“The Sherman Act makes no mention of the state as such, and gives no hint that it was intended to restrain state action or official action directed by a state.”
How later courts described this case
- “The Sherman Act makes no mention of the state as such, and gives no hint that it was intended to restrain state action or official action directed by a state.”
Written by the judges who cited it.
The opinion
Case: 17-30691 Document: 00514605925 Page: 1 Date Filed: 08/17/2018
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 17-30691 FILED
August 17, 2018
VERITEXT CORPORATION, Lyle W. Cayce
Clerk
Plaintiff - Appellant
v.
PAUL A. BONIN, in their official capacity as a Member of the Louisiana
Board of Examiners of Certified Court Reporters; VINCENT P. BORRELLO,
JR., individually and in their official capacity as a Member of the Louisiana
Board of Examiners of Certified Court Reporters; MILTON DONEGAN, JR.,
individually and in their official capacity as Member of the Louisiana Board
of Examiners of Certified Court Reporters; SUZETTE MAGEE, individually
and in their official capacity as a Member of the Louisiana Board of
Examiners of Certified Court Reporters; KIMYA M. HOLMES, in their
official capacity as a Member of the Louisiana Board of Examiners of
Certified Court Reporters; JOHN H. ANDERSSEN, individually and in their
official capacity as a Member of the Louisiana Board of Examiners of
Certified Court Reporters; MAY F. DUNN, individually and in their official
capacity as a Member of the Louisiana Board of Examiners of Certified Court
Reporters; ELIZABETH C. METHVIN, individually and in their official
capacity as a Member of the Louisiana Board of Examiners of Certified Court
Reporters; LAURA PUTNAM, in their official capacity as a Member of the
Louisiana Board of Examiners of Certified Court Reporters,
Defendants - Appellees
Appeal from the United States District Court
for the Eastern District of Louisiana
Case: 17-30691 Document: 00514605925 Page: 2 Date Filed: 08/17/2018
No. 17-30691
Before KING, SOUTHWICK, and HO, Circuit Judges.
JAMES C. HO, Circuit Judge:
The Louisiana Board of Examiners of Certified Shorthand Reporters
enforces Louisiana law regarding the relationship of court reporters to
litigants. This law provides, in relevant part, that “deposition[s] shall be taken
before an officer authorized to administer oaths, who is not an employee or
attorney of any of the parties or otherwise interested in the outcome of the
case.” La. Code Civ. Proc. Ann. art. 1434(A)(1). The law further provides that
“an employee includes a person who has a contractual relationship with a party
litigant to provide shorthand reporting or other court reporting services and
also includes a person employed part or full time under contract or otherwise
by a person who has a contractual relationship with a party litigant to provide
shorthand reporting or other court reporting services.” La. Code Civ. Proc.
Ann. art. 1434(A)(2).
In 2012, the Board began enforcing Article 1434 more aggressively,
declaring that the law prohibits all contracts between court reporters and party
litigants, including volume-based discounts and concessions to frequent
customers. Veritext, a national private court reporting service regulated by
the Board and doing business in Louisiana, filed suit.
Veritext alleges, in sum, that these regulatory efforts reflect nothing
more than rent-seeking. As Veritext sees it, local providers are simply
harnessing the regulatory power of the state to prevent competition from
national and regional court reporting firms, and thereby increase business
opportunities and raise prices for freelance court reporters.
To vindicate its concerns, Veritext brought a variety of constitutional
claims—substantive due process, equal protection, and the Dormant
Commerce Clause—as well as a claim under the Sherman Act. The district
court dismissed the constitutional claims, and subsequently dismissed the
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No. 17-30691
Sherman Act claim on reconsideration. Veritext Corp. v. Bonin, 259 F. Supp.
3d 484, 488 (E.D. La. 2017), on reconsideration, 2017 WL 3279464 (E.D. La.
Aug. 2, 2017). Veritext appeals on all these grounds.
We conclude that none of the constitutional claims presented by Veritext
have merit, but that the Sherman Act claim should proceed on remand.
I.
The district court was correct to dismiss all of the constitutional claims
brought by Veritext as a matter of Supreme Court precedent.
Veritext argues that the Board’s 2012 decision to ban volume-based
discounts and concessions to frequent customers lacks a rational basis, and
thereby violates both substantive due process and equal protection under
established precedent. The Board responds that these regulatory efforts
further the State’s legitimate government interest in ensuring and protecting
the integrity of legal proceedings. As the Board explains, “[c]ommon sense
dictates that court reporters might be more inclined to alter a deposition
transcript in favor of party litigants that provide them with long-term financial
benefits.”
This rationale may find a skeptical audience in certain quarters. But it
is legally sufficient to support the Board’s action under rational basis review.
As the Supreme Court has long recognized, “[a] classification does not fail
rational-basis review because it is not made with mathematical nicety or
because in practice it results in some inequality.” Heller v. Doe by Doe, 509
U.S. 312, 319 (1993) (citation and quotations omitted). This is an expansive
standard, and the Board’s stated goal of protecting against “any appearance of
impropriety or bias on the court reporter’s behalf” meets it. Veritext Corp., 259
F. Supp. 3d at 490.
A similar analysis applies to Veritext’s Dormant Commerce Clause
argument. “When . . . a statute has only indirect effects on interstate commerce
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and regulates evenhandedly,” we consider “whether the State’s interest is
legitimate and whether the burden on interstate commerce clearly exceeds the
local benefits.” Brown-Forman Distillers Corp. v. New York State Liquor Auth.,
476 U.S. 573, 579 (1986). Here, as previously stated, Louisiana’s interest in
the integrity of its court reporting system is legally sufficient. And Veritext
has failed to clearly identify a burden on interstate commerce imposed by the
Board’s enforcement of Article 1434 that exceeds its local benefits. Veritext’s
Dormant Commerce Clause claim therefore fails as well.
II.
Although we agree that the constitutional claims lack merit, we remand
this case so that Veritext can proceed on its Sherman Act claim.
To prevail under the Sherman Act, Veritext must show a contract,
combination, or conspiracy that imposed an unreasonable restraint on trade.
Am. Needle, Inc. v. Nat’l Football League, 560 U.S. 183, 189 (2010). “When
reviewing a summary judgment, we construe all facts and inferences in favor
of the nonmoving party.” Deshotel v. Wal-Mart Louisiana, LLC, 850 F.3d 742,
745 (5th Cir. 2017).
Veritext pled facts sufficient to support a finding that the Board’s
conduct does indeed restrain trade. Among other allegations, Veritext argued
that the Board is composed of active market participants who “are highly
engaged in setting the agenda of the Board and its committees and in directing
the Board’s business,” who actively sought to “discourage a perceived trend of
freelance court reporters leaving the profession,” and who took regulatory
actions calculated to “deter[] and delay[] entry by national and regional court
reporting firms.” On the record before us, we agree with the district court that
Veritext has alleged facts sufficient to make out a prima facie Sherman Act
claim.
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This raises the question of immunity. As the district court noted, “anti-
competitive conduct by a state is generally immune from federal antitrust law.”
Veritext Corp., 259 F. Supp. 3d at 492. See also Parker v. Brown, 317 U.S. 341,
351 (1943) (“The Sherman Act makes no mention of the state as such, and gives
no hint that it was intended to restrain state action or official action directed
by a state.”).
However, this immunity is not absolute. For the Board to enjoy Parker
immunity under the Sherman Act, it must satisfy “two requirements: first that
‘the challenged restraint . . . be one clearly articulated and affirmatively
expressed as state policy,’ and second that ‘the policy . . . be actively supervised
by the State.’” N. Carolina State Bd. of Dental Examiners v. FTC, 135 S. Ct.
1101, 1110 (2015) (citation omitted).
The Board satisfies the first requirement: Its ban on private court
reporting arrangements is clearly articulated, as Article 1434 does indeed bar
contracts between private court reporting services and party litigants. But
the Board fails under the second requirement of active state supervision.
“[T]he active state supervision requirement [is] necessary to prevent a
State from circumventing the Sherman Act’s proscriptions ‘by casting . . . a
gauzy cloak of state involvement over what is essentially a private price-fixing
arrangement.’” Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46–47 (1985)
(quoting California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445
U.S. 97, 106 (1980)). Active supervision might include “establish[ing] prices
[and] review[ing] the reasonableness of the price schedules,” “regulat[ing] the
terms of fair trade contracts,” “monitor[ing] market conditions,” and
“engag[ing] in ‘pointed reexamination’ of the program.” Midcal, 445 U.S. at
105–06 (citation omitted). And while any such inquiry will necessarily turn on
the circumstances of a particular case, Dental Examiners made clear that
“active supervision” must entail “review [of] the substance of the
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anticompetitive decision, not merely the procedures followed to produce it,”
and “the power to veto or modify particular decisions to ensure they accord
with state policy.” 135 S. Ct. at 1116.
We find that Veritext has pled facts sufficient to support a finding that
the active supervision requirement is not met in this case. Nothing in the
record indicates that elected or appointed officials oversaw or reviewed the
Board’s decisions or modified the Board’s enforcement priorities. And the
Board’s argument on this point—that the legislature can amend the law in this
area or veto proposed rules under Louisiana’s Administrative Procedure Act—
is unconvincing. State legislatures always possess the power to change the
law. Active supervision requires more than the bare possibility that
controlling law might be changed—the “mere potential for state supervision”
that Dental Examiners expressly identified as insufficient. 135 S. Ct. at 1116.
Adoption of the Board’s logic would effectively nullify the requirement of active
state supervision under Dental Examiners.
The Board alternatively contends that the active supervision
requirement does not apply here for two reasons: first, because Veritext has
not pled sufficient facts to show that the Board’s members are active market
participants; and second, because the Board does not advance private interests
by enforcing the terms of state law.
These arguments are unavailing. To begin with, Louisiana law requires
that six of the Board’s nine members be “certified shorthand reporter[s]”—the
very individuals most likely to be impacted by Veritext’s involvement in the
market. La. Rev. Stat. § 37:2551(B)(1). The Board attempts to differentiate
“freelance” and “official” court reporters, but the boundary between these
categories is porous: an individual serving as an official court reporter may
readily go freelance if he so chooses. It is sufficiently clear from the record that
the members of the Board qualify as active market participants. And it strains
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credulity to regard the Board’s conduct as strictly public-minded, in light of its
decision to convene a meeting that included “How to increase rates?” as one of
its agenda items. Veritext Corp., 259 F. Supp. 3d at 492.
In sum, the district court was correct the first time when it observed that
Veritext alleged sufficient facts that “the board’s actions do not resemble a
municipality under active supervision but instead represent an unbridled
regulatory environment.” Veritext Corp., 259 F. Supp. 3d at 493. Because
Veritext has pled facts sufficient to support a finding that the active
supervision requirement of Midcal and Dental Examiners is not satisfied here,
the district court erred in granting summary judgment to the Board on
Veritext’s Sherman Act claim.
III.
We affirm the district court’s dismissal of Veritext’s constitutional
claims. We reverse the district court’s dismissal of Veritext’s Sherman Act
claim and remand for further proceedings.
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