M&A and Government Immunity

The Supreme Court’s decision in FTC v. Phoebe Putney Health System Inc., 133 S. Ct. 1003 (2013) put a limitation on the state immunity under which local governments across the country have relied upon for decades to shield their activities from federal antitrust scrutiny. This decision will open the door to challenging numerous government transactions including the transactions consummated before the Phoebe Putney decision.

Until Phoebe Putney, the Supreme Court has long held that local governmental entities enjoy state immunity from the federal antitrust laws if the state policy is “clearly articulated and affirmatively expressed” Town of Hallie v. Eau Claire, 471 U.S. 34, 42–43 (1985). The standard for determining whether such a clear articulation has occurred was the foreseeability test, only requiring that the anticompetitive conduct was the “foreseeable result” of the state’s grant of authority to the local government. In Phoebe Putney, however, the Court adopted the FTC’s narrow view that anticompetitive conduct must have been “the inherent, logical, or ordinary result of the exercise of authority delegated by the state legislature.” Therefore, going forward, local governments and private actors engaged in government transactions may find themselves in legal battle over completed transactions previously believed to be immune from federal antitrust laws. In such case, local governments will be required to point to a statement or some other evidence that the state legislature granted it “authority to act or regulate anticompetitively.” However, the Supreme Court left in place a crucial line of defense in any ex post facto enforcement actions involving pre-Phoebe Putney transactions by allowing the defense of reasonable reliance on the state immunity.

Many hurdles still remain to FTC and private enforcement actions brought against consummated transactions undertaken by local governments under the belief that state action immunity attached to the transaction. From a more practical litigation tactic, the FTC has limited resources to bring challenges, and the FTC or private plaintiffs may not have sufficient proof for their claims. Moreover, under the Local Government Antitrust Act, a private party may not recover money damages against a local government. Additionally, the courts will likely be reluctant to order divestiture against a local government for a consummated transaction.

Nonetheless, the Supreme Court’s narrowing of the state immunity doctrine in Phoebe Putney removes a significant barrier to challenges a local government’s consummated transactions considered anticompetitive in nature.