F.T.C. v. University Health, Inc.

• Decision Date: 06 May 1991
• Docket Number: No. 91-8308,91-8308
• Citation: 938 F.2d 1206
• Parties: , 1991-2 Trade Cases 69,508 FEDERAL TRADE COMMISSION, Plaintiff-Appellant, v. UNIVERSITY HEALTH, INC., University Health Services, Inc., University Health Resources, Inc., Defendants-Appellees, Health Care Corporation of Sisters of St. Joseph of Carondelet, St. Joseph Center for Life, Inc., St. Joseph Hospital, Augusta, Georgia, Inc., Defendants-Intervenors, Appellees. . Order
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1206

938 F.2d 1206

60 USLW 2093, 1991-2 Trade Cases 69,508

FEDERAL TRADE COMMISSION, Plaintiff-Appellant, v. UNIVERSITY HEALTH, INC., University Health Services, Inc. University Health Resources, Inc., Defendants-Appellees Health Care Corporation of Sisters of St. Joseph of Carondelet, St. Joseph Center for Life, Inc., St Joseph Hospital, Augusta, Georgia, Inc. Defendants-Intervenors, Appellees.

No. 91-8308.

United States Court of Appeals, Eleventh Circuit.

Order May 6, 1991.

Decided July 26, 1991.

David C. Shonka, E.T.C., Washington, D.C., for plaintiff-appellant.

Kevin E. Grady, Atlanta, Ga., for Humana Hosp.

Wyck A. Knox, Jr., Gregg E. McDougal, Knox & Zacks, Patrick J. Rice, Hull, Towill, Norman & Barrett, Augusta, Ga., Robert W. McCann, Epstein, Becker & Green, P.C., Washington, D.C., Gary J. Toman, Knox & Zacks, Atlanta, Ga., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Georgia.

Before TJOFLAT, Chief Judge, BIRCH, Circuit Judge, and HILL, Senior Circuit Judge.

BY THE COURT:

The district court's order denying the Federal Trade Commission injunctive relief is reversed. The district court shall grant the requested injunction instanter. An opinion will follow.

IT IS SO ORDERED.

TJOFLAT, Chief Judge:

The Federal Trade Commission (FTC) filed this action to obtain a preliminary injunction pursuant to section 13(b) of the Federal Trade Commission Act (FTCA), 15 U.S.C. Sec. 53(b) (1988), ¹ to prevent the appellees from consummating an asset acquisition, which the FTC plans to challenge as violative of section 7 of the Clayton Act, 15 U.S.C. Sec. 18 (1988). ² Following a hearing, the district court held that the FTC had failed to demonstrate a likelihood of ultimate success in proving that the intended acquisition would substantially lessen competition; accordingly, the court denied the FTC's request for a preliminary injunction. In this appeal, we must answer two questions, both of which relate to whether it is likely that the FTC ultimately will prevail in its section 7 challenge. First, we must decide whether section 7 applies to asset acquisitions by nonprofit hospitals. We hold that it does. Second, we must determine whether the district court, in evaluating the FTC's section 7 challenge, correctly applied the law. We conclude that it did not. Therefore, we reverse the district court's judgment and grant the FTC its requested preliminary injunction.

I.

This case involves a proposed acquisition by appellees University Health, Inc. (UHI), University Health Services, Inc. (UHS), and University Health Resources, Inc. (UHR) (collectively, University). ³ UHS operates University Hospital, a nonprofit facility that it leases from the Richmond County (Georgia) Hospital Authority. University plans to acquire the assets of St. Joseph Hospital, Augusta, Georgia, Inc. (St. Joseph), a nonprofit entity owned by the Health Care Corporation of Sisters of St. Joseph of Carondelet (HCC), a Missouri nonprofit corporation run by the Roman Catholic church. ⁴

Under the proposed transaction, University would acquire most of the assets and interests of St. Joseph from HCC. ⁵ In return, HCC would receive University's fifty-percent interest in Walton Rehabilitation Hospital ⁶ and a cash settlement (based on the value of certain assets at closing). ⁷ The total transaction is worth over $38 million. A ten-year covenant not to compete, applicable to operations in the Augusta area, would require HCC to stay out of the general acute-care hospital market and University to stay out of the rehabilitation hospital market.

The appellees filed a premerger notification with the Department of Justice and the FTC as required by section 7A of the Clayton Act, 15 U.S.C. Sec. 18a (1988). The statutory waiting period, after which the appellees could consummate their proposed acquisition, was to expire on March 20, 1991. To forestall the acquisition, pending the outcome of the FTC's adjudicative proceedings, the FTC brought the instant action for preliminary injunctive relief on March 20. ⁸ The FTC is concerned because University's acquisition of St. Joseph's assets would eliminate a patient-oriented, general acute-care hospital from the market that serves Richmond and Columbia Counties in Georgia and Aiken County in South Carolina (the Augusta area). This, according to the FTC, would so concentrate the market that consumers likely would suffer at the hands of the four remaining hospitals in the market, in which University Hospital would be the dominant participant. Without a preliminary injunction, the appellees will consummate the transaction, hindering the FTC's ability to enforce effectively section 7 of the Clayton Act.

Following expedited discovery, the district court held a hearing on April 3 and 4 to decide whether to issue the preliminary injunction requested by the FTC. ⁹ The parties did not seriously dispute the material facts. ¹⁰ The court found the relevant market to be the provision of in-patient services by acute-care hospitals in the Augusta area. ¹¹ Presently, five hospitals compete in this market: University Hospital; St. Joseph; Humana Hospital, a for-profit facility in Augusta; Hospital Corporation of America, a for-profit hospital in Aiken; and the Medical College of Georgia, a state teaching hospital.

Following the proposed transaction, the court found, the relevant market would be extremely concentrated, with University Hospital controlling approximately forty-three percent of it. ¹² Furthermore, the court found that Georgia's certificate of need law, which restricts the ability of existing hospitals to expand their output and the ability of outsiders to build new hospitals, is a "substantial" barrier to entry into the relevant market. Thus, the market's concentration could not easily be dissipated by the entry of new competitors.

Despite these facts, the court concluded that it was not likely that the proposed acquisition would substantially lessen competition. First, the court noted that University Hospital and St. Joseph are nonprofit corporations. Because of this, the court assumed that they would not act anticompetitively; indeed, the court stated that "[t]he Board of University Hospital is quite simply above collusion." Second, although the court concluded that St. Joseph was not a "failing company," see infra note 28, it found that St. Joseph was a weak competitor in the relevant market. This, according to the court, showed that the acquisition would not substantially lessen competition--St. Joseph was not, in the court's view, a true competitor of University Hospital. Finally, the court noted that a "number of efficiencies ... would result from the [proposed] acquisition." Most importantly, the acquisition would eliminate duplicate expenses for capital outlays (like buildings or equipment) and administration. Moreover, the proposed acquisition would, in the court's words, eliminate "wasteful competition," that is, competition between St. Joseph and University Hospital in services for which demand is low. Thus, after considering all of these factors, the court decided that it was not likely that the proposed acquisition would substantially lessen competition.

Moreover, the court determined that the equities weighed in favor of not issuing the injunction. First, the court observed that "the denial [or delay] of the acquisition would operate to force upon the Sisters of a[ ] holy order a mission which [they do not choose to pursue]." Second, the court thought that competition would actually be enhanced by the acquisition, keeping prices low and quality of service high. Third, the court concluded that the injunction would deal "a serious blow to property values and to the public's perception of St. Joseph as a hospital service provider." Finally, the court posited that excess capacity (i.e., the existence of more hospital beds than necessary to service the Augusta area) "has produced diseconomies of scale ... [and] higher prices without reason"; by allowing the transaction to proceed, however, these problems would be solved. The court, therefore, denied the FTC's request for a preliminary injunction.

The FTC now appeals. It argues that the district court misapplied the law in evaluating whether to issue the preliminary injunction. The FTC contends that, by showing that the proposed acquisition would result in an extremely concentrated market, it was entitled to a presumption that the proposed acquisition would yield anticompetitive results. Additionally, the FTC contends, it buttressed its case by showing that a substantial barrier to entry exists in the relevant market.

The district court, according to the FTC, relied on legally insufficient factors to overcome the presumption that the proposed acquisition would substantially lessen competition. First, the court erroneously assumed that University Hospital, as a nonprofit entity, would not act anticompetitively. Second, argues the FTC, it is of no moment whether St. Joseph is a weak competitor; there is only, in limited circumstances, an exception for acquisitions of "failing companies," which St. Joseph is not. Nor, contrary to the district court's ruling, is there an efficiency defense to section 7 challenges. Thus, concludes the FTC, it has demonstrated a substantial likelihood of ultimate success on the merits.

Moreover, the FTC argues, it has shown that a balancing of the equities favors issuance of the injunction. Failure to issue the injunction would frustrate the FTC's ability to enforce the antitrust laws, which protect the public from anticompetitive behavior. In contrast, only private equities support the district court's decision not to issue the preliminary injunction; only HCC and University Hospital and its competitors stand to gain from this acquisition. Therefore, the court erred in failing to issue the injunction.

In response, the appellees contend that the...