Opinion ID: 176919
Heading Depth: 4
Heading Rank: 1

Heading: ERISA and NLRA Preemption Claims

Text: Whether federal law preempts a particular state action is fundamentally a question of congressional intent. See Engine Mfrs. Ass'n v. S. Coast Air Quality Mgmt. Dist., 498 F.3d 1031, 1039-40 (9th Cir.2007). Federal law will preempt state laws that interfere with, or are contrary to, federal law only if that was the clear and manifest purpose of Congress. Id. at 1039-40 (internal quotations and citation omitted). The so-called market participant doctrine offers us a presumption about Congress's purposes. In general, Congress intends to preempt only state regulation, and not actions a state takes as a market participant. See Bldg. & Constr. Trades Council v. Associated Builders and Contractors of Mass./R.I., Inc. ( Boston Harbor ), 507 U.S. 218, 227, 113 S.Ct. 1190, 122 L.Ed.2d 565 (1993); Engine Mfrs., 498 F.3d at 1042. This doctrine applies to claims of NLRA and ERISA preemption. See Boston Harbor, 507 U.S. at 227, 113 S.Ct. 1190 (NLRA); Associated Gen. Contractors of Am. v. Metro. Water Dist. of S. Cal. ( MWD ), 159 F.3d 1178, 1182 (9th Cir.1998) (ERISA). In assessing the plaintiffs' preemption claims, we therefore must first determine whether the District acted as a regulator or as a market participant when it entered into the PSA. Because we conclude that the District acted as a market participant, the plaintiffs' ERISA and NLRA preemption claims fail at the threshold. [6] In general, state action falls within the market participant exception to preemption when the state entity directly participates in the market by purchasing goods or services. See Engine Mfrs., 498 F.3d at 1040 (describing the single inquiry in market participant cases as whether the challenged program constituted direct state participation in the market). But the line between non-preempted market participation and preempted regulation is not always so clear, and a state's direct participation in the market will not always escape preemption. If a state's direct participation in the market is tantamount to regulation, the market participant doctrine will not exempt the state's action from preemption. Wis. Dep't of Indus., Labor & Human Relations v. Gould, 475 U.S. 282, 289, 106 S.Ct. 1057, 89 L.Ed.2d 223 (1986). Thus, in Gould, the Supreme Court held that the NLRA preempted a state law forbidding state procurement agents from using state funds to do business with companies that had repeatedly violated the NLRA, even though the law constrained only the state's own participation in the market. Id. at 283-84, 287, 106 S.Ct. 1057. The Court explained that the state law on its face ... serves plainly as a means of enforcing the NLRA, and that [n]o other purpose could credibly be ascribed. Id. at 287, 106 S.Ct. 1057. Because the law imposed a supplemental sanction on NLRA violations, it contravened Congress's intent to bar states from providing their own regulatory or judicial remedies for conduct prohibited or arguably prohibited by the Act. Id. at 286-89, 106 S.Ct. 1057 (describing the preemption rule of Garmon, 359 U.S. 236, 79 S.Ct. 773). In light of Gould, to determine whether a state entity's direct participation in the market falls within the market participant exception to preemption, we must determine whether the state action is simply proprietary or tantamount to regulation. As a guide to making this determination, we have adopted the two-prong test that the Fifth Circuit established in Cardinal Towing & Auto Repair, Inc. v. City of Bedford, 180 F.3d 686, 693 (5th Cir.1999). See Engine Mfrs., 498 F.3d at 1041; Olympic Pipe Line Co. v. City of Seattle, 437 F.3d 872, 881 (9th Cir.2006). The Cardinal Towing test offers two questions to help determine whether state action constitutes market participation not subject to preemption: First, does the challenged action essentially reflect the entity's own interest in its efficient procurement of needed goods and services, as measured by comparison with the typical behavior of private parties in similar circumstances? Second, does the narrow scope of the challenged action defeat an inference that its primary goal was to encourage a general policy rather than address a specific proprietary problem? Id. As the Fifth Circuit explained, these questions seek to isolate a class of government interactions with the market that are so narrowly focused, and so in keeping with the ordinary behavior of private parties, that a regulatory impulse can be safely ruled out. Id. In applying this test, we have not yet conclusively settled whether a state action must satisfy both prongs, or only one, to qualify as market participation exempt from preemption. We held in Lockyer that a state need not satisfy both questions, but we subsequently vacated that opinion after the Supreme Court reversed it on other grounds. See Chamber of Commerce v. Lockyer, 463 F.3d 1076, 1084 (9th Cir.2006) (en banc), rev'd on other grounds sub nom. Chamber of Commerce v. Brown, 554 U.S. 60, 128 S.Ct. 2408, 171 L.Ed.2d 264 (2008) and vacated by 543 F.3d 1117 (2008). Although we are not bound by our vacated decision in Lockyer, we find its reasoning persuasive and accordingly hold that a state action need only satisfy one of the two Cardinal Towing prongs to qualify as market participation not subject to preemption. As we pointed out in Lockyer, the first Cardinal Towing question looks to the nature of the expenditure and protects comprehensive state policies with wide application from preemption, so long as the type of state action is essentially proprietary. Id. at 1084 (emphasis added). The second question looks to the  scope of the expenditure and protects narrow spending decisions that do not necessarily reflect a state's interest in the efficient procurement of goods or services, but that also lack the effect of broader social regulation. Id. (emphasis added). The Cardinal Towing test thus offers two alternative ways to show that a state action constitutes non-regulatory market participation: (1) a state can affirmatively show that its action is proprietary by showing that the challenged conduct reflects its interest in efficiently procuring goods or services, or (2) it can prove a negativethat the action is not regulatoryby pointing to the narrow scope of the challenged action. We see no reason to require a state to show both that its action is proprietary and that the action is not regulatory. In any event, we conclude that the PSA challenged here satisfies both prongs of the Cardinal Towing test and accordingly is not subject to preemption by the NLRA and ERISA.