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From Antitrust Law Daily, May 11, 2017

Pennsylvania denied $1 million attorney fee award in hospital merger challenge

By Jeffrey May, J.D.

Although the State of Pennsylvania was not foreclosed from seeking attorney fees under Section 16 of the Clayton Act in a joint action with the FTC, challenging a proposed merger between Penn State Hershey Medical Center and PinnacleHealth System, it could not recover more than $1 million in fees and costs because it did not "substantially prevail" under Section 16. After the U.S. Court of Appeals in Philadelphia ruled that a preliminary injunction pending the outcome of an FTC administrative proceeding was appropriate under Section 13(b) of the FTC Act and the parties dropped the proposed merger, the state moved for $1,033,355.50 in attorney fees and related costs and $160,072.76 in litigation costs as a prevailing party. However, the state was not a plaintiff who substantially prevailed under the Clayton Act. The Third Circuit did not award the state an injunction based on a "full blown determination the merits" of its argument under the Clayton Act. Instead, the appellate court merely held that the state had shown a likelihood of success at a later stage in litigation–the FTC adjudication (FTC v. Penn State Hershey Medical Center, May 11, 2017, Jones, J.).

State not foreclosed from seeking fees, costs. The federal district court in Harrisburg, Pennsylvania, ruled today that Pennsylvania was not entitled to recover its fees and costs. However, the court stated that a state or another individual plaintiff who partners with the FTC to argue under Section 13(b) of the FTC Act to block a merger was not barred from seeking attorney fees under Section 16 of the Clayton Act. The court did not explain in what circumstances an individual plaintiff might win fees and costs when challenging a merger alongside the FTC.

In March, the federal district court in Washington, D.C. ruled that Pennsylvania and the District of Columbia could not petition for fee-shifting under Section 16 of the Clayton Act in a successful joint FTC/State challenge to block the proposed combination of office supply sellers Staples, Inc. and Office Depot, Inc., because the motion for preliminary injunction was resolved under Section 13(b) of the FTC Act. The federal district court in Harrisburg decided not to follow that reasoning. Allowing the state to pursue its fees and costs under Section 16, despite its partnership with the FTC, comported with the spirit of the Clayton Act, the court held. Further, it would be inefficient to require states working with the FTC to pursue a preliminary injunction pursuant to Section 16 apart from the FTC in order to seek fees and costs. "[T]o find now that Pennsylvania may not pursue attorney’s fees under Section 16 implicitly encourages duplicative litigation, separate filings, and repetitive arguments," the court explained. Another reason for allowing the state to seek fees as provided under Section 16 of the Clayton Act was that the state’s request for injunctive relief under Section 16 of the Clayton Act arose primarily out of the same operative facts argued in support of the preliminary injunction requested under Section 13(b) of the FTC Act and primarily the same issues, the touchstone being the likelihood of achieving an injunction preventing the hospital merger in an adjudication before the FTC.

"Prevailing party" standard. The state was not a prevailing party under Clayton Act based on the Third Circuit decision, according to the district court. The appellate court approached its analysis with a focus on the plaintiffs’ likelihood of success, rather than a full blown determination on the merits. The plaintiffs sought a preliminary injunction pending the outcome of the FTC’s adjudication on the merits. The appellate court also noted that the FTC was not required to establish that the proposed merger would in fact violate Section 7 of the Clayton Act.

In addition to denying the motion for attorney fees and costs, the court ordered the case closed.

This is Case No. 1:15-cv-02362-JEJ.

Attorneys: Gerald A. Stein for FTC. Aaron L Schwartz for Pennsylvania Office of Attorney General. Adrian Wager-Zito (Jones Day) for Penn State Hershey Medical Center and PinnacleHealth System.

Companies: Penn State Hershey Medical Center; PinnacleHealth System

MainStory: TopStory AcquisitionsMergers Antitrust FederalTradeCommissionNews PennsylvaniaNews

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