Corporate & Securities Law

What Part of "No" Don't You Understand? Unequivocal Refusal to Deal Triggers Statute of Limitations

By Sheppard Mullin Richter Hampton, LLP

Little Rock Cardiology Clinic v. Baptist Health, 573 F. Supp. 2d 1125 (E.D. Ark., August 29, 2008).

Little Rock Cardiology Clinic (“LRCC”) is a professional association of cardiologists practicing medicine in Little Rock, Arkansas.  LRCC brought an action under Sections 1 and 2 of the Sherman Act against Baptist Health, a non-profit corporation that operates five hospitals in Arkansas, including Little Rock.  The complaint alleged that Baptist Health conspired with Arkansas Blue Cross and Blue Shield to restrain trade in, and to monopolize, the market for “cardiology services for privately insured patients in a 16 county area of central Arkansas.”  The complaint alleged that Baptist Health refused to deal with LRCC, and denied it and its members access to patients within the Baptist Health Network of Hospitals.

Baptist Health and the other defendants moved to dismiss a third amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) on the ground that the relevant market alleged was incoherent and could not form a basis for relief, as the Baptist Health organization did not consist of cardiologists, and did not practice cardiology.  As such, it was not a “member” of the relevant market in which it is alleged to have excluded LRCC from competition.

The court, however, found a shortcut in the application of the statute of limitations, pursuant to Section 4(B) of the Clayton Act, 15 U.S.C. § 15(b).  The court held that the statute of limitations had run, as it was triggered by the initial refusal to deal, and that later requests did not constitute additional and subsequent “overt acts” that could form the basis of a “continuing conspiracy” allegation.

The court discussed the origins of the continuing conspiracy doctrine as developed by the Supreme Court in Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481 (1968).  There, United Shoe began a program of leasing but not selling shoe equipment to its customers, as early as 1912.  Through the years, United Shoe continued to lease new and improved machinery to its customers.  Hanover Shoe filed suit in 1955.  The court rejected United Shoe’s argument that the Hanover Shoe claim was barred by the statute of limitations, and the Supreme Court held that each of the leases through the intervening years was an additional overt act, and that therefore, United Shoe was guilty of a “continuing conspiracy”.  The court distinguished Hanover Shoe in its discussion of Midwestern Machinery Corp. v. Northwest Airlines, 392 F. 3d 265 (8^th Cir. 2004).  In Midwestern Machinery Corp. the Court of Appeals for the Eighth Circuit drew the distinction between activity used as part of an unlawful policy to maintain a monopoly, and the passive implementation of a refusal to deal.  In a refusal to deal context, the court held:

“Existing competitors must act when a rival initiates anticompetitive policies that do not require additional anti-competitive action to implement”

because

“implementation is only a reaffirmation of the policies’ adoption, and the statute begins to run as soon as the competitor suffers injury.”

The court also cited Lomar Wholesale Grocery v. Dieter’s Gourmet Foods, Inc., 824 F. 2d 582 (8^th Cir. 1987) with approval.  In Lomar, the Eighth Circuit again addressed the issue of when a cause of action of a terminated distributor accrued, and held that the cause of action accrued when the termination first occurred, not on subsequent occasions when requests for reinstatement were denied.  Lomar at 586.  The court rejected the argument that the later denials of request for reinstatement were tantamount to new refusals to fill orders that have been placed subsequent to notice of termination.  The court stated that the refusal of a specific order may be a “fresh instance” of a refusal to deal, thus renewing the statute of limitations period, whereas declining a request for reinstatement as a distributor was “merely the abatable but unabated initial consequences” of conduct that occurred outside the limitations period, and that did not give rise to a new cause of action.  Id. at 586.

The Baptist Health court also held that plaintiffs did not meet the requirements of Twombly in alleging that Baptist Health had attempted to monopolize the market for insured cardiology services administered in hospitals, as it was not a member of such a relevant market.

The moral of the story for potential defendants – Don’t turn a simple, but unequivocal refusal into a continuing series of discussions that could be misinterpreted as an invitation for a new offer, or a renegotiation.  As the bumper sticker says:  “Just say “No”.”

Authored by:

Don T. Hibner, Jr.

(213) 617-4115

dhibner@sheppardmullin.com

Full post as published by Antitrust Blog Review on January 08, 2009 (boomark / email).