Opinion ID: 8407613
Heading Depth: 2
Heading Rank: 2

Heading: State-Action Immunity for the Village

Text: The Village regulates the usage of 'local real estate by requiring all owners of commercial and residential buddings who wish to use or occupy their property to obtain from the Village a certifícate of occupancy. In order to do so, for reasons of fire safety, a property owner must, under the Village ordinance, first submit the property to an electrical wiring inspection by the Board, pay the Board’s fee, and receive from the Board certification that the wiring complies with the National Electric Code. The plaintiff alleged in its amended complaint that the Village’s conferral of such exclusivity on the Board violates, inter alia, the Sherman Act, and sought injunctive and declaratory relief. 5 The Village asserts the affirmative defense that its action was pursuant to state policy and thus was exempt from the federal antitrust laws under the state-action immunity doctrine. The district court agreed with the Village. The plaintiff challenges this holding on appeal. Because the district court granted judgment to the Village on its affirmative defense, neither the standing of the plaintiff under the antitrust laws to make all of the underlying claims it asserts nor the merits of the claims are at issue in this appeal. Our only task with regard to the plaintiffs claims against the Village is to evaluate the district court’s conclusion that the Village is immune.
In City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 111 S.Ct. 1344, 113 L.Ed.2d 382 (1991) (“Omni Outdoor”), the Supreme Court addressed state-action immunity for municipal regulatory schemes. There, the City of Columbia, South Carolina, asserted immunity from a claim under the Sherman Act that its restrictions on the size, location, and spacing of billboards hindered the ability of newcomers to compete in the billboard construction market. Id. at 367-69, 111 S.Ct. 1344. The Court began its analysis by noting that under the state-action immunity doctrine established by its decision in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), “the Sherman Act [does] not apply to anticompetitive restraints imposed by the States ‘as an act of government.’ ” Omni Outdoor, 499 U.S. at 370, 111 S.Ct. 1344 (quoting Parker, 317 U.S. at 352, 63 S.Ct. 307.) The Court explained that the doctrine is grounded in “principles of federalism and state sovereignty.” Omni Outdoor, 499 U.S. at 370, 111 S.Ct. 1344. Local governments are not sovereign, and so their actions are not automatically immune under Parker. Omni Outdoor, 499 U.S. at 370, 111 S.Ct. 1344. Nonetheless, because states sometimes effect regulatory regimes through local government bodies, municipalities may avail themselves of Parker immunity to the extent their actions are “an authorized implementation of state policy.” Id. The Court held that municipalities that wish to avail themselves of Parker immunity must show that their regulations were authorized by the state. The requisite showing of authority has two components: First, the municipality must have “authority to regulate”; second, it must have “authority to suppress competition.” Id. at 372, 63 S.Ct. 307; accord Hertz Corp. v. City of New York, 1 F.3d 121, 128 (2d Cir.1993) (holding that under Parker a municipality must establish that “the resulting anticompetitive activities are a foreseeable consequence of [a] state delegation” (quoting Cine 42nd St. Theater Corp. v. Nederlander Org., Inc., 790 F.2d 1032, 1043 (2d Cir.1986) (“Cine”))), cert. denied, 510 U.S. 1111, 114 S.Ct. 1054, 1054, 127 L.Ed.2d 375 (1994). To determine whether the City of Columbia had “authority to regulate,” the Supreme Court looked to the terms of the relevant South Carolina statutes. Omni Outdoor, 499 U.S. at 371, 111 S.Ct. 1344. At the same time, the Court held that federal courts, when determining state-action immunity for municipalities, must “adopt a concept of authority broader than what is applied to determine the legality of the municipality’s action under state law.” Id. at 372, 111 S.Ct. 1344. This broader concept of authority is necessary, the Court explained, because a doctrine of state-action immunity that “transformed] state administrative review into a federal antitrust job” would-undermine “the very interests of federalism [the Parker docr trine] is designed to protect.” Id. at 372, 111 S.Ct. 1344 (citation omitted). For this reason, the Court held, the inquiry into a municipality’s authority to regulate should not be exacting. Id. at 371, 111 S.Ct. 1344. The Court went on to decide that language in the South Carolina statute authorizing local governments to regulate the height and size of “structures” constituted sufficient authority for the City of Columbia’s billboard regulations. Id. at 372-73 & n. 4, 111 S.Ct. 1344. Although the statute also provided that municipal ordinances were valid only if they served “the purpose of promoting health, safety, morals or the general welfare of the community,” the Court declined to inquire whether the city’s ordinance fulfilled this requirement. Id. at 370 n. 3, 371-73, 111 S.Ct. 1344 (citation and internal quotation marks omitted). The Court’s decision not to inquire as to whether Columbia’s ordinance was actually authorized by state statute suggests that as long as the local enactment is within a broad view of the authority granted by the state, whether it is actually violative of that statute is a question for state authorities, not one of federal antitrust law. With regal’d to the second component of the inquiry, i.e., whether the City of Columbia had “authority to suppress competition,” the Supreme Court began by “rejecting] the contention that this requirement can be met only if the delegating statute explicitly permits the displacement of competition.” Id. at 372, 111 S.Ct. 1344. Instead, the Court held, the requirement is met “if suppression of competition is the ‘foreseeable result’ of what the statute authorizes.” Id. (quoting Town of Hallie v. City of Eau Claire, 471 U.S. 34, 42, 105 S.Ct. 1713, 85 L.Ed.2d 24 (1985)). The Court then asked whether a logical relationship existed between the purpose of the state statute and its alleged anticompetitive effect, and observed that “[tjhe very purpose of zoning regulation is to displace unfettered business freedom in a manner that regularly has the effect of preventing normal acts of competition, particularly on the part of new entrants.” Omni Outdoor, 499 U.S. at 373, 111 S.Ct. 1344. On this basis, the Court concluded that suppression of competition was a foreseeable result of the South Carolina statute, and thus that the City of Columbia had met the requirements for immunity for its regulatory scheme. Id. at 374, 111 S.Ct. 1344. The Supreme Court’s analysis in Omni Outdoor mirrored the approach that this Court had followed in Cine. There we examined the actions of the New York “Urban Development Corporation,” or “UDC,” a public entity designed by the New York State Legislature “to make the State an active participant in the financing and construction of urban renewal projects.” Cine, 790 F.2d at 1036. The UDC purchased theaters in the Times Square area of New York City and then awarded leases on them to private developers, prompting parties whose applications for leases had been rejected to bring suit under the Sherman Act against both the UDC and the winning bidders. Id. at 1037-38. The defendants claimed state-action immunity. Id. at 1038. We began our analysis by holding that because the UDC was a “political subdivision of the state,” it was like a municipality for purposes of the Parker doctrine. Cine, 790 F.2d at 1047. We then concluded that in order to qualify for state-action immunity, the UDC was required to “show [1] that it acted pursuant to a clearly expressed state policy and [2] that the resulting antitrust consequences were reasonably contemplated by the state.” Id. at 1047-48. With regard to the first component, we found authority for the UDC’s actions in language in the UDC’s enabling statute that specifically empowered it to purchase, and issue leases on, real property. Id. at 1045. Under the second component, we concluded that harm to some businesses around Times Square was a foreseeable consequence of the creation of an entity whose purpose was to improve a blighted urban area: It is fair to conclude that the legislature contemplated that when it granted power to the UDC to determine what buildings and services would be provided in a particular redeveloped land use project, it knew those choices would affect businesses and residences in that entire area. Such a conclusion is based on common sense. As a result of cultural improvements, rents and property values would increase even though some competitors would be adversely impacted, and some would disappear. Id. at 1047. On this basis, we held that the UDC had shown sufficient state authority for its actions, and thus was immune under the Parker state-action immunity doctrine.
The Village argues that its actions effectively excluding the plaintiff from the market for electrical inspections within its boundaries were authorized by the Act and related regulations issued by the New York Secretary of State. To evaluate the Village’s defense, we follow the two-step inquiry set forth and applied in Omni Outdoor and Cine. 1. Step One: Authority to Regulate. The Village cites two provisions of the Act for its authority to regulate: § 381, which provides that “every local government shall administer and enforce the uniform fire prevention and building code”; and § 371, which states that “it shall be the public policy of the state of New York” to “[ejncourage local governments to exercise their full powers to administer and enforce the uniform code.” N.Y. Exec. Law §§ 381(2), 371(2)(d). The Village also cites for support the regulations issued pursuant to the Act by New York’s Secretary of State. The plaintiff disagrees that the Act confers any new powers on New York municipalities that they do not already have, and argues that the statutory language cited by the Village merely directs local governments to apply to a particular purpose powers arising from other statutory sources. If the plaintiffs interpretation of the Act is correct, then the state-action immunity defense is unavailable because the Village has not identified any other specific statutory source of regulatory power, and the principle is well established that a municipality may not fall back on its general police or “home-rule” powers to immunize anticompetitive regulations. See Cmty. Communications Co. v. City of Boulder, 455 U.S. 40, 56, 102 S.Ct. 835, 70 L.Ed.2d 810 (1982); Hertz, 1 F.3d at 128. If the Village had only the language of the Act to rely upon, its authority for purposes of the Parker doctrine might be subject to doubt. The cited provisions can be read as no more than a direction to New York State municipalities as to how to act, in contrast with statutory language relied on by municipalities in cases in which they have been held to be immune where a similar direction was coupled with an explicit conferral of regulatory power. See Omni Outdoor, 499 U.S. at 370-71 n. 3, 111 S.Ct. 1344 (South Carolina statute providing that “the legislative bod[ies] of cities and incorporated towns may by ordinance regulate ... buildings and other structures”); Cine, 790 F.2d at 1045 (New York statute empowering the UDC “to acquire ... real, personal or mixed property[,] and to sell ... [or] lease ... the same”). We conclude, however, that the regulations issued by the Secretary soon after the passage of the state statute make clear that even if the Village’s ordinance was not actually authorized by the state statute itself, it was within the broad grant of state authority. The Secretary’s regulations authorized municipalities to condition occupation and use of a building on the result of an electrical inspection, and “by resolution provide that such inspection shall be performed by [an] inspector, designated or approved by the ... town.” N.Y. Comp.Codes R. & Regs. tit. 19, § 429(b) (repealed 1996). The regulations appeared to interpret the statute to authorize the Village, or at least to authorize the Secretary to authorize the Village, to do precisely that which the Village has done. 6 We think that the Act, combined with the Secretary’s apparent interpretation of it, sufficiently demonstrates the Village’s broad “authority to regulate” for purposes of state-action immunity. The Village has cited statutory language that, although perhaps ambiguous on the question, can be interpreted as delegating a power to regulate, and it has cited regulations issued by the agency charged with enforcing the statute that confer a power to regulate in plain language. Even though those regulations were subsequently withdrawn, they establish the Village’s contention that its action was within the broad authority to regulate granted by the state statute itself. Under the broad concept of authority that principles of federalism compel us to apply, we conclude that these sources are sufficient for purposes of Parker state-action immunity analysis. 2. Stef Two: Authority to Suppress Competition. We also conclude that the Act and the Secretary’s regulations establish the second component of authority that municipalities must show under Parker. The specific anticompetitive harm that the plaintiff alleges results from the Village’s actions is the plaintiffs complete exclusion from the market for required electrical inspection services. We think that such exclusion is a foreseeable result of a statute that requires municipalities to enforce a uniform fire code and administrative regulations that condition the issuance of certificates of occupancy upon inspections by town-designated agents. “[CJommon sense,” Cine, 790 F.2d at 1047, indicates that a municipality in the course of enforcing a fire code is likely, for quality control purposes, to limit the set of persons who may issue certificates of compliance, “even though some competitors would be adversely impacted,” id. And common experience indicates that municipalities often use their own employees to enforce a variety of public codes, such as food preparation or building codes, thereby effectively conferring upon themselves exclusivity in the market for required inspection services at a cost to private entities that would perform the same services. The Secretary specifically authorized such town-operated monopolies. N.Y. Comp. R. & Regs. tit. 19, § 429.2(b)(1) (repealed 1996). Such a regime also appears to be contemplated by the section of the Act that provides that “[l]oeal governments or counties may charge fees to defray the costs of administration and enforcement,” N.Y. Exec. Law § 381(2). Thus, complete exclusion of a potential competitor in the market was foreseeable. The plaintiff argues that even if a town-operated monopoly was foreseeable, the designation of a private party as the party enjoying exclusivity was not. We think, however, that the plaintiffs argument misunderstands the nature of the foreseeability inquiry. Our task in assessing the second component of authority identified in Omni Outdoor is to determine whether the state intended or at least could have contemplated that its policy would result in “suppression of competition.” 499 U.S. at 373, 111 S.Ct. 1344; accord Cine, 790 F.2d at 1047. Whom the municipality selected as the party exercising exclusivity is at best tangential to the inquiry into the foreseeability of suppression of 'competition. By definition, the creation of a-, monopoly suppresses'—indeed eliminates—all competition in that locality, and in this sense the degree of suppression is the same whether the party exercising the power arising out of exclusivity is public or private. The foreseeability inquiry requires us to go no further. See Cine, 790 F.2d at 1045-46 (identifying the relevant question as whether the UDC’s entry into leases with private parties was foreseeable, and not inquiring into the foreseeability of its selection of any party in particular). We therefore conclude that the suppression of competition resulting from the Village’s actions was a foreseeable consequence of what the state authorized.
Before we can decide Whether the Village is immune from the plaintiffs claims, however, we must confront yet one more issue. The plaintiff argues that for a municipality to be immune under the Parker state-action immunity doctrine, it must show, in addition to state authority for its regulatory scheme, that government officials actively supervise those private parties whom the municipality regulates. Whether a municipality must make such a showing appears to be an open question. The Supreme Court held in Town of Hattie that a municipality need not show that it is supervised by state officials for it to qualify for state-action immunity. 471 U.S. at 46, 105 S.Ct. 1713. But the Supreme Court also indicated that “[w]here state or municipal regulation by a private party is involved, ... active state supervision must be shown; even where a clearly articulated state policy exists.” Id. at 46 n. 10, 105 S.Ct. 1713. This raises the question of whether a failure to show active supervision of a private party can defeat both the municipality’s claim of immunity and the private party’s, or only the private party’s. We are not aware - of any decision that squarely addresses this issue. The law regarding the active supervision requirement has developed almost entirely in the context of claims against private parties. We will therefore return to the question of whether the Village’s immunity might depend upon a showing that the Board is actively supervised by the Village after we review' the plaintiffs claims against the Board.