In North Carolina State Board of Dental Examiners v. Federal Trade Commission, the U.S. Court of Appeals for the Fourth Circuit rejected the North Carolina dental board’s assertion of state action immunity for cease-and-desist letters that it sent to non-dentists providing teeth-whitening services. The court held that the state did not sufficiently supervise the ban.
The defendants argued that the state need not supervise the conduct of its agencies, just as municipal conduct does not require state supervision. The Fourth Circuit rejected that argument, explaining that all agencies are not created equal. An agency consisting of public actors charged to further the public interest may not need additional state supervision. “[W]here the ‘state agency’ is composed entirely of private market participants,” the court explained, the state action exemption does not apply unless the anticompetitive conduct is actively supervised by public actors.
Here, the dental board consisted mostly of dentists elected by their peers. The state action exemption is not triggered, the court held, when anticompetitive decisions are made by competitors with a financial interest in the market. In this case, the court found that the board consisted of “a decisive coalition (usually a majority) . . . of participants in the regulated market,’ who are chosen by and accountable to their fellow market participants.”
The court also rejected the argument that the cease and desist letters were the unilateral action of the board, rather than pursuant to a conspiracy. “As American Needle made clear,” Judge Shedd explained for the court, the “concerted action [requirement] is satisfied when an agreement exists between ‘separate economic actors’ such that any agreement ‘deprives the marketplace of independent centers of decision making.'” Allowing “the board’s status as a single entity” to prevent a conspiracy finding, the court explained, would have improperly allowed competitor dentists to forestall antitrust liability by acting “through a third-party intermediary or joint venture.”‘