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CARDIO-MEDICAL ASSOCS. v. CROZER-CHESTER MED. CTR.

March 15, 1982

CARDIO-MEDICAL ASSOCIATES, LTD. and Thomas J. McBride, M.D. and Paul T. Cass, M.D. and C. Richard Schott, M.D. and Michael B. Goodkin, M.D., Plaintiffs,
v.
CROZER-CHESTER MEDICAL CENTER and James H. Loucks, M.D. Michael C. Boyd, William J. Breece, John F. Cramp, Esquire, Daniel R. Curran, Mary E. Dale, Conrad A. Etzel, M.D., Jeremiah A. Hartley, Joseph R. Layton, Reverend David A. MacQueen, Peter L. Miller, William B. Mitchell, Jr., Clarence R. Moll, Ph.D., J. Harold Perrine, Malcolm B. Petrikin, Esquire, and Bertram M. Speare, individually and as members of the Crozer-Chester Medical Center Board of Directors, and James Clark, M.D., Chief of Department of Medicine of Crozer-Chester Medical Center, and Daniel J. Marino, M.D., R. David Mishalove, M.D., Joel A. Krackow, M.D., Adrian S. Weyn, M.D., Peter Lavine, M.D., Michael Yow, M.D., and Ancil Jones, M.D. c/a Cardiology Associates of Delaware County



The opinion of the court was delivered by: LORD, III

I. Preliminary Statement

This action is one of a burgeoning number of cases brought by physicians who have been denied full or specialized staff privileges at a particular hospital. Cardio-Medical Associates, Ltd., and its four physician members, filed this complaint against Crozer-Chester Medical Center (hereinafter referred to as "CCMC"), members of the CCMC Board of Directors, the Chief of the Department of Medicine at CCMC, and several individual doctors practicing cardiology under the name of Cardiology Associates of Delaware County.

 Plaintiffs allege in Count I of their complaint that the denial to them of the opportunity to perform certain specialized cardiology procedures *fn1" at CCMC is the result of an unlawful conspiracy on the part of defendants which has restrained trade in violation of sections 1 and 2 of the Sherman Act. 15 U.S.C. §§ 1, 2. In Count II of their complaint, plaintiffs further allege that the denial of the opportunity to perform these specific cardiology procedures is a violation of their fourteenth amendment rights. This violation, plaintiffs allege, constitutes a deprivation of a constitutionally protected property interest within the meaning of section 1983. 42 U.S.C. § 1983. Further, plaintiffs allege that defendants acted under color of state law when they denied the individual plaintiff physicians the right to practice the specified procedures. Finally, plaintiffs allege, also in Count II of their complaint, that their fourteenth amendment procedural due process rights were violated by defendants' failure to afford them a hearing at any time during the period of their exclusion from the performance of the specified cardiology procedures.

 On the basis of these allegations, plaintiffs seek a declaratory judgment and a permanent injunction compelling defendants to permit plaintiffs to perform the specified procedures from which they allegedly have been wrongfully excluded. Further, plaintiffs seek an award of damages for the injuries allegedly sustained as a result of the denial of the opportunity to perform these procedures.

 Pursuant to rule 12(c) of the Federal Rules of Civil Procedure, defendant CCMC, the members of the CCMC Board of Directors, and James C. Clark, M.D. moved for judgment on the pleadings with respect to both Counts I and II of plaintiffs' complaint. *fn2" Defendants assert that plaintiffs have (1) failed to state a claim for relief or establish that this court has subject matter jurisdiction under the antitrust laws and (2) failed to state a claim for relief or establish that this court has subject matter jurisdiction under the Constitution or section 1983.

 For the reasons stated below, I grant defendants' motion for judgment on the pleadings as to both counts of plaintiffs' complaint and dismiss Count I without prejudice and Count II with prejudice. In deciding defendants' motion, I write at some length because of the increasing significance-to doctors, to hospitals, and to the federal courts-of this genre of cases. The large financial and administrative burdens imposed on hospital defendants and the courts as a result of the growing number of denial of hospital staff privileges cases, notwithstanding the infrequency with which plaintiffs prevail, is only one reason for this topic's current importance. Further, my analysis of the case law discloses no comprehensive discussion of the theories underlying and of the standards to be applied in deciding claims of this type. As a result, I write to explain fully my doubts that the ordinary denial of staff privileges claim states a federal cause of action in any case.

 A. Rule 12(c) *fn3"

 A motion for judgment on the pleadings may be used to assert the failure of plaintiffs to state a claim upon which relief can be granted or the lack of subject matter jurisdiction. Fed.R.Civ.P. 12(h)(2), (3). See C. Wright & A. Miller, Federal Practice and Procedure § 1368, at 688 (1969).

 Motions for judgment on the pleadings should not be "lightly given." Moss v. School District of Norristown, 33 F.R.D. 518, 519 (E.D.Pa.1963). The applicable standard for ruling on a 12(c) motion has been summarized as follows in Professor Moore's treatise:

 
Under the orthodox rule, a motion for judgment on the pleadings must be sustained by the undisputed facts appearing in all the pleadings, supplemented by any facts of which the court will take judicial notice. For the purposes of the motion, all well-pleaded material allegations of the opposing party's pleading are to be taken as true, and all allegations of the moving party which have been denied are taken as false. Conclusions of law are not deemed admitted. Judgment on the pleadings may be granted only if, on the facts as so admitted, the moving party is clearly entitled to judgment.

 2A J. Moore, Moore's Federal Practice P 12.15, at 2343-44 (1981) (footnotes omitted). Accord, Huntt v. Government of Virgin Islands, 339 F.2d 309 (3d Cir. 1964); Can-Tex Industries v. Safeco Insurance Company of America, 460 F. Supp. 1022 (W.D.Pa.1978); Commerce National Bank v. Baron, 336 F. Supp. 1125 (E.D.Pa.1971); M.L. Lee & Co. v. American Cardboard & Packaging Corp., 36 F.R.D. 27 (E.D.Pa.1964). See C. Wright & A. Miller, supra, at §§ 1367-68.

 B. Summary Disposition of Cases in Federal Courts

 The stringent requirements for the granting of a rule 12(c) motion for judgment on the pleadings are wholly consistent with the general disfavor in which all motions for summary disposition of cases are treated in federal courts. But, where appropriate, the Federal Rules of Civil Procedure mandate the summary dismissal of cases, even before any discovery is completed. See generally C. Wright & A. Miller, supra, at § 1369, at 698. This line between permissible and impermissible summary disposition of cases is determined in large part by the interaction of two competing policies: the "notice pleading" policy and the "efficiency" policy.

 1. Notice Pleading Policy

 The classic statement of what I have referred to as the notice pleading policy is provided by the Supreme Court in Conley v. Gibson, 355 U.S. 41, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957):

 
(T)he Federal Rules of Civil Procedure do not require a claimant to set out in detail the facts upon which he bases his claim. To the contrary, all the Rules require is "a short and plain statement of the claim" that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.... Such simplified "notice pleading" is made possible by the liberal opportunity for discovery and the other pretrial procedures established by the Rules....

  Id. at 47-48, 78 S. Ct. at 102-03. Accord, Foman v. Davis, 371 U.S. 178, 83 S. Ct. 227, 9 L. Ed. 2d 222 (1962); Kauffman v. Moss, 420 F.2d 1270 (3d Cir.), cert. denied, 400 U.S. 846, 91 S. Ct. 93, 27 L. Ed. 2d 84 (1970); Deakyne v. Commissioners of Lewes, 416 F.2d 290 (3d Cir. 1969). *fn4"

 The Supreme Court has also made clear that this notice pleading policy applies with full force in the context of complex antitrust cases:

 
We have held that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." ( Conley, 355 U.S. at 45-46, 78 S. Ct. at 101-02 (footnote omitted).) And in antitrust cases, where "the proof is largely in the hands of the alleged conspirators," ( Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S. Ct. 486, 491, 7 L. Ed. 2d 458 (1962) ), dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly.

 Hospital Building Co. v. Trustees of the Rex Hospital, 425 U.S. 738, 746, 96 S. Ct. 1848, 1853, 48 L. Ed. 2d 338 (1976). Accord, Mortensen v. First Federal Savings & Loan Ass'n, 549 F.2d 884, 896 (3d Cir. 1977).

 2. Efficiency Policy

 Judge Weinfeld of the Southern District of New York provides an excellent statement of what I refer to here as the efficiency policy. In a suit by employees and their union against the trustees of an ERISA pension plan challenging certain aspects of administration of that plan, the court dismissed plaintiffs' claims of alleged imprudent investment by the trustees on the ground that they failed to state a cause of action. Judge Weinfeld wrote:

 
This is no matter of technical pleading. Defendants should not be put to the heavy burden and expense of litigation unless a properly pleaded complaint requires them to defend. This is not a case where plaintiffs cannot ascertain whether there is a factual basis to support a proper claim....
 
It is not sufficient to say that appropriate allegations to plead a sufficient cause of action will be made after pre-trial discovery. Conley v. Gibson, pressed by plaintiffs, does not authorize parties to use an insufficient complaint with a conclusory allegation as a hunting license to discover whether in fact a viable claim may be alleged. The discovery rules are designed to support a properly pleaded cause of action and to prepare defenses to charges made-not to discover whether a claim exists.

 American Communications Ass'n v. Retirement Plan for Employees of RCA Corp., 488 F. Supp. 479, 483-84 (S.D.N.Y.) (footnotes omitted), aff'd mem. 646 F.2d 559 (2d Cir. 1980).

 In the proper circumstances, this efficiency policy has been deemed sufficiently powerful to override the notice pleading policy discussed above. See, e.g., Kadar Corp. v. Milbury, 549 F.2d 230, 233, 233 n.2 (1st Cir. 1977); Cohen v. Illinois Institute of Technology, 524 F.2d 818, 827 (7th Cir. 1975), cert. denied, 425 U.S. 943, 96 S. Ct. 1683, 48 L. Ed. 2d 187 (1976); McLaughlin v. Copeland, 455 F. Supp. 749, 753 (D.Del.1978), aff'd mem. 595 F.2d 1213 (3d Cir. 1979); EEOC v. Carter Carburetor, 76 F.R.D. 143 (E.D.Mo.1977), vacated on other grounds, 577 F.2d 43 (8th Cir. 1978), cert. denied, 439 U.S. 1081, 99 S. Ct. 865, 59 L. Ed. 2d 52 (1979). See generally Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 741, 95 S. Ct. 1917, 1928, 44 L. Ed. 2d 539 (1975); Kirkham, Complex Civil Litigation-Have Good Intentions Gone Awry?, 70 F.R.D. 199, 204 (1976); Pollack, Discovery-Its Abuse and Correction, 80 F.R.D. 219 (1978); Renfrew, Discovery Sanctions: A Judicial Perspective, 67 Calif.L.Rev. 264, 266-67 (1979).

 3. Summary

 Upon an analysis of the two competing policies discussed above, the following synthesis emerges from those precedents. Generally, summary disposition of claims on the merits is disfavored. If a complaint contains even the most basic of allegations that, when read with great liberality, could justify plaintiff's claim for relief, motions for judgment on the pleadings should be denied. Nevertheless, a district court judge still must scrutinize complaints to ensure that they contain even these most basic and minimum allegations. This scrutiny is particularly appropriate in a case in which a party questions the jurisdiction of the court because of the federal trial judge's special responsibility to determine that there is jurisdiction in each case.

 When the district court judge determines that the complaint fails to meet even the minimal notice pleading requirements of the federal rules, he has a number of options. In most circumstances, the court should permit a plaintiff to file an amended complaint and/or to conduct limited discovery in order to supplement his initial allegations. See Kauffman, 420 F.2d at 1276 (amendments pursuant to rule 15(a) should be freely permitted).

 Notwithstanding the liberal amendment provisions of the federal rules, summary dismissal of a facially deficient complaint, without leave to amend or conduct discovery, is appropriate in the following situations: (1) if "the merits of the controversy can be fairly and fully decided" without amendment or discovery, as, for example, if plaintiff's complaint is legally deficient and, after inquiry by the court, plaintiff can suggest no way in which it can be made legally sufficient, see C. Wright & A. Miller, supra, at § 1369, at 698; note 4 supra; (2) if there is a valid reason for refusing such a request, such as delay, bad faith, or dilatory motives, see Foman, 371 U.S. 178, 83 S. Ct. 227, 9 L. Ed. 2d 222; or (3) if the pleadings are wholly inadequate and discovery would serve no demonstrably useful purpose. *fn5"

 Defendant's motion for judgment on the pleadings is decided in accordance with this synthesis of applicable precedents, rules, and scholarly analyses.

 III. Plaintiffs' Sherman Act Allegations

 Plaintiffs' Count I allegations that defendants' conduct violated the antitrust laws raise complex jurisdictional issues under the Sherman Act. Essentially, plaintiffs allege that the denial to them of the opportunity to perform certain specialized cardiology procedures at CCMC is the result of an unlawful conspiracy on the part of defendants that has restrained trade in violation of sections 1 and 2 of the Sherman Act. Defendants argue, however, that plaintiffs have failed to state a claim for relief or to establish that this court has subject matter jurisdiction under the antitrust laws because of the absence of sufficient allegations to establish the requisite relationship with interstate commerce.

 A. Sections 1 and 2 of the Sherman Act

 Section 1 of the Sherman Act declares that contracts, conspiracies, and combinations in restraint of trade or commerce among the states are illegal. *fn6" In addition, section 2 prohibits attempts to monopolize the sale of products or services in trade or commerce among the states. *fn7"

 Coverage of the Sherman Act, legislation passed pursuant to the authority granted Congress by the commerce clause, extends both to activities that are actually in interstate commerce and to activities that, though purely intrastate in character, nevertheless substantially affect interstate commerce. McLain v. Real Estate Board of New Orleans, 444 U.S. 232, 241, 100 S. Ct. 502, 508, 62 L. Ed. 2d 441 (1980); Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 743, 96 S. Ct. 1848, 1851, 48 L. Ed. 2d 338 (1976); United States v. Employing Plasterers Ass'n, 347 U.S. 186, 189, 74 S. Ct. 452, 454, 98 L. Ed. 618 (1954); Atlantic Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 435, 52 S. Ct. 607, 609, 76 L. Ed. 1204 (1932). Although the distinction between those activities that are "in" commerce and those that merely "affect" commerce is still important for some purposes under the antitrust laws, "(it) can no longer be doubted ... that the jurisdictional requirement of the Sherman Act may be satisfied under either the "in commerce' or the "effect on commerce' theory." McLain, 444 U.S. at 242, 100 S. Ct. at 509. Accord, Hospital Building Co., 425 U.S. at 743, 96 S. Ct. at 1851-52; Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 194-95, 95 S. Ct. 392, 398, 42 L. Ed. 2d 378 (1974); Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S. 219, 235-37, 68 S. Ct. 996, 1005-06, 92 L. Ed. 1328 (1948); Crane v. Intermountain Health Care, Inc., 637 F.2d 715, 720 (10th Cir. 1981) (en banc); Mortensen v. First Federal Savings & Loan Ass'n, 549 F.2d 884, 896 (3d Cir. 1977); Barr v. National Right to Life Committee, Inc., No. 79-420-OLR-CIV-y (M.D.Fla. July 23, 1981); Grigg v. Blue Cross and Blue Shield of Michigan, 1980-2 Trade Cases P 63,500, at 76,665-66 (E.D.Mich.1980); Robinson v. Magovern, 456 F. Supp. 1000, 1004 (W.D.Pa.1978); De Gregorio v. Segal, 443 F. Supp. 1257, 1267 (E.D.Pa.1978). *fn8"

 1. Presence of Interstate Commerce

 In order to invoke the jurisdiction of the district court, plaintiffs' complaint must identify specifically the interstate commerce at issue in this case. "Although the cases demonstrate the breadth of Sherman Act prohibitions, jurisdiction may not be invoked under that statute unless the relevant aspect of interstate commerce is identified ; it is not sufficient merely to rely on identification of a relevant local activity and to presume an interrelationship with some unspecified aspect of interstate commerce." McLain, 444 U.S. at 242, 100 S. Ct. at 509. (emphasis supplied).

 2. Substantial and Adverse Effect

 Plaintiffs' complaint additionally must contain specific factual allegations that, if proved, would demonstrate that the alleged restraint "substantially and adversely affects interstate commerce." Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 195, 95 S. Ct. 392, 398, 42 L. Ed. 2d 378 (1974). Accord, Hospital Building Co. v. Trustees of the Rex Hospital, 425 U.S. 738, 743, 96 S. Ct. 1848, 1851, 48 L. Ed. 2d 338 (1976); Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S. 219, 234, 68 S. Ct. 996, 1005, 92 L. Ed. 1328 (1948); Doctors, Inc. v. Blue Cross of Greater Philadelphia, 490 F.2d 48, 51-53 (3d Cir. 1973) (collecting cases); Grigg v. Blue Cross and Blue Shield of Michigan, 1980-2 Trade Cases P 63,500, at 76,666 (E.D.Mich.1980). *fn9"

 3. Nexus Requirement

 Plaintiffs' complaint must also contain factual allegations that, if proved, would demonstrate the existence of a logical nexus between the challenged activities of defendants (in this case, denying plaintiffs the right to practice specialized cardiology procedures) and the effect on the relevant channel of interstate commerce discussed previously. This final and most significant jurisdictional prerequisite has its roots in a long line of Supreme Court precedent.

 In Hospital Building Co. v. Trustees of the Rex Hospital, 425 U.S. 738, 96 S. Ct. 1848, 48 L. Ed. 2d 338 (1976), the operator of a small hospital in Raleigh, North Carolina brought suit against Rex Hospital alleging that Rex had conspired with others to block a proposed expansion of plaintiff's hospital and to monopolize hospital services in Raleigh. The Supreme Court reversed the district court's dismissal finding that the complaint satisfied the Sherman Act's "effect on commerce test." A major focus of the Court's opinion was the adequacy of the nexus between the challenged activity by defendant and the relevant channels of interstate commerce identified by plaintiff. See Hospital Building Co., 425 U.S. at 742 n.1, 743-44, 96 S. Ct. at 1851 n.1, 1851-52.

 Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S. Ct. 2004, 44 L. Ed. 2d 572 (1975), although it involved the "in commerce" jurisdictional test, rather than the "effect on commerce" test, also sheds light on the nexus issue. Goldfarb involved the challenge by real estate purchasers to the Virginia State Bar's minimum fee schedule for real estate title searches. The Supreme Court held that, because an attorney's services are an "integral" and "inseparable" part of interstate real estate financing, the jurisdictional interstate commerce requirement was met. "The necessary connection between the interstate transactions and the restraint of trade provided by the minimum-fee schedule is present because, in a practical sense, title examinations are necessary in real estate transactions to assure a lien on a valid title of the borrower." Goldfarb, 421 U.S. at 783-84, 95 S. Ct. at 2011.

 The Court's recent McLain decision, involving a challenge by real estate purchasers to alleged price fixing by brokers in the New Orleans area, reaffirms the importance of the nexus requirement. Defendants' pretrial motion to dismiss on jurisdictional grounds was granted by the district court and affirmed by the court of appeals as a result of their focus on Goldfarb's "integral and inseparable" rationale. The Supreme Court reversed, finding that the lower courts' reliance on Goldfarb, which involved only the "in commerce" test, was incomplete. The Court stated the applicable test for the nexus requirement in the jurisdictional inquiry as follows:

 
To establish jurisdiction a plaintiff must allege the critical relationship in the pleadings and if these allegations are controverted must proceed to demonstrate by submission of evidence beyond the pleadings either that the defendants' activity is itself in interstate commerce or, if it is local in nature, that it has an effect on some other appreciable activity demonstrably in interstate commerce....
 
....
 
... To establish federal jurisdiction in this case, there remains only the requirement that respondents' activities which allegedly have been infected by a price fixing conspiracy be shown "as a matter of practical economics" to have a not insubstantial effect on the interstate commerce involved.

 Id. 444 U.S. at 242, 246, 100 S. Ct. at 509, 511 (emphasis supplied).

 Plaintiffs cite two other sentences from McLain in support of their position:

 
To establish the jurisdictional element of a Sherman Act violation it would be sufficient for petitioners to demonstrate a substantial effect on interstate commerce generated by respondents' brokerage activity. Petitioners need not make the more particularized showing of an effect on interstate commerce caused by the alleged conspiracy to fix commission rates, or by those other aspects of respondents' activity that are alleged to be unlawful.

 McLain, 444 U.S. at 242-43, 100 S. Ct. at 509-10. This language has been interpreted to broaden "significantly ... the effect-on-commerce jurisdictional test by requiring proof of a nexus merely between interstate commerce and the defendants' general business activity rather than the defendant's allegedly unlawful conduct." Comment, The Interstate Commerce Test for Jurisdiction in Sherman Act Cases and Its Substantive Applications, 15 Ga.L.Rev. 714, 715 (1981). Accord, Bain v. Henderson, 621 F.2d 959, 961 n.2 (9th Cir. 1980); Western Waste Systems v. Universal Waste Control, 616 F.2d 1094, 1097 (9th Cir.), cert. denied, 449 U.S. 869, 101 S. Ct. 205, 66 L. Ed. 2d 88 (1980). I reject this interpretation and, in the absence of any binding Third ...


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