Court Reinstates Antitrust Suit Against State Tourism Agency
By STEVEN M. ELLIS, Staff Writer
A lawsuit claiming the California Travel and Tourism Commission improperly colluded with rental car companies to pass tourism fees on to customers can go forward, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
A three-judge panel reversed its prior ruling that the commission was shielded from antitrust liability because an arm of the state, rather than an individual, engaged in the allegedly anticompetitive conduct.
Writing for the panel, Senior Judge Michael Daly Hawkins said the “state action immunity” doctrine did not apply because there was no indication that legislators actually authorized the CTTC to establish regulations or a monopoly that interfered with normal industry competition.
Consumer advocates sued the CTTC—a “nonprofit mutual benefit corporation” created by statute to expand and develop California’s tourism industry—in 2007, claiming it and the passenger rental car industry were using a 2006 law allowing companies to change how they advertise rates at airports as cover to charge excessive rates.
The change, part of Civil Code Sec. 1936.01, was drafted at the urging of rental car companies, and rushed through the Legislature with three minutes of debate in a late-night session only hours before legislators adjourned for the year.
It made the passenger rental car industry the fifth tourism category represented on the commission and rental car companies agreed to pay a high assessment fee, greatly increasing the commission’s budget. In exchange, they were allowed to “unbundle” fees from their widely-advertised base rental rates and pass them on to consumers as separate costs.
The plaintiffs, San Diego consumer advocate Michael Shames and businessman Gary Gramkow, argued that the CTTC then agreed with companies to add a 2.5 percent tourism fee to fund the commission, and to unbundle an existing 9 percent airport concession fee. The plaintiffs claimed the agreements constituted illegal price-fixing under the Sherman Act, and that the commission committed a number of Bagley-Keene Open Meeting Act violations.
U.S. District Judge Marilyn L. Huff of the Southern District of California dismissed the price-fixing claim, finding that state action immunity applied, and the Ninth Circuit initially affirmed the decision in a June 8 opinion by Hawkins.
He wrote that immunity applied because the commission acted pursuant to a “clearly articulated state policy” under its statutory authority, and the anticompetitive conduct was foreseeable given that authorization. Hawkins also opined that the commission possessed enough of the qualities of a state agency to be exempt from an “active state supervision” requirement.
But following a request for rehearing, the judge—who was joined by Judges Sidney R. Thomas and M. Margaret McKeown, and who assumed that the plaintiffs sufficiently alleged an antitrust violation—concluded that immunity was not applicable.
“There is no authorization by the California legislature of anticompetitive regulation or monopoly in the rental car field,” he wrote. “The CTTC is not a regulatory body and has no control over the prices established by the rental car companies. The legislature merely imposed an assessment on the rental car companies and gave the CTTC the authority to spend these funds to promote California tourism….
“Even though the ultimate economic result of the legislation may be foreseeable (i.e., that rental car companies would raise their rates to offset the 2.5% assessment), the alleged anticompetitive conduct—that the CTTC facilitated a collusive agreement among rental car companies to uniformly pass through these charges to consumers and ensured rogue companies adhered to the agreement—is not a ‘natural and foreseeable’ result of the limited power granted to the CTTC.”
The case is Shames v. California Travel and Tourism Commission, 08-56750.
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