., 370 U.S. 690, 699

(1962) (“The character an effect of a [Sherman Act] conspiracy are not to be judged by

dismembering it and viewing its separate parts.”); Vinci v. Waste Mgmt., Inc., 80 F.3d

1372, 1374 (9th Cir. 1996) (“[S]ubstantive allegations of conspiratorial antitrust

behavior should be considered as a whole.”).

The parties’ arguments focus on the existence of a conspiracy, and Defendants

have not challenged other elements of the antitrust claim at this time. The Court

concludes that Plaintiffs have adequately pled the remaining elements of a section 1

claim, including intent and injury to competition. See FTC v. Ticor Title Ins. Co., 504

U.S. 621, 639 (1992) (“No antitrust offense is more pernicious than price fixing.”).

/ / /

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B. The CTTC’s Immunity Arguments

1. Applicability of the Midcal Test

The CTTC invokes the state action immunity doctrine, as set forth in Parker v.

Brown, 317 U.S. 341, 350-51 (1943), and subsequent cases. Parker observed that the

Sherman Act did not intend to restrain state action. Id. (“We find nothing in the

language of the Sherman Act or in its history which suggests that its purpose was to

restrain a state or its officers or agents from activities directed by its legislature.”). 

The parties dispute how the Court should apply the Parker immunity doctrine to

the present situation, particularly as it relates to the test articulated in the Supreme

Court’s Midcal case. There, the Court identified a two-prong test to determine when

there is sufficient state involvement to apply Parker immunity to a non-sovereign

entity. “First, the challenged restraint must be ‘one clearly articulated and affirmatively

expressed as state policy;’ second, the policy must be ‘actively supervised’ by the State

itself.” Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 105

(1980) (quoting City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 410

(1978) (opinion of Brennan, J.)); see Hass v. Oregon State Bar, 883 F.2d 1453, 1457

(9th Cir. 1989) (explaining that the Midcal standard governs whether immunity is

available to “non-sovereign entities”). The active supervision prong, however, does

not apply to municipalities. See Town of Hallie v. City of Eau Claire, 471 U.S. 34, 45-

46 & n.10 (1985). Under Ninth Circuit law, a state’s political subdivisions and state

agencies are also exempt from the supervision prong. Hass, 883 F.2d at 1459-61; see

also Town of Hallie, 471 U.S. at 46 n.10 (“In cases in which the actor is a state agency,

it is likely that active state supervision would also not be required, although we do not

here decide that issue.”) The CTTC argues that it is a “political subdivision” to which

Midcal does not apply, while Plaintiffs argue that both prongs of Midcal apply. 

The court in Hass did not, as the CTTC states, hold that the Oregon State Bar is

a “political subdivision.” The Ninth Circuit extended the approach of Town of Hallie

to state agencies, but it did not characterize the Oregon State Bar as a political

subdivision. Hass, 883 F.2d at 1459-61. Though the Ninth Circuit may treat political

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subdivisions and state agencies alike for purposes of Parker immunity, the Ninth

Circuit did not completely conflate the two types of entities. A “political subdivision”

refers to an entity like a municipality, while the CTTC is more akin to a state agency.

See, e.g., id. at 1464-65 (characterizing “branches of state government” and “political

subdivisions” as separate types of entities). Indeed, the Hass opinion does not

expressly refer to any type of political subdivision other than a municipality. The

CTTC’s “political subdivision” approach relies heavily on case lawfromotherCircuits,

which the Court declines to apply here. Nevertheless, the Court reaches the CTTC’s

desired conclusion.

The Court concludes that, much like the Oregon State Bar in Hass, the CTTC

was a state agency acting in a non-sovereign capacity which must therefore meet the

first prong of the Midcal test, but not the second. In Hass, the Ninth Circuit applied the

generalMidcal framework, concludingthat amandatorymalpractice insurance program

established by the Oregon State Bar was not “imposed directly by either the Oregon

legislature or the Oregon Supreme Court acting in a legislative capacity” and was

therefore “not an act of the state in its sovereign capacity.” See Hass, 883 F.2d at 1456.

Similarly, passing on assessments and airport concession fees is permitted by the

California legislature, but this was not an act directly imposed in the state’s sovereign

capacity. 

In Hass, the Ninth Circuit concluded that the Oregon State Bar was a state

agency that needed to meet only the first prong of the Midcal test. See id. at 1459-61.

The Court reaches a similar conclusion here. For example, the Ninth Circuit observed

that “the Oregon legislature has expressly designated the Bar as the instrumentality

through which the legislature will implement its policies concerning primary legal

malpractice insurance.” Id. at 1461. Similarly, the CTTC is the instrumentality which

implements the State’s policies of fostering increased advertising for tourism. Also,

like the Oregon State Bar, the CTTC is a public corporation required to give notice of

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3Though the parties dispute whether the CTTC complied with the Bagley-Keene Act

requirements, there is no dispute that the legislature requires the CTTC to comply with it. See Cal.

Gov’t Code § 13995.40(q). 

4This authorization was part of the original CTMA and not added in connection with AB 2592.

See 1995 Cal. Legis. Serv. c. 871 § 5 (creating original corresponding CTMA provision at Cal. Gov’t

Code § 15372.105(f)); 2003 Cal. Legis. Serv. c. 229 §§ 1.5 (recodifying as Cal. Gov’t Code §

13995.65(f)).

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its meetings and open them to the public.3 Id. at 1460.

2. First Prong of the Midcal Test

“Where, as here, the challenged activity ‘is not directly that of the [state]

legislature or supreme court, but is carried out by others pursuant to state

authorization,’ the court must closely analyze the activity to ‘ensure that the

anticompetitive conduct of the State’s representative was contemplated by the State.’”

Hass, 883 F.2d at 1457 (quoting Hoover v. Ronwin, 466 U.S. 558, 568 (1984)). The

Court concludes that there was a “clearly articulated and affirmatively expressed” state

policy allowing the Rental Car Defendants to agree to pass on fees to consumers.

Midcal, 455 U.S. at 105.

In many respects, the relevant legislation is not in dispute. The parties agree that

one clear purpose of AB 2592 was to increase the CTTC’s budget while simultaneously

relieving a burden on the state general fund. See, e.g., Cal. Gov’t Code § 13995.92(a)

(requiring passenger car rental industry to set sufficient assessment rates, which serve

as a trigger for certain other provisions of the bill). The parties also agree that the

legislature provided the rental car industry with certain benefits, including the ability

to list base rental rates and other fees separately. See Cal. Civ. Code § 1936.01(b)(2).

Furthermore, the legislature has allowed rental car companies to pass on the

assessments to consumers, even before AB 2592. See Cal. Gov’t Code § 13995.65(f).4

Thus, there is no significant dispute that AB 2592 and related legislation clearly

articulate and affirmatively express policies of: (1) increasing the CTTC’s budget for

promoting tourism, (2) relieving a burden on the state general fund, (3) collecting

increased assessments from rental car companies, and (4) giving the rental car

companies certain concessions in exchange for fostering these goals, including the

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ability to list fees separately when billing consumers. The central issue is whether the

State expressed a sufficiently clear policy allowing the CTTC to facilitate a rental car

industry agreement to raise prices and pass on fees to consumers. The Court concludes

that the CTTC meets the first prong of the Midcal test on this issue.

Regarding the first prong, the Supreme Court stated: “We have rejected the

contention that this requirement can be met only if the delegating statute explicitly

permits the displacement of competition. It is enough, we have held, if suppression of

competition is the ‘foreseeable result’ of what the statute authorizes.” City of

Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 372-73 (1991) (citation

omitted); see also Town of Hallie v. City of Eau Claire, 471 U.S. 34, 41-44 (1985)

(finding a sufficiently clearstatepolicy allowing municipalities to displace competition

in sewage services, where anticompetitive effects were foreseeable but not expressly

authorized). The existence of an agreement does not change this analysis. There is no

“conspiracy exception” to Parker immunity. See City of Columbia at 374-75.

(observing, for example, that “[s]ince it is both inevitable and desirable that public

officials often agree to do what one or another group of private citizens urges upon

them, such an exception would virtually swallow up the Parker rule.”) It is not

practical to expect the legislature to expressly articulate every foreseeable effect of its

policies. See Town of Hallie, 471 U.S. at 43-44.

AB 2592 reflects a clear purpose of fostering California tourism advertising

through increased fees, and an agreement to pass on these fees was a foreseeable result

of the legislation. There would have been little reason for the rental car industry to

propose the amendments to AB 2592 if they would be unable to recoup the cost of

increasing the CTTC’s budget. The legislature has explicitly granted immunity from

state antitrust laws to those complying with the CTMA. Cal. Gov’t Code § 13995.90.

Since passing the original CTMA, California has allowed rental car companies the

option of passing on the CTTC assessments. See Cal. Gov’t Code § 13995.65(f).

Plaintiffs’ own counsel flagged the possibility of increased rates for the legislature, and

it adopted the bill nevertheless. (See Letter of Robert C. Fellmeth to Assemblyman

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Mark Leno, August 23, 2006.) Furthermore, the legislature defined both “airport

concession fee” and “tourism commission assessment” as charges “collected by a rental

company from a renter,” suggesting that companies could pass on these fees for

collection from consumers. See Cal. Civil Code § 1936.01(a)(1), (3).

The CTTC meets the first prong of the Midcal test, and it does not need to meet

the second. Therefore, the Court concludes that the CTTC is immune from any federal

antitrust liability under the alleged facts. The Court grants the CTTC’s motion as it

relates to the federal antitrust claim. The Rental Car Defendants did not raise federal

immunity arguments, so this conclusion applies only to the CTTC.

III. Plaintiffs’ State Law Claims

A. Immunity From UCL and CLRA Liability

Both the CTTC and Rental Car Defendants argue that they are immune from

liability under the California competition laws. California Government Code

§ 13995.90 states:

In any civil or criminal action or proceeding for violation of any of the

following, proof that the act that is complained of was done in compliance

with the provisions of this chapter is a complete defense to the action or

proceeding:

(a) The Cartwright Act, Chapter 2 (commencing with Section 16700) of

Part 2 of Division 7 of the Business and Professions Code.

(b) The Unfair Practices Act, Chapter 4 (commencing with Section 17000)

of Part 2 of Division 7 of the Business and Professions Code.

(c) Any rule of statutory or common law against monopolies or

combinations in restraint of trade.

The Court may consider an affirmative defense on a Rule 12(b)(6) motion to dismiss

where the defense does not raise disputed issues of fact, though such defenses must

normally be raised in a responsive pleading. See, e.g., Scott v. Kuhlmann, 746 F.2d

1377, 1378 (9th Cir. 1984). Here, Defendants’ motion argues that they are immune

from liability, even under the facts alleged, so the Court may consider this defense.

As a preliminary matter, the Court must decide whether the CTMA’s immunity

provision extends to the UCL and CLRA allegations. Government Code § 13995.90

provides express immunity from the Unfair Practices Act, but not the UCL or CLRA.

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and concludes that Cel-Tech provides the best available guidance on whether section 13995.90 should

provide any protection from the claims presented here.

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“The unfair competition law is independent of the Unfair Practices Act and other laws.

Its remedies are ‘cumulative . . . to the remedies or penalties available under all other

laws of this state’ (§ 17205), but its sanctions are less severe than those of the Unfair

Practices Act.” Cel-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., 20

Cal. 4th 163, 179 (1999). The UCL’s prohibitions cover a broader, more flexibly

defined range of activities, though its sanctions are less severe than the Unfair Practices

Act. See id. at 180-81.

Nevertheless, a plaintiff may not use the UCL to “plead around” a grant of

legislative immunity. See id. at 182-191 (concluding that actions falling within a safe

harbor of the Unfair Practices Act cannot create liability under the UCL). “To forestall

an action under the unfair competition law, another provision must actually ‘bar’ the

action or clearly permit the conduct.” Id. at 183.

As with the antitrust claim, the Court concludes that the CTMA and AB 2592

reflect the legislature’s intention to permit the rental car companies to increase prices

and pass on fees in order to support the CTTC’s tourism advertising program.

Therefore, the alleged actions were “done in compliance” with the statutes, for

purposes of section 13995.90 immunity. Allowing Plaintiffs to plead around this safe

harbor provision via the UCL would frustrate the legislature’s purpose of facilitating

increased fees to promote tourism. Cf. id. at 182-191.5

The fact that some of the allegations involve misrepresentations rather than

“unfair competition” does not require a different result. Characterization of the fees

as “mandatory,” a “tax,” or similar language is largely consistent with the legislature’s

approach. The CTMA defines the fees at issue as charges “collected by a rental

company from a renter.” Cal. Civil Code § 1936.01(a)(1), (3). While the

characterization of the charges as a “tax” is not perfectly accurate, it captures the

character of this statutory scheme, which allows the rental car companies to pass on

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fees to consumers and implicitly encourages them to do so. These representations,

made in furtherance of collecting fees authorized by the state, were “done in

compliance” with the CTMA for purposes of section 13995.90 immunity. The

rationale preventing a plaintiff from pleading around a statutory safe harbor via the

UCL applies to the closely related provisions of the CLRA. In any case, the Court

would similarly conclude that these statements are not likely to mislead consumers and

therefore not proscribed by the CLRA or the “fraudulent” prong of the UCL. See, e.g.,

Kasky v. Nike, Inc. 27 Cal. 4th 939, 951 (2002) (fraudulent prong of UCL prohibits

representations likely to mislead consumers). 

In summary, the Court concludes that the UCL and CLRA claims are barred by

immunity and grants Defendants’ motions to dismiss as they relate to the these claims.

B. Supplemental Jurisdiction and the Bagley-Keene Act Claim

Having dismissed the only federal claim against the CTTC, the court declines to

exercise supplemental jurisdiction over the Bagley-Keene Act claim, in accordance

with 28 U.S.C. § 1367(c). The Court also notes that the Bagley-Keene Open Meeting

Act may implicate questions better addressed by the California courts in the first

instance. See, e.g., S. California Edison Co. v. Lynch, 307 F.3d 794, 813-15 (9th Cir.

2002) (certifying a Bagley-Keene Act issue to the California Supreme Court.). The

Court grants the CTTC’s motion to dismiss as it relates to the Bagley-Keene Act claim.

IV. Plaintiffs’ Request for Judicial Notice

Plaintiffs ask the Court to take judicial notice of two documents related to the

legislative history of AB 2592: (1) a letter from a lobbyist for Alamo, Avis, Budget,

Hertz, and National Rental Cars, sent August 28, 2006; and (2) the Legislative Analysis

of AB 2592 dated August 29, 2006. The Court concludes that these are matters of

public record suitable for judicial notice, and the Court grants Plaintiffs’ request.

/ / /

/ / /

/ / /

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Conclusion

For the reasons set forth above, the Court GRANTS the CTTC’s motion and

dismisses all claims as they relate to the CTTC. Furthermore, the Court GRANTS IN

PART AND DENIES IN PART the Rental Car Defendants’ motion to dismiss. In

regards to the Rental Car Defendants, the Court dismisses the state law claims but does

not dismiss the federal antitrust claim. The Rental Car Defendants may file an answer

to the remaining claim within 30 days of the date this order is filed.

IT IS SO ORDERED.

Dated: July 24, 2008

_______________________________

MARILYN L. HUFF, District Judge

UNITED STATES DISTRICT COURT

COPIES TO:

All parties of record.

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