No State Action Antitrust Immunity for City’s Alleged Tying Arrangement

The City of LaGrange, Georgia was held not to be immune from antitrust liability based on its claim that its actions were authorized by the state, according to the Eleventh Circuit’s August 20, 2019 decision in Diverse Power, Inc. v. City of LaGrange, 2019 WL 3928624. The city provides exclusive water services to its residents and also provides water to users outside the city limits. The city also provides natural gas to customers both inside and outside the city limits. In 2004, the city enacted an ordinance affecting water customers outside the city limits. Water would be provided for new construction only if the builder installed gas heating along with certain other appliances.

A competing electricity provider, Diverse Power, brought an action under the Sherman and Clayton Antitrust Acts challenging the city’s policy as an unlawful tying arrangement. The city moved to dismiss on the ground that it enjoyed state action immunity under the antitrust laws. Under that doctrine, a political subdivision is immune from antitrust liability if it acts pursuant to a clearly articulated and affirmatively expressed state policy to displace competition. After the district court denied the city’s motion, the city took an interlocutory appeal under the collateral order doctrine.

In an opinion authored by Judge Tjoflat, the court, after upholding its appellate jurisdiction, rejected the city’s claim of immunity. The court’s analysis required that it revisit an earlier episode in the evolution of antitrust state action immunity. In FTC v. Phoebe Putney Health System, Inc., 663 F.3d 1369 (11th Cir. 2011), the Eleventh Circuit, in another Judge Tjoflat opinion, had held that a municipal hospital was entitled to state action immunity against the FTC’s action to enjoin its acquisition of another hospital. But the Supreme Court took the case and disagreed.  568 U.S. 216 (2013). According to the Supreme Court, the state-conferred power of hospital authorities to acquire hospitals did not “inherent[ly], logical[ly], or ordinar[ily] result” in the displacement of competition.

As the Eleventh Circuit summed up Phoebe Putney, “[w]e got reversed, nine-zip.” Judge Tjoflat still seemed miffed by that result, pointedly reviewing possible tensions between Phoebe Putney and  two prior Supreme Court opinions on the subject, but ultimately conceded that  “[n]evertheless, Phoebe Putney is the law, and our job is to apply it to the facts of this case.” And apply it the court did, concluding that “we think it is safe to say that the tying of an unrelated service in a different market to the provision of water service falls outside the statutes’ grant of immunity.” The court remanded the case for further proceedings.

The court’s opinion, filled with contractions and nods and winks to the reader, is the latest manifestation of what might be dubbed the “Newsom Effect,” a discernible trend among some members of the court toward a jaunty informality in opinion-writing, in the customary style of one of the court’s newer members, Judge Kevin Newsom. A breezier style is not entirely new for the court. On its predecessor court, the former Fifth Circuit, Judges John Brown and Irving Goldberg often leavened their work with generous dollops of levity. And Justice Elena Kagan has drawn attention with a similar colloquial style.

Diverse Power was represented by Eversheds Sutherland. Antitrust lawyer Jim McGibbon argued the case for Diverse Power. On brief with him were James Orr and Stacey McGavin Mohr.

Posted by Tom Byrne.

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