Antitrust Law Daily California city’s surfing ordinance immune from Sherman Act claim
Tuesday, May 12, 2020

California city’s surfing ordinance immune from Sherman Act claim

By Elizabeth C. Pope, J.D.

The ordinance, which restricted the number of surfing schools on a certain beach, was a clear articulation of the State of California’s power to regulate the use of its coastal land.

The City of Santa Cruz, California, did not violate the Sherman Act when it restricted to four the number of surfing schools that could operate on a given beach because for this purpose Santa Cruz was a "nonstate actor" entitled to sovereign immunity, according to the federal district court in San Jose has decided. The city qualified for nonstate actor immunity because the restraint was clearly articulated as state policy and because the active state supervision requirement did not apply when the nonstate actor is a municipality (Meyberg v. City of Santa Cruz, May 8, 2020, Cousins, N.).

Surf school ordinance. The owner of the New Santa Cruz Surf School LLC filed suit against the City of Santa Cruz and Club Ed, a competitor surfing school, alleging that the defendants illegally limited the number of commercial surf schools available at Cowell Beach in Santa Cruz. The source of the alleged restraint was a provision in Santa Cruz’s municipal code that limited to four the number of surfing schools that could operate at Cowell Beach. The owner also claimed that the City and Club Ed harassed him in retaliation for his involvement in 2007 litigation against the City, which was an exercise of his First Amendment rights.

Club Ed claims. After granting the owner two chances to amend his complaint, the court dismissed all claims with respect to Club Ed as stated in the third amended complaint. The owner failed to sufficiently allege for purposes of Rule 8 of the Federal Rules of Civil Procedure that Club Ed made any agreement with the City to restrain trade or participated in any retaliation efforts.

City of Santa Cruz claims. The court also dismissed the Sherman Act violation claims against the City, concluding that the ordinance was lawful under the state-action immunity doctrine. Municipalities are considered to be "nonstate actors" for purposes of applying the sovereign immunity doctrine because they are not themselves sovereign. Under Supreme Court precedent, the anticompetitive acts of nonstate actors are entitled to immunity when (1) the challenged restraint is clearly articulated and affirmatively expressed as state policy and (2) the state policy in question is actively supervised by the State.

The parties agreed that the "active supervision" prong does not apply when the nonstate actor is a municipality. With respect to the "clear-articulation" prong, the court explained that under the California Coastal Act, the California legislature has expressly delegated to local government the power to regulate the use of coastal land for recreational and commercial purposes. Contrary to the owner’s assertion, it was unnecessary for the legislature to explicitly mention "the displacement of competition" in the delegating statute. The implementation of zoning regulations authorized by the Coastal Act regularly has the effect of preventing normal acts of competition.

Finally, the court also rejected the owner’s claim that the City retaliated against him for his participation in the 2007 litigation, which was an exercise of his First Amendment rights. The owner failed to allege that the City employees who conducted the alleged retaliation were aware of the existence of the 2007 litigation.

This case is No. 19-cv-00700-NC.

Attorneys: Kathleen Wells (Kathleen Wells, Attorney at Law) for David Meyberg d/b/a The New Santa Cruz Surf School and New Santa Cruz Surf School, LLC. Barbara H. Choi (Atchison, Barisone, Condotti & Kovacevich) for City of Santa Cruz.

Companies: The New Santa Cruz Surf School; New Santa Cruz Surf School, LLC

MainStory: TopStory Antitrust CaliforniaNews GCNNews

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