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United States Court of Appeals For the First Circuit
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No. 01-2718
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2003.C01.0000218< http://www.versuslaw.com>
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June 12, 2003
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THE PODIATRIST ASSOCIATION, INC., ET AL., PLAINTIFFS,
APPELLANTS,
v.
LA CRUZ AZUL DE PUERTO RICO, INC. AND TRIPLE-S, INC.,
DEFENDANTS, APPELLEES.
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APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
PUERTO RICO [Hon. Héctor M. Laffitte, U.S. District Judge]
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Kevin G. Little, with whom Law Offices of David Efron was on brief,
for appellants.
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Gilberto J. Marxuach-Torrós, with whom Arturo J. Garc¡a-Solá and
McConnell Valdés were on brief, for appellee La Cruz Azul de Puerto
Rico.
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Luis A. Oliver-Fraticelli, with whom Fiddler, Gonzalez & Rodriguez
Llp was on brief, for appellee Triple-S, Inc.
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Before Selya, Circuit Judge, Coffin, Senior Circuit Judge, and Lipez,
Circuit Judge.
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The opinion of the court was delivered by: Selya, Circuit
Judge
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This antitrust case requires us to examine the structure and operation
of health-care delivery in an era marked by a bewildering array of insurer
and provider arrangements. The plaintiffs, appellants here, represent the
interests of podiatrists in Puerto Rico. They sued La Cruz Azul de Puerto
Rico (Blue Cross) and Triple-S, Inc. (Triple-S) in the federal district
court complaining, inter alia, that the defendants had conspired with
medical doctors to exclude podiatric care from their standard benefits
packages during the period from 1995 to 1999. The district court concluded
that the plaintiffs had offered insufficient evidence that physicians
controlled the plans' policymaking functions with respect to either
insurance benefits or reimbursement rates (and, therefore, had offered
insufficient evidence of concerted action). Accordingly, the court granted
summary judgment in the defendants' favor. Relatedly, the court dismissed
a Lanham Act claim against Blue Cross. The plaintiffs appeal from these
determinations. We affirm.
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I. BACKGROUND
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Except for the Lanham Act count (as to which the allegations of the
amended complaint control), we glean the relevant facts from the summary
judgment record. We draw all reasonable inferences in the plaintiffs'
favor. Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir. 1990). Our
recital begins with a roster of the protagonists, proceeds to detail the
plaintiffs' claims and the facts upon which they rely, and then summarizes
the district court's main holdings.
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A. The Protagonists.
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The plaintiffs include the Podiatrist Association (a non-profit trade
association), a number of practicing podiatrists, their spouses, and their
conjugal partnerships. Inasmuch as the podiatrists are the real parties in
interest, we shall discuss the matters sub judice as if they were the sole
plaintiffs.
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Podiatrists are licensed health-care providers in Puerto Rico (as
elsewhere). They afford medical care to the foot and lower extremities.
Podiatrists attend four-year schools of podiatric medicine. Those who
successfully complete the curriculum are awarded D.P.M. degrees and become
doctors of podiatric medicine. Once admitted to practice, podiatrists
provide services that are similar to those offered by some medical
doctors, so that the two groups compete against each other for certain
patients. One court has suggested that podiatrists can furnish comparable
services at lower costs. See Hahn v. Or. Physicians' Serv., 868 F.2d 1022,
1032 (9th Cir. 1988). Along this line, the plaintiffs' amended complaint
alleges, albeit without supporting evidence, that podiatrists offer
services that are not only "of equal or better quality" than those
provided by medical doctors but also "generally less
expensive."
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The defendants are Puerto Rico's two major providers of health-care
insurance. *fn1 They do not contest the plaintiffs' allegation that
Triple-S enjoys roughly 36% of Puerto Rico's health insurance market and
Blue Cross enjoys roughly 25% of that market.
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Triple-S is a for-profit corporation. From 1995 forward, its board of
directors has been composed of nineteen members, eight of whom are medical
doctors. The other members include a dentist, hospital officials, and
community representatives. The board has complete control over corporate
policymaking, and all changes in the benefits packages and reimbursement
rates established by Triple-S are subject to board approval. The executive
committee, which exercises responsibility over corporate policies between
board meetings, consists of seven board members. Since 1995, three of
those members - the president, vice-president, and secretary - have been
medical doctors. The medical director, who reports to the board, is
required by the corporation's bylaws to have an M.D. degree.
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Blue Cross has a more complicated corporate history. Before 1998, it
functioned as a non-profit corporation. Its twenty-eight board members
included seven medical doctors, seven hospital executives, and fourteen
subscriber representatives. Blue Cross became a for-profit corporation in
1998. Upon its conversion to for-profit status, Blue Cross established a
fourteen member board of directors. All the members represented
subscribers; none of them were medical doctors. In November of that year,
Independence Holdings, a wholly-owned subsidiary of Independence Blue
Cross, acquired a majority of its shares. At that time, the board was
pared to seven members (none of whom are medical doctors).
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When it functioned as a non-profit, Blue Cross had a fees and
contracts committee that was responsible for proposing and evaluating
benefits packages and reimbursement policies. The committee consisted of
eight members: two medical doctors, two hospital executives, and four
subscriber representatives. Blue Cross also maintained a medical advisory
committee composed of three medical doctors (all of whom doubled in brass
as board members). Despite the existence of these committees, all major
decisions concerning benefits and reimbursement rates remained subject to
the board's approval.
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B. The Plaintiffs' Allegations.
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The plaintiffs' amended complaint mounts two kinds of claims. The
first set, involving alleged antitrust violations, are rooted in Section 1
of the Sherman Act, 15 U.S.C. § 1, and a parallel local-law provision, 10
P.R. Laws Ann. § 258 (1997). In a related vein, the plaintiffs charged
both defendants with having engaged in unfair business practices in
violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and
Article 1802 of the Civil Code, 31 P.R. Laws Ann. § 5141
(1990).
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The plaintiffs' antitrust claims start with the premise that the
defendants have favored medical doctors by excluding podiatrists,
podiatric care, and ancillary services essential to podiatric care from
their basic health insurance coverages; that even when podiatric care is
covered, the defendants reimburse podiatrists at lower rates than those
paid to medical doctors for comparable services; and that many patients
who are in need of foot care turn to medical doctors rather than
podiatrists. The plaintiffs further aver that this favoritism is no
accident: in their view, the defendants and the internal decisionmaking
processes used to formulate their benefits packages have been dominated by
medical doctors, so that the discrimination that permeates the plans'
activities is the outgrowth of a conspiracy that has placed
anticompetitive restraints on trade. These restraints operate, the
plaintiffs say, to increase prices (diverting patients to more expensive
treatment, i.e., treatment by medical doctors), decrease output (driving
some patients to forgo podiatric care altogether), and curtail
podiatrists' earnings.
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In support of these antitrust claims, the plaintiffs point to the
following evidence. First, they remark that physicians have served on the
defendants' boards of directors and have occupied key decisionmaking
positions within the defendants' organizational structures. In contrast,
no podiatrist has ever participated in either defendant's governance
apparatus. Second, the plaintiffs identify specific meetings in which the
defendants' exclusionary benefits policies were discussed and approved.
They assert that those meetings were dominated by
physicians.
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The second type of claim mounted by the plaintiffs accuses the
defendants of making false representations regarding the quality of
podiatric care. In this regard, the plaintiffs allege that the defendants
spread misinformation to subscribers regarding the competency of
podiatrists, the relative professionalism of podiatrists vis-à-vis medical
doctors, and the limited availability of reimbursement for podiatric care.
The plaintiffs claim that these disparaging comments caused them both
economic loss and reputational damage.
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The current dispute is emblematic of the nationwide conflict between
physicians and other participants in the health-care market. See, e.g.,
Flegel v. Christian Hosp., 4 F.3d 682 (8th Cir. 1993); Bhan v. NME Hosps.,
Inc., 929 F.2d 1404 (9th Cir. 1991); Va. Acad. of Clinical Psychologists
v. Blue Shield, 624 F.2d 476 (4th Cir. 1980). Podiatrists have long been
part of this conflict. In the past, they have accused physicians of
employing anticompetitive means to place hospital staff privileges beyond
their reach, e.g., Cooper v. Forsyth County Hosp. Auth., Inc., 789 F.2d
278, 279 (4th Cir. 1986), battled with physician-dominated boards to
determine what podiatric services qualify for Medicare reimbursement,
e.g., Conn. State Med. Soc'y v. Conn. Bd. of Exam'rs in Podiatry, 524 A.2d
636, 637-38 (Conn. 1987), and fought against perceived conspiracies to
exclude podiatric care from insurance coverage, e.g., Hahn, 868 F.2d at
1024-25. Consequently, we are able to view the current hostilities through
the prism of a significant body of case law.
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C. Travel of the Case.
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The plaintiffs sued on December 9, 1999, and filed an amended
complaint on March 28, 2000. Shortly thereafter, Blue Cross moved for
summary judgment with respect to the antitrust claims and for dismissal of
the remaining claims. The district court permitted the plaintiffs to
undertake discovery on the issues raised in the summary judgment motion.
While those motions were pending, Triple-S moved for summary judgment on
all claims asserted against it. The parties appear to have assumed that
discovery could go forward on the issues framed by this
motion.
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On September 19, 2001, the district court, in two parallel opinions,
granted substantially all the relief requested by the defendants. See
Podiatrist Ass'n, Inc. v. Cruz Azul de P.R., Inc., No. 99-2336 (D.P.R.
Sept. 19, 2001) (unpublished); Podiatrist Ass'n, Inc. v. Triple-S, Inc.,
No. 99-2336 (D.P.R. Sept. 19, 2001) (unpublished). In each instance, the
court focused its antitrust analysis on the issue of whether physicians
controlled the particular defendant's benefits policies and concluded that
the plaintiffs had failed to show such control. The court also granted
summary judgment for Triple-S on the Lanham Act count. As to Blue Cross,
the court determined that the plaintiffs had failed to state an actionable
Lanham Act claim and granted that defendant's motion to dismiss. Moreover,
the court determined that issue had not properly been joined on certain
claims against Triple-S, see infra Part II(C), and left those claims for
later resolution.
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Having disposed of most of the causes of action asserted under federal
law, the court declined to exercise supplemental jurisdiction over the
claims asserted under Article 1802 of the Civil Code. Those claims were
dismissed without prejudice. See 28 U.S.C. § 1367(c); see also Martinez v.
Colon, 54 F.3d 980, 990 (1st Cir. 1995) (upholding dismissal without
prejudice of pendent local-law claims when the district court determined
"far in advance of trial that no legitimate federal question existed").
After the plaintiffs dropped the residuum of potential federal claims
against Triple-S (a matter to which we shall return), this timely appeal
ensued.
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II. ANALYSIS
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On appeal, the plaintiffs hawk several assignments of error. First,
they challenge the district court's resolution of the "physician control"
issue. Second, they maintain that the lower court evaluated only one of a
myriad of antitrust theories set forth in their amended complaint.
Finally, they contend that the court improperly granted Blue Cross's
motion to dismiss the Lanham Act claim. We first confront the arguments
relating to the antitrust claims and then discuss the district court's
disposition of the Lanham Act claim. *fn2
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A. The Principal Antitrust Claim.
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Section 1 of the Sherman Act prohibits "[e]very contract, combination
. . . or conspiracy, in restraint of trade." 15 U.S.C. § 1. That language
establishes two prerequisites for a Section 1 claim. First, the plaintiff
must show concerted action between two or more separate parties. Monsanto
Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984). Second, the
plaintiff must show that such action unreasonably restrains trade. Nynex
Corp. v. Discon, Inc., 525 U.S. 128, 133 (1998). The district court
restricted its analysis to the first of these prerequisites, finding
insufficient evidence to support the plaintiffs' allegation that the
defendants' benefits policies were born out of concerted action. We test
this conclusion against the summary judgment standard.
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1. The Standard of Review. The role of summary judgment is "to pierce
the pleadings and to assess the proof in order to see whether there is a
genuine need for trial." Garside v. Osco Drug, Inc., 895 F.2d 46, 50 (1st
Cir. 1990) (quoting Fed. R. Civ. P. 56 advisory committee's note). Thus,
summary judgment is appropriate as long as "the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment as a matter of
law." Fed. R. Civ. P. 56(c).
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We afford plenary review to orders granting or denying summary
judgment. Garside, 895 F.2d at 48. Like the district court, we "must view
the entire record in the light most hospitable to the party opposing
summary judgment, indulging all reasonable inferences in that party's
favor." Griggs-Ryan, 904 F.2d at 115. Despite this favorable presumption,
the evidence relied upon by the party opposing summary judgment must
suffice to show a genuine issue of material fact, that is, a bona fide
dispute about a fact that has the potential of affecting the outcome of
the case under the applicable law. United States v. One Parcel of Real
Prop. (Great Harbor Neck, New Shoreham, R.I.), 960 F.2d 200, 204 (1st Cir.
1992).
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To be sure, the Supreme Court has cautioned that, in antitrust cases,
"dismissals prior to giving the plaintiff ample opportunity for discovery
should be granted very sparingly." Hosp. Bldg. Co. v. Trustees of Rex
Hosp., 425 U.S. 738, 746 (1976) (discussing Poller v. Columbia Broad.
Sys., Inc., 368 U.S. 464, 473 (1962)). This does not mean, however, that
summary judgment is unavailable in antitrust cases. See First Nat'l Bank
v. Cities Serv. Co., 391 U.S. 253, 289-90 (1968); see also Texaco P.R.,
Inc. v. Medina, 834 F.2d 242, 247 (1st Cir. 1987) (noting that "the
courts, including the Supreme Court, now more freely approve" the use of
summary judgment in such cases). More to the point, the doctrine has no
force in cases in which the plaintiff has been afforded sufficient
opportunity for discovery. See, e.g., Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 585-87 (1986). This is such a
case.
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2. Sufficiency of the Evidence. Against this backdrop, we turn to the
plaintiffs' basic allegation: that the evidence supports a finding of an
anticompetitive conspiracy between and among those physicians who served
on the defendants' boards and the defendants themselves. This allegation
does not get them very far, for the Supreme Court has largely dismissed
the possibility of an intraenterprise conspiracy as a basis for liability
under Section 1 of the Sherman Act. See Copperweld Corp. v. Independence
Tube Corp., 467 U.S. 752 (1984); see also VII Phillip E. Areeda &
Herbert Hovenkamp, Antitrust Law ¶ 1470 (2d ed. 2003) (describing as
"universally accepted" the proposition that "a corporate officer cannot
conspire with his own corporation"). In other words, agreements between
two or more actors who operate within and for the benefit of a single
economic enterprise do not satisfy the concerted action requirement of
Section 1. Copperweld, 467 U.S. at 769.
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That does not end our inquiry, for the Copperweld Court intended to
exempt conduct from the rigors of Section 1 only when the actors,
collectively, "pursue[] the common interests of the whole rather than
interests separate from those of the corporation itself." Id. at 770. A
different analysis is required when the alleged coconspirators, regardless
of their status, pursue interests that diverge from those of the
enterprise itself. Sullivan v. Nat'l Football League, 34 F.3d 1091, 1099
(1st Cir. 1994); VII Areeda & Hovenkamp, supra, ¶¶ 1471a, 1471e2. This
nuance does not help the plaintiffs in this case because they have not
submitted any evidence suggesting that physicians on either board have
their own agendas or harbor private economic interests distinct from those
of the corporations themselves. Inasmuch as nothing in the record lends
support to a conclusion that those physicians acted as independent,
self-interested economic agents, the plaintiffs have not articulated a
claim that involves anything more than activity occurring within a single
enterprise. As we have said, such a claim falls within the sphere of
Copperweld preclusion (and, accordingly, fails to articulate a viable
antitrust claim).
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In a variation on this theme, the plaintiffs argue that physicians
controlled the defendants and their benefits policies, so that each
defendant was little more than a corporate carapace housing a conspiracy
among physicians. According to this argument, the defendants' benefits
policies were products of the antecedent conspiracy.
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This argument focuses our attention on the issue of physician control.
After all, when competing health-care providers challenge an insurer's
benefits policies, alleging exclusionary practices instigated by
physicians, those providers must make a threshold showing that the
physicians effectively control the health-care plan. Hahn, 868 F.2d at
1029; Pa. Dental Ass'n v. Med. Serv. Ass'n, 745 F.2d 248, 256 (3d Cir.
1984); Va. Acad. of Clinical Psychologists, 624 F.2d at 481. This is as it
should be, for a health insurer's actions can reflect an agreement in
restraint of trade among physicians only if, and to the extent that, the
insurer is an instrumentality of the physicians' concerted action. See VII
Areeda & Hovenkamp, supra, ¶ 1475a.
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The district court characterized the inquiry as one involving whether
the physicians operated a "structural conspiracy" within the defendants'
corporate skeletons. It examined the makeup of the defendants' boards and
the identity of key decisionmakers. Based on this appraisal, the court
ruled that the record did not contain evidence adequate to establish that
physicians either dictated the defendants' benefits policies or otherwise
exercised the requisite degree of control. The plaintiffs challenge this
assessment.
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The inquiry into whether an organization represents, or is a
reflection of, the concerted action of conspiring economic actors is a
functional one. See United States v. Sealy, Inc., 388 U.S. 350, 352-53
(1967) ("[W]e look at substance rather than form . . . [and] we are moved
by the identity of the persons who act, rather than the label of their
hats."). Thus, the preferred approach - and the one that we adopt - is to
examine the composition of a corporation's board to determine whether a
particular group has exercised (or has the ability to exercise) majority
control. See, e.g., Hahn, 868 F.2d at 1030; Pa. Dental Ass'n, 745 F.2d at
258; Va. Acad. of Clinical Psychologists, 624 F.2d at 480.
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Regarding Triple-S, the plaintiffs managed to establish nothing more
than that physicians held eight of the nineteen seats on the board. That
is a minority position - and plainly not enough to show control. The
corporate bylaws make manifest that board action requires a majority vote,
and the physicians simply do not constitute a majority. Nor can they
achieve control under the extant circumstances; the bylaws specify that at
least ten of the nineteen board members must at all times be
non-physicians.
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The plaintiffs' fallback position covers a great deal of ground. They
asseverate that physicians have enough representation on the board to
influence board decisions; that physicians play important roles when
Triple-S formulates its restrictive benefits policies; that many key
executives of Triple-S, including the board chair and medical director,
are physicians; and that physicians occupy three of seven seats on the
executive committee. This is a mixture of unsupported conclusions and
marginally relevant (but ultimately unconvincing) facts.
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The first two statements are argumentative. The mere fact that
physicians have some input into Triple-S's decisionmaking processes does
not show control. See, e.g., Barry v. Blue Cross, 805 F.2d 866, 868-69
(9th Cir. 1986); Pa. Dental Ass'n, 745 F.2d at 258. Without hard proof
that physician input metamorphosed into physician dominance - and the
summary judgment record contains none - these exhortations do not advance
the plaintiffs' cause.
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The second two statements are factual, but not probative. It is true
that certain of Triple-S's ranking executives are medical doctors and that
three of them serve on its executive committee. But such facts, without
more, prove very little. See Pa. Dental Ass'n, 745 F.2d at 258
(discounting the influence of physicians serving on certain committees
when corporate bylaws vested ultimate control in the board); see also
Barry, 805 F.2d at 868-69 (employing the same reasoning when company rules
placed ultimate control elsewhere).
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Here, there is no "more." The plaintiffs have wholly failed to show
how the placement of these individuals translates into control. Equally as
important, they have not shown how their placement suffices to overcome
the significance and role of the board. The corporate bylaws state
unambiguously that all business decisions and policy changes are subject
to board approval, and nothing in the record suggests that the board
relinquished this authority. Absent some probative evidence that board
approval was a rubber stamp - an ingredient that is lacking here - the
antitrust claim against Triple-S cannot stand.
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The plaintiffs likewise have failed to adduce sufficient evidence to
suggest that Blue Cross is under physician control. The record shows that,
during the period from 1995 to 1998, physicians constituted a distinct
minority of the board (holding seven out of twenty-eight seats). This was
not fortuitous: both the corporation's former bylaws and the relevant
provisions of Law 152, 6 P.R. Laws Ann. § 43(1) (1994), demanded this
minority status. From 1998 forward, the possibility of physician control
seems even more remote; the corporation became a for-profit entity, and
the board became a physician-free zone.
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In a creative formulation, the plaintiffs attempt to change the
arithmetic by pointing out that physicians and hospital executives
collectively held half of the seats on Blue Cross's non-profit board. This
is mathematically accurate - the twenty-eight member board included seven
physicians and seven hospital representatives - but legally irrelevant.
The record is barren of any evidence indicating that these two groups
worked as a unit or even that they shared common economic interests.
Certainly, we cannot infer as much in the absence of any proof. Physicians
and hospitals are in some respects natural enemies, squabbling over how to
divide the steadily shrinking portion of premium dollars that insurers
devote to provider reimbursement. See, e.g., Jeffrey E. Harris, Regulation
and Internal Control in Hospitals, 55 Bull. N.Y. Acad. of Med. 88, 90-95
(1979) (discussing structural and historical tensions pitting hospital
administrators against medical staff).
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The plaintiffs' next initiative is to note that physicians occupied
certain ancillary offices, such as positions on the fees and contracts
committee and the medical committee. They couple this with an assessment
of the roles that these committees played in Blue Cross's operations. From
these facts, they argue that physicians were responsible for the
development of the insurer's policies. As with Triple-S, however, we can
attach no special significance to the unadorned fact of physician
participation on any committee. See Barry, 805 F.2d at 868-69; Pa. Dental
Ass'n, 745 F.2d at 258. This is especially true in light of the bylaw
provision that expressly grants the Blue Cross board "the sole authority
to set . . . the services to be offered to the subscribers."
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To sum up, the plaintiffs have failed to establish the first
foundational element of their argument. The defendants' boards retained
the ultimate say over their benefits policies and reimbursement rates, and
physicians were represented sparsely (if at all) on these boards. By the
same token, the plaintiffs have not established that physicians exercised
the requisite degree of control over policymaking in any other fashion.
Accordingly, the district court did not err in granting summary judgment
on the plaintiffs' "structural conspiracy" antitrust claim.
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Let us be perfectly clear. We base this ruling on the plaintiffs'
failure to muster evidence showing physician control. We hasten to add,
however, that for purposes of Section 1 of the Sherman Act, control is a
necessary but not a sufficient condition for finding concerted action.
See, e.g., Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 356
(1982); Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 22
(1979); see also VII Areeda & Hovenkamp, supra, ¶ 1478. Even then,
satisfying the concerted action requirement is but one precondition to
establishing a Section 1 violation. See, e.g., NCAA v. Bd. of Regents, 468
U.S. 85, 98-101 (1984). This appeal, however, turns on the question of
whether physicians exercised the requisite degree of control over the
defendants to support a Section 1 claim. Having answered that question in
the negative, we take no view as to whether any additional factors might
independently preclude the maintenance of an action under the
statute.
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B. The Puerto Rico Antitrust Claims.
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The plaintiffs recast their Sherman Act claims as separate causes of
action under Puerto Rico's antitrust law, 10 P.R. Laws Ann. § 258. That
statute prohibits "[e]very contract, combination . . . or conspiracy in
unreasonable restraint of trade or commerce in the Commonwealth of Puerto
Rico." Id. Because this language mirrors the language of Section 1 of the
Sherman Act, we have treated the two provisions as coextensive. See Caribe
BMW, Inc. v. Bayerische Motoren Werke Aktiengesellschaft, 19 F.3d 745, 754
(1st Cir. 1994); see also Pressure Vessels v. Empire Gas, 137 P.R. Dec.
497, 508-20 (1994), 37 Offic. Trans. ___, ___ [Slip Op. Offic. Trans. at
8-20] (examining Puerto Rico's antitrust statute and articulating its
equivalency to federal law). Hence, we apply the reasoning elucidated
above and affirm the district court's entry of summary judgment for the
defendants on these claims.
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C. The Plaintiffs' Alternative Antitrust Theories.
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The plaintiffs next contend that they presented three alternative
antitrust theories before the district court, namely, (1) that the
physician members of the defendants' boards were part of an
anticompetitive conspiracy that included non-physician board members; (2)
that there was a conspiracy among physicians who influenced, though they
did not control, the defendants and their policies; and (3) that the
defendants were parties to an anticompetitive conspiracy among
community-based medical doctors who compete with podiatrists. These
theories are viable, the plaintiffs say, notwithstanding the absence of
physician control vis-à-vis the defendants. Consequently, the district
court erred in granting summary judgment on the antitrust
claims.
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To put these nascent claims into perspective, we examine the record
below. None of these additional theories is readily apparent from a
thoughtful reading of the amended complaint, and neither Triple-S nor Blue
Cross addressed them in their initial summary judgment memoranda. The
plaintiffs sought to widen the playing field by mentioning the additional
theories in their oppositions to the defendants' motions. Triple-S
disregarded these allusions. Blue Cross, however, argued in a reply brief
that none of the three alternative theories, as stated, articulated a
claim upon which relief could be granted, and that, in all events, the
evidence did not support any of them.
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In allowing Blue Cross's motion for summary judgment, the district
court deemed these alternative theories to be within the umbrella of the
plaintiffs' "structural conspiracy" claim. The court did, however,
entertain the possibility that the third theory amounted to a separate
claim but ruled that the plaintiffs' failure to provide any semblance of
detail doomed it. The court handled the matter differently in regard to
Triple-S. Because that defendant, unlike Blue Cross, had not responded to
the plaintiffs' belated exposition, the district court allowed the
alternative theories to survive as against Triple-S. The plaintiffs later
stipulated to dismissal without prejudice of the residuum of these claims
vis-à-vis Triple-S. We must deal, therefore, only with the three
alternative theories as they affect Blue Cross.
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This motley need not detain us long. The first alternative theory
suggests the existence of a physician-dominated conspiracy that included
non-physicians (and, thus, constituted a majority of the Blue Cross board
sufficient to exercise control). But this theory is not anchored in the
record. The plaintiffs have neither identified a single non-physician
participant in this alleged cabal nor otherwise furnished even a scintilla
of evidentiary detail. Because the claim relies solely on unsupported
conjecture, it cannot withstand summary judgment. See Medina-Munoz v. R.J.
Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990).
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| [62] |
The plaintiffs' second alternative theory suggests that a minority
coalition of physicians unduly influenced the formulation of Blue Cross's
benefits packages. That claim is factually unsupported, and we swiftly
discard it based on the logic previously articulated. See supra Part
II(A)(2).
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| [63] |
The third alternative theory, like the first two, is a barebones
allegation wrapped in the gossamer strands of speculation and surmise. The
plaintiffs have neither identified a single physician outside Blue Cross
who is part of the alleged conspiracy nor pinpointed any agreement with
such a physician that might violate Section 1. Because this theory lacks
evidentiary support, it was not a barrier to the entry of summary
judgment.
|
| [64] |
The plaintiffs attempt to confess and avoid. They blame the dearth of
evidence on a denial of discovery and complain that summary judgment was
premature because they had insufficient opportunity to flesh out these
alternative theories and pursue supporting evidence through discovery. A
careful perscrutation of the record belies this plaint. The district
court's discovery order embraced any and all antitrust theories including,
by definition, the embedded formulations that the plaintiffs belatedly
found lurking in the penumbra of the amended complaint. We explain
briefly.
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| [65] |
Blue Cross's motion for brevis disposition broadly requested the entry
of summary judgment on the "[p]laintiffs' claims under Section 1 of the
Sherman Act and Article 2 of Puerto Rico's antitrust statute." Blue Cross
did not limit this prayer to any particular antitrust theory, but, rather,
sought to scotch the antitrust claims as a whole. The district court's
ensuing order matched the scope of Blue Cross's motion; it permitted
discovery, without limitation, as "to the issues raised in [Blue Cross's]
motion for summary judgment on the antitrust claims." Consequently, to the
extent that the amended complaint raised alternative theories of antitrust
liability, the plaintiffs had adequate opportunity to discover facts in
support of them. They cannot now complain that the lack of evidence in the
record should be excused. See Maldonado-Denis v. Castillo-Rodriguez, 23
F.3d 576, 585 (1st Cir. 1994).
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| [66] |
We add one final note. Had the plaintiffs genuinely believed that they
had been unfairly limited in the availability of discovery, they had an
obligation to bring the matter to the district court's attention by means
of a timely motion under Fed. R. Civ. P. 56(f). See Mass. Sch. of Law at
Andover, Inc. v. Am. Bar Ass'n, 142 F.3d 26, 44-45 n.15 (1st Cir. 1998);
Resolution Trust Corp. v. N. Bridge Assocs., Inc., 22 F.3d 1198, 1203 (1st
Cir. 1994). In the absence of such a motion -and none was filed here - a
subsequent complaint of denied discovery will ordinarily be rejected. See,
e.g., Corrada Betances v. Sea-Land Serv., Inc., 248 F.3d 40, 44 (1st Cir.
2001); Mass. Sch. of Law, 142 F.3d at 44. This case falls well within that
general proscription.
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| [67] |
D. The Lanham Act Claim.
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| [68] |
In pertinent part, Section 43 of the Lanham Act prohibits the use of
any communication "in commercial advertising or promotion [that]
misrepresents the nature, characteristics, qualities, or geographic origin
of . . . goods, services, or commercial activities." 15 U.S.C. §
1125(a)(1)(B). The plaintiffs assert in their amended complaint that Blue
Cross violated this statute when it "falsely disparaged the health care
services provided by podiatrists and actively encouraged patients to seek
services from medical doctors instead." Beyond this statement, the
plaintiffs make only the skimpy allegations that "patients have falsely
been told by [Blue Cross] that [it] cannot reimburse them for podiatrist
services because podiatrists are not 'real' doctors," and that these
misrepresentations were "disseminated widely to patients who needed foot
care." The amended complaint contained no allegation or information
regarding the means through which these misrepresentations were
communicated. Blue Cross moved under Fed. R. Civ. P. 12(b)(6) to dismiss
this claim, and the district court obliged.
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| [69] |
We afford plenary review to a district court's order of dismissal for
failure to state a claim upon which relief can be granted. Arruda v.
Sears, Roebuck & Co., 310 F.3d 13, 18 (1st Cir. 2002). In conducting
that review, we must assume the truth of all well-pleaded facts contained
in the operative pleading (here, the plaintiffs' amended complaint). Id.
If "the factual averments do not justify recovery on some theory
adumbrated in the complaint, then - and only then - can we affirm a
dismissal for failure to state an actionable claim." Rogan v. Menino, 175
F.3d 75, 77 (1st Cir. 1999).
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| [70] |
Despite this generous standard, we repeatedly have cautioned that
"Rule 12(b)(6) is not entirely a toothless tiger. . . . The threshold for
stating a claim may be low, but it is real." Dartmouth Rev. v. Dartmouth
Coll., 889 F.2d 13, 16 (1st Cir. 1989) (internal citation omitted). The
complaint must therefore set forth "factual allegations, either direct or
inferential, respecting each material element necessary to sustain
recovery under some actionable legal theory." Gooley v. Mobil Oil Corp.,
851 F.2d 513, 515 (1st Cir. 1988); see also DM Research, Inc. v. Coll. of
Am. Pathologists, 170 F.3d 53, 55 (1st Cir. 1999) (explaining that the
complaint must "allege a factual predicate concrete enough to warrant
further proceedings").
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| [71] |
Against this backdrop, we turn to the plaintiffs' Lanham Act claim.
The relevant statutory language prohibits misrepresentations only in
"commercial advertising or promotion." This is a crucial limitation - and
one that the district court thought dispositive here. Accordingly, we must
plot the boundaries of that phrase and then determine whether the
plaintiffs' allegations fall within those boundaries.
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| [72] |
The courts have developed a four-part test to ascertain which
representations fall into the category of "commercial advertising or
promotion" for purposes of Section 43(a)(1)(B). The test requires that a
representation must (a) constitute commercial speech (b) made with the
intent of influencing potential customers to purchase the speaker's goods
or services (c) by a speaker who is a competitor of the plaintiff in some
line of trade or commerce and (d) disseminated to the consuming public in
such a way as to constitute "advertising" or "promotion." See Proctor
& Gamble Co. v. Haugen, 222 F.3d 1262, 1273-74 (10th Cir. 2000);
Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725,
735 (9th Cir. 1999); Seven-Up Co. v. Coca-Cola Co., 86 F.3d 1379, 1384
(5th Cir. 1996); Gordon & Breach Sci. Publishers v. Am. Inst. of
Physics, 859 F. Supp. 1521, 1536 (S.D.N.Y. 1994). *fn3
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| [73] |
While the Lanham Act's commercial disparagement provision covers more
than classic advertising campaigns, it is nonetheless aimed at specific
forms of communication. See, e.g., First Health Group Corp. v. BCE Emergis
Corp., 269 F.3d 800, 803-04 (7th Cir. 2001); Seven-Up, 86 F.3d at 1384;
Gordon & Breach, 859 F. Supp. at 1534-35. To constitute advertising or
promotion, commercial speech must at a bare minimum target a class or
category of purchasers or potential purchasers, not merely particular
individuals. See Seven-Up, 86 F.3d at 1384-86 (collecting cases); see also
First Health, 269 F.3d at 803 ("Advertising is a form of promotion to
anonymous recipients, as distinguished from face-to-face communication.");
4 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition §
27:102 (4th ed. 2003) ("A cause of action for commercial disparagement
requires that the disparaging statement about another's product be
published . . . ."). Thus, to pass the pleading threshold in a Lanham Act
§ 43(a)(1)(B) case, a plaintiff at the very least must identify some
medium or means through which the defendant disseminated information to a
particular class of consumers. See Ultra-Temp Corp. v. Advanced Vacuum
Sys., Inc., 27 F. Supp. 2d. 86, 91 (D. Mass. 1998); see also 4 McCarthy,
supra, § 27:24 (noting that identifying a false or misleading statement
that was made in "commercial advertising or promotion" is a pleading
requirement for a product disparagement claim). The plaintiffs'
allegations here lack this critical component; they do not implicate the
use of any particular advertising or promotional medium. This omission
opened the Lanham Act count to dismissal under Rule 12(b)(6). See Gooley,
851 F.2d at 515.
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| [74] |
The plaintiffs, in their appellate brief, belatedly endeavor to plug
this hole. They claim for the first time that "[w]hen prospective patients
contact [Blue Cross] inquiring about foot care," Blue Cross
representatives habitually "disparag[e] podiatrists as not being 'real
doctors.'" We need not decide whether this method of responsive
communication would fall under the rubric of "commercial advertising or
promotion" within the meaning of the Lanham Act or whether such a
statement, if articulated in the amended complaint, would have satisfied
the pleading requirements. It is elementary that a plaintiff cannot
constructively amend his complaint with an allegation made for the first
time in an appellate brief. Royal Bus. Group, Inc. v. Realist, Inc., 933
F.2d 1056, 1066 (1st Cir. 1991); Dartmouth Rev., 889 F.2d at 22. Thus, the
argument has been waived. McCoy v. Mass. Inst. of Tech., 950 F.2d 13, 22
(1st Cir. 1991) ("It is hornbook law that theories not raised squarely in
the district court cannot be surfaced for the first time on appeal.");
Clauson v. Smith, 823 F.2d 660, 666 (1st Cir. 1987) (similar; collecting
cases).
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| [75] |
III. CONCLUSION
|
| [76] |
We need go no further. Suffice it to say that close scrutiny of the
record reveals that the district court appropriately granted the
defendants' dispositive motions on both the antitrust and commercial
disparagement claims. The plaintiffs may have a remedy in the marketplace,
the Puerto Rico legislature, or the local courts, but for aught that
appears they do not have one in the domain of the federal
judiciary.
|
| [77] |
Affirmed.
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Opinion Footnotes |
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| [78] |
*fn1 Describing the defendants' product line as "insurance"
is somewhat of a misnomer. The McCarran-Ferguson Act, 15 U.S.C. §§
1011-1015, exempts "the business of insurance" from federal antitrust
laws. Id. § 1012(b). The Supreme Court has recognized, however, that
benefit plans, although typically marketed as health insurance, more
closely resemble pre-payment plans in which the primary objective is not
to shift the risk of loss, but, rather, to provide health-care services to
subscribers. See Group Life & Health Ins. Co. v. Royal Drug Co., 440
U.S. 205, 214-15 (1979); see also Union Labor Life Ins. Co. v. Pireno, 458
U.S. 119, 127-29 (1982). In the aftermath of Royal Drug, courts have
freely subjected companies like Blue Cross and Triple-S to antitrust
scrutiny.
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| [79] |
*fn2 The plaintiffs do not appeal the entry of summary
judgment in favor of Triple-S on the Lanham Act claim. Consequently, we
limit our Lanham Act discussion to the claim against Blue
Cross.
|
| [80] |
*fn3 Although this test bears the imprimatur of several
respected courts, the Seventh Circuit has expressed "serious doubts about
the wisdom of displacing the statutory text in favor of a judicial rewrite
with no roots in the language Congress enacted . . . for when the Lanham
Act was adopted there were no constitutional limits on the regulation of
commercial speech." First Health Group Corp. v. BCE Emergis Corp., 269
F.3d 800, 803 (7th Cir. 2001). Since the phrase "commercial advertising or
promotion" appears in the text of the statute itself and all the courts
agree on its approximate scope, we need not resolve that tension
here.
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