Rheumatology Diagnostics Laboratory, Inc et al v. Blue Shield of California Life & Health Insurance Company

Filing 282

ORDER GRANTING IN PART AND DENYING IN PART 216 DEFENDANT'S MOTION FOR SUMMARY JUDGMENT. Quest's request for relief in connection with plaintiffs' alleged violation of the protective order is DENIED. Dkt. No. 260 . Signed by Judge William H. Orrick on 04/15/2015. ***NOTE*** This order is redacted of confidential information. (jmdS, COURT STAFF) (Filed on 4/15/2015)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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RHEUMATOLOGY DIAGNOSTICS
LABORATORY, INC, et al.,

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Plaintiffs,
v.

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AETNA, INC., et al.,

Case No. 12-cv-05847-WHO
ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT’S
MOTION FOR SUMMARY JUDGMENT
Re: Dkt. Nos. 216, 252, 258, 259, 260

Defendants.

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INTRODUCTION

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Plaintiffs in this case, four California-based providers of clinical laboratory services,

United States District Court
Northern District of California

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accuse defendants Quest Diagnostics Incorporated and Quest Diagnostics Clinical Laboratories

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Incorporated (collectively, “Quest”) of selling lab tests at below-cost prices in violation of

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California’s Unfair Practices Act (“UPA”). There are material factual disputes over plaintiff

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Hunter Laboratories, Inc.’s (“Hunter’s”) claim that it was harmed by Quest’s below-cost sales of

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individual tests to Aetna. Inc., and over plaintiff Surgical Pathology Associates’ (SPA’s”) claim

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that it was harmed by Quest’s below-cost capitated contract with Partnership Health Plan. Those

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claims may proceed. The rest of plaintiffs’ claims, however, are either barred by the settlement

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agreement that Hunter entered into with Quest in a prior case in 2011, or based on damages

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theories that plaintiffs have failed to show are more than speculation and guesswork. Quest is

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entitled to summary judgment on those claims. Accordingly, Quest’s motion for summary

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judgment is GRANTED IN PART and DENIED IN PART.
BACKGROUND

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I.

FACTUAL BACKGROUND
The parties are all providers of clinical laboratory services. Quest is a national laboratory

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with operations in California. Moverley Decl. ¶ 4. Plaintiffs Hunter, Surgical Pathology

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Associates (“SPA”), Rheumatology Diagnostics Laboratory, Inc. (“RDL”), and Pacific Breast

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Pathology Medical Corp. (“PBP”) are smaller, California-based laboratories. Plaintiffs describe

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themselves as “regional” laboratories. Plaintiffs accuse Quest of violating California’s Unfair

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Practices Act (“UPA”) and Unfair Competition Law (“UCL”) by selling its laboratory services

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below-cost “for the purpose of injuring plaintiffs and destroying competition.” SAC ¶¶ 151-52.

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Plaintiffs allege that as a result of Quest’s below-cost sales, they have been “deprived of . . . a

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large number of their actual and potential customers.” SAC ¶ 153.
Plaintiffs charge Quest with three particular methods of below-cost pricing: (i) entering

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below-cost capitated contracts with Independent Physician Associations (“IPAs”) 1 for the purpose

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of securing lucrative fee-for-service business from physicians belonging to the IPAs;

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(ii) undercutting plaintiffs in the general fee-for-service market by selling lab tests at below-cost

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prices; and (iii) using below-cost sales to secure “network narrowing” contracts with major health
insurance providers, such as Aetna, Inc. (“Aetna”) and California Physicians’ Services, Inc. dba

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United States District Court
Northern District of California

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Blue Shield of California (“Blue Shield”). Opp. 5.
The parties made voluminous evidentiary submissions in connection with this motion. The

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following is a summary.

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A.

Moverley Declaration

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Quest submits a declaration by Robert Moverley, Quest’s Regional Vice President of

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Operations for the West Region, stating the following: The clinical laboratory market in California

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is “highly competitive.” Moverley Decl. ¶ 4. Laboratory Corporation of America (“LabCorp”),

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another national laboratory, is Quest’s biggest competitor, at least in the market for capitated

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business. Id. at ¶¶ 4, 10. Quest also competes with BioReference Laboratories, which purchased

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Hunter’s assets in 2013, as well as with other California-based independent laboratories, out-of-

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state laboratories, and in-hospital laboratories. Id.
There are four “elements of competition” in the market for laboratory services: price,

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IPAs are “large groups of independent physicians who practice medicine in separate medical
groups [but] come together to share financial risk under HMO contracts.” Moverley Decl. ¶ 15.
IPAs are generally paid by insurance providers on a “capitated” basis. Id. This means that instead
of receiving fee-for-service payments from an insurance provider, an IPA generally accepts a permember, per-month payment from in exchange for providing or arranging all medical services
needed by the insurance provider’s members. Id. IPAs in turn generally seek out labs that will
accept payment on a capitated basis themselves. Id. It is undisputed that plaintiffs do not
currently offer their services on a capitated basis and do not currently compete for capitated
contracts. See, e.g., id. at ¶¶ 16, 23.
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quality, ease of access to “draw facilities,” and participation in the networks of insurance

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providers. Id. at ¶¶ 4-8. Quest is in-network with a number of major insurers, including Aetna

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and Blue Shield. Id. at ¶ 8. Regional laboratories like plaintiffs “struggle to compete” with

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laboratories that are in-network with major insurers. Id.

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Quest’s “strategy [is not] to price below cost to any customer,” and its purpose in pricing

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its tests in California “has never been to target competitors or destroy competition.” Id. at ¶¶ 10,

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13. Further, Quest’s pricing strategy has been focused on competition with LabCorp, not

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plaintiffs. Id. With the exception of Hunter, Moverley had never heard of plaintiffs until this

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litigation. Id. at ¶ 12.
Capitated business usually generates lower profit margins 2 than fee-for-service business.

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Id. at ¶ 19. In addition, profit margins on capitated business are uncertain because payments do

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not adjust according to fluctuations in testing volume. Id. Certain of Quest’s accounts with IPAs

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have yielded negative contribution margins on some occasions. Id. But negative contribution

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margins on capitated business are not a “deliberate strategy.” Id. When they have occurred, Quest

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has “strived to bring the account into the black as quickly as practicable.” Id. Quest’s current

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policy is to obtain at least a

percent contribution margin on all capitated accounts, and it has

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Capitated contracts “give a laboratory the opportunity to display the quality and reliability

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Quest uses three different measures of profit margins relevant to this motion. First, net revenue
minus “cost of testing” equals the “gross margin.” Lambrinos Decl. Ex. 9 at 1512. Quest defines
“cost of testing” to include the “direct costs” related to performing a test, such as lab supplies and
direct labor. Lambrinos Decl. Ex. 11 at 1558. Second, the gross margin minus “other variable
costs” equals the “contribution margin.” Lambrinos Decl. Ex. 9 at 1512. Third, the contribution
margin minus fixed costs equals the operating margin. Id. The UPA employs a “fully allocated
cost approach” to determine whether a sale is below-cost, “an approach which reflects that portion
of the [defendant’s] total costs attributable on an average basis to each unit of output.” W. Union
Fin. Servs., Inc. v. First Data Corp., 20 Cal. App. 4th 1530, 1537 (1993) (internal quotation marks
omitted).
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of its work to the IPA’s physician members, some of whom may be able to refer other business . . .

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to the laboratory.” Id. at ¶ 18.

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Apart from its business with IPAs, Quest offers discounted pricing to certain physicians

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and hospitals. Id. at ¶ 24. These arrangements are governed by Quest’s “Client Pricing Policy,”

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which requires

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B.

Quest’s Capitated Contracts with IPAs

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Plaintiffs assert that according to Quest’s own internal financial statements, sixty percent

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of its capitated IPA contracts in California generated negative contribution margins “throughout
the relevant period.” Opp. 7; Plandowski Decl. ¶ 14. Plaintiffs base this figure on an expert

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United States District Court
Northern District of California

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analysis of data showing the performance of Quest’s Southern California IPA accounts in 2008.

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Plandowski Decl. ¶¶ 14-16. Plaintiffs’ expert, Joseph Plandowski, states that it is reasonable to

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assume that a similar percentage of Quest’s Northern California IPA accounts operated with a

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negative contribution margin. Plandowski also states that with the exception of one account (of

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Quest’s 121 accounts in Southern California), each of the accounts with a negative contribution

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margin in 2008 maintained a negative contribution margin into 2014. Id. at ¶ 16. In other words,

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“the losers remained losers and the winners remained winners.” Id. In addition to Plandowski’s

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testimony, plaintiffs emphasize that Quest admits (in Moverley’s declaration) that at least some of

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its capitated contracts with IPAs have resulted in negative contribution margins. Opp. 6;

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Moverley Decl. ¶ 19 (“On some occasions, [Quest’s] profit margins on particular IPA accounts

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have yielded negative profit margins.”).

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In response to Moverley’s statement that Quest has tried to bring IPA accounts with

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negative contribution margins “into the black as quickly as practicable,” plaintiffs note that

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Moverley admitted at his deposition that one of Quest’s IPA accounts maintained a negative

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contribution margin for approximately seven years. Moverley Dep. 185 (Lambrinos Decl. Ex. 1).

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The deposition excerpt does not make clear when that seven year period occurred. See id. In

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response to Moverley’s statement that Quest has not approved any new capitated contracts with

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negative contribution margins since at least 2006, plaintiffs assert that many of the capitated
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contracts that were approved before 2006 continued to generate negative contribution margins

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“well after 2006.” Opp. 7.
To show that Quest has entered below-cost capitated IPA contracts, plaintiffs also point to

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Quest’s SEC filings. Plaintiffs contend the filings disclose sufficient information to conduct a

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“simple calculation of fully-allocated costs per requisition.” 3 Opp. 7. Plaintiffs assert that

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according to the filings, Quest’s average fully-allocated costs per capitated requisition exceeded its

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average revenue per capitated requisition in each year from 2008 to 2013. Opp. 7-8; Plandowski

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Decl. Ex. 16. According to plaintiffs, this national data indicates the existence of an “even greater

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disparity” between fully-allocated costs and revenue in California, “where costs for labor, real

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estate, and other items . . . are generally higher than the national average.” Opp. 7.
Plaintiffs allege that Quest’s purpose in underpricing its capitated contracts with IPAs is to

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Northern District of California

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obtain lucrative fee-for-service business from physicians belonging to the IPAs. Quest’s “IPA

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Capitated Pricing Guidelines” (effective July 1, 2006) state that

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Lambrinos Decl. Ex. 7.

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Plandowski states that “[u]sing below-cost capitated contracts to obtain [fee-for-service]

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work from referring physicians is damaging to competition because it artificially deprives smaller

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Plaintiffs state that a “requisition” is a group of tests ordered at the same time for a single patient,
usually two or three tests. SAC ¶ 61.

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independent laboratories access to this [fee-for-service] revenue stream.” Plandowski Decl. ¶ 24.

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Mike Armstrong of Sharp Health Care, another regional laboratory, testified at his deposition that

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once a physician does a “significant volume” of capitated business with a particular laboratory,

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“the office staff are going to start wanting to have one-stop shopping. They are not going to want

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to have a bunch of different systems.” Armstrong Dep. 21 (Lambrinos Decl. Ex. 23).

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On the basis of this evidence, plaintiffs claim that Quest knew that its capitated IPA

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contracts resulted in significant amounts of fee-for-service revenues, and that Quest “used below-

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cost pricing in its capitated IPA contracts for the purpose of injuring competitors and destroying

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competition in both the capitated and fee-for-service markets.” Opp. 9.
C.

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General Fee-For-Service Market

Plaintiffs assert that Quest sells its tests below-cost in the general fee-for-service market as

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well. Plaintiffs point to the following data regarding the revenue generated by Quest’s top 100

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tests by volume in California for the years 2008 to 2014, excluding revenue from government

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payors:

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Year

2008

2009

2010

2011

2012

2013

2014

Percent of revenue
(generated by top
100 tests) with
negative gross
margin
Percent of revenue
(generated by top
100 tests) with
negative
contribution
margin
Percent of revenue
(generated by top
100 tests) with
negative operating
margin
Opp. 10; Regan Rpt. 7-8, Ex. 2.6.1 (Lambrinos Decl. Ex. 46).
Quest tracks the profitability of its tests through a system called “e-account.” Opp. 10;

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Miller Dep. 109 (Lambrinos Decl. Ex. 6). According to e-account, Quest has approved the sales

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of tests with negative gross margins, meaning that these sales also had negative contribution and

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operating margins. See Plandowski Decl. ¶ 28, Ex. 18.

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D.

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Plaintiffs identify three “network narrowing” contracts secured by Quest through the use of

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Quest’s “Network Narrowing” Contracts

below-cost pricing: one with Aetna, one with Blue Shield, and one with Partnership Health Plan.
1.

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Plaintiffs assert that Quest caused Aetna to exclude Hunter from its network by offering

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Aetna

Aetna a discounted fee schedule that included tests priced below-cost. Opp. 11. Plaintiffs do not
assert that any of the other plaintiffs were injured in this way, although plaintiffs do claim that

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Northern District of California

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PBP was prevented from ever attaining in-network status as a result of Quest’s contract with

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Aetna. See id.
Effective April 1, 2012, the Seventeenth Amendment to Quest’s contract with Aetna

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includes a provision requiring Aetna to

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Lambrinos Decl. Ex. 29 at 8. To comply with this provision,

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Gentleman Dep. 68-69 (Lambrinos Decl.

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Ex. 30). Richard Gentleman 5 stated at his deposition that Aetna

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Id. at 194.

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Plaintiffs acknowledge that Quest’s contract with Aetna was profitable overall 6 but

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contend that a careful analysis of the associated fee schedule reveals that the contract includes

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Gentleman is the head of “National Ancillary Contracting” at Aetna. Dkt. No. 123-1.

Quest’s Executive Director of Health Plans, Gary McCabe, submitted a declaration stating that
the overall contribution margin on Quest’s contract with Aetna has ranged from
percent,
while the operating margin has ranged from
percent. McCabe Decl. ¶ 8. He states that
Quest has earned over
dollars on the contract each year. Id.
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numerous below-cost prices for individual tests. Opp. 11. Plaintiffs’ expert, Greg Regan, states

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that the evidence indicates that Quest offered Aetna prices on certain tests that were below-cost

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even according to the gross margin measure. Regan Rpt. 8-9 (Lambrinos Decl. Ex. 46). Regan

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specifically identifies several tests with costs of testing significantly higher than the prices offered

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to Aetna. Id. For example, Quest test code

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was offered to Aetna for

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in Q1 2012 but was offered to Aetna for

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evidence of below-cost pricing, the Seventeenth Amendment “represents a purposeful act by

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Quest to use below-cost prices to injure competitors by having them excluded from Aetna’s

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; likewise, Quest test code

in Q1 2012 but

had a cost of testing of

Id. Plaintiffs contend that in light of this

network.” Opp. 11.
2.

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had a cost of testing of

Blue Shield

Plaintiffs assert that Quest also induced Blue Shield to terminate Hunter from its network

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by offering a fee schedule with below-cost test pricing. Opp. 11-12. Plaintiffs again do not assert

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that any of the other three plaintiffs were injured in this way, except to claim that PBP was

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prevented from ever attaining in-network status as a result of Quest’s contract with Blue Shield.

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See id.

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In April 2009, Quest and Blue Shield entered an amendment to their contract. See
Lambrinos Decl. Ex. 31. The amendment provides that Blue Shield will

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Regan states that the evidence indicates that Quest offered Blue Shield prices on certain

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tests that were below-cost even according to the gross margin measure. 7 Regan Rpt. 8. Regan

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specifically identifies several tests with costs of testing significantly higher than the prices offered

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to Blue Shield. Id. Plaintiffs contend that in light of this evidence of below-cost sales, the 2009

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amendment to the Blue Shield contract “represents a purposeful act by Quest to use below-cost

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pricing to injure competition.” Opp. 12.
3.

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Northern District of California

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Partnership Health Plan

Plaintiffs claim that Hunter and SPA lost business from four existing accounts as a result

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of a capitated contract that Quest entered with Partnership Health Plan in 2009. Opp. 14;

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Laboratory Services Agreement at 1 (Sandrock Decl. Ex. 6); C. Reidel Dep. 268-69 (Sandrock

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Decl. Ex. 3). The accounts are Alexander Valley, Chanate Health Center, Petaluma Health Center,

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and Southwest Community Clinic. Opp. 14; C. Reidel Dep. 268-69 (Sandrock Decl. Ex. 3).

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Hunter lost its business with each of these accounts shortly after the contract took effect on

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October 1, 2009. See Opp. 14; Fuchs Decl. ¶¶ 2-3 (Sandrock Decl. Ex. 35); C. Reidel Dep. 268-

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69 (Sandrock Decl. Ex. 3); Prendergast Dep. 50-51 (Lambrinos Decl. Ex. 42). SPA likely lost its

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business with the accounts at or around the same time, although this is not clear from the record. 8
Naomi Fuchs, CEO of Santa Rosa Community Health Centers, of which Chanate Health

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Plaintiffs concede that Quest’s contract with Blue Shield, like its contract with Aetna, was
profitable overall. McCabe states in his declaration that the contribution margin on the Blue
Shield contract has ranged from
to
percent, and the operating margin has ranged from
to
percent. McCabe Decl. ¶ 7. He states that Quest has earned over
on the
contract each year. Id.
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At oral argument, when asked to identify evidence in the record indicating when SPA lost its
business with the four accounts allegedly lost as a result of Quest’s capitated contract with
Partnership Health Plan, Quest pointed to its contract with Partnership Health Plan, attached as
Exhibit 6 to the Declaration of Ryan Sandrock in Support of Quest’s Motion for Summary
Judgment, Dkt. No. 217-1. See Tr. 28, 51 (Dkt. No 266). Quest did identify any evidence
showing when SPA actually lost its business with the four accounts. See id.
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Center and Southwest Community Clinic are now a part, states in a declaration that Quest’s

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contract with Partnership Health Plan required Chanate Health Center and Southwest Community

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Clinic to use Quest for diagnostic testing services for Partnership Health Plan’s members. Fuchs

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Decl. ¶ 4 (Sandrock Decl. Ex. 35). Fuchs also states that “if not for [Quest’s contract with

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Partnership Health Plan] and had Hunter continued to offer competitive pricing and services,

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[Chanate Health Center and Southwest Community Clinic] would . . . probably have continued to

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use Hunter for diagnostic testing services.” Id. at ¶ 5.

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E.

Damages Allegedly Caused by Quest’s Below-Cost Pricing

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Plaintiffs claim that Quest’s below-cost pricing caused Hunter and SPA to lose business
from a number of existing accounts. Opp. 12; Regan Rpt. 14-18; 35-37. Plaintiffs also claim that

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Quest’s below-cost pricing has caused each of them to lose business from potential accounts.

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Opp. 12; Regan Rpt. 18-23; 34-38. Because Quest’s summary judgment motion is largely focused

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on causation and damages issues, I review the damages alleged by each of the four plaintiffs.

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1.

Hunter

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Hunter was founded in 2003. As of November 14, 2012, the date this case was filed,

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Hunter offered “Routine Clinical Laboratory Testing” in Northern California and “Advanced

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Lipid Testing” throughout the country. SAC ¶ 13. On August 7, 2013, Hunter finalized a sale of

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80 percent of its assets to BioReference, which plaintiffs describe as the largest privately owned

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clinical laboratory in Northern California. SAC ¶¶ 7, 13; Regan Rpt. 23.

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Hunter claims that it lost business from sixty-three accounts due to the termination of its

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in-network status with Aetna and Blue Shield following execution of the Seventeenth Amendment

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to the Aetna contract and the 2009 amendment to the Blue Shield contract. See Opp. 12-15;

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Quest’s Appendix A (Dkt. No. 216-3). As noted above, Hunter claims that it lost business from

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four accounts as a result of Quest’s contract with Partnership Health Plan. Opp. 14; C. Reidel

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Dep. 268-69 (Sandrock Decl. Ex. 3). Hunter also claims that it lost business from at least the

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following seven accounts as a result of Quest’s below-cost capitated IPA contracts: Alta Bates

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Medical Group, Bolinas Community Health Center, Diagnostic Labs, Elsie Allen Health Center,

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Lombardi Medical, Point Reyes Community Health Center, Stinson Beach Medical Center. Opp.
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12-15; Regan Rpt. Ex. 2.1.2.
Regan states that Hunter began to lose business from existing accounts in September 2012

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as a result of the termination of its in-network status with Aetna, and in May 2010 as a result of

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the termination of its in-network status with Blue Shield. Regan Rpt. 17. Regan also states that

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Hunter lost business from existing accounts when it was precluded from obtaining the fee-for-

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service business associated with Quest’s below-cost capitated IPA contracts. Regan Rpt. 14-16.

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Regan emphasizes that his calculations regarding this lost fee-for-service business do not assume

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that Hunter, or any other plaintiff, would have obtained capitated business from the IPAs that

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contracted with Quest. Id.
In addition to these damages, Regan opines that Hunter suffered damages in the form of

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Northern District of California

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“lost opportunity revenue.” Regan Rpt. 18-23. Regan attributes Hunter’s lost opportunity revenue

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to Quest’s below-cost capitated IPA contracts, and to its below-cost sales in the general fee-for-

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service market. Id.
Regan calculates Hunter’s overall damages from lost profits at between $3.4 million and

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$6.9 million, depending on what measure of profit margins (i.e., gross margins, contribution

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margins, or operating margins) is applied to Quest’s below-cost sales. Regan Rpt. at 23. Regan

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also finds that Quest’s below-cost sales caused Hunter several million dollars in damages from

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“lost business value.” Id. at 23-33.
Declarations from three physician members of the IPA, “Physicians Medical Group,” state

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that absent the capitated contract between Quest and Physicians Medical Group, they would send

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more of their non-capitated business to Hunter and SPA. Lambrinos Decl. Exs. 37-39. Each

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declaration uses the same language: “I have never considered using [Hunter] or [SPA], or have

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offered these entities only limited business, because [Physicians Medical Group] has a capitated

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contract with Quest. If not for this contract, I would send a greater amount of my non-capitated

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business” to Hunter and SPA. Id. at ¶ 1. 9

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Quest points out that the wording of the Physicians Medical Group declarations is odd given that
the declarations were signed in fall 2014, well after Hunter had finalized the sale of the majority of
its assets to BioReference. Reply 9 n.13.
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2.

SPA

SPA provided pathological testing services for a number of entities, in particular Hunter,

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from which SPA procured approximately fifty percent of its business. Weiss Dep. 42-43

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(Sandrock Decl. Ex. 12); Regan Rpt. 35. SPA did not operate its own laboratories, instead relying

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on Hunter’s infrastructure. Id. SPA claims to have lost business from four existing accounts as a

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result of Quest’s below-cost pricing: (i) Alexander Valley Health Center Diagnostic Labs; (ii)

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Chanate Health Center; (iii) Petaluma Health Center; (iv) Southwest Community Clinic. Sandrock

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Decl. Ex. 13 at 5-6. These are the same four accounts that Hunter claims to have lost as a result of

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Quest’s contract with Partnership Health Plan.

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Regan states that given the close relationship between Hunter and SPA, any economic

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damages suffered by Hunter had a “corollary impact” on SPA. Regan Rpt. 35. Regan also states

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that it is reasonable to expect that SPA’s performance absent Quest’s below-cost sales would have

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“mirrored” Hunter’s performance in that scenario. Id. at 36. Regan calculates SPA’s damages at

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between $0.3 million and $0.9 million, depending on what measure of profit margins is applied to

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Quest’s below-cost sales. Id. at 37 n.177.

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3.

RDL

RDL offers “Specialty Rheumatological Diagnostic Testing” across the country, with the

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majority of its business coming from Southern California. SAC ¶ 12; Morris Dep. 117 (Sandrock

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Decl. Ex. 15). RDL asserts that it lost business from twelve potential accounts as a result of

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Quest’s below-cost sales: (i) Amin Attia; (ii) Andre Babajanians; (iii) Michael Fabricant / Michael

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Sugarman; (iv) Kenneth Hsu; (v) Sam Metyas; (vi) Bruce Dreyfus; (vii) Elyse Rubenstein;

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(viii) Barry Shibuya; (ix) Marilyn Solsky; (x) Boniske / Watrous; (xi) Christian Dequet; and

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(xii) Neville Udwadia. Quest’s Appendix A at 6-7.

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Regan states that RDL was damaged by Quest’s below-cost sales in the form of lost

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opportunity revenue. Regan Rpt. 34-35. Regan attributes RDL’s lost opportunity revenue both to

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Quest’s capitated contracts with IPAs, and to Quest’s other below-cost sales in the general fee-for

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service market. Id. Regan calculates RDL’s damages at between approximately $2.9 and $6.3

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million, depending on what measure of profit margins is applied to Quest’s below-cost sales. Id.
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at 35 n.167.
4.

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PBP

PBP offers “Specialty Breast Pathology Testing” throughout California. SAC ¶ 12. PBP
has never had more two employees. Dutt Dep. 16 (Sandrock Decl. Ex. 18). Dr. Philip Dutt is

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PBP’s only current employee and conducts the business out of his home. Dutt Dep. 96. Since its

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formation, PBP has generated a total of $7,800 in revenue. Id. at 54. Plaintiffs assert that PBP

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lost business from two accounts as a result of Quest’s below-cost sales: (ii) RadNet and

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(ii) Imaging Healthcare Specialists (“Imaging Healthcare”). Sandrock Decl. Ex. 19. Dutt stated at

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his deposition that the extent of PBP’s attempts to obtain business from Imaging Healthcare was

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three approximately five-minute conversations with Imaging Healthcare’s chief financial officer.

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Dutt Dep. 104-05 (Sandrock Decl. Ex. 18).

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Regan calculated PBP’s damages based on the assumptions that PBP was unable to obtain

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fee-for-service sales due to Quest’s capitated contracts with IPAs, and that Quest’s below-cost

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sales precluded PBP from obtaining in-network status with either Aetna and Blue Shield. Regan

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Rpt. 37-38. Regan bases these assumptions on various excerpts from Dutt’s deposition transcript.

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See id. at 38 n.178-79. In one excerpt, Dutt states that Quest’s “capitated contracts inhibit doctors

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from sending specimens to us.” Dutt Dep. 25 (Lambrinos Decl. Ex. 45). In another excerpt, after

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being asked why PBP was unable to secure business with Radnet, Dutt states, “I think it primarily

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had to do with the lack of being in the big insurance networks.” Dutt Dep. 40 (Sandrock Decl. Ex.

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18). Neither Regan nor Dutt provide additional details regarding how or why PBP’s damages are

21

attributable to Quest’s below-cost sales. Regan states that PBP’s damages are between

22

approximately $0.01 and $.20 million, depending on what measure of profit margins is applied to

23

Quest’s below-cost sales. Id. at 38 n.187.

24

F.

Evidence of Quest’s Improper Purpose

25

Plaintiffs submit a number of documents in support of their claim that Quest considered

26

them a competitive threat in California and thus perpetrated its below-cost sales with the improper

27

purpose of injuring competitors or destroying competition. See Opp. 5. The documents include:

28
13

1
2
3
4
5
6
7
8
9
10

United States District Court
Northern District of California

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

None of the documents submitted by plaintiffs as evidence of Quest’s improper purpose
specifically refer to any plaintiff other than Hunter.
II.

PROCEDURAL BACKGROUND
Plaintiffs filed this action on November 14, 2012, asserting claims for violations of federal

and California antitrust laws, interference with prospective economic advantage, and violations of
the UPA and UCL. Dkt. No. 1. In addition to Quest, the initial complaint named Aetna, Blue
Shield, and the Blue Cross and Blue Shield Association as defendants. Id. After several iterations
of the complaint and several rulings on motions to dismiss, all but the UPA and certain UCL
claims against Quest were dismissed with prejudice.
The UPA claims are brought under California Business & Professions Code sections
17043 and 17044. SAC ¶ 151. The remaining UCL claims are brought under the statute’s
unlawful and unfair prongs and are derivative of the UPA claims. See Dkt. No. 147 at 27-28.
Under the UPA cause of action, plaintiffs seek compensatory and trebled damages and an

28
14

1

injunction against Quest. SAC at 51. Under the UCL cause of action, plaintiffs seek restitutionary

2

damages and an injunction against Quest. Id.

3
4

Quest filed this motion for summary judgment on January 16, 2015. Dkt. No. 216. I heard
argument from the parties on March 11, 2015. Dkt. Nos. 264, 266.
LEGAL STANDARD

5
6

A party is entitled to summary judgment where it “shows that there is no genuine dispute

7

as to any material fact and [it] is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A

8

dispute is genuine if it could reasonably be resolved in favor of the nonmoving party. Anderson v.

9

Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is material where it could affect the

10

outcome of the case. Id.

United States District Court
Northern District of California

11

The moving party has the initial burden of informing the court of the basis for its motion

12

and identifying those portions of the record that demonstrate the absence of a genuine dispute of

13

material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). Once the movant has

14

made this showing, the burden shifts to the nonmoving party to identify specific evidence showing

15

that a material factual issue remains for trial. Id. The nonmoving party may not rest on mere

16

allegations or denials from its pleadings, but must “cit[e] to particular parts of materials in the

17

record” demonstrating the presence of a material factual dispute. Fed. R. Civ. P. 56(c)(1)(A); see

18

also Liberty Lobby, 477 U.S. at 248. The nonmoving party need not show that the issue will be

19

conclusively resolved in its favor. Id. at 248-49. All that is required is the identification of

20

sufficient evidence to create a genuine dispute of material fact, thereby “requir[ing] a jury or judge

21

to resolve the parties’ differing versions of the truth at trial.” Id. (internal quotation marks

22

omitted). If the nonmoving party cannot produce such evidence, the movant “is entitled to . . .

23

judgment as a matter of law because the nonmoving party has failed to make a sufficient showing

24

on an essential element of her case.” Celotex, 477 U.S. at 323.

25

On summary judgment, the court draws all reasonable factual inferences in favor of the

26

nonmoving party. Liberty Lobby, 477 U.S. at 255. “Credibility determinations, the weighing of

27

the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those

28

of a judge.” Id. However, conclusory and speculative testimony does not raise a genuine factual
15

1

dispute and is insufficient to defeat summary judgment. See Thornhill Publ’g Co., Inc. v. GTE

2

Corp., 594 F.2d 730, 738-39 (9th Cir. 1979).
DISCUSSION

3
4

California Business & Professions Code section 17043 makes it “unlawful for any person

5

engaged in business within [California] to sell any article or product at less than the cost thereof to

6

such vendor, or to give away any article or product, for the purpose of injuring competitors or

7

destroying competition.” Cal. Bus. & Prof. Code § 17043. Section 17044 makes it “unlawful for

8

any person engaged in business within [California] to sell or use any article or product as a ‘loss

9

leader’ as defined in section 17030.” Cal. Bus. & Prof. Code § 17044.

10

Section 17030 defines “loss leader” to mean “any article or product sold at less than

United States District Court
Northern District of California

11

cost . . . [w]here the purpose is to induce, promote, or encourage the purchase of other

12

merchandise; or . . . [w]here the effect is to divert trade from or otherwise injure competitors.”

13

Cal. Bus. & Prof. Code § 17030. “Article” and “product,” as used in both section 17043 and

14

section 17044, are defined by section 17024 to include “any article, product, commodity, thing of

15

value, service or output of a service trade.” Cal. Bus. & Prof. Code § 17024; see also W. Union

16

Fin. Servs., Inc. v. First Data Corp., 20 Cal. App. 4th 1530, 1536 (1993).

17

“[T]he prohibitions in the UPA on below-cost sales are designed to protect a competitor

18

whose more powerful neighbor is attempting to drive him out of business.” Fisherman’s Wharf

19

Bay Cruise Corp. v. Superior Court, 114 Cal. App. 4th 309, 322 (2003) (internal quotation marks,

20

citations, and modifications omitted).

21

Quest makes five principle arguments in connection with its motion for summary

22

judgment: (1) that plaintiffs violated the protective order in this case by disclosing Quest’s

23

confidential information to one of their experts; (2) that plaintiffs cannot establish a causal

24

connection between Quest’s alleged below-cost pricing and most, if not all, of their claimed

25

harms; (3) that plaintiffs’ cannot establish that Quest’s alleged below-cost pricing was done with

26

an improper purpose, as required to impose liability under sections 17043 and 17044; (4) that the

27

majority of Hunter’s claims are barred by a May 19, 2011 settlement agreement between Hunter

28

and Quest; and (5) that the majority of plaintiffs’ claims are barred by the statute of limitations. I
16

1

address each argument in turn.

2

I.

3

ALLEGED PROTECTIVE ORDER VIOLATION
On March 4, 2015, the parties submitted a joint letter regarding a dispute over plaintiffs’

4

alleged violation of the protective order in this case. Ltr. 1 (Dkt. No. 260). Quest accuses

5

plaintiffs of violating the protective order by disclosing Quest’s “highly confidential – attorney’s

6

eyes only” information to their expert, Joseph Plandowski. Id.

7

The protective order sets out specific restrictions on which experts may be given access to

8

another party’s highly confidential information. See Dkt. No. 101 at § 7.4. Section 7.4(a)(3) of

9

the protective order prohibits the disclosure of “highly confidential – attorney’s eyes only”
information to any expert (i) who either is or is anticipated to become a current officer, director, or

11
United States District Court
Northern District of California

10

employee of a party or competitor of a party; or (ii) who is involved in “competitive

12

decisionmaking,” as defined in U.S. Steel v. United States, 730 F.2d 1465, 1468 n.3 (Fed. Cir.

13

1984), on behalf of a party or competitor of a party. Id. at § 7.4(a)(3).

14

Quest asserts that Plandowski’s business, In-Office Pathology LLC (“IOP”), and the

15

“physicians’ office laboratories” (“POLs”) that IOP helps to install and operate are competitors of

16

Quest. Ltr. 2-5. Quest requests an order (i) striking Plandowski’s declaration; (ii) prohibiting

17

plaintiffs from any further disclosure of Quest’s highly confidential information to Plandowski;

18

(iii) requiring Plandowski to return to Quest within three days all of Quest’s highly confidential

19

information in his possession, as well as “all documents derived therefrom;” (iv) prohibiting

20

Plandowski from providing “advice, analysis, or recommendations” to any competitor of Quest

21

concerning the matters at issue in this litigation while it remains pending; and (v) awarding Quest

22

its attorney’s fees and costs expended in preparing and filing the parties’ joint letter. Ltr. 5.

23

Plaintiffs counter that neither IOP nor its POL clients compete with Quest, and that even if

24

POLs do qualify as Quest’s competitors, Plandowski is not involved in competitive

25

decisionmaking on their behalf. Ltr. 6-10.

26

“[T]o determine whether or not a protective order has been violated, courts focus on the

27

terms of the order itself.” Apple, Inc. v. Samsung Elecs. Co., Ltd., 2014 U.S. Dist. LEXIS 11778,

28

33 (N.D. Cal. Jan. 29, 2014); see also Biovail Labs., Inc. v. Anchen Pharm., Inc., 463 F. Supp. 2d
17

1

1073, 1080-81 (C.D. Cal. 2006). “A protective order should be read in a reasonable and common

2

sense manner so that its prohibitions are connected to its purpose.” On Command Video Corp. v.

3

LodgeNet Entm’t Corp., 976 F. Supp. 917, 921 (N.D. Cal. 1997).

4

The protective order in this case does not define “competitor.” One court in this circuit has

5

explained that, “in the traditional sense,” competitors are “persons endeavoring to do the same

6

thing and each offering to perform the act, furnish the merchandise, or render the service better or

7

cheaper than his rival.” Summit Tech., Inc. v. High-Line Med. Instruments, Co., 933 F. Supp. 918,

8

939 n.14 (C.D. Cal. 1996) (internal quotation marks and modifications omitted). Another court in

9

this circuit has similarly defined “competitor” to mean “a rival” or “one selling or buying goods or
services in the same market as another.” New.Net, Inc. v. Lavasoft, 356 F. Supp. 2d 1090, 1104

11
United States District Court
Northern District of California

10

(C.D. Cal. 2004). Both parties rely on these definitions and appear to agree they accurately

12

convey the meaning of “competitor” for the purposes of the protective order. See, e.g., Ltr. 2, 7.

13

Plaintiffs assert that IOP does not compete with Quest because it is not a lab and does not

14

perform or sell lab tests. Ltr. 6. Rather, IOP is in the business of installing “anatomic pathology

15

laboratories into specialty physicians’ offices.” Id. This means that IOP helps physicians hire

16

their own pathologists and set up their own laboratories so that they can perform their own lab

17

work. Ltr. 1, 6. These physicians’ office laboratories (“POLs”) are legally prohibited (under 42

18

U.S.C. § 1395nn(b)(1) and 42 C.F.R. § 411.355) from seeking referrals from doctors other than

19

those belonging to the particular physicians’ practice group. Ltr. 6. Thus, plaintiffs assert, the

20

POLs that IOP works with do not compete with Quest either. POLs “run lab tests strictly for their

21

own patients . . . They have simply internalized a process that Quest used to perform.” Ltr. 6-7.

22

Plaintiffs further assert that even if the POLs do qualify as competitors of Quest, IOP

23

merely acts as a “consultant” for its POL clients and is not involved in competitive

24

decisionmaking on their behalf. In U.S. Steel, the Federal Circuit used the term “competitive

25

decisionmaking” to describe a situation where an in-house counsel participates in decisions

26

regarding matters, such as pricing and product design, “made in light of similar or corresponding

27

information about a competitor.” 730 F.2d at 1468 n.3; see also Brown Bag Software v. Symantec

28

Corp., 960 F.2d 1465, 1470 (9th Cir. 1992) (“A crucial factor in the U.S. Steel case was whether
18

1

in-house counsel was involved in competitive decisionmaking; that is, advising on decisions about

2

pricing or design made in light of similar or corresponding information about a competitor.”)

3

(internal quotation marks omitted). Plaintiffs state that once IOP has helped a physicians’ office

4

set up a POL, “the physicians are in charge of operating the lab and making decisions about the

5

lab . . . IOP provides general advice concerning reimbursement [from managed care plans], but

6

does not make strategic decisions for the [POL], does not set [its] prices . . . , and does not dictate

7

product design.” Ltr. 9.
Quest does not dispute plaintiffs’ general descriptions of IOP’s business model and the

8

operation of POLs but contends that both IOP and POLs compete with Quest. Quest emphasizes

10

that the creation of a POL “allows [a physicians’ practice group] to stop referring [its laboratory

11
United States District Court
Northern District of California

9

tests] to Quest and similar labs, and instead to self-refer those services to the pathologist hired by

12

the practice.” Ltr. 1. The managed care plans that previously reimbursed Quest for laboratory

13

services for the physicians’ practice group’s patients then begin reimbursing the practice instead.

14

In this way, Quest contends, POLs compete with (and take business from) Quest.
Quest points to its SEC filings, which cite POLs as a significant threat to its bottom line.

15
16

Ltr. 3. 10 For example, Quest’s 2013 annual report states, “If our customers continue to internalize

17

testing that we currently perform, the demand for our testing services may be reduced and our

18

revenues may be materially adversely impacted.” Id. Quest also notes that in a July 2010

19

interview, Plandowski stated that the entities “hur[t] the most” by the growth of POLs are

20

“national pathology labs.” Ltr. 3. A posting on IOP’s website regarding lobbying efforts “to kill

21

off” POLs likewise describes a zero-sum relationship between POLs and large-scale clinical

22

laboratories like Quest:

23

Remember, the stakeholders spreading the word of our demise are the following:
hospital-based pathologists, private pathology laboratories, specialty pathology
laboratories, and the very large commercial laboratories. They would all benefit
from the demise of our business model.

24
25
26
27
10

28

Neither party objects to any of the materials submitted by the other in connection with the joint
letter.
19

1

Ltr. 3. Quests asserts that in light of this relationship between POLs and Quest, the fact that POLs

2

cannot seek referrals from doctors outside the particular physicians’ practice group is irrelevant.

3

Ltr. 4. According to Quest, “the competition at issue” is the competition to provide testing

4

services to the patients of physicians’ practice group’s that create POLs; that is enough to make

5

both IOP and POLs competitors of Quest.

6

Quest further asserts that, contrary to plaintiffs’ claim, IOP is involved in “competitive

7

decisionmaking” on behalf of its POL clients. Quest quotes IOP’s website, which states that IOP

8

provides its clients with, among other things, (i) “[c]redentialing and reimbursement services so

9

you get paid by managed care plans;” and (ii) “[o]ngoing advice on legal, reimbursement,
operations, technology transfer, and business issues.” Ltr. 2. Quest also notes that IOP’s revenues

11
United States District Court
Northern District of California

10

are directly linked to those of its clients; IOP’s website states that “[a]ll IOP agreements are ‘at

12

risk’ – if you do not get paid neither does IOP.” Id.

13

Plaintiffs have the better of these arguments. IOP’s business model is too distinct from

14

Quest’s for the entities to qualify as competitors within the meaning of the protective order. IOP

15

helps physicians install and operate their own clinical laboratories; Quest provides physicians with

16

clinical laboratory services. While these endeavors are similar, they are not “the same thing.”

17

Summit Tech., 933 F. Supp. at 939 n.14; see also Fuller Bros. v. Int’l Mktg., Inc., 870 F. Supp. 299,

18

302-03 (D. Or. 1994) (parties were not “endeavoring to do the same thing,” despite plaintiff’s

19

allegation that sales of defendant’s product, EQUAL, reduced demand for its product, TIRE LIFE,

20

where “EQUAL is a tire balancing product[;] TIRE LIFE is not a tire balancing product”).

21

I am also unconvinced that the evidence indicating that IOP’s business model may

22

adversely impact Quest’s bottom line is enough to make IOP and Quest “rival[s] . . . selling or

23

buying goods or services in the same market as another.” New.Net, 356 F. Supp. 2d at 1104.

24

Characterizing every entity whose activities have an economic effect on Quest as a competitor

25

goes far beyond what is necessary to serve the purposes of the protective order. Such a broad

26

definition of competitor would threaten to capture, at the very least, every entity that participates in

27

some way in the clinical laboratory industry, ensnaring plaintiffs in a Catch-22 wherein anyone

28

“qualified to offer an expert opinion [would be] disqualified from reviewing the confidential
20

1

information necessary to form that opinion.” Frazier v. Layne Christensen Co., No. 04-cv-00315,

2

2005 WL 372253, at *3 (W.D. Wis. Feb. 11, 2005). That would not be a sensible reading of a

3

protective order designed to allow the parties to obtain and rely on expert testimony.
Whether POLs qualify as Quest’s competitors is a closer question. But even if they do,

4
5

Quest has not shown that Plandowski is involved in “competitive decisionmaking” on their behalf.

6

A “competitive decisionmaker” 11 is one who “advis[es] on decisions about pricing or design made

7

in light of similar or corresponding information about a competitor.” Brown Bag, 960 F.2d at 1470

8

(internal quotation marks omitted). It is a shorthand label for a person who, because of her

9

position and the particular decisions in which she is involved, cannot help but inadvertently rely on
the confidential information at issue in discussing or reaching those decisions. See Santella v.

11
United States District Court
Northern District of California

10

Grizzly Indus., Inc., No. 12-cv-00013, 2012 WL 5399970, at *6 (D. Or. Nov. 5, 2012) (competitive

12

decisionmaker is someone “in a position to effectuate or direct decisions made using knowledge

13

that is tainted by . . . confidential information”); accord Isis Pharm., Inc. v. Santaris Pharma A/S

14

Corp., No. 11-cv-02214, 2013 WL 3367575, at *5-6 (S.D. Cal. July 5, 2013). Prohibitions on

15

disclosure to persons involved in competitive decisionmaking recognize that it “is very difficult for

16

the human mind to compartmentalize and selectively suppress information once learned, no matter

17

how well-intentioned the effort may be to do so.” F.T.C. v. Exxon Corp., 636 F.2d 1336, 1350

18

(D.C. Cir. 1980); see also Brown Bag, 960 F.2d at 1471 (inquiring into whether in-house counsel

19

“could lock-up [the confidential information] in his mind, safe from inadvertent disclosure to his

20

employer, once he had read the documents”). “In the classic scenario, a decisionmaker may learn

21

how a competitor prices its product and despite the decisionmaker’s best conscious effort his or her

22

future pricing decisions may be made in partial reliance on that information.” Santella, 2012 WL

23

5399970, at *5.

24
25
26
27
28

11

Courts construing “competitive decisionmaking” as used in U.S. Steel generally do not
distinguish between a “person involved in competitive decisionmaking” and a “competitive
decisionmaker.” See, e.g., Isis, 2013 WL 3367575, at *5-6; Santella, 2012 WL 5399970, at *5-6;
Applied Signal Tech., Inc. v. Emerging Markets Commc'ns, Inc., No. 09-cv-02180-DMR, 2011
WL 197811, at *4-5 (N.D. Cal. Jan. 20, 2011); Nazomi Commc'ns, Inc. v. Arm Holdings PLC, No.
02-cv-02521-JF, 2002 WL 32831822, at *2-3 (N.D. Cal. Oct. 11, 2002).
21

1

The record here does not indicate that Plandowski is likely to inadvertently disclose

2

Quest’s information to his POL clients. Even assuming that POLs qualify as Quest’s competitors,

3

“[a] competitive relationship alone . . . is not sufficient to find that [Plandowski] will inadvertently

4

disclose [Quest’s] confidential information.” Santella, 2012 WL 5399970, at *6.
The relevant question remains whether Plandowski is “in a position to effectuate or direct

5

decisions made using knowledge that is tainted by [Quest’s] confidential information.” Id. The

7

record does not indicate that he is. The only information that Quest is concerned about being

8

inadvertently disclosed is information regarding its pricing and costs. Quest asserts this

9

information will give IOP and its POL clients a “competitive advantage against Quest.” Ltr. 4.

10

But Quest has been unable to articulate a concrete scenario in which information regarding its

11
United States District Court
Northern District of California

6

pricing and costs would be useful to POLs, much less one in which such information would give

12

POLs a competitive advantage. 12 Because POLs cannot seek referrals from doctors other than

13

those belonging to the particular physicians’ practice group, POLs do not compete for referrals

14

with clinical laboratories like Quest, and thus have little reason to attempt to underprice such

15

entities. It is conceivable that POLs would rely on information about Quest’s pricing and costs in

16

negotiating reimbursement rates with the insurance providers that pay them. However, given that

17

these reimbursement rates are generally set according to pre-established fee schedules, it is not

18

clear how such information would benefit POLs even in this context. See Ltr. 9-10. That the

19

confidential information at issue is not directly relevant to the regular operations of POLs weighs

20

heavily against a finding that Plandowski will be unable to “lock-up [that information] in his

21

mind” in advising his POL clients. See Brown Bag, 960 F.2d at 1471.
Moreover, there is no indication that Plandowski makes pricing or other decisions on

22
23

behalf of the POLs he works with. At most, Plandowski advises POLs regarding such decisions.

24

This makes inadvertent disclosure even less likely. If Plandowski were empowered to make

25
26
27
28

12

In the joint letter, Quest provided no explanation of how its pricing and cost information would
be useful to POLs. At oral argument, counsel for Quest vaguely asserted that Plandowski and IOP
“can help physicians undercut Quest’s pricing. They can help them deal with their future
strategies. They can help them with how to . . . negotiate with third party payers about
reimbursement.” Tr. 52 (Dkt. No. 266).
22

1

decisions on behalf of his POL clients, “then he could, perhaps, be in a position to inadvertently

2

use [Quest’s confidential information] in reaching a decision because it would be irrevocably

3

present in his mind.” Santella, 2012 WL 5399970, at *6. But as a third-party consultant,

4

Plandowski “may only communicate, or in any other way use, that information through an

5

affirmative act.” Id. I am satisfied that Plandowski will be able to prevent himself from taking

6

any affirmative act which inadvertently discloses Quest’s confidential information to a POL.
Quest’s request for relief on the protective order issue is DENIED.

7
8

II.

PLAINTIFFS’ UPA CLAIMS: CAUSATION
Quest argues that it is entitled to summary judgment on plaintiffs’ UPA claims because

9

plaintiffs cannot establish that their alleged injuries were caused by any actionable below-cost

11
United States District Court
Northern District of California

10

pricing by Quest. Mot. 17-22; Reply 6-11. Quest contends that, at best, plaintiffs’ alleged injuries

12

are traceable to underpricing that is nonactionable pursuant either to the May 19, 2011 settlement

13

agreement between Hunter and Quest, or to the statute of limitations.
A plaintiff must show a causal connection between its harms and the defendant’s below-

14
15

cost sales to recover damages under sections 17043 and 17044. 13 See Fisherman’s Wharf, 114

16

Cal. App. 4th at 330 (noting that “for [plaintiff] to maintain its price predation claim [under section

17

17043], it must be able to link [defendant’s] below-cost pricing to a competitive injury”); Dealers

18

Wholesale Supply, Inc. v. Pac. Steel & Supply Co., 6 ITRD 1563, at *8-9 (N.D. Cal. 1984)

19

(granting summary judgment for defendants on section 17043 claims where plaintiff “failed to

20

establish the existence of any causal link between actions taken by the defendants and harm caused

21

to the plaintiff”); Judicial Council of California Civil Jury Instruction 3301, “Below Cost Sales –

22

Essential Factual Elements” (requiring plaintiff to prove “[t]hat it was harmed” and “[t]hat

23
24
13

25
26
27
28

The UPA does not require a showing of “actual injury” to obtain injunctive relief under sections
17043 and 17044. See Cal. Bus. & Prof. Code § 17082 (“In any action under this chapter, it is not
necessary to allege or prove actual damages or the threat thereof, or actual injury or the threat
thereof, to the plaintiff. But, in addition to injunctive relief, any plaintiff in any such action shall
be entitled to recover three times the amount of the actual damages, if any, sustained by the
plaintiff.”). In federal court, however, the Article III standing requirement precludes an uninjured
plaintiff from maintaining a UPA action, whether for damages or for injunctive relief alone. See
Solinger v. A&M Records, Inc., 586 F.2d 1304, 1309 (9th Cir. 1978).
23

1

[defendant’s] conduct was a substantial factor in causing [plaintiff’s] harm”); Judicial Council Of

2

California Civil Jury Instruction 3302, “Loss Leader Sales – Essential Factual Elements” (same).

3

California courts have warned against imposing an “unduly rigorous standard of proving

4

antitrust injury.” Diesel Elec. Sales & Serv., Inc. v. Marco Marine San Diego, Inc., 16 Cal. App.

5

4th 202, 219-20 (1993) (holding that plaintiff bringing claims under Cal. Bus. & Prof. Code §

6

17045, the UPA’s secret discount provision, produced sufficient evidence of causation to justify

7

presentation of expert testimony on damages at trial). An antitrust plaintiff “seeking damages for

8

loss of profits is required to establish only with reasonable probability the existence of some causal

9

connection between defendant’s wrongful act and some loss of . . . anticipated revenue.”
Suburban Mobile Homes, Inc. v. Amfac Communities, Inc., 101 Cal. App. 3d 532, 545 (1980).

11
United States District Court
Northern District of California

10

“Once that has been accomplished, the jury will be permitted to act upon probable and inferential

12

proof . . . and render its verdict accordingly.” In re Wholesale Elec. Anti-Trust Cases I & II, 147

13

Cal. App. 4th 1293, 1309 (2007) (internal quotation marks and citations omitted). Evidence

14

demonstrating “a reasonable probability that there was some causal connection between

15

defendant’s wrongful act and the damages alleged” is thus generally sufficient to withstand a

16

motion for summary judgment. Id. That said, “damages cannot be awarded in antitrust cases upon

17

sheer guesswork or speculation.” Diesel, 16 Cal. App. 4th at 219 (internal quotation marks

18

omitted). “[T]he plaintiff must show with reasonable certainty that he has suffered damages by

19

reason of the wrongful act of the defendant.” Suburban, 101 Cal. App. 3d at 545.

20

Two cases help illustrate a plaintiff’s evidentiary burden in this context. In Diesel, the

21

California Court of Appeal found that the trial court had erred in excluding, for failure to show

22

causation, the testimony of the UPA plaintiff’s damages expert. 16 Cal. App. 4th at 218-20. The

23

court stated: “[Plaintiff] showed its gross sales drastically declined and profits fell after [defendant]

24

entered the market and received secret, unearned discounts. Further, [plaintiff] introduced the

25

testimony of two customers who chose to do business with [defendant] rather than [plaintiff] due

26

to [defendant’s] lower pricing. Such evidence is sufficient to show causation of antitrust injury.”

27

Id. at 219.

28
24

In contrast, in Dealers Wholesale, the court granted summary judgment for the defendants

1
2

on the plaintiff’s section 17043 claims where the plaintiff submitted no testimony from former

3

customers “indicating that defendants’ conduct caused them to cease patronizing” the plaintiff’s

4

business, and no statistics, expert analysis, or other evidence “linking defendants’ actions to [the

5

plaintiff’s] lost sales.” 6 ITRD 1563, at *5. The plaintiff did submit its own financial statements,

6

several excerpts from the deposition of its former president, and a declaration by the former

7

president. Id. at *3. However, the plaintiff made “no attempt to explain the financial statements”

8

through expert testimony and made “no effort to break down any of the statements to show . . .

9

figures attributable to [the particular products at issue].” Id. The court found that this failure
rendered the statements “virtually meaningless” because the plaintiff also sold a large variety of

11
United States District Court
Northern District of California

10

other products. Id. The court stated: “At most [the] statements establish that [the plaintiff] became

12

less profitable and went out of business. They do not show how any of [defendants’] actions

13

caused this decline.” Id. at *5.
The former president’s deposition testimony was likewise inadequate because, while he

14
15

asserted that defendant’s conduct had caused the plaintiff to lose two accounts and had adversely

16

impacted the vast majority of its other accounts, he made this assertion “without presenting any

17

analysis of the comparative prices offered by [defendants] and [the plaintiff], and without

18

presenting any statements or documentary evidence . . . to the effect that actions taken by

19

[defendants] caused [customers] to cease doing business with [the plaintiff].” 6 ITRD 1563, at *5.

20

Similarly, the former president’s declaration failed to create a genuine dispute of fact on causation

21

because it “d[id] not explain how [defendant’s alleged misconduct] caused the loss . . . , or how he

22

k[new] other factors were not responsible.” Id. at *4. The court concluded that the plaintiff’s

23

evidence in support of causation “fail[ed] to connect particular actions with particular effects” and

24

was thus insufficient to withstand summary judgment. Id. at *3, *8-9.
Quest contends that plaintiffs have not produced sufficient evidence to establish a

25
26

reasonable probability of some causal connection between Quest’s below-cost pricing (to the

27

extent that below-cost pricing is actionable) and their claimed harms. I address each plaintiff in

28

turn.
25

1

A.

Hunter

2

Quest identifies four deficiencies in Hunter’s alleged injuries.
1.

3

Overall Profitability of the Aetna and Blue Shield Contracts

First, Quest observes that Hunter traces the bulk of its alleged injuries back to its loss of in-

4
5

network status with Aetna and Blue Shield. The record shows, however, that Quest’s contracts

6

with Aetna and Blue Shield both generated positive margins overall. According to Quest, this

7

evidence of overall profitability precludes Hunter from showing that its claimed harms resulting

8

from its loss of in-network status are attributable to Quest’s below-cost sales. Mot. 19.
The problem with this argument is that plaintiffs have produced evidence indicating that

9

while the Aetna and Blue Shield contracts generated positive margins overall, each contract

11
United States District Court
Northern District of California

10

included a number of tests that were priced below-cost, even according to the gross margin

12

measure. See Regan Rpt. 8. Regan identifies several tests from both contracts with mere costs of

13

testing significantly higher than the prices offered to either Aetna and Blue Shield. The obvious

14

inference is that once fully-allocated costs are considered, as they must be under the UPA, see

15

First Data, 20 Cal. App. 4th at 1537, the extent of below-cost sales involved in the Aetna and

16

Blue Shield contracts will only increase.
In addition, Quest’s head of compliance, Timothy Sharpe, confirmed at his deposition that

17
18

Quest

19
20
21
22
23
24
25
26

Sharpe Dep. 26-27.
Under the UPA, whether the defendant’s “overall price structure [is] predatory” is not

27
dispositive. Fisherman’s Wharf, 114 Cal. App. 4th at 324. Indeed, it is not even relevant.
28
26

1

“[C]ourts in state predatory price cases brought under the UPA focus literally on whether the

2

defendant sold ‘any article or product’ at less than cost.” Id. at 326. Under this “individual item

3

approach,” courts analyze the sales at issue based on the “actual below-cost prices charged for a

4

product or service, without regard to whether other above-cost sales . . . made the overall

5

enterprise profitable.” Id. (internal emphasis omitted).

6

Quest does not challenge this general rule but argues that plaintiffs have failed to produce

7

sufficient evidence of any individual tests that were part of the Aetna or Blue Shield contracts

8

being priced below-cost. Reply 7-8. Quest points to excerpts from the deposition testimony of

9

McCabe, in which he states that he has never heard of a Quest pricing strategy according to which
certain tests are priced below-cost for the purpose of harming regional labs. See McCabe Dep.

11
United States District Court
Northern District of California

10

304, 326 (Sandrock Decl. Exs. 25, 33). McCabe’s testimony certainly favors Quest, but in light of

12

Regan’s expert report and Sharpe’s deposition testimony, it is hardly enough to establish as a

13

matter of law that the Aetna and Blue Shield contracts did not include individual tests priced

14

below-cost.

15
16

Quest emphasizes that the only relevant evidence on file indicates that the Aetna and Blue
Shield contracts were not negotiated

17
18
19
20
21
22
23
But Quest

24
25

does not explain why this matters. The analysis in a UPA action for below-cost pricing “focus[es]

26

literally on whether the defendant sold ‘any article or product’ at less than cost.” Fisherman’s

27

Wharf, 114 Cal. App. 4th at 324. Quest offers no authority for the proposition that, in this case,

28

the analysis should instead focus on the particular manner in which the Aetna and Blue Shield
27

1

contracts were negotiated.
Finally, Quest attempts to distinguish Fisherman’s Wharf on the ground that the products

3

at issue in that case were two separate types of tickets (wholesale and retail) for which there were

4

two separate groups of customers. See 114 Cal. App. 4th at 323. Quest contends this case is

5

distinguishable because its position on the overall profitability of the Aetna and Blue Shield

6

contracts “does not involve any price averaging across separate products, but instead looks at a

7

single product (laboratory tests) purchased by a single customer,” i.e., either Aetna or Blue Shield.

8

Reply 8. Even assuming this distinction exists, it appears to be one without a difference. Quest

9

offers no explanation as to why “price averaging” across a single product sold to a single customer

10

should be legal under the UPA, when “price averaging” across different products sold to different

11
United States District Court
Northern District of California

2

customers is not. In any event, Quest’s attempt to characterize all laboratory tests sold to Aetna

12

and Blue Shield as a single “product” is unconvincing. Quest’s business with both insurance

13

providers involved the sale of dozens, if not hundreds, of different tests. Quest does not explain

14

why the different types of tickets in Fisherman’s Wharf are properly characterized as different

15

products, but the different types of tests at issue here are not.

16

In sum, the fact that Quest’s contracts with Aetna and Blue Shield were profitable overall

17

does not preclude Hunter’s theory that it was harmed as a result of Quest’s below-cost pricing of

18

individual tests to Aetna and Blue Shield. Quest is not entitled to summary judgment on this

19

ground.

20
21

2.

Harms Barred by the May 19, 2011 Settlement Agreement

As discussed in Section IV below, on May 19, 2011, Hunter and Quest settled a prior

22

lawsuit brought by Hunter. In the settlement agreement, Hunter agreed to a broad release of “any

23

and all claims, . . . whether known or unknown,” against Quest. The second flaw Quest identifies

24

in Hunter’s claimed harms in the present case is that Hunter asserts it lost business from four

25

accounts – Alexander Valley, Chanate Health Center, Petaluma Health Center, and Southwest

26

Community Clinic – as a result of Quest’s contract with Partnership Health Plan. Hunter lost each

27

of these accounts in or around October 2009, long before the May 19, 2011 settlement agreement

28

in which Hunter released “any and all claims” against Quest arising from conduct occurring before
28

1

that date. Accordingly, Quest argues, claims arising from a loss of business from the four

2

accounts are barred. Mot. 19.

3

Quest is right. As discussed in Section IV below, to the extent that Hunter’s claims are

4

founded on a loss of business from Alexander Valley, Chanate Health Center, Petaluma Health

5

Center, and Southwest Community Clinic, they are barred by the settlement agreement and are

6

nonactionable. Quest’s motion for summary judgment on these claims is GRANTED.

7

The same is true of Hunter’s claims arising from the 2009 amendment to Quest’s contract

8

with Blue Shield. It is undisputed that the amendment was executed in 2009, and that Hunter

9

began to suffer damages at least by May 2010 as a result of losing its in-network status with Blue
Shield. See Regan Rpt. 17. Accordingly, to the extent that Hunter’s claims are founded on the

11
United States District Court
Northern District of California

10

Blue Shield contract, they are also barred by the settlement agreement. Quest’s motion for

12

summary judgment on these claims is also GRANTED.

13
14

3.

Damages Caused by Quest’s Capitated IPA Contracts

The third flaw Quest identifies in Hunter’s alleged injuries is that Hunter asserts it has

15

suffered damages as a result of Quest’s capitated IPA contracts. Mot. 21-22. Quest contends this

16

theory fails as a matter of law because Hunter did not compete for capitated business. Id. Quest

17

states that Hunter thus has no basis for asserting it was harmed by Quest’s capitated IPA contracts,

18

even assuming the contracts were below-cost. Id.

19

Hunter responds that it does not trace its injuries to lost capitated business. See, e.g.,

20

Regan Rpt. at 14 (“My calculations do not assume that Hunter, or any other plaintiff, would have

21

obtained revenue from those tests subject to the capitation portion of [Quest’s capitated IPA

22

contracts].”). Rather, Hunter’s theory is that “the existence of capitated contracts between Quest

23

and IPAs requires individual physicians who are members of [the] IPAs to send their [fee-for-

24

service] work to Quest.” Opp. 22. Thus, according to Hunter, in the “but-for world” where Quest

25

does not enter below-cost capitated contracts with IPAs, “the discretionary [fee-for-service] work

26

associated with those contracts is open for competition.” Id. Quest counters that, whether or not

27

this theory makes sense in the abstract, Hunter has failed to produce sufficient evidence in support

28

of it to withstand summary judgment. See Reply 8-11.
29

1

I agree with Quest. Contrary to Hunter’s assertion, there is no evidence on file indicating
that Quest “requires” individual physicians belonging to IPAs that enter capitated contracts with

3

Quest to send their discretionary fee-for-service business to Quest. Opp. 22. The only

4

declarations on file submitted by IPA members are those from the Physicians Medical Group

5

doctors. None of them state they are contractually required or have in any way been pressured to

6

use Quest for their fee-for-service testing. See Lambrinos Decl. Exs. 37-39. It is true that Fuchs

7

states that Quest’s contract with Partnership Health Plan required Chanate Health Center and

8

Southwest Community Clinic to use Quest for diagnostic testing services for Partnership Health

9

Plan’s members. Fuchs Decl. ¶ 4. But neither Partnership Health Plan nor Chanate Health Center

10

nor Southwest Community Clinic is an IPA. And, in any event, the harms that Hunter traces to the

11
United States District Court
Northern District of California

2

Partnership Health Plan are barred by the May 19, 2011 settlement agreement.

12

Plaintiffs’ experts also fail to demonstrate a causal connection between Quest’s capitated

13

IPA contracts and Hunter’s claimed damages. Plandowski opines that “[u]sing below-cost

14

capitated contracts to obtain [fee-for-service] work from referring physicians is damaging to

15

competition because it artificially deprives smaller independent laboratories access to this [fee-for-

16

service] revenue stream.” Plandowski Decl. ¶ 24. Plandowski cites no authority for this

17

proposition, however, and he makes no attempt to explain how it applies to Hunter or the other

18

plaintiffs. See id. Regan calculates the amount of revenue lost by Hunter “when it was foreclosed

19

from obtaining fee-for-service testing associated with Quest’s capitated accounts.” Regan Rpt. 14.

20

But Regan, like Plandowski, offers no explanation as to why it is appropriate to assume that

21

Quest’s capitated IPA contracts, whether below-cost or not, have deprived Hunter of fee-for-

22

service business. See id. at 14-23. His report is completely silent on the subject of causation, with

23

one exception: he states that he was “asked to assume” that PBP suffered damages as a result of

24

Quest’s underpricing. Regan Rpt. 37. While Regan does not make the same statement with

25

respect to Hunter’s alleged injuries resulting from Quest’s capitated IPA contracts, there is nothing

26

in his report to indicate that his “finding” of causation on this theory is anything more than another

27

unsupported assumption he was asked to make in conducting his analysis.

28

Plaintiffs’ opposition does not help substantiate a causal link between Quest’s capitated
30

1

IPA contracts theory and Hunter’s alleged injuries either. The brief’s half-page discussion of this

2

issue admits that plaintiffs’ “current damages calculations assume that absent Quest’s below-cost

3

sales, each plaintiff would have had greater access to the [fee-for-service] market.” Opp. 22

4

(emphasis added). Plaintiffs then make their assertion that “the existence of capitated contracts

5

between Quest and IPAs requires individual physicians who are members of [the] IPAs to send

6

their [fee-for-service] work to Quest.” Id. But plaintiffs cite no evidence to support this claim, 14

7

and as stated above, there is none in the record. Quest accurately observes that the bulk of

8

plaintiffs’ opposition is devoted to addressing an issue that Quest does not dispute for the purposes

9

of this motion – namely, whether Quest sold any of its tests below-cost. Reply 1. The minimal
portion of the opposition focused on causation does not meaningfully contribute to creating a

11
United States District Court
Northern District of California

10

genuine dispute on whether Quest’s alleged below-cost capitated IPA contracts in fact caused

12

Hunter harm.
While Hunter’s burden to show causation at this juncture is not “unduly rigorous,” it must

13
14

produce sufficient evidence to show that its damages theories are more than “sheer guesswork or

15

speculation.” Diesel, 16 Cal. App. 4th at 219 (internal quotation marks omitted). The near total

16

absence of evidence of a causal connection between Quest’s capitated IPA contracts and Hunter’s

17

alleged injuries does not satisfy this standard. To the extent Quest’s motion for summary

18

judgment is aimed at Hunter’s claims arising from Quest’s alleged below-cost capitated IPA

19

contracts, the motion is GRANTED.

20

4.

21

Quest contends that Hunter has also failed to establish causation with respect to its claimed

22
23
24
25

Damages Caused by Below-Cost Sales in the General Fee-For Service
Market

harms arising from Quest’s alleged below-cost sales in the general fee-for service market. Reply
11. I agree. Hunter’s theory that it lost business as a result of Quest’s below-cost sales in the
general fee-for-service market is no better supported than Hunter’s capitated IPA contracts theory.

26
14

27
28

In fact, plaintiffs cite nothing at all in support of this claim. Following the quoted statement,
plaintiffs insert an “Id.” cite. Opp. 22. However, the “id.” cite is preceded by an unaccompanied
“Supra” cite that contains no reference to a particular source or page number. Nothing in the
preceding pages supports the quoted statement.
31

If anything, it is supported by even less evidence. Hunter submits no declarations in support of the

2

theory, instead relying exclusively on the Plandowski and Regan opinions. The Plandowski and

3

Regan opinions, however, make no attempt to link Quest’s below cost sales in the general fee-for-

4

service market with Hunter’s injuries. Plandowski opines extensively on Quest’s alleged below-

5

cost pricing, including in the general fee-for-service market, but provides no opinion regarding a

6

causal connection between such underpricing and Hunter’s (or any other plaintiff’s) claimed

7

damages. 15 Similarly, Regan calculates Hunter’s “lost opportunity revenue” attributable to

8

Quest’s underpricing in the general fee-for-service market, but does not explain why it is

9

appropriate to assume that such underpricing caused the damages he calculates. See Regan Rpt.

10

21. The closest Regan comes to doing so is to observe that Hunter performed many of the same

11
United States District Court
Northern District of California

1

tests that are among Quest’s “top 100 tests.” See id. But the mere fact that Quest offered the same

12

services as Hunter, standing alone, does not establish a genuine dispute of material fact on

13

causation. To the extent that Quest’s motion for summary judgment is aimed at Hunter’s claims

14

arising from Quest’s alleged below-cost sales in the general fee-for-service market, the motion is

15

GRANTED.

16

B.

SPA

17

The parties agree that “SPA’s claims are derivative of Hunter’s claims.” Mot. 20; see also

18

Regan Rpt. 35-36. Accordingly, SPA’s claims based on Quest’s alleged underpricing in

19

connection with its capitated IPA contracts, and in the general fee-for-service market, fail for the

20

reasons discussed above with respect to Hunter’s claims based on these theories. Quest’s motion

21

for summary judgment on these claims is GRANTED.
Quest also moves for summary judgment on SPA’s claims arising from the Partnership

22
23

Health Plan contract. Mot. 20. While Hunter’s claims arising from the Partnership Health Plan

24
15

25
26
27
28

Indeed, Plandowski explains at the outset of his declaration that he was retained to determine
whether Quest has sold tests at below-cost, while Regan was tasked with delivering an opinion on
causation and injury. Plandowski Decl. ¶ 8. He states: “I was retained by plaintiffs to review
[Quest’s] lab data from their California operations. The scope of my work included an
examination [of] Quest’s pricing to its [IPAs] as well as to its fee-for-service clients to determine
if those prices and corresponding sales were below-cost. [Regan] has done a detailed quantitative
assessment of the ‘but for’ world, the market foreclosure resulting from Quest’s below-cost sales,
and the resulting damages.” Id.
32

1

contract are barred by the May 19, 2011 settlement agreement, SPA was not a party to that

2

agreement. See Settlement Agreement and Release at 1-2 (Sandrock Decl. Ex. 1). Quest argues

3

that SPA’s claims arising from the Partnership Health Plan contract are nonetheless barred by the

4

UPA’s three-year statute of limitations. Id. Quest has not established as a matter of law, however,

5

that the four lost accounts that SPA attributes to the Partnership Health Plan contract were lost

6

before November 14, 2009, the cutoff date for the three-year limitations period. See G.H.I.I., 147

7

Cal. App. 3d at 279 n.16 (“When applying the one and three year periods of limitation for any

8

continuing violations of the Unfair Practice Act, damages accrue from the date they are suffered

9

and certain.”). Accordingly, Quest is not entitled to summary judgment on this ground. SPA’s

10

claims based on the Partnership Health Plan contract may proceed.

United States District Court
Northern District of California

11

C.

RDL

12

RDL does not identify any existing accounts from which it lost business as a result of

13

Quest’s alleged underpricing but asserts that it lost business from the following potential accounts:

14

(1) Amin Attia; (2) Andre Babajanians; (3) Michael Fabricant / Michael Sugarman; (4) Kenneth

15

Hsu; (5) Sam Metyas; (6) Bruce Dreyfus; (7) Elyse Rubenstein; (8) Barry Shibuya; (9) Marilyn

16

Solsky; (10) Boniske / Watrous; (11) Christian Dequet; (12) Neville Udwadia. Quest’s Appendix

17

A at 6-7 (Dkt. No. 216-3). Regan attributes RDL’s loss of potential business from these accounts

18

both to Quest’s capitated contracts with IPAs and to Quest’s other below-cost sales in the general

19

fee-for-service market. Id. Quest contends that RDL has not presented any evidence linking these

20

claimed injuries to the alleged misconduct. Mot. 20.

21

Quest is right. RDL submits even less evidence than Hunter in support of its theory that it

22

was harmed by Quest’s below-cost sales. RDL submits no declarations from any former or

23

potential customers, IPA members or otherwise, and instead relies exclusively on the Plandowski

24

and Regan opinions. Plandowski and Regan offer no more guidance regarding RDL’s damages in

25

connection with Quest’s alleged underpricing than they do regarding Hunter’s. Quest’s motion for

26

summary judgment on RDL’s claims under the UPA is GRANTED.

27

D.

PBP

28

Plaintiffs assert that PBP lost business from two accounts as a result of Quest’s below-cost
33

1

sales: (1) RadNet and (2) Imaging Healthcare. Sandrock Decl. Ex. 19. Regan calculated PBP’s

2

damages based on the assumptions that PBP was unable to obtain fee-for-service sales due to

3

Quest’s capitated contracts with IPAs, and that Quest’s below-cost sales precluded PBP from

4

obtaining in-network status with either Aetna or Blue Shield. Regan Rpt. 37-38. Quest contends

5

that PBP has failed to produce sufficient evidence in support of these assumptions to create a

6

genuine issue of material fact regarding causation.
Quest is correct again. PBP’s evidence regarding causation is more or less identical to

7
8

RDL’s. PBP relies exclusively on the Plandowski and Regan opinions to show causation, neither

9

of which provide any meaningful analysis of the issue. The only evidence cited by Regan in
support of his assumption that PBP was harmed by Quest’s capitated IPA contracts is an excerpt

11
United States District Court
Northern District of California

10

from Dutt’s deposition transcript in which he asserts that Quest’s “capitated contracts inhibit

12

doctors from sending specimens to us.” Dutt Dep. 25 (Lambrinos Decl. Ex. 45). This

13

unsupported assertion by PBP’s own employee is not enough to create a genuine issue of material

14

fact on whether Quest’s capitated IPA contracts caused PBP’s alleged injuries.
With regard to the theory that Quest’s below-cost sales precluded PBP from obtaining in-

15
16

network status with either Aetna or Blue Shield, Regan explicitly states that he was “asked to

17

assume” that PBP suffered damages due to Quest’s contracts with insurance providers. Regan

18

Rpt. 37. Following the “asked to assume” sentence, Regan cites the Seventeenth Amendment to

19

Quest’s contract with Aetna and two excerpts from Dutt’s deposition transcript. Id. at 37 n.179.

20

In the first excerpt, when asked what Quest did to damage PBP, Dutt vaguely refers to the Aetna

21

contract, stating that Quest “apparently” has a contract with Aetna according to which Aetna does

22

not allow “small labs” into its network. Dutt Dep. 25 (Lambrinos Decl. Ex. 45). The second

23

excerpt from Dutt’s deposition transcript was not submitted by either party as an exhibit and is not

24

in the record. Neither the mere existence of the Aetna contract nor Dutt’s vague reference to it

25

during his deposition is sufficient to satisfy PBP’s burden on causation at this juncture. Quest’s

26

motion for summary judgment on PBP’s claims under the UPA is GRANTED.

27

III.

28

PLAINTIFFS’ UPA CLAIMS: IMPROPER PURPOSE
The UPA does not make all below-cost and loss-leader sales illegal. To commit a UPA
34

violation under sections 17043 and 17044, a defendant “must act with the purpose, i.e., the desire,

2

of injuring competitors or destroying competition.” Cel-Tech, 20 Cal.4th at 169; see also Bay

3

Guardian Co. v. New Times Media LLC, 187 Cal. App. 4th 438, 456-57 (2010) (“[T]he very

4

gravamen of the [section 17043] offense is the purpose underlying the anticompetitive act, rather

5

than the actual or threatened harm to competition. The . . . purpose of the below-cost sale is at the

6

heart of the statute and distinguishes the violation from a below-cost pricing strategy undertaken

7

for legitimate, nonpredatory business reasons.”). “Mere knowledge that . . . below-cost or loss-

8

leader sales will injure competitors or destroy competition is not sufficient.” Sub Corp., Ltd. v.

9

Best Buy Co., 365 F. Appx. 767, 768 (9th Cir. 2010). The defendant must have acted with the

10

“conscious object” or “positive desire” of injuring competitors or destroying competition. Cel-

11
United States District Court
Northern District of California

1

Tech, 20 Cal.4th at 173.

12

Under California Business & Professions Code section 17071, improper purpose is

13

presumed where there is “proof of one or more acts of selling or giving away any article or

14

product below cost . . . , together with proof of the injurious effect of such acts.” Cal. Bus. & Prof.

15

Code § 17071. “[T]his presumption may be rebutted . . . by showing that the sales were made in

16

good faith and not for the purpose of injuring competitors or destroying competition.” William

17

Inglis & Sons Baking Co. v. ITT Cont’l Baking Co., 668 F.2d 1014, 1049 (9th Cir. 1981). A

18

plaintiff may also prove improper purpose independently without the aid of the statutory

19

presumption. Bay Guardian, 187 Cal. App. 4th at 457. Under this approach, improper purpose

20

“may be proved the same way as any other fact, by direct or circumstantial evidence.” Id. at 466.

21

Quest argues that plaintiffs cannot show improper purpose. Mot. 14-17. Quest contends

22

that because plaintiffs have not produced evidence of injurious effect resulting from the alleged

23

below-cost pricing, the section 17071 presumption does not apply, and even if it did, Quest has

24

rebutted it. According to Quest, plaintiffs cannot prove improper purpose independently either.

25

The improper purpose issue is vastly simplified in light of plaintiffs’ failure to establish

26

either viability under the May 19, 2011 settlement agreement or causation with respect to the

27

following of plaintiffs’ UPA claims: (i) Hunter’s claims arising from Quest’s contract with

28

Partnership Health Plan; (ii) Hunter’s claims arising from the 2009 amendment to Quest’s contract
35

1

with Blue Shield; (iii) Hunter’s claims arising from Quest’s alleged below-cost capitated IPA

2

contracts; (iv) Hunter’s claims arising from Quest’s alleged below-cost sales in the general fee-

3

for-service market; (v) SPA’s claims arising from Quest’s contract with Partnership Health Plan;

4

(vi) SPA’s claims arising from Quest’s alleged below-cost sales in the general fee-for-service

5

market; (vii) all of RDL’s claims; and (viii) all of PBP’s claims.
Without establishing causation, RDL and PBP cannot establish improper purpose either.

7

The section 17071 presumption arises only upon proof of an “injurious effect” that is caused by

8

the defendant’s underpriced sales. See Sub Corp., 365 F. Appx. at 768-69 (“Injurious effect

9

cannot be established from the mere fact that the plaintiff claims to have lost business without a

10

showing that plaintiff’s lost sales are attributable to the defendant’s actions.”). RDL and PBP’s

11
United States District Court
Northern District of California

6

failure to show causation thus precludes them from relying on section 17071.

12

RDL and PBP could still prove improper purpose independently, but they have not

13

produced sufficient evidence to create a genuine dispute on this issue. Plaintiffs’ only evidence

14

regarding improper purpose is a series of documents indicating that Quest views Hunter as a

15

competitor. See Opp. 5. To a lesser extent, the same documents also indicate that Quest views

16

other, unidentified regional labs as competitors. See, e.g., Lambrinos Decl. Exs. 49-51. Whether

17

or not RDL and PBP are included in this group, however, evidence that Quest views such

18

laboratories as competitors is not equal to evidence that Quest acted with the intent to injure or

19

destroy them. See Cel-Tech, 20 Cal.4th at 168-70 (affirming finding that defendant lacked

20

improper purpose where it “intended merely to compete”); Fisherman’s Wharf, 114 Cal. App. 4th

21

at 330 n.6 (noting that loss-leader sales expose businesses to liability under section 17044 only

22

where they are “undertaken with an intent to injure competitors or to destroy competition, and not

23

simply to increase sales”); First Data Corp., 20 Cal. App. 4th at 1540 (reading sections 17043 and

24

17044 “to require an injurious intent (a specific intent to injure or destroy) and not just an intent to

25

divert customers from a competitor”). RDL and PBP’s failure to demonstrate a genuine dispute as

26

to improper purpose provides additional grounds for granting Quest’s summary judgment motion

27

on their UPA claims.

28

On the other hand, because Hunter and SPA have established a causal connection between
36

1

Quest’s alleged underpricing and at least some of their claims, they may rely on the section 17071

2

presumption as to those claims. Quest does not contest Hunter’s claim that it lost a number of

3

existing accounts as a result of the Seventeenth Amendment to the Aetna contract. Nor does

4

Quest contest SPA’s claim that it lost four existing accounts as a result of Quest’s contract with

5

Partnership Health Plan. Even if Quest did dispute these causal connections, plaintiffs’ causation

6

evidence with respect to these claims is far stronger than their causation evidence with respect to

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the claims discussed above. Richard Gentleman, Aetna’s head of “National Ancillary

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Contracting,” stated at his deposition that

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Gentleman Dep. 164, 194 (Lambrinos Decl. Ex. 30). Naomi Fuchs, CEO

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of Santa Rosa Community Health Centers, states in her declaration that Quest’s contract with

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Partnership Health Plan required Chanate Health Center and Southwest Community Clinic to use

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Quest for diagnostic testing services for Partnership Health Plan’s members. Fuchs Decl. ¶ 4.

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This evidence of the “injurious effect” of Quest’s alleged underpricing is sufficient to trigger the

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section 17071 presumption.

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Quest argues it is nonetheless entitled to summary judgment on these claims because it has

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rebutted the section 17071 presumption. Quest points to Moverley’s statement that Quest has

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made an effort since 2009 to increase the pricing and profitability of its capitated IPA contracts.

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Mot. 15; Moverley Decl. ¶ 21. Quest also points to various deposition excerpts in which

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Moverley and other Quest employees state that Quest focuses primarily on competition with

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LabCorp, not with regional labs like plaintiffs. See, e.g., Moverley Dep. 229, 244-45 (Sandrock

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Decl. Ex. 21); Farley Dep. 290 (Sandrock Decl. Ex. 29); Funk Dep. 76 (Sandrock Decl. Ex. 30).

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Quest argues this testimony is sufficient to conclusively rebut the section 17071 presumption.

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See, e.g., Reply 4-5.

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I disagree. The section 17071 presumption is one affecting the burden of proof. Bay

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Guardian, 187 Cal. App. 4th at 462-63. “Once a presumption affecting the burden of proof comes

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into play, that is an issue which must be presented to the trier of fact.” Id. at 463 (internal

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quotation marks and modifications omitted). “If contrary evidence is introduced, the jury has the
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right to weigh the evidence and determine whether it sufficiently contradicts the presumption.” Id.

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(internal quotation marks omitted). The section 17071 presumption may be contradicted by a

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showing that the underpriced sales “were made in good faith and not for the purpose of injuring

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competitors or destroying competition,” or by establishing one of the UPA’s affirmative defenses.

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Id. at 465. However, unless the defendant is able to produce “conclusive proof that negate[s]

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unlawful purpose as a matter of law,” a plaintiff who triggers the section 17071 presumption is

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entitled to a corresponding jury instruction at trial. Id.
In light of these principles, the fact that Quest denies any purpose to injure competitors and

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has produced some evidence of good faith efforts to compete in the marketplace does not deprive
Hunter and SPA of their right to rely on the statutory presumption. “Quest may have offered

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rebuttal evidence, but [it] did not negate the presumption by conclusive proof.” Id. at 465. 16

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IV.

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Quest asserts that Hunter previously released all claims against Quest arising from conduct

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HUNTER’S UPA AND UCL CLAIMS: SETTLEMENT AGREEMENT AND
RELEASE

occurring before May 19, 2011. Mot. 22. On November 7, 2005, Hunter filed a qui tam action
against Quest in the Superior Court of California for the County of San Mateo, alleging among
other things that Quest had submitted false claims to Medi-Cal. Settlement Agreement and
Release at 1-2 (Sandrock Decl. Ex. 1). In a settlement agreement dated May 19, 2011, Quest
agreed to the release of
any and all claims, rights, demands, suits, matters, issues, actions or causes of
action, liabilities, damages, losses, obligations, and judgments of any kind or

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Quest’s reliance on Sub Corp. v. Best Buy Co., 2008 U.S. Dist. LEXIS 75080 (C.D. Cal. Aug. 5,
2008), is not persuasive. See Reply 4-5. The court in Sub Corp. granted summary judgment for
the defendant upon finding that the plaintiff was not entitled to the section 17071 presumption,
and that even if the plaintiff were entitled to the section 17071 presumption, the defendant had
rebutted it through various declarations by its employees professing their good faith. Id. at *9-12.
The court stated: “A qualified employee’s declaration concerning the [defendant’s] intent is
adequate to conclusively rebut a presumption of injurious intent.” Id. at *11. While this statement
does support Quest’s position, it does not appear to be an accurate description of the law. The
case cited in Sub Corp. in support of the statement holds that a qualified employee’s testimony at
trial may support a finding of no improper purpose; it does not hold that such testimony is
sufficient at summary judgment to negate the section 17071 presumption. See Tri-Q, Inc. v. StaHi Corp., 63 Cal.2d 199, 207-209 (1965).
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nature whatsoever, from the beginning of time through the Effective Date of this
Settlement Agreement, whether known or unknown, contingent or absolute,
suspected or unsuspected, disclosed or undisclosed, matured or unmatured, for
damages, injunctive relief, or any other remedy against [Quest].
Id. at 15. In the October 18, 2013 order on the multiple motions to dismiss the first amended
complaint, I found this language broad enough to encompass claims brought in this action and
dismissed with prejudice all claims barred by the settlement agreement. Dkt. No. 113 at 36. Quest
asserts that in light of the settlement agreement and the October 18, 2013 order, Hunter may only
rely on claims based on below-cost pricing occurring after May 19, 2011. According to Quest, this
means that Hunter’s claims arising from the Partnership Health Plan contract and the 2009
amendment to the Blue Shield contract are barred, as are Hunter’s claims arising from any
capitated IPA contract that Quest entered into before May 19, 2011. Mot. 22.
Hunter agrees that the May 19, 2011 settlement agreement bars all claims arising from
conduct occurring before that date. Opp. 24-25. Hunter disagrees that this means that claims
arising from contracts executed before May 29, 2011 are necessarily barred. Id. According to
Hunter, the dates of execution of the underlying contracts are irrelevant; what matters is when the
below-cost sales themselves occurred. See Opp. 24-25.
This issue is largely mooted by the rulings discussed above regarding causation. Because
Hunter has failed to produce sufficient evidence of causation with respect to its claims arising from
Quest’s capitated IPA contracts, Quest is entitled to summary judgment on those claims on the
merits. The only other claims that Quest contends are barred by the settlement agreement are
Hunter’s claims arising from the Partnership Health Plan and Blue Shield contracts. These claims
are plainly barred. It is undisputed that Hunter began to suffer damages as a result of the
Partnership Health Plan contract in or around October 2009, and as a result of the Blue Shield
contract in or around May 2010. See Opp. 14; Fuchs Decl. ¶¶ 2-3 (Sandrock Decl. Ex. 35); C.
Reidel Dep. 268-69 (Sandrock Decl. Ex. 3); Prendergast Dep. 50-51 (Lambrinos Decl. Ex. 42);
Regan Rpt. 17. Given that by the date of the settlement agreement these contracts had already
been executed and Hunter had already suffered damages as a result, Hunter’s argument that it did
not forfeit these claims as part of the settlement agreement is unconvincing. Claims based on

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alleged misconduct that had already occurred and that had already manifested itself in damages fall

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unambiguously within the scope of “any and all claims . . . from the beginning of time through the

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Effective Date of this Settlement Agreement, whether known or unknown, contingent or absolute,

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suspected or unsuspected, disclosed or undisclosed, matured or unmatured.” Settlement

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Agreement and Release at 15 (Sandrock Decl. Ex. 1). Quest’s motion for summary judgment on

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Hunter’s claims arising from the Partnership Health Plan and Blue Shield contracts is GRANTED.

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V.

STATUTE OF LIMITATIONS
Quest argues that plaintiffs’ claims are time-barred to the extent they accrued more than

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three years before the filing of this action, or before November 14, 2009. Mot. 23. The general

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limitations period for UPA violations is three years; the limitations period for treble damages is

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one year. See Cal. Code Civ. P. §§ 338(a), 340(a); see also G.H.I.I. v. MTS, Inc., 147 Cal. App. 3d

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256, 279 (1983).

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The parties’ arguments regarding this issue mirror those regarding the settlement

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agreement. Quest contends that plaintiffs’ claims arising from Quest’s capitated IPA contracts are

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untimely, because plaintiffs have not identified any such contract that was executed after

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November 14, 2009. Quest contends that plaintiffs’ claims arising from the Partnership Health

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Plan and Blue Shield contracts are also untimely. According to Quest, plaintiffs’ only actionable

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claims are those arising from alleged below-cost sales in the general fee-for-service market

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occurring after November 14, 2009, and those arising from the Seventeenth Amendment to the

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Aetna contract. Mot. 23.

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Plaintiffs challenge Quest’s position that conduct performed under a contract executed

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before the applicable limitations period is automatically immune from liability. Plaintiffs also

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point out that while the UPA has a three year statute of limitations, the limitations period for UCL

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violations is four years. See Cal. Bus. & Prof. Code § 17208 (“Any action to enforce any cause of

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action pursuant to this chapter shall be commenced within four years after the cause of action

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accrued.”).

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The parties do not dispute the applicable limitations periods for UPA and UCL claims.
Quest concedes in its reply that the limitations period for UCL violations is four years. Reply 14.
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The California Supreme Court has recognized that even where a UCL claim is founded on conduct

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prohibited by another statute with a shorter limitations period, the four year limitations period still

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applies to the UCL claim. See Cortez v. Purolator Air Filtration Products Co., 23 Cal. 4th 163,

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178-79 (2000) (“[A]n action to recover wages that might be barred if brought pursuant to [the

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Labor Code] still may be pursued as a UCL action seeking restitution . . . if the failure to pay

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constitutes a business practice.”). Thus, the only dispute over the limitations period is whether

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plaintiffs’ UPA claims based on conduct performed under contracts executed before November

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14, 2009 – and their UCL claims based on conduct performed under contracts executed before

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November 14, 2008 – are time-barred.
Like the settlement agreement issue, the statute of limitations issue is largely mooted by

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Northern District of California

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the rulings discussed above on the merits of plaintiffs’ claims. The only claims that survive

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Quest’s arguments on the settlement agreement and causation are Hunter’s claims based on the

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Aetna contract, and SPA’s claims based on the Partnership Health Plan contract. Quest does not

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dispute that claims arising from the Aetna contract are timely for the purposes of both the UPA

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and the UCL. See Mot. 23. Quest does contend that SPA’s claims based on the Partnership

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Health Plan contract are untimely. As noted above, however, Quest has not established as a matter

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of law when SPA lost the four accounts it attributes to the contract. Accordingly, I cannot say at

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this juncture that SPA’s claims arising from the contract are time-barred. To the extent Quest’s

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motion for summary judgment is aimed at those claims, the motion is DENIED. 17

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VI.

UCL CLAIMS
Quest’s arguments regarding causation and the settlement agreement apply with equal

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force to plaintiffs’ UCL claims. Accordingly, Hunter’s UCL claims arising from the Aetna

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contract, and SPA’s claims arising from the Partnership Health Plan contract, may proceed. See

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Daugherty v. Am. Honda Motor Co., 144 Cal. App. 4th 824, 837 (2006) (UCL’s unlawful prong

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On April 10, 2015, Quest filed a Statement of Recent Decision pursuant to Civil Local Rule 73(d)(2) bringing to my attention Judge Koh’s recent decision in In re Animation Workers Antitrust
Litig., No. 14-cv-04062-LHK, 2015 WL 1522368 (N.D. Cal. Apr. 3, 2015). Dkt. No. 280. The
opinion includes a discussion of statute of limitations issues under the Sherman Act, the
Cartwright Act, and the UCL. 2015 WL 1522368, at *9-17. Having read the opinion, I do not
find that its analysis materially impacts the outcome in this case.
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“borrows violations of other laws and treats them as independently actionable”); Bardin v.

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Daimlerchrysler Corp., 136 Cal. App. 4th 1255, 1271 (2006) (UCL’s unfair prong applies to

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business practices which offend public policy, where the predicate public policy is “tethered to

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specific constitutional, statutory or regulatory provisions”) (internal quotation marks omitted).

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Quest’s motion for summary judgment on the rest of plaintiffs’ UCL claims is GRANTED.

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VII.

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ADMINISTRATIVE MOTIONS TO FILE UNDER SEAL
The parties filed a number of administrative motions to file under seal in connection with

Quest’s summary judgment motion.
On February 24, 2015, I denied without prejudice Quest’s motion to seal portions of its
summary judgment motion and associated materials. Dkt. No. 249. I gave Quest until March 3,

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2015 to file an amended motion, which Quest timely filed. Dkt. No. 258. The amended motion is

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GRANTED with respect to all materials that Quest seeks to seal on its own behalf, except for the

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following two items: (1) Moverley Decl. ¶ 19 (all); (2) Moverley Decl. ¶ 21 (from “Since 2009,

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QDI has made an effort” to “have been quite successful”). The amended motion is DENIED

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WITH PREJUDICE as to those items.

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The amended motion is DENIED WITHOUT PREJUDICE with respect to all materials

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that Quest seeks to seal on behalf of plaintiffs and third-party Diagnostic Laboratories. See Dkt.

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No. 258-1 at 11. Although plaintiffs submitted a declaration per Civil Local Rule 79-5(e), that

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declaration is not adequate to justify sealing. It relies primarily on the fact that plaintiffs

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designated the materials sought to be sealed as “confidential” or “highly confidential – attorneys’

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eyes only” under the protective order. See Dkt. No. 262. That is not a proper basis for sealing

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under the “good cause” standard applicable to nondispositive motions, much less the “compelling

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reasons” standard that applies here. See Civil L.R. 79-5(d)(1)(A) (“Reference to a stipulation or

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protective order that allows a party to designate certain documents as confidential is not sufficient

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to establish that a document, or portions thereof, are sealable.”). Diagnostic Laboratories did not

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submit a declaration at all. If plaintiffs and/or Diagnostic Laboratories still want the relevant

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portions of Quest’s summary judgment motion and associated materials to remain under seal, they

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shall file an amended declaration within seven days of the date of this order articulating
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“compelling reasons supported by specific factual findings” to justify sealing. Kamakana v. City

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& Cnty. of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006) (internal quotation marks and

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modifications omitted). Quest need not refile its amended motion. As plaintiffs consider what

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portions of the materials sought to be sealed, if any, are in fact sealable, they are advised that none

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of the unredacted information referenced and/or quoted in this order is sufficiently sensitive to

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warrant sealing under the compelling reasons standard.

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Also on February 24, 2015, I denied without prejudice Quest’s request for several portions
of plaintiffs’ opposition and associated materials to be sealed. Dkt. No. 248. Quest submitted an

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amended declaration on March 3, 2015. Dkt. No. 259. The following materials identified in the

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amended declaration are not sealable: (1) Moverley Dep. 185 (Lambrinos Decl. Ex. 1) (all); (2)

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Northern District of California

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Lambrinos Decl. Ex. 9 at 1512 (all); (3) Lambrinos Decl. Ex. 11 at 1558 (from “Note: Cost of

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Testing” to “NTC 3529”); (4) Opp. 6 (all); (5) Opp. 7 (lines 7-12). The rest of the materials

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identified in the amended declaration shall remain sealed.

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Finally, on February 25, 2015, Quest moved to seal various portions of its reply brief and
associated materials. Dkt. No. 252. That motion is GRANTED.
CONCLUSION

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For the foregoing reasons:

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(i) Quest’s request for relief in connection with plaintiffs’ alleged violation of the

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protective order is DENIED. Dkt. No. 260.
(ii) Quest’s motion for summary judgment is GRANTED IN PART and DENIED IN
PART. Dkt. No. 216.
(iii) Quest’s amended administrative motion to file under seal portions of its summary

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judgment motion and associated materials is GRANTED IN PART, DENIED WITH PREJUDICE

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IN PART, and DENIED WITHOUT PREJUDICE IN PART, as discussed above. Dkt. No. 258.

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(iv) Quest’s amended declaration in support of sealing portions of plaintiffs’ opposition

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brief and associated materials is sufficient to justify sealing, except as to the materials discussed

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above. The rest of the materials identified in the amended declaration shall remain sealed. Dkt.

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No. 259.
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(v) Quest’s administrative motion to file under seal portions of its reply brief and
associated materials is GRANTED. Dkt. No. 252.
IT IS SO ORDERED.
Dated: Apri1 15, 2015
______________________________________
WILLIAM H. ORRICK
United States District Judge

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