SmileDirectClub, LLC v. Tippins

31 F.4th 1110

SMILEDIRECTCLUB, LLC, a Tennessee limited liability company; Jeffrey Sulitzer, D.M.D., an individual and a California Professional Corporation, Plaintiffs-Appellants,

v.Joseph TIPPINS, individually; Karen M. Fischer, M.P.A., individually; Fran Burton, M.S.W., individually; Steven Morrow, DDS, MS individually; Steven Chan, DDS; Yvette Chappell Ingram, M.P.A., individually; Ross Lai, DDS; Abigail Medina, individually, in her official capacity as a Member of the Dental Board of California; Rosalinda Olague, RDA, B.A., individually, and in her official capacity as a Member of the Dental Board of California; Joanne Pacheco, RDH, M.A.O.B., individually and in her official capacity as a Member of the Dental Board of California; Thomas Stewart, DDS, individually and in his official capacity as a Member of the Dental Board of California; Bruce Whitcher, DDS, individually and in his official capacity as a Member of the Dental Board of California; James Yu, DDS, M.S., individually and in his official capacity as a Member of the Dental Board of California; Does, 1–10; Meredith Mckenzie, individually and in her official capacity as a Member of the Dental Board of California; Joseph Tippins, in his official capacity as an Investigator in the Enforcement Unit of the Dental Board of California; Karen M. Fischer, M.P.A., in her official capacity as Executive Director for the Dental Board of California; Fran Burton, M.S.W., in her official capacity as a Member of the Dental Board of California; Steven Morrow, DDS, MS, in their official capacities as Officers and or Members of the Dental Board of California; Steven Chan, DDS, in their official capacities as Officers and/or Members of the Dental Board of California; Yvette Chappell-Ingram, MPA, in their official capacities as Officers and/or Members of the Dental Board of California; Ross Lai; Lilian Larin, DDS, individually and in their official capacities as Officers and/or Members of the Dental Board of California; Huong Le, DDS, M.A, individually and M.A., and in his official capacity as a Member of the Dental Board of California, Defendants-Appellees.

No. 20-55735

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 26, 2021 San Francisco, California

Filed March 17, 2022

Amended April 21, 2022

James D. Dasso (argued), Foley & Lardner LLP, Chicago, Illinois; Byron J. McLain, Foley & Lardner LLP, Los Angeles, California; for Plaintiffs-Appellants.

Sharon L. O'Grady (argued), Deputy Attorney General; Mark R. Beckington, Supervising Deputy Attorney General; Thomas S. Patterson, Senior Assistant Attorney General; Rob Bonta, Attorney General of California; Office of the California Attorney General, San Francisco, California; for Defendants-Appellees.

Andrew N. DeLaney (argued), Daniel E. Haar, and Nickolai G. Levin, Attorneys; Makan Delrahim, Assistant Attorney General; Michael F. Murray, Acting Principal Deputy Assistant Attorney General; Daniel S. Guarnera, Counsel to the Assistant Attorney General; United States Department of Justice, Washington, D.C.; for Amicus Curiae United States of America.

Joshua Polk and Anastasia Boden, Pacific Legal Foundation, Sacramento, California, for Amicus Curiae Pacific Legal Foundation.

Before: M. Margaret McKeown and Jacqueline H. Nguyen, Circuit Judges, and Royce C. Lamberth,^* District Judge.

Order; Opinion by Judge McKeown

ORDER

The Opinion filed on March 17, 2022, is amended as follows:

On slip opinion page 10, line 15, insert a footnote after < (1943).> stating: < The Board Actors do not appeal—and we do not review—the district court's denial of state-action immunity.>.

No petitions for panel rehearing or rehearing en banc will be entertained.

AMENDED OPINION

McKEOWN, Circuit Judge:

It is easy to recall examples of consumer-oriented business models in the medical field that were once resisted by incumbents but ultimately—through litigation, regulation, and legislation—resulted in cheaper and more accessible services. Take, for example, eyeglass prescriptions. At one time, the consumer had to purchase eyeglasses from the prescribing doctor. Now doctors must provide a copy of the prescription, so consumers can get their eyeglasses at Costco, Warby Parker, or a host of online suppliers. Hearing aids represent another consumer advance. Once approved by the Food and Drug Administration, certain over-the-counter hearing aids can be purchased without seeing a healthcare professional. In the dental field, hygienists in some states can sometimes provide services without the supervision of a dentist. In each case, entrenched interests fought to preserve the status quo and to stifle the innovators' entry into the market.

In a similar vein, this appeal involves a company that developed an online service model that, according to the company, makes it cheaper, easier, and more convenient for patients to access certain orthodontic services, namely clear teeth aligners. The company alleges that incumbents in the dental and orthodontia markets have illegally conspired to shut down its disruptive business model. What distinguishes this case from most run-of-the-mill antitrust lawsuits is that it involves not only business competitors, but competitors who sit on a regulatory board that oversees the practice of dentistry.

A dentist, his professional corporation, and the teledentistry company SmileDirectClub, LLC (together, the "SmileDirect parties") are the newcomers. Members and employees of the Dental Board of California—largely made up of traditional dentists and orthodontists who have a financial motive to view the newcomers as competition— allegedly conspired to harass the SmileDirect parties with unfounded investigations and an intimidation campaign, with hopes of driving them out of the market.

We conclude that the SmileDirect parties sufficiently alleged anticompetitive concerted action to meet the pleading standards of Federal Rule of Civil Procedure 12(b)(6). We thus partially reverse the district court's dismissal of the Sherman Act claim and reject the broad proposition—offered up by the board members and the district court—that regulatory board members and employees cannot form an anticompetitive conspiracy when acting within their regulatory authority. As to certain other defendants, we affirm dismissal—not because of their regulatory authority—but because the SmileDirect parties failed to plead facts sufficient to tie them to the alleged conspiracy. We also affirm dismissal of the Equal Protection Clause and Dormant Commerce Clause claims.

BACKGROUND ¹

Instead of traditional wire-and-bracket braces, some orthodontic patients choose clear teeth aligners, which are supposedly more cosmetically appealing. SmileDirectClub, LLC ("SmileDirect") sells these clear aligners through a proprietary direct-to-consumer online platform. Their telemedicine model allows SmileDirect-affiliated dentists to treat out-of-state patients, subject to state licensure requirements.

Dr. Jeffrey Sulitzer is one such dentist. He lives in Washington State but is licensed in California and often treats California-based patients. Through his professional corporation, Sulitzer P.C., he owns the only SmileDirect-affiliated dental practice in California. Sulitzer has several brick-and-mortar "SMILESHOP stores" where technicians gather images of patients' teeth and gums. He also operates a "SmileBus" with technicians onboard who do the same sort of imaging. As a third option, patients can go online, order an impression kit from SmileDirect's website, receive the kit from a lab in Tennessee, then make the impressions at home. When the patient returns the impressions to the lab, a dentist reviews the treatment plan, the aligners are manufactured, and then SmileDirect mails the aligners to the patient.

This appeal arises out of a dispute between the SmileDirect parties and the Dental Board of California (the "Board"). By statute, the Board regulates the practice of dentistry in California. See Cal. Bus. & Prof. Code §§ 1600 – 1621. It enforces dental regulations, administers licensing exams, and issues dental licenses and permits. Id. § 1611. The Board is made up of fifteen members: "eight practicing dentists, one registered dental hygienist, one registered dental assistant, and five public members." Id. § 1601.1(a). Since many of its members compete in the market for teeth-straightening services, they allegedly view SmileDirect as a "competitive threat." The Complaint alleges that certain members of the Board, motivated by their private desires to stifle competition, mounted an aggressive, anti-competitive campaign of harassment and intimidation designed to drive the SmileDirect parties out of the market.

Complicating matters a bit, the SmileDirect parties have not sued the Board itself; the Complaint instead names sixteen individuals, plus ten unnamed "Doe" defendants, who were at some point affiliated with the Board (together, the "Board Actors"). Most are current or former board members; one (Joseph Tippins) is an investigator employed by the Board; and one (Karen M. Fischer) is the Board's Executive Director. Many of the board members maintain "traditional dental and orthodontic practices" in California. Several have shops within blocks of SMILESHOP stores. And some belong to the American Dental Association and the California Dental Association, trade associations that have allegedly "opposed [SmileDirect's] business model."

The Complaint alleges that the Board Actors "have agreed, combined and conspired to pursue an aggressive, anti-competitive campaign of harassment and intimidation against" the SmileDirect parties. It alleges that "[t]he campaign includes, among other things, coordinated statewide raids; false statements; misconduct in front of consumers; and a retaliatory accusation filed in response to [this] lawsuit." The Complaint contends that these actions violated the Sherman Antitrust Act; the Dormant Commerce Clause; the Equal Protection Clause;...