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Supreme Court Ruling Could Affect State Boards of Accountancy

Last week, in North Carolina State Board of Dental Examiners vs. Federal Trade Commission (PDF), the U.S. Supreme Court ruled in a 6–3 decision that a state licensing board could not claim so-called “state action” immunity from antitrust laws.

The case could impact how state licensing boards, including boards of accountancy, conduct activities. The ruling requires that majority-licensee state licensing boards be “actively supervised” by the state in order to claim immunity from antitrust law.

In an email, the National Association of State Boards of Accountancy (NASBA) said: “The Court left some unanswered questions, but we note that there are some important legal differences between the conduct the Court attributed to the Dental Board and states’ accountancy acts as well as the UAA. Our preliminary review of the various procedures followed by state boards indicates that most member board enforcement activities are already consistent with Court’s decision.”

The North Carolina State Board of Dental Examiners (NCSBDE) — composed of six dentists elected by other dentists, one dental hygienist and one governor-appointed “consumer” member — is a statutorily created agency that regulates the practice of dentistry in the state. The case in question centered on teeth-whitening services offered by non-dentists, which drew complaints from dentists about the low prices the providers were offering. The NCSBDE then sent cease-and-desist letters to dozens of providers that implied that the services constituted unlicensed practice of dentistry, leading to non-dentists abandoning the teeth-whitening business in the state.

The Federal Trade Commission (FTC) took action against the NCSBDE, which claimed state action immunity, or a longstanding antitrust immunity enjoyed by states when acting in their “sovereign capacity.” The FTC and the Fourth Circuit Court of Appeals rejected that defense, and the Supreme Court took up the case and ruled that a state agency tasked with regulating a particular market and controlled by active participants in that market does not enjoy such immunity.

The Supreme Court said that antitrust immunity only exists if the anticompetitive conduct at issue is “supervised by the state,” and that such supervision is necessary because private interests are so strong that active market participants create an increased risk of anticompetitive conduct.

The court noted that day-to-day involvement or micromanagement of a board’s operations is not necessary for active supervision and that the issue is “whether the State’s review mechanisms provide realistic assurance that a non-sovereign actor’s anticompetitive conduct promotes state policy.” The court provided the following criteria:

  • State officials must review the substance of the anticompetitive decision, not just the procedures that produced it
  • State supervisors must have the power to veto or modify particular decisions to ensure they comply with state policy
  • The potential for state supervision is not an adequate substitute for a decision by the state
  • The state supervisor may not itself be an active market participant

In general, the adequacy of supervision will depend on all the circumstances of a particular case, and the court noted that “the inquiry regarding active supervision is flexible and context-dependent.”

The decision applies to licensing boards that are “controlled” by “market participants.” The Supreme Court does not define the latter term, but NASBA interprets it as “a licensed practitioner of the relevant profession.”

NASBA also noted that the selection process used to select board members could be a factor in determining the amount of state supervision required, although the issue of majority licensee control is more significant. While the NCSBDE’s members are elected by North Carolina dentists, no state boards of accountancy, including the Virginia Board of Accountancy (VBOA), follow that practice. VBOA members are appointed by the Virginia governor.

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