Ninth Circuit Revives SmileDirect Antitrust Suit
04/05/2022On March 17, 2022, the United States Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the dismissal of an antitrust complaint brought by SmileDirectClub LLC (“SmileDirect”) against the Dental Board of California. The complaint alleged that the Dental Board of California utilized unfounded investigations to intimidate and harass with the aim of driving SmileDirect out of the dental and orthodontia markets because of the threat that its cheaper direct-to-consumer model posed to the traditional practice of dentistry. SmileDirectClub, LLC v. Tippins, No. 20-55735 (9th Cir. Mar. 31, 2022).
SmileDirect is a proprietary direct-to-consumer business that sells clear teeth aligners to orthodontic patients through an online platform. SmileDirect uses a telemedicine model that allows dentists to treat out-of-state patients so long as they have met state licensure requirements. Patients interested in SmileDirect can access orthodontic services through a brick-and-mortar store, a mobile store, or through the SmileDirect website. The Dental Board of California is made up of fifteen members, including eight practicing dentists, one registered dental hygienist, one registered dental assistant, and five public members and is charged by statute with the regulation of dentistry in California.
Plaintiff filed suit alleging that the Dental Board engaged in a campaign of coordinated statewide raids, false statements, misconduct in front of consumers, and retaliatory accusations in violation Section 1 of the Sherman Antitrust Act and California’s Unfair Competition Law. In July 2020, the district court dismissed the federal claims and declined to exercise supplemental jurisdiction over the state law claim. SmileDirect appealed the decision.
In addressing these claims, the Ninth Circuit made two important points. First, it rejected the Dental Board’s assertion that the SmileDirect plaintiffs lacked Article III standing. Citing Spokeo, Inc v. Robins, the court concluded that, in order to have standing, plaintiffs must allege that they have “(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016). In this instance, the Court determined that the SmileDirect parties had alleged that the Dental Board’s actions injured their business, revenue, and reputation in the marketplace and these injuries were traceable to members of the Dental Board who had allegedly authorized the actions. As a result, the court concluded that SmileDirect had sufficiently pled standing.
Second, with regard to the Sherman Act claims, the Court concluded that SmileDirect had plausibly pled concerted action. The Ninth Circuit found that the district court erred in importing a summary judgment standard at the motion to dismiss stage and in absolving the Dental Board because they acted consistently with their regulatory purpose. While the complaint did not name the Dental Board itself as a defendant, the Court determined that SmileDirect had adequately alleged the active participation of many of the Dental Board’s members in the conspiracy. The Ninth Circuit cited Supreme Court precedent in N.C. State, noting that members of state regulatory boards may also be active market participants and should not be granted blanket antitrust immunity. See N.C. State Bd. Of Dental Exam’rs v. FTC, 574 U.S. 494, 504–05 (2015). However, because standing requires evidence of either direct or circumstantial participation in the anticompetitive scheme, the Court affirmed the dismissal of five members of the Dental Board who were not implicated in the alleged conspiracy.
The Ninth Circuit explicitly rejected an argument that the Board would be immune under the Sherman Act so long as their actions were achieved in the course of the exercise of valid regulatory authority. The SmileDirect plaintiffs alleged that the Dental Board’s investigators engaged in aggressive and unreasonable raids to create a public spectacle and initiated retaliatory administrative proceedings. While these actions could independently fall within the Board’s authority, the Court concluded that the actions could still be illegal if their anticompetitive effects outweighed their legitimate regulatory justifications. Accordingly, the court affirmed the dismissal in part and reversed and remanded in part.