Eminent domain has become a very hot topic in a wake of recent Supreme Court decisions affirming the rights of municipalities to seize private property through condemnation to benefit commercial developers.  But as far as federal antitrust law is concerned, the Supreme Court held many years ago in Parker v. Brown, 317 U.S. 341 (1943), that states acting in their sovereign capacity were immune from attack under federal antitrust laws, even if they were acting in an overtly anticompetitive fashion.  This state immunity from antitrust exposure has come to be known as "the state action doctrine."  In Commonwealth of Pennsylvania v. Susquehanna Regional, M.D.Pa., No. 1:05-CD-1814 (3/21/06), a federal District Court judge in Pennsylvania was confronted with a collision between eminent domain and state action immunity prompted not by a challenge from a private party, but from the Attorney General of the Commonwealth of Pennsylvania.  The Attorney General alleged that the Susquehanna Area Regional Airport Authority ("SARAA") had violated federal antitrust law by using eminent domain to condemn the site of the only private parking lot servicing Harrison International Airport, thereby eliminating the only competitor to the airport parking operation also run by SARAA.

The District Court began by observing that even though SARAA was clearly acting in an anticompetitive fashion, assuming the truth of the allegations by the Attorney General on a motion to dismiss, such actions were beyond the reach of Federal antitrust law if the state action doctrine applied.  The Court then noted that as state action immunity has evolved, the conduct of a municipality, unlike a state legislature or state executive department, is not automatically immune from Federal antitrust laws, citing Town of Hallie v. City of Eau Claire, 471 U.S. 34, 38 (1985).  Instead, a municipality will only be immune from antitrust challenge if it engaged in the challenged activity pursuant to a clearly expressed state policy which authorized activities with clearly foreseeable anticompetitive effects.  Assuming the state action doctrine did apply, the Court would also then have to examine whether a possible narrow exception to state action immunity, when a municipality acts purely as an ordinary market participant, also existed on the facts of the case.

The Court then turned to the enabling statute pursuant to which SARAA had been created, the Pennsylvania Municipal Authorities Act ("MAA").  The Court concluded that MAA did in fact grant the power of eminent domain, and that as such, anticompetitive effects were obviously a foreseeable result, given that the exercise of the eminent domain power could certainly result in the displacement of competitive facilities.  The Court went on to reject the assertion by the Attorney General that certain additional provisions of the MAA, which seemed designed to prevent interference with existing private commercial enterprises, constituted a waiver of state action immunity.  In this regard, while expressing reservations about the language of the statute, the District Court stated that it was bound by an interpretation of the state law by Pennsylvania’s highest court, the Pennsylvania Supreme Court.  Citing Pennsylvania Supreme Court cases, the Court concluded that the Attorney General’s argument about certain language seeming to restrict the grant of authority under the MAA was not intended to limit a municipal authority’s power to use eminent domain in an anticompetitive fashion. 

Having concluded that state action immunity existed, the Court then turned to the Attorney General’s contention that state action immunity should still be denied because SARAA was using its power of eminent domain as a mere "market participant" for the improper purpose of eliminating its only competitor.  The District Court first analyzed United States Supreme Court and Third Circuit authority, and questioned whether such a "market participant" exception to the state action doctrine existed at all.  For purposes of its analysis, the Court simply assumed that some type of market participant exception from state action immunity existed when a municipal authority acts simply as another competitor in the market place.  The Court then concluded that even if such an exception to state action immunity existed, it would be inapplicable here because the action of the municipality which was being challenged was the exercise of eminent domain.  In the Court’s view, eminent domain was a power unique to government and its exercise was a fundamentally governmental function.

The Court then observed that, having decided eminent domain was a uniquely governmental function, it would not examine the motives underlying the exercise of eminent domain authority.  Although the Court credited the assertion by the Attorney General that the exercise of eminent domain here was obviously anticompetitive, and intended to be so, the Court refused to create a subjective inquiry into the condemnation process because such an analysis would potentially make all eminent domain proceedings vulnerable to a claim of anticompetitive motive.  He also noted that the purpose for which a property was seized under eminent domain was explicitly one of the factors to be considered during condemnation proceedings in the Pennsylvania state courts under Pennsylvania’s condemnation statute, and that the Attorney General had intervened in the State Court condemnation proceedings.  This enabled the Court to close with an expression of considerable concern and skepticism about the motives underlying SARAA’s use of eminent domain to eliminate its only parking lot competition, while expressing the hope and confidence that the Pennsylvania state courts would consider potentially anticompetitive motives when they insured that the taking satisfied constitutional requirements of public use and just compensation.


Authored by:
David R. Garcia