Ninth Circuit Asked to Rehear Appeal of Antitrust State Action Immunity Decision

This posting was written by John W. Arden.

The American Antitrust Institute has filed an amicus brief, urging the U.S. Court of Appeals in San Francisco to rehear the appeal of a decision “that expands the state action defense to immunize alleged price fixing by car rental companies in California.”

On June 8, the appeals court held that the California Travel and Tourism Commission (CTTC) was shielded by the state action immunity doctrine from consumers’ claims that it conspired with passenger rental car companies to pass on CTTC tourism assessments to consumers (Shames v. California Travel and Tourism Commission, 2010-1 Trade Cases ¶77,044).

As required for state action immunity, the CTTC’s alleged anticompetitive conduct constituted an authorized and reasonably foreseeable result of a statutory authorization, the Ninth Circuit ruled. The California legislature had explicitly authorized tourism assessment fees on passenger car rentals in order to fund the promotion of state tourism. It appeared that the legislature envisioned the fee being uniformly passed on to rental car customers, according to the court.

Consumers had argued that active state supervision was required because the CTTC was industry-controlled. However, the appeals court held that state supervision was irrelevant because the CTTC was a state agency created by statute to promote tourism in California.

The dismissal of the consumers’ horizontal price fixing claims by the federal district court in San Diego (2008-2 Trade Cases ¶76,370) was upheld by the Ninth Circuit.

Amicus Brief

In its amicus brief supporting the plaintiffs’ petition for rehearing, the American Antitrust Institute (AAI) argued that rehearing is necessary because “the panel decision rests on a misunderstanding of both prongs of the `state action’ defense.”

"If left standing, this decision will encourage the misuse of state statutes to immunize unauthorized and unjustified agreements in restraint of trade to the detriment of the economy and in conflict with our fundamental national policy in favor of free and open competitive markets."

Specifically, the panel inferred immunity even the state law could not reasonably be read to authorize or even contemplate the alleged underlying illegal conduct—“namely a price-fixing cartel intended to exploit consumers and defeat the ordinary market process,” the AAI charged.

The panel interpreted a statute that permits an individual passenger car rental company to pass on some or all of the assessment to customers as authorizing competing businesses to agree collectively and with the CTTC to pass on the entire assessment, as well as airport concession fees, according to the amicus brief.

The AAI alleged that the panel exempted the CTTC from any active state supervision requirement, treating it as equivalent to a traditional state agency, even though the CTTC was dominated by private interests.

Supreme Court Standards

These rulings could not be reconciled with U.S. Supreme Court standards for the application of state action defense to private or quasi-governmental action, as set out in California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc, 445 U.S. 97, 1980-1 Trade Cases ¶63,201, the brief asserted.

According to the standards, the state must (1) clearly articulate its intention to replace competition with regulation in a sector of the economy and (2) actively supervise the regulatory scheme to ensure that it operates in the public interest.

The AAI argues that the California Tourism Marketing Act neither allows the CTTC or its participants to regulate the prices or pricing policies of car rental firms nor creates standards for reviewing the reasonableness of the pricing or pricing policies.

In addition, the Ninth Circuit panel erroneously conferred the status of state agency on the CTTC, therefore avoiding the requirement of active state supervision, the brief alleged. In reality, the CTTC is controlled by private industry in the very markets that the CTTC purports to regulate. As such, it is not a state agency for the purposes of state action immunity, the AAA argued.

The brief is Shames v. California Travel and Tourism Commission, No. 08-56750, United States Court of Appeals for the Ninth Circuit. Text of the brief appears here.

American Antitrust Institute

The American Antitrust Institute is an independent, non-profit education, research, and advocacy organization based in Washington, D.C. Its stated mission is to “increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy.” Further information about the AAI appears here on the organization’s website.