California State Bd. of Optometry v. F.T.C.

Decision Date28 August 1990
Citation910 F.2d 976
Parties, 59 USLW 2165, 1990-2 Trade Cases 69,155 CALIFORNIA STATE BOARD OF OPTOMETRY, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent, National Association of Optometrists and Opticians, Intervenor. 89-1190, 89-1191, 89-1202, 89-1293, 89-1301, 89-1307, 89-1308, 89-1314, 89-1316 and 89-1317.
CourtU.S. Court of Appeals — District of Columbia Circuit

Thomas S. Lazar (for California State Bd. of Optometry), with whom Sara Rittman (for Missouri State Bd. of Optometry), Steve Clark and Mary B. Stallcup (for Arkansas State Bd. of Optometry), Allen R. Grossman (for State of Fla. and Florida State Bd. of Optometry), Kenneth O. Eikenberry and John H. Keith (for Washington State Bd. of Optometry), Debra W. Jeppson (for State of Nev. and Nevada State Bd. of Optometry), Fred W. Stork III (for Arizona State Bd. of Optometry), and Roger L. Chaffe and Howard M. Casway (for intervenor Virginia Bd. of Optometry), were on the joint brief, for petitioner/intervenor States and/or State Boards of Optometry.

Edward A. Groobert, with whom Ellis Lyons, Bennett Boskey, D. Biard MacGuineas, and Morris Klein (for American Optometric Ass'n), and William A. Gould, Jr., Alan G. Perkins, and Mark L. Andrews (for California Optometric Ass'n), were on the joint brief, for petitioners in Nos. 89-1191 and 89-1202.

Lawrence DeMille-Wagman, Atty., Federal Trade Com'n ("FTC"), with whom Jay C. Shaffer, Acting Gen. Counsel, and Ernest J. Isenstadt, Asst. Gen. Counsel, FTC, were on the brief, for respondent.

Andrew J. Pincus, with whom Kenneth S. Geller was on the brief, for intervenor Nat. Ass'n of Optometrists and Opticians in Nos. 89-1190, 89-1191, and 89-1202.

Steven S. Honigman, Donald S. Dawson, and M. Joseph Stoutenburgh, were on the joint brief, for amici curiae American Ass'n of Retired Persons and the Opticians Ass'n of America.

Paul Farley, Asst. Atty. Gen. of New Mexico, H. Al Cole, Jr., Sr. Deputy Atty. Gen. of North Carolina, and Craig M. Eichstadt, Asst. Atty. Gen. of South Dakota, were on the joint brief, for amici curiae States of N.M., Ala., Colo., Miss., N.C., S.D., Tex., Utah and Wyo.

Fred Niemann, Jr., was on the brief, for amicus curiae Texas Optometric Ass'n, Inc.

Peter M. Sfikas and Werner Strupp, were on the joint brief, for amici curiae American Dental Ass'n and American Podiatric Medical Ass'n.

Mary C. Jacobson, Deputy Atty. Gen., Andrea M. Silkowitz, Asst. Atty. Gen., and Regina H. Nugent, Deputy Atty. Gen., were on the brief, for amici curiae New Jersey State Bd. of Optometry and the New Jersey State Bd. of Ophthalmic Dispensers and Ophthalmic Technicians and State of Or.

Thomas J. Gillooly, Senior Deputy Atty. Gen., was on the brief, for amicus curiae State of W.Va.

Kathlyn Rhodes entered an appearance, for petitioners State of Okl. and the Oklahoma Bd. of Examiners in Optometry in No. 89-1316.

Randall W. Childress entered an appearance, for amicus curiae State of N.M.

Before WALD, Chief Judge, and BUCKLEY and D.H. GINSBURG, Circuit Judges.

Opinion for the court filed by Circuit Judge BUCKLEY.

BUCKLEY, Circuit Judge:

The American Optometric Association, the California Optometric Association, and several States or state boards of optometry challenge a Federal Trade Commission rule that declares certain state laws restricting the practice of optometry to be unfair acts or practices. We find that the FTC lacked the statutory authority to promulgate the rule because Congress did not authorize the Commission to regulate the sovereign acts of the States.

I. BACKGROUND
A. Statutory Framework

As enacted in 1914, the Federal Trade Commission Act ("Act") empowered the FTC to prevent persons, partnerships, and corporations "from using unfair methods of competition in commerce." See Act, ch. 311, Sec. 5, 38 Stat. 719 (1914). In 1938, Congress amended section 5 to authorize the Commission to prevent "unfair or deceptive acts or practices" as well as unfair methods of competition. Wheeler-Lee Amendment to the FTC Act, ch. 49, Sec. 3, 52 Stat. 111 (1938). Finally, in 1975, Congress expanded the scope of section 5 to encompass acts "affecting" commerce. Magnuson-Moss Warranty--FTC Improvement Act, Sec. 202(a), 88 Stat. 2193 (1975) ("Magnuson-Moss Amendments"). Thus, the relevant language of section 5(a) now reads as follows:

(1) Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful.

(2) The Commission is empowered and directed to prevent persons, partnerships, or corporations ... from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.

15 U.S.C. Sec. 45(a) (1988).

The Magnuson-Moss Amendments also added section 18 to the Act, which grants the FTC rulemaking authority to define specific acts or practices as unfair. Section 18(a)(1) provides that

the Commission may prescribe--

(A) interpretive rules and general statements of policy with respect to unfair or deceptive acts or practices in or affecting commerce ..., and

(B) rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce.... Rules under this subparagraph may include requirements prescribed for the purpose of preventing such acts or practices.

Id. Sec. 57a(a)(1) (1988).

B. Procedural Background

These consolidated petitions seek review of the FTC's Ophthalmic Practice Rules, 54 Fed.Reg. 10,285 (1989) ("Eyeglasses II" or "rule").

Beginning in the mid-1970's, the FTC began to investigate state-imposed restrictions on the practice of optometry. These tended to discourage the "commercial practice" of optometry--such as partnerships between optometrists and laymen, use of trade names, and chain operations combining the practice of optometry with the sale of eyeglasses in shopping centers--in favor of "traditional optometric practice" typified by sole practioners operating in professional office buildings under their own names. The FTC's studies indicated that these restrictions resulted in higher prices and reduced the quality of eye care available to the public.

In 1980, the FTC published the results of its investigation and issued an Advance Notice of Proposed Rulemaking requesting comments and recommendations. 45 Fed.Reg. 79,823 (1980). The Commission formally initiated a rulemaking proceeding in 1985, 50 Fed.Reg. 598 (1985), and, on March 13, 1989, issued Eyeglasses II. 54 Fed.Reg. 10,285 (1989). Commission Chairman Daniel Oliver voted against adoption of the rule based on principles of federalism and his view that the FTC was without authority to promulgate it. Id. at 10,305.

Eyeglasses II revised Title 16, Part 456 of the Code of Federal Regulations to include a new section 456.4, "State bans on commercial practice," which begins as follows:

(a) It is an unfair act or practice for any state or local governmental entity to:

(1) Prevent or restrict optometrists from entering into associations with lay persons or corporations....

Id. at 10,305 (emphasis added). There follows an extensive list of the acts or practices the FTC found to be unfair, including state laws or regulations prohibiting laymen from employing optometrists to provide optometric services, limiting the number of offices that may be owned or operated by optometrists individually or as participants in such associations, and prohibiting them from practicing in department stores or shopping centers, or from practicing under any name other than their own. Id.

Eyeglasses II provides that the rule may be used as a defense to any state proceeding brought against an optometrist or his affiliated entity for violating those state laws or rules declared by the rule to be unfair practices. Id. (to be codified at 16 C.F.R. Sec. 456.5(b)). The rule disclaims, however, any intention to interfere with the authority of state or local governments to safeguard the health and safety of the recipients of eye care services, including their authority to require that optometric services be provided only by a person qualified to do so by such state or local law and to establish minimum quality standards for ophthalmic goods and services. Id. (to be codified at 16 C.F.R. Sec. 456.5(a)). Finally, it defines a "person" as "any individual, partnership, corporation, association or other entity. " Id. at 10,304 (to be codified at 16 C.F.R. Sec. 456.1(g)) (emphasis added).

Petitioners challenge all of these provisions. Several interested parties appear as amici curiae arguing for and against the rule.

II. DISCUSSION

Petitioners challenge Eyeglasses II on both statutory and constitutional grounds. They also attack the factual record upon which the FTC based its decision to adopt the rule. Because we agree with petitioners that the rule exceeds the FTC's statutory authority and vacate it on that basis, we do not address the alternative grounds presented.

Eyeglasses II declares that certain state-imposed restrictions on the practice of optometry are unfair acts or practices. The question of the Commission's authority to promulgate the rule presents two specific issues of statutory interpretation: whether a State acting in its sovereign capacity is a "person" within the FTC's enforcement jurisdiction under section 5(a)(2) of the Act, and whether a state law may be an unfair or deceptive act or practice within the FTC's rulemaking authority under section 18(a)(1).

In reviewing the FTC's interpretation of its organic act, we must first determine whether Congress had an intention on the question at issue using the traditional tools of statutory construction. Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 842-43 & n. 9, 104 S.Ct. 2778, 2781 & n. 9, 81 L.Ed.2d 694 (1984). These tools include the language and structure of the Act, its legislative history, and any applicable canons of...

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