Court Opinion

ID: 8916591
Source: CourtListenerOpinion
Date Created: 2022-11-27 05:20:28.925484+00
Date Added: 2024-06-11T17:09:03.030588
License: Public Domain

JAMES C. HILL, Circuit Judge, with whom RONEY, R. LANIER ANDERSON, III, and THOMAS A. CLARK, Circuit Judges,
join dissenting:
Once again, I respectfully dissent from the court’s ruling that compulsion is an essential element of state action immunity when a state action defense is raised by a private defendant. I write not to profess great admiration for the existence of a state action exemption to federal antitrust laws, but rather to uphold what the Supreme Court has clearly articulated to be the status of the law in this area. The majority view that the Supreme Court could not possibly have meant what it said in California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980), seems presumptuous at worst, and unsound policy as it pertains to the facts of this case at best. The Midcal test is clear and explicit. It should not be ignored simply because a different conclusion can be reached by reexamining the same line of cases already analyzed by the Supreme Court. In addition, the arbitrary nature of the compulsion requirement imposed by the majority today *543will significantly interfere with state trucking regulation. Like the federal government, the states interested in this litigation have adopted a sound program of regulation which embraces both the cost benefits of collective ratemaking and the added measure of competition that is preserved by permitting individual rate submissions. A compulsion requirement, as defined by the court, precludes such regulation — no matter how clearly the state’s policy may be expressed and supervised.
The principal flaw in the majority’s position is not that it misinterprets the line of cases developing the doctrine of state action immunity. The court’s analysis leading to its conclusion that compulsion is an essential element of the immunity for a private defendant certainly is plausible. However, the Supreme Court reached a different conclusion after examining the same line of cases, and the structure of the federal court system demands that we adhere to its ruling.
After reviewing the state action cases commencing with Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), the Supreme Court set forth two standards for determining when the state’s involvement is sufficient to justify immunity for the challenged conduct. “First, the challenged restraint must be ‘one clearly articulated and affirmatively expressed as state policy’; second, the policy must be ‘actively supervised’ by the State itself.” Midcal, 445 U.S. at 105,100 S.Ct. at 943 (citing City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389,410,98 S.Ct. 1123,1135, 55 L.Ed.2d 364 (1978) (opinion of Brennan, J.)). In reaching this conclusion, the Court did not limit its analysis to those eases involving only state defendants, but instead examined all of its major decisions construing the state action exemption. The Court began its analysis by focusing on the state’s involvement in the challenged restraint in light of the fact “[t]hat immunity for state regulatory programs is grounded in our federal structure.” 445 U.S. at 103, 100 S.Ct. at 942. Parker, it argued, “found in the Sherman Act no purpose to nullify state powers. Because the Act is directed against ‘individual and not state action,’ ... state regulatory programs could not violate it.” Midcal, 445 U.S. at 104, 100 S.Ct. at 942 (construing Parker, 317 U.S. at 352, 63 S.Ct. at 314).
Using Parker as its foundation, the Court went on to evaluate several recent decisions applying Parker’s analysis. The line of cases discussed in this portion of Midcal include those involving private defendants, Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975), and Cantor v. Detroit Edison Co., 428 U.S. 579, 96 S.Ct. 3110,49 L.Ed.2d 1141 (1976), as well as those involving governmental defendants, Bates v. State Bar of Arizona, 433 U.S. 350, 97 S.Ct. 2691, 53 L.Ed.2d 810 (1977) and New Motor Vehicle Board v. Orrin W. Fox Co., 439 U.S. 96, 99 S.Ct. 403, 58 L.Ed.2d 361 (1978). After discussing each of these cases, a unanimous Court concluded that “[t]hese decisions establish two standards for antitrust immunity under Parker v. Brown,” and proceeded to enunciate the two-part test set forth above. 445 U.S. at 105,100 S.Ct. at 943. The Court did not purport to restrict application of its test to governmental entities; nor did it purport to derive the substance of its test from those cases involving governmental defendants. Indeed, as evidenced by the facts of the present case, to have drawn such a distinction on the basis of the identity of the defendant would have proven unreasonable and inconsistent with the federalism concerns underlying the doctrine.
When a state enacts a regulatory scheme characterized by a clearly articulated state policy and active and effective supervision over implementation of that policy, but its policy is that of permissive joint ratemak-ing, the state’s policy will be undermined whether governmental entities or private participants are the subject of the lawsuit; few private companies will be foolish enough to participate in valid and constructive state programs when such participation *544is clouded by the threat of antitrust liability.1 As Justice Stewart noted in Cantor,
If Parker v. Brown ... could be circumvented by the simple expedient of suing the private party against whom the State’s “anticompetitive” command runs, then that holding would become an empty formalism, standing for little more than the proposition that Porter Brown sued the wrong parties.
Cantor, 428 U.S. at 616-17 n. 4, 96 S.Ct. at 3130 n. 4 (Stewart, J., dissenting). Cf. id. at 604, 96 S.Ct. at 3124 (Burger, C.J., concurring) (for Parker purposes, focus should be “on the challenged activity, not upon the identity of the parties to the suit.”); City of Lafayette, 435 U.S. at 420, 98 S.Ct. at 1140 (Burger, C.J., concurring in part and dissenting in part) (same). “The Parker state action exemption reflects Congress’ intention to embody in the Sherman Act the federalism principal that States possess a significant measure of sovereignty under our Constitution.” Community Communications Co. v. City of Boulder, 455 U.S. 40, 102 S.Ct. 835, 842, 70 L.Ed.2d 810 (1982); see also Parker, 317 U.S. at 351, 63 S.Ct. at 313-314.2 That sovereignty is subverted when federal law prohibits private companies from participating in well-developed and actively supervised state programs.
Unlike an arbitrary compulsion requirement, the Midcal test affords states greater flexibility in the formation of constructive regulatory programs so long as the state clearly and affirmatively expresses its intent to do so and remains continuously and actively involved. Midcal demands a very high degree of state involvement before state action immunity may be claimed. The Court did not purport to expand application of the doctrine, or to overrule Goldfarb. Instead, Midcal simply clarifies that the focus for immunity purposes should be upon the extent of the state’s involvement in the challenged activity — that is upon the kind of imprint of state authority the anti-competitive activity bears. Compulsion certainly remains a relevant factor in this determination. Indeed, it is the best evidence that a challenged restraint is a “clearly articulated ' and affirmatively expressed” state policy. As Professor Areeda has observed, after Midcal, “literal compulsion is powerful evidence, if not determinative, of the existence of state policy, but is neither necessary nor sufficient for Parker immunity.” P. Areeda, Antitrust Law ¶212.5 at 62 (Supp.1982); see also Turf Paradise, Inc. v. Arizona Downs, 670 F.2d 813, 823 n. 8 (9th Cir.), cert. denied, 456 U.S. 1011, 102 S.Ct. 2308, 73 L.Ed.2d 1308 (1982). See generally M. Handler, Reforming Antitrust Laws 64-*54565 (1982); Page, Antitrust, Federalism, and the Regulatory Process: A Reconstruction and Critique of the State Action Exemption After Midcal Aluminum, 61 B.U.L.Rev. 1099, 1122 n. 141 (1981).
Nevertheless, the majority insists that compulsion must be the litmus test for the first prong of Midcal for a nongovernmental defendant. It relies primarily upon the fact that Midcal did not expressly overrule the compulsion language in Goldfarb. Admittedly, Goldfarb does suggest that as the state action exemption was developing the Supreme Court anticipated that some type of compulsion might be incorporated into the doctrine.3 The Court’s early references to compulsion, however, were ill-defined and were not restricted to cases involving private defendants. As noted in footnote ten of the majority’s opinion, compulsion was discussed in both Bates and Parker wherein governmental defendants were the subject of antitrust scrutiny. Scholars and lower courts also were uncertain about the nature of the compulsion requirement and whether it was a requirement at all.4 In Midcal, however, the Supreme Court re-' viewed its earlier treatment of compulsion, and concluded that the state action doctrine had developed to the point where a single test could provide the necessary analysis and satisfy the concerns articulated in Gold-farb. Thus, as the Ninth Circuit already has observed, “It appears that the statement in Goldfarb regarding compulsion refers to a combination of the criteria that there be both a clear articulation of state policy and active supervision by the state itself. 421 U.S. at 788-91, 95 S.Ct. at 2013-2015.” Turf Paradise, Inc. v. Arizona Downs, 670 F.2d 813, 823 n. 8 (9th Cir.), cert. denied, 456 U.S. 1011, 102 S.Ct. 2308, 73 L.Ed.2d 1308 (1982).
Clearly, “a state does not give immunity to those who violate the Sherman Act by authorizing them to violate it, or by declaring that their action is lawful.” Parker, 317 U.S. at 351, 63 S.Ct. at 314. The Court in Midcal recognized this limitation on state action immunity, 445 U.S. at 106, 100 S.Ct. at 943-944, and thus formulated a' test which examines the extent of the state’s involvement at two levels — first, at the level of articulation of state policy in favor of the challenged restraint and second, at the level of implementation of that policy through active supervision. Significant involvement at both levels is necessary to support a state action exemption. And it is the combination of these two criteria that effectively guarantees that the state has considered the course of its conduct and has chosen to replace open market pricing with state regulation. Hence, the balance struck in Midcal between the federal policy of competition and state sovereignty is thus: *546the state may choose to displace competition with economic regulation by making clear its intention to do so; having made that choice, however, the state bears the burden of ensuring that this policy is furthered and that the state itself remains the ultimate decision maker.
The Court’s recent decision of Community Communications Co. v. City of Boulder, 455 U.S. 40, 102 S.Ct. 835, 70 L.Ed.2d 810 (1982), amply illustrates the degree of directness and clarity necessary to satisfy the first prong of Midcal. In Boulder, the Court ruled that because the State’s constitutional delegation of home rule authority to municipalities was not a “clear articulation and affirmative expression” of state policy in the area of cable television, a city’s cable television moratorium was not afforded state action immunity. 102 S.Ct. at 843. In other words, when a home rule provision was added to Colorado’s constitution, the state could not foresee that it was expressly authorizing a cable television moratorium. Boulder therefore can be fairly read to stand for the proposition that the state must be fully aware of what it is doing when it articulates and affirmatively expresses its policy to supplant open market competition. Boulder also is significant because a majority of the Court appears to have ruled that “a municipality may invoke the Parker doctrine only to the same extent as can a private litigant.” 102 S.Ct. at 850 (Rehnquist, J., dissenting); accord M. Handler, supra, at 64 (“Boulder, however, indicates that municipalities enjoy no more liberal a standard of immunity than private parties.”).
The majority, however, would adhere to the position that the only way a state can articulate a clear and express policy (when a private defendant is sued) is by compelling all carriers to engage in collective rate-making. Thus, the court maintains that if a motor carrier is permitted to join in the development and submission of joint rates through the bureaus, at its election, such a program cannot be a clearly and affirmatively expressed state policy. Initially, it seems clear that a state can articulate clearly a policy which incorporates both the benefits of joint ratemaking and separate filings. Indeed, such a policy of permissive joint ratemaking may be far superior to the complete mandatory joint ratemaking suggested by the majority. As the district court suggested, rate bureaus provide important support services to state regulatory bodies such as the staff experts and facilities necessary to collate data for the preparation of cost studies. See United States v. Southern Motor Carriers Rate Conference, Inc., 467 F.Supp. 471, 476 (N.D.Ga.1979). See generally H.R.Rep. No. 1100, 80th Cong., 1st Sess. (1947). However, individual rate submissions also provide an important check on rate bureaus and preserve a certain degree of competition. For example, if an individual rate submission is significantly lower than a bureau rate proposal, the regulatory body is alerted to possible abuse of the privilege of collective ratemak-ing, and is better able to enforce and supervise its program than if there is no possibility of an individual rate proposal.
The irony of this litigation is that the Government seeks to enjoin states from implementing a transportation policy which parallels our national transportation policy. Federal law regulating interstate motor carriers adopts a policy of permissive joint ratemaking, and if a carrier chooses to participate in government approved collective ratemaking it is expressly exempt from antitrust liability. 49 U.S.C.A. § 10706(b)(2) (West Supp.1982), former 49 U.S.C.A. § 5(b) (1959). Drafters of the original federal exemption for collective interstate ratemaking, upon which North Carolina’s law is modeled, stated the following with respect to the conflict between the antitrust laws and national transportation policy:
It is recognized by all who are familiar with the problems of transportation that the carriers subject to the Interstate Commerce Act cannot satisfactorily meet their duties and responsibilities thereunder and the basic purposes of the Act cannot be effectively carried out, unless such carriers are permitted to engage in joint activities to a substantial extent. ... It is obvious that confusion *547and uncertainty are inevitable where these two principles of public policy [antitrust laws and national transportation policy], administered and enforced by different agencies, are applied in such a way that there is conflict between them.
H.Rep. No. 1100, 80th Cong., 1st Sess. 4-5 (1947); S.Rep. No. 44, 80th Cong., 1st Sess. 3-4 (1947). Although there have been modifications of the statutory exemption for interstate carriers engaged in collective ratemaking, and there are those who would "disagree with the current status of the federal regulatory framework, few would seriously argue that the federal government had not clearly articulated and affirmatively expressed a national transportation policy of permissive joint ratemaking.
Further evidence of an articulation of state policy is the fact that all rates are closely supervised by the state.5 This also illustrates the importance of satisfying both prongs of the Mideal test, for together they satisfy the function served by the Goldfarb formulation. The active supervision requirement is essential to the Mideal test because it inhibits the influence of economic self interest of the companies involved in the rate setting process. Such private self interest does not warrant the cloak of state action immunity. But, by requiring that a state actively supervise implementation of its economic policy, the Mideal test ensures that the state has determined that the challenged activity is in furtherance of the state’s policy. When the state ceases to be the real party in interest, the sovereignty of the state cannot be said to be impaired by withholding state action immunity.6 But when the state is the real party in interest, its continuous and active supervision evidences its intent to impose state regulation in lieu of open market competition, and withholding antitrust immunity does impair state sovereignty.
Because it is the requirement of active supervision which deters abuse of joint ratemaking procedures, if any distinction is to be drawn between public and private defendants, it should be in the amount of supervision deemed necessary to satisfy this portion of the Mideal test. It makes no sense to require compulsion for private and not public defendants when in both instances the same state policy will be thwarted by the threat of antitrust liability. Looking to the degree of active supervision, on the other hand, may be more relevant in a suit against a private defendant because it is possible that abuse of the state system may be an issue.7 Nevertheless, because the Government does not challenge the adequacy of any state’s supervision in the present case, there is no reason to draw this distinction.
*548The only issue in this case, therefore, is whether the individual states involved clearly articulated and affirmatively expressed state policy in favor of permissive ratemaking. As set forth in my original dissent, I think it clear that the states of North Carolina, Tennessee and Georgia have such a policy. Nevertheless, because the district court entered a final judgment before the Supreme Court’s pronouncements in Midcal, I would remand the case for further development of the factual record and for evaluation under the Midcal test.

. There may be substantive limits on what conduct the state may immunize by making the challenged restraint a state policy. Indeed, there is some suggestion in Supreme Court precedent that federal antitrust laws do place substantive limits on the content of state economic regulation. See, e.g., Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035 (1951) (invalidating a Louisiana fair trade statute containing a “non-signer” provision under which a retailer could be enjoined from knowingly underselling another retailer whose prices were set under a resale price maintenance contract, exempt from antitrust laws under the Miller-Tydings Act, with a supplier). But see P. Areeda & D. Turner, Antitrust Law 212 at 70 (1978) (interpreting this decision as an inadequate supervision case). See generally Posner, The Proper Relationship Between State Regulation and the Federal Antitrust Laws, 49 N.Y.U.L.Rev. 693 (1974). These limits may be reached in areas that have not been traditionally regulated by states.
Here, however, the states are involved in a type of private utility regulation. The ability to regulate motor carriers involved in intrastate activities not only is a traditional state regulatory function, but also is an authority reserved to the states by the Congress. 49 U.S.C.A. § 10521(b) (West Supp.1982).

. In Parker the Court concluded that “The Sherman Act makes no mention of the state as such, and gives no hint that it was intended to restrain state action or official action directed by a state.” 317 U.S. at 351, 63 S.Ct. at 313. The state action doctrine therefore was developed to effectuate Congressional intent that state restraints on competition would not be prohibited. However, “[tjhere is nothing to indicate that the Congress of 1890 intended to leave state-compelled restraints intact but to subject state-authorized restraints to antitrust.” M. Handler, Reforming Antitrust Laws 64-65 (1982).

. At least one commentator has suggested that “[t]he compulsion requirement was an overreaction to the facts presented in Goldfarb, where the conduct challenged was actually contrary to the pronouncements of the state, and in Cantor, where the state agency never addressed the practice involved in any meaningful manner.” M. Handler, supra at 64. Professor Areeda also agrees with this assessment:
Indeed, Goldfarb and Cantor may be readily explained as decisions resting not on the absence of compulsion, but rather on the absence of any sort of meaningful state participation in the challenged conduct. In Gold-farb, the defendants were private groups enforcing fee schedules without adequate state authority or supervision. The essence of Cantor was the state’s presumed indifference to the utility’s “free” light bulb program; state approval, even if deliberate, was not intended to displace the antitrust laws. Areeda, Antitrust Immunity for “State Action” After LaFayette, 95 Harv.L.Rev. 435, 439 n. 19 (1981).

. Prior to Midcal, Professors Areeda and Turner observed that the precise meaning of the compulsion test and its role in determining immunity was left unclear by Goldfarb and Cantor. 1 P. Areeda & D. Turner, Antitrust Law (¶ 215 at 93 (1978); accord Caribe Trailer Systems, Inc. v. Puerto Rico Maritime Shipping Authority, 475 F.Supp. 711, 724-25 (D.D.C. 1979). Thus, they proposed that two requirements were essential to sustain a defense of state action immunity: “(1) adequate public supervision and (2) a clear state purpose to displace antitrust law.” Areeda & Turner, supra, ¶ 212 at 71. The similarity between this proposal and the test eventually adopted in Midcal suggests that the Court perceived the reasonableness of dropping its earlier compulsion language and adopting a simple and clear rule of general applicability.

. While we treat these as separate requirements, we nevertheless want to stress their interrelationship. The existence of state supervision over anticompetitive behavior may, for example, indicate the requisite state intent as well. Similarly, inaction on the part of the state may both represent a failure of supervision and reflect an ambiguous state purpose.
1 P. Areeda & D. Turner, Antitrust Law ¶(212 at 71 (1978).

. The existence of a state action immunity enables states, like the federal government itself, to define areas inappropriate for market control. Moreover, the adequate supervision criterion ensures that state-federal conflict will be avoided in those areas in which the state has demonstrated its commitment to a program through its exercise of regulatory oversight. At the same time, it guarantees that when the Sherman Act is set aside, private firms are not left to their own devices. Rather, immunity will be granted only when the state has substituted its own supervision for the economic constraints of the competitive market.
1 P. Areeda & D. Turner, Antitrust Law ¶(213 at 73 (1978) (footnotes omitted).

. Professor Areeda has even suggested that Mideal’s active supervision requirement may be inapplicable to governmental defendants. Areeda, Antitrust Immunity for “State Action” After Lafayette, 95 Harv.L.Rev. 435, 445 n. 50 (1981) (“A few courts erroneously appear to use the Mideal formula (clearly articulated state policy plus active supervision of private parties) to require state supervision of governmental defendants.”) In Community Communications Co. v. City of Boulder, however, the Supreme Court expressly declined to decide whether the active supervision criterion must be met by a municipality with respect to the challenged ordinance. 102 S.Ct. 835, 841 n. 14 (1982) .