LaFaro v. New York Cardiothoracic Group, Pllc, Docket No. 08-4621-cv.

• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Writing for the Court: Droney
• Citation: 570 F.3d 471
• Parties: Rocco J. LaFARO, M.D., Arlen G. Fleisher, M.D., Cardiac Surgery Group, P.C., Plaintiffs-Appellants, v. NEW YORK CARDIOTHORACIC GROUP, PLLC, Steven L. Lansman, M.D., David Spielvogel, M.D., Westchester County Health Care Corporation, Westchester Medical Center, Defendants-Appellees.
• Docket Number: Docket No. 08-4621-cv.
• Decision Date: 01 July 2009

570 F.3d 471 Rocco J. LaFARO, M.D., Arlen G. Fleisher, M.D., Cardiac Surgery Group, P.C., Plaintiffs-Appellants,
v.
NEW YORK CARDIOTHORACIC GROUP, PLLC, Steven L. Lansman, M.D., David Spielvogel, M.D., Westchester County Health Care Corporation, Westchester Medical Center, Defendants-Appellees. Docket No. 08-4621-cv. United States Court of Appeals, Second Circuit. Argued: March 16, 2009. Decided: July 1, 2009.

[570 F.3d 474]

Richard G. Menaker, Menaker & Herrmann, New York, N.Y., for Petitioners.

Jordy Rabinowitz, Senior Associates General Counsel, Westchester County Health Care Corporation, Office of Legal Affairs Executive Offices, Valhalla, N.Y., for Respondents.

Before: CALABRESI and WESLEY, Circuit Judges, and DRONEY, District Judge.¹

DRONEY, District Judge:

BACKGROUND

The defendant Westchester County Health Care Corporation ("WCHCC") is a public benefit corporation created by the state of New York in 1997 to perform the "essential public and governmental function" of operating the Westchester County Medical Center ("WMC"), a hospital in Valhalla, New York. See N.Y. Pub. Auth. Law §§ 3300 et seq. WCHCC's enabling statute endowed it with broad and comprehensive powers, as well as the flexibility to provide health and medical services for the public either directly or by agreement with other entities or individuals, and to determine its own internal policies, including those governing the practice of medicine within WMC. Id.

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The defendants Steven L. Lansman, M.D., and David Spielvogel, M.D., are cardiothoracic and transplant surgeons whose professional corporation is defendant New York Cardiothoracic Group ("NYCG") (collectively referred to hereinafter as the "private defendants"). In December 2004, the private defendants entered into an exclusive professional services agreement with WCHCC for the provision of cardiothoracic surgery services at WMC. Defendant Lansman is also the Director of the Department of Cardiothoracic Surgery at WMC.

Plaintiffs Rocco J. Lafaro, M.D., and Arlen G. Fleisher, M.D., are also cardiothoracic surgeons, whose professional services corporation is the Cardiac Surgery Group ("CSG"). Lafaro and Fleisher had cardiothoracic privileges at WMC prior to the effective date of WCHCC's contract with the private defendants. That contract includes a provision "grandfathering" Lafaro and Fleisher, that is, excepting them from the exclusivity granted to the private defendants.²

The plaintiffs allege in their complaint that WCHCC's grant of an exclusivity agreement to the private defendants violated the Sherman Act, 15 U.S.C. § 1, and state law. The factual allegations in the complaint include that Lansman, after the execution of the exclusivity agreement, directed the scheduling of access to operating rooms, assignment of staff, and availability of equipment for heart and lung surgery at WMC to cause "maximum disadvantage" to the plaintiffs and their patients and to give preference to Lansman and Spielvogel, and that the private defendants blocked CSG's effort to hire a physician's assistant to provide operating room support. In a decision dated September 11, 2008, the district court granted the defendants' motion for judgment on the pleadings and dismissed the complaint for the reason that state action immunity applied to all defendants.

DISCUSSION

A. Standard of Review

The decision of the District Court granting the motion for judgment on the pleadings is reviewed de novo. Pierce v. Underwood, 487 U.S. 552, 558, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988); see also City of New York v. Beretta U.S.A. Corp., 524 F.3d 384, 392 (2nd Cir.2008) (citing Miller v. Wolpoff & Abramson, L.L.P., 321 F.3d 292, 300 (2d Cir.2003), DeMuria v. Hawkes, 328 F.3d 704, 706 n. 1 (2d Cir. 2003) (noting that the legal standards of review for motions to dismiss and motions for judgment on the pleadings "are indistinguishable")). "On a motion to dismiss or for judgment on the pleadings we `must accept all allegations in the complaint as true and draw all inferences in the non-moving party's favor.'" Miller, 321 F.3d at 300(quoting Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 126 (2d Cir.2001)). We are not bound to accept

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as true legal conclusions couched as factual allegations. Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1950-51, 173 L.Ed.2d 868 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Only a complaint that states a plausible claim for relief survives a motion to dismiss. Id. at 1950.

Because the district court dismissed the case on the single basis of state action immunity, our only task with regard to the plaintiffs' claims and the defendants' affirmative defenses³ is to evaluate the district court's conclusion that all the defendants are immune from suit, based on the allegations in those pleadings.

B. State Action Immunity

Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), first established that action by a state acting in its sovereign capacity is not subject to federal antitrust law. However, a state subdivision such as a municipality or public corporation does not enjoy the complete deference due a state as sovereign. The state subdivision is entitled to state action immunity only when it acts pursuant to a "clearly articulated and affirmatively expressed" state policy that authorizes its actions. City of Lafayette v. La. Power & Light Co., 435 U.S. 389, 410-13, 98 S.Ct. 1123, 55 L.Ed.2d 364 (1978); see also Town of Hallie v. City of Eau Claire, 471 U.S. 34, 38-40, 105 S.Ct. 1713, 85 L.Ed.2d 24 (1985). The requisite showing of authority has two components: first, the subdivision must have "authority to regulate"; second, it must have "authority to suppress competition." Elec. Inspectors, Inc. v. Village of E. Hills, 320 F.3d 110, 118 (2d Cir.2003) (quoting City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 372, 111 S.Ct. 1344, 113 L.Ed.2d 382 (1991)). So long as the subdivision's anticompetitive activities are a "foreseeable consequence" of the state delegation, the "clear articulation" standard has been met. Cine 42nd St. Theater Corp. v. Nederlander Org., Inc., 790 F.2d 1032, 1043 (2d Cir.1986) (citing Town of Hallie, 471 U.S. at 43, 105 S.Ct. 1713).

State action immunity may also extend to private entities, when their particular anticompetitive acts are authorized by the State and further state regulatory policies. Patrick v. Burget, 486 U.S. 94, 99-100, 108 S.Ct. 1658, 100 L.Ed.2d 83 (1988). The two-pronged test for extending state action immunity to a private party is commonly referred to as the "Midcal test," following its articulation in California Retail Liquor Dealers Ass'n v. Midcal Aluminum, 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980). In addition to a clearly articulated state policy, a private party seeking state action immunity under Midcal must show active supervision of its anticompetitive conduct by the state. Cine 42nd St. Theater Corp., 790 F.2d at 1043(citing S. Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48, 61-62, 105 S.Ct. 1721, 85 L.Ed.2d 36). The requirement of active state supervision "is one way of ensuring that the actor is engaging in the challenged conduct pursuant to state policy." Town of Hallie, 471 U.S. at 46, 105 S.Ct. 1713. This requirement exists because absent supervision, "there is no realistic assurance that a private party's anticompetitive conduct promotes state policy, rather than merely the party's individual interests." Patrick, 486 U.S. at 101, 108 S.Ct. 1658. In Midcal, the Supreme Court stated that the active state supervision requirement was necessary

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to prevent a State from circumventing the Sherman Act's proscriptions "by casting ... a gauzy cloak of state involvement over what is essentially a private price-fixing arrangement." 445 U.S. at 106, 100 S.Ct. at 943. Where a private party is engaging in the anticompetitive activity, there is a real danger that he is acting to further his own interests, rather than the governmental interests of the State.

Town of Hallie, 471 U.S. at 46-7, 105 S.Ct. 1713. Thus, the objective of the Midcal test's second prong is to ensure that the state itself, rather than a private party, is the effective decision maker. Fed. Trade Comm'n v. Ticor Title Ins. Co., 504 U.S. 621, 636, 112 S.Ct. 2169, 119 L.Ed.2d 410 (1992).

This Court stated that governmental entities which are immune from antitrust activity must be permitted to enter into contracts with private entities without suffering "tangential attacks" on their authorized, anticompetitive practices via suits against the...