Antitrust Boot Camp State Action Immunity From Antitrust
Antitrust Boot Camp State Action Immunity From Antitrust Liability Presented by: Sarah Oxenham Allen July 16, 2019
State Action Immunity Parker v. Brown (1943) • Judicially created immunity based on principles of federalism; acts of a sovereign state, even if anticompetitive, outweigh the importance of a freely competitive marketplace • Recognizes that other goals, such as public health and safety, may be more important to a state than open competition • Sometimes called Parker immunity • Anticompetitive acts authorized by state legislature are immune from antitrust law • Sherman Act focused only on commercial conduct, not activities arising from the legislative action
Elements of State Action Immunity • State Sovereign – ipso facto immune from antitrust liability (legislature, state supreme court, governor? ) • Local Governments – must only follow “clearly articulated” state to displace competition – Town of Hallie v. City of Eau Claire, 471 U. S. 34 (1985). policy • Traditional State Agencies – strongly hinted that same as localities; also motions to dismiss granted in Turner v. Va. Dep’t of Med. Assistance Servs. , 230 F. Supp. 3 d 498 (W. D. Va. 2017) and at 301 F. Supp. 3 d 637 (E. D. Va. 2018). • State Regulatory Boards with controlling number of active market participants – needs “clear articulation” AND active supervision by a disinterested state official
The Midcal Test If the state itself is not the actor, but has delegated the authority to sub-state entities or private parties, the action may be protected if it satisfies two criteria: • Clear articulation of the state’s purpose to displace competition (“clearly articulated and affirmatively expressed”) • Active supervision of the state’s policy by a disinterested state official California Retail Liquor Dealers Ass’n v. Midcal Aluminum, 445 U. S. 97, 105 (1980).
Clear articulation prong must always be met In Va. Bd. of Funeral Dirs. & Embalmers, 138 F. T. C. 645 (2004), the FTC claimed there was no clear articulation for the Board’s prohibition against licensees advertising prices and discounts for preneed funeral services: • “Because of federalism concerns at the heart of the state action doctrine, the policy to displace competition must be articulated by an entity that can be identified as the state rather than a subordinate agency of the state. ” Id. (analysis to aid public comment). • “An agency or subdivision of the state, like the Board here, will be protected by the [state action] doctrine only where the conduct is … legally authorized by the state …” as the sovereign. Id. at 669. A state policy that expressly permits, but does not compel, anticompetitive conduct may still be “clearly articulated” within the Midcal test. Southern Motor Carriers Rate Conference v. United States, 471 U. S. 48, 61 (1985).
Pre-NC Dental perception of boards Subordinate state entities: § Created pursuant to state law; § Within umbrella, traditional state agencies; § Board members often appointed by Governor; § Rule-making review pursuant to state APA; § Disciplinary decisions subject to administrative and judicial review; § Public board members; and § Meetings and records subject to opengovernment laws.
NC Dental - Holding • Who is an “active market participant”? – A person who is either licensed by the board himself or who provides a product or service that is subject to the board’s regulatory authority. – Licensees who have taken a leave of absence. – Possibly even retired licensees. -- Retirees may not be current on best practices for quality of care cases before the Board.
NC Dental – Holding • Who is an “active market participant”? – Note that the method by which a person is selected to serve on a board is not relevant to his position as an active market participant. Elected or appointed officials are active market participants. – Note that specialization by a board member, such as a medical doctor who practices as a cardiologist or a lawyer who practices only trusts and estates law, does not prevent that board member from being considered an active market participant for all specialties included within the profession. -- Board members individually do not have to be directly or personally affected by the challenged restraint.
NC Dental – Holding • What is a “controlling number” of active market participants? – Not merely a simple majority. – If active market participants can control a board in any way—whether by majority vote, veto power, procedural rules, deference to their authority on the subject, tradition, or subtle manipulation—the board should consider itself subject to the NC Dental decision. – Whether the active market participants are a controlling number of the Board is a question of fact.
NC Dental - Holding • The Court identified four requirements of adequate active supervision: 1. 2. 3. 4. The “supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it” The “supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy” The “mere potential for state supervision is not an adequate substitute for a decision by the State”—the State must have and actually exercise that power; and The “state supervisor may not itself be an active market participant. ”
Risk analysis for adding active supervision § Percentage of the decisions made by the Board that potentially have any competitive impact § Non-discretionary/ministerial task v. discretionary interpretation of statute § Cost of adding an active supervisor § Cost of defending an antitrust challenge § Ability of State to indemnify individual Board members for potential treble damage liability § Amount of legislative amendments necessary to add active supervision
Single disciplinary actions by boards FTC Guidance: Reasonable restraints on competition do not violate the antitrust laws, even where a competitor is injured economically. (p. 6) • Suspension of a single licensee unlikely to unreasonably harm competition. • Disciplinary actions affecting single licensees typically have only a de minimis effect on competition. (p. 12) • See, e. g. , Petrie v. Va. Bd. of Med. , Case No. 15 -1007 (4 th Cir. May 16, 2016) (unpublished).
Possible state responses § Reconstitute board membership for more public representation – appears disfavored; gets rid of subject matter expertise § Create multi-disciplinary boards with many types of stakeholders – requires extensive legislation § Make all board decisions initially advisory -Connecticut: Public Act 15 -05 in July 2015 special legislative session § Executive Order of the Governor -Oklahoma: Executive Order 2015 -33 § Expand the power of the state to conduct sunrise and sunset reviews § Create a state agency that balances harm to the public against the costs to citizens for a licensing statutory scheme in a profession (DORA in Colorado)
State fixes: create a supervisory structure § Create an umbrella agency or “supervision czar” to review actions of all state boards with active market participants § Enable Director of “umbrella” agency to be the active supervisor § Create an independent review board to oversee rulemaking § Establish a review body for scope of practice decisions § Attorney General as Active Supervisor -- problems
Judicial Review as active supervision Two potential problems with NC Dental requirements: § Supervisor must review the substance of a board’s anticompetitive decision -- Review limited to procedural/due process fairness probably not sufficient (e. g. , APA review) § “Mere potential” for state supervision not an adequate substitute for a decision by the State
Primer on State Action for Board Counsel • “Responding to the North Carolina Dental Decision: A Primer for State Regulatory Board Counsel and Board Supervisors” • Written by Professor Abe Wickelgren, University of Texas, commissioned by the Center for State Enforcement of Antitrust and Consumer Protection Laws. • Available at http: //www. statecenterinc. org/docs/Primer_January_2 017. pdf
- Slides: 16