throbber
Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 1 of 22
`
`NOT FOR PUBLICATION
`
`UNITED STATES COURT OF APPEALS
`
`FOR THE NINTH CIRCUIT
`
`
`FILED
`
`
`DEC 8 2020
`
`MOLLY C. DWYER, CLERK
`U.S. COURT OF APPEALS
`
`
`
`
`
`
`
` Plaintiffs-Appellants,
`
`NORTHBAY HEALTHCARE GROUP,
`INC.; NORTHBAY HEALTHCARE
`CORPORATION,
`
`
`
` v.
`
`
`KAISER FOUNDATION HEALTH PLAN,
`INC.; et al.,
`
`
`
`
`
`
`No. 18-16769
`
`
`D.C. No. 3:17-cv-05005-LB
`
`
`
`MEMORANDUM*
`
`
`
`
`
`
`
` Defendants-Appellees.
`
`
`
`Appeal from the United States District Court
`for the Northern District of California
`Laurel D. Beeler, Magistrate Judge, Presiding
`
`Argued and Submitted February 3, 2020
`San Francisco, California
`
`Before: PAEZ and BEA, Circuit Judges, and JACK,** District Judge.
`
`Dissent by Judge BEA
`
`
`Plaintiffs-Appellants NorthBay Healthcare Group, Inc. and NorthBay
`
`
`*
` This disposition is not appropriate for publication and is not precedent
`
`
`except as provided by Ninth Circuit Rule 36-3.
`
`** The Honorable Janis Graham Jack, United States District Judge for
`
`
`the Southern District of Texas, sitting by designation.
`
`
`
`
`
`
`
`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 2 of 22
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`Healthcare Corporation (collectively, “NorthBay”) appeal the district court’s
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`dismissal of their antitrust claim under § 2 of the Sherman Act against Defendants-
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`Appellees Kaiser Foundation Health Plan (“Kaiser Health”), Kaiser Foundation
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`Hospitals, Inc. (“Kaiser Hospitals”), and The Permanente Medical Group
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`(“Permanente”) (collectively, “Defendants”). The district court dismissed
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`NorthBay’s antitrust claim for failure to state a claim under Federal Rule of Civil
`
`Procedure 12(b)(6). We have jurisdiction under 28 U.S.C. § 1291. Reviewing de
`
`novo, Camacho v. Bridgeport Fin. Inc., 430 F.3d 1078, 1079 (9th Cir. 2005), we
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`reverse.1
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`NorthBay alleges that, amid its unprecedented investment campaign to
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`improve its hospital facilities and services, Defendants monopolized and conspired
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`to monopolize the healthcare-insurance market in Solano County by injuring
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`NorthBay, in violation of § 2 of the Sherman Act, 15 U.S.C. § 2. NorthBay
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`identifies two campaigns Defendants undertook to achieve this goal. The first is
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`that Permanente physicians at Kaiser’s trauma center instructed emergency
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`personnel to “steer” uninsured and indigent patients away from two Kaiser
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`hospitals2 and toward NorthBay’s hospitals; and to “steer” insured trauma patients
`
`
`1 Because the parties are familiar with the facts and procedural history, we recount
`only the most pertinent ones.
`2 Those hospitals are Kaiser Permanente Vallejo Medical Center and Kaiser
`Permanente Vacaville Medical Center, each owned and operated by Kaiser
`Hospitals.
`
`
`
`2
`
`
`
`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 3 of 22
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`away from NorthBay’s hospitals and toward the same two Kaiser hospitals (the
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`“steering” allegation). The second is that Permanente terminated a 2010
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`reimbursement agreement with NorthBay and began reimbursing NorthBay at less
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`than half the previously reimbursed rate (the “reimbursement” allegation).
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`NorthBay further alleges that with these anticompetitive acts, Defendants would
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`have succeeded in driving out their competitor, non-party Western Health
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`Advantage (“Western”), whose network includes NorthBay’s hospitals. Such
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`conduct, if true—as we must assume it to be, Ashcroft v. Iqbal, 556 U.S. 662, 696
`
`(2009)—is sufficient to survive the strictures under Federal Rule of Civil
`
`Procedure 8.
`
`The district court dismissed NorthBay’s complaint on the ground that it
`
`failed to allege four essential elements of “causal antitrust injury”—an essential
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`ingredient to both its monopolization and conspiracy to monopolize claims. We
`
`disagree.
`
`Unlawful Conduct. Contrary to the district court’s conclusion, NorthBay
`
`sufficiently alleges Defendants engaged in “unlawful conduct.” See Somers v.
`
`Apple, Inc., 729 F.3d 953, 963 (9th Cir. 2013). NorthBay asserts Permanente’s
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`physicians at Kaiser Hospitals directed lucrative patients away from its hospitals
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`and indigent patients towards them to drain NorthBay of its revenue. NorthBay
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`thus goes beyond merely “recit[ing] . . . the elements” of a § 2 antitrust claim
`
`
`
`3
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`
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`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 4 of 22
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`because it describes the facts that form the alleged unlawful conduct. See Iqbal,
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`556 U.S. at 681. However “fanciful” these facts may seem is irrelevant. See id.
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`(“It is the conclusory nature of respondent’s allegations, rather than their
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`extravagantly fanciful nature, that disentitles them to the presumption of truth.”);
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`Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (stating a court must
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`proceed “on the assumption that all the allegations in the complaint are true (even
`
`if doubtful in fact)”). Given that only the claim needs to be plausible, and not the
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`facts themselves, we disagree with the district court’s conclusion that any further
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`factual enhancement was necessary. See NorthBay Healthcare Grp. v. Kaiser
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`Found. Health Plan, Inc., No. 17-CV-05005-LB, 2018 WL 4096399, at *7 (N.D.
`
`Cal. Aug. 28, 2018).
`
`Similarly, the reimbursement allegations are also sufficient to meet the
`
`element of “unlawful conduct.” By terminating the 2010 reimbursement
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`agreement and reimbursing NorthBay at substantially lower rates than originally
`
`agreed upon, Defendants exposed themselves to potential liability under California
`
`law and engaged in business activities that appear contrary to its own interests
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`down the line, unless to achieve the immediate—and anticompetitive—goal of
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`injuring NorthBay. See Cal. Health & Safety Code § 1317.2a(d) (stating third
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`party-payor must pay the “reasonable charges” of the transferring hospital); see
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`also Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 610–11
`
`
`
`4
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`
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`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 5 of 22
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`(1985); Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S.
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`398, 409 (2004).
`
`Injury. NorthBay also pleads facts that are sufficient for the second element
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`to demonstrate causal antitrust injury—that it suffered “some credible injury”
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`caused by Defendants’ unlawful conduct. Am. Ad Mgmt. v. Gen. Tel. Co. of Cal.,
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`190 F.3d 1051, 1056 (9th Cir. 1999). The operative complaint describes at length
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`the financial injuries NorthBay suffered because of Defendants’ alleged steering
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`and reimbursement practices.
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`Injury Flowing from Anticompetitive Conduct. Relatedly, NorthBay has
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`adequately alleged the third element of causal antitrust injury—that its injuries
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`“flow[ed] from an anticompetitive aspect or effect of the defendant’s behavior . . .
`
`. ” Pool Water Prods. v. Olin Corp., 258 F.3d 1024, 1034 (9th Cir. 2001)
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`(quotation marks omitted). NorthBay’s steering and reimbursement allegations
`
`caused financial injuries that go to the heart of anticompetitive conduct. Each
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`campaign, according to NorthBay, was undertaken to prevent NorthBay from
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`following through with “procompetitive investments in its hospital facilities and
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`services.” And NorthBay alleges that Defendants’ unlawful conduct has worked
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`because, to date, it has had to curb future investment plans, close departments, lay
`
`off employees, and reduce services available to the public. These alleged injuries
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`to NorthBay undoubtedly “hurt competition.” See id. As NorthBay describes it,
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`
`
`5
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`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 6 of 22
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`Western is Kaiser Health’s “only significant healthcare insurance rival” in Solano
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`County, and Western’s ability to compete with Kaiser Health depends on
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`consumers seeing NorthBay hospitals as favorable alternatives to Kaiser Hospitals.
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`And the alleged injuries NorthBay has suffered because of Defendants’
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`purportedly anticompetitive behavior has prevented NorthBay from competing
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`with Kaiser Hospitals, and even forced NorthBay to make cutbacks that have
`
`rendered it a less desirable alternative to Kaiser Hospitals. We thus conclude that
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`NorthBay’s alleged injuries flowed from Defendants’ alleged anticompetitive
`
`conduct.
`
`Conduct Antitrust Laws Were Meant to Prevent. NorthBay’s alleged injury
`
`also meets the fourth element of antitrust injury—that is, it was “of the type the
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`antitrust laws were intended to prevent.” Am. Ad Mgmt., 190 F.3d at 1057.
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`NorthBay’s steering and reimbursement allegations were, in its view, done
`
`intentionally to prevent NorthBay from completing major investments in its
`
`facilities, which would have improved the quality of services. Such disruption
`
`could, as alleged, diminish the quality of services for the public and thus fall under
`
`the type of protection the antitrust laws were intended to afford.
`
`Market Participant / Inextricable Intertwinement. Last, although the district
`
`court did not address the final element to show causal antitrust injury, we conclude
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`the record sufficiently shows that NorthBay satisfies it. Generally, this element is
`
`
`
`6
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`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 7 of 22
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`satisfied if the injured party shows that it “[was] a participant in the same market as
`
`the alleged malefactors,” as, for example, a “consumer” or “competitor.” See
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`Somers, 729 F.3d at 963. Additionally, the injured party can satisfy the element by
`
`showing its injuries are “inextricably intertwined with the injury the [Defendants]
`
`sought to inflict on” marketplace participants. See Blue Shield of Va. v. McCready,
`
`457 U.S. 465, 484 (1982); Am. Ad Mgmt., 190 F.3d at 1057 n.5 (“We recognize
`
`that the Supreme Court has carved a narrow exception to the market participant
`
`requirement for parties whose injuries are ‘inextricably intertwined’ with the
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`injuries of market participants.”).3
`
`The parties do not dispute that NorthBay was neither a consumer nor a
`
`competitor in the Solano County healthcare-insurance market, but NorthBay
`
`
`3 We disagree with the dissent’s characterization of McCready. The Supreme
`Court began by emphasizing that the standing requirement, 15 U.S.C. § 15, “does
`not confine its protection to consumers, or to purchasers, or to competitors, or to
`sellers.” McCready, 457 U.S. at 472 (quoting Mandeville Island Farms, Inc. v.
`Am. Crystal Sugar Co., 334 U.S. 219 (1948)). While McCready was a health plan
`participant, the Court’s reasoning emphasized that she was directly targeted for
`harm by parties seeking to injure a competitor. The Court stated that the harm to
`McCready was “clearly foreseeable; indeed, it was a necessary step in effecting the
`ends of the alleged illegal conspiracy.” Id. at 479. Moreover, the Court provided a
`hypothetical to further explain its reasoning: “If a group of psychiatrists conspired
`to boycott a bank until the bank ceased making loans to psychologists, the bank
`would no doubt be able to recover the injuries suffered as a consequence of the
`psychiatrists’ actions.” Id. at 484 n.21. In the hypothetical, the bank is not a
`competitor or consumer in the psychotherapy market, but it was used to directly
`harm a competitor; McCready was used in a similar way. So too here—the
`complaint alleges that Kaiser sought to use NorthBay to harm Western.
`
`
`
`7
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`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 8 of 22
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`nonetheless falls within McCready’s holding because its injuries are “inextricably
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`intertwined” with an injury to Western. As alleged, Kaiser Health’s one significant
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`competitor in the Solano County healthcare-insurance market is Western. Because
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`NorthBay is Western’s Solano County in-network hospital system, any acts that
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`injure NorthBay in turn hurt Western. Thus, Defendants sought to injure
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`NorthBay’s investment projects by steering patients and cutting reimbursement
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`rates, which, in effect, aided its efforts to squeeze Western out of that market and
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`maintain a monopoly. Thus, although “the goal of the [steering and reimbursement
`
`allegations] was to exclude [Western] from [the Solano County healthcare-
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`insurance market],” NorthBay’s alleged financial injuries “[were] the very means
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`by which it [was] alleged that [Defendants] sought to achieve its illegal ends.” See
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`McCready, 457 U.S. at 479, 484 n.21. The Supreme Court’s rule in McCready
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`therefore applies.
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`Because we reverse the district court’s dismissal of NorthBay’s federal
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`claims, on remand the district court should reconsider its decision declining to
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`assert supplemental jurisdiction over the state-law claims. See Lacey v. Maricopa
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`Cnty., 693 F.3d 896, 940 (9th Cir. 2012) (en banc).
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`REVERSED and REMANDED.
`
`
`
`8
`
`
`
`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 9 of 22
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`BEA, Circuit Judge, dissenting:
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`NorthBay Healthcare Group v. Kaiser Foundation Health Plan, No. 18-16769
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`DEC 8 2020
`
`MOLLY C. DWYER, CLERK
`U.S. COURT OF APPEALS
`The majority reverses the district court’s third dismissal of this case because
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`FILED
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`it concludes NorthBay plausibly alleged “causal antitrust injury” for claims against
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`the Kaiser Defendants under the anti-monopolization provision of the Sherman
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`Act, 15 U.S.C. § 2. In my view, the majority errs by sidestepping governing law
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`on two essential elements of “causal antitrust injury”: (1) that the defendant’s
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`conduct be unlawful and (2) the proximate cause requirement that the plaintiff
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`participate in the market the defendant is allegedly monopolizing. NorthBay’s
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`final amended complaint failed adequately to allege these elements as required by
`
`law and should be dismissed. I respectfully dissent from the majority’s contrary
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`disposition.
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`I.
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`The majority reads two theories alleged in NorthBay’s third and final
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`complaint as alleging sufficient facts to plead unlawful conduct on the part of the
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`Kaiser Defendants. First, NorthBay alleges that Kaiser abused its physicians’
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`emergency routing privileges to “steer” insured patients away from NorthBay’s
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`hospitals in Solano County, California, and to “steer” uninsured patients to
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`NorthBay’s hospitals. Second, NorthBay claims that Kaiser violated California
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`law by refusing to reimburse NorthBay at reasonable rates for emergency care
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`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 10 of 22
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`provided to Kaiser insurance subscribers. Properly understood, however, these
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`allegations are legal conclusions that claim Kaiser violated the law, rather than
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`factual allegations of what Kaiser did, so to render NorthBay’s claims of steering
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`and underpaying reimbursement plausible as required by Ashcroft v. Iqbal, 556
`
`U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).
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`Because NorthBay failed to carry its burden of supporting each theory of unlawful
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`conduct with allegations of fact, I would affirm the dismissal of the complaint.
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`To survive a motion to dismiss, plaintiffs must push their claim across “the
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`line between possibility and plausibility” by alleging facts that are more than
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`“‘merely consistent with’ a defendant’s liability.” Iqbal, 556 U.S. at 678 (quoting
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`Twombly, 550 U.S. at 557). It is well established, as the district court recognized,
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`that courts must presume the truth of factual allegations when deciding a motion to
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`dismiss. But it is equally well established that the presumption of truth “is
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`inapplicable to legal conclusions,” no less to “a legal conclusion couched as
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`a factual allegation.” Id. (quoting Twombly, 550 U.S. at 555).
`
`NorthBay alleges that the Kaiser Defendants engaged in two forms of
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`unlawful conduct to accomplish a conspiracy to monopolize the Solano County
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`health insurance market. The majority concludes each of the two claims of
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`lawbreaking are factual allegations that render NorthBay’s antitrust claim plausible
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`as a collective whole. Maj. Op. 3–4. Yet accusations that another party has broken
`
`
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`2
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`
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`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 11 of 22
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`the law are quintessentially legal claims, and legal claims require supporting
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`factual allegations to survive a motion to dismiss. Plaintiffs may not impose on
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`a defendant the substantial costs of discovery by pleading multiple claims under
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`the same statutory cause of action and arguing each makes the other plausible. The
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`problem the district court identified in NorthBay’s final complaint is not, as my
`
`colleagues put it, that NorthBay’s assertions are “fanciful.” The problem is that
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`NorthBay’s theories of unlawful conduct are independent legal claims that lack
`
`supporting facts. See Twombly, 550 U.S. at 555–57. The legal claim that
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`a defendant trespassed by disposing of waste on a plaintiff’s land, for example,
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`must be supported by factual allegations that the defendant drove his truck onto the
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`property and dumped waste thereon; alleging mere trespass is an accusation, not
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`a well pleaded complaint entitling the plaintiff to discovery. “Steering” and
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`“underpaying” are, like “disposing,” conclusions or claims, not allegations of fact.
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`First, NorthBay claims that the Kaiser Defendants abused their physicians’
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`emergency routing privileges by steering lucrative insured patients to Kaiser
`
`hospitals and steering uninsured patients to NorthBay hospitals. As the district
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`court correctly noted, NorthBay’s complaint is devoid of factual allegations
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`capable, if proven, of establishing the steering claim. Kaiser Vacaville, one of the
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`hospitals operated by the Kaiser Defendants, is the only “Level II” trauma center in
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`Solano County certified to treat severe emergency injuries. When a routing
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`3
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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 12 of 22
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`physician identifies a patient’s injury as “Level II” rather than the less serious
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`designation of “Level III,” the patient, insured or not, generally must be
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`transported to a “Level II” hospital even if the “Level III” trauma center were
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`closer. NorthBay fails to allege specific instances in which Kaiser physicians
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`directed emergency personnel to transport insured patients to a more distant Kaiser
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`facility or uninsured patients near a Kaiser facility to a more distant NorthBay
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`facility, or that such directions cannot be explained by the physicians’ remote
`
`evaluation of the severity of the patient’s injury.
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`NorthBay includes specific allegations in its complaint that do nothing to
`
`make the steering allegations more plausible. For example, NorthBay alleges that
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`its hospitals posted lower revenues, treated more uninsured patients, and treated
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`fewer emergency trauma patients in 2017 than 2016. But these statistics are at best
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`consistent with misconduct by the Kaiser Defendants and are more plausibly
`
`explained by ordinary competitive activity and market conditions, including
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`fluctuation in the number of “Level III” trauma patients NorthBay was eligible to
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`receive as compared to “Level II” patients only Kaiser might receive. See
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`Twombly, 550 U.S. at 566 (finding no plausible suggestion of antitrust conspiracy
`
`where “nothing in the complaint intimates … anything more than the natural,
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`unilateral reaction” of each market player). NorthBay does not allege specific facts
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`to build on a single unsourced and undated allegation in its complaint that the
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`4
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`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 13 of 22
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`Kaiser Defendants “instructed” local fire department paramedics to steer insurance
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`subscribers towards Kaiser facilities. See id. at 564 (discounting “a few stray
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`statements” in a complaint when “on fair reading [they] are merely legal
`
`conclusions resting on the prior allegations”). Who, what, where, and when are
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`left to the imagination. In fact, far from alleging instances in which paramedics
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`complied with suspect instructions by the purported doctor-conspirators in charge
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`of routing ambulances, NorthBay cited examples of paramedics ignoring routing
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`instructions in favor of their own judgment as to where patients should be
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`delivered.
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`Nor does NorthBay allege a number or pattern of “Level III” injuries at
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`locations close to NorthBay hospitals that were nevertheless directed by the
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`defendants’ physicians to Kaiser hospitals. Instead, NorthBay’s complaint recites
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`one incident of alleged steering in which a Kaiser physician directed an ambulance
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`carrying a Kaiser subscriber to a Kaiser hospital, and another in which Kaiser
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`transferred one homeless patient to a NorthBay facility. In the first, NorthBay fails
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`to link the incident with general steering practices on Kaiser’s part or to make
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`a monopolization scheme more plausible than obvious alternative explanations,
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`such as the physician’s confusion about the ambulance’s location, the severity of
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`the patient’s injury, or the patient’s own preference to be treated at a Kaiser
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`facility. In the second, the incident involved a post-admission transfer from one
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`
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`5
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`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 14 of 22
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`facility to another rather than emergency routing. In any case, the patient in
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`question was in fact insured through Medi-Cal.
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`This is thin gruel indeed upon which to attempt to shirk the duty to
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`investigate before suing, and thereby seek to open the door to expensive and,
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`perhaps, unjustified discovery which the Supreme Court sought to stanch with its
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`decisions in Twombly and Iqbal. See Iqbal, 556 U.S. at 678–79 (“Rule 8 … does
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`not unlock the doors of discovery for a plaintiff armed with nothing more than
`
`conclusions.”); Twombly, 550 U.S. at 558–59 (“[I]t is one thing to be cautious
`
`before dismissing an antitrust complaint in advance of discovery, but quite another
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`to forget that proceeding to antitrust discovery can be expensive. …[T]he threat of
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`discovery expense will push cost-conscious defendants to settle even anemic cases
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`before reaching [summary judgment] proceedings.”).
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`Second, NorthBay claims that the Kaiser Defendants violated California law
`
`by reimbursing NorthBay at unreasonable rates for out-of-network emergency
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`services provided to Kaiser subscribers. See Cal. Health & Safety Code
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`§ 1317.2a(d) (requiring third party payor to pay “reasonable charges” to the
`
`transferring hospital). NorthBay’s complaint again fails to allege facts capable of
`
`proving a violation of the law, such as allegations that Kaiser’s reimbursements fall
`
`below industry custom or that Kaiser knowingly reimburses for less than
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`NorthBay’s actual costs contrary to practice in the State.
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`
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`6
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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 15 of 22
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`NorthBay argues its allegation that Kaiser’s reimbursement rates are below
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`NorthBay’s stated rates alleges a violation of California law. A litigant’s stated
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`rates are not controlling, however, because California does not define the
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`reasonableness of rates by “what the provider unilaterally says its services are
`
`worth.” Children’s Hosp. Cent. Cal. v. Blue Cross of Cal., 226 Cal. App. 4th
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`1260, 1275 (2014). Nor does it matter that Kaiser terminated a 2010 agreement
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`with NorthBay that had offered higher reimbursement rates since NorthBay does
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`not allege the termination was itself unlawful. See Pac. Bell Tel. Co. v. Linkline
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`Commc’ns, Inc., 555 U.S. 438, 448 (2009) (“As a general rule, businesses are free
`
`to choose the parties with whom they will deal, as well as the prices, terms, and
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`conditions of that dealing.”).1
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`II.
`
`Although the failure to allege unlawful conduct by the Kaiser Defendants is
`
`
`1 The unlawful conduct requirement bleeds into another essential element of
`a monopolization claim under Section 2 of the Sherman Act: “willful acquisition or
`maintenance” of monopoly power “as distinguished from growth or development
`as a consequence of a superior product, business acumen, or historic accident.”
`Linkline, 555 U.S. at 448 (quoting United States v. Grinnell Corp., 384 U.S. 563,
`570–71 (1966)). The Kaiser Foundation Health Plan’s dominant market position
`in the Solano County health insurance market makes Kaiser an unlawful
`monopolist only if NorthBay alleges its monopoly position is maintained
`unlawfully. The failure to allege unlawful conduct as the cause of Kaiser’s market
`success defeats both the “causal antitrust injury” and the “willfully acquired and
`maintained” elements of NorthBay’s monopolization claim.
`
`
`
`7
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`

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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 16 of 22
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`sufficient reason to dismiss this case, my colleagues further err by anticipatorily
`
`holding NorthBay adequately alleged proximate cause, another element of “causal
`
`antitrust injury,” even though the district court did not resolve this issue. Congress
`
`implicitly limits the scope of private rights of action according to the common law
`
`principle embodied in the concept of proximate cause: that “[t]he general tendency
`
`of the law, in regard to damages at least, is not to go beyond the first step” in the
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`causal chain. Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of
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`Carpenters, 459 U.S. 519, 534 (1983) (quoting S. Pac. Co. v. Darnell-Taenzer
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`Lumber Co., 245 U.S. 531, 533 (1918)). In the antitrust context, plaintiffs must
`
`allege that the defendant’s anti-competitive scheme proximately caused injury to
`
`the plaintiffs by targeting a market in which they are direct participants for
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`monopolization. See id. at 539; Somers v. Apple, Inc., 729 F.3d 953, 963 (9th Cir.
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`2013).
`
`Here, NorthBay alleged that the Kaiser Defendants’ unlawful conduct
`
`toward NorthBay was intended to damage a health insurance company, Western
`
`Health Advantage. As a healthcare services provider—a hospital—NorthBay is
`
`not a participant—an insurer—in the health insurance market that it alleges the
`
`Kaiser Defendants seek to monopolize. NorthBay is a seller of medical services,
`
`not a seller or a buyer of medical insurance policies used to purchase medical
`
`services. Had the district court not already decided to dismiss the complaint for
`
`
`
`8
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`

`

`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 17 of 22
`
`failure to allege other elements of “causal antitrust injury,” NorthBay’s failure to
`
`allege market participation by NorthBay in the health insurance market would
`
`have, and does, warrant dismissal.
`
`Relying on Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982), the
`
`majority nevertheless holds that NorthBay’s complaint sufficiently alleged
`
`proximate cause because NorthBay’s injuries are “inextricably intertwined” with
`
`those inflicted on Western, a competitor of Kaiser Foundation Health Plan in the
`
`local health insurance market. Maj. Op. 7–8. Western treats NorthBay’s hospitals
`
`as “in network,” meaning Western subscribers pay significantly less than market
`
`rates for healthcare provided at NorthBay facilities, under preexisting contractual
`
`arrangements. This causation theory asserts that the Kaiser Defendants targeted
`
`NorthBay with their unlawful steering and underpaying of reimbursement conduct
`
`so that NorthBay will reduce services and future service expansion and make
`
`Western’s health insurance plans less attractive to potential subscribers. By
`
`accepting this causal chain as sufficient to allege proximate cause, the majority
`
`commits two serious errors.
`
`The first error is that McCready did not abrogate the requirement that an
`
`antitrust plaintiff participate in the market he claims is being monopolized by the
`
`defendant. McCready involved an antitrust suit by the beneficiary of a group
`
`health insurance plan. The plaintiff beneficiary of a health plan claimed the insurer
`
`
`
`9
`
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`
`

`

`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 18 of 22
`
`conspired to restrain competition in the psychotherapy market by reimbursing
`
`beneficiaries for treatment by psychiatrists but not for comparable treatment by
`
`psychologists, and injured her (and members of her putative class) by depriving
`
`would-be patients of psychologists’ services. The Supreme Court held that
`
`consumers like the plaintiff who participate in the same market as the competitors
`
`targeted by the defendants’ anticompetitive scheme could sue the alleged
`
`wrongdoers because the alleged anticompetitive harms were “borne directly by the
`
`customers of the competitors.” 457 U.S. at 483 (emphasis added). In other words,
`
`in McCready the beneficiaries were marketplace participants in the psychotherapy
`
`market capable of suffering direct antitrust injury consistent with proximate cause
`
`principles. By contrast here, NorthBay is neither directly providing nor directly
`
`consuming health insurance benefits.
`
`McCready elaborated on but did not replace the marketplace participant
`
`requirement, as the Supreme Court and this court have recognized on multiple
`
`occasions. See, e.g., Associated Gen. Contractors, 459 U.S. at 529 n.19 (noting
`
`that in McCready “the actual plaintiff was directly harmed by the defendants’
`
`unlawful conduct”); Or. Laborers-Employers Health & Welfare Trust Fund v.
`
`Philip Morris, Inc., 185 F.3d 957, 967 (9th Cir. 1999) (rejecting the argument that
`
`McCready eliminated the market participant requirement). This court has
`
`previously rejected the notion that plaintiffs may recover for antitrust violations in
`
`
`
`10
`
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`
`

`

`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 19 of 22
`
`a different market. See Am. Ad Mgmt., Inc. v. Gen. Tel. Co. of Cal., 190 F.3d 1051,
`
`1057 (9th Cir. 1999) (“Antitrust injury requires the plaintiff to have suffered its
`
`injury in the market where competition is being restrained. Parties whose injuries,
`
`though flowing from that which makes the defendant's conduct unlawful, are
`
`experienced in another market do not suffer antitrust injury.”); Legal Economic
`
`Evaluations, Inc. v. Metro. Life Ins. Co., 39 F.3d 951, 956 (9th Cir. 1994)
`
`(rejecting extension of McCready where “the asserted harm to competition takes
`
`place in different markets”).2 NorthBay, a healthcare services provider, did not
`
`allege it participates in the health insurance market at the center of this case. The
`
`majority is wrong to assume McCready’s permissive definition of marketplace
`
`participant includes plaintiffs operating in an entirely different market.
`
`The second error is that the majority assumes proximate cause is satisfied
`
`whenever injury to the plaintiff in one market could harm an affiliated third party
`
`in a different market subject to the defendant’s alleged antitrust scheme. Maj. Op.
`
`8. That is not so. As the Supreme Court explained in McCready, proximate cause
`
`
`2 The majority cites a footnote in American Ad Management stating that McCready
`“carved a narrow exception to the marketplace participant requirement for parties
`whose injuries are ‘inextricably intertwined’ with the injuries of market
`participants.” Maj. Op. 7 (quoting 190 F.3d at 1057 n.5). As in McCready,
`however, American Ad Management allowed antitrust claims to proceed because
`the relevant market included the plaintiffs. American Ad Management did not, and
`could not have, extended McCready into a freestanding exception to the
`marketplace participation requirement after the Supreme Court and the Ninth
`Circuit had refused to do the same.
`
`
`
`11
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`Case: 18-16769, 12/08/2020, ID: 11918125, DktEntry: 56-1, Page 20 of 22
`
`requires a direct causal relationship between injury to the plaintiff and antitrust
`
`injury to the targeted third party. Plaintiffs may sue under the antitrust laws when
`
`their injury is “the very means” by which a defendant sought to injure his
`
`competitors, such that the parties’ injuries are “inextricably intertwined.” 457 U.S.
`
`at 479. It is not enough to allege an indirect chain of causation where one or more
`
`intervening causes may control whether the plaintiff’s injury will translate into an
`
`antitrust injury to competitors in the defendant’s targeted market. See, e.g.,
`
`Associated Gen. Contractors, 459 U.S. at 540 (rejecting antitrust claim where “the
`
`chain of causation between the Union’s injury and the alleged restraint in the
`
`market … contains several somewhat vaguely defined links”); cf. Painters &
`
`Allied Trades Dist. Council 82 Health Care Fund v. Ta

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