U.S. Supreme Court Holds North Carolina Dentistry Board Not Entitled to State Action Immunity in Antitrust Action
The U.S. Supreme Court held in a 6-3 decision issued February 25 that the North Carolina State Board of Dental Examiners (Board) was not entitled to immunity from antitrust scrutiny under the state action doctrine, which provides a narrow exception to the antitrust laws for anticompetitive conduct by the states when acting in their sovereign capacity. See Parker v. Brown, 317 U.S. 341 (1943).
Justice Kennedy, writing for the majority, said state action immunity was not available because the Board was controlled by “active market participants” and its decision to block non-dentist from providing teeth-whitening services was not “actively supervised” by the state.
The Board argued that the “active supervision” requirement was inapplicable because it is the entity designated by the state to oversee the practice of dentistry. The Court majority rejected this argument, however, noting the critical issue is not the formal designation assigned by the state, but rather “the risk that active market participants will pursue private interests in restraining trade.” This risk of self-dealing is precisely what the active supervision requirement is meant to address, Kennedy's opinion said.
“We are pleased with the Supreme Court’s recognition that the antitrust laws limit the ability of market incumbents to suppress competition through state professional boards,” said FTC Chairwoman Edith Ramirez in a statement. Ramirez said the Court’s decision affirmed the FTC’s position “in recognizing that a state may not give private market participants unsupervised authority to suppress competition even if they act through a formally designated ‘state agency.’”
The Court also recently sided with the FTC in deciding the state action immunity did not apply to a hospital merger involving a substate governmental entity—a hospital authority. In that case, the High Court found no clearly articulated state policy to displace competition in the hospital services market. Federal Trade Comm’n v. Phoebe Putney Health Sys., Inc., No. 11-1160 (U.S. Feb. 19, 2013).
The eight-member Board consists of six licensed dentists elected by their peers; one licensed dental hygienist elected by fellow hygienists; and one consumer appointed by the governor. All Board members, with the exception of the consumer member, must be actively practicing dentistry. The North Carolina Dental Practice Act (Act) vested the Board with the authority to regulate the “practice of dentistry,” but the statute does not specify teeth whitening falls within this practice.
After receiving a number of complaints from dentists, the Board began investigating teeth-whitening services offered in the state by non-dentists, often at lower prices than those offered by licensed dentists. The Board eventually issued 47 cease-and-desist letters to non-dentist teeth-whitening providers, which then stopped providing the services.
In June 2010, the FTC issued an administrative complaint against the Board, charging it with violating Section 5 of the FTC Act. The Board tried to stop the administrative proceedings, but a federal district court denied relief. Meanwhile, an administrative law judge found the Board violated the FTC Act; the agency affirmed, enjoining the Board from issuing cease-and-desist orders to teeth-whitening providers.
The Board petitioned the Fourth Circuit for review of the agency’s final order, arguing it was exempt from antitrust scrutiny under the state action doctrine; that it did not engage in concerted action; and that it did not unreasonably restrain trade. The Fourth Circuit refused to disturb the Federal Trade Commission’s (FTC’s) finding that the Board was not entitled to state action immunity and that it violated antitrust law by attempting to block non-dentists from providing teeth-whitening services in the state. North Carolina State Bd. of Dental Exam'rs v. Federal Trade Comm'n, No. 12-1172 (4th Cir. May 31, 2013).
State-action immunity typically arises in the following scenarios: where the state itself is the actor; where private parties are acting pursuant to a “clearly articulated” state policy and are “actively supervised” by the state; and where “substate governmental entities” are acting pursuant to a clearly articulated state policy.
The FTC treated the Board as a private actor that had to satisfy both the “clearly articulated” and “actively supervised” prongs of the state action immunity analysis, which was articulated by the Court in California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97. The Board contended, however, it was a substate governmental entity and therefore only needed to show it acted pursuant to a clearly articulated state policy.
Although designated as a state agency, the Court majority agreed with the FTC that the Board had to comply with the active supervision requirement because the majority of its members were licensed dentists who were active participants in the regulated market and who were elected by fellow dentists.
“[A]ctive market participants cannot be allowed to regulate their own markets free from antitrust accountability,” Kennedy wrote.
“The Court holds today that a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates must satisfy Midcal’s active supervision requirement in order to invoke state-action antitrust immunity,” Kennedy said.
Active Supervision Considered
Having held the Board's action had to meet the active supervision requirement to avoid antitrust scrutiny, Kennedy went on to find no dispute that it had.
“[T]he board relied upon cease-and-desist letters threatening criminal liability, rather than any of the powers at its disposal that would invoke oversight by a politically accountable official,” Kennedy noted. “With no active supervision by the State, North Carolina officials may well have been unaware that the Board had decided teeth whitening constitutes ‘the practice of dentistry’ and sought to prohibit those who competed against dentists from participating the teeth whitening market.”
The opinion went on to characterize the inquiry regarding active supervision as “flexible and context-dependent.” According to Kennedy, active supervision “need not entail day-to-day involvement in an agency’s operations, but the state’s review mechanisms should provide “‘realistic assurance’ that a nonsovereign actor’s anticompetitive conducts ‘promotes state policy, rather than merely the party’s individual interests.’”
The Court did set forth several “constant requirements of active supervision”—that the supervisor review the substance of the anticompetitive decision, not merely the procedures used to produce it; have the power to override the decision in accordance with state policy; and is not itself an active market participant.
A dissenting opinion, authored by Justice Alito and joined by Justices Scalia and Thomas, argued the Court’s decision was “based on a serious misunderstanding” of the state action immunity doctrine and would “spawn confusion.”
Under Parker, the antitrust laws do not apply to state agencies, Alito said. According to the dissent, the Board clearly is a state agency, not a private entity, which should be the end of the Court’s inquiry. “[T]he North Carolina statutes establishing and specifying the powers of the State Board of Dental Examiners represent precisely the kind of state regulation that the Parker exemption was meant to immunize.”
“Not only is the Court’s decision inconsistent with the underlying theory of Parker; it will create practical problems and is likely to have far-reaching effects on the States’ regulation of professions,” the dissenting opinion added.
North Carolina State Bd. of Dental Exam’rs v. Federal Trade Comm’n, No. 13-534 (U.S. Feb. 25, 2014).