Yesterday, the U.S. Supreme Court ruled that anti-competitive policies created by state professional are not exempt from scrutiny when the regulatory body is not actively supervised by the state.
This decision, in addition to removing the antitrust exemption enjoyed by many bar associations, could have profound implications for the ability of lawyers to continue to prohibit their nonlawyer competitors from operating and exclude nonlawyers from the legal services market.
Responsive Law filed a brief in the case, North Carolina Board of Dental Examiners v. FTC, urging the Supreme Court to consider the negative effect that continuing to grant an antitrust exemption to these unsupervised professional boards would have on the expanding market of affordable and accessible legal services offered by nonlawyers.
Like the North Carolina Board of Dental Examiners, state bar associations, as a result of pressure from their members, have used cease and desist letters to put their unlicensed competitors out of business, which has allowed for the high monopoly rates lawyers currently have. As a result, over 80 percent of Americans have received no assistance with everyday legal needs, such as simple estate planning, arranging child custody, landlord-tenant disputes, or addressing consumer debt matters.
In this case, the Court held that a state dental board consisting primarily of dentists who were elected by other dentists and which was not supervised by the state was not exempt from antitrust action, despite its claims that it was exempt as a “state actor.” The Court noted that “[e]ntities purporting to act under state authority might diverge from the State’s considered definition of the public good. The resulting asymmetry between a state policy and its implementation can invite private self-dealing.” The Court explicitly suggests that State agencies who are both controlled by active market participants and who possess “singularly strong” private interests pose a very high risk of self dealing/promoting policies that will benefit their own private interests.
State bars, when they function in a regulatory capacity, act exactly as the dentists did in this case. State bar associations and their regulatory arms consist entirely or almost entirely of lawyers, and are elected or appointed by a membership consisting of lawyers. In the case of the bar, the use of its enforcement power over UPL has devolved from furthering the state’s policy interest in protecting consumers to furthering the bar’s interest in protecting itself from competition.
In ruling as we had urged, the Court held that a state agency “controlled by active market participants” must be subject to active supervision by the state in order to be immune from an antitrust claim. This active supervision must include an actual, non-rubber-stamp review of the agency’s actions and the supervisor’s ability to overrule or modify those actions.
In the case of the North Carolina dentists, the Court indicated that their unsupervised anticompetitive actions were not carrying out the will of the government. The Court states:
By statute, North Carolina delegates control over the practice of dentistry to the Board. The Act, however, says nothing about teeth whitening, a practice that did not exist when it was passed. After receiving complaints from other dentists about the nondentists’ cheaper services, the Board’s dentist members—some of whom offered whitening services—acted to expel the dentists’ competitors from the market. In so doing the Board relied upon cease-and desist letters threatening criminal liability, rather than any of the powers at its disposal that would invoke oversight by a politically accountable official. With no active supervision by the State, North Carolina officials may well have been unaware that the Board had decided teeth whitening constitutes “the practice of dentistry” and sought to prohibit those who competed against dentists from participating in the teeth whitening market. Whether or not the Board exceeded its powers under North Carolina law, there is no evidence here of any decision by the State to initiate or concur with the Board’s actions against the nondentists. (Majority opinion, p. 17, internal citations omitted.)
In this passage, one could substitute “lawyers” for “dentists,” “law” for “dentistry,” and “document preparation,” “self-help assistance,” or any number of other services for “teeth whitening” and the Court’s reasoning would still hold. There is no evidence that state bars are carrying out the will of the government when they act to expel their non-lawyer competition from the market through UPL actions. If dentists are not allowed to define the practice of dentistry without state supervision, then lawyers should also not be allowed to define the practice of law without state supervision.
So what will the ultimate impact of this ruling be? In the short term, it means that the 22 state bars that are currently acting without state oversight will need to refrain from UPL enforcement actions lest they be liable for antitrust violations.
In the long term, it’s likely that bars will get state supreme courts to fulfill the oversight function with regard to UPL enforcement. This would be better for consumers than no oversight at all, but not by much. State supreme courts are, of course, made up entirely of lawyers. While judges are not “active market participants” in the legal market, they are still more likely to view regulation from the bar’s perspective than a non-lawyer would be. They are also insulated from electoral accountability in a way that the executive branch isn’t. At a minimum, if the bar is to be involved in UPL regulation, it should be subject to the more popularly accountable oversight of the executive branch.
A better solution would be for state legislatures to take responsibility both for clearly defining UPL and for placing enforcement power in the hands of executive branch prosecutors. (The judicial branch may assert that separation of powers gives it exclusive power to regulate the practice of law, but it makes little sense for the judicial branch to have sole authority over areas of law that don’t involve appearing in court, such as transactional law or out-of-court advice.) Removing UPL enforcement from those who benefit from aggressive and anticompetitive enforcement actions is the only way to end the antitrust abuse and ensure that the public has access to affordable legal help in a competitive marketplace.