Euster v. Eagle Downs Racing Ass'n, 81-2432

• Decision Date: 17 May 1982
• Docket Number: No. 81-2432,81-2432
• Citation: 677 F.2d 992
• Parties: 1982-2 Trade Cases 64,734 EUSTER, Eugene H.; Fieramosca, Samuel; Lopez, Daniel; Hasbany, David; and Fallon, Martin J. Jr., Appellants, v. EAGLE DOWNS RACING ASSOCIATION, a Pennsylvania Corporation; Pennsylvania Horse Racing Commission; Johnson, Andrew R., Chairman of Pennsylvania Horse Racing Commission; and A. Marlyn Moyer and William D. Gross, Commissioners of the Pennsylvania Horse Racing Commission, Appellees.
• Court: U.S. Court of Appeals — Third Circuit

Page 992

677 F.2d 992

1982-2 Trade Cases 64,734

EUSTER, Eugene H.; Fieramosca, Samuel; Lopez, Daniel Hasbany, David; and Fallon, Martin J. Jr., Appellants, v. EAGLE DOWNS RACING ASSOCIATION, a Pennsylvania Corporation Pennsylvania Horse Racing Commission; Johnson, Andrew R. Chairman of Pennsylvania Horse Racing Commission; and A Marlyn Moyer and William D. Gross, Commissioners of the Pennsylvania Horse Racing Commission, Appellees.

No. 81-2432.

United States Court of Appeals, Third Circuit.

Argued March 2, 1982.

Decided May 17, 1982.

James J. Rodgers (Argued), Richard P. Brown, Jr., Joseph B. G. Fay, Morgan, Lewis & Bockius, Philadelphia, Pa., for appellants.

David H. Allshouse (Argued), Deputy Atty. Gen., Leroy S. Zimmerman, Atty. Gen., Allen C. Warshaw, Deputy Atty. Gen., Chief, Civil Litigation, Harrisburg, Pa., for appellees.

Jon A. Baughman (Argued), Thomas B. Schmidt, III, Nancy J. Gellman, Richard M. Bernstein, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for amicus curiae Jockeys' Guild, Inc.

Before HUNTER, WEIS and HIGGINBOTHAM, Circuit Judges.

OPINION OF THE COURT

JAMES HUNTER, III, Circuit Judge.

1. This is an appeal from an order of the United States District Court for the Eastern District of Pennsylvania granting defendants' motion for summary judgment. Plaintiffs-Appellants are owners and trainers of thoroughbred race horses in Pennsylvania. They brought this antitrust action against the Pennsylvania Horse Racing Commission (the "Commission") and its members challenging the Commission's rule which sets the fees to be paid to jockeys who ride at racetracks in the Commonwealth. Specifically, plaintiffs allege that the rule violates Section 1 of the Sherman Act, 15 U.S.C. § 1. ¹ Defendants moved for summary judgment in the district court, pursuant to Fed.R.Civ.P. 56, on the ground that the "state action" exception to the antitrust laws enunciated in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943) precludes Commission liability. ² The district court entered an order and judgment, supported by a memorandum opinion, granting the motion for summary judgment. We will affirm.

FACTS AND PROCEDURAL HISTORY

2. The Pennsylvania legislature enacted the Pennsylvania Horse Racing Act in 1967. 15 P.S. §§ 2651-2675 (1980). The Pennsylvania Horse Racing Commission was established pursuant to this Act and was given broad authority over horse racing and betting:

Pursuant to the provisions of this act, the State Horse Racing Commission shall have power to supervise generally all thoroughbred horse race meetings in this State at which pari-mutuel betting is conducted. The commission may adopt rules and regulations not inconsistent with this act to carry into effect its purposes and provisions and to prevent circumvention or evasion thereof.

15 P.S. § 2652(a) (1980). The present appeal focuses on one such rule, Rule of Racing 9.15 ("Rule 9.15"). Rule 9.15 contains a jockey fee scale which was initially promulgated by the Commission in 1968 and was amended in 1978 to increase the schedule of fee payments. Appendix at A-22.

3. Shortly before this action was filed in the district court, the Pennsylvania Division of the Horseman's Benevolent and Protective Association, which represents owners-trainers of racing horses at various tracks in Pennsylvania, and three other individuals filed a lawsuit in the Commonwealth Court of Pennsylvania challenging the authority of the Commission to promulgate a rule setting the fees to be paid to jockeys. The Commonwealth Court held that the Commission exceeded its legislative authority and could not regulate the amount of compensation paid to jockeys. Gilligan v. Pennsylvania Horse Racing Commission, 46 Pa.Commw.Ct. 595, 407 A.2d 466 (1979). After 4. The Commission then appealed the Commonwealth Court's decision to the Supreme Court of Pennsylvania. In September 1980, the Supreme Court reversed the Commonwealth Court, holding that the Commission was authorized by the legislature to promulgate a jockey fee schedule. Gilligan v. Pennsylvania Horse Racing Comm'n, 492 Pa. 90, 422 A.2d 487 (1980). In light of the decision of the Pennsylvania Supreme Court, holding unambiguously that the Commission had authority to set jockey's fees, the district court held that the defendants were immune from antitrust liability under the Parker doctrine.

the Commonwealth Court's decision, the district court rejected the defendants' argument that the state action exemption of Parker applied, relying on the decision of the Commonwealth Court in the Gilligan case.

DISCUSSION

5. In Parker, the United States Supreme Court held that the Sherman Act was inapplicable to certain state action. ³ A raisin packer sued the California State Agricultural Commission to enjoin enforcement of the State's Agricultural Prorate Act. That Act authorized the State Director of Agriculture and the Agriculture Commission to adopt marketing programs regulating the sale of certain produce. The plaintiff attacked the program as violative of the Sherman Act. The Supreme Court held that state regulatory programs were immune from the proscriptions of the Sherman Act. The Court found no language or legislative history of the Sherman Act indicating congressional intent to proscribe the behavior of a sovereign state. The Court held that state regulatory programs could not violate the Sherman Act because the Act is directed against "individual and not state action." Id. 317 U.S. at 352, 63 S.Ct. at 314.

6. The Parker doctrine was recently discussed and reaffirmed in California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980). In Midcal, the Supreme Court set forth the appropriate standards for the state action exception as follows:

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.

445 U.S. at 105, 100 S.Ct. at 943. If these two standards are satisfied, the challenged restraint is immunized from antitrust liability.

7. The Midcal requirements are satisfied in the case before us. The ruling of the district court is amply justified by the Pennsylvania Supreme Court's decision in Gilligan. ⁴ In Gilligan, the court held that the Commission was authorized by the Horse Racing Act to promulgate the jockey fee scale at issue in this case. The court stated explicitly that the Act reflected a "clear legislative policy" to vest the Commission with broad supervisory powers over the "previously unlawful activity of thoroughbred horse racing." 422 A.2d at 489. The court stated:

A pervasive system of regulation and supervision of the otherwise criminal activity was thus contemplated by the Commission's broad legislative mandate, and a general rule making power was clearly and unmistakably conferred.

422 A.2d at 490 (emphasis in original).

8. Furthermore, the court observed that the rulemaking powers of the Commission The breadth of the Commission's powers is required for the prevention of corruption and the maintenance of high standards and public confidence in racing. The imposition of a jockey fee schedule is simply part of a comprehensive scheme of regulation consistent with-indeed, necessary to accomplish these legislative goals.

should be construed liberally in light of the broad supervisory task necessary to accomplish the express legislative purpose:

422 A.2d at 490-91 (emphasis added).

9. The Pennsylvania Supreme Court also attached importance to the fact that when the legislature amended the Horse Racing Act in 1976, including the section enumerating the powers of the Commission, there was no attempt by the legislature to curtail the Commission's authority to set jockey fees, authority which it had been exercising since 1968. Thus, the court concluded that "the legislature's acquiescence in the Commission's exercise of its rule-making power to set jockeys' fees manifests approval thereof." 422 A.2d at 491.

10. In Princeton Community Phone Book, Inc. v. Bate, 582 F.2d 706, 717 (3d Cir.), cert. denied, 439 U.S. 966, 99 S.Ct. 454, 58 L.Ed.2d 424 (1978) we discussed the problem of discerning when state authority to restrain competition exists. We noted that:

(T)he state need not have contemplated the precise action complained of as long as it contemplated the kind of action to which objection was made.

As the Gilligan decision demonstrates, the action complained of in this case was clearly contemplated by the legislation in question. Indeed, in this regard Gilligan could not have been more explicit. ⁵

11. It is also clear that the jockey fee scale is "actively supervised" by the Commonwealth, within the meaning of that term as set forth in Midcal. In Midcal, the Supreme Court struck down the California wine-pricing system because the state neither established the prices, reviewed their reasonableness, regulated the terms of the fair trade contracts, monitored market conditions, nor engaged in any "pointed reexamination" of the program in question. 445 U.S. at 105-06, 100 S.Ct. at 943. The Midcal Court stressed that the state simply authorized price-setting and enforced the prices established by private parties. The Court made clear its concern: "The national policy in favor of competition cannot be thwarted by casting such a gauzy cloak of state involvement over what is essentially a private price-fixing arrangement." Id. 445 U.S. at 106, 100 S.Ct. at 943.

12. In the instant case, however, there is no question about the Commonwealth's involvement in the challenged activity. The state Commission sets the jockey fees, pursuant to formal notice and hearing procedures. Appendix at 22. Furthermore, the Complaint does not allege a need for more state supervision; it alleges that the present supervision is biased in favor of the jockeys and that the Commission did not exercise sufficient independent judgment 13. The...