The Court Ignores the Six Sides of Federalism in North Carolina Board of Dental Examiners, by Jim Saywell

by Guest Blogger — Monday, Mar. 2, 2015

[CJW Note: My coauthor Jim Saywell, who is now clerking for Judge McKeague on the Sixth Circuit and will be clerking for Judge Sutton next year, previously published a terrific short essay on this case (available here). Now that the Court has decided the case against Jim’s position, I invited him to pen this short follow-up.]

The Supreme Court last week decided North Carolina Board of Dental Examiners v. FTC, an antitrust case that defines whether a state agency made up of mostly market participants is “public” or “private” for purposes of state-action immunity. Keep reading!: While that description makes the case sound appealing only to certain niche-antitrust lawyers, the case in fact implicates several federalism principles that should pique the interest of a much broader group—anyone interested in maintaining the proper spheres of state and federal power.

North Carolina uses a state agency—the Board of Dental Examiners—to enforce its (quite-common) anticompetitive policy that only licensed dentists may practice dentistry. The Board interpreted practicing dentistry to include teeth whitening, and it sent cease-and-desist letters to non-licensed teeth whiteners, driving them out of the market. The Federal Trade Commission sued the Board for violating the antitrust laws. The Board claimed state-action immunity, a seventy-two-year-old doctrine from Parker v. Brown that allows the States to act anticompetitively without being liable under the antitrust laws. Was the Board immune under Parker?

The Court in a 6-to-3 decision held that it was not immune. Justice Kennedy for the Court concluded that “[a] nonsovereign actor controlled by active market participants—such as the Board—enjoys [state-action] immunity only if” the State actively supervises it. So the Court treated this state agencythe same as a private trade association—giving it less immunity than states and even municipalities—even though the Board is “the agency of the State for the regulation of the practice of dentistry,” N.C. Gen. Stat. Ann. § 90-22(b), its members swear a public oath of office, and it must comply with the State’s laws governing state agencies (like the State’s Administrative Procedure Act).

For the reasons I outline in more detail in an essay published in the Ohio State Law Journal Furthermore , I think that decision is incorrect, largely because of its failure to address the Six Sides of Federalism that undergird the case.

(1) Parker’s Federalism Roots. The Court gives Parker a quick nod on the way to its demise. It doesn’t discuss the facts of that case—the very case that established state-action immunity—even thoughParker involved regulation by an agency made up of active market participants. Justice Alito’s dissent (which Justices Scalia and Thomas joined) thoroughly calls the majority out for neglecting Parker: The “state program involved in [Parker] was unquestionably designed to benefit the regulated entities,” and if the Parker Court parsed the types of members that a state agency contained, it would have come out differently. But Parker didn’t parse the state agency’s membership and thus its “reasoning is irreconcilable with the Court’s” in this case. Parker stands for federalism; the majority . . . not so much.

(2) Federalism and Statutory Interpretation. Typically, federal laws that intrude on “the States’ arrangements for conducting their own governments” are “read in a way that preserves a State’s chosen disposition of its own power.” Nixon v. Mo. Mun. League (2004). And statutes should be read to “mean what they conveyed to reasonable people at the time they were written.” Scalia & Garner’s Reading Law.

The majority neglects each principle: It neither preserves the State’s chosen disposition of its power nor justifies its reading with the original meaning of the antitrust statutes. If it did either, it would have been forced to confront what the dissent concludes: The antitrust laws, as originally understood, did not intrude on the States’ regulation of “their purely internal affairs”—including their traditional authority to regulate dentists through a state agency.

(3) Structural State Sovereignty. The Court pays lip service to state sovereignty before baldly claiming that “[its] holding is not inconsistent with that idea.” Why? Because States can “ensure Parkerimmunity is available to agencies by . . . provid[ing] active supervision” to its agencies. That is, if the states follow certain federally imposed conditions, they will get immunity.

If state sovereignty means being forced to follow the federal government’s conditions, then the concept has become largely devoid of meaning. No: Conditioning a State’s governmental structure isintruding on its sovereignty. So the Court’s holding is inconsistent with this principle—the idea that a State “defines itself as a sovereign” through the structure of its government and “the character of those who exercise government authority,” Gregory v. Ashcroft (1991); see Federalist 45—notwithstanding the Court’s assurance to the contrary.

(4) States as Laboratories of Experimentation. Federalism enables each State to serve as a laboratory, here a laboratory to experiment with semi-privatization of some state agencies. The Court acknowledges the potentially “substantial benefits to staffing [state] agencies with experts in complex and technical subjects.” But it nonetheless employs a laboratory-closing approach by imposing its active-supervision condition—a “restraint[] that could circumscribe or handicap the continued research and experimentation.” San Antonio Indep. Sch. Dist. v. Rodriguez (1973).

(5) The Madison–de Tocqueville Compromise. Madison feared factions and de Tocqueville was drawn to them. For municipalities’ antitrust immunity, the Court employs a compromise between the two: it requires clear articulation but not active state supervision. That compromise could work well for agencies comprised of market participants, for it would provide a check against their dangers (conspiring to impermissibly monopolize the market) without quashing their benefits (regulating with familiar people at a more intimate level of government).

Contrary to Madison’s teaching, though, the Court annihilates the Board’s air. It groups all “nonsovereign” entities controlled by market participants—public and private alike—into one group, and it treats the state bureaucrats in this case the same as the private wine merchants in Midcal. So the Court treats state agencies less favorably than a municipality. “[P]uzzling,” indeed, as Justice Alito’s dissent observes.

(6) The Nationalist School of Federalism. The previous five sides of federalism combine to benefit thefederal government as well. You read it right: federalism benefits for the federal government as well—here by, say, lowering enforcement costs and enhancing the dialogue on privatization. But by missing the previous five sides, the Court of course misses this more intricate side as well.

My disagreement is not necessarily a “sky is falling” one. The “federal antitrust law[s] are,” as Justice Kennedy wrote, “a central safeguard for the Nation’s free market structures.” Quite true, and this opinion may indeed better protect Jane or Joe Teeth Whitener. Sasha Volokh praises the opinion as aVictory against Big Dentistry! But victory at what cost? For this surely is a Loss for State Sovereignty and Federalism—with a frown rather than an exclamation mark.

In my essay published prior to the Court’s decision, I concluded that the FTC’s “apparent ignorance of the six sides of federalism highlights the need for the [Parker] doctrine, now over seventy-years old, to visit the Supreme Court for a shot in the arm.” And I hoped this case would “be the syringe.” Well, I’m afraid that the Court used a different syringe than I had in mind. Now it seems that Parker needs more than a shot in the arm; it may need full resuscitation.

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