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From Antitrust Law Daily, March 22, 2018

Plastic surgeon’s antitrust, unfair competition claims from staff privilege denial carved down

By E. Darius Sturmer, J.D.

A pediatric plastic and craniofacial surgeon’s lawsuit claim that two southern California children’s hospitals, several entities affiliated with each, and both hospitals’ chief plastic surgeons conspired through defamation and assorted other actions to deny him admitting privileges at one of those hospitals—San Diego-based Rady’s Children’s Hospital—was permitted to advance, but trimmed a bit, by the federal district court in San Diego (Toranto v. Jaffurs, March 21, 2018, Houston, J.).

The motions for dismissal by the hospital defendants and the head plastic surgeon at Children’s Hospital of Orange County (CHOC) were granted in part and denied in part. The hospital defendants’ motions were denied as to the antitrust and unfair competition claims, but granted as to several other state law claims, while the CHOC chief’s motion was granted only as to the conspiracy in restraint of trade claim the complaining surgeon asserted against him in his official capacity. His motion was denied to the extent that the claim was asserted against him in his personal capacity, and it was also denied with respect to the plaintiff’s unfair competition claim against him, as well.

Conspiracy. The plaintiff’s first amended complaint contained enough specific facts to support a reasonable inference that the defendants engaged in a conspiracy to deny him staff privileges at Rady’s and thereby avert dismissal, the court reasoned. In the claim, the complaining surgeon had charged that the chief of plastic surgery of the CHOC medical staff had made false and defamatory statements about him to the Rady defendants in concert with Rady’s chief of plastic surgery (and sole pediatric craniofacial plastic surgeon), who purportedly viewed him as a competitive threat. While the allegations surrounding the relationships between the various Rady Defendants and its own chief plastic surgeon suggested an agency relationship that supported the defendants’ "single entity" argument, the plaintiff had clearly averred an agreement and conspiracy between the defending surgeons, two distinct individuals, the court stated. Thus, he sufficiently allege[d] a conspiracy to support his claim for conspiracy in restraint of trade.

Restraint of trade. That supposed restraint of trade was also sufficiently alleged to be unreasonably anticompetitive, the court continued. The plaintiff maintained that a conspiracy to exclude a physician from a hospital through misuse of the peer review process constituted an illegal agreement in restraint of trade. Because the asserted peer review misuse was not subject to the per se illegality rule, the court noted, a rule of reason analysis applied, requiring the plaintiff to allege a relevant market. He sufficiently did so by alleging that the conduct inflicted harm upon patients in the market for pediatric and craniofacial plastic surgery services in San Diego and Imperial Counties. That market contained no facial or other defect and need be no more specific to survive dismissal, the court said.

An additional argument by the defendants that they were entitled to dismissal because they held the unilateral right to deny privileges under Leegin Creative Leather Products, Inc., v. PSKS, Inc., 551 U.S. 877 (2007) was rejected.

Antitrust injury. The court determined that antitrust injury was sufficiently demonstrated by the facts in the first amended complaint.Claims that the defending surgeons conspired to prevent the plaintiff from obtaining privileges to suppress competition to professionally and economically benefit one of them, that the Rady defendants agreed to support the plot to avoid the diversion of their surgical chief’s revenue to the complaining doctor, and deprived the public of competition in the market, the availability of certain procedures, and lower wait times and costs did more than merely recite bare legal conclusions. They included facts demonstrating injury to competition sufficient to "raise a reasonable expectation that discovery would reveal evidence of an injury to competition," the court concluded.

Monopoly. Likewise, the plaintiff’s monopoly claims adequately alleged a relevant market, monopoly power, exclusionary conduct, and facts to support injury, the court found. The alleged relevant geographic market was facially sustainable, and the averment that the defendants had 100% of that market sufficed to state a monopolization claim. The complaint contained numerous factual allegations that, taken as true, sufficiently alleged a conspiracy among the two chief surgeons and the Rady defendants to deny the plaintiff procedurally fair consideration of the application for privileges and Rady. It further alleged that the rival surgeons acted with the specific intent to monopolize and set forth their economic rationale for doing so.

State law claims. Claims the plaintiff brought under California’s Unfair Competition Law (UCL) also survived dismissal. A contention by the defendants that the complaining surgeon had not alleged a predicate business act of practice forbidden by law was without merit, as he had adequately stated claims under the Sherman Act and for defamation, the court held. Additionally, the court remarked, he sufficiently alleged harm to competition to bring a claim under the unfair prong of the UCL.

An additional argument by the Rady defendants that the state law claims were barred by the surgeon’s failure to exhaust administrative remedies was turned away by the court at the outset. The plaintiff’s allegations that the defendants denied him a hearing or interview after being informed his application for admitting privileges at Rady Children’s was "presumptively denied" and that he received threats that he would be reported to the Medical Board if did not withdraw his application demonstrated that he was denied basic procedural protections and was, therefore, not required to exhaust the administrative remedies available to him prior to following suit.

CHOC surgeon’s motion. The chief surgeon at CHOC brought his own motion for dismissal of the claims on several different grounds. His assertion that he was entitled to Eleventh Amendment immunity from the Sherman Act claim was essentially correct, the court determined, but only to extent the claim was asserted against him in his official capacity as an employee of The Regents of the University of California, the corporation that governs the University of California systems and employs the majority of physicians who have admitting privileges at Rady’s. The plaintiff’s complaint, which stated that the defendant had engaged in personal vendettas against surgeons including the plaintiff, sought relief against the CHOC surgeon in both his official and individual capacities. The Eleventh Amendment did not bar the claim to the extent it was asserted against him in his individual capacity.

The court also turned down the defending CHOC surgeon’s arguments that the complaint did not contain sufficient facts to support a Sherman Act claim and that the state action doctrine barred that claim. The sufficiency of the Sherman Act and defamation pleadings provided a viable basis for his UCL claims under the statute’s unfair and unlawful prongs, as well. However, because there were no allegations that his conduct was likely to deceive members of the public, the court agreed with his contention that the UCL claim was insufficiently pleaded under the fraudulent prong of the UCL.

The case is No. 16-cv-1709-JAH.

Attorneys: Kenneth M. Fitzgerald (Fitzgerald Knaier LLP) for Jason Toranto. Sandra Lynn McDonough (Paul, Plevin, Sullivan & Connaughton LLP) for Daniel Jaffurs.

MainStory: TopStory Antitrust CaliforniaNews

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