Hass v. Oregon State Bar

• Decision Date: 30 August 1989
• Docket Number: No. 87-3996,87-3996
• Citation: Hass v. Oregon State Bar, 883 F.2d 1453 (9th Cir. 1989)
• Parties: , 1989-2 Trade Cases 68,732 Fred HASS, Plaintiff-Appellant, v. OREGON STATE BAR, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1453

883 F.2d 1453

58 USLW 2166, 1989-2 Trade Cases 68,732

Fred HASS, Plaintiff-Appellant, v.OREGON STATE BAR, Defendant-Appellee.

No. 87-3996.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 12, 1988.

Decided Aug. 30, 1989.

Michael H. Bloom, Portland, Or., for plaintiff-appellant.

Susan K. Eggum, Portland, Or., for defendant-appellee.

Appeal from the United States District Court for the District of Oregon.

Before GOODWIN, Chief Judge, ALARCON and FERGUSON, Circuit Judges.

ALARCON, Circuit Judge:

I.INTRODUCTION

Defendant-AppelleeOregon State Bar(Bar) passed a resolution requiring all active Oregon-based attorneys to purchase primary malpractice insurance from the Bar.Plaintiff-AppellantFred Hass(Hass), a member in good standing of the Bar, contends that the Bar's insurance requirement violates both the Sherman Antitrust Act, 15 U.S.C. Secs. 1,2 (1982) and the commerce clause, U.S. Const. art. I, Sec. 8, cl. 3.The following issues are presented: (1) whether the Bar's insurance requirement is immune from challenge under the Sherman Act by virtue of the state action exemption or by virtue of the exemption for the business of insurance contained in the McCarran-Ferguson Act, 15 U.S.C. Secs. 1011-1015(1982); and (2) whether the Bar's insurance requirement violates the commerce clause.

We find it unnecessary to discuss the McCarran-Ferguson Act because we conclude that the Bar's insurance requirement falls within the state action exemption to the Sherman Act.We also conclude that the requirement does not violate the commerce clause.

II.PERTINENT FACTS

The Bar is a public corporation and an instrumentality of the judicial department of the government of the State of Oregon.Or.Rev.Stat. Sec. 9.010(1987).The Bar is governed by a Board of Governors(Board).Id.Sec. 9.025.The legislature has expressly granted the Board "authority to require all active members of the state bar engaged in the private practice of law whose principal offices are in Oregon [hereinafter "Oregon-based attorneys"] to carry professional liability insurance...."Id.Sec. 9.080(2)(a).The legislature has further empowered the Board, "either by itself or in conjunction with other bar organizations, to do whatever is necessary and convenient to implement" its authority to require Oregon-based attorneys to carry professional liability insurance.Id.

The legislature has granted the Board "authority to own, organize and sponsor any insurance organization authorized under the laws of the State of Oregon and to establish a lawyer's professional liability fund."Id.The Board is authorized to "assess each [Oregon-based attorney] ... for contributions to such fund...."Id.The Board is further authorized "to establish definitions of coverage to be provided by such fund and to retain or employ legal counsel to represent such fund and defend and control the defense against any covered claim made against" an Oregon-based attorney.Id.The fund is required to pay, on behalf of such attorneys, "all sums as may be provided under such plan which any such [attorney] shall become legally obligated to pay as money damages because of any claim" of malpractice made against such attorney.Id.

In 1977, exercising its delegated authority, the Board passed a resolution, effective July 1, 1978, requiring all Oregon-based attorneys to carry malpractice coverage with aggregate limits of not less than $100,000.¹ The resolution also established the fund contemplated in Sec. 9.080(2)(a), which the Board denominated "the Oregon State Bar Professional Liability Fund"[hereinafter "the Fund"].The resolution further provided that the required malpractice coverage "for all active members in the private practice of law, with the exception of patent attorneys, shall be obtained through" the Fund.(Emphasis added.)

Pursuant to the foregoing resolution, Oregon-based attorneys have been required, since 1978, to participate in the Fund, and the Fund has provided such attorneys with legal malpractice coverage.An Oregon-based attorney's failure to participate in the Fund results in suspension from membership in the Bar.

On February 25, 1987, Hass instituted the present action.Hass' complaint alleged that in mandating attorney participation in the Fund, the Bar unlawfully monopolized the market for primary malpractice insurance, in violation of the Sherman Act, and violated the commerce clause of the U.S. Constitution.

The parties stipulated to the facts recited above and tried the case before the district court.The court did not adjudicate the Bar's liability under the Sherman Act, because the court ruled that the Bar's insurance requirement was immune from challenge under that Act by reason of the state action exemption.The district court also rejected Hass' claim that the Bar's practice violated the commerce clause.Hass now appeals from the final judgment entered in favor of the Bar.

The district court had jurisdiction over the subject matter under 28 U.S.C. Sec. 1331.We have jurisdiction over Hass' timely appeal from the final judgment under 28 U.S.C. Sec. 1291.

III.DISCUSSION

A.The State Action Exemption

The question presented is whether the Board's resolution requiring Oregon-based attorneys to purchase primary malpractice insurance ² from the Bar (hereinafter "the mandatory participation provision") is immune from challenge under the federal antitrust laws by reason of the state action exemption.We review de novo the district court's ruling that the Bar is protected by the exemption.Kern-Tulare Water Dist. v. City of Bakersfield, 828 F.2d 514, 518(9th Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 1752, 100 L.Ed.2d 214(1988).

Recognizing the principle of state sovereignty that underlies our federalist system of government, the Supreme Court has construed the Sherman Act not to apply to anti-competitive acts undertaken by a state in its sovereign capacity.Parker v. Brown, 317 U.S. 341, 350-51, 63 S.Ct. 307, 313-14, 87 L.Ed. 315(1943);Kern-Tulare, 828 F.2d at 518.A state is deemed to be acting in its sovereign capacity when it acts through its legislature, Parker, 317 U.S. at 350-51, 63 S.Ct. at 313-14, or through its supreme court, acting in a legislative capacity, Bates v. State Bar, 433 U.S. 350, 359-60, 97 S.Ct. 2691, 2696-97, 53 L.Ed.2d 810(1977).

The mandatory participation provision challenged by Hass was not imposed directly by either the Oregon legislature or the Oregon Supreme Court acting in a legislative capacity.The provision was promulgated by the Bar, which is merely an instrumentality of the state judiciary.Thus, promulgation of the mandatory participation provision was not an act of the state in its sovereign capacity.SeeGoldfarb v. Virginia State Bar, 421 U.S. 773, 790-92, 95 S.Ct. 2004, 2014-16, 44 L.Ed.2d 572(1975)(activity of state bar in approving minimum-fee schedule was not activity of state acting as sovereign);cf.Hoover v. Ronwin, 466 U.S. 558, 572-73, 104 S.Ct. 1989, 1997-98, 80 L.Ed.2d 590(1984)(plurality)(where state supreme court appointed committee to administer bar examination but "retained strict supervisory powers and ultimate full authority" over committee, conduct of committee in grading examination was "in reality" that of state supreme court in its sovereign capacity).

Where, as here, the challenged activity "is not directly that of the [state]legislature or supreme court, but is carried out by others pursuant to state authorization,"the court must closely analyze the activity to "ensure that the anticompetitive conduct of the State's representative was contemplated by the State."Hoover, 466 U.S. at 568, 104 S.Ct. at 1995(footnote omitted).

The Supreme Court has formulated a two-part test to determine whether Parker immunity is available to non-sovereign entities engaged in alleged anticompetitive conduct pursuant to state authorization.First, the court must determine whether the challenged conduct has been undertaken "pursuant to a 'clearly articulated and affirmatively expressed state policy' to replace competition with regulation."Hoover, 466 U.S. at 569, 104 S.Ct. at 1995;accordPatrick v. Burget, 486 U.S. 94, 108 S.Ct. 1658, 1663, 100 L.Ed.2d 83(1988);California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 105, 100 S.Ct. 937, 943, 63 L.Ed.2d 233(1980)(quotingCity of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 410, 98 S.Ct. 1123, 1135, 55 L.Ed.2d 364(1978)(plurality)).Second, when the challenged conduct is that of a private party, the court must determine whether the conduct is " 'actively supervised' by the State itself."Midcal, 445 U.S. at 105, 100 S.Ct. at 943(quotingCity of Lafayette, 435 U.S. at 410, 98 S.Ct. at 1135).Whether the conduct of state agencies must also be "actively supervised" by the state is an open question.These requirements are discussed below.

1.The Requirement of a Clearly Articulated andAffirmatively Expressed State Policy

To determine whether the Bar has acted pursuant to a clearly articulated and affirmatively expressed state policy to replace competition with regulation in the field of primary legal malpractice coverage, we must examine the pertinent enabling legislation.If the statutory provisions "plainly show" that the legislature contemplated the sort of activity that is challenged, the "clear articulation" requirement has been satisfied.Town of Hallie v. City of Eau Claire, 471 U.S. 34, 44, 105 S.Ct. 1713, 1719, 85 L.Ed.2d 24(1985);see alsoSouthern Motor Carriers Rate Conf., Inc. v. United States, 471 U.S. 48, 64, 105 S.Ct. 1721, 1730, 85 L.Ed.2d 36(1985)("[a]s long as the State as sovereign clearly intends to displace competition in a particular field with a regulatory structure," the "clear articulation" requirement is satisfied).The legislature will be deemed to have contemplated the challenged activity if the statutes confer "express...