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SmileDirectClub Case Prompts Rare Antitrust Chief Argument

July 8, 2020, 9:31 AM

A federal appeals court dispute over a dental company’s ability to operate in Alabama has drawn the nation’s top antitrust enforcers, including the head of the Justice Department’s Antitrust Division.

At issue before the U.S. Court of Appeals for the Eleventh Circuit Wednesday is whether members of Alabama’s Dental Board can be sued for allegedly violating antitrust laws when they threatened to shut down SmileDirectClub’s teledentistry operations in the state. Both the DOJ and the Federal Trade Commission are backing SmileDirectClub in the case.

In a rare move, the DOJ’s antitrust chief, Makan Delrahim, will argue on behalf of the government before the Eleventh Circuit panel, breaking from the department’s more typical practice of sending lower-level officials in similar antitrust cases.

State-Action Immunity

The oral arguments in the Eleventh Circuit center around state-action immunity, under which medical boards can deflect antitrust lawsuits by arguing that they’re acting on behalf of the state. Alabama’s dental board members, after being sued by SmileDirectClub, are trying to gain state-action immunity. The defense doesn’t block claims against boards whose members are market participants, except where members can show that the state actively supervises their conduct.

Delrahim’s presence in SmileDirect’s Alabama case indicates the importance the federal government is placing on limiting state-action immunity defenses.

The federal government’s activity “is part of a bigger picture: a long-term effort to limit the state-action doctrine,” said Matt Sawchak, a partner at Robinson, Bradshaw & Hinson, P.A.

Federal enforcers in recent years have sought to limit the state-action immunity defense in a variety of similar cases, including one challenging real estate appraiser boards and another brought by Uber Technologies Inc. seeking to upend a Seattle ordinance that would let ride-share drivers unionize.

In cases asserting the state-action immunity defense, antitrust enforcers typically look for situations where states or boards can’t back a rule with public health and safety justifications, Sawchak said. In such situations, state agencies may say the rule is for the benefit of the public when they’re actually more interested in excluding competitors for economic reasons, he said.

‘Unauthorized’ Practice

SmileDirectClub, which supplies 3-D printed, teeth aligners without the need to visit a doctor’s office, sued Alabama’s Dental Board and its members in 2018.
The company alleges the board, in the name of public health and safety, improperly stymied its ability to compete in order to protect traditional dentists and orthodontists’ business interests.

In a cease-and-desist letter, the board said SmileDirect was operating an “unauthorized” practice because a supervising dentist wasn’t overseeing dental imaging operations at the company’s retail location in Birmingham, Ala.

The company has been battling state boards across the country, including in Georgia and California, which have sought to limit its operations through rulemaking.

A federal district court in April 2019 declined to grant state-action immunity automatically to the Alabama board members because they hadn’t yet shown, among other things, that the state actively supervised their conduct.

In joint briefs, the DOJ and FTC argued that Alabama’s dental board members “bear the burden” of proving they satisfy the requirements of state-action immunity. Both agencies believe SmileDirectClub deserves the opportunity to continue its antitrust litigation because the board members haven’t shown that they were supervised by the state.

The case is Leeds v. Jackson, 11th Cir., No. 19-11502.

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editors responsible for this story: Laura D. Francis at lfrancis@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com

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