National Ass'n of Optometrists & Optic. v. Lockyer, CIV. S-02-1464 LKK/DAD.

Decision Date06 December 2006
Docket NumberNo. CIV. S-02-1464 LKK/DAD.,CIV. S-02-1464 LKK/DAD.
Citation463 F.Supp.2d 1116
CourtU.S. District Court — Eastern District of California
PartiesNATIONAL ASSOCIATION OF OPTOMETRISTS & OPTICIANS; Lenscrafters, Inc; and Eye Care Centers of America, Inc., Plaintiffs, v. Bill LOCKYER, in his official capacity as Attorney General of the State of California; and Charlene Zettel, in her official capacity as Director of the Department of Consumer Affairs, Defendants.

Lori A. Schechter, Morrison & Foerster LLP, San Francisco, CA, for Plaintiffs.

Jennifer Week, Attorney General of the State of California, San Diego, CA, for Defendants.

ORDER

KARLTON, Senior District Judge.

Plaintiffs challenge the constitutionality of California's statutory scheme regulating the manner in which interstate optical companies sell eyewear in California. Plaintiffs are the National Association of Optometrists and Opticians ("NAOO") and two out-of-state optical companies, LensCrafters, Inc. and Eye Care Centers of America, Inc. ("ECCA"). Both LensCrafters and ECCA own numerous optical stores throughout the United States. Defendants are the Attorney General of California and the Director of the California Department of Consumer Affairs, both sued in their official capacities.1 Plaintiffs seek a declaration that the challenged statutory and regulatory provisions violate the Commerce Clause, Equal Protection Clause, Due Process Clause and First Amendment of the United States Constitution, and seek to enjoin enforcement of the provisions on that basis.

Currently pending before the court are motions for summary judgment fad by plaintiffs and defendants. These motions address the question of whether the challenged statutory scheme violates the dormant Commerce Clause. These motions were originally filed in 2003; however, on March 10, 2004, the entire case was stayed pending resolution of People v. Cole, 38 Cal.4th 964, 44 Cal.Rptr.3d 261, 135 P.3d 659 (2006).2 On June 12, 2006, the Calidfornia Supreme Court decided Cole and the stay in the pending case was lifted. Oral argument was heard on the pending motions prior to the stay and again on September 25, 2006. The court decides the matter based on the papers and after oral argument.3

I. UNDISPUTED FACTUAL AND PROCEDURAL BACKGROUND4
A. The Challenged Laws

Plaintiffs challenge three sections of California's Business & Professions Code, §§ 655, 2556 and 3130, and two companion regulations, 16 Cal.Code of Begs, Title 16 §§ 1399.251 and 1514, to the extent these provisions taken together prohibit out-of-state optical companies from offering prescription eyewear at the same location in which eye examinations are provided, and from advertising that eyewear and eye examinations are available in the same location.

Section 655 prohibits an out-of-state optical company from leasing space in its eyewear store to an optometrist.5 Section 2556 prohibits an out-of-state optical company from furnishing the services of an optometrist on or near its optical dispensing premises. Section 2556 also prohibits non-optometrists from advertising the services of an optometrist.

B. Plaintiffs' Allegations

Plaintiffs allege that optometrists and optical companies compete vigorously to sell eyewear in a national market. They claim that the ability to sell eyewear at the same location in which eye examinations are performed provides a significant competitive advantage. According to plaintiffs', consumers benefit from and prefer the provision of such "one-stop shopping" and patronize entities that can offer it.

Under California's statutory and regulatory scheme, in-state optometrists and ophthalmologists are permitted to sell eyewear in the same location in which eye examinations are performed, and to advertise that eyewear is sold in that manner. Plaintiffs allege that out-of-state optical companies are forbidden from competing for the same customers in the same way. Plaintiffs also allege that California's restrictive scheme harms the welfare and health of consumers, unjustly burdens plaintiffs, and provides no discernible countervailing benefits to the public.

C. The Retail Eyewear Market

"Prescription eyewear" refers to corrective lenses and frames for eyeglasses, manufactured according to a lens prescription issued by either an optometrist or an ophthalmologist. Decl. of Roger Noll in Supp. of Pls.' Mot. for Summ. J. re: Discriminatory Effect ("Noll Decl.") at ¶ 11. In California, an eye examination must be performed by an optometrist, licensed by the California Board of Optometry, see Cal. Bus. & Prof. Code §§ 3010, 3041.2, 3055, or by an ophthalmologist, a medical doctor specializing in treating eye disease, licensed by the Medical Board of California, see Cal. Bus. & Prof.Code §§ 2003, 2050. An optometrist or ophthalmologist will write a lens prescription, which is then used to manufacture lenses for frames (and/or contact lenses). Noll Decl. at ¶ 12.

A consumer may purchase eyewear from among the following professionals:

1. Dispensing Optometrists/Registered Dispensing Optometrists

Many optometrists licenced in California sell eyewear as part of their services. Noll Decl. at ¶ 14. They offer "one-stop shopping" in that a patient can get his or her eyes examined and purchase glasses in the same location.

Defendants' expert, Lawrence Thal, O.D., former President of the California Optometric Association and former President of the California Board of Optometry, estimates that over 90 percent of optometrists in private practice sell eyewear. Dep. of Lawrence Thal Vol. I ("Thal Dep. I") at 116:25-118:9, 129:13-15, Ex. 6 of Decl. of Lori Schechter in Supp. of Mot. Pls.' for Summ. J. re: Discriminatory Effect ("Schechter Decl. re: Discriminatory Effect"); Dep. of Lawrence Thal Vol. II ("Thal Dep. II") at 394:23-395:6, Ex. 7 of Schechter Decl. re: Discriminatory Effect. Such optometrists are referred to as "dispensing" optometrists, or registered dispensing optometrists ("RDOs").

In 2001, dispensing optometrists accounted for approximately 31 percent of optical retail sales nationwide. Noll Decl. at ¶ 14. Plaintiffs expert, Gary Ford, however, explains that in California, this percentage is likely much larger, as a recent California survey showed that 60 percent of consumers last purchased their eyewear from a dispensing optometrist. Decl. of Gary T. Ford in Supp. of Pls.' Mot. for Summ. J. re: Discriminatory Effect ("Ford Decl.") at ¶ 9.

Plaintiffs maintain that dispensing optometrists derive a significant portion of their income from the sale of eyewear. It is estimated that the percentage of gross income for dispensing optometrists derived from the sale of eyewear exceeds 50 percent. The percentage of net income is estimated at approximately 25 percent. Noll Decl. at ¶ 14; Dep. of Neil Gailmard ("Gailmard. Dep.") at 68:17-69:23, Ex. 8 of Schechter Decl. re: Discriminatory Effect.

2. Interstate Optical Companies

Interstate optical chains, such as LensCrafters and ECCA, are the main competitors of dispensing optometrists in the sale of prescription eyewear. As plaintiffs point out, in 2001, interstate optical chains accounted for approximately 40 percent of optical retail sales nationwide. Noll Decl. at ¶ 16. A recent survey showed that in California, 26 percent of consumers made their last purchase of prescription eyewear Prom an interstate retail chain. Id. at ¶ 16; Ford Decl. at ¶ 10. Prior to the California Supreme Court's decision in Cole, explained in greater depth herein, interstate optical chains had been selling eyewear while also associating with specialized health care service plans licensed under the California Knox-Keene Health Care Service Plan Act of Cal. Health & Safety Code § 1343 et seq. See, e.g., Dep. of Wallace W. Lovejoy ("Lovejoy Dep.") at 23:13-22, Ex. I of Schechter Decl. re: Discriminatory Effect."

The Knox-Keene plans are a type of HMO. Under the supervision of a state agency, the Department of Managed. Health Care ("DMHC"), Knox-Keene plans employ or contract with optometrists and provide optometric services to plan members. The interstate chains then lease space in their stores to Knox-Keene plans that employ the optometrists. Plaintiffs aver that, in this way, interstate chains had been able to provide one-stop shopping in competition with in-state dispensing optometrists and ophthalmologists, albeit with added regulatory and financial burdens.

These arrangements made pursuant to the Knox-Keene Act were recently invalidated by the California Supreme Court in the Cole case. At issue in the case was the Attorney General's contention that the colocation of an optical company, Pearle Vision, with an affiliated Knox-Keene plan that employs optometrists, violated two of the challenged restrictions, specifically Business & Professions Code sections 655 and 2556, and Code of Regulation section 1399.251. Under the Attorney General's interpretation, there was no circumstance under which an interstate entity could offer one-stop shopping consistent with the challenged restrictions.

In its recent opinion, the California Supreme Court concluded that the Act does not exempt approved plans from the restrictions imposed by sections 655 and 2556. People v. Cole, 38 Cal.4th 964, 969, 44 Cal.Rptr.3d 261, 135 P.3d 669 (2006). The court concluded that approved plans are authorized to deliver professional services, not to lease space. Id. at 986, 44 Cal.Rptr.3d 261, 135 P.3d 669. "As a landlord, Pearle RDO simply is not acting as a `provider of professional services.'" Id. Without ruling on the question of whether or not the Pearle, Inc. business arrangement does in fact violate sections 655 and 2556, the court held that the Knox-Keene Act did not exempt optical companies from the restrictions set forth in sections 655 and 2556. The practical effect of the Cole decision is that optical companies may no longer compete in the California market through arrangements pursuant to the Knox-Keene Act.

3. Independent...

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