Opposition Brief — Sanders v. Brown (No. 07-995)

; ee

, FILED

No. me, APR 2 - 2008

OFFICE OF THE CLE

IN THE SUPREME COURT, us

Supreme Court of the Gnited States

STEVE SANDERS,

individually and as class representative,

Petitioner,

v.

EDMUND G. BROWN, in his official capacity as

Attorney General of the State of California;

PHILIP Morris USA INC.; R.J. REYNOLDS TOBACCO Co.;

BROWN & WILLIAMSON TOBACCO CORP.;

and LORILLARD TOBACCO Co.,

Respondents.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

BRIEF FOR THE RESPONDENT

MANUFACTURERS IN OPPOSITION

Darryl Snider E. Joshua Rosenkranz

dames F. Speyer Counsel of Record

Eric Shapland Kenneth L. Chernof

Leo D. Caseria HELLER EHRMAN LLP

HELLER EHRMAN LLP Times Square Tower

333 South Hope Street, 7 Times Square

39th Floor New York, New York 10036

Los Angeles, California 90071 (212) 832-8300

Counsel for Respondent Philip Morrts USA Inc.

(Additional Counsel Listed On Inside Cover)

Douglas L. Wald

ARNOLD & PORTER LLP

555 Twelfth Street, NW

Washington, DC 20004-1206

(202) 942-5000

Counsel for Respondent

Philip Morris USA Inc.

- Irving Scher

Stephen R. Patton

Barack S. Echols

KIRKLAND & ELLIS LLP

200 East Randolph Drive

Chicago, Illinois 60601-6636

(312) 861-2000

Counsel for Respondents

Brown & Williamson Tobacco

Corporation and R.J. Reynolds

Tobacco Company

Peter D. Isakoff

WEIL, GOTSHAL & MANGES LLP WEIL, GOTSHAL & MANGES LLP

767 Fifth Avenue

New York, New York 10153

(212) 310-8000

Counsel for Respendent

Lorillard Tobacco Company

1300 Eye Street, NW,

Suite 900

Washington, DC. 20005

(202) 682-7144

Counsel for Respondent

Lorillard Tobacco Company

QUESTIONS PRESENTED

Petitioner invokes the Sherman Act to challenge

the Master Settlement Agreement (“MSA”)—a

landmark settlement between 46 states and respon-

dent tobacco companies—as well as related..state

statutes.- These 46 states. and every other party to.

the MSA agree that the MSA and those statutes do

_ not authorize tobacco companies to fix prices or

output or induce the companies to price their prod-

ucts in lockstep. The questions presented are:

1. Did the Court of Appeals correctly hold that

the Sherman Act does not preempt the MSA-related

state statutes because the statutes do not. mandate

or authorize conduct that is an antitrust violation? |

2. Did the Court of Appeals correctly hold that

respondent tobacco companies are immune from

liability under the Noerr-Pennington doctrine when

(as petitioner concedes) the companies enjoy such

immunity for entering into the MSA and the com-

plaint does not allege any other agreement in re-

straint of trade?

3. Did the Court of Appeals correctly hold that

the State of California is immune from liability un-

der the “state action” doctrine because the MSA and

related statutes do not authorize any antitrust viola-

tion?

il

RULE 29.6 STATEMENT

Respondent Philip Morris USA Inc. is a subsidi-

ary of Altria Group, Inc., which is the only publicly

held company that owns 10% or more of Philip Mor-

ris USA Inc.’s stock.

All of the stock of Respondent R.J. Reynolds

Tobacco Company is owned by R.J. Reynolds To-

bacco Holdings, Inc., all of whose stock in turn is

owned by Reynolds American Inc. Reynolds Ameri-

can Inc. is the only publicly held company that owns

10% or more of the stock of R.J. Reynolds Tobacco

Holdings, Inc.

Respondent Brown & Williamson Tobacco Cor-

poration (now known as Brown & Williamson Hold-

ings, Inc.) (“Brown & Williamson”) is wholly owned

by BATUS Tobacco Services, Inc., which is a non-

public holding company. Brown & Williamson’s ul-

timate parent corporation is British American To-

bacco, p.l.c., which is a publicly held United King-

dom corporation. All other indirect parent compa-

nies of Brown & Williamson are non-public compa-

nies.

Respondent Lorillard Tobacco Company is

wholly owned by Lorillard, Inc., which is wholly

owned by Loews Corporation. Shares of Loews Cor-

poration are publicly traded. Loews Corporation

has also issued Carolina Group stock, a publicly

traded tracking stock. Other direct and indirect

subsidiaries of Loews Corporation that are not

wholly owned by Loews Corporation but have secu-

rities that are publicly traded are CNA Financial

Corporation, Diamond Offshore Drilling, Inc.,

Boardwalk Pipeline Partners, LP, and Texas Gas

‘Transmission, L.L.C.

ii

TABLE OF CONTENTS

Page

EF ee RIE TODD cncsecsacccccccsscncensssonnssacnssinnanss i

BREF he I EPO cecscsnnscescesescscassnccnsbasscocncaccvaes ii

eRe TE NEO wincsiancncscesncenécsiasssesnncsccnsinaceases ill

PR GPE PRA UGE Biv snsnsscvsscnssicnssncnscisnnncissaccconss V

ai ianieicin cit nindinsuntnsencegnaahidanerioiabianane 1

i IN eked tik csitcnstbicnaindiddaciisatiinensctidsstdecessineias 4

The MSA and Implementing Legislation................ 4

Petitioner’s Allegations and Legal Theory ............. 6

SEO LE PERI, i viicsiciccisidcinsidesssscnsoicccassssens 9

The District Court Dismisses the Complaint |

and the Court of Appeals Affirms.................... 14

REASONS FOR DENYING THE PETITION.............. 17

I. THERE IS NO CIRCUIT CCNFLICT ON ANY

OF THE QUESTIONS PRESENTED. ................... 17°

A. There Is No Circuit Conflict on Whether

the Sherman Act Preempts the MSA.............. 18

B. There Is No Circuit Conflict on Parker

SOY cciesietiasshan cist peileehanabaivnivomiscrenave 22

C. There Is No Circuit Conflict on Noerr-

Pennington IMMuNIty. ...........seeeeeeeseeeeeeeeseees 24

II. THIS PLEADING CASE RAISES NO ISSUE

OF NATIONAL IMPORTANCE. ...............c.cceeee0ee 26

Il]. THE COURT OF APPEALS’ ANALYSIS IS

CORRECT AND FAITHFULLY APPLIES

THIS COURT'S PRECEDENTS. ...................ccce00s 30

PMI nish enradnishesiipitiiasivadeaduhnsnahnapaniiationdaih 35

V

TABLE OF AUTHORITIES

Page(s)

CASES

324 Liquor Corp. v. Duffy,

I ID ns ascccccnascecanscaseseeds 10, 11, 12, 32

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

263 F.3d 239 (3d Cir. 2001), cert. denied, 534

Oe 18, 22, 23, 24

Allied Tube & Conduit Corp. v. Indian Head, Inc.,

a o scaaaneasontionnecee 17

Bell Atl. Corp. v. Twombly,

Be Ss Pe GIT Pa nccccncecterscscocccccccoess 3, 8, 21, 26

Brooke Group Ltd. v. Brown & Williamson

Tobacco Corp.,

i rennedanopnsesnensedeceosase 8

Cal. Motor Transp. Co. v. Trucking Unlimited,

REESE TY A 13

Cal. Retail Liquor Dealers Ass’n v. Midcal

Aluminum, Inc.,

an sas cuaceiencscnasssoednesees 12, 32

Cantor v. Detroit Edison Co.,

os cssinnencecsocncconsecs 34

City of Columbia v. Omni Outdoor Adver.,

cs scanesennssecscscons 2

Eastern R.R. Presidents Conference v. Noerr

Motor Freight, Inc.,

Teen cc nesnnmnacensnads 13

Exxon Corp. v. Governor of Md.,

os ccscosnmpasoonanasndenecs 9

Fisher v. City of Berkeley,

BFS, UB. BBO CABG) ccccincsscscssesecseccsccsaces 9, 10, 11, 32

Forces Action Project LLC v. California,

No. 99-0607 (N.D. Cal. filed Jan. 16, 2002)........ 24

Freedom Holdings, Inc. v. Spitzer,

957 F.30 205 (2d Cir. 2004) ................cccceess passim

Freedom Holdings, Inc. v. Spitzer,

447 F. Supp. 2d 230 (S.D.N.Y. 2004), affd,

408 F.3d 112 (2d Cir. 2005)..............008 3, 19, 20, 31

FTC v. Ticor Title Ins. Co.,

Be ND sitininecessecentcensbncsonsccbiniisasinns 11, 12

Grand River Enters. Six Nations Ltd. v. Beebe,

418 F. Supp. 2d 1082 (W.D. Ark. 2006),

appeal docketed, No. 08-1436 (8th Cir. Feb. 26,

I icaiiaen chaste sesh cassia chika nintdlictatnhahdinahsitnnicnedicivinesnin 27

Grand River Enters. Six Nations Ltd. v. Pryor,

No. 02-5068, 2006 WL 1517603 (S.D.N.Y. May

31, 2006), affd, 481 F.3d 60

is I eahcattacdinleniinseninnssnesccensiccinsanssonces 20, 31

Greenwood Utils. Comm’n v. Miss. Power Co.,

751 F.2d 1484 (5th Cir. 1985)..............cccccscsceseceees 34

Hise v. Philip Morris Inc.,

208 F.3d 226 (10th Cir.), cert. denied,

rT iseisscncsncadcncensencnnnsecesssacnsns 18, 24

Hoover v. Ronwin,

aia iicntnddaicsnnennsescniinsantinebrciiie’ 28

Kelo v. City of New London,

RE ai aincsennssasasnsdsccnncnsnsunihdersentccects 2

Lorillard Tobacco Co. v. Reilly,

er I I Bi dinbiikdniipcradacunicnatnsdssndatiddinnsnsionbinn 1

Vii

Mariana v. Fisher,

338 F.3d 189 (3d Cir. 2003), cert. denied,

SE Riis AR CAE Do cincdnccccccccasusinsusscacnnce 18, 23, 24

Mass. Food Ass’n v. Mass. Alcoholic Beverages

Control Comm’n,

197 F.3d 560 (1st Cir. 1999), cert. denied, 529

Ds I IS oxi naicicns ens chccuhSeit tiedjapcnabchaicnkinticaios 28

Neo Gen Screening, Inc. v. New England Newborn

Screening Program,

isl ice cnniec kisi sshinnnioneuihesionindigaaxeunioieds 33

New York v. O’Neill,

IE a IED seis ns saninnccndcsieninntasiidendentousbokuansie 29

Parker v. Brown,

317 U.S. 341 (1943)........ \ ssngsiplinackeusidonneieadnaadonaieaal 10, 11

PTI, Inc. v. Philip Morris Inc.,

100 F. Supp. 2d 1179 (C.D. Cal. 2000) ................ 24

Rice v. Norman Williams Co.,

OE ras CIN IE Skttcesitcin inva tnncnisndosecnsias passim

Saenz v. Univ. Interscholastic League,

GBF FE BORG CO CA. BOTS) in vcsvcnsiccscnccccicnccscccees 34

Schwegmann Bros. v. Calvert Distillers Corp.,

rae I A eiihdisis Ginsu ndvacatiannicgiacnamecesies 32

Southern Motor Carriers Rate Conference, Inc.

v. United States,

PE Ri INO ican skinccncise dicndcénanansndenisoesexinniioasntxh 11

Star Scientific Inc. v. Beales,

278 F.3d 339 (4th Cir.), cert. denied, 537 U.S.

aE EN See ae a eRe nT MEPIS 29

Tritent Intl Corp. v. Kentucky,

467 F.3d 547 (6th Cir. 2006) ....................0000. 18, 20

viii

United Mine Workers v. Pennington,

2 EE ee 13

Williamson Oil Co. v. Philip Morris USA,

946 F.2G 1287 (280 Car. BOO8) cncecccccccccccccccccccccccese 9

Xcaliber Intl Ltd., LLC v. Edmondson,

No. 04-0922, 2005 WL 5654220 (N.D. Okla.

May 20, 2005), appeals docketed, No. 05-

5175 (10th Cir. Sept. 29, 2005) & No. 05-5178

Ce i iii cccccssnentecusvctantetece 26, 31

Xcaliber Int'l Ltd., LLC v. Kline,

No. 05-2261, 2006 WL 288705 (D. Kan. Feb.

7, 2006), appeal docketed, No. 06-3061 (10th

a I so seasnnstuiiiaseubiciieneen 27

Youngblood v. West Virginia,

ET SNA EI TD 29

STATUTES & RULES

ee heii cenenscnsccisnccncssdsesnssseceandsionianesatbone 7

rte Oe ID sccndiicccccccsenindsccenccecotedsienmecs 29

Coad, Benes Be PIGE, Coe S BROTG cncececcccccccccccccccecsccocessvecs 6

Cal. Health & Safety Code § 104557 ..........ccccceeeeeeseeeess 6

SN SR Cae BOR iccincrensndnascdsecannnuninsscconssccneccsancssisnseinsiaiiia 17

BRIEF IN OPPOSITION

INTRODUCTION:

Petitioner asks this Court to review the Court of

Appeals’ dismissal of his antitrust challenge to the

Master Settlement Agreement (“MSA”) and related

California statutes. He contends that the circuits

are split on three legal issues. But petitioner has

concocted each purported conflict by misstating the

holdings of the court below and its sister circuits.

The Court of Appeals faithfully applied this Court’s

precedents and properly dismissed the complaint at_

the pleading stage. The petition presents no issue

worthy of review.

As this Court has acknowledged, the MSA be-

tween 46 states and respondent tobacco companies

(the “Manufacturers”) is a “landmark agreement”—

perhaps the most far-reaching and important gov-

ernment-induced settlement in history. Lorillard

Tobacco Co. v. Reilly, 533 U.S. 525, 533 (2001).

Courts in each of the settling states expressly ap-

proved it. Each settling state’s legislature subse-

quently endorsed it by enacting implementing legis-

lation. In light of “our national commitment to fed-

— — — $$

: The petition is cited as “Pet.” and the Appendix to the

petition is cited as “App.” Petitioner’s briefs before the

Court of Appeals are cited as “OB” and “CAg Reply.” The

State of California’s brief before the Court of Appeals and the

amicus brief of the various Settling States are cited as “Cal.

CAg Br.” and “Amici States CA Br.” The Excerpts of Record

before the Court of Appeals are cited as “ER” and the Clerk’s

Record is cited as “CR.”

2

eralism,” City of Columbia v. Omni Outdoor Adver.,

499 U.S. 365, 374 (1991), any one state’s decision to

enter the MSA and enact related laws is entitled to

“great respect.” Kelo v. City of New London, 545

U.S. 469, 482 (2005) (citation omitted). When 46

states each make the independent judgment that the

MSA is in the best interests of its citizens, the result

is even more deserving of respect.

More than 20 lawsuits have been filed seeking

to invalidate the MSA on antitrust grounds, and

none has succeeded. Offering no new allegations or

legal theories that would allow him to prevail where

others have not, petitioner claims that the MSA has

enabled the Manufacturers to charge supracompeti-

tive prices for cigarettes. He asserts that the

Sherman Act preempts the MSA and related stat-

utes, and that the Manufacturers are liable for

treble damages under California’s antitrust law.

The District Court and a unanimous panel of the

Court of Appeals held that petitioner’s suit fails to

state a claim as a matter of law. They held that: (1)

the Sherman Act does not preempt the state laws

petitioner challenges; (2) the Manufacturers are

immune from liability under the Noerr-Pennington

doctrine; and (3) the state is immune from liability

under the Parker state-action doctrine.

Contrary to petitioner’s assertion, there is no

circuit split on whether the Sherman Act preempts

the MSA or related legislation. With respect to the

Parker and Noerr-Pennington immunity doctrines,

petitioner similarly invents a circuit conflict by mis-

stating the analyses and holdings of the Ninth Cir-

cuit and other courts.

3

To be sure, one circuit has taken a different pro-

cedural approach to dealing with a similar com-

plaint in the early stages of the litigation. While the

Ninth Circuit dismissed this case at the outset, the

Second Circuit allowed a similar MSA challenge to

proceed beyond the pleading stage. But this differ-

ent procedural outcome is attributable to differ-

ences in the two courts’ readings of the allegations

of the complaints before them. The Second Cir-

cuit—in a decision rendered before this Court’s rul-

ing in Bell Atlantic Corp. v. Twombly, 127 S. Ct.

1955 (2007)—accepted the complaint’s conclusory

assertions that the MSA and related legislation au-

thorized Sherman Act violations. Freedom Hold-

ings, Inc. v. Spitzer, 357 F.3d 205, 225-26 (2d Cir.

2004). It thus allowed the plaintiffs to try to prove

facts that might lead to preemption and defeat

Parker immunity. 7d. In contrast, the Ninth Circuit

conducted a more critical examination of the com-

plaint, including a review of the actual terms of the

MSA (which was appended to the complaint), and

reached a different conclusion. The Ninth Circuit’s

approach was correct, especially given Twombly’s

emphasis on careful scrutiny of the complaint at the

pleading stage.

This difference—wholly procedural, occurring in

the early stage of litigation, and related to one par-

ticular contract—is simply not the sort of variance

that warrants this Court’s attention. Furthermore,

any possible doubt on that issue is put to rest by the

fact that every court that has examined the merits

of the claim at issue here has reached the same con-

clusion: “The facts as proved ... tell a quite differ-

ent story” from the allegations of anticompetitive

conduct in the plaintiffs’ complaints. Freedom

Holdings, Inc. v. Spitzer, 447 F. Supp. 2d 230, 248

4

(S.D.N.Y. 2004) (emphasis added), affd, 408 F.3d

112 (2d Cir. 2005); see also infra at 31 (collecting

cases). The supposed “conflict” is thus no conflict

at all; it amounts only to the question of when the

antitrust challenge should be rejected: at the plead-

ing stage, or after discovery.

The petition should be denied.

STATEMENT

The MSA and Implementing Legislation

Beginning in the mid-1990s, attorneys general

in dozens of states filed lawsuits against the Manu-

facturers demanding reimbursement for smoking-

related healthcare costs. App. A2-3. After pro-

longed litigation, a failed congressional solution,

and months of negotiations, the Manufacturers and

the states’ attorneys general hammered out a com-

prehensive settlement. Attorneys general or gover-

nors representing 46 states, the District of Colum-

bia, and five U.S. territories (the “Settling States” or

“States”) signed the MSA on behalf of their govern-

ments in 1998. App. A3-4. In each Settling State,

the relevant court approved the MSA in a consent

decree. App. A4. Each Settling State also enacted

implementing legislation. App. A5.

Under the MSA, the Manufacturers paid billions

of dollars to resolve claims of past harm. ER 87-88.

Even more significantly, the MSA requires the

Manufacturers to pay the States billions more an-

nually, in perpetuity. App. A4. The MSA pre-

scribes a formula for calculating the Manufacturers’

annual payments. Id. The payment obligation in-

creases or decreases depending on how many ciga-

rettes a Manufacturer sells. App. A4-5. But regard-

less of how many cigarettes any Manufacturer sells,

aa

mer

)

each Manufacturer pays the same amount for each

cigarette. See Amici States CA Br. 15-17.

The MSA also includes various terms governing

the conduct of the Manufacturers—provisions that

the Settling States have lauded as “significant

measures designed to promote public health and

prevent youth smoking.” Id. at 2; see id. at 6 (“The

MSA has had a dramatic positive impact on public

health, and this will likely increase over time.”).

Among these measures are limits on the advertising,

marketing, and promotion of tobacco products and

the establishment of an independent national foun-

dation to reduce youth smoking. ER 50-73.

The MSA invites any other cigarette manufac-

turer to sign on to the settlement. App. Aq. Manu-

facturers that accept the invitation are known as

“Subsequent Participating Manufacturers,” or

“SPMs,” to distinguish them from the “Original Par-

ticipating Manufacturers,” or “OPMs.” Id. SPMs

agree to the various prospective reforms, including

the obligation to pay a fixed per-cigarette cost, sub-

ject to an exemption: An SPM that signed the MSA

within go days has no obligation to pay to the extent

that its market share in a particular year is less than

its 1998 market share (or 125% of its 1997 market

share, if that is higher). Id. When an SPM crosses

the volume threshold, it incurs a fixed per-cigarette

cost for cigarettes sold above the threshold. ER 110-

12.

Manufacturers that choose not to sign the MSA

are obviously not bound by its terms. But in Cali-

fornia, as in the other Settling States, these “Non-

Participating Manufacturers,” or “NPMs,” do have

obligations that are governed by state statute. App.

B3; A5-6. The California Legislature enacted the

6

“Escrow Statute” (also called the “Qualifying Act”),

which requires each NPM to contribute annually to

an escrow fund based on the number of cigarettes it

sells within the state. Cal. Health & Safety Code

§ 104557. The escrow fund is a security against fu-

ture health-related costs for which an NPM might

be held liable. App. A6. Thus, the fund can be used

only to pay a settlement or a judgment against the

NPM; ‘whatever funds remain in escrow after 25

years revert to the NPM. Id.

The Escrow Statute prescribes precisely, on a

per-cigarette basis, the NPMs’ payment obligation.

To strengthen enforcement of the Escrow Statutes,

California and other states have enacted comple-

mentary legislation (petitioner calls it the “Contra-

band Amendment”) providing that NPM-

manufactured cigarettes may not be distributed

unless the NPM is in compliance with the Escrow

Statute. Cal. Bus. & Prof. Code § 22979; App. A6-7.

Neither the MSA nor the implementing legisla-

tion in any way limits each Manufacturer’s freedom

to set its own prices and output. Indeed, no provi-

sion in the MSA or the legislation purports to gov-

ern prices or output. And, because the payment ob-

ligations impose the same per-cigarette costs on all

Manufacturers, they do not provide either an incen-

tive to limit output or a disincentive to increase

output. Finally, neither the MSA nor the legislation

authorizes participants to enter into any agreement

on prices or output.

Petitioner’s Allegations and Legal Theory

Petitioner filed this lawsuit against the State of

California and the Manufacturers under §1 of the

Sherman Act and California’s antitrust law. Pur-

7

porting to represent all California smokers, peti-

tioner seeks to invalidate what he calls the “anti-

competitive provisions of the MSA” and the imple-

menting legislation, ER 18, claiming they are pre-

empted by the Sherman Act. He also seeks to re-

cover billions of dollars from the Manufacturers for

the alleged “supracompetitive prices” he claims the

purported class was “forced to pay” as a result of the

MSA. OB 10. Specifically, he alleges that the Manu-

facturers raised their prices more than twice the

amount that would have been necessary to offset

their MSA payment obligations. App. A7.

The essential element of a Sherman Act §1

claim is a “contract, combination ... or conspiracy,

in restraint of trade.” 15 U.S.C. §1. But the only

purportedly illegal agreement in restraint of trade

alleged in the complaint is the MSA itself—and peti-

tioner has conceded that he has no claim against the

Manufacturers for negotiating and signing the MSA.

App. B18; CR53 at 48-50.

Unable to point to any actionable agreement in

restraint of trade, petitioner offers the theory that

the MSA allows the Manufacturers to operate in a

way that resembles a “horizontal output cartel,” al-

beit without actually agreeing to raise prices or re-

duce output. See Pet. 12 (MSA “effectively” estab-

lished a “horizontal output cartel”). Specifically, he

alleges that the Manufacturers “have been able to

raise prices with impunity and in lockstep.” OB 10.

Petitioner’s theory is based upon a misreading

of the MSA, a contract to which he is not a party.

He correctly notes that the MSA imposes increased

payment obligations when a Manufacturer’s market

share increases. OB 22. From this he leaps to the

counterfactual conclusion that these increased

8

payment obligations “offset or exceed[]” the in-

creased revenue from any “market share gained

through price competition,” and thereby purport-

edly eliminate any incentive to cut prices. OB 10-11.

Thus, according to petitioner, each Manufacturer

has the “perfect incentive[]” to follow another’s

price hike, in order to avoid the purportedly nega-

tive effect of a market share increase. OB 17. Peti-

tioner calls this theory his “key allegation,” OB 25—

and rightfully so, because without it his claim that

the MSA creates something like an “output cartel”

necessarily collapses.

The 46 States and every other party to the MSA,

however, recognize that the express terms of the

MSA flatly contradict petitioner’s theory. Those

terms make clear that the MSA and the related leg-

islation require manufacturers to pay a flat per-

cigarette cost for every cigarette they sell. This per-

unit cost does not vary with market share. Thus,

‘there is no reason for any manufacturer not to com-

pete on price and gain market share. See Amici

States CA Br. 17 (“[I]t is evident from the face of the

MSA that there is no disincentive for any OPM to

reduce prices or gain market share, [and] no out-

put-limiting ‘cartel.’”).

Petitioner is not arguing that an agreement in

restraint of trade should be inferred on the basis of

the claimed lockstep pricing or other evidence. See

App. A2o. Nor could he. See, e.g., Bell Atl. Corp. v.

Twombly, 127 S. Ct. 1955, 1964 (2007) (parallel

conduct by itself is lawful and does not suggest con-

spiracy); Brooke Group Ltd. v. Brown & Williamson

Tobacco Corp., 509 U.S. 209, 227 (1993) (describ-

ing parallel pricing in the tobacco industry as a “not

... unlawful” consequence of oligopolistic interde-

9

pendence); Williamson Oil Co. v. Philip Morris

USA, 346 F.3d 1287, 1299-1301 (11th Cir. 2003) (af-

firming grant of summary judgment in Sherman Act

§ 1 case against Manufacturers based on alleged

lockstep pricing on ground that no reasonable jury

could conclude that Manufacturers agreed to fix

prices).

If petitioner’s suit succeeded, he would void the

MSA—with dramatic adverse effects on the States.

He would cancel the flow of billions of dollars a year

from the Manufacturers to the Settling States. He

would also eliminate the far-reaching and unprece-

dented advertising and marketing restrictions.

The Legal Framework

Respondents moved to dismiss on the grounds

that petitioner failed to plead a preemption claim .

and that their conduct was immune from liability

under the Noerr-Pennington doctrine and Parker —

state action doctrine. All parties agree on the basic

legal framework on all three issues—as did the Dis-

trict Court, the Court of Appeals, and the two cir-

cuits petitioner invokes in attempting to raise a con-

flict.

1. Preemption. A state statute “is not pre-

empted by the federal antitrust laws simply because

the state scheme might have an anticompetitive ef-

fect.” Rice v. Norman Williams Co., 458 U.S. 654,

659 (1982); accord Fisher v. City of Berkeley, 475

U.S. 260, 264 (1986). Because the “function of gov-

ernment may often be to tamper with free markets,”

the circumstances under which the federal antitrust

laws will preempt a state statute are narrowly cir-

cumscribed. Fisher, 475 U.S. at 264; see Exxon

Corp. v. Governor of Md., 437 U.S. 117, 133 (1978)

‘

10

(“[I]f an adverse effect on competition were ...

enough to render a state statute invalid, the States’

power to engage in economic regulation would be

effectively destroyed.”).

“A party may successfully enjoin the enforce-

ment of a state statute only if the statute on its face

irreconcilably conflicts with federal antitrust pol-

icy.” Rice, 458 U.S. at 659 (emphasis added). Such

an irreconcilable conflict will occur only when the

state law

mandates or authorizes conduct that neces-

sarily constitutes a violation of the antitrust

laws in all cases, or if it places irresistible

pressure on a private party to violate the

antitrust laws in order to comply with the

statute. Such condemnation will follow

under §1 of the Sherman Act when the

conduct contemplated by the statute is in

all cases a per se violation.

Id. at 661; accord Fisher, 475 U.S. at 265; Pet. 15-

16.

2. Parker immunity. The state action immu-

nity doctrine described in Parker v. Brown, 317

U.S. 341 (1943), mirrors the foregoing preemption

principles. For reasons of “federalism and state

sovereignty,” 324 Liquor Corp. v. Duffy, 479 U.S.

335, 343 (1987), the basic rule is that the Sherman

Act does not apply to “state action or official action

directed by a state.” Parker, 317 U.S. at 351. “Ina

dual system of government in which, under the

Constitution, the states are sovereign, save only as

Congress may constitutionally subtract from their

authority, an unexpressed purpose to nullify a

state’s control over its officers and agents is not

11

lightly to be attributed to Congress.” Parker, 317

U.S. at 351. And if a state action enjoys Parker im-

munity, then so do the “regulated private parties”

who operate under the law. Southern Motor Carri-

ers Rate Conference, Inc. v. United States, 471 U.S.

48, 56-57 (1985).

Just as there is a single exception to the rule

against Sherman Act preemption of state action,

there is a single exception to the rule in favor of

state action immunity from the Sherman Act: A

state cannot “give immunity to [private parties] who

violate the Sherman Act by authorizing them to vio-

late it, or by declaring that their action is lawful.”

Parker, 317 U.S. at 351. Sherman Act violations au-

thorized by a state can come in the form of a private

restraint (which petitioner does not allege) or a so-

called “hybrid restraint” (which petitioner does al-

lege).

The classic private restraint is the one this Court

encountered in FTC v. Ticor Title Insurance Co.,

where the state authorized title insurance compa-

nies to enter into a “private pricefixing arrange-

ment[]” among themselves. 504 U.S. 621, 633

(1992). This Court held that the title companies

could not claim immunity for their per se violation

of the Sherman Act, even though state law author-

ized their conduct. Id. at 639-40.

A state creates a hybrid restraint when it grants

a private party “a degree of private regulatory

power” that allows that party to compel other pri-

vate actors to follow its pricing or other “private

marketing decisions.” Fisher, 475 U.S. at 268 (in-

ternal quotation marks omitted); accord 324 Liq-

uor, 479 U.S. at 345 n.8. For example, in 324 Lig-

uor, a state statute authorized alcohol wholesalers

12

to dictate the prices charged by retailers; the pen-

alty for a retailer’s non-compliance was a fine and

loss of its license. 479 U.S. at 340. The Court held

that the Sherman Act preempted the statute because

it created a hybrid restraint that constituted resale

price maintenance in violation of Sherman Act § 1.

Id. at 343-45 & n.8.

A statute or other state action that authorizes or

compels per se Sherman Act violations (such as the

private restraint in Ticor or the hybrid restraint in

324 Liquor) is a necessary precondition to estab-

lishing the inapplicability of Parker immunity, but

is not by itself sufficient. The Court in Midcal held

that even a statute or other state action authorizing

per se Sherman Act violations will be entitled to

Parker immunity, if the restraint is (1) “actively su-

pervised” by the state and (2) “clearly articulated

and affirmatively expressed as state policy.” Cal.

Retail Liquor Dealers Ass’n v. Midcal Aluminum,

Inc., 445 U.S. 97, 105 (1980); see Ticor, 504 U.S. at

633. Similarly, a statute that would otherwise be

preempted by the Sherman Act can be saved if the

state satisfies the Midcal requirements. Fisher, 475

U.S. at 265.

Because petitioner does not allege a private re-

straint (i.e., petitioner “does not allege that the to-

bacco companies have agreed amongst themselves

to fix prices,” App. A8), his sole argument for pre-

emption, and against Parker immunity, is that the

cartel-like results that the MSA supposedly induces

amount to a hybrid restraint. Thus, if the MSA re-

gime does not grant the Manufacturers private

regulatory power that allows them to legally compel

other private parties to follow their pricing or mar-

keting decisions (i.e., does not create a hybrid re-

13

straint), it will be protected by Parker, and will not

be preempted, without the need to inquire whether

it satisfies the Midcal requirements.

3.Noerr-Pennington immunity. Noerr-

Pennington immunity derives in part from the rec-

ognition that laws intended to govern competition

in commercial markets “are not at all appropriate

for application in the political arena.” Eastern R.R.

Presidents Conference v. Noerr Motor Freight, Inc.,

365 U.S. 127, 141 (1961); see also United Mine

Workers v. Pennington, 381 U.S. 657, 669-70

(1965). Rooted also in First Amendment principles,

the doctrine holds that businesses must be free to

“use the channels and procedures of state and fed-

eral agencies and courts to advocate their causes

and points of view respecting resolution of their

business and economic interests vis-a-vis their

competitors,” and the antitrust laws cannot be used

to penalize them for their advocacy. Cal. Motor

Transp. Co. v. Trucking Unlimited, 404 U.S. 508,

510-11 (1972); Noerr, 365 U.S. at 137-38. The im-

munity applies even if the “sole purpose” of a

party’s conduct is to restrain trade or destroy com-

petitors. Noerr, 365 U.S. at 138-40.

Courts have uniformly held that Noerr-

Pennington protects private parties that enter into

litigation settlements with the government, and pe-

titioner has conceded from the start that the Manu-

facturers enjoy Noerr-Pennington immunity for ne-

gotiating and entering into the MSA. App. A16;

B18-19; CR53 at 48-50.

14

The District Court Dismisses the Complaint

and the Court of Appeals Affirms

Applying these settled principles, the District

Court granted the motions to dismiss filed by the

State of California and the Manufacturers. The Dis-

trict Court held that the Sherman Act does not pre-

empt the implementing statutes, App. B14-16; that

petitioner failed to plead a claim that could defeat

Parker immunity, App. B9-14, 20-22; and that peti-

tioner failed to plead a claim that could survive No-

err-Pennington immunity, App. B16-20.

A panel of the Ninth Circuit unanimously af-

firmed the dismissal. Central to the Court of Ap-

peals’ analysis was the decision to go behind the al-

legations and “analyze the MSA”—which was at-

tached to the complaint and was “obviously central

to the claim,” App. A1ii—and evaluate whether peti-

tioner’s allegations about the MSA’s effect bore any

relation to what the MSA actually says.

1. Preemption. The Court of Appeals held

that the implementing legislation is not preempted,

because it is not in “‘irreconcilable’ conflict” with

federal law. App. A12 (quoting Rice, 458 U.S. at

659). The court explained that neither of the stat-

utes plaintiff challenges “explicitly allow[s] price

fixing, market division, or other per se illegal mo-

nopolistic behavior.” Id.

The Court of Appeals rejected petitioner’s ar-

gument that the statutes “create such high barriers

to NPMs’ market entry and ability to price-compete

that they have ‘virtually guaranteed collusion and

monopoly prices.” App. A12-13 (citation omitted).

It explained that the actual terms of the MSA—as

distinguished from petitioner’s characterization of

15

them—conclusively show that there is nothing to

stop any competitor from entering the market and

undercutting the MSA’s participants on price. App.

A13. Although “[t}he statutes ... may cause higher

prices,” the court said,

[njothing . .. forces the NPMs to either peg

their prices to those of participating manu-

facturers, or to refrain altogether from en-

tering the market. If the OPMs really are

charging artificially high prices, and thus

making artificially high profits, an NPM

conceivably could compete on price by

charging a “normal” price and still make a

“normal” profit, even taking the escrow

payment into account.

Id.

2. Parker immunity. The Court of Appeals

held that because the state did not authorize any per

se violations of the Sherman Act, “Parker immunity

protects the state from antitrust liability for enter-

ing into the MSA and for passing the implementing

statutes.” App. A28. |

The court rejected petitioner’s theory that the

MSA and the implementing legislation create a hy-

brid restraint. App. A29. The Court of Appeals ex-

plained that under this Court’s precedent the dis-

tinguishing feature of a hybrid restraint is a “state’s

decision to let producers dictate market conditions

to others.” Jd. Since “the MSA involves no such

delegation of per se illegal power such as the ability

to fix prices,” the court “conclude[d] that the MSA

cannot be classified as a hybrid restraint.” App.

A30.

16

Accordingly, the court held that the state was

not required to engage in active supervision of ciga-

rette prices to obtain immunity, because “the Mid-

cal test does not apply to sovereign state acts, which

are immune from antitrust liability so long as they”

do not “authoriz[e] per se illegal activities” by pri-

vate parties. App. A27.

3. Noerr-Pennington immunity. The Court

of Appeals also held that the Manufacturers are

shielded: by Noerr-Pennington immunity. App.

A15-21.

The court began with the observation that “No-

err-Pennington immunity protects private parties

from liability for negotiating and entering into set-

tlements or other agreements with the government,”

App. A16—a point petitioner had conceded, App.

Bi8. The court then rejected petitioner’s argument

that “even if Noerr-Pennington immunity protects

the defendants from liability for the MSA itself, it

does not protect the tobacco defendants from liabil-

ity for increasing prices after the MSA.” App. Ai8.

The court acknowledged that the Noerr-Pennington

doctrine does not necessarily immunize all conduct

the Manufacturers might have engaged in after the

MSA; if, for example, the Manufacturers had made

post-MSA “agreements ... to engage in the opera-

tion of an output cartel,” such agreements “might

not be immune from liability’ under Noerr-

Pennington. App. A2o (internal quotation marks

omitted). But that possibility was beside the point,

the court held, because petitioner’s complaint “does

not allege any such subsequent agreement in re-

straint of trade.” Id. (emphasis added). Thus, be-

cause the only agreement to restrain trade alleged

in the complaint is the MSA itself—and entry into

17

the MSA is immunized by Noerr-Pennington—the

court concluded that the complaint states no claim

against the Manufacturers. App. A21.

In the end, the court held, “because [peti-

tioner’s] complaint is based on injuries caused di-

rectly by government action”—and not based on

post-MSA activities that would themselves be anti-

trust violations—“Noerr-Pennington immunity

shields the tobacco defendants from liability for the

alleged supracompetitive price increases.” App.

A20-21 (citing Allied Tube & Conduit Corp. v. In-

dian Head, Inc., 486 U.S. 492, 499 (1988)).

REASONS FOR DENYING THE PETITION

The petition should be denied because: (i) it

presents no actual circuit conflict; (ii this case pre-

sents no issue of national importance that warrants

this Court’s intervention; and (iii) the Court of Ap-

peals’ analysis was both correct and consistent with

this Court’s established jurisprudence.

I. THERE IS NO CIRCUIT CONFLICT ON

ANY OF THE QUESTIONS PRESENTED.

Petitioner asserts a trio of circuit conflicts

wrapped up in one case. In truth, there is no con-

flict on any of the three questions petitioner pre-

sents. The various circuits agree on the basic legal

principles. See supra at 9-13. At most, they differ

on how to assess allegations regarding the MSA at

the pleading stage—a case-specific application of

settled law that does not merit this Court’s atten-

tion. See Sup. Ct. R. 10.

In fact, on at least three previous occasions, this

Court has denied certiorari in MSA cases involving

similar antitrust challenges in a similar posture.

18

See Mariana v. Fisher, 338 F.3d 189 (3d Cir. 2003),

cert. denied, 540 U.S. 1179 (2004); A.D. Bedell

Wholesale Co. v. Philip Morris Inc., 263 F.3d 239

(3d Cir. 2001), cert. denied, 534 U.S. 1081 (2002);

Hise v. Philip Morris Inc., 208 F.3d 226 (10th Cir.),

cert. denied, 531 U.S. 959 (2000). This Court’s in-

tervention is even more unwarranted now. In light

of subsequent developments, described below, the

two courts of appeals on the other side of the

claimed conflict would likely assess the complaint

allegations about the MSA as the Court of Appeals

did here, if confronted with a motion to dismiss to-

day.

A. There Is No Circuit Conflict on

Whether the Sherman Act Preempts

the MSA.

Petitioner does not assert that any court of ap-

peals has rejected the preemption principles set

forth above. See supra at 9-10. Indeed, each court

recited exactly the same preemption principles,

starting with the baseline rule that the Sherman Act

does not preempt a state statute unless the “conduct

contemplated by the statute [is] ‘in all cases a per se

violation’ of the federal antitrust laws.” Compare

Freedom Holdings, 357 F.3d at 223 (quoting Rice,

458 U.S. at 661), with Tritent Int’l Corp. v. Ken-

tucky, 467 F.3d 547, 554 (6th Cir..2006) (same),

and App. A12 (same).

Rather than claiming a disagreement over basic

antitrust principles, petitioner focuses on an appli-

cation of these settled principles to a specific—

indeed, unique—context. He asserts that “[t]he de-

cision below expands an existing split ... over

whether the MSA and its related statutes are pre-

empted by federal antitrust law,” because “[t]he

19

Second Circuit .. . has held that . . . the [implement-

ing] statutes are preempted.” Pet. 20-21. He is

wrong. No circuit—indeed, no court at any level—

has ever so held.

The Second Circuit case petitioner invokes is

Freedom Holdings. There, the plaintiffs sued New

York State, seeking to enjoin its implementing legis-

lation on preemption grounds. 357 F.3d at 208-09.

Addressing the allegations at the pleading stage, the

Second Circuit held only that the plaintiffs had “suf-

ficiently alleged a per se violation of the Sherman

Act,” id. at 226 (emphasis added), which meant only

that if “the allegations of the Complaint [were]

proven,” they would have a claim for preemption,

id. at 232 (emphasis added). That holding rested

entirely on the court’s assumption, for purposes of

the motion to dismiss, that the complaint was accu-

rate in alleging that the MSA’s payment obligations

effectively penalized Manufacturers for increasing

output, and therefore gave rise to market behavior

that resembled an output cartel. Id. at 225-26.

That is not the same as a holding that “the stat-

utes are preempted.” Pet. 20-21 (emphasis added).

Subsequent proceedings in the case underscore just

how inaccurate that description is. On remand, the

plaintiffs sought a preliminary injunction against

enforcement of the same implementing legislation

that petitioner challenges here. Freedom Holdings,

Inc. v. Spitzer, 447 F. Supp. 2d 230, 248 (S.D.N.Y.

2004), affd, 408 F.3d 112 (2d Cir. 2005). The dis-

trict court noted that the Second Circuit’s holding

was “based, not on fact, but on plaintiffs’ allegations

of fact that they claim to be able to prove. The facts

as proved, however, tell a quite different story.”

Id. (emphasis added).

20

The district court found that the complaint’s al-

legations about the effects of the MSA were incon-

sistent with the MSA’s express terms. It noted that

the payment obligations of NPMs “are essentially a

flat tax, assessed at a flat rate per cigarette sold”

and that this does not prevent price competition

among cigarette manufacturers. Id. at 258. For this

reason, the court observed that, “contrary to plain-

tiffs’ allegations, [NPMs’] incremental costs do not

rise with their volume of sales, and they are not in

any manner obliged to increase their prices in lock-

step with the OPMs.” Id. at 261; see also Grand

River Enters. Six Nations Ltd. v. Pryor, No. 02-

5068, 2006 WL 1517603 at *8-*9 (S.D.N.Y. May 31,

2006) (finding no likelihood of success on claim

that MSA implementing statutes are preempted by

Sherman Act and denying preliminary injunction),

aff'd on other grounds, 481 F.3d 60 (2d Cir. 2007).

To be sure, the court below and the Sixth Circuit

{in Tritent) rejected at the pleading stage com-

plaints similar to the one the Second Circuit allowed

to proceed beyond the pleading stage. But the dif-

ference was not (as petitioner asserts) about the ul-

timate question of the “validity of the MSA and its

implementing legislation.” Pet. 21. As the Sixth

Circuit pointed out, the Second Circuit simply ac-

cepted as true the complaint’s conclusory, and inac-

curate, allegations concerning the MSA’s operation.

See Tritent, 467 F.3d at 557; Amici States CA Br.

22-24 & n.6. By contrast, the Ninth and Sixth Cir-

cuits scrutinized the MSA more closely, under the

rule that “a court can consider a document on which

the complaint relies if the document is central to the

plaintiffs claim.” App. A11.

21

If a court of appeals ever holds that the MSA

and implementing statutes are preempted, that

might well create a circuit conflict worthy of this

Court’s attention. At a minimum, this Court should

await the Second Circuit’s review of the district

court’s ruling on remand in Freedom Holdings. If

the Second Circuit were to hold that the MSA re-

gime is actually preempted, the Court would at that

point have a basis for determining whether an ac-

tual, meaningful conflict exists. But without such a

hypothetical ruling, the different outcomes in these

cases boil down to the procedural question of how

rigorously a court should scrutinize a complaint’s

allegations concerning a unique contract. That is

not the sort of disagreement that is worthy of this

Court’s attention.

Indeed, the issue is particularly unworthy of re-

view because there is good reason to believe the

Second Circuit would not reach the same result to-

day in light of this Court’s recent guidance in

Twombly. There, this Court reversed the Second ©

Circuit in an antitrust case for sustaining a com-

plaint when the claim was merely “conceivable,” but

not “plausible.” 127 S. Ct. at 1974. Twombly di-

rected the lower courts to do exactly what the Ninth

Circuit did here: carefully scrutinize the complaint

“for enough fact to raise a reasonable expectation

that discovery will reveal evidence” that the plain-

tiffs allegations will be borne out. Id. at 1965. This

Court directed the lower courts to take notice of

“the full contents” of published documents “refer-

enced in the complaint,” id. at 1972 n.13, and assess

allegations of the complaint “in light of common

economic experience,” id. at 1971, just as the Ninth

Circuit did here.

22

B. There Is No Circuit Conflict on

Parker Immunity.

Petitioner also asserts that there is a circuit split

on “whether a state scheme, enabling private anti-

trust violations, that fails the Midcal test nonethe-

less receives Parker immunity.” Pet. 25. No such

split exists, because the Ninth Circuit did not hold

that a state scheme “enabling private antitrust vio-

lations” receives Parker immunity even if it fails the

Midcal test. Instead, the court held that the MSA

and related statutes are entitled to Parker immunity

precisely because they do not enable private anti-

trust violations. As the Ninth Circuit put it: “The

MSA and the implementing statutes authorize no

illegal activity .... We therefore hold that Parker

immunity protects the state from antitrust liability

...” App. A28. Far from. creating a circuit split,

the Ninth Circuit’s view of the law is precisely the

same as the Second’s and Third’s: If the state action

authorizes violations of the Sherman Act, Parker

immunity is available only if the state can satisfy the

Midcal requirements of active supervision and clear

articulation. See Freedom Holdings, 357 F.3d at

226; Bedell, 263 F.3d at 255.

Petitioner is also wrong when he asserts that

“the Second and Third Circuits ... held that the

MSA and those statutes failed the Midcal test and

thus were not entitled to Parker immunity.” Pet. 25

(emphasis in original). This assertion is wrong for

the same reason that petitioner’s similar statement

about preemption is wrong: Both cases were plead-

ing cases, and thus the courts could not possibly

23

have held on the merits that the statutes “were not

entitled to Parker immunity.”2

There is an additional reason why any dis-

agreement on this pleading matter is inconsequen-

tial: The Third Circuit ultimately reached the same

result as the Ninth Circuit here, only on the basis of

a different brand of immunity. In Bedell, the Third

Circuit dismissed the antitrust complaint against

the Manufacturers (the only defendants there) on

Noerr-Pennington grounds—just as the Ninth Cir-

cuit did in this case. 263 F.3d at 250-54. In a sub-

sequent case, the Third Circuit extended that hold-

ing to state officers (the only defendants in that

case). See Mariana, 338 F.3d at 197-200. Thus, if

this case had been filed in the Third Circuit, it not

only would have been dismissed at the pleading

stage, but it would have been dismissed on the

ground that both the state and the Manufacturers

were immune from suit. That is what the Ninth Cir-

cuit did here.3

2 In this case, the Ninth Circuit observed, imprecisely,

that “[t]he Second Circuit in Freedom Holdings and the

Third Circuit in Bedell applied the Midcal analysis and held

that Parker immunity does not protect the state from liabil-

ity for entering into the MSA.” App. A28-29. The court ob-

viously did not mean to say that the other courts had reached

that ultimate merits conclusion, when all they had before

them was the question whether the complaint stated a claim.

3 In Bedell, after holding that Noerr-Pennington barred

the complaint and that “our analysis could end here,” 263

F.3d at 254, the Third Circuit went on to state that based on

the complaint allegations, “defendants are not immune un-

der the Parker immunity doctrine.” Id. at 266. Although the

Third Circuit has characterized this statement as a “holding,”

‘it plainly was not, because it was not necessary to the dispo-

(footnote continued...)

“4

C. There Is No Circuit Conflict on Noerr-

Pennington Immunity.

Every court that has addressed the issue—

including the Third Circuit in Bedell, 263 F.3d at

250-54—has held, on the pleadings, that the Noerr-

Pennington doctrine immunizes the Manufacturers

from liability in an antitrust suit challenging the

MSA.4 Nevertheless, petitioner incorrectly insists

there is a conflict between the Ninth Circuit and the

Second Circuit on two Noerr-Pennington issues.

Petitioner’s main argument is that “the Ninth

Circuit [held], in conflict with the Second Circuit,

that the Noerr-Pennington doctrine applies not

only to protect petitioning activity, but also to im-

munize any resulting anticompetitive legislation .. .

undertaken pursuant thereto.” Pet. i; see Pet. 24.

But the Ninth Circuit did not hold any such thing.

To the contrary, it noted that “defendants here do

not claim that Noerr-Pennington immunity protects

the implementing statutes from preemption,” and

accordingly never decided the issue. App. A21 n.9

(continued from previous page)

sition of the case—indeed, it flatly contradicts that disposi-

tion. Mariana, 338 F.3d at 204 (“Critics may with some jus-

tification regard our discussion of Parker immunity as dic-

tum, and well it may be.”). In any event, the Third Circuit

itself has since questioned the soundness of its Parker analy-

sis. Id. at 203.

4 See App. A15-21, affg App. B18-20; Bedell, 263 F.3d at

250-54, affg 104 F. Supp. 2d 501, 505-07 (W.D. Pa. 2000);

Hise, 208 F.3d 226, affg 46 F. Supp. 2d 1201, 1205-07 (N.D.

Okla. 1999); PTI, Inc. v. Philip Morris Inc., 100 F. Supp. 2d

1179, 1191-97 (C.D. Cal. 2000); Forces Action Project LLC v.

California, No. 99-0607 (N.D. Cal. filed Jan. 16, 2002).

25

(emphasis added). The Ninth Circuit even quoted

the Second Circuit’s view that “the immunity for ad-

vocacy cannot sensibly protect the resultant anti-

competitive legislation from being held to be pre-

empted,” id. (quoting Freedom Holdings, 357 F.3d

at 233), and observed that it “may be correct.” Id.

Petitioner also asserts a conflict, again between

the Ninth Circuit’ and the Second Circuit, over

whether Noerr-Pennington immunizes private

“conduct undertaken pursuant” to such “anticom-

petitive legislation.” Pet. i. But there is no circuit

split with respect to this question either. Contrary

to petitioner’s assertion, the Second Circuit did not

decide whether, or under what circumstances, “No-

err-Pennington immunity ... reach[es] subsequent

... conduct” of a private actor operating under the

state legislation. Pet. 24. The Second Circuit had

no occasion to decide the issue because there were

no private parties in Freedom Holdings; it was a

lawsuit against the state alone. As the Second Cir-

cuit noted, “Here, [the plaintiffs] do not seek to im-

pose liability on private defendants but rather seek

to have the Contraband Statutes declared invalid.”

357 F.3d at 233 (emphasis added).

Moreover, granting certiorari on this question

would be pointless, because the outcome of this case

would be the same regardless of the answer. As the

Ninth Circuit pointed out, the Manufacturers can-

not be held liable for post-MSA conduct because

Noerr-Pennington immunizes their entry into the

MSA and petitioner does not allege any other

agreement in restraint of trade. App. A20-21.

26

II. THIS PLEADING CASE RAISES NO ISSUE

OF NATIONAL IMPORTANCE.

Petitioner argues that his petition raises con-

cerns “of national importance” for three reasons.

Pet. 27-32. While there is no doubt about the im-

portance of the MSA, petitioner is wrong about the

importance of the issues presented at this early

juncture.

1. Petitioner’s main claim of importance is that

this case presents an “intractable division among

the courts of appeals on the validity of the MSA and

its implementing legislation.” Pet. 21; see Pet. 29

(noting “inherent importance of the legality of the

MSA”). But as we have demonstrated above, there

is no such division. No court—district court or

court of appeals—has held the MSA or implement-

ing legislation invalid.

Petitioner conflates the willingness of plaintiffs’

lawyers to roll the dice by filing new lawsuits chal-

lenging the MSA with “[t]he continuing unsettled

legality of the MSA’s funding mechanisms.” Pet. 28.

As this Court recently observed, the willingness of

plaintiffs’ lawyers to bring “even anemic cases” in

hopes of extracting a settlement or hitting a jackpot

is a problem to be addressed, as the Court of Ap-

peals did here, by carefully scrutinizing pleadings.

Twombly, 127 S. Ct. at 1967. It is not a basis to rush

“anemic cases” to this Court.

In any event, other lawsuits unsuccessfully chal-

lenging the MSA and implementing legislation on

antitrust grounds are currently pending before the

courts of appeals. See Xcaliber Int'l Ltd., LLC v.

Edmondson, No. 04-0922, 2005 WL 5654220 (N.D.

Okla. May 20, 2005), appeals docketed, No. 05-

27

5175 (10th Cir. Sept. 29, 2005) & No. 05-5178 (10th

Cir. Oct. 3, 2005); Xcaliber Int'l Ltd., LLC v. Kline,

No. 05-2261, 2006 WL 288705 (D. Kan. Feb. 7,

2006), appeal docketed, No. 06-3061 (10th Cir.

Feb. 16, 2006); Grand River Enters. Six Nations

Ltd. v. Beebe, 418 F. Supp. 2d 1082 (W.D. Ark.

2006), appeal docketed, No. 08-1436 (8th Cir. Feb.

26, 2008). Unlike this case, two of those cases

(Edmondson and Kline) went up on appeal after full

discovery and grants of summary judgment to the

defendants. If a circuit conflict ever developed, and

this Court were interested in deciding the ultimate

question whether the Sherman Act preempts the

MSA, cases in that posture would be better wchicles

than this case.

2. Next, petitioner posits that “the questions

presented here are of general importance to the

proper implementation of antitrust law generally.”

Pet. 29-30. Specifically, he claims that the Court of

Appeals “reached a holding that essentially renders

[Midcal] a dead letter in most circumstance[s].”

Pet. 30. Petitioner portrays the Court of Appeals’

opinion as holding that a state law is always im-

mune—and need not satisfy the Midcal require-

ments—even if it authorizes antitrust violations. Id.

But as we have already demonstrated, the Court of

Appeals held no such thing. It expressly recognized

that Midcal’s requirements must be met when “a

state law ... attempts to ‘give immunity to those

who violate the Sherman Act by authorizing them to

violate it.” App. A21-22, 28 (citation omitted).

Thus, far from purporting to “overrule[]” Midcal,

Pet. 30, as petitioner charges, the Court of Appeals

was entirely faithful to the decision.

28

Petitioner also asserts that “the continued un-

certainty as to the validity of Midcal and its rela-

tionship to [Hoover v. Ronwin, 466 U.S. 558

(1984)], has been a source of confusion in the lower

courts for many years.” Pet. 30-31. If the lower

courts really were confused, one would have ex-

pected petitioner to adduce a long string cite of

cases expressing confusion. There is no string cite,

because tnere is no confusion.

In Hoover, the Court held that the state action

there in issue—a state’s decision about who should

be admitted to practice law in Arizona—was a sov-

ereign act of the state. 466 U.S. at 570-74. Because

the state did not authorize private parties to violate

the Sherman Act—it did not, for example, let a

group of private practitioners dictate which of their

competitors should be admitted to practice law—it

was immune under Parker, without any need to sat-

isfy the Midcal requirements. Id. at 575. Thus,

there is no tension or inconsistency between the two

decisions; Hoover simply involved a particular set

of facts in which it was unnecessary to apply the

Midcal requirements to conclude that immunity was

available. See Mass. Food Ass’n. v. Mass. Alcoholic

Beverages Control Comm’n, 197 F.3d 560, 563-66

(ast Cir. 1999) (“What is centrally forbidden is state

licensing of arrangements between private parties

that suppress competition—not state directives that

by themselves limit or reduce competition.” (em-

phasis in original)), cert. denied, 529 U.S. 1105

(2000).

3. Finally, petitioner asserts that Parker immu-

nity should not apply because when many states—

rather than just one—take similar action, the feder-

alism concerns that animate Parker evaporate. Pet.

29

31. Petitioner has it exactly backwards. If only one

State had decided that the MSA’s terms were in the

best interests of its citizens, the courts would owe

that judgment “special deference ... in our system

of federalism.” Youngblood v. West Virginia, 547

U.S. 867, 874 (2006). When 46 States each make

the same independent judgment, the respect is am-

plified, not muted. Cf. New York’v. O’Neill, 359

U.S. 1, 6 (1959) (uniform laws adopted by 42 states

“increas[es] harmony within the federalism created

by the Constitution”).

The assertion that the MSA “encroaches upon

national authority over a national market,” Pet. 31,

is equally meritless. As the Fourth Circuit has held,

the MSA “does not increase the power of the States

at the expense of federal supremacy and ..., there-

fore, it is not an interstate compact requiring con-

gressional approval under the Compact Clause.”

Star Scientific Inc. v. Beales, 278 F.3d 339, 360

(4th Cir.), cert. denied, 537 U.S. 818 (2002); see id.

(“[T]he [MSA] ‘does not purport to authorize the

member States to exercise any powers they could

not exercise in its absence.” (citation omitted)).

Petitioner’s failure here even to assert a Compact

Clause claim shows that not even he is persuaded by

his “encroachment” argument. In any event, Con-

gress has recognized and endorsed the MSA by au-

thorizing each Settling State to use MSA payments

for any expenditures determined appropriate by the

State. 42 U.S.C. § 1396b(d)(3)(B).

30

Ill. THE COURT OF APPEALS’ ANALYSIS IS

CORRECT AND FAITHFULLY APPLIES

THIS COURT’S PRECEDENTS.

Petitioner asserts that the Court of Appeals’

opinion is “wrong” and in “direct conflict” with de-

cisions of this Court. Pet. 32. But petitioner fails to

identify any such conflict. And each claim of error

is meritless.

1.. Petitioner asserts that the Court of Appeals

“erroneously applied the standards for a_ pre-

implementation facial challenge” to an “as-applied

post-implementation challenge” to the MSA regime.

Id. But as petitioner made clear in his complaint,

and as the Court of Appeals recognized, he is seek-

ing relief on the ground that the implementing stat-

utes are “facially void as a per se restraint of trade.”

ER 17 (emphasis added); App. A10 n.6 (same)-

In any event, the standard petitioner says the

court should have applied—considering the “‘eco-

nomic realities of the relevant transactions’”—is the

standard the court did in fact apply. Pet. 33 (cita-

tion omitted). Examining the MSA itself, the Court

held that, contrary to the complaint’s allegations,

“(njothing ... forces the NPMs to either peg their

prices to those of participating manufacturers, or to

refrain altogether from entering the market.” App.

Ai3.

Petitioner, a complete stranger to the contract,

offers his own idiosyncratic interpretation of the

MSA, insisting that when the MSA calculates the

Manufacturers’ payment obligations, it punishes

them for increasing their market share. See Pet. 9-

11. But the States that are the actual parties to the

MSA reject his interpretation, describing it as “a

31

fundamental misreading of the MSA and Escrow

Statutes.” Amici States CA Br. 13 (joined by 41

states, D.C., and three territories); see id. at 14-17;

Cal. CAg Br. 9-11. Every court that has addressed

this issue on the merits agrees with the parties to

the MSA. Grand River, 2006 WL 1517603, at *9

(“The MSA does not create disincentives for OPMs,

SPMs or NPMs to restrict output or to avoid reduc-

ing prices.”); Xcaliber Int'l, 2005 WL 5654220, at

*5 (“[T]here is no evidence that the MSA incorpo-

rates penalties for increased market share by any

class of PM which would serve to effect a market-

sharing or price-fixing agreement.”); Freedom

Holdings, 447 F. Supp. 2d at 261 (NPMs’ “incre-

mental costs do not rise with their volume of sales,

and they are not in any manner obliged to increase

their prices in lock-step with the OPMs.”).

As these courts and the parties to the MSA rec-

ognize, the MSA imposes a set unit cost on every

cigarette that remains the same regardless of how

many cigarettes a manufacturer sells. It is indis-:

putable that this type of payment mechanism does

not eliminate the incentive to cut prices or increase

market share. Indeed, even petitioner and the Sec-

ond Circuit agree with this proposition. CR53 at 42;

see Freedom Holdings, 357 F.3d at 229 (a fixed per-

cigarette cost “would not prevent price competi-

tion”). Thus, the linchpin of petitioner’s output car-

tel/hybrid restraint theory—that the payment obli-

gations encourage lockstep pricing by creating a dis-

incentive to compete on price—is belied by the

“economic realities” of the MSA’s own terms.

2. Petitioner also asserts, without citation to

any authority, that the Court of Appeals erred in

concluding that the MSA and related statutes do not

32

create a hybrid restraint. Pet. 33. Petitioner is

wrong. This Court has made clear that such a re-

straint arises only when the government delegates

to a private actor “‘a degree of private regulatory

power” that enables it to mandate compliance by

other private actors with its “private marketing de-

cisions” by force of law. Fisher, 475 U.S. at 268

(quoting Rice, 458 U.S. at 666 n.1 (Stevens, J., con-

curring)); accord 324 Liquor, 479 U.S. at 345 n.8

(citing Fisher); Midcal, 445 U.S. at 103. Thus, each

arrangement that this Court has labeled a hybrid

restraint has involved a situation in which private

actors are legally compelled to charge the prices es-

tablished by another private actor. See 324 Liquor,

479 U.S. at 340; Midcal, 445 U.S. at 100; Schweg-

mann Bros. v. Calvert Distillers Corp., 341 U.S.

384, 386-87 (1951). Indeed, petitioner acknowl-

edged below that “legal compulsion ... is the hall-

mark of a hybrid restraint.” CAg Reply 17.

The Court of Appeals correctly held that no hy-

brid restraint is involved here. The state has not

delegated any regulatory authority to the Manufac-

turers. App. A30. Each company sets its own prices

and has no power to set the prices or control the

output of others, much less any such power backed

by the state.

Rather than challenge that conclusion, peti-

tioner shifts ground and asserts a novel definition of

a hybrid restraint: “[T]Jhe MSA and the related

statutes were not simply unilateral state action, they

were the result of an agreement with and among the

major tobacco companies, which agreement effec-

tively coerced state legislatures to adopt the statutes

provided for in the MSA.” Pet. 33. Without citation

to any authority from this Court, petitioner calls

33

this “a classic instance of a hybrid restraint rather

than unilateral regulation.” Id.

But this Court has never suggested that the

definition of hybrid restraint has anything to do

_with whether the state arrived at its policy choices

through negotiation with private interests or

whether state legislation was the product of careful

deliberation or “effective[] coerc[ion]”—whatever

that means. See id. That is presumably why peti-

tioner never offered his novel definition of hybrid

restraint in the lower courts.

Petitioner’s suggestion that the MSA regime

should be treated as a hybrid restraint simply be-

cause “the states left the OPMs free to make market-

ing decisions regarding price increases without su-

pervision” is also wrong. Id. Under Parker and

Midcal, economic actors are free to make such deci-

sions without state supervision, unless the state has

authorized those actors to engage in antitrust viola-

tions. Where, as here, the state has not authorized

private parties to violate the antitrust laws, the

Parker doctrine permits states to regulate conduct

without the need for “active supervision.”

3. Petitioner next argues that there can be no

Parker immunity because the MSA is not a sover-

eign state act. According to petitioner, only “legis-

lative” conduct may be considered sovereign state

action. Pet. 34-35. Petitioner does not explain why

Parker immunity should not apply to the executive

branch. This Court has never held that it does not,

and every court of appeals to consider the question

has agreed with the Ninth Circuit that the immunity

covers the actions of executive-branch officials. See

Neo Gen Screening, Inc. v. New England Newborn

Screening Program, 187 F.3d 24, 28-29 (1st Cir.),

34

cert. denied, 528 U.S. 1061 (1999); Saenz v. Univ.

Interscholastic League, 487 F.2d 1026, 1027-1028

(5th Cir. 1973). Moreover, the MSA regime was en-

dorsed by the other branches of government: The

Superior Court of California expressly approved it,

and the California Legislature passed the related

statutes.5

4. Finally, petitioner is wrong in attributing to

the Court of Appeals the holding that “the mere act

of requesting [a law] ... entitle[s] . .. the request-

ing party to have [its] conduct thereunder[] immu-

nized.” Pet. 34. Rather, the court recognized that

the “conduct thereunder”—i.e., the post-MSA be-

havior—would not be immunized if that conduct

would violate antitrust laws. See App. A20-21.

» The Court of Appeals underscored the point

when it correctly distinguished this case from Can-

tor v. Detroit Edison Co., 428 U.S. 579 (1976). App.

A18-19. In Cantor, the private party’s post-

petitioning conduct was alleged to have been an an-

titrust violation in its own right. Cantor, 428 U.S.

at 581-82. That is why the post-petitioning conduct

did not enjoy Noerr-Pennington immunity. See id.

at 601-02; accord Greenwood Utils. Comm’n uv.

Miss. Power Co., 751 F.2d 1484, 1504 (5th Cir.

1985) (distinguishing Cantor on same ground). For

petitioner to fit his case into the Cantor mold, he

would have to have alleged that, subsequent to the

MSA, the Manufacturers entered into an independ-

5 In any event, petitioner has never made this argument

before; indeed, he conceded below that the challenged con-

duct constitutes “sovereign acts of the state.” App. B11.

ent agreement to fix prices or restrict output. He

does not, and could not, make any such allegation.

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted,

DARRYL SNIDER

JAMES F. SPEYER

ERIC SHAPLAND

LEO D. CASERIA

HELLER EHRMAN LLP

333 South Hope Street,

39th Floor

Los Angeles, CA 90071

Counsel for Respondent

PHILIP MORRIS USA INC.

DOUGLAS L. WALD

ARNOLD & PORTER LLP

555 Twelfth Street, NW

Washington, DC 20004-

1206

(202) 942-5000

Counsel for Respondent

PHILIP MORRIS USA INC.

E. JOSHUA ROSENKRANZ

Counsel of Record

KENNETH L. CHERNOF

HELLER EHRMAN LLP

Times Square Tower

7 Times Square

New York, NY 10036

(212) 832-8300

Counsel for Respondent

PHILIP MORRIS USA INC.

STEPHEN R. PATTON

BARACK S. ECHOLS

KIRKLAND & ELLIS LLP

200 East Randolph Drive

Chicago, IL 60601-6636

(312) 861-2000

Counsel for Respondents

BROWN & WILLIAMSON

TOBACCO CORPORATION

and R.J. REYNOLDS

TOBACCO COMPANY

‘eed

IRVING SCHER

WEIL, GOTSHAL &

MANGES LLP

767 Fifth Avenue

New York, NY 10153

(212) 310-8000

Counsel for Respondent

LORILLARD TOBACCO

COMPANY

PETER D. ISAKOFF

WEIL, GOTSHAL &

MANGES LLP

1300 Eye Street, NW

Suite 900

Washington, DC 20005

(202) 682-7144

Counsel for Respondent

LORILLARD TOBACCO

COMPANY