Under existing law, the Department of Consumer Affairs is composed of various boards, bureaus, commissions, committees, and similarly constituted agencies that license and regulate the practice of various professions and vocations for the purpose of protecting the people of California. With certain exceptions, decisions of these entities with respect to setting standards, conducting examinations, passing candidates, and revoking licenses, are final and are not subject to review by the Director of Consumer Affairs.

This bill would establish an Office of Supervision of Occupational Boards within the department to exercise active supervision over a covered board, defined as specific licensing and regulatory agencies within the department, to ensure compliance with specific policies established in the bill regarding licensing and enforcement (established policies). The bill would require the office, in the exercise of active supervision, to be involved in the development of a covered boards rules and policies, to disapprove the use of any board rule or policy and terminate any enforcement action that is not consistent with the established policies, and to review and affirmatively approve only rules, policies, and enforcement actions consistent with the established policies. The bill would require the office to review and approve or reject any rule, policy, enforcement action, or other occupational licensure action proposed by each covered board before adoption or implementation. The bill would establish procedures for complaints, investigation, remedial action, and appeal relating to a rule, policy, enforcement action, or other occupational licensure action of a covered board inconsistent with the established policies.

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: AB 2483 (Author:Voepel)

Version: April 9, 2018

Hearing Date: June 26, 2018

Fiscal: Yes

Urgency: No

Consultant: CK

SUBJECT

Indemnification of public officers and employees: antitrust awards

DESCRIPTION

This bill would remove a public entity’s discretion and require it to pay any judgment or settlement for treble damage antitrust awards against a member of a regulatory board within the Department of Consumer Affairs for an act or omission occurring within the scope of the member’s official capacity as a member of that regulatory board. Such treble awards would be statutorily determined not to be punitive damages.

BACKGROUND

Federal antitrust laws, including the Sherman Act and Clayton Act, have been interpreted to confer immunity to the states for otherwise unlawful anticompetitive actions when the states are acting in their sovereign capacity. In 2015, the United States Supreme Court issued its opinion in North Carolina State Board of Dental Examiners v. FTC (2015) ___U.S.___ (135 S.Ct. 1101, 1117). The case involved a complaint filed by the Federal Trade Commission that alleged the North Carolina State Board of Dental Examiners unreasonably restrained trade in violation of federal antitrust law when it took action to exclude nondentists from the market for teeth whitening services.

In North Carolina, the Supreme Court found that in order for state-action immunity to attach, a state must accept political accountability for the relevant anticompetitive actions it allows. The Court laid out the parameters of this immunity in relation to state boards. It determined that “a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates must satisfy Midcal’s active supervision requirement in order to invoke state-action anti-trust immunity.” The test for this “active supervision” is flexible and depends on a number of factors. Ultimately, the state must ensure sufficient oversight such that the actions of the board and its members can be said to effectuate state policy rather than the personal interests of the board members.

In the wake of North Carolina, there was concern in the Legislature that this holding would discourage Californians, including members of various professions, the “active market participants,” from joining state boards for fear of antitrust liability. Various efforts sought to ensure there was not a “controlling number” of active market participants on these boards or to ensure that more thorough oversight was provided by the Department of Consumer Affairs, within which many of these boards are housed.

This bill would respond to this issue by insulating board members from any liability for antitrust violations by mandating the state indemnify them for treble damages imposed upon the members for violations of the Sherman and Clayton Antitrust Acts.

CHANGES TO EXISTING LAW

Existing law, the Sherman Act and the Clayton Antitrust Act, protect against anticompetitive conduct by prohibiting certain actions and providing any person who is injured by reason of anything forbidden in the antitrust laws with a cause of action in which the victim shall recover threefold the damages sustained, and the cost of suit, including reasonable attorney’s fees. (15 U.S.C. Sec. 1 et seq. (the Sherman Act); 15 U.S.C. Sec. 12 et seq. and 29 U.S.C. Secs. 52-53 (the Clayton Act).)

Existing law provides that except as otherwise provided, if an employee or former employee of a public entity requests the public entity to defend them against any claim or action against them for an injury arising out of an act or omission occurring within the scope of their employment as an employee of the public entity and the request is made in writing not less than 10 days before the day of trial, and the employee or former employee reasonably cooperates in good faith in the defense of the claim or action, the public entity shall pay any judgment based thereon or any compromise or settlement of the claim or action to which the public entity has agreed. (Gov. Code Sec. 825(a).)

Existing law provides that if a public entity conducts the defense of an employee or former employee, as specified, the public entity shall pay any judgment or settlement based thereon, unless there is a reservation of rights and the employee is found to have been working outside the scope of their employment when the injury occurred. However, the law makes clear that this does not authorize a public entity to pay that part of a claim or judgment that is for punitive or exemplary damages. (Gov. Code Sec. 825(a).)

Existing law provides that a public entity is authorized to pay that part of a judgment that is for punitive or exemplary damages if the governing body of that public entity, acting in its sole discretion except in cases involving an entity of the state government, finds all of the following:

• the judgment is based on an act or omission of an employee or former employee acting within the course and scope of his or her employment as an employee of the public entity;
• at the time of the act giving rise to the liability, the employee or former employee acted, or failed to act, in good faith, without actual malice and in the apparent best interests of the public entity; and
• payment of the claim or judgment would be in the best interests of the public entity. (Gov. Code Sec. 825 (b).)

Existing law provides that except as otherwise provided, upon request of an employee or former employee, a public entity shall provide for the defense of any civil action or proceeding brought against the employee, in their official or individual capacity or both, on account of an act or omission in the scope of their employment as an employee of the public entity. (Gov. Code Sec. 995.)

Existing law provides that a public entity may refuse to provide for the defense of a civil action or proceeding brought against an employee or former employee if the public entity determines any of the following:

• the act or omission was not within the scope of the employee’s employment;
• the employee acted or failed to act because of actual fraud, corruption, or actual malice; or
• the defense of the action or proceeding by the public entity would create a specific conflict of interest between the public entity and the employee or former employee. (Gov. Code Sec. 995.2.)

This bill would require a public entity to pay for a judgment or settlement for treble damage antitrust awards against a member of a regulatory board within the Department of Consumer Affairs for an act or omission occurring within the scope of the member’s official capacity as a member of that regulatory board.

This bill would provide that treble damages awarded pursuant to the federal Clayton Act for a violation of the federal Sherman Act are not punitive or exemplary damages for purposes of the above provisions.

COMMENT

1. Stated need for the bill

According to the author, the “current problem is that members of the community are discouraged from being members of Boards, with concerns of possibly being sued while allowing the current board members to serve in longevity. Thus AB 2483 works to address this issue.”

2. Removing the discretion of the state in determining whether to indemnify board

members from antitrust penalties

Generally, board members, as employees of the state, are entitled to request and have the state defend them against any claim or action for an injury arising out of an act or omission occurring within the scope of their employment, as specified. (Gov. Code Secs. 825, 995) Current law also provides that the public entity must also pay any judgment or settlement that results from such claims. A public entity may refuse to defend an employee if it finds that the conduct underlying the claims was not carried out in the scope of the employees public employment; the conduct was based on actual fraud, corruption, or actual malice; or there is a conflict of interest between the public entity and employee created by the defense. (Gov. Code Sec. 995.2.)

However, a public entity is not required to pay that part of a claim or judgment that is for punitive or exemplary damages. (Gov. Code Sec. 825 (a).) The public entity may, in its sole discretion, pay for punitive or exemplary damages if the governing body of that public entity finds all of the following:

• the judgment is based on an act or omission of an employee or former employee acting within the course and scope of his or her employment as an employee of the public entity;
• at the time of the act giving rise to the liability, the employee or former employee acted, or failed to act, in good faith, without actual malice and in the apparent best interests of the public entity; and
• payment of the claim or judgment would be in the best interests of the public entity. (Gov. Code Sec. 825 (b).)

Relevant here, violations of the federal antitrust statutes can result in treble damages for any damage sustained as a consequence of the violations, along with the cost of suit, including reasonable attorney’s fees. (See 15 U.S.C. Sec. 15.) There is some ambiguity as to whether an award of these treble damages would be considered punitive damages, as used in the Government Code provisions discussed above.

Therefore, if a board member is found to have engaged in anticompetitive conduct in their role as a board member in violation of federal antitrust laws, resulting damages could fall within the provisions of state law that govern punitive or exemplary damages.

This bill would require a public entity to pay for a judgment or settlement for treble damages arising from an antitrust violation by a member of a regulatory board for conduct undertaken within the scope of their public employment with that board. It would make clear that any such treble damages awarded pursuant to the Clayton Act for violations of the Sherman Act are not punitive or exemplary damages.

The author argues that this change in law is necessary because Californians are discouraged from serving on these regulatory boards. In fact, in an opinion issued by the Attorney General, which was requested in the wake of the North Carolina decision, it indicates that specifying such treble damages are not punitive damages could ease any concerns that potential board members could have. Therefore, such a change may be warranted.

However, there are also considerations weighing against such a change in the law. First, there is no evidence that regulatory boards are unable to recruit qualified members or that potential board members are concerned with this exposure to liability, something the author readily acknowledges.

Second, there is no evidence that any member of a California board has ever been subject to antitrust damages, justifying the lack of hesitance in joining these boards. Therefore, there does not seem to be a problem for this bill to fix.

Furthermore, under existing law, if a board member engaged in conduct so anticompetitive that it resulted in possibly the first such imposition of antitrust treble damages, and those damages were deemed punitive damages, the state would still have the discretion to indemnify that employee. The governing body of the entity could assess the circumstances of the case and indemnify the board member where it finds that the member acted in good faith, without actual malice and in the apparent best interests of the public entity; acted within the scope of their duties as a board member; and where the payment of the claim or judgment would be in the best interests of the public entity. This bill would essentially take away any discretion on the part of the Department of Consumer Affairs to determine that certain circumstances may not warrant indemnification.

If there is no evidence board members have engaged in actionable anticompetitive behavior heretofore, then there may not be sufficient reason to indemnify them from any liability should they engage in such behavior in the future.

Writing in opposition, CALPIRG, Responsive Law, and the University of San Diego’s Center for Public Interest Law state:

While the proposed bill may seem innocuous at first glance, it has dire implications for the public that most not be overlooked. . . . [W]e can tell you that this bill—which opens up the extremely deep pockets of a state with a $200 billion budget without imposing any concomitant reforms to fix the underlying problem—will most certainly increase the likelihood that antitrust lawsuits will be filed in California: on the taxpayers’ dime.

Support: Board for Professional Engineers, Land Surveyors, and Geologists; Board of Registered Nursing; California Board of Accountancy; Contractors State License Board; Medical Board of California

Opposition: CALPIRG; Responsive Law; University of San Diego, Center for Public Interest Law

HISTORY

Source: Author

Related Pending Legislation: None Known

Prior Legislation: SB 1194 (Hill, 2016) would have authorized the director of the Department of Consumer Affairs to review specified actions of boards within the department to determine whether they further state policy, providing the “active supervision” that would arguably insulate members from antitrust actions. It would have also made the same changes this bill would make to Section 825 of the Government Code. The bill died in the Assembly Business and Professions Committee.

Prior Vote:

Assembly Floor (Ayes 71, Noes 0)

Assembly Appropriations Committee (Ayes 17, Noes 0)

Assembly Business and Professions Committee (Ayes 16, Noes 0)

**************

Date of Hearing: April 25, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 2483

Author:(Voepel) – As Amended Ver:April 9, 2018

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill expands the Government Claims Act to require a public entity to pay a judgment or settlement for treble damage antitrust awards against a member of a regulatory board within the Department of Consumer Affairs (DCA) for an act or omission occurring within the scope of the member’s official capacity as a member of the regulatory board. The bill also specifies that treble damages awarded pursuant to and for violation of specified federal laws are not punitive or exemplary damages for purposes of the act.

FISCAL EFFECT:

Negligible fiscal impact to DCA or boards within DCA. If a board member had to pay a judgment or settlement for antitrust related charges, DCA would incur a fiscal impact. However, DCA does not anticipate this will occur with any regularity or in any projectable fashion.

COMMENTS:

1. Purpose. This bill seeks to ensure that DCA board members are not personally liable in the event they are sued in an antitrust matter related to their board service.
2. Background. California provides for the licensure of regulated professionals through the Department of Consumer Affairs, which oversees 38 boards, bureaus, and other regulatory bodies.

In March of 2016, the Assembly Business and Professions Committee and the Senate Business, Professions and Economic Development Committee (Committees) conducted multiple joint oversight hearings to review 11 regulatory boards within the DCA and one regulatory entity outside of the DCA. One of the specific issues raised in the Committees’ 2016 Background Paper was the potential antitrust liability for boards under the DCA.

The concerns arose in the wake of a decision by the Supreme Court in “United States in North Carolina State Board of Dental Examiners v. Federal Trade Commission (NC Dental).” The case involved actions taken by North Carolina’s dental board to stop shopping mall kiosks and other retail settings from offering teeth whitening services, which the board alleged constituted the unlicensed practice of dentistry. The Federal Trade Commission (FTC), noting in court filings that the majority of the state’s dental board was comprised of active dentists with a financial incentive to reduce competition in a lucrative market, brought antitrust charges against the board.

Prior to “NC Dental,” the common presumption was that licensing board members were subordinate agency actors who needed only to further a state policy for their actions to be immunized from antitrust charges. However, in the Court’s decision, it was ruled that “a state board on which a controlling number of decision makers are active market participants in the occupation the board regulates” must meet the requirement for active state supervision to receive immunity. In effect, “NC Dental” called into question whether certain regulatory schemes were vulnerable to litigation alleging deliberate anticompetitive behavior.

Concerned that boards under the DCA may be at risk of antitrust litigation similar to the charges filed in “NC Dental,” Senator Jerry Hill requested an attorney general (AG) opinion regarding “what constitutes ‘active state supervision’ of a state licensing board for purposes of the state action immunity doctrine in antitrust actions, and what measures might be taken to guard against antitrust liability for board members.”

Included in the AG’s opinion were a small number of recommendations to improve California’s case for board member immunity under the state action doctrine. The opinion outlines how the Government Claims Act allows a public employee to request its agency to pay the amount of a judgment secured against official conduct. However, the Government Claims Act does not apply to punitive damages, and it is unclear whether treble damages authorized in antitrust litigation fit either category. The AG’s opinion stated that board members’ “uncertainty about the legal status of treble damage awards could be reduced significantly by amending state law to specify that treble damage antitrust awards are not punitive damages within the meaning of the Government Claims Act.” This bill seeks to enact the AG’s recommendation.

1. Prior Legislation. SB 1194 (Hill), of the 2015-16 Legislative Session, based on the AG’s opinion, would have substantially increased the powers and responsibilities of the Director of DCA to review nonministerial market-sensitive actions by regulatory boards to determine whether the action furthers a clearly articulated and affirmatively expressed state policy. The bill would have also clarified the applicability of treble damage antitrust awards against a regulatory board member for purposes of the Government Claims Act. The bill failed passage in the Assembly Business and Professions Committee. AB 2483 contains the noncontroversial provisions of SB 1194.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing:

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Evan Low, Chair

ABPCA Bill Id:AB 2483

Author:(Voepel) – As Introduced Ver:February 14, 2018

SUBJECT: Department of Consumer Affairs: Office of Supervision of Occupational Boards.

SUMMARY: Establishes an Office of Supervision of Occupational Boards within the Department of Consumer Affairs (DCA), which would be responsible for exercising active supervision over each board under the DCA to ensure compliance with newly codified state policies related to increasing economic opportunity, promoting competition, and encouraging innovation.

EXISTING LAW:

1. Establishes the Department of Consumer Affairs (DCA) within the Business, Consumer Services, and Housing Agency. (Business and Professions Code (BPC) § 100)
2. Enumerates various regulatory boards, bureaus, committees, and commissions under the DCA’s jurisdiction. (BPC § 101)
3. Provides that all boards, bureaus, and commissions in the DCA are established for the purpose of ensuring that those private businesses and professions deemed to engage in activities which have potential impact upon the public health, safety, and welfare are adequately regulated in order to protect the people of California. (BPC § 101.6)
4. Authorizes the Governor to remove at any time, any member of any board appointed by him or her for continued neglect of duties required by law, or for incompetence, or unprofessional or dishonorable conduct. (BPC § 106)
5. Places the DCA under the control of the Director of Consumer Affairs, who is appointed by the Governor and may investigate the work of boards under the DCA. (BPC §§ 150 et seq.)
6. Allows the Director of Consumer Affairs to initiate an investigation of any allegations of misconduct in the preparation, administration, or scoring of an examination which is administered by a board, or in the review of qualifications which are a part of the licensing process of any board. (BPC § 109)
7. Authorizes the Director of Consumer Affairs to audit and review, upon his or her own initiative, or upon the request of a consumer or licensee, inquiries and complaints regarding licensees, dismissals of disciplinary cases, the opening, conduct, or closure of investigations, informal conferences, and discipline short of formal accusation by the Medical Board of California, the allied health professional boards, and the California Board of Podiatric Medicine. (BPC § 116)
8. Permits the Director of Consumer Affairs to require reports from any board or other agency within the DCA as he or she deems reasonably necessary on any phase of their operations. (BPC § 127)
9. Prohibits any board or other agency within the DCA from instituting or joining a legal action against any other agency within the state or federal government without the permission of the Director of Consumer Affairs. (BPC § 132)
10. Provides the Department of Consumer Affairs with the following powers and duties to:
    1. Recommend and propose the enactment of such legislation as necessary to protect and promote the interests of consumers.
    2. Represent the consumer’s interests before federal and state legislative hearings and executive commissions.
    3. Assist, advise, and cooperate with federal, state, and local agencies and officials to protect and promote the interests of consumers.
    4. Study, investigate, research, and analyze matters affecting the interests of consumers.
    5. Hold public hearings, subpoena witnesses, take testimony, compel the production of books, papers, documents, and other evidence, and call upon other state agencies for information.
    6. Propose and assist in the creation and development of consumer education programs.
    7. Promote ethical standards of conduct for business and consumers and undertake activities to encourage public responsibility in the production, promotion, sale and lease of consumer goods and services.
    8. Advise the Governor and Legislature on all matters affecting the interests of consumers.
    9. Exercise and perform such other functions, powers and duties as may be deemed appropriate to protect and promote the interests of consumers as directed by the Governor or the Legislature.
    10. Maintain contact and liaison with consumer groups in California and nationally.

(BPC § 310)

1. Requires that the Director of Consumer Affairs be formally notified of and be provided a full opportunity to review all notices of proposed, modified, and final rulemaking actions, and provides the director with the authority to disapprove a proposed rule or regulation within 30 days on the ground that it is injurious to the public health, safety, or welfare. (BPC § 313.1)
2. States that if an employee or former employee of a public entity requests the public entity to defend him or her against any claim or action against him or her for an injury arising out of an act or omission occurring within the scope of his or her employment as an employee of the public entity, and the employee reasonably cooperates in good faith in the defense of the claim or action, the public entity shall pay any judgment based thereon or any compromise or settlement of the claim or action to which the public entity has agreed. (BPC § 825)
   

THIS BILL:

1. Codifies the following policies of the state:
   1. Occupational licensing laws should be construed and applied to increase economic opportunity, promote competition, and encourage innovation.
   2. Regulators should displace competition through occupational licensing only where less restrictive regulation will not suffice to protect consumers from present, significant, and substantiated harms that threaten public health, safety, or welfare.
   3. An occupational licensing restriction should be enforced against an individual only to the extent the individual sells goods and services that are included explicitly in the statute or regulation that defines the occupation’s scope of practice.
2. Defines “covered board” as any entity listed in BPC § 101.
3. Establishes an Office of Supervision of Occupational Boards within the DCA with responsibility for exercising active supervision over each covered board to ensure compliance with the state’s newly codified policies.
4. Requires the Office of Supervision of Occupational Boards to independently do the following as part of its active supervision over covered boards:
   1. Play a substantial role in the development of a covered board’s rules and policies to ensure they benefit consumers and do not serve the private interests of providers of goods and services regulated by the covered board.
   2. Disapprove the use of any rule or policy of a covered board and terminate any enforcement action that is not consistent with the state’s newly codified policies.
   3. Exercise control over each covered board by reviewing and affirmatively approving only rules, policies, and enforcement actions that are consistent with the state’s newly codified policies.
   4. Analyze existing and proposed rules and policies and conduct investigations to gain additional information to promote compliance with the state’s newly codified policies, including, but not limited to, less restrictive regulatory approaches.
5. Mandates that the Office of Supervision of Occupational Boards shall be staffed by not fewer than one attorney who does not provide general counsel to any covered board.
6. Requires the Office of Supervision of Occupational Boards to review and approve or reject any rule, policy, enforcement action, or other occupational licensure action proposed by each covered board before the board may adopt or implement the action.
7. Permits any person to file a complaint to the Office of Supervision of Occupational Boards about a rule, policy, enforcement action, or other occupational licensure action of a covered board that the person believes is not consistent with the state’s newly codified policies.
8. Requires the Office of Supervision of Occupational Boards to, within 90 days, investigate each complaint, identify remedies, and instruct the covered board to take action as the office determines to be appropriate, and respond in writing to the complainant.
9. Provides for an appeals process through the superior court for decisions made by the Office of Supervision of Occupational Boards.

FISCAL EFFECT: Unknown; this bill is keyed fiscal by the Legislative Counsel.

COMMENTS:

Purpose. This bill is sponsored by the author. According to the author:

AB 2483 works to ensure that occupational laws are property utilized and are applied to increase economic opportunity, promote competition, and encourage innovation in our Golden State. The establishment of the Office of Supervision of Occupational Boards would have 90 days to receive complaints to investigate individuals and respond in a written form to promote fairness and efficiency.

Background.

Overview of Licensure in California. California has provided for the licensure of regulated professionals since the early days of statehood. In 1876, the Legislature enacted the original Medical Practice Act, which was revised two years later to delegate licensing authority to the first three regulatory boards: the Medical Board, Eclectic Board, and Homeopathic Board. By the end of the 1920s, seven additional boards had been established to regulate pharmacists, dentists, optometrists, veterinarians, barbers, accountants, and embalmers. These boards were placed under the oversight of a Department of Vocational and Professional Standards, which would become the Department of Consumer Affairs in 1965. Today, the DCA oversees 38 boards, bureaus, and other regulatory bodies.

As a department within an agency of the state government, the DCA is led by a director appointed by the Governor. While the regulatory boards under the DCA’s oversight are considered semi-autonomous, the Director of Consumer Affairs does wield considerable influence over board policymaking. For example, the director has the power to review and disapprove formal rulemaking, may conduct audits and reviews of board activities, and approves budget change proposals prior to their submission to the Department of Finance. The powers of the director are then further subject to the authority of the Secretary of the Business, Consumer Services, and Housing Agency and, ultimately, the Governor.

The practice act for each profession licensed by a regulatory board under the DCA typically includes sunset provisions providing for regular review by the Legislature. At staggered intervals averaging four years, the Senate and Assembly Business and Professions Committees prepare a comprehensive background paper for each entity, hold public hearings, recalculate the balance of consumer protection and regulatory burden, and make recommendations to enact any necessary reforms. In rare instances, entities are abolished, reduced, or consolidated when inefficiencies are identified or when public benefit is deemed insufficient to justify regulation. For example, in 2017 the Legislature allowed the State Board of Guide Dogs for the Blind to sunset, replacing its licensing program with less intrusive title protections.

Criticisms of the DCA. In recent years, a number of published reports have called for reforms to California’s licensure scheme, criticizing the state’s regulation of occupations and professions as needlessly burdensome and complex. These reports typically follow a libertarian philosophy in favor of smaller government, arguing that regulation should only exist in situations where clear consumer harm is likely absent government intervention. Barriers to entry such as licensing fees, education requirements, examinations, criminal history disqualifications, and other prerequisites are all then presumed undesirable unless proven necessary for the public interest.

The Little Hoover Commission’s Jobs for Californians: Strategies to Ease Occupational Licensing Barriers refers to the boards and bureaus under the DCA as a “nearly impenetrable thicket of bureaucracy for Californians” and advocates for the state to “review its licensing requirements and determine whether those requirements are overly broad or burdensome to labor market entry or labor mobility.” The Institute for Justice’s License to Work: A National Study of Burdens from Occupational Licensing, now in its second edition, ranks California as the “most burdensome state” when accounting for both the number of lower-income occupations licensed and the average burden of licensing requirements. Other reports published by both public and private research institutions are less aggressively critical in tone, but offer similar assessments as to the possibility that California may arguably overregulate in its licensure of professions and occupations.

Antitrust Implications and NC Dental. More substantiated concerns about the validity of California’s licensing structure arose in the wake of a decision by the Supreme Court of the United States in North Carolina State Board of Dental Examiners v. Federal Trade Commission (NC Dental). The fact of the case involved actions taken by North Carolina’s dental board to stop shopping mall kiosks and other retail settings from offering teeth whitening services, which the board alleged constituted the unlicensed practice of dentistry. The Federal Trade Commission (FTC), noting in court filings that the majority of the state’s dental board was comprised of active dentists with a financial incentive to reduce competition in a lucrative market, brought antitrust charges against the board.

While the Sherman Antitrust Act broadly prohibits anticompetitive misconduct, case precedent set in Parker v. Brown immunizes those acting on behalf of the state against charges brought under the act. Under Parker’s state action doctrine, individuals who are not eligible for sovereign immunity but serve as agents of subordinate state agencies enjoy antitrust immunity if their actions furthered a clearly articulated and affirmatively expressed state policy. Other private individuals acting on behalf of the state also retain immunity if their conduct is subject to active supervision by the state.

Prior to NC Dental, the common presumption that licensing board members constituted subordinate agency actors who needed only to further a state policy for their actions to be immunized from antitrust charges. However, in the Court’s decision, it was ruled that “a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates” must meet the requirement for active state supervision to receive Parker immunity. In effect, NC Dental dramatically rewrote expectations of antitrust immunity for state licensing board members across the country and called into question whether certain regulatory schemes were not merely overly burdensome, but vulnerable to litigation alleging deliberate anticompetitive behavior.

Concerned that boards under the DCA may be at risk of antitrust litigation similar to the charges filed in NC Dental, Senator Jerry Hill requested an official opinion from Attorney General Kamala D. Harris regarding “what constitutes ‘active state supervision’ of a state licensing board for purposes of the state action immunity doctrine in antitrust actions, and what measures might be taken to guard against antitrust liability for board members.” In response, Opinion No. 15-402 concluded that “active state supervision” requires that a state official must “review the substance of a regulatory decision made by a state licensing board, in order to determine whether the decision actually furthers a clearly articulated state policy to displace competition with regulation in a particular market.” The opinion further states that “the official reviewing the decision must not be an active member of the market being regulated, and must have and exercise the power to approve, modify, or disapprove the decision.”

Guided by the Attorney General’s opinion, the Legislature engaged in a robust discussion of whether California already met the requirements for active state supervision of professional licensing boards. Noting that the NC Dental decision applied specifically to the facts contained in that case, California lawmakers considered the substantial bureaucracy employed in its licensure scheme, including the significant oversight provided by the DCA and the Director of Consumer Affairs. Further, the professional members of North Carolina’s dental board were appointed not by the Governor and Legislature (as is the case in California), but were directly selected by associations consisting of practicing dentists. The results of the NC Dental case warranted consideration of whether additional safeguards were necessary or preferable to provide reassurance to California’s board members, but there was never certainty that any change was imperative to retain their Parker immunity.

The Attorney General’s opinion did make a small number of recommendations to improve California’s case for board member immunity under the state action doctrine. First, the opinion outlines how the Government Claims Act allows a public employee to request its agency to pay the amount of a judgment secured against official conduct. However, the Government Claims Act does not apply to punitive damages, and it is unclear whether treble damages authorized in antitrust litigation fit either category. The Attorney General’s opinion stated that board members’ “uncertainty about the legal status of treble damage awards could be reduced significantly by amending state law to specify that treble damage antitrust awards are not punitive damages within the meaning of the Government Claims Act.”

Another recommendation in the Attorney General’s opinion was relating to board member training. The DCA was encouraged to incorporate lessons from the NC Dental decision into its standard trainings for new board members relating to the need for ensuring adequate transparency and department consultation when taking market-sensitive actions. The training recommended in the opinion was launched almost immediately following the decision in NC Dental through a partnership between the DCA and the Attorney General.

Finally, the opinion described how review of board decisions by a supervising state agency was a clear path to increasing the argument for immunity. The opinion stated that California’s existing bureaucracies, including the role of its Director of Consumer Affairs, could receive some “minimal adjustments to procedures and outlooks” to provide added state supervision to board actions. The opinion contemplated what some of these adjustments to current powers under the director might look like, but did not champion any particular modification as necessary to preserve immunity for board members in California.

The Attorney General’s analysis and recommendations were ultimately factored into SB 1194 by Senator Jerry Hill, a bill that would have made expansive revisions to how the DCA and regulatory boards operate. While the Attorney General’s office testified that the full scope of the bill was not necessary for the state to aggressively defend its board members against personal liability in antitrust litigation, its provisions were intended to add greater confidence to the existence of active state supervision by the DCA. During the bill’s final hearing in the Assembly Business and Professions Committee, it was determined that the array of reforms included in the bill was potentially in excess considering existing state supervision and the potential impact on boards to efficiently regulate professionals. However, some provisions in the bill were relatively noncontroversial and may still be worthy of consideration even as little to no new antitrust litigation has been brought against boards in California in the growing years since NC Dental.

Current Related Legislation. AB 2409 (Kiley) would establish a right to engage in a lawful profession or vocation without being subject to an occupational regulation that imposes a substantial burden on that right, and would require each occupational regulation to be limited to what is demonstrably necessary and narrowly tailored to fulfill a legitimate public health, safety, or welfare objective. This bill is pending in the Assembly Business and Professions Committee.

Prior Related Legislation. SB 247 (Moorlach) from 2017 would have repealed or reduced various occupational licensure requirements relating to fitting or selling hearing aids, locksmithing, barbering or cosmetology, disposing of cremated human remains, performing custom upholstery services, providing landscaping, and private investigation. This bill failed passage in the Senate Business, Professions and Economic Development Committee.

SB 1194 (Hill) of 2016 would have substantially increased the powers and responsibilities of the Director of Consumer Affairs to review nonministerial market-sensitive actions by regulatory boards to determine whether the action furthers a clearly articulated and affirmatively expressed state policy. The bill would have also clarified the applicability of treble damage antitrust awards against a regulatory board member for purposes of the Government Claims Act. This bill failed passage in the Assembly Business and Professions Committee.

ARGUMENTS IN SUPPORT:

None on file.

ARGUMENTS IN OPPOSITION:

The Board for Professional Engineers, Land Surveyors, and Geologists (BPELSG) under the DCA voted to oppose this bill, citing concerns with the lack of specificity regarding the operational aspects of the Office of Supervision of Occupational Boards. The BPELSG is concerned that the bill does not provide for a funding mechanism and could potentially impact the budgetary resources of regulatory boards under the DCA. The BPELSG also notes that the bill “does not address how the Office of Supervision of Occupational Boards will make determinations or what grounds it would use” to disapprove or terminate a board action. Finally, the BPELSG argues that the additional level of oversight this bill would add to regulatory boards is unnecessary, stating that “there is already sufficient oversight by the Department of Consumer Affairs and the Office of Administrative Law on rulemaking matters, the Office of the Attorney General and the Office of Administrative Hearings on enforcement matters, and the Legislature and the Governor on the Board’s overall operations through the sunset review process.”

The California Dental Association (CDA), which represents over 27,000 dentists licensed by the Dental Board of California under the DCA, opposes this bill. CDA describes the existing processes by which actions taken by regulatory boards under the DCA are already subject to review by the Director of Consumer Affairs. CDA argues that “this bill would shift the focus of DCA from the consumer to the marketplace, effectively duplicate an already rigorous regulatory review process, and increase licensing fees for services that are already provided within the agency.”

The California Medical Association (CMA), which represents over 43,000 physicians and surgeons licensed by the Medical Board of California under the DCA, opposes this bill. CMA argues that the Office of Supervision of Occupational Boards “is problematic and duplicative of existing DCA authority, as well as completely unnecessary since the Legislature spent extensive time and resources on DCA oversight over its licensing boards recently, and found no need for a massive systemic change at this time.” CMA refers to the existing authority of the Director of Consumer Affairs to review board actions, and argues that providing this authority to an additional office and director “will only serve to duplicate the ongoing work of the department, with no identifiable benefit.”

The California Nurses Association (CNA), which represents over 100,000 nurses licensed by the Board of Registered Nursing under the DCA, also opposes this bill. CNA calls the bill “unnecessary, costly, and an example of the anti-regulatory ‘Trumpism’ coming out of the nation’s Capitol at this time.” CNA alleges that the additional oversight provided by the bill amounts to “a power grab” that represents “a major usurpation of decision-making authority” by board members. Specifically, CNA believes the powers granted to the Office of Supervision of Occupational Boards is broad and undefined and could be interpreted as giving authority to “unilaterally overturn almost any conceivable licensing board action or decision.”

POLICY ISSUES FOR CONSIDERATION:

The creation of a new Office of Supervision of Occupational Boards within the DCA, empowered to specifically veto any action by a board that disproportionately displaces competition without sufficient evidence of consumer protection imperative, would arguably address both libertarian criticisms of overly burdensome regulation and concerns arising from the Court’s decision in NC Dental. However, a full additional level of oversight would likely provoke a series of challenges unjustified by the office’s benefit.

For example, the office’s mandated insertion into virtually every degree of decision-making by a board could prolong and complicate actions necessary to protect consumers. The office’s review and potential veto of “any rule or policy” or “any enforcement action” could impact anything from education provider approvals to licensee disciplinary proceedings to newsletter language. The result would be less clarity and greater delay for professionals licensed under the DCA, as opposed to the improved opportunity, competition, and innovation envisioned by the author.

This unwieldy bureaucratic encumbrance would also be in many ways duplicative of existing supervision received by boards from the DCA and Director of Consumer Affairs. As discussed both in the Attorney General’s NC Dental opinion and in committee debate for SB 1194, there is already a tremendous amount of state supervision included in California’s licensure scheme. Further obfuscating the autonomy of regulatory boards is unlikely to be the answer to any call for greater economic prospect or consumer choice.

IMPLEMENTATION ISSUES:

Much of the bill is insufficiently defined. It is unclear how staff within the Office of Supervision of Occupational Boards would be hired or appointed, other than that a minimum of one attorney must be included. While the bill refers to “covered boards,” it defines the term as “any entity under Section 101” – a list containing bureaus, committees, commissions, programs, and even the DCA’s Division of Investigation. Finally, it is uncertain but probable that the expense of operating the office – likely considerable – would be funded through the process currently used by the DCA for distributing administrative costs (pro rata) among its boards; if so, this bill could result in significant fee increases for boards required to pay for it through their special funds.

AMENDMENTS:

1. While the additional supervision provided through the creation of a new Office of Supervision of Occupational Boards echoes principles contained in the NC Dental decision, this bill may be excessive in light of existing state oversight of actions by regulatory boards. To remove the language establishing this office so that these provisions may be recast:

Strike Section 1 from the bill.

1. To provide greater confidence to licensed professionals who serve on state regulatory boards by removing uncertainty as to whether the state would indemnify a board member against personal liability for reasonable, good faith actions taken in the course of their board membership:

Amend Section 825 of the Government Code to insert the following provisions:

(g) Notwithstanding subdivision (a), a public entity shall pay for a judgment or settlement for treble damage antitrust awards against a member of a regulatory board for an act or omission occurring within the scope of his or her official capacity as a member of a regulatory board.

(h) Treble damages awarded pursuant to the federal Clayton Act (Sections 12 to 27, inclusive, of Title 15 of, and Sections 52 and 53 of Title 29 of, the United States Code) for a violation of the federal Sherman Act (Sections 1 to 7, inclusive, of Title 15 of the United States Code) are not punitive or exemplary damages under the Government Claims Act (Division 3.6 (commencing with Section 810) of Title 1 of the Government Code) for purposes of this section.

REGISTERED SUPPORT:

None on file.

REGISTERED OPPOSITION:

Board for Professional Engineers, Land Surveyors, and Geologists

California Dental Association

California Medical Association

California Nurses Association

Analysis Prepared by: Robert Sumner / B. & P. / (916) 319-3301