Jackson TN Hosp v. W TN Healthcare Inc , 414 F.3d 608 ( 2005 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 05a0292p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiff-Appellant, -
JACKSON, TENNESSEE HOSPITAL COMPANY, LLC,
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No. 04-5387
v.
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WEST TENNESSEE HEALTHCARE, INC., JACKSON- -
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MADISON COUNTY GENERAL HOSPITAL DISTRICT,
Defendants-Appellees. -
and BLUECROSS BLUESHIELD OF TENNESSEE, INC.,
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Appeal from the United States District Court
for the Western District of Tennessee at Jackson.
No. 03-01166—James D. Todd, Chief District Judge.
Argued: March 10, 2005
Decided and Filed: July 11, 2005
Before: BOGGS, Chief Judge; and COOK and BRIGHT, Circuit Judges.*
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COUNSEL
ARGUED: Harry M. Reasoner, VINSON & ELKINS, Houston, Texas, for Appellant. David Marx,
Jr., McDERMOTT, WILL & EMERY, Chicago, Illinois, Kevin D. McDonald, JONES DAY,
Washington, D.C., for Appellees. ON BRIEF: Harry M. Reasoner, Bruce A. Blefeld, VINSON
& ELKINS, Houston, Texas, Cannon F. Allen, ARMSTRONG ALLEN, Memphis, Tennessee,
Robert V. Redding, ARMSTRONG ALLEN, Jackson, Tennessee, for Appellant. David Marx, Jr.,
Joseph Fisher, Kevin M. Jones, McDERMOTT, WILL & EMERY, Chicago, Illinois, Kevin D.
McDonald, Julia C. Ambrose, JONES DAY, Washington, D.C., Jerry D. Kizer, Jr., RAINEY,
KIZER, REVIERE & BELL, Jackson, Tennessee, Max Shelton, HARRIS, SHELTON, DUNLAP,
COBB & RYDER, Memphis, Tennessee, for Appellees. Cathrine G. O’Sullivan, David Seidman,
UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., Victor J. Domen, Jr., OFFICE
OF THE ATTORNEY GENERAL, Nashville, Tennessee, Carlos C. Smith, MILLER & MARTIN,
Chattanooga, Tennessee, J. Robin Rogers, STRANG, FLETCHER, CARRIGER, WALKER,
HODGE & SMITH, Chattanooga, Tennessee, for Amici Curiae.
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The Honorable Myron H. Bright, United States Circuit Judge for the Eighth Circuit, sitting by designation.
1
No. 04-5387 Jackson, Tennessee Hospital Co. v. West Page 2
Tennessee Healthcare Inc., et al.
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OPINION
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BOGGS, Chief Judge. Although this is an antitrust case, it turns on the proper interpretation
of a Tennessee statute. The plaintiff alleges that the Jackson-Madison County General Hospital
District (the “Hospital District”), which is a political subdivision of the state of Tennessee, and the
other defendants have committed antitrust violations. The district court dismissed the suit, finding
that the state action doctrine protects the defendants from antitrust liability. The state action doctrine
protects subdivisions of a state government from antitrust liability when there is a clearly expressed
state policy authorizing anticompetitive acts. Town of Hallie v. City of Eau Claire, 471 U.S. 34, 40
(1985). The issue, then, is whether Tennessee law authorizes the Hospital District to engage in
anticompetitive actions. We conclude that it does, and therefore affirm.
I
The Hospital District 2
is a “private act hospital authority”1 (“hospital authority) created by
the Tennessee Legislature. The Hospital District was created in 1949 to own, manage, and operate
hospital facilities. The original rationale for the Hospital District was to serve indigent and low-
income patients, although it has since expanded into a full-service healthcare operation. The
Hospital District is a political subdivisions of the state of Tennessee.
The Tennessee Legislature recently reformed the statutory framework governing hospital
authorities. In Acts passed in 1995 and 1996 (“the Acts”), the legislature gave hospital authorities
far greater freedom of operation.3 The Acts granted hospital authorities broad powers, including the
ability to:
1
Tenn. Code Ann. § 7-57-602:
For the purpose of this part, “private act hospital authority” is any hospital owned or operated by one (1) or
more local governments or any hospital, hospital authority or hospital district created or authorized by a private
act of the general assembly.
2
Another named defendant, West Tennessee Healthcare, is a wholly-owned subsidiary of the Hospital District.
3
The stated purpose of the Acts was:
The general assembly hereby finds that the demand for hospital, medical and health care services is rapidly
changing as is the way and manner in which such services are purchased and delivered; that the market for
hospital and health care services is becoming increasingly competitive; and that the hospital and other health
care providers need flexibility to be able to respond to changing conditions by having the power to develop
efficient and cost-effective methods to provide for hospital, medical and health care needs. The general
assembly also finds that the increasing competition and changing conditions force hospitals and other health
care providers to develop market strategies and strategic plans to effectively compete. The general assembly
further finds that public hospitals in metropolitan areas are presently at a competitive disadvantage, and that
significant investments in the public assets of private act metropolitan hospital authorities could be jeopardized
by inability to compete with private hospitals because of legal constraints upon the scope of their operations
and limitations upon the power granted to public hospitals under existing law.
Tenn. Code Ann. § 7-57-501(b).
No. 04-5387 Jackson, Tennessee Hospital Co. v. West Page 3
Tennessee Healthcare Inc., et al.
• Borrow, issue bonds, or take on other forms of debt
• Own and operate subsidiaries such as outpatient departments, clinics, etc.
• Participate as a shareholder or partner in any lawful form of business
• Set fees to be charged to patients
• Hire and fire all employees, as well as set the terms of compensation
• Set rules governing physicians and other providers operating within the authority
• Set criteria for admission of patients
• Sue and be sued
• Invest any excess funds
• Acquire or improve any real property
Tenn. Code Ann. § 7-57-502(a)-(b). And, just in case anything was missed, the list ends with a
catch-all provision: the hospital authority shall “[h]ave and exercise all powers necessary or
convenient to effect any or all the purposes for which a private act metropolitan hospital authority
is organized.” Tenn. Code Ann. § 7-57-502(b)(10) (emphasis added). In short, after the Acts, a
hospital authority has broad powers to do almost anything plausibly related to its mission of
providing healthcare services.
At the heart of this dispute is the final provision in the “Powers Granted” section:
In the exercise of its powers, including, without limitation, the powers in this section,
any other provision of this part and of any other law a private act metropolitan
hospital authority may acquire, manage, lease, purchase, sell, contract for or
otherwise participate solely or with others in the ownership or operation of hospital,
medical or health program properties and facilities and properties, facilities, and
programs supporting or relating thereto of any kind and nature whatsoever and in any
form of ownership whenever the board of trustees in its discretion shall determine
it is consistent with the purposes and policies of this part or any private act
applicable to it, and may exercise such powers regardless of the competitive
consequences thereof.
Tenn. Code Ann. § 7-57-502(c) (emphasis added). The meaning of the last two lines is in dispute.
On July 6, 2003, Jackson, Tennessee Hospital Company (“THC”), which operates a private
hospital in Jackson-Madison County, filed suit in federal district court against the Hospital District,
West Tennessee Healthcare, and BlueCross BlueShield (“BlueCross”) alleging violations of state
and federal antitrust laws. THC alleges that the defendants engaged in various anticompetitive acts
to monopolize the local healthcare market. Among the acts alleged were exclusive contracting with
doctors and insurance companies, acquiring real estate around the private hospital to block
expansion, charging prices that were too low or too high, acquiring other healthcare providers, and
bundling its services. On February 27, 2004, the district court granted the defendants’ Fed. R. Civ.
P. 12(b)(6) motion to dismiss on the grounds that the state action doctrine barred antitrust liability.
No. 04-5387 Jackson, Tennessee Hospital Co. v. West Page 4
Tennessee Healthcare Inc., et al.
II
We review the district court’s grant of a Fed. R. Civ. P. 12(b)(6) motion to dismiss de novo.
AirTrans, Inc. v. Mead, 389 F.3d 594, 597 (6th Cir. 2004). All factual allegations are taken to be
true, and we draw all reasonable inferences in favor of the plaintiff. Ibid. “A Rule 12(b)(6) motion
should only be granted if it appears beyond doubt that the plaintiffs can prove no set of facts in
support of [their] claim which would entitle [them] to relief.” Ibid. (quotation marks omitted).
The defendants argue that the state action doctrine bars liability on any of the antitrust claims
raised by the plaintiff. BlueCross also argues, in the alternative, that it is protected from antitrust
liability by the Noerr-Pennington doctrine. Because we conclude that the state action doctrine bars
antitrust liability for all the defendants, including BlueCross, we do not reach this alternative
argument.
A
Under the so-called “state action doctrine,” it is well established that antitrust law does not
apply to states acting as sovereigns.4 Parker v. Brown, 317 U.S. 341 (1943). The Supreme Court
has determined that principles of federalism and state sovereignty provide blanket protection for
states, but political subdivisions of the states are not automatically immune from antitrust liability.
City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 370 (1991). Political
subdivisions of states are beyond the reach of the antitrust laws only when they act pursuant to a
“clearly expressed state policy.”5 Town of Hallie v. City of Eau Claire, 471 U.S. 34, 40 (1985). The
state legislature need not explicitly authorize anticompetitive conduct, as long as anticompetitive
effect would logically result from the authority granted by the state. Columbia, 499 U.S. at 372-73
(“[i]t is enough, we have held, if suppression of competition is the ‘foreseeable result’ of what the
statute authorizes”); Hallie, 471 U.S. at 41-42. Applying these principles, we recently held that
Michigan law implicitly authorized anticompetitive conduct when it empowered prisons to grant
public contracts for the provision of telephone services. Michigan Paytel Joint Venture v. City of
Detroit, 287 F.3d 527 (6th Cir. 2002). The issues of implied authority and “foreseeable”
anticompetitive effects are recurring ones in the case law, but, obviously, are relevant only when
there is no express authorization for anticompetitive conduct.
B
Defendants hold the trump in this case: plain statutory language. The crux is the following
sentence, which appears after the long list of specific and general powers granted by the Acts:
“[hospital authorities] may exercise such powers regardless of the competitive consequences
thereof.” Tenn. Code Ann. § 7-57-502(c) (emphasis added). The phrase “competitive
consequences” is commonly used in antitrust and competition law. See, e.g., Brooke Group Ltd. v.
Brown & Williamson Tobacco Corp., 509 U.S. 209, 251 (1993) (“[an element] of the violation is
the competitive consequences of predatory conduct.”); Texaco Inc. v. Hasbrouck, 496 U.S. 543, 557
(1990) (“[the Robinson-Patman Act] plainly reveals a concern with competitive consequences
4
The parties do not contest that the state action doctrine, if applicable, protects both the government entity –
the hospital authority – and the private parties with whom it contracts – BlueCross. This is sensible, as the protection
would be worthless in many cases if a plaintiff could simply sue private parties that contracted with the government.
5
After Hallie, the only requirement for sovereign immunity for political subdivisions is a clearly articulated state
policy. Id. at 46. At one time, there was also an “active state supervision requirement,” but in Hallie the Supreme Court
noted that this was primarily evidentiary and discarded this part of the test unless “regulation by a private party” is
involved. Ibid.
No. 04-5387 Jackson, Tennessee Hospital Co. v. West Page 5
Tennessee Healthcare Inc., et al.
. . . .”). We are not aware of any other context in which this phrase is commonly used, and the
plaintiff has not provided any authority suggesting an alternative meaning. The antitrust laws
protect competition and are concerned with competitive consequences; thus, permission to act
“regardless of competitive consequences” is most sensibly read as an authorization to act without
regard for the antitrust laws.
Although no Tennessee court has addressed this issue,6 the Tennessee Attorney General
reached the same conclusion in a 1995 Opinion. Around the time the 1995 Act was passed, the
Tennessee Attorney General opined that “[t]he exercise of the increased powers and privileges set
forth in the Act qualifies for state action immunity from the federal antitrust law.”7 In his analysis,
the Attorney General concluded that the Act “contemplates and expresses an intent to displace
competition.” In this litigation, the current Attorney General takes a different view, but we think
the original position, issued without the prospect of litigation, expresses the better view of the
language.
The primary response of plaintiff and its amici is to argue that the Tennessee legislature
intended to promote competition in the healthcare market, and favors competition generally. See
Tenn. Const. Art. I, § 22 (“That perpetuities and monopolies are contrary to the genius of a free
State, and shall not be allowed.”); Tenn. Code Ann. § 68-11-1625(b) (“It is the policy of the state
of Tennessee that: . . . The state’s health care resources should be developed to address the needs
of Tennesseans while encouraging competitive markets, economic efficiencies and the continued
development of the state’s health care industry”). The plaintiff also notes that the statement of
purpose for the 1995 Act expresses a desire to enable public hospitals to compete with private
hospitals. See supra n.3. In the face of a clear public policy favoring competition, plaintiff argues,
the “regardless of” phrase cannot be interpreted to grant antitrust immunity. Defendants and their
amici dispute whether Tennessee is in fact uniformly hostile to monopoly, and advance the view
that, although the legislature was somewhat concerned with competitive effects, it was determined
to advance the interests of hospital authorities even at the expense of competition.
More importantly, the plaintiff’s argument is at odds with a basic principle of interpretation:
the specific trumps the general. It is no doubt true that Tennessee prefers competition as a general
matter, but this is true of the federal government and probably every other state as well. Despite
this, our various federal and state governments regularly carve out exceptions. Indeed, the
appropriate level of competition in health care is a policy question that is regularly revisited at both
6
Both parties rely upon the opinion of the Tennessee Supreme Court in City of Cookeville ex rel. Cookeville
Regional Med. Ctr. v. Humphrey, 126 S.W.3d 897 (Tenn. 2004). The Cookeville court faced the issue of whether the
statute authorized a hospital authority to close its imaging department and then enter into an exclusive contract with a
private provider. The Tennessee Supreme Court stated:
[Tennessee statute] provides in pertinent part that a metropolitan hospital authority, in the exercise of its
powers, may “contract for or otherwise participate solely or with others” in furtherance of the hospital’s
operation. Additionally, the plain language of this statute permits private act metropolitan hospitals to enter into
a contract “regardless of the competitive consequences [of the contract].” Therefore, it is clear that private act
metropolitan hospital authorities are statutorily authorized to execute exclusive provider contracts.
Id. at 902 (citations omitted)(emphasis in original). Cookeville does confirm that the “regardless of” clause applies to
all the powers granted in § 7-57-502(a)-(b) and that those powers are quite broad. However, Cookeville did not involve
an antitrust claim, and is therefore of limited usefulness in determining whether the “regardless of” phrase was meant
to create an exemption from the antitrust laws.
7
This opinion was actually issued six days before the 1995 Act was passed (the then-draft language was the
same as the enacted version). It therefore serves a dual role as legislative history and as the opinion of the Tennessee
Attorney General at the time the bill was passed.
No. 04-5387 Jackson, Tennessee Hospital Co. v. West Page 6
Tennessee Healthcare Inc., et al.
the federal and state levels. Here, the language of the statute clearly indicates the desire to create
an exception to the antitrust laws, and the general preference for competition is therefore superseded.
When the plaintiff turns to the “regardless of” language, it is only to dismiss it as a “tag-line
phrase.” It argues that the language only authorizes hospital authorities to enter into contracts and
exercise their powers even if such actions disadvantage competing hospitals and doctors: the
“regardless of” phrase “thus recognized that the ‘competitive consequences’ of making public
hospitals more competitive was that individual competitors might be harmed. This type of harm,
however is the essence of competition.” Pl.’s Br. at 24-25. This reading, however, would render
the language hortatory. Obviously, any government entity’s actions will have an effect, sometimes
negative, on private actors. Moreover, the “regardless of” clause appears in a section of the Act
granting powers to hospital authorities, and this would be an odd place for the legislature to add a
“tag-line” phrase that simply notes a possible consequence of its enactment. Finally, the plaintiff
does not cite any examples or authority for this limited reading of the phrase “competitive
consequences,” and it is contrary to the common legal usage.
In sum, we read the legislative language and surrounding circumstances as demonstrating
that the Tennessee legislature invested public hospital corporations with very broad powers to ensure
their continued viability; authorized them to exercise many powers, such as contracting for services
and acquiring property, that could easily lead to anti-competitive consequences; and then
specifically stated that such activities could be undertaken without regard to the effects of such
activity on competition. This constitutes the authorization necessary to invoke the state action
doctrine.
III
For the foregoing reasons, we AFFIRM the judgment of the district court.