Colonial Medical Group, Inc. v. Catholic Health Care West ( 2011 )

FILED
NOT FOR PUBLICATION JUL 22 2011
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
COLONIAL MEDICAL GROUP, INC., a No. 10-16490
California corporation,
D.C. No. 3:09-cv-02192-MMC
Plaintiff - Appellant,
v. MEMORANDUM *
CATHOLIC HEALTH CARE WEST, a
California not-for-profit corporation, DBA
Mercy Hospital; GOLDEN EMPIRE
MANAGEMENT CARE, A MEDICAL
GROUP, INC., a California corporation;
MANAGED CARE SYSTEMS, LP,
Defendants - Appellees.
Appeal from the United States District Court
for the Northern District of California
Maxine M. Chesney, Senior District Judge, Presiding
Argued and Submitted June 17, 2011
San Francisco, California
Before: BYBEE and MURGUIA, Circuit Judges, and SINGLETON, Senior
District Judge.**
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The Honorable James K. Singleton, Senior District Judge for the U.S.
District Court for Alaska, Anchorage, sitting by designation.
Plaintiff-Appellant Colonial Medical Group (“Colonial”) appeals the district
court’s dismissal of its antitrust claims under Federal Rule of Civil Procedure
12(b)(6). Colonial sued Defendants-Appellees Mercy Hospital and Golden Empire
Managed Care (“GEMCare”), alleging that their exclusive dealing arrangement
violated sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1–2. The
district court dismissed Colonial’s complaint on the grounds that it pled an
underinclusive market. We affirm.
We review de novo a district court’s dismissal under Rule 12(b)(6). Coal.
for ICANN Transparency, Inc. v. VeriSign, Inc., 611 F.3d 495, 501 (9th Cir. 2010).
“[A] plaintiff’s obligation to provide the grounds of his entitlement to relief
requires more than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007) (internal quotation marks and alterations omitted). Sections 1 and
2 of the Sherman Act require a plaintiff to plead a relevant product market affected
by the alleged anticompetitive conduct. See Allied Orthopedic Appliances Inc. v.
Tyco Health Care Grp. LP, 592 F.3d 991, 996, 998 (9th Cir. 2010). A properly
defined product market “includes the pool of goods or services that enjoy
reasonable interchangeability of use and cross-elasticity of demand.” Oltz v. St.
Peter’s Cmty. Hosp., 861 F.2d 1440, 1446 (9th Cir. 1988). An antitrust complaint
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can be dismissed if its market definition is “facially unsustainable.” See Newcal
Indus. v. Ikon Office Solution, 513 F.3d 1038, 1045 (9th Cir. 2008).
Colonial’s complaint defines the relevant market as “healthcare providers in
the business of providing medical services to prison inmates at secure or guarded
hospital facilities within [Central California].” In practical terms, Colonial has
complained that most prisoners in the Central California region are treated at
Mercy Hospital because it has a secure wing, and that GEMCare entered into a
favorable contract with Mercy. This arrangement is not the basis for an antitrust
suit. As the district court found, Colonial defined the market far too narrowly. The
district court concluded that this market is underinclusive because it did not
account for “medical services provided to persons who, for example, are inmates of
local jails or other locked facilities . . . .” We agree. Colonial’s market definition
fails to “encompass the product at issue as well as all economic substitutes for the
product.” Newcal, 513 F.3d at 1045 (citing Brown Shoe v. United States, 370 U.S.
294, 325 (1962)) (emphasis added). Although the complaint alleges facts
distinguishing the market for inmate health care from the general market for health
care, it does not explain, for example, why medical services for state and federal
prisoners are not interchangeable with services for other incarcerated individuals.
Colonial’s limitation of its proposed market to state and federal prison inmates
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would, if accepted, distort the subsequent determination of GEMCare’s market
power. Accordingly, the district court properly dismissed its claims under the
Sherman Act.
The district court also concluded that, in the alternative, Colonial’s
complaint failed to allege the other elements of its claims under either § 1 or § 2.
Because we conclude that its market definition is facially unsustainable, we do not
reach the questions of whether Colonial has met its burden of pleading with respect
to the other elements of its claims.
Finally, the parties acknowledge that the requirements for a claim under
California’s Cartwright Act are identical to those for a claim under the Sherman
Act. Accordingly, because we affirm the district court’s dismissal of Colonial’s
Sherman Act claims, we also affirm its dismissal of Colonial’s Cartwright Act
claims.
AFFIRMED.
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