Opinion ID: 28970
Heading Depth: 2
Heading Rank: 3

Heading: Tying and Exclusive Contracts

Text: 16 St. Luke's alleged in its complaint that North Oaks had illegally tied its outpatient services to inpatient services by entering into exclusive dealing contracts with managed care providers, in violation of both § 1 and § 2 of the Sherman Act. 17 Nevertheless, not long before the trial began, the district court indicated that the only issues properly presented in the complaint were St. Luke's Sherman Act § 2 and state law claims. St. Luke's disagreed with the court's characterization of the complaint and sought to amend the complaint. The district court denied St. Luke's motion and wrote that the proposed amendment was more than a mere attempt to clarify the original and First Amended Complaints. Rather, it was clearly adding a Section 1 Sherman Act claim, and thus expanding the nature of the case. Although the question whether to grant leave to amend a complaint is reviewed for an abuse of discretion, a district court must have a `substantial reason' to deny a request for leave to amend. Lyn-Lea Travel Corp. v. American Airlines, 283 F.3d 282, 286 (5th Cir.2002). Because the factual allegations supporting the § 1 claims were described in the complaint and, furthermore, the complaint specifically referred to § 1 of the Sherman Act, the district court abused its discretion in not allowing St. Luke's to amend its complaint. 18 The question that next arises is whether to remand the case for a trial on the § 1 claims. 7 We conclude that remand is unwarranted. Even if St. Luke's had been allowed to amend its complaint, St. Luke's could not have prevailed because its § 1 claims share certain elements with the § 2 claims, and St. Luke's failed to present evidence as to those common elements. 19 To show that North Oaks's tying of inpatient care to outpatient surgical care violates § 1 of the Sherman Act, St. Luke's must prove that (1) North Oaks has appreciable economic power in the market for inpatient care (the tying market), and (2) the tying arrangement affects a substantial volume of commerce in the market for outpatient surgical care (the tied market). Eastman Kodak Co. v. Image Technical Serv., Inc., 504 U.S. 451, 461-62, 112 S.Ct. 2072, 2079, 119 L.Ed.2d 265 (1992). Consequently, any inquiry into the validity of a tying arrangement must focus on the market or markets in which the two products are sold, for that is where the anticompetitive forcing has its impact. Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 18, 104 S.Ct. 1551, 1561, 80 L.Ed.2d 2 (1984). We need not remand the case for consideration of the tying claims because St. Luke's failure sufficiently to define the relevant geographic market for the tying product — inpatient services — also proves fatal to its tying claim under § 1. 20 The exclusive dealing allegations fail for the same reason. To show that North Oaks's contracts with managed care companies constitute an unreasonable restraint on trade in violation of § 1, St. Luke's had to prove that North Oaks engaged in concerted action that produced anticompetitive effects in the relevant markets, yet the market power of North Oaks in the tying market for inpatient health care simply was not established. See Stewart Glass, 200 F.3d at 312. 21 In sum, the district court's error in not allowing St. Luke's § 1 claims to be tried was harmless in light of St. Luke's failure properly to define the relevant market, and thereby prove North Oaks's market power.