The new private-regulation skepticism: due process, non-delegation, and antitrust challenges.

• Author: Volokh, Alexander
• Position: Introduction through III. Non-Delegation Doctrine C. Commingling Non-Delegation and Due Process 1. The D.C. Circuit's Private Delegation Doctrine, p. 931-973

INTRODUCTION I. THE PROBLEM OF PRIVATE REGULATION A. Private Regulation and Its Discontents B. Five Examples 1. Amtrak 2. The North Carolina Board of Dental Examiners 3. The Mississippi Board of Pharmacy 4. The Texas Boll Weevil Eradication Foundation 5. Texas Water Quality Protection Zones C. What Is "Private"? II. THE DUE PROCESS CLAUSE A. The "Private Due Process" Doctrine 1. The Eubank-Thomas Cusack-Roberge Synthesis 2. The Mandatory-Discretionary Distinction 3. Application B. No Private Due Process Doctrine III. NON-DELEGATION DOCTRINE A. At the Federal Level B. In the States C. Commingling Non-Delegation and Due Process 1. The D.C. Circuit's Private Delegation Doctrine 2. The Carter Coal Puzzle 3. How the Amtrak Case Should Have Been Decided 4. Other Comminglers IV. ANTITRUST THEORIES A. State Action Immunity 1. Applicability to State Agencies 2. The Cursory View 3. The Intermediate View 4. The FTC and Areeda-Hovenkamp View 5. Application B. Actual Antitrust Violations 1. The Fourth Circuit's Dental Examiners Reasoning 2. The Other Cases C. Remedies V. CONCLUSION INTRODUCTION

In recent years, state and federal courts have been ruling against private regulatory organizations on a number of theories. This Article explores this new private-regulation skepticism and the theories that underpin it.

This Article focuses on three main sources of law: the Due Process Clause, non-delegation doctrine, and antitrust law. To illustrate the doctrines, it follows five examples from recent cases and recent news of regulation by Amtrak, the North Carolina Board of Dental Examiners, the Mississippi Board of Pharmacy, the Texas Boll Weevil Eradication Foundation, and landowners in Texas water quality protection zones.

The Due Process Clause is a potential limit on the private exercise of regulatory power, especially if the regulators and the regulated parties compete with each other. Federal non-delegation doctrine, by contrast, is unlikely to be much help in these challenges, though some states, like Texas, have vibrant non-delegation doctrines that not only are stricter than the federal one but also strongly distinguish between public and private delegates. Some courts don't clearly distinguish between non-delegation and due process. I argue that they should, as the two doctrines serve very different purposes.

Finally, federal antitrust law is available to guard against the anticompetitive dangers of "industry regulating itself." Excessive conflicts of interest decrease the chance that a court will find state action immunity from antitrust law, and increase the chance that a court will find a substantive antitrust violation because of structural anticompetitive factors. Additionally, regulators that are sufficiently independent from state government are less likely to be insulated from liability by sovereign immunity. This new regulation skepticism thus provides several useful tools to challenge private regulation.

1. THE PROBLEM OF PRIVATE REGULATION

   1. Private Regulation and Its Discontents

      Using private entities to achieve regulatory goals has been a long-standing American practice. The most salient examples for lawyers are our own professional accreditors--state bars and the American Bar Association--but examples can be found across the entire economy, (1) and the growth of the regulatory state, combined with resource constraints for governments, suggests that the phenomenon will continue. (2)

      On the one hand, relying on the private sector to regulate its own ranks seems to offer an advantage because lawyers, doctors, and the like know more about their own professions than the government does. It's a strategy that has appealed to both New Deal corporatists and modern-day pro-business advocates.

      On the other hand, "industry regulating itself" has its disadvantages from both an external and an internal perspective. From the outside, this sort of "self-regulation" seems to detract from the regulatory power of government. Perhaps more interestingly, from the inside, it's apparent that "industry" isn't a monolith. "Industry regulating itself" really means "some people in industry regulating other people in industry," "people regulating their own competitors," or perhaps even "incumbents regulating potential entrants." This perspective invites one to fear self-interested bias and anticompetitive behavior.

      In recent years, courts seem to have grown increasingly skeptical of these private regulatory delegations. Interesting cases have come out of Germany, (3) India, (4) and Israel, (5) but this Article will focus on what U.S. state and federal law has to say on the matter. The most relevant doctrines that recently have been used to question private regulatory delegations have been (state or federal) non-delegation doctrine, the Due Process Clause, and federal antitrust law. (6)

      The doctrines are mostly old, but their recent use against private delegations of all sorts is striking: The cases cutting the other way, chiefly in the context of the civil rights liability of private prisons, get more press. (7) The Texas Supreme Court has developed its own theory of private delegation. The D.C. Circuit did the same--just in 2013. Also in 2013, the Fourth Circuit tightened up on antitrust immunity for a state licensing board. Moreover, these courts have characterized the relevant regulators as "private," even when one might have thought they were public.

      This Article explains the contours of these emerging doctrines and their roots in past case law. The rest of this Part outlines five examples that I will follow throughout the Article, and briefly shows the complexity of the public-private distinction. Part II discusses challenges under the Due Process Clause. Part III discusses non-delegation doctrine. The Article also will explain how not all courts are clear on the difference between due process and non-delegation theories. I argue that this commingling is unfortunate, and that non-delegation and due process reasoning are very different animals that ought to be kept analytically separate.

      Part IV discusses how private regulatory delegation can run afoul of federal antitrust law. Usually, state regulation is immune from federal antitrust law under antitrust's state action immunity, but relying on private entities to do the regulation can make the action just private enough to lose the immunity.

   2. Five Examples

      Throughout this Article, I will follow a few examples, some pulled from current legislative activity and some pulled from recent cases, to see how they would fare under the various doctrines. (8)

      1. Amtrak

         Amtrak is a passenger rail corporation created by federal statute in 1970. It's a for-profit corporation (9) that's run by presidential appointees and in which the federal government holds most of the stock. (10) The Passenger Rail Investment and Improvement Act of 2008 requires the Federal Railroad Administration (FRA) and Amtrak to "jointly ... develop new or improve existing metrics and minimum standards for measuring the performance and service quality of intercity passenger train operations." (11) These performance measures are used, among other things, as a basis for the Surface Transportation Board (STB) to assess damages against railroads if "on-time performance" or "service quality" is substandard for two consecutive quarters. (12)

         If Amtrak and the FRA can't agree on performance measures, they "may petition the [STB] to appoint an arbitrator to assist [them] in resolving their disputes through binding arbitration." (13) Amtrak thus has equal authority with the FRA on this issue; no metrics or standards can be developed unless they agree, or appoint a binding arbitrator.

      2. The North Carolina Board of Dental Examiners

         The North Carolina Board of Dental Examiners, composed almost entirely of practicing dentists who are elected by practicing dentists, regulates the practice of dentistry. (14) It's illegal to practice "dentistry" in North Carolina--a term that includes teeth-whitening services--without a license from the board. (15) The Board sent dozens of letters to non-dentist providers of teeth-whitening services, asserting that their activities constituted the illegal practice of dentistry and ordering them to cease and desist. As a result, non-dentist teeth whiteners were successfully excluded from North Carolina. (16)

      3. The Mississippi Board of Pharmacy

         The Mississippi Board of Pharmacy, composed entirely of practicing pharmacists appointed by the Governor from a list submitted by pharmacy associations, (17) regulates the practice of pharmacy and the distribution of drugs and devices. (18) In 2011, it was given regulatory authority over pharmacy benefit managers. Pharmacy benefit managers administer prescription drug benefits for HMOs and others; they negotiate discounts with pharmacies and manufacturers, and thus are the market adversaries of pharmacists, competing with them for a share of the profits arising out of the prescription drug business. (19)

         The statute requires that pharmacy benefit managers, as a condition of doing business in the state, disclose their financial statements to the state Board of Pharmacy. (20) These financial statements are to include balance sheets, income statements, and "[a]ny other information relating to the operations of the pharmacy benefit manager required by the board under this section," though pharmacy benefit managers aren't required to disclose "proprietary information." (21)

         Also, the Board recently attempted to institute a regulation imposing a fiduciary duty on pharmacy benefit managers, but ultimately backed down. (22)

      4. The Texas Boll Weevil Eradication Foundation

         The Texas legislature has created a nonprofit Boll Weevil Eradication Foundation, which operates boll weevil eradication programs and charges growers for the cost. (23) Growers vote to decide whether to establish a boll weevil eradication zone and (if they choose to establish a zone) elect...