By Frank Trainor

Ever since the United States Supreme Court handed down its decision in North Carolina State Board of Dental Examiners v. FTC, 1235 S. Ct. 1101 (2015), occupational licensing boards have struggled to discern what constitutes adequate “state supervision” over their activities in order to retain state action immunity.  The Supreme Court did not provide much guidance on what is expected of that supervisor or what that supervisor should look like.  However, it did state that “the supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it [and] the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy … however, the adequacy of supervision otherwise will depend on all the circumstances of a case.”

North Carolina boards have enjoyed a relative amount of confidence that their adjudicatory and rulemaking functions are adequately supervised by the court system and the Rules Review Commission, respectively.  Some recent decisions have shed a little light on whether that confidence is warranted.

Regarding the courts’ supervision of board adjudicatory functions, the North Carolina Business Court has ruled that, “…the Board’s disciplinary action against Petitioners is subject to active supervision by the State through the very judicial review process invoked by Petitioners in this case. The North Carolina Administrative Procedure Act’s judicial review process constitutes active state supervision by requiring this Court to substantively review the Board’s order and by empowering it to “reverse or modify the decision.” G.S. § 150B-51(b), (c).”  That case was appealed on other grounds and affirmed by the North Carolina Supreme Court.  In re Johnson, 812 S.E.2d 821 (N.C. 2018)

In the rulemaking context, the Rules Review Commission … must determine whether a rule meets the following criteria:

(1) It is within the authority delegated to the agency by the General Assembly.

(2) It is clear and unambiguous.

(3) It is reasonably necessary to implement or interpret an enactment of the General Assembly, or of Congress, or a regulation of a federal agency. The Commission shall consider the cumulative effect of all rules adopted by the agency related to the specific purpose for which the rule is proposed.

A rule is not effective until approved by the Rules Review Commission.  As such, this appears to meet the active supervision requirement.  However, on April 10, 2018, the FTC ruled that a similar framework was insufficient to constitute active state supervision.  See In the Matter of Louisiana Real Estate Appraisers Board, 2018 WL 1836646. In that case, an occupational licensing board in Louisiana re-adopted a rule pursuant to an executive order issued by the Governor.  The executive order directed the Commissioner of Administration to approve, reject, or modify the board’s rule.  The review criteria was to “ensure that [it] serves Louisiana’s public policy of protecting the integrity of the residential mortgage appraisal by requiring that the fees paid … for an appraisal are to be customary and reasonable.”

The Commissioner of Administration reviewed the rule per the executive order and issued a three-sentence order approving the board’s rule, including “After careful consideration of LREAB’s regulatory role, the circumstances leading to these proposed rules, and the goals sought by their promulgation, I am of the opinion that these rules will further the public policy of the State of Louisiana …”

The FTC determined that, despite the specific review and approval of the rule by the Commissioner, it believed that the supervision was inadequate and merely constituted a rubber-stamp of the board’s actions.  It justified its decision by bootstrapping on its prior rulings that state supervision should include:

(1) the development of an adequate factual record, including notice and an opportunity to be heard; (2) a written decision on the merits; and (3) a specific assessment – both quantitative and qualitative – of how the private action comports with the substantive standard established by the legislature.

None of those standards are found in the Supreme Court’s Dental Board decision.  Those criteria, if applied to the North Carolina Administrative Procedure Act, could prove problematic.  Although the North Carolina Rules Review Commission has all the hallmarks of an active state supervisor, it is possible that the FTC could determine that it does not meet the criteria that it has created.

Frank Trainor is currently the attorney for the North Carolina State Board of Certified Public Accountant Examiners.  He has represented licensees and occupational licensing boards for over 15 years.