A ruling worth the State Bar's attention

By Robert Fellmeth

The U.S. Supreme Court's recent decision in North Carolina Board of Dental Examiners v. Federal Trade Commission reminds one of the potency of denial. We can predict that the State Bar, as with professional licensing agencies in every state, will view the holding as an ephemeral nightmare or falsely rationalize that it does not apply to it, or that its current practices somehow comply.

This decision holds that federal antitrust law fully applies to decisions of a state occupational licensing board controlled by "active market participants" in the profession regulated by that board. It applies to all state agencies everywhere and will curtail the inherently corrupt cartel governance now dominant.

Much of what these agencies do restrains trade. They decide who can practice - limiting supply and competitors; they specify the terms of practice; they excise those who break the rules. They have been wrongly considered by the "establishment" in every state as immune from antitrust application by way of what is termed qualified "state action." But under this seminal decision, they are immune only if their acts are affirmatively authorized by the state and are subject to "active state supervision." That supervision must not be pro forma or general, but specific to review actively the anticompetitive effects of any decision that restrains trade. This latter requirement has been ignored throughout the nation over the 72 years since the highest court made clear that "independent" state supervision is required in the seminal Parker v. Brown Supreme Court decision of 1943.

This 6-3 precedent holds that state agencies cannot be controlled by "active market participants" and still be considered a part of the "sovereign state." They have only the status of a private cartel. Hence, the full panoply of federal antitrust prosecution is now potentially proffered - from federal felony convictions to treble damages civil judgments.

The decision explicitly includes the governance of attorneys by the respective state bars and does not accept the usual contention that "connection to the judicial branch" supports categorical exclusion. See the decision's discussion of Goldfarb v. Virginia State Bar to the contrary.

A state agency cannot be governed by a board or commission controlled by members practicing in the relevant trade. In fact, it is doubtful that a majority of a quorum can be members of the regulated trade or profession because they may be the persons making a given decision.

We have made progress in California. A 2011 bill changed the State Bar Board of Governors' composition from 23 members (with 17 attorneys elected by attorneys and six public members appointed by public officials) to a 19-member Board of Trustees. Thirteen of those 19 are practicing attorneys. The other six are public members - but Gov. Jerry Brown has left three vacant for three years - exhibiting a non-feasance on point regrettably not confined to bar public member appointees. So the board has a supermajority of 13 attorneys who are "active market participants" in the profession they regulate. The bar's actions, from its exam limiting competition to many other decisions, are not entitled to "state action" immunity.

Under this decision, the Legislature must radically alter the board's attorney/public member lineup from a 13-6 attorney majority to no more than four attorneys and 15 public members. This is required practically since a majority of a quorum might otherwise be practicing attorneys, as noted above. The alternative would be to require state Supreme Court review of every board action for anticompetitive effect - a prospect likely to produce seven understandably cranky justices. They have other things to do. Or, it could appoint a nonattorney entity to perform that task. But it will have to be done with care and, hopefully, in a bona fide fashion. Another California case (MidCal) makes clear that pro forma review will not suffice, nor will general oversight.

The problem addressed by this decision is genuine. The potent underpinning here is the undiscussed issue of "tribal identification." We are attorneys. We attended law school and endured the Socratic method. We all have to bow before the same altar. I realized this when I attended a party years ago of people who knew nothing about our work and learned that an attorney was present. "Thank God," I remember thinking, "someone I can talk to."

I also know that the attorney members of the Boards of Governors/Trustees I have known over the years are of sterling character. Five successive State Bar presidents supported our reform while serving as the State Bar discipline monitor to create an independent State Bar Court. That involved giving up authority, something rarely done anywhere.

But we do not see our own bias easily. Attorneys are licensed primarily to prevent irreparable injury to clients who rely on their competence. Those practitioners practice in one, or at most two, of at least two dozen different specialties, including criminal defense, bankruptcy, immigration, intellectual property - everything from admiralty law to personal injury. The bar gives a single test for licensure. Little of it assures substantive competence in actual practice. And each legal consequence turns on knowing precedents as they change, and immediately. But no person is tested in actual practice relied upon by clients, not at age 25 nor for the decades of practice thereafter until death.

Then when there is incompetence, the bar does not require malpractice insurance for restitution, nor does the Client Security Fund apply. This entry-control power is a market restraint of the first order; such a supply control by competitors is both a group boycott and a species of price-fixing constituting per se federal antitrust offenses. A nonattorney separate from our tribe would likely seek more of a connection between such a restraint and the rationale commending it. Our tribe does not think of it. Periodic tests during actual practice would be inconvenient. It is not discussed.

It takes a perspective outside the tribe to properly exercise the power of the People - the proper source of any regulation. And this comment is not an endorsement of more regulation, far from it. The occupational tribes love regulation and are its sources and supporters. Perhaps we can reduce its imposition, but wherever it is genuinely necessary, it emanates from all of us, not a particularized Medieval Guild. That model is not only contrary to notions of freedom and democracy, it has been soundly rejected by our most respected philosophers since the Renaissance.

This decision is long overdue. The dissent argues that it will create a "morass." But the morass has been created by 72 years of violating the original Parker decision, noted above. It has always required "independent state review." This will now be straightened out. Hopefully, we shall create a system that will take advantage of our expertise as attorneys, but combine it with the independence required to make legitimate public decisions on behalf of the body politic. That balance has been skewed into a self-promoted cartel structure in our State, and much more so in other states. It is time to actualize the high school civics class pronouncements about our democracy that caused many of us to fall in love with it.

Robert C. Fellmeth is Price Professor of Public Interest Law at University of San Diego School of Law.

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