In what might be perceived as an expansion of the doctrine, the Ninth Circuit held that state action immunity shielded the California Travel and Tourism Commission (CTTC) from antitrust liability for allegedly conspiring with rental car companies to pass tourism assessment fees onto consumers, even though the CTTC is made up of a mix of commissioners appointed by the governor and elected by the tourism industry. In Shames v. California Travel & Tourism,[1] a three-judge panel upheld the district court’s dismissal of a price-fixing claim against CTTC, a corporation created by the California legislature to “expand and develop California’s tourism industry.” The court held that the challenged conduct — alleged collusion between the CTTC and rental car companies to fix rental car prices by uniformly passing a statutorily mandated tourism assessment fee on to customers — met the test set forth by the Supreme Court in California Retail Liquor Dealers Association v. Midcal Aluminum, Inc.,[2] and thus was shielded from Sherman Act liability by the doctrine of state action immunity. The Midcal test extends federal antitrust immunity when a challenged activity is: (1) “one clearly articulated and affirmatively expressed as state policy;” and, (2) “actively supervised” by the state itself.

In extending the doctrine to the CTTC, the Ninth Circuit concluded that express legislative authorization coupled with “foreseeability” was sufficient to meet the “clearly articulated state policy” prong, and held that when, in examining the totality of the circumstances, an entity appears to exhibit sufficient characteristics of a state agency and acts pursuant to state law, it is unnecessary to satisfy Midcal’s active state supervision prong.[3]


The CTTC was governed by 37 commissioners, 12 appointed by the governor and 24 elected by the tourism industry, and chaired by the Secretary of the Business, Transportation and Housing Agency.[4] In 2006, at the prompting of the passenger rental car industry, the California legislature brought the rental car industry under the umbrella of the CTTC, and permitted the industry to “unbundle” fees charged to customers and itemize them separately from the base rental rate.[5] In exchange, the rental car companies agreed to pay an assessment fee to the CTTC, “greatly increasing” the CTTC’s budget.[6] “Significantly,” the changes permitted rental car companies to “‘pass on some or all of the assessment to customers.’”[7]

Plaintiffs Michael Shames and Gary Gramkow claimed that the agreement between the CTTC and the rental car industry to pass assessment fees on to consumer auto renters uniformly constituted price fixing of rental car rates in violation of Section 1 of the Sherman Act.[8] The district court granted the defendant’s motion to dismiss the claims against the CTTC, stating that the CTTC was shielded from Sherman Act liability under the state action immunity doctrine. On appeal, a three-judge panel for the Ninth Circuit affirmed, taking the opportunity to clarify several aspects of the state action immunity doctrine in that Circuit.

The Ninth Circuit’s Decision

The Ninth Circuit panel reiterated the purposes of state action immunity, first recognized in 1943 when the Supreme Court reasoned that the Sherman Act is “primarily concerned with individual anticompetitive action, not states acting in their sovereign capacity.”[9] The Ninth Circuit then summarized the two-part Midcal test for determining when state action immunity applies to alleged anticompetitive conduct: 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.”[10] The court determined that the challenged restraint met the first prong and was exempt from the second, and so qualified for state action immunity.

“Clearly Articulated and Affirmatively Expressed as State Policy”

In upholding the lower court’s dismissal, the Ninth Circuit explained that Midcal’s first prong does not require express authorization of a particular anticompetitive act, but rather can apply when actions are a foreseeable result of broader statutory authority.[11] Plaintiffs argued that the lower court erred in applying a mere “foreseeability” standard when Midcal requires “a more specific or express authorization of any anticompetitive conduct.”[12] The plaintiffs pointed to an earlier decision by the Ninth Circuit, Columbia Steel Casting Co., Inc. v. Portland Gen. Electric Co.,[13] in which the court had stated that “‘foreseeability’ could not be substituted for Midcal’s ‘clear articulation’ requirement.”[14] However, the Shames court stated that plaintiffs had “read this statement a bit too broadly,” noting that in Columbia Steel, the court had stated that foreseeability would apply in situations when anticompetitive conduct was “‘authorized, but not compelled.’”[15] A foreseeability analysis had no place in Columbia Steel, according to the Ninth Circuit, because the state actor in that case had specifically disapproved of the alleged anticompetitive act at issue.[16] Further, the Ninth Circuit declared that the foreseeability test was consistent with Supreme Court precedent, which had held that the Midcal prong could be met “if suppression of competition is the ‘foreseeable result’ of what the statute authorized.”[17]

Under a foreseeability analysis, the court noted, the “critical issue” was not whether the alleged conduct was compelled, but whether it was authorized by the legislature.[18] The California Legislature had explicitly authorized CTTA’s tourism assessment fees on passenger car rentals.[19] “Moreover,” the court noted, there were several strong indications that the California legislature had envisioned the fee being passed onto consumers, namely that: (i) the bill required separate itemization of the fee; (ii) several provisions referred to the fee being collected “from the renter;” (iii) the legislature granted state antitrust immunity to state actors complying with the enabling statute and; (iv) the legislature expressly was advised of the likely adverse impact on consumers.[20] Thus, the Ninth Circuit held, because there was a clear grant of authority permitting the pass-through of the assessments to rental car customers, and evidence that passing such a fee onto consumers in a uniform matter was foreseeable by the legislature, the CTTC met the first Midcal prong.

Active State Supervision

The second Midcal prong, which requires active state supervision of challenged conduct, was meant to ensure “that private price-fixing agreements with little or no state involvement” did not displace “‘the national policy in favor of competition.’”[21] Plaintiffs argued that although the CTTC was a state agency for “some purposes,” it was industry-controlled, and therefore required active state supervision to be immune under the state action doctrine.[22] The Ninth Circuit disagreed, noting first that when municipalities or other state entities — as distinguished from private parties — act under the direction of state law, the Supreme Court has held there is no need to satisfy Midcal’s active state supervision prong.[23] The Ninth Circuit stressed that considering the “totality of the circumstances,” and the fact that the CTTC was specifically created to promote tourism — a “vital” part of the state’s economy — the Commission possessed a sufficient number of qualities of a state agency to be exempt under Midcal’s second prong.[24] Specifically, the court pointed out that the CTTC was made up of twelve governor-appointed commissioners and a governor-appointed Secretary, that the Secretary could remove elected commissioners found guilty of abuse of office or moral turpitude, that the Secretary held veto power in various circumstances — including the use of state funds — and that the CTTC’s annual marketing plan had to be reviewed and approved by the Secretary before adoption.[25] This combination of having “enough of the qualities of a state agency,” along with the fact the CTTC was subject to “state oversight in the form of the governor-appointed commissioners and secretary” exempted the CTTC from Midcal’s second prong of active state supervision, and therefore the challenged conduct was outside the coverage of the Sherman Act.[26]


The Ninth Circuit’s CTTC decision may expand the circumstances under which state action immunity applies in that Circuit. First, it clarifies that a legislature is not necessarily required to clearly articulate a policy to displace competition, but rather that authorization, coupled with a foreseeable chance of anticompetitive conduct, is sufficient to meet Midcal’s first prong. Of more significance, it permits organizations consisting of both private and public actors to qualify for immunity from federal antitrust liability without the need for “active state supervision” — the second prong of the Midcal rule — provided that an examination of the “totality of the circumstances” shows that the organization has “enough” state agency qualities and some form of state oversight. These requirements to gain state action immunity suggest that more organizations that represent some private interests could qualify for such immunity from Sherman Act liability in the future — at least in the Ninth Circuit.