“summary judgment is appropriate where appellants have no expert 22 witnesses or designated documents providing competent evidence from which a jury could fairly 23 estimate damages”
How later courts described this case
- “summary judgment is appropriate where appellants have no expert 22 witnesses or designated documents providing competent evidence from which a jury could fairly 23 estimate damages”
- similar elements for a tying claim under California’s Cartwright Act
- falling market share is “further evidence that there was no dangerous 19 probability of monopolization”
- “numerous cases hold that a market share of less than 50 3 percent is presumptively insufficient to establish market power”
Written by the judges who cited it.
The opinion
1
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8 UNITED STATES DISTRICT COURT
9 NORTHERN DISTRICT OF CALIFORNIA
10 San Francisco Division
11 DJENEBA SIDIBE, et al., Case No. 12-cv-04854-LB
12 Plaintiffs, ORDER GRANTING SUTTER’S
MOTION FOR SUMMARY JUDGMENT
13 v. FOR 2008 TO 2010 AND FOR THE § 2
CLAIMS AND OTHERWISE DENYING
14 SUTTER HEALTH, THE MOTION
15 Defendant. Re: ECF Nos. 838 and 838-1
16
17 INTRODUCTION
18 In this certified class action, the named plaintiffs — four persons who paid for health insurance
19 and two companies who paid for health insurance for their employees — challenge Sutter Health’s
20 allegedly anticompetitive practices as (1) unlawful tying and an unlawful course of conduct in
21 violation of the Sherman Antitrust Act § 1 and California’s Cartwright Act, (2) monopolization and
22 attempted monopolization in violation of the Sherman Act § 2, and (3) a violation of California’s
23 Unfair Competition Law (UCL). The plaintiffs allege that through its contracts with health plans,
24 Sutter uses its market power for inpatient services in seven Northern California markets (the Tying
25 Markets, where it is the only or dominant hospital) to force health plans in four other geographic
26 markets (the Tied Markets, where it faces competition from other providers) to include (in their
27 networks) Sutter’s inpatient services at hospitals in the Tied Markets, resulting in higher prices. The
1 Markets and the inability to change Sutter’s status as a preferred provider without Sutter’s permission
2 — as anticompetitive because the terms allegedly prevented health plans from steering their enrollees
3 away from high-cost Sutter hospitals to lower-priced providers. As a result, the plaintiffs allege,
4 health-plan enrollees (including the plaintiffs) pay higher premiums.1
5 Sutter moved for summary judgment. It contends that its contracts with the health plans did not
6 condition the purchase of any service on the purchase of any other service and instead gave
7 discounted rates to the plans for including Sutter’s tied hospitals in the plans’ networks. That in-
8 network status, it contends, justifies the lower rates because health plans incentivize members to
9 choose in-network hospitals by paying most or all in-network expenses (and few or no out-of-
10 network expenses). Volume discounting, Sutter asserts, is not anticompetitive conduct, and the
11 contract terms protected the benefit of the bargain. Sutter also contends that there is no evidence
12 that it willfully maintained monopoly power in the Tying Markets or that there is a dangerous
13 probability of monopolization in the Tied Markets. Finally, it contends that it is entitled to summary
14 judgment on claims for 2008 to 2010 because the plaintiffs did not show class-wide damages.2
15 Triable issues of material fact preclude summary judgment on the Sherman Act § 1 and the
16 Cartwright Act claims. For one, there are fact disputes about whether Sutter’s power in the Tying
17 Market allowed it to force insurers to accept Sutter’s higher prices in the Tied Markets. The court
18 grants summary judgment on the Sherman Act § 2 claims because the plaintiffs did not produce
19 evidence showing disputed issues of material fact and on the 2008–2010 claims because the
20 plaintiffs did not show damages.
21 STATEMENT
22 The main issue is whether Sutter forces insurers — through its systemwide contracts with them
23 — to include (in their networks) inpatient services at Sutter hospitals in the Tied Markets as a
24 condition to access to inpatient services at Sutter hospitals in the Tying Markets (where Sutter is the
25
26
1 Fourth Am. Compl. (4AC) – ECF No. 204; Orders – ECF Nos. 714, 823 (certifying classes). Citations
27 refer to material in the Electronic Case File (ECF); pinpoint citations are to the ECF-generated page
numbers at the top of documents.
1 only or dominant hospital), resulting in higher prices. (In this motion, Sutter does not dispute that it
2 has power in the Tying Markets for the time periods relevant to the lawsuit.3)
3 Before 2002, insurers negotiated with Sutter hospitals individually when they assembled their
4 provider networks.4 Then, Sutter moved to systemwide contracts, forcing insurers to participate.5
5 For example, when one insurer (Anthem) pushed back, Sutter terminated its individual hospital
6 contracts with Anthem. Anthem then folded and entered into a systemwide contract.6
7 The systemwide contracts had allegedly anticompetitive provisions: (1) penalty non-par rates;
8 (2) anti-steering and anti-tiering terms; and (3) secrecy provisions about price and quality.
9 First, for Sutter hospitals that were out of network, the contracts imposed a rate (called a non-
10 participating provider rate or “non-par rate”) that generally was 95% of billed charges.7 The health
11 plans/insurers in this case objected to the provisions but ultimately acceded to them.8 The non-par
12 rates were higher than the insurers’ customary out-of-network rates.9 As a result, the health plans
13 could not build narrow networks that excluded Sutter because there were no costs saved in the
14 narrow network (compared to a network that included Sutter hospitals).10
15
16
3 Opp’n – ECF No. 861-1 at 12–13 (evidence regarding Sutter’s market power in the Tying Markets);
Reply – ECF No. 877-1 at 7 (challenging only whether there is a tie, not whether there is market power).
17 4 Joyner Decl., Ex. P75 to Cantor Decl. – ECF No. 862-3 at 4–5 (¶ 7).
18
5 Id. at 5 (¶ 8).
6 Sutter Health Mem. P27 to Cantor Decl. – ECF No. 791-4 at 153; Sutter 1/12/1998 Letter, P25 to id.
19 – ECF No. 791-4 at 116–18; Johnson Dep., P35 to id. – ECF No. 791-4 at 221–22.
20
7 See, e.g., 2015 Blue Shield Systemwide Agreement – ECF No. 887-2 at 13 (§ 2.01.2); Aetna 2016
Systemwide Agreement – ECF No. 887-3 at 12 (§ 2.01.2).
21 8 See, e.g., Brendt Dep., P138 to Cantor Decl. – ECF No. 863-6 at 25; Welsh Dep., P120 to id. – ECF
No. 863-1 at 305.
22
9 See, e.g., Barnes Decl., Ex. P74 to Cantor Decl. – ECF No. 862-2 at 6 (¶ 16) (Sutter’s rates “are
23 much higher than the ‘reasonable and customary’ rates or its contracted rates”); Melody Decl., Ex. P71
to id. – ECF No. 862-1 at 7 (¶ 18).
24 10 See, e.g., Miranda Dep., P141 to id. – ECF No. 863-6 at 66–67 (“the practical implication of [the
non-par rate] was for Blue Shield is that there were effectively two choices: You either included Sutter
25 in a product, which typically drove the cost of that product up, or you excluded Sutter from that
product, which, because of that 95 percent penalty, also drove the cost of that product up”); Joyner
26 Decl., Ex. P75 to id. – ECF No. 862-3 at 14 (¶ 40) (“payment of 95% of Sutter’s full billed charges
erases any possible benefit of excluding some higher-priced Sutter providers from a network”); De La
27 Torre Email, Ex. P148 to id. – ECF No. 863-7 at 68–69 (“When members land in the [non-
participating] Sutter ER we are exposed to 100% of billed charges . . . the result is that the savings
1 Second, the plaintiffs challenge contract terms that prevented the insurers from changing
2 Sutter’s status in the networks (by, for example, putting Sutter providers into less preferred tiers)
3 without Sutter’s consent:
4 Provider Participation in Company Benefit Programs/Networks. Sutter has negotiated this
Agreement, including the rates and terms applicable to Payers, on behalf of an integrated
5 network of Providers and based on the assumption that Payers will treat Providers,
individually and collectively, in the same manner that it treats all of their participating
6 providers. In order to assure that Sutter and the Providers continue to obtain the benefit of
the agreement that the Parties have negotiated and that the assumptions made by both
7
Parties continue to apply, the Parties agree that Providers shall participate in Payer’s
8 programs, Benefit Programs and participating provider networks . . . in accordance with
the following provisions:
9
2.06.1 No Change to Provider Status. During the term of this Agreement, Payer shall not
10 make any changes to any Provider’s participating status in Payer’s Benefit Programs and
Networks without Sutter’s prior written consent.
11
. . .
12 2.06.3 Equal Treatment. Payer shall treat Provider as an equal member of all of the
provider panels for all Benefit Programs and Networks in which that Provider participates
13
and shall make the services of each Provider equally available within the Benefit Programs
14 and Networks covered by this Agreement. In no event shall the Member be financially
penalized for accessing any Provider that participates in the Member’s Benefit Program
15 and Network.
2.06.4 Tiered Products, Restricted or Limited Networks. Providers have not agreed to
16
participate in any tiered products, plans, benefit designs, Benefit Programs or Networks
17 offered by a Payer that ranks participating Providers, and the rank directly affects the
Member’s cost share(s), the employer’s premium or both or restricts or limits network
18 access . . . . Further, Providers have not agreed to participate in any restricted or limited
network or products that would require Members (or those who pay for their coverage) to
19
pay more for the same (or substantially similar) product or benefit design to access all
20 Sutter Providers compared to a network that did not include all Providers. If a Payer wants
some or all Sutter Providers to participate in such New Plans, Company will provide prior
21 written notice to Sutter that explains in detail how the New Plan or new Network and
benefit design will work, including specifically the basis for determining the tiers or
22 establishing the Provider’s rank or inclusion in the restricted network. Company and Sutter
shall then meet and confer to determine which, if any, Providers will participate in such
23
New Plan or new Network, and the terms and conditions that will apply to their
24 participation. Notwithstanding the foregoing, nothing in this Agreement shall limit a
BlueCard Plan from being able to develop and/or market; Tiered Restricted or Limited
25 Networks or products within its own home service area, outside of California.11
26
27
11 2015 Blue Shield Systemwide Agreement – ECF No. 887-2 at 22 (§§ 2.06, 2.06.1, 2.06.3–2.06.4);
1 The health plans/insurers in this case objected to the provisions but ultimately acceded to
2 them.12 The provisions allegedly prevented the health plans from steering their enrollees away
3 from high-cost Sutter plans to lower-priced providers (called tiering) — through means such as
4 higher co-pays or deductibles — without Sutter’s permission.13 Sutter’s expert confirmed that
5 tiered networks (with lower-cost providers) can lower hospital prices.14 Sutter denied the health
6 plans’ requests to put Sutter hospitals in non-preferred tiers.15 When the health plans tried to
7 market tiered networks that did not include Sutter in the most-favored tier, Sutter threatened to
8 terminate the contracts and to initiate litigation.16
9 Third, the contracts blocked the health plans from disclosing Sutter’s prices to plan members
10 to inform their choice of provider.17 Blue Shield stated that “Sutter was restricting our ability to be
11 transparent with our customers regarding their relevant cost, quality, or clinical data.”18
12 The complaint has six counts: (1) unlawful tying in violation of Sherman Act § 1 and the
13 Cartwright Act (counts I and III); (2) an unlawful course of conduct in violation of Sherman Act §
14 1 and Cartwright Act (counts II and III); (3) monopolization and attempted monopolization in
15 violation of Sherman Act § 2 (counts IV and V); and (4) a violation of the UCL (count VI).19
16
17
18
12 See, e.g., Joyner Decl., Ex. P75 to Cantor Decl. – ECF No. 862-3 at 15–18 (¶¶ 45–55); Lundbye
19 Decl., Ex. P78 to Id. – ECF No. 862-6 at 6 (¶ 12), 8–9 (¶¶ 17–19).
13 Chipty Report, Ex. P2 to id. – ECF No. 791-3 at 313 (¶ 160), 317 (¶ 164).
20
14 Willig Dep., Ex. P154 to id. – ECF No. 863-7 at 334.
21 15 E.g. Brendt 10/22/2008 Email, Ex. P162 to id. – ECF No. 863-7 at 426; Vine 12/6/2001 Letter, Ex.
P167 to id. – ECF No. 863-7 at 466.
22
16 See, e.g., Joyner Decl., Ex. P75 to id. – ECF No. 862-3 at 15–18 (¶¶ 45–55) (describing Blue
23 Shield’s inability to put Sutter hospitals into lower tiers despite Sutter’s higher prices); Lundbye Decl.,
Ex. P78 to id. – ECF No. 862-6 at 8–9 (¶¶ 17–19) (UnitedHealthcare objected to Sutter’s anti-tiering
24 and equal treatment provisions because the provisions “prevented United from launching products it
otherwise would have launched”); Brendt 12/5/2003 Letter, P174 to id. – ECF No. 863-7 at 522–23
25 (excluding Sutter from a network without Sutter’s written consent could be “an anticipatory breach of
the Systemwide Amendment” and noting that “Sutter is hopeful that the parties can resolve this issue
26 without having to resort to the dispute resolution procedures”).
17 2015 Blue Shield Systemwide Agreement – ECF No. 887-2 at 38–40 (§ 6.06), 41–43 (§ 6.08).
27
18Joyner Decl., Ex. P75 to Cantor Decl. – ECF No. 862-3 at 21 (¶ 64).
1 After the court certified Rule 23(b)(2) and Rule 23(b)(3) classes, the plaintiffs moved for
2 partial summary judgment on the “distinct products” element of their tying claims under the
3 Sherman Act and Cartwright Act, and Sutter moved for summary judgment on the ground that its
4 contracts were not unlawful.20 The court held a hearing on October 22, 2020.21 The court granted
5 the plaintiffs’ unopposed partial summary-judgment motion and held that inpatient hospital
6 services at Sutter’s tying hospitals, on the one hand, and inpatient hospital services offered at
7 Sutter’s tied hospitals, on the other, are distinct or separate products under the Cartwright and
8 Sherman Acts.22 The court deferred issuing its ruling on Sutter’s summary-judgment motion until
9 the opt-out period ended to prevent one-way intervention and held — for the reasons stated on the
10 record — that Sutter had not waived the issue.23 The opt-out period ended March 8, 2021.24
11
12 SUMMARY-JUDGMENT STANDARD
13 The court must grant a motion for summary judgment if the movant shows that there is no
14 genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of
15 law. Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48 (1986). Material
16 facts are those that may affect the outcome of the case. Anderson, 477 U.S. at 248. A dispute about
17 a material fact is genuine if there is enough evidence for a reasonable jury to return a verdict for
18 the non-moving party. Id. at 248–49.
19 The party moving for summary judgment has the initial burden of informing the court of the
20 basis for the motion and identifying portions of the pleadings, depositions, answers to
21 interrogatories, admissions, or affidavits that demonstrate the absence of a triable issue of material
22
23
20 Mots. – ECF Nos. 791-1, 838-1.
24
21 Minute Entry – ECF No. 882.
25 22 Order – ECF No. 886.
26
23 Mot. – ECF No. 838-1 at 2 (raising the one-way intervention issue); Scharzschild v. Tse, 69 F.3d
293, 295 (9th Cir. 1995) (unless a defendant waives the issue by obtaining summary judgment before
27 class notice is sent, district courts should “not grant summary judgment on the merits of a class action
until the class has been properly certified and notified”).
1 fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). To meet its burden, “the moving party
2 must either produce evidence negating an essential element of the nonmoving party’s claim or
3 defense or show that the nonmoving party does not have enough evidence of an essential element
4 to carry its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210
5 F.3d 1099, 1102 (9th Cir. 2000); Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001)
6 (“When the nonmoving party has the burden of proof at trial, the moving party need only point out
7 ‘that there is an absence of evidence to support the nonmoving party’s case.’”) (quoting Celotex,
8 477 U.S. at 325).
9 If the moving party meets its initial burden, the burden shifts to the non-moving party to
10 produce evidence supporting its claims or defenses. Nissan Fire, 210 F.3d at 1103. The non-moving
11 party may not rest upon mere allegations or denials of the adverse party’s evidence but instead must
12 produce admissible evidence that shows there is a genuine issue of material fact for trial.
13 Devereaux, 263 F.3d at 1076. If the non-moving party does not produce evidence to show a genuine
14 issue of material fact, the moving party is entitled to summary judgment. Celotex, 477 U.S. at 323.
15 In ruling on a summary-judgment motion, inferences drawn from underlying facts are viewed in
16 the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio
17 Corp., 475 U.S. 574, 587 (1986).
18 ANALYSIS
19 The court grants summary judgment to Sutter for 2008 to 2010 because the plaintiffs’ failure
20 to prove damages means that they failed to establish injury. Weinberg v. Whatcom Cty., 241 F.3d
21 746, 751 (9th Cir. 2001) (“summary judgment is appropriate where appellants have no expert
22 witnesses or designated documents providing competent evidence from which a jury could fairly
23 estimate damages”) (cleaned up). The court denies summary judgment for the Sherman Act § 1
24 and Cartwright Act claims because disputes of material fact preclude summary judgment. The
25 court grants summary judgment on the Sherman Act § 2 claims because the plaintiffs did not
26 produce evidence showing disputes of material fact.
27 The next sections address (1) the Sherman Act § 1 and Cartwright Act tying claims (counts I
1 (3) the Sherman Act § 2 claims for monopolization and attempted monopolization (counts IV and
2 V), and (4) the UCL claim (count VI).
3
4 1. Tying Claims — Sherman Act § 1 and Cartwright Act (Counts I and III)
5 Sutter contends that it never conditioned access to inpatient services in the Tying Markets to the
6 health plans’ including inpatient services in the Tied Markets in their networks, and it never required
7 health plans to pay for one service as a condition for accessing another service. Instead, it gave
8 discounted rates to the health plans for including Sutter’s hospitals in their networks. A systemwide
9 contract is not necessarily unlawful. But the theory of liability is that Sutter used its market power for
10 inpatient services in the Tying Market to force the health plans to include (in their networks) Sutter
11 inpatient services in the Tied Markets and then had terms that prevented the health plans from
12 excluding Sutter tied hospitals from the networks or establishing lower-cost networks.25 Fact disputes
13 about how Sutter exercised its market power preclude summary judgment on the tying claims.
14 A tying arrangement occurs where “a seller with market power in one product market []
15 extend[s] its market power to a distinct product market.” Cascade Health Sols. v. PeaceHealth,
16 515 F.3d 883, 912 (9th Cir. 2008). “To accomplish this objective, the seller conditions the sale of
17 one product (the tying product) on the buyer’s purchase of a second product (the tied product).” Id.
18 “The essential characteristic of an invalid tying arrangement lies in the seller’s exploitation of its
19 control over the tying product to force the buyer into the purchase of a tied product that the buyer
20 either did not want at all, or might have preferred to purchase elsewhere on different terms.” Id. at
21 913–14 (cleaned up) (quoting Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12 (1984)).
22 The elements of a tying claim are as follows: “(1) [] the defendant tied together the sale of two
23 distinct products or services; (2) [] the defendant possesses enough economic power in the tying
24 product market to coerce its customers into purchasing the tied product; and (3) [] the tying
25 arrangement affects a not insubstantial volume of commerce in the tied product market.” Id. at 913
26
27
1 (cleaned up); Suburban Mobile Homes, Inc. v. AMFAC Communities, Inc., 101 Cal. App. 3d 532,
2 542 (1980) (similar elements for a tying claim under California’s Cartwright Act).26
3 Sutter contends that its systemwide contracts do not impose a tie because it does not condition
4 the sale of one product to a health plan’s purchase of another product. Instead, its contracts are its
5 mechanism for setting prices, giving discounted rates to a plan if it is in a network and non-
6 discounted non-par rates if it is not in a network.27 But the facts are disputed. First, the contracts
7 were systemwide and required health plans to include Sutter inpatient services in the Tied Markets.
8 There are fact disputes about whether this was merely Sutter’s setting its prices, or rather, whether
9 Sutter forced higher prices in the Tied Markets that were passed through to consumers through
10 insurance premiums. For example, the 95-percent non-par rates were higher than the insurers’
11 customary out-of-network rates. As a result, the health plans allegedly could not build narrow
12 networks (at a lower cost) that excluded Sutter because there was no cost advantage (compared to a
13 network that included Sutter hospitals). Second, the contracts prevented insurers from changing
14 Sutter’s status in the health plans’ networks (by, for example, putting Sutter providers into less
15 preferred tiers resulting in lower costs) without Sutter’s consent. There is evidence that Sutter
16 permitted health plans to exclude or tier Sutter hospitals.28 But there is evidence that it was
17 occasional, that Sutter denied requests to put Sutter hospitals in non-preferred tiers, and that when
18 health plans tried to market lower-cost tiered networks that did not include Sutter in the favored tier,
19 Sutter threatened to terminate the contracts and sue the plans. There is evidence too that the plans
20 objected to the provisions and ultimately acceded to them because they had no choice.
21 In sum, disputed facts about the combined effect of the contract provisions precludes summary
22 judgment. On similar facts, another court reached the same conclusion. UFCW & Emp. Benefit Tr.
23 v. Sutter Health, No. CGC-14-538451, 2019 WL 3856011, at *8–9 (Super. Ct. Cal. June 13, 2019).
24
25
26 The analysis applies under the Sherman Act and the Cartwright Act. Cty. of Tuolumne v. Sonora Cmty.
26 Hosp., 236 F.3d 1148, 1160 (9th Cir. 2001) (“The analysis under California’s antitrust law mirrors the
analysis under federal law because the Cartwright Act . . . was modeled after the Sherman Act.”).
27
27 Mot. – ECF No. 838-1 at 12–23; Reply – ECF No. 877-1 at 7–14.
1 2. Course-of-Conduct Claims — Sherman Act § 1 and Cartwright Act (Counts II–III)
2 The plaintiffs predicate the course-of-conduct claims on (1) the same systemwide contracts
3 that allegedly condition the insurers’ access to inpatient services in the Tying Markets to their
4 including inpatient services in the Tied Markets in their network and (2) the same contract terms
5 that allegedly result in higher prices: the 95-percent sub-par rate, the contractual impediments to
6 tiering, and the confidentiality provisions. Sutter contends that these are the same claims, “in
7 slightly different garb,” as the tying claims and challenges them on the grounds addressed in the
8 last section.29 For the reasons in the last section, disputes of fact preclude summary judgment on
9 these claims too. See id. (reaching the same conclusion).
10
11 3. Monopolization and Attempted Monopolization Claims — Sherman Act § 2 (Counts IV–V)
12 Sutter moved for summary judgment on the Sherman Act § 2 monopolization and attempted
13 monopolization on the ground that the plaintiffs alleged only conduct that does not raise a triable
14 issue on the Sherman Act § 1 claim. If a § 2 claim is predicated only on facts “insufficient to
15 withstand summary judgment” on a § 1 claim, then the § 2 claim does not survive a summary-
16 judgment motion either. Thomsen v. W. Elec. Co., 680 F.2d 1263, 1267 (9th Cir. 1982); Sicor Ltd.
17 v. Cetus Corp., 51 F.3d 848, 856 (9th Cir. 1995). Because disputed issues of fact preclude
18 summary judgment on the § 1 claims, the court denies summary judgment on this ground.
19 Sutter also moved for summary judgment on the monopolization claim (primarily because there
20 is no evidence of its willful maintenance of market power in the Tying Markets) and on the
21 attempted monopolization claim (primarily because there is no dangerous probability of
22 monopolization in the Tied Markets).30 The court grants summary judgment on both claims.
23
24
25
26
29 Mot. – ECF No. 838-1 at 23–30. The plaintiffs advance the same arguments to support liability for
all Sherman Act § 1 and Cartwright Act claims. Opp’n – ECF No. 861-1 at 24–34 (addressing claims
27 in one section). Sutter splits the analysis, at least in part, addressing tying claims (I and III) and course-
of-conduct claims (II and III) separately. Mot. – ECF No. 838-1 at 15–30.
1 3.1 Monopolization in Tying Markets
2 Sutter contends there is no evidence that it willfully acquired or maintained monopoly power
3 in the Tying Markets or that it had market power in four Tying Markets (the Antioch, Auburn,
4 Jackson, and Lakeport HSAs).31 Because the plaintiffs did not produce evidence showing disputed
5 issues of material fact that Sutter willfully acquired or maintained monopoly power, the court
6 grants summary judgment on the § 2 monopolization claim.
7 A § 2 monopolization claim has the following elements: “(1) the possession of monopoly power
8 in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished
9 from growth or development as a consequence of a superior product, business acumen, or historic
10 accident.” Eastman Kodak Co. v. Image Tech. Servs., Inc. 504 U.S. 451, 480 (1992).
11 Market power can be established through direct evidence, such as “evidence of restricted
12 output and supracompetitive prices, that is direct proof of the injury to competition which a
13 competitor with a market power may inflict, and thus, of the actual exercise of market power.”
14 Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1434 (9th Cir. 1995) (cleaned up). Market power
15 also can be can be shown circumstantially: the plaintiff must (1) define the relevant market, (2)
16 show that the defendant owns a dominant share of that market, and (3) show that there are
17 significant barriers to entry and show that existing competitors lack the capacity to increase their
18 output in the short run. Id. (citations omitted).
19 3.1.1 Willful Acquisition or Maintenance of Market Power
20 Sutter contends that there is no evidence that its contracting practices led to its acquiring or
21 maintaining market power in the Tying Markets. Instead, as the plaintiffs’ expert opines, the
22 undisputed facts establish that Sutter’s market power exists because nearly all hospitals are in rural
23 areas, and the operator of those hospitals automatically has some degree of market power.32
24 The plaintiffs respond (in a single paragraph) that “by forcing the [health plans] to accept its
25 anticompetitive contract provisions, Sutter has maintained its monopoly power over [inpatient
26
27
31 Mot. – ECF No. 831-1 at 31–34.
32 Id. at 31–32 (citing Chipty Report, Exs. D17 to Burnside Decl., ECF No. 838-4 at 97 (pt. VI), D18 at
1 hospital services] in its Tying Markets, particularly at Alta Bates in the Berkeley-Oakland
2 market.”33 The plaintiffs cite Sutter’s contention during the Alta Bates/Summit merger — that
3 health plans could steer away from Alta Bates to constrain prices — and contrast it with Sutter’s
4 subsequent imposition of the anti-steering/anti-tiering terms in its contracts that prevented health
5 plans from steering members away from the more expensive tied hospitals and Alta Bates (a tying
6 hospital) and launching more inexpensive, tiered networks that put Sutter in a less-preferred tier.34
7 The plaintiffs have the burden of proof at trial, and Sutter points to the absence of evidence to
8 support their case. Celotex, 477 U.S. at 325; Devereaux, 263 F.3d at 1076. The plaintiffs offer no
9 evidence for six of the seven Tying Markets (and the corresponding hospitals). For those markets
10 and hospitals, the evidence is undisputed that Sutter’s power exists because the markets are rural.
11 As to Alta Bates, the plaintiffs identify evidence — through their expert — that more steering
12 would have resulted in lower prices there.35 But that is not the equivalent of preventing other
13 hospitals from entering or expanding in the Berkeley-Oakland HSA (meaning, hospital-service
14 area) Tying Market. Instead, the theory of liability in the complaint is that Sutter used its market
15 power in the Tying Markets (where it faced no competition) to force health plans to include Sutter
16 hospitals in the Tied Markets (where it faced competition).
17 In sum, the plaintiffs have not produced evidence that shows disputed material facts about
18 Sutter’s willful maintenance of monopoly power. Devereaux, 263 F.3d at 1076. The court grants
19 summary judgment on the § 2 claims. Celotex, 477 U.S. at 323.
20 3.1.2 Monopoly Power in Four HSAs
21 Sutter contends that there is no evidence that Sutter has monopoly power in four Tying Markets
22 — the Antioch, Auburn, Jackson, and Lakeport HSAs — because its market shares are below the
23 65% threshold.36 “Courts generally require a 65% market share to establish prima facie case of
24
25
33 Opp’n – ECF No. 861-1 at 35.
26 34 Id. at 18 (citing Sutter and Alta Bates Am. Proposed Findings of Fact, Ex. P130 to Cantor Decl., –
ECF No. 863-3 at 395–96 (¶ 30), 409–10 (¶ 56), 411–12 (¶ 62)), 36.
27
35 Chipty Report, Ex. P2 to Cantor Decl. – ECF No. 791-3 at 358–60 (¶¶ –196–98).
1 market power.”37 Image Tech. Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1206 (9th Cir.
2 1997); see Rebel Oil, 51 F.3d at 1438 (“numerous cases hold that a market share of less than 50
3 percent is presumptively insufficient to establish market power”). Sutter relies on the plaintiffs’
4 expert. The plaintiffs define the relevant markets in terms of HSAs, and the plaintiffs’ expert uses
5 primary service areas, or PSAs, as a cross-check. The plaintiffs’ expert calculated the local Sutter
6 hospital’s discharges for all patients who live in the market as less than 50% for the four Tying
7 Markets: Antioch HSA (40%), Auburn HSA (37%), Jackson HSA (43%), and Lakeport HSA
8 (50%). She generally calculated even lower shares of the PSAs for the same hospitals.38
9 The plaintiffs respond that (1) Sutter’s monopoly power is shown by its high prices, (2) their
10 expert’s alternative calculations exceed the 65% threshold and show that Sutter has the dominant
11 share in each of the Tying Markets, and (3) the relevant markets are characterized by high barriers
12 to entry and expansion.39
13 First, the higher prices alone do not establish monopoly power. “[W]hen dealing with a
14 heterogeneous product or service, such as the full range of medical care, a reasonable finder of fact
15 cannot infer monopoly power just from higher prices.” Blue Cross & Blue Shield United v.
16 Marshfield Clinic., 65 F.3d 1406, 1411–12 (7th Cir. 1995). “To prove monopoly power directly,
17 supracompetitive pricing must be accompanied by restricted output.” Safeway, Inc. v. Abbott
18 Labs., 761 F. Supp. 2d 874, 887 (N.D. Cal. 2011). The plaintiffs did not produce evidence of
19 restricted output.
20 Second, the plaintiffs’ expert calculated market shares in the four Tying Markets that exceed
21 65%. Sutter contends that the calculations are incorrect because they are based on discharges for
22 patients “who live and stay to receive care in the HSA,” not the plaintiffs’ defined antitrust product
23 market of all inpatient health services “offered in the HSA.”40 But the definition of the relevant
24
25
37 Id.; Opp’n – ECF No. 861-1 at 36.
38 Mot. – ECF No. 838-1 at 32–33; Chipty Report, D17 to Burnside Decl. – ECF No. 838-4 at 95 (¶
26 100); Chipty Decl., D19 to Burnside Decl. – ECF No. 838-4 at 469 (Ex. 21).
27
39 Opp’n – ECF No. 861-1 at 36 (citing Chipty Report, P2 to Cantor Decl. – ECF No. 791-3 at 264–265).
40 Mot. – ECF No, 838-1 at 33–34; Reply – ECF No. 877-1 at 17; Chipty Report, D17 to Burnside
1 market generally is a question for the jury. Rebel Oil Co., 51 F.3d at 1435. The parties did not
2 address this point explicitly. Moreover, at the hearing, Sutter argued only that there was no evidence
3 that it willfully maintained monopoly power in the Tying Market and did not address its alleged
4 lack of monopoly power in the four HSAs.41 There is not an absence of evidence that allows
5 summary judgment. Id. The court denies the motion on this ground.
6 In sum, although there are material disputes about whether Sutter had monopoly power, the court
7 grants summary judgment on the § 2 monopolization claim because the plaintiffs have not shown that
8 disputed material facts exist about Sutter’s willful maintenance of the alleged monopoly power.
9 3.2 Attempted Monopolization in Tied Markets
10 Sutter contends that there is no evidence that there is a dangerous probability of its achieving
11 monopoly power in the Tied Markets, and thus there is no attempted monopolization, and its
12 market shares in two Tied Markets (Sacramento and Santa Rosa) in any event are too low.42 The
13 plaintiffs counter that Sutter’s intent to monopolize the Tied Markets can be inferred from its
14 systemwide contracts, the dangerous probability is shown by the higher prices that the health plans
15 pay for services in the Tied Markets, and Sutter’s market shares in Sacramento and Santa Rosa are
16 close to monopoly power.43
17 “To demonstrate attempted monopolization, a plaintiff must prove (1) that the defendant has
18 engaged in predatory or anticompetitive conduct with (2) specific intent to monopolize and (3) a
19 dangerous probability of achieving monopoly power.” Cascade Health, 515 F.3d at 893.
20 First, Sutter contends that its market share has not increased, despite conduct spanning 18
21 years.44 It cites authority for the proposition that there must be conduct that propels it from a non-
22 monopolistic share to a monopolistic share. Colorado Interstate Gas Co. v. Natural Gas Pipeline
23 Co. 885 F.2d 683, 693–94 (10th Cir. 1989); Rheumatology Diagnostics Lab., Inc. v. Aetna, Inc., No.
24
25
41 10/20/2020 Hr’g Tr. – ECF No. 899 at 47:2–5 (“[Sutter] dispute[s] that there is monopoly power in
all the hospitals. But [the court] do[esn’t] have to resolve that. The only question is: Did Sutter do
26 something to maintain the monopoly power?”).
42 Mot. – ECF No. 838-1 at 34–36.
27
43 Opp’n – ECF No. 861-1 at 37–38.
1 12-cv-05847-JST, 2013 WL 3242245, at *14 (N.D. Cal. June 25, 2013) (in dismissing a case under
2 Rule 12(b)(6), held that “Plaintiffs fail to allege that [the defendant] willfully acquired or
3 maintained its monopoly power, because there are no allegations regarding [its] position in the
4 relevant markets over time. For similar reasons, Plaintiffs have failed to allege that [the defendant’s]
5 allegedly anticompetitive conduct presents a ‘dangerous probability of success’ in monopolizing the
6 relevant markets”).
7 The court grants summary judgment. The plaintiffs do not cite any evidence — except for
8 higher prices in the Tied Markets — to support their contention of a dangerous probability of
9 monopolization. The higher prices may be, as the plaintiffs contend, “direct evidence of the
10 injurious exercise of market power.” Rebel Oil, 51 F.3d at 1434. But they say nothing about Sutter’s
11 position in the Tied Markets. The plaintiffs’ expert did not assess Sutter’s market share at all and
12 instead analyzed its share of patient discharges only in 2011.45 Inpatient discharges in San Francisco
13 and Modesto have decreased since 2002.46 The plaintiffs produce no evidence to counter the
14 undisputed evidence of either no increase in market share or falling market share. Horst v. Laidlaw
15 Waste Sys., Inc., 917 F. Supp. 739, 744–45 (D. Colo. 1996) (“there is no probability of success in
16 monopolizing the relevant market since [the defendant’s] market share actually decreased during
17 the relevant time period”); Advanced Health-Care Sys. v. Giles Mem’l Hosp., 846 F. Supp. 488, 497
18 n.17 (W.D. Va. 1994) (falling market share is “further evidence that there was no dangerous
19 probability of monopolization”). Thus, there are no disputed facts showing a dangerous probability
20 of Sutter’s achieving monopoly power in the Tied Markets. Rebel Oil, 51 F.3d at 1441.
21 Second, Sutter contends that — as the plaintiffs’ expert’s calculations show — its market shares
22 in Sacramento (29%) and Santa Rosa (26%) are presumptively insufficient because they are below
23 30%.47 “When the claim involves attempted monopolization, most cases hold that a market share of
24
25
45 Chipty Report, P2 to Cantor Decl. – ECF No. 791-3 at 357–58 (¶ 194) (calculating 64% share in the
26 San Francisco market and 51% in the Modesto market).
27
46 Gowrisankaran Report, Ex. D21 to Burnside Decl. – ECF No. 838-4 at 517 (¶ 212), 519–20 (¶ 214),
521 (¶ 221).
1 30 percent is presumptively insufficient to establish the power to control price.” Rebel Oil, 51 F.3d
2 || at 1438. But the plaintiffs’ expert also calculated market shares in the two Tied Markets that exceec
3 30%.** Sutter again contends that the calculations are incorrect because they are not based on the
4 || plaintiffs’ defined antitrust product market of all inpatient health services “offered in the □□□□□□□
5 || Again, the definition of the relevant market generally is a question for the jury. Rebel Oil Co., 51
6 || F.3d at 1435. The parties did not address this point explicitly. There is not an absence of evidence
7 || that allows summary judgment. /d. The court denies the motion on this ground.
8 x x x
9 In sum, the court grants summary judgment to Sutter on the § 2 claims (counts IV and V).
10
11 4. Unfair Competition Law (Count VI)
12 The UCL claim survives to the extent that the underlying claims survive.
CONCLUSION
3 15 The court denies summary judgment on the § 1 and Cartwright Act claims and grants summary
16 || judgment on the § 2 claims and the 2008-2010 claims.
i 17 This disposes of ECF Nos. 838 and 838-1.
18 IT IS SO ORDERED. LAE
19 Dated: March 9, 2021
LAUREL BEELER
20 United States Magistrate Judge
21
22
23
24
2 *8 Chipty Report, P2 to Cantor Decl. — ECF No. 791-3 at 357 (4 194) (2019 report calculating Sutter’s
26 share of inpatient health services for plaintiffs who live and stay to receive care in an HSA as 37% for
Sacramento and 35% for Santa Rosa); Chipty Decl., D19 to Burnside Decl. - ECF No. 838-4 at 469 (2(
27 declaration calculating Sutter’s system-discharge share as 35% for Sacramento and 31% for Santa Rosé
* Mot. — ECF No, 838-1 at 35-36; Reply — ECF No. 877-1 at 17; Chipty Report, D17 to Burnside
28 || Decl. — ECF No. 838-4 at 95 100); Chipty Decl., D19 to id. — ECF No. 838-4 at 469.