No. 07-995

upren ottrt tl e lnite i- ’l teg

STEVE SANDERS,individually and as class representative,

Petiticner,V.

EDMUND G. BROWN, in his official capacity asAttorney General of the State of California;

PHILIP MORRIS USA INC.; R.J. REYNOLDS TOBACCO CO;BROWN & WILLIAMSON TOBACCO CORP.;

and LORILLARD TOBACCO CO.,Respondents.

On Petition for a Writ of Certiorari to the United StatesCourt of Appeals for the Ninth Circuit

BRIEF FOR THE RESPONDENTMANUFACTURERS IN OPPOSITION

Darryl SniderJames F. SpeyerEric ShaplandLeo D. CaseriaHELLER EHRMAN LLP333 South Hope Street,

39th FloorLos Angeles, California90071

E. Joshua RosenkranzCounsel of Record

Kenneth L. ChernofHELLER EHRMAN LLPTimes Square Tower7 Times SquareNew York, New York 10036(212) 832-8300

Counsel for Respondent Philip Morris USA Inc.

(Additional Counsel Listed On Inside Cover)

Douglas L. WaldARNOLD & PORTER LLP555 Twelfth Street, NWWashington, DC 20004-1206(202) 942-5000

Counsel for RespondentPhilip Morris USA Inc.

Stephen Re PattonBarack S. EcholsKIRKLAND 8~ ELLIS LLP200 East Randolph DriveChicago, Illinois 60601-6636(312) 861-2000

Counsel for RespondentsBrown & Williamson TobaccoCorporation and R.J. ReynoldsTobacco Company

Irving ScherWEIL, GOTSHAL ~ MANG]!’,S LLP767 Fifth AvenueNew York, New York 101153(212) 310-8000

Counsel for RespondentLorillard Tobacco Company

Peter D. IsakoffWEIL, GOTSHAL & MANGES LLP1.300 Eye Street, NW,

Suite 900Washington, DC 20005(202) 682-7144

Counsel for RespondentLorillard Tobacco Company

QUESTIONS PRESENTED

Petitioner invokes the Sherman Act to challengethe Master Settlement Agreement ("MSA")--alandmark settlement between 46 states and respon-dent tobacco companies--as well as related statestatutes. These 46 states and every other party tothe MSA agree that the MSA and those statutes donot authorize tobacco companies to fix prices oroutput or induce the companies to price their prod-ucts in lockstep. The questions presented are:

1. Did the Court of Appeals correctly hold thatthe Sherman Act does not preempt the MSA-relatedstate statutes because the statutes do not mandateor authorize conduct that is an antitrust violation?

2. Did the Court of Appeals correctly hold thatrespondent tobacco companies are immune fromliability under the Noerr-Pennington doctrine when(as petitioner concedes) the companies enjoy suchimmunity for entering into the MSA and the com-plaint does not allege any other agreement in re-straint of trade?

3. Did the Court of Appeals correctly hold thatthe State of California is immune from liability un-der the "state action" doctrine because the MSA andrelated statutes do not authorize any antitrust viola-tion?

ii

RULE 29.6 STATEMENTRespondent Philip Morris USA Inc. is a subsidi-

ary of Altria Group, Inc., which is the only publiclyheld company that owns lo% or more of Philip Mor-ris USA Inc.’s stock.

All of the stock of Respondent R.J. ReynoldsTobacco Compa~Ly is owned by R.J. Reynolds To-bacco Holdings, Inc., all of whose stock in turn isowned by Reynolds American Inc. Reynolds Ameri-can Inc. is the only publicly held company that ownslo% or more of the stock of R.J. Reynolds TobaccoHoldings, Inc.

Respondent Brown & Williamson Tobacco Cor-poration (now known as Brown & Williamson Hold-ings, Inc.) ("Brown & Williamson") is wholly ownedby BATUS Tobac.co Services, Inc., which is a non-public holding company. Brown & Williamson’s ul-timate parent corporation is British American To-bacco, p.l.c., which is a publicly held United King-dom corporation.. All other indirect parent compa-nies of Brown & Williamson are non-public compa-nies.

Respondent Lorillard Tobacco Company iswholly owned by Lorillard, Inc., which is whollyowned by Loews ,Corporation. Shares of Loews Cor-poration are publicly traded. Loews Corporationhas also issued Carolina Group stock, a publiclytraded tracking stock. Other direct and indirectsubsidiaries of Loews Corporation that are notwholly owned by Loews Corporation but have secu-rities that are publicly traded are CNA FinancialCorporation, Diamond Offshore Drilling, Inc.,Boardwalk Pipeline Partners, LP, and Texas GasTransmission, L.L.C.

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TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ..........................................i

RULE 29.6 STATEMENT ............................................ii

TABLE OF CONTENTS ..............................................iii

TABLE OF AUTHORITIES ..........................................v

INTRODUCTION ..........................................................1

STATEMENT ...............................................................4

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

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

The Legal Framework ............................................9

The District Court Dismisses the Complaintand the Court of Appeals Affirms ....................

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

I. THERE IS NO CIRCUIT CONFLICT ON ANYOF THE QUESTIONS PRESENTED ....................

A. There Is No Circuit Conflict on Whetherthe Sherman Act Preempts the MSA ..............

B. There Is No Circuit Conflict on ParkerImmunity ........................................................

C. There Is No Circuit Conflict on Noerr-Pennington Immunity ....................................

II. THIS PLEADING CASE RAISES NO ISSUEOF NATIONAL IMPORTANCE ...........................

III. THE COURT OF APPEALS’ ANALYSIS ISCORRECT AND FAITHFULLY APPLIESTHIS COURT’S PRECEDENTS ...........................30

iv

CONCLUSION ...........................................................35

V

TABLE OF AUTHORITIES

Page(s)

CASES

324 Liquor Corp. v. Duffy,479 U.$. 335 (1987) ..............................lO, 11, 12, 32

A.D. Bedell Wholesale Co. v. Philip Morris Inc.,263 F.3d 239 (3d Cir. 2OOl), cert. denied, 534U.S. 1081 (2002) ................................ 18, 22, 23, 24

Allied Tube & Conduit Corp. v. Indian Head, Inc.,486 U.S. 492 (1988) ..............................................17

BelI Atl. Corp. v. Twombly,127 S. Ct. 1955 (2007) .............................3, 8, 21, 26

Brooke Group Ltd. v. Brown & WilliamsonTobacco Corp.,509 U.S. 209 (1993) ...............................................8

Cal. Motor Transp. Co. v. Trucking Unlimited,404 U.S. 508 (1972) ..............................................13

Cal. Retail Liquor Dealers Ass’n v. MidcalAluminum, Inc.,445 U.S. 97 (198o) ...........................................12, 32

Cantor v. Detroit Edison Co.,428 U.S. 579 (1976) ..............................................34

City of Columbia v. Omni Outdoor Adver.,

499 U.S. 365 (1991) ................................................2

Eastern R.R. Presidents Conference v. NoerrMotor Freight, Inc.,365 U.S. 127 (1961) ................................................13

Exxon Corp. v. Governor of Md.,437 U.S. 117 (1978) .................................................9

Fisher v. City of Berkeley,

475 U.S. 260 (1986) ...............................9, lO, 11, 32Forces Action Project LLC v. California,

No. 99-0607 (N.D. Cal. filed Jan. 16, 20o2) ........24

Freedom Holdings, Inc. v. Spitzer,

357 F.3d 2o5 (:~_d Cir. 2004) ........................passim

Freedom Holdings, Inc. v. Spitzer,447 F. Supp. 2d 230 (S.D.N.Y. 2oo4), affd,408 F.3d 112 (2d Cir. 2005) ..................3, 19, 20, 31

FTC v. Ticor Title .Ins. Co.,504 U.S. 621 (1.992) .........................................11, 12

Grand River Enters. Six Nations Ltd. v. Beebe,418 F. Supp. 2(t lO82 (W.D. Ark. 2oo6),appeal docketed, No. o8-1436 (8th Cir. Feb. 26,2008) .....................................................................27

Grand River Enters. Six Nations Ltd. v. Pryor,No. 02-5068, 2006 WL 1517603 (S.D.N.Y. May31, 2oo6), affd, 481 F.3d 60(2d Cir. 2007) ..................................................20, 31

Greenwood Utils. Comm’n v. Miss. Power Co.,751 F.2d 1484 (sth Cir. 1985) ...............................34

Hise v. Philip Morris Inc.,208 F.3d 226 (loth Cir.), cert. denied,531 U.S. 959 (2000) .......................................18, 24

Hoover v. Ronwir~,466 U.S. 558 (1984) .............................................28

Kelo v. City of New London,

545 U.S. 469 (2005) ...............................................2

Lorillard Tobacco. Co. v. Reilly,533 U.S. 525 (2OOl) .................................................1

vii

Mariana v. Fisher,338 F.3d 189 (3d Cir. 2003), cert. denied,540U.S. 1179 (2004) ................................ 18, 23, 24

Mass. Food Ass’n v. Mass. Alcoholic BeveragesControl Comm ’ n,197 F.3d 56o (lst Cir. 1999), cert. denied, 529U.S. 1105 (2000) .................................................. 28

Neo Gen Screening, Inc. v. New England NewbornScreening Program,187 F.3d 24 (lst Cir.), cert. denied, 528 U.S. lO61(1999) ....................................................................33

New York v. O’Neill,359 U.S. 1 (1959) ..................................................29

Parker v. Brown,317 U.S. 341 (1943) ..........................................lO, 11

PTI, Inc. v. Philip Morris Inc.,lOO F. Supp. 2d 1179 (C.D. Cal. 2000) ................24

Rice v. Norman Williams Co.,458 U.S. 654 (1982) .....................................passim

Saenz v. Univ. Interscholastic League,487 F.2d lO26 (5th Cir. 1973) ..............................34

Schwegmann Bros. v. Calvert Distillers Corp.,341 U.S. 384 (1951) ...............................................32

Southern Motor Carriers Rate Conference, Inc.v. United States,471 U.S. 48 (1985) .................................................11

Star Scientific Inc. v. Beales,278 F.3d 339 (4th Cir.), cert. denied, 537 U.S.818 (2002) ............................................................29

Tritent Int’l Corp. v. Kentucky,467 F.3d 547 (6th Cir. 2006) ......................... 18, 2o

United Mine Workers v. Pennington,381 U.S. 657 (1965) ...............................................13

Williamson Oil C~,. v. Philip Morris USA,346 F.3d 1287 (11th Cir. 2003) ..............................9

Xcaliber Int’l Ltd., LLC v. Edmondson,No. 04-0922, -~:oo5 WL 5654220 (N.D. Okla.May 20, 2oo5), appeals docketed, No. 05-5175 (loth Cir. Sept. 29, 2005) & No. o5-5178(loth Cir. Oct. 3, 2005) ..................................26, 31

Xcaliber Int’l Ltd.,. LLC v. Kline,No. o5-2261, 2006 WL 288705 (D. Kan. Feb.7, 2oo6), appeal docketed, No. o6-3o61 (lothCir. Feb. 16, 2006) ................................................27

Youngblood v. West Virginia,547 U.S. 867 (,’:006) .............................................29

STATUTES & RULES

15 U.S.C. § 1 ...................................................................7

42 U.S.C. § 1396b(d)(3)(B) ........................................29

Cal. Bus. & Prof. C, ode § 22979 ....................................6

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

Sup. Ct. R. lO ................; ...............................................17

BRIEF IN OPPOSITION

INTRODUCTION~

Petitioner asks this Court to review the Court ofAppeals’ dismissal of his antitrust challenge to theMaster Settlement Agreement ("MSA") and relatedCalifornia statutes. He contends that the circuitsare split on three legal issues. But petitioner hasconcocted each purported conflict by misstating theholdings of the court below and its sister circuits.The Court of Appeals faithfully applied this Court’sprecedents and properly dismissed the complaint atthe pleading stage. The petition presents no issueworthy of review.

As this Court has acknowledged, the MSA be-tween 45 states and respondent tobacco companies(the "Manufacturers") is a "landmark agreement"-perhaps the most far-reaching and important gov-ernment-induced settlement in history. LorillardTobacco Co. v. Reilly, 533 U.S. 525, 533 (2ool).Courts in each of the settling states expressly ap-proved it. Each settling state’s legislature subse-quently endorsed it by enacting implementing legis-lation. In light of "our national commitment to fed-

1 The petition is cited as "Pet." and the Appendix to thepetition is cited as "App." Petitioner’s briefs before theCourt of Appeals are cited as "OB" and "CA9 Reply." TheState of California’s brief before the Court of Appeals and theamicus brief of the various Settling States are cited as "Cal.CA9 Br." and "Amici States CA Br." The Excerpts of Recordbefore the Court of Appeals are cited as "ER" and the Clerk’sRecord is cited as "CR."

eralism," City of Columbia v. Omni Outdoor Adver.,499 U.S. 365, 374 (1991), any one state’s decision toenter the MSA an~d enact related laws is entitled to"’great respect.’" Kelo v. City of New London, 545U.S. 469, 482 (2005) (citation omitted). When 46states each make the independent judgment that theMSA is in the best interests of its citizens, the resultis even more deserving of respect.

More than 20 lawsuits have been filed seekingto invalidate the MSA on antitrust grounds, andnone has succeeded. Offering no new allegations orlegal theories that would allow him to prevail whereothers have not, petitioner claims that the MSA hasenabled the Manufacturers to charge supracompeti-tive prices for cigarettes. He asserts that theSherman Act preempts the MSA and related stat-utes, and that the Manufacturers are liable fortreble damages under California’s antitrust law.

The District Court and a unanimous panel of theCourt of Appeals held that petitioner’s suit fails tostate a claim as a matter of law. They held that: (1)the Sherman Act does not preempt the state lawspetitioner challenges; (2) the Manufacturers areimmune from liability under the Noerr-Penningtondoctrine; and (3) the state is immune from liabilityunder the Parker state-action doctrine.

Contrary to petitioner’s assertion, there is nocircuit split on whether the Sherman Act preemptsthe MSA or related legislation. With respect to theParker and Noerr-Pennington immunity doctrines,petitioner similarly invents a circuit conflict by mis-stating the analyses and holdings of the Ninth Cir-cuit and other courts.

To be sure, one circuit has taken a different pro-cedural approach to dealing with a similar com-plaint in the early stages of the litigation. While theNinth Circuit dismissed this ease at the outset, theSecond Circuit allowed a similar MSA challenge toproceed beyond the pleading stage. But this differ-ent procedural outcome is attributable to differ-ences in the two courts’ readings of the allegationsof the complaints before them. The Second Cir-cuit-in a decision rendered before this Court’s rul-ing in Bell Atlantic Corp. v. Twombly, 127 S. Ct.1955 (2oo7)--accepted the complaint’s eonelusoryassertions that the MSA and related legislation au-thorized Sherman Act violations. Freedom Hold-ings, Inc. v. Spitzer, 357 F.3d 205, 225-26 (2d Cir.2004). It thus allowed the plaintiffs to try to provefacts that might lead to preemption and defeatParker immunity. /d. In contrast, the Ninth Circuitconducted a more critical examination of the com-plaint, including a review of the actual terms of theMSA (which was appended to the complaint), andreached a different conclusion. The Ninth Circuit’sapproach was correct, especially given Twombly’semphasis on careful scrutiny of the complaint at thepleading stage.

This difference--wholly procedural, occurring inthe early stage of litigation, and related to one par-ticular contract--is simply not the sort of variancethat warrants this Court’s attention. Furthermore,any possible doubt on that issue is put to rest by thefact that every court that has examined the meritsof the claim at issue here has reached the same con-clusion: "The facts as proved.., tell a quite differ-ent story" from the allegations of anticompetitiveconduct in the plaintiffs’ complaints. FreedomHoldings, Inc. v. Spitzer, 447 F. Supp. 2d 230, 248

4

(S.D.N.Y. aoo4) (emphasis added), affd, 408 F.3d112 (2d Cir. 2005); see also infra at 31 (collectingeases). The supposed "conflict" is thus no conflictat all; it amounts only to the question of when theantitrust challenge should be rejected: at the plead-ing stage, or after discovery.

The petition should be denied.

STATEMENT

The MSA and Implementing Legislation

Beginning in the mid-199os, attorneys generalin dozens of state.s filed lawsuits against the Manu-facturers demanding reimbursement for smoking-related healtheare costs. App. A2-3. After pro-longed litigation, a failed congressional solution,and months of negotiations, the Manufacturers andthe states’ attorneys general hammered out a com-prehensive settlement. Attorneys general or gover-nors representing 46 states, the District of Colum-bia, and five U.S. territories (the "Settling States" or"States") signed tlhe MSA on behalf of their govern-ments in 1998. App. A3-4. In each Settling State,the relevant court approved the MSA in a consentdecree. App. A4. Each Settling State also enactedimplementing legislation. App. AS.

Under the MSA, the Manufacturers paid billionsof dollars to resolve claims of past harm. ER 87-88.Even more significantly, the MSA requires theManufacturers to pay the States billions more an-nually, in perpetuity. App. A4. The MSA pre-scribes a formula for calculating the Manufacturers’annual payments., Id. The payment obligation in-creases or decreases depending on how many ciga-rettes a Manufacturer sells. App. A4-5. But regard-less of how many cigarettes any Manufacturer sells,

5

each Manufacturer pays the same amount for eachcigarette. See Amici States CA Br. 15-17.

The MSA also includes various terms governingthe conduct of the Manufacturers--provisions thatthe Settling States have lauded as "significantmeasures designed to promote public health andprevent youth smoking." Id. at 2; see id. at 6 ("TheMSA has had a dramatic positive impact on publichealth, and this will likely increase over time.").Among these measures are limits on the advertising,marketing, and promotion of tobacco products andthe establishment of an independent national foun-dation to reduce youth smoking. ER 50-73.

The MSA invites any other cigarette manufac-turer to sign on to the settlement. App. A4. Manu-facturers that accept the invitation are known as"Subsequent Participating Manufacturers," or"SPMs," to distinguish them from the "Original Par-tieipating Manufacturers," or "OPMs." Id. SPMsagree to the various prospective reforms, includingthe obligation to pay a fixed per-cigarette cost, sub-jeer to an exemption: An SPM that signed the MSAwithin 90 days has no obligation to pay to the extentthat its market share in a particular year is less thanits 1998 market share (or 125% of its 1997 marketshare, if that is higher). Id. When an SPM crossesthe volume threshold, it incurs a fixed per-cigarettecost for cigarettes sold above the threshold. ER 11o-12.

Manufacturers that choose not to sign the MSAare obviously not bound by its terms. But in Cali-fornia, as in the other Settling States, these "Non-Participating Manufacturers," or "NPMs," do haveobligations that are governed by state statute. App.B3; A5-6. The California Legislature enacted the

6

"Escrow Statute" (also called the "Qualifying Act"),which requires each NPM to contribute annually toan escrow fund based on the number of cigarettes itsells within the state. Cal. Health & Safety Code§ 104557. The escrow fund is a security against fu-ture health-related costs for which an NPM mightbe held liable. App. A6. Thus, the fund can be usedonly to pay a settlement or a judgment against theNPM; whatever funds remain in escrow after 25years revert to the; NPM. Id.

The Escrow Statute prescribes precisely, on aper-cigarette basis, the NPMs’ payment obligation.To strengthen enforcement of the Escrow Statutes,California and other states have enacted comple-mentary legislation (petitioner calls it the "Contra-band Amendment") providing that NPM-manufactured cigarettes may not be distributedunless the NPM :is in compliance with the EscrowStatute. Cal. Bus. & Prof. Code § 22979; App. A6-7.

Neither the MSA nor the implementing legisla-tion in any way limits each Manufacturer’s freedomto set its own prices and output. Indeed, no provi-sion in the MSA or the legislation purports to gov-ern prices or outp, ut. And, because the payment ob-ligations impose the same per-cigarette costs on allManufacturers, they do not provide either an incen-tive to limit output or a disincentive to increaseoutput. Finally, neither the MSA nor the legislationauthorizes participants to enter into any agreementon prices or output.

Petitioner’s Allegations and Legal Theory

Petitioner filed this lawsuit against the State ofCalifornia and the Manufacturers under § 1 of theSherman Act and California’s antitrust law. Pur-

7

porting to represent all California smokers, peti-tioner seeks to invalidate what he calls the "anti-competitive provisions of the MSA" and the imple-menting legislation, ER 18, claiming they are pre-empted by the Sherman Act. He also seeks to re-cover billions of dollars from the Manufacturers forthe alleged "supracompetitive prices" he claims thepurported class was "forced to pay" as a result of theMSA. OB lo. Specifically, he alleges that the Manu-facturers raised their prices more than twice theamount that would have been necessary to offsettheir MSA payment obligations. App. A7.

The essential element of a Sherman Act § 1claim is a "contract, combination ... or conspiracy,in restraint of trade." 15 U.S.C. § 1. But the onlypurportedly illegal agreement in restraint of tradealleged in the complaint is the MSA itself--and peti-tioner has conceded that he has no claim against theManufacturers for negotiating and signing the MSA.App. B18; CR53 at 48-50.

Unable to point to any actionable agreement inrestraint of trade, petitioner offers the theory thatthe MSA allows the Manufacturers to operate in away that resembles a "horizontal output cartel," al-beit without actually agreeing to raise prices or re-duce output. See Pet. 12 (MSA "effectively" estab-lished a "horizontal output cartel"). Specifically, healleges that the Manufacturers "have been able toraise prices with impunity and in lockstep." OB lo.

Petitioner’s theory is based upon a misreadingof the MSA, a contract to which he is not a party.He correctly notes that the MSA imposes increasedpayment obligations when a Manufacturer’s marketshare increases. OB 22. From this he leaps to thecounterfactual conclusion that these increased

8

payment obligations "offset or exceed[]" the in-creased revenue from any "market share gainedthrough price competition," and thereby purport-edly eliminate any incentive to cut prices. OB lO-11.Thus, according to petitioner, each Manufacturerhas the "perfect incentive[]" to follow another’sprice hike, in order to avoid the purportedly nega-tive effect of a market share increase. OB 17. Peti-tioner calls this theory his "key allegation," OB 25--and rightfully so, because without it his claim thatthe MSA creates something like an "output cartel"necessarily collapses.

The 46 States and every other party to the MSA,however, recognize that the express terms of theMSA flatly contradict petitioner’s theory. Thoseterms make clear that the MSA and the related leg-islation require manufacturers to pay a flat per-cigarette cost for every cigarette they sell. This per-unit cost does not vary with market share. Thus,there is no reason for any manufacturer not to com-pete on price and gain market share. See AmiciStates CA Br. 17 ("[I]t is evident from the face of theMSA that there is no disincentive for any OPM toreduce prices or gain market share, [and] no out-put-limiting ’cartel.’").

Petitioner is J~ot arguing that an agreement inrestraint of trade should be inferred on the basis ofthe claimed loekstep pricing or other evidence. SeeApp. A2o. Nor could he. See, e.g., Bell Atl. Corp. v.Twombly, 127 S. Ct. 1955, 1964 (2007) (parallelconduct by itself is lawful and does not suggest con-spiraey); Brooke Group Ltd. v. Brown & WilliamsonTobacco Corp., 509 U.S. 209, 227 (1993) (describ-ing parallel pricing in the tobacco industry as a "not... unlawful" consequence of oligopolistic interde-

9

pendence); Williamson Oil Co. v. Philip MorrisUSA, 346 F.3d 1287, 1299-13Ol (11th Cir. 2003) (af-firming grant of summary judgment in Sherman Act§ 1 ease against Manufacturers based on allegedlockstep pricing on ground that no reasonable jurycould conclude that Manufacturers agreed to fixprices).

If petitioner’s suit succeeded, he would void theM SA--with dramatic adverse effects on the States.He would cancel the flow of billions of dollars a yearfrom the Manufacturers to the Settling States. Hewould also eliminate the far-reaching and unprece-dented advertising and marketing restrictions.

The Legal Framework

Respondents moved to dismiss on the groundsthat petitioner failed to plead a preemption claimand that their conduct was immune from liabilityunder the Noerr-Pennington doctrine and Parkerstate action doctrine. All parties agree on the basiclegal framework on all three issues--as did the Dis-trict Court, the Court of Appeals, and the two cir-cuits petitioner invokes in attempting to raise a con-flict.

~. Preemption. A state statute "is not pre-empted by the federal antitrust laws simply becausethe state scheme might have an anticompetitive ef-fect." Rice v. Norman Williams Co., 458 U.S. 654,659 (1982); accord Fisher v. City of Berkeley, 475U.S. a6o, a64 (1986). Because the "function of gov-ernment may often be to tamper with free markets,"the circumstances under which the federal antitrustlaws will preempt a state statute are narrowly cir-cumscribed. Fisher, 475 U.S. at 264; see ExxonCorp. v. Governor of Md., 437 U.S. 117, 133 (1978)

10

("[I]f an adverse effect on competition were ...enough to render a state statute invalid, the States’power to engage in economic regulation would beeffectively destroyed.").

"A party may successfully enjoin the enforce-ment of a state statute only if the statute on its faceirreconcilably conflicts with federal antitrust pol-icy." Rice, 458 U.S. at 659 (emphasis added). Suchan irreconcilable conflict will occur only when thestate law

mandates or authorizes conduct that neces-sarily constitutes a violation of the antitrustlaws in all cases, or if it places irresistiblepressure on a private party to violate theantitrust laws in order to comply with thestatute. Such condemnation will followunder § 1 of the Sherman Act when theconduct contemplated by the statute is inall cases a per se violation.

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

2. Parker immunity. The state action immu-nity doctrine described in Parker v. Brown, 317U.S. 341 (1943), :mirrors the foregoing preemptionprinciples. For reasons of "federalism and statesovereignty," 324 Liquor Corp. v. Duffy, 479 U.S.335, 343 (1987), the basic rule is that the ShermanAct does not apply to "state action or official actiondirected by a state." Parker, 317 U.S. at 351. "In adual system of government in which, under theConstitution, the states are sovereign, save only asCongress may constitutionally subtract from theirauthority, an unexpressed purpose to nullify astate’s control over its officers and agents is not

11

lightly to be attributed to Congress." Parker, 317U.S. at 351. And if a state action enjoys Parker im-munity, then so do the "regulated private parties"who operate under the law. Southern Motor Carri-ers Rate Conference, Inc. v. United States, 471 U.S.48, 56-57 (1985).

Just as there is a single exception to the ruleagainst Sherman Act preemption of state action,there is a single exception to the rule in favor ofstate action immunity from the Sherman Act: Astate cannot "give immunity to [private parties] whoviolate the Sherman Act by authorizing them to vio-late it, or by declaring that their action is lawful."Parker, 317 U.S. at 351. Sherman Act violations au-thorized by a state can come in the form of a privaterestraint (which petitioner does not allege) or a so-called "hybrid restraint" (which petitioner does al-lege).

The classic private restraint is the one this Courtencountered in FTC v. Ticor Title Insurance Co.,where the state authorized title insurance compa-nies to enter into a "private prieefixing arrange-ment[]" among themselves. 504 U.S. 621, 633(1992). This Court held that the title companiescould not claim immunity for their per se violationof the Sherman Act, even though state law author-ized their conduct. Id. at 639-40.

A state creates a hybrid restraint when it grantsa private party "a degree of private regulatorypower" that allows that party to compel other pri-vate actors to follow its pricing or other "privatemarketing decisions." Fisher, 475 U.S. at 268 (in-ternal quotation marks omitted); accord 324 Liq-uor, 479 U.S. at 345 n.8. For example, in 324 Liq-uor, a state statute authorized alcohol wholesalers

12

to dictate the prices charged by retailers; the pen-alty for a retailer’s non-compliance was a fine andloss of its license. 479 U.S. at 340. The Court heldthat the Sherman Act preempted the statute becauseit created a hybrid restraint that constituted resaleprice maintenance in violation of Sherman Act § 1./d. at 343-45 & n.8.

A statute or other state action that authorizes orcompels per se Sherman Act violations (such as theprivate restraint in Tieor or the hybrid restraint in324 Liquor) is a necessary precondition to estab-lishing the inapp]!icability of Parker immunity, butis not by itself sufficient. The Court in Midcal heldthat even a statute or other state action authorizingper se Sherman Act violations will be entitled toParker immunity:, if the restraint is (1) "actively su-pervised" by the state and (2) "clearly articulatedand affirmatively expressed as state policy." Cal.Retail Liquor Dealers Ass’n v. Midcal Aluminum,Inc., 445 U.S. 97, 205 (2980); see Ticor, 504 U.S. at633. Similarly, a statute that would otherwise bepreempted by the Sherman Act can be saved if thestate satisfies the Midcal requirements. Fisher, 475U.S. at 265.

Because petitioner ’ does not allege a private re-straint (i.e., petitioner "does not allege that the to-bacco companies have agreed amongst themselvesto fix prices," App. A8), his sole argument for pre-emption, and against Parker immunity, is that thecartel-like results that the MSA supposedly inducesamount to a hybrid restraint. Thus, if the MSA re-gime does not grant the Manufacturers privateregulatory power that allows them to legally compelother private parties to follow their pricing or mar-keting decisions (i.e., does not create a hybrid re-

13

straint), it will be protected by Parker, and will notbe preempted, without the need to inquire whetherit satisfies the Midcal requirements.

3. Noerr-Pennington immunity. Noerr-Pennington immunity derives in part from the rec-ognition that laws intended to govern competitionin commercial markets "are not at all appropriatefor application in the political arena." Eastern R.R.Presidents Conference v. Noerr Motor Freight, Inc.,365 U.S. 127, 141 (1961); see also United MineWorkers v. Pennington, 381 U.S. 657, 669-7o(1965). Rooted also in First Amendment principles,the doctrine holds that businesses must be free to"use the channels and procedures of state and fed-eral agencies and courts to advocate their causesand points of view respecting resolution of theirbusiness and economic interests vis-&-vis theircompetitors," and the antitrust laws cannot be usedto penalize them for their advocacy. Cal. MotorTransp. Co. v. Trucking Unlimited, 4o4 U.S. 508,51O-ll (1972); Noerr, 365 U.S. at 137-38. The im-munity applies even if the "sole purpose" of aparty’s conduct is to restrain trade or destroy com-petitors. Noerr, 365 U.S. at 138-4o.

Courts have uniformly held that Noerr-Pennington protects private parties that enter intolitigation settlements with the government, and pe-titioner has conceded from the start that the Manu-facturers enjoy Noerr-Pennington immunity for ne-gotiating and entering into the MSA. App. A16;B18-19; CR53 at 48-5o.

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The District Court Dismisses the Complaintand the Court of Appeals A~O~rms

Applying these settled principles, the DistrictCourt granted the motions to dismiss filed by theState of California and the Manufacturers. The Dis-triet Court held tihat the Sherman Act does not pre-empt the implementing statutes, App. B14-16; thatpetitioner failed to plead a claim that could defeatParker immunity, App. B9-14, 20-22; and that peti-tioner failed to plead a claim that could survive No-err-Pennington immunity, App. B16-2o.

A panel of the Ninth Circuit unanimously af-firmed the dismissal. Central to the Court of Ap-peals’ analysis was the decision to go behind the al-legations and "analyze the MSA"--which was at-tached to the complaint and was "obviously centralto the claim," App. Al~--and evaluate whether peti-tioner’s allegations about the MSA’s effect bore anyrelation to what tlhe MSA actually says.

1. Preemption. The Court of Appeals heldthat the implementing legislation is not preempted,because it is not in "’irreconcilable’ conflict" withfederal law. App. A12 (quoting Rice, 458 U.S. at659). The court explained that neither of the stat-utes plaintiff challenges "explicitly allow[s] pricefixing, market division, or other per se illegal mo-nopolistic behavior." Id.

The Court of Appeals rejected petitioner’s ar-gument that the statutes "create such high barriersto NPMs’ market entry and ability to price-competethat they have ’xdrtually guaranteed collusion andmonopoly prices.’" App. A~2-13 (citation omitted).It explained that the actual terms of the MSA--asdistinguished from petitioner’s characterization of

15

them-conclusively show that there is nothing tostop any competitor from entering the market andundercutting the MSA’s participants on price. App.A13. Although "[t]he statutes ... may cause higherprices," the court said,

[n]othing... forces the NPMs to either pegtheir prices to those of participating manu-facturers, or to refrain altogether from en-tering the market. If the OPMs really arecharging artificially high prices, and thusmaking artificially high profits, an NPMconceivably could compete on price bycharging a "normal" price and still make a"normal" profit, even taking the escrowpayment into account.

2. Parker immunity. The Court of Appealsheld that because the state did not authorize any perse violations of the Sherman Act, "Parker immunityprotects the state from antitrust liability for enter-ing into the MSA and for passing the implementingstatutes." App. A98.

The court rejected petitioner’s theory that theMSA and the implementing legislation create a hy-brid restraint. App. A29. The Court of Appeals ex-plained that under this Court’s precedent the dis-tinguishing feature Of a hybrid restraint is a "state’sdecision to let producers dictate market conditionsto others." Id. Since "the MSA involves no suchdelegation of per se illegal power such as the abilityto fix prices," the court "conclude[d] that the MSAcannot be classified as a hybrid restraint." App.A3o.

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Accordingly, the court held that the state wasnot required to engage in active supervision of ciga-rette prices to obtain immunity, because "the Mid-cal test does not apply to sovereign state acts, whichare immune from antitrust liability so long as they"do not "authoriz[e] per se illegal activities" by pri-vate parties. App. A27.

3. Noerr-Pennington immunity. The Courtof Appeals also held that the Manufacturers areshielded by Noerr-Pennington immunity. App.A15-21.

The court began with the observation that "No-err-Pennington immunity protects private partiesfrom liability for negotiating and entering into set-tlements or other agreements with the government,"App. A16--a point petitioner had conceded, App.B18. The court then rejected petitioner’s argumentthat "even if Noerr-Pennington immunity protectsthe defendants fi’om liability for the MSA itself, itdoes not protect the tobacco defendants from liabil-ity for increasing prices after the MSA." App. A18.The court acknowledged that the Noerr-Penningtondoctrine does not: necessarily immunize all conductthe Manufacturer’s might have engaged in after theMSA; if, for example, the Manufacturers had madepost-MSA "agreements ... to engage in the opera-tion of an output cartel," such agreements "mightnot be immune; from liability" under Noerr-Pennington. App. A2o (internal quotation marksomitted). But that possibility was beside the point,the court held, because petitioner’s complaint "doesnot allege any such subsequent agreement in re-straint of trade." Id. (emphasis added). Thus, be-cause the only agreement to restrain trade allegedin the complaint is the MSA itself--and entry into

17

the MSA is immunized by Noerr-Pennington--thecourt concluded that the complaint states no claimagainst the Manufacturers. App. A21.

In the end, the court held, "because [peti-tioner’s] complaint is based on injuries caused di-rectly by government action"--and not based onpost-MSA activities that would themselves be anti-trust violations--"Noerr-Pennington immunityshields the tobacco defendants from liability for thealleged supracompetitive price increases." App.A2o-21 (citing Allied Tube & Conduit Corp. v. In-dian Head, Inc., 486 U.S. 492, 499 (1988)).

REASONS FOR DENYING THE PETITION

The petition should be denied because: (i)itpresents no actual circuit conflict; (ii) this case pre-sents no issue of national importance that warrantsthis Court’s intervention; and (iii)the Court of Ap-peals’ analysis was both correct and consistent withthis Court’s established jurisprudence.

I. THERE IS NO CIRCUIT CONFLICT ONANY OF THE QUESTIONS PRESENTED.

Petitioner asserts a trio of circuit conflictswrapped up in one case. In truth, there is no con-flict on any of the three questions petitioner pre-sents. The various circuits agree on the basic legalprinciples. See supra at 9-13. At most, they differon how to assess allegations regarding the MSA atthe pleading stage--a case-specific application ofsettled law that does not merit this Court’s atten-tion. See Sup. Ct. R. lO.

In fact, on at least three previous occasions, thisCourt has denied certiorari in MSA eases involvingsimilar antitrust challenges in a similar posture.

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See Mariana v. Fisher, 338 F.3d 189 (3d Cir. 2oo3),cert. denied, 54’0 U.S. 1179 (2oo4); A.D. BedellWholesale Co. v. Philip Morris Inc., 263 F.3d 239(3d Cir. 2OOl), cert. denied, 534 U.S. lO81 (2002);Hise v. Philip Morris Inc., 208 F.3d 226 (loth Cir.),cert. denied, 531 U.S. 959 (2000). This Court’s in-tervention is even more unwarranted now. In lightof subsequent developments, described below, thetwo courts of alppeals on the other side of theclaimed conflict would likely assess the complaintallegations about the MSA as the Court of Appealsdid here, if confronted with a motion to dismiss to-day.

A. There Is No Circuit Conflict onWhether the Sherman Act Preemptsthe MSA.

Petitioner does not assert that any court of ap-peals has rejected the preemption principles setforth above. See supra at 9-1o. Indeed, each courtrecited exactly the same preemption principles,starting with the baseline rule that the Sherman Actdoes not preempt a state statute unless the "conductcontemplated by the statute [is] ’in all cases a per seviolation’ of the federal antitrust laws." CompareFreedom Holdings, 357 F.3d at 223 (quoting Rice,458 U.S. at 661), with Tritent Int’l Corp. v. Ken-tucky, 467 F.3d 547, 554 (6th Cir. 2006) (same),and App. A12 (same).

Rather than claiming a disagreement over basicantitrust principles, petitioner focuses on an appli-cation of these settled principles to a specific--indeed, unique--context. He asserts that "It]he de-cision below expands an existing split ... overwhether the MSA and its related statutes are pre-empted by federal antitrust law," because "[t]he

19

Second Circuit... has held that.., the [implement-ing] statutes are preempted." Pet. 2o-21. He iswrong. No circuitmindeed, no court at any level--has ever so held.

The Second Circuit case petitioner invokes isFreedom Holdings. There, the plaintiffs sued NewYork State, seeking to enjoin its implementing legis-lation on preemption grounds. 357 F.3d at 208-09.Addressing the allegations at the pleading stage, theSecond Circuit held only that the plaintiffs had "suf-ficiently alleged a per se violation of the ShermanAct," id. at 226 (emphasis added), which meant onlythat if "the allegations of the Complaint [were]proven," they would have a claim for preemption,id. at 232 (emphasis added). That holding restedentirely on the court’s assumption, for purposes ofthe motion to dismiss, that the complaint was accu-rate in alleging that the MSA’s payment obligationseffectively penalized Manufacturers for increasingoutput, and therefore gave rise to market behaviorthat resembled an output cartel. Id. at 225-26.

That is not the same as a holding that "the stat-utes are preempted." Pet. 20-21 (emphasis added).Subsequent proceedings in the case underscore justhow inaccurate that description is. On remand, theplaintiffs sought a preliminary injunction againstenforcement of the same implementing legislationthat petitioner challenges here. Freedom Holdings,Inc. v. Spitzer, 447 F. Supp. 2d 230, 248 (S.D.N.Y.2004), affd, 408 F.3d 112 (2d Cir. 2005). The dis-trict court noted that the Second Circuit’s holdingwas "based, not on fact, but on plaintiffs’ allegationsof fact that they claim to be able to prove. The factsas proved, however, tell a quite different story."Id. (emphasis added).

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The district court found that the complaint’s al-legations about the effects of the MSA were incon-sistent with the MSA’s express terms. It noted thatthe payment obligations of NPMs "are essentially aflat tax, assessed at a flat rate per cigarette sold"and that this does not prevent price competitionamong cigarette manufacturers. /d. at 258. For thisreason, the court observed that, "contrary to plain-tiffs’ allegations, [NPMs’] incremental costs do notrise with their volume of sales, and they are not inany manner obliged to increase their prices in lock-step with the OPMs." Id. at 261; see also GrandRiver Enters. Si3c Nations Ltd. v. Pryor, No. 02-5068, 2006 WL 1517603 at ~8-~9 (S.D.N.Y. May 31,2006) (finding no likelihood of success on claimthat MSA impleinenting statutes are preempted bySherman Act andi denying preliminary injunction),affd on other grounds, 481 F.3d 60 (2d Cir. 2007).

To be sure, the court below and the Sixth Circuit(in Tritent) rejected at the pleading stage com-plaints similar to the one the Second Circuit allowedto proceed beyond the pleading stage. But the dif-ference was not (as petitioner asserts) about the ul-timate question of the "validity of the MSA and itsimplementing legislation." Pet. 21. As the SixthCircuit pointed out, the Second Circuit simply ac-cepted as true the complaint’s conclusory, and inac-curate, allegations concerning the MSA’s operation.See Tritent, 467 F.3d at 557; Amici States CA Br.22-24 & n.6. By contrast, the Ninth and Sixth Cir-cuits scrutinized the MSA more closely, under therule that "a court can consider a document on whichthe complaint relies if the document is central to theplaintiffs claim." App. All.

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If a court of appeals ever holds that the MSAand implementing statutes are preempted, thatmight well create a circuit conflict worthy of thisCourt’s attention. At a minimum, this Court shouldawait the Second Circuit’s review of the districtcourt’s ruling on remand in Freedom Holdings. Ifthe Second Circuit were to hold that the MSA re-gime is actually preempted, the Court would at thatpoint have a basis for determining whether an ac-tual, meaningful conflict exists. But without such ahypothetical ruling, the different outcomes in thesecases boil down to the procedural question of howrigorously a court should scrutinize a complaint’sallegations concerning a unique contract. That isnot the sort of disagreement that is worthy of thisCourt’s attention.

Indeed, the issue is particularly unworthy of re-view because there is good reason to believe theSecond Circuit would not reach the same result to-day in light of this Court’s recent guidance inTwombly. There, this Court reversed the SecondCircuit in an antitrust ease for sustaining a com-plaint when the claim was merely "conceivable," butnot "plausible." 127 S. Ct. at 1974. Twombly di-rected the lower courts to do exactly what the NinthCircuit did here: carefully scrutinize the complaint"for enough fact to raise a reasonable expectationthat discovery will reveal evidence" that the plain-tiffs allegations will be borne out. /d. at 1965. ThisCourt directed the lower courts to take notice of"the full contents" of published documents "refer-enced in the complaint," id. at 1972 nA3, and assessallegations of the complaint "in light of commoneconomic experience," id. at 1971, just as the NinthCircuit did here.

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B. There Is No Circuit Conflict onParker Immunity.

Petitioner also asserts that there is a circuit spliton "whether a state scheme, enabling private anti-trust violations, that fails the Midcal test nonethe-less receives Parker immunity." Pet. 25. No suchsplit exists, because the Ninth Circuit did not holdthat a state .scheme "enabling private antitrust vio-lations" receives Parker immunity even if it fails theMidcal test. Instead, the court held that the MSAand related statutes are entitled to Parker immunityprecisely because they do not enable private anti-trust violations. As the Ninth Circuit put it: "TheMSA and the implementing statutes authorize noillegal activity .... We therefore hold that Parkerimmunity protects the state from antitrust liability.... " App. A28. Far from creating a circuit split,the Ninth Circuit’s view of the law is precisely thesame as the Second’s and Third’s: If the state actionauthorizes violations of the Sherman Act, Parkerimmunity is available only if the state can satisfy theMidcal requirements of active supervision and cleararticulation. See’ Freedom Holdings, 357 F.3d at226; Bedell, 263 F.3d at 255.

Petitioner is also wrong when he asserts that"the Second and Third Circuits ... held that theMSA and those statutes failed the Midcal test andthus were not entiitled to Parker immunity." Pet. 25(emphasis in original). This assertion is wrong forthe same reason that petitioner’s similar statementabout preemption is wrong: Both cases were plead-ing cases, and thus the courts could not possibly

23

have held on the merits that the statutes "were notentitled to Parker immunity.’’2

There is an additional reason why any dis-agreement on this pleading matter is inconsequen-tial: The Third Circuit ultimately reached the sameresult as the Ninth Circuit here, only on the basis ofa different brand of immunity. In Bedell, the ThirdCircuit dismissed the antitrust complaint againstthe Manufacturers (the only defendants there) onNoerr-Pennington grounds--just as the Ninth Cir-cuit did in this case. 263 F.3d at 250-54. In a sub-sequent case, the Third Circuit extended that hold-ing to state officers (the only defendants in thatcase). See Mariana, 338 F.3d at 197-2oo. Thus, ifthis case had been filed in the Third Circuit, it notonly would have been dismissed at the pleadingstage, but it would have been dismissed on theground that both the state and the Manufacturerswere immune from suit. That is what the Ninth Cir-cuit did here.3

2 In this case, the Ninth Circuit observed, imprecisely,that "[t]he Second Circuit in Freedom Holdings and theThird Circuit in Bedell applied the Midcal analysis and heldthat Parker immunity does not protect the state from liabil-ity for entering into the MSA." App. A28-29. The court ob-viously did not mean to say that the other courts had reachedthat ultimate merits conclusion, when all they had beforethem was the question whether the complaint stated a claim.

3 In Bedell, after holding that Noerr-Pennington barredthe complaint and that "our analysis could end here," 263F.3d at 254, the Third Circuit went on to state that based onthe complaint allegations, "defendants are not immune un-der the Parker immunity doctrine." /d. at 266. Although theThird Circuit has characterized this statement as a "holding,"it plainly was not, because it was not necessary to the dispo-

(footnote continued...)

94

C. There Is No Circuit Conflict on Noerr-Pennington Immunity.

Every court that has addressed the issue-including the Third Circuit in Bedell, 263 F.3d at25o-54--has held, on the pleadings, that the Noerr-Pennington doctrine immunizes the Manufacturersfrom liability in an antitrust suit challenging theMSA.4 Nevertheless, petitioner incorrectly insiststhere is a conflict between the Ninth Circuit and theSecond Circuit on. two Noerr-Pennington issues.

Petitioner’s main argument is that "the NinthCircuit [held], in conflict with the Second Circuit,that the Noerr-Pennington doctrine applies notonly to protect petitioning activity, but also to im-munize any resulting anticompetitive legislation...undertaken pursuant thereto." Pet. i; see Pet. 24.But the Ninth Circuit did not hold any such thing.To the contrary, it noted that "defendants here donot claim that Noerr-Pennington immunity protectsthe implementing statutes from preemption," andaccordingly never decided the issue. App. A21 n.9

(continued from previous page)sition of the case--indeed, it flatly contradicts that disposi-tion. Mariana, 338 F.3d at 204 ("Critics may with some jus-tification regard our discussion of Parker immunity as dic-tum, and well it may be."). In any event, the Third Circuititself has since questioned the soundness of its Parker analy-sis. /d. at 203.

4 See App. A15-21, afffg App. B18-2o; Bedell, 263 F.3d at250-54, affg lo4 F. Supp. 2d 5ol, 505-07 (W.D. Pa. ~ooo);Hise, 208 F.3d 226, affg 46 F. Supp. 2d 12ol, 1205-o7 (N.D.Okla. 1999); PTI, Inc. v. Philip Morris Inc., loo F. Supp. 2d1179, 1191-97 (C.D. Cal. 2000); Forces Action Project LLC v.California, No. 99-0607 (N.D. Cal. filed Jan. 16, 2002).

25

(emphasis added). The Ninth Circuit even quotedthe Second Circuit’s view that "the immunity for ad-vocacy cannot sensibly protect the resultant anti-competitive legislation from being held to be pre-empted," id. (quoting Freedom Holdings, 357 F.3dat ~33), and observed that it "may be correct." /d.

Petitioner also asserts a conflict, again betweenthe Ninth Circuit and the Second Circuit, overwhether Noerr-Pennington immunizes private"conduct undertaken pursuant" to such "anticom-petitive legislation." Pet. i. But there is no circuitsplit with respect to this question either. Contraryto petitioner’s assertion, the Second Circuit did notdecide whether, or under what circumstances, "No-err-Pennington immunity ... reach[es] subsequent¯.. conduct" of a private actor operating under thestate legislation. Pet. ~4. The Second Circuit hadno occasion to decide the issue because there wereno private parties in Freedom Holdings; it was alawsuit against the state alone. As the Second Cir-cuit noted, "Here, [the plaintiffs] do not seek to im-pose liability on private defendants but rather seekto have the Contraband Statutes declared invalid."357 F.3d at 233 (emphasis added).

Moreover, granting certiorari on this questionwould be pointless, because the outcome of this casewould be the same regardless of the answer. As theNinth Circuit pointed out, the Manufacturers can-not be held liable for post-MSA conduct becauseNoerr-Pennington immunizes their entry into theMSA and petitioner does not allege any otheragreement in restraint of trade. App. A~o-~l.

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II. THIS PLEADING CASE RAISES NO ISSUEOF NATIONAL IMPORTANCE.

Petitioner argues that his petition raises con-terns "of national importance" for three reasons.Pet. 27-32. While there is no doubt about the im-portance of the MSA, petitioner is wrong about theimportance of the issues presented at this earlyjuncture.

1. Petitioner’s main claim of importance is thatthis ease presents an "intractable division amongthe courts of appeals on the validity of the MSA andits implementing legislation.". Pet. 21; see Pet. 29(noting "inherent importance of the legality of theMSA"). But as we have demonstrated above, thereis no such division. No court--district court orcourt of appeals--has held the MSA or implement-ing legislation invalid.

Petitioner eonflates the willingness of plaintiffs’lawyers to roll the dice by filing new lawsuits chal-lenging the MSA with "[t]he continuing unsettledlegality of the MSA’s funding mechanisms." Pet. 28.As this Court recently observed, the willingness ofplaintiffs’ lawyers to bring "even anemic eases" inhopes of extracting a settlement or hitting a jackpotis a problem to be addressed, as the Court of Ap-peals did here, by carefully scrutinizing pleadings.Twombly, 127 S. Ct. at 1967. It is not a basis to rush"anemic cases" to this Court.

In any event, other lawsuits unsuccessfully chal-lenging the MSA and implementing legislation onantitrust grounds are currently pending before thecourts of appeals. See Xcaliber Int’l Ltd., LLC v.Edmondson, No, 04-0922, 2005 WL 5654220 (N.D.Okla. May 20, 2oo5), appeals docketed, No. 05-

27

5175 (loth Cir. Sept. 29, 2005) & No. o5-5178 (lothCir. Oct. 3, 2oo5); Xcaliber Int’l Ltd., LLC v. Kline,No. 05-2261, 2006 WL 288705 (D. Kan. Feb. 7,2oo6), appeal docketed, No. o6-3o61 (loth Cir.Feb. 16, 2006); Grand River Enters. Six NationsLtd. v. Beebe, 418 F. Supp. 2d lO82 (W.D. Ark.2oo6), appeal docketed, No. o8-1436 (8th Cir. Feb.26, 2008). Unlike this case, two of those eases(Edmondson and Kline) went up on appeal after fulldiscovery and grants of summary judgment to thedefendants. If a circuit conflict ever developed, andthis Court were interested in deciding the ultimatequestion whether the Sherman Act preempts theMSA, cases in that posture would be better vehiclesthan this case.

2. Next, petitioner posits that "the questionspresented here are of general importance to theproper implementation of antitrust law generally."Pet. 29-30. Specifically, he claims that the Court ofAppeals "reached a holding that essentially renders[Midcal] a dead letter in most circumstance Is]."Pet. 30. Petitioner portrays the Court of Appeals’opinion as holding that a state law is always im-mune-and need not satisfy the Midcal require-ments-even if it authorizes antitrust violations. /d.But as we have already demonstrated, the Court ofAppeals held no such thing. It expressly recognizedthat Midcal’s requirements must be met when "astate law ... attempts to ’give immunity to thosewho violate the Sherman Act by authorizing them toviolate it.’" App. A21-22, 28 (citation omitted).Thus, far from purporting to "overrule[]" Midcal,Pet. 30, as petitioner charges, the Court of Appealswas entirely faithful to the decision.

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Petitioner also asserts that "the continued un-certainty as to the validity of Midcal and its rela-tionship to [Hoover v. Ronwin, 466 U.S. 558(1984)], has been a source of confusion in the lowercourts for many years." Pet. 3o-31. If the lowercourts really were confused, one would have ex-pected petitioner to adduce a long string cite ofcases expressing confusion. There is no string cite,because there is no confusion.

In Hoover, the Court held that the state actionthere in issue--a state’s decision about who shouldbe admitted to practice law in Arizona--was a sov-ereign act of the state. 466 U.S. at 57o-74. Becausethe state did not authorize private parties to violatethe Sherman Act--it did not, for example, let agroup of private practitioners dictate which of theircompetitors should be admitted to practice law--itwas immune under Parker, without any need to sat-isfy the Midcal requirements. Id. at 575. Thus,there is-no tension or inconsistency between the twodecisions; Hoover simply involved a particular setof facts in which it was unnecessary to apply theMidcal requirements to conclude that immunity wasavailable. See Mass. Food Ass’n. v. Mass. AlcoholicBeverages Control Comm’n, 197 F.3d 560, 563-66(1st Cir. 1999) ("What is centrally forbidden is statelicensing of arrangements between private partiesthat suppress competition--not state directives thatby themselves limit or reduce competition." (em-phasis in original)), cert. denied, 529 U.S. 11o5( ooo).

3. Finally, petitioner asserts that Parker immu-nity should not apply because when many states-rather than just one--take similar action, the feder-alism concerns that animate Parker evaporate. Pet.

29

31. Petitioner has it exactly backwards. If only oneState had decided that the MSA’s terms were in thebest interests of its citizens, the courts would owethat judgment "special deference ... in our systemof federalism." Youngblood v. West Virginia, 547U.S. 867, 874 (2006). When 46 States each makethe same independent judgment, the respect is am-plified, not muted. Cf. New York v. O’Neill, 359U.S. 1, 6 (1959) (uniform laws adopted by 42 states"increas[es] harmony within the federalism createdby the Constitution").

The assertion that the MSA "encroaches uponnational authority over a national market," Pet. 31,is equally meritless. As the Fourth Circuit has held,the MSA "does not increase the power of the Statesat the expense of federal supremacy and..., there-fore, it is not an interstate compact requiring con-gressional approval under the Compact Clause."Star Scientific Inc. v. Beales, 278 F.3d 339, 360(4th Cir.), cert. denied, 537 U.S. 818 (2002); see id.("[T]he [MSA] ’does not purport to authorize themember States to exercise any powers they couldnot exercise in its absence.’" (citation omitted)).Petitioner’s failure here even to assert a CompactClause claim shows that not even he is persuaded byhis "encroachment" argument. In any event, Con-gress has recognized and endorsed the MSA by au-thorizing each Settling State to use MSA paymentsfor any expenditures determined appropriate by theState. 42 U.S.C. § 1396b(d)(3)(B).

30

III.THE COURT OF APPEALS’ ANALYSIS ISCORRECT A~ND FAITHFULLY APPLIESTHIS COURT’S PRECEDENTS.

Petitioner asserts that the Court of Appeals’opinion is "wrong" and in "direct conflict" with de-cisions of this Court. Pet. 32. But petitioner fails toidentify any such conflict. And each claim of erroris meritless.

1. Petitioner asserts that the Court of Appeals"erroneously applied the standards for a pre-implementation facial challenge" to an "as-appliedpost-implementation challenge" to the MSA regime.Id. But as petitioner made clear in his complaint,and as the Court of Appeals recognized, he is seek-ing relief on the ground that the implementing stat-utes are "facially void as a per se restraint of trade."ER 17 (emphasis added); App. AlO n.6 (same).

In any event, the standard petitioner says thecourt should have applied--considering the "’eco-nomic realities of the relevant transaetions’"--is thestandard the court did in fact apply. Pet. 33 (cita-tion omitted). Examining the MSA itself, the Courtheld that, contrary to the complaint’s allegations,"[n]othing ... forces the NPMs to either peg theirprices to those of participating manufacturers, or torefrain altogether from entering the market." App.A13.

Petitioner, a complete stranger to the contract,offers his own idiosyncratic interpretation of theMSA, insisting that when the MSA calculates theManufacturers’ payment obligations, it punishesthem for increasing their market share. See Pet. 9-11. But the State.,; that are the actual parties to theMSA reject his interpretation, describing it as "a

31

fundamental misreading of the MSA and EscrowStatutes." Amici States CA Br. 13 (joined by 41states, D.C., and three territories); see id. at 14-17;Cal. CA9 Br. 9-11. Every court that has addressedthis issue on the merits agrees with the parties tothe MSA. Grand River, 2006 WL 1517603, at ~9("The MSA does not create disincentives for OPMs,SPMs or NPMs to restrict output or to avoid reduc-ing prices."); Xcaliber Int’l, 2005 WL 5654220, at~5 ("[T]here is no evidence that the MSA incorpo-rates penalties for increased market share by anyclass of PM which would serve to effect a market-sharing or price-fixing agreement."); FreedomHoldings, 447 F. Supp. 2d at 261 (NPMs’ "incre-mental costs do not rise with their volume of sales,and they are not in any manner obliged to increasetheir prices in lock-step with the OPMs.").

As these courts and the parties to the MSA rec-ognize, the MSA imposes a set unit cost on everycigarette that remains the same regardless of howmany cigarettes a manufacturer sells. It is indis-putable that this type of payment mechanism doesnot eliminate the incentive to cut prices or increasemarket share. Indeed, even petitioner and the Sec-ond Circuit agree with this proposition. CR53 at 42;see Freedom Holdings, 357 F.3d at 229 (a fixed per-cigarette cost "would not prevent price competi-tion"). Thus, the linchpin of petitioner’s output car-tel/hybrid restraint theory--that the payment obli-gations encourage, lockstep pricing by creating a dis-incentive to compete on price--is belied by the"economic realities" of the MSA’s own terms.

2. Petitioner also asserts, without citation toany authority, that the Court of Appeals erred inconcluding that the MSA and related statutes do not

create a hybrid restraint. Pet. 33. Petitioner iswrong. This Court has made clear that such a re-straint arises only when the government delegatesto a private actor "’a degree of private regulatorypower’" that enables it to mandate compliance byother private actors with its "private marketing de-cisions" by force of law. Fisher, 475 U.S. at 268(quoting Rice, 458 U.S. at 666 n.1 (Stevens, J., con-curring)); accord 324 Liquor, 479 U.S. at 345 n.8(citing Fisher); Midcal, 445 U.S. at lo3. Thus, eacharrangement that: this Court has labeled a hybridrestraint has inwflved a situation in which privateactors are legally compelled to. charge the prices es-tablished by another private actor. See 324 Liquor,479 U.S. at 340; Midcal, 445 U.S. at loo; Schweg-mann Bros. v. Calvert Distillers Corp., 341 U.S.384, 386-87 (1951). Indeed, petitioner acknowl-edged below that "legal compulsion ... is the hall-mark of a hybrid restraint." CA9 Reply 17.

The Court of Appeals correctly held that no hy-brid restraint is i.nvolved here. The state has notdelegated any regulatory authority to the Manufac-turers. App. A3o. Each company sets its own pricesand has no power to set the prices or control theoutput of others, much less any such power backedby the state.

Rather than challenge that conclusion, peti-tioner shifts ground and asserts a novel definition ofa hybrid restraint: "IT]he MSA and the relatedstatutes were not simply unilateral state action, theywere the result of an agreement with and among themajor tobacco companies, which agreement effec-tively coerced state legislatures to adopt the statutesprovided for in the MSA." Pet. 33. Without citationto any authority from this Court, petitioner calls

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this "a classic instance of a hybrid restraint ratherthan unilateral regulation." Id.

But this Court has never suggested that thedefinition of hybrid restraint has anything to dowith whether the state arrived at its policy choicesthrough negotiation with private interests orwhether state legislation was the product of carefuldeliberation or "effective[] coerc[ion]"--whateverthat means. See id. That is presumably why peti-tioner never offered his novel definition of hybridrestraint in the lower courts.

Petitioner’s suggestion that the MSA regimeshould be treated as a hybrid restraint simply be-cause "the states left the OPMs free to make market-ing decisions regarding price increases without su-pervision" is also wrong. Id. Under Parker andMidcal, economic actors are free to make such deci-sions without state supervision, unless the state hasauthorized those actors to engage in antitrust viola-tions. Where, as here, the state has not authorizedprivate parties to violate the antitrust laws, theParker doctrine permits states to regulate conductwithout the need for "active supervision."

3. Petitioner next argues that there can be noParker immunity because the MSA is not a sover-eign state act. According to petitioner, only "legis-lative" conduct may be considered sovereign stateaction. Pet. 34-35. Petitioner does not explain whyParker immunity should not apply to the executivebranch. This Court has never held that it does not,and every court of appeals to consider the questionhas agreed with the Ninth Circuit that the immunitycovers the actions of executive-branch officials. SeeNeo Gen Screening, Inc. v. New England NewbornScreening Program, 187 F.3d 24, 28-29 (lst Cir.),

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cert. denied, 5a8 U.S. lO61 (1999); Saenz v. Univ.Interscholastic League, 487 F.2d 1026, 1027-1028(sth Cir. 1973). Moreover, the MSA regime was en-dorsed by the other branches of government: TheSuperior Court of California expressly approved it,and the California Legislature passed the relatedstatutes.s

4. Finally, petitioner is wrong in attributing tothe Court of Appeals the holding that "the mere actof requesting [a law] ... entitle[s] ... the request-ing party to have [its] conduct thereunder[] immu-nized." Pet. 34. Rather, the court recognized thatthe "conduct thereunder"-i.e., the post-MSA be-havior-would not be immunized if that conductwould violate antitrust laws. See App. A2o-21.

The Court of Appeals underscored the pointwhen it correctly distinguished this ease from Can-tor v. Detroit Edison Co., 428 U.S. 579 (1976). App.A18-19. In Cantor, the private party’s post-petitioning conduct was alleged to have been an an-titrust violation in its own right. Cantor, 428 U.S.at 581-82. That is why the post-petitioning conductdid not enjoy Noerr-Pennington immunity. See id.at 601-O2; accord Greenwood Utils. Comm’n v.Miss. Power Co., 751 F.2d 1484, 15o4 (sth Cir.1985) (distinguishing Cantor on same ground). Forpetitioner to fit his ease into the Cantor mold, hewould have to have alleged that, subsequent to theMSA, the Manufacturers entered into an independ-

5 In any event, petitioner has never made this argumentbefore; indeed, he conceded below that the challenged con-duct constitutes "sow~reign acts of the state." App. BI~.

Thedenied.

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ent agreement to fix prices or restrict output. Hedoes not, and could not, make any such allegation.

CONCLUSION

petition for a writ of certiorari should be

Respectfully submitted,

DARRYL SNIDERJAMES F. SPEYERERIC SHAPLANDLEO D. CASERIAHELLER EHRMAN LLP333 South Hope Street,39th FloorLos Angeles, CA 90o71Counsel for RespondentPHILIP MORRIS USA INC.

E. JOSHUA ROSENKRANZCounsel of Record

KENNETH L. CHERNOFHELLER EHRMAN LLPTimes Square Tower7 Times SquareNewYork, NY 10036(212) 832-8300Counsel for RespondentPHILIP MORRIS USA INC.

DOUGLAS L. WALDARNOLD & PORTER LLP555 Twelfth Street, NWWashington, DC 20004-12o6(202) 942-5000Counsel for RespondentPHILIP MORRIS USA INC.

STEPHEN R. PATI’ONBARACK S. ECHOLSKIRKLAND & ELLIS LLP200 East Randolph DriveChicago, IL 6o6o1-6636(312) 861-2oooCounsel for RespondentsBROWN & WILLIAMSONTOBACCO CORPORATIONand R.J. REYNOLDSTOBACCO COMPANY

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IRVING SCHERWEIL, GOTSHAL &MANGES LLP767 Fifth AvenueNewYork, NY 1o153(212) 310-8000Counsel for RespondentLORILLARD TOBACCOCOMPANY

PETER D. ISAKOFFWEIL, GOTSHAL &MANGES LLP130o Eye Street, NWSuite 90oWashington, DC 2ooo5(202) 682-7144Counsel for RespondentLORILLARD TOBACCOCOMPANY