Fourth Circuit Holds State Agencies Operated By Market Participants Are Private Actors For State Action Purposes

On May 31, 2013, the Fourth Circuit issued an opinion upholding the Federal Trade Commission's (FTC) determination that the North Carolina State Board of Dental Examiners (Board) illegally expelled non-dentists from the teeth whitening market in North Carolina. The North Carolina State Board of Dental Examiners v. Federal Trade Commission, No. 12-1172, 2013 U.S. App. LEXIS 11006 (4th Cir. May 31, 2013) [hereinafter NCSBD]. Coupled with the Supreme Court's recent decision in FTC v. Phoebe Putney Health Sys., Inc., 133 S.Ct. 1003 (2013), this case clarifies the contours of antitrust state action immunity for certain types of “quasi-governmental entities.”

The case involved the market for teeth whitening services in North Carolina. Beginning in the 1990s, dentists began providing such services throughout the State. Around 2003, non-dentists also began offering teeth whitening services, often at lower prices than dentists. Dentists began complaining to the Board.

“The Board is a state agency created because the 'practice of dentistry' in North Carolina affects 'the public health, safety, and welfare'.” NCSBD, No. 12-1172, slip op. at 4 (citing N.C. Gen. Stat. § 90-22(1)(a)). The Board is comprised of six licensed dentists, elected by dentists; one licensed dental hygienist, elected by dental hygienists; and one consumer member, appointed by the Governor. The Board is funded by fees paid by North Carolina licensed dentists and dental hygienists.

After receiving complaints from dentists, the Board opened an investigation into teeth whitening services and ultimately issued cease-and-desist letters to 29 non-dentist teeth whitening providers, calling on them to stop “all activity constituting the practice of dentistry.” Id. at 7. Through these letters, the Board successfully excluded non-dentists from North Carolina's teeth whitening market.

The FTC filed an administrative complaint against the Board, charging it with an antitrust violation. The Board principally defended itself by arguing that it was exempt from the federal antitrust laws under the “state action” doctrine. The FTC disagreed and the Fourth Circuit upheld that conclusion.

Under Supreme Court jurisprudence, most recently exemplified by the Phoebe Putney opinion,state-action immunity is disfavored. Id. at 13 (citing Phoebe Putney, 133 S.Ct. at 1010). The FTC concluded that, for antitrust purposes, the Board was actually a private party, not a state agency, and, therefore, had to show...