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Michael Hiltzik

Supreme Court ruling puts state regulatory boards in crosshairs

Court ruling means “the vast majority of … boards in all 50 states are untenable and illegal,̶

Want to get paid for shampooing someone's hair? In California, you may need to have at least nine months of experience and pass a licensing test overseen by the state barbering and cosmetology board, whose members include salon professionals.

Do you clean dogs' teeth for pay as part of a grooming service? You might run afoul of the state Veterinary Medical Board, which includes four veterinarians and a veterinary technician among its eight members. The board treats tooth cleaning using anything but a toothbrush as veterinary medicine — and the unlicensed practice of which is a crime punishable by up to a year in jail.

These are just two of countless ways that members of a business or occupation can close the doors to others by using their authority on a state regulatory board. This smacks of "restraint of trade," a fundamental no-no in antitrust law. Until a few weeks ago, such state regulatory boards thought they had an exemption from the law. The U.S. Supreme Court has now set them straight, ruling 6-3 on Feb. 25 that if a "controlling number" of a board's members are active participants in the business it regulates, they could be sued as antitrust violators.

The case involved North Carolina's board of dental examiners, but its nationwide impact could be immense. Yet in California, state officials have been slow to acknowledge its implications. The Department of Consumer Affairs, which encompasses as many as 40 boards, says it hasn't yet figured out how it applies. The state Senate Committee on Business, Professions and Economic Development has asked legislative counsel to examine the Supreme Court decision, but it isn't expecting a report until next month.

Hanging in the balance is the state's ability to regulate not only barbers and pet groomers, but also doctors and surgeons, nurses, chiropractors, optometrists, accountants, architects, lawyers, pest exterminators and security alarm installers. That's a partial list of California professional boards affected by the ruling, which is based on a 1943 precedent set in a case involving a marketing program for California raisins. The Supreme Court ruled then that state regulatory bodies comprising industry members are entitled to antitrust immunity only as long as their authority to set regulations is constrained and their decisions are subject to "active supervision" by state officials.

February's decision means that "the vast majority of commissions and boards in all 50 states are untenable and illegal," says Robert Fellmeth, a veteran antitrust expert who is executive director of the Center for Public Interest Law at the University of San Diego law school. The court has established, he says, that "the king has been wearing no clothes for the last 72 years."

There's little doubt that California is in the ruling's crosshairs. "My sense is that it will apply directly to California," says state Sen. Jerry Hill (D-San Mateo), chairman of the Senate's business and professions committee. "We don't have active supervision of our boards — they make their decisions and move forward without any oversight by the state."

The downside of professional and occupational licensing is one of the few subjects on which liberals and libertarians have been in accord. Liberals say that licensing provisions can be pretexts for discrimination against minorities or other disadvantaged groups. Libertarians cite studies indicating that licensing raises income for incumbents and therefore consumer costs, often without any increase in the quality of services.

Many regulatory boards nominally function as enforcement bodies overseeing health, safety and consumer protection rules. That's true of California's healthcare boards, which typically have strong majority membership from the regulated specialty. For example, of the 14 current members of the state medical board, which licenses and disciplines physicians and surgeons, eight are M.D.s and a ninth is a registered nurse practitioner. One non-physician's seat is vacant.

Yet distinguishing between consumer protection and professional protectionism can be difficult under any circumstances; it's harder when the regulators are members of the profession. Consider a California accountancy board rule barring individuals from identifying themselves as "accountants" or offering "accounting" services unless they're licensed as a public or certified public accountant by the board, six of whose 13 current members are CPAs. Is the goal to prevent consumer "confusion," as the board maintains? Or is it to foreclose competition from non-licensees who may be qualified to perform any number of services the general public would regard as "accounting"?

Nor is it simple to assess a board's approach to misbehavior by those it has already admitted to the club: The medical board and the State Bar of California (13 of whose 19 trustees must be attorneys) have been faulted for sometimes treating misbehaving or underperforming licensees too leniently.

The North Carolina case involved a successful effort by the state's dental board to eradicate teeth whitening services by non-dentists. The board designated whitening as the practice of dentistry and issued 47 cease-and-desist letters warning providers that they were committing a crime, even urging shopping mall operators to kick teeth-whitening kiosks off their premises. The commercial services disappeared, but the dental board got sued by the Federal Trade Commission.

To Justice Anthony M. Kennedy, author of the majority opinion upholding the FTC, the dentists were acting suspiciously like a price-fixing cartel, not a state agency. When a state delegates regulation to members of the regulated business or profession, he wrote, "established ethical standards may blend with private anticompetitive motives in a way difficult even for market participants to discern."

The ruling doesn't provide states with much guidance on what to do next. Justice Samuel A. Alito Jr., writing for the dissenters, argued that removing "active market participants" as a "controlling number" of board members — Kennedy's phrasing — leaves vague whether insiders can't be a majority or can't even constitute "a voting bloc that is generally able to get its way."

In Sacramento, legislators may consider simply "removing active participants from the boards," Hill says — reconstituting the boards as advisory panels for boards comprising only members of the public and empowered to set regulations and enforce them. The Legislature has been trying to strengthen the public voice on regulatory boards anyway, by giving majorities to their public members. The Supreme Court ruling may hasten the process, while answering the old question of who watches the watchmen. In the wake of the court's decision, the job belongs to the public.

Michael Hiltzik's column appears Sundays and Wednesdays. Read his blog, the Economy Hub, at latimes.com/business/hiltzik, reach him at mhiltzik@latimes.com, check out facebook.com/hiltzik and follow @hiltzikm on Twitter.

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