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Third Circuit: On-Campus Residency Requirements Protected By State-Action Immunity Doctrine

In a recent decision, the Third Circuit held that a public university and its non-profit partner were immune from antitrust liability after the university enacted a student residency policy that benefitted on-campus dormitories at the expense of off campus housing.  Absent evidence that a university is controlled by participants in the housing market, it is entitled to a presumption that is acting in the public interest and therefore enjoys more deference than a state board composed of active market participants.  The takeaway is that state universities seeking immunity from alleged anti-competitive actions must show that their conduct complies with a clearly articulated state policy but need not show active supervision of the university by the state.

The complaint in this case stems from Edinboro University’s decision to collaborate with the non-profit Edinboro University Foundation to construct new dormitories.  After construction, the University amended its policies to require certain students to reside on campus for at least four semesters.  Providers of off-campus housing in Edinboro, PA sued, contending that the policy limited demand for their housing and accused the Foundation of conspiring with the University to monopolize the student housing market in violation of Section 2 of the Sherman Act.

The issue before the Third Circuit was whether the Foundation was immune under the state action doctrine.  Concluding that the alleged harm stemmed from the University’s decision to expand its on-campus residency rule, the Court’s analysis focused on the University.  If the University was found to be immune, the Foundation would share the University’s immunity because the Foundation was “acting under the direction of the University.”

At issue on appeal was the appropriate standard to apply in analyzing whether there should be immunity.  The Court disagreed with the district court’s determination that the University—and, in turn, the Foundation—was entitled to ipso facto immunity.  The Court found that ipso facto immunity was reserved for sovereign decisionmakers, such as a state legislature.  The University’s authority, unlike a state legislature or a state agency with regulatory power, was limited to managing the affairs of its students.

While the Court found that the University was not entitled to blanket immunity, it disagreed with plaintiffs that the University needed to show that it was “actively supervised” by the state.  Unlike a state board controlled by active market participants, as in North Carolina State Board of Dental Examiners v. Federal Trade Commission, the University is an “arm of the State” presumed to act in the public interest.  In remanding the case to the district court, the Third Circuit left the door open for the plaintiffs to show that the Foundation dominated and controlled the University, but that will be a steep hill for plaintiffs to climb.

Having determined the appropriate level of scrutiny to be applied, the Court concluded that the Foundation would be entitled to immunity if the University’s alleged anti-competitive action conformed to a clearly articulated state policy.  The Court found that the Pennsylvania General Assembly’s policy that “[e]ach institution shall provide appropriate . . . student living facilities” was a clear articulation of a state policy of promoting educational benefits of on-campus residency.  The existence of this policy was critical.  The Court distinguished a recent Tenth Circuit case in which an on-campus residential requirement was held not to be immune from possible antitrust liability because there was no specific Colorado law promoting on-campus housing.  Unlike the specific Pennsylvania policy, a general Colorado law permitting a university to enter into contracts was not intended to displace competition.

The Third Circuit’s decision contributes to the ongoing development of the state action immunity doctrine and confirms that immunity is more likely where the decisionmakers of the alleged anti-competitive actor are not active participants in the affected market.