Regulating regulators: active supervision of state regulatory boards in the wake of North Carolina State Board of Dental Examiners v. FTC.

• Author: Rivers, E. Dylan

Professional licensure and regulation originated with the "learned professions" like law and medicine, but today states regulate everything from manicurists and shampooers (Tennessee), florists (Louisiana), and auctioneers (Florida). According to a White House blog article from July 28, 2015, (1) "one-quarter of U.S. workers must have a [s]tate license to do their jobs, a five-fold increase since the 1950s." The regulation of professions generally is intended to protect the health, safety, and welfare of the public and, thus, falls within the police power of the states, but the benefits of regulation must be weighed against the costs and impact on a competitive free market.

Professionals have historically been regulated by their peers--members of the profession with knowledge and experience as a practitioner in the same field. However, professional regulatory boards today do more than define and enforce professional standards of practice; they define what it means to practice and are the gatekeepers to entry into the profession. As such, when a regulatory board is controlled by members of the profession it governs, there is a risk that the board will make anticompetitive decisions that serve the private interests of its members and not the state's interest in protecting the public.

This risk was a reality in North Carolina State Board of Dental Examiners v. Fed. Trade Comm'n, 135 S. Ct. 1101 (2015) (NC Dental), when the issue presented was whether a state regulatory board's anticompetitive actions were immune from federal antitrust claims as "state action." While the antitrust and "state action" principles upon which the Supreme Court based its decision are not new, the court had not previously explicated the extent to which state action immunity applies to state regulatory boards. The NC Dental decision makes clear that a regulatory board controlled by active market participants is entitled to state action immunity from federal antitrust claims "only if it satisfies two requirements: first that the challenged restraint be one clearly articulated and affirmatively expressed as state policy, and second that the policy be actively supervised by the [s]tate." (2) These requirements, and the potential implications in Florida, are discussed below; but first, a brief discussion of the case is warranted.

The Facts in NC Dental

The North Carolina State Board of Dental Examiners regulates the practice of dentistry in North Carolina pursuant to the state's Dental Practice Act. By law, six of the eight board members must be dentists. (3) In the early 2000s, nondentists began to offer teeth whitening services and charged less for it than dentists. Dentists complained, and the board issued a number of cease-and-desist letters to nondentist providers of teeth whitening, as well as product manufacturers. The letters directed recipients to cease "all activity constituting the practice of dentistry," and at least implied that teeth whitening constituted the practice of dentistry. (4) The board took other actions similarly aimed at stopping nondentists from offering teeth whitening services, but it did not promulgate rules governing teeth whitening, and the Dental Practice Act did not specify that teeth whitening constituted the practice of dentistry. (5)

In 2010, the Federal Trade Commission (FTC) filed an administrative complaint against the board claiming that its actions to exclude nondentists from the market for teeth whitening services were anticompetitive and an unfair method of competition. The board moved to dismiss the complaint, claiming state action immunity for its actions. The motion to dismiss was denied, and state action immunity was rejected. Damages were not at issue, but the FTC ordered the board to stop its efforts to exclude nondentists from the market for teeth whitening services. (6) The Fourth Circuit affirmed the FTC, (7) and the Supreme Court granted certiorari. (8)

The NC Dental Opinion

In a 6-to-3 decision, the Supreme Court affirmed the decision. The opinion (delivered by Justice Kennedy), begins by confirming the importance of federal antitrust law as "a central safeguard for the [n]ation's free market structures," (9) and then explains how the board, as a nonsovereign actor, is not entitled to state action immunity from federal antitrust claims unless its actions are 1) based upon clearly articulated state policy and 2) actively supervised by the state. (10) It would be easy to characterize the actions of the board in NC Dental as aberrant, and decide that this is simply a case with "bad facts," but the decision has very real implications for professional licensing and regulation by states.

As the Court explained, the application of federal antitrust laws to state-imposed restraints on competition is generally limited by the "state action" doctrine, which was first applied by the Supreme Court in Parker v. Brown, 317 U.S. 341 (1943), and reaffirmed in subsequent decisions. However, the Court determined that the board in NC Dental was not a sovereign actor. (11) The Court was concerned that the board, while a creature of statute with certain powers granted by law, was controlled by "active market participants" without "political accountability" for their conduct. (12) The Court explained that in order for state action immunity to apply, the anticompetitive conduct of nonsovereign actors must "result from procedures that suffice to make it the state's own." (13)

In deciding whether conduct of a nonsovereign actor constitutes "state action," the Court applies the two-part test articulated in Calif. Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97 (1980), and reiterated in FTC v. Phoebe Putney Health System, Inc., 133 S. Ct. 1003, 1010 (2013). In Midcal, the Court imposed two conditions for state action immunity to apply to a private actor: "[F]irst, the [s]tate has articulated a clear policy to allow the anticompetitive conduct, and second, the [s]tate provides active supervision of [the] anticompetitive conduct." (14)

For the first prong of the Midcal test, the Court has made clear that general grants of regulatory authority do not satisfy the clear articulation requirement. In other words, "state-law authority to act" is not enough; the actor must have "been delegated authority to act or regulate anticompetitively." (15) This does not mean that state law must expressly provide for anticompetitive actions to be taken, but...