Memo re restraint on trade - 1362744v2
Memorandum
DATE: September 20, 2011
TO: Joe Hogeboom
FROM: Katie Schurrer and Kim Donat
REGARDING: Government Restraints on Trade
FILE NUMBER: 90-480568
Introduction: Whether regulatory constraints on customer pricing for recycling might run afoul of
governmental prohibitions against restraints on trade.
Short Answer: Perhaps, while the waste and recycling collection statute appear to give broad
authority to municipalities to regulate solid waste collection, based on the legislative intent behind
the strict notice requirements relating to organized collection it appears that the statue stops short of
giving freedom to enact anticompetitive regulation of the solid waste collection system, including
mandatory regulatory discounts imposed on private contracts.
I. Restraints on Trade and Competition.
The Supreme Court of the United States passed a comprehensive antitrust law in 1890 called
the Sherman Antitrust Act. See 15 U.S.C. § 1-7. Over time, adjustments have been made to the Act,
but it remains valid today. See Clayton Antitrust Act of 1914, Pub. L. No. 63-212 (clarifying
activities inside and outside the scope of the Act)1; Robinson-Patman Act of 1936, Pub. L. No. 74-
592 (outlawing price fixing by manufacturers)2. The Sherman Antitrust Act was founded upon
common law that had traditionally favored free trade. William Letwin, Law and Economic Policy in
America: the evolution of the Sherman Antitrust Act 18 (1981). The act states “[e]very contract,
combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce
among the several States, or with foreign nations, is declared to be illegal.” 15 U.S.C. § 1.
1 See 15 U.S.C. § 12-27, 29 U.S.C. § 52-53.
2 See 15 U.S.C. § 13.
Memorandum
Page 2
Additionally, the act stated “[e]very person who shall monopolize, or attempt to monopolize, or
combine or conspire with any other person or persons, to monopolize any part of the trade or
commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.”
In Parker v. Brown, the Supreme Court of the United States found states are generally
exempt from liability for what may be considered antitrust violations under the Sherman Antitrust
Act, when acting in a legislative capacity. 317 U.S. 341, 350-1 (1943) (“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 exception, however, only
applies when the state is acting as a sovereign. In Columbia v. Omni Outdoor Adver., Inc., the court
emphasized “immunity does not necessarily obtain where the State acts not in a regulatory capacity,
but as a commercial participant in a given market.” 499 U.S. 365, 374-5 (1991). See Union Pacific
R. Co. v. United States, 313 U.S. 450 (1941) (city’s issuance of rebates and concessions were made
in a capacity as the owner of the benefited property and were therefore unlawful under the Elkins
Act).
However, the state exemption “does not apply with equal force to political subdivisions such
as municipalities. Melissa K. Stull, What constitutes “state action” rendering public official’s
participation in private antitrust activity immune from application of federal antitrust laws, 109
A.L.R. Fed. 758 (2010). In Lafayette v. Louisiana Power & Light Co. the Supreme Court of the
United States concluded “petitioners are in error in arguing that Parker held that all governmental
entities, whether state agencies or subdivisions of a State, are, simply by reason of their status as
such, exempt from the antitrust laws.” 435 U.S. 389, 408 (1978). The court focused on the use of
Memorandum
Page 3
“sovereign” to describe the states in Parker as indicative of the limited scope of the exemption. Id.
at 409. However, the court acknowledged the necessity of municipalities to act as “instrumentalities
of the State for the convenient administration of government within their limits.” Id. at 412 (citing
Louisiana ex rel. Folsom v. Mayor of New Orleans, 109 U.S. 285, 287 (1883). The court then
concluded “the Parker doctrine exempts only anticompetitive conduct engaged in as an act of
government . . . by [a State’s] subdivisions, pursuant to state policy to displace competition with
regulation or monopoly public service.” Id. The state policy does not need to be expressly
conferred, but instead can be inferred from state’s delegation for “a governmental entity to operate in
a particular area.” Id. at 415.
In 1987 a Third Circuit Court of Appeals case addressed the ability of a county to regulate
solid waste disposal under a challenge under federal antitrust laws. Hancock Indus. v. Schaeffer,
811 F.2d 225 (3d Cir. 1987). The court found the county’s prohibition of dumping waste generated
outside the county in the county’s landfill was an action immune from liability under the general
state action exemption from Parker. Id. at 229. The court analyzed the state statute that delegated
authority to municipalities “to acquire and operate solid waste disposal facilities” and “provide for
the disposition of solid waste generated in Chester County for the next (15) years” in reaching its
decision. Id. at 232. The court found “the municipality need not be able to point to a specific
detailed legislative authorization that expressly mentions anticompetitive actions.” Id. at 233 (citing
Town of Hallie v. City of Eau Claire, 471 U.S. 34, 39 (1985) (Supreme Court found where state
statute grants authority to cities to regulate and engage in anticompetitive conduct falls under state
action exemption for federal antitrust laws)) (quotations omitted).
Memorandum
Page 4
II. Application to Golden Valley’s Regulation of Solid Waste Collection
As a result of these interpretations of federal antitrust law, a two-step analysis is required to
determine whether a municipality’s regulations are exempt from antitrust laws. First, it must be
determined whether the state legislature authorized the activities being regulated by the
municipality. 109 A.L.R. Fed. 758. Second, if the legislature did authorize regulation by
municipalities then it must be determined whether the legislature intended to authorize displacing
competition. Id.
In a preliminary analysis, it may be difficult for Golden Valley to survive both tests in
relation to solid waste haulers. The Minnesota legislature clearly authorizes – in fact requires –
municipalities to regulate solid waste haulers and the collection of solid waste. See Minn. Stat. §§
115A.42, 115A.46, 115A.941 (2010). However, the second step in the analysis is to determine
whether the authorization intends to displace competition.
At first glance, it might seem that Hallie and Hancock would clearly bring the municipality’s
regulation under the Parker exception to antitrust laws. Minnesota law clearly delegates authority to
counties and municipalities to regulate solid waste collection in their localities, which is similar to
the authorizations in Hallie and Hancock. However, Minnesota is distinguished from these cases
because of its statutorily mandated procedures for moving from an open to organized collection
system. The strict procedure does not align with an intention for anticompetitive regulation; in fact
it appears to be the opposite. While the statute appears to give broad authority to the municipalities
to regulate solid waste collection it stops short of giving freedom to enact anticompetitive regulation
of the solid waste collection system.
Memorandum
Page 5
In light of the strict procedure the legislature requires to move from an open to organized
solid waste collection, which distinguishes Minnesota from Hallie and Hancock, it is unlikely this
would be interpreted as authorizing activity intended to displace competition. See Minn. Stat. §
115A.94 (2010). It could be interpreted as authorizing displacement of competition, under the
circumstances outlined in the procedures, but that would trigger the statutory notice and other
procedural requirements, which Golden Valley prefers to avoid if possible.
000090/480568/1362744_1