Gold Cross Ambulance v. City of Kansas City
| Decision Date | 07 May 1982 |
| Docket Number | No. 80-1131-CV-W-7.,80-1131-CV-W-7. |
| Citation | 538 F. Supp. 956 |
| Parties | GOLD CROSS AMBULANCE, et al., Plaintiffs, v. CITY OF KANSAS CITY, et al., Defendants. |
| Court | U.S. District Court — Western District of Missouri |
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C. Robert Buckley, Independence, Mo., for plaintiffs.
George E. Leonard, Shughart, Thomson & Kilroy, Kansas City, Mo., for defendants MAST, 4th Party, Inc., and Jack Stout.
Steven E. Wermcrantz, Linde, Thomsom, Fairchild, Langworthy, Kohn & Van Dyke, Kansas City, Mo., for defendants Hadley Reimal, Lawrence Hughes, June and Eugene DeSaulniers.
Wm. D. Geary, Asst. City Atty., Kansas City, Mo., for defendant City of Kansas City.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS, WHICH ARE BEING TREATED AS MOTIONS FOR SUMMARY JUDGMENT
Plaintiffs Gold Cross Ambulance (Gold Cross) and Transfer & Standby Services, Inc. (Transfer), two privately-run ambulance companies operating out of Independence, Missouri, bring this five-count complaint against multiple defendants. Count I alleges a violation of Section 1 of the Sherman Act. Plaintiffs contend that defendants Lawrence Hughes, Hadley Reimal, June DeSaulniers and Eugene DeSaulniers consolidated their previously separate ambulance companies into a single corporation, Ambulance Services, Inc.,1 (ASI), for the purpose of restraining trade. Plaintiffs further allege that these defendants, along with defendant Jack Stout and Stout's company, Fourth Party, Inc., conspired with officials of defendant City of Kansas City and Metropolitan Ambulance Services Trust (MAST), a trust established by the City to oversee the provision of ambulance services, to restrain trade by creating an ambulance service system in which only one ambulance company is allowed to operate in the City.
Count II alleges that defendants have violated Section 2 of the Sherman Act by taking action to monopolize the ambulance service industry in Kansas City. Plaintiffs further allege that defendant MAST has encouraged other municipalities to enact the same type of ambulance service system which Kansas City operates.
Count III alleges violations of the Missouri antitrust statutes, Mo.Rev.Stat. § 416.031 et seq., which outlaw conspiracies in restraint of trade and conduct taken in an attempt to further a monopoly.
Count IV is a 42 U.S.C. § 1983 claim in which plaintiffs allege that they have been deprived of their substantive due process, procedural due process, and equal protection rights. Plaintiffs also allege that defendants have deprived the citizens of Kansas City of their right to choose which ambulance companies they wish to have serve them.
Count V, which is brought directly under the Fourteenth Amendment to the United States Constitution, alleges that defendants have deprived plaintiffs of their due process rights. Plaintiffs also reiterate their claim that defendants are violating the right of Kansas Citians to choose their ambulance company.
Plaintiffs originally filed their case in Missouri state court, alleging only Missouri antitrust law violations and § 1983 claims. Defendant MAST removed to federal court and filed a counterclaim alleging that plaintiffs had violated the federal antitrust laws. MAST then moved for a preliminary injunction against plaintiffs; this motion was denied by Judge Scott O. Wright after a three-day hearing during which numerous witnesses testified regarding the nature of the ambulance service industry and the history of Kansas City's enactment of a onecompany system. Plaintiffs later amended their complaint to include Sherman Act claims, and all defendants subsequently moved to dismiss the amended complaint. These motions to dismiss are now before the Court.2
Ambulance service in Kansas City has had a varied history. Some years ago the City operated a municipal ambulance service. In more recent times, however, several separate, privately-run ambulance companies operated in the area. Among these companies were plaintiffs Gold Cross and Transfer, as well as the separate companies run by defendants Hughes, Reimal and the DeSaulniers.
In the late 1970's Kansas City officials became concerned about the quality of Kansas City's ambulance service. They were particularly concerned about the private ambulance companies' slow response to emergency calls. The City formed a Public Safety Improvement Committee to look into the problem, and the Committee reported its findings to the City Council on March 20, 1979. On March 30, 1979 the City Council adopted a resolution expressing its intent to improve ambulance service within the City and committing itself to provide emergency ambulance service by a single operating entity. The City also hired a consultant, Jack Stout, to study the feasibility of implementing a single-company system in Kansas City. Mr. Stout has developed what is called the "public utility model" for ambulance service in which numerous, competing ambulance companies are replaced by a single-company system. The public utility model is intended to deal with the major problems inherent in the free-market system.
Emergency ambulance service requires expensive advanced life support equipment. Ambulance companies have little or no control over emergency service costs, and they have difficulty collecting their fees for emergency work. Non-emergency calls are far more profitable since the service is less expensive to provide and the company is more likely to be paid for its work.3 Ambulance companies operating in an unregulated market thus tend to concentrate on answering non-emergency calls rather than on providing quick, high quality emergency care.
The public utility model seeks to remedy this problem by employing a single ambulance service company and making the company's profitability to its owners contingent on the quality of the service it provides rather than on its ability to collect its bills. Under the public utility model the ambulance company contracts with the City to provide a certain level of medical care and to meet certain response time standards. The ambulance company has a strong incentive to answer each service call quickly and efficiently since the City pays the company in accordance with its ability to meet the contractual standards. If the ambulance company fulfills the crucial contract requirements, it will receive its contracted-for payment regardless of whether the City has been able to collect for the services rendered by the company. If the fees collected by the City do not cover the amount owed to the ambulance company, the City makes up the difference by way of a government subsidy. Under the public utility model the City also owns all the ambulance service equipment, thus minimizing the danger that service will be interrupted by any financial problems which the ambulance service company may experience.
For the public utility model to be economically feasible it is necessary that the municipally licensed company be the only ambulance service allowed to do business in the City. If other, privately-run companies are allowed to operate freely, they will "skim the cream" by taking virtually all the high profit, nonemergency calls and leaving the emergency business to the municipal system.
In November, 1979, the Kansas City Council enacted an ambulance service ordinance incorporating the major aspects of the public utility model.4 The first ambulance service contract was given to ASI, the corporation which had been formed by the merger of the ambulance companies run by defendants Hughes, Reimal and the DeSaulniers. The ordinance as enacted requires that there be a competitive bidding process to determine which company will be awarded the city license. However, no competitive bidding procedure was held before the first license was granted because, according to the statements of defendant Kansas City, ASI was the only state-licensed company in the area which could possibly provide ambulance services on the scale necessary to make the single-provider concept work.
Kansas City concedes that, by granting the sole city license to ASI, it has closed other companies out of a major part of the Kansas City ambulance service market. Companies such as Gold Cross and Transfer can bring patients to Kansas City hospitals if they pick them up outside Kansas City city limits. They can also travel through Kansas City on their way to other areas. However, they cannot pick up patients within the city limits. Clearly, this greatly limits plaintiffs' ability to do business in the Kansas City area. Plaintiffs state that they have had to turn down several large non-emergency service contracts because of Kansas City's refusal to grant them a license.
This case presents a number of close and complex issues. We deal first with the federal antitrust claims brought against defendants Kansas City and MAST. The most important issues involve the State Action Exemption to the antitrust laws and the Tenth Amendment.
Kansas City argues that the restraints it has placed on the ambulance service industry are permissible under the state action exemption to the antitrust laws.
The state action exemption allows governmental bodies to engage in anticompetitive activities which would amount to antitrust violations if engaged in by private parties. Over the years this exemption has come to apply to cases where the state itself has directed or authorized anticompetitive practices in a "clearly articulated and affirmatively expressed" manner, and where the state actively supervises the enforcement of the anticompetitive regulations.
In analyzing Kansas City's ambulance service system to determine whether it meets the state action exemption, it is necessary to examine carefully the development of the exemption. An understanding of both the factual background and the legal reasoning of the major...
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