source: Caselaw Access Project

author: Justice Scalia

license: Public Domain

text:
    REPUBLIC OF ARGENTINA et al. v. WELTOVER, INC., et al.
    No. 91-763.
    Argued April 1, 1992
    Decided June 12, 1992

      Scalia, J., delivered the opinion for a unanimous Court.

      Richard J. Davis argued the cause for petitioners. With him on the briefs were Steven Alan Reiss, Bonnie Garone, and Andreas F. Lowenfeld.

      Richard W. Cutler argued the cause for respondents. With him on the brief was Joel I. Klein.

      Jeffrey P. Minear argued the cause for the United States as amicus curiae urging affirmance. With him on the brief were Solicitor General Starr, Assistant Attorney General Gerson, Deputy Solicitor General Roberts, Douglas Letter, and Edwin D. Williamson.

   Justice Scalia

delivered the opinion of the Court.

This case requires us to decide whether the Republic of Argentina’s default on certain bonds issued as part of a plan to stabilize its currency was an act taken “in connection with a commercial activity” that had a “direct effect in the United States” so as to subject Argentina to suit in an American court under the Foreign Sovereign Immunities Act of 1976, 28 U. S. C. § 1602 et seq.

I

Since Argentina’s currency is not one of the mediums of exchange accepted on the international market, Argentine businesses engaging in foreign transactions must pay in United States dollars or some other internationally accepted currency. In the recent past, it was difficult for Argentine borrowers to obtain such funds, principally because of the instability of the Argentine currency. To address these problems, petitioners, the Republic of Argentina and its central bank, Banco Central (collectively Argentina), in 1981 instituted a foreign exchange insurance contract program (FEIC), under which Argentina effectively agreed to assume the risk of currency depreciation in cross-border transactions involving Argentine borrowers. This was accomplished by Argentina’s agreeing to sell to domestic borrowers, in exchange for a contractually predetermined amount of local currency, the necessary United States dollars to repay their foreign debts when they matured, irrespective of intervening devaluations.

Unfortunately, Argentina did not possess sufficient reserves of United States dollars to cover the FEIC contracts as they became due in 1982. The Argentine Government thereupon adopted certain emergency measures, including refinancing of the FEIC-backed debts by issuing to the creditors government bonds. These bonds, called “Bonods,” provide for payment of interest and principal in United States dollars; payment may be made through transfer on the London, Frankfurt, Zurich, or New York market, at the election of the creditor. Under this refinancing program, the foreign creditor had the option of either accepting the Bonods in satisfaction of the initial debt, thereby substituting the Argentine Government for the private debtor, or maintaining the debtor/creditor relationship with the private borrower and accepting the Argentine Government as guarantor.

When the Bonods began to mature in May 1986, Argentina concluded that it lacked sufficient foreign exchange to retire them. Pursuant to a Presidential Decree, Argentina unilaterally extended the time for payment and offered bondholders substitute instruments as a means of rescheduling the debts. Respondents, two Panamanian corporations and a Swiss bank who hold, collectively, $1.3 million of Bonods, refused to accept the rescheduling and insisted on full payment, specifying New York as the place where payment should be made. Argentina did not pay, and respondents then brought this breach-of-contract action in the United States District Court for the Southern District of New York, relying on the Foreign Sovereign Immunities Act of 1976 as the basis for jurisdiction. Petitioners moved to dismiss for lack of subject-matter jurisdiction, lack of personal jurisdiction, and forum non conveniens. The District Court denied these motions, 753 F. Supp. 1201 (1991), and the Court of Appeals affirmed, 941 F. 2d 145 (CA2 1991). We granted Argentina’s petition for certiorari, which challenged the Court of Appeals’ determination that, under the Act, Argentina was not immune from the jurisdiction of the federal courts in this case. 502 U. S. 1024 (1992).

f — < HH

The Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U. S. C. § 1602 et seq., establishes a comprehensive framework for determining whether a court in this country, state or federal, may exercise jurisdiction over a foreign state. Under the Act, a “foreign state shall be immune from the jurisdiction of the courts of the United States and of the States” unless one of several statutorily defined exceptions applies. § 1604 (emphasis added). The FSIA thus provides the “sole basis” for obtaining jurisdiction over a foreign sovereign in the United States. See Argentine Republic v. Amerada Hess Shipping Corp., 488 U. S. 428, 434-439 (1989). The most significant of the FSIA’s exceptions — and the one at issue in this case — is the “commercial” exception of § 1605(a)(2), which provides that a foreign state is not immune from suit in any case

“in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.” § 1605(a)(2).

In the proceedings below, respondents relied only on the third clause of § 1605(a)(2) to establish jurisdiction, 941 F. 2d, at 149, and our analysis is therefore limited to considering whether this lawsuit is (1) “based . . . upon an act outside the territory of the United States”; (2) that was taken “in connection with a commercial activity” of Argentina outside this country; and (3) that “cause[d] a direct effect in the United States.” The complaint in this case alleges only one cause of action on behalf of each of the respondents, viz., a breach-of-contract claim based oh Argentina’s attempt to refinance the Bonods rather than to pay them according to their terms. The fact that the cause of action is in compliance with the first of the three requirements — that it is “based upon an act outside the territory of the United States” (presumably Argentina’s unilateral extension) — is uncontested. The dispute pertains to whether the unilateral refinancing of the Bonods was taken “in connection with a commercial activity” of Argentina, and whether it had a “direct effect in the United States.” We address these issues in turn.

A

Respondents and their amicus, the United States, contend that Argentina’s issuance of, and continued liability under, the Bonods constitute a “commercial activity” and that the extension of the payment schedules was taken “in connection with” that activity. The latter point is obvious enough, and Argentina does not contest it; the key question is whether the activity is “commercial” under the FSIA.

The FSIA defines “commercial activity” to mean:

“[E]ither a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.” 28 U. S. C. § 1603(d).

This definition, however, leaves the critical term “commercial” largely undefined: The first sentence simply establishes that the commercial nature of an activity does not depend upon whether it is a single act or a regular course of conduct; and the second sentence merely specifies what element of the conduct determines commerciality (i. e., nature rather than purpose), but still without saying what “commercial” means. Fortunately, however, the FSIA was not written on a clean slate. As we have noted, see Verlinden B. V. v. Central Bank of Nigeria, 461 U. S. 480, 486-489 (1983), the Act (and the commercial exception in particular) largely codifies the so-called “restrictive” theory of foreign sovereign immunity first endorsed by the State Department in 1952. The meaning of “commercial” is the meaning generally attached to that term under the restrictive theory at the time the statute was enacted. See McDermott Int’l, Inc. v. Wilander, 498 U. S. 387, 342 (1991) (“[W]e assume that when a statute uses [a term of art], Congress intended it to have its established meaning”); NLRB v. Amax Coal Co., 453 U. S. 322, 329 (1981); Morissette v. United States, 342 U. S. 246, 263 (1952).

This Court did not have occasion to discuss the scope or validity of the restrictive theory of sovereign immunity until our 1976 decision in Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U. S. 682. Although the Court there was evenly divided on the question whether the “commercial” exception that applied in the foreign-sovereign-immunity context also limited the availability of an act-of-state defense, compare id., at 695-706 (plurality opinion), with id., at 725-730 (Marshall, J., dissenting), there was little disagreement over the general scope of the exception. The plurality noted that, after the State Department endorsed the restrictive theory of foreign sovereign immunity in 1952, the lower courts consistently held that foreign sovereigns were not immune from the jurisdiction of American courts in cases “arising out of purely commercial transactions,” id., at 703, citing, inter alia, Victory Transport, Inc. v. Comisaria General, 336 F. 2d 354 (CA2 1964), cert. denied, 381 U. S. 934 (1965), and Petrol Shipping Corp. v. Kingdom of Greece, 360 F. 2d 103 (CA2), cert. denied, 385 U. S. 931 (1966). The plurality further recognized that the distinction between state sovereign acts, on the one hand, and state commercial and private acts, on the other, was not entirely novel to American law. See 425 U. S., at 695-696, citing, inter alia, Parden v. Terminal Railway of Alabama Docks Dept., 377 U. S. 184, 189-190 (1964) (Eleventh Amendment immunity); Bank of United States v. Planters’ Bank of Georgia, 9 Wheat. 904, 907-908 (1824) (same); New York v. United States, 326 U. S. 572, 579 (1946) (opinion of Frankfurter, J.) (tax immunity of States); and South Carolina v. United States, 199 U. S. 437, 461-463 (1905) (same). The plurality stated that the restrictive theory of foreign sovereign immunity would not bar a suit based upon a foreign state’s participation in the marketplace in the manner of a private citizen or corporation. 425 U. S., at 698-705. A foreign state engaging in “commercial” activities “do[es] not exercise powers peculiar to sovereigns”; rather, it “exercise[s] only those powers that can also be exercised by private citizens.” Id., at 704. The dissenters did not disagree with this general description. See id., at 725. Given that the FSIA was enacted less than six months after our decision in Alfred Dunhill was announced, we think the plurality’s contemporaneous description of the then-prevailing restrictive theory of sovereign immunity is of significant assistance in construing the scope of the Act.

In accord with that description, we conclude that when a foreign government acts, not as regulator of a market, but in the manner of a private player within it, the foreign sovereign’s actions are “commercial” within the meaning of the FSIA. Moreover, because the Act provides that the commercial character of an act is to be determined by reference to its “nature” rather than its “purpose,” 28 U. S. C. § 1603(d), the question is not whether the foreign government is acting with a profit motive or instead with the aim of fulfilling uniquely sovereign objectives. Rather, the issue is whether the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in “trade and traffic or commerce,” Black’s Law Dictionary 270 (6th ed. 1990). See, e. g., Rush-Presbyterian-St. Luke’s Medical Center v. Hellenic Republic, 877 F. 2d 574, 578 (CA7), cert. denied, 493 U. S. 937 (1989). Thus, a foreign government’s issuance of regulations limiting foreign currency exchange is a sovereign activity, because such authoritative control of commerce cannot be exercised by a private party; whereas a contract to buy army boots or even bullets is a “commercial” activity, because private companies can similarly use sales contracts to acquire goods, see, e.g., Stato di Rumania v. Trutta, [1926] Foro It. I 584, 585-586, 589 (Corte di Cass. del Regno, Italy), translated and reprinted in part in 26 Am. J. Int’l L. 626-629 (Supp. 1932).

The commercial character of the Bonods is confirmed by the fact that they are in almost all respects garden-variety debt instruments: They may be held by private parties; they are negotiable and may be traded on the international market (except in Argentina); and they promise a future stream of cash income. We recognize that, prior to the enactment of the FSIA, there was authority suggesting that the issuance of public debt instruments did not constitute a commercial activity. Victory Transport, 336 F. 2d, at 360 (dicta). There is, however, nothing distinctive about the state’s assumption of debt (other than perhaps its purpose) that would cause it always to be classified as jure imperii, and in this regard it is significant that Victory Transport expressed confusion as to whether the “nature” or the “purpose” of a transaction was controlling in determining commerciality, id., at 359-360. Because the FSIA has now clearly established that the “nature” governs, we perceive no basis for concluding that the issuance of debt should be treated as categorically different from other activities of foreign states.

Argentina contends that, although the FSIA bars consideration of “purpose,” a court must nonetheless fully consider the context of a transaction in order to determine whether it is “commercial.” Accordingly, Argentina claims that the Court of Appeals erred by defining the relevant conduct in what Argentina considers an overly generalized, acontextual manner and by essentially adopting a per se rule that all “issuance of debt instruments” is “commercial.” See 941 F. 2d, at 151 (“‘[I]t is self-evident that issuing public debt is a commercial activity within the meaning of [the FSIA]’”), quoting Shapiro v. Republic of Bolivia, 930 F. 2d 1013, 1018 (CA2 1991). We have no occasion to consider such a per se rule, because it seems to us that even in full context, there is nothing about the issuance of these Bonods (except perhaps its purpose) that is not analogous to a private commercial transaction.

Argentina points to the fact that the transactions in which the Bonods were issued did not have the ordinary commercial consequence of raising capital or financing acquisitions. Assuming for the sake of argument that this is not an example of judging the commerciality of a transaction by its purpose, the ready answer is that private parties regularly issue bonds, not just to raise capital or to finance purchases, but also to refinance debt. That is what Argentina did here: By virtue of the earlier FEIC contracts, Argentina was already obligated to supply the United States dollars needed to retire the FEIC-insured debts; the Bonods simply allowed Argentina to restructure its existing obligations. Argentina further asserts (without proof or even elaboration) that it “received consideration [for the Bonods] in no way commensurate with [their] value,” Brief for Petitioners 22. Assuming that to be true, it makes no difference. Engaging in a commercial act does not require the receipt of fair value, or even compliance with the common-law requirements of consideration.

Argentina argues that the Bonods differ from ordinary debt instruments in that they “were created by the Argentine Government to fulfill its obligations under a foreign exchange program designed to address a domestic credit crisis, and as a component of a program designed to control that nation’s critical shortage of foreign exchange.” Id., at 23-24. In this regard, Argentina relies heavily on De Sanchez v. Banco Central de Nicaragua, 770 F. 2d 1385 (1985), in which the Fifth Circuit took the view that “[o]ften, the essence of an act is defined by its purpose”; that unless “we can inquire into the purposes of such acts, we cannot determine their nature”; and that, in light of its purpose to control its reserves of foreign currency, Nicaragua’s refusal to honor a check it had issued to cover a private bank debt was a sovereign act entitled to immunity. Id., at 1393. Indeed, Argentina asserts that the line between “nature” and “purpose” rests upon a “formalistic distinction [that] simply is neither useful nor warranted.” Reply Brief for Petitioners 8. We think this line of argument is squarely foreclosed by the language of the PSIA. However difficult it may be in some cases to separate “purpose” (i. e., the reason why the foreign state engages in the activity) from “nature” (i e., the outward form of the conduct that the foreign state performs or agrees to perform), see De Sanchez, supra, at 1393, the statute unmistakably commands that to be done, 28 U. S. C. § 1603(d). We agree with the Court of Appeals, see 941 F. 2d, at 151, that it is irrelevant why Argentina participated in the bond market in the manner of a private actor; it matters only that it did so. We conclude that Argentina’s issuance of the Bonods was a “commercial activity” under the FSIA.

B

The remaining question is whether Argentina’s unilateral rescheduling of the Bonods had a “direct effect” in the United States, 28 U. S. C. § 1605(a)(2). In addressing this issue, the Court of Appeals rejected the suggestion in the legislative history of the FSIA that an effect is not “direct” unless it is both “substantial” and “foreseeable.” 941 F. 2d, at 152; contra, America West Airlines, Inc. v. GPA Group, Ltd., 877 F. 2d 793, 798-800 (CA9 1989); Zernicek v. Brown & Root, Inc., 826 F. 2d 415, 417-419 (CA5 1987), cert. denied, 484 U. S. 1043 (1988); Maritime Int’l Nominees Establishment v. Republic of Guinea, 224 U. S. App. D. C. 119, 135— 136, 693 F. 2d 1094, 1110-1111 (1982), cert. denied, 464 U. S. 815 (1983); Ohntrup v. Firearms Center Inc., 516 F. Supp. 1281, 1286 (ED Pa. 1981), aff’d, 760 F. 2d 259 (CA3 1985). That suggestion is found in the House Report, which states that conduct covered by the third clause of § 1605(a)(2) would be subject to the jurisdiction of American courts “consistent with principles set forth in section 18, Restatement of the Law, Second, Foreign Relations Law of the United States (1965).” H. R. Rep. No. 94-1487, p. 19 (1976). Section 18 states that American laws are not given extraterritorial application except with respect to conduct that has, as a “direct and foreseeable result,” a “substantial” effect within the United States. Since this obviously deals with jurisdiction to legislate rather than jurisdiction to adjudicate, this passage of the House Report has been charitably described as “a bit of a non sequitur,” Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F. 2d 300, 311 (CA2 1981), cert. denied, 454 U. S. 1148 (1982). Of course the generally applicable principle de minimis non curat lex ensures that jurisdiction may not be predicated on purely trivial effects in the United States. But we reject the suggestion that § 1605(a)(2) contains any unexpressed requirement of “sub-stantiality” or “foreseeability.” As the Court of Appeals recognized, an effect is “direct” if it follows “as an immediate consequence of the defendant’s . . . activity.” 941 F. 2d, at 152.

The Court of Appeals concluded that the rescheduling of the maturity dates obviously had a “direct effect” on respondents. It further concluded that that effect was sufficiently “in the United States” for purposes of the FSIA, in part because “Congress would have wanted an American court to entertain this action” in order to preserve New York City’s status as “a preeminent commercial center.” Id., at 153. The question, however, is not what Congress “would have wanted” but what Congress enacted in the FSIA. Although we are happy to endorse the Second Circuit’s recognition of “New York’s status as a world financial leader,” the effect of Argentina’s rescheduling in diminishing that status (assuming it is not too speculative to be considered an effect at all) is too remote and attenuated to satisfy the “direct effect” requirement of the FSIA. Ibid.

We nonetheless have little difficulty concluding that Argentina’s unilateral rescheduling of the maturity dates on the Bonods had a “direct effect” in the United States. Respondents had designated their accounts in New York as the place of payment, and Argentina made some interest payments into those accounts before announcing that it was rescheduling the payments. Because New York was thus the place of performance for Argentina’s ultimate contractual obligations, the rescheduling of those obligations necessarily had a “direct effect” in the United States: Money that was supposed to have been delivered to a New York bank for deposit was not forthcoming. We reject Argentina’s suggestion that the “direct effect” requirement cannot be satisfied where the plaintiffs are all foreign corporations with no other connections to the United States. We expressly stated in Verlinden that the FSIA permits “a foreign plaintiff to sue a foreign sovereign in the courts of the United States, provided the substantive requirements of the Act are satisfied,” 461 U. S., at 489.

Finally, Argentina argues that a finding of jurisdiction in this case would violate the Due Process Clause of the Fifth Amendment, and that, in order to avoid this difficulty, we must construe the “direct effect” requirement as embodying the “minimum contacts” test of International Shoe Co. v. Washington, 326 U. S. 310, 316 (1945). Assuming, without deciding, that a foreign state is a “person” for purposes of the Due Process Clause, cf. South Carolina v. Katzenbach, 383 U. S. 301, 323-324 (1966) (States of the Union are not “persons” for purposes of the Due Process Clause), we find that Argentina possessed “minimum contacts” that would satisfy the constitutional test. By issuing negotiable debt instruments denominated in United States dollars and payable in New York and by appointing a financial agent in that city, Argentina “‘purposefully availed] itself of the privilege of conducting activities within the [United States].’” Burger King Corp. v. Rudzewicz, 471 U. S. 462, 475 (1985), quoting Hanson v. Denckla, 357 U. S. 235, 253 (1958).

* * *

We conclude that Argentina’s issuance of the Bonods was a “commercial activity” under the FSIA; that its rescheduling of the maturity dates on those instruments was taken in connection with that commercial activity and had a “direct effect” in the United States; and that the District Court therefore properly asserted jurisdiction, under the FSIA, over the breach-of-contract claim based on that rescheduling. Accordingly, the judgment of the Court of Appeals is

Affirmed.

       It is undisputed that both the Republic of Argentina and Banco Central are “foreign states” within the meaning of the FSIA. See 28 U. S. C. §§ 1603(a), (b) (“[FJoreign state” includes certain “agenc[ies] or instrumen-talities] of a foreign state”).

       Argentina concedes that this issue “is before the Court only as an aid in interpreting the direct effect requirement of the Act” and that “[w]hether there is a constitutional basis for personal jurisdiction over [Argentina] is not before the Court as an independent question.” Brief for Petitioners 36, n. 33.


author: Justice Kennedy Justice-Sc alia, Chief Justice Rehnquist, Justice O’Connor,

text:
    FEDERAL TRADE COMMISSION v. TICOR TITLE INSURANCE CO. et al.
    No. 91-72.
    Argued January 13, 1992
    Decided June 12, 1992

      Kennedy, J., delivered the opinion of the Court, in which White, Blackmun, Stevens, Scalia, and Souter, JJ., joined. Scalia, J., filed a concurring opinion, post, p. 640. Rehnquist, C. J., filed a dissenting opinion, in which O’Connor and Thomas, JJ., joined, post, p. 641. O’Con-nor, J., filed a dissenting opinion, in which Thomas, J., joined, post, p. 646.

      Deputy Solicitor General Wallace argued the cause for petitioner. With him on the briefs were Solicitor General Starr, Assistant Attorney General Rill, Robert A. Long, Jr., James M. Spears, Jay C. Shaffer, Ernest J. Isenstadt, Michael E. Antalics, and Ann Malester.

      John C. Christie, Jr., argued the cause for respondents. With him on the brief were Patrick J. Roach, John F. Graybeal, and David M. Foster.

       A brief of amici curiae urging reversal was filed for the State of Wisconsin et al. by James E. Doyle, Attorney General of Wisconsin, and Kevin J. O’Connor, Assistant Attorney General, J. Joseph Curran, Jr., Attorney General of Maryland, and Robert N. McDonald and Ellen S. Cooper, Assistant Attorneys General, James H. Evans, Attorney General of Alabama, Charles E. Cole, Attorney General of Alaska, and James Forbes, Assistant Attorney General, Grant Woods, Attorney General of Arizona, and Jeri K. Auther, Assistant Attorney General, Winston Bryant, Attorney General of Arkansas, and Royce Griffin, Deputy Attorney General, Charles M. Oberly III, Attorney General of Delaware, Robert A Butter-worth, Attorney General of Florida, Larry EchoHawk, Attorney General of Idaho, and Brett T. DeLange, Deputy Attorney General, Bonnie J. Campbell, Attorney General of Iowa, and John R. Perkins, Deputy Attorney General, Frederic J. Cowan, Attorney General of Kentucky, and James

        M, Ringo, Assistant Attorney General, William J. Guste, Jr., Attorney General of Louisiana, and Jesse James Marks and Anne F. Benoit, Assistant Attorneys General, Michael E. Carpenter, Attorney General of Maine, and Stephen L. Wessler, Deputy Attorney General, Scott Harshbarger, Attorney General of Massachusetts, and George K. Weber and Thomas M. Alpert, Assistant Attorneys General, Frank J. Kelley, Attorney General of Michigan, Hubert H. Humphrey III, Attorney General of Minnesota, Mike Moore, Attorney General of Mississippi, Marc Racicot, Attorney General of Montana, Frankie Sue Del Papa, Attorney General of Nevada, John P. Arnold, Attorney General of New Hampshire, Charles T Putnam, Senior Assistant Attorney General, and Walter L. Maroney, Assistant Attorney General, Robert J. Del Tufo, Attorney General of New Jersey, and Laurel A. Price, Deputy Attorney General, Robert Abrams, Attorney General of New York, Jerry Boone, Solicitor General, and George W. Sampson and Richard Schwartz, Assistant Attorneys General, Lacy H. Thornburg, Attorney General of North Carolina, James C. Gulick, Special Deputy Attorney General, and K. D. Sturgis, Assistant Attorney General, Nicholas J. Spaeth, Attorney General of North Dakota, and David W. Huey, Assistant Attorney General, Lee Fisher, Attorney General of Ohio, and Marc B. Bandman, Assistant Attorney General, Susan B. Loving, Attorney General of Oklahoma, and Jane F. Wheeler, Assistant Attorney General, Ernest D. Preate, Jr., Attorney General of Pennsylvania, Thomas L. Welch, Chief Deputy Attorney General, and Carl S. Hisiro, Assistant Chief Deputy Attorney General, James E. O’Neil, Attorney General of Rhode Island, and Edmund F. Murray, Jr., Special Assistant Attorney General, Charles W. Burson, Attorney General of Tennessee, John Knox Walkup, Solicitor General, and Perry A. Craft, Deputy Attorney General, Dan Morales, Attorney General of Texas, Will Pryor, First Assistant Attorney General, Mary F. Keller, Deputy Attorney General, and Mark Tobey, Assistant Attorney General, R. Paul Van Dam, Attorney General of Utah, Jeffrey L. Amestoy, Attorney General of Vermont, and Geoffrey A. Yudien, Assistant Attorney General, Mary Sue Terry, Attorney General of Virginia, Kenneth O. Eikenberry, Attorney General of Washington, and Carol A. Smith, Assistant Attorney General, Mario J. Palumbo, Attorney General of West Virginia, and Donald L. Darling, Deputy Attorney General, and Joseph B. Meyer, Attorney General of Wyoming.
      Briefs of amici curiae urging affirmance were filed for the State of California et al. by Daniel E. Lungren, Attorney General of California,
        Roderick E. Walston, Chief Assistant Attorney General, and Thomas F. Gede, Special Assistant Attorney General, Gale A Norton, Attorney General of Colorado, Don Stenberg, Attorney General of Nebraska, and Mark W. Barnett, Attorney General of South Dakota; for the. American Insurance Association et al. by John E. Nolan, Craig A Berrington, James H. Bradner, Jr., Theresa L. Sorota, and Patrick J. McNally; for Hartford Fire Insurance Co. et al. by Stephen M. Shapiro, Mark I. Levy, Andrew J. Pincus, and Roy T. Englert, Jr.; and for the National Council on Compensation Insurance by Jerome A Hochberg and Mark E. Solomons.

      Briefs of amici curiae were filed for the American Land Title Association by Philip H. Rudolph and James R. Maher; and for the Pennsylvania Electric Association by Jeffrey H. Howard.

   Justice Kennedy

delivered the opinion of the Court.

The Federal Trade Commission filed an administrative complaint against six of the Nation’s largest title insurance companies, alleging horizontal price fixing in their fees for title searches and title examinations. One company settled by consent decree, while five other firms continue to contest the matter. The Commission charged the title companies with violating § 5(a)(1) of the Federal Trade Commission Act, 38 Stat. 719, 15 U. S. C. § 45(a)(1), which prohibits “[u]nfair methods of competition in or affecting commerce.” One of the principal defenses the companies assert is state-action immunity from antitrust prosecution, as contemplated in the line of cases beginning with Parker v. Brown, 317 U. S. 341 (1943). The Commission rejected this defense, In re Ticor Title Ins. Co., 112 F. T. C. 344 (1989), and the firms sought review in the United States Court of Appeals for the Third Circuit. Ruling that state-action immunity was available under the state regulatory schemes in question, the Court of Appeals reversed. 922 F. 2d 1122 (1991). We granted certiorari. 502 U. S. 806 (1991).

J-H

Title insurance is the business of insuring the record title of real property for persons with some interest in the estate, including owners, occupiers, and lenders. A title insurance policy insures against certain losses or damages sustained by reason of a defect in title not shown on the policy or title report to which it refers. Before issuing a title insurance policy, the insurance company or one of its agents performs a title search and examination. The search produces a chronological list of the public documents in the chain of title to the real property. The examination is a critical analysis or interpretation of the condition of title revealed by the documents disclosed through this search.

The title search and examination are major components of the insurance company’s services. There are certain variances from State to State and from policy to policy, but a brief summary of the functions performed by the title companies can be given. The insurance companies exclude from coverage defects uncovered during the search; that is, the insurers conduct searches in order to inform the insured and to reduce their own liability by identifying and excluding known risks. The insured is protected from some losses resulting from title defects not discoverable from a search of the public records, such as forgery, missing heirs, previous marriages, impersonation, or confusion in names. They are protected also against errors or mistakes in the search and examination. Negligence need not be proved in order to recover. Title insurance also includes the obligation to defend in the event that an insured is sued by reason of some defect within the scope of the policy’s guarantee.

The title insurance industry earned $1.35 billion in gross revenues in 1982, and respondents accounted for 57 percent of that amount. Four of respondents are the nation’s largest title insurance companies: Ticor Title Insurance Co., with 16.5 percent of the market; Chicago Title Insurance Co., with 12.8 percent; Lawyers Title Insurance Co., with 12 percent; and SAFECO Title Insurance Co. (now operating under the name Security Union Title Insurance Co.), with 10.3 percent. Stewart Title Guarantee Co., with 5.4 percent of the market, is the country’s eighth largest title insurer, with a strong position in the West and Southwest. App. to Pet. for Cert. 145a.

The Commission issued an administrative complaint in 1985. Horizontal price fixing was alleged in these terms:

“ ‘Respondents have agreed on the prices to be charged for title search and examination services or settlement services through rating bureaus in various states. Examples of states in which one or more of the respondents have fixed prices with other respondents or other competitors for all or part of their search and examination services or settlement services are Arizona, Connecticut, Idaho, Louisiana, Montana, New Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, Wisconsin and Wyoming.’” 112 F. T. C., at 346.

The Commission did not challenge the insurers’ practice of setting uniform rates for insurance against the risk of loss from defective titles, but only the practice of setting uniform rates for the title search, examination, and settlement, aspects of the business which, the Commission alleges, do not involve insurance.

Before the Administrative Law Judge (ALJ), respondents defended against liability on three related grounds. First, they maintained that the challenged conduct is exempt from antitrust scrutiny under the McCarran-Ferguson Act, 59 Stat. 34, 15 U. S. C. § 1012(b), which confers antitrust immunity over the “business of insurance” to the extent regulated by state law. Second, they argued that their collective ratemaking activities are exempt under the Noerr-Pennington doctrine, which places certain “[j]oint efforts to influence public officials” beyond the reach of the antitrust laws. Mine Workers v. Pennington, 381 U. S. 657, 670 (1965); Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U. S. 127, 136 (1961). Third, respondents contended their activities are entitled to state-action immunity, which permits anticompetitive conduct if authorized and supervised by state officials. See California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U. S. 97 (1980); Parker v. Brown, 317 U. S. 341 (1943). App. to Pet. for Cert. 218a. As to one State, Ohio, respondents contended that the rates for title search, examination, and settlement had not been set by a rating bureau.

Title insurance company rates and practices in 13 States were the subject of the initial complaint. Before the matter was decided by the ALJ, the Commission declined to pursue its complaint with regard to fees in five of these States: Louisiana, New Mexico, New York, Oregon, and Wyoming. Upon the recommendation of the ALJ, the Commission did not pursue its complaint with regard to fees in two additional States, Idaho and Ohio. This left six States in which the Commission found antitrust violations, but in two of these States, New Jersey and Pennsylvania, the Commission conceded the issue on which certiorari was sought here, so the regulatory regimes in these two States are not before us. Four States remain in which violations were alleged: Connecticut, Wisconsin, Arizona, and Montana.

The ALJ held that the rates for search and examination services had been fixed in these four States. For reasons we need not pause to examine, the ALJ rejected the McCarran-Ferguson and Noerr-Pennington defenses. The ALJ then turned his attention to the question of state-action immunity.' A summary of the ALJ’s extensive findings on this point is necessary for a full understanding of the decisions reached at each level of the proceedings in the case.

Rating bureaus are private entities organized by title insurance companies to establish uniform rates for their members. The ALJ found no evidence that the collective setting of title insurance rates through rating bureaus is a way of pooling risk information. Indeed, he found no evidence that any title insurer sets rates according to actuarial loss experience. Instead, the ALJ found that the usual practice is for rating bureaus to set rates according to profitability studies that focus on the costs of conducting searches and examinations. Uniform rates are set notwithstanding differences in efficiencies and costs among individual members. App. to Pet. for Cert. 183a-184a.

The ALJ described the regulatory regimes for title insurance rates in the four States still at issue. In each one, the title insurance rating bureau was licensed by the State and authorized to establish joint rates for its members. Each of the four States used what has come to be called a “negative option” system to approve rate filings by the bureaus. Under a negative option system, the rating bureau filed rates for title searches and title examinations with the state insurance office. The rates became effective unless the State rejected them within a specified period, such as 30 days. Although the negative option system provided a theoretical mechanism for substantive review, the ALJ determined, after making detailed findings regarding the operation of each regulatory regime, that the rate filings were subject to minimal scrutiny by state regulators.

In Connecticut the State Insurance Department has the authority to audit the rating bureau and hold hearings regarding rates, but it has not done so. The Connecticut rating bureau filed only two major rate increases, in 1966 and in 1981. The circumstances behind the 1966 rate increase are somewhat obscure. The ALJ found that the Insurance Department asked the rating bureau to submit additional information justifying the increase, and later approved the rate increase although there is no evidence the additional information was provided. In 1981 the Connecticut rating bureau filed for a 20 percent rate increase. The factual background for this rate increase is better developed though the testimony was somewhat inconsistent. A state insurance official testified that he reviewed the rate increase with care and discussed various components of the increase with the rating bureau. The same official testified, however, that he lacked the authority to question certain expense data he considered quite high. Id., at 189a-195a.

In Wisconsin the State Insurance Commissioner is required to examine the rating bureau at regular intervals and authorized to reject rates through a process of hearings. Neither has been done. The Wisconsin rating bureau made major rate filings in 1971, 1981, and 1982. The 1971 rate filing was approved in 1971 although supporting justification, which had been requested by the State Insurance Commissioner, was not provided until 1978. The 1981 rate filing requested an 11 percent rate increase. The increase was approved after the office of the Insurance Commissioner checked the supporting data for accuracy. No one in the agency inquired into insurer expenses, though an official testified that substantive scrutiny would not be possible without that inquiry. The 1982 rate increase received but a cursory reading at the office of the Insurance Commissioner. The supporting materials were not checked for accuracy, though in the absence of an objection by the agency, the rate increase went into effect. Id., at 196a-200a.

In Arizona the Insurance Director was required to examine the rating bureau at least once every five years. It was not done. In 1980 the State Insurance. Department announced a comprehensive investigation of the rating bureau. It was not conducted. The rating bureau spent most of its time justifying its escrow rates. Following conclusion in 1981 of a federal civil suit challenging the joint fixing of escrow rates, the rating bureau went out of business without having made any major rate filings, though it had proposed minor rate adjustments. Id., at 200a-205a.

In Montana the rating bureau made its only major rate filing in 1983. In connection with it, a representative of the rating bureau met with officials of the State Insurance Department. He was told that the filed rates could go into immediate effect though further profit data would have to be provided. The ALJ found no evidence that the additional data were furnished. Id., at 211a-214a.

To complete the background, the ALJ observed that none of the rating bureaus are now active. The respondents abandoned them between 1981 and 1985 in response to numerous private treble-damages suits, so by the time the Commission filed its formal complaint in 1985, the rating bureaus had been dismantled. Id., at 195a, 200a, 205a, 208a. The ALJ held that the case is not moot, though, because nothing would preclude respondents from resuming the conduct challenged by the Commission. Id., at 246a-247a. See United States v. W T. Grant Co., 345 U. S. 629, 632-633 (1953).

These factual determinations established, the ALJ addressed the two-part test that must be satisfied for state-action immunity under the antitrust laws, the test we set out in California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U. S. 97 (1980). A state law or regulatory scheme cannot be the basis for antitrust immunity unless, first, the State has articulated a clear and affirmative policy to allow the anticompetitive conduct, and second, the State provides active supervision of anticompetitive conduct undertaken by private actors. Id., at 105. The Commission having conceded that the first part of the test was satisfied in the four States still at issue, the immunity question, beginning with the hearings before the ALJ and in all later proceedings, has turned upon the proper interpretation and application of MidcaVs active supervision requirement. The ALJ found the active supervision test was met in Arizona and Montana but not in Connecticut or Wisconsin. App. to Pet. for Cert. 248a.

On review of the ALJ’s decision, the Commission held that none of the four States had conducted sufficient supervision, so that the title companies were not entitled to immunity in any of those jurisdictions. Id., at 47a. The Court of Appeals for the Third Circuit disagreed with the Commission, adopting the approach of the First Circuit in New England Motor Rate Bureau, Inc. v. FTC, 908 F. 2d 1064 (1990), which had held that the existence of a state regulatory program, if staffed, funded, and empowered by law, satisfied the requirement of active supervision. Id., at 1071. Under this standard, the Court of Appeals for the Third Circuit ruled that the active state supervision requirement was met in all four States and held that the respondents’ conduct was entitled to state-action immunity in each of them. 922 F. 2d, at 1140.

We granted certiorari to consider two questions: First, whether the Third Circuit was correct in its statement of the law and in its application of law to fact, and second, whether the Third Circuit exceeded its authority by departing from the factual findings entered by the ALJ and adopted by the Commission. Before this Court, the parties have confined their briefing on the first of these questions to the regulatory regimes of Wisconsin and Montana, and focused on the regulatory regimes of Connecticut and Arizona in briefing on the second question. We now reverse the Court of Appeals under the first question and remand for further proceedings under the second.

II

The preservation of the free market and of a system of free enterprise without price fixing or cartels is essential to economic freedom. United States v. Topco Associates, Inc., 405 U. S. 596, 610 (1972). A national policy of such a pervasive and fundamental character is an essential part of the economic and legal system within which the separate States administer their own laws for the protection and advancement of their people. Continued enforcement of the national antitrust policy grants the States more freedom, not less, in deciding whether to subject discrete parts of the economy to additional regulations and controls. Against this background, in Parker v. Brown, 317 U. S. 341 (1943), we upheld a state-supervised, market sharing scheme against a Sherman Act challenge. We announced the doctrine that federal antitrust laws are subject to supersession by state regulatory programs. Our decision was grounded in principles of federalism. Id., at 350-352.

The principle of freedom of action for the States, adopted to foster and preserve the federal system, explains the later evolution and application of the Parker doctrine in our decisions in Midcal, supra, and Patrick v. Burget, 486 U. S. 94 (1988). In Midcal we invalidated a California statute forbidding licensees in the wine trade to sell below prices set by the producer. There we announced the two-part test applicable to instances where private parties participate in a price-fixing regime. “First, the challenged restraint must be one clearly articulated and affirmatively expressed as state policy; second, the policy must be actively supervised by the State itself.” 445 U. S., at 105 (internal quotation marks omitted). Midcal confirms that while a State may not confer antitrust immunity on private persons by fiat, it may displace competition with active state supervision if the . displacement is both intended by the State and implemented in its specific details. Actual state involvement, not deference to private price-fixing arrangements under the general auspices of state law, is the precondition for immunity from federal law. Immunity is conferred out of respect for ongoing regulation by the State, not out of respect for the economics of price restraint. In Midcal we found that the intent to restrain prices was expressed with sufficient precision so that the first part of the test was met, but that the absence of state participation in the mechanics of the price posting was so apparent that the requirement of active supervision had not been met. Ibid.

The rationale was further elaborated in Patrick v. Burget. In Patrick it had been alleged that private physicians participated in the State’s peer review system in order to injure or destroy competition by denying hospital privileges to a physician who had begun a competing clinic. We referred to the purpose of preserving the State’s own administrative policies, as distinct from allowing private parties to foreclose competition, in the following passage:

“The active supervision requirement stems from the recognition that where a private party is engaging in the anticompetitive activity, there is a real danger that he is acting to further his own interests, rather than the governmental interests of the State. . . . The requirement is. designed to ensure that the state-action doctrine will shelter only the particular anticompetitive acts of private parties that, in the judgment of the State, actually further state regulatory policies. To accomplish this purpose, the active supervision requirement mandates that the State exercise ultimate control over the challenged anticompetitive conduct. . . . The mere presence of some state involvement or monitoring does not suffice. . . . The active supervision prong of the Midcal test requires that state officials have and exercise power to review particular anticompetitive acts of private parties and disapprove those that fail to accord with state policy. Absent such a program of supervision, there is no realistic assurance that a private party’s anticompeti-tive conduct promotes state policy, rather than merely the party’s individual interests.” 486 U. S., at 100-101 (internal quotation marks and citations omitted).

Because the particular anticompetitive conduct at issue in Patrick had not been supervised by governmental actors, we decided that the actions of the peer review committee were not entitled to state-action immunity. Id., at 106.

Our decisions make clear that the purpose of the active supervision inquiry is not to determine whether the State has met some normative standard, such as efficiency, in its regulatory practices. Its purpose is to determine whether the State has exercised sufficient independent judgment and control so that the details of the rates or prices have been established as a product of deliberate state intervention, not simply by agreement among private parties. Much as in causation inquiries, the analysis asks whether the State has played a substantial role in determining the specifics of the economic policy. The question is not how well state regulation works but whether the anticompetitive scheme is the State’s own.

Although the point bears but brief mention, we observe that our prior cases considered state-action immunity against actions brought under the Sherman Act, and this ease arises under the Federal Trade Commission Act. The Commission has argued at other times that state-action immunity does not apply to Commission action under § 5 of the Federal Trade Commission Act, 15 U. S. C. § 45. See U. S. Bureau of Consumer Protection, Staff Report to the Federal Trade Commission on Prescription Drug Price Disclosures, Chs. VI(B) and (C) (1975); see also Note, The State Action Exemption and Antitrust Enforcement under the Federal Trade Commission Act, 89 Harv. L. Rev. 715 (1976). A leading treatise has expressed its skepticism of this view. See 1 P. Areeda & D. Turner, Antitrust Law ¶ 218 (1978). We need not determine whether the antitrust statutes can be distinguished on this basis, because the Commission does not assert any superior pre-emption authority in the instant matter. We apply our prior cases to the one before us.

Respondents contend that principles of federalism justify a broad interpretation of state-action immunity, but there is a powerful refutation of their viewpoint in the briefs that were filed in this case. The State of Wisconsin, joined by Montana and 34 other States, has filed a brief as amici curiae on the precise point. These States deny that respondents’ broad immunity rule would serve the States’ best interests. We are in agreement with the amici submission.

If the States must act in the shadow of state-action immunity whenever they enter the realm of economic regulation, then our doctrine will impede their freedom of action, not advance it. The fact of the matter is that the States regulate their economies in many ways not inconsistent with the antitrust laws. For example, Oregon may provide for peer review by its physicians without approving anticompetitive conduct by them. See Patrick, 486 U. S., at 105. Or Michigan may regulate its public utilities without authorizing monopolization in the market for electric light bulbs. See Cantor v. Detroit Edison Co., 428 U. S. 579, 596 (1976). So we have held that state-action immunity is disfavored, much as are repeals by implication. Lafayette v. Louisiana Power & Light Co., 435 U. S. 389, 398-399 (1978). By adhering in most cases to fundamental and accepted assumptions about the benefits of competition within the framework of the antitrust laws, we increase the States’ regulatory flexibility.

States must accept political responsibility for actions they intend to undertake. It is quite a different matter, however, for federal law to compel a result that the States do not intend but for which they are held to account. Federalism serves to assign political responsibility, not to obscure it. Neither federalism nor political responsibility is well served by a rule that essential national policies are displaced by state regulations intended to achieve more limited ends. For States which do choose to displace the free market with regulation, our insistence on real compliance with both parts of the Midcal test will serve to make clear that the State is responsible for the price fixing it has sanctioned and undertaken to control.

Respondents contend that these concerns are better addressed by the requirement that the States articulate a clear policy to displace the antitrust laws with their own forms of economic regulation. This contention misapprehends the close relation between Midcal’s two elements. Both are directed at ensuring that particular anticompetitive mechanisms operate because of a deliberate and intended state policy. See Patrick, supra, at 100. In the usual case, Midcal’s requirement that the State articulate a clear policy shows little more than that the State has not acted through inadvertence; it cannot alone ensure, as required by our precedents, that particular anticompetitive conduct has been approved by the State. It seems plain, moreover, in light of the amici curiae brief to which we have referred, that sole reliance on the requirement of clear articulation will not allow the regulatory flexibility that these States deem necessary. For States whose object it is to benefit their citizens through regulation, a broad doctrine of state-action immunity may serve as nothing more than an attractive nuisance in the economic sphere. To oppose these pressures, sole reliance on the requirement of clear articulation could become a rather meaningless formal constraint.

HH HH M

In the case before us, the Court of Appeals relied upon a formulation of the active supervision requirement articulated by the First Circuit:

“‘Where . . . the state’s program is in place, is staffed and funded, grants to the state officials ample power and the duty to regulate pursuant to declared standards of state policy, is enforceable in the state’s courts, and demonstrates some basic level of activity directed towards seeing that the private actors carry out the state’s policy and not simply their own policy, more need not be established.’” 922 F. 2d, at 1136, quoting New England Motor Rate Bureau, Inc. v. FTC, 908 F. 2d, at 1071.

Based on this standard, the Third Circuit ruled that the active supervision requirement was met in all four States, and held that the respondents’ conduct was entitled to state-action immunity from antitrust liability. 922 F. 2d, at 1140.

While in theory the standard articulated by the First Circuit might be applied in a. manner consistent with our precedents, it seems to us insufficient to establish the requisite level of active supervision. The criteria set forth by the First Circuit may have some relevance as the beginning point of the active state supervision inquiry, but the analysis cannot end there. Where prices or rates are set as an initial matter by private parties, subject only to a veto if the State chooses to exercise it, the party claiming the immunity must show that state officials have undertaken the necessary steps to determine the specifics of the price-fixing or ratesetting scheme. The mere potential for state supervision is not an adequate substitute for a decision by the State. Under these standards, we must conclude that there was no active supervision in either Wisconsin or Montana.

Respondents point out that in Wisconsin and Montana the rating bureaus filed rates with state agencies and that in both States the so-called negative option rule prevailed. The rates became effective unless they were rejected within a set time. It is said that as a matter of law in those States inaction signified substantive approval. This proposition cannot be reconciled, however, with the detailed findings, entered by the ALJ and adopted by the Commission, which demonstrate that the potential for state supervision was not realized in fact. The ALJ found, and the Commission agreed, that at most the rate filings were checked for mathematical accuracy. Some were unchecked altogether. In Montana, a rate filing became effective despite the failure of the rating bureau to provide additional requested information. In Wisconsin, additional information was provided after a lapse of seven years, during which time the rate filing remained in effect. These findings are fatal to respondents’ attempts to portray the state regulatory regimes as providing the necessary component of active supervision. The findings demonstrate that, whatever the potential for state regulatory review in Wisconsin and Montana, active state supervision did not occur. In the absence of active supervision in fact, there can be no state-action immunity for what were otherwise private price-fixing arrangements. And as in Patrick, the availability of state judicial review could not fill the void. Because of the state agencies’ limited role and participation, state judicial review was likewise limited. See Patrick, 486 U. S., at 103-105.

Our decision in Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U. S. 48 (1985), though it too involved a negative option regime, is not to the contrary. The question there was whether the first part of the Midcal test was met, the Government’s contention being that a pricing policy is not an articulated one unless the practice is compelled. We rejected that assertion and undertook no real examination of the active supervision aspect of the case, for the Government conceded that the second part of the test had been met. Id., at 62, 66. The concession was against the background of a District Court determination that, although submitted rates could go into effect without further state activity, the State had ordered and held ratemaking hearings on a consistent basis, using the industry submissions as the beginning point. See United States v. Southern Motor Carriers Rate Conference, Inc., 467 F. Supp. 471, 476-477 (ND Ga. 1979). In the case before us, of course, the Commission concedes the first part of the Midcal requirement and litigates the second; and there is no finding of substantial state participation in the ratesetting scheme.

This case involves horizontal price fixing under a vague imprimatur in form and agency inaction in fact. No antitrust offense is more pernicious than price fixing. FTC v. Superior Court Trial Lawyers Assn., 493 U. S. 411, 434, n. 16 (1990). In this context, we decline to formulate a rule that would lead to a finding of active state supervision where in fact there was none. Our decision should be read in light of the gravity of the antitrust offense, the involvement of private actors throughout, and the clear absence of state supervision. We do not imply that some particular form of state or local regulation is required to achieve ends other than the establishment of uniform prices. Cf. Columbia v. Omni Outdoor Advertising, Inc., 499 U. S. 365 (1991) (city billboard zoning ordinance entitled to state-action immunity). We do not have before us a case in which governmental actors made unilateral decisions without participation by private actors. Cf. Fisher v. Berkeley, 475 U. S. 260 (1986) (private actors not liable without private action). And we do not here call into question a regulatory regime in which sampling techniques or a specified rate of return allow state regulators to provide comprehensive supervision without complete control, or in which there was an infrequent lapse of state supervision. Cf. 324 Liquor Corp. v. Duffy, 479 U. S. 385, 344, n. 6 (1987) (a statute specifying the margin between wholesale and retail prices may satisfy the active supervision requirement). In the circumstances of this case, however, we conclude that the acts of respondents in the States of Montana and Wisconsin are not immune from antitrust liability.

>

In granting certiorari we undertook to review the further contention by the Commission that the Court of Appeals was incorrect in disregarding the Commission’s findings as to the extent of state supervision. The parties have focused their briefing on this question on the regulatory schemes of Connecticut and Arizona. We think the Court of Appeals should have the opportunity to reexamine its determinations with respect to these latter two States in light of the views we have expressed.

The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

Justice-Sc alia,

concurring.

The Court’s standard is in my view faithful to what our cases have said about “active supervision.” On the other hand, I think The Chief Justice and Justice O’Connor are correct that this standard will be a fertile source of uncertainty and (hence) litigation, and will produce total abandonment of some state programs because private individuals will not take the chance of participating in them. That is true, moreover, not just in the “negative option” context, but even in a context such as that involved in Patrick v. Burget, 486 U. S. 94 (1988): Private physicians invited to participate in a state-supervised hospital peer review system may not know until after their participation has occurred (and indeed until after their trial has been completed) whether the State’s supervision will be “active” enough.

I am willing to accept these consequences because I see no alternative within the constraints of our “active supervision” doctrine, which has not been challenged here; and because I am skeptical about the Parker v. Brown, 317 U. S. 341 (1943), exemption for state-programmed private collusion in the first place.

Chief Justice Rehnquist,

with whom Justice O’Con-nor and Justice Thomas join, dissenting.

The Court holds today that to satisfy the “active supervision” requirement of state-action immunity from antitrust liability, private parties acting pursuant to a regulatory scheme enacted by a state legislature must prove that “the State has played a substantial role in determining the specifics of the economic policy.” Ante, at 635. Because this standard is neither supported by our prior precedent nor sound as a matter of policy, I dissent.

Immunity from antitrust liability under the state-action doctrine was first established in Parker v. Brown, 317 U. S. 341 (1943). As noted by the majority, in Parker we relied on principles of federalism in concluding that the Sherman Act did not apply to state officials administering a regulatory program enacted by the state legislature. We concluded that state action is exempt from antitrust liability, because in the Sherman Act Congress evidences no intent to “restrain state action or official action directed by a state.” Id., at 351. “The Parker decision was premised on the assumption that Congress, in enacting the Sherman Act, did not intend to compromise the States’ ability to regulate their domestic commerce.” Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U. S. 48, 56 (1985) (footnote omitted).

We developed our present analysis for state-action immunity for private actors in California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U. S. 97 (1980). We held in Midcal that our prior precedent had granted state-action immunity from antitrust liability to conduct by private actors where a program was “clearly articulated and affirmatively expressed as state policy [and] the policy [was] actively supervised by the State itself.” Id., at 105 (internal quotation marks and citation omitted). In Midcal, we found the active supervision requirement was not met because under the California statute at issue, which required liquor retailers to charge a certain percentage above a price “posted” by area wholesalers, “[t]he State has no direct control over wine prices, and it does not review the reasonableness of the prices set by wine dealers.” Id., at 100. We noted that the state-action defense does not allow the States to authorize what is nothing more than private price fixing. Id., at 105.

In each instance since Midcal in which we have concluded that the active supervision requirement for state-action immunity was not met, the state regulators lacked authority, under state law, to review or reject the rates or action taken by the private actors facing antitrust liability. Our most recent formulation of the “active supervision” requirement was announced in Patrick v. Burget, 486 U. S. 94 (1988), where we concluded that to satisfy the “active supervision” requirement, “state officials [must] have and exercise power to review particular anticompetitive acts of private parties and disapprove those that fail to accord with state policy.” Id., at 101. ■ Until today, therefore, we have never had occasion to determine whether a state regulatory program which gave state officials authority — “power”—to review and regulate prices or conduct, might still fail to meet the requirement for active state supervision because the State’s regulation was not sufficiently detailed or rigorous.

Addressing this question, the Court of Appeals in this case used the following analysis:

“‘Where, as here, the state’s program is in place, is staffed and funded, grants to the state officials ample power and the duty to regulate pursuant to declared standards of state policy, is enforceable in the state’s courts, and demonstrates some basic level of activity directed towards seeing that the private actors carry out the state’s policy and not simply their own policy, more need not be established.’” 922 F. 2d 1122, 1136 (CA3 1991), quoting New England Motor Rate Bureau, Inc. v. FTC, 908 F. 2d 1064, 1071 (CA1 1990).

The Court likens this test to doing away all together with the active supervision requirement for immunity based on state action. But the test used by the Court of Appeals is much more closely attuned to our “have and exercise power” formulation in Patrick v. Burget than is the rule adopted by the Court today. The Court simply does not say just how active a State’s regulators must be before the “active supervision” requirement will be satisfied. The only guidance it gives is that the inquiry should be one akin to causation in a negligence case; does the State play “a substantial role in determining the specifics of the economic policy.” Ante, at 635. Any other formulation, we are told, will remove the active supervision requirement altogether as a practical matter.

I do not believe this to be the case. In the States at issue here, the particular conduct was approved by a state agency. The agency manifested this approval by raising no objection to a required rate filing by the entity subject to regulation. This is quite consistent with our statement that the active supervision requirement serves mainly an “evidentiary function” as “one way of ensuring that the actor is engaging in the challenged conduct pursuant to state policy.” Hallie v. Eau Claire, 471 U. S. 34, 46 (1985).

The Court insists that its newly required “active supervision” will “increase the States’ regulatory flexibility.” Ante, at 636. But if private actors who participate, through a joint rate filing, in a State’s “negative option” regulatory scheme may be liable for treble damages if they cannot prove that the State approved the specifics of a filing, the Court makes it highly unlikely that private actors will choose to participate in such a joint filing. This in turn lessens the States’ regulatory flexibility, because as we have noted before, joint rate filings can improve the regulatory process by ensuring that the state agency has fewer filings to consider, allowing more resources to be expended on each filing. Southern Motor Carriers Rate Conference, Inc. v. United States, supra, at 51. The view advanced by the Court of Appeals does not sanction price fixing in areas regulated by a State “not inconsistent with the antitrust laws.” Ante, at 636. A State must establish, staff, and fund a program to approve jointly set rates or prices in order for any activity undertaken by private individuals under that program to be immune under the antitrust laws.

The Court rejects the test adopted by the Court of Appeals, stating that it cannot be the end of the inquiry. Instead, the party seeking immunity must “show that state officials have undertaken the necessary steps to determine the specifics of the price-fixing or ratesetting scheme.” Ante, at 638. Such an inquiry necessarily puts the federal court in the position of determining the efficacy of a particular State’s regulatory scheme, in order to determine whether the State has met the “requisite level of active supervision.” Ante, at 637. The Court maintains that the proper state-action inquiry does not determine whether a State has met some “normative standard” in its regulatory practices. Ante, at 634. But the Court’s focus on the actions taken by state regulators, i. e., the way the State regulates, necessarily requires a judgment as to whether the State is sufficiently active — surely a normative judgment.

The Court of Appeals found — properly, in my view — that while the States at issue here did not regulate respondents’ rates with the vigor petitioner would have liked, the States’ supervision of respondents’ conduct was active enough so as to provide for immunity from antitrust liability. The Court of Appeals, having concluded that the Federal Trade Commission applied an incorrect legal standard, reviewed the facts found by the Commission in light of the correct standard and reached a different conclusion. This does not constitute a rejection of the Commission’s factual findings.

I would therefore affirm the judgment below.

Justice O’Connor,

with whom Justice Thomas joins, dissenting.

Notwithstanding its assertions to the contrary, the Court has diminished the States’ regulatory flexibility by creating an impossible situation for those subject to state regulation. Even when a State has a “clearly articulated policy” authorizing anticompetitive behavior — which the Federal Trade Commission concedes was the ease here — and even when the State establishes a system to supervise the implementation of that policy, the majority holds that a federal court may later find that the State’s supervision was not sufficiently “substantial” in its “specifics” to insulate the anticompetitive behavior from antitrust liability. Ante, at 635. Given the threat of treble damages, regulated entities that have the option of heeding the State’s anticompetitive policy would be foolhardy to do so; those that are compelled to comply are less fortunate. The practical effect of today’s decision will likely be to eliminate so-called “negative option” regulation from the universe of schemes available to a State that seeks to regulate without exposing certain conduct to federal antitrust liability.

The Court does not dispute that each of the States at issue in this case could have supervised respondents’ joint rate-making; rather, it argues that “the potential for state supervision was not realized in fact.” Ante, at 638. Such an after-the-fact evaluation of a State’s exercise of its supervisory powers is extremely unfair to regulated parties. Liability under the antitrust laws should not turn on how enthusiastically a state official carried out his or her statutory duties. The regulated entity has no control over the regulator, and very likely will have no idea as to the degree of scrutiny that its filings may receive. Thus, a party could engage in exactly the same conduct in two States, each of which had exactly the same policy of allowing anticompeti-tive behavior and exactly the same regulatory structure, and discover afterward that its actions in one State were immune from antitrust prosecution, but that its actions in the other resulted in treble-damages liability.

Moreover, even if a regulated entity could assure itself that the State will undertake to actively supervise its rate filings, the majority does not offer any guidance as to what level of supervision will suffice. It declares only that the State must “pla[y] a substantial role in determining the specifics of the economic policy.” Ante, at 635. That standard is not only ambiguous, but also runs the risk of being counterproductive. The more reasonable a filed rate, the less likely that a State will have to play any role other than simply reviewing the rate for compliance with statutory criteria. Such a vague and retrospective standard, combined with the threat of treble damages if that standard is not satisfied, makes “negative option” regulation an unattractive option for both States and the parties they regulate.

Finally, it is important to remember that antitrust actions can be brought by private parties as well as by government prosecutors. The resources of state regulators are strained enough without adding the extra burden of asking them to serve as witnesses in civil litigation and respond to allegations that they did not do their job.

For these reasons, as well as those given by The Chief Justice, I dissent.

       The Court states that “[c]ontinued enforcement of the national antitrust policy grants the States more freedom, not less, in deciding whether to subject discrete parts of the economy to additional regulations and controls,” ante, at 632. However, in Parker, we held that the Sherman Act simply does not apply to conduct regulated by the State. The enforcement of the national antitrust policy, as embodied in the antitrust laws, may grant individuals more freedom to compete in our free market system, but it does not implicate the freedom of the States in deciding whether to regulate.

       In 324 Liquor Corp. v. Duffy, 479 U. S. 335 (1987), we held that a New York statute failed to shelter private actors from antitrust liability because the state legislation required retailers to charge 112% of the price “posted” by wholesalers. The New York statute, like the California statute at issue in California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U. S. 97 (1980), gave no power to the state agency to review or establish the reasonableness of the price schedules “posted” by the wholesalers. 324 Liquor, supra, at 345.

       The state regulatory programs in Midcal, supra, Patrick v. Burget, 486 U. S. 94 (1988), and 324 Liquor, supra, would all fail to provide immunity for lack of active supervision under the test adopted by the Court of Appeals.

       In neither of the examples cited by the majority as instances of state regulation not intended to authorize anticompetitive conduct would application of a less detailed active supervision test change the result. In Patrick v. Burget, supra, we concluded there was no immunity because the State did not have the authority to review the anticompetitive action undertaken by the peer review committee; in Cantor v. Detroit Edison Co., 428 U. S. 579 (1976), it is unlikely that the clear articulation requirement under our current jurisprudence would be met with respect to the market for light bulbs.

       It is not clear, from the Court’s formulation, whether this is a separate test applicable only to negative option regulatory schemes, or whether it applies more generally to issues of immunity under the state-action doctrine.


author: Justice Souter

text:
    BURLINGTON NORTHERN RAILROAD CO. v. FORD et al.
    No. 91-779.
    Argued April 20, 1992
    Decided June 12, 1992
    Souter, J., delivered the opinion for a unanimous Court.

      Betty Jo Christian argued the cause for petitioner. With her on the briefs were Charles G. Cole, Jerald S. Howe, Jr., Virginia L. White-Mahaffey, Edmund W. Burke, and Richard V. Wicka.

      Joel I. Klein argued the cause for respondents. With him on the brief was Robert S. Fain, Jr.

      Briefs of amici curiae urging reversal were filed for the Washington Legal Foundation by Daniel J. Popeo and Paul D. Kamenar; and for the Association of American Railroads by John H. Broadley, David W. Ogden, and Robert W. Blanchette.

      Briefs of amici curiae urging affirmance were filed for the State of Montana et al. by Marc Racicot, Attorney General of Montana, and Elizabeth S. Baker, Assistant Attorney General, and by the Attorneys General for their respective States as follows: Tom Udall of New Mexico, Nicholas J. Spaeth of North Dakota, Mark Barnett of South Dakota, Dan Morales of Texas, and Joseph B. Meyer of Wyoming; and for the Montana Trial Lawyers Association by Alexander Blewett III and W. William Leaphart.

   Justice Souter

delivered the opinion of the Court.

Montana’s venue rules permit a plaintiff to sue a corporation incorporated in that State only in the county of its principal place of business, but permit suit in any county against a corporation incorporated elsewhere. This case presents the question whether the distinction in treatment offends the Equal Protection Clause of the Fourteenth Amendment, U. S. Const., Arndt. 14, § 1. We hold that it does not.

Respondents William D. Ford and Thomas L. Johnson were employed by petitioner Burlington Northern Railroad Company, a corporation owing its existence to the laws of Delaware and having a principal place of business in Fort Worth, Texas. Ford and Johnson raised a claim under the Federal Employers’ Liability Act (FELA), 35 Stat. 65, as amended, 45 U. S. C. §§51-60, and brought suit in the state trial court for Yellowstone County, Montana, alleging injuries sustained while working at Burlington’s premises in Sheridan, Wyoming. In each case, Burlington moved to change venue to Hill County, Montana, where it claimed to have its principal place of business in that State. The trial court denied each motion, and Burlington brought interlocutory appeals.

The Supreme Court of Montana consolidated the two cases and affirmed the decisions of the trial court. 250 Mont. 188, 819 P. 2d 169 (1991). Under the Montana venue rules, the court said, a foreign corporation may be sued in any of Montana’s counties. Id., at 190, 819 P. 2d, at 171. The court rejected Burlington’s argument that the State’s venue rules worked a discrimination violating the Fourteenth Amendment’s Equal Protection Clause. The Montana venue rules, the court explained, were subject merely to rational-basis review, id., at 193, 819 P. 2d, at 173, which was satisfied, at least in these cases, by the consonance of the rules with federal policy, embodied in FELA, of facilitating recovery by injured railroad workers, id., at 194-195, 819 P. 2d, at 173-174. Besides, the court said, Montana’s venue rules did not even discriminate against Burlington, since Ford and Johnson could have sued the corporation in the Federal District Court for Montana, which sits in Yellowstone County, among other places. Id., at 197, 819 P. 2d, at 175. We granted cer-tiorari, 502 U. S. 1070 (1992), and, although our reasoning differs from that of the State Supreme Court, now affirm.

A Montana statute provides that “the proper place of trial for all civil actions is the county in which the defendants or any of them may reside at the commencement of the action.” Mont. Code Ann. §25-2-118(1) (1991). But, “if none of the defendants reside in the state, the proper place of trial is any county the plaintiff designates in the complaint.” §25-2-118(2). The Supreme Court of Montana has long held that a corporation does not “reside in the state” for venue purposes unless Montana is its State of incorporation, see, e. g., Haug v. Burlington Northern R. Co., 236 Mont. 368, 371, 770 P. 2d 517, 519 (1989); Foley v. General Motors Corp., 159 Mont. 469, 472-473, 499 P. 2d 774, 776 (1972); Hanlon v. Great Northern R. Co., 83 Mont. 15, 21, 268 P. 547, 549 (1928); Pue v. Northern Pacific R. Co., 78 Mont. 40, 43, 252 P. 313, 315 (1926), and that a Montana corporation resides in the Montana county in which it has its principal place of business, see, e. g., Mapston v. Joint School District No. 8, 227 Mont. 521, 523, 740 P. 2d 676, 677 (1987); Platt v. Sears, Roebuck & Co., 222 Mont. 184, 187, 721 P. 2d 336, 338 (1986). In combination, these venue rules, with exceptions not here relevant, permit a plaintiff to sue a domestic company in just the one county where it has its principal place of business, while a plaintiff may sue a foreign corporation in any of the State’s 56 counties. Burlington claims the distinction offends the Equal Protection Clause.

The Fourteenth Amendment forbids a State to “deny to any person within its jurisdiction the equal protection of the laws.” U. S. Const., Arndt. 14, § 1. Because the Montana venue rules neither deprive Burlington of a fundamental right nor classify along suspect lines like race or religion, they do not deny equal protection to Burlington unless they fail in rationally furthering legitimate state ends. See, e. g., United States v. Sperry Corp., 493 U. S. 52, 64 (1989); Dallas v. Stanglin, 490 U. S. 19, 25 (1989).

Venue rules generally reflect equity or expediency in resolving disparate interests of parties to a lawsuit in the place of trial. See, e. g., Citizens & Southern Nat. Bank v. Bougas, 434 U. S. 35, 44, n. 10 (1977); Denver & R. G. W. R. Co. v. Trainmen, 387 U. S. 556, 560 (1967); Van Dusen v. Barrack, 376 U. S. 612, 623 (1964); F. James & G. Hazard, Civil Procedure 47 (3d ed. 1985). The forum preferable to one party may be undesirable to another, and the adjustment of such warring interests is a valid state concern. Cf. United States Railroad Retirement Bd. v. Fritz, 449 U. S. 166, 178 (1980). In striking the balance between them, a State may have a number of choices, any of which would survive scrutiny, each of them passable under the standard tolerating some play in the joints of governmental machinery. See Bain Peanut Co. of Texas v. Pinson, 282 U. S. 499, 501 (1931). Thus, we have no doubt that a State would act within its constitutional prerogatives if it were to give so much weight to the interests of plaintiffs as to allow them to sue in the counties of their choice under all circumstances. It is equally clear that a State might temper such an “any county” rule to the extent a reasonable assessment of defendants’ interests so justified.

Here, Montana has decided that the any-county rule should give way to a single-county rule where a defendant resides in Montana, arguably on the reasonable ground that a defendant should not be subjected to a plaintiff’s tactical advantage of forcing a trial far from the defendant’s residence. At the same time, Montana has weighed the interest of a defendant who does not reside in Montana differently, arguably on the equally reasonable ground that for most nonresident defendants the inconvenience will be great whether they have to defend in, say, Billings or Havre. See Power Manufacturing Co. v. Saunders, 274 U. S. 490, 498 (1927) (Holmes, J., dissenting). Montana could thus have decided that a nonresident defendant’s interest in convenience is too slight to outweigh the plaintiff’s interest in suing in the forum of his choice.

Burlington does not, indeed, seriously contend that such a decision is constitutionally flawed as applied to individual nonresident defendants. Nor does it argue that such a rule is unconstitutional even when applied to corporate defendants without a fixed place of business in Montana. Burlington does claim, however, that the rule is unconstitutional as applied to a corporate defendant like Burlington that not only has its home office in some other State or country, but also has a place of business in Montana that would qualify as its “principal place of business” if it were a Montana corporation.

Burlington’s claim fails. Montana could reasonably have determined that a corporate defendant’s home office is generally of greater significance to the corporation’s convenience in litigation than its other offices, that foreign corporations are unlikely to have their principal offices in Montana, and that Montana’s domestic corporations will probably keep headquarters within the State. We cannot say, at least not on this record, that any of these assumptions is irrational. Cf. G. D. Searle & Co. v. Cohn, 455 U. S. 404, 410 (1982); Metropolitan Casualty Ins. Co. v. Brownell, 294 U. S. 580, 585 (1935). And upon them Montana may have premised the policy judgment, which we find constitutionally unimpeachable, that only the convenience to a corporate defendant of litigating in the county containing its home office is sufficiently significant to outweigh a plaintiff’s interest in suing in the county of his choice.

Of course Montana’s venue rules would have implemented that policy judgment with greater precision if they had turned on the location of a corporate defendant’s principal place of business, not on its State of incorporation. But this is hardly enough to make the rules fail rational-basis review, for “rational distinctions may be made with substantially less than mathematical exactitude.” New Orleans v. Dukes, 427 U. S. 297, 303 (1976); see Hughes v. Alexandria Scrap Corp., 426 U. S. 794, 814 (1976); Lindsley v. Natural Carbonic Gas Co., 220 U. S. 61, 78 (1911). Montana may reasonably have thought that the location of a corporate defendant’s principal place of business would not be as readily verifiable as its State of incorporation, that a rule hinging on the former would invite wasteful sideshows of venue litigation, and that obviating the sideshows would be worth the loss in precision. These possibilities, of course, put Burlington a far cry away from the point of discharging its burden of showing that the underinclusiveness and overinclusiveness of Montana’s venue rules is so great that the rules can no longer be said rationally to implement Montana’s policy judgment. See, e. g., Brownell, supra, at 584. Besides, Burlington, having headquarters elsewhere, would not benefit even from a scheme based on domicile, and is therefore in no position to complain of Montana’s using State of incorporation as a surrogate for domicile. See Roberts & Schaefer Co. v. Emmerson, 271 U. S. 50, 53-55 (1926); cf. United States v. Raines, 362 U. S. 17, 21 (1960).

Burlington is left with the argument that Power Manufacturing Co. v. Saunders, supra, controls this case. But it does not. In Saunders, we considered Arkansas’ venue rules, which restricted suit against a domestic corporation to those counties where it maintained a place of business, 274 U. S., at 491-492, but exposed foreign corporations to suit in any county, id., at 492. We held that the distinction lacked a rational basis and therefore deprived foreign corporate defendants of the equal protection of the laws. Id., at 494. The statutory provision challenged in Saunders, however, applied only to foreign corporations authorized to do business in Arkansas, ibid., so that most of the corporations subject to its any-county rule probably had a place of business in Arkansas. In contrast, most of the corporations subject to Montana’s any-county rule probably do not have their principal place of business in Montana. Thus, Arkansas’ special rule for foreign corporations was tailored with significantly less precision than Montana’s, and, on the assumption that Saunders is still good law, see American Motorists Ins. Co. v. Starnes, 425 U. S. 637, 645, n. 6 (1976), its holding does not invalidate Montana’s venue rules.

In sum, Montana’s venue rules can be understood as rationally furthering a legitimate state interest. The judgment of the Supreme Court of Montana is accordingly

Affirmed.

      The decision below is final for purposes of 28 U. S. C. § 1267(a). See American Motorists Ins. Co. v. Starnes, 426 U. S. 637, 642, n. 3 (1976).