MESKILL, Circuit Judge:
This is an appeal from a judgment entered in the United States District Court for the Northern District of New York, Foley, J., granting defendant's motion for judgment on the pleadings and dismissing plaintiffs' claims. Because we conclude that defendant's actions are protected from antitrust liability by state action immunity according to the standards set forth by the Supreme Court in California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980), we affirm.
The plaintiffs are a number of Radio Common Carriers (RCCs) or Radio Telephone Utilities (RTUs) which provide radio-telephone and paging services in upstate New York. Capital Telephone Company, Inc. (Capital) and Peter A. Bakal (Bakal), both RCCs, offer one-way paging and two-way mobile radio services in Albany, Schenectady and Troy, New York. Tri-Cities Telephone Co., Inc. (Tri-Cities or Tri-City)
Defendant New York Telephone Company (N.Y. Tel.) is a corporation organized under the laws of the State of New York. As a "telephone corporation," N.Y.Pub.
The history of this conflict is a long one. Throughout a variety of administrative and judicial actions, detailed below, plaintiffs have charged that N.Y. Tel. has discriminated against them by performing a number of anticompetitive acts. Among plaintiffs' specific allegations are that they are charged for incoming and outgoing circuits and for circuit installations while their competitors are not; that plaintiffs are charged for radio tie lines, paging numbers and mobile numbers while their competitors are not; that their competitors receive free outpulsing and phone book listings while plaintiffs must pay; and that plaintiffs have no toll call investigation or credit card services while their competitors do receive these services. Ex. D, Plaintiffs' Partial Responses to Defendant's First Set of Interrogatories, J.App. at 154.
B. Prior Proceedings
Capital and Bakal were granted certificates of public convenience by the PSC in 1962 and 1963 respectively. The record indicates that the administrative and judicial action concerning the dispute between the RCCs and N.Y. Tel. began in 1968 and has continued through the intervening years. The details of these actions are set out in the margin.
C. District Court Decision
Defendant moved for judgment on the pleadings under Fed.R.Civ.P. 12(c), claiming that its actions are immune from antitrust liability under the state action exemption. After determining that state action immunity is available to private parties, Capital Telephone Co., Inc. v. New York Telephone Co., No. 82-CV-789 (N.D.N.Y. Jan. 24, 1984), J.App. at 436, the court applied the facts of this case to the Supreme Court's two part test in California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980) (Midcal). Although in Midcal the Court considered the threshold question of whether there was a violation of the Sherman Act, see infra, the district court did not address this issue below. Because the question was not considered, we will assume for purposes of our analysis that violations of federal antitrust laws are present.
The court determined that New York's Public Service Law and decisions of the state courts demonstrated that the state's "policy ... articulates and expresses a clear intent to displace unfettered competition with regulated market activity," J.App. at 442, thus satisfying the first part of the test; see also Midcal, 445 U.S. at 105, 100 S.Ct. at 943. The court also believed that the Public Service Law demonstrated the "active supervision" exercised by the state over telephone corporations. J.App. at 443. Therefore, the court concluded that both requirements for state action immunity had been fulfilled. J.App. at 442-43. Because the court found the state action immunity issue dispositive, it did not consider N.Y. Tel.'s additional claims of defenses under theories of implied immunity, primary jurisdiction and the filed tariff doctrine. The court granted the defendant's Fed.R.Civ.P. 12(c) motion. Id. at 445. Plaintiffs filed Notice of Appeal with this Court on February 14, 1984. J.App. at 447.
A. State Action Immunity
1. Development of Standard
The antitrust laws represent a national policy favoring competition. Midcal, 445 U.S. at 110-11, 100 S.Ct. at 945-46. In certain situations that policy is set aside to permit states to exercise control of competition through regulation. Where challenged actions are taken pursuant to a state's legislative determination to displace competition with regulation, a court considering antitrust claims will not interfere with the state's decision. This "state action immunity" from antitrust liability, first recognized in Olsen v. Smith, 195 U.S. 332, 344-45, 25 S.Ct. 52, 55, 49 L.Ed. 224 (1904), was fully explained by the Supreme Court in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). In Parker the Court held that California's Agricultural Prorate Act did not violate the Sherman Act. Id. at 352, 63 S.Ct. at 314. The Prorate Act provided for the institution of prorate marketing programs for agricultural commodities in order to "conserve the agricultural wealth of the State" and "prevent economic waste." Id. at 346, 63 S.Ct. at 311. The program designed for the raisin industry allowed producers to sell only thirty percent of their crops on the open market. Of the remainder, fifty percent
More than thirty years passed before the Court again considered the question of state action immunity. In Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975), the Court found that a minimum fee schedule issued by the county bar association and enforced by the Virginia State Bar violated the Sherman Act. Because the state had voluntarily joined in the private anticompetitive activity of the bar association, no immunity applied. Id. at 791-92, 95 S.Ct. at 2015-16. In Goldfarb the Court first used language of compulsion, which has created substantial confusion in succeeding years. "It is not enough that ... anticompetitive conduct is `prompted' by state action; rather, anticompetitive activities must be compelled by direction of the State acting as a sovereign." Id. at 791, 95 S.Ct. at 2015.
The following year the Court decided Cantor v. Detroit Edison Co., 428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141 (1976). Here, too, state action immunity provided no protection. A private utility, subject to regulation by the state public service commission, issued "free" lightbulbs to residential customers. The bulb exchange program, although initiated by the utility, was included in the tariffs filed with the PSC. The existence of the tariff was not enough to immunize the utility from antitrust liability because the light bulb exchange program was not essential to the effective functioning of the state's utilities regulation. Id. at 598, 96 S.Ct. at 3121. The Court stated, "[t]here is no logical inconsistency between requiring such a firm to meet regulatory criteria insofar as it is exercising its natural monopoly powers and also to comply with antitrust standards to the extent that it engages in business activity in competitive areas of the economy." Id. at 596, 96 S.Ct. at 3120.
The following year in Bates v. State Bar of Arizona, 433 U.S. 350, 97 S.Ct. 2691, 53 L.Ed.2d 810 (1977), state action immunity was held to apply to enforcement by the state supreme court of disciplinary rules against attorney advertising. The Court noted, "we deem it significant that the state policy is so clearly and affirmatively expressed and that the State's supervision is so active." Id. at 362, 97 S.Ct. at 2698.
In 1978 the Court upheld the possibility of immunity for acts pursuant to state policy in two cases. In City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 98 S.Ct. 1123, 55 L.Ed.2d 364 (1978), the Court found that state action immunity would apply to acts of municipalities if those acts were undertaken according to clear state policy. "[T]he Parker doctrine exempts only anticompetitive conduct engaged in as an act of government by the State as sovereign, or, by its subdivisions, pursuant to state policy to displace competition with regulation or monopoly public service." Id. at 413, 98 S.Ct. at 1136 (plurality opinion). See also New Motor Vehicle Bd. of Cal. v. Orrin W. Fox Co., 439 U.S. 96, 99 S.Ct. 403, 58 L.Ed.2d 361 (1978) (Act was "a system of regulation, clearly articulated and affirmatively expressed, designed to displace unfettered business freedom," id. at 109, 99 S.Ct. at 411; immunity prevented liability).
In 1980 the Court set out the present controlling standard for determining whether a state agency's involvement in a regulatory scheme was sufficient to render the acts of private parties immune from antitrust liability. California Retail Liquor
California state laws required wine producers and wholesalers to file fair trade contracts and price schedules with the state. The terms of the applicable fair trade contracts and price lists controlled all wholesale transactions. Enforcement procedures were provided, including fines and license suspensions. 445 U.S. at 99-100, 100 S.Ct. at 940. Midcal, a wine wholesaler, was charged with selling wine at a price below that set by the fair trade contract. Midcal filed suit in the California courts, claiming that the system was a restraint of trade in violation of the Sherman Act. The state Court of Appeal found a Sherman Act violation and declined to find state action immunity. Id. at 100, 100 S.Ct. at 940. The United States Supreme Court affirmed.
The Court first considered the "threshold question ... whether California's plan for wine pricing violates the Sherman Act." Id. at 102, 100 S.Ct. at 941. The Court found that the system was resale price maintenance, a clear Sherman Act violation. Id. at 103, 100 S.Ct. at 942.
Once the violation had been established, the Court considered the question of state action immunity. The Court set out the controlling two part test: "First, the challenged restraint must be `one clearly articulated and affirmatively expressed as state policy'; second, the policy must be `actively supervised' by the State itself." Id. at 105, 100 S.Ct. at 943 (quoting Lafayette, 435 U.S. at 410, 98 S.Ct. at 1135 (plurality opinion)).
The Court determined that California's wine pricing system satisfied the first standard because "[t]he legislative policy is forthrightly stated and clear in its purpose to permit resale price maintenance." 445 U.S. at 105, 100 S.Ct. at 943. The program faltered, however, under the second standard. "The State neither establishes prices nor reviews the reasonableness of the price schedules; ... [t]he State does not monitor market conditions or engage in any `pointed reexamination' of the program." Id. at 105-06, 100 S.Ct. at 943. Because no active supervision was found, the Court held that the state's actions were not immune from antitrust liability.
Since its Midcal decision the Court has considered the state action immunity issue in two additional cases, with differing results. See Community Communications Co., Inc. v. City of Boulder, 455 U.S. 40, 55, 102 S.Ct. 835, 842, 70 L.Ed.2d 810 (1982) (city's anticompetitive actions pursuant to general "home rule" statute were not immune from antitrust liability because there was no clearly established and affirmatively expressed state policy; state was neutral); Hoover v. Ronwin, ___ U.S. ___, 104 S.Ct. 1989, 80 L.Ed.2d 590 (1984) (state supreme court, acting in legislative capacity, developed bar admission testing and operating procedures; Midcal test not required because acts in question were those of the sovereign itself rather than of a subdivision; id. at ___ n. 33, 104 S.Ct. at 2001 n. 33). In neither of these cases has the Court shown any inclination to alter the terms of the Midcal standard.
2. Application of Midcal Standard
a. State Policy
The district court found that it was New York State's policy to displace competition with regulation. Although the court found no specific language clearly stating this intent, it noted statutory provisions, state court decisions and recent legislative activity which supported its view. J.App. at 437-41.
Pervasive regulation alone is not adequate evidence of a state's policy to displace competition. Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1056 (9th Cir.), cert. denied, ___ U.S. ___, 104 S.Ct. 156, 78 L.Ed.2d 144 (1983); Phonetele, Inc. v. AT & T, 664 F.2d 716, 729 (9th Cir.1981), cert. denied, 459 U.S. 1145, 103 S.Ct. 785, 74 L.Ed.2d 992 (1983); cf. Cantor, 428 U.S. at 596-97, 96 S.Ct. at 3120-21. See also Areeda, Antitrust Immunity for "State Action" After Lafayette, 95 Harv.L.Rev. 435, 438 (1981) (not only state supervision is required; "the state must also intend to displace the antitrust laws"). As the district court noted, establishing the existence of such a policy is made more difficult by the legislature's failure to state clearly its intent to control the field. J.App. at 437. However, the district court correctly found that such intent can be gleaned from an examination of the broad regulatory scheme, state judicial decisions and recent legislative action.
The New York legislature granted the PSC wide ranging authority over telephone corporations.
Both the terms of the statute itself and recent action of the state legislature suggest that the regulatory scheme encompasses the same goals as those underlying the antitrust laws. The Public Service Law prevents any telephone corporation from giving "any undue or unreasonable preference or advantage to any person, corporation or locality." § 91.3. Rate schedules must state "all privileges ... granted or allowed." § 92.1. Corporations are not permitted to extend any contract privileges unless they do so uniformly with respect to all who are in similar situations. § 92.2. The PSC may determine that a telephone company's rates "are unjustly discriminatory or unduly preferential." § 97.1. See also §§ 97.2, 100. These standards, against which the PSC is to measure the conduct of telephone corporations, suggest that the statute has as a basis the fundamental principles of antitrust law. If the Public Service Law were not intended to allow for a grant of state action immunity for actions taken pursuant to its provisions, there would be no need for the antitrust principles to appear in the text of the statute.
Recent legislative activity also confirms our belief that the district court interpreted New York State regulatory policy correctly. In 1981 the legislature suspended application of the provisions of Article 5 of the Public Service Law to telegraph corporations. The legislature stated:
Legislative Findings and Declaration of Purpose, N.Y.L.1981, c. 414, § 1.
In an Executive Memorandum accompanying the Act, Governor Carey stated:
Memorandum filed with Senate Bill No. 5463. Attorney General Robert Abrams expressed his view in a memorandum for the Governor:
Attorney General's Memorandum for the Governor Re Senate 5463 (July 2, 1981).
It is clear that both the executive and legislative branches of state government viewed regulation of telegraph corporations as unnecessary. We may assume that had the legislature determined that regulation was similarly unnecessary for telephone corporations it would have suspended application of the statute to those utilities for a similar test period. The fact that the legislature failed to do so leads inescapably to the conclusion that it viewed continued regulation of the telephone industry as necessary to displace competition in the public interest. See Capital Telephone Co. v. City of Schenectady, 560 F.Supp. 207, 210 n. 6 (N.D.N.Y.1983).
Although it might be appropriate for RTUs to function in an openly competitive marketplace, that decision rests with the legislature. Presently the statutes demonstrate the state's policy to displace competition with regulation.
Appellants argue, however, that, because the particular activities of which they complain are not directed by the legislature through the Public Service Law, there is no basis for a finding of an "affirmatively expressed state policy." This may be another way of saying that a compulsion requirement, which we have already rejected, should be read into the Midcal standard. See supra note 3. However, because it may be possible for specific activities to be addressed by the statute without being compelled by it, we will consider this argument separately.
The Supreme Court has never held that a comprehensive, specific legislative mandate is necessary to a finding of immunity from antitrust liability. To the contrary, a broader interpretation has been suggested. In Lafayette Justice Brennan wrote:
435 U.S. at 415, 98 S.Ct. at 1138 (plurality opinion) (citation omitted; emphasis added).
Although this interpretation did not garner majority support on the Court, we consider it to be consistent with the purpose of state action immunity. We find no persuasive authority to the contrary. Where, as here, there is sufficient evidence that a state intended to supplant open competition with regulation, activities that are reasonably necessary or related to the subject of the legislation should be included within the scope of the immunity. See Cantor, 428 U.S. at 596, 96 S.Ct. at 3120 (light bulb exchange program was not a part of the utility's "natural monopoly power;" no immunity was present). See also Areeda, supra at 445-46 (citing Lafayette; noting that, because statutes are rarely clear in their statements of intent, the policy may be inferred "if the challenged restraint of competition is a necessary or reasonable consequence of engaging in the authorized activity"); Morgan, Antitrust and State Regulation: Standards of Immunity After Midcal, 35 Ark.L.Rev. 453, 464-65 (1981) ("[A]uthority to regulate may be implied in general delegations of authority. Any restraints based on such implied legislative decisions must, however, be basic to the regulatory program's functioning."). Therefore, to the extent that appellants' claim of a need for specificity is separable from the compulsion argument, we find it similarly unpersuasive.
In a recent decision the Sixth Circuit reached a similar conclusion. Hybud
B. Active Supervision
The district court found that the state legislature had "expressly conferred" powers upon the PSC which enabled it to review rates and other aspects of telephone company operations for reasonableness. J.App. at 442. Because the program requires "active state involvement in the operative anticompetitive decisions," the court found the state's supervision adequate to warrant a finding of immunity. Id. (citing P. Areeda, Antitrust Law ¶ 212.7 (Supp.1982) at 71). Although we find the question to be a close one, we conclude that the district court's determination was correct. The Public Service Law provides for comprehensive, ongoing involvement by the state in the functioning of telephone corporations. This involvement is sufficient to meet the second Midcal requirement.
The regulatory scheme gives the PSC a broad range of powers: "The commission shall have general supervision of all ... telephone corporations and ... telephone lines within its jurisdiction ...." N.Y.Pub.Serv.Law § 94.2. Within the ambit of "general supervision" fall such activities as examination of "all books, contracts, records, documents and papers," § 94.3; and investigation of "any act done or omitted to be done," § 96.1.
It is clear that the legislature intended the PSC's authority over telephone corporations to be very broad. This regulatory role is quite different from that of the State of California in Midcal. There, the Supreme Court found that no immunity was possible for the wine pricing program because the state's involvement did not constitute "active supervision." Midcal, 445 U.S. at 105-06, 100 S.Ct. at 943. "The State neither establishes prices nor reviews the reasonableness of the price schedules; nor does it regulate the terms of fair trade contracts. The State does not monitor market conditions or engage in any `pointed reexamination' of the program." Id.
3. Additional Arguments
In an attempt to find controlling precedent in other telecommunications cases, appellants make two additional arguments. First, they insist that we should follow cases which have failed to find state action immunity in regulatory schemes which are primarily interstate in character. In short, they contend that the doctrine of state action immunity does not apply to the telecommunications industry, citing United States v. AT & T, 552 F.Supp. 131 (D.D.C.1982), aff'd mem., 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983), and that, even if it did, telecommunications regulations rarely meet the strict Midcal standards, citing Northeastern Tel. Co. v. AT & T, 497 F.Supp. 230 (D.Conn.1980), rev'd in part, vac. in part & remanded, 651 F.2d 76 (2d Cir.1981), cert. denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d 654 (1982); and Essential Communications Systems, Inc. v. AT & T, 610 F.2d 1114 (3d Cir.1979). Quoting liberally from United States v. AT & T, appellants argue that because N.Y. Tel.'s operations are closely tied to interstate commerce, no claim of state action immunity is possible.
These cases are clearly distinguishable, both on their facts and because appellants erroneously characterize the applicable standard as one of "exemption." It is true that the AT & T Court found that because Congress had extensively regulated the telecommunications industry, the area was one which is "national par excellence." 552 F.Supp. at 157-58. However, the court also noted that much of the conduct involved was not the subject of state regulation at all, while the remainder was subject only to tariffs. Id. at 158. The instant action is quite different because the activities are subject to comprehensive state regulation and there is no conflict here with federal legislative policy. See also Essential,
Appellants' characterization of the standard as "exemption" adds to the confusion. The standard which should be applied is that of preemption. See Handler, Antitrust-1978, 78 Colum.L.Rev. 1363, 1378-83 (1978) (explaining difference between exemption and preemption and noting that the presumptions that apply are different in the two situations). Because there is substantial state regulation of the activities in question here, in contrast to those involved in AT & T, the question should be whether Congress has preempted the field of telecommunications regulations. It is clear that Congress has not exclusively occupied this area; the extensive regulatory schemes in virtually every state demonstrate the viability of state interest in the field. In addition, there is no basis for a finding that there is an intolerable conflict between federal and state interests. Therefore, there is no preemption present here. In the absence of evidence of intent to preempt, a holding that a state may not circumvent the antitrust laws through its own regulatory scheme would challenge the federalism on which our governmental system is based.
Appellants' second argument is that any state action present here is not adequate to confer immunity on the defendants, citing Litton Systems, Inc. v. AT & T, 487 F.Supp. 942, 959 (S.D.N.Y.1980), aff'd on other grounds, 700 F.2d 785 (2d Cir.1983), cert. denied, ___ U.S. ___, 104 S.Ct. 984, 79 L.Ed.2d 220 (1984) (district court found no state action immunity, holding that, as in Cantor, the program in question was initiated by the utility rather than by the state, which only approved tariffs; court of appeals affirmed on different grounds without reaching state action); Phonetele, Inc. v. AT & T, 664 F.2d 716, 735-36 (9th Cir.1981), cert. denied, 459 U.S. 1145, 103 S.Ct. 785, 74 L.Ed.2d 992 (1983) (filing of tariff alone is not adequate to confer state action immunity); and Sound, Inc. v. AT & T, 631 F.2d 1324, 1334-35 (8th Cir.1980) (no evidence of state policy requiring displacement of competition by regulation).
This argument also must fail. As we stated above, New York's current policy clearly favors the imposition of regulatory controls over competition in the telephone industry.
The judgment of the district court is affirmed.
I dissent. I cannot agree with the majority's conclusion that appellee's allegedly anticompetitive activities are protected from federal antitrust scrutiny by state action immunity. I do not believe that New York, by choosing to regulate the telephone industry, has acted to displace competition therein. Hence, I would hold that state action immunity is not available to appellee under the standards set forth by the Supreme Court in California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980).
The state statute upon which the majority relies in finding the alleged anticompetitive conduct protected requires only that telephone companies shall provide "adequate service" at "just and reasonable charges" without "unjust discrimination" or "unreasonable preference" and that the Public Service Commission ("PSC") shall have powers of "general supervision" over such companies. N.Y.Pub.Serv.Law §§ 91, 94 (McKinney 1955). This vague mandate cannot satisfy the requirement of Midcal that anticompetitive conduct, to be exempt, must be "clearly articulated and affirmatively expressed as state policy." Midcal, 445 U.S. at 105, 100 S.Ct. at 943 (emphasis added).
Moreover, in Capital Telephone Company v. Pattersonville Telephone Company, 56 N.Y.2d 11, 451 N.Y.S.2d 11, 436 N.E.2d 461 (1982), the New York Court of Appeals explicitly held that the state Public Service Commission's approval of a practice challenged as anticompetitive will not preclude a private plaintiff's state antitrust action attacking that practice. In so deciding, the New York Court of Appeals necessarily concluded that the State's decision to regulate the telephone industry is not inconsistent with the principles of competition. Under these circumstances, the conduct challenged here cannot reflect an affirmative state policy and hence is not exempt from federal antitrust scrutiny. See Midcal, 445 U.S. at 105, 100 S.Ct. at 943.
State action immunity is based principally on considerations of federalism. It allows states a limited degree of autonomy and latitude in pursuing independent economic policies.
The majority holds that regulation of the telephone industry by the state Public Service Commission is sufficient to satisfy the "active supervision" prong of the Midcal test, and it may be that this conclusion is correct. However, the majority also holds that this same regulation clearly evinces the state legislature's choice to pursue a policy in conflict with that of the Sherman Act. The problem with this analysis is that it conflates the two requirements of Midcal making them one. Under the majority's analysis, regulation that fulfills the "active supervision" requirement of Midcal necessarily satisfies its demand that the challenged restraint be "clearly and affirmatively expressed as state policy." But, as already stated, not every instance of state economic regulation gives rise to exemption from federal antitrust laws. The Supreme Court has made clear that regulation alone is not sufficient to exempt challenged restraints from antitrust scrutiny.
In Goldfarb, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 the Court recognized that the State Bar was given power to regulate the legal profession but nevertheless held that its price-fixing activities were not beyond the purview of the Sherman Act: "The fact that the State Bar is a state agency for some limited purposes does not create an antitrust shield that allows it to foster anticompetitive practices for the benefit of its members." Id. at 791, 95 S.Ct. at 2015. The Court went on to hold that because there was no evidence showing the Bar's price-fixing activities to be within the policy of the State as sovereign, those activities were not exempt from antitrust scrutiny. And in Cantor v. Detroit Edison Co., 428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141, the Court rejected defendants' argument that because the state Public Utility Commission had approved a tariff containing the allegedly anticompetitive activity — distribution of free lightbulbs — the Sherman Act was inapplicable thereto. The Court reasoned that without a showing of actual conflict between the state regulatory policy and that of the Sherman Act there could be no implied exemption from the antitrust law. The Court found that because the activity challenged in Cantor was not compelled by the State, it should not be considered within the State's affirmative regulatory policy. As the Court stated in words applicable to this case:
Id. at 595-96, 96 S.Ct. at 3119-20.
Here, making what I consider to be the proper strict application of the Midcal test, I would hold that the activities of appellee, to the extent that they violate the Sherman Act, are not within the "clearly articulated and affirmatively expressed" policy of the State of New York. In finding appellee's allegedly anticompetitive conduct exempt from federal antitrust scrutiny, the majority relies upon the Public Service Commission's approval of that conduct. However, this approval is insufficient evidence that appellee's conduct reflects any affirmative policy of the State. I find it far from certain that the PSC decisions at issue here are anything more than determinations that the appellant has failed to prove that appellee's conduct violates the New York Public Service Law. Moreover, even if the Public Service Commission has mandated New York Telephone's actions, this is nevertheless insufficient to constitute a statement of policy of the State. The Public Service Commission is not the State itself. Therefore, before concluding that its actions have immunized a private defendant from antitrust liability, a court must ascertain whether the state "legislature [in granting the Public Service Commission power to regulate New York Telephone] contemplated the kind of action complained of." Community Communications Co. v. Boulder, 455 U.S. 40, 55, 102 S.Ct. 835, 842, 70 L.Ed.2d 810 (1982). As already noted, New York's Public Service Law provides only that telephone companies shall give "adequate service" at "just and reasonable charges" without "unjust discrimination" or "unreasonable preference" and that the PSC shall have powers of "general supervision" over such companies. N.Y.Pub.Serv.Law §§ 91, 94. This vague grant of power evidences, at best, the legislature's neutrality toward Public Service Commission approval of anticompetitive conduct. "[P]lainly the requirement of `clear articulation and affirmative expression' is not satisfied when the State's position is one of mere neutrality respecting the ... actions challenged as anticompetitive." Community Communications, 455 U.S. at 55, 102 S.Ct. at 842.
Moreover, to the extent that New York Telephone's conduct might actually violate the Sherman Act, that conduct would appear to directly conflict with New York State's regulatory policy. This conclusion follows from two facts. First, as all parties concede, the Public Service Commission seeks to promote competition in all aspects of the telephone industry. See Testimony of Paul Gioia, Chairman, Public Service Commission of the State of New York, before Legislative Commission on Science and Technology and Assembly Committee on Corporations, Authorities, and Commissions, February 1982. Thus, to the extent that the Public Service Commission has approved practices challenged herein, that decision logically would represent at most a determination that such practices are not anticompetitive. It would not imply that the PSC considers a certain level of anticompetitive behavior desirable. Second, and more importantly, the New York Court of Appeals has ruled — in a case involving the parties herein — that a Public Service Commission determination as to the legality of various practices will not bar a private plaintiff from pursuing a state antitrust action challenging those practices. Capital Telephone Company v. Pattersonville Telephone Company, et al., 56 N.Y.2d 11, 451 N.Y.S.2d 11, 436 N.E.2d 461 (1982). In that case, the N.Y. Court of Appeals stated that "discrimination which may be justifiable under ... the Public Service Law `may still be unlawful if it can be shown to have actually restrained competition.'" Id. at 19, 451 N.Y.S.2d 11, 436 N.E.2d 461. Since New York's Donnelly Act, N.Y.Gen.Bus.Law § 340 (McKinney 1968), is essentially a state version of the Sherman Act — and hence there is no evidence herein that New York State intended to displace its own, let alone federal, antitrust laws — the State's decision to regulate the telephone industry cannot be considered inconsistent with application of federal
For the foregoing reasons, I would conclude that New York has not decided to eliminate competition in the telephone industry but instead has decided to encourage competition through the dual means of careful regulation and application of antitrust law, state and federal. Under these circumstances, I would hold that appellee's allegedly anticompetitive activities are not exempt from the federal antitrust laws. See Cantor v. Detroit Edison Co., 428 U.S. at 595-96, 96 S.Ct. at 3119-20. I would reverse and remand accordingly.
Tri-Cities filed a complaint with the FCC in 1969 requesting that N.Y. Tel. be required to interconnect with it on the same terms as it did with Tri-Cities' competitors. In re Petition of Tri-City Telephone Company, FCC No. 18741 (Recommended decision Nov. 17, 1972), J.App. at 285. The FCC denied the complaint, finding that Tri-Cities' operation at the time did not merit the establishment of a central office like those of its competitors. J.App. at 296. The FCC also rejected Tri-Cities' request that N.Y. Tel. divide revenues with it on the same basis as with Pattersonville Telephone Co., a landline company. The FCC noted that the costs of a landline company's mobile operations are not considered when revenue divisions are calculated, so that the calculations are not comparable. J.App. at 297.
Capital filed another complaint with the PSC in 1970, requesting that its arrangements with N.Y. Tel. be revised. Hearings were held for six days between 1970 and 1972. The PSC found that the evidence did not support Capital's claims of discrimination and anticompetitive action. Pub.Serv.Comm'n Op. No. 73-8 (Mar. 12, 1973), J.App. at 212, 229. The PSC ordered N.Y. Tel. to continue to offer direct dial interconnection services to RCCs, but ordered Capital to pay for the services it had received. Stating that the relationship between RCCs and N.Y. Tel. was different than that between landline companies and the telephone company, the PSC found that the record disclosed no evidence of discrimination by N.Y. Tel. Id. at 231-32.
Pursuant to a recommendation by the PSC in the 1973 action, Tri-Cities filed a petition for a certificate of public convenience and necessity. The PSC granted the certificate but rejected the toll revenue division plan offered by Tri-Cities because the marine service provided by Tri-Cities was not similar enough to landline service to allow toll division based on the standard formula. Pub.Serv.Comm'n Op. No. 74-21 (July 1, 1974), J.App. at 266-67.
Next, Tri-Cities filed suit in the Appellate Division of the state supreme court requesting that the Commission's decision concerning the interconnection agreement be reversed. Tri-City Telephone Co. v. Alfred E. Kahn, 49 A.D.2d 126, 373 N.Y.S.2d 655 (1975). Noting that the applicable standard of review was a limited one, the court upheld the PSC's decision. Id. at 129, 373 N.Y.S.2d 655.
In May 1978 Capital and Bakal again filed complaints with the PSC. J.App. at 329. These complaints contained allegations of "illegal, preferential and anticompetitive conduct" by N.Y. Tel. favoring plaintiffs' competitor, Pattersonville. Id. In a memo the Communications Division informed the PSC that the complaints were without merit. J.App. at 333. The Communications Division believed that the comparison between Bakal's services and those of Pattersonville was not appropriate and that Bakal/Capital were not being treated differently from any other RCC. Id. at 334, 336.
Less than a year later, Capital, Bakal and Tri-Cities filed complaints with the FCC. These complaints were substantially similar to the 1978 PSC complaints. J.App. at 325-28. In April 1979 these complaints were dismissed. J.App. at 337.
In February 1980, Capital, Bakal and Tri-Cities unsuccessfully petitioned this Court for an evidentiary hearing in a motion which essentially repeated the allegations of the prior administrative complaints. J.App. at 314. A similar complaint and request for hearing was filed with the FCC in May 1980. In May 1982 the FCC responded. Capital Telephone Co., Inc. v. New York Telephone Co., File No. E-80-17 (May 14, 1982). J.App. at 377. The FCC dismissed the complaint as to all allegations except those concerning discrimination in the use of direct distance dialing (DDD). As to those charges, the PSC ordered that access to the DDD network be provided to Capital at the same cost as to N.Y. Tel.'s own mobile service. J.App. at 382.
In the Supreme Court's latest consideration of state action immunity, the Court's language indicates that no compulsion requirement should be read into the standard. Hoover v. Ronwin, ___ U.S. ___, ___, 104 S.Ct. 1989, 1995, 80 L.Ed.2d 590 (1984).
Id. at ___, 104 S.Ct. at 1995 (footnote omitted; emphasis added). This language suggests that the Court does not intend that compulsion be required. The Sixth and Ninth Circuits apparently agree. See Hybud Equipment Corp. v. City of Akron, 742 F.2d 949 (6th Cir.1984) (applying two part Midcal test; no compulsion requirement included); United States v. Title Ins. Rating Bureau of Ariz., Inc., 700 F.2d 1247, 1252-53 (9th Cir.1983), cert. denied, ___ U.S. ___, 104 S.Ct. 3509, 82 L.Ed.2d 819 (1984) (same). This view is endorsed by antitrust scholars. See Areeda, Antitrust Immunity for "State Action" After Lafayette, 95 Harv.L.Rev. 435, 438 (1981) ("Compulsion, however, should not be read as an independent requirement for state action immunity; rather, its presence or absence should serve only as strong evidence about state intent."); Handler, Antitrust-1978, 78 Colum.L.Rev. 1363, 1384 (1978) (courts' use of compulsion as a requirement is "overreaction"); Morgan, Antitrust and State Regulation: Standards of Immunity After Midcal, 35 Ark.L.Rev. 453, 467-68 (1981) (compulsion was not included in the Court's statement of the standards but "it is likely to remain as a factor, presumably under the first standard").
Contrary to appellants' assertion, this Circuit has never expressly adopted the compulsion requirement. See Litton Systems, Inc. v. AT & T, 487 F.Supp. 942 (S.D.N.Y.1980), aff'd on other grounds, 700 F.2d 785 (2d Cir.1983), cert. denied, ___ U.S. ___, 104 S.Ct. 984, 79 L.Ed.2d 220 (1984) (district court discussed compulsion, but based decision on alternative grounds as well; this Court never reached issue); New York State Electric & Gas Corp. v. F.E.R.C., 638 F.2d 388 (2d Cir.1980), cert. denied sub nom. Village of Penn Yan v. New York State Electric & Gas Corp., 454 U.S. 821, 102 S.Ct. 105, 70 L.Ed.2d 93 (1981) (applying Midcal test, Court finds insufficient evidence of state policy; in dictum refers to Goldfarb's compulsion requirement as evidence of level of involvement which would be necessary). In fact, our most recent consideration of the question adheres to the two part test. See Battipaglia v. New York State Liquor Auth., 745 F.2d 166 (2d Cir.1984) (evaluating state action immunity as alternative holding of district court, but declining to rule on it; citing two part Midcal test as applicable standard).
In line with our past decisions, our analysis proceeds according to the two part Midcal standard.
Where the regulatory scheme demonstrates that the state actively supervises the telephone industry, we need not look to wholly different sources to find support for first prong analysis. Where no clear expression of state policy exists, we may look to the breadth of the regulatory scheme, as a demonstration of the legislature's delegation of authority, in conducting our first prong Midcal analysis. Hybud Equipment Corp. v. City of Akron, 742 F.2d 949, 960 (6th Cir.1984) ("a legislative intent to displace competition may be inferred from the legislature's delegation of authority"). Our use of this particular regulatory scheme in evaluating both prongs of the Midcal test in no way suggests that satisfaction of one prong requires satisfaction of the other.
The dissent also fails to credit our use of other evidence to support our finding, specifically, the legislature's recent action concerning the telegraph industry. While regulation alone is not enough to provide exemption from the antitrust laws, here there is more than mere regulation.
We disagree with the dissent in its belief that Pattersonville mandates a different result. We read that case to hold only that a "not illegal" ruling by the PSC does not collaterally estop the plaintiff from filing suit under the state antitrust laws. See Columbia Gas v. New York State Electric and Gas Corp., 28 N.Y.2d 117, 128-29, 320 N.Y.S.2d 57, 66, 268 N.E.2d 790, 796 (1971) (holding that failure to assert per se antitrust violation does not prevent fact-based, rule of reason analysis of antitrust allegations). We do not agree that the Pattersonville Court's decision in this limited context provides incontrovertible evidence of an affirmative state policy. In the absence of a clear statement of legislative intent, we cannot view this decision as more powerful than the recent legislative action deregulating the telegraph industry, but retaining regulatory authority over the telephone industry. The legislature has not taken advantage of the opportunity to repeal the application of L.1981, c. 414, § 2; nor has it expanded the 1981 act to include the telephone industry. New York's legislature of course remains free to bring the actions of the state telephone industry within the scope of federal antitrust laws.