Antitrust Law Daily Wrap Up, ANTITRUST—D. Nev.: Reference to FTC case did not raise a federal question, (Aug 4, 2014)

By Jody Coultas, J.D.

The federal district court in Reno has determined that it lacked jurisdiction over health care provider St. Mary’s Regional Medical Center’s Nevada Unfair Trade Practices Act (UTPA) claims based on purported conspiratorial and monopolistic behavior by competitor Renown Health. The case was remanded to state court (St. Mary’s Regional Medical Center v. Renown Health, August 1, 2014, Du, M.).

St. Mary’s and Renown compete in the adult cardiology services market in the Reno-Sparks area of Nevada. Renown’s plans to acquire two cardiology practices in the area prompted an investigation by the FTC for Section 7 Clayton Act violations. Renown settled with the FTC in 2012. Cardiologists that were employed by a company acquired by Renown, left Renown and began working for St. Mary’s.

The cardiologists and St. Mary’s alleged that Renown engaged in unlawful business practices in violation of the UTPA by engaging in, and conspiring to engage in, monopolistic behavior; breached a contract and its express and implied covenants of good faith and fair dealing; interfered with existing and prospective relationships; and conspired to harm St. Mary’s.

Federal question jurisdiction exists over state-law claims where “a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting [Congress’s] federal-state balance.”

Referencing the FTC settlement did not create federal question jurisdiction over the case, according to the court. Renown argued that St. Mary’s incorporated a federal issue into its complaint by referring to the FTC allegations of a Clayton Act violation. Federal Rule of Civil Procedure 10(c) provides that “[a] copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes.” Renown’s argument of incorporation was based on the plain meaning of Rule 10(c). However, Renown could not rely on Rule 10(c) to assert that the FTC’s allegations were part of St. Mary’s case, and St. Mary’s did not facially allege a Clayton Act violation by referencing the FTC case.

The “mere presence” of the Clayton Act in the UTPA claims did not create a federal issue, according to the court. Renown argued that federal question jurisdiction existed because the UTPA claims were based on Clayton Act violations. Although the complaint referred to federal law, the FTC case, and suggested that Renown violated FTC orders, the UTPA claims of monopolistic behavior could be decided independently of any federal question. St. Mary’s would need to show that Renown’s mergers and other activities amounted to monopolistic behavior proscribed by the UTPA. The absence of a “borrowing” provision in the UTPA did not mean that the complaint triggered a federal issue.

Even if the complaint raised a federal issue, the court did not have jurisdiction because the complaint did not raise a “substantial” federal issue. The federal issue would have required a case-specific determination of whether Renown violated the Clayton Act, rather than an interpretation of the Clayton Act. Renown argued that a substantial federal issue was embedded in the complaint because the FTC had an interest in how its allegations were used in state-law cases. However, the FTC Draft Complaint would, at most, serve as an alleged fact to support the UTPA claim. The FTC Draft Complaint’s allegations were undisputed, leaving nothing but a hypothetical federal issue for a court to decide in the context of a state-law antitrust claim. Whether Renown violated the Clayton Act was an insubstantial element of a state-law claim.

The case is No. 3:13-cv-00702-MMD-VPC.

Attorneys: Barry L. Breslow (Robison, Belaustegui, Sharp & Low) for St. Mary's Regional Medical Center. Edward Martin Rosenfeld (Bryan Cave LLP), and Ryan M. Lower (Morris Law Group) for Renown Health.

Companies: St. Mary’s Regional Medical Center; Renown Health

Cases: Antitrust StateUnfairTradePractices NevadaNews