Supreme Court Reins in State-Action Immunity Doctrine

This post was written by William J. Sheridan.

Yesterday, in FTC v. Phoebe Putney Health Systems, Inc., the Supreme Court rejected an expansive view of the state-action immunity doctrine articulated by the U.S. Court of Appeals for the Eleventh Circuit. Saying the court of appeals applied the doctrine’s concept of foreseeability “too loosely,” the unanimous Court concluded that Georgia did not contemplate displacing competition in the hospital services market when it created hospital authorities with general corporate powers.

The court of appeals had upheld dismissal of an FTC action aimed at preventing the acquisition of a Georgia hospital by a hospital authority that controlled the only other hospital in the county. According to the 11th Circuit, the state-action immunity doctrine foreclosed the possibility of federal antitrust liability even though it agreed that the acquisition would limit competition and potentially create a monopoly.

The state-action immunity doctrine protects local government entities, like the hospital authorities in this case, from antitrust enforcement where they are acting pursuant to a clearly articulated and affirmatively expressed state policy to displace competition. Private parties enjoy similar immunity, with the additional requirement that the policy must be actively supervised by the State.

The Supreme Court determined that in this case there was no clear articulation of a State policy that would permit anticompetitive conduct. Justice Sotomayor’s opinion reasoned that although Georgia hospital authorities have the power to acquire other hospitals, it was not clearly articulated that they would have the power to “make acquisitions of existing hospitals that will substantially lessen competition.” Slip Op. at 10.

As a practical matter, any relief granted on remand will be remedial because the transaction closed after the court of appeals issued its opinion and dissolved the FTC’s temporary injunction.

The upshot of this decision seems to be that the Supreme Court has declined an invitation to broaden the antitrust protection afforded private entities and local governments by the state-action immunity doctrine. A general delegation of corporate powers by the State is not a license to reduce competition. As the Court observed, cases where it has found a “clear articulation” of State intent to displace competition without an explicit statement typically involve delegations of regulatory authority that are “inherently anticompetitive.” Slip Op. at 12.

 

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