Hospital Bldg. Co. v. Trustees of Rex Hosp., 73--1627

Citation511 F.2d 678
Decision Date18 February 1975
Docket NumberNo. 73--1627,73--1627
Parties1975-1 Trade Cases 60,166 HOSPITAL BUILDING COMPANY, Appellant, Federation of American Hospitals, Amicus Curiae, v. TRUSTEES OF the REX HOSPITAL, a corporation, et al., Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

John K. Train, III, and Timothy S. Perry, Atlanta, Ga. (Jordan, Morris & Hoke, Raleigh, N.C., and Alston, Miller & Gaines, Atlanta, Ga., and John R. Jordan, Jr., Raleigh, N.C., on brief), for appellant.

Carl Weissburg, Lawrence E. Mindell and Weissburg, Jacobs & Gerst, Los Angeles, Cal., on brief for amicus curiae Federation of American Hospitals.

Ray S. Bolze, Washington, D.C., and John H. Anderson, Raleigh, N.C. (Thomas W. Steed, Jr., Raleigh, N.C., John R. Fornaciari, Alexandria, Va., Allen, Steed & Pullen, and Smith, Anderson, Blount & Mitchell, Raleigh, N.C., Howrey, Simon, Baker & Murchison, Washington, D.C., Lillard H. Mount, Richard M. Hutson, II, and Hofler, Mount, White & Long, Durham, on brief), for appellees.

Before HAYNSWORTH, Chief Judge, BRYAN, Senior Circuit Judge, and WINTER, CRAVEN, BUTZNER, RUSSELL, FIELD, and WIDENER, Circuit Judges, sitting en banc.

CRAVEN, Circuit Judge:

In this action filed pursuant to sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 & 26, appellant Hospital Building Corporation (HBC) sought treble damages in excess of $2 million and injunctive relief for alleged violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 & 2. The sole question before us is whether the district court erred when it dismissed HBC's amended complaint on the ground that it failed to allege a sufficient nexus with interstate commerce to invoke the Sherman Act.

I.

The motion to dismiss was lodged under Rule 12(b)(1) and (6) of the Federal Rules of Civil Procedure. Whether termed 'lack of jurisdiction over the subject matter' or 'failure to state a claim upon which relief can be granted,' the result of such a motion, if granted, is the same. Dismissal under Rule 12, the lineal descendant of demurrer, is, of course, merely a decision on the pleadings. For that reason, such motions 'are granted sparingly and with caution.' 5 Wright & Miller, Federal Practice and Procedure § 1349, at 541. Especially is this so in antitrust cases 'because it may be difficult to plead more precisely the effects on interstate commerce until discovery has been had.' Chapiewsky v. G. Heileman Brewing Co., 297 F.Supp. 33, 38 (W.D.Wis.1968). Generally, we think that where a question of fact arises as to the substantiality of the impact of a local restraint on interstate commerce, the question should not be decided on a motion to dismiss. Donlan v. Carvel, 209 F.Supp. 829, 831 (D.Md.1962). Our task would be much simpler had the district court converted the motion to one for summary judgment as authorized by the last sentence of Rule 12(b). Such a course would doubtless have involved the district court and counsel in limited discovery procedures, but we think the extra time and effort would have been worthwhile.

Whether the complaint was dismissed for lack of subject matter jurisdiction or failure to state a claim upon which relief could be granted is not clear. Since Congress specifically has conferred jurisdiction of Sherman Act claims (15 U.S.C. §§ 15 & 26). We think Nevertheless, we have concluded to affirm. That we do so should be taken by the bar and the district judges as a rare exception to prove the rule that judgments of dismissal on the pleadings in antitrust cases will ordinarily be reversed.

it the better analysis to treat an insufficient plea of effect upon interstate commerce as a failure to state a claim upon which relief can be granted rather than lack of jurisdiction (in the sense of power) over the subject matter. So viewed, our distaste for judgment on the pleadings is even greater, for a motion to dismiss for failure to state a claim 'is viewed with disfavor and (should be) rarely granted.' 5 Wright & Miller, supra, § 1357 at 598.

II.

HBC operates in Raleigh, North Carolina, a 49-bed proprietary hospital, Mary Elizabeth Hospital, which offers general medical-surgical hospital services to the public. The appellees, referred to by HBC in its brief and hereinafter by us as 'the Raleigh Group,' are a North Carolina corporation that runs a hospital in competition with Mary Elizabeth in Raleigh and various individuals involved in the provision of medical-surgical hospital services in Raleigh. HBC alleged below that, beginning at least as early as 1970 and continuing through the present, the Raleigh Group together with others not parties to this suit have engaged in a conspiracy aimed at controlling the number of hospital beds, allocating customers (hospital patients), and otherwise exercising unreasonable restraints of and monopolizing the market for medical-surgical hospital services in 'the Raleigh area,' defined as 'the area comprising Wake County, in the State of North Carolina.'

HBC professed to have discovered the conspiracy in late 1971 when it undertook to relocate Mary Elizabeth and expand it from 49 to 140 beds. According to HBC the Raleigh Group and their co-conspirators devised a scheme involving bad faith efforts to block authorization of the expansion, 1 tactics to hold up implementation of HBC's plans once authorization was gained, and finally malicious instigation of adverse publicity and general public antipathy. HBC alleged that the scheme has delayed expansion of Mary Elizabeth, and asked as damages treble the amount of direct costs and loss of revenue attributable to the delay. HBC also sought injunctive relief against a continuation of the alleged conspiracy. Because we conclude that the district court was correct in finding that even if HBC proved all of its factual allegations it still would have shown an insufficient connection with interstate commerce to invoke the Sherman Act, we affirm.

III.

An antitrust plaintiff may establish the necessary connection with interstate commerce in either of two ways: by demonstrating that the alleged anticompetitive conduct occurred in interstate commerce, or by showing that the conduct, though wholly intrastate, had a substantial effect on interstate commerce.

Greenville Publishing Co. v. Daily Reflector, Inc., 496 F.2d 391, 395 (4th Cir. 1974) (emphasis added). See also Goldfarb v. Virginia State Bar, 497 F.2d 1, 16 (4th Cir.), cert. granted, 419 U.S. 963, 95 S.Ct. 223, 42 L.Ed.2d 178 (1974) (No. 74--70); Sun Valley Disposal Co. v. Silver State Disposal Co., 420 F.2d 341, 343 (9th Cir. 1969); Lieberthal v. North Country Lanes, Inc., 332 F.2d 269, 271--72 (2d Cir. 1964). Within this traditional analytic framework the question for decision is whether the conspiracy described in HBC's complaint has either directly restrained

or substantially affected interstate commerce.

IV.

There is little basis for HBC's assertion that the alleged conspiracy acts directly in interstate commerce. The Raleigh Group is concerned exclusively with restraining Mary Elizabeth's provision of hospital services and with controlling the market for such services in the Raleigh area. The provision of hospital services has consistently been held to be a purely local activity. Elizabeth Hospital, Inc. v. Richardson, 269 F.2d 167, 170 (8th Cir.), cert. denied, 361 U.S. 884, 80 S.Ct. 155, 4 L.Ed.2d 120 (1959); Spears Free Clinic v. Cleere, 197 F.2d 125, 126 (10th Cir. 1952). Therefore, anticompetitive conduct aimed at the provision of such services necessarily acts directly only upon intrastate commerce. See United States v. Oregon State Medical Society, 343 U.S. 326, 338--39, 72 S.Ct. 690, 96 L.Ed. 978 (1952); Elizabeth Hospital, Inc. v. Richardson, supra; Riggall v. Washington County Medical Society, 249 F.2d 266, 268 (8th Cir. 1957), cert. denied, 355 U.S. 954, 78 S.Ct. 540, 2 L.Ed.2d 530 (1958); Spears Free Clinic v. Cleere, supra.

HBC's argument that the Raleigh Group's anticompetitive conduct occurred 'in commerce' amounts to this: (1) Mary Elizabeth, and hospitals in general, have become substantially enmeshed in the interstate commerce network through their use of interstate communications facilities, their subjection to extensive federal regulation, their purchases of materials and services from out-of-state, their treatment of patients from other states, and their financial arrangements with national health insurers and government welfare programs; (2) the conspiracy directly affected Mary Elizabeth; therefore, the conspiracy, by acting upon a hospital so entwined in interstate commerce, acted directly upon interstate commerce. We accept the premises of the syllogism but reject the conclusion.

It is settled that the 'in commerce' test is not whether the conduct complained of is aimed at a business engaged in interstate commerce, but whether the conduct complained of acts directly upon the interstate aspects of such a business. United States v. Yellow Cab Co., 332 U.S. 218, 230--34, 67 S.Ct. 1560, 91 L.Ed. 2010 (1947); Sun Valley Disposal Co. v. Silver State Disposal Co., supra, 420 F.2d at 343; Lieberthal v. North Country Lanes, Inc., supra, 332 F.2d at 271; Savon Gas Stations Number Six, Inc. v. Shell Oil Co., 309 F.2d 306, 308--09 (4th Cir. 1962), cert. denied, 372 U.S. 911, 83 S.Ct. 725, 9 L.Ed.2d 719 (1963); Page v. Work, 290 F.2d 323, 330 (9th Cir.), cert. denied, 368 U.S. 875, 82 S.Ct. 121, 7 L.Ed.2d 76 (1961). Here, no matter how entwined in our increasingly national economy Mary Elizabeth and other Raleigh area hospitals may be, the fact remains that the conspiracy complained of directly affected only one aspect of those hospitals' businesses, namely the provision of surgical-medical hospital services in the Raleigh area. And the provision of such services remains what it always has been: a local, intrastate activity, not interstate commerce.

In its argument that 'in commerce' jurisdiction exists HBC relies heavily on...

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