Earles v. State Bd of CPAs

REVISED, June 9, 1998

UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 97-30159

KENNETH DON EARLES;

ALBERT R. LEGER; JOSEPH MICHAEL SLEDGE,

Plaintiffs-Appellees,

VERSUS

STATE BOARD OF CERTIFIED PUBLIC ACCOUNTANTS OF LOUISIANA;

MILDRED W. MCGAHA, CPA; L. PAUL HOOD, CPA; LEON K. POCHE, CPA;

LAWRENCE W. STOULIG, JR., CPA; DONALD L. MOORE, CPA;

W. THERON ROBERTS, CPA; MICHAEL A. THAM, CPA;

SUSAN C. COCHRAN, CPA; J. GORDON REISCHE,

Defendants-Appellants.

Appeal from the United States District Court

For the Eastern District of Louisiana

April 24, 1998

Before GARWOOD, DUHÉ, and DEMOSS, Circuit Judges.

DEMOSS, Circuit Judge:

Rules promulgated by the State Board of Certified Public

Accountants of Louisiana prohibit CPAs from accepting commissions

and engaging in the practice of so-called “incompatible

professions.” These rules apply to Louisiana’s CPAs and have been

used to prevent the three plaintiffs in this lawsuit from carrying

out their accounting practices while simultaneously selling

securities. The plaintiffs sued the Board and its individual

members, seeking to block the enforcement of these rules.

The defendants filed a motion to dismiss the lawsuit, claiming

immunity from suit (1) under the Eleventh Amendment and (2) under

the state-action exemption doctrine of federal antitrust laws. The

motion was denied, and the defendants now seek interlocutory

review. The Board is entitled to Eleventh Amendment immunity;

however, the federal claims against the Board’s individual members

may proceed under the doctrine of Ex parte Young, 209 U.S. 123

(1908). Finally, the state-action doctrine does block scrutiny of

the Board’s rules under federal antitrust laws. Accordingly, we

affirm in part, reverse in part, and remand the matter with

instructions for further proceedings in the district court.

I. Factual and Procedural Background

A. The Plaintiffs

Kenneth Don Earles, a CPA, has practiced as an accountant in

Crowley, Louisiana since 1969. Beginning in 1987, he obtained the

licenses necessary to become a securities broker and began

practicing as a broker-dealer licensed with H.D. Vest Investment

Securities, Inc. Mr. Earles earns commissions from his sales of

securities. His securities business is kept separate from his

accounting business, with separate books, records, and bank

accounts.

In October 1988, the Board of Certified Public Accountants of

Louisiana notified Mr. Earles that it considered his practice of

2

concurrently acting as a CPA and a securities broker to be a

violation of the Board’s rules pertaining to “incompatible

occupations”1 and “receipt of commissions.”2 A series of

communications ensued between the Board and Mr. Earles, culminating

in a March 1990 administrative hearing on the Board’s complaint.

In August 1990, the Board issued its decision finding Mr.

Earles in violation of the rule proscribing the practice of

incompatible occupations. Mr. Earles’s future certification and

licensure as a CPA were expressly conditioned upon cessation of his

securities business. Mr. Earles responded by filing this lawsuit

against the Board and its individual members in federal court. He

1

The incompatible occupations rule provides:

A licensee shall not concurrently engage in

the practice of public accountancy and in any other

business or occupation which impairs his

independence or objectivity in rendering

professional services, or which is conducted so as

to augment or benefit the accounting practice,

unless these rules are observed in the conduct

thereof.

LA. ADMIN. CODE tit. 46, § XIX.501(E) (Sept. 1997)

<www.state.la.us/osr/lac/lac.htm>.

2

The rule against receiving commissions provides:

A licensee shall not pay a commission to

obtain a client or accept a commission for a

referral to a client of products or services of

others. This rule does not prohibit payments for

the purchase of all, or a part, of an accounting

practice, or retirement payments to persons

formerly engaged in the practice of public

accountancy, or payments to the heirs or estates of

such persons.

LA. ADMIN. CODE tit. 46, § XIX.501(C) (Sept. 1997)

<www.state.la.us/osr/lac/lac.htm>.

3

also sought judicial review of the Board’s decision in state court.

The federal suit was stayed pending state-court review.3 In

state court, the Board’s ruling was initially overturned but later

reinstated on appeal. See Earles v. State Bd. of Certified Pub.

Accountants, 665 So. 2d 1288 (La. Ct. App. 1995), writ denied, 669

So. 2d 397 (La. 1996).

In August 1996, after Mr. Earles had exhausted his remedies in

state court, the federal suit was reactivated. Soon thereafter,

two additional plaintiffs joined the suit -- Albert R. Leger, who

had practiced as a CPA in Marksville, Louisiana since 1975, and

Joseph Michael Sledge, who had practiced as a CPA in Shreveport,

Louisiana since 1975. Like Mr. Earles, both Mr. Leger and Mr.

Sledge are licensed securities brokers affiliated with H.D. Vest.

Each also keeps his securities-related business separate from his

accounting practice. In January 1997, Mr. Leger and Mr. Sledge

were found by the Board to be guilty of violating the rules against

practicing incompatible professions and receiving commissions.

They were each fined, and their accounting licenses were revoked.

B. The Defendants

The defendants in this lawsuit are the Board of Certified

Public Accountants of Louisiana and its individual members in their

official capacities. The Board was created by the State of

3

See Earles v. State Bd. of Certified Pub. Accountants, 1992

WL 10329 (E.D. La. Jan. 16, 1992) (abstaining from further

proceedings pursuant to the doctrine of Railroad Comm’n v. Pullman

Co., 312 U.S. 496 (1941)).

4

Louisiana for the purpose of licensing public accountants and

regulating the profession of public accounting within the state.

See LA. REV. STAT. ANN. §§ 37:73, 37:75 (West 1988 & Supp. 1998).

The Board’s seven members are chosen by the governor from a slate

of candidates proposed by the Society of Louisiana Certified Public

Accountants, and they must be confirmed by the state senate. See

id. § 37:73 (West 1988).

Among the powers of the Board is the ability to “[a]dopt and

enforce all rules and regulations, bylaws, and rules of

professional conduct as the board may deem necessary and proper to

regulate the practice of public accounting in the state of

Louisiana.” Id. § 37:75(B)(2). Pursuant to this power, the Board

adopted the incompatible-occupations and receipt-of-commissions

rules which gave rise to this lawsuit.4

II. Appellate Jurisdiction

Pursuant to our precedent applying 28 U.S.C. § 1291 and the

collateral order doctrine,5 we have appellate jurisdiction to

consider an interlocutory appeal from the denial of a motion to

4

The purported justification for these rules is the

preservation of the independence of CPAs. The Supreme Court has

acknowledged that a state’s interest in “maintaining CPA

independence and ensuring against conflicts of interest” is a

substantial one. Edenfield v. Fane, 507 U.S. 761, 770 (1993).

5

See Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 (1978)

(“To come within the ‘small class’ of decisions excepted from the

final-judgment rule by Cohen [v. Beneficial Indus. Loan Corp., 337

U.S. 541 (1949)], the order must conclusively determine the

disputed question, resolve an important issue completely separate

from the merits of the action, and be effectively unreviewable on

appeal from a final judgment.”).

5

dismiss based upon immunities bestowed by the Eleventh Amendment

and the state-action antitrust exemption. See Puerto Rico Aqueduct

& Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 147 (1993)

(denial of Eleventh Amendment immunity is subject to interlocutory

review); Martin v. Memorial Hosp., 86 F.3d 1391 (5th Cir. 1996)

(denial of the state-action exemption is subject to interlocutory

review).6

III. Eleventh Amendment Immunity

The United States Constitution provides: “The Judicial power

of the United States shall not be construed to extend to any suit

in law or equity, commenced or prosecuted against one of the United

States by Citizens of another State, or by Citizens or Subjects of

any Foreign State.” U.S. CONST. amend. XI. The Eleventh Amendment

thus negates federal jurisdiction over covered suits, including

federal suits against a state brought by the citizens of that

state. See Hans v. Louisiana, 134 U.S. 1 (1890).

Of course, the Board and its members are not the state itself.

The scope of the Eleventh Amendment, however, is not limited to

suits that name a state as a defendant. See, e.g., Regents of the

Univ. of Cal. v. Doe, 117 S. Ct. 900, 903 (1997). The Eleventh

6

At oral argument, the plaintiffs conceded that Martin

controls the question of appellate jurisdiction over the state-

action element of this case. They urged our panel to overrule

Martin, but this is not an option available to us. It has been

well established in this circuit that one panel may not ignore the

holding of a previous panel absent intervening authority from the

Supreme Court, an en banc decision of our Court, or Congress. See,

e.g., Okoro v. INS, 125 F.3d 920, 925 (5th Cir. 1997).

6

Amendment bars any suit in which a state is the “real, substantial

party in interest.” Pennhurst State Sch. & Hosp. v. Halderman, 465

U.S. 89, 101 (1984); see also Ford Motor Co. v. Department of

Treasury, 323 U.S. 459, 464 (1945). We must thus decide whether

the Board and its members satisfy this standard and thereby avoid

suit.

A. The Board

The Board claims that because it is a “state agency,” LA. STAT.

REV. ANN. § 37:73(A) (West Supp. 1998), it is entitled to Eleventh

Amendment immunity. Federal law controls the Board’s eligibility

for Eleventh Amendment immunity. See Doe, 117 S. Ct. at 904 n.5.

State agencies are immunized by the Eleventh Amendment in certain

circumstances. See, e.g., Pennhurst, 465 U.S. at 100; Papasan v.

United States, 756 F.2d 1087, 1092 (5th Cir. 1985), aff’d in part,

vacated in part sub nom. Papasan v. Allain, 478 U.S. 265 (1986).

Simply being a political subdivision of a state, however, is not

enough. See Edelman v. Jordan, 415 U.S. 651, 667 n.12 (1974). We

must look to see whether the entity “in effect, stands in the shoes

of the state itself.” Hander v. San Jacinto Junior College, 519

F.2d 273, 278 (5th Cir.), modified on other grounds, 522 F.2d 204

(5th Cir. 1975); see also Mt. Healthy City Sch. Dist. Bd. of Educ.

v. Doyle, 429 U.S. 274, 280 (1977) (entity must be an “arm of the

state”); Voisin’s Oyster House, Inc. v. Guidry, 799 F.2d 183, 186

(5th Cir. 1986) (entity must be an “alter ego” of the state). Our

analysis must consider the particular nature of the entity,

7

including its powers and duties, the nuances of its organizational

structure, and its interrelationship with other organs of the

state. See, e.g., Mt. Healthy, 429 U.S. at 280; Jacintoport Corp.

v. Greater Baton Rouge Port Comm’n, 762 F.2d 435, 438 (5th Cir.

1985), cert. denied, 474 U.S. 1057 (1986); Laje v. R.E. Thomason

Gen. Hosp., 665 F.2d 724 (5th Cir. 1982); United Carolina Bank v.

Board of Regents of Stephen F. Austin State Univ., 665 F.2d 553,

557 (5th Cir. Unit A 1982).

There is no simple litmus test that determines whether a state

agency is an “arm of the state” for the purposes of Eleventh

Amendment immunity. Rather, the matter is determined by reasoned

judgment about whether the lawsuit is one which, despite the

presence of a state agency as the nominal defendant, is effectively

against the sovereign state. In determining whether a given state

agency operates as an “arm of the state,” our Court has taken many

factors into account, including: (1) whether the state, through

statutes or case law, views the entity as an arm of the state;

(2) the source of the entity’s funding; (3) whether the entity is

concerned with local or statewide problems; (4) the entity’s degree

of authority independent from the state; (5) whether the entity can

sue and be sued in its own name; and (6) whether the entity has the

right to hold and use property. See, e.g., Voisin’s Oyster House,

799 F.2d at 186-87; Clark v. Tarrant County, 798 F.2d 736, 744-45

(5th Cir. 1986); Jacintoport, 762 F.2d at 438-40; United Carolina

Bank, 665 F.2d at 557-58; Huber, Hunt & Nichols, Inc. v.

8

Architectural Stone Co., 625 F.2d 22, 24-25 (5th Cir. 1980).

Considering these factors, we conclude that a suit against the

Board is, in effect, a suit against the State of Louisiana.

1. The state’s view. -- First, we consider the Board’s place

in the overall scheme of Louisiana government. The Board is “a

state agency within the Department of Economic Development.” LA.

STAT. REV. ANN. § 37:73(A) (West Supp. 1998). The Department of

Economic Development is a department of the executive branch of the

government of Louisiana. See id. §§ 36:3, 36:4 (West 1985 & Supp.

1998). In this situation, it appears that Louisiana would regard

the Board as part of the state. We are compelled to draw this

conclusion by our disposition in Voisin’s Oyster House, Inc. v.

Guidry, 799 F.2d 183 (5th Cir. 1986). There, as here, the entity

in question was a subdivision of a department of the executive

branch. Our Court reasoned:

According to Louisiana statutes, the

Department is a part of the executive branch of the

state government, LA. REV. STAT. ANN. § 36:4 (West

1985), and the Commission is part of the

Department. LA. REV. STAT. ANN. § 36:610 (West

1985). In its statutes, Louisiana treats all

executive departments the same, LA. REV. STAT. ANN.

§ 36:4(A), and provides that “[n]o suit against the

state or a state agency or political subdivision

shall be instituted in any court other than a

Louisiana state court.” LA. REV. STAT. ANN.

§ 13:5106(A) (West Supp. 1986). See Fireman’s Fund

Insurance Co. v. Department of Transportation and

Development, 792 F.2d 1373 (5th Cir.1986) (holding

that a similar executive department had Eleventh

Amendment immunity and implying that all Louisiana

executive departments have such immunity). The

Louisiana Supreme Court has held “[i]f the office

is created by the legislature, or is established in

the first instance by the constitution, it is a

9

state office.” Mullins v. Louisiana, 387 So. 2d

1151, 1152 (La. 1980). The Department was created

by the state legislature, LA. REV. STAT. ANN.

§ 36:601, and, therefore, the Louisiana courts

would view the Department as part of the state.

Voisin’s Oyster House, 799 F.2d at 186 (alterations in original).

The circumstances encountered in Voisin’s Oyster House pertaining

to that entity’s place in Louisiana government are substantially

identical to the present case, and we therefore conclude that this

factor weighs in favor of Eleventh Amendment immunity.

2. Source of the entity’s funding. -- Next, we consider the

source of the Board’s funding. In this case, the Board is

financially independent from the state. The Board is funded solely

by fees collected from accountants. See LA. REV. STAT. ANN.

§§ 37:80, 37:82 (West 1988 & Supp. 1998); LA. ADMIN. CODE tit. 46,

§§ XIX.1911, .2101, .2501 (Sept. 1997)

<www.state.la.us/osr/lac/lac.htm>. Moreover, statutes and

regulations prohibit the Board from resorting to state coffers for

funding. See LA. REV. STAT. ANN. § 37:76 (West 1988) (“No expenses

incurred by the board shall ever be charged to or against the funds

of the state of Louisiana.”); id. § 37:75(B)(8) (“The Board may

. . . [e]mploy legal counsel to carry out the provisions of this

Chapter, provided that the fees of such counsel and the costs of

all proceedings, except criminal prosecutions, are paid by the

board from its own funds . . . .”); LA. ADMIN. CODE tit. 46,

§ XIX.903 (Sept. 1997) <www.state.la.us/osr/lac/lac.htm> (“The

compensation of board members and all other necessary expense

10

incurred by the board . . . shall be paid out of the treasury of

the board.”). Thus, the Board is financially independent, and

there is no threat that Louisiana will pay money damages to a

citizen pursuant to a judgment obtained in federal court. Our

examination of this factor weighs against a finding of Eleventh

Amendment immunity for the Board.

3. Scope of the entity’s responsibilities. -- The Board is

concerned with regulating the practice of public accounting on a

statewide, rather than local, scale. See LA. REV. STAT. ANN. § 37:75

(West 1988 & Supp. 1998). This factor favors Eleventh Amendment

immunity for the Board.

4. Independence from the state. -- The Board exercises

considerable authority independent from the state. The Board has

the power to “[a]dopt and enforce all rules and regulations,

bylaws, and rules of professional conduct as the board may deem

necessary and proper to regulate the practice of public accounting

in Louisiana, to provide for the efficient operation of the board,

and to otherwise discharge its duties and powers.” LA. REV. STAT.

ANN. § 37:75(B)(2) (West 1988). The legislature may review

proposed rule changes. See id. § 49:968 (West 1987 & Supp. 1998).

In the usual case (such as the adoption of the rules at the heart

of this lawsuit), however, the Board’s proposed rule changes simply

take effect without any legislative consideration or action

whatsoever. See id. § 49:968(H)(1) (if the legislature fails to

11

act on proposed rule changes, the rule may be adopted ninety days

after notice is published in the State Register). This factor cuts

against Eleventh Amendment immunity.

5. Capacity to sue and be sued. -- The Board has a limited

capacity to sue and be sued. See, e.g., LA. REV. STAT. ANN.

§§ 49:963-:965 (West 1987 & Supp. 1998) (authorizing judicial

review of Board actions). The Board’s power to sue and be sued is

not established as plainly as for other similarly situated state

agencies in Louisiana. See, e.g., id. § 37:1393(A) (West Supp.

1998) (State Licensing Board for Locksmiths “may sue and be sued”);

id. § 37:3273(A) (West 1988) (Louisiana State Board of Private

Security Examiners “may sue and be sued”). The Board does,

however, have some power to “sue and be sued” insofar as it has the

power to litigate as an independent party. See, e.g., State Bd. of

Certified Pub. Accountants v. Donnelly, 688 So. 2d 127 (La. Ct.

App.), writ denied, 694 So. 2d 247 (La. 1997). Ultimately, this is

not a case in which the state has granted “express authority to

‘sue and be sued, plead and be impleaded’” in the entity’s own

name, Huber, Hunt & Nichols, 625 F.2d at 25 (quoting Hopkins v.

Clemson Agric. College, 221 U.S. 636, 658 (1911)), so this factor

lends slight guidance to our Eleventh Amendment immunity inquiry.

6. Right to hold and use property. -- The parties have

presented conflicting views as to whether the Board has the right

to hold and use property. There is no express statutory grant of

12

such power to the board. But on the other hand, the powers that

are granted to the Board are so broad that they arguably encompass

the right to hold and use property. See, e.g., LA. REV. STAT. ANN.

§ 37:75(B)(9) (West 1988) (“The board may . . . [i]ncur all

necessary and proper expenses . . . .”). Because of this statutory

ambiguity, this factor again has little effect on our analysis.

In sum, when we evaluate the mixed indications given by the

various factors discussed above, we are led to the conclusion that

the Board is entitled to immunity. The question is a close one,

but ultimately we are persuaded by the legislature’s broad grant of

power to a state agency (composed of members who are appointed by

serve at the pleasure of the governor) charged with carrying out

the governmental function of regulating the practice of public

accounting on a statewide basis. We therefore conclude that the

Board is entitled to Eleventh Amendment immunity.

B. Individual Members of the Board

Though the Board itself is eligible for Eleventh Amendment

immunity, it does not follow that the members of the Board may

claim immunity for their official actions. The doctrine of Ex

parte Young, 209 U.S. 123 (1908), precludes the individual Board

members’ claims of Eleventh Amendment immunity.

The rule of Ex parte Young has been traditionally viewed as

establishing that a “federal court is not barred by the Eleventh

Amendment from enjoining state officers from acting

unconstitutionally, either because their action is alleged to

13

violate the Constitution directly or because it is contrary to a

federal statute or regulation that is the supreme law of the land.”

17 CHARLES ALAN WRIGHT, ET . AL, FEDERAL PRACTICE AND PROCEDURE, § 4232 (2d

ed. 1988). Since the filing of the briefs in this case, the

Supreme Court has handed down its decision in Idaho v. Coeur

d’Alene Tribe, 117 S. Ct. 2028 (1997). That decision, despite its

disclaimer of intent to “question the continuing validity of the Ex

parte Young doctrine,” Coeur d’Alene, 117 S. Ct. at 2034, casts

some doubt upon previous conventional wisdom in this area.

The Fifth Circuit has not yet had the opportunity to consider

the effect of Coeur d’Alene, though several other circuits have.

See Doe v. Lawrence Livermore Nat’l Lab., 131 F.3d 836, 839 (9th

Cir. 1997); Marie O. v. Edgar, 131 F.3d 610, 616 n.10, 617 n.13

(7th Cir. 1997); Strahan v. Coxe, 127 F.3d 155, 166-67 (1st Cir.

1997), petition for cert. filed, 66 U.S.L.W. 3605 (U.S. Mar 6,

1998) (No. 97-1485); Sofamor Danek Group, Inc. v. Brown, 124 F.3d

1179, 1183-85 (9th Cir. 1997); Mille Lacs Band of Chippewa Indians

v. State of Minn., 124 F.3d 904, 913-14 (8th Cir. 1997), petition

for cert. filed, 66 U.S.L.W. 3559 (U.S. Feb. 17, 1998) (No. 97-

1337). We concur with the consensus among other courts that

although the principal opinion in Coeur d’Alene suggests a case-by-

case (rather than rule-based) approach to the application of Ex

parte Young, see Coeur d’Alene, 117 S. Ct. at 2038-40 (opinion of

Kennedy, J.), this part of the opinion did not muster a majority,

and a majority of the Court would continue to apply the rule of Ex

parte Young as it has been traditionally understood, see id at 2047

14

(O’Connor, J., concurring in part and concurring in the judgment

(joined by Scalia and Thomas, JJ.)); id. at 2048 (Souter, J.,

dissenting (joined by Stevens, Ginsburg, and Breyer, JJ.)).

The rule of Ex parte Young empowers the federal courts to

grant the prospective injunctive relief sought by the plaintiffs if

the rules challenged in this case do indeed violate federal law.

The plaintiffs’ state-law claims, however, are not cognizable in a

proceeding under Ex parte Young because state officials continue

to be immunized from suit in federal court on alleged violations of

state law brought under the federal courts’ supplemental

jurisdiction. See Pennhurst, 465 U.S. at 103-21; see also Papasan

v. Allain, 478 U.S. 265, 277 (1986); Oneida County v. Oneida Indian

Nation, 470 U.S. 226, 251 (1985); Hays County Guardian v. Supple,

969 F.2d 111, 125 (5th Cir. 1992), cert. denied, 506 U.S. 1087

(1993). The Ex parte Young doctrine promotes federal sovereignty,

but is limited by the constitutional immunity granted to the states

by the Eleventh Amendment. See Pennhurst, 465 U.S. at 105-06. It

therefore does not serve to subject state officials to suit in

federal court over alleged violations of state law, as that result

does not advance the concerns of Ex parte Young and also “conflicts

directly with the principles of federalism that underlie the

Eleventh Amendment.” Id. at 106. The availability of the

supplemental jurisdiction statute does not change this result

because that rule arises merely from “a judge-made doctrine of

expediency and efficiency derived from the general Art. III

language conferring power to hear all ‘cases’ arising under federal

15

law or between diverse parties.” Id. at 120 (citing United Mine

Workers v. Gibbs, 383 U.S. 715, 725 (1966)).

Thus, the plaintiffs’ suit may proceed against the individual

members of the Board under the doctrine of Ex parte Young, but the

limitations of the doctrine require that the plaintiffs’ state-law

claims be dismissed upon remand.

IV. State Action Exemption

We now turn to the defendants’ state-action defense. The

state-action exemption from federal antitrust liability was first

recognized in the case of Parker v. Brown, 317 U.S. 341 (1943).

State action is properly treated as an immunity from suit,7 and

therefore our review of the district court’s pretrial rejection of

a state-action exemption is appropriate.8 We begin, as do all of

7

See Martin, 86 F.3d at 1395-96; 3 JULIAN O. VON KALINOWSKI ET

AL., ANTITRUST LAWS AND TRADE REGULATION § 47.01[2] (1997).

8

See, e.g., Hoover v. Ronwin, 466 U.S. 558, 565-67 (1984)

(reversing the lower court’s determination that state-action

immunity should not be decided on a Rule 12(b)(6) motion to

dismiss).

16

the Supreme Court’s opinions on state action,9 with a look back to

Parker’s first principles.

In Parker, the Court considered the legal effect of the

California Agricultural Prorate Act. The California statute

permitted regulations -- or as they were called, a “marketing

program” -- designed to protect the raisin industry. One effect of

this program was that the freedom of raisin producers to sell their

crops in interstate commerce was seriously restricted. See Parker,

317 U.S. at 344-49. The program was challenged under the Sherman

Act. The Supreme Court decided that Congress, in enacting federal

antitrust legislation, had not intended to preempt economic

regulation by the states. The central holding of Parker was that

the Sherman Act does not “restrain a state or its officers or

agents from activities directed by its legislature.” Id. at 350-

51. The Court expressly rested its analysis on federalism

principles:

In a dual system of government in which, under the

Constitution, the states are sovereign, save only

as Congress may constitutionally subtract from

their authority, an unexpressed purpose to nullify

9

See FTC v. Ticor Title Ins., 504 U.S. 621, 632-33 (1992);

City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 370

(1991); Patrick v. Burget, 486 U.S. 94, 99 (1988); 324 Liquor Corp.

v. Duffy, 479 U.S. 335, 344 (1987); Southern Motor Carriers Rate

Conference, Inc. v. United States, 471 U.S. 48, 55-57 (1985); Town

of Hallie v. City of Eau Claire, 471 U.S. 34, 38 (1985); Hoover,

466 U.S. at 567-68; Community Communications Co. v. City of

Boulder, 455 U.S. 40, 48-49 (1982); California Retail Liquor

Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 103-04 (1980);

City of Lafayette v. Louisiana Power & Light Co., 435 U.S. at 389,

408-09 (1978); Bates v. State Bar, 433 U.S. 350, 359 (1977); Cantor

v. Detroit Edison Co., 428 U.S. at 579, 585-91 (1976); Goldfarb v.

Virginia State Bar, 421 U.S. 773, 788 (1975).

17

a state’s control over its officers and agents is

not lightly to be attributed to Congress.

Id. at 551.

The Parker state-action doctrine has been construed to exempt

both state agencies and private individuals from liability for

activities that might otherwise violate federal antitrust law.

See, e.g., Southern Motor Carriers Rate Conference, Inc. v. United

States, 471 U.S. 48, 56-57 (1985). When the Parker exemption is

invoked by a defendant other than the state, however, the allegedly

anticompetitive activity is subjected to greater scrutiny before

state-action immunity will be granted. See Hoover v. Ronwin, 466

U.S. 558, 569 (1984). In most cases, two criteria must generally

be satisfied: (1) the alleged anticompetitive conduct must have

been taken pursuant to a clearly articulated and affirmatively

expressed state policy to displace competition with state

regulation; and, (2) the state must actively supervise the

implementation of its policy. See California Retail Liquor Dealers

Ass’n v. Midcal Aluminum, 445 U.S. 97 (1980); DFW Metro Line Servs.

v. Southwestern Bell Tel., Corp., 988 F.2d 601, 605 (5th Cir.),

cert. denied, 510 U.S. 864 (1993); PHILLIP E. AREEDA & HERBERT HOVENKAMP,

ANTITRUST LAW ¶ 212.1a (Supp. 1997). This two-pronged review is

commonly known as the Midcal test.

Some defendants are not subject to both prongs of Midcal

review. In Town of Hallie v. City of Eau Claire, 471 U.S. 34

(1985), the Supreme Court exempted municipalities from the active-

supervision prong of the Midcal test. See Town of Hallie, 471 U.S.

18

at 46-47. The Court distinguished municipalities from other

defendants subjected to the Midcal test:

Where a private party is engaging in the

anticompetitive activity, there is a real danger

that he is acting to further his own interests,

rather than the governmental interests of the

State. Where the actor is a municipality, there is

little or no danger that it is involved in a

private price-fixing arrangement. The only real

danger is that it will seek to further purely

parochial public interests at the expense of more

overriding state goals. This danger is minimal,

however, because of the requirement that the

municipality act pursuant to a clearly articulated

state policy. Once it is clear that state

authorization exists, there is no need to require

the State to supervise actively the municipality’s

execution of what is a properly delegated function.

Id. at 47. Fortunately for the defendants,10 the Board is

functionally similar to a municipality and is also exempted from

the active-supervision prong. Despite the fact that the Board is

composed entirely of CPAs who compete in the profession they

regulate, the public nature of the Board’s actions means that there

is little danger of a cozy arrangement to restrict competition. So

long as the Board is acting within its authority and pursuant to a

clearly established state policy, there is no need for active

supervision of the exercise of properly delegated authority. This

10

Exemption from the “active supervision” requirement is

fortunate from the Board’s perspective because its rulemaking

process was not actively supervised. Despite the legislature’s

reservation of power to review the Board’s proposals for new rules,

rule changes can take effect without any active oversight by the

legislature. LA. REV. STAT. ANN. § 49:968 (West 1987 & Supp. 1998).

That is in fact what happened regarding the rules challenged in

this case, and the situation is indistinguishable from the

“negative option system” which was determined by the Supreme Court

not to constitute active state supervision. See Ticor, 504 U.S. at

629, 638-40.

19

conclusion comports with our prior precedent and that of other

courts of appeals. See Benton, Benton & Benton v. Louisiana Pub.

Facilities Auth., 897 F.2d 198, 203 (5th Cir. 1990) (determining

the defendant to be a state agency and “as such” not subject to the

active state supervision prong of Midcal), cert. denied, 499 U.S.

975 (1991); see also Porter Testing Lab. v. Board of Regents for

Okla. Agric. & Mechanical Colleges, 993 F.2d 768, 772 (10th Cir.)

(where the antitrust defendants included “a constitutionally

created state board, its executive secretary, and a state created

and funded university . . . a showing of active supervision is

unnecessary to qualify for state action antitrust immunity”), cert.

denied, 510 U.S. 932 (1993); Cine 42nd Street Theater Corp. v.

Nederlander Org., Inc., 790 F.2d 1032, 1047 (2d Cir. 1986) (where

the defendant was a statutorily created political subdivision of

the state, defendant’s “interests must be defined as public rather

than private, and consequently, the active state supervision

requirement is unnecessary”); see also AREEDA & HOVENKAMP, supra,

¶ 212.7a (“Dispensing with any supervision requirement for

municipalities implies, a fortiori, the same for departments and

agencies of the state itself.”). Moreover, this development was

expressly anticipated by the Supreme Court’s Town of Hallie

decision. See Town of Hallie, 471 U.S. at 46 n.10 (“In cases in

which the actor is a state agency, it is likely that active state

supervision would also not be required, although we do not here

decide that issue.”).

20

The individual Board members take advantage of the Board’s

privileged status for the purposes of the Midcal test. The

individuals’ actions in adopting and enforcing the rules involved

in this case were performed in their official capacities as members

of the Board. They were, in effect, agents of the Board for the

purposes of state-action immunity. See Crosby v. Hospital Auth.,

93 F.3d 1515, 1529-30 (11th Cir. 1996), cert. denied, 117 S. Ct.

1246 (1997).

Thus, in order to take advantage of the state-action

exemption, the defendants must simply demonstrate that they acted

“pursuant to state policy to displace competition with regulation

or monopoly public service” that was “clearly articulated and

affirmatively expressed.” Community Communications Co., Inc. v.

City of Boulder, 455 U.S. 40, 51 (1982). The Supreme Court has

further elaborated on this requirement, noting: “We have rejected

the contention that this requirement can be met only if the

delegating statute explicitly permits the displacement of

competition. It is enough . . . if suppression of competition is

the ‘foreseeable result’ of what the statute authorizes.” City of

Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 372-73

(1991).11

11

To the extent that United States v. Texas State Bd. of Pub.

Accountancy, 592 F.2d 919 (5th Cir. 1979), aff’g 464 F. Supp. 400

(W.D. Tex. 1978), cert. denied, 444 U.S. 925 (1979), suggests that

the state-action exemption may be denied because the state statute

authorizing the challenged conduct was cast in permissive language

rather than mandatory language, the opinion has been overruled by

numerous subsequent Supreme Court cases disavowing that reasoning.

See, e.g., Southern Motor Carriers, 471 U.S. at 59-60.

21

The evidence of the Louisiana policy supporting the rules

against the practice of incompatible professions and the acceptance

of commissions consists of the following statutory language:

The board shall:

* * *

(3) Take appropriate administrative action to

regulate the practice of public accounting in the

state of Louisiana in the interest of and to

preserve and protect the public health, safety and

welfare;

* * *

LA. REV. STAT. ANN. § 37:75(A) (West 1988).

The board may:

* * *

(2) Adopt and enforce all rules and

regulations, bylaws, and rules of professional

conduct as the board may deem necessary and proper

to regulate the practice of public accounting in

the state of Louisiana, to provide for the

efficient operation of the board, and otherwise to

discharge its duties and powers under this Chapter;

* * *

(5) Authorize any member of the Board to make

any affidavit necessary to the issuance of any

injunction or other legal process authorized under

this Chapter or under the rules and regulations of

the board;

(6) Employ inspectors, special agents, and

investigators;

* * *

(8) Employ legal counsel to carry out the

provisions of this Chapter, provided that the fees

of such counsel and the costs of all proceedings,

except criminal prosecutions, are paid by the board

from its own funds;

* * *

22

(10) Issue subpoenas under its seal to require

attendance and testimony and the production of

documents and things for the purpose of enforcing

the laws relative to the practice of public

accounting and securing evidence of violations

thereof;

* * *

(12) Adopt and enforce rules and regulations

providing for the board’s regular, periodic review

of the form of audit, review, and compilation

reports issued by individuals and firms registered

with the board for compliance with applicable,

generally accepted standards. * * *

* * *

Id. § 37:75(B) (West 1988 & Supp. 1998). These statutes grant the

Board broad power to regulate the profession of accounting. We

must determine whether the rules challenged by the plaintiffs are

a “foreseeable result” of the state’s enabling legislation and

therefore promote the state’s public policy for the purposes of the

state-action doctrine.

The plaintiffs contend that “clear articulation” is not

present on these facts. They argue that the state-action doctrine

is to be applied narrowly, and the Board members’ actions simply do

not merit the exemption. Particularly, the plaintiffs object that

(1) any “policy” evidenced by the above-quoted statutory language

is not “clearly articulated” and (2) the rules enacted by the Board

are not the “foreseeable result” of the statues enacted by the

state. The plaintiffs assert that their view is supported by

Supreme Court precedent which holds that merely neutral statutory

language is inadequate to meet the standards of clear articulation

and affirmative expression. See, e.g., Community Communications,

23

455 U.S. at 55-56 (“[T]he requirement of ‘clear articulation and

affirmative expression’ is not satisfied when the State’s position

is one of mere neutrality respecting the municipal actions

challenged as anticompetitive.”).

That argument cannot be accepted. With respect to a regulated

entity such as the Board, the Supreme Court has dictated a standard

that accords appropriate deference to state sovereignty: “As long

as the State clearly articulates its intent to adopt a permissive

policy, the first prong of the Midcal test is satisfied.” Southern

Motor Carriers, 471 U.S. at 60. Thus, we cannot deny the state-

action exemption based merely upon the failure of the Louisiana

legislature to expressly state an intention to displace competition

in the accounting profession by restricting the practice of

“incompatible professions” and the acceptance of commissions. As

the Supreme Court has noted in a analogous context, such an

approach would take an “unrealistic view of how legislatures work

and of how statutes are written.” Town of Hallie, 471 U.S. at 43;

see also AREEDA & HOVENKAMP, supra, ¶ 212.3a (“Unfortunately, state

statutes seldom speak with clarity on [the elements of the ‘clear

articulation’ requirement], for the federal antitrust consequences

of state legislation -- especially of state delegations to

subordinate units -- was hardly significant in the legislators’

minds.”).

Objectively, the Louisiana legislature “intended” that the

Board, through its members, exercise any power which the

legislature authorized. Here, the Board was authorized to “[a]dopt

24

and enforce all rules and regulations, bylaws, and rules of

professional conduct as the board may deem necessary and proper to

regulate the practice of public accounting in the state of

Louisiana.” LA. REV. STAT. ANN. § 37:75(B)(2) (West 1988). This is

a broad grant of authority which includes the power to adopt rules

that may have anticompetitive effects.12 It is thus the

“foreseeable result” of enacting such a statute that the Board may

actually promulgate a rule that has anticompetitive effects.

Whether or not the rules challenged by the plaintiffs would

violate the Sherman Act in the absence of a state-action exemption,

it is plain that Louisiana has established a permissive policy with

respect to the Board’s regulation of CPAs. In doing so the state

rejected pure competition among public accountants in favor of

establishing a regulatory regime that inevitably has

anticompetitive effects.

Our analysis is faithful to the principles of federalism that

gird the state-action doctrine. As the Supreme Court has noted:

If more detail than a clear intent to displace

competition were required of the legislature,

States would find it difficult to implement through

regulatory agencies their anticompetitive policies.

Agencies are created because they are able to deal

with problems unforeseeable to, or outside the

competence of, the legislature. Requiring express

12

For example, the Board uses its state-granted monopoly power

over the practice of public accounting to determine who may compete

in the profession. See LA. REV. STAT. ANN. § 75(A) (West 1988) (the

Board shall administer the licensing of CPAs); id. § 77(B) (West

Supp. 1998) (CPA license required to practice public accounting in

Louisiana); LA. ADMIN. CODE tit. 46, §§ XIX.1101-.2701 (Sept. 1997)

<www.state.la.us/osr/lac/lac.htm> (regulations pertaining to

examination, certification, and licensing). This has the effect of

artificially limiting supply and therefore raising prices.

25

authorization for every action that an agency might

find necessary to effectuate state policy would

diminish, if not destroy, its usefulness.

Southern Motor Carriers, 471 U.S. at 64. We thus conclude that the

“clear articulation” requirement is satisfied by the Louisiana

statutes which bless the Board with broad rulemaking authority over

the profession of public accounting within the state. The members

of the Board are therefore entitled to state-action immunity from

federal antitrust laws.

V. Conclusion

For the aforementioned reasons, the judgment of the district

court denying defendants’ motion to dismiss based on the Eleventh

Amendment is reversed to the extent that it denies immunity to the

Board itself and to individual Board members on claims grounded in

state law. In all other respects, the ruling is affirmed. The

denial of the motion to dismiss based on the state-action doctrine

is also reversed. We remand the case for further proceedings. On

remand, the district court shall dismiss all claims against the

State Board of Certified Public Accountants of Louisiana and all

federal antitrust and state-law claims against its Board members.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH

INSTRUCTIONS.

26