On August 18, the Second Circuit Court of Appeals brought an end to a long-running antitrust case filed by the City of New York against health insurer EmblemHealth. The action stemmed from the merger of two New York-based insurers, Group Health Incorporated (“GHI”) and Health Insurance Plan of New York (“HIP”), which joined together in 2005 to create EmblemHealth.
In November of 2006, shortly before GHI and HIP were set to consummate their merger -- federal and state antitrust regulators already having granted approval of the transaction -- the City of New York filed an action seeking to derail the merger. The City alleged, that because GHI and HIP covered the vast majority of the employees in the City’s health benefits program, the merger would substantially reduce competition and increase the City’s insurance premiums. The City moved for a temporary restraining order in the United States District Court for the Southern District of New York seeking to block the merger. The District Court, however, denied the City’s motion, stating that it had “substantial questions about the market definition that [the City] has adopted. It appears to be focused on what the City is paying for, and not so much on the market for insurance coverage.” The Court continued: “I think the products are the same, whether they’re offered to the City or they’re offered to a private large employer.”
Frequently, when a party challenging a merger fails to obtain injunctive relief to stop its consummation the challenge is discontinued. Despite losing its request for a temporary restraining order, however, the City choose to continue to litigate its case. After several years of discovery, the defendants moved for summary judgment on the City’s claims. The defendants argued that the market alleged in the City’s complaint was insufficient, because it was defined by the City’s insurance preferences and ignored all other insurance providers that compete for the City’s business. In May of 2010, the District Court granted the defendants’ motion for summary judgment and, at the same time, denied the City’s motion to amend its complaint to broaden its market definition allegations. The District Court reaffirmed the earlier decision that the market the City alleged in the complaint was insufficient, and held that the City’s motion to amend came too late – three years after the City had been put on notice of the insufficiency of its market allegations and after three years of discovery on its claims.
The City appealed the District Court ruling to the Second Circuit. The Second Circuit, however, affirmed the lower court decision in all respects. On the substantive claim, the Second Circuit echoed the District Court’s analysis, stating that “The market alleged in the City’s complaint ignores the competition existing among insurance providers for the City’s business, as well as the health insurance market for other large employers in the region.” The Court also noted that “The City does not allege any factor that would prevent insurance companies other than those it selects for the health benefits program from proposing competitive products should the merged firm raise its premiums to supracompetitive prices.” Finally, the Court simply noted that “a single purchaser’s preferences cannot define a market,” citing its earlier decision in Hack v. President and Fellows of Yale College, 237 F.3d 81 (2d Cir. 2000) abrogated on other grounds, Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002).
The City fared no better on the amendment issue. While the Second Circuit acknowledged that, under Rule 15 of the Federal Rules of Civil Procedure, leave to amend is, in most cases, “freely granted,” that is not the case where the nonmovant demonstrates prejudice or bad faith. AEP Energy Servs. Gas Holding Co v. Bank of America, 626 F.3d 699 (2d Cir. 2010). Because the City was on notice of the Court’s concerns about the market definition issue for three years prior to seeking to amend the complaint, the Second Circuit held that it would be unduly prejudicial to the defendants to subject them to the additional discovery that would be required if the complaint were to be amended at this late date. Accordingly, the District Court decision was affirmed in all respects, finally bringing the City’s action to a close over five years after it had begun.