Hardy v. City Optical Inc.

• Citation: 39 F.3d 765
• Decision Date: 07 November 1994
• Docket Number: No. 94-1262,94-1262
• Parties: , 1994-2 Trade Cases P 70,777, 30 Fed.R.Serv.3d 1059 Lisa HARDY, individually and on behalf of all those similarly situated, Plaintiff-Appellant, v. CITY OPTICAL INCORPORATED, Dr. Lawrence Tavel, and Dr. Edward Friel, and all other doctors employed by or under the control of City Optical, Incorporated, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 765

39 F.3d 765

63 USLW 2350, 1994-2 Trade Cases P 70,777,

30 Fed.R.Serv.3d 1059

Lisa HARDY, individually and on behalf of all those

similarly situated, Plaintiff-Appellant, v. CITY OPTICAL INCORPORATED, Dr. Lawrence Tavel, and Dr.

Edward Friel, and all other doctors employed by or

under the control of City Optical,

Incorporated, Defendants-Appellees.

No. 94-1262.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 9, 1994.

Decided Nov. 7, 1994.

Richard Loiseau of Richard Loiseau Law Offices (argued), Angel L. Ortiz, Ortiz & Associates, Indianapolis, IN, for plaintiff-appellant.

Steven K. Huffer (argued), Mitchell, Hurst, Jacobs & Dick, Indianapolis, IN, for defendants-appellees.

Before POSNER, Chief Judge, EASTERBROOK, Circuit Judge, and GORDON, District Judge. ^*

POSNER, Chief Judge.

Lisa Hardy brought suit against City Optical, Inc., an Indiana seller of contact lenses, and the optometrists employed by it, charging violations of both federal antitrust law and the law of Indiana. Hardy had obtained contact lenses from City Optical but discovered that she could buy them more cheaply from Lens Express, a mail-order seller in Florida. She asked the optometrist at City Optical who had fitted her with her contact lenses to give her the contact-lens specifications for forwarding to Lens Express. He refused. This meant that to get fitted with lenses from Lens Express she would have to go to another optometrist and incur the expense of an examination in order to obtain the requisite specifications, without which Lens Express would not have enough information to be able to provide contact lenses that would fit her.

Hardy brought the suit on behalf not only of herself but also of all similarly situated customers of City Optical. The district court refused to certify the case as a class action, and then, on the defendants' motion for summary judgment, dismissed the suit on the ground that the federal claims were barred by the "state action" exemption from antitrust law, announced in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). Hardy's appeal brings up both rulings--on class certification and on the state-action defense. The complaint contains state as well as federal claims, but the only basis for federal jurisdiction over the former is the federal district court's supplemental jurisdiction, 28 U.S.C. Sec. 1367, properly relinquished in a case in which the federal claim falls out before trial.

Should it have fallen out? The merit of the claim is obscure, quite apart from any question of exemption. The claim is that the defendants have in effect tied the sale of contact lenses to the provision of optometric services. If you get contact-lens specifications from one of City Optical's optometrists, you must as a practical matter buy your contact lenses from City Optical too, because it will not give you the specifications and as a result you will not be able to buy the lenses from another seller without being examined by an optometrist, even if you had such an examination yesterday. The rule in this circuit is that a tying agreement is not actionable unless the defendant has substantial market power in the tying product. Will v. Comprehensive Accounting Corp., 776 F.2d 665, 670-74 (7th Cir.1985). Other courts require that this threshold be crossed only if the plaintiff wants to proceed on a per se theory, Breaux Bros. Farms, Inc. v. Teche Sugar Co., 21 F.3d 83, 87 (5th Cir.1994); Grappone, Inc. v. Subaru of New England, Inc., 858 F.2d 792, 799 (1st Cir.1988), that is, wants not to have to show that the challenged restraint was in fact an unreasonable curtailment of competition. Those courts thus allow for at least the theoretical possibility of establishing a violation under a free-wheeling rule of reason approach without establishing market power. That distinction is not made in Will, and would be inconsistent with our rule that substantial market power is a threshold requirement of all rule of reason (as well as some per se) cases. Chicago Professional Sports Limited Partnership v. National Basketball Ass'n, 961 F.2d 667, 673 (7th Cir.1992); Morrison v. Murray Biscuit Co., 797 F.2d 1430, 1435 (7th Cir.1986). Although we were told at argument that City Optical has thirty to fifty stores in Indiana, it seems highly unlikely that through its optometrists it writes 30 percent or more of the contact-lens specifications written in Indiana each year, the minimum market share from which the market power required to be shown at the threshold of a tying case can be inferred. Will v. Comprehensive Accounting Corp., supra, 776 F.2d at 672; Grappone, Inc. v. Subaru of New England, Inc., supra, 858 F.2d at 797. But the defendants do not urge the apparent lack of merit of the suit as an alternative ground for our affirming the dismissal of the suit. Nor is the suit obviously frivolous, so that without the benefit of briefing we could conclude that the plaintiff had failed to invoke the jurisdiction of the district court, in which event we could properly order the suit dismissed despite the defendants' waiver. Crowley Cutlery Co. v. United States, 849 F.2d 273, 276 (7th Cir.1988).

So let us turn to the question of state action. Parker and the cases following it proceed upon the premise that Congress did not intend to allow the Justice Department or private plaintiffs to use the federal antitrust laws to obtain a judgment invalidating a state regulatory program on the ground that it created a monopoly or otherwise restrained trade. It is possible that rather few such programs would survive a challenge based on lack of conformity to the economic policies, strongly procompetitive, that inform the antitrust laws. The usual reason for enacting a regulatory program is dissatisfaction, whether disinterested or motivated by a desire for higher profits, with the results of allowing unfettered competition to operate in the industry covered by the program. Congress cannot reasonably be supposed to have intended by enacting the antitrust laws to destroy such programs and make laissez-faire the governing principle of state government.

But often it is difficult to determine whether the state has a regulatory program designed to supplant the operation of the free market. It may have a regulatory program but one that can coexist happily with the full enforcement of federal antitrust principles because the program does not require the supplanting of competition, as in Lancaster Community Hospital v. Antelope Valley Hospital District, 940 F.2d 397 (9th Cir.1991). Or, what amounts to the same thing, the state may not have its own regulatory program for the industry in question but instead may have charged the industry with duties of self-governance yet without commanding it to discharge those duties in a fashion that curtails competition. FTC v. Ticor Title Ins. Co., --- U.S. ----, ----, 112 S.Ct. 2169, 2179, 119 L.Ed.2d 410 (1992), and Patrick v. Burget, 486 U.S. 94, 108 S.Ct. 1658, 100 L.Ed.2d 83 (1988), illustrate this second aspect of the doctrine. The second aspect has been muddied by the language of "active supervision," without which the exemption fails. FTC v. Ticor Title Ins. Co., supra, --- U.S. at ----, 112 S.Ct. at 2179. "Active supervision" sounds more like monitoring than like commanding, and yet it is clear that for the private actor to be exempt the state must have "made [his] conduct its own." Patrick v. Burget, supra, 486 U.S. at 106, 108 S.Ct. at 1665. Well, can the state make conduct its own without requiring it? It can. A state or municipality rarely commands its self-regulated industries to commit specific anti-competitive acts, though sometimes it does, as when a city refuses to allow the taxi companies operating within it to add to the number of cabs, which would increase competition and reduce price. Typically the state authorizes the industry to fix rates or otherwise regulate competition, and the Supreme Court wants assurance that when the state does this it is not just offering a blanket exemption from the antitrust laws but is deliberately supplanting the competitive regime with a cartelistic one. See Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48, 65, 105 S.Ct. 1721, 1731, 85 L.Ed.2d 36 (1985). Active supervision is some evidence that the industry really is exercising delegated state power in committing anticompetitive acts, Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46, 105 S.Ct. 1713, 1720, 85 L.Ed.2d 24 (1985), so that the enforcement of federal antitrust principles would interfere with the state's pursuit of its regulatory policies. Permission is not policy unless the state has a definite intention as to how the permission will be exercised and takes measures to see that it is exercised in the intended fashion. The distinction is between a state that is indifferent to how a particular industry is regulated, and a state that prescribes self-regulation intending that the result will be an economic regime different from that of competition.

The statute and regulation on which the defendants rely require that in response to a written request by a patient a provider of medical (including optometric) services must give his patient the patient's health records. But "information concerning contact lenses may be given in general terms," which are defined as a statement as to whether the lenses are soft or hard and the "spectacle lens prescription"--the correction required for glasses--as distinct from the additional specifications (such as the radius of the eye) that the supplier needs to provide contact lenses that will actually fit the patient. Ind.Code Sec. 16-4-8-2(b); 852 Ind.Admin.Code Sec. 1-5.1-1(c). So far, there is nothing to prevent the optometrist from furnishing the patient or anyone else with the contact-lens specifications; he just is not required to do so. But another section of the regulation provides that "if an...