Prime Healthcare Services, Inc. v. Service Employees International Union et al, No. 3:2011cv02652 - Document 87 (S.D. Cal. 2013)
Court Description: ORDER Granting: (1) Kaiser Defendants' Motion to Dismiss; (2) Granting SEIU's Motion to Dismiss; (3) Granting SEIU-UHW's Motion to Dismiss. The Court Grants leave to file an amended complaint within thirty days. Signed by Judge Gonzalo P. Curiel on 7/25/2013. (All non-registered users served via U.S. Mail Service)(srm)
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Prime Healthcare Services, Inc. v. Service Employees International Union et al Doc. 87 1 2 3 4 5 6 7 8 9 10 UNITED STATES DISTRICT COURT 11 SOUTHERN DISTRICT OF CALIFORNIA 12 PRIME HEALTHCARE SERVICES, INC., Civil Action No. 11-cv-2652-GPC-RBB 13 Plaintiff, 14 v. 15 16 17 18 19 20 21 22 SERVICE EMPLOYEES INTERNATIONAL UNION; SERVICE EMPOLOYEES INTERNATIONAL UNIONUNITED HEALTHCARE WORKERS WEST; KAISER FOUNDATION HEALTH PLAN, INC.; KAISER FOUNDATION HOSPITALS; SOUTHERN CALIFORNIA PERMANENTE MEDICAL GROUP, INC., and DOES 1-10, inclusive, ORDER GRANTING: (1) KAISER DEFENDANTS’ MOTION TO DISMISS; (2) SEIU’s MOTION TO DISMISS (3) SEIU-UHW’s MOTION TO DISMISS [ECF NOs. 57, 59, 64] Defendants. 23 24 25 26 27 28 Civil Action No. 11-cv-2652-GPC-RBB Dockets.Justia.com 1 Before the Court is a motion to dismiss filed by Defendants Kaiser 2 Foundation Health Plan, Inc., Kaiser Foundation Hospitals, and Southern 3 California Permanente Medical Group’s (“Kaiser Defendants”). Also before the 4 Court are motions to dismiss filed by Defendant Service Employees International 5 Union – United Healthcare Workers West (“SEIU-UHW”) and Defendant Service 6 Employees International Union (“SEIU”) (together, “Union Defendants”). For the 7 reasons stated below, the Court hereby GRANTS Kaiser Defendants’ and Union 8 Defendants’ motions to dismiss. (ECF Nos. 57, 59, 64.) 9 I. Procedural History Plaintiff Prime Healthcare, Inc. (“Prime Healthcare” or “Plaintiff”) filed the 10 11 original complaint on November 15, 2011. (Compl., ECF No. 1.) On August 30, 12 2012, the Court granted Kaiser Defendants’ motion to dismiss the complaint with 13 leave to amend. (ECF No. 43.) On September 21, 2012, Prime Healthcare filed a 14 first amended complaint. (ECF No. 46, “FAC”.) This case was transferred to the 15 undersigned judge on October 6, 2012. (ECF No. 52.) On October 26, 2012, 16 Kaiser Defendants and SEIU-UHW filed motions to dismiss. (ECF Nos. 57, 59.) 17 On November 27, 2012, Defendant SEIU filed an amended motion to dismiss. 18 (ECF No. 64.) On April 5, 2013, the Court held a hearing on the pending 19 motions. 20 II. First Amended Complaint Allegations 21 A. The Parties 22 Prime Healthcare has filed this action against Kaiser Defendants and Union 23 Defendants alleging they have unlawfully conspired to eliminate Prime Healthcare 24 and other competing hospitals from the healthcare services market. Prime 25 Healthcare is the sole shareholder of corporations which own and operate eleven 26 acute-care hospitals located throughout Southern California. Prime Healthcare 27 provides care to its patients on a fee-for-service basis. Its hospitals are not owned 28 1 Civil Action No. 11-cv-2652-GPC-RBB 1 by or otherwise affiliated with health care service plans or health maintenance 2 organizations, and most Prime patients enter hospitals through emergency rooms 3 or other emergency care centers. By contrast, Kaiser Defendants provide all 4 covered healthcare services to patients who are Kaiser members and charge their 5 members fixed monthly premiums for those services. Under state and federal law, 6 Kaiser members may seek emergency care at any hospital, including any Prime 7 Healthcare hospitals, and Kaiser Defendants must reimburse the non-member 8 hospital for any services rendered. 9 SEIU is an unincorporated labor association that represents units of workers 10 and negotiates terms and conditions of employment for the workers it represents. 11 SEIU-UHW is a local union affiliate of SEIU located in California. SEIU-UHW 12 represents individuals working in California’s hospitals and clinics as nurses, aids, 13 assistants, managers, clerks, therapists, and other healthcare workers and 14 negotiates terms and conditions of employment for the workers it represents. 15 SEIU has control over all of its local unions and their union members, and 16 therefore has control over SEIU-UHW. 17 B. The Service and Geographic Markets 18 The relevant service markets are (1) hospital emergency care services 19 provided at Kaiser and non-Kaiser facilities to the general public; (2) general 20 acute-care hospital services, which encompasses a broad cluster of basic medical 21 diagnostic and treatment services provided at Kaiser and non-Kaiser facilities; and 22 (3) the services provided by healthcare workers at Kaiser and non-Kaiser 23 facilities, including but not limited to direct patient care duties essential to the 24 provision of the services described in (1) and (2). The relevant geographic market 25 includes San Bernardino, San Diego, Los Angeles, and Orange Counties, 26 California. Plaintiff also identifies several subregional geographic markets. 27 28 2 Civil Action No. 11-cv-2652-GPC-RBB 1 Prime Healthcare alleges its business model offers a unique alternative to 2 the Kaiser model and therefore threatens Kaiser’s dominance in the 3 aforementioned service and geographic markets. Prime Healthcare alleges its 4 position in the market threatens the ability of Union Defendants to raise wages 5 and expand representation of healthcare workers. This threat has allegedly caused 6 Union Defendants to unlawfully partner with non-labor entities such as Kaiser 7 Defendants in a market domination strategy to eliminate Prime Healthcare from 8 the aforementioned markets. Prime Healthcare alleges Defendants targeted 9 numerous hospitals in the market that posed a threat to Defendants, and Prime 10 Healthcare is now the most recent target of Defendants’ conspiracy. 11 C. Agreement to Restrain Trade in Violation of Sections 1 and 2 of the 12 Sherman Act 13 Prime Healthcare alleges that, beginning in 1997, Kaiser Defendants and 14 Union Defendants entered into a conspiracy through several oral and written 15 agreements between themselves over the past fifteen years to restrain trade in 16 violation of Sections 1 and 2 of the Sherman Act. Prime Healthcare describes the 17 overall conspiracy as: 18 (i) A horizontal agreement between SEIU members who compete among themselves for wages and other benefits of employment, their leadership, and the defendant union entities themselves (including the SEIU-controlled Coalition of Kaiser Permanente Unions, its leadership, and its union members); (ii) facilitated and assisted by a vertical conspiracy and combination among these union members, leaders and entities and Kaiser Permanente entities. 19 20 21 22 23 24 25 26 Plaintiff alleges that, over several years, Kaiser Defendants and Union Defendants 27 used a series of meetings to negotiate labor partnership agreements as a cover-up 28 3 Civil Action No. 11-cv-2652-GPC-RBB 1 for strategy sessions to plan a conspiracy to restrain competition in the market. 2 Prime Healthcare alleges the labor partnership agreements are illegal and evidence 3 of a broader conspiracy. The meetings were “secret discussions” used to advance 4 the goals of the conspiracy, evidenced by Defendants’ actions against Prime 5 Healthcare and other hospitals. Prime Healthcare alleges Defendants conspired to 6 increase healthcare workers’ wages to harm competition in the emergency and 7 acute-care hospital markets. To achieve this objective, Plaintiff alleges Union 8 Defendants conducted a campaign against Prime and other hospitals pursuant to 9 an agreement whereby Union Defendants received concessions on wages and 10 working conditions for its union members that worked for Kaiser Defendants, as 11 well as direct payments through intermediaries, in exchange for helping eliminate 12 Kaiser competitors. 13 Prime Healthcare alleges these actions have restrained competition in the 14 aforementioned service markets. As a result, consumers face higher prices and 15 reductions in quality of care and quantity of services. Prime Healthcare alleges it 16 has suffered injury from the Defendants’ campaign to eliminate Prime from the 17 market, including higher than competitive wages for its healthcare workers, loss 18 of actual and potential customers, lost profits, and loss of business goodwill. 19 D. Claims for Relief 20 Based on the foregoing allegations, Prime Healthcare asserts the following 21 claims for relief: (1) Violation of Section 1 of the Sherman Act (against all 22 Defendants); (2) Monopolization in violation of Section 2 of the Sherman Act 23 (against Kaiser Defendants); (3) Attempted Monopolization in Violation of 24 Section 2 of the Sherman Act (against Kaiser Defendants); (4) Conspiracy to 25 Monopolize in Violation of Section 2 of the Sherman Act (against Kaiser 26 Defendants). 27 28 4 Civil Action No. 11-cv-2652-GPC-RBB 1 III. LEGAL STANDARD 2 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests 3 the sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 4 2001). To survive a motion to dismiss, the plaintiff must allege “enough facts to 5 state a claim to relief that is plausible on its face.” Bell Atlantic Corporation v. 6 Twombly, 550 U.S. 544 (2007). A claim has facial plausibility, “when the 7 plaintiff pleads factual content that allows the court to draw the reasonable 8 inference that the defendant is liable for the misconduct alleged.” Ashcroft v. 9 Iqbal, 556 U.S. 662, 678 (2009). While a plaintiff need not give “detailed factual 10 allegations,” a plaintiff must plead sufficient facts that, if true, “raise a right to 11 relief above the speculative level.” Twombly, 550 at 545. “[F]or a complaint to 12 survive a motion to dismiss, the non-conclusory ‘factual content,’ and reasonable 13 inferences from that content, must be plausibly suggestive of a claim entitling the 14 plaintiff to relief.” Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir.2009). 15 In reviewing a motion to dismiss under Rule 12(b)(6), the court must 16 assume the truth of all factual allegations and must construe all inferences from 17 them in the light most favorable to the nonmoving party. Thompson v. Davis, 295 18 F.3d 890, 895 (9th Cir. 2002). Legal conclusions, however, need not be taken as 19 true merely because they are cast in the form of factual allegations. Ileto v. Glock, 20 Inc., 349 F.3d 1191, 1200 (9th Cir. 2003). In practice, “a complaint . . . must 21 contain either direct or inferential allegations respecting all the material elements 22 necessary to sustain recovery under some viable legal theory.” Twombly, 550 23 U.S. at 562. If a plaintiff fails to state a claim, a court need not permit an attempt 24 to amend a complaint if “it determines that the pleading could not possibly be 25 cured by allegation of other facts.” Cook, Perkiss and Liehe, Inc. v. N. Cal. 26 Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir.1990). 27 28 5 Civil Action No. 11-cv-2652-GPC-RBB 1 IV. DISCUSSION 2 A. Violation of Section 1 of the Sherman Act 3 Prime Healthcare’s first claim is against all Defendants for violation of 4 Section 1 of the Sherman Act. Under this provision, “every contract, combination 5 in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce 6 among the several States, or with foreign nations, is declared to be illegal.” 15 7 U.S.C. § 1. While this section outlaws only “unreasonable” restraints, it “does not 8 prohibit [all] unreasonable restraints of trade . . . but only restraints effected by a 9 contract, combination, or conspiracy.” Copperweld Corp. v. Independence Tube 10 Corp., 467 U.S. 752 (1984). To state a Section 1 claim, claimant must plead not 11 just ultimate facts, but evidentiary facts which, if true, will prove: 12 (1) a contract, combination or conspiracy among two or more persons or distinct business entities; (2) by which the persons or entities intended to harm or restrain trade or commerce among the several States, or with foreign nations; (3) which actually injures competition. 13 14 15 16 17 Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047 (9th Cir. 2008) (citing Les 18 Shockley Racing Inc. v. National Hot Rod Association, 884 F.2d 504, 507(9th 19 Cir.1989); see also Bell Atlantic v. Twombly, 550 U.S. 544 (2007). 20 Kaiser Defendants challenge the first amended complaint on the grounds 21 that it fails to meet the applicable pleading standard requiring specificity. (ECF 22 No. 59 (“Kaiser Mtn.”).) 23 1. Agreement, Combination, or Conspiracy The Supreme Court has long accepted that “[n]o formal agreement is 24 25 necessary to constitute an unlawful conspiracy.” Am. Tobacco v. United States, 26 328 U.S. 781, 809 (1946). Indeed, conspiracy may be proved by inferences that 27 may be drawn from the behavior of the alleged conspirators. See, e.g., ES Dev. v. 28 6 Civil Action No. 11-cv-2652-GPC-RBB 1 RWM Enterprises, 939 F.2d 547, 553-554 (8th Cir. 1991) (“Antitrust plaintiff 2 may prove existence of a combination or conspiracy by providing either direct or 3 circumstantial evidence sufficient to warrant finding that conspirators had unity of 4 purpose or common design and understanding, or meeting of minds in unlawful 5 arrangement”); In re Late Fee and Over-Limit Fee Litigation, 528 F. Supp. 2d 6 953, 962 (N.D. Cal. 2007) (applying Twombly standard to conspiracy-issue 7 allegations and dismissing because plaintiff failed to provide details as to when, 8 where, or by whom the alleged agreement was reached; explaining that “[i]n 9 Twombly, the Supreme Court dismissed as insufficient similar ‘stray statements’ 10 about agreements, when unsupported by concrete allegations about the content 11 and circumstances of any actual agreement”). 12 Prime Healthcare claims the Defendants engaged in anticompetitive, unfair, 13 exclusionary, predatory and deceptive conduct with the specific intent to raise the 14 costs of its competitors, restrain market competition, and monopolize the market. 15 (FAC ¶ 11.) According to Prime Healthcare, written and verbal agreements, 16 circumstantial evidence and parallel conduct between Kaiser Defendants and 17 Union Defendants are sufficient evidence to show the existence of a conspiracy. 18 a. Written Agreements 19 Plaintiff alleges certain labor partnership agreements between Kaiser 20 Defendants and Union Defendants are illegal under Section 1. The FAC alleges 21 the 1997 labor agreement, along with the Defendants’ 2000, 2002, 2005, 2010 and 22 2012 labor agreements, are themselves illegal and constitute evidence of a broader 23 conspiracy. (FAC ¶¶ 93, 115, 118, 130, 148, 163.) Plaintiff alleges Defendants 24 executed these agreements under the “guise of the collective bargaining process.” 25 (FAC ¶42.) Kaiser Defendants disagree, and contend that the labor partnership 26 agreements are protected by statutory and nonstatutory exemptions, and that even 27 28 7 Civil Action No. 11-cv-2652-GPC-RBB 1 if not protected, the agreements on their face do not suggest a conspiracy.1 (Kaiser 2 Mtn. at 5-10.) 3 Plaintiff alleges specific provisions of these agreements “mask” or 4 “disguise” the unlawful intent of the conspiracy, and reveal that the objective of 5 the agreements is Kaiser Defendants’ market dominance rather than collective 6 bargaining. Plaintiff cites the following agreement provisions: The 1997 Agreement. The purpose of the agreement is to “[a]ssist Kaiser Permanente in achieving and maintaining market leading competitive performance” and “[e]xpand Kaiser Permanente's membership in current and new markets.” (FAC ¶ 101 (citing the 1997 Agreement, Section 1, Purpose).) 7 8 9 10 11 The 2000 Agreement. The agreement expressly stated that it was designed to support the “implementation of the Partnership on a national and local level…” and to “serve as the blueprint for making Kaiser Permanente the employer and care provider of choice.” (FAC ¶ 114, 116, (citing 2000 Agreement at 6).) 12 13 14 The 2002 Agreement. “Kaiser Permanente’s success is contingent on our ability to transform our organization. This shared vision compels us to align policies and practices to support the success of the Labor Management Partnership, to provide systems and information to prepare union and management leaders and employees for challenging new roles, and to substantially engage the workforce in making Kaiser Permanente the best. Achieving this will require our collective commitment to unwavering sponsorship, leadership and investment.” (FAC ¶ 123 (citing 2002 Tentative Agreement at 8).) 15 16 17 18 19 20 21 The 2005 Labor Agreement. “The parties reaffirm their commitment to market Kaiser Permanente to new and existing union groups and to establish . . . appropriate funding, to ensure the joint Labor Management Partnership marketing effort . . . result[s] in increased enrollment in Kaiser Foundation Health Plan.” (FAC ¶ 131 (citing 2005 National Agreement between Kaiser Permanente and Coalition of Kaiser Permanente Unions).) 22 23 24 25 26 1 27 At this time, the Court refrains from addressing whether Union Defendants are afforded statutory and nonstatutory exemptions to the anti-trust laws. 28 8 Civil Action No. 11-cv-2652-GPC-RBB 1 The 2010 Labor Agreement. “The parties will work in a proactive manner on other growth potential….” “Integration of labor into the normal business structures of the organization does not mean co-management, but rather full participation in the decision-making forums and processes at every level of the organization….” “The parties reaffirm their commitment to market Kaiser Permanente to new and existing union groups and to establish the necessary strategic and policy oversight, as well as appropriate funding, to ensure the joint Labor Management Partnership marketing effort becomes a successful sustainable model, resulting in increased enrollment in the Kaiser Foundation Health Plan. The coalition and its affiliated unions, acting in the interest of and in support of the Partnership, will use their influence to the greatest extent possible to assure that unionized Employers, union health and welfare trusts and Taft-Hartley trusts operating in, or providing benefits to union members in areas served by Kaiser Permanente, offer the Kaiser Foundation Health Plan.” (FAC ¶¶ 149-51 (citing 2010 National Agreement between Kaiser Permanente and The Coalition of Kaiser Permanente Unions).) 2 3 4 5 6 7 8 9 10 11 12 13 14 Upon review of these allegations, the Court concludes Plaintiff has not 15 sufficiently alleged that the labor partnership agreements themselves constitute “a 16 contract . . . by which the persons or entities intended to harm or restrain trade.” 17 A plain reading of the agreement provisions to “increase Kaiser’s membership in 18 current and new markets,” “market Kaiser Permanente to new and existing 19 unions,” or “increase enrollment in the Kaiser Foundation Health Plan,” do not 20 suggest Defendants entered into the agreements with an ulterior objective of 21 “market dominance.” The agreements suggest Kaiser Defendants and Union 22 Defendants sought to grow membership in Kaiser’s Healthcare plan, a mutual 23 benefit for Kaiser and its union employees. Nothing on the face of these labor 24 partnership agreements suggest any anti-competitive motive, objective or purpose 25 intended to restrain trade. 26 Prime Healthcare asks the Court to read into the labor partnership 27 agreements an illegal purpose because the agreements were written in “code 28 9 Civil Action No. 11-cv-2652-GPC-RBB 1 language” to disguise their activities aimed at market domination and memorialize 2 an otherwise secret agreement to eliminate Kaiser Defendants’ competitors, 3 including Prime. (FAC ¶¶ 98,168.) The allegation of “code language” is 4 conclusory and Plaintiff has failed to provide any specificity in support of its 5 “code language” theory. Rule 8(a) “asks for more than a sheer possibility that a 6 defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 668 (2009). 7 The select provisions, even standing alone, do not suggest any lawful behavior. 8 Moreover, the Court refuses to infer the existence of an illegal agreement simply 9 because the labor partnership agreements may be innovative or on a larger-scale 10 than local collective bargaining agreements. 11 As such, the Court finds Plaintiff has failed to sufficiently allege that the 12 national labor partnership agreements themselves constitute agreements in 13 violation of antitrust law. 14 b. Verbal Agreements 15 Plaintiff further alleges that over the course of a fifteen year period, Kaiser 16 Defendants and Union Defendants engaged in a series of meetings and 17 negotiations to “coordinate the specific strategies to harm and destroy Kaiser’s 18 competitors, including Prime,” which led to verbal agreements to help Kaiser 19 achieve “market domination.” (FAC ¶¶ 111-12, 117-118, 124, 127, 136-37, 139- 20 142, 156-61, 169-70.) 21 Kaiser Defendants argue Plaintiff has failed to allege the existence of any 22 agreement, combination or conspiracy. (Kaiser Mtn. at 5.) Plaintiff argues it need 23 not plead details of the formation and operation of the conspiracy, and it has pled 24 sufficient facts to suggest many written and verbal agreements were developed. 25 (Prim Reply at 24.) Plaintiff relies on Stanislaus Food Products, in which the 26 Eastern District of California denied a motion to dismiss, finding the plaintiffs had 27 pled that an “agreement was formed” at certain meetings “in sufficient detail for 28 10 Civil Action No. 11-cv-2652-GPC-RBB 1 defendants to establish who agreed to do what activity, when it was supposed to 2 be done and how the activity was accomplished.” Stanislaus Food Products Co. v. 3 USS-POSCO Industries, No. CV 09-0560-LJO (SMS), 2011 WL 2678879, at * 7 4 (E.D. Cal. July 7, 2011). 5 In Stanislaus, plaintiff alleged the defendants entered a Market Allocation 6 Agreement whereby two defendant competitors agreed to no longer compete in 7 the Tin–Mill Products market in the Western United States. The Court found that 8 plaintiff had alleged sufficient facts alleging the persons involved in the illegal 9 agreement, the roles each person undertook, and details of which persons were 10 involved in which discussions. 11 The instant case does not resemble Stanislaus in any significant way. 12 Stanislaus involved a specific agreement between competitors that granted one of 13 them the power to dominate a particular market. It was limited in scope and in the 14 timeframe that it was forged. Here, the alleged conspiracy is vast, spans more 15 than 15 years, and involves numerous alleged participants, agreements, and 16 meetings. The amended complaint alleges that there were a number of meetings 17 led by senior Kaiser Permanente executives and union leaders between 1996 and 18 1997 which resulted in the alleged unlawful conspiracy. (FAC ¶¶ 89-95.) 19 However, the amended complaint fails to specify the dates, locations or 20 participants at the meetings between 1996 and 1997. 21 Given the scope and nature of the conspiracy, the Court finds Plaintiff has 22 failed to plead sufficient facts demonstrating a verbal conspiracy, the persons 23 involved in the illegal agreement, and the roles that each person undertook. 24 c. Circumstantial Evidence/Parallel Conduct 25 Plaintiff relies on a wide array of parallel and independent activities 26 conducted separately by Kaiser Defendants and Union Defendants as evidence of 27 28 11 Civil Action No. 11-cv-2652-GPC-RBB 1 a conspiracy to restrain trade. 2 Plaintiff contends a number of the actions were 2 taken against the Defendants’ independent self-interest and demonstrate the 3 existence of an illegal conspiracy. (FAC ¶¶ 217, 223, 226, 228, 233, 237.) 4 5 27 Prime Healthcare alleges the following activities were “coordinated” by Defendants in “secret meetings,” and constitute anti-competitive conduct that resulted in a restraint of trade: (1) Kaiser Defendants are violating the Taft-Hartley act, 29 U.S.C. § 186, by disguising payments to the SEIU under the Labor Management Partnership Trust, which is nothing more than a vehicle to funnel payments directly to the SEIU to knock out Kaiser’s competitors. Kaiser Defendants allegedly paid over $140 million into the Partnership Trust since 2004. The Trust then transferred over $50 million to the Labor Management Coalition which essentially made direct payments to representatives of the SEIU. These facts demonstrate that the Partnership Trust is a sophisticated money laundering operation, and the payments are part of the benefits the SEIU receives directly for participating in the illegal conspiracy. (FAC ¶¶173-187); (2) Union Defendants sought to increase the number of healthcare workers it represents by waging pressure campaigns against Kaiser competitors to render those companies less competitive. (FAC ¶¶ 195-97); (3) Union Defendants targeted Kaiser competitors Columbia/HCA, Tenet and CHW, using tactics such as publicizing reports and studies designed to cast a negative light on the hospitals, some of which resulted in investigations by agencies. (FAC ¶¶198-203); (4) Union Defendants’ organizing tactics resulted in Tenet and CHW “strik[ing] a deal” with Union Defendants, which in turn “raised its cost-structure and made it less of a market threat to Kaiser.” (FAC ¶¶202203); (5) Union Defendants advocated in favor of two ballot initiatives, which would have increased costs for for-profit hospitals, but later abandoned support of those initiatives after entering into an agreement with the California Hospital Association. (FAC ¶¶ 207-211); (6) Kaiser Defendants supported Union Defendants’ proposal to increase nurse staffing ratios, a decision made against Kaiser’s own business interest because increased staffing increases hospital costs and which only served to increase SEIU membership. (FAC ¶¶ 214-20); (7) Kaiser and Union Defendants negotiated the termination of approximately 1,350 of SEIU-represented Kaiser employees, an action that was not in the best interest of the Union Defendants but strengthened Kaiser’s role in the market. (FAC ¶¶ 226-29); (8) Kaiser Defendants encourages its members to call a “nurse line” before seeking emergency care, in which Kaiser coerces their members to select Kaiser facilities for their emergency room needs instead of nonKaiser hospitals. (FAC ¶¶ 252-54); (9) Kaiser Defendants, through threats and intimidation, forces its members to transfer from Prime Healthcare’s hospitals to Kaiser facilities, and harasses, intimidates and coerces the treating Prime Healthcare physician to authorize the transfer of the Kaiser member patient. (FAC ¶¶ 254-56); (10) Kaiser Defendants refuse to pay claims from non-Kaiser hospitals such as Prime Healthcare, thereby raising Prime Healthcare’s cost to do business and remain a competitor. (FAC ¶¶ 257-60; 305); (11) Kaiser Defendants and Union Defendants together increased wages for healthcare workers, reflecting “an attempt to mask its anticompetitive conduct from antitrust scrutiny by taking advantage of the antitrust exemption afforded labor unions under current case law.” (FAC ¶ 262); (12) Defendants together planned a public campaign against Prime Healthcare, which Union Defendants executed beginning in February 2010. (FAC ¶¶ 265-288); (13) Union Defendants supported California Senate Bill 408, legislation “prepared in retaliation for Prime’s November 2010 acquisition of Alvarado Hospital and designed for no purpose other than to restrict Prime’s ability to acquire additional hospitals.” While many hospitals opposed this measure, Kaiser “stood on the sidelines.” The bill was ultimately vetoed by Governor Jerry Brown. (FAC ¶¶ 290-91); (14) Union Defendants campaigned to block the bankruptcy sale of Victor Valley Community Hospital to Prime Healthcare Services Foundation. (FAC ¶¶ 292-96); 28 12 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 2 Civil Action No. 11-cv-2652-GPC-RBB 1 Kaiser Defendants contend Plaintiff has pled only parallel or unilateral 2 conduct by Kaiser. (Kaiser Mtn at 10-14.) Kaiser Defendants argue Twombly 3 requires Plaintiff to plausibly allege Defendants’ conduct would have been against 4 their independent self-interest absent an unlawful agreement, and the conduct fails 5 to meet that standard because Plaintiff alleges only parallel or unilateral conduct 6 consistent with independent action. (Id.) While Plaintiff’s allegations need not rule out the possibility that 7 8 Defendants were acting independently, Plaintiff must allege facts at the pleading 9 stage “tending to exclude the possibility of independent action.” Twombly, 550 10 U.S. at 544 (internal citation omitted). “[W]hen allegations of parallel conduct are 11 set out in order to make a § 1 claim, they must be placed in a context that raises a 12 suggestion of a preceding agreement, not merely parallel conduct that could just 13 as well be independent action.” Id. at 557. Examples of an allegation that would 14 suffice under this standard include “parallel behavior that would probably not 15 result from chance, coincidence, independent responses to common stimuli, or 16 mere interdependence unaided by an advance understanding among the parties.” 17 Id. at 556 n.4 (internal quotation marks omitted). One prominent “plus factor” is a 18 showing that the defendants' behavior would not be reasonable or explicable (i.e. 19 not in their legitimate economic self-interest) if they were not conspiring to fix 20 prices or otherwise restrain trade-that is, that the defendants would not have acted 21 27 (15) By contrast, Union Defendants have not publicized negative information regarding Kaiser’s overpayment for reporting excess cases for certain illnesses, assessment of record penalties, mortality rates identified in Kaiser’s kidney transplant program, or Occupational Safety and Health Act complaints filed by Kaiser employees. (FAC ¶¶ 302-09); (16) Kaiser and Union Defendants advocated for the passage of SB 1285, a bill that would require hospitals with an out-of-network emergency utilization rate of greater than fifty percent to adjust charges for outof-network emergency care. (FAC ¶¶ 312-318); (17) During a meeting between Prime Healthcare representatives and SEIU-UHW President Dave Regan, Mr. Regan “demanded that Prime enter into an organizing agreement with UHW,” and “if Prime did not capitulate to his demands, [Union Defendants] would push the ‘Prime Bill’, i.e., SB 1285.” Prime did not agree and the next day the bill was passed in the California legislature. (FAC ¶¶ 318-20); (18) Union Defendants have launched unsuccessful litigation against Prime Healthcare. (FAC ¶¶ 321-23) 28 13 22 23 24 25 26 Civil Action No. 11-cv-2652-GPC-RBB 1 as they did had they not been conspiring in restraint of trade. See, e.g., Theatre 2 Enters., Inc. v. Paramount Film Distrib. Corp., 346 U.S. 537, 540-42 (1954). 3 The actions relied upon by Plaintiff insufficiently exclude the possibility of 4 independent action. As discussed below, three allegations could suggest the 5 existence of a preceding illegal agreement or actions against the Defendants’ self- 6 interests. Upon close review, however, the allegations lack specificity or 7 plausibility to show an illegal conspiracy as required to assert a § 1 claim. 8 First, Plaintiff’s allegations that the Defendants developed a money 9 laundering scheme in violation of the Taft-Hartley Act are conclusory and lack 10 specificity. Plaintiff asserts, and Defendants do not contest, that Kaiser and the 11 SEIU created a Labor Partnership Trust to fulfill the agenda of the Labor 12 Management Agreement. Pursuant to 29 U.S.C. § 186, employers are prohibited 13 to pay any money or thing of value to a labor organization, or officer or employee 14 of a labor organization, which represents employees of the employer. 29 U.S.C. 15 186(a)(2). Prime Healthcare alleges that over $50 million was transferred from 16 the Partnership Trust to the Labor Coalition, representing an illegal payment 17 directly to the SEIU in violation of Taft-Hartley. (FAC ¶175-182.) These 18 payments purportedly helped advance the conspiracy between the Defendants. 19 (Id.) 20 The Court finds these allegations do not pass the plausibility standard. As a 21 preliminary matter, Prime Healthcare fails to state why the payments are not 22 exempt under the Taft-Hartley Act. As Defendant SEIU-UHW points out, the 23 Taft-Hartley Act provides an exemption for payments by employers through an 24 authorized labor management committee established under the Labor 25 Management Cooperation Act of 1978. (Dkt. No. 57 at 19; see 29 U.S.C. 26 186(c)(9)). Moreover, Prime Healthcare fails to provide any clear theory beyond 27 conclusory allegations that would lead the Court to believe that the Partnership 28 14 Civil Action No. 11-cv-2652-GPC-RBB 1 Trust, clearly constructed and made publicly available by Kaiser and the SEIU, 2 was anything beyond the explicit purposes encouraged by the Labor Management 3 Agreement. (See Dkt. No.1-3, National Labor Agreement at 26.) In short, while 4 the allegations at first blush appear alarming, upon further review, the allegations 5 do not show the Defendants were acting in an illegal manner to further a 6 conspiracy. 7 Next, Plaintiff alleges Kaiser Defendants in 2001 supported Union 8 Defendants’ proposal to increase nurse staffing ratios, a decision against Kaiser’s 9 economic self-interest because it would increase staffing costs. (FAC ¶¶ 214-220.) 10 Plaintiff asserts that Kaiser’s support of the proposal only made sense when 11 looked at in the context of an illegal agreement whereby Kaiser helped the SEIU 12 increase the ranks of membership in exchange for assurances that Kaiser’s 13 competitors would also be burdened by the increased costs of hospital care. (FAC 14 ¶ 219.) 15 As an initial matter, Kaiser Defendants’ endorsement of a proposal to 16 increase nurse staffing ratios would appear to be against Kaiser’s business interest 17 in containing labor costs. The inquiry thus turns to whether the endorsement 18 resulted from chance, coincidence, or independent responses to common stimuli, 19 or mere interdependence unaided by an advance understanding among the parties. 20 Ultimately, the endorsement did not lead to the passage of legislation increasing 21 nurse staffing ratios and thus did not result in actual harm to Kaiser’s business 22 interest. Given the surrounding context of the endorsement, Plaintiff has failed to 23 show it is plausible that the endorsement was against Kaiser’s economic self- 24 interest or resulted from an illegal agreement between the Defendants to restrain 25 trade. 26 Finally, Plaintiff alleges that in 2009, Kaiser and Union Defendants 27 negotiated the termination of approximately 1,350 SEIU-represented Kaiser 28 15 Civil Action No. 11-cv-2652-GPC-RBB 1 employees, an action that was not in the economic interest of the Union 2 Defendants. (FAC ¶¶ 227-28.) Plaintiff argues that the terminations of union 3 employees reduced Kaiser’s expenses and strengthened its position in the market 4 with no apparent benefit to the labor movement. According to Plaintiff, such 5 conduct only made sense in the context of the alleged conspiracy. (FAC ¶ 228.) 6 The termination of 1,300 SEIU-represented Kaiser employees, on its face, 7 appear to be contrary to the Union Defendants’ economic interest. The remaining 8 question is whether Defendants would not have acted in this manner had they not 9 been conspiring in restraint of trade. In answering the question, the Court looks to 10 the nature and timing of the action, and its context in the alleged conspiracy. 11 In the normal give and take that is part of the employer/union relationship, 12 each side makes concessions to the other which result in a global agreement where 13 both sides come away with bargained for benefits, wages and conditions. 14 Furthermore, the 2009 termination of employees took place twelve years 15 following the beginning of the alleged creation of a conspiracy to restrain trade. It 16 is an isolated action during an alleged fifteen year conspiracy and is not part of an 17 ongoing pattern or practice. Given its solitary nature, the termination action does 18 not circumstantially prove the existence of a huge antitrust conspiracy with 19 multiple objectives and goals. Upon close review of the Plaintiff’s allegations, the Court concludes that 20 21 Plaintiff has not sufficiently alleged the existence of an illegal agreement. Despite 22 the length and excessive detail, Plaintiff’s complaint continues to be plagued by 23 vagueness and ambiguity. Even assuming all the facts are accurate, Plaintiff still 24 has not shown it is plausible that Defendants entered into an illegal conspiracy or 25 agreement. As such, the Plaintiff has not satisfied the first prong of a § 1 claim. 26 27 28 16 Civil Action No. 11-cv-2652-GPC-RBB 1 2. Unreasonable Restraint of Trade 2 As Plaintiff will have a third opportunity to amend the complaint, the Court 3 briefly addresses whether the antitrust claim sufficiently alleges the second and 4 third prongs of a § 1 violation, whether Defendants intended to restrain trade and 5 whether the alleged agreement resulted in actual injury to competition. 6 a. Per Se v. Rule of Reason 7 The parties dispute which rule the Court should apply in assessing an 8 unreasonable restraint of trade. The rule of reason is the accepted standard for 9 testing whether a practice restrains trade in violation of Section 1. Leegin, 551 10 U.S. 886 (citing Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006)). “Under this rule, 11 the fact finder weighs all of the circumstances of a case in deciding whether a 12 restrictive practice should be prohibited as imposing an unreasonable restraint on 13 competition.” Leegin, 547 U.S. 5. (citing Cont’l T.V., Inc. v. GTE Sylvania Inc., 14 433 U.S. 36, 49 (1977). “Certain categories of agreements, however, have been held to be per se 15 16 illegal, dispensing with the need for case-by-case evaluation.” Bus. Elecs. Corp. 17 v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988). The per se rule treats categories 18 of restraints as necessarily illegal, eliminating the need to study the reasonableness 19 of an individual restraint in light of the real market forces at work. Id. The 20 categories subject to the per se rule include horizontal price fixing, division of 21 markets, group boycotts, tying arrangements, and output limitations. American Ad 22 Management, Inc. v. GTE Corp., 92 F.3d 781, 784 (9th Cir. 1996) (internal 23 citations omitted). A per se restraint must have “manifestly anticompetitive 24 effects” and “lack…any redeeming virtue.” Leegin, 551 at 886 (citing GTE 25 Sylvania, 433 U.S. at 50; N.W. Wholesale Stationers, Inc. v. Pac. Stationery & 26 Printing Co., 472 U.S. 284 (1985)). Moreover, “a departure from the rule-of- 27 28 17 Civil Action No. 11-cv-2652-GPC-RBB 1 reason standard must be based upon demonstrable economic effect rather 2 than…upon formalistic line drawing.” Id. Citing Klor’s Inc., v. Broadway-Hale Stores, Inc., 359 U.S. 207 (1959), 3 4 Prime Healthcare contends the alleged agreement warrants a per se analysis 5 because it consists of a horizontal conspiracy among union members, their 6 leadership, and the entities themselves and is facilitated by a vertical agreement 7 with Kaiser Defendants. (Prime Reply at 33; see also FAC ¶ 43.) Plaintiff asserts 8 that, together, the horizontal and vertical agreements comprise an “overarching 9 conspiracy” that warrants a per se analysis of an unreasonable restraint of trade. 10 Plaintiff further asserts the per se rule applies because Union Defendants are 11 “merely a horizontal conspiracy of workers, leaders and union entities,” 12 unprotected by labor exemptions and as such, antitrust law forbids them to engage 13 in concerted action to influence prices. (Prime Reply at 33-37; see also FAC ¶¶ 14 46- 47.) 15 Kaiser Defendants argue Plaintiff’s allegations do not fall within any of the 16 categories subject to the per se rule. (Kaiser Mtn. at 17-19.) Kaiser also contends 17 the union is a single entity, not a conspiracy involving a horizontal agreement. 18 (Id.) As a result, Kaiser Defendants argue the alleged conspiracy does not warrant 19 a per se analysis, but rather application of the rule of reason. (Id.) Plaintiff’s reliance on Klor’s is misplaced and does not support application 20 21 of the per se rule. Klor’s is distinguishable in that the plaintiff had sufficiently 22 pled that a combination of manufacturers, distributors and a retailer engaged in a 23 boycott deprived the plaintiff its freedom to purchase goods in an open 24 competitive market. Klor's, 359 U.S. at 212. Unlike Klor’s, Prime Healthcare has 25 failed to cite such economic deprivation or anticompetitive effects to warrant the 26 application of a per se analysis. None of the allegations against Kaiser 27 Defendants or Union Defendants, such as legislative advocacy, litigation, 28 18 Civil Action No. 11-cv-2652-GPC-RBB 1 publicizing reports or speaking out publicly on certain issues even remotely 2 suggests the type of “manifestly anticompetitive” conduct intended to warrant the 3 application of the per se rule. See Leegin Creative Leather Products, Inc. v. PSKS, 4 Inc., 551 U.S. 877, 886-87 (2007). Plaintiff’s arguments in favor of the per se rule fail for several additional 5 6 reasons. Plaintiff has not pled any of the Defendants activities fall under the 7 categories subject to the per se rule, such as group boycotts, horizontal price 8 fixing, division of markets, tying arrangements, and output limitations. Nor does 9 Plaintiff allege Union Defendants are a horizontal combination of competitors 10 organized to exclude direct competition, which the Supreme Court condemned in 11 Eastern States Retail Dealers' Association v. United States, 234 U.S. 600 (1914) 12 (emphasis added). The allegations are also distinct from Allen Bradley, where the 13 unions negotiated “closed shop agreements,” which limited the contractors’ 14 freedom to purchase equipment only from manufacturers with “closed shop 15 agreements,” and also limited manufacturers’ sales only to contractors employing 16 union members. Allen Bradley Co. v. Local Union No. 3, Int'l Bhd. of Elec. 17 Workers, 325 U.S. 797, 799 (1945). Here, Prime Healthcare has not pled such 18 allegations suggesting the SEIU or SEIU-UHW have engaged in similar 19 agreements that would warrant the application of a per se rule. 20 21 For the reasons stated above, the Court applies the rule of reason analysis to determine an unreasonable restraint of or injury to competition. 22 b. Restraint of Trade and Injury to Competition 23 To prevail on an antitrust claim under the “rule of reason” standard a 24 plaintiff must plead facts which, if true, will prove four elements: “(1) a contract, 25 combination or conspiracy among two or more persons or distinct business 26 entities; (2) by which the persons or entities intended to harm or restrain trade or 27 commerce among the several States, or with foreign nations; (3) which actually 28 19 Civil Action No. 11-cv-2652-GPC-RBB 1 injures competition. [citation]. In addition to these elements, plaintiffs must also 2 plead (4) that they were harmed by the defendant's anti-competitive contract, 3 combination, or conspiracy, and that this harm flowed from an “anti-competitive 4 aspect of the practice under scrutiny. [citation].” Brantley v. NBC Universal, Inc., 5 675 F.3d 1192, 1197 (9th Cir. 2012) cert. denied, 133 S. Ct. 573, 184 L. Ed. 2d 6 374 (U.S. 2012) (internal citations omitted). Ultimately, “no antitrust violation 7 occurs unless the exclusive agreement is intended to or actually does harm 8 competition in the relevant market.” Rutman Wine Co. v. E. & J. Gallo Winery, 9 829 F.2d 729, 735 (9th Cir. 1987). 10 Although Plaintiff has not sufficiently alleged a contract, combination or 11 conspiracy, the Court addresses the additional elements needed to show a Section 12 1 violation below. 13 i. Relevant Market 14 “The factual support needed to show injury to competition must include 15 proof of the relevant geographic and product markets and demonstration of the 16 restraint's anticompetitive effects within those markets.” Les Shockley, 884 F.2d 17 at 508 (citing Thurman Indus., Inc. v. Pay ‘N Pak Stores, Inc., 875 F.2d 1369 (9th 18 Cir.1989). An antitrust claim will survive a motion to dismiss “unless it is 19 apparent from the face of the complaint that the alleged market suffers a fatal legal 20 defect” or is “facially unsustainable.” Newcal Industries, Inc. v. Ikon Office 21 Solution, 513 F.3d 1038, 1044 (9th Cir. 2008) (“There is no requirement that [the 22 market definition and market power] elements of the antitrust claim be pled with 23 specificity”). “The validity of the ‘relevant market’ is typically a factual element 24 rather than a legal element, [and so] alleged markets may survive scrutiny under 25 Rule 12(b)(6) subject to factual testing by summary judgment or at trial.” Id. 26 (citing High Technology Careers v. San Jose Mercury News, 996 F.2d 987, 990 27 (9th Cir. 1993)). “There are, however, some legal principles that govern the 28 20 Civil Action No. 11-cv-2652-GPC-RBB 1 definition of an antitrust ‘relevant market,’ and a complaint may be dismissed 2 under Rule 12(b)(6) if the complaint’s ‘relevant market’ definition is facially 3 unsustainable.” Id. (citing Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124 4 F.3d 430, 436-37 (3d Cir. 1997). 5 In the FAC, Prime Healthcare alleges Kaiser owns fifteen hospitals, Kaiser 6 is affiliated with ten other hospitals, and Kaiser contracts with over 100 hospitals 7 in the relevant healthcare services market. (FAC ¶ 37.) Prime Healthcare further 8 alleges specific service markets. (FAC ¶¶ 32-36; “The relevant service markets 9 are (1) hospital emergency care services provided at Kaiser and non-Kaiser 10 facilities to the general public; (2) general acute-care hospital services, which 11 encompasses a broad cluster of basic medical diagnostic and treatment services 12 provided at Kaiser and non-Kaiser facilities; and (3) the services provided by 13 healthcare workers at Kaiser and non-Kaiser facilities, including but not limited to 14 direct patient care duties essential to the provision of the services described in (1) 15 and (2).”) Plaintiff further alleges the relevant geographic market includes San 16 Bernardino, San Diego, Los Angeles, and Orange Counties, California. (Id.) 17 Plaintiff also identifies several subregional geographic markets. (Id.) Kaiser 18 Defendants do not object to the first two product markets in which Kaiser 19 competes. (Kaiser Mtn. at 20 n. 18.) Upon review of Plaintiffs allegations, and 20 finding no facial or legal defect, the Court concludes Plaintiff has sufficiently pled 21 the relevant markets. 22 ii. Injury to Competition “It can't be said often enough that the antitrust laws protect competition, not 23 24 competitors.” United States v. Syufy Enters., 903 F.2d 659, 668 (9th Cir.1990). 25 Consequently, “[t]o succeed on a rule of reason claim, an antitrust plaintiff must 26 prove that the restraint in question injures competition in the relevant market.” 27 Roberts Waikiki U–Drive, Inc. v. Budget Rent–A–Car, Inc., 732 F.2d 1403, 1408 28 21 Civil Action No. 11-cv-2652-GPC-RBB 1 (9th Cir.1984) (citing Kaplan v. Burroughs Corp., 611 F.2d 286, 291 (9th 2 Cir.1979)). “In order to plead injury to competition . . . sufficiently to withstand a 3 motion to dismiss, ‘a section one claimant may not merely recite the bare legal 4 conclusion that competition has been restrained unreasonably.’ ” Brantley v. NBC 5 Universal, Inc., 675 F.3d 1192, 1198 (9th Cir.2012) (citing Les Shockley Racing, 6 Inc. v. Nat'l Hot Rod Ass'n, 884 F.2d 504, 507–08 (9th Cir.1989)). A claimant 7 “‘must, at a minimum, sketch the outline of [the injury to competition] with 8 allegations of supporting factual detail.’ ” Id. (citing Les Shockley Racing, Inc., 9 884 F.2d at 508). Such allegations must “raise a reasonable expectation that 10 discovery will reveal evidence of” an injury to competition. Id. (citing Twombly, 11 550 U.S. 544, 556 (2007). 12 Kaiser Defendants contend Plaintiff has failed to allege injury to 13 competition. (Kaiser Mtn. at 25.) Kaiser Defendants argue Prime Healthcare’s 14 allegations that Defendants conspired to force Prime to spend resources in 15 countering litigation claims, legislative battles, and government investigations 16 fails to show actual injury to competition. (Id.) Even further, Kaiser Defendants 17 argue Prime Healthcare has failed to allege anything about the extent of expenses 18 it incurred or its ability to compete in the market. (Id. at 25-26.) 19 Prime Healthcare argues the Defendants conspiracy involved a coordinated 20 attack on Prime and other non-union hospitals operating at lower costs with better 21 pricing. (Prime Reply at 39; see also FAC ¶ 332.) Prime contends Kaiser’s ability 22 to spend a low amount of resources on emergency and acute care services, collect 23 higher profits, and limit its spending on its own hospital facilities and services 24 results in harm to overall competition within the relevant market. (Id.) These 25 specific allegations include: Kaiser Defendants’ refusal to pay claims for 26 treatment of Kaiser members at Prime hospitals (FAC ¶¶ 258-60, 305); sham 27 counterclaims in litigation to recover payment for treating Kaiser members (FAC 28 22 Civil Action No. 11-cv-2652-GPC-RBB 1 ¶ 271); refusal to pay physicians who provide emergency services to Kaiser 2 members at Prime hospitals (FAC ¶ 257); and disparagement of Kaiser’s 3 competitors for the purpose of disrupting those competitors' businesses, driving up 4 their costs, and requiring them to spend time and substantial resources that they 5 would not otherwise incur. (FAC ¶¶ 195-205, 212- 215, 320, 323.) Regarding 6 Union Defendants’ actions, Prime Healthcare alleges the SEIU engaged in a 7 publicity campaign against them which resulted in harm to Prime Healthcare and 8 overall competition. Plaintiff alleges Union Defendants sought to increase the 9 number of healthcare workers in the industry and utilized pressure tactics against 10 them and other hospitals to advance labor objectives and increase the cost of 11 business. (FAC¶¶ 195-203.) The campaign included publicizing information 12 about Prime’s compliance with California laws; issuing studies regarding Prime 13 Healthcare’s rate of septicemia; lobbying U.S. House of Representatives and 14 California legislative members on the issue of septicemia; distributing articles 15 about Prime Healthcare’s Medicare data; and other activities against Prime and 16 other non-labor hospitals. (FAC ¶¶ 265-91.) 17 Assuming arguendo that Prime Healthcare had sufficiently pled the 18 existence of an illegal agreement, Plaintiff has not sufficiently pled facts showing 19 the Defendants intended to harm trade or Defendants’ actions caused injury to 20 overall competition. For example, Kaiser, as a competitor in the relevant market, 21 allegedly filed counterclaims in Prime Healthcare-initiated litigation to recover 22 fees. Prime Healthcare’s conclusory assertion that the counter-claims are “sham” 23 does not show an intent to restrain trade. Nor do the actions taken by SEIU to 24 launch a “publicity campaign” against Prime Healthcare suggest intent to restrain 25 trade. Rather, the face of the complaint suggests the union engaged in traditional 26 union activities to pressure non-labor entities to become unionized. 27 28 23 Civil Action No. 11-cv-2652-GPC-RBB Moreover, Prime Healthcare has not sufficiently stated that the Defendants’ 1 2 actions actually injured competition. Plaintiff fails to plead supportive facts 3 beyond conclusory statements that, as a result of Defendants actions, Prime 4 Healthcare or other hospitals were injured or pushed out of the relevant market, or 5 that consumers actually faced higher prices, reduced quality of care and quantity 6 of services, and reduced choice as a result of the Defendants’ actions. Any 7 resources Prime Healthcare spent as a result of the Defendants’ actions – whether 8 addressing the septicemia issue before the state legislature or initiating litigation 9 to recover fees from Kaiser- do not show actual injury to competition. See 10 McGlinchy v. Shell Chem. Co., 845 F.2d 802, 811 (9th Cir. 1988) (explaining the 11 alleged violation must cause injury to competition beyond the impact on the 12 claimant). Thus, the alleged injury incurred by Kaiser Defendants’ refusal to pay 13 claims for Prime’s services, the Defendants’ initiation of purported sham 14 litigation, or Prime’s costs in defending itself in government investigations show 15 only potential harm to Prime Healthcare alone. There are no non-conclusory 16 allegations that Defendants’ actions restrained trade in the relevant market or 17 injured overall competition. 18 For these reasons, the Court finds that Prime Healthcare has not shown 19 intent to restrain trade or actual injury to competition. As such, Plaintiff has also 20 failed to demonstrate the second element and third elements of a Section 1 21 violation. Plaintiff’s failure to plead all elements of a Section 1 violation warrant 22 dismissal of Plaintiff’s amended complaint. Thus, the Court GRANTS Kaiser Defendants’ motion to dismiss without 23 24 prejudice as to the first claim against all defendants. As Union Defendants joined 25 in Kaiser Defendant’s motion to dismiss, the Court also GRANTS SEIU and 26 SEIU-UHW’s motions to dismiss for the same reasons. 27 28 24 Civil Action No. 11-cv-2652-GPC-RBB 1 2 B. Violation of Section 2 of the Sherman Act Prime Healthcare’s second, third, and fourth claims against Kaiser 3 4 Defendants arise out of Section 2 of the Sherman Act. (FAC ¶¶ 339–396.) 5 1. Monopolization 6 To prevail on a claim of monopolization under Section 2, Prime Healthcare 7 must allege the following: “(1)[p]ossession of monopoly power in the relevant 8 submarket; (2) willful acquisition or maintenance of that power; and (3) causal 9 antitrust injury.” Forsyth v. Humana, Inc., 114 F.3d 1467, 1475 (9th Cir. 1997) 10 aff'd sub nom. Humana Inc. v. Forsyth, 525 U.S. 299 (1999) and overruled on 11 other grounds by Lacey v. Maricopa County, 693 F.3d 896 (9th Cir. 2012) 12 (internal citations omitted). Monopoly power is “the power to control prices or 13 exclude competition.” Forsyth, 114 F.3d at 1467. Kaiser Defendants move to dismiss Prime Healthcare’s second claim for 14 15 monopolization because it fails to plead that Kaiser possessed, willfully acquired 16 or maintained monopoly power. (Kaiser Mtn at 27.) 17 As previously discussed, Prime Healthcare failed to sufficiently allege 18 injury to competition within the relevant market. The Court further finds that 19 Plaintiff has failed to establish market power. Although Section 1 and 2 claims 20 are distinct, the methods for establishing monopoly power are essentially identical 21 to those for establishing market power. Forsyth, 114 F.3d at 1467 (citing Rebel 22 Oil, 51 F. 3d at 1421). 23 Market power may be demonstrated through direct evidence of the injurious 24 exercise of market power or circumstantial evidence pertaining to the structure of 25 the market. Rebel Oil, 51 F.3d at 1434. “To demonstrate market power 26 circumstantially, a plaintiff must: (1) define the relevant market, (2) show that the 27 defendant owns a dominant share of that market, and (3) show that there are 28 25 Civil Action No. 11-cv-2652-GPC-RBB 1 significant barriers to entry and show that existing competitors lack the capacity to 2 increase their output in the short run.” Id. Put differently, “one traditional way to 3 demonstrate market power is by defining the relevant product market and showing 4 defendants' percentage share of that market. Todd v. Exxon Corp., 275 F.3d 191, 5 199 (2d Cir. 2001). However, market power defined as a percentage market share 6 is not the only way of estimating market power. Id., 275 F. 3d at 206 (citing Toys 7 “R” Us, Inc. v. FTC, 221 F.3d 928, 937 (7th Cir. 2000) (noting “the share a firm 8 has in a properly defined relevant market is only a way of estimating market 9 power”). “If a plaintiff can show that a defendant’s conduct exerted an actual 10 adverse effect on competition, this is a strong indicator of market power.” Id. 11 Moreover, Plaintiff may demonstrate market power by alleging direct proof of 12 restricted output and supracompetitive prices. Rebel Oil, 51 F.3d at 1434. 13 Kaiser Defendants argue Plaintiff has not sufficiently alleged Kaiser 14 possesses a dominant share of the relevant markets, and thus Plaintiff has failed to 15 demonstrate Kaiser exercises market power. (Kaiser Mtn. at 20-24.) Prime 16 Healthcare responds that it has met the minimal requirements for pleading market 17 power by alleging Kaiser Defendants’ dominance, barriers to new competitors 18 entering the market, and evidence of supracompetitive prices and restricted output. 19 (Prime Reply at 38-40.) 20 Plaintiff has not shown sufficient circumstantial evidence that Kaiser 21 Defendants own a dominant share of the market. Prime Healthcare alleges Kaiser 22 Defendants are the “dominant force in the alleged relevant hospital markets, with 23 substantial market share and power.” (FAC ¶ 40.) There are no other factual 24 contentions in the amended complaint that support this conclusory statement. 25 Given the lack of factual allegations regarding Kaiser’s market share, the Court 26 concludes Plaintiff has not alleged Kaiser owns a dominant share of the relevant 27 28 26 Civil Action No. 11-cv-2652-GPC-RBB 1 market, a critical element to demonstrate circumstantial evidence of market 2 power.3 Prime Healthcare’s allegations that Kaiser Defendants have 3 4 supracompetitive prices and restricted output are vague and conclusory. Prime 5 Healthcare alleges Kaiser Defendants have the power to control prices exclude 6 competition in the relevant markets. (FAC ¶ 39.) However, this statement reveals 7 only that Kaiser has the power to control prices, not that Kaiser has in fact 8 controlled prices. Without further facts to support the plausible inference that 9 there was a restriction in output or supracompetitive prices, and having failed to 10 plead Kaiser owns a dominant share of the relevant market, the Court is unable to 11 leap to the conclusion that Kaiser possesses market power. Having concluded 12 Plaintiff has not proven market power or injury to competition, Plaintiff has also 13 failed to state a claim for monopolization under Section 2. 14 2. Attempted Monopolization 15 To prevail on a Section 2 claim for attempted monopolization, “a plaintiff 16 must demonstrate four elements: (1) specific intent to control prices or destroy 17 competition; (2) predatory or anticompetitive conduct directed toward 18 accomplishing that purpose; (3) a dangerous probability of success; and (4) causal 19 antitrust injury.” Forsyth, 114 F.3d at 1477 (citing Rebel Oil Co., 51 F.3d at 20 1433). Kaiser asserts that the claim of attempted monopolization fails because 21 Prime’s allegations of specific intent to monopolize and dangerous probability of 22 achieving monopoly power are conclusory. (Kaiser Mtn at 28.) Prime argues it 23 has sufficiently alleged a claim for attempted monopolization. (Prime Reply at 24 53.) 25 26 3 27 At this time, the Court refrains from taking judicial notice of publicly available information showing Kaiser’s market share. 28 27 Civil Action No. 11-cv-2652-GPC-RBB 1 The Court finds Prime Healthcare has failed to satisfy the first two elements 2 necessary to plead a claim for attempted monopolization. To satisfy the first 3 element, Prime Healthcare alleges Kaiser Defendants have “purposefully 4 engaged” in anticompetitive conduct “with the specific design and purpose to 5 raise the costs of competitors.” (FAC ¶ 328, 354.) Yet Prime Healthcare alleges 6 Kaiser merely had the power to control prices – not that it in fact controlled prices. 7 (FAC ¶ 39.) Prime alleges there is “a dangerous probability that… Kaiser 8 Permanente will succeed in acquiring, maintaining, and/or expanding its 9 monopoly power;” a claim that also falls short of alleging specific intent to control 10 prices. As previously discussed, Prime Healthcare has not shown the Defendants 11 were engaged in a conspiracy with intent to restrain trade, and Plaintiff’s reliance 12 on the same allegations similarly fails to satisfy the claim for attempted 13 monopolization. 14 3. Conspiracy to Monopolize 15 Finally, “[t]o prove a conspiracy to monopolize in violation of § 2, Plaintiff 16 must show four elements: (1) the existence of a combination or conspiracy to 17 monopolize; (2) an overt act in furtherance of the conspiracy; (3) the specific 18 intent to monopolize; and (4) causal antitrust injury.” Stanislaus Food Prods., 19 2011 U.S. Dist. LEXIS, at *12 (citing Paladin Assocs., Inc. v. Mont. Power Co., 20 328 F.3d 1145, 1158 (9th Cir. 2003)). Prime Healthcare has failed to plead the 21 existence of a conspiracy for Section 1 violation, and thus has also failed to satisfy 22 the first element for conspiracy to monopolize under Section 2. 23 Accordingly, Plaintiff has not sufficiently pled Section 2 claims for 24 monopolization, attempted monopolization, and conspiracy to monopolize. Thus, 25 Court GRANTS Kaiser Defendants’ motion to dismiss the second, third, and 26 fourth claims for Section 2 violations. 27 28 28 Civil Action No. 11-cv-2652-GPC-RBB 1 V. CONCLUSION 2 For the reasons stated above, the Court GRANTS Kaiser Defendants’ and 3 Union Defendants’ motions to dismiss. (ECF Nos. 57, 59, 64.) Accordingly, the 4 Court DISMISSES WITHOUT PREJUDICE Plaintiff’s entire amended 5 complaint as to all defendants. If Prime Healthcare wishes, it SHALL FILE an 6 amended complaint within thirty days of the date this Order is electronically 7 docketed. Failure to file an amended complaint by this date may result in 8 dismissal with prejudice. 9 10 IT IS SO ORDERED. DATED: July 25, 2013 11 ________________________________ 12 HONORABLE GONZALO P. CURIEL 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Civil Action No. 11-cv-2652-GPC-RBB
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