Hospital Building Company v. Trustees of Rex Hospital

Citation425 U.S. 738,96 S.Ct. 1848,48 L.Ed.2d 338
Decision Date24 May 1976
Docket NumberNo. 74-1452,74-1452
CourtUnited States Supreme Court

Petitioner corporation, which operates a 49-bed proprietary hospital (Mary Elizabeth) in Raleigh, N.C., brought this antitrust action alleging that respondents, a private, tax-exempt hospital (Rex) in Raleigh, two of its officers, and a health planning officer, had violated the Sherman Act by conspiring along with others to block the relocation and expansion within Raleigh of Mary Elizabeth, for the purpose of enabling Rex to monopolize the business of providing hospital services in Raleigh. Petitioner alleged that a substantial portion of its medicines and supplies comes from out-of-state sellers; that a large portion of its revenue comes from out-of-state insurance companies or the Federal Government; that it pays a management service fee to its parent company, a Georgia-based Delaware corporation; and that the planned expansion would be largely financed through out-of-state lenders. Concluding that petitioner's business was strictly local, and that respondents' alleged conduct only incidentally and insubstantially affected interstate commerce, the District Court granted respondents' motion to dismiss the complaint. The Court of Appeals affirmed. Held: Petitioner's complaint states a cause of action upon which relief can be granted under the Sherman Act, the combination of factors involving petitioner in interstate commerce being sufficient to establish a "substantial effect" on interstate commerce, within the meaning of the Sherman Act, as a result of respondents' alleged conduct. Pp. 743-747.

(a) That respondents may not have had the intentional goal of affecting interstate commerce does not exempt their conduct from Sherman Act coverage. Burke v. Ford, 389 U.S. 320, 88 S.Ct. 443, 19 L.Ed.2d 554. Pp. 744-745.

(b) The "substantial effect" test can be satisfied even if the impact on interstate commerce of the conduct alleged falls short of causing petitioner's out-of-state suppliers to go out of business or the market price to be affected by the conspiracy. Pp. 745-746. 4 Cir., 511 F.2d 678, reversed and remanded.

John. Train III, Atlanta, Ga., for petitioner.

Ray S. Bolze, Washington, D.C., for respondents.

Carl Weissburg and Lyle R. Mink, Los Angeles, Cal., for Federation of American Hospitals, amicus curiae.

Mr. Justice MARSHALL delivered the opinion of the Court.

This is a suit brought under §§ 1 and 2 of the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. §§ 1-2. Petitioner has alleged that respondents are engaged in an unlawful conspiracy to restrain trade and commerce in the furnishing of medical and surgical hospital services, and that they are attempting to monopolize the hospital business in the Raleigh, N.C. metropolitan area. The District Court dismissed petitioner's amended complaint on the pleadings, finding that petitioner had not alleged a sufficient nexus between the alleged violations of the Sherman Act and interstate commerce. The Court of Appeals for the Fourth Circuit, sitting en banc, affirmed the judgment of the District Court, holding that the provision of hospital services is only a "local" activity, 511 F.2d 678, 682 (4 Cir. 1975), and that the amended complaint did not adequately allege a "substantial effect" Id., at 684, on interstate commerce. We granted certiorari, 423 U.S. 820, 96 S.Ct. 33, 46 L.Ed.2d 37 (1975), and now reverse. We hold that the amended complaint, fairly read, adequately alleges a restraint of trade substantially affecting interstate commerce and that dismissal on the pleadings of petitioner's amended complaint was thefore inappropriate.


Since we are reviewing a dismissal on the pleadings, we must, of course, take as true the material facts alleged in petitioner's amended complaint. See, e.g., Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S. 219, 222, 68 S.Ct. 996, 999, 92 L.Ed. 1328, 1332 (1948). Petitioner is a corporation organized for profit under the laws of North Carolina. It operates the Mary Elizabeth Hospital, a 49-bed proprietary hospital in Raleigh, N.C., which offers a general range of medical and surgical services to the public. Respondent Trustees of Rex Hospital (Rex) is a North Carolina corporation which operates Rex Hospital, a private, tax-exempt hospital also located in Raleigh. The other three respondents are the administrator of Rex, one of its individual trustees, and the executive secretary of the local agency responsible for making recommendations to state officials concerning the Raleigh community's need for additional hospital beds. The amended complaint alleges that respondents, along with several co-conspirators not named as defendants in this action, have acted in concert to block the planned relocation of Mary Elizabeth Hospital within the city of Raleigh and its expansion from 49 beds to 140 beds. According to the amended complaint, respondents and their co-conspirators orchestrated a plan to delay and, if possible, prevent the issuance of the state authorization that was a necessary prerequisite to the expansion of Mary Elizabeth. After a delay of some months, the authorization was finally granted, but since then, it is alleged, respondents and their co-conspirators have employed a series of bad-faith tactics, including the bringing of frivolous litigation, to block the implementation of the expansion. The amended complaint also alleges that respondents have maliciously instigated the publication of adverse information about petitioner's expansion plan in order to block the expansion. All these actions, it is contended, have been taken as part of an attempt by Rex to monopolize the business of providing compensated medical and surgical services in the Raleigh area.

Petitioner identifies several areas of interstate commerce in which it is involved. According to the amended complaint, petitioner purchases a substantial proportion up to 80% Of its medicines and supplies from out-of-state sellers. In 1972, it spent $112,000 on these items. A substantial number of the patients at Mary Elizabeth Hospital, it is alleged, come from out of State. Moreover, petitioner claims that a large proportion of its revenue comes from insurance companies outside of North Carolina or from the Federal Government through the Medicaid and Medicare programs. Petitioner also pays a management service fee based on its gross receipts to its parent company, a Delaware corporation based in Georgia. Finally, petitioner has developed plans to finance a large part of the planned $4 million expansion through out-of-state lenders. All these involvements with interstate commerce, the amended complaint claims, have been and are continuing to be adversely affected by respondents' anticompetitive conduct.


Respondents' motion to dismiss asserted both that the District Court had no jurisdiction over the subject matter of the amended complaint, Fed.Rule Civ.Proc. 12(b)(1), and that the amended complaint failed to state a claim upon which relief could be granted. Rule 12(b)(6). Critical to respondents' motion was their contention that the amended complaint failed "to allege facts sufficient to state the requisite effect on interstate commerce as required under the Sherman Act." App. 32. The District Court granted the motion to dismiss, concluding that the provision of hospital and medical services "is strictly a local, intra-state business," Pet. for Cert., App. D-3, and that "the conduct of the defendants complained of in this case directly affects only a local activity of the plaintiff, and only incidentally and insubstantially does it affect interstate commerce." Id., at D 3-4.

A three-judge division of the Court of Appeals for the Fourth Circuit affirmed the ruling of the District Court. Thereupon, petitioner filed a motion for rehearing en banc, which was granted, and the division opinion was withdrawn. On rehearing en banc, the ruling of the District Court was again affirmed. 511 F.2d 678 (1975). While the Court of Appeals perceived some ambiguity as to whether the District Court decision was grounded on Rule 12(b)(1) or Rule 12(b) (6), it treated the decision as holding that under Rule 12(b)(6) petitioner had failed to state a claim upon which relief could be granted.1 The court then held that the allegations in the amended complaint, even if true, were inadequate to support a conclusion that the alleged anticompetitive conduct was occurring in interstate commerce, or that it had or would have a substantial effect on interstate commerce.


The Sherman Act prohibits every contract, combination, or conspiracy "in restraint of trade or commerce among the several States," 15 U.S.C. § 1, and also prohibits monopolizing "any part of the trade or commerce among the several States." 15 U.S.C. § 2. It is settled that the Act encompasses far more than restraints on trade that are motivated by a desire to limit interstate commerce or that have their sole impact on interstate commerce. "(W)holly local business restraints can produce the effects condemned by the Sherman Act." United States v. Employing Plasterers Assn., 347 U.S. 186, 189, 74 S.Ct. 452, 454, 98 L.Ed. 618, 623 (1954). As long as the restraint in question "substantially and adversely affects interstate commerce," Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 195, 95 S.Ct. 392, 398, 42 L.Ed.2d 378, 386 (1974); Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S., at 234, 68 S.Ct., at 1000, 92 L.Ed., at 1333, the interstate commerce nexus required for Sherman Act coverage is established. " 'If it is interstate commerce that feels the pinch, it does not matter how local the operation which applies the squeeze.' " Gulf Oil Corp. v. Copp Paving Co., supra, 419 U.S., at 195, 95 S.Ct., at 398, 42 L.Ed.2d, at 386, quoting United States v. Women's Sportswear Assn., 336 U.S....

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