Edinboro College Park Apartments v. Edinboro University Foundation , 850 F.3d 567 ( 2017 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 16-1746
_____________
EDINBORO COLLEGE PARK APARTMENTS;
DARROW PLACE PARTNERSHIP;
DARROW PLACE PARTNERSHIP II;
JAMES MANOR OF EDINBORO, LLC,
Appellants
v.
EDINBORO UNIVERSITY FOUNDATION;
*H. FRED WALKER, Ph.D
*
(Pursuant to Rule 43(c)(2), Fed. R. App. P.)
_____________
On Appeal from the United States District Court
for the Western District of Pennsylvania
District Court No. 1-15-cv-00121
District Judge: The Honorable Barbara Jacobs Rothstein
Argued November 9, 2016
Before: SMITH, Chief Judge, McKEE and RESTREPO,
Circuit Judges
(Filed: March 9, 2017)
Matthew L. Wolford [ARGUED]
638 West Sixth Street
Erie, PA 16507
Counsel for Appellants
Joseph S.D. Christof, II
Dickie McCamey & Chilcote
Two PPG Place
Suite 400
Pittsburgh, PA 15222
Matthew W. McCullough [ARGUED]
Mark T. Pavkov
James R. Walczak
MacDonald Illig Jones & Britton
100 State Street
Suite 700
Erie, PA 16507
Counsel for Appellee
Edinboro University Foundation
Thomas L. Donahoe
Kemal A. Mericli [ARGUED]
2
Office of Attorney General of Pennsylvania
564 Forbes Avenue
6th Floor, Manor Complex
Pittsburgh, PA 15219
Counsel for Appellee Julie E. Wollman & H. Fred
Walker
________________
OPINION
________________
SMITH, Chief Judge.
Under Parker v. Brown, 317 U.S. 341 (1943), state
action is immune from Sherman Act antitrust liability.
This case presents the question of whether a public
university, Edinboro University of Pennsylvania of the
State System of Higher Education (“the University”), and
its nonprofit collaborator, Edinboro University
Foundation (“the Foundation”), are entitled to such
immunity. On defendants’ motions to dismiss, the
District Court held that Parker immunity automatically
applies to the University because the University is an arm
of the state.
3
Although dismissal was appropriate, the District
Court painted with too broad a brush. The University’s
actions are not categorically “sovereign” for purposes of
Parker immunity. Because of that, we are required to
apply heightened scrutiny. We conclude that the
appropriate standard is derived from the Supreme Court’s
decision in Town of Hallie v. City of Eau Claire, 471
U.S. 34 (1985), which requires anticompetitive conduct
to conform to a clearly articulated state policy. We
further conclude that, taking the allegations in the
Amended Complaint in the light most favorable to
plaintiffs, the University’s conduct withstands Hallie
scrutiny. Furthermore, because the Foundation’s actions
were directed by the University, the Foundation is also
immune. We will affirm in part on those alternative
grounds and remand with the instruction that the
Amended Complaint be dismissed without prejudice.
I
This case arises out of the need for student housing
at Edinboro University, a public university located in
Edinboro, Pennsylvania. Plaintiffs are private business
entities that provide off-campus residential housing near
the University. According to plaintiffs, the University
conspired with Edinboro University Foundation, a
nonprofit entity that conducts fundraising on behalf of
4
the University, to monopolize the student-housing
market.
Public higher education in Pennsylvania operates
under a series of constitutional, legislative, and
administrative mandates. The Pennsylvania Constitution
requires the General Assembly to “provide for the
maintenance and support of a thorough and efficient
system of public education to serve the needs of the
Commonwealth.” Pa. Const. art. III, § 14. The General
Assembly, in turn, enacted legislation creating the
Pennsylvania State System of Higher Education, or
“PASSHE.” See 24 P.S. § 20-2002-A(a). PASSHE is “a
body corporate and politic,” id., governed by a chancellor
and the Board of Governors, see id. §§ 20-2004-A, 20-
2005-A. Edinboro University is one of fourteen
constituent institutions of the PASSHE system. Id. § 20-
2002-A(a). The University is governed by its president
and Council of Trustees. See id. §§ 20-2007-A, 20-2008-
A.
At issue in this case is the University’s decision to
collaborate with the Foundation in order to construct new
dormitories called the Highlands. In January 2008, the
Foundation amended its Articles of Incorporation to
authorize borrowing funds “to acquire, lease, construct,
develop and/or manage real or personal property.” Am.
Compl. ¶ 19. The Foundation then signed a “Cooperation
5
Agreement” with the University: the University would
lease certain property to the Foundation in a favorable
location, and in turn the Foundation would finance,
construct, and manage the Highlands dormitories. The
Foundation issued bonds to raise the funds and began
construction.
Plaintiffs aver that, after construction was
completed, the University took anticompetitive measures
to ensure that the Foundation recouped its investment.
Since 1989, the University maintained a “parietal rule”
requiring non-commuting first-year and transfer students
to reside on-campus for two consecutive semesters. On
May 6, 2011, two and one-half years after the first phase
of the Highlands dormitories opened, the University
amended its policy to require certain students to reside
on-campus for four consecutive semesters or until they
complete at least 59 credit hours.
Plaintiffs brought suit, asserting that the University
and the Foundation conspired to monopolize the student-
housing market in violation of Section 2 of the Sherman
Act, 15 U.S.C. § 2.1 The Amended Complaint states that
1
Although not relevant to this appeal, plaintiffs
also asserted a claim for tortious interference arising
under state law.
6
plaintiffs experienced a 50% decline in business after the
University expanded its on-campus residency
requirement. Plaintiffs also aver that this conduct harms
students by forcing them to pay higher rates for housing
and participate in the University’s meal plans.
Plaintiffs did not sue the University, conceding
that the University is an arm of the state subject to
immunity under the Eleventh Amendment.2 Instead,
plaintiffs sued the Foundation and the University’s
president in her official capacity for prospective relief
pursuant to Ex parte Young, 209 U.S. 123 (1908).3
2
Because the University is not a party to this case,
we need not address whether it is entitled to Eleventh
Amendment immunity. See Maliandi v. Montclair State
Univ., 845 F.3d 77, 85 (3d Cir. 2016) (“[E]ach state
university exists in a unique governmental context, and
each must be considered on the basis of its own peculiar
circumstances . . . .” (citation omitted)); Skehan v. State
Sys. of Higher Educ., 815 F.2d 244, 249 (3d Cir. 1987)
(holding that PASSHE was entitled to Eleventh
Amendment immunity).
3
At the time plaintiffs filed suit, the University’s
president was Julie E. Wollman, Ph.D. Dr. Wollman’s
7
By Order dated March 1, 2016, the District Court
dismissed plaintiffs’ Amended Complaint with prejudice
on the ground that defendants’ conduct constitutes state
action immune from Sherman Act antitrust liability under
the Parker doctrine. See Edinboro Coll. Park Apartments
v. Edinboro Univ. Found., No. 15-cv-121, 2016 WL
6883295 (W.D. Pa. Mar. 1, 2016). This timely appeal
followed.
II
The District Court had jurisdiction pursuant to 28
U.S.C. § 1331. We have jurisdiction pursuant to 28
U.S.C. § 1291. We exercise plenary review of a district
court’s order granting a motion to dismiss under Rule
12(b)(6) of the Federal Rules of Civil Procedure, and
apply the same standard as does the District Court. In re
Vehicle Carrier Servs. Antitrust Litig., 846 F.3d 71, 79
n.4 (3d Cir. 2017). Under this standard, the complaint
must “contain sufficient factual matter, accepted as true,
to state a claim to relief that is plausible on its face.” Id.
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009))
(internal quotation marks omitted). In evaluating the
sufficiency of the allegations, “we disregard rote recitals
successor and the current president of the University is
H. Fred Walker, Ph.D.
8
of the elements of a cause of action, legal conclusions,
and mere conclusory statements.” Id. (quoting James v.
City of Wilkes-Barre, 700 F.3d 675, 679 (3d Cir. 2012)).
III
We begin with an overview of the applicable law.
In Parker v. Brown, 317 U.S. 341 (1943), the Supreme
Court held that the Sherman Act does not prohibit
anticompetitive state action. That ruling embodies “the
federalism principle that the States possess a significant
measure of sovereignty under our Constitution.” Cmty.
Cmmc’ns Co. v. City of Boulder, 455 U.S. 40, 53 (1982).
States may “impose restrictions on occupations, confer
exclusive or shared rights to dominate a market, or
otherwise limit competition to achieve public objectives.”
N.C. State Bd. of Dental Exam’rs v. FTC, 135 S. Ct.
1101, 1109 (2015). Without Parker immunity, “federal
antitrust law would impose an impermissible burden on
the States’ power” to subordinate market competition to
“other values a State may deem fundamental.” Id.
Then nearly half a century after Parker, the
Supreme Court clarified that “state-action immunity is
disfavored.” FTC v. Ticor Title Ins. Co., 504 U.S. 621,
636 (1992). To ensure that the doctrine is appropriately
limited, the Supreme Court has devised three approaches
9
to analyzing a state-action defense: (1) ipso facto
immunity, (2) Midcal scrutiny, and (3) Hallie scrutiny.
Which test applies depends on whether the relevant actor
is comparable to a sovereign power, a private business, or
something in between.
The doctrine of ipso facto immunity is the least
searching. Once it is determined that the relevant action
is “an undoubted exercise of state sovereign authority”
undertaken by an actor “whose conduct . . . automatically
qualif[ies] as that of the sovereign state itself,” that
conduct is immune without the need for any further
analysis. Dental Exam’rs, 135 S. Ct. at 1110–11 (2015);
see A.D. Bedell Wholesale Co. v. Philip Morris Inc., 263
F.3d 239, 258 (3d Cir. 2001) (immunity for “direct state
action” applies “only when the allegedly anticompetitive
behavior was the direct result of acts within the
traditional sovereign powers of the state”). The Supreme
Court has recognized only two such contexts: (1) acts of
state legislatures, and (2) “decisions of a state supreme
court, acting legislatively rather than judicially.” Hoover
v. Ronwin, 466 U.S. 558, 568 (1984); see Parker, 317
U.S. at 350–51 (“We find nothing in the language of the
Sherman Act or in its history which suggests that its
purpose was to restrain a state or its officers or agents
from activities directed by its legislature.”). The Supreme
Court has rejected ipso facto immunity for entities that
10
are “state agenc[ies] for some limited purposes.”
Goldfarb v. Va. State Bar, 421 U.S. 773, 791 (1975).
The most searching level of scrutiny derives from
the Supreme Court’s decision in California Retail Liquor
Dealers Association v. Midcal Aluminum, Inc., 445 U.S.
97 (1980). There, a private party sought Parker immunity
on the ground that it acted in accordance with state
policy. To prevent a private party from “casting . . . a
gauzy cloak of state involvement over what is essentially
a private price-fixing arrangement,” Midcal, 445 U.S. at
106, the conduct must pass a rigorous two-part test. First,
the state must enact a “clearly articulated and
affirmatively expressed” policy permitting
anticompetitive conduct; and second, the State must
“actively supervise[]” that conduct. Id. at 105 (citation
omitted). Midcal analysis applies where private actors
seek to immunize their anticompetitive conduct under the
Parker doctrine, see, e.g., id. at 106, or where a state
agency is deemed functionally private because it is
controlled by active market participants, Dental Exam’rs,
135 S. Ct. at 1114.
Finally, the Supreme Court announced an
intermediate standard of review in Town of Hallie v. City
of Eau Claire, 471 U.S. 34 (1985). There, it determined
that municipalities are exempt from Midcal’s second
prong—active supervision—but must still comply with
11
the first prong—conformity with a clearly articulated
state policy. Id. at 40. The Supreme Court observed that
the municipality was an “arm of the State” entitled to a
presumption that it “acts in the public interest,” id. at 45,
the municipality is politically accountable for its
anticompetitive policies, id. at 45 n.9, and there is thus
“little or no danger” that the municipality would become
“involved in a private price-fixing arrangement,” id. at
47. In dicta, the Supreme Court has suggested that
“prototypical” state agencies may be subjected to the
same degree of scrutiny as a municipality. See id. at 46
n.10 (“In cases in which the actor is a state agency, it is
likely that active state supervision [Midcal’s second
prong] would also not be required, although we do not
here decide that issue.”); Dental Exam’rs, 135 S. Ct. at
1114 (“[T]he municipality [in Hallie] was more like
prototypical state agencies, not specialized boards
dominated by active market participants.”).
In sum, the Supreme Court has established the
following principles: ipso facto immunity applies to state
legislatures and state supreme courts, but not to entities
that are state agencies for limited purposes; Midcal
scrutiny applies to private parties and state agencies
controlled by active market participants; and Hallie
scrutiny applies to municipalities, and perhaps state
agencies. Applying those principles to the facts alleged in
the Amended Complaint resolves this appeal.
12
IV
Because the level of scrutiny for state-action
immunity turns on the character of the relevant actor, the
first step of any Parker analysis is to identify the actor
that performed the alleged anticompetitive conduct. We
conclude that plaintiffs’ alleged antitrust injury stems
entirely from the conduct of the University, and we focus
our analysis accordingly.
When beginning a Parker analysis that involves a
private defendant, it is critically important to determine
whether the private defendant caused the alleged antitrust
injury.4 Bedell, 263 F.3d at 258. In some cases, private
defendants independently engage in anticompetitive
conduct, such as price fixing, and then seek immunity
under the “gauzy cloak of state involvement.” Midcal,
445 U.S. at 106. In such a scenario, full Midcal scrutiny
is required. Id. But in other cases, Midcal scrutiny may
not be necessary because the private defendant does not
act on its own and is merely an adjunct to a government’s
anticompetitive action. If a governmental actor is
4
Antitrust injury means “(1) injury of the type the
antitrust laws were intended to prevent and (2) that flows
from that which makes defendants’ acts unlawful.”
Bedell, 263 F.3d at 247 (quoting Brunswick Corp. v.
Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1997)).
13
independently responsible for causing the alleged
antitrust injury, “once [it] is determined to be
immune . . . , the immunity should be extended to include
private parties acting under [its] direction.” Zimomra v.
Alamo Rent-A-Car, Inc., 111 F.3d 1495, 1500 (10th Cir.
1997). “Otherwise, plaintiffs could sue only the private
parties and by winning antitrust judgments against them,
could thwart state policies as if there were no state
[i]mmunity.” Bedell, 263 F.3d at 256 n.35; see also S.
Motor Carriers Rate Conference, Inc. v. United States,
471 U.S. 48, 56–57 (1985). In Massachusetts School of
Law at Andover, Inc. v. American Bar Association, for
example, this Court found that a private entity was
shielded behind the ipso facto immunity of the state
(without need for Midcal scrutiny) because the alleged
antitrust injury was caused solely by direct sovereign
action. 107 F.3d 1026, 1036 (3d Cir. 1997).
In this case, plaintiffs allege that the public
University and the private Foundation conspired to
monopolize the student-housing market. But the only
alleged actions of the Foundation—amending its charter,
issuing bonds, building the dormitories, and managing
the property—are consistent with participation in a
competitive market. The Foundation’s advantage derived
entirely from the University’s decision to expand its on-
campus residency rule, which required more students to
live in dormitories like the Highlands. Plaintiffs have not
14
identified any independent conduct of the Foundation
that conceivably restricted competition. See Atl. Richfield
Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990)
(“[I]njury . . . will not qualify as ‘antitrust injury’ unless
it is attributable to an anti-competitive aspect of the
practice under scrutiny . . . .”).
Nor is this a case of “hybrid” anticompetitive
conduct. See Bedell, 263 F.3d at 258.5 Bedell involved a
Multistate Settlement Agreement brokered between the
governments of several states and certain tobacco
manufacturers. The plaintiffs alleged that the Agreement
established a cartel whereby private tobacco companies
would be permitted to restrict output. This Court
observed that the alleged anticompetitive conduct was
neither “purely private” nor “entirely attributable to the
5
Bedell’s discussion of Parker is arguably dicta
because it resolved the appeal based on a different
doctrine, and then went on to conclude that Parker
immunity would not have resolved the appeal. 263 F.3d
at 254. A subsequent decision of this Court, Mariana v.
Fisher, noted as much, but concluded that Bedell is
binding. 338 F.3d 189, 201–04 (3d Cir. 2003). That
section of Mariana, however, was also arguably dicta for
the same reason. Regardless, we are persuaded by
Mariana’s embrace of Bedell as binding circuit
precedent.
15
state.” Id. Rather, the alleged antitrust injury derived
from a “hybrid restraint,” which “involve[d] a degree of
private action which calls for Midcal analysis.” Id. (citing
Rice v. Norman Williams Co., 458 U.S. 654, 666–67
(1982) (Stevens, J., concurring)). But in this case, there is
no comparable “degree of private action,” such as
participation in a cartel, “which calls for Midcal
analysis.” Id.
We conclude that the Foundation was merely
“acting under the direction of” the University. Zimomra,
111 F.3d at 1500. Therefore, if the University is immune,
the Foundation must be as well. Motor Carriers, 471
U.S. at 56–57; Mass. Sch. of Law, 107 F.3d at 1036.
Given that understanding of the Foundation’s role in the
challenged conduct, we proceed to analyze how the state-
action doctrine applies to the University.6
6
Our analysis focuses on the University even
though it was not named as a defendant in this case.
Preliminarily, the University is a party in interest based
on the official-capacity claim against its president. See
Kentucky v. Graham, 473 U.S. 159, 166 (1985). But even
if plaintiffs had only sued the Foundation, “the same test
should apply to determine state action immunity
regardless of who the named defendants are.” Zimomra,
111 F.3d at 1500.
16
V
The fundamental question we must decide is which
tier of scrutiny applies to the University’s conduct: no
further review (if the University is ipso facto immune),
Midcal review, or Hallie review. The District Court held
that the University is ipso facto immune because it is an
arm of the state. We disagree. Instead, we conclude that
Hallie review is appropriate because the University is
more analogous to a municipality than to a private market
participant.
17
A
The District Court held that the University is ipso
facto immune because the University is an arm of the
state under the Eleventh Amendment. But those two
immunity doctrines are not coextensive. Even if the
University were an arm of the state, the University is not
“sovereign” for purposes of Parker. Unlike the General
Assembly or the Supreme Court of Pennsylvania, the
University cannot legislate anticompetitive policies on
behalf of the Commonwealth. Thus, the University’s
decision to expand its on-campus residency requirement
is not entitled to ipso facto immunity.
1
Sovereign action for purposes of direct Parker
immunity is “qualitatively different” from state action in
more familiar contexts. Bedell, 263 F.3d at 254. While
traditional state action can cover
inadvertent or unilateral acts of state officials
not acting pursuant to state policy . . . the
term “state action” in antitrust adjudication
refers only to government policies that are
articulated with sufficient clarity that it can
18
be said that these are in fact the state’s
policies, and not simply happenstance,
mistakes, or acts reflecting the discretion of
individual officials.
Id. (quoting 1 Philip E. Areeda & Herbert Hovenkamp,
Antitrust Law ¶ 221 (Rev. ed. 1997)). Thus, conduct
might be deemed nonsovereign for purposes of Parker
immunity “even if sectors of state government are
involved.” Id.; see Dental Exam’rs, 135 S. Ct. at 1113
(recognizing that nonsovereign entities can be “public or
private”). In accordance with those principles, the
Supreme Court has recognized ipso facto immunity in
two limited contexts: state legislation and the decisions
of state supreme courts, acting legislatively. Hoover, 466
U.S. at 568. The Court reserved the question of whether
“the Governor of a State” is ipso facto immune, id. at 568
n.17, but as described below, has consistently required
heightened scrutiny for subordinate branches of state
government.
Recently in North Carolina State Board of Dental
Examiners v. FTC, the Supreme Court addressed the
status of an “agency of the state” with the authority to
regulate the practice of dentistry in North Carolina. 135
S. Ct. at 1107. The dissenting Justices would have found
ipso facto immunity, providing a simple resolution. See
id. at 1117–18 (Alito, J., dissenting) (“Under Parker, the
19
Sherman Act . . . do[es] not apply to state agencies; the
North Carolina Board of Dental Examiners is a state
agency; and that is the end of the matter.”).
But instead, the Court treated the regulatory board
as a nonsovereign actor. It began with the familiar
principle that “[s]tate legislation” and “decision[s] of a
state supreme court, acting legislatively” are entitled to
ipso facto immunity because “they are an undoubted
exercise of state sovereign authority.” Id. at 1110
(majority opinion). But the Court declined to apply ipso
facto immunity to the agency:
For purposes of Parker, a nonsovereign actor
is one whose conduct does not automatically
qualify as that of the sovereign State itself.
State agencies are not simply by their
governmental character sovereign actors for
purposes of state-action immunity. Immunity
for state agencies, therefore, requires more
than a mere facade of state involvement . . . .
Id. at 1111 (citations omitted).
The Supreme Court’s treatment of state agencies in
Dental Examiners continues a long line of similar
20
precedents. As we noted above, the Court found that a
state bar—a “state agency by law”—did not receive ipso
facto immunity. Goldfarb, 421 U.S. at 789–91. “The fact
that the State Bar is a state agency for some limited
purposes does not create an antitrust shield that allows it
to foster anticompetitive practices for the benefit of its
members.” Id.;7 see also, e.g., Motor Carriers, 471 U.S.
at 57 (“The circumstances in which Parker immunity is
available to . . . state agencies or officials regulating the
conduct of private parties[] are defined most specifically
by our decision in [Midcal].”); City of Lafayette v. La.
Power & Light Co., 435 U.S. 389, 410 (1978) (plurality
opinion) (“[F]or purposes of the Parker doctrine, not
every act of a state agency is that of the State as
sovereign.”); cf. Hallie, 471 U.S. at 46 n.10.
7
Contrast Goldfarb with the Supreme Court’s
subsequent decision in Bates v. State Bar of Arizona, 433
U.S. 350 (1977). There, the Supreme Court found a state
bar immune under Parker, but only after conducting what
would later come to be known as Midcal analysis: the
challenged restraint of trade was the “affirmative
command of the Arizona Supreme Court,” id. at 359, and
was “subject to pointed re-examination” by that court, id.
at 362; see also Hoover, 466 U.S. at 573 (“[T]he court
itself approved the particular grading formula and
retained the sole authority to determine who should be
admitted to the practice of law in Arizona.”).
21
2
Applying those principles, we conclude that the
University is not entitled to ipso facto immunity. The
University is not a sovereign decisionmaker analogous to
a state legislature or state supreme court.
When the University amended its policy
mandating a longer term of on-campus residency, it was
not exercising sovereign powers. Rather, it was
exercising discretion delegated by the Pennsylvania
legislature, akin to acting as a state agency. See Hoover,
466 U.S. at 568 (“Closer analysis is required when the
activity at issue is not directly that of the legislature or
supreme court, but is carried out by others pursuant to
state authorization.”); cf. Mass. Sch. of Law, 107 F.3d at
1036 (applying ipso facto immunity because “this case
does not involve a delegation of state authority”). As
such, the University’s conduct did not represent the
sovereign’s will “simply by [its] governmental
character.” Dental Exam’rs, 135 S. Ct. at 1111. It
follows, a fortiori, that the University fits the definition
of a “nonsovereign actor” for purposes of Parker: “one
22
whose conduct does not automatically qualify as that of
the sovereign State itself.” Id.8
The University, in fact, presents an easier case than
prototypical state agencies. At most, the University is
comparable to “a state agency for some limited
purposes.” Goldfarb, 421 U.S. at 791 (emphasis added).
Unlike prototypical state agencies, the University’s
authority is limited to managing its own affairs and the
affairs of its students, who voluntarily attend. It does not
wield regulatory power. Thus, by comparison to other
divisions of state government that might present closer
8
Defendants argue that Dental Examiners is
limited to its factual context—where a regulatory entity
is controlled by private market participants. But that
control was not relevant to the Court’s holding that the
Board was nonsovereign. See Dental Exam’rs, 135 S. Ct.
at 1110–11. That antecedent question was resolved
simply by the Board’s status as an agency, as conceded
by counsel for the Board. Id.; see Brief for Petitioner at
24–25, Dental Exam’rs, 135 S. Ct. 1101 (No. 13-534),
2014 WL 2212529. Rather, the control by market
participants was relevant to the next step of the
analysis—determining whether the Board’s actions, as a
nonsovereign, are required to meet both Midcal prongs or
only one. See Dental Exam’rs, 135 S. Ct. at 1113–14.
23
cases, the University is clearly not sovereign for purposes
of Parker immunity.9
Because the University is not a sovereign actor
analogous to a state legislature or state supreme court, its
pronouncements are not entitled to ipso facto immunity.
Defendants are “[p]lainly . . . in error in arguing that
Parker held that all governmental entities, whether state
agencies or subdivisions of a State, are, simply by reason
of their status as such, exempt from the antitrust laws.”
Lafayette, 435 U.S. at 408.
9
The District Court’s reasoning equates the phrase
“traditional sovereign powers,” Bedell, 263 F.3d at 258,
with the phrase “traditional area of state power,”
Edinboro, 2016 WL 6883295, at *3. While providing for
higher education is certainly a traditional state function, it
does not follow that the University wields traditional
sovereign power. Likewise, in Dental Examiners,
professional licensing and regulation is a traditional area
of state power. Yet that was no obstacle to the Supreme
Court concluding that the Board was a nonsovereign
actor. Cf. Dental Exam’rs, 135 S. Ct. at 1119 (Alito, J.,
dissenting) (“[T]he regulation of the practice of medicine
and dentistry was regarded as falling squarely within the
States’ sovereign police power.”).
24
3
Defendants argue that several of our sister circuits
have recognized broad ipso facto immunity for the states’
executive branches. Those cases are distinguishable.
In Neo Gen Screening, Inc. v. New England
Newborn Screening Program, 187 F.3d 24 (1st Cir.
1999), the First Circuit conferred ipso facto Parker
immunity on the Massachusetts Department of Public
Health. In doing so, the Court recognized that “the status
of state boards or commissions is open to dispute,” and
thus limited its holding to situations “where a full-
fledged department is concerned.” Id. at 29. Likewise, in
Deak-Perera Hawaii, Inc. v. Department of
Transportation, 745 F.2d 1281, 1283 (9th Cir. 1984), and
subsequently Charley’s Taxi Radio Dispatch Corp. v.
SIDA of Hawaii, Inc., 810 F.2d 869, 875 (9th Cir. 1987),
the Ninth Circuit found ipso facto immunity for the
actions of Hawaii’s Department of Transportation.
Because we hold that the University is analogous
to a “state agency for some limited purposes,” Goldfarb,
421 U.S. at 791, rather than a “full-fledged department,”
Neo Gen, 187 F.3d at 29, our decision does not conflict
with those rulings. We continue to reserve the question
addressed by those courts—whether ipso facto immunity
25
applies to prototypical state agencies or high-ranking
executive officials acting within their lawfully delegated
authority. Cf. Bedell, 263 F.3d at 256 (“We have yet to
address whether the acts of executive officials constitute
state action that avoids Midcal analysis.”).
Finally, defendants rely on Saenz v. University
Interscholastic League, 487 F.2d 1026 (5th Cir. 1973).
There, the Fifth Circuit found Parker immunity because
the defendant was “an integral part of the University of
Texas at Austin,” and therefore “constitute[d] a
governmental entity outside the ambit of the Sherman
Act.” Id. at 1028. But Saenz predates every development
to the Parker doctrine we have discussed in this decision.
Not only does it predate Midcal and Hallie, but also it
predates Goldfarb, the first case where the Supreme
Court held that a state agency is not ipso facto immune.
Simply put, the analysis we are required to apply did not
exist at the time Saenz was decided. Accordingly, we join
those courts that have applied modern state-action
principles to deny ipso facto immunity to public
universities. See, e.g., Auraria Student Hous. at the
Regency, LLC v. Campus Vill. Apartments, LLC, 843
F.3d 1225, 1250 (10th Cir. 2016); Porter Testing Lab. v.
Bd. of Regents for Okla. Agric. & Mech. Colls., 993 F.2d
768, 772 (10th Cir. 1993); Seaman v. Duke Univ., No.
1:15-cv-462, 2016 WL 1043473, at *1 (M.D.N.C. Feb.
12, 2016); Humana of Ill., Inc. v. Bd. of Trustees of S. Ill.
26
Univ., No. 84-2373, 1986 WL 962, at *5 (C.D. Ill. June
3, 1986); Am. Nat’l Bank & Trust Co. of Chi. v. Bd. of
Regents for Regency Univs., 607 F. Supp. 845, 849–50
(N.D. Ill. 1984); see also Daniel v. Am. Bd. of Emergency
Med., 988 F. Supp. 127, 183 (W.D.N.Y. 1997)
(university hospitals).
We conclude that the University’s conduct does
not constitute direct sovereign action under the Parker
doctrine. While the University is a governmental entity,
“[a]cting alone,” it is not empowered with the sovereign
authority to legislate the “policy of the State itself.”
Motor Carriers, 471 U.S. at 62–63.
B
Having concluded that ipso facto immunity is
inappropriate, “closer analysis is required.” Hoover, 466
U.S. at 568. Ordinarily that entails applying Midcal’s
rigorous two-part test. But “there are instances in which
an actor can be excused from Midcal’s active-supervision
requirement.” Dental Exam’rs, 135 S. Ct. at 1112. We
conclude that this is such an instance because the
University is more closely analogous to the municipality
in Hallie than to a private market participant.
27
1
The University is exempt from Midcal’s active-
supervision requirement in accordance with the Supreme
Court’s reasoning in Hallie.
In Hallie, the Court contrasted the incentives of
municipalities and private parties. It observed that,
because the municipality was “an arm of the State . . . [,
w]e may presume, absent a showing to the contrary, that
the municipality acts in the public interest. A private
party, on the other hand, may be presumed to be acting
primarily on its own behalf.” Hallie, 471 U.S. at 45. The
Court then reasoned:
Where a private party is engaging in the
anticompetitive activity, there is a real danger
that he is acting to further his own interests,
rather than the governmental interests of the
State. Where the actor is a municipality, there
is little or no danger that it is involved in a
private price-fixing arrangement. The only
real danger is that it will seek to further
purely parochial public interests at the
expense of more overriding state goals. This
danger is minimal, however, because of the
requirement that the municipality act
28
pursuant to a clearly articulated state policy.
Once it is clear that state authorization exists,
there is no need to require the State to
supervise actively the municipality’s
execution of what is a properly delegated
function.
Id. at 47.
We conclude that this reasoning applies squarely
to the University. Like the municipality in Hallie, the
University is not a sovereign actor, but is still an “arm of
the State” presumed to “act[] in the public interest.” Id. at
45. Unlike a private business, the University’s self-
interest is more closely aligned with certain
“governmental interests of the State.” Id. By advancing
the project of higher education—a project blessed by the
Pennsylvania legislature as a valuable public function—
the University is primarily at risk that “it will seek to
further purely parochial public interests at the expense of
more overriding state goals.” Id.
Therefore, meeting Midcal’s first requirement—
acting “pursuant to a clearly articulated state policy”—is
sufficient to ensure that a PASSHE university is
executing its “properly delegated function.” Id. We thus
join with the Tenth Circuit, which similarly held that, for
29
“a state created and funded university, . . . a showing of
active supervision is unnecessary to qualify for state
action antitrust immunity.” Porter, 993 F.2d at 772; see
also Auraria, 843 F.3d at 1250; Humana, 1986 WL 962,
at *5; Am. Nat. Bank & Tr., 607 F. Supp. at 849–50.
2
The only Supreme Court decision explicitly
requiring full Midcal scrutiny for the independent actions
of a state agency, Dental Examiners, is distinguishable.
In Dental Examiners, the North Carolina Board of
Dental Examiners sought a similar exemption from the
active-supervision requirement in light of its status as a
state agency. But the Court held that “the need for
supervision turns not on the formal designation given by
States to regulators but on the risk that active market
participants will pursue private interests in restraining
trade.” 135 S. Ct. at 1114. Because the Board was
“controlled by active market participants, who possess
singularly strong private interests,” the Court treated the
Board as “similar to [a] private trade association,”
necessitating full Midcal scrutiny. Id.
30
The analogous situation in this case would be if the
Foundation—a private, active participant in the real
estate market—dominated and controlled the University.
In such a case, there would be a risk of self-dealing; the
active market participant would be empowered “to decide
who can participate in its market, and on what terms,”
rendering “the need for supervision . . . manifest.” Id. For
Dental Examiners to apply, plaintiffs would be required
to identify a “structural risk” that “a controlling number
of decisionmakers” at the University “are active market
participants.” Id.
Plaintiffs did not plead any facts that plausibly
give rise to such an inference. We thus conclude that
Dental Examiners does not mandate full Midcal scrutiny
for the University. But as we describe below, the
complaint may be amended to include such facts if they
exist. See infra Section VI.B.
* * *
We conclude that Hallie scrutiny is appropriate for
PASSHE universities. Absent any special circumstances
that necessitate full Midcal review, PASSHE universities,
like municipalities, can be presumed to act in the public
interest. Ordinarily, therefore, they need only comply
31
with Midcal’s first prong—conformity with a clearly
articulated state policy.
VI
We now apply the Hallie test to the University and
to the Foundation. We conclude that the University’s
conduct is immune under that standard, and that the
University’s immunity passes through to the Foundation.
We will therefore affirm in part on those alternative
grounds.10 See, e.g., Oss Nokalva, Inc. v. European Space
Agency, 617 F.3d 756, 761 (3d Cir. 2010) (“[W]e may
affirm a judgment on any ground apparent from the
record, even if the district court did not reach it.”
(internal quotation marks and citation omitted)). But
because further amendment may not be futile, we will
remand with instructions to dismiss the Amended
Complaint without prejudice.
10
We need not, therefore, address defendants’
argument that we should affirm on the alternative ground
of Noerr-Pennington immunity.
32
A
The University’s conduct complies with a clearly
articulated state policy because mandating on-campus
residency is a foreseeable consequence of the legislative
mandate to provide appropriate student living facilities.
Because “[n]o legislature . . . can be expected to
catalog all of the anticipated effects of a statute
delegating authority to a substate governmental entity,”
the Supreme Court has “approached the clear-articulation
inquiry more practically.” F.T.C. v. Phoebe Putney
Health Sys., Inc., 133 S. Ct. 1003, 1012 (2013) (quoting
Hallie, 471 U.S. at 43). The clear-articulation test is met
if an anticompetitive effect is the “foreseeable result” of
the state’s authorization. Hallie, 471 U.S. at 42; see
Lafayette, 435 U.S. at 415 (a political subdivision need
not “point to a specific, detailed legislative
authorization”).
Where a state delegates generic contracting
powers, the clear-articulation test is not met. See Phoebe
Putney, 133 S. Ct. at 1012 (holding that “general
corporate power” to enter into acquisitions does not
clearly authorize anticompetitive consolidation of
hospital ownership); Cmty. Commc’ns Co., 455 U.S. at
55–56 (holding that a “neutral” grant of power to enact
33
municipal ordinances does not “impl[y] state
authorization to enact specific anticompetitive
ordinances”). But clear articulation may be established
where “displacement of competition was the inherent,
logical, or ordinary result” of the authority delegated by
the state legislature, such that the state “must have
foreseen and implicitly endorsed the anticompetitive
effects as consistent with its policy goals.” Phoebe
Putney, 133 S. Ct. at 1013; see, e.g., Hallie, 471 U.S. at
41 (the power of a city to exclude surrounding
unincorporated areas from the provision of sewage
related services affirmatively contemplates
anticompetitive effects); City of Columbia v. Omni
Outdoor Advert., Inc., 499 U.S. 365, 373 (1991) (a state
statute authorizing municipalities to adopt zoning
ordinances foreseeably resulted in the suppression of
competition in the billboard market).
In this case, the Pennsylvania General Assembly
enacted the policy that “[e]ach institution shall provide
appropriate . . . student living facilities.” 24 P.S. § 20-
2003-A(a). That mandate does more than confer “general
corporate powers,” Phoebe Putney, 133 S. Ct. at 1011,
although the University certainly has such powers as
well, see, e.g., 24 P.S. § 20-2003-A(b).
The intention to displace competition is evident
when the mandate is read in light of common practice
34
and the University’s educational mission. See Pa. Const.
art. III, § 14; 24 P.S. § 20-2003-A(a). As even plaintiffs
acknowledge, rules requiring on-campus residency are
“common at many colleges and universities,” and are
justified, at least in part, by the educational benefits of a
“living and learning” environment and “the doctrine of in
loco parentis” (or “the school’s attempts to fulfill a
‘parental’ role”). Am. Compl. ¶¶ 41–43. It is eminently
“ordinary” and “foreseeable” that universities would
consider those benefits and adopt rules requiring some
term of on-campus residency in fulfilling their mandate
to provide “appropriate . . . student living facilities.” 24
P.S. § 20-2003-A(a); cf. Hack v. President & Fellows of
Yale Coll., 237 F.3d 81, 85 (2d Cir. 2000) (noting that
on-campus residency requirements exist at “many
colleges and universities across the country,” and affect
“millions of students who have attended those institutions
in the more than a century since the Sherman Act was
enacted”); Porter, 993 F.2d at 771 (finding clear
articulation because a statute delegated a “specific”
function to “a nonprofit state institution,” a public
university).
It is clear that the General Assembly “must have
foreseen and implicitly endorsed” such policies. Phoebe
Putney, 133 S. Ct. at 1013. In fact, according to
plaintiffs, the University’s on-campus residency rule was
first enacted in 1989. Am. Compl. ¶ 43. We see no reason
35
why the expansion of that requirement from two
semesters to four would exceed what the General
Assembly might have reasonably foreseen.11
After this case was argued, the Tenth Circuit
decided a similar case, Auraria Student Housing at the
Regency, LLC v. Campus Village Apartments, LLC, 843
11
Plaintiffs aver that the University expanded its
rule “purely for financial reasons, specifically to ensure
occupancy levels in on-campus ‘affiliated’ housing
generate sufficient revenue to service the $100-plus
million bond debt incurred by the Foundation to develop
the Highlands Project.” Am. Compl. ¶ 46. These
allegations do not alter our analysis. The Supreme Court
has “consistently sought to avoid” any “deconstruction”
or “probing of the official ‘intent.’” Omni, 499 U.S. at
377.
Nor are we influenced by plaintiffs’ allegation that
the University acted ultra vires by failing to engage in a
competitive bidding process, 24 P.S. § 20-2003-A.1(c.2),
or by failing to fulfill its mandate “to provide high
quality education at the lowest possible cost for
students,” id. § 20-2003-A(a). Parker analysis does not
“dictate[] transformation of state administrative review
into a federal antitrust job.” Omni, 499 U.S. at 372
(quoting 1 Philip E. Areeda & Herbert Hovenkamp,
Antitrust Law ¶ 212.3b, at 145 (Supp. 1989)).
36
F.3d 1225 (10th Cir. 2016). The Tenth Circuit applied the
Hallie test and concluded that the Colorado legislature
did not clearly express an intent to displace competition
in the student-housing market. Id. at 1250–51. But the
Tenth Circuit did not cite, nor did it distinguish, any part
of Colorado law that grants educational institutions
discretion in providing student housing that they deem
appropriate in light of their educational missions. Rather,
the Court concluded that Colorado law merely grants
“permission to enter into agreements” and other generic
powers “that are common in the marketplace.” Id. at
1251. From that premise, the Court was bound to follow
Phoebe Putney, 133 S. Ct. at 1012, and Community
Communications Co., 455 U.S. at 55–56, to conclude that
there was no clear articulation. But we interpret the
Pennsylvania statute as conferring more than mere
contracting powers; we read a clearly articulated
intention to displace competition in student housing. We
therefore conclude that Auraria’s application of the
Hallie test is distinguishable.12
12
Finally, plaintiffs argue that we should recognize
a so-called market-participant exception to Parker
immunity. The Supreme Court, as well as this Court,
have discussed such an exception in dicta. See Phoebe
Putney, 133 S. Ct. at 1011 n.4; Omni, 499 U.S. at 379;
Bedell, 263 F.3d at 265 n.55. The existence of such an
37
Accordingly, we conclude that the University’s
conduct conformed to a clearly articulated state policy,
and therefore constituted immune state action under
Hallie. Because plaintiffs’ alleged antitrust injury derives
exception is not clearly established. See, e.g., VIBO
Corp. v. Conway, 669 F.3d 675, 686–87 (6th Cir. 2012);
Hedgecock v. Blackwell Land Co., 52 F.3d 333, 1995
WL 161649 (9th Cir. 1995) (table opinion); Genentech,
Inc. v. Eli Lilly & Co., 998 F.2d 931, 949 (Fed. Cir.
1993) abrogated on other grounds by Wilton v. Seven
Falls Co., 515 U.S. 277 (1995); Paragould Cablevision,
Inc. v. City of Paragould, 930 F.2d 1310, 1313 (8th Cir.
1991) (“[T]he market participant exception is merely a
suggestion and is not a rule of law.”).
We need not resolve this issue here. And even
assuming that such an exception exists, it would not
apply to this case. A market-participant exception would
only apply where “[t]he government entity . . . was
involved in the market as a buyer or seller.” Bedell, 263
F.3d at 265 n.55 (citing Union Pac. R.R. Co. v. United
States, 313 U.S. 450 (1941)). While the University leased
certain property to the Foundation, the Complaint only
alleges that the Foundation’s transactions in the student-
housing market are part of an anticompetitive scheme.
Applying a market-participant exception to these
circumstances would swallow the rule that “the state does
not forfeit Parker immunity simply because it acts with a
private party.” Id.
38
solely from the University’s conduct, we further
conclude that the University’s immunity also shields the
Foundation. See supra Section IV.
B
Plaintiffs have not pled that members of the
Foundation constituted a “controlling number of
decisionmakers” within the University. Dental Exam’rs,
135 S. Ct. at 1114. It could be the case, for example, that
members of the Foundation’s board of directors
constituted a majority of the University’s Council of
Trustees. If such facts exist, Midcal’s active-supervision
requirement could be applicable. Id. Given that
possibility, amendment may not be futile and we will
remand with instructions that the Amended Complaint be
dismissed without prejudice to plaintiffs’ right to file a
second amended complaint. See, e.g., Estate of Lagano v.
Bergen Cty. Prosecutor’s Office, 769 F.3d 850, 861 (3d
Cir. 2014).
VII
We will affirm in part on the alternative grounds
set forth above and reverse and remand with instructions
39
that the Amended Complaint be dismissed without
prejudice.
40