Subject:  SUMMIT HEALTH, LTD. v. PINHAS, Syllabus



 
    NOTE: Where it is feasible, a syllabus (headnote) will be released, as
is being done in connection with this case, at the time the opinion is
issued.  The syllabus constitutes no part of the opinion of the Court but
has been prepared by the Reporter of Decisions for the convenience of the
reader.  See United States v. Detroit Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES


Syllabus


SUMMIT HEALTH, LTD., et al. v. PINHAS


certiorari to the united states court of appeals for the ninth circuit

No. 89-1679.  Argued November 26, 1990 -- Decided May 28, 1991

Respondent Pinhas, an ophthalmologist on the staff of petitioner Midway
Hospital Medical Center, filed a suit in the District Court, asserting a
violation, inter alia, of MDRV 1 of the Sherman Act by Midway and other
petitioners, including several doctors.  The amended complaint alleged,
among other things, that petitioners conspired to exclude Pinhas from the
Los Angeles ophthalmological services market when he refused to follow an
unnecessarily costly surgical procedure used at Midway; that petitioners
initiated peer-review proceedings against him which did not conform to
congressional requirements and which resulted in the termination of his
Midway staff privileges; that at the time he filed suit, petitioners were
preparing to distribute an adverse report about him based on the
peer-review proceedings; that the provision of ophthalmological services
affects interstate commerce because both physicians and hospitals serve
nonresident patients and receive reimbursement from Medicare; and that
reports from peer-review proceedings are routinely distributed across state
lines and affect doctors' employment opportunities throughout the Nation.
The District Court dismissed the amended complaint, but the Court of
Appeals reversed, rejecting petitioners' argument that the Act's
jurisdictional requirements were not met because there was no allegation
that interstate commerce would be affected by Pinhas' removal from Midway's
staff.  Rather, the court found that Midway's peer-review proceedings
obviously affected the hospital's interstate commerce because they affected
its entire staff, and that Pinhas need not make a particularized showing of
the effect on interstate commerce caused by the alleged conspiracy.

Held: Pinhas' allegations satisfy the Act's jurisdictional requirements.
To be successful, Pinhas need not allege an actual effect on interstate
commerce.  Because the essence of any MDRV 1 violation is the illegal
agreement itself, the proper analysis focuses upon the potential harm that
would ensue if the conspiracy were successful, not upon actual
consequences.  And if the conspiracy alleged in the complaint is
successful, as a matter of practical economics there will be a reduction in
the provision of ophthalmological services in the Los Angeles market.
Thus, petitioners erroneously contend that a boycott of a single surgeon,
unlike a conspiracy to destroy a hospital department or a hospital, has no
effect on interstate commerce because there remains an adequate supply of
others to perform services for his patients.  This case involves an alleged
restraint on the practice of ophthalmological services accomplished by an
alleged misuse of a congressionally regulated peer-review process, which
has been characterized as the gateway controlling access to the market for
Pinhas' services.  When the competitive significance of respondent's
exclusion from the market is measured, not by a particularized evaluation
of his practice, but by a general evaluation of the restraint's impact on
other participants and potential participants in that market, the restraint
is covered by the Act.  Pp. 5-9.

894 F. 2d 1024, affirmed.

Stevens, J., delivered the opinion of the Court, in which Rehnquist, C. J.,
and White, Marshall, and Blackmun, JJ., joined.  Scalia, J., filed a
dissenting opinion, in which O'Connor, Kennedy, and Souter, JJ., joined.

------------------------------------------------------------------------------




Subject: 89-1679 -- OPINION, SUMMIT HEALTH, LTD. v. PINHAS

 


NOTICE: This opinion is subject to formal revision before publication in
the preliminary print of the United States Reports.  Readers are requested
to notify the Reporter of Decisions, Supreme Court of the United States,
Washington, D. C. 20543, of any typographical or other formal errors, in
order that corrections may be made before the preliminary print goes to
press.
SUPREME COURT OF THE UNITED STATES


No. 89-1679



SUMMIT HEALTH, LTD., et al., PETITIONERS v. SIMON J. PINHAS

on writ of certiorari to the united states court of appeals for the ninth
circuit

[May 28, 1991]



    Justice Stevens delivered the opinion of the Court.
    The question presented is whether the interstate commerce requirement
of antitrust jurisdiction is satisfied by allegations that petitioners
conspired to exclude respondent, a duly licensed and practicing physician
and surgeon, from the market for ophthalmological services in Los Angeles
because he refused to follow an unnecessarily costly surgical procedure.
    In 1987, respondent Dr. Simon J. Pinhas filed a complaint in District
Court alleging that petitioners Summit Health, Ltd. (Summit), Midway
Hospital Medical Center (Midway), its medical staff, and others, had
entered into a conspiracy to drive him out of business "so that other
ophthalmologists and eye physicians [including four of the petitioners]
will have a greater share of the eye care and ophthalmic surgery in Los
Angeles."  App. 39.  Among his allegations was a claim that the conspiracy
violated MDRV 1 of the Sherman Act. {1}  The District Court granted
defendants' (now petitioners') motion to dismiss the First Amended
Complaint (complaint) without leave to amend, App. 315, but the United
States Court of Appeals for the Ninth Circuit reinstated the antitrust
claim.  894 F. 2d 1024 (1989). {2}  We granted certiorari, 496 U. S. ---
(1990), to consider petitioners' contention that the complaint fails to
satisfy the jurisdictional requirements of the Sherman Act, as interpreted
in McLain v. Real Estate Bd. of New Orleans, Inc., 444 U. S. 232 (1980),
because it does not describe a factual nexus between the alleged boycott
and interstate commerce.

I
    Because this case comes before us from the granting of a motion to
dismiss on the pleadings, we must assume the truth of the material facts as
alleged in the complaint.  Respondent, a diplomat of the American Board of
Ophthalmology, has earned a national and international reputation as a
specialist in corneal eye problems.  App. 7.  Since October 1981, he has
been a member of the staff of Midway in Los Angeles, and because of his
special skills, has performed more eye surgical procedures, including
cornea transplants and cataract removals, than any other surgeon at the
hospital.  Ibid. {3}
    Prior to 1986, most eye surgeries in Los Angeles were performed by a
primary surgeon with the assistance of a second surgeon.  Id., at 8.  This
practice significantly increased the cost of eye surgery.  In February of
that year, the administrators of the Medicare program announced that they
would no longer reimburse physicians for the services of assistants, and
most hospitals in southern California abolished the assistant surgeon
requirement.  Respondent, and certain other ophthalmologists, asked Midway
to abandon the requirement, but the medical staff refused to do so.  Ibid.
Respondent explained that because Medicare reimbursement was no longer
available, the requirement would cost him about $60,000 per year in
payments to competing surgeons for assistance that he did not need.  Id.,
at 9.  Although respondent expressed a desire to maintain the preponderance
of his practice at Midway, he nevertheless advised the hospital that he
would leave if the assistant surgeon requirement were not eliminated.
Ibid.
    Petitioners responded to respondent's request to forgo an assistant in
two ways.  First, Midway and its corporate parent offered respondent a
"sham" contract that provided for payments of $36,000 per year (later
increased by oral offer to $60,000) for services that he would not be asked
to perform.  Ibid.  Second, when respondent refused to sign or return the
"sham" contract, petitioners initiated peer-review proceedings against him
and summarily suspended, and subsequently terminated, his medical staff
privileges. {4}  Id., at 10.  The proceedings were conducted in an unfair
manner by biased decisionmakers, and ultimately resulted in an order
upholding one of seven charges against respondent, and imposing severe
restrictions on his practice. {5}  When this action was commenced,
petitioners were preparing to distribute an adverse report  {6} about
respondent that would "preclude him from continued competition in the
market place, not only at defendant Midway Hospital [but also] . . . in
California, if not the United States."  Id., at 40.  The defendants
allegedly planned to disseminate the report "to all hospitals which Dr.
Pinhas is a member, and to all hospitals to which he may apply so as to
secure similar actions by those hospitals, thus effectuating a boycott of
Dr. Pinhas."  Ibid.
    The complaint alleges that petitioner Summit owns and operates 19
hospitals, including Midway, and 49 other health care facilities in
California, six other States, and Saudia Arabia.  Id., at 3.  Summit,
Midway, and each of the four ophthalmic surgeons named as individual
defendants, as well as respondent, are all allegedly engaged in interstate
commerce.  The provision of ophthalmological services affects interstate
commerce because both physicians and hospitals serve nonresident patients
and receive reimbursement through Medicare payments.  Reports concerning
peer-review proceedings are routinely distributed across state lines and
affect doctors' employment opportunities throughout the Nation.
    In the Court of Appeals, petitioners defended the District Court's
dismissal of the complaint on the ground that there was no allegation that
interstate commerce would be affected by respondent's removal from the
Midway medical staff.  The Court of Appeals rejected this argument because
" `as a matter of practical economics' " the hospital's "peer review
process in general" obviously affected interstate commerce.  894 F. 2d, at
1032 (citation omitted).  The court added:


"Pinhas need not, as appellees apparently believe, make the more
particularized showing of the effect on interstate commerce caused by the
alleged conspiracy to keep him from working.  [McLain v. Real Estate Bd. of
New Orleans, Inc., 444 U. S.,] at 242-243.  He need only prove that
peer-review proceedings have an effect on interstate commerce, a fact that
can hardly be disputed.  The proceedings affect the entire staff at Midway
and thus affect the hospital's interstate commerce.  Appellees' contention
that Pinhas failed to allege a nexus with interstate commerce because the
absence of Pinhas's services will not drastically affect the interstate
commerce of Midway therefore misses the mark and must be rejected."  Ibid.


II
    Congress enacted the Sherman Act in 1890. {7}  During the past century,
as the dimensions and complexity of our economy have grown, the federal
power over commerce, and the concomitant coverage of the Sherman Act, have
experienced similar expansion. {8}  This history has been recounted before,
{9} and we need not reiterate it today. {10}
    We therefore begin by noting certain propositions that are undisputed
in this case.  Petitioner Summit, the parent of Midway as well as of
several other general hospitals, is unquestionably engaged in interstate
commerce.  Moreover, although Midway's primary activity is the provision of
health care services in a local market, it also engages in interstate
commerce.  A conspiracy to prevent Midway from expanding would be covered
by the Sherman Act, even though any actual impact on interstate commerce
would be " `indirect' " and " `fortuitous.' "  Hospital Bldg. Co. v. Rex
Hospital Trustees, 425 U. S. 738, 744 (1976).  No specific purpose to
restrain interstate commerce is required.  Id., at 745.  As a "matter of
practical economics," ibid., the effect of such a conspiracy on the
hospital's "purchases of out-of-state medicines and supplies as well as its
revenues from out-of-state insurance companies," id., at 744, would
establish the necessary interstate nexus.
    This case does not involve the full range of activities conducted at a
general hospital.  Rather, this case involves the provision of
ophthalmological services.  It seems clear, however, that these services
are regularly performed for outof-state patients and generate revenues from
out-of-state sources; their importance as part of the entire operation of
the hospital is evident from the allegations of the complaint.  A
conspiracy to eliminate the entire ophthalmological department of the
hospital, like a conspiracy to destroy the hospital itself, would
unquestionably affect interstate commerce.  Petitioners contend, however,
that a boycott of a single surgeon has no such obvious effect because the
complaint does not deny the existence of an adequate supply of other
surgeons to perform all of the services that respondent's current and
future patients may ever require.  Petitioners argue that respondent's
complaint is insufficient because there is no factual nexus between the
restraint on this one surgeon's practice and interstate commerce.
    There are two flaws in petitioners' argument.  First, because the
essence of any violation of MDRV 1 is the illegal agreement itself --
rather than the overt acts performed in furtherance of it, see United
States v. Kissel, 218 U. S. 601 (1910) -- proper analysis focuses, not upon
actual consequences, but rather upon the potential harm that would ensue if
the conspiracy were successful.  As we explained in McLain v. Real Estate
Bd. of New Orleans, Inc., 444 U. S. 232 (1980):

"If establishing jurisdiction required a showing that the unlawful conduct
itself had an effect on interstate commerce, jurisdiction would be defeated
by a demonstration that the alleged restraint failed to have its intended
anticompetitive effect.  This is not the rule of our cases.  See American
Tobacco Co. v. United States, 328 U. S. 781, 811 (1946); United States v.
Socony-Vacuum Oil Co., 310 U. S. 150, 225, n. 59 (1940).  A violation may
still be found in such circumstances because in a civil action under the
Sherman Act, liability may be established by proof of either an unlawful
purpose or an anticompetitive effect.  United States v. United States
Gypsum Co., 438 U. S. 422, 436, n. 13 (1978); see United States v.
Container Corp., 393 U. S. 333, 337 (1969); United States v. National Assn.
of Real Estate Boards, 339 U. S. 485, 489 (1950); United States v.
SoconyVacuum Oil Co., supra, at 224-225, n. 59."  Id., at 243.


Thus, respondent need not allege, or prove, an actual effect on interstate
commerce to support federal jurisdiction. {11}
    Second, if the conspiracy alleged in the complaint is successful, " `as
a matter of practical economics' " there will be a reduction in the
provision of ophthalmological services in the Los Angeles market.  McLain,
444 U. S., at 246 (quoting Hospital Building Co. v. Rex Hospital Trustees,
425 U. S., at 745).  In cases involving horizontal agreements to fix prices
or allocate territories within a single State, we have based jurisdiction
on a general conclusion that the defendants' agreement "almost surely" had
a market-wide impact and therefore an effect on interstate commerce, Burke
v. Ford, 389 U. S. 320, 322 (1967) (per curiam), or that the agreement
"necessarily affect[ed]" the volume of residential sales and therefore the
demand for financing and title insurance provided by out-of-state concerns.
McLain, 444 U. S., at 246.  In the latter, we explained:

    "To establish the jurisdictional element of a Sherman Act violation it
would be sufficient for petitioners to demonstrate a substantial effect on
interstate commerce generated by respondents' brokerage activity.
Petitioners need not make the more particularized showing of an effect on
interstate commerce caused by the alleged conspiracy to fix commission
rates, or by those other aspects of respondents' activity that are alleged
to be unlawful."  Id., at 242-243.


    Although plaintiffs in McLain were consumers of the conspirators' real
estate brokerage services, and plaintiff in this case is a competing
surgeon whose complaint identifies only himself as the victim of the
alleged boycott, the same analysis applies.  For if a violation of the
Sherman Act occurred, the case is necessarily more significant than the
fate of "just one merchant whose business is so small that his destruction
makes little difference to the economy."  Klor's, Inc. v. Broadway-Hale
Stores, Inc., 359 U. S. 207, 213 (1959) (footnote omitted).  The case
involves an alleged restraint on the practice of ophthalmological services.
The restraint was accomplished by an alleged misuse of a congressionally
regulated peer-review process, {12} which respondent characterizes as the
gateway that controls access to the market for his services.  The gateway
was closed to respondent, both at Midway and at other hospitals, because
petitioners insisted upon adhering to an unnecessarily costly procedure.
The competitive significance of respondent's exclusion from the market must
be measured, not just by a particularized evaluation of his own practice,
but rather, by a general evaluation of the impact of the restraint on other
participants and potential participants in the market from which he has
been excluded.
    We have no doubt concerning the power of Congress to regulate a
peer-review process controlling access to the market for ophthalmological
surgery in Los Angeles.  Thus, respondent's claim that members of the
peer-review committee conspired with others to abuse that process and
thereby deny respondent access to the market for ophthalmological services
provided by general hospitals in Los Angeles has a sufficient nexus with
interstate commerce to support federal jurisdiction.

    The judgment of the Court of Appeals is affirmed.

It is so ordered.
 
 
 
 
 
 

------------------------------------------------------------------------------
1
    Section 1 of the Sherman Act, 26 Stat. 209, as amended, provides in
relevant part:

"Every contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several States, or
with foreign nations, is declared to be illegal."  15 U. S. C. MDRV 1.

2
    Although the complaint alleged five claims, only the "Fourth Claim for
Relief," the antitrust claim, is before us now.
    The complaint also named as a defendant the California Board of Medical
Quality Assurance (BMQA).  The BMQA, however, was dismissed by stipulation.
See 894 F. 2d, at 1027, n. 2.

3
    "One of the reasons for his success is the rapidity with which he, as
distinguished from his competitors, can perform such surgeries.  The speed
with which such surgery can be completed benefits the patient because the
exposure of cut eye tissue is drastically reduced.  Some of Dr. Pinhas'
competitors regularly require, on the average, six times the length of
surgical time to complete the same procedures as Dr. Pinhas."  App. 7.

4
    Respondent was notified, by a letter dated April 13, 1987, that such
actions were the result of a "Medical Staff review of [his] medical
records, with consideration as to the questions raised regarding:
indications for surgery; appropriateness of surgical procedures in light of
patient's medical condition; adequacy of documentation in medical records;
and ongoing pattern of identified problems."  Id., at 93.

5
    After the Governing Board of Midway affirmed the decision of the
peer-review committee, but imposed even more stringent conditions on
respondent than the committee had imposed, respondent filed a petition for
writ of mandate, pursuant to Cal. Civ. Proc. Code Ann. MDRV 1094.5 (West
Supp. 1991).  894 F. 2d 1024, 1027 (CA9 1989).  On May 17, 1989, the
Superior Court of California denied respondent's request for further
relief.  App. to Pet. for Cert. A30-A35.

6
    Petitioners had already distributed the report, a Business and
Professions Code 805 Report, to Cedars-Sinai Medical Center in Los Angeles,
which then denied respondent medical staff privileges there.  App. to Brief
for Respondent A-3.  Cedars-Sinai, like Midway, had refused to abolish the
assistant surgeon requirement.  App. 8.

7
    Act of July 2, 1890, ch. 647, MDRV 1, 26 Stat. 209.  The floor debates
on the Sherman Act reveal, in Senator Sherman's words, an intent to "g[o]
as far as the Constitution permits Congress to go . . . ."  20 Cong. Rec.
1167 (1889).  For views of the enacting Congress toward the Sherman Act,
see 21 Cong. Rec. 2456 (1890); see also United States v. South-Eastern
Underwriters Association, 322 U. S. 533, 555-560 (1944); Apex Hosiery Co.
v. Leader, 310 U. S. 469, 493, n. 15 (1940).

8
    The Court's decisions have long "permitted the reach of the Sherman Act
to expand along with expanding notions of congressional power.  See Gulf
Oil Corp. v. Copp Paving Co., 419 U. S. [186,] 201-202 [(1974)]."  Hospital
Bldg. Co. v. Rex Hospital Trustees, 425 U. S. 738, 743, n. 2 (1976).

9
    See, e. g., Mandeville Island Farms, Inc. v. American Crystal Sugar
Co., 334 U. S. 219, 229-235 (1948).

10
    It is firmly settled that when Congress passed the Sherman Act, it
"left no area of its constitutional power [over commerce] unoccupied."
United States v. Frankfort Distilleries, Inc., 324 U. S. 293, 298 (1945).
Congress "meant to deal comprehensively and effectively with the evils
resulting from contracts, combinations and conspiracies in restraint of
trade, and to that end to exercise all the power it possessed."  Atlantic
Cleaners & Dyers, Inc. v. United States, 286 U. S. 427, 435 (1932).

11
    Cf. United States v. Staszcuk, 517 F. 2d 53, 60, n. 17 (CA7) (en banc)
("The federal power to protect the free market may be exercised to punish
conduct which threatens to impair competition even when no actual harm
results"), cert. denied, 423 U. S. 837 (1975).

12
    See Health Care Quality Improvement Act of 1986, 100 Stat. 3784, 42 U.
S. C. MDRV 11101 et seq.  The statute provides for immunity from antitrust,
and other, actions if the peer-review process proceeds in accordance with
MDRV 11112.  Respondent alleges that the process did not conform with the
requirements set forth in MDRV 11112, such as adequate notice,
representation by an attorney, access to a transcript of the proceedings,
and the right to cross-examine witnesses.  According to the House sponsor
of the bill, "[t]he immunity provisions [were] restricted so as not to
protect illegitimate actions taken under the guise of furthering the
quality of health care.  Actions . . . that are really taken for
anticompetitive purposes will not be protected under this bill."  132 Cong.
Rec. H9957 (Oct. 14, 1986) (remarks of Rep. Waxman).





Subject: 89-1679 -- DISSENT, SUMMIT HEALTH, LTD. v. PINHAS

 


 
SUPREME COURT OF THE UNITED STATES


No. 89-1679



SUMMIT HEALTH, LTD., et al., PETITIONERS v. SIMON J. PINHAS

on writ of certiorari to the united states court of appeals for the ninth
circuit

[May 28, 1991]



    Justice Scalia, with whom Justice O'Connor, Justice Kennedy, and
Justice Souter join, dissenting.

    The Court treats this case as involving no more than a conspiracy among
eye surgeons at Midway Hospital to eliminate one of their competitors.
That alone, it concludes, restrains

    trade or commerce among the several States within the meaning of the
Sherman Act.  In my judgment, the con spiracy alleged by the complaint,
fairly viewed, involved somewhat more than that; but even so falls far
short of what is required for Sherman Act jurisdiction.  I respectfully
dissent.
I
    The Court has "no doubt concerning the power of Congress to regulate a
peer-review process controlling access to the market for ophthalmological
surgery in Los Angeles," and concludes that "respondent's claim . . . has a
sufficient nexus with interstate commerce to support federal jurisdiction."
Ante, at 9.  I agree with all that.  Unfortunately, however, the question
before us is not whether Congress could reach the activity before us here
if it wanted to, but whether it has done so via the Sherman Act.  That
enactment does not prohibit all conspiracies using instrumentalities of
commerce that Congress could regulate.  Nor does it prohibit all
conspiracies that have sufficient constitutional "nexus" to interstate
commerce to be regulated.  It prohibits only those conspiracies that are
"in restraint of trade or commerce among the several States." 15 U. S. C.
MDRV 1.  This language commands a judicial inquiry into the nature and
potential effect of each particular restraint.  "The jurisdictional inquiry
under general prohibitions . . . like MDRV 1 of the Sherman Act, turning as
it does on the circumstances presented in each case and requiring a
particularized judicial determination, differs significantly from that
required when Congress itself has defined the specific persons and
activities that affect commerce and therefore require federal regulation."
Gulf Oil Corp. v. Copp Paving Co., 419 U. S. 186, 197, n. 12 (1974).
    Until 1980, the nature of this jurisdictional inquiry (with respect to
alleged restraints not targeted at the very flow of interstate commerce)
was clear: the question was whether the restraint at issue, if successful,
would have a substantial effect on interstate commercial activity.  See
Hospital Building Co. v. Rex Hospital Trustees, 425 U. S. 738, 741, 744
(1976); Burke v. Ford, 389 U. S. 320, 321-322 (1967) (per curiam);
Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U. S. 219,
237 (1948).  See Note, The Interstate Commerce Test for Jurisdiction in
Sherman Act Cases and Its Substantive Applications, 15 Ga. L. Rev. 714,
716-717 (1981).  As I shall discuss in due course, that criterion would
have called for reversal in the present case.  See United States v. Oregon
Medical Society, 343 U. S. 326 (1952).
    Unfortunately, in 1980, the Court seemed to abandon this approach.
McLain v. Real Estate Board of New Orleans, Inc., 444 U. S. 232 (1980),
appeared to shift the focus of the inquiry away from the effects of the
restraint itself, asking instead whether the "[defendants'] activities
which allegedly have been infected by a price-fixing conspiracy . . . have
a not insubstantial effect on the interstate commerce involved." Id., at
246 (emphasis added).  The result in McLain would have been the same under
the prior test, since the subject of the suit was an alleged massive
conspiracy by all realtors in the Greater New Orleans area, involving price
fixing, suppression of market information, and other anticom petitive
practices.  The Court's resort to the more expansive "infected activity"
test was prompted by the belief that focusing upon the effects of the
restraint itself would require plaintiffs to prove their case at the
jurisdictional stage.  See id., at 243.  That belief was in error, since
the prior approach had simply assumed, rather than required proof of, the
success of the conspiracy.
    Thus, as a dictum based upon a misconception, the "infected activities"
approach was introduced into antitrust law.  It was not received with
enthusiasm.  Most courts simply finessed the language of McLain and said
that nothing had changed, i. e., that the ultimate question was still
whether the unlawful conduct itself, if successful, would have a
substantial effect on interstate commerce.  See, e. g., Cordova &
Simonpietri Ins. Agency, Inc. v. Chase Manhattan Bank N. A., 649 F. 2d 36,
45 (CA 1 1981); Furlong v. Long Island College Hospital, 710 F. 2d 922,
925-926 (CA 2 1983); Sarin v. Samaritan Health Center, 813 F. 2d 755,
758-759 (CA 6 1987); Seglin v. Esau, 769 F. 2d 1274, 1280 (CA 7 1985);
Hayden v. Bracy, 744 F. 2d 1338, 1343, n. 2 (CA 8 1984); Crane v.
Intermountain Health Care, Inc., 637 F. 2d 715, 724 (CA 10 1980) (en banc);
see also, Thompson v. Wise General Hospital, 707 F. Supp. 849, 854-856 (WD
Va. 1989), aff'd, 896 F. 2d 547 (CA 4 1990).  Others, however, took McLain
at face value -- and of course immediately fell into disagreement over the
proper application of the new test.  With respect to a restraint like the
one at issue here, for example, how does one decide which "activities of
the defendants" are "infected"?  Are they all the activities of the
hospital, Weiss v. York Hospital, 745 F. 2d 786, 824-825, and n. 66 (CA 3
1984)?  Only the activities of the eye surgery department, see Mitchell v.
Frank R. Howard Memorial Hospital, 853 F. 2d 762, 764, n. 1 (CA 9 1988)?
The entire practice of eye surgeons who use the hospital, El Shahawy v.
Harrison, 778 F. 2d 636, 641 (CA 11 1985)?  Or, as the Ninth Circuit
apparently found in this case, the peer review process itself?
    Today the Court could have cleared up the confusion created by McLain,
refocused the inquiry along the lines marked out by our previous cases (and
still adhered to by most circuits), and reversed the judgment below.
Instead, it compounds the confusion by rejecting the two competing
interpretations of McLain and adding yet a third candidate to the field,
one that no court or commentator has ever suggested, let alone endorsed.
To determine Sherman Act jurisdiction it looks neither to the effect on
commerce of the restraint, nor to the effect on commerce of the defendants'
infected activity, but rather, it seems, to the effect on commerce of the
activity from which the plaintiff has been excluded.  As I understand the
Court's opinion, the test of Sherman Act jurisdiction is whether the entire
line of commerce from which Dr. Pinhas has been excluded affects interstate
commerce.  Since excluding him from eye surgery at Midway Hospital
effectively excluded him from the entire Los Angeles market for eye surgery
(because no other Los Angeles hospital would accord him practice privilges
after Midway rejected him), the jurisdictional question is simply whether
that market affects interstate commerce, which of course it does. {1}  This
analysis tells us nothing about the substantiality of the impact on
interstate commerce generated by the particular conduct at issue here.
    Determining the "market" for a product or service, meaning the scope of
other products or services against which it must compete, is of course
necessary for many purposes of antitrust analysis.  But today's opinion
does not identify a relevant "market" in that sense.  It declares Los
Angeles to be the pertinent "market" only because that is the entire scope
of Dr. Pinhas's exclusion from practice.  If the scope of his exclusion had
been national, it would have declared the entire United States to be the
"market," though it is quite unlikely that all eye surgeons in the United
States are in competition.  I cannot understand why "market" in the Court's
peculiar sense has any bearing upon this restraint's impact on interstate
commerce, and hence upon Sherman Act jurisdiction.  The Court does not even
attempt to provide an explanation.
    The Court's focus on the Los Angeles market would make some sense if
Midway was attempting to monopolize that market, or conspiring with all (or
even most) of the hospitals in Los Angeles to fix prices there, cf. McLain
v. Real Estate Board of New Orleans, Inc., 444 U. S. 232 (1980).  But the
complaint does not mention Section 2 of the Sherman Act, and Dr. Pinhas
does not allege a conspiracy to affect eye surgery in the Los Angeles
market.  He merely alleges a conspiracy to exclude him from that market by
a sort of group boycott.  Since group boycotts are per se violations (not
because they necessarily affect competition in the relevant market, but
because they deprive at least some consumers of a preferred supplier, see
R. Bork, The Antitrust Paradox 331332 (1978)), Dr. Pinhas need not prove an
effect on competition in the Los Angeles area to prevail, if the Sherman
Act applies.  But the question before us today is whether the Act does
apply, and that must be answered by determining whether, in its practical
economic consequences, the boycott substantially affects interstate
commerce by restricting competition or, as in Klor's, Inc v. Broadway-Hale
Stores, Inc., 359 U. S. 207, 213 (1959), interrupts the flow of interstate
commerce.  The Court never comes to grips with that issue.  Instead,
because a group boycott, like a price-fixing scheme, would be (if the
Sherman Act applies) a per se violation, the Court concludes that "the same
analysis applies" to this exclusion of a single competitor from the Los
Angeles market as was applied in McLain to the fixing of prices by all
realtors in the Greater New Orleans market.  See ante, at 8-9.  It seems to
me obvious that the two situations are not remotely comparable.  The
economic effects of a price-fixing scheme are felt throughout the market in
which the prices are fixed; the economic effects of "black-balling" a
single supplier are not felt throughout the market from which he is
theoretically excluded, but, at most, within the subportion of that market
in which he was, or could be, doing business.  If, for example, the alleged
conspirators in the present case had decided to effectuate the ultimate
exclusion of Dr. Pinhas, i. e., to have him killed, it would be absurd to
think that the world market in eye surgery would thereby be affected.  It
is undoubtedly true, in the present case, that Dr. Pinhas has been affected
throughout the Los Angeles area; but it is rudimentary that the effect of a
restraint of trade must be gauged according to its effect on "competition,
not competitors,"  Brown Shoe Co. v. United States, 370 U. S. 294, 320
(1962) (emphasis in original).  See also, e. g., Associated General
Contractors of California, Inc. v. California State Council of Carpenters,
459 U. S. 519, 539, n. 40 (1983); Fishman v. Estate of Wirtz, 807 F. 2d
520, 564-568 (CA 7 1986) (Easter brook, J., dissenting in part).  The
Court's suggestion that competition in the entire Los Angeles market was
affected by this one surgeon's exclusion from that market simply ignores
the "practical economics" of the matter.
II
    In any case, it does not seem to me that a correct analysis of this
case would treat it as involving a conspiracy to boycott a single
physician.  Such boycotts rarely exist in a vacuum; they are usually the
means of enforcing compliance with larger anti- competitive schemes.  H.
Hovenkamp, Economics and Federal Antitrust Law 275-276 (1985); R. Posner,
Antitrust Law 207 (1976).  Cf. Radovich v. National Football League, 352 U.
S. 445, 448-449 (1957) (describing blacklisting pursuant to conspiracy to
monopolize professional football).  Charitably read, respondent's complaint
alleges just such a scheme, namely, a scheme to fix prices for some of the
eye surgery performed at Midway Hospital.  Instead of simply agreeing to a
supercompetitive price, Midway's eye surgeons have, contrary to prevailing
Los Angeles practice, allegedly "padded" the cost of certain varieties of
eye surgery by requiring a useless second surgeon to be present.  The
socalled "sham contract" was an attempt to compensate the hyper-productive
Dr. Pinhas for his participation in the scheme and the concomitant
reduction in his output.  When that failed, the conspirators eliminated him
as a competitor by terminating his medical staff privileges through the
peer review process.  That termination was not the the totality of the
conspiracy, but merely the means used to enforce it -- just as, in Monsanto
Co. v. Spray-Rite Service Corp., 465 U. S. 752 (1984), the elimination of
the price-cutting Spray-Rite as a distributor of Monsanto's products (via
termination and a boycott) was merely the means of enforcing the alleged
price- fixing conspiracy between Monsanto and its other distributors.  This
case, like Monsanto, involves a "termination . . . pursuant to a conspiracy
. . . to set . . . prices," id., at 757758 (emphasis added), and for
purposes of determining Sherman Act jurisdiction, what counts is the impact
of that entire price-fixing conspiracy.
    Even when the conspiracy is viewed in this broader fashion, however,
the scope of the market affected by it has nothing to do with the scope of
Dr. Pinhas's exclusion from practice.  If this had been a naked
price-fixing conspiracy, instead of the more subtle one that it is, no one
would contend that it affected prices throughout Los Angeles.  Pursuant to
standard antitrust analysis, the agreement itself would define the extent
of the market.  The market would be eye surgery at Midway (not "eye surgery
in the city where Midway is located"), since the very existence of the
agreement implies power over price in that defined market.  FTC v. Superior
Court Trial Lawyers Assn., 493 U. S. 411, 435, n. 18 (1990) (citing R.
Bork, The Antitrust Paradox 269 (1978)).  It is irrational to use a
different analysis, and to assume the affected market to be all of Los
Angeles, simply because this more subtle price-fixing conspiracy led
(incidentally) to the exclusion of Dr. Pinhas not only from Midway but from
all hospitals throughout the city.
    There is simply no basis for assuming that this alleged conspiracy's
market power -- and its consequent effect upon competition, as opposed to
its effect upon Dr. Pinhas -- extended throughout Los Angeles.  It has not
been alleged that the conspirators have perverted the peer review process
in hospitals throughout the city; nor that the peer review process at
Midway is the "gateway" to the Los Angeles market in the sense of being the
only way (or even one of the few ways) to gain entry.  To the contrary, it
is acknowledged that every hospital in Los Angeles has its own peer review
process, and the complaint itself asserts that, well before the offer of
the "sham contract," "nearly all" those hospitals had abolished the
featherbedding practice that is the object of this conspiracy.  These
uncontested facts reveal the truly local nature of the restraint and
preclude any inference that the conspiracy at issue here had (or could
have) an effect on competition in the Los Angeles market.  Cf. Jefferson
Parish Hospital Dist. No. 2 v. Hyde, 466 U. S. 2, 31 (1984).  Northern
Pacific R. Co. v. United States, 356 U. S. 1, 6-7 (1958).  Any allegations
to the contrary (and there are none) would have  to be dismissed as
inconsistent with simple economics.  See Matsushita Elec. Industrial Co. v.
Zenith Radio Corp., 475 U. S. 574, 593-595 (1986).
III
    In my view, the present case should be decided by applying to the
price-fixing conspiracy at Midway Hospital the workable jurisdictional test
that our cases had established before McLain confused things.  On that
basis, I would reverse the Court of Appeals' judgment that respondent had
stated a Sherman Act claim.
    The complaint does not begin to suggest that the conspiracy at Midway
could have even the most trivial effect on interstate commerce.  Cf. Crane
v. Intermountain Health Care, Inc., 637 F. 2d, at 725.  It literally
alleges nothing more than that Dr. Pinhas, the defendant physicians, Midway
Hospital, and Summit Health, Ltd. are "engaged in interstate commerce."
Contrary to the Court's (undocumented) suggestion, ante, at 4 and 6, there
is no allegation that any out-of-state patients call upon the hospital for
eye surgery (or anything else) -- let alone a sufficient number that
overcharging them would create a "substantial" effect on commerce among the
several States.  Respondent does not allege that out-of-state insurance
companies or the Federal Government pays for the overcharges, cf. Goldfarb
v. Virginia State Bar, 421 U. S. 773, 783 (1975); indeed, it appears on the
face of the complaint that the Federal Government has stopped reimbursing
featherbedded operations.  He does not allege that eye surgery involves the
use of implements or equipment purchased out of state, or that the
restraint at issue here could have any appreciable effect on such
purchases, cf. Hospital Building Co. v. Rex Hospital Trustees, 425 U. S.,
at 741, 744.  Quite simply, the complaint is entirely devoid of any attempt
to show a connection between the challenged restraint and "commerce among
the several States."  Because "it is not sufficient merely to rely on
identification of a relevant local activity and to presume an
interrelationship with some unspecified aspect of interstate commerce"
McLain, 444 U. S., at 242, I would dismiss the complaint out of hand.
    In point of fact, such a dismissal seems compelled by our decision in
United States v. Oregon Medical Society, 343 U. S. 326 (1952).  There, the
state medical society, eight county medical services, and eight individual
physicians conspired to restrain the business of providing pre-paid medical
care by, inter alia, allocating territories to be served by
doctor-sponsored plans.  The District Court found that the conspiracy did
not restrain interstate commerce.  On direct appeal, the United States
argued that the interstate activities of the private associations sufficed
to show the requisite interstate effect.  The Court rejected this argument,
holding that, in order to prevail, the Government had to show that the
restraint itself (the allocation of territories), had a substantial adverse
effect on interstate commerce.  Such an effect had not been proven, the
Court observed, because the activities of the doctor-sponsored plans were
"wholly intrastate" id., at 338.  It did not matter that the plans had made
a few payments to out-of-state patients.  Those payments were "few,
sporadic, and incidental."  Id., at 339.  A straightforward application of
this same rationale compels reversal in the present case.
*  *  *  *


    If it is true, as the complaint alleges, that one hospital will
ordinarily not accord privileges to a doctor who has failed the peer review
process elsewhere, it may well be that Dr. Pin has has been the victim of a
business tort affecting him throughout Los Angeles -- or perhaps even
nationwide.  Cf. Hayden v. Bracy, 744 F. 2d, at 1343-1345 (various torts,
in addition to Sherman Act violation, alleged to have arisen out of
negative peer review).  But the Sherman Act "does not purport to afford
remedies for all torts committed by or against persons engaged in
interstate commerce," Hunt v. Crumboch, 325 U. S. 821, 826 (1945), unless
those torts restrain commerce "among the several States."  The short of the
matter is that Dr. Pinhas may well have a legitimate grievance, but it is
not one redressed by the Sherman Act.
    Disputes over the denial of hospital practice privileges are common,
and most of the circuits to which they have been presented as federal
antitrust claims have rejected them on jurisdictional grounds.  Furlong v.
Long Island College Hospital, 710 F. 2d 922, 925-926 (CA 2 1983); Thompson
v. Wise General Hospital, 707 F. Supp. 849, 854-856, aff'd, 896 F. 2d 547
(CA 4 1990); Sarin v. Esau, 769 F. 2d 1274 1283-1284 (CA 7 1985); Hayden v.
Bracy, 744 F. 2d 1338, 1342-1343 (CA 8 1984).  At least two other Circuits
would reach that result on the particular complaint before us here.
Cordova & Simonpietri Ins. Agency Inc. v. Chase Manhattan Bank N. A., 649
F. 2d 36, 45 (CA 1 1981); Crane v. Intermountain Health Care, Inc., 637 F.
2d 715, 725 (CA 10 1980) (en banc).  I think it is a mistake to overturn
this view.  Federal courts are an attractive forum, and the treble damages
of the Clayton Act an attractive remedy.  We have today made them available
for routine business torts, needlessly destroying a sensible statutory
allocation of federalstate responsibility and contributing to the
trivialization of the federal courts.
    I respectfully dissent.

 
 
 
 
 

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1
    Even so, I might note, it is improper for the Court to dispense with
the necessary allegations to that effect.  See McLain v. Real Estate Board
of New Orleans, Inc., 444 U. S. 232, 242 (1980).
