Earles v. State Bd of CPAs ( 1998 )

REVISED, June 9, 1998
UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 97-30159
KENNETH DON EARLES;
ALBERT R. LEGER; JOSEPH MICHAEL SLEDGE,
Plaintiffs-Appellees,
VERSUS
STATE BOARD OF CERTIFIED PUBLIC ACCOUNTANTS OF LOUISIANA;
MILDRED W. MCGAHA, CPA; L. PAUL HOOD, CPA; LEON K. POCHE, CPA;
LAWRENCE W. STOULIG, JR., CPA; DONALD L. MOORE, CPA;
W. THERON ROBERTS, CPA; MICHAEL A. THAM, CPA;
SUSAN C. COCHRAN, CPA; J. GORDON REISCHE,
Defendants-Appellants.
Appeal from the United States District Court
For the Eastern District of Louisiana
April 24, 1998
Before GARWOOD, DUHÉ, and DEMOSS, Circuit Judges.
DEMOSS, Circuit Judge:
Rules promulgated by the State Board of Certified Public
Accountants of Louisiana prohibit CPAs from accepting commissions
and engaging in the practice of so-called “incompatible
professions.” These rules apply to Louisiana’s CPAs and have been
used to prevent the three plaintiffs in this lawsuit from carrying
out their accounting practices while simultaneously selling
securities. The plaintiffs sued the Board and its individual
members, seeking to block the enforcement of these rules.
The defendants filed a motion to dismiss the lawsuit, claiming
immunity from suit (1) under the Eleventh Amendment and (2) under
the state-action exemption doctrine of federal antitrust laws. The
motion was denied, and the defendants now seek interlocutory
review. The Board is entitled to Eleventh Amendment immunity;
however, the federal claims against the Board’s individual members
may proceed under the doctrine of Ex parte Young, 209 U.S. 123
(1908). Finally, the state-action doctrine does block scrutiny of
the Board’s rules under federal antitrust laws. Accordingly, we
affirm in part, reverse in part, and remand the matter with
instructions for further proceedings in the district court.
I. Factual and Procedural Background
A. The Plaintiffs
Kenneth Don Earles, a CPA, has practiced as an accountant in
Crowley, Louisiana since 1969. Beginning in 1987, he obtained the
licenses necessary to become a securities broker and began
practicing as a broker-dealer licensed with H.D. Vest Investment
Securities, Inc. Mr. Earles earns commissions from his sales of
securities. His securities business is kept separate from his
accounting business, with separate books, records, and bank
accounts.
In October 1988, the Board of Certified Public Accountants of
Louisiana notified Mr. Earles that it considered his practice of
2
concurrently acting as a CPA and a securities broker to be a
violation of the Board’s rules pertaining to “incompatible
occupations”1 and “receipt of commissions.”2 A series of
communications ensued between the Board and Mr. Earles, culminating
in a March 1990 administrative hearing on the Board’s complaint.
In August 1990, the Board issued its decision finding Mr.
Earles in violation of the rule proscribing the practice of
incompatible occupations. Mr. Earles’s future certification and
licensure as a CPA were expressly conditioned upon cessation of his
securities business. Mr. Earles responded by filing this lawsuit
against the Board and its individual members in federal court. He
1
The incompatible occupations rule provides:
A licensee shall not concurrently engage in
the practice of public accountancy and in any other
business or occupation which impairs his
independence or objectivity in rendering
professional services, or which is conducted so as
to augment or benefit the accounting practice,
unless these rules are observed in the conduct
thereof.
LA. ADMIN. CODE tit. 46, § XIX.501(E) (Sept. 1997)
.
2
The rule against receiving commissions provides:
A licensee shall not pay a commission to
obtain a client or accept a commission for a
referral to a client of products or services of
others. This rule does not prohibit payments for
the purchase of all, or a part, of an accounting
practice, or retirement payments to persons
formerly engaged in the practice of public
accountancy, or payments to the heirs or estates of
such persons.
LA. ADMIN. CODE tit. 46, § XIX.501(C) (Sept. 1997)
.
3
also sought judicial review of the Board’s decision in state court.
The federal suit was stayed pending state-court review.3 In
state court, the Board’s ruling was initially overturned but later
reinstated on appeal. See Earles v. State Bd. of Certified Pub.
Accountants, 665 So. 2d 1288 (La. Ct. App. 1995), writ denied, 669
So. 2d 397 (La. 1996).
In August 1996, after Mr. Earles had exhausted his remedies in
state court, the federal suit was reactivated. Soon thereafter,
two additional plaintiffs joined the suit -- Albert R. Leger, who
had practiced as a CPA in Marksville, Louisiana since 1975, and
Joseph Michael Sledge, who had practiced as a CPA in Shreveport,
Louisiana since 1975. Like Mr. Earles, both Mr. Leger and Mr.
Sledge are licensed securities brokers affiliated with H.D. Vest.
Each also keeps his securities-related business separate from his
accounting practice. In January 1997, Mr. Leger and Mr. Sledge
were found by the Board to be guilty of violating the rules against
practicing incompatible professions and receiving commissions.
They were each fined, and their accounting licenses were revoked.
B. The Defendants
The defendants in this lawsuit are the Board of Certified
Public Accountants of Louisiana and its individual members in their
official capacities. The Board was created by the State of
3
See Earles v. State Bd. of Certified Pub. Accountants, 1992
WL 10329 (E.D. La. Jan. 16, 1992) (abstaining from further
proceedings pursuant to the doctrine of Railroad Comm’n v. Pullman
Co., 312 U.S. 496 (1941)).
4
Louisiana for the purpose of licensing public accountants and
regulating the profession of public accounting within the state.
See LA. REV. STAT. ANN. §§ 37:73, 37:75 (West 1988 & Supp. 1998).
The Board’s seven members are chosen by the governor from a slate
of candidates proposed by the Society of Louisiana Certified Public
Accountants, and they must be confirmed by the state senate. See
id. § 37:73 (West 1988).
Among the powers of the Board is the ability to “[a]dopt and
enforce all rules and regulations, bylaws, and rules of
professional conduct as the board may deem necessary and proper to
regulate the practice of public accounting in the state of
Louisiana.” Id. § 37:75(B)(2). Pursuant to this power, the Board
adopted the incompatible-occupations and receipt-of-commissions
rules which gave rise to this lawsuit.4
II. Appellate Jurisdiction
Pursuant to our precedent applying 28 U.S.C. § 1291 and the
collateral order doctrine,5 we have appellate jurisdiction to
consider an interlocutory appeal from the denial of a motion to
4
The purported justification for these rules is the
preservation of the independence of CPAs. The Supreme Court has
acknowledged that a state’s interest in “maintaining CPA
independence and ensuring against conflicts of interest” is a
substantial one. Edenfield v. Fane, 507 U.S. 761, 770 (1993).
5
See Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 (1978)
(“To come within the ‘small class’ of decisions excepted from the
final-judgment rule by Cohen [v. Beneficial Indus. Loan Corp., 337
U.S. 541 (1949)], the order must conclusively determine the
disputed question, resolve an important issue completely separate
from the merits of the action, and be effectively unreviewable on
appeal from a final judgment.”).
5
dismiss based upon immunities bestowed by the Eleventh Amendment
and the state-action antitrust exemption. See Puerto Rico Aqueduct
& Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 147 (1993)
(denial of Eleventh Amendment immunity is subject to interlocutory
review); Martin v. Memorial Hosp., 86 F.3d 1391 (5th Cir. 1996)
(denial of the state-action exemption is subject to interlocutory
review).6
III. Eleventh Amendment Immunity
The United States Constitution provides: “The Judicial power
of the United States shall not be construed to extend to any suit
in law or equity, commenced or prosecuted against one of the United
States by Citizens of another State, or by Citizens or Subjects of
any Foreign State.” U.S. CONST. amend. XI. The Eleventh Amendment
thus negates federal jurisdiction over covered suits, including
federal suits against a state brought by the citizens of that
state. See Hans v. Louisiana, 134 U.S. 1 (1890).
Of course, the Board and its members are not the state itself.
The scope of the Eleventh Amendment, however, is not limited to
suits that name a state as a defendant. See, e.g., Regents of the
Univ. of Cal. v. Doe, 117 S. Ct. 900, 903 (1997). The Eleventh
6
At oral argument, the plaintiffs conceded that Martin
controls the question of appellate jurisdiction over the state-
action element of this case. They urged our panel to overrule
Martin, but this is not an option available to us. It has been
well established in this circuit that one panel may not ignore the
holding of a previous panel absent intervening authority from the
Supreme Court, an en banc decision of our Court, or Congress. See,
e.g., Okoro v. INS, 125 F.3d 920, 925 (5th Cir. 1997).
6
Amendment bars any suit in which a state is the “real, substantial
party in interest.” Pennhurst State Sch. & Hosp. v. Halderman, 465
U.S. 89, 101 (1984); see also Ford Motor Co. v. Department of
Treasury, 323 U.S. 459, 464 (1945). We must thus decide whether
the Board and its members satisfy this standard and thereby avoid
suit.
A. The Board
The Board claims that because it is a “state agency,” LA. STAT.
REV. ANN. § 37:73(A) (West Supp. 1998), it is entitled to Eleventh
Amendment immunity. Federal law controls the Board’s eligibility
for Eleventh Amendment immunity. See Doe, 117 S. Ct. at 904 n.5.
State agencies are immunized by the Eleventh Amendment in certain
circumstances. See, e.g., Pennhurst, 465 U.S. at 100; Papasan v.
United States, 756 F.2d 1087, 1092 (5th Cir. 1985), aff’d in part,
vacated in part sub nom. Papasan v. Allain, 478 U.S. 265 (1986).
Simply being a political subdivision of a state, however, is not
enough. See Edelman v. Jordan, 415 U.S. 651, 667 n.12 (1974). We
must look to see whether the entity “in effect, stands in the shoes
of the state itself.” Hander v. San Jacinto Junior College, 519
F.2d 273, 278 (5th Cir.), modified on other grounds, 522 F.2d 204
(5th Cir. 1975); see also Mt. Healthy City Sch. Dist. Bd. of Educ.
v. Doyle, 429 U.S. 274, 280 (1977) (entity must be an “arm of the
state”); Voisin’s Oyster House, Inc. v. Guidry, 799 F.2d 183, 186
(5th Cir. 1986) (entity must be an “alter ego” of the state). Our
analysis must consider the particular nature of the entity,
7
including its powers and duties, the nuances of its organizational
structure, and its interrelationship with other organs of the
state. See, e.g., Mt. Healthy, 429 U.S. at 280; Jacintoport Corp.
v. Greater Baton Rouge Port Comm’n, 762 F.2d 435, 438 (5th Cir.
1985), cert. denied, 474 U.S. 1057 (1986); Laje v. R.E. Thomason
Gen. Hosp., 665 F.2d 724 (5th Cir. 1982); United Carolina Bank v.
Board of Regents of Stephen F. Austin State Univ., 665 F.2d 553,
557 (5th Cir. Unit A 1982).
There is no simple litmus test that determines whether a state
agency is an “arm of the state” for the purposes of Eleventh
Amendment immunity. Rather, the matter is determined by reasoned
judgment about whether the lawsuit is one which, despite the
presence of a state agency as the nominal defendant, is effectively
against the sovereign state. In determining whether a given state
agency operates as an “arm of the state,” our Court has taken many
factors into account, including: (1) whether the state, through
statutes or case law, views the entity as an arm of the state;
(2) the source of the entity’s funding; (3) whether the entity is
concerned with local or statewide problems; (4) the entity’s degree
of authority independent from the state; (5) whether the entity can
sue and be sued in its own name; and (6) whether the entity has the
right to hold and use property. See, e.g., Voisin’s Oyster House,
799 F.2d at 186-87; Clark v. Tarrant County, 798 F.2d 736, 744-45
(5th Cir. 1986); Jacintoport, 762 F.2d at 438-40; United Carolina
Bank, 665 F.2d at 557-58; Huber, Hunt & Nichols, Inc. v.
8
Architectural Stone Co., 625 F.2d 22, 24-25 (5th Cir. 1980).
Considering these factors, we conclude that a suit against the
Board is, in effect, a suit against the State of Louisiana.
1. The state’s view. -- First, we consider the Board’s place
in the overall scheme of Louisiana government. The Board is “a
state agency within the Department of Economic Development.” LA.
STAT. REV. ANN. § 37:73(A) (West Supp. 1998). The Department of
Economic Development is a department of the executive branch of the
government of Louisiana. See id. §§ 36:3, 36:4 (West 1985 & Supp.
1998). In this situation, it appears that Louisiana would regard
the Board as part of the state. We are compelled to draw this
conclusion by our disposition in Voisin’s Oyster House, Inc. v.
Guidry, 799 F.2d 183 (5th Cir. 1986). There, as here, the entity
in question was a subdivision of a department of the executive
branch. Our Court reasoned:
According to Louisiana statutes, the
Department is a part of the executive branch of the
state government, LA. REV. STAT. ANN. § 36:4 (West
1985), and the Commission is part of the
Department. LA. REV. STAT. ANN. § 36:610 (West
1985). In its statutes, Louisiana treats all
executive departments the same, LA. REV. STAT. ANN.
§ 36:4(A), and provides that “[n]o suit against the
state or a state agency or political subdivision
shall be instituted in any court other than a
Louisiana state court.” LA. REV. STAT. ANN.
§ 13:5106(A) (West Supp. 1986). See Fireman’s Fund
Insurance Co. v. Department of Transportation and
Development, 792 F.2d 1373 (5th Cir.1986) (holding
that a similar executive department had Eleventh
Amendment immunity and implying that all Louisiana
executive departments have such immunity). The
Louisiana Supreme Court has held “[i]f the office
is created by the legislature, or is established in
the first instance by the constitution, it is a
9
state office.” Mullins v. Louisiana, 387 So. 2d
1151, 1152 (La. 1980). The Department was created
by the state legislature, LA. REV. STAT. ANN.
§ 36:601, and, therefore, the Louisiana courts
would view the Department as part of the state.
Voisin’s Oyster House, 799 F.2d at 186 (alterations in original).
The circumstances encountered in Voisin’s Oyster House pertaining
to that entity’s place in Louisiana government are substantially
identical to the present case, and we therefore conclude that this
factor weighs in favor of Eleventh Amendment immunity.
2. Source of the entity’s funding. -- Next, we consider the
source of the Board’s funding. In this case, the Board is
financially independent from the state. The Board is funded solely
by fees collected from accountants. See LA. REV. STAT. ANN.
§§ 37:80, 37:82 (West 1988 & Supp. 1998); LA. ADMIN. CODE tit. 46,
§§ XIX.1911, .2101, .2501 (Sept. 1997)
. Moreover, statutes and
regulations prohibit the Board from resorting to state coffers for
funding. See LA. REV. STAT. ANN. § 37:76 (West 1988) (“No expenses
incurred by the board shall ever be charged to or against the funds
of the state of Louisiana.”); id. § 37:75(B)(8) (“The Board may
. . . [e]mploy legal counsel to carry out the provisions of this
Chapter, provided that the fees of such counsel and the costs of
all proceedings, except criminal prosecutions, are paid by the
board from its own funds . . . .”); LA. ADMIN. CODE tit. 46,
§ XIX.903 (Sept. 1997) (“The
compensation of board members and all other necessary expense
10
incurred by the board . . . shall be paid out of the treasury of
the board.”). Thus, the Board is financially independent, and
there is no threat that Louisiana will pay money damages to a
citizen pursuant to a judgment obtained in federal court. Our
examination of this factor weighs against a finding of Eleventh
Amendment immunity for the Board.
3. Scope of the entity’s responsibilities. -- The Board is
concerned with regulating the practice of public accounting on a
statewide, rather than local, scale. See LA. REV. STAT. ANN. § 37:75
(West 1988 & Supp. 1998). This factor favors Eleventh Amendment
immunity for the Board.
4. Independence from the state. -- The Board exercises
considerable authority independent from the state. The Board has
the power to “[a]dopt and enforce all rules and regulations,
bylaws, and rules of professional conduct as the board may deem
necessary and proper to regulate the practice of public accounting
in Louisiana, to provide for the efficient operation of the board,
and to otherwise discharge its duties and powers.” LA. REV. STAT.
ANN. § 37:75(B)(2) (West 1988). The legislature may review
proposed rule changes. See id. § 49:968 (West 1987 & Supp. 1998).
In the usual case (such as the adoption of the rules at the heart
of this lawsuit), however, the Board’s proposed rule changes simply
take effect without any legislative consideration or action
whatsoever. See id. § 49:968(H)(1) (if the legislature fails to
11
act on proposed rule changes, the rule may be adopted ninety days
after notice is published in the State Register). This factor cuts
against Eleventh Amendment immunity.
5. Capacity to sue and be sued. -- The Board has a limited
capacity to sue and be sued. See, e.g., LA. REV. STAT. ANN.
§§ 49:963-:965 (West 1987 & Supp. 1998) (authorizing judicial
review of Board actions). The Board’s power to sue and be sued is
not established as plainly as for other similarly situated state
agencies in Louisiana. See, e.g., id. § 37:1393(A) (West Supp.
1998) (State Licensing Board for Locksmiths “may sue and be sued”);
id. § 37:3273(A) (West 1988) (Louisiana State Board of Private
Security Examiners “may sue and be sued”). The Board does,
however, have some power to “sue and be sued” insofar as it has the
power to litigate as an independent party. See, e.g., State Bd. of
Certified Pub. Accountants v. Donnelly, 688 So. 2d 127 (La. Ct.
App.), writ denied, 694 So. 2d 247 (La. 1997). Ultimately, this is
not a case in which the state has granted “express authority to
‘sue and be sued, plead and be impleaded’” in the entity’s own
name, Huber, Hunt & Nichols, 625 F.2d at 25 (quoting Hopkins v.
Clemson Agric. College, 221 U.S. 636, 658 (1911)), so this factor
lends slight guidance to our Eleventh Amendment immunity inquiry.
6. Right to hold and use property. -- The parties have
presented conflicting views as to whether the Board has the right
to hold and use property. There is no express statutory grant of
12
such power to the board. But on the other hand, the powers that
are granted to the Board are so broad that they arguably encompass
the right to hold and use property. See, e.g., LA. REV. STAT. ANN.
§ 37:75(B)(9) (West 1988) (“The board may . . . [i]ncur all
necessary and proper expenses . . . .”). Because of this statutory
ambiguity, this factor again has little effect on our analysis.
In sum, when we evaluate the mixed indications given by the
various factors discussed above, we are led to the conclusion that
the Board is entitled to immunity. The question is a close one,
but ultimately we are persuaded by the legislature’s broad grant of
power to a state agency (composed of members who are appointed by
serve at the pleasure of the governor) charged with carrying out
the governmental function of regulating the practice of public
accounting on a statewide basis. We therefore conclude that the
Board is entitled to Eleventh Amendment immunity.
B. Individual Members of the Board
Though the Board itself is eligible for Eleventh Amendment
immunity, it does not follow that the members of the Board may
claim immunity for their official actions. The doctrine of Ex
parte Young, 209 U.S. 123 (1908), precludes the individual Board
members’ claims of Eleventh Amendment immunity.
The rule of Ex parte Young has been traditionally viewed as
establishing that a “federal court is not barred by the Eleventh
Amendment from enjoining state officers from acting
unconstitutionally, either because their action is alleged to
13
violate the Constitution directly or because it is contrary to a
federal statute or regulation that is the supreme law of the land.”
17 CHARLES ALAN WRIGHT, ET . AL, FEDERAL PRACTICE AND PROCEDURE, § 4232 (2d
ed. 1988). Since the filing of the briefs in this case, the
Supreme Court has handed down its decision in Idaho v. Coeur
d’Alene Tribe, 117 S. Ct. 2028 (1997). That decision, despite its
disclaimer of intent to “question the continuing validity of the Ex
parte Young doctrine,” Coeur d’Alene, 117 S. Ct. at 2034, casts
some doubt upon previous conventional wisdom in this area.
The Fifth Circuit has not yet had the opportunity to consider
the effect of Coeur d’Alene, though several other circuits have.
See Doe v. Lawrence Livermore Nat’l Lab., 131 F.3d 836, 839 (9th
Cir. 1997); Marie O. v. Edgar, 131 F.3d 610, 616 n.10, 617 n.13
(7th Cir. 1997); Strahan v. Coxe, 127 F.3d 155, 166-67 (1st Cir.
1997), petition for cert. filed, 66 U.S.L.W. 3605 (U.S. Mar 6,
1998) (No. 97-1485); Sofamor Danek Group, Inc. v. Brown, 124 F.3d
1179, 1183-85 (9th Cir. 1997); Mille Lacs Band of Chippewa Indians
v. State of Minn., 124 F.3d 904, 913-14 (8th Cir. 1997), petition
for cert. filed, 66 U.S.L.W. 3559 (U.S. Feb. 17, 1998) (No. 97-
1337). We concur with the consensus among other courts that
although the principal opinion in Coeur d’Alene suggests a case-by-
case (rather than rule-based) approach to the application of Ex
parte Young, see Coeur d’Alene, 117 S. Ct. at 2038-40 (opinion of
Kennedy, J.), this part of the opinion did not muster a majority,
and a majority of the Court would continue to apply the rule of Ex
parte Young as it has been traditionally understood, see id at 2047
14
(O’Connor, J., concurring in part and concurring in the judgment
(joined by Scalia and Thomas, JJ.)); id. at 2048 (Souter, J.,
dissenting (joined by Stevens, Ginsburg, and Breyer, JJ.)).
The rule of Ex parte Young empowers the federal courts to
grant the prospective injunctive relief sought by the plaintiffs if
the rules challenged in this case do indeed violate federal law.
The plaintiffs’ state-law claims, however, are not cognizable in a
proceeding under Ex parte Young because state officials continue
to be immunized from suit in federal court on alleged violations of
state law brought under the federal courts’ supplemental
jurisdiction. See Pennhurst, 465 U.S. at 103-21; see also Papasan
v. Allain, 478 U.S. 265, 277 (1986); Oneida County v. Oneida Indian
Nation, 470 U.S. 226, 251 (1985); Hays County Guardian v. Supple,
969 F.2d 111, 125 (5th Cir. 1992), cert. denied, 506 U.S. 1087
(1993). The Ex parte Young doctrine promotes federal sovereignty,
but is limited by the constitutional immunity granted to the states
by the Eleventh Amendment. See Pennhurst, 465 U.S. at 105-06. It
therefore does not serve to subject state officials to suit in
federal court over alleged violations of state law, as that result
does not advance the concerns of Ex parte Young and also “conflicts
directly with the principles of federalism that underlie the
Eleventh Amendment.” Id. at 106. The availability of the
supplemental jurisdiction statute does not change this result
because that rule arises merely from “a judge-made doctrine of
expediency and efficiency derived from the general Art. III
language conferring power to hear all ‘cases’ arising under federal
15
law or between diverse parties.” Id. at 120 (citing United Mine
Workers v. Gibbs, 383 U.S. 715, 725 (1966)).
Thus, the plaintiffs’ suit may proceed against the individual
members of the Board under the doctrine of Ex parte Young, but the
limitations of the doctrine require that the plaintiffs’ state-law
claims be dismissed upon remand.
IV. State Action Exemption
We now turn to the defendants’ state-action defense. The
state-action exemption from federal antitrust liability was first
recognized in the case of Parker v. Brown, 317 U.S. 341 (1943).
State action is properly treated as an immunity from suit,7 and
therefore our review of the district court’s pretrial rejection of
a state-action exemption is appropriate.8 We begin, as do all of
7
See Martin, 86 F.3d at 1395-96; 3 JULIAN O. VON KALINOWSKI ET
AL., ANTITRUST LAWS AND TRADE REGULATION § 47.01[2] (1997).
8
See, e.g., Hoover v. Ronwin, 466 U.S. 558, 565-67 (1984)
(reversing the lower court’s determination that state-action
immunity should not be decided on a Rule 12(b)(6) motion to
dismiss).
16
the Supreme Court’s opinions on state action,9 with a look back to
Parker’s first principles.
In Parker, the Court considered the legal effect of the
California Agricultural Prorate Act. The California statute
permitted regulations -- or as they were called, a “marketing
program” -- designed to protect the raisin industry. One effect of
this program was that the freedom of raisin producers to sell their
crops in interstate commerce was seriously restricted. See Parker,
317 U.S. at 344-49. The program was challenged under the Sherman
Act. The Supreme Court decided that Congress, in enacting federal
antitrust legislation, had not intended to preempt economic
regulation by the states. The central holding of Parker was that
the Sherman Act does not “restrain a state or its officers or
agents from activities directed by its legislature.” Id. at 350-
51. The Court expressly rested its analysis on federalism
principles:
In a dual system of government in which, under the
Constitution, the states are sovereign, save only
as Congress may constitutionally subtract from
their authority, an unexpressed purpose to nullify
9
See FTC v. Ticor Title Ins., 504 U.S. 621, 632-33 (1992);
City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 370
(1991); Patrick v. Burget, 486 U.S. 94, 99 (1988); 324 Liquor Corp.
v. Duffy, 479 U.S. 335, 344 (1987); Southern Motor Carriers Rate
Conference, Inc. v. United States, 471 U.S. 48, 55-57 (1985); Town
of Hallie v. City of Eau Claire, 471 U.S. 34, 38 (1985); Hoover,
466 U.S. at 567-68; Community Communications Co. v. City of
Boulder, 455 U.S. 40, 48-49 (1982); California Retail Liquor
Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 103-04 (1980);
City of Lafayette v. Louisiana Power & Light Co., 435 U.S. at 389,
408-09 (1978); Bates v. State Bar, 433 U.S. 350, 359 (1977); Cantor
v. Detroit Edison Co., 428 U.S. at 579, 585-91 (1976); Goldfarb v.
Virginia State Bar, 421 U.S. 773, 788 (1975).
17
a state’s control over its officers and agents is
not lightly to be attributed to Congress.
Id. at 551.
The Parker state-action doctrine has been construed to exempt
both state agencies and private individuals from liability for
activities that might otherwise violate federal antitrust law.
See, e.g., Southern Motor Carriers Rate Conference, Inc. v. United
States, 471 U.S. 48, 56-57 (1985). When the Parker exemption is
invoked by a defendant other than the state, however, the allegedly
anticompetitive activity is subjected to greater scrutiny before
state-action immunity will be granted. See Hoover v. Ronwin, 466
U.S. 558, 569 (1984). In most cases, two criteria must generally
be satisfied: (1) the alleged anticompetitive conduct must have
been taken pursuant to a clearly articulated and affirmatively
expressed state policy to displace competition with state
regulation; and, (2) the state must actively supervise the
implementation of its policy. See California Retail Liquor Dealers
Ass’n v. Midcal Aluminum, 445 U.S. 97 (1980); DFW Metro Line Servs.
v. Southwestern Bell Tel., Corp., 988 F.2d 601, 605 (5th Cir.),
cert. denied, 510 U.S. 864 (1993); PHILLIP E. AREEDA & HERBERT HOVENKAMP,
ANTITRUST LAW ¶ 212.1a (Supp. 1997). This two-pronged review is
commonly known as the Midcal test.
Some defendants are not subject to both prongs of Midcal
review. In Town of Hallie v. City of Eau Claire, 471 U.S. 34
(1985), the Supreme Court exempted municipalities from the active-
supervision prong of the Midcal test. See Town of Hallie, 471 U.S.
18
at 46-47. The Court distinguished municipalities from other
defendants subjected to the Midcal test:
Where a private party is engaging in the
anticompetitive activity, there is a real danger
that he is acting to further his own interests,
rather than the governmental interests of the
State. Where the actor is a municipality, there is
little or no danger that it is involved in a
private price-fixing arrangement. The only real
danger is that it will seek to further purely
parochial public interests at the expense of more
overriding state goals. This danger is minimal,
however, because of the requirement that the
municipality act pursuant to a clearly articulated
state policy. Once it is clear that state
authorization exists, there is no need to require
the State to supervise actively the municipality’s
execution of what is a properly delegated function.
Id. at 47. Fortunately for the defendants,10 the Board is
functionally similar to a municipality and is also exempted from
the active-supervision prong. Despite the fact that the Board is
composed entirely of CPAs who compete in the profession they
regulate, the public nature of the Board’s actions means that there
is little danger of a cozy arrangement to restrict competition. So
long as the Board is acting within its authority and pursuant to a
clearly established state policy, there is no need for active
supervision of the exercise of properly delegated authority. This
10
Exemption from the “active supervision” requirement is
fortunate from the Board’s perspective because its rulemaking
process was not actively supervised. Despite the legislature’s
reservation of power to review the Board’s proposals for new rules,
rule changes can take effect without any active oversight by the
legislature. LA. REV. STAT. ANN. § 49:968 (West 1987 & Supp. 1998).
That is in fact what happened regarding the rules challenged in
this case, and the situation is indistinguishable from the
“negative option system” which was determined by the Supreme Court
not to constitute active state supervision. See Ticor, 504 U.S. at
629, 638-40.
19
conclusion comports with our prior precedent and that of other
courts of appeals. See Benton, Benton & Benton v. Louisiana Pub.
Facilities Auth., 897 F.2d 198, 203 (5th Cir. 1990) (determining
the defendant to be a state agency and “as such” not subject to the
active state supervision prong of Midcal), cert. denied, 499 U.S.
975 (1991); see also Porter Testing Lab. v. Board of Regents for
Okla. Agric. & Mechanical Colleges, 993 F.2d 768, 772 (10th Cir.)
(where the antitrust defendants included “a constitutionally
created state board, its executive secretary, and a state created
and funded university . . . a showing of active supervision is
unnecessary to qualify for state action antitrust immunity”), cert.
denied, 510 U.S. 932 (1993); Cine 42nd Street Theater Corp. v.
Nederlander Org., Inc., 790 F.2d 1032, 1047 (2d Cir. 1986) (where
the defendant was a statutorily created political subdivision of
the state, defendant’s “interests must be defined as public rather
than private, and consequently, the active state supervision
requirement is unnecessary”); see also AREEDA & HOVENKAMP, supra,
¶ 212.7a (“Dispensing with any supervision requirement for
municipalities implies, a fortiori, the same for departments and
agencies of the state itself.”). Moreover, this development was
expressly anticipated by the Supreme Court’s Town of Hallie
decision. See Town of Hallie, 471 U.S. at 46 n.10 (“In cases in
which the actor is a state agency, it is likely that active state
supervision would also not be required, although we do not here
decide that issue.”).
20
The individual Board members take advantage of the Board’s
privileged status for the purposes of the Midcal test. The
individuals’ actions in adopting and enforcing the rules involved
in this case were performed in their official capacities as members
of the Board. They were, in effect, agents of the Board for the
purposes of state-action immunity. See Crosby v. Hospital Auth.,
93 F.3d 1515, 1529-30 (11th Cir. 1996), cert. denied, 117 S. Ct.
1246 (1997).
Thus, in order to take advantage of the state-action
exemption, the defendants must simply demonstrate that they acted
“pursuant to state policy to displace competition with regulation
or monopoly public service” that was “clearly articulated and
affirmatively expressed.” Community Communications Co., Inc. v.
City of Boulder, 455 U.S. 40, 51 (1982). The Supreme Court has
further elaborated on this requirement, noting: “We have rejected
the contention that this requirement can be met only if the
delegating statute explicitly permits the displacement of
competition. It is enough . . . if suppression of competition is
the ‘foreseeable result’ of what the statute authorizes.” City of
Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 372-73
(1991).11
11
To the extent that United States v. Texas State Bd. of Pub.
Accountancy, 592 F.2d 919 (5th Cir. 1979), aff’g 464 F. Supp. 400
(W.D. Tex. 1978), cert. denied, 444 U.S. 925 (1979), suggests that
the state-action exemption may be denied because the state statute
authorizing the challenged conduct was cast in permissive language
rather than mandatory language, the opinion has been overruled by
numerous subsequent Supreme Court cases disavowing that reasoning.
See, e.g., Southern Motor Carriers, 471 U.S. at 59-60.
21
The evidence of the Louisiana policy supporting the rules
against the practice of incompatible professions and the acceptance
of commissions consists of the following statutory language:
The board shall:
* * *
(3) Take appropriate administrative action to
regulate the practice of public accounting in the
state of Louisiana in the interest of and to
preserve and protect the public health, safety and
welfare;
* * *
LA. REV. STAT. ANN. § 37:75(A) (West 1988).
The board may:
* * *
(2) Adopt and enforce all rules and
regulations, bylaws, and rules of professional
conduct as the board may deem necessary and proper
to regulate the practice of public accounting in
the state of Louisiana, to provide for the
efficient operation of the board, and otherwise to
discharge its duties and powers under this Chapter;
* * *
(5) Authorize any member of the Board to make
any affidavit necessary to the issuance of any
injunction or other legal process authorized under
this Chapter or under the rules and regulations of
the board;
(6) Employ inspectors, special agents, and
investigators;
* * *
(8) Employ legal counsel to carry out the
provisions of this Chapter, provided that the fees
of such counsel and the costs of all proceedings,
except criminal prosecutions, are paid by the board
from its own funds;
* * *
22
(10) Issue subpoenas under its seal to require
attendance and testimony and the production of
documents and things for the purpose of enforcing
the laws relative to the practice of public
accounting and securing evidence of violations
thereof;
* * *
(12) Adopt and enforce rules and regulations
providing for the board’s regular, periodic review
of the form of audit, review, and compilation
reports issued by individuals and firms registered
with the board for compliance with applicable,
generally accepted standards. * * *
* * *
Id. § 37:75(B) (West 1988 & Supp. 1998). These statutes grant the
Board broad power to regulate the profession of accounting. We
must determine whether the rules challenged by the plaintiffs are
a “foreseeable result” of the state’s enabling legislation and
therefore promote the state’s public policy for the purposes of the
state-action doctrine.
The plaintiffs contend that “clear articulation” is not
present on these facts. They argue that the state-action doctrine
is to be applied narrowly, and the Board members’ actions simply do
not merit the exemption. Particularly, the plaintiffs object that
(1) any “policy” evidenced by the above-quoted statutory language
is not “clearly articulated” and (2) the rules enacted by the Board
are not the “foreseeable result” of the statues enacted by the
state. The plaintiffs assert that their view is supported by
Supreme Court precedent which holds that merely neutral statutory
language is inadequate to meet the standards of clear articulation
and affirmative expression. See, e.g., Community Communications,
23
455 U.S. at 55-56 (“[T]he requirement of ‘clear articulation and
affirmative expression’ is not satisfied when the State’s position
is one of mere neutrality respecting the municipal actions
challenged as anticompetitive.”).
That argument cannot be accepted. With respect to a regulated
entity such as the Board, the Supreme Court has dictated a standard
that accords appropriate deference to state sovereignty: “As long
as the State clearly articulates its intent to adopt a permissive
policy, the first prong of the Midcal test is satisfied.” Southern
Motor Carriers, 471 U.S. at 60. Thus, we cannot deny the state-
action exemption based merely upon the failure of the Louisiana
legislature to expressly state an intention to displace competition
in the accounting profession by restricting the practice of
“incompatible professions” and the acceptance of commissions. As
the Supreme Court has noted in a analogous context, such an
approach would take an “unrealistic view of how legislatures work
and of how statutes are written.” Town of Hallie, 471 U.S. at 43;
see also AREEDA & HOVENKAMP, supra, ¶ 212.3a (“Unfortunately, state
statutes seldom speak with clarity on [the elements of the ‘clear
articulation’ requirement], for the federal antitrust consequences
of state legislation -- especially of state delegations to
subordinate units -- was hardly significant in the legislators’
minds.”).
Objectively, the Louisiana legislature “intended” that the
Board, through its members, exercise any power which the
legislature authorized. Here, the Board was authorized to “[a]dopt
24
and enforce all rules and regulations, bylaws, and rules of
professional conduct as the board may deem necessary and proper to
regulate the practice of public accounting in the state of
Louisiana.” LA. REV. STAT. ANN. § 37:75(B)(2) (West 1988). This is
a broad grant of authority which includes the power to adopt rules
that may have anticompetitive effects.12 It is thus the
“foreseeable result” of enacting such a statute that the Board may
actually promulgate a rule that has anticompetitive effects.
Whether or not the rules challenged by the plaintiffs would
violate the Sherman Act in the absence of a state-action exemption,
it is plain that Louisiana has established a permissive policy with
respect to the Board’s regulation of CPAs. In doing so the state
rejected pure competition among public accountants in favor of
establishing a regulatory regime that inevitably has
anticompetitive effects.
Our analysis is faithful to the principles of federalism that
gird the state-action doctrine. As the Supreme Court has noted:
If more detail than a clear intent to displace
competition were required of the legislature,
States would find it difficult to implement through
regulatory agencies their anticompetitive policies.
Agencies are created because they are able to deal
with problems unforeseeable to, or outside the
competence of, the legislature. Requiring express
12
For example, the Board uses its state-granted monopoly power
over the practice of public accounting to determine who may compete
in the profession. See LA. REV. STAT. ANN. § 75(A) (West 1988) (the
Board shall administer the licensing of CPAs); id. § 77(B) (West
Supp. 1998) (CPA license required to practice public accounting in
Louisiana); LA. ADMIN. CODE tit. 46, §§ XIX.1101-.2701 (Sept. 1997)
(regulations pertaining to
examination, certification, and licensing). This has the effect of
artificially limiting supply and therefore raising prices.
25
authorization for every action that an agency might
find necessary to effectuate state policy would
diminish, if not destroy, its usefulness.
Southern Motor Carriers, 471 U.S. at 64. We thus conclude that the
“clear articulation” requirement is satisfied by the Louisiana
statutes which bless the Board with broad rulemaking authority over
the profession of public accounting within the state. The members
of the Board are therefore entitled to state-action immunity from
federal antitrust laws.
V. Conclusion
For the aforementioned reasons, the judgment of the district
court denying defendants’ motion to dismiss based on the Eleventh
Amendment is reversed to the extent that it denies immunity to the
Board itself and to individual Board members on claims grounded in
state law. In all other respects, the ruling is affirmed. The
denial of the motion to dismiss based on the state-action doctrine
is also reversed. We remand the case for further proceedings. On
remand, the district court shall dismiss all claims against the
State Board of Certified Public Accountants of Louisiana and all
federal antitrust and state-law claims against its Board members.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH
INSTRUCTIONS.
26