Xcaliber International Limited v. Attorney General ( 2010 )

REVISED July 20, 2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 09-30492 July 15, 2010
Lyle W. Cayce
Clerk
XCALIBER INTERNATIONAL LIMITED LLC,
Plaintiff - Appellant
v.
ATTORNEY GENERAL STATE OF LOUISIANA, James “Buddy” Caldwell,
Defendant - Appellee
Appeal from the United States District Court
for the Eastern District of Louisiana
Before BARKSDALE, GARZA, and DENNIS, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
Plaintiff-Appellant Xcaliber International Limited LLC (“Xcaliber”)
appeals the district court’s grant of summary judgment in favor of the Attorney
General of Louisiana (the “State”). Xcaliber manufactures and sells discount
cigarettes. The case presents a challenge to an amendment to the state law
implementing the tobacco settlement between the largest manufacturers of
cigarettes and most of the states. Xcaliber claims that the amendment is
preempted by federal antitrust law and violates the Equal Protection and Due
Process Clauses.
No. 09-30492
I
Since 2003, Xcaliber has manufactured tobacco products and distributed
them primarily in Louisiana, Kansas, and Oklahoma. Louisiana is one of many
states that, during the mid-1990s, sued the country’s largest tobacco
manufacturers to recover health care costs related to smoking. In 1998 these
states signed the Master Settlement Agreement (the “MSA”), which settled the
litigation between them and four major tobacco manufacturers (“Original
Participating Manufacturers” or “OPMs”).
The MSA released OPMs from all tobacco-related legal claims initiated by
the states. In return, each OPM agreed to make annual payments into a
collective fund with each OPM’s contribution determined primarily by
multiplying an agreed sum that increased each year by each OPM’s respective
cigarette market share. The total of all payments was then to be allocated
among the states based on a fixed formula, with Louisiana receiving
approximately 2.26 percent of the total as its “allocable share.” The MSA also
placed various restrictions on each OPM. For example, it (1) banned political
lobbying; (2) restricted trade association activities; (3) prevented legal challenges
to various state tobacco laws; and, (4) prohibited some forms of advertising.
Other tobacco manufacturers were later given the opportunity to join the
MSA. Those who did are referred to as Subsequent Participating Manufacturers
(“SPMs”). SPMs that joined the MSA within ninety days were given special
treatment (i.e., “grandfathered in”). These “exempt” SPMs do not pay a per
cigarette amount on current sales until those sales exceed the level of their 1998
sales or 125% of their 1997 sales. The combination of the OPMs and SPMs are
collectively referred to as PMs (i.e., participating manufactures). Tobacco
manufacturers, like Xcaliber, that are not PMs are referred to as
Non-Participating Manufacturers (“NPMs”).
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No. 09-30492
Standing alone, the MSA would put PMs at a cost disadvantage in
comparison to NPMs since only the PMs are required to pay a per-cigarette
amount under the terms of the MSA. As a result of the MSA, PMs must raise
prices in order to stay profitable at a rate similar to the pre-MSA rate while
satisfying their payments under the MSA. Thus, absent some mechanism to
impose similar per-cigarette costs on NPMs, NPMs could sell at lower prices and
potentially increase their market share.
To neutralize this effect, the MSA requires each state to enact legislation,
which in Louisiana is codified at LA. REV. STAT. §§ 13:5061)5063. The statute
requires every NPM selling cigarettes in Louisiana to either (1) become a PM
under the MSA’s terms, or (2) deposit money annually into an escrow account.
See § 13:5063. The amount to be deposited is calculated by multiplying the
numbers of cigarettes sold in the state by a fixed charge listed in the amended
statute that increases over time. See § 13:5063(C)(1). The amount is roughly the
same as that paid by PMs, currently $0.025 per cigarette. The interest accrued
on the escrowed funds is paid out to the NPM, and the principal is either paid
to Louisiana to satisfy a future judgment entered against such NPM, or returned
to the NPM if twenty-five years pass without such a judgment. See
§ 13:5063(C)(2).
Until 2003, the statute also contained the following provision:
(b) To the extent that a [NPM] establishes that the amount it was
required to place into escrow in a particular year was greater than
the state’s allocable share of the total payments that such
manufacturer would have been required to make in that year under
the [Agreement]. . . had it been a [PM], the excess shall be released
from escrow and revert back to such [NPM].
§ 13:5063(C)(2)(b) (emphasis added) (the “Original Escrow Provision”). The
Original Escrow Provision created a loophole. An NPM could recover funds that
it placed into escrow in a particular state to the extent that those funds exceeded
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No. 09-30492
the amount the state would receive from that manufacturer as its allocable
share, had the manufacturer been a PM. Thus, by concentrating its distribution
to just a few states, an NPM could recover a greater percentage of the total
money it placed into escrow because those states were allowed to retain only
their relatively small percentage shares.1
In order to close this loophole, Louisiana, along with every settling state
except Missouri, amended the Original Escrow Provision. It now reads:
To the extent that a [NPM] establishes that the amount it was
required to place into escrow on account of units sold in the state in
a particular year was greater than the [MSA] payments . . . that such
[NPM] would have been required to make on account of such units
sold had it been a [PM], the excess shall be released from escrow
and revert back to such [NPM].
LA. REV. STAT. § 13:5063 (C)(2)(b) (emphasis added) (the “Allocable Share
Revocation” or “ASR”). The ASR establishes a limit on the amount of escrow
funds that will be released back to an NPM in a particular year. By removing
the “state’s allocable share” language, the ASR limits the release to the amount
the NPM would have paid as a PM on the same amount of sales, rather than the
State’s allocable share of this amount. For example, if an NPM makes half of its
total sales in Louisiana, under the amendment, the NPM will be entitled to a
release only to the extent that its escrow deposit exceeds what its MSA payment
would have been on the number of cigarettes represented by half of its total
1
If an NPM distributed its cigarettes nationally, and its distribution patterns
approximated those of the national market, its payment obligations on its national sales would
be apportioned 100 percent among the settling states, with the result that something close to
100 percent of its payments would, in the aggregate, be retained under the Original Escrow
Provision. However, if an NPM were to concentrate its business to a single state, such as
Louisiana, it would make 100 percent of its sales there and would be able to recoup the
payments on all but roughly 2.26 percent, which is Louisiana’s approximate allocable share.
While the PMs would be required to continue 100 percent of their payments under the MSA,
an NPM that focused on a single regional area could be virtually exempt from the payments,
thereby gaining a competitive advantage.
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No. 09-30492
sales. Instead of basing the escrow release on the fiction of national pay-in
followed by a release based on the State’s allocable share, the release is tied
directly to the number of cigarettes actually sold in the State.
Because Xcaliber distributes products in only a few states, it formerly
utilized the loophole in the original statute, but can no longer do so
post-amendment. According to Xcaliber, as a result of the ASR, the barriers
against NPMs have been heightened dramatically, and the ability of an NPM to
compete within a regional market has been destroyed.
Xcaliber filed suit against the Louisiana Attorney General, seeking
declaratory and injunctive relief based on violations of the First Amendment and
the Commerce, Equal Protection, and Due Process Clauses, and the
corresponding clauses of the Louisiana Constitution. Xcaliber sought only to
prevent the enforcement of the ASR. It did not seek to invalidate the entire
MSA and its implementing legislation. The district court dismissed each claim
under Rule 12(b)(6). Xcaliber appealed,2 and this court reversed and remanded.
On remand, Xcaliber amended its complaint to add a claim that the ASR is in
violation of, and preempted by, the Sherman Act. Both parties moved for
summary judgment. The district court denied Xcaliber’s motion and granted
summary judgment in favor of the State. This appeal followed.3
II
We review a district court’s grant of summary judgment de novo.
Scottsdale Ins. Co. v. Knox Park Constr., Inc., 488 F.3d 680, 683 (5th Cir. 2007).
2
Xcaliber did not challenge the dismissal of its Commerce Clause claim in the previous
appeal. Therefore, that claim is no longer part of the suit.
3
Xcaliber asserted no claim for direct relief under the First Amendment on summary
judgment and does not advance a direct claim under the First Amendment on appeal. Also,
Xcaliber’s briefing on its Equal Protection and Due Process claims only discusses the United
States Constitution. Accordingly, any separate arguments based on the Louisiana Constitution
are waived. See In re Texas Mortgage Servs., Inc., 761 F.2d 1068, 1073)74 (5th Cir. 1985).
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No. 09-30492
We view all facts in the light most favorable to the non-movant, and affirm only
when the evidence “show[s] that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter of law.” FED. R. CIV. P.
56(c); see also Coury v. Moss, 529 F.3d 579, 584 (5th Cir. 2008). A genuine issue
of material fact exists if the summary judgment evidence is such that a
reasonable jury could return a verdict for the non-movant. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986).
III
A
Xcaliber contends that the Sherman Act preempts the ASR. To determine
whether a state statute is preempted by the Sherman Act, we apply a two-step
analysis, as set forth by the Supreme Court in Rice v. Norman Williams Co., 458
U.S. 654 (1982).4 First, we inquire whether the state legislation “mandates or
authorizes conduct that necessarily constitutes a violation of the antitrust laws
4
Xcaliber argues that Rice is not the correct standard and cites to other preemption
cases that supposedly show that the proper inquiry is much broader. We find Xcaliber’s
complaints about Rice to be misguided. First, the preemption cases Xcaliber cites do not
involve the Sherman Act. Because states are permitted to enact legislation that impacts
competition without necessarily running afoul of the Sherman Act, see Community
Communications Co. v. City of Boulder, 455 U.S. 40, 64 (1982), the preemption analysis under
the Sherman Act is different than the preemption analysis under other statutes. Second, even
if Rice applies only to facial challenges, the point does not help Xcaliber because its complaint
presents a facial challenge. Rather than seeking a private remedy against private parties or
an injunction against enforcement of the statute in some specific, limited situation, Xcaliber
seeks a declaratory judgment that the ASR is preempted by the Sherman Act and an
injunction against the enforcement of the ASR in all situations. That is, Xcaliber claims the
ASR is unconstitutional under the Supremacy Clause in its every application. Accordingly, we
apply the Rice per se analysis rather than rule of reason analysis. See Rice, 458 U.S. at 661.
We also note that the other courts that have considered a claim that the MSA or its related
legislation is preempted by the Sherman Act have applied Rice. See Grand River Enters. Six
Nations, Ltd. v. Beebe, 574 F.3d 929, 936 (8th Cir. 2009); KT & G Corp. v. Att’y Gen. of State
of Okla., 535 F.3d 1114, 1126 (10th Cir. 2008); Sanders v. Brown, 504 F.3d 903, 910 (9th Cir.
2007), cert. denied, 128 S. Ct. 2427 (2008); S & M Brands, Inc. v. Summers, 393 F. Supp. 2d
604, 628 (M.D. Tenn. 2005), aff’d, 228 Fed. App’x. 560; Tritent Int’l Corp. v. Ky., 467 F.3d 547,
554 (6th Cir. 2006); Freedom Holdings, Inc. v. Spitzer, 357 F.3d 205, 222, reh’g denied, 363
F.3d 149 (2d Cir. 2004), on remand, Freedom Holdings, Inc. v. Cuomo, 592 F. Supp. 2d 684,
696 (S.D.N.Y. 2009), appeal docketed, No. 09-0547 (2d Cir. Feb. 10, 2009).
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No. 09-30492
in all cases, or . . . places irresistible pressure on a private party to violate the
antitrust laws in order to comply with the statute.” Id. at 661. That is, we ask
whether “the conduct contemplated by the statute is in all cases a per se
violation.” Id. Second, we consider whether the state statute is saved from
preemption by the state action immunity doctrine. See Id. at 662 n.9 (citing
Parker v. Brown, 317 U.S. 341 (1943)).
The only change effected by the ASR is to remove the language that tied
the escrow release to the State’s allocable share of tobacco settlement payments
under the MSA. The ASR does not change how much an NPM must pay per
cigarette, nor does it allow other market participants to change that amount. It
only changes how much of the total amount paid is released back to the NPM.
See LA. REV. STAT. § 13:5063 (C)(2)(b).5
Section 1 of the Sherman Act, which is the basis of Xcaliber’s complaint,
outlaws “every contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several States, or with
foreign nations.” 15 U.S.C. § 1. Section 1 addresses joint action by private
parties that restrains trade. See Parker, 317 U.S. at 351. While the Act is not
specific as to which types of conduct it prohibits, courts have found illegal a
broad range of actions including monopolization, price fixing, territorial
divisions, output restrictions, group boycotts, and refusals to deal. See Broad.
Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1 (1979); White Motor Co. v.
United States, 372 U.S. 253, 260 (1963); United States v. Griffith, 334 U.S. 100,
5
We note that Xcaliber’s Sherman Act argument is undermined by an obvious
incongruity between its allegations and the relief it seeks. Xcaliber specifically limits its
complaint to the ASR. We have difficulty understanding why an agreement implemented
pursuant to the MSA, but inadvertently advantageous to Xcaliber, would be acceptable while
a modification of that same scheme that closes a loophole would violate antitrust law and be
preempted. It would seem that Xcaliber’s logic would require us to invalidate the entire
statutory structure implementing the MSA rather than just the ASR. A related Fifth Circuit
case for which oral argument was recently held presents a challenge to the MSA itself. See
S&M Brands Inc. v. James Caldwell, No. 09-30985.
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No. 09-30492
106)07 (1948); Associated Press v. United States, 326 U.S. 1, 12)13 (1945);
United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224 (1940). These
activities are considered pernicious to competition and, with the exception of
monopolization, are generally considered per se violations of the antitrust laws.
Given the traditional scope of antitrust violations and the limited effect of
the ASR, we cannot say that the ASR “mandates or authorizes conduct that
necessarily constitutes a violation of the antitrust laws in all cases.” On its face,
the ASR does not force or allow private parties to collude, set prices, divide
markets, or in any other manner violate antitrust law. The ASR simply alters
the amount of money to be refunded to NPMs by changing how much of the
NPMs’ annual escrow payments are released. We agree with the Tenth Circuit,
see KT&G, 535 F.3d at 1128, that nothing in the text of the ASR removes from
tobacco manufacturers the ability to unilaterally set their own prices for
products or determine their output. See also Grand River, 574 F.3d at 938;
Sanders, 504 F.3d at 911; Tritent, 467 F.3d at 557. Accordingly, we have little
trouble concluding that the ASR does not “mandate or authorize conduct that
necessarily constitutes a violation of the antitrust laws in all cases.” Rice, 458
U.S. at 661.
Likewise, we cannot say that the ASR “places irresistible pressure on a
private party to violate the antitrust law in order to comply with the statute.”
Id. Since the ASR does not affect PMs, the only parties potentially facing
“irresistible pressure” from the ASR are NPMs. Although the ASR forces NPMs
to charge a higher price for their products to maintain the same level of
profitability, it does not pressure them to conspire together to set a specific price,
to carve up markets, or otherwise to violate antitrust law. See Sanders, 504 F.3d
at 911. Neither the plain language of the Sherman Act nor the courts’
interpretation of it necessarily equate charging a higher price with violating
antitrust law. Moreover, we do not understand Xcaliber to argue that it is
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No. 09-30492
somehow pressured into violating the antitrust laws.6 Since the only parties
affected by the ASR are not violating the antitrust laws))indeed, even according
to Xcaliber, NPMs are the victims of other parties’ violations of the antitrust
laws rather than the violators))it follows that the ASR does not irresistibly
pressure private parties to violate the antitrust laws in order to comply with the
statute.
B
Xcaliber also contends that the ASR violates the Sherman Act under a
hybrid restraint analysis.7 A hybrid violation arises when “what appears to be
a state[-] . . . administered price stabilization scheme is really a private
price-fixing conspiracy, concealed under a ‘gauzy cloak of state involvement.’”
Fisher v. City of Berkeley, Cal., 475 U.S. 260, 269 (1986) (citing Cal. Retail
Liquor Dealers Ass’n. v. Midcal Aluminum, Inc., 445 U.S. 97, 106 (1980)).
Although governmental intrusions into the market are generally acceptable, see
id. at 264, “[n]ot all restraints imposed upon private actors by government units
necessarily constitute unilateral action outside the purview of § 1.” Id. at 267.
When the government’s action grants “private actors . . . a degree of private
6
Rather, as discussed infra, Xcaliber alleges that the ASR effectively allows the PMs
to conduct their business as though they were part of an output cartel, thereby destroying
competition and forcing NPMs from the market.
7
The case law is not entirely clear as to whether the hybrid restraint analysis is a
separate means of satisfying Rice’s per se violation requirement or another means of
addressing Parker state-action immunity under the second prong of Rice. Compare Fisher v.
City of Berkeley, Cal., 475 U.S. 260, 267)70 (1986) (concluding that a housing ordinance was
not a hybrid restraint and therefore not addressing whether the ordinance would be exempt
from antitrust scrutiny under the Parker state-action doctrine), and KT&G, 535 F.3d at 1133
(declining to address the state-action doctrine after having found no hybrid restraint in a case
essentially identical to this case), with Cal. Retail Liquor Dealers Ass’n. v. Midcal Aluminum,
Inc., 445 U.S. 97, 103)06 (1980) (addressing concepts that later courts have treated as
elements of the hybrid restraint analysis as part of discussion of Parker state action immunity,
after having found a per se violation), and Sanders, 504 F.3d at 911 (finding no per se violation
under Rice but addressing Parker state-action immunity through a discussion of cases
generally associated with the hybrid restraint analysis).
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No. 09-30492
regulatory power,” it is a “nonmarket mechanism merely enforc[ing] private
marketing decisions” and thus not immunized from the antitrust laws. Id. at
268.
The cases that have found violations of the antitrust laws based on hybrid
restraints have dealt with situations in which the government gave regulatory
authority to private parties. As the Ninth Circuit has noted, the hybrid restraint
cases “hinged on a state’s decision to let producers dictate market conditions to
others))for example, by ‘posting’ prices that then became legally binding on
buyers and other producers.” Sanders, 504 F.3d at 918 (referencing Fisher, 475
U.S. 260; Midcal, 445 U.S. 97; 324 Liquor Corp. v. Duffy, 479 U.S. 335 (1987);
Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384 (1951)). Here, since
the ASR establishes a state regulatory scheme that does not require or allow any
input from private parties, it cannot be classified as a hybrid restraint. See
Grand River, 574 F.3d at 939; KT & G, 535 F.3d at 1131; Sanders, 504 F.3d at
919.
C
Although we could conceivably end our preemption analysis at this point,
see Rice, 458 U.S. at 662 n.9; KT&G, 535 F.3d at 1133, we nonetheless address
Xcaliber’s state-action immunity argument because neither the first prong of
Rice nor the hybrid restraint analysis fully captures Xcaliber’s argument.
Xcaliber alleges that the ASR, together with the MSA and statutes
implementing it, enables and implements an output cartel whose purpose and
effect is to protect PM’s market shares and drive NPMs out of business, all
resulting in raising prices to supra-competitive levels. In effect, Xcaliber alleges
that the OPMs are using Louisiana to impose a private anti-competitive
conspiracy. According to Xcaliber, Louisiana acted entirely at the behest of the
OPMs, which exercised control over Louisiana via the threat of reduced
payments under the MSA if Louisiana refused to enact the ASR.
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No. 09-30492
Absent some provision for imposing similar costs on NPMs, the MSA
would put PMs at a competitive disadvantage since, under the MSA, PMs are
required to make per-cigarette payments, which increase their cost of doing
business. Without the burden of these additional costs, NPMs would, all things
being equal, be able to charge lower prices and increase their market share.
With the express purpose of counteracting this effect, see LA. REV. STAT. §
13:5061(6),8 Louisiana passed statutes that effectively require the NPMs either
to raise their prices to cover their escrow payment obligations))which has the
effect of prohibiting the NPMs from undercutting the PMs’ prices))or to
abandon the Louisiana market.
Thus, we have no doubt that Louisiana purposefully sought to increase the
costs of NPMs to a level comparable to those faced by PMs.9 The Original
Escrow Statute failed to accomplish that purpose, and Louisiana passed the ASR
to rectify the problem. However, the critical issue is not whether Louisiana
sought to impair the competitiveness of the NPMs, but whether Louisiana runs
afoul of federal antitrust law by doing so.
8
LA. REV. STAT. § 13:5061(6) provides:
It would be contrary to the policy of this state if tobacco product manufacturers
who determine not to enter into such a settlement could use a resulting cost
advantage to derive large, short-term profits in the years before liability may
arise without ensuring that the state will have an eventual source of recovery
from them if they are proven to have acted culpably. It is thus in the interest
of the state to require that such manufacturers establish a reserve fund to
guarantee a source of compensation and to prevent such manufacturers from
deriving large, short-term profits and then becoming judgment-proof before
liability may arise.
9
Since the ASR explicitly aimed, at least in part, at counteracting the competitive
advantage that NPMs would enjoy absent some mechanism for enforcing per-cigarette costs
on NPMs, the analysis does not turn on whether Xcaliber presented sufficient evidence of
anticompetitive effect to survive summary judgment. Indeed, for purposes of our antitrust
analysis, we assume that Xcaliber has demonstrated that the ASR increases the costs of
NPMs, at least in part, in order to undermine their competitive advantage over PMs.
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No. 09-30492
A state statute is not preempted merely “because the state scheme might
have an anticompetitive effect.” Cmty. Commc’ns Co. v. City of Boulder, 455 U.S.
40, 64 (1982); Rice, 458 U.S. at 659; KT & G, 535 F.3d at 1129. If any conflict
between a state law and the Sherman Act meant that the state law were
preempted, “the States’ power to engage in economic regulation would be
effectively destroyed.” Exxon Corp. v. Governor of Md., 437 U.S. 117, 133 (1978).
This cannot be the case, for as the Court has recognized, “the function of
government may often be to tamper with free markets, correcting their failures
and aiding their victims.” Fisher, 475 U.S. at 264. State police powers and
regulatory authority extend legitimately to a range of anticompetitive schemes.10
The ASR, like these other regulations, alters the competitive environment for
market participants.
As the Court noted in Parker, “[t]he Sherman Act makes no mention of the
state as such, and gives no hint that it was intended to restrain state action or
official action directed by a state.” 317 U.S. at 351. The Court highlighted that
the Sherman Act applies to “persons” rather than states and aims “to suppress
combinations to restrain competition and attempts to monopolize by individuals
and corporations.” Id. However, the Court also said that “a state does not give
immunity to those who violate the Sherman Act by authorizing them to violate
it, or by declaring that their action is lawful.” Id. (citations omitted).
Xcaliber alleges that the entire regulatory structure created by the MSA,
its implementing legislation, and the ASR represents a private conspiracy
enacted by the legislature at the behest of the OPMs. That is, the legislature,
by passing the legislation, attempted to authorize a private conspiracy that
would clearly violate the antitrust laws but for the State’s involvement.11
10
Obvious examples include public utilities, zoning ordinances, and enterprise zones.
11
Although Xcaliber brought suit only against the State, its antitrust theory essentially
requires us to find that Louisiana is authorizing conduct that would be illegal as a private
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No. 09-30492
As evidence that the Louisiana legislature acted at the OPMs’ behest in
passing the ASR, Xcaliber points to the timing of the legislation, which was
passed soon after it began appearing as a talking point in the corporate
literature of the OPMs. See Freedom Holdings, Inc. v. Spitzer, 447 F. Supp. 2d
230, 259)60 (S.D.N.Y. 2004). Xcaliber also points out that Louisiana would risk
losing substantial amounts of money due under the MSA if it refused to pass the
ASR. Xcaliber quotes commentary from the Louisiana House floor that the ASR
conspiracy. By asserting a theory that depends on private violations in a suit against the
State, Xcaliber has muddled the various lines of antitrust authority from the Supreme Court.
As a result of this confusion, Xcaliber has placed undue emphasis on the State’s failure to
address the two-prong test established in Midcal. As explained in Sanders:
A series of Supreme Court cases holds that any action in restraint of trade is
only immune [on state-action grounds] if it satisfies a two-part test: The
anticompetitive policy not only must be (1) “clearly articulated and affirmatively
expressed as state policy,” but also must be (2) “actively supervised by the state
itself.” Midcal, 445 U.S. at 105 (quoting City of Lafayette v. La. Power & Light
Co., 435 U.S. 389, 410 (1978) (plurality opinion)) (internal quotation marks
omitted); see also 324 Liquor, 479 U.S. at 343)44; Patrick v. Burget, 486 U.S.
94, 100 (1988); FTC v. Ticor Title Ins. Co., 504 U.S. 621, 631 (1992). Other
Supreme Court cases, however, explicitly hold that a state’s own acts in the
antitrust area are always immune; these cases suggest that the two-part
“Midcal test” is only needed to decide whether private conduct pursuant to a
state statute gets Parker immunity. In other words, a state need not show it
“actively supervises” private parties, as long as the state itself, acting as
sovereign, created the restraint of trade. See Hoover v. Ronwin, 466 U.S. 558,
568)69 (1984); City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365,
377)79 (1991).
504 F.3d at 915)16 (citations altered); Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46
(1985) (declining to impose active supervision requirement when defendant was a
municipality); see also Earles v. State Bd. of Certified Pub. Accountants of La., 139 F.3d 1033,
1040)42 (5th Cir. 1998) (recognizing that different state-action test applies based on the status
of the defendant); Indep. Taxicab Drivers’ Employees v. Greater Houston Transp., 760 F.2d 607,
610 n.5 (5th Cir. 1985) (same). We find the Ninth Circuit’s explanation of why Hoover rather
than Midcal should apply to cases challenging a state’s action in passing the MSA and its
implementing legislation to be persuasive. See Sanders, 504 F.3d at 917)18; see also Grand
River, 574 F.3d at 939)41. Thus, Xcaliber’s arguments that the State is not entitled to the
protection of the state-action doctrine because it has failed to satisfy both of the Midcal prongs
are unavailing. The State is immune from antitrust liability unless the passage of the ASR
was an attempt to “give immunity to those who violate the Sherman Act by authorizing them
to violate it, or by declaring that their action is lawful.” Parker, 317 U.S. at 351.
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No. 09-30492
had to be passed exactly as written. According to Xcaliber, this evidence
demonstrates that the ASR is plainly not a unilateral, sovereign act, but rather
was passed at the insistence of OPMs in order to continue their control of the
market.
Xcaliber’s evidence, however, amounts to little more than speculation.
Louisiana has articulated its reasons for entering into the MSA and how the
ASR advances its goals. See LA. REV. STAT. § 13:5061. The actual effect of the
statute seems to bear out the legislature’s belief that the ASR would further its
expressly stated goals. The MSA has brought about a substantial reduction in
cigarette consumption and substantial reimbursements to the states for the
public costs of cigarette consumption. By implementing the ASR, Louisiana has
ensured these beneficial achievements are not corrupted by allowing NPMs to
sell cigarettes at prices unburdened by any payment obligation, and potentially
to dodge liability by closing up shop and selling elsewhere. Louisiana has
articulated reasonable goals, linked to its public health needs, that support its
decision to pass the ASR.
Although we recognize that Louisiana was under considerable financial
pressure to pass the ASR, we are extremely hesitant to embrace an argument
that depends on our finding that the tobacco lobby captured the Louisiana
legislature. Although PMs may have lobbied in favor of passing the ASR, it does
not follow that the Louisiana legislature acted solely at their behest or that
lobbying itself can be the basis of a Sherman Act violation. Indeed, in
addressing private parties’ violations of the Sherman Act, the Court has noted
that “[n]o violation can be predicated upon mere attempts to influence the
passage or enforcement of laws.” Eastern R.R. Presidents Conference v. Noerr
Motor-Freight, Inc., 365 U.S. 127, 135 (1961). The Court continued:
[W]here a restraint upon trade or monopolization is the result of
valid governmental action, as opposed to private action, no violation
of the Act can be made out. These decisions rest upon the fact that
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under our form of government the question of whether a law of that
kind should pass, or if passed be enforced, is the responsibility of the
appropriate legislative or executive branch of government so long as
the law itself does not violate some provision of the Constitution.
Id. at 136 (internal citations omitted). Although we recognize that the
Noerr-Pennington doctrine, see Noerr, 365 U.S. 127; United Mine Workers of
America v. Pennington, 381 U.S. 657 (1965), is not entirely applicable to the
instant case, we nonetheless find that it supports our reasoning. It would be
highly incongruous for a private party to be immune from antitrust liability
predicated on its attempts to influence the legislature, but for the legislature to
run afoul of antitrust law when it passes a statute after lobbying by private
parties. See Hoover, 446 U.S. at 579)80 (“[W]here the action complained of . . .
was that of the State itself, the action is exempt from antitrust liability
regardless of the State’s motives in taking the action.”).
In conclusion, we hold that the district court correctly granted summary
judgment in favor of the State on Xcaliber’s Sherman Act claim.
IV
Xcaliber contends that the ASR violates the Equal Protection Clause.
According to Xcaliber, we should review the statute under strict scrutiny because
the ASR coerces Xcaliber into relinquishing its First Amendment rights to
freedom of speech, association, and petition.12 The basic argument is that the
ASR makes doing business as an NPM so unattractive that it compels NPMs to
join the MSA, thereby waiving their First Amendment rights. Xcaliber also
argues that even if strict scrutiny does not apply, the ASR nonetheless violates
the Equal Protection Clause under rational-basis review.
12
The State has not disputed Xcaliber’s claim that joining the MSA would burden
Xcaliber’s First Amendment rights. We assume without deciding that joining the MSA would
in fact burden Xcaliber’s First Amendment rights.
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Xcaliber contends that it presented the district court with sufficient
evidence of compulsion to join the MSA to be granted summary judgment, or, at
the least, to preclude summary judgment for the State. The evidence falls into
two broad categories: price and non-price. Regarding price, Xcaliber claims that
it demonstrated that NPMs pay a higher cost per cigarette than PMs generally,
and a much higher cost than the exempt SPMs. Xcaliber also contends that PMs
pay less than the amounts they theoretically owe under the MSA because they
are able to withhold payments based on disputes over adjustments built into the
MSA. Regarding non-price coercion, Xcaliber contends that it demonstrated: the
large scale exclusion of NPMs from retail outlets based on retailers’ and
distributors’ unfounded fear of potential liability; the greater administrative
costs associated with escrow compliance for NPMs than for PMs complying with
the MSA; the inability of NPMs to dispute and withhold payments, which is a
routine practice of PMs; and the harm flowing from Louisiana’s policy of holding
escrow deposits in accounts generating extremely low interest rates.
Regarding price, according to the plain language of the ASR, Xcaliber is
entitled to a refund for any amount it deposits greater than the payment it
would have made as a PM. See LA. REV. STAT. § 13:5063 (C)(2)(b). If Xcaliber’s
allegations are true and NPMs are indeed paying more, Louisiana has provided
Xcaliber with a remedy under the ASR. Nevertheless, Xcaliber has chosen not
to pursue that remedy and instead asked us to invalidate the ASR on
constitutional grounds. Under these circumstances, a federal court, properly
mindful of fundamental principles of state sovereignty and constitutional
avoidance, must be extremely hesitant to strike down a state statute on
constitutional grounds when such a drastic remedy may not be necessary. See
Erznoznik v. City of Jacksonville, 422 U.S. 205, 216 (1975) (“[W]hen considering
a facial challenge it is necessary to proceed with caution and restraint, as
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No. 09-30492
invalidation may result in unnecessary interference with a state regulatory
program.”).
Xcaliber’s allegations of non-price coercion are undermined by the limited
relief it seeks. Because Xcaliber seeks only to invalidate the ASR and not the
entire MSA statutory structure, the relevant comparison is not simply between
NPMs under the ASR and PMs. We also must consider how granting the relief
sought would remedy the harms of which Xcaliber complains. That is, we must
also compare NPMs under the ASR with NPMs under the Original Escrow
Statute. Having done so, it is apparent that none of the non-price coercion that
Xcaliber alleges would be remedied by a declaratory judgment that the ASR is
unconstitutional. Even without the ASR, NPMs would still face exclusion from
retail outlets, bear greater administrative costs, and be unable to dispute
payments. Similarly, Louisiana would still hold the escrow deposits in accounts
generating the same interest rates.13 Because the non-price coercion of which
Xcaliber complains will exist whether or not we declare the ASR
unconstitutional, we do not consider it an adequate reason for subjecting the
ASR to heightened constitutional scrutiny.
A statute is only subject to heightened scrutiny on an Equal Protection
challenge if it “proceeds along suspect lines [or] infringes fundamental
constitutional rights.” See FCC v. Beach Commc’ns, Inc., 508 U.S. 307, 313
(1993). Since we are not persuaded by Xcaliber’s arguments implicating the
First Amendment, Xcaliber’s Equal Protection claim is subject to rational-basis
review. Id. Under rational-basis review, the ASR “must be upheld against equal
protection challenge if there is any reasonably conceivable state of facts that
could provide a rational basis for the classification.” Id.
13
This reasoning also undermines Xcaliber’s complaints about the PMs’ ability to
withhold disputed payments and the treatment of the exempt PMs, which exist regardless of
whether or not the ASR is in effect.
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No. 09-30492
We agree with the other circuits who have addressed this issue, see Grand
River, 574 F.3d at 944)45; KT&G, 535 F.3d at 1137)40, and hold that the ASR
does not violate the Equal Protection Clause under rational-basis review.
Louisiana has articulated several reasons for passing the MSA legislation, see
LA. REV. STAT. § 13:5061(1))(5), and explained why the ASR is important to
furthering the goals of the MSA. See id. § 13:5061(6). This explanation is easily
sufficient to uphold the ASR under rational-basis review. See KT&G, 535 F.3d
at 1140 (citing numerous cases that have upheld the MSA and its related
statutes against Equal Protection claims).
V
Xcaliber contends that the ASR violates the Due Process Clause. Relying
principally on Bell v. Burson, 402 U.S. 535 (1971), Xcaliber argues that a
deprivation based on a future, hypothetical finding of judicial liability is an
adjudicative deprivation that requires pre-deprivation process directed at
determining whether the liability actually exists. According to Xcaliber, since
the ASR does not provide any pre-deprivation process, it violates the Due
Process Clause.
This issue turns on whether the state action prompting the escrow
payments is properly characterized as legislative or adjudicative. Generally
speaking, legislative actions are non-individualized determinations that affect
a wider class of individuals, whereas adjudicative actions involve individualized
assessments that affect a smaller number of people in a more exceptional
manner. Compare Bi-Metallic Inv. Co. v. State Bd. of Equalization, 239 U.S.
441, 445 (1915), with Londoner v. Denver, 210 U.S. 373, 385 (1908); see also
Jackson Court Condominiums, Inc. v. City of New Orleans, 874 F.2d 1070, 1074
(5th Cir. 1989); United States v. LULAC, 793 F.2d 636, 648 (5th Cir. 1986).
In Bell, the Court evaluated a Georgia statute that suspended an
uninsured motorist’s vehicle registration and driver’s license when that motorist
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No. 09-30492
was involved in an accident, unless the motorist first posted security to cover the
amount of damages claimed by the aggrieved parties in the accident reports.
The Court held that the statute deprived the uninsured motorist of property
without due process. See Bell, 402 U.S. at 542. The Court made clear, however,
that “[i]f the statute barred the issuance of licenses to all motorists who did not
carry liability insurance or who did not post security, the statute would not,
under our cases, violate the Fourteenth Amendment.” Id. at 539.
According to the State, the ASR does not offend Bell because it imposes a
security-posting requirement on all cigarette manufacturers that have not
settled their potential liability to the State. Xcaliber argues that the “generally
applicable” exception does not apply because the escrow provisions are limited
to NPMs. Although Xcaliber is correct that the ASR applies only to NPMs, it
does not follow that the statute is not generally applicable. Since the PMs have
agreed to make payments in exchange for a release from liability, the NPMs are
the only potentially liable parties. The ASR generally applies to all NPMs, the
only manufacturers that may in the future be found liable to the State for the
damages inflicted by their products. See KT&G, 535 F.3d at 1141)42.
The problem in Bell was not that liability was generally involved, but that
the payments were tied to specific accidents, and therefore to actual liability.
Under the statute at issue in Bell, uninsured motorists were required to post
security after they had been in an accident. 402 U.S. at 535. Because the
posting of security essentially turned on an assessment of the individual’s fault
in causing the accident, liability was an important factor in the deprivation. See
Logan v. Zimmerman, 455 U.S. 422, 433 (1982) (quoting Bell, 402 U.S. at 541).
By contrast, the ASR requires NPMs to create an escrow account as a
precondition to selling cigarettes in Louisiana. Although the payout of escrowed
funds to satisfy a judgment will ultimately depend on an individualized
assessment of liability, the initial depositing of funds does not. Put differently,
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“the escrow reserves are not specific to any particular litigation; rather, they are
legislative preconditions for the privilege of engaging in future cigarette sales in
the individual states.” Grand River, 425 F.3d at 174.
Since we conclude that Louisiana’s decision to require NPMs to make
escrow deposits is legislative in character, no further process is required, see
Jackson Court Condominiums, 874 F.2d at 1074, and Xcaliber’s argument fails.
VI
For the foregoing reasons, we AFFIRM the district court’s grant of
summary judgment in favor of the State.
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