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

November 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

 I. Preliminary Statement

 Plaintiff Cardio-Medical Associates, Ltd., and its four physician members, brought this antitrust action against Crozer-Chester Medical Center (hereinafter referred to as "CCMC"), members of the CCMC Board of Directors, and the Chief of the Department of Medicine at CCMC (hereinafter referred to as "the CCMC defendants"), as well as several individual doctors practicing cardiology under the name of Cardiology Associates of Delaware County (hereinafter referred to as "Cardiology Associates"). Plaintiffs allege that the denial to them of certain specialized staff privileges in cardiology at CCMC violates both sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2 (1976), and section 4 of the Clayton Act, 15 U.S.C. § 15 (1976).

 Plaintiffs originally filed this action on July 30, 1981. In their original complaint, plaintiffs alleged that the denial to them of such privileges resulted from an unlawful conspiracy by defendants that restrained trade in violation of sections 1 and 2 of the Sherman Act. Plaintiffs also alleged that defendants' conduct violated plaintiffs' fourteenth amendment rights and, therefore, constituted a deprivation of a constitutionally protected property or liberty interest within the meaning of 42 U.S.C. § 1983 (1976). Pursuant to rule 12(c), the CCMC defendants, later joined by Cardiology Associates, filed a motion for judgment on the pleadings on the grounds that plaintiffs had failed to state a claim for relief or establish that this court had subject matter jurisdiction with respect to either count of the original complaint.

 On March 15, 1982, I issued an opinion and order granting defendants' motion for judgment on the pleadings. Cardio-Medical Associates, Ltd. v. Crozer-Chester Medical Center, 536 F. Supp. 1065 (E.D. Pa. 1982). Count II of plaintiffs' original complaint, which alleged violations of the Constitution and section 1983, was dismissed with prejudice. Count I, however, which alleged that the actions of defendants violated the antitrust laws, was dismissed without prejudice and I granted plaintiffs sixty days to file an amended complaint.

 On May 13, 1982, plaintiffs, with the assistance of new counsel, filed a thirty-eight page, sixty-five paragraph amended complaint. In fifty-five paragraphs of introductory allegations, plaintiffs attempt to plead jurisdiction and venue; the identity of the parties; the identification of relevant product markets; the alleged effects that defendants' activities have on interstate trade and commerce; and the activities allegedly constituting defendants' conspiracy, unreasonable restraint of trade, and group boycott of plaintiffs. Count I of plaintiffs' amended complaint then states their Sherman Act section 1 claim while Count II states their Sherman Act section 2 claim.

 Thus, plaintiffs' amended complaint alleges, as did Count I of their original complaint, that defendants have prohibited plaintiffs from practicing certain cardiology procedures at CCMC in violation of sections 1 and 2 of the Sherman Act. On the basis of these allegations, plaintiffs seek permanent injunctive relief compelling defendants to permit plaintiffs to perform the specified procedures from which they allegedly have been wrongfully excluded. Plaintiffs also seek damages for the injuries allegedly sustained as a result of the denial of the opportunity to perform these procedures as well as attorneys' fees and costs.

 Pursuant to rule 12(b) (1) of the Federal Rules of Civil Procedure, the CCMC defendants have moved to dismiss plaintiffs' amended complaint for lack of subject matter jurisdiction. *fn1" Defendants' decision to proceed under rule 12(b) (1) as opposed to rule 12(b) (6) was dictated by my holding in the original Cardio-Medical opinion that "the Third Circuit uniformly approaches the interstate commerce issue as one of jurisdiction." Cardio-Medical, 536 F. Supp. at 1079 n. 15.

 For the reasons stated below, I grant defendants' motion to dismiss as to both counts of plaintiffs' amended complaint, and, having already afforded plaintiffs the opportunity to amend their complaint, dismiss their cause of action with prejudice. Again,

 
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.

 Cardio-Medical, 536 F. Supp. at 1069.

 II. Standards Under Which Defendants' Motion Must be Decided

 A. Rule 12(b) (1)2

 Under the applicable Third Circuit precedents, rule 12(b) (1) is the appropriate procedural vehicle for the testing of antitrust jurisdictional challenges. See, e.g., Mortensen v. First Federal Savings & Loan Ass'n, 549 F.2d 884 (3d Cir. 1977); Doctors, Inc. v. Blue Cross of Greater Philadelphia, 490 F.2d 48 (3d Cir. 1973); Daley v. St. Agnes Hospital, Inc., 490 F. Supp. 1309 (E.D. Pa. 1980). The Third Circuit, however, has been emphatic in its identification of a "crucial distinction" between rule 12(b) (1) motions that attack a complaint on its face and rule 12(b) (1) motions that attack a complaint factually (i.e., through the introduction of materials outside the pleadings). Mortensen, 549 F.2d at 891.

 Whenever the court treats a rule 12(b) (1) motion to dismiss as a facial challenge to the legal sufficiency of the pleading, it must afford the plaintiff the same safeguards as would be available to the plaintiff in a rule 12(b) (6) motion:

 
Because 12(b) (6) results in a determination on the merits in an early stage of plaintiff's case, the plaintiff is afforded the safeguard of having all its allegations taken as true and all inferences favorable to plaintiff will be drawn. The decision disposing of the case is then purely on the legal sufficiency of plaintiff's case: even were plaintiff to prove all its allegations he or she would be unable to prevail. In the interest of judicial economy it is not improper to dispose of the claim at that stage.

 Id.

 If the rule 12(b) (1) attack is a factual one, however, the trial court proceeds in an entirely different manner. As the Third Circuit explained in Mortensen, "no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims. Moreover, the plaintiff will have the burden of proof that jurisdiction does in fact exist." Id.

 It should be made clear at the outset that it is my apprehension that defendants' rule 12(b) (1) challenge in this case is a facial challenge to the legal sufficiency of plaintiffs' amended complaint. Neither party has attempted to introduce materials outside the pleadings; thus, in reaching my decision, I have not moved beyond the pleadings. My decision is, therefore, based strictly on a reading of plaintiffs' complaint, in the light most favorable to plaintiffs, together with any facts of which I am entitled to take judicial notice. See 2A J. Moore, Moore's Federal Practice P 12.15, at 2343-44 (1981).

 B. Review of Standards Developed in Previous Opinion

 1. Pleading Standards

 The initial Cardio-Medical opinion contained an extensive discussion of the general disfavor with which all motions for summary disposition of cases are treated in federal courts. See Cardio-Medical Associates, Ltd. v. Crozer-Chester Medical Center, 536 F. Supp. 1065, 1070-72, 1078-79 (E.D. Pa. 1982). To summarize, I reasoned that the line between permissible and impermissible summary disposition of cases had to be drawn as the result of an analysis of two competing policies: the "notice pleading" policy and the "efficiency" policy:

 
. . . .
 
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, Federal Practice and Procedure § 1369, at 698 (1969); Cardio-Medical, 536 F. Supp. at 1071 n. 4]; . . . or (3) if the pleadings are wholly inadequate and discovery would serve no demonstrably useful purpose, [ Cardio-Medical, 536 F. Supp. at 1072 n.5].

 Id. at 1072.

 The initial Cardio-Medical opinion emphasized that these same standard federal pleading requirements "apply with full force to complaints in complex antitrust matters." Id. at 1079. In antitrust matters, I continue to subscribe fully to the remarks of the trial judge in Searer v. West Michigan Telecasters, Inc., 381 F. Supp. 634 (W.D. Mich. 1974), aff'd mem. 524 F.2d 1406 (6th Cir. 1975), who held:

 
It is true that summary procedure should be used sparingly in complex antitrust litigation. . . . However, this policy of restraint is no warrant for every plaintiff who can draft an antitrust complaint, no matter how groundless or improbable its allegations, to force his claim to trial despite its deficient factual underpinning.

 Id. at 643.

 2. Substantive Sherman Act Standards

 Section 1 of the Sherman Act declares that contracts, conspiracies, and combinations in restraint of trade or commerce among the states are illegal. *fn3" In addition, section 2 prohibits attempts to monopolize the sale of products or services in trade or commerce among the states. *fn4"

 "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." Cardio-Medical, 536 F. Supp. at 1073 (emphasis in original). Accord McLain v. Real Estate Board of New Orleans, 444 U.S. 232, 241, 62 L. Ed. 2d 441, 100 S. Ct. 502 (1980); Hospital Building Co. v. Trustees of the Rex Hospital, 425 U.S. 738, 743, 48 L. Ed. 2d 338, 96 S. Ct. 1848 (1976); United States v. Employing Plasterers Ass'n, 347 U.S. 186, 189, 98 L. Ed. 618, 74 S. Ct. 452 (1954); Atlantic Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 435, 76 L. Ed. 1204, 52 S. Ct. 607 (1932). Although the distinction between activities "in" commerce and activities that only "affect" commerce is still important for limited purposes under the antitrust laws, "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. See Cardio-Medical, 536 F. Supp. at 1073 (citing cases).

 In order to satisfy the "in commerce" theory of Sherman Act jurisdiction, a plaintiff must demonstrate that its business is "actually in interstate commerce" or that its business, though essentially local in nature, is an "integral part of or 'essential and inseparable from' an interstate transaction." Heille v. City of St. Paul, 512 F. Supp. 810, 1981-1 Trade Cas. (CCH) P62,997, at 76,183-84 (D. Minn. 1981), aff'd, 671 F. Supp. 1134, 1982-1 Trade Cas. (CCH) P63,565 (8th Cir. 1982). See also Goldfarb v. Virginia State Bar, 421 U.S. 773, 44 L. Ed. 2d 572, 95 S. Ct. 2004 (1975). *fn5"

 In order to satisfy the "affecting commerce" test, plaintiffs' amended complaint must contain factual allegations that, if proved, would sustain each of three independent underlying findings: (i) the presence of interstate commerce; (ii) the existence of a substantial and adverse effect on interstate commerce; and (iii) the requisite nexus between the challenged activities of defendants and the effect on the relevant channel of interstate commerce. See Cardio-Medical, 536 F. Supp. at 1074. "Failure to allege sufficient facts on any one of these jurisdictional prerequisites requires dismissal of plaintiffs' [amended] complaint." Id.

 Plaintiffs' jurisdictional burden under this tripartite standard could not have been made clearer in my last opinion. Plaintiffs must first specifically identify the element or elements of interstate commerce implicated in the case. See McLain, 444 U.S. at 242. Critically, the identified aspect of interstate commerce must relate to the activities of plaintiffs, and not defendants. See Cardio-Medical, 536 F. Supp. at 1076-78.

 Plaintiffs' complaint then must contain specific factual allegations that, if proved, would demonstrate that the challenged action of defendants "substantially and adversely affects interstate commerce." Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 195, 42 L. Ed. 2d 378, 95 S. Ct. 392 (1974). See Cardio-Medical, 536 F. Supp. at 1074 (collecting cases). Previous cases have exhaustively defined the scope of this substantiality test. Sherman Act jurisdiction cannot be established and the substantiality requirement cannot be met through allegations of effects on commerce that are "incidental," "inconsequential," or " de minimis." See Rosemound Sand & Gravel Co. v. Lambert Sand & Gravel Co., 469 F.2d 416, 418 (5th Cir. 1972); Searer v. West Michigan Telecasters, Inc., 381 F. Supp. 634, 640-41 (W.D. Mich. 1974), aff'd mem. 524 F.2d 1406 (6th Cir. 1975); Marston v. Ann Arbor Property Managers Ass'n, 302 F. Supp. 1276, 1279-80 (E.D. Mich. 1969), aff'd, 422 F.2d 836 (6th Cir. 1970), cert. denied, 399 U.S. 929, 26 L. Ed. 2d 796, 90 S. Ct. 2244 (1970). Further, the requisite allegations on substantiality cannot be satisfied through vague or conclusory statements in the complaint. See Wolf v. Jane Phillips Episcopal-Memorial Medical Center, 513 F.2d 684 (10th Cir. 1975); Cardio-Medical, 536 F. Supp. at 1078-79; Grigg v. Blue Cross and Blue Shield of Michigan, 1980-2 Trade Cas. (CCH) P 63,500 (E.D. Mich. 1980).

 Finally, plaintiffs must allege with specificity the 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 identified previously. See Cardio-Medical, 536 F. Supp. at 1074; Daley v. St. Agnes Hospital, Inc., 490 F. Supp. 1309, 1980-2 Trade Cas. (CCH) P63,443 (E.D. Pa. 1980). *fn6"

 Implicit in this tripartite jurisdictional test, particularly in the substantiality and nexus requirements, is my view that a mere shifting in the flow of interstate commerce or the simple substitution of one party for another in that flow does not establish a "substantial and adverse effect" on interstate commerce for purposes of Sherman Act jurisdiction, at least in a case such as this in which plaintiffs have not been totally foreclosed from practicing their profession in the relevant market. It is my view that the case law firmly supports my holding.

 For example, in Cartrade, Inc. v. Ford Dealers Advertising Association of Southern California, 446 F.2d 289 (9th Cir. 1971), cert. denied, 405 U.S. 997, 31 L. Ed. 2d 465, 92 S. Ct. 1249 (1972), the Ninth Circuit held that there was no effect on commerce in a case in which plaintiff, an automobile trading agency, was replaced by another agency established through the joint efforts of the defendants in that case. Although the court of appeals acknowledged that the business of the plaintiff Cartrade affected interstate commerce, it ruled that the actions of the defendants in replacing the plaintiff with a new agency had no effect on interstate commerce.

 The district court reached a similar result in Dominion Parking Corp. v. Baltimore and Ohio Railway Co., 450 F. Supp. 441 (E.D. Va. 1978). In Dominion Parking, a former lessee of parking lots brought an antitrust action against the owner of the lots and the new lessee following the termination of plaintiff's lease. The district judge rejected plaintiff's argument that the termination had had an effect on interstate commerce, noting that the case "concern[ed] the potential effect on interstate commerce of substituting one parking lot operator for another. Although plaintiffs are affected by the substitution, interstate commerce is not." Id. at 446 (emphasis supplied).

 Most significantly, a shifting of interstate commerce has been found insufficient to sustain jurisdiction in a case involving the denial of hospital staff privileges to a physician. In Moles v. Morton F. Plant Hospital, Inc., 1980-81 Trade Cas. (CCH) P 63,600 (M.D. Fla. 1978), aff'd mem. 617 F.2d 293 (5th Cir. 1980), cert. denied, 449 U.S. 919, 101 S. Ct. 317, 66 L. Ed. 2d 147 (1980), plaintiffs argued that the refusal of defendant hospital to renew or grant them staff privileges resulted in an effect on interstate commerce because their patients' bills were paid by funds that travelled in interstate commerce. In rejecting this argument, the trial judge explained that:

 
Here all the allegations regard a diminution of interstate insurance payments to plaintiffs, but the flow in interstate commerce would be the same. The effect of the defendants' actions would be on the plaintiffs but not on the flow of interstate commerce. This differs from the Rex Hospital case where it was alleged that interstate commerce would be substantially reduced by the loss of plaintiffs' purchases of supplies. Plaintiff hospital in Rex also allegedly paid over its revenue to an out-of-state parent corporation. Thus, payments were alleged to be reduced by defendants' actions.

 Id. at 77,189. *fn7"

 Plaintiffs vigorously contested the position that a mere shifting of interstate commerce from one business to another does not affect interstate commerce. None of the cases cited by plaintiffs in support of their position even addresses the specific issue underlying my conclusion: whether interstate commerce is substantially burdened, and thus whether antitrust jurisdiction is established, when commerce shifts from one party to another, but otherwise remains unchanged, as a result of an alleged violation of the antitrust laws.

 First, the effect on interstate commerce was not at issue in either Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 3 L. Ed. 2d 741, 79 S. Ct. 705 (1959), or United States v. Topco Associates, Inc., 405 U.S. 596, 31 L. Ed. 2d 515, 92 S. Ct. 1126 (1972). The issue in Klor's was simply whether harm to one business, as opposed to many, could constitute the requisite "public injury," or competitive harm, required by section 1 of the Sherman Act. Although the Supreme Court held that such harm could constitute the required injury, because the jurisdiction of the federal courts was clear on the record and unchallenged, Justice Black was not required to, and did not, address the interstate commerce jurisdictional issue, much less whether shifting triggered jurisdiction. On its facts, the Topco case is even more remote from the issue under consideration in the instant case. In Topco, the only question addressed by the Court was whether the trial court erred in applying the rule of reason rather than a per se rule to the violation. Justice Marshall's opinion contains not a single word on the interstate commerce jurisdictional issue, again because of the obviousness of federal jurisdiction independent of any shifting argument.

 A second group of cases cited by plaintiffs in support of their position discusses the interstate commerce requirement, but fails to make a specific holding with respect to the shifting issue addressed in the instant case. For example, in Hospital Building Co. v. Trustees of the Rex Hospital, supra, the Court simply said that to sustain jurisdiction the restraint must place "unreasonable burdens" on interstate commerce; a substantial and adverse reduction in such commerce would be sufficient. Although shifting was not addressed, Hospital Building Co., by requiring a "burden" on interstate commerce, supports my analysis that a mere shifting would be insufficient to establish jurisdiction. Further, in Harold Friedman, Inc. v. Thorofare Markets, Inc., 587 F.2d 127 (3d Cir. 1978), *fn8" the Third Circuit ruled that an increase in interstate commerce flowing from an alleged restraint may be sufficient to establish federal jurisdiction. *fn9" The court of appeals, however, did not address the issue whether a mere shifting in the flow of interstate commerce would be sufficient. Friedman is, therefore, wholly consistent with the result that I reach in the instant case: plaintiffs must allege facts that, if proved, would support a finding that there has been some change (either an increase or a decrease) in the flow of interstate commerce.

 Only one case cited by plaintiffs discusses shifting, but the discussion appears in a context distinct from the interstate commerce question. Following Friedman, the Tenth Circuit held in Mishler v. St. Anthony Hospital Systems, 1981-2 Trade Cas. (CCH) P 64,342 (10th Cir. 1982), that an increase in interstate commerce may constitute the requisite "unreasonable burden on commerce" necessary to vest a federal trial court with jurisdiction. Id. at 74,586. The court of appeals then addressed an entirely different issue -- whether a diversion of revenues can constitute the "requisite harm to the public," id., necessary for an antitrust violation. Its answer in the affirmative, just like the Klor's decision discussed above, is totally separate from an inquiry into whether interstate commerce has been implicated sufficiently to grant a federal court jurisdiction over the cause of action.

 In sum, I hold that, at least in a case in which the plaintiff has not been foreclosed from doing business in the relevant market, a mere shifting in commerce from one party to another as a result of a restraint allegedly violative of the antitrust laws is insufficient in and of itself to vest a federal trial court with jurisdiction ...


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