McKenzie v. Mercy Hosp. of Independence, Kansas.

• Decision Date: 10 August 1988
• Docket Number: No. 85-1732,85-1732
• Citation: 854 F.2d 365
• Parties: 1988-2 Trade Cases 68,180 Steve L. McKENZIE, D.O., Plaintiff-Appellant, v. MERCY HOSPITAL OF INDEPENDENCE, KANSAS, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 365

854 F.2d 365

1988-2 Trade Cases 68,180

Steve L. McKENZIE, D.O., Plaintiff-Appellant, v. MERCY HOSPITAL OF INDEPENDENCE, KANSAS, Defendant-Appellee.

No. 85-1732.

United States Court of Appeals Tenth Circuit.

Aug. 10, 1988.

Leonard R. Frischer, Overland Park, Kan. (James T. McIntyre of Turner and Boisseau, Chartered, Wichita, Kan., on the brief), for plaintiff-appellant.

Wyatt A. Hoch (Jerry G. Elliott with him on the brief) of Foulston, Siefkin, Powers & Eberhardt, Wichita, Kan., for defendant-appellee.

Before HOLLOWAY and McKAY, Circuit Judges, and BURCIAGA, District Judge. ^*

McKAY, Circuit Judge.

Dr. Steve L. McKenzie appeals from the district court's grant of summary judgment dismissing his antitrust claims against Mercy Hospital of Independence, Kansas. ¹ Dr. McKenzie, a doctor of osteopathy licensed by the state of Kansas, was granted conditional staff privileges at Mercy Hospital in 1978. His privileges were renewed with conditions in 1979 and 1980 and without conditions in 1981 and 1982. However, in late 1982, the Mercy Hospital board of trustees voted not to renew Dr. McKenzie's staff privileges for the following year, finding that he had violated hospital and medical staff bylaws and had engaged in unprofessional, disruptive conduct. Following an appeal to a three-member committee appointed under the hospital bylaws and a subsequent appeal to the entire board of trustees, Dr. McKenzie was notified that his privileges were permanently revoked.

In an amended complaint, Dr. McKenzie alleged that Mercy Hospital's refusal to renew his staff privileges violated Sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1, 2 (1982). ² In his claim under Section 1, ³ Dr. McKenzie maintained that the revocation of his privileges was the consequence of a per se illegal tying arrangement established by Mercy Hospital. According to Dr. McKenzie, the bylaws, rules, and regulations of Mercy Hospital tied the market for physician services (the tied product) to the market for hospital facilities and services (the tying product). Brief of Appellant at 35-36. In his claim under Section 2 of the Sherman Act, ⁴ Dr. McKenzie asserted that the termination of his staff privileges constituted an unlawful refusal to deal. Specifically, Dr. McKenzie argued that his dismissal from the staff of Mercy Hospital violated the "essential facilities doctrine" as recognized under Section 2.

In a Memorandum and Order granting Mercy Hospital's Motion for Summary Judgment, the district court concluded that Dr. McKenzie had failed to establish the requisite elements of either antitrust claim as a matter of law. Responding to Dr. McKenzie's allegation of an unlawful tying arrangement, the court noted that Dr. McKenzie had named only Mercy Hospital as a defendant and had "showed no evidence of any concerted action with any other persons to unreasonably restrain trade." Record, vol. 2, at 387. Addressing Dr. McKenzie's argument under Section 2, the court concluded that Dr. McKenzie's claim must fail for two reasons. First, Dr. McKenzie could "show no set of facts to establish [that he] and [Mercy Hospital] are competitors in any fashion relevant to this lawsuit." Record, vol. 2, at 384. Second, even if Dr. McKenzie and Mercy Hospital did compete in the physician services market, the facilities of Mercy Hospital were not essential to Dr. McKenzie's practice of providing non-emergency care. Id. at 384-85. The antitrust issues raised on appeal are precisely those presented to but rejected summarily by the district court.

When reviewing the propriety of a grant of summary judgment, we must closely scrutinize the district court's proceedings and the factual record presented to us. We apply a de novo standard of review to the court's conclusions of law, Wheeler v. Hurdman, 825 F.2d 257, 260 (10th Cir.), cert. denied, --- U.S. ----, 108 S.Ct. 503, 98 L.Ed.2d 501 (1987), and construe the facts in the record liberally in favor of the party opposing the motion for summary judgment. Franks v. Nimmo, 796 F.2d 1230, 1235 (10th Cir.1986). Here, the "facts that might affect the outcome of the suit under the governing law," Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986), are not contested. ⁵ Only the legal conclusions that may properly be drawn from those facts remain unresolved.

Illegal Tying Arrangement Under Section 1

A claim that conduct in the course of trade or commerce violates Section 1 calls for a two-part analysis. A reviewing court first conducts a preliminary examination of the plaintiff's allegation to ensure that the activity complained of is a practice forbidden by that provision of the Sherman Act. Only if this threshold inquiry is satisfied does the court move to the second stage of its analysis to consider the merits of the claim. ⁶

If Dr. McKenzie is to prevail under Section 1, he must first show that the alleged tying arrangement is "concerted activity by individual actors." Card v. National Life Insurance Co., 603 F.2d 828, 834 (10th Cir.1979). As the Court of Appeals for the Seventh Circuit has explained: "[t]he fundamental prerequisite [of a claim under Section 1] is unlawful conduct by two or more parties pursuant to an agreement, explicit or implied. Solely unilateral conduct, regardless of its anticompetitive effects, is not prohibited by Section 1. Rather, to establish an unlawful combination or conspiracy, there must be evidence that two or more parties have knowingly participated in a common scheme or design to accomplish an anticompetitive purpose. Contractor Utility Sales Co. v. Certain-teed Products Corp., 638 F.2d 1061, 1074 (7th Cir.1981), cert. denied, 470 U.S. 1029, 105 S.Ct. 1397, 84 L.Ed.2d 785 (1985); accord Motive Parts Warehouse v. Facet Enterprises, 774 F.2d 380, 386 (10th Cir.1985); see Pontius v. Children's Hospital, 552 F.Supp. 1352, 1374 (W.D.Pa.1982).

It is precisely this preliminary showing that Dr. McKenzie has failed to make. The record before us lacks not only evidence of an unlawful tying arrangement, but also any allegation that Mercy Hospital has allied itself with any other "individual" to tie a patient's choice of a physician in northern Montgomery County, Kansas, ⁷ to the patient's choice among the medical facilities available there. In his amended complaint Dr. McKenzie retained all the allegations of his original pleading ⁸ and added the assertion, among others, that Mercy Hospital "by monopolizing hospital facilities in violation of the Sherman Act, unlawfully established a tying arrangement by tying the use of medical facilities to the selection of physician services. This tying arrangement is a per se violation of the Sherman Act...." Record, vol. 1, at 47.

The fatal flaw in this revised pleading is, in part, carried over from the original complaint and, in part, due to omissions in the amendment itself. Dr. McKenzie names only a single entity, Mercy Hospital, as a defendant. Moreover, he fails to allege the involvement of any coconspirator and offers no evidence of "concerted activity" to support his claim under Section 1. The absence of any plausible assertion on which a factual issue may be grounded and the consequential impossibility of meeting the most fundamental requirements of a claim under Section 1 permit only one conclusion: dismissal of Dr. McKenzie's claim under Section 1 is proper as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986) ("The moving party is 'entitled to a judgment as a matter of law' [where] the nonmoving party has failed to make a sufficient showing on an essential element of [his] case with respect to which [he] has the burden of proof.")

Dr. McKenzie argues that "[m]ulti-party action" is unnecessary to trigger a cause of action for unlawful tying. Brief of Appellant at 37. All that is needed, he contends, "is simply an arrangement which links two separate and distinct product markets together." Id. Though he proposes a simplistic definition of an unlawful tying arrangement, ⁹ Dr. McKenzie is correct in his assertion that a single entity can establish one. See, e.g., Sargent-Welch Scientific Co. v. Ventron Corp., 567 F.2d 701, 711-13 (7th Cir.1977), cert. denied, 439 U.S. 822, 99 S.Ct. 87, 58 L.Ed.2d 113 (1978). His argument is not persuasive, though, because it misses the point at issue in this appeal. Here, we are not concerned with the legal possibility of a single entity imposing a tying arrangement on its customers. The question before the court--and to which we have replied in the negative--is whether such an arrangement is proscribed by Section 1 of the Sherman Act.

Violation of the Essential Facilities Doctrine Under Section 2

Generally, a competitor in a market is free to choose the parties to whom it will offer its products or services. In fact, "[i]n the absence of any purpose to create or maintain a monopoly, the [Sherman Act] does not restrict the long-recognized right of a trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal." United States v. Colgate & Co., 250 U.S. 300, 307, 39 S.Ct. 465, 468, 63 L.Ed. 992 (1919).

However, the Sherman Act does prohibit certain refusals to deal if the refusal is part of a vertical integration scheme calculated to drive a competitor out of business. One way by which the federal courts enforce this prohibition is through application of the "essential facilities doctrine." Under the doctrine, the federal courts have declared that where it is economically infeasible for a monopolist's potential competitors to duplicate a facility controlled by the monopolist and needed to provide a product or service, the monopolist must make the facility available to the competitors on a nondiscriminatory basis.

The Supreme Court announced the essential facilities doctrine in United States v. St. Louis Terminal...