Northern District Of Georgia Rules On Antitrust State Action Immunity
On May 8, 2019, Judge William M. Ray II of the United States District Court for the Northern District of Georgia issued an order granting in part and denying in part defendants’ motion to dismiss. SmileDirectClub, LLC, v. Georgia Board of Dentistry, et al., No. 1:18-cv-02328-WMR (D.N.G. 2019). Plaintiff alleged that the Georgia Board of Dentistry (the “Board”) and its individual members (collectively, “defendants”) conspired to exclude non-dentists from participating in the market for orthodontic aligner treatment services in Georgia. The Court found that claims against the Board were barred by sovereign immunity, while claims against individual members of the Board were adequately pled and survived dismissal.
Plaintiff is a dental service provider for teeth aligner treatment, whose business model involved dental assistants taking scans of a patient’s teeth and gums at remote locations. The scans are then sent to licensed dentists who determine whether patients should use plaintiff’s aligner product. Plaintiff alleged that defendants violated Section 1 of the Sherman Act, 15 U.S.C. § 1, by voting to amend the Georgia Board of Dentistry Rules to require dental assistants taking orthodontic scans to have immediate supervision from a licensed dentist (“the amended Rule”). Plaintiff asked for declaratory relief. Defendants moved to dismiss.
The Court first considered allegations against the Board and found the Board acted as a state entity and was therefore protected from suit by sovereign immunity. The Court considered four factors in determining whether the Board was a state entity: (1) how state law defines the entity; (2) what degree of control the state maintains; (3) where the entity derives its funds; and (4) who is responsible for judgments against the entity. The Court found that all factors weighed in favor of immunity: the Board was created by the Georgia General Assembly, was a division of Georgia’s Department of Community Health, was funded by state appropriations, was defended in the suit by Georgia’s Law Department, and Board members were appointed and its rules confirmed by the Governor. As such, the Board was entitled to immunity from suit.
The Court next considered whether individual members of the Board were immune from suit. The Court noted that an exception to immunity exists when plaintiff seeks prospective relief against state officials to prevent them from violating federal law, as was the case here with plaintiff seeking declaratory relief from the alleged Sherman Act violation.
Defendant board members argued they should receive immunity under Parker v. Brown, 317 U.S. 341 (1943). The Court disagreed, relying upon N.C. State Bd. Of Dental Exam’rs v. FTC, 135 S. Ct. 1101, 1114 (2015), which held that a state board whose members were active market participants could be granted immunity only when (1) the challenged conduct was clearly and affirmatively expressed as a state policy and (2) the state directly supervised the policy. The Court found that a “Certification of Active Supervision” signed by the Governor was insufficient to prove the second element. However, defendants were allowed to raise the Parker defense at a later stage of litigation, by bringing evidence that the Governor approved the amended Rule based on sufficient knowledge of the rulemaking process and not as a perfunctory job duty. Finally, the Court also ruled that plaintiff had a viable due process claim, finding that, accepting plaintiff’s allegations, the amended Rule served no legitimate governmental purpose, and the alleged health benefits were “pretextual.”
This case serves as a reminder of the limits of state action defenses in antitrust suits. Companies and board members with government affiliations should be aware of the requirements needed to establish immunity from suit, especially at the motion to dismiss stage.