Steward Health Care System LLC et al v. Blue Cross & Blue Shield of Rhode Island
Filing
34
OPINION AND ORDER denying 16 Motion to Dismiss for Failure to State a Claim. So Ordered by Chief Judge William E. Smith on 2/19/2014. (Urizandi, Nisshy)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
___________________________________
)
STEWARD HEALTH CARE SYSTEM, LLC,
)
BLACKSTONE MEDICAL CENTER, INC.,
)
f/k/a STEWARD MEDICAL HOLDING
)
SUBSIDIARY FOUR, INC., BLACKSTONE )
REHABILITATION HOSPITAL, INC.,
)
f/k/a STEWARD MEDICAL HOLDING
)
SUBSIDIARY FOUR REHAB, INC.,
)
)
C.A. No. 13-405 S
Plaintiffs,
)
)
v.
)
)
BLUE CROSS & BLUE SHIELD OF
)
RHODE ISLAND,
)
)
Defendant.
)
___________________________________)
OPINION AND ORDER
WILLIAM E. SMITH, Chief Judge.
The
general
Landmark
acute
Rhode Island.
care
Medical
Center
community
(“Landmark”)
hospital
located
is
a
214-bed,
in
Woonsocket,
Each year, it provides some 175,000 patients with
a wide array of medical services ranging from ambulatory surgery
and orthopedics to radiology and cancer treatment.
In May 2011,
Steward Health Care System, LLC submitted a proposal to acquire
Landmark
Rhode
and
Island.
its
subsidiary,
Approximately
the
a
Rehabilitation
year
and
a
half
Hospital
later,
of
the
proposed acquisition was deemed a failure and abandoned.
The
circumstances
the
surrounding
basis of this lawsuit.
the
ill-fated
acquisition
form
The Plaintiffs, Steward Health Care System, LLC, Blackstone
Medical
Center,
Inc.,
and
Blackstone
Rehabilitation
Hospital,
Inc. (collectively, “Steward”) allege that the Defendant, Blue
Cross & Blue Shield of Rhode Island (“Blue Cross”), violated
state and federal antitrust law, and tortuously interfered with
contractual
relations,
by
engaging
in
a
series
of
anticompetitive steps designed to block Steward’s acquisition of
Landmark and its entry into the Rhode Island markets for the
sale
of
commercial
health
commercial hospital services.
that
it
acted
legally
insurance
and
the
purchase
of
In response, Blue Cross contends
when
it
refused
to
accept
the
reimbursement rates at Landmark that Steward was offering, and
otherwise operated within its rights in order to promote its
business interests.
Now pending is a Motion to Dismiss (ECF No. 16) filed by
Blue Cross pursuant to Federal Rule of Civil Procedure 12(b)(6).
For the reasons set forth, the Motion to Dismiss is DENIED.
I.
The Complaint
The facts, as alleged in the Complaint, are as follows:
Steward employs a business model focused on the acquisition and
development of financially distressed community hospitals, which
Steward believes are better suited to provide quality medical
services
efficiently,
hospitals.
(Compl.
as
¶¶
compared
17-18.)
2
to
more
Steward
expensive
also
teaching
sells
health
insurance, and provides much of the care under those policies
within its network of community hospitals.
(Id. at ¶ 19.)
This
model has achieved a level of success in Massachusetts, where
Steward is based.
In
2008,
Landmark’s
(Id. at ¶¶ 5, 18.)
against
finances,
the
the
backdrop
of
Providence
the
deterioration
County
Superior
of
Court
appointed a special master to oversee Landmark’s operations (the
“Special
Master”). 1
(Id.
at
¶ 21.)
In February
2011,
the
Special Master sought a potential buyer to acquire Landmark as a
means of resolving Landmark’s ongoing fiscal woes.
24.)
(Id. at ¶
In May 2011, Steward submitted a bid and the Special
Master recommended that it be accepted.
(Id.)
Steward’s plan
for Landmark involved investing approximately 35 million dollars
in
capital
improvements
and
physician
recruitment,
and
using
Landmark as a base from which to offer limited network insurance
plans, as it had done in Massachusetts.
bolster
Landmark’s
precarious
financial
(Id. at ¶ 26.)
situation,
extended Landmark a five million dollar line of credit.
Steward
alleges
that
its
proposal
to
acquire
To
Steward
(Id.)
Landmark
triggered a series of anticompetitive steps by Blue Cross aimed
at blocking Steward’s entry into the Rhode Island market.
1
The
Steward alleges that, long before its failed acquisition
attempt, Blue Cross was in part responsible for the financial
struggles at Landmark.
In March 2011, the Special Master sued
Blue Cross, alleging that Blue Cross had made inadequate
payments to Landmark. (Compl. ¶ 22.)
3
first
of
these
steps,
Steward
alleges,
took
place
when
Blue
Cross filed an objection with the Special Master to Steward’s
proposal.
Steward
(Id.
and
at
the
¶
25.)
Special
Despite
Master
the
objection,
executed
an
asset
agreement in June 2011 (the “Purchase Agreement”). 2
Following
execution
of
the
Purchase
however,
purchase
(Id.)
Agreement,
began negotiating contracts with third parties.
Steward
In September
and October 2011, Steward and Blue Cross exchanged proposals for
reimbursement
rates
that
Blue
Cross
would
rendered to its subscribers at Landmark.
pay
for
services
(Id. at ¶ 28.)
As these negotiations were ongoing, a separate storyline
was unfolding in the Rhode Island legislature.
Steward
Hospital
filed
an
application
Conversion
Act
(the
pursuant
to
“Hospital
permission to acquire Landmark.
In October 2011,
the
Rhode
Conversion
(Id. at ¶ 29.)
Island
Act”)
for
In January
2012, as the Hospital Conversion Act filing was pending, a bill
was
introduced
would
have
in
had
a
both
houses
significant
operate in Rhode Island.
provision
of
state
law
of
the
bearing
state
on
legislature
Landmark’s
that
plans
to
That bill proposed to eliminate a
barring
any
owner
of
a
for-profit
hospital from converting more than one non-profit Rhode Island
hospital
to
for-profit
status
in
2
any
three-year
period
–
a
Steward’s obligations under the Purchase Agreement were
subject to certain conditions precedent.
4
change
that
would
have
enabled
Steward
to
acquire
other
facilities and implement its community hospital care model in
Rhode Island.
(Id. at ¶ 31.)
Blue Cross engaged in an intense
lobbying effort against passage of the bill, including offering
testimony before the House Corporations Committee.
(Id. at ¶
32.)
In May 2012, the Rhode Island Department of Health (the
“Department
of
Health”)
and
the
State
Attorney
General
approved Steward’s Hospital Conversion Act application.
¶ 35.)
each
(Id. at
Just prior to this approval, however, Blue Cross had
filed an application with the Department of Health to make a
“material
plan
modification”
provider network.
Meanwhile,
to
remove
Landmark
from
its
(Id. at ¶ 36.)
negotiations
between
Steward
and
Blue
regarding reimbursement rates at Landmark were ongoing.
Cross
Steward
alleges that it offered to accept rates that were 5% less than
the average rates Blue Cross was paying to other providers in
Rhode Island.
Blue
(Id. at ¶ 37.)
Cross’
hardline
Blue Cross declined the proposal.
stance
at
the
bargaining
table,
Steward alleges, was part and parcel with its ongoing attempt to
financially destabilize Landmark and undermine Steward’s entry
into the Rhode Island market.
In furtherance of these aims,
Steward alleges, in July 2012, while Blue Cross’ application to
remove
Landmark
from
its
provider
5
network
was
still
pending
before the Department of Health, Blue Cross sent out letters to
its subscribers and doctors informing them that Landmark was
likely to be removed from its network.
letters
led
to
a
decline
in
the
(Id. at ¶ 39.)
number
of
patients
These
seeking
treatment at Landmark and a resulting decline in revenues.
at ¶ 40.)
(Id.
At approximately the same time, Blue Cross stopped
making reimbursement payments to Landmark, further undermining
Landmark’s financial viability.
(Id. at ¶ 39.)
In September
2012, facing an increasingly desperate financial situation, the
Special Master sought permission from the state court to drop
Landmark’s lawsuit against Blue Cross, previously filed in March
2011, in exchange for Blue Cross recommencing payments.
(Id. at
¶ 42.)
Steward
alleges
that
Blue
Cross’
anticompetitive
conduct
went beyond direct interference with the Landmark acquisition.
More specifically, Steward alleges that Blue Cross discouraged
third parties, including Thundermist Health Center, from dealing
with Steward, and indicated to these third parties that dealing
with
Steward
Cross.
might
jeopardize
their
relationships
with
Blue
(Id. at ¶ 41.)
Likewise, in May 2012, Blue Cross notified Steward that it
would
not
renew
its
contracts
with
St.
Anne’s
Hospital,
a
Steward-owned facility in Fall River, Massachusetts on the Rhode
Island border (“St. Anne’s”).
(Id. at ¶ 45.)
6
Because St.
Anne’s was located in Massachusetts, once Blue Cross removed it
from its provider network, Rhode Island Blue Cross subscribers
could obtain services at St. Anne’s only by using the “BlueCard
Program.” 3
(Id. at ¶ 46.)
When its Rhode Island subscribers
would obtain services at St. Anne’s, Blue Cross would reimburse
St. Anne’s at rates negotiated by Blue Cross & Blue Shield of
Massachusetts, plus a BlueCard fee.
(Id. at ¶ 47.)
In an
effort to renew an agreement with Blue Cross for St. Anne’s,
Steward offered to continue reimbursement at the Blue Cross &
Blue Shield of Massachusetts rates, less the BlueCard fee that
Blue Cross was currently paying.
declined.
(Id. at ¶ 48.)
Blue Cross
(Id.)
At the same time, Steward alleges, Blue Cross began falsely
telling
doctors
that
St.
Anne’s
reimbursement
rates
were
unnecessarily high, leading doctors to believe that referring
patients to St. Anne’s would jeopardize their entitlement to
certain savings that Blue Cross pays to doctors utilizing costefficient providers.
(Id. at ¶ 49.)
The net effect of these
actions was to decrease patient and revenue flow at St. Anne’s.
(Id. at ¶ 51.)
3
The Complaint describes the BlueCard Program as a national
program whereby Blue Cross & Blue Shield plans in various states
allow subscribers of one plan to access benefits and rates of
another plan while traveling or living outside of their home
plan’s service area. (Compl. ¶ 46.)
7
After further efforts to negotiate a deal with Blue Cross
for reimbursement rates at Landmark failed, Steward announced on
September 27, 2012 that it was terminating its effort to acquire
Landmark.
(Id. at ¶ 43.)
Steward now brings claims for actual
and attempted monopolization and monopsonization 4 in violation of
§
2
of
the
Antitrust
Sherman
Act,
as
Act
well
and
as
§
for
6-36-5
of
tortious
the
Rhode
Island
interference
existing and prospective contractual relations.
with
Blue Cross has
moved to dismiss all of these claims.
II.
Standard of Review
“In
order
to
survive
a
motion
to
dismiss
under
Rule
12(b)(6), a plaintiff must ‘plead[] factual content that allows
the court to draw the reasonable inference that the defendant is
liable
for
the
misconduct
alleged.’”
Sanchez
v.
Pereira-
Castillo, 590 F.3d 31, 48 (1st Cir. 2009) (quoting Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (alteration in original)).
The
complaint must “contain sufficient factual matter . . . to state
a claim to relief that is plausible on its face.”
Iqbal, 556
U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007) (internal quotation omitted)).
4
A monopsony is a market in which a single buyer has
disproportionate power – a “buyer’s monopoly.”
See Roger D.
Blair and Jeffrey L. Harrison, Antitrust Policy and Monopsony,
76 Cornell L. Rev. 297, 320 (1991).
In this context, Steward
alleges that Blue Cross exercised monopsony power as a buyer of
commercial hospital services.
8
The Court must “accept as true all the factual allegations
in the complaint and construe all reasonable inferences in favor
of the plaintiff.”
omitted).
Sanchez, 590 F.3d at 41 (internal citation
Nevertheless, “[t]hreadbare recitals of the elements
of a cause of action, supported by mere conclusory statements,
do not suffice.”
Iqbal, 556 U.S. at 678.
III. Antitrust Claims
To sustain a claim for monopolization under § 2 of the
Sherman
Act,
a
plaintiff
must
demonstrate:
(1)
that
the
defendant possessed monopoly power in the relevant market; and
(2) the defendant’s willful acquisition or maintenance of that
power,
as
distinguished
from
growth
or
development
as
a
consequence of a superior product, business acumen, or historic
accident.
Diaz Aviation Corp. v. Airport Aviation Servs., 716
F.3d 256, 265 (1st Cir. 2013) (citing United States v. Grinnell
Corp.,
384
elements
U.S.
apply
to
563,
a
570-71
claim
(1966)). 5
for
illegal
Logically,
the
monopsonization.
same
See
Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S.
312,
320-22
(2007);
Susan
Foster,
Monopsony
and
Backward
Integration: Section 2 Violations in the Buyer’s Market, 11 U.
5
A § 2 claim for attempted monopolization requires that the
plaintiff establish:
“(1) that the defendant has engaged in
predatory or anticompetitive conduct with (2) a specific intent
to monopolize and (3) a dangerous probability of achieving
monopoly power.”
Diaz Aviation Corp. v. Airport Aviation
Servs., 716 F.3d 256, 265 (1st Cir. 2013) (quoting Spectrum
Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993)).
9
Puget Sound L. Rev. 687, 699 (1988).
The Court applies the same
substantive law to the state and federal antitrust claims as the
Rhode Island Antitrust Act mirrors the Sherman Act.
See Stop &
Shop Supermarket Co. v. Blue Cross & Blue Shield of R.I., 239 F.
Supp.
2d
180,
186-87
(D.R.I.
2003);
ERI
Max
Entm’t
Inc.
v.
may
be
Streisand, 690 A.2d 1351, 1353 n.1 (R.I. 1997).
Blue
Cross’
arguments
in
favor
of
dismissal
summarized as follows: (1) Blue Cross, even as a monopolist, was
under no duty to deal with Steward; (2) Steward lacks standing
to
bring
antitrust
claims
because
its
alleged
injuries
are
speculative and not cognizable under antitrust law, and because
Steward is not presently a competitor or consumer in the alleged
markets;
(3)
Steward
failed
to
allege
plausible
product
and
geographic markets as required to sustain an antitrust claim;
and (4) Blue Cross’ various lobbying activities are immune from
antitrust scrutiny under the Noerr-Pennington Doctrine.
Each
argument is addressed in turn.
A.
In
Was Blue Cross Obligated to Deal with Steward?
the
absence
of
any
purpose
to
create
or
maintain
a
monopoly, the Sherman Act does not restrict the long-recognized
right of a trader or manufacturer engaged in an entirely private
business freely to exercise his own independent discretion as to
parties with whom he will deal.
250 U.S. 300, 307 (1919).
United States v. Colgate & Co.,
However, the high value placed on the
10
right to refuse to deal with other firms does not mean that the
right is unqualified.
Verizon Commc’ns Inc. v. Law Offices of
Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004).
Under certain
circumstances, a refusal to cooperate with rivals can constitute
anticompetitive conduct and violate § 2 of the Sherman Act.
Id.
Courts have identified examples of conduct giving rise to a § 2
claim
for
refusing
to
deal,
including
the
termination
of
a
voluntary (and thus presumably profitable) course of dealing,
electing
to
eliminating
forego
short-term
competition,
and
profits
the
for
refusal
to
the
deal
sake
with
of
the
plaintiff even if compensated at prevailing rates for products
that the defendant already sells to others.
See, e.g., Aspen
Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 610-11
(1985); Tucker v. Apple Computer, Inc., 493 F. Supp. 2d 1090,
1101
(N.D.
Cal.
2006).
However,
the
existence
of
a
valid
business justification for a monopolist to engage in this type
of behavior may preclude § 2 liability.
Aspen Skiing Co., 472
U.S. at 605-06; Creative Copier Servs. v. Xerox Corp., 344 F.
Supp. 2d 858, 867 (D. Conn. 2004).
generally
recognized
that
the
Nevertheless, courts have
existence
of
a
business
justification is not properly determined on a motion to dismiss.
See Creative Copier, 344 F. Supp. 2d at 867.
Steward relies principally on Aspen Skiing in contending
that Blue Cross illegally refused to deal.
11
There, the plaintiff
was the owner and operator of a ski mountain in Colorado.
U.S. at 578.
mountains.
had
The defendant owned and operated three nearby
Id. at 589-90.
offered
a
joint,
For years, plaintiff and defendant
all-mountain
access to all four mountains.
demanding
472
an
increased
pass
Id. at 591.
share
of
the
ultimately discontinued the joint pass.
Predicting
that
that
elimination
of
allowed
skiers
After repeatedly
proceeds,
defendant
Id. at 592-93.
the
pass
would
adversely
affect its business, plaintiff attempted a variety of methods to
recreate the simplicity of the all-mountain pass.
For example,
plaintiff offered to purchase lift tickets from defendant at
retail
value,
but
defendant
refused
to
sell.
Id.
at
593.
Plaintiff later offered an “Adventure Pack” which included a
three-day pass to its own mountain, and vouchers for the full
cash value of lift tickets at defendant’s mountains.
593-94.
Id. at
Defendant refused to accept the vouchers.
In upholding a § 2 verdict for the plaintiff, the Supreme
Court focused on the defendant’s abandonment of a successful
prior course of dealing (as evidenced by robust sales of the
all-mountain pass and high levels of customer satisfaction), id.
at 603, defendant’s willingness to accept short-term losses to
preserve its monopoly (as evidenced by its refusal to sell lift
tickets to plaintiff or to accept Adventure Pack vouchers from
skiers),
id.
at
608,
and
defendant’s
12
failure
to
proffer
a
legitimate business justification for its actions, id. at 60809.
This
unilateral
abandonment
of
a
voluntary
course
of
dealing, forsaking of short-term profits, refusal to transact
business with the plaintiff even if compensated at rates set by
the defendant, and concomitant inability to provide a legitimate
business
rationale
requirements
of
a
have
§
2
evolved
refusal
to
to
deal
form
the
claim.
baseline
See,
e.g.,
Creative Copier, 344 F. Supp. 2d. 865-66.
Nevertheless, the Supreme Court has subsequently clarified
that “Aspen Skiing is at or near the outer boundary of § 2
liability.”
Verizon,
Trinko, 540 U.S. at 409.
was
required
under
In Trinko, the defendant,
telecommunications
regulations
offer certain “unbundled” services to its competitors.
403.
to
Id. at
The plaintiff brought a class action under § 2 on behalf
of a competing telecommunication provider’s customers alleging
that
Verizon
filled
competitors’
orders
slowly
and
on
a
discriminatory basis in order to dissuade customers from staying
with
the
competitors.
Id.
at
404-05.
The
Supreme
Court
reviewed the factors set forth in Aspen Skiing and found that
Verizon’s
actions
liability.
because
unbundled
were
insufficient
Id. at 409-10.
Verizon
was
services,
subject
it
to
§
2
Specifically, the Court found that
required
it
to
could
by
not
regulation
be
said
to
that
previously voluntarily dealt with its competitors.
13
share
the
Verizon
had
Id. at 410.
What is more, because the price at which the unbundled services
were to be provided was statutorily prescribed, the Court could
not conclude whether Verizon was foregoing short-term profits to
solidify its monopoly. 6
Several
credit
failure
dealing
courts
refusal
to
to
interests 7
in
or
the
deal
establish
contrary
Id.
to
wake
claims
of
based
termination
the
defendant’s
Trinko
of
on
a
defendant’s
refusal
to
have
either
declined
plaintiffs’
voluntary
course
short-term
sell
to
products
of
business
to
the
plaintiff that it made available at retail to other consumers. 8
6
The Court declines to credit Blue Cross’ reliance on
Trinko for the proposition that the heavily regulated nature of
health care markets makes it improper for courts to intervene on
antitrust grounds. See Trinko, 540 U.S. at 412 (“One factor of
particular importance is the existence of a regulatory structure
designed to deter and remedy anticompetitive harm. Where such a
structure exists, the additional benefit to competition provided
by antitrust enforcement will tend to be small.”). Whereas the
telecommunications industry at issue in Trinko was the subject
of extensive antitrust regulation, it cannot be said that the
same level of antitrust-focused regulation exists in health care
markets.
See D. Andrew Austin and Thomas L. Hungerford, Cong.
Research Serv., R40834, The Market Structure of the Health
Insurance Industry 46-47 (2009).
7
See, e.g., In re Elevator Antitrust Litigation, 502 F.3d
47, 52 (2d Cir. 2007) (“[B]ecause plaintiffs do not allege that
defendants terminated any prior course of dealing – the sole
exception to the broad right of a firm to refuse to deal with
its competitors – the allegations are insufficient to state a []
claim.”); see also Christy Sports, LLC v. Deer Valley Resort
Co., 555 F.3d 1188, 1197 (10th Cir. 2009).
8
See, e.g., MetroNet Servs. Corp. v. Qwest Corp., 383 F.3d
1124, 1133 (9th Cir. 2004); Stein v. Pac. Bell, 172 F. App’x
192, 194 (9th Cir. 2006).
14
At the outer boundaries of § 2 liability though it may be, Aspen
Skiing prescribes a set of factors that are present in abundance
in this case.
For example, Steward has pled facts sufficient to
suggest that Blue Cross, in an effort to undermine the Landmark
acquisition and Steward’s entry into the Rhode Island market,
unilaterally sought to terminate two prior courses of dealing in
Landmark and St. Anne’s. 9
Likewise,
the
Complaint
allegations
suggesting
courses
dealing
of
financial interests.
that
were
contains
these
contrary
sufficient
terminations
to
Blue
of
Cross’
factual
existing
short-term
With respect to the negotiations between
the parties for reimbursement rates at Landmark, Steward alleges
that it offered – and Blue Cross rejected – reimbursement rates
that were 5% below the average rates that Blue Cross accepted
statewide from other hospitals.
(See Compl. ¶ 37.)
respect
to
has
refused
to
St.
Anne’s,
accept
Steward
terms
that
alleged
would
have
that
And with
Blue
Cross
preserved
prior
reimbursement rates, but saved Blue Cross from having to pay
certain fees associated with the BlueCard program.
(See id. at
¶ 48.)
9
While it cannot be said that Steward and Blue Cross had a
prior course of dealing with each other with respect to
Landmark, the Court is not aware of case law that would preclude
consideration of Blue Cross’ own direct prior course of dealing
with Landmark.
15
Blue
Cross
correctly
notes
that
the
Complaint
refers
repeatedly to reimbursement rate increases at Landmark.
Compl. ¶¶ 37-38.)
(See
It contends that Steward is precluded from
stating a refusal to deal claim because this concession provides
evidence
that
Landmark
would
business
interests.
persuasive,
litigation
previous
termination
not
there
upon
be
of
no
which
reimbursement
prior
contrary
While
is
the
to
to
this
rates
Blue
argument
record
rest
course
at
a
this
Steward sought to increase them.
dealing
Cross’
may
early
conclusion
were
of
short-term
prove
stage
as
negotiated,
to
and
at
to
be
of
the
when
the
how
much
The Complaint does allege,
however, that the rates that had previously been in place at
Landmark were grossly inadequate to cover Landmark’s cost of
doing business.
found
an
(Id. at ¶¶ 22, 23, 28.)
unlawful
refusal
to
deal
Courts have previously
where
the
defendant
would
agree only to unreasonable terms and conditions amounting to a
practical refusal to deal.
See Aspen Skiing, 472 U.S. at 592;
Safeway Inc. v. Abbott Labs., 761 F. Supp. 2d 874, 894-95 (N.D.
Cal. 2011).
For purposes of the instant Motion to Dismiss, it
is sufficient for Steward to have pled facts suggesting that
Blue Cross rejected proposed reimbursement rates significantly
lower than the statewide average that Blue Cross accepted at
other hospitals.
See Creative Copier, 344 F. Supp. 2d at 867
(“[T]he
of
presence
a
business
16
justification
.
.
.
is
not
appropriately raised at [the motion to dismiss] stage.
. . .
[The plaintiff] is not required to allege the negative of every
possible
justification
[the
defendant]
may
must
is
offer
for
its
conduct.”).
The
next
hurdle
Steward
clear
establishment
of
facts suggesting that Blue Cross offered a product or service
for sale to the public at a retail price that it then refused to
provide
to
Steward
on
the
same
terms.
While
the
facts
underlying this case require more parsing than the forlorn skier
turned
away
Complaint
that
from
the
contains
Blue
Cross
ticket
window
sufficient
refused
to
factual
purchase
in
Aspen
Skiing,
allegations
hospital
to
the
suggest
services
from
Steward at or around the same price points that it was willing
to pay other providers for similar services.
(See Compl. ¶ 37.)
Blue Cross aptly notes the complexity underlying hospital
contracting and suggests that, unlike the ski mountain operator
in Aspen Skiing, it does not provide a retail product or service
to consumers at a fixed price.
merit,
given
the
odd
This argument is not without
complexities
and
idiosyncrasies
of
our
modern health care market.
To
briefly
sketch
the
landscape,
the
health
insurance
industry as we know it traces its roots to Baylor University
Hospital in Dallas.
In the late 1920s, it was discovered that
unpaid medical bills from local teachers were placing a strain
17
on the hospital’s finances.
See D. Andrew Austin and Thomas L.
Hungerford, Cong. Research Serv., R40834, The Market Structure
of the Health Insurance Industry 3 (2009).
In an effort to
alleviate the financial burden, the hospital created a pre-paid
hospitalization
benefit
plan
for
teachers.
Unlike
previous
insurance products that paid a fixed cash indemnity, enrollees
in the Baylor plan were entitled to hospital care and services
as needed.
Id.
Within
country
began
several
were
to
years,
offering
collaborate
hospitals
similar
with
plans.
one
in
cities
Soon
another
by
across
after,
the
hospitals
offering
shared
community-based plans, providing subscribers access to multiple
facilities.
When a group of hospitals in St. Paul, Minnesota
joined together to offer one such community-based plan, they
chose a blue cross to serve as their emblem.
Other community-
based plans began incorporating the same emblem, and through the
1930s,
the
number
increased rapidly.
of
“Blue
Cross”
plans
and
subscribers
Rosemary Stevens, In Sickness and in Wealth:
American Hospitals in the 20th Century 186 (Basic Books 1989).
With the advent of private health insurance in the 1950s, and
the creation of Medicare and Medicaid in the 1960s, in less than
a generation, the health care industry had been transformed from
a traditional marketplace with individual buyers and sellers, to
18
one in which the vast majority of Americans obtained medical
care through an insurance intermediary.
The modern role played by these intermediaries is enormous.
Insurers such as Blue Cross serve a vital function by making
coverage eligibility determinations, bridging the informational
asymmetry between patients and providers, spreading the risk of
catastrophic loss among subscribers, and assuring that providers
will
be
compensated
patient’s
ability
influence
in
services.
to
setting
For
for
their
services
pay.
As
prices
and
example,
an
such,
regardless
they
affording
insurer
may
exert
access
choose
of
the
substantial
to
to
medical
pay
one
provider more or less for the same procedure than it chooses to
pay another provider based on the provider’s quality of service,
bargaining
power,
or
a
host
of
other
factors.
See,
e.g.,
Kartell v. Blue Shield of Mass., Inc., 749 F.2d 922, 923 (1st
Cir. 1984) (upholding health insurer’s right to set the prices
at which it would reimburse physicians for services rendered to
subscribers).
result
of
But the bargaining power vested in insurers as a
their
unique
market
function
cannot
preclude
§
2
liability where an insurer engages in anticompetitive conduct to
exclude a potential competitor, merely on the grounds that the
insurer’s market power enables it to set variable prices among
19
providers such that there is no discernable retail or market
price for the services that it transacts. 10
Next, Blue Cross accurately notes that Steward is asking
this
Court
opposed
to
to
recognize
the
implicating
a
previously
more
found
Blue
traditional
monopolist’s
anticompetitive
Cross’
that
conduct,
refusal
obligation
where
a
obligation
to
there
to
to
buy,
deal
sell.
as
claim
Courts
have
is
manufacturer
no
evidence
of
has
no
obligation
to
purchase goods from a particular supplier.
See Raitport v. Gen.
Motors Corp., 366 F. Supp. 328, 331 (E.D. Pa. 1973).
Similarly,
courts have found that there can be no duty to buy where the
plaintiff seeks to sell goods or services that are inferior or
overpriced.
See,
e.g.,
Kamine/Besicorp
Allegany
L.P.
v.
Rochester Gas & Elec. Corp., 908 F. Supp. 1194, 1207 (W.D.N.Y.
1995)
(“It
simply
does
not
appear
that
the
effect
of
[defendant]’s refusal to pay more than its actual avoided cost
would
have
Commc’ns
an
Corp.,
anticompetitive
408
F.
Supp.
effect.”);
1075,
10
1101
AT&T
(S.D.
Co.
v.
Delta
Miss.
1976)
Likewise, that Blue Cross serves as an intermediary
between the producer (the hospital) and the ultimate consumer
(the patient) does not preclude § 2 liability for an illegal
refusal to deal.
See, e.g., Otter Tail Power Co. v. United
States, 410 U.S. 366, 382 (1973) (finding a power provider in
violation of the antitrust laws for its refusal to sell power to
certain municipalities in order to prevent those municipalities
from
establishing
their
own
power
infrastructure
and
distributing power directly to households).
20
(“[T]he
undisputed
material
facts
show
that
the
service
[plaintiff] was attempting to sell was not worth buying.”).
However,
this
Court
is
unaware
of
any
case
law
holding
that, as a matter of law, an alleged refusal to buy cannot ever
form the basis of a § 2 refusal to deal claim.
In this case,
Steward has pled facts sufficient to suggest that Blue Cross
refused
to
purchase
similar
services
from
Steward
that
it
purchased from other providers, at prices significantly below
what Blue Cross was willing to pay to those other providers. 11
Blue
Cross
would
have
the
Court
believe
that
Steward’s
refusal to deal claim fails as a matter of law because Blue
Cross has the right to deal, or refuse to deal, with whomever it
likes.
(See Mot. to Dismiss 10.)
This is true to a great
extent, but the right is not unlimited.
recognized
in
Aspen
Skiing,
the
right
As the Supreme Court
of
those
engaged
in
private business to choose with whom they will deal is subject
to the qualification that the right exists only in the absence
11
Without belaboring the point, it is worth noting again
that the unique role played by health insurance intermediaries
has a bearing on the allegations in this case. As compared with
a traditional manufacturing firm that purchases its raw
materials from Party A and sells its finished product to Party
B, a health insurer such as Blue Cross employs a wholly
different business model in which it sells an insurance product
to Party A, contracts to purchase medical services from Party B,
then turns around and grants access to those services to Party
A.
Given this unique function, it should come as no surprise
that a refusal to deal allegation against a health insurance
provider would implicate the provider’s refusal to buy.
21
of any purpose to create or maintain a monopoly.
472 U.S. 602 (citing Colgate, 250 U.S. 307).
the
factual
allegations
in
the
Complaint
Aspen Skiing,
Accepting as true
and
construing
all
reasonable inferences in favor of Steward, as the Court must,
the
Complaint
alleges
sufficient
facts
to
suggest
that
Blue
Cross’ conduct falls within the scope previously found by courts
to be violative of the antitrust laws.
That being the case,
dismissal of Steward’s refusal to deal claim is unwarranted.
B.
Does Steward Have Standing to Bring Antitrust Claims?
Courts utilize a six-factor test to determine whether a
private plaintiff has standing to bring an antitrust action.
The factors are: (1) the causal connection between the alleged
antitrust violation and harm to the plaintiff; (2) an improper
motive; (3) the nature of the plaintiff’s alleged injury and
whether the injury was of a type that Congress sought to redress
with
the
antitrust
laws;
(4)
the
directness
with
which
the
alleged market restraint caused the asserted injury; (5) the
speculative
nature
of
the
damages;
and
(6)
the
risk
of
duplicative recovery or complex apportionment of damages.
Serpa
Corp. v. McWane, Inc., 199 F.3d 6, 10 (1st Cir. 1999).
Blue
Cross makes three distinct arguments in contending that Steward
lacks
standing
alleged
injury
to
bring
its
–
loss
of
antitrust
negotiating
claims:
(1)
leverage
Steward’s
–
is
not
cognizable under antitrust law; (2) Steward’s alleged damages
22
are too remote and too speculative to state a valid claim in
that
they
presume
the
successful
acquisition
of
Landmark,
followed by the successful statewide implementation of Steward’s
community
hospital
“presumptively
present,
it
care
disfavored”
is
neither
alleged markets.
a
model;
and
antitrust
(3)
Steward
competitor
plaintiff
nor
a
is
because,
consumer
in
a
at
the
The Court rejects these arguments, and finds
that Steward has standing.
i.
Is Steward’s Alleged
Antitrust Law?
Injury
Cognizable
Under
Every antitrust plaintiff must show that it has sustained
antitrust injury.
Sterling Merch., Inc. v. Nestle, S.A., 656
F.3d 112, 121 (1st Cir. 2011).
Antitrust injury is “injury of
the type the antitrust laws were intended to prevent and that
flows from that which makes defendants’ acts unlawful.”
Id.
(quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S.
477, 489 (1977)).
Blue Cross characterizes Steward’s alleged injury as the
loss of negotiating leverage that Steward would have attained
had
it
successfully
acquired
Landmark
community hospital model in Rhode Island.
Steward
vigorously
Complaint.
disputes
this
and
implemented
its
As discussed below,
characterization
of
the
But, accepting Blue Cross’ depiction of the alleged
injury for the time being, Blue Cross relies principally on the
23
Brunswick
case
in
contending
that
the
loss
of
negotiating
leverage does not constitute a cognizable antitrust injury.
In Brunswick, the defendant acquired three bowling alleys,
all of which were facing financial difficulty.
80.
same
429 U.S. at 479-
The plaintiff, the operator of other bowling alleys in the
area,
brought
antitrust
claims
alleging
that
the
defendant’s decision to acquire the alleys, rather than letting
them go out of business, had deprived the plaintiff of increased
market share.
The Supreme Court denied recovery, reasoning that
the antitrust laws are for the protection of competition, not
competitors.
Id. at 488.
The Supreme Court found that the loss
of potential market share was not the type of injury that the
antitrust laws were intended to prevent.
Blue
Brunswick
Cross’
holding
reliance
on
arguably
Id. at 489.
Brunswick
counsels
is
misplaced,
against
considered in the context of the instant facts.
as
dismissal
the
when
Ultimately, the
holding in Brunswick for the defendant was based on the fact
that the plaintiff’s acquisition of the bowling alleys served to
increase, rather than decrease competition.
The Supreme Court
reasoned that the antitrust laws were not designed to give rise
to a cause of action where the alleged illegal act actually
served to increase competition by preventing the bowling alleys
from going out of business.
end
of
the
spectrum,
Blue
Here, on the completely opposite
Cross’
24
alleged
conduct
served
to
decrease
competition
by
denying
Steward
access
to
the
Rhode
Island market.
What is more, the Court finds merit in Steward’s argument
that Blue Cross has mischaracterized the Complaint by contending
that
Steward’s
negotiating
Steward
alleged
leverage
disputes
this
injury
to
consists
seek
higher
characterization
only
of
the
reimbursement
of
the
loss
of
rates.
Complaint,
and
accurately points out that the Complaint’s reference to loss of
negotiating leverage refers not to Steward’s alleged injury, but
to Blue Cross’ alleged rationale for wanting to sabotage the
Landmark acquisition: Blue Cross believed that entry by Steward
into the Rhode Island market would have decreased Blue Cross’
negotiating leverage.
Steward argues that its injury is not the
loss of negotiating leverage at all, but rather the millions of
dollars
invested
in
the
Landmark
acquisition
prior
to
its
abandonment, and the lost profits that would have resulted from
entry into the Rhode Island market.
This is sufficient to state
a cognizable antitrust injury.
ii.
Are Steward’s Damages Too Remote or Speculative?
An antitrust plaintiff must show that its alleged damages
were caused by the alleged antitrust violation.
v.
AK
Media
Grp.,
Inc.,
260
F.3d
10,
14
RSA Media, Inc.
(1st
Cir.
2001).
“[A]ntitrust laws have been interpreted to incorporate common
law principles of causation.”
Rhode Island Laborers’ Health &
25
Welfare Fund ex rel. Trs. v. Philip Morris, Inc., 99 F. Supp. 2d
174, 187 (D.R.I. 2000).
As such, “[c]ontingencies, conjecture,
and speculation will not support a finding of proximate cause,”
and
will,
therefore,
liability.
not
support
a
finding
of
antitrust
Id.
Nevertheless, in assessing the standing of would-be market
entrants, courts assess the “intent and preparedness” of the
prospective entrant.
City
of
Pontiac,
See, e.g., Huron Valley Hosp., Inc. v.
666
F.2d
1029,
1033
(6th
Cir.
1981)
(plaintiff’s acquisition of land for hospital, performance of
feasibility
and
studies,
consummation
of
attempts
to
contracts
obtain
were
government
sufficient
approvals,
to
establish
standing); see also Shionogi Pharma, Inc. v. Mylan, Inc., No.
10-1077, 2011 U.S. Dist. LEXIS 98547, at *10-16 (D. Del. August
31, 2011).
A potential competitor’s “[i]ndicia of preparedness
include adequate background and experience in the new field,
sufficient financial capability to enter it, and the taking of
actual and substantive affirmative steps toward entry, such as
the
consummation
necessary
Biovail
of
facilities
Corp.
relevant
and
Int’l,
contracts
equipment.”
256
F.3d
799,
and
Andrx
807
procurement
Pharm.,
(D.C.
Inc.
Cir.
of
v.
2001)
(internal citation and quotation marks omitted).
Blue
Cross
argues
that
Steward
does
not
have
standing
because its alleged damages are too speculative and premised
26
upon multiple assumptions, including satisfaction of conditions
precedent in the Purchase Agreement and the ability to create a
successful hospital network in Rhode Island thereafter.
Relying
principally
Pharma,
Steward
on
Huron
responds
Valley
that
it
Hospital
has
and
Shionogi
demonstrated
its
preparedness to enter the Rhode Island market.
undertook
a
acquisition
long
and
series
to
gain
of
a
steps
to
foothold
and
Indeed, Steward
complete
in
intent
Rhode
the
Landmark
Island.
For
example, Steward invested heavily in Landmark by extending a
five million dollar line of credit during the pendency of the
Purchase Agreement, and completed regulatory filings necessary
to effectuate the acquisition.
What is more, Steward’s market
preparedness is demonstrated by its operation of St. Anne’s,
whose geographic proximity to Rhode Island resulted in a number
of Rhode Island patients seeking treatment there.
Shionogi
Pharma
plaintiffs
brought
defendants
based
is
instructive.
antitrust
on
the
claims
There,
against
counter-defendants
the
counter-
the
counter-
allegedly
having
filed a frivolous patent suit to keep the counter-plaintiffs
from
entering
product.
the
the
market
for
the
sale
of
a
pharmacological
2011 U.S. Dist. LEXIS 98547, at *3-5.
antitrust
claim,
the
counter-defendant
argued
In defending
that
other
factors barred the counter-plaintiff’s entry into the relevant
market,
most
notably
the
absence
27
of
FDA
approval
for
the
counter-plaintiff to market its product.
Id. at *11-12.
The
district
reasoning
the
court
rejected
the
argument,
that
counter-plaintiff had taken steps to enter the market and had
demonstrated its intent and preparedness to sell the product.
Id. at *16.
Likewise, here, while Blue Cross avers that Steward had not
satisfied certain conditions precedent to the Purchase Agreement
at
the
time
of
Blue
Cross’
alleged
anticompetitive
conduct,
Steward has pled facts sufficient to suggest that those actions
were
the
proximate
acquisition.
cause
of
the
collapse
of
the
Landmark
In order to convince a fact finder of Blue Cross’
culpability and to establish damages, Steward may ultimately be
called upon to demonstrate that its successful acquisition of
Landmark would have permitted Steward to develop its community
hospital model in Rhode Island.
the initial pleading stage.
But, Steward need not do so at
See Koch v. I-Flow Corp., 715 F.
Supp. 2d 297, 302 (D.R.I. 2010).
As such, it would be improper
to dismiss the action on grounds that the alleged damages are
too remote or speculative.
iii. Is Steward an Improper Plaintiff by Virtue of Not
Being a Market Competitor or Consumer?
Because Steward was neither a competitor nor a consumer in
the
Rhode
Island
market
at
the
time
that
the
alleged
anticompetitive conduct occurred, Blue Cross argues that Steward
28
is “presumptively disfavored” and thus lacks standing.
What is
more, Blue Cross suggests, other parties are better suited to
bring antitrust claims, further undermining Steward’s standing.
Current competitors and consumers in the alleged relevant
market are presumptive antitrust plaintiffs; all other parties
are “presumptively disfavored.”
Serpa Corp., 199 F.3d at 11-12;
see also SAS of Puerto Rico, Inc. v. Puerto Rico Tele. Co., 48
F.3d 39, 45 (1st Cir. 1995) (“If competitors and consumers are
favored
plaintiffs
in
antitrust
cases,
the
presumptively disfavored is far longer.”).
list
of
those
Nevertheless, there
are circumstances where presumptively disfavored plaintiffs may
sustain antitrust claims.
See Serpa Corp., 199 F.3d at 12; SAS
of Puerto Rico, 48 F.3d at 45.
“The most obvious reason for
conferring standing on a second-best plaintiff is that, in some
general category of cases, there may be no first best with the
incentive or ability to sue.”
SAS of Puerto Rico, 48 F.3d at
45.
In market exclusion cases, where evidence indicates that
the
plaintiff
has
been
directly
harmed
by
the
alleged
exclusionary conduct, standing may also be established.
See
Yangtze Optical Fibre v. Ganda LLC, No. CA 04-474ML, 2006 WL
1666180,
at
*3
(D.R.I.
June
9,
2006)
(the
standing
inquiry
“center[s] on whether or not the complaining party suffered a
sufficiently direct injury as a result of the alleged antitrust
violation.”).
29
As
an
initial
matter,
the
Court
notes
that
Steward
was
arguably already a participant in the Rhode Island market prior
to its attempted acquisition of Landmark.
As set forth in the
Complaint, Steward had been providing medical services to Rhode
Island
Blue
Cross
subscribers
through
its
operation
of
St.
Anne’s, in effect selling commercial hospital services to Blue
Cross.
(See Compl. ¶ 45.)
Regardless, even if the Court were to conclude that Steward
is a presumptively disfavored plaintiff, this case is one in
which there exists no other party with the incentive or ability
to sue.
Put simply, there is no party better-suited (or indeed
able) to bring claims alleging Steward’s unlawful exclusion from
the Rhode Island market other than Steward.
See SAS of Puerto
Rico, 48 F.3d at 45.
What is more, Steward has pled facts sufficient to indicate
that it suffered a direct injury as a result of Blue Cross’
alleged exclusionary conduct.
WL 1666180, at *3.
See Yangtze Optical Fibre, 2006
The Complaint plausibly suggests that Blue
Cross perceived Steward’s entry into the Rhode Island market as
a
threat,
and
took
steps
to
undermine
Landmark’s
financial
viability and otherwise frustrate Steward’s market entry.
See
Reazin v. Blue Cross & Blue Shield of Kansas, Inc., 899 F.2d
951, 962-63 (10th Cir. 1990) (“While it is true that [plaintiff]
was not itself a direct participant in the provision of health
30
care
financing,
it
was,
by
virtue
of
its
affiliation
with
[certain third parties], a perceived competitor of [defendant].
Indeed . . . that is the precise reason [defendant] undertook
the
conduct
at
issue
in
this
case.”)
(internal
citation
and
quotation marks omitted).
To permit the defendant in an unlawful exclusion case to
hide
behind
participants
the
presumptive
would
insurmountable
subject
Catch-22.
disfavoring
plaintiffs
Were
of
non-market
in
courts
such
cases
to
observe
a
to
an
blanket
prohibition on claims brought by those excluded from the market
by alleged anticompetitive conduct, those firms responsible for
the
exclusion
might
never
be
held
accountable.
In
these
circumstances, even if one were to conclude that Steward is a
presumptively
disfavored
plaintiff,
Steward
has
pled
facts
sufficient to establish antitrust standing.
C.
Did Steward Adequately Allege Relevant Markets?
Blue
failed
to
markets.
Cross
seeks
sufficiently
dismissal
plead
on
grounds
relevant
that
product
Steward
and
has
geographic
To state a valid antitrust claim, a plaintiff must
allege that the defendant possessed, at a minimum, a “dangerous
probability of achieving monopoly power” in a properly-defined
relevant market.
Spectrum Sports, Inc. v. McQuillan, 506 U.S.
447, 456 (1993); see also Ocean State Physicians Health Plan,
Inc. v. Blue Cross & Blue Shield of Rhode Island, 883 F.2d 1101,
31
1110 (1st Cir. 1989).
A relevant market includes both (1) the
product market and (2) the geographic area involved.
Lee v.
Life Ins. Co. of N. Am., 829 F. Supp. 529, 539 (D.R.I. 1993),
aff’d, 23 F.3d 14 (1st Cir. 1994).
Failure to plausibly allege
each of these components is grounds for dismissal.
Id. at 541.
However, because market definition is a “deeply fact-intensive
inquiry, courts hesitate to grant motions to dismiss for failure
to plead a relevant product market.”
Todd v. Exxon Corp., 275
F.3d 191, 199-200 (2d Cir. 2001); see also Morales-Villalobos v.
Garcia-Llorens, 316 F.3d 51, 55 (1st Cir. 2003) (“[W]hile there
are
arguments
for
a
larger
[geographic]
market,
the
matter
cannot be resolved on the face of the complaint.”).
i.
Does Steward Allege a Valid Product Market?
A relevant product market “is composed of products that
have reasonable interchangeability for the purposes for which
they
are
produced
–
price,
use
and
qualities
considered.”
George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 508
F.2d 547, 552 (1st Cir. 1974) (internal citation omitted).
If a
plaintiff “alleges a proposed relevant market that clearly does
not encompass all interchangeable substitute products . . . the
relevant market is legally insufficient and a motion to dismiss
may be granted.”
Queen City Pizza, Inc. v. Domino’s Pizza,
Inc., 124 F.3d 430, 436 (3d Cir. 1997).
32
Blue Cross argues that the Complaint’s depiction of the
market for the purchase of commercial hospital services ignores
the presence of Medicare and Medicaid, both major governmental
buyers of hospital services.
As such, Blue Cross contends, the
alleged product market does not encompass all interchangeable
substitute products.
The scant case law on this topic, however,
suggests that Steward’s exclusion of Medicare and Medicaid from
the relevant product market was not in error.
In United States v. Blue Cross Blue Shield of Mich., 809 F.
Supp. 2d 665 (E.D. Mich. 2011), the government brought antitrust
claims against the Blue Cross of Michigan entity related to Blue
Cross’ use of “most favored nation” clauses in its agreements
with
hospitals.
interchangeable
The
complaint
product
alleged
because
not
government health care programs.
went
unchallenged,
and
the
that
there
everyone
qualifies
Id. at 672.
district
court
Clinic
PA
Cross
v.
relies
Baptist
principally
found
Health,
591
on
Little
F.3d
591
no
for
That assertion
that
complaint had plausibly alleged a relevant product market.
Blue
was
Rock
(8th
the
Id.
Cardiology
Cir.
2009).
There, an association of cardiologists brought suit against the
defendant medical facility and a Blue Cross Blue Shield entity
alleging
eliminate
that
them
the
facility
from
and
competing
Blue
in
the
Cross
had
market
conspired
for
to
cardiology
services in Arkansas by revoking staff privileges from doctors
33
who had interests in a competing hospital.
Id. at 594.
The
plaintiffs argued that the relevant product market to which they
were deprived access should be limited to patients using private
insurance because private insurance and government programs such
as Medicare and Medicaid are not interchangeable.
Id. at 597.
They are not interchangeable, plaintiffs suggested, because not
everyone qualifies for Medicare and Medicaid based on their age
and income level.
Id.
The Court of Appeals for the Eighth Circuit affirmed the
district court’s dismissal based on the plaintiffs’ failure to
plead
a
relevant
product
market.
Id.
The
Eight
Circuit
reasoned that the plaintiffs were approaching the issue from the
wrong perspective.
for
Medicare
and
While it is true that not everyone qualifies
Medicaid,
from
the
standpoint
of
a
medical
doctor providing services, it does not matter how the patient
pays – private insurance, out-of-pocket, or through a government
program.
available
Id.
to
(“But
this
patients,
it
lawsuit
is
is
about
not
the
about
options
the
options
available
to
shut-out cardiologists. . . . Patients able to pay their medical
bill,
regardless
of
the
method
of
payment,
are
reasonably
interchangeable from the cardiologist’s perspective—the correct
perspective from which to analyze the issue in this case.”).
Despite
Blue
Cross’
arguments
to
the
contrary,
Baptist
Health stands for the proposition that the correct lens through
34
which
to
conduct
relevant
market
perspective of the aggrieved party.
analysis
is
from
the
Steward alleges that it was
excluded from the product market for the commercial purchase of
hospital services.
It is this market in which Steward does not
include Medicare and Medicaid as interchangeable substitutes.
Here, the opposite rationale of Baptist Health comes into
play.
not
The Baptist Health court focused on the fact that while
everyone
conceivably
qualifies
has
access
for
to
Medicare
every
patient
regardless of their method of payment.
the
purchase
of
hospital
and
services,
Medicaid,
in
the
a
doctor
marketplace
In the marketplace for
however,
Medicare
and
Medicaid purchase hospital services, but they can only do so for
the
limited
programs.
insurers
number
The
of
remainder
purchasing
individuals
of
hospital
the
that
market
services
for
qualify
consists
their
for
of
those
private
subscribers.
Viewing the product market from the perspective of an aggrieved
private purchaser of hospital services, then, it is appropriate
to exclude Medicare and Medicaid purchases because the private
purchaser was never competing to purchase those services in the
first place.
For this reason, the Court distinguishes Baptist
Health as inapposite and finds that Steward has sufficiently
pled a relevant product market.
ii.
Does Steward Allege a Valid Geographic Area?
35
A
relevant
geographic
market
consists
of
the
“the
geographic area in which the defendant faces competition and to
which consumers can practically turn for alternative sources of
the product.”
Petroleum
citation
market
Coastal Fuels of Puerto Rico, Inc. v. Caribbean
Corp.,
79
omitted).
in
an
competition.”
F.3d
In
182,
other
antitrust
(1st
words,
case
is
Cir.
the
1996)
relevant
the
“area
(internal
geographic
of
effective
Tampa Elec. Co. v. Nashville Coal Co., 365 U.S.
320, 327 (1961).
Failure to plead a relevant geographic market
is grounds for dismissal.
Pontifical
196
Catholic
Univ.
See, e.g., E. Food Servs., Inc. v.
of
P.R.
Serv.
Ass’n,
Inc.,
222
F.
Supp. 2d 131, 135-36 (D.P.R. 2002), aff’d, 357 F.3d 1 (1st Cir.
2004).
Blue
plausible
Cross
argues
geographic
that
market
Steward
because
has
failed
while
Steward
to
plead
a
identifies
Rhode Island as the relevant market, the Complaint admits that
people
Anne’s.
cross
state
lines
to
obtain
medical
services
at
St.
This argument, however, oversimplifies the two areas of
effective competition at issue in this case.
In the first area
of effective competition – the market for the sale of commercial
health
insurance
(the
market
that
Blue
Cross
is
alleged
to
monopolize), the relevant inquiry is not where patients turn for
hospital services, but where they turn for insurance.
Steward
accurately notes that Rhode Island residents cannot practicably
36
turn to out-of-state insurance providers that do not offer innetwork access to hospitals and doctors in Rhode Island.
Likewise,
in
assessing
the
market
for
the
commercial
purchase of hospital services (the market that Blue Cross is
alleged to monopsize), the relevant inquiry must assess which
hospitals Rhode Island residents can practicably turn to for
treatment.
While it is true that the Complaint indicates that
some Rhode Island residents cross state lines to obtain medical
services
at
St.
Anne’s,
practice is widespread.
consumers
of
medical
neither
party
suggests
that
this
Indeed, common sense suggests that most
services
would
choose
to
receive
those
services at locations proximate to their home or work in order
to minimize the time and cost of transportation. 12
Steward
has
alleged
a
valid
geographic
dismissal on these grounds is unwarranted.
area
such
that
See Blue Cross Blue
Shield of Mich., 809 F. Supp. 2d at 673 (“Geographic markets
need not be alleged or proven with ‘scientific precision,’ nor
be defined ‘by metes and bounds as a surveyor would lay off a
plot of ground.’
The complaint need only present sufficient
12
Contrary to the position taken by Blue Cross, the
Complaint’s acknowledgement that some patients cross state lines
to obtain treatment is by no means fatal to the claim.
In
discussing the Elzinga-Hogarty test for consumer origin, courts
have previously found a relevant geographic market where up to
10% of consumers were found to have gone outside the relevant
area to obtain a product.
See Nilavar v. Mercy Health Sys.-W.
Ohio, 244 F. App’x. 690, 697 (6th Cir. 2007); Gordon v.
Lewistown Hosp., 272 F. Supp. 2d 393, 426 (M.D. Pa. 2003).
37
information to plausibly suggest the contours of the relevant
geographic market.”) (internal citations omitted).
D.
Is Blue Cross Entitled to Immunity for its Lobbying
Activities Under the Noerr-Pennington Doctrine?
In addition to the principal claim that Blue Cross engaged
in
an
unlawful
refusal
to
deal,
Steward
makes
a
variety
of
ancillary claims related to Blue Cross’ petitioning activities
in opposition to the Landmark acquisition.
include
Blue
Cross’
filing
of
an
objection
These activities
with
the
Special
Master, lobbying against passage of an amendment to the Hospital
Conversion Act, and filing of an application with the Department
of Health to remove Landmark from its provider network.
Compl. ¶¶ 25, 32-33, 36.)
(See
While both parties conclude that
these activities do not independently give rise to the antitrust
claims, Blue Cross asks that they be stricken from the Complaint
by virtue of the immunity afforded petitioning activity under
the Noerr-Pennington Doctrine.
Under
government
unless
the
Noerr-Pennington,
for
redress
petitioning
is
is
a
party
immune
a
from
sham. 13
that
petitions
antitrust
Prof’l
the
liability,
Real
Estate
Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49,
13
The Noerr-Pennington Doctrine is rooted in First
Amendment concerns about the chilling of political speech. See
E. R.R. Presidents Conf. v. Noerr Motor Freight, Inc., 365 U.S.
127 (1961).
38
56-60 (1993) (discussing E. R.R. Presidents Conf. v. Noerr Motor
Freight, Inc., 365 U.S. 127 (1961)).
Nevertheless, a plaintiff
may properly include evidence of immune lobbying activity in its
antitrust
allegations
illustrate
insofar
the
context
anticompetitive
and
conduct.
as
that
motive
See
evidence
underlying
United
Mine
serves
the
Workers
to
alleged
of
Am.
v.
Pennington, 381 U.S. 657, 670 n.3 (1965) (An activity “barred
from
forming
introduced
the
if
it
basis
tends
for
a
suit,
reasonably
to
may
show
nevertheless
the
purpose
be
and
character of the particular transactions under scrutiny.”).
As
noted,
both
parties
conclude
that
the
various
petitioning activities undertaken by Blue Cross do not form the
basis
of
purposes
Steward’s
of
claim,
illuminative
but
rather
are
introduced
Blue
Cross’
for
anticompetitive
the
intent.
(See Def.’s Mot. to Dismiss 18, ECF No. 16; Pl.’s Objection to
Def.’s
Mot.
circumstances,
to
Dismiss
the
25,
ECF
inclusion
of
No.
Blue
23-1.)
Under
Cross’
these
petitioning
activities in the Complaint is proper, and the Court declines
Blue Cross’ request to strike this material. 14
See Pennington,
381 U.S. at 670 n.3.
IV.
Tortious Interference Claims
14
Although briefed by both parties, the Court need not
reach the issue of whether the petitioning might be subject to
the sham exception to the Noerr-Pennington Doctrine.
39
To state a claim for tortious interference with existing or
prospective contractual relations, the plaintiff must establish:
“(1) the existence of a business relationship or expectancy, (2)
knowledge by the interferor of the relationship or expectancy,
(3)
an
intentional
act
of
interference,
(4)
proof
that
the
interference caused the harm sustained, and (5) damages to the
plaintiff.”
(R.I.
Roy v. Woonsocket Inst. for Sav., 525 A.2d 915, 919
1987).
Blue
interference
counts
Cross
on
moves
to
grounds
dismiss
that
the
Steward
tortious
failed
to
element,
a
sufficiently plead an intentional act of interference.
To
satisfy
plaintiff
must
the
allege
without justification.”
intentional
“legal
interference
malice”
or
“intent
to
do
harm
Belliveau Bldg. Corp. v. O’Coin, 763
A.2d 622, 627 (R.I. 2000).
Whether an act of interference is
unjustified
weighing
ultimately
on
situation.”
98
(R.I.
depends
the
on
the
“judgment
and
of
choice
several
of
factors 15
values
in
and
each
Avila v. Newport Grand Jai Alai, LLC, 935 A.2d 91,
2007)
(internal
citation
15
and
punctuation
omitted).
Those factors include:
“(1) the nature of the actor’s
conduct; (2) the actor’s motive; (3) the contractual interests
with which the conduct interferes; (4) the interests sought to
be advanced by the actor; (5) the balance of social interests in
protecting freedom of action of the actor and the contractual
freedom of the putative plaintiff; (6) the proximity of the
actor’s conduct to the interference complained of; and (7) the
parties’ relationship.”
Belliveau Bldg. Corp. v. O’Coin, 763
A.2d 622, 628 n.3 (R.I. 2000) (citing Restatement (Second) of
Torts § 767, at 26-7 (1979)).
40
While a defendant may avoid liability for tortious interference
where its actions were undertaken with the benefit of a legally
recognized privilege or other justification, Alfieri v. Koelle,
No. 06-510, 2007 U.S. Dist. LEXIS 24003, at *7 (D.R.I. March 29,
2007), to defeat a tortious interference claim on a motion to
dismiss, the privilege or other justification must be one of
well-documented and unquestioned authority, whether by contract
or statute.
See Ira Green, Inc. v. Military Sales & Serv. Co.,
No. 10-207-M, 2012 U.S. Dist. LEXIS 82290, at *6-7 (D.R.I. June
13, 2012) (citing cases).
Blue
Cross’
argument
may
be
distilled
as
follows:
any
action that it allegedly took to hinder the Landmark acquisition
and Steward’s entry into the Rhode Island market was justified
in
order
to
protect
Blue
Cross’
business
interests
because
Steward intended to acquire Landmark in order to increase its
own
negotiating
previously,
discussion
leverage.
Blue
of
Cross’
As
argument
negotiating
an
initial
matter,
misconstrues
leverage.
(See
the
supra
as
noted
Complaint’s
at
Section
B(i).)
What is more, Blue Cross does not argue, nor could it
prove,
that
its
alleged
interference
with
the
Landmark
acquisition and with Steward’s arrangements with third parties
including Thundermist Health Center was privileged by contract
or statute.
See Ira Green, 2012 U.S. Dist. LEXIS 82290, at *6-
7; Barkan v. Dunkin’ Donuts, Inc., 520 F. Supp. 2d 333, 341-42
41
(D.R.I. 2007); Avila, 935 A.2d at 99.
Cross’
actions
inquiry.
were
justified
will
Determining whether Blue
require
See Belliveau, 763 A.2d at 628 n.3.
a
fact-intensive
Thus, Blue Cross’
Motion to Dismiss cannot be granted with respect to the tortious
interference claims. 16
V.
Conclusion
Because Steward has alleged sufficient facts to state a
plausible
claim
that
Blue
Cross
engaged
in
anticompetitive
conduct in violation of state and federal antitrust law, and
tortuously interfered with existing and prospective contractual
relations, Blue Cross’ Motion to Dismiss is DENIED.
IT IS SO ORDERED.
William E. Smith
Chief Judge
Date: February 19, 2014
16
The Court declines to credit Blue Cross’ argument that
Steward has not satisfied the causation element of its tortious
interference claims based on the conditions precedent to the
Purchase Agreement that remained at the time of the alleged
interference.
Resolution of this issue on a motion to dismiss
is premature. See Ed Peters Jewelry Co. v. C & J Jewelry Co.,
51 F. Supp. 2d 81, 102 (D.R.I. 1999), aff’d, 215 F.3d 182 (1st
Cir. 2000) (“[C]ausation [in tortious interference claims] is
generally a matter left to the consideration of the jury.”).
42
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