Lead Opinion
Opinion by Judge DAVID R. THOMPSON; Partial Concurrence and Partial Dissent by Judge'WALLACE.
ORDER
An opinion in this case was filed November 5, 1996, and published at
On November 19, 1996, the appellees filed a petition for rehearing and suggestion for rehearing en banc. The panel voted unanimously to grant the petition for rehearing, withdraw the opinion filed November 5,1996, and issue a new opinion. Judge D. Thompson voted to reject the suggestion for rehearing en banc, and Judges Wallace and G. Thompson so recommended. The full court was advised of the suggestion for rehearing en bane, and no judge of the court called for rehearing en banc.
As a result of the foregoing, the appellees’ petition for rehearing is GRANTED. The opinion filed November 5, 1996, and published at
There are two groups of plaintiffs in this case: (1) the employer purchasers of group health insurance policies issued by Humana Health Insurance of Nevada (Premium Payors); and (2) the employee beneficiaries of those policies who made coinsurance payments for health care received (Co-Payors).
The Co-Payors received hospital care from Humana Hospital-Sunrise (Sunrise Hospital), an acute care facility which is owned and operated by defendant Humana, Inc. Under its insurance agreements with the Co-Payors, Humana Health Insurance of Nevada (Humana Insurance) was obligated to pay 80% of the employees’ hospital charges over and above a designated deductible amount; the Co-Payors were to pay the remaining 20%. Unknown to the plaintiffs, Humana Insurance negotiated a discount with Sunrise Hospital. Because of this discount, Humana Insurance ultimately paid significantly less than its 80% share of Sunrise Hospital’s charges and the Co-Payors paid significantly more than their 20% co-payment share.
The Co-Payors contend Humana Insuri anee breached its contract with them, and violated the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001, et seq., by failing to pass along to them the Sunrise Hospital discounts in the form of reduced co-payments. The Co-Payors also contend the defendants violated ERISA by breaching fiduciary duties, engaging in prohibited transactions, and retaining excessive compensation. Both groups of plaintiffs' contend that the defendants violated section 2 of the Sherman Act, 15 U.S.C. § 2, and engaged in a scheme to defraud in violation of the Racketeer Influenced and Corrupt Orga: nizations Act (RICO), 18 U.S.C. §§ 1961— 1968.
The district court granted summary judgment in favor of the defendants, rejecting all of the plaintiffs’ claims except the Co-Payors’ ERISA benefits breach of contract claim. This appeal followed.
We have jurisdiction under 28 U.S.C. § 1291. We affirm the district court’s summary judgment on the ERISA claims, reverse the district court’s summary judgment on the Sherman Act antitrust claims, and affirm in part and reverse in part summary judgment on the RICO claims.
I
FACTS
The plaintiffs contracted for health insurance, through employee benefit plans, with Humana Insurance during the period of 1985 through 1988. Pursuant to an agreement made in 1984 between Humana Insurance and Sunrise Hospital, Humana Insurance would receive a discount for its portion of the hospital charges incurred by its insureds. Unaware of this discount, the plaintiffs continued to pay their required premiums and undiscounted co-payments. As a result, Humana Insurance ended up paying less than 80% of the hospital’s charges for health care services, the Co-Payors paid more than 20% of these charges, and the Premium Payors paid the same premiums despite the reduced cost to Humana Insurance of the health care services.
The plaintiffs assert that Humana Insurance concealed the discount deal by writing checks to Sunrise Hospital for 80% of the billed charges. Sunrise Hospital would then remit the clandestine discount to Humana Insurance through monthly intercompany transfers, in what the plaintiffs characterize as a “classic kickback scheme.”
II
PROCEDURAL HISTORY
The plaintiffs filed this action in the district court on March 29, 1989, alleging both state and federal claims. Six months later, the court granted the defendants’ motion, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss the state law claims because those claims were preempted by ERISA.
The plaintiffs filed a first amended complaint on October 27,1989. Following another round of motions, the district court upheld the sufficiency of the plaintiffs’ ERISA claims, some of the RICO claims and the
The second amended complaint asserted three claims for relief: (1) an ERISA claim by the Co-Payor class against Humana Insurance alleging breach of fiduciary duty, prohibited transactions and retention of excessive compensation; (2) an antitrust claim under section 2 of the Sherman Act by both classes of plaintiffs alleging the defendants had monopolized or attempted to monopolize the market for acute care facilities in Clark County, Nevada; and (3) a RICO claim by both classes of plaintiffs alleging Humana Insurance marketed and administered its policies through repeated acts of mail and wire fraud.
Again, the defendants moved for summary judgment. On July 21, 1993, after exhaustive briefing and argument, the district court granted the motion in its entirety (“the Jidy 21, 1993 judgment”), but gave the plaintiffs leave to file a third amended complaint to assert on behalf of the Co-Payor class an ERISA benefits breach of contract claim against Humana Insurance under 29 U.S.C. § 1132(a)(1)(B).
The plaintiffs filed a third amended complaint. In that complaint they asserted only one claim, a breach of contract claim under ERISA in which they alleged that the CoPayor class was entitled to benefits under 29 U.S.C. § 1132(a)(1)(B), because Humana Insurance had not properly allocated the discount it received from Sunrise Hospital.
The Co-Payor class moved for summary judgment on this claim; Humana Insurance also moved for summary judgment as to the proper measure of damages. The district court granted both motions on June 3, 1994 (the “June 3,1994 judgment”), finding liability on the breach of contract claim, but limiting damages to the excess charges the CoPayor plaintiffs paid, and specifying the methodology for calculating the damages for these class members. Following further submissions by the parties, the district court entered an order on July 29, 1994 approving and adopting a schedule of damage awards by which the Co-Payors were to be reimbursed the amounts they had been pvercharged on their co-payments.
On July 1, 1994, before the district court determined the damage awards, the plaintiffs filed a notice of appeal from the district court’s June 3, 1994 judgment. The plaintiffs voluntarily dismissed that appeal after we determined that the June 3, 1994 judgment was not a final, appealable order. Thereafter, the plaintiffs filed a timely notice of appeal which brings this case before us,
The defendants have moved to dismiss this appeal in its entirety, or in the alternative to limit the appeal to the sole claim asserted in the plaintiffs’ third amended complaint. In the defendants’ words, their motion to dismiss raises two jurisdictional issues: “(1) whether plaintiffs’ voluntary dismissal of an earlier appeal from the June 3[, 1994] Judgment’ precludes review of that judgment here; and (2) whether plaintiffs’ failure to preserve in their Third Amended Complaint claims dismissed by the district court’s earlier Order of July 21,1993, precludes review of that ruling in this appeal.”
On the merits, the defendants dispute the plaintiffs’ various claims of error, and ask us to affirm the district court across the board. We first consider the motion to dismiss or limit the appeal.
Ill
MOTION TO DISMISS OR LIMIT APPEAL
The plaintiffs’ voluntary dismissal of their premature appeal from the June 3, 1994 judgment does not preclude review of that judgment in this appeal. The June 3, 1994 judgment was not a final, appealable order when it was entered because the district court had not then determined the amount of damages. See Brown v. United States Postal Serv.,
The defendants’ contention that the appeal should be limited to the ERISA benefits breach of contract claim asserted in the third amended complaint presents a more complicated question. The plaintiffs did not reallege in that complaint any of the claims
It is the law of this circuit that a plaintiff waives all claims alleged in a dismissed complaint which are not realleged in an amended complaint. London v. Coopers & Lybrand,
We have declined, however, to extend the London rule to amended complaints that follow summary judgment. See USSPOSCO Indust. v. Contra Costa County Bldg. & Const. Trades Council,
IV
MERITS
A. Standard of Review
We review a grant of summary judgment de novo. Warren v. City of Carlsbad,
B. ERISA
The district court concluded the CoPayor plaintiff class had no standing to bring their ERISA claim under 29 U.S.C. § 1132(a)(3) for breach of fiduciary duty. The court determined that the remedy provided by ERISA for the Co-Payors’ harm was a benefits claim for breach of contract pursuant to section 1132(a)(1)(B) and not a claim for breach of fiduciary duty under section 1132(a)(3).
While this appeal was pending the Supreme Court issued its decision in Varity Corp. v. Howe, — U.S.-,
In Varity Corp. the Court emphasized that section 1132(a)(3) is a “catchall” provision which provides relief only for injuries that are not otherwise adequately provided for. — U.S. at-,
Thus, we should expect that where Congress elsewhere provided adequate relief for a beneficiary’s injury, there will likely be no need for further equitable relief, in which case such relief normally would not be “appropriate.”
The Court distinguished Massachusetts Mut. Life Ins. v. Russell,
In the present case, the Co-Payors seek to recover individual relief under section 1132(a)(3) for Humana Insurance’s breach of fiduciary duty. But the Co-Payors have already won a judgment for damages under section 1132(a)(1) for the injuries they suffered as a result of the defendant’s actions. The district court determined, and we agree, that the Co-Payors are entitled to recover, in the form of damages pursuant to their claim under section 1132(a)(1), all amounts they were forced to pay over and above their contractual co-payment obligation.
In these circumstances, Varity Corp. does not authorize equitable relief under the catchall provision of section 1132(a)(3). Equitable relief under section 1132(a)(3) is not “appropriate” because section 1132(a)(1) provides an adequate remedy in this case.
We affirm the district court’s summary judgment against the Co-Payors on their breach of fiduciary duty claim under section 1132(a)(3) of ERISA We also affirm the district court’s summary judgment in favor of the Co-Payors on their benefits breach of contract claim under section 1132(a)(1) of ERISA and the district court’s computation of damages set forth in its July 29, 1994 order.
C. Antitrust
The plaintiffs sought approximately $181 million in damages against the defendants for monopolization and attempted monopolization under section 2 of the Sherman Act, 15 U.S.C. § 2.
To prevail on a claim of monopolization under section 2 of the Sherman Act, a plaintiff must demonstrate: “(1) [possession of monopoly power in the relevant submarket; (2) willful acquisition or maintenance of that power; and (3) causal antitrust injury.” Pacific Express, Inc. v. United Airlines, Inc.,
Monopoly power, for the purpose of section 2 of the Sherman Act, is “the power to control prices or exclude competition.” United States v. Grinnell Corp.,
The more common method of establishing monopoly power is by circumstantial evidence. This requires the plaintiff to: “(1) define the relevant market, (2) show that the defendant owns a dominant share of that market, and (3) show that there are significant barriers to entry and show that existing competitors lack the capacity to increase their output in the short run.”
It is impossible to determine market share without first defining the relevant market. Id. at 1434. Definition of the relevant market cannot be performed with mathematical accuracy; it is simply the recognition of a field in which meaningful competition is said to exist. See United States v. Continental Can Co.,
The district court held the relevant market was the general acute care hospital market in Clark County, Nevada, which consisted of seven facilities in addition to Sunrise Hospital. The plaintiffs contend the district court arrived at this conclusion by weighing competing evidence. The plaintiffs argue the relevant market is smaller than the market found by the district court. They contend there are two distinct submarkets which the defendants monopolized or attempted to monopolize: (1) the acute care hospitals actually used by Humana insureds; and (2) the major for-profit acute care hospitals in Clark County, Nevada. “A submarket exists if it is sufficiently insulated from the larger market so that supply and demand are inelastic with the larger market.” Morgan, Strand, Wheeler & Biggs v. Radiology, Ltd.,
In support of their first contention that the relevant submarket is the acute care hospitals actually used by Humana insureds, the plaintiffs submitted an affidavit indicating that 75% to 85% of Humana insureds used Sunrise Hospital, and that this high proportion was achieved through contractual disincentives such as higher deductibles and co-payments for other hospitals, and noncontractual disincentives such as delaying or denying payment to other hospitals which made it difficult for Co-Payors to use them.
We reject the plaintiffs’ attempt to limit the relevant market to acute care hospitals used by Humana insureds. The plaintiffs used Sunrise Hospital and obtained medical care from few other hospitals because of contractual provisions in their insurance policies. This tie-in defeats the plaintiffs’ argument for a submarket consisting only of those hospitals Humana insureds actually used. See Eastman Kodak Co. v. Image Technical Services, Inc.,
The plaintiffs’ second asserted relevant submarket consists of the major for-profit acute care hospitals in Clark County, Nevada. This submarket allegedly includes Sunrise Hospital, Valley Hospital, and Desert Springs Hospital. Excluded from this market are Clark County’s five remaining acute care hospitals, Boulder City Hospital (Boulder City), Community Hospital of North Las Vegas (Community), St. Rose De Lima Hospital (St. Rose), University Medical Center (UMC), and Women’s Hospital (Women’s). The plaintiffs submitted evidence tending to support their contention that the five remain
We recognize “the scope of the relevant market is not governed by the presence of a price differential.” Twin City Sportservice, Inc. v. Charles O. Finley & Co.,
There was also evidence that Boulder City, St. Rose, Community, and Women’s were considered “niche” hospitals that did not offer the range of services available at Sunrise Hospital. This, alone, is not enough. Specialty shops which offer only a limited range of goods are generally considered in the same market with larger, more diverse, “one-stop shopping” centers. Thurman Indust.,
We have not recounted the evidence submitted by the defendants, but it was substantial. Were we to weigh the evidence we might be inclined to find that the plaintiffs failed to establish their alleged submarket. On a motion for summary judgment, however, this would be inappropriate.
We conclude the evidence the plaintiffs presented was sufficient to withstand the defendants’ motion for summary judgment as to the plaintiffs’ second asserted relevant market.
The additional issues of monopoly power and the maintenance of monopoly power depend upon a resolution of the relevant market question. Rebel Oil,
The same may be said of the plaintiffs’ section 2 claim for attempted monopolization. To prevail on such a claim, a plaintiff must demonstrate four elements: (1) specific intent to control prices or destroy competition; (2) predatory or anticompetitive conduct directed toward accomplishing that purpose; (3) a dangerous probability of success; and (4) causal antitrust injury. Rebel Oil,
The plaintiffs’ claim of attempted monopolization was not directly addressed by the district court. Resolution of this issue, like the claim of actual monopolization, is dependent upon a definition of the relevant market. Without such a determination, we cannot assess whether challenged activity was anti-competitive. In sum, the determination of all these subsidiary issues depends on the determination of the question of the relevant market; and there is a genuine dispute of material fact as to that.
The plaintiffs should also survive summary judgment on the issue of causal antitrust injury. To survive summary judgment, the plaintiffs were required to offer some evidence demonstrating “the existence of an ‘antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendant’s acts unlawful.’ ” Atlantic Richfield v. USA Petroleum,
Here, the plaintiffs presented evidence that, as a result of Humana’s anticompetitive behavior, they paid higher copayments and premiums than they would have paid in a competitive market. This evidence, while it shows that the plaintiffs paid high copayments and premium payments because
The plaintiffs presented other evidence, however, that Humana engaged in impermissibly anticompetitive conduct in three ways: (a) Sunrise (the Humana-owned hospital) was the only area hospital certified to provide Level III neonatal care, but refused to provide Level III care under separate contract; (b) Sunrise diverted indigent or low-paying critical care patients to other area hospitals; and (c) Humana threatened physicians who did not support its monopoly.
This conduct describes antitrust violations. The plaintiffs presented evidence that Sunrise required customers who wanted to buy Level III neonatal care to also buy other neonatal services. Such a practice could constitute an anticompetitive tying arrangement. See Datagate, Inc. v. Hewlett-Packard, Co.,
According to the plaintiffs’ evidence, these anticompetitive practices enabled Sunrise to, and it did, charge higher prices for hospital services. These higher prices translated into higher copayments and premium payments. Such an increase in consumer prices caused by the asserted conduct would constitute antitrust injury of the type the antitrust laws were designed to prevent. See Blue Shield of Virginia v. McCready,
We conclude, therefore, that the plaintiffs are entitled to survive summary judgment on the issue of antitrust injury. In calculating the plaintiffs’ antitrust damages, the jury will be faced with the difficult task of separating the antitrust damages from the damages resulting from Humana’s kickback scheme. Complex antitrust cases, however, invariably involve complicated questions of causation and damages. See Potters Medical Center,
We reverse the district court’s summary judgment in favor of the defendants on the plaintiffs’ antitrust claim.
Both the Premium Payor and the CoPayor classes alleged that during the period from 1985 through 1988, in violation of the civil RICO statute, 18 U.S.C. § 1964(c):
The district court granted the defendants’ motion for summary judgment because it found the plaintiffs’ RICO claims were barred by the McCarran-Ferguson Act. Additionally, the district court determined that the Premium Payors’ RICO claim failed because the Premium Payors failed to demonstrate a direct relationship between the alleged injurious conduct and the injury asserted (excessive premiums), or any ‘“concrete financial injury,’ for the purposes of RICO.” The district court also held the defendants were “entitled to summary judgment on the Co-Payor class’s RICO claim to the extent that the Co-Payor class [sought] damages in excess of the amount that could have been recovered under a proper interpretation of the co-payment provision.”
1. The McCarran-Ferguson Act
The MFA, 15 U.S.C. § 1011, et seq., was enacted, in part, to allow states to regulate the business of insurance free from inadvertent preemption by federal statutes of general applicability. Merchants Home Delivery Serv., Inc. v. Frank B. Hall & Co., 50 F.3d 1486, 1488-89 (9th Cir.), cert. denied, — U.S. -,
No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance ... unless such Act specifically relates to the business of insurance.
We have adopted a four-part test to determine when section 2(b) of the MFA precludes the application of a federal statute to preempt state insurance law. Merchants Home,
With regard to the second factor, the crux of the plaintiffs’ claim is that Humana Insurance misrepresented how premiums would be calculated, leading the Premium Payors to believe a discount from Sunrise Hospital would lower their premium rates, and that the defendants overcharged the Co-Payors by billing them for 20% of the undiscounted cost of their hospital care.
The plaintiffs argue these allegedly fraudulent acts cannot be part of the business of insurance because “[fjraud is not a legitimate aspect of risk management.” In Merchants Home we rejected such an argument and we do so again. It is useless “to point to a practice forbidden by federal law ... and observe that this practice is not itself insurance.” Id. at 1490 (quoting NAACP v.
The acts the plaintiffs challenge are analytically equivalent to the overcharging for premiums alleged in Merchants Home. There, the plaintiff asserted RICO claims for fraudulent insurance practices by the defendant. Id. at 1488. The plaintiff alleged three types of fraudulent practices: (1) overcharging for premiums on actual policies; (2) collecting premiums on fictitious policies; and (3) collecting money from the insured to pay uninsured claims which the insurer did not actually pay. Id. We held overcharging for premiums was part of the “business of insurance,” though collection of premiums on nonexistent policies and collecting money from the insured for bogus uninsured claims were not part of such business. Id. at 1490.
Consistent with Merchants Home, we conclude the challenged practices in this case of Humana Insurance overcharging premiums and not reducing co-payments is the “business of insurance” for the purpose of the MFA.
The third factor in the preemption analysis is whether the state has enacted a law or laws regulating the challenged acts. We agree with the district court that the Nevada Act was enacted to regulate the acts challenged by the plaintiffs.
In 1971, Nevada adopted the Trade Practices and Frauds; Financing of Premiums Act (Act), N.R.S. § 686A.010, et seq. The purpose of the Act was:
to regulate trade practices in the business of insurance in accordance with the intent of Congress as expressed in the [MFA], 15 U.S.C. §§ 1011 to 1015 inclusive, by defining, or providing for the determination of, all such practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.
N.R.S. § 686A.010.
Under the Act, the Nevada Commissioner of Insurance is granted “exclusive jurisdiction” to regulate the trade practices of the business of insurance. N.R.S. § 686A.015. The Act specifically prohibits the dissemination of false or misleading information relating to the sale of policies or benefits. N.R.S. §§ 686A.030 & 686A.040. The plaintiffs’ observation that the Act provides for only administrative remedies does not alter our finding that it regulates the challenged acts. The third factor is satisfied.
Applying the fourth factor, we consider whether the application of RICO would invalidate, impair, or otherwise supersede Nevada’s legislation. In Merchants Home, we addressed, for the first time, the question whether a federal statute invalidated, impaired, or superseded a state law under section 2(b) of the MFA. Merchants Home,
Here, as in Merchants Home, there is some symmetry between RICO’s private right of action and Nevada’s administrative scheme. RICO permits an injured plaintiff to recover for fraudulent practices which the Nevada administrative scheme proscribes. This symmetry, however, does not create a conflict between federal and state law. Id. Accordingly, the fourth factor is not present. The MFA does not preclude the plaintiffs’ RICO claims.
The next question we consider is whether the plaintiffs produced enough evidence in
2. Premium Payors’ Claim
To state a claim under RICO, 18 U.S.C. § 1962(c), a plaintiff must demonstrate: (1) the conduct; (2) of an enterprise; (3) through a pattern; (4) of racketeering activity.
The district court held the Premium Payor class failed to demonstrate the requisite causal connection between the alleged predicate acts and the asserted damages. The court also held the class failed to demonstrate “concrete financial injury.”
To maintain a claim under RICO, a plaintiff must show not only that the defendant’s violation was a “but for” cause of his injury, but that it was the proximate cause as well. Imagineering, Inc. v. Kiewit Pacific Co.,
In the present case, the Premium Payor class had to establish that they reled on misrepresentations in buying their insurance poleies, and that these misrepresentations directly caused them a concrete financial loss. They contend their claim is simple. Humana, Inc. and Humana Insurance represented to them, through mailngs, television and radio commercials, and phone cals, that cost savings would be passed along to them in the form of reduced premiums. They reled on these representations in choosing Humana Insurance as their insurance carrier. The hospital discount Humana Insurance received from Sunrise Hospital was a form of cost saving, yet it was not incorporated into calculation of their premiums. Because their premiums did not reflect these discounts, the Premium Payors contend they suffered a financial loss.
The district court found no evidence in the record to support the Premium Payors’ contention that the defendants fraudulently represented how premiums would be calculated. The class argues the myriad advertisements and promotions did just that. We disagree. The transcript of commercials submitted by the class fails to support their argument. The commercials simply state that because Humana Insurance can “control costs” the employers and employees can save money. The district court accurately described such statements as “puffery.” The statements were too general to be interpreted as defining any calculation of insurance premiums.
The class also submitted Humana Insurance’s annual reports. Statements in the reports suggested patients were encouraged to attend Humana hospitals “where savings could be shared with employers and their employees through lower premiums.” Like the advertisements, this statement did not make a specific representation as to how the premiums would be calculated sufficient to support a cause of action for fraud.
Because we conclude the Premium Payor class failed to come forward with any evidence that the defendants misrepresented how the insurance premiums would be calculated, we do not reach the question of causation. The district court did not err in grant
3. Co-Payors’ Claim
The Co-Payors alleged the failure to disclose the Sunrise Hospital discount in the notice of coinsurance obligations sent to them induced them to make inflated co-payments. The Co-Payors were thus allegedly injured by the defendants’ fraudulent failure to reduce their co-payment bills in accordance with the agreed ratio of 80% to 20%.
Although these facts presented at least a triable issue of fact on the Co-Payors’ RICO claim, the district court dismissed the claim as barred by the MeCarran-Ferguson Act. As we have previously stated, the MeCarran-Ferguson Act does not preclude a RICO claim in this case. The district court correctly held, however, that the Co-Payors failed to present any evidence of financial harm resulting from the misrepresentations, except for the amounts they overpaid as a result of the nondisclosure of the discount. Therefore, we affirm the district court’s partial summary judgment in favor of the defendants as to any claim by the plaintiffs for RICO damages in excess of these overpayments.
E. Motion To Amend
The plaintiffs contend the district court erred in not granting them leave to amend their complaint. The plaintiffs sought leave to add three additional claims: (1) a RICO conspiracy claim; (2) a claim for obstruction of justice under 18 U.S.C. § 1503; and (3) their previously dismissed state law claims.
We review for abuse of discretion a district court’s denial of a motion to amend. DCD Programs, Ltd. v. Leighton,
Leave to amend pleadings “shall be freely given when justice so requires.” Fed.R.Civ.P. 15(a). We apply this rule with “extreme liberality.” Morongo Band of Mission Indians v. Rose,
Because the plaintiffs’ state law claims are preempted by ERISA, leave to amend to reassert the state law claims would be futile. The obstruction of justice claim under 18 U.S.C. § 1503 is also futile because 18 U.S.C. § 1503 is a criminal statute that does not provide for a private cause of action. Hanna v. Home Ins. Co.,
V
CONCLUSION
The district court’s grant of summary judgment is affirmed as to the ERISA issues, reversed and remanded as to the Sherman Act antitrust issues, affirmed as to the Premium Payor class’s RICO claim, and affirmed as to partial summary judgment on the Co-Payor class’s RICO claim. In addition, we grant the Co-Payor class leave to amend its RICO claim to allege a RICO conspiracy. The plaintiffs shall recover from the defendants one-half of the plaintiffs’ cost of appeal.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Notes
. Tide 15 U.S.C. § 2 provides:
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.
. Tide 18 U.S.C. § 1964(c) provides:
Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee.
. The district court cannot be faulted for ruling to the contrary. It did not have the benefit of Merchants Home, decided in 1995, when it rendered its summary judgment in this case.
. Title 18 U.S.C. § 1962(c) provides:
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.
Concurrence in Part
concurring and dissenting:
I concur with the majority in large measure, but its analysis of the antitrust claims in part IV.C. is so troubling that I cannot agree. Although reasonable minds can differ, in this complex economic terrain, I am
Forsyth contends that Humana monopolized or attempted to monopolize a market for major for-profit acute care hospitals in Clark County, Nevada. The district court held that Forsyth failed to establish the existence of a separate market for for-profit hospitals within the general Clark County hospital market. In holding that there is a genuine factual dispute on this issue, the majority points to two categories of evidence submitted by Forsyth. The first depends on a faulty inference about cross-price elasticity of demand, and the second is insufficient to avoid summary judgment.
As evidence for the existence of a separate market, the majority states that although “UMC charged patients 15 to 20 percent less than Sunrise Hospital, ... patients with a choice, such as those with insurance, eschewed UMC in favor of the larger for-profit hospitals despite the significantly lower price at UMC.” The majority interprets this consumer behavior as evidence that demand for for-profit hospitals is not responsive to the price charged by non-profit hospitals; “when demand for the commodity of one producer shows no relation to the price for the commodity of another producer, it supports the claim that the two commodities are not in the same relevant market.”
The majority’s test refers to the economic concept of cross-price elasticity of demand, which is a useful tool for evaluating whether products compete in the same market. Cross elasticity of demand measures the percentage change in the quantity which consumers demand of one product in response to a percentage change in the price of another.
When the cross-price elasticity of demand for good i with respect to the price of good j is positive, an increase in [the price of] j causes the demand for good i to rise; in that case, the goods are substitutes (as fuel oil and coal). Conversely, if the cross-price elasticity is negative, the goods are complements (as cigars and matches).
2A Phillip E. Areeda, et al., Antitrust Law 105 (rev. ed. 1995). A high cross elasticity of demand indicates that products are close substitutes, and should probably be treated as part of the same market. A low or zero cross elasticity of demand is evidence that products do not compete in the same relevant market.
By focusing on this relationship between the demand for one commodity and the price of another, the majority attempts to avoid the common but fallacious assumption that expensive products automatically compete in a separate market from inexpensive ones. See Twin City Sportservice v. Charles O. Finley & Co.,
That inference causes me to depart from the majority. We cannot conclude that demand for Sunrise “shows no relation” to the prices at UMC without some evidence of how demand for Sunrise responds to a change in the prices at UMC. Cross elasticity of demand measures a dynamic relationship between two variables: the quantity demanded of product i, and the price of product j. That is, by economic formulation,
(change in) Q;d
/ Qid
E/ = - -
(change in) Pj/Pj
2A Areeda, Antitrust Law at 105. Cross elasticity cannot be calculated or approximated without information about the quantity demanded of i at (at least) two different prices of j. The record does not reflect that Forsyth introduced any such evidence, and without it the majority’s inference is inappropriate.
The following example may help in making my point. Suppose that Ford and Chevrolet each sell a light truck. The Ford has four-wheel drive, and costs $2000 more than the
If four-wheel drive is worth about $2000 to most consumers, for example, small changes in the price of the Ford could have a dramatic impact on demand for the Chevrolet. If the availability of the Chevrolet significantly limits the rational pricing strategies for Ford, then the two trucks “compete” in the sense that matters for antitrust market definition. Ford could not exact monopoly profits by raising the price of its truck, because it would lose too many customers to Chevrolet. See Rebel Oil v. Atlantic Richfield,
The majority also points to certain documentary evidence, including an expert’s affidavit and testimony before the Nevada legislature, which tended to support Forsyth’s contention that the “niche” hospitals did not compete with Sunrise. “Niche” sellers are generally considered to be in the same market with larger, more diverse vendors which carry the same products. See Thurman Industries v. Pay ‘N Pak Stores,