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Federal Trade Commission v. Penn State Hershey Medical Center

United States District Court, M.D. Pennsylvania

May 11, 2017

FEDERAL TRADE COMMISSION and COMMONWEALTH OF PENNSYLVANIA, Plaintiffs,
v.
PENN STATE HERSHEY MEDICAL CENTER and PINNACLEHEALTH SYSTEM Defendants.

          MEMORANDUM OPINION

          Hon. John E. Jones III Judge

         Presently before the Court is the Commonwealth of Pennsylvania's Motion for Attorney's Fees and Costs under Section 16 of the Clayton Act. (Doc. 143). This Motion arises following the Third Circuit's opinion in Federal Trade Commission v. Penn State Hershey Medical Center, 838 F.3d 327 (3d Cir. 2016) (“Hershey”), issued on September 27, 2016. Therein, the Third Circuit considered a proposed merger between Defendants Penn State Hershey Medical Center and PinnacleHealth System (collectively, “Defendants”). The Third Circuit granted Plaintiffs the Federal Trade Commission and the Commonwealth of Pennsylvania preliminary injunctive relief, enjoining the merger pending the outcome of an administrative adjudication on the merits, to be conducted by the Federal Trade Commission. Hershey, 838 F.3d at 354.

         Thereafter, the Commonwealth filed the instant Motion, which has been fully briefed and is accordingly ripe for our review. (Docs. 144, 146 and 147).[1]For the reasons to follow, the Commonwealth's Motion shall be denied.

         I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY [2]

         The above-captioned action commenced with the filing of a Complaint on December 9, 2015. (Doc. 4). Therein, the Federal Trade Commission (“FTC”), joined by the Commonwealth of Pennsylvania, sought a preliminary injunction preventing the merger of two hospitals, Penn State Hershey Medical Center (“Hershey”) and PinnacleHealth Systems (“Pinnacle”), pending the outcome of the FTC's adjudication on the merits. The suit was filed under Section 13(b) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 53(b), and Section 16 of the Clayton Act, 15 U.S.C. § 26.

         For a period of five days in mid-April, this Court held evidentiary hearings and heard testimony from sixteen witnesses. On May 9, 2016, Plaintiffs' Motion for a Preliminary Injunction was denied. (Doc. 131). Plaintiffs timely filed a Notice of Appeal (doc. 132), and thereafter our Court of Appeals heard oral argument from the parties. On September 27th, the Third Circuit issued an opinion reversing our denial of the Motion for Preliminary Injunction and remanded the case, directing that the merger of Defendants be preliminarily enjoined pending the outcome of the FTC's administrative adjudication. FTC v. Penn State Hershey Med. Ctr., 838 F.3d 327, 353-54 (3d Cir. 2016) (“Hershey”). We issued an order so doing on October 20, 2016. (Doc. 142).

         Meanwhile, on October 14, 2016, the Pennsylvania State University Board of Trustees voted unanimously to accept Penn State Health's recommendation terminating the Affiliation Agreement with Pinnacle. (Doc. 143, ¶ 8). Similarly, Pinnacle also announced that it was abandoning its merger efforts with Hershey based on the Third Circuit's opinion and judgment. (Id., ¶ 9).

         As noted above, on November 2, 2016, the Commonwealth filed the instant Motion for Attorney's Fees and Costs under Section 16 of the Clayton Act. (Id.). Therein, the Commonwealth seeks $1, 033, 355.50 in attorney's fees and related costs and $160, 072.76 in litigation costs. (Id., ¶ 15). Defendants vigorously oppose the Motion, arguing against it on a variety of procedural and substantive grounds. We consider each argument in turn below.

         II. ANALYSIS

         Section 16 of the Clayton Act, entitled “[i]njunctive relief for private parties, ” provides:

[i]n any action under this section in which the plaintiff substantially prevails, the court shall award the cost of suit, including a reasonable attorney's fee, to such plaintiff.

15 U.S.C. § 26. Defendants argue that because the Third Circuit evaluated Plaintiffs' claims solely under Section 13(b) of the FTC Act, the Commonwealth's request for fees under Section 16 should be denied.

         A. Whether Plaintiffs may seek attorney's fees pursuant to Section 16 of the Clayton Act

         Section 13(b) of the FTC Act and Section 16 of the Clayton Act employ slightly different standards. Hershey, 838 F.3d at 337 (“The public interest standard is not the same as the traditional equity standard for injunctive relief.”). Section 13(b) is a specialized statute applicable only to suits brought by the FTC, “[t[he purpose of [which] is to preserve the status quo and allow the FTC to adjudicate the anticompetitive effects of the proposed merger in the first instance.” Id. at 352. The public interest standard employs a two-pronged approach. Under Section 13(b), “[a] district court may issue a preliminary injunction ‘[u]pon a proper showing that, weighing the equities and considering the Commission's likelihood of success, such action would be in the public interest.'” Id. at 337 (citing 15 U.S.C. § 53(b)). Unlike Section 16 of the Clayton Act, Section 13(b) does not permit fee shifting. See FTC v. Staples, Inc., __ F.Supp.3d __, 2017 WL 782877, at *1, (D.D.C., Feb. 28, 2017) (“Unlike the Clayton Act, the FTC Act does not grant attorney's fees to prevailing plaintiffs.”).

         Meanwhile, Section 16 of the Clayton Act states that:

Any person, firm, corporation, or association shall be entitled to sue for and have injunctive relief . . . against threatened loss or damage by a violation of the antitrust laws . . . when and under the same conditions and principles as injunctive relief against threatened conduct is granted by courts of equity, under the rules governing such proceedings . . . .

15 U.S.C. § 26. As noted above, Section 16 contains a fee shifting provision. 15 U.S.C. § 26.

         Traditionally, “[a] plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tip in his favor, and that an injunction is in the public interest.” Glossip v. Gross, 135 S.Ct. 2726, 2736-37 (2015) (citing Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008)). Instead of two elements then, a court must consider four factors under the traditional equity standard for injunctive relief.

         The parties vigorously debate whether the Third Circuit applied the two-pronged test appropriate for injunctive relief analyzed under Section 13(b), or the four-pronged test set forth by the traditional equity standard. Careful review of the Third Circuit's opinion in Hershey shows that Defendants are correct to note that our Court of Appeals solely applied the standard outlined by Section 13(b) of the FTC Act. Indeed, at the outset of its analysis, the Third Circuit states that “the Government seeks a preliminary injunction under Section 13(b) of the FTC Act” with no mention of the Commonwealth's pursuit of an injunction pursuant to Section 16. Hershey, 838 F.3d at 337. The court goes on to describe the public interest standard applicable to a motion for a preliminary injunction under Section 13(b), and specifically emphasizes that the standard differs from the traditional equity standard for injunctive ...


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