[Sasha Volokh] Can a state immunize its agencies from federal antitrust law through judicial review?

On Friday, I wrote about an amicus brief, for me and 54 other antitrust and competition policy scholars, that I wrote in Teladoc v. Texas Medical Board, a Fifth Circuit case involving the antitrust state-action immunity doctrine.

For a summary of the argument, see that post, but here’s an even shorter background: the Texas Medical Board wants to regulate telehealth providers; one such provider, Teladoc, sued the Board under federal antitrust law, arguing that the rule the Board promulgated was anticompetitive; and the Board claimed that it was immune from federal antitrust law as a state agency. Agencies composed of market participants need to be actively supervised by the state if they want to get immunity; so the question here is whether state-court administrative-law judicial review counts as “active supervision” within the meaning of the doctrine.

On Monday, I reproduced the first part of the brief, on “The Problem of Occupational Boards Dominated by Market Participants”. Today, I’ll reproduce Part II of the brief, on why “Texas Administrative-Law Judicial Review Is Not Active Supervision”.

The Board relies on a single feature of Texas law that, in its view, constitutes active supervision: state-court administrative-law judicial review. See Appellants’ Br. at 36, 45 (calling such review “sufficient”). (Nonetheless, the Board spends many pages discussing other aspects of Texas law that it concedes are not active supervision; the (ir)relevance of that discussion is discussed in Part III, infra.)

But judicial review in Texas courts does not qualify as active supervision under Midcal. If judicial review is to be active supervision, it must at least address the merits of the specific anticompetitive decision; it must be de novo; and it must occur before the imposition of the market restraint without the need for costly litigation. See N.C. Dental, 135 S. Ct. at 1116; Elhauge, supra, at 716–17.

As this Part shows, Texas judicial review fails this test, for the following two reasons.

First, it occurs only if someone incurs the substantial cost of state-court litigation. This cost means that state judicial review might never occur—in which case there is no reason to think that disinterested officials have actually approved the Board’s specific decision. Moreover, such review is not guaranteed to occur before antitrust harm is suffered. This makes state judicial review the “‘mere potential for state supervision,’” which the N.C. Dental Court explicitly held inadequate. 135 S. Ct. at 1116 (quoting Ticor, 504 U.S. at 638).

But there is a second reason, which goes to the heart of administrative law: Judicial review, even the “substantive” kind, merely checks for adequate reasoning and consistency with the enabling statute sufficient to show that the rule is within the Board’s authority, and defers to the Board’s reasonable interpretations where there is ambiguity. But this is not the same as review of decisions “to ensure they accord with state policy,” which the N.C. Dental Court wrote was necessary. Id. Judicial review must at least be de novo to count as adequate supervision.

A. State Judicial Review Cannot Confer Antitrust Immunity if It Requires Costly Litigation or if It Is Post-Injury

First, state-court judicial review cannot confer antitrust immunity if it occurs only after costly litigation. State courts will not review a rule that no one challenges. But affected firms cannot always be expected to challenge Board rules. An aggrieved firm may decide that the expense of litigation is just too great. Sometimes, an agency rule may be a disguised form of cartel enforcement—for instance, benefiting all incumbent firms by setting a mandatory price. In such a case, the affected firms have no interest in challenging the rule. The cost of the rule falls on consumers, who (if they even have standing) usually cannot be counted on to challenge the rule: Each individual’s harm may be too small to justify the expense of litigation, and one cannot rely on the possibility of damages class actions. See Elhauge, supra, at 716 (“[T]he effort and time necessary to invoke state review can discourage and delay vindication of the right to a competitive market.”).

That “the ‘mere pot