B & H Med., L.L.C. v. ABP Administration, Inc., 050708 FED6, 06-1339

Docket Nº:Stephen M. Ryan, P.L.L.C. and Stephen M. Ryan, Attorneys-Appellants, (06-1339),
Party Name:B & H Medical, L.L.C., a Michigan limited liability company, Plaintiff-Appellant,
Case Date:May 07, 2008
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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B & H Medical, L.L.C., a Michigan limited liability company, Plaintiff-Appellant,

Stephen M. Ryan, P.L.L.C. and Stephen M. Ryan, Attorneys-Appellants, (06-1339),

v.

ABP Administration, Inc.; Wright & Filippis, Inc., Defendants-Appellees.

Nos. 04-2438, 06-1338, 06-1339

United States Court of Appeals, Sixth Circuit

May 7, 2008

         Argued: March 14, 2008.

         Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 02-73615-Gerald E. Rosen, District Judge.

         COUNSEL

         ARGUED:

         Stephen M. Ryan, Bingham Farms, Michigan, for Appellant.

         John A. Cook, LAW OFFICE OF JOHN A. COOK, PLLC, Royal Oak, Michigan, for Appellees.

         ON BRIEF:

         Stephen M. Ryan, Bingham Farms, Michigan, for Appellant.

         John A. Cook, LAW OFFICE OF JOHN A. COOK, PLLC, Royal Oak, Michigan, Gerard Mantese, Mark C. Rossman, MANTESE & ROSSMAN, P.C., for Appellees.

         Before: Moore, Gilman, and Sutton, Circuit Judges.

         OPINION

         Karen Nelson Moore, Circuit Judge.

         In this antitrust case, we consider the legality of an agreement between non-party Blue Cross Blue Shield of Michigan ("BCBSM") and the Defendants-Appellees, Wright & Filippis, Inc. and its subsidiary ABP Administration, Inc. (collectively "W&F"). This agreement began in 1992 and established an exclusive network of preferred providers to supply durable medical equipment and prosthetics and orthotics to enrollees in certain health-benefits plans offered to Chrysler Corporation ("Chrysler") employees and retirees and later to certain employees and retirees of Ford Motor Company, as well as participants in the Michigan Public School Employees Retirement System ("MPSERS"). Following a competitive bidding process, BCBSM selected W&F to administer the network created by the contract, which has since been renewed multiple times. After its application to join this network was rejected in 2000, Plaintiff-Appellant B & H Medical, L.L.C. ("B&H"), filed this lawsuit in September 2002, attacking the network under the antitrust laws as an illegal exclusive dealing arrangement that allegedly barred B&H from competing in the "sale, lease or rental of medical durable equipment and medical supplies to large insurance provider networks," which B&H claimed was the relevant market. Joint Appendix ("J.A.") at 32-34 (Am. Compl. at ¶¶ 6-13).

         In a lengthy and well-reasoned opinion, the district court granted W&F's motion for summary judgment, rejecting B&H's definition of the relevant market and finding that B&H's antitrust claims failed for several reasons, among them that B&H failed to demonstrate antitrust standing and that the alleged exclusive dealing agreement foreclosed no more than thirteen percent of a properly defined relevant market. The district court later granted in part W&F's motion for sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure, imposing over $84,000 dollars in sanctions against Attorneys-Appellants Stephen M. Ryan, P.L.L.C., and Stephen M. Ryan (collectively "Ryan") for "failing to dismiss this case when a lengthy discovery period failed to disclose any support for the antitrust claims asserted in the complaint." B & H Med., L.L.C. v. ABP Admin., Inc., 354 F.Supp.2d 746, 748 (E.D. Mich. 2005). In addition to appealing the district court's grant of summary judgment, B&H also appeals a discovery order issued by the district court that limited B&H's efforts to obtain broad categories of information from nonparty BCBSM, and Ryan appeals the sanctions award. W&F filed a motion pursuant to Federal Rule of Appellate Procedure ("FRAP") 38 seeking the imposition of appellate sanctions against B&H and Ryan for pursuing a frivolous appeal.

         For the reasons discussed below, we AFFIRM the district court in all respects and we GRANT W&F's motion for appellate sanctions.

         I. BACKGROUND

         At the center of this case is an agreement, which BCBSM developed and which the parties refer to as the SUPPORT contract,1 that empowered W&F to administer a closed network of suppliers of durable medical equipment ("DME") and2 prosthetics and orthotics ("P&O") to enrollees in certain health-benefits plans that BCBSM offered to employees and retirees of three large employers in Michigan: Chrysler, Ford, and MPSERS.3 W&F operates fewer than thirty retail outlets that sell DME/P&O to consumers, and to ensure access to DME/P&O services for covered enrollees throughout Michigan, the SUPPORT contract included a provision permitting W&F to enter subcontracts with additional DME/P&O vendors. B&H claimed that 296 out of the 644 DME/P&O outlets in Michigan, or forty-six percent, were members of the SUPPORT network.

         At some point in 2000, B&H received admission to the SUPPORT network, but W&F soon terminated B&H's membership, claiming that it had mistakenly admitted B&H. On September 10, 2002, B&H filed this lawsuit, alleging that the SUPPORT contract amounted to an illegal exclusive dealing arrangement, constituted a refusal to deal with and a boycott of B&H, and an attempt to monopolize the DME/P&O market.

         The discovery period in this case was lengthy, with the district court twice granting extensions to B&H, which "repeated[ly] fail[ed] to serve appropriately tailored document requests upon non-party BCBSM." B & H Med., 354 F.Supp.2d at 748 n.2. The district court noted that B&H "has failed to explain why BCBSM should be required to serve as a source for information regarding the overall nature and economics of the DME/P&O market in Michigan," J.A. at 63 (Order Re: Pl.'s Mot. to Compel Produc. at 4), and, after B&H twice served broad subpoenas seeking information from BCBSM, the district court closely analyzed B&H's subpoena and granted in part B&H's motion to compel, imposing limitations in its Order on the broad categories of documents that B&H had requested.4

         In its Supplemental Brief in Opposition to Summary Judgment, B&H argued that because the SUPPORT network included 296 out of the 644 outlets for DME/P&O services in Michigan, the alleged exclusive dealing arrangement had foreclosed approximately forty-six percent of the market for DME/P&O services. W&F countered that economic evidence assessed by its expert demonstrated the SUPPORT network accounted for only six and one-half percent of the DME/P&O sales revenue for the entire state of Michigan and just twelve and one-half percent of the DME/P&O sales revenue in the metropolitan Detroit area. Using B&H's own financial records, W&F's expert also calculated that B&H's revenues had experienced 137.7% growth between 2001 and 2003 while B&H was excluded from the SUPPORT network. W&F's expert also noted that the DME/P&O market did not have many barriers to entry and that 406 of the 644 DME outlets in Michigan were small, single-store operations. Indeed, even B&H's economic expert stated that "[i]n a lot of respects, this market has the earmarks of being one that is fairly competitive in the standpoint that entry appears to be fairly easy." J.A. at 1453 (Pisarkiewicz Dep. Tr. at 279).

         In October 2004, the district court granted W&F's motion for summary judgment on all of B&H's claims. The district court rejected B&H's attempt to define the relevant market as DME/P&O purchases made by individuals covered by a "large insurance provider network[]," reasoning that the proper market would include "all purchases or rentals regardless of the source of payment." J.A. at 92 (Op. & Order at 19). The district court then explained that B&H's "percentage-of-outlets approach is uninformative" and that it "provides no meaningful insight into the market effects" of the SUPPORT contract upon the DME/P&O market in general. J.A. at 99-100 (Op. & Order at 26-27). In light of the evidence placing the sales revenue from the SUPPORT network's sales of DME/P&O to certain employees and retirees of Chrysler, Ford, and MPSERS at approximately thirteen percent of the DME/P&O market, the district court held "that [B&H] has failed as a matter of law to establish that the SUPPORT program has foreclosed competition in a substantial share of the relevant market" given that both sides "agree[d] that an exclusive dealing arrangement that forecloses 12.5 percent of the relevant market . . . does not run afoul of the 'substantial foreclosure' standard" of the Supreme Court's leading case on exclusive-dealing arrangements, Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961). J.A. at 104, 103 (Op. & Order at 31, 30).

         The district court rejected B&H's various attacks on the exclusive-dealing characteristics of the SUPPORT network, noting that "exclusive dealing arrangements are not per se unlawful" and that "exclusive arrangements have their benefits as well, and these have been repeatedly recognized by the courts." J.A. at 106, 105 (Op. & Order at 33, 32); see also id. at 104-110 (Op. & Order at 31-37). The district court thus held that W&F was entitled to summary judgment on B&H's exclusive-dealing claim under § 1 of the Sherman Act, 15 U.S.C. § 1.

         The district court similarly rejected B&H's § 2 monopolization claims, "observ[ing] that [B&H] and its expert have utterly failed to present any sort of cogent analysis of the market power possessed by W&F in any plausible DME/P&O market." J.A. at 110 (Op. & Order at 37). The district court also noted that "[t]here is absolutely...

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