Fuentes v. South Hills Cardiology

• Decision Date: 14 December 1990
• Docket Number: No. 90-3493,90-3493
• Parties: 1991-2 Trade Cases P 69,599 Michael A. FUENTES, M.D., Appellant, v. SOUTH HILLS CARDIOLOGY, St. Clair Hospital, Robert Coyle, M.D., Frank Concilus, M.D., Harshad Mehta, M.D., Richard Russman, M.D. and Clara Jean Ersoz, M.D. . Submitted Under Third Circuit Rule 12(6)
• Court: U.S. Court of Appeals — Third Circuit

Page 196

946 F.2d 196

1991-2 Trade Cases P 69,599

Michael A. FUENTES, M.D., Appellant, v. SOUTH HILLS CARDIOLOGY, St. Clair Hospital, Robert Coyle,

M.D., Frank Concilus, M.D., Harshad Mehta, M.D.,

Richard Russman, M.D. and Clara Jean Ersoz, M.D.

No. 90-3493.

United States Court of Appeals, Third Circuit.

Submitted Under Third Circuit Rule 12(6)

Dec. 14, 1990.

Decided Oct. 1, 1991.

Byrd R. Brown, Law Offices of Byrd R. Brown, Pittsburgh, Pa., for appellant.

Walter A. Koegler, Koegler & Tomlinson, Dara A. DeCourcy, Zimmer Kunz Loughran Hart Lazaroff Trenor Banyas & Conaway, Pittsburgh, Pa., for appellees, South Hills Cardiology, Robert Coyle, M.D., Frank Concilus, M.D., Harshad Mehta, M.D.

Richard Russman, M.D., Ronald J. Rademacher, Thomson, Rhodes and Cowie, Pittsburgh, Pa., for appellees, St. Clair Hosp. and Clara Jean Ersoz, M.D.

Before SLOVITER, Chief Judge, ^* MANSMANN, Circuit Judge, and SAROKIN, District Judge. ^**

OPINION OF THE COURT

MANSMANN, Circuit Judge.

In this appeal from the dismissal of his antitrust claim under section 1 of the Sherman Antitrust Act, Dr. Michael Fuentes contends that he adequately pled the requisite jurisdictional element of interstate commerce. We revisit the question of the adequacy of the jurisdictional facts which must be pled for a Sherman Act claim, see, e.g., Miller v. Indiana Hospital, 843 F.2d 139, 144 n. 5, cert. denied, 488 U.S. 870, 109 S.Ct. 178, 102 L.Ed.2d 147 (1988), in light of the recent instruction provided in Summit Health, Ltd. v. Pinhas, --- U.S. ----, 111 S.Ct. 1842, 114 L.Ed.2d 366 (1991). ¹ Because we hold that, under the standard provided in Summit Health, Fuentes has adequately pled the element of interstate commerce necessary to invoke federal jurisdiction, we reverse the district court's order dismissing the case and remand for further proceedings.

I.

Because this action was dismissed for lack of jurisdiction before the filing of any responsive pleading, we accept as true the factual allegations in the complaint and all reasonable inferences that can be drawn from them. Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir.1988). We thus review the facts in that light.

Dr. Michael Fuentes was employed as a cardiologist by South Hills Cardiology from July 1, 1986, until August 29, 1986, when he was terminated purportedly as a result of a disagreement concerning patient care. Fuentes's staff privileges at St. Clair Hospital, in Pittsburgh, Pennsylvania, were terminated on September 4, 1986. Fuentes's subsequent efforts to obtain employment in his field of specialty--cardiology--both within and outside of Pennsylvania proved fruitless. Fuentes then commenced this action in March of 1989, alleging in Count II that South Hills Cardiology, St. Clair Hospital and five individual physicians ² acted in concert to effect an interstate boycott of Fuentes in violation of section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, et. seq. ³

The United States District Court for the Western District of Pennsylvania referred the matter to a United States Magistrate Judge, who, upon the defendants' motion to dismiss, granted Fuentes an opportunity to amend his complaint "to set[ ] forth with specificity those jurisdictional and factual issues upon which he relies." ⁴ Fuentes's amended complaint contained the following additional allegations, under "Count III" entitled "Violation of Interstate Commerce":

40. At the time of Dr. Fuentes' termination of hospital privileges, a major portion of St. Clair Hospital's facilities had been financed by federal or out of state funds.

41. At the same time, a substantial portion of the hospital's revenue was generated from federal funds such as Medicare and Medicaid or third party payers located outside of the state.

42. Dr. Fuentes' practice, which included nuclear cardiology at St. Clair's department, generated a national reputation and attracted a significant number of out of state patients.

43. Furthermore, the negative recommendations offered by the Defendants to other health providers to which Dr. Fuentes made application prohibited and/or restricted him free access to practice his profession.

The defendants moved a second time for dismissal under Rules 12(b)(1) and/or 12(b)(6) of the Federal Rules of Civil Procedure. The Magistrate Judge recommended dismissal upon both grounds, finding that: first, "[the] amended complaint [does] not show that defendants' conduct affects interstate commerce or that defendants maintain an interstate practice," and second, Fuentes has "not shown the existence of a group boycott." By order of June 20, 1990, the district court granted the motion to dismiss, adopting the Magistrate Judge's Report as its opinion.

II.

A.

Three elements must be alleged to sustain a cause of action under section 1 of the Sherman Act, 15 U.S.C. § 1 (1982): a contract, combination or conspiracy; a restraint of trade; and an effect on interstate commerce. Weiss v. York Hospital, 745 F.2d 786, 812 (3d Cir.1984), cert. denied, 470 U.S. 1060, 105 S.Ct. 1777, 84 L.Ed.2d 836 (1985). The jurisdictional defect alleged here turns on the third element of interstate commerce. As recognized in the Magistrate Judge's Report adopted by the district court, in order to satisfy the interstate commerce element, the defendants' proscribed conduct must be within the stream of interstate commerce or have had a substantial and adverse effect on interstate commerce. Weiss, 745 F.2d at 824.

The Magistrate Judge concluded, however, that Fuentes's "conclusory" allegations failed to plead sufficient facts to establish the jurisdictional element of commerce:

The plaintiff has failed to show, for instance, the percentage of out-of-state patients [a]ffected by the defendants' actions ..., or the percentage of the hospital's annual income derived from Medicare and/or amounts it receives from federal grants-in-aid ..., the amount of drugs and equipment purchased by the hospital in interstate commerce ..., or the percentage of patient bills paid by third-party payors.... (citations omitted).

The Report relied upon Miller v. Indiana Hospital, 562 F.Supp. 1259, 1285-86 (W.D.Pa.1983), reversed on other grounds, 843 F.2d 139 (3d Cir.), cert. denied, 488 U.S. 870, 109 S.Ct. 178, 102 L.Ed.2d 147 (1988), for its finding that Fuentes inadequately quantified the alleged effect on interstate commerce. In Miller, the district court followed the "effect on commerce" test enunciated in McLain v. Real Estate Bd. of New Orleans, Inc., requiring that the jurisdictional prerequisite " 'is the existence of a demonstrable nexus between the defendants' activity and interstate commerce.' " Miller, 562 F.Supp. at 1284 (quoting McLain, 444 U.S. 232, 246, 100 S.Ct. 502, 511, 62 L.Ed.2d 441 (1980)). Miller provided an opportunity to amend the complaint and suggested detailed factual allegations that could supply the requisite nexus. Miller, 562 F.Supp. at 1284. On appeal, the parties did not contest this issue, but we recognized, in dicta, that allegations concerning the defendant hospital's out-of-state contacts--patients, receipt of medical supplies and federal funds--"satisfies the requirement of affecting interstate commerce." Miller, 843 F.2d at 144 n. 5.

In Weiss v. York Hospital, likewise relied upon by the Magistrate Judge, we did not address the quantum of evidence required for jurisdiction; rather, we reviewed the substantial evidence produced at trial to conclude that it is the defendant's activities, rather than the plaintiff's, that must satisfy the substantive interstate commerce element. 745 F.2d at 824 n. 65.

B.

Subsequent to the Magistrate Judge's Report and after this appeal was filed, the Supreme Court made clear in Summit Health, Ltd. v. Pinhas, that a quantification of interstate commerce is not necessary in order to satisfy this jurisdictional element. --- U.S. ----, 111 S.Ct. 1842, 1847-48, 114 L.Ed.2d 366 (1991). There an ophthalmologist, terminated by a peer review board, filed a section 1 Sherman Act antitrust action, alleging that he was the victim of a group boycott. The defendant challenged the complaint on the basis that it did not "satisfy the jurisdictional requirements of the Sherman Act ... because it [did] not describe a factual nexus between the alleged boycott and interstate commerce." Id. 111 S.Ct. at 1844.

The Court rejected the defendant's argument for two reasons. First, "the proper analysis focuses not upon actual consequences, but rather upon the potential harm that would ensue if the conspiracy were successful." Because a Sherman Act violation can be established even absent proof of an anticompetitive effect where an unlawful purpose is proven, United States v. United States Gypsum Co., 438 U.S. 422, 436, n. 13, 98 S.Ct. 2864, 2873, n. 13, 57 L.Ed.2d 854 (1978), the Court reasoned that Sherman Act jurisdiction could not require "an actual effect on interstate commerce." Summit Health, --- U.S. at ----, 111 S.Ct. at 1847.

Second, the Court declined to adopt the restrictive view that any anticompetitive effect on trade was limited only to Dr. Pinhas. "[A] violation of the Sherman Act ... is necessarily more significant than the fate of 'just one merchant whose business is so small that his destruction makes little difference to the economy.' " Id. at 1848 (quoting Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 213, 79 S.Ct. 705, 710, 3 L.Ed.2d 741 (1959) (footnote omitted)). The Court concluded that "[t]he competitive significance of [the plaintiff's] exclusion from the market must be measured, not just by a particularized evaluation of his own practice, but rather, by a general evaluation of the impact of the restraint on other participants and potential participants in the market from which he has been excluded." Summit Health, --- U.S. at ----, 111 S.Ct. at 1848. Because that market was the ophthalmological market in Los Angeles, the Court determined that denying the plaintiff "access to the market...