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From Antitrust Law Daily, October 14, 2014

High Court hears arguments on state action immunity for state professional boards

By Jeffrey May, J.D.

Today, the U.S. Supreme Court took up the issue of whether a state professional board that includes market participants elected by their peers should be considered a “private” actor for purposes of the state action immunity doctrine. As the oral argument proceeded, a number of the justices appeared concerned about subjecting expert regulatory bodies to antitrust challenges, such as the FTC's case against a North Carolina dental board for blocking competition from non-dentists (North Carolina State Board of Dental Examiners v. FTC, Dkt. 13-534).

At issue is a decision of the U.S. Court of Appeals in Richmond, Virginia (717 F.3d 359, 2013-1 Trade Cases ¶78,406), upholding an FTC finding that the North Carolina State Board of Dental Examiners was not immune under the state action doctrine for excluding non-dentist providers from the market for teeth whitening services in violation of Sec. 5 of the FTC Act. In March, the Court granted the board's petition for certiorari, which questioned the appellate court’s holding that state agencies “in which a decisive coalition (usually a majority) is made up of participants in the regulated market,” chosen by and accountable to their fellow market participants, are private actors that are entitled to state action immunity only where their challenged conduct is both pursuant to a “clearly articulated and affirmatively expressed” state policy and “actively supervised by the State itself.” The board contended that the Fourth Circuit erred by imposing the active-supervision requirement in its state action analysis.

“A state regulatory agency does not lose its state action antitrust immunity simply because the agency is run by part-time public officials who are also market participants in their personal capacities,” Hashim M. Mooppan of Jones Day told the Court on behalf of the board this morning. “States obtain valuable benefits from using market participants as part-time public officials. They gain the benefits of their expertise and they gain the benefits of not having to have a fulltime bureaucracy with a full salary,” he added.

Mooppan argued that the “federal antitrust laws shouldn't be interpreted to second guess whether a public official is really private just because they have a conflict of interest.” In addition, Mooppan cautioned that “too much supervision as a condition of antitrust immunity” might have a chilling effect, leading many market participants to decide not serve on these boards. It should be up to the state to determine whether the benefits of expertise resulting from expert board members outweigh the risks of conflicts of interest, he concluded.

The justices let their concerns with the limited supervision of the board be known. For instance, Justice Elena Kagan noted that the Court had to decide whether there was a danger that the board of dentists was “acting to further its own interests rather than the governmental interests of the state.”

In response to Justice John Roberts' concern that a state policy might displace competition by promoting the self-interest of the dentists, Moopan noted that the state can step in if the dentists are acting contrary to the state's interests. “The fundamental question in this case is does federal law second-guess how the state has chosen to deal with this problem,” Moopan added.

However, Justice Ruth Bader Ginsberg cautioned that the antitrust exemption is a matter of federal law, not state law. “It's not up to the state to create the State action exemption,” Ginsberg warned.

Malcolm L. Stewart, Deputy Solicitor General, told the Court on behalf of the FTC, that this would be “a paradigmatic case illustrating the reasons that active supervision is required” if the dental board were designated a private agency. “The board members, the majority of them at least, are required to be practicing dentists; they have an evident self interest in the manner in which the dental profession is regulated and in regulations that might keep other people from competing with dentists.”

The FTC advocated for review of the board by a body of disinterested state actors who would pass on the validity of its rules. However, there was concern among the justices about non-expert review of the decisions of an expert professional board.

Justice Samuel Alito noted that the approach advocated by the FTC might lead to a “state-by-state, board-by-board, inquiry by the federal courts as to whether the members of a regulatory body are really serving the public interest or whether they have been captured by some special interest.” He said: “I really am not attracted to the idea of federal courts looking at State agencies, State regulatory entities, to determine whether they are really serving the public interest or they are serving some private interest.”

Justice Antonin Scalia appeared to question the suggestion that the dentists' financial interests were dictating policy. He pondered whether the financial interest of the individual members of the board was going to be significantly affected.

In response to Justice Anthony Kennedy's question of whether the purposes of the antitrust laws would be advanced if no professionals were to serve on a government board where there’s a chance of antitrust liability, the deputy solicitor general remarked: “[I]f we thought that were the consequence of the Court's decision, then we would be very leery of urging this result.”

“This case is about dentists regulating non-dentists and, in particular, dentists telling dentists—telling non-dentists in what endeavors can you legally compete with dentists,” said Stewart in his final remarks. “And so the concerns that underlie the Sherman Act with unfair restrictions on competition are at their zenith in a case like this one.”

Attorneys: Hashim M. Mooppan (Jones Day) for North Carolina Board of Dental Examiners. Malcolm L. Stewart, Deputy Solicitor General General, for FTC.

Companies: North Carolina Board of Dental Examiners

MainStory: TopStory Antitrust FederalTradeCommissionNews

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