Advanced Health-Care Services, Inc. v. Radford Community Hosp.

Citation910 F.2d 139
Decision Date07 August 1990
Docket NumberHEALTH-CARE,89-2376 and 89-2377,Nos. 89-2312,s. 89-2312
Parties, 1990-2 Trade Cases 69,152 ADVANCEDSERVICES, INC., Plaintiff-Appellant, v. RADFORD COMMUNITY HOSPITAL; Southwest Virginia Health Enterprises, Inc.; Southwest Virginia Health Services; Southwest Virginia Pharmacy & Medical Company, d/b/a Community Pharmacy & Medical Supply, Defendants-Appellees. ADVANCEDSERVICES, INC., Plaintiff-Appellant, v. TWIN COUNTY COMMUNITY HOSPITAL, d/b/a Twin County Community Hospital Durable Medical Equipment Supply; Medserv Corporation, Defendants-Appellees, Voluntary Hospitals of America, Inc., Amicus Curiae. ADVANCEDSERVICES, INC., Plaintiff-Appellant, v. GILES MEMORIAL HOSPITAL; Medserv Corporation; Health East, Inc., Defendants-Appellees, Voluntary Hospitals of America, Inc., Amicus Curiae.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

James Allen Burt, Burt and Gustino, P.A., Orlando, Fla., (James A. Gustino, Scott A. Satell, Burt and Gustino, P.A., Orlando, Fla., Thomas Lloyd, Roanoke, Va., on brief), for plaintiff-appellant.

Heman A. Marshall, III, Woods, Rogers & Hazlegrove, Roanoke, Va., Alexander P. Starr, Reed, Smith, Shaw & McClay, Washington, D.C., (Brian R. Jones, Michael F. Urbanski, Woods, Rogers & Hazlegrove, Roanoke, Va., George R. Clark, Robert J Aamoth, Reed, Smith, Shaw & McClay, Washington, D.C., Martin A. Donlan, Jr., Karen A. Gould, Crews & Hancock, Richmond, Va., on brief), for defendants-appellees.

William G. Kopit, Robert W. McCann, Clark C. Havighurst, Epstein, Becker & Green, P.C., Washington, D.C., C. Scott Sykes, Voluntary Hospitals of America, Inc., Irving, Tex., for amicus curiae.

Before HALL, Circuit Judge, BUTZNER, Senior Circuit Judge, and WILLIAMS, United States District Judge for the Eastern District of Virginia, sitting by designation.

RICHARD L. WILLIAMS, District Judge:

Advanced Health-Care Services (AHCS) appeals from the district court's dismissal of three cases it filed against several defendants. In two of these, Docket Nos. 89-2376 and 89-2377, AHCS appeals the district court's order of dismissal, pursuant to Fed.R.Civ.P. 12(b)(6), and its refusal to grant leave to amend the complaint upon AHCS's motion for reconsideration. In the other, Docket No. 89-2312, AHCS appeals the district court's grant of the defendants' 12(b)(6) motion to dismiss. In all three cases, AHCS argues that it has stated actionable claims under federal antitrust law upon which relief could be granted if its allegations were proven. For the reasons discussed below, we reverse the district court's dismissal and denial of leave to file an amended complaint in Docket Nos. 89-2376 and 89-2377, and affirm in part and reverse in part its dismissal of Docket No. 89-2312. 1


Advanced Health-Care Services (AHCS), the appellant, is a supplier of durable medical equipment (DME). 2 On August 1, 1988, AHCS filed three nearly identical complaints in the United States District Court for the Western District of Virginia. In each complaint, the plaintiff alleges that an acute care hospital located in southwest Virginia is exclusively marketing a competitor's DME products to its patients in return for a financial stake in those DME sales. According to plaintiff, these arrangements have significantly diminished its DME sales in those geographic areas. AHCS asserts that the defendants' conduct supports causes of action for: (1) unreasonable restraint of trade in violation of Sherman Act Sec. 1, 15 U.S.C. Sec. 1; (2) monopolization, attempted monopolization, conspiracy to monopolize, and monopoly leveraging in violation of Sherman Act Sec. 2, 15 U.S.C. Sec. 2; (3) exclusive dealing in violation of Clayton Act Sec. 3, 15 U.S.C. Sec. 14; and (4) tortious interference with business relationships under Virginia common law.

In Docket Nos. 89-2376 and 89-2377, AHCS alleges that Twin County Community Hospital (Twin County), which owns a 149-bed facility in Galax, Virginia, and Giles Memorial Hospital (Giles), the owner of a 65-bed short-term facility in Pearisburg, Virginia, entered into exclusive agreements under which Medserv Corporation became the sole provider of discharge services and durable medical equipment for the hospitals. 3 AHCS alleges that the hospitals have a monopoly position in the acute care market and that they serve as a funnel for all of the area's DME business. Although AHCS previously serviced a number of the discharged patients from the defendant hospitals as a result of merit-based recommendations from the hospitals' discharge personnel, the new contractual alliances with Medserv allegedly prohibit it from continuing to do so.

In Docket No. 89-2312, the plaintiff alleges that Radford Community Hospital (Radford), which provides acute care hospital services to approximately seventy-five percent of the residents of the greater Radford, Virginia, region, has used its monopoly status in that regional market to direct the purchase of DME exclusively in its favor. In 1985, Southwest Virginia Pharmacy & Medical Supply Co., a wholly owned subsidiary of Southwest Virginia Health Enterprises, Inc., which is a corporate affiliate of Radford, purchased a local drug store which has since become the exclusive supplier of DME and discharge services to Radford. 4 AHCS, which had been renting and selling DME to patients discharged from Radford since 1983, contends that its DME business in the Radford area has diminished to virtually nothing since the corporate affiliates of Radford entered the DME market. AHCS complains that discharge personnel from Radford combined and conspired with its corporate affiliates to influence Radford patients not to deal with AHCS, resulting in the illegal domination of the DME market by Radford and Southwest. Specifically, AHCS claims that these discharge personnel unduly influenced patients to discontinue relations with AHCS, that they steered or referred patients to Southwest solely for the financial gain of Radford, and that they refused to inform patients of their right to choose alternative DME vendors.

Pursuant to Fed.R.Civ.P. 12(b)(6), the defendants to all three suits, the appellees here, moved to dismiss the plaintiff's first amended complaints for failure to state any claims upon which relief could be granted. On December 29, 1988, the district court granted these motions. In so doing, the court found that AHCS had failed to allege the predatory or unreasonable conduct required to sustain claims under either Sec. 1 or Sec. 2 of the Sherman Act. 5 The court also found that the plaintiff had failed to allege the existence of exclusionary agreements which is required to state a claim under Clayton Act Sec. 3. The district court dismissed the plaintiff's pendent tortious interference claims for lack of jurisdiction.

AHCS took no further action in the district court on the Radford case. In the Twin County and Giles cases, AHCS filed a motion to reconsider the dismissals pursuant to Fed.R.Civ.P. 59(e) and to allow a filing of amended complaints. The district court denied the motions to amend as "futile" and denied the motions to reconsider. The plaintiff now appeals all three cases.


In assessing a dismissal for failure to state a claim under Fed.R.Civ.P. 12(b)(6), a court must accept the allegations of the plaintiff's complaint as true. 6 Dismissal is not warranted "unless it appears to a certainty that the plaintiff would be entitled to no relief under any state of facts which could be proven in support of its claim." Johnson v. Mueller, 415 F.2d 354, 355 (4th Cir.1969). In antitrust cases in particular, the Supreme Court has stated that "dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly." Hospital Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 747, 96 S.Ct. 1848, 1853, 48 L.Ed.2d 338 (1976). See generally Faulkner Advertising Assoc. v. Nissan Motor Corp., 905 F.2d 769, (4th Cir.1990) (reversing district court's 12(b)(6) dismissal in a Sherman Act tying case). We conclude that this rigorous standard for summary dismissal is met for only some of the instant claims.

A. Sherman Act Sec. 1
1. The Twin County and Giles Cases

The first count of the appellant's complaint in the Twin County and Giles cases is for unreasonable restraint of trade in violation of Sec. 1 of the Sherman Act. In support of this claim, AHCS alleges that the hospitals have directed their discharge staff to refer all DME business to Medserv and to deny AHCS any access to their patients. Further, AHCS claims that the marketing presentations made by the hospital discharge planners are biased in favor of Medserv in that they do not inform discharged patients about other potential suppliers of DME. AHCS also alleges that, on occasion, the discharge planners have ordered DME from Medserv without first consulting the patients.

The hospitals allegedly receive 65% of all revenues generated by Medserv's DME rentals to their discharged patients. Their discharge personnel are paid $40.00 for each patient who orders equipment from Medserv and for each outpatient they convince to switch from AHCS to Medserv. Discharge personnel who fail to switch patients to Medserv are threatened with termination, according to plaintiff.

In sum, the plaintiff alleges that the patients being discharged, who are the consumers of DME, are ignorant of the existence of other DME suppliers and are particularly vulnerable to manipulation by hospital personnel. AHCS asserts that these factors completely foreclose the DME business to Medserv's competitors and deny consumers the benefits of competition in the DME market. As a result, AHCS complains that it no longer receives any orders from patients being discharged from the hospitals, that Medserv now has 85% of all patient orders emanating from the hospitals, and that the appellees have succeeded in monopolizing the DME markets in...

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