Armstrong Surgical Ctr v. Armstrong County Memorial, 97-3440

• Decision Date: 27 July 1999
• Docket Number: No. 97-3440,97-3440
• Citation: 185 F.3d 154
• Parties: (3rd Cir. 1999) ARMSTRONG SURGICAL CENTER, INC., Appellant, v. ARMSTRONG COUNTY MEMORIAL HOSPITAL; ROGELIO BORJA; RICHARD BOSCO; ZAFAR CHOWDHRY; JEFFREY DAVID; FRANK DAVIE; EGBERT DEVRIES; PAUL L. FREDERICK; JOHN GARROTT; FRANK N. GENOVESE; IRVING KLEIN; DAVID H. KOHL; LEE H. KOSTER; JOHN MARTY; MICHAEL P. ONDICH; KARL R. SALTRICK; WILLIS SHOOK; ANTHONY SMALDINO; PETER SOTOS; JAE T. YANG
• Court: U.S. Court of Appeals — Third Circuit

Page 154

185 F.3d 154 (3rd Cir. 1999) ARMSTRONG SURGICAL CENTER, INC., Appellant,
v.
ARMSTRONG COUNTY MEMORIAL HOSPITAL; ROGELIO BORJA; RICHARD BOSCO; ZAFAR CHOWDHRY; JEFFREY DAVID; FRANK DAVIE; EGBERT DEVRIES; PAUL L. FREDERICK; JOHN GARROTT; FRANK N. GENOVESE; IRVING KLEIN; DAVID H. KOHL; LEE H. KOSTER; JOHN MARTY; MICHAEL P. ONDICH; KARL R. SALTRICK; WILLIS SHOOK; ANTHONY SMALDINO; PETER SOTOS; JAE T. YANG No. 97-3440 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT Argued April 23, 1998
Decided July 27, 1999

On Appeal From The United States District Court For The Western District Of Pennsylvania (D.C. Civil No. 96-01384) District Judge: Honorable Gustave Diamond

Page 155

John L. Laubach, Jr., John P. Klee, Laubach & Fulton, 104 Broadway Avenue, Carnegie, PA 15106-2421

James G. Park (Argued), 374 Midway Road, Pittsburgh, PA 15216, Attorneys for Appellant

Alan A. Garfinkel, Klett, Lieber, Rooney & Schorling, One Oxford Centre, 40th Floor, Pittsburgh, PA 15219-6498

Jules S. Henshell (Argued), Klett, Lieber, Rooney & Schorling, 240 North Third Street, Suite 600, Harrisburg, PA 17101, Attorneys for Appellee Armstrong County Memorial Hospital

Wendelynne J. Newton (Argued), Sheila S. DiNardo, Buchanan Ingersoll Professional Corporation, One Oxford Centre, 20th Floor, 301 Grant Street, Pittsburgh, PA 15219-1410, Attorneys for Appellees Rogelio Borja, Richard Bosco, Zafar Chowdhry, Jeffrey David, Frank Davie, Egbert Devries, Paul L. Frederick; John Garrott, Frank N. Genovese, Irving Klein, David H. Kohl, Lee H. Koster, John Marty, Michael P. Ondich, Karl R. Saltrick, Willis Shook, Anthony Smaldino, Peter Sotos and Jae T. Yang

BEFORE: NYGAARD and STAPLETON, Circuit Judges and SCHWARTZ,^* District Judge.

OPINION OF THE COURT

STAPLETON, Circuit Judge:

Appellant Armstrong Surgical Center, Inc. (the "Surgical Center") contends that Armstrong County Memorial Hospital and nineteen of its staff physicians (the "Hospital Defendants") conspired to prevent it from establishing an ambulatory surgery center, thereby restraining and monopolizing trade in violation of sections 1 and 2 of the Sherman Act. The District Court dismissed the complaint after concluding that the alleged conduct was immune from antitrust scrutiny. We will affirm.

I.

We review the District Court's order dismissing the Surgical Center's complaint de novo. See Jeremy H. v. Mount Lebanon Sch. Dist., 95 F.3d 272, 277 (3d Cir. 1996). In reviewing that order, we employ the same standard the District Court used, accepting as true all factual allegations contained in the complaint and all reasonable inferences that can be drawn therefrom. See Schuylkill Energy Resources, Inc. v. Pennsylvania Power & Light Co. , 113 F.3d 405, 411 n.2 (3d Cir.), cert. denied, 118 S. Ct. 435 (1997).

II.

The Surgical Center has plans to build a free-standing ambulatory surgery center in the city of Kittanning, Armstrong County, Pennsylvania. If constructed, that facility would provide outpatient surgical services, including both general surgery and various specialities. Currently, the Hospital is the only facility with operating rooms in Armstrong County, and the nineteen staff physician defendants perform the vast majority of surgeries in the county. Only one independent ambulatory surgery

Page 156

center operates in the four counties that border Armstrong County, and this center is approximately fifty miles from the Surgical Center's proposed site. If constructed, the Surgical Center's facility would compete directly with the Hospital and its staff physicians in the outpatient surgery market. Moreover, the Surgical Center alleges that it would offer outpatient surgical services at prices significantly lower than the Hospital's.

Under the Pennsylvania Health Care Facilities Act, anyone proposing to establish a new health care facility must first obtain a Certificate of Need ("CON") from Pennsylvania's Department of Health. See Pa. Stat. Ann. tit. 35, S 448.701(a)(2). The Act seeks to ensure "the orderly and economical distribution of health care resources to prevent needless duplication of services." Id. at S 448.102. The Department individually reviews CON applications in an extensive proceeding consisting of an investigation, an evaluation of submitted materials, and a public hearing. During this review, the Department considers various health planning issues, including the adequacy of existing health care providers and the need for additional services or facilities. See id. S 448.707. Interested parties, including health care providers who supply similar services in the area, may petition for public meetings or hearings and submit information to the Department on any CON application. See id. SS 448.103, 448.704(b).

In March of 1991, the Surgical Center filed an application for a CON with the Department as required. Thereafter, according to the Surgical Center's complaint, the Hospital defendants, including fourteen physicians who originally supported the Surgical Center's project, entered into a conspiracy to subvert establishment of the new facility. The alleged conspiracy involved: (1) the physicians announcing that they would boycott the proposed outpatient center and (2) the Hospital defendants submitting false and misleading information to the Department. Specifically, the Surgical Center alleges that the Hospital defendants informed the Department that its nineteen physicians would not use the Surgical Center facility in the hope that this information would convince the Department that the proposed facility could not meet the statutory requirements for a CON. In addition, the Surgical Center claims that the Hospital defendants sought to mislead the Department into believing that the Hospital intended to open its own outpatient center, which was then under construction, and that this facility would satisfy all of Armstrong County's outpatient surgery needs. The Hospital's partially constructed facility was designed to provide alternative space for outpatient surgeries then conducted in three of the Hospital's six mixed-use operating rooms. According to the Surgical Center, however, the Hospital defendants knew that the construction of the Hospital's facility had been stopped with only the shell of the building completed and that the Hospital had made no commitment to resume construction. Despite this knowledge, it is alleged that the Hospital defendants falsely represented to the Department that its new center was either in use or very near completion.

The Department denied the Surgical Center's CON application. The Surgical Center appealed that decision to the Commonwealth of Pennsylvania State Health Facility Hearing Board, which conducted its own hearing and received additional evidence.¹ The Board affirmed the Department's decision after finding that (1) the Surgical Center's facility would result in needless duplication of existing facilities and health care services, and (2) the Surgical Center would not be economically viable

Page 157

because the nineteen Hospital surgeons who performed ninety percent of Armstrong County's surgeries would not use the Surgical Center facility. According to the Board, "the most damaging evidence [against the Surgical Center's application] is that the number of physicians who might have been expected to support the facility decreased significantly after the Applicant had submitted its projections." The Surgical Center appealed the Board's decision to the Commonwealth Court of Pennsylvania, which affirmed the Board's decision.

The Surgical Center filed this antitrust action seeking treble damages for, inter alia, denial of the CON, lost value of the CON and the proposed outpatient center, and lost profits. It contends that the Hospital defendants' conspiracy caused the Department to deny its CON application. The District Court dismissed the Surgical Center's suit for failure to state a claim upon which relief may be granted, see Fed. R. Civ. P. 12(b)(6), holding that the Hospital defendants' conduct was immune from antitrust scrutiny.

III.

We begin by considering the Surgical Center's claim that the Hospital defendants conspired to boycott its outpatient center, thereby violating sections 1 and 2 of the Sherman Act. To state a claim under section 1, a plaintiff must allege "a contract, combination or conspiracy; a restraint of trade; and an effect on interstate commerce." Fuentes v. South Hills Cardiology, 946 F.2d 196, 201 (3d Cir. 1991). Section 2 of the Sherman Act prohibits both monopolies and attempts to monopolize. See 15 U.S.C. S 2. A claim under section 2 must allege "(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power." Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S. Ct. 884, 890-91 (1993); see also Schuylkill Energy Resources, 113 F.3d at 413.

"A classic boycott involves concerted action with a purpose either to exclude a person or group from the market, or to accomplish some other anticompetitive object, or both." Fuentes, 946 F.2d at 202 (internal quotes omitted); see also St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 541, 98 S. Ct. 2923, 2929-30 (1978). Such commercially motivated group boycotts, or concerted refusals to deal, generally are considered illegal per se under section 1. See F.T.C. v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411, 431-32, 110 S. Ct. 768, 779-80 (1990); Weiss v. York Hospital, 745 F.2d 786, 818 (3d Cir. 1984). When a boycott's aim is to monopolize trade, it might also violate section 2. See Retina Associates v. Southern Baptist Hosp. of Fla., Inc., 105 F.3d 1376, 1384 (11th Cir. 1997).

The Hospital defendants do not deny that the complaint alleges a threat of a boycott that might under other circumstances constitute an antitrust violation. They insist, however, that the complaint alleges facts establishing that they are...