Gonzalez-Maldonado v. MMM Health Care, Inc. ( 2012 )

United States Court of Appeals
For the First Circuit
No. 11-1880
CARLOS P. GONZÁLEZ-MALDONADO; ANNETTE ACEVEDO-HERNÁNDEZ;
CONJUGAL PARTNERSHIP GONZÁLEZ-ACEVEDO,
Plaintiffs, Appellants,
v.
MMM HEALTHCARE, INC., a/k/a Medicare y Mucho Más, a/k/a MMM;
PMC MEDICARE CHOICE, INC., a/k/a PMC;
MEDICAL MANAGEMENT SERVICES ORGANIZATION, INC., a/k/a MSO,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Carmen Consuelo Cerezo, U.S. District Judge]
Before
Boudin, Hawkins* and Thompson,
Circuit Judges.
Nicolás Nogueras-Cartagena and Nogueras Law & Associates on
brief for appellants.
Harry Anduze-Montaño and José A. Morales-Boscio on brief for
appellees.
September 7, 2012
*
Of the Ninth Circuit, sitting by designation.
BOUDIN, Circuit Judge. Two physicians who contract with
HMOs refused to accept capitation payments in place of fee-for-
service payments, so the HMOs dropped the physicians' contracts.
The physicians brought constitutional and antitrust claims against
the companies, which the district court rejected on a motion to
dismiss. The physicians now appeal. We describe briefly the
underlying events alleged in the complaint.
Appellant Carlos P. González-Maldonado and his wife,
appellant Annette Acevedo-Hernández, are licensed physicians with
private medical offices in southeast Puerto Rico in Guayama and
Patillas, respectively. Acevedo is a primary care physician, and
Gonzalez is a specialist in family medicine. Appellants also
perform house calls and provide services at several geriatric
centers and hospitals in southeast Puerto Rico. Most of
appellants' patients are elderly and participate in Medicare Part
A and Part B.
Appellees MMM Healthcare, Inc. ("MMM") and PMC Medicare
Choice, Inc. ("PMC") are health management organizations, popularly
called HMOs, which in this instance provide health care to Puerto
Rican seniors enrolled in Medicare; and appellee Medical Management
Services Organization, Inc. ("MSO") provides management support to
health care providers including MMM and PMC. The Center for
Medicare and Medicaid Services ("CMS"), a federal agency, contracts
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with MMM and PMC to provide health care to Medicare enrollees, for
which CMS gives MMM and PMC a monthly payment for each enrollee.
In 2005 or earlier, the appellants entered into contracts
with MMM and PMC, under which appellants agreed to provide health
care services to MMM's and PMC's enrollees on a fee-for-services
basis, that is to say, payments based for each of the medical
services provided (e.g., annual physical; blood tests). MMM and
PMC provide over eighty percent of the health care coverage to
Medicare beneficiaries in southeast Puerto Rico, and over seventy-
five percent of appellants' income derived from invoices to MMM and
PMC for services to their enrollees.
MMM, PMC, and MSO are sister corporations, all three
being wholly owned subsidiaries of MMM Holdings, Inc., according to
an unsworn statement under penalty of perjury (pursuant to 28
U.S.C. § 1746 (2006)) issued by the secretary of the board of MMM
Holdings, Inc. The statement, which was appended to the appellees'
reply to the plaintiffs' opposition to motion to dismiss, is not
countered by any proffer or specific information from the
appellants.1
The current dispute stems from the appellees' decision to
change the form of payment for appellants, and presumably other
1
MMM Holdings Inc. appears to be a subsidiary of Aveta Inc.,
http://www.aveta.com/news/aveta-subsidiary-mso-of-puerto-rico-ann
ounces-acquisition-of-castellana-physician-services/ (June 1,
2012). This supplementary information is for context and is not
part of our rationale.
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doctors, from fee-for-services to a regime known as capitation,
under which appellants would receive a fixed sum per patient per
year. Around March 2008, the appellees gave the appellants a
proposed contract extension with MMM and PMC that would follow a
capitation payment system. MSO also contacted Gonzalez and asked
him to join MSO's health service provider group for southeast
Puerto Rico, which entailed conditions that included the capitation
payment system.
Gonzalez and Acevedo refused to sign the new contracts or
to join MSO; instead, they continued to bill the appellees on a
fee-for-services basis. In April 2008, Gonzalez received a letter
from MSO dated April 1, 2008, saying that Gonzalez and Acevedo
could no longer treat MMM and PMC enrollees at southeast Puerto
Rico hospitals unless they joined MSO. The appellees likewise
refused to honor invoices after April 1, 2008, on a fee-for-
services basis. MMM and PMC contacted their enrollees who Gonzalez
treated to inform them that he could no longer treat them at
hospitals under their plans. On September 30, 2008, MMM and PMC
notified appellants they would cancel their service provider
contracts effective December 31, 2009, because the appellants had
refused to agree to a capitation contract or to join MSO.
On March 2, 2010, appellants filed a complaint in the
district court setting forth claims under section 1 of the Sherman
Act, 15 U.S.C. § 1 (2006), various provisions of and regulations
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under the Social Security Act, 42 U.S.C. § 301 et seq. (2006), and
various provisions of Puerto Rico commonwealth law. In an amended
complaint, the appellants added claims for violation of procedural
due process and equal protection under the Fifth Amendment,
violation of First Amendment free assembly rights, and
monopolization under section 2 of the Sherman Act, 15 U.S.C. § 2.
The appellees filed a motion to dismiss, Fed. R. Civ. P.
12(b)(1) and 12(b)(6), and in a decision filed on January 25, 2011,
the district court dismissed all federal claims on the merits; the
Puerto Rico law claims were then dismissed for lack of subject
matter jurisdiction, there being no remaining federal claims to
support supplemental jurisdiction (nor any claim of diversity
jurisdiction). Appellants now appeal, limiting their brief to the
equal protection and free assembly claims and the claim under
section 1 of the Sherman Act.
We review the dismissal of the complaint de novo, Auto.
Indus. Pension Trust Fund v. Textron Inc., 682 F.3d 34, 37 (1st
Cir. 2012), assuming the factual allegations of the complaint to be
true, Grajales v. Puerto Rico Ports Authority, 682 F.3d 40, 44 (1st
Cir. 2012). The complaint "must contain sufficient factual matter,
accepted as true, to 'state a claim to relief that is plausible on
its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
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Constitutional Claims. The appellants make two
constitutional claims: that the appellees have discriminated
against non-MSO members in violation of the equal protection
component of the Fifth Amendment's Due Process Clause,2 and that
barring them from practicing at certain hospitals has abridged
their First Amendment right of free assembly. It is a condition of
the constitutional claims that the appellees' actions qualify as
governmental action.3
Most constitutional protections of rights and liberties
are aimed at governmental action and not private conduct.
Chemerinsky, Constitutional Law 519 (4th ed. 2011); e.g., U.S.
Const. Amend. I ("Congress shall make no law . . . abridging . . .
the right of the people peaceably to assemble") (emphasis added);
id. Amend. XIV, § 1 ("nor shall any State . . . deny to any person
within its jurisdiction the equal protection of the laws")
(emphasis added). The requirement of governmental action has a
2
The Equal Protection Clause of the Fourteenth Amendment
applies only to state governments, but the Due Process Clause of
the Fifth Amendment is treated as containing an equal protection
component that binds the federal government in the same way that
the Equal Protection Clause binds the states. See Adarand
Constructors, Inc. v. Pena, 515 U.S. 200, 217 (1995).
3
The phrase "state action" is ordinarily employed; but here it
is the association of the appellees with federal government action
that is in issue. The "governmental action" requirement applies to
Fifth Amendment equal protection claims just as it does to
Fourteenth Amendment claims. See S.F. Arts & Athletics, Inc. v.
U.S. Olympic Comm., 483 U.S. 522, 542 & n.22 (1987).
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long history in the case law. See Civil Rights Cases, 109 U.S. 3(1883).
Under limited circumstances, conduct by nominally private
actors can be characterized as governmental action for
constitutional purposes, e.g., Marsh v. Alabama, 326 U.S. 501(1946) (company town), although the conditions delineated in a
number of Supreme Court decisions over many years are not easily
reduced to a single formula. Principal categories in which private
actors may be deemed "governmental" and implicate a host of
constitutional protections include the following:
-where a private entity exercises "powers
traditionally exclusively reserved" to the
government, Jackson v. Metro. Edison Co., 419
U.S. 345, 352 (1974);
-where there is a "sufficiently close nexus"
between the challenged activity and government
regulation or support such that "it can be
said that the [government] is responsible for
the specific conduct of which the plaintiff
complains," Blum v. Yaretsky, 457 U.S. 991,
1004 (1982) (quoting Jackson, 419 U.S. at
351); and
-where government actors possess such
influence over a nominally private entity that
there exists "public entwinement in the
management and control" of the entity,
Brentwood Academy v. Tenn. Secondary Sch.
Athletic Ass'n, 531 U.S. 288, 297 (2001).
None of these exceptions applies in this case, nor does
any other cited to us or of which we are aware. Governments often
do provide health care, as in hospitals operated by the Department
of Veterans Affairs; but the public function exception applies to
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"traditionally exclusively" public functions. Jackson, 419 U.S. at
352 (emphasis added). Thus, running a utility company, id. at 353,
or running a school, Rendell-Baker v. Kohn, 457 U.S. 830, 842
(1982); Logiodice v. Trustees of Me. Cent. Inst., 296 F.3d 22, 26
(1st Cir. 2002), cert. denied, 537 U.S. 1107 (2003), do not
qualify. Neither does operating an HMO.
As for "nexus" and "support," appellants' amended
complaint contains vague allegations that the appellees contract
for and "manage federal funds," but neither government regulation
standing alone, Jackson, 419 U.S. at 350, nor government funding,
Rendell-Baker, 457 U.S. at 840, converts a private entity into an
arm of the state--absent proof that the government "has exercised
coercive power or has provided . . . significant encouragement" for
the challenged action. Blum, 457 U.S. at 1004.
It appears that the federal government reimburses MMM and
PMC on a capitation basis--thought to encourage preventive care and
other efficiencies--but MMM and PMC were free to compensate the
doctors with whom they contracted on any basis they liked. And, if
the federal government did require the companies to use capitation
for their own payments to doctors, the proper suit would be
normally against the government itself and rarely against those who
merely obeyed the government's order.
Finally, the Supreme Court's latest gloss on the
entwinement doctrine states that "public entwinement in the
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management and control" of a private entity can create a basis for
state action, Brentwood, 531 U.S. at 297 (emphasis added), but the
requisite entwinement exists only when government actors manage or
exercise control over a nominally private entity. Compare id. at
298 (eighty-four percent of voting members of association were
representatives of public schools) and Evans v. Newton, 382 U.S.
296, 301 (1966) (city maintained a park nominally owned by private
trustees) with Logiodice, 296 F.3d at 28 (no entwinement where
private school was run by private trustees rather than public
officials). In this case, there are no allegations that government
officials played any role in the management or control of any of
the appellee corporations.
Because we hold that the appellees are not governmental
actors, the appellants' constitutional claims necessarily fail, but
they would be unpromising even were appellees government actors.
While appellants claim that they were subject to discrimination for
refusing to join MSO and accept capitation payments, governmental
economic regulation, including a preference for capitation, would
be reviewed under the highly deferential rational basis standard,
R.I. Hospitality Ass'n v. City of Providence ex rel. Lombardi, 667
F.3d 17, 40 (1st Cir. 2011), and would hardly be deemed
"irrational."
Appellants also claim that their free assembly rights
were jeopardized by their exclusion from practicing at certain
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hospitals. But a doctor's inability to practice at a hospital as
a result of his unwillingness to accept the compensation offered by
the HMO that contracts with the hospital or patients has nothing to
do with the right to assemble.
Antitrust Claim. The appellants contend that the
appellees MMM, PMC, and MSO violated Sherman Act section 1, 15
U.S.C. § 1, which prohibits any "contract, combination . . . or
conspiracy, in restraint of trade," by engaging in a group boycott
against the appellants. A violation of section 1 may well occur
when a group of independent competing firms engage in a concerted
refusal to deal with a particular supplier, customer, or
competitor. E.g., Klor's, Inc. v. Broadway-Hale Stores, Inc., 359
U.S. 207, 212 (1959); Fashion Originators' Guild of Am. v. Fed.
Trade Comm'n, 312 U.S. 457, 465 (1941).
But it is patent in this case, as we explain hereafter,
that MMM, PMC, and MSO are not independent firms; rather, they are
wholly owned subsidiaries of the same parent company. In
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984),
the Supreme Court held that a corporation and its wholly owned
subsidiary "have a complete unity of interest," id. at 767-68, and
as a single economic unit cannot violate section 1's conspiracy
prohibition, id. at 771. The rationale and underlying policy apply
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with equal force to sister corporations that are wholly owned
subsidiaries of the same parent.4
American Needle, Inc. v. National Football League, 130 S.
Ct. 2201 (2010), cited by appellants, provides no support for their
position. American Needle followed conventional doctrine by
refusing to expand Copperweld to treat a sports league--an
agglomeration of independently owned and managed teams--as immune
from section 1 in the marketing of intellectual property. The
language to which appellants cite observed that the teams are
"independent centers of decisionmaking," id. at 2209 (quoting
Copperweld, 467 U.S. at 769), as if this also applied as well to
the sister companies in this case.
But a sports league is a "hybrid arrangement" in which
franchises have "distinct entrepreneurial interests" in some areas,
yet promote common interests of the league in others. Fraser v.
Major League Soccer, L.L.C., 284 F.3d 47, 57-58 (1st Cir.), cert.
denied, 537 U.S. 885 (2002). In American Needle, the Supreme Court
engaged in a functional analysis of whether NFL franchises compete
or share economic interests, finding that the franchises compete
when selling merchandise embodying their intellectual property and
4
Odishelidze v. Aetna Life & Cas. Co., 853 F.2d 21, 23 (1st
Cir. 1988); Siegel Transfer, Inc. v. Carrier Exp., Inc., 54 F.3d
1125, 1133 (3d Cir. 1995); Advanced Health-Care Servs., Inc. v.
Radford Cmty. Hosp., 910 F.2d 139, 146 (4th Cir. 1990); Hood v.
Tenneco Tex. Life Ins. Co., 739 F.2d 1012, 1015 (5th Cir. 1984);
Directory Sales Mgmt. Corp. v. Ohio Bell Tel. Co., 833 F.2d 606,
611 (6th Cir. 1987).
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so can violate section 1 by collaborating in the marketing of that
intellectual property. American Needle, 130 S. Ct. at 2206-07,
2212-13.
By contrast to the sports teams in American Needle, the
appellee subsidiaries in this case are wholly owned by the parent
and--whether or not certain decisions are delegated to
subsidiaries--have a total unity of economic interests. The
appellants' argument is that used in several antique precedents
once used as an excuse for applying section 1 to single economic
units, Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340
U.S. 211, 215 (1951); United States v. Yellow Cab Co., 332 U.S.
218, 227-28 (1947), precedents that were effectively overruled by
Copperweld, 467 U.S. at 773-74, 777.
Of course, a company or any other single economic unit
can violate section 2 of the Sherman Act, which prohibits attempts
to monopolize and monopolization; but this assumes the existence of
an economic market in which a monopoly exists or is potentially
within reach. See United States v. Grinnell Corp., 384 U.S. 563,
570 (1966); United States v. E.I. du Pont de Nemours & Co., 351
U.S. 377, 380 (1956). No economic market is sufficiently alleged
in the complaint here, cf. E. Food Servs., Inc. v. Pontifical
Catholic Univ. Servs. Ass'n, Inc., 357 F.3d 1, 9 (1st Cir. 2004)
(dismissing section 1 claim for failure to allege an economic
market); and anyway the appellants have abandoned their section 2
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claim by declining to brief it on this appeal. Rodriguez v.
Municipality of San Juan, 659 F.3d 168, 175 (1st Cir. 2011).
Although the legal analysis just set forth is beyond
serious dispute, the factual predicate--that the appellees are
wholly owned subsidiaries of a single corporate enterprise--is not
asserted in the complaint; rather, as noted, the appellees asserted
the fact that they were sister companies in an affidavit made under
penalty of perjury appended to their reply to the appellants'
opposition to their motion to dismiss.
Where the district court considers matters outside the
pleadings on a Rule 12(b)(6) motion to dismiss, the district court
must "treat[] [the motion] as one for summary judgment under Rule
56" and give all parties "a reasonable opportunity to present all
the material that is pertinent to the motion." Fed. R. Civ. P.
12(d). Appellants could have complained to the district court, or
even to us, that they had, or reasonably hoped to obtain, proof
that the appellees were not wholly owned subsidiaries but despite
Rule 12(d) were denied such an opportunity.
They did nothing of the kind in the district court and,
in this court, their brief instead questions the affidavit's
credibility on no serious ground and offers a vague statement that
the district court "contravene[d] the procedural rule that provides
that the facts averred at the Complaint should be deemed as true,"
although their complaint nowhere states that the appellees are
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independently owned. The brief does not even directly argue that
the district court erred in considering the affidavit.
To the extent that the appellants had any argument, it is
waived by "perfunctory" treatment, United States v. Zannino, 895
F.2d 1, 17 (1st Cir.), cert. denied, 494 U.S. 1082 (1990); and, in
any event, any formal error by the district court in taking
appellants' silence in the face of the affidavit as acquiescence
(qui tacet consentire videtur) was rendered harmless by their
failure to claim plausibly that appellants have or reasonably hope
to obtain proof to contradict the affidavit.
Affirmed.
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