Continental Orthopedic Appliances v. Health Ins.

• Decision Date: 26 February 1997
• Docket Number: No. CV 95-4541 (ADS).,CV 95-4541 (ADS).
• Citation: 956 F.Supp. 367
• Parties: CONTINENTAL ORTHOPEDIC APPLIANCES, INC., New York Orthopedic, Stahl Surgical Supply, Inc., United Orthopaedic Appliances, Inc., A-1 Surgical And Medical Supplies, Inc., Archfame, Inc., Ortho Surgical, Inc., J.C. Orthopedic Co., Inc., Day Drug & Surgical, Rocklyn Surgical Supply Company, Orthopedic Treatment Facility, Orthotic Consultants, Inc., James Case Enterprises, Inc., Certified Orthopedic, Prothotic Labs, Elmont Pharmacy & Surgical Supply, Inc., Kings Pharmacy & Surgical, Foot Molds, Inc., and A Personal Touch Garment Corporation, on behalf of themselves and all other similarly situated, Plaintiffs, v. HEALTH INSURANCE PLAN OF GREATER NEW YORK, Advanced Orthopedic Technologies, Inc., and Arimed Orthotics, Prosthetics, and Pedorthics, Inc., Defendants.
• Court: U.S. District Court — Eastern District of New York

956 F.Supp. 367

CONTINENTAL ORTHOPEDIC APPLIANCES, INC., New York Orthopedic, Stahl Surgical Supply, Inc., United Orthopaedic Appliances, Inc., A-1 Surgical And Medical Supplies, Inc., Archfame, Inc., Ortho Surgical, Inc., J.C. Orthopedic Co., Inc., Day Drug & Surgical, Rocklyn Surgical Supply Company, Orthopedic Treatment Facility, Orthotic Consultants, Inc., James Case Enterprises, Inc., Certified Orthopedic, Prothotic Labs, Elmont Pharmacy & Surgical Supply, Inc., Kings Pharmacy & Surgical, Foot Molds, Inc., and A Personal Touch Garment Corporation, on behalf of themselves and all other similarly situated, Plaintiffs, v. HEALTH INSURANCE PLAN OF GREATER NEW YORK, Advanced Orthopedic Technologies, Inc., and Arimed Orthotics, Prosthetics, and Pedorthics, Inc., Defendants.

No. CV 95-4541 (ADS).

United States District Court, E.D. New York.

February 26, 1997.

Law Offices of Scott N. Gelfand, New York City (Scott N. Gelfand, of counsel), for Plaintiffs.

Stroock & Stroock & Lavan, New York City (Bruce H. Schneider, Faith A. Kaminsky, of counsel), for Defendant Health Insurance Plan of New York, Inc. Herrick, Feinstein, LLP, New York City (Susan T. Dwyer, Joshua F. Scheier, of counsel), for Defendant Advanced Orthopedic Technologies, Inc.

Charles Capetanakis, Brooklyn, NY, for Arimed Orthotics, Prosthetics and Pedorthics, Inc.

MEMORANDUM DECISION AND ORDER

SPATT, District Judge.

This is an antitrust case in a now fertile field for litigation, the Health Maintenance Organization ("HMO") arena. All three defendants move to dismiss all eight claims in the complaint, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, on the grounds that none of the claims state a valid cause of action.

I. BACKGROUND

This lawsuit arises from a decision made by defendant Health Insurance Plan of New York ("HIP"), an HMO, to enter into certain contracts with defendant Advanced Orthopedic Technologies, Inc. ("Advanced") and defendant Arimed Orthotics, Prosthetics and Pedorthics, Inc. ("Arimed"). These contracts, entered into in August 1995, apparently provide that Advanced and Arimed were to be "preferred providers" in regard to orthotic and prosthetic ("O&P") equipment to be supplied to HIP's customers. Implicit in the entering into of these contracts is that former O&P providers, including the plaintiffs, would no longer be the recipients of HIP business.

According to the complaint, HIP provided the following memorandum, which it delivered to each terminated provider, upon inquiry:

The Health insurance Plan of Greater New York (HIP) has recently entered into agreements with Advanced Orthopedic Technology and Arimed whereby these two vendors will be preferred providers of O&P services for HIP members in the Queens-Long Island/Brooklyn and Staten Island Regions.

Any cases which have already been referred to your company will continue to be monitored by the HIP Alternate Care Utilization Management Department. However, any new cases as of August 1, 1995 will be referred to one of the preferred providers. If you have any questions or issues with regard to the above change, please feel free to contact the HIP Alternate Care Utilization Management Department at (212) 630-8302.

HIP would like to thank you for your past service to HIP members and appreciates your anticipated cooperation with this transition.

The parties variously describe the O&P products as orthotic and prosthetic equipment and orthopedic and prosthetic equipment. No definition of orthotic being provided, the Court found a definition in Stedman's Medical Dictionary, Fourth Unabridged Lawyer's Edition 996 (1976) as "the science that deals with the making and fitting of orthopaedic appliances." Apparently, prior to August 1995, the plaintiffs and more than 300 other O&P providers did business with HIP customers. After these contracts were consummated, the defendants Advanced and Arimed were to be the exclusive O&P providers, effectively terminating the business of the plaintiffs with HMO customers.

The complaint alleges that, for various business reasons, including an HIP decline in the HMO market share,

HIP . . . conspire[d] with Defendants Advanced and Arimed to enter into an exclusive arrangement O&P services to HIP enrollees in [New York City, Nassau and Suffolk Counties] at a negotiated price level below HIP's pre-August 1, 1995 price level for the 335 O&P providers with whom HIP used to do business. This negotiated price level would translate into a 20% across the board cost savings for HIP.

(Complaint ¶ 61) (emphasis in original). The plaintiffs contend that, as a result of the exclusive provider contracts with Advanced and Arimed, they and other O&P providers were "summarily terminated." (Complaint ¶ 62).

The complaint sets forth eight antitrust claims, four based on federal law and four based on state law. The first and second claims are based on "structural" and "tacit" conspiracies in violation of Section 1 of the Sherman Anti-Trust Act, 15 U.S.C. § 1. The fifth and sixth claims are similar antitrust conspiracy claims based on the New York State Donnelly Act, N.Y. Gen. Bus. Law § 340, et. seq.

The third and fourth claims, based on Federal law, allege monopolization, and the seventh and eighth companion state law claims, have been withdrawn by the plaintiffs. See Plaintiff's Memorandum of Law in Opposition at 3:

Finally, after reviewing both the authorities cited by the Defendants in their respective memoranda and independently reviewing the governing law in the Second Circuit, the Class Plaintiffs have decided not to pursue their Sherman Act Section 2 Monopoly claims in this action, and, accordingly, withdraw the Third, Fourth, Seventh and Eighth Claims for Relief of the Complaint. This means that the only claims Plaintiffs wish to pursue their Sherman Act Section 1 claims and related claims under State law.

II. DISCUSSION

A. Rule 12(b)(6) Standards

As to the standards guiding the Court's determination of the defendants' motion to dismiss for failure to state a claim, "the court should not dismiss the complaint pursuant to Rule 12(b)(6) unless it appears `beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitled him to relief". Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir.1985) (quoting from Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)); see also International Audiotext Network, Inc. v. AT & T, 62 F.3d 69, 71 (2d Cir.1995). The Second Circuit stated that in deciding a Rule 12(b)(6) motion a Court may consider "only the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the pleadings and matters of which judicial notice may be taken". Samuels v. Air Transport Local 504, 992 F.2d 12, 15 (2d Cir.1993); see also Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d -42, 47 (2d Cir.1991), cert. denied, 503 U.S. 960, 112 S.Ct. 1561, 118 L.Ed.2d 208 (1992).

In this type of motion, it is not the Court's function to weigh the evidence that might be presented at a trial, the Court must merely determine whether the complaint itself is legally sufficient, see Goldman, 754 F.2d at 1067, and in doing so, it is well settled that the court must accept the allegations of the complaint as true, see LaBounty v. Adler, 933 F.2d 121, 123 (2d Cir.1991); Procter & Gamble Co. v. Big Apple Industrial Buildings, Inc., 879 F.2d 10, 14 (2d Cir.1989), cert. denied, 493 U.S. 1022, 110 S.Ct. 723, 107 L.Ed.2d 743 (1990), and construe all reasonable inferences in favor of the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Doe v. City of New York, 15 F.3d 264, 266 (2d Cir.1994). "`The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.'" Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 235-36, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974)).

The Court is also mindful that under the modern rules of pleading, a plaintiff need only provide "a short and plain statement of the claim showing that the pleader is entitled to relief", Fed.R.Civ.P. 8(a)(2), and that "[a]ll pleadings shall be so construed as to do substantial justice". Fed.R.Civ.P. 8(f).

In addition, in antitrust cases, in particular, it must appear on the face of the complaint that plaintiff could prove no set of facts to sustain recovery. Ware v. Associated Milk Producers, Inc., 614 F.2d 413 (5th Cir.1980). The complaint need only allege sufficient facts to state the elements of injury from an act prohibited by the antitrust laws. Newman v. Universal Pictures, 813 F.2d 1519 (9th Cir.1987), cert. denied, 486 U.S. 1059, 108 S.Ct. 2831, 100 L.Ed.2d 931 (1988). On the other hand, for the court to grant this kind of motion, a defendant in an antitrust case must meet a more stringent standard because the proof is often in the hands of the alleged conspirators, and the plaintiff may need an opportunity to discover the facts necessary to withstand the motion. H.R.M Inc. v. Tele-Communications. Inc., 653 F.Supp. 645 (D.Colo.1987); Hughes Auto v. Mid-Atlantic Toyota Dist., Inc., 543 F.Supp. 1056 (D.Md.1982).

It is within this framework that the Court addresses the present motion to dismiss the complaint as to all three defendants.

B. The Defendants' Contentions

The defendants contend that (1) no facts are alleged which would support a finding of an express conspiracy, or a "structural" conspiracy, or a "tacit" conspiracy; (2) the plaintiffs failed to allege the required "antitrust injury," in that there is no allegation of any injury to "competition"; (3) there is no allegation of a "relevant product market"; and (4) the plaintiffs United Orthopaedic Appliances, Inc., Stahl Surgical Supply, Inc., Archfame, Inc., J.C. Orthopedics Co., Inc. and James Case Enterprises, Inc. lack standing to sue. In...