Antitrust Law Daily Wrap Up, ANTITRUST—SDMiss: Alleged Conspiracy to Divert Patients from Hospital Could Violate Antitrust, RICO, and State Tort Law, (Oct 16, 2012)

By Darius Sturmer, J.D.

A Mississippi hospital alleging that a competing hospital, an ambulance service, and the ambulance service’s chief executive officer conspired to divert patients to the competing hospital could not recover damages from the competitor for alleged antitrust violations, the federal district court in Hattiesburg, Mississippi, has ruled (Wesley Health System, LLC v. Forrest Count Board of Supervisors, October 9, 2012, Starrett, K.). Such damages were specifically precluded by the immunity provided by the Local Government Antitrust Act (LGAA). However, the hospital could seek injunctive relief for those alleged violations—as well as for alleged violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, civil conspiracy, intentional interference with business relations, and defamation—against the hospital and the ambulance service, the court held. Further, the LGAA did not protect the ambulance service from antitrust damages, the court noted.

The complaining hospital, Wesley Medical Center, claimed that the competing hospital, Forrest General Hospital (FGH), and the other defendants carried out their conspiracy by: ignoring patients’ desire to receive medical services at Wesley, intentionally falsifying medical records to justify transporting patients to the competing hospital, fraudulently obtaining a disproportionate share of trauma funds from the State of Mississippi, intentionally interfering with its business practices, making false statements about the quality and type of services it offered, and ignoring Mississippi’s Trauma System destination guidelines.

Governmental Immunity from RICO

An argument by FGH that it was immune from civil RICO liability because it was a government entity was rejected by the court. FGH contended that it was incapable of forming the specific intent necessary to commit any of the predicate acts alleged by Wesley. However, the court explained, among these were allegations that the defendants committed at least ten acts of kidnapping, which was not a specific intent crime in the state. Therefore, the defending hospital’s inability to form specific malicious intent was irrelevant to the kidnapping allegations.

An identical argument made by the ambulance service—which had characterized itself as a “government entity” or “instrumentality of a government entity”—was equally without merit, the court decided.

Intra-Corporate Conspiracy

Also rejected was an assertion by FGH that it could not conspire with the other defendants to violate Sec. 1 of the Sherman Act because it owned and/or controlled them. The court noted that the decision establishing the intra-corporate conspiracy doctrine—Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984)—addressed only whether a parent corporation and its wholly-owned subsidiary could conspire in violation of Sec. 1, whereas the only ownership allegations in the present case involved the defending hospital’s partial ownership of the ambulance service. Instead, the court reasoned, the issue at hand was governed by the standard espoused in American Needle v. NFL, 130 S. Ct. 2201 (2010), that competitive reality—rather than corporate form—determined whether defendants were capable of conspiring. Construing the complaint in the light most favorable to the complaining hospital, the court found that it alleged sufficient facts to create a plausible claim that FGH and the ambulance service were separate economic actors pursuing separate economic interests.

Because the court could not make the assumption that FGH controlled the defending individual or ambulance service based on the allegations in the amended complaint, and because the Mississippi Supreme Court failure to adopt the intra-corporate conspiracy doctrine left the court without any standard to apply, the court decided to apply the same “economic reality” test to the civil conspiracy claim, with the same result: the intra-corporate conspiracy doctrine did not provide a basis for dismissal of civil conspiracy claims either.

State Action Doctrine

The defending hospital also was not protected by the state action doctrine from the antitrust claims, the court added. FGH failed to demonstrate the existence of a clear state policy to displace competition in the field of emergency medical services (EMS), the court said. FGH cited a state statute requiring the Mississippi Department of Health to establish and maintain a program for the improvement and regulation of EMS and regulations the agency was authorized to promulgate pursuant to that statute, including guidelines for determining whether a patient qualifies as a trauma patient and where the EMS provider should transport them. Thus, FGH contended, the Mississippi legislature had clearly stated a policy to regulate the classification of patient injury and displace any private efforts in that field with its own anticompetitive activity.

This, however, ignored the substantive factual allegations of the amended complaint and mischaracterized Wesley’s claims, in the court’s view. Wesley did not allege anticompetitive activity in the field of regulating EMS, but in the field of providing EMS. The ultimate goal of the alleged conspiracy, the court observed, was to restrain trade in the field of EMS, and the statute cited by FGH did not evince a state policy of displacing competition in that field. To the contrary, the statute contemplated the existence of private emergency medical services.

Defamation, Tort Claims

Although Wesley did not allege any specific defamatory statements published by FGH, it sufficiently stated a defamation claim against it. By claiming that the ambulance service made several such statements and that FGH either controlled or conspired with it, Wesley could plausibly establish the hospital’s liability for the ambulance service’s publication of defamatory statements.

Likewise, although Wesley failed to allege any specific tortious actions perpetrated by the defending hospital, its pleading of “a number of” such actions undertaken by the ambulance service and of the hospital’s control of that entity sufficed to state a tortious interference claim against the hospital.

Abstention, Jurisdiction

The court additionally rejected arguments by the ambulance company that Burford abstention and the doctrine of primary jurisdiction mandated dismissal of the claims against it.

While the case involved issues related to Mississippi’s regulation of emergency medical services, meaning that the federal district court might be required to interpret and apply certain state regulations, the ambulance company failed to identify any specific administrative procedure that would provide a more adequate forum. As the complaining hospital was not challenging the applicable regulations or any aspect of Mississippi’s governance of emergency medical services, the court merely had to apply them. Moreover, the ambulance company made no assertion that those regulations were so complex that the court would be unable to address them.

Regarding primary jurisdiction, the court said that adjudication of Wesley’s claims did not require the resolution of predicate issues of state law. In addition, the court stated, the ambulance company failed to demonstrate that the Mississippi legislature had established a regulatory scheme whereby it had committed the findings necessary for the resolution of the case to an administrative body. There did not appear to be a mechanism or procedure by which the complaining hospital could obtain the relief it sought, and the ambulance company cited no administrative procedure to which the court could defer.

Claims Against Ambulance Executive

Claims against the ambulance company’s CEO were dismissed in their entirety. The complaining hospital failed to allege any specific actions by him undertaken in furtherance of the purported conspiracy. The only specific allegation pertaining to him—that he was the CEO of the ambulance company—was not sufficient to demonstrate that he violated Sec. 1 of the Sherman Act or participated in or authorized the commission of the torts alleged in the case.

Lastly, the court stayed consideration of a motion by the ambulance company’s executive for sanctions until the parties had a chance to conduct discovery on the matter.

The case is Civil Action No. 2:12-CV-59-KS-MTP.

Kathryn R. Gilchrist (Adams and Reese, LLP) for Wesley Health System, LLC, dba Wesley Medical Center.

Cases: Antitrust RICO MississippiNews