4 Reasons Why Gov. Corbett’s Antitrust Lawsuit Against The NCAA Is On Shaky Ground
[Third Update, June 6, 2013: Judge Kane has dismissed the lawsuit. Here's the order, concluding:
The Governor’s complaint implicates the extraordinary power of a non-governmental entity to dictate the course of an iconic public institution, and raises serious questions about the indirect economic impact of NCAA sanctions on innocent parties. These are important questions deserving of public debate, but they are not antitrust questions. In another forum the complaint’s appeal to equity and common sense may win the day, but in the antitrust world these arguments fail to advance the ball. Plaintiff’s complaint fails on all prongs: it fails to allege commercial activity subject to the Sherman Act; it fails to allege that Defendant’s activity constituted a violation of Section 1 of the Sherman Act; and, it fails to allege that Plaintiff suffered an antitrust injury. On thorough review, this Court can find no basis in antitrust law for concluding that the harms alleged entitle Plaintiff to relief.
The Court thus dismissed the claims on standing, on their merits, and on even the factual predicate that antitrust law was implicated. Like I had said before, "Pennsylvania still has problems showing a nexus between that antitrust violation and a viable claim, regardless of whether we phrase it as a matter of standing, pleading, or causation," and that's essentially what the Court held.]
[Second Update, February 8, 2013: The NCAA has filed its brief arguing that the NCAA's enforcement action was not subject to antitrust law, that it was procompetitive, that the complaint fails to allege anticompetitive effects in a relevant market, and that the plaintiff lacks standing.]
[Update: Obviously, there's been plenty of coverage. See this post at SB Nation, this report at Reuters, and this story at Morning Call, the latter two of which quote me. Others differ on the standing issue (in essence, they assume a State always has standing to challenge any alleged antitrust violation), but most everyone agrees the case is a tough sell. See my comment at SB Nation — even if we begin by assuming the NCAA violated antitrust laws, given the indirect nature of the claim here, Pennsylvania still has problems showing a nexus between that antitrust violation and a viable claim, regardless of whether we phrase it as a matter of standing, pleading, or causation.]
I spent plenty of time on this blog discussing Penn State’s civil liability following the Jerry Sandusky abuse scandal, with most of my thoughts in this post. At this point, the Freeh report was rightly damning, and PSU has, as I hoped they would, brought in outside help (Ken Feinberg, the most prominent mediator in the country) to try to resolve the claims.
I didn’t dwell on the consent decree Penn State entered into with the NCAA sanctions — as they say, a deal is a deal, and that’s just as true for a university and an athletic association, except to point out that there was no reason for the NCAA to care that a minority of the Penn State’s Board of Trustees disagreed with the decision to enter into the consent decree. Corporations act through their management, chosen by their Board of Trustees; the thoughts and feelings of a minority of trustees aren’t relevant to anyone dealing with the party.
Earlier today, the issue returned with a vengeance, as Governor Corbett announced his intention to file, on behalf of the Commonwealth of Pennsylvania, an antitrust lawsuit against the NCAA. When a reporter at the press conference asked how the Governor could have standing, his chief counsel responded they were using parens patriae standing. Here’s a PDF copy of the complaint. In essence, Corbett, claiming to act on behalf of Commonwealth of Pennsylvania (I write “claiming” because, as described below, federal law authorizes the attorney general, not the governor, to act) alleges the NCAA’s sanctions against Penn State violate federal antitrust law. The real meat of the lawsuit starts on page 30. The claim is, in essence:
[T]he sanctions against Penn State do not even ostensibly serve the NCAA’s stated goal of protecting the fairness of intercollegiate athletic competition. Rather, they were taken for the purposes of debilitating a once-powerful football program, enhancing the NCAA’s own reputation, and boosting the competing football programs of cetrain member colleges and universities by removing from competition one of the leading competitors.
Grab a cup of coffee, we have a lot to talk about here.
First, there’s the issue of standing. At the core of every lawsuit is not just a gripe someone has about the world, but the legal standing of the plaintiff. As the Pennsylvania Supreme Court has explained, “the core concept of standing is that a person who is not adversely affected in any way by the matter he seeks to challenge is not aggrieved thereby and has no standing to obtain a judicial resolution of his challenge.” Fumo v. City of Philadelphia, 972 A. 2d 487, 496 (Pa. 2009).
Prior to the filing, some pundits had speculated Corbett was going to rely on the fact that Penn State was a state school to claim standing, but Corbett thankfully didn’t even try that. As I explained in depth in this post, Penn State is not a state school. Pennsylvania has state schools in its Pennsylvania State System of Higher Education (PASSHE), but Pennsylvania State University, like Temple University, Lincoln University, and the University of Pittsburgh are not part of PASSHE, they are “state-related universities.” As the Pennsylvania Supreme Court has held, just because a school receives some state funds does not mean they are part of the state. Mooney v. Temple Univ. Bd. of Trustees, 448 Pa. 424, 429-30 (1972)(The mere funding of an institution does not, however, make it an agency or instrumentality of the state.).
Parens patriae means literally “parent of the country,” and it’s a traditional common law power that dates back to royal times. As the United States Supreme Court explained thirty years ago, parens patriae is a messy, complicated doctrine:
This common-law approach, however, has relatively little to do with the concept of parens patriae standing that has developed in American law. That concept does not involve the State’s stepping in to represent the interests of particular citizens who, for whatever reason, cannot represent themselves. In fact, if nothing more than this is involved (i. e., if the State is only a nominal party without a real interest of its own) then it will not have standing under the parens patriae doctrine. Rather, to have such standing the State must assert an injury to what has been characterized as a “quasi-sovereign” interest, which is a judicial construct that does not lend itself to a simple or exact definition.
Alfred L. Snapp & Son, Inc. v. Puerto Rico ex rel. Barez, 458 U.S. 592 (1982). The Clayton Act, one of the federal anti-trust laws, specifically permits parens patriae lawsuits by “Any attorney general of a State may bring a civil action in the name of such State, as parens patriae on behalf of natural persons residing in such State,” if they’re seeking monetary damages under Section 4, and, separately, permits any “private person” to seek injunctive relief under Section 16, including states. (More about that below in the comments.)
And there’s our first problem: Governor Corbett isn’t the “attorney general” of Pennsylvania, and the incoming Attorney General, Kathleen Kane, is a member of the opposite political party. At the press conference, Corbett’s counsel brushed this aside, saying the departing Attorney General delegated this function to the Governor, and so the new AG Kane is powerless to stop it. This is a problem both under the Clayton Act (assuming the court looks at the claim as a Section 4, rather than Section 16, claim; see the discussion in the comments with Rob for more), but, moreso, under Pennsylvania’s own separation of powers between the Attorney General and the Governor.
That argument strikes me as meritless. The Pennsylvania Constitution plainly says the Attorney General “shall be the chief law officer of the Commonwealth and shall exercise such powers and perform such duties as may be imposed by law.” Pa. Const. art. IV, section 4.1. The AG shall exercise their own powers and their duties, and there is no provision for delegating those powers to the Governor. Moreover, as a basic matter of executive authority, what can be done can be undone, and the Pennsylvania does not have a no take backsies provision. If AG Kane wants to pull the plug, I have no doubt she can and that she would be affirmed by the Pennsylvania Supreme Court for doing so. Whether she considers that prudent is up to her.
But let’s go to the second problem: Pennsylvania may not have parens patriae standing.
[Update: A couple folks have asked me to sum the standing issue up succinctly. Here goes: even if we assume PSU itself could have an antitrust claim against the NCAA, the Pennsylvania citizens the lawsuit claims to be on behalf of identified by the lawsuit — e.g., "citizens who earn income by working in the stadium on game days [and] the shop owners whose small businesses generate significant revenue from the sale of Penn State memorabilia” — do not, because they have “indirect” claims, and the Supreme Court rejected those in the Illinois Brick opinion. That’s a problem for the lawsuit, because parens patriae standing usually requires a state show both a “quasi-sovereign” interest in the lawsuit and a legally cognizable harm to its citizens directly, and it seems Pennsylvania might not have either. Read on for details.]
Corbett said at the press conference he was suing on behalf of the students, as well as “the citizens of Pennsylvania, the business in State College and across Pennsylvania who are being harmed by this. Parens patriae standing is quite broad, but most federal appellate courts have taken a dim view of states bringing parens patriae lawsuits where the state can’t prove a direct damage to itself, as compared to economic harms to its citizens. See, e.g., In re Baldwin-United Corp., 770 F.2d 328, 341 (2d Cir. 1985) (“[W]hen the state merely asserts the personal claims of its citizens, it is not the real party in interest and cannot claim parens patriae standing.”); accord Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir.2008)(Two non-sovereign interests, which would not provide a state with standing for a parens patriae action, are proprietary interests and private interests pursued by the state, where the state is only acting as a nominal party.); compare Com. of Pa. v. Mid-Atlantic Toyota Distributors, 704 F.2d 125 (4th Cir. 1983)(a state can have a legitimate public interest in ensuring the economic well-being of its citizens and in indirectly promoting a smoothly functioning economy freed of antitrust violations even though the most obvious beneficiaries may be individual consumers who ultimately recoup money damages).
Read how the complaint describes the damage inflicted:
This suit arises out of the NCAA and its member institutions’ arbitrary and capricious application of their enforcement power for the purpose of crippling Penn State football, thereby harming citizens of the Commonwealth who benefit from a successful football program at Penn State, among them citizens who earn income by working in the stadium on game days; the shop owners whose small businesses generate significant revenue from the sale of Penn State memorabilia; the students who help pay tuition by waiting tables filled with alumni and fans who patronize restaurants and bars before and after games; the hotel owners and employees whose jobs depend on the continued influx of tourists to central Pennsylvania; and the Penn State swimmers and other athletes whose programs are largely funded by football revenue.
Those are not, to my mind, quasi-governmental claims. They are merely the claims of the citizens of Pennsylvania and, worse, they’re all third-party claims.
Third, there’s the problem of the antitrust claim itself: courts rarely allow third-parties can bring antitrust claims. The Commonwealth of Pennsylvania and its citizens are, at best, third parties to the agreement between the NCAA and PSU, and the Supreme Court made clear that third parties usually don’t have standing to bring antitrust claims. In Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), the Supreme Court held that only direct purchasers have standing under Section 4 of the Clayton Act. That rule is frequently enforced. In 2011, for example, the Third Circuit (the federal appellate court with jurisdiction over Pennsylvania) held that a hospital that purchases certain pharmaceutical products from a wholesaler middleman doesn’t have standing to bring an illegal tying claim under federal law against the manufacturer of the pharmaceutical drugs. Warren Gen. Hosp. v. Amgen Inc., 643 F. 3d 77 (3d Cir., 2011).
Fourth, antitrust cases are increasingly difficult to win, and courts have generally sided with the NCAA on issues relating to sanctions. Assuming there’s standing, the merits of antitrust claims are open to debate, and if Penn State had not agreed to the sanctions, then Penn State might have a viable antitrust claim. Deadspin analyzed the issue thoroughly back in July, and thought it was possible. That case would by no means be easy. Sure, in NCAA v. Bd. of Regents, 468 U.S. 85 (1984), the Supreme Court held the NCAA was subject to antitrust laws when it came to television broadcast rights, and right now there’s a on-going antitrust suit against the NCAA for prohibiting student athletes from licensing their own likenesses, but there’s a huge difference between the broadcast/licensing issues in those cases and the sanctions at issue here.
Initially, in Nat’l Collegiate Athletic Ass’n v. Tarkanian, 488, U.S. 179 (1988), the Court held that the NCAA did not have to comply with due process when issuing sanctions. Moreover, thanks to big shifts in the political composition of the federal courts, courts are far more hostile to antitrust claims today than they were in the past; Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), for example, encouraged District Courts to speculate about detailed economics issues to find a way to dismiss antitrust cases. Antitrust cases including many that I believe are meritorious are routinely dashed against the shoals of Twombly, and Corbett’s case may suffer the same fate, i.e., dismissal before any discovery takes place.
Just a few months ago in Agnew v. NCAA, 683 F.3d 328, 347 (7th Cir. 2012) the Seventh Circuit dismissed a case brought by college football players alleging the NCAA’s restrictions on scholarships violated antitrust laws. Indeed, as the Seventh Circuit said about the NCAA v. Board of Regents case:
Board of Regents implies that the Sherman Act does apply to NCAA regulations, but most regulations will be a “justifiable means of fostering competition among amateur athletic teams,” and are therefore procompetitive. 468 U.S. at 117, 104 S.Ct. 2948. In fact, the Supreme Court seemed to create a presumption in favor of certain NCAA rules …
So the odds would be against PSU, but they could give it the old college try. The problem for Corbett, though, is that he’s not PSU, and he’s not even the Attorney General.