On March 22, 2016, the Sixth Circuit issued its opinion in The Medical Center at Elizabeth Place, LLC v. Atrium Health System, ruling 2-1 that four competing Ohio hospitals could not avoid liability under Section 1 of the Sherman Act simply because they had entered into a Joint Operating Agreement under which they purported to be single entity.1 In doing so, the court relied on the Supreme Court’s unanimous 2010 decision in American Needle, Inc. v. NFL,2 that concerted action by a professional sports league owned by separate entities with distinct economic interests was subject to Section 1.3 Based on its analysis of the defendant hospitals’ conduct, the Sixth Circuit determined that genuine issues of material fact remained as to whether they were a single entity, and reversed the District Court’s decision that had granted summary judgment for the defendants.4 

Background

In Copperweld Corp. v. Independence Tube Corp., the Supreme Court established the rule that a corporation and its wholly owned subsidiaries are “incapable of conspiring with each other for purposes of § 1 of the Sherman Act.”5 The Court reasoned that because a parent and wholly owned subsidiary have a “complete unity of interest,” Section 1’s prohibition of concerted action between separate actors does not apply.6

Thereafter, in American Needle, the Court excluded from Copperweld’s protection separately owned and controlled “legally distinct entities that have organized themselves under a single umbrella or into a structured joint venture.”7 The Supreme Court explained that, when a joint venture is accused of engaging in concerted action under Section 1of the Sherman Act, the inquiry does not turn simply on “whether the parties involved are legally distinct entities,”8 but rather, “whether the agreement joins together ‘independent centers of decisionmaking.’”9 Furthermore, the American Needle Court explained, “[s]ubstance, not form, should determine whether a[n] . . . entity is capable of conspiring under § 1.”10

In Elizabeth Place, the plaintiff was a twenty-six-bed physician-owned Dayton, Ohio hospital specializing in acute-care surgical services.11 It competed for patients with Premier Health Partners (“Premier”), a network of four independently-owned hospitals that had joined together under a joint operating agreement (“JOA”) in 1995.

In their summary judgment motion, the defendant hospitals alleged that Premier was a single entity and therefore incapable of engaging in an anticompetitive conspiracy in violation of §1.12 The District Court for the Southern District of Ohio held that the hospital network was a single entity and granted the defendants’ motion for summary judgment.13

On appeal, both the majority and dissenting Sixth Circuit judges agreed that the Premier network had attempted to eliminate the plaintiff hospital.14 However, the majority concluded that summary judgment was not warranted, because there was “a genuine issue of material fact as to whether the defendant hospitals’ network constitutes a single entity or concerted action among competitors for purposes of Section 1 of the Sherman Act.”15

The Sixth Circuit's Decision

The Sixth Circuit majority engaged in a factual inquiry into the history of Premier and the challenged behavior of its members, focusing on whether the hospitals operated separately or as a single unit in their downstream interactions with health insurers (as representatives of patients) and in their upstream interactions with physicians.16 In particular, the majority noted:

  • Despite the JOA’s emphasis on singularity, the “defendant hospitals remain separate legal entities, each with their own assets, filing their own tax returns and maintaining a separate corporate identity with its own CEO and Board of Directors”;17
  • “Defendant hospitals each executed separate managed-care contracts with each insurance company”;18
  • “[D]efendant hospitals compete with each other for physicians and patients”;19
  • And finally, “Defendants made statements to the public, among themselves and to a consultant hired by Premier, that demonstrate that they view themselves as separate entities.”20

The majority further examined the defendant hospitals’ business relationship within the network, emphasizing that if “the fact that potential competitors shared in profits or losses from a venture meant that the venture was immune from Section 1, then any cartel ‘could evade the antitrust laws simply by creating a ‘joint venture’ to serve as the exclusive seller of their competing products.’”21 The majority confirmed that, under American Needle, “it is not dispositive that the parties to the joint venture have organized and created a legally separate entity that centralizes certain management functions.”22 And quoting the Supreme Court’s decision, the majority discerned that the JOA appeared to have brought together “independent centers of decision making” that “remain separately controlled, potential competitors with economic interests that are distinct and thus are capable of concerted action.”23 On this basis, the majority held that, because a jury could reasonably conclude that the defendant hospitals’ actual conduct could be considered that of separate actors, summary judgment was not warranted.24

Dissent

The dissenting Judge agreed that American Needle calls for a substance-over-form analysis, but was of the view that the majority should have considered only the terms of the JOA in determining whether, under Copperweld, the Defendants are separate entities capable of engaging in concerted action under Section 1.25

The dissent declared, based on this limitation, that the question before the court was “whether, under the terms of their Joint Operating Agreement, defendant hospitals and their joint operating company, Premier Health Partners, share ‘a complete unity of interest’ and represent a single center of decision making.”26 For the dissenting judge, the JOA’s identification of “corporate unification as an overarching goal” was the “best evidence of how Premier and the defendant hospitals ‘actually operate.’”27 Further criticizing the majority for considering the defendant hospitals’ maintenance of their own legal identities and assets, the dissent again observed that the JOA was the real indicator of the “functional reality” of the defendant hospitals’ relationship.28

The dissenting panel member concluded that, although the “alleged conduct in this case, if proven at trial, is indeed anticompetitive,” the District Court was correct to grant summary judgment on the basis that the JOA establishes Defendants’ unity of interest, “[r]egardless of their intent to keep plaintiff out of the market.”29

Analysis

In American Needle, the Supreme Court held that Copperweld should not apply to joint ventures consisting of members who are separately owned and controlled and remain capable of competing.30 While the majority and dissent in the Sixth Circuit Elizabeth Place decision agreed on the applicability of the American Needle substance-over-form analysis, the dissent disregarded the defendants’ actual conduct, considering only the language of the JOA, while the majority undertook a substantive inquiry into the defendant hospitals’ conduct.31

It is clear that the Supreme Court in American Needle intended that the inquiry for a claim that defendants constitute a unitary entity involves a “functional consideration of how the parties involved in the alleged anticompetitive conduct actually operate.”32 As the Sixth Circuit majority explained, the language of an agreement does not itself establish that the parties in fact acted in accordance with the language.33 Refusing to inquire beyond the terms of the JOA could have the effect of allowing cartelists to escape liability.34

It seems clear in this case that, at a minimum, a genuine issue of material fact remained as to whether, in spite of the JOA, the defendant hospitals remained individual marketplace competitors.35 Accordingly, the Sixth Circuit correctly reversed the District Court’s decision granting summary judgment for the defendants.36 On remand, the District Court properly was instructed to consider “whether hospitals that had previously pursued their own interests separately, and that continue to seem to compete, combined unlawfully to restrain competition.”37