National Association of Attorneys General
Litigation, Legislation and Policy - Two Years of Reaction to NC Dental
Emily Myers, NAAG Antitrust and Powers and Duties Chief Counsel
The U.S. Supreme Court’s decision in North Carolina State Board of Dental Examiners v. FTC has now been on the books for two years, and the time seems ripe for an update on litigation, legislation, and advocacy that address the exception from application of federal antitrust laws known as state action immunity.
“State action immunity” is a doctrine created by the Supreme Court to provide states, when acting as sovereigns, with immunity from federal antitrust lawsuits if the state’s exercise of its authority has anticompetitive effects. Parker v. Brown, 317 U.S. 341 (1943). Parker and later Supreme Court decisions are based on the idea that the acts of the sovereign state, even if they are anticompetitive, outweigh the importance of a freely competitive marketplace. If the state itself (for example, through a state agency) is regulating the market, the state action is fairly clear. The interest of the state is less clear in situations where private parties are acting to regulate a market (for example, when state licensing boards are composed of practitioners licensed by the board).
The Supreme Court stated a two-part test to “determine whether anticompetitive conduct engaged in by private parties should be deemed state action and thus shielded from the antitrust laws.” State action protection covers private parties only where (1) the challenged restraint reflects a clearly articulated state policy that permits the anticompetitive conduct (the “clear articulation” test) and (2) the permitted anticompetitive activities are actively supervised by the state (the “active supervision” test).
In its 2015 North Carolina Dental decision, the Supreme Court focused on the second prong of the test, active supervision, assuming, as the parties had, that the state had clearly articulated a policy to displace competition. The court held, “A state board on which a controlling number of decision makers are active market participants in the occupation the board regulates must satisfy [the] active supervision requirement in order to invoke state-action antitrust immunity.” The court further held that active supervision by the state is to be determined on a case-by-case basis but requires that 1) A state supervisor must review the substance of the action (not just the process by which the action was taken); 2) The supervisor must have the power to veto or modify the action; and 3) There must be active supervision, not just the potential for supervision.
The Supreme Court’s decision left a number of questions unanswered. Those questions are gradually being addressed through litigation, legislation, and guidance from the federal agencies and state attorneys general. Developments in each of those areas are described in this article.
Shortly after the NC Dental decision, a number of cases were filed around the country, alleging anticompetitive actions by regulatory boards, including denial of licenses to individual licensees and promulgation of general rules that impeded specific competitors or specific types of practice. A number of those cases have now been resolved in favor of the board. In some cases, the claim was dismissed quickly, not always on grounds of state action immunity, while, in others, the claim was appealed to, and eventually dismissed by, the federal court of appeals.
Several cases were resolved by settlement, some of which required legislative action. For example, a veterinary pharmaceutical company that delivers pet medications directly to pet owners sued the Nevada State Board of Pharmacy after the Board determined its operations violated anti-kickback statutes. After the case was appealed to the state supreme court, the parties reached a settlement, which required, in part, “legislative and/or regulatory changes to fully implement the Settlement, which changes may take a considerable amount of time to fully and finally accomplish due to the nature of the legislative and regulatory process.” A similar settlement was reached when LegalZoom, a company that provided prepaid legal services plans (connecting customers to attorneys licensed in the state who have contracted with LegalZoom to provide services) sued the North Carolina State Bar. LegalZoom alleged that the Bar had sought to regulate prepaid legal services plans, over which the Bar had no jurisdiction. The parties reached a settlement, one of the provisions of which stated, “The parties have agreed to mutually support and use best efforts to obtain passage by the North Carolina General Assembly of HB 436 in the form currently pending before the House Judiciary Committee.”
Several cases against state regulatory boards have survived motions to dismiss and are still pending. One case pitted two state regulatory boards against one another. The case was brought against the North Carolina Acupuncture Licensing Board by physical therapists who want to perform “dry needling” and by two dancers who rely on dry needling for pain relief. The complaint alleged that the dry needling is a recognized and helpful physical therapy and that the North Carolina Physical Therapy Board has expressly determined that dry needling is within the scope of physical therapy practice. The Acupuncture Board issued a publication in which it concluded that dry needling is acupuncture and that physical therapists who were performing dry needling were endangering the public and were subject to legal enforcement to force them to discontinue the practice. The Acupuncture Board sent cease-and-desist letters to physical therapists who advertised dry needling and eventually filed suit in state court against the Physical Therapy Board and the plaintiffs in this case, seeking a declaratory judgment that dry needling by licensed physical therapists constitutes the unlawful practice of acupuncture. Plaintiffs sued in federal court, alleging violations of the Sherman Act. The Acupuncture Board apparently did not raise state action immunity as a defense, and the court did not address state action immunity when it denied the Acupuncture Board’s motion to dismiss.
In another recent decision, the plaintiff sued the Pennsylvania State Board of Auctioneer Examiners after the state charged him with operating as an unlicensed auctioneer. He appealed the Board’s decision in state court. The Board is composed of two state employees, two members of the public, one registered auction trading assistant and four licensed auctioneers. Other than the government employees, who serve by virtue of their positions, the governor appoints all members. The court distinguished this case from NC Dental on the grounds that the members of the NC Dental Board were elected by the dentists in the state, rather than appointed by the governor, that they were acting on a subject not addressed by their governing statute and were not subject to review or reversal by state officials. In this case, in addition to being appointed by the governor, the Board was applying express statutory provisions, and its application of those provisions was subject to judicial review. Finally, the Board’s action, which was undertaken after a full hearing, was initiated by one of the plaintiff’s clients, not by a competitor. The court affirmed the holding of the Board.
The Supreme Court held, in Town of Hallie v. Eau Clair, that only the “clear articulation” part of the Midcal test is applied when the anticompetitive actor is a municipality or other “arm of the state.” Although the NC Dental decision dealt solely with “active supervision” of non-state actors, a recent decision from the 10th Circuit addressed the “clear articulation” part of the Supreme Court’s test. In the 10th Circuit case, the University of Colorado-Denver instituted a residency requirement for its students that forced many students to live at Campus Village, an apartment complex owned by an arm of the University, thus damaging a competing apartment complex, Auraria Student Village. Although the court dismissed the case on the grounds that the plaintiff had not properly pled or provided evidence of the relevant market, the court held that Campus Village was not entitled to antitrust immunity because there had been no clear articulation of state policy. Although state statutes authorized the issuance of bonds and entering of agreements to ensure the security of the holders of bonds used to fund the new University-owned housing, that does not mean the legislature “blessed anti-competitive behavior in the marketplace.” Nor was the anticompetitive activity foreseeable from that grant of power.
During recent legislative sessions, several states enacted bills designed to protect the state licensing boards from antitrust claims.
Maryland’s statute (HB 628) was approved by the governor in May and covers licensing boards for health care occupations only. The statute makes the Office of Administrative Hearings the supervisor of health care boards “composed in whole or in part of individuals participating in the occupation or profession regulated by the board or commission.” The Office of Administrative Hearings “shall review a decision or action of a board or commission that is referred to the office by the Secretary or the Secretary’s designee in order to determine whether the decision or action furthers a clearly articulated state policy to displace competition in the regulated market.” The Office may not approve the action if it does not further the state’s clearly articulated policy. A board may not implement a final action until after the Office of Administrative Hearings has reviewed the merits of the proposed action; assessed whether the proposed action furthers a clearly articulated state policy to displace competition; and issued a written decision approving, disapproving, or modifying the proposed action.
The Mississippi legislature passed, and the governor signed, the Occupational Board Compliance Act of 2017. The statute seeks to “ensure that occupational boards and board members shall avoid liability under federal antitrust laws.” The Act states that it is the policy of the state that regulatory boards use the least restrictive regulation available, and defines the types of regulation from least to most restrictive, beginning with market competition and ending with occupational licensing. The Act creates an Occupational Licensing Review Commission, composed of the governor, the secretary of state, and the attorney general. The Commission is to be the supervisor of “state executive branch occupational licensing boards controlled by active market participants” The Commission must review the substance of occupational regulations proposed by the occupational licensing board and may approve, disapprove, or amend the regulation. Those regulations will not be effective unless they have been submitted to the Commission.
Montana enacted HB 141, to “ensure that Montana law provides for the active supervision of boards as required by the U.S. Supreme Court decision for purposes of state action antitrust immunity.” The commissioner of Labor and Industry is designated as the supervisor of professional and occupational licensing boards with a controlling number of market participants. The commissioner is authorized to “approve or disapprove any board action identified by the department as restraining or potentially restraining competition in trade or commerce.” The commissioner’s decision must be in writing and may include recommended modifications. If no written decision is received within 30 days, there is a rebuttable presumption that the board action was approved by the commissioner. Boards may also seek a determination that their actions are not subject to active supervision requirements.
The Ohio statute, which was one part of a large budget package, makes the “office of common sense initiatives,” within the Governor’s Office, the supervisor of state occupational and professional boards. The statute applies to a number of specified boards as well as “any multi-member body created under state law that licenses or otherwise regulates an occupation or industry to which one or more members of the body belongs.” The office will review board actions that are referred to it by the board or by any person affected by the board’s action. The statute specifies that denial of an individual license for failure to comply with the law or disciplinary action against an individual licensee will not be reviewed by the office. Referral must be made within 30 days of the board’s action and, once a referral has been made, the board may not take the action until it has been reviewed. The office must approve or disapprove the action in writing, and its decisions are to be made publicly available. The action shall be disapproved if “the action is not pursuant to a clearly articulated state policy or that if it is pursuant to [such] policy, that policy is a pretext” by which the board enables members of the regulated occupation “to engage in anticompetitive conduct that could by subject to state or federal antitrust law. . .”
Tennessee also enacted legislation (HB 326) to provide active supervision to regulatory boards. The head of the administrative department under which the board operates is made the supervisor of the board. The agency head (who must designate another person if he or she is a member of the regulated profession) must remand any administrative rule that may constitute a potentially unreasonable restraint of trade to the regulatory board for additional information, further proceedings, or modification, “if the rule is not consistent with a clearly articulated state policy or law established by the general assembly with respect to the regulatory board.” With respect to board actions other than rulemaking, the agency head must “determine whether the action may constitute a potentially unreasonable restraint on trade and, upon finding that further review is warranted, notify the board that took the action followed by a review and written determination.”
The federal antitrust agencies have filed only one case involving state action immunity since the Supreme Court’s decision in NC Dental. In May, the Federal Trade Commission (FTC) filed an administrative complaint against the Louisiana Real Estate Appraisers Board, alleging that the group violated federal antitrust law by unreasonably restraining price competition for appraisal services in Louisiana. According to the complaint, the Dodd-Frank law requires appraisal companies to pay “a rate that is customary and reasonable for appraisal services performed in the market area.” The Appraisers Board allegedly commissioned surveys of fees charged, then required, in its regulations, that appraisers charge fees that equaled or exceeded those median fees. The board then investigated and sanctioned companies that charged fees below the specified levels. The FTC’s complaint alleged that the appraisal board’s regulations exceeded the scope of the mandate outlined in the Dodd-Frank Act. After an Executive Order issued by the governor strengthened the “active supervision” of the Board’s actions, the FTC administrative law judge granted a 90-day stay of the proceedings.
During the past year, the FTC and the U.S. Department of Justice (DOJ) Antitrust Division have also commented on a half-dozen state legislative proposals involving occupational licensing, and, tangentially, regulatory boards and their authority. Their comments indicate the framework that the agencies are using to review licensing regulations. The agencies only comment when asked to do so, so their choice of legislation on which to comment does not necessarily indicate their enforcement priorities.
The FTC and DOJ jointly commented on a Puerto Rico bill that would expand the scope of practice of optometrists in Puerto Rico and allow them, after training, to prescribe certain topical and oral medications. The agencies supported the legislation, noting that optometrists are more readily available to consumer than ophthalmologists and can therefore increase access to eye care. The agencies also noted that this legislation would bring Puerto Rico in line with most other U.S. jurisdictions, which allow optometrists to use and prescribe medications.
On the other hand, the FTC was critical of an Iowa proposal to “establish specific minimum standards or a definition of supervision for appropriate supervision of physician assistants (PAs) by physicians.” In the FTC’s view, the regulatory structure, which was proposed by the Board of Medicine, imposed additional requirements and restrictions which were not necessary for patient protection, in particular, requiring additional face-to-face meetings between PAs and the supervising physicians.
The agencies commented favorably on a number of proposals to expand telehealth in both Michigan and Delaware, which would expand the definition of telehealth and permit telehealth professionals to prescribe drugs that are not controlled substances. The FTC also commented favorably on an Ohio bill that would provide for the licensure of dental therapists, mid-level dental practitioners. The FTC commented that the licensing of dental therapists could increase consumer choice among providers of certain dental services, enhance competition, reduce prices, and expand access to dental care. The FTC was concerned, however that the bill allowed dental therapists to practice only in certain underserved settings, and this would limit their ability to provide service to Ohio consumers.
Most recently, the FTC commented on four bills in Nebraska, which were part of a regulatory licensing reform push in that state. The bills addressed licensure requirements of bank executive officers, motor vehicle salespeople, potato shippers, and school bus operators. Rather than comment on the four bills specifically, the FTC laid out a framework for examining licensing regimes, asking four questions:
- What legitimate policy justifications, if any, were articulated when the original license requirements were imposed?
- Are there currently any specific, legitimate, and substantiated policy objectives that justify continuing the license requirements?
- If current, legitimate policy objectives are identified, do they outweigh the expected harms from licensing? Such harms may include reduced economic opportunities, restricted employment, increases in consumer prices, and reductions in quality or access.
- If state licensing appears justified, are there any less restrictive alternatives to the current licensing system? For example, registries or certification of providers?
Acting FTC Chair Maureen Ohlhausen recently announced the creation of the Economic Liberty Task Force within the FTC. Acting Chair Ohlhausen expressed concern about occupational licensing in terms of its cost to consumers, costs to people seeking to move up the economic ladder in a new profession, and difficulties it causes to those who seek to practice their profession in different states, in particular, spouses of military personnel. Acting Chair Ohlhausen “believes in federalism and the important principles that it embodies” and if state policy makers have made the decision to displace competition, their decision should be respected. However, she stated “When market participants control state boards that impose regulations on potential new entrants and competition in their own profession, self-interest often supersedes consumer welfare and undermines the industry knowledge that such participants can impart.”
The acting chair has created an Economic Liberty Task Force to “advance economic liberty issues, with particular focus on occupational licensing regulations.” She “hopes to create a new level of partnership with governors, state attorneys general, state legislative leaders and other state and local officials to integrate competition concerns into the decision-making process.” She emphasized that, although the FTC will bring enforcement actions when appropriate, “advocacy and partnership will be the primary work of the FTC’s Economic Liberty Task Force.”
 135 S.Ct. 1101 (2015).
 California Retail Liquor Dealers Ass'n v. Midcal Aluminum, 445 U.S. 97 (1980).
 Robb v. Connecticut, 157 F. Supp. 3d 130 (D.Conn. 2016); Prime Healthcare Svcs. Monroe v. Indiana Univ. Health Bloomington, 2016 U.S. Dist. LEXIS 136474 (S.D. Ind. Sept. 30, 2016) (court assumed Emergency Medical Services Commission was state actor, not controlled by market participants); Rodgers v. State of Louisiana Board of Nursing, 2015 U.S. Dist. LEXIS 169338 (M.D. La. Dec. 18, 2015), aff’d 2016 U.S. App. LEXIS 20145 (5th Cir. Nov. 8, 2016) (court held board is part of state, dismissed on 11th Amendment grounds); Jemsek v. N.C. Medical Board, 2017 U.S. Dist. LEXIS 23570 (E.D.N.C. Feb. 20, 2017) (11th Amendment immunity); Ballinger v. Ohio State Board of Registration, No. 15CV86997 (Ohio Ct. Comm. Pleas, Warren Cty.); Rivera-Nazario v. CFSE, No. 14-1533, 2015 U.S. Dist. LEXIS 173012 (D. P.R. Dec. 29, 2015); Petrie v. Virginia Board of Medicine, No. 15-1007 (4th Cir.); Turner v. Va. Dept. of Med. Assistance Services, 2017 U.S. Dist. LEXIS 20402 (W.D.Va. Feb. 14, 2017).
 Auraria Student Housing v. Campus Village Apts., 843 F.3d 1225 (10th Cir. 2016) (district court denied state action immunity, 10th Cir. affirmed, case voluntarily dismissed with prejudice); Colindres v. Battle, Director, Board of Dentistry, No. 1:15-cv-02843 (N.D. Ga.) (antitrust claims not dismissed, no state action defense, case settled); Strategic Pharmaceutical Solutions, Inc. v. Nevada State Board of Pharmacy, No. 2:16-cv-00171 (D. Nev. May 24, 2016)(dismissed without prejudice as a result of settlement requiring legislative action); LegalZoom.com, Inc. v. North Carolina State Bar, No. 1:15-CV-439 (M.D.N.C.) (voluntary dismissal); Express Lien, Inc. v. Cleveland Metropolitan Bar Association; No. 2:15-cv-02519 (E.D. La.); CoesterVMS v. Virginia Board of Real Estate Appraisers, No. 1:15-CV-980 (E.D.VA.).
 Pharmaceutical Solutions, Inc. v. Nevada State Board of Pharmacy, No. 2:16-cv-00171 (D. Nev. May 24, 2016).
 LegalZoom.com, Inc. v. North Carolina State Bar, 2015 NCBC 96, (N.C. Super. Ct. Div. Oct. 22, 2015). A long-running case against the Texas Medical Board by the telehealth company Teladoc was stayed to allow the Texas legislature to redefine the practitioner/patient relationship to include telemedicine services that comply with the Board’s standard of care regulations. The legislature passed, and the governor signed, SB1107 in May 2017. The case has been stayed until September 2017. Teladoc, Inc. v. Texas Medical Board et al., No. 15-343 (W.D. Tex. Apr. 10.2017).
 SolarCity Corp. v. Salt River Proj. Dist., No. 1:15-cv-00374 (D. Ariz.), appeal pending, No. 15017302 (9th Cir.); Wallen v. St. Louis Metropolitan Taxicab Commission, No. 4:15-cv-01432 (E.D. Mo.)(Motion to dismiss denied); Seaman v. Duke University, No. 1:15-cv-00462 (M.D.N.C.), (motion to dismiss denied, appeal denied, No. 16-181 (4th Cir. June 3, 2016); Beltone Hearing Aid Center v. Tennessee Department of Health, No. 3:15-cv-00840 (M.D. Tenn.) (settlement discussions ongoing); Allibone v. Texas Medical Bd., No. 1:17-cv-00064 (W.D. Tex. Jan. 1, 2017).
 Bauer v. Pennsylvania State Board of Auctioneer Examiners, 154 A.3d 899 (Pa. Comm. Ct. 2017).
 Town of Hallie v. Eau Clair, 471 U.S. 34 (1985).
 Auraria Student Housing v. Campus Village Apartments, 843 F.3d 1225 (10th Cir. 2016). The Third Circuit reached a different conclusion in a similar case in Pennsylvania. In that case, the court applied a similar standard and held that the University was an arm of the state but was entitled to state action immunity because “mandating on-campus residency is a foreseeable consequence of the legislative mandate to provide appropriate student living facilities.” Edinboro College Park Apts. v. Edinboro University Fndn., 850 F.3d 567 (3d Cir. 2016).
 H.B. 49, §107.56.
 In re Louisiana Real Estate Appraisers Board, No. 9374, Docket available at https://www.ftc.gov/enforcement/cases-proceedings/161-0068/louisiana-real-estate-appraisers-board.
 The FTC noted that Nebraska has already adopted federal requirements that school bus drivers obtain a commercial driver’s license with a special designation to carry passengers.
 The FTC’s advocacy on regulatory issues can be found at https://www.ftc.gov/policy/advocacy/economic-liberty. Both the FTC and the U.S. Department of Justice commented favorably on a proposed North Carolina statute that excluded from the definition of “practice of law” the operation of websites that generate legal documents based on customer responses to questions (like the web-based service LegalZoom). The legislation required that the website state clearly that the forms are not a substitute for attorney advice or services and disclose the provider’s legal name and physical location and address. In approving this legislation, the agencies stated, “Overbroad scope-of-practice and unauthorized-practice-of-law policies can increase prices, impede innovation, and otherwise harm competition and consumers.”