Court Opinion

ID: 8927239
Source: CourtListenerOpinion
Date Created: 2022-11-27 06:46:32.299792+00
Date Added: 2024-06-11T17:09:25.806470
License: Public Domain

PIERCE, Circuit Judge,
dissenting:
I dissent. I cannot agree with the majority’s conclusion that appellee’s allegedly anticompetitive activities are protected from federal antitrust scrutiny by state action immunity. I do not believe that New York, by choosing to regulate the telephone industry, has acted to displace competition therein. Hence, I would hold that state action immunity is not available to appellee under the standards set forth by the Supreme Court in California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980).
The state statute upon which the majority relies in finding the alleged anticompetitive conduct protected requires only that telephone companies shall provide “adequate service” at “just and reasonable charges” without “unjust discrimination” or “unreasonable preference” and that the Public Service Commission (“PSC”) shall have powers of “general supervision” over such companies. N.Y.Pub.Serv.Law §§ 91, 94 (McKinney 1955). This vague mandate cannot satisfy the requirement of Midcal that anticompetitive conduct, to be exempt, must be “clearly articulated and affirmatively expressed as state policy.” Midcal, 445 U.S. at 105, 100 S.Ct. at 943 (emphasis added).
Moreover, in Capital Telephone Company v. Pattersonville Telephone Company, 56 N.Y.2d 11, 451 N.Y.S.2d 11, 436 N.E.2d 461 (1982), the New York Court of Appeals explicitly held that the state Public Service Commission’s approval of a practice challenged as anticompetitive will not preclude a private plaintiff’s state antitrust action attacking that practice. In so deciding, the New York Court of Appeals necessarily concluded that the State’s decision to regulate the telephone industry is not inconsistent with the principles of competition. Under these circumstances, the conduct challenged here cannot reflect an affirmative state policy and hence is not exempt from federal antitrust scrutiny. See Midcal, 445 U.S. at 105, 100 S.Ct. at 943.
State action immunity is based principally on considerations of federalism. It allows states a limited degree of autonomy and latitude in pursuing independent economic policies.1 States may make choices concerning economic regulation even though those choices might otherwise violate the Sherman Act. However, the Sherman Act is fundamental national economic policy: See Midcal, 445 U.S. at 106, 100 S.Ct. at 943. Consequently, not every instance of state economic regulation gives rise to exemption from federal antitrust law: “The mere possibility of conflict between state regulatory policy and federal antitrust policy is an insufficient basis for implying an exemption from the federal antitrust laws.” Cantor v. Detroit Edison Co., 428 U.S. 579, 596, 96 S.Ct. 3110, 3120, 49 L.Ed.2d 1141 (1976). Nor will every choice of a state that conflicts with the policies of the Sherman Act be respected: “[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 v. Brown, 317 U.S. 341, 351, 63 S.Ct. 307, 313, 87 L.Ed. 315 (1943) (quoted in Midcal, 445 U.S. at 106, 100 S.Ct. at 943). Thus, a state is at times free to supplant the Sherman Act’s policy of free competition with one of actively regulated monopoly or oligopoly— but it may not defeat the Sherman Act without adopting a coherent policy toward anticompetitive activities and subjecting that policy to “pointed re-examination by the policymaker.” Midcal, 445 U.S. at 105-06, 100 S.Ct. at 943; see Bates v. State Bar of Arizona, 433 U.S. 350, 362, 97 S.Ct. 2691, 2698, 53 L.Ed.2d 810 (1977).
*1167The Supreme Court, in Midcal, established “two standards for antitrust immunity under Parker v. Brown. 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 (quoting in part City of Lafayette v. Louisiana Power & Light, 435 U.S. 389, 410, 98 S.Ct. 1123, 1135, 55 L.Ed.2d 364 (1978) (plurality opinion)). These are independent requirements, and each must be fulfilled if a challenged restraint is to be considered exempt from federal antitrust scrutiny. The purpose of the two-pronged Midcal test is to insure both that the State makes a conscious choice to displace competition and that this choice is subject to critical re-examination. If both these ends are to be accomplished, it may not be assumed that the requirements are met whenever the State engages in economic regulation. Rather, as perusal of Lafayette, Cantor, Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975), and other decisions leading up to Midcal reveals, the test is to be applied strictly. In my opinion, the majority fails to make the proper strict application of the Midcal test to the facts of this case.
The majority holds that regulation of the telephone industry by the state Public Service Commission is sufficient to satisfy the “active supervision” prong of the Midcal test, and it may be that this conclusion is correct. However, the majority also holds that this same regulation clearly evinces the state legislature’s choice to pursue a policy in conflict with that of the Sherman Act. The problem with this analysis is that it conflates the two requirements of Midcal making them one. Under the majority’s analysis, regulation that fulfills the “active supervision” requirement of Midcal necessarily satisfies its demand that the challenged restraint be “clearly and affirmatively expressed as state policy.” But, as already stated, not every instance of state economic regulation gives rise to exemption from federal antitrust laws. The Supreme Court has made clear that regulation alone is not sufficient to exempt challenged restraints from antitrust scrutiny.
In Goldfarb, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 the Court recognized that the State Bar was given power to regulate the legal profession but nevertheless held that its price-fixing activities were not beyond the purview of the Sherman Act: “The fact that the State Bar is a state agency for some limited purposes does not create an antitrust shield that allows it to foster anticompetitive practices for the benefit of its members.” Id. at 791, 95 S.Ct. at 2015. The Court went on to hold that because there was no evidence showing the Bar’s price-fixing activities to be within the policy of the State as sovereign, those activities were not exempt from antitrust scrutiny. And in Cantor v. Detroit Edison Co., 428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141, the Court rejected defendants’ argument that because the state Public Utility Commission had approved a tariff containing the allegedly anticompetitive activity — distribution of free lightbulbs— the Sherman Act was inapplicable thereto. The Court reasoned that without a showing of actual conflict between the state regulatory policy and that of the Sherman Act there could be no implied exemption from the antitrust law. The Court found that because the activity challenged in Cantor was not compelled by the State, it should not be considered within the State’s affirmative regulatory policy. As the Court stated in words applicable to this case:
Unquestionably there are examples of economic regulation in which the very purpose of the government control is to avoid the consequences of unrestrained competition____ But all economic regulation does not necessarily suppress competition. On the contrary, public utility regulation typically assumes that the private firm is a natural monopoly and that public controls are necessary to protect the consumer from exploitation. There is no logical inconsistency between requiring such a firm to meet regulatory criteria insofar as it is exercising its natural monopoly powers and also to comply *1168with antitrust standards to the extent that it engages in business activity in competitive areas of economy.
Id. at 595-96, 96 S.Ct. at 3119-20.
Here, making what I consider to be the proper strict application of the Midcal test, I would hold that the activities of appellee, to the extent that they violate the Sherman Act, are not within the “clearly articulated and affirmatively expressed” policy of the State of New York. In finding appellee’s allegedly anticompetitive conduct exempt from federal antitrust scrutiny, the majority relies upon the Public Service Commission’s approval of that conduct. However, this approval is insufficient evidence that appellee’s conduct reflects any affirmative policy of the State. I find it far from certain that the PSC decisions at issue here are anything more than determinations that the appellant has failed to prove that appellee’s conduct violates the New York Public Service Law. Moreover, even if the Public Service Commission has mandated New York Telephone’s actions, this is nevertheless insufficient to constitute a statement of policy of the State. The Public Service Commission is not the State itself. Therefore, before concluding that its actions have immunized a private defendant from antitrust liability, a court must ascertain whether the state “legislature [in granting the Public Service Commission power to regulate New York Telephone] contemplated the kind of action complained of.” Community Communications Co. v. Boulder, 455 U.S. 40, 55, 102 S.Ct. 835, 842, 70 L.Ed.2d 810 (1982). As already noted, New York’s Public Service Law provides only that telephone companies shall give “adequate service” at “just and reasonable charges” without “unjust discrimination” or “unreasonable preference” and that the PSC shall have powers of “general supervision” over such companies. N.Y.Pub.Serv.Law §§ 91, 94. This vague grant of power evidences, at best, the legislature’s neutrality toward Public Service Commission approval of anticompetitive conduct. “[P]lainly the requirement of ‘clear articulation and affirmative expression’ is not satisfied when the State’s position is one of mere neutrality respecting the ... actions challenged as anticompetitive.” Community Communications, 455 U.S. at 55, 102 S.Ct. at 842.
Moreover, to the extent that New York Telephone’s conduct might actually violate the Sherman Act, that conduct would appear to directly conflict with New York State’s regulatory policy. This conclusion follows from two facts. First, as all parties concede, the Public Service Commission seeks to promote competition in all aspects of the telephone industry. See Testimony of Paul Gioia, Chairman, Public Service Commission of the State of New York, before Legislative Commission on Science and Technology and Assembly Committee on Corporations, Authorities, and Commissions, February 1982. Thus, to the extent that the Public Service Commission has approved practices challenged herein, that decision logically would represent at most a determination that such practices are not anticompetitive. It would not imply that the PSC considers a certain level of anti-competitive behavior desirable. Second, and more importantly, the New York Court of Appeals has ruled — in a case involving the parties herein — that a Public Service Commission determination as to the legality of various practices will not bar a private plaintiff from pursuing a state antitrust action challenging those practices. Capital Telephone Company v. Pattersonville Telephone Company, et al., 56 N.Y.2d 11, 451 N.Y.S.2d 11, 436 N.E.2d 461 (1982). In that case, the N.Y. Court of Appeals stated that “discrimination which may be justifiable under ... the Public Service Law ‘may still be unlawful if it can be shown to have actually restrained competition.’ ” Id. at 19, 451 N.Y.S.2d 11, 436 N.E.2d 461. Since New York’s Donnelly Act, N.Y.Gen.Bus.Law § 340 (McKinney 1968), is essentially a state version of the Sherman Act — and hence there is no evidence herein that New York State intended to displace its own, let alone federal, antitrust laws — the State’s decision to regulate the telephone industry cannot be considered inconsistent with application of fed*1169eral antitrust law to that industry. Thus, one must conclude that New York’s antitrust law and Public Service Law fulfill different but complementary functions with regard to the telephone industry, and, further, that Public Service Commission regulation does not conflict with a policy of free competition in the telephone industry.2
For the foregoing reasons, I would conclude that New York has not decided to eliminate competition in the telephone industry but instead has decided to encourage competition through the dual means of careful regulation and application of antitrust law, state and federal. Under these circumstances, I would hold that appellee's allegedly anticompetitive activities are not exempt from the federal antitrust laws. See Cantor v. Detroit Edison Co., 428 U.S. at 595-96, 96 S.Ct. at 3119-20. I would reverse and remand accordingly.

. There may be limits other than those expressed in Midcal on a state’s ability to impose a regime of economic regulation that conflicts with the principle of free competition mandated by the Sherman Act. For example, Judge Greene, in United States v. American Tel. & Tel. Co., 552 F.Supp. 131, 157-58 (D.D.C.1982), aff’d, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983), suggested that state action immunity may be unavailable where the industry involved is by its nature "technologically and economically, a national network with interdependent components” — such as the telephone industry.

. As a general proposition, the interpretation of a state’s law by the highest court of that state is conclusive. Scripto, Inc. v. Carson, 362 U.S. 207, 211, 80 S.Ct. 619, 621, 4 L.Ed.2d 660 (1960); General Trading Co. v. State Tax Commission, 322 U.S. 335, 337, 64 S.Ct. 1028, 1029, 88 L.Ed. 1309 (1944); Sutter Butte Canal Co. v. Railroad Commission, 279 U.S. 125, 139, 49 S.Ct. 325, 328, 73 L.Ed. 637 (1929). This rule, of course, is inapplicable when acceptance of such an interpretation would thwart vindication of a constitutional right, Indiana ex rel. Anderson v. Brand, 303 U.S. 95, 100, 58 S.Ct. 443, 446, 82 L.Ed. 685 (1938), but such a situation is not present here.