FILED
United States Court of Appeals
Tenth Circuit
July 29, 2011
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
KAY ELECTRIC COOPERATIVE, an
Oklahoma Rural Electric Cooperative;
and KAY COUNTY RURAL WATER
DISTRICT NO. 3, an Oklahoma Rural
Water District,
Plaintiffs - Appellants,
v.
THE CITY OF NEWKIRK,
OKLAHOMA, a Municipality; and
No. 10-6214
THE NEWKIRK MUNICIPAL
AUTHORITY, a public trust,
Defendants - Appellees.
---------------------------------------------
OKLAHOMA ASSOCIATION OF
ELECTRIC COOPERATIVES,
Amicus-Curiae.
Appeal from the United States District Court
for the Western District of Oklahoma
(D.C. No. 10-CV-00347-C)
Douglas A. Rice, Derryberry & Naifeh, LLP, Oklahoma City, Oklahoma (Larry
Derryberry and Pete G. Serrata III, Derryberry & Naifeh, LLP, Oklahoma City,
Oklahoma, and Jonathan C. Ihrig and Andrew M. Ihrig, Ihrig Law Firm,
Blackwell, Oklahoma, with him on the briefs) for Plaintiffs - Appellants.
Andrew W. Lester (Carrie L. Williams, Lester, Loving & Davies, P.C., Edmond,
Oklahoma, with him on the brief), for Defendants - Appellees.
Michael Burrage, Whitten Burrage, Oklahoma City, Oklahoma, for Amicus -
Curiae.
Before MURPHY, GORSUCH, and MATHESON, Circuit Judges.
GORSUCH, Circuit Judge.
When a city acts as a market participant it generally has to play by the
same rules as everyone else. It can’t abuse its monopoly power or conspire to
suppress competition. Except sometimes it can. If the city can show that its
parent state authorized it to upend normal competition, to install instead a
municipal monopoly, the city enjoys immunity from federal antitrust liability.
The problem for the City of Newkirk in this case is that the state has done no such
thing.
Newkirk and Kay Electric Cooperative both provide electricity to
Oklahoma consumers. Traditionally, Newkirk has served customers inside its city
limits while Kay, a rural electrical cooperative, has served nearby customers
outside the city boundaries. When the announcement came that a new jail would
be built just outside Newkirk, Kay naturally offered to provide electricity. But
unwilling to let so lucrative an opportunity slip away, Newkirk responded by
annexing the area and issuing its own service offer. At the end of the day, Kay’s
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offer was much the better but the jail still elected to buy electricity from Newkirk.
Why? Because Newkirk is the only provider of sewage services in the area and it
refused to provide any sewage services to the jail — that is, unless the jail also
bought the city’s electricity. Finding themselves stuck between a rock and a pile
of sewage, the operators of the jail reluctantly went with the city’s package deal.
As these things go Kay responded by suing Newkirk, alleging that the city
had engaged in unlawful tying and attempted monopolization in violation of the
Sherman Act. 15 U.S.C. §§ 1, 2. But the district court refused to allow the case
to proceed, granting Newkirk’s motion to dismiss under Fed. R. Civ. P. 12(b)(6)
after it found Newkirk “immune” from liability as a matter of law. It is this
ruling Kay challenges on appeal.
The Sherman Act has little to say about municipal immunity, at least
directly. It contains only the broadest and barest of proscriptions against
anticompetitive activity — declaring unlawful any contract, combination, or
conspiracy in restraint of trade and forbidding any monopoly or attempt to
monopolize. Over the last 120 years, however, much judicial embroidery has
stitched out the scope of permissible and impermissible competitive activity under
the Act, handiwork that’s often been informed by evolving (if sometimes
competing) schools of economic thought. One particular development, however,
and the one at issue in this case, has less to do with economic regulation than
state sovereignty.
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While the Sherman Act clearly forbids anticompetitive conduct by private
market players, what about conduct by state actors? In Parker v. Brown, 317 U.S.
341 (1943), the plaintiff argued that the Act’s sweeping terms don’t distinguish
between private and public players, that states must live by the same antitrust
rules as everyone else. The Supreme Court, however, disagreed. It assumed
without deciding that Congress could constitutionally preempt state law directing
state actors to behave anticompetitively. Id. at 350. But at the same time the
Court said there’s “no hint” Congress wished to attack and undo such state
sanctioned restraints of trade when it passed the Sherman Act. Id. Given this,
and given the importance of federal-state comity, the Court held that the Act’s
terms should not be read to preempt state imposed restraints of trade. States may
regulate economic activity as they wish, pursuing even patently anticompetitive
policies without having to look over their shoulders to see if Congress approves.
Id. at 351. Thus was born the concept of “state action immunity” (though the
term “immunity” may be a bit strong since the Court held only that Congress
hadn’t covered state action, not that it couldn’t).
The Court’s answer in Parker, however, soon begot new questions of its
own. If states are free from federal antitrust worries, what about the municipal
agents they create and through which they often act? When the Supreme Court
eventually took up this question, it conclusively answered it inconclusively,
holding that a municipality sometimes may be sued under the Sherman Act and
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sometimes it may not. Because municipalities “are not themselves sovereign,” the
Court reasoned, they should not automatically be eligible for the “federal
deference [given to] the States that create them.” City of Lafayette v. Louisiana
Power & Light Co., 435 U.S. 389, 412 (1978) (plurality); Town of Hallie v. City
of Eau Claire, 471 U.S. 34, 38 (1985). A municipality’s “parochial interests” in
anticompetitive policies, the Court added, don’t necessarily implicate the
federalism concerns that animate the state action immunity doctrine and shouldn’t
always be placed “above the Nation’s economic goals reflected in the antitrust
laws.” Lafayette, 435 U.S. at 412-13. Perhaps surprisingly, the Court told us,
this means not only that the Sherman Act can sometimes preempt a municipality’s
actions; it also means that municipalities may be subject to treble damage awards
for violating the Act. See generally Phillip E. Areeda & Herbert Hovenkamp,
Antitrust Law ¶ 223 (Aspen 3d ed. 2006); Community Communications Co. v. City
of Boulder, 455 U.S. 40, 60-61 (1982) (Rehnquist, J., dissenting). At the same
time, the Court held, if a state expressly adopts an anticompetitive policy and
chooses to use its municipal subdivisions as instruments to effect that policy, then
the federal-state comity concerns undergirding the Parker state immunity doctrine
do come into play. And “[i]t is therefore clear,” the Court concluded after laying
all this out, “that a municipality will be entitled to the protection of the state
action exemption from the antitrust laws” only if there is a “clear articulation of a
state policy to authorize anticompetitive conduct” by the municipality. Hallie,
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471 U.S. at 34 (internal quotation omitted); see also Boulder, 455 U.S. at 54-55;
City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 373 (1991). Put
simply, at the end of the day a municipality shares the state’s “immunity” when
but only when it is implementing anticompetitive policies authorized by the state.
How clearly must a state legislature articulate its authorization of
anticompetitive municipal conduct to trigger antitrust immunity? Now many
decades removed from Parker, the Court has sometimes declared that its
judicially created “[s]tate-action immunity [should be] disfavored,” F.T.C. v.
Ticor Title Ins. Co., 504 U.S. 621, 635-36 (1992) (citing Lafayette, 435 U.S. at
398-99), and, because of this, a municipality’s authority to suppress competition
must be “clearly articulated and affirmatively expressed” in state legislation.
California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97,
105 (1980) (emphasis added); Ticor, 504 U.S. at 636 (requiring “real compliance”
with Midcal). At other times, however, the Court has appeared to require
something less of cities seeking to invoke Parker’s protections, suggesting that a
municipality’s actions are free from the grasp of federal antitrust law if
anticompetitive effects “logically would result” from state legislative policy.
Hallie, 471 U.S. at 42. Complicating matters still further, the Court has also said
that a municipality may be authorized to engage in anticompetitive actions that
are merely the “foreseeable result” of state legislation. Id. (emphasis added).
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With its usual care Professor Areeda and Hovenkamp’s treatise traces all
these warps and wefts before gently suggesting that “while the policy favoring
competition is national and the states are permitted to establish an alternative
regime,” states should be required to “declare their intentions clearly rather than
falling back on the ambiguity-creating compromises that often characterize the
legislative process.” Areeda & Hovenkamp, Antitrust Law ¶ 225a at 133. Such a
bright line rule, they have said, would “do a much better job of identifying the
relevant principle of federalism that undergirds the Parker doctrine.” Id. But
however much sense this makes (and we think it makes quite a lot of sense), our
lot as a lower court isn’t to choose between the Supreme Court’s holdings but to
apply them. And though it’s hard to see a way to reconcile all of the Court’s
competing statements in this area, we can say with certainty this much — a
municipality surely lacks antitrust “immunity” unless it can bear the burden of
showing that its challenged conduct was at least a foreseeable (if not explicit)
result of state legislation. Of course, what does and doesn’t qualify as
foreseeable is hardly “self-evident” or self-defining, itself perhaps another reason
to eschew the test. See id. ¶ 225b3 at 144. But there are at least a few bright
lines we can discern in this muddled arena — and these are enough to allow us to
dispose of this appeal with confidence.
First, a state’s grant of a traditional corporate charter to a municipality
isn’t enough to make the municipality’s subsequent anticompetitive conduct
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foreseeable. Municipal charters typically endow the municipality with the
authority to make contracts, to buy and sell property, to enter into joint ventures.
But most private corporate charters allow companies to do these same things.
And natural persons win these powers simply by reaching the age of majority.
Neither companies nor persons automatically take with these pedestrian powers
the right to use them in an anticompetitive fashion, and there’s no reason to think
municipalities do either. Put simply, simple permission to play in a market
doesn’t foreseeably entail permission to roughhouse in that market unlawfully.
See Boulder, 455 U.S. at 54-55; Hovenkamp, Antitrust Law ¶ 225b5 at 155
(giving as examples a municipality’s operation of golf courses and swimming
pools and explaining that monopoly in “such facilities is hardly inevitable”);
Surgical Care Ctr. of Hammond, L.C. v. Hosp. Svc. Dist. No. 1, 171 F.3d 231, 235
(5th Cir. 1999); Lancaster Comm. Hosp. v. Antelope Valley Hosp. Dist., 940 F.2d
397, 402-03 (9th Cir. 1991).
Second, the fact that a state may have authorized some forms of municipal
anticompetitive conduct isn’t enough to make all forms of anticompetitive
conduct foreseeable. Antitrust violations come in a variety of flavors and just
because the state has authorized one doesn’t mean it has authorized all. As the
Court has put it, “even a lawful [municipal] monopolist may be subject to
antitrust restraints when it seeks to extend or exploit its monopoly in a manner
not contemplated by its authorization.” Lafayette, 435 U.S. at 417; see also
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Hallie, 471 U.S. at 44 (“[T]he legislature contemplated the kind of action
complained of.”) (emphasis added); Midcal, 445 U.S. at 105; Areeda &
Hovenkamp, Antitrust Law ¶ 225a at 132-33.
Third, when asking whether the state has authorized the municipality’s
anticompetitive conduct we look to and preference the most specific direction
issued by the state legislature on the subject. After all, it is long and well settled
that whenever we construe legislative enactments — and that’s precisely what
we’re called on to do when deciding a municipality’s antitrust immunity in light
of state authorizing legislation — “a specific statute controls over a general one
without regard to priority of enactment.” Bulova Watch Co. v. United States, 365
U.S. 753, 758 (1961); Edmond v. United States, 520 U.S. 651, 657 (1997).
Applying these rules to our case, it quickly becomes clear that Newkirk
enjoys no immunity. The Oklahoma legislature has spoken with specificity to the
question whether there should be competition for electricity services in annexed
areas. And it has expressed a clear preference for, not against, competition.
While Newkirk cites a number of more general enabling statutes conferring on the
city the authority to do business, none authorizes the kind of anticompetitive
conduct alleged here, let alone suggests that we may ignore the more specific
provisions of law indicating it may not.
The most specific legislation relevant to our inquiry the parties have
identified is § 437.2 of the Rural Electric Cooperative Act. Part of Oklahoma law
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since 1961, this provision expressly entitles rural electric cooperatives like Kay to
“continue and extend furnishing of electric energy” in areas they have
traditionally serviced even after those areas are annexed by a municipality. 18
Okla. Stat. § 437.2(k). This provision thus speaks directly to both the area and
issue in this lawsuit. It is undisputed that the jail lies in an area traditionally
serviced by Kay; that the area has now been annexed by Newkirk; and that
Newkirk is allegedly thwarting Kay’s ability to operate there. And § 437.2(k)
doesn’t merely authorize Kay to continue to compete in annexed areas; it protects
Kay from municipal interference in those areas, allowing Kay to continue to
operate without having to seek or obtain “consent, franchise, license, [or] permit”
from Newkirk. Far from displacing competition, then, this language foreseeably
does just its opposite — it seeks to preserve competition after annexation by
constraining municipalities from using their considerable regulatory powers to
harm rival rural electricity providers. Underscoring the point, the statute goes on
to say a municipality may impose only two conditions on electric cooperatives
operating in annexed areas — it may force them to pay taxes and comply with
safety regulations. The fact that the statute fails to authorize any other municipal
burden on competition is glaring. See United States v. Johnson, 529 U.S. 53, 58
(2000) (“When [the legislature] provides exceptions in a statute, it does not
follow that courts have authority to create others. The proper inference . . . is that
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[the legislature] considered the issues of exceptions and, in the end, limited the
statute to the ones set forth.”).
This specific and state-sanctioned battle for electricity customers in
annexed areas rests against an even grander plan to expand competition in
electricity markets. In 1997, the Oklahoma legislature enacted the Electric
Restructuring Act seeking to “allow direct access by retail consumers to the
competitive market for the generation of electricity while maintaining the safety
and reliability of the electricity system in the state.” 17 Okla. Stat. § 190.2.
Creating a joint task force to promote restructuring, this law expressly aims to
“provide greater competition and more efficient regulation,” “increase[] consumer
choice,” and “provide electric generation service at the lowest and most
competitive rates.” Id.; see also 17 Okla. Stat. § 190.4 (“Competitive markets are
to be encouraged to the greatest extent possible.”). Here again, Oklahoma has
expressed an unmistakable policy preference for competition in the provision of
electricity.
Of course, Newkirk replies that the Electric Restructuring Act has yet to
restructure much of anything. The sort of competition it envisions has yet to
emerge on the scale the legislature hoped, Newkirk says. And perhaps this is so.
But no one denies that the Restructuring Act is on the books or that it expresses a
policy preference for competition in electricity generation and supply. Neither is
it the place of a court to say whether, over the last fourteen years since the
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statute’s enactment, Oklahoma has moved too slowly or quickly in its efforts to
restructure an entire industry. And no one before us has been so bold as to
suggest that desuetude might render this statute, only in its teenage years, a dead
letter we might simply ignore. See Norman J. Singer & J.D. Shambie Singer, 1A
Statutes and Statutory Construction § 23:26 at 533 (7th ed. 2009) (“The doctrine
of separation of powers prevents holding that a legislative enactment . . . is
ineffective by nonuse or obsolescence.”). Besides, competition is already a
manifest reality between cooperatives and municipalities in Oklahoma — as this
case itself attests — and the state has taken other affirmative steps to increase this
form of competition by conducting studies and declaring a moratorium on efforts
by cities to condemn competing private facilities. See 11 Okla. Stat. § 21-222.
In reply to all this, Newkirk draws our attention to various other provisions
of state law, some of which merit attention here. Each, however, speaks with far
less specificity to the challenged conduct than either the Cooperative Act or
Restructuring Act. In fact, Newkirk begins its case with and emphasizes heavily
throughout its brief the most general and least specific laws of all, portions of the
Oklahoma state constitution that merely authorize municipalities to do business.
See Okla. Const. Art. 18, §§ 6, 7. But this hardly tells us much of anything. As
already explained, it is well settled that general municipal charters are never
enough to trigger Parker’s protections.
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Newkirk next draws our attention to 11 Okla. Stat. § 22-104. On
inspection, however, this provision (similarly) turns out to be nothing more than a
general enabling statute allowing municipalities to run utilities. Of course, one
might argue that at least certain utilities are “natural” monopolies and so a great
variety of anticompetitive conduct, including the conduct challenged in this case,
would foreseeably follow from allowing a city to operate a utility. But we reject
any such suggestion. For starters, and as we have already explained, Supreme
Court precedent doesn’t support the idea that an enabling law permitting a city to
run a business is enough to produce Parker immunity. Beyond that, Newkirk’s
reading would require courts to decide whether a particular utility is or isn’t a
“natural” monopoly. And that’s a business as busy as a box of frogs. “Natural”
monopolies are hardly always obvious or immutable. What one might call a
natural monopoly in one place might not be a natural monopoly in another, and
what might be a natural monopoly today might not be one tomorrow (think
telephones and railroads). See Alfred E. Kahn, 2 The Economics of Regulation:
Principles and Institutions 10 (1971) (“[T]echnology is perpetually developing: so
the natural monopoly of yesterday may no longer be natural today.”); Richard A.
Posner, Natural Monopoly and Its Regulation, 21 Stan. L. Rev. 548, 636 (1969)
(“[N]atural monopoly conditions are quite likely to be transient.”). For an
anticompetitive result to qualify as a foreseeable consequence of state legislative
policy, we believe and hold, it should be plainer and easier to ascertain in
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advance than a court’s ruling on whether a particular business at a particular time
and in a particular place qualifies as a “natural” monopoly.
Trying another angle, Newkirk argues that 17 Okla. Stat. § 190.7
demonstrates an intent by Oklahoma to limit competition in the electricity
markets. And here Newkirk has at least something of a point. Section 190.7 does
forbid a rural electrical cooperative like Kay from taking a municipality’s existing
customers. The difficulty is that nothing in § 190.7 prohibits a rural electrical
cooperative from competing against a municipality for new customers in annexed
areas. And this is hardly surprising given that (as we’ve seen) § 437.2(k)
expressly guarantees Kay the right to do exactly that. Neither is the question
before us whether Oklahoma has sought to make the electricity market
competitive in every respect. It is instead, and as we have already explained, only
whether Oklahoma has authorized the specific form of anticompetitive conduct
under attack. And in this case Kay has challenged Newkirk’s ability to preclude
it from winning a new customer, not taking Newkirk’s existing customers. On
that, the question posed by this case, § 190.7 has nothing to say.
An even greater problem besets Newkirk’s reliance on 18 Okla. Stat.
§ 437.2(k). Newkirk notes that this statute allows municipalities, after annexing
an area, to expropriate the facilities of the incumbent rural electric cooperative.
On first blush this appears to be the strongest evidence yet of a legislative intent
to allow municipalities to monopolize electricity markets within their borders.
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But, as part of its plan to bring more competition to electricity markets, the state
legislature recently and expressly suspended these very powers. See 11 Okla.
Stat. § 21-222. So if anything Newkirk’s citation winds up doing more harm than
good to its cause.
In a final stand, Newkirk insists that our decision to allow this case to
proceed cannot be reconciled with Hallie or Sterling Beef Co. v. City of Fort
Morgan, 810 F.2d 961 (10th Cir. 1987). Analogies to these cases, Newkirk
insists, demonstrate its entitlement to Parker immunity. In truth, however, they
do nearly the opposite.
In Hallie, the Court confronted a state statute that authorized municipalities
to delineate the area in which it wished to afford sewage services. When the
defendant-city did just that, some nearby towns complained that the city had
refused to treat sewage from outside the city’s delineated boundaries, and alleged
that the city’s refusal to share or provide access to its treatment plant amounted to
a violation of the Sherman Act. The Court found Parker immunity because the
city’s conduct was just the sort of thing the state legislature had authorized. But,
by contrast in our case, there’s nothing on Oklahoma’s statute books to suggest
that the legislature authorized the species of antitrust violation alleged here —
refusing to provide an end customer one service (sewage) unless he purchased
something entirely different (electricity). At the end of the day, Oklahoma law
simply allows Newkirk to provide sewage and electricity services. And it is no
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more foreseeable from this fact that Newkirk might unlawfully use its sewage
business to sell electricity than to sell magazines, or life insurance, or require the
prison to be painted a particular color. To say that the authority to provide
services in two markets authorizes a municipality to do whatever it wants in one
or both of those markets would be to let the Parker immunity exception swallow
the Sherman Act’s antitrust rule.
Hallie is beside the point for another but still related reason. It involved a
situation where the legislative evidence ran but one way — the only relevant
statute in the case tended to suggest that the particular challenged anticompetitive
conduct was foreseeable. Meanwhile, the statutes identified by plaintiffs to
suggest a pro-competitive state policy were introduced too late in the
proceedings. And, as it turned out, they were themselves no more than general
enabling statutes authorizing the plaintiffs to conduct business. See 471 U.S. at
42 n.5. Hallie thus doesn’t tell us anything about the situation we face — where
specific state statutes authorizing competition are compared to more general ones
that are at best only susceptible to an anticompetitive gloss.
Sterling Beef is no more and perhaps even less analogous. The
municipality there operated a natural gas utility. Under state law, it enjoyed the
power not just to operate its own utility but also to decide whether to allow
competitors to provide distribution systems within its territorial limits. The
municipality denied authorization to a distributor who wished to build its pipes
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within city limits. When the distributor brought an antitrust suit, this court —
unsurprisingly — held that an “anticompetitive impact” is the “obvious result of
the state scheme.” Sterling Beef, 810 F.2d at 964. Indeed, the statute amounted
to an express permission to create a monopoly if the municipality wished;
competition could exist only at the city’s grace. See also Allright Colo., Inc. v.
City and Cty. of Denver, 937 F.2d 1502, 1508-09 (10th Cir. 1991) (finding
antitrust immunity where state statute authorized city to regulate all airport
transportation services). This case could hardly be more different. Oklahoma
expressly entitles Kay to provide electricity services in the annexed area at issue
— and expressly frees it of the need to obtain Newkirk’s “consent, franchise,
license, permit, or other authority” to do so. 18 Okla. Stat. § 437.2(k). If
Sterling Beef has any bearing on this case, then, it serves only as a study in
contrast not commonality.
The district court’s Rule 12(b)(6) dismissal order is reversed, and the case
is remanded for further proceedings with respect to Kay’s allegations of unlawful
tying and attempted monopolization of electricity services. No other aspects of
the district court’s dismissal order were pursued in this appeal.
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