Edinboro Coll. Park Apartments v. Edinboro Univ. Found.

850 F.3d 567

EDINBORO COLLEGE PARK APARTMENTS; Darrow Place Partnership ; Darrow Place Partnership II ; James Manor of Edinboro, LLC, Appellants

v.EDINBORO UNIVERSITY FOUNDATION; *H. Fred Walker, Ph.D

(Pursuant to Rule 43(c)(2), Fed. R. App. P.)

No. 16-1746

United States Court of Appeals, Third Circuit.

Argued November 9, 2016

Filed: March 9, 2017

Matthew L. Wolford [ARGUED], 638 West Sixth Street, Erie, PA 16507, Counsel for Appellants

Joseph S.D. Christof, II, Dickie McCamey & Chilcote, Two PPG Place, Suite 400, Pittsburgh, PA 15222, Matthew W. McCullough [ARGUED], Mark T. Pavkov, James R. Walczak, MacDonald Illig Jones & Britton, 100 State Street, Suite 700, Erie, PA 16507, Counsel for Appellee, Edinboro University Foundation

Thomas L. Donahoe, Kemal A. Mericli [ARGUED], Office of Attorney General of Pennsylvania, 564 Forbes Avenue, 6th Floor, Manor Complex, Pittsburgh, PA 15219, Counsel for Appellee Julie E. Wollman & H. Fred Walker

Before: SMITH, Chief Judge, McKEE and RESTREPO, Circuit Judges

OPINION

SMITH, Chief Judge.

Under Parker v. Brown , 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (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.

Although 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, 105 S.Ct. 1713, 85 L.Ed.2d 24 (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.

I

This 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.

Public 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, 20-2008-A.

At 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 construction.

Plaintiffs 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.

Plaintiffs 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. § 2.¹ 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.

Plaintiffs did not sue the University, conceding that the University is an arm of the state subject to immunity under the Eleventh Amendment.² 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, 28 S.Ct. 441, 52 L.Ed. 714 (1908).³

By 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 followed.

II

The 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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (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) ).

III

We begin with an overview of the applicable law. In Parker v. Brown , 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (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, 102 S.Ct. 835, 70 L.Ed.2d 810 (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 , ––– U.S. ––––, 135 S.Ct. 1101, 1109, 191 L.Ed.2d 35 (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." Id.

Then 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, 112 S.Ct. 2169, 119 L.Ed.2d 410 (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.

The 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, 104 S.Ct. 1989, 80 L.Ed.2d 590 (1984) ; see Parker , 317 U.S. at 350–51, 63 S.Ct. 307 ("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, 95...