FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MICHAEL SHAMES and GARY
GRAMKOW, on behalf of themselves No. 08-56750
and all persons similarly situated, D.C. No.
Plaintiffs-Appellants,
v. 3:07-cv-02174-H-
WMC
CALIFORNIA TRAVEL AND TOURISM ORDER AND
COMMISSION, OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of California
Marilyn L. Huff, United States District Judge, Presiding
Argued and Submitted March 4, 2010
University of San Diego School of Law
San Diego, California
Filed November 24, 2010
Before: Michael Daly Hawkins, Sidney R. Thomas and
M. Margaret McKeown, Circuit Judges.
Opinion by Judge Hawkins
18733
SHAMES v. CALIFORNIA TRAVEL AND TOURISM 18735
COUNSEL
Robert C. Fellmeth (argued), Center for Public Interest Law,
University of San Diego School of Law, San Diego, Califor-
nia, and Donald G. Rez (briefed), Sullivan, Hill, Lewin, Rez
& Engel, San Diego, California, for the plaintiffs-appellants.
18736 SHAMES v. CALIFORNIA TRAVEL AND TOURISM
W. Scott Cameron (argued) and Charles L. Post (briefed),
Weintraub Genshlea Chediak, Sacramento, California, and
Diane Shaw (briefed), Office of the Attorney General of the
State of California, Los Angeles, California, for the
defendant-appellee.
ORDER
The Petition for Rehearing and Rehearing En Banc of
Plaintiffs-Appellants is granted for the purpose of withdraw-
ing the Opinion filed on June 8, 2010 and published at 607
F.3d 611 (9th Cir. 2010), and substituting a superseding Opin-
ion, filed concurrently herewith.
The parties may file new petitions for rehearing or rehear-
ing en banc as to the new Opinion in accordance with the Fed-
eral Rules of Appellate Procedure.
OPINION
HAWKINS, Senior Circuit Judge:
Plaintiffs Michael Shames and Gary Gramkow
(“Plaintiffs”) appeal the dismissal of their claims against the
California Travel and Tourism Commission (“CTTC”) alleg-
ing the CTTC engaged in antitrust price-fixing in violation of
the Sherman Act § 1, 15 U.S.C. § 1, and improper meeting
practices in violation of California’s Bagley-Keene Open
Meeting Act, Cal. Gov’t Code §§ 11120-11132. The district
court held the CTTC was shielded from antitrust liability
under the “state action immunity” doctrine, and declined to
exercise supplemental jurisdiction over the Bagley-Keene
claim. We reverse and remand for further proceedings.
SHAMES v. CALIFORNIA TRAVEL AND TOURISM 18737
FACTS AND PROCEDURAL HISTORY
A “nonprofit mutual benefit corporation” created by state
legislation in order to expand and develop California’s tour-
ism industry, Cal. Gov’t Code § 13995.40(a), the CTTC is
governed by thirty-seven commissioners, who simultaneously
serve as directors. § 13995.40(a)-(b).1 The Secretary of the
Business, Transportation and Housing Agency (“Secretary”)
chairs the CTTC. §§ 13995.20(k), 13995.40(b)(1). Twelve
commissioners are appointed by the governor, while the
remaining twenty-four are elected by the tourism industry itself.2
§ 13995.40(b)(2)-(3).
In 2006, the passenger rental car industry proposed changes
to California law which were subsequently enacted. See Cal.
Civ. Code § 1936.01. Under these changes, the passenger
rental car industry became the fifth tourism industry category
under the CTTC scheme and agreed to pay a high assessment
fee, greatly increasing the CTTC’s budget. In exchange for
this increased funding, the passenger rental car industry was
allowed to “unbundle” fees charged to customers and itemize
such fees separately from the base rental rate. Significantly,
the adopted changes allowed the companies to “pass on some
or all of the assessment to customers.” § 13995.65(f).
Plaintiffs allege this led to the imposition of two specific
fees on rental car customers. First, pursuant to an agreement
between the passenger rental car industry and the CTTC, a
2.5% tourism assessment fee was added to the cost of a car
1
All sections refer to California Government Code unless otherwise
noted.
2
The tourism industry is represented by five industry categories, one of
which is the passenger rental car industry, which was added in 2006. Each
category is allotted a number of commission seats based on the weighted
percentage of assessments paid to the CTTC by that category.
§ 13995.40(d). Unlike the other categories, the passenger rental car indus-
try is specifically limited to six commission seats regardless of the per-
centage of assessments paid to the CTTC. § 13995.40.5(a).
18738 SHAMES v. CALIFORNIA TRAVEL AND TOURISM
rental which, in turn, helped fund the CTTC. Plaintiffs allege
that the CTTC then colluded with the passenger rental car
industry, fixing rental car prices by passing on the 2.5% tour-
ism assessment fee to customers. Second, the passenger rental
car industry “unbundled” the already-existing airport conces-
sion fee charged to customers to pay airports for the right to
conduct business on airport premises; this fee has traditionally
amounted to 9% of the rental price. The bill permitted the pas-
senger rental car industry to charge this concession fee sepa-
rately from the base rental rate. According to Plaintiffs, the
CTTC also colluded with the passenger rental car industry in
passing the 9% concession fee on to customers as an uniform
add-on charge. Plaintiffs allege that these agreements between
the rental car companies and the CTTC constituted price-
fixing of rental car rates in violation of the Sherman Act § 1.
Plaintiffs also claim the CTTC committed a host of Bagley-
Keene Open Meeting Act violations, specifically, failing to
adhere to detailed notice requirements and impermissibly
holding closed session meetings.
Granting the CTTC’s Rule 12(b)(6) motion to dismiss, the
district court dismissed all claims against the CTTC, finding
it was entitled to state action immunity from antitrust liability
and declining to exercise supplemental jurisdiction over the
remaining Bagley-Keene Act state law claim. The district
court also held that the dismissed claims against the CTTC
were adequately severable from the pending claims against
the passenger rental car companies and entered final judgment
for the CTTC.
STANDARD OF REVIEW
We review the dismissal of the antitrust claim against the
CTTC de novo. Knevelbaard Dairies v. Kraft Foods, Inc., 232
F.3d 979, 984 (9th Cir. 2000). Because the appeal is from an
order granting a motion to dismiss, we assume the factual
allegations of the complaint to be true. Id. We review a dis-
trict court’s decision whether to retain jurisdiction over sup-
SHAMES v. CALIFORNIA TRAVEL AND TOURISM 18739
plemental claims when the original federal claims are
dismissed for an abuse of discretion. Tritchler v. Cnty. of
Lake, 358 F.3d 1150, 1153 (9th Cir. 2004).
DISCUSSION
I. State Action Immunity from Antitrust Liability
We assume without deciding that the Plaintiffs’ allegations
that the CTTC conspired with the passenger rental car compa-
nies to pass on CTTC tourism assessments, enforcing the
agreement against non-complying rental car companies, and
turning the 9% airport concession fee into a rate hike, suffi-
ciently allege an antitrust violation under the Sherman Act
§ 1. We need not consider the legality of the alleged conduct;
we are instead called to determine whether the district court
nonetheless properly dismissed the Plaintiffs’ claim against
the CTTC because the agency’s alleged conduct qualifies for
“state action immunity.”
[1] The Supreme Court introduced the doctrine of “state
action immunity” in Parker v. Brown, when it held that the
Sherman Act did not apply to state anticompetitive conduct.
317 U.S. 341, 350-52 (1943). The Court reasoned that the
Sherman Act was primarily concerned with individual anti-
competitive action, not states acting in their sovereign capac-
ity. Id.
[2] The Court revisited the doctrine in California Retail
Liquor Dealers Association v. Midcal Aluminum, Inc., 445
U.S. 97 (1980) (“Midcal”), when a wholesale wine distributor
challenged California’s wine resale statutes. The statutes
required wine producers to file price schedules with the state;
however, the wine dealers themselves set the prices without
any state oversight or control. Id. at 99-101. The Court estab-
lished a two-pronged test to determine when state involve-
ment in anticompetitive conduct can render a party eligible
for immunity: (1) the challenged restraint must be “one
18740 SHAMES v. CALIFORNIA TRAVEL AND TOURISM
clearly articulated and affirmatively expressed as state poli-
cy”; and (2) the policy must be “actively supervised” by the
state itself. Id. at 105 (internal quotation marks omitted). The
Court held that although California’s legislative policy clearly
stated and allowed resale price maintenance, satisfying the
first prong of the test, the price maintenance system failed the
second prong because the State did not “actively supervise”
the conduct of the wine dealers. Id. at 105-06. With these
principles in mind, we turn to their application in this case.
As a preliminary matter, we must first resolve a dispute
among the parties over the proper standard in evaluating Mid-
cal’s first prong. Plaintiffs argue that the district court
wrongly applied a lesser “foreseeability” standard in place of
Midcal’s “clear articulation” requirement.
[3] The CTTC correctly points out that the Supreme Court
has not required express authorization of particular anticom-
petitive acts and has applied state action immunity when the
actions were a foreseeable result of a broader statutory autho-
rization. For example, in City of Columbia v. Omni Outdoor
Adver., Inc., 499 U.S. 365 (1991) (“Omni”), a billboard com-
pany sued the city for passing an ordinance effectively pre-
venting the company from entering the billboard market. Id.
at 368-69. The city allegedly passed the ordinance to favor the
existing billboard company, a local company with deep roots
in the community. Id. at 367. The Court held that the city’s
actions were nonetheless entitled to Parker state action immu-
nity because they were an “authorized implementation of state
policy.” Id. at 370-71. The Court reasoned that the city acted
within its state-given authority to pass a zoning ordinance,
and that suppression of competition was a foreseeable conse-
quence of passing such an ordinance. Id. at 373. The Court
rejected “the contention that this requirement can be met only
if the delegating statute explicitly permits the displacement of
competition,” and held that “[i]t is enough . . . if suppression
of competition is the ‘foreseeable result’ of what the statute
authorizes.” Id. at 372-73.
SHAMES v. CALIFORNIA TRAVEL AND TOURISM 18741
Similarly, in Town of Hallie v. City of Eau Claire, neigh-
boring towns filed suit against the City of Eau Claire, arguing
that the city held an unlawful monopoly over sewage treat-
ment services. 471 U.S. 34, 37 (1985). The Court held that the
city’s actions were immunized because they were a “foresee-
able result” of the state legislature’s statutory authorization to
municipalities to provide (or refuse to provide) sewage ser-
vices to unincorporated areas. Id. at 42. The Court again noted
that a legislature need not expressly state in the statute or leg-
islative history that it intends for the action to have anticom-
petitive effects, so long as the legislature had contemplated
the action that was taken. Id. (“We think it is clear that anti-
competitive effects logically would result from this broad
authority to regulate.”). The Court also rejected the contention
that the city needed to show the state had “compelled” it to
act. Id. at 45; see also So. Motor Carriers Rate Conf., Inc. v.
United States, 471 U.S. 48, 58 (1985) (“The Midcal test does
not expressly provide that the actions of a private party must
be compelled by a State in order to be protected from the fed-
eral antitrust laws.”) (emphasis added).
[4] However, in those cases, there was at a minimum a
clear and affirmative state policy to displace pure competition
with regulation or monopoly. See, e.g., Omni, 499 U.S. at 373
(“The very purpose of zoning regulation is to displace unfet-
tered business freedom in a manner that regularly has the
effect of preventing normal acts of competition, particularly
on the part of new entrants.”). The real question in Town of
Hallie and Omni was thus whether the particular alleged anti-
competitive conduct was a foreseeable result of the overall
anticompetitive scheme, such as granting a monopoly to cities
providing waste services. Where there is no indication that a
state has acted to displace competition in the first place, state
action immunity will not apply. See Lancaster Cmty. Hosp. v.
Antelope Valley Hosp., 940 F.2d 397, 402-03 (9th Cir. 1991).
[5] The Midcal test seeks to ensure that “particular anti-
competitive mechanisms operate because of a deliberate and
18742 SHAMES v. CALIFORNIA TRAVEL AND TOURISM
intended state policy,” and not simply because the State has
acted through inadvertence. FTC v. Ticor Title Ins. Co., 504
U.S. 621, 636 (1992). The state-action immunity doctrine is
“disfavored,” and is to be interpreted narrowly, as “a broad
interpretation of the doctrine may inadvertently extend immu-
nity to anticompetitive activity which the states did not intend
to sanction.” Cost Mgmt. Servs., Inc. v. Wash. Nat. Gas Co.,
99 F.3d 937, 941 (9th Cir. 1996) (citing Ticor, 504 U.S. at
635-36).
We have previously addressed the proper application of the
foreseeability language used by the Supreme Court. As we
explained in Columbia Steel Casting Co. v. Portland Gen.
Elec. Co., 111 F.3d 1427, 1443-44 (9th Cir. 1997), a foresee-
able result cannot create state authorization itself. See id. at
1444 (“[E]xpress authorization is the necessary predicate for
the Supreme Court’s foreseeability test.”) (internal quotation
marks and alteration omitted). Rather, “foreseeability” is to be
used in deciding the reach of antitrust immunity that stems
from an already authorized monopoly, price regulation, or
other disruption in economic competition. In other words, a
state may unintentionally create a scheme that in some way
fosters anticompetitive conduct. But this unintended
consequence—even if foreseeable—does not satisfy the “clear
articulation” prong of Midcal because the underlying scheme
does not indicate an intention to displace competition. See id.
at 1444 (discussing Town of Hallie).
For example, in Medic Air Corp. v. Air Ambulance Auth.,
843 F.2d 1187 (9th Cir. 1988), we applied the clear articula-
tion/foreseeability test, holding that a county board of health
had clearly intended to displace competition by establishing
a monopoly in the market of dispatching air ambulances in the
county, and that state action immunity therefore shielded this
monopoly. Id. at 1189. However, we further held that this
immunity did not reach anticompetitive conduct in the ambu-
lance service market, because this was “not a ‘necessary or
reasonable consequence’ of the decision to establish an exclu-
SHAMES v. CALIFORNIA TRAVEL AND TOURISM 18743
sive dispatcher.” Id. (emphasis added); see also Redwood
Empire Life Support v. Cnty. of Sonoma, 190 F.3d 949, 955
(9th Cir. 1999) (Emergency Medical Services Act permitting
establishment of exclusive operating areas “has the foresee-
able effect of excluding some providers from a local EMS
system”); Nugget Hydroelectric L.P v. Pac. Gas & Elec. Co.,
981 F.2d 429, 434 (9th Cir. 1992) (alleged anticompetitive
conduct was foreseeable result of regulatory authority granted
to California Public Utility Commission to specify “prices,
terms and conditions” for sale of power).
[6] In this case, there is no indication California authorized
interference by the CTTC with normal industry competition.
There is no authorization by the California legislature of anti-
competitive regulation or monopoly in the rental car field.
The CTTC is not a regulatory body and has no control over
the prices established by the rental car companies. The legis-
lature merely imposed an assessment on the rental car compa-
nies and gave the CTTC the authority to spend these funds to
promote California tourism. Cal. Gov’t Code §§ 13995.45;
13995.57. Even though the ultimate economic result of the
legislation may be foreseeable (i.e., that rental car companies
would raise their rates to offset the 2.5% assessment), the
alleged anticompetitive conduct—that the CTTC facilitated a
collusive agreement among rental car companies to uniformly
pass through these charges to consumers and ensured rogue
companies adhered to the agreement—is not a “natural and
foreseeable” result of the limited power granted to the CTTC.
If anything, the statute appears to expressly leave the decision
of whether to pass the charge through to consumers to the
wisdom of the individual rental car company: “an assessed
business may pass on some or all of the assessment to cus-
tomers.” § 13996.65(f) (emphasis added). Individual action
may be permitted by this provision, but the CTTC’s alleged
interference with market forces is not.3 We therefore reverse
the district court’s dismissal based on state action immunity.
3
Because we conclude the CTTC was not acting pursuant to a “clearly
articulated” state policy, we need not consider Midcal’s second prong of
“active state supervision.” United States v. Title Ins. Rating Bureau of
Ariz., Inc., 700 F.2d 1247, 1253 (9th Cir. 1983).
18744 SHAMES v. CALIFORNIA TRAVEL AND TOURISM
II. Bagley-Keene Act
[7] The California Legislature enacted the Bagley-Keene
Open Meeting Act to ensure that state bodies conduct open
and public meetings, specifically by implementing detailed
notice requirements and limiting closed sessions. §§ 11120-
11132; S. Cal. Edison Co. v. Peevey, 74 P.3d 795, 797 (Cal.
2003). The district court initially heard the Bagley-Keene Act
claim alongside the federal antitrust claim pursuant to 28
U.S.C. § 1367(a), but after dismissing the antitrust claim
against the CTTC, it dismissed the Bagley-Keene Act claim
without prejudice. Because we reverse the dismissal of the
federal claim against the CTTC, we remand for the court to
reconsider whether it should exercise supplemental jurisdic-
tion of this state law claim. See Fang v. United States, 140
F.3d 1238, 1244 (9th Cir. 1998).
CONCLUSION
For the foregoing reasons, we REVERSE the district
court’s dismissal of the antitrust price-fixing and Bagley-
Keene Act claims, and REMAND for further proceedings
consistent with this Opinion. All pending motions not other-
wise disposed of herein are denied as moot.