Lancaster Community Hosp. v. Antelope Valley Hosp. Dist.

• Decision Date: 15 July 1991
• Docket Number: 89-55347,Nos. 89-55167,s. 89-55167
• Citation: 940 F.2d 397
• Parties: 1991-1 Trade Cases 69,499, 20 Fed.R.Serv.3d 728 LANCASTER COMMUNITY HOSPITAL, Plaintiff-Appellant, v. ANTELOPE VALLEY HOSPITAL DISTRICT, Defendant-Appellee. LANCASTER COMMUNITY HOSPITAL, Plaintiff-Counter- Defendant-Appellant, v. ANTELOPE VALLEY MEDICAL GROUP, INC., Defendant-Appellee, and Antelope Valley Hospital District, Defendant-Counter-Claim-3rd Party-Plaintiff-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 397

940 F.2d 397

1991-1 Trade Cases 69,499, 20 Fed.R.Serv.3d 728

LANCASTER COMMUNITY HOSPITAL, Plaintiff-Appellant, v. ANTELOPE VALLEY HOSPITAL DISTRICT, Defendant-Appellee.

LANCASTER COMMUNITY

HOSPITAL, Plaintiff-Counter- Defendant-Appellant, v. ANTELOPE VALLEY MEDICAL GROUP, INC., Defendant-Appellee, and Antelope Valley Hospital District, Defendant-Counter-Claim-3rd Party-Plaintiff-Appellee.

Nos. 89-55167, 89-55347.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 9, 1990.

Decided Jan. 18, 1991.

Withdrawn July 15, 1991.

Filed July 15, 1991.

Robert Fabrikant, McKenna, Conner & Cuneo, Washington, D.C., for plaintiff-appellant.

John S. Hoff, Swidler & Berlin, Washington, D.C., and Jack T. Holland, Hefner, Stark & Marois, Sacramento, Cal., for defendants-appellees.

Joseph E. Sheeks, Law Offices of Joseph E. Sheeks, San Rafael, Cal., for amicus.

Appeal from the United States District Court for the Central District of California.

Before HUG, HALL and TROTT, Circuit Judges.

ORDER

The opinion filed January 18, 1991, is hereby withdrawn and the attached opinion shall be filed in its stead.

The full court has been advised of the suggestion for rehearing en banc and no active judge has requested a vote on whether to rehear the matter en banc. (Fed.R.App.P. 35.)

The petition for rehearing is denied and the suggestion for rehearing en banc is rejected.

OPINION

CYNTHIA HOLCOMB HALL, Circuit Judge:

Lancaster Community Hospital ("Lancaster") appeals two district court orders. In the first order, the district court granted defendants' motions for summary judgment on Lancaster's federal antitrust claims. In the second order the district court did the same with respect to Lancaster's claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Sec. 1961 et seq.

I

Plaintiff-appellant Lancaster brought a federal antitrust action ¹ against Antelope Valley Hospital ("Antelope"), Antelope Valley Hospital District ("District"), ² and Antelope Valley Medical Group ("Group"). Lancaster alleged that the defendants sought to use Antelope's monopoly in perinatal services to increase the hospital's market share in non-perinatal services. Antelope, it is said, would not allow certain health maintenance organizations ("HMOs") to contract for perinatal services unless the HMOs agreed to use Antelope for non-perinatal services as well. The district court granted both Antelope's and the District's motions for summary judgment, ³ based on the state action immunity doctrine and the Local Government Antitrust Act of 1984, 15 U.S.C. Sec. 35.

Lancaster then reformulated its complaint to allege RICO claims against the District and Group pursuant to 18 U.S.C. Sec. 1962(b)-(c). The complaint accused defendants of conducting the affairs of Antelope through a pattern of fraudulent schemes, including misappropriation of public funds, violations of federal and state anti-kickback statutes, and violations of state laws prohibiting the making of false entries in the records of a corporation. Lancaster further alleged that defendants furthered these purportedly fraudulent schemes by use of the United States mails. The district court granted defendants' motions to dismiss Lancaster's RICO claims finding, inter alia, that Antelope and District, as government entities, could not be held liable under RICO, and that Lancaster had failed to establish the predicate act of mail fraud.

II

The district court had jurisdiction over this action under 28 U.S.C. Sec. 1331 (federal question jurisdiction) and id. Sec. 1337 (commerce and antitrust regulations). See also 15 U.S.C. Secs. 15, 26. Additionally, the district court had jurisdiction over the civil RICO claim pursuant to 18 U.S.C. Sec. 1964. This court has jurisdiction under 28 U.S.C. Sec. 1291, since the district court converted its summary judgment orders to final judgments pursuant to Fed.R.Civ.P. 54(b).

"We review a grant of summary judgment de novo. Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir.1986). Viewing the evidence in the light most favorable to the non-moving party, we must determine whether there are any genuine issues of material fact and whether the district court correctly applied the relevant law. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir.1986)." United States v. CMA, Inc., 890 F.2d 1070, 1072 (9th Cir.1989).

III

The first question we must decide is whether defendants Antelope and District are beyond the reach of the antitrust laws by operation of state-action immunity. This question turns on whether the California state legislature has displaced competition with regulation in the provision of hospital services. ⁴ We conclude that defendants are not exempt from the antitrust laws, and we accordingly reverse the district court's grant of summary judgment in favor of defendants on the antitrust claim. ⁵

It is clear that a state itself, whether acting through its legislative, judicial, or executive departments, is not subject to the antitrust laws. See Parker v. Brown, 317 U.S. 341, 350-52, 63 S.Ct. 307, 313-14, 87 L.Ed. 315 (1943); Charley's Taxi Radio Dispatch v. SIDA of Hawaii, 810 F.2d 869 (9th Cir.1987). However, when a state delegates authority to a subordinate entity that then acts anticompetitively, the subordinate is not automatically beyond the reach of antitrust. See Community Communications Co. v. City of Boulder, 455 U.S. 40, 102 S.Ct. 835, 70 L.Ed.2d 810 (1982) (municipality); Grason Electric Co. v. Sacramento Municipal Utility District, 770 F.2d 833, 836-38 (9th Cir.1985) (local electrical utility district), cert. denied, 474 U.S. 1103, 106 S.Ct. 886, 88 L.Ed.2d 921 (1986). The courts must assure themselves that the subordinate acts in accord with the state's wishes when it contravenes the federal antitrust laws. See Town of Hallie v. City of Eau Claire, 471 U.S. 34, 105 S.Ct. 1713, 85 L.Ed.2d 24 (1985).

In Town of Hallie the Supreme Court addressed at length the question whether a municipality had established state action immunity. The City of Eau Claire, which had the only sewage treatment facilities in the vicinity, refused to supply sewage treatment services to adjoining towns unless they agreed to use its sewage transportation and collection services as well. Further, the city would supply landowners in the area with sewage treatment services only if they agreed to be annexed. The Supreme Court held that the city was not subject to the antitrust laws, but fell within the state action exemption. Town of Hallie, 471 U.S. at 41-44, 105 S.Ct. at 1717-19.

The Court held that for the city to be exempt it had to show that it acted pursuant to a "clearly articulated" state policy to displace competition with regulation. Id. However, the city was not required to point to a specific, detailed legislative authorization for either its specific action or for anticompetitive conduct in general in order to show this "clearly articulated" state policy. Id. at 42, 105 S.Ct. at 1718. Rather, a showing that the city had general authority to provide sewer services and fix the limits of service in unincorporated areas was sufficient. Since the city's anticompetitive actions were the "foreseeable and logical result" of its power to refuse to serve unannexed areas, the city acted in accord with state policy and was immune to antitrust challenge. Id. at 41-42, 44, 105 S.Ct. at 1717-18, 1719; see also Columbia v. Omni Outdoor Advertising, Inc., --- U.S. ----, 111 S.Ct. 1344, 1350, 113 L.Ed.2d 382 (1991).

Defendants Antelope and District argue that, under Town of Hallie, their broad authority to provide hospital services in and of itself establishes authority to exclude others from providing hospital services. Further, defendants contend that we may not, in deciding whether the state's policy is to support competition or supplant it, consider the general state policies towards competition in the hospital service sector of the economy. In defendants' view we can do no more than lay the language of their authorization alongside the language of the authorization provided the City of Eau Claire in Town of Hallie. If the language of defendants' grant is as broad as Eau Claire's, we are to find that defendants are exempt from the antitrust laws.

Town of Hallie does not support defendants' mechanistic position. Under Town of Hallie the courts are to focus on whether the state's policy is to supplant or support competition in the area of dispute, albeit paying particular attention to the foreseeable or logical consequences of a state's grant to a delegate of broad authority. Town of Hallie does not require that we invariably conclude, regardless of the circumstances, that a broad mandate to act gives authority to prevent others from acting. The Town of Hallie Court itself considered extraneous Wisconsin statutes on the subject of municipal sewer systems, as well as Wisconsin state court decisions, in evaluating Wisconsin's policy towards competition. 471 U.S. at 42 n. 5, 44 n. 8, 105 S.Ct. at 1718 n. 5, 1719 n. 8. ⁶

In addition to Town of Hallie, defendants cite to a number of Ninth Circuit cases. However, a close reading of these cases shows that none of them lend defendants compelling support.

First, a number of defendants' cases are of limited value because they simply involve the straightforward application of Town of Hallie in circumstances quite unlike those now presented. To recite the facts of these cases is to distinguish them from the instant case. For example, in Mercy-Peninsula Ambulance, Inc. v. County of San Mateo, 791 F.2d 755, 757 (9th Cir.1986), the court held that the logical result of a county's power to create an Emergency Medical Service with only a few authorized ambulance services is that other ambulance services will be excluded. See also Traweek, 920 F.2d at 593 (it is a logical and foreseeable result of city's zoning authority that some builders are excluded); ⁷ Boone v. Redevelopment Agency of San...