Fed. Trade Comm'n v. OSF Healthcare Sys.

• Decision Date: 05 April 2012
• Docket Number: No. 11 C 50344.,11 C 50344.
• Citation: 852 F.Supp.2d 1069
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. OSF HEALTHCARE SYSTEM, and Rockford Health System, Defendants.
• Court: U.S. District Court — Northern District of Illinois

852 F.Supp.2d 1069

FEDERAL TRADE COMMISSION, Plaintiff,

v.OSF HEALTHCARE SYSTEM, and Rockford Health System, Defendants.

No. 11 C 50344.

United States District Court,

N.D. Illinois,

Western Division.

April 5, 2012.

Matthew J. Reilly, Andrea Elisa Zach, Jeffrey H. Perry, Jeremy Morrison, Kajetan Rozga, Katherine Amy Ambrogi, Kenneth W. Field, Nancy Park, Paul Nolan, Peter Clemens Herrick, Richard Cunningham, Sarah Swain, Stephanie Lynn Reynolds, U.S. Federal Trade Commission, Washington, DC, for Plaintiff.

Alan I. Greene, Kristin Mary Kurczewski, Matthew John O'Hara, Nabil G. Foster, Hinshaw & Culbertson LLP, David Marx, William Paul Schuman, Amy J. Carletti, McDermott, Will & Emery LLP, Chicago, IL, Ambrose V. McCall, Hinshaw & Culbertson LLP, Peoria, IL, Michael F. Iasparro, Hinshaw & Culbertson, Rockford, IL, Carla A.R. Hine, Daniel Gerard Powers, James B. Camden, Jeffrey W. Brennan, Nicole L. Castle, Rachael V. Lewis, McDermott Will & Emery LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION AND ORDER

FREDERICK J. KAPALA, District Judge:

Currently before the court is a motion by plaintiff, the Federal Trade Commission (“FTC”), pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), for a preliminary injunction enjoining defendants, OSF Healthcare System (“OSF”) and Rockford Health System (“RHS”), from consummating their affiliation agreement executed on January 31, 2011, or otherwise acquiring each other's assets or interests. After a thorough review, the court grants the FTC's motion and will order the parties to maintain the status quo and not proceed with the proposed merger until such time as the FTC has concluded its administrative trial on the merits of the underlying antitrust claims.

I. BACKGROUND¹

Defendant OSF is a not-for-profit health care system that owns and operates severalacute care hospitals in Illinois, including St. Anthony Medical Center (“SAMC”) in Rockford, Illinois. PX2501 ¶ 17. Defendant RHS is a not-for-profit health care system that owns and operates Rockford Memorial Hospital (“RMH”), also located in Rockford, Illinois. Id. ¶ 20. Defendants first began discussing a possible affiliation of the two Rockford hospitals in the spring of 2009, and by May 2010, they had executed a letter of intent. Tr. at 592–93. After performing “intensive due diligence,” defendants entered into an affiliation agreement on January 31, 2011. Tr. at 593; PX0037. Under the terms of the affiliation agreement, OSF will acquire all of the operating assets of RHS and will become the sole corporate member of RHS. PX0037 § 2.1. OSF will then combine the hospital and physician operations associated with SAMC and RMH to create a new health care system with the name OSF Northern Region. Id. § 2.4.

On November 17, 2011, after having investigated the proposed merger in this case, the FTC found reason to believe that the acquisition would violate Section 7 of the Clayton Act, 15 U.S.C. § 18, and initiated an administrative proceeding to determine the legality of the acquisition. See Doc. 1 ¶ 26. On November 18, 2011, the FTC filed its complaint and motion for preliminary injunction with this court.² Docs. 1, 5.

On February 1–3, 2012, following expedited discovery, the court held an evidentiary hearing on the FTC's motion, in which each side was permitted to present four witnesses during an equal allotment of time. The FTC presented two witnesses from managed care organizations (“MCOs”), Michelle Lobe, a regional vice president for network management with UnitedHealthcare, and Todd Petersen, CEO for Coventry Healthcare of Illinois, as well as two expert witnesses, Dr. Patrick Romano, M.D., M.P.H., a Professor of Medicine and Pediatrics at the University of California Davis School of Medicine, and Dr. Cory Capps, Ph.D., an economist with Bates White Economic Consulting. Defendants presented their own executives, David Schertz, President and CEO of OSF Healthcare System at SAMC, and Gary Kaatz, President and CEO of RHS; a local employer, Dean Olson of Rockford Acromatic Products Company; and an expert witness, Dr. Susan Manning, Ph.D., an economic consultant with Compass Lexecon. At the conclusion of the hearing, the parties moved for the admission of over 2,000 exhibits,³ and neither side indicated any objection. See Tr. at 948–49. At the time, the court did not admit the exhibits, but rather directed the parties to specify in their post-hearing submissions the exhibits upon which they were relying. Tr. at 949.

In addition to the transcript of the evidentiary hearing and the exhibits identified by the parties as relevant to this proceeding, the court has reviewed and considered the complaint, Doc. 1; the motion for preliminary injunction and supporting memorandum, Doc. 5, and defendants' response thereto, Doc. 50; the parties' pre-hearing memoranda, Docs. 150, 155; defendants' post-hearing brief, Doc. 176, and proposed findings of fact and conclusions of law, Doc. 177; the plaintiff's post-hearing brief, Doc. 182, proposed findings of fact, Doc. 183, and proposed conclusions of law, Doc. 184; and the parties' reply briefs, Docs. 188, 191.⁴ Based on this review, the court makes the following findings of fact and conclusions of law.

II. ANALYSIS

Section 7 of the Clayton Act prohibits acquisitions, including mergers, “where in any line of commerce or in any activity affecting commerce ... the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” 15 U.S.C. § 18. Section 7 is “designed to arrest in its incipiency ... the substantial lessening of competition from the acquisition by one corporation” of the assets of a competing corporation. United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 589, 77 S.Ct. 872, 1 L.Ed.2d 1057 (1957). Accordingly, “Congress used the words ‘may be substantially to lessen competition’ to indicate that its concern was with probabilities, not certainties.” Brown Shoe Co. v. United States, 370 U.S. 294, 323, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962); see also FTC v. Elders Grain, Inc., 868 F.2d 901, 906 (7th Cir.1989) (“Section 7 forbids mergers and other acquisitions the effect of which ‘may’ be to lessen competition substantially. A certainty, even a high probability, need not be shown.”). Although “ephemeral possibilities” of anticompetitive effects are not sufficient to establish a violation of Section 7, United States v. Marine Bancorp., Inc., 418 U.S. 602, 623, 94 S.Ct. 2856, 41 L.Ed.2d 978 (1974) (quotation marks omitted), the statute nevertheless requires “a prediction, and doubts are to be resolved against the transaction,” Elders Grain, 868 F.2d at 906.

Whenever the FTC has reason to believe that “any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission,” including Section 7 of the Clayton Act, it is authorized by § 13(b) of the FTC Act to “bring suit in a district court of the United States to enjoin any such act or practice.” 15 U.S.C. § 53(b). The district court may grant the request for a preliminary injunction “[u]pon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest.” Id. Therefore, “in determining whether to grant a preliminary injunction under section 13(b), a district court must (1) determine the likelihood that the FTC will ultimately succeed on the merits and (2) balance the equities.” FTC v. Univ. Health, Inc., 938 F.2d 1206, 1217 (11th Cir.1991).

It is important to bear in mind that, when ruling on a request for a preliminary injunction pursuant to § 13(b), “[t]he district court is not authorized to determine whether the antitrust laws have been or are about to be violated. That adjudicatory function is vested in FTC in the first instance.” FTC v. Food Town Stores, Inc., 539 F.2d 1339, 1342 (4th Cir.1976); see also FTC v. Whole Foods Mkt., Inc., 548 F.3d 1028, 1035 (D.C.Cir.2008) (explaining that, in a § 13(b) preliminary injunction proceeding, “a district court must not require the FTC to prove the merits” of its underlying antitrust claim); Univ. Health, 938 F.2d at 1218 (“[O]ur present task is not to make a final determination on whether the proposed acquisition violates section 7 ....” (alterations and quotation marks omitted)). Rather, “[t]he only purpose of a proceeding under [§ 13(b) ] is to preserve the status quo until FTC can perform its function.” Food Town, 539 F.2d at 1342.

A. Likelihood of Success

“To show a likelihood of ultimate success, the FTC must raise questions going to the merits so serious, substantial, difficult and doubtful as to make them fair ground for thorough investigation, study, deliberation and determination by the FTC in the first instance and ultimately by the Court of Appeals.” ⁵Univ. Health, 938 F.2d at 1218 (alteration and quotation marks omitted). “[T]he district court must evaluate the FTC's chance of success on the basis of all the evidence before it, from the defendants as well as from the FTC.” Whole Foods, 548 F.3d at 1035. Although the district court may not “simply rubber-stamp an injunction whenever the FTC provides some threshold evidence,” the FTC “does not need detailed evidence of anticompetitive effect at this preliminary phase.” Id. Instead, “at this preliminary phase it just has to raise substantial doubts about a transaction.” Id. at 1036;see also Univ. Health, 938 F.2d at 1218 (“[T]he government must show a reasonable probability that the proposed transaction would substantially lessen competition in the future.”); FTC v. Arch Coal, Inc., 329 F.Supp.2d 109, 116 (D.D.C.2004) (“[T]he FTC need only show that there is a reasonable probability that the Acquisition may substantially lessen competition.” (quotation marks omitted)); but cf. FTC v. Tenet Health Care Corp., 186 F.3d 1045, 1051 (8th Cir.1999) (“A showing of a fair or tenable chance of success on the...