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Regulating Regulators: Active Supervision of State Regulatory Boards in the Wake of North Carolina State Board of Dental Examiners v. FTC

Administrative Law

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. 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 “the anticompetitive effect [must be] the ‘foreseeable result’ of what the [s]tate authorized.”16 As stated in NC Dental, “Midcal’s clear articulation requirement is satisfied where the displacement of competition is the inherent, logical, or ordinary result of the exercise of authority delegated by the state legislature. In that scenario, the [s]tate must have foreseen and implicitly endorsed the anticompetitive effects as consistent with its policy goals.”17 Notably, the parties in NC Dental assumed that the clear articulation requirement had been met, so it was not in dispute.18

For the second prong of the Midcal test, the Court has explained that “the active supervision requirement mandates that the [s]tate exercise ultimate control over the challenged anticompetitive conduct. The mere presence of some state involvement or monitoring does not suffice. The active supervision prong of the Midcal test requires that state officials have and exercise power to review particular anticompetitive acts of private parties and disapprove those that fail to accord with state policy. Absent such a program of supervision, there is no realistic assurance that a private party’s anticompetitive conduct promotes state policy, rather than merely the party’s individual interests.”19 In NC Dental, the board did not claim that its actions were actively supervised by the state.

In deciding NC Dental, the Court was not called upon to apply either prong of the Midcal test, but some important aspects of the active supervision requirement are discussed in dicta. The Court noted that “the inquiry regarding active supervision is flexible and context-dependent,”20 and then explained that “[a]ctive supervision need not entail day-to-day involvement in an agency’s operations or micromanagement of its every decision. Rather, the question is whether the [s]tate’s review mechanisms provide ‘realistic assurance’ that a nonsovereign actor’s anticompetitive conduct ‘promotes state policy, rather than merely the party’s individual interests.’”21 Further, the Court listed certain “constant requirements” for active supervision to be satisfied. “The supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it; the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy; and the mere potential for state supervision is not an adequate substitute for a decision by the [s]tate.”22 Finally, “the state supervisor may not itself be an active participant.”23

The dissent in ND Dental points out that the majority opinion leaves many unanswered questions, not only as to how the active supervision requirement is satisfied, but also the preliminary issues of how to define “market participants” and what constitutes a “controlling number” of them.24 The dissent was prescient in stating that the decision “will create practical problems and is likely to have far-reaching effects on the [s]tates’ regulation of professions.”25 Indeed, reactions to NC Dental have included legislation amending administrative procedures (Connecticut), executive orders imposing additional review requirements for regulatory decisions (Oklahoma), and attorney general opinions interpreting “active state supervision” (California).

FTC Staff Guidance
Not surprisingly, state officials reached out to the FTC seeking guidance on how to avoid antitrust issues after NC Dental, and in October 2015, the FTC issued “FTC Staff Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants” (hereinafter “staff guidance”).26 The staff guidance begins by offering two obvious but undesirable solutions: “In general, a state may avoid all conflict with the federal antitrust laws by creating regulatory boards that serve only in an advisory capacity, or by staffing a regulatory board exclusively with persons who have no financial interest in the occupation that is being regulated.”27 It then proceeds to address two questions: “When does a state regulatory board require active supervision in order to invoke the state action defense?” and “What factors are relevant to determining whether the active supervision requirement is satisfied?”28

As to the first question, NC Dental tells us that a state regulatory board controlled by active market participants must satisfy Midcal’s active supervision requirement, but the Court did not define “active market participants” or expound upon how a board is “controlled” by them. The staff guidance states that anyone who is licensed by the board or provides a service subject to the regulatory authority of the board is an active market participant.29 It further states that it is not a defense that board members themselves “are not directly or personally affected by the challenged restraint.”30 Finally, the staff guidance says that a board member who temporarily suspends active participation in the regulated occupation for purposes of serving on the regulatory board will nonetheless be considered an active market participant.31

With regard to the issue of “control,” the staff guidance states that active market participants “need not constitute a numerical majority” of the board. Rather, “[a] decision that is controlled, either as a matter of law, procedure, or fact, by active market participants in the regulated market (e.g., through veto power, tradition, or practice) must be actively supervised to be eligible for the state action defense.”32 Whether a decision is controlled by active market participants is clearly a fact-specific inquiry, but if it is, active supervision is required.

What constitutes “active supervision” is also a fact-specific inquiry. The staff guidance states that the FTC will be guided by the “few constant requirements of active supervision” noted in NC Dental, and other principles articulated in Supreme Court precedent.33 Factors relevant to a determination of whether the active supervision requirement has been satisfied include whether the supervisor has obtained the information necessary for a proper evaluation of the recommended action; whether the supervisor has evaluated the substantive merits of the recommended action and assessed whether it comports with standards established by the state legislature; and whether the supervisor issued a written decision approving, modifying, or disapproving the recommended action and explaining the reasons for such decision.34

Finally, the staff guidance provides a list of things that do not constitute active supervision of a state regulatory board. Among them are a state official monitors the actions of the board, but lacks the authority to disapprove of its actions; the state attorney general or other state official advises the board on an ongoing basis; an independent state agency is empowered to review and approve, modify, or disapprove of actions by the board, but in practice only engages in a cursory or procedural (not substantive) review of board actions.35

Cases Subsequent to NC Dental
Thus far, there have not been many cases interpreting or applying NC Dental. Lawsuits have been filed involving claims and defenses based upon NC Dental, but only a few have resulted in decisions of significant precedential value.

In early 2016, the Fourth Circuit was again faced with a case involving antitrust claims against a state regulatory board. The claims were brought by a chiropractor who had been sanctioned by the Virginia Board of Medicine for misleading patients and practicing beyond the scope of her license.36 The chiropractor appealed, and while the appeal was pending, filed a separate action against the board of medicine, its executive director, and five of its members for violating the Sherman Act by conspiring to exclude chiropractors from the market for certain services.37 Unlike in NC Dental, immunity was not at issue, as the case was decided on the more fundamental basis that “antitrust laws were designed to protect competition, not competitors” and excluding or injuring one competitor does not, by itself, have the anticompetitive effect required for a Sherman Act violation.38

A case in which NC Dental was squarely addressed is Teladoc, Inc. v. Texas Medical Board from the Western District of Texas. It involved antitrust claims brought against the Texas Medical Board and its members by physicians who provided healthcare services via telephone, or “telemedicine.”39 The medical board adopted rules governing telemedicine, including a provision requiring face-to-face physical examination of a patient prior to prescribing certain drugs.40 The plaintiffs sued the board and its members (in both their official and individual capacities), challenging the rules adopted by the board and seeking damages.

The district court first entered an order granting preliminary injunctive relief to the plaintiffs halting enforcement of the rules.41 The preliminary injunction order did not address state action immunity, but the district court later dealt with the issue on a motion to dismiss. Based upon the holding in NC Dental, the court applied the Midcal test, beginning with the active supervision prong first. The defendants argued that although the medical board was controlled by market participants, it had active supervision because its decisions are subject to review by Texas courts and the state office of administrative hearings, as well as the state legislature.42 The court rejected these arguments because judicial review was limited to a determination of whether the decision exceeded statutory authority and not whether it was consistent with state policy; administrative review was limited to a determination of whether the decision was permissible under the Texas administrative procedures act and was more procedural than substantive; and the legislative review did not include the authority to veto or modify a decision.43 The motion to dismiss was denied.

The defendants filed an appeal with the Fifth Circuit limited to the issue of whether they are entitled to dismissal of the plaintiffs’ antitrust claims on the basis of state action immunity. This appeal remains pending,44 and obviously has the potential to steer the course of future applications of NC Dental.

Cause for Concern in Florida?
Florida, like many states, has numerous licensing boards that regulate a wide variety of professions.45 Most (if not all) of them have a numerical majority of active market participants as board members, many with only two “consumer members” who are not in the regulated profession.46 Thus, while the issue of “control” is a fact-specific inquiry, it seems likely that active supervision will be required for state action immunity.

The vast majority of Florida’s professional licensing and regulatory boards come under the Department of Business and Professional Regulation (DBPR) and the Department of Health (DOH), and are governed by F.S. Chs. 455 and 456, respectively. Both chapters of the Florida Statutes include an identical expression of legislative intent that “professions shall be regulated only for the preservation of the health, safety, and welfare of the public under the police powers of the state” and the practice of professions should be regulated when “their unregulated practice can harm or endanger the health, safety, and welfare of the public, and when the potential for such harm is recognizable and clearly outweighs any anticompetitive impact which may result from regulation.”47 Further, both provide that “[n]either the department nor any board may take any action that tends to create or maintain an economic condition that unreasonably restricts competition, except as specifically provided by law.”48 This last sentence essentially states the clear articulation requirement of the Midcal test.

The legislature authorizes regulatory boards to adopt administrative rules to implement the professional licensing and regulatory statutes they administer. F.S. Chs. 455 and 456 provide that the secretary of DBPR and the state surgeon general, respectively, may challenge all or part of a rule as invalid if it “(a) does not protect the public from any significant and discernible harm or damages; (b) unreasonably restricts competition or the availability of professional services in the state or in a significant part of the state; or (c) unnecessarily increases the cost of professional services without a corresponding or equivalent public benefit.”49 In addition, F.S. §120.545 states that the Joint Administrative Procedures Committee “shall examine each proposed rule” and “may examine any existing rule” against a number of specified criteria. The Administrative Procedure Act, F.S. Ch. 120, also provides for rules to be challenged as “invalid exercises of delegated legislative authority.”50

All of this constitutes supervision, but it is unclear whether it would be considered “active supervision” under the Midcal test as required by NC Dental. Further, it is limited to rules, and regulatory boards in Florida do much more than make rules. In fact, rulemaking may be the most supervised activity of regulatory boards.

As previously noted, one of the most significant functions of professional licensing and regulatory boards is that they are the gatekeepers to their professions. Decisions as to what constitutes the practice of a profession and the scope of permissible practice, by their very nature, limit competition. Moreover, the impacts of such decisions may go well beyond an individual licensee (or unlicensed person) in a particular case. Thus, these kinds of decisions, and actions taken based upon them, should be given careful consideration after NC Dental.

In this regard, most Florida regulatory boards do not have authority over unlicensed activity, but there are exceptions.51 The board in NC Dental sent cease-and-desist letters to nondentists providing teeth whitening services, in effect deciding their provision of such services constituted the unlicensed practice of dentistry, and undertaking to regulate their provision of those services, all without authority or supervision. Thus, there were questions about the board’s scope of practice determination with regard to teeth whitening and the decision to police this alleged unlicensed practice.

F.S. Ch. 455 has more extensive provisions than Ch. 456 relating to unlicensed activities.52 In addition, Ch. 455 states that “it is the intent of the [l]egislature that vigorous enforcement of regulation for all professional activities is a state priority.”53 Thus, it could be said that the [l]egislature has given a directive to DBPR, and the tools to carry it out, which, depending upon the specific action or decision, may be enough to satisfy the clear articulation requirement. The issue of active supervision is less certain, however, and would be a fact-specific inquiry dependent upon the particulars of a given situation. In any event, it is clear that NC Dental has very real implications in Florida that should not be ignored.

The downstream effects of NC Dental are still playing out, both in Florida and elsewhere, and while the decision did not go unnoticed in Florida, little action has been taken in response to it. Given the wide variety of boards and professions regulated, the large number of licensees (and unlicensed individuals) both inside and out of Florida, and the regulatory framework within which all of them exist, is it only a matter of time before the actions of a Florida regulatory board become the subject of an antitrust lawsuit? Will the threat of such a lawsuit impact regulatory decisions? Board members acting in their own self-interest was a primary concern in NC Dental, but ironically, is it now possible that board members will act in their own self-interest (or self-preservation) by declining to take up difficult issues that involve anticompetitive concerns for fear of being sued? Or, if such issues are taken up, will board members make decisions driven by a desire to avoid antitrust scrutiny as opposed to following the law? Or will professionals simply be unwilling to serve on regulatory boards for fear they will not be immune from antitrust liability?54 While none of these are sure to happen, none of them are desirable alternatives.

It also seems undesirable to make regulatory boards merely advisory in nature, or to change their composition to exclude active market participants, though this would likely eliminate any antitrust concerns under NC Dental. Changing the composition of regulatory boards to provide more balance between market participants and “consumer members” might lessen, but would not eliminate such concerns. Indemnification or insurance for board members is certainly a desirable option for board members, but it may do little, if anything, to prevent antitrust claims from being brought. Indeed, it is possible that indemnity or insurance could embolden a board with anticompetitive motives and allow decisions to be made with impunity.

In light of all of this, efforts might best be focused on how to ensure that regulatory boards in Florida are subject to active supervision. This may entail creating new positions with supervisory functions or implementing new regulatory processes and procedures, or simply changing the existing regulatory framework and amending the relevant statutes for such purpose. Given the fact-specific nature of the inquiry mandated by NC Dental, a perfect solution for all situations may not exist, but doing nothing is no solution at all. Something should be done to ensure that to the extent possible, the actions of regulatory boards of the state of Florida are actions of the state itself and covered by “state action” immunity.

1 Jeffrey Zients & Betsey Stevenson, Trends in Occupational Licensing and Best Practices for Smart Labor Market Regulation,

2 NC Dental, 135 S. Ct. at 1110 (internal quotations omitted).

3 Id. at 1107-08.

4 Id. at 1108.

5 Id.

6 Id. at 1109.

7 North Carolina State Board of Dental Examiners v. Fed. Trade Comm’n, 717 F.3d 359 (4th Cir. 2013).

8 N.C. Bd. of Dental Examiners v. Fed. Trade Comm’n, 134 S. Ct. 1491 (2014).

9 NC Dental, 135 S. Ct. at 1109.

10 Id. at 1110.

11 The dissent disagreed and stated that “the only question in this case is whether the North Carolina Board of Dental Examiners is really a state agency and the answer to that question is clearly yes.” Id. at 1119-20.

12 See id. at 1111.

13 Id.

14 NC Dental, 135 S. Ct. at 1112 (citing cases).

15 Phoebe Putney, 133 S. Ct. at 1012.

16 Id. at 1011 (quoting Town of Hallie v. City of Eau Claire, 471 U.S. 34, 42 (1985)).

17 NC Dental, 135 S. Ct. at 1112 (quoting Phoebe Putney, 133 S. Ct. at 1013).

18 The Court seemed to question this assumption in noting that “[w]hile North Carolina prohibits the unauthorized practice of dentistry, however, its Act is silent on whether that broad prohibition covers teeth whitening.” NC Dental, 135 S. Ct. at 1110.

19 Patrick v. Burget, 486 U.S. 94, 101 (1988) (internal citations omitted).

20 NC Dental, 135 S. Ct. at 1116.

21 Id. (quoting Patrick, 486 U.S. at 100-101).

22 Id. (internal citations and quotations omitted).

23 Id. at 1117.

24 Id. at 1123.

25 Id. at 1122.

26 FTC, FTC Staff Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants (Oct. 2015) (hereinafter staff guidance), available at

27 Id. at 1.

28 Id. at 2.

29 Id. at 7.

30 Id.

31 Id.

32 Id. at 8.

33 Id. at 9-10.

34 Id. at 10.

35 Id. at 13.

36 Petrie v. Virginia Bd. of Medicine, et al., 648 Fed. Appx. 352 (4th Cir. 2016).

37 Id.

38 Id. at 356 (quotations omitted).

39 Teladoc, Inc. v. Texas Medical Bd., 112 F. Supp. 3d 529 (W.D. Tex. 2015).

40 Id.

41 In granting the injunction, the court found (among other things) that the plaintiffs were substantially likely to succeed on the merits of their claims, and that irreparable harm would result if the plaintiffs were required to comply with the new rules. In discussing irreparable harm, the court stated that “[p]laintiffs argue they face irreparable injury because, even if monetary compensation was sufficient, it is unlikely they will be able to recover monetary damages from the defendants. According to Teladoc, [p]laintiffs’ trebled antitrust damages would run into at least the tens of millions of dollars and likely outstrip the individual defendants’ ability to pay.” Id. at 543. Thus, unlike NC Dental, the case involved claims for damages, and those claims (for many millions of dollars) were brought against members of the board individually. In NC Dental, the Supreme Court noted that “this case, which does not present a claim for money damages, does not offer occasion to address the question whether agency officials, including board members, may, under some circumstances, enjoy immunity from damages liability.” NC Dental, 135 S. Ct. at 1115.

42 Teladoc, Inc. v. Texas Medical Bd., 2015 WL 8773509 at *7 (W.D. Tex. 2015).

43 Id. at *8-9.

44 The Fifth Circuit case number is 16-50017.

45 There are over 50 professional licensing and regulatory boards or other organizations, such as The Florida Bar.

46 See, e.g., Fla. Stat. §§465.004 (Board of Pharmacy); 466.004 (Board of Dentistry); 471.007 (Board of Professional Engineers); and 473.303 (Board of Accountancy).

47 Fla. Stat. §§455.201(2)(a) and 456.003(2)(a).

48 Fla. Stat. §§455.201(4)(a) and 456.003(4)(a).

49 Fla. Stat. §§455.211(1) and 456.012(1).

50 See Fla. Stat. §120.56.

51 See Fla. Stat. §481.205 delegating such authority to the Board of Architecture and Interior Design.

52 See Fla. Stat. §445.228.

53 Fla. Stat. §455.2281.

54 In this regard, both Fla. Stat. Ch. 455 and 456 include limitations on liability and indemnification for board members. See Fla. Stat. §§455.209 and 456.008. It is unclear whether this would be enforceable against federal antitrust claims, especially if brought against board members in their individual capacity.

E. Dylan Rivers is a shareholder with Ausley McMullen in Tallahassee. He practices primarily in the areas of commercial and administrative litigation, including professional licensure and regulation. He is a consumer member of the Florida Board of Architecture and Interior Design.

This column is submitted on behalf of the Administrative Law Section, Jowanna Nicole Oates, chair, and Stephen Emmanuel, editor.

Administrative Law