On February 25, 2015, the U.S. Supreme Court held in N. Carolina State Bd. of Dental Examiners v. FTC, No. 13-534, -- U.S. -- , 2015 WL 773331, that state-created professional boards controlled by “active market participants” must be “actively supervised” by the State in order to receive immunity from the antitrust laws. While clarifying somewhat the scope of so-called “Parker immunity,” the decision leaves largely unresolved what constitutes “active supervision” from a State. Nevertheless, the ruling may prompt States to revisit how they organize professional boards in an effort to shield them from antitrust scrutiny.
Background – Competition For Pearly White Smiles
North Carolina regulates dentistry through its State Board of Dental Examiners (“Board”), which promulgates rules governing the profession. The Board consists of eight members, six of which must be dentists elected by other dentists throughout the State. In the early 2000’s, nondentists began performing teeth whitening procedures, which previously only dentists performed at much higher prices. Slip op. at 2-3. Dentists soon complained to the Board. In response (and eschewing its rulemaking authority), the Board sent dozens of “cease and desist” letters to the nondentists, claiming that teeth whitening was part of the practice of dentistry and warning of criminal penalties for practicing dentistry without a license. Due to those and other actions by the Board, teeth whitening by nondentists became nonexistent in North Carolina.
In 2010, the Federal Trade Commission (“FTC”) challenged the Board’s actions as anticompetitive under the FTC Act, 15 U.S.C. § 45. The FTC prevailed in an administrative trial and in an appeal before the Court of Appeals for the Fourth Circuit. In both instances, the Board unsuccessfully asserted that its conduct was protected by state-action immunity.
Like the rulings below, the Supreme Court rejected the Board’s immunity argument. It reiterated the longstanding principle – first articulated in Parker v. Brown, 317 U.S. 341 (1943), and rooted in federalism concerns – that States’ anticompetitive conduct is immune from antitrust review when done in a sovereign capacity. Under Parker and its progeny, antitrust immunity is also available to private actors if the conduct: (1) was part of a “clearly articulated and affirmatively expressed” state policy, and (2) was “actively supervised” by the State with “procedures that suffice to make it the State’s own.” Slip op. at 6, 8-9 (citing Cal. Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980)).
The Board claimed that, as a State agency, it was not required to demonstrate active supervision because it was a state actor, not a private organization. Slip op. at 6, 12-13. The Board also argued that this more stringent test for state-action immunity for a state board comprised of market participants with technical expertise would deter “dedicated citizens” from serving on state agencies that regulate their field.
The Court found the Board’s arguments unpersuasive. First, the Court held that state supervision was necessary because, even though the Board was nominally a state actor, “[s]tate agencies controlled by active market participants, who possess singularly strong private interests, pose the very risk of selfdealing [the] supervision requirement was created to address.” Slip op. at 13. Because the Board did not argue that its conduct was actively supervised by the State, the Court concluded that the Board was not entitled to immunity under the antitrust laws. Slip op. at 17. The Court was also not persuaded that affirming the FTC’s decision would “discourage dedicated citizens from serving on state agencies that regulate their own occupation” given the “long tradition of citizens . . . devoting time, energy, and talent to enhancing the dignity of their calling.” Slip op. at 14-15. The Supreme Court left for another day “whether agency official, including board members, may, under some circumstances, enjoy immunity from damages liability” and added that States could defend and indemnify agency members in the event of litigation. Slip op. at 14-16.
Unresolved Issues and Justice Alito’s Dissent
Importantly, the total lack of State oversight of the Board prevented the majority from offering much concrete guidance on what kind or degree of active supervision is necessary for Parker immunity to apply. The Court merely indicated that state supervision “need not entail day-to-day involvement” in an agency’s affairs, but must provide substantive review of the allegedly anticompetitive conduct. Slip op. at 17. Additionally, the “supervisor” must have the ability to veto or modify the decision and cannot itself be an active market participant.
Consequently, significant uncertainty remains. As Justice Alito’s dissent observed, States might see fit to alter the composition of professional boards in response to the Court’s decision, yet lack clear guidance on what changes would actually secure Parker immunity. For instance, the Court’s opinion failed to illuminate basic concepts, such as who counts as an “active market participant,” how to define the “market” in which they participate, and what constitutes “a controlling number” of market participants to invoke the active state supervision requirement. Dissenting slip op. at 11-12 (Alito, J., dissenting). Who or what qualifies as a “supervisor” of a board’s or agency’s decisions is equally unclear from the Court’s opinion.
In sum, while deciding the issue before it, the Supreme Court’s opinion provides little guidance to market participants serving on state professional boards. The uncertainty that remains may arm private antitrust plaintiffs with an opening to challenge actions by state-created entities. While States likely will scramble to bring their agencies and boards under their active supervision, they will be forced to wrestle with how to interpret the Supreme Court’s decision, which “will depend on all the circumstances of a case.” Slip op. at 18.