Antitrust’s State Action Doctrine and the Ordinary Powers of Corporations

Abstract

The Supreme Court has now agreed to review the Eleventh Circuit's decision in Phoebe-Putney, which held that a state statute permitting a hospital authority to acquire hospitals implicitly authorized such acquisitions when they were anticompetitive – in this particular case very likely facilitating a merger to monopoly. Under antitrust law’s “state action” doctrine a state may in fact authorize such an acquisition, provided that it “clearly articulates” its desire to approve an action that would otherwise constitute an antitrust violation and also “actively supervises” any private conduct that might fall under the state’s regulatory scheme. “Authorization” in the context of state action doctrine has two meanings. The first is state authority to do the act; the second is state intent to permit the relevant actor to act anticompetitively, and thus to displace the antitrust laws. A statute giving a quasi-governmental or state chartered entity the power to “execute contracts” covers only the first category. Surely no state court would conclude that a simple authorization to a corporation to enter into contracts justified contracting that involved unlawful race discrimination, fraud, or embezzlement, or even state law antitrust violations. Indeed, for more than a century the Supreme Court has held that the fact that an acquisition was lawful under state corporate law did not immunize the transaction from federal antitrust scrutiny. The Eleventh Circuit’s decision blurs these two meanings of “authorization.” In fact, virtually every state chartered business corporation in the United States has both the power to make contracts and the power to acquire the assets or share capital of other firms. But these simple grants of what have come to be ordinary corporate powers cannot form the basis of a state action immunity. To find authorization that broadly would virtually immunize business corporations from the great majority of antitrust claims. While the court claimed to find authorization in state approval twenty years earlier of what it described as a merger to monopoly, that case actually did not involve a merger to monopoly at all, but rather the transfer of a monopoly hospital from one owner to another. The transfer had no impact whatsoever on competition. Federal antitrust policy’s commitment to federalism is strong – so strong, in fact, that it permits states to immunize almost any kind of intrastate conduct as long as they state their wishes clearly and do not permit private actors to hijack the process. At the same time, however, the inference is strong that the states have a commitment to the maintenance of competition – attested by the fact that nearly every state has an antitrust law of its own, most of them modeled on the Sherman Act. For that reason the presumption must be strong that before state action immunity will be granted the state must assert with clarity that this was the policy it intended.