Opinion ID: 2420919
Heading Depth: 1
Heading Rank: 7

Heading: The Creation of an Escrow Fund and Enforcement of Payment Obligations Are Clearly Articulated and Affirmatively Expressed as State Policy

Text: Midcal's clear articulation/affirmative expression requirement ensure[s] that state action immunity is afforded only to actions taken by the state. Id. at 227. In Freedom Holdings I, we easily concluded that the entire MSA scheme satisfied this requirement because agreement to the MSA by the New York Attorney General, approval of it by a New York court, and passage of the [Escrow and] Contraband Statutes were express acts of the State of New York. Id. (footnote omitted). At the same time, we suggested that the requirement also serves the ancillary purpose of revealing whether the State's policy goals are sufficient to qualify for the Parker immunity, observing that simply protecting private parties from competition is not a sufficient goal. Id. at 227 (citing Parker v. Brown, 317 U.S. at 351-52, 63 S.Ct. 307). Although we did not think that matter could be resolved at the pleading stage, see id. at 216, we doubted that a federal court would upset a state statute solely because it failed to meet the explanatory aspect of the first Midcal prong, id. at 227. Indeed, we later clarified that our initial rejection of state action immunity in Freedom Holdings I expressly relied on the challenged scheme's failure to meet the second Midcal prong. Freedom Holdings II, 363 F.3d at 157. Now, after trial, with plaintiffs having failed to prove that the challenged statutes operated as anything more than a flat tax, we can conclude that the record permitted the district court to find even the ancillary purpose of the first Midcal requirement satisfied. [17] As we observed in Freedom Holdings I, a flat tax, far from shelter[ing] private parties from the Sherman Act solely in order [for the state] to share monopoly profits, 357 F.3d at 230, would bear a sufficient nexus to policy goals of deterring smoking and raising revenue for tobacco-related health expenses to justify Parker immunity, see id. at 229. These goals are expressly articulated in the Escrow Statute, which references the serious public health concerns posed by cigarettes, N.Y. Pub. Health Law § 1399-nn(1); the serious financial concerns for the state in having to fund related healthcare programs, id. § 1399nn(2)-(4); and the MSA requirement that cigarette manufacturers pay substantial sums to the state, id. § 1399-nn(5). Thus, the state determined that it was in its interest to require that [NPMs] establish a reserve fund to guarantee a source of compensation [for cigarette-related injuries caused by their products] and to prevent such manufacturers from deriving large, short-term profits and then becoming judgment-proof before liability may arise. Id. § 1399-nn(6). There is a sufficient nexus between these identified purposes and the required escrow payments to preclude us from second-guessing the state's choice of means to achieve its articulated policy. See Freedom Holdings I, 357 F.3d at 229; accord Massachusetts Food Ass'n v. Mass. Alcoholic Beverages Control Comm'n, 197 F.3d at 565; cf. Freedom Holdings II, 363 F.3d at 156 (questioning state's ability to refute hypothetical antitrust challenge to statute authorizing price fixing of car washes by assertion that law would improve performance of state symphony). Plaintiffs do not dispute that the challenged statutes clearly articulate and affirmatively express state policy. Nor do they challenge the state's ability to pass laws addressing health concerns associated with smoking. Rather, they submit that defendants cannot satisfy the ancillary explanatory purpose of Midcal because the MSA requires states to become active participants in the cartel. Appellants' Br. at 68. Specifically, they contend that the NPM adjustment, which provides a substantial incentive for states to pass escrow laws, removes the challenged statutes from the scope of Parker immunity. We disagree. In Parker, the Supreme Court observed that there was no question of the state or its municipality becoming a participant in a private agreement or combination by others for restraint of trade, and that the challenged statute made no contract or agreement and entered into no conspiracy in restraint of trade or to establish monopoly. 317 U.S. at 351-52, 63 S.Ct. 307. While some courts had read this language to establish an exception to Parker immunity when private parties conspired with the government to pass laws restraining trade, see, e.g., Whitworth v. Perkins, 559 F.2d 378 (5th Cir.1977), the Supreme Court has since foreclosed this argument by holding that [t]here is no such conspiracy exception, City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. at 374-75, 111 S.Ct. 1344 (observing that quoted language from Parker should not be read to suggest the general proposition that even governmental regulatory action may be deemed privateand therefore subject to antitrust liabilitywhen it is taken pursuant to a conspiracy with private parties (emphasis in original)). The Supreme Court observed that [t]he impracticality of such a principle is evident if, for purposes of the exception, `conspiracy' means nothing more than an agreement to impose the regulation in question. Id. at 375, 111 S.Ct. 1344. Here, the NPM adjustment reflects, at most, the sort of agreement to take regulatory action that the Supreme Court has held insufficient, by itself, to deprive state action of Parker immunity. See also id. at 376, 111 S.Ct. 1344 (rejecting proposed exceptions to state action immunity even for government corruption or abandonment of public responsibilities to private interests). Perhaps recognizing that City of Columbia precludes our recognition of a conspiracy exception, plaintiffs urge us to conclude that the settling states, through the MSA, engage[d] in interstate commerce as commercial participants. Appellants' Reply Br. at 27. While the possibility of a market participant exception is left open in City of Columbia, 499 U.S. at 374-75, 379, 111 S.Ct. 1344, the trial record does not support its application here. New York neither manufactures nor distributes cigarettes in the market. See id. at 374-75, 111 S.Ct. 1344; cf. IA Areeda & Hovenkamp, supra, ¶ 221, at 49 (noting that City of Columbia suggests that private price-fixing conspiracy is not immunized because one of the producers is state-owned). New York simply regulates certain manufacturers, requiring them to make specified payments so that the state will have an eventual source of recovery from them if they are proven to have acted culpably. N.Y. Pub. Health Law § 1399-nn(6). Whatever the policy arguments for or against such legislation, it does not render the state a market participant subject to antitrust liability.