Suture Express, Inc. v. Cardinal Health 200, LLC

• Decision Date: 05 August 2013
• Docket Number: Case No. 12–2760–RDR.
• Citation: 963 F.Supp.2d 1212
• Court: U.S. District Court — District of Kansas
• Parties: SUTURE EXPRESS, INC., Plaintiff, v. CARDINAL HEALTH 200, LLC, and Owens & Minor Distribution, Inc., Defendants.

963 F.Supp.2d 1212

SUTURE EXPRESS, INC., Plaintiff,

v.CARDINAL HEALTH 200, LLC, and Owens & Minor Distribution, Inc., Defendants.

Case No. 12–2760–RDR.

United States District Court,

D. Kansas.

Aug. 5, 2013.

Charles W. German, Daniel B. Hodes, Rouse Hendricks German May, Kansas City, MO, Daniel M. Abuhoff, Julie M. Calderon Rizzo, Ichael Schaper, Debevoise & Plimpton, LLP, New York, NY, for Plaintiff.

Jennifer B. Wieland, Jonathan S. Kemp, Berkowitz Oliver Williams Shaw & Eisenbrandt, LLP, Patrick Lysaught, Baker, Sterchi, Cowden & Rice, LLC, Kansas City, MO, Michael Sennett, Paula W. Render, Jones Day, Chicago, IL, Michelle K. Fischer, Jones Day, Cleveland, OH, John S. Gibson, Ryan C. Tisch, Elisa F. Kantor, Crowell & Moring LLP, for Defendants.

MEMORANDUM AND ORDER

RICHARD D. ROGERS, District Judge.

This is an antitrust action raising federal and state law claims. This case is before the court upon the motions to dismiss for failure to state a claim (Doc. Nos. 23 and 27) filed by defendant Owens & Minor Distribution, Inc. and defendant Cardinal Health 200, LLC.¹ Thus, the question for the court is whether plausible antitrust law violations and state law claims are described in plaintiff's first amended complaint. The court finds that: the first amended complaint does not allege per se antitrust violations or monopolization violations; plaintiff's claims of conspiratorial agreement are not specifically supported by factual allegations; and plaintiff's unjust enrichment claim does not properly allege a benefit conferred by plaintiff upon defendant. The court further finds that plaintiff's claims that defendants, acting individually, violated § 1 of the Sherman Act and § 3 of the Clayton Act are plausible under rule of reason analysis and that analogous claims under K.S.A. 50–112 should also survive. ²

I. PLAINTIFF'S FIRST AMENDED COMPLAINT (Doc. No. 19).

Plaintiff alleges federal and state antitrust law violations and makes a claim of unjust enrichment relating to the distribution and sale of “med-surg” supplies to acute care providers. “Med-surg” supplies are medical and surgical single-use items such as sutures, needles, syringes, gloves, surgical instruments and catheters. There are thirty product categories in the “med-surg basket” commonly sold to acute care providers. Plaintiff alleges that defendants Owens & Minor Distribution, Inc. (“O & M”) and Cardinal Health 200, LLC (“Cardinal”) are broad-based distributors who purchase and distribute the full gamut of products in the med-surg basket. The complaint alleges that there are approximately 4,800 acute care providers that commonly purchase med-surg supplies through group purchasing organizations, regional purchasing cooperatives or other multi-hospital systems. Defendant O & M is alleged to have 39% of this market. Defendant Cardinal is alleged to have 33% of this market.

Plaintiff has limited its business to a portion of the med-surg basket—the sale and distribution of sutures and endomechanical products. Endomechanical (“endo”) products are devices used in minimally invasive surgeries, like laparoscopic surgery. Sutures and endo products are alleged to make up 10% of med-surg supplies distributed in the United States to acute care providers. Plaintiff asserts that it provides a greater variety of suture and endo products than the more broad-based distributors who concentrate on so-called “core” products, which are the most popular or widely-used sutures and endo products. Plaintiff alleges that it is the only significant distributor of specialty or non-core sutures and endo products. For this and other reasons, plaintiff contends that its business thrived from the beginning in 1998 through 2008. Plaintiff alleges that it distributes to approximately 900 of the nation's 4,800 acute care providers and that it offers both core and non-core sutures and endo products.

Plaintiff states that in 2008 defendants attempted to leverage their power in the distribution of a fuller array of med-surg products to coerce customers from buying plaintiff's sutures and endo products. Plaintiff asserts that contracts were constructed which unlawfully tied the sale of sutures and endo products to the sale of other products in the med-surg basket. Under these contracts if an acute care provider did not purchase 90% or more of its sutures and endo products from a defendant, then it would pay a penalty on the entire med-surg basket purchased from that defendant. The penalty was allegedly so substantial that it effectively prevented acute care providers from dealing with plaintiff, thus foreclosing the opportunity for acute care providers to enjoy plaintiff's alleged superior service, lower distribution fees and comprehensive product selection. According to plaintiff, this penalty was also packaged as a “discount program” where providers were not eligible for a discounted distribution fee if they did not purchase their sutures and endo products from a defendant. Plaintiff further contends that the amount of the “discount” was such as to bring the price of defendants' sutures and endo products below cost and, thus, constituted predatory pricing which enhanced defendants' market power, raised barriers to entry and impeded the ability of plaintiff to compete.

Plaintiff asserts that defendants' exclusionary practices are strikingly similar and that the “lock-step implementation of nearly identical penalty programs defies each [defendant's] economic interests.” Doc. No. 19, ¶ 52.

Plaintiff contends that in order to avoid paying extra for the med-surg products hospitals needed as part of the med-surg basket, acute care providers declined to purchase sutures and endo products from plaintiff and instead purchased them from defendants. Plaintiff alleges that its business has been injured and that consumers have been injured in the following manner: less consumer choice among competing suture and endo product distributors; increased costs and reduced service; reduced access and barriers to entry to the sutures and endo products distribution market; chilled innovation within the med-surg supplies distribution market; and loss of competition among distributors to the acute care market.

Seven counts are listed in the complaint: a violation of § 1 of the Sherman Act alleging illegal tying (Count 1); a violation of § 2 of the Sherman Act alleging unlawful monopolization or attempted monopolization of the markets for the domestic distribution of sutures and endo products to acute care providers (Count 2); a violation of § 1 of the Sherman Act alleging conspiracy to restrain trade (Count 3); a violation of § 2 of the Sherman Act alleging conspiracy to monopolize (Count 4); a violation of § 3 of the Clayton Act alleging exclusive dealing (Count 5); a violation of K.S.A. 50–101 et. seq. alleging anti-competitive tying and bundling (Count 6); and unjust enrichment (Count 7).

II. STANDARDS GOVERNING DEFENDANTS' MOTIONS TO DISMISS

FED.R.CIV.P. 8(a) requires that a complaint contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” The Supreme Court has stated that a complaint must provide a defendant with “fair notice” of the claims against it and the grounds for relief. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Pursuant to FED.R.CIV.P. 12(b)(6), a court may dismiss a complaint when it does not contain enough facts to state a claim to relief that is plausible on its face. Id. at 570, 127 S.Ct. 1955. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (internal citations and parentheticals omitted). The Court observed in Twombly that, “proceeding to antitrust discovery can be expensive.” Id. at 558, 127 S.Ct. 1955 (applying the pleading standard to Sherman Act claims). Thus, a court should “ ‘insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed.’ ” Id. (quoting Associated Gen. Contractors of Cal., Inc. v. Carpenters, 459 U.S. 519, 528 n. 17, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983)).

In considering a motion to dismiss, a court must accept all of the plaintiff's allegations as true and construe them in the light most favorable to the plaintiff. Smith v. United States, 561 F.3d 1090, 1098 (10th Cir.2009)cert. denied,558 U.S. 1148, 130 S.Ct. 1142, 175 L.Ed.2d 973 (2010). In addition, a court may consider documents attached to the complaint or incorporated by reference. Id.

III. COUNT ONE AND GLOBAL DEFENSES.

In this section of the court's order, the court shall address defendants' arguments against Count One and some of the arguments defendants have asserted broadly against all of the counts in the first amended complaint. The court shall address defendants' statute of limitations arguments in a separate section of this opinion.

Count One alleges that each defendant individually engaged in illegal tying contracts in violation of § 1 of the Sherman Act. Section 1 of the Sherman Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade...