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Removing Word ‘Purpose’ From Instructions in Antitrust Case Was Error—Ninth Circuit
By a MetNews Staff Writer
A magistrate judge failed to adhere to California law by removing the word “purpose” from jury instructions in a class action brought under the Cartwright Act, the state’s analogue of the federal Sherman Antitrust Act, the Ninth Circuit declared yesterday, holding that it is essential for plaintiffs to show an anti-competitive objective.
The panel also held that the District Court erred in creating a 2006 cutoff date for evidence where the excluded evidence provided insight into the inception of the challenged practices by the defendant healthcare systems and the purpose in instituting those practices.
Circuit Judge Lucy H. Koh wrote the opinion reversing the entry of judgment in favor of the defendants following a jury verdict and remanding for a new trial. Circuit Judge Roopali H. Desai joined in the opinion.
Circuit Judge Patrick J. Bumatay dissented, saying that “[i]n its rush to overturn the jury verdict, the majority… crafts a new antitrust rule” and that “[a]nti-competitive purpose now becomes an element for every antitrust case.”
Anticompetition Litigation
Plaintiffs Djeneba Sidibe, Jerry Jankowski, Susan Hansen, David Herman, Optimum Graphics, Inc. and Johnson Pool & Spa represent a certified class of individuals and businesses who paid health insurance premiums to certain health plans run by Aetna, Anthem Blue Cross, Blue Shield of California, Health Net and United Healthcare.
In 2012, the plaintiffs sued Sutter Health, which operates a healthcare system in in Northern California, alleging that Sutter abused its market power in the region by charging these health plans supracompetitive rates, which resulted in payment of higher premiums being required of the class. After 10 years of litigation, the plaintiffs proceeded to a jury trial on claims under California’s Cartwright Act, codified at Business and Professions Code §16700 et seq., for tying and unreasonable course of conduct.
Sutter moved to exclude certain evidence before trial, including specific pieces of evidence relating to Sutter’s practices before Jan. 1, 2006, which Magistrate Judge Laurel Beeler of the Northern District of California granted, finding, under Federal Rule of Evidence 403, that the probative value of the evidence was outweighed by other factors.
The Judicial Council of California Civil Jury Instructions (“CACI”) relating to the unreasonable course of conduct claim provide that a plaintiff is required to prove, among other things, that the “purpose or effect” of the defendant’s conduct “was to restrain competition” and instruct the jury to weigh the “anticompetitive or beneficial purpose or effect” of a challenged restraint.
Sutter requested removal of the word “purpose” from the jury instructions, arguing that precedent established that anticompetitive purpose alone does not offend antitrust laws. Beeler granted Sutter’s request and removed all instances of the word “purpose.”
After a four-week trial, the jury returned a verdict in favor of Sutter.
Jury Instructions
Koh pointed to the instructions at issue and said:
“This appeal concerns CACI 3405, which states that a plaintiff may prove the second element of an unreasonable course of conduct claim by proving either anticompetitive purpose or effect, and CACI 3411, which lists factors for a jury to consider in weighing the anticompetitive purposes or effects of a defendant’s conduct.”
She pointed out that “[a]lthough the second element may be proven by virtue of anticompetitive purpose or effect, the third element still requires a plaintiff to prove that anticompetitive effects outweigh any procompetitive effects” and so “proof of anticompetitive purpose does not eliminate the need to provide proof of anticompetitive effect.”
By eliminating the word “purpose” from the instructions, Koh explained, the new instruction “did not instruct the jury that Plaintiffs could prove the second element of their unreasonable course of conduct by proving anticompetitive purpose or effect” and instead advised that the second element required proof solely of anticompetitive effect.
In examining the instructions as amended, she said:
“CACI’s use of the phrase ‘purpose or effect’ stems directly from the text of the Cartwright Act, which outlaws ‘every trust,’ defined as ‘a combination of capital, skill or acts by two or more persons for any of the following purposes’….The Act likewise explains that an agreement or combination is not unlawful if its ‘purpose and effect’ is ‘to promote, encourage or increase competition.’”
She continued:
“[T]he California Supreme Court has long defined the rule of reason analysis as whether a ‘contract, combination, or conspiracy . . . has as its Purpose or Effect an unreasonable restraint of trade.’”
She acknowledged that “decisions interpreting the antitrust laws state that anticompetition purpose is but one factor that a trier of fact may consider, not that it is required to do so” but said:
“[A]nticompetitive purpose is one of several relevant factors that a trier of fact may consider. The trier of fact is not required to rely on any one factor, but it must have the option of considering that factor, which is only possible if properly instructed that the factor exists. Here, the jury was not instructed that it could consider anticompetitive purpose. This was error.”
Exclusion of Evidence
Koh noted that prior to the early 2000s, each Sutter provider negotiated its own contracts with health plans. The plaintiffs alleged that the healthcare system changed its practice to coerce the health plans into contracting on a systemwide basis over the health plans objections.
The jurist wrote: “Although systemwide contracting is itself lawful, Plaintiffs allege that systemwide contracting became the vehicle by which Sutter imposed anticompetitive contract terms on the health plans and charged supracompetitive prices. Sutter was able to accomplish this goal via a practice antitrust law calls ‘tying,’ or conditioning the purchase of one product on the purchase of another.”
She remarked:
“Evidence that Sutter had previously employed individual contracts during the 1990s, switched to systemwide contracting in the early 2000s with the intent of imposing above-market prices, and then ‘forced’ health plans to pay higher rates ‘because we could’ is essential evidence both that Sutter did engage in tying and that Sutter amassed the market power to engage in tying—the first and second elements of a tying claim, respectively.”
Koh noted that a court may set a reasonable cut-off date for evidence, before which point the evidence is to be considered too remote to be probative of the case at hand, but said:
“[T[he district court did not appreciate how the history and purpose of Sutter’s conduct was an essential aspect of Plaintiffs’ legal theory, not merely as context from before 2006 but as evidence of what Sutter did (and the effects thereof) during the class period. Indeed, pre-2006 evidence is highly relevant to both Plaintiffs’ tying claim and their unreasonable course of conduct claim.”
Koh declared that “the court’s improper exclusion of evidence and its erroneous omissions of ‘purpose’ from the jury instructions…cannot be disentangled from one another: both errors stem from the district court’s belief that Sutter’s anticompetitive purpose is minimally relevant.” She concluded that Sutter failed to rebut the presumption that both instances of error prejudiced the plaintiffs.
Bumatay’s View
Bumatay likened complex litigation to a soap opera and said:
“[I]magine trying to understand the latest plot development in a long-running soap opera you’ve never seen before. Of course, it would be highly entertaining and helpful to know what those characters were up to ten years ago. Certainly, to understand current relationships, it’d be useful to see who was in a relationship with whom back then. After all, each story arc builds on previous ones. And arcs often repeat. But to catch up on the lives of those characters today, it would be nearly impossible to watch every episode over those ten years.”
He opined that “[t]he same is true in antitrust cases” and said:
“Today, we limit the discretion that district courts enjoy in managing trials and second guess their ability to set reasonable evidentiary limits. We reverse the jury verdict because we don’t like the district court’s choice of five years. But we offer no other guiding principles.”
He also took issue with the majority establishing a new rule mandating consideration of a defendant’s anticompetitive purpose and that “any jury instruction that does not directly mandate its consideration is reversible error” despite the fact that “neither the Supreme Court nor California precedent justifies this novel rule.”
The case is Sidibe v. Sutter Health, 22-15634.
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