Petition for Writ of Certiorari — Airline Service Providers Association, et al., Petitioners v. Los Angeles World Airports, et al.

No. ____

IN THE

Supreme Court of the United States

AIRLINE SERVICE PROVIDERS ASSOCIATION; and

AIR TRANSPORT ASSOCIATION OF AMERICA, INC.,

d/b/a AIRLINES FOR AMERICA,

Petitioners,

v.

LOS ANGELES WORLD AIRPORTS; and

CITY OF LOS ANGELES, CA,

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

Michael M. Berger

Matthew P. Kanny

George David Kieffer

Manatt, Phelps & Phillips

11355 West Olympic Blvd.

Los Angeles, CA 90064

Robert S. Span

Douglas R. Painter

Steinbrecher & Span LLP

445 South Figueroa St.

Los Angeles, CA 90071

Douglas W. Hall

Counsel of Record

Anthony J. Dick

JONES DAY

51 Louisiana Ave., NW

Washington, DC 20001

(202) 879-3939

DWHall@JonesDay.com

David L. Shapiro

1563 Mass. Ave.

Cambridge, MA 01238

Counsel for Petitioners

i

QUESTION PRESENTED

This Court has long held that federal labor law

preempts state and local regulation of labormanagement relations. In addition, the Airline

Deregulation Act expressly preempts state and

local regulations that “relate to” airline prices,

routes, and services. Both types of preemption are

subject to a narrow exception that applies when a

state or local government does not use its sovereign

power to “regulate,” but instead acts as a “market

participant” by purchasing goods or services in the

marketplace. Because contractual terms negotiated

in market purchases are not “regulations,” they are

typically immune from federal preemption.

In the present case, the Ninth Circuit radically

expanded the market participant exception. The

court held that the City of Los Angeles could enact

a licensing rule that bars companies from providing

services to airlines at Los Angeles International

Airport (LAX) unless they enter a “labor peace”

agreement with any union that demands one. This

rule plainly regulates labor-management relations

and “relates to” airline services, but has nothing to

do with any service purchased by the City. The

Ninth Circuit nevertheless upheld the rule under

the market participant exception solely because the

City owns and operates LAX.

The question presented is:

Does the “market participant” exception allow a

state or local government to impose an otherwisepreempted rule on private companies even if the

government is not procuring any good or service

from them?

ii

PARTIES TO THE PROCEEDING;

RULE 29.6 STATEMENT

Petitioner Airline Service Providers Association

(“ASPA”) is a trade organization representing

businesses providing ground services (including

fueling, cleaning, baggage handling, security, ticket

counter and the like) to airlines across the United

States, many of which operate at Los Angeles

International Airport. ASPA’s members are Air

Serv Corporation; Airport Terminal Services, Inc.;

Aviation Safeguards; Baggage Airline Guest

Services, Inc.; Delta Global Services; G2 Secure

Staff, LLC; Hallmark Aviation Services, L.P.;

Huntleigh USA Corporation; Menzies Aviation

USA, Inc.; Pacific Aviation Corp.; Primeflight

Aviation Services, Inc.; SAS Services Group, Inc.;

Swissport USA Inc.; Total Airport Services Inc.;

and Worldwide Flight Services.

Petitioner Air Transport Association of

America, Inc., d/b/a Airlines For America (“A4A”),

is a nonprofit corporation advocating for its

member air carriers on issues relevant to the

airline industry. A4A’s members are Alaska

Airlines, Inc.; American Airlines Group, Inc.; Atlas

Air, Inc.; Federal Express Corporation; Hawaiian

Airlines, Inc.; JetBlue Airways Corp.; Southwest

Airlines Co.; United Continental Holdings, Inc.

(United Airlines); and United Parcel Service Co.

Respondents Los Angeles World Airports and

City of Los Angeles, CA, are municipal corporations

under the laws of the State of California. They own

and operate Los Angeles International Airport, the

fourth busiest passenger airport in the world, and

the second busiest in the United States.

iii

TABLE OF CONTENTS

Page

QUESTION PRESENTED ...................................... i

PARTIES TO THE PROCEEDING;

RULE 29.6 STATEMENT ............................ ii

TABLE OF AUTHORITIES ................................... v

INTRODUCTION ................................................... 1

OPINIONS BELOW................................................ 3

JURISDICTION ...................................................... 4

CONSTITUTIONAL PROVISION ......................... 4

STATEMENT OF THE CASE ................................ 4

A.

Legal Background .............................. 4

B.

The City’s “Labor Peace” Rule .......... 5

C.

The Proceedings Below ...................... 7

REASONS FOR GRANTING THE WRIT ........... 11

I.

THE NINTH CIRCUIT’S DECISION

DEFIES THIS COURT’S

PRECEDENTS ........................................... 14

II.

THE DECISION BELOW

CONFLICTS WITH THE DECISIONS

OF FIVE OTHER CIRCUITS .................... 20

III.

THE QUESTION PRESENTED IS

EXCEPTIONALLY IMPORTANT ............. 24

CONCLUSION ...................................................... 29

iv

TABLE OF CONTENTS

(continued)

Page

APPENDIX A: Opinion of the United States

Court of Appeals for the Ninth Circuit

(October 16, 2017) ...................................... 1a

APPENDIX B: Opinion of the United States

Court of Appeals for the Ninth Circuit

(Superseded) (August 23, 2017) ............... 41a

APPENDIX C: Opinion of the United States

District Court, C.D. California

(March 18, 2015)....................................... 43a

APPENDIX D: Certified Service Provider

License Agreement ................................... 83a

APPENDIX E: Statutory Provisions

Involved .................................................. 137a

v

TABLE OF AUTHORITIES

Page(s)

CASES

Allied Constr. Indus. v.

City of Cincinnati,

879 F.3d 215 (6th Cir. 2018) ............................ 27

American Trucking Ass’ns, Inc. v.

City of Los Angeles,

569 U.S. 641 (2013).................................... passim

American Trucking Ass’ns, Inc. v.

City of Los Angeles,

660 F.3d 384 (9th Cir. 2011) ............................ 16

Associated Builders & Contractors,

Inc. v. Jersey City,

836 F.3d 412 (3d Cir. 2016) .........................21, 22

Bldg. & Constr. Trades Council v.

Associated Builders etc.,

507 U.S. 218 (1993).................................... passim

Building and Constr. Trades Dept. v.

Allbaugh,

295 F.3d 28 (D.C. Cir. 2002) ............................. 23

Cardinal Towing & Auto Repair, Inc.

v. City of Bedford, Tex.,

180 F.3d 686 (5th Cir. 1999) .......................22, 23

Chamber of Commerce v. Reich,

74 F.3d 1322 (D.C. Cir. 1996) ........................... 23

Golden State Transit Corp. v. City of

Los Angeles,

475 U.S. 608 (1986).................................... passim

vi

TABLE OF AUTHORITIES

(continued)

Page(s)

Machinists & Aerospace Workers v.

Wis. Emp’t Relations Comm’n,

427 U.S. 132 (1976)............................................. 7

Metro. Milwaukee Assn. of Commerce

v. Milwaukee Cnty.,

431 F.3d 277 (7th Cir. 2005) .......................20, 21

Mich. Bldg. & Constr. Trades Council

v. Snyder,

729 F.3d 572 (6th Cir. 2013) ............................ 24

Morales v. Trans World Airlines, Inc.,

504 U.S. 374 (1992)............................................. 5

San Diego Bldg. Trades Council v.

Garmon,

359 U.S. 236 (1959)............................................. 7

Stucky v. City of San Antonio,

260 F.3d 424 (5th Cir 2001) ........................22, 23

United Bldg. & Constr. Trades Council

of Camden County & Vicinity v.

City of Camden,

465 U.S. 208 (1984)........................................... 15

White v. Massachusetts Council of

Constr. Employers, Inc.,

460 U.S. 204 (1983)........................................... 15

Wis. Dep’t of Indus., Labor, & Human

Relations v. Gould, Inc.,

475 U.S. 282 (1986)....................................4, 5, 27

vii

TABLE OF AUTHORITIES

(continued)

Page(s)

CONSTITUTIONAL AND STATUTORY AUTHORITIES

U.S. Const., Article VI, cl. 2 ..................................... 4

28 U.S.C. § 1254 ....................................................... 4

29 U.S.C. § 158 ......................................................... 6

49 U.S.C. § 41713 ............................................1, 5, 26

1

INTRODUCTION

This case involves an effort by the Ninth

Circuit to undermine well-established principles of

federal preemption. The National Labor Relations

Act (NLRA) and other provisions of federal labor

law generally preempt any state or local regulation

of labor-management relations. In particular,

federal law prohibits any state or local rule that

would require private companies to enter any type

of agreement with organized labor, which would

upset the delicate balance that Congress struck in

regulating the bargaining process between labor

and management. See Golden State Transit Corp. v.

City of Los Angeles, 475 U.S. 608, 613–14 (1986). At

the same time, the Airline Deregulation Act (ADA)

expressly preempts any state or local regulation

“related to a price, route, or service” of an airline.

49 U.S.C. § 41713(b)(1).

In the present case, the City of Los Angeles

disregarded these bedrock principles and amended

its licensure rules at Los Angeles International

Airport (LAX) to require airline service providers to

enter into a “labor peace” agreement with any

union that demands one. Petitioners filed suit,

arguing that this rule is preempted by both federal

labor law (because it intrudes on the field of labormanagement relations) and the ADA (because it

closely relates to airline prices and services).

Over the dissenting opinion of Judge Richard

Tallman, a panel of the Ninth Circuit held that the

“labor peace” rule is not subject to federal

preemption because it is not truly a “regulation” at

all. Instead, the majority held that the City

2

imposed the rule in its capacity as a “market

participant.” Pet. App. 8a. As Judge Tallman’s

dissent recognized (without disagreement by the

majority), the Ninth Circuit’s holding “hinges

entirely on the applicability of the market

participant exception,” and without that exception

the “labor peace” rule “would plainly be

preempted.” Pet. App. 25a, 27a (Tallman, J.,

dissenting).

Under this Court’s clear precedent, the market

participant exception applies only when a

government entity is purchasing goods or services

in the marketplace. When the government hires a

company to provide some good or service, it can

negotiate for that company to adhere to certain

contractual terms, which are generally not subject

to federal preemption because they are commercial

conditions rather than “regulations.” But when the

government imposes licensure rules on a company

that it has not hired to provide any good or service,

the rules are “regulations” subject to ordinary

principles of federal preemption.

In the present case, the Ninth Circuit held that

the market participant exception allows the City to

impose a “labor peace” rule on private companies

that operate at LAX even though the City has not

purchased any good or service from them (or even

from the airlines to whom they provide services).

As Judge Tallman’s dissent pointed out, “[a]t the

risk of stating the obvious, the City here is not

directly procuring goods and services to execute a

discrete project, but rather providing ongoing

licenses permitting a host of service providers . . . to

3

do business at the airport.” Pet. App. 31a. But

nonetheless, the panel majority reasoned that

because the City has a “proprietary” interest in

avoiding service disruptions at LAX, it is effectively

immune from federal preemption and has free reign

to impose any labor rules it wants on any company

that provides services to airlines at the airport.

The Ninth Circuit’s decision creates a gaping

hole in federal preemption jurisprudence and

conflicts sharply with the binding precedent of this

Court and multiple circuits. Until now, every court

has recognized that the market participant

exception applies only when a local government is

contracting for goods and services for itself, not

using its sovereign power to impose rules on

companies that provide services to others. If

allowed to stand, the decision below will eviscerate

federal preemption not only in the airline industry

but also across a broad range of other areas where

the market participant exception applies.

OPINIONS BELOW

The U.S. District Court for the Central District

of California entered an Order of Dismissal in favor

of Respondents (see 2015 WL 13546227) (Pet. App.

43a–82a). A divided panel of the Ninth Circuit

Court of Appeals affirmed (Pet. App. 41a–42a)

(originally published at 869 F.3d 751 (2017), but

withdrawn). After timely petitions for rehearing, to

both the panel and to the Circuit en banc, the panel

slightly modified the opinion, denied rehearing, and

again affirmed in an opinion drawing the dissent of

Judge Tallman, published at 873 F.3d 1074 (9th

Cir. 2017) (Pet. App. 1a–40a).

4

JURISDICTION

The Ninth Circuit issued an initial panel

opinion on August 23, 2017. Pet. App. 41a–42a. On

October 16, 2017, the court denied a petition for

rehearing en banc and issued a new panel opinion

to replace the initial one. Pet. App. 2a. On January

5, 2018, this Court (acting through Justice

Kennedy) extended the time to file this Petition

until February 15, 2018.

This Court has jurisdiction under 28 U.S.C.

§ 1254(1).

CONSTITUTIONAL PROVISION

U.S. Const., Art. VI, cl. 2:

This Constitution, and the Laws of the

United States which shall be made in

pursuance thereof . . . shall be the

supreme Law of the land; . . . any Thing

in the Constitution or Laws of any State

to the Contrary notwithstanding.

STATEMENT OF THE CASE

A. Legal Background

The underlying dispute in this case involves

two overlapping areas of federal preemption. First,

federal labor law has “largely displaced state [and

local] regulation of industrial relations.” Wis. Dep’t

of Indus., Labor, & Human Relations v. Gould, Inc.,

475 U.S. 282, 286 (1986). As a result, no state or

local government may impose labor regulations

that would upset the delicate “balance” that

5

Congress struck for negotiations between labor and

management in the National Labor Relations Act

(NLRA) and the Railway Labor Act (RLA), which

governs the airline industry. Id. This includes

regulations requiring private companies to enter

into “labor peace” agreements, which distort the

parties’ ability to “resort to economic pressure” to

support their positions in the bargaining process.

Golden State, 475 U.S. at 615.

Second, when Congress deregulated the airline

industry in 1978, it enacted an express preemption

clause to “ensure that the States would not undo

federal deregulation with regulation of their own.”

Morales v. Trans World Airlines, Inc., 504 U.S. 374,

378-79

(1992).

Accordingly,

the

Airline

Deregulation Act (ADA) prohibits states from

enacting or enforcing any “law, regulation, or other

provision having the force and effect of law related

to a price, route, or service of an air carrier.” 49

U.S.C. § 41713(b)(1). This language “express[es] a

broad pre-emptive purpose,” prohibiting any state

or local regulation that relates to “prices, routes, or

services,” even if “the effect is only indirect.”

Morales, 504 U.S. at 385-86 (citation omitted).

B.

The City’s “Labor Peace” Rule

Unsatisfied with the uniform federal scheme

for negotiating labor agreements, and undeterred

by the ADA, the City of Los Angeles designed its

own scheme to achieve what it called “labor

harmony” for airline service providers at LAX.

Specifically, the City adopted a new licensure rule

requiring companies that provide services to

airlines at LAX to execute a “labor peace”

6

agreement with any union that demands one. The

City put this rule in place through Section 25 of its

“Certified Service Provider License Agreement,”

which “establish[es] eligibility criteria, service

classifications, and various monitoring and

enforcement procedures for companies” that the

City allows to be “retained or hired” by “airlines” to

provide various “services at LAX.” Pet. App. 45a,

126a–127a.

Under the new Section 25, all licensed service

providers at LAX must “have in place, at all

required times, a labor peace agreement” with any

covered “Labor Organization” that “requests” one.

Pet. App. 127a. The required agreement must

prohibit “the Labor Organization and its members

from engaging in picketing, work stoppages,

boycotts, or any other economic interference.” Id. If

the parties “are unable to agree to a Labor Peace

Agreement within 60 days of the Labor

Organization’s written request,” they must “submit

the dispute” to mediation and then binding

arbitration. Id. Section 25 thus differs sharply from

the NLRA, which requires parties to negotiate in

good faith, but does not require them to reach any

agreement. 29 U.S.C. § 158(d).

As the Ninth Circuit recognized, because

service providers at LAX “may not operate without”

the required “labor peace” agreement, they must

“give benefits” to requesting unions “to induce them

to enter the agreement.” Pet. App. 3a. The coercive

effect of the mandate is thus clear. It gives unions

“an incentive to trigger negotiations toward labor

peace agreements to obtain such benefits,” and

7

unions “advocated for inclusion of section 25” in the

LAX licensure rules. Id.

C. The Proceedings Below

1. Petitioners sued the City, arguing that its

new “labor peace” rule was preempted under both

federal labor law and the ADA. As to labor law,

they argued that the rule was preempted because it

disrupts the uniform and exclusive federal scheme

of labor-management relations as described by this

Court in Machinists & Aerospace Workers v. Wis.

Emp’t Relations Comm’n, 427 U.S. 132 (1976), and

San Diego Bldg. Trades Council v. Garmon, 359

U.S. 236 (1959). As to the ADA, Petitioners argued

that the labor peace rule is preempted because it

affects the “prices” and “services” of airlines at LAX

by increasing the labor costs of airline service

providers and hampering their efficiency.

The City filed a motion to dismiss, which

notably did not argue that the market participant

exception should apply. Instead, the City accepted

the premise that the labor peace rule is a

“regulation,” but argued that it should survive

federal preemption under the reasoning of

Machinists and Garmon and the text of the ADA’s

preemption clause.

2. The district court granted the City’s motion

to dismiss. Like the City itself, the district court did

not rely on the market participant exception. The

closest it came was to mention in passing that the

labor peace rule was designed “to protect [the

City’s] proprietary interest in ensuring that labor

disputes do not interfere with the efficient,

revenue-generating operations of LAX.” Pet. App.

8

65a. But it did not hold that the rule was exempt

from federal preemption on that ground.

Instead, the court concluded that the labor

peace rule is not preempted because it “does not

frustrate the purpose of the NLRA or the RLA,”

Pet. App. 66a, and its “effect” on airline “prices,

routes, or services” is too “indirect” to be preempted

under the ADA. Pet. App. 73a. The court also held

in the alternative that Petitioners lacked

prudential “standing” to raise their ADA argument,

because the airlines are not directly subject to the

labor peace rule, and the airline service providers

do not fall within the “zone of interests” protected

by the ADA. Pet. App. 67a–68a.

3. On appeal, the Ninth Circuit held that

Petitioners have “standing to pursue all of [their]

claims.” Pet. App. 4a. On the merits, the City

argued for the first time on appeal that the labor

peace rule should be exempt from federal

preemption under the market participant

exception. A divided panel of the Ninth Circuit

agreed and affirmed on this alternative ground

without reaching any of the other merits

arguments.

a. The majority began by correctly explaining

that federal preemption typically applies only to

state and local “regulation.” Pet. App. 8a.

Accordingly, when a state or local government “acts

as a ‘market participant,’ not as a regulator,” courts

must “presume that its actions are not subject to

preemption.” Id. But the majority then struggled to

explain how “the City was acting as a market

participant and not a regulator” when it imposed

9

the labor peace rule on private companies that

operate at LAX. Pet. App. 8a–13a.

The majority acknowledged the argument that

the City is not a true “market participant” because

it “has not directly participated in the market [for

airline services] and has instead dictated contract

terms to others who do.” Pet. App. 10a–11a. The

majority rejected this argument, however, on the

ground that the City has a “proprietary” interest in

operating LAX airport, which is part of a global

“market” for transportation services. Id. “If the City

operates the airport poorly, fewer passengers will

choose to fly into and out of LAX, fewer airlines will

operate from LAX, and the City’s business will

suffer.” Pet. App. 11a. For that reason, the majority

concluded that the City is immune from federal

preemption whenever it imposes labor rules on

companies operating at LAX in order to protect its

“commercial” interest in avoiding “service

disruptions” at the airport. Pet. App. 11a–13a.

Because the majority held that the “labor

peace” rule is exempt from federal preemption

under the market participant exception, it did not

address whether the rule would be preempted if

that exception did not apply. 1

1 The panel majority initially ordered a remand to

determine whether the labor peace rule might be preempted

due to “spillover effects” on operations beyond LAX. Pet. App.

22a. But after Petitioners filed a rehearing petition

disclaiming any such argument, the majority amended its

opinion to eliminate the remand order, rendering its

judgment final. Pet. App. 2a, 22a.

10

b. In dissent, Judge Tallman pointed out that

the majority’s decision ignored the settled rule that

the market participant exception applies only when

a government entity has hired a company to

provide goods or services in the marketplace. As he

explained:

At the risk of stating the obvious, the City

here is not directly procuring goods and

services to execute a discrete project, but

rather

providing

ongoing

licenses

permitting a host of service providers

handling baggage, assisting passengers,

refueling aircraft, serving food and

beverages, and otherwise keeping planes

operating on schedule to do business at the

airport.

Pet. App. 31a.

Because the City was not hiring the affected

companies but instead imposing licensure rules on

them to govern whether they could operate at a

public airport, it was plainly acting as a regulator,

not a market participant. That made this case

“markedly different in kind” from cases where the

government hires a company subject to commercial

terms that are “specifically tailored to one

particular job.” Id. (citations omitted). Indeed,

Judge Tallman noted that the “‘manifest purpose

and inevitable effect’ of [the labor peace rule]

appears to be aimed at altering the balance of

power between service providers and organized

labor.” Pet. App. 36a.

11

Judge Tallman concluded by highlighting the

danger posed by the majority’s radical expansion of

the market participant exception:

If we are to give effect to Congress’ intent to

“avoid the ‘diversities and conflicts likely to

result from a variety of local procedures and

attitudes toward labor controversies,’” we

cannot allow the market participation

exception to become too broad. It is not

enough to simply accept state and local

governments’ assurances that they only

seek to enforce labor policies as market

participants, particularly when those

policies would directly interfere with core

rights protected by the NLRA[.]

Pet. App. 39a–40a (citation omitted).

REASONS FOR GRANTING THE WRIT

This Court should grant review of the decision

below because it conflicts with decisions of this

Court and other Circuits, and because it

undermines federal preemption across a wide

variety of areas. This Court has made clear that the

market participant exception applies only when a

local government is not exercising its regulatory

authority, but is instead procuring goods and

services in the marketplace just as any private

actor could: If the government hires a company to

complete a project, it can contract with the

company to adhere to certain labor conditions or

other terms. Because such terms are not

“regulations,” they are typically immune from

federal preemption. As this Court and many

circuits have recognized, however, the government

12

cannot claim “market participant” immunity when

it imposes freestanding rules on companies that it

has not hired to provide any good or service.

In the decision below, the Ninth Circuit

distorted the market participant exception beyond

all recognition. It held that, simply because the

City purportedly has a “proprietary interest” in

running LAX airport in a competitive manner, it

enjoys complete immunity from federal preemption

whenever it impose rules that are designed to avoid

“service disruptions” at the airport. Pet. App. 2a,

10a, 13a. Thus, the court concluded that the City

has a free hand to impose a labor peace rule on any

company that operates at the airport—and the rule

is entirely exempt from federal preemption—even

though the City has never hired that company to

provide any good or service.

The Ninth Circuit’s radical expansion of the

market participant exception not only conflicts with

the precedent of this Court and other Circuits, but

has sweeping implications for federal preemption in

the airline industry and beyond. Under the court’s

reasoning, state and local governments can now

effectively defy federal labor law and impose their

own patchwork of laws regulating the labor

relations of virtually any private company that

does business at an airport, or anywhere else where

the government can claim to be a “market

participant” because it has a “proprietary” interest

in avoiding “service disruptions.” For example, the

City could disregard the NLRA and the RLA and

construct an entirely new set of bargaining rules

that the airlines themselves must follow when

13

negotiating terms and conditions of employment at

the airport. As long as these new rules were aimed

at avoiding “service disruptions,” the Ninth

Circuit’s rationale would treat them as fully

exempt “market participant” activity. Moreover,

because the Ninth Circuit expressly applied its

“market participant” analysis to the ADA, the City

could also adopt a series of new rules with a direct

bearing on airline “prices, routes, and services,”

which would again be entirely exempt from federal

preemption—a result squarely at odds with the

ADA. Indeed, because the market participant

exception applies equally to virtually all types of

federal preemption, the Ninth Circuit’s decision

will inevitably expand well beyond the realm of

labor and airline regulations.

This is not a new issue, either for the City or

the Ninth Circuit. As Judge Tallman’s dissent

observed, this is not the first time that “Los

Angeles has been in trouble . . . for flouting federal

labor laws.” Pet App. 26a. Indeed, this Court has

twice before reversed Ninth Circuit decisions

finding creative ways to insulate the City from

federal preemption on facts strikingly similar to

those here. See American Trucking Ass’ns, Inc. v.

City of Los Angeles, 569 U.S. 641, 650-51 (2013);

Golden State, 475 U.S. at 615. Yet the City and the

Ninth Circuit continue to ignore this Court’s

rulings in this area. Accordingly, this Court’s

review is urgently needed once again to enforce the

authority of its precedents, to maintain uniformity

among the Circuits, and to correct the Ninth

14

Circuit’s unrelenting efforts to undermine basic

principles of federal preemption.

I.

THE

NINTH

CIRCUIT’S

DECISION

DEFIES THIS COURT’S PRECEDENTS

This Court’s cases make clear that the market

participant exception applies only when a

government entity acts not as a regulator but as a

commercial actor by “enter[ing] a contract” to

acquire goods or services “just as a private party

would.” American Trucking, 569 U.S. at 649-50. “To

the extent that a private purchaser may choose a

contractor based upon that contractor’s willingness

to enter into a [labor] agreement, a public entity as

purchaser should be permitted to do the same.”

Bldg. & Constr. Trades Council v. Associated

Builders etc., 507 U.S. 218, 231 (1993) (“Boston

Harbor”) (emphasis in original). Thus, for example,

the exception may apply if a city hires a

construction company to complete a public project,

or hires a taxi company to transport city employees.

See Boston Harbor, 507 U.S. at 227. In such

situations, the city may contract with the company

to abide by certain labor practices or other

commercial terms, and those terms are

presumptively immune from federal preemption

because they are not “regulations.” Id.

At the same time, this Court has made clear

that the market participant exception does not

apply when a city imposes requirements on a

private company from which it is not purchasing

any good or service. The exception provides a shield

against preemption only when the government

“expend[s] . . . its own funds in entering into

15

[commercial] contracts.” White v. Massachusetts

Council of Constr. Employers, Inc., 460 U.S. 204,

214-15 (1983). The critical inquiry is thus whether

the city is truly using its commercial relationship

with the company to negotiate the terms of service

that the company will provide for the city; or

whether the city is regulating the company by

imposing rules that it must follow when providing

services for others. As this Court has stated,

whether

“employees

of

contractors

and

subcontractors on public work projects [a]re or [a]re

not, in some sense, working for the city [is] crucial

to [the] analysis.” United Bldg. & Constr. Trades

Council of Camden County & Vicinity v. City of

Camden, 465 U.S. 208, 219 (1984) (emphasis

added).

Tellingly, this Court has never suggested that

the market participant exception can apply outside

of the narrow circumstance when a government

entity contracts with a private company to provide

some good or service. Instead, this Court has

emphasized that even when a private company is

hired to perform some job for the government, any

labor condition must be “specifically tailored to

[the] particular job,” and aimed “to ensure an

efficient project that would be completed as quickly

and effectively as possible at the lowest cost.”

Boston Harbor, 507 U.S. at 232. This requirement

of narrow tailoring is essential to maintain “the

distinction between government as regulator and

government as proprietor.” Id. at 227. It ensures

that the government is truly using its commercial

16

market power to contract for terms, rather than

using its regulatory power to impose rules.

Here, the Ninth Circuit’s decision conflicts

directly with this Court’s controlling precedent. The

Ninth Circuit held that the City qualifies for the

market participant exception—and thus enjoys

complete immunity from federal preemption when

imposing certain labor rules on private companies

at LAX—even though the City has never purchased

any good or service from them.

The Ninth Circuit’s decision conflicts most

starkly with this Court’s decision in American

Trucking. There, the City of Los Angeles was the

owner and operator of the Port of Los Angeles, and

it imposed certain rules on trucking companies that

transported cargo for terminal operators at the

Port. The Ninth Circuit upheld the City’s

regulation under the market participant exception

because the City “directly participates in the

market as a manager of Port facilities,” and it has a

“business interest” in the trucking services to

support the City’s competitive position vis-à-vis

other ports and to ensure cargo movement.

American Trucking Ass’ns, Inc. v. City of Los

Angeles, 660 F.3d 384, 400-01 (9th Cir. 2011). Thus,

even though the City did not purchase the trucking

services, the Ninth Circuit held that there was no

preemption because “such services are an integral

part of Port business.” Id. at 401. This is precisely

the same rationale used by the Ninth Circuit

majority here.

This Court reversed, holding that the City

“exercised classic regulatory authority” by using its

17

sovereign power to impose rules directly on private

companies that were providing services to other

private companies at the port—not to the City

itself. American Trucking, 569 U.S. at 650.

Although the City attempted to portray itself as a

commercial actor with a right to require “contracts”

determining which companies could operate at the

Port, this Court flatly rejected that argument. The

“contracts” between the City and the trucking

companies “d[id] not stand alone, as the result

merely of the parties’ voluntary commitments.” Id.

Rather, the City was regulating port operations

and “wielding coercive power over private parties”

by determining who was permitted to do business

at the public port. Id. For that reason, the City fell

on the wrong side of the “line between a

government’s exercise of regulatory authority and

its own contract-based participation in a market.”

Id. at 649.

This case involves the same situation

addressed in American Trucking, except here the

setting is a public airport instead of a public sea

port. The City is not purchasing services from the

airlines or the companies that service them.

Instead, the City is using licensure requirements to

impose labor rules on private companies that do

business among themselves at the airport.

Accordingly, under the clear holding of American

Trucking, the City is not acting as a “market

participant” but as a regulator: It is setting rules to

govern how companies are permitted to operate at

a public airport, and such regulations cannot be

immune from federal preemption regardless of

18

whether they are designed to avoid “service

disruptions.”

The Ninth Circuit’s decision likewise conflicts

with this Court’s decision in Golden State Transit.

In that case, the City of Los Angeles conditioned

the renewal of a taxi company’s operating franchise

on its “reaching a labor agreement with” a union.

475 U.S. at 609-11, 619. After the Ninth Circuit

upheld the City’s action, this Court reversed.

Although the City had a proprietary interest in

operating its public streets and ensuring the

efficient provision of public transportation, this did

not suffice to shield the city from federal

preemption. The City could “not ensure

uninterrupted service to the public” by imposing

labor conditions on “a privately owned local transit

company.” Id. at 617-18. Crucially, the City was not

hiring the taxi company to provide any service, but

was regulating how the company could operate in

providing services to others on the City’s public

streets. Id. at 618.

In a subsequent decision, this Court

emphasized that Golden State would have been a

“very different case . . . . had the city of Los Angeles

purchased taxi services from [the taxi company] in

order to transport city employees,” because then

the City would have had a true commercial interest

in setting labor terms to avoid “serious

interruptions in the services the city had

purchased.” Boston Harbor, 507 U.S. at 227-28

(emphasis added). That precise distinction is what

is at issue in the present case: The City has not

hired any airline or other company to provide

19

services to the City itself at LAX, but is instead

imposing rules on companies that provide services

to each other at the airport. That is the antithesis

of acting as a “market participant” under this

Court’s exception.

In the decision below, the panel majority stated

that it “does [not] matter” that the City here is “not

[ ] a party to the contracts” that are subject to the

labor peace rule, because the same was supposedly

true in Boston Harbor. Pet. App. 12a n.6. But that

case was starkly different, because there the City of

Boston had hired a private company to perform a

project, on the condition that the company and its

“subcontractors” adhere to certain labor terms. 507

U.S. at 222. Thus, while the City was technically

not a direct party to the contract with the

subcontractors, it was nonetheless using its

commercial power to negotiate the contractual

terms they would follow when providing a service

to the City in a market transaction, which qualified

the City for the market participant exception. In

the present case, by contrast, the City of Los

Angeles is not negotiating terms in the course of

procuring any service from the airlines or the

airline service providers, but is instead using its

raw licensure power to impose labor rules on them.

In short, this Court’s cases plainly hold that

the market participant exception is strictly limited

to situations where the government acts like a

private party by procuring some good or service in a

market transaction. That is directly contrary to the

decision below, which vastly expands the exception

to immunize local rules from preemption whenever

20

they are designed to serve the government’s

interest

in avoiding

“service

disruptions,”

regardless of whether they are part of any market

transaction.

II. THE DECISION BELOW CONFLICTS

WITH THE DECISIONS OF FIVE OTHER

CIRCUITS

The Ninth Circuit’s radical expansion of the

market participant exception brings it into conflict

with several other circuits.

1. The most obvious conflict is with Metro.

Milwaukee Assn. of Commerce v. Milwaukee Cnty.,

431 F.3d 277 (7th Cir. 2005) (Posner, J.), which

held that federal labor law preempted a county

ordinance that “require[d] firms . . . to negotiate

‘labor peace agreements’ with any union that wants

to organize employees.” Id. at 278. The Seventh

Circuit specifically held that the market

participant exception did not apply because the

labor peace rule was not tailored to “any spending

or procurement activity of the County.” Id. at 279.

The court explained that the market participant

exception is limited to vindicating the principle

that “[t]he state has the same interest as any other

purchaser in imposing conditions in contracts with

its sellers that will benefit the state in its capacity

as a buyer.” Id. at 278 (emphasis added).

Under the Seventh Circuit’s rule, the decision

below would have come out the other way because

the City did not establish the labor peace rule at

LAX “in its capacity as a buyer.” Id. Indeed, the

rule has no connection to the City’s buying

anything from the companies that are subject to the

21

rule, and thus it cannot be characterized as a mere

commercial term in a market transaction. That

explains why the rule is a “regulation” subject to

federal preemption, as opposed to exempt “market

participant” activity.

In the decision below, the panel majority

attempted to distinguish Metro Milwaukee on the

ground that the city ordinance there “imposed

several additional conditions favorable to union

organizing and did little to avoid service

interruptions.” Pet. App. 16a. But under the

Seventh Circuit’s rule (as under this Court’s

precedent), whether a rule is exempt from federal

preemption under the market participant exception

does not turn on whether it is “favorable to union

organizing” or is aimed at preventing “service

disruptions.” Instead, it turns on whether the city

is acting “in its capacity as a buyer,” 431 F.3d at

278, rather than a regulator.

2. Like the Seventh Circuit, the Third Circuit

has recognized that “[t]he market participant

exception . . . is rooted in the principle that a

government, just like any other party participating

in an economic market, is free to engage in the

efficient procurement and sale of goods and

services.” Associated Builders & Contractors, Inc. v.

Jersey City, 836 F.3d 412, 417-18 (3d Cir. 2016). In

that case, the city had a policy giving favorable

treatment to private developers and contractors if

they reached specified agreements with labor

unions. The court rejected the city’s claim that this

policy should be shielded from federal preemption

under the market participant exception. The city

22

was not a “market participant” because it did “not

purchase or otherwise fund the services of [the]

private developers or contractors . . . or the goods

used in those projects.” Id. at 419.

The same is true in the present case. The City

does not “purchase or otherwise fund” the services

provided by airline service providers at LAX. On

the contrary, the City has imposed a licensing

regime, and the service providers must pay a fee to

the City to obtain and maintain the license

required to do business at LAX. Pet. App. 126a–

128a. The City thus is not acting as a market

participant negotiating voluntary terms with the

companies, but is instead acting as a regulator

imposing a labor rule on them as a condition of

their license to do business with other companies at

the airport.

3. The Fifth Circuit also has recognized that

the market participant exception was created to

protect “state and local governments’ purchasing

efforts,” because in “order to function, government

entities must have some dealings with the market.”

Cardinal Towing & Auto Repair, Inc. v. City of

Bedford, Tex., 180 F.3d 686, 692 (5th Cir. 1999)

(emphasis added). The Fifth Circuit has thus held

that a city is a “market participant” when it “act[s]

as a typical private party would” by hiring a towing

company to provide service for the city itself. Id. at

693. But the court has simultaneously recognized

that a city is not acting as a market participant

when it imposes rules on towing companies that

other parties have hired to perform services for

them. Stucky v. City of San Antonio, 260 F.3d 424,

23

436 (5th Cir 2001), abrogated on other grounds, 536

U.S. 936 (2002). The court has also specifically

recognized that the market participant exception

does not apply to “licen[s]ing schemes.” Cardinal

Towing, 180 F.3d at 694 & n.2. That holding is

squarely at odds with the Ninth Circuit’s decision

in the present case.

4. The Ninth Circuit’s decision below also

conflicts with the D.C. Circuit’s decision in

Chamber of Commerce v. Reich, 74 F.3d 1322 (D.C.

Cir. 1996), which involved an order purporting to

guarantee a company’s right to hire replacements

for striking workers. The court found the order

preempted by the NLRA, holding that the market

participant exception is available only when the

“government acts as a purchaser of goods and

services.” Id. at 1334. See also Building and

Construction Trades Department v. Allbaugh, 295

F.3d 28, 34-35 (D.C. Cir. 2002). (framing the

market participant test as whether the government

is acting “just as a private contractor would act” by

hiring a company to provide goods or services on

voluntary commercial terms, or is instead using its

regulatory power to impose terms “unrelated to the

[private] employer’s performance of contractual

obligations” to the government). Here, the labor

peace rule imposed by the City is unrelated to the

airline service providers’ performance of any

contractual obligations to the City, and thus it does

not fall within the D.C. Circuit’s “market

participant” test.

5. The Sixth Circuit, too, recognizes that the

market participant exception is based on the state’s

24

commercial prerogative to “decide that public

money should not be used for [certain] projects,”

“[j]ust as a private purchaser can choose not to”

spend its money in the same way. (Mich. Bldg. &

Constr. Trades Council v. Snyder, 729 F.3d 572,

579 (6th Cir. 2013).) Here, there is no “public

money” being spent by the City on the service

providers that are subject to the labor peace rule;

their sole customers are the airlines, not the City.

III. THE

QUESTION

PRESENTED

EXCEPTIONALLY IMPORTANT

IS

Contrary to all of the cases discussed above, the

Ninth Circuit held that the market participant

exception gives the City a safe harbor to impose

whatever labor rules it wants on companies that

operate at LAX, even if it does not purchase any

good or service from them, as long as the rules are

designed to avoid “service disruptions.” That

sweeping logic badly distorts the scope of the

market participant exception, and it has startling

implications for federal preemption in the airline

industry and beyond.

1. Properly understood, the market participant

exception is a natural reflection of the principle

that federal preemption applies only to state and

local regulation, and thus does not interfere with

the commercial activities of state and local

governments. In the narrow circumstance when a

local government is not exercising its power to

regulate, but is instead engaged in a commercial

transaction by procuring some good or service in

the marketplace, the terms of the transaction are

generally immune from federal preemption. Thus,

25

for example, if the City contracted with a company

to repave the LAX runways, or to restripe the

parking lots, or to provide any other service for the

City, then the terms of that contract would be

eligible for the market participant exception: The

City could then require the service providers it

hired to comply with all sorts of labor rules that

would otherwise be preempted by federal labor law

if they were imposed in the form of regulations.

In the present case, however, the City

concededly does not purchase any good or service

from any of the companies that are subject to the

labor peace rule at LAX. It does not contract with

them to provide anything to the City at all. Instead,

it simply grants them licenses that allow them to do

business at the airport, where they provide services

to “airlines,” Pet. App. 86a—which themselves do

not provide any service to the City, but rather to

private passengers.

Rather than apply the market participant

exception as designed by this Court and applied by

other Circuits, the majority of the panel below

relied on a rationalization repeatedly rejected by

this Court. Because, it said, the City was simply

seeking to avoid “service disruptions” at its airport,

it was a participant in the general market for air

transportation, and that is enough for its labor

peace rule to be immune from preemption.

The logic of that decision will dramatically

undermine federal preemption across a wide range

of areas. For starters, it will obliterate the

preemptive force of federal labor law in any

situation where a state or local government can

26

claim that it needs to impose labor rules on private

companies to avoid “service disruptions” in some

facility or enterprise that the government owns or

operates. For example, for companies that operate

at public train stations, local governments could

impose a particular process for union recognition,

mandate recognition of a union, or even require

specific bargaining terms, all in the name of “labor

harmony.” Likewise, state and local governments

could impose the same type of rules on private

shipping and trucking companies that operate at

public sea ports, effectively overturning American

Trucking, 569 U.S. 641. And because local

governments own and operate public streets, they

could impose all manner of labor regulations on

private bus and taxi companies that operate there,

effectively overturning Golden State, 475 U.S. 608.

The Ninth Circuit’s decision would also hobble

the preemption clause of the Airline Deregulation

Act (ADA), which is expressly designed to preempt

state and local regulations that are “related to a

price, route, or service” of an airline. 49 U.S.C.

§ 41713(b)(1). Under the Ninth Circuit’s rule, local

governments will have wide latitude to ignore the

preemptive force of the ADA and impose all

manner of rules directly related to the “prices,

routes, and services” of airlines. As long as the

rules further the airport’s “proprietary interest” in

avoiding service disruptions, the Ninth Circuit’s

decision would treat them as “market participant”

activity that is immune from federal preemption no

matter how much they might fly in the face of

federal law.

27

Moreover, because the same market participant

exception applies widely to a variety of different

types of federal preemption, the Ninth Circuit’s

rationale will have an enormously broad reach even

beyond the context of labor law and the ADA. See,

e.g., Allied Constr. Indus. v. City of Cincinnati, 879

F.3d 215, 220 (6th Cir. 2018) (applying market

participant exception to “ERISA preemption.”).

2. Contrary to the Ninth Circuit’s decision, the

purpose of the “proprietary interest” test is to limit

the scope of the market participant exception, not

to expand it. Specifically, this Court has recognized

that even when a state government is procuring

goods or services, it still may fail to qualify as a

market participant if it goes beyond its

“proprietary” interests and instead leverages its

spending power to serve its “regulatory” interests.

Thus, in Gould, this Court held that the State of

Wisconsin did not qualify for the market

participant exception when it refused to enter

contracts with companies that it deemed “repeat

violators” of federal labor law. Gould, 475 U.S. at

283. Even though this was commercial conduct that

“private purchasers” could theoretically engage in,

this Court explained that States are “subject to

special restraints,” and thus the State’s boycott

policy was treated as a form of “regulation” subject

to preemption. Id. at 290. To preserve “the

distinction between government as regulator and

government as proprietor,” any labor conditions

that the government imposes on companies it hires

cannot be treated as exempt “market participant”

activity unless the conditions are “specifically

28

tailored to [the] particular job,” and aimed “to

ensure an efficient project.” Boston Harbor, 507

U.S. at 227, 232.

The Ninth Circuit ignored this crucial context

and held that the market participant exception

applies even when the government is not procuring

any goods or services, as long as it is imposing rules

on companies to serve its own “proprietary”

interests. The court thus ignored the fact that the

“proprietary interest” doctrine is a means of

cabining the procurement power, by ensuring that

state and local governments are truly serving their

proprietary interests when they are engaged in

commercial transactions. It prevents them from

leveraging their procurement power to serve their

broader regulatory interests. It does not authorize

them to impose freestanding rules on companies in

order to serve their proprietary interests wholly

outside of the procurement context.

3. In sum, the decision below is yet another

example of the Ninth Circuit defying this Court’s

precedent to allow the City of Los Angeles to evade

federal preemption, just as it did in Golden State

and American Trucking. The decision presents an

exceptionally important issue because its rationale

will have far-reaching implications for federal

preemption across a wide range of areas. Certiorari

is thus warranted to avoid these sweeping

consequences and to counter the Ninth Circuit’s

repeated attempts to undermine this Court’s

preemption doctrine.

29

CONCLUSION

For these reasons, this Court should grant the

petition for certiorari.

30

Respectfully submitted,

Michael M. Berger

Matthew P. Kanny

George David Kieffer

Manatt, Phelps & Phillips

11355 West Olympic Blvd.

Los Angeles, CA 90064

Robert S. Span

Douglas R. Painter

Steinbrecher & Span LLP

445 South Figueroa St.

Los Angeles, CA 90071

Douglas W. Hall

Counsel of Record

Anthony J. Dick

JONES DAY

51 Louisiana Ave., NW

Washington, DC 20001

(202) 879-3939

DWHall@JonesDay.com

David L. Shapiro

1563 Mass. Ave.

Cambridge, MA 01238

Counsel for Petitioners