Surgical Care Center of Hammond, L.C. v. Hospital Service District No. 1

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

_______________________

No. 01-30171
_______________________

SURGICAL CARE CENTER OF HAMMOND, L.C.,
doing business as St. Luke’s Surgicenter,
Plaintiff-Appellant,

versus

HOSPITAL SERVICE DISTRICT NO. 1 OF TANGIPAHOA PARISH,
doing business as North Oaks Medical Center;
QUORUM HEALTH RESOURCES, INC.
Defendants-Appellees.

_________________________________________________________________

Appeal from the United States District Court
for the Eastern District of Louisiana

_________________________________________________________________
October 9, 2002

Before KING, Chief Judge, JONES and DENNIS, Circuit Judges.

EDITH H. JONES, Circuit Judge:

Surgical Care Center contends that North Oaks Medical

Center, a public hospital, has violated the Sherman Antitrust Act

and Louisiana statutes governing monopolies and unfair trade

practices. The district court conducted a bench trial and entered

judgment for North Oaks. We find neither clear error in the fact

findings nor any errors of law on the issues tried by the court.

Accordingly, the judgment of the district court is AFFIRMED.
 I. BACKGROUND

Surgical Care Center of Hammond is a limited liability

company doing business as St. Luke’s Surgicenter, an outpatient

surgery clinic that opened in 1996 in Hammond, Louisiana. The

Hospital Service District No. 1 of Tangipahoa Parish is a political

subdivision of the State of Louisiana that operates North Oaks

Medical Center, the largest hospital in the Hammond area. North

Oaks offers a full range of inpatient and outpatient services,

including outpatient surgery. Quorum Health Resources, Inc.

manages the North Oaks facilities.

St. Luke’s brought this action against North Oaks and

Quorum, alleging that their trade practices violated the Sherman

Act, 15 U.S.C. §§ 1-2; the Louisiana Monopolies Act, LA. REV. STAT.

ANN. § 51:123; and the Louisiana Unfair Trade Practice and Consumer

Protection Act, LA. REV. STAT. ANN. § 51:1405.

St. Luke’s contends that North Oaks is attempting to

monopolize the outpatient surgery market by exploiting its market

power over inpatient care and, more specifically, by pressuring

managed care companies to use North Oaks exclusively for both

inpatient and outpatient care.1 According to St. Luke’s, these

exclusive agreements and the “tying” of inpatient and outpatient

1
The “exclusive” contracts entitled HMO’s or Preferred
Provider organizations (PPO’s) to up to a 25% discount of billed
charges if the provider designated North Oaks as the sole provider
of certain medical services, including outpatient surgery, within
a designated geographic area.

2
care are violations of both federal and state antitrust laws. St.

Luke’s also alleges that North Oaks refused to sign a patient

transfer agreement with St. Luke’s, refused to sign a blood type

and cross match agreement, refused to lend medical equipment to St.

Luke’s, and engaged in various unfair employment practices.

After the issue of “state action immunity” was resolved,2

the district court tried the case and entered judgment for the

defendants on all claims. The district court concluded, first,

that St. Luke’s did not prove attempted monopolization of

outpatient surgery under § 2 of the Sherman Act.3 According to the

district court, St. Luke’s evidence established neither predatory

conduct by North Oaks nor a dangerous probability that North Oaks

would achieve monopoly power in the outpatient surgery market.

Second, the district court ruled that St. Luke’s could not prevail

on its conspiracy claim under § 2 of the Sherman Act because North

Oaks and Quorum (qua principal and agent) are incapable of

conspiring with one another to violate antitrust laws. Finally,

the district court ruled that North Oaks was entitled to

2
See Surgical Care Ctr. of Hammond, L.C. v. Hospital Serv.
Dist. No. 1 of Tangipahoa Parish, 171 F.3d 231, 232 (5th Cir.
1999)(en banc) (holding that the Louisiana legislature “did not
make sufficiently clear an intent . . . to insulate its creature of
state government from the constraints of the Sherman Antitrust Act.
. . .”).
3
Section 2 of the Sherman Act makes it unlawful for any
person or firm to “monopolize, or attempt to monopolize, or combine
or conspire with any other person or persons, to monopolize any
part of the trade or commerce among the several States.” 15 U.S.C.
§ 2.

3
“discretionary act immunity” shielding it from liability under both

the Louisiana Monopolies Act and the Louisiana Unfair Trade

Practices Act. The district court did not address St. Luke’s

claims under § 1 of the Sherman Act4 because, prior to trial, the

court ruled that St. Luke’s complaint had not included § 1 claims

and then denied St. Luke’s request to amend its complaint. St.

Luke’s now appeals.

II. DISCUSSION

A. Attempted Monopolization

To prevail on its attempted monopolization claim under

§ 2, St. Luke’s had to prove (1) that North Oaks engaged in

predatory or exclusionary conduct with (2) a specific intent to

monopolize the relevant outpatient surgery market and (3) a

dangerous probability of achieving monopoly power. Spectrum

Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S.Ct. 884, 890-

91, 122 L.Ed.2d 247 (1993). The district court found, first, that

the business practices of which St. Luke’s complained all had a

legitimate business justification and thus could not be deemed

predatory or exclusionary under Taylor Publishing Co. v. Jostens,

Inc., 216 F.3d 465, 474-76 (5th Cir. 2000). Alternatively, the

district court ruled that St. Luke’s had not shown a dangerous

probability that North Oaks would achieve monopoly power in the

4
Section 1 of the Sherman Act provides that “Every
contract . . . or conspiracy, in restraint of trade or commerce
among the several states” is illegal. 15 U.S.C. § 1.

4
outpatient surgery market. We review legal questions de novo but

will set aside the district court’s findings of fact only if

clearly erroneous. FED. R. CIV. P. 52(a).

We need address only the third element: the probability

of achieving monopoly power. St. Luke’s bases its attempted

monopolization claim on North Oaks’s contracts with managed care

providers. Essentially, if a managed care provider agreed to use

North Oaks for outpatient surgical services, then North Oaks would

offer substantial discounts on prices for inpatient care. St.

Luke’s alleged that North Oaks, by entering into these exclusive

agreements, “used or leveraged its dominant market power in the

inpatient hospital services market in an attempt to gain similar

market power . . . in the outpatient surgical services market.”

This court has not ruled on monopolistic leveraging as a distinct

§ 2 offense, and we do not do so here. See Eleven Line, Inc. v.

North Texas State Soccer Assoc., Inc., 213 F.3d 198, 206 n.16 (5th

Cir. 2000); 3 P. Areeda & H. Hovenkamp, Antitrust Law ¶ 652 (2d ed.

& 2002 Supp.). But like the district court, we find that St.

Luke’s claim of monopolistic leveraging fails on its own terms.

The district court noted that any theory of monopolistic

leveraging first depends on proof that the defendant possesses

market power in a relevant market, power that it then extends into

the plaintiff’s market. This inquiry, in turn, requires a clear

definition of the relevant geographic market. See, e.g., Dimmitt

5
Agri Indus., Inc. v. CPC Int’l, Inc., 679 F.2d 516 (5th Cir. 1982).

As we have held,

To establish Section 2 violations premised on attempt and
conspiracy to monopolize, a plaintiff must define the
relevant market. . . . Critically, evidence must be
offered demonstrating not just where consumers currently
purchase the product, but where consumers could turn for
alternative products or sources of the product if a
competitor raises prices. The possibilities for
substitution must be considered.

Doctor’s Hosp. of Jefferson, Inc. v. Southeast Med. Alliance, 123

F.3d 301, 311 (5th Cir. 1997)(citations omitted). In a similar

case, the Eighth Circuit emphasized that a hospital’s “trade area

is not necessarily the relevant geographic market for purposes of

antitrust analysis” because geographic market evidence must take

into account “where consumers could practicably go, not on where

they actually go.” Minnesota Ass’n of Nurse Anesthetists v. Unity

Hosp., 208 F.3d 655, 662 (8th Cir. 2000)(internal quotation marks

omitted).

Nevertheless, St. Luke’s expert did not attempt to

identify the hospitals or clinics that may be deemed competitors of

North Oaks. He relied solely on what he defined as North Oaks’s

service area to compose the geographic market. Absent a showing of

where people could practicably go for inpatient services, St.

Luke’s failed to meet its burden of presenting sufficient evidence

to define the relevant geographic market. Without a proper market

definition, St. Luke’s could not establish the predicate of a

monopolistic leveraging claim, i.e., market power in the market for

6
inpatient hospital services, and thus could not show a dangerous

probability that North Oaks would gain monopoly power in the

outpatient surgery market. The district court, after carefully

analyzing the reports presented by experts for both St. Luke’s and

North Oaks, found that St. Luke’s had not adduced sufficient

evidence to delineate the relevant geographic market.

St. Luke’s counters that a detailed analysis of the

relevant geographic market is not necessary under Federal Trade

Comm’n v. Indiana Fed’n of Dentists, 476 U.S. 447, 106 S.Ct. 2009,

90 L.Ed.2d 445 (1986). To prevail on this argument, St. Luke’s

would have to persuade this court that, even with Indiana

Federation is applicable to cases involving vertical restraints,

the district court clearly erred when it did not find “actual,

sustained adverse effects on competition.” Id., 476 at 461, 106

S.Ct. at 2019. St. Luke’s has failed to do this.

We hold that the district court did not err in dismissing

St. Luke’s claims of attempted monopolization because St. Luke’s

failed to meet its burden of presenting sufficient evidence to

define the geographic market.5

5
The district court alternatively ruled that even if one
were to accept St. Luke’s definition of the outpatient surgery
market as limited to North Oaks’s service area, St. Luke’s still
had failed to show a dangerous probability of North Oaks’ achieving
monopoly power. The district court emphasized that (1) North Oaks’
42-44% share of the outpatient surgery market (as narrowly defined
by St. Luke’s) was not dominant; (2) St. Luke’s expert opined that
there are “few if any classic barriers to entry into the ambulatory
surgical services market”; (3) St. Luke’s obtained 24.7% of the

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 B. Conspiracy to Monopolize

St. Luke’s contends that North Oaks and Quorum (the

company that manages North Oaks) conspired to monopolize the

outpatient surgical market. See Stewart Glass & Mirror, Inc. v.

U.S. Auto Glass Discount Centers, Inc. 200 F.3d 307, 316 (5th Cir.

2000)(listing the elements of a conspiracy claim under § 2).

The district court dismissed the conspiracy claim because

“as a matter of law, a corporation and its agent [i.e., North Oaks

and Quorum] are incapable of conspiring with one another to violate

the antitrust laws.” This general rule is correct, and none of the

recognized exceptions applies to this case. See, e.g., Siegel

Transfer, Inc. v. Carrier Express, Inc., 54 F.3d 1125, 1135-37 (3d

Cir. 1995).6 The district court did not err in dismissing St.

Luke’s conspiracy claim under § 2 of the Sherman Act.

C. Tying and Exclusive Contracts

St. Luke’s alleged in its complaint that North Oaks had

illegally “tied” its outpatient services to inpatient services by

outpatient surgery market in its first full year of operations,
even though North Oaks already had entered into exclusive
agreements with several managed care companies; and (4) St. Luke’s
expert admitted that North Oaks would have only a “very limited
ability” to raise prices above the competitive level if St. Luke’s
went out of business.
6
St. Luke’s appears to concede this point in its brief,
noting that the rule articulated by the district court “generally
applies to St. Luke’s Sherman Act claims . . . [but] has no
application to St. Luke’s allegations based on Louisiana’s monopoly
laws.” The state law claims will be discussed below.

8
entering into exclusive dealing contracts with managed care

providers, in violation of both § 1 and § 2 of the Sherman Act.

Nevertheless, not long before the trial began, the

district court indicated that the only issues properly presented in

the complaint were St. Luke’s Sherman Act § 2 and state law claims.

St. Luke’s disagreed with the court’s characterization of the

complaint and sought to amend the complaint. The district court

denied St. Luke’s motion and wrote that the proposed amendment “was

more than a mere attempt to clarify the original and First Amended

Complaints. Rather, it was clearly adding a Section 1 Sherman Act

claim, and thus expanding the nature of the case.” Although the

question whether to grant leave to amend a complaint is reviewed

for an abuse of discretion, a district court “must have a

‘substantial reason’ to deny a request for leave to amend.” Lyn-

Lea Travel Corp. v. American Airlines, 283 F.3d 282, 286 (5th Cir.

2002). Because the factual allegations supporting the § 1 claims

were described in the complaint and, furthermore, the complaint

specifically referred to § 1 of the Sherman Act, the district court

abused its discretion in not allowing St. Luke’s to amend its

complaint.

The question that next arises is whether to remand the

case for a trial on the § 1 claims.7 We conclude that remand is

7
St. Luke’s argued in its brief to this court that remand
was unnecessary because the record contained ample evidence of a §
1 violation. St. Luke’s suggested that remand would be appropriate

9
unwarranted. Even if St. Luke’s had been allowed to amend its

complaint, St. Luke’s could not have prevailed because its § 1

claims share certain elements with the § 2 claims, and St. Luke’s

failed to present evidence as to those common elements.

To show that North Oaks’s tying of inpatient care to

outpatient surgical care violates § 1 of the Sherman Act, St.

Luke’s must prove that (1) North Oaks has “appreciable economic

power” in the market for inpatient care (the tying market), and (2)

the tying arrangement “affects a substantial volume of commerce” in

the market for outpatient surgical care (the tied market). Eastman

Kodak Co. v. Image Technical Serv., Inc., 504 U.S. 451, 461-62, 112

S.Ct. 2072, 2079, 119 L.Ed.2d 265 (1992). Consequently, “any

inquiry into the validity of a tying arrangement must focus on the

market or markets in which the two products are sold, for that is

where the anticompetitive forcing has its impact.” Jefferson

Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 18, 104 S.Ct. 1551,

1561, 80 L.Ed.2d 2 (1984). We need not remand the case for

consideration of the tying claims because St. Luke’s failure

sufficiently to define the relevant geographic market for the tying

only if evidence as to any element of a § 1 violation was not
allowed or was otherwise not presented at trial. At oral argument,
though, St. Luke’s counsel requested remand and stated that
relevant § 1 evidence was either not presented or not admitted at
trial. We will not permit an off-the-cuff statement to contradict
the considered admission in St. Luke’s brief.

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product -- inpatient services -- also proves fatal to its tying

claim under § 1.

The exclusive dealing allegations fail for the same

reason. To show that North Oaks’s contracts with managed care

companies constitute an unreasonable restraint on trade in

violation of § 1, St. Luke’s had to prove that North Oaks engaged

in concerted action that produced anticompetitive effects in the

relevant markets, yet the market power of North Oaks in the tying

market for inpatient health care simply was not established. See

Stewart Glass, 200 F.3d at 312.

In sum, the district court’s error in not allowing St.

Luke’s § 1 claims to be tried was harmless in light of St. Luke’s

failure properly to define the relevant market, and thereby prove

North Oaks’s market power.

D. Louisiana Law

The district court dismissed St. Luke’s claims under both

the Louisiana Monopolies Act and the Louisiana Unfair Trade

Practices Act on the grounds that North Oaks, as part of a state-

created hospital district, is entitled to “discretionary act

immunity”: “Liability shall not be imposed on public entities or

their officers or employees based upon the exercise or performance

of . . . their policymaking or discretionary acts when such acts

are within the course and scope of their lawful powers and duties.”

LA. REV. STAT. ANN. § 9:2798.1(B). Because Louisiana hospital

11
districts have the legal authority to enter into contracts to sell

hospital health services, and because St. Luke’s state-law claims

were based on those acts, the district court ruled that North Oaks

and its agent Quorum are entitled to immunity under state law.

St. Luke’s points out, however, that public entities are

not entitled to discretionary act immunity when the challenged acts

“are not reasonably related to a governmental objective for which

the policy-making or discretionary power exists.” LA. REV. STAT.

ANN. § 9:2798.1(C)(1). The legislature’s objectives in conferring

authority on the hospital districts were, in the district court’s

words, to allow hospital districts “to compete effectively and

equally in the market for health care services” and to cooperate

with other firms to provide health care services to residents of

the district. North Oak’s business practices, according to St.

Luke’s, are not reasonably related to either of these objectives.

We need not reach the question of discretionary act

immunity because St. Luke’s state law claims necessarily fail for

other reasons.

The Louisiana Monopolies Act provides that “No person

shall monopolize, or attempt to monopolize, or combine with any

other person to monopolize any part of the trade or commerce within

this state.” LA. REV. STAT. ANN. § 51:123. Assuming arguendo that

the Louisiana Monopolies Act applies to cases involving interstate

12
commerce,8 St. Luke’s claims under the Louisiana Monopolies Act

fail for the same reasons as its claims under § 2 of the Sherman

Act. Specifically, St. Luke’s could not show attempted

monopolization because it failed to define the relevant geographic

market and, moreover, the district court did not err in finding no

evidence of predatory conduct or of entry barriers. St. Luke’s

could not prevail on its state law conspiracy claim because the

failure to define the market precludes any finding of a

substantial, anticompetitive effect in the relevant market.

We turn now to St. Luke’s claims under the Louisiana

Unfair Trade Practices Act (LUTPA), which prohibits “unfair or

deceptive acts or practices in the conduct of any trade or

commerce.” LA. REV. STAT. ANN. § 51:1405. A business practice is

considered “unfair” if it offends established public policy and is

unethical, oppressive, unscrupulous, or substantially injurious.

Jefferson v. Chevron U.S.A. Inc., 713 So.2d 785, 792-93 (La. 1998).

A business practice is “deceptive” for purposes of LUTPA when it

amounts to fraud, deceit or misrepresentation. Id.

8
The parties agree that this case involves interstate
commerce, and there is a plausible argument that the Louisiana
Monopolies Act applies only to wholly intrastate restraints on
trade. Terrebonne Homecare, Inc. v. SMA Health Plan, Inc., 271
F.3d 186, 189 (5th Cir. 2001)(noting that the question is
unresolved); Free v. Abbott Labs., Inc., 164 F.3d 270, 276 (5th
Cir. 1999)(certifying question to Louisiana Supreme Court),
certified question denied by, 739 So.2d 216 (La. 1999).

13
 As this court has pointed out, LUTPA does not prohibit

“the exercise of permissible business judgment.” Turner v. Purina

Mills, Inc., 989 F.2d 1419, 1422 (5th Cir. 1993)(“The statute does

not forbid a business to do what everyone knows a business must do:

make money. Businesses in Louisiana are still free to pursue

profit, even at the expense of competitors, so long as the means

used are not egregious.”). In this case, the district court found

(when analyzing the “predatory conduct” element of the conspiracy

claim) that each of the complained-of acts had a permissible

business justification. St. Luke’s has not articulated why the

district court’s findings were clearly erroneous.

III. CONCLUSION

For the foregoing reasons, we conclude that the district

court did not err in dismissing the plaintiff’s antitrust claims.

The judgment is

AFFIRMED.

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