Author: Aaron Gott
Last month, the U.S. Supreme Court granted a writ of certiorari to decide a circuit split on an important procedural question concerning the state-action immunity to the federal antitrust laws: whether a decision denying the state-action immunity is immediately appealable or must await a final decision just like most issues raised on a motion to dismiss.
The case, SolarCity Corporation v. Salt River Project Agricultural Improvement and Power District, is about a power company that changed its rate structure to make it less appealing for consumers to switch to solar power. Power companies are typically quasi-natural monopolies because of the way power is delivered—through a massive infrastructure of physical lines.
But new technology is changing that: people can generate electricity straight from the sun by installing panels on their roofs, and soon it will be more cost effective to install batteries to hold that power for when it is needed than to continue paying the power company. In places like Southern California, where the price of peak electricity is more than four times the national average, solar power is a no-brainer.
It comes as no surprise that some power companies are using their incumbency to slow the disruption of this innovative technology. SolarCity (now Tesla, Inc.) sued an Arizona power district for attempting to maintain its monopoly over the supply of electrical power in its territory, alleging that the power district created new fees that penalize solar customers, which ultimately had its intended effect: solar retailers received 96% fewer applications for new solar systems among customers in the power district after the new rates took effect.
The power district moved to dismiss, arguing that it is immune from the federal antitrust laws under the state-action immunity. The district court denied the motion because the power district had not met its burden of showing that it acted pursuant to a clearly articulated state policy to displace competition. The power district sought an order certifying the denial for interlocutory appeal, which was also denied. Nevertheless, the power district immediately appealed to the Ninth Circuit, arguing that a denial of the state-action immunity should be immediately appealable under the collateral order doctrine.
Before we dive into the Ninth Circuit decision, let’s discuss some of these terms.
The Collateral Order Doctrine
The collateral order doctrine is an exception to the general rule that the federal courts of appeal have jurisdiction to hear only appeals of “final orders” from the district courts. The exception is narrow and must be strictly applied.
A collateral order is appealable immediately if it meets three requirements: first, the order being appealed must be conclusive. Second, it must address a question that is separate from the merits of the case. Third, it must raise “some particular value of a high order” and evade effective review if not considered immediately.
With these requirements, there are only a few categories of decisions that meet the collateral order doctrine, and they are all “immunities”: Eleventh Amendment immunity, absolute immunity, qualified immunity, foreign and tribal sovereign immunity. Given this, it might seem that the state-action “immunity” also fits. But it isn’t quite that simple because the state-action immunity isn’t actually an immunity, but a judicially recognized exemption.
What Is An Immunity?
Read broadly, an immunity could mean many different things. It could mean immunity from suit, immunity from liability, or even just immunity from money damages.
Immunity from suit. Eleventh Amendment immunity, for example is, in technical terms, a carve-out from the federal courts’ Article III jurisdiction (“The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state . . . .”). But the courts have long since interpreted it to mean that states have a right not to be sued by citizens in federal court. Most immunities fall under this category.
Immunity from money damages. This immunity can be found in the Local Government Antitrust Act of 1984, which provides that “No damages, interest on damages, costs, or attorney’s fees may be recovered under [15 U.S.C. §§ 14, 15a, or 15c] from any local government, or official or employee thereof acting in an official capacity.” You can still sue local governments to obtain injunctive relief for antitrust violations under 15 U.S.C. § 26. This means that local governments can still be liable for federal antitrust violations, but they are, roughly speaking, immune from certain claims for damages.
Immunity from liability. An immunity from liability is more than an immunity from damages, but less than an immunity from suit—it exempts certain conduct from an otherwise applicable law. For this reason, it is more aptly called an exemption. The state action immunity falls in this category. A defendant who succeeds with a state-action immunity defense cannot be held liable under the antitrust laws, but it is not necessarily immune from suit.
The Ninth Circuit’s Decision
The Ninth Circuit’s opinion holds that the state-action immunity is not subject to the collateral-order exception to the final-order requirement for appellate jurisdiction.
Its reasoning is straightforward: the state-action immunity is not an immunity from suit; it is merely an immunity from liability, and therefore it cannot meet the third requirement of the collateral order doctrine: to raise “some particular value of a high order” that evades effective review if not considered immediately. Rather, it is like any other Rule 12(b)(6) decision:
A denial of a motion to dismiss based on state-action immunity is thus no different from other denials of dismissal under Federal Rule of Civil Procedure 12(b)(6). When a defendant is sued under a statute that he believes was never meant to apply to him, he may move to dismiss for failure to state a claim on which relief can be granted. His motion would then be granted if the court could not reasonably infer his liability under that statute. Orders denying motions to dismiss on such grounds cannot ordinarily be appealed immediately. We are not persuaded that a motion based on state-action immunity should be treated differently.
The Circuit Split
The Ninth Circuit joins the Fourth and Sixth Circuits in holding that the state-action immunity is not immediately appealable under the collateral order doctrine.
- In Huron Valley Hospital, Inc. v. City of Pontiac (1981), the Sixth Circuit held that the state-action immunity is not subject to the collateral order doctrine for the same reason as the Ninth Circuit, but also for an additional reason: the second requirement of the collateral order doctrine, requiring the question to be separate from the merits. In the Sixth Circuit’s view, state-action immunity is akin to an affirmative defense to the plaintiff’s claim—a classic merits question.
- In South Carolina State Board of Dentistry v. FTC (2006), the Fourth Circuit similarly held that the second and third requirements of the collateral order doctrine were not met, but went even further to identify significant differences between the state-action immunity and the other immunities that are subject to immediate appeal under the collateral-order doctrine:
- Municipalities can invoke state action immunity, but they cannot invoke qualified or sovereign immunity.
- State-action immunity bars liability regardless of the relief sought, but the qualified and sovereign immunities do not bar certain prospective relief.
- An antitrust defendant can invoke state-action immunity even in a lawsuit by the United States.
The Fifth and Eleventh Circuits have held that an order denying state-action immunity is immediately appealable.
- In Commuter Transportation Systems, Inc. v. Hillsborough County Aviation Authority (1986) the Eleventh Circuit held that the state-action immunity was comparable to qualified immunity and thus should be subject to the collateral-order doctrine.
- In Martin v. Memorial Hospital at Gulfport (1996), the Fifth Circuit similarly held that the state-action immunity is similar to the other immunities and that it is “an entitlement not to stand trial under certain circumstances.”
The State-Action Immunity Denial Should not be Immediately Appealable
The Ninth Circuit’s opinion focuses primarily on the collateral-order doctrine test, identifying the differences between state-action immunity and other immunities that better fit those requirements. But perhaps more important are the antitrust policy implications that would result from an immediately appealable state-action immunity decision.
- Swift and effective antitrust enforcement outweighs the speculative potential disruption claimed by the power district
The federal antitrust laws have existed as the national policy in favor of competition for more than a century. And antitrust enforcement is one of the most important aspects of Congress’ power and responsibility to regulate interstate commerce. But those laws are ineffective if their swift enforcement must take a back seat to a years’ long appellate process at the outset of every case in which a defendant claims it is entitled to state-action immunity.
The state-action immunity is “strictly limited” and “disfavored.” Its sole purpose is to ensure, through an interpretation of the Sherman Act, that an otherwise broad federal law does not vitiate states’ residual constitutional power to regulate. It is unconcerned with the desires and priorities of non-state entities, including political subdivisions, or what inconveniences they might suffer under the antitrust laws alongside all other antitrust defendants. It is concerned only with the balance between federal antitrust enforcement and state regulatory policy.
The power district’s argument is particularly unpersuasive because the effect of litigation on the implementation of state policy is entirely speculative. It would be one thing if a court were to deny a claim of state-action immunity and issue an injunction restraining the purported state-sanctioned conduct. But preliminary injunctions are already immediately appealable under 28 U.S.C. § 1292.
- Deference is a zero-sum game
Even if we ignore all of the case law describing the purpose of the state-action immunity and instead assume that the state-action immunity is concerned with the effects of antitrust enforcement against sub-state entities, it does not follow that courts should so blindly defer to their concerns about the inconvenience of litigation. Deference is a zero-sum game when it comes to the antitrust laws: either the courts can defer to Congress, which has proclaimed that all unreasonable restraints of trade are unlawful, or it can defer to the political subdivision’s desires to not defend antitrust cases.
It cannot do both. If courts defer to the sub-state entities, then every case in which a defendant claims state-action immunity will be put on pause for at least a year at the motion-to-dismiss stage. If the appellate court affirms the district court’s denial, then only one thing will have occurred: competition and consumers will have suffered unnecessarily for an additional year (or possibly two). That would put the interests of sub-state entities ahead of the national interest, and wildly shift the constitutional balance—not in the direct of states, but in the direction of entities that are not even contemplated by the Constitution. And that extra year of anticompetitive conduct may be enough to put plaintiffs out of business for good.
- The state-action immunity is not limited to government defendants.
The power district in the Ninth Circuit’s case is a political subdivision of the state of Arizona, but the state-action immunity is not limited to government defendants. For example, the private title companies in FTC v. Ticor Title Insurance Co., a U.S. Supreme Court case from 1992, argued (unsuccessfully) that their price-fixing through state-authorized rating bureaus was protected by state-action immunity.
In one of our recent cases, a private ambulance company sought to dismiss on state-action immunity grounds. In cases against state licensing boards and the private market participants who dominate them, the private market participants also usually claim state-action immunity because of their status as members of the board. And here in Southern California, our private power companies could just as easily assert the state-action immunity because the state government has given them similar latitude to set rules relating to solar customers.
The fact that the state-action immunity is not limited to government officials shows that it is obviously not designed primarily to protect government officials from federal litigation. But it also shows that an order denying state-action immunity should not categorically be immediately appealable because a significant number of the affected defendants cannot show that the order implicates the collateral-order doctrine’s requirement to “raise some particular value of high order” that would effectively evade review if not subject to an immediate appeal.
The U.S. Supreme Court’s recent track record on the state-action immunity suggests that it is not particularly friendly to the doctrine. Indeed, its last three cases have decisively constrained its operation to conduct that is truly that of the state as sovereign. Those decisions have shown that the Court is not willing to defer to sub-state entities at the expense of congressional antitrust policy. The Court should continue this trend by correcting the errant decisions of the Fifth and Eleventh Circuit and hold that orders denying state-action immunity are not immediately appealable.
photo credit: Tony Webster SolarCity Solar Installation Van in Portland, Oregon via photopin (license)