Opinion ID: 407849
Heading Depth: 2
Heading Rank: 1

Heading: Failure to State a Claim-State-Action Immunity

Text: 12 The district court's ruling that Ronwin had failed to state a claim was apparently based on its acceptance of defendants' argument that bar grading procedures are immune from federal antitrust laws. Relying primarily on Bates v. State Bar of Arizona, 433 U.S. 350, 97 S.Ct. 2691, 53 L.Ed.2d 810 (1977), the defendants argue that, even assuming, arguendo, the grading formula was anticompetitive, the Committee's status as a state agent renders its actions absolutely immune from antitrust liability. We disagree. 13 In Bates, the Supreme Court held that a disciplinary rule adopted by the Arizona Supreme Court and enforced by the Arizona state bar, which prohibited lawyers from advertising, did not violate the federal antitrust laws under the state-action exemption first announced in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). 433 U.S. at 359-61, 97 S.Ct. at 2696-97. The Court stressed that the real party in interest was the Arizona Supreme Court because it had adopted the challenged restraint. Because the challenged restraint had been specifically adopted by the state acting, through the State Supreme Court, as sovereign, it therefore reflected a clear and affirmative articulation of state policy. Id. at 361-62, 97 S.Ct. at 2697-98. In the present case, by contrast, the challenged restraint was not adopted or directly authorized by the Arizona Supreme Court. 14 In a more analogous case, the Supreme Court held that the activities of a county and a state bar association in publishing and enforcing a minimum-fee schedule were not shielded by the state-action exemption. Goldfarb v. Virginia State Bar, 421 U.S. 773, 788-92, 95 S.Ct. 2004, 2013-15, 44 L.Ed.2d 572 (1975). The Court stated: 15 The threshold inquiry in determining if an anticompetitive activity is state action of the type the Sherman act was not meant to proscribe is whether the activity is required by the State acting as sovereign. Parker v. Brown, 317 U.S. at 350-352 (63 S.Ct. at 313-14); Continental Co. v. Union Carbide, 370 U.S. 690, 706-07 (82 S.Ct. 1404, 1414-15, 8 L.Ed.2d 777) (1962). Here we need not inquire further into the state-action question because it cannot fairly be said that the State of Virginia through its Supreme Court Rules required the anticompetitive activities of either respondent. Respondents have pointed to no Virginia statute requiring their activities; state law simply does not refer to fees, leaving regulation of the profession to the Virginia Supreme Court; although the Supreme Court's ethical codes mention advisory fee schedules they do not direct either respondent to supply them, or require the type of price floor which arose from respondents' activities.... It is not enough that, as the County Bar puts it, anticompetitive conduct is prompted by state action; rather, anticompetitive activities must be compelled by direction of the State acting as a sovereign. 16 Id. at 790-91, 95 S.Ct. at 2014-15. 17 Subsequent Supreme Court decisions underscore the distinction between Bates and Goldfarb. The Court has repeatedly emphasized in these more recent decisions that for the state-action exemption to apply the challenged restraint must be clearly articulated and affirmatively expressed as state policy and be actively supervised by the state itself. See, e.g., City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 410-13, 98 S.Ct. 1123, 1135-36, 55 L.Ed.2d 364 (1978); New Motor Vehicle Board of California v. Orrin W. Fox Co., 439 U.S. 96, 109, 99 S.Ct. 403, 411, 58 L.Ed.2d 361 (1978); California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 105, 100 S.Ct. 937, 943, 63 L.Ed.2d 233 (1980); Community Communications Co. v. City of Boulder, --- U.S. ----, ---- - ----, 102 S.Ct. 835, 839-41, 70 L.Ed.2d 810 (1982). The failure to meet either requirement precludes application of the antitrust immunity. Midcal, 445 U.S. at 105, 100 S.Ct. at 943. 18 Viewing the present case at this stage of the proceedings in light of the Court's state-action requirements, we conclude that the challenged grading procedure fails to qualify for antitrust immunity. It has not been established that the alleged restraint was clearly articulated and affirmatively expressed as state policy, Midcal 's first requirement. Id. Like the defendants in Goldfarb, the defendants here have no statute or Supreme Court Rule to point to as directly requiring the challenged grading procedure. 4 See 421 U.S. at 790-91, 95 S.Ct. at 2014-15. 19 The fact that the Arizona Supreme Court has delegated to the Committee the general authority to examine applicants to determine if they are qualified to practice law and reviews the Committee's recommendations regarding admission does not alone clothe the Committee's unilateral grading policies with blanket immunity from the antitrust laws. The national policy in favor of competition cannot be thwarted by casting such a gauzy cloak of state involvement over actions of the Committee that were not affirmatively expressed as state policy by the Arizona court. Midcal, 445 U.S. at 106, 100 S.Ct. at 943. As the Court emphasized in Goldfarb, (i)t is not enough that, as the ... Bar puts it, anticompetitive conduct is 'prompted' by state action; rather, anticompetitive activities must be compelled by direction of the State acting as a sovereign. 421 U.S. at 791, 95 S.Ct. at 2015. Accord, Phonetele, Inc. v. American Telephone and Telegraph Co., 664 F.2d 716, 736 (9th Cir. 1981). 20 The fact that the Committee was established by Supreme Court Rule and composed of members selected from the Bar by the Arizona Supreme Court is not, as defendants assert, dispositive in itself of the state-action question. 5 Although the defendants in the United States Supreme Court's state-action decisions were public bodies, or subdivisions of the state, that did not end the Court's analysis. The Court still looked to see whether the challenged restraints were clearly articulated and affirmatively expressed as state policy and were actively supervised by the state acting as sovereign. Thus, for instance, it was not dispositive that the restraints challenged in Parker, Orrin W. Fox, and Midcal were enforced, respectively, by a state commission, a state board, and a state department. 317 U.S. at 344, 63 S.Ct. at 310; 439 U.S. at 103, 99 S.Ct. at 408; 445 U.S. at 100, 100 S.Ct. at 940. In City of Lafayette, 435 U.S. at 408, 98 S.Ct. at 1134, a plurality of the Court expressly rejected the argument that the state-action exemption extends to all governmental entities, whether state agencies or subdivisions of a State ... simply by reason of their status as such. This position has since been adopted by a majority of the Court. See City of Boulder, --- U.S. at ----, 102 S.Ct. at 842. 21 The question remains whether the challenged restraint allegedly fashioned by the Committee was sufficiently articulated and supervised by the Arizona Supreme Court. Standing alone, the fact that the court established the Committee and selected its members does not affect the reasoning underlying our conclusion that the challenged grading procedure was not clearly articulated and affirmatively expressed as state policy, Midcal 's first requirement. 22 Effective January 15, 1974, 45 days before the examination Ronwin failed, the Arizona Supreme Court adopted Rule 28(c)(VII)(B) which requires the Committee to file its proposed grading formula with the Supreme Court at least 30 days before each examination. This review procedure was not brought to the attention of the district court either in the pleadings or in the papers pertaining to the motion to dismiss; nor did the parties mention it in their briefs or arguments to this court. 23 Defendants contend for the first time on rehearing that the Committee's grading formula was submitted to the Court, reviewed by the Court, and accepted by the Court. In response, Ronwin has tendered to this court what purports to be the letter the Committee filed with the Supreme Court on February 8, 1974 pursuant to Rule 28(c)(VII)(B). If, as Ronwin alleges, the Committee scored the examination to admit a pre-determined number of applicants, the letter does not so advise the court. Accordingly, if the letter presented to us constitutes the submission to the Supreme Court, it cannot be the basis for a clearly articulated and affirmatively expressed state policy. Although dismissal might have been proper if the facts were as defendants now argue for the first time on rehearing, those facts were never brought to the district court's attention. Dismissal was therefore improper on the basis of the information before the district court. 24 Our resolution of the state-action issue is not inconsistent with this court's prior decisions in Hackin v. Lockwood, 361 F.2d 499 (9th Cir. 1966); Chaney v. State Bar of California, 386 F.2d 962 (9th Cir. 1967), cert. denied, 390 U.S. 1011, 88 S.Ct. 1262, 20 L.Ed.2d 162 (1968); and Brown v. Board of Bar Examiners, 623 F.2d 605 (9th Cir. 1980). Those decisions do not support the contention that bar grading procedures are always shielded by state-action immunity, that such procedures may be challenged only on constitutional grounds, or that the Arizona Supreme Court was the proper defendant in this case. Those cases did not involve antitrust challenges to bar grading procedures. The plaintiffs in all three cases based their claims on alleged violations of their individual constitutional rights. 6 25 The national policy in favor of competition, Midcal, 445 U.S. at 106, 100 S.Ct. at 943, should not be thwarted absent a clear articulation by the Arizona Supreme Court that it had adopted the alleged grading policy. Absent such a declaration, Ronwin should not have been denied the opportunity to prove that the grading policy was designed to limit competition among Arizona attorneys, as opposed to being designed to ensure that attorneys had the necessary qualifications. Thus, Ronwin's action should not have been dismissed on the ground that the defendants enjoy absolute state-action immunity. 26