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Federal Trade Commission v. Sanford Health

United States Court of Appeals, Eighth Circuit

June 13, 2019

Federal Trade Commission; State of North Dakota, Plaintiffs - Appellees,
Sanford Health; Sanford Bismarck; Mid Dakota Clinic, P.C., Defendants - Appellants. State of Minnesota; State of Alaska; State of California; State of Delaware; State of Hawaii; State of Idaho; State of Iowa; State of Mississippi; State of Massachusetts; State of Pennsylvania; Puerto Rico; State of Wyoming, Amici on Behalf of Appellee(s).

          Submitted: November 13, 2018

          Appeal from United States District Court for the District of North Dakota - Bismarck

          Before COLLOTON, SHEPHERD, and STRAS, Circuit Judges.

          Colloton, Circuit Judge.

         This is an antitrust case arising under § 7 of the Clayton Act, 15 U.S.C. § 18. The Federal Trade Commission and the State of North Dakota moved to enjoin Sanford Bismarck's acquisition of Mid Dakota Clinic, P.C., alleging that the merger would violate the Act. The district court[1] granted a preliminary injunction after determining that the plaintiffs were likely to succeed in proving that the acquisition would substantially lessen competition in four types of physician services in the Bismarck-Mandan area. The companies appeal, and we affirm.

         Sanford is an integrated healthcare system operating in North Dakota and several other States. In the Bismarck-Mandan region, Sanford operates an acute care hospital and multiple clinics. The company employs approximately thirty-seven adult primary care physicians, five pediatricians, eight OB/GYN physicians, and four general surgeons.

         Sanford's two main competitors in the Bismarck-Mandan region are Mid Dakota and Catholic Health Initiatives St. Alexius Health. Mid Dakota is a multi-speciality physician group that includes approximately twenty-three adult primary care physicians, six pediatricians, eight OB/GYN physicians, and five general surgeons. Catholic Health employs eighty-eight physicians, the majority of whom are hospitalists; five are adult primary care physicians.

         In North Dakota, there are three leading commercial insurers: Blue Cross Blue Shield North Dakota, Medica, and Sanford Health Plan. Blue Cross is the largest, accounting for 61% of the North Dakota health insurance market in 2016. Blue Cross has a participation agreement with every general acute care hospital in the State and with approximately 99% of practicing physicians. Sanford and Medica accounted for 31% and 8% of the 2016 market, respectively.

         In 2015, Mid Dakota offered itself for sale, and both Catholic Health and Sanford submitted purchase proposals. Mid Dakota initially executed a letter of intent with Catholic Health, but after Catholic Health terminated the deal, Mid Dakota began negotiations with Sanford. The two entities executed a term sheet in August 2016 providing that Sanford would acquire the assets of Mid Dakota. Ten months later, they signed a stock purchase agreement in which Sanford agreed to purchase the outstanding capital stock of Mid Dakota. If the companies merge, then Sanford will have the following market shares in the Bismarck-Mandan region: 99.8% of general surgeon services, 98.6% of pediatric services, 85.7% of adult primary care physician services, and 84.6% of OB/GYN physician services.

         The Federal Trade Commission and North Dakota Attorney General brought an action seeking to enjoin the merger. Section 7 of the Clayton Act provides that no person engaged in commerce and subject to the jurisdiction of the FTC shall acquire the stock or assets of another person if "the effect of such acquisition may be substantially to lessen competition." 15 U.S.C. § 18. The FTC alleged that Sanford's acquisition of Mid Dakota would contravene this proscription and sought an injunction under 15 U.S.C. §§ 26 and 53(b). The complaint asserted that Sanford's plan "to purchase [Mid Dakota's] assets through two separate transactions" would "violate Section 7 of the Clayton Act by substantially lessening competition." After a four-day evidentiary hearing, the district court found that the plaintiffs were likely to succeed on the merits of their claim. The court therefore issued a preliminary injunction.

         We review the district court's grant of a preliminary injunction for abuse of discretion. Lankford v. Sherman, 451 F.3d 496, 503 (8th Cir. 2006). "An abuse of discretion occurs where the district court rests its conclusion on clearly erroneous factual findings or erroneous legal conclusions." Id. at 503-04. A district court may enjoin a proposed merger if the FTC shows that "weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest." FTC v. Tenet Health Care Corp., 186 F.3d 1045, 1051 (8th Cir. 1999) (quoting 15 U.S.C. § 53(b)).

         To evaluate the FTC's likelihood of success on the merits, the district court employed a burden-shifting method endorsed by the D.C. Circuit in United States v. Baker Hughes Inc., 908 F.2d 981, 982-83 (D.C. Cir. 1990). Under this approach, the plaintiffs must first present a prima facie case that the merger will result in an undue market concentration for a particular product or service in a particular geographic area. That showing creates a presumption that the merger will substantially lessen competition. The burden of production then shifts to the defendant to rebut the presumption, and, on a sufficient showing, back to the plaintiffs to present additional evidence of anticompetitive effects. The ultimate burden of persuasion remains at all times with the plaintiffs.

         The companies argue that the district court improperly shifted the ultimate burden of persuasion to the defendants when it required them to produce rebuttal evidence that "clearly shows" that no anticompetitive effects were likely. The district court cited United States v. Philadelphia National Bank, 374 U.S. 321 (1963), where the Court said that "a merger which produces a firm controlling an undue percentage share of the relevant market, and results in a significant increase in the concentration of firms in that market, is so inherently likely to lessen competition substantially that it must be enjoined in the absence of evidence clearly showing that the merger is not likely to have such anticompetitive effects." Id. at 363 (emphasis added). The D.C. Circuit in Baker Hughes reviewed later decisions that used the term "show" instead of "clearly show," and concluded that the Supreme Court, without overruling Philadelphia National Bank, "has at the very least lightened the evidentiary burden on a section 7 defendant." 908 F.2d at 990-91.

         We conclude that there was no legal error by the district court here. The court followed the analytical framework of Baker Hughes, and specified that "[t]he FTC has the burden of persuasion at all times." While Baker Hughes adverted to the Supreme Court's shift in terminology since the 1960s, the D.C. Circuit also recognized that "[t]he more compelling the prima facie case, the more evidence the defendant must present to rebut it successfully." Id. at 991. In the context of this case, where the plaintiffs presented strong evidence of monopolization or near-monopolization in each service line, it was necessary for the defendants to make a strong presentation in rebuttal. We are not convinced that the quotation from Philadelphia National Bank, read in the context of the district court's order as a whole, shifted the burden of persuasion to the defendants or ...

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