NorthBay Healthcare Group, Inc. et al v. Kaiser Foundation Health Plan, Inc. et al

Filing 60

ORDER by Judge Laurel Beeler granting #29 Motion to Dismiss ; granting #39 Motion to Dismiss; finding as moot #59 Stipulation.The attached order dismisses the plaintiff's Sherman Act claim for failure to state a claim and declines to exercise supplemental jurisdiction over the plaintiff's remaining claims. The hearing set for December 14, 2017 is vacated. The plaintiff may file an amended complaint on or before Thursday, January 11, 2018. (lblc1S, COURT STAFF) (Filed on 12/7/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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San Francisco Division

United States District Court
Northern District of California

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NORTHBAY HEALTHCARE GROUP,
INC., et al.,

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Plaintiffs,

Case No. 17-cv-05005-LB
ORDER GRANTING DEFENDANTS’
MOTIONS TO DISMISS

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v.
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Re: ECF No. 29, 39
KAISER FOUNDATION HEALTH PLAN,
INC., et al.,

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Defendants.

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INTRODUCTION

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Plaintiffs NorthBay Healthcare Group and NorthBay Healthcare Corporation (collectively,

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“NorthBay”) operate two hospitals in Solano County, California. NorthBay brings this action

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against (1) Kaiser Foundation Health Plan, Inc. (“Kaiser Health Plan”), a health insurance plan;

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(2) Kaiser Foundation Hospitals, Inc. (“Kaiser Hospitals”), the operator of two other hospitals in

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Solano County; and (3) the Permanente Medical Group, Inc. (“Permanente”), which manages

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doctors that work at Kaiser Hospitals’ hospitals. The defendants have moved to dismiss

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NorthBay’s complaint.1

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Pursuant to Civil Local Rule 7-1(b), the court finds this matter suitable for determination without oral
argument and vacates the hearing set for December 14, 2017.

ORDER – No. 17-cv-05005-LB 

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NorthBay’s primary grievance is that Kaiser Health Plan has been underpaying NorthBay

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when NorthBay’s hospitals treat Kaiser Health Plan enrollees. NorthBay attempts to characterize

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this dispute as an antitrust conspiracy, bringing a claim under Section 2 of the Sherman Antitrust

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Act alleging that the defendants have conspired to monopolize the healthcare insurance and

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services market in Solano County. But NorthBay has failed to allege facts that support its attempt

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to recast the defendants’ interactions with NorthBay specifically into an antitrust conspiracy to

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monopolize healthcare generally. NorthBay has therefore failed to plead a cognizable claim under

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Section 2, and the court dismisses this claim.
The rest of NorthBay’s claims are state-law claims between non-diverse parties. The court

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lacks original jurisdiction over those claims and declines to exercise supplemental jurisdiction

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United States District Court
Northern District of California

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over them, and therefore dismisses NorthBay’s complaint in full. NorthBay may file an amended

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complaint on or before Thursday, January 11, 2018.

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STATEMENT2

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1. The Defendants
Defendant Kaiser Health Plan is the largest health-care-service plan in the United States.3 Over

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11.8 million people in nine states and the District of Columbia are enrolled in health insurance

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from Kaiser Health Plan.4 In Northern California, over 4.1 million people are enrolled in Kaiser

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Health Plan.5 Kaiser Health Plan has more than 75% of the commercial-health-insurance market in

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Solano County.6

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Defendant Kaiser Hospitals operates hospitals throughout the United States, including two

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hospitals with emergency departments in Solano County: Kaiser Permanente Vallejo Medical

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Unless otherwise noted, the fact allegations in the Statement are from the Complaint.

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Compl. – ECF No. 1 at 6 (¶ 16). Citations refer to material in the Electronic Case File (“ECF”);
pinpoint citations are to the ECF-generated page numbers at the top of documents.

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Id.

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Id.

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Id. at 26 (¶ 77).

ORDER – No. 17-cv-05005-LB

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Center in Vallejo and Kaiser Permanente Vacaville Medical Center in Vacaville.7 Kaiser

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Hospitals’ Vacaville hospital is the county-designated Level II Trauma Center for Solano County.8
Defendant Permanente is a medical group comprised of physician-owned, for-profit

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partnerships and professional corporations.9 Permanente provides and manages the physicians who

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service Kaiser Health Plan enrollees at Kaiser Hospitals’ hospitals, including Kaiser Hospitals’

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Vallejo and Vacaville hospitals.10
Kaiser Health Plan, Kaiser Hospitals, and Permanente are separate legal entities, and each

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pursues its own economic interest.11 They are parties to legal agreements with one another,

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however, whereby Permanente services Kaiser Health Plan enrollees at Kaiser Hospitals.12 The

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three defendants collectively use the registered trademark or trade name “Kaiser Permanente.”13

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United States District Court
Northern District of California

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As Kaiser Hospitals has observed, “Kaiser Permanente is organized in each operating region by

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three separate but closely cooperating entities: comprised of [Kaiser Hospitals] and [Kaiser Health

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Plan] . . . and a separate Permanente Medical Group (PMG) in each region in which Kaiser

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Permanente operates.”14 Kaiser Hospitals has further noted that “separate legal entities are

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responsible for managing the integrated health care system in California: [Kaiser Health Plan];

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[Kaiser Hospitals]; and The Permanente Medical Group, Inc. (TPMG), which contracts with

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[Kaiser Health Plan] in Northern California.”15

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Id. at 7 (¶ 17).

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Id. at 9 (¶ 26); Kaiser Defs. Mot. Ex. 9 (Solano County Health & Social Services Department Policy
Memorandum 5900) – ECF No. 34-2 at 2. The court may take judicial notice of matters of public
record. Lee v. City of L.A., 250 F.3d 668, 688–89 (9th Cir. 2001).
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Compl. – ECF No. 1 at 7 (¶ 18).

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Id.

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Id. at 2 (¶ 2), 7–8 (¶ 19), 26 (¶ 78), 30 (¶ 94).

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Id. at 26 (¶ 79); see generally id. at 4 (¶ 7) (alleging “hub-and-spoke” agreements to provide “Health
Services”).
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Id. at 7 (¶ 19).

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Id. at 26 (¶ 78).

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Id. (internal brackets omitted).

ORDER – No. 17-cv-05005-LB

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2. NorthBay’s Allegations
NorthBay operates two hospitals in Solano County; both provide general hospital and

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emergency services: NorthBay Medical Center in Fairfield and NorthBay VacaValley in

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Vacaville.16 NorthBay’s Fairfield hospital is the county-designated Level III Trauma Center.17

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2.1

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The Cancellation of the Agreement Between NorthBay and Kaiser Health Plan
Regarding Payment for Emergency Services that NorthBay’s Hospitals Provide to
Kaiser Health Plan Enrollees

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NorthBay’s hospitals provide emergency medical services to patients, including Kaiser Health

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Plan enrollees.18 Since 2010, the number of Kaiser Health Plan enrollees treated by NorthBay each

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year has steadily increased, rising from more than 540 patients in 2010 to over 770 patients in

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2016.19
In 2010, NorthBay and Kaiser Health Plan entered into an agreement (“Agreement”) that set

United States District Court
Northern District of California

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forth the rates that Kaiser Health Plan would pay NorthBay for services NorthBay provided to

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Kaiser Health Plan enrollees.20 Under the Agreement, NorthBay agreed to accept a standardized

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percentage of its “charge master rate” (the standard rate a hospital charges for the services it

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provides) for Kaiser Health Plan enrollees, instead of its full charge-master rate.21
In September 2016, Kaiser Health Plan terminated the Agreement.22 For a period of time after

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that, Kaiser Health Plan paid NorthBay at the percentage specified in the Agreement, but after a

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few months of paying that rate, Kaiser Health Plan began paying NorthBay at less than half of the

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prior Agreement rate.23 Kaiser Health Plan also began refusing to pay certain claims submitted by

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Id. at 6 (¶ 12), 9 (¶ 26).

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See id. at 20 (¶ 61); Kaiser Defs. Mot. Ex. 9 (Solano County Health & Social Services Department
Policy Memorandum 5900) – ECF No. 34-2 at 2.
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Compl. – ECF No. 1 at 10 (¶ 28).

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Id.

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Id. at 15 (¶ 48).

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Id.; see id. at 14 (¶ 44) (defining “charge master”).

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Id. at 17 (¶ 52). NorthBay also alleges that between 2010 and 2016, Kaiser Health Plan beached
certain terms of the Agreement, see id. at 16–17 (¶¶ 50–51), but it is not bringing a breach of contract
claim and is not basing the claims it does bring on those alleged breaches. See id. at 33, 35–36 (¶¶ 106,
110, 117, 121) (basing claims only on period after September 2016).
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Id. at 3 (¶ 5), 17 (¶ 52), 32 (¶ 101).

ORDER – No. 17-cv-05005-LB

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NorthBay entirely.24 NorthBay claims that following the termination of the Agreement, Kaiser

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Health Plan was no longer entitled to pay NorthBay anything less than 100% of NorthBay’s

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charge-master rate for emergency services provided to Kaiser Health Plan enrollees.25 NorthBay

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calculates that since the termination of the Agreement, Kaiser Health Plan has underpaid it more

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than $21.7 million for services it provided to Kaiser Health Plan enrollees.26 NorthBay claims that

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Kaiser Health Plan’s termination of the Agreement is contrary to its own self-interest and therefore

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cannot be explained but for an anticompetitive goal.27

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2.2

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Allegations That the Defendants “Steer” Kaiser Health Plan Enrollees to or Away
From Kaiser Hospitals’ Hospitals

NorthBay also claims that the defendants “steer” patients enrolled in Kaiser Health Plan
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insurance to or away from Kaiser Hospitals’ hospital emergency rooms based not on the health

United States District Court
Northern District of California

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condition of these patients but on the defendants’ financial incentives.28 In support of this claim,

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NorthBay alleges that makes the following factual allegations:
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First, NorthBay alleges that “Kaiser” demands that NorthBay contact Kaiser’s “Emergency
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Prospective Review Program” (“EPRP”), which is staffed by Permanente physicians, each time a
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Kaiser Health Plan enrollee appears at a NorthBay hospital emergency room.29 (The complaint

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does not specify whether it is referring to Kaiser Health Plan, Kaiser Hospitals, or both.) In one
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instance, a NorthBay surgeon assessed and determined that a Kaiser Health Plan enrollee at a
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NorthBay hospital was not stable and required ongoing emergency medical care, but a doctor with
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Kaiser’s EPRP determined that the enrollee was stable.30 The EPRP doctor aggressively pressured
the NorthBay surgeon to transfer the patient.31 The NorthBay surgeon refused.32 The EPRP doctor

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Id. at 17–18 (¶ 53).

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Id. at 18–19 (¶ 55).

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Id. at 19 (¶ 56).

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See id. at 32 (¶ 101).

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Id. at 4 (¶ 9).

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Id. at 19 (¶ 58).

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Id. at 20 (¶ 59).

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Id.

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Id.

ORDER – No. 17-cv-05005-LB

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sent a facsimile to the NorthBay doctor stating that the patient “is clinically stable and can be

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transferred to a facility that we designate for all further necessary care” and that any further care

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that NorthBay provided to the patient would be “unauthorized” “post-stabilization care.”33 (The

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complaint does not allege what condition this patient had, whether he or she was transferred, or

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what happened to him or her after this exchange.)
Second, NorthBay alleges two instances where a Kaiser Health Plan enrollee ended up at a

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Kaiser Hospitals hospital when NorthBay believes that he or she should have ended up at a

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NorthBay hospital.34 In one instance, an ambulance drove a Kaiser Health Plan enrollee who was

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involved in a pedestrian-versus-car accident past NorthBay’s Fairfield hospital to Kaiser
Hospitals’ Vacaville hospital; the patient ultimately died.35 In another instance, Kaiser Hospitals’

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United States District Court
Northern District of California

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Vacaville hospital transferred a Kaiser Health Plan enrollee from Vacaville to Kaiser Hospitals’

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Vallejo hospital instead of to NorthBay’s Fairfield hospital; after the transfer, the patient had to

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wait nine days for cardiac treatment and was permanently disabled.36 NorthBay alleges “upon

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information and belief” that “Kaiser” transferred these patients thusly so that Kaiser Health Plan

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could avoid paying NorthBay for the two enrollees’ treatment.37 (The complaint does not specify

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whether it is referring to Kaiser Health Plan, Kaiser Hospitals, or both, and does not allege any

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more specific facts to support its conclusion about Kaiser’s motives, other than the fact of the

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enrollees’ movements.)
Third, NorthBay alleges that when a treating physician determines that a Kaiser Health Plan

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enrollee’s condition is stable and the “Defendants” elect to transfer the enrollee to a Kaiser

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Hospitals facility, Kaiser Hospitals refuses to effectuate the transfer within “a reasonable amount

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of time” and instead requires NorthBay to hold the enrollee for hours or days until the Kaiser

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Id.

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See id. at 20–21 (¶¶ 60–63)

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Id. at 20 (¶ 61).

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Id. at 21 (¶ 62).

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See id. at 20–21 (¶¶ 60-61).

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ORDER – No. 17-cv-05005-LB

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Hospitals facility is ready to receive him or her.38 NorthBay further alleges that the Kaiser

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Hospitals hospital does not pay NorthBay’s charge-master rates for any non-emergency-but-

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medically-necessary care that NorthBay provides to the enrollee.39 (The complaint does not

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specify to which defendants NorthBay is referring and, if “Defendants” is meant to include Kaiser

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Hospitals, how it is that Kaiser Hospitals is both electing to transfer the enrollee and refusing to

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transfer the enrollee.)

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2.3

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Allegations That the Defendants “Steer” Indigent Patients Away From Kaiser
Hospitals’ Hospitals

Finally, NorthBay alleges that the “Defendants” conspire to divert indigent patients to non9
Kaiser-Hospitals hospitals, including NorthBay’s hospitals, in order to shift the burden of
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providing charitable care for those patients (who may not be able to pay the hospitals back) away

United States District Court
Northern District of California

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from Kaiser Hospitals and onto other hospitals.40 In 2015, NorthBay’s two Solano County

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hospitals provided a total of $56 million in direct charitable care, and 27% of their payer mix were
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Medi-Cal patients and 6.2% were self-pay/indigent patients, whereas Kaiser Hospitals’ two Solano
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County hospitals provided a total of $5.5 million in direct charitable care, and 7.8% of their payer
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mix were Medi-Cal patients and 2.2% were self-pay/indigent patients.41 NorthBay alleges “upon

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information and belief” that the “Defendants” told the Vacaville Fire Department, which provides
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emergency medical care and transportation to emergency rooms for crisis and trauma patients, and
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told other Vacaville paramedics, that patients who do not have Kaiser Health Plan insurance
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should not be taken to a Kaiser Hospitals hospital and should instead be taken to a non-Kaiser20

Hospitals hospital.42 (The complaint does not specify to which defendants NorthBay is referring,

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and does not allege any more specific facts to support its conclusion about the defendants’ actions
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vis-à-vis the Vacaville Fire Department or paramedics, other than the figures regarding the amount
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of charitable care each set of hospitals provided in 2015.)
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Id. at 21 (¶ 63).

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Id.

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Id. at 25 (¶ 75).

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Id. at 24–25 (¶ 73).

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Id. at 25 (¶ 75).

ORDER – No. 17-cv-05005-LB

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ANALYSIS

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A complaint must contain a “short and plain statement of the claim showing that the pleader is

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entitled to relief” to give the defendant “fair notice” of what the claims are and the grounds upon

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which they rest. See Fed. R. Civ. P. 8(a)(2); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

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A complaint does not need detailed factual allegations, but “a plaintiff’s obligation to provide the

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‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and a formulaic

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recitation of the elements of a cause of action will not do. Factual allegations must be enough to

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raise a claim for relief above the speculative level . . . .” Id. (internal citations omitted).

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To survive a motion to dismiss, a complaint must contain sufficient factual allegations, which
when accepted as true, “‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,

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United States District Court
Northern District of California

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556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility

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when the plaintiff pleads factual content that allows the court to draw the reasonable inference that

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the defendant is liable for the misconduct alleged.” Id. “The plausibility standard is not akin to a

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‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted

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unlawfully.” Id. (quoting Twombly, 550 U.S. at 557). “Where a complaint pleads facts that are

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merely consistent with a defendant’s liability, it stops short of the line between possibility and

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plausibility of ‘entitlement to relief.’” Id. (quoting Twombly, 550 U.S. at 557) (internal quotation

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marks omitted).

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If a court dismisses a complaint, it should give leave to amend unless the “the pleading could

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not possibly be cured by the allegation of other facts.” Cook, Perkiss & Liehe, Inc. v. N. Cal.

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Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990).

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1. NorthBay Has Not Pleaded a Cognizable Sherman Act Section 2 Claim

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To plead a conspiracy to monopolize claim under Section 2 of the Sherman Act, a plaintiff

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“must show four elements: (1) the existence of a combination or conspiracy to monopolize, (2) an

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overt act in furtherance of the conspiracy, (3) the specific intent to monopolize, and (4) causal

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antitrust injury.” Paladin Assocs., Inc. v. Mont. Power Co., 328 F.3d 1145, 1158 (9th Cir. 2003)

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ORDER – No. 17-cv-05005-LB

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(citing United States v. Yellow Cab Co., 332 U.S. 218, 224–25 (1947)).43 In addition, “the

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complaint must allege that each individual defendant joined the conspiracy and played some role

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in it because, at the heard of an antitrust conspiracy is an agreement and a conscious decision by

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each defendant to join it.” In re TFT-LCD (Flat Panel) Antitrust Litig., 586 F. Supp. 2d 1109,

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1117 (N.D. Cal. 2008) (citing cases). “[G]eneral allegations as to all defendants . . ., or to a single

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[collective] corporate entity . . . is insufficient to put specific defendants on notice of the claims

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against them.” Id.

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NorthBay has failed to plead the existence of a combination or conspiracy to monopolize, the

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defendants’ specific intent to monopolize, or causal antitrust injury.44 NorthBay’s Section 2 claim

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must therefore be dismissed.

United States District Court
Northern District of California

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1.1

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Existence of a Combination or Conspiracy to Monopolize
1.1.1

Governing Law

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To plead the existence of a conspiracy, a plaintiff must allege at least two things. First, the

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plaintiff must allege that the defendants acted in concert. Granddad Bread, Inc. v. Continental

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Baking Co., 612 F.2d 1105, 1111–12 (9th Cir. 1979). “While Plaintiff’s actions need not rule out

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the possibility that Defendants were acting independently, Plaintiff must allege facts at the

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pleading stage ‘tending to exclude the possibility of independent action.’” Prime Healthcare

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The standard for pleading a conspiracy for the purposes of a claim under Section 2 of the Sherman
Antitrust Act is the same as the standard for pleading a conspiracy under Section 1. See Granddad
Bread, Inc. v. Continental Baking Co., 612 F.2d 1105, 1111–12 (9th Cir. 1979) (“Although the
essential elements of a Section One offense are substantially different than for a Section Two offense,
when a combination or conspiracy is charged under Section Two, then a prima facie case under either
section has the same prerequisite, that is, a showing of concerted action by the defendants.”); accord,
e.g., Prime Healthcare Servs., Inc. v. Serv. Emps. Int’l Union, No. 11-cv-2652-GPC-RBB, 2013 WL
3873074, at *16 (S.D. Cal. July 25, 2013) (where a defendant “has failed to plead the existence of a
conspiracy for Section 1 violation, [it] has also failed to satisfy the first element for conspiracy to
monopolize under Section 2.”), aff’d, 642 F. App’x 665 (9th Cir. 2016); Paladin Assocs., Inc. v. Mont.
Power Co., 97 F. Supp. 2d 1013, 1039 (D. Mont. 2000) (“The standard for proving a conspiracy under
section 2 of the Sherman Act, is the same standard used to prove a conspiracy under section 1 of the
Sherman Act.”) (citing Arizona v. Standard Oil of Cal. (In re Petroleum Prods. Antitrust Litig.), 906
F.2d 432, 460–65 (9th Cir. 1990)), aff’d, 328 F.3d 1145 (9th Cir. 2003).
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In light of NorthBay’s failure to plead the other three elements, the court need not address whether
NorthBay pleaded an overt act in furtherance of the conspiracy.
ORDER – No. 17-cv-05005-LB

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Servs., Inc. v. Serv. Emps. Int’l Union, No. 11-cv-2652-GPC-RBB, 2013 WL 3873074, at *7 (S.D.

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Cal. July 25, 2013) (quoting Twombly, 550 U.S. at 544), aff’d, 642 F. App’x 665 (9th Cir. 2016).

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Second, the plaintiff must allege that the defendants acted in concert to monopolize. “Monopoly

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power — the first element of monopolization — is the power to control prices or exclude

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competition.” Syufy Enters. v. Am. Multicinema, Inc., 793 F.2d 990, 993 (9th Cir. 1986) (citing

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United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956)). It is not enough to

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plead that the defendants had agreements with each other generally — the defendants must have

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agreed and conspired to monopolize. See id. at 1000 (holding that fact that parties had contractual

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agreements with one another did not establish a conspiracy to monopolize given that parties did

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not “share[] . . . a common purpose in monopolizing the . . . market”).

United States District Court
Northern District of California

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1.1.2

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Application

1.1.2.1

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NorthBay has not expressly pleaded the existence of an agreement
between the defendants to monopolize

NorthBay claims that it has expressly alleged the existence of an agreement between the
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defendants.45 But it has not expressly alleged the existence of an agreement between the

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defendants to monopolize. What NorthBay has alleged is that the defendants have agreements
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amongst one another to provide health services that provide for a “contractual flow of money
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among them.”46 But as NorthBay itself acknowledges, however, “[t]here is nothing inherently
wrongful in creating an integrated healthcare delivery system.”47 Pleading the existence of

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agreements between the defendants to provide health services does not plead the existence of an
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agreement between the defendants to monopolize.
21
The case of Prime Healthcare Services, Inc. v. Service Employees International Union, No.
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11-cv-2652-GPC-RBB, 2013 WL 3873074 (S.D. Cal. July 25, 2013), aff’d, 642 F. App’x 665 (9th
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Cir. 2016), is instructive. In that case, as in this one, a group of hospitals brought a Section 2
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45

Pls.’ Opp’n – ECF 42-3 at 8.

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Compl. – ECF No. 1 at 4 (¶ 7) (alleging “hub-and-spoke” agreements to provide “Health Services”);
see also id. at 26 (¶ 79).

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47

Pls.’ Opp’n – ECF No. 42-3 at 17.

ORDER – No. 17-cv-05005-LB

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antitrust conspiracy claim (among other claims) against Kaiser Health Plan, Kaiser Hospitals, and

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the Southern California Permanente Medical Group (among other defendants). The plaintiff

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hospitals there alleged that the Kaiser defendants entered into agreements among one another to

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restrain trade, identifying five specific written agreements. Id. at *5. The purpose of the

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agreements, by their express terms, was (among other things) to “increase Kaiser’s membership in

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current and new markets” and “to increase enrollment in the Kaiser Foundation Health Plan.” Id.

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at *6. But the court there held that those agreements were insufficient to plead an antitrust

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conspiracy, as the fact that the defendants agreed among one another to increase their own

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enrollment did not “suggest any anti-competitive motive, objective or purpose intended to restrain
trade.” Id. at *6, 16 (holding that the rival hospitals’ allegations about the agreements were

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United States District Court
Northern District of California

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insufficient to plead either a Section 1 or Section 2 conspiracy).
Unlike the plaintiff hospitals in that case, NorthBay here has not even identified any specific

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written agreements between the defendants. And its allegations that the defendants have generally

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entered agreements with one another to provide health services or to share revenue do not plead an

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agreement to monopolize.

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1.1.2.2

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NorthBay’s allegations regarding Kaiser Health Plan’s cancellation of
its Agreement with NorthBay does not give rise to an inference that a
conspiracy to monopolize existed

In the absence of an express allegation of an agreement between the defendants to monopolize,

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NorthBay argues that the court should infer the existence of an agreement between the defendants

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to monopolize.48 NorthBay’s principal argument is that the defendants have acted against their

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own self-interest, and because there is no other explanation as to why they would do so, the court

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should infer that they did so because they had agreed and conspired to create a monopoly.49 It is

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true that “[o]ne prominent ‘plus factor’” in determining whether the defendants have conspired “is

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a showing that the defendants’ behavior would not be reasonable or explicable (i.e. not in their

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legitimate economic self-interest) if they were not conspiring to fix prices or otherwise restrain

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48

See Pls.’ Opp’n – ECF No. 42-3 at 8–9.

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49

See, e.g., Compl. – ECF No. 1 at 31–32 (¶¶ 101–02).

ORDER – No. 17-cv-05005-LB

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trade — that is, that the defendants would not have acted as they did had they not been conspiring

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in the restraint of trade.” Prime Healthcare, 2013 WL 3873074, at *7 (citing Theatre Enters., Inc.

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v. Paramount Film Distrib. Corp., 346 U.S. 537, 540–42 (1954)). But NorthBay does not actually

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plead that the defendants acted against their self-interest.
NorthBay primarily focuses on Kaiser Health Plan’s 2016 decision to cancel its reimbursement

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Agreement.50 It claims that this Agreement was a “mutually beneficial arrangement in which

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contractually set reimbursement rates prevailed.”51 It then claims that after Kaiser Health Plan

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cancelled the agreement, “[it] now pays less than half of the percentage that it previously paid to

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NorthBay for treating Kaiser Health Plan patients on an emergency basis.”52 It then curiously
argues that “[a]bsent a conspiracy to degrade NorthBay as a competitor, it would be contrary to

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United States District Court
Northern District of California

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the self-interest of Defendants to behave in this way,” and hence it should be inferred that the

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defendants entered into a conspiracy to monopolize.53
It is hard to see how this theory is plausible. Cf. Twombly, 550 U.S. at 570 (to state an antitrust

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claim, a plaintiff must allege “enough facts to state a claim to relief that is plausible on its face”).

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By NorthBay’s own admission, under the Agreement, Kaiser Health Plan used to have to pay

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NorthBay much more money. After cancelling the Agreement, Kaiser Health Plan now pays

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NorthBay much less. Far from being somehow against its self-interest, a decision by Kaiser Health

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Plan to cancel the Agreement and thereby cut its costs in half would be entirely in keeping with its

19

own economic self-interest. This does not suggest the existence of an antitrust conspiracy. See

20

Kendall, 518 F.3d at 1049 (“Allegations of facts that could just as easily suggest rational, legal

21

business behavior by the defendants as they could suggest an illegal conspiracy are insufficient to

22

plead a violation of the antitrust laws.”).54

23
50

See id. at 3 (¶ 5), 31–32 (¶ 101); Pls.’ Opp’n – ECF No. 42-3 at 7, 8, 12, 22, 27, 29.

51

Compl. – ECF No. 1 at 32 (¶ 101).

25

52

Id. (emphasis in original).

26

53

Id.

24

54

27
28

NorthBay may be implicitly making an argument that, after it called the Agreement, Kaiser Health
Plan was required to pay it 100% of NorthBay’s full charge-master rate, and therefore Kaiser Health
Plan acted against its self-interest in cancelling the Agreement and thereby committing itself to paying
at a 100% rate rather than at the discounted Agreement rate. See generally Compl. – ECF No. 1 at 18
ORDER – No. 17-cv-05005-LB

12 

1.1.2.3

1

NorthBay’s allegations of patient “steering” are conclusory and do not
give rise to an inference that a conspiracy to monopolize existed

2

NorthBay next argues that the defendants “steer” Kaiser Health Plan enrollees to Kaiser

3

Hospitals’ hospitals. But NorthBay’s “steering” allegations do not include facts from which an

4

agreement or conspiracy to monopolize can be inferred.

5

First, NorthBay cites an instance where a NorthBay doctor and a Kaiser EPRP doctor

6

disagreed about whether a patient should be transferred.55 But NorthBay does not allege basic

7

facts regarding this instance, such as what the patient’s condition was or why the EPRP doctor’s

8

opinion could not have been held in good faith, much less facts that suggest that the Kaiser EPRP

9

doctor’s actions evinced an antitrust conspiracy. NorthBay’s allegations “could just as easily
suggest rational, legal business behavior by the defendants as they could suggest an illegal

11
United States District Court
Northern District of California

10

conspiracy,” and hence are insufficient to plead an antitrust claim. Cf. Kendall, 518 F.3d at 1049.

12

Next, NorthBay cites to two instances where a Kaiser Health Plan enrollee was transported to

13

one of Kaiser Hospitals’ hospital instead of one of NorthBay’s.56 NorthBay alleges “upon

14

information and belief” that the defendants did so in order to avoid having to pay NorthBay for

15

providing services to the enrollee.57 But “[n]aked assertions made upon information and belief and

16

‘devoid of further factual enhancement are insufficient to state a claim.’” Oliver v. SD-3C LLC,

17

No. 11-cv-01260-JSW, 2016 WL 5950345, at *11 (N.D. Cal. Sept. 30, 2016) (quoting Blantz v.

18

Cal. Dep’t of Corr. & Rehab., 727 F.3d 917, 926–27 (9th Cir. 2013)). NorthBay does not plead

19
20
21
22
23
24
25
26

(¶ 55). Kaiser Health Plan responds, however, that in the absence of an agreement, it is not in fact
required to pay NorthBay 100% of its full charge-master rate; it need only pay NorthBay the
“reasonable and customary” value of the services, as determined by certain California healthcare
regulations and the California Department of Managed Health Care. See Kaiser Defs. Mot. – ECF No.
39 at 13 (citations omitted) (citing Children’s Hosp. Cent. Cal. v. Blue Cross of Cal., 226 Cal. App.
4th 1260, 1273 (2014)). NorthBay does not respond to this argument in its Opposition. Kaiser Health
Plan could have rationally decided to cancel the Agreement, pay NorthBay only the reasonable-andcustomary rate, and be prepared to defend that decision against NorthBay in litigation, rather than
acquiescing on the front end and paying NorthBay the Agreement rate. As Kaiser Health Plan’s actions
“could just as easily suggest rational, legal business behavior,” they are insufficient to plead an
antitrust conspiracy. See Kendall, 518 F.3d at 1049.
55

27

Compl. – ECF No. 1 at 20 (¶ 59).

56

Id. at 20–21 (¶¶ 60–62).

28

57

Id. at 20 (¶ 61).

ORDER – No. 17-cv-05005-LB

13 

1

further factual enhancement supporting an inference that these patient transfers evince an antitrust

2

conspiracy.58
NorthBay then claims that Kaiser Health Plan enrollees who are admitted to NorthBay’s

3
4

hospitals are not transferred quickly enough to Kaiser Hospitals’ hospitals.59 Setting aside the

5

contradictory nature of NorthBay’s arguments — that an antitrust conspiracy should be inferred

6

from both the fact that defendants are keeping Kaiser Health Plan enrollees away from NorthBay’s

7

hospitals and the fact that they are keeping enrollees at NorthBay’s hospitals — NorthBay does

8

not support its conclusions with factual allegations from which an antitrust conspiracy can be

9

inferred. If anything, NorthBay alleges a split among the defendants — with some unspecified
“Defendants” electing to transfer enrollees but Kaiser Hospitals then refusing to accept the

11
United States District Court
Northern District of California

10

transfers within a reasonable amount of time — which fails to satisfy the requirement of pleading

12

that the defendants were acting in concert at all, much less that they were acting in concert to

13

monopolize. See Granddad Bread, 612 F.2d at 1111–12 (“prima facie case” requires “a showing

14

of concerted action by the defendants”).
Finally, NorthBay alleges “upon information and belief” that the “Defendants” have told the

15
16

Vacaville Fire Department and paramedics to transfer patients who lack Kaiser Health Plan

17

insurance to a non-Kaiser-Hospitals hospital.60 This allegation is wholly conclusory, and

18

NorthBay pleads no facts regarding the defendants’ supposed interactions with the Vacaville Fire

19

Department or paramedics at all. In addition, NorthBay improperly groups the defendants together

20

and does not plead facts from which a conspiracy between the defendants can be inferred. Cf.

21
22
23
24
25
26

58

The paucity of NorthBay’s allegations are made more evident by the Kaiser Defendants’ response in
their Motion to Dismiss that Solano County’s official policies, and not the defendants’ supposed
machinations, are the reason why certain patients are taken to Kaiser Hospitals’ hospital instead of to
NorthBay’s hospitals. Kaiser Defs. Mot. – ECF 39 at 22 (arguing that Solano County policy requires
Level I and II trauma patients to be taken to Kaiser Hospitals’ Vacaville hospital or other Level I or II
trauma centers and not to NorthBay’s hospitals, which are not county-designated Level I or II trauma
centers) (citing Kaiser Defs. Mot. Ex. 9 (Solano County Health & Social Services Department Policy
Memorandum 5900) – ECF No. 34-2 at 2). NorthBay does not respond to this point in its Opposition
or point to factual allegations in its Complaint that explain why the inference that should be drawn
from these patients’ movements is instead that an antitrust conspiracy necessarily existed.

27

59

Compl. – ECF No. 1 at 21 (¶ 63).

28

60

Id. at 25 (¶ 75).

ORDER – No. 17-cv-05005-LB

14 

1

TFT-LCD, 586 F. Supp. 2d at 1117 (N.D. Cal. 2008) (“[T]he complaint must allege that each

2

individual defendant joined the conspiracy and played some role in it because, at the heart of an

3

antitrust conspiracy is an agreement and a conscious decision by each defendant to join it. . . .

4

[G]eneral allegations as to all defendants . . . [are] insufficient to put specific defendants on notice

5

of the claims against them.”) (citations and internal quotation marks omitted).

6
7
8
9

1.2

Specific Intent to Monopolize
1.2.1

Governing Law

To plead specific intent, a plaintiff must allege that the defendants had the intent to
monopolize, i.e., “an intent to exclude competition or control prices.” Stanislaus Food Prods. Co.

11
United States District Court
Northern District of California

10

v. USS-Posco Indus., 782 F. Supp. 2d 1059, 1078 (E.D. Cal. 2011) (citing Carpet Seaming Tape

12

Licensing Corp. v. Best Seam, Inc., 616 F.2d 1133, 1141–42 (9th Cir. 1980); Am. Tobacco Co. v.

13

United States, 328 U.S. 781, 789 (1946)). “A specific intent to destroy competition or build

14

monopoly is essential.” Id. (citing Times-Picayune Pub. Co. v. United States, 345 U.S. 595, 626

15

(1953)). “Thus, plaintiff must allege ‘specific intent’ to ultimately seize monopoly power within

16

the relevant market.” Id. Conclusory allegations are insufficient to withstand a motion to dismiss.

17

See, e.g., id. at 1079 (dismissing Section 2 conspiracy claim where “Plaintiff’s conclusory

18

allegation of specific intent does not allege the facts in which defendants intended and did drive

19

out independent competitors.”).

20

If a plaintiff brings a conspiracy claim against multiple defendants, it must plead that each

21

such defendant had a specific intent to monopolize. See Rebel Oil Co., Inc. v. Atl. Richfield Co., 51

22

F.3d 1421, 1437 n.8 (9th Cir. 1995) (“To prove a conspiracy to monopolize, [plaintiff] must show

23

that [alleged coconspirators] had the specific intent to conspire to monopolize; it is not enough to

24

show that [they] merely agreed to go along” with one defendant’s scheme) (citing Belfiore v. N.Y.

25

Times Co., 826 F.2d 177, 183 (2d Cir. 1987)); accord, e.g., SuperTurf Inc. v. Monsanto Co., 660

26

F.2d 1275, 1283 (8th Cir. 1981) (“[A] ‘conspiracy to monopolize’ claim requires a showing of

27

defendant’s specific intent to monopolize. Moreover, it must be shown that the defendant’s alleged

28

coconspirators . . . shared its specific intent to create a monopoly . . . .”) (citing Am. Tobacco Co.
ORDER – No. 17-cv-05005-LB

15 

1

v. United States, 328 U.S. 781, 810 (1945)); In re TFT-LCD, 586 F. Supp. 2d at 1117 (“[T]he

2

complaint must allege that each individual defendant joined the conspiracy and played some role

3

in it because, at the heart of an antitrust conspiracy is an agreement and a conscious decision by

4

each defendant to join it.”) (citations and internal quotation marks omitted).

5

1.2.2

Application

6

NorthBay pleads no non-conclusory facts supporting an inference that the defendants had the

7

specific intent to monopolize. At most, NorthBay alleges that the defendants were acting with the

8

intent of increasing their revenues and/or reducing their costs, including by reducing what they

9

paid to NorthBay. But the fact that the defendants might have wanted to pay NorthBay less money
does not plead that the defendants had the specific intent to seize monopoly power, exclude

11
United States District Court
Northern District of California

10

competition, or control prices. See generally Aerotec Int’l v. Honeywell Int’l, Inc., 836 F.3d 1171,

12

1184 (9th Cir. 2016) (“Competitors are not required to engage in a lovefest; indeed, ‘[e]ven an act

13

of pure malice by one business competitor against another does not, without more, state a claim

14

under the federal antitrust laws.’ . . . By its very terms, § 2 of the Sherman Act regulates anti-

15

competitive conduct, not merely anticompetitive aspirations or an independent decision on terms

16

of dealing with a competitor.”) (quoting Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp.,

17

509 U.S. 209, 225 (1993)).

18

Again, Prime Healthcare is instructive. The plaintiff hospitals there alleged that Kaiser Health

19

Plan, Kaiser Hospitals, and the Southern California Permanente Medical Group “refus[ed] to pay

20

claims for treatment of Kaiser members at [plaintiff] hospitals,” initiated “sham counterclaims in

21

litigation to recover payment for treating Kaiser members,” and “refus[ed] to pay physicians who

22

provide emergency services to Kaiser members at [plaintiff] hospitals.” Prime Healthcare, 2013

23

WL 3873074, at *13. But, as the court there held, those allegations did not plead that “the

24

Defendants intended to harm trade or Defendants’ actions caused injury to overall competition”

25

and hence failed to plead a specific intent to monopolize. Id. at *13–14.

26

NorthBay’s allegations here are similar — and similarly fail to plead that the defendants had

27

the specific intent to monopolize, as opposed to simply the intent to increase their own revenues

28
ORDER – No. 17-cv-05005-LB

16 

1

and decrease what they had to pay to NorthBay. This is insufficient to plead an antitrust

2

conspiracy claim.61

3
4

1.3

5

Causal Antitrust Injury
1.3.1

Governing Law

“In addition to the traditional limitations upon standing imposed by the Constitution, Congress

6
7

imposed additional limitations upon those who can recover damages under the antitrust laws.”

8

Pool Water Prods. v. Olin Corp., 258 F.3d 1024, 1034 (9th Cir. 2001) (citing Brunswick Corp. v.

9

Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 485–86 (1977)). “These limitations are sometimes
referred to as the antitrust standing requirements.” Id. (citing Am. Ad Mgmt., Inc. v. Gen. Tel. Co.

11
United States District Court
Northern District of California

10

of Cal., 190 F.3d 1051, 1054 (9th Cir. 1999)). “The most important limitation is that the private

12

party ‘must prove the existence of ‘antitrust injury.’” Id. (emphasis in original) (quoting Atl.

13

Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990)).
“To show antitrust injury, a plaintiff must prove that his loss flows from an anticompetitive

14
15

aspect or effect of the defendant’s behavior, since it is inimical to the antitrust laws to award

16

damages for losses stemming from acts that do not hurt competition.” Rebel Oil, 51 F.3d at 1433

17

(citing USA Petroleum, 495 U.S. at 334). Antitrust injury can include higher prices to consumers,

18

lower output, reduced quality, or the foreclosure of competition. See Pool Water, 258 F.3d at

19

1034. But “[i]f the injury flows from aspects of the defendant’s conduct that are beneficial or

20

neutral to competition, there is no antitrust injury, even if the defendant’s conduct is illegal per

21

se.” Id. (citing USA Petroleum, 495 U.S. at 334). “Where the defendant’s conduct harms the

22

plaintiff without adversely affecting competition generally, there is no antitrust injury.” Paladin,

23

328 F.3d at 1158 (citing MetroNet Servs. v. U.S. West, 325 F.3d 1086 (9th Cir. 2003); Pool Water,

24

258 F.3d at 1034–36). This is because the “[a]ntitrust laws are designed to protect competition, not

25

competitors.” Adaptive Power Solutions, LLC v. Hughes Missile Sys. Co., 141 F.3d 947, 951 (9th

26
27
In light of NorthBay’s failure to plead specific intent to monopolize generally, the court need not
address whether NorthBay satisfied its requirement to plead specific intent as to each defendant.
61

28

ORDER – No. 17-cv-05005-LB

17

1

Cir. 1998) (citing Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 338 (1990)). “[R]emoval

2

of one or a few competitors need not equate with injury to competition. . . . [C]laimants must

3

plead and prove a reduction of competition in the market in general and not mere injury to their

4

own positions as competitors in the market.” Les Shockley Racing, Inc. v. Nat’l Hot Rod Ass’n,

5

884 F.2d 504, 508 (9th Cir. 1989) (citing cases).

6

1.3.2

NorthBay does not allege any antitrust injury or harm to competition generally. It alleges

7
8

Application

injury only to itself.
NorthBay complains that the defendants’ conduct impairs its ability to invest in newer medical

9

services and technologies and thereby impairs its ability to compete.62 This may give NorthBay

11
United States District Court
Northern District of California

10

standing to assert an individual commercial dispute claim. But this does not give it standing to

12

assert a claim for antitrust conspiracy.
Once again, Prime Healthcare is instructive. The court there held that the plaintiff hospitals’

13
14

allegations that Kaiser Health Plan, Kaiser Hospitals, and the Southern California Permanente

15

Medical Group refused to pay claims for treatment of Kaiser Health Plan enrollees at the

16

plaintiff’s hospitals and initiated litigation against hospitals to recover for payments did not plead

17

an antitrust injury:

18

[Plaintiff] has not sufficiently stated that the Defendants’ actions actually injured
competition. Plaintiff fails to plead supportive facts beyond conclusory statements
that, as a result of Defendants[’] actions, [plaintiff] or other hospitals were injured
or pushed out of the relevant market, or that consumers actually faced higher
prices, reduced quality of care and quantity of services, and reduced choice as a
result of the Defendants’ actions. Any resources [plaintiff] spent as a result of the
Defendants’ actions . . . do not show actual injury to competition. Thus, the alleged
injury incurred by Kaiser Defendants’ refusal to pay claims for [plaintiff]’s
services, the Defendants’ initiation of purported sham litigation, or [plaintiff]’s
costs in defending itself in government investigations show only potential harm to
[plaintiff] alone. There are no non-conclusory allegations that Defendants’ actions
restrained trade in the relevant market or injured overall competition.

19
20
21
22
23
24

Prime Healthcare, 2013 WL 3873074, at *13. NorthBay’s allegations fail for the same reason —
25
they may plead an injury to NorthBay, but they do not plead an injury to competition as a whole.
26
27
28

62

See Compl. – ECF No. 1 at 31 (¶¶ 97–98).

ORDER – No. 17-cv-05005-LB

18 

As NorthBay has failed to plead the essential elements of an antitrust conspiracy, its claim

1
2

under Section 2 of the Sherman Antitrust Act must be dismissed.

3
4
5

2. The Court Declines to Exercise Supplemental Jurisdiction Over NorthBay’s Remaining
Claims
If a court dismisses all claims over which it has original jurisdiction, it may decline to exercise

6
supplemental jurisdiction over the remaining claims. 28 U.S.C. § 1367(c). “In the usual case in
7
which all federal-law claims are eliminated before trial, the balance of factors to be considered
8
under the pendent jurisdiction doctrine — judicial economy, convenience, fairness, and comity —
9
will point toward declining to exercise jurisdiction over the remaining state-law claims.” Sanford
10
v. MemberWorks, Inc., 625 F.3d 550, 561 (9th Cir. 2010) (citing Carnegie-Mellon Univ. v. Cohill,
11
United States District Court
Northern District of California

484 U.S. 343, 350 n.7 (1988)).
12
The remainder of NorthBay’s claims arise under state law. There is no diversity of
13

citizenship,63 and hence the court does not have original jurisdiction over these claims. In light of

14
these facts, and given that the litigation is at its earliest stages, the court declines to exercise
15
supplemental jurisdiction over the remainder of NorthBay’s claims.
16
17
CONCLUSION

18

For the foregoing reasons, the court (1) dismisses NorthBay’s claim under Section 2 of the
19
Sherman Antitrust Act for failure to state a claim, and (2) declines to exercise supplemental
20
jurisdiction over the remainder of NorthBay’s claims and dismisses them for lack of jurisdiction.
21
NorthBay may file an amended complaint on or before Thursday, January 11, 2018 that asserts a
22
23
24
25
26
27
28

63

All parties are citizens of California. Compl. – ECF No. 6–7 (¶¶ 12–13, 16–18).

ORDER – No. 17-cv-05005-LB

19 

1

cognizable claim over which the court has original jurisdiction. If it does not do so, the court will

2

direct the clerk of court to close this case.

3
4
5

IT IS SO ORDERED.
Dated: December 7, 2017
______________________________________
LAUREL BEELER
United States Magistrate Judge

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
28
ORDER – No. 17-cv-05005-LB

20