Separation of powers, US-style

We may throw up our hands in exasperation at the ongoing struggle between the Legal Services Board (LSB), Law Society and Solicitors Regulation Authority (SRA) about the split between regulation and representation – but they have the same rule in the US. As always with the US, they call it something else, and it arises within a different regulatory context.

But, if applied in the UK, their rule on separation might catch out our own dear LSB, which is itself a regulator with active market participant members.

The regulation of US lawyers is by and large undertaken by the supreme court of each state (in such a big country, with 50 states, there are variations). That is the first of their big differences from us. But the state bar in some of those states, 37 at the latest count, performs a regulatory function in respect of the rules set by the court.

The regulatory boards, however, have recently suffered the attentions of the supreme court in a case concerning North Carolina dentists and the unregulated providers of teeth-whitening services. I have written about this before.

Briefly, the US competition authority, the Federal Trade Commission (FTC), intervened, particularly because a controlling number of the board’s decision-makers were active market participants in the occupation the board regulated: dentistry. This meant that the board could invoke state-action antitrust immunity only if it was subject to active supervision by the state, which was not the case.

There has been a marked rise following this decision in legal challenges to state boards across a range of trades and professions. I have written before about the challenges which have arisen in the context of the legal profession.

But licensing by state boards, which was once limited to a few traditional professions such as doctors and lawyers, is now required for more than 800 occupations including (in some states) locksmiths, beekeepers, auctioneers, interior designers, fortune tellers, tour guides, and shampooers. The FTC has found itself inundated with enquiries about the impact of the North Carolina decision, and some months back issued instructive guidance. This shows that there are some pretty rigorous rules in place.

I will show their rigour by an example touching on the LSB, as promised. The LSB has just sent a tetchy letter to the International Bar Association (IBA) protesting at the negative mention of the LSB in the IBA’s recent report on independence of the legal profession. What, the LSB a servant of government in its deregulatory agenda? This is to impugn the integrity of its hardworking members (appointed by the lord chancellor).

Take, for instance, the FTC’s rules on a quorum. The active market participants need not form a majority of the board’s members, just a controlling number: ‘A decision that is controlled, either as a matter of law, procedure, or fact, by active participants in the regulated market (for example, through veto power, tradition, or practice) must be actively supervised to be eligible for the state action defense.’

The LSB currently has eight members, of whom three are lawyers. But the LSB’s current quorum for its meetings is three, according to its own governance manual. In principle, therefore, it is possible that a decision could be taken at ill-attended meetings by a majority of lawyers. Tsk, tsk, the FTC wouldn’t like that at all.

The only way for the LSB to escape would be to claim active state supervision. But, no, absolutely not, we have seen from the LSB’s letter to the IBA quoted above that that is the last – the very last – thing which happens. It is touching, therefore, to think that the LSB, which so often preaches separation between representation and regulation, might itself fail the US rule on the same point.

The cases arising out of the tooth-whitening case continue. One of the most important is Teladoc, Inc. et al. v Texas Medical Board et al. (No. 1:15-cv-00343 (W.D. Tex. 2015)). The background documents can be found here.

Teladoc, a national provider of telehealth services, asked for an order against the board’s new rule prohibiting doctors from using telemedicine to diagnose and treat patients without first seeing patients in‑person for an initial consultation. The board began by claiming a patient safety defence.

But the court sided with what it called the considerable evidence of anti‑competitive effects of the new regulation, including increased prices, reduced choice, reduced access, reduced innovation, and a reduced overall supply of medical services. Now the board is trying the active-state supervision defence, partly on the grounds that the practices of doctor board members, who are all specialists, have no direct competition with the Teladoc doctors, who limit their telemedicine consultations to general and family medicine services.

The next decision is now awaited. So, we are not alone.

* Author’s note, 28 September: The Legal Services Board has asked me to point out that in their interpretation of Rule 3.7.1 of their Governance Manual, they must always have a majority of lay members as part of the quorum. Article 3.7.1 states: ‘The quorum for a Meeting shall be the higher of three or one-third of the number of Board Members from time to time, comprised of both ‘non-lay’ and a majority of lay Board Members.’ I had read it differently, and still think that it is capable of a different interpretation.

Jonathan Goldsmith is a consultant and former secretary-general at the Council of Bars and Law Societies of Europe, which represents around a million European lawyers through its member bars and law societies. He blogs weekly for the Gazette on European affairs