City of New York v. Group Health Incorporated
Filing
OPINION, Affirmed, by RJM JMW RCW, FILED.[368524] [10-2286]
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10-2286-cv
City of New York v. Group Health Inc.
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UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2010
(Argued: May 4, 2011
Decided: August 18, 2011)
Docket No. 10-2286-cv
-----------------------------------------------------x
CITY OF NEW YORK,
Plaintiff-Appellant,
-- v. -GROUP HEALTH INCORPORATED, HIP FOUNDATION, INC., and
HEALTH INSURANCE PLAN OF GREATER NEW YORK,
Defendants-Appellees.
-----------------------------------------------------x
B e f o r e :
MINER, WALKER, and WESLEY, Circuit Judges.
27
Appeal from a judgment of the United States District Court for
28
the Southern District of New York (Richard J. Sullivan, Judge)
29
granting summary judgment to Defendants-Appellees and dismissing
30
the complaint. The City of New York argues that the district court
31
erred by concluding that the market pled in its antitrust complaint
32
is legally insufficient and by denying the City’s motion to amend
33
its complaint.
34
and that it was within the district court’s discretion to deny
35
leave to amend.
36
court.
We conclude that summary judgment was appropriate
We therefore AFFIRM the judgment of the district
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ALAN H. KLEINMAN, Assistant
Corporation Counsel (Michael A.
Cardozo, Corporation Counsel of the
City of New York, June R. Buch,
John R. Low-Beer, Richard J. Costa,
Assistant Corporation Counsel, on
the brief), New York, N.Y., for
Plaintiff-Appellant City of New
York.
STEPHEN M. AXINN (Michael L.
Keeley, on the brief), Axinn,
Veltrop & Harkrider LLP, New York,
N.Y., for Defendant-Appellee Group
Health Incorporated.
BRUCE H. SCHNEIDER (Derek I.A.
Silverman, on the brief), Stroock &
Stroock & Lavan LLP, New York,
N.Y., for Defendants-Appellees
Health Insurance Plan of Greater
New York and HIP Foundation, Inc.
JOHN M. WALKER, JR., Circuit Judge:
26
Plaintiff-Appellant City of New York appeals from a judgment
27
of the United States District Court for the Southern District of
28
New York (Richard J. Sullivan, Judge) granting summary judgment to
29
Defendants-Appellees
30
Foundation, Inc., and Health Insurance Plan of Greater New York
31
(together, “HIP”), and dismissing the City’s antitrust complaint
32
without leave to amend.
Group
Health
Incorporated
(“GHI”),
HIP
33
The City sued health insurance providers GHI and HIP under
34
federal and New York State antitrust laws, seeking to prevent the
35
companies
36
judgment to GHI and HIP, holding that the market definition the
37
City alleged as the basis of its claims is legally deficient.
from
merging.
The
district
2
court
granted
summary
It
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1
also denied the City’s motion to amend its complaint to allege a
2
new market definition.
3
appeal.
The City challenges these conclusions on
4
We agree with the district court that the alleged relevant
5
market is legally deficient, and conclude that its denial of leave
6
to amend was not an abuse of discretion.
7
district court’s judgment.
8
9
10
We therefore AFFIRM the
BACKGROUND
I.
New York City's Health Benefits Program and the Proposed
Merger
11
The City and several related entities obtain health insurance
12
for their employees and their employees’ dependents through the
13
City's
14
individuals are insured through the Program.
15
Labor Relations administers the Program jointly with the Municipal
16
Labor Committee, an association of about 50 unions that represent
17
the employees.
Health
Benefits
Program.
Approximately
1.2
million
The City's Office of
18
As a result of collective bargaining agreements and municipal
19
law requirements, the City offers its employees several types of
20
health insurance plans.
21
Health Maintenance Organization ("HMO") plan, a Participating
22
Provider Organization ("PPO") plan, or a Point of Service ("POS")
23
plan.
Employees can select coverage through a
24
3
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The City periodically issues Requests for Proposals ("RFPs")
2
inviting insurers to propose plan designs and associated premiums.
3
Insurance providers compete to be selected during each procurement
4
round.
5
Employees choose among the plans that the City selects.
6
Those who do not receive Medicare benefits can choose among
7
thirteen plans, and Medicare participants can choose among fifteen.
8
GHI and HIP offer the two least expensive and most popular
9
plans.
GHI offers a PPO plan and HIP offers an HMO plan.
of
City
employees
and
non-Medicare
retirees
The
10
majority
select
11
coverage from GHI's or HIP’s plan, with only a small minority
12
choosing the plan with the third largest share of enrollment.
13
Under municipal law and by agreement between the City and the
14
Municipal Labor Committee, the City pays the entire premium for
15
employees who enroll in either the HIP plan or the GHI plan.
16
Employees who select more expensive coverage from another carrier
17
must pay any excess in the cost of that coverage over the cost of
18
the HIP plan.
19
In September 2005, GHI and HIP announced their intent to merge
20
and to convert from non-profit to for-profit status.
21
States Department of Justice and the New York State Attorney
22
General investigated the antitrust implications of the proposed
23
merger and decided not to challenge it.
24
Departments of Health and Insurance granted approval for GHI and
4
The United
The New York State
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HIP to combine their operations as an interim step pending approval
2
of an acceptable plan of conversion to a publicly owned company
3
and, thereafter, a formal merger.
4
II.
5
Procedural History
On November 13, 2006, the City filed this action seeking an
6
injunction to block the merger.
7
merger under § 7 of the Clayton Act, 15 U.S.C. § 18, §§ 1 and 2 of
8
the Sherman Act, 15 U.S.C. §§ 1-2, and the Donnelly Act, N.Y. Gen.
9
Bus. L. § 340(1), New York's antitrust law.
It alleges that
10
because
majority
11
employees in the City's Health Benefits Program, the merger of the
12
carriers will substantially reduce competition, and will result in
13
monopolization of the relevant market and an increase in the
14
premiums that the City is required to pay.
15
the relevant market as the "low-cost municipal health benefits
16
market."
17
inexpensive and that the City selects for inclusion in the Health
18
Benefits Program.1
GHI's
and
HIP's
plans
The complaint challenges the
cover
a
vast
of
the
The complaint defines
This market includes only those insurance plans that are
19
1
2
3
4
5
6
7
8
9
1
The complaint alleges that this relevant market also
includes the health insurance program that the New York City
Transit Authority administers. Because the parties did not
address this aspect of the alleged market in their briefing
before the district court, the district court did not consider it
in resolving the summary judgment motions. See City of New York
v. Group Health Inc., No. 06 Civ. 13122 (RJS), 2010 WL 2132246,
at *3 n.3 (S.D.N.Y. May 11, 2010). The parties do not raise this
aspect of the alleged market on appeal.
5
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When the City filed its complaint, it moved for a temporary
2
restraining order blocking the merger.
3
case was initially assigned, denied the motion.
4
“there
5
analysis that the plaintiff has adopted here.
6
focused on what the City is paying for, and not so much on the
7
market of insurance coverage. . . .
8
the same, whether they're offered to the City or they're offered to
9
a private large employer.”
are
substantial
questions
Judge Karas, to whom the
about
the
He explained that
market
definition
It appears to be
I think the products . . . are
10
On December 4, 2009, after several years of discovery, GHI and
11
HIP moved for summary judgment dismissing the City's complaint.
12
They argued (1) that the market the City alleged in its complaint
13
is insufficient as a matter of law because it is based on the
14
City's preferences and ignores the market of insurance providers
15
that compete for the City's business, and (2) that the City could
16
not demonstrate a relevant antitrust injury because any increased
17
premiums would result from GHI's and HIP's conversion to for-profit
18
entities, not from their merger.
19
On January 20, 2010, nine days before its opposition papers
20
were due, the City sought leave to file a motion to amend its
21
complaint to add alternative market definitions.
22
to add two alternative markets: (1) all insurance plans the City
23
selected for inclusion in the Health Benefits Program, not only the
24
inexpensive plans; and (2) the market for all commercial medical
6
The City sought
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benefits in downstate New York.
2
claim on the "Upward Pricing Pressure" test, which analyzes the
3
effect of a merger on the merged firm’s pricing incentives.
4
City
5
establish the anticompetitive effect of the merger without the need
6
to define a relevant market.
7
contended
that
the
The City also sought to base its
Upward
Pricing
Pressure
test
The
could
The district court granted GHI and HIP's summary judgment
8
motion and denied the City's motion to amend.
9
Group Health Inc., No. 06 Civ. 13122 (RJS), 2010 WL 2132246, at *7
City of New York v.
10
(S.D.N.Y. May 11, 2010).
11
alleged in its complaint is legally insufficient because it was
12
defined by the preferences of a single purchaser: the City. Id. at
13
*4-5. Judge Sullivan, to whom the case had been reassigned, denied
14
the City's motion to amend on the basis that (1) the City exhibited
15
undue delay because it was on notice of its potentially deficient
16
market definition at least as early as Judge Karas's denial of its
17
request for a temporary restraining order more than three years
18
earlier, and (2) the amendments would prejudice GHI and HIP by
19
forcing them to conduct substantial additional discovery after
20
three and a half years of defending a lawsuit premised on the
21
City's narrow market definition.
22
It concluded that the market the City
Id. at *5-7.
The City appealed.
23
24
7
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DISCUSSION
I. Sufficiency of the Alleged Market
3
We review an award of summary judgment de novo, affirming
4
"only if there is no genuine issue as to any material fact, and if
5
the moving party is entitled to a judgment as a matter of law."
6
Allianz Ins. Co. v. Lerner, 416 F.3d 109, 113 (2d Cir. 2005).
7
To state a claim under § 7 of the Clayton Act, §§ 1 or 2 of
8
the Sherman Act, or New York’s Donnelly Act, a plaintiff must
9
allege a plausible relevant market in which competition will be
10
impaired.
See, e.g., United States v. E.I. du Pont de Nemours &
11
Co., 353 U.S. 586, 593 (1957) (“Determination of the relevant
12
market is a necessary predicate to a finding of a violation of the
13
Clayton Act because the threatened monopoly must be one which will
14
substantially lessen competition within the area of effective
15
competition.” (internal quotation marks omitted)); Chapman v. New
16
York State Div. for Youth, 546 F.3d 230, 238 (2d Cir. 2008)
17
(Sherman Act); Benjamin of Forest Hills Realty, Inc. v. Austin
18
Sheppard Realty, Inc., 823 N.Y.S.2d 79, 83 (App. Div. 2006)
19
(Donnelly Act).
20
products ‘reasonably interchangeable by consumers for the same
21
purposes,’
22
substitute restrains a firm’s ability to raise prices above the
23
competitive level.”
24
386 F.3d 485, 496 (2d Cir. 2004) (quoting E.I. du Pont de Nemours
The relevant market must be defined “as all
because
the
ability
of
consumers
to
switch
to
a
Geneva Pharm. Tech. Corp. v. Barr Labs. Inc.,
8
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& Co., 351 U.S. at 395).
2
its
3
reasonable interchangeability and cross-elasticity of demand, or
4
alleges a proposed relevant market that clearly does not encompass
5
all interchangeable substitute products even when all factual
6
inferences are granted in plaintiff's favor, the relevant market is
7
legally insufficient."
8
City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430, 436 (3d
9
Cir. 1997)).
proposed
relevant
"[W]here the plaintiff fails to define
market
with
reference
to
the
rule
of
Chapman, 546 F.3d at 238 (quoting Queen
10
Here, the district court correctly concluded that the market
11
alleged in the City’s complaint is legally insufficient because it
12
is defined by the City’s preferences, not according to the rule of
13
reasonable interchangeability and cross-elasticity of demand.
14
market alleged in the City’s complaint ignores the competition
15
existing among insurance providers for the City’s business, as well
16
as the health insurance market for other large employers in the
17
region.
18
insurance companies other than those it selects for the Health
19
Benefits Program from proposing competitive products should the
20
merged firm raise its premiums to supracompetitive prices.
The
The City does not allege any factor that would prevent
21
The arguments the City raises on appeal are unavailing.
22
City first argues that the insurance plans it approves constitute
23
a unique market because they reflect the City's "sound policy
24
choices." A single purchaser's preferences, however, cannot define
9
The
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a market.
We faced a similar argument in Hack v. President and
2
Fellows of Yale College, in which the plaintiffs complained that
3
Yale was illegally tying dormitory housing to their education and
4
alleged that Yale, because of its uniqueness, constituted its own
5
market for education. 237 F.3d 81, 86-87 (2d Cir. 2000), abrogated
6
on other grounds by Swierkiewicz v. Sorema N.A., 534 U.S. 506
7
(2002).
8
is "unique, . . . in a collegiate sense," it does not constitute
9
its own tying market because "there are many institutions of higher
We rejected this contention, holding that, although Yale
10
learning providing superb educational opportunities."
Id. at 86.
11
Here,
have
12
particularly suitable to the City's needs, the City does not allege
13
any reason why other similar insurance plans are unsuitable or why
14
the numerous insurance providers in the area could not or would not
15
design suitable plans to compete with those that the City selected.
16
The City next argues that its proposed market is distinct from
17
a "single-purchaser market" because the employees who select their
18
insurance
19
employees choose health coverage only from the plans that the City
20
has already selected for inclusion in the Health Benefits Program.
21
The employees’ ability to choose among the plans in the Health
22
Benefits Program does not change the fact that the competition
23
among insurance providers for the business of the City and other
24
large employers would constrain the ability of the merged firm to
although
the
coverage
approved
also
insurance
constitute
10
plans
purchasers.
may
However,
been
the
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set its premium above a competitive price. It thus cannot save the
2
City’s artificially narrow market definition.
3
Finally, the City argues that the district court erred in
4
failing
to
consider
its
expert
report,
which,
it
argues,
5
establishes the harm to competition that would result from the
6
merger.
7
the basis that the alleged relevant market is legally insufficient.
8
The City's expert report was thus irrelevant.
9
II.
The district court, however, granted summary judgment on
Denial of the City’s Motion to Amend
10
"[W]e review a district court's denial of a motion to amend
11
under the abuse of discretion standard."
Gorman v. Consol. Edison
12
Corp., 488 F.3d 586, 592 (2d Cir. 2007).
A district court abuses
13
its discretion when it “bases its ruling on an incorrect legal
14
standard or on a clearly erroneous assessment of the facts.” Bronx
15
Household of Faith v. Bd. of Educ., 331 F.3d 342, 348 (2d Cir.
16
2003).
17
Rule 15(a)(2) of the Federal Rules of Civil Procedure provides
18
that “[t]he court should freely give leave [to amend the complaint]
19
when justice so requires.”
20
party to amend its complaint unless the nonmovant demonstrates
21
prejudice or bad faith.
22
of Am., N.A., 626 F.3d 699, 725 (2d Cir. 2010) (citing Block v.
23
First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993)).
The rule in our circuit is to allow a
AEP Energy Servs. Gas Holding Co. v. Bank
24
11
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During the course of briefing on GHI and HIP’s summary
2
judgment motion, the City moved to amend its complaint.
3
to add two additional market definitions: first, all insurance
4
providers participating in the City’s Health Benefits Program, not
5
just
6
commercial medical benefits in downstate New York.
7
to add an alternative basis for its antitrust claims, the Upward
8
Pricing Pressure Test, which, the City explains, “predicts the
9
likely competitive impact of a proposed merger based on how a
10
merger is likely to alter the merged firm’s pricing incentives.”2
11
The City argues that the Upward Pricing Pressure test can be used
12
instead of “the traditional approach of defining relevant markets.”
13
In denying the City’s motion to amend, the district court held
14
that the City had exhibited undue delay and that the proposed
15
amendment would prejudice GHI and HIP.
16
Health Inc., No. 06 Civ. 13122 (RJS), 2010 WL 2132246, at *5-7
17
(S.D.N.Y. May 11, 2010).
18
was aware of the flaws in its complaint at least since Judge Karas
19
questioned the City’s market definition in denying its motion for
1
2
3
4
5
6
7
8
9
10
11
2
the
low-cost
providers,
and,
second,
all
It sought
providers
of
It also sought
City of New York v. Group
The district court noted that the City
The City explains that the Upward Pricing Pressure test
measures the effect of two opposing forces resulting
from a merger. First, the upward pricing pressure
induced by the merger is measured by the diversion
ratio, the sales that would otherwise be lost by a
price increase, but that get[] recaptured by the
diversion of those sales to the larger, merged entity.
The second, countervailing downward price pressure is
measured by efficiencies that would reduce the merged
firm’s marginal cost.
12
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a temporary restraining order more than three years earlier.
2
at *6. In addition, the district court explained that allowing the
3
amendment would unduly prejudice GHI and HIP by requiring them to
4
conduct substantial additional discovery on a different and much
5
broader market.
6
Pricing Pressure Test.
7
revealed a single decision of a federal court adopting this test,”
8
which, “[i]n light of the case law’s clear requirement that a
9
[p]laintiff allege a particular product market in which competition
10
Id.
Id.
The district court also rejected the Upward
It noted that “its research has not
will be impaired, . . . is hardly surprising.”
Id. at *6 n.6.
11
The City argues that the district court abused its discretion
12
by misapplying the standards that govern a motion to amend. First,
13
it argues that its addition of the market comprising all insurance
14
providers in the Health Benefits Program does not require an
15
amendment because that market represents only a “slight change”
16
from the market pled in the City’s initial complaint.
17
not the City’s addition of a market consisting of all insurance
18
providers
19
amendment, this market suffers from the same legal deficiency as
20
the market in the City’s initial complaint.
21
market
22
Benefits Program is not -- as is required -- defined by the rule of
23
reasonable interchangeability and cross-elasticity of demand.
24
ignores the market of health insurance providers in downstate New
in
limited
the
to
Health
the
Benefits
providers
13
Program
Whether or
requires
a
formal
As discussed above, a
participating
in
the
Health
It
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1
York that compete for the business of the City and other large
2
employers.
3
claims and its addition to the complaint would be futile.
4
Energy Servs. Gas Holding Co., 626 F.3d at 726 (“Leave to amend may
5
be denied on grounds of futility if the proposed amendment fails to
6
state a legally cognizable claim.”).
It thus cannot form the basis of the City’s antitrust
See AEP
7
The City next argues that GHI and HIP did not demonstrate
8
undue prejudice because they did not show that the amendment would
9
require them to redo, or discard, discovery already conducted. The
10
need to redo or discard discovery, however, is not the only form of
11
undue prejudice we have recognized.
12
prejudicial when, among other things, it would require the opponent
13
to expend significant additional resources to conduct discovery and
14
prepare for trial or significantly delay the resolution of the
15
dispute.”
16
(internal quotation marks omitted).
17
would, at a minimum, require additional discovery from large
18
employers other than the City in the downstate New York area and
19
from
20
business.
21
conclude that the need to obtain this discovery would delay
22
proceedings and require substantial additional expense.
the
An “[a]mendment may be
AEP Energy Servs. Gas Holding Co., 626 F.3d at 725-26
health
insurance
Here, the City’s amendment
providers
that
compete
for
their
It was not clearly erroneous for the district court to
23
In addition, as the district court explained, the City waited
24
more than three years to seek an amendment, and did so only after
14
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confronted with a motion for summary judgment challenging its
2
market definition.
3
the delay because GHI and HIP went along with discovery, also
4
waiting more than three years to challenge the City’s market
5
definition.
6
City’s complaint earlier in the litigation, their failure to do so
7
does not necessarily mitigate the City’s delay.
8
City’s delay in seeking amendment may not be evidence of bad faith,
9
we do not think it was an abuse of discretion for the district
10
court to find that this delay, together with the prejudice that
11
would result from the amendment, warranted denial of the City’s
12
motion to amend.
The City argues that it cannot be faulted for
While GHI and HIP could have sought dismissal of the
Although the
13
Finally, we find no error or abuse of discretion in the
14
district court’s rejection of the Upward Pricing Pressure test. As
15
the district court explained, and as we discussed above, the
16
applicable case law requires plaintiffs asserting a claim under the
17
Sherman Act, the Clayton Act, or the Donnelly Act to allege a
18
market in which the challenged merger will impair competition.
19
While
20
usefulness in assessing the impact of a merger, it does not explain
21
how the test can substitute for a definition of the relevant market
22
in the pleadings. Cf. Carl Shapiro, Deputy Ass’t Attorney Gen. for
23
Economics, Antitrust Division, U.S. Dep’t of Justice, Update from
24
the
the
City
Antitrust
explains
the
Division,
Upward
at
15
15
Pricing
(Nov.
Pressure
18,
test’s
2010),
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1
http://www.justice.gov/atr/public/speeches/264295.pdf (recognizing
2
need
3
Whether or not the Upward Pricing Pressure test -- and its results
4
in this case as explained by the City’s expert -- would, as the
5
City argues, be admissible as evidence of impaired competition is
6
not relevant to the adequacy of the pleadings.
7
8
to
define
11
market
in
any
antitrust
challenge).
As such, we find no abuse of discretion and affirm the
district court’s denial of the City’s motion to amend.
9
10
relevant
CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the
district court.
12
16
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