This Ninth Circuit Court of Appeals case concerned a challenge by two air transport trade associations, the Airline Service Providers Association (ASPA) and the Air Transport Association of America (Airlines), against the City of Los Angeles regarding a contractual condition imposed on businesses operating at Los Angeles International Airport (LAX). The condition, Section 25 of LAX's licensing agreement, required service providers to enter into a "labor peace agreement" with any employee organization that requested one. If an agreement wasn't reached within sixty days, the dispute would go to mediation and then binding arbitration. The associations argued that this condition, effectively a municipal regulation due to the City's proprietary role at LAX, was preempted by the National Labor Relations Act (NLRA), the Railway Labor Act (RLA), and the Airline Deregulation Act (ADA).

The appellate court first addressed the issue of standing. It held that ASPA possessed associational standing because its individual members would have standing, the interests at stake were germane to the organization's purpose, and the case could be litigated without the participation of individual members. The court found that ASPA members suffered an injury in fact, as they would incur economic costs and devote resources to negotiating, mediating, and potentially arbitrating labor peace agreements. This injury was fairly traceable to the City's action of making Section 25 a mandatory contract term and was redressable by an injunction based on federal preemption. The court deemed it unnecessary to assess the Airlines' standing.

Turning to the preemption claims, the court applied the "market participant" doctrine. This doctrine presumes that state or local government actions are not subject to preemption when the government is acting like a private business, managing its property, or buying services, rather than acting as a regulator. To determine if the City was a market participant, the court used the two-prong test from Cardinal Towing & Auto Repair, Inc. v. City of Bedford: (1) Was the action undertaken in pursuit of the efficient procurement of needed goods and services, as a private business would? (2) Was the scope of the action narrowly tied to a specific proprietary problem, rather than aimed at promoting a general policy?

The court concluded that the City was acting as a market participant. First, it reasoned that the City, as the proprietor of LAX, had a proprietary interest in avoiding service disruptions like strikes and boycotts, similar to how a private entity would seek to ensure efficient operations. The court distinguished this from Golden State Transit Corp. v. City of Los Angeles, where the City was not operating the taxi service itself. Second, the court found that Section 25 was narrowly tailored to address the specific proprietary problem of service disruptions at LAX. It contrasted Section 25 with broader regulations in cases like Wisconsin Department of Industry, Labor & Human Relations v. Gould Inc. and Chamber of Commerce of the United States of America v. Brown, and Metropolitan Milwaukee Association of Commerce v. Milwaukee County, noting that Section 25 was limited to LAX and did not announce a general regulatory policy or create widespread litigation risks.

Based on the City's status as a market participant, the court then examined whether Congress intended the NLRA, RLA, or ADA to preempt such proprietary actions. Citing Bldg. & Constr. Trades Council of Metro. Dist. v. Associated Builders & Contractors of Mass./R.I., Inc. (Boston Harbor), the court stated that the NLRA does not preempt market participation by state or local governments absent express or implied indication otherwise. Similarly, drawing on NLRA jurisprudence, the court found that the RLA also does not preempt such conduct. Regarding the ADA, the court noted that its preemption provision, 49 U.S.C. § 41713(b)(1), applies to regulations having the force of law, not proprietary actions. Furthermore, the ADA contains a carve-out preserving the ability of governmental actors to "carry out its proprietary powers and rights," reinforcing the conclusion that it did not preempt the City's actions.

However, the court vacated in part the district court's dismissal, holding that the district court erred in denying leave to amend the complaint. While amendments related to the City's "ulterior motives" for enacting Section 25 would not change the preemption analysis (as intent is not determinative), the associations might be able to allege "large spillover effects" that would substantiate their claim that Section 25 acts as a regulation rather than a proprietary measure. The court remanded the case to allow the district court to enter a dismissal with leave to amend, acknowledging that if such spillover effects could be demonstrated, it would necessitate a different analysis, potentially bringing the case closer to Metropolitan Milwaukee Association of Commerce v. Milwaukee County.

The dissenting judge agreed that ASPA had standing and should be granted leave to amend. However, the dissent disagreed with the majority's conclusion that the complaint, as written, failed to state a plausible claim of regulatory action. The dissent argued that Section 25's substance—requiring labor peace agreements, mediation, and binding arbitration—interfered with the balance of power Congress intended under the NLRA, drawing parallels to Golden State Transit Corp. v. City of Los Angeles. The dissent also contended that the market participant exception should be scrutinized more closely, particularly the tailoring of Section 25 to the City's proprietary interest, suggesting it was too broad and ill-fitted to solely address service disruptions. The dissent pointed to potential spillover effects and the general use of labor peace agreements to promote union organizing as evidence that Section 25 might be a pretext for regulation.

Significant Cases Cited

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