Auto Insurers Again Seek Dismissal of In Re Auto Body
Shop Antitrust Litigation
James M. Burns
In early March, the auto insurer defendants in the In re Auto
Body Shop Antitrust Litigation renewed their motions seeking
the dismissal of plaintiffs’ action, this time directed at
plaintiffs’ Second Amended Complaint. The insurer defendants
urged the Court to dismiss the action with prejudice, maintaining
that, despite three attempts, the plaintiff auto body shops have
still failed to include sufficient facts to make their claim of
conspiracy plausible.
The action, commenced well over year ago as A&E Auto Body
v. 21st Century Centennial Insurance Co. and subsequently
transformed into a multidistrict litigation proceeding (In re
Auto Body Shop Antitrust Litigation, MDL 2557) after similar
cases were filed in a multitude of states, centers upon a claim
that many of the leading auto insurers in the country conspired to
reduce rates for the repair of damaged vehicles and to steer
insureds away from auto repair shops that refused to accept lower
reimbursement rates for their services. The cases were consolidated
before Judge Gregory Presnell (M.D. Fla.) in late 2014, and in
early 2015 Judge Presnell dismissed plaintiffs’ First Amended
Complaint, finding that the plaintiffs had failed to plead an
antitrust conspiracy with the degree of specificity required under
Bell Atlantic v. Twombly, 550 U.S. 544 (2007).
In February, plaintiffs filed their Second Amended Complaint,
seeking to cure the deficiencies in the complaint identified in
Judge Presnell’s prior rulings. In March, the defendants
filed several new motions to dismiss the action. One group of
defendants (including State Farm, Allstate, Progressive and 21st
Century) maintained that the plaintiffs’ allegations
still failed to include sufficient factual support to
plead an actionable antitrust conspiracy, which they described as
the “crucial question” in the case. Claiming that the
plaintiffs’ allegations demonstrated nothing more that
“parallel conduct” towards the plaintiffs, not
agreement, these defendants renewed their request to have the
action dismissed as to them. Another group of defendants (which
includes Hartford, Nationwide and Zurich American) went a step
further, arguing that the plaintiffs had failed to allege
any material facts specifically about them, despite Judge
Presnell’s express instruction in his prior dismissal order
in January (without prejudice, on that occasion) that plaintiffs
provide detailed allegations about each defendant’s
involvement in the alleged conspiracy. Finally, one defendant (Old
Republic) filed a separate motion not only seeking dismissal, but
sanctions as well, based on the claim that the plaintiffs had been
put on notice by the Court that particularized allegations as to
each defendant’s alleged conduct was required, and that
plaintiffs’ failure to include any additional factual support
for their claims against Old Republic was sanctionable
conduct.
In late March, the plaintiffs filed an “omnibus”
response to all of the defendants’ motions, arguing that
dismissal of the case at this juncture was not warranted. Asserting
that “the Second Amended Complaint complies in every respect
with the Court’s [January] Order,” the plaintiffs urged
the Court to permit them to proceed into discovery. Specifically,
the plaintiffs maintained that the parallel conduct alleged in the
Second Amended Complaint constitutes “circumstantial evidence
of conspiracy” and that the Supreme Court has never expressly
held how many “plus factors” supporting a claim of
conspiracy are required to satisfy a plaintiff’s pleading
obligations. Plaintiffs contended, therefore, that they are not
required to “set out specific facts establishing the time,
place or persons involved in the conspiracy” nor are they
required to allege an “express agreement.” Instead,
they maintained, their allegations of parallel conduct, coupled
with their allegations about the defendants’ collective
market share, motive to conspire and opportunity to do so are more
than sufficient to meet their pleading obligations.
In early April, the auto insurers filed reply briefs responding to
the plaintiffs’ contentions. Perhaps most significantly,
those defendants that had argued that the Second Amended Complaint
still failed to contain any significant allegations about their
specific conduct noted that the plaintiffs’ response had
failed to refute that assertion in any meaningful way
(“Rather than simply admit that they failed to allege
anything against the moving defendants under the Sherman Act . . .
plaintiffs point to allegations against the other defendants . . .
.” emphasis in original).
The entire set of motions are now before Judge Presnell for
consideration, with the defendants urging the Court to take a
“three strikes, you’re out” approach to the
plaintiffs’ case. Whether Judge Presnell will adopt
defendants’ baseball analogy and dismiss the case, with
prejudice, as to all or some of the defendants remains to be seen.
What is certain is that this matter will continue to be a
significant focus of attention for the entire auto insurance
industry over the coming months. Stay tuned.
Iowa Supreme Court Affirms Ruling for Health Insurer in
Antitrust Dispute
James M. Burns
In late February, the Iowa Supreme Court affirmed a lower court
ruling in Mueller v. Wellmark, ending a seven year battle
over whether the health insurer’s agreement with employers
operating “self-funded” insurance plans to provide the
same rate concessions obtained from providers by Wellmark to these
plans constituted a per se antitrust violation. Finding
that “these arrangements are not the simple horizontal
conspiracies that historically have qualified for per se
treatment,” the Iowa Supreme Court rejected the
plaintiffs’ contention that they were per se unlawful.
In explaining its ruling, the Iowa Supreme Court began its analysis
by stating that “these arrangements are not naked
price-fixing arrangements, but are more akin to joint
ventures.” Specifically, the Court explained that “the
self-insured [plans] are not entering into bare agreements to
refrain from competing on price with Wellmark – they are
buying claims administration services from Wellmark” and that
“part of that service consists of Wellmark negotiated
pricing.” As such, the Court held, “Wellmark is not
really competing with these plans.” Moreover, the Court
continued, “If the only lawful choice for a self-insured
employer were the time-consuming process of negotiating individual
rates with health care providers . . . almost all employers would
avoid self insuring.” Because this would eliminate a
“possible way to render the health care market more efficient
and reduce the cost of health care coverage,” the Court was
unwilling to declare such an arrangement per se unlawful,
stating “Why should this additional option for employers be
per se unlawful?”
In addition, in a ruling that may have implications far beyond
Iowa, the Iowa Supreme Court also held that the same principles
applied when Wellmark obtains discounts from providers on behalf of
out-of-state Blue affiliates. Stating that “similar
efficiency-related observations can be made about Wellmark’s
reciprocal arrangements with out-of-state BCBS licensees,”
the Court also refused to attach a per se label to these
agreements. As the Court explained, the challenged arrangement
allows Wellmark to “utilize the other licensees’
negotiated rates in their respective states, and [those
licensees’] can use Wellmark’s negotiated rates in
Iowa,” a relationship that “permits Wellmark to offer a
fifty-state product that meets the needs of its customers.”
For this reason, the Iowa Supreme Court held, per se condemnation
of the practice was not appropriate. Given that the BCBS licensee
relationship is currently the subject of significant litigation
elsewhere (most notably in In re Blue Cross Blue Shield
Antitrust Litigation, MDL 2406), the Iowa Supreme
Court’s analysis in Mueller v. Wellmark is likely to
be the subject of significant discussion in the coming months, and
constitutes a significant victory not only for Wellmark, but all of
the Blues.
Insurer and Physician Hospital Organization Turn Back
Provider “Refusal to Deal” Antitrust
Case
James M. Burns
On April 16, Judge James M. Moody Jr. (E.D. Ark.) issued a ruling
in Tri State Advanced Surgery Center v. Health Choice,
dismissing an antitrust claim that Cigna Healthcare and Health
Choice, a physician hospital organization, had entered into an
unlawful agreement to destroy the business of the plaintiff, an
ambulatory surgery center serving the greater Memphis metropolitan
area. Specifically, the plaintiff maintained that Cigna and Health
Choice, which includes Methodist LeBonheur Healthcare (the largest
hospital system in the Memphis metropolitan area), had conspired to
harm Tri State by agreeing that Cigna would threaten physicians
with expulsion from Cigna’s PPO network if they continued to
refer patients to Tri State.
In support of its claim, Tri State maintained that the alleged
agreement was an anticompetitive boycott of its services, entitled
to per se condemnation. However, the Court rejected
plaintiff’s argument, holding that the per se rule
is limited to horizontal agreements to harm competitors,
and that while plaintiff had alleged that “Health Choice had
made the agreement on behalf of its joint venture partner
Methodist, in an attempt to eliminate competition against
Methodist,” because Methodist was not a defendant in the
case, and neither Cigna nor Health Choice was a competitor or Tri
State, this allegation was insufficient. Accordingly,
plaintiff’s claim was required to be assessed under the rule
of reason.
Examining plaintiff’s allegations under the rule of reason,
the Court then held that Tri State’s allegations were
insufficient as a matter of law. Required to show either
“market power or proof of actual detrimental effects,”
Tri State’s complaint did not measure up. First, the Court
held that Tri State’s allegations of detrimental effects were
inadequate, because Tri State did not allege that patients could
not obtain ambulatory surgery services elsewhere in the region, and
that Tri State “is still in business and all its services
[remain] available to patients.”
Turning next to whether Tri State had sufficiently alleged market
power (which would permit a presumption of harm), the Court held
that Tri State’s allegations in this regard were also
inadequate. The relevant product market for Tri State’s claim
was not patients covered by Cigna insurance, but the
market for all patients requiring surgical services that do not
require hospitalization. Because plaintiff’s complaint did
not contain any market share information related to this
market, and because Cigna holds only a 42% share of the commercial
insurance market in the area, plaintiff’s allegations failed
as a matter of law.
In addition, finding that “the deficiencies [in Tri
State’s] complaint are inherent in the nature of the claims
and not likely to be cured by further pleading,” Judge Moody
dismissed Tri State’s antitrust claim with
prejudice. Judge Moody then declined to exercise supplemental
jurisdiction over the plaintiff’s state law claims,
dismissing them without prejudice. Whether Tri State will appeal
the ruling is unclear at this time.
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