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Prime Healthcare Services, Inc v. Service Employees International Union; Service Employees International Union

August 30, 2012


The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge






Presently before the Court are Defendants Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals, and Southern California Permanente Medical Group's (collectively, "Kaiser Defendants") Motions to Dismiss and Strike Portions of Complaint of Prime Healthcare Services, Inc. ("Prime Healthcare"), (Kaiser MTD, ECF No. 17)*fn1 ; Defendant Service Employees International Union -- United Healthcare Workers West's ("UHW") Motion to Dismiss the Complaint, (UHW MTD, ECF No. 20), and Motion to Strike Portions of Complaint, (UHW Mot. to Strike, ECF No. 21); and Defendant Service Employees International Union's ("SEIU")*fn2 Motion to Dismiss Complaint, (SEIU MTD, ECF No. 22).*fn3 Also before the Court are the associated oppositions and replies. (ECF Nos. 32--34, 38--40) Having considered the parties' arguments and the law, the Court GRANTS Kaiser Defendants' motion to dismiss, DENIES AS MOOT UHW's motion to dismiss, GRANTS IN PART AND DENIES IN PART UHW's motion to strike, and DENIES AS MOOT SEIU's motion to dismiss.


Prime Healthcare brings this action against Kaiser Defendants and Union Defendants, alleging that they have together unlawfully conspired to eliminate Prime Healthcare from the healthcare services market. The presence of Prime Healthcare in the relevant market threatens the success of Union Defendants' campaign to increase the cost of labor for healthcare workers, and threatens the success of Kaiser Defendants' business model for providing healthcare services. And so, Kaiser and Union Defendants allegedly joined forces to eliminate Prime Healthcare as a competitor by, among other things, fixing wage rates for healthcare workers' services.

Prime Healthcare prides itself on providing quality care to its patients in an expedient fashion, on a fee-for-service basis. By contrast, Kaiser Defendants provide all covered services to patients who are Kaiser members and charge their members fixed monthly premiums for those services. Pursuant to federal and state law, however, Kaiser members may seek emergency care at non-Kaiser hospitals (such as Prime Healthcare), and Kaiser Defendants are thereafter required to reimburse Prime Healthcare for the services rendered. According to Prime Healthcare, this presents a threat to Kaiser Defendants' business model and has led Kaiser Defendants to seek out ways to limit or eliminate Prime Healthcare as an alternative, competing provider. Prime Healthcare believes that Kaiser Defendants have taken such measures as advising their members to call a "nurse line" before seeking emergency care, and thereby encouraging the patient to go to a Kaiser facility rather than non-Kaiser hospital; coercing treating physicians to transfer member patients from a non-Kaiser hospital to a Kaiser facility; pressuring patients and their families to seek care only at Kaiser facilities; and unlawfully refusing to reimburse physicians who provide emergency services to Kaiser members at non-Kaiser hospitals.

Like Kaiser Defendants, Union Defendants too have an apparent incentive to limit or eliminate Prime Healthcare's market presence. Union Defendants are alleged to be focused on eliminating competition in the market for service workers represented by Union Defendants, and to have unlawfully partnered with non-labor entities such as Kaiser Defendants in order to accomplish this market-domination strategy. By doing so, Union Defendants ensure that they can establish supracompetitive wage rates for such services in the relevant market. By way of example, Prime Healthcare points to the Justice for Janitors campaign (and other such strategies separate from and unrelated to the instant action) through which the SEIU obtained agreements from building owners and managers to restrict contracting for janitorial services only to employers who agreed to work with the SEIU. More pertinent to the instant action, Union Defendants allegedly engaged in publicity campaigns to mar Prime Healthcare's reputation in furtherance of their conspiracy with Kaiser Defendants.

The complaint alleges that, at a time when Kaiser was struggling to compete in the marketplace, Kaiser Defendants and Union Defendants formed an alliance with the twin goals of manipulating the market to insulate Kaiser Defendants from competitive pressures and assisting Union Defendants in achieving market dominance. To outsiders like Prime Healthcare, the alliance appeared to disadvantage Kaiser Defendants: at a time when Kaiser Defendants were struggling to reduce costs, they entered into agreements with Union Defendants that actually resulted in an increased cost of labor for healthcare service workers. But in exchange for helping Union Defendants achieve market dominance, Union Defendants boosted Kaiser Defendants' competitive advantage by assuring that its competitors would also be burdened by the increased costs of hospital care. In conjunction with these agreements, Kaiser Defendants allegedly funneled millions of dollars in illegal payments to Union Defendants, and Kaiser and Union Defendants collaborated on several legislative lobbying efforts to their mutual benefit.

Faced with this pressure from Kaiser and Union Defendants' allegedly anticompetitive actions, Prime Healthcare filed its complaint on November 15, 2011, asserting violations of Sections 1 and 2 of the Sherman Act. (Compl., ECF No. 1) The various motions to dismiss and to strike were all filed on January 20, 2012. (ECF Nos. 17, 20--22) The motions were originally set before the Honorable M. James Lorenz, but were later transferred to this Court's calendar on February 16, 2012. Per Judge Lorenz's Order, the motions were deemed submitted as of April 9, 2012, after they had been fully and completely briefed. (Order, Dec. 8, 2011, ECF No. 7)


1. Motion to Dismiss

Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion the defense that the complaint "fail[s] to state a claim upon which relief can be granted," generally referred to as a motion to dismiss. The Court evaluates whether a complaint states a cognizable legal theory and sufficient facts in light of Federal Rule of Civil Procedure 8(a), which requires a "short and plain statement of the claim showing that the pleader is entitled to relief." Although Rule 8 "does not require 'detailed factual allegations,' . . . it [does] demand[] more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, - US - , 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). "Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 557).

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. (quoting Twombly, 550 U.S. at 570); see also Fed. R. Civ. P. 12(b)(6). A claim is facially plausible when the facts pled "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). That is not to say that the claim must be probable, but there must be "more than a sheer possibility that a defendant has acted unlawfully." Id. Facts "'merely consistent with' a defendant's liability" fall short of a plausible entitlement to relief. Id. (quoting Twombly, 550 U.S. at 557). Further, the Court need not accept as true "legal conclusions" contained in the complaint. Id. This review requires context-specific analysis involving the Court's "judicial experience and common sense." Id. at 1950 (citation omitted). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not 'show[n]'-'that the pleader is entitled to relief.'" Id. Moreover, "for a complaint to be dismissed because the allegations give rise to an affirmative defense[,] the defense clearly must appear on the face of the pleading." McCalden v. Ca. Library Ass'n, 955 F.2d 1214, 1219 (9th Cir. 1990).

Where a motion to dismiss is granted, "leave to amend should be granted 'unless the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency.'" DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)). In other words, where leave to amend would be futile, the Court may deny leave to amend. See Desoto, 957 F.2d at 658; Schreiber, 806 F.2d at 1401.

2. Motion to Strike

Under Federal Rule of Civil Procedure 12(f), a court "may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). However, "[m]otions to strike are generally regarded with disfavor because of the limited importance of pleading in federal practice, and because they are often used as a delaying tactic." Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101, 1152 (C.D. Cal. 2003). Moreover, the motion "should not be granted unless the matter to be stricken clearly could have no possible bearing on the subject of the litigation. If there is any doubt whether the portion to be stricken might bear on an issue in the litigation, the court should deny the motion." Platte ...

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