In the latest development from a number of antitrust lawsuits filed against state regulatory boards, LegalZoom.com Inc. signed a consent agreement with the North Carolina State Bar (State Bar) to settle a $10.5 million lawsuit. LegalZoom had alleged multiple violations of federal antitrust laws, including a Section 1 claim that the State Bar had collectively refused to deal with the online legal services provider by refusing to register its prepaid legal services.
Under North Carolina law, the State Bar is tasked with registering prepaid legal services plans, which provide plan-holders access to licensed attorneys to provide legal advice and services. A plan that is not registered may not be sold in North Carolina, nor can licensed attorneys in North Carolina provide services under a plan that is not registered. LegalZoom attempted to register its legal services plans with the State Bar, but the State Bar refused, claiming that LegalZoom’s plans did not meet the N.C. State Bar requirements for registration. LegalZoom then filed a lawsuit, and the parties ultimately reached the settlement at present, which will allow LegalZoom to offer its plans in North Carolina.
This case—and others filed against medical boards, veterinary boards, or state bar associations, to name a few examples—follow from the U.S. Supreme Court’s decision earlier this year in North Carolina State Board of Dental Examiners v. Federal Trade Commission, 574 U.S.___ (Feb. 25, 2015). Prior to that decision, state regulatory boards often claimed state-action immunity from antitrust liability. Under the state-action doctrine, the conduct of states acting in their sovereign capacity is shielded from federal antitrust scrutiny. In North Carolina State Board of Dental Examiners, the Supreme Court reasoned that conduct by state regulatory boards that are controlled by active participants in the profession the board regulates does not constitute exercise of the state’s sovereign power, unless the board is subject to active supervision by the state. Therefore, such state agencies do not receive state-action immunity and are subject to the federal antitrust laws. Here, LegalZoom used the Supreme Court’s decision in North Carolina State Board of Dental Examiners to argue that the State Bar was subject to federal antitrust laws, claiming the board was controlled by active market participants and was not actively supervised by the state. While the parties’ settlement meant that this specific question was never resolved, the lawsuit highlights a trend in antitrust claims filed against state regulatory boards.
We previously analyzed North Carolina State Board of Dental Examiners shortly after the decision came down. As this blog has previously pointed out, “many states regulate professions and occupations through boards controlled by experienced, active practitioners in the fields they regulate. Any state or quasi-state entity composed, in whole or in part, of market participants should take careful note of this case and examine the entity’s structure, composition and operations to assess whether its market participants have “control.” If they do, then the entities and their states must consider changes, either to eliminate the market participants’ controlling role or to impose an active supervisory structure. Finally, such entities should carefully consider their potential (non-immunized) antitrust liability before engaging in any activity that may implicate federal antitrust concerns.”