Medical Supply Chain, Inc. v. General Electric Co. , 144 F. App'x 708 ( 2005 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
July 26, 2005
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
MEDICAL SUPPLY CHAIN, INC.,
Plaintiff - Appellant,
v. Nos. 04-3075 & 04-3102
(D.C. No. 03-CV-2324-CM)
GENERAL ELECTRIC COMPANY; (D. Kan.)
GENERAL ELECTRIC CAPITAL
BUSINESS ASSET FUNDING
CORPORATION; GE
TRANSPORTATION SYSTEMS
GLOBAL SIGNALING, LLC;
JEFFREY IMMELT,
Defendants - Appellees.
ORDER AND JUDGMENT *
Before LUCERO, PORFILIO, and BALDOCK, Circuit Judges.
*
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ requests for decisions on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). These cases are
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. The court generally disfavors the citation of orders and
judgments; nevertheless, an order and judgment may be cited under the terms and
conditions of 10th Cir. R. 36.3.
Medical Supply Chain, Inc. (“MSC”) appeals the district court’s dismissal
of its federal complaint alleging violations of the antitrust provisions at 15 U.S.C.
§§ 1, 2, and 13(e). MSC’s complaint also alleges various violations of state law
which the district court dismissed without prejudice after dismissing MSC’s
federal claims. Appellees/cross-appellants General Electric Company (“GE”),
General Electric Capital Business Asset Funding Corporation (“GE Capital”), GE
Transportation Systems Global Signaling, LLC (“GETS”), and Jeffrey Immelt
appeal the denial of their motion for sanctions under Fed. R. Civ. P. 11. After
reviewing both appeals, we AFFIRM the district court’s dismissal of MSC’s
complaint, but REVERSE its determination that no sanctions were required
against MSC.
I
MSC sought to establish a business providing an e-commerce marketplace
to support suppliers and purchasers of hospital supplies. Although other
companies existed with similar business models, MSC was convinced its superior
technology would give it a competitive advantage over its rivals. MSC suffered
various setbacks in attempting to begin operations, one of which – the search for
office space – serves as the basis for this suit.
In June 2002, the chief executive officer of MSC contacted a leasing agent
regarding a commercial office property in Blue Springs, Missouri, and was told
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that the building in question was already leased and the lessee, GETS, would only
consider a sub-lease of the entire building. Instead of pursuing a sub-lease, MSC
contacted the building’s owner and obtained a letter of intent to sell the building
to MSC, with the sales price being the balance owed on GETS’s seven-year lease.
In 2003, armed with the letter of intent, MSC approached George Fricke, a
property manager at GE Commercial Properties and offered a deal. Under the
terms of the May 15, 2003, offer, MSC would purchase the building and agree to
release GETS from its lease obligation provided (1) that GETS would pay MSC
$350,000 (representing the remainder of the 2003 lease payment), (2) that GETS
would provide MSC a bill of sale for the building’s furniture and equipment,
(3) that the City of Blue Springs would approve MSC’s purchase and occupation
of the building, and (4) that GE Capital would loan MSC the entire $6,400,000
purchase price for the building and land secured by a twenty-year mortgage on the
property, having a 5.4% interest rate with a moratorium on the first full year of
mortgage payments. The offer was contingent upon GE’s acceptance by May 23,
2003.
The day the offer was made, Fricke responded with (1) a voice mail
message stating, “we will accept that transaction,” and (2) an e-mail message
stating, “GE will accept your proposal to terminate the existing Lease.” (I
Appellant’s App. at 64.) MSC thereafter provided GE Capital with a loan
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package including MSC’s financial information. GE Capital later decided not to
provide financing and MSC filed its complaint on June 18, 2003.
MSC’s complaint is grounded in the belief that certain parties wish to
prevent competition in the hospital supply e-commerce market in North America.
According to MSC, two e-commerce marketplaces, neither of which are parties to
the present suit, Global Health Exchange L.L.C. (“GHX”) and Neoforma, Inc.,
effectively control the hospital supply e-commerce market in North America in
that 80% of the hospital supply e-commerce business passes through these
marketplaces. MSC alleged that these marketplaces each require that suppliers or
purchasers who use either of these marketplaces agree to (1) become a member of
the other marketplace as well and (2) deal exclusively with GHX and Neoforma.
GE is an initial shareholder of GHX. 1
In its complaint, MSC raises four federal claims under 15 U.S.C. § 1, which
provides that “[e]very contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several States, or with
foreign nations, is declared to be illegal.” In these four claims, MSC alleged that
1
A March 29, 2000, press release attached to MSC’s amended complaint
refers to “GE Medical Systems” as “equal shareholders” of GHX with four other
initial shareholders: Johnson & Johnson, Baxter International, Inc., Abbott
Laboratories, and Medtronic, Inc. (I Appellant’s App. at 109.) For the purposes
of this opinion, we will assume that GE Medical Systems is a wholly owned
subsidiary of GE.
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the refusal of GE,
through its subsidiaries GE Capital and GETS, to provide it with a loan under the
terms of the proposed agreement was an improper restraint on trade in that it was
a “Concerted Refusal to Deal” (count 1), a “Refusal to Deal in Furtherance of a
Monopoly” (count 2), a “Refusal to Deal/Denial of Unique Financial Instrument”
(count 3), and a “Conspiracy in Restraint of Trade” (count 4).
MSC also raised five claims under 15 U.S.C. § 2, which states: “Every
person who shall monopolize, or attempt to monopolize, or combine or conspire
with any other person or persons, to monopolize any part of the trade or
commerce among the several States, or with foreign nations, shall be deemed
guilty of a felony . . . .” In these five claims, MSC alleged “Restraint of Trade
Through Monopoly” (count 5), “Restraint of Trade Through Attempted
Monopolization” (count 6), “Single Firm Refusal to Deal” (count 7), “Refusal to
Deal ‘Change of Pattern’” (count 8), and “Refusal to Deal Denial of Essential
Facility” (count 9). MSC’s final federal claim alleged “Discrimination in
Services or Facilities” (count 10), under the Robinson-Patman Act, 15 U.S.C.
§ 13(e), which reads:
It shall be unlawful for any person to discriminate in favor of one
purchaser against another purchaser or purchasers of a commodity
bought for resale, with or without processing, by contracting to
furnish or furnishing, or by contributing to the furnishing of, any
services or facilities connected with the processing, handling, sale, or
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offering for sale of such commodity so purchased upon terms not
accorded to all purchasers on proportionally equal terms.
Finally, MSC raises four state law claims, including breach of contract.
Although the only defendants named in the complaint were Mr. Immelt and
the three GE companies, MSC alleged an agreement existed among some
combination of (1) the major suppliers/distributors of hospital supplies, (2) the
major organizations making group purchases of hospital supplies, (3) GHX, and
(4) Neoforma, to prevent other marketplaces from threatening the allegedly
inflated costs associated with conducting business through GHX and Neoforma.
In its amended complaint MSC alleges that GE, under the direction of Mr.
Immelt, was the driving force behind, and controls, the agreement.
Following the filing of MSC’s complaint and amended complaint, the
defendants filed their motion for dismissal and a motion seeking the imposition of
sanctions under Fed. R. Civ. P. 11. The district court granted the defendants’
motion to dismiss, dismissing the federal claims on the merits for failure to state a
claim and declining to exercise supplemental jurisdiction over the state claims
once the federal claims had been dismissed. See 28 U.S.C. 1367(c)(3). Because
none of the defendants were competitors in the “market of ‘hospital supplies
delivered through e-commerce in North America,’” (II Appellant’s App. at 492),
the district court held that any agreement between a defendant and a competitor in
that market to refuse to lend money to MSC would be a vertical agreement to be
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analyzed under the “rule of reason.” Under that rule, MSC would have to
demonstrate that GE possessed market power in the relevant market in order to be
able to restrain trade unreasonably, and that the relevant markets in this case were
the commercial real estate market and the related market of potential financiers.
Because the defendants did not have market power in these two areas, the district
court dismissed the complaint. Although the district court ordered MSC to pay
defendants’ costs, it denied defendants’ motion for sanctions. Both parties
appeal.
II
A motion to dismiss under Fed. R. Civ. P. 12(b)(6) “admits all well-pleaded
facts in the complaint as distinguished from conclusory allegations.” Mitchell v.
King, 537 F.2d 385, 386 (10th Cir. 1976). Exhibits attached to a complaint are
properly treated as part of the pleadings for purposes of ruling on a motion to
dismiss. Indus. Constructors Corp. v. United States Bureau of Reclamation, 15
F.3d 963, 964-65 (10th Cir. 1994). Because the legal sufficiency of a complaint
is a question of law, we review de novo a Rule 12(b)(6) dismissal. Elliott Indus.
Ltd. P’ship v. BP Am. Prod. Co., 407 F.3d 1091, 1123 (10th Cir. 2005). In
reviewing the district court’s grant of a Rule 12(b)(6) motion to dismiss,
all well-pleaded factual allegations in the amended complaint are
accepted as true and viewed in the light most favorable to the
nonmoving party. A 12(b)(6) motion should not be granted unless it
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appears beyond a doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief.
Sutton v. Utah State Sch. for Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999)
(quotations and citations omitted).
A
In its appeal, MSC brought claims under the first two sections of the
Sherman Act.
The Sherman Act contains a basic distinction between concerted and
independent action. The conduct of a single firm is governed by § 2
alone and is unlawful only when it threatens actual monopolization.
It is not enough that a single firm appears to “restrain trade”
unreasonably, for even a vigorous competitor may leave that
impression.
....
Section 1 of the Sherman Act, in contrast, reaches unreasonable
restraints of trade effected by a “contract, combination . . . or
conspiracy” between separate entities. It does not reach conduct that
is wholly unilateral. Concerted activity subject to § 1 is judged more
sternly than unilateral activity under § 2.
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767-68 (1984)
(quotations, citations, and footnotes omitted).
MSC alleges that GE, as a sole entity, monopolized or attempted to
monopolize the market of hospital supplies delivered though e-commerce in North
America. This claim appears to be the bedrock upon which MSC’s 15 U.S.C. § 2claims rest. MSC argues that a cartel was formed through an agreement or
conspiracy among GE and other separate entities such as GHX, Neoforma, and
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other hospital supply providers. MSC’s 15 U.S.C. § 1 claims rest on these
allegations. We examine MSC’s claim under 15 U.S.C. § 2 first. 2
1
Under the Sherman Act § 2, to state a claim for attempted monopolization,
a plaintiff must plead: “(1) relevant market (including geographic market and
relevant product market); (2) dangerous probability of success in monopolizing
the relevant market; (3) specific intent to monopolize; and (4) conduct in
furtherance of such an attempt.” TV Communications Network, Inc. v. Turner
Network Television, Inc., 964 F.2d 1022, 1025 (10th Cir. 1992) (quotation
omitted). To state a monopolization claim under § 2, a plaintiff must allege:
“(1) the possession of monopoly power in the relevant market and (2) the willful
acquisition or maintenance of that power as distinguished from growth or
development as a consequence of a superior product, business acumen, or historic
accident.” Id. (quotation omitted); Full Draw Prods. v. Easton Sports, Inc., 182
F.3d 745, 756 (10th Cir. 1999). The district court held that GE and its
subsidiaries do not compete in the relevant market of hospital supply e-commerce
in North America and that GE could not, therefore, hold monopoly power, or be
2
While a conspiracy to monopolize is also forbidden under § 2, we restrict
our analysis under that section to GE’s actions as a single entity since we do not
read MSC’s complaint as alleging conspiracy to monopolize.
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attempting to obtain monopoly power, in that market. MSC presents nothing on
appeal that would convince us of district court error in this regard.
Although MSC often treats GHX and Neoforma in its filings as mere tools
of GE, evidently because of GE’s status as an initial shareholder of GHX and
GHX’s relationship with Neoforma, and alleges, among other things, that “[t]he
defendants have monopoly power in the relevant North American hospital supply
e-commerce market through their subsidiaries,” (I Appellant’s App. at 24), and
that GHX was the “alter ego” of GE, MSC presents no factual allegations to
support these conclusory statements. The bald allegations in the complaint that
GE alone controlled GHX are nothing more than conclusory allegations that GE
violated antitrust laws. See TV Communications, 964 F.2d at 1024 (“Conclusory
allegations that the defendant violated [antitrust] laws are insufficient.”). Not
only is the allegation that GE and GHX should be considered one and the same
company conclusory, it is inconsistent with the press releases attached to the
amended complaint showing that GHX is a limited liability company owned by a
number of other companies. 3 It is also inconsistent with MSC’s contention that
3
One of the press releases attached to MSC’s amended complaint and dated
before the time period at issue in this case states that “the privately held company
[GHX] was founded in March 2000 and its membership now includes more than
100 supplier members and more than 400 hospital members . . . [and that e]quity
members of GHX include [the five initial members discussed in footnote 1, supra,
and] Becton, Dickinson & Co.; Boston Scientific Corporation; C.R. Bard, Inc.;
(continued...)
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these companies were actually working together to restrict entry into the relevant
market. Since MSC makes no well-pleaded factual allegations that would support
its conclusory legal allegation that GHX was GE’s alter ego and should be held
responsible for GE’s actions, we see no reason to disturb the district court’s
conclusion that MSC failed to state a claim that GE had illegally monopolized or
attempted to monopolize the North American hospital supply e-commerce market.
2
MSC’s four claims under 15 U.S.C. § 1 also fail. To establish a violation
of the Sherman Act § 1, “the plaintiff must allege facts which show: the
defendant[s] entered a contract, combination or conspiracy that unreasonably
restrains trade in the relevant market.” Full Draw Prods., 182 F.3d at 756(quoting TV Communications, 964 F.2d at 1027). Here, MSC alleges that GE's
refusal to finance MSC’s purchase of the Blue Springs office building improperly
restrained trade in that it prevented MSC’s entry into the hospital supply
e-commerce market.
Even if MSC’s amended complaint were read to allege that defendants
agreed with GHX, a competitor of MSC, not to loan money to MSC, the district
court found that this would be considered a vertical agreement and subject to the
3
(...continued)
Guidant Corporation; Siemens Medical Solutions and Tyco International, Ltd.”
(I Appellant’s App. at 112.)
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rule of reason. “The rule of reason . . . requires “the fact finder [to] weigh[] all
of the circumstances of a case in deciding whether a restrictive practice should be
prohibited as imposing an unreasonable restraint on competition.” Diaz v. Farley,
215 F.3d 1175, 1182 (10th Cir. 2000) (citation omitted). MSC argues that the
district court should have read the amended complaint as alleging a horizontal
agreement to harm MSC and that such an agreement is a per se restraint of trade.
“Per se analysis is reserved for agreements or practices which because of their
pernicious effect on competition and lack of any redeeming virtue are
conclusively presumed to be unreasonable and therefore illegal without elaborate
inquiry as to the precise harm they have caused or the business excuse for their
use.” Id. (quotation omitted). MSC has two different theories as to why a
horizontal and not vertical agreement was alleged: (1) that the amended
complaint alleged that GE, a supplier, agreed with GHX, a customer, to injure
another customer, MSC, and that this type of agreement should be treated as a
horizontal restraint on trade, and (2) that the formation and operation of GHX
should be treated as a horizontal agreement between suppliers with the purpose
of, among other things, boycotting other hospital supply e-commerce
marketplaces including MSC, and that GE refused to extend financing to MSC
pursuant to this boycott.
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MSC’s argument fails because even if a horizontal agreement to boycott
MSC existed, GE’s failure to provide financing would not be considered an
antitrust violation. First, “unless the defendants in a group boycott situation
‘possess market power or exclusive access to an element essential to effective
competition, the conclusion that expulsion of the plaintiff is virtually always
likely to have an anticompetitive effect thereby invoking a per se analysis is not
warranted.’” Id. at 1182-83 (quoting Northwest Wholesale Stationers, Inc. v.
Pacific Stationery & Printing Co., 472 U.S. 284, 296 (1985)). “To demonstrate
market power a plaintiff may show evidence of either power to control prices or
the power to exclude competition.” Westman Comm’n Co. v. Hobart Int’l, Inc.,
796 F.2d 1216, 1225 n.3 (10th Cir. 1986) (quotations omitted). Second, even
where a per se violation of 15 U.S.C. § 1 is involved, a plaintiff must still show
that it suffered an antitrust injury. “The per se rule . . . does not indicate whether
a private plaintiff has suffered antitrust injury and thus whether he may recover
damages.” Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 341-42
(1990)
MSC’s allegation that GE’s refusal to loan it money prevented MSC from
entering the hospital supply e-commerce market and that it, therefore, suffered an
antitrust injury is untenable. First, MSC did not have to purchase an office
building to enter the hospital supply e-commerce market. In fact, its initial plan
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was to rent office space. Second, while like any new business it did need funds to
start operations, there was no requirement that it obtain these funds from GE. GE
does not have market power in the financial market. The potential
anti-competitive danger presented by an alleged agreement between major players
in any market is that those players will use the power they hold in that market to
stifle competition. An agreement between those same players to take actions in
markets where they are not major players and hold no market power poses no
danger because consumers in those markets have other options from which to
choose. Even if all the members of the alleged cartel agreed that GE should not
make any loans to MSC, such an agreement is not illegal in the absence of some
sort of power in the commercial loan market.
MSC’s attempt to catagorize the loan it sought as a “unique financial
instrument” that it could not replicate at any bank or in the venture funds markets
is unpersuasive. Any “uniqueness” of MSC’s loan needs was caused by MSC’s
weak financial position, not GE’s status as a lender.
3
MSC also raised one Robinson-Patman Act Claim, 15 U.S.C. § 13(e),
which was dismissed by the district court on the ground that the Act only bars
price discrimination in the sale of commodities, not discrimination in the supply
of a real estate lease or financing. MSC does not argue trial court error in regard
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to the dismissal of this claim, nor do we discern any error in that ruling or in the
district court’s dismissal of the state law claims without prejudice following
dismissal of all of the federal claims. 4
B
Defendants argue in their cross-appeal that the district court abused its
discretion by denying its motion for sanctions. Defendants allege that MSC’s
amended complaint violated the requirements of Fed. R. Civ. P. 11(b) that a
pleading not be “presented for any improper purpose, such as to harass or to cause
unnecessary delay or needless increase in the cost of litigation” and that “the
claims, defenses, and other legal contentions therein are warranted by existing
4
MSC’s appellate briefs also present a truncated argument that the amended
complaint raised a qui tam False Claims Act claim. MSC’s only support for this
argument is the fact that the amended complaint alleged, in its description of the
parties of the suit, that Jeffrey Immelt knew that the alleged conspiracy would
“caus[e] Medicare to be defrauded out of billions of dollars over paid in
artificially inflated claims for devices and procedures utilizing the cartel’s
supplies” and that the “decreased access to healthcare” caused by the conspiracy
“would cause employers and health insurers to reduce coverage and benefits to
the nation’s citizens leading to injury and death.” (I Appellant’s App. at 55-56.)
This claim was not properly plead in the complaint. The amended complaint
clearly set forth and numbered the claims that were being raised. The complaint
“must give the defendant fair notice of what the plaintiff's claim is and the
grounds upon which it rests.” Green Country Food Mkt., Inc. v. Bottling Group,
LLC, 371 F.3d 1275, 1279 (10th Cir. 2004). Neither the parties nor the district
court ever discussed the False Claims Act and it is unreasonable to argue that
defendants should have been on notice of such a claim.
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law or by a nonfrivolous argument for the extension, modification, or reversal of
existing law or the establishment of new law.” Fed. R. Civ. P. 11(b). If a court
determines that a party has violated Rule 11(b), a court may in its discretion
impose sanctions. Fed. R. Civ. P. 11(c). In making its decision whether Rule 11
sanctions are merited: “a district court must apply an objective standard; it must
determine whether a reasonable and competent attorney would believe in the merit
of an argument. In reviewing a district court’s decision to impose Rule 11
sanctions, we apply an abuse of discretion standard.” Dodd Ins. Servs., Inc. v.
Royal Ins. Co. of Am., 935 F.2d 1152, 1155 (10th Cir. 1991) (quotation omitted).
In its Memorandum and Order, the district court recognized that in an earlier
related case it had reminded MSC’s counsel of his obligations under Fed. R. Civ.
P. 11 and cautioned him to take greater care in the future in ensuring that claims
he brought on behalf of clients were supported by the law and the facts.
Nevertheless, the district court was unwilling to conclude that MSC’s Amended
Complaint was so meritless or otherwise frivolous as to warrant sanctions. The
court also pointed to the fact that it had not addressed MSC’s state law claims as
a factor in its decision.
Defendants are correct that Rule 11 sanctions can be imposed even when
some claims are not frivolous. Dodd Ins. Servs., Inc., 935 F.2d at 1158. It is
clear that at least MSC’s claims against Jeffrey Immelt in his individual capacity
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were frivolous in that no allegation was made that Immelt had any personal
connection to MSC’s alleged injury or even that he knew MSC existed.
Therefore, it was abuse of discretion not to find that portion of the amended
complaint frivolous. As for MSC’s other claims, the district court did not address
the state claims and, considering our deferential standard of review, we cannot
say that the district court abused its discretion in refusing to award sanctions
against MSC for bringing those claims.
III
Consequently, we AFFIRM the district court’s dismissal of MSC’s federal
claims on the merits and its dismissal of MSC’s state claims without prejudice.
We REVERSE the district court’s order denying defendants’ motion for Rule 11
sanctions and REMAND to the district court for a determination of the proper
sanction to be assessed for MSC’s inclusion of Jeffrey Immelt as a defendant in
his individual capacity.
Entered for the Court
Carlos F. Lucero
Circuit Judge
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