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Doctors Inc. v. Blue Cross of Greater Philadelphia

decided: December 28, 1973.



Van Dusen, Hunter and Garth, Circuit Judges.

Author: Hunter


HUNTER, Circuit Judge:

This is an antitrust action brought by Doctors, Inc. ("Doctors"), a non-profit hospital located in Philadelphia. The defendant-appellees are Blue Cross of Greater Philadelphia ("Blue Cross") and Hospital Survey Committee, Inc. ("HSC"), a private, non-profit corporation which serves as an advisory planning agency with respect to the coordination and planning of hospital and health services in Greater Philadelphia.

According to the complaint, Blue Cross dominates the third party hospital services payer market in Greater Philadelphia, purchasing more than fifty percent of all the hospital services sold in this area.*fn1 It is alleged that the effect of this dominance is to make it financially impossible for an area hospital to survive unless it is a Blue Cross member hospital since only these hospitals can be reimbursed for services provided to Blue Cross subscribers.

In 1972 Blue Cross sought to terminate the plaintiff's membership status. The complaint claims that this act was illegal, since it was taken pursuant to a scheme which is intended to control the area's hospital services market. It is alleged that this scheme violates Sections 1 and 2 of the Sherman Act, 15 U.S.C. ยงยง 1, 2 (1970), in the following ways: 1) because the two defendants have used the market power of Blue Cross to determine which hospital services will be provided in the area and which hospitals will provide them; 2) because they have entered into an illegal contract, combination and conspiracy, with others, to eliminate competition in the area's hospital services market; 3) because in furtherance of the overall scheme, Blue Cross (with HSC's cooperation) has illegally refused to deal with Doctors; and 4) because both defendants have induced an illegal boycott of the plaintiff hospital.

Each defendant responded to the complaint by filing a motion to dismiss for lack of subject matter jurisdiction. Their contention is that the complaint only alleges restraints upon intra-state trade or commerce and that the effects of these restraints upon interstate commerce are too remote to confer jurisdiction.*fn2 Defendant HSC later filed an alternate motion under F.R. C.P. 12(b)(6) to dismiss the complaint for failure to state a claim upon which relief can be granted. The thrust of this motion is that HSC could not have been a co-conspirator with Blue Cross since it is entirely independent of that organization and performs purely advisory services for it. It also argues that HSC's activities are not "trade or commerce" as those terms are used in Sections 1 and 2 of the Sherman Act.

The district court decision dealt solely with the motions to dismiss for lack of subject matter jurisdiction. It found that the interstate commerce allegations of the complaint were insufficient to confer jurisdiction and dismissed the action. This ruling is the primary question on appeal. In addition, defendant HSC argues that if we find for the appellant on this issue, we should still affirm the dismissal of the complaint with regard to it on the basis of their alternate motion to dismiss. We have concluded that the interstate commerce allegations of the complaint are sufficient to confer subject matter jurisdiction. In addition, we have decided that we cannot affirm on the alternative basis put forward by HSC. As a result, we reverse the dismissal of the complaint as to both defendants.


In order for the interstate commerce allegations of a Sherman Act complaint to be jurisdictionally sound, they must allege either 1) activities that are in the flow of interstate commerce, or 2) activities which though occurring purely on a local level substantially affect interstate commerce. See, e.g., Rasmussen v. American Dairy Ass'n., 472 F.2d 517, 522 (9th Cir. 1972); Las Vegas Merchant v. Plumbers Ass'n. v. United States, 210 F.2d 732, 739 n.3 (9th Cir. 1954); ABA ANTITRUST SECTION, ANTITRUST DEVELOPMENTS 1955-1968, at 39 (1968). In this case, the complaint and supporting affidavit have alleged numerous facts, which, it is claimed, established that the activities involved here meet both criteria, that is, they are in interstate commerce and substantially affect it as well.*fn3 Naturally, when considering the motions to dismiss which are in issue here, these factual allegations are assumed to be true, since the motions were interposed prior to the filing of responsive pleadings by the defendants. United States v. New Wrinkle, 342 U.S. 371, 373, 376, 96 L. Ed. 417, 72 S. Ct. 350 (1952); see Walker v. Food Machinery, 382 U.S. 172, 174-75, 15 L. Ed. 2d 247, 86 S. Ct. 347 (1965).*fn3a

We have made no attempt to judge the adequacy of every one of the plaintiff's allegations on the interstate commerce issue since jurisdiction is established if any one of them satisfies either of the criteria for interstate commerce. We believe that under the existing precedents, plaintiff's factual allegations with regard to the effect upon the flow of out-of-state supplies, to Doctors and to other hospitals in the Greater Philadelphia area, are sufficient to establish that the alleged activities of Blue Cross and HSC substantially affect interstate commerce and therefore to establish jurisdiction.

The defendants are accused of using various illegal means to regulate and limit competition in hospital services in the Greater Philadelphia area. The necessary effect of these activities, according to the complaint, will be to close down Doctors Hospital and to close down or limit the operations of other area hospitals as well. As a result, it appears evident that the volume of supplies which are allegedly purchased by Doctors from companies located outside Pennsylvania each year ($233,430 in 1972) will be affected by the alleged activities. Moreover, the complaint alleges that Doctors activities are typical of those hospitals supplying hospital and health services throughout the United States. As a result, we must assume that like volume of out-of-state supplies are purchased by the approximately 100 other hospitals located in the Greater Philadelphia area. Since the overall scheme alleged in this complaint is directed at them also, this interstate commerce will be affected as well.

The key question in the case then is whether these clear "effects" on interstate commerce, caused by the activities alleged, are "substantial" enough to confer jurisdiction. Because this is an issue which involves many variables, no single, satisfactory test emerges from the precedent. When courts do speak in terms of a test, the formulations used are, of necessity, so broad and generalized that instead of providing a guide to the solution of the problem they do no more than restate the issue.*fn4 In reality, they are not tests at all. We believe that a more accurate appraisal of the question is made by courts which concede that the issue requires "a practical, case-by-case economic judgment, not a conclusion derived from application of abstract or mechanistic formulae." Rasmussen v. American Dairy Ass'n., 472 F.2d 517, 523 (9th Cir. 1972); see Mandeville Island ...

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