White and White, Inc. v. American Hospital Supply, G79-633 CA1.

• Decision Date: 22 April 1982
• Docket Number: No. G79-633 CA1.,G79-633 CA1.
• Citation: White and White, Inc. v. American Hospital Supply, 540 F.Supp. 951 (W.D. Mich. 1982)
• Parties: WHITE AND WHITE, INC., Bluefield Supply Company, Crocker-Fels Co., and Ransdell Surgical Inc., Plaintiffs, v. AMERICAN HOSPITAL SUPPLY CORPORATION, Defendant.
• Court: U.S. District Court — Western District of Michigan

540 F. Supp. 951

WHITE AND WHITE, INC., Bluefield Supply Company, Crocker-Fels Co., and Ransdell Surgical Inc., Plaintiffs, v.AMERICAN HOSPITAL SUPPLY CORPORATION, Defendant.

No. G79-633 CA1.

United States District Court, W. D. Michigan, S. D.

April 22, 1982.

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Lawrence G. Meyer, Patton, Boggs & Blow, Washington, D. C., Robert D. VanderLaan, Grand Rapids, Mich., George E. Bushnell, Southfield, Mich., for plaintiffs.

W. Donald McSweeney, William A. Montgomery, Joseph R. Lundy, Schiff, Hardin & Waite, Chicago, Ill., Grant J. Gruel, J. Clarke Nims, Cholette, Perkins & Buchanan, Grand Rapids, Mich., for defendant.

                             TABLE OF CONTENTS
                  I. Proceedings ..........................................  960
                 II. Parties ..............................................  961
                     A. Plaintiffs ........................................  962
                     B. Defendant .........................................  963
                     C. Voluntary Hospitals of America ....................  963
                III. The Hospital Supply Industry .........................  965
                 IV. The Purchasing Agreement .............................  972
                  V. Implementation of the Purchasing Agreement ...........  974
                 VI. Implied Antitrust Exemption ..........................  977
                VII. Market Analysis ......................................  979
                     A. The Relevant Market ...............................  979
                        1. The Product Market .............................  980
                           (a) Medical-Surgical Supply Dimension ..........  982
                           (b) The Distributor Dimension ..................  986
                           (c) The Hospital Customer Dimension ............  988
                        2. The Geographic Market ..........................  988
                     B. Market Volume and Defendant's Market Share           993
                        1. The Martin Potential ...........................  994
                        2. The Armbruster Potential .......................  995
                        3. The Hepp Potential .............................  996
                        4. Comparison .....................................  996
                VIII.  Attempt to Monopolize ..............................  999
                       A. Anticompetitive Conduct and Specific Intent to
                           Monopolize ..................................... 1001
                       B. Dangerous Probability of Success ................ 1009
                  IX.  Unreasonable Restraint of Trade .................... 1013
                   X.  Exclusive Dealing .................................. 1026
                  XI.  Boycott ............................................ 1033
                 XII.  Damages and Remedy ................................. 1036
                       A. Proof of Damage ................................. 1036
                       B. Amount of Damages ............................... 1039
                       C. Injunctive Relief ............................... 1044
                XIII.  Attorney Fees and Costs ............................ 1045
                 XIV.  Conclusion ......................................... 1045
                

OPINION

DOUGLAS W. HILLMAN, District Judge.

This antitrust action brought under the Sherman and Clayton Acts was filed by four regional distributors of medical-surgical supplies against the American Hospital Supply Corporation, the nation's largest manufacturer and distributor of hospital supplies.The suit challenges (1) the legality of a Purchasing Agreement executed by defendantAmerican Hospital Supply Corporation("AHSC") and the Voluntary Hospitals of America ("VHA") on July 5, 1979, and (2) the legality of the joint AHSC-VHA conduct implementing that Agreement.Federal jurisdiction exists under 28 U.S.C. §§ 1331and1337and15U.S.C. §§ 15and26.

Plaintiffs filed this action on October 31, 1979.Trial to the court commenced on November 3, 1980, and proceeded for approximately 80 trial days, concluding September 21, 1981.In the course of the proceedings the court heard 43 witnesses, including nine experts.The proceedings are recorded in the trial transcript which runs almost 15,000 pages; includes approximately 800 exhibits and several hundred pages of designated deposition testimony.

Counsel have filed post-trial briefs and proposed findings of fact and conclusions of law that consume an additional 525 pages.The case was exceptionally well tried and briefed by able counsel.

In synopsis, the following factual circumstances underly this case.American Hospital Supply Corporation(AHSC) is a national manufacturer and distributor of health care products and services.In 1979, AHSC entered into a Purchasing Agreement with a group of hospitals known as the Voluntary Hospitals of America (VHA).The Agreement contemplates that AHSC will sell a high volume and broad range of products to at least 29 VHA hospitals spread across 22 states.In return, the hospitals become eligible for volume discounts, price protection and certain vendor services.Plaintiffs are engaged in the business of distributing medical-surgical and other supplies to hospitals and compete with defendant for this distribution business in eight VHA hospitals.Plaintiffs claim that in executing and implementing the Purchasing Agreement defendant AHSC, the VHA and individual VHA hospitals have conspired to violate the antitrust laws.

I.PROCEEDINGS

The complaint alleges that defendant, AHSC, has violated Section 1¹and2² of the Sherman ActandSection 3 of the Clayton Act³.Five antitrust violations are charged: (1) attempt to monopolize; (2) price fixing; (3) tying; (4) exclusive dealing and group boycott; and (5) price discrimination under the Robinson Patman Act.⁴Counts II through V were framed in language alleging a conspiracy between the defendant AHSC and the VHA.The complaint prayed for treble damages and injunctive relief.In its answer, defendant denied any antitrust violation and raised as affirmative defenses a Robinson Patman immunity under the Nonprofit Institutions Act⁵ and a general, implied antitrust exemption under Section 2103 of the HCFA Provider Reimbursement Manual.⁶

After presenting an extensive case in chief, plaintiffs were permitted to amend the complaint to include a sixth count which alleges a conspiracy between AHSC, the VHA and the individual VHA hospitals to unreasonably restrain trade.At the close of plaintiffs' case, defendant moved to exclude certain evidence conditionally admitted under Fed.R.Evid. 801(d)(2)(E) and moved to dismiss the amended complaint under Fed.R.Civ.P. 41(b).

Defendant's evidentiary motion attacked the admissibility of testimony concerning statements made by high-ranking VHA and VHA hospital personnel.Defendant objected to the admission of the evidence as hearsay.Plaintiffs contended the evidence was admissible under the co-conspirator exemption to the hearsay rule.In accordance with the procedure approved in United States v. Vinson,606 F.2d 149(6th Cir.1979), the evidence was conditionally admitted pending a final determination by the court on the existence of a conspiracy sufficient to admit the evidence.

By a memorandum opinion dated April 13, 1981, this court determined that sufficient evidence of joint or conspiratorial activity existed to admit the evidence under the co-conspirator hearsay exemption.The court then dismissed plaintiffs' claims of price fixing, tying, and price discrimination.As a consequence of the dismissal of plaintiffs' price discrimination claim, the court did not address defendant's defense of immunity under the Nonprofit Institutions Act.As to plaintiffs' remaining claims, the court held defendant's motion to dismiss in abeyance.Accordingly, plaintiffs' claims of attempt to monopolize, exclusive dealing and group boycott and unreasonable restraint of trade are now before the court.

Pursuant to Fed.R.Civ.P. 52(a), this memorandum opinion constitutes the findings of fact and conclusions of law in this matter.In support of factual determinations, the court gives citations to designated deposition transcripts, trial record or exhibits where appropriate.These citations are not intended to represent the sole source of support for the fact determination involved.Similarly, those determinations of fact not accompanied by any specific reference to evidentiary material should be viewed as facts found by the court in light of its consideration of the record as a whole.

II.PARTIES

The parties are competitive distributors of hospital supplies.

The term hospital supplies includes several broad product categories.Three product categories figure prominently in this case: medical-surgical supplies, parenteral solutions, and laboratory supplies.Other hospital product categories, such as office furniture, equipment, dietary or laundry products are of peripheral significance.For the purpose of this general introduction, medical-surgical supplies are disposable health care products, used in high volume by hospital personnel and generally used directly with the patient in the course of medical treatment.Parenteral solutions are intravenous nutritional fluids.Laboratory supplies are reagents and minor equipment items used by hospital laboratory personnel.

Defendant is a national distributor of a complete line of hospital supplies.Plaintiffs are regional distributors of primarily medical-surgical supplies.The distribution function consists of purchasing products from manufacturers, warehousing then selling and delivering them in smaller quantities to health care institutions.The primary customers for this distribution service are hospitals.

A.Plaintiffs.

PlaintiffWhite and White Surgical Supply and Pharmacies, Inc.(White and White) is a Michigan corporation with headquarters in Grand Rapids.Eighty percent of White and White's sales are of medical-surgical supply products.(T 730)An insignificant volume of sales consists of parenteral solutions and no sales are made of laboratory supplies.(Byington Dep.12/12/79, at 65)Seventy...