Curtis v. Providence Health & Services

          ORDER

          H. Russel Holland, United States District Judge

         Motion To Dismiss

         Defendants move to dismiss plaintiffs' amended complaint.^[1] This motion is opposed.^[2]Oral argument was not requested and is not deemed necessary.

         Background

         Plaintiffs are William Curtis, M.D., and Pedro Valdes, M.D. Defendants are Providence Health & Services (PH&S), Providence Health & Services - Washington (PH&S-Washington), and Bruce Lamoureux.

         Plaintiffs are cardiothoracic surgeons who had medical staff privileges at Providence Alaska Medical Center (PAMC).^[3] Plaintiffs allege that “Dr. Valdes was granted medical staff privileges at PAMC in 1995” and that “Dr. Curtis was granted medical staff privileges at PAMC in 2008.”^[4]

         Plaintiffs allege that PAMC is owned and operated by PH&S-Washington and that PH&S is PH&S-Washington's “principal or sole ‘member.'”^[5] Plaintiffs allege that PAMC “is the largest acute care hospital in Anchorage and that Alaska Regional Hospital (ARH) “is PAMC's only hospital competitor within the Municipality of Anchorage.”^[6]

         Plaintiffs allege that in August 2016, PAMC completed a review of its cardiothoracic program, which revealed some coverage issues due to the small number of cardiothoracic surgeons with privileges at PAMC.^[7] Plaintiffs allege that PAMC's chief executive, Dr. Mandsager, issued a memo after the review was complete, in which he stated that “for 30 days in 2016, PAMC had no CT EMTALA coverage due to ‘an insufficient number of surgeons in Anchorage'” and he expressed that PAMC had “a desire to enter into an exclusive contract with a single CT group to improve PAMC's CT surgery service efficiency, as well as ‘CT surgeon availability, patient outcomes, and patient, staff, and referring physician satisfaction.'”^[8] Plaintiffs allege that in response, they proposed hiring a third cardiothoracic surgeon “if PAMC would guarantee a salary for the third surgeon, making up any shortfall in revenue between collections and $1.5 million, if such a shortfall occurred.”^[9]Plaintiffs allege that “PAMC did not respond to [their] proposal.”^[10]

         Instead, plaintiffs allege that PAMC was pursuing an exclusive contract with Starr-Wood Cardiac Group of Portland, P.C.^[11] Plaintiffs allege that “Starr-Wood sought to affiliate with [them], but the arrangement proposed by Starr-Wood would have made them subordinate to Starr-Wood and given Starr-Wood the power to exclude them from PAMC at any time.”^[12] Plaintiffs allege that they “rejected Starr-Wood's proposal.”^[13]

         Plaintiffs allege that on May 22, 2017,

Lamoureux wrote that he was disappointed to learn that [they] had not been able to reach mutually acceptable terms under which they would join with Starr-Wood. The letter stated: “[s]hould PAMC's negotiations with Starr-Wood or a Starr- Wood-affiliated entity end successfully, only surgeons affiliated with the contracting entity will have related privileges at PAMC.”^[14]

         Plaintiffs allege that

[o]n June 1, 2018, PAMC wrote to [them] that PAMC had entered into an exclusive agreement for CT services and notified them that their clinical privileges to perform cardiac and thoracic surgery services at [PAMC] would automatically terminate on the ‘CT Start Date' unless they became employees of NorthStar Cardiothoracic Surgery, LLC, Starr-Wood's contracting subsidiary.^[15]

         Plaintiffs allege that PAMC later informed them that their privileges would terminate on September 4, 2018.^[16]

         Plaintiffs commenced this action on September 4, 2018. In their original complaint, plaintiffs only asserted claims against PH&S. On October 4, 2018, PH&S-Washington removed the matter to this court.^[17] Plaintiffs moved to remand, and on November 8, 2018, this court granted plaintiffs' motion to remand because the case had been improperly removed by a nonparty.^[18] Upon remand, plaintiffs filed an amended complaint. In their amended complaint, plaintiffs assert antitrust claims against PH&S, a breach of contract claim against PH&S-Washington, a breach of the implied covenant of good faith and fair dealing claim against PH&S-Washington, a breach of the Alaska Unfair Trade Practices Act (UTPA) claim against PH&S-Washington, an intentional interference with prospective economic advantage claim against PH&S-Washington and Lamoureux, and a piercing the corporate veil claim.

         Pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure, defendants now move to dismiss all of plaintiffs' claims.

         Discussion

         ‘To survive a [Rule 12(b)(6)] motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'” Zixiang Li v. Kerry, 710 F.3d 995, 999 (9th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “A claim is facially plausible ‘when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” Id. (quoting Iqbal, 556 U.S. at 678). “The plausibility standard requires more than the sheer possibility or conceivability that a defendant has acted unlawfully.” Id. “‘Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Iqbal, 556 U.S. at 678). “[T]he complaint must provide ‘more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.'” In re Rigel Pharmaceuticals, Inc. Securities Litig., 697 F.3d 869, 875 (9th Cir. 2012) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “In evaluating a Rule 12(b)(6) motion, the court accepts the complaint's well-pleaded factual allegations as true and draws all reasonable inferences in the light most favorable to the plaintiff.” Adams v. U.S. Forest Srvc., 671 F.3d 1138, 1142-43 (9th Cir. 2012). “However, the trial court does not have to accept as true conclusory allegations in a complaint or legal claims asserted in the form of factual allegations.” In re Tracht Gut, LLC, 836 F.3d 1146, 1150 (9th Cir. 2016).

         Defendants first move to dismiss plaintiffs' antitrust claims. Plaintiffs assert antitrust claims under AS 45.50.562 and AS 45.50.564.^[19] “To establish a prima facie case of unreasonable restraint of trade under AS 45.50.562, [plaintiffs] must set forth facts which if proven would establish that ‘the defendants combined or conspired with an intent to unreasonably restrain trade.'” Odom v. Fairbanks Memorial Hosp., 999 P.2d 123, 129 (Alaska 2000) (quoting Smith v. N. Mich. Hosps., Inc., 703 F.2d 942, 949 (6th Cir. 1983)). “Whether actions are tantamount to unreasonably restraining trade is determined by either the rule of reason test or the per se analysis.” Id. Plaintiffs allege that PAMC's “exclusive contract with Starr-Wood does not pass the rule of reason test. . . .”^[20] “To establish unreasonable restraint of trade under the rule of reason test, [plaintiffs] must prove three elements: ‘(1) an agreement or conspiracy among two or more persons or distinct business entities; (2) by which the persons or entities intend to harm or restrain competition; and (3) which actually injures competition.'” Id. (quoting Oltz v. St. Peter's Community Hosp., 861 F.2d 1440, 1445 (9th Cir. 1988)). “Claims brought under AS 45.50.562 are also referred to as Sherman Act § 1 claims[.]” Id. at 128.

         AS 45.50.564 provides that “[i]t is unlawful for a person to monopolize, or attempt to monopolize, or combine or conspire with another person to monopolize any part of trade or commerce.” Plaintiffs allege that PAMC attempted to monopolize the Anchorage hospital market.^[21] “[T]o state a claim for attempted monopolization, the plaintiff must allege facts that, if true, will prove: ‘(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.'”^[22] Coalition for ICANN Transparency, Inc. v. VeriSign, Inc., 611 F.3d 495, 506 (9th Cir. 2010) (quoting Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 893 (9th Cir. 2008)). “[C]laims under AS 45.50.564 have been termed Sherman Act § 2 claims.” Odom, 999 P.2d at 128.

         Defendants first argue that plaintiffs have failed to state plausible antitrust claims because plaintiffs have failed to identify and define the relevant market. See Tanaka v. Univ. of S. Calif., 252 F.3d 1059, 1063 (9th Cir. 2001) (citation omitted) (“[t]he plaintiff bears the initial burden of showing that the restraint produces significant anticompetitive effects within a relevant market”); Big Bear Lodging Ass'n v. Snow Summit, Inc., 182 F.3d 1096, 1104 (9th Cir. 1999) (“[m]onopolization claims can only be evaluated with reference to properly defined geographic and product markets”). The term “relevant market”

“encompasses notions of geography as well as product use, quality, and description. The geographic market extends to the area of effective competition . . . where buyers can turn for alternative sources of supply. The product market includes the pool of goods or services that enjoy reasonable interchange-ability of use and cross-elasticity of demand.”

Tanaka, 252 F.3d at 1063 (quoting Oltz, 861 F.2d at 1446). “Plaintiffs must identify the relevant geographic and product markets in which [p]laintiffs and [d]efendants compete and allege facts demonstrating that [d]efendants' conduct has an anticompetitive effect on those markets.” Big Bear Lodging Ass'n, 182 F.3d at 1104-05. “Failure to identify a relevant market is a proper ground for dismissing a Sherman Act claim.” Tanaka, 252 F.3d at 1063.

         Plaintiffs allege that the relevant market is the hospital market in Anchorage.^[23] Defendants argue that this allegation is insufficient for two reasons. First, defendants argue that the “hospital market” is not relevant to plaintiffs' antitrust claims because plaintiffs do not participate in that market. Defendants argue that antitrust plaintiffs must participate in the same market as the defendant, that they must be either a consumer or competitor of the defendant. Because plaintiffs are not hospitals or patients, defendants argue that plaintiffs could not plausibly participate in the relevant market they have defined. Defendants cite to Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983), in support. But, as the Ninth Circuit has explained,

[t]he Supreme Court has never imposed a “consumer or competitor” test but has instead held the antitrust laws are not so limited. The Supreme Court's only suggestion of such a restriction is a passing comment in Associated General that the plaintiff union was “neither a consumer nor a competitor” in the relevant market. The Court did not find that fact in any way dispositive, however, and concluded the antitrust injury of unions required case-by-case consideration.

Amer. Ad Mgmt., Inc. v. General Telephone Co. of Calif., 190 F.3d 1051, 1057 (9th Cir. 1999) (quoting Associated General, 459 U.S. at 539). Plaintiffs do not have to be consumers or competitors of PAMC in order for their antitrust claims to be plausible.

         Defendants also argue that plaintiffs' relevant market allegation is insufficient because plaintiffs have failed to allege any facts to explain why the Municipality of Anchorage is the appropriate geographic scope of the market. Defendants contend that plaintiffs have not explained why hospitals outside of the Anchorage-area do not enjoy cross-elasticity of demand with PAMC and ARH for certain services, such as CT surgery.

         But, “‘the failure to pinpoint precisely the relevant market through detailed market analysis is not uniformly fatal to'” antitrust claims. Sisters of Providence in Wash. v. A.A. Pain Clinic, Inc., 81 P.3d 989, 1001 (Alaska 2003) (quoting Oltz, 861 F.2d at 1448). Plaintiffs' allegations as to the geographic scope of the relevant market are sufficient to survive a Rule 12(b)(6) motion.

         Defendants next argue that plaintiffs have failed to state plausible antitrust claims because it is implausible that PAMC's exclusive contract with Starr-Wood caused any anticompetitive effects within the relevant market. Defendants argue that it is not plausible that an exclusive contract for the provision of physicians for a small subset of surgical services would have any anticompetitive effect. Defendants argue that plaintiffs have not even alleged any connection between PAMC's contract with Starr-Wood and the relevant market.

         “Anticompetitive effects include increased prices, reduced output, and reduced quality.” West Penn Allegheny Health System, Inc. v. UPMC, 627 F.3d 85, 100 (3rd Cir. 2010). Plaintiffs have adequately alleged anticompetitive effects by claiming that the quality of CT surgery that will be available to consumers at PAMC has been reduced as a result of the exclusive contract with Starr-Wood.^[24]

         But even if plaintiffs' anticompetitive effects allegations are adequate, defendants argue that plaintiffs' antitrust claims should still be dismissed because plaintiffs lack standing to bring these claims. “Antitrust standing is distinct from Article III standing: ‘A plaintiff who satisfies the constitutional requirement of injury in fact is not necessarily a proper party to bring a private antitrust action.'” Dang v. San Francisco Forty Niners, 964 F.Supp.2d 1097, 1110 (N.D. Cal. 2013) (quoting Am. Ad Mgmt., 190 F.3d at 1054 n.3). “To have standing as an antitrust plaintiff, a party must demonstrate antitrust injury, meaning it must show ‘injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful.'” Int'l Longshore and Warehouse Union v. ICTSI Oregon, Inc., 863 F.3d 1178, 1186 (9th Cir. 2017) (quoting Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990)). “Antitrust laws are designed to protect competition, not competitors.” Adaptive Power Solutions, LLC v. Hughes Missile Systems Co., 141 F.3d 947, 951 (9th Cir. 1998). “‘[T]he alleged injury must be caused by a reduction, rather than an increase, in competition resulting from the restraint.'” Id. (quoting Theee Movies of Tarzana v. Pacific Theatres, Inc., 828 F.2d 1395, 1400 (9th Cir. 1987)). “[A] plaintiff must show proof of actual harm to competition reaching beyond mere harm to itself as a competitor.” Sisters of Providence, 81 P.3d at 1003.

         Plaintiffs have alleged harm “beyond mere harm” to themselves. Id. Plaintiffs have alleged “decreased consumer welfare[.]” Id. Specifically, plaintiffs have alleged that because Starr-Wood's surgeons do not live in Alaska, the Starr-Wood surgeons will not be able to follow up with their patients, that there may be a lack of surgeons available, and that some of the Starr-Wood surgeons are relatively inexperienced.^[25] In Sisters of Providence, the court found evidence of such issues to be relevant ...