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DAVIS PAO v. HOLY REDEEMER HOSP.

August 27, 1982

David S. PAO, M.D.
v.
HOLY REDEEMER HOSPITAL and James E. Gallagher, Jr., et al., Directors of Holy Redeemer Hospital and Richard E. Goldberg, M.D.



The opinion of the court was delivered by: POLLAK

 This is an action to recover damages and to obtain equitable relief in which plaintiff, a physician, claims that his civil rights were violated when the Hospital and its officers discriminatorily denied his application for staff privileges at the Hospital, and also that defendants' conduct breached the federal antitrust laws and Title VII. Plaintiff's amended complaint asserts claims under § 1 of the Sherman Antitrust Act, under 42 U.S.C. §§ 1981, 1983 and 1985(3), and under Title VII; and pendent claims under state contract and tort law. The defendants have moved to dismiss the plaintiff's claims. Thus, the questions to be considered concern the sufficiency of the amended complaint.

 Plaintiff is Dr. David Pao, a United States citizen of Chinese ancestry and race. He received his M.D. from Columbia University in 1968; completed a residency in ophthalmology; worked in 1974-76 in the Army as a retinal surgeon; and is a Board-certified ophthalmologist.

 The principal defendant is the Holy Redeemer Hospital, a non-profit Pennsylvania organization. In addition, the complaint names James E. Gallagher, Jr., a member of the Hospital's Board of Directors, and Dr. Richard Goldberg, an ophthalmologist and a member of the Hospital medical staff.

 The heart of plaintiff's complaint appears to be his allegations concerning repeated denials by the Hospital of his application for staff privileges at Holy Redeemer. The plaintiff concedes that he had such privileges at other hospitals in the area, but asserts that the Hospital's denial of privileges caused financial injury to him. Basically, staff privileges permit a doctor to admit his private patients to the hospital for medical treatment and to use the facilities of the hospital, such as operating rooms, x-rays, etc., in treating his patients.

 Plaintiff first applied for privileges in August, 1977 and was rejected in January, 1978. He alleges that internal opposition from Dr. Goldberg was the principal reason for the denial. Plaintiff filed a second application in February, 1978 and was again rejected in November, 1978. Amended Complaint paras. 16, 18 and 20. The Hospital cited overcrowding and that plaintiff had sufficient other admissions sources at other hospitals as the grounds for the denial. Amended Complaint para. 25. Plaintiff also alleges that at about the same time he was applying, another ophthalmologist named Dr. Lanning (an associate of Dr. Goldberg) was granted staff privileges. Amended Complaint paras. 26-28. Plaintiff then appealed the rejection pursuant to Hospital procedures, but was unsuccessful. It is not clear from the complaint at what date this appeals procedure was completed but the plaintiff filed a charge with the EEOC on October 12, 1979 claiming that the most recent discrimination took place on April 25, 1979 -- presumably the date on which the Hospital's appeals procedure affirmed the denial of privileges. The EEOC terminated its investigation without initiating a civil action against defendant and sent plaintiff a "right to sue" letter on April 23, 1981. Amended Complaint paras. 40 and 53. Finally, in May, 1980, plaintiff made a third application to the Hospital and was rejected in July, 1981, ostensibly because of overcrowding and because of plaintiff's other admissions privileges at other area hospitals.

 On March 17, 1982, plaintiff's complaint was dismissed without prejudice to the filing of an amended complaint. On April 6, 1982, the plaintiff filed his Amended Complaint with the court. And on April 19, 1982 the defendants Holy Redeemer Hospital, James E. Gallagher, Jr. and Richard E. Goldberg, M.D. moved this court to dismiss the plaintiff's amended complaint with prejudice pursuant to Federal Rules of Civil Procedure 12(b) (1) and 12(b) (6).

 I. ANTITRUST CLAIM

 In moving to dismiss plaintiff's claim under section 1 of the Sherman Act, defendants contend both that plaintiff has failed to allege sufficient facts to establish subject matter jurisdiction and that the complaint fails to state a claim upon which relief may be granted. I will first address the jurisdictional question and then consider the substantive sufficiency of plaintiff's complaint.

 Section 1 of the Sherman Act prohibits "every contract, combination . . . or conspiracy, in restraint of trade or commerce among the several States." 15 U.S.C. § 1. Accordingly, to establish federal jurisdiction under the Act, the defendant's conduct must involve activities that are either in the flow of interstate commerce or "while wholly local in nature, nevertheless substantially affect interstate commerce." McLain v. Real Estate Bd. of New Orleans, 444 U.S. 232, 241, 100 S. Ct. 502, 508, 62 L. Ed. 2d 441 (1980). See Harold Friedman, Inc. v. Thorofare Markets, Inc., 587 F.2d 127, 132 (3d Cir. 1978); Cordova & Simonpietri Ins. Agency v. Chase Manhattan Bank, 649 F.2d 36, 44 (1st Cir. 1981). The parties agree that the narrower "in commerce" standard cannot be satisfied in this case and that the plaintiff has sought to establish jurisdiction only under the broader "affecting commerce" test.

 However, the parties have disagreed sharply over the precise character and scope of this latter jurisdictional test. Briefly, Holy Redeemer Hospital argues that subject matter jurisdiction may only be found where a defendant's allegedly unlawful conduct has a substantial effect on interstate commerce. By contrast, plaintiff has insisted that the specific effect of the allegedly unlawful conduct is irrelevant; instead, a showing that a defendant's general business activities substantially affect interstate commerce is sufficient to satisfy the "affecting commerce" standard. This dispute between the parties is mirrored by a corresponding conflict among the circuit courts which have considered the problem. Compare Crane v. Intermountain Health Care, 637 F.2d 715 (10th Cir. 1981) (holding that a connection between the alleged restraint and interstate commerce must be shown to establish jurisdiction) with Western Waste Service v. Universal Waste Control, 616 F.2d 1094 (9th Cir.), cert. denied, 449 U.S. 869, 101 S. Ct. 205, 66 L. Ed. 2d 88 (1980) (holding that an assertion that defendant's general business activities affected interstate commerce was sufficient).

 The conflict among the circuits is rooted in discrepant readings of the Supreme Court's opinion in McLain v. Real Estate Bd. of New Orleans, 444 U.S. 232, 100 S. Ct. 502, 62 L. Ed. 2d 441 (1980). Prior to McLain, it had been well established that to demonstrate subject matter jurisdiction under the Sherman Act the plaintiff must be able to show that the defendant's allegedly unlawful conduct had a substantial effect on interstate commerce. See Hospital Bldg. Co. v. Trustees of Rex Hospital, 425 U.S. 738, 743, 96 S. Ct. 1848, 1851, 48 L. Ed. 2d 338 (1976); Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 195, 95 S. Ct. 392, 398, 42 L. Ed. 2d 378 (1974); Burke v. Ford, 389 U.S. 320, 321, 88 S. Ct. 443, 444, 19 L. Ed. 2d 554 (1967); Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219, 234, 68 S. Ct. 996, 1005, 92 L. Ed. 1328 (1948). However, the McLain Court in discussing the "affecting commerce" standard gave some signs of having altered this well-settled formula. Given the uncertainty which surrounds this issue it is worth quoting the Court's discussion in full:

 
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. The validity of this approach is confirmed by an examination of the case law. If establishing jurisdiction required a showing that the unlawful conduct itself had an effect on interstate commerce, jurisdiction would be defeated by a demonstration that the alleged restraint failed to have its intended anticompetitive effect. This is not the rule of our cases. A violation may still be found in such circumstances because in a civil action under the Sherman Act, liability may be established by proof of either an unlawful purpose or an anticompetitive effect.

 444 U.S. at 242-43, 100 S. Ct. at 509-10 (emphasis added and citations omitted).

 Plaintiff here and the Ninth Circuit in the Western Waste Services case relied upon the underscored language, interpreting this to mean that the Supreme Court had abandoned the long-standing requirement of a nexus between the alleged restraint and interstate commerce. But this interpretation of McLain builds a taller edifice than the underscored language will support: First, the Court did not state that it was abandoning the earlier cases and in fact the decision cites those earlier opinions with approval. See 444 U.S. at 241-43, 100 S. Ct. at 508-09. Moreover, later in the opinion, the Court noted that the establishment of federal jurisdiction in a Sherman Act case requires "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 interstate commerce." Id. at 246, 100 S. Ct. at 511 (citing Hospital Bldg. Co. v. Rex Hospital). The opinion taken as a whole seems to leave the jurisdictional test essentially as it was: to establish subject matter jurisdiction, a plaintiff must show that the defendant's allegedly unlawful conduct has as a matter of practical economics a not insubstantial effect on interstate commerce. All that McLain emphasized is that a plaintiff need not make a "particularized showing" that as a matter of fact the defendant's alleged restraint had a substantial impact upon interstate commerce. The McLain Court stressed that requiring an evidentiary showing of actual effects on interstate commerce would impose a too stringent standard. Instead, a test framed in terms of probable effects on interstate commerce based on the logic of practical economics would be sufficient. This is the view of McLain that has been adopted by the First and Tenth Circuits, see Cordova & Simonpietri Ins. Agency v. Chase Manhattan Bank, supra, 649 F.2d at 45; Crane v. Intermountain Health Care, supra, 637 F.2d at 724, by former Chief Judge Lord of this Court, Cardio-Medical Associates v. Crozier-Chester Medical Center, 536 F. Supp. 1065, 1075-76 (E.D. Pa.1982), and by Professor Areeda in Antitrust Law, para. 232.1c at 94 (1982 Supp.).

 Since the jurisdictional basis of plaintiff's claim has been attacked, I have considered the affidavit submitted by plaintiff as well as the pleadings. After considering this affidavit, I have concluded that it satisfies, albeit only marginally, the jurisdictional standard discussed earlier. The affidavit asserts that the alleged restraint -- restricting access to hospital staff privileges -- has had a "not insubstantial" effect on activities affecting interstate commerce. The relevant interstate activities said to have been adversely affected by defendant's conduct include the rendering of medical services by plaintiff to out-of-state patients, his receipt of revenues from out-of-state sources such as insurance companies and Medicare, and his purchases of medical supplies and equipment from out-of-state suppliers. See Affidavit of David Pao, M.D. paras. 2-7 (May 17, 1982). It may well be that plaintiff would be unable to prove these assertions at trial or that the total amounts involved, once proved, would show that plaintiff's case presents only a trivial claim. But plaintiff does appear to have barely satisfied the very liberal jurisdictional prerequisites set forth by the Court in McLain. In reaching this conclusion, I do not depart from the principles outlined in Chief Judge Lord's thoughtful opinion in Cardio-Medical Associates, supra. Indeed, I have followed his view of McLain and have been guided by his delineation of the appropriate jurisdictional standard. The difference in the result I reach here is explained simply by a comparison of the factual allegations in the instant case with those in Cardio-Medical. Here, as explained above, plaintiff has in his affidavit at least referred to particular interstate activities which are said to have been adversely affected by the alleged restraint; by contrast, in Cardio-Medical, the plaintiffs had wholly failed to allege any activities in interstate commerce which were affected by the defendant's allegedly unlawful conduct.

 I turn now to consider defendant's motion pursuant to Rule 12(b) (6) to dismiss for failure to state a claim. Here, I find that plaintiff's complaint is fatally deficient in several respects.

 An initial difficulty is that the complaint is drafted in such conclusory terms that the elements of a Sherman Act claim appear, if at all, only in vague silhouette. Specific factual allegations relevant to establishing a ...


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