Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-08-56750/USCOURTS-ca9-08-56750-0/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MICHAEL SHAMES and GARY 

GRAMKOW, on behalf of themselves No. 08-56750 and all persons similarly situated,

Plaintiffs-Appellants, D.C. No.  3:07-cv-02174-Hv. WMC

CALIFORNIA TRAVEL AND TOURISM OPINION COMMISSION,

Defendant-Appellee. 

Appeal from the United States District Court

for the Southern District of California

Marilyn L. Huff, District Judge, Presiding

Argued and Submitted

March 4, 2010—San Diego, California

Filed June 8, 2010

Before: Michael Daly Hawkins, Sidney R. Thomas and

M. Margaret McKeown, Circuit Judges.

Opinion by Judge Hawkins

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COUNSEL

Robert C. Fellmeth (argued), Center for Public Interest Law,

University of San Diego School of Law, San Diego, California, and Donald G. Rez (briefed), Sullivan, Hill, Lewin, Rez

& Engel, San Diego, California, for the plaintiffs-appellants.

W. Scott Cameron (argued) and Charles L. Post (briefed),

Weintraub Genshlea Chediak, Sacramento, California, and

Diane Shaw (briefed), Office of the Attorney General of the

State of California, Los Angeles, California, for the

defendant-appellee.

OPINION

HAWKINS, Senior Circuit Judge:

Plaintiffs Michael Shames and Gary Gramkow

(“Plaintiffs”) appeal the dismissal of their claims against the

California Travel and Tourism Commission (“CTTC”) alleging the CTTC engaged in antitrust price-fixing in violation of

the Sherman Act § 1, 15 U.S.C. § 1, and improper meeting

practices in violation of California’s Bagley-Keene Open

Meeting Act, Cal. Gov’t Code §§ 11120-11132. The district

court held the CTTC was shielded from antitrust liability

under the “state action immunity” doctrine, and declined to

exercise supplemental jurisdiction over the Bagley-Keene

claim. We affirm.

FACTS AND PROCEDURAL HISTORY

The CTTC is a “nonprofit mutual benefit corporation” created by state legislation in order to expand and develop California’s tourism industry. Cal. Gov’t Code § 13995.40(a). The

CTTC is governed by thirty-seven commissioners, who simultaneously serve as directors. § 13995.40(a)-(b).1

 The Secretary

1All sections refer to California Government Code unless otherwise

noted. 

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of the Business, Transportation and Housing Agency

(“Secretary”) chairs the CTTC. §§ 13995.20(k),

13995.40(b)(1). Twelve commissioners are appointed by the

governor, while the remaining twenty-four are elected by the

tourism industry itself.2 § 13995.40(b)(2)-(3). 

In 2006, the passenger rental car industry proposed changes

to state bill A.B. 2592 which were subsequently enacted. See

Cal. Civil Code § 1936.01. Under the bill, the passenger rental

car industry became the fifth tourism industry category under

the CTTC scheme and agreed to pay a high assessment fee,

greatly increasing the CTTC’s budget. In exchange for this

increased funding, the passenger rental car industry was

allowed to “unbundle” fees charged to customers and itemize

such fees separately from the base rental rate. Significantly,

the adopted changes allowed the companies to “pass on some

or all of the assessment to customers.” § 13995.65(f). 

Plaintiffs allege this led to the imposition of two specific

fees on rental car customers. First, pursuant to an agreement

between the passenger rental car industry and the CTTC, a

2.5% tourism assessment fee was added to the cost of a car

rental which, in turn, helped fund the CTTC. Plaintiffs allege

that the CTTC then colluded with the passenger rental car

industry, fixing rental car prices by passing on the 2.5% tourism assessment fee to customers. Second, the passenger rental

car industry “unbundled” the already-existing airport concession fee charged to customers to pay airports for the right to

conduct business on airport premises; this fee has traditionally

amounted to 9% of the rental price. The bill permitted the passenger rental car industry to charge this concession fee sepa2The tourism industry is represented by five industry categories, one of

which is the passenger rental car industry, which was added in 2006. Each

category is allotted a number of commission seats based on the weighted

percentage of assessments paid to the CTTC by that category.

§ 13995.40(d). Unlike the other categories, the passenger rental car industry is specifically limited to six commission seats regardless of the percentage of assessments paid to the CTTC. § 13995.40.5(a). 

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rately from the base rental rate. According to Plaintiffs, the

CTTC also colluded with the passenger rental car industry in

passing the 9% concession fee on to customers as an uniform

add-on charge. Plaintiffs allege that these agreements between

the rental car companies and the CTTC constituted pricefixing of rental car rates in violation of the Sherman Act § 1.

Plaintiffs also claim the CTTC committed a host of BagleyKeene Open Meeting Act violations, specifically, failing to

adhere to detailed notice requirements and impermissibly

holding closed session meetings.

Granting the CTTC’s Rule 12(b)(6) motion to dismiss, the

district court dismissed all claims against the CTTC, finding

it was entitled to state action immunity from antitrust liability

and declining to exercise supplemental jurisdiction over the

remaining Bagley-Keene Act state law claim. The district

court also held that the dismissed claims against the CTTC

were adequately severable from the pending claims against

the passenger rental car companies and entered final judgment

for the CTTC.

STANDARD OF REVIEW

We review the dismissal of the antitrust claim against the

CTTC de novo. Knevelbaard Dairies v. Kraft Foods, Inc., 232

F.3d 979, 984 (9th Cir. 2000). Because the appeal is from an

order granting a motion to dismiss, we assume the factual

allegations of the complaint to be true. Id. We review a district court’s decision whether to retain jurisdiction over supplemental claims when the original federal claims are

dismissed for an abuse of discretion. Tritchler v. County of

Lake, 358 F.3d 1150, 1153 (9th Cir. 2004).

DISCUSSION

I. State Action Immunity from Antitrust Liability

We assume without deciding that the Plaintiffs’ allegations

that the CTTC conspired with the passenger rental car compa8280 SHAMES v. CALIFORNIA TRAVEL AND TOURISM

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nies to pass on CTTC tourism assessments, enforcing the

agreement against non-complying rental car companies, and

turning the 9% airport concession fee into a rate hike, sufficiently allege an antitrust violation under the Sherman Act

§ 1. We need not consider the legality of the alleged conduct;

we are instead called to determine whether the district court

nonetheless properly dismissed the Plaintiffs’ claim against

the CTTC because the agency’s alleged conduct qualifies for

“state action immunity.”

The Supreme Court introduced the doctrine of “state action

immunity” in Parker v. Brown, when it held that the Sherman

Act did not apply to state anticompetitive conduct. 317 U.S.

341, 350-52 (1943). The Court reasoned that the Sherman Act

was primarily concerned with individual anticompetitive

action, not states acting in their sovereign capacity. Id. 

[1] The Court revisited the doctrine in California Retail

Liquor Dealers Association v. Midcal Aluminum, Inc., 445

U.S. 97 (1980) (“Midcal”), when a wholesale wine distributor

challenged California’s wine resale statutes. The statutes

required wine producers to file price schedules with the state;

however, the wine dealers themselves set the prices without

any state oversight or control. Id. at 99-101. The Court established a two-pronged test to determine when state involvement in anticompetitive conduct can render a party eligible

for immunity: (1) the challenged restraint must be “one

clearly articulated and affirmatively expressed as state policy”; and (2) the policy must be “actively supervised” by the

state itself. Id. at 105 (internal quotation marks omitted). The

Court held that although California’s legislative policy clearly

stated and allowed resale price maintenance, satisfying the

first prong of the test, the price maintenance system failed the

second prong because the State did not “actively supervise”

the conduct of the wine dealers. Id. at 105-06. With these

principles in mind, we turn to their application in this case.

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A. Midcal’s First Prong: “Clearly Articulated and

Affirmatively Expressed as State Policy”

1. Specific Authorization vs. Reasonably Foreseeable

As a preliminary matter, we must first resolve a dispute

among the parties over the proper standard in evaluating Midcal’s first prong. Plaintiffs argue that the district court

wrongly applied a lesser “foreseeability” standard in place of

Midcal’s “clear articulation” requirement, which, they argue,

requires a more specific or express authorization of any anticompetitive conduct. 

[2] The CTTC, however, correctly points out that the

Supreme Court has not required express authorization of particular anticompetitive acts and has applied state action immunity when the actions were a foreseeable result of a broader

statutory authorization. For example, in City of Columbia v.

Omni Outdoor Advertising, Inc., 499 U.S. 365 (1991)

(“Omni”), a billboard company sued the city for passing an

ordinance effectively preventing the company from entering

the billboard market. Id. at 368-69. The city allegedly passed

the ordinance to favor the existing billboard company, a local

company with deep roots in the community. Id. at 367. The

Court held that the city’s actions were nonetheless entitled to

Parker state action immunity because they were an “authorized implementation of state policy.” Id. at 370-71. The

Court reasoned that the city acted within its state-given

authority to pass a zoning ordinance, and that suppression of

competition was a foreseeable consequence of passing such

an ordinance. Id. at 373. The Court rejected “the contention

that this requirement can be met only if the delegating statute

explicitly permits the displacement of competition,” and held

that “[i]t is enough . . . if suppression of competition is the

‘foreseeable result’ of what the statute authorizes.” Id. at 372-

73.

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Similarly, in Town of Hallie v. City of Eau Claire, neighboring towns filed suit against the City of Eau Claire, arguing

that the city held an unlawful monopoly over sewage treatment services. 471 U.S. 34, 37 (1985). The Court held that the

city’s actions were immunized because they were a “foreseeable result” of the state legislature’s statutory authorization to

municipalities to provide (or refuse to provide) sewage services to unincorporated areas. Id. at 42. The Court again noted

that a legislature need not expressly state in the statute or legislative history that it intends for the action to have anticompetitive effects, so long as the legislature had contemplated

the action that was taken. Id. (“We think it is clear that anticompetitive effects logically would result from this broad

authority to regulate”). The Court also rejected the contention

that the city needed to show the state had “compelled” it to

act. Id. at 45; see also So. Motor Carriers Rate Conf., Inc. v.

United States, 471 U.S. 48, 58 (1985) (“The Midcal test does

not expressly provide that the actions of a private party must

be compelled by a State in order to be protected from the federal antitrust laws.”) (emphasis added). 

In contrast, Plaintiffs here rely principally on one of our

previous decisions, Columbia Steel Casting Co., Inc. v. Portland Gen. Electric Co., 111 F.3d 1427 (9th Cir. 1997). In

Columbia Steel, two utility companies agreed not to compete

with each other in providing service within certain territories,

and argued that the Oregon Public Utilities Commission

(“OPUC”) had authorized their non-competitive conduct

when it previously approved a property exchange, rendering

them eligible for state-action immunity. Id. at 1433-36. We

held that the companies’ actions did not qualify for state

action immunity because the OPUC “did not specifically and

clearly authorize[ ] by the relevant statutory process” their

anticompetitive conduct. Id. at 1441 (citation omitted). Reasoning that when OPUC approved the property exchange, it

acted only pursuant to its authority to approve sales and

leases, and not pursuant to statutes giving it the authority to

displace competition, we determined OPUC did not “clearly

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articulate” a state policy to displace competition. Id. at 1437.

Indeed, the City of Portland had specifically considered and

declined to approve the establishment of exclusive territories

for the utilities, and the OPUC-approved agreement purported

to comply with and implement the city’s decision. Id. at 1433-

34.

In addressing the companies’ argument that their conduct

was a foreseeable result of OPUC’s property-exchange

approval, we held that “foreseeability” could not be substituted for Midcal’s “clear articulation” requirement. Id. at

1443. However, Plaintiffs attempt to read this statement a bit

too broadly, for in Columbia Steel we also indicated that foreseeability would apply in a situation in which anticompetitive

conduct was “ ‘authorized, but not compelled.’ ” Id. at 1444

(quoting Town of Hallie, 471 U.S. at 36) (emphasis removed).

In those situations, the foreseeability approach is used to

determine the reach of the antitrust immunity (since not every

action by a state actor will necessarily be immune). See id. at

1443 (citing Medic Air Corp. v. Air Ambulance Auth., 843

F.2d 1187, 1189 (9th Cir. 1988)). Thus, Columbia Steel did

not reject a foreseeability test, but clarified when it is applicable. See Redwood Empire Life Support v. County of Sonoma,

190 F.3d 949, 955 (9th Cir. 1999) (applying “logical and foreseeable result” test post-Columbia Steel).3

[3] Thus, in light of these precedents, the standard to apply

in analyzing whether the CTTC’s alleged conduct was pursuant to a “clearly articulated” state policy is to examine

whether the agency acted pursuant to its statutory authority,

and, if so, whether the anticompetitive conduct was foreseeable given that statutory authorization. 

3The foreseeability test understandably had little application in Columbia Steel because, as discussed above, the Portland City Council had not

authorized exclusive service areas for the utilities, but actually specifically

disapproved the utilities’ attempt to establish exclusive territories, and

approved only the exchange of utilities’ properties. 111 F.3d at 1433-44.

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2. Application of the Reasonably Foreseeable Test

[4] The California Legislature explicitly authorized tourism assessment fees on passenger car rentals for the funding

of California tourism: “[t]he California Travel and Tourism

Commission shall submit a referendum to the passenger rental

car industry as soon as possible . . . [it] shall propose an

assessment level upon the passenger rental car industry.”

§ 13995.92(a). The CTTC was to be the beneficiary of the

tourism assessment fee, and was authorized to collect the

assessments from the rental car companies. §§ 13995.65-73,

.92. The statute expressly allows the fees to be “passed on”

to customers: “[a]n assessed business may pass on some or all

of the assessment to customers.” § 13995.65(f) (emphasis

added). Another statute explicitly recognizes that assessment

fees are “the charge[s] collected by a rental company from a

renter that ha[ve] been established by the [CTTC] pursuant to

Section 13995.65 of the Government Code.” Cal. Civ. Code

§ 1936.01(a)(3) (emphasis added). 

Although Plaintiffs emphasize that the provisions at issue

here do not require the fees to be passed on to consumers,

both the Supreme Court and this circuit have made clear that

for state action immunity to apply, the anticompetitive conduct need not be compelled by the state. Town of Hallie, 471

U.S. at 45 (“compulsion is simply unnecessary”); Hass v.

Oregon State Bar, 883 F.2d 1453, 1457 (9th Cir. 1989) (“The

legislature need not detail or compel the specific anticompetitive actions at issue, nor need it explicitly state that it

expects the regulated party ‘to engage in conduct that would

have anticompetitive effects.’ ”) (quoting Town of Hallie, 471

U.S. at 42). Indeed, the legislature need not even “expressly

permit the challenged conduct.” Hass, 883 F.2d at 1457 (citing So. Motor Carriers, 471 U.S. at 63-65)). 

Thus, the critical issue is not whether the alleged conduct

here was compelled, but whether it was authorized.4 Plaintiffs

4We grant Plaintiffs’ Request for Judicial Notice regarding arguments

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argue that the statutory language permitting the pass through

(“may pass some or all”) should be read not as authorizing an

anticompetitive agreement to pass the fees on, but as an indication that the legislature intended for the individual car companies to make the decision whether to pass the fee on to

consumers. 

[5] However, the provisions here are comparable to those

in which courts have found anticompetitive conduct legislatively authorized but not compelled. Similar to the statutes in

Town of Hallie, which granted authority to the cities to handle

sewage service, but which did not expressly mention anticompetitive, monopolistic conduct, 471 U.S. at 41-42, the statutes

in the current case grant authority to the passenger rental car

companies to “pass on” assessment fees, and allow the CTTC

to enforce and collect those fees, even if they do not expressly

mention anticompetitive conduct. § 13995.65(f), .71. Likewise, in Hass, we held that the Oregon State Bar was authorized to establish a minimum legal malpractice insurance

requirement and require attorneys to purchase such coverage

from the State Bar, even though the statute did not contain

such a requirement and granted only general authority to do

“whatever is necessary and convenient” to implement malpractice coverage. 883 F.2d at 1458-59. 

Moreover, the history underlying the legislation at issue

here strongly suggests that the legislature envisioned the fee

being uniformly passed on to rental car customers. The proposed bill A.B. 2592 increased the assessment against rental

car companies only if the bill also amended the companies’

ability to separately itemize the rate, airport concession fee,

and tourism commission assessment. Calif. Bill Analysis,

tion, No. 08-CV-1796-MMA (S.D. Cal.). However, this does not impact

the result in this case, as we conclude the CTTC does not take flatly contradictory positions in the two cases regarding whether its actions were

authorized versus compelled. 

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Senate Floor, 2005-2006 Regular Session, Assembly Bill

2592, August 24, 2006 (“Calif. Bill Analysis”).5 In an initial

statement of reasons accompanying the proposed amendments, the Business, Transportation and Housing Agency,

Office of Tourism indicated the significance of this passthrough provision: 

If the ability to pass the assessment on to the consumer was prohibited, the passenger car rental industry would have to pay the assessment from its

revenues and it would affect net profit. This was not

the intent of the legislation.

Title 10, Chap. 7.65, §§ 5350-5358.1, Passenger Car Rental

Industry Tourism Assessment, Initial Statement of Reasons,

p.2, available at http://www.visitCalifornia.de/media/

uploads/files/InitialStatementofReasons.RentalCar

Assessment.pdf.

Several provisions refer to the tourism fee being collected

“from the renter,” and the Legislature also gave an express

grant of state antitrust immunity to state actors complying

with the enabling statute, also demonstrating that anticompetitive conduct was foreseeable at the time the provisions were

enacted. § 13995.90. The legislature was also expressly

advised of the likely impact to consumers: in opposition to the

bill, the Center for Public Interest Law warned that the bill

would lead to an “industry-wide price hike” because companies would “merely maintain their current price levels, but

instead of including the airport concession fee in the initial

charge, it is now added on at the end, on top of a charge that

historically included it.” Calif. Bill Analysis, A.B. 2592 Senate, 8/24/2006; see Springs Ambulance Serv., Inc. v. Rancho

Mirage, 745 F.2d 1270, 1273 (9th Cir. 1984) (a sufficiently

5As the district court observed, “there would have been little reason for

the rental car industry to propose the amendments to A.B. 2592 if they

would be unable to recoup the cost of increasing the CTTC’s budget.” 

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articulated state policy exists if the challenged restraint is a

“necessary or reasonable consequence” of engaging in the

authorized activity) (internal quotation marks, citation and

emphasis omitted). 

[6] Plaintiffs suggest that the statute nonetheless does not

authorize the alleged group anticompetitive conduct orchestrated with the help of the CTTC. However, in Omni the

Supreme Court was clear that there is no “conspiracy” exception to state action immunity, noting that “it is both inevitable

and desirable that public officials often agree to do what one

or another group of private citizens urges upon them” and that

otherwise a conspiracy exception would “virtually swallow up

the Parker rule.” 499 U.S. at 374-75. Thus, any claim of collusion or conspiracy between the CTTC and the passenger

rental car companies would not defeat immunity, so long as

the CTTC otherwise qualifies for state action immunity.

Because there is a clear grant of authority permitting the passthrough of the assessments to rental car customers, as well as

evidence that an industry-wide add-on was “surely within the

contemplation of the legislature,” Springs Ambulance, 745

F.2d at 1273, the CTTC’s alleged conduct in facilitating this

result was at the very least a “foreseeable consequence of the

legislative grant of authority.” Hass, 883 F.2d at 1459.

We therefore affirm the district court’s conclusion that the

CTTC’s alleged anticompetitive conduct constitutes an authorized and reasonably foreseeable result, and thus satisfies

Midcal’s first prong of being pursuant to a “clearly articulated

state policy.”

B. Midcal’s Second Prong: Active State Supervision

Midcal’s second prong ensures that private price-fixing

agreements with little or no state involvement do not displace

“the national policy in favor of competition.” 445 U.S. at 106.

The Court was primarily concerned that without adequate

state supervision, private parties would act to further their

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own interests as opposed to the interests of the state. Id.; see

also Patrick v. Burget, 486 U.S. 94, 101 (1988) (stating that

without active state supervision, “there is no realistic assurance that a private party’s anticompetitive conduct promotes

state policy, rather than merely the party’s individual interests”).

[7] However, when municipalities or other state entities (as

opposed to purely private actors) are acting under the direction of state law, the Court has held that they do not need to

satisfy Midcal’s active state supervision prong. Town of Hallie, 471 U.S. at 46. In Town of Hallie, the Court reasoned that

where a municipality is concerned, there is very little danger

“that it is involved in a private price-fixing arrangement,”

which removes the need for the state to supervise its “execution of . . . a properly delegated function.” Id. at 47 (emphasis

omitted). In a footnote, the Court also suggested that the same

rationale would apply to state agencies. Id. at 46 n.10.

In Hass, we relied on that footnote in Town of Hallie to

hold that the Oregon State Bar did not need to satisfy Midcal’s active state supervision prong to qualify for state action

immunity. 883 F.2d at 1459-61. We reasoned that the Oregon

State Bar was similar in nature to a municipality, noting that

the Oregon State Bar’s purpose in benefitting the public

through regulating lawyers, combined with its records and

accounts being open for public inspection and subject to

audits, pointed to it being a public body. Id. at 1459-60.

Likewise, here, the CTTC is not a private party, but a state

agency created by statute, designed to promote tourism which

the California legislature found is “vital” to the state’s economy. § 13995.1(d)(1). The CTTC was organized to promote

a state purpose, namely to increase travel and tourism in the

state of California. § 13995.41. The CTTC and the Oregon

State Bar in Hass also share organizational similarities in that

they are both subject to independent audits, must give public

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notice of their meetings, and benefit “the public interest.”

Hass, 883 F.2d at 1460; §§ 13995.40, .50. 

Plaintiffs contend, however, that even if the CTTC is a state

agency “for some purposes,” it is still industry-controlled, and

thus is distinguishable from Hass. However, the CTTC is not

entirely controlled by industry, as it has twelve governorappointed commissioners and a governor-appointed Secretary.

Although there are twenty-four industry-appointed commissioners, these positions come from five different tourism

industry categories whose interests will not always align, and

the passenger car rental industry itself is limited to only six

commissioners. § 13995.40.5(a). See Hass, 883 F.2d at 1460

(noting that only three of the fifteen members of the Oregon

State Bar were nonlawyers). 

Moreover, the CTTC is also under the oversight of the state

via a gubernatorially-appointed Secretary. The Secretary has

the power to remove elected commissioners found guilty of

“abuse of office or moral turpitude.” § 13395.40(e). Additionally, the Secretary holds veto power over the CTTC in various

circumstances, including the use of state funds and situations

in which the Secretary determines there is a conflict of interest. § 13995.51(b). The CTTC’s annual marketing plan must

be reviewed and approved by the Secretary before adoption,

and may only be overridden by a three-fifths majority vote.

§ 13995.45(d).

[8] Despite the mix of public and private interests at play,

looking at the totality of the circumstances, the CTTC possesses enough of the qualities of a state agency, coupled with

state oversight in the form of the governor-appointed commissioners and Secretary, to hold that the CTTC is analogous to

the Oregon State Bar in Hass and also exempt from Midcal’s

“active state supervision” requirement. We therefore affirm

the district court’s determination that the CTTC is entitled to

state action immunity from antitrust suit.

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II. Bagley-Keene Act

The California Legislature enacted the Bagley-Keene Open

Meeting Act to ensure that state bodies conduct open and public meetings, specifically by implementing detailed notice

requirements and limiting closed sessions. §§ 11120-11132;

S. Cal. Edison Co. v. Peevey, 74 P.3d 795, 797 (Cal. 2003).

The district court initially heard the Bagley-Keene Act claim

alongside the federal antitrust claim pursuant to 28 U.S.C.

§ 1367(a). After dismissing the antitrust claim against the

CTTC, the district court dismissed the Bagley-Keene Act

claim without prejudice. 

[9] Dismissal of the claim was not an abuse of discretion

in these circumstances. Tritchler, 358 F.3d at 1153. The district court properly exercised its discretion and declined to

employ supplemental jurisdiction, reasoning that it had

already “dismissed the only federal claim against the CTTC,”

and noting that the Act “may implicate questions better

addressed by the California courts in the first instance.” See

28 U.S.C. § 1367(c)(1), (3); Bryant v. Adventist Health

Sys./West, 289 F.3d 1162, 1169 (9th Cir. 2002).

CONCLUSION

For the foregoing reasons, we AFFIRM the district court’s

dismissal of the antitrust price-fixing and Bagley-Keene Act

claims. All pending motions not otherwise disposed of herein

are denied as moot. 

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