Fed. Trade Comm'n v. Phoebe Putney Health System Inc.

• Decision Date: 27 June 2011
• Docket Number: Case No. 1:11–cv–58 (WLS).
• Citation: 2011 Trade Cases P 77508,793 F.Supp.2d 1356
• Parties: FEDERAL TRADE COMMISSION and The State of Georgia, Plaintiffs,v.PHOEBE PUTNEY HEALTH SYSTEM INC., Phoebe Putney Memorial Hospital, Inc., Phoebe North, Inc., Palmyra Park Hospital Inc., and Hospital Authority of Albany–Dougherty County, Defendants.
• Court: U.S. District Court — Middle District of Georgia

793 F.Supp.2d 1356

2011-1 Trade Cases P 77,508

FEDERAL TRADE COMMISSION and The State of Georgia, Plaintiffs,

v.PHOEBE PUTNEY HEALTH SYSTEM INC., Phoebe Putney Memorial Hospital, Inc., Phoebe North, Inc., Palmyra Park Hospital Inc., and Hospital Authority of Albany–Dougherty County, Defendants.

Case No. 1:11–cv–58 (WLS).

United States District Court, M.D. Georgia, Albany Division.

June 27, 2011.

Edward D. Hassi, Goldie V. Walker, Joseph S. Brownman, Maria M. Dimoscato, Matthew K. Reilly, Matthew Tabas, Norman A. Armstrong, Oscar Voss, Peter C. Herrick, Priya Viswanath, Richard A. Feinstein, Scott Reiter, Thomas H. Brock, W. Stephen Stockwell, Jr., Willard K. Tom, Federal Trade Commission, Washington, DC, Sara Y. Razi, Federal Trade Commission, Pennsylvania Ave, NW, Stewart R. Brown, United States Attorney's Office, Macon, GA, Alex F. Sponseller, Isaac Byrd, Samuel Scott Olens, Sidney Ray Barrett, Jr., Atlanta, GA, for Plaintiffs.Amy McCullough, Baudino Law Group, PLC, Emmet J. Bondurant, II, John Hinton Parker, Jr., Robert Michael Brennan, Frank M. Lowrey, IV, Michael A. Caplan, Ronan Patrick Doherty, Atlanta, GA, James C. Egan, Jr., Jonathan L. Sickler, Lee Kavel Van Voorhis, Washington, DC, Aimee H. Goldstein, Jennifer Rie, Kevin J. Arquit, Meryl G. Rosen, Nicholas F. Cohen, Paul C. Gluckow, New York, NY, Charles Edward Peeler, Flynn Peeler & Phillips, LLC, Karin A. Middleton, Baudino Law Group, PLC, Edgar Baughn Wilkin, Jr., Albany, GA, David J. Darrell, Robert J. Baudino, Jr., Des Moines, IA, for Defendants.

PUBLISH

SANDS, District Judge.

Before the Court are Plaintiffs Federal Trade Commission's (FTC) and State of Georgia's Motion for Preliminary Injunction (hereinafter “PI Motion”) (Doc. 5); Hospital Authority of Albany–Dougherty County's (“the Authority”) ¹ Motion to Dismiss or Alternatively, for Summary Judgment and to Vacate the Temporary Restraining Order (“TRO”) (Doc. 45); HCA, Inc.'s (“HCA”) and Palmyra Park Hospital, Inc.'s (“Palmyra”) ² Cross–Motion to Dismiss or Alternatively, for Summary Judgment and to Dissolve the TRO (Doc. 46); and Defendants Phoebe Putney Health System Inc.'s (“PPHS”), Phoebe Putney Memorial Hospital, Inc.'s (“PPMH”), and Phoebe North, Inc.'s (“PNI”) (hereinafter collectively referred to as “Phoebe Putney”) ³ Motion to Dismiss and Vacate the TRO (Doc. 53) (hereinafter collectively referred to as “Motions to Dismiss”). For reasons thoroughly set forth below, the Court DENIES Plaintiffs' Motion for Preliminary Injunction (Doc. 5), and GRANTS Defendants' Motions to Dismiss (Docs. 45, 46, 53) ⁴.

PROCEDURAL and RELEVANT FACTUAL BACKGROUND

Pursuant to section 13(b) of the Federal Trade Commission Act (hereinafter “FTCA”), see 15 U.S.C. § 53(b),⁵ and section 16 of the Clayton Act, see id. § 26,⁶ on April 21, 2011, Plaintiffs commenced this suit and filed a Motion for a Temporary Restraining Order (TRO) and PI Motion, which is pending before the Court, seeking to temporarily as well as preliminarily enjoin Defendants, including their divisions, parents, subsidiaries, affiliates, partnerships, or joint ventures, from consummating the completion of the alleged acquisition of Palmyra by Phoebe Putney. ( See Doc. 2 at 1–2; see also Doc. 5 at 1–2). They base their Complaint on the following chronology of facts, which they, in turn, assert as grounds for the Court's grant of their PI Motion:

In July 2010, Joel Wernick, PPHS's President and CEO, authorized Robert Baudino, a consultant and attorney engaged by PPHS, to begin discussions with HCA regarding the possible acquisition of Palmyra by Phoebe Putney. (Doc. 2 ¶ 32). According to the Complaint, Baudino began negotiations on behalf of PPHS to acquire Palmyra in August 2010. ( Id.). HCA's significant cash offer demand, however, made it difficult for PPHS to find an independent investment bank to issue a fairness opinion opining that the price required by HCA for Palmyra was fair. Consequently, Baudino proposed that the transaction be structured so that the Authority would acquire Palmyra, a solution that would also avoid the risk of antitrust enforcement, as demanded by HCA. ( Id. ¶ 37). As proposed, the Authority would simply buy Palmyra, with PPHS guaranteeing the purchase price and the Authority's performance under the purchase agreement. ( Id. ¶ 38). Once the Authority obtained title, it would lease Palmyra to PPHS for $1.00 per year for forty years on terms similar to the 1990 Lease between PPMH, Inc. and the Authority. ( Id.).

On October 21, 2010, Wernick and Tommy Chambless, PPHS's general counsel, held a thirty-minute informational session with two of the Authority's members, Ralph Rosenberg and Charles Lingle. The entire Authority, however, was not presented with the proposed transaction until December 21, 2010, after PPHS made a formal offer to HCA for Palmyra on November 16, 2010; the PPHS Board approved the final terms of the deal between PPHS and HCA on December 2, 2010, including PPHS's guarantee of $195 million payment and agreement to pay a $35 million break-up fee and/or rescission fee; and PPHS and HCA entered into a Termination Agreement that required PPHS to pay $17.5 million if the Authority did not approve, in the exact form as negotiated, the Asset Purchase Agreement. ( Id. ¶¶ 47–49).

At the December 21, 2010 special Authority meeting on the proposed transaction, Baudino, who appeared as special counsel to the Authority, presented the terms of the transaction using a presentation from PPHS's December 2, 2010 Board meeting. (Doc. 2 ¶¶ 37, 49). The members then voted to approve the Asset Purchase Agreement and the Termination Agreement, exactly as negotiated, Ex. PX008–04, as well as a Management Agreement between the Authority and Phoebe Putney. ( Id. ¶ 50). Effective March 1, 2011, and set to “automatically terminate upon the effective date of [the putative] executed lease,” the Management Agreement granted the entity formed by PPHS control over Palmyra's operations immediately upon the closing of the transaction. Ex. PX009 § 7.03(c). Several months later, on April 4, 2011, the Authority approved a lease term sheet prepared by Baudino that clarifies the December 21, 2011 Resolutions approved by the Authority as well as the Authority's plan to lease Palmyra's and PPMH's assets to Phoebe Putney under a single lease. (Doc. 2 ¶ 52).

On these facts, Plaintiffs assert in their Complaint and Memorandum in Support of their PI and TRO Motions that Phoebe Putney and the Authority have structured the subject transaction to avoid antitrust enforcement by the FTC through the sale of Palmyra to the Authority, the grant of management and operational control over Palmyra's assets to PPHS pursuant to the Management Agreement, and the subsequent lease of Palmyra to a PPHS entity for forty years. ( Id. ¶¶ 2–7). Thus, the acquisition of Palmyra—the acquirer of which Plaintiffs claim is the Authority only on paper but Phoebe Putney in reality—will create a virtual monopoly for inpatient general acute care services in Albany, Dougherty County, Georgia, by eliminating competition between PPMH and Palmyra, the only two major hospitals that service not only the Albany, Dougherty County community, but the communities of the surrounding six counties. ( Id. ¶ 1).

Accordingly, Plaintiffs center their Complaint on the need for the Court to aid in the maintenance of the status quo during the FTC's ongoing administrative proceedings, which includes a September 19, 2011 trial on the merits of the legality of Phoebe Putney's alleged acquisition of Palmyra. ( See id. ¶¶ 91–95; see also Doc. 7). They further maintain that Defendants are not entitled to state action immunity because the Authority was not sufficiently involved in the transaction, and PPHS, as a private party, entirely negotiated, structured, and executed the subject transaction without the independent analysis and oversight of the Authority. ( See Doc. 2 ¶¶ 85–89). Injunctive relief, according to Plaintiffs, is therefore necessary and appropriate in this case to prevent competitive harm during the pendency of the FTC administrative proceedings. (Doc. 7 at 6–7).

In consideration of the foregoing factual allegations and assertions, the Court granted Plaintiffs' Motion for TRO (Doc. 4) on April 22, 2011 (Doc. 9).⁷ Approximately a month thereafter, Defendants filed their Motions to Dismiss,⁸ wherein they argue that the state action doctrine indisputably immunizes their conduct from antitrust scrutiny and thereby moots Plaintiffs' PI Motion and require its denial. ( See generally Docs. 45–46, 53). To Defendants, the Authority's acquisition of Palmyra as documented in the Asset Purchase Agreement is state action that is immune from the federal antitrust laws. (Doc. 45–1 at 19).

After a day-long hearing on June 13, 2011, on Plaintiffs' PI Motion and Defendants' Motions to Dismiss, said Motions are left pending for the Court to decide. The Parties have fully briefed the issues surrounding Plaintiffs' request for preliminary injunctive relief and Defendants' request for dismissal—namely, state action antitrust immunity. Before assessing the substance of the Parties' arguments in the context of the relevant law, the Court first must resolve a preliminary dispute between the Parties concerning the scope of issues for the Court's review under section 7 of the Clayton Act. It then turns to Defendants' Motions to Dismiss (Docs. 45, 46, 53)—specifically, the potential application of state action to the Authority, Phoebe Putney, and HCA/Palmyra—and if the Court finds that state action is inapplicable, to Plaintiffs' PI Motion (Doc. 5).

DISCUSSION

I. Defendants' Motions to Dismiss

a. Standard of Review

In light of Defendants' asserted antitrust immunity, Defendants' Motions to Dismiss are brought pursuant to Fed.R.Civ.P. 12(b)(6) ⁹ for what Defendants contend is Plaintiffs' failure to state claims against Defendants for violations of the Clayton Act and FTCA. ( See Docs. 45, 46,...