Mergers & Antitrust Law News

Antitrust Chief Urges Limited Immunity in SmileDirectClub Case

July 8, 2020, 8:42 PM

The Justice Department’s antitrust chief made a rare appeals court appearance to ask the Eleventh Circuit not to expand a defense used by medical and dental boards against lawsuits charging them with stymieing competition.

Makan Delrahim, assistant attorney general for the DOJ’s Antitrust Division, presented oral arguments in the U.S. Court of Appeals for the Eleventh Circuit Wednesday in a case filed by SmileDirectClub against members of the Alabama Dental Board.

The board members appealed after a lower court denied them an automatic grant of state-action immunity, a defense that allows medical and dental boards to deflect federal antitrust lawsuits by arguing that they’re acting on behalf of the state. Board members who are market participants can’t use the defense unless they can show they’re supervised by the state.

Allowing members of Alabama’s Dental Board to dodge SmileDirectClub’s suit would “dramatically broaden” the scope of the state-action immunity defense, Delrahim told the court.

The antitrust chief’s arguments build off a larger effort by the federal government to limit how far, and to what extent, medical boards and other government-affiliated entities can shield themselves from antitrust liability.

Heightened Federal Interest

SmileDirectClub, which makes 3D-printed teeth aligners, alleges that the board improperly refused to let it operate in Alabama to protect the interests of traditional dental service providers. The DOJ and the Federal Trade Commission are backing SmileDirectClub, underscoring their heightened interest in limiting the state-action immunity defense.

Crediting the board members’ arguments in favor of immunity would violate Supreme Court precedent under North Carolina State Board of Dental Examiners v. FTC, Delrahim said. The case held that state-action immunity “is disfavored and must be narrowly constructed,” he said.

“If every state board is treated as an act of the sovereign merely because the rule was adopted pursuant to a general statutory mandate or by following state law procedures that would swallow, we believe, impermissibly the Supreme Court’s direction in dental examiners,” Delrahim said.

The Supreme Court’s ruling in North Carolina Dental held that state-action immunity is limited, and doesn’t automatically apply to non-state entities, even if they are delegated regulatory authority by a state.

‘Not How It’s Done’

The Alabama Dental Board members say they’re automatically entitled to the defense and don’t need to prove further how the state oversees their activities, said Robert Ashby Pate, an attorney for the state dental board who is a partner at Lightfoot Franklin & White, LLC.

SmileDirectClub is trying to conduct its own private review of Alabama’s regulatory procedures by pushing to depose lawmakers and legislative staff, Pate told the Eleventh Circuit. “But that’s not how it’s done,” he said.

“SmileDirect doesn’t get to audit the state of Alabama and neither does the government,” he said.

SmileDirectClub, which has brought similar cases against boards in other states, says the Alabama board hasn’t shown a level of state supervision that would allow state-action immunity.

“We don’t believe the board’s conduct at large was actively supervised by the state,” said Bradley Arant Boult Cummings LLP attorney Matthew Lembke, who represented SmileDirectClub. More evidence is needed to prove that supervision, he said.

The case is Leeds v. Jackson, 11th Cir., No. 19-11502, oral argument 7/8/20.

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

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

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