Antitrust and the Bar Association

Last February, the U.S. Supreme Court decided an antitrust case involving the dental profession in North Carolina.   North Carolina State Board of Dental Examiners  v. FTC, 135 S.Ct. 1101; 2015 WL 773331; 191 L.Ed.2d 35 (2015)(“BDE”).   Washington lawyers might wonder what, if anything, the activities of the dental profession in North Carolina might have to do with them?   The answer may surprise them.

First, the case:

The NC Board of Dental Examiners is an agency of the state of North Carolina for the regulation of the practice of dentistry.   N.C. Gen. Stat. Ann. 90-22(a).  (Bear with me, these facts are important):  Its primary duty is to create, administer, and enforce a licensing system for dentists.   Included is the power to file suit to “perpetually enjoin any person from … unlawfully practicing dentistry.”  Id at 90-40.1.   The Board has eight members, six of whom must be licensed dentists engaged in active practice and these six are elected by other licensed dentists in the state.  A seventh member is a licensed dental hygienist elected by other licensed hygienists.  The final member is a “consumer” and is appointed by the Governor. BDE at section I.A.

So what did the Board do?  Dentists do teeth whitening and command pretty large fees for doing so.  Dentists began to complain that nondentists were teeth whitening and charging lower prices.   The Board investigated and began issuing cease-and-desist letters, warning that the unlicensed practice of dentistry is a crime and strongly implying (or expressly stating) that teeth whitening constituted “the practice of dentistry.”  They issued at least 47 such letters and nondentists stopped offering teeth whitening services in North Carolina.   BDE at section I.B.

At this point, the FTC got into the act and filed an administrative complaint charging the Board with anticompetitive conduct in violation of the FTC Act, 15 USC 45.   An ALJ sustained the charges and this was affirmed by the FTC and the 4th Circuit.   717 F.3d 359 (2013).

There is little question that the Dental Examiners Board was seeking to exclude nondental service providers from the business of teeth whitening.  The question, rather, was whether the Board qualified for state action immunity from the antitrust laws.   See Parker v. Brown, 317 U.S. 341 (1943).   The Supreme Court held that it did not.

State action immunity from the antitrust laws is available to a state acts in its “sovereign capacity.”   Essentially, the Court held that the Dental Examiners Board failed to qualify for such immunity because it was not actively supervised by the State:

A nonsovereign actor controlled by active market participants—such as the Board—enjoys Parker immunity only if it satisfies two requirements: “first that ‘the challenged restraint … be one clearly articulated and affirmatively expressed as state policy,’ and second that ‘the policy … be actively supervised by the State.’ ” …Here, the Board did not receive active supervision by the State when it interpreted the Act as addressing teeth whitening and when it enforced that policy by issuing cease-and-desist letters to nondentist teeth whiteners…..Immunity for state agencies…requires more than a mere facade of state involvement, for it is necessary in light of Parker ‘s rationale to ensure the States accept political accountability for anticompetitive conduct they permit and control….The active supervision requirement demands, inter alia, “that state officials have and exercise power to review particular anticompetitive acts of private parties and disapprove those that fail to accord with state policy.” 

BDE at section III.A (citations omitted).  It is not enough, said the Court, that a state formally designates a Board as a state agency.  Id. at III.C.

The similarities between agencies controlled by active market participants and private trade associations are not eliminated simply because the former are given a formal designation by the State, vested with a measure of government power, and required to follow some procedural rules. …. Parker immunity does not derive from nomenclature alone. When a State empowers a group of active market participants to decide who can participate in its market, and on what terms, the need for supervision is manifest.The Court holds today that a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates must satisfy Midcal ‘s active supervision requirement in order to invoke state-action antitrust immunity.

Id.   The North Carolina Board did not argue it had been actively supervised by the state.   So it lost the case and the injunction against the Board was affirmed (Alito, Scalia & Thomas, dissenting).   But what would such supervision look like?

The Court has identified only a few constant requirements of active supervision: 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,…; and the “mere potential for state supervision is not an adequate substitute for a decision by the State,” …. Further, the state supervisor may not itself be an active market participant. In general, however, the adequacy of supervision otherwise will depend on all the circumstances of a case.

Id. section IV.

By now, readers will understand why this decision about the dental profession has relevance to the legal profession.   Indeed, it has caused a lot of consternation both locally and nationally for the legal profession.   to what extent are “unauthorized practice of law” committees immune from the antitrust laws after this decision?  To what extent are “professional ethics” committees operated by Bar Associations immune?

Here in Washington, the state supreme court created the Practice of Law Board back in 2001.  See GR 25.   It has had several missions:  (1) promote expanded access to legal services; (2) increase public confidence in the administration of justice; (3) make recommendations regarding the provision of law related services by nonlawyers; (4) enforce rules prohibiting the unauthorized practice of law (UPL); and (5) ensure those engaged in the delivery of legal services have the requisite skills and competencies.  GR 25(a).  The members of the POLB are appointed by the court rather than by the legal profession, and at least 4 of the 13 members must be nonlawyers.  More could be nonlawyers: there is no minimum number of lawyers required, nor any requirement that members be “active market participants.”   GR 25(b).  (For example, the author, an academic lawyer licensed in Washinton, but not in active practice, served on the POLB for six years.)

Does the court’s role in appointment members to the POLB make the POLB a sovereign actor and eliminate the requirement of “active supervision” altogether?  See BDE at section III.C.   No one really knows, although i think our state supreme court thought so when it established the POLB the way it did.  It is my understanding that the court’s specification that there be at least four nonlawyers, with no minimum number of lawyers, and the court’s involvement in the appointment process, were intended, in part, to ensure that the activities of the Board would have antitrust immunity.  If the composition of the POLB is not enough to remove the POLB from the category of “nonsovereign actors,”  “active supervision” might still suffice to confer state action immunity.  Again, for this reason, the court also put in place a process for review of the POLB’s actions.   GR 25(g).   Does this right of supreme court review of POLB action satisfy the “active supervision” component?   Again, we do not know.   But I believe that this was partly its purpose.   These questions about the POLB may be moot at this point.   After the POLB was temporarily suspended pending a review of its efficacy last fall to spring, it was reactivated by order of the court on July 8; but it has been instructed to refrain from enforcement activities beyond initial investigations:  “[T]he Practice of Law Board shall cease all of its enforcement activities except for receiving complaints alleging the unauthorized practice of law, determining whether such complaints are frivolous, and referring non-frivolous complaints to appropriate authorities.”  Washington Supreme Court: Order Reconstituting the Practice of Law Board (July 8, 2015) at (c).

It is unlikely that this decision was significantly influenced by the North Carolina BDE case, since the supreme court could easily have tightened up its supervision of the POLB’s enforcement activities had it wanted to further protect its original mission.  Conspicuously the court did not cut back on the POLB’s advisory opinion activities.  Id. at (d).   So it presumably concluded that these activities were not vulnerable under the BDE case.  Instead, it seems to me that the decision to cut back on the POLB’s activities had more to do with whether the Court thought the limited success of POLB enforcement activities was worth the cost that it had imposed on the WSBA.  But the decision to cut back on the POLB’s enforcement activities does mean that we must now rely, in Washington, on the willingness of local and state law enforcement agencies to police UPL — a task that they have generally been unable or unwilling to do in any robust way.

But the BDE case may have different implications for some of the WSBA’s Committees.   Is the issuance of ethics advisory opinions by the Committee on Professional Ethics vulnerable under the BDE case?   One of the earliest state action immunity cases involved the Virginia Bar Association.   Goldfarb v. Virginia Bar Association,  421 U.S. 773 (1975).   As many will remember from law school, that case struck down minimum attorney fee schedules as an antitrust violation to the extent that they are not mandated by a sovereign actor.

Interestingly, the fee schedules at issue in Goldfarb were published by the Fairfax County Bar Association, and not the Virginia State Bar, and they they were not mandatory.  But they were carefully adhered to by Virginia lawyers, in part because of Virginia State Bar ethics opinions stating that “evidence that an attorney habitually charges less than the suggested minimum fee schedule adopted by his local bar Association, raises a presumption that such lawyer is guilty of misconduct.”  421 U.S. at 777-8.  The Court held that “[a] purely advisory fee schedule issued to provide guidelines, or an exchange of price information without a showing of an actual restraint on trade, would present us with a different question.”  Id.  at 781.  But in Goldfarb, “a fixed, rigid price floor arose from respondents’ activities: every lawyer …adhered to the fee schedule ….[and] The fee schedule was enforced through the prospective professional discipline from the State Bar.”  Id.  This constituted a “classic illustration of price fixing.”  id. at 783.

As for state action immunity, the fee schedules simply did not have the imprimatur of state sovereign:

The threshold inquiry in determining if an anticompetitive activity is state action of the type the Sherman Act was not meant to proscribe is whether the activity is required by the State acting as sovereign. ….Here we need not inquire further into the state-action question because it cannot fairly be said that the State of Virginia through its Supreme Court Rules required the anticompetitive activities of either respondent. Respondents have pointed to no Virginia statute requiring their activities; state law simply does not refer to fees, leaving regulation of the profession to the Virginia Supreme Court; although the Supreme Court’s ethical codes mention advisory fee schedules they do not direct either respondent to supply them, or require the type of price floor which arose from respondents’ activities. Although the State Bar apparently has been granted the power to issue ethical opinions, there is no indication in this record that the Virginia Supreme Court approves the opinions. Respondents’ arguments, at most, constitute the contention that their activities complemented the objective of the ethical codes. In our view that is not state action for Sherman Act purposes. It is not enough that, as the County Bar puts it, anticompetitive conduct is ‘prompted’ by state action; rather, anticompetitive activities must be compelled by direction of the State acting as a sovereign.
The fact that the State Bar is a state agency for some limited purposes does not create an antitrust shield that allows it to foster anticompetitive practices for the benefit of its members. … The State Bar, by providing that deviation from County Bar minimum fees may lead to disciplinary action, has voluntarily joined in what is essentially a private anticompetitive activity, and in that posture cannot claim it is beyond the reach of the Sherman Act. … Its activities resulted in a rigid price floor from which petitioners, as consumers,  could not escape if they wished to borrow money to buy a home.
Id. at 790-91.
As can be seen from the description of the Goldfarb case, it involved classic price fixing activity and so is a far cry from what the WSBA CPE does in issuing advisory ethics opinions.   But state bar ethics opinions were also at issue in Goldfarb.  Those Virginia ethics opinions stated that failure to observe the fee schedules would raise a presumption of misconduct, for discipline purposes.  There is no equivalent presumption that attaches to WSBA Ethics Advisory Opinions.   The WSBA Website where advisory opinions are published notes that:
In September 2010, the Board of Governors eliminated the distinction between Formal and Informal Ethics Opinions and adopted the nomenclature of “Advisory Opinions.” In doing so, the Board recognized the Washington Supreme Court’s opinion in In re Disciplinary Proceeding Against DeRuiz 152 Wn.2d 558, 99 P.3d 881 (2004), which emphasized that ethics opinions issued by the Bar Association are advisory only, and that the Court is the ultimate arbiter of the Rules of Professional Conduct.  Nonetheless, some of the CPE Advisory Opinions do contain advice about assisting unauthorized practice, and about permissible fee and marketing practices.  (The advisory opinion website provides a search engine that enables users to search by topic and rule number. )  Stated differently, the opinions, if followed, have a potential economic impact on the marketplace for legal services.   Is the issuance of such opinions vulnerable under the antitrust laws after the BDE decision?
There are those that are worried that it is.   Unlike the POLB, the CPE may, but need not, be composed entirely of active market participants.  (For example, the author is currently a member of the CPE, but is an academic lawyer licensed in Washington, and not in active practice apart from one pending pro bono matter.)  The members of the CPE, unlike the POLB, are not appointed by the court, but rather by the Board of Governors.   Nor does the state supreme court actively supervise the opinions issued by the CPE.  Indeed, they are not even approved by the Board of Governors.
But I do not share the worry that the CPE’s opinions are vulnerable under the antitrust laws, as long at they are limited to interpreting the RPCs, as is the CPE’s mission.   The Goldfarb case involved ethics opinions that were (a) interpreting recommendations not promulgated by a state actor (but rather by the Fairfax County Bar Association), and (b) threatened disciplinary action for lawyers that did not follow the fee schedules.    In comparison, the CPE interprets rules promulgated by the state Supreme Court.   It is clear that the rules, themselves, are entitled to state action immunity.

The disciplinary rules reflect a clear articulation of the State’s policy with regard to professional behavior. Moreover, as the instant case shows, the rules are subject to pointed re-examination by the policymaker the [state] Supreme Court in enforcement proceedings. Our concern that federal policy is being unnecessarily and inappropriately subordinated to state policy is reduced in such a situation; we deem it significant that the state policy is so clearly and affirmatively expressed and that the State’s supervision is so active.

Bates v. State Bar of Arizona, 433 U.S. 350, 362 (1977)(holding that Arizona’s advertisign ethics rules were immune from attack under the antitrust law, even though they were vulnerable under the first amendment of the Constitution).
 The CPE is charged with interpreting Washington’s rules, not with elaborating and expanding on them.  Moreover, the CPE has no power to enforce the rules and its opinions are, at best, persuasive rather than authoritative when considered by the Court.   In short, what the CPE is a far cry from what the Virginia Bar Association opinions were doing in Goldfarb.  Accordingly, I think the situations are quite distinct.


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