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From Antitrust Law Daily, June 19, 2014

Market allocation claims adequately alleged against Blue Cross/Blue Shield Plans

By Jeffrey May, J.D.

The federal district court in Birmingham, Alabama, has refused to dismiss claims brought by Blue Cross/Blue Shield providers and subscribers against Blue Cross/Blue Shield Plans for conspiring, along with the Blue Cross Blue Shield Association (BCBSA), to allocate geographic markets. The plaintiffs adequately alleged a conspiracy to carve the United States into “service areas” in which only one designated plan was permitted to sell health insurance to customers and contract with health care providers (In re: Blue Cross Blue Shield Antitrust Litigation, June 18, 2014, Proctor, R.).

At this early stage in the proceedings, the plans could not convince the court that the alleged agreements were not illegal because they merely recognized pre-existing trademarks. The defendants argued that their alleged market allocation actually related to a network of service areas that have existed for more than half a century, and which originally arose from common law trademark rights. They contended that their service agreements were procompetitive because they created a unique product that allowed the defendants to compete like a nationally integrated health insurer, while still preserving a focus on meeting the health insurance needs of their local communities.

The court noted that the plaintiffs had alleged that the current market allocation agreements did more than merely recognize pre-existing trademarks. Moreover, it was plausibly alleged that the defendants had competed after the alleged formation of common law trademark rights but before the conspiracy began. In addition, the plaintiffs alleged that, in furtherance of the scheme, the plans control the BCBSA and in turn control—collectively—each individual plan’s rights to assert a trademark. In light of these assertions, the court concluded that the plaintiffs alleged a viable market allocation scheme.

Per se illegality. The defendants took issue with the plaintiffs' per se theory of illegality. However, the defendants’ motion to dismiss for failure to adequately plead per se illegal conduct was denied. The court noted that it was too early to assess which standard of review—per se illegality or rule of reason analysis—should be applied to the claims. “Neither the parties nor the court has had the opportunity to develop the factual record necessary to make that determination,” the court explained.

Filed Rate Doctrine. It would be premature to make a determination about the applicability of the Filed Rate Doctrine to the some of the plaintiffs' damages claims, the court decided. The doctrine, which precludes damages claims based on certain rates filed with state regulators, is intended to bar consumer challenges that would undermine the regulator’s rate-setting authority.

The court suggested that it would have to consider whether there was “meaningful” review of the rates. A decision on the applicability of the doctrine might require an inquiry into which defendants had filed rates and in which jurisdictions, and the extent of administrative oversight exercised by the various states’ insurance regulators over the filing of rates in relevant states.

McCarran-Ferguson Act. The plaintiffs' claims were not barred by the McCarran-Ferguson Act’s antitrust exemption, the court ruled. The Act exempts the “business of insurance.” However, the alleged horizontal allocation of geographic markets could not be construed as the business of insurance because it was unrelated to the spreading of risk.

Jurisdiction and venue. The court addressed, but did not rule on, the parties’ arguments about personal jurisdiction and venue. Antitrust plaintiffs may properly establish personal jurisdiction and venue against an out-of-state, corporate defendant in one of two ways, the court explained. First, a plaintiff may rely on traditional principles of personal jurisdiction and venue, demonstrating that the forum state’s long-arm statute provides for personal jurisdiction and that venue is proper under the general federal venue statute, 28 U.S.C. § 1391. Second, an antitrust plaintiff may invoke Section 12 of the Clayton Act.

Section 12 of Clayton Act states: “Any suit, action, or proceeding under the antitrust laws against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business; and all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found.”

The court noted that there was a split among the circuits on the appropriate interaction of the provision's two clauses—the first addressing venue and the second addressing service of process—and that the Eleventh Circuit had not yet definitively taken a position. The court decided that it would follow the majority view or “integrated” approach—subscribed to by the Seventh, Second, and D.C. Circuits—that the two clauses were meant to operate in concert with each other.

The court explained that, in order to use Clayton Act, Section 12’s nationwide service of process clause to establish personal jurisdiction, venue would have to be assessed under Section 12’s venue provision. However, the issue of whether the Northern District of Alabama was the proper venue under Section 12 for all of the various suits that had been consolidated there required further briefing, according to the court.

This Case 2:13-cv-20000-RDP.

Attorneys: Joseph H. Webster (Chapman Lewis & Swan PLLC), Megan Jones (Hausfeld LLP) and Richard A. Feinstein (Boies Schiller & Flexner LLP) for Plaintiffs' Counsel. Aaron G. McLeod (Adams & Reese LLP), Adam H. Charnes (Kilpatrick Townsend & Stockton LLP), Alan Harris (Bodman PLC) and Alan D Rutenberg (Foley & Lardner LLP) for Defendants' Counsel.

Companies: Blue Cross Blue Shield Assn.

MainStory: TopStory Antitrust AlabamaNews

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