Opinion ID: 495306
Heading Depth: 3
Heading Rank: 2

Heading: The Municipal-Proprietor Exemption from Preemption

Text: 35 Santa Monica contends that preemption analysis should not apply to its attempt to impose safety standards in its franchise agreement with Shell under the municipal-proprietor exemption. This theory stems both from the idea that preemption is a supremacy clause doctrine governing the actions of two sovereigns in our federal system, which does not apply to the actions of a private individual, and from practical concerns that a municipality, when acting as a proprietor, may have good reason to protect itself from liability resulting from the actions it authorizes. See Santa Monica Airport Ass'n v. City of Santa Monica, 659 F.2d 100, 103-04 & n. 5 (9th Cir.1981). Three appellate courts have suggested the existence of such a theory. See City of Burbank v. Lockheed Air Terminal, Inc., 411 U.S. 624, 635-36 n. 14, 93 S.Ct. 1854, 1860-61 n. 14, 36 L.Ed.2d 547 (1973) ([A]uthority that a municipality may have as a landlord is not necessarily congruent with its police power. We do not consider here what limits, if any, apply to a municipality as a proprietor.); Santa Monica Airport Ass'n, 659 F.2d at 103-04 (noting municipal-proprietor exemption from federal preemption, but holding that Congress did not intend to preempt a municipality from imposing noise standards at its own airport); British Airways Bd. v. Port Auth., 558 F.2d 75, 83-84 (2d Cir.1977). The theory proceeds on the premise that a private landowner may grant an easement to a pipeline operator on condition of compliance with safety standards that are more stringent than federal law. 36 The key inquiry under the municipal-proprietor exemption would be to determine whether Santa Monica is acting in a regulatory or proprietary capacity. As discussed in the context of the market participant exception, a city may not use the guise of privity of contract to conduct otherwise forbidden regulatory activity. See Wunnicke, 467 U.S. at 97, 104 S.Ct. at 2245. Similarly, in the municipal-proprietor setting, a city may not condition a franchise renewal upon the settlement of a labor dispute, because such action is tantamount to regulating third-party relations preempted by federal labor law. See Golden State Transit Corp., 106 S.Ct. at 1400-01; see also Gould Inc., 106 S.Ct. at 1062-64 (holding that a state may not prohibit state purchases from repeat labor law violators because federal law preempts labor law enforcement). Presumably, our inquiry would involve a pragmatic judgment as to whether Santa Monica was attempting to regulate third-party relations in the market as in Wunnicke, Golden State Transit, and Gould, or whether its actions to limit exposure to municipal liability were sufficiently tied to the immediate transaction. Cf. Wunnicke, 467 U.S. at 98, 104 S.Ct. at 2246 (noting that simply as a matter of intuition a state market participant has a greater interest as a 'private trader' in the immediate transaction than it has in what its purchaser does with the goods after the State no longer has an interest in them). However, we need not decide these close questions because, as discussed below, we conclude that federal law does not preempt Santa Monica from imposing all safety standards in a franchise agreement for an intrastate pipeline.