FTC Offers Roadmap to Immunity for Professional Boards

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By Cecelia M. Assam, Joan C. Rogers and Matthew Loughran

Nov. 3— State officials seeking guidance on whether their professional licensing and regulatory boards are subject to federal antitrust laws have a new resource to help them figure out what constitutes “active supervision” of those boards by the state.

According to staff guidance released by the Federal Trade Commission Oct. 14, such regulatory boards, usually established to regulate legal or medical professionals practicing within the state, run the risk of violating federal antitrust laws if they are controlled by active participants in the industry who have a financial interest in engaging in anticompetitive conduct by restricting access to licensing or participation in their industry.

In the law-related field, antitrust immunity could be of special concern to lawyers who serve on panels that go after nonlawyers accused of engaging in the unauthorized practice of law or issue ethics opinions that might be viewed as anticompetitive.

However, some observers contacted by Bloomberg BNA said they don't see the FTC staff's comments as particularly helpful in addressing regulation of the market for legal services.

State Action

The FTC staff guidance, which comes after a February decision by the U.S. Supreme Court and efforts by two states, Oklahoma and California, to address the question of antitrust immunity for state regulatory boards, has received mixed reviews from antitrust experts and others who spoke to Bloomberg BNA.

“The question that one should be asking as a matter of policy is what set of rules will allow state regulatory boards to act in the public interest and in the most cost-efficient but effective way possible,” said Jack Bierig, a partner at Sidley Austin LLP in Chicago and a lecturer in health law and policy at the University of Chicago Law School. “I think that the FTC staff guidance ends up being contrary to that policy objective,” he told Bloomberg BNA.

However, Mark Waxman, a partner with Foley & Lardner LLP in Boston, called the staff guidance and a similar opinion by the California attorney general “good and helpful guidance” that reflected an effort to “try to sort out the implications of the Supreme Court decision” while also serving the public interest with which the regulators are entrusted.

“The message of the staff guidance is that a state actually has to take a look and go through the process when industry reps serve as voting members and make decisions,” Waxman told Bloomberg BNA.

Supreme Court Decision Spurred Guidance

The guidance comes in the wake of the U.S. Supreme Court's decision in N.C. State Bd. of Dental Exam'rs v. FTC, 2015 BL 48206, 31 Law. Man. Prof. Conduct 108 (U.S. Feb. 25, 2015), which held the North Carolina State Board of Dental Examiners was subject to suit by the FTC under federal antitrust law for taking actions to prohibit nondentists from providing teeth whitening services. The court rejected the board's attempt at invoking state action immunity, holding there wasn't sufficient supervision of the board's activity by the state.

The FTC guidance “appears to address head-on the questions raised by Justice [Samuel] Alito in his dissent in the N.C. Dental case,” said Robert M. Langer, a partner in the Hartford, Conn., office of Wiggin and Dana LLP. Langer served as assistant attorney general in charge of the Antitrust and Consumer Protection Department in the Office of the Connecticut Attorney General.

Alito focused on what would constitute a “controlling number” of market participants, how an “active” market participant should be defined and what the scope of the market might be in which a given member may not participate. The majority's decision, Alito argued, didn't provide clear guidance on such issues.

The FTC staff guidance explained that a member of a state regulatory board would be considered an active market participant if that person “(i) is licensed by the board or (ii) provides any service that is subject to the regulatory authority of the board.”

The manner in which a person was selected to serve on a board doesn't affect a determination of whether that person is an active market participant, the staff said.

It further advised that a “numerical majority” of active market participants isn't what triggers the need for active state supervision, but rather that a decision was “controlled, either as a matter of law, procedure, or fact, by active participants in the regulated market.” If it was, active supervision by the state will be required before state action immunity will apply to the board's actions.

Supervision will be determined by looking at whether the state exercised “sufficient independent judgment and control” over the regulatory scheme and whether the state will accept political accountability for any anticompetitive conduct that is permitted.

In addition, the FTC will look at whether the supervising entity gathered sufficient information to properly evaluate the recommended action and if any written decision was issued, the guidance said.

Less Relevant for Lawyers?

Douglas Ross, a partner at Davis Wright Tremaine LLP in Seattle, told Bloomberg BNA the FTC guidance will have less relevance for lawyers than other professions, simply because many bar associations are already supervised by their state supreme court.

“A state’s supreme court is certainly ‘the state' for purposes of the state action doctrine,” so any bar association supervised by its supreme court won’t be running an additional risk as a result of the Dental Examiners decision, Ross said.

On the other hand, he said, “if a state has permitted a bar association to take actions as to who can practice law, or what constitutes the unauthorized practice of law, and other similar issues, without being supervised by the state’s supreme court, then it may well have a problem as a result of this ruling.”

“Such a bar association (if it exists) must ensure that its decisions are actively supervised by a state agency (or by the state supreme court),” Ross said.

What's Missing

The FTC guidance is “perfectly fine, very general, and I'm not sure terribly helpful to anyone,” Thomas D. Morgan, a George Washington University law school professor emeritus, said in an interview with Bloomberg BNA.

According to Morgan—an expert in both antitrust law and the law governing lawyers—the FTC guidance comes up short in lumping lawyers together with other professionals. “What the FTC guidance ignores, and what makes lawyers different, is that we are directly regulated by an agency of government, which is the state supreme court,” he said.

Morgan pointed out that in Bates v. State Bar of Ariz., 433 U.S. 350 (1977), the Supreme Court expressly held that an Arizona Supreme Court rule forbidding lawyer advertising was not an antitrust violation. The rule violated the First Amendment but was shielded from antitrust attack by state action immunity, according to Bates.

The doctrine of state action immunity, first recognized in Parker v. Brown, 317 U.S. 341 (1943), has two requirements: the state must have a clearly articulated intention to substitute regulation for unregulated competition, and a disinterested state agency must review how the regulation is actually applied.

When the state supreme court acts, this protection applies, Morgan said. “The key thing that's missing in the FTC guidance as it applies to lawyers is this nearly automatic exemption from antitrust laws,” he said.

Morgan noted a passage in the FTC guidance that says it raises antitrust concerns if a board controlled by lawyers prohibits attorney advertising or deters price competition among lawyers. As indirect authority, the FTC staff cited Bates and Goldfarb v. Va. State Bar, 421 U.S. 773 (1975).

It's correct, Morgan said, that restrictions on advertising or price competition would be subject to antitrust attack if undertaken by a voluntary bar association as in Goldfarb. But he said the staff's citation to Bates is surprising considering that Bates involved a state supreme court rule and the court found no antitrust violation.

Regulation of Law Practice

As for regulation of law practice, Morgan highlighted two categories of activity he said would clearly not be antitrust violations.

First, “our rules of professional conduct are basically immune from antitrust liability” because they are issued by the state, Morgan said. Second, he said, instances of discipline imposed on individual lawyers by the judicial branch are not susceptible to antitrust liability.

The question may be more difficult when it comes to ethics opinions issued by bar associations, in Morgan's view.

Morgan said the FTC guidance is correct in stating that antitrust concerns are not implicated if a regulatory board serves in an advisory capacity only. Notwithstanding that guidance, Morgan said, it's possible to imagine that some bar association opinions could potentially form the basis for an antitrust charge.

As an example, Morgan posited an opinion advising lawyers never to reveal client secrets even if ethics rules would permit disclosure. It's conceivable the opinion might be viewed as anticompetitive in a general sense and subject to antitrust attack except in states where ethics opinions are reviewed and adopted by the state supreme court, he said.

Morgan pointed out that many voluntary bar associations issue advisory ethics opinions. If arguably anticompetitive, these opinions could raise an interesting question under Dental Examiners, he said.

Potentially even more problematic, Morgan said, are situations in which a bar panel threatens to bring ethics charges against a lawyer to pressure him into not engaging in a particular activity. Even if the state supreme court could impose discipline for the conduct, the bar's threat of disciplinary action as a means of intimidation might not fit within the requirements for state action immunity, he said.

Impact on UPL Actions?

Illinois attorney regulator Scott A. Kozlov said of the FTC staff guidance “I don't think it helps us a lot as far as getting clarification in Illinois.”

As senior counsel with the Illinois Attorney Registration and Disciplinary Commission, Kozlov is the primary prosecutor in ARDC actions against those charged with engaging in the unauthorized practice of law in that state.

He pointed out that the ARDC is a division of the Illinois Supreme Court and that ARDC lawyers are full-time prosecutors employed by the state. Most UPL matters go before a court, which makes its own UPL finding, he noted.

In these circumstances, Kozlov told Bloomberg BNA, the question is whether Dental Examiners reaches full-time prosecutors who work for the state supreme court with 90 percent of UPL actions reviewed in court. “I don't see it,” he said.

Kozlov emphasized that ARDC prosecutors, while licensed lawyers, are not actively involved in the private practice of law. “We fall outside the scope of active market participants,” he said.

Kozlov acknowledged the FTC staff said it doesn't matter that the active market participants on a regulatory board are not directly or personally affected by the board's decisions. But with full-time prosecutors employed by the state, there's not the same risk to the public as with the private dentists who were regulating teeth whiteners in Dental Examiners, he said.

On a separate aspect of the FTC guidance, Kozlov said he was surprised by the part that addresses the need for active supervision of a regulatory board filled with active market participants when the board is engaged in disciplinary regulation.

The FTC guidance indicates that in the absence of adequate supervision, professional discipline may give rise to antitrust charges when a pattern or program of disciplinary actions affecting multiple licensees has a substantial effect on competition.

“I think that's far exceeding what Dental Examiners stood for,” Kozlov said. That case did not involve the subject of disciplinary regulation, he pointed out.

California and Oklahoma Address Immunity

The Supreme Court's decision in Dental Examiners spurred two states, California and Oklahoma, to provide guidance to their professional regulatory boards as to how to cloak board actions with the mantle of state action immunity from federal antitrust laws.

In July, Oklahoma Gov. Mary Fallin (R) signed an executive order requiring all state regulatory boards that were controlled by market participants to submit all nonrulemaking actions to the state attorney general's office for review.

The executive order also requires the attorney general to issue a written opinion on whether the action could violate the antitrust laws. Under the executive order, failure to defer to this written opinion would result in the board losing its right to assert state action immunity and potential removal of the board members involved in the decision.

In September, California Attorney General Kamala Harris (D) issued a formal opinion instructing state regulatory boards to seek the oversight of a nonmarket participant state official to obtain the active state supervision necessary to claim immunity.

Harris's opinion specifically pointed to the director of the California Department of Consumer Affairs, under whose authority most professional licensing boards in the state already operate, as one such state official whose duties could be legislatively modified to include direct oversight of board decisions.

State Review Needed

Douglas Ross of Davis Wright Tremaine told Bloomberg BNA “most states that take this issue seriously are going to consider how to structure what their boards do so as to fall clearly within the state action immunity framework.”

He said that having decisions made by a board with no members of the regulated profession is one approach but that isn't likely to be popular with most states. “If boards with members of a regulated profession are going to continue to make decisions with competitive implications for their profession, it’s critically important that these boards’ decisions be subject to routine review by a state official or agency that has the ability to overturn a board decision.” he said.

Additionally, Ross said, “unless a state really likes the idea of defending antitrust litigation on behalf of a board that may well be acting in the interest of the profession it regulates and not in the public interest, it should take the FTC’s advice to heart and modify its procedures.”

Problems With Guidance

According to Sidley Austin's Bierig, the FTC staff’s view that professionals who are retired or full-time salaried employees of a university are “active market participants” is “misguided.” He said “one would have thought that the term market participant would refer to someone who could gain economically from actions by the regulatory board.”

Bierig added, “by construing that term to include retired or salaried practitioners, the FTC staff is discouraging states from appointing such individuals to regulatory boards because their participation will increase antitrust risks.”

Bierig also took issue with the staff's definition of control. “The obvious answer would have been, if the majority of the board members are market participants, that would be control for purposes of antitrust exposure,” he said.

Such an approach would allow a state to add one or two actual market participants and then fill out the rest of the board with consumer representatives or public advocates. However, under the FTC staff guidance, even a board set up in that way would be considered under the control of the market participants if the public advocates defer to the opinion put forth by the market participants.

The most troubling aspect of the guidance, according to Bierig, is the staff’s view of what constitutes active state supervision for purposes of applying the state action doctrine.

“The staff’s guidance seems to suggest that if a state wants to immunize from antitrust scrutiny a regulatory board that includes market participants, it should create a superagency that sits in judgment on the actions of the state regulatory board,” he said.

Bierig said such an approach would compromise the goal of regulation in the public interest in a low-cost and efficient manner. “It would be very expensive, would undermine the effectiveness of the state regulatory board, and would delay final action of the state board,” he said. “That is just not sound public policy.”


Foley & Lardner's Waxman pointed out one important issue that he said was missing from the staff guidance. “One mitigating but extremely important factor with respect to exposure for board members is the ability to have confidence in the provisions for indemnity,” he said.

Waxman said that “as the California AG pointed out, it remains a bit of an open question whether indemnity would be available in all liability situations for the potential treble damages exposure in an antitrust case.”

Attorney General Harris's opinion specifically identified indemnity as an issue raised by the Supreme Court's decision and said that members of state regulatory boards are considered state employees when they are operating within their authority on the board. The opinion urged the California legislature to amend the state's Government Claims Act, to make clear that “treble damage antitrust awards are not punitive damages” and thus are covered by the state's offer of indemnity to board members.

“If you can’t get indemnity, that would create a significant chill on individuals being willing to serve on boards, and apparently that remains an open issue, at least in California,” he added.

Ross agreed. “Justice Kennedy, at oral argument in N.C. Dental, made very clear that if he were in private practice, and someone asked him if they should serve on a board and expose themselves to antitrust review of their actions, he would strongly counsel that they have nothing to do with such a board.” He added that “I think that’s advice many lawyers would give.”

According to Waxman, the best approach to resolve that issue is legislation that eliminates such exposure in clear terms.

To contact the reporters on this story: Cecelia M. Assam in Washington at cassam@bna.com, Joan C. Rogers in Washington at jrogers@bna.com and Matthew Loughran in Washington at mloughran@bna.com

To contact the editor responsible for this story: Kirk Swanson at kswanson@bna.com

The FTC staff guidance is available at http://src.bna.com/Bk.

The California AG opinion is available at http://src.bna.com/EH.

The Oklahoma executive order is available at http://src.bna.com/EI.

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.

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