SMILECARE DENTAL v. Delta Dental Plan of Cal.

• Decision Date: 25 July 1994
• Docket Number: No. CV 93-5437 RG(SHx).,CV 93-5437 RG(SHx).
• Citation: 858 F. Supp. 1035
• Court: U.S. District Court — Central District of California
• Parties: SMILECARE DENTAL GROUP, Plaintiff, v. DELTA DENTAL PLAN OF CALIFORNIA, Defendant.

858 F. Supp. 1035

SMILECARE DENTAL GROUP, Plaintiff, v. DELTA DENTAL PLAN OF CALIFORNIA, Defendant.

No. CV 93-5437 RG(SHx).

United States District Court, C.D. California.

July 25, 1994.

Maxwell M. Blecher, Alicia G. Rosenberg, Benjamin D. Nieberg, of Blecher & Collins, P.C., Los Angeles, CA, for plaintiff.

M. Laurence Popofsky, Robert A. Rosenfeld, Matthew L. Larrabee, Esta L. Brand, Laurence A. Weiss of Heller, Ehrman, White & McAuliffe, San Francisco, CA, for defendant.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

GADBOIS, District Judge.

I. Background

Plaintiff SmileCare Dental Group ("SmileCare"), and defendant Delta Dental Plan of California ("Delta Dental") offer dental health care plans to employers, labor unions, and individuals. According to SmileCare's complaint, Delta Dental sells plans to 60% of all persons with dental coverage, and has enrolled approximately 95% of California dentists as Delta Dental service providers. FAC. ¶¶ 5-6. Delta Dental directly reimburses dentists for services they provide to patients, but under most plans, pays only a portion of the dentist's fee. The patient is responsible for the remainder, called a "co-payment." By contract, Delta Dental dentists promise to collect the co-payments from the patients. FAC. ¶ 8.

Plaintiff SmileCare offers a supplemental dental plan called "SmileCare Coverage Plus." SmileCare sells Coverage Plus to patients already covered by dental plans which provide less than 100% coverage, including those covered by Delta Dental's primary plans. FAC. ¶ 9. Since Coverage Plus pays the patient's co-payment, patients with both Coverage Plus and Delta Dental insurance have 100% coverage.

SmileCare contends that Delta Dental has taken a variety of improper actions designed to eliminate SmileCare's Coverage Plus plan. For example, Delta Dental informs dentists who accept co-payments from Coverage Plus that they have breached their contract with Delta Dental by waiving the co-payment. FAC. ¶ 11. Consequently, Delta Dental, "by some unspecified, mystical calculation, recomputes the provider's fee schedule and pays the dentist a vastly reduced, non-compensatory sum for the services performed." FAC. ¶ 11. Moreover, Delta Dental allegedly has both threatened and terminated Delta providers who accept SmileCare Coverage Plus co-payments. FAC. ¶ 12.

According to SmileCare, Delta Dental's conduct "denies patients access to the dentist of their choice and to expanded SmileCare services," and "prevents SmileCare from being able to effectively compete in the California dental health plan market by producing a boycott by Delta providers of patients having SmileCare supplemental dental health coverage." FAC. ¶ 20.

SmileCare filed suit, alleging a Sherman Act Section 2 claim and several supplemental state law claims, including tortious interference, trade libel, breach of contract, and violations of the California Health and Safety Code and California Business and Professions Code. On January 24, 1994, Delta Dental moved to dismiss under F.R.Civ.P. 12(b)(6), arguing that SmileCare had not alleged anticompetitive conduct and therefore failed to state a Sherman Act Section 2 claim. This Court agreed, and dismissed SmileCare's complaint without prejudice. After SmileCare filed a first amended complaint, Delta Dental moved to dismiss on the same grounds.¹

II. Standard for Motion to Dismiss

In general, courts may dismiss a complaint under Fed.R.Civ.P. 12(b)(6) only if "no relief could be granted under any set of facts that could be proved consistent with the allegations." See, e.g., Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984). When evaluating a Rule 12(b)(6) motion, courts must presume that all factual allegations are true and draw all reasonable inferences in favor of the non-moving party. Western Concrete Structures Co. v. Mitsui & Co., 760 F.2d 1013, 1015 (9th Cir.), cert. denied, 474 U.S. 903, 106 S.Ct. 230, 88 L.Ed.2d 229 (1985); Kennedy v. H & M Landing, Inc., 529 F.2d 987, 989 (9th Cir. 1976).

As SmileCare notes, "summary dismissals of antitrust actions are disfavored." Western Concrete Structures, 760 F.2d at 1016. However, whether specific conduct is anticompetitive is a question of law. Oahu Gas Service, Inc. v. Pacific Resources, Inc., 838 F.2d 360, 368 (9th Cir.), cert. denied, 488 U.S. 870, 109 S.Ct. 180, 102 L.Ed.2d 149 (1988); Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d 729, 735-36 (9th Cir.1987). Therefore, courts should evaluate allegations of anticompetitive conduct at the F.R.Civ.P. 12(b)(6) stage, and dismiss complaints if they "state no set of facts which, if true, would constitute an antitrust offense, notwithstanding their conclusory language regarding the elimination of competition and improper purpose." Rutman Wine, 829 F.2d at 735. In such cases, Rule 12(b)(6) dismissal "especially makes sense because the costs of discovery in antitrust actions are prohibitive." Id. at 738.

III. SmileCare's Sherman Act Claim

Under Sherman Act Section 2, a monopolization claim must allege (1) possession of monopoly power in the relevant geographic and product markets; (2) willful acquisition or maintenance of that power; and (3) antitrust injury. Pacific Express, Inc. v. United Airlines, Inc., 959 F.2d 814, 817 (9th Cir.), cert. denied, ___ U.S. ___, 113 S.Ct. 814, 121 L.Ed.2d 686 (1992). An attempt to monopolize claim must allege (1) specific intent to control prices or destroy competition; (2) predatory or anticompetitive conduct; (3) a dangerous probability of success; and (4) causal antitrust injury. Id. For purposes of this motion, Delta Dental concedes that SmileCare has adequately alleged market power. However, Delta Dental contends that SmileCare fails to allege the requisite anticompetitive conduct. See Western Concrete Structures, 760 F.2d at 1017-18 ("Attempt to monopolize and actual monopolization involve, among other things, intentional predatory or anticompetitive conduct."). See also United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1703-04, 16 L.Ed.2d 778 (1966) (stating that market power obtained or preserved "as a consequence of a superior product, business acumen, or historic accident," is not condemned by the antitrust laws); United States v. Syufy Enters., 903 F.2d 659, 668-69 (9th Cir.1990); Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 273-75 (2d Cir.1979), cert. denied, 444 U.S. 1093, 100 S.Ct. 1061, 62 L.Ed.2d 783 (1980).

a. Anticompetitive Conduct

SmileCare concedes that Delta Dental's patient co-payment requirement is unobjectionable. Delta Dental argues that once one makes that concession, one must also concede that enforcing the co-payment requirement is not anticompetitive.

This Court agrees with Delta Dental. Mandatory co-payment plans require patients to pay their co-payments themselves, thereby precluding them from obtaining supplemental insurance. However, mandatory co-payment plans are no more inherently anticompetitive than 100% plans or any other ordinary buyer/seller arrangement. Merely agreeing to be a patient's exclusive dental insurer is not, in and of itself, anticompetitive:

Every contract between a buyer and seller has precisely the effect of which plaintiff complains. When a buyer contracts with one seller, a second seller no longer has access to the buyer's business to the extent it is covered by their existing contract. This consequence, however, is not unlawful. The plaintiffs have confused an agreement to boycott with an agreement to buy and sell services.

Barry v. Blue Cross of California, 805 F.2d 866, 871 (9th Cir.1986) (citations omitted).²

In fact, both the Ninth and Seventh Circuits have recognized that enforcement of contractual mandatory co-payment provisions is pro-competitive, because insurance creates a "moral hazard" by making a patient insensitive to cost:

Once a person has insurance, he wants the best care regardless of cost — for someone else bears the cost. When, as happens often, the physician rather than the patient makes the important choices, the physician may be inclined to provide all the service for which insurance will pay, knowing that his patient will not resist his recommendation (at least not on account of expense). Yet if every physician supplies more or better care, price must rise, which patients as a group must pay in higher insurance bills.

Ball Memorial Hospital, Inc. v. Mutual Hospital Ins., Inc., 784 F.2d 1325, 1332 (7th Cir.1986). Mandatory co-payments combat this effect:

Co-payments sensitize patients to the costs of health care, leading them not only to use less but also to seek out providers with lower fees ... which makes medical insurance less expensive and enables employers and health care plan providers to furnish broader coverage.... If waiver of co-payments is allowed, or if the patient does not have to make the payment herself patients prefer the lower outlays but waivers annul the benefits of the co-payment system. The health insurer wants assurance that the patient has given enough thought to the need for and price of this medical care to be willing to pay. Patients who pay nothing have no reason to moderate their demands for medical service, and providers may inflate the bill.

Davidowitz v. Delta Dental Plan of California, Inc., 946 F.2d 1476, 1479 (9th Cir.1991) (quoting Kennedy v. Connecticut General Life Ins. Co., 924 F.2d 698, 699-701 (7th Cir.1991)). See also Westchester Radiological Assocs. P.C. v. Empire Blue Cross and Blue Shield, Inc., 707 F.Supp. 708, 710 (S.D.N.Y.), aff'd, 884 F.2d 707 (2d Cir.1989), cert. denied, 493 U.S. 1095, 110 S.Ct. 1169, 107 L.Ed.2d 1071 (1990). Thus, an insurer's efforts to force providers to honor their mandatory co-payment contracts increase the array of dental plans by making mandatory co-payment plans feasible, thereby giving consumers broader choice, reducing insurance costs, and enabling employers to furnish broader coverage....