STATE LICENSING BOARDS AND THE LIMITS OF STATE ACTION IMMUNITY

This article presents a summary of antitrust analysis with respect to issues that affect state licensing boards. Antitrust concerns create potential problems for state licensing boards under both state and federal law. This article addresses some of those concerns, including the types of activities likely to trigger antitrust scrutiny and whether or not those activities would be immune from liability pursuant to the state action doctrine.

DEFINING THE PROBLEM

Licensing boards are a creation of state law. The statutes governing licensed professions frequently provide for regulation and oversight of the state’s licensees through appointment of members of the profession to licensing boards, often by the governor. The board is charged with ensuring that the licensees maintain high standards of professionalism and quality of care to safeguard public health and safety. Boards draft regulations, discipline licensees and respond to consumer complaints. Typically, a board has statutory authority to sanction licensees for unprofessional and/or unlawful conduct, by way of reprimand, suspension or revocation of a license.

Because the majority of members of any state licensing board are usually competitors of the individuals they regulate, agreements among board members to adopt policies that restrain trade may raise antitrust issues. See American Soc’y of Mechanical Eng’r v. Hydrolevel Corp., 452 U.S. 937 (1982) (activity by professional association, through its members, that barred a competitor’s product from the market violated the antitrust laws). State attorneys general need to be aware of these issues because they may be called upon to act as prosecutors, counselors, or both in responding to perceived abuses of statutory authority by licensing boards. Often, state attorneys general can resolve potential antitrust problems through an advisory opinion, or through the legislative and/or regulatory process, permitting a board to operate in a manner that protects the health or welfare of the public, but without posing the antitrust risk. If a licensing board is alert to possible antitrust problems, it can seek state authorization prior to taking action. For example, the Maryland State Board of Dental Examiners sought state authority to put restrictions on dentists advertising various practice components such as orthodontics, periodontics and prosthodontics where dentists were not certified as specialists by the Board. The Attorney General’s opinion stated that restrictions on truthful advertising were unauthorized but, the Board was permitted to require that dentists place disclaimers in their ads that they were not Board-certified to practice that specialty. See 79 Op. Att’y Gen. __ (Nov. 10, 1994).

Frequently, however, licensing board members are either unaware of the applicability of the antitrust laws to them or inadequately educated to recognize the type of actions that may expose them to antitrust risk. See National Soc’y of Prof’l Eng’r v. United States, 435 U.S. 679 (1978). Even if board members believe that competition-restraining policies are necessary to ensure high professional standards, quality services or quality patient care, a court may find that the circumstances do not justify the restraint of trade. In FTC v. Indiana Fed’n of Dentists, 476 U.S. 447 (1986), the Court found that a group of conspiring dentists were not justified in refusing to release patients' x-rays requested by dental insurers for evaluating benefit claims. The opinion does suggest, however, that the concern for quality of patient care might, under some circumstances, justify a restraint of trade, but only if the defendant can demonstrate that patients have been harmed in fact.

ENFORCEMENT BACKGROUND

In the past two decades, the Federal Trade Commission has been very active in prosecuting antitrust violations by professional boards, particularly those regulating the health professions. In 1988, the FTC sued the Massachusetts Board of Optometry for prohibiting truthful advertising of discounts and affiliation with commercial establishments, as well as truthful advertising that contains testimonials or that is "sensational" or "flamboyant." See Massachusetts Board of Registration in Optometry, 110 F.T.C. 549 (1988). Other FTC consent orders have involved the Wyoming State Board of Registration in Podiatry, 107 F.T.C. 19 (1986) (advertising); the Rhode Island Board of Accountancy, 5 Trade Reg. Rep. (CCH) § 22,308 (1986) (solicitation); and the Louisiana State Board of Dentistry, 106 F.T.C. 65 (1985) (advertising).

In addition, the FTC has conducted investigations, inter alia, of the Mississippi State Board of Dental Examiners, File No. 841-0213 (1984) (advertising); the Connecticut Board of Landscape Architects, File No. 851-0022 (1985) (services without compensation); the Iowa State Board of Dental Examiners, File No. 842-3204 (1984) (advertising); the Wisconsin Medical Examining Board, File No. 841-0211 (1984) (antisolicitation rules); and the Idaho State Board of Optometry, File No. 851-0069 (1985) (regulations). The FTC has also commented on proposed regulations of the Virginia State Board of Dentistry (FTC Staff Letter, April 3, 1986); the Virginia Board of Veterinary Medicine (FTC Staff Letter, April 10, 1986); and the South Carolina Boards of Pharmacy, Medical Examiners, Nursing and Chiropractic Examiners (FTC Staff Letter, February 26, 1992).

The Justice Department has also sued state licensing boards. In United States v. Texas State Board of Pub. Accountancy, 464 F. Supp. 400 (W.D. Tex. 1978), modified, 592 F.d. 919 (5th Cir. 1979), for example, the court held that the state accounting board was subject to the antitrust laws when it promulgated a rule prohibiting accountants from making competitive bids for professional services. The board's enabling statute did not express a policy concerning competition that would permit such a rule. Promulgation of the rule, therefore, constituted an agreement among competitors that unreasonably restrained trade, and thus violated the antitrust laws.

Competitors in the market for health care services have also sued licensing and regulatory boards on antitrust grounds. For example, the Maryland Chapter of American Massage Therapy Association brought suit against the State, the State Board of Physical Therapy Examiners and individual board members alleging, inter alia, that the Board illegally restrained competition in the market for "massage therapy" or "therapeutic massage" by intimidating and obtaining cease and desist concessions from massage practitioners to refrain from using the term "therapy" in advertising their services. See The Maryland Chapter of the American Massage Therapy Association Inc. v. State of Maryland, Case No. 91309083/CE 139731 (filed November 5, 1991 in Circuit Court for Baltimore City) and Civil Action No. B-89-3367 (filed December 8, 1989 in United States District Court for the District of Maryland). See also Parker v. Kentucky Board of Dentistry, 818 F.2d 504 (6th Cir. 1987) (dentist successfully challenged the Kentucky Board of Dentistry's advertising restrictions that prohibited the use of terms such as "orthodontics", "braces" and "brackets" in advertisements by general dentists.).

APPLICABLE LAW - STATE ACTION

Despite the history of government scrutiny and private civil litigation, most licensing boards mistakenly believe that they are entirely exempt from antitrust liability. The Supreme Court has indicated that state regulatory agencies are not, by virtue of their status alone, immune from the antitrust laws. See, e.g., Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975). State regulatory agencies, including licensing boards, may be exempt from antitrust laws, however, by fulfilling the requirements of the "state action immunity doctrine."

State action immunity is a doctrine created by the Supreme Court which exempts from prosecution under the antitrust laws certain activities undertaken in specific areas where the state has decided to regulate, rather than allow the marketplace to discipline itself. Actions of the state itself are not subject to the Sherman Act. Parker v. Brown, 317 U.S. 341 (1943). The state action immunity doctrine further exempts from antitrust scrutiny those activities which are undertaken in the implementation of state policy, provided that the policy is clearly articulated and the actions are adequately supervised by the state. In California Retail Liquor Dealers Ass’n. v. Midcal Aluminum, 445 U.S. 97 (1980), the Supreme Court set out a two-pronged test for determining whether the state action immunity doctrine will protect anticompetitive conduct of private parties, directed by a state regulatory program. Midcal requires that the anticompetitive actions of private parties be taken (1) pursuant to a clearly articulated and affirmatively expressed policy by the state to supplant competition with regulation; and (2) subject to active state supervision.

Even after Midcal, however, questions remained regarding how definitively "the state" had to authorize anticompetitive conduct, the degree of supervision required and the treatment of political subdivisions. Subsequently, Hoover v. Ronwin, 466 U.S. 558 (1984), Town of Hallie v. City of Eau Claire, 471 U.S. 34 (1985), and Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48 (1985), clarified the application of the state action doctrine to sovereign bodies, political subdivisions and private parties. In Hoover v. Ronwin, the Supreme Court made plain that only the activity of the sovereign itself -- the state's legislature or highest court -- is completely immune from federal antitrust laws. The following year, in Town of Hallie v. City of Eau Claire, the Court considered a situation in which a municipality's anticompetitive activities were not expressly mandated by the state. The Court, using the Midcal test, held that when the statute shows that "the legislature contemplated the kind of acts complained of," the first prong of the Midcal test is met. Town of Hallie, 471 U.S. at 44. This has been interpreted as a foreseeability test. See, e.g., Cine 42nd St. Theater v. Nederlander Org., 790 F. 2d 1032 (2d Cir. 1986). Basically, the type of anticompetitive action under consideration must be foreseeable under the state grant of authority governing the particular subdivision, agency or regulatory board.

The Supreme Court, reviewing a collective rate-making system, held in Southern Motor Carriers, that "a state policy that expressly permits, but does not compel, private anticompetitive conduct may be 'clearly articulated' within the meaning of Midcal." Southern Motor Carriers, 471 U.S. at 61. The Court also held that "if the state's intent to establish an anticompetitive regulatory program is clear. . . the state's failure to describe the implementation of its policy in detail will not subject the program to the restraints of the federal antitrust laws." Id. at 65. Despite the broad language of Southern Motor Carriers, however, a general unspecified grant of power by the legislature to a state licensing board alone is insufficient to immunize the board from liability for specific anticompetitive actions. Cf. Community Communications Company v. City of Boulder, 455 U.S. 40 (1982) (state delegation of powers to city through a "home rule" amendment to the state constitution was insufficient to exempt an ordinance enacted by the city from antitrust scrutiny under the state action doctrine). State action immunity requires either an act by the state in its sovereign capacity or municipal action in furtherance or implementation of clearly articulated and affirmatively expressed state policy. Id.

Active supervision by the state has also been discussed by the Supreme Court. The Supreme Court recognized the importance of the active state supervision requirement in the situation where private parties are engaged in anticompetitive activity, because of the danger that the private parties would act to further their own interests rather than the governmental interests of the state. See Patrick v. Burget, 486 U.S. 94 (1988). Burget involved an antitrust claim brought by a physician whose hospital privileges were revoked as a result of a peer review. The Court held that the reviewing physicians were not immune under the state action doctrine because the statutory scheme which established the peer review process did "not establish a state program of active supervision." Id. at 102.

It is generally agreed that, following Parker, Midcal and subsequent state action cases, state agencies, political subdivisions and regulatory boards must meet the first prong of the Midcal test, namely, clear articulation of a state policy to supplant competition with regulation. That test is met to the extent that the board is operating within the parameters of its statutory authority. On the other hand, the second prong, active supervision is probably not necessary to prove with respect to political subdivisions including regulatory boards and commissions. See Four T’s, Inc. v. Little Rock Mun. Airport Comm’n, 1997-1 Trade Cas. (CCH) ¶ 71, 743 (8th Cir. 1997) (municipal airport commission acted as agency of municipality and was therefore immune from antitrust attack without need for active state supervision). There are at least two possible rationales for this. Either active state supervision is achieved by the activities of the board itself in compliance with its enabling statute, or the board, like a political subdivision or municipality, is presumed to act in the public interest absent a showing to the contrary. See Town of Hallie v. City of Eau Claire, 471 U.S. at 45 (1985). But see Washington State Elec. Contractors Ass’n v. Forrest, 930 F. 2d 736, 737 (9th Cir.), cert. denied 502 U.S. 969 (1991) (apprenticeship council that set and enforced minimum wage rates for apprenticeships is not a state agency because "(t)he council has both public and private members and the private members have their own agenda which may or may not be responsive to state labor policy").

RECENT DEVELOPMENTS

The most recent Supreme Court case involving state action immunity, FTC v. Ticor Title Ins. Co., 504 U.S. 621 (1992) is important because it raises questions about the degree of state supervision necessary to confer antitrust immunity over private anticompetitive action which might be related to or relied upon by a licensing board or commission. In Ticor, the Supreme Court clarified that the active supervision requirement of the Midcal test assures that the state has exercised sufficient "independent judgment and control" to make the anticompetitive activity the product of "deliberate state intervention". Ticor, 504 U.S. at 634. In other words, the mere potential for supervision is inadequate; there must be active supervision in fact. Id. at 638. The Court also said that both elements of the Midcal test are closely related. Both ensure that particular restraints exist as a result of "deliberate and intended" state policy. Id. at 636. Both are necessary to ensure that the state has approved particular anticompetitive conduct. Thus, even if active state supervision is not necessary to confer immunity on board members themselves (assuming the board is operating within its statutory authority), to the extent that a board seeks to rely upon anticompetitive behavior by private, non-board member actors, those activities would not only have to be legislatively authorized, they would also have to pass the active supervision prong of Midcal to immunize the private actors from potential antitrust liability. For example, some boards may enlist the assistance of non-board member licensees to conduct inspections and/or investigations of competitors' facilities. These activities must be actively monitored and reviewed, not merely "rubber-stamped" by the board.

There are some surprising post-Ticor developments in the courts. Recently, the Tenth Circuit interpreted Town of Hallie, to confer immunity on private actors without imposing the "active supervision" prong of Midcal, where the private parties are acting without discretion and at the direction of a municipality whose immunity has been established. See Zimomra v. Alamo Rent-A-Car ,1997-1 Trade Cas. (CCH) ¶71,780 (10th Cir. 1997). Tenth Circuit Judge Henry noted in his concurring opinion, the application of the "Town of Hallie test" in this case, led to an anomalous result, suggesting that the state action doctrine needs to be re-examined.

Given the uncertainty surrounding the definition and application of "active state supervision," it is prudent policy to have a licensing board's counsel involved in an advisory role with respect to certain activities undertaken by the board that involve private actors or non-board member licensees. Certain activities, especially competitor complaints and disciplinary proceedings might be deemed anticompetitive and therefore the board needs to understand and comply with the limits of its statutory authority. This added level of state involvement should provide a cushion for the board and any private, non-board member actors against possible allegations of anticompetitive behavior. While supervision of the board is probably not necessary for state action immunity, it is still unclear what degree of supervision of private parties would suffice under Ticor. As a general rule, the degree of supervision required is proportional to the amount of discretion exercised by private parties.

CONCLUSION

In summary, members of a licensing board who are practitioners in the industry they regulate may be considered participants in a conspiracy to restrain trade if they adopt anticompetitive policies that are outside the scope of the board's authority as defined by the statute governing that profession. Under such circumstances, board members may be personally liable under the antitrust laws. Even board members who are not licensed to practice (and therefore not competitors) can be held to the same degree of culpability as the licensee members. This is especially significant in states where no statutory limits have been placed on a government (or quasi-government) employee’s liability for antitrust violations. See, e.g., Local Government Antitrust Exemption Act, 50 I1.C.S. 35-1 (E) (Illinois statute limiting antitrust liability of local government to injunctive relief). See also Local Government Antitrust Act, 15 USC §§ 34-36 (1984) (local governments afforded immunity from damages in antitrust litigation under federal law). Presumably, state licensing boards need not submit to active state supervision to ensure the board’s state action immunity, but the Supreme Court has yet to definitively address this issue. Regardless of whether the board itself requires active state supervision, any private individuals acting at the direction of the board must submit those actions to board review and approval. The current uncertainty surrounding the limits of state action immunity as it applies to board members regulating licensed professions argues in favor of antitrust counseling where the board’s authority is debatable and where a board’s actions are likely to have an adverse impact on competitors, thereby inviting an antitrust challenge.

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