On January 22, 2014, a federal judge in the Southern District of Mississippi dismissed a hospital’s antitrust lawsuit against a competing hospital and its partially-owned ambulance company subsidiary in Wesley Health Sys., LLC v. Forrest Cty Board of Supervisors, No. 2:12-cv-59 (S.D. Miss. 2014),1 ruling that the hospital and subsidiary were incapable of conspiring under the antitrust laws because they operated as a single economic entity.
Wesley Health System (“Wesley”) and Forrest General Hospital (“FGH”) are hospitals competing in Mississippi’s Southeast Trauma Care Region (“SETCR”). Wesley alleged that FGH and AAA Ambulance Service (“AAA”) ignored patients’ desire to receive medical services at Wesley, and intentionally falsified medical records to justify transporting patients to FGH, in furtherance of their conspiracy to divert patients from Wesley to FGH. Wesley argued that the conspiracy between FGH and AAA violated Section 1 of the Sherman Act. The defendants moved for summary judgment, arguing that FGH cannot conspire or agree to conspire with AAA because FGH controls AAA.
The court agreed with the defendants, finding that FGH and AAA are not two separate, independent decision makers, and thus are incapable of conspiring under the antitrust laws, pursuant to principles established in Copperweld v. Independence Tube Corp.2 In Copperweld, the Supreme Court found that a wholly-owned subsidiary was incapable of conspiring with its parent. Whether the Copperweld doctrine applies to less than wholly owned subsidiaries has been the subject of much discussion. Some lower court cases addressing this issue after Copperweld have opined that if a parent exercises significant control over a less than wholly owned entity, the parent and subsidiary are incapable of conspiring under Section 1. In most instances, the parent in those cases owned more than 50% of the subsidiary.
Interestingly, in this case, the Court opined that while FGH was a partial owner of AAA, the ownership percentage was irrelevant. Further, the court in Wesley Health reasoned that although there was a general management services agreement between FGH and AAA that required AAA to maintain “ultimate control and direction” of its operations, the provision did not reflect the reality of the relationship, because the agreement gave FGH the authority and responsibility to operate all aspects of AAA’s services, including hiring, promoting, discharging, supervising, budgeting, and capital expenditures. In addition, the court noted that FGH controlled two-thirds of the voting power on AAA’s board and that AAA’s officers were FGH employees. For these reasons, and despite the provision that purported to give AAA ultimate control of its operations, the court found that FGH and AAA were not separate entities capable of conspiring under Section 1 of the Sherman Act.
Bottom Line
The Wesley Health opinion provides the latest guidance on how the Copperweld doctrine may be applied to less than wholly owned subsidiaries or affiliates and the capacity to conspire under the antitrust laws. Because substance rather than form is a crucial component of any analysis of whether parties should be treated as separate entities for the purposes of antitrust laws, involving antitrust counsel in the planning and formation stages of any venture is critical.
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1 The Mississippi court’s opinion is available here.
2 467 U.S. 752 (1984).