By Jeffrey May, J.D.
A nonprofit entity that conducted fundraising on behalf of Edinboro University, a college in the Pennsylvania state university system, was immune under the state action doctrine from antitrust liability for allegedly conspiring with the university to monopolize the student-housing market. Private businesses that provided off-campus residential housing took issue with the university’s on-campus residency rule, which required more students to live in dormitories. The plaintiffs only sued Edinboro University Foundation, conceding that the university was an arm of the state subject to immunity under the Eleventh Amendment. However, because the foundation was merely acting under the direction of the university and the plaintiffs’ alleged antitrust injury stemmed entirely from the conduct of the university, the university’s immunity under the state action doctrine was determinative. While the university’s decision to expand its on-campus residency requirement was not direct sovereign action entitled to ipso facto immunity, its conduct was shielded because it conformed to a clearly articulated state policy. Mandating on-campus residency was a foreseeable consequence of the legislative mandate to provide appropriate student living facilities (Edinboro College Park Apartments v. Edinboro University Foundation, March 9, 2017, Smith, D.).
The U.S. Court of Appeals in Philadelphia affirmed in part a lower court's decision to dismiss. However, because further amendment might not be futile, the appellate court remanded with instructions to dismiss without prejudice.
Appropriate level of analysis. The lower court held that immunity under Parker v. Brown automatically applied to the university because it was an arm of the state. However, the doctrine of ipso facto immunity was inapplicable, in the appellate court's view. This left the appellate court to choose between two other approaches devised by the Supreme Court to analyze a state-action defense: (1) Midcal scrutiny, which applies to private parties and state agencies controlled by active market participants; and (2) Hallie scrutiny, which applies to municipalities, and perhaps state agencies.
The appellate court described the Midcal test as the most searching level of scrutiny. It derives from the Supreme Court’s 1980 decision in California Retail Liquor Dealers Association v. Midcal Aluminum. Under Midcal, the conduct must pass a rigorous two-part test. First, the state must enact a "clearly articulated and affirmatively expressed" policy permitting anticompetitive conduct; and second, the State must "actively supervise" that conduct, it was noted.
The court also explained the intermediate standard of review enunciated by the U.S. Supreme Court in 1985 in Town of Hallie v. City of Eau Claire. In that case, the Court determined that municipalities are exempt from Midcal’s second prong—active supervision.
Concluding that the university was more analogous to a municipality than to a private market participant, the court applied Hallie scrutiny. Thus, the defendant did not need to show that its conduct was actively supervised to qualify for state action immunity. It was sufficient for a state created and funded university to show that it was acting "pursuant to a clearly articulated state policy"—the first requirement under Midcal. The university’s conduct was immune under that standard, and the university’s immunity passed through to the defending foundation.
The case is No. 16-1746.
Attorneys: Matthew L. Wolford (Wolford Law Firm) for Edinboro College Park Apartments, Darrow Place Partnership, Darrow Place Partnership II and James Manor of Edinboro LLC. Joseph S.D. Christof, II (Dickie McCamey & Chilcote) for Edinboro University Foundation.
Companies: Edinboro College Park Apartments; Darrow Place Partnership; Darrow Place Partnership II; James Manor of Edinboro LLC
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