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UAS Management, Inc. v. Mater Misericordiae Hospital

December 17, 2008; as modified January 13, 2009


APPEAL from a judgment of the Superior Court of Merced County. Ronald W. Hansen, Judge. (Super. Ct. No. 148009).

The opinion of the court was delivered by: Vartabedian, Acting P. J.



This is an appeal from judgment entered after a series of motions for summary adjudication disposed of all antitrust causes of action asserted by appellant UAS Management, Inc. against respondents Mater Misericordiae Hospital and its parent, Catholic Healthcare West (collectively, respondent). We will conclude the judgment must be reversed.


For purposes of the motions for summary judgment and summary adjudication, the parties stipulated that certain facts were true. As to other facts, in accordance with the relevant standard of review, we set forth the facts most favorable to the party opposing the motions, to the extent such facts are supported by the evidence before the trial court. (See O'Riordan v. Federal Kemper Life Assururance Co. (2005) 36 Cal.4th 281, 284.) As a result, the following statement of facts is only provisional, and the parties undoubtedly will contest some or all of the stated facts if this matter proceeds to trial.

Respondent owns and operates an inpatient hospital in the City of Merced. Respondent is the only provider of inpatient services in the Merced geographical market and, as such, has monopoly power with respect to those services. In addition, at the times relevant to this action, respondent operated a separate outpatient surgery center in Merced and performed outpatient surgeries at its hospital, as well.*fn2

In 2002, appellant opened for business as an outpatient surgery center. Appellant is owned by local physicians.

When respondent learned that appellant would be competing for outpatient business, respondent negotiated with local health insurers for the contract provisions at issue in this case. Respondent's purpose in insisting on the contract provisions was to drive appellant out of business.

The contract provisions in issue embodied respondent's refusal to sell inpatient services to the insurers unless the insurers agreed to the contract provisions giving preference to respondent as an outpatient provider. The contracts vary in their precise wording from one insurer to another. However, all of the contracts contain what the parties call "exclusivity" provisions, in essence, requiring that the insurer would neither add to its network nor contract with any other outpatient surgery center during the period of the contract. Because of the contracts, the insurers refused to negotiate with appellant to permit appellant to become an in-network or preferred provider.

Of the six relevant insurance companies, two would not pay for any services rendered by nonpreferred providers. As to the other four companies, appellant could not determine in advance how much the insurer would pay for particular services and was required to negotiate individually with each patient concerning that patient's copayments and deductibles for each procedure. Because of the absence of a preferred provider contract, appellant was required to expend additional staff time in selling its services to prospective patients, in obtaining payment from the insurers, and in assuring that use of appellant's facility was preapproved so physicians could be paid for their services by the insurer.

For reasons ranging from the quality of appellant's facility, the self-interest of physicians who preferred to use a facility they owned, and competitive pricing for the patients' share of the charges,*fn3 appellant was able steadily to increase its share of the outpatient surgery market for Merced. Still, appellant was unable to become an in-network or preferred provider for any insurer in the Merced health insurance market until, by coincidence, respondent's outpatient facility was destroyed by fire and respondent could no longer provide outpatient services under the contracts.

Appellant sued respondent in October of 2004, alleging violations of the Cartwright Act*fn4 and the unfair competition law,*fn5 in addition to a tort claim for interference with prospective economic advantage. The complaint alleged two separate theories for the Cartwright Act violation. In the first cause of action, it alleged respondent conspired with the insurers to create an unlawful exclusive dealing arrangement, which constituted an unreasonable restraint of trade. In the second cause of action, appellant alleged respondent's refusal to sell inpatient services unless the insurers agreed exclusively to purchase respondent's outpatient services constituted an unlawful tying arrangement. The unfair competition (third cause of action) and tortious interference claims (fourth cause of action) were derivative and were based on the unlawfulness of the Cartwright Act conduct.

Respondent moved for summary judgment or summary adjudication. (Code Civ. Proc., § 437c, subds. (a), (f).) After extensive briefing and submission of voluminous evidence, the court granted summary adjudication of appellant's tying claim. The court denied summary adjudication of the other three causes of action. Appellant filed an amended complaint, adding two additional theories of recovery under the Cartwright Act, unlawful group boycott (fifth cause of action) and unreasonable restraint of trade (sixth cause of action). Respondent filed a second, very narrow, motion for summary adjudication of the exclusive dealing cause of action, which the court denied. On respondent's motion for reconsideration of the first summary judgment motion, however, the court granted summary adjudication of the exclusive dealing claim. Subsequently, respondent moved for summary adjudication of the remaining causes of action. The court granted that motion and entered judgment for respondent.*fn6

Appellant filed a timely notice of appeal.


A. Statutory Background and the Trial Court's Rulings

"The Cartwright Act prohibits combinations in restraint of trade. [Citations.]

Although the statutory language is all-encompassing, the courts have limited the Cartwright Act's reach to unreasonable restraints." (Morrison v. Viacom, Inc. (1998) 66 Cal.App.4th 534, 540, italics added.) "Certain restraints which lack redeeming virtue are conclusively presumed to be unreasonable and illegal." (Ibid.) The Cartwright Act has two substantive sections ...

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