State of N. M. v. American Petrofina, Inc.

Decision Date17 July 1974
Docket NumberNo. 26182,26182
Parties1974-2 Trade Cases 75,179 STATE OF NEW MEXICO, on behalf of itself and all other public bodies in the State of New Mexico similarly situated, Plaintiffs-Appellees, v. AMERICAN PETROFINA, INC., et al., Defendants-Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

William Simon (argued) of Howrey, Simon, Baker & Murchison, Washington, D.C., for defendants-appellants.

Josef D. Cooper (argued) of Friedman, Koven, Shapiro, Saltzman, Koenigsberg, Specks & Homer, Chicago, Ill., Perry Goldberg (argued), Chicago, Ill., for plaintiffs-appellees.

Before BROWNING and WRIGHT, Circuit Judges, and KING, District Judge. *

OPINION

EUGENE A. WRIGHT, Circuit Judge:

In this case we must decide whether a state is liable for alleged violations of sections 1 and 2 of the Sherman Act. 1 We hold that it is not and affirm the district court's order dismissing the Shell Oil Company's counterclaim against the State of New Mexico.

New Mexico, on behalf of itself and all other public bodies in New Mexico similarly situated, sued Shell and five other asphalt suppliers for alleged antitrust violations. Shell counterclaimed, alleging that New Mexico and some of its political subdivisions conspired as consumers of asphalt to fix prices and eliminate competition among themselves, in violation of sections 1 and 2 of the Sherman Act (15 U.S.C. 1, 2). The district court dismissed Shell's counterclaim, holding that the Sherman Act is not applicable to the conduct of a state. That court certified the case for interlocutory appeal under 28 U.S.C. 1292 (b), and we granted leave to take an interlocutory appeal.

The issue on appeal is whether sections 1 and 2 of the Sherman Act apply to the conduct of a state 2 and whether sections 4 and 16 of the Clayton Act (15 U.S.C. 15, 26) afford Shell the remedies it seeks. 3 Since sections 4 and 16 of the Clayton Act provide remedies only for violations of the antitrust laws, and since the only alleged violations are of sections 1 and 2 of the Sherman Act, our primary inquiry is whether sections 1 and 2 apply to the conduct of a state.

By its very terms, section 2 applies only to 'persons,' and while section 1 invalidates 'every contract, combination . . . or conspiracy, in restraint of trade,' the remedial portion of section 1 is directed only to 'persons.' Thus, the Supreme Court has stated that the '(Sherman) Act is applicable to 'persons' including corporations.' Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). Of course, this merely shifts the inquiry to one concerning the meaning of 'person' as that term is used in the Sherman Act.

Section 8 of the Sherman Act (15 U.S.C. 7) defines 'person' as used in the Act as follows: 4

The word 'person', or 'persons', wherever used in sections 1 to 7 of this title shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country.

Since the term is explicitly defined for use throughout the statute and the definition does not include states, there is at least a strong implication that states were not intended to be subject to the Act. See Georgia v. Evans, 316 U.S. 159, 163, 62 S.Ct. 972, 86 L.Ed. 1346 (1942) (Roberts, J., dissenting). This methodology seems precluded, however, by the majority approach in Evans. There the Court considered whether a state was a 'person' who could sue for treble damages under section 7 of the Sherman Act, the forerunner of 15 U.S.C. 15. Notwithstanding the fact that states were not mentioned in the definition of 'person' under section 8 of the Sherman Act, the Court held that a state was a 'person' under section 8 and could sue for treble damages under section 7. The Court stated that the definition of 'person' must be interpreted in light of the 'purpose, the subject matter, the context, the legislative history, and the executive interpretation of the statute,' 316 U.S. at 161, 62 S.Ct. at 974, implicitly eschewing a literal or mechanical methodology.

Although the language of Evans supports an inference that sections 1 and 2 of the Sherman Act apply to states (by including states within the definition of 'person'), its rationale refutes such a broad interpretation. The policies relied upon the define 'person' referred only to the ability of a state to sue for treble damages; no mention was made of states as defendants. It is, therefore, difficult to conclude that the Court intended actually to define 'person' to include states everywhere in the Act. While it is normally desirable that a term be given a uniform meaning throughout an act, especially a term defined in a definitional section, the functional methodology of the Evans Court indicates a more flexible approach. At least it is difficult to conclude that a meaning seemingly broader than the facial meaning of the statutory definition applies throughout the statute when the justification for adopting that meaning refers only to a specific context in which the term is used.

This conclusion is supported by the language of Parker v. Brown, supra, 317 U.S. at 351, 63 S.Ct. at 313, decided less than a year after Evans, where the Court stated that the Sherman Act gives 'no hint that it was intended to restrain state action.' If the state were a 'person' as that term is used everywhere in the Act certainly the Court would have found a 'hint' that the Act restrained states since it clearly restrains 'persons.' Thus, we conclude that Evans does not apply beyond its factual context; it dealt only with the question whether a state can sue for treble damages under 15 U.S.C. 15.

Parker v. Brown did more than negate the language in Evans indicating that a state is a 'person' as that term is used everywhere in the Act. The Parker Court expressly declared that states are not subject to the Sherman Act:

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. The Act is applicable to 'persons' including corporations (7), and it authorizes suits under it by persons and corporations (15). A state may maintain a suit for damages under it, Georgia v. Evans, 316 U.S. 159 (62 S.Ct. 972, 86 L.Ed. 1346), but the United States may not, United States v. Cooper Corp., 312 U.S. 600 (61 S.Ct. 742, 85 L.Ed. 1071)-- conclusions derived not from the literal meaning of the words 'person' and 'corporation' but from the purpose, the subject matter, the context and the legislative history of the statute.

There is no suggestion of a purpose to restrain state action in the Act's legislative history. The sponsor of the bill which was ultimately enacted as the Sherman Act declared that it prevented only 'business combinations.' 21 Cong.Rec. 2562, 2457; see also at 2459, 2461. That its purpose was to suppress combinations to restrain competition and attempts to monopolize by individuals and corporations, abundantly appears from its legislative history. See Apex Hosiery Co. v. Leader, 310 U.S. 469, 492-493 (60 S.Ct. 982, 84 L.Ed. 1311) and n. 15; United States v. Addyston Pipe & Steel Co., C.C., 85 F. 271, affirmed 175 U.S. 211 (20 S.Ct. 96, 44 L.Ed. 136); Standard Oil Co. v. United States, 221 U.S. 1, 54-58 (31 S.Ct. 502, 55 L.Ed. 619).

317 U.S. at 351, 63 S.Ct. at 313.

Unlike the Evans language that was negated by Parker, there is no subsequent Supreme Court holding or language to undermine the conclusion that the Parker Court meant what it said. To the contrary, there are significant justifications for concluding independently that states were not intended to be covered by the Sherman Act. First, sections 1 and 2 of the Sherman Act provide for criminal sanctions, a remedy Congress would not lightly apply to states. We are reluctant to impute such an intention without a clear indication from Congress. And there is no indication that Congress intended the civil remedy provision of section 7 of the Sherman Act to have greater scope in terms of regulated conduct than section 1 or 2. 5 Second, even concerning the civil remedy of treble damages provided by section 7 of the Sherman Act, the Eleventh Amendment would cause serious difficulties for such a suit against a state. Without a clear indication from Congress, we are reluctant to impute to Congress an intent that would raise such substantial constitutional problems. 6

The fact that the two principal remedies of the Sherman Act as originally enacted are of dubious propriety if applied to states, 7 the absence of any mention of state action in either the Act or the legislative history, and the language of Parker v. Brown quoted above lead us to conclude that sections 1 and 2 of the Sherman Act do not apply to the activities of a state. 8

We have yet to confront Shell's argument, however, based on recent cases, that Parker does not confer absolute immunity from antitrust liability upon the states. Shell's position essentially is that only where a state's legislature affirmatively decides that competition 'is not the summum bonum in a particular field and deliberately attempts to provide an alternate form of public regulation,' George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 424 F.2d 25, 30 (1st Cir. 1970), is the state immune from antitrust liability. Shell relies upon the language and factual situation of Parker and a number of cases interpreting Parker, primarily Hecht v. Pro-Football, Inc., 144 U.S.App.D.C. 56, 444 F.2d 931 (1971), cert. denied 404 U.S. 1047, 92 S.Ct. 701, 30 L.Ed.2d 736 (1972).

In Parker, the California legislature authorized state officials to regulate the marketing of California agricultural products to restrict competition and prevent economic waste. The legislature authorized the creation of a commission, composed of the State Director of Agriculture and others appointed by the...

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