IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 97-30887
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, INCORPORATED
Defendants-Appellees
Appeal from the United States District Court
for the Eastern District of Louisiana
March 24, 1999
Before KING, Chief Judge, and POLITZ, JOLLY, HIGGINBOTHAM, DAVIS,
JONES, SMITH, DUHÉ, WIENER, BARKSDALE, EMILIO M. GARZA, DeMOSS,
BENAVIDES, STEWART, PARKER, and DENNIS, Circuit Judges.
HIGGINBOTHAM, Circuit Judge:
In this antitrust case against a hospital district in Hammond,
Louisiana, filed by a privately owned competitor, the district
court concluded that the state legislature had granted the hospital
district immunity from federal antitrust laws, dismissed those
claims, and declined to exercise supplemental jurisdiction over
related state claims charging violations of state antitrust and
consumer protection laws. A panel of this court affirmed,
believing it was bound to do so by prior decisions of the court.
We took the case en banc and now reverse the judgment of dismissal
and remand to the district court for further proceedings. The
Louisiana legislature did not make sufficiently clear an intent to
exercise its authority to insulate its creature of state government
from the constraints of the Sherman Antitrust Act, an authority
recognized in Parker v. Brown, 317 U.S. 341 (1943), and progeny,
including Town of Hallie v. City of Eau Claire, 471 U.S. 34 (1985).
I
Through its North Oaks facility, Hospital Service District No.
1 of Tangipahoa Parish offers acute care and surgical services.
North Oaks is managed for the district by Quorum, a privately owned
management firm engaged in the business of managing hospitals for
profit. The state-owned hospital competes with St. Luke’s, a
privately owned hospital located only a quarter mile away and the
only outpatient surgery center in the immediate area.
St. Luke’s filed this suit in 1997 alleging that North Oaks
enjoyed a monopoly in the local market for acute care services and
was attempting to extend its monopoly to outpatient surgical care.
The complaint also outlined the implementing path of the effort,
marked by various anticompetitive acts. These acts included
pressuring five of the seven largest managed care plans in the
market into contracts calculated to exclude St. Luke’s from the
market for outpatient surgical care. Specifically, North Oaks
allegedly used its monopoly power to ensure that its contracts with
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the plans included provisions for exclusivity and tying, in
violation of the Sherman Act and the Louisiana Monopolies Law, La.
Rev. Stat. § 51:123, and the Louisiana Unfair Trade Practice and
Consumer Protection Law, id. §§ 51:1405 to 51:1409.
North Oaks and Quorum moved to dismiss under Federal Rule of
Civil Procedure 12(b)(6), pointing to the Louisiana Service
District Law, La. Rev. Stat. §§ 45:1051 et seq., which establishes
the hospital service districts as political subdivisions of the
State of Louisiana. See id. § 46:1064(A). North Oaks urged that
as a political subdivision it enjoyed “immunity” from the Sherman
Antitrust Act as announced in Parker v. Brown, 317 U.S. 341 (1943),
and as applied by this court in Martin v. Memorial Hospital, 86
F.3d 1391 (5th. Cir. 1996). Quorum denied it was an independent
player, asserting that it was only the agent for the district, an
entity enjoying immunity from federal antitrust laws. The district
court granted the motion, dismissing both defendants.
The district court conceived its question as “whether the
alleged noncompetitive activities of North Oaks may be fairly
considered the foreseeable result of the state policy articulated
in the Louisiana Hospital Service District Law.” It concluded that
the exclusive contracts were the “foreseeable result” of statutory
authority to contract “with any entity to promote the delivery of
health services.” Other alleged anticompetitive practices were
found to be either “foreseeable results of the statutory license
for hospitals to develop confidential marketing strategies,” or
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“clearly in the realm of the routine business decisions concerning
day-to-day operations to which the state action immunity should
apply.” The court concluded that Quorum, although not a political
subdivision of the state, acted only as an agent of the district
and “therefore requires no separate grant of immunity.” St. Luke’s
appealed.
A panel of this court agreed with the district court that the
hospital district enjoyed immunity. Applying our decision in
Martin, it held that North Oaks was immune because the alleged
anticompetitive acts were the foreseeable results of the statutory
grant of authority to the hospital district. Chief Judge King
specially concurred, “troubled by [this court’s] opinion in
Martin”. As we will explain, the district court’s analysis
reflected its reading of Martin, a reading we are persuaded is not
faithful to the foreseeability test of the Supreme Court. However
justified by uncertainties in our case law, any reading of Martin
that finds immunity in a state legislature’s general grant to its
agency of authority to conduct its affairs is incorrect. As we
will explain, a state may express its will as it prefers, but
insulation of its instruments from the Sherman Act must be fairly
signaled.
II
Under Title 46 a board of five commissioners is charged to
“represent the public interest in providing hospital and medical
care in the district.” La. Rev. Stat. § 46:1054(A)(1). It must
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“make, alter, amend, and promulgate rules and regulations governing
the conduct of the hospital.” Id. § 46:1055(A)(3). The commission
is specifically authorized to “contract with or engage in a joint
venture with a person, corporation, partnership, or group of
persons to offer, provide, promote, establish, or sell any hospital
health service.” Id. § 45:1077. The Louisiana Legislature found
that the hospital service districts had been competitively
disadvantaged by the ability of private competitors to offer
integrated health services. The disadvantages included the
inability to discuss its business strategy in private and to enter
into various business forms prevalent in the market, such as joint
ventures. The Legislature sought to end both of these handicaps.
See id. § 1071. The legislation directs that it is to be construed
liberally to cure competitive disadvantages. See id. § 46:1071.
III
The Sherman Act prohibits contract combinations and
conspiracies in restraint of trade. Nothing on its face qualifies
its reach to states or shirks from such a regulatory bite. Nor
does the statute expressly regulate states. In Parker v. Brown,
317 U.S. 341 (1943), the Supreme Court found that Congress had not
made clear its intent to intrude on the sovereign powers of the
states by subjecting their decisions to the constraints of the
federal antitrust laws.
The doctrine of clear statement is vital to the concreteness
of federalism – to the translation of principle to result – in
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judicial decisionmaking, an observation made palpable by its wider
use in the half century since Parker. Strictly speaking, then,
Parker immunity is an inapt description, for its parentage differs
from the qualified and absolute immunities of public officials. It
does however function in certain important respects much like an
immunity. Like other immunities, Parker issues can often be
resolved at an early stage of the litigation. As Professors Areeda
and Hovenkamp note, “State authorization is generally interpreted
by an objective test that looks at the language of the statute; if
other evidence is needed, it can be gleaned from legislative
histories or state judicial decisions.” I Phillip E. Areeda &
Herbert Hovenkamp, Antitrust Law ¶ 222b (1997). It ordinarily
produces a legal conclusion reviewed de novo. See, e.g., Bolt v.
Halifax Hosp. Med. Ctr., 980 F.2d 1381, 1384 (11th Cir. 1993).
While thus a convenient shorthand, “Parker immunity” is more
accurately a strict standard for locating the reach of the Sherman
Act than the judicial creation of a defense to liability for its
violation. The price of the shorthand of using similar labels for
distinct concepts is the risk of erroneous migrations of
principles. Eleventh Amendment immunity, for example, is arguably
a second source of protection for states from the federal antitrust
laws. Yet this does not mean that Parker immunity for state
creatures follows the Eleventh Amendment, which in fact is far
stingier in protecting instruments of local government. That said,
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while its limits are yet uncertain, the Parker doctrine is well
developed and is quickly stated.
The Sherman Act does not reach states. Creatures of states,
organized to provide local government, such as hospital districts
and municipalities, are not sovereign states and are not
necessarily beyond the reach of federal antitrust laws. See Town
of Hallie v. City of Eau Claire, 471 U.S. 34 (1985). States,
however, exercise their sovereign power in creating local entities
for local government. As an incident of sovereignty, a state may
govern directly or through its creatures, clothing them with the
attributes and authority it chooses, including, if it desires,
insulation from the Sherman Act. The Supreme Court addressed how
a state accomplishes this in Hallie, insisting that states express
their sovereign will regarding their role in the free market. The
Court explained, “[T]he State may not validate a municipality’s
anticompetitive conduct simply by declaring it to be lawful.” Id.
at 39. Rather, a local entity seeking protection from the federal
antitrust laws must prove “a state policy to displace competition.”
Id.
The correlative principle, and it is at the heart of this
case, is that the deference due states as sovereigns resists any
insistence upon a particular formula or expression, so long as it
is clear from the nature of the policy articulated that the state
contemplates such a displacement of competition. Hallie
illustrates the point. The conduct at issue was refusing to supply
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sewage treatment facilities outside city limits unless the
outsiders agreed to be annexed to the city. See id. at 41. The
state statute made no explicit reference to displacing competition.
It was much more than a naked grant of authority to contract,
however, explicitly authorizing the city to determine which areas
to serve.
Similarly, in City of Columbia v. Omni Outdoor Advertising,
499 U.S. 372 (1991), the Supreme Court found the City immune from
a charge that it had regulated billboards in an anticompetitive
way. “The very purpose of zoning regulation,” the Court reasoned,
“is to displace unfettered business freedom in a manner that
regularly has the effect of preventing normal acts of competition,
particularly on the part of new entrants.” Id. at 373.
The Omni Court declined to expound a clearer test for
separating sufficient authorizations from insufficient ones. See
id. at 372. Hallie clarified the “foreseeable result” test. The
Court stated, “We think it is clear that anticompetitive effects
logically would result from this broad authority to regulate.” 471
U.S. at 42. The Court favorably cited its emphasis in New Motor
Vehicle Board v. Orrin W. Fox Co., 439 U.S. 96, 109 (1978), that
the statute inherently “displace[d] unfettered business freedom.”
Hallie, 471 U.S. at 42. Thus arises a distinction between a
statute that in empowering a municipality necessarily contemplates
the anticompetitive activity from one that merely allows a
municipality to do what other businesses can do.
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IV
Applying this distinction here is straightforward. The
Louisiana statute did not subject St. Luke’s or any other
businesses to the authority of the hospital service district. It
merely added to the hospital service district’s list of available
powers, by enabling it to form joint ventures and conduct closed
meetings. Not all joint ventures are anticompetitive. Thus, it is
not the foreseeable result of allowing a hospital service district
to form joint ventures that it will engage in anticompetitive
conduct.
It is urged that Louisiana by statute granted to the hospital
district power to compete and explicitly cloaked it with antitrust
immunity. The argument is that the relevant statutes do more than
authorize the formation of joint ventures; that joint ventures are
authorized with “any person, corporation, partnership, or group of
persons,” to “sell any hospital health service,” and that the
statutes give this power “notwithstanding any other law to the
contrary.” La. Rev. Stat. § 46:1077. The argument continues that
a strict textual reading places the Sherman Act within “any other
law to the contrary.” It reminds that § 46:1071 explicitly
instructs that we are to construe the provisions “liberally” to
promote the goal of allowing “a hospital service district to
compete effectively and equally.”
As we read the statute, the word “equally” qualifies
“effectively,” making clear that the statute’s purpose is to level
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the playing field but no more. In § 1077, leveling the playing
field is tantamount to allowing the hospital service district to
form joint ventures just as other corporations can, not to allowing
formation of joint ventures that with any other lineage would be
anticompetitive. The same is true in providing exception to open
meeting laws to discuss market strategies. In context, the
reference to any other law responds to Louisiana’s general
restrictions on the activities of its public corporations. These
are not the signals of insulation. They tell us the opposite.
This is the approach the Ninth Circuit took in Lancaster
Community Hospital v. Antelope Valley Hospital District, 940 F.2d
397 (9th Cir. 1991). Lancaster rejected a claim of antitrust
immunity, observing that “when there are abundant indications that
a state’s policy is to support competition, a subordinate state
entity must do more than merely produce an authorization to ‘do
business’ to show that the state’s policy is to displace
competition.” Id. at 403.
Nor is it inconsistent with Coastal Neuro-Psychiatric
Associates v. Onslow Memorial Hospital, Inc., 795 F.2d 340 (4th
Cir. 1986), or Federal Trade Commission v. Hospital Board of
Directors, 38 F.3d 1184 (11th Cir. 1994). The Fourth Circuit case
involved a statute, N.C. Gen. Stat. § 131E-85(a), giving hospitals
the power to determine which physicians may practice in them. See
795 F.2d at 341. The court found that the Hospital had immunity
from antitrust claims in refusing to allow some physicians to use
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its equipment. Indeed the result was compelled by Hallie’s holding
that the right to select districts to serve entailed the right not
to serve a particular district.
The Eleventh Circuit’s decision lies closer to the margin. In
defining the foreseeability test, the court held “that the
anticompetitive conduct [need only] be reasonably anticipated,
rather than the inevitable, ordinary, or routine outcome of a
statute.” 38 F.3d at 1190-91. The court’s application of its
foreseeability test, however, is broadly consistent with the result
here. In finding antitrust immunity, the court emphasized that
when the legislature authorized a hospital to acquire other
hospitals, it already knew that the hospital was a monopoly. See
id. at 1192. That is the polar opposite of this case, in which the
state sought to eliminate a competitive disadvantage suffered by
the public hospital and instead establish a market in which the
hospital could compete on equal terms. The Eleventh Circuit,
though, loses much of its persuasive force by skating close to an
overly lax view of the necessity of expressed legislative will.
This is so because implementing federalism here produces a rule of
construction with two sides – a path to be traversed because
federalism is disserved by straying off in either direction.
First, courts will not police states to insist that its
legislatures use words federally dictated. We will find a purpose
to insulate local government when language and context fairly
locate a state policy to displace competition. Second – the other
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side – is that courts will not infer such a policy to displace
competition from naked grants of authority. These are the enabling
statutes by which myriad instruments of local government across the
country gain basic corporate powers. To infer a policy to displace
competition from, for example, authority to enter into joint
ventures or other business forms would stand federalism on its
head. A state would henceforth be required to disclaim
affirmatively antitrust immunity, at the peril of creating an
instrument of local government with power the state did not intend
to grant. The immediate practical effect would be the extension of
the Parker principle downward, contrary to the teaching that local
instruments of government are subject to the Sherman Act.
V
In Martin, we confronted a statutory grant of authority to a
hospital board. That entity also operated under a certificate of
necessity by which the State of Mississippi expressed its intent
that its creature be a sole supplier of a medical service. The
district court here read Martin to find Parker immunity from the
enabling statute alone – without adding the certificate of
necessity to the mix. That reading, as we have explained, is no
longer valid, if it ever was. Martin read at its best drew upon
the complete context of the legislation, including the role of a
certificate of necessity. So read, its result could be reached by
the decisional path we mark today, albeit by a journey at its edge.
REVERSED AND REMANDED.
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