THE NORTH CAROLINA STATE BOARD OF DENTAL EXAMINERS, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
No. 12-1172
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
Argued: December 5, 2012 Decided: May 31, 2013
PUBLISHED. Certiorari granted by Supreme Court, March 3, 2014. Affirmed by Supreme Court February 25, 2015.
Before SHEDD, KEENAN, and WYNN, Circuit Judges.
Petition denied by published opinion. Judge Shedd wrote the opinion, in which Judge Wynn joined. Judge Keenan wrote a separate concurring opinion.
ARGUED: Noel Lee Allen, ALLEN, PINNIX & NICHOLS, P.A., Raleigh, North Carolina, for Petitioner. Imad Dean Abyad, FEDERAL TRADE COMMISSION, Washington, D.C., for Respondent. ON BRIEF: M. Jackson Nichols, Catherine E. Lee, Nathan E. Standley, Brenner A. Allen, ALLEN, PINNIX & NICHOLS, P.A., Raleigh, North Carolina, for Petitioner. Richard A. Feinstein, Director, Richard B. Dagen, William L. Lanning, Willard K. Tom, General Counsel, John F. Daly, Deputy General Counsel for Litigation, FEDERAL TRADE COMMISSION, Washington, D.C., for Respondent. Jack R. Bierig, Dale E. Thomas, SIDLEY AUSTIN LLP, Chicago, Illinois, for American Dental Association, American Osteopathic Association, American Veterinary Medical Association, American Academy of Pediatric Dentistry, American Academy of Periodontology, American Association of Orthodontists, American Association of Dental Boards, and Federation of State Medical Boards, Amici Supporting Petitioner. Leonard A. Nelson, AMERICAN MEDICAL ASSOCIATION, Chicago, Illinois; Stephen W. Keene, NORTH CAROLINA MEDICAL SOCIETY, Raleigh, North Carolina; J. Mitchell Armbruster, SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P., Raleigh, North Carolina, for The American Medical Association and the Medical Associations for the States of North Carolina, South Carolina, Virginia, and West Virginia, Amici Supporting Petitioner. Matthew W. Sawchak, Stephen D. Feldman, ELLIS & WINTERS LLP, Raleigh, North Carolina, for The National Association of Boards of Pharmacy and The North Carolina Board of Pharmacy, Amici Supporting Petitioner. Lee K. Van Voorhis, Jennifer A. Semko, Jeremy W. Cline, BAKER & MCKENZIE, LLP, Washington, D.C., for The Federation of State Boards of Physical Therapy, The Federation of Associations of Regulatory Boards, The Association of Social Work Boards, The American Association of Veterinary State Boards, The Federation of Chiropractic Licensing Boards, The
The North Carolina State Board of Dental Examiners (the Board) petitions for review of the Federal Trade Commission (FTC) order finding that the Board violated the FTC Act,
I.
The Board is a state agency,
This case involves the market for teeth-whitening services in North Carolina. Teeth-whitening is a popular cosmetic dental procedure that is available in North Carolina, as in most
Beginning in the 1990s, dentists started providing whitening services throughout North Carolina. In about 2003, non-dentists also started offering teeth-whitening services, often at a significantly lower price than dentists. Shortly thereafter, dentists began complaining to the Board about the non-dentists’ provision of these services.
Relevant here, after receiving complaints from dentists, the Board opened an investigation into teeth-whitening services
As a result of the investigations, the Board issued at least 47 cease-and-desist letters to 29 non-dentist teeth-whitening providers. The letters were issued on official letterhead and requested that the target cease and desist “all activity constituting the practice of dentistry.” (J.A. 159). Several letters indicated that the sale or use of teeth-whitening products by a non-dentist is a misdemeanor. These letters effectively caused non-dentists to stop providing teeth-whitening services in North Carolina and also caused manufacturers and distributors of teeth-whitening products used by these non-dentist providers to exit or hold off entering North Carolina. The Board also sent letters to mall operators in an effort to stop malls from leasing kiosk space to non-dentist teeth-whitening providers; additionally, the Board
In sum, the Board successfully expelled non-dentist providers from the North Carolina teeth-whitening market. On June 17, 2010, the Federal Trade Commission issued an administrative complaint against the Board, charging it with violating
The ALJ then held a merits trial and issued an opinion finding that the Board violated the FTC Act. On appeal, the FTC—applying a de novo standard of review—affirmed and entered a final order against the Board that included a cease-and-desist order enjoining the Board from, inter alia, continuing to unilaterally issue extra-judicial orders to teeth-whitening providers in North Carolina. In re North Carolina State Bd. of Dental Exam‘rs, 2011-2 Trade Cases P 77705, 2011 WL 6229615, at *2-5 (FTC December 7, 2011) (Final Order).
The Board petitions for review of the FTC‘s final order, raising three arguments: that it is exempt from the antitrust laws under the state action doctrine; that it did not engage in concerted action under § 1 of the Sherman Act; and that its activities did not unreasonably restrain trade under § 1. We address each in turn.
II.
A.
We begin with the Board‘s contention that it is exempt from the antitrust laws under the “state action” doctrine.2 Under
this doctrine, the antitrust laws do “not apply to anticompetitive restraints imposed by the States ‘as an act of government.‘” City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 370 (1991) (quoting Parker v. Brown, 317 U.S. 341, 352 (1943)). In Parker, the Supreme Court announced this doctrine after recognizing that “nothing in the language of the Sherman Act or in its history . . . suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature.” 317 U.S. at 350-51. The Parker Court cautioned, however, that a state cannot “give immunity to those who violate the Sherman Act by authorizing them to violate it, or by declaring that their action is lawful.” 317 U.S. at 351.
There are “three situations in which a party may invoke the Parker doctrine.” South Carolina State Bd. of Dentistry v. FTC, 455 F.3d 436, 442 (4th Cir. 2006). First, a state‘s own actions
While Parker is available in these three circumstances, in Phoebe Putney the Court cautioned that “given the fundamental national values of free enterprise and economic competition that are embodied in the federal antitrust laws, ‘state-action immunity is disfavored, much as are repeals by implication.‘” Phoebe Putney, 133 S.Ct. at 1010 (quoting FTC v. Ticor Title Ins. Co., 504 U.S. 621, 636 (1992)). Thus, “we recognize state-action immunity only when it is clear that the challenged anticompetitive conduct is undertaken pursuant to a regulatory scheme that ‘is the State‘s own.‘” Id. (quoting Ticor, 504 U.S. at 635).
B.
In this case, the FTC first held that the Board was a private party required to meet both prongs of Midcal and then concluded that the Board could not show it was actively supervised by North Carolina. The FTC rejected the Board‘s argument that, as a state agency, it was a substate governmental entity that only had to show its actions were authorized by a clearly articulated state policy. While recognizing that state agencies may, in some instances, fall within Hallie, the FTC found that the “Court has been explicit in applying the
Decisions that are made by private parties who participate in the market that they regulate are not subject to these political constraints unless these decisions are reviewed by disinterested state actors to assure fealty to state policy. Without such review, “there is no realistic assurance that a private party‘s anticompetitive conduct promotes state policy, rather than merely the party‘s individual interests.” Patrick v. Burget, 486 U.S. 94, 101 (1988). Therefore, allowing the antitrust laws to apply to the unsupervised decisions of self-interested regulators acts as a check to prevent conduct that is not in the public interest.
Having reached this conclusion, the FTC then easily determined that the Board was not actively supervised because it pointed only to “generic oversight” that did “not substitute for the required review and approval of the ‘particular anticompetitive acts’ that the complaint challenges.” Id. at 630 (quoting Patrick, 486 U.S. at 101).
In its petition for review, the Board renews its contention that, as a state agency, it is only required to show clear articulation. Alternatively, the Board contests the FTC‘s conclusion that its conduct was not actively supervised. We disagree with the Board on both counts.
First, we agree with the FTC that state agencies “in which a decisive coalition (usually a majority) is made up of participants in the regulated market,” who are chosen by and accountable to their fellow market participants, are private actors and must meet both Midcal prongs. Phillip E. Areeda & Herbert Hovenkamp, 1A Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 227b, at 501 (3d ed. 2009). See also Einer Richard Elhauge, The Scope of Antitrust Process, 104 Harv. L. Rev. 667, 689 (1991) (concluding that “financially interested action is . . . ‘private action’ subject to antitrust review“). This result accords with Supreme Court precedent as well as our own.
For example, in Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975), the Court addressed an ethical opinion enforced by the Virginia State Bar Association that required attorneys to abide by a minimum fee schedule. The Bar was a “state agency by law,” id. at 790, with the “power to issue ethical opinions,”
The fact that the State Bar is a state agency for some limited purposes does not create an antitrust shield that allows it to foster anticompetitive practices for the benefit of its members. Cf. Gibson v. Berryhill, 411 U.S. 564, 578-579 (1973). The State Bar, by providing that deviation from County Bar minimum fees may lead to disciplinary action, has voluntarily joined in what is essentially a private anticompetitive activity, and in that posture cannot claim it is beyond the reach of the Sherman Act.
The key, according to the Goldfarb Court, was that the Parker exemption did not permit the state agency to “foster anticompetitive practices for the benefit of its members.” When a state agency and its members have the attributes of a public body—such as a municipality—and are subject to public scrutiny such that “there is little or no danger that [they are] involved in a private price-fixing arrangement,” active supervision is not required. Hallie, 471 U.S. at 47. However, when a state agency appears to have the attributes of a private actor and is taking actions to benefit its own membership—as in Goldfarb—both parts of Midcal must be satisfied. Requiring active supervision over such entities ensures “the State has exercised sufficient independent judgment and control so that the details of the [challenged action] have been established as a product of deliberate state intervention.” Ticor, 504 U.S. at 634.
In sum, we agree with the FTC that, as here, when a state agency is operated by market participants who are elected by other market participants, it is a “private” actor. Accordingly, it is required to satisfy both Midcal prongs to obtain the Parker exemption.
D.
Second, having concluded that the Board must satisfy both Midcal prongs, we likewise agree with the FTC that the Board cannot satisfy Midcal‘s active-supervision prong. In Midcal, the Court found that California did not actively supervise the wine-selling scheme at issue because California law: (1) “simply
North Carolina has done far less “supervision” in this case than the Court found wanting in Midcal. Here, the cease-and-desist letters were sent without state oversight and without the required judicial authorization. The Board has pointed to certain reporting provisions and “good government” provisions in North Carolina law, but those fall far short of the type of supervision in Midcal that was nonetheless considered deficient. As the FTC explained, “[t]his sort of generic oversight, however, does not substitute for the required review and approval of the ‘particular anticompetitive acts‘” challenged by the FTC. Interlocutory Order, 151 F.T.C. at 630 (quoting Patrick, 486 U.S. at 101).
We next turn to the question of whether the FTC properly found that the Board‘s behavior violated the FTC Act. The FTC‘s factual findings are conclusive if supported by substantial evidence, Telebrands Corp. v. FTC, 457 F.3d 354, 358 (4th Cir. 2006), and, while we review legal issues de novo, we “give some deference to the Commission‘s informed judgment that a particular commercial practice is to be condemned as ‘unfair,‘” FTC v. Indiana Fed‘n of Dentists, 476 U.S. 447, 454 (1986). “The [FTC Act] forbids a court to ‘make its own appraisal of the testimony, picking and choosing for itself among uncertain and conflicting inferences.‘” Id. (quoting FTC v. Algoma Lumber Co., 291 U.S. 67, 73 (1934)).
The FTC Act makes unlawful “[u]nfair methods of competition.”
A.
Section 1 of the
Applying American Needle, the FTC concluded that “Board members were capable of conspiring because they are actual or potential competitors.” Final Order, 2011 WL 6229615, at *20. Specifically, the FTC found that “Board members continued to operate separate dental practices while serving on the Board,” and that the “Board members had a personal financial interest in excluding non-dentist teeth whitening services” because many of them offered teeth-whitening services as part of their practices. Id. The FTC continued by noting its conclusion was “buttressed by the significant degree of control exercised by dentist members of the Board with respect to the challenged restraints.” Id. at *21.
We uphold the FTC‘s finding that the Board has the capacity to conspire under § 1. As American Needle made clear, concerted action is satisfied when an agreement exists between “separate economic actors” such that any agreement “deprives the
Moreover, the Board‘s status as a single entity is not dispositive because “[c]ompetitors ‘cannot simply get around’ antitrust liability by acting ‘through a third-party intermediary or joint venture.‘”
B.
Having determined that the Board is capable of conspiring under § 1, we next examine whether the FTC‘s conclusion that the Board engaged in concerted action is supported by substantial evidence. Of course, concluding that the Board has the capacity
The FTC found both direct and circumstantial evidence to support a finding of concerted action. First, the FTC concluded that “[o]n several occasions, the Board discussed teeth whitening services provided by non-dentists and then voted to take action to restrict these services.” Final Order, 2011 WL 6229615, at *23. Second, the FTC found a “wealth” of circumstantial evidence to the same effect—members “engaged in a consistent practice of discouraging non-dentist teeth whitening services” through their cease-and-desist letters and other efforts. Id. The FTC found these communications were “similar” and had the “common objective” of closing the market. Id. It
IV.
Finally, the Board challenges the FTC‘s conclusion that its actions amounted to an unreasonable restraint of trade under § 1. As noted above, we review the FTC‘s legal conclusion de novo—while giving some deference to its expertise—and we uphold its factual findings if supported by substantial evidence. Indiana Fed‘n of Dentists, 476 U.S. at 454. We have recognized three forms of analysis for determining if conduct violates § 1: (1) per se; (2) quick-look; and (3) rule of reason. Continental Airlines, Inc. v. United Airlines, Inc., 277 F.3d 499, 508-09 (4th Cir. 2002).10 “The boundaries between these levels of
The rule of reason applies “if the reasonableness of a restraint cannot be determined without a thorough analysis of its net effects on competition in the relevant market.” Id. In some instances, an examination short of the rule of reason can be substituted, that is, when a “quick look” indicates the anticompetitive effect of the conduct “but procompetitive justifications . . . also exist.” Id. “Rather than focusing upon the category to which a particular restraint should be assigned,” Polygram Holding, Inc. v. FTC, 416 F.3d 29, 35 (D.C. Cir. 2005), the “‘essential inquiry remains the same—whether or not the challenged restraint enhances competition,‘” California Dental Ass‘n v. FTC, 526 U.S. 756, 780 (1999) (quoting Bd. of Regents of University of Oklahoma, 468 U.S. at 104). Application of a quick look is appropriate when “the experience
In this case, the FTC determined that the Board‘s conduct violated § 1 under both a quick-look analysis11 and a full rule of reason. Final Order, 2011 WL 6229615, at *18 (noting the FTC analyzed the Board‘s behavior under “the . . . modes of analysis endorsed in Indiana Federation of Dentists,” including the quick look approach and the rule of reason). Applying the quick look approach, the FTC first concluded that the conduct was “inherently suspect” because “[t]he challenged conduct is, at its core, concerted action excluding a lower-cost and popular group of competitors,” id. at *25, and “[n]o advanced degree in economics is needed to recognize” that the behavior “is likely
We affirm the FTC‘s mode of analysis and find that its conclusion that the Board‘s behavior was likely to cause significant anticompetitive harms is supported by substantial evidence. See Fashion Originators’ Guild of Am., Inc. v. FTC, 312 U.S. 457, 465 (1941) (holding that manufacturer‘s boycott of certain retailers “has both as its necessary tendency and as its purpose and effect the direct suppression of competition“); Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 294 (1985) (internal quotation marks omitted) (noting “likelihood of anticompetitive effects is clear” in group boycotts involving “joint efforts . . . to disadvantage competitors by either directly denying or persuading or coercing suppliers or customers to deny relations the competitors need in the competitive struggle“). The Court has made clear that practices like group boycotts are amenable to the quick look approach—cases in which “an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets.” California Dental, 526 U.S. at 770. It is not difficult to understand that forcing low-cost teeth-whitening
Of note here, the Supreme Court has cautioned that we should be hesitant to quickly condemn the actions of professional organizations because “certain practices by members of a learned profession might survive scrutiny . . . even though they would be viewed as a violation of the Sherman Act in another context.” Nat‘l Soc‘y of Prof‘l Eng‘rs v. United States, 435 U.S. 679, 686 (1978). See also Goldfarb, 421 U.S. at 788 n.17 (“The fact that a restraint operates upon a profession as distinguished from a business is, of course, relevant in determining whether that particular restraint violates the Sherman Act.“). That is, “[t]he public service
The Supreme Court has likewise made pellucid, however, that anticompetitive acts are not immune from § 1 because they are performed by a professional organization. See, e.g., Arizona v. Maricopa Cnty. Med. Soc‘y, 457 U.S. 332, 347-51 (1982) (condemning as a per se § 1 violation maximum fee setting agreement by physicians); Indiana Fed‘n of Dentists, 476 U.S. at 459-60 (finding horizontal agreement among dentists to be a § 1 violation under quick look analysis). We have also noted, “we are not inclined to condone anticompetitive conduct upon an incantation of ‘good medical practice.‘” Virginia Acad. of Clinical Psychologists v. Blue Shield of Virginia, 624 F.2d 476, 485 (4th Cir. 1980). In this case, the Board‘s status as a group of professionals does not condone its anticompetitive practices. Accordingly, we conclude that substantial evidence supports the FTC‘s factual findings regarding the economic effects of the Board‘s actions and that those findings support the conclusion that the Board‘s behavior violates § 1. Indiana Fed‘n of Dentists, 476 U.S. at 465-66.
V.
In conclusion, we note that our decision today hardly sounds the death knell for federal/state balance the Board posits. For one, given our conclusion that the Board is a
allowing the antitrust laws to apply to the unsupervised decisions of self-interested regulators acts as a check to prevent conduct that is not in the public interest; absent antitrust to police their actions, unsupervised self-interested boards would be subject to neither political nor market discipline to serve consumers’ best interests.
Interlocutory Order, 151 F.T.C. at 622-23.
For the foregoing reasons, the Board‘s petition for review is denied.
PETITION DENIED
I am pleased to concur in the majority‘s opinion. I write separately to emphasize the narrow scope of our holding that the North Carolina State Board of Dental Examiners (the Board) is a private actor for purposes of the state action doctrine, and to discuss the practical implications of our decision.
Under the Supreme Court‘s precedent, private parties are immune from the antitrust laws under the state action doctrine when two criteria are met. See Cal. Retail Liquor Dealers Ass‘n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980) (Midcal). First, the challenged restraint must be “clearly articulated and affirmatively expressed as state policy,” and, second, that policy must be “actively supervised” by the state itself. Id.
In this context, it is useful to state what our opinion does not hold. We do not hold that a state agency must always satisfy the active supervision prong of the standard set forth in Midcal to qualify for antitrust immunity under the state action doctrine. Nor do we hold that a state agency comprised, in whole or in part, of members participating in the market regulated by that state agency is a private actor subject to Midcal‘s active supervision prong. Instead, our holding that the Board is a private actor for purposes of the state action doctrine turns on the fact that the members of the Board, who are market participants, are elected by other private
If the Board members here had been appointed or elected by state government officials pursuant to state statute, a much stronger case would have existed to remove the Board from the reach of Midcal‘s active supervision prong.* See FTC v. Phoebe Putney Health System, Inc., 133 S. Ct. 1003, 1010 (2013) (holding that municipal and certain “substate” entities of government receive immunity from antitrust scrutiny when they act pursuant to clearly articulated and affirmatively expressed state policy to displace competition, without regard to whether their activities are actively supervised by the state).
I further observe that subjecting the Board to Midcal‘s active supervision prong does not impose an onerous burden on either the Board or the state. The Supreme Court explained that “the requirement of active state supervision serves essentially an evidentiary function: it is one way of ensuring that the actor is engaging in the challenged conduct pursuant to state policy.” Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46 (1985) (emphasis added). Accordingly, if a state creates an
In this case, I do not doubt that the Board was motivated substantially by a desire to eliminate an unsafe medical practice, namely, the performance of teeth whitening services by unqualified individuals under unsanitary conditions. The Board was aware that several consumers had suffered from adverse side effects, including bleeding or “chemically burned” gums, after receiving teeth-whitening services from persons not licensed to
North Carolina is entitled to make the legislative judgment that the benefits of prohibiting non-dentists from performing dental services related to stain removal outweigh the harm to competition that results from excluding non-dentists from that market. That kind of legislative judgment exemplifies the very basis of the state action immunity doctrine. However, because “state-action immunity is disfavored,” Phoebe Putney, 133 S. Ct. at 1010, when the state makes such a judgment, the state must act as the state itself rather than through private actors only loosely affiliated with the state.
Here, the fact that the Board is comprised of private dentists elected by other private dentists, along with North Carolina‘s lack of active supervision of the Board‘s activities, leaves us with little confidence that the state itself, rather
Notes
Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46 n.10 (1985). Relying on this footnote, the Board maintains that, because it is categorized as a state agency by North Carolina, it, too, is not required to show active supervision. This footnote, however, does not bear quite the weight the Board suggests. First, in Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48, 57 (1985), issued the same day as Hallie, the Court stated that Midcal continued to define “most specifically” the situations in which “state agencies” were entitled to the Parker exemption. Second, as the FTC explained in rejecting the Board‘s argument, “the dicta in footnote 10 of Hallie must be reconciled with the Court‘s other language and reasoning in that same decision,” including its discussion of Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975), which we discuss infra at 15-16. Interlocutory Order, 151 F.T.C. at 625. Although we find the dicta in Hallie inapplicable in the instant case, where the “state agency” is composed entirely of private market participants, our opinion should not be read as precluding more quintessential state agencies from arguing that they need not satisfy the active supervision requirement.In cases in which the actor is a state agency, it is likely that active state supervision would also not be required, although we do not here decide that issue. Where state or municipal regulation by a private party is involved, however, active state supervision must be shown, even where a clearly articulated state policy exists.