Fifth Circuit Reverses Decision Of Immediate Appealability Of State Action Immunity Defense
10/20/2020On October 2, 2020, the United States Court of Appeals for the Fifth Circuit reversed a district court’s ruling staying an administrative proceeding brought by the Federal Trade Commission (the “FTC”) against the Louisiana Real Estate Appraisers Board (the “Board”). Louisiana Real Estate Appraisers Bd. v. United States Fed. Trade Comm’n, No. 19-30796, 2020 WL 5869072 (5th Cir. Oct. 2, 2020). The Fifth Circuit found that the district court lacked jurisdiction to stay the FTC proceeding because the Commission’s order denying the Board immunity under the state action doctrine did not constitute final agency action under the Administrative Procedure Act, nor did the collateral order doctrine apply. The practical effect of the ruling is the Board will be forced to defend its challenged regulation in the FTC proceeding before taking an appeal.
Among the provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) was a requirement that lenders “compensate fee appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.” In response, the Louisiana legislature amended Louisiana’s Appraisal Management Company Licensing and Regulation Act (“AMC Act”) to require appraisal rates to be consistent with Dodd-Frank and by giving the Board authority to adopt rules necessary to enforce the AMC Act. The Board then adopted Rule 31101, which established its own means for appraisal management companies to show that their rates are customary and reasonable; this regulation diverged from the relevant federal regulation, which provided that that appraisal fees are “presumptively” customary and reasonable if they meet certain market conditions. The FTC challenged the Board’s action as “concerted action that unreasonably restrains trade” that impaired the operation of the free market and restrained price competition in violation of the FTC Act.
The Board moved to dismiss the administrative proceeding, arguing that, as a state actor, its regulatory actions were protected from liability under a theory of “state action immunity.” The FTC in its adjudicatory capacity (referred to as the “Commission”) denied the Board’s motion and granted the FTC’s motion for summary judgment on the Board’s state action immunity defense. The Board then petitioned the Fifth Circuit to review the Commission’s order denying the Board’s motion to dismiss on state action grounds. The Fifth Circuit denied the petition for lack of jurisdiction because the Commission’s order was not final. The Board then sued the FTC in the federal district court alleging that the Commission’s order violated the Administrative Procedure Act (“APA”) and requested that the district court grant a stay in the ongoing administrative proceedings. The district court found in favor of the Board with regards to both arguments. The FTC appealed.
On appeal, the Fifth Circuit reversed the district court and agreed with the FTC that the district court lacked jurisdiction to review the Board’s challenge of the Commission’s decision because the Board failed to meet the requirements of the “collateral order” doctrine. “The collateral order doctrine is a judicially created exception to the ‘final decision’ requirement” of 28 U.S.C. § 1291, which the Fifth Circuit assumed “arguendo” could also be applied to the “final agency action” requirement of section 704 of the APA, and, if applicable, would permit immediate appeal of the Commission’s interlocutory decision. To qualify for review under the collateral order doctrine, the decision being appealed must: (1) conclusively determine the disputed question; (2) resolve an important issue completely separate from the merits of the action; and (3) be effectively unreviewable on appeal from final judgment. The Court cautioned that the collateral order doctrine is narrow and should be applied “with skepticism.”
Here, the Fifth Circuit found that while the denial of a state or state entity’s plea of state action immunity based on its actions pursuant to a clearly articulated and affirmatively expressed state policy may be immediately appealable, this principle is not true for “specialized boards dominated by active market participants … because of the private incentives inherent in their structure.” For the purposes of an interlocutory appeal, the Court found, such entities should be treated as private parties, who may be entitled to immunity from liability if they establish their defense, but are not immune from suit because the “policy imperatives” protecting the political activities of state actors “do not apply” to them.
The Court also found that the Board did not meet another necessary element of the collateral order doctrine—that a judicial decision resolve “an important issue completely separate from the merits of the action.” Instead, the Court found that the question of state action immunity at this stage is directly tied to the question of liability under the Sherman Act since the FTC action challenges the sufficiency of Louisiana’s governmental supervision over the Board, a necessary element of the state action defense in this context. The Court thus concluded that any judicial decision concerning whether state immunity applies at this stage of the case would “inevitably affect the question of liability.” Accordingly, because the question of whether state immunity applies to the Board would necessarily affect antitrust liability, the Court found that an interlocutory appeal based on the collateral order doctrine is inappropriate.
This decision continues the apparent circuit split as to whether and under circumstances the denial of a state action defense is subject to an interlocutory appeal. Although the Board presented the dispute in an unusual context through an APA claim against the FTC after its attempted direct appeal failed, the Fifth Circuit’s decision is in accord with decisions denying jurisdiction over interlocutory appeals of denials of state action immunity in the Eleventh and Ninth Circuits, while the Fourth and Sixth Circuits have reached a different conclusion. Three terms ago, the Supreme Court granted a petition for certiorari of the Ninth Circuit’s decision on this issue in SolarCity v. Salt River Project, presumably to resolve the split, but the parties settled before argument, mooting the case.