[135 S.Ct. 1103] Argued October 14, 2014.
This preliminary Lexis version is unedited and subject to revision.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
717 F.3d 359, affirmed.
[135 S.Ct. 1104] [191 L.Ed.2d 41] North Carolina's Dental Practice Act (Act) provides that the North Carolina State Board of Dental Examiners (Board) is " the agency of the State for the regulation of the practice of dentistry." The Board's principal duty is to create, administer, and enforce a licensing system for dentists; and six of its eight members must be licensed, practicing dentists.
The Act does not specify that teeth whitening is " the practice of dentistry." Nonetheless, after dentists complained to the Board that nondentists were charging lower prices for such services than dentists did, the Board issued at least 47 official cease-and-desist letters to nondentist teeth whitening service providers and product manufacturers, often warning that the unlicensed practice of dentistry is a crime. This and other related Board actions led nondentists to cease offering teeth whitening services in North Carolina.
The Federal Trade Commission (FTC) filed an administrative complaint, alleging that the Board's concerted action to exclude nondentists from the market for teeth whitening services in North Carolina constituted an anticompetitive and unfair method of competition under the Federal Trade Commission Act. An Administrative Law Judge (ALJ) denied the Board's motion to dismiss on the ground of state-action immunity. The FTC sustained that ruling, reasoning that even if the Board had acted pursuant to a clearly articulated state policy to displace competition, the Board must be actively supervised by the State to claim immunity, which it was not. After a hearing on the merits, [191 L.Ed.2d 42] the ALJ determined that the Board had unreasonably restrained trade in violation of antitrust law. The FTC again sustained the ALJ, and the Fourth Circuit affirmed the FTC in all respects.
Held : Because a controlling number of the Board's decisionmakers are active market participants in the occupation the Board regulates, the Board can invoke state-action antitrust immunity only if it was subject to active supervision by the State, and here that requirement is not met. Pp. 5-18.
(a) Federal antitrust law is a central safeguard for the Nation's free market structures. However, requiring States to conform to the mandates of the Sherman Act at the expense of other values a State may deem fundamental would impose an impermissible burden on the States' power to regulate. Therefore, beginning with Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315, this Court interpreted the antitrust laws to confer immunity on the anticompetitive conduct of States acting in their sovereign capacity. Pp. 5-6.
(b) The Board's actions are not cloaked with Parker immunity. A nonsovereign actor controlled by active market participants -- such as the Board -- enjoys Parker immunity only if " 'the challenged restraint . . . [is] clearly articulated and [135 S.Ct. 1105] affirmatively expressed as state policy,' and . . . 'the policy . . . [is] actively supervised by the State.'" FTC v. Phoebe Putney Health System, Inc., 568 U.S. ___, ___, 133 S.Ct. 1003, 1010, 185 L.Ed.2d 43, 53 (quoting California Retail Liquor Dealers Assn. v . Midcal Aluminum, Inc., 445 U.S. 97, 105, 100 S.Ct. 937, 63 L.Ed.2d 233). Here, the Board did not receive active supervision of its anticompetitive conduct. Pp. 6-17.
(1) An entity may not invoke Parker immunity unless its actions are an exercise of the State's sovereign power. See Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 374, 111 S.Ct. 1344, 113 L.Ed.2d 382. Thus, where a State delegates control over a market to a nonsovereign actor the Sherman Act confers immunity only if the State accepts political accountability for the anticompetitive conduct it permits and controls. Limits on state-action immunity are most essential when a State seeks to delegate its regulatory power to active market participants, for dual allegiances are not always apparent to an actor and prohibitions against anticompetitive self-regulation by active market participants are an axiom of federal antitrust policy. Accordingly, Parker immunity requires that the anticompetitive conduct of nonsovereign actors, especially those authorized by the State to regulate their own profession, result from procedures that suffice to make it the State's own. Midcal 's two-part test provides a proper analytical framework to resolve the ultimate question whether an anticompetitive policy is indeed the policy of a State. The first requirement -- clear articulation -- rarely will achieve that goal by itself, for entities purporting to act under state authority might diverge from the State's considered definition of the public good and engage in private self-dealing. The second Midcal requirement -- active supervision -- seeks to avoid this harm by requiring the State to review and approve interstitial policies made [191 L.Ed.2d 43] by the entity claiming immunity. Pp. 6-10.
(2) There are instances in which an actor can be excused from Midcal 's active supervision requirement. Municipalities, which are electorally accountable, have general regulatory powers, and have no private price-fixing agenda, are subject exclusively to the clear articulation requirement. See Hallie v. Eau Claire, 471 U.S. 34, 35, 105 S.Ct. 1713, 85 L.Ed.2d 24. That Hallie excused municipalities from Midcal 's supervision rule for these reasons, however, all but confirms the rule's applicability to actors controlled by active market participants. Further, in light of Omni 's holding that an otherwise immune entity will not lose immunity based on ad hoc and ex post questioning of its motives for making particular decisions, 499 U.S. at 374, 111 S.Ct. 1344, 113 L.Ed.2d 382, it is all the more necessary to ensure the conditions for granting immunity are met in the first place, see FTC v. Ticor Title Ins. Co., 504 U.S. 621, 633, 112 S.Ct. 2169, 119 L.Ed.2d 410, and Phoebe Putney, supra, at ___, 133 S.Ct. 1003, 185 L.Ed.2d 43. The clear lesson of precedent is that Midcal 's active supervision test is an essential prerequisite of Parker immunity for any nonsovereign entity--public or private -- controlled by active market participants. Pp. 10-12.
(3) The Board's argument that entities designated by the States as agencies are exempt from Midcal 's second requirement cannot be reconciled with the Court's repeated conclusion that the need for supervision turns not on the formal designation given by States to regulators but on the risk that active market participants will pursue private interests in restraining trade. State agencies controlled by active market participants pose the very risk of self-dealing Midcal 's supervision [135 S.Ct. 1106] requirement was created to address. See Goldfarb v. Virginia State Bar, 421 U.S. 773, 791, 95 S.Ct. 2004, 44 L.Ed.2d 572. This conclusion does not question the good faith of state officers but rather is an assessment of the structural risk of market participants' confusing their own interests with the State's policy goals. While Hallie stated " it is likely that active state supervision would also not be required" for agencies, 471 U.S. at 46, n. 10, 105 S.Ct. 1713, 85 L.Ed.2d 24, the entity there was more like prototypical state agencies, not specialized boards dominated by active market participants. The latter are similar to private trade associations vested by States with regulatory authority, which must satisfy Midcal 's active supervision standard. 445 U.S. at 105-106, 100 S.Ct. 937, 63 L.Ed.2d 233. The similarities between agencies controlled by active market participants and such associations are not eliminated simply because the former are given a formal designation by the State, vested with a measure of government power, and required to follow some procedural rules. See Hallie, supra, at 39, 105 S.Ct. 1713, 85 L.Ed.2d 24. When a State empowers a group of active market participants to decide who can participate in its market, and on what terms, the need for supervision is manifest. Thus, the Court holds today that a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates must satisfy Midcal 's active supervision requirement in order to invoke state-action antitrust [191 L.Ed.2d 44] immunity. Pp. 12-14.
(4) The State argues that allowing this FTC order to stand will discourage dedicated citizens from serving on state agencies that regulate their own occupation. But this holding is not inconsistent with the idea that those who pursue a calling must embrace ethical standards that derive from a duty separate from the dictates of the State. Further, this case does not offer occasion to address the question whether agency officials, including board members, may, under some circumstances, enjoy immunity from damages liability. Of course, States may provide for the defense and indemnification of agency members in the event of litigation, and they can also ensure Parker immunity is available by adopting clear policies to displace competition and providing active supervision. Arguments against the wisdom of applying the antitrust laws to professional regulation absent compliance with the prerequisites for invoking Parker immunity must be rejected, see Patrick v. Burget, 486 U.S. 94, 105-106, 108 S.Ct. 1658, 100 L.Ed.2d 83, particularly in light of the risks licensing boards dominated by market participants may pose to the free market. Pp. 14-16.
(5) The Board does not contend in this Court that its anticompetitive conduct was actively supervised by the State or that it should receive Parker immunity on that basis. The Act delegates control over the practice of dentistry to the Board, but says nothing about teeth whitening. In acting to expel the dentists' competitors from the market, the Board relied on cease-and-desist letters threatening criminal liability, instead of other powers at its disposal that would have invoked oversight by a politically accountable official. Whether or not the Board exceeded its powers under North Carolina law, there is no evidence of any decision by the State to initiate or concur with the Board's actions against the nondentists. P. 17.
(c) Here, where there are no specific supervisory systems to be reviewed, it suffices to note that the inquiry regarding active supervision is flexible and context-dependent. The question is whether the State's review mechanisms provide " realistic assurance" that a nonsovereign actor's [135 S.Ct. 1107] anticompetitive conduct " promotes state policy, rather than merely the party's individual interests." Patrick, 486 U.S. 100-101, 108 S.Ct. 1658, 100 L.Ed.2d 83. The Court has identified only a few constant requirements of active supervision: The supervisor must review the substance of the anticompetitive decision, see id., at 102-103, 108 S.Ct. 1658, 100 L.Ed.2d 83; the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy, see ibid. ; and the " mere potential for state supervision is not an adequate substitute for a decision by the State," Ticor, supra, at 638, 112 S.Ct. 2169, 119 L.Ed.2d 410. Further, the state supervisor may not itself be an active market participant. In general, however, the adequacy of supervision otherwise will depend on all the circumstances of a case. Pp. 17-18.
717 F.3d 359, affirmed.
Hashim M. Mooppan argued the cause for petitioner.
Malcolm L. Stewart argued the cause for respondent.
KENNEDY, J., delivered the opinion of the Court, in which ROBERTS, C. J., and GINSBURG, BREYER, SOTOMAYOR, and KAGAN, JJ., joined. ALITO, J., filed a dissenting opinion, in which SCALIA and THOMAS, JJ., joined.
[191 L.Ed.2d 45]
This case arises from an antitrust challenge to the actions of a state regulatory board. A majority of the board's members are engaged in the active practice of the profession it regulates. The question is whether the board's actions are protected from Sherman Act regulation under the doctrine of state-action antitrust immunity, as defined and applied in this Court's decisions beginning with Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943).
In its Dental Practice Act (Act), North Carolina has declared the practice of dentistry to be a matter of public concern requiring regulation. N. C. Gen. Stat. Ann. § 90-22(a) (2013). Under the Act, the North Carolina State Board of Dental Examiners (Board) is " the agency of the State for the regulation of the practice of dentistry." § 90-22(b).
The Board's principal duty is to create, administer, and enforce a licensing system for dentists. See § § 90-29 to 90-41. To perform that function it has broad authority over licensees. See § 90-41. The Board's authority with respect to unlicensed persons, however, is more restricted: like " any resident citizen," the Board may file suit to " perpetually enjoin any person from . . . unlawfully practicing dentistry." § 90-40.1.
[135 S.Ct. 1108] The Act provides that six of the Board's eight members must be licensed dentists engaged in the active practice of dentistry. § 90-22. They are elected by other licensed dentists in North Carolina, who cast their ballots in elections conducted by the Board. Ibid. The seventh member must be a licensed and practicing dental hygienist, and he or she is elected by other licensed hygienists. Ibid. The final member is referred to by the Act as a " consumer" and is appointed by the Governor. Ibid. All members serve 3-year terms, and no person may serve more than two consecutive terms. Ibid. The Act does not create any mechanism for the removal of an elected member of the Board by a public official. See ibid.
Board members swear an oath of office, § 138A-22(a), and the Board must comply with the State's Administrative Procedure Act, § 150B-1 et seq., Public Records Act, § 132-1 et seq., and open-meetings law, § 143-318.9 et seq. The Board may promulgate rules and regulations governing the practice of dentistry within the State, provided those mandates are not inconsistent with the Act and are approved by the North Carolina Rules Review Commission, whose members are appointed by the state legislature. See § § 90-48, 143B-30.1, 150B-21.9(a).
In the 1990's, dentists in North Carolina started whitening teeth. Many of those who did so, including 8 of the Board's 10 members during the period at issue in this case, earned substantial fees for that service. By 2003, nondentists arrived on the scene. They charged lower prices for their services than the dentists did. Dentists soon began to complain to the Board about their new competitors. Few complaints warned of possible harm to consumers. Most expressed [191 L.Ed.2d 46] a principal concern with the low prices charged by nondentists.
Responding to these filings, the Board opened an investigation into nondentist teeth whitening. A dentist member was placed in charge of the inquiry. Neither the Board's hygienist member nor its consumer member participated in this undertaking. The Board's chief operations officer remarked that the Board was " going forth to do battle" with nondentists. App. to Pet. for Cert. 103a. The Board's concern did not result in a formal rule or regulation reviewable by the independent Rules Review Commission, even though the Act does not, by its terms, specify that teeth whitening is " the practice of dentistry."
Starting in 2006, the Board issued at least 47 cease-and-desist letters on its official letterhead to nondentist teeth whitening service providers and product manufacturers. Many of those letters directed the recipient to cease " all activity constituting the practice of dentistry" ; warned that the unlicensed practice of dentistry is a crime; and strongly implied (or expressly stated) that teeth whitening constitutes " the practice of dentistry." App. 13, 15. In early 2007, the Board persuaded the North Carolina Board of Cosmetic Art Examiners to warn cosmetologists against providing teeth whitening services. Later that year, the Board sent letters to mall operators, stating that kiosk teeth whiteners were violating the Dental Practice Act and advising that the malls consider expelling violators from their premises.
These actions had the intended result. Nondentists ceased offering teeth whitening services in North Carolina.
In 2010, the Federal Trade Commission (FTC) filed an administrative complaint charging the Board with violating § 5 of [135 S.Ct. 1109] the Federal Trade Commission Act, 38 Stat. 719, as amended, 15 U.S.C. § 45. The FTC alleged that the Board's concerted action to exclude nondentists from the market for teeth whitening services in North Carolina constituted an anticompetitive and unfair method of competition. The Board moved to dismiss, alleging state-action immunity. An Administrative Law Judge (ALJ) denied the motion. On appeal, the FTC sustained the ALJ's ruling. It reasoned that, even assuming the Board had acted pursuant to a clearly articulated state policy to displace competition, the Board is a " public/private hybrid" that must be actively supervised by the State to claim immunity. App. to Pet. for Cert. 49a. The FTC further concluded the Board could not make that showing.
Following other proceedings not relevant here, the ALJ conducted a hearing on the merits and determined the Board had unreasonably restrained trade in violation of antitrust law. On appeal, the FTC again sustained the ALJ. The FTC rejected the Board's public safety justification, noting, inter alia, " a wealth of evidence . . . suggesting that ...