Opinion ID: 1192464
Heading Depth: 1
Heading Rank: 4

Heading: whether the district court erred in dismissing hefner's antitrust claims against bci and caremark

Text: With regard to the named defendants, Hefner appeals from that portion of the district court's order dismissing its antitrust claims. The district court granted the defendants' motion to dismiss pursuant to I.R.C.P. 12(b)(6) for failure to state a claim upon which relief may be granted. When reviewing such a ruling, the question is whether it appears beyond doubt that the appellant could prove no set of facts in support of his claim which would entitle him to relief. Orthman v. Idaho Power Co., 126 Idaho 960, 962, 895 P.2d 561, 563 (1995) (citations omitted). In light of the procedural stance of this case, our concern on appeal is not the substantive merits of Hefner's position. Rather, we must look to the face of the complaint to determine whether a cause of action has been alleged. Hefner alleges that BCI and Caremark have violated I.C. § 48-101, which provides in relevant part: [e]very contract, combination in the form of a trust or otherwise, or conspiracy in restraint of trade or commerce, within this state, is hereby declared to be illegal. This provision is patterned after § 1 of the federal Sherman Act (15 U.S.C. §§ 1 to 7), [1] and enumerates only two elements for a cause of action: (1) a contract, combination, or conspiracy (2) in restraint of trade. Hefner alleges that because the BCI reimbursement scheme requires competing pharmacies to sell products below cost in violation of the Unfair Sales Act, it is a contract ... in restraint of trade under I.C. § 48-101. A. Restraint of Trade The district court focused exclusively upon the second element of Hefner's § 48-101 claim. With regard to the corresponding element in § 1 of the Sherman Act, federal courts have developed a two-tiered analysis for determining whether there is a restraint of trade. Activity is per se illegal under the Sherman Act if it is manifestly anticompetitive and lacks redeeming virtue. Royal Drug Co. v. Group Life & Health Ins. Co., 737 F.2d 1433, 1436 (5th Cir.1984) (citing Northern Pacific Ry. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958); Broadcast Music, Inc. v. Columbia Broadcasting System, Inc. 441 U.S. 1, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979)). Activity that is not obviously anticompetitive is analyzed under the rule of reason, whereby the fact-finder inquires into the unreasonableness of the restraint in light of all the circumstances of the case. See Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977). In addressing Hefner's antitrust claim, the district court first concluded that there is no allegation that Caremark or BCI are competing with the plaintiffs, nor is there any allegation that they are wholesalers, retailers, or direct sellers within the meaning of the Unfair Sales Act. Thus, the reimbursement agreements do not constitute a per se illegal horizontal combination. Moreover, because the agreements do not attempt to fix prices to be charged in transactions with third parties, there is no per se illegal vertical combination. Under its rule of reason analysis, the district court identified as the fatal flaw in Hefner's amended complaint the fact that there is no allegation that Caremark or BCI are wholesalers or retailers within the meaning of the Unfair Sales Act, or that they are in competition with the plaintiffs in the pharmacy business. Consequently, it concluded that Hefner failed to state a claim with respect to count 2 of its amended complaint. 1. Per se analysis Hefner concedes that this case does not involve horizontal price fixing. For a contract involving vertical restrictions to fall within the scope of the per se prohibition of § 1 of the Sherman Act, there must be an agreement to fix prices charged not only in transactions between the contracting parties, but in transactions with unrelated third parties as well. Sausalito Pharmacy, Inc. v. Blue Shield of California, 544 F.Supp. 230, 234 (N.D.Cal.1981) (quoting Sitkin Smelting & Refining Co. v. F.M.C., 575 F.2d 440 (3d Cir.1978)). [2] Hefner acknowledges the fact that the agreement at issue in the present case does not purport to fix prices charged to unrelated third parties, and involves only the price charged by participating pharmacies to BCI. However, it contends that I.C. § 48-403 (defining cost for purposes of the Unfair Sales Act) sets the price below which a pricing scheme cannot fall under the Idaho Antitrust Law, even if that scheme affects only the contracting parties and not unrelated third parties. Under Hefner's reasoning, any favorable agreement obtained by a buyer of goods or services which results in sales below cost within the meaning of the Unfair Sales Act, would result in automatic liability under the Antitrust Law, a separate statute. We decline this invitation to, in effect, create a new category of per se illegal contracts. Had the legislature intended to provide such a powerful private enforcement tool under the aegis of an antitrust claim, it would have specifically provided one in the Antitrust Law itself. Accordingly, we adopt the requirement identified in Sausalito Pharmacy and hold that since there are no allegations in Hefner's complaint that the BCI reimbursement scheme sets the price to be charged in transactions with unrelated third parties, Hefner has not alleged facts sufficient to state a per se antitrust violation under I.C. § 48-101. Thus, as with most contracts having allegedly anticompetitive effects, the BCI reimbursement scheme must be analyzed under a rule of reason analysis. See Continental T.V., 433 U.S. at 57-59, 97 S.Ct. at 2561-62. [3] 2. Rule of reason analysis As stated above, the rule of reason analysis inquires into the reasonableness of a given restraint, ie. the extent and impact of any resulting anticompetitive effects. Although the district court focused exclusively on the restraint of trade element of Hefner's claim, it did not embark upon a true rule of reason analysis. That court based this portion of its decision on the fact that there is no allegation [in Hefner's complaint] that either Caremark or Blue Cross are wholesalers or retailers within the meaning of the Unfair Sales Act. However, Hefner does not allege that BCI and Caremark have themselves violated the Unfair Sales Act. Rather, it contends that BCI's reimbursement plan, which requires others to violate the Unfair Sales Act, is a contract in restraint of trade. Consequently, the absence of an allegation that BCI and Caremark violated the Unfair Sales Act is not fatal to the antitrust claim, as such an allegation would actually have nothing to do with the claim. The cases relied upon by the district court reveal that it may be difficult for Hefner to actually prove a violation of I.C. § 48-101. In Royal Drug, for example, the plaintiffs supported their rule of reason claim by contending that the challenged agreement eliminated competition, and that the defendants conspired to drive smaller pharmacies out of business. 737 F.2d at 1439. The court concluded that even if the plaintiffs' complaint could be construed to allege such anticompetitive effects, their case failed under a rule of reason analysis because they presented no evidence going beyond unsupported conjecture in support of their theories. Id. See also Sausalito Pharmacy, 544 F.Supp. 230 (summary judgment granted because evidence was uncontroverted that the challenged agreements were not entered into with intent to control market prices, impose undue limitations on competitive conditions, or unreasonably restrict competitive opportunity.). It is true that Hefner has, as the plaintiffs in the cited cases, presented no evidence supporting its claims. However, it alleges that the BCI reimbursement scheme will have the effect of restraining trade, reducing competition in the pharmacy trade and unfairly diverting trade from the plaintiffs and other pharmacists who do not enter into this arrangement. At this stage, the allegations in Hefner's complaint must be accepted as true, and the cited cases are clearly distinguishable in that they were resolved on motions for summary judgment. Based upon our review of its complaint, we hold as a matter of law that Hefner has alleged an unreasonable restraint of trade. B. Contract, Combination, or Conspiracy Apparently because it concluded that Hefner failed to allege a restraint of trade, the district court did not address whether it alleged what is logically the first element of its antitrust claim: a contract, combination, or conspiracy. Because we have determined that Hefner has alleged a restraint of trade, we will address this issue to provide guidance to the district court on remand. Federal courts use the terms contract, combination, or conspiracy interchangeably to describe the requisite agreement between two or more actors. See generally Irving Scher, Antitrust Advisor §§ 1.05, 1.06 (4th ed.1995). In interpreting this requirement in § 1 of the Sherman Act, the United States Supreme Court has held that § 1 does not proscribe independent action by a single entity, regardless of its effect on competition. Rather, it is concerted action by two or more parties that is prohibited. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771, 104 S.Ct. 2731, 2742, 81 L.Ed.2d 628 (1984) (A § 1 agreement may be found when `the conspirators had a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement.') (quoting American Tobacco Co. v. United States, 328 U.S. 781, 810, 66 S.Ct. 1125, 1139, 90 L.Ed. 1575 (1946)). Thus, the federal courts have placed a gloss on the contract element requiring also that there be a unity of purpose between the contracting parties to violate the antitrust laws. We conclude that this element is also a requirement of I.C. § 48-101. After describing the terms of the BCI reimbursement plan in its complaint, Hefner makes the following allegation: Defendants Pharmacies A through Z, together with other pharmacies, have entered into such an agreement with defendants Blue Cross and Caremark. These defendants have entered into such a contract and combination with the specific intent to monopolize the prescription pharmacy business and restrain the ability of the plaintiffs and other locally and independently owned pharmacies to engage in this trade. Accordingly, we conclude that Hefner has alleged the requisite agreement, including the necessary element of mutual intent to violate the Antitrust Law. Because it has also alleged an unreasonable restraint of trade, we are compelled to hold that it has stated a cause of action under I.C. § 48-101, and the decision of the district court granting the motion to dismiss is reversed.