Author Archives: George Sanderson

The North Carolina Business Court Hands Down an Important Healthcare Antitrust Decision, Part 2

In a recent blog post, we discussed a new antitrust decision from the North Carolina Business Court that involves healthcare providers and health insurers. In that post, we examined the significance of that opinion to indirect-purchaser standing under North Carolina antitrust law. Judge Michael Robinson’s decision in Christopher DiCesare, et al. v. The Charlotte Mecklenburg Hospital Authority d/b/a Carolinas HealthCare is also noteworthy because of its in-depth discussion of the pleading requirements for state antitrust claims under Chapter 75.  We explore Judge Robinson’s treatment of the antitrust claims themselves in this post. But first, let’s review the relevant facts:

Insureds Allege Antitrust Injuries from Contracts between Health Insurers and Hospitals

The plaintiffs in DiCesare are individual North Carolinians that purchased health insurance that covered acute hospital services. The plaintiffs brought the action on behalf of a putative class of all North Carolinians that purchased insurance from four particulars health insurers since January 1, 2013.

The plaintiffs alleged that the defendant, Carolinas HealthCare, maintains a 50% share of the Charlotte-area hospital market.

The plaintiffs accused Carolinas HealthCare of forcing insurers to enter into service contracts that contained provisions that violate state antitrust law. The plaintiffs alleged that the contracts contained “anti-steering” terms that discouraged insurers from providing accurate information to their insureds about treatment alternatives to Carolinas HealthCare.

The plaintiffs claimed that the anti-steering provisions harmed competition because insurers would pay hospitals less if insurers could provide customers with more complete information about their healthcare options. The plaintiffs further alleged that the insurers would pass the savings on to their insureds. Ultimately, plaintiffs contended that individual North Carolinians would pay less for insurance in the absence of the anti-steering contract provisions.

The plaintiffs brought two separate claims: (1) that the contracts were an unlawful contract, combination, or conspiracy in restraint of trade in violation of  N.C. Gen. Stat. sections 75-1, and 75-2; and (2) monopolization in violation of section 75-1.1, 75-2, and 75-2.1.

After the plaintiffs filed an amended complaint, Carolinas HealthCare moved to dismiss for lack of standing pursuant to both North Carolina Rule of Civil Procedure 12(b)(1) and 12(b)(6). Carolinas HealthCare also moved for judgment on the pleadings as to both antitrust claims. Judge Robinson denied both motions, but issued a single opinion that covered both.

In our first post, we discussed Judge Robinson’s determination that the plaintiffs had standing to bring their antitrust claims. In this post, we will discuss the court’s analysis of the substantive antitrust claims.

The Plaintiffs Adequately Pleaded an Unlawful Contract Claim

The part of Judge Robinson’s opinion that decided Carolinas HealthCare’s motion for judgment on the pleadings first addressed the plaintiffs’ unlawful restraint of trade claim. The judge noted that Section 75-1 is based on section one of the Sherman Act. As such, federal decisions applying the Sherman Act are “instructive” in determining if an agreement unlawfully restrains trade under North Carolina law.

Applying Fourth Circuit precedent, Judge Robinson determined that the elements of a restraint of trade claim under North Carolina law are: (1) a contract, combination, or conspiracy; (2) that imposed an unreasonable restraint of trade.

Judge Robinson indicated that the relevant case authorities generally find horizontal restraints on trade (e.g. price-fixing among direct competitors) to be per se unreasonable. By contrast, courts evaluate vertical restraints under a “rule of reason” analysis. The parties agreed that the anti-steering provisions were, as alleged, vertical restraints.

Relying on federal precedent, Judge Robinson indicated that a plaintiff would have to prevail under a very convoluted test in order to prove ultimately an unlawful restraint of trade under the rule of reason. First, the plaintiff must prove an adverse effect on competition in the relevant market. The burden then shifts to the defendant to demonstrate that the challenged agreement has pro-competitive effects. If the defendant is able to prove that the agreement provides a benefit to competition, the burden shifts again. The plaintiff must then prove that any legitimate competitive benefit could be achieved through less restrictive means.

Judge Robinson noted that the Court first had to determine the relevant market before analyzing the competitive effect of the defendant’s challenged activity. The parties did not dispute that the relevant market was the sale of general acute inpatient hospital services to insurers in the Charlotte area. 

Judge Robinson then analyzed whether the plaintiffs had adequately alleged an adverse effect on competition. Judge Robinson required that the plaintiffs first had to plead adequately that Carolinas HealthCare possessed market power within the relevant market. The judge determined that the plaintiffs’ allegations, which included: (1) that Carolinas HealthCare had a market share of approximately 50% of the relevant market; (2) that the hospital’s largest competitor had less than half of Carolinas HealthCare’s annual revenues; and (3) that licensing requirements and acquiring suitable sites for hospitals to build created significant barriers to entry, sufficiently alleged market power.

Finally, Judge Robinson detailed the potential anti-competitive effects flowing from Carolinas HealthCare’s alleged conduct. The plaintiffs had alleged that the anti-steering provisions contained in the insurance contracts had the following anti-competitive effects:

  • Protecting Carolinas HealthCare’s market power and enabling the hospital to charge supercompetitive prices;
  • Substantially lessening competition among service providers;
  • Restricting the introduction of innovative insurance products that could lower prices;
  • Reducing consumer incentives to obtain treatment for more cost-effective providers;
  • Depriving insurers and insureds of the benefits of a competitive market for services;
  • Reducing the number of insurance plans from which consumers can choose.

Judge Robinson held that the plaintiffs’ factual allegations were sufficient to overcome the motion for judgment on the pleadings. The judge did not require the plaintiffs to prove that alleged anticompetitive risks outweighed Carolinas HealthCare’s pro-competitive justifications, which would be the plaintiffs’ ultimate burden under the rule of reason analysis. The plaintiffs only needed to allege sufficient anti-competitive effects of the challenged conduct in order to get past the pleading stage.

The Plaintiffs’ Monopolization Claim Also Survives

Judge Robinson also used federal antitrust precedent in rejecting Carolinas HealthCare’s challenge to the monopolization claim.  Judge Robinson determined that a monopolization claim requires possession of monopoly power in the relevant market and willful maintenance of that power.

Carolinas HealthCare challenged the sufficiency of plaintiffs’ claim that it possessed monopoly power, but did not challenge the adequacy of the willful maintenance allegation. 

Although the plaintiffs bore a higher burden than to allege market power, Judge Robinson found that the plaintiffs’ allegations concerning market power were sufficient to assert monopoly power, too. Judge Robinson noted that the plaintiffs would bear a heavy burden ultimately to prove monopoly power. He recognized that, in other monopolization cases, market share below 50% is rarely evidence of monopoly power and market share between 50% and 70% is only occasionally proof of monopoly power.

Throughout Judge Robinson’s opinion, the judge emphasized the relatively low burden that the plaintiffs possessed at the pleading stage. He expressly noted that pre-discovery dismissals of state antitrust actions are relatively rare. The judge did, however, express some degree of skepticism that the plaintiffs would be able to meet their burden at summary judgment for several aspects of their claims.  Nevertheless, he allowed plaintiffs discovery as to both of their antitrust claims

Judge Robinson’s opinion in DiCesare appears to set a relatively low bar for state antitrust claims to survive to discovery, even where the claims may have a hard time ultimately making it to trial. We will have to see if there is an increase in state antitrust claims as a result.

Author’s Note: In our prior post about DiCesare, we discussed the unusual step that Judge Robinson took to invite Carolinas HealthCare to seek interlocutory review of the judge’s decision on indirect purchaser standing. Carolinas HealthCare took the judge up on his offer. Last Friday, the defendant filed a Petition for Writ of Certiorari to the North Carolina Supreme Court. 

Author: George Sanderson

The North Carolina Business Court Hands Down an Important Healthcare Antitrust Decision, Part 1

It is rare that a North Carolina state court hands down a Chapter 75 decision in a “pure” antitrust matter. The North Carolina Business Court, however, recently did just that.  This new decision, moreover, may have far-reaching implications both about who can bring antitrust claims under North Carolina law and how health insurers contract for services with medical providers.

The deciding judge, Judge Michael L. Robinson, himself recognized the importance of the opinion—in fact, Judge Robinson encouraged the defendant, the second-largest public hospital system in the United States, to appeal his decision to the North Carolina Supreme Court immediately!

Insureds Allege Antitrust Injuries from Contracts between Health Insurers and Hospitals

The plaintiffs in Christopher DiCesare, et al. v. The Charlotte Mecklenburg Hospital Authority d/b/a Carolinas HealthCare are individual North Carolinians who purchased health insurance that covers acute hospital services. The plaintiffs brought the action on behalf of a putative class of all North Carolinians that purchased insurance from four particular health insurers since January 1, 2013.

The plaintiffs allege that the defendant, Carolinas HealthCare, maintains a 50% share of the Charlotte-area hospital market.

The plaintiffs accuse Carolinas HealthCare of forcing insurers to enter into service contracts that contain provisions that violate state antitrust law. The plaintiffs allege that the contracts contain “anti-steering” terms that discourage insurers from providing accurate information to their insureds about treatment alternatives to Carolinas HealthCare.

The plaintiffs claim that the anti-steering provisions harm competition because insurers would pay hospitals less if insurers could provide customers with more complete information about customers’ healthcare choices. The plaintiffs further allege that the insurers would pass the savings on to their customers. Ultimately, the plaintiffs contend that individual North Carolinians would pay less for insurance in the absence of the anti-steering contract provisions.

The plaintiffs brought two separate claims: (1) a claim that the contracts constitute an unlawful contract, combination, or conspiracy in restraint of trade in violation of  N.C. Gen. Stat. §§ 75-1, and 75-2; and (2) a claim for monopolization in violation of §§ 75-1.1, 75-2, and 75-2.1.

After the plaintiffs filed an amended complaint, Carolinas HealthCare moved to dismiss for lack of standing. Carolinas HealthCare also moved for judgment on the pleadings as to both antitrust claims. Judge Robinson denied each motion, but issued a single opinion that covered both.

Because of the multiple significant issues that Judge Robinson’s opinion raises, we will divide our analysis into two posts. In our first post, we will discuss Judge Robinson’s determination that the plaintiffs have standing to bring their antitrust claims. In our second post, we will discuss the court’s analysis of the substantive antitrust claims.

The Plaintiffs Have Standing to Bring Antitrust Claims

In its motion to dismiss, Carolinas HealthCare argued that the plaintiffs lacked standing because they did not allege that they had received services directly from Carolinas HealthCare.  Carolinas HealthCare posited that the plaintiffs’ alleged injuries, which primarily related to the price that the plaintiffs paid for insurance coverage, were too attenuated to give the plaintiffs standing. 

In general, federal antitrust law allows only direct purchasers in the supply chain standing to bring antitrust claims for damages. The United States Supreme Court has ruled, however, that the general prohibition on “indirect-purchaser” standing under federal antitrust law does not categorically restrict indirect purchasers from bringing state antitrust claims.

In a seminal case, the North Carolina Court of Appeals ruled that indirect purchasers could bring antitrust claims under North Carolina law.  The North Carolina Business Court subsequently tried to define the scope of indirect-purchaser standing by developing a multi-factor test to determine when an indirect-purchaser injury was too remote or otherwise too difficult to prove to convey standing.

In Teague v. Bayer AG, the North Carolina Court of Appeals rejected the Business Court’s test.  The Teague court held that N.C. Gen. Stat. § 75-16, which controls standing in all Chapter 75 cases, should be read liberally to allow indirect-purchaser standing.

The North Carolina Supreme Court has never waded in on this precise issue. In one case, decided after Teague, the Supreme Court appeared to endorse the Court of Appeals’s broad interpretation of § 75-16, but that decision did not address indirect-purchaser standing in an antitrust case.

Carolinas HealthCare argued that the individual plaintiffs lacked standing because the insurers, not Carolinas HealthCare, set the prices for their insurance policies. Carolinas HealthCare argued that the plaintiffs could not demonstrate that the anti-steering provisions caused higher insurance premiums; in turn, any injury allegedly caused to the insureds was too speculative to convey standing.

The Business Court Rejects that the Alleged Injury to Insureds Is Too Speculative

Judge Robinson rejected Carolinas HealthCare’s argument. He determined that Teague is controlling precedent and that Teague did not require the plaintiffs “at the pleading stage to prove a causal chain between the Hospital’s challenged conduct and [p]laintiffs’ alleged injury.” Judge Robinson also expressly rejected the applicability of the Business Court’s prior multi-factor standing test. He also noted that the North Carolina Supreme Court has not spoken on the precise issue of indirect-purchaser standing.

Judge Robinson expressed concern, however, that healthcare and the health insurance industry are very important to society and the economy. He recognized that, even though the plaintiffs adequately pleaded standing, they would ultimately have to prove injury-in-fact and causation. Judge Robinson speculated that such an undertaking would involve burdensome, time-consuming, and expensive discovery.

In light of his concerns, Judge Robinson took the extraordinary step of encouraging Carolinas HealthCare to seek immediate review of his decision to the North Carolina Supreme Court. He went so far as to offer that he would stay all trial-court proceedings while the Supreme Court considered the appeal.

Judge Robinson’s decision is certainly not the last word on indirect-purchaser standing. Whether the North Carolina Supreme Court will weigh in now, or somewhere down the line, is anyone’s guess. As of the time that this post went to press, Carolinas HealthCare had not noticed an appeal or applied for a writ to the Supreme Court to hear the case interlocutory. The time for Carolinas HealthCare to do so, however, has not yet run. 

In our next post, we will discuss how Judge Robinson decided the substantive antitrust claims.

Author: George Sanderson

Can a Lender’s Failure to Provide a Promised Refinancing be an Unfair or Deceptive Trade Practice?

When a borrower asserts an alleged violation of N.C. Gen. Stat. § 75-1.1 against a lender, the claim often presents a familiar fact pattern. Frequently, the borrower alleges that the lender promised to refinance or modify the borrower’s loan and then broke that promise, causing injury to the borrower.

A borrower who asserts this type of claim usually faces several substantial hurdles to avoid dismissal or summary judgment. In Hetzel v. JPMorgan Chase Bank, N.A., however, a borrower’s 75-1.1 claim based on a bank’s alleged broken promise to refinance a real estate loan survived summary judgment.

This post analyzes Hetzel. For reasons that I’ll explain, the somewhat unique fact pattern led to a decision by United States District Court Judge Terrence W. Boyle that may have limited application in future cases.

The bank pays off the wrong mortgage

In Hetzel, the borrower owned multiple coastal properties. Those properties secured multiple loans to JPMorgan Chase Bank. The borrower started the process of refinancing the loans with another lender. The borrower thought that he could obtain better loan terms with the other lender.

The borrower successfully obtained a refinancing commitment from the new lender on one of the properties. The new lender sent the refinancing proceeds to JPMorgan to pay off JPMorgan’s mortgage on that property. Unfortunately, JPMorgan inadvertently paid off the mortgage on one of the borrower’s other properties, and not on the refinanced property.

Compounding the mistake, the borrower stopped making payments to JPMorgan for the mortgage on the refinanced property. The borrower claimed that he was unaware that the first mortgage had not been paid off.

Once he stopped paying on the first mortgage, the loan fell into arrears, and JPMorgan started foreclosure proceedings. JPMorgan also reported the borrower’s payment delinquencies to credit bureaus.

Eventually, the borrower discovered the payoff error and demanded that JPMorgan fix the problem.  The bank worked to correct the misapplication of the proceeds. But the borrower alleged that JPMorgan further promised that it would refinance the borrower’s other properties should the other lender be unwilling to proceed with refinancing because of the error (i.e. because of the loan delinquencies JPMorgan erroneously reported).

Ultimately, neither JPMorgan nor the other lender refinanced the remaining loans. The borrower disputed his ongoing payment obligations to JPMorgan, and JPMorgan commenced foreclosure proceedings. 

Among other defendants, the borrower then sued JPMorgan. The borrower asserted multiple claims against the bank, including a 75-1.1 claim based on JPMorgan’s alleged promises to the borrower that it would refinance the borrower’s remaining properties but failed to do so. The borrower alleged that JPMorgan’s promises were false and made “in an unfair attempt to delay plaintiff from seeking legal redress.” 

The borrower filed his suit in Carteret County Superior Court. With the consent of the other defendants, JPMorgan removed the case to the United States District Court for the Eastern District of North Carolina.

The borrower’s 75-1.1 claim survives summary judgment

After several rounds of motion practice and amended pleadings, JPMorgan ended up as the lone defendant at the close of discovery. JPMorgan filed a motion for summary judgment. Judge Boyle granted summary judgment to JPMorgan on certain claims, but denied summary judgment as to the 75-1.1 claim.

Significantly, Judge Boyle found that the bank did not have a contractual obligation to modify the loans.  Judge Boyle opined that there cannot be a 75-1.1 claim based on a failure to modify a loan or contract if the lender has no obligation to make the modification.

The court allowed the 75-1.1 claim to go forward, however, based on JPMorgan’s alleged promises that the borrower would receive a loan modification. Judge Boyle indicated that there was “just enough” evidence to allow the 75-1.1 claim to make it to the jury.

Although it is notable that the court here allowed the 75-1.1 claim to survive, this case presents a slightly different fact pattern than in other cases. The borrower here was able to raise a genuine issue of material fact that JPMorgan was responsible for the borrower being unable to refinance or modify the loans in the first place. In allowing the borrower’s negligence claim to also survive summary judgment, Judge Boyle determined that the lender’s alleged misapplication of the loan proceeds could give rise to a duty of care that the lender would not otherwise owe to the borrower.

It also does not appear that the parties briefed whether the borrower had actually or reasonably relied on any statement by the bank. As we have pointed out in previous posts, the North Carolina Supreme Court has held that both actual and reasonable reliance are necessary if a 75-1.1 claim is premised on misrepresentations.

In Hetzel, the court found that the lender may have owed a duty to the borrower that would not normally arise in the debtor/creditor context. It will be left to other courts to explore the significance of that special duty on a lender’s liability under 75-1.1—the parties in Hetzel settled at mediation before trial.

Author: George Sanderson