Antitrust - Michael Eric Ross and Jeffrey S. Cashdan

• Publication year: 1998

Antitrustby Michael Eric Ross^* and

Jeffrey S. Cashdan^**

The Eleventh Circuit Court of Appeals published only four antitrust decisions in 1997.¹ Two of these cases were decided on procedural grounds² and two on substantive grounds.³ Once again, defendants prevailed in most of these cases, including an action brought by the Government to enjoin an acquisition.

I. Procedural Decisions

A. Nonappealability of Denial of Motion to Dismiss Based on the McCarran-Ferguson Act

In Jordan v. Avco Financial Services, Inc.,⁴ the Eleventh Circuit considered whether the denial of a motion to dismiss based on the McCarran-Ferguson Act⁵ is reviewable on interlocutory appeal pursuant to the collateral order doctrine.⁶ Plaintiffs, consumers in credit transactions, alleged that defendants fraudulently induced them to purchase "nonfiling insurance" to protect against losses that merchants and financial institutions might incur as a result of failing to file a Form UCC-1, which would perfect a security interest in items plaintiffs purchased on credit.⁷ Plaintiffs alleged that this nonfiling insurance in fact was an undisclosed finance charge, not insurance.⁸ Plaintiffs filed a purported class action alleging violations of the Sherman Act,⁹ the Clayton Act,¹⁰ the Truth in Lending Act,¹¹ and the Racketeer Influenced and Corrupt Organization Act.¹² Defendants moved to dismiss the complaint, contending that the product sold to plaintiffs was insurance, that the dispute was covered by state insurance law, and that defendants thus were immunized from liability by the McCarran-Ferguson Act on issues concerning the business of insurance.¹³ The district court denied that motion, as well as defendants' motion to certify the order for interlocutory appeal pursuant to 28 U.S.C. Sec. 1292(b).¹⁴

Defendants, nonetheless, filed an appeal. A motion panel of the Eleventh Circuit initially denied plaintiffs' motion to dismiss the appeal for lack of jurisdiction, ruling that the district court's denial of the motion to dismiss was immediately appealable based on the collateral order doctrine.¹⁵ A subsequent merits panel of the Eleventh Circuit, however, vacated the motion panel's order and dismissed the appeal for want of jurisdiction.¹⁶

The Eleventh Circuit concluded that the collateral order doctrine does not apply to the denial of a motion to dismiss based on the McCarran-

Ferguson Act.¹⁷ The court recognized that questions of immunity may be appealed interlocutorily because these issues are effectively unreviewable following final judgment.¹⁸ The court held, however, that the McCarran-Ferguson Act, which exempts from federal antitrust and certain other law the business of insurance to the extent it is regulated by state law,¹⁹ provides a pre-emption defense to liability rather than a grant of immunity.²⁰ The court concluded that the rejection of a preemption defense at the pleading stage could be reviewed effectively on appeal from a final judgment.²¹ For this reason, the court concluded that the collateral order doctrine does not apply to orders denying motions based on the McCarran-Ferguson Act.²² Accordingly, the court dismissed the appeal for lack of jurisdiction.²³

B. Antitrust Standing

In Florida Seed Co. v. Monsanto Co. ,²⁴ the Eleventh Circuit affirmed the dismissal of a Sherman Act claim based on the lack of antitrust standing.²⁵ In the Eleventh Circuit, antitrust standing involves a two-pronged analysis of (1) "antitrust injury" and (2) whether the plaintiff is an "efficient enforcer" of the antitrust laws (for example, not remotely injured).²⁶ Antitrust injury is "injury of the type the antitrust laws were intended to prevent and that flows from that which makes the defendants' acts unlawful."²⁷ Accordingly, when a plaintiff's claimed injury results simply from heightened competition or when the injury is unrelated to the alleged antitrust violation or to an adverse effect on competition, there is no antitrust injury.²⁸

In Florida Seed the court focused on the antitrust injury element of antitrust standing. The case involved a terminated distributor's challenge to Monsanto's 1993 acquisition of Ortho, a lawn and garden business.²⁹ Prior to this acquisition, Florida Seed distributed and marketed both Monsanto's and Ortho's lawn and garden products. After the acquisition Monsanto terminated Florida Seed as an Ortho distributor pursuant to a broad strategic decision to use fewer distributors.³⁰ Florida Seed and its sole shareholder, Frit Industries ("Frit"), filed suit, alleging that Florida Seed's termination was part of Monsanto's plan to monopolize or attempt to monopolize the residential nonselective herbicide market in part by damaging the value of the trademark of an Ortho product ("Kleenup") that was to be divested pursuant to a consent decree with the Federal Trade Commission.³¹ The district court dismissed the action for lack of standing.³²

The Eleventh Circuit affirmed.³³ First, the court explained that Florida Seed's only injury, termination as a distributor, does not qualify as antitrust injury.³⁴ The complaint failed to allege an anticompetitive impact on consumers—higher price or lower output—that flowed from the injury Florida Seed purportedly suffered from its termination as an Ortho distributor.³⁵ As the Eleventh Circuit explained, the mere termination of a distributor, by itself, is insufficient to demonstrate harm to competition.³⁶ Because Florida Seed alleged only injury to itself, and not to consumers as a whole, Florida Seed failed to plead antitrust injury. Thus, dismissal of the antitrust claims was appropri-

The court likewise rejected for lack of antitrust standing the claims of Frit, Florida Seed's sole shareholder and the guarantor of its debt.³⁸ Frit was neither a competitor nor a consumer in the relevant market.³⁹ Because Frit's only injury, if any, derived from its capacity as Florida Seed's shareholder and guarantor, the court held that Frit also lacked antitrust injury.⁴⁰

II. Substantive Decisions

A. Retina Associates, P.A. v. Southern Baptist Hospital

Retina Associates, RA. v. Southern Baptist Hospital⁴¹ addressed an antitrust challenge to a joint venture of eye care physicians. Plaintiff Retina Associates ("RA") is a Florida corporation located in Jacksonville that specializes in the diagnosis and treatment of diseases of the retina and vitreous.⁴² General opthamologists typically refer patients with specific retina problems to retina specialists. Thus, when certain individual defendant opthamologists decided to form a full service opthamology practice at a major hospital, there was a perceived need to include a retina specialist practice in the venture.⁴³ Certain of the individual defendants invited RA to join them in forming the Baptist Eye Institute ("BEI") to be located on the campus of the Baptist Medical Center, the largest acute care hospital in Jacksonville.⁴⁴ RA turned the invitation down twice.⁴⁵ Ultimately, after some initial reluctance, defendant Florida Retina Institute ("FRI"), another retina specialist practice, joined BEI.⁴⁶ As a result, all or most of the retina service referrals of BEI's general opthamologists went to FRI, not RA.⁴⁷ The parties estimated that the referrals from BEI's opthamologists to retina specialists accounted for only fifteen percent of the total retina referrals made in the relevant geographic market (the Jacksonville area) during the relevant period.⁴⁸

Upset at having lost access to the referrals from BEI's opthamologists, RA filed suit alleging (1) that BEI's exclusive referral arrangement constituted a horizontal concerted refusal to deal or group boycott in violation of section 1 of the Sherman Act and (2) that FRI attempted to monopolize the retina services market by entering into the exclusive referral arrangement in violation of section 2 of the Sherman Act.⁴⁹ The district court granted summary judgment for defendants on both counts, holding that there was no basis in law or fact for either claim.⁵⁰ The Eleventh Circuit affirmed, expressly adopting in full the reasoning of the district court.⁵¹

First addressing the section 1 claim, the district court rejected application of the per se rule of illegality because of the lack of precedent suggesting the arrangement at issue harmed competition and because BEI's physicians, who controlled only fifteen percent of the referrals for retina services, lacked economic power in the alleged relevant market for retina services referrals.⁵² The court correctly determined that RA's section 1 claims instead should be judged by the rule of reason, pursuant to which any substantially anticompetitive effects of the restraint at issue are balanced against the restraint's procompetitive effects.⁵³ Rule of reason analysis was particularly appropriate in this case given that BEI appeared to be an efficiency-enhancing joint venture and that the referral restraint seemed to have been reasonably related to achieving those integrative efficiencies.⁵⁴

Turning to the rule of reason, the district court quickly dispensed with plaintiff's arguments.⁵⁵ Under the rule of reason, structural proof of market power, based on analysis of market share, entry barriers, and other evidence, is not necessary when actual anticompetitive effects can be shown.⁵⁶ Thus, the...