Kay Electric Coop. v. the City of Newkirk, 10–6214.

• Decision Date: 29 July 2011
• Docket Number: No. 10–6214.,10–6214.
• Parties: KAY ELECTRIC COOPERATIVE, an Oklahoma Rural Electric Cooperative; and Kay County Rural Water District No. 3, an Oklahoma Rural Water District, Plaintiffs–Appellants,v.The CITY OF NEWKIRK, OKLAHOMA, a Municipality; and the Newkirk Municipal Authority, a public trust, Defendants–Appellees.Oklahoma Association of Electric Cooperatives, Amicus–Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

647 F.3d 1039

2011-2 Trade Cases P 77,550

KAY ELECTRIC COOPERATIVE, an Oklahoma Rural Electric Cooperative; and Kay County Rural Water District No. 3, an Oklahoma Rural Water District, Plaintiffs–Appellants,

v.The CITY OF NEWKIRK, OKLAHOMA, a Municipality; and the Newkirk Municipal Authority, a public trust, Defendants–Appellees.Oklahoma Association of Electric Cooperatives, Amicus–Curiae.

No. 10–6214.

United States Court of Appeals, Tenth Circuit.

July 29, 2011.

Douglas A. Rice, Derryberry & Naifeh, LLP, Oklahoma City, OK, (Larry Derryberry and Pete G. Serrata III, Derryberry & Naifeh, LLP, Oklahoma City, OK, and Jonathan C. Ihrig and Andrew M. Ihrig, Ihrig Law Firm, Blackwell, OK, with him on the briefs) for Plaintiffs–Appellants.Andrew W. Lester (Carrie L. Williams, Lester, Loving & Davies, P.C., Edmond, OK, with him on the brief), for Defendants–Appellees.Michael Burrage, Whitten Burrage, Oklahoma City, OK, for Amicus–Curiae.Before MURPHY, GORSUCH, and MATHESON, Circuit Judges.GORSUCH, Circuit Judge.

When a city acts as a market participant it generally has to play by the same rules as everyone else. It can't abuse its monopoly power or conspire to suppress competition. Except sometimes it can. If the city can show that its parent state authorized it to upend normal competition, to install instead a municipal monopoly, the city enjoys immunity from federal antitrust liability. The problem for the City of Newkirk in this case is that the state has done no such thing.

Newkirk and Kay Electric Cooperative both provide electricity to Oklahoma consumers. Traditionally, Newkirk has served customers inside its city limits while Kay, a rural electrical cooperative, has served nearby customers outside the city boundaries. When the announcement came that a new jail would be built just outside Newkirk, Kay naturally offered to provide electricity. But unwilling to let so lucrative an opportunity slip away, Newkirk responded by annexing the area and issuing its own service offer. At the end of the day, Kay's offer was much the better but the jail still elected to buy electricity from Newkirk. Why? Because Newkirk is the only provider of sewage services in the area and it refused to provide any sewage services to the jail—that is, unless the jail also bought the city's electricity. Finding themselves stuck between a rock and a pile of sewage, the operators of the jail reluctantly went with the city's package deal.

As these things go Kay responded by suing Newkirk, alleging that the city had engaged in unlawful tying and attempted monopolization in violation of the Sherman Act. 15 U.S.C. §§ 1, 2. But the district court refused to allow the case to proceed, granting Newkirk's motion to dismiss under Fed.R.Civ.P. 12(b)(6) after it found Newkirk “immune” from liability as a matter of law. It is this ruling Kay challenges on appeal.

The Sherman Act has little to say about municipal immunity, at least directly. It contains only the broadest and barest of proscriptions against anticompetitive activity—declaring unlawful any contract, combination, or conspiracy in restraint of trade and forbidding any monopoly or attempt to monopolize. Over the last 120 years, however, much judicial embroidery has stitched out the scope of permissible and impermissible competitive activity under the Act, handiwork that's often been informed by evolving (if sometimes competing) schools of economic thought. One particular development, however, and the one at issue in this case, has less to do with economic regulation than state sovereignty.

While the Sherman Act clearly forbids anticompetitive conduct by private market players, what about conduct by state actors? In Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), the plaintiff argued that the Act's sweeping terms don't distinguish between private and public players, that states must live by the same antitrust rules as everyone else. The Supreme Court, however, disagreed. It assumed without deciding that Congress could constitutionally preempt state law directing state actors to behave anticompetitively. Id. at 350, 63 S.Ct. 307. But at the same time the Court said there's “no hint” Congress wished to attack and undo such state sanctioned restraints of trade when it passed the Sherman Act. Id. Given this, and given the importance of federal-state comity, the Court held that the Act's terms should not be read to preempt state imposed restraints of trade. States may regulate economic activity as they wish, pursuing even patently anticompetitive policies without having to look over their shoulders to see if Congress approves. Id. at 351, 63 S.Ct. 307. Thus was born the concept of “state action immunity” (though the term “immunity” may be a bit strong since the Court held only that Congress hadn't covered state action, not that it couldn't ).

The Court's answer in Parker, however, soon begot new questions of its own. If states are free from federal antitrust worries, what about the municipal agents they create and through which they often act? When the Supreme Court eventually took up this question, it conclusively answered it inconclusively, holding that a municipality sometimes may be sued under the Sherman Act and sometimes it may not. Because municipalities “are not themselves sovereign,” the Court reasoned, they should not automatically be eligible for the “federal deference [given to] the States that create them.” City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 412, 98 S.Ct. 1123, 55 L.Ed.2d 364 (1978) (plurality); Town of Hallie v. City of Eau Claire, 471 U.S. 34, 38, 105 S.Ct. 1713, 85 L.Ed.2d 24 (1985). A municipality's “parochial interests” in anticompetitive policies, the Court added, don't necessarily implicate the federalism concerns that animate the state action immunity doctrine and shouldn't always be placed “above the Nation's economic goals reflected in the antitrust laws.” Lafayette, 435 U.S. at 412–13, 98 S.Ct. 1123. Perhaps surprisingly, the Court told us, this means not only that the Sherman Act can sometimes preempt a municipality's actions; it also means that municipalities may be subject to treble damage awards for violating the Act. See generally Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 223 (Aspen 3d ed.2006); Community Communications Co. v. City of Boulder, 455 U.S. 40, 60–61, 102 S.Ct. 835, 70 L.Ed.2d 810 (1982) (Rehnquist, J., dissenting). At the same time, the Court held, if a state expressly adopts an anticompetitive policy and chooses to use its municipal subdivisions as instruments to effect that policy, then the federal-state comity concerns undergirding the Parker state immunity doctrine do come into play. And “[i]t is therefore clear,” the Court concluded after laying all this out, “that a municipality will be entitled to the protection of the state action exemption from the antitrust laws” only if there is a “clear articulation of a state policy to authorize anticompetitive conduct” by the municipality. Hallie, 471 U.S. at 34, 105 S.Ct. 1713 (internal quotation omitted); see also Boulder, 455 U.S. at 54–55, 102 S.Ct. 835; City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 373, 111 S.Ct. 1344, 113 L.Ed.2d 382 (1991). Put simply, at the end of the day a municipality shares the state's “immunity” when but only when it is implementing anticompetitive policies authorized by the state.

How clearly must a state legislature articulate its authorization of anticompetitive municipal conduct to trigger antitrust immunity? Now many decades removed from Parker, the Court has sometimes declared that its judicially created “[s]tate-action immunity [should be] disfavored,” F.T.C. v. Ticor Title Ins. Co., 504 U.S. 621, 635–36, 112 S.Ct. 2169, 119 L.Ed.2d 410 (1992) (citing Lafayette, 435 U.S. at 398–99, 98 S.Ct. 1123), and, because of this, a municipality's authority to suppress competition must be “ clearly articulated and affirmatively expressed ” in state legislation. California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 105, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980) (emphasis added); Ticor, 504 U.S. at 636, 112 S.Ct. 2169 (requiring “real compliance” with Midcal ). At other times, however, the Court has appeared to require something less of cities seeking to invoke Parker's protections, suggesting that a municipality's actions are free from the grasp of federal antitrust law if anticompetitive effects “ logically would result ” from state legislative policy. Hallie, 471 U.S. at 42, 105 S.Ct. 1713. Complicating matters still further, the Court has also said that a municipality may be authorized to engage in anticompetitive actions that are merely the “ foreseeable result ” of state legislation. Id. (emphasis added).

With its usual care Professor Areeda and Hovenkamp's treatise traces all these warps and wefts before gently suggesting that “while the policy favoring competition is national and the states are permitted to establish an alternative regime,” states should be required to “declare their intentions clearly rather than falling back on the ambiguity-creating compromises that often characterize the legislative process.” Areeda & Hovenkamp, Antitrust Law ¶ 225a at 133. Such a bright line rule, they have said, would “do a much better job of identifying the relevant principle of federalism that undergirds the Parker doctrine.” Id. But however much sense this makes (and we think it makes quite a lot of sense), our lot as a lower court isn't to choose between the Supreme Court's holdings but to apply them. And though it's hard to see a way to reconcile all of the Court's competing statements in this area, we can say with certainty this much—a municipality surely lacks antitrust “immunity” unless it can bear the burden of showing that its challenged conduct was at least a foreseeable (if not explicit) result of state legislation. Of course, what does and doesn't qualify as...