Far and away, the most important legal update of 2015 came from the United States Supreme Court. It was Seriously Big News.
The very idea is enough to give anyone pause. It means state licensing has gotten so out-of-hand that it now takes a Federal Case to check its sprawl.
That is just what happened.
The case does not affect home inspectors directly. But it affects each and every state licensing board – personally – including the Kentucky Board of Home Inspectors (KBHI).
It is overdue. Licensing, and its spider web of trip wire regulations, has run amok since the turn of the century. A huge part of the reason is the Alfred E. Neuman attitude (“What, me worry?”) of licensing board members who bet they were immune for whatever havoc they caused while they chowed down on free lunches.
Now, the Supreme Court ruled in 2015, they will be personally liable for feathering their own nests. That old shelter of immunity never again will be what it used to be. Now, maybe, a little worry would be a good idea.
Almost as pointedly, when it comes to licensing boards like the Kentucky Board of Home Inspectors, the Supreme Court also called for “active supervision by the State” where a controlling number of the Board’s votes are “active participants” in the home inspection market.
It will be a few years before some goes after Kentucky licensing board members. It took from 2006 to 2015 to get the North Carolina board members liable in the Supreme Court. But no one will need to go that far again. So, soon enough, that personal liability will be coming to local board member near you.
Already, lawyers in the Attorney General’s office, who rake in licensing fees to advise Kentucky licensing boards, are all a-twitter about the case. The KBHI was warned about it at its ___ meeting.
The case was North Carolina State Board of Dental Examiners v Federal Trade Commission.
The North Carolina case started when the state licensing board for dentists, run by dentists, tried to shut down nondentists who were “whitening teeth,” usually for a lower price than licensed dentists charged.
Licensed dentists were a majority (6/8) of the members of the dental board. Interestingly, the six dentists on the board were elected by other dentists in the state. The other two members were a dental hygienist and a “consumer.” They all served 3-year terms and no one could serve more than two consecutive terms. The licensing law had no way to remove a member of the board. That all matches up to the KBHI setup pretty closely, except the five-member majority of home inspectors on the KBHI is not elected but appointed by the Governor.
Starting in 2006, people in mall kiosks, cosmetologists, and other competing tooth whiteners got “cease and desist” letters from the dental board warning that the unlicensed practice of dentistry is a “crime.” Some expressly said that whitening teeth constituted “the practice of dentistry.” That was not enough. The dentists board also sent letter to mall operaters “stating kiosk teeth whiteners were violating the Dental Practice Act and advising that the malls consider expelling violators from their premises.” A signal example of a board that does not know its own limits.
The Federal Trade Commission (FTC) charged the dentists board with unlawful restraint of trade, in violation of antitrust laws known as the Sherman Act. It is easy for the mind to wander when labels like “Sherman Act” come up. But, blow the foam off the beer, and the whole idea of Sherman Antitrust law boils down to safeguarding America’s free markets. It assures Americans of basic rights to earn a living, compete to make money, and do business in a free marketplace that is not rigged against them. Basic stuff.
The FTC hearing found basically “a wealth of evidence that non-dentist provided teeth whitening is a safe cosmetic product.” Needing a dentist’s license to whiten teeth was bunk.
Now, really, isn’t it amazing anyone had to hold a hearing to figure that one out. Tthis should not exactly have been news. Teeth whitening stuff is on the shelves of every drugstore and grocery we’ve ever seen.
But the dentists board took the old view that they could violate the Sherman Act and stifle competition – because they had “state action immunity.”
They lost. They lost at the FTC hearing. Like many bull-headed licensing boards, they were sure they were right, mainly because their losing lawyer told them they were right.
Somehow, it rarely dawns on boards that they are not there to rubber stamp their rented lawyers. Boards almost seem not to notice that the more appeals and cases they get into, the more that lawyer’s monthly bills clean out their piggy bank. After all, it’s not their money. What, me worry?
The KBHI has been a victim of that syndrome. The KBHI’s last attorney, a dandy named Brengelman, had a track record of bleeding out board budgets with appeals that should have been humiliating. But the KBHI never even checked him out, before he started getting the Board into one lawless action after another. (In fact, the KBHI never even has requested bids for doing its legal work. One result is that the KBHI has not had the same lawyer for more than 12-24 meetings since it got thrown out of the Dept. Of Housing, Buildings, and Construction – where there are lawyers who live and breath construction full-time.)
If the board had checked, it would have found a string of Brengelman cases that crashed and burned in courts and appeals – but funneled money to his law operation in the Attorney General’s Office. Three examples of that track record paint the picture. As the AG’s lawyer for the Ky. Bd of Hearing Specialists in Hearing Instruments in 2008, he kept telling the board it was right, in appeals all the way to the Ky Court of Appeals. Which promptly upheld the circuit court’s opinion the Brengelman’s board’s disciplinary action was “arbitrary, capricious, or characterized by abuse of discretion and without support of substantial evidence on the whole record.” That was only a few years after the Court of Appeals found another licensing board where Brengelman was the AG’s lawyer, the Board of Examiners of Psychology, has issued an unlawful cease and desist order against a community health center counselor, aptly named Funk. The Circuit Court said the board’s statutes excluded counselor like Funk, and went on to say her job was not “the practice of psychology” under the licensing board law. Sound like tooth whitening? But the Brengelman argued the Board’s appeal and the Court of Appeals agreed with the Circuit Court, dmissing the board’s claims. Then Brengelman capped off in 2009 getting the Board of Physical Therapy to appeal all the way to the Kentucky Supreme Court to zap a physical therapist for using the wrong billing code. That reading of the law, the Supreme Court wrote, was “an abusrd result.”
The North Carolina Board got bull-headed enough to appeal too. They appealed the FTC decision and lost in the Fourth Circuit Court of Appeals. They appealed again. So they lost in the U.S. Supreme Court in 2015. It’s over.
Instead of having immunity, each dental board member now can be held personally liable for anticompetitve actions of the board.
In the Board’s greedy stubbornness, the U.S. Supreme Court finally reached its limit. It had enough. Every time the court checked out self-serving, anti-competitive state board cases before, it stopped short of holding the board members personally liable. There was even a 1991 Supreme Court case that decided it would not impose personal liability even where it was shown defendants were involved in “a conspiracy or corruption”! No wonder board members hung their hats on being immune.
North Carolina’s dental board did not just hang itself, with all its appeals. Beyond burning itself, it took licensing boards all over the country, including Kentucky’s, into the fire with it.
Now, immunity for licensing boards controlled by people in the business is a thing of the past. At last.
Look forward to laws changing licensing board membership. Where “active market participants” have a controlling number of members on the board licensing their competitors, membership is likely to change.
The KBHI is a prime candidate. It supposedly has a member representing the “public,” but that seat has been a no-show most of the time. Everybody else either is a licensed home inspector or gets homes inspected by them. Even if the “public” showed up, a majority of the board are actively competing home inspectors. They used to have a Code of Ethics, as the state law calls for. But when 2-3 members got nabbed breaking the code to pursue their own business interests, the KBHI just repealed it Code of Ethics – with all 3 of those members voting to repeal it! Since 2009, the KBHI has never even considered adopting a Code of Ethics.
Simultaneously, look for rev’ed up steps to make sure licensing board policies are “actively supervised by the State.”
Once licensing boards realize that being “actively supervised by the State” might actually save them from personal liability, don’t be surprised to see board members lobbying to get “actively supervised.” The KBHI recent efforts to get back into the Department of Housing, Buildings, and Construction (DHBC) might be just the ticket, whether board members get it or not.
The KBHI often goofs simply because it just does not know the rules. The times members are “coincidentally” feathering their own nests, particularly as blatantly as North Carolina greedy dentists, are less common. It will benefit considerably from active supervision by the State, particularly of the sort DHBC contributed when the KBHI started up.
That would be really Big News for 2016 – a KBHI back in DHBC, where it belongs, with the support it needs, including “active state supervision” to get it back on track.
If so, it will be the first Big News from the KBHI that actually stands for real progress.
Of course, there still will be the free lunch….