B & H Medical, L.L.C. v. Abp Admin., Inc.

Decision Date28 January 2005
Docket NumberNo. 02-73615.,02-73615.
PartiesB & H MEDICAL, L.L.C., Plaintiff, v. ABP ADMINISTRATION, INC., and Wright & Filippis, Inc., Defendants.
CourtU.S. District Court — Eastern District of Michigan

Keith M. Kerwin, Esq., Bingham Farms, Stpehen M. Ryan, Esq., Bingham, Farms, MI, for plaintiff.

John A. Cook, Esq., Bloomfield Hills, MI, Sheldon H. Klein, Esq., Detroit, MI, for defendants.

OPINION AND ORDER REGARDING DEFENDANTS' MOTIONS FOR SANCTIONS

ROSEN, District Judge.

In an Opinion and Order dated October 29, 2004, the Court granted summary judgment in favor of Defendants ABP Administration, Inc. and Wright & Filippis, Inc. on the federal antitrust claims asserted against them in this case by Plaintiff B & H Medical, L.L.C. In light of this ruling, it remains only to resolve two pending motions in which Defendants seek the imposition of sanctions against Plaintiff and its counsel under Fed.R.Civ.P. 11 and 28 U.S.C. § 1927. For the reasons set forth below, the Court finds that a limited award of sanctions is appropriate, tailored to the fees incurred by Defendants as a result of Plaintiff's continued pursuit of its claims after discovery failed to reveal any facts or evidence that might lend support to these claims.

Under Fed.R.Civ.P. 11, each paper presented to a court carries an implied certification that:

to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, —

(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;

(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law (3) the allegations and other factual contentions have evidentiary support or, of specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and

(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.

Fed.R.Civ.P. 11(b). More generally, "[i]n this circuit, the test for the imposition of Rule 11 sanctions [is] ... whether the individual's conduct was reasonable under the circumstances." Union Planters Bank v. L & J Development Co., 115 F.3d 378, 384 (6th Cir.1997) (internal quotation marks and citations omitted).1

The Sixth Circuit has emphasized that the Rule's requirement of reasonableness "is not a one-time obligation." Runfola, 88 F.3d at 374 (internal quotation marks and citation omitted). Rather, each party "is impressed with a continuing responsibility to review and reevaluate his pleadings and where appropriate modify them to conform to Rule 11." Runfola, 88 F.3d at 374 (internal quotation marks and citation omitted). In particular, "after discovery has been launched, if plaintiffs are still unable to plead a sufficient factual basis for the allegations made against defendants, the spectre of Rule 11 sanctions should guide the actions of plaintiffs' counsel." 88 F.3d at 374 (internal quotation marks and citation omitted). Thus, even if a plaintiff and its counsel have conducted a reasonable pre-filing inquiry, and even if the plaintiff's claims survive an initial motion to dismiss, Rule 11 sanctions may properly be based upon the plaintiff's subsequent "failure to dismiss the case after becoming aware that it lacked merit." Runfola, 88 F.3d at 374; see also Fed.R.Civ.P. 11 advisory committee's notes to 1993 amendments (observing that the 1993 amendments were intended to "emphasize[] the duty of candor by subjecting litigants to potential sanctions for insisting upon a position after it is no longer tenable").

Upon reviewing the record in this case, the Court readily concludes that Plaintiff and its counsel are subject to Rule 11 sanctions for failing to dismiss this case when a lengthy discovery period failed to disclose any support for the antitrust claims asserted in the complaint. The initial discovery cut-off date in this case was May 30, 2003, but at Plaintiff's request, this discovery period was extended on two separate occasions, for a total of four additional months. Even after this extended discovery period closed on September 29, 2003, Plaintiff was given an additional opportunity to seek documents from non-party Blue Cross and Blue Shield of Michigan ("BCBSM"), a lengthy process that did not conclude until March of 2004.2 Finally in its February 17, 2004 order, the Court invited both Plaintiff and Defendants to file supplemental briefs addressing the issues raised in Defendants' pending summary judgment motion in light of the documents produced by BCBSM.

Despite this ample opportunity to identify evidentiary support for its antitrust claims, and despite repeated opportunities to explain how the record might support these claims, Plaintiff manifestly failed to suggest any ground for its continued opposition to Defendants' motion for summary judgment. The various evidentiary deficiencies in Plaintiff's antitrust claims are addressed at length in the Court's October 29, 2004 Opinion and Order granting Defendants' motion, and need not be repeated here. Rather, it suffices for present purposes to address the two broad categories of evidence that would be necessary to sustain antitrust claims of the type asserted here, and to observe that neither form of evidence can be found in the record in this case.

First, as observed in the October 29, 2004 Opinion and Order, the SUPPORT network that is under challenge in this case is an example of an "exclusive dealing arrangement," which antitrust law generally does not condemn absent the foreclosure of competition in a "substantial share of the relevant market." (10/29/2004 Opinion and Order at 13-15, 18 (internal quotation marks and citations omitted).) Yet, as the Court previously explained at length, Plaintiff and its expert failed to provide any tenable evidence or theory of "substantial foreclosure" in the relevant market of DME/P & O purchases, leases, and rentals. (See id. at 18-31.) Indeed, in apparent recognition of this failure of proof, Plaintiff and its expert sought to define the "relevant market" in a way that would establish substantial foreclosure as a tautological fact — namely, by claiming that the "relevant market" consists precisely of the SUPPORT and other closed DME/P & O networks from which Plaintiff has been excluded. In short, rather than dismissing its exclusive dealing challenge upon failing to uncover any relevant economic data to support it, Plaintiff advanced a theory which, if accepted, would condemn each and every exclusive dealing arrangement as violative of antitrust law.

Alternatively, Plaintiff could have hoped to show an antitrust violation by identifying characteristics of the closed SUPPORT network that raise particular concerns about anticompetitive effects upon the relevant market for DME/P & O. In a First Circuit decision discussed at length in the October 29, 2004 Opinion and Order, for example, the Court noted that the exclusive dealing arrangement in that case featured a reciprocal agreement between two closed pharmacy networks that each would admit the other's pharmacies into its network. See Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of Rhode Island, 373 F.3d 57, 59, 61 (1st Cir.2004). As noted by the First Circuit, this addition of a horizontal component to the usual vertical restraint associated with an exclusive dealing arrangement warrants closer scrutiny under antitrust law. See Stop & Shop Supermarket, 373 F.3d at 62-64. Nonetheless, in affirming an award of judgment as a matter of law to the defendants, the First Circuit emphasized that the plaintiff in that case had failed to produce any evidence that this suspect arrangement actually ran afoul of antitrust law by impairing competition in a properly defined market. 373 F.3d at 68-69.

The same is true here, minus any evidence that would warrant particularly close scrutiny of the SUPPORT network in the first instance. There is no indication, for example, that Plaintiff's exclusion from the SUPPORT network was the result of anything other than ordinary economic and administrative considerations that are inherent in the operation of any closed health care network. Nor, despite Plaintiff's allegations and insinuations, is there any evidence of any horizontal quid pro quo arrangement between Defendant ABP Administration and any other network administrator to exclude Plaintiff or any other DME/P & O vendor in a way that might threaten competition in a relevant market. At best, Plaintiff suggests that Defendant Wright & Filippis's purported status as a joint venturer with non-party Binson's Home Health in operating the NNPN network creates a greater potential for anticompetitive conduct.

Yet, this still begs the two legally significant questions: (i) whether Defendants exercised this power, either alone or in concert with others, in a way that unreasonably restrained competition in the relevant DME/P & O market, and (ii) whether Defendants'"greater" power as a result of their roles in both the SUPPORT and NNPN networks operated to foreclose competition in a substantial portion of the relevant market. Plainly, if exclusive dealing arrangements are not per se unlawful, a defendant does not necessarily run afoul of antitrust law by its mere involvement in more than one such arrangement. Rather, evidence still is necessary to bridge the gap between the greater potential for mischief and actual injury to competition. To hold otherwise, as explained repeatedly in the October 29, 2004 Opinion and Order, would be tantamount to concluding, contrary to settled precedent, that closed networks always must be scrutinized under a full-scale...

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