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A Seminal SCOTUS Decision Holding Thousands of State Agencies to Be Walking Antitrust Felonies -- And an Incompetent Media Blithely Ignoring It

04/06/2015 10:28 am ET | Updated Jun 06, 2015
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In late February, the U.S. Supreme Court decided the most important case relevant to state and local government in the last 72 years. That statement sounds like typical attorney hyperbole, but it is not. And here is a related accusation that may be fairly added: With one exception (Michael Hiltzik, a columnist of the Los Angeles Times), the mainstream press is unaware that it has happened. Nor are the efforts of many of us familiar with antitrust and state administrative law able to pierce what is now two months of intransigent ignorance.

Allow me to explain, for there is a chance you will be more likely to understand it than the editorial boards of the Wall Street Journal, New York Times, Washington Post, USA Today, and Forbes, none of whom has a clue.

State boards and commissions regulate most professions and trades, from lawyers to doctors to contractors to insurers to barbers... you name it. Indeed, most regulation is at the state level, not the federal. These state agencies -- most of them controlled by members of the very profession regulated by that board -- engage in many acts that would be per se antitrust violations if committed by private cartels. Per se means there is no defense that it is "reasonable." You do it? Bang -- there are the momentous consequences of treble damage liability and at least theoretical felony prosecution. Look at one thing all of these agencies do: They only allow people who clear their "licensure" hurdle to practice. If they were not state agencies, that would be both a group boycott and supply control constituting price fixing. No defense.

But for the last 72 years, every state has ignored Parker v. Brown, the seminal 1943 U.S. Supreme Court decision that requires independent "state" supervision of every decision imposing such a restraint. State legislatures have assumed that, since what the state boards they have created is by definition "state action" (the term of art here), it is permitted under federal antitrust law otherwise entitled to supremacy. At the same time, they have all ceded authority to make these state decisions to bodies controlled by the very trade or profession regulated. In North Carolina Board of Dental Examiners v. FTC, the Supreme Court has held in clear, repeated, unambiguous, and unavoidable language that any such state entity that is controlled by "active market participants" in the trade regulated does not, and cannot, have "sovereign" state status. Hence, they have no more "state action immunity" from federal antitrust law than does any private cartel committing similar felony offenses.

This decision is reasonable and long overdue. The fact that almost every board or commission in all 50 states violates this basic standard does not help any of them. This is not a land claim where working the soil for 22 years gets you the property. And it cannot be cured by some pro forma "oversight" by non-conflicted officials, not unless it is bona fide and every anticompetitive decision is reviewed and affirmatively approved as a justifiable restraint, as outlined in another ignored Supreme Court decision: Midcal (1980). That kind of supervision is rare to non-existent. So far, our agencies are confused and staggering around theorizing all sorts of untenable evasions. But the game is over. This decision is not "distinguishable." Anyone reading it will see that evasions are not going to work. It cannot be avoided, waived or ignored.

Indeed, the consequences will soon be upon the states. Do the members of these boards and commissions know they are personally liable? If the state indemnifies them, has it calculated the likely cost in terms of treble damage judgments?

So this is the ultimate case of not one king wearing no clothes, but over 1,000 of them.
It is rather a significant story, is it not? Isn't it a public issue of some consequence? Other than Hiltzik's column, one article appeared in the Wall Street Journal discussing the impact on teeth whitening, which was the factual setting of the case. That accounts for perhaps one-millionth of its significance. Some of us have attempted to alert the editorial boards of our major national publications, writing comments or otherwise attempting to rouse what are apparently somnolent canines. They will print nothing, nor inquire, nor even ask a question. Not an inkling of comprehension, to repeat, from the Wall Street Journal, New York Times, Washington Post, USA Today, or Forbes. Nor can I find even a reference to it anywhere outside of the legal press (the LA Daily Journal) and the Harvard Law Record: But this is not an esoteric theoretical or academic legal debate. It is a seminal event. It is real, basic, pervasive, and goes to the core of our governance and its private interest capture over the past 72 years.

Eventually the antitrust suits will be filed. Their incentives are not trivial. Or competent state attorneys general or legislative counsel will finally have light bulbs shine and stop the secret meetings, rationalizations, and hand wringing now underway amongst them and in state legislatures. One would think that our nation's media might be able to get beyond coverage of ironies, celebrities, ostentatious conflict, and issues post hoc, and perhaps discuss this one. For this is a ruling that will require momentous changes in how we govern -- changes that are long overdue and likely for the better. They should be a part of this process.

The Court has finally struck a blow for democracy. And it will be actualized because of one phrase: treble damages liability. Thank you, Justice Kennedy. Now we all have to clothe many naked and quite ugly kings. And we shall have to do it without the help of our media, who seem to believe they all remain in royal regalia.

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Robert C. Fellmeth, Stanford University (AB) 1967, Harvard University (JD) 1970, former state and federal antitrust prosecutor (1973-1982), coauthor of California White Collar Crime (w/ Papageorge, Tower Publishing, 4th edition 2013), et al., and former State Bar Discipline Monitor for California, Director of the Center for Public Interest Law, Price Professor of Public Interest Law, University of San Diego School of Law.