State of Washington v. Franciscan Health System et al

Filing 81

ORDER signed by Judge Benjamin H. Settle denying #39 Motion to Dismiss; granting #61 Motion to Postpone Briefing; and renoting #48 MOTION for Partial Summary Judgment on Count One to 4/20/2018.(TG)

1
2
3
4
5
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT TACOMA

6
7
8

STATE OF WASHINGTON,
Plaintiff,

9
10
11
12
13

v.
FRANCISCAN HEALTH SYSTEM
d/b/a CHI FRANCISCAN HEALTH;
FRANCISCAN MEDICAL GROUP;
THE DOCTORS CLINIC, A
PROFESSIONAL CORPORATION;
and WESTSOUND ORTHOPAEDICS,
P.S.,

14

CASE NO. C17-5690 BHS
ORDER DENYING
DEFENDANTS’ MOTION TO
DISMISS, GRANTING
DEFENDANTS’ MOTION TO
POSTPONE BRIEFING, AND
RENOTING PLAINTIFF’S
MOTION

Defendants.

15
This matter comes before the Court on Defendants The Doctors Clinic, A
16
Professional Corporation (“TDC”), Franciscan Health System d/b/a CHI Franciscan
17
Health (“FHS”), and Franciscan Medical Group’s (“FMG”) (collectively “Defendants”)
18
motion to dismiss, Dkt. 39, Plaintiff the State of Washington’s (“State”) motion for
19
partial summary judgment, Dkt. 48, and Defendant’s motion to postpone briefing on the
20
State’s motion, Dkt. 61. The Court has considered the pleadings filed in support of and
21
in opposition to the motions and the remainder of the file and hereby rules as follows:
22

ORDER - 1

1
2

I.

PROCEDURAL HISTORY

On August 31, 2017, the State filed a complaint against Defendants FHS, FMG

3

(together with FHS, “CHI Franciscan”), TDC, and WestSound Orthopaedics, P.S.,

4

asserting a per se violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and the

5

Washington Consumer Protection Act (“CPA”), RCW Chapter 19.86; an unreasonable

6

restraint of trade in violation of 15 U.S.C. § 1 and the CPA; and violation of Section 7 of

7

the Clayton Act, as amended, 15 U.S.C. § 18, and the CPA. Dkt. 1 (“Compl.”).

8
9

On October 30, 2017, Defendants moved to dismiss the State’s per se claim and
attached four contracts to their motion. Dkts. 39–39-4. On November 29, 2017, the State

10

responded. Dkt. 45. The State also submitted an agreement and multiple documents

11

from its investigation into the alleged anti-competitive practices. Dkt. 46. On December

12

8, 2017, Defendants replied and moved to strike the State’s evidence. Dkt. 58. 1

13

On November 29, 2017, the State moved for partial summary judgment on its first

14

claim to establish that CHI Franciscan and TDC are separate entities capable of

15

conspiring under 15 U.S.C. § 1 and RCW 19.86.030. Dkt. 49 at 6.

16

On December 15, 2017, Defendants moved to postpone briefing on the State’s

17

motion for partial summary judgment. Dkt. 61. On December 29, 2017, the State

18

responded. Dkt. 67. On January 5, 2018, the State replied. Dkt. 70.

19
20
21
1

22

The Court grants the motion to strike because the evidence is irrelevant to the merits of
Defendants’ motion on whether the State has alleged a plausible claim.

ORDER - 2

1

II. FACTUAL BACKGROUND
In early September 2016, Defendants entered into a series of agreements. In

2
3

general, the State alleges that TDC and CHI Franciscan are separate economic entities

4

that entered into an agreement to jointly negotiate the prices for the services they provide

5

to the public. Taken as true, the State asserts that these agreements establish a horizontal

6

price fixing agreement that is per se illegal. Defendants counter that the State

7

mischaracterizes their agreement and that it is an “output” agreement that is not subject to

8

a per se analysis. The Court need not recite any additional allegations because

9

Defendants are dressing a summary judgment motion in Rule 12(b)(6) attire.
III. DISCUSSION

10
11
12

A.

Standard
Motions to dismiss brought under Rule 12(b)(6) of the Federal Rules of Civil

13

Procedure may be based on either the lack of a cognizable legal theory or the absence of

14

sufficient facts alleged under such a theory. Balistreri v. Pacifica Police Department,

15

901 F.2d 696, 699 (9th Cir. 1990). Material allegations are taken as admitted and the

16

complaint is construed in the plaintiff’s favor. Keniston v. Roberts, 717 F.2d 1295, 1301

17

(9th Cir. 1983). To survive a motion to dismiss, the complaint does not require detailed

18

factual allegations but must provide the grounds for entitlement to relief and not merely a

19

“formulaic recitation” of the elements of a cause of action. Bell Atlantic Corp. v.

20

Twombly, 127 S. Ct. 1955, 1965 (2007). Plaintiffs must allege “enough facts to state a

21

claim to relief that is plausible on its face.” Id. at 1974.

22

ORDER - 3

1
2

B.

Per se Agreements
Section 1 of the Sherman Act, 15 U.S.C. § 1, prohibits “[e]very contract,

3

combination . . . or conspiracy, in restraint of trade or commerce among the several

4

States.” Allied Orthopedic Appliances Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991,

5

996 (9th Cir. 2010). In order to state a claim, plaintiff must allege that the defendant (1)

6

engaged in a conspiracy (2) that unreasonably restrained trade under either a per se or

7

rule of reason analysis (3) in a particular market. American Ad Management, Inc. v. GTE

8

Corp., 92 F.3d 781, 784 (9th Cir. 199).

9

Under the per se approach, plaintiff must allege that “the practice facially appears

10

to be one that would always or almost always tend to restrict competition and decrease

11

output.” Id. (quoting NCAA v. Board of Regents of Univ. of Okla., 468 U.S. 85, 100

12

(1984)). Over the years, courts have defined a category of agreements that carry a

13

“conclusive presumption that the restraint is unreasonable.” Arizona v. Maricopa Cty.

14

Med. Soc., 457 U.S. 332, 345 (1982). Relevant to this case, horizontal price fixing

15

agreements are considered per se unreasonable restraints on trade. American Ad

16

Management, 92 F.3d at 784.

17

In this case, Defendants fail to meet their burden to establish that the State’s per se

18

claim should be dismissed with prejudice. While the Court appreciates Defendants’

19

effort to “focus discovery on the dispositive facts and promote an efficient resolution of

20

the case,” Dkt. 39 at 1, the State has sufficiently alleged a horizontal price fixing

21

agreement between two distinct economic entities. Accordingly, the State has plausibly

22

established a cognizable claim that Defendants’ agreement falls into the defined category

ORDER - 4

1

of agreements in which “courts can predict with confidence that [the agreement] would

2

be invalidated in all or almost all instances under the rule of reason . . . .” Leegin

3

Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 886–87 (2007). The

4

majority, if not all, of the authorities the Court has reviewed considered this question

5

based on evidence as opposed to allegations, and the trial courts issued either orders on

6

summary judgment motions or findings of fact and conclusions of law after a bench trial.

7

One notable exception is In re Sulfuric Acid Antitrust Litig., 703 F.3d 1004 (7th Cir.

8

2012), in which the district court dismissed the class on the merits when the class refused

9

to go to trial under a rule of reason analysis. In that case, Judge Posner provided

10

numerous reasons why the parties should know before trial whether to prepare for a per

11

se analysis or a rule of reason analysis. Id. at 1010–13. Defendants, however, have

12

failed to show that this determination should be made based on the complaint and before

13

discovery proceeds. Regardless, Defendants bear the burden of establishing that the

14

State’s per se claim is not plausible. They have failed to do so, and the Court denies their

15

motion to dismiss.

16

C.

17

Single Economic Entity
The State moved for summary judgment on the issue of whether Defendants are

18

separate economic entities capable of conspiring to fix prices. Dkt. 49. “Section 1, like

19

the tango, requires multiplicity: A company cannot conspire with itself.” Freeman v. San

20

Diego Ass’n of Realtors, 322 F.3d 1133, 1147 (9th Cir. 2003) (citing Copperweld Corp.

21

v. Independence Tube Corp., 467 U.S. 752, 769 (1984)). “If two erstwhile competitors

22

combine to become a single economic entity—by merger or acquisition, for example—

ORDER - 5

1

the act of combination may violate the antitrust laws, but their subsequent relations are

2

generally immune from section 1.” Id. “Whether corporate entities are sufficiently

3

independent requires an examination of the particular facts of each case.” Williams v.

4

I.B. Fischer Nevada, 999 F.2d 445, 447 (9th Cir. 1993).

5

In its motion, the State seeks a legal determination that, despite the agreement

6

between Defendants, they are separate economic entities. The State asserts that this

7

“issue is ripe for the Court’s decision.” Dkt. 49 at 6. Defendants, however, have moved

8

to postpone briefing on the motion for three reasons: (1) their pending motion to dismiss

9

could moot the per se claim, (2) the motion anticipates a single entity defense that

10

Defendants have not yet asserted, and (3) even if this is an issue, they need time to

11

conduct some discovery. Dkt. 61 at 2. Although the first reason is now moot and the

12

second reason is an unresolved issue, the Court agrees with Defendants on the third

13

reason. The single entity question is fact-based and requires the Court to evaluate four

14

guidelines. Freeman, 322 F.3d at 1147. Under these circumstances, Defendants assert a

15

compelling argument that they should at least be allowed an opportunity to conduct

16

discovery before responding to the State’s motion. Moreover, the State will not be

17

prejudiced by a short delay in addressing the legal issue. Therefore, the Court grants

18

Defendants’ motion to postpone briefing on the State’s motion. The Clerk shall renote

19

the State’s motion for consideration on the Court’s April 20, 2018 calendar, which

20

provides Defendants an additional six weeks to conduct discovery and respond.

21
22

ORDER - 6

1
2

IV. ORDER
Therefore, it is hereby ORDERED that Defendants’ motion to dismiss, Dkt. 39, is

3

DENIED, Defendants’ motion to postpone briefing on the State’s motion, Dkt. 61, is

4

GRANTED, and the Clerk shall renote the State’s motion for partial summary judgment,

5

Dkt. 48, for consideration on the Court’s April 20, 2018 calendar.

6

Dated this 12th day of March, 2018.

A

7
8

BENJAMIN H. SETTLE
United States District Judge

9
10
11
12
13
14
15
16
17
18
19
20
21
22

ORDER - 7