Sixth Circuit

Sixth Circuit decisions

Ancillary restraints on competition

Medical Center at Elizabeth Place, LLC v Atrium Health System

In Atrium Health System, ¹ the plaintiff, an acute care, for-profit hospital owned by 60 physicians and one corporate shareholder, alleged that it failed because of the anticompetitive actions of four hospitals, as well as a Dayton, Ohio company called Premier Health Partners. Premier Health Partners had been formed through a joint operating agreement among those four hospitals. The plaintiff brought its claim under section 1 of the Sherman Act.

The plaintiff hospital made several allegations in support of its claim that the defendants’ actions were per se unlawful. The plaintiff alleged that the defendants stipulated to payers (insurers and managed-care plan providers) that if they added the plaintiff to their networks, the defendants would be able to renegotiate prices under their contracts, also known as ‘panel limitations.’ The plaintiff also pointed to evidence of a board meeting held by the defendants to discuss opposition to the plaintiff’s opening, as well as a letter written by primary care physicians – many affiliated with the defendants – to physicians in the Dayton area (referred to as ‘Dear Physician’ letters), stating that they had concerns regarding physician-owned hospitals. Specifically, the letters stated concerns that ‘[a] physician owned specialty hospital [such as the plaintiff] will take the better-insured and more profitable patients away from Premier (along with ancillary services), leaving our local hospitals with only the more complex and underinsured patients.’ ²

Further, the plaintiff pointed to the fact that the defendants terminated the leases of multiple plaintiff-affiliated doctors who rented space in the defendants’ hospitals. The plaintiff also pointed to the defendants’ non-compete agreements with physicians in the Dayton area, specifically a contract entered into between one defendant hospital, Good Samaritan Hospital, and a hospital it purchased. The contract stipulated that a condition of purchase was ‘not to invest in [the plaintiff], and . . . if they already owned shares, they would divest if [the plaintiff] began to offer cardiac services over the next five years.’ ³ This conduct, the plaintiff argued, was per se illegal under the Sherman Act, because it ‘blocked [plaintiff] from gaining meaningful access to the Dayton market through a series of anticompetitive acts that amounted to a group boycott of [the plaintiff].’ ⁴

The case came before the Sixth Circuit after the district court granted summary judgment for the defendants. The district court held that contrary to the plaintiff’s arguments, the defendants’ actions were not per se illegal under the Sherman Act, because the record showed that Premier’s actions had plausibly pro-competitive features. The plaintiff appealed. The Sixth Circuit affirmed that the plaintiff’s per se claim failed, making no determination as to whether Premier’s conduct was on balance pro- or anticompetitive.

In reaching its decision, the Court noted the general presumption against the per se rule, and the fact that Premier’s contracts were part of a joint venture, which the Supreme Court has recognized ‘hold the promise of increasing a firm’s efficiency and enabling it to compete more effectively.’ ⁵ Since the conduct of the joint venture was at issue, the Court said that the proper inquiry was ‘to see if the conduct is reasonably related to the joint venture’s pro-competitive features (and therefore should be judged under the rule of reason) . . . .‘ ⁶ Because the Supreme Court distinguishes three categories of restraints – those that are core to, those that are ancillary to, and those that are nakedly unrelated to the purpose of the joint venture – the Court’s decision turned on whether the defendants’ conduct was ancillary to the purpose of the joint venture and, therefore, should be analyzed under a rule of reason standard instead.

The Court took notice of the split among Circuits in assessing what is ancillary to a joint venture. The Eleventh Circuit standard is whether the restraint is necessary to achieve the joint venture’s purpose, whereas the Second, Seventh, Eighth and Ninth Circuits apply a standard of ‘whether there exists a plausible pro-competitive rationale for the restraint.’ ⁷ The Sixth Circuit sided with the majority of Circuits, and held that ‘a joint venture’s restraint is ancillary and therefore inappropriate for per se categorization when, viewed at the time it was adopted, the restraint may contribute to the success of a cooperative venture.’ ⁸ Thus, to determine whether the plaintiff’s per se claim could survive summary judgment, the Court needed to make a determination as to whether the restraints at issue were ‘reasonable’ and, therefore, inappropriate to assess under a per se standard. While noting that the defendants would have the ultimate burden to prove that a challenged restraint is pro-competitive, the Court did not reach the question because the plaintiff only brought a per se claim.

Ultimately, the Court found that the defendants’ conduct had plausible pro-competitive rationale. First, the Court held that the defendants’ panel limitations were potentially pro-competitive ‘methods directed toward the common goal of keeping patients (customers) coming through the doors . . . . A panel limitation . . . forces payers to confront the risk of renegotiating their contract with Hospital Defendants if they choose to send their insureds (customers) to a competing provider.’ ⁹ Second, the Court found that the Dear Physician letters written at the direction of the defendants could not qualify as illegal conduct under antitrust laws because the plaintiff failed to show that they were untrue, and the plaintiff was able to counter them with ‘Dear Colleague’ letters of its own. Third, the Court found that the defendants’ termination of leases of multiple plaintiff-held affiliated doctors who rented space in the defendants’ hospitals was potentially pro-competitive, in that the defendants did not want lessees to ‘free ride on the reputation and facilities of that hospital, and then refer patients out to [the plaintiff].’ ¹⁰ Lastly, the Court held that the defendants’ non-competition covenants in certain of its contracts prohibiting investment in the plaintiff’s business were in line with ‘long recognized [case law] that legitimate reasons exist to uphold non-competition covenants even though by nature they necessarily restrain trade to some degree.’ ¹¹

This case resolves the Sixth Circuit’s position on a circuit split, aligning it with the majority view that the standard for determining whether a joint venture’s restraint is ancillary and therefore inappropriate for per se categorization is ‘whether there exists a plausible pro-competitive rationale for the restraint.’ ¹² The case further illustrates conduct that courts in the Sixth Circuit may determine is ancillary to the purpose of a joint venture, most notably efforts to prevent third parties from engaging in business with a competitor, such as the inclusion of non-competition clauses and other restrictive covenants in contracts with third parties.

District court decisions

Settlement and fee awards in class action antitrust litigation

Shane Group, Inc v Blue Cross Blue Shield

Shane Group, Inc ¹³ is a consolidated class action brought by various individual and corporate plaintiffs against defendant Blue Cross Blue Shield of Michigan. The plaintiffs alleged an unlawful agreement in violation of section 1 of the Sherman Act under the rule of reason, and unlawful agreements in violation of section 2 of the Michigan Antitrust Reform Act, based on the defendant’s use of most-favored nation (MFN) clauses in its agreements with hospitals, some of which are the largest hospital systems in Michigan, in which Blue Cross agreed to raise its reimbursement rates for each hospital’s services, as long as the hospital agreed to charge other health insurers rates at least as high as the hospital charged Blue Cross. The class sought to recover overcharges paid by purchasers of healthcare services directly to hospitals in Michigan. The court entered an order granting preliminary approval to proposed class settlement.

Responding to objections filed by certain plaintiffs, the court found that the complexity, expense and likely duration of the litigation weighed in favor of settlement. The court explained that ‘the antitrust MFN issues raised by the plaintiffs were complex, very expensive to litigate,’ and that the litigation has been ongoing for years, including appeals. The court noted that the MFN issue is not a common issue involving antitrust cases in the healthcare arena, and that the complexity, expense and duration factor weighed in favor of class settlement.

Class counsel sought attorney fees in the amount of $8,631,628.67, or approximately 28.78 per cent of the settlement fund and reimbursement of litigation expenses of $3.5 million. The court held that, ‘[c]ourts in this District have approved attorneys’ fees in antitrust class actions anywhere from a 30% to a one-third ratio of the common fund.’ ¹⁴ Recognizing that ‘this action is a complex antitrust class action,’ the court found ‘that the percentage of the fund method is the proper measure to award attorneys’ fees in this case rather than the lodestar method.’ ¹⁵ This is because the former ‘eliminates arguments regarding the reasonableness of rates and hours incurred by the numerous counsel involved in this case and fully aligns with the interest of the Class.’ ¹⁶ The court concluded that the requested fund percentage was reasonable ‘in light of the time and resources expended by Class Counsel in this case.’ ¹⁷

No poach agreements: pleading requirements, antitrust standing and arbitration

Blanton v Domino’s Pizza Franchising LLC

The plaintiff in Blanton ¹⁸ brought suit on behalf of himself and all others similarly situated, alleging that no-hire provisions in Domino’s standard franchise agreements unlawfully prohibited a Domino’s franchisee from recruiting or hiring a current employee of another Domino’s franchisee without prior written consent. The plaintiff argued that the defendants ‘used the franchise agreements to orchestrate a conspiracy among their franchisees to not compete for labor,’ and that the ‘no-hire provision is evidence of that conspiracy and violates the Sherman Antitrust Act because it unreasonably restrains competition for Domino’s franchise employees and depresses employee wages, lessens employee benefits, and stifles employee mobility.’ ¹⁹

In ruling on the defendants’ motion to dismiss the plaintiff’s claims in May 2019, the court held that the plaintiff had article III standing because he plausibly alleged an economic injury, causation, redressability and an antitrust injury. Though the plaintiff argued that the no-hire provision at issue was a per se violation, the plaintiff also pled an alternative ‘quick look’ claim. The court held that the plaintiff ‘plausibly pled a contract, combination, or conspiracy affecting interstate commerce, in violation of section 1 of the Sherman Act,’ and that the plaintiff ‘also plausibly alleged that the agreement is unreasonable under both the per se rule and quick-look analysis.’ ²⁰ In particular, the plaintiff sufficiently alleged ‘that the agreement has such a clear lack of redeeming value that it is conclusively presumed to be unreasonable’ and that ‘the anticompetitive effects of the agreement are so obvious that an observer with even a rudimentary understanding of economics could conclude that the agreement in question would have an anticompetitive effect on customers and markets.’ ²¹ The court, however, declined ‘to announce a rule of analysis at this juncture,’ ²² and held that ‘[m]ore factual development is necessary.’ ²³

The court revisited Blanton in October 2019, on the defendants’ motion to dismiss, arguing that plaintiffs’ employment agreements required arbitration of their claims. At this point in the litigation, a second plaintiff – Derek Piersing – was added and among the plaintiffs seeking relief. Piersing argued that the arbitration clause did not apply to him because the franchise agreement he entered into was with his employer, Carpe Diem Pizza, a franchisee of Domino’s, and not Domino’s directly. Domino’s argued that because Piersing alleged a conspiracy involving Domino’s and its franchisees, he was ‘estopped from avoiding arbitration by selectively suing only some of the alleged conspirators,’ ²⁴ namely Domino’s, a non-signatory to the arbitration agreements, and not others.

The court agreed with the defendants, and held that under Washington state law, which was controlling, ‘Domino’s and Carpe Diem are inseparable. The claims against them are inseparable. Equitable estoppel applies, and Domino’s may compel Piersing to arbitration.’ ²⁵ Further, finding that, under Washington state law, for the arbitration clause to apply to Piersing’s claims, the subject matter of the dispute needed to be ‘intertwined with the contract providing for arbitration,’ ²⁶ the court held that Piersing’s antitrust claims were clearly intertwined with the subject of the arbitration agreement because it covered all claims ‘arising out of or relating to Employee’s employment with the Company and/or the termination of Employee’s employment.’ ²⁷

In re Papa John’s Employee and Franchisee Employee Antitrust Litigation

In In re Papa John’s Employee and Franchisee Employee Antitrust Litigation, ²⁸ the plaintiffs brought claims against defendants, seeking to represent all persons who were employed at a Papa John’s restaurant located in the United States between 2010 and the present, arguing that a no-hire provision contained in franchise agreements was a per se violation of the Sherman Act, in that the no-hire provision acted as a per se horizontal restraint of trade among competitors in the labor market. The defendants moved, in relevant part, to dismiss for failure to state a claim, arguing that the restraint was vertical, and thus the rule of reason standard of review ought to apply. Further, the defendants moved to compel arbitration and dismiss claims of one plaintiff, Jamiah Greer.

On the motion to compel arbitration with plaintiff Greer, the court granted the defendants’ motion to dismiss. The plaintiffs argued that Greer’s antitrust claim ‘arises out of the concerted refusal of any Papa John’s franchisee to consider her for a position pursuant to the No-Hire Agreement,’ ²⁹ and that the defendants were ‘liable for the harm caused (wage suppression) because it orchestrated the No-Hire Agreement, not because it employed Ms Greer.’ ³⁰ The court held that ‘[n]ot only does the arbitration agreement broadly cover all claims, disputes or controversies arising out of or relating to your employment with Papa John’s, but the agreement proceeds to provide a non-exhaustive list of potential claims covered by the agreement,’ ³¹ which included ‘any violation of any federal, state, or other governmental law, statute, regulation, or ordinance.’ ³² Therefore, the court held that the instant claims were covered under the arbitration clause.

The defendants’ motion to dismiss or strike the plaintiffs’ Sherman Act claims argued that the plaintiffs’ failure to allege a relevant market was fatal to their showing of a horizontal unreasonable restraint of trade under the Sherman Act’s rule of reason standard. Relying on Ohio v American Express Co, ³³ the plaintiffs argued that ‘when dealing with a horizontal restraint that has an adverse effect on competition, a plaintiff need not define the relevant market.’ ³⁴ The court agreed, and found that the plaintiffs set forth factual allegations sufficient from which the court could plausibly conclude that the agreements at issue were horizontal. The court declined to consider the rule of reason analysis, citing Blanton v Domino’s Pizza Franchising LLC. ³⁵

The court further held that the plaintiffs sufficiently pled an antitrust injury, noting the plaintiffs’ allegation that the no-hire provision at issue was ‘an agreement not to compete for labor and that the agreement had the purpose and effect of depressing wages and diminishing employment opportunities’ ³⁶ was in line with Sixth Circuit precedent finding that such allegations satisfy the antitrust injury requirement.

Class certification and predominance under FRCP 23(b)

Hospital Authority of Metropolitan Government of Nashville and Davidson County, Tennessee v Momenta Pharmaceuticals, Inc

In Momenta Pharmacy, ³⁷ NGH, a metropolitan charity hospital, and DC 37, a non-profit health and welfare benefit plan covering public sector employees, retirees and their families, brought four separate claims under the Sherman Act against the defendants, two pharmaceutical companies, based on their agreement to share profits from sales of the generic drug enoxaparin, ‘so long as defendants remained the sole source of generic enoxaparin in the United States.’ ³⁸ Under the agreement, the defendants received ‘milestone payments’ so long as they remained the sole supplier of the generic drug, which, the plaintiffs alleged, provided the defendants ‘with a powerful incentive to use whatever rights it had to prevent other parties from entering the generic enoxaparin market.’ ³⁹ As indirect purchasers of, or entities that provide reimbursement for, enoxaparin and its brand name alternative, the plaintiffs alleged the defendants’ anticompetitive activity violated numerous state antitrust, consumer protection and unjust enrichment laws, and caused them to pay more than they would have for the prescription drugs, absent the defendants’ conduct.

The plaintiffs sought certification of a class defined as follows:

Hospitals, third-party payors and people without insurance who indirectly purchased, paid for, and/or reimbursed some or all of the purchase price for, generic enoxaparin or Lovenox®, in Arizona, Arkansas, California, District of Columbia, Florida, Hawaii, Illinois, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Oregon, South Dakota, Tennessee, Utah, Vermont, West Virginia, and Wisconsin, from September 21, 2011, through September 30, 2015 (the ‘Damages Class Period’), for the purpose of personal consumption by themselves, their families, or their members, employees, insureds, participants, patients, beneficiaries or anyone else.

With respect to third-party payors and people without insurance, the Damages Class only includes those, described above, who purchased, paid for, and/or reimbursed some or all of the purchase price for, generic enoxaparin or Lovenox® from a pharmacy. ⁴⁰

The court held that the proposed class ‘easily’ met the requirements of Federal Rule of Civil Procedure 23(a), noting that the proposed class ‘consists of thousands of hospitals, insurers, and uninsured, satisfying numerosity,’ and that the plaintiffs asserted ‘that there are common questions of law and fact, namely the effect Defendants’ alleged antitrust activity had on members of the class and the generic enoxaparin market.’ ⁴¹ Further, the plaintiffs’ claims were ‘typical of the class because they were injured in the same way as all members of the proposed class—they paid more for enoxaparin than they would have absent Defendants’ alleged anticompetitive behavior.’ ⁴² Finally, the plaintiffs’ maintained ‘that they are adequate class representatives because: (1) NGH and DC 37 (as well as all members of the proposed class) were harmed by paying more for enoxaparin than they otherwise would have absent Defendants’ conduct; and (2) there are no fundamental intra-class conflicts sufficient to defeat certification.’ ⁴³

In determining whether the class met the predominance requirements of Rule 23(b), the court noted that the plaintiffs were required to show ‘more than common evidence that defendants colluded to raise prices for generic enoxaparin. Plaintiffs must also show that they can prove, through common evidence, that all class members were in fact injured by the alleged conspiracy.’ ⁴⁴ The court recognized that ‘[c]ourts have fairly consistently found that common issues regarding the existence and scope of the conspiracy predominate over other questions affecting only individual members in antitrust price fixing cases,’ which ‘makes sense because determination of the conspiracy issue will focus on the conduct of the Defendants, not the individual class members.’ ⁴⁵ Thus, the court focused its inquiry on ‘impact, as that element poses the more serious impediment to certification.’ ⁴⁶

In assessing the element of antitrust impact, the court held that plaintiffs needed ‘to show that the essential elements of their claims are capable of proof at trial through evidence that is common to the class rather than individual to its members.’ ⁴⁷ The court assessed whether the plaintiffs, through their expert, ‘demonstrated . . . by common proof whether hospitals incurred overcharges in the first instance.’ ⁴⁸ Ultimately, the court was persuaded by the plaintiffs’ expert’s claim that the common proof showing hospitals bore overcharges consisted of: (1) published research showing that direct and indirect purchasers ‘realize significant costs savings when generics enter the market;’ ⁴⁹ (2) the defendants’ documents, testimony and forecasts, which confirmed that ‘when generics enter the market there is a significant cost savings [sic] for purchasers;’ ⁵⁰ and (3) sales data for generic enoxaparin confirming that ‘competition among generic manufacturers would have led to significantly lower prices.’ ⁵¹ Thus, the court found that the plaintiffs’ expert analysis ‘sufficiently demonstrates that there is common evidence capable of demonstrating the fact of antitrust impact.’ ⁵²

Noting the defendants’ ‘speculative concern’ that the court’s certification of the class would include persons who were not injured by the alleged anticompetitive conduct, the court cited Kohen v Pacific Investment Management Co LLC ⁵³ for the proposition that ‘a class will often include persons who have not been injured by the defendant’s conduct. Such a possibility or indeed inevitability does not preclude class certification, despite statements in some cases that it must be reasonably clear at the outset that all class members were injured by the defendant’s conduct.’ ⁵⁴ Thus, the court adopted the holding of the Seventh Circuit in Kohen that ‘the inability to show injury . . . does not defeat class certification where the plaintiffs can show widespread injury to the class.’ ⁵⁵

Notes