Opinion
Case No. 79-4191.
February 18, 1982
MEMORANDUM AND ORDER
In this case, plaintiff, a cardiologist and cardiovascular surgeon, claims that the denial of staff privileges at three hospitals in Topeka, Kansas violated the Sherman Act, the Clayton Act, the Civil Rights Act of 1871, the Fourteenth Amendment, plaintiff's federal "contract" rights, as well as state statutory and common law. Plaintiff has sued Stormont Vail and Memorial Hospitals and their Boards of Trustees; St. Francis Hospital; and certain individual physicians as members of the executive committees of Stormont Vail, Memorial, and St. Francis. The Sherman and Clayton Act violations have not been asserted against St. Francis Hospital.
This case is now before the court upon defendants' motions to dismiss. The strategy of the motions is to show that plaintiff has not stated a proper federal claim against defendants and thus remove the basis for this court's jurisdiction over the state law claims. Four main issues are raised by the summary judgment motions: 1) whether the "effects" test for stating a Sherman Act violation has been satisfied at this stage in the litigation; 2) whether plaintiff has alleged an unreasonable restraint upon trade; 3) whether state action has been sufficiently alleged in plaintiff's § 1983 claim; and 4) whether plaintiff's federal "contract" claim states a cause of action.
1. Has the "effects" test been satisfied?
At the outset it must be remembered that the court is proceeding upon motions to dismiss supplemented by affidavits and exhibits. With regard to adjudicating Sherman Act cases at this stage of litigation, the Tenth Circuit has commented:
As in the present case, both McLain [ v. Real Estate Board of New Orleans, Inc., 444 U.S. 232 (1980)] and Hospital Building [ Co. v. Trustees of Rex Hospital, 425 U.S. 738 (1976)] involved a pretrial dismissal of the complaint. In reversing each case, the Supreme Court emphasized that such dismissal should not occur "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." McLain, 444 U.S. at 246 (quoting Conley v. Gibson, 355 U.S. 41, 45-56 (1957)); Hospital Building, 425 U.S. at 746. The Court also said in Hospital Building: "[I]n antitrust cases, where `the proof is largely in the hands of the alleged conspirators,' Poller v. Columbia Broadcasting, 368 U.S. 464, 473 (1962), dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly." Hospital Building, 425 U.S. at 746 Accord, Mac Adjustment, Inc., 597 F.2d at 1321-22.Crane v. Intermountain Health Care, Inc., 637 F.2d 715, 724 (10th Cir. 1981) (en banc).
In Crane the Tenth Circuit determined that the allegations of a pathology consultant who claimed that a hospital owner and administrator conspired to boycott his services, were sufficient at the pleading stage because the court could not say beyond doubt that plaintiff could "prove no set of facts to show the required effect on interstate commerce." Id. at 724. In Crane, the plaintiff claimed that three channels of interstate commerce were affected by the defendants' unlawful conduct: 1) commerce in medical insurance from out-of-state sources, 2) commerce in the form of supplies from out-of-state sources, and 3) commerce in the form of interstate patients using the defendant hospital. The same channels are alleged to be affected by the conspiracy alleged in this case. It is not beyond doubt that plaintiff could demonstrate facts to support his allegations of effects on commerce. Therefore, at this stage in the litigation, we believe the "effects" test has been satisfied. Crane, supra; Alan J. Mishler v. St. Anthony's Hospital Systems, No. 79-2078 (10th Cir., unpublished, 11/2/81); see also, Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738 (1976); Robinson v. Magovern, 521 F. Supp. 842 (W.D. Pa. 1981); Malini v. Singleton Associates, 516 F. Supp. 440 (S.D. Tex. 1981); Hyde v. Jefferson Parish Hospital Dist., 513 F. Supp. 532 (E.D. La. 1981); Zamiri v. William Beaumont Hospital, 430 F. Supp. 875 (E.D. Mich. 1977); Feminist Women's Health Center, Inc. v. Mohammad, 415 F. Supp. 1258 (N.D. Fla. 1976).
2. Has an unreasonable restraint upon commerce been alleged?
In Count I, plaintiff alleges that defendants entered a conspiracy to boycott plaintiff's services. Plaintiff contends that a group boycott is a per se violation of the Sherman Act. Defendants counter by arguing that the rule of reason should be applied to defendants' conduct. If the rule of reason is applied, defendants argue, summary judgment may be granted on the basis of materials indicating that plaintiff was not denied hospital privileges for anticompetitive reasons. We do not believe that defendants' conduct should be considered a per se violation of the Sherman Act. We also believe, however, that it would be premature to grant summary judgment on the basis of the rule of reason.
Per se violations of the Sherman Act constitute restraints which are "plainly anticompetitive" and "lacking any redeeming virtue." Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 8-9 (1979). In some contexts, group boycotts have been considered per se antitrust violations. See Consolidated Express, Inc. v. New York Shipping Assoc., Inc., 602 F.2d 494 (3d Cir. 1979); Gunter Harz Sports v. U.S. Tennis Ass'n, 511 F. Supp. 1103, 1115 (D. Neb. 1981); Balogh's of Coral Gables, Inc. v. Getz, 510 F. Supp. 741 (S.D. Fla. 1981). Courts have refused though, to apply the per se rule to restraints operating within professions. State of Arizona v. Maricopa County Medical Society, 643 F.2d 553 (9th Cir. 1980); Medical Arts Pharmacy v. Blue Cross Blue Shield, 518 F. Supp. 1100 (D. Conn. 1981); Hyde v. Jefferson Parish Hospital District, supra, 513 F. Supp. at 542; Warner Amex Cable v. American Broadcasting, 499 F. Supp. 537 (S.D. Ohio 1980); Cooney v. American Horse Shows Ass'n, Inc., 495 F. Supp. 424 (S.D.N.Y. 1980); Paralegal Institute, Inc. v. American Bar Ass'n, 475 F. Supp. 1123 (E.D.N.Y. 1979) aff'd, 622 F.2d 575 (2d Cir. 1980).
Two reasons may be ascribed to the reluctance to apply the per se rule to professions. First, there are common sense differences in the operation of professions and other businesses. The significance of these differences received the attention of the Supreme Court in an often quoted footnote:
The fact that a restraint operates upon a profession as distinguished from a business, is, of course, relevant in determining whether that particular restraint violates the Sherman Act. It would be unrealistic to view the practice of professions as interchangeable with other business activities, and automatically to apply to the professions antitrust concepts which originated in other areas. The public service aspect and other features of the professions may require that particular practice, which could properly be viewed as a violation of the Sherman Act in another context, be treated differently . . .Goldfarb v. Virginia State Bar, 421 U.S. 773, 788 n. 17 (1975).
The second reason for refusing to presume the anticompetitive effect of practices or agreements in professions is the absence of knowledge about the operation of the professions. The per se rule is directed at conduct "whose nature and necessary effect are so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality — they are `illegal per se'" National Society of Professional Engineers v. United States, 435 U.S. 679, 692 (1978). The denial of staff privileges is not a plainly anticompetitive activity. Robinson v. Magovern, supra (surgeon who was denied staff privileges did not establish per se violation of antitrust laws); cf., Smith v. Northern Michigan Hospitals, Inc., 518 F. Supp. 644 (W.D. Mich. 1981) (referral system which gave general practitioners less business determined to be medical decision rather than an anticompetitive restraint of trade). Reliance upon the course of traditional market forces is not helpful because the health care field "does not respond to classic marketplace forces." National Gerimedical Hospital Gerontology Center v. Blue Cross of Kansas City, ___ U.S. ___ (1981) (quoting S.Rep. No. 93-1285 at 39 (1974)); see also, State of Arizona v. Maricopa County Medical Society, supra, 643 F.2d at 556. "When a court is uncertain of the competitive significance of a particular restraint, it must decline to apply the per se lable." Medical Arts Pharmacy v. Blue Cross Blue Shield, supra, 518 F. Supp. at 1107. "It is only after considerable experience with certain business relationships that courts classify them as per se violations . . ." United States v. Topco Associates, Inc., 405 U.S. 596, 607-08 (1972). We feel that we have neither the experience or knowledge required to presume that defendants' conduct violated the Sherman Act. Therefore, we shall refuse to declare defendants' conduct unlawful per se.
Application of the rule of reason, however, does not create a broad exemption from antitrust laws for professionals. National Society of Professional Engineers v. United States, supra, 435 U.S. at 696. The rule of reason requires an examination of the alleged restraint's "impact on competitive conditions." Id. at 688. "The fact that a restraint may for one or more reasons appear reasonable is not controlling." State of Arizona v. Maricopa County Medical Society, supra, 643 F.2d at 556; see also, West Texas Utilities Co. v. Texas Elec. Service, 470 F. Supp. 798 (N.D. Tex. 1979). An inquiry into the reasonableness of a restraint should consider "the facts peculiar to the business in which the restraint is applied, the nature of the restraint and its effects, and the history of the restraint and the reasons for its adoption." United States v. Topco Associates, Inc., supra, 405 U.S. at 607; Medical Arts Pharmacy v. Blue Cross Blue Shield, supra, 518 F. Supp. at 1107-1108.
The key . . . is the agreement's impact on competition. If competition is promoted the agreement passes muster; if it suppresses or destroys competition it does not.State of Arizona v. Maricopa County Medical Society, supra, 643 F.2d at 556.
[T]he inquiry . . . is directed at the challenged restraint's overall impact on competitive conditions, rather than whether a particular party has been restrained by the conduct at issue.Berman Enterprises Inc. v. Local 333, Int'l Longshoremen's Ass'n, 644 F.2d 930, 937 (2d Cir. 1981).
Defendants have offered materials indicating that staff privileges were denied to plaintiff because: plaintiff's personality was considered unsuited for staff membership; plaintiff had violated local hospital regulations; and some of plaintiff's references were negative or merely lukewarm about plaintiff's past medical practice and his potential. While these materials are relevant to the application of the rule of reason, we do not consider them sufficiently conclusive to render summary judgment at this stage in the litigation. There has not been a complete examination of the circumstances surrounding the denial of staff privileges. There is a potential issue of motive which plaintiff has not had a full opportunity to explore. Furthermore, the materials presented by defendants have not been applied to the competitive impact of the alleged restraint — the key issue in a rule of reason inquiry. Courts have the discretion to deny summary judgment when the discovery record is not sufficiently complete to render judgment. Program Engineering v. Triangle Publications, 634 F.2d 1188 (9th Cir. 1980); Jecies v. Matsuda, 503 F. Supp. 580 (S.D.N.Y. 1980); Vita Food Products, Inc. v. E.J. Bartells Co., 502 F. Supp. 275 (W.D. Wash. 1980). In this case, we believe it a prudent exercise of discretion to delay a decision upon the reasonableness of defendants' conduct until there is a more complete factual record.
3. Has "state action" been sufficiently alleged?
Defendants have argued that a cause of action under 42 U.S.C. § 1983 has not been stated because plaintiff has not alleged facts which indicate that defendants acted under color of state law. The complaint alleges that the defendant hospitals have accepted money and been subjected to regulation under the Hill-Burton, Medicare and Medicaid programs. It further states that the hospitals enjoy state, federal, and local tax exemptions and public grants; exercise special lien and eminent domain powers; and are subject to extensive regulation by all levels of government. In addition, plaintiff has submitted the lease agreement between the City of Topeka and Stormont-Vail Hospital and other materials relating to hospital revenue bonds authorized in 1976. These materials indicate that Stormont Vail has paid a nominal fee for the lease agreement. The lease also indicates that Stormont Vail, not the City of Topeka, controls "the appointment and discharge of medical staff members" as well as other aspects of hospital operation. The key question is whether these governmental ties to hospital operation constitute a sufficient allegation of state action to state a claim under § 1983. Since plaintiff also asserts that his rights under the Constitution have been infringed, we shall also consider whether plaintiff may otherwise assert a civil rights claim.
We do not believe plaintiff has stated a cause of action under § 1983. Plaintiff must assert that defendants acted under color of state law to deprive him of a right secured by the Constitution or laws of the United States to state a sustainable § 1983 action. Adickes v. S.H. Kress Co., 398 U.S. 144 (1970). In this case, plaintiff has failed to assert facts to support the contention that defendants acted under color of state law when they denied plaintiff staff privileges. Plaintiff has also failed to assert that the denial of staff privileges amounts to a deprivation of a right secured by the Constitution or laws of the United States.
"The mere existence of some government tie to a private organization is not sufficient to support a finding of state action where the state has not sufficiently involved itself in the invidious discrimination." Feldman v. Jackson Memorial Hospital, 509 F. Supp. 815, 822 (S.D. Fla. 1981) (citing Moose Lodge No. 107 v. Irvis, 407 U.S. 163 (1972)). "[T]he inquiry must be whether there is a sufficiently close nexus between the State and the challenged action of the regulated entity so that the action of the latter may be fairly treated as that of the State itself." Jackson v. Metropolitan Edison Co., 419 U.S. 345, 351 (1974). "The mere fact that a business is subject to state regulation does not by itself convert its action into that of the State for purposes of the Fourteenth Amendment." Id. at 350. "[A] State is responsible for the . . . act of a private party when the State by its laws, has compelled the act." Adickes v. S.H. Kress Co., supra at 170. The Supreme Court "has never held that a State's mere acquiescence in a private action converts that action into that of the State." Flagg Brothers, Inc. v. Brooks, 436 U.S. 149, 164 (1978).
In this case, there is no allegation that the governmental ties to the defendant hospitals' operations compelled defendants to deny staff privileges to plaintiff. Therefore, we find in accordance with Ward v. St. Anthony Hospital, 476 F.2d 671 (10th Cir. 1973) that plaintiff has failed to state a cause of action under § 1983. In Ward, the court held that the receipt of government funds and operation under state regulation did not transform a private hospital's decision to suspend a doctor from its staff into state action. The "crucial point", according to the Tenth Circuit was that Dr. Ward, the plaintiff, "failed to show that Colorado is involved in his dismissal from the St. Anthony Hospital." Id. at 675.
Plaintiff has attempted to distinguish the impact of Ward upon this case in three ways. First, plaintiff notes that the Tenth Circuit accepted the trial court's state action finding in Don v. Okmulgee Memorial Hospital, 443 F.2d 234 (10th Cir. 1971). In Don, however, the finding of state action was not crucial to the ultimate holding that plaintiff's constitutional rights were not violated by the denial of staff privileges. Furthermore, the trial court finding was undisputed. Finally, Don was decided in 1971, before the Supreme Court began to enunciate a stricter view of state action in Jackson v. Metropolitan Edison Co., supra, and Moose Lodge No. 107 v. Irvis, supra.
Plaintiff has also cited cases from the Fourth and Sixth Circuits to support a finding of state action on the basis of the receipt of government funds. E.g., Meredith v. Allen County War Memorial Hospital Comm'n, 397 F.2d 33 (6th Cir. 1968); Sams v. Ohio Valley General Hospital Ass'n, 413 F.2d 826 (4th Cir. 1969). These cases also predate Jackson and Moose Lodge. In addition, more recently courts have concluded that Fourth and Sixth Circuit case law does not require a finding of state action solely on the basis of the receipt of state or federal financial assistance. Newsom v. Vanderbilt University, 653 F.2d 1100, 1115 (6th Cir. 1981); Manning v. Greensville Memorial Hospital, 470 F. Supp. 662, 665 (E.D. Va. 1979); Greene v. Johns Hopkins University, 469 F. Supp. 187, 197 (D. Md. 1979).
Finally, plaintiff argues that hospitals, in particular the defendant hospitals, perform an essential public function which should be susceptible to the state action label. "The public function exception only applies to those functions which were exclusively reserved to the states traditionally." Newsom v. Vanderbilt University, supra, 653 F.2d at 1114 (citing Flagg Brothers, Inc. v. Brooks, 436 U.S. 149 (1978)). Neither the provision of medical care in general, nor the granting of medical staff privileges in particular, are matters which traditionally have been exclusively reserved to the states. Therefore, we do not believe the public function exception may be employed to find state action in this case.
An independent reason for rejecting plaintiff's § 1983 claim as well as any claim made under the United States Constitution is plaintiff's failure to name a right guaranteed by the Constitution or laws of the United States which has been deprived by defendants' actions. Plaintiff simply does not have a special constitutional right to staff privileges at the defendant hospitals. Hayman v. Galveston, 273 U.S. 414 (1927); Shaw v. Hospital Authority of Cobb County, 614 F.2d 946 (5th Cir.) cert. denied, 449 U.S. 955 (1980); Sosa v. Board of Managers, 437 F.2d 173 (5th Cir. 1971); Feldman v. Jackson Memorial Hospital, supra, 509 F. Supp. at 822. Of course, the Fourteenth and Fifth Amendments to the Constitution are not implicated without state action. Ward v. St. Anthony Hospital, supra, 476 F.2d at 674-74. Therefore, we do not believe plaintiff can bring an independent action under the Constitution.
4. Does plaintiff's federal contract claim state a cause of action?
Plaintiff claims that he is the third party beneficiary of federal regulations requiring the defendant hospitals to employ proper standards for hiring medical staff. Plaintiff has cited no evidence, nor have we been able to find evidence, indicating that Congress intended these regulations to support a private cause of action for doctors whose applications for staff privileges have been denied. Indeed, court action against the Government under the Medicare Act is severely restricted under 42 U.S.C. § 405(h). There is no reason to assume that Congress intended a more generous approach to suits against private entities.
A claim similar to plaintiff's "contract" claim was rejected in Robinson v. Magovern, 456 F. Supp. 1000, 1008 (W.D. Pa. 1978). There the court cited 42 U.S.C. § 1395 in support of the finding that a private remedy is not implicit in the Medicare regulations. That section provides:
Nothing in this subchapter shall be construed to authorize any Federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided, or over the selection, tenure, or compensation of any officer or employee of any institution, agency, or person providing health services, or to exercise any supervision or control over the administration or operation of any such institution, agency, or person.
This and other provisions of the Social Security Act and the Medicare Act have led another court to conclude:
[I]t was Congress' purpose to limit the availability of judicial review in order to prevent courts from being deluged with the multiplicity of complaints which are bound to arise under any social welfare program.Lodi Memorial Hospital v. Califano, 451 F. Supp. 651, 655 n. 2 (D.D.C. 1978).
In sum, we cannot conclude that the regulations cited by plaintiff afford him a federal contractual right to sue defendants for their refusal to grant him staff privileges.
5. Remaining issues.
a) Pendant Party Jurisdiction — Although federal claims remain against other defendants, only state law claims remain against St. Francis Hospital. Thus, the question arises whether this court should exercise pendant party jurisdiction over defendant St. Francis Hospital. The exercise of pendant jurisdiction is a discretionary function. United Mine Workers v. Gibbs, 383 U.S. 715 (1966). In this case, we choose not to exercise pendant jurisdiction over St. Francis Hospital for the following reasons. First, plaintiff has signed a covenant not to enforce any money judgment against St. Francis Hospital arising out of plaintiff's application for hospital privileges. The interests of fairness and economy are not well-served by issuing judgments which cannot be enforced.
The second reason for not exercising pendant jurisdiction is that the contract and negligence claims against St. Francis differ substantially from the antitrust claims against the other defendants. All the claims arise from connected facts. The essential standards for adjudicating the antitrust and the state law claims, however, are materially different.
Finally, pendant party jurisdiction should not be exercised in this case because St. Francis' presence in this suit is not necessary for the litigation of the state law claims pending against the other defendants. The breach of contract claim against St. Francis is separate and apart from the breach of contract claims against the other hospitals. The negligence count of the complaint charges all defendants with having "negligently failed to so familiarize themselves with the current specific state of cardiology so as to make themselves capable of making an informed judgment as to the qualifications of the plaintiff in relation to the granting of medical staff privileges." Assuming that a cause of action exists for such negligence, the fact remains that a judgment against St. Francis cannot be enforced and the significance of St. Francis' negligence, if any, to the negligence claims against the other defendants may be ascertained without making St. Francis a party to this suit. Therefore, this court shall refuse to exercise pendant jurisdiction over the claims against defendant St. Francis Hospital. See Eklund v. Hardiman, 526 F. Supp. 941 (N.D. Ill. 1981).
b) Abstention — Some defendants contend that this court should abstain from deciding any of plaintiff's state law claims under the principles of Burford v. Sun Oil Co., 319 U.S. 315 (1943). Thus, defendants assert that this case fits under the second category of circumstances for abstention listed in Colorado Water Conservation District v. United States, 424 U.S. 800, 813-17 (1976), i.e., "[cases presenting] difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar." In this case, defendants apparently fear that intervention by this court will disrupt the state's "policy" of hospital self-regulation and determine matters of state law which can only be decided definitely by state courts.
Unlike Burford and other cases decided under the Burford guidelines, this case does not appear to involve an intricate system of state regulation or an established means of administrative review. Defendants' contention that this court may interfere with a somewhat intangible policy of non-regulation is speculative and conjectural at this point — particularly when there are no pending state court or administrative proceedings in this matter. Even if state law is unsettled, as defendants claim with regard to plaintiff's state antitrust and contract charges, Burford abstention is not appropriate when "federal impairment of state policy is a matter of surmise." Arrow v. Dow, 636 F.2d 287, 290 (10th Cir. 1980). Therefore, at this time we refuse to abstain from deciding plaintiff's state law claims.
c) Prematurity — Defendants have also argued that plaintiff's state law claims are premature on the basis of Westlake Community Hospital v. Superior Court of Los Angeles County, 551 P.2d 410 (Cal. 1976). There the court held that doctors who either lost or were denied staff privileges must exhaust internal administrative remedies before bringing an action for damages. In this case, however, it is not alleged that plaintiff has failed to exhaust the internal review mechanisms available to him. It is also not alleged that any state administrative procedure must be fulfilled before plaintiff can bring this action. Under these circumstances, it appears that Westlake is distinguishable from the case at bar. Therefore, we shall refuse to hold that plaintiff's claims are premature.
d) Motion to strike — While the court has reviewed the affidavits attached to the memoranda filed by defendants, we have not relied upon the affidavits for the decisions made in this order. We therefore view the motion to strike as moot.
CONCLUSION
In conclusion, defendants are granted summary judgment against Counts two and three of the complaint. Defendant St. Francis Hospital is ordered dismissed from this case. Plaintiff's motion to strike is dismissed as moot.
IT IS SO ORDERED.