Several Supreme Court justices appeared wary on Monday about giving states and localities broad immunity from federal antitrust enforcement when they engage in anticompetitive conduct. 

The court hear arguments in Federal Trade Commission v. Phoebe Putney Health Systems, in which the FTC went to court after a county hospital authority bought the only two hospitals in a rural area of Southwest Georgia. As it made its way to the Supreme Court, the case represented the latest effort by the FTC to narrow the “state action” exemption from federal antitrust laws, under which states are given leeway to replace competition in certain markets with an alternate scheme that serves a state goal.

The case also offered a chance to take the high court’s temperature on issues of federalism and state sovereignty, at a time when those doctrines will play important roles in high-profile upcoming disputes over state same-sex marriage laws and federal supervision of local voting laws under the Voting Rights Act.

Though state sovereignty was mentioned in passing, it turned out the justices were more interested in more minute details about the Georgia law authorizing health authorities to buy hospitals, and how to interpret the court’s aging precedents on the subject.

Representing the FTC, assistant to the solicitor general Benjamin Horwich said the “state action” exemption from antitrust laws is “an odd rule to begin with, in that it allows state law to displace federal law.” But he said that under court precedents, state actions should be exempt from antitrust laws only when a state has “clearly and affirmatively expressed an intent to replace competition.” Georgia’s law was not clear enough, he said, because “you can not infer [from the law] that the state really has an objective of … socializing its hospital services.”

But Justice Stephen Breyer asserted that the state law specifically allowed hospital authorities to form “one or more networks of hospitals.” Some other justices appeared to agree with the U.S. Court of Appeals for the 11th Circuit that the local authority’s anticompetitive purchase of the two hospitals was a “foreseeable result” of the state law, thereby immunizing the state from federal antitrust law.

Former solicitor general Seth Waxman of Wilmer Cutler Pickering Hale and Dorr, representing the health system that operates the two hospitals, ran into skepticism as well. He told the court the purchase was a valid way of fulfilling a state legislative mandate to provide services to indigent residents and to price services on a non-profit basis.

Waxman also defended the state action exemption from antitrust laws, arguing that it expresses “respect for the sovereign choices of sovereign states” and exists “not only to provide a defense … in litigation on the merits, it’s to protect states and sub-state entities from the cost of litigating.”

That assertion did not keep justices from expressing doubts about a broad state exemption. Justice Elena Kagan favorably cited a brief filed by 20 states on the side of the FTC, in which they said the exemption should not be interpreted so broadly that it endorses anticompetitive conduct when states have no intention of doing so.

Justice Sonya Sotomayor countered Waxman, too, suggesting that “You’re elevating that public mandate to a public command that serving the indigent has to override the needs of the majority in terms of price competition.”

Waxman got pushback from Justice Antonin Scalia, who also seemed supportive of federal supremacy in the antitrust area. Scalia told Waxman that the logical extension of his argument was that a hospital authority in “a very large county which has five hospitals” could take over all the hospitals by purchase or eminent domain, thereby wiping out all competition in the region. Waxman said that was possible but unlikely because Georgia officials would have other means to prevent it from happening.

Scalia also seemed peeved by Waxman’s argument style, which as always was confident and free of hemming and hawing. “Mr. Waxman!” Scalia said as he began a question. “If you don’t want to be interrupted, you have to pause between sentences!” It was an unusual statement from Scalia, who is rarely shy about interrupting Supreme Court advocates.

Tony Mauro can be contacted at tmauro@alm.com.