Opinion ID: 223505
Heading Depth: 2
Heading Rank: 2

Heading: Denial of the City's Motion to Amend

Text: [W]e review a district court's denial of a motion to amend under the abuse of discretion standard. Gorman v. Consol. Edison Corp., 488 F.3d 586, 592 (2d Cir.2007). A district court abuses its discretion when it bases its ruling on an incorrect legal standard or on a clearly erroneous assessment of the facts. Bronx Household of Faith v. Bd. of Educ., 331 F.3d 342, 348 (2d Cir.2003). Rule 15(a)(2) of the Federal Rules of Civil Procedure provides that [t]he court should freely give leave [to amend the complaint] when justice so requires. The rule in our circuit is to allow a party to amend its complaint unless the nonmovant demonstrates prejudice or bad faith. AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 626 F.3d 699, 725 (2d Cir.2010) (citing Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir.1993)). During the course of briefing on GHI and HIP's summary judgment motion, the City moved to amend its complaint. It sought to add two additional market definitions: first, all insurance providers participating in the City's Health Benefits Program, not just the low-cost providers, and, second, all providers of commercial medical benefits in downstate New York. It also sought to add an alternative basis for its antitrust claims, the Upward Pricing Pressure Test, which, the City explains, predicts the likely competitive impact of a proposed merger based on how a merger is likely to alter the merged firm's pricing incentives. [2] The City argues that the Upward Pricing Pressure test can be used instead of the traditional approach of defining relevant markets. In denying the City's motion to amend, the district court held that the City had exhibited undue delay and that the proposed amendment would prejudice GHI and HIP. City of New York v. Group Health Inc., No. 06 Civ. 13122(RJS), 2010 WL 2132246, at -7 (S.D.N.Y. May 11, 2010). The district court noted that the City was aware of the flaws in its complaint at least since Judge Karas questioned the City's market definition in denying its motion for a temporary restraining order more than three years earlier. Id. at . In addition, the district court explained that allowing the amendment would unduly prejudice GHI and HIP by requiring them to conduct substantial additional discovery on a different and much broader market. Id. The district court also rejected the Upward Pricing Pressure Test. It noted that its research has not revealed a single decision of a federal court adopting this test, which, [i]n light of the case law's clear requirement that a [p]laintiff allege a particular product market in which competition will be impaired,... is hardly surprising. Id. at  n. 6. The City argues that the district court abused its discretion by misapplying the standards that govern a motion to amend. First, it argues that its addition of the market comprising all insurance providers in the Health Benefits Program does not require an amendment because that market represents only a slight change from the market pled in the City's initial complaint. Whether or not the City's addition of a market consisting of all insurance providers in the Health Benefits Program requires a formal amendment, this market suffers from the same legal deficiency as the market in the City's initial complaint. As discussed above, a market limited to the providers participating in the Health Benefits Program is notas is requireddefined by the rule of reasonable interchangeability and cross-elasticity of demand. It ignores the market of health insurance providers in downstate New York that compete for the business of the City and other large employers. It thus cannot form the basis of the City's antitrust claims and its addition to the complaint would be futile. See AEP Energy Servs. Gas Holding Co., 626 F.3d at 726 (Leave to amend may be denied on grounds of futility if the proposed amendment fails to state a legally cognizable claim.). The City next argues that GHI and HIP did not demonstrate undue prejudice because they did not show that the amendment would require them to redo, or discard, discovery already conducted. The need to redo or discard discovery, however, is not the only form of undue prejudice we have recognized. An [a]mendment may be prejudicial when, among other things, it would require the opponent to expend significant additional resources to conduct discovery and prepare for trial or significantly delay the resolution of the dispute. AEP Energy Servs. Gas Holding Co., 626 F.3d at 725-26 (internal quotation marks omitted). Here, the City's amendment would, at a minimum, require additional discovery from large employers other than the City in the downstate New York area and from the health insurance providers that compete for their business. It was not clearly erroneous for the district court to conclude that the need to obtain this discovery would delay proceedings and require substantial additional expense. In addition, as the district court explained, the City waited more than three years to seek an amendment, and did so only after confronted with a motion for summary judgment challenging its market definition. The City argues that it cannot be faulted for the delay because GHI and HIP went along with discovery, also waiting more than three years to challenge the City's market definition. While GHI and HIP could have sought dismissal of the City's complaint earlier in the litigation, their failure to do so does not necessarily mitigate the City's delay. Although the City's delay in seeking amendment may not be evidence of bad faith, we do not think it was an abuse of discretion for the district court to find that this delay, together with the prejudice that would result from the amendment, warranted denial of the City's motion to amend. Finally, we find no error or abuse of discretion in the district court's rejection of the Upward Pricing Pressure test. As the district court explained, and as we discussed above, the applicable case law requires plaintiffs asserting a claim under the Sherman Act, the Clayton Act, or the Donnelly Act to allege a market in which the challenged merger will impair competition. While the City explains the Upward Pricing Pressure test's usefulness in assessing the impact of a merger, it does not explain how the test can substitute for a definition of the relevant market in the pleadings. Cf. Carl Shapiro, Deputy Ass't Attorney Gen. for Economics, Antitrust Division, U.S. Dep't of Justice, Update from the Antitrust Division, at 15 (Nov. 18, 2010), http://www.justice.gov/atr/public/speeches/264295.pdf (recognizing need to define relevant market in any antitrust challenge). Whether or not the Upward Pricing Pressure testand its results in this case as explained by the City's expertwould, as the City argues, be admissible as evidence of impaired competition is not relevant to the adequacy of the pleadings. As such, we find no abuse of discretion and affirm the district court's denial of the City's motion to amend.