Seglin v. Esau

• Decision Date: 08 August 1985
• Docket Number: No. 84-1285,84-1285
• Parties: 1985-2 Trade Cases 66,738 Melvin A. SEGLIN, M.D., Plaintiff-Appellant, v. Truman ESAU, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1274

769 F.2d 1274

1985-2 Trade Cases 66,738

Melvin A. SEGLIN, M.D., Plaintiff-Appellant, v. Truman ESAU, et al., Defendants-Appellees.

No. 84-1285.

United States Court of Appeals Seventh Circuit.

Argued Dec. 7, 1984.

Decided Aug. 8, 1985.

Marshall E. Winokur, Ltd., Chicago, Ill., for plaintiff-appellant.

Edward B. Hirshfeld, Gardner, Carton & Douglas, Chicago, Ill., for defendants-appellees.

Before CUDAHY and POSNER, Circuit Judges, and SWYGERT, Senior Circuit Judge.

SWYGERT, Senior Circuit Judge.

This is an antitrust lawsuit filed against a hospital, its parent corporation, and members of the hospital peer review staff by a physician who was denied hospital admittance privileges. The district judge dismissed the complaint for lack of subject matter jurisdiction and for failure to state a claim. We affirm on the ground of failure to state a claim.

I

The facts as alleged in the complaint are as follows. Plaintiff-appellant Melvin A. Seglin, M.D., is a National Board certified licensed psychiatrist. Defendant Old Orchard Hospital ("Old Orchard") is a psychiatric hospital located in Skokie, Illinois. Defendant Community Psychiatric Center, Old Orchard's parent corporation, is a Nevada corporation which owns and operates at least nineteen hospitals in the United States. In October 1981, individual defendants Doctors Truman G. Esau, Paul J. Kachoris, Dennis Grygotis, and Howard Klapman were members of Old Orchard's Ad Hoc Peer Review Committee and individual defendant Dr. Karl Willrich was chairperson of Old Orchard's Administrative Committee.

Prior to 1981, Dr. Seglin was a member of Old Orchard's physician staff. On occasion he had admitted patients to the hospital for treatment. In October 1981, Dr. Seglin's staff and admitting privileges at Old Orchard were suspended. In 1983, the Judicial Review Committee of Old Orchard reinstated Dr. Seglin's privileges; however, "as a direct consequence of the continuing wrongful conduct of the defendants he [Seglin] has effectively and permanently lost the privilege and right to furnish services to his patients at Old Orchard Hospital."

On July 27, 1983, Dr. Seglin filed the instant lawsuit, alleging inter alia that the individual defendants, Old Orchard, and its parent corporation "conspired and combined to violate sections 1 and 2 of the Sherman Antitrust Act," 15 U.S.C. Secs. 1, 2 (1982), when they suspended Dr. Seglin's hospital staff membership and privileges. Dr. Seglin alleged several links between the defendants' business and interstate commerce.

The defendants, individually and through the facilities of the Old Orchard Hospital, provide psychiatric services to patients who travel in interstate commerce to receive such services.

The defendants, or one of them, purchase or receive equipment and supplies in interstate commerce in order to provide psychiatric services to patients at Old Orchard Hospital.

The defendants, or one of them, receive payments in interstate commerce from the government agencies and private insurance carriers for providing services at Old Orchard Hospital.

It was further alleged that these links to interstate commerce would be affected by defendants' alleged antitrust violations in the following ways:

(a) Prices for psychiatric services at Old Orchard Hospital will be fixed, rigged, and established at artificial and noncompetitive levels;

(b) Competition among psychiatrists at Old Orchard Hospital will be restrained, suppressed, and eliminated;

(c) Purchasers of psychiatric services at Old Orchard Hospital will be denied the benefit of full, free, and open competition in the provision of such services;

(d) Fewer patients will travel in interstate commerce to obtain services from the reduced staff of the hospital;

(e) The defendants will purchase or receive less equipment or supplies through interstate commerce in furnishing services at the hospital; and

(f) The defendants, or one of them, will receive fewer payments in interstate commerce from government agencies and private insurance carriers for providing psychiatric services at the hospital.

Defendants filed a motion to dismiss the complaint. See Motion by Defendants to Dismiss all Counts of Plaintiff's Complaint (August 31, 1983) Seglin v. Esau, No. 83 C 5176. In their memorandum of law filed in support of their motion to dismiss, defendants argued that plaintiff had failed to allege either that "the activities complained of were actually in interstate commerce, or, ... that ... [the activities] have a substantial effect on some other appreciable activity demonstrably in interstate commerce." See Defendants' Memorandum at 14. Thus, under the rationale of McLain v. Real Estate Board of New Orleans, Inc., 444 U.S. 232, 100 S.Ct. 502, 62 L.Ed.2d 441 (1980), and Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976), the federal courts lacked subject matter jurisdiction, and the complaint should be dismissed pursuant to Fed.R.Civ.P. 12(b)(1).

The defendants also argued, in the alternative, that the complaint should be dismissed pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim. Count I, alleging a violation of section 1 of the Sherman Act, is deficient according to defendants because plaintiff has failed to "allege anti-competitive effects in the Chicago area market for psychiatric services." See Defendants' Memorandum at 20. Count II, alleging a violation of section 2 of the Sherman Act, is similarly deficient because the plaintiff fails to allege that the defendants had the requisite market power and intent to monopolize. Id. at 23-24. Finally, defendants claim both counts are deficient because, as a matter of law, defendants are incapable of conspiring with one another, id. at 24-25 (citing Photovest Corp. v. Fotomat Corp., 606 F.2d 704, 726-27 (7th Cir.1979), cert. denied, 445 U.S. 917, 100 S.Ct. 1278, 63 L.Ed.2d 601 (1980)); Moles v. Morton F. Plant Hospital, Inc., [1980-81] Trade Cas. p 63,600 (M.D.Fla.1978), aff'd mem., 617 F.2d 293 (5th Cir.), cert. denied, 449 U.S. 919, 101 S.Ct. 317, 66 L.Ed.2d 147 (1980), and because plaintiff has not sufficiently alleged antitrust injury, id. at 26-27.

In support of their motion to dismiss, the defendants set forth additional "facts" in their memorandum of law. In particular, defendants stated that in 1979 Dr. Seglin admitted seven patients to Old Orchard; in 1980, he admitted three patients; and from January to October, 1981, he admitted one patient. Throughout the period of Dr. Seglin's suspension, and continuing through the present, Dr. Seglin had admitting privileges at Lutheran General Hospital in Park Ridge, Highland Park Hospital in Highland Park, and Michael Reese Hospital in Chicago.

In his memorandum of law filed in opposition to defendants' motion to dismiss, plaintiff candidly refused to controvert any of defendants' additional "facts" or to set forth any additional facts in support of subject matter jurisdiction. ¹ Although he acknowledged that the defendants challenged the complaint's subject matter jurisdiction, he stated that defendants' real contention was failure to state a claim under Fed.R.Civ.P. 12(b)(6) and that motions under rule 12(b)(6) could only be based on the facts as alleged in the complaint, unless additional facts were set forth in accompanying affidavits, thereby converting the motion to dismiss into a motion for summary judgment.

On January 23, 1984, the district judge issued a memorandum opinion and order dismissing the complaint in its entirety. In his opinion, the judge held that

[n]owhere is it alleged, in a manner believable to the rational intellect, how the sixteen month suspension of the admitting privileges of a doctor who only rarely admitted patients to Old Orchard will have the necessary effect on interstate commerce. The allegations plaintiff has made relating to effects on interstate commerce are entirely conclusory. No fact is alleged from which it might be said that assuming that fact to be true, interstate commerce has or will be touched directly or even indirectly. On the whole the assertions pleaded are ineffectual to serve as the basis for the application of the Sherman Act. The alleged conspiracy is not one from which a substantial effect on interstate commerce can be imputed or inferred.... [citations omitted]. Since here there would not be an effect on interstate commerce flowing from the alleged acts of the defendants, counts one and two should be dismissed for lack of subject matter jurisdiction.

District Court Memorandum Opinion and Order at 3. The district judge also held that the plaintiff failed to state a claim because he did not allege "a plurality of actors as is required by the conspiracy language of Section 1 of the Sherman Act," id. at 4, "a measurable anticompetitive effect on the Chicago area market for psychiatric services ..., the requisite market power or intent to monopolize to violate Section 2 of the Sherman Act ..., [or] antitrust injury due to the activities of the defendants ...," id. at 5. The plaintiff promptly appealed the dismissal to this court without requesting an opportunity to amend his complaint or a reconsideration of the dismissal order.

II

The first issue raised by this appeal is whether, when deciding if the complaint should be dismissed, the district judge erroneously considered the additional "facts" set forth by defendants in their memorandum of law? Plaintiff contends that the district judge could not consider them because a failure to adequately allege "effect on interstate commerce" ² is, in reality, a failure to state a claim under the Sherman Act, not a failure to allege subject matter jurisdiction. When deciding if a plaintiff has failed to state a claim, the court must take the plaintiff's allegations as true. It may only consider extra-complaint facts if they are set forth in affidavits, not unsworn memoranda of law. Thus, in the instant case, the...