Respondents Brief — Hospital Bldg. Co. v. Rex Hospital Trustees

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IN THE

Supreme Court of the United

OCTOBER TERM, 1975

No. 74-1452

HOSPITAL BUILDING COMPANY,

aa Petitioner,

TRUSTEES OF REX HOSPITAL, A CORPORATION,

JOSEPH BARNES, GEORGE STOCKBRIDGE, and

RICHARD URQUHART, JR.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Fourth Circuit

BRIEF FOR RESPONDENTS

Ray S. Boze

JOHN R. FORNACIARI

MAK W. PENNAK

Howrey & SIMON

1730 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

THOMAS W. STEED, JR.

ALLEN, STEED & PULLEN

P.O. Box 2058

Raleigh, North Carolina 27602

JOHN H. ANDERSON

SMITH, ANDERSON, BLOUNT & MITCHELL

P.O. Box 750

Raleigh, North Carolina 27602

LALLARD MOUNT

HOFFLER, MOUNT, WHITE & LONG

102 East Main Street

Durham, North Carolina 27701

Attorneys for Respondents

December 22, 1975

WiLson - Eras Prinrine Co.. Inc. - Re 7-6002 - WasHiIneToN, D. C. 20001

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QUESTION PRESENTED

STATEMENT OF THE CASE

A. The Facts Alleged by Petitioner

TABLE OF CONTENTS

1. The Parties

2. The Conduct Complained of

8. The Product and Geographic Markets in

Which the Alleged Conspiracy Occurred .......

B. Proceedings in the District Court and the Court

SUMMARY OF ARGUMENT

ARGUMENT

of Appeals

I. JURISDICTION UNDER THE SHERMAN

II.

ACT MAY BE INVOKED ONLY ON A CAS E-

BY-CASE BASIS, AND ONLY WHEN THE

CONDUCT COMPLAINED OF OCCURS IN

INTERSTATE COMMERCE OR, IF WHOLLY

INTRASTATE, SUBSTANTIALLY AND AD-

VERSELY AFFECTS INTERSTATE COM-

MERCE

THE CONDUCT COMPLAINED OF OC-

CURRED ONLY INTRASTATE AND NOT IN

THE FLOW OF INTERSTATE COMMERCE..

A. The Alleged Conspiracy Operated Wholly

Within the Raleigh Area and Upon the Pro-

vision of a Localized and Personalized Serv-

ice

B. The Use of Out-of-State Supplies and Receipt

of Insurance Payments Does Not Transform

the Provision of Hospital Services in Wake

County into Interstate Commerce

TABLE OF CONTENTS—Continued

III. THE CONDUCT COMPLAINED OF DID NOT

SUBSTANTIALLY AND ADVERSELY AF-

FECT INTERSTATE COMMERCE

A. The Effect, If Any, of the Alleged Conspiracy

on Interstate Commerce Resulted Indirectly

from the Alleged Prevented Expansion of

Mary Elizabeth Hospitaé !!!!!!

B. The Alleged Prevention of the Expansion of

Mary Elizabeth Hospital Did Not Substan-

tially and Adversely Affect Interstate Com-

Equipment

2. The Receipt of Insurance Payments from

Out-of-State Insurers and Medicare and

Medicaid

3. Communications Across State Lines

4. Out-of-State Financing and the Planned

Expansion of Mary Elizabeth Hospital

5. Travel of Out-of-State Patients and Other

Alleged Out-of-State Contacts

6. The Necessity for a Jurisdictional Line

Under the Sherman Act -..........................

IV. THE EN BANC DECISION CORRECTLY AF-

FIRMED DISMISSAL OF THE ACTION ON

THE AMENDED COMPLAINT ALLEGA-

ꝓꝓ—̃ ̃—y— —— '

„ —

Page

TABLE OF AUTHORITIES

Cases:

A. Cherney Disposal Co. v. Chicago & Suburban

Refuse Disposal Ass’n., 484 F.2d 751 (7th Cir.

1973), cert. denied, 414 U.S. 1131 (1974) ....... 28

Burke v. Ford, 389 U.S. 320 (1967) 12, 29

Butte Medical Properties, 168 N.L.R.B. 266

(1967) 18

Cotillion Club, Inc. v. Detroit Real Estate Board,

303 F. Supp. 850 (E.D. Mich. 1964) 27, 47, 50

Doctors, Inc. v. Blue Cross of Greater Philadelphia,

490 F.2d 48 (3d Cir. 1973) 17, 25, 28

Elizabeth Hospital, Inc. v. Richardson, 269 F.2d

167 (8th Cir.), cert. denied, 361 U.S. 884

EE ee 24, 41, 49, 51

Evans v. S. S. Kresge Co., 394 F. Supp. 817 (W. D.

Pa. 1975) 4°

Evanston Cab Co. v. City of Chicago, 325 F. 2d

907 (7th Cir. 1963), cert. denied, 377 U.S. 943

(1964) 19, 51

Federal Trade Commission v. Bunte Brothers, 312

U.S. 349 (1941) .... 21

Goldfarb v. Virginia State Bar, 421 U.S. 773

(1975) .... 11, 29, 30, 31, 32, 43

Greenville Publishing Co., Inc. v. Daily Reflector,

Inc., 496 F. 2d 391 (4th Cir. 1974) 12

Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186

— 12, 16, 19, 35, 38, 42, 50

Helvering v. Davis, 301 U.S. 619 (1937) = 45

Hotel Phillips, Inc. v. Journeymen Barbers, 195 F.

Supp. 664 (W.D. Mo. 1961), affd per curiam,

301 F. 2d 443 (8th Cir. 1962) 27, 49, 51

In the Matter of Certificate of Need for Aston

Park Hospital, 282 N.C. 542, 193 S.E.2d 729

(S.Ct. N.C., February 1973) 4, 37

John Kalin Funeral Home, Inc. v. Fultz, 313 F.

Supp. 435 (W.D. Wash. 1970), aff’d per curiam,

442 F. 2d 1342 — cert. denied, 404 U.S.

881 (1971) = 20, 30, 47

TABLE OF AUTHORITIES—Continued

Page

Katzenbach v. McClung, 379 U.S. 294 (1964) ....12, 14, 15

Lawson V. Woodmere, 218 F.2d 148 (4th Cir.

1954) 20

Lehrman v. Gulf Oil Corp., 464 F. 2d 26 (5th

Cir.) , cert. denied, 409 U.S. 1077 (1972)......... 28, 39, 40

Lieberthal v. North Country Lanes, Inc., 332 F.

2d 269 (2d Cir. 1964) 12, 27, 48, 51

Lorain Journal Co. v. United States, 342 U.S. 143

(1951) 40

Mandeville Island Farms, Ine. v. American Crystal

Sugar Co., 334 U.S. 219 (1948) 12, 17, 32

Marston v. Ann Arbor Property Managers (Man-

agement) Ass’n., 302 F. Supp. 1276 (E.D. Mich.

1969), aff'd per curiam, 422 F. 2d 836 (6th

Cir.), cert. denied, 399 U.S. 929 (1970)........... 12, 27, 40,

43, 51

Maryland v. Wirtz, 392 U.S. 183 (1968) .-13, 14, 17, 45, 51

Nankin Hospital v. Michigan Hospital Service, 361

F. Supp. 1199 (E.D. Mich. 1973) ne 24, 49

N.L.R.B. v. Fainblatt, 306 U.S. 601 (19389).............. 17

N.L.R.B. v. Inglewood Park Cemetery Ass’n., 355

F. 2d 448 (9th Cir. 1966) 20

N. L. R. B. v. Jones & Laughlin Steel Corp., 301 U.S.

1 —’—˙—., aoe 39, 45, 51

N.L.R.B. v. Pierce Brothers, 206 F.2d 569 (9th

Cir. 1953) — 20

Page v. Work, 290 F. 2d 323 (oth Cir.), cert. de-

nied, 368 U.S. 875 (1961) 26, 29, 40, 42

Perez v. United States, 402 U.S. 146 (1971 13

Polish National Alliance v. N. L. R. B., 322 U.S. 643

(1943) 15

Rasmussen v. American Dairy Ass’n., 472 F. 2d

517 (9th Cir. 1972), cert. denied, 412 U.S. 950

(1973) 17, 38, 42

Riggall v. Washington County Medical Society,

249 F. 2d 266 (8th Cir, 1957), cert. denied, 355

e = 24, 51

TABLE OF AUTHORITIES—Continued

Statutes:

Page

Robinson v. Lull, 145 F. Supp. 134 (N.D. III.

1956) 24, 51

Spears Free Clinic and Hospital for Poor Children

v. Cleere, 197 F.2d 125 (10th Cir. 1952) 24

Sun Valley Disposal Co. v. Silver State Disposal

Co., 420 F. 2d 341 (9th Cir. 196977 27, 30, 43

United States v. American Building Maintenance

Industries, 422 U.S. 271 (1975) 26, 38

United States v. American Society of Anesthesi-

ologists, Inc., Civil No. 75-4640 (S.D.N.Y. filed

Sept. 22, 1975) 46

United States v. Bensinger Co., 430 F. 2d 584 (8th

/ dd 12, 30

United States v. Darby, 312 U.S. 100 (1941)... 38

United States v. Employing Plasterers Ass’n., 347

U.S. 186 (1954) 39

United States v. Frankfort Distilleries, Inc., 324

U.S. 293 (1945) 28, 40

United States v. Oregon State Medical Society, 343

U.S. 326 (1952), ff, 95 F. Supp. 103 (D. Ore-

gon 1950) 11, 16, 23, 24, 42, 44, 45, 49, 50

United States v. South-Eastern Underwriters

Ass n., 322 U.S. 533 (1944) 28, 33, 34

United States v. Yellow Cab Co., 332 U.S. 218

(1947) 11, 16, 19, 26, 33, 39, 48, 49, 50, 51

Wickard v Filburn, 317 U.S. 111 (1942) 15

Wolf v. Jane Phillips Episcopal-Memorial Medical

Center, 513 F. 2d 684 (10th Cir. 1975) 51

Yellow Cab Co. of Nevada v. Cab Employers, Auto-

motive & Warehousemen, Local #881, 457 F. 2d

ER See 12, 27, 40, 51

Civil Rights Act 1964, Title II:

42 U.S.C. §§ 2000a-2000a-6 (19700) 13

TABLE OF AUTHORITIES—Continued

Clayton Act: Page

Section 4, 15 U.S.C. § 15 (1970) 3

Section 26, 15 U.S.C. § 16 (1970) 3

Constitution of the United States:

Article I, Section 8, Clause 3 2

Article I, Section 8, Clause 1 — 46, 50

Consumer Protection Act, Title II:

18 U.S.C. §§ 891 et seg. (1970) 13

Fair Labor Standards Act:

29 U.S.C. §§ 201 et seg. (1970) 13

Food Stamp Act of 1964, 7 U.S.C. §§ 2011 et seq.

(1970) 45

General Statutes of North Carolina:

Section 57.1 et seq. (Michie Replacement

1975) 44

Section 75.1 et seq. (Michie Replacement

1975) 50

Sections 90-289 et seq. 1971 Advance Legis-

lative Service to General Statutes of North

Carolina, Pamphlet No. 13, Repealed, Ses-

sion Laws 1973, c. 113 4

National Labor Relations Act:

29 U.S.C. § 151 et seg. (1970) 13, 15, 17, 18

29 U.S.C. § 152(6) (1970) 18, 20

ee 19, 20

Sherman Act:

Section 1, 15 U.S.C. 8 1 (1970) passim

Section 2, 15 U.S.C. § 2 (1970) passim

Social Security Act of 1935, 49 Stat. 620 (1935) 45

Social Security Act, Title XVIII (Medicare) :

42 U.S.C. § 1395 (1970) 45

VII

TABLE OF AUTHORITIES—Continued

42 U.S.C. §1395h (1970)

Page

42 U.S.C. § 1395h(a) (1970)

42 U.S.C. §1395u (1970)

Rules and Regulations:

Federal Rules of Civil Procedure:

Rule 12(b) (1)

Rule 12(b) (6)

Code of Federal Regulations:

20 C. F. R. § 405.1803 (a) (1975)

31 C. R. F. § 205.1 et seg. (1975

In THE

Supreme Court of the United States

OcToBER TERM, 1975

No. 74-1452

HOsPITAL BUILDING COMPANY,

Petitioner,

vs.

TRUSTEES OF R < HOSPITAL, A CORPORATION,

JOSEPH BARNES, GEORGE STOCKBRIDGE, and

RICHARD URQUHART, IR.,

Respondents.

On Writ of Certiorari te the United States

Court of Appeals for the Fourth Circuit

BRIEF FOR RESPONDENTS

This is a private antitrust action initiated by petitioner

alleging violations of Sections 1 and 2 of the Sherman

Act and seeking treble damages and injunctive relief.

The court below, sitting en banc, affirmed dismissal of

The sole question presented is whether the well pleaded

facts alleged in petitioner’s complaint, as amended, satisfy

the interstate commerce jurisdictional requirements of

Sections 1 and 2 of the Sherman Act.

Contrary to petitioner’s arguments (Br. at 16 and

20), this case does not present a question of the legis-

lative power of Congress under the Commerce Clause,

Article I, § 8, cl. 3, and affirmance of the result below

will in no way limit the legislative power of Congress

under the Commerce Clause. This case involves only a

determination as to the sufficiency of the specific facts

alleged in the complaint and amendment thereto, as meas-

ured against the well established standards for jurisdic-

tion under Sections 1 and 2 of the Sherman Act. (See

infra pp. 12-21.

STATEMENT OF THE CASE

A. The Facts Alleged by Petitioner

In its complaint, petitioner concludes that respondents

conspired to “fix, maintain and allocate” the number of

hospital beds in Raleigh, North Carolina, to “allocate

customers and submarkets” among themselves and to

“foreclose the market” against petitioner and prevent“

petitioner “from competing for an expanded share” of

hospital services in Raleigh, North Carolina. (App. at

15.)* The allegations of fact in support of the conclu-

sionary complaint assertions relate to respondents’ al-

leged conspiracy to oppose petitioner’s application to ex-

pand the facilities of Mary Elizabeth Hospital in Raleigh,

the appeal by certain co-conspirators from the order

granting petitioner’s application for expansion, and re-

spondents’ alleged attempts to create publicity adverse

to petitioner in Wake County, North Carolina. In an-

swer to questions from the district court during oral

Brief of petitioner is referred to herein as “Br.”

The Single Appendix is referred to herein as “App.”

expansion of its hospital facilities in Raleigh, North

Carolina. (App. at 43-44.)

I. The Parties

(App. at 10.) Mary Elizabeth Hospital is a hospital

engaged in “offering general medical-surgical hospital

services to the public” for profit. (App. at 10).

t Trustees of Rex Hospital (“Rex”) is a

public, non-profit, tax-exempt hospital located in Raleigh,

North Carolina, whose trustees are appointed by the

city council of the City of Raleigh, subject to approval

North Carolina. (App. at 11.)

2. The Conduct Complained of

restraining the provision of “additional medical-surgi-

Carolina.” (App. at 12.)

In 1971, petitioner alleges it planned to relocate and

expand Mary Elizabeth Hospital from a forty-nine bed

facility to a one hundred and forty bed facility. (App.

at 18.) Pursuant to then effective North Carolina law,“

any person that desired to increase the number of hos-

pital beds in North Carolina was required to apply for

a “Certificate of Need” from the North Carolina Medi-

cal Care Commission (“the Commission”), a state agency.

(App. at 16.)

On November 4, 1971, petitioner applied to the Com-

mission for a Certificate of Need, “for the construc-

tion of 91 additional medical-surgical beds.” (App. at

18.) Pursuant to the Certificate of Need Law, peti-

tioner’s application was referred to the Health Planning

Council for North Carolina (“The HPC“) for its ree-

ommendations on the application. (App. at 18.)

Petitioner alleges that respondent Rex and alleged

unnamed co-conspirator Wake Memorial Hospital

(“Wake”’)* and other respondents and alleged co-conspir-

ators had “caused the Health Planning Council for Cen-

tral North Carolina to become a means” for furthering

the alleged conspiracy (App. at 16) by defeating peti-

The “Certificate of Need” law, Sections 90-289, et seq., Title 21,

General Statutes of North Carolina, has since been declared uncon-

stitutional under the Constitution of North Carolina by the North

Carolina Supreme Court. See In the Matter of Certificate of Need

for Aston Pork Hospital, 282 N.C. 542, 193 S.E.2d 729 (S.Ct.N.C.

1973).

Wake Memorial Hospital is located in Raleigh, North Carolina.

(App. at 11.)

tioner’s application for expansion before the Commission

(App. at 17), by obtaining approvals on applications for

expansion by Rex and Wake, and by taking “all steps

necessary to prevent” petitioner “from utilizing its Certi-

ficate of Need, including baseless and unwarranted ac-

tions before courts, county and municipal authorities and

other administrative agencies in the name” of HPC.

(App. at 17.)*

The complaint alleges that respondent Rex and alleged

co-conspirator Wake conspiratorially filed bad faith oppo-

sitions to petitioner’s application before the HPC, and

respondents and co-conspirators conspired to cause and

caused the HPC to file a negative recommendation on

petitioner’s application with the Commission. (App. at

19.) Such negative “recommendation was intended to

and did delay and forestall the capacity of plaintiff

[petitioner] to compete effectively in the Raleigh area.”

(App. at 19.)

Subsequently, on February 27, 1972, the Commission

held a hearing on petitioner’s application for an addi-

tional ninety-one beds. (App. at 19.) Allegedly, in fur-

therance of the conspiracy, the HPC appeared before

the Commission and opposed petitioner’s application.

(App. at 19.) It is alleged that, as part of the pur-

ported conspiracy, respondent Rex and Wake requested

the Commission to continue the hearing on petitioner’s

application, so that they could present additional evi-

dence. (App. at 20.) The Commission continued its

hearing on petitioner’s application to June 12, 1972,

»The Complaint alleges the conspiracy between respondent Rex

and Wake was formed in 1970 with the formation of the Joint

Long Range Hospital Committee, which published a report con-

cerning the provision of additional hospital services in Wake

County. (App. at 15-16.) Allegedly, the object of the conspiracy was

to allocate the purported market for hospital services between Rex

and Wake “to the exclusion of Plaintiff [petitioner].” (App. at 16.)

Petitioner does not allege that any act, other than publication of

a report, was undertaken under the aegis of the Joint Long Range

Planning Committee.

at which time respondent Rex presented evidence in

opposition to the application. (App. at 20.)

The Medical Care Commission approved petitioner’s

application on June 30, 1972. (App. at 21.) As part

of the alleged conspiracy, HPC appealed the order of

the Commission approving petitioner’s Certificate of

Need to the Superior Court of Wake County. (App. at

23.) Petitioner concedes this appeal was dismissed in

February 1973, after the decision of the North Carolina

Supreme Court invalidating the Certificate of Need Law.

(Br. at 9.)

In its Brief (Br. 9, n.11), petitioner does not deny

that neither petitioner nor respondents nor any other

person obtained a stay of the Commission’s approval

of petitioner’s application to expand. Petitioner alleges

only that HPC appealed the Commission’s approval.

Petitioner could have initiated its expansion of Mary

Elizabeth on June 30, 1972, particularly because such

appeal was allegedly “without basis in law and fact.”

(App. at 23.)

The complaint, filed on October 10, 1972, asserts that

the alleged conspiracy continued, citing as factual sup-

port the then pending appeal of petitioner’s approval for

expansion (App. at 23), Rex’ application for expansion

of its facilities by 109 beds (App. at 22), and the alleged

adverse publicity generated by Rex and Wake which

was created by statements that Rex and Wake could

meet the future hospital service needs of Wake County.

(App. at 24.) Petitioner does not allege the manner

in which such statements evoked adverse publicity against

it or prevented it from initiating its construction. Pe-

titioner alleges that the State of North Carolina esti-

mated an additional 409 beds were needed in Wake

County. (App. at 19.) Therefore, Rex’ application for

a one hundred and nine bed expansion, according to the

complaint allegations, did not prevent petitioner from

initiating its expansion. The vehicle by which respond-

ents allegedly effectuated their alleged conspiracy, the

Certificate of Need Law, has been invalidated.

3. The Product and Geographic Markets in Which the

Alleged Conspiracy Occurred

Petitioner’s complaint is clear that the conduct com-

plained of, the alleged conspiracy to prevent the ex-

pansion of Mary Elizabeth Hospital, was directed at

and affected only the provision of additional hospital serv-

ices by Mary Elizabeth Hospital in the “Raleigh area,”

defined in the complaint as “Wake County, in the State

of North Carolina.” (App. at 12.) Count I of the

complaint alleges that respondents engaged in a aa

conspiracy in unreasonable restraint of the... trade

and commerce in the furnishing of medical-surgical hos-

pital services. (App. at 14.) Count II alleges that

the purported conspiracy was undertaken at the direc-

tion and instigation of respondent Rex and “such acts

constitute an attempt by defendant [respondent] Rex

to monopolize and to conspire . . . to attempt to monopo-

lize, the paid hospital business . . in the Raleigh area.

.. (App. at 26.)

It is alleged that the effect of the conduct complained

of was . . to prevent and restrain competition in the

furnishing of additional medical-surgical hospital serv-

ices to the public . . .” (App. at 24; emphasis added)

and to delay petitioner “. . . from proceeding with con-

struction of the additional medical-surgical hospital beds.

... (App. at 25.) The alleged illegal acts and the

hospital services affected thereby were all geographically

limited to Wake County. (App. at 12 and 24-25.)

The only business allegedly carried on by Mary Eliza-

beth Hospital is the provision of hospital services in

Raleigh, North Carolina. Moreover, the conduct com-

plained of was allegedly directed at only that business.

B. Proceedings in the District Court and the Court of

Appeals

On January 2, 1973, respondents, pursuant to Rules

12(b) (1) and (6) of the Federal Rules of Civil Pro-

cedure, filed motions and supporting memoranda to dis-

miss the complaint for lack of subject matter jurisdic-

tion. Petitioner, on January 29, 1973, filed a detailed

factual amendment to the jurisdictional allegations of its

complaint. (App. at 34-38.)

Respondents filed amendments to their motions to dis-

miss, and oral argument was held on February 22,

1973, in the Raleigh Division of the Federal District

Court for the Eastern District of North Carolina. Dur-

ing oral argument, petitioner advised the district court

that it had amended its complaint to be conclusive with

respect to the jurisdictional requirements under the

Sherman Act. (Transcript before District Court, Civil

No. 4048, February 22, 1973, at p. 26, quoted infra at

p. 52, n. 37.)

On March 23, 1973, the district court entered its

order granting respondents’ motions to dismiss, and

stating: “the conduct of defendants [respondents] com-

plained of in this case directly affects only a local

activity of the plaintiff [petitioner] and only incidentally

and insubstantially does it affect interstate commerce.”

(App. at 48-49.)

Upon appeal by petitioner, the United States Court

of Appeals for the Fourth Circuit, on February 6, 1974,

affirmed per curiam the order of the District Court.

(App. at 50.) On June 11, 1974, the Fourth Circuit

Court of Appeals granted petitioner’s application for a

2 en banc and withdrew its prior opinion. (App.

at 51.

After submission of supplemental briefs and oral ar-

gument, the court below sitting en banc again affirmed

dismissal of petitioner’s complaint. The court below

found that the alleged conspiracy restrained only the

“provision of surgical-medical hospital services in the

Raleigh area,” and such services are “a local, intrastate

activity, not interstate commerce.” (App. at 57-58.)

The dissent expressly agreed with the finding of the

majority that the alleged conspiracy did not operate “in

commerce.” (App. at 67, n.2.)

In determining whether the wholly intrastate conduct

complained of substantially and adversely affected in-

terstate commerce, the court below looked to what effect

the alleged conspiracy to restrain hospital services would

have on each of “the specific line[s] of commerce in-

volved” in the provision of hospital services. (App. at 61,

n.7; emphasis in original) The court concluded that the

alleged conspiracy did not substantially affect commerce

in any line of interstate commerce with which Mary

Elizabeth had contact. (App. at 61.)

Further, after analyzing the alleged conspiracy, the

court concluded, on the basis of the express and clear

complaint allegations, that respondents “can do no more

than delay, at most, whatever expansion seems eco-

nomically wise to plaintiff [petitioner].” (App. at 64.)

Contrary to petitioner’s suggestion (Br. at 14), the ma-

jority below found the “object” or “subject” of the con-

spiracy was not “controlling” but merely “relevant” to

the jurisdictional inquiry. (App. at 60.)

SUMMARY OF ARGUMENT

I. Subject matter jurisdiction under the Sherman Act

is present only where the alleged conduct complained of

has occurred in the flow of interstate commerce or if

wholly intrastate, substantially and adversely affects in-

terstate commerce. This jurisdictional inquiry under the

Sherman Act differs significantly from that required

when Congress itself has defined a class of activities

which affect commerce. Where Congress itself has defined

a class of activities as affecting commerce, the judicial

inquiry is not confined to specific conduct before the

court but rather is focused on whether Congress had a

rational basis for determining that the entire class of

activities, considered in the aggregate, substantially af-

fects commerce. In enacting the Sherman Act, Congress

did not state in the Act that it applied in every situation

where a company had some minimum contacts with in-

terstate commerce. Rather, Congress left the courts to

determine on a case-by-case basis whether the specific

conduct alleged in the case before the court occurs in the

flow of commerce or, if not, whether it substantially and

adversely affects interstate commerce. The Act looks to

the alleged unlawful conduct itself and requires a spe-

cific jurisdictional determination.

II. A. The conduct complained of in the instant case

did not occur in the flow of interstate commerce. The

complaint, as amended, alleges that respondents con-

spired to restrain the provision of hospital services in

Raleigh, North Carolina, by preventing petitioner from

expanding Mary Elizabeth Hospital in Raleigh, North

Carolina, from a forty-nine bed facility to a one-hundred-

and-forty bed facility. The means allegedly used to achieve

the claimed purpose involved filing bad faith oppositions

to petitioner’s application for expansion with a state

agency. It is not alleged that the claimed conspiracy

sought to achieve its wholly intrastate objective by inter-

fering with petitioner’s use of out-of-state supplies or

the financing and receipt of insurance payments. There

was no alleged conspiracy to fix the prices or otherwise

restrain trade in drugs or medicines purchased by peti-

tioner in interstate commerce, or to control insurance

payments coming across state lines to petitioner. The

parties to the alleged conspiracy are all residents of the

Raleigh area and not connected with out-of-state co-con-

spirators. The complaint alleges a wholly intrastate con-

spiracy to restrain a localized and personal service and

is, therefore, outside the jurisdiction of the Sherman Act.

II. B. In the course of providing hospital services,

petitioner utilized supplies and equipment that were

shipped into North Carolina from out of state. Pe

titioner also treated patients who qualified for Medicare

and Medicaid and who had health insurance with out-

of-state insurance companies. These contacts with out-

of-state activities did not transform the provision of

hospital services in a local area into an interstate activity.

The recent decision of Goldfarb v. Virginia State Bar, 421

U.S. 773 (1975), is not applicable to the instant case.

III. The alleged conspiracy related only to prevent-

ing petitioner from expanding the size of its facility

by a total of ninety-one beds and did not substantially

and adversely affect the flow of commerce in goods,

supplies, and financing. The conspiracy had no adverse

effects on any of the interstate markets in which pe-

titioner’s hospital purchased goods and services. Prece-

dent of this Court in United States v. Oregon State Medi-

cal Society, 343 U.S. 326 (1952), affg 95 F. Supp. 103

(D. Oregon 1950) and United States v. Yellow Cab Co.,

332 U.S. 218 (1947), and substantial precedent in the

lower courts have held that each interstate contact upon

which petitioner relies for jurisdiction is insufficient.

The receipt of federal funds under Medicare and

Medicaid, federal programs under the General Welfare

Clause and not the Commerce Clause, cannot be used-

to transform an otherwise local activity into one subject

to Sherman Act jurisdiction.

IV. The district court and the court below clearly

dismissed petitioner’s complaint for failure to satisfy

the interstate commerce jurisdictional requirements of

the Sherman Act and properly did so under Rules 12

(b) (1) and (b) (6) on the complaint allegations. Sub-

stantial precedent supported the district court’s decision

and, in a well reasoned opinion, the Appellate Court,

in banc, affirmed. Moreover, during oral argument be-

fore the district court, petitioner requested the district

court to rule on the motions to dismiss.

ARGUMENT

I. JURISDICTION UNDER THE SHERMAN ACT

MAY BE INVOKED ONLY ON A CASE-BY-CASE

BASIS, AND ONLY WHEN THE CONDUCT COM-

PLAINED OF OCCURS IN INTERSTATE COM-

MERCE OR, IF WHOLLY INTRASTATE, SUBSTAN-

TIALLY AND ADVERSELY AFFECTS INTER-

STATE COMMERCE.

Subject matter jurisdiction is present under Sections

1 and 2 of the Sherman Act only: (1) when the conduct

complained of occurs in the flow of interstate commerce;

or (2) when the conduct complained of “however local

its immediate object, . . . substantially and adversely

affects interstate commerce.” Gulf Oil Corp. v. Copp

Paving Co., 419 U.S. 186, 195 (1974). See also Burke

v. Ford, 389 U.S. 320, 321 (1967); Mandeville Island

Farms, Inc. v. American Crystal Sugar Co., 334 USS.

219, 234 (1948) Petitioner does not contest these

standards for determining jurisdiction under the Sher-

man Act. (Br. at 21.)

Petitioner argues that the test of jurisdiction under

the Sherman Act “is one of Congressional power” be-

cause “ Congress wanted to go to the utmost extent

of its Constitutional power.. in enacting the Sher-

man Act and, therefore, the decision below is a de-

termination that “Congress is without power under the

commerce clause to reach the alleged conduct.” (Br. at

20-21.) This argument is inaccurate and ignores the

See, e.g., Greenville Publishing Co., Inc. v. Daily Reflector, Inc.,

496 F.2d 391, 395 (4th Cir. 1974); United States v. Bensinger

Co., 430 F.2d 584, 588 (8th Cir. 1970); Marston v. Ann Arbor

Property Managers (Management) Ass’n, 302 F. Supp. 1276 (E. D.

Mich. 1969), af d per curiam, 422 F.2d 836 (6th Cir.), cert. denied,

399 U.S. 929 (1970); Lieberthal v. North Country Lanes, Inc., 332

F.2d 269 (2d Cir. 1964); Yellow Cab Co. of Nevada v. Cab Emp.,

Auto & W., Local #881, 457 F.2d 1032 (9th Cir. 1972).

fundamental distinction between Congressional legislation

under the Commerce Clause, and the specific judicial in-

quiry necessary for jurisdiction under the Sherman Act.

Acceptance of petitioner’s argument would require fed-

eral courts to exercise jurisdiction over every alleged

restraint of trade, regardless of its effect upon inter-

state commerce.

Under the Commerce Clause, Congress may enact a

regulatory scheme encompassing particular local prac-

tices which, individually, are not in commerce and have

ne substantial affect on interstate commerce.’ As long

as the “total incidence” of the class of activities subject

to legislative regulation substantially affects interstate

commerce, Congressional power is properly exercised

under the Commerce Clause. In these situations, unlike

the Sherman Act, the necessary substantial effect on

interstate commerce is established by “measuring” the

incidence on commerce of the aggregate class of ac-

tivities being regulated, not by measuring the effect on

commerce of each practice alleged in a particular

complaint.

For example, in Perez v. United States, 402 U.S. 146

(1971), petitioner challenged his conviction for “loan

sharking' under Title II of the Consumer Protection

Act (18 U.S.C. 88 891 et seg.) as unconstitutional, argu-

ing that his “loan sharking” conduct had no substantial

affect on interstate commerce and was, therefore, not

constitutionally subject to legislative proscription. Re-

See, e.g., Title II of the Civil Rights Act of 1964, 42 U.S.C.

§§ 2000a-2000a-6 (1970) ; Title II of the Consumer Protection Act, 18

U.S.C. 88 891 et seg. (1970); the National Labor Relations Act, 29

U.S.C. 151 et seg. (1970); and the Fair Labor Standards Act, 29

U.S.C. §§ 201 et seg. (1970).

o Maryland v. Wirtz, 392 U.S. 183, 190 (1968), quoting from

Katzenbach v. McClung, 379 U.S. 294, 303-304 (1964). See also

Perez v. United States, 402 U.S. 146, 155 (1971).

ferring to Katzenbach v. McClung, 379 U.S. 294 (1964),

the Court emphasized that “it was the class of activities

regulated that was the measure” (emphasis in original)

and that “Congress [may] appropriately consider

the ‘total incidence’ of the practice on commerce.” 402

U.S. at 154. The Court explained:

Where the class of activities is regulated and that

class is within the reach of federal power, the courts

have no power ‘to excise, as trivial, individual in-

stances’ of the class. Maryland v. Wirtz, 392 U.S.

183, 193 (1968). (Perez v. United States, 402 U.S.

at 154; emphasis in original.)

Also, in Maryland v. Wirtz, 392 U.S. 183 (1968), peti-

tioner argued that the 1961 amendment to the Fair Labor

Standards Act was beyond Congress’ power under the

Commerce Clause because it expanded the Act’s coverage

to include “every employee who ‘is employed in an enter-

prise engaged in commerce or in the production of goods

for commerce’” (392 U.S. at 188; footnote omitted)

and, therefore, included employees having no relationship

to or effect on interstate commerce. The Court stated:

Darby [United States v. Darby, 312 U.S. 100

(1941)] itself recognized the power of Congress in-

stead to declare that an entire class of activities af-

fects commerce. The only question for the courts is

then whether the class is ‘within the reach of the

federal power.’ The contention that in Commerce

Clause cases the courts have power to excise, as

trivial, individual instances falling within a ration-

ally defined class of activities has been put entirely

to rest. Wickard v. Filburn, 317 U.S. 111, 127-128;

Polish Alliance v. Labor Board, 322 U.S. 643, 648;

Katzenbach v. McClung, supra, at 301. (392 U.S.

at 192-93; footnotes omitted.)

The Court in Maryland v. Wirtz, supra, further stated

that where Congress has itself determined that a class

necessary to the protection of commerce... .’” (392 U.S.

at 190; footnote omitted, quoting from Katzenbach v.

McClung, supra.)

In cases where Congress has enacted legislation regu-

lating a class of activities, including wholly intrastate

activities having individually no substantial effect on in-

terstate commerce, the judicial inquiry is not limited to

the specific conduct. complained of, but looks to the entire

class of activities of which the individual practice re-

flects only a representative example.” No “case-by-case

determination” is made as to whether the specific conduct

which is the subject of the complaint before the court is

in interstate commerce or even substantially affects in-

terstate commerce. See Katzenbach v. McClung, 379 U.S.

294, 302-303 (1964).

* See also Wickard v. Filburn, 317 U.S. 111, 127-28 (1942), where

the Court stated:

The effect of the statute before us [the Agricultural Adjust-

ment Act of 1938, 55 Stat. 203 (1938) ] is to restrict the amount

[of wheat] which may be produced for market and the extent

as well to which one may forestall resort to the market by

producing to meet his own needs. That appellee’s own contri-

bution to the demand for wheat may be trivial by itself is not

enough to remove him from the scope of federal regulation

where, as here, his contribution, taken together with that of

many others similarly situated, is far from trivial.

10 See Polish National Alliance v. National Labor Relutions Board,

322 U.S. 643, 648 (1944), where the Court indicated that the deter-

mination of whether jurisdiction is present under the National

Labor Relations Act (29 U.S.C. §§ 151 et seg.) is not confined to the

facts alleged in the complaint before it. Rather, the Court may con-

sider whether the “immediate situation is representative of many

others throughout the country, the total incidence of which if left

unchecked may well become far reaching in its harm to commerce.”

(Emphasis added.)

gress itself has defined ac-

tivities that affect commerce and therefore require fed-

eral regulation.” Gulf Oil Corp. v. Copp Paving Co., 419

U.S. 186, 197 n.12 (1974). Under the Sherman Act, the

jurisdictional inquiry turns “* * * on the circumstances

presented in each case and requires * a

particularized judicial determination (419 U.S.

197, n.12) of whether the conduct complained of occurs

in interstate commerce or * * substantially and ad-

versely affects interstate commerce * * *” (419 U.S. at

including this Court, have measured whether the specific

conduct complained of operates in or substantially and

adversely affects interstate commerce, not whether such

conduct is a part of a class of activities which, in toto,

would be in commerce, or, in toto, substantially affect

commerce. For example, in United States v. Yellow Cab

Co., 332 U.S. 218 (1947), the Court, in rejecting Sher-

man Act jurisdiction over local conduct of several multi-

state taxicab companies (marketers and operators), did

not look to the possible class or group of taxicab activi-

ties of which Yellow Cab would be but a representative

example, but rather looked only at the conduct before it

and found that such conduct, in itself, did not substan-

tially and adversely affect or burden interstate commerce.

332 U.S. at 231-233. Similarly, in United States v. Ore-

gon State Medical Society, 343 U.S. 326 (1952), in af-

firming a denial of Sherman Act jurisdiction over state-

wide activities involving prepaid medical and hospital

services (which included the provision of hospital care),

— er ee ee ess ee —

at 221), and whether “the material facts pleaded” (Id.

at 222) demonstrated a substantial and adverse effect

on interstate commerce)

The jurisdictiona! inquiry in the instant case, there-

substantially and adversely affects it. Such a determina-

tion does not limit the legislative power of Congress

under the Commerce Clause. Unlike the NLRA and other

similar statutes (see supra at p. 13 n.7), Congress has

made no attempt under the Sherman Act to declare leg-

islatively that local intrastate restraints of trade are a

substantial burden upon interstate commerce.

The amicus curiae Federation of American Hospitals,

in its brief, disregards the specific inqury required under

11 See also Rasmussen v. American Dairy Ass'n, 472 F.2d 517,

527 (9th Cir. 1972), cert. denied, 412 U.S. 950 (1973) (where the

court analyzed “. the extent to which prohibition of the defend-

AMA. Ie

— line of interstate commerce involved,” and stated “in this

more than most, each case must turn on its own

facts.” (Id at 626.)) See Doctors, Ine. V. Blue Cross of Greater

Philadelphia, 490 F.2d 48 (3d Cir. 1973).

the Sherman Act and the complaint allegations herein.

It asserts that jurisdiction is present under the Sherman

Act because: (1) the National Labor Relations Board

has exercised jurisdiction under the NLRA (29 U.S.C.

§§ 151 et seg.) over labor disputes in hospitals receiving

a certain amount of gross revenues annually (Federa-

tion Brief at 21); and (2) Congress has enacted “other

pieces of comprehensive legislation which affect hospitals

throughout the United States.” (Id.)

With respect to its argument relating to the NLRA,

the Federation relies heavily upon Butte Medical Prop-

erties, 168 N.L.R.B. 266 (1967) (Federation Brief at 24-

25). In Butte Medical, supra, the NLRB determined

it had jurisdiction by analyzing the total effect on in-

terstate commerce of all 970 proprietary hospitals in

the United States. Thus, the jurisdictional test utilized

in Butte Medical has no application herein.

Moreover, the Federation’s contention ignores the sig-

nificant differences between the language of the NLRA

and the Sherman Act. Under the NLRA (29 U.S.C.

§ 152(6)), “commerce” is defined as:

. . . trade, traffic, commerce, transportation, or com-

munication among the several States, or between the

District of Columbia or any Territory of the United

States and any State or other Territory, or between

any foreign country and any State, Territory, or

within the District of Columbia or any Territory, or

between points in the same State but through any

other State or any Territory or the District of Co-

lumbia or any foreign country.

In Butte Medical, 168 N.L.R.B. 266, 268, the NLRB stated:

While the purchases made by a particular proprietary hos-

pital may not directly involve interstate commerce, the aggre-

gate purchases of all such facilities clearly have a substantial

impact on the operations of the various supplying industries

and involve substantial shipments of goods and supplies in

interstate commerce.

—_—---~-- - es

And “affecting commerce” (29 U.S.C. § 152 (7)),

. . . means in commerce, or burdening or obstruct-

ing commerce or the free flow of commerce, or hav-

ing led er tending to lead to a labor dispute burden-

ing or obstructing commerce or the free flow of com-

merce. (Emphasis added.)

In contrast, Congress did not define interstate commerce

jurisdiction under the Sherman Act, but left the courts

to determine when any alleged unlawful conduct either

occurred in commerce or substantially and adversely af-

fected commerce. (See Gulf Oil Corp. v. Copp Paving

Co., 419 U.S. 186, 197 n.12 (1974).)

Because of the significant differences between the

language and purposes of the NLRA and the Sherman

Act, courts have squarely rejected the arguments made

by the Federation. For example, this Court and the

Court of Appeals for the Seventh Circuit have ruled on

the jurisdictional reach under the NLRA and the Sher-

man Act as to the taxicab industry. In United States

v. Yellow Cab Co., 332 U.S. 218 (1947), the Court held

that the activities of a taxi company carrying interstate

passengers from one interstate railroad terminal to an-

other are in the flow of interstate commerce for purposes

of the Sherman Act, but the activities of the same taxi-

cab company in carrying interstate passengers from their

homes or offices to the interstate terminal, and vice versa,

are not sufficient to come within the Sherman Act.

In Evanston Cab Co. v. City of Chicago, 325 F.2d

907 (7th Cir. 1963), cert. denied, 377 U.S. 943 (1964),

the court, in reliance on United States v. Yellow Cab

Co., found that an alleged restraint of taxicab services

to and from O’Hare Airport to homes and offices in Chi-

cago was outside the jurisdiction of the Sherman Act.

The court in Evanston specifically rejected plaintiff’s

argument that because the court had ruled taxicab serv-

ices were within the jurisdictional ambit of the NLRA,

a restraint of such services also satisfied the jurisdic-

tional tests of the Sherman Act. (325 F.2d at 911.) In

rejecting plaintiff’s argument in Evanston, the Seventh

Circuit specifically referred to the broad definitions of

“commerce” and “affecting commerce” in Section 2 of

the NLRA, 29 U.S.C. §§ 152 (6) and (7). (325 F.2d at

912). Under the NLRA, the entire cab company’s busi-

ness was relevant, but under the Sherman Act, only that

part of the cab company’s business affected by the alleged

restraint was relevant.

The distinction between the jurisdictional requirements

under the NLRA and the Sherman Act is further em-

phasized by the number of other cases holding, in es-

sentially similar factual contexts, jurisdiction to be pres-

ent under the NLRA but not under the Sherman Act.

Compare, N. L. R. B. v. Pierce Bros., 206 F.2d 569 (9th

Cir. 1953) (where the court found NLRA jurisdietion

existed over a local mortuary company because it re-

cevied mortuary supplies and shipped some corpses

out of state) with John Kalin Funeral Home, Inc. v.

Fultz, 313 F.Supp. 435 (W.D. Wash. 1970), aff'd per

curiam, 442 F.2d 1342 (9th Cir.), cert. denied, 404

U.S. 881 (1971) (where the court found it lacked juris-

diction over an alleged conspiracy in violation of the

Sherman Act to restrain a local mortuary business that

obtained supplies and shipped corpses out of state and

had regular interstate communications); and compare

N.L.R.B. v. Inglewood Park Cemetery Association, 355

F.2d 448 (9th Cir. 1966) (where the court found NLRA

jurisdiction existed over a company engaged in the opera-

tion of a cemetery because the company sold burial lots

and crypt spaces and purchased $3,086 of related items

from out of state) with Lawson v. Woodmere, 217 F.2d

148 (4th Cir. 1954) (where the court found it lacked

jurisdiction over an alleged conspiracy in violation of the

Sherman Act to restrain the local sale of funeral vaults,

even though plaintiff was engaged in purchasing and

selling concrete and metal burial vaults and boxes which

were purchased from out of state).

—.—

The foregoing comparisons make clear that decisions

finding the presence of jurisdiction under the NLRA

are not probative of jurisdiction under the Sherman

Act. The Federation is requesting the Court to expand

the jurisdiction of the Sherman Act beyond that de-

fined by former precedent and to utilize precedent in-

terpreting the jurisdictional standards of other federal

legislation, having substantial differences in language

and completely different purposes, to determine whether

petitioner’s complaint herein meets the jurisdictional

requirements of the Sherman Act. The argument should

be rejected, and the long established and clear Sherman

Act standards should be applied in the instant case. As

stated in Federal Trade Commission v. Bunte Bros., 312

U.S. 349, 353 (1941), by Mr. Justice Frankfurter, wri-

ing for the Court:

Translation of an implication drawn from the spe-

cial aspects of one statute to a totally different stat-

ute is treacherous business. The Interstate Com-

merce Act and the Federal Trade Commission Act

are widely disparate in their historic settings, in the

enterprises which they affect, in the range of control

they exercise, and in the relation of these controls

to the functioning of the federal system.

II. THE CONDUCT COMPLAINED OF OCCURRED

ONLY INTRASTATE AND NOT IN THE FLOW OF

INTERSTATE COMMERCE.

A. The Alleged Conspiracy Operated Wholly Within

the Raleigh Area and Upon the Provision of a

Localized and Personalized Service.

The complaint unequivocally sets forth the alleged

product and geographic markets in which the claimed

conspiracy and attempt to monopolize in violation of Sec-

tions 1 and 2 of the Sherman Act operated. It is alleged

that respondents “engaged in an unlawful combination

and conspiracy in unreasonable restraint . . . in the fur-

nishing of medical-surgical hospital services. (App.

at 14.) Petitioner also alleges that respondent Rex di-

rected and instigated the alleged conspiracy and such

direction and ‘nstigation constitutes an attempt “to mo-

nopolize and to conspire . . . to attempt to monopolize

the paid hospital business conducted . . . in the Raleigh.

area.” (App. at 26.) The complaint categorically de-

fines the relevant geographic market as the “Raleigh

area” meaning “the area comprising Wake County, in

the State of North Carolina.” (App. at 12.)

The “hospital services” product market which is the

sole subject of the alleged conspiracy consists of “. . .

providing medical and surgical care to persons in need

of short term medical treatment or surgery.” (App. at

12.) The rendition of hospital services does not occur

across state lines, but at Mary Elizabeth Hospital in

Raleigh, North Carolina. According to the complaint,

hospital services, the product allegedly restrained, is a

localized and personalized service provided at a fixed

location within Wake County.

The alleged conspiracy to restrain the provision of

additional hospital services by Mary Elizabeth Hospital

was purportedly effectuated by conspiratorially opposing

petitioner’s application to expand its facilities from forty-

nine to one hundred and forty beds. (See supra at 3-7.)

It is not alleged, nor could it be alleged, that the pur-

ported conspiracy sought to achieve its wholly intrastate

object by regulating the alleged supplies, equipment, or

financing for expansion of the new hospital, or by regulat-

ing Medicare, Medicaid or out-of-state health insurance

payments.

Thus, the complaint alleges a conspiracy of local

Raleigh residents to prevent another Raleigh resident

from providing additional hospital services in the Raleigh

area. The means adopted to effectuate the purpose of

the alleged conspiracy do not traverse state lines or in-

volve goods or services travelling in the flow of interstate

commerce. Accordingly, the alleged conspiracy operated

wholly in Wake County, within North Carolina.

Precedent of this Court has held that a local intra-

state conspiracy to restrain the provision of prepaid

medical services does not operate in commerce. In United

States v. Oregon State Medical Society, 343 U.S. 326

(1952), affg, 95 F. Supp. 103 (D. Oregon 1950), it was

alleged that a state-wide society of doctors had conspired

to restrain the provision of prepaid medical services in

Oregon, including medical, surgical and hospital care.

(343 U.S. at 330.) It was there claimed that the re-

straint prevented other organizations from offering “pre-

paid medical, surgical and hospital care and allied serv-

ices. In the absence of the restraints hereinafter de-

scribed, the State of Oregon would constitute a sub-

stantial market for the prepaid medical business of such

organizations.” 95 F. Supp. at 122. It was further found:

[O]rganizations doing prepaid medical insurance

business in the State of Oregon use interstate trans-

portation and transmission facilities to transmit

across state lines policies, reports, instructions, and

correspondence. . Medical care policies and pay-

ments thereon by policyholders regularly flow in in-

terstate commerce between the State of Oregon and

other states. Prepaid medical poliices issued by Ore-

gon organizations cover reimbursement for medical

care required by Oregon residents while in other

states. Said Oregon organizations arrange to pay

for said medical care rendered by doctors, hospitals,

and others in other states. Organizations en-

gaged in the sale and furnishing of prepaid medical

care in Oregon. . purchase and procure medi-

eines, drugs, medical supplies and instruments

shipped from other States into the State of Oregon.

* * * Doctors practicing in Oregon treat patients

who have come from other states to secure medical

care in Oregon. (95 Supp. at 114-115).

In Oregon Medical, the Supreme Court affirmed the find-

ing that the conduct complained of did not substantially

affect interstate commerce for Sherman Act purposes.

343 U.S. at 338-339.

Substantial lower court precedent has also held that

an alleged conspiracy to restrain the provision of hos-

pital services provided in a geographic area wholly with-

in a state does not operate in commerce. Petitioner at-

tempts to avoid the application of this precedent by

arguing, in effect, that these decisions are outdated.

(Br. at 42.) The analyses of the provision of hospital

services made by the courts are surely not “outdated.”

Hospitals then and now buy some goods and drugs that

originate from out of state and receive medical insurance

payments from out of state. The provision of hospital

services remains a personal, localized activity at a fixed

location.

Contrary to the implications in petitioner’s Brief (Br.

at 42) that “the majority below” misconceived the na-

ture of providing hospital services, the entire court be-

low concluded that the alleged conspiracy to restrain

the provision of hospital services by Mary Elizabeth

13 See, e.g., Spears Free Clinic and Hospital for Poor Children v.

Cleere, 197 F.2d 125 (10th Cir. 1952); Elizabeth Hospital, Inc. v.

Richardson, 269 F.2d 167 (8th Cir.), cert. denied, 361 U.S. 884

(1959); Riggall v. Washington County Medical Society, 249 F.2d

266 (8th Cir. 1957), cert. denied, 355 U.S. 954 (1958); Robinson

v. Lull, 145 F. Supp. 134 (N.D. Ill. 1956), United States v. Oregon

State Medical Society, 343 U.S. 326 (1952), aff’g, 95 F. Supp. 103

(D. Ore. 1950); Nankin Hospital v. Michigan Hospital Service, 361

F. Supp. 1199 (E.D. Mich. 1973).

did not occur in commerce and failed to satisfy that

initial Sherman Act jurisdictional test.

Respondents are not herein arguing, and the court

below did not conclude, that a conspiracy to restrain

the provision of hospital services is, as a matter of law,

incapable of occurring in interstate commerce. The de-

termination turns upon the facts and complaint allega-

tions in each case. For example, in Doctors, Inc. v.

Blue Cross of Greater Philadelphia, 490 F.2d 48 (3d

Cir. 1973), plaintiff hospital alleged a conspiracy “. . .

to control the area’s hospital services” (Jd. at 49) and

„ . . to close down Doctors Hospital [Plaintiff therein]

and to close down and limit operations of other area

hospitals as well.” (Jd. at 51.) The alleged conspiracy

in Doctors, Inc., supra, operated in a geographic and

product market which included the provision of hospital

services furnished by approximately one hundred (100)

hospitals in an interstate geographic market consisting

of eight counties located in Pennsylvania and New Jersey.

(490 F.2d at 49, n.1, and 51.) The alleged conspiracy in

Doctors, Inc., supra, was found to operate in interstate

commerce. In contrast, the conspiracy alleged by peti-

tioner does not operate in interstate commerce.

Courts have consistently followed the same analytical

approach taken in the court below when deciding Sher-

man Act jurisdictional questions in other areas. The

jurisdictional inquiry has been focused on the relevant

product and geographic markets defined in the complaint

allegations. The fact that a particular plaintiff, such as

Mary Elizabeth Hospital herein, is engaged in other

interstate activities, such as the purchase of materials

and equipment from out of state, which are not the sub-

ject of the alleged conspiracy, does not place the alleged

conspiracy in commerce. Jurisdiction under Sections 1

and 2 of the Sherman Act is not triggered by the persons

or companies involved in the suit but by the conduct

complained of.“ :

For example, in United States v. Yellow Cab Co., 332

U.S. 218 (1947), the goverenment’s complaint alleged

that defendants, who were interstate marketers and op-

erators of taxis, controlling a majority of taxicab licenses

in Chicago, Pittsburgh, and Minneapolis, had engaged in

a conspiracy to restrain and monopolize the sale of auto-

mobiles for use as taxicabs in Chicago, Pittsburgh, New

York, and Minneapolis and the furnishing of cab services

in Chicago and vicinity. (Id. at 220 and 224.) With

respect to the alleged Chicago area conspiracy, it was

claimed that the taxicab companies had agreed not to

compete for the transportation of passengers between

interstate train terminals in Chicago and had conspired

to control the principal cab companies in Chicago and

to exclude others from the transportation of passengers

to and from Chicago train terminals. (Id. at 228 and

230.) Looking to each of the alleged conspiracies and

the alleged relevant product and geographic markets, the

Court found there was Sherman Act jurisdiction over

the conspiracy to restrain cab service between two inter-

state railroad terminals in Chicago, but no jurisdiction

over the alleged conspiracy to restrain cab service pro-

vided to passengers going from their homes to the

interstate railroad terminals. The fact that the compa-

nies were interstate companies was irrelevant.

Similarly, in Page v. Work, 290 F.2d 323 (9th Cir.),

cert. denied, 368 U.S. 875 (1961), plaintiffs alleged that

Quoting language from United States v. American Building

Maintenance Industries, 422 U.S. 271 (1975), defining the language

“engaged in commerce” as used in Section 7, Clayton Act, referring

to a “corporation engaged in commerce,” petitioner argues that

Mary Elizabeth purchases goods and services from out of state, and

therefore arguably satisfied the jurisdictional standard of Section

7, Clayton Act. As discussed in the text, the jurisdictional stand-

ards under the Sherman Act are in issue herein, and those standards

are invoked by the specific conduct alleged in the complaint, not by

the overall business of the parties involved in the action.

——

defendants, 105 local newspapers and their trade associa-

tion, conspired to restrain competition in legal advertis-

ing in Los Angeles County and to monopolize that mar-

ket. Plaintiffs, suing on behalf of a defunct newspaper,

alleged that its newspaper had operated in interstate

commerce because it purchased ink, newsprint and other

material from out of state and had out-of-state sub-

scribers. It contended that the out-of-state supplies were

an integral part of publishing the newspaper and trans-

formed the local business of legal advertising into an

interstate business. The court observed that the restraints

alleged “were on a purely local level and were wholly

directed to [a] local intrastate market.” (Jd. at 330.)

It then held:

The test of jurisdiction is not that the acts com-

plained of affect a business engaged in interstate

commerce, but that the conduct complained of affects

the interstate commerce of such business.

Appellant [seeks to] . . . lay down a simple rule

that if a newspaper is engaged in interstate com-

merce it is entitled to the protection of the anti-

trust laws no matter where the particular restraint

is applied. (Id. at 330.)

In cases where the “in commerce” standard of Sher-

man Act jurisdiction has been satisfied, the alleged con-

spiracies have had as their subjects goods or services

moving across state boundaries or the alleged conspira-

15 Accord, Yellow Cab Co. of Nevada v. Cab Emp., Auto. & N.,

Local #881, 457 F.2d 1032, 1034 (9th Cir. 1972); Sun Val’ey Dis-

posal Co. v. Silver State Disposal Co., 420 F.2d 341, 343 (9th Cir.

1969) ; Lieberthal v. North Country Lanes, Inc., 332 F.2d 269, 272

(2d Cir. 1964); Cotillion Club, Inc. v. Detroit Real Estate Board,

303 F. Supp. 850, 853 (E.D. Mich. 1964); Marston v. Ann Arbor

Property Managers (Management) Ass’n., 302 F. Supp. 1276, 1279

(E.D. Mich. 1969), aff'd per curiam, 442 F.2d 836 (6th Cir.), cert.

denied, 399 U.S. 827 (1970); Hotel Phillips v. Journeymen Barbers,

195 F. Supp. 664 (W.D. Mo. 1961), aff'd per curiam, 301 F.2d 443

(8th Cir. 1962).

cies, in their formation, have involved persons or compa-

nies in more than one state. For example, in United

States v. Frankfort Distilleries, Inc., 324 U.S. 293 (1945),

defendants, in-state alcoholic beverage wholesalers and re-

tailers, responsible for seventy-five percent of the alco-

holic beverages sold in Colorado, virtually all of which

were shipped into Colorado by out-of-state suppliers,

conspired to fix the prices, markups and margins of

profit on the sale of such beverages and enforced the

price fixing conspiracy by forcing out-of-state beverage

producers to enter into and to enforce fair trade con-

tracts fixing prices at the conspiratorially set levels. (Id.

at 295.) See also Lehrman v. Gulf Oil Corp., 464 (F.2d

26, 32 (5th Cir.), cert. denied, 409 U.S. 1077 (1972)

(where plaintiff was purportedly injured by an alleged

conspiracy among Gulf Oil Corporation and its dealers

throughout the Southwestern Region of the United

States); and A. Cherney Co. v. Chicago & Sub. Refuse

Dis. Ass’n., 484 F.2d 751 (7th Cir. 1973), cert. denied,

414 U.S. 1131 (1974) (where the plaintiff alleged de-

fendants, refuse collectors, their trade association and

out-of-state equipment manufacturers, conspired “to re-

strain and monopolize the private scavenger business

within the geographic area including Chicago, its suburbs,

parts of Indiana and Wisconsin . . and St. Joseph,

Missouri. (Jd. at 752-53, n.1) and where the in-

state defendants allegedly coerced the out-of-state equi p-

ment manufacturers to refuse to deal with plaintiffs).”

In the instant case petitioner does not contend that

the alleged conspiracy involved local residents and out-

of-state suppliers. The complaint alleges a conspiracy

having as its object the restraint of the provision of hos-

pital services in Wake County, North Carolina, allegedly

effectuated by bad faith oppositions to Mary Elizabeth

16 See also Doctors, Inc. v. Blue Cross of Greater Philadelphia,

490 F.2d 48 (3d Cir. 1973); United States v. South-Eastern Under-

writers Ass'n, 322 U.S. 533 (1944).

Hospital’s application for expansion before local state

agencies. The conduct complained of by petitioner did

not occur in commerce.

B. The Use of Out-of-State Supplies and Receipt of

Insurance Payments Does Not Transform the Pro-

vision of Hospital Services in Wake County into

Interstate Commerce.

Petitioner avoids focusing on the product and geo-

graphic markets in which the conspiracy allegedly oper-

ated. Instead, petitioner argues that in the course of

providing hospital services in Wake County, North Caro-

lina, Mary Elizabeth Hospital utilizes out-of-state sup-

plies and equipment and treats patients who qualify for

Medicare and Medicaid or who have health insurance

with out-of-state health insurance companies. (Br. at

23-28 and 40-44.) These activities of Mary Elizabeth

Hospital, it is concluded, transform the provision of hos-

pital services in Wake County, North Carolina, into in-

terstate commerce such that any restraint of any portion

of Mary Elizabeth’s hospital services must of necessity

he im commerce. Petitioner invokes (Br. at 27) the talis-

manic phrase that “the provision of these hospital serv-

ices is an integral part of interstate transactions,” rely-

ing upon Goldfarb v. Virginia State Bar, 421 U.S. 773

(1975).

Petitioner makes the identical argument that has been

rejected by virtually every court that has considered it,

and if accepted would bring every alleged restraint of

trade, whether intrastate or interstate, within Sherman

Act jurisdiction. In Page v. Work, 290 F.2d 323 (9th

Cir.), cert. denied, 368 U.S. 875 (1961), plaintiffs ar-

gued that the alleged conspiracy to monopolize the legal

advertising market in Los Angeles County operated in

the flow of inte state commerce because plaintiffs’ de-

funct. newspaper had utilized out-of-state newsprint and

ink, and that such out-of-state supplies were an integral

part of publishing the newspaper and transformed the

local business of legal advertising into an interstate busi-

ness. The court rejected this argument, looking to the

product and geographic markets in which the alleged

conspiracy operated. (Id. at 330.) The alleged conspir-

acy did not involve the out-of-state purchases and only

affected them indirectly.

Likewise, in Sun Valley Disposal Co. v. Silver State

Disposal Co., 420 F.2d 341 (9th Cir. 1969), plaintiff

operated a garbage pickup and disposal and container

leasing business in Clark County, Nevada. It alleged

that defendant, a competitor of plaintiff, had conspired

in violation of Sections 1 and 2 of the Sherman Act to

monopolize the business. Plaintiff alleged that it pur-

chased its containers from out-of-state and that the al-

leged conspiracy of defendant directed at the local activ-

ity of plaintiff operated in interstate commerce because

it interfered with plaintiff’s purchase of the out-of-state

containers. (Id. at 343.) The court rejected plaintiff’s

contention, stating “Appellant supplied this [local] busi-

ness with equipment from out of state. This fact alone

does not turn what was really a local activity into an

interstate one.” (Id. at 343. Compare, United States

v. Bensinger, 430 F.2d 584 (8th Cir. 1970) where the

alleged illegal conduct involved a conspiracy between

an in-state distributor and an out-of-state supplier to

fix the price of one piece of equipment shipped across

state lines.

Petitioner™* relies heavily on Goldfarb v. Virginia

See also John Kalin Funeral Home, Inc. v. Fultz, 313 F. Supp.

435 (W.D. Wash. 1970), aff'd per curiam, 442 F.2d 1342 (9th Cir.),

cert. denied, 404 U.S. 881 (1971). See also the cases cited supra

in footnote 15, at p. 27 herein.

** The amicus curiae Federation of American Hospitals makes

essentially the same argument as does petiitoner and similarly

attempts to measure Sherman Act jurisdiction by looking to the

effect on interstate commerce of all hospitals. (Federation Brief at

8-16.)

— — 4 ¶ —ꝗ6—U —]o

State Bar, 421 U.S. 773 (1975), for its argument that

the provision of hospital services is an integral“ part

cf the interstate purchase of supplies and receipt of pay-

ment from out-of-state insurers, including Medicare and

Medicaid. However, petitioner’s reliance is misplaced. In

Goldfarb, plaintiff petitioners, on behalf of themselves

and a class of all others similarly situated in Fairfax

County, Virginia, brought an action against various Vir-

ginia bar associations. Petitioners in Goldfarb alleged

that “. . the operation of the minimum fee schedule, as

applied to fees for legal services relating to residential

real estate transactions, constitutes price-fixing .. .” in

violation of the Sherman Act (421 U.S. at 778). The

product market allegedly restrained was “legal services

relating to residential real estate transactions,” which

“transactions” included the financing of home purchases.

The Court in Goldfarb noted that “a significant por-

tion of funds furnished for the purchasing of homes in

Fairfax County comes from without the state of Vir-

ginia. .. . (421 U.S. at 783.) Indeed, the lower court

found that over 55 percent of the total volume of all

mortgages in Fairfax County were to mortgagees located

outside of Virginia (355 F. Supp. at 497) and also that

“a large percentage of persons who live in Fairfax County

work outside of Virginia (355 F. Supp. at 494), and a

substantial percentage of the residents had moved into

the county within recent years from out of state. (355

F. Supp. at 497.)

In Goldfarb, this Court explained the needed relation-

ship between a local activity and an interstate transac-

tion, which made the local activity “integral” to the in-

terstate transaction:

Thus in this class action the transactions which cre-

ate the need for the particular legal services in ques-

tion frequently are interstate transactions. The nec-

essary connection between the interstate transactions

and the restraint of trade provided by the minimum-

fee schedule is present because, in a practical sense,

title examinations are necessary in real estate trans-

actions to assure a lien on a valid title on the bor-

rower. In financing realty purchases lenders require,

‘as a condition of making the loan, that the title to

the property involved be examined. .. .’ Thus, a

title examination is an integral part of an interstate

transaction. (421 U.S. 783-84, emphasis added; foot-

notes omitted.)

Accordingly, in Goldfarb the reason for the provision

of legal services was the effectuation of the interstate

housing financing transaction. The legal services in Gold-

farb had no function or purpose separate and apart from

the interstate housing financing transaction, “. . . which

created the need for the particular legal services in ques-

tion. (Id. at 783.) The legal services were con-

sumed as an indistinguishable part of the interstate

housing financing transaction.

Similarly, in Mandeville Island Farms v. American

Crystal Sugar Co., 343 U.S. 219 (1948), the Court de-

termined that an alleged conspiracy by sugar refiners in

northern California to fix the purchase price of sugar

beets sold by local sugar beet growers was in commerce.

The Court concluded that the sugar beet sales were part

of one integral refinery process from which sugar was

obtained for sale in interstate commerce. In Mandeville,

the reason for sale of sugar beets was the effectuation

of the interstate sale and distribution of sugar. As with

the legal services in Goldfarb, the cultivation and sale of

sugar beets in Mandeville had no function or purpose

separate and apart from the interstate sale and distri-

bution of sugar, “which created the need for the par-

ticular” local sugar beet commodity. The sugar beets

were consumed as an indistinguishable part of the in-

terstate sale and distribution of sugar.

In contrast, the provision of hospital services by Mary

Elizabeth Hospital has a purpose and function separate

— ——— §4— —

— — — —

and apart from the receipt of Medicare or Medicaid and

private health insurance payments and the use of out-

of-state equipment and supplies. The reason for the pro-

vision of hospital services is the personal and localized

need of the patient, not the effectuation of interstate

health insurance or supply sales. In the instant case, the

provision of hospital services are not consumed as an

indistinguishable part of interstate supply sales or the

provision of health insurance, as were the legal services

in Goldfarb and the sugar beets in Mandeville. Mary

Elizabeth Hospital may consume out-of-state supplies in

the course of providing a local service, but virtually all

local businesses, such as the provision of local taxi serv-

ice,” utilize supplies that have travelled among the states.

The fact that a local business makes use of goods or

services that have travelled across state lines does not

make every local business “integral” to the interstate

commerce of such goods and services. Virtually all in-

terstate commerce terminates in a local sale or the pro-

vision of a local service, but the local sale or service is

“integral” to the interstate commerce of such goods and

services only when the local service has no purpose or

function separate and apart from the interstate sale or

service. Accordingly, the provision of hospital services

by petitioner is not transformed into or made an integral

part of interstate transactions because it may use out-

of-state supplies, equipment and insurance in rendering

such services.

Petitioner also mistakenly relics on United States v.

South-Eastern Underwriters Ass’n, 322 U.S. 533 (1944),

claiming that Mary Elizabeth Hospital’s contacts with in-

terstate communications place it in interstate commerce

19 See United States v. Yellow Cab Co., 332 U.S. 218, 233, where

the Court held that daily taxi service of persons from their homes to

railroad stations for interstate travel, was “not an integral part of

interstate transportation,” and did not transform that activity into

an interstate activity.

just as the interstate contacts of the defendants-respond-

ents in South-Eastern Underwriters, supra. (Br. at 43.)

The facts in South-Eastern Underwriters, supra, are not

at all similar to the facts in the instant case. In South-

Eastern Underwriters, supra, the complaint alleged an

underwriting association and its approximately 200 mem-

ber companies, controlling ninety percent of the fire in-

surance sales in the relevant multi-state geographic mar-

ket, conspired to fix premium rates and commissions

across a six-state area and to use boycotts and other

types of coercion and intimidation to force non-member

companies to join the conspiracy and to compel persons

to buy insurance only from the association and its mem-

bers (322 U.S. at 534-35).” In deciding that the con-

spiracy alleged in South-Eastern Underwriters, supra,

occurred in the flow of interstate insurance business, the

Court noted that of the 200 allegedly conspiring compa-

nies only eighteen maintained home offices in the six-state

geographical market, and that the business of negotiating

insurance policies and policy premiums occurred between

company headquarters and customers across state lines.

In short, the Court found the daily activity in several

states and the alleged conspiracy to restrain the insur-

ance business across six states occurred in the flow of

interstate commerce.

0 Petitioner suggests that because the Court in South-Eastern

Underwriters, supra, considered relevant the fact that the out-

of-state headquarters of the defendant insurance companies made

decisions that were implemented in several states where those com-

panies sold insurance, the Court in the instant case should con-

sider other “local markets such as the Raleigh area” (Br. at 43)

in determining the jurisdictional questions herein. This suggestion

disregards the significant and critical fact that the complaint allega-

tions in South-Eastern Underwriters, supra, related to a multi-state

geographic market controlled by companies outside those states.

Wake County, North Carolina, is the sole geographic market alleged

in the petitioner’s complaint allegations.

III. THE CONDUCT COMPLAINED OF DID NOT SUB-

STANTIALLY AND ADVERSELY AFFECT INTER-

STATE COMMERCE.

A. The Effeci, If Any, of the Alleged Conspiracy on

Interstate Commerce Resulted Indirectly from the

Alleged Prevented Expansion of Mary Elizabeth

Hospital.

The second test for Sherman Act jurisdiction is

whether the conduct complained of, “however local its

immediate object . . . substantially and adversely affects

interstate commerce.” Gulf Oil Corp. v. Copp Paving

Co., 419 U.S. 186, 195 (1974). The conduct complained

of in petitioner’s amended complaint does not “sub-

stantially and adversely” affect interstate commerce and

therefore fails to satisfy the second jurisdictional stand-

ard under the Sherman Act.

Petitioner has alleged in its complaint, as amended,

that in 1972: it purchased goods and equipment “pur-

suant to national contracts negotiated” by petitioner’s

parent which. . . establish the terms of purchase” (App.

at 35); it “regularly utilizes interstate communications,

including the mails, telephone and telegraph, to carry on

its business” (App. at 35); it pays its out-of-state parent

a fee for management services (App. at 35); “a sub

stantial number of persons regularly come from states

other than North Carolina to the Raleigh area for treat-

ment in medical-surgical hospitals there” (App. at

36); it receives payment for hospital services provided

to patients from private insurance companies, including

Blue Cross and Medicare and Medicaid (App. at 36);

it will finance the cost of its expansion with out-of

state-loans (App. at 37); it is. the wholly-owned sub-

sidiary of an out-of-state corporation (App. at 34), and

it is accredited by a national hospital accreditation or-

ganization (App. at 37).

The complaint allegations make clear that the conduct

complained of was a conspiracy to prevent petitioner

from obtaining approval of its application to expand

Mary Elizabeth Hospital in Raleigh, North Carolina,

from a 49-bed facility to a 140-bed facility. (See supra

at pp. 3-7). Petitioner concedes that its application

for expansion was approved on June 30, 1972, only eight

months after it was filed (App. at 18 and 21). It is

also conceded that, if no opposition had been filed by

respondents, petitioner would not have been able to ob-

tain approval and begin construction until March 1,

1972. (App. at 26.) The alleged conspiracy, therefore,

caused a delay of approximately four months in obtain-

ing approval for expansion.

Petitioner also alleges that an appeal of its approval

was taken pursuant to the alleged conspiracy to oppose

its planned expansion. (App. at 23.) Such appeal did

not stay the approval of petitioner’s Certificate of Need,

and petitioner could have, therefore, commenced construc-

tion on its planned expansion. Petitioner does not deny

that no stay of the approval of its Certificate of Need

was obtained. (Br. at 9, n.11.)

In response to questions from the district court below

during oral argument, counsel for petitioner made clear

that the gravamen of petitioner’s complaint was the

“thwarting” of petitioner’s planned expansion of Mary

Elizabeth Hospital:

THE COURT: But what you complain of here is

not the actual commerce with some out of state sup-

plier or lender or patient or something but your

ability to expand an existing business, triple it I

believe you say, in order to provide more services,

and it is that thwarting of your intention and your

desire to expand your business that has been the

subject of their alleged restraint, is it not?

MR. TRAIN: That's correct. (App. at 43-44.)

In its Brief (App. at 26, 28 and 30-31), petitioner

paraphrases conclusory assertions in its complaint that

respondents conspired “. . . to fix, maintain and allocate

the number of paid hospital beds. . . in the Raleigh area.

... (App. at 15.) All the allegations of fact in sup-

port of these conclusions involve the alleged conspiracy

to prevent the expansion of Mary Elizabeth Hospital.

Even assuming the alleged conspiracy began in 1970,

petitioner alleges nothing to indicate that respondents

undertook any action other than the opposition to peti-

tioner’s application for a Certificate of Need and the

appeal of the approval of that application in pursuance

of the conspiracy.” Accordingly, even though the alleged

conspiracy only resulted in a delay of four months in

gaining approval of petitioner’s Certificate of Need, re-

spondents herein have addressed the complaint as if it

alleged that respondents had prevented Mary Elizabeth

Hospital’s expansion from March 1, 1972, the date upon

which petitioner admits it was prepared to commence

construction, until the Certificate of Need Act was in-

validated in February, 1973.”

It must be emphasized that the complaint does not

allege and petitioner does not contend that the alleged

conspiracy had as its object the elimination of Mary

Elizabeth Hospital from Wake County, North Carolina.

More significantly, it is not contended that, other than

the delay in obtaining approval of its Certificate of

Need, the alleged conspiracy interfered with the amount

of goods purchased by petitioner, or interfered with or

21 Petitioner also alleges that respondents created adverse pub-

licity against petitioner’s expansion by publicly stating respondent

Rex and co-conspirator Wake could supply the additional hospital

beds allegedly needed in the “Raleigh area.” (App. at 24.) Petitioner

does not state the manner in which such statements prevented it

from commencing construction of its expansion.

22 See In the Matter of Certificate of Need for Aston Park Hos-

pital, 282 N.C. 542, 193 S.E.2d 729 (S.Ct. N.C., February 1973).

limited the number of Mary Elizabeth Hospital’s patients

whose hospital care was paid for by Medicare, Medicaid

or private health insurance, or limited the number of

out-of-state patients that Mary Elizabeth treated.

B. The Alleged Prevention of the Expansion of Mary

Elizabeth Hospital Did Not Substantially and Ad-

versely Affect Interstate Commerce.

The Court in Gulf Oil Corp. v. Copp Paving Co., 419

U.S. 186, 202 (1974), explained the analysis to be under-

taken in determining whether the conduct complained of,

although local and intrastate, substantially and adversely

affects interstate commerce:

A court cannot presume that such [substantial] ef-

fects exist. The plaintiff must allege and prove that

apparently local acts in fact have adverse conse-

quences on interstate markets and the interstate flow

of goods in order to invoke federal antitrust prohibi-

tions. See U.S. v. Yellow Cab Co., 332 U.S. at 230-

234.“ (Emphasis added.)

Similarly, in Rasmussen v. American Dairy Ass’n.,

472 F.2d 517, 527 (9th Cir.), cert. denied, 412 U.S.

950 (1973), the court in determining whether a state-

wide conspiracy substantially and adversely affected the

interstate commerce of a product, stated:

The basic issue . . . is the extent to which a prohibi-

tion of the defendants’ specific conduct is justifiable

as a means of protecting the specific line of inter-

state commerce involved.

23 See also United States v. American Building Maintenance

Industries, 422 U.S. 271, 278 (1975) (“the Sherman Act has been

applied to local activities which, although not themselves within

the flow of interstate commerce, substantially affect interstate com-

merce”). This is not a de minimus test, as argued by petitioner

(Br. at 32) but one of substantial effect. Indeed, the reach of

Congressional power under the Commerce Clause is one of “sub-

stantial impact” on interstate commerce. See United States v.

Darby, 312 U.S. 100, 119 (1941).

In addition to analyzing whether the complained of

conduct adversely affected “interstate markets,” the

Court has also looked to the total dollar amount of

goods or materials travelling interstate which were

adversely affected by the alleged local conspiracy. For

example, in Burke v. Ford, 389 U.S. 320-21 (1967), the

Court found the interstate flow of liquor into Oklahoma

was substantially and adversely affected by an alleged

intrastate conspiracy of all the liquor wholesalers in

Oklahoma to allocate territories for the sale of liquor,

all of which liquor sold in the state was shipped into

Oklahoma from outside the state. The court in Burke

v. Ford, supra, noted that wholesale purchases of such

out-of-state liquor amounted to between $44 million and

$45 million in 1964. (389 U.S. at 321, n.1.)

Similarly, in United States v. Employing Plasterers

Ass’n, 347 U.S. 186 (1962), the Court found jurisdic-

tion present where a labor union and a trade associa-

tion of contractors, which contractors did 60% of the

plastering contract business in Chicago, conspired “to

prevent out-of-state contractors from doing any business

in the Chicago area and to bar entry of new local con-

tractors” without union approval. (347 U.S. at 188.)

In finding jurisdiction was present, the Court stated:

“a local group of people were to a large extent, able to

dictate who could and who could not buy plastering

materials that had to reach Illinois through interstate”

commerce. (347 U.S. at 189.)

In other situations where the activities involved in the

alleged conspiracy or attempt to monopolize are local

and intrastate, courts have considered the subject, or

thrust or aim of the alleged conduct in determining

whether the effect of such conduct in interstate com-

merce is substantial.“ In United States v. Yellow Cab

„ Relying on Lehrman v. Gulf Oil Corp., 464 F.2d 26 (6th Cir.),

cert. denied, 409 U.S. 1077 (1972), petitioner argues that the

court below erred in considering the thrust or subject of the conduct

Co., 332 U.S. 218 (1947), the Court looked to the object

or thrust of the alleged conspiracy (the commerce “to-

ward which this aspect of the conspiracy was directed”

(Id. at 230; emphasis added) ) and determined that Sher-

man Act jurisdiction was not present. See also Lorain

Journal v. United States, 342 U.S. 143, 150 (1951)

(“the publisher’s conduct was aimed at a larger tar-

get“).

The alleged conspiracy in the instant case had as its

subject the provision of hospital services a Wake County

and could not have substantially and adversely affected

the interstate commerce in each product line which Mary

Elizabeth Hospital received from out of state. More

importantly, the alleged conspiracy was incapable of in-

terfering with competition in those interstate transactions

in supplies, insurance, communication and _ interstate

travel. An analysis of each such interstate contact will

demonstrate that the alleged conspiracy did not and could

not substantially and adversely affect interstate commerce.

1. The Use of Out-of-State Supplies and Equipment

Petitioner argues that the alleged conspiracy to pre-

vent Mary Elizabeth Hospital’s expansion “impedes the

complained of as relevant to the determination of whether interstate

commerce has been affected substantially and adversely. (Br. at 34.)

In Lehrman, the thrust of the alleged conspiracy was irrelevant

because, as the court there found and as the plaintiff there alleged,

the claimed price fixing conspiracy was multi-state, covering the

entire Southwest. (Jd. at 32.)

28 Accord, United States v. Frankfort Distilleries, Inc., 324 U.S.

293, 297 (1945) (“this Court has on occasion determined that local

conduct could be insulated from the operation of the antitrust laws

on the basis of the purely local aims of a combination . .”) ; Page

v. Work, 290 F.2d 323, 330 (9th Cir.), cert. denied, 368 U.S. 875

(1961); Yellow Cab Co. of Nevada v. Cab Emp. Auto. & W. Loc.

#881, 457 F.2d 1032, 1035 (9th Cir. 1972); Marston v. Ann Arbor

Property Managers (Management) Ass'n, 302 F. Supp. 1276, 1280

(E.D. Mich. 1969), aff'd per curiam, 422 F.2d 836 (6th Cir.), cert.

denied, 399 U.S. 929 (1970).

natural flow of supplies and services and “particularly

the substantially increased flow of supplies and services”

that would have been transmitted “to an expanded” Mary

Elizabeth Hospital. (Br. at 30.) The complaint does not

allege that the conspiracy interfered with the purchase

of equipment and supplies,“ nor is it claimed that the

purpose of the alleged conspiracy was to be achieved

by restricting the out-of-state supplies utilized by pe-

titioner, or by fixing prices on such out-of-state supplies

or services. Rather, it is alleged that the conspiracy

prevented the approval of Mary Elizabeth Hospital's

application for a ninety-one bed expansion. Accordingly,

any effect on the flow of supplies in interstate commerce

could have resulted only to the extent that each of the

planned additional 91 beds would have been occupied, and

occupied by patients requiring the types of supplies and

materials that traveled in interstate commerce. (Br. at

26.)

Moreover, the duration of the effect, if any, on the

flow of supplies to Mary Elizabeth Hospital, according

to the complaint allegations, was for approximately four

months and only for the supplies needed for the additional

ninety-one beds. Further, the complaint, as amended,

does not allege that Mary Elizabeth purchased these

supplies from out of state. The complaint allegations

assert only that the supplies “are purchased pursuant to

national contracts negotiated by” petitioner’s parent

company.

More importantly, petitioner has not alleged that the

claimed conspiracy will have any effect on the interstate

market for such supplies and equipment in Raleigh,

North Carolina, or elsewhere. Out-of-state suppliers are

not allegedly involved in the claimed conspiracy, and are

continuing to compete for sales in the Raleigh area.

26 See Elizabeth Hospital, Inc. v. Richardson, 269 F.2d 167, 170

(8th Cir.), cert. denied, 361 U.S. 884 (1959).

The delay in the expansion of Mary Elizabeth Hospital

will not lessen this competition because Mary Elizabeth

Hospital purchases its supplies “pursuant to national

contracts” “which [contracts] establish the terms of

purchase” and are negotiated by petitioner’s parent.

(App. at 35.) Thus, as stated in Rasmussen v. American

Dairy Ass’n., 472 F.2d at 527, the “prohibition” of re-

spondent’s “specific conduct is [not] justifiable as a

means of protecting the specific line of interstate com-

merce involved.” See also Gulf Oil Corp. v. Copp Paving

Co., 419 U.S. at 202.

Overwhelming precedent squarely holds that an alleged

conspiracy to restrain the operation of a local business,

such as the instant alleged conspiracy to restrain the

provision of hospital services, does not substantially and

adversely affect interstate commerce in the out-of-state

supplies purchased by that business.

In United States v. Oregon State Medical Society, 343

IJ. S. 326 (1952), aff'g, 95 F.Supp. 103 (D. Oregon 1950),

the government alleged that a statewide organization

of doctors had conspired to restrain and to monopolize

the provision of prepaid medical care throughout the

State of Oregon. (343 U.S. at 330.) The prepaid medical

care plan included the provision of hospital care and

the organizations regularly “purchas[ed] and procur led!

medicines, drugs, medical supplies, and instruments

shipped from other states . . into the State of Oregon.”

(95 F.Supp. at 114.) The organization also engaged in

the use of interstate transportation and communication

facilities to carry on its business. The court affirmed the

finding of the district court that such interstate contacts

were insufficient for Sherman Act jurisdiction.

Similarly, in Page v. Work, 290 F.2d 323 (9th Cir.),

cert. denied, 368 U.S. 875 (1961), plaintiffs claimed the

alleged conspiracy to monopolize the legal advertising

market in Los Angeles County had a “direct and sub-

stantial effect” on the interstate commerce in newsprint

and ink because plaintiffs’ newspaper ceased buying

newsprint and ink when it went out of business. The

court rejected plaintiffs’ argument stating that the de-

fendants “. . . were in no position to nor did they

restrict competition in the newsprint market” (Id. at

332) and there “was no evidence that appellees [defend-

ants] did anything to interfere with newsprint pur-

chases . . by plaintiff. (Id.) Accord, Evans v. S. S.

Kresge Co., 394 F.Supp. 817, 838 (W.D. Pa. 1975);

Marston v. Ann Arbor Property Managers (Management)

Ass’n, 302 F.Supp. 1276 (E.D. Mich. 1969), aff'd per

curiam, 422 F.2d 836 (6th Cir.), cert. denied, 399 U.S.

929 (1970).

2. The Receipt of Insurance Payments from Out-

of-State Insurers and Medicare and Medicaid

Petitioner also contends that the alleged conspiracy

will substantially and adversely affect “the flow of pay-

ments for hospital services from out-of-state health in-

surers and the federal government under Medicare and

Medicaid.” (Br. at 30.)* The complaint does not claim

that the alleged conspiracy herein involved any out-of-

state insurer. Nor does the complaint allege that the

conspiracy to prevent petitioner’s expansion was accom-

plished by interference with out-of-state insurance,

Medicare and Medicaid payments. Thus, the fact that

27 See also Sun Valley Disposal Co. v. Silver State Disposal Co.,

420 F.2d 341 (9th Cir. 1969); Lieberthal v. North Country Lanes,

Inc., 332 F.2d 269 (2d Cir. 1964).

28 Relying on Goldfarb v. Virginia State Bar, 421 U.S. 773

(1975), petitioner and the amicus curiae Federation of American

Hospitals argue that because some of the patients petitioner treat

qualify for Medicare or Medicaid and have private health insurance,

the provision of hospital services to those patients is “integral” to

an interstate transaction, i.e., the payment by those insurance com-

panies. Respondents have addressed those arguments in another

part of this Brief. See supra at pp. 29-34.

petitioner receives such payments is not relevant to the

jurisdictional inquiry. The only claim is that the alleged

out-of-state payments and communications would have

increased if the alleged conspiracy had not delayed the

approval of the Certificate of Need. (Br. at 26.)

In United States v. Oregon State Medical Society,

supra, the Court held that the interstate contacts of a

statewide prepaid health plan were insufficient to satisfy

the jurisdictional standards of the Sherman Act. In that

case, the statewide organization sent medical policies

across state lines, and, as part of its “regular course of

business, arrang led] to pay for . . medical care rendered

by doctors, hospitals and others in other states... (95

F. Supp. at 122.) These contacts were held insufficient

for Sherman Act jurisdiction. 343 U.S. 326 (1952).

Medicare and Medicaid are wholly administered by in-

state intermediaries and carriers. (See 42 U.S.C. §§ 1395h

and 1395u.) In North Carolina, the state intermediary

for Medicare is Blue Cross of North Carolina“ and

Mary Elizabeth Hospital deals with Blue Cross of North

Carolina for reimbursement under Medicare for treat-

ment provided to qualifying patients. North Carolina

Blue Cross processes requests for payments and ac-

tually makes the payments for hospital services from

funds which have been made available to it. (20 C. F. R.

§ 405. 1803 (a) (1975) and 42 U.S.C. § 1395h (a)). Thus,

the administration of and payments made under Medicare

for hospital services rendered by Mary Elizabeth Hos-

pital are all intrastate even though federal funding is

involved. However, the funds are allocated on a regular

** Petitioner alleges that 56 per cent of its charges were made to

private insurance programs, including Blue Cross. Petitioner does

not advise the Court that virtually each state and major metropoli-

tan area has an independently financed, regulated, operated and in-

corporated Blue Cross plan. Blue Cross is a state-wide insurance

plan, regulated by the State of North Carolina. See G.S. North

Carolina, §§ 57.1 et seg. (Michie Replacement 1957).

A ee eee Oe

basis to the local intermediary by letter of credit, and

the amount of such funds are based on an estimate,

not for past services rendered. (31 C.F.R. 58 205.1 et

seg. (1975)).

The only distinction between the interstate contacts

in the instant case and those in Oregon State Medical,

supra, other than the fact that the interstate contacts

herein are far less substantial than in Oregon State

Medical, is the indirect contacts with federal funding.

As amendments to the Social Security Act, the Medicare

and Medicaid programs are established and funded under

the General Welfare Clause of the Constitution. See

Helvering v. Davis, 301 U.S. 619 (1937). Accordingly,

petitioners are arguing that the scope of Sherman Act

jurisdiction, a statute passed under the authority granted

in the Commerce Clause of the Constitution, may be en-

larged by virtue of funds received under legislation en-

acted under the General Welfare Clause. Yet, Congress

explicitly provides in 42 U.S.C. § 1395 that such funding

shall not be the basis for any federal regulation of hos-

pital and medical services. Legislation passed under the

General Welfare Clause, such as Social Security, reaches

into every walk of life.“ If jurisdiction under the Sher-

man Act may now be grounded on the movement of

funds appropriated through legislation enacted under the

General Welfare Clause, every employer who is in-

volved in the Social Security program will be subject

to Sherman Act jurisdiction. Thus, legislative authority

limited by one Constitutional clause will be expanded by

virtue of another. Certainly, this cyclical enlargement

of federal power should not be permitted. See N.L.R.B.

v. Jones & Laughlin Steel Corp., 301 U.S. 1, 37 (1937),

and Maryland v. Wirtz, 392 U.S. 183, 197 (1968).

20 See, e.g., Food Stamp Act of 1964, 7 U.S.C. §§ 2011 et seq.

(1970); Social Security Act of 1935, 49 Stat. 620 (1935) codified

throughout Title 42 U.S.C. (1970).

The conspiracy alleged in petitioner’s complaint could

have had no effect on competition in the private health

insurance market in Raleigh, North Carolina, and na-

tionwide. It is not alleged that out-of-state insurers were

involved in the conspiracy." Moreover, there is no com-

petitive market for Medicare and Medicaid payments.

Any patient who qualifies for those programs is en-

titled to payment, and patients may select any hospital

in Raleigh, North Carolina, to provide them with serv-

ice. (App. at 13.) Competition is for the treatment

of patients, and this competition occurred in Raleigh,

North Carolina.

3. Communications Across State Lines

Petitioner’s argument concerning its receipt of pay-

ment from out-of-state insurance companies and Medi-

care and Medicaid “ is very similar to its argument con-

cerning its use of interstate communications including

telephone, telegraph and the mails. (App. at 35.) Both

arguments implicitly are based upon the supposition that

interstate communications, whether payments or corres-

pondence, would have increased absent the alleged con-

spiracy to delay Mary Elizabeth Hospitai’s expansion.

In both arguments, petitioner relies upon the interstate

communications engaged in by virtually every business.

* Petitioner misrelies on the complaint filed in United States v.

American Society of Anesthesiologists, Inc., Civil No. 75-4640

(S.D.N.Y. filed September 22, 1975), for the proposition that pay-

ments by insurance companies and Medicare and Medicaid consti-

tute an independent jurisdictional basis under the Sherman Act.

(Br. at 25, n.28.) The American Society of Anesthesiologists,

Inc.’s, complaint alleges a nationwide price fixing conspiracy among

the Society, all its members and component societies. (Br. at A-2.)

Because Medicare is totally administered by a local Blue Cross

corporation (see supra at p. 44), petitioner may have virtually

no out-of-state communications with respect to the provision of

hospital services to patients in this program.

In Cotillion Club Inc. v. Detroit Real Estate Board,

303 F.Supp. 850 (E.D. Mich. 1964), plaintiff made vir-

tually the same assertions as petitioner does herein,

alleging that defendants, real estate brokerage firms, con-

spired to restrain trade in the “. . . purchase, sale,

transfer, [and] financing of real estate, including fed-

erally financed and insured real estate. (Jd. at

852.)

The complaint in Cotillion Club alleged the receipt

and transmission of “information and listings to and

from other states,” the filing of “applications, reports

and other documents for transmittal to Washington,

D.C., or other out-of-state offices of various Federal

Housing Agencies,” and the completion of “investiga-

tions, appraisals and surveys of federally financed or

insured Michigan real estate to be transmitted to other

states.” (Id. at 853.) The court in, Cotillion Club

stated :

[A]n attempt has been made to rely upon certain

incidental activities across state lines [to invoke

Sherman Act jurisdiction]. This is an effort to util-

ize incidental minor activities, consisting of the

transmission of information across state lines, as a

jurisdictional foundation for a substantive charge of

alleged federal antitrust violations. The effort is

strained and, in the Court’s opinion, overreaching.

The foundation is patently incapable of supporting

such a structure. (Id. at 854.)

Accord, John Kalin Funeral Home, Inc. v. Fultz, 313

F.Supp. 435 (W.D. Wash. 1970), aff'd per curiam, 442

F.2d 1342 (9th Cir.), cert denied, 404 U.S. 881 (1971).

The Court’s observation in Cotillion Club is applicable

in the instant case. Any business, regardless of size,

engages in the use of interstate means of communica-

tion. The connection between the alleged conspiracy and

the volume of correspondence and use of interstate com-

munications is a strained attempt by petitioner to list

every conceivable contact it may have with out-of-state

facilities, regardless of significance or relationship to the

alleged conspiracy.

4. Out-of-State Financing and the Planned Expan-

sion of Mary Elizabeth Hospital

Petitioner also claims the alleged conspiracy has a

substantial and adverse effect on interstate commerce

because petitioner intended to use out-of-state financing

for the expansion of Mary Elizabeth Hospital. (App.

at 37; Br. at 30.) It is not alleged that the purported

conspiracy to prevent the expansion was effectuated by

interfering with petitioner’s finaneing.“ The alleged fi-

nancing of the expansion was a “one-shot” arrangement.

In Lieberthal v. North Country Lanes, Inc., 332 F.2d

(2d Cir. 1964), plaintiff, a wholly-owned subsidiary

of an out-of-state corporation, alleged defendants had

conspired in violation of Section 1 of the Sherman Act

to terminate plans for the construction of a bowling

alley, which would have been constructed with out-of-

state materials. The court there held that the alleged

conspiracy did not have a substantial and adverse effect

on the interstate equipment which would have been

utilized in the construction because the alleged financing

was a “one-shot” occurrence.

5. Travel of Out-of-State Patients and Other A1.

leged Out-of-State Contacts

In its Brief (Br. at 26), petitioner also argues that

Mary Elizabeth Hospital competes with respondent Rex

In its Brief, petitioner states its financing “commitment ex-

pired of tis own terms.” (Br. at 9.) This “fact” was not alleged in

the amended complaint and was not presented to either the district

court or the court of appeals and is not part of the record. More-

over, petitioner’s statement does not indicate whether its financing

expired before or after it obtained approval to expand on June 30,

1972

and alleged co-conspirator Wake to serve out-of-state

patients “who come to the Raleigh area for treatment.”

Recognizing that courts have with virtual uniformity

found that such allegation is insufficient for a finding

that an alleged local conspiracy to restrain the provision

of hospital services substantially and adversely affects in-

terstate commerce, petitioner states it is not relying on

this allegation for jurisdiction. (Br. at 26, n.32.)

Substantial precedent holds that an alleged conspiracy

to restrain the provision of hospital services in a local

area, such as Wake County, North Carolina, where some

of the patients treated come from out of state, does

not have a substantial and adverse effect on the inter-

state travel. See Elizabeth Hospital, Inc. v. Richardson,

269 F.2d 167 (8th Cir.), cert. denied, 361 U.S. 884

(1959); United States v. Oregon State Medical Society,

supra; Nankin Hospital v. Michigan Hospital Service, 361

F. Supp. 1189 (E.D. Mich. 1973); and United States v.

Yellow Cab Co., supra. As stated in Hotel Phillips, Inc.

v. Journeymen Barbers, 195 F. Supp. 664, 669 (W.D.

Mo. 1961), aff'd, 301 F.2d 443 (8th Cir. 1962):

Neither the facts in this case, nor any other au-

thority known, supports the theory here advanced,

namely, that local activities are illegal under the

Sherman Act because they concern persons who have

previously moved in interstate commerce or who,

after receiving a local personal service, may there-

after move in interstate commerce.

Petitioner’s remaining complaint allegations are that

it is a local subsidiary of an out-of-state corporation“

which provides petitioner with management services for

„ Petitioner alleges in its complaint that it is the wholly-owned

subsidiary of a parent corporation that owns several hospitals in

other states. (App. at 36.) The alleged conspiracy by two non-profit

local hospitals in Raleigh, North Carolina, could have no practical

effect on the ability of petitioner to compete in the provision of

hospital services.

a fee, and petitioner has been accredited by a national

accreditation agency. (App. at 34 and 37.) The con-

spiracy alleged in the complaint has had no substantial

and adverse effect on these fixed relationships, or upon

any of those interstate markets. See Gulf Oil Corp. v.

Copp Paving Co., 419 U.S. at 202. See also United States

v. Yellow Cab Co., supra; and United States v. Oregon

State Medical Society, supra.

6. The Necessity for a Jurisdictional Line Under

the Sherman Act

As recognized by Judge Craven in the majority opinion

below, there are no bright lines dividing cases in which

the effect of the alleged anticompetitive conduct sub-

stantially and adversely affects interstate commerce from

those cases in which it does not. “The complexities of

modern business have little room for contracts, or busi-

ness transactions, which cannot be said in some degree

to affect interstate commerce.” Cotillion Club, 303 F.

Supp. at 854. Virtually every business utilizes sup-

plies that flow in interstate commerce and engages in in-

terstate communication with the federal government and

with suppliers. The question in each Sherman Act case

is where should the jurisdictional line be drawn. This

line must be drawn, under the Sherman Act, on a case-

by-case basis analyzing the facts alleged. Respondents

submit that the instant case presents a situation that

should fall outside the scope of the Sherman Act and

into the sphere of state antitrust laws. The states all

have mini-Sherman Acts and alleged restraints of trade

can be successfully challenged under such statutes. (See

e.g., G.S. North Carolina, §§ 75-1 et seg. (Michie Replace-

ment 1975)). However, if the all-persuasive influence

of federal spending under the General Welfare Clause is

to be the tail which wags the dog of the interstate

commerce test, the federal system will experience an-

other step toward its demise. As recognized by this

Court in N.L.R.B. v. Jones & Laughlin, supra, 301 U.S.

at 37, in upholding the broad sweep of the National

Labor Relations Act, in an opinion by Chief Justice

Hughes: *

Undoubtedly the scope of this power must be con-

sidered in the light of our dual system of govern-

ment and may not be extended so as to embrace

effects upon interstate commerce so indirect and re-

mote that to embrace them, in view of our complex

society, would effectually obliterate the distinction

between what is national and what is local and cre-

ate a completely centralized government. Id. The

question is necessarily one of degree.

IV. THE EN BANC DECISION CORRECTLY AF-

FIRMED DISMISSAL OF THE ACTION ON THE

AMENDED COMPLAINT ALLEGATIONS.

Rules 12 (b) (1) and (6) of the Federal Rules of Civil

Procedure specifically contemplate dismissals on the com-

plaint allegations where such allegations, if proved, will

not support jurisdiction. The case authority is legion on

the correctness of this dismissal on the complaint allega-

tions for failure to state a claim or for lack of jurisdic-

tion over the subject matter under the Sherman Act.“

This warning was reiterated by the Court in Maryland v.

Wirtz, 392 U.S. 183, 196 (1968).

See, e.g., Wolf v. Jane Phillips Episcopal Memorial Medical

Center, 513 F.2d 684 (10th Cir. 1975) ; Elizabeth Hospital, Inc. v.

Richardson, 269 F.2d 167 (8th Cir.), cert. denied, 361 U.S. 884

(1959); Riggall v. Washington County Medical Society, 249 F.2d

266 (8th Cir. 1957), cert. denied, 355 U.S. 954 (1958); Robinson v.

Lull, 145 F. Supp. 134 (N.D. III. 1956); Marston v. Ann Arbor

Property Managers (Management) Assn., 302 F. Supp. 1276 (E.D.

Mich. 1969), aff d per curiam, 422 F.2d 836 (6th Cir.), cert. denied,

399 U.S. 929 (1970); Lieberthal v. North Country Lanes, Inc., 332

F.2d 269 (2nd Cir. 1964); Hotel Phillips, Inc. v. Journeymen Bar-

bers, 195 F. Supp. 664 (W.D. Mo. 1961), af d, 301 F.2d 443 (8th

Cir. 1962) ; Evanston Cab Co. v. City of Chicago, 325 F.2d 907 (7th

Cir. 1963), cert. denied, 377 U.S. 943 (1964); United States v.

Yellow Cab Co., 332 U.S. 218 (1947); Yellow Cab Co. of Nevada v.

Cab Emp. Auto. & W. Local #881, 457 F.2d 1032 (9th Cir. 1972).

After having respondents’ memorandum in support of

its motion to dismiss for approximately four weeks, peti-

tioner filed a detailed factual amendment to the jurisdic-

tion allegations in its complaint. (App. at 34-38.) Re-

spondents’ memorandum had made petitioner fully aware

of the jurisdictional defects in the complaint and peti-

tioner set forth in its amended complaint all allegations

of interstate commerce that it intended to prove for

jurisdictional purposes. Respondents properly challenged

these allegations as being legally insufficient, even if they

could be proved. There was no need for discovery in

order to decide the motion. See cases cited in footnote

36, page 51, supra. Furthermore, at the hearing be-

fore the district court petitioner made clear that the facts

alleged in its amended complaint constituted the totality

of the purported interstate commerce affected by the con-

duct complained of.“

The transcript of oral argument before the district

court is barren of any suggestion by petitioner that it

needed discovery. Indeed, petitioner indicated to the dis-

trict court, that it had “set forth in substantial detail

the facts” which it believed satisfied the jurisdictional

requirements and requested the court to move forward.

Petitioner should not now be heard to argue it had in-

sufficient opportunity for discovery.

* Petitioner stated to the district court:

We have amended our complaint to set forth in substantial

detail the facts which we intend to prove with respect to the

involvement of interstate commerce because we felt that we'd

like to move forward in this case and get to the merits of it

and we would like the Court to have before it as soon as pos-

sible the facts that we felt justifies this Court in exercising

its jurisdiction to deal with this particular situation, as we

see it, this particular anti-competitive situation that we feel

violates the Sherman Act.

We have set forth the various facts which we believe satisfy

both the tests Mr. Bolze has referred to. (Transcript before

the District Court, Civil No. 4048, February 22, 1973, at

p. 26.)

—

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CONCLUSION

For all the foregoing reasons, the judgment of the

court below should be affirmed.

Respectfully submitted,

Ray S. BOLZE

JOHN R. FORNACIARI

MARK W. PENNAK

Howrey & SIMON

1730 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

Tuomas W. STEED, JR.

ALLEN, STEED & PULLEN

P.O. Box 2058

Raleigh, North Carolina 27602

JOHN H. ANDERSON

SMITH, ANDERSON, BLOUNT & MITCHELL

P.O. Box 750

Raleigh, North Carolina 27602

LILLARD MOUNT

HOFFLER, MOUNT, WHITE & LONG

102 East Main Street

Durham, North Carolina 27701

Attorneys for Respondents

December 22, 1975

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.