TELADOC VS TEXAS MEDICAL BOARD: THE TRIAL COURT S ANTITRUST DECISION AND WHAT S NEXT FOR TELEMEDICINE

Transcription

1 TELADOC VS TEXAS MEDICAL BOARD: THE TRIAL COURT S ANTITRUST DECISION AND WHAT S NEXT FOR TELEMEDICINE Presented by the American Bar Association Health Law Section and Center for Professional Development

2 American Bar Association Center for Professional Development 321 North Clark Street, Suite 1900 Chicago, IL CDs, DVDs, ONLINE COURSES, DOWNLOADS, and COURSE MATERIALS ABA self-study products are offered in a variety of formats. Find our full range of options at Submit a Question Visit to submit a question on the content of this course to program faculty. We ll route your question to a faculty member or qualified commentator in 2 business days. The materials contained herein represent the opinions of the authors and editors and should not be construed to be the action of the American Bar Association Health Law Section or Center for Professional Development unless adopted pursuant to the bylaws of the Association. Nothing contained in this book is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This book and any forms and agreements herein are intended for educational and informational purposes only American Bar Association. All rights reserved. This publication accompanies the audio program entitled Teladoc vs Texas Medical Board: The Trial Court s Antitrust Decisions and What s Next for Telemedicine broadcast on January 15, 2016 (event code: CE1601TTM).

3 TABLE OF CONTENTS 1. Presentation Slides 2. Teladoc, Inc., et al. v. Texas Medical Board, et al. Order (May 29, 2015) 3. Teladoc, Inc., et al. v. Texas Medical Board, et al. Defendants Motion to Dismiss (June 19, 2015) 4. FTC Staff Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants 5. Teladoc, Inc., et al. v. Texas Medical Board, et al. Order (December 14, 2015)

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5 Teladoc vs Texas Medical Board: The Trial Court s Antitrust Decision Friday, January 15, :00 PM Eastern Sponsored by the ABA Health Law Section and the ABA Center for Professional Development Agenda Julian Rivera: Context, NC Dental Examiners v FTC, FTC Staff Guidance, and overview of litigation nationally Leah Brannon: Teladoc v Texas Medical Board litigation, trial court rulings, appellate timetable Jonathan Brouk: Telemedicine developments in other states and at the federal level

6 Webinar Materials Order granting Teladoc preliminary injunction - Teladoc v Texas Medical Board Texas Medical Board Motion to Dismiss - Teladoc v Texas Medical Board FTC Staff Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants Order denying Texas Medical Board Motion to Dismiss and assertion of State Action Immunity - Teladoc v Texas Medical Board Proliferation of Telehealth Companies

7 NC Dental Examiners vs FTC NC Dental Exam rs v FTC February, 2015 US Supreme Court upheld FTC determination that NC board violated federal antitrust laws by preventing nondentists from providing teeth whitening services Court: Federal antitrust law is a central safeguard for the Nation s free market structures as important to the preservation of economic freedom and our freeenterprise system as the Bill of Rights is to the protection of our fundamental personal freedom. Court: Board was not the State for purposes of state action immunity under Federal Trade Commission Act (FTCA)

8 Federal Trade Commission Act & Immunity FTCA & case law prohibit unjustified collaborative action designed to exclude competitor from the market FTCA authorizes civil enforcement by FTC Parker v Brown (1934): State immunity where: 1) Clearly articulated state policy replacing competition with regulation; and 2) Active state supervision NC Dental Exam rs v FTC Court: Board was a public/private hybrid thus not the sovereign state NC Dental Practice Act: 6 of 8 member must be licensed dentists actively practicing Members elected by other licensed dentists No mechanism member removal by public official Dentist member was in charge of teeth whitening inquiry Limited power over unlicensed persons (injunctive relief suit) Rulemaking power approved by NC Rules Review Commission Nothing about teeth whitening

9 NC Dental Exam rs v FTC Court: Board was nonsovereign actor controlled by active mart participants States must accept political accountability for anticompetitive conduct No question as to good faith of state officers Rather, structural risk of market participants confusing their own interests with the State s policy goals Need for active supervision is manifest NC Dental Exam rs v FTC Active Supervision need not entail day-to-day involvement Question is whether State s review mechanisms provide realistic assurance that conduct promotes state policy, rather than merely the party s individual interests 1. Supervisor must review substance of decision not merely procedures used 2. Supervisor must have power to veto or modify decisions to ensure accord with state policy 3. Mere potential for state supervision not adequate 4. Supervisor may not be an active market participant

10 FTC Staff Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants October 2015 Overview & Caveats Scope of Guidance FTC Staff Guidance Defenses to antitrust allegations When active supervision is required What constitutes active supervision Factors for satisfaction of active supervision requirements Scenarios

11 FTC Staff Guidance Caveats Vigorous competition provides consumers with important benefits, therefore legislatures should empower regulatory boards to restrict competition only when necessary to protect against credible risk of harm, such as health and safety risks to consumers Federal antitrust law does not require active supervision, States can choose to allow antitrust oversight of boards State action defense is fact-specific and contextdependent Guidance addresses only active supervision, presume clearly articulated state policy replacing competition with regulation FTC Staff Guidance Defenses Reasonable restraints on competition, even where economic interests of a competitor have been injured Example: Prohibits against fraud, deceptive advertising, individual suspensions for cause Ministerial (non-discretionary) acts in good faith Example: Applications fees, diplomas Initiation and participation in lawsuits unless falls within sham exception Example: State statute allows board to enjoin unlicensed practice and board has a basis to believe unlicensed practice is happening

12 FTC Staff Guidance When Active Supervision is Required Controlling number of decisionmakers are active market participants: I. Licensed by the board, or II. Provides any service subject to regulatory authority of board No defense that board members themselves are not directly or personally affected by the challenged restraint Method of selection is not determinative (appointed or elected) Controlling number, not necessarily majority (veto power, tradition, or practice) FTC Staff Guidance What Constitutes Active Supervision State exercised sufficient independent judgment & control that details of regulatory scheme are product of deliberate state intervention (not how well state regulation works) Ensure States accept political accountability for anticompetitive conduct they permit & control Pre-implementation of restraint NC Dental Four Factors

13 FTC Staff Guidance Factors for Active Supervision Supervisor obtained the information necessary for proper evaluation of action recommended by board As applicable, reviewed relevant facts, collected data, conducted public hearings, invited and received public comments, investigated market conditions, conducted studies and reviewed documentary evidence Evaluated substantive merits or recommended action and assessed whether it comports with standards set by legislature Written decision approving, modifying, or disapproving recommended action and explaining reasons/rationale Teladoc v Texas Medical Board

14 Julian Rivera Husch Blackwell, LLP Austin, Texas Teladoc v. Texas Medical Board Friday, January 15, :00 PM Eastern Sponsored by the ABA Center for Professional Development

15 Litigation Timeline 06/16/11: TMB asserts Teladoc is in violation of Old Rule /16/15: TMB adopts emergency revision to Rule /10/15: TMB revises Rule /22/15: Injunction Hearing 07/3015: TMB moves to dismiss 01/08/16: TMB files Notice of Appeal 07/19/11: Teladoc wins state court injunction 12/31/14: Texas Court of Appeals rules in favor of Teladoc 02/06/15: Teladoc wins state court injunction 04/29/15: Teladoc files federal suit and moves for preliminary injunction 05/29/15: Teladoc wins injunction 12/14/15: District Court denies TMB s motion to dismiss Old Rule (L)(i): A physician must establish[] a diagnosis through the use of acceptable medical practices such as patient history, mental status examination, physical examination, and appropriate diagnostic and laboratory testing. Teladoc s Complaint Alleges New Rule 190.8(1)(L), requiring an in-person physical exam regardless of medical need, violates federal antitrust law and the U.S. Constitution Notably, the TMB states that doctors with offices are permitted to continue treating patients by phone without a physical exam through on-call arrangements Alleges new rule (and an earlier rule limiting competition by providers who offer video consultations) would eliminate competition from an affordable, accessible, and high quality option for medical care

16 Cost Comparison $ 2000 $1,957 ~ 150 $ $40 0 Physician Visit Emergency Room Visit What Would Patients Do Without Teladoc? Office-Based Physician 55% Emergency Room 9% 13% 23% Urgent Care No Care Source:

17 Who Voted for New Rule? Michael Arambula, M.D., Pharm.D Scott Holliday, D.O., M.B.A. John R. Guerra, D.O. Allan N. Shulkin, M.D. Margaret McNeese, M.D. Wynne M. Snoots, M.D. Karl Swann, M.D. Surendra K. Varma, M.D. Manuel G. Guajardo, M.D. George Willeford III, M.D. Stanley Wang, M.D., J.D., M.P.H. Robert B. Simonson, D.O. Julie K. Attebury Paulette Barker Southard Frank Denton Voted For? Doctor? Sherman Act 1 Every contract, combination..., or conspiracy, in restraint of trade... is declared to be illegal. Concerted action by two or more entities Restrains trade Formal agreement not required; conspiracy may be proven by circumstantial evidence Here, members of the TMB formally agreed to adopt a restriction preventing competition

18 Commerce Clause Laws that discriminate against out-of-state providers face strict scrutiny Here, in-person physical exam requirement favors in-state providers over out-of-state providers. To treat Texans, a doctor must: Travel to Texas to perform an exam, or Staff a medical site in Texas Rule cannot survive scrutiny No empirical evidence showing any concerns with telehealth Narrower ways to address any perceived issues Motion for a Preliminary Injunction Teladoc sought an injunction against new Rule 190.8(1)(L) Plaintiff must show: Substantial likelihood of success on merits Irreparable injury Balancing of the equities Judge Pitman granted the preliminary injunction

19 Judge Pitman s Decision Granting the PI [T]he TMB declined to assert any immunity defenses as to Plaintiffs application for a preliminary injunction. (Op. at 6) Court found the effect of New Rule will be increased prices, reduced choice, reduced access, reduced innovation, and a reduced overall supply of physician services. (Op. at 8) The sole justification the TMB offers is that New Rule will lead to improved quality of medical care. [T]he Court finds TMB s assertion of additional improvement in the quality of care by the adoption of New Rule suspect. (Op. at 9-10) The Court found the TMB s mischaracterization of a key RAND study to be troubling and, after reviewing the full record, concluded that Plaintiffs have presented significant evidence which undermines the TMB s contention that the quality of medical care will be improved by New Rule (Op. at 12-13) TMB Moves to Dismiss Following the grant of the preliminary injunction, the TMB moved to dismiss, arguing that it has state action immunity from the antitrust laws TMB conceded that, under Supreme Court s decision in FTC v. North Carolina Board of Dental Examiners, its conduct must be actively supervised by the State, but argued it met this requirement Potential judicial review under the Texas APA Potential judicial review of disciplinary proceedings Future legislative oversight through Sunset Review process Legislative oversight through Congressional committees theoretically receiving courtesy copy of proposed rules TMB s other arguments: Claims against telemedicine medical services rules in Section 174 are time barred by the four-year statute of limitations Dormant Commerce clause allegations fail to state a claim

20 Supreme Court in NC Dental FTC alleged dental board s limits on competition from teeth whitening services violated antitrust law Board raised state action defense and lost at FTC, Fourth Circuit Supreme Court affirmed in February 25, 2015 decision [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 antitrust immunity. Supreme Court in NC Dental The Court has identified only a few constant requirements of active supervision: The supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it; the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy; and the mere potential for state supervision is not an adequate substitute for a decision by the State. Further, the state supervisor may not itself be an active market participant.

21 FTC Guidance on Active Supervision On October 14, 2015, FTC Staff issued informal guidance on active supervision [A]ctive supervision must precede implementation of a restraint Supervisor should issue a written decision approving, modifying, or disapproving the recommended action Denial of the TMB s Motion to Dismiss Court denied the TMB s motion on all fronts TMB s claims regarding active supervision do not meet the Supreme Court s mandate that the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy. [T]he Supreme Court has made abundantly clear that the mere presence of some state involvement or monitoring does not suffice. Court also rejected the TMB s statute of limitations and Dormant Commerce Clause arguments

22 TMB Files Notice of Appeal Telemedicine: What s Next?

23 Telemedicine Fast Facts More than 200 telehealth bills were introduced in state legislatures in 2015 Even presidential candidates are talking about telemedicine I]t s still too difficult for families in rural America to find quality, affordable health care. And I know many families here in Iowa are worried about even more rural hospitals closing. Telemedicine can help and we should streamline licensing and explore how to make that reimbursable under Medicare. -Hillary Clinton at Campaign Speech in Iowa, 08/26/ Principal Telemedicine Policy Issues Coverage and Reimbursement Private Sector Parity Laws Medicare Medicaid Practice Standards & Licensure Practice Across State Lines Physician Patient Encounter Clinical Privileges Scope of Practice Safety and Security HIPAA/Cybersecurity Informed Consent Liability

24 Iowa: Tele-Women s Health Planned Parenthood of the Heartland v. Iowa Board of Medicine Iowa Sup. Court No Iowa Board of Medicine rule required that physician personally perform a physical examination and be present during procedures where women receive certain drugs (e.g., RU-486) to induce abortions Planned Parenthood physicians in Iowa City and Des Moines had been using video-conferencing to interact with patients at outlying clinics and then to dispense medications that induce early-term abortions since 2008 Planned Parenthood filed suit, arguing that Iowa s governor stacked the medical board with abortion opponents. A Polk County Judge upheld the 2013 rule Iowa: Tele-Women s Health Ultimately, the Iowa Supreme Court found that the rule violated a woman s constitutional right to terminate a pregnancy Notably, Minnesota is the only other state where telemedicine abortions are allowed During the dispute, legislators in 15 states preemptively put measures in place which would prohibit similar practices

25 Iowa: Tele-Women s Health Competing Policy Issues: Safety v. Access Here in Iowa, you just won an important victory, stopping efforts to prevent Planned Parenthood from providing telemedicine services to women who might not be able to make it to a larger city. Thousands of women in Iowa have used these services in recent years. This shouldn t have to be said, but how can anyone be advocating for denying women access to healthcare? -Hillary Clinton, 8/26/ Texas: Tele-Veterinary Medicine Hines v. Alldredge, et al., 5 th Cir. Ct. App. No. Ron Hines, disabled veterinarian, had been providing veterinary advice via internet since Texas law makes it illegal to provide veterinary advice over the phone or over the internet without first conducting an in-person evaluation of the animal or its surrounding premises. Hines filed suit in Federal Court arguing Texas rule violated: First Amendment Right to Free Speech Fourteenth Amendment Rights to Due Process and Equal Protection

26 Texas: Tele-Veterinary Medicine Veterinary Board filed motion to dismiss District Court granted Vet Board s motion to dismiss on 14 th Amendment Claim, but denied motion to dismiss 1 st Amendment Claim relying on SCOTUS Planned Parenthood v. Casey decision U.S. Court of Appeals for the 5 th Circuit found that Texas Rule offended neither the First nor the Fourteenth Amendment In dismissing First Amendment claim, court relied on 1) state s broad discretion to regulate professions and 2) line of cases which precludes 1 st Amendment protection for regulation aimed at content or conduct that has merely an incidental impact on free speech Texas: Tele-Veterinary Medicine U.S. Supreme Court declined to hear case Open Questions: Would Supreme Court grant certiorari in telemedicine case involving human patients? Should antitrust claims fail, would First Amendment remain a viable alternative to antitrust theory of relief for a physician challenging State Board s restriction of practice via telemedicine? Alternatively, should the Dr. Hines revisit this issue if Teladoc succeeds?

27 ATA 50 State Survey: Reimbursement Alaska - B Alabama - B Arkansas - C Arizona B California B Colorado B Connecticut F DC A Delaware B Florida C Georgia B Hawaii C Iowa C Idaho C Illinois C Indiana C Kansas B Kentucky B Louisiana B Massachusetts B Maryland B Maine A Michigan B Minnesota B Missouri B Mississippi B Montana B North Carolina C North Dakota B Nebraska B New Hampshire A New Jersey C New Mexico A Nevada C New York B Ohio B Oklahoma C Oregon B Pennsylvania B Rhode Island F South Carolina B South Dakota B Tennessee A Texas B Utah B Virginia A Vermont B Washington B Wisconsin C West Virginia C Wyoming - B Source: American Telemedicine Association, State Telemediicine Gaps Analysis: Coverage & Reimbursement, May ATA 50 State Survey: Practice Standards & Licensure Alaska - B Alabama - C Arkansas - B Arizona B California B Colorado A Connecticut A DC B Delaware A Florida B Georgia B Hawaii B Iowa B Idaho B Illinois A Indiana A Kansas A Kentucky B Louisiana B Massachusetts A Maryland A Maine A Michigan B Minnesota A Missouri B Mississippi B Montana A North Carolina B North Dakota B Nebraska B New Hampshire A New Jersey C New Mexico A Nevada C New York B Ohio A Oklahoma B Oregon A Pennsylvania B Rhode Island B South Carolina A South Dakota B Tennessee A Texas C Utah A Virginia A Vermont B Washington B Wisconsin A West Virginia B Wyoming - B Source: American Telemedicine Association, State Telemediicine Gaps Analysis: Standards & Licensure, May

28 Parity ATA 50 State Survey - Texas Private Insurance: A Medicaid: B State Employee Health Plan: A Practice Standards & Licensure: Physician-patient encounter: F Telepresenter: B Informed Consent: F Licensure & Out of State Practice: B Medical Board Policy or Statement on Internet Prescribing: Yes Pharmacy Board Policy or Statement on Internet Prescribing: No Parity ATA 50 State Survey - Tennessee Private Insurance: A Medicaid: B State Employee Health Plan: A Practice Standards & Licensure: Physician-patient encounter: A Telepresenter: A Informed Consent: A Licensure & Out of State Practice: B Medical Board Policy or Statement on Internet Prescribing: Yes Pharmacy Board Policy or Statement on Internet Prescribing: No

29 Louisiana Rule Change Louisiana adopted new telemedicine regulations in October of 2015 (La. Admin. Code: XLV.408) LA state law requires an examination, but new rule clarifies that in-person examination is not required The examination does not require an in-person visit if the technology is sufficient to provide the physician the pertinent clinical information reasonably necessary to practice at an acceptable level of skill and safety New rules still require that: Physician have access to patient s medical records Certain disclosures be made to patient regarding nature of services, identity of physician, etc. and be documented in medical record Telemedicine not authorized for treatment of obesity, non-cancer related pain management, or prescription or dispensation of controlled substances (unless certain conditions are met Mississippi Board of Medical Licensure Politico reported on 01/13/16 that the Mississippi Medical Board was expected to meet this week to discuss new telemedicine regulations In 2015, Mississippi considered adopting a rule which would force telemedicine providers seeing Mississippi patients to establish a formal agreement with a Mississippi-based health care entity and use only video when treating patients. Rules were tabled in 2015 in order to conduct an economic impact analysis Vann Craig, executive director of the Board of Medical Licensure, described the regulation as a work in progress.

30 Federal Licensure Initiatives TELE-MED Act of 2015 (SB 1778, HB 3081) Would allow some Medicare providers to offer telehealth services to other Medicare beneficiaries across state lines (jurisdiction would lie with authorizing state) Veterans E-Health & Telemedicine Support Act of 2015 Would allow a health care professional authorized to provide care through the Department of Veterans Affairs and licensed in any state to provide services via telehealth, regardless of where the provider or patient is located QUESTIONS?

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53 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 1 of 45 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION TELADOC, INC., et al., Plaintiffs, v. Civil Action No. 1:15-cv RP TEXAS MEDICAL BOARD, et al., Defendants. DEFENDANTS MOTION TO DISMISS In support of their motion, under FED. R. CIV. P. 12(b)(1) and -(6), to dismiss the plaintiffs Complaint (ECF doc. 1), the defendants Texas Medical Board ( TMB ), and its members 1 respectfully submit the following. In accordance with FED. R. CIV. P. 12(a)(4)(4), the defendants will defer their answer until after the ruling on this motion (if necessary). 1 As of this date, the defendant board members have not been served in their individual capacity. In part IV below, without entering an appearance for the unserved individuals, the defendants explain why the plaintiffs have failed to state a claim against any member in his/her individual capacity. 1

54 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 2 of 45 TABLE OF CONTENTS TABLE OF CONTENTS.... i TABLE OF AUTHORITIES.... iii INTRODUCTION AND BACKGROUND...2 STANDARDS FOR DISMISSAL...4 ARGUMENT...5 I. The Court Lacks Jurisdiction Over Plaintiffs Antitrust Claim....5 A. State Action Immunity is Jurisdictional....5 B. State Action Immunity Requires Active State Supervision to Realistically Assure the Promotion of Clearly Articulated State Policy...6 C. In Contrast to the Texas Medical Board, the North Carolina Dental Board was not Actively Supervised by the State....8 D. In Contrast to the North Carolina Dental Board, Active State Supervision Provides Realistic Assurance that the TMB Promotes State Policy and Removes the Risk of the Defendants Promoting their Personal Interests The state actively supervises the TMB through judicial review and SOAH...10 a. The instant case requires this Court to answer the judicial review question left open by the Supreme Court b. Judicial and SOAH review of TMB rules and actions provide the safeguards missing from Oregon s putative judicial review of hospital peer review decisions The state actively supervises the TMB through Legislative Oversight...15 a. The Legislature oversees the TMB through sunset review and adoption by reenactment b. The Legislature oversees the TMB through review of proposed rules...18 i

55 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 3 of Other relevant features of the TMB realistically assure the promotion of state policy over private interests The parallels between the contested rules and state statutes realistically assure the promotion of state policy over private interests...21 II. The Court Lacks Jurisdiction Over The Plaintiffs Claims Against The Texas Medical Board As An Entity For any Relief A. Eleventh Amendment Immunity is Jurisdictional...25 B. Eleventh Amendment Immunity bars the Antitrust Claim Against the TMB...26 C. Eleventh Amendment Immunity bars the Section 1983 Dormant Commerce Clause Claim Against TMB III. IV. The Plaintiffs Cannot State A Viable Claim For Relief On Their Interstate Commerce Clause Claim The Plaintiffs Cannot State A Viable Claim For Relief Against Any Defendant In His/Her Individual Capacity, Nor Any Claim That Is Triable To A Jury CONCLUSION...34 CERTIFICATE OF SERVICE...35 ii

56 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 4 of 45 Cases TABLE OF AUTHORITIES Alden v. Maine, 527 U.S. 706 (1999) Am. Tradition Inst. v. Col., 876 F. Supp.2d 1222 (D. Colo. 2012) Arizonans for Official English v. Ariz., 520 U.S. 43 (1997) Armstrong v. Exceptional Child Ctr., Inc., 135 S. Ct (2015) Ashcroft v. Iqbal, 556 U.S. 662,(2009)... 4, 32 AT&T Commc ns v. BellSouth Telecommunic ns Inc., 238 F.3d 636 (5th Cir. 2001) Avery v. Midland Cnty., Tex., 390 U.S. 474 (1968) Beck v. Tex. State Bd. of Dental Exam rs, 204 F.3d 629 (5th Cir. 2000) Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)... 4, 32 Brennan v. Stewart, 834 F.2d 1248 (5th Cir. 1988) Brinac v. E.E.O.C., 996 F.2d 304 (5th Cir. 1993) Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep't of Health & Human Res., 532 U.S. 598 (2001) Burns-Toole v. Byrne, 11 F.3d 1270 (5th Cir. 1994) Cal. Retail Liquor Dealers Ass n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980)... 6 iii

57 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 5 of 45 CBS Broad., Inc. v. EchoStar Commc ns Corp., 450 F.3d 505 (11th Cir. 2006), cert. denied, 135 S. Ct (2015) Chatham Condo. Associations v. Century Vill., Inc., 597 F.2d 1002 (5th Cir. 1979) Corzo v. Banco Cent. de Reserva del Peru, 243 F.3d 519 (9th Cir. 2001)... 5 Daigle v. Opelousas Health Care, Inc., 774 F.2d 1344 (5 th Cir. 1985) Danner Const. Co. v. Hillsborough Cnty., Fla., 608 F.3d 809 (11th Cir. 2010)... 5 Dillon v. Rogers, 596 F.3d 260 (5 th Cir. 2010) Dolenz v. Tex. State Bd. of Med. Exam rs, 981 S.W.2d 487 (Tex. App. Austin 1998, no pet.) E.E.O.C. v. Bd. of Sup rs for Univ. of La. Sys., 559 F.3d 270 (5th Cir. 2009) Edelman v. Jordan, 415 U.S. 651 (1979) Emory v. Tex. State Bd. of Med. Exam rs, 748 F.2d 1023 (5th Cir. 1984) Ex parte Young, 209 U.S. 123 (1908) F.T.C. v. Ticor Title Ins. Co., 504 U.S. 621 (1992) Familias Unidas v. Briscoe, 619 F.2d 391 (5th Cir. 1980) Farber v. La. State Bd. of Med. Exam rs, 2009 WL , 326 F. App x 314 (5th Cir. 2009) Fla. Prepaid Postsecondary Educ. Expense Bd. v. Coll. Sav. Bank, 527 U.S. 627 (1999)... 27, 29 iv

58 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 6 of 45 Freeman v. U.S., 556 F.3d 326 (5th Cir. 2009)... 4 Funk v. Stryker Corp., 631 F.3d 777 (5 th Cir. 2011)... 4 Gibson v. Tex. Dept. of Ins. Div. of Workers Comp., 700 F.3d 227 (5 th Cir. 2012)... 4, 32 Goldfarb v. Va. State Bar, 421 U.S. 773 ( Gulf Life Ins. Co. v. Arnold, 809 F.2d 1520 (11th Cir. 1987) Harlingen Family Dentistry, P.C. v. Tex. Health & Human Servs. Comm n, 452 S.W.3d 479 (Tex. App. Austin 2014, pet. filed) Homoly v. N. Ca. State Bd. of Dental Exam rs, 468 S.E.2d 481 (N.C. App.), pet. denied, 471 S.E.2d 71 (N.C. 1996) Humble Oil & Refining Co. v. Calvert, 414 S.W.2d 172 (Tex. 1967) In re Enron Corp. Sec., Derivative & ERISA Litig., 284 F. Supp. 2d 511 (S.D. Tex. 2003) Interfirst Bank Dallas, N.A. v. U.S., 769 F.2d 299 (5th Cir. 1985)... 6 John G. and Marie Stella Kenedy Mem l Found. v. Mauro, 21 F.3d 667 (5th Cir. 1994) Kassel v. Consol. Freightways Corp. of Del., 450 U.S. 662 (1981) Mangaroo v. Nelson, 864 F.2d 1202 (5th Cir. 1989) Martin v. Mem l Hosp. at Gulfport, 86 F.3d 1391 (5th Cir. 1996)... 5 McIntosh v. Partridge, 540 F.3d 315 (5 th Cir. 2008) v

59 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 7 of 45 Meekins v. Foster, 212 F.3d 595 (5th Cir. 2000) Miller v. Ind. Hosp., 930 F.2d 334 (3d Cir. 1991) Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274 (1977) N. C. State Bd. of Dental Exam rs v. FTC, 574 U.S., 135 S. Ct (2015)... 2, 5, 6, 7, 8, 9, 12, 14,15, 20, 21, 23, 33 Neuwirth v. La. State Bd. of Dentistry, 845 F.2d 553 (5th Cir. 1988) Okpalobi v. Foster, 244 F.3d 405 (5th Cir. 2001) Parker v. Brown, 317 U.S. 341 (1943)... 2, 5, 12, 13, 15, 20 Patrick v. Burget, 486 U.S. 94 (1988)... 11, 19 Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89 (1984) Pharm. Research & Mfrs. of Am. v. Cnty. of Alameda, 768 F.3d 1037 (9th Cir. 2014)... 29, 30, 31, 32 PhoneDOCTORx, LLC v. Healthbridge Mgmt., Inc., 58 F. Supp. 3d 152 (D. Mass. 2014) Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) Pinhas v. Summit Health, Ltd., 894 F.2d 1024 (9th Cir. 1989), aff d, 500 U.S. 322 (1991) Quern v. Jordan, 440 U.S. 332 (1979)) Raj v. La. State Univ., 714 F.3d 322 (5 th Cir. 2013)... 4, 25, 28 vi

60 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 8 of 45 Ramirez v. Ahn, 843 F.2d 864 (5th Cir. 1988)... 3 Ramming v. U. S., 281 F.3d 158 (5 th Cir. 2001)... 4 Reed v. State Dep t of Licensing & Regulation, 820 S.W.2d 1 (Tex. App. Austin 1991, no writ) Rivera v. Tex. State Bd. of Med. Exam rs, 2011 WL , 431 F. App x 356 (5th Cir. 2011) Rosebrough Monument Co. v. Mem l Park Cemetery Ass n, 666 F.2d 1130 (8th Cir. 1981) Scott v. Flowers, 910 F.2d 201 (5th Cir. 1990) Seminole Tribe of Fla v. Fla., 517 U.S. 44 (1996)... 26, 27 State v. Kane, 586 S.W.2d 812 (Mo. Ct. App. E.D. 1979) Sw. Life Ins. Co. v. Montemayor, 24 S.W.3d 581 (Tex. App. Austin 2000, pet. denied) Teladoc, Inc. v. Tex. Med. Bd., 453 S.W.3d 606 (Tex. App. Austin 2014, pet. filed) Tex. Orthopaedic Ass n v. Tex. State Bd. of Podiatric Med. Exam rs, 254 S.W.3d 714 (Tex. App. Austin 2008, pet. denied)... 12, 13 Tex. State Bd. of Exam rs of Marriage & Family Therapists v. Tex. Med. Ass n, S.W.3d, 2014 WL (Tex. App. Austin 2015, no pet. his.) U.S. Bank Nat. Ass n v. Verizon Commc ns, Inc., 761 F.3d 409 (5th Cir. 2014) United Haulers Ass n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 61 F.3d 245 (2nd Cir. 2001), aff d, 550 U.S. 330 (2007)... 28, 29, 30, 31 Versiglio v. Bd. of Dental Exam rs of Ala., 686 F.3d 1290 (11th Cir. 2012) vii

61 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 9 of 45 Will v. Mich. Dept. of State Police, 49 U.S. 58 (1989) Wilson v. Birnberg, 667 F.3d 591 (5 th Cir. 2012)... 4 Statutes 1 T.A.C T.A.C (2)(E)-(F) T.A.C (10) T.A.C T.A.C (a) T.A.C T.A.C (f) T.A.C (1)(L) T.A.C (1)(L)(i)(II) CAL. BUS. & PROF. CODE 2242(a) CAL. BUS. & PROF. CODE (a) ILL. ADMIN. CODE tit. 89, (b) N.C. GEN. STAT N.C. GEN. STAT. ANN Credits (West) N.C. GEN. STAT. 150B N.C. GEN. STAT. 160A N.Y. PUB. HEALTH LAW 2999-cc TEX. GOV T CODE (a) & (b) TEX. GOV T CODE (a)(3) TEX. GOV T CODE (b) viii

62 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 10 of 45 TEX. GOV T CODE (7) TEX. GOV T CODE (8) TEX. GOV T CODE TEX. GOV T CODE (c-1)(1) TEX. GOV T CODE (i-1) TEX. GOV T CODE (i)(3) TEX. GOV T CODE (a) TEX. GOV T CODE (a) TEX. GOV T CODE TEX. GOV T CODE TEX. GOV T CODE (a) TEX. GOV T CODE (b) & -(d) TEX. GOV T CODE (e) TEX. GOV T CODE TEX. GOV T CODE (2)(B) TEX. OCC. CODE TEX. OCC. CODE TEX. OCC. CODE TEX. OCC. CODE (a) TEX. OCC. CODE (a)(7) TEX. OCC. CODE (a)(1) TEX. OCC. CODE ix

63 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 11 of 45 TEX. OCC. CODE (a) TEX. OCC. CODE (a-1) TEX. OCC. CODE TEX. OCC. CODE (a)(6)... 15, 17 TEX. OCC. CODE U.S. CONST. amend. XIV Other Authorities Final Results from Last Sunset Report, medical-examiners A ADMINISTRATIVE LAW AND PROCEDURE k S.B. 419 ( 16 Steven Ogle, A Look at Sunset and How Stakeholders Can Effectively Participate in the Process, 13 TEX. TECH ADMIN. L.J. 291, 294 (2012) Rules FED. R. CIV. P. 12(a)(4)(4)... 1 FED. R. CIV. P. 12(b)(1)... 1, 2 FED. R. CIV. P. 12(b)(6)... 1 FED. R. CIV. P. 25(d) x

64 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 12 of 45 INTRODUCTION AND BACKGROUND From the briefing and argument on the application for preliminary injunction (docs. 10 et seq., 21 et seq., and 35), as well as the many amicus briefs, the Court is no doubt familiar with the plaintiffs allegations principally, for purposes of this motion, that the Supreme Court s ruling in N. C. State Bd. of Dental Exam rs v. FTC, 574 U.S., 135 S. Ct (2015) ( NCSBDE ), eviscerates immunity from antitrust claims for all state regulatory boards composed of market participants. 2 But the plaintiffs reading of NCSBDE is overly broad, undermines principles of federalism and state sovereignty, and is an attempt to disrupt Texas s interest in balancing new technology and sound medical treatment for the public welfare. The uncontested facts as well as clear Texas law show that the Texas Medical Board, in adopting the challenged rule, was acting as the sovereign with multiple layers of state oversight. Active state oversight immunizes the TMB from federal antitrust law. Since Parker v. Brown, 317 U.S. 341 (1943), certain forms of state action have been protected from antitrust liability because courts have recognized that states have the right and duty to pass laws that may have unintended anti-competitive results for the public s welfare. Texas has vested the Texas Medical Board with authority to ensure minimum standards for the practice of medicine and to regulate the professional conduct of physicians. The plaintiffs efforts to interfere with the TMB s decisions are precisely the kind held to be outside the purview of the federal antitrust laws in a system of dual sovereignty. 2 For purposes of their arguments under FED. R. CIV. P. 12(b)(1), the defendants will also refer to facts that have not been and cannot be controverted by the plaintiffs. For the reasons explained in doc. 21 at 2-13, the defendants do not concede that the contested rules have a net anticompetitive effect. However, as shown in part I of the Argument, because antitrust law is inapplicable to the TMB, it is immaterial whether the rules at issue can be characterized as, in some respects, anticompetitive. 2

65 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 13 of 45 We cannot overemphasize the limited role of federal courts in reviewing decisions... which are made by an agency of the state exercising its police powers as mandated by the Constitution. It is the duty of the Texas Board of Medical Examiners to protect the public from individuals who may endanger public health and safety through their practice of medicine. A federal court has no business intruding upon the substantive decisions of a public institution by substituting its judgment for that of the public body. Ramirez v. Ahn, 843 F.2d 864, 869 (5th Cir. 1988). In NCSBDE the Supreme Court did not change this long-standing antitrust immunity. Rather, it developed a flexible and context-dependent standard that looks to the structure and incentives of a regulatory agency to determine whether active supervision is required. Here, there can be no legitimate doubt that the TMB is acting within its capacity as a sovereign to police the medical profession for the benefit of the citizens of Texas. Its members are appointed by the Governor, it acts pursuant to state statutory authority, and regulations promulgated by the TMB (including the challenged rule) are subject to quasi-judicial and judicial review as well as legislative oversight. These features constitute active state supervision and provide realistic assurance that the Texas Medical Board is acting in the public s interest while balancing any noncompetitive effects its actions may have on the medical industry. Finally, a decision to treat the TMB as a non-sovereign entity that requires more bureaucratic oversight will not only run afoul of long-standing sovereign immunity principles, but will also overextend the NCSBDE opinion to have far-reaching effects on Texas s regulation of professions. The Court should reject Teledoc s broad reading of the North Carolina dental board case and hold that the defendants cannot be sued for antitrust violations. Accordingly, for these reasons briefed more extensively below, this Court should dismiss the plaintiffs antitrust claim against TMB based on state action immunity. The plaintiffs other 3

66 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 14 of 45 claims, including the dormant Commerce Claim, should likewise be dismissed for lack of jurisdiction and failure to state a claim upon which relief may be granted. STANDARDS FOR DISMISSAL [T]he court should consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits. Ramming v. U. S., 281 F.3d 158, 161 (5 th Cir. 2001) (internal quotation marks omitted). The burden of proof for a Rule 12(b)(1) motion to dismiss is on the party asserting jurisdiction, so that the plaintiff constantly bears the burden of proof that jurisdiction does in fact exist. Raj v. La. State Univ., 714 F.3d 322, 327 (5 th Cir. 2013). Under this rule, this Court has the power to dismiss for lack of subject matter jurisdiction on any one of three separate bases: (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court s resolution of disputed facts. Freeman v. U.S., 556 F.3d 326, 334 (5th Cir. 2009). A complaint will not survive a motion to dismiss under Rule 12(b)(6) unless it pleads sufficient facts to allow the court to draw a reasonable inference that the defendant is liable for the alleged misconduct. Gibson v. Tex. Dept. of Ins. Div. of Workers Comp., 700 F.3d 227, 233 (5 th Cir. 2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007))). We make all inferences in a manner favorable to the plaintiff, but plaintiffs must allege facts that support the elements of the cause of action in order to make out a valid claim. Wilson v. Birnberg, 667 F.3d 591, 595 (5 th Cir. 2012). When reviewing a motion to dismiss, a district court must consider... sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular,... matters of which a court may take judicial notice. Funk v. Stryker Corp., 631 F.3d 777, 783 (5 th Cir. 2011) (holding that the district court took appropriate judicial notice of publicly-available documents 4

67 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 15 of 45 and transcripts produced by the [defendant], which were matters of public record directly relevant to the issue at hand ). ARGUMENT I. The Court Lacks Jurisdiction Over The Plaintiffs Antitrust Claim. 3 A. State Action Immunity is Jurisdictional. The TMB rules challenged by the plaintiffs are immune from antitrust scrutiny to the extent that the State effectively has made this conduct its own. NCSBDE, 135 S. Ct. at The Sherman Act was not intended to restrain a state or its officers or agents from activities directed by its legislature. Martin v. Mem l Hosp. at Gulfport, 86 F.3d 1391, 1395 (5th Cir. 1996) (quoting Parker, 317 U.S. at ). Federal antitrust laws were not intended to restrain... official action directed by a state. Parker, 317 U.S. at 351. If every duly enacted state law or policy were required to conform to the mandates of the Sherman Act, thus promoting competition at the expense of other values a State may deem fundamental, federal antitrust law would impose an impermissible burden on the States power to regulate. NCSBDE, 135 S. Ct. at State action immunity to an antitrust claim (also known as Parker immunity ) is an immunity to suit, not merely a defense to liability. Danner Const. Co. v. Hillsborough Cnty., Fla., 608 F.3d 809, 812 n. 1 (11th Cir. 2010); Martin, 86 F.3d at Governmental immunity to suit, unless the plaintiffs can show that it does not apply, deprives the Court of jurisdiction. See, e.g., Corzo v. Banco Cent. de Reserva del Peru, 243 F.3d 519, 522 (9th Cir. 2001); Brinac v. 3 In their brief in opposition to preliminary injunction, the defendants declared that they did not waive, and expressly reserve the right to assert, any defenses, affirmative or otherwise, that would defeat the plaintiffs claims apart from the merits thereof, including but not limited to state action immunity. Doc. 21 at 2. At the May 22 nd hearing, the Court stated that the defendants reservation of the defense was without prejudice to their raising it subsequently. Consequently, the Court s discussion in its injunction decision, doc. 44 at 5-6, does not foreclose a jurisdictional defense, which of course may be raised at any time. 5

68 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 16 of 45 E.E.O.C., 996 F.2d 304 (5th Cir. 1993) (Table, text in 1993 WL , *2); Interfirst Bank Dallas, N.A. v. U.S., 769 F.2d 299, 303 (5th Cir. 1985). Contrary to the plaintiffs rendition of the holding, NCSBDE does not categorically preclude state action immunity for any professional licensing and regulatory board on which a majority of members belong to the profession regulated. Instead, the inquiry regarding active supervision is flexible and context-dependent. NCSBDE, 135 S. Ct. at The application of this standard is significant because the TMB is materially different from the regulatory board at issue in NCSBDE. Thus, when the Texas Medical Board enacted the 2010 amendments to 22 T.A.C. ch. 174 and the 2015 amendments to section 190.8(1)(L), the board was promoting state policy without regard for the members own personal interests. NCSBDE, 135 S. Ct. at B. State Action Immunity Requires Active State Supervision to Realistically Assure the Promotion of Clearly Articulated State Policy. The analysis must began with what the Supreme Court actually said in NCSBDE. Because that decision was the result of a careful balancing of competing interests, it is not the simplistic edict posited by the plaintiffs. Its holdings cannot be applied in this case without a more careful examination of all the relevant circumstances than was possible prior to the preliminary injunction. In a previous case, arising from California s delegation of price-fixing authority to wine merchants, the Supreme Court had held that such an arrangement is immunized from antitrust scrutiny only if first, the State has articulated a clear policy to allow the anticompetitive conduct, and second, the State provides active supervision of the anticompetitive conduct. Id. at 1111 (citing Cal. Retail Liquor Dealers Ass n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980)). It is important to note that the North Carolina dental board did not argue that it met the Midcal standard. NCSBDE, 135 S. Ct. at 1116 ( The Board does not contend in this Court that its anticompetitive conduct was actively supervised by the State or that it should receive Parker immunity on that 6

69 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 17 of 45 basis. ). Instead, its sole basis for state action immunity was its contention that entities designated by the States as agencies are exempt from Midcal s second requirement. Id. at The Court, however, insisted that the need for supervision turns not on the formal designation given by States to regulators but on the risk that active market participants will pursue private interests in restraining trade. Id. at 1114 (emphasis added). Consequently, the central holding of the case is not that a state medical board with a physician majority is ipso facto divested of state immunity, but rather 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 antitrust immunity. Id. at This context is highly significant for the analysis in the present action. Because the North Carolina board did not claim that the State exercised active, or indeed any, supervision over its conduct, the Supreme Court could not and did not specify what kind of supervision the State must exercise in order to immunize a professional regulatory board from antitrust attack. Id. at 1116 ( as a result, no specific supervisory systems can be reviewed here ). Instead of the irrebuttable presumption urged by the plaintiffs, this Court must conduct an inquiry [that] is flexible and context-dependent, and which will depend on all the circumstances of a case. Id. Of special significance for the discussion in I-D-4 below, the Court held that, State legislation... will satisfy this standard, and ipso facto [is] exempt from the operation of the antitrust laws because [it is] an undoubted exercise of state sovereign authority. Id. at 1110 (internal quotation marks omitted). From its in-depth review, this Court must determine (not merely presume the negative) whether the State s review mechanisms provide realistic assurance that [the defendants ] anticompetitive conduct promotes state policy, rather than merely the party s individual 7

70 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 18 of 45 interests. Id. (emphasis added); accord id. at 1112 (same). The only requirements identified by the Supreme Court are that the state supervising authority must review the substance of the anticompetitive decision,... ;... must have the power to veto or modify particular decisions to ensure they accord with state policy; and... may not itself be an active market participant. Id. at 1116 (citation omitted). When these criteria are satisfied, the board s actions are immunized, even if the policy they promote is deemed anticompetitive. Id. at 1109 ( The States, however, when acting in their respective realm, need not adhere in all contexts to a model of unfettered competition, but may impose restrictions on occupations [and] otherwise limit competition to achieve public objectives. ). The Court expressly recognized the value of having physicians oversee, on behalf of the public, the practice of medicine. Id. at 1115 ( The States... may conclude there are substantial benefits to staffing their agencies with experts in complex and technical subjects, so as to draw upon the expertise... of professionals ) A flexible, context-specific comparison of all of the relevant circumstances pertaining to the North Carolina dental board and the Texas Medical Board shows that the Texas medical regulatory system is structured to provide realistic assurance that TMB members are promoting state policy and to obviate the risk of their serving purely parochial interests. C. In Contrast to the Texas Medical Board, the North Carolina Dental Board was not Actively Supervised by the State. The plaintiffs rely on two superficial parallels between the North Carolina dental board and the TMB: (1) both were established by state law to license and regulate health care professionals and (2) a majority of the members of each board belong to the profession the board regulates. However, contrary to the plaintiffs assertions, this is only the beginning of the inquiry, not the 8

71 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 19 of 45 end. Key features of the North Carolina system stand in stark contrast, in material respects, to their Texas counterparts. The Supreme Court called attention to four very important distinguishing features. First, the dentist members (who hold six of eight seats on the board) are elected by the licensed dentists of North Carolina, while only one of the eight members is appointed by the governor. NCSBDE, 135 S. Ct. at Second, some of the dentist board members were in direct competition with the practitioners against whom the disputed action was taken. Id. at Third, the board had no state statutory authority to take the action in question. Id. at 1110, Fourth, the action at issue was not the promulgation of a rule, 4 interpretation of a rule, or enforcement of a rule. Id. at 1108, The third and fourth distinctions above are of especial relevance to the discussion in I-D-1 below. Because the North Carolina board s only authority with respect to the unauthorized practice of dentistry was to refer a case to other officials for prosecution, and because the board did not adopt a rule that could be challenged, the only way the non-dentist teeth-whitening providers could have obtained judicial review of the cease and desist orders was as a defense to criminal prosecution. Also relevant to the discussion in I-D-1-b, challenges to board actions do not go to the North Carolina Office of Administrative Hearings to be heard by an administrative law judge, as do those for most other agencies, but instead the hearings are conducted by a 4 The Court noted that the board s actions did not result in a formal rule or regulation reviewable by the independent Rules Review Commission. Id. at The Board may promulgate rules and regulations governing the practice of dentistry within the State, provided those mandates are not inconsistent with the Act and are approved by the North Carolina Rules Review Commission, whose members are appointed by the state legislature. Id. Had the board enforced a rule, issued within its statutory authority and approved by the Rules Review Commission, it would likely have enjoyed state action immunity. 9

72 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 20 of 45 presiding officer chosen by the board and the case is decided by a majority of the board. 5 (The first and second differences are relevant to the discussion in I-D-3 below.) Other aspects of North Carolina law differentiate its dental board from the relevant TMB attributes examined in I-D-2 below. First, while isolated North Carolina statutes have sunset provisions, which are simply expiration dates, 6 the dental board s statute does not 7 and that state s law has nothing equivalent to the exhaustive sunset review process in Texas. Second, North Carolina administrative law does not include the concept of adoption by reenactment. 8 D. In Contrast to the North Carolina Dental Board, Active State Supervision Provides Realistic Assurance that the TMB Promotes State Policy and Removes the Risk of the Defendants Promoting their Personal Interests. 1. The state actively supervises the TMB through judicial review and SOAH. a. The instant case requires this Court to answer the judicial review question left open by the Supreme Court. As noted in I-C above, because the contested action by the North Carolina dental board did not involve the adoption or enforcement of a board rule, the only judicial review conceivably available for the affected parties was the risky measure of incurring prosecution. However, the Supreme Court has recognized that more robust state judicial review might provide sufficient state supervision. In a decision cited nine times by the majority in NCSBDE, the Court acknowledged that it had not previously considered whether state courts, acting in their judicial capacity, can 5 N.C. GEN. STAT. 150B-40. See Homoly v. N. Ca. State Bd. of Dental Exam rs, 468 S.E.2d 481, (N.C. App.), pet. denied, 471 S.E.2d 71 (N.C. 1996). 6 E.g., N.C. GEN. STAT. 160A The board s governing statute proclaims that, The North Carolina State Board of Dental Examiners... is hereby continued as the agency of the State for the regulation of the practice of dentistry in this State. N.C. GEN. STAT However, it was last amended in N.C. GEN. STAT. ANN Credits (West). 8 A WestLaw keynote search under 15A ADMINISTRATIVE LAW AND PROCEDURE k436 Reenactment or incorporation of statute construed, effect of, found numerous Texas cases but none for North Carolina. 10

73 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 21 of 45 adequately supervise private conduct for purposes of the state-action doctrine. Patrick v. Burget, 486 U.S. 94, 103 (1988). Although the Patrick case did not require us to decide the broad question whether judicial review of private conduct ever can constitute active supervision, id. at 104, nor has any case since then, the Court s reasoning, combined with the guidance in NCSBDE, shows why the judicial review available to scrutinize TMB rules and actions constitutes active state supervision. In Patrick, the Court concluded that judicial review of privilege-termination decisions in Oregon, if such review exists at all, falls far short of satisfying the active supervision requirement. Id. (emphasis added). The fatal defects in Oregon s hypothetical judicial review were (1) Oregon has no statute expressly providing for judicial review of privilege terminations ; (2) the Court could find no case in which an Oregon court has held that judicial review of peer-review decisions is available ; and (3) state judicial decisions had indicated in dictum that if a court were to review the kind of action at issue in that case, it could do no more than determine whether reasonable procedures were followed and some evidence supported the decision. Id. at But because state courts had no authority to to determine whether [the action at issue] accorded with state regulatory policy, that kind of review would fail to satisfy the state-action doctrine s requirement of active supervision. Id. at 105 (emphasis added). 9 9 This is exactly how federal circuit courts have understood the ruling subsequently. Miller v. Ind. Hosp., 930 F.2d 334, 337 (3d Cir. 1991); Pinhas v. Summit Health, Ltd., 894 F.2d 1024, 1029 (9th Cir. 1989), aff d, 500 U.S. 322 (1991). 11

74 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 22 of 45 b. Judicial and SOAH review of TMB rules and actions provide the safeguards missing from Oregon s putative judicial review of hospital peer review decisions. Texas law expressly provides for review before the State Office of Administrative Hearings ( SOAH ) and state courts of the substance of TMB rules and decisions, by judicial and quasijudicial officials who are not themselves active market participants and who have the power to invalidate or circumscribe the rule or action at issue. See NCSBDE, 135 S. Ct. at First, a rule of the TMB is subject to direct judicial review, which may be invoked by any party adversely affected by the rule, including its threatened application, as exceeding the board s authority under state law. TEX. GOV T CODE To determine the validity of a board rule under section (a), the state court as a matter of law must determine whether the members of the board are promoting state policy rather than any other interest. 10 Tex. Orthopaedic Ass n v. Tex. State Bd. of Podiatric Med. Exam rs, 254 S.W.3d 714, (Tex. App. Austin 2008, pet. denied) ( when determining whether an agency s rule is valid, we must ascertain whether the rule is contrary to the relevant governing statutes, or whether the rule is in harmony with the general objectives of the statutes involved ) (citations omitted). An agency s rules must comport with the agency s authorizing statute. A state administrative agency has only the authority expressly provided by statute or necessarily implied in order to carry out the express powers the legislature has given it. An agency may not exercise what is effectively a new power on the theory that such exercise is expedient for the agency s purposes. 10 To facilitate this judicial review, and to further impress upon licensing board members that they are accountable to state policy, a board rule is voidable unless it is enacted in substantial compliance with, inter alia, the requirement that the rule be accompanied by a reasoned justification for the rule, which includes, inter alia, a summary of the factual basis for the rule as adopted which demonstrates a rational connection between the factual basis for the rule and the rule as adopted; and... a certification that the rule, as adopted, has been reviewed by legal counsel and found to be a valid exercise of the agency s legal authority. TEX. GOV T CODE , (a) (emphasis added). Compare Parker, 317 U.S. at 347 ( the Commission is authorized to approve [the program at issue] after a public hearing and a finding that the program is reasonably calculated to carry out the objectives of this act. ) 12

75 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 23 of 45 Harlingen Family Dentistry, P.C. v. Tex. Health & Human Servs. Comm n, 452 S.W.3d 479, (Tex. App. Austin 2014, pet. filed) (citations omitted). The TMB thus derive[s] its authority and its efficacy from the legislative command of the state and [i]s not intended to operate or become effective without that command. Parker, 317 U.S. at 350. The state judiciary s authority to realistically assure that state health agencies and professional licensing boards are promoting state policy is not merely potential or hypothetical. Texas courts have not hesitated to invalidate state regulations when they are found to exceed the agencies statutory authority. As the amicus Federation of State Medical Boards has pointed out, Teladoc has utilized this very judicial review to invalidate the defendants application of the contested rule s 2003 wording. Doc. 30 at 5-6. (Indeed, it was to comply with the mandate of the Austin Court of Appeals decision obtained by Teladoc that the defendants adopted the rule that the same plaintiffs now attack on antitrust grounds.) Accord Tex. State Bd. of Exam rs of Marriage & Family Therapists v. Tex. Med. Ass n, S.W.3d, 2014 WL , *5 (Tex. App. Austin 2015, no pet. his.) (invalidating state health professional licensing board rule as exceeding its statutory authority); Harlingen Family Dentistry, 452 S.W.3d at (state agency health regulations exceeded agency s authority); Tex. Orthopaedic Ass n, 254 S.W.3d at (invalidating state health professional licensing board rule as exceeding its statutory authority). Judicial review is also available to challenge a disciplinary action enforcing a rule said to be in excess of a board s statutory authority. TEX. OCC. CODE Unlike the North Carolina circumstances examined in I-C above, the TMB unquestionably has jurisdiction over Texas licensed physicians. Unlike the non-dentist teeth-whitening providers in NCSBDE, Texas licensed physicians need not invite criminal prosecution in order to challenge disciplinary actions they contend serve 13

76 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 24 of 45 only the personal interests of board members rather than the policies of the state. In direct contrast to the facts of NCSBDE, in which the dental board s cease-and-desist letters threatening criminal liability did not invoke oversight by a politically accountable official, 135 S. Ct. at 1116, a Texas licensed physician may seek judicial review of a cease and desist order. 22 T.A.C (f). Also unlike the North Carolina system, the TMB contested case that precedes judicial review is heard by a non-market-participant administrative law judge employed by SOAH, a separate agency. TEX. OCC. CODE , , (a). A newly selected board member may not take office without first receiving training on his/her role and responsibilities under the Administrative Procedures Act. Id. at (a)(7). The TMB may not supervise the administrative law judge and may not attempt to influence the finding of facts or the administrative law judge s application of the law in a contested case except by proper evidence and legal argument. TEX. GOV T CODE (b) & -(d). Once the ALJ has issued a decision, the TMB, unlike most other agencies (id. at (e)), may not change a finding of fact or conclusion of law or vacate or modify an order of the administrative law judge, but is allowed instead only to determine the appropriate action or sanction (if any). TEX. OCC. CODE (a-1). After the SOAH decision an aggrieved party may obtain judicial review. TEX. GOV T CODE At the culmination of that review, the state court shall reverse or remand the case for further proceedings if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are... in excess of the agency s statutory authority. Id. at (2)(B) (emphasis added). 14

77 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 25 of 45 In the Parker immunity analysis, the nature and extent of state supervision that is required depends on the type of board action at issue. In NCSBDE, the disputed action was neither authorized by state statute nor subject to state review of any kind. As a matter of law, board rules and actions that are subject to the review provided by sections and/or represent the conduct of the State of Texas itself and are thereby beyond the reach of federal antitrust law. A holding that this degree of state judicial review does not constitute active state supervision would result in the substitution of federal judicial oversight, of any state licensing board rule or action that is alleged to be anticompetitive, for state regulation of health care professions. That affront to principles of federalism was never intended by the Sherman Act or the NCSBDE decision. 2. The state actively supervises the TMB through Legislative oversight. a. The Legislature oversees the TMB through sunset review and adoption by reenactment. As discussed in I-B above, because federal antitrust law was not meant to restrain official action directed by a state, including activities directed by [a state s] legislature, a state professional regulatory board s actions are beyond the reach of an antitrust claim when the State effectively has made this conduct its own. NCSBDE, 135 S. Ct. at 1116; Parker, 317 U.S. at In the North Carolina dental board case, there [wa]s no evidence [t]here of any decision by the State to... concur with the Board s actions. NCSBDE, 135 S. Ct. at By contrast, in various ways, separately and cumulatively, the Texas Legislature has made the actions at issue in this suit the conduct of the state. First, through the sunset review process, the Texas Legislature has ratified the TMB s interpretation and application of TEX. OCC. CODE (a)(6) ( The board may... take disciplinary action against a person [who] fails to practice medicine in an acceptable professional manner consistent with public health and welfare ), pursuant to which the board adopted 22 T.A.C. 15

78 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 26 of (1)(L). Although at the end of 2014 a state court held, in retrospect, that the board had not used the correct words ( including instead of such as ) to express its interpretation, in its 1999 policy and its 2003 rule, there can be no doubt that the TMB considered prescribing drugs without a physical examination to be an unacceptable practice inconsistent with public health and welfare. Doc at 7-8 (referring to Teladoc, Inc. v. Tex. Med. Bd., 453 S.W.3d 606 (Tex. App. Austin 2014, pet. filed)). Between 2000 and the 2005 legislative session, the TMB regularly disciplined physicians for prescribing medication without a proper diagnosis based on a physical examination of the patient. 11 Doc at 1-28; docs through When the legislature reenacts without substantial change a statute that has been previously construed by an agency charged with its execution, a court should ordinarily adopt the agency construction. Sw. Life Ins. Co. v. Montemayor, 24 S.W.3d 581, (Tex. App. Austin 2000, pet. denied) (citing Reed v. State Dep t of Licensing & Regulation, 820 S.W.2d 1, 3 n. 2 (Tex. App. Austin 1991, no writ)). 12 At the culmination of the 2005 sunset review of the TMB, while making numerous changes to the Texas Medical Practices Act, the Legislature continued section (a)(6) without alteration. 13 In contrast to the North Carolina dental board, as noted in I-C above, the Texas Medical Board is subject to sunset review. TEX. OCC. CODE Under this process, an agency goes out of existence on a specified date unless the Legislature affirmatively reenacts its enabling 11 Note that for every agreed or adjudicated judgment there will necessarily have been many more communications by the TMB to doctors expressing disapproval of prescribing without a physical exam, in cases that for various reasons were resolved short of a final judgment. 12 If, however, the legislature reenacts without substantial change a statute of doubtful construction that has been previously construed by an agency charged with its execution, a court should ordinarily give the statute the same construction previously given by the agency (citing Humble Oil & Refining Co. v. Calvert, 414 S.W.2d 172, 180 (Tex. 1967)). 13 S.B. 419 ( 16

79 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 27 of 45 statute. 14 Prior to the agency s terminal legislative session, it is thoroughly examined by the Sunset Commission, which consists of five senators, five representatives, and two public members. TEX. GOV T CODE (a). A public member of the commission may not be anyone who is regulated by a state agency that the commission will review during the term for which the individual would serve. Id. at (b). The Commission reviews the agency using criteria set out in the sunset statute. Id. at (a)(3). Significantly, the Commission must evaluate a professional licensing board such as the TMB according to, inter alia: Whether it serves a meaningful, defined public interest ; Whether it provides the least restrictive form of regulation that will adequately protect the public interest ; [T]he extent to which the regulatory objective of the occupational licensing program may be achieved through market forces ; and [T]he impact of the regulation, including the extent to which the program stimulates or restricts competition and affects consumer choice and the cost of services. Id. at (b) (emphasis added). The 2005 sunset review closely and comprehensively examined the TMB and reported its findings to the Legislature, which reenacted the board s enabling legislation without overriding its interpretation of TEX. OCC. CODE (a)(6). 15 The Legislature thereby endorsed the TMB s rules and actions, generally and of relevance to this suit, as promoting state policy rather than private interests. The federal antitrust laws do not empower this Court to second guess that state legislative judgment. 14 Steven Ogle, A Look at Sunset and How Stakeholders Can Effectively Participate in the Process, 13 TEX. TECH ADMIN. L.J. 291, 294 (2012). 15 See Final Results from Last Sunset Report, 17

80 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 28 of 45 b. The Legislature oversees the TMB through review of proposed rules. Next, Legislative oversight is also provided through the statutory requirement that every TMB proposed rule must be submitted to the appropriate standing committee [of the House and Senate] for review before the rule is adopted. TEX. GOV T CODE (a). On the vote of a majority of its members, a standing committee may send to a state agency a statement supporting or opposing adoption of a proposed rule. Id. at (b). While a negative option might not alone suffice for active state supervision in all cases, this provision, as a supplement and complement to the judicial and legislative processes outlined above, further strengthens the realistic assurance that the defendants are promoting state policy over private interests. In this regard, it is important to understand the circumstances under which the Supreme Court has found sole reliance on a negative option insufficient. In Ticor, the states in question licensed rating bureaus, which are private entities organized by title insurance companies to establish uniform rates for their members. F.T.C. v. Ticor Title Ins. Co., 504 U.S. 621, 628 (1992). In each state, the rating bureau filed rates for title searches and title examinations with the state insurance office, which became effective unless the State rejected them within a specified period, such as 30 days. Id. at 629. The Supreme Court held that, Where prices or rates are set as an initial matter by private parties, subject only to a veto if the State chooses to exercise it, the party claiming the immunity must show that state officials have undertaken the necessary steps to determine the specifics of the price-fixing or ratesetting scheme. Id. at 638. It further concluded that the states argument, that as a matter of law in those States inaction signified substantive approval, could not be reconciled, however, with the detailed findings, entered by the ALJ and adopted by the [Federal Trade] Commission, which demonstrate that the potential for state supervision was not realized in fact. 18

81 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 29 of 45 Id. Because of the state agencies limited role and participation, state judicial review was likewise limited. Id. at (citing Patrick, 486 U.S. at ). Of significance for the instant case, the Court identified the fatal defects that prevented the states from relying solely on negative option supervision: This case involves horizontal price fixing under a vague imprimatur in form and agency inaction in fact. No antitrust offense is more pernicious than price fixing. In this context, we decline to formulate a rule that would lead to a finding of active state supervision where in fact there was none. Our decision should be read in light of the gravity of the antitrust offense, the involvement of private actors throughout, and the clear absence of state supervision. We do not imply that some particular form of state or local regulation is required to achieve ends other than the establishment of uniform prices. Id. at 639 (emphasis added). In the circumstances of this case, however, we conclude that the acts of [the rating bureaus] are not immune from antitrust liability. Id. at 640 (emphasis added). Even when the allegations in the present action are construed in the plaintiffs favor, this is not a price-fixing case. For the reasons shown in D-3 below, the defendants are not private parties, certainly not when compared to the ratings bureaus in Ticor. And as shown in this section and the preceding section, state supervision has been far from clearly (or even obscurely) absent. As shown in D-1 above, judicial review is robust. 3. Other relevant features of the TMB realistically assure the promotion of state policy over private interests. As noted in I-C above, the plaintiffs only basis for insisting that the defendants are subject to the Midcal active state supervision requirement is the fact that a majority of the TMB belong to the same overarching medical profession as the physicians they regulate. However, because of important characteristics that set the TMB apart from the board examined in NCSBDE, the 19

82 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 30 of 45 defendants are not the kind of non-sovereign actors whose special interests raise the specter of regulatory capture. First, in contrast to the North Carolina dental board, members of the TMB are all appointed by the Governor and confirmed by the Senate. TEX. OCC. CODE (a). Consequently, unlike their North Carolina dental counterparts, who are chosen by and answerable only to their professional peers, the defendants are directly accountable to Texas state government. 16 Note that in Parker, eight of the nine members of the immunized state commission were appointed by the state s governor and confirmed by its senate. Parker, 317 U.S. at 346. Next, in further contrast to the facts of NCSBDE, the TMB has express statutory authority to regulate the medical practices of the plaintiffs. TEX. OCC. CODE Moreover, state statute authorizes the defendants to adopt rules necessary to... ensure that patients using telemedicine medical services receive appropriate, quality care, including regulations to require a face-to-face consultation between a patient and a physician providing a telemedicine medical service... if the physician has never seen the patient. Id. at These provisions more than satisfy the clear articulation criterion for Parker immunity. NCSBDE, 135 S. Ct. at The defendants in this case differ from their North Carolina dental counterparts in yet another relevant way. None of the physician members of the TMB, who are all specialists, are in direct competition with the Teladoc physicians, who provide only general and family medicine services when working for Teladoc. See plaintiffs preliminary injunction exhibits P-5 through P- 16 It is also worth noting that while dentists made up three-fourths of the North Carolina board, physicians account for only a little more than three-fifths of the TMB. When the non-physician members of the board are united, they need only three of the twelve physicians to join them in order to form a majority. 17 The Board is also authorized to adopt rules as necessary to... ensure that appropriate care is provided to Medicaid and Medicare patients who receive telemedicine medical services. Id. at (a)(1). 20

83 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 31 of (which are matters of public record). Doc at , , , , , ; doc at 4-5, 10-11, 18-19, 25-26, Moreover, four of the physician members are on medical school faculties, which in their educator role gives them an additional interest in sound medical practice rather than the narrow economic interests of practitioners. Doc at 130, 150, 156; doc at 20. These facts go to the heart of antitrust law and Parker immunity. The purpose of active state supervision is to provide realistic assurance that regulators will not succumb to the temptation to use state power to serve personal financial interests. NCSBDE, 135 S. Ct. at 1113 (the active supervision requirement, in particular, is an essential condition of state-action immunity when a nonsovereign actor has an incentive to pursue its own self-interest under the guise of implementing state policies ) (brackets omitted), 1114 ( active market participants, who possess singularly strong private interests, pose the very risk of self-dealing Midcal s supervision requirement was created to address ). Because they are selected through and accountable to the political process and because they participate in (at most) a different part of the market than the Teladoc physicians, the TMB physician members lack the economic incentives to restrain competition (id. at 1114) that are the concern of antitrust law. 4. The parallels between the contested rules and state statutes realistically assure the promotion of state policy over private interests. Finally, the TMB rules at issue in this suit exactly match state various statutory requirements, which are the quintessential manifestation of state policy. Id. at There can hardly be a more realistic assurance that board members are carrying out state policy than when their rule duplicates the product of the legislative process, which as a matter of law is electorally accountable and lack[s] the kind of private incentives characteristic of active participants in the market. Id. at

84 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 32 of 45 For example, for Medicaid purposes, Texas statute defines telemedicine exactly as the TMB does, to include, inter alia, diagnosis or consultation by a physician via the use of advanced telecommunications technology, other than telephone or facsimile technology. 18 TEX. GOV T CODE (8) (emphasis added); compare 22 T.A.C (10), 174.7(a). State Medicaid law further requires the Texas Health and Human Services Commission ( HHSC ) to provide for reimbursement of services provided through telemedicine by a physician who is assessing and evaluating the patient from a distant site only if a health professional acting under the delegation and supervision of that physician is present with the patient at the time of the visit. TEX. GOV T CODE (c-1)(1); compare 22 T.A.C Moreover, state statute authorizes the TMB, in consultation with HHSC, to adopt rules as necessary to... define those situations when a face-to-face consultation with a physician is required after a telemedicine medical service. TEX. GOV T CODE (i)(3). Further, the TMB, in consultation with HHSC and the Texas Department State Health Services, shall adopt rules to establish supervisory requirements for a physician delegating a service to be performed by... a health professional who is authorized to be a telepresenter under Section Id. at (i-1); compare 22 T.A.C Pursuant to its statutory authority to regulate Medicaid funded telehealth and telemedicine services, 19 HHSC has promulgated rules that impose on Medicaid-funded telemedicine providers, 18 A diversionary argument by the plaintiffs contends that because Teladoc s services are telehealth rather than telemedicine, they therefore are not subject to this definition. However, Teladoc s services as described in the plaintiffs pleadings are clearly encompassed by 22 T.A.C (10), which was not enjoined by this Court. The statutory definition of telehealth for Medicaid services also requires the use of advanced telecommunications technology, other than telephone. TEX. GOV T CODE (7). The plaintiffs paradoxical argument thus is that because they are in violation of state telehealth/telemedicine laws they are not subject to them. 19 TEX. GOV T CODE

85 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 33 of 45 including Teladoc (doc. 1 58, 87), the same requirements that the plaintiffs have challenged in this lawsuit. 1 T.A.C HHSC rules expressly require that: Before receiving a telehealth service, the patient must receive an in-person evaluation for the same diagnosis or condition, with the exception of a mental health diagnosis or condition.... For the continued receipt of a telehealth service, the patient must receive an in-person evaluation at least once during the previous 12 months by a person qualified to determine a need for services. Id. at (2)(E)-(F); compare 22 T.A.C (1)(L)(i)(II) (as amended April 10, 2015). Consequently, the challenged TMB rules have been replicated for Medicaid by an agency that exercise[s] a wide range of governmental powers across different economic spheres, substantially reducing the risk that it would pursue private interests while regulating any single field. 20 NCSBDE, 135 S. Ct. at The challenged TMB rules are also in accord with statutes and/or regulations in many or most other states. A report by the U.S. Centers for Disease Control and Prevention ( CDC ) shows how closely aligned the contested TMB rules are with state laws generally. Forty-one states and the District of Columbia have one or more laws that require a prescriber or dispenser to ensure that prescriptions for medications are based on an examination of the patient. States with these laws may require a physical examination as part of prescribing regulations, or may prohibit pharmacists and physicians from dispensing certain types of drugs if there is doubt the drugs were prescribed following a physical exam.... Thirty-six states and the District of Columbia have physical examination laws that apply to prescriptions of all drug types or any prescription (includes controlled substances).... Many states and the District of Columbia have laws that require a physical examination by reference to a practitioner-patient relationship. Some states do this by requiring a relationship between the practitioner and the patient, and then provide a definition of practitioner-patient or physician-patient (or some other similar combination) that includes a physical examination requirement elsewhere in statute or regulation.... Many states, and the District of Columbia, that require examinations before 20 For example, in addition to funding and making rules for health-related services in certain contexts, HHSC also administers the food stamps program and cash assistance payments such as Social Security disability income. 23

86 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 34 of 45 prescribing have also enacted provisions prohibiting practitioners from prescribing based solely on electronic patient questionnaires. Prescription Drug Physical Examination Requirements 21 at 2, 4, 6, 9 (italics original, boldface added, footnotes omitted). Eighteen of the thirty-six states that require a physical examination for the prescription of any kind of drug do so by statute. Id. at 4 n. 21. The Exhibit to this motion presents a non-exclusive list of 24 states that require a physical examination for the prescription of any kind of drugs, of which nine do so by statute. 22 Because the CDC report excluded statutes that, without express language to the effect, have been read to define the patient-practitioner relationship to include a physical examination through judicial interpretation, id. at 2 n. 5, 23 there are undoubtedly more states with this requirement than are listed in the report. See also PhoneDOCTORx, LLC v. Healthbridge Mgmt., Inc., 58 F. Supp. 3d 152, 162 n. 8 (D. Mass. 2014) (identifying [a]t least 16 other states, in addition to Massachusetts, in which the legal definition of telemedicine excludes audio-only telephone, facsimile machines or ) (see note 18 above). As a consequence of all the foregoing, state action immunity compels the dismissal of the plaintiffs antitrust claim for lack of jurisdiction (as well as for failure to state a claim on which relief may be granted against these defendants) California requires an an appropriate prior examination. CAL. BUS. & PROF. CODE 2242(a), (a). However, it is listed by the CDC as a state requiring a physical examination, so presumably that is how the provision has been interpreted. In addition to the state laws listed in the Exhibit, see also ILL. ADMIN. CODE tit. 89, (b) (telemedicine rules require that a physician or other licensed health care professional must be present at all times with the patient at the originating site ); N.Y. PUB. HEALTH LAW 2999-cc ( Remote patient monitoring shall be ordered by a physician... with which the patient has a substantial and ongoing relationship. ). 23 Citing State v. Kane, 586 S.W.2d 812, (Mo. Ct. App. E.D. 1979). 24

87 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 35 of 45 II. The Court Lacks Jurisdiction Over The Plaintiffs Claims Against The Texas Medical Board As An Entity For Any Relief. A. Eleventh Amendment Immunity is Jurisdictional. The Eleventh Amendment 24 bars citizens of a state from suing their own state or another state in federal court, unless the state has waived its sovereign immunity or Congress has expressly abrogated it. Raj, 714 F.3d at 328 (citations omitted). Of course, a state department or agency (and its officers sued for damages in their official capacity) is considered as being the state for purposes of the Eleventh Amendment. McIntosh v. Partridge, 540 F.3d 315, 320 n. 3 (5 th Cir. 2008). This jurisdictional bar applies regardless of the nature of the relief sought. Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 100 (1984). Specifically, claims for declaratory judgment are not exempted from Eleventh Amendment immunity when brought against a state agency. Okpalobi v. Foster, 244 F.3d 405, (5th Cir. 2001) (en banc); John G. and Marie Stella Kenedy Mem l Found. v. Mauro, 21 F.3d 667, 673 (5th Cir. 1994). Accordingly, state medical boards and other state health professional licensing bodies are regularly granted Eleventh Amendment immunity. Versiglio v. Bd. of Dental Exam rs of Ala., 686 F.3d 1290, (11th Cir. 2012); Neuwirth v. La. State Bd. of Dentistry, 845 F.2d 553, 556 (5th Cir. 1988); Emory v. Tex. State Bd. of Med. Exam rs, 748 F.2d 1023, 1025 (5th Cir. 1984); see also Farber v. La. State Bd. of Med. Exam rs, 2009 WL , 326 F. App x 314, 315 (5th Cir. 2009). Note that in contrast to Parker immunity for board members, it is sufficient for Eleventh Amendment immunity that state law has formally designated the TMB as a state agency. Rivera v. Tex. State Bd. of Med. Exam rs, 2011 WL , 431 F. App x 356, 357 (5th Cir. 24 What is commonly called Eleventh Amendment immunity is not really derived from the Eleventh Amendment. Alden v. Maine, 527 U.S. 706, 713 (1999) ( The phrase is convenient shorthand but something of a misnomer ). 25

88 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 36 of ) ( The [Medical] Board... is clearly a Texas state agency ) (citing Dolenz v. Tex. State Bd. of Med. Exam rs, 981 S.W.2d 487, 489 (Tex. App. Austin 1998, no pet.) ( The Board is an executive body of state government; its members are executive officers of the state. )). Because in the present state of the law, the plaintiffs may still sue the TMB board members in their official capacity for injunctive relief, Eleventh Amendment immunity by itself will not dispose of the entire case at this time. 25 However, because of the important federalism values at stake, the claims against the board as an entity must be dismissed for lack of jurisdiction. B. Eleventh Amendment Immunity bars the Antitrust Claim Against the TMB. The private Teladoc plaintiffs are not in the same position as the FTC suing the North Carolina dental board. E.E.O.C. v. Bd. of Sup rs for Univ. of La. Sys., 559 F.3d 270, (5th Cir. 2009) ( the Eleventh Amendment does not shield a State from suit brought by a federal government agency to enforce a federal law ); see also Seminole Tribe of Fla v. Fla., 517 U.S. 44, 71 n. 14 (1996) ( The Federal Government can bring suit in federal court against a State ). 25 Plaintiffs are currently allowed to use the Ex parte Young fiction to seek injunctive relief against state officials to enforce rights under Commerce Clause statutes. AT&T Commc ns v. BellSouth Telecommunic ns Inc., 238 F.3d 636, 636 (5th Cir. 2001); but see id. at (SMITH, J., dissenting). To reserve this issue for en banc and/or Supreme Court review if necessary, the defendants contend that Ex parte Young may not be used to bring a claim against state officials under either the Sherman Act (for Clayton Act remedies) or the dormant Commerce Clause. The most material and important issue to be decided in Young was the proper balance between the 11 th Amendment, which immunizes the state from suit in federal court, and the later-enacted 14 th Amendment, which declares that no state shall... Ex parte Young, 209 U.S. 123, 149 (1908). The claims that were allowed to proceed against a state official in Young were 14 th Amendment due process and equal protection claims. Id. at , 144. The Court did not reach the plaintiff s interstate commerce claim. Id. at 145. The decisions allowing or disallowing an Ex parte Young action to vindicate rights under a Commerce Clause statute have turned on whether the remedial scheme in a post-young statute displaces the Young remedy, whereas the Clayton Act long preceded Young. Seminole Tribe, infra, 517 U.S. at 75 n. 17. With one exception, the decisions identified in Seminole Tribe pointed to language in the statutes specifically referring to state officials. Id. Of the many decisions allowing Ex parte Young actions directly under the dormant Commerce Clause, none seem to have considered, much less sought to reconcile that result with, Young s purpose of vindicating 14 th Amendment rights. But see Armstrong v. Exceptional Child Ctr., Inc., 135 S. Ct. 1378, 1384 (2015) (Ex parte Young is a judge-made remedy, and we have never held or even suggested that, in its application to state officers, it rests upon an implied right of action contained in the Supremacy Clause ) (disallowing private suit to enjoin alleged violations of the Medicaid statute). 26

89 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 37 of 45 Nor would it matter for this immunity if, notwithstanding the authority in part I above, this Court were to treat the members of the TMB as private parties for purposes of the antitrust claim. 26 When legislating under its interstate commerce powers, Congress has no authority to abrogate Eleventh Amendment immunity. Fla. Prepaid Postsecondary Educ. Expense Bd. v. Coll. Sav. Bank, 527 U.S. 627, 636 (1999) ( Congress may not abrogate state sovereign immunity pursuant to its Article I powers ) (citing Seminole Tribe, 517 U.S. at 72-73). In adopting the Sherman Act, Congress intended to exercise its power to the fullest extent under the Commerce Clause. Rosebrough Monument Co. v. Mem l Park Cemetery Ass n, 666 F.2d 1130, 1140 n. 6 (8th Cir. 1981) (quoting Chatham Condo. Associations v. Century Vill., Inc., 597 F.2d 1002, 1006 (5th Cir. 1979)). [I]t has not been widely thought that the federal antitrust... statutes abrogated the States sovereign immunity. This Court never has awarded relief against a State under any of those statut[es]. [Instead], we [have] specifically reserved the question whether the Eleventh Amendment would allow a suit to enforce the antitrust laws against a State. Although the... antitrust laws have been in force for over a century, there is no established tradition in the lower federal courts of allowing enforcement of those federal statutes against the States. Seminole Tribe, 517 U.S. at 72 n. 16 (citation omitted) (citing Goldfarb v. Va. State Bar, 421 U.S. 773, 792 n. 22 (1975)). 26 In rare instances, a public body is regarded as the state for some federal laws and not for others. For example, political subdivisions are treated as the state for purposes of the Fourteenth Amendment but are not regarded as the state for purposes of the Eleventh Amendment. Contrast Avery v. Midland Cnty., Tex., 390 U.S. 474, (1968), with Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep't of Health & Human Res., 532 U.S. 598, 609 (2001) (citing Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, (1977)). 27

90 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 38 of 45 C. Eleventh Amendment Immunity bars the Section 1983 Dormant Commerce Clause Claim Against the TMB. The plaintiffs assert a cause of action under 42 U.S.C. 1983, alleging that the defendants have violated the dormant Commerce Clause. 27 Doc. 1 at 34 ( Count II ). To state a claim for a dormant Commerce Clause violation, the plaintiffs must allege and show, contrary to the contention of their antitrust claim, that when the defendants adopted the rules at issue, they were acting as and for the State of Texas. The dormant Commerce Clause restricts certain state regulation of interstate commerce.... In general, a state regulates when it exercises governmental powers that are unavailable to private parties. United Haulers Ass n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 261 F.3d 245, 255 (2nd Cir. 2001) (emphasis added), aff d, 550 U.S. 330 (2007). [T]he Commerce Clause [i]s an implicit restraint on state authority. Id., 550 U.S. at 338 (emphasis added). Congress has not abrogated state sovereign immunity... under Raj, 714 F.3d at 328. See also Will v. Mich. Dept. of State Police, 49 U.S. 58, 66 (1989) (citing Quern v. Jordan, 440 U.S. 332, 341 (1979)). Section 1983 was enacted pursuant to Congress s authority under section 5 of the Fourteenth Amendment. Familias Unidas v. Briscoe, 619 F.2d 391, 405 (5th Cir. 1980). Although Congress can abrogate the Eleventh Amendment by statute under the authority of 5 of the Fourteenth Amendment, 1983 itself does not abrogate the states immunity from suit in federal court. Brennan v. Stewart, 834 F.2d 1248, (5th Cir. 1988) (citing Edelman v. Jordan, 415 U.S. 651, (1979)). 27 The plaintiffs also cite 1983 as an alternate basis for jurisdiction. Doc But see Daigle v. Opelousas Health Care, Inc., 774 F.2d 1344, (5 th Cir. 1985) ( 1983 does not create jurisdiction). 28

91 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 39 of 45 As a result, this Court has no jurisdiction over the plaintiffs section 1983 claim against the TMB. See Am. Tradition Inst. v. Col., 876 F. Supp.2d 1222, 1236 (D. Colo. 2012) ( 1983 claim against state for violation of dormant commerce clause barred by 11 th amendment immunity). The plaintiffs section 1983 claim also must be dismissed for other related but distinct reasons. First, a state agency is not a suable person within the meaning of Arizonans for Official English v. Ariz., 520 U.S. 43, 69 (1997) (citing Will, 49 U.S. at 71). Second, as noted above, section 1983 was enacted under section 5 of the Fourteenth Amendment. That section authorizes Congress to enforce, by appropriate legislation, the provisions of this article. U.S. CONST. amend. XIV 5 (emphasis added). The provisions of this article, to which 5 refers, include the Due Process Clause of the Fourteenth Amendment. Fla. Prepaid Postsecondary Educ. Expense Bd., 527 U.S. at 637. Consequently, for Congress to invoke 5, it must identify conduct transgressing the Fourteenth Amendment s substantive provisions, and must tailor its legislative scheme to remedying or preventing such conduct. Id. at 639 (emphasis added). It follows that not only does section 1983 not abrogate the TMB s Eleventh Amendment immunity, but the allegation of a violation of the dormant Commerce Clause cannot state a claim under sec III. The Plaintiffs Cannot State A Viable Claim For Relief On Their Interstate Commerce Clause Claim. If, notwithstanding the authority in II-C above, the Court reaches this claim, the plaintiffs cannot state a claim on which relief may be granted under it. For the reasons shown in doc. 21 at 13-16, the plaintiffs allegations do not describe state discrimination against interstate commerce. Especially see doc. 30 (Federation of State Medical Board amicus brief) at 9-11 (citing, inter alia, United Haulers and Pharm. Research & Mfrs., infra). 29

92 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 40 of 45 When a state regulation neither directly regulates nor discriminates against interstate commerce, federal courts judge the rule by the Pike test. Pharm. Research & Mfrs. of Am. v. Cnty. of Alameda, 768 F.3d 1037, 1040 (9th Cir. 2014) (citing Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970)). Direct regulation occurs when a state law directly affects transactions that take place across state lines or entirely outside of the state s borders. Id. at However, there is nothing unusual or unconstitutional per se about a state... regulating the in-state conduct of an out-of-state entity when the out-of-state entity chooses to engage the state... through interstate commerce. Id. at A rule is discriminatory in this context when, on its face, it benefits in-state economic interests over out-of-state economic interests. United Haulers Ass n, Inc., 550 U.S. at 338. Conversely, a statute that treats all private companies exactly the same does not discriminate against interstate commerce[,] even when only out-of-state businesses are burdened because there are no comparable in-state businesses. Pharm. Research & Mfrs., 768 F.3d at Under such circumstances, a requirement that imposes comparable costs on in-state and out-of-state businesses alike is not discriminatory, even though it would preclude [interstate] Plaintiffs more profitable method of doing business. Id. at By the plaintiffs own account, Teladoc provides service over the telephone to patients located in Texas, who are enrolled through Texas employers, health plans, and healthcare facilities. Doc. 1 42, 45, It is undisputed in this case that less than a third of the 90 Teladoc physicians provide consultation from outside of Texas and that these transactions constitute only 16.5% of Teladoc interactions with Texas callers See doc. 30 at 9-10 (citing doc. 10 at 23). 30

93 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 41 of 45 The burden on interstate commerce claimed by the plaintiffs is the requirement of an inperson physical examination. Id However, a Teladoc physician physically located in San Antonio advising a user in Dallas is no less inconvenienced by the requirement than a Teladoc physician in Oklahoma City consulted by the same caller. The principal contested rule, 22 T.A.C (1)(L), applies to all Texas licensed physicians, wherever they are located, whether they diagnose and prescribe through telemedicine or in office visits. When, however, a statute has only indirect effects on interstate commerce and regulates evenhandedly, the Court has examined whether the State s interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits. Pharm. Research & Mfrs., 768 F.3d at 1040 (brackets omitted). [U]nder Pike, a plaintiff must first show that the statute imposes a substantial burden before the court will determine whether the benefits of the challenged laws are illusory. Id. at Under the Pike test, we will uphold a nondiscriminatory statute... unless the burden imposed on interstate commerce is clearly excessive in relation to the putative local benefits. United Haulers Ass n, Inc., 550 U.S. at 346 (emphasis added, brackets omitted). Because, even construing the pleadings in the plaintiffs favor, they have not identified a substantial burden on interstate commerce, the Court need not compare the alleged burden to the local benefits. But if it does, the plaintiffs claim fails as a matter of law. Unlike private enterprise, government is vested with the responsibility of protecting the health, safety, and welfare of its citizens, so that States traditionally have had great latitude under their police powers to legislate as to the protection of the lives, limbs, health, comfort, and quiet of all persons. Id. at 338, Consequently, regulations that touch upon safety are those that the Supreme Court 29 See also id. 4, 7-8, 71, 103,

94 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 42 of 45 has been most reluctant to invalidate, so that if safety justifications are not illusory, the Court will not second-guess legislative judgment about their importance in comparison with related burdens on interstate commerce. Pharm. Research & Mfrs., 768 F.3d at 1045 (brackets and ellipse omitted) (quoting Kassel v. Consol. Freightways Corp. of Del., 450 U.S. 662, 670 (1981)). Even construing the plaintiffs pleadings in their favor, they do not allow the court to draw a reasonable inference 30 that the burden on interstate commerce is so substantial that it is clearly excessive in relation to in-state benefits that are so illusory as to sustain the plaintiff s dormant Commerce Clause claim. IV. The Plaintiffs Cannot State A Viable Claim For Relief Against Any Defendant In His/Her Individual Capacity, Nor Any Claim That Is Triable To A Jury. The plaintiffs have named the board members who voted to amend section 190.8(1)(L) as defendants individually as well as in their capacities as members of the Texas Medical Board, for which they have demanded a jury. Doc. 1 at 1. But they have pled for only injunctive and declaratory relief. Id. at As of this date, the defendants are not aware of service on any defendant. By this motion, the defendant board members are not entering an appearance in their individual capacity. However, because in the real world the same people act in both capacities unless and until any leave office, see FED. R. CIV. P. 25(d) the defendants have an interest in not being named personally unless they also have the opportunity to assert qualified immunity. At the preliminary injunction hearing, the plaintiffs admitted that any claim for damages against the defendants personally would likely be barred by qualified immunity. See also Beck v. 30 Gibson, 700 F.3d at 233 (citing Ashcroft, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556)). 32

95 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 43 of 45 Tex. State Bd. of Dental Exam rs, 204 F.3d 629, 638 (5th Cir. 2000); Burns-Toole v. Byrne, 11 F.3d 1270, (5th Cir. 1994). However, because injunctive relief cannot be sought from defendants in their individual capacity, qualified immunity is not a defense to injunctive and accompanying declaratory relief. Meekins v. Foster, 212 F.3d 595 (5th Cir. 2000) (Table, text in 2000 WL , *3) (citing Mangaroo v. Nelson, 864 F.2d 1202, 1208 (5th Cir. 1989)). Consequently, this case, which does not present a claim for money damages, does not offer occasion to address the question whether agency officials, including board members, may, under some circumstances, enjoy immunity from damages liability. NCSBDE, 135 S. Ct. at Because the defendants can only comply with injunctive relief while acting in their official capacity, the injunctive relief sought... by [plaintiffs] can be obtained from the defendants only in their official capacity as [board members]. Scott v. Flowers, 910 F.2d 201, 213 & n. 25 (5th Cir. 1990). Because it parallels their claim for injunctive relief, the plaintiffs claim for declaratory relief is treated as equitable. Gulf Life Ins. Co. v. Arnold, 809 F.2d 1520, 1523 (11th Cir. 1987); see also In re Enron Corp. Sec., Derivative & ERISA Litig., 284 F. Supp. 2d 511, (S.D. Tex. 2003). The plaintiffs are not entitled to a jury trial in federal court for claims seeking only equitable relief. CBS Broad., Inc. v. EchoStar Commc ns Corp., 450 F.3d 505, 517 n. 25 (11th Cir. 2006) ( There is no right to a jury trial, however, when the plaintiffs seek purely equitable relief such as an injunction. ); accord U.S. Bank Nat. Ass n v. Verizon Commc ns, Inc., 761 F.3d 409, 416 (5th Cir. 2014), cert. denied, 135 S. Ct (2015); Dillon v. Rogers, 596 F.3d 260, 271 (5 th Cir. 2010). Consequently, the plaintiffs claims against the defendant board members in their individual capacities must be dismissed and their jury demand must be stricken. 33

96 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 44 of 45 CONCLUSION In view of all the foregoing, the defendants respectfully urge that all of the plaintiffs claims against them be dismissed, that they recover their costs, and that they be awarded any additional relief to which they show themselves entitled. Respectfully submitted, KEN PAXTON Attorney General of Texas CHARLES E. ROY First Assistant Attorney General JAMES E. DAVIS Deputy Attorney General for Civil Litigation ANGELA V. COLMENERO Division Chief General Litigation Division /s/ James C. Todd JAMES C. TODD Texas Bar No SEAN FLAMMER Texas Bar No Assistant Attorneys General Office of the Attorney General General Litigation Division-019 P.O. Box 12548, Capitol Station Austin, Texas (512) ; (512) FAX ATTORNEYS FOR DEFENDANTS 34

97 Case 1:15-cv RP Document 51 Filed 06/19/15 Page 45 of 45 CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing document has been filed electronically with the Court on this the 18 th day of June, 2015, which will provide a copy to: James Matthew Dow JACKSON WALKER L.L.P. 100 Congress Avenue, Suite 1100 Austin, Texas (512) (Telephone) (512) (Facsimile) ATTORNEYS FOR PLAINTIFFS George S. Cary Leah Brannon Drew Navikas CLEARY GOTTLIEB STEEN & HAMILTON 2000 Pennsylvania Avenue, NW Washington, DC (202) (Telephone) (202) (Facsimile) ATTORNEYS FOR PLAINTIFFS Thomas A. Nesbitt Scott f. DeShazo Rachel L. Noffke DESHAZO & NESBITT, L.L.P. 809 West Avenue Austin, Texas (512) (512) Fax ATTORNEYS FOR AMICUS TDINDUSTRIES Charles S. Kelly MAYER BROWN LLP 700 Louisiana St. # 3400 Houston, Tx (713) (713) Fax Philip Recht Andrew T. Kugler MAYER BROWN LLP 350 South Grand Avenue 25th floor Los Angeles, CA (213) (213) Fax ATTORNEYS FOR AMICUS NEW BENEFITS, LTD. /s/ James C. Todd JAMES C. TODD Assistant Attorney General 35

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99 FTC Staff Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants I. Introduction States craft regulatory policy through a variety of actors, including state legislatures, courts, agencies, and regulatory boards. While most regulatory actions taken by state actors will not implicate antitrust concerns, some will. Notably, states have created a large number of regulatory boards with the authority to determine who may engage in an occupation (e.g., by issuing or withholding a license), and also to set the rules and regulations governing that occupation. Licensing, once limited to a few learned professions such as doctors and lawyers, is now required for over 800 occupations including (in some states) locksmiths, beekeepers, auctioneers, interior designers, fortune tellers, tour guides, and shampooers. 1 In general, a state may avoid all conflict with the federal antitrust laws by creating regulatory boards that serve only in an advisory capacity, or by staffing a regulatory board exclusively with persons who have no financial interest in the occupation that is being regulated. However, across the United States, licensing boards are largely dominated by active members of their respective industries... 2 That is, doctors commonly regulate doctors, beekeepers commonly regulate beekeepers, and tour guides commonly regulate tour guides. Earlier this year, the U.S. Supreme Court upheld the Federal Trade Commission s determination that the North Carolina State Board of Dental Examiners ( NC Board ) violated the federal antitrust laws by preventing non-dentists from providing teeth whitening services in competition with the state s licensed dentists. N.C. State Bd. of Dental Exam rs v. FTC, 135 S. Ct (2015). NC Board is a state agency established under North Carolina law and charged with administering and enforcing a licensing system for dentists. A majority of the members of this state agency are themselves practicing dentists, and thus they have a private incentive to limit This document sets out the views of the Staff of the Bureau of Competition. The Federal Trade Commission is not bound by this Staff guidance and reserves the right to rescind it at a later date. In addition, FTC Staff reserves the right to reconsider the views expressed herein, and to modify, rescind, or revoke this Staff guidance if such action would be in the public interest. 1 Aaron Edlin & Rebecca Haw, Cartels By Another Name: Should Licensed Occupations Face Antitrust Scrutiny, 162 U. PA. L. REV. 1093, 1096 (2014). 2 Id. at October

100 competition from non-dentist providers of teeth whitening services. NC Board argued that, because it is a state agency, it is exempt from liability under the federal antitrust laws. That is, the NC Board sought to invoke what is commonly referred to as the state action exemption or the state action defense. The Supreme Court rejected this contention and affirmed the FTC s finding of antitrust liability. In this decision, the Supreme Court clarified the applicability of the antitrust state action defense to state regulatory boards controlled by market participants: The Court holds today 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 [Cal. Retail Liquor Dealers Ass n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980)] active supervision requirement in order to invoke state-action antitrust immunity. N.C. Dental, 135 S. Ct. at In the wake of this Supreme Court decision, state officials have requested advice from the Federal Trade Commission regarding antitrust compliance for state boards responsible for regulating occupations. This outline provides FTC Staff guidance on two questions. First, when does a state regulatory board require active supervision in order to invoke the state action defense? Second, what factors are relevant to determining whether the active supervision requirement is satisfied? Our answers to these questions come with the following caveats. Vigorous competition among sellers in an open marketplace generally provides consumers with important benefits, including lower prices, higher quality services, greater access to services, and increased innovation. For this reason, a state legislature should empower a regulatory board to restrict competition only when necessary to protect against a credible risk of harm, such as health and safety risks to consumers. The Federal Trade Commission and its staff have frequently advocated that states avoid unneeded and burdensome regulation of service providers. 3 Federal antitrust law does not require that a state legislature provide for active supervision of any state regulatory board. A state legislature may, and generally should, prefer that a regulatory board be subject to the requirements of the federal antitrust 3 See, e.g., Fed. Trade Comm n Staff Policy Paper, Policy Perspectives: Competition and the Regulation of Advanced Practice Registered Nurses (Mar. 2014), Fed. Trade Comm n & U.S. Dept. of Justice, Comment before the South Carolina Supreme Court Concerning Proposed Guidelines for Residential and Commercial Real Estate Closings (Apr. 2008), October

101 laws. If the state legislature determines that a regulatory board should be subject to antitrust oversight, then the state legislature need not provide for active supervision. Antitrust analysis including the applicability of the state action defense is fact-specific and context-dependent. The purpose of this document is to identify certain overarching legal principles governing when and how a state may provide active supervision for a regulatory board. We are not suggesting a mandatory or one-size-fitsall approach to active supervision. Instead, we urge each state regulatory board to consult with the Office of the Attorney General for its state for customized advice on how best to comply with the antitrust laws. This FTC Staff guidance addresses only the active supervision prong of the state action defense. In order successfully to invoke the state action defense, a state regulatory board controlled by market participants must also satisfy the clear articulation prong, as described briefly in Section II. below. This document contains guidance developed by the staff of the Federal Trade Commission. Deviation from this guidance does not necessarily mean that the state action defense is inapplicable, or that a violation of the antitrust laws has occurred. October

102 II. Overview of the Antitrust State Action Defense Federal antitrust law is a central safeguard for the Nation s free market structures.... The antitrust laws declare a considered and decisive prohibition by the Federal Government of cartels, price fixing, and other combinations or practices that undermine the free market. N.C. Dental, 135 S. Ct. at Under principles of federalism, the States possess a significant measure of sovereignty. N.C. Dental, 135 S. Ct. at 1110 (quoting Community Communications Co. v. Boulder, 455 U.S. 40, 53 (1982)). In enacting the antitrust laws, Congress did not intend to prevent the States from limiting competition in order to promote other goals that are valued by their citizens. Thus, the Supreme Court has concluded that the federal antitrust laws do not reach anticompetitive conduct engaged in by a State that is acting in its sovereign capacity. Parker v. Brown, 317 U.S. 341, (1943). For example, a state legislature may impose restrictions on occupations, confer exclusive or shared rights to dominate a market, or otherwise limit competition to achieve public objectives. N.C. Dental, 135 S. Ct. at Are the actions of a state regulatory board, like the actions of a state legislature, exempt from the application of the federal antitrust laws? In North Carolina State Board of Dental Examiners, the Supreme Court reaffirmed that a state regulatory board is not the sovereign. Accordingly, a state regulatory board is not necessarily exempt from federal antitrust liability. More specifically, the Court determined that a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates may invoke the state action defense only when two requirements are satisfied: first, the challenged restraint must be clearly articulated and affirmatively expressed as state policy; and second, the policy must be actively supervised by a state official (or state agency) that is not a participant in the market that is being regulated. N.C. Dental, 135 S. Ct. at The Supreme Court addressed the clear articulation requirement most recently in FTC v. Phoebe Putney Health Sys., Inc., 133 S. Ct (2013). The clear articulation requirement is satisfied where the displacement of competition [is] the inherent, logical, or ordinary result of the exercise of authority delegated by the state legislature. In that scenario, the State must have foreseen and implicitly endorsed the anticompetitive effects as consistent with its policy goals. Id. at The State s clear articulation of the intent to displace competition is not alone sufficient to trigger the state action exemption. The state legislature s clearly-articulated delegation of authority to a state regulatory board to displace competition may be defined at so high a level of generality as to leave open critical questions about how October

103 and to what extent the market should be regulated. There is then a danger that this delegated discretion will be used by active market participants to pursue private interests in restraining trade, in lieu of implementing the State s policy goals. N.C. Dental, 135 S. Ct. at The active supervision requirement seeks to avoid this harm by requiring the State to review and approve interstitial policies made by the entity claiming [antitrust] immunity. Id. Where the state action defense does not apply, the actions of a state regulatory board controlled by active market participants may be subject to antitrust scrutiny. Antitrust issues may arise where an unsupervised board takes actions that restrict market entry or restrain rivalry. The following are some scenarios that have raised antitrust concerns: A regulatory board controlled by dentists excludes non-dentists from competing with dentists in the provision of teeth whitening services. Cf. N.C. Dental, 135 S. Ct A regulatory board controlled by accountants determines that only a small and fixed number of new licenses to practice the profession shall be issued by the state each year. Cf. Hoover v. Ronwin, 466 U.S. 558 (1984). A regulatory board controlled by attorneys adopts a regulation (or a code of ethics) that prohibits attorney advertising, or that deters attorneys from engaging in price competition. Cf. Bates v. State Bar of Ariz., 433 U.S. 350 (1977); Goldfarb v. Va. State Bar, 421 U.S. 773 (1975). October

104 III. Scope of FTC Staff Guidance A. This Staff guidance addresses the applicability of the state action defense under the federal antitrust laws. Concluding that the state action defense is inapplicable does not mean that the conduct of the regulatory board necessarily violates the federal antitrust laws. A regulatory board may assert defenses ordinarily available to an antitrust defendant. 1. Reasonable restraints on competition do not violate the antitrust laws, even where the economic interests of a competitor have been injured. Example 1: A regulatory board may prohibit members of the occupation from engaging in fraudulent business practices without raising antitrust concerns. A regulatory board also may prohibit members of the occupation from engaging in untruthful or deceptive advertising. Cf. Cal. Dental Ass n v. FTC, 526 U.S. 756 (1999). Example 2: Suppose a market with several hundred licensed electricians. If a regulatory board suspends the license of one electrician for substandard work, such action likely does not unreasonably harm competition. Cf. Oksanen v. Page Mem l Hosp., 945 F.2d 696 (4th Cir. 1991) (en banc). 2. The ministerial (non-discretionary) acts of a regulatory board engaged in good faith implementation of an anticompetitive statutory regime do not give rise to antitrust liability. See 324 Liquor Corp. v. Duffy, 479 U.S. 335, 344 n. 6 (1987). Example 3: A state statute requires that an applicant for a chauffeur s license submit to the regulatory board, among other things, a copy of the applicant s diploma and a certified check for $500. An applicant fails to submit the required materials. If for this reason the regulatory board declines to issue a chauffeur s license to the applicant, such action would not be considered an unreasonable restraint. In the circumstances described, the denial of a license is a ministerial or non-discretionary act of the regulatory board. 3. In general, the initiation and prosecution of a lawsuit by a regulatory board does not give rise to antitrust liability unless it falls within the sham exception. Professional Real Estate Investors v. Columbia Pictures Industries, 508 U.S. 49 (1993); California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508 (1972). Example 4: A state statute authorizes the state s dental board to maintain an action in state court to enjoin an unlicensed person from practicing dentistry. The members of the dental board have a basis to believe that a particular individual is practicing dentistry but does not hold a valid license. If the dental board files a lawsuit against that individual, such action would not constitute a violation of the federal antitrust laws. October

105 B. Below, FTC Staff describes when active supervision of a state regulatory board is required in order successfully to invoke the state action defense, and what factors are relevant to determining whether the active supervision requirement has been satisfied. 1. When is active state supervision of a state regulatory board required in order to invoke the state action defense? General Standard: [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 antitrust immunity. N.C. Dental, 135 S. Ct. at Active Market Participants: A member of a state regulatory board will be considered to be an active market participant in the occupation the board regulates if such person (i) is licensed by the board or (ii) provides any service that is subject to the regulatory authority of the board. If a board member participates in any professional or occupational subspecialty that is regulated by the board, then that board member is an active market participant for purposes of evaluating the active supervision requirement. It is no defense to antitrust scrutiny, therefore, that the board members themselves are not directly or personally affected by the challenged restraint. For example, even if the members of the NC Dental Board were orthodontists who do not perform teeth whitening services (as a matter of law or fact or tradition), their control of the dental board would nevertheless trigger the requirement for active state supervision. This is because these orthodontists are licensed by, and their services regulated by, the NC Dental Board. A person who temporarily suspends her active participation in an occupation for the purpose of serving on a state board that regulates her former (and intended future) occupation will be considered to be an active market participant. Method of Selection: The method by which a person is selected to serve on a state regulatory board is not determinative of whether that person is an active market participant in the occupation that the board regulates. For example, a licensed dentist is deemed to be an active market participant regardless of whether the dentist (i) is appointed to the state dental board by the governor or (ii) is elected to the state dental board by the state s licensed dentists. October

106 A Controlling Number, Not Necessarily a Majority, of Actual Decisionmakers: Active market participants need not constitute a numerical majority of the members of a state regulatory board in order to trigger the requirement of active supervision. A decision that is controlled, either as a matter of law, procedure, or fact, by active participants in the regulated market (e.g., through veto power, tradition, or practice) must be actively supervised to be eligible for the state action defense. Whether a particular restraint has been imposed by a controlling number of decisionmakers [who] are active market participants is a fact-bound inquiry that must be made on a case-by-case basis. FTC Staff will evaluate a number of factors, including: The structure of the regulatory board (including the number of board members who are/are not active market participants) and the rules governing the exercise of the board s authority. Whether the board members who are active market participants have veto power over the board s regulatory decisions. Example 5: The state board of electricians consists of four non-electrician members and three practicing electricians. Under state law, new regulations require the approval of five board members. Thus, no regulation may become effective without the assent of at least one electrician member of the board. In this scenario, the active market participants effectively have veto power over the board s regulatory authority. The active supervision requirement is therefore applicable. The level of participation, engagement, and authority of the nonmarket participant members in the business of the board generally and with regard to the particular restraint at issue. Whether the participation, engagement, and authority of the nonmarket participant board members in the business of the board differs from that of board members who are active market participants generally and with regard to the particular restraint at issue. Whether the active market participants have in fact exercised, controlled, or usurped the decisionmaking power of the board. Example 6: The state board of electricians consists of four non-electrician members and three practicing electricians. Under state law, new regulations require the approval of a majority of board members. When voting on proposed regulations, the non-electrician members routinely defer to the preferences of the electrician members. Minutes of October

107 board meetings show that the non-electrician members generally are not informed or knowledgeable concerning board business and that they were not well informed concerning the particular restraint at issue. In this scenario, FTC Staff may determine that the active market participants have exercised the decisionmaking power of the board, and that the active supervision requirement is applicable. Example 7: The state board of electricians consists of four non-electrician members and three practicing electricians. Documents show that the electrician members frequently meet and discuss board business separately from the non-electrician members. On one such occasion, the electrician members arranged for the issuance by the board of written orders to six construction contractors, directing such individuals to cease and desist from providing certain services. The non-electrician members of the board were not aware of the issuance of these orders and did not approve the issuance of these orders. In this scenario, FTC Staff may determine that the active market participants have exercised the decisionmaking power of the board, and that the active supervision requirement is applicable. 2. What constitutes active supervision? FTC Staff will be guided by the following principles: [T]he purpose of the active supervision inquiry... is to determine whether the State has exercised sufficient independent judgment and control such that the details of the regulatory scheme have been established as a product of deliberate state intervention and not simply by agreement among the members of the state board. Much as in causation inquiries, the analysis asks whether the State has played a substantial role in determining the specifics of the economic policy. The State is not obliged to [meet] some normative standard, such as efficiency, in its regulatory practices. Ticor, 504 U.S. at The question is not how well state regulation works but whether the anticompetitive scheme is the State s own. Id. at 635. It is necessary to ensure the States accept political accountability for anticompetitive conduct they permit and control. N.C. Dental, 135 S. Ct. at See also Ticor, 504 U.S. at 636. The Court has identified only a few constant requirements of active supervision: The supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it; the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy; and the mere potential for state supervision is not an adequate substitute for a decision by the State. Further, the state supervisor may not itself be an active market participant. N.C. Dental, 135 S. Ct. at (citations omitted). October

108 The active supervision must precede implementation of the allegedly anticompetitive restraint. [T]he inquiry regarding active supervision is flexible and context-dependent. [T]he adequacy of supervision... will depend on all the circumstances of a case. N.C. Dental, 135 S. Ct. at Accordingly, FTC Staff will evaluate each case in light of its own facts, and will apply the applicable case law and the principles embodied in this guidance reasonably and flexibly. 3. What factors are relevant to determining whether the active supervision requirement has been satisfied? FTC Staff will consider the presence or absence of the following factors in determining whether the active supervision prong of the state action defense is satisfied. The supervisor has obtained the information necessary for a proper evaluation of the action recommended by the regulatory board. As applicable, the supervisor has ascertained relevant facts, collected data, conducted public hearings, invited and received public comments, investigated market conditions, conducted studies, and reviewed documentary evidence. The information-gathering obligations of the supervisor depend in part upon the scope of inquiry previously conducted by the regulatory board. For example, if the regulatory board has conducted a suitable public hearing and collected the relevant information and data, then it may be unnecessary for the supervisor to repeat these tasks. Instead, the supervisor may utilize the materials assembled by the regulatory board. The supervisor has evaluated the substantive merits of the recommended action and assessed whether the recommended action comports with the standards established by the state legislature. The supervisor has issued a written decision approving, modifying, or disapproving the recommended action, and explaining the reasons and rationale for such decision. A written decision serves an evidentiary function, demonstrating that the supervisor has undertaken the required meaningful review of the merits of the state board s action. A written decision is also a means by which the State accepts political accountability for the restraint being authorized. October

109 Scenario 1: Example of satisfactory active supervision of a state board regulation designating teeth whitening as a service that may be provided only by a licensed dentist, where state policy is to protect the health and welfare of citizens and to promote competition. The state legislature designated an executive agency to review regulations recommended by the state regulatory board. Recommended regulations become effective only following the approval of the agency. The agency provided notice of (i) the recommended regulation and (ii) an opportunity to be heard, to dentists, to non-dentist providers of teeth whitening, to the public (in a newspaper of general circulation in the affected areas), and to other interested and affected persons, including persons that have previously identified themselves to the agency as interested in, or affected by, dentist scope of practice issues. The agency took the steps necessary for a proper evaluation of the recommended regulation. The agency: Obtained the recommendation of the state regulatory board and supporting materials, including the identity of any interested parties and the full evidentiary record compiled by the regulatory board. Solicited and accepted written submissions from sources other than the regulatory board. Obtained published studies addressing (i) the health and safety risks relating to teeth whitening and (ii) the training, skill, knowledge, and equipment reasonably required in order to safely and responsibly provide teeth whitening services (if not contained in submission from the regulatory board). Obtained information concerning the historic and current cost, price, and availability of teeth whitening services from dentists and non-dentists (if not contained in submission from the regulatory board). Such information was verified (or audited) by the Agency as appropriate. Held public hearing(s) that included testimony from interested persons (including dentists and non-dentists). The public hearing provided the agency with an opportunity (i) to hear from and to question providers, affected customers, and experts and (ii) to supplement the evidentiary record compiled by the state board. (As noted above, if the state regulatory board has previously conducted a suitable public hearing, then it may be unnecessary for the supervising agency to repeat this procedure.) The agency assessed all of the information to determine whether the recommended regulation comports with the State s goal to protect the health and October

110 welfare of citizens and to promote competition. The agency issued a written decision accepting, rejecting, or modifying the scope of practice regulation recommended by the state regulatory board, and explaining the rationale for the agency s action. Scenario 2: Example of satisfactory active supervision of a state regulatory board administering a disciplinary process. A common function of state regulatory boards is to administer a disciplinary process for members of a regulated occupation. For example, the state regulatory board may adjudicate whether a licensee has violated standards of ethics, competency, conduct, or performance established by the state legislature. Suppose that, acting in its adjudicatory capacity, a regulatory board controlled by active market participants determines that a licensee has violated a lawful and valid standard of ethics, competency, conduct, or performance, and for this reason, the regulatory board proposes that the licensee s license to practice in the state be revoked or suspended. In order to invoke the state action defense, the regulatory board would need to show both clear articulation and active supervision. In this context, active supervision may be provided by the administrator who oversees the regulatory board (e.g., the secretary of health), the state attorney general, or another state official who is not an active market participant. The active supervision requirement of the state action defense will be satisfied if the supervisor: (i) reviews the evidentiary record created by the regulatory board; (ii) supplements this evidentiary record if and as appropriate; (iii) undertakes a de novo review of the substantive merits of the proposed disciplinary action, assessing whether the proposed disciplinary action comports with the policies and standards established by the state legislature; and (iv) issues a written decision that approves, modifies, or disapproves the disciplinary action proposed by the regulatory board. Note that a disciplinary action taken by a regulatory board affecting a single licensee will typically have only a de minimis effect on competition. A pattern or program of disciplinary actions by a regulatory board affecting multiple licensees may have a substantial effect on competition. October

111 The following do not constitute active supervision of a state regulatory board that is controlled by active market participants: The entity responsible for supervising the regulatory board is itself controlled by active market participants in the occupation that the board regulates. See N.C. Dental, 135 S. Ct. at A state official monitors the actions of the regulatory board and participates in deliberations, but lacks the authority to disapprove anticompetitive acts that fail to accord with state policy. See Patrick v. Burget, 486 U.S. 94, 101 (1988). A state official (e.g., the secretary of health) serves ex officio as a member of the regulatory board with full voting rights. However, this state official is one of several members of the regulatory board and lacks the authority to disapprove anticompetitive acts that fail to accord with state policy. The state attorney general or another state official provides advice to the regulatory board on an ongoing basis. An independent state agency is staffed, funded, and empowered by law to evaluate, and then to veto or modify, particular recommendations of the regulatory board. However, in practice such recommendations are subject to only cursory review by the independent state agency. The independent state agency perfunctorily approves the recommendations of the regulatory board. See Ticor, 504 U.S. at 638. An independent state agency reviews the actions of the regulatory board and approves all actions that comply with the procedural requirements of the state administrative procedure act, without undertaking a substantive review of the actions of the regulatory board. See Patrick, 486 U.S. at October

112 5

113 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 1 of 22 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION TELADOC, INC., ET AL., Plaintiffs, V CV-343 RP TEXAS MEDICAL BOARD, ET AL., Defendants. ORDER Before the Court are Defendants Amended Motion to Dismiss, filed July 30, 2015 (Clerk s Dkt. #64) and the responsive pleadings thereto. After reviewing the pleadings, relevant case law, as well as the entire case file, the Court issues the following order. I. BACKGROUND Plaintiffs Teladoc, Inc. and Teladoc Physicians, P.A. (jointly Teladoc ), Kyon Hood, M.D. ( Dr. Hood ), and Emmette Clark, M.D. ( Dr. Clark ) bring this action against fourteen members of 1 the Texas Medical Board ( TMB ) in their official capacities challenging recent regulatory changes adopted by the TMB. The TMB is a state agency statutorily empowered to regulate the practice of medicine in Texas. 22 TEX. ADMIN. CODE See also TEX. OCC. CODE ANN (TMB has the power to regulate the practice of medicine, noting TMB replaces former Texas State Board of Medical Examiners). Teladoc describes itself as providing telehealth services, utilizing telecommunication technologies to provide health care services outside the traditional models wherein medical professionals provides services in an in-person office or hospital setting. 1 Plaintiffs originally named the TMB and fourteen of its members in both their individual and official capacities. The parties thereafter stipulated to the dismissal of the TMB and its members in their individual capacities, based on the parties agreement that full relief could be obtained against the TMB s members in their official capacities. For convenience s sake, the Court refers herein to the members of the TMB collectively as the TMB.

114 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 2 of 22 According to Plaintiffs, [t]elehealth providers are generally available 24 hours per day, 365 days per year, for a fraction of the cost of a visit to a physician s office, urgent care center, or hospital emergency room. (Am. Compl. 2). Teladoc s services are typically available to individuals whose employer has contracted with Teladoc for a per-member subscription fee. Individuals register with Teladoc either by telephone or online, creating a personal account, including information such as a medical history, physician, contact information, and medical records. Registrants may also upload photographs and medical records to Teladoc s system for inclusion with their medical history. (Id ). Registrants seeking a physician consultation can log into Teladoc s web portal or call a toll-free number to place a request for consultation. Teladoc employs board certified physicians who are provided specialized training in treatment and diagnosis via telephone. Once a Teladoc physician accepts the request for consultation, the physician reviews the requesting registrant's information and medical records through the website, then calls the registrant by telephone and consults with him or her. Based on the medical records and history, reported symptoms, and other information the physician elicits during the consultation, the physician dispenses medical advice, including referring the registrant to a physician s office, dentist, or emergency room. When 2 deemed appropriate, the physician can prescribe certain medications. Following the consultation, the Teladoc physician enters notes and findings into the registrant s record, which is available to the registrant and, if the registrant chooses, is forwarded to his or her primary-care physician. (Id. 46, 69-71, 77-85). This action relates to the TMB s adoption of revisions to Chapters 174 and 190 of the Texas Administrative Code title which governs the TMB. Chapter 174 regulates the practice of telemedicine medical services in Texas. 22 TEX. ADMIN. CODE Chapter 190 sets forth 2 According to Teladoc, its physicians do not prescribe DEA-controlled substances (including narcotics) or what are referred to as lifestyle drugs (i.e., Viagra, or diet pills). (Am. Compl. 82). 2

115 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 3 of 22 disciplinary guidelines for the practice of medicine in Texas. 22 TEX. ADMIN. CODE As originally adopted by the TMB in 2003, section 190.8(1)(L) ( Old Rule 190.8") prohibits prescription of any dangerous drug or controlled substance without first establishing a proper professional relationship which requires, in pertinent part, establishing a diagnosis through the use of acceptable medical practices such as patient history, mental status examination, physical examination, and appropriate diagnostic and laboratory testing. 22 TEX. ADMIN. CODE 190.8(1)(L) (emphasis added). In 2004 the TMB adopted regulations specifically governing telemedicine. 22 TEX. ADMIN. CODE 174.1, et seq. Effective October 2010, the TMB amended its telemedicine regulations, restricting the definition of telemedicine to consultations using advanced telecommunications technology that allows the distant site provider to see and hear the patient in real time. Id The amended regulations also made clear that, to establish a proper physician-patient relationship, telemedicine providers were required to conduct a physical examination of a patient. Id ( New Rule 174"). In response to the amended regulations, Teladoc restricted the services it offered in Texas, specifically eliminating the option of video consultation. (Am. Compl ). In June 2011, the TMB issued a letter to Teladoc, stating the language of Old Rule required a face-to-face examination prior to prescription of a dangerous drug or controlled substance. Plaintiffs allege the letter was prompted by complaints from Texas physicians about competition from Teladoc. (Id ). Teladoc sought legal recourse by bringing suit against the TMB in Texas state court. (Id. 106). In July 2011 the state court issued a temporary restraining order barring enforcement of the TMB s interpretation of Old Rule (Id. 107). In December 2014 the court of appeals held the TMB s pronouncements in its June 2011 letter are tantamount to amendments to the existing text, finding the TMB had effectively substituted including for the actual such as phrase. Teladoc, Inc. v. Texas Med. Bd., 453 S.W.3d 606, 620 (Tex. App. Austin 2014, pet. filed). Thus, 3

116 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 4 of 22 the court found the TMB s pronouncements hardly track [Old] Rule rather, they depart from and effectively change that text, rendering the June 2011 letter a procedurally invalid amendment to Old Rule Id. In response, the TMB issued an emergency rule on January 16, 2015, amending Old Rule The emergency amendment mandated a face-to-face visit or in-person evaluation before a physician can issue a prescription. (Am. Compl. 111). Teladoc sought and obtained a temporary injunction of the emergency rule in Texas state court. (Id ). The TMB then engaged in a formal rulemaking, resulting in an April 10, 2015 vote by the TMB to adopt section 190.8(1)(L) ( New Rule 190.8") which sets forth practices the TMB deems to be violations of the Texas Medical Practices Act. According to the TMB, that new rule would require a face-to-face visit before a physician can issue a prescription to a patient, regardless of medical necessity. (Id. 115). Plaintiffs filed this action on April 29, 2015, asserting Defendants have committed a violation of antitrust law, as well as the Commerce Clause of the Constitution in adopting New Rule and New Rule 174. The TMB seeks to dismiss Plaintiffs claims, arguing they are barred by the statute of limitations, the TMB is immune from antitrust liability, and Plaintiffs have failed to state an actionable claim under the Commerce Clause. The parties have filed responsive pleadings and the motion is now ripe for review. II. STANDARD OF REVIEW A federal court must dismiss an action "[w]henever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction. FED. R. CIV. P. 12(h)(3). Thus, lack of subject-matter jurisdiction may be raised at any time by any party, or by the court sua sponte. Bank One Texas v. United States, 157 F.3d 397, 403 (5th Cir. 1998); MCG, Inc. v. Great Western Energy Corp., 896 F.2d 170, 173 (5th Cir. 1990). However, the plaintiff bears the burden of establishing federal 4

117 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 5 of 22 jurisdiction. Burge v. Parish of St. Tammany, 187 F.3d 452, (5th Cir. 1999). See also Coury v. Prot, 85 F.3d 244, 248 (5th Cir. 1996) (presumption against subject matter jurisdiction must be rebutted by party bringing action to federal court). A motion to dismiss for lack of subject matter jurisdiction must be considered before any other challenge. See Steel Co. v. Citizens for Better Environment, 523 U.S. 83, (1998) ("The requirement that jurisdiction be established as a threshold matter... is inflexible and without exception"); Moran v. Kingdom of Saudi Arabia, 27 F.3d 169, 172 (5th Cir. 1994) (court must find jurisdiction before determining validity of claim). On a Rule 12(b)(1) motion, the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case." MDPhysicians & Assocs., Inc. v. State Board of Ins., 957 F.2d 178, 181 (5th Cir. 1992). When evaluating a motion to dismiss for failure to state a claim under Rule 12(b)(6) the complaint must be liberally construed in favor of the plaintiff and all facts pleaded therein must be taken as true. Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). Although Federal Rule of Civil Procedure 8 mandates only that a pleading contain a short and plain statement of the claim showing that the pleader is entitled to relief, this standard demands more than unadorned accusations, labels and conclusions, a formulaic recitation of the elements of a cause of action, or naked assertion[s] devoid of further factual enhancement. Bell Atl. v. Twombly, 550 U.S. 544, 555 (2007). Rather, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Id. at 570. The court must initially identify pleadings that are no more than legal conclusions not entitled to the assumption of truth, then assume the veracity of well-pleaded factual allegations and determine whether those allegations plausibly give rise to an entitlement to relief. If not, the complaint has alleged but it has not show[n] that the pleader is entitled to relief. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (quoting FED. R. CIV. P. 8(a)(2)). 5

118 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 6 of 22 III. ANALYSIS Defendants contend the claims asserted by Plaintiffs attacking New Rule 174 should be dismissed as barred by limitations. Defendants also maintain Plaintiffs claim of an antitrust violation is barred by the doctrine of state action immunity. Finally, Defendants argue Plaintiffs have failed to state a claim under the Commerce Clause. A. Statute of Limitations Suits asserting antitrust violations under the Clayton Act are generally subject to a four year statute of limitations. 15 U.S.C. 15b (action to enforce Clayton Act shall be forever barred unless commenced within four years after the cause of action accrued ). The limitations period for a claim asserted under 42 U.S.C ( Section 1983") is determined by the state's personal injury limitations period. Whitt v. Stephens Cnty., 529 F.3d 278, 282 (5th Cir. 2008); Price v. City of San Antonio, 431 F.3d 890, 892 (5th Cir. 2005). In Texas it is two years. TEX. CIV. PRAC. & REM. CODE ANN The parties agree New Rule 174 took effect on October 17, Plaintiffs did not file this action until April 29, 2015, more than four years later. The TMB maintains each of Plaintiffs claims attacking New Rule 174 are thus time barred. As an initial matter, Plaintiffs point out that the TMB s assertion of limitations fails to account for all of the Plaintiffs. Specifically, they note that Dr. Hood first became licensed to practice medicine in 2014 and Dr. Clark did not begin practicing telemedicine through Teladoc until Plaintiffs correctly maintain neither would have had standing prior to beginning the practice of telemedicine to assert any injury from New Rule 174. See Price v. City of San Antonio, 431 F.3d 890, 893 (5th Cir. 2005) (cause of action under section 1983 accrues when plaintiff knows or has reason to know of the injury which is the basis of the action. ); Bourns, Inc. v. Raychem Corp., 331 F.3d 704, 711 (9th Cir. 2003) ( Only an actual competitor or one ready to be a competitor can suffer antitrust injury. ). 6

119 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 7 of 22 The TMB suggests these facts are of no moment, arguing [b]y plaintiffs reasoning, a corporation can perpetually evade both limitations and laches by continuing to recruit new 3 employees or contractors. (Def. Reply at 31). But this argument merely buttresses Plaintiffs point, that the TMB has focused only on Teladoc s claims, not those of the individual doctor plaintiffs. At a minimum, the TMB has failed to show limitations bars their claims. Plaintiffs also argue the continuing violation doctrine acts to forestall the TMB s limitations argument. Generally, a cause of action accrues and the statute begins to run when a defendant commits an act that injures a plaintiff's business. Rx.com v. Medco Health Sols., Inc., 322 F. App'x 394, 396 (5th Cir. 2009) (quoting Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 338 (1971)) ( [I]f a plaintiff feels the adverse impact of an antitrust conspiracy on a particular date, a cause of action immediately accrues ). When a plaintiff alleges a continuous antitrust violation, suit may be brought within four years after the defendant commits an additional overt act in furtherance of the antitrust conspiracy or commits an act that by its very nature is a continuing antitrust violation. Kaiser Alum. & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1051 (5th Cir. 1982), Similarly, in a claim asserted under Section 1983, the continuing violation theory can relieve a plaintiff of showing that all of the defendant's conduct occurred within the limitations period, but only if the plaintiff can show a series of related acts, one or more of which falls within the limitations period. Montgomery v. La. ex rel. La. Dep't of Pub. Safety & Corr., 46 F. App'x 732 (5th Cir. 2002) (quoting Messer v. Meno, 130 F.3d 130, (5th Cir. 1997)). Plaintiffs point to their allegations of actions taken by Defendants between the adoption of New Rule 174 and the filing of this action as evidencing a continuing violation by Defendants. Specifically, Plaintiff allege the TMB s General Counsel sent a letter in June 2011 to Teladoc 3 The TMB further suggests prior lack of standing is insufficient to prevent the application of limitations. No authority is cited for that proposition, however. Moreover, Dr. Hood lacked standing to attack the rules governing the practice of medicine in Texas prior to his licensure because he had not suffered any injury prior to that date. The TMB provides no explanation as to how his ability to seek relief for his alleged injury could have expired prior to his suffering the injury. 7

120 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 8 of 22 asserting a new interpretation of Old Rule 190.8, a letter which Plaintiffs assert was prompted by complaints from Texas doctors concerning competition from Teladoc. (Am. Compl ). Plaintiffs further allege the TMB thereafter sent letters to several of Teladoc s clients stating Teladoc was in violation of Old Rule 190.8, despite the stay of that interpretation issued in July 2011 by the Texas state court. (Id. 109). In addition, Plaintiffs allege Defendants adopted an invalid emergency amendment to Old Rule in January 2015, before finally adopting New Rule in April (Id ). The TMB maintains the allegations do nothing more than suggest Plaintiffs suffered continuing effects from the adoption of New Rule 174. In an antitrust case, [f]or statute of limitations purposes,... the focus is on the timing of the causes of injury, i.e., the defendant's overt acts, as opposed to the effects of the overt acts. Varner v. Peterson Farms, 371 F.3d 1011, 1019 (8th Cir. 2004) (quoting DXS, Inc. v. Siemens Med. Sys., Inc., 100 F.3d 462, 467 (6th Cir.1996)). Nor can a plaintiff use the continuing violation theory to resurrect claims alleging a civil rights violation concluded in the past, even though its effects persist. McGregor v. La. State Univ. Bd. of Supervisors, 3 F.3d 850, 867 (5th Cir. 1993). Plaintiffs, in contrast, characterize their allegations as a setting forth a continuous course of conduct by the TMB, aimed at interfering with Plaintiffs ability to engage in telemedicine. The Court agrees this view more correctly describes Plaintiffs claims here. This conclusion is supported by the fact that, according to Plaintiffs, the TMB began its course of conduct prior to adopting New Rule 174 by attempting to enforce a new reading of Old Rule 190.8, and when that attempt failed, continued its course of conduct by adopting the new rule. Moreover, as the TMB admits, the question of limitations is not purely a matter of statutory proscription when solely equitable relief is sought. Rather, in such cases, courts apply the doctrine of laches, instead of the analogous limitations period. Kaiser Alum., 677 F.2d at See Oliver v. SD-3C LLC, 751 F.3d 1081, 1084 (9th Cir. 2014), cert. denied, 135 S. Ct (2015) ( Because 8

121 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 9 of 22 Plaintiffs seek only injunctive relief under federal law, their federal antitrust claim is subject to the equitable doctrine of laches and not the four-year statute of limitations in... the Clayton Act ). To establish that a cause of action is barred by laches, the defendant must show: (1) a delay in asserting the right or claim; (2) that the delay was not excusable; and (3) that there was undue prejudice to the defendant. Johnson v. Crown Enters., Inc., 398 F.3d 339, 344 (5th Cir. 2005). However, if the claim is brought outside the analogous limitations period, the bare fact of delay creates a rebuttable presumption of prejudice to the defendant. Kaiser Alum F2d at 1057 (citing Int l Tel. & Tel. Corp. v. Gen l Tel. & Elec. Corp., 518 F.2d 913, 926 (9th Cir. 1975)). The TMB contends the presumed prejudice from Plaintiffs delay is sufficient to justify the invocation of laches to bar their claims. Plaintiffs point out, however, that the Fifth Circuit has stated [t]he concept of undue prejudice, an essential element in a defense of laches, is normally inapplicable when the relief is prospective. Envtl. Defense Fund v. Marsh, 651 F.2d 983, 1005 n.32 (5th Cir. 1981). See Danjaq LLC v. Sony Corp., 263 F.3d 942, (9th Cir. 2001) ( almost by definition, the plaintiff's past dilatoriness is unrelated to a defendant's ongoing behavior that threatens future harm ); Lyons P'ship, L.P. v. Morris Costumes, Inc., 243 F.3d 789, 799 (4th Cir. 2001) ( A prospective injunction is entered only on the basis of current, ongoing conduct that threatens future harm. Inherently, such conduct cannot be so remote in time as to justify the application of the doctrine of laches. ). In addition, Plaintiffs suggest it would not disserve the public interest to permit their attack to proceed. This suggestion is supported by the fact that in seeking, and obtaining, a preliminary injunction, Plaintiffs presented evidence that consumers will face higher prices for medical care, as well as reduced access as a result of the TMB s restrictions on telemedicine. The TMB provides no rebuttal to these arguments. Accordingly, the Court concludes application of laches is not justified on the facts of this case at this point. The TMB s motion to dismiss on the basis of limitations is, therefore, properly denied. 9

122 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 10 of 22 B. State Action Immunity 4 The TMB next contends Plaintiffs antitrust claim is barred by the doctrine of state action immunity. States are generally permitted to regulate their economies in ways they see fit, including impos[ing] restrictions on occupations, confer[ring] exclusive or shared rights to dominate a market, or otherwise limit[ing] competition to achieve public objectives. N. Carolina State Bd. of Dental Examiners v. F.T.C., 135 S. Ct. 1101, 1109 (2015). Thus, in most situations federal antitrust laws are subject to supersession by state regulatory programs. F.T.C. v. Ticor Title Ins. Co., 504 U.S. 621, 632 (1992). As a result, the Supreme Court has interpreted the antitrust laws to confer immunity on anticompetitive conduct by the States when acting in their sovereign capacity. Id. at 1110 (citing Parker v. Brown, 317 U.S. 307, (1942)). However, the Supreme Court has also made clear that so-called Parker immunity is afforded only if two requirements are satisfied: first that the challenged restraint... be one clearly articulated and affirmatively expressed as state policy, and second that the policy... be actively supervised by the State. FTC v. Phoebe Putney Health Sys., Inc., 568 U.S.,, 133 S. Ct. 1003, 1010 (2013) (quoting California Retail Liquor Dealers Assn. v. Midcal Alum., Inc., 445 U.S. 97, 105 (1980)). The Supreme Court has further cautioned that given the fundamental national values of free enterprise and economic competition that are embodied in the federal antitrust laws, state-action immunity is disfavored. Phoebe Putney, 133 S. Ct. at 1010 (quoting Ticor Title, 504 U.S. at 636). 1. Burden of Proof As an initial matter, the parties disagree concerning which of them bears the burden of establishing the applicability of state action immunity. The TMB argues the doctrine is jurisdictional. The TMB thus maintains Plaintiffs bear the burden to establish the immunity does not deprive this 4 In opposing Plaintiffs application for a preliminary injunction the TMB declined to assert any immunity defenses. Accordingly this issue is addressed for the first time herein. 10

123 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 11 of 22 Court of jurisdiction. Plaintiffs contend the doctrine is an affirmative defense, therefore the TMB bears the burden to show its applicability. Clearly, the doctrine enunciated in Parker is considered one of immunity. See N. Carolina State Bd., 135 S. Ct (repeatedly referring to Parker immunity ); Acoustic Sys., Inc. v. Wenger Corp., 207 F.3d 287, 293 (5th Cir. 2000) (referring to state action doctrine as immunity from suit ). But see Surgical Care Center of Hammond, L.C. v. Hospital Serv. Dist. No. 1 of Tangipahoa Parish, 171 F.3d 231, 234 (5th Cir. 1999) (en banc) (noting Parker immunity is inapt description as it is more accurately a strict standard for locating the reach of the Sherman Act ). Merely labeling a doctrine one of immunity, however, does not necessarily render it a matter of jurisdiction. For example, qualified immunity, while conferring immunity from suit, is an affirmative defense which must be established by the defendant. See Crawford-El v. Britton, 523 U.S. 574, 586 (1998) (qualified immunity is affirmative defense and burden of pleading it rests with the defendant); Pasco ex rel. Pasco v. Knoblauch, 566 F.3d 572, 577 (5th Cir. 2009) ( As an affirmative defense, qualified immunity must be pled and proved by the defendant. ). More to the point, in application state action immunity has been treated as a defense to be proved by the purported state actor. See, e.g., Ticor Title, 504 U.S. at 625 (state action immunity was [o]ne of the principal defenses asserted); Town of Hallie v. City of Eau Claire, 471 U.S. 34, (1985) ( municipalities must demonstrate that their actions were taken pursuant to state policy to obtain immunity); Patrick v. Burget, 486 U.S. 94, 101 (1988) (concluding respondents had not succeeded in showing active supervision required to result in state action immunity); Acoustic Sys., 207 F.3d at 294 (state action immunity provides only a defense against liability ); Yeager's Fuel, Inc. v. Pa. Power & Light Co., 22 F.3d 1260, 1266 (3d Cir. 1994) ( Cases since Parker, however, clarify that state action immunity is an affirmative defense as to which [defendant] bears the burden of proof ); Nugget Hydroelectric, L.P. v. Pacific Gas & Elec. Co., 981 F.2d 429, 434 (9th Cir. 1992) (party claiming immunity must demonstrate that its conduct satisfies requirements of state action 11

124 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 12 of 22 immunity). Accordingly, the Court concludes the TMB bears the burden of showing it is entitled to the protection of state action immunity. 2. Supervision The parties agree that a showing of active state supervision is required to obtain the protection of the state action doctrine. They disagree as to whether such supervision exists over the TMB. An important backdrop to the case is the Supreme Court s most recent decision concerning state action immunity. At issue in that case was whether the North Carolina State Board of Dental Examiners ( the Board ) was entitled to the protection of the doctrine. As in this case, the Board was largely composed of market participants. The Board argued its members were invested by North Carolina with the power of the State and thus, the Board's actions were protected by state action immunity. The Supreme Court rejected that argument, and made clear that a nonsovereign actor controlled by active market participants such as the Board enjoys Parker immunity only if it was subject to active state supervision and the challenged restraint was an expression of state policy. N. Carolina State Bd., 135 S. Ct. at 1110 (emphasis added). While the Supreme Court did not need to decide whether state supervision existed because the Board made no claim that it was actively supervised, the Court did address the issue, stating: It suffices to note that the inquiry regarding active supervision is flexible and context-dependent. Active supervision need not entail day-to-day involvement in an agency's operations or micromanagement of its every decision. Rather, the question is whether the State's review mechanisms provide realistic assurance that a nonsovereign actor's anticompetitive conduct promotes state policy, rather than merely the party's individual interests. The Court has identified only a few constant requirements of active supervision: The supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it; the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy; and the mere potential for state supervision is not an adequate substitute for a decision by the State. Further, the state supervisor may not itself be an active market participant. In general, however, the adequacy of supervision otherwise will depend on all the 12

125 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 13 of 22 circumstances of a case. N. Carolina State Bd., 135 S. Ct. at (internal citations omitted). In this case, the TMB argues it is subject to active state supervision because its decisions are subject to judicial review by the courts of Texas and the State Office of Administrative Hearings ( SOAH ), as well as review by the Texas Legislature. As to the first, Texas law permits a party adversely affected by an agency rule to challenge the validity or applicability of the rule by filing a challenge in a Travis County district court. TEX. GOV T CODE ANN That review, however, is limited to inquiring whether the decision exceeded the statutory authority granted to the agency. See Harlingen Family Dentistry, P.C. v. Tex. Health & Human Servs. Comm n, 452 S.W.3d 479, (Tex. App. Austin 2014, pet. dism d) ( An agency s rules must comport with the agency s authorizing statute ); Tex. Orthopaedic Ass n v. Tex. State Bd. of Podiatric Med. Exam rs, 254 S.W.3d 714, (Tex. App. Austin 2008, pet. denied) ( when determining whether an agency s rule is valid, we must ascertain whether the rule is contrary to the relevant governing statutes, or whether the rule is in harmony with the general objectives of the statutes involved ) (citations omitted). See also Patel v. Tex. Dep't of Licensing & Regulation, 469 S.W.3d 69, 80 (Tex. 2015) (plaintiffs cannot attack the constitutionality of the statutes pursuant to Section of the APA ). The TMB maintains the review effectively permits an evaluation of whether a contested rule is consistent with state policy because state laws are the embodiment of state policy. But courts have made clear the review of the validity of a rule does not permit evaluation of the policy underlying the rule. See Office of Pub. Util. Counsel v. Pub. Util. Comm n of Tex., 104 S.W.3d 225, 234 (Tex. App. Austin 2003, no pet.) (noting court s role in assessing a rule s validity is to carry forward statutory directives, rather than weigh the wisdom of a particular policy ); Gulf Coast Coal. of Cities v. Pub. Util. Comm'n, 161 S.W.3d 706, 712 (Tex. App. Austin 2005, no pet.) ( This Court does not decide matters of policy; we are limited to evaluating whether the Commission acted 13

126 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 14 of 22 contrary to the statute ). In contrast, the Supreme Court has made clear that to qualify as active supervision the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy. N. Carolina State Bd., 135 S. Ct. at And the TMB has not pointed to any example of judicial review which rejected the validity of a rule on the ground it did not accord with state policy. In addition, the judicial review on which the TMB relies merely permits a court to determine a rule is invalid. It does not, therefore, meet the Supreme Court s mandate that the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy. Id. (emphasis added). The TMB also, in a footnote, suggests judicial review under two other sections of the Texas Government Code codifying Texas version of the Administrative Procedures Act ( APA ) is sufficient to constitute active supervision. Under those sections, an agency rule is voidable if it fails to comply with the procedural requirements of the APA, including failure to include a reasoned justification for the rule as adopted which demonstrates in a relatively clear and logical fashion that the rule is a reasonable means to a legitimate objective. TEX. GOV'T CODE ANN & But the Supreme Court has made clear that the supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it. N. Carolina State Bd., 135 S. Ct. at See Patrick, 486 U.S. at 104 (finding judicial review, if it existed, was limited to whether reasonable procedure afforded and plaintiff doctor s conduct posed threat to patient safety and thus did not satisfy active supervision). And the reasoned justification requirement, as the TMB itself points out, amounts to little more than a certification that the rule, as adopted, has been reviewed by legal counsel and found to be a valid exercise of the agency s legal authority. TEX. GOV'T CODE ANN This adds little to the review under section which the Court has found insufficient to constitute active supervision. The TMB further maintains it is subject to active supervision because the disciplinary actions it takes are subject to judicial review. Texas law grants the TMB the authority to issue a cease and 14

127 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 15 of 22 desist order prohibiting a person from engaging in an activity the TMB believes violates a rule adopted by the TMB. TEX. OCC. CODE ANN (a). If after the issuance of a cease and desist order the individual wishes to appeal the entry of the order, the individual may file a petition in state district court. 22 TEX. ADMIN. CODE (f). Further, [a] person whose license to practice medicine has been revoked or who is subject to other disciplinary action by the board may appeal to a Travis County district court. TEX. OCC. CODE ANN Both appeals are governed by section of the Texas Government Code. See Brooks v. Texas Med. Bd., 2015 WL , at *2 (Tex. App. Austin June 18, 2015, no pet.) (review of cease and desist hearing conducted by TMB); Rodriguez-Aguero v. Texas Med. Bd., 2010 WL , at *3 (Tex. App. Austin Apr. 30, 2010, no pet.) (review of order revoking license to practice). Under that provision, the court shall reverse or remand the case for further proceedings if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are: (A) in violation of a constitutional or statutory provision; (B) in excess of the agency's statutory authority; (C) made through unlawful procedure; (D) affected by other error of law; (E) not reasonably supported by substantial evidence considering the reliable and probative evidence in the record as a whole; or (F) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion. TEX. GOV T CODE ANN As with the other provisions cited above, the review available under this section is limited, and fails to confer on the reviewing court a method for looking to whether the decision of the TMB is in accord with state policy. Nor is the reviewing court permitted to modify any decision, but rather is limited to reversing or remanding the TMB s decision. See R.R. Comm n of Tex. v. Torch Operating Co., 912 S.W.2d 790, 792 (Tex. 1995) (review under section is a limited standard of review that gives significant deference to the agency and does not allow a court to substitute its judgment for that of the agency ). Significantly, the TMB does not cite to any case supporting its view that this type of review constitutes active supervision, 15

128 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 16 of 22 while Plaintiffs cite to a string of cases concluding the opposite. See, e.g., Patrick, 486 U.S. at (review limited to determining if board followed reasonable procedure and sufficient evidence existed to find terminated physician's conduct threatened patients falls short of satisfying the active supervision requirement ); Pinhas v. Summit Health, Ltd., 894 F.2d 1024, 1030 (9th Cir. 1989) (judicial review evaluating if the decision was substantively rational, lawful, not contrary to established public policy and the proceedings were fair under which court may not substitute a judgment for that of the governing board even if it disagrees with the board's decision not active supervision); Shahawy v. Harrison, 875 F.2d 1529, (11th Cir. 1989) (where courts merely review the board's decisions for procedural error and insufficient evidence state did not actively supervise board). Finally, the TMB argues the Texas Legislature exercises sufficient oversight to constitute active supervision. According to the TMB, the oversight consists of the sunset review process and a provision requiring the legislature to be notified of proposed rule changes. As to the first, under sunset review, a state agency is evaluated to determin[e] whether a public need exists for the continuation of a state agency and the legislature thereafter simply votes whether to continue the agency. TEX. GOV T CODE ANN & Plaintiffs point out the last sunset review conducted of the TMB was in The rules challenged in this lawsuit were adopted well after that review, and the next review will not be conducted until Further, the TMB itself admits that the Sunset Commission does not have the power to veto or modify any rule adopted by the TMB. As to the second, Texas law requires that every proposed state agency rule be referred by the presiding officer of each house to the appropriate standing committee for review before the rule is adopted. TEX. GOV T CODE ANN (a). The standing committee is authorized simply to send to a state agency a statement supporting or opposing adoption of a proposed rule. TEX. GOV'T CODE ANN (c). Clearly absent is any authority to veto or modify the rule. 16

129 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 17 of 22 Plaintiffs maintain, even in combination, this purported legislative review thus falls well short of the active supervision required. The TMB suggests Plaintiffs have mischaracterized the relevant inquiry. The TMB contends legislative review need only put in place a system that provides realistic assurance that state regulators overseeing a profession to which they belong will promote state policy rather than their private professional interests. But the Supreme Court has made abundantly clear that the mere presence of some state involvement or monitoring does not suffice. Patrick, 486 U.S. at 101. Rather, active supervision requires that state officials have and exercise power to review particular anticompetitive acts of private parties and disapprove those that fail to accord with state policy. Absent such a program of supervision, there is no realistic assurance that a private party's anticompetitive conduct promotes state policy, rather than merely the party's individual interests. Id. See also 324 Liquor Corp. v. Duffy, 479 U.S. 335, 345, n.7 (1987) (periodic reexamination by state legislature of proposals to alter liquor pricing system did not constitute active supervision because it failed to exert[] any significant control over terms of restraint). Accordingly, the Court finds the TMB has failed to show the active supervision required to merit dismissal on the basis of state action immunity. 3. Clear Articulation Plaintiffs also contend the TMB is not entitled to claim state action immunity because it has failed to show the challenged rules were enacted pursuant to a clearly articulated state policy. To satisfy the clear-articulation test, the anticompetitive effect in dispute should be the foreseeable result of what the State authorized. United Nat l Maint., Inc. v. San Diego Convention Ctr., Inc., 766 F.3d 1002, 1010 (9th Cir. 2014) cert. denied, 135 S. Ct. 980 (2015). The statutory authority need not explicitly permit[] the displacement of competition, rather, it is enough, if suppression of competition is the foreseeable result of what the statute authorizes. City of Columbia v. Omni 17

130 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 18 of 22 Outdoor Advert., Inc., 499 U.S. 365, (1991). As the Court has concluded the TMB has failed to show its adoption of the challenged rules is subject to active state supervision, this second requirement of state action immunity need not be addressed. C. Dormant Commerce Clause Plaintiffs maintain both New Rule 174 and New Rule violate the Commerce Clause because they discriminate against physicians who are licensed in Texas, but are physically located out of state. The negative or so-called dormant aspect of the Commerce Clause prohibits economic protectionism that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors. Dep't of Revenue of Ky. v. Davis, 553 U.S. 328, (2008). The Supreme Court has made clear [t]ime and again, that state laws violate the Commerce Clause if they mandate differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter. Granholm v. Heald, 544 U.S. 460, 472 (2005) (quoting Oregon Waste Sys., Inc. v. Dep t of Envt l Quality, 511 U.S. 93, 99 (1994)). The TMB argues Plaintiffs Commerce Clause claim fails for several reasons. First, they suggest such a claim is not cognizable under Section However, the Supreme Court rejected that argument more than twenty years ago, clearly holding a claim based on the Commerce Clause could be brought under Section Dennis v. Higgins, 498 U.S. 439, 451 (1991). See Adar v. Smith, 639 F.3d 146, 161 n.9 (5th Cir. 2011) (noting in Dennis v. Higgins, the Court held that violations of the commerce clause may be redressed by ). The TMB also suggests Plaintiffs Commerce Clause claim should be dismissed because it is contrary to their claim of an antitrust violation. The TMB points out that Plaintiffs antitrust claim rests on their ability to show the TMB was not subject to active state supervision, but their Commerce Clause claim requires a showing that the TMB is a state actor. According to the TMB, 18

131 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 19 of 22 those two arguments are irreconcilable. The Court disagrees. In pertinent part, Texas law provides that [t]he Texas Medical Board is an agency of the executive branch of state government with the power to regulate the practice of medicine. TEX. OCC. CODE ANN (a). This statement clearly indicates the TMB acts on behalf of the state. Plaintiffs correctly point out that the question of immunity from antitrust liability rests on a different determination. That is, whether the TMB is subject to active state supervision in its decisions which have an anti-competitive effect. In contrast, liability under Section 1983 requires only a showing that the TMB is a state actor. Accordingly, Plaintiffs Commerce 5 Clause claim need not be dismissed on this basis. Finally, the TMB maintains Plaintiffs cannot establish more than an indirect burden on interstate commerce which does not violate the Commerce Clause. Dickerson v. Bailey, 336 F.3d 388, 396 (5th Cir. 2003). The Fifth Circuit has explained: A statute violates the dormant Commerce Clause where it discriminates against interstate commerce either facially, by purpose, or by effect. If the statute impermissibly discriminates, then it is valid only if the state can demonstrate, under rigorous scrutiny, that it has no other means to advance a legitimate local interest. If the statute does not discriminate, then the statute is valid unless the burden imposed on interstate commerce is clearly excessive in relation to the putative local benefits. Allstate Ins. Co. v. Abbott, 495 F.3d 151, 160 (5th Cir. 2007) (internal citations omitted). As Plaintiffs point out, both New Rule 174 and New Rule require a physician to provide an in-person physical exam of a patient to create a relationship with that patient. They maintain this requirement constitutes intentional discrimination against physicians located out of Texas and cannot withstand the strict scrutiny applicable to such regulations. Plaintiffs concede the regulation is facially neutral, but contend the regulation is nonetheless subject to rigorous scrutiny because, even though it does not in explicit terms seek to regulate interstate commerce, 5 In addition, the Court notes that, even if the theories are contradictory, a litigant is permitted to offer alternative theories of liability. 19

132 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 20 of 22 it does so nonetheless by its practical effect and design. C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 394 (1994). The TMB, in turn, contends the challenged rules are not 6 discriminatory, and thus not subject to rigorous scrutiny. The TMB further maintains the rules withstand the lower level of scrutiny as Plaintiffs have not alleged facts sufficient to shown any burden imposed is clearly excessive in relation to the local benefits. According to the TMB, the new rules are not discriminatory because a Teladoc physician physically located in San Antonio advising a user in Dallas is no less inconvenienced by the requirement than a Teladoc physician in Oklahoma City. (Def. Mot. at 33). Plaintiffs respond by citing cases holding the mere fact that a regulation burdens some in-state commerce, as well as interstate commerce, does not insulate it from a Commerce Clause challenge. See C & A Carbone, 511 U.S. at 391 (ordinance requiring processing of waste to be performed within limits of town is no less discriminatory because in-state or in-town processors are also covered by the prohibition ); Dean Milk Co. v. City of Madison, 340 U.S. 349, 354 n.4 (1951) (striking down ordinance requiring all milk in city to be pasteurized within five miles of city lines, finding it was immaterial that Wisconsin milk from outside the Madison area [was] subjected to the same proscription as that moving in interstate commerce ); Six Kingdoms Enters., LLC v. City of El Paso, 2011 WL 65864, at *8 (W.D. Tex. Jan. 10, 2011) (striking down ordinance regulating sale price of puppies, finding {w]hile it is true that the low price also likely thwarts the sale of pets in El Paso from other parts of Texas, this does not change the fact that the ordinance discriminates against interstate commerce. ). Plaintiffs further argue, even if the challenged rules are not viewed as discriminatory in effect and design, the rules cannot withstand a Commerce Clause challenge under even the lesser 6 It is worth noting that the Fifth Circuit has characterized "the jurisprudence in the area of the dormant Commerce Clause [as], quite simply, a mess," based on the Supreme Court's admitted failure to "produce a readily discernable standard for distinguishing between statutes that have discriminatory effects and those that merely create incidental burdens." Churchill Downs Inc. v. Trout, 589 F. App'x 233, 235 (5th Cir. 2014) (citing Gen. Motors Corp. v. Tracy, 519 U.S. 278, 298 n.12 (1997)). 20

133 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 21 of 22 standard. In support, Plaintiffs point to their allegations that Teladoc s business model, including obtaining and retaining national clients, depends on being able to provide telehealth in Texas without the requirement of conducting an in-person physical exam before treating patients. (Am. Compl. 144). Plaintiffs have further alleged the challenged rules do not provide local benefits because the current regulatory scheme mandates that physicians abide by standards of care which dictate when an in-person physical exam is necessary. Further, they have alleged that the current standard of care permits a physician to provide on-call services to patients of other physicians without an in-person physical exam. (Id ). Finally, Plaintiffs have alleged the challenged rules are affirmatively harmful to public health because they reduce access to affordable and convenient treatment. (Id ). The Court finds Plaintiffs allegations sufficient at this early stage of the litigation. Resolution of Plaintiffs Commence Clause challenge is one of degree, requiring the Court to determine the nature of the local interest involved, and [] whether it could be promoted as well with a lesser impact on interstate activities. Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). This inquiry is inherently fact-intensive. See Colon Health Centers of Am., LLC v. Hazel, 733 F.3d 535, 546 (4th Cir. 2013) (reversing dismissal of dormant Commerce Clause claim because [t]he Pike inquiry, like the discrimination test, is fact-bound and declining to attempt to forecast what further investigation may demonstrate. ). Accordingly, the Court declines to dismiss Plaintiffs Commerce Clause claim at this time. 21

134 Case 1:15-cv RP Document 80 Filed 12/14/15 Page 22 of 22 IV. CONCLUSION Accordingly, the Court hereby DENIES Defendants Amended Motion to Dismiss (Clerk s Dkt. #64). SIGNED on December 14, ROBERT L. PITMAN UNITED STATES DISTRICT JUDGE 22