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COLLINS v. ASSOCIATED PATHOLOGISTS

February 11, 1987

JAMES G.P. COLLINS, PLAINTIFF,
v.
ASSOCIATED PATHOLOGISTS, LTD., WILLIAM M. NICKEY, JR., DONALD D. VAN FOSSAN, VICTOR H. LARY, ALFONSO J. STRANO, ST. JOHN'S HOSPITAL SISTERS OF THE THIRD ORDER OF ST. FRANCIS, DEFENDANTS.



The opinion of the court was delivered by: Mihm, District Judge.

    ORDER

The Plaintiff filed this antitrust lawsuit, claiming that he was prevented from practicing pathology at the hospital where he had worked for eight years, because his membership in the group providing such services to the hospital had been terminated. The Plaintiff, Dr. James G.P. Collins, contends that the contractual arrangement between the Defendant Hospital, St. John's Hospital, and the Defendant pathological group, Associated Pathologists, Ltd., is an exclusive dealing arrangement and an illegal tying agreement in violation of the Sherman Antitrust Act, 15 U.S.C. § 1 and 2, and the Illinois Antitrust Act Ill.Rev. Stat., ch. 38, § 60-1 to § 60-11 (1983). The Plaintiff also argues that his dismissal from Associated Pathologists and the Hospital's subsequent refusal to hire him resulted in claims for breach of contract, unlawful withdrawal of staff privileges, and misrepresentation. After substantial discovery and voluminous filings by the parties, this case is before the Court upon the Defendants' Motions for Summary Judgment.

STATEMENT OF FACTS

Associated Pathologists, Ltd., (APL) is an Illinois medical corporation whose principal employees are the individual Defendants, Doctors Donald Van Fossan, William M. Nickey, Jr., Victor H. Lary, and Alfonso J. Strano. Dr. J. Herschel Fulcher, Jr. was a member of the APL until his death in March of 1983, and Dr. Collins has named Jessie Fulcher, as executor of Dr. Fulcher's estate, a Defendant in this suit. St. John's Hospital of the Hospital Sisters of the Third Order of St. Francis (St. John's) is an Illinois not-for-profit corporation which owns and operates St. John's Hospital, located in Springfield, Illinois. St. John's Hospital is a tertiary care, private, not-for-profit teaching hospital affiliated with Southern Illinois University School of Medicine. It provides approximately 800 beds. There are two other hospitals located in Springfield, Illinois: Memorial Medical Center, a somewhat smaller, comparable tertiary care hospital and Humana Hospital of Springfield (formerly Springfield Community Hospital), a much smaller, for-profit institution that does not provide tertiary care.

Dr. Nickey came to Springfield in 1969 and entered into a contract with St. John's Hospital, the terms of which provided that Dr. Nickey would be responsible for the pathology department at the Hospital. Dr. Nickey replaced a group of pathologists who had been terminated by St. John's.

Within one month of coming to St. John's, Dr. Nickey recruited Dr. Van Fossan. APL was formed by the two doctors on February 1, 1969. Dr. Herschel Fulcher (deceased March 1983) joined APL in 1969, and the pathology group added Dr. Victor Lary in 1970. APL entered into a new contract with St. John's Hospital on July 1, 1970.

In 1974, APL hired Dr. Alfonso J. Strano and Dr. James G.P. Collins. Both Dr. Collins and Dr. Strano became shareholders in APL less than one year after they were hired by the corporation. Each of the individual doctors were employed by APL under identical written employment contracts.

The employment contracts between the individual doctors and APL were of one year duration subject to annual renewal. These contracts provided for compensation in the form of a salary, contributions to pension and profit sharing plans, and a possible bonus. The By-laws of APL provided that this bonus was to be awarded at the discretion of the directors. The doctors' contracts did not specify that a bonus would be paid, nor did the contract specify the amount of bonus or method of calculation.

From 1971 to the present, APL has awarded bonuses each year. APL's corporate records reflect the actions of the Board of Directors with respect to bonuses. Each pathologist did receive a bonus until the years 1980 and 1981.

APL did not award Dr. Collins a bonus in either 1980 or 1981. The directors of APL asked for and received Dr. Collins' resignation from APL, effective January 31, 1982. After leaving APL, Dr. Collins requested St. John's Hospital to hire him as a pathologist on an individual basis, but St. John's refused to do so. Dr. Collins has maintained staff privileges at St. John's Hospital on a leave of absence of basis since 1982. He is currently employed as a pathologist at Humana Hospital in California.

APL's relationship with St. John's Hospital has been governed by successive contracts: the February 1, 1969 contract, the July 1, 1970 contract, the December 31, 1975 contract, and the October 1, 1983 contract. The first three of these contracts stated that APL would "provide complete and adequate professional pathology services" to St. John's Hospital, while the October 1, 1983 contract provides an expanded form of this language at paragraph 4 of the section, "Agreements of the Corporation." Each of the St. John's/APL contracts contain a provision allowing termination of the contract at any time upon 90 days notice, effective either immediately or after the first year of the contract.

The contracts of 1969, 1970 and 1975 do not contain any provision dealing with St. John's Hospital's right to hire additional pathologists or groups of pathologists. The October 1, 1983 written agreement authorizes in paragraph 5 of "Mutual Agreements" that "The Hospital may employ additional pathologists or groups of pathologists to perform services in pathology for the Hospital based on the needs of the Hospital, its medical staff, and patients. The Hospital may permit such persons to have the use of the Hospital facilities based on reasonable schedules and conditions."

St. John's and the other hospitals in Springfield draw their patients from the Springfield standard metropolitan statistical area (the "Springfield SMSA") which includes Springfield and the surrounding areas of Sangamon and Menard Counties. In 1980, the United States Census showed the population of Springfield to be 187,789 people, most of whom reside in Springfield and the surrounding area of Sangamon County. The residents of the Springfield SMSA rely almost exclusively on the hospitals in Springfield. A statewide patient origin study prepared by the Illinois Hospital Association shows that in 1981 approximately 97.3% of all persons in Sangamon County who were hospitalized, and approximately 92.2% of all persons in Menard County who were hospitalized, received hospital care from one of the three hospitals in Springfield.

The Springfield hospitals, primarily St. John's and Memorial, also attract patients from other nearby counties. The patient origin study shows that 23% to 39% of the persons in Cass, Christian, Logan, Macoupin, Montgomery, Morgan and Scott Counties sought hospital care at one of the three hospitals in Springfield, Illinois. Generally, the patients from the City of Springfield and Sangamon, Menard, or Cass Counties receive the entire range of hospital care, whereas those patients at St. John's from surrounding counties are there for more specialized treatment. These specialized or tertiary care services include services provided by medical practitioners specializing in neorosurgery, nephrology, neonatalogy, and the like. Such services are not available at the small hospitals in the area.

EXCLUSIVE DEALING CONTRACT

The Plaintiff's main antitrust claims are based upon § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. That section makes it unlawful for anyone to contract, combine in the form of a trust or otherwise, or conspire, in restraint of trade or commerce among the several states. Based upon this section, the Plaintiff alleges that the contract between APL and St. John's Hospital is a combination in restraint of trade, an unlawful boycott, and an unlawful tying agreement. (Counts I and III).

The Plaintiff argues that the agreements entered into between St. John's Hospital and APL are unreasonable restraints of trade because they are exclusive contracts which require that any pathology work to be performed at St. John's Hospital must be performed by APL. The Plaintiff contends that because these agreements are exclusive, they have substantially foreclosed competition in the market of providing pathological services. Moreover, these agreements have foreclosed competition in an illegal manner because the exclusive contracts are neither reasonable nor necessary.

There does seem to be a factual issue with regard to whether the agreements between APL and St. John's are, in fact, exclusive. The Defendants argue that the word exclusive never appears in any of the St. John's/APL agreements, but the Plaintiff responds that over the years, the parties to the agreements have operated as if they were exclusive. The Court finds that even though such a factual dispute exists, it does not prevent the Court from entering summary judgment on this issue, because the factual dispute is not material to the Court's decision on this issue. Rather, the Court concludes that summary judgment in favor of the Defendants is appropriate because the agreements are not an unreasonable restraint of trade even if they operate as exclusive contracts.

Cases interpreting the Sherman Act make it clear that all exclusive contracts are not violations of the Sherman Act because they are not necessarily an unreasonable restraint of trade. The United States Supreme Court in Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961), established that a court must use a rule of reason approach to analyze an exclusive dealing contract and must determine the effect which the contract has upon competition in the relevant market place when deciding whether a contract has violated the Sherman Act.

In Tampa Electric, Tampa Electric Company entered into an agreement whereby Potter Towing Company and its successor to the contract, West Kentucky Coal Company, agreed to supply Tampa Electric's total requirement of coal for the operation of a coal-burning plant for 20 years. The lawsuit arose when the Coal Company informed Tampa Electric that the contract was illegal under the antitrust laws and it would not perform.

Even though the case involved application of § 3 of the Clayton Act, 15 U.S.C. § 14, the analysis used by the Court has been applied to other requirements contracts or exclusive-dealing cases. (The Court itself acknowledged that under its analysis, the contract did not violate § 1 and § 2 of the Sherman Act. Id. at 335, 81 S.Ct. at 632). The Court began by pointing out that all exclusive-dealing arrangements are not unlawful, but only those that foreclose competition in a substantial share of the line of commerce affected. The threatened foreclosure must be in relation to the market affected, which involves determining the type of goods involved and the market area in which the seller operates and within which the purchaser can practicably turn for supplies. The last step in this analysis is a determination of whether the competition foreclosed by the contract constitutes a substantial share of the relevant market, that is, whether the opportunities for other traders to enter into or remain in that market are significantly limited by the contract. 365 U.S. at 327-28, 81 S.Ct. at 628.

In the Tampa Electric case, the Court decided that the relevant line of commerce was bituminous coal and compared the estimated amount of coal under the contract with the amount of coal produced and sold by the producers who could have also effectively competed for Tampa Electric's business. The Court found that even though the contract involved a large amount of coal and a significant dollar value, the purchase was quite insubstantial in terms of the total amount of coal produced in the relevant multi-state area. The Court acknowledged that the contract did pre-empt competition to a certain degree, but it did not substantially foreclose competition in the relevant coal market because of the amount of trade in coal which still existed in the relevant geographic area.

In the present case, the Plaintiff contends that the contracts in effect between St. John's Hospital and Associated Pathologists required that all pathology work done at St. John's Hospital and on St. John's patients was to be performed by doctors of APL. The Plaintiff argues that the relevant product market for the Court's inquiry is the provision of pathological services to patients and that the agreements foreclosed competition among pathologists to provide such services. To be more specific, the exclusive agreements prevented patients at St. John's Hospital from having their pathology work done by anyone other than an APL doctor, and they prevented pathologists who were not APL members from offering his or her services to a patient at St. John's. The Plaintiff contends that the exclusive agreements had an adverse effect upon competition in the area of pathological services, because competition among pathologists would result in lower prices and/or increased quality of pathological work done for St. John's patients.

While the arguments advanced by the Plaintiff have some appeal, the Court believes that the focus of the Plaintiff's arguments are misdirected in the context of a claim that the exclusive dealing arrangement is an unfair restraint on competition. The Supreme Court in Tampa Electric analyzed the situation before it in terms of whether the requirements contract foreclosed coal producers from the opportunity to sell their product. The Court did not suggest that the inquiry should focus upon the impact on consumers who would be purchasing the electricity generated by the coal-purchasing electric company. Rather, in defining the relevant market, the Court looked to the location of coal companies who could have supplied Tampa Electric Company and concluded that the relevant market area was the area in which these coal companies did in fact compete for buyers of their coal. The Tampa Electric Court used this type of analysis to define the relevant market because the purpose of its antitrust inquiry into the exclusive requirements contract was to determine the extent to which the contract preempted or foreclosed competition in the sense that the amount of coal under the contract was no longer a possible sale for competing coal producers.

In the present case, St. John's Hospital is in the position of Tampa Electric Company, and APL is situated similarly to the supplying coal companies, because the Hospital has agreed to use APL for whatever pathological services it needs. In determining whether this exclusive arrangement forecloses competition, then, the focus is upon competition from the point of view of whether other pathological jobs are available in the relevant market and how many such jobs are available in comparison with the number of job opportunities foreclosed by the arrangement between the Hospital and APL. This means that one must view the situation from the point of view of pathologists competing for work, rather than from the point of view of patients in the Hospital and the choices available (or foreclosed) to them when they need pathological services.

The Court finds support for this method of analyzing the present situation in the United States Supreme Court case of Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984). The main focus of the Court's opinion in Jefferson Parish was upon the plaintiff's, Dr. Hyde's, claim that the exclusive arrangement between Jefferson Parish Hospital and a firm of anesthesiologists was an illegal tying arrangement because users of the hospital's operating rooms were compelled to purchase the hospital's chosen anesthesia service rather than services provided by competing anesthesiologists.*fn1

The Court in Jefferson Parish addressed the claim that the contract between the hospital and the anesthesiological firm violated the Sherman Act because it unreasonably restrained competition. The Court explained:

  "That burden necessarily involves an inquiry
  into the actual effect of the exclusive contract
  on competition among anesthesiologists. This
  competition takes place in a market that has not
  been defined. The market is not necessarily the
  same as the market in which hospitals compete in
  offering services to patients; it may encompass
  competition among anesthesiologists for
  exclusive contracts such as the Roux contract
  [the contract between the hospital and the
  anesthesiological

  firm] and might be statewide or merely local."
  466 U.S. at 29, 104 S.Ct. at 1567.

The Jefferson Parish Court then went on to explain in a footnote:

  "The effect of the contract has, of course, been
  to remove the East Jefferson Hospital from the
  market open to Roux's competitors. Like any
  exclusive requirements contract, this contract
  could be unlawful if it foreclosed so much of
  the market from penetration by Roux's
  competitors as to unreasonably restrain
  competition in the affected market, the market
  for anesthesiological services." See generally
  Tampa Electric Co. v. Nashville Coal Company,
  365 U.S. 320, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961);
  United States v. Standard Oil Co., 337 U.S. 293, 69
  S.Ct. 1051, 93 L.Ed. 1371 (1949). 466 U.S. at 30 n.
  51, 104 S.Ct. at 1568 n. 51.

The Court in Jefferson Parish reviewed the evidence presented at trial and concluded that there was insufficient evidence in the record to provide a basis for finding that the Roux contract, as it actually operated in the market, had unreasonably restrained competition.

Even though the present case is before the Court on a Motion for Summary Judgment, the Court finds that the Plaintiff has not met his burden of showing that there is a genuine issue of material fact as to the anticompetitive effect of the exclusive contract in light of the Defendants' Motions for Summary Judgment. The Plaintiff has strenuously argued that the exclusive arrangement foreclosed patients at St. John's from choosing particular pathologists not associated with APL and likewise foreclosed pathologists not associated with APL from the opportunity to perform pathological services for patients at St. John's. However, as the Seventh Circuit suggested in the case of Dos Santos v. Columbus, 684 F.2d 1346 (7th Cir. 1982), another case involving an exclusive arrangement between a hospital and an anesthesiological firm:

  "Because the patient generally takes no part in
  the selection of a particular anesthesiologist
  (the surgeon makes the choice) . . . and because
  the expense of anesthesia services to the
  patient is ordinarily at least patially insured
  or otherwise payable by a third party, it might
  be somewhat anomalous to treat the patient as a
  buyer. . . . It may thus be more appropriate for
  antitrust purposes to treat the
  hospital as the purchaser, in view of the
  hospital's responsibility for assuring the
  availability of anesthesia services for its
  patients, its incentive to maximize the use of its
  surgical facilities, and its potential liability
  for negligent rendition of anesthesia services in
  its operating rooms. If the hospital rather than
  the individual patient is regarded as the
  purchaser, the relevant market could be defined as
  the area in which Associates [the anesthesiological
  firm] operates and in which the Medical Center
  (rather than the patient) can practicably turn for
  alternative provision of anesthesia services." 684
  F.2d at 1354.

This Court believes that the Seventh Circuit accurately described the analysis which this Court should use in analyzing the anticompetitive effect of the exclusive arrangement between St. John's Hospital and APL, an approach which the Court described above in its citation to Tampa Electric Company. Under such an analysis, the Plaintiff has failed to present any evidence of what the relevant market would be, and the only evidence in the record is that a nationwide market exists for hospitals to hire pathologists (and for pathologists to seek employment with hospitals). This conclusion is supported by the fact that most of the doctors employed by APL during the years in question were from out of state, including Dr. Collins, who originally came to Springfield from New York. Furthermore, in seeking new employment after his employment with APL was terminated, Dr. Collins' search extended far beyond Springfield and even Illinois, because he eventually obtained a job in California.

The Court notes that a pathologist may indeed be foreclosed from pursuing a career in pathology in Springfield, Illinois because of the exclusive arrangement between St. John's Hospital and APL. However, the Court believes that to conclude from this that the defendants violated § 1 of the Sherman Antitrust Act involves viewing the present situation too narrowly. Following this line of thinking, any contract between two parties would become an unlawful exclusive arrangement because it would have the effect of foreclosing competition for that particular business.

Dr. Collins' claim that the exclusive arrangement between St. John's and APL has foreclosed him from practicing pathology in Springfield is really no different from the hypothetical claim that he would have been foreclosed from competition in Springfield if St. John's hired pathologists individually and had refused to hire Dr. Collins because the Hospital had a full complement of pathologists and did not have an opening for him. Dr. Collins claims that he has been prevented from practicing pathology in Springfield, and yet he has not made Memorial Hospital a party to this lawsuit, even though each of the individual contracts which Memorial has entered into with its pathologists has prevented him from filling a position on Memorial's staff. Because a substantial number of other opportunities are still available to Dr. Collins (and other pathologists) for practicing pathology (even though not necessarily in Springfield) despite the exclusive arrangement between St. John's and APL, the Court finds that there is no genuine issue ...


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