States’ Rights & Immunity vs. Federal Anti-trust Prerogatives

1. www.bocatc.org States’ Rights & Immunityvs. Federal Anti-trust Prerogatives Amy H. Richardson

2. Speaker Amy H. Richardson, J.D. Atkinson & Atkinson, LLC 1466 Techny Northbrook, Illinois 60062 847-714-0070 amy@atkinsonfirm.com • ARBO • AAVSB • ASWB • ACPE • FARB • FCLB • FSMTB • NABP • NMTCB • JRCERT • NBCOT • OTHERS…

3. States’ Rights • 10th Amendment of U.S. Constitution • Sovereign Immunity of states • “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States…” • 1943 Parker v. Brown: U.S. Supreme Court ruled that because the 10th Amendment renders a state’s actions immune from federal anti-trust enforcement, the actions of private parties acting pursuant to such state action also could be immune.

4. States’ Rights • Separation of Powers • U.S. Constitution delegates limited powers to federal government and is designed to control the federal government’s reach.

5. Anti-Trust • FTC created in 1914 with primary purpose of preventing unfair methods of competition and commerce. • Laws enacted over time to expand FTC authority; clarify authority to police anticompetitive practices • Authorized to investigate and prosecute businesses and others alleged to have violated the FTC Act • Enforcement proceedings – administrative process before an administrative law judge (ALJ) in a trial-type setting

6. History • The North Carolina State Board of Dental Examiners sent Cease & Desist notices to non-dentist teeth whitening providers, stating that they were illegally practicing dentistry without a license. • The Board issued letters to property owners stating that teeth whitening services offered at mall kiosks are illegal.

7. History • June, 2010: FTC filed administrative complaint against the Board, alleging the following: • The Board’s actions constitute unreasonable restraint on competition in violation of FTC Act. • Board is acting in collusion with dentists licensed in the state/by the Board. • Actions are to prevent and deter non-dentists from providing services, increase prices and reduce consumer choice without legitimate justification. • The Board’s conduct does not qualify as “state action” for purposes of immunity nor is it reasonably related to benefits sufficient to justify its harmful effects on competition. • Highlights board structure – elected by licenses

8. Board Response • The practice act is silent as to whether a non-dentist may engage in “teeth-whitening”. • Enabling statute specifically makes it illegal for non-dentists to provide the service of “removal of stains from teeth”. • Teeth-whitening must, by its very nature, include the removal of stains from teeth. • Pursuant to its statutory authority, the Board determined that teeth-whitening services by non-dentists constitutes unlicensed practice of dentistry.

9. Board Response • 20+ other states have similar legislation. • The FTC does not have the authority to force the Board to abrogate a state statute. • The Board is acting to protect the public, not to suppress competition. • Distinction between OTC products and provision of professional services • Board has immunity under State Actions doctrine • Activities undertaken in implementing a clear state policy and overseen by the state.

10. ALJ Decision – July 2011 • Board’s actions constituted “a contract, combination or conspiracy, that unreasonably restrained trade in the market for teeth-whitening services in North Carolina, which violates Section 1 of the Sherman Act and constitutes an unfair method of competition in violation of Section 5 of the FTC Act”. • Ordered Board to stop issuing letters, etc. • Commission Ratified the ALJ’s recommendations in December, 2011.

11. Board Complaint – Feb. 2011 • The Board filed a complaint for declaratory judgment and preliminary and permanent injunction with the U.S. District Court for the Eastern District of North Carolina. • Attempt to halt Commission’s administrative proceeding • Motion for temporary restraining order denied • Commission response: District Court cannot hear the case, as federal circuit courts of appeal have exclusive jurisdiction.

12. Outcome • Commission’s Motion to Dismiss was granted in May 2011 • The Board made no showing that constitutional rights had been violated. • The FTC hasn’t yet ordered Board to take any action which would violate its constitutional rights. • Administrative action is ongoing • Even if action were final, the appeal needs to go directly to 4th Circuit Court of Appeals.

13. In the meantime… • Board appealed the ALJ’s findings to the Commission • Commission heard appeal and issued a final decision ratifying the ALJ’s recommendations in December 2011. • Ordered the Board to cease its conduct prohibiting the teeth-whitening services and advertising such services • The Board then applied for a stay of the order pending its appeal of the Commission’s decision in the 4th Circuit. • Commission granted stay

14. Board defenses • Underlying enabling statute is clear: • “A person shall be deemed to be practicing dentistry in this State who does, undertakes or attempts to do, or claims the ability to do any one of the following …: • Removes stains, accretions or deposits from the human teeth; … • Takes or makes an impression of the human teeth, gums or jaws; … • Represents to the public, by any advertisement or announcement, by or through any media, the ability or qualification to do or perform any of the acts set forth [above].”

15. Board defenses • Board acted pursuant to statutory authority • v. pursuant to rule – see Massachusetts Optometry case… • No court has ever held that the FTC can preempt a state statute by way of an anti-trust action. • FTC claimed that the board, a majority of whose members are licensees, constitutes “concerted action” • Only “potential” competitors

16. Fourth Circuit Court of Appeals • Board loses – Why? • State Action Doctrine • Antitrust laws do not apply to anticompetitive restraints imposed by states as acts of government • “Private parties” can claim to be exempt only if: a. Acting pursuant to a clearly articulated state policy AND b. Actions are actively supervised by the state • Board is a private party because “[S]tateagencies ‘in which a decisive coalition (usually a majority) is made up of participants in the regulated market’, who are chosen by and accountable to their fellow market participants, are private actors… .”

17. Fourth Circuit Court of Appeals • Key to the case: Board members elected by their peers, not appointed by Governor. • Concurrence: If Board members were appointed, active supervision requirement would not apply. • Private actor not “actively supervised” by the State, despite statutory interpretation of scope of practice. • Noted that Board was represented by private counsel and that the State never intervened in the proceedings.

18. Fourth Circuit Court of Appeals • Board members are active practitioners and “separate economic actors” with financial interests serving on the Board = conflict of interest. • Engaged in “conspiracy” by meeting, discussing, and sending cease and desist letters. • Actions likely to cause significant anticompetitive harm.

19. Unprecedented? • FTC decisions related to regulatory boards have historically been in regards to actions related to regulation or stated policy. • Advertising: In re Massachusetts Board of Registration in Optometry (1988) • The FTC ordered the Board to repeal its regulation banning advertising of affiliations between optical retailers and optometrists. • There was no mandate from the legislature that the Board “prohibit optometrists from truthfully advertising discounts.” • Board had also been advised by the MA Office of Consumer Affairs to get rid of the regs.

20. Unprecedented? • Form of Practice: In re Oklahoma State Board of Veterinary Medical Examiners • Following a complaint filed by the FTC, the Board entered into a consent order barring it from limiting the ability of licensees to be partnered with, employed by, or otherwise associated with non-veterinarians. • Board also prohibited from restricting a licensee from endorsing veterinary products or services. • Complaint: such attempts to restrain conduct constitutes a restraint on competition.

21. St. Joseph Abbey v. Castille • U.S. District Court for the E. District of Louisiana held as unconstitutional in violation of due processand equal protection principles those portions of the Louisiana law which require manufacturers and sellers of caskets to be licensed funeral directorsand licensed funeral establishments. • The laws are merely economic protections for the funeral industry and no rational basis exists to limit the manufacture and sales of caskets to licensed persons or entities.

22. Implications • Separation of Powers in jeopardy when statutory mandate is preempted. • Tenth Amendment/State Action defense becomes obsolete? • Slippery slope • If a statute is preempted, what else could be? • Vulnerable regulations and policies related to scope of practice across jurisdictions and professions.

23. Implications • Board structure • Makeup predominately licensees • Expertise • Appointed • Necessarily anti-competitive? • Oversight by judicial, legislative, and executive branches • Bound by ethical obligations – conflicts of interest • $$$

24. Implications • Statutory language: • Include state oversight in Statement of Purpose • Autonomous v. Independent • Election v. Appointment

25. www.bocatc.org Thank You Amy H. Richardson, J.D. Atkinson & Atkinson, LLC 1466 Techny Northbrook, Illinois 60062 847-714-0070 amy@atkinsonfirm.com