Administrative Law Judge Rules Association Not Protected by State Action Doctrine BackgroundThe State Action DoctrineThe Initial Decision
In an initial decision filed on June 21, 2004, and announced today, Administrative Law Judge (ALJ) D. Michael Chappell held that Kentucky Household Goods Carriers Association, Inc. (Kentucky Association), a group of affiliated intrastate movers, had engaged in horizontal price-fixing in violation of the Federal Trade Commission Act (FTC Act) because it had participated “in a continuing combination and conspiracy to fix rates charged by motor common carriers for the intrastate transportation of property within the Commonwealth of Kentucky.”
The ALJ also ruled that the Kentucky Association’s conduct was not protected by the state action doctrine, because the state had not actively supervised the Association’s rate-making activities. The ALJ accordingly ordered relief appropriate to barring such conduct in the future, including “actions to cancel or withdraw existing tariffs,” and for the Association to “cease and desist from developing tariffs that contain collective rates for the intrastate transportation of property and related services, goods, or equipment,” within 120 days.
The FTC’s July 2003 administrative complaint against the Kentucky Association was one of three complaints filed concurrently against intrastate household goods movers that addressed the state action doctrine. According to the complaints, the associations violated the FTC Act by engaging in price-fixing in the form of filing tariffs containing collective rates on behalf of their members. The other complaints were filed against the Movers Conference of Mississippi and the Alabama Trucking Association, both of which subsequently entered into consent orders with the Commission, barring their allegedly illegal anticompetitive conduct, in October 2003.
Each of the complaints implicated the “state action” doctrine first articulated in Parker v. Brown, 317 U.S. 341 (1943) which held that, in light of the States’ status as sovereign entities, Congress did not intend the Sherman Act – a primary U.S. antitrust law – to apply to the activities of the states themselves. As a result, in limited circumstances, the Supreme Court has ruled that the activities of certain private firms conducted under state authority may be shielded from federal antitrust scrutiny.
States, however, may not simply authorize private parties to violate the antitrust laws. Instead, to utilize the state action doctrine as a defense for allegedly anticompetitive conduct, the private party must show that its conduct meets a strict two-pronged standard established by the Supreme Court. First, “the challenged restraint must be ‘one clearly articulated and affirmatively expressed as state policy’” and second, “the policy must be ‘actively supervised’ by the state itself.” In FTC v. Ticor Title Insurance Co, 504 U.S. 621 (1992), the Supreme Court clarified that the purpose of the “active supervision” inquiry “is to determine whether the State has exercised sufficient independent judgement and control so that the details of the rates or prices have been established as a product of deliberate state intervention, not simply by agreement among private parties.”
A more detailed discussion of the state action doctrine – and specifically the Supreme Court’s standard of active supervision – as well as a description of the doctrine’s impact on these cases is provided in the Commission’s decision in Indiana Household Movers and Warehousemen, Inc. (FTC File No. 021-0115). The Report of the State Action Task Force also examines how the state action doctrine applies to antitrust policy and provides recommendations designed to keep the doctrine in line with its original purposes and goals.
In the decision announced today, the ALJ first concluded that the collective intrastate ratemaking for household goods moving services by the Kentucky Association, on behalf of its members who are also competitors, constituted illegal horizontal price fixing in violation of section 5 of the FTC Act.
The ALJ next concluded that, while Kentucky has clearly articulated and affirmatively expressed a state policy to permit collective ratemaking, the state does not actively supervise the collective ratemaking activity. This was because the supervising state agency, the Kentucky Transportation Cabinet (KTC), inter alia, devoted minimal resources to overseeing the rate-setting process, failed to examine the reasonableness of rate increase proposals by not examining relevant cost or revenue data, and failed to hold hearings or provide written decisions on tariff applications. Thus, the ALJ rejected the Kentucky Association’s state action defense because it “has not established that the [KTC] took the regulatory steps necessary to make the collective rates in Respondent Kentucky Association’s tariff the State’s own.”
Based on his findings of law, the ALJ stated that “[r]elief designed to remedy Respondent Kentucky Association’s unlawful activities and to require the Respondent to cease and desist from collective ratemaking is appropriate,” and that the order “is necessary and appropriate to remedy the violation of law found to exist.” Finally, he ordered the Kentucky Association to deliver copies of the initial decision to its members and to file written reports with the Commission to demonstrate its compliance with its terms.
Through the administrative law process, the Kentucky Association may appeal this initial decision for consideration by the five members of the Commission.
Copies of the initial decision by the administrative law judge are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
(FTC Docket No. 9309)
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