EDINBORO COLLEGE PARK APARTMENTS; DARROW PLACE PARTNERSHIP; DARROW PLACE PARTNERSHIP II; JAMES MANOR OF EDINBORO, LLC, Appellants
EDINBORO UNIVERSITY FOUNDATION; *H. FRED WALKER, Ph.D *(Pursuant to Rule 43(c)(2), Fed. R. App. P.)
November 9, 2016
Appeal from the United States District Court for the Western
District of Pennsylvania District Court No. 1-15-cv-00121
District Judge: The Honorable Barbara Jacobs Rothstein.
Matthew L. Wolford Counsel for Appellants.
S.D. Christof, II Dickie McCamey & Chilcote, Matthew W.
McCullough Mark T. Pavkov James R. Walczak MacDonald Illig
Jones & Britton, Counsel for Appellee Edinboro University
L. Donahoe Kemal A. Mericli, Office of Attorney General of
Pennsylvania, Counsel for Appellee Julie E. Wollman & H.
Before: SMITH, Chief Judge, McKEE and RESTREPO, Circuit
Parker v. Brown, 317 U.S. 341 (1943), state action
is immune from Sherman Act antitrust liability. This case
presents the question of whether a public university,
Edinboro University of Pennsylvania of the State System of
Higher Education ("the University"), and its
nonprofit collaborator, Edinboro University Foundation
("the Foundation"), are entitled to such immunity.
On defendants' motions to dismiss, the District Court
held that Parker immunity automatically applies to
the University because the University is an arm of the state.
dismissal was appropriate, the District Court painted with
too broad a brush. The University's actions are not
categorically "sovereign" for purposes of
Parker immunity. Because of that, we are required to
apply heightened scrutiny. We conclude that the appropriate
standard is derived from the Supreme Court's decision in
Town of Hallie v. City of Eau Claire, 471 U.S. 34
(1985), which requires anticompetitive conduct to conform to
a clearly articulated state policy. We further conclude that,
taking the allegations in the Amended Complaint in the light
most favorable to plaintiffs, the University's conduct
withstands Hallie scrutiny. Furthermore, because the
Foundation's actions were directed by the University, the
Foundation is also immune. We will affirm in part on those
alternative grounds and remand with the instruction that the
Amended Complaint be dismissed without prejudice.
case arises out of the need for student housing at Edinboro
University, a public university located in Edinboro,
Pennsylvania. Plaintiffs are private business entities that
provide off-campus residential housing near the University.
According to plaintiffs, the University conspired with
Edinboro University Foundation, a nonprofit entity that
conducts fundraising on behalf of the University, to
monopolize the student-housing market.
higher education in Pennsylvania operates under a series of
constitutional, legislative, and administrative mandates. The
Pennsylvania Constitution requires the General Assembly to
"provide for the maintenance and support of a thorough
and efficient system of public education to serve the needs
of the Commonwealth." Pa. Const. art. III, § 14.
The General Assembly, in turn, enacted legislation creating
the Pennsylvania State System of Higher Education, or
"PASSHE." See 24 P.S. § 20-2002-A(a).
PASSHE is "a body corporate and politic, "
id., governed by a chancellor and the Board of
Governors, see id. §§ 20-2004-A,
20-2005-A. Edinboro University is one of fourteen constituent
institutions of the PASSHE system. Id. §
20-2002-A(a). The University is governed by its president and
Council of Trustees. See id. §§ 20-2007-A,
issue in this case is the University's decision to
collaborate with the Foundation in order to construct new
dormitories called the Highlands. In January 2008, the
Foundation amended its Articles of Incorporation to authorize
borrowing funds "to acquire, lease, construct, develop
and/or manage real or personal property." Am. Compl.
¶ 19. The Foundation then signed a "Cooperation
Agreement" with the University: the University would
lease certain property to the Foundation in a favorable
location, and in turn the Foundation would finance,
construct, and manage the Highlands dormitories. The
Foundation issued bonds to raise the funds and began
aver that, after construction was completed, the University
took anticompetitive measures to ensure that the Foundation
recouped its investment. Since 1989, the University
maintained a "parietal rule" requiring
non-commuting first-year and transfer students to reside
on-campus for two consecutive semesters. On May 6, 2011, two
and one-half years after the first phase of the Highlands
dormitories opened, the University amended its policy to
require certain students to reside on-campus for
four consecutive semesters or until they complete at
least 59 credit hours.
brought suit, asserting that the University and the
Foundation conspired to monopolize the student-housing market
in violation of Section 2 of the Sherman Act, 15 U.S.C.
§ 2. The Amended Complaint states that
plaintiffs experienced a 50% decline in business after the
University expanded its on-campus residency requirement.
Plaintiffs also aver that this conduct harms students by
forcing them to pay higher rates for housing and participate
in the University's meal plans.
did not sue the University, conceding that the University is
an arm of the state subject to immunity under the Eleventh
Amendment. Instead, plaintiffs sued the Foundation
and the University's president in her official capacity
for prospective relief pursuant to Ex parte Young,
209 U.S. 123 (1908).
Order dated March 1, 2016, the District Court dismissed
plaintiffs' Amended Complaint with prejudice on the
ground that defendants' conduct constitutes state action
immune from Sherman Act antitrust liability under the
Parker doctrine. See Edinboro Coll. Park
Apartments v. Edinboro Univ. Found., No. 15-cv-121, 2016
WL 6883295 (W.D. Pa. Mar. 1, 2016). This timely appeal
District Court had jurisdiction pursuant to 28 U.S.C. §
1331. We have jurisdiction pursuant to 28 U.S.C. § 1291.
We exercise plenary review of a district court's order
granting a motion to dismiss under Rule 12(b)(6) of the
Federal Rules of Civil Procedure, and apply the same standard
as does the District Court. In re Vehicle Carrier Servs.
Antitrust Litig., 846 F.3d 71, 79 n.4 (3d Cir. 2017).
Under this standard, the complaint must "contain
sufficient factual matter, accepted as true, to state a claim
to relief that is plausible on its face." Id.
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)) (internal quotation marks omitted). In evaluating the
sufficiency of the allegations, "we disregard rote
recitals of the elements of a cause of action, legal
conclusions, and mere conclusory statements."
Id. (quoting James v. City of Wilkes-Barre,
700 F.3d 675, 679 (3d Cir. 2012)).
begin with an overview of the applicable law. In Parker
v. Brown, 317 U.S. 341 (1943), the Supreme Court held
that the Sherman Act does not prohibit anticompetitive state
action. That ruling embodies "the federalism principle
that the States possess a significant measure of sovereignty
under our Constitution." Cmty. Cmmc'ns Co. v.
City of Boulder, 455 U.S. 40, 53 (1982). States may
"impose restrictions on occupations, confer exclusive or
shared rights to dominate a market, or otherwise limit
competition to achieve public objectives." N.C.
State Bd. of Dental Exam'rs v. FTC, 135 S.Ct. 1101,
1109 (2015). Without Parker immunity, "federal
antitrust law would impose an impermissible burden on the
States' power" to subordinate market competition to
"other values a State may deem fundamental."
nearly half a century after Parker, the Supreme
Court clarified that "state-action immunity is
disfavored." FTC v. Ticor Title Ins. Co., 504
U.S. 621, 636 (1992). To ensure that the doctrine is
appropriately limited, the Supreme Court has devised three
approaches to analyzing a state-action defense: (1) ipso
facto immunity, (2) Midcal scrutiny, and (3)
Hallie scrutiny. Which test applies depends on
whether the relevant actor is comparable to a sovereign
power, a private business, or something in between.
doctrine of ipso facto immunity is the least
searching. Once it is determined that the relevant action is
"an undoubted exercise of state sovereign
authority" undertaken by an actor "whose conduct .
. . automatically qualif[ies] as that of the sovereign state
itself, " that conduct is immune without the need for
any further analysis. Dental Exam'rs, 135 S.Ct.
at 1110-11 (2015); see A.D. Bedell Wholesale Co. v.
Philip Morris Inc., 263 F.3d 239, 258 (3d Cir. 2001)
(immunity for "direct state action" applies
"only when the allegedly anticompetitive behavior was
the direct result of acts within the traditional sovereign
powers of the state"). The Supreme Court has recognized
only two such contexts: (1) acts of state legislatures, and
(2) "decisions of a state supreme court, acting
legislatively rather than judicially." Hoover v.
Ronwin, 466 U.S. 558, 568 (1984); see Parker,
317 U.S. at 350-51 ("We find nothing in the language of
the Sherman Act or in its history which suggests that its
purpose was to restrain a state or its officers or agents
from activities directed by its legislature."). The
Supreme Court has rejected ipso facto immunity for
entities that are "state agenc[ies] for some limited
purposes." Goldfarb v. Va. State Bar, 421 U.S.
773, 791 (1975).
most searching level of scrutiny derives from the Supreme
Court's decision in California Retail Liquor Dealers
Association v. Midcal Aluminum, Inc., 445 U.S. 97
(1980). There, a private party sought Parker
immunity on the ground that it acted in accordance with state
policy. To prevent a private party from "casting . . . a
gauzy cloak of state involvement over what is essentially a
private price-fixing arrangement, " Midcal, 445
U.S. at 106, 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. Id.
at 105 (citation omitted). Midcal analysis applies
where private actors seek to immunize their anticompetitive
conduct under the Parker doctrine, see,
e.g., id. at 106, or where a state agency is
deemed functionally private because it is controlled by
active market participants, Dental Exam'rs, 135
S.Ct. at 1114.
the Supreme Court announced an intermediate standard of
review in Town of Hallie v. City of Eau Claire, 471
U.S. 34 (1985). There, it determined that municipalities are
exempt from Midcal's second prong-active
supervision-but must still comply with the first
prong-conformity with a clearly articulated state policy.
Id. at 40. The Supreme Court observed that the
municipality was an "arm of the State" entitled to
a presumption that it "acts in the public interest,
" id. at 45, the municipality is politically
accountable for its anticompetitive policies, id. at
45 n.9, and there is thus "little or no danger"
that the municipality would become "involved in a
private price-fixing arrangement, "
id. at 47. In dicta, the Supreme Court has suggested
that "prototypical" state agencies may be subjected
to the same degree of scrutiny as a municipality. See
id. at 46 n.10 ("In cases in which the actor is a
state agency, it is likely that active state supervision
[Midcal's second prong] would also not be
required, although we do not here decide that issue.");
Dental Exam'rs, 135 S.Ct. at 1114 ("[T]he
municipality [in Hallie] was more like prototypical
state agencies, not specialized boards dominated by active
the Supreme Court has established the following principles:
ipso facto immunity applies to state legislatures
and state supreme courts, but not to entities that are state
agencies for limited purposes; Midcal scrutiny
applies to private parties and state agencies controlled by
active market participants; and Hallie scrutiny
applies to municipalities, and perhaps state agencies.
Applying those principles to the facts alleged in the Amended
Complaint resolves this appeal.
the level of scrutiny for state-action immunity turns on the
character of the relevant actor, the first step of any
Parker analysis is to identify the actor that
performed the alleged anticompetitive conduct. We conclude
that plaintiffs' alleged antitrust injury stems entirely
from the conduct of the University, and we focus our analysis
beginning a Parker analysis that involves a private
defendant, it is critically important to determine whether
the private defendant caused the alleged antitrust
injury. Bedell, 263 F.3d at 258. In some
cases, private defendants independently engage in
anticompetitive conduct, such as price fixing, and then seek
immunity under the "gauzy cloak of state
involvement." Midcal, 445 U.S. at 106. In such
a scenario, full Midcal scrutiny is required.
Id. But in other cases, Midcal scrutiny may
not be necessary because the private defendant does not act
on its own and is merely an adjunct to a government's
anticompetitive action. If a governmental actor is
independently responsible for causing the alleged antitrust
injury, "once [it] is determined to be immune . . ., the
immunity should be extended to include private parties acting
under [its] direction." Zimomra v. Alamo Rent-A-Car,
Inc., 111 F.3d 1495, 1500 (10th Cir. 1997).
"Otherwise, plaintiffs could sue only the private
parties and by winning antitrust judgments against them,
could thwart state policies as if there were no state
[i]mmunity." Bedell, 263 F.3d at 256 n.35;
see also S. Motor Carriers Rate Conference, Inc. v.
United States, 471 U.S. 48, 56-57 (1985). In
Massachusetts School of Law at Andover, Inc. v. American
Bar Association, for example, this Court found that a
private entity was shielded behind the ipso facto
immunity of the state (without need for Midcal
scrutiny) because the alleged antitrust injury was caused
solely by direct sovereign action. 107 F.3d 1026, 1036 (3d
case, plaintiffs allege that the public University and the
private Foundation conspired to monopolize the
student-housing market. But the only alleged actions of the
Foundation-amending its charter, issuing bonds, building the
dormitories, and managing the property-are consistent with
participation in a competitive market. The Foundation's
advantage derived entirely from the University's
decision to expand its on-campus residency rule, which
required more students to live in dormitories like the
Highlands. Plaintiffs have not identified any independent
conduct of the Foundation that conceivably restricted
competition. See Atl. Richfield Co. v. USA Petroleum
Co., 495 U.S. 328, 334 (1990) ("[I]njury . . . will
not qualify as 'antitrust injury' unless it is
attributable to an anti-competitive aspect of the practice
under scrutiny . . . .").
this a case of "hybrid" anticompetitive conduct.
See Bedell, 263 F.3d at 258.Bedell involved a
Multistate Settlement Agreement brokered between the
governments of several states and certain tobacco
manufacturers. The plaintiffs alleged that the Agreement
established a cartel whereby private tobacco companies would
be permitted to restrict output. This Court observed that the
alleged anticompetitive conduct was neither "purely
private" nor "entirely attributable to the
state." Id. Rather, the alleged antitrust
injury derived from a "hybrid restraint, " which
"involve[d] a degree of private action which calls for
Midcal analysis." Id. (citing Rice
v. Norman Williams Co., 458 U.S. 654, 666-67 (1982)
(Stevens, J., concurring)). But in ...