Antitrust Law Daily Wrap Up, ANTITRUST—D.N.J.: Physician states concerted trade restraint claim against hospital, staff, (Jun 1, 2015)

By Peter Reap, J.D., LL.M.

In his amended complaint against a hospital and several physicians, Frederick Nahas, M.D., stated a valid claim that the defendants violated Section 1 of the Sherman Act by acting in concert to restrain trade by wrongfully suspending his hospital privileges, the federal district court in Camden, New Jersey, has decided. Because his Section 1 claim was sustained, the court also allowed his claim for restraint of trade under the New Jersey Antitrust Act to proceed (Nahas v. Shore Medical Center, May 29, 2015, Kugler, R.).

However, Nahas failed to adequately allege that the defendants had a specific intent to monopolize and his claim for violation of Section 2 of the Sherman Act was dismissed from the amended complaint. In addition, his claim for false advertising in violation of the Lanham Act was dismissed.

Background. Nahas filed this suit in late 2013, alleging that the actions of defendants Shore Medical Center (“SMC”), Dr. Steven P. Nachtigall, Dr. Jeffery Gosin, Dr. Peyton Dearborn, and Dr. Peter Jungblut, in denying Nahas’ requests to have his endovascular privileges reinstated, and then suspending him from practice at SMC altogether, violated his rights. Specifically, he alleged violations of the Sherman Act, federal civil rights statutes, the Lanham Act, and the New Jersey Law Against Discrimination (NJLAD), as well as claims for breach of contract, tortious interference with a prospective economic advantage, defamation, and a violation of due process under either the Federal Constitution or the New Jersey Constitution.

The court dismissed all of Nahas’ claims on September 29, 2014, but also granted Nahas time to file a motion for leave to amend his complaint. In his amended complaint, Nahas adds Dr. Leonard Galler and the SMC Medical Executive Committee (the “MEC”) as defendants. In addition to adding more factual averments, Nahas removed his § 1985, defamation, and due process claims, but added claims for retaliation under § 1981 and the NJLAD, a state common law judicial review claim, a state law antitrust claim, and a claim for trade libel. The motion by the defendants for the court to deny Nahas leave to amend on the grounds of futility was before the court.

Section 1 Sherman Act claim. Nahas alleged that the defendants acted in concert to restrain trade by wrongfully suspending his hospital privileges, and as a result of their exclusion of him from the endovascular intervention market, consumers had restricted choices and were forced to pay higher prices.

To plead a Section 1 Sherman Act claim, a plaintiff must allege (1) concerted action by the defendants; (2) that produced anti-competitive effects within the relevant product and geographic markets; (3) that the concerted actions were illegal; and (4) that it was injured as a proximate result of the concerted action. The defendants argued that Nahas failed to sufficiently allege that an agreement was made, or that any alleged agreement produced the required anticompetitive effects, the court noted.

Because the defendants took no issue with Nahas’ pleading the illegality of their alleged actions, or the harm they allegedly caused him, the court accepted that the third and fourth prongs of the Section 1 Sherman Act claim were adequately alleged.

With respect to the first prong, the circumstantial facts pleaded in the amended complaint were sufficiently detailed to suggest that an agreement was made between the various members of the MEC when they adopted new criteria that effectively barred Nahas from restoring his endovascular privileges at SMC, the court determined. As the Third Circuit held in Weiss v. York Hosp., 745 F.2d 786 (3d Cir. 1984), individual staff members at a hospital have independent economic interests separate from each other’s interests, and when they act as a body, such as they did here on the MEC, their actions are subject to scrutiny under the Sherman Act. Id. at 816.

Nahas also sufficiently alleged that the defendants’ actions resulted in an unreasonable restraint of trade. For example, he claimed that the defendants’ agreement “produced anticompetitive effects within the SMC community and Southern New Jersey market,” that “Defendants’ concerted actions reduced the competition for vascular and surgical services as provided by Plaintiff,” and that “Defendants’ concerted actions to exclude Plaintiff is a per se violation of the antitrust laws because it is plainly anticompetitive.”

Thus, Nahas was permitted to maintain this claim and it was not dismissed from the amended complaint.

Section 2 Sherman Act claim. Nahas also alleged that the defendants conspired and agreed to monopolize the endovascular intervention market by restricting his endovascular privileges, and as a result, patients not treated by the defendants were sent to another market to obtain endovascular intervention.

According to the court, a Section 2 conspiracy claim has four elements which a plaintiff must allege: (1) an agreement to monopolize; (2) an overt act in furtherance of the conspiracy; (3) a specific intent to monopolize; and (4) a causal connection between the conspiracy and the injury alleged. The defendants argued that Nahas failed to allege the first three prongs required to state a Section 2 claim.

Here, Nahas did not plead any facts, other than one allegation in the amended complaint, indicating that any of the defendants might have had an intent to monopolize, the court reasoned. Nahas alleged in a conclusory manner that “Defendants conspired and agreed, with the intent that the Defendants would monopolize endovascular intervention procedures market identified herein in the relevant geographic market.” The one paragraph with factual detail relevant to this contention states that the defendants formed their agreement to monopolize with “the specific intent of obtaining for the Defendants a monopoly over the market for … advanced vascular surgery (endovascular intervention procedures) and the Defendants did so monopolize said market as the Defendants Gosin and Galler through their practices control almost 100% of the endovascular intervention procedures … at SMC.”

There was no apparent motive for Defendants Nachtigall, Dearborn, Jungblut, SMC, or the MEC to support such a monopoly, and the facts did not otherwise point to intent on their part, the court explained. Nothing in the amended complaint suggested why these defendants possessed the specific intent to have Galler and Gosin monopolize the endovascular intervention procedures, and the court could not infer intent absent some facts supporting such a conclusory allegation.

While the facts in the amended complaint could support Nahas’ claim that Gosin and Galler controlled nearly all of the endovascular intervention procedures at SMC once Nahas was excluded, Nahas described the relevant market elsewhere as being both SMC and “the Southern New Jersey Market.” It was unclear whether the defendants only intended to monopolize the endovascular intervention market at SMC, and did so successfully, or intended to monopolize the entire Southern New Jersey endovascular intervention market, to unknown effect, in the court’s view. If Nahas intended the former, the conflicting allegations in the amended complaint concerning the relevant market weaken any claim of specific intent. If the latter was intended, the facts were insufficient to suggest that Gosin or Galler were capable of or intended to monopolize the entire Southern New Jersey market, the court found.

Additionally, Nahas claimed that “Defendant Gosin and others with endovascular privileges elected to not provide treatment,” to Nahas’ former patients and they instead sent these patients to Philadelphia, Pennsylvania, for treatment as part of the conspiracy to monopolize the market. If Gosin and Galler would not take on Nahas’ patients, and instead sent them to a competitor in another market, such a fact did not help, but hurt Nahas’ allegation of specific intent to monopolize, the court said.

Because Nahas failed to allege any facts suggesting that the defendants possessed the specific intent to monopolize, and actually made allegations at odds with such a claim, the claim was dismissed.

New Jersey Antitrust Act claim. The New Jersey Antitrust Act is interpreted in harmony with its federal analog, Section 1 of the Sherman Act. Since the court already determined that Nahas may proceed with his Section 1 Sherman Act claim in Count I, he could also maintain the state law restraint of trade claim.

Lanham Act claim. Nahas alleged that the defendants have misrepresented the characteristics and qualities of Nahas’ services and commercial activities in violation of § 43(a) of the Lanham Act.

A plaintiff asserting a violation of section 1125(a)(1)(B) must show that (1) the defendant made a false or misleading statement in a commercial advertisement or promotion about its own or the plaintiff’s product or service; (2) the statement actually deceived or at least had a tendency to deceive a substantial portion of the intended audience; (3) the deception was material in that it likely influenced purchasing decisions; (4) the advertised product traveled in interstate commerce; and (5) the plaintiff was likely to be or was injured by the false or misleading statement.

In its early opinion on the defendants’ original motion to dismiss, the court already found that Nahas’ Lanham Act claim failed with respect to his allegations involving (1) a letter sent August 24, 2011, from defendant Nachtigall to Nahas; (2) SMC’s public announcement of Nahas’ 14-day suspension; and (3) unspecified “false and defamatory comments” made to patients and staff about the quality of Nahas’ services.

For the same reason the court rejected those claims earlier, the new allegations in the amended complaint regarding the reporting of his suspension to the Health Care Quality Improvement Act (HCQIA) and the publication of his suspension in the New Jersey Board of Medical Examiners and the federal Clearing House Coordinator failed to support a Lanham Act Claim, the court ruled. The amended complaint did not indicate that these publications are false or misleading, there was no indication why either could be considered a “commercial advertising or promotion,” and the facts did not suggest that the defendants themselves were actually responsible for any publication of the information they shared with the HCQIA, the New Jersey Board of Medical Examiners, or the federal Clearing House Coordinator. In short, Nahas failed again in his attempt to use the Lanham Act to state a federal statutory defamation claim.

Nahas did, however, include a new claim in his amended complaint worth mentioning. For the first time he alleged that defendant Gosin, his father Dr. Steven Gosin, and their medical practice Jersey Shore Surgical Group PC “falsely advertised in at least the Atlantic City Press that Steven Gosin was a board certified vascular surgeon.”

However, there was no allegation that this advertisement concerning Dr. Steven Gosin traveled in or affected interstate commerce. Without more, Nahas failed to allege one of the requisite elements in a Lanham Act claim. Additionally, the court was concerned that Nahas was attempting under this new theory to assert a Lanham Act claim against a party who was not even a defendant in the instant action. Thus, Nahas’ Lanham Act claim could not be sustained and it was dismissed from the amended complaint.

The case is No. 13-6537 (RBK/AMD).

Attorneys: Donald C. Cofsky (Cofsky & Zeidman, LLC) for Frederick Nahas, MD. Edward J. Fanning, Jr. (McCarter & English, LLP) for Shore Medical Center.

Companies: Shore Medical Center

Cases: Advertising Antitrust NewJerseyNews