Mariana v. Fisher

Opinions of the United

2003 Decisions States Court of Appeals

for the Third Circuit

7-30-2003

Mariana v. Fisher

Precedential or Non-Precedential: Precedential

Docket No. 02-2906

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PRECEDENTIAL

Filed July 30, 2003

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 02-2906

ROBERT MARIANA; MICHAEL J. MCFADDEN;

KAREN M. MORAN; EDWARD M. NANKERVIS,

Appellants

v.

D. MICHAEL FISHER, in his official capacity as

Attorney General of the Commonwealth of Pennsylvania;

LARRY WILLIAMS, in his official capacity as Secretary of

Revenue of the Commonwealth of Pennsylvania

On Appeal from the United States District Court

for the Middle District of Pennsylvania

(D.C. No. 01-cv-02070)

District Judge: Hon. Sylvia H. Rambo

Argued March 12, 2003

Before: SLOVITER, NYGAARD, and ALARCON,*

Circuit Judges

(Filed July 30, 2003)

* Hon. Arthur L. Alarcon, Senior Judge, United States Court of Appeals

for the Ninth Circuit, sitting by designation.

2

David F. Dobbins

Patterson, Belknap, Webb & Tyler

New York, NY 10036

Alan R. Wentzel (Argued)

Leonard Violi

Windels, Marx, Lane & Mittendorf

New York, NY 10019

William M. Wycoff

Thorp, Reed & Armstrong

Pittsburgh, PA 15219

Dennis J. O’Brien

Pittsburgh, PA 15219

Donald W. Ricketts

Santa Clarita, CA 91387

Peter R. Mahler

Derfner & Mahler

New York, NY 10016

Attorneys for Appellants

D. Michael Fisher (Argued)

Attorney General of Pennsylvania

John G. Knorr, III

Chief Deputy Attorney General

Chief, Appellate Litigation Section

Joel M. Ressler

Chief Deputy Attorney General

Chief, Tobacco Enforcement Section

Office of Attorney General of

Pennsylvania

Department of Justice

Harrisburg, PA 17120

Attorneys for Appellees

3

Bill Lockyer

Attorney General of California

Richard M. Frank

Chief Assistant Attorney General

Dennis Eckhart

Senior Assistant Attorney General

Michelle L. Fogliani

Karen Leaf

Deputy Attorneys General

Office of the Attorney General

of California

Sacramento, CA 95814

Attorneys for Amici Curiae

Alaska, Arkansas, California,

Colorado, Connecticut, Delaware,

District of Columbia, Georgia,

Hawaii, Idaho, Illinois, Indiana,

Iowa, Kansas, Kentucky,

Louisiana, Maine, Maryland,

Massachusetts, Minnesota,

Mississippi, Montana, Nebraska,

Nevada, New Jersey, New Mexico,

New York, North Dakota, Northern

Mariana Islands, Ohio, Oklahoma,

Oregon, Puerto Rico, South

Carolina, South Dakota,

Tennessee, Utah, Vermont, Govt.

V.I., Washington, West Virginia,

Wisconsin, Wyoming

OPINION OF THE COURT

SLOVITER, Circuit Judge.

This appeal presents us with yet another round of

litigation surrounding the multi-billion dollar national

tobacco settlement, known as the Master Settlement

Agreement (“MSA”).1 In 1998, the MSA was entered into

1. This suit is just one in a series attacking the MSA and statutes passed

pursuant to it. Thus far, these suits have been unsuccessful. See Star

4

between 46 States and the four largest domestic tobacco

companies that together made 98% of cigarette sales in the

United States at that time, referred to as the “Majors.”2

Plaintiffs Robert Mariana, Michael McFadden, Karen Moran

and Edward Nankervis, all Pennsylvania residents who

smoke cigarettes, filed suit claiming that certain provisions

of the MSA violate Section 1 of the Sherman Act, 15 U.S.C.

§ 1, the Commerce Clause, U.S. Const. art. I, § 8, cl. 3, and

the Compact Clause, U.S. Const. art. I, § 10, cl. 3, of the

United States Constitution.

In their complaint, Plaintiffs sued Larry Williams,

Pennsylvania’s Secretary of Revenue, and Michael Fisher,

the Attorney General of Pennsylvania in their official

capacities. We note that the Majors are not named

defendants in this particular litigation as this court

concluded in an earlier decision that the Majors were

immune from antitrust liability under the Noerr-Pennington

doctrine. See A.D. Bedell Wholesale Co., Inc. v. Philip Morris

Inc., 263 F.3d 239 (3d Cir. 2001), cert. denied, 122 S.Ct.

813 (2002).

The District Court dismissed the complaint pursuant to

Federal Rule of Civil Procedure 12(b)(6), and Plaintiffs

appeal.

I.

FACTS AND PROCEDURAL HISTORY

A comprehensive history of the MSA can be found in

Scientific, Inc. v. Beales, 278 F.3d 339 (4th Cir.), cert. denied sub nom.

Star Scientific, Inc. v. Kilgore, 123 S. Ct. 93 (2002); A.D. Bedell Wholesale

Co., Inc. v. Philip Morris Inc., 263 F.3d 239 (3d Cir. 2001), cert. denied,

122 S. Ct. 813 (2002); PTI, Inc. v. Philip Morris Inc., 100 F. Supp. 2d

1179 (C.D. Cal. 2000); Hise v. Philip Morris Inc., 46 F. Supp. 2d 1201

(N.D. Okla. 1999), aff ’d mem., 208 F.3d 226 (10th Cir.), cert. denied,

531 U.S. 959 (2000); Forces Action Project LLC v. California, No. C99-

0607 MJJ, 2000 WL 20977 (N.D. Cal. Jan. 5, 2000), aff ’d in part, rev’d

in part, 2001 WL 923124 (9th Cir. 2001).

2. The Majors consist of Philip Morris, R.J. Reynolds, Brown &

Williamson, and Lorillard Tobacco.

5

Bedell and will be repeated here only to the extent

necessary for the discussion and analysis. The MSA was

negotiated after various lawsuits were either brought or

threatened against the Majors and other tobacco companies

by States seeking to recover Medicaid funds that they spent

to treat tobacco-related diseases. Pennsylvania filed suit

against the Majors in April 1997 and the suit was settled as

part of the MSA.3

Under the MSA, the Majors agreed to pay the settling

States billions of dollars and to restrict their marketing of

cigarettes, one of the practices complained about in the

States’ lawsuits. In return, the MSA included provisions

designed to enable the Majors to transfer billions of dollars

to the States, provisions that the Plaintiffs allege were to be

funded by the payment by wholesalers and consumers of

artificially high prices for cigarettes. Plaintiffs further

contend that after the MSA was entered into, the prices

charged by the Majors have generated revenue much

greater than needed to fund the MSA and have enabled the

Majors to spend record amounts on advertising.

After the execution of the MSA, additional tobacco

manufacturers representing 2% of the market joined the

settlement as Subsequent Participating Manufacturers

(“SPMs”). That joinder meant that nearly all of the domestic

cigarette producers had signed the MSA. Bedell, 263 F.3d

at 243.

The addition of the SPMs was significant, as the Majors

allegedly had feared that cigarette manufacturers who had

been left out of the MSA would be able to expand their

market share or enter the market by offering lower prices.

Id. The MSA is explicit that its purpose is to reduce the

ability of non-signatory cigarette manufacturers to gain

market share due to the competitive advantage gained by

not contributing to the multi-billion dollar settlement. Id. at

246. Indeed, the MSA declares that it “effectively and fully

neutralizes the cost disadvantages that the Participating

Manufacturers experience vis-a-vis Non-Participating

3. Initially, the States and the Majors asked Congress to resolve the suits

through a national legislative remedy. The MSA was executed by the

parties only after congressional efforts failed. Bedell, 263 F.3d at 241.

6

Manufacturers with such Settling States as a result of the

provisions of this Agreement.” MSA § IX(d)(2)(E).

On January 10, 2002, Plaintiffs filed this suit against the

Pennsylvania Attorney General and the Secretary of

Revenue, in their official capacities, seeking injunctive relief

from the continued implementation, enforcement and

performance of the MSA on behalf of Pennsylvania.

Plaintiffs claim that a major objective of the MSA is to

prevent SPMs and Non-Participating Manufacturers

(“NPMs”) from expanding their market share and to prevent

new or potential competitors from entering the market.

Specifically, they challenge the MSA’s so-called “Renegade

Clause,” the settlement’s primary mechanism for allocating

payment responsibilities based on production levels, and

the MSA’s provision calling for enactment by the settling

States of “Qualifying Statutes,” laws requiring NPMs to

make payments into state escrow accounts for each sale

made. See Bedell, 263 F.3d at 243. Pennsylvania’s

Qualifying Statute, the Tobacco Settlement Agreement Act

(“TSAA”), 35 Pa. Cons. Stat. §§ 5672-5674 (2003), requires

each NPM either to become a signatory to the MSA as an

SPM or to make payments into an escrow account fund to

be held to pay any judgment or settlement that the

Commonwealth secures in subsequent litigation against the

NPM. 35 Pa. Cons. Stat. § 5674(a) and (b)(1). The payments

are to be returned to the NPM after 25 years if they are not

needed to pay judgments or settlements. 35 Pa. Cons. Stat.

§ 5674(b)(3).

The Renegade Clause provides that the SPM need not

make payments to the States under the MSA as long as the

market share of an SPM does not exceed the greater of its

1998 market share or 125% of its 1997 market share. MSA

§ IX(I). This mechanism allegedly discourages SPMs from

underpricing the Majors to increase their market share,

even if they could do so efficiently. See Bedell, 263 F.3d at

244. This provision, the Plaintiffs claim, effectively puts a

market share cap on SPMs and restricts their output.

Similarly, if NPMs, including potential new entrants into

the market, gain market share, thereby reducing the

Majors’ market share, the Majors may decrease their

payments to the settlement fund. Bedell, 263 F.3d at 244.

7

The Qualifying Statute requires that the NPMs choose

between joining the MSA, thereby subjecting themselves to

the same restrictions on market share as SPMs, or be

subject to tobacco related lawsuits for which they must

make payments into the State established escrow account

for any potential adverse judgments. Id. at 246. The MSA

also creates a $50 million Enforcement Fund provided by

the Majors to investigate and sue NPMs to enforce the

settlement. Id. at 245-46.

According to Plaintiffs, economics force SPMs to join the

scheme while new entry is precluded. This enables the

Majors to cling to their 98% market share, thereby creating

an unregulated cartel. Plaintiffs claim that this output

cartel has allowed and continues to allow the Majors to

raise prices to artificially high and supracompetitive levels

without fear of significant competition and without any

monitoring, regulation, or active supervision by the States.

In fact, Plaintiffs allege that since the execution of the MSA,

the Majors have raised wholesale prices of cigarettes by

nearly 60% while losing less than 5% of their market share.

This, according to Plaintiffs, is a violation of the Sherman

Act. Finally, Plaintiffs allege that the MSA violates the

Commerce and Compact Clauses of the U.S. Constitution.

In dismissing the antitrust claims asserted in the

complaint, the District Court held that in light of Bedell,

Defendants, like the Majors, enjoy Noerr-Pennington

immunity. It further found that Plaintiffs could prove no set

of facts that would establish violations of the Commerce

and Compact Clauses of the United States Constitution.

Plaintiffs timely appealed. Forty states, the District of

Columbia, and the Northern Mariana Islands, all parties to

the MSA, have filed an amicus brief urging us to affirm the

order of the District Court.

II.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction to hear this appeal pursuant to 28

U.S.C. § 1291. We exercise de novo review over the

dismissal of claims under Federal Rule of Civil Procedure

8

12(b)(6). Bedell, 263 F.3d at 249 n.25. Furthermore, we

must take all factual allegations and reasonable inferences

as true and view them in the light most favorable to

Plaintiffs. Id. The District Court properly dismissed

Plaintiffs’ complaint only if Plaintiffs could have proved no

set of facts entitling them to relief. Id.

III.

ANTITRUST CLAIM

As an initial matter, we consider whether Plaintiffs

properly have stated a cause of action under the Sherman

Act.4 Defendants argue that Plaintiffs fail to state a claim as

the MSA does not establish an output cartel in violation of

the Sherman Act. The vigor with which Defendants argued

this issue came as a surprise to us as Bedell clearly

forecloses their argument. See Bedell, 263 F.3d at 249-50.

During oral argument, Attorney General Fisher, who argued

on behalf of both Defendants, conceded that the facts and

allegations in this case are “virtually similar” to those in

Bedell. Tr. of Oral Argument, Mar. 12, 2003, at 20.

Nonetheless, he contended that the Bedell court based its

findings on the Bedell plaintiffs’ characterization of the MSA

rather than the MSA itself. According to General Fisher, we

must consider both Plaintiffs’ allegations and the MSA

itself. This, however, is precisely what the Bedell court did

as evidenced by the various times it quoted actual sections

of the MSA. E.g., id. at 244 n.17-19. Even a cursory reading

of Bedell discredits Defendants’ argument, which we now

reject. Thus, it is to Bedell itself that we now turn.

Plaintiff in Bedell was a cigarette wholesaler that brought

a class action suit against the Majors on behalf of itself and

900 similarly situated wholesalers. Like the Plaintiffs in the

case before us, the Bedell plaintiffs alleged that the MSA’s

Renegade Clause and Qualifying Statutes created an output

4. Under § 1 of the Sherman Act, “Every 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 hereby

declared to be illegal.” 15 U.S.C. § 1.

9

cartel, thereby violating the Sherman Act. The district court

dismissed the complaint pursuant to Federal Rule of Civil

Procedure 12(b)(6), and the plaintiffs appealed. Before

reaching the defendants’ arguments on immunity, this

court considered — and rejected — the argument that the

terms of the MSA do not constitute an agreement to limit

output in violation of the antitrust laws. We stated: “An

agreement which has the purpose and effect of reducing

output is illegal under § 1 of the Sherman Act.” Id. at 247.

We cited Cal. Dental Ass’n v. FTC, 526 U.S. 756, 777

(1999), where the Court discussed the effects of

anticompetitive output restrictions and Nat’l Collegiate

Athletic Ass’n v. Bd. of Regents of Univ. of Okla., 468 U.S.

85, 99 (1984), where the Court stated that “the challenged

practices create a limitation on output; our cases have held

that such limitations are unreasonable restraints of trade.”

We noted further,

The Court has made clear that a pure restriction on

output is anticompetitive and in the absence of special

circumstances, would violate the antitrust laws. NCAA,

468 U.S. at 85, 104 S. Ct. 2948 (recognizing that

output restrictions may be permissible if required in

order to market the product at all). By limiting

production, the cartel is able to raise prices above

competitive levels.

Bedell, 263 F.3d at 248.

We pointed out that the Federal Trade

Commission/Department of Justice Guidelines also

recognize that agreements to reduce output violate the

antitrust laws. Id. Applying those general principles to the

MSA, we stated,

Plaintiffs allege the agreement between the States and

the Majors purposefully creates powerful disincentives

to increase cigarette production. Although the

Multistate Settlement Agreement contains no explicit

agreement to raise prices or restrict market share, any

signatory who increases production beyond historic

levels automatically will increase its proportionate

share of payments to the Multistate Settlement

Agreement. Normally, a company which lowers prices

10

would be expected to increase market share. But the

penalty of higher settlement payments for increased

market share would discourage reducing prices here.

For this reason, signatories have an incentive to raise

prices to match increases by competitors. It appears

this incentive structure has proven true. The Majors’

prices increased dramatically and simultaneously after

signing the Multistate Settlement Agreement.

Id. at 248-49.

After noting that plaintiffs had alleged that defendants

formed an output cartel through the MSA that restricts

production and effectively bars entry to the cigarette

tobacco market and that the defendants injured the

tobacco wholesalers by charging artificially high prices, the

court, speaking through Judge Scirica, stated, “[w]e hold

that plaintiffs have properly pleaded an antitrust violation

by alleging defendants agreed to form an output cartel

through the [MSA] that violates § 1 and § 2 [ ] of the

Sherman Antitrust Act.” Id. at 249-50 (emphasis added)

(footnote omitted). That was the holding of the court and

General Fisher’s attempt to argue to the contrary is without

basis. The holding was critical to our conclusion as to

immunity. Without having held that plaintiffs properly

pleaded a claim under the Sherman Act, the Bedell court

would never have reached the immunity issue. Not only are

we bound by the Bedell court’s holding that the allegations

of an output cartel created by the MSA and resulting

Qualifying Statutes state a claim for a violation of the

Sherman Act, but we reaffirm the legal proposition. We turn

therefore to the question whether Defendants are immune

under either the Noerr-Pennington or the state action — also

known as the Parker — doctrine.

IV.

ANTITRUST IMMUNITY

Having concluded that Plaintiffs sufficiently state an

antitrust claim in that the MSA creates an output cartel

that on its face violates the Sherman Act, we consider

Defendants’ argument that their conduct is immunized

11

from liability. In dismissing Plaintiffs’ suit against the

Pennsylvania officials, the District Court held that the State

officials were entitled to immunity on the basis of the Noerr-

Pennington doctrine and predicted, on the basis of the

language in Bedell, that they would not be entitled to

Parker immunity. The Plaintiffs argue that the court erred.

They posit that a State’s implementation and enforcement

of a restraint of trade it has adopted or sanctioned is

governed by the state action, and not the Noerr-Pennington,

immunity doctrine. Plaintiffs argue that the state action

doctrine fails to shield Defendants from antitrust liability in

this case.

Defendants, on the other hand, claim that they are

immune from antitrust liability under both the Noerr-

Pennington and Parker doctrines. If we were writing on a

clean slate, we might find some logic in Plaintiffs’ argument

that the conduct of private parties must be evaluated under

Noerr-Pennington and that of government units under

Parker. But the slate is not tabula rasa.

We consider each immunity doctrine in turn.

A. Noerr-Pennington Immunity

In Bedell, we concluded that although plaintiffs had

properly pleaded an antitrust injury, the Noerr-Pennington

immunity doctrine nonetheless shielded the Majors from

liability, thereby making it appropriate for the district court

to dismiss plaintiffs’ complaint under Rule 12(b)(6). 263

F.3d at 266-67. The narrow question before us, then, is

whether that same immunity extends to the other party to

the MSA — the state actors. Here, those actors are

Defendants Fisher and Williams. Under the Noerr-

Pennington doctrine, “ ‘[a] party who petitions the

government for redress generally is immune from antitrust

liability.’ ” Id. at 250 (citation omitted). That immunity is so

potent that it protects petitioning notwithstanding an

improper purpose or motive. Id.

The doctrine was first established in E.R.R. Presidents

Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961),

where the Court held that the Sherman Act is not violated

simply by attempts by private parties to influence the

passage or enforcement of laws favorable to the petitioner

12

despite the anticompetitive effects of those laws. Several

years later in United Mine Workers v. Pennington, the Court

reaffirmed that decision, holding that “[j]oint efforts to

influence public officials do not violate the antitrust laws

even though intended to eliminate competition.” 381 U.S.

657, 670 (1965) (emphasis added).

The dual principles underlying the Noerr-Pennington

doctrine are the constitutional right to petition under the

First Amendment and the importance of open

communication in representative democracies. See

California Motor Transport Co. v. Trucking Unlimited, 404

U.S. 508, 510 (1972). The Noerr Court explained:

In a representative democracy such as this, [the

legislative and executive] branches of government act

on behalf of the people and, to a very large extent, the

whole concept of representation depends upon the

ability of the people to make their wishes known to

their representatives. To hold that the government

retains the power to act in this representative capacity

and yet hold, at the same time, that the people cannot

freely inform the government of their wishes would

impute to the Sherman Act a purpose to regulate, not

business activity, but political activity, a purpose which

would have no basis whatever in the legislative history

of that Act[ ].

365 U.S. at 137 (footnote omitted). Thus, Noerr-Pennington

immunity shields actions that might otherwise violate the

Sherman Act because “ ‘[t]he federal antitrust laws do not

regulate the conduct of private individuals in seeking

anticompetitive action from the government.’ ” Bedell, 263

F.3d at 250-51 (quoting City of Columbia v. Omni Outdoor

Adver., Inc., 499 U.S. 365, 379-80 (1991)).

Highlighted as particularly relevant in Bedell, and equally

relevant to us here, is the recognition that parties are

immune from liability arising from the antitrust injuries

caused by government action resulting from the petitioning.

263 F.3d at 251. Thus, if the conduct constitutes valid

petitioning, the petitioner is immune from antitrust liability

whether or not the injuries stem from the actual act of

petitioning or from the government action resulting from

the petitioning. Id.

13

In Bedell, we noted the district court’s finding that

negotiating the MSA “was akin to petitioning the

government” and we agreed that “defendants engaged in

petitioning activity with sovereign states . . . are immune

under the Noerr-Pennington doctrine[ ].” Id. at 252 (footnote

omitted). We recognized that other courts have also reached

this conclusion. Id. at 252 n.31 (citing Hise v. Philip Morris

Inc., 46 F. Supp. 2d 1201, 1206 (N.D. Okla. 1999), aff ’d

mem., 208 F.3d 226 (10th Cir. 2000); Forces Action Project

LLC v. California, No. C99-0607 MJJ, 2000 WL 20977, at *8

(N.D. Cal. Jan. 5, 2000); PTI, Inc. v. Philip Morris Inc., 100

F. Supp. 2d 1179, 1193 (C.D. Cal. 2000)). Acknowledging

plaintiffs’ contention that a motivating purpose behind the

MSA was to create a cartel with its attendant

supracompetitive profits and that the States were motivated

by a desire to share in these profits, we nonetheless stated

that “the parties’ motives are generally irrelevant and carry

no legal significance [ ].” Id. at 253 (footnote omitted) (citing

Noerr, 365 U.S. at 138). Instead, we noted that the

petitioning invoked the States’ traditional powers to

regulate the health and welfare of their citizens. See id.

Accordingly, in Bedell we granted Noerr-Pennington

immunity to the Majors. Id. at 254.

As noted previously, Plaintiffs argue that Noerr-

Pennington immunity is applicable to shield private parties

but that it is inapplicable to Defendants because immunity

for state actions, if any, must be found in the state action

doctrine that applies to a State’s implementation and

enforcement of an antitrust injury under the Supreme

Court’s decision of Parker v. Brown, 317 U.S. 341 (1943).

The District Court concluded that by instituting a lawsuit

on behalf of Pennsylvania against the tobacco companies,

Defendant Fisher was petitioning the courts “ ‘to recover

damages which the Commonwealth and its citizens have

sustained as a result of the unlawful and concerted actions

of the [tobacco companies].’ ” Mariana v. Fisher, 226 F.

Supp. 2d 575, 582 (M.D. Pa. 2002) (citation omitted).

Because the MSA arose from a petition in proceedings

before “other governmental agencies authorized to resolve

such issues,” Defendants were entitled to Noerr-Pennington

immunity. Id.

14

In support of that conclusion, we note that Defendant

Fisher was among the dozens of Attorneys General across

the country who filed suit against the tobacco companies,

effectively petitioning the judiciary. In Trucking Unlimited,

the Supreme Court made explicit that the Noerr-Pennington

doctrine immunizes petitioning directed at any branch of

government, including the executive, legislative, judicial,

and administrative agencies. 404 U.S. at 510. In Bedell, we

held that the settlement that arose from the tobacco

lawsuits was petitioning for Noerr-Pennington purposes. 263

F.3d at 252.

Plaintiffs argue that Noerr-Pennington immunity cannot

apply because petitioning immunity cannot apply to a

public entity. They provide no persuasive authority. In the

one case they cite, Video Int’l Prod., Inc. v. Warner-Amex

Cable Communications, Inc., 858 F.2d 1075, 1086 (5th Cir.

1988), the plaintiff did not seek to impose liability on the

defendant city based on petitioning activity but instead

sued the city based on its own zoning enforcement

decisions. Thus, the statement in that opinion that “it is

impossible for the government to petition itself,” id., hardly

serves as authority for us. More important, this court in

Herr v. Pequea Twp., 274 F.3d 109, 119 n.9 (3d Cir. 2001)

(questioned on other grounds by United Artists Theatre

Circuit, Inc. v. Twp. of Warrington, 316 F.3d 392, 400 (3d

Cir. 2003)), rejected the proposition in Video Int’l that

petitioning immunity cannot apply to a public entity.

In Herr, a land developer sued a township and three of its

supervisors alleging that the township violated his

substantive due process rights through a campaign to

obstruct his development project. 274 F.3d at 110. The

action of the government defendants was participation in

proceedings before various courts and the Lancaster

County Planning Commission, the Department of

Environmental Review, the Environmental Hearing Board,

and the Zoning Hearing Board. Id. Although Herr involved

constitutional claims, not an antitrust claim, we stated that

the Noerr-Pennington doctrine was not limited to the

antitrust arena, id. at 116, and concluded, over a dissent,

that the government officials were entitled to Noerr-

Pennington immunity as public officials sued in their

15

individual capacities. Id. at 119. We acknowledged that we

could not find a case addressing whether a municipal

corporation is entitled to such immunity, but “predict[ed]

. . . that the Supreme Court would hold that it is.” Id.

Although the dissent in Herr relied on Video Int’l, the

majority distinguished it because it did not involve a

situation, as in Herr, where the plaintiff sought to impose

liability on a municipality for petitioning a distinct public

entity authorized by state law to resolve land planning

issues. Id. at 119-20 n.9.

Plaintiffs argue that unlike Herr, this action does not

implicate Defendants’ petitioning activity and they do not

seek to recover damages, but only an injunction against

Defendants in their official capacities. But the basis for

their claim is that the MSA is a contract or combination

that violates the Sherman Act. If the government officials

have Noerr-Pennington immunity for entering into the MSA,

that immunity must extend to complying with and

enforcing its provisions. Like the defendants in Herr,

Defendants in the current case petitioned governmental

entities authorized to resolve the pertinent issues — here

the courts and the legislature — in an attempt to advance

the goals of Pennsylvania residents. In Bedell, we found the

Majors’ participation in the settlement agreement to be

petitioning. 263 F.3d at 252. If the Majors’ role in that

agreement is petitioning, the role of the state actors, who

actually initiated the chain of events leading up to the MSA

by initiating the lawsuit and lobbying the legislature, surely

must be petitioning.

Although Noerr-Pennington immunity typically applies to

private, not public, actors, this would not be the first time

an appellate court has applied such immunity to public

actors. Both the Ninth and Second Circuit Courts of

Appeals have extended Noerr-Pennington immunity to

government actors. See, e.g., Manistee Town Center v. City

of Glendale, 227 F.3d 1090 (9th Cir. 2000); Miracle Mile

Assocs. v. City of Rochester, 617 F.2d 18 (2d Cir. 1980). In

Miracle Mile, the Second Circuit held that the City of

Rochester’s petitions to state and federal agencies opposing

expansion of a regional shopping center were immunized

under Noerr-Pennington without a discussion of the public

16

versus private dichotomy. Id. at 20-21. However, the Ninth

Circuit examined the issue in some detail in Manistee.

Plaintiff, Manistee Town Center, purchased and

renovated a rundown shopping mall. Manistee, 227 F.3d at

1091. When unsuccessful in attracting major retail tenants

to the mall, the plaintiff began to explore alternative lease

arrangements which were opposed by defendants, the City

of Glendale and the Mayor, City Manager, and two City

Council members. Id. Defendants sought to prevent the

plaintiff ’s efforts to lease space to certain lessors by

encouraging residents and the local press to vocally oppose

non-commercial use of the space and by lobbying

government officials of the County. Id. at 1092. When

Manistee Town Center’s lease arrangements fell through, it

filed a complaint against defendants, in their official

capacities, pursuant to 42 U.S.C. §§ 1983 and 1985. Id.

The district court dismissed plaintiff ’s § 1983 claim on

Noerr-Pennington immunity grounds. Id.

In affirming the dismissal, the Ninth Circuit

acknowledged that the applicability of Noerr-Pennington

immunity to government actors was a “question of first

impression.” Id. at 1093. The court reasoned that extending

such immunity to state actors is consistent with the

“representative democracy” rationale enunciated by the

Supreme Court in Noerr, as “[g]overnment officials are

frequently called upon to be ombudsmen for their

constituents” whereby “they intercede, lobby, and generate

publicity to advance their constituents’ goals.” Id. In

holding that Noerr-Pennington immunity extended to

defendants, the court concluded that this form of

petitioning is “nearly as vital” to democracy as petitioning

by private citizens. Id.

We know of no Supreme Court or federal appellate case

holding that Noerr-Pennington cannot apply to government

actors, and are persuaded by the reasoning employed by

the Manistee court. Governmental petitioning is as crucial

to the modern democracy as is that of private parties.

Accordingly, we agree with the District Court that by

instituting a lawsuit against the tobacco companies on

behalf of the Commonwealth and lobbying the legislature to

17

pass the TSAA, Defendants engaged in petitioning activities

that qualify for Noerr-Pennington immunity.

Noerr-Pennington immunity notwithstanding, Defendants

argue that they are also eligible for the state action

immunity recognized by the Supreme Court 60 years ago in

Parker. Thus, we consider Defendants’ claims as to Parker

immunity.

B. Parker Immunity

Defendants argue with considerable vigor that they also

are entitled to state action immunity stemming from the

Supreme Court’s decision in Parker. Plaintiffs counter that

because the Bedell court found no Parker state action

immunity for the Majors, we are bound to find no Parker

immunity for the States.

It is indeed true that this court strictly adheres to its

Internal Operating Procedure 9.1 which provides: “It is the

tradition of this court that the holding of a panel in a

precedential opinion is binding on subsequent panels.

Thus, no subsequent panel overrules the holding in a

precedential opinion of a previous panel. Court en banc

consideration is required to do so.” It is also well

established that a subsequent panel is not bound by

dictum in an earlier opinion. See, e.g., Burstein v. Ret.

Account Plan for Employees of Allegheny Health Educ. and

Research Found., 2003 WL 21509028 at *7 (3d Cir. 2003).

In Bedell, once we held that the Majors were immune

from antitrust liability under the Noerr-Pennington doctrine,

we recognized that “our analysis could end here.”

Nonetheless, we continued by stating, “[b]ut the District

Court found Parker immunity, so we will address it as well.”

263 F.3d at 254. From this comment, one may deduce we

recognized that our subsequent discussion on Parker

immunity was unnecessary to the holding in Bedell and

that arguably the state action discussion was dicta. If

Bedell had concluded that the Majors were immune under

the Parker doctrine as well as under Noerr-Pennington, it

would have been an alternate ground for the holding, and

therefore not dicta. See United States ex rel. Caruso v.

Zelinsky, 689 F.2d 435, 440 (3d Cir. 1982) (“We note first

that an alternate holding has the same force as a single

18

holding; it is binding precedent.”). But Bedell did not so

conclude. 263 F.3d at 266. We therefore turn once again to

our opinion in Bedell to examine whether its rejection of the

applicability of Parker immunity for the Majors was dicta or

whether it binds us to reject Parker immunity for the State

Defendants.

In Bedell, we embarked on a thorough discussion of the

rationale and scope of the Parker immunity doctrine. We

rescribe only the highlights of that discussion. We

characterized as well established that “[a]ntitrust laws do

not bar anticompetitive restraints that sovereign states

impose ‘as an act of government.’ ” Id. at 254 (quoting

Parker, 317 U.S. at 352). In Parker, the Supreme Court

held that the California Agriculture Prorate Act, a state

statute restricting competition among food producers in

California by imposing a market sharing scheme, did not

violate the Sherman Act. 317 U.S. at 352. Since then, the

Court has consistently held that the federal antitrust laws

are subject to supersession by state regulatory programs.

See, e.g., FTC v. Ticor Title Ins. Co., 504 U.S. 621, 632-33

(1992).

The Parker doctrine is grounded in federalism and

respect for state sovereignty. Bedell, 263 F.3d at 254. As

explained in Bedell, the “interest in protecting the acts of

the sovereign state, even if anticompetitive, outweighs the

importance of a freely competitive marketplace.” Id. at 254-

55. Therefore, clear congressional intent is required before

a federal law will be held to invalidate state programs

because “an unexpressed purpose to nullify a state’s

control over its officers and agents is not lightly to be

attributed to Congress.” Parker, 317 U.S. at 351.

As we acknowledged in Bedell, “[w]hen a state clearly acts

in its sovereign capacity it avoids the constraints of the

Sherman Act and may act anticompetitively to further other

policy goals.” 263 F.3d at 255. For example, in Hoover v.

Ronwin, 466 U.S. 558 (1984), the Court considered the

claim of an unsuccessful candidate for admission to the

Arizona Bar that the members of Arizona’s admissions

committee violated the Sherman Act by “artificially reducing

the numbers of competing attorneys in the State.” Id. at

565 (quotation omitted). The Court held that defendants’

19

actions with regard to the bar examination grading formula

could not be divorced from the Arizona Supreme Court’s

exercise of its sovereign power, and thus defendants were

immune under Parker. Id. at 570-73. It cautioned, however,

that conduct that is not directly that of the state legislature

and judiciary requires “closer analysis” for purposes of

Parker immunity “to ensure that the anticompetitive

conduct of the State’s representative was contemplated by

the State” itself. Id. at 568. In Bedell, we stated that when

it is uncertain whether we should treat an act as state

action because it has been neither approved nor authorized

by the State, courts should apply the two-pronged test

enunciated by the Supreme Court in California Retail Liquor

Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980).

263 F.3d at 259.

To qualify as state action under the Midcal test, the

challenged restraint must, first, be one that is “ ‘clearly

articulated and affirmatively expressed as state policy,’ ”

and, second, the resulting antitrust violation must be

“ ‘actively supervised’ ” by the State. Id. at 104 (quoting City

of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389,

410 (1978)). In Bedell, we recognized that it is unnecessary

to undertake a Midcal analysis if the alleged antitrust injury

was the direct result of a clear sovereign state act. 263 F.3d

at 256.

Illustrative is our decision in Massachusetts Sch. of Law

at Andover, Inc. v. Am. Bar Ass’n, 107 F.3d 1026 (3d Cir.

1997), a case in which an unaccredited law school that

failed to receive accreditation filed an antitrust suit against

the American Bar Association (“ABA”) alleging a group

boycott. We reasoned that any potential antitrust injury

arising from the inability of plaintiff ’s graduates to take bar

examinations was the result of state action because it is the

State, and not the ABA, that makes the decision as to bar

admissions. Id. at 1036. We concluded that because the

States are sovereign in imposing the bar admission

requirements, the ABA was immune from liability under

Parker, and the Midcal test urged by plaintiff was

inapplicable. Id. at 1036.

Nonetheless, in Bedell we did apply the Midcal test.

Although we recognized that “one could find direct state

20

action foreclosing the application of Midcal” because the

MSA “was a negotiated settlement by State Attorneys

General, and the state legislatures were responsible for

passing the Qualifying Statutes to enforce important

components of the agreement,” we stated, “it would appear

that . . . the anticompetitive injury here resulted from the

tobacco companies’ conduct after implementation of the

[MSA], and not from any further positive action by the

States.” Bedell, 263 F.3d at 257-58.

Because this court in Bedell examined precisely the same

facts and the same documents and concluded that we must

apply the Midcal test, we believe we are not free to decide

to the contrary.

In applying Midcal’s first prong, we concluded that “it is

evident the Multistate Settlement Agreement was backed by

clearly articulated state policy.[ ]” Id. at 260 (footnote

omitted). We believe that conclusion is unassailable and, of

course, it applies equally in this case. It was our analysis

of the second Midcal prong that led us to conclude that the

Majors were not entitled to Parker immunity. In that

connection, we stated that “[t]he essential inquiry of the

‘actively supervised’ prong is to determine if the

‘anticompetitive scheme is the State’s own.’ ” Id. (quoting

Ticor Title, 504 U.S. at 635). We cited Patrick v. Burget, 486

U.S. 94, 101 (1988), for the proposition that active

supervision “ ‘requires that state officials have and exercise

power to review particular anticompetitive acts of private

parties,’ ” thereby ensuring that a private party’s

anticompetitive conduct promotes state policy rather than

the party’s own interest. Bedell, 263 F.3d at 260. We

concluded that “[t]he States actively and continually

monitor the implementation of portions of the [MSA],” id. at

261, but we were “not convinced that the States satisfy

Midcal’s ‘active supervision’ prong . . . . because the States’

supervision does not reach the parts of the [MSA] that are

the source of the antitrust injury.” Id. at 262.

It is arguable that in determining that the Majors were

not entitled to Parker state action immunity, the Bedell

court placed too little significance on the States’ role in the

implementation of the MSA. Plaintiffs’ principally complain

about the rise in cigarette prices following the MSA. Bedell

21

recognized that the State has immunity for its role in

negotiating, entering into, and enforcing the MSA, but

noted that the MSA contains no provision giving the State

responsibility to supervise cigarette prices. As the court

stated in Bedell, “it is clear the [MSA] empowers the tobacco

companies to make anticompetitive decisions with no

regulatory oversight by the States. Specifically, the

defendants are free to fix and raise prices, allegedly without

fear of competition.” Id. at 260.

However, the absence of such a provision is as much

state action as are the provisions included in the MSA. The

rise in cigarette prices was made possible, at least in part,

by the States’ enforcement of the MSA provisions that

prevent SPMs and NPMs from expanding their market

share, specifically through the market share cap created by

the MSA and imposed on SPMs, MSA § IX(i)(1), and the

TSAA provisions forcing NPMs to either face the same

market share cap or pay into a state established escrow

account. 35 Pa. Cons. Stat. § 5674. As a matter of logic,

there may be some inconsistency in holding the State loses

its Parker immunity for that which it did in its capacity as

a State.

Nonetheless, even though the case before us differs from

Bedell in that the parties are different, we feel bound by

Bedell to abstain from reaching a different conclusion on

Parker immunity. We cannot in conscience characterize the

discussion on Parker immunity in Bedell as dicta. The

Supreme Court, in discussing dicta, has stated, “this Court

does not decide important questions of law by cursory dicta

inserted in unrelated cases.” In re Permian Basin Area Rate

Cases, 390 U.S. 747, 775 (1968) (emphasis added). This is

neither “cursory dicta” nor an “unrelated case.” The

discussion makes clear the connection. As we stated in

Bedell, “[b]ecause private participants in state action enjoy

Parker immunity only to the extent the States enjoy

immunity, the defendants are not shielded by Parker.[ ]” Id.

at 266 (footnote omitted). Perhaps unintentionally, because

the issue was not before it, by this sentence Bedell seems

to have assumed, if not decided, that the States have no

Parker immunity. Accordingly we, as did Bedell for the

Majors, hold that the State officials are not entitled to

Parker immunity.

22

Critics may with some justification regard our discussion

of Parker immunity as dictum, and well it may be. In any

event, the parties argued Parker immunity, Bedell

discussed it at length and our discussion serves to

complete the cycle.

V.

CONSTITUTIONAL CLAIMS

In addition to their antitrust claims, Plaintiffs include

claims challenging the constitutionality of the MSA under

the Dormant Commerce Clause and Compact Clause. The

District Court dismissed Plaintiffs’ constitutional claims,

concluding that Plaintiffs can prove no set of facts that the

MSA violates either clause. Mariana v. Fisher, Civ. No. 1:

CV-01-2070 (M.D. Pa. June 17, 2002). On appeal, we

consider whether Plaintiffs properly have stated a cause of

action under either the Commerce or Compact Clause.5

Although the District Court did not address Plaintiffs’

standing, we do so now and conclude that because

standing is a jurisdictional requirement, the District Court

should have dismissed Plaintiffs’ constitutional claims on

this ground. Our analysis begins with a review of the

rudimentary principles of standing. The standing doctrine

is grounded in Article III of the Constitution, which limits

the jurisdiction of federal courts to actual “cases” or

“controversies.” U.S. Const. art. III, § 2. Thus, it is a

jurisdictional requirement that a person challenging a

government action be a party to a live case or controversy.

Star Scientific, Inc. v. Beales, 278 F.3d 339, 358 (4th Cir.

2002).

The doctrine of standing is comprised of both

“ ‘constitutional and prudential components.’ ” Oxford

Assocs. v. Waste Sys. Auth. of E. Montgomery County, 271

5. As an initial matter, we note that in their brief, Plaintiffs argue that

both the MSA and TSAA violate the Commerce Clause. However, we need

only address their claims as to the MSA as Plaintiffs’ complaint alleges

a violation under the Commerce Clause based only on the MSA, and not

the TSAA.

23

F.3d 140, 145 (3d Cir. 2001) (citation omitted).

Summarizing its standing jurisprudence over the years, the

Supreme Court articulated three “irreducible” elements for

constitutional standing. Lujan v. Defenders of Wildlife, 504

U.S. 555, 560 (1992). First, the plaintiff must have suffered

an “injury in fact,” which is an invasion of a legally

protected interest that is (a) concrete and particularized

and (b) actual or imminent, not conjectural or hypothetical.

Id. Second, there must be a “causal connection between the

injury and the conduct complained of.” Id. Third and

finally, it must be “ ‘likely’ ” rather than “ ‘speculative’ ” that

a favorable decision will redress the injury. Id. at 561

(citation omitted).

The prudential components of standing address the need

for judicial restraint, thereby constituting a “supplemental

aspect of the basic standing analysis.” Oxford Assocs., 271

F.3d at 145. When considering prudential standing, we

examine the plaintiff ’s role because “ ‘[t]he aim of this form

of judicial self-governance is to determine whether the

plaintiff is ‘a proper party to invoke judicial resolution of

the dispute and the exercise of the court’s remedial

powers.’ ” Id. (citations omitted). Thus, the limits of

prudential standing are used to ensure that those parties

who can best pursue a particular claim will gain access to

the courts. Id.

This court has recently articulated a three-part test for

assessing whether a party satisfies prudential standing.

First, prudential standing requires that a litigant assert his

or her own legal interests rather than those of a third party.

Id. at 145-46. Second, courts refrain from adjudicating

abstract questions of wide public significance amounting to

generalized grievances. Id. at 146. Third, a plaintiff must

demonstrate that his or her interests are arguably within

the “zone of interests” that are intended to be protected by

the statute, rule, or constitutional provision on which the

claim is based. Id. For the purposes of determining

standing, the court must accept as true all material

allegations set forth in plaintiffs’ complaint and must

construe those facts in favor of the plaintiffs. Storino v.

Borough of Point Pleasant Beach, 322 F.3d 293, 296 (3d Cir.

2003).

24

Bearing these principles in mind, it seems clear to us

that Plaintiffs fail the test for both constitutional and

prudential standing. During oral argument, Plaintiffs

argued that our decision in Oxford Assocs. provided the

authority for standing. In Oxford Assocs., a group of

building owners brought a suit pursuant to 42 U.S.C.

§ 1983 against a county’s Waste Authority, challenging the

Authority’s implementation of a waste generation fee

(“WGF ”) structure that forced them to use the local facility

to the exclusion of cheaper out of state options. 271 F.3d

at 143. Under the challenged fee structure, the building

owners had to pay private trash haulers to transport their

waste and also had to pay a separate WGF to the Authority

to process that waste. Id. at 144. They alleged that the

purpose and effect of the WGF was to compel them to

subsidize trash processing at the local facility in violation of

the Commerce Clause. Id. The Authority challenged the

building owner’s standing on the third prong of the

prudential standing test, arguing that their interests were

outside the “zone of interests.” Id. at 145-46. This court, by

a divided panel, found that plaintiffs’ interests fell within

the “zone of interests” because the WGF was imposed

directly on plaintiffs, the waste generators, and therefore

they had standing to bring their Commerce Clause claim.

Id. at 148.

Plaintiffs in this case have argued that because Oxford

Assocs. “permitted [consumers] to bring a suit,” they too

have standing to make claims under the Commerce Clause.

Tr. of Oral Arg., Mar. 12, 2003, at 13. Plaintiffs’ reliance on

Oxford Assocs. is misplaced. The building owners, plaintiffs

in Oxford Assocs., were directly subjected to the challenged

fee and thus were asserting their own, rather than a third

party’s, interest. The court was not being asked to address

a generalized grievance.

The case before us is easily distinguishable. We need not

even reach the “zone of interests” prong of the prudential

standing test as Plaintiffs (smokers) fail the test’s first

prong. Plaintiffs do not allege any personal injury as

smokers. Instead, their brief is replete with instances of

injury the MSA causes SPMs and NPMs. For example,

Plaintiffs argue that:

25

The MSA and TSAA do not expressly favor

Pennsylvania manufacturers over out-of-state

manufacturers; nor do they treat more favorably

cigarettes manufactured or processed in Pennsylvania

in comparison to cigarettes manufactured or processed

elsewhere. This state regulation, however, has the

purpose and effect of favoring a finite set of businesses,

i.e., the Majors, by protecting their market share

through the output limitations and payment

obligations imposed on SPMs and NPMs alleged in the

complaint.

Br. of Plaintiffs at 45-46.

Plaintiffs do not complain that the MSA’s payment

structure injures them as smokers. Because Plaintiffs are

not asserting their own legal interests but instead those of

third parties - here the SPMs and NPMs - they are not

analogous to the plaintiffs in Oxford Assocs., who alleged

that they personally were injured by the fee structure at

issue in that case. Instead, Plaintiffs’ Commerce Clause

arguments devolve into nothing more than generalized

grievances against the MSA. Accordingly, the doctrine of

prudential standing precludes us from hearing such claims.

Moreover, Plaintiffs cannot get past the first of the

constitutional standing requirements — injury in fact. The

Court has made clear that to have constitutional standing,

the “ ‘injury in fact’ test requires more than an injury to a

cognizable interest. It requires that the party seeking review

be himself among the injured.” Lujan, 504 U.S. at 563

(citation omitted). This injury must be concrete and

particularized rather than conjectural or hypothetical. Id. at

560. Unlike their allegations directed to the antitrust laws,

Plaintiffs make what can only be described as conjectural

allegations as to their constitutional claims. The relevant

Commerce Clause allegation in the complaint is merely:

“The MSA unduly encroaches upon the enumerated federal

power over interstate commerce set forth in the United

States Constitution, Article I, Section 8, Clause 3.” App. at

52.

Plaintiffs’ allegation as to the Compact Clause is no more

descriptive:

26

The MSA is a multistate agreement that violates the

Compacts Clause of the United States Constitution,

Article I, Section 10, Clause 3, in that it is a

combination tending to the increase of power in the

states which has or may encroach upon the just

supremacy of the United States to regulate interstate

trade in the domestic cigarette market.

App at. 53.

Although Plaintiffs’ brief is filled with generalized

grievances as to how the MSA and TSAA force SPMs and

NPMs to make payments that violate the antitrust laws, it

fails to make particularized and concrete allegations as to

how Plaintiffs, as smokers, suffer injury in fact, and

therefore Plaintiffs lack constitutional standing.

VI.

CONCLUSION

For the reasons set forth, we will affirm the District

Court’s order dismissing Plaintiffs’ complaint. As to

Plaintiffs’ antitrust claims, we have concluded that

Defendants are entitled to immunity under Noerr-

Pennington. We affirm the District Court’s dismissal of

Plaintiffs’ constitutional claims, but we do so on

jurisdictional grounds rather than on the merits.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit