Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: No immediate appeal of laboratories’ dismissed claims against rival, health insurers, (Jun 11, 2014)

By Jeffrey May, J.D.

With a trial on California Unfair Practices Act (UPA) and derivative Unfair Competition Law (UCL) claims coming next year in an action brought by independent medical diagnostic testing laboratories against national competitor Quest Diagnostics, Inc., the federal district court in San Francisco has refused to enter a judgment under Federal Rule of Civil Procedure 54(b) on the labs’ dismissed antitrust claims against Quest and major health insurers (Rheumatology Diagnostics Laboratory, Inc. v. Aetna, Inc., June 9, 2014, Orrick, W.).

The complaining labs—Rheumatology Diagnostics Laboratory, Inc., Pacific Breast Pathology Medical Corporation, Hunter Laboratories, Inc., and Surgical Pathology Associates LLC—alleged that Quest entered into anticompetitive agreements with Blue Shield of California (BSC) and Aetna, Inc. in violation the Sherman Act and California Cartwright Act. The agreements purportedly made it difficult for smaller labs to compete in the market.

The labs also alleged that Quest engaged in below-cost sales in violation of the UPA by entering into capitated contracts for laboratory services. The district court refused to dismiss the plaintiffs' claim under the UPA, which prohibits “sell[ing] any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition.” However, the court dismissed the antitrust claims, after allowing three opportunities to replead. In February, the court granted in part and denied in part the defendants' motion to dismiss the second amended complaint.

The plaintiffs and BCA moved for entry of separate judgments, and the court denied the motions based on the similarity of the facts and claims that would be presented in separate appeals and because the equities did not weigh in favor of separate appeals. The court concluded that there was no evidence of material harm to any party if separate judgments were not entered.

Rule 54(b) allows entry of a final judgment with respect to fewer than all claims or parties where there is no just reason for delay. Entry of judgment on the dismissed antitrust claims was inappropriate at this point in the litigation, in the court's view. While the elements of the remaining UPA and UCL claims and the dismissed antitrust claims were not identical, the underlying allegations were sufficiently related such that a reviewing court would have to look at the same body of facts on two separate appeals if partial judgment were entered. The plaintiffs were likely to point to Quest’s alleged below-cost pricing—the basis for their UPA claim—as evidence of exclusive dealing that violates the antitrust laws and as the focal point for their damages contentions.

According to the court, Quest would be put at a disadvantage if separate judgments were entered because it would have to litigate the surviving claims while handling an appeal of the same case. The interests of judicial efficiency trumped any perceived benefit from separate judgments, it was decided. The trial was only 14 months away, so the parties would not have to wait long for a final judgment. The court also noted that the plaintiffs failed to present evidence supporting their contention that “by the time the remaining issues are fully litigated Plaintiffs will likely be insolvent.”

This is Case No. 12-cv-05847-WHO.

Attorneys: Anne Marie Murphy (Cotchett, Pitre & McCarthy, LLP) for Rheumatology Diagnostics Laboratory, Inc., Pacific Breast Pathology Medical Corp., Hunter Laboratories, LLC, and Surgical Pathology Associates. Craig Ellsworth Stewart (Jones Day) for Aetna, Inc. Ryan M. Sandrock (Sidley Austin, LLP) for Quest Diagnostics Inc., and Quest Diagnostics Clinical Laboratories, Inc. Kenneth Kiyul Lee (Jenner & Block LLP) for Blue Cross and Blue Shield Assn. Christopher John Kelly (Mayer Brown LLP) for California Physicians' Services, Inc. d/b/a Blue Shield of California.

Companies: Rheumatology Diagnostics Laboratory, Inc.; Pacific Breast Pathology Medical Corp.; Hunter Laboratories, LLC; Surgical Pathology Associates; Aetna, Inc.; Quest Diagnostics Inc.; Quest Diagnostics Clinical Laboratories, Inc.; Blue Cross and Blue Shield Assn.; California Physicians' Services, Inc.

Cases: Antitrust StateUnfairTradePractices CaliforniaNews