DB II: Just When You Thought It Was Safe to Go Back in the Water

By Jeffrey P. Gray 

I almost hate to bring it up. For two to three years, it was all that any of us, as administrative lawyers, heard, almost ad nauseam. For anyone who attended some kind of national group representing occupational and professional licensing boards, there would be a collective groan when the other attendees found out you were from North Carolina.

Yes, that’s right, I am referring to the United States Supreme Court’s opinion in North Carolina Board of Dental Examiners v. FTC, truly a seminal case in the area of administrative law and occupational and professional licensing.

As law students, we learned in “Con Law I” that when our highest Court rules on a new or novel case of significant national importance, it is rarely, if ever, over with that one opinion. The law begins to evolve, and the topic begins to ebb and flow as the District Courts, Circuit Courts of Appeal address it, and likely as the Supreme Court again itself begins to define or refine component parts of its opinion. That process has begun with Dental Examiners, and the various District Courts around the nation are beginning to hear cases attempting to define “substantial state supervision,” the shield from antitrust liability established by SCOTUS in Dental Examiners.

In each instance, the litigants so far are the same: a maker of 3D-printed teeth aligners in concert with the Federal Trade Commission (the “FTC”) against state government dental licensing entities.

At least three states’ dental licensing boards – Alabama, California and Georgia – have had challenges in federal District Court to reach the Circuit Court level on appeal. To date, the one that has progressed furthest is from the state of Alabama. The 11th Circuit Court of Appeals heard oral arguments on July 8, 2020. Leeds v. Jackson, No. 19-11509 (11th Cir.) (“Leeds IV”). In a rare appearance, the Justice Department’s Antitrust Division Chief presented oral arguments in a case filed by SmileDirectClub against members of the Alabama Dental Board. SmileDirectClub makes 3D-printed teeth aligners and alleged that the Board improperly refused to let it operate in Alabama in order to protect the interest of traditional dental service providers.

In Dental Examiners, the Court held that state-action immunity is limited, and does not automatically apply to non-state entities, even if they are delegated regulatory authority by a state. That delegation, and the degree of supervision by some overarching state government elected or appointed official, such as the governor, secretary of state, commerce secretary, etc., was a central point in the Court’s reasoning in Dental Examiners.

In the Alabama case, Leeds IV, the board appealed after the District Court denied it an automatic grant of state-action immunity. Leeds v. Bd. of Dental Exam’rs of Ala., 2018 U.S. Dist. LEXIS 235762 (N.D. Ala. Oct. 16, 2018) (granting TRO) (“Leeds I”), dismissed by, in part, motion denied in part by, Leeds v. Bd. of Dental Exam’rs, 382 F. Supp. 3d 1214, (N.D. Ala., Apr. 2, 2019) (“Leeds II”), reconsideration granted by, in part Leeds v. Bd. of Dental Examiners of Ala., 2019 U.S. Dist. LEXIS 65617 (N.D. Ala., Apr. 17, 2019) (“Leeds III”). Up until Dental Examiners, state-action immunity was a defense to federal antitrust lawsuits because the licensing boards were acting on behalf of the state.

From information included in the Leeds II decision, Alabama’s board appears to have the requisite state supervision. For example, according to the Leeds II Court, an Alabama law enacted post-Dental Board, and before the Smile-Direct suit, requires the legislature’s Legal Division to

“review each rule certified to it by a state board or commission that regulates a profession, a controlling number of the members of which are active market participants in the profession.” Ala. Code § 41-22-22.1(a). The LSA must “determine whether the rule may significantly lessen competition.” Id. If it concludes the rule will not decrease competition, no further action is required. Id. But if it finds that the rule “may significantly lessen competition,” it must “determine whether the rule was made pursuant to a clearly articulated state policy to displace competition” and then “certify those determinations” to a legislative committee. Id., § 41-22-22.1(b). The chair of the committee must then “call a meeting of the committee to review the substance of the rule, determine whether the rule may significantly lessen competition, and if so, whether it was made pursuant to a clearly articulated state policy to displace competition.” Id. (emphasis added). The committee shall then “approve, disapprove, disapprove with a suggested amendment, or allow the agency to withdraw the rule for revision.” Id. If the committee fails to act on a rule, “the rule shall not become effective and shall be placed on the agenda of the committee at each subsequent meeting until the committee disposes of the rule.” Id.

However, the Leeds IV case before the 11th Circuit is challenging the supposition that the Alabama Board has the requisite state supervision.

The FTC and its compatriot, SmileDirectClub, in leading the charge elsewhere, do not appear as successful. But time will tell as the federal government, the various libertarian think-tanks, and corporate players in the regulated marketplace, continue their larger effort to limit how far, and to what extent, boards and commissions made up partially of licensees can shield themselves from antitrust litigation.