City of Fairfax v. Fairfax Hospital Association , 562 F.2d 280 ( 1977 )

WYZANSKI, Senior District Judge:

Eight plaintiffs — the City of Fairfax, Virginia, six physicians, and one oral surgeon — appeal from a summary judgment for three defendants — Fairfax Hospital Association (FHA), a private, nonprofit corporation operating Fairfax Hospital, Commonwealth Doctors Hospital, Inc. (CDH), a private corporation operated for profit, and the Industrial Development Authority of the County of Fairfax, Virginia (IDA).

The complaint alleged violations by defendants of Sections 1, 2, and 3 of the Sherman Act (15 U.S.C. §§ 1, 2, and 3), as well as a violation of Virginia state law said to be within the District Court’s pendent jurisdiction. Plaintiffs prayed for an injunction pursuant to Section 16 of the Clayton Act (15 U.S.C. § 26), but not for damages.

The substance of the claim was that there were in Fairfax County, Virginia only two hospitals — one operated by FHA, the other by CDH — and that, by an impending lease of the facilities of CDH to be made by an agency of the Commonwealth of Virginia, IDA, the defendants would be engaging in federal restraints of trade, monopolization, and contracts in restraint of trade.

Defendants’ answer raised three principal issues: whether there was such an effect on interstate commerce as to bring the complaint within the coverage of the Sherman Act; whether plaintiffs had standing to complain of defendants’ alleged violations of that act; and whether defendants came within the “state action” exemption from the antitrust statutes.

Following pre-trial discovery, each of the parties moved for summary judgment on the three aforesaid issues. In their arguments all parties took the position that only the issues of standing and of state action were ripe for summary judgment. However, the District Judge in colloquies with counsel drew attention to the interstate commerce issue, on the ground that “the Court has the duty to raise it itself, because that goes to the issue of jurisdiction.”

Then the District Judge found that interstate commerce was not sufficiently involved, and granted defendants’ motion for summary judgment on that ground, as well as on the grounds that plaintiffs lacked standing and that defendants were immunized by the doctrine of state action.

The facts so far revealed by pre-trial discovery may be briefly summarized.

The Commonwealth of Virginia administers the affairs of Fairfax County through the Fairfax Board of Supervisors. That Board in 1947 established as a public body a Health Center Commission as authorized by the 1946 “Hospital and Health Center Commission Act”, codified at Va.Code Ann. §§ 32-276, et seq., as amended (1976 Cum. Supp.). In 1955 that Commission fostered the creation of Fairfax Hospital Association, a private non-profit corporation, which still exists, and is an organization of private individuals who pay $5 each to become members.

FHA has operated for two decades Fair-fax Hospital, which now has 600 beds. The hospital facilities and the land on which they stand are leased to FHA by Fairfax County. The lease requires FHA to advise the county of its actions, submit before its adoption its budget to the county, and also to submit for comment important contracts before their execution; but, so far as now appears, the county has not a veto power, an amendment power, or any other coercive power of control. The lease provides that at its expiration the facilities become, and the land remains, the absolute property of the county.

The only acute care facility in Fairfax County other than FHA’s is operated by CDH, another hospital, founded in 1967, with 160 beds of which 131 are in use.

Both FHA and CDH buy from outside Virginia over 75% of their drugs and other supplies, amounting to approximately $10,-000,000 annually. Both hospitals derive approximately 60% of their gross revenues, or about $24,000,000 from Group Hospitalization, Inc. in the District of Columbia, Medicare, and Medicaid, and an additional $7,500,000 from insurance carriers outside Virginia.

In September 1974 FHA entered into an agreement of intent to purchase all of the CDH assets. Before the agreement no federal, state, or county governmental agency was formally notified, or asked to take any action; and none did act.

After the agreement of intent the parties approached the Fairfax County Board of Supervisors to assist in the take-over. The Board’s personnel recommended the use of an industrial development authority (IDA) to be created by the Board pursuant to the Virginia Industrial Development and Revenue Bond Act, codified at Va.Code Ann. §§ 15.1 — 1373-1399, as amended (1976 Cum. Supp.). They contemplated that such an IDA could purchase CDH and lease it to FHA, and that IDA could raise funds by issuing tax-exempt bonds, thus saving, over the term of the bonds, about $6,000,000 of the sums which otherwise would be required to meet the costs of conventional financing if FHA were to have been the purchaser of CDH and to have raised the funds by going directly to the financial markets.

Pursuant to that recommendation, the Board created an IDA, and, by an ordinance on October 28,1974, authorized and directed it to buy the facilities of CDH and lease them to FHA. On September 8, 1975 the Board approved the lease by IDA of the CDH facilities to FHA.

This led plaintiffs to file this civil antitrust action. In each of the only three counts of the complaint which are relevant to the present appeal the pleading is directed to the leasing of CDH by IDA to FHA. It is alleged that that leasing, according to count I, will eliminate competition between CDH and FHA, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, according to count II, will monopolize interstate commerce, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2, and, according to count III, will constitute a contract in restraint of trade, in violation of Section 3 of the Sherman Act, 15 U.S.C. § 3.

In the District Court plaintiffs sought, but were denied, a preliminary injunction prohibiting IDA from acquiring and leasing to FHA CDH’s assets, and barring IDA from issuing bonds to raise the funds to pay for the acquisition.

There followed pre-trial discovery and, thereafter, the already-described motions for summary judgment and judgment for defendants. Plaintiffs appealed to this Court.

Our sole appellate function is to decide whether the District Court properly entered a summary judgment upon the abbreviated record consequent upon the discovery. We shall not intimate what would be an appropriate judgment following a full trial.

With respect to the issue whether interstate commerce was sufficiently involved to give the District Court jurisdiction under the antitrust acts, the District Judge was probably misled by our decision in Hospital Bldg. Co. v. Trustees of Rex Hospital, 511 F.2d 678 (CA 4, 1975), which has subsequently been reversed, Hospital Bldg. Co. v. Trustees of Rex Hospital, 425 U.S. 738, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976). The Supreme Court’s ruling in that case makes it evident that it was an error for the District Judge summarily .to adjudge on the basis of the evidence then before it that there was not a sufficiently substantial effect on interstate commerce to give the court jurisdiction under the Sherman Act. Without anticipating what may be shown at a plenary trial, we merely note that the present record shows that sources outside Virginia furnished both of the hospitals here involved with such substantial supplies and revenues as to indicate that the cited Supreme Court case seems to govern.

Nor can we sustain the District Court’s summary judgment on the alternative ground that the record shows that at a plenary trial plaintiffs will not be able to prove that they have a standing to complain of defendants’ alleged violation of the antitrust laws.

Section 16 of the Clayton Act, as amended, 15 U.S.C. § 26, provides that “any person” is entitled to an injunction on general equitable principles “against threatened loss or damage by a violation of the antitrust laws.”

We do not need at this stage to consider what facts will finally be proved as to the effect that the lease by IDA of CDH facilities to FHA will have upon physicians practicing in Fairfax County, and upon the City of Fairfax which purports to speak for its inhabitants and which may pay directly or by reimbursement hospital bills. It is enough for us to say that we do not find that plaintiffs’ claims as to the adverse effects upon their direct pecuniary interests are so remote, speculative, and conjectural as to permit them to be disposed of by summary judgment. There must be opportunity to present full evidence as to whether there are adverse economic effects upon patients, doctors, and the city when, instead of having a choice between two local hospitals, the sick and their physicians are remitted to a Hobson’s choice. We leave the matter for further exploration at a plenary trial.

Next we consider defendants’ contention that they are immunized by the “state action” exemption to the antitrust laws.

Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943) was the first Supreme Court case to hold that Congress did not intend the Sherman Act to apply to “state action”. But, as subsequent cases, such as Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975) , and Cantor v. Detroit Edison Co., 428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141 (1976) , have taught us, the exemption judicially created by Parker v. Brown has a very limited application. The Supreme Court’s most recent case, Cantor v. Detroit Edison Co., 428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141 (1976), decided that a regulated utility could be found liable'under the antitrust laws for tying the sale of its electricity and its light bulbs pursuant to the provisions of a tariff approved by state officials. Five of the Justices held that private conduct was not exempted unless, at least, it was shown either that the state coercively commanded the private conduct, or that the state in the strictest sense of the term “regulated” the private conduct.— (This is not, of course, to say that such a showing is always by itself enough to qualify for the exemption. See Note on the decisions of The Supreme Court, 1975 Term, 50 Harv.L.Rev., p. 58 et seq., particularly subsection IIIA p. 229 et seq., covering Antitrust Law, and more specifically pp. 231— 232. As that note points out, some of the Justices indicated that Parker v. Brown requires much more to bring the exemption into play. Ibid, pp. 232-233.)

We do not find it advantageous at this stage of this case to set forth this intermediate appellate court’s view of the present scope of the “state action” exemption. It will suffice to say that the facts so far developed at bar (which have been summarized in our statement of the case) do not prove that the Commonwealth of Virginia compelled FHA to do anything, or that it in the strictest sense regulated the hospital. Without pausing, at this preliminary stage of the litigation, to set forth in extenso, the documentary and other evidence so far submitted, we first note that we are not now persuaded that with respect to FHA the roles of the State and its agencies went beyond those of a landlord, of an indirect financier, and of a public authority to which information as to budgets, proposed contracts, and other data had to be submitted. If it turns out that there is nothing else in the form of “state action”, the Commonwealth of Virginia has not commanded FHA to lease CDH from IDA, nor has the Commonwealth regulated FHA in such a way as to make applicable Parker v. Brown as interpreted by Cantor v. Detroit Edison Co.

But even if FHA does not enjoy a “state action” exemption from the antitrust laws, IDA contends that at least it, as a state agency, enjoys such an exemption. Much stress is laid on this contention, in the light of the complaint which, in each of the three counts under review, directs its fire at the act of IDA in leasing the CDH assets to FHA.

IDA particularly relies upon the Fairfax County Board of Supervisors’ action in enacting, on October 28, 1974, an ordinance creating IDA for the specific purposes of raising funds to acquire the CDH assets, and leasing CDH to FHA for operation for the county. The ordinance stated, inter alia, that:

“The Authority [IDA] is hereby authorized and directed to lease Commonwealth Doctors Hospital [CDH] to the Fairfax Hospital Association [FHA] on such terms and conditions as are mutually acceptable to the Authority, the Board of Supervisors and the Association.”

While, no doubt, IDA received a command, that command did not come from the legislature of Virginia. As we understand the prevailing opinion in Cantor v. Detroit Edison Co., a command from any lesser state body does not automatically satisfy the conditions precedent for invocation of the “state action” doctrine. The mere fact that a body is “a state agency for some limited purposes” does not make it an “antitrust shield that allows it to foster anticompetitive practices.” Goldfarb v. Virginia State Bar, 421 U.S. 773, 791, 95 S.Ct. 2004, 2015, 44 L.Ed.2d 572 (1975).

Far more important is the dominant fact that in the case at bar the evidence now before us does not warrant us in treating the particular October 28, 1974 ordinance of the Fairfax County Board of Supervisors as analogous to a legislative coercive command nor to a legislative regulation of private conduct. In context, the ordinance is merely a firm direction from the Board to its creature, IDA.

Such a direction within the executive branch of a state government does not create a basis for concluding that the state as such has compelled action which would otherwise be a violation of federal law. A Congressional Act may be interpreted to avoid conflicts with state legislatures but it would be anomalous to interpret a Congressional Act to avoid conflicts with county commissioners.

Finally, defendants, in support of the judgment below, present an issue not covered in its opinion by the District Court: whether, aside from state action immunity, the lease of CDH by IDA is such an exclusive agreement involving publicly owned or imbued property as not to fall within the federal antitrust laws.

We see nothing in this contention but a re-formulation of one aspect of the claimed exemption under the doctrine of “state action”. The facts so far developed preclude the contention for the very same reasons that they preclude other aspects of the doctrine. Up to now it has not been proven that the Commonwealth of Virginia coerced or, in the usual meaning of the term, regulated the conduct of FHA. The facts of the case as they now stand hardly differ from a case where a state buys from one private corporation property and leases it to another corporation which thereby monopolizes the market by controlling 100% of it.

Out of abundance of caution, we conclude by emphasizing that until there is a full record we do not express or imply any view on the ultimate merits of this case. It may be that when all the facts have been laid before the court it will appear that the Commonwealth of Virginia through Fairfax County is actually exercising complete control over the Fairfax County Hospital, and that every significant aspect of that hospital is operated as a state agency, — the Fair-fax Hospital Association being nothing more than a citizens’ advisory committee-which is required to follow, and is following, specific orders, and is turning over to the state any profits, if there are such. Under such circumstances it might be that the federal antitrust laws no more apply to the hospital than to any department of the government of the Commonwealth of Virginia. Nor do we know of any federal antitrust law that precludes a state from purchasing facilities in order to establish, state-wide or county-wide, a wholly public system of hospital care, even if that results in a monopoly. Such a situation would differ toto coéio from the use of state credit or leases to enable a wholly private hospital to acquire a monopoly. Until there has been a plenary trial we cannot know which, if either, of these hypotheses has application to this case.

Judgment for defendants reversed, with costs; further proceedings to be in accordance with this opinion.