FTC Denies State Dental Boards Dismissal Motion on State Action Grounds

In a decision filed today, the Federal Trade Commission denied the motion of the South Carolina State Board of Dentistry to dismiss this action on the ground that its actions were protected by the state action doctrine. The Commission concluded that the Board’s “emergency regulation,” which required dental preexaminations in school settings and hindered access to preventive dental care to thousands of economically-disadvantaged children in the state, appears to contravene state law and that dismissal on state action grounds is therefore inappropriate. The Commission retained jurisdiction over the matter, however, and remanded the case to an administrative law judge for further findings on the Board’s separate ground for dismissal concerning whether the Board is likely to reimpose the dental preexamination requirement in light of recent amendments to state law.

The Commission’s Complaint Against the Board

In September 2003, the Commission filed an administrative complaint against the Board alleging that the Board had violated federal law by illegally restricting the ability of dental hygienists to provide preventive dental services, including cleanings, sealants, and fluoride treatments on-site to children in South Carolina schools. The FTC alleged that the Board acted unlawfully in adopting an emergency regulation that reimposed a requirement that dentists preexamine patients before dental hygienists could provide treatment in school settings. The complaint alleged that the Board’s actions hindered competition and deprived thousands of school children – particularly economically disadvantaged children – of the benefits of preventive oral health care. The FTC further alleged that the Board had taken recent actions that suggested that it would violate state law again.

The State Action Doctrine

The state action doctrine dates back to the Supreme Court decision in Parker v. Brown, 317 U.S. 341 (1943), which held that, because states are sovereign entities, Congress did not intend the Sherman Act – a primary U.S. antitrust law – to apply to the sovereign activities of the states themselves. As a result, the Supreme Court has ruled that, in limited circumstances, the anticompetitive activities of certain nonsovereign governmental entities may be shielded from federal antitrust scrutiny. Such activities, however, must be based upon a “clearly articulated and affirmatively expressed state policy” to displace competition with regulation.

The Decision

The Commission’s decision, authored by Commissioner Mozelle W. Thompson, concludes that as a subordinate state regulatory entity, the Board was not automatically entitled to protection from antitrust liability because its actions were not those of the state as sovereign. The Commission then ruled that the Board had failed to show that its 2001 emergency rule, issued after the legislature had amended state law to allow dental hygienists to provide preventive dental care to children without a dental preexamination, was issued pursuant to a clearly articulated state policy:

Nor can we conclude that the Board acted pursuant to a clearly articulated policy of the South Carolina legislature to displace competition. On the contrary, its actions appear to have contravened the clear legislative intent in the 2000 amendments to eliminate the preexamination requirement.

The Commission also held that the Board’s actions were not a mere error of state administrative law. Instead, the Commission concluded that the Board’s error “relates directly to the limitations the state legislature has imposed on the Board’s authority to restrict competition.”

The Board also argued that the Commission’s case was moot because the 2001 emergency regulation had expired and that the 2003 amendments to the state law barred the reimposition of the preexamination requirement. The Commission concluded that whether the Board may engage in such anticompetitive conduct again raised factual issues that could not be resolved in a motion to dismiss. Accordingly, the Commission retained jurisdiction but referred the case to an administrative law judge for limited discovery on the issue of whether the Board is likely to engage in unlawful conduct under the 2003 statute.

The Commission vote to deny the motion was 5-0.

Copies of the decision by the Commission are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

(FTC Docket No. 9311)