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State v. Franciscan Health System

United States District Court, W.D. Washington, Tacoma

July 24, 2018




         This matter comes before the Court on the State of Washington's (the “State”) motion for partial summary judgment (Dkts. 48, 49) and its motion to strike certain affirmative defenses from Defendants' pleadings (Dkt. 105). The Court has considered the pleadings filed in support of and in opposition to the motions and the remainder of the file and hereby (1) denies the State's motion for partial summary judgment and (2) grants in part and denies in part the State's motion to strike pleadings.

         I. BACKGROUND

         In early September 2016, Defendants Franciscan Health System, Franciscan Medical Group (collectively “Franciscan”), and The Doctors Clinic (“TDC”) entered into a series of agreements. The State claims that Defendants are separate economic entities that entered into an agreement to jointly negotiate the prices for the services they provide to the public. The State asserts that these agreements establish a horizontal price fixing agreement that is per se illegal or otherwise constitutes an unreasonable restraint on trade in violation of 15 U.S.C. § 1.


         A. Motion for Partial Summary Judgment

         The State has moved for partial summary judgment on a single element of its claim under 15 U.S.C. § 1. Summary judgment is proper only if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party is entitled to judgment as a matter of law when the nonmoving party fails to make a sufficient showing on an essential element of a claim in the case on which the nonmoving party has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). There is no genuine issue of fact for trial where the record, taken as a whole, could not lead a rational trier of fact to find for the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (nonmoving party must present specific, significant probative evidence, not simply “some metaphysical doubt”). See also Fed. R. Civ. P. 56(e). Conversely, a genuine dispute over a material fact exists if there is sufficient evidence supporting the claimed factual dispute, requiring a judge or jury to resolve the differing versions of the truth. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 253 (1986); T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987).

         The determination of the existence of a material fact is often a close question. The Court must consider the substantive evidentiary burden that the nonmoving party must meet at trial-e.g., a preponderance of the evidence in most civil cases. Anderson, 477 U.S. at 254; T.W. Elec. Serv., Inc., 809 F.2d at 630. The Court must resolve any factual issues of controversy in favor of the nonmoving party only when the facts specifically attested by that party contradict facts specifically attested by the moving party. The nonmoving party may not merely state that it will discredit the moving party's evidence at trial, in the hopes that evidence can be developed at trial to support the claim. T.W. Elec. Serv., Inc., 809 F.2d at 630 (relying on Anderson, 477 U.S. at 255). Conclusory, nonspecific statements in affidavits are not sufficient, and missing facts will not be presumed. Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888-89 (1990).

         The issue presently before the Court on summary judgment is whether the State is entitled to a finding as a matter of law that Franciscan and TDC are capable of engaging in a “concerted action” to negotiate reimbursement rates as to qualify as a contract, combination, or conspiracy subject to 15 U.S.C. § 1, or whether they might constitute a single economic unit shielded from scrutiny under § 1. The Court concludes that there remain genuine issues of material fact in this case-whether TDC and Franciscan are separate decision-makers whose conduct is subject to analysis under 15 U.S.C. § 1 is an issue that must be decided at trial.

         Section 1 of the Sherman Act, 15 U.S.C. § 1, prohibits “[e]very contract, combination . . . or conspiracy, in restraint of trade or commerce among the several States.” Allied Orthopedic Appliances Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991, 996 (9th Cir. 2010). In order to state a claim, plaintiff must allege that the defendant (1) engaged in a contract, combination, or conspiracy (2) that unreasonably restrained trade under either a per se or rule of reason analysis (3) in a particular market. American Ad Management, Inc. v. GTE Corp., 92 F.3d 781, 784 (9th Cir. 1996).

The meaning of the term “contract, combination . . . or conspiracy” is informed by the “‘basic distinction'” in the Sherman Act “‘between concerted and independent action'” that distinguishes § 1 of the Sherman Act from § 2. Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 767 (1984) (quoting Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 761 (1984)). Section 1 applies only to concerted action that restrains trade.

Am. Needle, Inc. v. Nat'l Football League, 560 U.S. 183, 190 (2010). Therefore, in assessing the first element of a valid 15 U.S.C. § 1 claim, “[t]he key is whether the alleged ‘contract, combination . . ., or conspiracy' is concerted action-that is, whether it joins together separate decisionmakers.” Id. at 195. “Section 1, like the tango, requires multiplicity: A company cannot conspire with itself.” Freeman v. San Diego Ass'n of Realtors, 322 F.3d 1133, 1147 (9th Cir. 2003) (citing Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 769 (1984)). Accordingly, “[i]f two erstwhile competitors combine to become a single economic entity-by merger or acquisition, for example- the act of combination may violate the antitrust laws, but their subsequent relations are generally immune from section 1.” Id. This requirement of multiplicity for the purposes of finding a §1 contract, combination or conspiracy is sometimes referred to as the “single-entity rule.” See Freeman, 322 F.3d at 1147.

         “Whether corporate entities are sufficiently independent requires an examination of the particular facts of each case.” Williams v. I.B. Fischer Nevada, 999 F.2d 445, 447 (9th Cir. 1993). The Ninth Circuit has recognized several scenarios in which the single-entity rule precludes liability under 15 U.S.C. § 1:

It applies to a company and its officers, employees and wholly owned subsidiaries. It also applies to subsidiaries controlled by a common parent, firms owned by the same person, and a firm owned by a subset of the owners of another. It applies to principal-agent relationships and to partnerships or other joint arrangements in which persons who would otherwise be competitors pool their capital and share the risks of loss as well as the opportunities for profit. The theme in these cases is economic unity. Where there is substantial common ownership, a fiduciary obligation to act for another entity's ...

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