Supreme Court Narrows the Application of State-Action Doctrine Immunity with Ruling Against a State Hospital Authority in FTC v. Phoebe Putney Health System, Inc.
Kelley Drye Client Advisory
February 19, 2013

The Supreme Court today unanimously ruled that a purchase-and-lease transaction involving a county hospital authority acting under state law authority was not immune from federal antitrust laws and Federal Trade Commission (FTC) challenge.  The Court’s decision reverses the 11th U.S. Circuit Court of Appeals in Atlanta that upheld dismissal of a FTC federal court complaint seeking a temporary restraining order and preliminary injunction. 

The case is the first by the Court considering the doctrine of “state action” immunity in 20 years.  Under the state action doctrine, a state’s laws must reflect a clear articulate affirmative policy, among other factors, to allow private parties, state agencies and authorities, to act with immunity from federal antitrust laws.  Unresolved, until now, was how articulate the state’s legislation must be and whether a court could infer a state’s intent to displace competition if anti-competitive actions will “foreseeably result” from the state’s policy.

Writing for the Court, Justice Sotomayor found “no evidence the state affirmatively contemplated that hospital authorities would displace competition by consolidating hospital ownership.”  “The state legislature’s objective of improving access to affordable healthcare does not logically suggest that the state intended that hospital authorities pursue that end through mergers that create monopolies,” she wrote.  Nor, the Court found, does “Georgia’s grant of general corporate powers to hospital authorities . . . include permission to use those powers anticompetitively.”  

“Grants of general corporate power that allow substate governmental entities to participate in a competitive marketplace should be, can be, and typically are used in ways that raise no federal antitrust concerns.”  But legislation that grants power to a state agent to do something does not mean it may do so anticompetitively, without explicit authorization, according to the Court.

State authorities that rely upon similarly broad statutory authorizations to avoid federal antitrust challenges, without language clearly articulating potential anticompetitive consequences, will have to consider its laws against the new standard set by the Supreme Court.  A reviewing court will not err on the side of recognizing immunity to avoid improper interference with state policy choices.  It will look for state legislation indicating “the substate governmental entity . . . has been delegated authority to act or regulate anticompetitively.”