We recently published an article entitled, “What to do When the State Comes Knocking.” We received a lot of questions and feedback on the regulatory process. This is a follow-up.

Boards v. Agencies. There are about 35 health-related occupations and over 100 non-health related occupations that are regulated by the State of Minnesota. Some occupations are regulated by a governing board comprised of fellow professionals, such as physicians, dentists, nurses, veterinarians, engineers, police, and lawyers. Other occupations are regulated directly by the Commissioner of a state agency, such as insurance agents, real estate agents, banks, and mortgage brokers.

Antitrust Laws and Professional Boards. Prior to 2015 a state occupational licensing board that was comprised of persons in a profession had immunity from the antitrust laws under the “government action” immunity doctrine. In North Carolina State Board of Dental Examiners v. Federal Trade Commission, 135 S. Ct. 1101 (2015), the Dentistry Board in North Carolina attempted to prohibit teeth whitening services by non-dentists. The United States Supreme Court held that a state board comprised of competitors (persons active in the market) was not immune from the antitrust law. In Minnesota several occupational boards have most of their members from the profession they regulate. These Boards are susceptible to a claim of an antitrust violation, particularly involving scope of practice issues.

Substantive Regulation v. Fence Building. Regulatory agencies sometimes adopt or enforce rules that have little to do with protection of the citizen. At one point the Board of Cosmetology required hair braiders to have a cosmetologist license. At one time, the Department of Commerce regulated the size of a real estate agent’s name as compared to the size of the real estate broker's name. It is important to remember, when confronted by an overzealous regulator, that the Minnesota Legislature has mandated that “no regulation shall be imposed upon any occupation unless required for the safety and well-being of the citizens of the state.” Minn. Stat. § 214.001.

General Grounds for Investigations. Most regulatory actions are based on general principles:

• Has the licensee created physical harm for the consumer?
• Has the licensee created economic harm for the consumer?
• Has the licensee made misleading claims about the services performed?
• Has the licensee performed unnecessary services?
• Is the licensee competent to perform the services for which she is licensed?
• Has the licensee harmed third parties, such as insurers, the government or family members?
• Is the licensee performing services that are outside the scope of practice of the licensee?
• Is the licensee current on her educational requirements?

Notice of Violations. In some cases, a government agency charged with inspecting or examining a licensee or his or her facility, including its books and records, initiates a notice of violation with the licensee. In most cases, however, the investigation is triggered by a complaint, with the gravity of the complaint dependent upon the severity or the frequency of the alleged violations. Some complaints are legitimately instituted by customers. However, many complaints are filed by competitors, and some unfortunately are made in bad faith by a competitor who wants to retaliate against or get a leg up on the competition. In some cases, competitors have even been known to manufacture evidence to make the licensee look bad. Still other complaints are filed by disgruntled employees looking to even the score with the employer. In yet other cases, an employer is trying to revoke the license of an employee to protect its own client base.

The Investigation. The investigation in most cases is confidential and not made public until completed. A state agency can make an investigation public, however, if it is in the public interest. In many occupations, the regulator can issue a “cease and desist order” to stop a practice when an investigation is not completed but where public harm is present.

The investigator generally will interview the licensee prior to issuing any recommendation to the primary regulator—be it a Board, a Commissioner, or something in between. A licensee must cooperate with the investigation and must respond to the regulator. If the licensee wants to exercise a Fifth Amendment right to be silent, the regulator can usually take action against the licensee for failing to cooperate, and there may be a presumption of wrongdoing in the regulatory case.

Informal Resolution vs. Notice of Charges. If the investigator believes there is a violation of law—be it statute or regulation—she or he will generally recommend to the primary regulator that a consent order be presented to the licensee or that a statement of charges be filed. In some cases, the regulator will then call the licensee in for a conference to review the facts and get the licensee’s version of the facts. At this point, the regulator can informally resolve the matter, enter into a formal consent order, or issue a statement of charges.

Administrative Process. The Attorney General’s Office is generally called in to review the case at this stage and to represent the agency in the matter. An Administrative Law Judge is assigned to the matter, and the licensee and the Assistant Attorney General go through a discovery process similar to that used in the civil courts. The licensee generally has the right to ask for the matter to be mediated. If the matter is not settled through the discovery process, the matter is tried before an administrative law judge. No juries participate in the process. The Administrative Law Judge then issues a set of Findings of Fact and Conclusions of Law and sends his or her recommendations to the primary regulator. The primary regulator is not required to accept the recommendation of the Administrative Law Judge, but a regulator is in great peril if it contradicts the Judge without a substantial rationale for doing so.

Conclusion. This article provides a simple overview of the myriad of steps taken in a regulatory enforcement action. The regulatory scheme for each profession varies in detail and methodology, and this article does not attempt to describe all the nuances attributable to each profession.

They can be reached at 612-315-3037. Visit their website at www.swansonhatch.com.

Lori Swanson: lswanson@swansonhatch.com
Mike Hatch: mhatch@swansonhatch.com