Gold Cross Ambulance & Tran. v. City of Kansas City
| Decision Date | 26 April 1983 |
| Docket Number | No. 82-1913.,82-1913. |
| Citation | 705 F.2d 1005 |
| Parties | GOLD CROSS AMBULANCE AND TRANSFER and Standby Service, Inc., Appellants, v. CITY OF KANSAS CITY, Metropolitan Ambulance Services Trust, Hadley Reimal d/b/a Ambulance Services, Lawrence Hughes d/b/a Ambulance Services, June DeSaulniers d/b/a Ambulance Services, Eugene DeSaulniers d/b/a Ambulance Services, Ambulance Services, Inc., Fourth Party, Inc. and Jack Stout, Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
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George E. Leonard, Russell S. Jones, Jr., Shughart, Thomson & Kilroy, P.C., Kansas City, Mo., for Metropolitan Ambulance Services Trust, Ambulance Service, Inc., Jack Stout and Fourth Party, Inc.
Sam B. Mumma, William D. Geary, Asst. City Attys., Kansas City, Mo., for City of Kansas City, Mo.
Paden, Welch, Martin, Albano & Graeff, P.C., Michael W. Manners, C. Robert Buckley, Independence, Mo., for appellants.
Before HEANEY, McMILLIAN and ARNOLD, Circuit Judges.
The issue we face here is whether the City of Kansas City, the Metropolitan Ambulance Services Trust (MAST), and various other defendants1 violated the federal and state antitrust laws and the United States Constitution by implementing a single-operator ambulance system to provide all of the city's emergency and nonemergency service. We hold that Kansas City, MAST, and the consultants they retained are shielded from federal and state antitrust liability because they established the municipal ambulance system pursuant to state authorization and a clearly articulated and affirmatively expressed state policy to displace free competition in the ambulance business. We further hold that none of the defendants deprived the plaintiffs of their constitutional rights to due process. The district court's judgment, therefore, is affirmed.
Kansas City, Missouri, has established a municipal ambulance system under which a municipal trust, MAST, contracts with a single private operator to provide all of the ambulance service—both emergency and nonemergency—within the city. In November, 1979, MAST awarded the initial exclusive contract to Ambulance Service, Inc. (ASI), a corporation which had been formed earlier that year by the merger of the five existing private ambulance companies located in Kansas City. MAST has since renewed this contract and ASI continues to be Kansas City's exclusive provider of ambulance service.
Because ASI holds the city's sole ambulance license, other ambulance companies in the metropolitan area are denied access to most of the Kansas City market. They can transport into Kansas City patients whom they have picked up outside the city limits, and they can travel through the city on their way to other municipalities. They cannot, however, pick up any patients within the Kansas City borders.
Dissatisfied with these restrictions, plaintiffs Gold Cross Ambulance, Inc. (Gold Cross), and Transfer and Standby Services, Inc. (Transfer)—two private companies located in suburban Independence, Missouri— brought this five-count action, alleging that the defendants had violated federal and state antitrust laws and deprived the plaintiffs and Kansas City residents of various constitutional rights.2
On May 7, 1982, the district court granted summary judgment in favor of defendants Kansas City, MAST, Jack Stout and Fourth Party, Inc., on the plaintiffs' antitrust claims, but denied it to the individual shareholders of ASI on these counts. 538 F.Supp. 956, 967-970 (W.D.Mo.1982). The court also granted summary judgment in favor of all defendants on the plaintiffs' constitutional claims. Id. at 970-973. The plaintiffs now appeal.3
Kansas City for many years provided emergency ambulance services to its citizens by operating a public ambulance system through the Kansas City General Hospital and, later, through the city Fire Department. In the early 1970s, however, Kansas City began to contract with five competing, private companies for emergency ambulance service. A central dispatch center allocated calls among the various companies on a "round-robin" basis. In 1973, the dispatch center adopted a policy of dispatching the closest available ambulance to the scene of the accident, regardless of which company owned the vehicle.
In 1978, a controversy developed concerning the slow response time by the private ambulance companies to emergency calls. As a result, the city formed a Public Safety Improvement Committee to investigate alternatives for improving emergency medical service. The Committee reported its findings to the city council on March 21, 1979, and recommended that the city adopt a publicly controlled ambulance system which utilized a single provider for both emergency and nonemergency services. Within two weeks, the city council approved a resolution committing Kansas City to such a system. In April, 1979, the city retained a consulting firm to study the implementation of a single-provider system.
Jack Stout, the consultant, was the recognized developer of the so-called "public utility model" of ambulance service in which a single operator replaces competing private companies. This model is designed to eliminate the incentive created by free-market delivery of ambulance service by private companies to neglect emergency ambulance service in favor of the more profitable nonemergency business.
This incentive to neglect emergency service arises from the cost structure of the ambulance business. The fixed cost of providing emergency service is very high because expensive advanced life support equipment is required and because sufficient capacity to meet peak demand within an adequate response time must be maintained, even though that full emergency capacity is seldom utilized. In contrast, the cost of handling nonemergency ambulance service with the idle excess capacity is low. Moreover, the fee-collection rate for nonemergency service is substantially higher than for emergency service. Thus, nonemergency calls are significantly more profitable than emergency calls, and private ambulance companies operating in an unregulated market have a strong incentive to concentrate on providing nonemergency service rather than quick, high quality emergency care.
To resolve these problems, the public utility model advocates the following approach: first, a city contracts with a single operator to provide all municipal ambulance service within medical care and response time standards set by public officials. The city then collects from each patient the fee for services rendered by the company. If the ambulance company fulfills its contractual requirements, it receives payment regardless of whether the city has been able to collect all fees due. If the city collects insufficient fees to cover the amount owed to the ambulance company, the city makes up the deficit as a government subsidy. Finally, the city owns all the ambulance service equipment to prevent service from being interrupted if the operator encounters financial difficulty.
Thus, the public utility model, in theory at least, eliminates the incentive to favor nonemergency calls because the operator is paid only the contractual sum and this payment is not conditioned on the collection of user fees. For this model to be economically feasible, however, the municipally-licensed operator should be the only ambulance service allowed to do business in the city. If other private companies are permitted to operate in the city, they will retain the strong incentive to take the high profit nonemergency calls and leave the less-profitable emergency business to the city system.
In September, 1979, the Kansas City council passed an ordinance formally adopting the public utility model for city ambulance service and creating a nonprofit public trust, MAST, to implement and manage the new system. Several problems prevented Kansas City from implementing its plan, however. Missouri law requires all ambulance service operators to have a state-issued license,4 which MAST did not possess. Moreover, MAST did not own the equipment necessary to provide full ambulance service to the city. Thus, MAST could not provide a bidder with either the license or the equipment necessary to implement the public utility model.
Consequently, in October, 1979, the city council repealed its September ordinance. The successor ordinance, while retreating from full implementation of the public utility model, reiterated Kansas City's commitment to the concept. Thereafter, MAST contracted with ASI, which possessed the requisite state license and equipment, to provide the city's ambulance service. MAST apparently issued the exclusive municipal license to ASI without complying with the competitive bidding procedures required by city ordinance because, according to defendant Kansas City, ASI was the only state-licensed company in the area that possessed sufficient equipment to provide ambulance service on a single-provider basis.
Eventually, in December, 1980, the city council directed MAST to fully implement the public utility model.5 In September, 1981, MAST purchased all of ASI's outstanding stock, thereby obtaining the company's equipment and state license. Thereafter, on December 17, 1981, the city council passed Ordinance 53539, which directed MAST to fully implement the public utility model.6
Thus, pursuant to Ordinance 53539, Kansas City has adopted a publicly controlled, single-operator ambulance system. The plaintiffs challenge that system, contending that the defendants have violated the federal and state antitrust laws and the United States Constitution by implementing it.
The district court found that the state action doctrine shields defendants Kansas City, MAST, Jack Stout and Fourth Party, Inc., from liability under the federal antitrust laws.7
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