Amicus Curiae Brief — Goldfarb v. Virginia State Bar
Supreme Court brief1975
Ask Donna
What actually matters in this document.
Text
Question presented_____-----------------------
Interest of the United States________---._------
PGi hg a hn bance been nek
A. The district court’s findings and decision ----
B. The court of appeals decision--------------
Summary of argument...... 2... .--........-..
PN oii co shank ne nee kGan shams wil te
I. Introduction—The legal profession and min-
imum fee schedules - _-----------------
A. The legal profession----------------
B. The nature of fee setting and the role
of minimum fee schedutes--_--_- ----
II. The prohibitions of the Sherman Act apply
to restraints of trade among members of
“pernsd protemionie’ . . . .....2........
A. Neither the language nor legislative
history of the Sherman Act justifies
an exemption for competitive re-
straints by members of “learned
OIE oo. uke rekc sake
B. This Court has never recognized a
Sherman Act exemption for mem-
bers of “learned professions’’-_ - -- - -
'C. Application of the Sherman Act to the
commercial aspects of law practice
will serve the purposes of the Sher-
man Act without disserving any
important interest underlying the
regulation of the practice of law---
89)
566-536—74-——-1
21
21
23
25
II
Argument—Continued Page
III. The minimum fixed fee schedule restrains
_ interstate commerce _________________- 31
A. Locally-oriented restraints are pro-
hibited by the Sherman Act if,
viewed either in isolation or as part
of a general practice, they may
significantly affect “interstate com-
EC eng Naty GSCI ng ek OT a 32
“'B. The restraints challenged in this case
substantially affect interstate com-
ia ied wu wewiencane 32
IV. The actions of the state bar in proposing
and enforcing the challenged. minimum
fee schedule are not exempt from the
Sherman Act as involving “state action’’_ 34
MINS ees a ek ce ee 48
PI os cee hd cs id wk la
CITATIONS
Cases:
American Medical Ass’n v. United States,
a a ee hes ote 22, 24
Apex Hosiery Co. v. Leader, 310 U.S: 469____ 30, 31
Asheville Tobacco Bd. of Trade, Inc. v. Federal
Trade Commission, 263 F. 2d 502________- 40, 41
Atlantic Cleaners & Dyers, Inc. v. United
Piaies, BOG WB. MRT eo 22, 24, 25
Burke v. Ford, 389 U.S. 320_......_________ 31
California v. Federal Power Commission, 369
Ri Ms ke ee ee i a bc ems: 22, 43
Chevron Oil Co. v. Huson, 404 U.S. 97______- 48
Continental Ore Co. v. Union Carbide & Car-
bon Corp., 370 US: 000... osc. 43
Eastern R.R. Presidents Conf. v. Noerr Motor
Preige; Tat., HG VB. 197 30
Edelman v. Jordin, BAD AI. COR conc cdnus 47
Ill
Cases—Continued Page
Fashion Originators’ Guild of America, Inc., v.
Federal Trade Commission, 312 U.S. 457 - - - 28
Federal Baseball Club of Baltimore, Inc. v. Na-
tional League, 259 U.S. 200_------------ &, 23, 24
Federal Trade Commission v. Raladam Co., ~~
AT OS on cccmeenademonen 8, 23, 24
Flood vy. Kuhn, 407 U.S. 258. -.------------ 2
Freeman, In re, Estate of 34 N.Y. 2d 1, 311
N.E: 23d 480, 356 N.Y: 94.:006....----..-. 17, 40
Fuller v. Oregon, 417 U.S. 40....----------- 12
‘Gas Light Co. v. Georgia Power Co., 404 F. 2d
1135, certiorari denied, 404 U.S. 1062- - - -- 42
George R. Whitten, Jr., Inc. v. Paddock Pool
Builders, Inc., 424 F. 2d 25, certiorari
denied; 400 0.5. S50. 2... -+---- nanan ten 41,44
Gibson v. Berryhill, 411 U.S. 564_...-------- 40
Gulf Oil Corp. v. Copp Paving Co., No. 73-
1012, decided December 17, 1974_-------- 32
Hecht v. Pro-Football, Inc., 444 F. 2d 931-_--- 44
Hyde v. Moxie Nerve Food Co., 160 Mass. 559,
96 3: Bs isn chwbneccctnaneeeess 15
Jackson v. Metropolitan Edison Co., No. 73-
5845, decided December 23, 1974- ----- 40-41, 42
Katzenbach v. McClung, 379 U.S. 294-------- 31
Lathrop v. Donohue, 367 U.S. 820_---------- 16
Mandeville Island Farms, Inc. v. American
Crystal Sugar Co., 344 U.S. 219_--------- 31
Merrill Lynch, Pierce Fenner & Smith, Inc. v.
Wise. CAE Goo ee ner nas 44
* New Mexico v. American Petrofina, Inc., 501
DP. Oe Oe oa cnicn pce nebeeanueaae 41
Nymph, The, 18 Fed. Cases 506------4----- 25
Otter Tail Power Co. v. United States, 41
Northern Pac. Ry. v. United States, 356 \ 1_.. 25,28
US.
\
£
IV
Cases—Continued Page
Parker v. Brown, 317 U.S. 341_ 2, 7, 8, 11, 34, 35, 39,
41, 42, 43, 46, 47
Radovich v. National Football League, 352 U.S.
i cg irc oo wiki alten tots acu 22
Schwegmann Bros. v. Calvert Distillers Corp.,
RE Sie Ms ao eatin eames omc candi ~ 46
Silver v. New York Stock Exch., 373 U.S. 341__ 28, 44
Simpson v. Union Oil Co., 396 U.S. 13_____- 48
Standard Oil Co. v. United States, 221 U.S. 1_- 28
Super Tire Eng’g. Co. v. McCorkle, 416 U.S.
EAM gc nen ii ccna can baud cow oe ee 48
United States y. American Institute of Archi-
tects, Civ. No. 992-72 (D.D.C.), terminated
by Consent decree June 19, 1972__ |). _____ 2-3
United States v. American Institute of Certified
Public Accountants, Inc., Civ. No. 1091-72
(D.D.C.), terminated by consent decree
PU Fa io ile etcnwapens ocho 3
United Mine Workers v. Pennington, 381 U.S.
Os cde oo ob bh kis eee eke 30
United States v. American Soc’y of Civil Eng’rs,
Civ. No. 72 C1776 (S.D.N.Y.), terminated by
consent decree June 1, 1972_______.____ 2
United States v. Borden Co.; 308 U.S. 188____ 42
United Staies-v. Employing Plasterers’ Ass’n,
We A Ans csc eek wane cack 31
United States v. Frankfort Distilleries, Inc.,
| A Ms nhs oo so ape eek week 31
United States v. National Ass'n of Rea! Estate
SOON ee A ses oe ck 22,
24, 26, 27, 30
United States v. National Soc’y of Professional
Engrs, Civ. No. 2412-72 (D.D.C.) decided
stn FG, 30re. c 3, 29, la
United States v. Oregon State Medical Soc’y,
Oe MI Oo oS oatiue cu cunccucenncck 28
.
Cases—Continued Page
United States v. Oregon State Bar, No. 74-362
(D. Ore.), decided November 25, 1974---- 3,
28, 40, 42, 45, 47
United States v. Pacific S.W. Airlines, 358 F.
Supp. 1294.....---------------------- * = 44
United States v. Philadelphia Nat'l Bank, 374
TE BOE on con cw nse ee neeees cennegne 22, 43
United States v. Prince Georges County Bd. of
Realtors, Civ. No. 21545 (D. | a 2
United States v. Radio Corp. of America, 355
TIS, BOE wn cndicnsnenevns iitamecneges 43
United States v. Socony-Vacuum Oil Co., 310
1G AO oii ces kne nea geannne em 27
United States v. South-Eastern Underwriters
Ass'n, 322 U.S. 533 - - ------------------- 23, 30
United States v. Topco Assocs, Inc., 405 ae
ep ten aaeiheda ask +a 25-26, 28, 30
United States v. Trenton Potteries Co., 273
TOR oo oon pac cc po meade reese cnr" 27
United States v. Utah Pharmaceutical Ass'n,
201 F. Supp. 29, affirmed per curiam, 371
ee ee can ioarendornas- ener 22
United States v. Women’s Sportswear Mfrs.
Ass'n, 336 U.S. 460- -------------------- 32
United States v. Wrightwood Dairy Co., 315 -
AOR. ocak pera nese 31
Washington Gas Light Co. v. Virginia Elec. &
Power Co., 438 F.2d 248. -- ------------- 41,42
Marjorie Webster Jr. College, Inc. v. Middle
States Ass’n of Colleges & Secondary Schools,
Inc. 432 F.2d 650, certiorari denied, 400
VI
Constitution and statutes:
Page
United States Constitution:
Eleventh Amendment_______.._______. 47
Fourteenth Amendment..._.__________ 41
Agricultural Marketing Agreement Act, 50
Stat. 246, as amended, 7 U.S.C. 601, et seq_- 35
Coasting and Fisheries Act of 1793, 1 Stat.
BeOS AAI Selb is le OSL hc ano niet ay 25
Sherman Act, Section 1, 26 Stat. 209, as
emnenged, 15 U8.C..1... 10, 23, 27, 29
Oe ae os eg 47
Ris 2) a) eer See ae 47
Oe er es Oe 34
aU ee Oe. ee 34
UD. Me a a 34
Us wee, ee 34
Cal. Bus. & Prof. Code Ann., Sec. 6160, et seq.
o,f SARTO OT eed Cae ear ee an 13
Md. Code Ann., Sec. 23-441, et seq..-.______ 13
N.Y. Bus Corp. L. Ann., Sec. 1501, et seq.
Nh ea a 13
Pa. Code Ann., Sec. 15-12601, et seg... ______ 13
Solicitors’ Act, 1957, as amended 5 & 6 Eliz.
oi ee ee 46
Va. Code Ann.:
Section 13.1-542 ef seg.........___._.__ 13
Sections 54-42.2-42.3.........._____ 13
th pans Seok te, OR MN 37
S|. 44
FD 38
Sections 54-59 (1972 Repl. Vol.)________ 7
Miscellaneous:
American Bar ,;Ass’n, The Economics of the
Legal Profession (1988) <....... - 16
1 hai A Rc a A AS GSES UO
aE SAM tha Near ths ANN AS AE ta RN Ne Boat ch atilge rees RELE
VII
Miscellaneous—Continued Page
1973-1974 American Bar Ass'n Directory - - --- 16
Arnould & Corley, Fee Schedules Should Be
_ Abolished, 57 A.B.A.J. 655 (1971)__ 16, 18, 19, 21
Branca, Bar Association Fee Schedules’ and
Suggested Alternatives: Reflections on a Sher-
man Exemption That Doesn't Exist, 3
- U.C.L.A.—Alaska L. Rev. 207 (1974)----- 3, 15
Canon 12 of the Canons of Professional Ethics,
908 Va. 1018. 22 Se lect 528 seca sa. 38,39
Christensen, Lawyers for People of Moderate
Means (1970). - -.------------ ite: awe 18
Chroust, The Rise of the Legal Profession in
America (1965) - - - ------------------- 15, 17, 46
Code of Professional Responsibility, 211 Va.
0 sieint pn ssenusaheduebuwer 39
Disciplinary Rule 2-106 (B) (3)- - ---------- 39
Ethieal Consideration 2-18 -- - ------------- 39
Goulden, The Superlawyers (1971) - - -- ------ 13
3 Halsbury’s Laws of England, Barristers (3d
ed. 1953, 1972 Supp.) - - - ---------------- 47
36 Halsbury’s Laws of England, Solicitors
(3d ed. 1961)---------------------- Seta 46
Hearings before the Subcommittee on Repre-
sentation of Citizens Interests of the Senate
Committee on the Judiciary, on Legal Fees,
93d Cong., Ist Sess., pt. I---------------- a
Kiralfy, The English Legal System (5th ed.
1078) i se eee bese e see a 47
Mayer, The Lawyers (1966) - - --------- i sc Eg] 16
McKean, The Integrated Bar (1963) - - - ------ 16
McLaren, Antitrust—The Year Past and The
Year Ahead, 1970 N.Y. State Bar Ass’n
Antitrust L. Symp. 15-_---+-------------- 2
VHI
Miscellaneous—Continued — Page
McLaren, Interview, 39 Antitrust ‘sé. +368
Leak Sis aschiihac hee Hh cwkoeda dein nt 2
Miller & Weil, Let’s Improve, Not Kill, Fee
Schedules, 58 A.B.A.J. 31 (1972)_________- 18, 21
Note, A Critical Analysis of Bar Association
Minimum Fee Schedules, 85 Harv. L. Rev.
971 (1972) ____- EE Sle Ng UN, eS 18, 20
Opinion No. 302, Committee on Professional
Ethics and Grievances, American Bar Asso-
ciation (1961) GE A Ki’ <seNii lin > cbiimenions aso 3
Opinion No. 323, Gameniites on Ethics and
Professional Responsibility, American Bar
—
SOE STE eR SaaS ak Sete RGR Re a DON ae laisse A — |
Dpsoriationn (3070)... .....- 053 .,.....<- 3
Patterson & Cheatham, The Profession of Law i
GO ION CEE MeO 12, 14 :
Rules of the Supreme Court of Virginia, 205
Va. 1011, as amended, 210 Va. 411, 211 i
Va. 295, et SSE WITS ORES oR emt? Se aha FP 38 :
DAE bid ets Sim kiidndcdnricn dnd 38
| tee pdndekdm wes 38
BORG) 5 —5-sied—ivinsinnds-- 38
8. 1, Bist Cone. It Bom... 2 --2406;-4..-5:- : 22
Smigel, The Wall Street Lawyer (1964)______- 13
Statistical Abstract of the United States (1974). 12, 13
Unauthorized Practice of Law Opinion No.
207, Virginia State. aig diane (1965
ed. ) Ghd Meh Millen ehh Dwg «dt don dink 19
Washington Post jase 9,10,11,12,1972). 20
York & Hale, Too Many Lawyers? The Legal
Services ‘Industry: Jis Structure and Out-
ee aed Poe Cn Cae See Teer tS Neb
look, 26 J. Leg. Educ. (1978).---_.--- 12, 13, 14
Zander, Lawyers and the Public Interest: A,
Study in Restrictive Practices (1968) - - - - -- - 21°
9) Came Oe. Oe... 23
120 Cong. Fec. H10120, — (daily ed., |
ME Fo i ec 4
Yn the Supreme Gourt of the United States
Ocroser TERM, 1974 ,
No. 74-70 /
Lewis H. GoiprarB AND Rutu 8. GOLDFARB,
PETITIONERS
v.
Virnarxia STATE BAR AND
Farrrax County Bar AssociaTIONn
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FOURTH CIRCUIT
BRIEF FOR THE UNITED STATES AS AMICUS CURIAE
QUESTIONS PRESENTED
The United States will discuss the following ques-
tions:
1. Whether a minimum fixed fee schedule promul-
gated by a county bar association is exempt from the
Sherman Act’s prohibition against price fixing on the
ground that the restraint on competition is among
the members of a “learned profession.”’
2, Whether interstate commerce is affected by col-
lectively-fixed fees for attorneys’ services in connection
with the purchase of real estate in Northern Virginia.
i (1)
a }
|
3. Whether the Virginia State Bar is exempt from
the Sherman Act for its role in the establishment and
enforcement of minimum fee schedules, under the
“state action” doctrine of Parker v. Brown, 317 U.S.
J4i. | ,
INTEREST OF THE UNITED STATES
Responding to evidence that prices for personal
services were increasing more rapidly than the rate
of inflation in the pest of the economy, more than
four years ago the United States initiated a concerted
program of antitrust enforcement directed at re-
straints of trade occurring in the “commercial” aspects
of various professions (including attorneys) and other
providers of personal services.’ This program has in-
cluded widely-disseminated statements of the Anti-
trust Division’s policies, followed by litigation chal-
lenging particular anticompetitive practices of various
professions. The government has challenged, as illegal
per se, so-called “ethical’’ standards by professional
associations of engineers, architects, accountants and
realtors that prevent price competition in the charges
for services by members of these professions.’ In
* See, e.g., McLaren, Antitrust—The Year Past and The Year
Ahead, 1970 N.Y. State Bar Ass’n Antitrust L. Symp. 15, 23;
McLaren, /nterview, 39 Antitrust L.J. 368, 377 (1970); Hear-
ings before the Subcommittee on Representation of Citizens
Interests of the Senate Committee on the Judiciary, on Legal
Fees, 98d Cong., Ist Sess., pt. I, pp. 164-185.
*E\.g., United States v. Prince Georges County Bd. of Real-
tors, Civ. No. 21545 (D.Md.), terminated by consent decree on
December 28, 1970; United States v. American Soc’y of Civil
Eng’rs, Civ. No. 72 C 1776 (S.D.N.Y.), terminated by consent
decree on June 1, 1972; United States vy. American. Institute of
Architects, Civ. No. 992-72 (I).D.C.), terminated by consent
: ©
(il Abe D33 SAAB abe a. Bos Ps
bites Gb hatire
3
May, 1974, the government filed a similar action chal-
lenging a bar association’s minimum fee schedule.*
Despite the government’s enforcement efforts,’ bar
association minimum fee schedules, a fairly recent de-
velopment,’ are still widespread; they have been used
by as many as 34 state, and about 750 local, bar orga-
nizations* (Pet. App. A-20). The decision of this
Court on the legality of such schedules under Section
1 of the Sherman Act will not only have great impact
upon the legal profession but also is likely signifi-
cantly to affect the use of such methods of fee-fixing
by organizations in other professions.
decree on June 19, 1972; United States v.. American Institute
of Certified Public Accountants, Inc. Civ. No. 1091-72
(D.D.C.), terminated by consent decree on July 6, 1972; United
States v. National Soc’y of Professional Eng’rs, Civ. No. 2412-
72 (D.D.C.), decided in the government’s favor on December 19,
1974 (bar against competitive bidding). The decision is appended
to this brief (App., infra).
3 United States v. Oregon State Bar, No. 74-362. (D. Ore.),
filed May 9, 1974. On defendant’s motion for sunimary judg-
ment, raising the “learned profession” and “state action”. claims,
liseussed infra, pp. 21-30, 34-48, but not the “commerce” issue
(see pp. 31-34, infra), the district court held on November 22,
1974, that neither of these exemptions applies. The decision is
appended to petitioners’ brief (“Pet. Br. App.”).
4The American Bar Association, which in 1961 endorsed
minimum fee schedules by concluding that.the habitual charg-
ing of fees less than those established by such a schedule may
be evidence of unethical conduct (Opinion No. 202, Committee
on Professional Ethics and Grievances), stated in 1970 that
“[m Jere failure to follow a minimum fee schedule, even when
habitual, cannot, standing alone and absent evidence of mis-
conduct; afford a basis for disciplinary action” (Opinion No.
323, Committee on Ethics and Professional Responsibility).
’See Branca, Bar Association Fee Schedules and Suggested
Alternatives: Reflections on a Sherman Exemption That Docant
Evist, 3 U.C.L.A.—Alaska L. Rey. 207, 208 (1974).
* Branca, supra, 3 U.C.L.A.—Alaska L. Rev. at 208.
4
The interest of the United States in this ease is
underscored by the President’s reeent announcement
of his economic program, in which he referred par-
ticularly to the need for enforcement of the antitrust
laws with respect to “noncompetitive professional fee
schedules and real estate settlement fees * * *.” 120
Cong. Ree. H10120, H10121 (daily ed., October 8,
1974). |
STATEMENT
Petitioners filed a class action against respondents,
the Fairfax County Bar Association (* Association”)
and the Virginia State Bar (“State Bar”), alleging
that the Association’s adoption and use of a minimum
fixed fee schedule, declared by the State Bar to be an
enforceable ethical standard, constituted price fixing
and restraint of trade and commerce in violation of
Section 1 of the Sherman Act.
Petitioners claimed to represent a class consisting
of all persons who, like petitioners, had purchased
houses in Reston, Fairfax County, Virginia, during
the four years preceding the filing of the complaint,
and who had been charged title examination fees by
attorneys as prescribed in the Association’s schedule.
Petitioners sought damages, a declaratory judgment
and an injunction, but the district court severed the
issue of damages and held a trial as to liability.
A. THE DISTRICT COURT’S FINDINGS AND DECISION
In ruling for petitioners, the district court made
the following findings of fact and conclusions of law
(Pet. App. A; 355 F. Supp. 491).
2
=
4
ET GPE BLES GEILE N DELLE DSSS AS EDINA A IO AREA ha chi Ris sees oie he 8 tai tats es thas
5
In the fall of 1971, petitioners, who then resided
in Arlington, Virginia, contracted to purchase a house
in Reston, Virginia. In searching for an attorney
to represent them in the legal aspects of the transac-
tion, petitioners were advised that they would be
charged for title examination services in accordance
with the minimum fee schedule of the Association.
In 1969, the Virginia State Bar Association had
published a ‘‘consensus recommendation * * * as to
fees which should be assessed * * * for the legal
services indicated” (Pet. App. A-9). The recom-
mended fees reflected in most cases ‘‘a general scaling
up of fees” recommended in a similar schedule pub-
lished by the State Bar in 1962 (A. 25; see A. 19-23).
The recommendation suggested that title examination
fees should be 1 percent of the first $50,000 of the
loan amount or purchase price plus 14 percent of the
amount between $50,000 and $250,000 (A. 26). (Zbid.)
Shortly after the State Bar’s promulgation of the
new fee schedule, the Fairfax County Bar Association
(and the bar associations in Alexandria, Arlington
and Loudoun Counties) adopted a virtually identical
minimum fee schedule which followed the State Bar
schedule with immaterial variations (A. 37-43).
In adopting the minimum fees outlined by the State
Bar, the Association increased both flat dollar fees
for various legal services (compare A. 34-36 with
‘Originally named as defendants and co-conspirators, the
Arlington County Bar Association and the Alexandria Bar
Association agreed to a consent judgment requiring them to
cancel their minimum fee schedules (Pet. App. A-2, n. 1).
6
A. 40-43) and percentage rates for services * over the
levels established in the similar schedule adopted by
the Association following the 1962 minimum fee report
of the State Bar.
The Canons of Ethics in effect until 1971, and
the current Code of Professional Responsibility pro-
mulgated by the Supreme Court of Virginia, both
provide that, in determining charges for title exam-
ination and certification, it is proper for a lawyer to
consider a suggested fee schedule. The Canons also
provided, however, that “no lawyer should permit
himself to be controlled thereby or to follow it as his
sole guide in determining the amount of his fee” (Pet.
App. A-9). Nevertheless, the State Bar has issued two
opinions (Nos. 98 and 170) which, the district found,
“in effect say that it is unethical habitually to charge
fees below those suggested in a minimum fee schedule’”’
(id. at A-5). je
The district court held that minimum fee schedules
constitute a form of price fixing which is indistin-
guishable from fixed sales prices and which is illegal
per se. It ruled that they cannot be justified as a
guide to setting charges, or to assure an adequate
income for research, development and continued edu-
cation, and that they are often likely to result in
charges unrelated to the worth of the services per-
formed (td. at A-3—A-5).
8 For example, the 1969 schedule increased the minimum
fee for a title examination from 0.75 percent to one percent
for the first $20,000 of the sale price, and from 0.5 percent
to one percent for the portion of the selling price between
$20,000 and $50,000 (A. 34, 40).
eee 2
aiid WT LN AS SARA TE ES
Seamer sx
7
The court concluded that the challenged activity sub-
stantially and directly affected interstate commerce
because it found that: a significant portion of funds
used for purchasing homes in Fairfax County came
from outside the state of Virginia; almost all
lenders require a new title search and title insurance ;
a large percentage of Fairfax County residents work
outside Virginia; and significant amounts of real
estate loans in the county are guaranteed by the federal
Veterans Administration and Department of Housing
and Urban Development (id. at A-4).
Phe court held that there was no “learned profes-
sion” exemption from the Sherman Act for profes-
sional services performed by lawyers pursuant to a
minimum fee schedule. On the contrary, it concluded
that ‘‘[c]ertainly, fee setting is the least ‘learned’
part of the profession” (id. at A-5).
Finally, the court held that the State Bar acts as
an administrative state agency of the Sapreme Court
of Virginia (Va. Code Ann., Sec. 54-59 (1972 Repl.
Vol.)). Since the district court found that the activi-
ties of the State Bar were state action, and that it
never had disciplined attorneys for undercutting fixed
minimum fee schedules, the court held that it was not
liable under the antitrust laws in view of Parker v.
Brown, 317 U.S. 341 (Pet. App. A-6). In contrast, be-
cause the Association is a voluntary private organiza-
tion whose implementation of suggested minimum fee
schedules does not depend upon action by the legisla-
ture or the Virginia Supreme Court, the court held
that it is not exempt from the antitrust laws.
8
The court enjoined the Association from maintaining
fixed fee schedules and ordered a further hearing on
versed (Pet. App. B; 497 F. 2d 1).
B. THE COURT OF APPEALS DECISION
The court of appeals, Judge Craven dissenting, re-
versed (Pet. App. B; 497 F.2d 1).
1. The court held that the State Bar, as an admin-
istrative agency of Virginia’s Supreme Court of Ap-
peals, fell within the governmental action exemption
to the Sherman Act defined by Parker v. Brown,
supra. The court ruled, however, that the Parker
exemption did not extend to the Association, a velun-
tary non-governmental organization (Pet. App.
B-12). :
2. Although it found clear from the record that the
minimum fee schedule and the enforcement mecha- —
nism supporting it substantially restrain competition
among attogneys practicing in Fairfax County: (id.
at B-13), the court concluded, citing Federal Base-
ball Club of Baltimore, Inc. v. National League, 259
U.S. 200, and Federal Trade Commission vy. Rala-
dam Co., 283 U.S. 643, that such collective restraints
are lawful because the Sherman Act reaches only
restraints of ‘‘trade or commerce,” and the practice of
law is a ‘‘learned profession,” not trade or commerce,
3. Although the court acknowledged that the
“learned profession” exemption did not apply inso-
far as the “fee schedule restrains those engaged in
the financing and insuring of home mortgages by in-
flating a component part of the cost of securing hous-
ing” (Pet. App. B-15), it ruled that the schedules did
BRASS
_-—__——_-=g
9
not have a direct and substantial effect upon interstate
commerce. It held irrelevant the fact that Fairfax
County residents work outside the state, and concluded
that the adverse effects that the district court found
the schedules to-have on out-of-state lenders and guar-
antors were merely incidental toa general local ac-
tivity—the practice of law—which the Association
regulated (id. at B-15—B-18).
4, Finally, the court held that to apply the Sherm:
Act to minimum fixed fee schedules would amount to
judicial legislation; would cast doubt upon the valid-
ity of bar admission standards, prohibitions upon ad-
vertising and other restrictions upon the practice of
law; and would threaten retroactive application of a
punitive statute in a manner that would create con-.
fusion in the legal profession (id. at B-19).
5, Judge Craven, dissenting, concluded that there is
no exemption from the Sherman Act for “learned pro-
fessions” (id. at B-23—B-24), and that the activities
of the Association with respect to the fee schedule
sufficiently affected commerce to be within the scope
of the Sherman Act (id. at B-21—B-23). He would
have affirmed the dismissal of the State Bar, however,
on the ground that its involvement in promulgating
and maintaining the fee schedules was too insubstan-
tial to render it liable for violation of the Act (7d. at
B-21).
SUMMARY OF ARGUMENT
1. The promulgation and concerted use of minimum
fee schedules by lawyers is inherently anticom-
petitive, a form of price fixing which, if undertaken in
almost any other business, would be a per se viola-
566-536—74——2
10
¢
tion of Section 1 of the Sherman Act. Though east in
the form of an “ethical” standard of the legal profes-
sion, such schedules involve the most commercial
aspect of law practice, are intended primarily to in-
crease lawyers’ incomes, and inevitably result in
higher prices to consumers and non-use of legal serv-
ices when they are needed. Accordingly, the use of
such schedules is contrary to the basic purposes of the
Sherman Act, and does not serve any significant non-
pecuniary, ethical interest of the legal profession.
2. The court of appeals erred in concluding that the
Sherman Act does not apply to competitive restraints
by members of a ‘learned profession.” Neither the
language of the Act nor its history supports any such
exemption, and implied exceptions to the Sherman
Act are disfavored. Moreover, the application of the
Sherman Act to fee fixing by lawyers does not involve
any clash of statutory or public policies warranting
the Court to imply such an exemption.
The court of appeals misread certain dicta in this
Court’s opinions concerning other issues as recogniz-
ing a “learned profession” exemption, although the
Court has in later decisions expressly treated that
question as still open. In any event, the decisions that
originally raised the question whether “learned pro-
fessions” are covered by the Sherman Act rested upon
narrow views of the power of Congress to regulate
“commerce” which this Court has long since rejected.
If there are other reasons for such an exemption, they
involve matters of legislative policy which are not for
the courts, but the legislature. _
11
3. In reversing the judgment against the Association
the court of appeals also erred in holding that the
challenged restraints on price competition by lawyers
in Fairfax County do not affect interstate commerce.
Here, too, the court applied an outdated conception
of the commerce power, since the Shorman Act
extends to the full reach of Congress’ power to regu-
late commerce. The record in this case established a
sufficiently substantial impact on interstate commerce
to bring the challenged price-fixing within the scope
of the Sherman Act. °
4. The court of appeals erred in concluding that
the State Bar was immune from liability under the
Sherman Act on the ground that its role in the chal-
lenged fee fixing constituted ‘state action” and it
was hence exempt under Parker V. Brown, 317 U.S.
341. The State Bar’s promulgation and endorsement
of minimum fee schedules satisfies none of the three
bases for establishing state action that Parker an-
nounced.
First, the schedules do not derive their authority
and efficacy from the legislative command of the state
(id. at, 350), since the Virginia legislature has not
specifically authorized or required the use of such
schedules. Second, the State Bar’s activities concern-
ing the schedules did not constitute actions of the
state or its officers or agents directed by its legislature
(id. at 350-351), since the State Bar consists of all
lawyers practicing in Virginia and is not a state
agency.
Finally, the schedules have never been adopted,
approved or enforced by the state or a state agency
12
(id. at 352). The Virginia Supreme Court is the only
arguably relevant state agency. That court’s approval
of reference to “customary charges” or “suggested”
fee schedules as being among the several factors to be
considered by lawyers in setting fees does not con-
stitute the requisite state approval of the use of
‘minimum fee schedules. The court of appeals erred
in concluding that the state court’s failure to dis-
approve. such schedules constituted such approval.
ARGUMENT
a BIE a as LEGAL PROFESSION AND MINIMUM
FEE SCHEDULES
A, THE LEGAL PROFESSION
In “the distribution of legal assistance, [which,]
like the distribution of all goods and services, is gen-
erally regulated by the dynamics of private enter-
prise” (Fuller v. Oregon, 417 U.S. 40, 53), the lawyer
can be described as “ ‘a self-employed business man.’ ”
Patterson & Cheatham, The Profession of Law 263-
. 264 (1971). The practice of law now constitutes a
significant segment of the national economy. In 1973,
the provision of legal services accounted for $9.3
billion of total national income. Statistical Abstract
of the United States 371, 752 (1974). Of some 325,000
lawyers in the United States in 1970, more than
236,000 were in private practice. Id. at 158.°
° According to one estimate, in 1970 about 75 percent
of all lawyers were in private practice, twelve percent pri-
vately employed, and fourteen percent in government service,
of which three percent were in the judicial branch. York &
13
No longer do all lawyers operate as independent |
enterpreneurs of legal services. Numerous law firms \ _
are now large organizations with more than 100 law-
yers, often having offices in several cities—perhaps
several countries. Cf., e.g. Smigel, The Wall Street
Lawyer 206-207 (1964). In Virginia and many juris-
dictions, moreover, law firms can and do now operate
as corporations.” :
The development of the modern large law firm has
paralleled and been closely interrelated with the de-
velopment of business generally. Cf., Bg.» Smigel,
supra, at 48; Goulden, The Superlawyers (1971).
The connection between commercial activity and the
legal profession is graphically reflected by figures
showing the distribution of attorneys in the United
States. As one recent study of the legal profession ob-
served : rn:
The demand for legal services today is mainly
‘a function of institutional economic activity.
It is dependent upon the number of corpora-
tions in the market, the volume of retail sales,
and the number and size of retail and
service organizations. Although there are cer
tain forms of demand for legal services which
have an obvious relationship to the population—
such as personal-injury litigation or will pro-
nicneneiabnecee
Hale, Zoo Many Lawyers? The Legal Services Industry: [ts
Structure and Outlook. 26 J. Leg. Edue. 1, 7-10 (1973). In
Virginia there were 6.401 lawyers in 1970, of whom 4,354 were
in private practice. Statistical Abstract of the United States
158 (1974).
0 See, e.g., Cal. Bus. & Prof. Code Ann., Sec. 6160, et 8¢q-
(Supp.) ; Md. Code Ann., Sec. 23-441, et seq.; N.Y. Bus. Corp. L.
Ann., See. 1501, ef s¢q- (Supp) ; Pa. Code Ann., Sec. 15-12601,
et seq.; Va. Code Ann., Sec. 131-542, ef 8eq- 54-42.2-42.3
(Supp.)-
-
_
14
baticon—legal services are increasingly de-
manded by institutions and those who must deai
with them. [York & Hale, Too Many Lawyers?
The Legal Services I ndustry: Its Structure and
Outlook, 26 J. Leg. Educ. 1, 13 (1973). J
The study also concluded that “economic activity
rather than population is the best indicator of demand
for, and hence supply of lawyers” (id. at 10), and that
about half of the country’s lawyers are located in five
industrial states where commerce is most intense (New
York, California, Illinois, Texas and Ohio) and at the
seat of the federal government in the District of Co-
lumbia. Ibid. Although no detailed data are available,
it has been estimated that about 40 percent of all pri-
vate lawyers’ income derives from serving commercial
interests, the other 60 percent deriving from services
involving individuals. See Mayer, The Lawyers 19-20
(1966).
B. THE NATURE OF FEE SETTING AND TUE ROLE OF MINIMUM FYF
SCHEDULES °
Whatever once may have been thought about law-
. yers’ fees, “‘[t]here'is nothing left of the pose that tlre
‘Jawyer receives only an honorarium slipped into the
hind pocket of his gown out of the gratitude of the
client.” Patterson & Cheatham, supra, at 263-264. Fee
setting is not only “the least ‘learned’ part of the pro-
fession” (Pet. App. A-5), as the district court aptly
observed, it is the most commercial aspect of law prac-
tice. M ‘eover, the setting of fees involves “an ines-
capable conflict of interest between lawyer and client” :
(Patterson & Cheatham, supra, at 269), so ‘that it is
a
an area less satisfactorily left to regulation by ethical
considerations primarily implemented by the person
facing conflicting pressures.
Although American legal history has been marked
by sporadic local efforts at collective fee setting since
the Republic’s earliest days,” the practice more gen-
erally prevailing until recent decades was reflected in
Justice Holmes’ opinion in H yde v. Moxie Nerve Food
Co., 160 Mass. 559, 560-561, 36 N.E. 585, 586):
Free competition prevails at the bar as well
as elsewhere, and different men command dif-
ferent rates of compensation—some of them
much in excess of any official salaries. Thus far
the experience of the Commonwealth has been
that this freedom has not operated to keep citi-
zens from the courts, or to shut the puor off
from justice.
15
Beginning in the 1950’s, however, minimum fee
schedules were widely adopted by unified bars or bar
associations at the state and local levels. Branca, Bar
Association Fee Schedules and Suggested Alterna-
tives: Reflections on @ Sherman Exemption that
Doesn’t Exist, 3 U.C.L.A.-Alaska L. Rev. 207, 208
(1974). Minimum fee schedules have been adopted by
bar organizations at the state-wide level in 34 states
and the District of Columbia and by more than 700
Yoeal bar organizations. Id. at 208. Moreover, since
many of these states now have unified or integrated
11 Jn 1796, members of the Boston Bar adopted schedules of
charges by which lawyers bound themselves “not to receive less
fees or compensation than therein expressed.” II Chroust. The
Rise of the Legal Profession in America 233, n. 36 (1965).
16
bars, with whose :cquirements a lawyer-member
must comply, the impact of such schedules has been
enhanced. Indeed, the vast majority of lawyers appar-
ently make some use of minimum fee schedules. Ar-
uould & Corley, Fee Schedules Should Be Abolished,
37 A.B.A.J. 655, 660 (1971). °
More than 35 years ago, in an effort to improve the
economic condition of the legal profession, the Ameri-
can Bar Association concluded that the purpose of
minimum fee schedules was “[e]ssentially * * * to
discourage competitive price-cutting and to check the
practice some laymen have of shopping around among
lawyers * * *.”” American Bar Ass’n, The Economics
of the Legal Profession 153 (1938). A more recent
study similarly concluded that the aim of minimum
fee schedules is still “to prevent that ‘shopping around’
among lawyers. which many regard as the reason why
the legal profession has failed to keep pace with the
doctors in income growth over the last generation.”
Mayer, supra, at 22. Not surprisingly, fee schedules
appear to be used most heavily by low-income lawyers.
Arnould & Corley, supra, 57 A.B.A.J. at 660.
Collective fee determination pits each client against
the organized strength of the bar as a whole, and
denies the client the right, enjoyed in other affairs,
to choose among offerings of comparable quality on
the basis of price. Moreover, collective fee setting
** See generally McKean, The /ntegrated Bar (1963) ; Lathrop
v. Donohue, 367 U.S. 820, Integrated bars have already been
established in 29 states, the District of Columbia and Puerto
Rico; Arkansas has a partially-integrated bar (1973-1974 Amer-
ican Bar Ass'n Directory 143A-146A) and Montana is expected
to have an integrated bar in 1975.
17
deprives both client and lawyer of the right to deter-
mine for themselves the compensation to be paid for
personal services rendered," and is directly incon-
sistent with the independence that has been the hall-
mark of the private practitioner in America.’ As
the district court observed (Pet. App. A-5):
[T]here is a basic inconsistency between the
lofty position that professional services, hot
commodities, are here involved and the position
that a minimum fee schedule is proper. The
former properly contemplates differences in
abilities, worth and energies expended of those
rendering the services. Such differences are
made as meaningless by a minimum fee sched-
ule as they would be by a maximum fee sched-
ule. :
The primary impact of minimum fee schedules is
upon small businesses and middle income individuals,
23 Cf. In re Estate of Freeman, 34 N.Y. 2d 1, 311 N.E. 2d
480, 355 N.Y.S. 2d 336, stating that, while a surrogate court’s
reference to a minimum fixed fee schedule in setting a fee
award was not invalid under a state statute similar to the
Sherman Act, the use of such schedules by lawyers to hinder
fee competition may be unethical. 34 N.Y. 2d at 11, 311 N.E.
2d at 485, 355 N.Y.S. 2d at 342.
2
4 One legal historian has written (I Chroust, Zhe Rise of the ©
Legal Profession in America xii-xiii (1965)) : [A] learned pro-
fession such as the legal profession always presupposes indi-
viduals who are free to pursue a learned art unhampered by
-ouitside political influence. Only a free individual can strive for
the greatest possible development and unfolding of all his moral
and intellectual powers by way of an undeterred application of
his chosen field of learning and the free exercise of his trained
judgment. Anything which tends to weaken the independence
of the lawyer as a ‘private person’ in the long run is destruc-
tive of the profession as a whole.”
18
who only occasionally use legal services. Proponents
of such fee schedules assert that they are most useful
“in routine affairs that affect the individual: divorce,
adoption, sale of a home, probating a smaller estate
or routine appearance in court.” Miller & Weil, Let’s
Improve, Not Kill, Fee Schedules, 58 A.B.A.J. 31,
32 (1972). Such schedules also typically cover transac-
tions likely to be encountered by small businesses,
such as ereation and dissolution of partnerships and
corporations, bill collection, minor litigation, foreclo-
sure and bankruptcy. See Arnould & Corley, supra,
57 A, BAS . at 657.
By contrast, legal services for large enterprises and
persons of wealth tend to be unaffected by minimum
fees, because the general level of fees to such individ-
uals and enterprises is usually well above the sched-
uled minima. The poor, on the other hand, have access
to various forms of publicly-financed or uncompen-
sated, voluntary legal serviées. See generally Note,
A Critical’ Analysis of Bar Association Minimum
Ice Schedules, 85 Harv. L. Rev. 971 (1972) ; Christen-
sen, Lawyers for People of monate ame is-39
(1970). Hee 5
Minimum fixed fee schedules have adverse economic
consequences. In some cases, the minimum fee level
will be higher than the level that would prevail if
the fee were set by the free competitive interaction —
of supply and demand so as to reflect the true economic
value of the services rendered. Although no evidence
was presented to the district court in this ease that
the minimum fee schedule involved here “does permit
the charging, by an attorney, of more than the services
19
are worth” (Pet. App. A-5), the court noted that
such schedules may result in inflated fees not measured
by ‘‘differences in abilities, worth and energies eX-
pended of those rendering the services”? (tbid.).”
Tn fact, the levels of minimum fee schedules strongly
suggest that such schedules provide “unreasonable”
fees that “cannot be justified by * * * economic con-
ditions.” Arnbuld & Corley, supra, 57 A.B.A.J. at
657, 658.
The impact of fee schedules, moreover, is not con-
fined to transactions pilled at the minimum level.
The fixing of a minimum fee naturally tends to affect
other charges because the scheduled minimum rate
can be and often is used as a starting point for pricing
of legal services—hoth those directly covered by the
schedule but billed at above-minimum rates and those
not covered by the schedule. ;
For many: of the legal services significantly affected
by minimum fee schedules, the demand is likely to
be price-inelastic, in that the client must employ a
lawyer. The instant case is a classic example, since
in Virginia various aspects of real estate transactions
must be handled by lawyers,” unlike other jurisdic-
tions, such as the District of Columbia, where similar
8 This may occur, for example, where a lawyer is handling
a large number of similar transactions and charges the same
fee for work that is essentially repetitive, involving marginal
costs far below the minimum fee level. Fixed fee schedules
thus may tend to produce charges that. are not related to the
professional factors—skill, time and responsibility—that should
form the basis for lawyers’ fees.
16 See Unauthorized Practice of Law Opinion No. 207,
Virginia State Bar—Opinions 239 (1965 ed.).
20
services have customarily been supplied by title
companies. In that situation, the consumer has no
choice but to pay at least the price established by the
fee schedule. }
Not surprisingly, real estate closing costs in. the
Washington metropolitan area are substantially higher
in Northern Virginia than in the District of Columbia,
in part because lawyers’ fees in Virginia were higher
than title company charges in the District for com-
parable services. See Washington Post, January 9,
1972, p. Al; id., January 10, 1972, p. Al ;,td., Janu-
ary 11, 1972, p. Al; td., January 12, 1972, p. Al.
In transactions involving discretionary use of legal
services, the inevitable tendency of minimum fee
schedules will be to lead some consumers to forego
Jegal services that they need and would use if a lawyer
charged, or had been free to charge, a lower fee. If
each individual lawyer can determine his own fees,
economic principles will operate as in other free mar-
kets, tending to force prices and the offering of legai
services to levels better matched to the publie’s needs."
** Under a regime of competitive fee-setting,. each lawyer's
offering of services is forced toward a level that equals the
price that clients can be induced to pay. “No lawyer can
demand much more than this price without losing clients to
lawyers whose services are considered comparable and who
are willing to accept no more’ than the normal profit already
included in total cost.” Note, supra, 85 Harv. L. Rev. at 976-
977. Unrestrained individual fee-setting also tends to allocate
limited resources to those lawyers who are most efficient in
fe 21
ll. THE PROHIBITIONS OF THE SHERMAN ACT APPLY TO
RESTRAINTS OF TRADE AMONG MEMBERS oF “LEARNED
PROFESSIONS”
In reversing the district court’s judgment as to
the Association, the court of appeals concluded that
th prohibition of the Sherman Act against “[e]very
* * * restraint of trade or commerce among the sev-
eral States’? does not apply to restraints upon the
practice of a “learned profession’’ such as law (see,
p- 21-30, supra). Insofar as that conclusion rests upon
erroneous assumptions about the reach of the Sher-
man Act into the “‘trade or commerce” of the nation,
we discuss it in point ITI. Here we show that such
an exemption is without basis in the language, history,
policy and past interpretations of the Act, and is not
required to accommodate any special circumstances
concerning the practice of law.
A. NEITHER THE LANGUAGE NOR LEGISLATIVE IISTORY OF THE
SHERMAN' ACT JUSTIFIES AN EXEMPTION FOR COMPETITIVE
RESTRAINTS BY “MEMBERS OF “rEARNED PROFESSIONS”
Section 1 of the Sherman Act prohibits “[Le]very
contract, combination in the form of trust or other-
wise, or conspiracy, in restraint of trade or commerce
among the several States, or with foreign nations
* * * 7 45 U.S.C. 1. This comprehensive prohibition
does not expressly exempt members of “learned pro-
fessions,’’ and such an exemption may not be lightly
utilizing them. See éd. at 977. See also Arnould & Corley,
supra; Miller & Weil, supra. - re
Arguments for and against fixed fee schedules among English
solicitors are analyzed in Zander, Lawyers and the Public
Interest: A Study in Restrictive Practices 185-208 (1968).
22
implied. See, e.g., United States v. Philadelphia Nat'l
Bank, 374 U.S. 321, 350-351; California v. Federal
Power Commission, 369 U.S 482, 485.
As we show below (see n. 18, infra), nothing in 3
the legislative history of the Sherman Act indicates
that the phrase “trade or commerce” was not in-
tended to cover all commercial restraints, no matter
by whom imposed. Accordingly, the Act has been con-
strued as applying to restraints affecting a variety of
services unrelated to the production of goods. See, e.7.,
Radovich vy. National Football League, 352 U.S. 445
(professional football); United States v. National
Ass’n of Real Estate Bds., 339 U.S. 485, 489-492 (real
estate dealers); American Medical Ass’n vy. United
States, 317 U.S. 519 (medical care and hospitaliza-
tion); Atlantic Cleaners & Dyers, Inc. v. United
States, 286 U.S. 427, 485-437 (dry cleaners) ; United
States v. Utah Pharmaceutical Ass’n, 201 F. Supp.
29, 35-36 (D. Utah), affirmed per curiam, 371 U.S.
* 24 (pharmacies).
If Congress had intended to exempt from the broad
prohibitions of the Sherman Act price-fixing or other
competitive restraints imposed by members of some
undefined category of “learned professions,” presum-
ably that intent wouldhave been reflected in the ex-
tensive legislative history of the Act. However, pro-
ponents of an exemption for the “learned professions”
have proffered no such history, and we have found
none.”
18 The only relevant history we have found shows that it was
thought unclear whether the original Sherman bill (S. 1, 51st
Cong., 1st Sess.), which applied only to combinations prevent-
23
B. THIS COURT HAS NEVER RECOGNIZED A SHERMAN ACT EXEMPTION
FOR MEMBERS OF “LEARNED PROFESSIONS”
The court of appeals based its ruling that the Sher-
man Act does not cover price-fixing by members of a
‘earned profession” upon dicta in this Court’s deci-
sions in Federal Baseball Club of Baltimore, Ine. V.
National League, 259 U.S. 200, and Federal Trade
Commission v. Raladam Co., 283 U.S. 643. In neither
ease, however, was that question before the Court.
Justice Holmes’ opinion in Federal Baseball, im hold-
ing that professional baseball was not “commerce”
covered by the Sherman Act, stated broadly that
‘‘personal effort, not related to production,.is not a
subject of commerce.” 259 U.S. at 209. The Court’s
decision rested, however, upon an approach to the
Congressional power to regulate commerce that it has
since rejected. The actual holding in Federal Base-
ball, characterized by this Court as an “aberration”’
ing competition in “articles of growth, product or manufacture,”
would apply to “combinations * * * between bar associations
and doctors for raising their prices or fees * * *.” 21 Cong.
Ree. 2726. Any doubts were presumably eliminated when the
language of the bill was broadened to cover, as enacted, “[e]very
contract, combination * * * or conspiracy, in restraint of trade
or commerce * * *.” 15 U.S.C. 1.
In United States v. South-Eastern Underwriters Ass'n, 522
U.S. 533, the Court held the insurance business not to be ex-
empt froin the Sherman Act, in the face of far more substantial
evidence than exists here that Congress did not intend the Act
to reach that business. See id. at 556-558, 574-577.
24
(Flood v. Kuhn, 407 U.S. 258, 282), has survived only
by virtue of the doctrine of stare decisis. Ibid.”
Raladam did not even involve the Sherman Act.
There the Court set aside a Federal Trade Commis-
sion order against the sellers of an obesity cure, under
Section 5 of the Federal Trade Commission Act, be-
cause there was no evidence of the injury to competi-
tion required under Section 5 as originally enacted.
In dictum the Court observed that while some doctors
may have been, misled by the seller’s advertisements,
they “follow a profession and not a trade” and were
not in competition with the seller. 283 U.S. at 653.
Since Federal Baseball and Raladam this Court has
made plain that neither case established an exemption
for “‘learned professions,” because it has in later cases
treated that question as still an open one which it had —
no need to decide.”
The court of appeals also relied ual Court’s
reference in Atlantic Cleaners & Dyers, Ine. v. United
States, supra, 286 U.S. at 435-436," to language in
~The Court’s comment. in Federal Baseball that “a firm of
lawyers sending out a member to argue a case * * * does not
engage in such commerce because the lawyer * * * goes to an-
other State” (259 U.S. at 209) would have been. superfluous if
lawyers were exempt from the coverage of the Sherman Act
by reason of being members of a “learned profession.”
* Thus, the Court found it unnecessary to decide in American
Medical Ass'n v. United States, 317 U.S. 519, 528, “whether a
physician’s practice of his profession constitutes trade under
§3 of the Sherman Act,” and in United States vy. National
Ass'n of Real Estate Bds., 339 U.S. 485, 491-492, declined to
“intimate an opinion” on whether the “professions” constitute
“trade” under the Sherman Act. Sorts
** See also United States vy. National Ass'n of Real Estate
Bds., supra, 339 U.S. at 490-491.
25
a decision by Justice Story in 1834, on circuit, in
which he held that mackerel fishing was a ‘‘trade”
within the meaning of the Coasting and Fishery Act
of 1793, 1 Stat. 316. The Nymph, 18 Fed. Cas. (No.
10388) 506 (C.C. Me.). In an extended. discussion con-
cerning the varied meanings of the word “trade,” Jus-
tice Story said in passing that ‘‘[w]herever any occu-
pation, employment, or business is carried on for the
purpose of profit, or gain, or a livelihood, not in the
liberal arts or in the learned professions, it is con-
stantly called a trade.” Id. at 507. That characteriza-
tion of the meaning of “‘trade” in a 1793 statute, how-
ever, provides little meaningful guidance in applying
to the realities of the 1970’s the broad language of the
Sherman Act of 1890.
In Atlantic Cleaners, moreover, the Court did not
rely upon the reference in The Nympl-to*‘learned
professions,” but rather applied Justice Story’s
_ “broad” interpretation of ‘‘trade” in holding that
the business of cleaning, dyeing and renovating clothes
constituted “trade or commerce” covered by Section 3
of the Sherman Act.
Cc. APPLICATION OF THE SHERMAN ACT TO THE COMMERCIAL ASPECTS
OF LAW PRACTICE WILL SERVE THE PURPOSES OF THE SHERMAN ACT
WITHOUT DISSERVING ANY IMPORTANT INTEREST UNDERLYING THE
REGULATION OF THE PRACTICE OF LAW
The ultimate purpose of the Sherman Act is to
protect the consumer through preservation of com-
petition. See, e.g., Northern Pac. Ry. United States,
356 U.S. 1, 4-5; United States v. Topco Assocs., Inc.,
566-536—74——-3
anny
20
405 U.S. 596, 610. Although an anti-competitive re-
straint in a business or profession may directly affect
only the members of that group, as is the case with
fixed minimum fee schedules, the ultimate economic
injury is borne by the public at large in the form
of higher costs, and unavailability of legal’ services.
For this reason, the court of appeals’ suggestion that
collective price fixing by members of learned profes- °
sions is consistent with the Sherman Act so long as
it westrains only the business of other members of
the profession, and not other commercial activities,
is unsound (Pet. App. B-15).
Nor is the Sherman Act rendered inapplicable to
commercial restraints within the learned professions
because such restraints are assertedly motivated by
a non-commercial purpose. Application of the anti-
trust laws does not depend upon the motives of those
who restrain competition,.| ut upon the economic
effects of their conduct. As ip Court stated'in United
States v. National Ass’n of Real Estate Bds., supra,
; 339 US. at. 489:
Price-fixing is per se an unreasonable restraint
of trade. It is not for the courts to determine
whether in particular settings price-fixing
serves an honorable or worthy end. An agree-
ment, shown either by adherence to a price
schedule or by proof of consensual action fixing
the uniform or minimum. price, is itself illegal
under the Sherman Act, no matter what end
it was.designed to serve. That is the teaching
of an unbroken line of decisions. [Accord,
United States v. Socony-Vacuum Oil Co., 310
27
U.S. 150, 224-226, n. 59; United States Vv.
Trenton Potteries Co., 273 U.S, 392, 396-401, ] *
In any event, as we ‘have indieated (see pp. 16-20
supra), a primary purpose of minimum fee schedules
is to increase lawyers’ incomes, and an inevitable
consequence is either to prevent consumers from using
legal services or to require that they pay more for the
legal services they se.
The claim that anticompetitive policies are being
enforced only to eliminate improper practices and
yaise ethical standards in an industry is no novelty
in antitrust litigation; too frequently, however, the
“ynethical’? conduct in question turns out to be the
vigorous competition that the antitrust laws are de-
‘signed to stimulate and protect. See, e¢.g., Sugar In-
stitute, Inc. v. United States, 297 U.S. 553, 598-602 ;
22 The result in Marjorie Webster Jr. College, Inc. Vv. Middle
States Ass’n of Colleges & Secondary Schools, Inc., 432 F. 2d
650 (C.A.D.C.), certiorari denied, 400 U.S. 965, is not to the
contrary, although we disagree with the cdurt’s rationale. That
case did not involve a per se offense like’ price-fixing. It held
that a college accreditation association’s refusal to accredit any
proprietary institution did not violate Section 1 of the Sherman
Act. Drawing a line between commercial and “non-commercial
aspects of the liberal arts and the learned professions” (452
F. 2d at 654), the court found that the challenged restriction
was motivated solely by educational concerns, not by a purpose
to effect the commercial aspects of education, and’ thus was per-
missible as an incidental restraint of an essentially noneommercial
activity. The court declared, however, that restrictions with com-
mercial motivations would be subject to antitrust’ policy. 432 F. 2d
at 654-655. .
We question the soundness of the “commercial motivation”
test, in view of this Court’s decisions in Real Estate and other
‘eases, Nevettheless, even under Marjorie Webster, bar associa-
‘tion fixed minimum fee schedules must be viewed as essentially
“eommercial,” rather than non-commercial (see supra, Pp.
14-17), and hence invalid. ;
28
Fashion Originators’ Guild of America, Inc. v. Fed-
eral Trade Commission, 312 U.S. 457, 467-468 ; United
States. v. National Ass’n of 7“ Estate Bds., supra,
339 U.S. at 489.
Application of the Sherman Act to fee-fixing by
lawyers will not, as the court of appeals feared, neces-
sarily undermine admission standards and other
ethical criteria that might have some restr aining effect
on competition. Unlike price-fixing, which is illegal
per se because of its almost uniformly pernicious ef-
fects, most other restraints of competition are subject
to the rule of reason, which calls for balancing the
various harms and benefits resulting to the public by
the coaduct in question. See Standard Oil Co. v.
United States, 221 U.S. 1, 61-68; Northern Pac. Ry.
v. United States, supra, 356 U.S. at 4-5; United
States v. Topco Assocs., Inc., supra, 405 U.S. at 606-
607. The impact of the Sherman Act on such other
professional ‘standards is not before the Court in this
ease, and cannot effectively be considered in the ab-
stract. We note only that invalidation of minimum
fee schedules is not inconsistent with a ruling that
the Sherman Act permits the collective adoption and
enforcement of standards concerning essentially non-
commercial professional conduct. that are no more
restrictive than necessary to assure the public a satis-
factory level of professional service. Cf, United States
v. Oregon State Medical Soc’y, 343 U.S. 326, 336 ;
Silver v. New York Stock Exch., 373 U.S. 341, 357.
The decision of the court of appeals in this case
“actually forges a new exemption to the Sherman |
Act.’ United States v, Oregon State Bar, No. 74-362
ba
29
(D. Ore.), decided November 22, 1974 (Pet. Br. App.,
B-18). In Oreyon State Bar, the district court denied
the ‘state bar association’s motion to dismiss an
antitrust action by the United States challenging mini-
mum fixed fee schedules as violating Section 1 of the
“Sherman Act. In declining te follow the court of ap-
peals’ decision here, the district court noted (id, at
B19):
There are indeed many factors which might
convince a lawmaking body that the legal pro-
fession should not be subject to all the rigor
of the Sherman Act. However, the creation of
‘exemptions to the Sherman Act is the province
of Congress, not the courts. * * * [ft is not for
this court to create a new exemption tothe
Sherman Act for so-called ‘“‘learned profes-
sions.”
Additional reasons why any Sherman Act exemp-
tion for lawyers should be made by Congress, not by
the courts, were recently indicated by the district court
in United States v. National Soc’y of Professional
Eng’rs Civ. No. 2412-72 (D.D.C.), decided December
19, 1974. In rejecting a claim that the Sherman Act
exempted limitations on competitive bidding imposed
by an association of EOE Toe upon its mem-
bers, the court stated (App., infra, 8a) :
The issue of whether a profession is a learned
_ = one is not seen by the Court as the appropriate
approach for resolving the higher question of
.. whether the Sherman Act is applicable to that
profession. To engage in such an inquiry would
chart the Court on a semantic adventure of
questionable value. It would be a dangerous
_ form of elitism, indeed, to dole out exemptions
, 30
to our antitrust laws merely on the basis of the
educational level needed to practice a given
profession, or for that matter, the impact which
the profession has on society’s health and wel-
fare. |
Lawyers provide services that are often also avail-
able from other sources, such as estate brokers
and title companies. If the She Act prohibits
such alternative sources from fixing the prices of such
services (see, e.g., United States v. National Ass’n of
Real Estate Bds., supra), then surely it prohibits such
price-fixing by lawyers, absent a clear expression of
Congressional intention to exempt one group but not
the other. In any event, “if exceptions [for ‘learned
professions’] are to be written into the Act, they must
come from the Congress, not this @surt” (United
State luderwrittfs: Ass’n, 322 U.S.
533, 861), because, “to make the delicate judgment on
the relative values to society of competitive areas of
the economy, the judgment of the elected representa-
tives of the people is required.’’ United States v. Topco
Assoes., Inc., supra, 405 U.S. at 612."
** Thé Court has found an implied exception to the Sherman
Act for activities that may incidentally restrain commerce
where other legislation has expressed a Congressional policy to
exempt certain actions undertaken by a group primarily for
purposes other than to restrain trade or commerce. £.g., Apex
Hosiery Co. v. Leader, 310 US. 469; United Mine Workers v.
Pennington, 381 U.S. 657, 661-869. It has also based an implied
. exception upon the need to accommodate constitutionally-
protected rights to petition for redress of grievances or to en-
gage in other types of political action. £.g., Eastern R-R. Presi-
dents Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127; Otter
Tail Power Co. v. United States, 410 U.S, 366, 879-380. No
such basis exists, however, for an éxemption df commercial
restraints by members of “learned /profeasions.”
WETS: bait Fae . a)
31
I. THE MINIMUM FIXED FEE SCHEDULE RESTRAINS
INTERSTATE COMMERCE ©
In holding that the Association’s minimum fee
schedule does. not restrain interstate commerce, the
court of appeals relied upon an unjustifiably narrow
view of the scope of: commerce covered’ by the Sher-
man Att, and erred’ in concluding that the record in
this case did not establish the requisite interstate
nexus.
A. LOCALLY-ORIENTED RESTRAINTS ARE PROHIBITED BY THE SHERMAN
ACT IF, VIEWED EITHER IN ISOLATION OR AS PART OF A GENERAL
PRACTICE, THEY MAY SIGNIFICANTLY AFFECT INTERSTATE COM-
MERCE
The Sherman Act’s prohibition of ‘“[e]very con-
tract, combination * * * or conspiracy, in restraint of
trade or commerce” extends to the full reach of Con-
gress’ power to regulate interstate and foreign com-
merce. E.g., Apex Hosiery Co. V. Leader, 310 U.S.
469, 495; United States v. Frankfort Distilleries, Inc.,
324. U.S. 293, 298. The Sherman Act applies both to
activities occurring in commerce and to those sub-
stantially affecting it. Burke v. Ford, 389 U.S. 320,
~ 321; United States v. Employing Plasterers Ass’n, 347
U.S. 186, 189. :
The Act’s applicability, to intrastate transactions
that affect interstate commerce does not depend on :
whether the particular activity is “loeal” in some sense.
Mandeville Island. Farms, Ine. V. American. Crystal
Sugar Co., 334 U.S. 219,. 234; cf. United States %_
Wrightwood Dairy Co., 315 U.S. 110, 121; Wickard. ve
Filburn, 317 U.S. 111, 118-129; Katzenbach v. Me-
Clung, 379 U.S. 294, 301-305. :
a emeirs
32
The source of the restraint may he intrastate,
as the making of a contract or combination us-
ually is; the application of the restraint may
be intrastate, as it often is; but neither matters
if the necessary effect is to stifle or restrain
commerce among the states. If it is interstate
commerce that feels the pinch, it does not mat-
ter how local the operation which applies the
squeeze. [United States v. Women’s Sportswear
Mfrs. Ass’n, 336 U.S. 460, 464. ]
The Court recently quoted Women’s Sportswear with
approval in Gulf Oil Corp. v. Copp Paving Co., No.
73-1012, decided December 17, 1974, slip op. 8.
B. THE RESTRAINTS CHALLENGED IN THIS CASE SUBSTANTIALLY
AFFECT INTERSTATE COMMERCE
The district court’s findings of fact show that the
application of minimum fixed fee schedules to real —
estate transactions in northern Virginia substantially
affects interstate commerce.
The court found that ‘a significant portion of
funds furnished for the purchasing of homes in Fair-
fax County comes from without the State of Virginia”
(Pet. App. A-4), and that almost half of the deeds of
trust of under $100,000 that identify the location of
the mortgagee, as sampled in the Office of the Record-
er of Deeds for Fairfax County, shuwed the mort-
gagee to be located outside the state (id. at A-7). Al-
most all the lenders making mortgage loans require
title insurance and a title examination (id. at A-4).
The court also found that a substantial percentage of
Fairfax County residents work outside of Virginia
and that a significant volume of loans on Fairfax
7
+4 $5.
33
County real estate is guaranteed by government agen-
cies headquartered in the District of Columbia (ibid.),
~and that more than 31 percent of the persons who
lived in Fairfax County in 1970 had lived outside of
Virginia in 1965 (id. at A-T).
On these facts, the district court found the Associa-
tion’s minimum fixed fee schedules for title examina-
tions and for the preparation of title insurance papers
by attorneys in Virginia substantially affect inter-
state commerce (id. at A-4).
The court of appeals did not disturb these findings.
Instead, it rejected the ultimate conclusion that the
challenged fee schedules directly and substantially
affect interstate commerce. This ruling, as noted (see
pp: 21-22, supra), rested on theories of the limited
scope of the commerce power no longer current, and
the mistaken view that use of an attorney’s services
affects commerce only incidentally because the inter-
state aspects of real estate transactions in Fairfax
County are merely ‘‘a fortuitous circumstance” (Pet.
App. at B-18).
This unrealistic characterization ignores the clear
pattern and heavy volume of interstate transactions
shown in the record and found by the district court.
’ No out-of-state lender will finance a real estate trans-
action without the safeguards that are available in
Virginia only through the services of an attorney.
Those services are not incidental, but they are indis-
pensable to interstate financing of real estate transac-
tions in Virginia, to the purchase of housing by new
34
Virginia residents, and to government financing of
real estate transactions there.”
IV. THE ACTIONS OF THE STATE BAR IN PROPOSING AND
ENFORCING THE CHALLENGED MINIMUM FEE SCHEDULE
ARE NOT EXEMPT FROM THE SHERMAN ACT AS INVOLY-
ING “‘STATE ACTION’’*
The court of appeals concluded that the actions
of the State Bar in proposing minimum fixed fee
schedules and threatening to enforce them were within
‘the implied exemption from the Sherman Act for
*‘state action’”’ recognized in Parker v. Brown, supra,
317 U.S. at 350-352 (Pet. App. B-4+—B-12). Under
that doctrine, restraints of trade do not violate the
Sherman Act where they (1) derive their ‘‘authority
and * * * efficacy from the legislative command of
the state’’ (317 U.S. at 350), (2) consist of activities
of ‘‘a state or its officers or agents * * * directed by
its legislature” (id. at 350-351), and (3) are adopted,
approved and enforced by the state or a state agency,
acting as such. Id. at 352. We submit that this doc-
trine does not exempt from the Sherman Act the
2*Jt cannot seriously be suggested that lawyers are neces-
sarily beyond the coverage of other acts of Congress regulat-
ing commerce (e.g.. 29 U.S.C. 141, e¢ seg. (labor-management
relations); 29 U.S.C. 201, e¢ seg. (fair labor standards}: 29
U.S.C. 651, et seg. (occupational safety and health) ; 42 U.S.c.
2000e, et seg. (equal employment opportunities) ). Respondents
have not suggested, nor did the court of appeals hold, that the
practice of law is exempt from the Sherman Act because it
is beyond the power of Congress to regulate.
28 While we specifically address only the question whetiier the
court. of appeals erred in holding the State Bar's actions
exempt under Parker v. Brown, we believe that the Associa-
tion’s claim of such an exemption is invalid a fortiori.
35
State Bar’s activities in proposing and enforcing the
minimum fee schedules.
Parker v. Brown was a suit by a produeer and
packer of raisins seeking to enjoin the California
Director of Agriculture from enforcing an agricul-
tural proration program imposing price and other
limitations on; the sale of raisins, established pursuant
to state legislation specifically providing for such pro-
grams. The plaintiff claimed that the state program
was preempted by the Sherman Act and the Agricul- _
tural Marketing Agreement Act, 50 Stat. 246, as
amended, 7 U.S.C. 601, et seg., and that it imper-
missibly burdened interstate commerce in violation
of the Commerce Clause. :
Participation in these programs was mandatory,
and the statute provided criminal penalties for non-
cempliance. Further, even though organization of a
prorate marketing plan was first proposed by private
parties (i.e., the producers), and althdugh the ‘ pro-
ducers had to approve the prorate program by refer-
endum, the State Agricultural Prorate Advisory Com-
mission had the final authority to revise, modify, re-
ject, or approve proration programs. This Commission
consisted of the California Director of Agriculture
and eight other members (including one consamer
representative) appointed by the Governor with the
consent of the State Senate. The Commission was to
exercise final authority only after holding a public
hearing and finding that the program would carry
out the objectives of the legislation, Thus, the Com-
mission possessed and exercised full control over the
establishment of proration programs. Jd. at 352. That
36
the state was the ultimate source of these programs
was Clear.
As this Court pointed out, a declared purpose of the
statutory scheme was ‘‘to ‘conserve the agricultural
wealth of the State’” by raising and maintaining
prices. Id. at 346. Thus, the California legislature had
in a clear and specific manner established a basic
state policy against free price competition in the mar-
keting of raisins and had commanded state officials
and private parties to carry out this policy under
penalty of law.
This Court did not decide whether the Sherman
Act preempted the state program, because it con-
clufled that the Act was inapplicable. The Court held
that the program was sv specifically mandated by the
~state as to constitute ‘state action,” i.e., an act of
government, to which the Sherman Act was not in-
tended by Congress to apply. Id. at 350-352. Assum-
ing that the prorate program would violate the Sher-
man Act if organized and effected by virtue of a
contract, combination or conspiracy of private per-
sons, the Court held that, because the program “de-
rived its authority and its efficacy from the legislative
command of the state and was not intended to operate
or become effective without that command” (id. at
350), it was in fact that action of the State of Cali-
fornia and hence not subject to the Sherman Act.
The Court repeatedly emphasized that the antitrust
exemption it found was limited to official action of
a state’s officers or agents which is directed, com-
manded or imposed by the state legislature or by a
37
duly authorized arm of the state Sa at 351-352;
emphasis supplied) :
The Sherman Act makes no mention of the
state as such, and gives no hint that it was
intended to restrain state action or official
action directed by a state. * * *
* * * * *
* * * Here the state command to the Com-
mission nd to the program committee of the.
California Prorate Act is not rendered unlaw-
ful by the Sherman Act * * *.
The state * * * imposed the restraint as an
act of government which the Sherman Act did —
not undertake to prohibit.
The State Bar’s activities in connection with the
minimum fee schedule did not constitute the direction,
command or imposition of the program by the State
of Virginia or its officials. Under Virginia law, the
State Bar is an association ‘‘composed of the attor-
neys-at-law of this State * * *.”’ Va. Code 54-49.
Governed by rules promulgated by the Supreme Court
of Virginia,” the State Bar is “to act as an admin-
istrative agency of the Court for the purpose of inves-
tigating and reporting violations’? of rules adopted
by the Court pertaining to the practice of law. Ibid.
The Supreme Court is authorized to require that all
persons practicing law in Virginia be members of
*> Prior to 1974, the state court was known as the Supreme
Court of Appeals, but we shall refer to it by its current name.
38
the State Bar in good standing (ibid.), and it has
done so. Article IV, Part Six, Va. Sup. Ct. R., 205
Va. 1033, as amended, 210 Va. 411.
“Only active practitioners, the vast majority of
whom practice privately (see p. 13, supra, n. 9), may.
serve as officers of the State Bar. 205 Va. 1011, 1033.
It is controlled by a Council consisting of attorneys
elected from the state’s judicial circuits plus six judi-
cially-appointed members and the President, the im-
mediate Past-President and President Elect (Pet.
App. B-11, n. 31). The State Bar derives funds from
fees collected from member attorneys, which are de-
posited in a State Bar Fund in the State Treasury,
earmarked for use only by the State Bar, and dis-
bursed on vouchers from officers of the State Bar. Va.
Code 54-52. The Council has power “[t]o make alloca-
tions of funds within the amounts available.’’ Rule
9(g¢), 205 Va. 1038.
Thus, the State Bar is essentially a self-regulating
organization of private persons operating under the
aegis of state law and general rules established by
the Supreme Court. It serves as the Court’s adminis-
trative agency, to investigate and report upon viola-
tions of the rules adopted for governance of the Bar.
The Supreme Court has issued such rules, but they
do not establish or provide for minimum fee schedules.
See Articles IT and IV, Part Six, 205 Va. 1011, as
amended, 210 Va. 411, 211 Va. 295.”
*° Canon 12 of the Canons of Professional Ethics promulgated
by the Supreme Court of Virginia, 205 Va. 1012, referred to
“the customary charges of the Bar for similar services” as one
of six factors that could properly be considered in fixing the
fee. 7d, at 1015-1016. However, it also emphasized that “[n]o
39
The State Bar was involved in the promulgation and
enforcement of the Association’s fixed fee schedules
challenged here, and the parties have stipulated that
the Supreme Court has declared “that suggested fee
schedules and economic reports of the State Bar and
of Local Bar Associations involve questions of ethics
within the [authority of]” the State Bar and the Su-
preme Court (Pet. App. A-19). The district court
found that the State Bar has issued opinions (A. 45-
48) that in effect declare unethical the practice of
habitually charging fees below those suggested in. a
minimum fee schedule (Pet. App. A-5). Moreover, the
State Bar distributed minimum fee schedule reports
which became the basis for the minimum fee schedules
published by local bar associations in Virginia, in-
cluding the Association (id. at A-18).
The fact that the Supreme Court has declared that
suggested fee schedules and economic reports involve
questions of ethics does not establish that the sched-
ules are “state action.” Under Parker v. Brown the
one of these considerations in itself is controlling.” /d. at 1016.
“Customary charges” therefore appears to refer to the generally
prevailing price level for the service, rather than to fixed fees
as such.
Effective January 1, 1971, the Supreme Court repealed the
previous Canons of Professional Ethics and replaced them with
the Code of Professional Responsibility promulgated by the
American Bar Association. 211 Va. 295. Ethical Consideration
2-18 and Disciplinary Rule 2-106(B) (®) provide, respectiy ely,
that suggested fee scheduies and “customary charges” in the
couununity offer some guidance as to. refsonable fees. Jd. at
302, 213. The State Bar, however, has sin¢e declined to follow
the ruling of the American Bar Association that even habitual
failure to follow a m‘nimum fee schedule is itself not mis-
conduct (see p. 3, supra, n. 4), and has_reaffirmed_its view
that such conduct is unethical (A. 47-48).2
40
question is whether the state has authorized and re-
quired such schedules, not whether it had sanctioned
regulation of their use. See United States v. Oregon
State Bar, supra (Pet. Br. App. B9-B13) ; ef. In re
Estate of Freeman, discussed at p. 17, supra, n. 13.
The fee schedules here were not required by any
legislative commanc of the state,” and were not
adopted, specifically approved, or directly enforced by
the Supreme Court, the only arguably relevant state
agency.” The court of appeals held dispositive the
fact that the state court has a general statutory duty
to supervise the State Bar in prescribing and enfore-
‘ing the court’s code of ethics for attorneys. The ‘‘state
action” exemption, however, does not arise from the
meré fact that economic activity is regulated by the
state, even when that regulation is extensive and
detailed.
As this Court recently stated in a different con-
text, “the inquiry must be whether there is a suffi-
ciently close nexus between the State and the chal-
lenged action of the regulated entity so that the
action of the latter may be fairly treated‘ as that of
the State itself.’’ Jackson v. Metropolitan Edison Co.,
27 The court of appeals characterized certain stipulations as as-
serting that the regulatory program of the State Bar had “re-
ceived its authority and efficacy from legislative command”
(Pet, Br. App. B-12), but it is evident from the underlying
stipulations (Pet. App. A-17—A-19) that the court of eppeals’
conclusory description of the stipulations goes beyond their
actual seope.
** As the court of appeals “rectly recognized (Pet. App.
B-11), the State Bar itself, consis.ing of those subject to regu-
lation, has insuflicient independence to be regarded as a state
agency under Me™ state action” doctrine. See Asheville Tobacco
Bd. of Trade, Ine. v. Federal Trade Commission, 263 F. 2d 502,
508-510 (C.A. 4); ef. Gibson v. Berryhill, 411 U.S. 564, 578-579.
41
No. 73-5845, decided December 23, 1974, slip op. 6.
This test, invoked to determine state action for pur-
poses of the Fourteenth Amendment, is not without
relevance here.
The theory of the state action limitation of Parker
v. Brown is that Congress did not intend the Sher-
man Act to reach action taken by the states in their
sovereign capacity. Whether particular conduct con-
stitutes “state action’’ for this purpose, however, turns
on whether the state has affirmatively required the
conduct, See, e.g., Asheville Tobacco Bad. of Trade,
Inc. vz Federal Trade Commission, 263 F. 2d 502,
508-510 (C.A. 4); George R. Whitten, Jr., Inc. v.
Paddock Pool Builders, Inc., 424 F. 2d 25 (CA. 1),
certiorari denied, 400 U.S. 850; New Mexico v. Amer-
ican Petrofina, Inc., 501 F. 2d 363, 369-370 (C.A. 9).
The question is “whether the anti-competitive result
actually is a goal of the state entitled to the state’s
immunity rather than a private group masquerading
under the banner of ‘state action.’ ’’ Id. at 369.
Here, the state was not involved to the extent of
making the anticompetitive conduct a mandatory re-
quirement. The court of appeals recognized that the
Supreme Court has not specifically approved or dis-
approved the schedules in question (Pet. App. B-11),
but found sufficient active supervision by that court
to satisfy Parker under the rationale of its earlier
interpretation of Parker in Washington Gas Light
Co. v. Virginia Elec. & Power Co., 438 F, 2d 248
(C.A. 4). In that case the court of appeals held
that a regulatory agency’s failure to. disapprove acts
by those regulated supports an inference that “silence
42
means consent’? and hence establishes the state in-
volvement required by Parker. Id. at 252. We submit
that this analysis, which the Fifth Circuit ° * and the
court in Oregon Bar refused to follow (Pet. Br. App.
_B-12), is unsound.
There is a sharp distinction between regulatory au-
thority that permits, or fails to prohibit, particular
restraints on competition, and state action requiring
particular conduct. Cf. United States v. Borden Co.,
308 U.S. 188, 198-201. This distinction is highlighted
in the Court’s recent holding that a-utility (like that
involved in Washington Gas Light) was not engaged
in “state action” when it terminated service to a non-
paying customer (Jackson v. Metropolitan Edison
Co., supra; slip op. at 12; emphasis supplied) :
| The nature of governmental regulation of pri-
vate utilities is such that a utility may. fre-
quently be required by the state regulatory
scheme to obtain approval for practices a busi-
ness regulated in less detsil would be free to in-
stitute without any approval from a regulatory
body. Approval by a state utility commission of
such a request from a regulated utility, where
the Commission has not put its own weight on
the side of the proposed practice by ordering
it, does not transmute a practice initiated by
the utility and approved by the Commsiasion
into “state action.”
Similarly, this Court has long held that conduct
merely authorized, but not commanded, by a regula-
tory statute is not exempt from the antitryst laws.
-
See Gas Light Co. v. Georgia Power Co., 440 F, 2d 1155,
1139-1140 (C.A. 5), certiorari denied, 404 U.S. 1062.
43
United States v. Radio Corp. of America, 358 U.S.
334, 350-351; California v. Federal Power Comn.is--
sion, supra, 369 U.S. at 485; United States v. Phila-
delphia Nat’l Bank, supra, 374 U.S. at 352; Otter
Tail Power Co, v. United States, supra, 410 U.S. at
373-375.) This distinction is made clear by Continen-
tal Ore Co. v. Union Carbide & Carbon Corp., 370
U.S. 690. There the Court rejected a private party’s
claim that its status as exclusive purchasing agent for
the Canadian government brought it within the exemp-
tion of Parker v. Brown, because there was no indica-
tion that any Canadian government official had “di-
rected” the defendant to engage in the anticompetitive
conduct (id, at 706) or that Canadian law “compelled”
such conduct. Id. at 707.
Numerous enterprisésin the American economy are
tlosely regulated because they involve essential serv-
ices affected with a public interest. But this does not
transmute them into *‘state actors in all their actions.”
Jackson v. Metropolitan Edison Co., supra, slip op.
at 8. “Doctors, optometrists, lawyers, Metropolitan
[Edison] and * * * [a] grocery selling a quart of
‘milk are ali in regulated businesses, providing argu-
ably essential goods and services, ‘affected with a
public interest.” We do not believe that such a status
converts their every action, absent niofe, into that of
the State.” Zd. at 8-9. Thus, we Cireuit has
erred in assuming that under Parker v. Brown the
existence of a general scheme of state regulation, of
itself, exempts all supervised activity from the Sher-
man Act.” rg
-” Moreover, even a general statutory scheme by which eom-
petitors regulate themselves is subject to the principle that
44
There is no evidence here that minimum fixed fee
schedules were required either by the Virginia legis-
lature or the Supreme Court. Because ‘the Supreme
Court is not a regulatory-agency, its supervisory duty
has been confined to the decision of individual cases
and to the implementation of the broad guidelines
established by the Virginia legislature. Those: guide-
lines specifically require that, in.its oversight of the
bar, the court not adopt rules ‘‘inconsistent with any .
statute * * *.°? Va. Code 54-51. The court of appeals’
reasoning misconceives the role of the’‘Supreme Court
and fails to recognize that the existence of some degree
of governmental oversight or involvement does not
itself make Parker applicable. See George R. Whitten,
Jr., Ine. v. Paddock Pool Builders, Inc., supra, 424
F. 2d at 30; Hecht v. Pro-Football, Inc., 444 F. 2d
931, 935 (C.A.D.C.); United States v. Pacific SW.
Airlines, 358 F: Supp. 1224 (C.D. Cal.)
collective restraints imposed thereunder are not exempt from
the antitrust laws unless they are essential to achievement of
the objectives of the statutory scheme, and are no more re-
strictive than necessary. Silver v. New York Stock Each,
supra, 373 U.S. at 361. This principle is not properly applicable
to determine whether a case involves state action under Parker
v. Brown. It has been invoked, however, to determine whether
state and federal law may be reconciled, without one or the
other being completely ousted. Merrill, Lynch, Pierce, Fenner &
Smith, Ine. v. Ware, 414 U.S. 117, 127. No question of irrec-
oncilable conflict between state law and the Sherman Act was
decided in Parker, nor is it presented with respect to the Vir-
ginia regulatory plan for lawyers. If it were, a
under the test of Silver and Merrill Lynch, collective price
fixing under such a statutory scheme is neither essential for
regulation of the bar (see supra, pp. 15-20), nor ure least re-
strictive alternative for prevention of abuses in fee determina-
tion.
ubmit that, .
45
That the State Bar functions as an administrative
agency of the Virginia court for the purpose of en-
forcing the court’s rules for governance of the Bar
does not convert every action the State Bar takes
into a command of the court. No court rule requires
it to propose or enforce local minimum fixed fee sched-
wes. Its members, on the other hand, are directly and
personally interested in fee levels. The State Bar exer-
cised a private initiative, Net required by statute or
court rule, when it proposed schedules and determined
that habitual failure to adhere to them would con-
stitute unethical conduct.
A similar conclusion was reached in United States v.
Oregon State Bar, supra. An Oregon statute declared
the state bar to be an agency of the state for the
purpose of carrying out the provisions of the state
integrated bar law, and also to be “a public corpora-
tion and an instrumentality of the Judicial Depart-—
ment” of the state’s government (Pet. Br. App. B2).
After finding that the Oregon bar was composed of
- private attorneys, that no state statute authorized
fixed fee schedules, and that the schedules were not
the product of a disinterested state agency, the dis-
trict court held that “the substantial state direction
and involvement required to meet the legislative man-
date requirements [of Parker] and to elevate these
Oregon State Bar activities to the plateau of ‘state
action’ immunity” were lacking (id. at B9). The same
reasoning applies here.
46
A different, and more ‘diffieult,* case might be pre-
sented if the Supreme Court or some other independent
public agency of the state, acting under explicit statu-
tory authorization, required attorneys to adhere to
fixed fee schedules.” But since the fee schedules
“On this record, the Court need not consider the extent to
which a state requirement for pice fixing among lawyers might
be inconsistent with the Sherman Act. In Parker the Court
stated that “[a] state does not give immunity to those who
violate the Sherman Act by authorizing them to violate it, or
by declaring that their action is lawful” (517 U.S. at 351), and
that a state cannot become a “participant in a private agree-
“wut or combination by others for restraints of trade.” /d. at
351-352. Citing Parker, the Court has also observed that
“when a state compels retailers to follow a parallel price policy,
it demands private conduct which the Sherman Act forbids.”
Nchwegmann Bros. vy. Calvert Distillers Corp., 341 U.S. 384
389. :
* For example, in the early history of this country several
states adopted laws directly interfering with competitive forces
in the market for legal services, in that they established maxi-
mum levels for fees. See II Chroust, supra, at 232-277
Similarly, under the statute governing English solicitors,
minimum remuneration for “no-contentious” business (business
for which a tribunal cannot tax solicitors’ fees as costs), is
regulated by orders issued under the Solicitors’ Act, 1957, as
amended, 5 & 6 Eliz. 2, ch. 27, Sec. 56. These orders are made
not by a private organization but by a committee consisting
of the Lord Chancellor, the Lord Chief Justice, the Master
of the Rolls, the President of the Law Society (the English
equivalent of a bar association), the president of a provincial
law society, and, so far as céncerns business relating to land
registry, the Chief Land Registrar. Moreover, the orders are
statutory instruments that can be annulled by either house of
Parliament, 36 Halsbury’s Laws of England, Solicitors € 142,
p. 107 (8d. ed. 1961). Litigated business is subject to taxation
of costs having regard to skill, labor, and responsibility, except
where there is an agreement of the parties. Such agreements do
not affect rights or remedies for recovery of costs payable by
any person other than the client, and agreements for excessive
47
were not authorized by any state statute, were not
required by the Supreme Court, and were not pronvl-
gated by an independent and disinterested state body,
and since the public had no voice in their establish-
ment, the elements for immunity defined in Parker are
absent. Because, as in the Oregon Bar case, supra,
the minimum fixed fee schedules were not a product
of a valid comniand of the state and were not estab-
lished by independent state officials, Parker is in-
applicable.
amounts may be referred by the costs taxing officer to the tri-
bunal, which ean reduce the amounts. 7d. at 122-129.
A. barrister’s fees are fixed by his clerk through negotiation
with his instructing solicitor. Kiralfy, Zhe English Legal Sys-
fem 255 (Sth ed. 1973). English barristers are now regulated
by a General Council of the Bar, consisting of the Attorney
General, the Solicitor General, the chairman of the Council
and elected barristers. A rule setting an absolute minimum fee
for Queen’s Counsel and juniors, respectively, was abrogated
in 1967. 3 Halsbury’s Laws of England, Barristers, § 54, p. 40,
n. /. (Sd ed. 1953, 1972 Supp.). .
“In view of this Court’s denial of the State Bar's motion
“to dismiss, we do not address in detail the State Bar’s conten-
tion concerning the Eleventh Amendment. Since the State Bar
is not the alter ego of the State of Virginia, nor a state agency
in any relevant sefse (see p. 40, supra, n. 28), a judgment—
even for money damages—against the State Bar, which has its
own funds (see p. 38, supra), would not be equivalent to a
judgment against the state. Accordingly, the Eleventh Amend-
ment does not immunize the State Bar frdém a suit against
it in the federal courts. See generally Edelman v. Jordan, 415
U.S. 651, 668-671. To hold that under the Eleventh Amend-
ment the State Bar is immune from suit in federal court would
in effect be to hold it immune from Jiability for violations of
the antitrust laws, for suits to enforce those laws may be
brought only in federal courts. See 15 U.S.C. 4, 15.
The district court having severed the questions of liability
and damages, neither court below has definitively ruled on
\
Ph Setar thy 4 ae as Yo EE ATS
48
Paraphrasing Metropolitan Edison, even if lawyers
in Virginia could be regarded as being “heavily regu-
lated * * *, enjoying at least a partial monopoly” in
the praviding of legal services within the state, and if
a state agency had found their challenged actions to be
‘permissible under state law,” that would not suffi-
ciently connect the state with those actions as to make
them attributable to the state for purposes of the
Sherman Act. Slip op. at 158.
CONCLUSION
For the reasons stated, the judgment of the court
of appeals should be reversed.
Respectfully submitted.
| Rosert H. Bork,
Solic’‘or General.
THomas FE. Kavren,
Assistant Attorney General.
_ GeraLp P. Norton,
Assistant to the Solicitor General.
Howarp E. SHapro,
Attorney.
JANUARY 1975.
whether or to what extent either respondent might be liable
in damages to the petitioners or to other members of the
class they represent. It is therefore premature for this Court
to consider issues relating to damages, such as whether a non-
retroactive imposition of liability would be warranted. Com-
pare Chevron Oil Co. v. Huson, 404 U.S. 97, 105-109; Simpson
v. Union Oil Co., 396 U.S. 13, 14. The pendency of the dam-
age claims, however, coupled with petitioners’ request for a
declaratory judgment, means that, even if injunctive relief is
no longer required against either the Association (because “.
has now withdrawn the challenged schedule) or the State Bar
(e.g., because of immunity), the case is not moot. Cf. Super
Tire Engg Co. v. McCorkle, 416 U.S. 115.
° |
otal
APPENDIX
my Dee. 19, 1974, James F. Davey, Clerk]
Un States District Court for the District of
Columbia
Civil Action No. 2412-72
Unitep Srares OF AMERICA, PLAINTIFF
Vv.
NATIONAL SOCIETY OF PROFESSIONAL ENGINEERS,
DEFENDANT
Opinion
This is an antitrust suit brought by the United
States against the National Society of Professional
Engineers (NSPE) under §1 of the Sherman Act,
15 U.S.C. .§2, which declares illegal every “contract,
combination * * * or conspiracy, in restraint of trade
or commerce among the several States. * * *’? The
alleged offense centers on Section 11(e) of defend-
ant’s Code of Ethics which prohibits members of
NSPE from submitting competitive bids for their
engineering services.’ Plaintiff seeks to enjoin the
combination and conspiracy which maintains the pro-
hibition against competitive bidding as well as to
have canceled all provisions to the Code of Ethics
and other relevant rules or statements of policy which
support the bidding ban.
Section 11(c)eprovides:.
_ “Section 41—The Engineer .will not compete unfairly. with
another engineer by attempting to obtain employment or
: ne: la
2a
NSPE is a professional society incorporated under
the Iaws of South Carolina with more than 69,000
members located throughout the United States. Mem-
bership in NSPE accounts for slightly less than 10
percent of all graduate engineers in the nation holding
a collegiate degree in engineering frem an institution
of higher learning. Upon a demonstration of profi-
ciency, each of the states permits engineers to hold a
certificate of registration or license to practice. Ap-
proximately 325,000 are so registered of whom 55,000
or 17 percent, are members of! NSPE. About half of
the registered professional engineers in this country
are engaged in offering services to the public as con-
sulting engineers. Although NSPE is a national orga-
nization, it is affiliated with pfofessional engineering
societies in each of the 50 states, territories and the
District of Columbia.. When a member joins NSPE,
advancement or professidnal engagements by competitive bid-
ding * * * :
“ce, He shall not solicit or submit engineering proposals
on the basis of competitive bidding. Competitive bidding for
professional engineering services is defined as the formal or
informal submission, or receipt, of verbal er written estimates
of cost or proposals in terms of dollars, man days of work
required, percentage of construction cost, or any other measure
of compensation whereby the prospective client may compare
engineering services on a price basis prior to the time that
one engineer, or one engineering organization, has been selected
for negotiations. The disclosure of recommended fee schedules
prepared by various engineering societies is not considered to
constitute competitive bidding. An Engineer requested to sub-
mit a fee proposal or bid prior to the selection cf an engineer
or firm subject to the negotiation of a satisfactory contract. shall
attempt to have the procedure changed to conform to ethical
practices, but if ‘not successful he shall withdraw from con-
sideration for the proposed work. These principles shall be
applied by the Engineer in obtaining the services of other
professionals.”
3a
he joins the applicable state society and local chapter
at the same time.
Defendant’s Board of Directors adopted the present
format of the NSPE Code of Ethies in 1964. Section
11(c) of the Code provides that an engineer ‘“‘shall
not solicit or submit engineering proposals on the basis
of competitive bidding.” The section defines competi-
tive bidding as any measure of compensation ‘‘wherehy
the prospective client may compare engineering ser. -
ices on a price basis prior to the time that one engi-
neer * * * has been selected for negotiations.’’ While
Sec. 11(c) advises that disclosure of a recommended
state society fee schedule does not constitute compeéti-
tive bidding, it requires that the engineer ‘‘withdraw
from consideration for the proposed work’’ if the. .
prospective client insists on competitive bidding.
In practice, adherence to Sec. 11(c¢) by the engineer
and client means the prospective client will limit his
initial search to the engineer whose background and
reputation suggests he is the best qualified and most
appropriate for the client’s needs. Discussion of fees,
however, will not be permitted until after the client
has actually selected an engineer and discussed the
scope of his particular problem. Should the engineer
and client be unable to agree upon a satisfactory fee
arrangement, the client will withdraw his selection
and approach a new engineer. This procedure is known
as the traditional method of retaining professional
engineering services. say met ne
In addition to the Code of Ethics, the defendant has
sought to promote its ban on competitive bidding by
a variety of other means. These include publication of
professional policy statements, issuance of opinions
on a case analysis basis by its Board of Ethical Re--
view, distribution of pamphlets to members and clients,
personal letters to individual clients suspected of
yomapes
4a
soliciting on a competitive bid basis, and participation
with other professional societies in preventing gov-
ernmental agencies from obtaining price proposals
for ‘architect-engineering (A-FE) projects by competi-
tive bidding methods.
_ While NSPE has no authority to terminate an engi-
neer’s membership in his state society for unethical
conduct, it has played a significant role in coordinat-
ing and encouraging state society investigations into
suspected misconduct. NSPE has recommended pro-
cedures to be followed by state societies upon the filing
of charges of unethical conduct against a member,
assisted in the conduct of these investigations, and
directly warned members of apparent Sec. 11(¢) vio-
lations.
The policing actions of defendant with respect to
See. 11(¢) have met with apparent success. The record °
is devoid of any evidence suggesting significant defec-
tions by members from the bidding ban. Attempts by
at least one federal agency to exchange the traditional
method of procuring A-E services for competitive
bidding met strong resistance resulting in part from
actions of NSPE urging its members to refuse to
offer their services.
The nature of engineering services provided by
NSPE members covers « wide spectrum embracing
the study, design and construction of real property
improvements located thro the United States
and abroad. Engineering sérvices include pre-feasibil-
ity studies, feasibility studies, planning, preliminary
studies, the preparation of drawings, plans, designs,
specifications, cost estimates, manuals, and reports,
consultations, surveys, and inspections. This work is
performed in connection with myriad projects ranging
from highway construction, public utilities and com-
ve
munications facilities to commercial structures, trans-
portation means and mining facilities. The list is vir-
tually endless. The clients for whom NSPE members
offer their se-vices include governmental agencies at
all levels, manufacturing companies, industrial com-
panies and retailing companies operating throughout
the United States.
NSPE members practice as sole practitioners, part-
nerships and corporations ranging upwards in size to
1500 individuals. Individual members are often li-
censed to perform engineering services in several
states at one time. Engineering firms with which
NSPE members are affiliated frequently maintain
offices in states and foreign countries other than their
principal places of business. Such firms perform serv-
ices on a nuulti-state, regional or national basis.
Most design and construction projects require the
services of both architects and engineers whose serv-
ices are often provided by a single firm. The engi-
neer’s portion of the firm’s fee normally accounts for
about 5 to 6 percent of the cost of construction. For the
vear 1972, the 438 largest A-E design firms accounted
for approximately $2.2 billion in fees. Profit margins
for many firms range as high as 10 to 12 percent.
Forty, or approximately 9 percent, of the top 438 A-E
design firms were publicly held corporations or affili-
ated with publicly held corporations, whose fees ac-
counted for situietpiameatan 14 percent of the receipts
from this group.
In addition to A-E pare firms, there is a second
significant group of firms performing engineering
services known as design/construet firms which differ
from typical consulting engineering firms in their
added capability of performing construction work as
well as traditional A-E design work. In 1972, 30, or 4
6a
approxiniately 48 percent, of the top 62 design/con-
struct firms in the nation were publicly held corpora-
tions or affiliated with such corporations and ac-—
counted for 65 percent of the $26 billion of new project —
contracts awarded this group.
The Government attacks defendant’s ethical prohibi- °
tion gainst competitive bidding on grounds it con-
stitutes price fixing in per ‘se violation of §1 of the
Sherman Act. Claiming that Sec. A1(¢) operates to
deny clients access to competitive price information,
plaintiff contends the bidding ban ilegally tampers
with the price structure of engineering services hy
eliminating ail forms of price competition thereby
stabilizing engineering fees. NSPE proffers a three
propged defense contending first, the practice of pro-
fessional engineering is not trade or commerce within
the scope of §1; second, the ethical prohibition is a
reasonable practice in the field of professional engi-
neering ; third, the practice of professional -engineeri.g
is exempt from antitrust attack because it is a state
regulated profession. The Court will consider these
defenses seriatim. :
Defendant claims that the practice of professional
engineering falls outside the ambit of ‘trade, or com-
merce beeatise it is a so-called “learned profession”’
governed by self-regulation. The notion that learned
professions are not covered by the Sherman. Act has
its genesis in the construction placed upon the term
‘restraint of trade” under §3 of th®Sherman Act by
the Supreme Court in Atlantic Cleaners d& Dyers,
Inc. v. United States, 286 U.S. 427, 436 (1932). In
giving expansion to the word ‘“‘trade”, the Court
quoted with approval from now famous dictum set
down by Mr. Justice Story in The Schooner Nymph,
1 Sumn. 516, 517-518; 18 Fed. Cas. 506, 507, No. 10,338
(1834) :
7a
Whenever any. occupation, employment, or
business is carried on for the parpose of pro-
fit, or gain, or a livelihood, not in the liberal arts
or in the learned professions, it is constantly
called a trade.
Notwithstanding this favorable reference to an early
nineteenth century conception of trade, the Supreme
Court has never held that a learned profession is ex-
empt from the Sherman Act and has in fact affirmed
its intention not to ‘‘intimate an opinion on the cor- -
rectness of the application of the term [trade] to the
professions.” United States v. National Ass’n of Real
Estate Boards, 339 U.S. 485; 491-2 (1950).? The only
circuit court to declare a learned profession exemp-
tion was the Fourth Circuit in Goldfarb v. Virginia
State Bar, 497 F. 2d 1 (1974). In that case, a divided
court held that a legal profession’s fee schedule was
immune from a § 1 attack because of the applicability
of the “learned profession exemption.” Jd. at 15. More
receiitly, however, a federal district court, after giving
careful consideration to the entire litany of learned
profession cases, arrived at an opposite conclusion
finding that the ‘‘fee schedule activities of the defend-
ant, Oregon State Bar, are not immuye to Sherman
2Two cases are generally cited as authority for the learned
profession exemption: Federal Baseball Club, Inc. v. National
Leaque of Professional Baseball Clubs, 259 U.S. 200 (1922),
where the Supreme Court noted that “personal efforts, not re-—
lated to production, is not a subject of commerce.” Jd. at 209:
FTC y. Raladam Co., 283 U.S. 643 (1931), where the Court
stated that “medical practitioners * * * are not in competition
with respondent. They follow a profession not a trade. * * *”
Id. at 653. Both references to learned professions are dicta and
not considered to be a holding by the Court of the Existence
of a learned profession exemption to the Sherman Act. For a
discussion of these cases as precedent for a learned profession
exemption, see opinion of Judge Craven (dissenting in part) in
Goldfarb v. Virginia State Bar, 497 F. 24 1, 25-24 (1974).
Sa
Act attack * * * by the ‘learned profession’ exemp-
tion.” United States v. Oregon State Bar, Civil Action
No. 74-362 (D.C. or. Nov. 22, 1974).
The concept of a learned profession exception to
the antitrust laws is of dubious validity in view of
the repeated reluctance of federal courts to recognize
it as a legitimate exception to the Sherman Act. The
issue of whether a profession is a learned one is not
seen by the Court as the appropriate approach for re-
solving the higher question of whether the Sherman
Act is applicable to that profession. To engage in such
an inquiry would chart the Court on a semantic ad-
venture of questionable value. It would be a dangerous
form of elitism, indeed, to dole out exemptions to. our
antitrust laws merely on the basis of the educational
level needed to practice a given profession, or for
that matter, the Impact which the profession has on
society's health and welfare. Clearly, the move appro-
priate and fairer course is to examine the nature and
conduct involved in the profession on a case by case
hasis together with the context in which it is prac-
ticed.
Congressional intent behind the Sherman Act
focused on a desire to prevent restraints to ‘“‘free
competition in business and commercial. transactions
which tended to * * * raise prices or otherwise con-
trol the market to the detriment of purchasers of
goods and services. * * *”? Apex Hosiery Co. v.
Leader, 310 U.S. 469, 493 (1940). The types of busi-
ness and commercial transactions which Congress in-
tended the Sherman Act to protect have generally
been accorded broad recognition by the courts. United
States v. National Ass’n of Real Estate Boards, supra,
(business of real estate broker is trade within the
meaning of \3 of the Sherman Act); United States v.
South-Eastern Underwriters Ass’n, 322 U.S. 533
4
Se ee ec i. oe ene oe ie at
9a
(1944) (business of insurance not exempt from oper-
ation of the Sherman Act); American Medical Ass’n
v. United States, 317 U.S. 519 (1943) (group health
organization engaged in obtaining medical services for
its members is conducting trade under §3 of the
Sherman Act). Each of these cases has turned on the
character of the restraint and the activity restrained
as opposed to a litmus test based on professionality.
Cf. Apex. Hosiery, supra, at 485. In view of this ap-
proach taken by the courts, it can be said at the very
least that where the activity of a profession so di-
rectly impacts upon interstate trade and commerce as
to suhstantially contribute to the latter’s character
and direction, it must be concluded that the profes-
sion’s activity has become subsumed within the gen-
eral scope of §1 of the Sherman Act regardless of
whether the profession may be characterized as a
learned one. As the Supreme Court noted in South-
Eastern Underwriters, supra, with reference to the
language of §§ 1 and 2 of the Sherman Act:
Language more comprehensive is difficult to
conceive. On its face it shows a carefully studied
attempt to bring within the Act every person
engaged in business whose activities might
restrain or monopolize commercial intercourse
among the states. 322 U.S. at 553.
The record amply demonstrates that professional
engineering is not a metaphysical pursuit but rather a
conduit through which abstract scientific principles
are reduced to a level of practical application in re-
sponse to a given problem. In this sense, professional
engineering offers a service. And with respect to de-
sign engineers who prepare plans and specifications
for real property improvements and articles of manu-
facture, professional engineering also offers a prod-
uct. Unlike the lawyer’s brief or the scholar’s text
THEIR PEI ELAN LOS ARS TT
SEA AT NGO SETAE PE NEN REG MENTE, SINTRA EERE
10a
which convey thought, an engineer’s blueprints con-
stitute a necessary physical tool which when combined
with standardized techniques of manufacturing and
construction, yield a final, functional. reduction to
practice. In this regard, professional engineering en-
joys a maximum interface with end erodects of con-
struction and manufacture.
The business nature of professional engineering
firms is clearly established in the record. It is an
industry often organized on a local, regional, national
and even international seale controlling, guiding and
shaping the pace and direction of the vast array of
interstate transactions needed to carry out much of
the nation’s construction and manufacture. Fully 50
to 80 percent of the cost of constructing and equip-
ping construction projects is controlled by an engi-
neer’s work. A substantial amount of equipment and
material is transported in interstate commerce at the
specific direction of NSPE members. It would not be
hyperbole to observe that professional engineering
services are at the very backbone of the major portion
of the nation’s commerce. This is not a case of indirect
and insubstantial impact by a so-called learned pro-
fession upon-interstate commerce. The record is im-
pressive in demonstrating that the imprint of profes-
sional engineering upon interstate commerce is clear
and unmistakable. It is a driving force of seminal
character which continues to forge the very founda-
tion from whieh our commercial trade emanates. The
Court is satisfied in light of the well documented rec-
ord that the activities of NSPE and its members fall
well within the scope of §1 of the Sherman Act.
II
Tt is undisputed that price fixing is a per se unrea-
sonable restraint of trade under the Sherman Act and
SRG ARG yO MERE QE RISE ORES RINGS SR ot CR OARS #5 DEPT +
lla
that in such cases it is not for the court to decide .
whether a particular price fixing activity serves an
honorable or worthy end. United States v. Socony-
Vacuum Oil Co., 310 U.S. 150 (1940); United States '
National Ass’n of Real Estate Boards, supra at
489: United States v. South-Eastern Underwriters
Ass’n, supra at 561. Hence, if the See. 11(¢) ban on
competitive bidding acts to fix the prices of engineer-
ing services, the Court’s inquiry is ended and it need
not consider the reasonableness of the ethical
ial agi oon .
In order for conduct to be characterized ‘as price-
fixing, it is not necessary to show that the alleged com-
bination or conspiracy has actually pegged prices at a
particular level. Kiefer-Stewart Co. v. Seagram &
Sons, 340 U.S, 211 (1951). It need on'y be established
that the suspect conduct acts to restrain free price
movenient. It is the act of tampering with the price
structure which is at the core of the offense. As the
Court in Secony-Vacuum noted:
Any combination which tampers with price
structures is engaged in an unlawfui activity.
Even though the members of the pric e-fixing
group were in no position to control the market,
to the extent that they * * * stabilized prices
they would be directly interfering with the free
play of market forces. 310 U.S. at 221.
Accordingly, where the application and practice of a
code of professional ethics leaves members of a pro-
fessional association genuinely free in their pricing
decisions, no § 1 offense arises.
Section 11(¢) prohibits defendant's members from
engaging in any form of price competition when offer-
ing their services; selection is restricted to considera-
tions of reputation and ability. No fee information
may be given a prospective client which takes the
ANSE FNP OR RTE STONES ALL MEO ORNS. ARRAS NG RRR REMUS ROE
12a
form of cost estimates or other proposals m terms of
dollars, man days of work required, or percentage of
construction cost which can be compared to that of
another engineer. Section 11(¢), however, does permit
members to disclose recommended state society fee
schedules to prospective clients in the course of the
selection process. Moreover, Sec. 9(b) of defendant’s
Code of Ethics requires its members not to accept
work at a fee “below the accepted standards of the
profession in the area.” * As a result of these sections,
the only priee information available for input into the
client’s selection equation is a uniformly regular fee
schedule. Should the client persist in requiring com-
petitive bids, See. 11(e) requires the engineer to with:
draw the offer of his service altogether. >
Although the actual implementation and enforce-
ment of Sec. 11(¢) is not critical to a determination
of whether a combination or conspiracy exists to re-
strain trade, Socony-Vacuum, supra at 225, n. 59, the
record does support a finding that NSPE and its mem-
bers actively pursue a course of policing adherence to
the competitive bid ban through direct and indirect
communication with members and prospective clients.
As note supra, NSPE has engaged in educational cam-
paigns and personal admonitions to members and
clients who were suspected of engaging in competitive
bidding practices.
Upon careful review of the pertinent authorities,
the Court is convinced that the ethical prohibition
“The Sherman Act offenses alleged in the Complaint do not
specify activities involving the use of fee schedules by defend-
ant and accordingly the Court does not consider their legality
to be at issue in this case. The Court does believe, however, that
insofar as the use of fee schedules by defendant's members
might affect the impact which See. 11(c) has on trade and
commerce, en inquiry into their promotion and enforcement by
defendant js plainly relevant.
7 RR REG RRL Bae Sy
13a
against competitive bidding is on its face a tampering
with the price structure of engineering fees in viola-
tion of §1 of the Sherman Act. It is not important to
know what effect the Sec. 11(¢) prohibition has on the
price of professional engineering services. Kiefer-
Stewart Co. v. Seagram & Sons, supra at 213. What is
of critical significance is, that the agreement among
defendant’s members to refrain from competitive bid-
ding is an agreement to restrict the free play of mar-
ket forces from determining prices to sacrifice free-
-dlom in pricing decisions to market stability. The com-
bination becomes a per se illegal one under § 1 of the
Act when it tends to “cripple the freedom of traders
and thereby restrain[s] their ability to sell in accord-
ance with their own judgment.” Kiefer-Stewart, Ibid.
By proscribing competitive bidding, Sec. 11(¢) has as
‘its purpose and effect the excision of price considera-_
tions from the competitive arena of engineering serv-
ices. The ban narrows competition to factors based on
reputation, ability, and a fixed range of uniform
prices. The prospective client is thus forced to make
his selection without all relevant market information.
The See. 11(¢)’ ban on competitive bidding is in every
respect a classic example of price-fixing in violation
of § 1 of the Sherman Act.
haaone Til
‘Action to regulate trade undertaken by state offi-
cials pursuant .to state legislative command is not
governed by thé Sherman Act. Parker v. Brown, 317
U.S, 341 (1943). In Parker, a producer and packer
ized the establishment, through state officials, of mar-
keting programs for state produced agricultural prod-
ucts. The purpose of the legislation was to stabilize
prices by restricting competition in order to “conserve
<-
l4a
the agricultural wealth of the State” anc “prevent
economic waste in the marketing of agricultural prod-
‘ucts.” Id. at 346. The Court in Parker held:
We find nothing in the language of the Sher-
man Act or in its history which suggests that
its purpose was to restrain a state or its officers
or agents from activities directed by its legis-
lature. Id. at 350-51.
Defendant has cited statutes in 16 states which pro-
hibit fee bidding by engineers. It is defendant’s posi-
tion that because See. 11(¢) coincides with state law,
the Parker doctrine of state action immunity shields
defendant from Sherman Act liability. The Court
finds this extension of Parker unacceptable for several
reasons.
“The.state program in Parker comprised a carefully
legislated administrative plan for trade regulation
Whieh jinsured continuous state supervision through
the offices of a state created commission. It was not
a case where agricultural growers had been allowed
to restrain trade in contravention of the antitrust
laws by mere legislative fiat. The Court emphasized
this point by noting:
_ [A] state does not give immunity to those
who violate the Sherman Act by authorizing
them to. violate it, or le declaring that their
action is lawful. * * *” Jd. at 351.
Likewise, the First Cireuit observed in George R.
Whitten, Jr, Inc. v. Paddock Pool Builders, Inc.,
424 BF. 2d 25, cert. denied, 400 U.S. 850 (1970) :
The [Parker] Court's emphasis on the extent
of the state’s involvement precludes the facile
conclusion that action by any public official
automatically confers exemption, * * * Our
reading of Parker convinces us that valid gov-
ernment action confers antitrust immunity only
when government determines that competition
PIAL RET EIS ANN i a ae
i ats
lida
is not the swmmum bonum in a particular field
and deliberately attempts to provide an elter-
nate form of public regulation.’’ Id. at 30.
The instant Complaint charges defendant with
illegal restraint of trade on a nationwide basis. It
does not attack the action of any state official or
agency. Unlike the situation in Parker, the challenged
activity of NSPE and its members was a private
conspiracy in restraint of trade and not conducted
pursuant to the command of any state legislature.
There is no evidence of any state enforcement machin-
ery, present in Parker, which suggests that when the
16 states decided to prohibit competitive bidding they
also intended to establish an alternate form of public
regulatory control. Defendant’s activities are plainly
interstate in nature, unencumbered by the reguia-
tions of individual states. The extrapolation of Parker
urged by defendant is both unfounded in logic as well
as in law. The doctrine cf state immunity enunciated
by the Court in Parker simply has no applicability
to a code of ethics which has been formulated outside
the command and supervision of a state agency.
For the reasons stated supra, the Court finds that
promulgation and enforcement of. See. ll(e) by
NSPE, its members and state societies, constitutes a
combination and conspiracy in unreasonable restraint
of interstate trade and commerce in violation of 8]
of the Sherman Act.
Findings of Fact and Conclusions of Law are
annexed hereto.
JOHN LEwts Suirtn, Jr.,
United States District Judge.
DeEcEMBER 19, 1974.
4.$. GOVERNMENT PRINTING OFFICE to7s
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.