Surgical Care Center of Hammond v. Hospital Service District No. 1 of Tangipahoa Parish

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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