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
7
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.
10
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.
14