SCOTUS cracks door to antitrust liability for State Professional Licensing Boards

In a 6 - 3 decision on February 25, 2015, the United States Supreme Court held that state licensing boards may be held liable for antitrust violations. The decision, North Carolina Board of Dental Examiners v.  Federal Trade Commission, marks a substantial, but probably unimportant, deviation from what had been well-settled law that the regulation of professionals engaging in their profession was "state action" exempted from antitrust law.

The previous standard, which the Court appears to have intended to preserve, provides for Parker immunity only if “‘the challenged restraint. . . [is] clearly articulated and affirmatively expressed as state policy,’ and . . . ‘the policy . . . [is] actively supervised by the State.’ ”

What changed:

SCOTUS has more definitively defined how the "state actor" doctrine applies in the context of immunity from antitrust litigation. Essentially, the Board lost because a controlling number of the Board’s decisionmakers were active market participants in the occupation the Board regulates. Where the majority of Board members are active market participants, the Board can invoke state-action antitrust immunity only if it was subject to active supervision by the State. In this case that requirement was not met.

The unique problem in this case was the absence of a clearly articulated standard for the regulated conduct. The underlying conduct in this case were multiple cease and desist letters sent to non-dentist engaging in teeth-whitening services. Teeth-whitening services were not defined as "dentistry" by the relevant North Carolina statute(s). Where the Board regulating dentistry began regulating outside the scope of what the State had defined as "dentistry" the Board opened itself to antitrust liability.

What that means:

Limits on state-action immunity are most essential when a State seeks to delegate its regulatory power to active market participants, for conflicting allegiances are not always apparent to an actor and prohibitions against anticompetitive self-regulation by active market participants are a key component of federal antitrust policy. Essentially, the State must take an active oversight role where the State delegates regulatory authority over an industry to those who participate in that industry. The question of available damages remains open, as this case did not offer occasion to address the question whether agency officials (including board members) may, under some circumstances, enjoy immunity from antitrust damages liability.

As we can see from previous application of the supervision requirement more clearly defined in this case, the need for supervision and clearly articulated standards are likely to be dispositive of an antitrust allegation against a state licensing board. In Texas, for example, the State Bar is predominantly regulated by the State Supreme Court, it is also subject to the review of the Legislature pursuant to the State Bar Act, a sunset legislation renewed periodically by the Texas Legislature.

What will change?

While no SCOTUS decision is unimportant, ultimately the decision here will likely result in (1)more clearly defined structures for regulation of licensed professions and (2)substantially increased oversight by non-market participants.

As the Court noted in its opinion, "[t]he Court applied this reasoning to a state agency in Goldfarb. There the Court denied immunity to a state agency (the Virginia State Bar) controlled by market participants (lawyers) because the agency had “joined in what is essentially a private anticompetitive activity” for “the benefit of its members.” 421 U. S., at 791, 792. This emphasis on the Bar’s private interests explains why Goldfarb, though it predates Midcal, considered the lack of supervision by the Virginia Supreme Court to be a principal reason for denying immunity. See 421 U. S., at 791; see also Hoover, 466 U. S., at 569 (emphasizing lack of active supervision in Goldfarb); Bates v. State Bar of Ariz., 433 U. S. 350, 361–362 (1977) (granting the Arizona Bar state-action immunity partly because its “rules are subject to pointed re-examination by the policymaker”).

This author believes the probability of a substantial shift in regulatory board liability to be exceptionally unlikely. The Court goes so far as to tell States how to minimize the possibility of liability: "States, furthermore, can ensure Parker immunity is available to agencies by adopting clear policies to displace competition; and, if agencies controlled by active market participants interpret or enforce those policies, the States may provide active supervision." Slip op. at 21. 
State regulatory boards will likely follow this instruction.

Mental State in Jury Charges: Separate is better

The Court of Criminal Appeals recently remanded Rodriguez v. Texas for new punishment hearing because the Trial Court's jury charge consecutively listed the culpable mental states for which it was possible to convict Appellant of the offense of injury to a child.

There are two interesting points to take away from Rodriguez. First, error in charging mental state, where the mental state is relevant for purposes of punishment but not relevant for purposes of guilt will result only in the Defendant receiving a new hearing on punishment. Second, charging culpable mental states in the disjunctive provides insufficient guidance for the jury in determining what punishment range to apply.

In Rodrieguez, the Court of Criminal Appeals found that language tracking the statutory language of Texas Penal Code § 22.04 (Injury to Child or Elderly Person) fails to provide guidance to the jury during the punishment phase because the punishment for the offense defined by § 22.04 depends on the culpable mental state of the Defendant. See Tex.Pen.Code § 22.04(e)-(g). When the Court instructed the jury on each mental state as one instruction, the Court failed to take into account the varied punishment ranges that applied depending on the jury's finding.

Rodrieguez shows, again, the importance of carefully reviewing the jury charge for errors relating to the applicable mental state, especially where the mental state has an effect on the punishment range to which the Defendant will be exposed.

Nelson v. Wisconsin - Defining Structural Error via a Defendant's Right to Testify

The US Supreme Court will soon take up Nelson v. Wisconsin a case that could finally add some clarity to the Court's "structural error" doctrine. The question presented in Nelson is rather straight-forward. Is the complete denial of a Defendant's right to testify subject to harmless-error analysis?

Six Courts (Four state high courts and two federal courts) have said no, finding the denial of a Defendant's right to testify is structural error. See South Carolina Supreme Court (State v. Rivera, 741 S.E.2d 694 (S.C. 2013)), the Louisiana Supreme Court (State v. Dauzert, 769 So. 2d 1206 (La. 2000)), the Minnesota Supreme Court (State v. Rosillo, 281 N.W.2d 877 (Minn. 1979)), the District of Columbia Court of Appeals (Boyd v. United States, 586 A.2d 670 (D.C. 1991)), and two federal district courts in United States v. Butts, 630 F. Supp. 1145, 1148 (D. Me. 1986 ) and Paradise v. DuBois, 188 F. Supp. 2d 4, 9 (D. Mass. 2001). The Dissenting Opinion in the Wisconsin Supreme Court agreed, stating that error should be considered structural where it “undermines a right founded on the respect for free choice and the human dignity of the individual.”

Seven Courts (State v. Sevigny, 722 N.W.2d 515, 522 (N.D. 2006); Quarels v. Commonwealth, 142 S.W.3d 73, 82 (Ky. 2004); Ortega v. O’Leary, 843 F.2d 258, 262 (7th Cir.), cert. denied , 488 U.S. 841 (1988); United States v. Smith, 433 Fed. Appx. 847, 851 - 52 (11th Cir. 2011) (unpublished opinion); Solomon v. Curtis, 21 Fed. Appx. 360 , 363 (6th Cir. 2001)(unpublished opinion), cert. denied sub nom. Solomon v. McLemore, 534 U.S. 1137 (2002); People v. Solomon, 560 N.W.2d 651, 655 (Mich. Ct. App. 1996), cert. denied, 524 U.S. 930 (1998)) have found the error to be subject to harmless-error analysis. The Majority Opinion of the Wisconsin Supreme Court agreed with these cases, finding the error subject to harmless-error review because a constitutional error is structural only if it “permeate[s] the entire trial.” Since a complete denial of the right to testify “occurs at a discrete point in the trial" it is subject to harmless-error review.

The Court is presented with the opportunity to provide clarity to the structural error analysis muddied by Fulminante. The relatively straight-forward facts here lead this author to believe the Court will accept that opportunity and clarify the definition of "structural" error.

Denton Fracking Litigation: Commentary on Home Rule Authority and Preemption

Which laws of the State must a city ordinance comply with in order to be a permissible exercise of Home-Rule authority?

      I discussed briefly, in part 4 of my series on the Denton Fracking Litigation, the City's authority to legislate pursuant to the Home-Rule Amendment of the Texas Constitution (Art. XI sec. 5). The pertinent provision provides that "...and no charter or any ordinance passed under said charter shall contain any provision inconsistent with the Constitution of the State, or of the general laws enacted by the Legislature of this State...."
      The question, one of constitutional import in the Denton Fracking Litigation, becomes the meaning of the phrase "inconsistent with the Constitution of the State, or of the general laws enacted by the Legislature of this State."
      Presenting a uniquely interesting problem is the Texas Administrative Code ("TAC"). Containing sixteen (16) titles covering a vast array of industries, the Administrative Code is a comprehensive listing of rules, regulations, and policies implemented by State actors pursuant to grant of legislative authority. The grant of authority to the Agencies is, by virtue of being an "act of the Legislature of this State" undoubtedly a "law of the State." The question becomes: Are the subsequent actions adopting rules, regulations, and policies, by those acting pursuant to a legislative grant of authority, also "laws of the State" even though no legislative act accompanied their enactment?
      Enactments of regulations contained in the TAC are generally by grant of authority and subject to the Administrative Procedures Act and published in the Texas Register. Analysis of the case precedent citing Art.XI section 5 fails to provide guidance with regard to whether the Administrative Code provisions are "laws of the State." The plain language of the constitution, including the phrase enacted by the Legislature, would appear to answer the question in the negative. Administrative Code procedure, to the extent that their enactment is by grant of legislative authority, and not an act of the legislature, are not "general laws of the State."                   HOWEVER, the author recognizes the potentially endemic problem in the above reading of the Constitutional provision. If cities are allowed to disregard, by passing ordinance pursuant to their home-rule authority, enactments by administrative agencies, the potential for mass confusion and conflict with regard to which rules apply where is great. IS it possible that the RRC and/or TCEQ regulations will be viewed as a "floor" for regulations, with municipalities able to enact more stringent regulation? Yes, it's possible, but the challenges facing a regulatory scheme of that nature are legion.
      The fundamental question becomes this: Are laws enacted by the Legislature sufficiently different from laws enacted by grant of authority from the Legislature so that the two must be given different treatment with regard to the conflicts analysis when determining the limits of a City's Home Rule authority? The plain text of the Constitutional provision tends to imply that is exactly the case. Whether SCOTX will rule on the question, or how, remains to be seen.
      In the past, provisions of the Local Government Code, the Government Code, the Health and Safety Code, the Transportation Code, the Alcoholic Beverage Code, the Utilities Code, the Clean Air Act, and the Clean Water Act have all been invoked to invalidate an inconsistent action taken by a municipality pursuant to its home-rule authority. Neither the Administrative Code nor the Natural Resources Code have ever been the basis of a Court's preempting a city's use of its home-rule authority. The City of Denton is in territory litigated rarely.
      Ultimately, the "simple" answer to the conflicts of local law question is to allow for the City's exercise of home-rule authority to create a "ceiling" on regulation, while the existing TAC provides a "floor" for minimum regulation. In this manner, the City may, consistent with its home-rule authority, pass ordinance resulting in more regulation, but could not remove regulation put in place by administrative agency. While this could prove nightmarish for businesses seeking to conduct activity, it is the most plausible reading of the plain text of the homerule amendment.

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