SDK Medical Computer Services Corp. v. Professional Operating Management Group, Inc.

• Court: United States State Supreme Judicial Court of Massachusetts
• Writing for the Court: KAPLAN
• Citation: 371 Mass. 117,354 N.E.2d 852
• Decision Date: 20 September 1976
• Parties: , 1976-2 Trade Cases P 61,210 SDK MEDICAL COMPUTER SERVICES CORPORATION et al. 1 v. PROFESSIONAL OPERATING MANAGEMENT GROUP, INC., et al. 2

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354 N.E.2d 852 371 Mass. 117, 1976-2 Trade Cases P 61,210 SDK MEDICAL COMPUTER SERVICES CORPORATION et al. ¹ v. PROFESSIONAL OPERATING MANAGEMENT GROUP, INC., et al. ² Supreme Judicial Court of Massachusetts, Suffolk. Argued Jan. 8, 1976.
Decided Sept. 20, 1976.

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[371 Mass. 118] Edward R. Lev. Boston, for plaintiffs.

Reginald H. Howe, Boston (Daniel O. Mahoney, Boston, with him), for defendants.

Before [371 Mass. 117] REARDON, QUIRICO, BRAUCHER and KAPLAN, JJ.

[371 Mass. 118] KAPLAN, Justice.

In this action, commenced in the Supreme Judicial Court for the county of Suffolk, the defendants responded to a complaint in four counts by moving to dismiss it under Mass.R.Civ.P. 12(b), 365 Mass. 755 (1974). A single justice of this court allowed the motion as to all counts, but the practical effect of his disposition was that the plaintiffs would be free to commence an action in the Superior Court on count II, charging unfair methods of competition. The plaintiffs take the present appeal to the full court. We agree in substance with the single justice, but prefer on our own initiative to transfer the claim embodied in count II to the Superior Court.

The core facts alleged in the complaint may be summarized thus. The plaintiffs are five business corporations engaged in providing computerized data processing, record keeping, and billing services for medical practitioners in Massachusetts. One of the defendants named is Blue Shield of Massachusetts, Inc. (Blue Shield), a medical [371 Mass. 119] service corporation organized under G.L. c. 176B, operated not-for-profit, which provides health insurance to Massachusetts residents. It is alleged that over 99% of the medical practitioners in the State are Blue Shield participating physicians, and that 60% of the residents of the State are participants in Blue Shield insurance. The other defendant named is Professional Operating Management Group, Inc. (Blue Streak), a business ('for profit') corporation. (The Commissioner of Insurance, who has regulatory and enforcing powers over medical service corporations, was not made a defendant.)

The complaint alleges that Blue Streak was formed in 1974 as a wholly owned subsidiary of Blue Shield and Commenced operations in 1975. It furnishes computerized data processing services to physicians which are similar to, and in competition with, those furnished by the plaintiffs. Blue Shield, drawing on its medical service operations, has provided substantial financial resources to Blue Streak for use as working capital. It has made available to Blue Streak facilities and information, essential to Blue Streak's functions, at less than actual cost and at a cost substantially less than Blue Streak would incur if it were operating independently. Blue Streak has thus been enabled to sell its services to potential customers of the plaintiffs at prices less than its costs would be if it did not have the cost advantages of its combination with Blue Shield; such sales below cost are alleged to be an illicit inducement to these physicians to continue their participation in Blue Shield. It is alleged, in addition,

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that employees of Blue Shield have solicited customers and business for Blue Streak, and that Blue Streak has represented to medical practitioners that Blue Shield will process their insurance claims more expeditiously if they sign up with Blue Streak.

The four counts, severally alleging the core facts with incidental additional averments, present the following theories of liability. Count I, stated to be brought under G.L. c. 176B, asserts in essence that the organization and control of Blue Streak by Blue Shield (accompanied by the [371 Mass. 120] provision to Blue Streak of financial support, facilities, and information) exceed the lawful powers of a medical service corporation. The plaintiffs ask the court to declare that Blue Shield has engaged in such ultra vires activities, and to order Blue Shield to liquidate or divest itself or Blue Streak. Count II is brought under G.L. c. 93A, § 11, and seeks treble damages, apparently against both defendants, as well as liquidation or divestiture, for unfair methods of competition and unfair and deceptive acts or practices. Count III, brought under G.L. c. 93, §§ 1--14, charges the defendants with maintaining a monopoly and causing restraint of trade in violation of G.L. c. 93, § 2. It charges also monopolization under G.L. c. 93, § 9. The ultimate relief apparently sought under this count is an injunction forbidding Blue Shield to compete through Blue Streak or otherwise with private business corporations in the computerized data processing field. ³ Count IV, added to the complaint by amendment, appears to charge an unlawful monopoly at common law, and prays a like injunction and liquidation or divestiture of Blue Streak.

Count I. Here the plaintiffs present their theory that they should be freed of competition by Blue Streak because the organization and support of Blue Streak by Blue Shield were ultra vires activities on the latter's part, activities not germane to a medical service corporation or a 'non-profit medical service plan' (see G.L. c. 176B, § 1). ⁴ The count was dismissed for the reason that the plaintiffs were not in a position to maintain a private action against Blue Shield on this ground. ⁵

Any claim proceeding on an ultra vires basis or on analogy thereto is seriously challenged by the fact that [371 Mass. 121] the relation of the plaintiffs to Blue Shield is that of competitors (and at a remove, since the plaintiffs actually compete with Blue Streak, not Blue Shield). It has been accepted in this jurisdiction, and generally, that competitors as such may not maintain private actions challenging the activities of their corporate rivals as being ultra vires. See Council of Jewish Women v. Boston Section Council of Jewish Women, 212 Mass. 219, 223, 98 N.E. 862 (1912); Mound City Warehouse Co. v. Illinois Cent. R.R., 51 Ill.App.2d 103, 104, 108--110, 200 N.E.2d 919 (1964); 7 Fletcher, Cyclopedia of the Law of Private Corporations § 3451 (rev. vol. 1964). Such claims are reserved for assertion by public authority (apart from circumstances in which shareholders or creditors may assert them). The proposition is reinforced in the present situation by G.L. c. 176B, § 13, which states in part: 'If the commissioner (of insurance) is satisfied, as to any medical service corporation, that (1) it has failed to comply with the provisions of its charter, or (2) it is being operated for profit, or . . . (6) it has exceeded its powers, . . . he may apply to the supreme judicial court for an unjunction restraining it from further proceeding with

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its business.' There is some suggestion that the present case may be so exceptional as to justify a private action because the situation of Blue Shield as a non-profit entity may give it and its subsidiary special advantages in competing with ordinary business corporations; but that should not, we think, suffice to avoid the basic policy. ⁶

[371 Mass. 122] The plaintiffs attempt to find a locus standi as 'aggrieved part(ies)' under G.L. c. 176B, § 17, as amended by St.1971, c. 434, § 3: 'The provisions of this chapter may be enforced by a bill in equity brought in the supreme judicial court by the commissioner, the attorney general, any district attorney or any aggrieved party.' On the face of things, it seems doubtful that the reference to 'aggrieved party' in § 17 should be read as providing any basis for a private action by a competitor paralleling the action accorded the Commissioner of Insurance under the above-quoted subsections of § 13. We think, further, that the background of the phrase in § 17 suggests no such reading, and that even an appeal to general law in interpreting 'aggrieved' is without comfort to the plaintiffs.

The words 'or any aggrieved party' were added to the text of § 17 by the 1971 amendment. We may pass over the point that 'aggrieved party' (as contrasted with 'aggrieved person') is customarily taken to mean one who has previously participated in an administrative hearing or was improperly denied the right to participate, which would exclude these plaintiffs. See e.g., Save the Bay, Inc. v. Department of Pub. Util., --- Mass. ---, --- - --- ^a, 322 N.E.2d 742 (1975); Wilmington v. Department of Pub. Util., 340 Mass. 432, 435--438, 165 N.E.2d 99 (1960); Newton v. Department of Pub. Util., 339 Mass. 535, 542--544, 160 N.E.2d 108 (1959). ⁷ The main point is that the 1971 amendment of § 17 was one of a cluster of amendments having their origin in a narrow or parochial purpose related to ensuring that chiropractors would be treated without discrimination as participating physicians in a medical service plan. Chiropractors had in fact been recognized[371 Mass. 123] as such participants by legislation of 1969 (St. 1969, c. 880, § 1) amending c. 176B, § 1. But it appears that no contracts had actually been written with chiropractors. Statute 1971, c. 434, was directed to eliminating the 'discrimination': it amended c. 176B, § 7, to emphasize and establish the right of chiropractors to participate; § 13, to give any physician entitled to participate, but discriminated against, a right of action to restrain the medical service corporation from doing further business; and § 17, to add the words 'or any aggrieved party.' ⁸ The language of a research report

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of the joint committee on insurance suggests that the grievances included may not have been confined to discrimination, but the parties contemplated were very likely medical practitioners and subscribers who were to be assured the right to sue to enforce provisions of c. 176B that might affect them. ⁹ It can be said confidently that there is no sign of an intention to reverse normal policy as reinforced by § 13 and to confer on competitors private rights of action comparable to that claimed here. ¹⁰

A more general...