On June 21 and June 22, 2021, the U.S. Supreme Court and D.C. Circuit delivered critically important victories for student-athletes and natural gas customers, each aided by an AAI amicus brief.
In NCAA v. Alston, the Supreme Court ruled 9-0 in favor of the plaintiffs, affirming a district court opinion holding that the NCAA’s restrictions on the education-related benefits that schools may make available to student-athletes violate Section 1 of the Sherman Act. AAI’s amicus brief argued two important points. First, the NCAA and its member institutions made a non-cognizable argument throughout the litigation—that harm to competition in a labor market for athletes’ services should be tolerated for the sake of promoting competition in a product market for college sports contests. Second, AAI argued that the NCAA’s formalistic claim that “product-design” decisions cannot be challenged under Section 1 contravenes antitrust law’s commitment to examining the economic realities of collaborative business activity.
The Supreme Court accepted both arguments. First, citing and quoting from AAI’s brief, the Court expressly disclaimed that its affirmance of the district court’s holding should be construed as tolerance for so-called “multi-market balancing.” This carve out from the Court’s opinion is especially important, because as the case came before the Court on appeal from the Ninth Circuit, the NCAA and its member institutions had waived any argument that their compensation restrictions promoted competition in the labor market; they argued only that the restrictions benefitted competition in a product market. If the Court had blessed the NCAA’s litigation approach, it would have risked sending an especially dangerous message to the judiciary and the defense bar. Indeed, in making the flawed arguments, the NCAA may have wrongfully assumed it could do so based on the Court’s failure to draw the necessary distinction in its 1984 decision in NCAA v. Board of Regents. However, the NCAA, in its litigation approach, also failed to appreciate why its multi-market balancing arguments lost in that case.
The Court also rejected the NCAA’s “product-design” argument as flatly inconsistent with a long line of precedent. Citing two cases that the AAI brief cited in support of the same proposition, the Court explained that it regularly refuses “requests from litigants seeking special dispensation from the Sherman Act on the ground that their restraints of trade serve uniquely important social objectives beyond enhancing competition.” The Court held that the question whether a restraint violates the Sherman Act presumptively turns on an application of a rule-of-reason analysis rather than a “judicially ordained immunity.”
In Environmental Defense Fund v. FERC, a unanimous panel of the D.C. Circuit Court of Appeals vacated and remanded a FERC order approving the construction of a new segment of natural gas pipeline in the midwestern United States, accepting AAI’s argument that the approval was arbitrary and capricious for failing to account for market realities that called into question whether the construction was supported by genuine market need. FERC did not consider whether the proposal instead was based on a desire on the part of the pipeline owner to evade rate regulation through a vertically integrated affiliate.
The Environmental Defense Fund petitioned the D.C. Circuit for review of FERC’s order issuing a Certificate of Public Convenience and Necessity (Certificate of Need) to Spire STL Pipeline LLC (Spire STL), a subsidiary of a midwestern utility holding company, Spire Inc. (Spire), to authorize the new pipeline. In approving Spire STL’s application, FERC relied exclusively on Spire STL’s affiliate precedent contract with another of Spire’s vertically integrated subsidiaries, Spire Missouri, as evidence of need. Although no shippers in the region, including Spire Missouri, required new capacity to meet demand, and no unaffiliated shippers bid on any of the new capacity, and all parties conceded that demand in the region was flat for the foreseeable future, Spire argued that sufficient evidence of need should be found based on Spire Missouri’s subscription of 87% of the new pipeline’s capacity. And FERC held that the agreement, standing alone, was sufficient to allow the new pipeline project to go forward.
AAI’s amicus brief argued that FERC’s order was arbitrary and capricious because the affiliate precedent contract alone is ambiguous as evidence of need. Without more, FERC could not draw a reasonable inference that the contract was procompetitive rather than anticompetitive, consistent with the Natural Gas Act’s goals. Among other things, AAI’s brief emphasized that, whether an affiliate precedent contract is more likely to reflect need or more likely to reflect a vertically integrated monopolist’s anticompetitive incentive to evade rate regulation depends on market conditions that FERC failed to address. To reasonably infer that Spire’s affiliate precedent contract is likely to create procompetitive benefits rather than anticompetitive harms, FERC needed to evaluate, at a minimum, the implications of flat demand for new capacity in the region, the absence of buy-side competition for new capacity, and the state utility commission’s ability (or inability) to detect inflated transfer prices. Here, those factors foreclosed a reasonable inference of need based solely on Spire’s precedent contract with a vertically integrated affiliate.
The D.C. Circuit agreed. The Court noted that it could find no judicial authority endorsing a FERC-issued Certificate of Need “in a situation in which the proposed pipeline was not meant to serve any new load demand, there was no Commission finding that a new pipeline would reduce costs, the application was supported by only a single precedent agreement, and the one shipper who was party to the precedent agreement was a corporate affiliate of the applicant who was proposing to build the new pipeline.” It added that the absence of supporting authority “is hardly surprising because evidence of ‘market need’ is too easy to manipulate when there is a corporate affiliation between the proponent of a new pipeline and a single shipper who have entered into a precedent agreement.”
The Court also cited to a 2009 FERC case that identified the same concern about inflated transfer pricing that AAI identified. Namely, “that a utility affiliate contract could shift costs to captive ratepayers of the affiliate and subsidize the… project inappropriately, and the lack of transparency that would surround the arrangement.”
AAI’s amicus program is a key component of fulfilling AAI’s mission of promoting competition that protects consumers, businesses, and society. Comments on AAI amicus briefs or suggestions for AAI amicus participation should be directed to Randy Stutz, email@example.com, (202) 905-5420.