Non Profit Report - May 2014
The Federal Trade Commission Takes Aim at Professional Regulatory Boards
By: Jefferson C. Glassie, Esq.
Written with assistance from Stacey Pine.
Take-away: The Supreme Court will hear a case this fall as to whether state licensing boards composed of regulated professionals are entitled to the ‘state action’ exception to the antitrust laws.
In 2003, the North Carolina State Board of Dental Examiners (“the Board”), the dental licensing and disciplinary body within the state, sent cease-and-desist letters to non-dentists who were providing teeth whitening services and distributing teeth whitening products throughout North Carolina. The letters advised the non-dentist providers that they were practicing dentistry in violation of North Carolina law and ordered the providers to immediately stop providing services and distributing products. In response to the Board’s actions, the FTC filed a complaint and entered an order against the Board in 2010, charging it with anticompetitive behavior in violation of the FTC Act and the Sherman Act. The FTC specifically found that the Board’s actions led to higher prices and reduced choices for consumers, and concluded that the Board’s actions had “a clear tendency to suppress competition and lacked any countervailing procompetitive virtue.”
The Board appealed the FTC’s decision to the 4th Circuit Court of Appeals asserting, among other things, that the Board was exempt from antitrust laws under the “state action” doctrine. The state action doctrine provides antitrust immunity for states agencies taking regulatory action that, if taken by a private actor, would otherwise result in violations of the federal antitrust laws. After hearing the case, the 4th Circuit Court rejected this argument, finding the majority of the Board members were dentists, elected by other dentists rather than state officials, and the Board members obviously had a direct interest in competition within the dental market. Most concerning to the court was the fact that a Board comprised of market participants could exclude competitors from the marketplace without supervision by a disinterested state authority. The court ultimately held that a state regulatory board comprised of market participants that did not need approval from a disinterested state authority for its decisions was a “private actor” and, therefore, not exempt from antitrust laws. In other words, the court held that action by a state agency comprised of those practitioners regulated by the agency would not be considered bona fide state action, granting immunity under the antitrust laws.
This ruling may be of concern for associations that work on behalf of their members to ensure proper regulation of the professions they represent. The 4th Circuit’s ruling effectively limits the ability of various state licensing boards that are comprised of market participants from regulating certain allegedly unlawful practice by non-licensed, practitioners. This could have an impact in certain situations because the purpose of state regulatory boards is to regulate professional conduct and provide public protection by ensuring those who practice certain professions meet minimum standards and are duly licensed. Typically, those most qualified to ensure the state is providing proper protection are those who are most knowledgeable about the profession being regulated. Additionally, requiring a licensing board to obtain formal state approval for decisions would create bureaucratic problems, and delay public protection efforts.
The Board petitioned the Supreme Court for certiorari, and the Supreme Court has agreed to hear the case this fall. It will be interesting to see how the court rules.
Disciplinary Proceedings: Due Process and Fair Report to Avoid Liability
By: Jerome C. Schaefer, Esq.
Take-away: A decision by the United States Court of Appeals for the Third Circuit in mid-February is a reminder that failures in due process and fair reporting of association disciplinary matters may lead to legal liability.
In Graboff v American Association of Orthopaedic Surgeons, et al., the Third Circuit affirmed a jury verdict against the Association for “false light invasion of privacy” as a result of the Association’s report on the grievance proceedings and discipline of one of its members in the Association’s newsletter. The Court held that the facts as found by the jury supported a finding of libel as well, so it upheld the jury’s award of $196,000 in damages.
The facts behind the opinion: One member of the Association, Dr. A, filed a grievance against another member, Dr. B. An expert opinion report written by Dr. B had been used against Dr. A in a medical malpractice suit. Dr. A asserted that Dr. B had not reviewed certain x-rays prior to preparing his expert report and that the report violated the Association’s Standards of Professionalism, requiring its members to provide honest and accurate testimony when serving as expert witnesses. In response, Dr. B put in evidence that his report was preliminary and that he had not expected the report to be used as evidence in the litigation. In addition, he provided evidence that the law firm that retained him had removed the words “Draft Report” without his knowledge or consent, and that the redacted “Draft Report” was used to secure a settlement from Dr. A.
What was at issue in this opinion was the way the Association reported these facts in its newsletter. The Third Circuit found that the Association’s published report “selectively recounted the circumstances of the grievance proceedings to imply that (Dr. B) had testified falsely” in his expert report.
Under the general law of “defamation by implication” and “false light invasion of privacy,” the publisher of a potentially defamatory report who omits salient facts from a publication may be legally liable, if the result is a false statement of fact whose “gist” has a sting worse than a fully accurate report. The Third Circuit’s holding in Graboff suggests that if the published report of the grievance proceedings had included Dr. B’s defense and had not accused him of testifying falsely, then the Association would not have been liable for either defamation or false light invasion of privacy.
Although the Graboff holding does not address the due process of the grievance proceeding itself, the holding does remind grievance committees and reviewing boards that due process requires that all facts that tend to exonerate, excuse, and mitigate the actions of the charged member must be disclosed and evaluated along with the incriminating evidence. Particularly where the findings and recommendation of the grievance committee are reviewed “on the record” by the reviewing board, the grievance committee and the reviewing board must be careful that there is a complete and accurate record and that all facts, pro and con, relevant to the finding and imposition of discipline are supported and fairly explained in all published accounts so as neither to defame nor shed false light.
Since grievance proceedings are often passionately pursued and defended, it is incumbent on both discipline committees and reviewing boards to be fair and dispassionate, to fully develop and report the facts, and to come to a reasoned conclusion based on the facts found to be proved.