Delaware Health Care, Inc. v. MCD Holding Co.

• Decision Date: 30 June 1995
• Docket Number: Civ. A. No. 94-406 MMS.
• Citation: 893 F. Supp. 1279
• Parties: DELAWARE HEALTH CARE, INC., a corporation of the State of Delaware, Plaintiff, v. MCD HOLDING COMPANY, a corporation of the State of Delaware d/b/a Infusion Services and d/b/a Infusion Services of Delaware, and MCD Foundation, a corporation of the State of Delaware and its subsidiaries: The Medical Center of Delaware, Inc., a corporation of the State of Delaware, a/k/a (1) Christiana Hospital, (2) Wilmington Hospital d/b/a First State Health Plan, Genesis Health Network, Genesis Integrated Health Care Services, Mid-Atlantic Integrated Health Care Services, Mid-Atlantic Health Net, Champion Health Services, Cornerstone Healthcare, Eastern Integrated Health Care Service, and Visiting Nurse Association of Delaware, a corporation of the State of Delaware, Defendants.
• Court: U.S. District Court — District of Delaware

893 F. Supp. 1279

DELAWARE HEALTH CARE, INC., a corporation of the State of Delaware, Plaintiff, v. MCD HOLDING COMPANY, a corporation of the State of Delaware d/b/a Infusion Services and d/b/a Infusion Services of Delaware, and MCD Foundation, a corporation of the State of Delaware and its subsidiaries: The Medical Center of Delaware, Inc., a corporation of the State of Delaware, a/k/a (1) Christiana Hospital, (2) Wilmington Hospital d/b/a First State Health Plan, Genesis Health Network, Genesis Integrated Health Care Services, Mid-Atlantic Integrated Health Care Services, Mid-Atlantic

Health Net, Champion Health Services, Cornerstone Healthcare, Eastern Integrated Health Care Service, and Visiting Nurse Association of Delaware, a corporation of the State of Delaware, Defendants.

Civ. A. No. 94-406 MMS.

United States District Court, D. Delaware.

June 30, 1995.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Christopher J. Curtin of Sawyer & Akin, P.A., Wilmington, DE; of counsel: Rocco P. Imperatrice, III of Imperatrice & Amarant, Newtown Square, PA; for plaintiff.

Stephen E. Herrmann of Richards, Layton & Finger, Wilmington, DE; of counsel: Brian M. Peters, Kathleen M. Chandler and Mark L. Mattioli of Post & Schell, P.C., Philadelphia, PA; for defendants.

OPINION

MURRAY M. SCHWARTZ, Senior District Judge.

I. INTRODUCTION

Plaintiff Delaware Health Care, Inc. ("Delaware Health") has filed this action alleging that MCD Holding Company ("MCD Holding"), MCD Foundation ("MCD Foundation") and its subsidiaries, The Medical Center of Delaware, Inc. ("Medical Center") and Visiting Nurse Association of Delaware ("VNA"), have violated the Sherman Act, 15 U.S.C. §§ 1 and 2, the Clayton Act, 15 U.S.C. § 18, and state law for tortious interference with contractual and prospective contractual relations. In response, defendants have filed a motion to either dismiss plaintiff's complaint pursuant to Fed.R.Civ.P. 12(b)(6) or, in the alternative, to strike a portion of the complaint under Fed.R.Civ.P. 12(f). This Court has jurisdiction under 28 U.S.C. §§ 1331, 1337 and 1367. For the reasons stated below, the Court will deny defendants' motion to dismiss and grant in part the motion to strike.

II. FACTUAL BACKGROUND

Delaware Health is a home health care agency that delivers infusion and other health services to patients in the home. Complaint, Docket Item ("D.I.") 1 at ¶¶ 8, 20. Defendant Medical Center is a wholly-owned subsidiary of defendant MCD Foundation. Id. at ¶¶ 20-21. The Medical Center has two major hospital divisions: Wilmington Hospital, a 210 bed acute care facility located in Wilmington, Delaware, and Christiana Hospital, a 730 bed acute care hospital in nearby Newark, Delaware. In addition, various health networks, health plans, and health services do business under the aegis of the Medical Center. Id. at ¶ 11. Defendant VNA, a provider of home health care services, is also a wholly-owned subsidiary of MCD Foundation. Id. at ¶ 12. Defendant MCD Holding, whose corporate relationship to the other defendants, if any, is undefined by the complaint, provides infusion therapy to patients in the home.¹Id. at ¶ 9.

As a home health care agency, plaintiff offers a spectrum of health services encompassing the provision of skilled nursing care, various therapies, health aide services, injectable pharmaceutical and nutritional products, and medical equipment to patients in the home. Id. at ¶ 20. Consumers of home health care services are primarily patients who are discharged from hospitals in need of follow-up care. Id. at ¶ 21. According to the complaint, hospitals are the main source of referrals for home health care business and enjoy "absolute market power relative to the home health care business." Id. at ¶¶ 22-24. In addition, physicians, who are the second largest source of home health care referrals, "are generally coerced by their affiliated hospitals to support the home care agencies in which the hospitals have an economic interest." Id. at ¶ 22.

Plaintiff also alleges that changes in health care reimbursement practices have resulted in reduction of the average length of stay for hospital patients, thus causing hospitals to seek revenues in new and diverse business ventures such as home health care. Id. at ¶¶ 26-27. The complaint states that expansion of hospital services into the home health market, a market that hospitals directly control, is fraught with potential for antitrust abuse. Id. at ¶ 28. In that same vein, Delaware Health alleges that the defendants stifled competition by hatching an ambitious home health care business plan to reap economic gain from the market power they enjoy in the home health industry in the New Castle County, Delaware area. Id. at ¶ 33. Plaintiff claims injury as a direct result of defendants' alleged illegal activities, id. at ¶ 52, and prays for monetary and injunctive relief. Id. at p. 18.

III. DISCUSSION

A. Standard for Motion to Dismiss under Rule 12(b)(6)

The purpose of a motion to dismiss under Fed.R.Civ.P. 12(b)(6) is to test the sufficiency of a complaint, not to resolve disputed facts or decide the merits of the case. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir.1993); 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1356 at 294 (2d ed. 1990). When considering a motion to dismiss, the Court should read the complaint generously, accept all of the allegations contained therein as true, and construe them in a light most favorable to the plaintiff. Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994). The Court will dismiss the complaint only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim which would entitle it to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957); ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir.1994).

The Federal Rules of Civil Procedure require plaintiff to present a short and plain statement of its claim showing that it is entitled to relief. Fed.R.Civ.P. 8. This rule applies with equal force in antitrust cases. See 2A J. Moore, Moore's Federal Practice § 8.174 n. 16 (1982); accord Knuth v. Erie-Crawford Dairy Coop. Ass'n, 395 F.2d 420 (3d Cir.), cert. denied, 410 U.S. 913, 93 S.Ct. 966, 35 L.Ed.2d 278 (1968); see also Quality Foods de Centro Am., S.A. v. Latin Am. Agribusiness Dev. Corp., S.A., 711 F.2d 989, 995 (7th Cir.1983); Seasongood v. K & K Ins. Agency, 548 F.2d 729, 733 (8th Cir.1977); Nagler v. Admiral Corp., 248 F.2d 319 (2d Cir.1957). In fact, the United States Supreme Court has mandated that in antitrust cases, where "proof is largely in the hands of the alleged conspirators, 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, 746, 96 S.Ct. 1848, 1853, 48 L.Ed.2d 338 (1976).

B. Sherman Act Section 1 Claim

Count I of Delaware Health's complaint asserts a claim against all defendants for "Combination and Conspiracy in Restraint of Trade and to Monopolize." D.I. 1 at 10. Plaintiff avers that the defendants "have engaged in an unlawful conspiracy to unreasonably restrain and monopolize the market for home health care services, particularly the market for home infusion products and services, in violation of Section 1 of the Sherman Act, 15 U.S.C. Section 1." Id. at ¶ 35. Section 1 of the Sherman Act provides that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade, or commerce among the several States, or with foreign nations, is declared to be illegal." 15 U.S.C. § 1.

In Fuentes v. South Hills Cardiology, 946 F.2d 196 (3d Cir.1991), a group boycott case, the Third Circuit Court of Appeals outlined the elements a plaintiff must allege to withstand a motion to dismiss under section 1 of the Sherman Act: (1) a contract, combination, or conspiracy by the defendants; (2) a restraint of trade; and (3) an effect on interstate commerce. Id. at 198. In their motion to dismiss, defendants argue that the complaint fails to allege the requisite concerted action necessary for a section 1 claim. Defendants argue that MCD Holding, the Medical Center, and VNA are all wholly-owned subsidiaries of MCD Foundation, and as such, comprise a single enterprise and are legally incapable of conspiring with each other for Sherman Act section 1 purposes. D.I. 16 at p. 11 (citing Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 769, 104 S.Ct. 2731, 2741, 81 L.Ed.2d 628 (1984) (parent corporation and wholly-owned subsidiary could not engage in concerted action in violation of section 1 as a matter of law)); see also Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 205 (3d Cir.1992) (same), cert. denied, ___ U.S. ___, 113 S.Ct. 1285, 122 L.Ed.2d 677 (1993).

In the context of a Rule 12(b)(6) motion to dismiss, the Court must limit its consideration to the well-pleaded facts alleged by plaintiff in its complaint, Biesenbach v. Guenther, 588 F.2d 400, 402 (3d Cir.1978), and accept them as true, Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994). Plaintiffs have not alleged the corporate relationship, if any, of defendant MCD Holding to the other defendants; the complaint sets forth no factual basis for finding that MCD Holding is a wholly-owned subsidiary of MCD Foundation. At this embryonic stage of the proceedings, viewing the allegations in the light most favorable to the plaintiff, there is no lack of the required concerted action under section 1 of the Sherman Act as between MCD Holding and the remainder of the MCD Foundation-owned defendants.

Under the standard enunciated in Fuentes, plaintiff must plead the facts constituting the conspiracy, its object and accomplishment. Fuentes, 946 F.2d at 202. Plaintiff must also adequately plead sufficient facts as to defendants' alleged restraint of trade. Id....