80 F.3d 842 (3rd Cir. 1996), 95-1005, McCarthy v. Recordex Service, Inc.

Docket Nº:95-1005.
Citation:80 F.3d 842
Party Name:RICO Bus.Disp.Guide 9024 Mary Ruth McCARTHY; Guy Colville; Edward Ormsby; Carmen Tomasetti; Joseph Hoffman, Appellants, v. RECORDEX SERVICE, INC.; Copyright, Inc.; Smart Corp., National Headquarters Medical Records Copying; Medfax Incorporated; Hospital Correspondence Copiers; Mercy Health Corporation of Southeastern Pennsylvania, Misericordia Hosp
Case Date:April 04, 1996
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

Page 842

80 F.3d 842 (3rd Cir. 1996)

RICO Bus.Disp.Guide 9024

Mary Ruth McCARTHY; Guy Colville; Edward Ormsby; Carmen

Tomasetti; Joseph Hoffman, Appellants,


RECORDEX SERVICE, INC.; Copyright, Inc.; Smart Corp.,

National Headquarters Medical Records Copying; Medfax

Incorporated; Hospital Correspondence Copiers; Mercy

Health Corporation of Southeastern Pennsylvania,

Misericordia Hospital Division; Methodist Hospital; The

Graduate Hospital; Hahnemann University Hospital; The

Lower Bucks Hospital.

No. 95-1005.

United States Court of Appeals, Third Circuit

April 4, 1996

Argued Jan. 22, 1996.

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[Copyrighted Material Omitted]

Page 844

On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil No. 93-cv-00281).

Stephen R. Bolden (Argued), Richard C. Ferroni, Fell & Spalding, Philadelphia, PA, for Appellants.

Leslie M. Gerstein, Law Offices of Nancy D. Wasser, Philadelphia, PA, for Appellees Recordex Services, Inc., Copyright, Inc. and Medfax, Inc.

David H. Marion, David Zalesne, Montgomery, McCracken, Walker & Rhoads, Philadelphia, PA, for Appellee Smart Corporation.

Christopher W. Mattson, Katherine B. Kravitz, Barley, Snyder, Senft & Cohen, Lancaster, PA, for Appellee Hospital Correspondence Copiers, Inc.

Alan M. Lieberman, Schnader, Harrison, Segal & Lewis, Philadelphia, PA, for Appellee Mercy Health Corporation of Southeastern Pennsylvania, Misericordia Hospital Division.

Edward C. Mengel, Jr., White & Williams, Philadelphia, PA, for Appellee Methodist Hospital.

Anthony E. Creato, Mesirov, Gelman, Jaffe, Cramer & Jamieson, Philadelphia, PA, for Appellee The Graduate Hospital.

Michael T. Scott (Argued), Martin H. Karo, Reed, Smith, Shaw & McClay, Philadelphia, PA, for Appellee Hahnemann University Hospital.

Jonathan B. Sprague, Kathleen Chancler, Post & Schell, Philadelphia, PA, for Appellee The Lower Bucks Hospital.

Before: STAPLETON, COWEN and GARTH, Circuit Judges.


GARTH, Circuit Judge:

The instant appeal requires us to decide whether the plaintiff-clients, whose attorneys purchased photocopies of the clients' hospital records for the purpose of prosecuting their clients' personal injury and medical malpractice claims, have standing to bring an antitrust action against the sellers of the photocopies. We hold that such clients lack standing to bring a treble-damages claim because they are not "direct purchasers," as required by Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). However, we also hold that these clients are not barred from seeking injunctive relief under section 16 of the Clayton Act.

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Plaintiffs Mary Ruth McCarthy, 1 Guy Colville, Edward Ormsby, Carmen Tomasetti 2 and Joseph Hoffman filed a three-count complaint, on January 19, 1993, against five hospitals (the "Hospital defendants") 3 and five copy-service companies (the "Copy Service defendants"). 4 The complaint asserted violations of the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2 (count I); 5 violations of the Racketeering, Influence, and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1962 and 1964 (count II) 6; and violations of the civil rights laws, 42 U.S.C. § 1983 (count III). The complaint and amended complaint sought injunctive relief, money damages, class certification and attorneys' fees. In essence, plaintiffs allege that the Hospital Defendants and the Copy Service Defendants conspired to charge excessive prices for photocopies of medical records requested by patients or former patients.

Each of the named plaintiffs, at some time within four years before filing the instant action, were patients at hospitals owned by the Hospital Defendants. Each plaintiff had retained either Matty & Ferroni ("M & F"), a New Jersey law firm, or Fell & Spalding ("F & S"), a Philadelphia firm, to file a personal injury or medical malpractice claim on his or her behalf. In each case, after the particular plaintiff had signed a medical consent form authorizing the appropriate hospital to release his or her medical records, the plaintiff's attorney requested photocopies of the client's hospital records. The copy service company, in each case, billed the attorney directly. 7

Each of the five plaintiffs had entered into a contingent-fee agreement with either M & F or F & S. With the exception of McCarthy, none of the plaintiffs were obligated under the relevant retainer agreement to reimburse the law firm for costs, including the photocopying expenses at issue, unless a monetary recovery in favor of the particular client was

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obtained. 8 McCarthy's agreement with F & S, on the other hand, provided that "[t]he absence of a recovery shall not relieve [McCarthy] from the obligation of paying court costs and other proper litigation and investigative costs." 9 App. 498. However, Stephen R. Bolden, a partner at F & S, admitted in an affidavit that despite the contractual language, in actual practice, the firm never sought reimbursement for advanced costs where representation of the client did not lead to a recovery:

Although under the express language in this Contingent Fee Agreement, Fell & Spalding is contractually entitled to seek reimbursement from a client even where a representation of that client has not led to the recovery of funds; as a matter of actual practice, where Fell & Spalding has been unsuccessful in obtaining a recovery of funds by way of settlement or otherwise ... Fell & Spalding has not sought reimbursement for the costs incurred in copying a client's hospital records....

App. 526. 10

Each of the Hospital Defendants had entered into a contract with one of the Copy Service Defendants, granting the Copy Service Defendant the exclusive right to photocopy hospital records requested by patients or other members of the public entitled to such records. Under the contract, the copy-service company agreed to photocopy any medical records requested by patients or other requestors. The sole remuneration received by the Copy Service Defendants derived from the copying charges paid by the requestors. App. 685, 692, 694, 698, 701.

Patients or their attorneys were charged $1 per page for copies of medical records. In addition, they also typically paid a retrieval fee, which was remitted to the hospital; an "administrative" or "basic" fee (i.e. a flat fee unrelated to the number of copies), which was retained by the copy-service company; and postage and handling fees.

Certain "favored" requestors were charged a reduced rate 11 or no fee at all. 12 The Hospital Defendants set the schedule of charges, designating the requestors who would or would not be charged. Typically, sixty percent or more of the requests for hospital records were nonbillable.

Plaintiffs claim that the practice of subsidizing certain requestors while charging patients or their agents an inflated fee violated

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a Pennsylvania regulation, which provides in relevant part:

Patients or patient designees shall be given access to or a copy of their medical records, or both.... Upon the death of a patient, the hospital shall provide, upon request, to the executor of the decedent's estate or, in the absence of an executor, the next of kin responsible for the disposition of the remains, access to all medical records of the deceased patient. The patient or the patient's next of kin may be charged for the cost of reproducing the copies; however, the charges shall be reasonably related to the cost of making the copy.

28 Pa.Code § 115.29 (emphasis added).

After plaintiffs filed an amended complaint, the defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The district court, by order dated August 5, 1993, denied defendants' motion to dismiss counts I (antitrust) and II (RICO) but granted the motion to dismiss count III (civil rights).

Subsequently, on April 4, 1994, plaintiffs moved to certify the case as a class action. On November 18, 1994, in a Memorandum and Order, the district court denied plaintiffs' motion for class certification.

On April 1, 1994, defendant Hahnemann filed a motion for partial summary judgment on count I (the antitrust claim), which was eventually joined by all of the defendants except Smart. The district court denied the motion for partial summary judgment in an order dated May 5, 1994.

Subsequently, Hahnemann moved for reconsideration. On July 8, 1994, the district court granted Hahnemann's motion for reconsideration and granted summary judgment on count I in favor of all defendants, holding that the plaintiffs lacked standing because they were not "direct purchasers" of the hospital records, within the meaning of Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977).

On December 12, 1994, all of the defendants joined in a motion for summary judgment on the remaining RICO claim, on the theory that antitrust standing principles applied equally in the RICO context. On December 29, 1994, the district court granted summary judgment to all defendants on count II, thus disposing of all three counts of the complaint. Plaintiffs timely filed the instant appeal.


The district court had jurisdiction over plaintiffs' antitrust and RICO claims under 15 U.S.C. § 15; 18 U.S.C. § 1964; and 28 U.S.C. § 1331. We have appellate jurisdiction over the district court's grant of summary judgment in favor of defendants under 28 U.S.C. § 1291.

The issue of antitrust standing is a legal issue, over which we exercise plenary review. In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d 1144, 1164 (3d Cir.1993), cert. dismissed, --- U.S. ----, ----, 114 S.Ct. 625...

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