K. Hefner, Inc. v. Caremark, Inc.

• Decision Date: 19 June 1996
• Docket Number: No. 21906,21906
• Parties: , 1996-2 Trade Cases P 71,461 K. HEFNER, INC. d/b/a Kurt's Pharmacy, an Idaho Corporation; Darrell Henrichs d/b/a Park-Vu Pharmacy and Pharmacy Shop, Incorporated, an Idaho Corporation, Plaintiffs-Appellants Cross-Respondents, v. CAREMARK, INC., a California Corporation; John Doe Pharmacies A Through Z, Defendants-Respondents, and Blue Cross of Idaho Health Services, Inc., Defendant-Respondent Cross-Appellant. Boise, March 1996 Term
• Court: Idaho Supreme Court

Page 595

918 P.2d 595

128 Idaho 726, 1996-2 Trade Cases P 71,461

K. HEFNER, INC. d/b/a Kurt's Pharmacy, an Idaho Corporation; Darrell Henrichs d/b/a Park-Vu Pharmacy and Pharmacy Shop, Incorporated, an Idaho Corporation, Plaintiffs-Appellants Cross-Respondents, v. CAREMARK, INC., a California Corporation; John Doe Pharmacies A Through Z, Defendants-Respondents, and Blue Cross of Idaho Health Services, Inc., Defendant-Respondent Cross-Appellant.

No. 21906.

Supreme Court of Idaho,

Boise, March 1996 Term.

June 19, 1996.

Ellsworth, May, Sudweeks, Stubbs, Ipsen & Perry, Twin Falls, for appellants. Thomas D. Kershaw, Jr. argued.

Elam & Burke, Boise, for respondent Caremark. Lee B. Abrams, Chicago, Illinois, argued.

Moffatt, Thomas, Barrett, Rock & Fields, Boise, for respondent Blue Cross. Patricia M. Olsson argued.

TROUT, Justice.

Respondent Blue Cross of Idaho (BCI) is a large provider of health insurance. This case involves a challenge, under the Idaho Antitrust Law and the Idaho Unfair Sales Act, to a prescription drug reimbursement plan offered by BCI to participating pharmacies. This plan is administered by respondent Caremark pursuant to contract.

I. BACKGROUND

The plaintiffs (referred to collectively as Hefner) are owners and operators of independent pharmacies located throughout the state of Idaho. In early 1993, Caremark contacted them, and other Idaho pharmacies, with a proposal to enter into the reimbursement plan at issue. Under the plan, participating pharmacists are reimbursed for prescriptions filled for BCI subscribers according to rates set by BCI. The "John Doe" defendants are pharmacies who agreed to participate in the BCI reimbursement plan.

Hefner has asserted separate claims against the named and unnamed defendants. With regard to the "John Doe" pharmacies, Hefner alleges that under BCI's reimbursement scheme, these pharmacies are required to sell many prescription drugs "below cost" in violation of the Idaho Unfair Sales Act (I.C. §§ 48-401 to -413). With regard to BCI and Caremark, Hefner alleges a violation of the Idaho Antitrust Law (I.C. §§ 48-101 to -119). According to Hefner's allegations, the BCI plan results in the selling of prescription drugs "below cost" in violation of the Unfair Sales Act (a separate statute), and is thus a "contract, combination ..., or conspiracy in restraint of trade" prohibited by I.C. § 48-101, part of the Antitrust Law.

II. PROCEDURAL HISTORY

BCI and Caremark filed motions to dismiss pursuant to I.R.C.P. 12(b)(6). On January 27, 1995, the district court granted the motions and dismissed Hefner's claims against BCI and Caremark. However, prior to the dismissal of these claims, Hefner filed a motion to compel a response to an interrogatory requesting the identities of the unnamed pharmacies. The district court did not rule on this motion before granting the named defendants' motion to dismiss. Hefner appeals from the district court's order granting the motion to dismiss, and its award of attorney fees to BCI under I.C. § 12-120(3).

Prior to the decision on the named defendants' motion to dismiss, two plaintiffs (Jack's Pharmacy and Osburn Drug) sought to withdraw from the action pursuant to I.R.C.P. 41(a)(2). BCI cross-appeals from the district court's refusal to dismiss these plaintiffs with prejudice (the court dismissed them without prejudice), and the court's refusal to award attorney fees and costs against these plaintiffs.

III. DISMISSAL OF CLAIMS AGAINST UNNAMED PHARMACIES

Hefner contends that the district court erred in dismissing its claims against Having concluded that the district court did not dismiss the claims against the unnamed pharmacies it would, at first blush, appear that there is no final order within the meaning of I.A.R. 11(a)(1). See, e.g., Nelson v. Whitesides, 103 Idaho 374, 647 P.2d 1246 (1982) (final judgment or decree to which Rule 11(a)(1) refers is one which finally determines the rights of the parties). Since the record contains no certificate of final judgment entered pursuant to I.R.C.P. 54(b), the question becomes whether this appeal is properly before this Court. For the following reason, we conclude that it is.

[128 Idaho 729] the "John Doe" pharmacies at a time when discovery motions were pending and no motion to dismiss had been asserted with regard to these claims. We will not review alleged error on appeal unless the record discloses an adverse ruling forming the basis for the assignment of error. E.g., De Los Santos v. J.R. Simplot Co., 126 Idaho 963, 969, 895 P.2d 564, 570 (1995). Although its order provides a background discussion of all of Hefner's claims, including those asserted against the unnamed pharmacies, the district court confined its analysis and its rulings exclusively to those claims against BCI and Caremark which were challenged by the named defendants' motion to dismiss.

To designate an unknown entity as an adverse party to a lawsuit, I.R.C.P. 10(a)(4) requires that the pleading identify the entity as one "whose true name is unknown." Hefner's complaint does not designate the "John Doe" pharmacies as entities whose true names are unknown, but simply states that they are "pharmacies operating within the State of Idaho who have entered into a contract with the other defendants." Thus, although the unknown pharmacies are named entities for purposes of the factual allegations in the complaint, they are not actual parties to this lawsuit. Cf. Watts v. Lynn, 125 Idaho 341, 348, 870 P.2d 1300, 1307 (1994) (an amended complaint stating true name of fictitious party does not relate back unless the original pleading satisfies Rule 10(a)(4)). Accordingly, the fact that the district court's order did not resolve Hefner's "claims" against these non-parties is of no consequence to this appeal, and we will proceed to consider the remaining issues presented.

IV. WHETHER THE DISTRICT COURT ERRED IN DISMISSING HEFNER'S ANTITRUST CLAIMS AGAINST BCI AND CAREMARK

With regard to the named defendants, Hefner appeals from that portion of the district court's order dismissing its antitrust claims. The district court granted the defendants' motion to dismiss pursuant to I.R.C.P. 12(b)(6) for failure to state a claim upon which relief may be granted. When reviewing such a ruling, the question is whether "it appears beyond doubt that the appellant could prove no set of facts in support of his claim which would entitle him to relief." Orthman v. Idaho Power Co., 126 Idaho 960, 962, 895 P.2d 561, 563 (1995) (citations omitted). In light of the procedural stance of this case, our concern on appeal is not the substantive merits of Hefner's position. Rather, we must look to the face of the complaint to determine whether a cause of action has been alleged.

Hefner alleges that BCI and Caremark have violated I.C. § 48-101, which provides in relevant part: "[e]very contract, combination in the form of a trust or otherwise, or conspiracy in restraint of trade or commerce, within this state, is hereby declared to be illegal." This provision is patterned after § 1 of the federal Sherman Act (15 U.S.C. §§ 1 to 7), ¹ and enumerates only two elements for a cause of action: (1) a contract, combination, or conspiracy (2) in restraint of trade. Hefner alleges that because the BCI reimbursement scheme requires competing pharmacies to sell products "below cost" in violation of the Unfair Sales

[128 Idaho 730] Act, it is a "contract ... in restraint of trade" under I.C. § 48-101.

A. Restraint of Trade

The district court focused exclusively upon the second element of Hefner's § 48-101 claim. With regard to the corresponding element in § 1 of the Sherman Act, federal courts have developed a two-tiered analysis for determining whether there is a "restraint of trade." Activity is per se illegal under the Sherman Act if it is "manifestly anticompetitive" and lacks redeeming virtue. Royal Drug Co. v. Group Life & Health Ins. Co., 737 F.2d 1433, 1436 (5th Cir.1984) (citing Northern Pacific Ry. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958); Broadcast Music, Inc. v. Columbia Broadcasting System, Inc. 441 U.S. 1, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979)). Activity that is not obviously anticompetitive is analyzed under the "rule of reason," whereby the fact-finder inquires into the unreasonableness of the restraint in light of all the circumstances of the case. See Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977).

In addressing Hefner's antitrust claim, the district court first concluded that there is no allegation that Caremark or BCI are competing with the plaintiffs, nor is there any allegation that they are wholesalers, retailers, or direct sellers within the meaning of the Unfair Sales Act. Thus, the reimbursement agreements do not constitute a per se illegal horizontal combination. Moreover, because the agreements do not attempt to fix prices to be charged in transactions with third parties, there is no per se illegal vertical combination. Under its "rule of reason" analysis, the district court identified as the fatal flaw in Hefner's amended complaint the fact that there is no allegation that Caremark or BCI are wholesalers or retailers within the meaning of the Unfair Sales Act, or that they are in competition with the plaintiffs in the pharmacy business. Consequently, it concluded that Hefner failed to state a claim with respect to count 2 of its amended complaint.

1. Per se analysis

Hefner concedes that this case does not involve horizontal price fixing. For a contract involving vertical restrictions to fall within the scope of the per se prohibition of § 1 of the Sherman Act, there must be an agreement to fix prices charged not only in transactions between the contracting parties, but in transactions with unrelated third parties as well. Sausalito Pharmacy, Inc. v. Blue Shield of California, 544 F.Supp. 230, 234 (N.D.Cal.1981) (quoting Sitkin Smelting & Refining...