In Shames v. California Travel and Tourism Commission, the Ninth Circuit Court of Appeals affirmed a ruling that the California Travel and Tourism Commission (CTTC) is entitled to state action immunity from antitrust liability for its alleged price-fixing of rental car rates in violation of Section 1 of the Sherman Act. The Court rejected the contention that an agreement between the CTTC and rental car companies to impose fees on rental car companies amounted to unlawful price-fixing.
The CTTC is a nonprofit mutual benefit corporation created to expand and develop California's tourism industry. In 2006, the passenger rental car industry was included in the CTTC scheme, agreeing to pay a high assessment fee to the CTTC. In exchange, the passenger rental car industry was allowed to "unbundle" fees charged to its own customers, and itemize such fees separately from the base rental rate. The rental car companies were also allowed to "pass on some or all of the assessment to customers." Cal. Gov. Code § 13995.65(f).
Plaintiffs alleged that these changes led to the imposition of two fees on rental car customers. First, pursuant to an agreement between the passenger rental car industry and the CTTC, a 2.5% tourism assessment fee was added to the cost of a car rental which, in turn, helped fund the CTTC. Second, the industry "unbundled" the already-existing airport concession fee charged to customers to pay airports for the right to conduct business on airport premises, and presented this charge separately from the base rental rate. Plaintiffs alleged that these agreements between the rental car companies and the CTTC constituted price-fixing of rental car rates in violation of Sherman Act § 1.
Granting the CTTC's motion under Federal Rule of Civil Procedure 12(b)(6), the District Court dismissed all claims, finding the CTTC entitled to state action immunity from antitrust liability.
The Ninth Circuit affirmed, finding that the CTTC's alleged conduct qualified for state action immunity under the two-prong test established by the United States Supreme Court in California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980). State involvement in anticompetitive conduct renders a party eligible for immunity when: (1) the challenged restraint is "one clearly articulated and affirmatively expressed as state policy"; and (2) the policy must be "actively supervised" by the state itself. Id.
The Ninth Circuit stated that the proper standard for determining whether challenged conduct is "clearly articulated" under Midcal's first prong is whether the agency acted pursuant to its statutory authority, and, if so, whether the anticompetitive conduct was foreseeable given the statutory authorization. The Ninth Circuit rejected plaintiffs' argument that "clear articulation" requires specific or express authorization of anticompetitive conduct, and stated that the Supreme Court has applied state action immunity to actions that were a foreseeable result of a broader statutory authority without requiring express authorization. See, e.g., City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365 (1991). Applying this standard, the Ninth Circuit found that the California State Legislature explicitly authorized tourism assessment fees on passenger car rentals and for the funding of California tourism and that California Government Code § 13995.65(f) expressly allows for fees to be "passed on" to customers. The Ninth Circuit affirmed the District Court's conclusion that the CTTC's alleged anticompetitive conduct constitutes an authorized and reasonably foreseeable result and thus satisfies Midcal's first prong.
Next, the Ninth Circuit determined that the CTTC did not need to satisfy Midcal's "active state supervision" prong, noting the Supreme Court's holding in Town of Hallie v. City of Eau Claire, that municipalities or other state entities do not need to satisfy this requirement when acting under the direction of state law. 471 U.S. 34, 46 (1985). Looking at the totality of the circumstances, the Ninth Circuit determined that despite some private characteristics of the CTTC (e.g., 2/3 of its commissioners are appointed by the tourism industry rather than by the government), the agency possesses enough of the qualities of a state agency, coupled with state oversight in the form of governor-appointed commissioners and Secretary, to meet this exemption.
Practical Considerations
Private companies contemplating agreements or working relationships with government or quasi-governmental entities, or those created pursuant to state law and arguably at least partly governmental in nature, should keep this decision in mind when analyzing potential antitrust attacks or liability. While this decision has the potential to expand the state action doctrine to offer immunity from antitrust claims to agencies and other quasi-government entities notwithstanding the interplay of private interests, the Ninth Circuit's "totality of circumstances" analysis suggested that the precise scope of this decision will be determined on a case by case basis. As always, you should consult your lawyer for specific analysis and advice.