Two More Circuits Affirm Antitrust Dismissals Against Government Entities

It’s been a busy summer at the Circuits for decisions applying the antitrust state action immunity. First up, as we reported three weeks ago, was the Ninth Circuit’s affirmance of the dismissal in Shames v. California Travel and Tourism Commission[pdf] in which the plaintiffs alleged the California Travel and Tourism Commission had colluded with the rental car industry to pass certain fees to customers. Now, hard on the heels of Shames, we have two more decisions: Danner Construction Co., Inc. v. Hillsborough County Florida [pdf] from the Eleventh Circuit, and Rectrix Aerodrome Centers, Inc. v. Barnstable Municipal Airport Commission [pdf] from the First.

In Danner, the Florida legislature had enacted a statute authorizing Hillsborough County to take “exclusive control” over solid waste disposal within its jurisdiction, and barring anyone other than the county or its franchisees from collecting or disposing of solid waste within the county. Acting under the statute, the county had passed an ordinance providing for awards of franchises for both residential and commercial waste collection. The County Commissioners set collection rates for residential service, but not for commercial service.

A disposal service and a commercial customer sued, arguing that both by restricting the commercial market and by setting below-market rates for residential service, the county’s ordinance essentially authorized price fixing in commercial service.

According to the Eleventh Circuit panel, antitrust claims against state entities are analyzed in two steps. First, the Court asks whether the statute or ordinance is preempted by the antitrust laws. If the answer is yes, the Court then applies the two part test for state action immunity set forth in Midcal to determine whether the challenged conduct is immune from antitrust liability.

The panel majority held that it was unnecessary to decide whether the statute and ordinance were preempted, because even if they were, the county’s conduct was immune under Midcal, since the county’s actions were a foreseeable result of a clearly expressed state policy.

The majority commented in dicta that state statutes can only be preempted when they purport to authorize per se violations of the antitrust laws – appearing to suggest that states can freely authorize rule of reason antitrust violations. The majority’s comment sparked a concurring opinion from Judge Beverly Martin. Judge Martin argued that when a plaintiff brought an “as applied,” rather than a facial challenge to a state action, the statute could be preempted under either per se or rule of reason analysis.

Last week, the First Circuit weighed in, affirming dismissal of antitrust claims in Rectrix. Massachusetts law requires any city or town that establishes an airport to also create an airport commission, which is empowered to lease land, acquire property, set charges and rentals, spend money, and make rules and regulations. Rectrix sued the Barnstable Municipal Airport Commission (BMAC), alleging that the BMAC had prevented it from competing with BMAC in the sale of jet fuel.

It might seem that a statute requiring cities and towns to create airport commissions with administer their airports falls far short of clearly articulating an intention to displace competition, but in fact, a number of Circuits have found state action immunity for similar airport authorities. The First Circuit followed this line of authority, as well as its own earlier decision interpreting the statute creating the Massachusetts Port Authority, Interface Group v. Mass. Port Authority, holding that the statute sufficiently authorized an exclusive dealing arrangement for sales of jet fuel at the airport. Since the plaintiff sued a government entity, rather than a private actor, the Court had no need to apply the second Midcal factor, which asks whether anticompetitive activity is actively supervised by the government.

Does It Matter If Your Antitrust Judge Has Been Trained in Economics?

It's no secret to those of us who've been defending antitrust cases for a number of years that economic expert witnesses are a more important part of the defense team than ever before. Triers of fact often must evaluate complex economic analyses of the competitive effect of sophisticated business strategies. According to Judge Richard Posner of the Seventh Circuit -- an antitrust expert -- the task facing the average judge or juror is overwhelming:

Econometrics is such a difficult subject that it is unrealistic to expect the average judge or juror to be able to understand all the criticisms of an econometric study, no matter how skillful the econometrician is in explaining the study to a lay audience.

So what effect does economic complexity have on the likelihood that an antitrust case will be appealed? Is the judge's decision more likely not to be appealed -- or to be affirmed if it is appealed -- if the judge has at least basic training in antitrust economics? Until recently, there was no empirical evidence on these important questions.

Two antitrust scholars, Professor Joshua Wright and Professor Michael Baye, have filled that gap in an important new study, Is Antitrust Too Complicated for Generalist Judges? The Impact of Economic Complexity & Judicial Training on Appealswhich will appear in an upcoming issue of the Journal of Law & EconomicsProfessor Wright is an Assistant Professor of Law at George Mason University’s School of Law, and Professor Baye holds professorships in Business, and in Business Economics and Public Policy at Indiana University's Kelley School of Business. The professors' study has been discussed in Core Economics, the Antitrust and Competition Policy BlogLegal Theory Blog, and most recently, Business Wire.  Professor Wright has been blogging the study for some time as it came together on his antitrust blog, Truth on the Market, herehere, and here.

The study is more than worth a complete read, but here's a summary. The professors collected every published decision involving the merits of an antitrust claim between 1996 and 2006 -- 714 decisions, including both district judges and administrative law judges. The researchers coded the cases by type of claim, as well as collecting data on the education and experience of the judges involved. Next, the professors searched for certain terms in the decisions in order to separate cases involving factually complex economic testimony from factually simpler cases. Finally, the study identified judges who had attended basic economic training classes at the George Mason University Law and Economics Center.

Professors Wright and Baye concluded that in cases not involving complex econometric data, the decisions of judges who had attended economic training programs were significantly less likely to be appealed, and less likely -- when they were appealed -- to be reversed. Interestingly, previous experience deciding antitrust cases was not an adequate substitute for economics training when it came to improving judicial decision-making. Responding to criticism that economics education programs for judges were biased towards politically conservative, free-market based economic theories, the researchers concluded that "trained" judges' decisions performed equally well whether the judge was a Democratic or Republican President's nominee.

Like most good research, the study suggests a number of follow-up questions – join me below the jump to see what some of those are.

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Ninth Circuit Tosses Antitrust Claim Against State Agency Accused of Price-Fixing

Can a government agency conspire to fix prices? When it comes to the California Travel and Tourism Commission, the Ninth Circuit says the answer is "no." Shames v. California Travel and Tourism Commission [pdf].

The CTTC consists of a dozen commissioners appointed by the Governor, and two dozen selected by the tourism industry. In 2006, the passenger rental car industry proposed a bill by which the industry agreed to pay a high assessment fee -- thereby considerably increasing the CTTC's budget -- in return for allowing the rental car industry to "unbundle" a tourism assessment fee and concession fee and itemize such fees separately from the base rental rate. According to plaintiffs' complaint, the CTTC colluded with the industry to pass these charges through to retail customers.

The district court held that "state action immunity" barred the complaint, and the Ninth Circuit affirmed.

In California Retail Liquor Dealers Association v. Midcal Aluminum, the Supreme Court held that private actors were immune from antitrust liability when two factors were satisfied: (1) the challenged restraint was clearly articulated and affirmatively expressed as state policy; and (2) the policy was "actively supervised" by the state.

On appeal in Shames, the plaintiffs argued that the first factor required that specific anticompetitive acts be expressly authorized by state legislation. The Ninth Circuit disagreed, holding that the first factor was satisfied where the anticompetitive actions were reasonably foreseeable in view of a broader statutory authorization, a standard easily satisfied by the 2006 CTTC legislation.

Citing both the Supreme Court's and its own precedent, the Court held that because there is little likelihood that a governmental agency would enter into a private price-fixing arrangement, there is no need for the state to actively supervise the agency's conduct for state action immunity to apply. The Court found that although two-thirds of the CTTC's commissioners are appointed by the tourism industry rather than by the government, the Commission was sufficiently similar to a government agency for the second factor to be inapplicable.