Plaintiffs' Cross-Motion for Summary Judgment and Response to Allegiance Health's Motion for Partial Summary Judgment: U.S. and State of Michigan v. Hillsdale Community Health Center, et al.

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF MICHIGAN

UNITED STATES OF AMERICA and

STATE OF MICHIGAN,

Plaintiffs,

HILLSDALE COMMUNITY HEALTH

CENTER,

W.A. FOOTE MEMORIAL HOSPITAL,

D/B/A ALLEGIANCE HEALTH,

COMMUNITY HEALTH CENTER OF

BRANCH COUNTY, and

PROMEDICA HEALTH SYSTEM, INC.,

Defendants.

Case No.: 5:15-cv-12311-JEL-DRG

Judge Judith E. Levy

Magistrate Judge David R. Grand

ORAL ARGUMENT REQUESTED

PLAINTIFFS’ CROSS-MOTION FOR SUMMARY JUDGMENT

AND RESPONSE TO ALLEGIANCE HEALTH’S

MOTION FOR PARTIAL SUMMARY JUDGMENT

The United States and the State of Michigan (“Plaintiffs”) respectfully move

the Court, pursuant to Federal Rule of Civil Procedure 56, for summary judgment

for the reasons stated in Plaintiffs’ accompanying memorandum. Pursuant to

Local Rule 7.1(a), attorneys for the United States and the State of Michigan

conferred with counsel for W.A. Foote Memorial Hospital, d/b/a Henry Ford

Allegiance Health (“Allegiance”), who stated that Allegiance does not consent to

any of the requested relief.

Respectfully Submitted,

FOR PLAINTIFF UNITED STATES OF AMERICA:

Peter Caplan (P-30643)

Assistant United States Attorney

U.S. Attorney’s Office

Eastern District of Michigan

211 W. Fort Street

Suite 2001

Detroit, Michigan 48226

(313) 226-9784

peter.caplan@usdoj.gov

/s/ Katrina Rouse

Katrina Rouse (D.C. Bar No. 1013035)

Garrett Liskey

Jill Maguire

Antitrust Division, Litigation I Section

U.S. Department of Justice

450 Fifth St. NW

Washington, DC 20530

(415) 934-5346

katrina.rouse@usdoj.gov

FOR PLAINTIFF STATE OF MICHIGAN:

/s/ with the consent of Mark Gabrielse

Mark Gabrielse (P75163)

Assistant Attorney General

Michigan Department of Attorney General

Corporate Oversight Division

G. Mennen Williams Building, 6th Floor

525 W. Ottawa Street

Lansing, Michigan 48933

(517) 373-1160

Email: gabrielsem@michigan.gov

January 19, 2017

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF MICHIGAN

UNITED STATES OF AMERICA and

STATE OF MICHIGAN,

Plaintiffs,

HILLSDALE COMMUNITY HEALTH

CENTER,

W.A. FOOTE MEMORIAL HOSPITAL,

D/B/A ALLEGIANCE HEALTH,

COMMUNITY HEALTH CENTER OF

BRANCH COUNTY, and

PROMEDICA HEALTH SYSTEM, INC.,

Defendants.

Case No.: 5:15-cv-12311-JEL-DRG

Judge Judith E. Levy

Magistrate Judge David R. Grand

ORAL ARGUMENT REQUESTED

PLAINTIFFS’ MEMORANDUM IN SUPPORT OF CROSS-MOTION FOR

SUMMARY JUDGMENT AND RESPONSE TO ALLEGIANCE HEALTH’S

MOTION FOR PARTIAL SUMMARY JUDGMENT

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TABLE OF CONTENTS

STATEMENT OF ISSUES ..................................................................................... iii

INDEX OF AUTHORITIES .................................................................................... iv

I. INTRODUCTION ........................................................................................... 1

II. STATEMENT OF FACTS .............................................................................. 2

III. SUMMARY OF APPLICABLE LAW ........................................................... 5

IV. ARGUMENT ................................................................................................... 8

A. Plaintiffs’ Direct Evidence Establishes Concerted Action Between

Allegiance and HCHC ..................................................................................... 8

1. Contemporaneous, Ordinary-Course Communications Between

Allegiance and HCHC Show an Agreement ........................................... 9

2. Allegiance Employees Routinely Refer to an Agreement

Between Allegiance and HCHC on Marketing .....................................11

3. Allegiance Sought HCHC’s Advance Approval to Market

in Hillsdale County ................................................................................13

4. This Undisputed Evidence Supports the Existence of an Agreement ...16

B. The Allegiance-HCHC Agreement Was a Customer Allocation

Agreement That Is Illegal Per Se under Section 1 of the Sherman Act ........19

C. Allegiance’s Arguments Against the Per Se Standard Must Be Rejected ....23

1. This Court Is Not Required To Weigh Any Purported Anticompetitive

and Procompetitive Effects Before Applying the Per Se Standard .......23

2. Allegiance Fails to Portray Its Agreement as Anything

Other than a Per Se Unlawful Market Allocation ..................................25

3. The Purported “Hybrid” Nature of the Allegiance-HCHC

Relationship is Irrelevant .......................................................................27

D. Alternatively, the Allegiance-HCHC Agreement is

Condemnable Under a “Quick Look” Rule of Reason Analysis ..................30

1. The Agreement Is Inherently Suspect ....................................................30

2. Allegiance Has Not Asserted a Plausible,

Procompetitive Justification for Its Agreement with HCHC.................31

3. A Quick Look Analysis Is Appropriate If the Court

Does Not Treat the Agreement as Per Se Unlawful ..............................35

V. CONCLUSION ..............................................................................................36

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iii

STATEMENT OF ISSUES

I. Whether Plaintiffs established an agreement between

Allegiance and HCHC restricting Allegiance’s marketing of competing

services in Hillsdale County, where numerous internal Allegiance

documents and direct communications with HCHC explicitly reference such

an agreement?

II. Whether this agreement amounts to a horizontal market

allocation that is per se unlawful under Section 1 of the Sherman Act?

III. Whether this agreement is illegal under a “quick look” rule of

reason analysis given the nature of the restraint and given Allegiance’s

failure to offer any procompetitive justifications cognizable under the

Sherman Act?

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INDEX OF AUTHORITIES

STATUTES

15 U.S.C. § 1 ................................................................................................ 6, passim

MCL 445.784(2) ........................................................................................................6

RULES

Federal Rule of Civil Procedure 56 ........................................................................... 5

CASES

Am. Council of Certified Podiatric Physicians & Surgeons v.

Am. Bd. of Podiatric Surgery, Inc., 185 F.3d 606 (6th Cir. 1999). ........................ 6

Arizona v. Maricopa Cnty. Med. Soc’y, 457 U.S. 332 (1982). ................................23

Arnold Pontiac-GMC, Inc. v. Gen. Motors Corp.,

700 F. Supp. 838 (W.D. Pa. 1988) .......................................................................29

Bates v. State Bar of Arizona, 433 U.S. 350 (1977) ................................................20

*Blackburn v. Sweeney, 53 F.3d 825 (7th Cir. 1995) .................. 19, 20, 21, 22, 30

Booher ex rel. T.W. v. Montavon, 555 F. App’x 479 (6th Cir. 2014) ......................19

Brainard v. Am. Skandia Life Assur. Corp., 423 F.3d 655 (6th Cir. 2005) .............34

Cal. Dental Ass’n v. FTC, 526 U.S. 756, 760 (1999) ..............................................26

California ex rel. Harris v. Safeway Inc., 651 F.3d 1118 (9th Cir. 2011). .............24

Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752 (1984) ...............................18

Deborah Heart & Lung Ctr. v. Virtua Health Inc.,

No. 11-1290, 2015 WL 1321674 (D.N.J. Mar. 24, 2015). ...................................36

Dimidowich v. Bell & Howell, 803 F.2d 1473 (9th Cir. 1986) ................................29

FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 459 (1986) .......................................30

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FTC v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411 at 414 (1990 ) .............34

Hyland v. HomeServices of Am., Inc., 771 F.3d 310 (6th Cir. 2014) ......................16

In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2003). .....................7, 24

In re Mushroom Direct Purchaser Antitrust Litig.,

No. 06-0620, 2015 WL 6322383 (E.D. Pa. May 26, 2015) .................................29

In re Online DVD Rental,

No. M 09-2029 PJH, 2011 WL 5883772 (N.D. Cal. Nov. 23, 2011) ..................24

In re Se. Milk Antitrust Litig., 739 F.3d 262 (6th Cir. 2014). .................................... 7

In re Urethane Antitrust Litig., 913 F. Supp. 2d 1145 (D. Kan. 2012) ...................17

Law v. NCAA, 134 F.3d 1010 (10th Cir. 1998). ......................................................34

Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007). .............26

Major League Baseball Props., Inc. v. Salvino, Inc.,

542 F.3d 290 (2d Cir. 2008). ................................................................... 25, 34, 35

McKay v. Federspiel, 823 F.3d 862 (6th Cir. 2016). ................................................. 6

*Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679 (1978) ......... 7, 33, 34

*New York v. Saint Francis Hosp., 94 F. Supp. 2d 399 (S.D.N.Y. 2000) ..... 29, 32

Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co.,

472 U.S. 284 (1985). ............................................................................................24

Palmer v. BRG of Ga., Inc., 498 U.S. 46 (1990). ....................................................28

Saint Alphonsus Med. Ctr. – Nampa, Inc. v. St. Luke’s Health Sys. Ltd.,

1:12–CV–00560–BLW, 1:13–CV–00116–BLW,

2014 WL 407446 (D. Idaho Jan. 24, 2014) ..........................................................29

Sec’y of U.S. Dept. of Labor v. Gilley, 290 F.3d 827 (6th Cir. 2002) ....................... 6

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Tunica Web Advert. v. Tunica Casino Operators Ass’n, Inc.,

496 F.3d 403 (5th Cir. 2007) ......................................................................... 16, 17

Tyson v. Sterling Rental, Inc., 836 F.3d 571 (6th Cir. 2016) ..................................... 6

United States v. Apple Inc., 952 F. Supp. 2d 638 (S.D.N.Y. 2013) .................. 17, 36

United States v. Apple, Inc., 791 F.3d 290 (2d Cir. 2015) .......................... 27, 29, 33

United States v. Brown Univ., 5 F.3d 658 (3d Cir. 1993) ........................................35

United States v. Consol. Laundries Corp., 291 F.2d 563 (2d Cir. 1961) ................20

*United States v. Coop. Theatres of Ohio, Inc.,

845 F.2d 1367 (6th Cir. 1988) ................................................... 19, 20, 21, 22, 27

United States v. Gen. Motors Corp., 384 U.S. 127 (1966) ......................................16

*United States v. Topco Assocs., Inc., 405 U.S. 596 (1972) ..................................19

White & White, Inc. v. Am. Hosp. Supply Corp., 723 F.2d 495 (6th Cir. 1983). ...... 6

TREATISES

11 Moore’s Federal Practice § 56.22[3] (Matthew Bender 3d ed.) ........................19

Areeda & Hovenkamp, Antitrust Law (3d ed.) ................................................. 16, 21

* Denotes controlling or most appropriate authority for the relief sought. LR

7.1(d)(2).

I. INTRODUCTION

Defendant W.A. Foote Memorial Hospital d/b/a Henry Ford Allegiance

Health (“Allegiance”) and Hillsdale Community Health Center (“HCHC”) agreed

that Allegiance would restrict its marketing of certain services in Hillsdale County.

The existence of the agreement is clear. Allegiance’s formal marketing plan

expressly referenced it; Allegiance’s CEO told HCHC’s CEO that Allegiance

“specifically agreed to screen out Hillsdale zip codes” from Allegiance’s

marketing; and Allegiance’s Vice President of Marketing referred to the existence

of a “gentleman[’]s agreement” in one document and apologized directly to HCHC

for “not honor[ing] our agreement” in another. This agreement let HCHC attract

consumers in Hillsdale County without constraint from certain forms of critical

competition from Allegiance, and amounts to a horizontal market allocation that is

per se unlawful under Section 1 of the Sherman Act. Alternatively, the agreement

may be held unlawful after a “quick look” rule of reason inquiry.

Thus, the Court

should grant Plaintiffs’ Cross-Motion for Summary Judgment and find Allegiance

liable for violating the Sherman Act.

Faced with parallel allegations, former defendants HCHC, Community Health

Center of Branch County, and ProMedica Health System, Inc. have settled

Plaintiffs’ claims and have agreed to stop such behavior. See ECF No. 36.

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II. STATEMENT OF FACTS

Allegiance and HCHC operate the only general acute-care hospitals in their

respective adjacent counties

and are horizontal competitors for patients seeking

healthcare services.

Marketing is a key component of this competition: it is an

important way in which the hospitals seek more patients and a larger market share.

Allegiance markets to inform patients, physicians, and employers about the

hospital, including its quality and scope of services.

Allegiance’s marketing

efforts in areas outside of Hillsdale County include media advertisements (print,

billboards, television, radio, and digital), mailings, health fairs, health screenings,

outreach to physicians and employers, and establishing clinics.

Allegiance’s

.”).

See, e.g., Allegiance Health’s Answer and Defenses to Plaintiffs’ Complaint at

¶ 1 (ECF No. 24) (“Answer to Complaint”); Defendant Allegiance Health’s

Objections and Answers to First Set of Requests for Admission at 2 (RFA 1)

(“Allegiance’s RFA Answers”) (excerpted in Exhibit A).

Answer to Complaint at ¶ 14; see Allegiance’s Objections and Answers to

Plaintiffs’ First Set of Interrogatories at 8 (“Allegiance’s First Interrogatory

Answers”) (excerpted in Exhibit B) (“

See Allegiance’s RFA Answers at 4 (RFA 7) (excerpted in Exhibit A);

Investigative Testimony of Georgia Fojtasek, Dec. 12, 2014, at 274:6-8 (excerpted

in Exhibit C-2).

See Answer to Complaint at ¶ 14; Allegiance’s RFA Answers at 5 (RFA 9)

(excerpted in Exhibit A).

See Allegiance’s RFA Answers at 5-6 (RFA 10-13) (excerpted in Exhibit A);

Investigative Testimony of Georgia Fojtasek, Nov. 14, 2014, at 109:20-110:3

(excerpted in Exhibit C-1); Allegiance’s First Interrogatory Answers at 4-11

(excerpted in Exhibit B); AH000334966 at 968 (excerpted in Exhibit O-1).

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CEO, Georgia Fojtasek, conceded at her deposition, however, that Allegiance

limited its marketing efforts in Hillsdale County.

Since at least 2009, Allegiance agreed with HCHC to restrict its marketing

of services in which it competes with HCHC in Hillsdale County. In general, the

two hospitals compete for so-called “lower acuity” services, while Allegiance also

provides “higher acuity” services that Hillsdale does not.

So, for example, both

hospitals provide basic cardiovascular services, but only Allegiance provides more

advanced catheterization laboratory services, heart surgery, and vascular surgery.

Written communications show that HCHC policed Allegiance’s compliance

with the agreement and brought violations to Allegiance’s attention. Allegiance

apologized in writing to HCHC for violating the agreement twice in 2009.

Allegiance assured HCHC’s CEO: “It isn’t our style to purposely not honor our

agreement,”

and agreed to screen out Hillsdale County zip codes from its

promotional mailings.

Additionally, several Allegiance documents refer

Deposition of Georgia Fojtasek, Sept. 20, 2016 (“Fojtasek Dep.”), at 76:20-25

(excerpted in Exhibit C-3); see also Statement of Allegiance Health In Further

Response to The DOJ and MIAG Civil Investigative Demands at 4 (“Allegiance

White Paper”) (excerpted in Exhibit D).

Expert Report of Susan Henley Manning, Ph.D. at ¶¶17-18 (excerpted in Exhibit

E).

Id. at ¶¶ 17, 76.

See HIL-DOJ-003916 at 920 (excerpted in Exhibit F-1).

See AH000980691 (Exhibit O-2).

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explicitly to its agreement with HCHC.

Allegiance does not dispute that its

employees have referred repeatedly to an “agreement” or a “gentleman’s

agreement” with HCHC.

Moreover, Allegiance’s documents show that the Allegiance-HCHC

agreement caused Allegiance to refrain from advertising its services and physicians

in Hillsdale County newspapers and billboards, and from providing free health

education mailings, educational talks, or engaging in certain other marketing

campaigns in Hillsdale County.

Accordingly, Allegiance’s Vice President of

Physician Integration, Gerald Grannan, described Allegiance’s “relationship with

HCHC” as “one of seeking ‘approval’ to provide services in their market.”

See, e.g., AH000635931-33 at 931 (Exhibit O-3); AH000551704 (Exhibit O-4)

(“[S]ince Dr. Ekpo is total joint, will we market his skill set in Hillsdale because all

of Hillsdale[’]s Orthos do hip and knee replacement and that would not be in-line

with our gentleman’s agreement with [HCHC CEO] Duke [Anderson]. [sic]”).

Allegiance’s RFA Answers at 10 (RFA 30) (excerpted in Exhibit A).

For example, Allegiance’s ordinary-course business documents show that

Allegiance excluded Hillsdale County zip codes from certain of its health

education mailings. See, e.g., AH000563848 (Exhibit O-5); AH000981696-97

(Exhibit O-6); AH001684494-97 at 497 (Column J, at J27, J28, J46, J47, J55)

(Exhibit O-7); AH000416895 (Exhibit O-8). Similarly, other documents show that

Allegiance barred its physicians from giving community presentations in Hillsdale

County. See, e.g., ALLDOJMIAG-ST-00005338-43 at 538-39 (Exhibit O-9);

ALLDOJMIAG-GG-0000132 (Exhibit O-10); see also AH000572696 (Exhibit O-

11). Further, please see Section IV.A, infra, for a detailed overview of internal and

external communications that establish the Allegiance-HCHC agreement.

AH000413603-04 (Exhibit O-12).

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Allegiance competes with more distant hospitals to attract high-acuity

patient referrals from Hillsdale County.

Allegiance believed that unfettered

competition with HCHC and its affiliated physicians for low-acuity services would

make it more difficult to solicit HCHC referrals for high-acuity services.

Allegiance, however, hoped that agreeing to restrict competition for low-acuity

patients would lead HCHC providers to refer to Allegiance rather than to

Allegiance’s high-acuity rivals.

In addition, Allegiance hoped that agreeing not

to compete for HCHC’s business would help prevent HCHC from being purchased

by any of Allegiance’s large rivals—such as ProMedica, Borgess, or the University

of Michigan—because “if [HCHC] were owned by Borgess or ProMedica or

somebody else, all of those referrals would follow [to HCHC’s owner].”

III. SUMMARY OF APPLICABLE LAW

Summary judgment is proper when “there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter of law.”

“A

dispute of material fact is genuine so long as ‘the evidence is such that a reasonable

See Allegiance White Paper at 1 (excerpted in Exhibit D).

Fojtasek Dep. at 74:23-75:12 (Exhibit C-3) (“That by avoiding antagonizing,

that it would build the – build the relationships that could maintain referrals for

open hearts and for other services. That was our goal.”).

Id. at 126:22-127:20 (Allegiance planned to “be respectful of those services that

can be done locally in Hillsdale” because that is “more likely to pave the way for

referrals”).

See id. at 125:16-21.

Fed. R. Civ. P. 56(a).

jury could return a verdict for the non-moving party.’”

“[T]he court must view

the evidence and draw all reasonable inferences in favor of the nonmoving

party.”

Where both parties have moved pursuant to Rule 56, “the court must

evaluate each party’s motion on its own merits, taking care in each instance to

draw all reasonable inferences against the party whose motion is under

consideration.”

To establish a violation of Section 1 of the Sherman Act,

Plaintiffs must

prove three elements: “1) a contract, combination or conspiracy; 2) affecting

interstate commerce;

3) which imposes an ‘unreasonable’ restraint of trade.”

To decide whether a restraint of trade is “unreasonable,” courts examine the

Tyson v. Sterling Rental, Inc., 836 F.3d 571, 576 (6th Cir. 2016) (quoting

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

Sec’y of U.S. Dept. of Labor v. Gilley, 290 F.3d 827, 829 (6th Cir. 2002) (citing

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

McKay v. Federspiel, 823 F.3d 862, 866 (6th Cir. 2016).

15 U.S.C. § 1. It is not disputed that Michigan antitrust law follows federal

precedent. See MCL 445.784(2). Therefore, the analysis in this brief applies

equally to Counts I and II of Plaintiffs’ Complaint. See Am. Council of Certified

Podiatric Physicians & Surgeons v. Am. Bd. of Podiatric Surgery, Inc., 185 F.3d

606, 619 n.4 (6th Cir. 1999).

In its Answer, Allegiance admits that it engages in interstate commerce and in

activities substantially affecting interstate commerce. See Answer to Complaint at

¶ 9.

White & White, Inc. v. Am. Hosp. Supply Corp., 723 F.2d 495, 504 (6th Cir.

1983).

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restraint under a per se and/or a “quick look” rule of reason, or a full rule of reason

analysis.

Per se unlawful restraints are “agreements whose nature and necessary effect

are so plainly anticompetitive that no elaborate study of the industry is needed to

establish their illegality.”

Where it applies, the per se rule provides “a

‘conclusive presumption’ of illegality to certain types of agreements” and “no

consideration is given to the intent behind the restraint, to any claimed pro-

competitive justifications, or to the restraint’s actual effect on competition.”

The quick look rule of reason is an “abbreviated form of the rule of reason

analysis” that is “used for situations in which ‘an observer with even a rudimentary

understanding of economics could conclude that the arrangements in question

would have an anticompetitive effect on customers and markets.’”

Under quick

look analysis, once the plaintiff identifies “anticompetitive behavior,” the burden

of proof shifts to the defendant to “provid[e] some ‘competitive justification’ for

the restraint.”

Such procompetitive justifications, moreover, must not be

achievable through less restrictive means.

See In re Se. Milk Antitrust Litig., 739 F.3d 262, 274 (6th Cir. 2014).

Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 692 (1978).

In re Cardizem CD Antitrust Litig., 332 F.3d 896, 906 (6th Cir. 2003).

In re Se. Milk, 739 F.3d at 274 (quoting Cal. Dental Ass’n v. FTC, 526 U.S. 756,

770 (1999)).

Id. at 275.

Id. at 272.

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IV. ARGUMENT

Section 1 requires concerted action by the defendants. A defendant rarely

admits in writing the existence of an illegal anticompetitive agreement. But that is

what happened here. As detailed in Section IV.A below, the evidence of the

Allegiance-HCHC agreement entitles Plaintiffs to summary judgment on the first

element of their claims.

Plaintiffs likewise are entitled to summary judgment based on the

unreasonable nature of Allegiance’s agreement with HCHC. The agreement at

issue is a horizontal customer allocation agreement—a type of agreement that

courts have long considered to be per se illegal. Alternatively, the agreement

should be deemed illegal under a quick look analysis because of its obvious

anticompetitive effects and absence of any legally cognizable procompetitive

justification.

A. Plaintiffs’ Direct Evidence Establishes Concerted Action Between

Allegiance and HCHC

The evidence is compelling that, since at least 2009, Allegiance and HCHC

have agreed to limit Allegiance’s marketing for competing services in Hillsdale

County. It is undisputed that Allegiance: expressly referred to “our agreement” in

direct communications with HCHC; apologized to HCHC for mistakenly

marketing to Hillsdale County residents and committed to preventing future

infractions; sought approval from HCHC before marketing certain services in

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Hillsdale County; and restricted certain marketing in Hillsdale County at the behest

of HCHC.

1. Contemporaneous, Ordinary-Course Communications

Between Allegiance and HCHC Show an Agreement

In February 2009, Allegiance sent a letter to Hillsdale County residents

advertising a “free Seminar” to be held in Jackson County in March 2009 by

“Orthopedic Surgeons, Charles Medlar, MD and Allan Tompkins, MD.”

These

types of seminars are offered to educate consumers about health issues and

treatment options. Dr. Barry Collins, an orthopedic surgeon in Hillsdale County,

and his staff complained to Allegiance’s Jeanne O’Dell that the mailing violated

the “gentleman’s agreement[] [t]hat Hillsdale will not market in the Jackson area

and Allegiance agrees to do the same.”

Ms. O’Dell apologized to Dr. Collins and

assured him that “there had been a mistake and that our intentions are not to pull

business from the area.”

Ms. O’Dell also relayed the complaint to Ms. Fojtasek,

Allegiance’s CEO, who commended Ms. O’Dell’s handling of the situation.

Duke Anderson, HCHC’s CEO, called Ms. Fojtasek about the same mailing.

In an email to Allegiance employees, Ms. Fojtasek reported her conversation with

Mr. Anderson:

HIL-DOJ-003916 at 917 (excerpted in Exhibit F-1). The letter is directed to an

address in Reading, Michigan, which is located in Hillsdale County.

AH000980691-92 (Exhibit O-2).

Id.

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I told him [Mr. Anderson] that we specifically agreed to screen out

Hillsdale zip codes, that we would find out what happened and be sure

the appropriate apologies are send [sic]. Anthony [Gardner], can you

find out please and quickly and get w/ Duke [Anderson] and then

determine service recovery w/ Dr Collins. I also think we need a

review of our processes so that this doesn’t recur. The glitches cause

distrust.

Per his CEO’s instruction, Anthony Gardner, Allegiance’s then-Vice

President of Marketing, sent a letter of apology to HCHC’s Dr. Collins, with a

copy to Mr. Anderson.

In it, Mr. Gardner “apologize[d] for a letter that was sent

to Hillsdale-area residents regarding an Allegiance Health orthopedic community

event.”

He explained that Allegiance “routinely exclude[s] residents from the

Hillsdale community from our promotional mailings” and that an “error” caused

Allegiance to send the letter “unintentionally.”

Mr. Gardner concluded his

apology by assuring Dr. Collins that Allegiance had “reviewed our internal

processes . . . to ensure that future orthopedic mailings are not sent to Hillsdale

residents.”

Then, in October 2009, Allegiance mailed a “welcome” letter to a Hillsdale

County address in which its CEO offered a free first-aid kit as a housewarming gift

Id.

HIL-DOJ-003916 (excerpted in Exhibit F-1). In his apology to Dr. Collins, Mr.

Gardner noted that “I have spoken with Duke Anderson directly regarding our

mistake and have apologized to him as well.” Id.

Id.

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and provided Allegiance’s website address.

After learning of the mailing,

Allegiance’s Mr. Gardner sent a handwritten apology to HCHC’s Mr. Anderson

“for the packets that were mailed to Hillsdale.”

Mr. Gardner explained that “[a]s

with the earlier ortho[pedics] error,” the marketing “was certainly not

intentional.”

Mr. Gardner assured Mr. Anderson: “It isn’t our style to purposely

not honor our agreement.”

He also reported that Allegiance would address the

cause of the error “immediately” and thanked Mr. Anderson for making Allegiance

aware of the mailing.

2. Allegiance Employees Routinely Refer to an Agreement

Between Allegiance and HCHC on Marketing

Numerous internal Allegiance documents from 2009 to 2013 refer explicitly

to an “agreement” or “gentleman’s agreement” with HCHC. For example, in

November 2009, with respect to the upcoming mailing of Allegiance’s annual

Report to the Community, Shannon Scholten, Allegiance’s Communications

Director, reminded Mr. Gardner and Timothy Keener, Allegiance’s then-Senior

HIL-DOJ-003916 at 921 (excerpted in Exhibit F-1).

Id. at 919-20 (excerpted in Exhibit F-1). In her testimony, Ms. Fojtasek

confirmed that in 2009 Allegiance apologized to HCHC for sending a “Welcome

Wagon mailing” to Hillsdale County. Fojtasek Dep. at 144:12-18 (excerpted in

Exhibit C-3); see also Allegiance’s RFA Answers at 9-10 (RFA 27-28) (excerpted

in Exhibit A) (Allegiance admits that “in or around October 2009, Anthony

Gardner, at the direction of Georgia Fojtasek, apologized in writing to Duke

Anderson for marketing materials sent to Hillsdale County residents”).

HIL-DOJ-003916 at 920 (excerpted in Exhibit F-1).

Id.

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Vice President of Strategy, that “this piece is being sent to approximately

homes in our service area (excluding several zips in the Hillsdale region[]based on

our agreement[]to not market there).”

Likewise, Allegiance’s Oncology Services MarCom (Marketing &

Communications) Plan for fiscal year 2012 to 2013—created by the marketing

department and provided to its head, Mr. Gardner—states: “[D]ue to an agreement

with the CEO of Hillsdale Community Health Center, Duke Anderson, marketing

activity will not include Hillsdale County. Mr. Anderson is concerned that

[Allegiance’s] Gayle M. Jacob Cancer Center may negatively impact usage rates

for the infusion and Chemotherapy/Hematology Center in Hillsdale.”

Similarly, in an April 2012 document prepared for use in discussions with

his CEO, Mr. Gardner wrote that certain cardiologists “don’t understand the

gentleman’s agreement approach to Hillsdale and believe we should try to

penetrate that market more aggressively.”

In a February 2013 email, Allegiance’s Marketing Director, Suzette Turpel,

explained to Allegiance’s Manager of Physician Recruitment, Michael Houttekier,

AH000437523 (Exhibit O-13).

AH000442389 at 391 (excerpted in Exhibit O-14); see also ALLDOJMIAG-AG-

00028714 at 715 (excerpted in Exhibit O-15) (“Likewise, an agreement exists with

the CEO of Hillsdale Community Health Center, Duke Anderson, to not conduct

marketing activity in Hillsdale County.”).

AH000345985 at 987 (excerpted in Exhibit O-16).

that “[w]e are only allowed to market open-heart per our agreement with Duke

[Anderson]. This has been the case for the entire 6+ years I have worked here.”

Mr. Houttekier, in an April 2013 email to his supervisor, Gerald Grannan,

asked whether Allegiance could market certain orthopedic services in Hillsdale

County because doing so “would not be in-line with our gentleman[’]s agreement

with Duke [Anderson].”

Then, in an October 2013 response to a colleague’s question – “What is the

current status in Hillsdale as far as what we can/can[’]t do there?” – Mr. Houttekier

explained that “[w]e can promote services that they do not offer or a service that

has been mutually agreed upon.”

3. Allegiance Sought HCHC’s Advance Approval to Market in

Hillsdale County

The course of conduct provides further evidence of the agreement and the

manner in which it was executed. For example, several documents make clear that

Allegiance sought HCHC’s advance approval to market certain services in

Hillsdale County. For example, in December 2008, Allegiance’s Mr. Houttekier

wrote to HCHC’s Mr. Anderson:

AH000635931-32 at 931 (Exhibit O-3).

AH000551704 (Exhibit O-4).

AH000396819-20 (excerpted in Exhibit O-17). In another part of the email

chain, Ms. Turpel wrote: “The only service marketing has a green light to promote

in Hillsdale is open-heart.”

HILL-SUBPOENA-DOJ-000003 (Exhibit F-3).

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I am wondering if you would oppose me letting your primary care

physicians know that this technique [minimally invasive parathyroid

surgery] is available to their patients. Grant it [sic], if your physicians

are performing this type of surgery I understand that you do not want

me to market within the Hillsdale market, which we respect your

wishes.

Mr. Anderson responded by thanking Mr. Houttekier and “respectfully ask[ing]

that you not market the aforementioned procedure to Hillsdale docs.”

Mr.

Houttekier then replied and confirmed that he would “continue to seek your

approval prior to meeting with any of your physicians.”

In October 2011, Mr. Grannan reported on his discussion with Mr. Anderson

regarding Allegiance’s marketing plans in Hillsdale County and Mr. Anderson’s

views on such marketing:

 Regarding the America 1 Women’s Expo, Mr. Anderson “is okay with

[Allegiance] promoting vascular but not heart there.”

 Mr. Anderson “does not want the marketing of the [Allegiance]

cancer center in the area yet. He has an infusion/chemo center that

needs support. Our cancer center will pull from him.”

 Mr. Anderson “is cautious related to making sure services offered in

the community do not take from him the basic services he needs to

Id.

Id.; see also AH000314775-76 at 775 (Exhibit O-18) (internal discussion

regarding Mr. Anderson’s response).

AH000249623-25 at 924 (Exhibit O-19).

Id.

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survive. While he is not opposed to certain services, he is

conservative on what we can market and what we cannot.”

Likewise, in a document sent to Allegiance’s outside consultant for growth

strategy, Navigant, Mr. Grannan described Allegiance’s “relationship with HCHC”

as “transactional and one of seeking ‘approval’ to provide services in their

market.”

Further, Allegiance curtailed its marketing efforts in response to HCHC

objections. For example, around December 2013, an Allegiance thoracic surgeon

wanted to meet with an ear-nose-throat physician in Hillsdale County.

Allegiance’s Mr. Houttekier relayed to a physician recruiter for HCHC that he

wanted to introduce the surgeon to the Hillsdale physician. The recruiter

responded: “I needed to let you know that [HCHC doctors] do this same work [as

the Allegiance thoracic surgeon] so we wouldn’t want to interfere with that. . . . I

received some concern from Hillsdale and wanted to let you know.”

Mr.

Houttekier replied: “Ah, that is good to know and will [sic] not push the

introduction because we do not want to steer business from Hillsdale that can be

Id. at 625

AH000413603-04 at 604 (Exhibit O-12) (noting also that “HCHC is trying to

protect their market”); see also AH000445379-82 at 380 (Exhibit O-20) (Regional

Marketing Guidelines stating “HCHC approval to market cardiovascular and

hyperbaric only”); AH0000916369 at 372 (excerpted in Exhibit O-21) (“[W]e

[Allegiance] have Duke Anderson’s (CEO) approval to promote certain services in

Hillsdale.”).

HILL-ANDE-00017933-35 at 934 (Exhibit F-2).

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performed in Hillsdale by your docs.”

HCHC’s CEO congratulated the recruiter

on her handling of the situation, writing to her, “Good job Diane!”

Select documentary evidence of the Allegiance-HCHC agreement

implemented over time, discussed above, is also summarized in Exhibit N.

4. This Undisputed Evidence Supports the Existence of an

Agreement

Though often hard to detect, “[t]he most straightforward indication of a

traditional conspiracy is a participant’s direct acknowledgment that an agreement

exists.”

The “unity of purpose” or “common understanding” reflecting an

unlawful agreement may be grounded in conduct, and does not require any formal

instrument, like a written contract.

This is the very rare case in which the evidence establishing the agreement

between Allegiance and HCHC is both direct and overwhelming. As detailed

Id. at 933.

Id.

Areeda & Hovenkamp, Antitrust Law ¶ 1418a (3d ed.) (excerpted in Exhibit M);

see also Hyland v. HomeServices of Am., Inc., 771 F.3d 310, 318 (6th Cir. 2014)

(Direct evidence “is explicit and requires no inferences to establish the proposition

or conclusion being asserted . . . . [It] is ‘tantamount to an acknowledgment of

guilt.” (internal punctuation and citations omitted)); Tunica Web Advert. v. Tunica

Casino Operators Ass’n, Inc., 496 F.3d 403, 409 (5th Cir. 2007) (“Direct evidence

of concerted action is that which explicitly refers to an understanding between the

alleged conspirators.” (internal punctuation omitted)).

Hyland, 771 F.3d at 318 (punctuation and citations omitted); United States v.

Gen. Motors Corp., 384 U.S. 127, 142-43 (1966) (“[An] explicit agreement is not a

necessary part of a Sherman Act conspiracy—certainly not where, as here, joint

and collaborative action was pervasive in the initiation, execution, and fulfillment

of the plan.”).

above, Allegiance employees explicitly referred to an agreement with HCHC in

numerous documents internally and in direct communications with HCHC. Per the

agreement, Allegiance employees were allowed to engage only in certain

marketing, and Allegiance apologized when it mistakenly engaged in prohibited

marketing. Allegiance routinely sought advance approval from HCHC to market

in Hillsdale County, and Allegiance modified its marketing efforts due to HCHC’s

expressed concerns. Allegiance sought to assure HCHC that Allegiance was not

trying to pull business from Hillsdale County. This evidence shows that

Allegiance acted in concert with HCHC to restrict the marketing of competing

services in Hillsdale County.

The deposition testimony of Allegiance’s CEO that its conduct was a

unilateral strategy is not an obstacle to summary judgment. Ms. Fojtasek did not

contradict or dispute the evidence of Allegiance’s conduct described above. In

fact, she acknowledged that Allegiance apologized to HCHC for mistakenly

See United States v. Apple Inc., 952 F. Supp. 2d 638, 693-95 (S.D.N.Y. 2013)

(contemporaneous statements from CEO and ordinary course documents constitute

direct evidence of agreement); see also Tunica Web Advert., 496 F.3d at 410

(statements referring to a gentlemen’s agreement and emails showing

implementation of that agreement constitute direct evidence of concerted action);

In re Urethane Antitrust Litig., 913 F. Supp. 2d 1145, 1153-54 (D. Kan. 2012)

(testimony that defendant’s executive said on multiple occasions that he had met

with competitors and reached agreements to set prices constitutes direct evidence

of agreement).

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marketing in Hillsdale County;

that before executing certain marketing plans in

Hillsdale County, Allegiance first checked with HCHC to obtain the latter’s

reaction;

that Allegiance sought approval from HCHC as to Allegiance’s

marketing efforts;

and that Allegiance curtailed its marketing efforts in Hillsdale

County due to HCHC’s concerns.

Merely characterizing Allegiance’s conduct as a “strategy” does not make it

one. No matter the label on Allegiance’s conduct, the legal question for the Court

is whether Allegiance’s admitted conduct, along with the undisputed

contemporaneous business documents detailed above, constitute concerted action.

The compelling evidence of an agreement demonstrates precisely the kind of

concerted action between competitors that “deprives the marketplace of the

independent centers of decisionmaking that competition assumes and demands.”

Fojtasek Dep. at 143:24-144:18 (apologies “important to building the referral

relationships”);145:7-146:3 (excerpted in Exhibit C-3); see also Deposition of

Duke Anderson, June 30, 2016, at 252:6-9 (admitting that he complained to

Allegiance about its marketing in Hillsdale County) (excerpted in Exhibit G-1).

Fojtasek Dep. at 134:24-135:5; 167:20-168:22; 179:5-14; 215:14-216:1

(excerpted in Exhibit C-3).

Id. at 130:2-15; 132:6-19; 135:6-136:16 (referencing AH000314775-76; see

Exhibit O-18); 178:18-179:14 (excerpted in Exhibit C-3); see also Deposition of

Duke Anderson, July 1, 2016, at 290:25-293:18 (admitting that he asked

Allegiance not to market a procedure to Hillsdale County physicians because the

Hillsdale County physicians provided the same service; referencing HILL-

SUBPOENA-DOJ-000003; see Exhibit F-3) (excerpted in Exhibit G-2).

See Fojtasek Dep. at 87:8-88:19; 92:14-20 (excerpted in Exhibit C-3); see also

id. at 141:1-11; 225:14-226:5.

Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 768–69 (1984).

5:15-cv-12311-JEL-DRG Doc # 99-2 Filed 04/21/17 Pg 27 of 46 Pg ID 2245

Moreover, Ms. Fojtasek’s deposition testimony does not create a factual

dispute as to the existence of an agreement. At the summary judgment stage, this

Court may disregard testimony when it is blatantly contradicted by the objective

record; such evidence fails to create a genuine issue of fact for trial.

Here,

Allegiance’s undisputed and repeated admissions in its contemporaneous,

ordinary-course documents and its admitted conduct blatantly contradict Ms.

Fojtasek’s post-hoc, self-serving testimony.

B. The Allegiance-HCHC Agreement Was a Customer Allocation

Agreement That Is Illegal Per Se under Section 1 of the Sherman

Act

The horizontal agreement between Allegiance and HCHC is a type of market

allocation known as customer allocation that almost always has the effects of

raising price and reducing output.

The agreement here restricts a broad swath of

See 11 Moore’s Federal Practice § 56.22[3] (Matthew Bender 3d ed.) (“To

create a genuine dispute of fact, evidence must be believable. There is no genuine

dispute as to a fact when the opposing parties tell two different stories, one of

which is blatantly contradicted by uncontested parts of the record, so no reasonable

jury could believe it. If the nonmovant’s version of the facts is unbelievable, the

court should not adopt that version for purposes of ruling on a summary judgment

motion.”) (discussing Scott v. Harris, 550 U.S. 372, 380 (2007)); see also Booher

ex rel. T.W. v. Montavon, 555 F. App’x 479, 484 (6th Cir. 2014) (affirming district

court’s holding that plaintiff’s testimony could not create a genuine issue of

material fact where medical evidence blatantly contradicted it).

See United States v. Coop. Theatres of Ohio, Inc., 845 F.2d 1367, 1372-73 (6th

Cir. 1988) (per se illegal criminal customer allocation); Blackburn v. Sweeney, 53

F.3d 825, 827 (7th Cir. 1995) (per se illegal territorial division for marketing); see

also United States v. Topco Assocs., Inc., 405 U.S. 596, 607-08 (1972) (describing

why market allocation is per se illegal); United States v. Consol. Laundries Corp.,

hospital outreach of the type that unambiguously benefits consumers.

Allegiance

undisputedly limited certain types of marketing in Hillsdale County, including

billboards, advertisements in local newspapers, and direct health education

mailings to Hillsdale County households.

Courts have recognized the important

role that marketing plays in competition. In Bates v. State Bar of Arizona, the

Supreme Court explained that advertising “serves to inform the public of the

availability, nature, and prices of products and services, and thus performs an

indispensable role in the allocation of resources in a free enterprise system.”

Judicial experience and economic learning establish that a horizontal agreement

(like Allegiance’s) to allocate territories for marketing is a form of customer

allocation likely to harm competition and consumers.

291 F.2d 563, 574-75 (2d Cir. 1961) (“We fail to see any significant difference

between an allocation of customers and an allocation of territory.”).

As detailed in Section IV.A, the Court can grant summary judgment on the issue

of an agreement. Even if the Court is unable to grant summary judgment at this

time, the Court may still grant summary judgment on Plaintiffs’ claims that the

agreement—as alleged in the Complaint—is subject to per se liability, or

alternatively, to quick look review. See, e.g., Coop. Theatres of Ohio, 845 F.2d at

1373 (affirming the district court’s ruling as a matter of law that the per se standard

should apply to customer allocations).

Fojtasek Dep. at 76:20-25; 137:6-12 (excerpted in Exhibit C-3).

433 U.S. 350, 364 (1977).

See Blackburn, 53 F.3d at 827.

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Courts treat this sort of restraint as per se illegal.

In United States v.

Cooperative Theatres of Ohio, Inc.,

the Sixth Circuit held as a matter of law that

an agreement between competitors to refrain from soliciting each other’s

customers was a per se illegal criminal customer allocation. In that case, two

movie theater booking agents agreed to refrain from soliciting by making “cold

calls” to each other’s existing customers. Despite the defendants’ arguments that

they “remained free to accept unsolicited business from their competitors’

customers,” through referrals and general advertisements, and even though the

agents were free to compete for new customers, the Sixth Circuit ruled that their

agreement was per se illegal.

It explained that “the so-called ‘no-solicitation’

agreement alleged in this case is undeniably a type of customer allocation scheme

which courts have often condemned in the past as a per se violation of the Sherman

Act.”

In Blackburn v. Sweeney, a case on all fours with this one, the Seventh

Circuit addressed a restraint allocating territories for marketing by county and

Areeda & Hovenkamp, Antitrust Law ¶ 2030 (3d ed.), “Properly Defined Naked

Market Divisions Unlawful Per Se” (excerpted in Exhibit M) (collecting cases and

explaining “a naked agreement among rivals restraining advertising is valuable to

the promisee precisely because advertising threatens to steal sales”).

845 F.2d 1367 (6th Cir. 1988).

Id. at 1373.

Id.

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deemed it to be per se illegal market allocation.

The Blackburn court reviewed a

non-compete agreement between former partners of a law firm dividing the

markets where they could advertise.

The court concluded that the agreement to

limit advertising to different geographic regions “sufficiently approximates an

agreement to allocate markets so that the per se rule of illegality applies.”

The

Blackburn court also observed: “[t]o fit under the per se rule an agreement need

not foreclose all possible avenues of competition.”

Similarly, here, the fact that Allegiance can still use select forms of

marketing and compete through means other than marketing in Hillsdale County

does not change the per se illegality of the restraint.

The Court should find that

the Allegiance-HCHC agreement was per se illegal even though some of

Allegiance’s digital, television, and radio marketing may have reached Hillsdale

County residents. The agreement’s clear purpose was to stifle the competition

HCHC faced for lower-acuity services, while easing the competition Allegiance

faced for higher-acuity services in the form of referrals; given the courts’

53 F.3d at 827.

See id. (agreement restricting “any advertising, including but not limited to,

television, radio, newspapers, billboards, direct mail or yellow pages”).

Id.

Id.; see also Coop. Theatres of Ohio, 845 F.2d at 1373 (agents were free to

attract customers through advertisements and referrals).

See Allegiance Health’s Mot. For Partial Summ. J. (ECF No. 64) at 6 (“Def.’s

Br.).

familiarity with this type of customer allocation agreement, this Court should

condemn the agreement as per se illegal.

C. Allegiance’s Arguments Against the Per Se Standard Must Be

Rejected

Allegiance offers several arguments for why the per se standard is

inappropriate in this case. None is persuasive.

1. This Court Is Not Required To Weigh Any Purported

Anticompetitive and Procompetitive Effects Before

Applying the Per Se Standard

Allegiance attempts to avoid per se liability by claiming that Plaintiffs failed

to offer evidence of a substantial effect on or anticompetitive harm to

competition.

But the case that Allegiance itself relies on makes clear that a

plaintiff need not offer any such evidence in a per se case.

Similarly unsound is

Allegiance’s claim that the Court must reject “all of Allegiance’s evidence of

plausible procompetitive justifications” before using the per se standard.

The per

se standard demands “facial invalidation” of per se illegal agreements even where

a defendant proffers “procompetitive justifications.”

Because Plaintiffs have

proven a per se unlawful agreement, there is “a ‘conclusive presumption’ of

See id. at 10-12, 15-19.

See id. at 11-12 (quoting In re Cardizem CD Antitrust Litig., 332 F.3d 896, 906

(6th Cir. 2003), for the proposition that per se analysis “gives ‘no consideration . . .

to the restraint’s actual effect on competition’”).

Id. at 15 n.21.

Arizona v. Maricopa Cnty. Med. Soc’y, 457 U.S. 332, 351 (1982).

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illegality,”

and Plaintiffs have no further evidentiary burden to show

anticompetitive effects.

Allegiance’s reliance on Northwest Wholesale Stationers is misplaced.

That case addressed the unique issues surrounding a group boycott claim, which

the Court recognized at the outset causes “more confusion . . . than . . . any other

aspect of the per se doctrine,” and therefore required “[s]ome care . . . in defining

the category of concerted refusals to deal that mandate per se condemnation.”

Allegiance’s reliance on Online DVD Rental—an out of circuit, unpublished

case—is also unavailing.

In that case, the district court concluded that the

agreement was not a “‘naked’ market allocation agreement” deserving per se

treatment before considering anticompetitive effects or procompetitive

justifications.

And in Safeway, the court considered justifications only after it

concluded that the challenged conduct could not be considered a per se violation.

Our case, by contrast, involves the kind of horizontal customer allocation that is a

well-established per se violation of the antitrust laws.

In re Cardizem Antitrust Litig., 332 F.3d at 906.

Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284

(1985).

Id. at 294.

Def.’s Br. at 19.

See In re Online DVD Rental, No. M 09-2029 PJH, 2011 WL 5883772, at *9

(N.D. Cal. Nov. 23, 2011).

California ex rel. Harris v. Safeway Inc., 651 F.3d 1118, 1135-37 (9th Cir.

2011).

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Finally, Major League Baseball Properties addresses the “operation[] of [a]

sports league[],” which requires a certain level of cooperation that makes the

industry as a whole generally subject to rule of reason analysis.

It in no way

suggests that an expert’s opinion on procompetitive effects can convert an

otherwise per se case into one requiring a rule of reason analysis.

Also irrelevant for the same reason is Allegiance’s claim that its experts say

that the agreement—which, as Plaintiffs show, is per se illegal—did not produce

anticompetitive effects.

And even if it were relevant, Allegiance misconstrues

the record. Allegiance’s economic expert, Dr. Manning, conceded that her analysis

does not allow her to rule out the possibility that Allegiance could have gained

even more share in Hillsdale County absent the agreement, which severs any

causal link between the agreement and changes in market share.

2. Allegiance Fails to Portray Its Agreement as Anything

Other than a Per Se Unlawful Market Allocation

Allegiance’s motion leaves the impression that the per se standard is rarely

applied. But neither Leegin nor common practice support this mischaracterization.

See Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290, 332-34

(2d Cir. 2008).

Def.’s Br. at 15.

Deposition of Dr. Susan Manning, Dec. 14, 2016 (“Manning Dep.”) at 164:13-

165:1 (excerpted in Exhibit H).

Leegin addressed a vertical agreement.

100

And Leegin made clear that horizontal

agreements “to divide markets” were the type of restraint that would justify per se

treatment.

101

Since the Court is presented in our case with a type of restraint that is per se

illegal, California Dental Association v. FTC,

102

is cold comfort to Allegiance. In

that case, the Supreme Court addressed a challenge to the defendant trade

association’s ethics rules designed to prevent false and misleading

advertisements.

103

The rules applied equally to all dentists advertising in all parts

of California, and did not purport to prevent a dentist in one location from

advertising in a competitor’s region. Further, the advertising that the trade

association’s rules were intended to limit was harmful to consumers; no such

argument has been advanced here.

104

Thus, the opinion neither limits nor overturns

the well-established per se treatment of agreements between horizontal competitors

to divide territories.

100

Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 887-99

(2007).

101

Id. at 886.

102

526 U.S. 756, 760 (1999).

103

Id. at 759-60.

104

Id. at 778 (expressing view that these particular advertising restrictions could

“prevent[] misleading or false claims that distort the market”).

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To the extent Allegiance contends that the present case cannot be governed

by the per se standard because it does not bar any actual sales,

105

such an argument

is directly foreclosed by Cooperative Theatres, as discussed above. In Cooperative

Theatres, the Sixth Circuit held that an agreement preventing parties from actively

soliciting each other’s customers was per se illegal customer allocation, even

where the agreement still allowed competition for customers through other

means.

106

3. The Purported “Hybrid” Nature of the Allegiance-HCHC

Relationship is Irrelevant

Allegiance also claims that the per se framework is inappropriate in this case

because Allegiance and HCHC have a “hybrid” relationship that includes both

horizontal and vertical elements and therefore is inappropriate for per se

analysis.

107

Allegiance is mistaken.

The Sherman Act outlaws agreements that unreasonably restrain trade.

108

Accordingly, the Supreme Court focuses on the nature of the agreements in

105

See Def.’s Br. at 14 n.20.

106

Coop. Theatres of Ohio, 845 F.2d at 1371, 1373.

107

See Def.’s Br. at 13.

108

See, e.g., United States v. Apple, Inc., 791 F.3d 290, 297 (2d Cir. 2015) (cert.

denied 136 S. Ct. 1376 (Mar. 7, 2016)) (“The dissent fails to apprehend that the

Sherman Act outlaws agreements that unreasonably restrain trade and therefore

requires evaluating the nature of the restraint, rather than the identity of each party

who joins in to impose it, in determining whether the per se rule is properly

invoked.”).

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question, rather than the nature of the relationships between parties.

109

The

agreement here restricts marketing of healthcare services in which Allegiance and

HCHC are horizontal competitors. That there could be other agreements

concerning services where the two hospitals do not compete is irrelevant. In

Palmer, for example, two horizontal competitors in the market for bar review

courses, BRG of Georgia and Harcourt Brace Jovanovich (“HBJ”), entered into an

agreement in which HBJ agreed not to compete with BRG in Georgia and BRG

agreed not to compete with HBJ in any other state.

110

As part of the agreement,

BRG of Georgia became the exclusive licensee and marketer of HBJ’s “Bar/Bri”

materials in Georgia, thereby adding a vertical element to their relationship.

111

The

Supreme Court nonetheless found the agreement to be per se illegal market

allocation, explaining that it resulted in “horizontal territorial limitations.”

112

Accordingly, whether a vertical element was part of the overall relationship

between two entities is irrelevant to the Court’s Section 1 analysis of a horizontal

restraint. Even in cases where entities had a multifaceted relationship that could be

described as “hybrid,” courts have based their analyses on the nature of the

109

See Palmer v. BRG of Ga., Inc., 498 U.S. 46, 49-50 (1990).

110

See id. at 46-47.

111

Id. at 47.

112

Id. at 49-50.

agreements in question.

113

In particular, where the relationship between parties had

both horizontal and vertical elements, courts have focused on whether the alleged

restraint of trade in question was “essentially horizontal.”

114

Furthermore, in cases where hospitals generally compete against each other

but have referral relationships in a limited number of areas, as Allegiance argues is

the case here, courts have focused on services in which they were in competition

and analyzed the hospitals as horizontal competitors.

115

Regardless of the other

aspects of the Allegiance-HCHC relationship, the agreement to have Allegiance

113

See, e.g., Dimidowich v. Bell & Howell, 803 F.2d 1473, 1481 n.6 (9th Cir.

1986) (noting that “a ‘hybrid’ arrangement only justifies the application of the rule

of reason where the market in which the conspirators are in a vertical relationship

is in some way interdependent with the market in which they have a horizontal

relationship” and that the per se standard is appropriate otherwise); Arnold

Pontiac-GMC, Inc. v. Gen. Motors Corp., 700 F. Supp. 838, 840-41 (W.D. Pa.

1988) (per se standard applied because the agreement in question “constitute[d] a

horizontal agreement,” despite “hybrid” relationship).

114

See, e.g., Apple, Inc., 791 F.3d at 297; In re Mushroom Direct Purchaser

Antitrust Litig., No. 06-0260, 2015 WL 6322383, at *16 (E.D. Pa. May 26, 2015)

(agreement among members of a mushroom marketing cooperative that were in a

“hybrid” relationship was per se illegal because the agreement itself lacked a

vertical element).

115

See, e.g., Saint Alphonsus Med. Ctr. – Nampa, Inc. v. St. Luke’s Health Sys.

Ltd., 1:12–CV–00560–BLW, 1:13–CV–00116–BLW, 2014 WL 407446, at *1-2

(D. Idaho Jan. 24, 2014) (enjoining a merger between competing healthcare

provider networks that also had selective referral relationships by effectively

analyzing it as a horizontal merger); New York v. Saint Francis Hosp., 94 F. Supp.

2d 399 (S.D.N.Y. 2000) (agreement between two competing hospitals that

attempted to “redirect patients” from one to the other was a per se illegal horizontal

restraint).

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limit marketing in services where it competes with HCHC was entirely horizontal

and should be deemed per se illegal.

D. Alternatively, the Allegiance-HCHC Agreement is Condemnable

Under a “Quick Look” Rule of Reason Analysis

Even if the Court does not rule that the agreement is a per se illegal customer

allocation, a “quick look” rule of reason analysis will show its illegality because

the restraint is inherently suspect, and Allegiance has not produced evidence of a

plausible or valid procompetitive justification for the agreement.

116

1. The Agreement Is Inherently Suspect

This agreement, even if found not to be per se unlawful, is so close to classic

market allocation that there is a high likelihood that it harms competition.

117

It is

undisputed that hospitals use marketing to attract patients, and that marketing is a

productive method of competition.

118

Hospitals rely on it to inform patients,

physicians, and employers about the products and services—and their quality—

available at the hospital. In turn, hospitals facing marketing from rivals have an

incentive to respond competitively, such as by improving services, quality, and

116

See FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 459 (1986) (“Absent some

countervailing procompetitive virtue—such as, for example, the creation of

efficiencies in the operation of a market or the provision of goods and services,—

such an agreement limiting consumer choice . . . cannot be sustained under the

Rule of Reason.” (internal citations omitted)).

117

Blackburn, 53 F.3d at 827.

118

See Deposition of Larry Margolis, Dec. 8, 2016 (“Margolis Dep.”) at 26:22-

27:11; 27:22-28:5 (excerpted in Exhibit I); Expert Report of Dr. Tasneem Chipty at

¶ 17 (“Chipty Report”) (excerpted in Exhibit K).

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reputation. Marketing benefits the individual with information, education, and free

goods and services. It also spurs investments in services, quality, and community

education. Consumers respond to and rely on marketing, and hospital executives

consider marketing essential to their ability to compete effectively.

119

Both sides’

experts have opined that hospital marketing is a form of hospital competition;

120

and competition benefits all consumers.

Moreover, the agreement here caused obvious harm to consumers. It is

undisputed that Allegiance limited delivery of educational materials to residents of

Hillsdale County.

121

And deprived of the health education and awareness of their

treatment options that unfettered marketing provides, Hillsdale County residents

were left without the full array of tools that competition offers to make choices

about their health.

2. Allegiance Has Not Asserted a Plausible, Procompetitive

Justification for Its Agreement with HCHC

As an initial matter it is important that Allegiance’s description of its

conduct blinks the fact of the agreement. As Plaintiffs have demonstrated,

Allegiance did not simply “resolve[] to avoid steps that could damage its

119

Deposition of Anthony Gardner, July 19, 2016, at 40:23-41:14 (excerpted in

Exhibit J).

120

Margolis Dep. at 27:22-28:5 (excerpted in Exhibit I); Chipty Report at ¶¶ 14-15

(excerpted in Exhibit K).

121

Fojtasek Dep. at 137:6-12 (excerpted in Exhibit C-3).

relationship with Hillsdale County physicians.”

122

It agreed with a competitor that

it would protect such physicians from competition. Allegiance did not “[choose] to

focus more on ‘relationship building’ marketing;”

123

it agreed with a competitor on

exactly how to restrict its marketing to limit the competitive pressures on that

competitor. That is the lens through which Allegiance’s asserted procompetitive

justifications must be viewed.

Allegiance does not claim that the agreement was ancillary to any efficiency.

And nothing in the record arguably supports the assertion that any Allegiance

service line could not have been offered absent the agreement.

124

Instead, the justifications that Allegiance claims for its restraint seem to boil

down to obtaining referrals from HCHC for its open heart center.

125

Steering

referrals away from rivals through an anticompetitive agreement, however, is not

procompetitive. It is anticompetitive because Allegiance competed less against

HCHC for services HCHC performs; and because Allegiance relied on this

lessening of low-acuity service competition with HCHC, rather than legitimate

quality competition with high-acuity rivals, to motivate Hillsdale County

physicians to redirect referrals. Also, Hillsdale County residents likely enjoyed

122

Def.’s Br. at 8.

123

Id.

124

See Saint Francis Hosp., 94 F. Supp. 2d at 422 (restraint was not generally

necessary for hospital provision of new tertiary service).

125

Def.’s Br. at 20.

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less competition for higher-acuity services. A restraint designed to displace

market-based outcomes is antithetical to the antitrust laws.

126

The Sherman Act

leaves it up to the marketplace, rather than individual defendants, to decide where

competition is appropriate.

127

As the Supreme Court explained in Professional

Engineers, rejecting the engineering society’s safety justification for its ban on

competitive bidding, “[t]he Sherman Act reflects a legislative judgment that

ultimately competition will produce not only lower prices, but also better goods

and services.”

128

Finally, Allegiance claims, without proof, that “Allegiance’s ability to offer

open heart surgery locally” benefits Hillsdale County patients due to shorter travel

time to Allegiance.

129

But there is no triable issue of material fact as to whether the

open heart center is related to the agreement in any way. The only evidence

Allegiance cites for this proposition is an irrelevant statement by Dr. Manning

about the role of HCHC’s pledge and referrals—not the role of the agreement—in

enabling Allegiance’s approval for its open heart center.

130

And this claim is

126

See Nat’l Soc’y of Prof’l Eng’rs, 435 U.S. at 695.

127

Id.; see also Apple, Inc., 791 F.3d at 332 (“Because of the long-term threat to

competition, the Sherman Act does not authorize horizontal price conspiracies as a

form of marketplace vigilantism to eliminate perceived ruinous competition or

other competitive evils.” (internal citations and quotation marks omitted)).

128

Nat’l Soc’y of Prof’l Eng’rs, 435 U.S. at 694-95.

129

Def.’s Br. at 21.

130

Id. at 20 (citing Dr. Manning’s Report at ¶¶ 100, 163-167). For consideration in

the context of a summary judgment motion, an expert’s opinion “must be more

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legally irrelevant. The Sherman Act does not consider the societal value of an

action as a defense to a horizontal restraint, because the Court cannot consider

“whether competition is good or bad.”

131

Nor can Allegiance justify its

anticompetitive agreement by claiming it used the profits from the agreement to,

for example, invest in services.

132

Thus, HCHC’s pledge and referral of open heart

patients is not a plausible procompetitive justification for the agreement.

There are, of course, perfectly legitimate ways that Allegiance may attract

the referrals necessary to maintain its open heart surgery certificate of need and

increase the use of its open heart center. Indeed, Allegiance’s expert admits that

Allegiance has used many other less restrictive alternatives to obtain referrals from

Hillsdale and other counties,

133

134

and the government’s industry expert explained that

than a conclusory assertion about ultimate legal issues.” Brainard v. Am. Skandia

Life Assur. Corp., 423 F.3d 655, 663-64 (6th Cir. 2005) (internal citation omitted);

see also Major League Baseball Props., 542 F.3d at 311 (“An expert’s opinions

that are without factual basis and are based on speculation or conjecture are

similarly inappropriate material for consideration on a motion for summary

judgment .”).

131

Nat’l Soc’y of Prof’l Eng’rs, 435 U.S. at 694-95; accord FTC v. Superior Court

Trial Lawyers Ass’n, 493 U.S. 411, 414, 421-23 (1990) (condemning attorneys’

boycott, noting potential social benefits of the boycott was not part of the Court’s

consideration under the Sherman Act).

132

See Law v. NCAA, 134 F.3d 1010, 1023 (10th Cir. 1998).

133

Manning Dep. at 274:1-277:22 (excerpted in Exhibit H).

134

ALLDOJMIAG-AG-00006283 at 299 (excerpted in Exhibit O-22).

135

Agreeing to restrict competition is

not among these legitimate options for attracting referrals.

3. A Quick Look Analysis Is Appropriate If the Court Does

Not Treat the Agreement as Per Se Unlawful

In its motion, Allegiance argues that an abbreviated or “quick look” rule of

reason analysis should not be used,

136

asserting that “[w]here, as here, the courts

have been presented with expert reports opining as to plausible procompetitive

justifications and effects, those courts have not hesitated to conclude that ‘quick

look’ analysis is not appropriate.”

137

As Plaintiffs detailed above, the arguments

offered by Allegiance do not satisfy the well-established conditions necessary for a

procompetitive justification to be plausible and valid under the law. Further, none

of the three cases cited by Allegiance applies here. In two of the cases, the court’s

decision to use a rule of reason standard was industry-specific.

138

In the third case,

135

Rebuttal Expert Report of Lawton R. Burns at ¶ 8 (excerpted in Exhibit L).

136

Def.’s Br. at 22-25.

137

Id. at 23.

138

See Major League Baseball Props., 542 F.3d at 332-34 (applying rule of reason

analysis because restraints are generally necessary to create sports leagues); United

States v. Brown Univ., 5 F.3d 658, 678 (3d Cir. 1993) (applying rule of reason

analysis because “institutions of higher education ‘require that a particular practice,

which could properly be viewed as a violation of the Sherman Act in another

context, be treated differently’” (internal citation omitted)).

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the restraint at issue was not obviously anticompetitive and the plaintiff did not

seek per se condemnation.

139

V. CONCLUSION

For these reasons, the United States and the State of Michigan respectfully

request that the Court grant Plaintiffs’ Cross-Motion for Summary Judgment, and

deny Allegiance’s Motion for Partial Summary Judgment.

Respectfully Submitted,

FOR PLAINTIFF UNITED STATES OF AMERICA:

Peter Caplan (P-30643)

Assistant United States Attorney

U.S. Attorney’s Office

Eastern District of Michigan

211 W. Fort Street

Suite 2001

Detroit, Michigan 48226

(313) 226-9784

peter.caplan@usdoj.gov

/s/ Katrina Rouse

Katrina Rouse (D.C. Bar No. 1013035)

Garrett Liskey

Jill Maguire

Antitrust Division, Litigation I Section

U.S. Department of Justice

450 Fifth St. NW

Washington, DC 20530

(415) 934-5346

katrina.rouse@usdoj.gov

FOR PLAINTIFF STATE OF MICHIGAN:

/s/ with the consent of Mark Gabrielse

Mark Gabrielse (P75163)

Assistant Attorney General

Michigan Department of Attorney General

Corporate Oversight Division

G. Mennen Williams Building, 6th Floor

139

See Deborah Heart & Lung Ctr. v. Virtua Health Inc., No. 11-1290, 2015 WL

1321674, at *8 (D.N.J. Mar. 24, 2015).

525 W. Ottawa Street

Lansing, Michigan 48933

(517) 373-1160

Email: gabrielsem@michigan.gov

January 19, 2017

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CERTIFICATE OF SERVICE

I hereby certify that on January 19, 2017, I electronically filed the foregoing

paper with the Clerk of the Court using the ECF system, which will send

notification of the filing to the counsel of record for all parties for civil action 5:15-

cv-12311-JEL-DRG, and I hereby certify that there are no individuals entitled to

notice who are non-ECF participants. I hereby further certify that I caused an

unredacted version of the foregoing to be served on Defense counsel of record via

email.

/s/ Katrina Rouse

Katrina Rouse (D.C. Bar No. 1013035)

Antitrust Division, Litigation I Section

U.S. Department of Justice

450 Fifth St. NW, Suite 4100

Washington, DC 20530

(415) 934-5346

katrina.rouse@usdoj.gov

Attorney for United States of America

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