540 F.Supp. 951 (W.D.Mich. 1982), G79-633 CA1, White and White, Inc. v. American Hospital Supply Corp.

Docket Nº:G79-633 CA1.
Citation:540 F.Supp. 951
Party Name:WHITE AND WHITE, INC., Bluefield Supply Company, Crocker-Fels Co., and Ransdell Surgical Inc., Plaintiffs, v. AMERICAN HOSPITAL SUPPLY CORPORATION, Defendant.
Case Date:April 22, 1982
Court:United States District Courts, 6th Circuit, Western District of Michigan
 
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540 F.Supp. 951 (W.D.Mich. 1982)

WHITE AND WHITE, INC., Bluefield Supply Company, Crocker-Fels Co., and Ransdell Surgical Inc., Plaintiffs,

v.

AMERICAN HOSPITAL SUPPLY CORPORATION, Defendant.

No. G79-633 CA1.

United States District Court, W.D. Michigan, Southern Division.

April 22, 1982

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Lawrence G. Meyer, Patton, Boggs & Blow, Washington, D. C., Robert D. VanderLaan, Grand Rapids, Mich., George E. Bushnell, Southfield, Mich., for plaintiffs.

W. Donald McSweeney, William A. Montgomery, Joseph R. Lundy, Schiff, Hardin & Waite, Chicago, Ill., Grant J. Gruel, J. Clarke Nims, Cholette, Perkins & Buchanan, Grand Rapids, Mich., for defendant.

TABLE OF CONTENTS

I. Proceedings ................................................................................................................. 960

II. Parties ......................................................................................................................... 961

A. Plaintiffs .................................................................................................................... 962B. Defendant ................................................................................................................. 963

C. Voluntary Hospitals of America ................................................................................. 963

III The Hospital Supply Industry ....................................................................................... 965

IV. The Purchasing Agreement ......................................................................................... 972

V. Implementation of the Purchasing Agreement ................................................................ 974

VI. Implied Antitrust Exemption ........................................................................................ 977

VII. Market Analysis .........................................................................................................979

A. The Relevant Market ................................................................................................. 979

1. The Product Market ......................................................................................... 980

(a) Medical-Surgical Supply Dimension ...................................................... .982

(b) The Distributor Dimension ..................................................................... 986

(c) The Hospital Customer Dimension ......................................................... 988

  1. The Geographic Market .................................................................................... 988

  1. Market Volume and Defendant's Market Share ........................................................... 993

1. The Martin Potential .......................................................................................... 994

2. The Armbruster Potential ................................................................................... 995

3. The Hepp Potential ........................................................................................... 996

4. Comparison ...................................................................................................... 996

VIII Attempt to Monopolize ............................................................................................... 999

A. Anticompetitive Conduct and Specific Intent to Monopolize ........................................ 1001

B. Dangerous Probability of Success ................................................................................ 1009

IX. Unreasonable Restraint of Trade .................................................................................. 1013

X. Exclusive Dealing .......................................................................................................... 1026

XI. Boycott ....................................................................................................................... 1033

XII. Damages and Remedy ................................................................................................ 1036

A. Proof of Damage ........................................................................................................ 1036

B. Amount of Damages .................................................................................................... 1039

C. Injunctive Relief .......................................................................................................... 1044

XIII Attorney Fees and Costs ............................................................................................ 1045

XIV. Conclusion ................................................................................................................ 1045

OPINION

DOUGLAS W. HILLMAN, District Judge.

This antitrust action brought under the Sherman and Clayton Acts was filed by four regional distributors of medical-surgical supplies against the American Hospital Supply Corporation, the nation's largest manufacturer and distributor of hospital supplies. The suit challenges (1) the legality of a Purchasing Agreement executed by defendant American Hospital Supply Corporation ("AHSC") and the Voluntary Hospitals of America ("VHA") on July 5, 1979, and (2) the legality of the joint AHSC-VHA conduct implementing that Agreement. Federal jurisdiction exists under 28 U.S.C. ss 1331 and 1337 and 15 U.S.C. ss 15 and 26.

Plaintiffs filed this action on October 31, 1979. Trial to the court commenced on November 3, 1980, and proceeded for approximately 80 trial days, concluding September 21, 1981. In the course of the proceedings the court heard 43 witnesses, including nine experts. The proceedings are recorded in the trial transcript which runs almost 15,000 pages; includes approximately 800 exhibits and several hundred pages of designated deposition testimony.

Counsel have filed post-trial briefs and proposed findings of fact and conclusions of law that consume an additional 525 pages. The case was exceptionally well tried and briefed by able counsel.

In synopsis, the following factual circumstances underly this case. American Hospital

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Supply Corporation (AHSC) is a national manufacturer and distributor of health care products and services. In 1979, AHSC entered into a Purchasing Agreement with a group of hospitals known as the Voluntary Hospitals of America (VHA). The Agreement contemplates that AHSC will sell a high volume and broad range of products to at least 29 VHA hospitals spread across 22 states. In return, the hospitals become eligible for volume discounts, price protection and certain vendor services. Plaintiffs are engaged in the business of distributing medical-surgical and other supplies to hospitals and compete with defendant for this distribution business in eight VHA hospitals. Plaintiffs claim that in executing and implementing the Purchasing Agreement defendant AHSC, the VHA and individual VHA hospitals have conspired to violate the antitrust laws.

I. PROCEEDINGS

The complaint alleges that defendant, AHSC, has violated Section 1 1 and 2 2 of the Sherman Act and Section 3 of the Clayton Act 3. Five antitrust violations are charged: (1) attempt to monopolize; (2) price fixing; (3) tying; (4) exclusive dealing and group boycott; and (5) price discrimination under the Robinson Patman Act. 4 Counts II through V were framed in language alleging a conspiracy between the defendant AHSC and the VHA. The complaint prayed for treble damages and injunctive relief. In its answer, defendant denied any antitrust violation and raised as affirmative defenses a Robinson Patman immunity under the Nonprofit Institutions Act 5 and a general, implied antitrust exemption

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under Section 2103 of the HCFA Provider Reimbursement Manual. 6

After presenting an extensive case in chief, plaintiffs were permitted to amend the complaint to include a sixth count which alleges a conspiracy between AHSC, the VHA and the individual VHA hospitals to unreasonably restrain trade. At the close of plaintiffs' case, defendant moved to exclude certain evidence conditionally admitted under Fed.R.Evid. 801(d)(2)(E) and moved to dismiss the amended complaint under Fed.R.Civ.P. 41(b).

Defendant's evidentiary motion attacked the admissibility of testimony concerning statements made by high-ranking VHA and VHA hospital personnel. Defendant objected to the admission of the evidence as hearsay. Plaintiffs contended the evidence was admissible under the co-conspirator exemption to the hearsay rule. In accordance with the procedure approved in United States v. Vinson, 606 F.2d 149 (6th Cir. 1979), the evidence was conditionally admitted pending a final determination by the court on the existence of a conspiracy sufficient to admit the evidence.

By a memorandum opinion dated April 13, 1981, this court determined that sufficient evidence of joint or conspiratorial activity existed to admit the evidence under the co-conspirator hearsay exemption. The court then dismissed plaintiffs' claims of price fixing, tying, and price discrimination. As a consequence of the dismissal of plaintiffs' price discrimination claim, the court did not address defendant's defense of immunity under the Nonprofit Institutions Act. As to plaintiffs' remaining claims, the court held defendant's motion to dismiss in abeyance. Accordingly, plaintiffs' claims of attempt to monopolize, exclusive dealing and...

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