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Acuity Optical Laboratories, LLC v. Davis Vision Inc

United States District Court, C.D. Illinois, Springfield Division.

August 23, 2016

ACUITY OPTICAL LABORATORIES, LLC, Petitioner
v.
DAVIS VISION, INC., Respondent.

          OPINION

          SUE E. MYERSCOUGH UNITED STATES DISTRICT JUDGE

         Before the Court is Respondent Davis Vision, Inc.’s Motion for Summary Judgment (d/e 27) and Petitioner Acuity Optical Laboratories, LLC’s Motion for Partial Summary Judgment (d/e 35). Respondent’s Motion is GRANTED IN PART and DENIED IN PART WITH LEAVE TO REFILE AT THE CLOSE OF DISCOVERY and Petitioner’s Motion is DENIED. The Court finds that Davis Vision is entitled to summary judgment on Counts V, VI, and IX, and Acuity is not entitled to summary judgment on Count I because the Mandatory Lab Policy is neither a per se unlawful restraint on trade between Davis Vision and its competitors nor a per se unlawful forced group boycott. The Court further finds that Davis Vision is entitled to summary judgment on Counts III, IV, X, XI, and XIV because Acuity fails to state a claim upon which relief can be granted in those counts. The Court further finds that Davis Vision is not entitled to summary judgment on Counts I, II, VII, VIII, XII, and XIII, and Acuity is not entitled to summary judgment on Count II because with further development of the record through discovery, reasonable issues of material fact may exist as to the merits of the claims. However, Davis Vision may refile its motion for summary judgment on these counts once discovery has concluded.

         I. BACKGROUND

         Acuity Optical Laboratories, LLC of Illinois brings this suit against Davis Vision, Inc. of New York for damages and permanent injunctive relief. Acuity claims that Davis Vision’s Mandatory Lab Policy, a requirement that essentially all of Davis Vision’s in-network providers agree to provide only Davis Vision manufactured lenses to Davis Vision members constitutes: (1) a per se unlawful horizontal conspiracy with providers under Section 1 of the Sherman Antitrust Act and Section 1 of the Illinois Antitrust Act (Counts I and VI); (2) a per se unlawful collection of vertical agreements that, in reality, act as a horizontal forced group boycott among providers, orchestrated by Davis Vision, under Section 1 of the Sherman Antitrust Act, Section 3 of the Clayton Act, and Sections 1 and 4 of the Illinois Antitrust Act (Counts I, V, VI, and IV); (3) an otherwise unlawful conspiracy under Section 1 of the Sherman Antitrust Act and Section 2 of the Illinois Antitrust Act (Counts I and VII); (4) an illegal plan to monopolize under Section 2 of the Sherman Antitrust Act and Section 3 of the Illinois Antitrust Act (Counts II and VIII); (5) a per se unlawful tying arrangement under Sections 1 and 2 of the Sherman Antitrust Act (Count III); (6) an illegally compulsory provision within Davis Vision’s provider agreement under the Illinois Insurance Code (Count X); (7) an unreasonable restriction on members’ access to healthcare under the Illinois Insurance Code (Count XI); (8) tortious interference with Acuity’s ability to enter into valid business relationships with providers (Count XII); and (9) an illegal restriction on members’ right to choose where to purchase lenses under the Eyeglass Rule, 16 C.F.R. § 456 (Count XIV). Acuity further claims that Davis Vision: (1) has engaged in illegal predatory pricing under section 2 of the Clayton Act (Count IV); and (2) has committed illegal misrepresentation under the Lanham Act (Count XII).

         On August 25, 2015, about four months prior to the close of fact discovery, Davis Vision filed its motion for summary judgment (d/e 27). Acuity filed a combined response to Davis Vision’s motion and Acuity’s own motion for partial summary judgment (d/e 35). Responses and replies were subsequently filed. The Court heard oral arguments on the motions on April 11, 2016.

         The following is a summary of the facts that the parties agree are undisputed:

         a. The Parties in this Action Are Acuity, a Lens Manufacturer and Davis Vision, a Vision Benefits Provider.

         Acuity Optical Laboratories, LLC is a manufacturer of eyeglass lenses and other ophthalmic goods (“lens manufacturer”), headquartered in Normal, Illinois. Day-to-day business operations of both Acuity and All About Eyes are run by Adam Rosengren. Initially, Acuity primarily sold eyeglass lenses (“lenses”) only to its affiliated chain of retail stores, All About Eyes. However, in July 2011, after Acuity’s lab was destroyed by an adjacent building’s collapse, Acuity invested in new equipment and began selling lenses to third-party opticians, optometrists, and retail outlets (together “providers”). Acuity conducts its third-party lens sales via an independent department within the company that operates under the name Identity Optical. Identity Optical is managed by Peter Kimerling.

         Acuity uses only state-of-the-art digital lens manufacturing technology, also known as “freeform, ” to manufacture lenses for the national market. This technology allows Acuity to manufacture lenses that are superior to the lenses produced with conventional lens manufacturing technology. Further, Acuity offers next-day-air shipping and regularly reduces prices on its lenses to acquire new business.

         As of February 2015, Acuity had approximately 350 open customer accounts across the entire continental United States, mostly with optometrists. Also, Acuity’s affiliated retail store, All About Eyes, has agreements to produce lenses for several vision benefits companies. The predominant vision benefits plan with which Acuity does business is EyeMed, as a result of EyeMed’s coverage of State of Illinois employees and Acuity’s presence in Illinois.

         Davis Vision is a managed vision care company headquartered in San Antonio, Texas. Davis Vision is wholly owned by HVHC, Inc. Davis Vision shares its headquarters with another wholly owned subsidiary of HVHC called Visionworks. No physical separation exists between the Davis Vision’s and Visionworks’ headquarters. Visionworks operates a chain of retail vision care stores. Davis Vision and Visionworks each own two laboratories that produce lenses. John Kay, an HVHC employee, supervises all four labs. Along with sharing office space, Visionworks and Davis Vision also share information, such as budgeting forecasts and other financial information.

         Davis Vision sells different forms of vision care plans to private employers, government employers, and other plan sponsors. Individual members receive Davis Vision’s vision care benefits through an employer or sponsor. Davis Vision has two types of members: discount plan members, who receive discounts on eye exams, glasses, contacts, and other goods; and funded plan members, who receive insurance coverage for their vision care. However, Davis Vision derives revenue primarily from the members with funded plans, with little to no revenue coming from discount plan members.

         Davis Vision contracts with providers for in-network status in Davis Vision’s vision plans. Davis Vision members receive benefits from their vision plans only when they go to these in-network providers for exams, lenses, and other services. As a result, Davis Vision funded plan members rarely go to out-of-network providers for lenses. However, if a funded plan member is prescribed a specific lens that Davis Vision does not produce, the member can and must obtain that product from an out-of-network provider, and the member does not receive any contribution from his or her Davis Vision plan.

         As a part of Davis Vision’s contract with most in-network providers, the provider must agree to Davis Vision’s Mandatory Lab Policy. The Mandatory Lab Policy requires that the provider uses lenses manufactured by one of Davis Vision’s labs to fill any orders for lenses by a Davis Vision member. Davis Vision’s contracts with its employers and plan sponsors do not contain any such language regarding the Mandatory Lab Policy between Davis Vision and providers. By extension, Davis Vision members are also unaware of the policy. The Mandatory Lab Policy has been a part of Davis Vision’s business model since the company was established in 1974. For almost all providers, if the provider is not willing to accept the Mandatory Lab Policy, Davis Vision will not contract with that provider. However, Visionworks, a lens retailer, along with five other large lens retailers, including Costco and Walmart, are exempted from the policy.

         Davis Vision’s funded members pay a co-pay for the lenses obtained with their vision care benefits, rather than paying for the lenses outright. As a result, Davis Vision considers lenses to be a cost of delivering benefits. To limit this cost, Davis Vision manufactures the lenses for use by its members. Davis Vision manufactures lenses only for this purpose and does not sell the lenses it manufacturers to any third parties. In fact, Davis Vision does not even sell the lenses manufactured for its members to the providers. Rather, a Davis Vision member pays a co-pay to Davis Vision for a pair of lenses and Davis Vision provides the lenses to the provider, at no charge, for the provider to use in the member’s eyeglasses. Then, Davis Vision pays the provider a dispersing fee. According to Davis Vision, the Mandatory Lab Policy is a critical element of its effort to control the cost of lenses for the benefit of its members. Davis Vision produces only about 10% of its lenses using the same state-of-the-art “freeform/digital lens” technology as that employed by Acuity.

         b. The Parties Operate in Different Product Markets.

         Davis Vision members constitute about 18 million of approximately 150.7 million vision plan participants in the United States. Therefore, the Mandatory Lab Policy impacts fewer than 12% of all vision plan participants nationally. Davis Vision produced approximately 2.3 million pairs of lenses in 2014. More than 98 million pairs of lenses were produced nationally in 2014. Therefore, Davis Vision’s labs produced less than 2.4% of the total lenses made nationally in 2014.

         Davis Vision’s competition in the vision care benefits market includes other managed vision care companies and vision benefits providers, such as Avesis, VSP, EyeMed, Spectera, and Superior. These competitors use different business models. For example, VSP and EyeMed use a select network of independent laboratories that provide lenses for the vision benefits companies’ members, sometimes referred to as the reimbursement model. Spectera utilizes a model similar to Davis Vision’s in that Spectera has its own laboratories and produces lenses for some of its members.

         Acuity argues that Davis Vision also competes with lens manufacturers like Acuity because Davis Vision manufactures lenses for its members in exchange for a co-pay. All About Eyes and Visionworks, as retailers, are in competition with all other providers.

         c. Geographically, Both Parties Compete in the National Market.

         Davis Vision sells vision benefits to the national market. Accordingly, if Davis Vision also sells lenses, as Acuity argues, Davis Vision sells lenses in the national market, as well. Acuity, likewise, is a national lens-producing laboratory.

         Acuity alleges, in its complaint, that the relevant geographic market is the Greater Chicago Area. Of the Chicago-area providers who participate in managed care vision plans, less than one third are in-network with Davis Vision. Many of these in-network providers also contract with other managed vision care plan companies aside from Davis Vision. EyeMed has the largest presence of any vision benefits company in Chicago.

         Acuity is currently pursuing business in the Chicago market, including a contract to become the laboratory of choice for a 22-store retail chain in the Chicago area. (The parties do not name the retail chain.) Acuity estimates that its sales to providers in the Chicago area comprise as much as 15 percent of its overall lens manufacturing sales and that this percentage has grown larger in the past two years.

         d. Acuity Argues That the Mandatory Lab Policy Has Anticompetitive Effects on the Lens Market.

         In Acuity’s combined response and motion for partial summary judgment, Acuity includes, as purportedly “undisputed facts, ” testimony from Acuity’s executives, Mr. Rosengren and Mr. Kimerling, regarding the executives’ second-hand knowledge and personal opinion of the anticompetitive effects of the Mandatory Lab Policy. Acuity claims that, because the record does not contain contradictory testimony, Mr. Adam Rosengren’s and Mr. Peter Kimerling’s testimonies are undisputed facts. Davis Vision, however, disputes these facts and further suggests that the testimony would not be admissible at trial on grounds of hearsay, speculation, or inadmissible layman opinion.

         This testimony relied on by Acuity includes: (1) Mr. Kimerling’s testimony that many providers want to order Acuity’s superior lenses for Davis Vision members but cannot do so; (2) Mr. Kimerling’s testimony that every one of his 359 accounts and other new accounts would immediately begin ordering lenses from Acuity for Davis Vision members if possible; (3) Mr. Kimerling’s testimony on the damage caused by the Mandatory Lab Policy, as well as similar policies by other vision benefit companies; (4) Mr. Kimerling’s testimony that a lab in Decatur was forced to shut down because of the Mandatory Lab Policy; (5) Mr. Kimerling’s testimony that it has become difficult for new labs to enter the market because of restrictive manufacturing policies of companies like Davis Vision, EyeMed and VSP; (6) Mr. Kimerling’s testimony that most potential provider accounts will not contract with additional labs because of administrative costs; (7) Mr. Kimerling’s testimony that providers do not discuss problems concerning the Mandatory Lab Policy with Davis Vision because the providers are afraid that Davis Vision will eliminate them from the Davis Vision network; (8) Mr. Kimerling’s testimony that many providers are aware that Davis Vision labs produce low-quality work and have slow turnaround times; (9) Mr. Rosengren’s testimony that providers do not want to be required to use Davis Vision labs; (10) Mr. Rosengren’s testimony that Acuity competes with Davis Vision; and (11) Mr. Rosengren’s testimony that Davis Vision members, considering premiums and copays, pay more for lenses than on the open market.

         Additionally, Acuity claims that, because Davis Vision moved for summary judgment prior to the close of discovery, Acuity was deprived of a full opportunity to discover relevant evidence. Acuity further claims that, if provided a full opportunity at discovery, Acuity would produce, at least, the following additional evidence: (1) affidavits from providers stating that the providers would immediately contract with Acuity if the Mandatory Lab Policy were discontinued; (2) affidavits from providers about their preference to obtain lenses from manufacturers other than Davis Vision; and (3) definitive evidence that a new lens manufacturer cannot currently enter the lens market due to the restrictions of the Mandatory Lab Policy.

         II. LEGAL STANDARD

         Summary judgment is proper if the movant shows that no genuine dispute exists as to the material facts that entitle the movant to judgment as a matter of law. Fed.R.Civ.P. 56(a). The movant bears the initial responsibility of informing the court of the basis for the motion and identifying the evidence that demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). No genuine issue of material fact exists if no reasonable jury could find in favor of the nonmoving party on the fact. Brewer v. Bd. of Trs. of the Univ. of Ill., 479 F.3d 908, 915 (7th Cir. 2007). When ruling on a motion for summary judgment, the Court must consider the facts in the light most favorable to the nonmoving party, drawing all reasonable inferences in that party’s favor. Woodruff v. Mason, 542 F.3d 545, 550 (7th Cir. 2008).

         On cross-motions for summary judgment, the same standard of review in Federal Rule of Civil Procedure 56 applies to each movant. See Cont’l Cas. Co. v. Nw. Nat’l Ins. Co., 427 F.3d 1038, 1041 (7th Cir. 2005). Cross-motions for summary judgment are considered separately, and each party requesting summary judgment must satisfy the above standard before judgment will be granted in its favor. See Tegtmeier v. Midwest Operating Eng'rs Pension Trust Fund, 390 F.3d 1040, 1045 (7th Cir. 2004); Santaella, 123 F.3d at 461. Thus, the facts are construed in favor of the non-moving party, which differs depending on which motion is under consideration. Tegtmeier, 390 F.3d at 1045.

         Summary judgment should not be entered “until the party opposing the motion has had a fair opportunity to conduct such discovery as may be necessary to meet the factual basis of the motion.” Celotex, 477 U.S. at 326. Fed.R.Civ.P. 56(d) provides relief for a party opposing a motion for summary judgment if the party can establish, through affidavits or declarations, that it “cannot present facts essential to justify its opposition.” “A party seeking the protection of [Rule 56(d)] must make a good faith showing” that that party cannot provide the needed evidence without more discovery. Kalis v. Colgate-Palmolive Co, 231 F.3d 1049, 1058 n.5 (7th Cir. 2000) (quoting United States v. All Assets & Equip. of W. Side Bldg. Corp., 58 F.3d 1181, 1190 (7th Cir. 1995)). “A court may disregard a failure to formally comply” with Rule 56(d)’s motion requirement if the opposing party otherwise “clearly sets out the justification” for a grant of additional time for discovery. Pfeil v. Rogers, 757 F.2d 850, 856 (7th Cir. 1985).

         III. ANALYSIS

         To obtain civil damages under federal antitrust laws, Acuity must prove the following elements: (1) that Davis Vision had a duty recognized by the antitrust laws and that Davis Vision violated that duty; (2) that Acuity suffered an injury protected by the antitrust laws; and (3) that a direct link exists between Davis Vision’s antitrust violation and Acuity’s antitrust injury, i.e., Acuity has antitrust standing. See Greater Rockford Energy and Technology Corp. v. Shell Oil Co., 998 F.2d 391, 395 (7th Cir. 1993); 15 U.S.C. § 15.

         Davis Vision argues that it is entitled summary judgment on all of Acuity’s claims because Acuity has not proven any of the aforementioned elements on its federal antitrust claims (Counts I-V). Specifically, Davis Vision first argues that Acuity cannot prove that Davis Vision has violated any recognized antitrust duty because: (1) Davis Vision’s Mandatory Lab Policy does not constitute an illegal conspiracy in restraint of trade (Count I); (2) Davis Vision’s Mandatory Lab Policy is not an attempt to create an illegal monopoly (Count II); (3) Acuity has not stated a claim for unlawful tying (Count III) or predatory pricing (Count IV); and (4) Davis Vision’s Mandatory Lab Policy does not constitute an illegal forced boycott (Count V). Davis Vision also argues that Acuity (1) cannot establish antitrust injury and (2) cannot establish antitrust standing. Davis Vision further argues that it is entitled to summary judgment on Acuity’s state antitrust claims (Counts VI-IX), because Acuity’s Illinois Antitrust Act claims are analyzed identically to Acuity’s federal claims. Davis Vision also argues that it is entitled to summary judgment on Counts X, XI, and XIV because the relevant statute/regulation does not provide a private right of action for Acuity. Finally, Davis Vision argues that it is entitled to summary judgment on Counts XII and XIII because Acuity fails to state a claim for tortious interference with prospective business advantage or violation of the Lanham Act.

         Acuity argues, however, that it is entitled to partial summary judgment on the issue of liability in Counts I and II because: (1) Davis Vision’s Mandatory Lab Policy is a per se unlawful horizontal agreement in violation of Section 1 of the Sherman Antitrust Act (Count I); (2) lenses manufactured for Davis Vision members constitutes a viable antitrust market over which Davis Vision exercises unlawful market power in violation of Section 2 of the Sherman Antitrust Act (Count II); and (3) Acuity has established antitrust injury and antitrust standing for those claims. Acuity next argues that the Court should, at least, deny Davis Vision’s motion for summary judgment on all counts because reasonable disputes of material fact exist regarding the merit of each of Acuity’s claims and regarding whether Acuity has established antitrust injury and antitrust standing. Third, Acuity argues that, if the Court does not presently find reasonable disputes of material fact sufficient to deny Davis Vision’s motion for summary judgment, if given additional discovery, Acuity would provide sufficient evidence to produce a reasonable dispute of material fact on all counts.

         Acuity has not filed a separate Rule 56(d) motion or provided affidavits but this Court may still grant Acuity relief under Rule 56(d) because Acuity has sufficiently alleged in its memorandum of law that it was denied the opportunity to conduct needed discovery because of Davis Vision’s present motion for summary judgment. See Pfeil, 757 F.2d at 856 (“A court may disregard a failure to formally comply with Rule 56(f) if the opposing party’s request…clearly sets out the justification.”); Theotokatos v. Sara Lee Personal Products, 971 F.Supp. 332, 344 (N.D. Ill. 1997) (citing Pfeil and considering a party’s request that the court allow additional discovery in the party’s response to summary judgment even though a formal Rule 56(d) motion was not filed); Toombs v. Martin, 05-00104, 2005 WL 3501700, *1-2 (N.D. Ind. Dec. 19, 2005) (waiving the affidavit/declaration requirement of Rule 56(d) when the plaintiff sufficiently justified his need for additional discovery in his motion). Acuity has made the required “good faith showing” that it cannot respond to some of Davis Vision’s summary judgment arguments because: (1) Acuity has identified the specific material facts that it anticipates discovering; and (2) the inability to conduct discovery is not a result of Acuity’s failure to be diligent. See Kalis v. Colgate-Palmolive Co., 231 F.3d 1049, 1058 n.5 (7th Cir. 2000). Acuity had, in fact, served discovery requests on Davis Vision in August 2015; however, Acuity then agreed to Davis Vision’s request that the parties stay discovery until Davis Vision’s motion, which argued primarily matters of law, was resolved. See Ex. A and B to Davis Vision’s Surreply (d/e 47) at 11-14.

         Further, Davis Vision does not refute Acuity’s claim that additional discovery is needed to resolve certain issues of fact. Rather, Davis Vision argues that it is entitled to summary judgment notwithstanding what additional discovery would reveal because the Court can find for Davis Vision without resolving the issues that Acuity claims require additional discovery. Therefore, the Court finds that Acuity has provided sufficient information for the Court to determine whether additional discovery is needed and, therefore, that Acuity may defeat summary judgment at this point if the specific material facts that Acuity alleges it would produce through discovery would create a reasonable dispute of material fact.

         Based on a review of the present record, the Court finds that Davis Vision is entitled to summary judgment on Counts III, IV, V, VI, IX, X, XI, and XIV. Further, the Court finds that Acuity is not entitled to partial summary judgment on Counts I and II; however, Acuity has met its burden to postpone summary judgment under Fed.R.Civ.P. 56(d) on those counts, as well as Counts VII, VIII, XII and XIII.

         A. Although the Mandatory Lab Policy Is Not a Per Se Unlawful Horizontal Agreement, Acuity Could Establish a Reasonable Dispute of Material Fact as to Whether the Policy Constitutes an Illegal Conspiracy (Count I).

         In Count I, Acuity claims that the Mandatory Lab Policy is an unlawful conspiracy in violation of Section 1 of the Sherman Act. Acuity argues that it is entitled to summary judgment as to liability on Count I because Davis Vision’ Mandatory Lab Policy is a per se unlawful horizontal agreement. Davis Vision argues, however, that it is entitled to summary judgment on Count I because: (1) the Mandatory Lab Policy is not per se unlawful; and (2) Acuity’s alleged relevant product market is not viable for antitrust purposes and, therefore, Acuity cannot prove the Mandatory Lab Policy unlawful under either the quick-look or Rule of Reason ...


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