In re: Evanston Nw. Healthcare Corp. Antitrust Litig. — Sept. 2016 (Summary)

ANTITRUST – MERGER

In re:  Evanston Nw. Healthcare Corp. Antitrust Litig.
No. 07 C 04446 (N.D. Ill. Sept. 9, 2016)

The District Court for the Northern District of Illinois denied in part and granted in part a hospital’s motion for summary judgment on whether a Class action, alleging violations of Federal Antitrust laws, was barred by the applicable statute of limitations.

Defendant hospital merged with another hospital on January 1, 2000.  The hospital informed its customers and affiliated managed care organizations (“MCOs”) of the proposed merger by letter in December 1999.  The hospital, however, did not publicly disclose any intention to raise prices for its services and, in fact, had agreed to honor the same pre-merger rates, terms, and conditions after the merger.  Following the merger, the hospital began negotiating for higher prices in its existing contracts with MCOs.  The first renegotiated contract was signed February 23, 2000.  The Federal Trade Commission (“FTC”) filed an administrative complaint four years later, on February 10, 2004, alleging federal antitrust violations based on the anticompetitive effect of the merger and the hospital’s subsequent decision to substantially raise prices for health care services.  The FTC concluded that the hospital’s merger and price increases violated Section 7 of the Clayton Act.  A Class action lawsuit, filed after the FTC case concluded in August 2007, followed.  The Class alleged violations both of Section 2 and Section 7 of the Sherman Antitrust Act, which prohibit monopolization and anticompetitive mergers or acquisitions, respectively.  Defendant hospital contended that the antitrust violation claims asserted by the Class action lawsuit were barred by the applicable statute of limitations (four years).  The Class cited the Continuing Violations Doctrine and Discovery Rule as alternative theories for delaying or resetting the running of the limitations period.

As to the applicability of the statute of limitations, the court held that, under Section 5 of the Clayton Act, the FTC’s lawsuit tolled, or temporarily froze, the running of the limitations period while the government’s case was ongoing.  Defendant hospital argued that even given this interruption, the Class action would still be barred because the merger took place on January 1, 2000 and the FTC action commenced on February 10, 2004.  The court held that the Class action claims were not barred under either the Second Circuit’s “accrual-on-purchase” approach or under the Discovery Rule because, under both theories, the date of injury or discovery did not occur until sometime on or after February 23, 2000.  Under the “accrual-on-purchase” theory, the Class suffered injury only when they were forced to pay the “supracompetitive prices” demanded by the defendant hospital following the merger.  The statute of limitations, therefore, would begin to run once the Class members had begun to make payments.  Alternatively, the court held that the Discovery Rule, which sets the beginning of the limitations period on the date the injury was discovered, not when it actually occurred, also would apply to both the Section 2 and Section 7 claims.  Thus, the Class’s claim did not ripen until the Class members realized that the merger had caused the injury. Under the Discovery Rule, therefore, the Class would not be barred from filing the claim.  Because the lawsuit would not be barred under either theory, the court ruled that the applicability of the Class’s Continuing Violations Doctrine was valid, with respect to both the Class’s Section 2 and Section 7 claims, but moot.

On the merits of the case, the court held that the Class’s Section 7 claim was valid under the “hold-and-use” doctrine.  Under this theory, the defendant hospital’s merger, while not itself anticompetitive, opened the door for the defendant hospital to renegotiate MCO contracts at much higher prices, thereby causing injury to the Class post-merger.  Because the court found that defendant hospital had no intention to raise prices before it consummated the merger, the injury to the Class could not have occurred on the date of the merger, but only after the MCO contracts were signed and higher prices were charged to members of the Class.

However, the court granted the defendant hospital’s motion for summary judgment, in part, holding that the statute of limitations barred any claims arising before the FTC filed its February 10, 2004 complaint.