On May 31, 2013, the United States Court of Appeals for the Fourth Circuit rejected the North Carolina State Board of Dental Examiners claim that actions taken against non-dentist providers of teeth whitening services were exempt from antitrust laws. The board relied on the state action doctrine, which provides state and municipal actors immunity from federal antitrust lawsuits for actions taken pursuant to expressed policies with foreseeable anticompetitive effects as the basis for the exemption. The Court further held that the board's conduct violated Section 1 of the Sherman Act, dismissing the board's argument that it was both incapable of conspiring with itself to enact an anticompetitive scheme that restricted trade and that the conspiracy imposed an unreasonable restraint of trade. The Court's decision to revisit the scope of the state action doctrine is a significant development that has the potential to impact state medical boards in the future.

At issue in this case was a board action directed at providers of teeth whitening services that were not licensed dentists. Starting in 2003, the board issued 47 cease-and-desist letters to 29 non-dentists that provided teeth whitening services. The board issued the letters after an investigation by a panel chaired by a board member and board staff. The board relied on the state's Dental Practice Act in order to empower it to restrict all but state-licensed dentists from offering teeth whitening services in North Carolina. The board also contacted malls where teeth whitening kiosks were operating and requested that the malls refrain from leasing space to providers of such services.

In June 2010, the Federal Trade Commission filed an administrative complaint against the board for its actions. The board sought to dismiss the complaint on the grounds that the board and its actions were immune from antitrust scrutiny under the state action doctrine. This attempt was denied, and at trial the board was found in violation of the FTC Act for unilaterally issuing extrajudicial orders to non-dentists that provided teeth whitening services. The board appealed, reasserting the applicability of the state action doctrine and further arguing that it did not violate Section 1 of the Sherman Act or unreasonably restrain trade.

The Fourth Circuit dismissed the board's contention that its actions were immune under the state action doctrine solely because it was categorized as a state agency. The recent FTC v. Phoebe Putney decision colored the opinion of the Fourth Circuit. The board's attempt to avail itself of the state action doctrine received enhanced scrutiny and led the Court, citing the Supreme Court's decision in Phoebe Putney, to state that reliance on the state action doctrine is disfavored and that the doctrine should only be applied “to anticompetitive conduct that is undertaken to a regulatory scheme that is the state's own.” Finding the board to be a private actor availing itself of the protection of the state action doctrine, the board's action must be grounded in a clearly articulated state policy and must be actively supervised by the state for the state action doctrine to apply.

Crucial to this determination was the composition of the board and its procedure in issuing the cease-and-desist orders. Particularly relevant to the Court in making this decision was the role that dentists played in the governance of the board. The overwhelming majority of board members were chosen by a vote of licensed dentists and not by a state actor. The lone public member on the board appointed by the governor was not involved in any substantive decisions of the board.

Upon review of the circumstances surrounding the issuance of the cease-and-desist letters, the Court found the necessary state supervision provision wanting. The Court stated “here the cease and desist letters were sent without state oversight and without the required judicial authorization.” Further, the Court refused to accept the board's assertion that compliance with North Carolina's basic reporting requirements amounted to state supervision.

Addressing the anticompetitive effect of the board's actions under the Sherman Act, the Court agreed with the FTC that the board's issuance of cease-and-desist letters resulted from a “combination or conspiracy” intended to decrease competition. Although the board claimed its motivation was to protect the public from harm, the Court determined that the board did not present adequate facts to show that the public was being harmed by non-licensed physicians providing services. The board's reliance on theoretical harms that could befall consumers did not sway the Court.

Although the decision found the board in violation of antitrust law, the Court stressed the narrow application of its holding. The Court emphasized that the composition of the board and the lack of supervision by the state resulted in a “state board run by private actors in the marketplace taking action outside the procedures mandated by state law to expel a competitor from the market.” According to the Court, actions of similarly situated boards composed of members selected by politically accountable actors, such as a governor or legislature, and boards more actively supervised by the state may survive antitrust scrutiny.

Comparison of the North Carolina State Board of Dental Examiners and the North Carolina Medical Board illustrates how the decision may paralyze activities of licensing boards. The board of Dental Examiners consists of six dentists who are licensed to practice dentistry in North Carolina, one dental hygienist who is licensed to practice dental hygiene in North Carolina and a public member. The Medical Board consists of seven members recommended by a review panel (members of medical society, osteopathic association, physician-assistants academy and nurses association) who are subsequently appointed by the governor. The other five members are appointed directly by the governor and three of them must be members of the general public, with no financial interests in a health profession. The Court's decision does not delineate the extent to which a board, consisting of members of the regulated profession, is to be considered actively supervised for purposes of applying the state action doctrine. With this uncertainty, regulatory boards may be reluctant to act in a manner that protects the public, and board members may be left to wonder if their actions are sufficiently supervised by a politically accountable actor.

With such questions left unresolved, the Board of Dental Examiners filed a petition requesting that the Fourth Circuit Court of Appeals reconsider the opinion en banc (“en banc” refers to the hearing of a legal case where all judges of a court will hear the case rather than a panel of them). The circuit will grant a hearing if the original decision sets forth an extraordinary precedent or is of exceptional importance.

The board is arguing that the ruling conflicts with previous Supreme Court rulings, which articulate a standard that exempts state agencies from proving they are actively supervised for purposes of the state action doctrine. This position is also supported by the application of this exemption in other circuits, and is analogized to decisions where regulatory bodies of other professions, consisting of licensed members of that profession, were upheld. The board also relies on the principles of federalism, claiming that regulation of professions is a recognized police power of the state that will be diminished if the decision is upheld.

The board also maintains that the panel's ruling sets forth a vague and unpredictable standard that will undermine the ability of regulatory bodies to function. The petition explains that the decision leaves open the question of how a state board can be independent if composed in part of licensed members. Application of the decision to future conduct within the circuit, the board reasons, will open the door for any license holder (140,000 individuals residing in the circuit hold a license of some sort) to challenge any refusal to issue a license or further regulation of a license issued by a regulatory board with a member that holds the license. The board also indicates in its appeal that the decision to consider it as a nongovernmental entity yet one that acts pursuant to government authority is an illogical interpretation of antitrust law.

The North Carolina Bar Association also has filed a new amicus brief as a result of the panel decision. In its brief, the Bar Association deduces that the decision will interfere with the legislative choice to delegate the state's regulatory authority to boards composed of individuals with the expertise necessary to properly regulate the use of the license. The State Bar specifically lists the North Carolina Board of Medicine as one of the agencies whose purposes will be frustrated if the state action defense is lost.

The FSMB and its staff will continue to monitor developments and the implications for state medical boards.