By Nicole D. Prysby, J.D.
Board of Dentistry members who were sued in their individual capacity over a rule amendment failed to satisfy the active supervision requirement and were not entitled to ipso facto state action immunity.
The members of the Georgia Board of Dentistry failed to show that they were entitled to immunity under the state action doctrine from antitrust claims brought against them in their individual capacity, held the U.S. Court of Appeals in Atlanta. SmileDirectClub, LLC sued the members in their individual capacities, arguing that a rule amendment they proposed unlawfully restricted competition from teledentistry services. The court held that the Board members failed to satisfy the active supervision requirement for entitlement to state action immunity, because the Governor approved the proposed rule amendment without a substantive review. In addition, the court rejected the Board members’ argument that ipso facto state action immunity was available merely because of the Governor’s power and duty, and without regard to his actual exercise thereof (Smiledirectclub, LLC v. Battle, August 11, 2020, Anderson, R.).
SmileDirectClub is an operator of a web-based teledentistry platform. Patients go to one of its locations, which are staffed by SmileDirect technicians. The technicians take digital scans of the patient’s teeth, which are sent to SmileDirect’s lab to create a model for treatment. SmileDirect alleged that the Georgia Board of Dentistry amended its rules so as to restrict competition from teledentistry services. The practical effect of the Board’s proposed amendment was that digital scans, like the ones conducted by SmileDirect only take place when a licensed dentist is physically in the building where the scans are taking place, and to prohibit them otherwise. The Board sent the proposed rule to the Governor of Georgia, who issued a statement that the amendment was within the authority of the Board and therefore was approved. SmileDirect filed suit, alleging that the amended rule violates (among other things) Section 1 of the Sherman Act. The Board moved to dismiss the antitrust claim and contended that the state action defense barred the claim.
The district court dismissed SmileDirect’s claims against the Board in its official capacity but denied the motion to dismiss with respect to the antitrust claims against the Board members in their individual capacities. The Board members appealed.
Active supervision requirement. The court held that it had jurisdiction over the Board members’ appeal of the denial of its motion to dismiss because it implicated immunity from suit under the state action doctrine. As to the merits, the court concluded that the Board did not satisfy the active supervision requirement for entitlement to state action immunity. Though the Governor of Georgia had the "authority and duty to actively supervise" and was clearly empowered to "approve, remand, modify or reverse" proposed rules (or amendments), he did not exercise that power here. There was no indication that the Governor engaged in a substantive review of the amended rule and his comments regarding the proposed amendment suggest that he examined only the procedural question of whether the amended rule was within the Board of Dentistry’s statutory power to propose. The Governor did not comment—even in passing—on the merits or substance of the rule change. The reasonable inferences from his Certification indicated that he ascertained that the amendment was within the authority delegated to the Board by the Georgia statute, and the Governor then concluded: "Therefore, I hereby approve the amendment." This is the exact sort of potential for active supervision—without actual supervision—that the Supreme Court has repeatedly held is insufficient to satisfy the active supervision requirement.
Ipso facto immunity. The Board also argued that it was entitled to ipso facto immunity because the Board of Dentistry’s amendment can be attributed to the Governor. Georgia’s statutory framework for rulemaking grants the Governor both the authority and power to substantively review any rule promulgated by a professional board, like the Board of Dentistry, and indeed imposes upon him the duty to do so. In other words, the mere potential for such action by the Governor was sufficient without regard to whether the Governor actually reviews the rule substantively and makes it his own action. The court rejected that argument as inconsistent with Supreme Court precedent on ipso facto state action immunity. The anticompetitive conduct at issue (the amended rule) was not "in reality" the act of the Governor. Whatever the Governor’s power and duty with respect to the amended rule, if he did not exercise that power and did not actually make the amended rule his own "affirmative command," his actions fell short. It would make no sense to suppose, as the Board members did, that the mere power and duty on the part of the Governor would suffice for ipso facto immunity, when clearly established Supreme Court case law makes it clear that mere potential supervision was not even sufficient to satisfy the "active supervision" test.
Concurring and dissenting opinions. Judge Jordan wrote a concurring opinion and stated that even if a state is able to immediately appeal the denial of state action immunity, an interlocutory appeal should not be available to private parties such as the members of the Georgia Board of Dentistry, whose status does not implicate sovereignty concerns. Judge Tjoflat wrote a dissenting opinion and stated that the court lacked jurisdiction to hear the appeal. The district court explicitly did not decide whether the Board members were entitled to state action immunity, but instead found that a definitive ruling on that issue would be "premature" and left the question open for resolution at the summary-judgment stage of the litigation. Because there was no conclusive determination regarding the Board members’ entitlement to state action immunity, the court lacked jurisdiction to consider the issue on appeal.
The case is No. 19-12227.
Attorneys: Jeffrey S. Cashdan (King & Spalding, LLP) for SmileDirectClub, LLC. Andrew Alan Pinson, Office of the Attorney General, for Tanja D. Battle.
Companies: SmileDirectClub, LLC
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