Fifth Circuit Adheres to Granting Interlocutory Review of Denial of State-Action Immunity in Antitrust Cases Under Collateral Order Doctrine, Continuing Circuit Split

In Quadvest L.P. v. San Jacinto River Auth., No. 20-20447 (5th Cir. Aug. 5, 2021), a Fifth Circuit panel holds in a Sherman Act case that, despite every other circuit rejecting its view, it will accept interlocutory review of a defendant’s “entitlement to state-action antitrust immunity in a motion to dismiss” under the collateral order doctrine.

Plaintiffs, two private water utilities, sued the San Jacinto River Authority (SJRA) under the federal Sherman Act. They alleged that their contracts “governing Plaintiffs’ purchase and use of water . . . [are] anticompetitive in violation of Sherman Act Section 1. The instant interlocutory appeal asserts that SJRA is entitled to state-action immunity from Plaintiffs’ lawsuit because the contracts were entered into and are enforced pursuant to a clearly articulated and affirmatively expressed state policy to replace competition with regulation.” The district court denied SJRA’s motion to dismiss the action on immunity grounds, holding that the SJRA’s Enabling Statute did not authorize the monopolization of the local raw water market. The SJRA filed an interlocutory appeal on the denial of the motion to dismiss.

The Fifth Circuit grants the interlocutory review and affirms the denial of the motion to dismiss. In relevant part (for this blog), the panel wrestles with whether to accept jurisdiction over the appeal.

“Our precedent holds that the collateral order doctrine confers jurisdiction to review an interlocutory appeal of a district court’s denial of state-action immunity in certain circumstances.” The panel here cites Martin v. Mem’l Hosp. at Gulfport, 86 F.3d 1391 (5th Cir. 1996) as the circuit’s governing authority.

“In Martin, we held that denials of state-action immunity to state, state-entity, and municipal defendants are immediately appealable collateral orders because (1) ‘denials of states’ and state entities’ claims to state action immunity clearly purport to be conclusive determinations that they have no right not to be sued under federal antitrust laws’; (2) ‘[a]n appellate court reviewing the denial of the state or state entity’s claim of immunity need not consider the correctness of the plaintiff’s version of the facts, nor even determine whether the plaintiff’s allegations actually state a claim’; and (3) ‘state action immunity shares the essential element of absolute, qualified and Eleventh Amendment immunities—an entitlement not to stand trial under certain circumstances,’ which is ‘effectively lost if a case is erroneously permitted to go to trial.’”

The panel recognizes in a lengthy, substantive footnote that there is considerable doubt about Martin’s viability. “This issue is the subject of an active circuit split. Every other circuit to have considered this issue disagrees with our precedent, instead holding that interlocutory appeals from denials of state-action immunity may not be taken under the collateral order doctrine.” The panel cites cases from the Fourth, Sixth, and Ninth Circuits, and most recently a unanimous en banc decision of the Eleventh Circuit. The panel notes that the Supreme Court recently granted writ of certiorari on “[w]hether orders denying state-action immunity to public entities are immediately appealable under the collateral-order doctrine” (later dismissed because of a settlement). The panel also recognizes intra-circuit tension in case authority, with Martin limited by Surgical Care Center of Hammond, L.C. v. Hospital Service District No. 1 of Tangipahoa Parish, 171 F.3d 231 (5th Cir. 1999) (en banc), suggesting that the “state-action immunity” was a substantive limit of the Sherman Act rather than a genuine affirmative defense.

Nevertheless, the panel holds that it is “bound . . . by our [Martin] precedent absent reconsideration by our full court. We further note that neither party raised this issue in its appellate briefing nor during oral argument,” despite that a federal appellate court has a separate obligation to review its own jurisdiction.

The footnote might be read as an invitation to seek just such en banc review, though it is unclear whether either party would have motivation to seek such review (the plaintiffs, which opposed jurisdiction here, prevailed on the merits and thus have no reason to petition for en banc reconsideration). But the Fifth Circuit’s own Internal Operating Procedures allow any “any active member of the court or any member of the panel rendering the decision may request a poll of the active members of the court whether rehearing en banc should be granted, whether or not a party filed a petition for rehearing en banc.” So conceivably, the Fifth Circuit will follow the Eleventh Circuit’s lead, and en banc the issue to overrule Martin.

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