Medical Diagnostic Laboratories, Llc v. Independence Blue Cross et al

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

E.D. Pa.June 23, 2017

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA MEDICAL DIAGNOSTIC LABORATORIES LLC, Plaintiff, v. INDEPENDENCE BLUE CROSS, et al., Defendants. Case No. 2:16-cv-5855 Hon. Gerald J. Pappert JURY TRIAL DEMANDED DEFENDANT INDEPENDENCE BLUE CROSS, LLC’S MOTION TO DISMISS PLAINTIFF’S AMENDED COMPLAINT Pursuant to Federal Rule of Civil Procedure 12(b)(6), Defendant Independence Blue Cross, LLC moves to dismiss all claims against it in Plaintiff’s Amended Complaint with prejudice. In support of its motion, Defendant incorporates the accompanying memorandum of law. Dated: June 23, 2017 Respectfully submitted, MORGAN, LEWIS & BOCKIUS LLP /s/ Steven A. Reed Eric Kraeutler eric.kraeutler@morganlewis.com Steven A. Reed steven.reed@morganlewis.com R. Brendan Fee brendan.fee@morganlewis.com Zachary M. Johns zachary.johns@morganlewis.com 1701 Market Street Philadelphia, PA 19103 Telephone: +1.215.963.5000 Facsimile: +1.215.963.5001 Counsel for Defendant Independence Blue Cross, LLC Case 2:16-cv-05855-GJP Document 44 Filed 06/23/17 Page 1 of 1 UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA MEDICAL DIAGNOSTIC LABORATORIES LLC, Plaintiff, v. INDEPENDENCE BLUE CROSS, et al., Defendants. Case No. 2:16-cv-5855 Hon. Gerald J. Pappert JURY TRIAL DEMANDED MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT INDEPENDENCE BLUE CROSS, LLC’S MOTION TO DISMISS PLAINTIFF’S AMENDED COMPLAINT Eric Kraeutler eric.kraeutler@morganlewis.com Steven A. Reed steven.reed@morganlewis.com R. Brendan Fee brendan.fee@morganlewis.com Zachary M. Johns zachary.johns@morganlewis.com MORGAN, LEWIS & BOCKIUS LLP 1701 Market Street Philadelphia, PA 19103 Telephone: +1.215.963.5000 Facsimile: +1.215.963.5001 Counsel for Defendant Independence Blue Cross, LLC Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 1 of 33 i TABLE OF CONTENTS Page INTRODUCTION ......................................................................................................................... 1 ALLEGATIONS OF THE AMENDED COMPLAINT ............................................................... 2 I. Independence’s Network and Insurance Agreements with Patients .................................. 2 II. MDL’s New “Muscle” Theory of Liability ....................................................................... 4 STANDARD OF REVIEW ........................................................................................................... 7 LEGAL ARGUMENT ................................................................................................................... 8 I. MDL’s Amendments to Its Section 1 Claim Only Compound Its Many Defects ............. 8 A. MDL Lacks Antitrust Standing Because Its Alleged Harm Does Not Flow From Any Reduction in Market-Wide Competition .............................................. 9 B. MDL Does Not Allege Anticompetitive Effects in Any Properly Defined Relevant Market ................................................................................................... 11 1. MDL Has Not Properly Defined a Relevant Geographic or Product Market ...................................................................................................... 12 2. There Are No Allegations that Independence or LabCorp Has Market Power in a Properly Defined Relevant Market ........................... 14 3. The Complaint Does Not Allege Anticompetitive Effects ...................... 15 a. MDL Does Not Allege Market-Wide Anticompetitive Effects .......................................................................................... 16 b. MDL Does Not Allege Substantial Foreclosure .......................... 17 C. MDL Has Not Alleged Facts to Establish an Unlawful Conspiracy ................... 18 II. MDL’s Amendments Do Not Save Its Tortious Interference Claims .............................. 20 A. MDL Has Not Identified Existing or Prospective Contractual Relations with Which Defendants Interfered ....................................................................... 21 B. MDL Has Failed to Plausibly Allege that Independence Specifically Intended to Harm an Existing or Prospective Contract ....................................... 23 III. MDL’s Duplicative Unfair Competition Should be Dismissed ....................................... 25 IV. MDL’s Claims Should be Dismissed with Prejudice ...................................................... 25 CONCLUSION ............................................................................................................................ 25 Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 2 of 33 ii TABLE OF AUTHORITIES Page(s) CASES Acumed LLC v. Advanced Surgical Servs., Inc., 561 F.3d 199 (3d Cir. 2009).........................................................................................21, 22, 24 Advanced Power Sys., Inc. v. Hi-Tech Sys., Inc., 801 F. Supp. 1450 (E.D. Pa. 1992) ......................................................................................8, 16 Alpha Pro Tech, Inc. v. VWR Int’l LLC, 984 F. Supp. 2d 425 (E.D. Pa. 2013) .......................................................................................24 Ashcroft v. Iqbal, 556 U.S. 662 (2009) ...................................................................................................................7 Assembly Tech. Inc v. Samsung Techwin Co., Ltd. No. 09-cv-00798, 2009 WL 4430020 (Nov. 16, 2009) ...........................................................24 AT&T Corp. v. JMC Telecom, LLC, 470 F.3d 525 (3d Cir. 2006).....................................................................................................11 Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328 (1990) ...................................................................................................................9 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .............................................................................................................7, 19 Bldg. Materials Corp. of Am. v. Rotter, 535 F. Supp. 2d 518 (E.D. Pa. 2008) .................................................................................12, 14 Bristow Endeavor Healthcare LLC v. Blue Cross Blue Shield Ass’n, --F. App’x--, No. 16-5149, 2017 WL 2350204 (10th Cir. May 31, 2017) ..............................19 Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494 (3d Cir. 1998).....................................................................................................24 Brotech Corp. v. White Eagle Int’l Techs. Grp., Inc., No. 03-cv-232, 2003 WL 22797730 (E.D. Pa. Nov. 18, 2003) ...............................................20 Brown Shoe Co. v. United States, 370 U.S. 294 (1962) .................................................................................................................12 Brunson Commc’ns, Inc. v. Arbitron, Inc., 239 F. Supp. 2d 550 (E.D. Pa. 2002) .......................................................................................15 Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 3 of 33 iii Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1979) ...................................................................................................................9 Burtch v. Milberg Factors, Inc., 662 F.3d 212 (3d Cir. 2011).....................................................................................................11 CAE Inc. v. Gulfstream Aerospace Corp., No. 15-cv-924, 2016 WL 4497057 (D. Del. Aug. 26, 2016) .....................................................9 Cannella v. Brennan, No. 12-cv-1247, 2014 WL 3855331 (E.D. Pa. Aug. 6, 2014) .................................................21 Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101 (7th Cir. 1984) .................................................................................................19 CGB Occupational Therapy, Inc. v. RHA Health Servs. Inc., 357 F.3d 375 (3d Cir. 2004).....................................................................................................20 Charbonneau v. Chartis Prop. Cas. Co., --F. App’x--, No. 15-3549, 2017 WL 715067 (3d Cir. Feb. 23, 2017)....................................22 Chrysler Credit Corp. v. B.J.M., Jr., Inc., 834 F. Supp. 813 (E.D. Pa. 1993) ............................................................................................24 Collegenet, Inc. v. Common Application, Inc., 104 F. Supp. 3d 1137 (D. Or. 2015) ........................................................................................17 Council for Educ. Travel, USA v. Czopek, No. 11-cv-0672, 2011 WL 3882474 (E.D. Pa. Sept. 2, 2011) .................................................20 Deborah Heart & Lung Ctr. v. Virtua Health, Inc., 833 F.3d 399 (3d Cir. 2016).....................................................................................................17 DePuy Synthes Sales, Inc. v. Globus Med., Inc., No. 17-1068, 2017 WL 1493365 (E.D. Pa. Apr. 26, 2017) .....................................................20 Devon Robotics v. Deviedma, No. 09-cv-3552, 2009 WL 4362822 (E.D. Pa. Nov. 30, 2009) ...............................................21 Dicar, Inc. v. Stafford Corrugated Prod., Inc., No. 05-cv-5426, 2010 WL 988548 (D.N.J. Mar. 12, 2010) ....................................................13 Eastman v. Quest Diagnostics Inc., No. 15-cv-00415, 2015 WL 7566805 (N.D. Cal. Nov. 25, 2015) ...........................................18 Eisai, Inc. v. Sanofi Aventis U.S., LLC, 821 F.3d 394 (3d Cir. 2016).....................................................................................................16 Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 4 of 33 iv Fowler v. UPMC Shadyside, 578 F.3d 203 (3d Cir. 2009).......................................................................................................7 Fresh Made, Inc. v. Lifeway Foods, Inc., No. 01-cv-4254, 2002 WL 31246922 (E.D. Pa. Aug. 9, 2002) .........................................14, 25 FTC v. Penn State Hershey Med. Ctr., 838 F.3d 327 (3d Cir. 2016).....................................................................................................12 Gelman v. Citizens Bank of Pa., No. 332, 2010 WL 7786113 (Pa. Com. Pl. Oct. 18, 2011) ......................................................23 Glenn v. Point Park Coll., 272 A.2d 895 (Pa. 1971) ..........................................................................................................23 Hasu Shah v. Harristown Dev. Corp., No. 12-cv-2196, 2013 WL 6567764 (M.D. Pa. Dec. 13, 2013) ........................................14, 15 Howard Hess Dental Labs. Inc. v. Dentsply Int’l, Inc., 602 F.3d 237 (3d Cir. 2010).....................................................................................................19 In re Ins. Brokerage Antitrust Litig., 618 F.3d 300 (3d Cir. 2010).......................................................................................................7 In re Lamictal Indirect Purchaser and Antitrust Consumer Litig., 172 F. Supp. 3d 724 (D.N.J. 2016) ..........................................................................................11 Insignia Sys., Inc. v. News Corp., No. 04-cv-4213, 2005 WL 2063890 (D. Minn. Aug. 25, 2005) ..............................................17 Kelly-Springfield Tire Co. v. D’Ambro, 596 A.2d 867 (Pa. Super. Ct. 1991) .........................................................................................21 Krantz v. Prudential Invs., 305 F.3d 140 (3d Cir. 2002).....................................................................................................25 Larry Pitt & Assocs. v. Lundy Law, LLP, No. 13-cv-2398, 2013 WL 6536739 (E.D. Pa. Dec. 13, 2013)..........................................23, 24 Legal Econ. Evaluations, Inc. v. Metro. Life Ins. Co., 39 F.3d 951 (9th Cir. 1994) .....................................................................................................15 LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003).....................................................................................................17 Lum v. Bank of Am., 361 F.3d 217 (3d Cir. 2004).....................................................................................................25 Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 5 of 33 v Mathews v. Lancaster Gen. Hosp., 87 F.3d 624 (3d Cir. 1996).........................................................................................................9 McCullough v. Zimmer, Inc., No. 08-cv-1123, 2009 WL 775402 (W.D. Pa. Mar. 18, 2009) ..........................................13, 16 Methodist Health Servs. Corp. v. OSF Healthcare Sys., No. 16-3791, 2017 WL 2485844 (7th Cir. June 9, 2017) ..................................................10, 18 Morse v. Lower Merion Sch. Dist., 132 F.3d 902 (3d Cir. 1997).......................................................................................................7 Nami v. Fauver, 82 F.3d 63 (3d Cir. 1996)...........................................................................................................7 Nat’l Data Payment Sys., Inc. v. Meridian Bank, 212 F.3d 849 (3d Cir. 2000).....................................................................................................24 Precision Surgical, Inc. v. Tyco Int’l, Ltd., 111 F. Supp. 2d 586 (E.D. Pa. 2000) .......................................................................................10 Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430 (3d Cir. 1997)...............................................................................................12, 14 Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57 (3d Cir. 2010).......................................................................................................10 Schuylkill Energy Res., Inc. v. Pennsylvania Power & Light Co., 113 F.3d 405 (3d Cir. 1997).......................................................................................................7 Siegel Transfer, Inc. v. Carrier Exp., Inc., 54 F.3d 1125 (3d Cir. 1995).......................................................................................................8 Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320 (1961) .................................................................................................................17 Tri-Gen Inc. v. Int’l Union of Operating Eng’rs, Local 150, AFL-CIO, 433 F.3d 1024 (7th Cir. 2006) .................................................................................................11 TriState HVAC Equip., LLP v. Big Belly Solar, Inc., 836 F. Supp. 2d 274 (E.D. Pa. 2011) .......................................................................................23 Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715 (3d Cir. 1991).....................................................................................................12 United States v. Colgate & Co., 250 U.S. 300 (1919) ...................................................................................................................8 Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 6 of 33 vi United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) ...................................................................................................18 Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004) ...................................................................................................................8 W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85 (3d Cir. 2010).......................................................................................................16 Willow Creek Fuels, Inc. v. Farm & Home Oil Co., No. 08-cv-5417, 2009 WL 3103738 (E.D. Pa. Sept. 18, 2009) ...............................................15 ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254 (3d Cir. 2012).....................................................................................................16 STATUTES 42 U.S.C. § 1320a-7b(b) ................................................................................................................23 OTHER AUTHORITIES FTC Staff Letter (Mar. 7, 2014), available at https://www.ftc.gov/system/files/documents/advocacy_documents/federal- trade-commission-staff-comment-centers-medicare-medicaid-services- regarding-proposed-rule/140310cmscomment.pdf ....................................................................3 NaviNet, http://www.navinet.net (last visited June 23, 2017) .........................................................6 OIG Advisory Opinion 15-04 (Mar. 18, 2015), available at https://oig.hhs.gov/fraud/docs/advisoryopinions/2015/AdvOpn15-04.pdf .............................23 Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 7 of 33 INTRODUCTION No amendment can change the reality that MDL’s claims rest on the fundamentally implausible assertion that Independence would conspire to restrain trade in a market where it is a purchaser of services. Nevertheless, in an effort to avoid dismissal, MDL jettisons its reliance on the exclusive dealing theory that featured prominently in its initial pleading and doubles down on its so-called “muscle” theory that Independence conspired with its preferred in-network outpatient laboratory, LabCorp, to prevent out-of-network STI specialty testing laboratories from providing services to Independence members. MDL contends that, as a result of this supposed conspiracy, Independence no longer reimburses it directly, as was previously done before LabCorp was selected as Independence’s preferred provider. These new allegations only underscore that MDL’s claimed harm is the loss of potential revenue as a result of Independence’s decision not to do business with it, not any harm to competition, which is the linchpin of a proper antitrust claim. In its Amended Complaint, MDL continues down the flawed path of confining the relevant market to STI specialty testing in Southeastern Pennsylvania. This tactic ignores controlling Third Circuit precedent requiring that a geographic market be defined from the perspective of the customer, here Independence, and that the relevant product market be supported by allegations addressing reasonable substitutability. The absence of a properly defined relevant market also means that MDL cannot establish market power by either Defendant. Nor has MDL established anticompetitive effects because the alleged injury to a subset of the market, i.e., certain of Independence members who are allegedly being denied access to supposedly superior STI testing, does not reflect market-wide injury as Third Circuit law requires. Furthermore, having apparently abandoned Independence’s preferred provider Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 8 of 33 2 agreement with LabCorp as the predicate for its antitrust claim, MDL does not allege any plausible factual allegations that would support the existence of its hypothesized conspiracy between Defendants to suppress competition among STI testing laboratories and decrease the quality of STI testing for which Independence contracts on behalf of its members. On the contrary, the Amended Complaint pleads an implausible conspiracy that rests on alleged behavior by Defendants that is entirely consistent with their unilateral interests and that assumes Independence conspired to injure itself. MDL’s failure to fix these defects in its antitrust claim requires dismissal. MDL’s attempts to recast its state-law claims for tortious interference fare no better. Although MDL now alleges that the actual contracts with which Defendants interfered are between MDL and patients, MDL fails to identify any specific contract. Paradoxically, MDL also alleges that it has prospective contractual relationships with healthcare providers, even though MDL cannot contract with providers because of the Anti-Kickback Statute. Even if MDL had identified a contract or prospective contractual relationship, the Amended Complaint makes no effort to allege the requisite intent by Independence. Thus, MDL’s tortious interference claims fail as well. MDL’s final claim, for unfair competition, is based on the same alleged conduct as its defective antitrust and tortious interference claims and is doomed for the same reasons. After being placed on notice of the defects in its original Complaint, MDL once again has failed to state a claim. The Amended Complaint should thus be dismissed with prejudice. ALLEGATIONS OF THE AMENDED COMPLAINT I. Independence’s Network and Insurance Agreements with Patients Defendant Independence is a private health insurance organization that administers health benefit plans covering millions of individuals and is the leading health insurance company in the Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 9 of 33 3 Philadelphia region. (Am. Compl. ¶¶ 20, 26.) Independence maintains a network of healthcare providers with which it contracts to provide services to members at discounted rates, usually lowering medical costs to members. (Id. ¶¶ 59-61.) The contracts outlining these terms are referred to as “provider agreements” and providers with such agreements are referred to as “in- network” providers. (Id. ¶¶ 59-60.) Independence has the discretion to limit the providers with which it contracts to serve the best interests of its members, and is not forced to accept any provider that expresses a willingness to accept Independence’s terms. (See id. ¶ 98.) Such “selective contracting” by Independence and other plans is viewed “as an important tool to enhance competition and lower costs in markets for healthcare goods and services.”1 (See March 7, 2014 FTC Staff Letter.) Among the entities with which Independence enters into provider agreements are laboratories that perform outpatient diagnostic testing. (See Am. Compl. ¶¶ 63, 68.) Quest Diagnostics historically was Independence’s preferred provider for a broad array of outpatient laboratory services. (Id. ¶ 63.) As of July 1, 2014, Independence replaced Quest Diagnostics with LabCorp, making LabCorp Independence’s primary provider of outpatient laboratory services. (Id. ¶¶ 50-51.) According to the Amended Complaint, the arrangement with LabCorp is cost saving to Independence, and thus its members, because negotiated reimbursement rates for an in-network provider like LabCorp are lower than those for out-of-network diagnostic 1 Some states have adopted so-called “Any Willing Provider” or “AWP” statutes, which require an insurer to accept into its network any provider willing to agree to its terms, but Pennsylvania is not one of them. (Am. Compl. ¶¶ 98-99.) Efforts to enact such a law in the Commonwealth have stalled and no action has been taken on Pennsylvania HB 294 in nearly a year. The Federal Trade Commission, among others, has properly criticized such statutes because they undermine the efficiencies and procompetitive benefits that healthcare networks create. (See, e.g., FTC Staff Letter (March 7, 2014), available at https://www.ftc.gov/system/files/documents/advocacy_documents/federal-trade-commission- staff-comment-centers-medicare-medicaid-services-regarding-proposed- rule/140310cmscomment.pdf, hereinafter the “March 7, 2014 FTC Staff Letter.”) Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 10 of 33 4 laboratories such as MDL. (See id. ¶ 6.) Plaintiff MDL is an outpatient laboratory service provider located in New Jersey that specializes in testing for sexually transmitted infections (“STIs”) and competes with LabCorp, among others, for a limited subset of the services LabCorp offers to Independence members. (Id. ¶¶ 7, 19, 22, 36.) MDL contends that, while STI tests offered by LabCorp and other outpatient testing laboratories are similar to its tests, MDL’s STI testing procedures are superior. (Id. ¶¶ 36, 57.) MDL sells its testing services nationwide and is an in-network provider in 32 out of the 36 Blue Cross Blue Shield plans’ networks across the United States. (Id. ¶ 57.) MDL is not currently and has never been included in Independence’s network which covers only Southeastern Pennsylvania. (See id. ¶ 65.) The amount that an Independence member pays for outpatient diagnostic laboratory services depends on the type of health benefit plan the member has purchased and whether the outpatient laboratory is in or out of network. (Id. ¶ 4.) Some health benefit plans offered by Independence, such as more expensive PPO plans, allow members to either use an Independence in-network laboratory at a discounted rate or select an out-of-network laboratory that has different reimbursement terms that often involve higher cost-share to members. (See id. ¶¶ 71, 96.) Other insurance plans offered by Independence, such as less expensive HMO plans, generally do not provide reimbursement when members opt to use out-of-network services. (Id.) Where Independence members with out-of-network benefits receive such services, they are responsible for the balance of any bill from the out-of-network service provider. (See id. ¶ 83.) II. MDL’s New “Muscle” Theory of Liability In its Amended Complaint, MDL states that it no longer bases its claims on the alleged de facto exclusive provider agreement between Defendants that served as the basis for its claims in the original Complaint. (Id. ¶ 13.) Instead, MDL contends that Defendants used Independence’s Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 11 of 33 5 position as a leading insurer for private payor plans in Southeastern Pennsylvania and LabCorp’s status as Independence’s preferred provider of outpatient laboratory testing to reduce competition among providers of STI testing in Southeastern Pennsylvania and to reduce the quality of STI testing services. (Id. ¶¶ 1, 13.) Three categories of conduct comprise its “muscle” theory: First, MDL asserts that after the selection of LabCorp in July 2014, Independence made the decision to no longer provide reimbursement to members with certain types of health benefit plans, namely members with more expensive PPO plans, for STI testing services performed by out-of-network diagnostic laboratories. (Id. ¶¶ 3, 66, 72, 96.) The Amended Complaint does not, however, allege that MDL has gone uncompensated for STI tests performed for Independence members. On the contrary, MDL explains that it can request payment directly from Independence members, and that MDL may initiate collection actions against Independence members if requests for payment are unpaid. (Id. ¶ 83.) Second, the Amended Complaint refers to alleged communications by Independence with its providers informing them of their obligations under provider agreements to refer patients and their specimens to LabCorp as an in-network laboratory instead of out-of-network laboratories. (Id. ¶ 78(a)-(k).) MDL characterizes these attempts to ensure providers’ compliance with their provider agreements as “unlawful coercive acts” “with the objective and result that the providers stop using ‘out-of-network’ laboratories including MDL.” (Id. ¶¶ 78, 89.) The Amended Complaint supplements the list of alleged communications from the original Complaint with purported communications by LabCorp with Independence’s providers encouraging them to use LabCorp’s STI testing offerings given LabCorp’s status as an in-network provider. (Id. ¶ 78(j)- (m).) Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 12 of 33 6 Third, MDL alleges that it was recently denied access to the NaviNet website, which is a platform that shows the status of payments by Independence to its members for services such as outpatient laboratory testing.2 (Id. ¶ 81.) MDL allegedly used NaviNet to check whether Independence paid its members for out-of-network services and thus whether members received payment that they should remit to MDL. (Id. ¶¶ 82-83.) MDL does not allege that this in any way prevents it from seeking payment from Independence members. (Id. ¶ 83.) As a result of these actions, MDL claims that it received fewer STI referrals from Independence’s in-network providers, and also asserts (inexplicably) that the alleged conduct has somehow caused it also to experience a reduction in STI tests performed for patients who are not insured by Independence. (Id. ¶¶ 63, 68.) This has allegedly impeded MDL’s growth and caused it to lose revenue. (Id. ¶¶ 63-66, 77, 94, 97.) A key feature of MDL’s alleged harm, according to MDL, is that it has been prevented from “pursuing [its] business interests” of performing STI testing services for Independence’s PPO plan members and being reimbursed by Independence. (See id. ¶¶ 4, 13, 96.) There are no allegations, however, that prices of STI specialty testing have increased or that output or availability of STI testing has been reduced. And, while MDL alleges that the quality of STI testing for Independence members with certain types of health benefit plans has been diminished, it does not allege that there has been any market-wide reduction in the quality of STI testing. (Id. ¶ 13.) On the contrary, MDL’s test is still available to those willing to pay for it. (See id. ¶ 3, 10.) Based on this conduct, MDL brings claims in Count I under Section 1 of the Sherman Act and in Count IV for common law unfair competition. In Count II, MDL asserts a claim for 2 According to NaviNet’s website, which MDL cites in the Amended Complaint at paragraph 118, NaviNet is a third party that is part of NantHealth. NaviNet, http://www.navinet.net (last visited June 23, 2017). Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 13 of 33 7 tortious interference with existing contracts that MDL claims to have with Independence members. (Id. ¶ 115-118.) In Count III, MDL asserts a claim for tortious interference with prospective contractual relationships MDL alleges that it would have with healthcare providers in the Independence network. (Id. ¶¶ 125-128.) STANDARD OF REVIEW To survive a motion to dismiss, a complaint must plead facts—not merely “labels and conclusions”—that on their face plausibly suggest entitlement to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In determining whether a complaint meets this standard, courts in the Third Circuit first must separate the well-plead facts from mere legal conclusions, and disregard the latter. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (internal citations omitted). The court “must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a plausible claim for relief.” Id. at 211. Assessing plausibility is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Because “context matters” in determining whether a pleading can survive a Rule 12 challenge, “what suffices to withstand a motion to dismiss necessarily depends on substantive law and the elements of the specific claim asserted.” In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 320 n.18 (3d Cir. 2010). Hence, “[s]ome claims will demand relatively more factual detail . . . while others require less.” Id. Antitrust claims typically require more facts to make a claim plausible in light of “common economic experience.” Id. at 325. In evaluating a plaintiff’s pleading, a court need not accept as true “bald assertions,” Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997), “unsupported conclusions and unwarranted inferences,” Schuylkill Energy Res., Inc. v. Pennsylvania Power & Light Co., 113 F.3d 405, 417 (3d Cir. 1997), or allegations Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 14 of 33 8 that are “self-evidently false.” Nami v. Fauver, 82 F.3d 63, 69 (3d Cir. 1996). LEGAL ARGUMENT I. MDL’s Amendments to Its Section 1 Claim Only Compound Its Many Defects It is well-established that the Sherman Act “does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.” United States v. Colgate & Co., 250 U.S. 300, 307 (1919); Siegel Transfer, Inc. v. Carrier Exp., Inc., 54 F.3d 1125, 1137 (3d Cir. 1995). This is especially relevant here, where Independence has decided to contract with LabCorp for a broad suite of outpatient laboratory testing services including STI testing that MDL provides. (Am. Compl. ¶¶ 33-34, 50-51, 68.) In this context, the antitrust laws simply do not impose a requirement that Independence solicit bids for STI testing—which is a mere subset of the testing services LabCorp provides—from MDL or any other outpatient laboratory. See, e.g., Advanced Power Sys., Inc. v. Hi-Tech Sys., Inc., 801 F. Supp. 1450, 1463 (E.D. Pa. 1992) (observing that “[a]s a general matter, the Sherman Act does not require competitive bidding” and that buyers are free to reallocate business to other suppliers). If antitrust law did impose a duty upon purchasers to accept the services of all suppliers, as MDL suggests, federal courts would be forced “to act as central planners, identifying the proper price, quantity, and other terms of dealing—a role for which they are ill-suited.” Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004). MDL’s attempt to use the antitrust laws to force Independence to deal with it runs afoul of this core principle, and MDL’s amendments to its original pleading do nothing to change that fact. Instead, MDL’s amendments further expose its fundamental misunderstandings of the antitrust laws that again lead it to assert a Section 1 claim that (1) MDL lacks antitrust standing to bring; (2) is not supported by allegations of anticompetitive effects in a properly defined Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 15 of 33 9 market; and (3) lacks plausible factual allegations of concerted action. A. MDL Lacks Antitrust Standing Because Its Alleged Harm Does Not Flow From Any Reduction in Market-Wide Competition MDL’s new allegations underscore that MDL has not established antitrust injury. As a threshold requirement for its Section 1 claim, MDL must establish that it has suffered antitrust injury, which is injury that “reflect[s] the anticompetitive effect” of a defendant’s actions. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1979). This requires MDL to establish that its injury is “attributable to . . . a competition-reducing aspect or effect of the defendant’s behavior.” Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334, 344 (1990). This requirement flows from the fundamental purpose of antitrust law: “to protect competition, not competitors.” Mathews v. Lancaster Gen. Hosp., 87 F.3d 624, 641 (3d Cir. 1996). The Amended Complaint makes no attempt to show that MDL’s alleged harm flows from any market-wide anticompetitive effects. Instead, MDL’s new allegations confirm that its harm (if any) was caused by Independence’s decision not to do business with it and not to provide direct reimbursement for out of network services after Quest was replaced by LabCorp. (Am. Compl. ¶¶ 3, 66, 72.) But the factual additions in the Amended Complaint that Independence no longer directly reimburses MDL, that Defendants had communications with Independence providers in a way that MDL mischaracterizes as “coercive,” and that Defendants supposedly removed MDL’s access from NaviNet, do not amount to antitrust injury because they do not flow from any reduction in market-wide competition. See, e.g., Mathews, 87 F.3d at 641; CAE Inc. v. Gulfstream Aerospace Corp., No. 15-cv-924, 2016 WL 4497057, at *6 (D. Del. Aug. 26, 2016) (finding communications with business associate not to do business with plaintiff permissible and not a basis to find antitrust injury). These injuries, to the extent they exist at all, are the byproduct of MDL not being an in-network provider for Independence. As the Third Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 16 of 33 10 Circuit has explained, injuries that flow from not being a supplier are not “the kind of injury that gives rise to an antitrust claim” because they are not injuries that reflect market-wide anticompetitive effects. Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57, 84 (3d Cir. 2010); see also Methodist Health Servs. Corp. v. OSF Healthcare Sys., No. 16-3791, 2017 WL 2485844, at *3 (7th Cir. June 9, 2017) (reasoning that out-of-network hospital had no antitrust claim against insurer where it was “simply an unsuccessful competitor with [another hospital] that offers patients insured by health insurance companies more health care than it does”). The Amended Complaint’s identification of three other out-of-network outpatient laboratories that supposedly compete with MDL for STI testing does not change the analysis because there are no well-pled facts suggesting that these firms have been harmed at all by the conduct MDL identifies, let alone that they have been harmed by any market-wide anticompetitive effects. (Am. Compl. ¶ 10.) Similarly, MDL’s allegations of diminished quality of STI testing for at least a subset of Independence members who have purchased plans that reimburse for out-of-network services does not establish antitrust injury because MDL’s loss of business does not flow from any market-wide reduction in quality. (Id. ¶¶ 5, 11.) Instead of alleging injury flowing from a reduction in competition, the Amended Complaint reinforces that MDL is seeking to recover for harm as a disappointed supplier. (E.g., id. ¶ 94 (alleging that MDL’s “growth” has been “impeded”).) For example, MDL suggests that, since it has agreements with 32 of the 36 Blue Cross Blue Shield plan networks nationwide, it should likewise have an agreement with Independence. (Id. ¶ 57.) This, however, is not a form of antitrust injury; MDL’s alleged harm flows from the fact that it has not been designated as an in-network laboratory, rather than from any lessening of competition on the whole. Precision Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 17 of 33 11 Surgical, Inc. v. Tyco Int’l, Ltd., 111 F. Supp. 2d 586, 589 (E.D. Pa. 2000) (injury resulting from plaintiff being “deprive[d] . . . of a trading partner” but not from any reduction in competition is not antitrust injury). Nor is MDL’s claim that patients who previously would have been tested by MDL as an out-of-network lab are now being tested by LabCorp sufficient to qualify as antitrust injury. (Am. Compl. ¶¶ 90-91.) Under well-established precedent, a “[t]ransfer of business from one company to another” is not an actionable antitrust harm. Tri-Gen Inc. v. Int’l Union of Operating Eng’rs, Local 150, AFL-CIO, 433 F.3d 1024, 1031 (7th Cir. 2006). Because the Amended Complaint does not correct its failure to allege that MDL’s injuries flow from any competition-reducing aspect of Defendants’ conduct, MDL has not pleaded antitrust injury and thus cannot establish antitrust standing to pursue its Section 1 claim. B. MDL Does Not Allege Anticompetitive Effects in Any Properly Defined Relevant Market In addition, MDL has once again failed to plead that Independence’s alleged conduct actually reduced competition in a properly defined relevant market, which is the central inquiry in every rule of reason Section 1 claim. It is black-letter law that where, as here, the purported conspiracy involves firms in a vertical relationship, the court must apply “rule of reason” analysis to assess whether the alleged agreement impermissibly restrains competition. AT&T Corp. v. JMC Telecom, LLC, 470 F.3d 525, 531 (3d Cir. 2006). The rule of reason is an “exacting” test, In re Lamictal Indirect Purchaser and Antitrust Consumer Litig., 172 F. Supp. 3d 724, 736 (D.N.J. 2016), under which a plaintiff must establish that the defendants had market power and that the challenged agreement “produced an adverse, anticompetitive effect within the relevant . . . market.” Burtch v. Milberg Factors, Inc., 662 F.3d 212, 222 (3d Cir. 2011). The failure of the Amended Complaint to plead any of these necessary elements are additional, independent reasons for dismissal. Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 18 of 33 12 1. MDL Has Not Properly Defined a Relevant Geographic or Product Market “The relevant market is defined in terms of two components: the product market and the geographic market.” FTC v. Penn State Hershey Med. Ctr., 838 F.3d 327, 338 (3d Cir. 2016). MDL’s failure to allege sufficient facts to properly establish either dimension of the alleged relevant market for STI specialty testing in Southeastern Pennsylvania is fatal to its Section 1 claim. Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430, 437 (3d Cir. 1997); Bldg. Materials Corp. of Am. v. Rotter, 535 F. Supp. 2d 518, 523-24 (E.D. Pa. 2008). MDL must allege a relevant geographic market that corresponds to the area that “a potential buyer [of STI laboratory services, such as Independence] may rationally look for the goods or services.” Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 726 (3d Cir. 1991). The Amended Complaint repeats that the geographic market is the area of Pennsylvania where MDL contends Independence operates. (Am. Compl. ¶¶ 29-30.) As Independence pointed out in its briefing to dismiss the original Complaint, these allegations fail to define the market from the perspective of where a purchaser, Independence, may look to purchase STI testing services. Tunis Bros. Co., 952 F.2d at 726; see also Penn State Hershey Med. Ctr., 838 F.3d at 342-43 (finding that district court erred by not considering role of insurers and holding that the geographic market for hospitals is defined “through the lens of the insurers: if enough insurers, in the face of a [price increase], would avoid the price increase by looking to hospitals outside the proposed geographic market, then the market is too narrow”). MDL’s refusal to define the relevant market from the perspective of the buyer, as required under controlling Third Circuit precedent, again results in MDL positing a market that is too narrow and does not “correspond to the commercial realities.” Brown Shoe Co. v. United States, 370 U.S. 294, 336 (1962). MDL’s allegations only underscore the infirmity of the posited geographic market. For Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 19 of 33 13 example, the geographic market does not even include MDL—MDL is based in New Jersey and has STI samples sent to it by mail. (Am. Compl. ¶¶ 7, 45.) Further, MDL’s amended allegations establish that any entity seeking to purchase STI testing services would look outside of Southeastern Pennsylvania because “many diagnostic laboratories, including MDL, are located in states outside of Pennsylvania.” (Id. ¶ 107.) Indeed, Independence looked to North Carolina to contract with its current preferred outpatient laboratory provider. (Id. ¶ 21.) When viewed through the lens of the purchaser, there is no basis to narrowly draw the geographic boundaries of the relevant market as MDL suggests, and MDL’s affirmative allegations make that clear. Because MDL’s geographic market is inconsistent with commercial realities, its Section 1 claim fails. See Dicar, Inc. v. Stafford Corrugated Prod., Inc., No. 05-cv-5426, 2010 WL 988548, at *11 (D.N.J. Mar. 12, 2010) (dismissing antitrust claim where market definition focused on area where plaintiffs conducted their business “as opposed to the geographic market that consumers would be willing to access to purchase” the product). MDL’s Amended Complaint also attempts to shore up its posited STI specialty testing product market in two ways, each of which is flawed. First, MDL now alludes to a range of unspecified tests that “have distinct differences in quality and methodology” but fails to provide any facts to allow the Court to reach a conclusion as to whether such “distinct” STI tests are interchangeable or reasonable substitutes such that they should be excluded from or included in the relevant product market. (Am. Compl. ¶ 36.) Merely identifying different STI tests says nothing about whether those tests should be included in the product market. McCullough v. Zimmer, Inc., No. 08-cv-1123, 2009 WL 775402, at *11 (W.D. Pa. Mar. 18, 2009), aff’d, 382 F. App’x 225 (3d Cir. 2010) (finding general reference to types of products did not “explain with any sort of specificity the market for each product mentioned”). Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 20 of 33 14 Second, MDL has added an allegation that unspecified “tests within the STI testing market” “are characterized by cross-elasticity of demand.” (Am. Compl. ¶ 37.) But MDL fails to provide any factual support for this bare legal conclusion. Bldg. Materials Corp. of Am., 535 F. Supp. 2d at 525 (dismissal is warranted where plaintiff did not “provide any factual basis nor analysis to support his bare assertion” of the market definition). In any event, this allegation is nonsensical because MDL suggests that the selection of an outpatient laboratory provider by purchasers, like Independence, is guided by the ability of a laboratory to service an insurer’s network with a range of offerings. (See Am. Compl. ¶ 27.) Both of MDL’s new allegations simply fail to satisfy the Third Circuit’s requirement that MDL plead facts to define the “proposed relevant market with reference to the rule of reasonable interchangeability and cross-elasticity of demand.” Queen City Pizza, Inc., 124 F.3d at 436; see also Fresh Made, Inc. v. Lifeway Foods, Inc., No. 01-cv-4254, 2002 WL 31246922, at *6 (E.D. Pa. Aug. 9, 2002). This defect also requires dismissal of MDL’s Section 1 claim. See Bldg. Materials Corp. of Am., 535 F. Supp. 2d at 524.3 2. There Are No Allegations that Independence or LabCorp Has Market Power in a Properly Defined Relevant Market MDL’s failure to establish a properly defined market is equally fatal to its efforts to allege the required element of market power. See Hasu Shah v. Harristown Dev. Corp., No. 12- cv-2196, 2013 WL 6567764, at *6 (M.D. Pa. Dec. 13, 2013). To manufacture market power, MDL has narrowly defined the market by selecting the customers it wants, i.e., Independence members with PPO plans, and defining product and geographic markets around those customers. 3 While MDL makes passing reference to a “sub-market of clinical laboratory testing,” (Am. Compl. ¶ 22) there are no allegations to properly define either the clinical laboratory market or the STI laboratory testing sub-market. Fresh Made, Inc., 2002 WL 31246922, at *5 n.12 (“[A] complaint alleging a submarket is not excused from grounding its allegations with facts regarding reasonable interchangeability and cross-elasticity of demand.”). Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 21 of 33 15 (See Am. Compl. ¶¶ 29-41.) But this definition looks at the market from the wrong direction and is impermissibly narrow, as discussed supra, and without a properly defined relevant market there is no way to measure market power. See Willow Creek Fuels, Inc. v. Farm & Home Oil Co., No. 08-cv-5417, 2009 WL 3103738, at *6 (E.D. Pa. Sept. 18, 2009) (granting motion to dismiss because plaintiff did not allege a proper relevant market or facts that would allow the court to measure market power); see also Brunson Commc’ns, Inc. v. Arbitron, Inc., 239 F. Supp. 2d 550, 570 (E.D. Pa. 2002) (same). The Amended Complaint’s reference to Independence’s purported market share in the undefined “private health insurance market,” and suggestion that this confers market power on LabCorp in the “laboratory testing services market in Southeastern Pennsylvania [which] necessarily encompasses the specialty STI testing market,” gets MDL nowhere. (Am. Compl. ¶¶ 29, 32-34.) There is simply no basis for the inference that being Independence’s preferred provider of outpatient laboratory testing provides LabCorp with market power for all laboratory testing services in Southeastern Pennsylvania (even if that was a relevant geographic market), regardless of a patient’s means of payment. See Legal Econ. Evaluations, Inc. v. Metro. Life Ins. Co., 39 F.3d 951, 954 (9th Cir. 1994) (finding antitrust claim defective because plaintiff’s alleged harm did “not match either the mischief about which it complains or the markets” plaintiff alleged.) MDL’s failure to allege facts demonstrating that either Defendant has market power in the STI specialty testing market it has posited, alone, warrants dismissal of MDL’s antitrust claim. Hasu Shah, 2013 WL 6567764, at *6 (“[W]ithout proper allegations of . . . defendants’ market power,” dismissal on a Rule 12 motion is required). 3. The Complaint Does Not Allege Anticompetitive Effects Not only has MDL again failed to allege a relevant market or market power, it has also failed to allege anticompetitive effects directly. To state a Section 1 claim, a plaintiff must allege Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 22 of 33 16 facts demonstrating anticompetitive effects, which include “increased prices, reduced output, and reduced quality.” W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 100 (3d Cir. 2010). It is beyond dispute that the “failure to sufficiently allege anticompetitive effects in a Sherman Act complaint is ‘fatal to the existence of a cause of action.’” Advanced Power Sys., Inc., 801 F. Supp. at 1460 (citations omitted). And, notwithstanding MDL’s affirmative statement at the start of the Amended Complaint that it does not challenge the preferred provider agreement between Defendants (Am. Compl. ¶ 13), Count I reads as though MDL persists with its exclusive dealing claim (e.g., id. ¶ 102). To the extent MDL continues to advance an exclusive dealing theory, it must also allege facts to demonstrate “substantial foreclosure of the market for the relevant product.” Eisai, Inc. v. Sanofi Aventis U.S., LLC, 821 F.3d 394, 403 (3d Cir. 2016); see also ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 271 (3d Cir. 2012). MDL does not allege facts to establish either of these elements. a. MDL Does Not Allege Market-Wide Anticompetitive Effects MDL does not even attempt to allege that Defendants’ conduct has increased prices or decreased output. In fact, MDL contends exactly the opposite by asserting that the preferred provider relationship between Independence and LabCorp saves costs for Independence and thus its members. (Am. Compl. ¶ 6.) Instead of alleging higher prices or reduced output, MDL attempts to allege anticompetitive effects by claiming that its STI testing services are better than LabCorp’s tests. (Id. ¶¶ 53-57.) But even if MDL’s tests were superior, Independence’s decision not to include MDL as a provider in its network cannot be said to have reduced the quality of the alleged STI testing market as a whole. McCullough, 2009 WL 775402, at *10 (stating that “the mere fact that one prospective supplier may lose business because of vertical dealings . . . does not itself establish a public injury to competition.” (citation omitted)). As the Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 23 of 33 17 Third Circuit has made clear, showing harm to only a subset of the market does not establish market-wide anticompetitive effects. Deborah Heart & Lung Ctr. v. Virtua Health, Inc., 833 F.3d 399, 404-05 (3d Cir. 2016).4 Because the Amended Complaint does not allege actionable anticompetitive effects, MDL’s antitrust claim fails. b. MDL Does Not Allege Substantial Foreclosure To the extent MDL continues to advance its exclusive dealing theory, MDL is required to—but does not—allege facts plausibly establishing the existence of substantial foreclosure. Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 328 (1961) (stating that an exclusive dealing arrangement is unlawful only when “the competition foreclosed by the contract [is] found to constitute a substantial share of the relevant market.”). The lack of a properly defined market makes it impossible to measure the amount of any purported foreclosure, rendering MDL’s single boilerplate allegation to this effect (Am. Compl. ¶ 105) meaningless. See, e.g., Insignia Sys., Inc. v. News Corp., No. 04-cv-4213, 2005 WL 2063890, at *3 (D. Minn. Aug. 25, 2005) (dismissing Section 1 exclusive dealing claim because conclusory allegations made it “impossible to evaluate the percentage of the market with which [plaintiff] and other competitors are prevented from doing business, let alone determine that [plaintiff] and other competitors are prevented from dealing with a significant number of retailers”). The Amended Complaint does not contain any allegations that would allow the Court to assess the extent of the foreclosure; 4 Even assuming MDL had established market-wide effects, its contention that diminished quality alone, absent increased prices or reduced output, is sufficient to establish anticompetitive effects is a novel approach that has not yet been addressed in this Circuit. Courts elsewhere have rejected such an interpretation of the anticompetitive effects element because allowing antitrust claims to proceed based only on claims of product superiority would “make new law . . . and open the door for antitrust claims to be brought by any plaintiff who claims to have a higher quality product that consumers should be choosing.” Collegenet, Inc. v. Common Application, Inc., 104 F. Supp. 3d 1137, 1149 (D. Or. 2015). Further, MDL has no standing to pursue a complaint as to a reduction in STI testing quality on behalf of Independence members. Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 24 of 33 18 much less provide a basis to determine whether the percentage of alleged foreclosure exceeds the threshold levels of 40 to 50 percent required for Section 1 claims. See LePage’s Inc. v. 3M, 324 F.3d 141, 159 (3d Cir. 2003) (citing United States v. Microsoft Corp., 253 F.3d 34, 70 (D.C. Cir. 2001) (claims under Section 1 usually require “contracts [that] foreclose less than . . . roughly 40% or 50%” of the market)); Eastman v. Quest Diagnostics Inc., No. 15-cv-00415, 2015 WL 7566805, at *11-12 (N.D. Cal. Nov. 25, 2015). Looking past MDL’s failure to supply these critical facts, there can be no substantial foreclosure in these circumstances because MDL and other out-of-network laboratories have the continued ability to compete with LabCorp and other in-network laboratories to provide STI specialty testing to Independence’s members, and to compete for business of patients that do not have health benefit plans with Independence. See Methodist Health Servs. Corp., 2017 WL 2485844, at *2 (plaintiff provided no support for substantial foreclosure because out-of-network hospital could still compete on the merits for patients and for in-network status with insurers). While MDL alleges that some providers no longer refer non-Independence members to it (Am. Compl. ¶ 92), MDL fails to allege that it is precluded from soliciting business from those individuals directly. Because MDL has failed to allege facts establishing substantial market foreclosure, any remnants of its exclusive dealing theory cannot survive as a matter of law. C. MDL Has Not Alleged Facts to Establish an Unlawful Conspiracy While it is correct that Independence and LabCorp have entered into an agreement pursuant to which LabCorp is the preferred provider of certain laboratory services (Am. Compl. ¶ 68), MDL does not challenge the agreement (id. ¶ 13). Rather, MDL continues to hypothesize the existence of a distinct agreement to eliminate competition among providers of STI testing services and to reduce the quality of STI laboratory testing services in Southeastern Pennsylvania. (Id. ¶ 1.) In other words, MDL theorizes that Independence would conspire to Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 25 of 33 19 reduce the quality of testing services for its members and eliminate competition in a market in which it pays for services. But the theory that Independence would “conspir[e] to injure itself” is implausible on its face. Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1109 (7th Cir. 1984); see also Bristow Endeavor Healthcare LLC v. Blue Cross Blue Shield Ass’n, --F. App’x--, No. 16-5149, 2017 WL 2350204, at * 6 (10th Cir. May 31, 2017) (affirming dismissal where allegations that insurer conspired with healthcare providers to reduce competition and thereby injure itself were implausible and could not establish the existence of a conspiracy). Besides being facially implausible, there are no well-pled facts in the Amended Complaint to support the existence of the agreement MDL asserts, much less that Defendants acted in concert for the purposes that MDL suggests. Howard Hess Dental Labs. Inc. v. Dentsply Int’l, Inc., 602 F.3d 237, 254 (3d Cir. 2010) (stating that a conspiracy under Section 1 requires a plaintiff to plead facts “plausibly suggesting ‘a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement’” (citation omitted)). To infer a conspiracy to injure competition, MDL claims that Independence’s alleged decision to no longer reimburse MDL directly, Defendants’ purported communications with Independence’s providers, and MDL’s removal from the NaviNet platform evidence the existence of MDL’s hypothesized agreement. (See Am. Compl. ¶¶ 3, 72, 78, 80-83.) But these alleged facts are circumstantial and are equally consistent with “parallel conduct that could just as well be independent action” and do not “raise the necessary implication of conspiracy.” Twombly, 550 U.S. at 557, 561 n.7. In particular, there is no suggestion that LabCorp was involved in the decision by Independence in 2014 to change how it reimbursed MDL for out-of-network services provided to members with various health benefit plans. (See Am. Compl. ¶¶ 71, 96.) And MDL’s Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 26 of 33 20 allegations of communications with Independence’s providers are equally consistent with Independence’s independent interests of ensuring that providers comply with their contractual obligations in their provider agreements, and with LabCorp’s independent interests in ensuring that in-network testing samples are sent to LabCorp consistent with its preferred provider status. (Id. ¶ 78.) The mere fact that Independence, on behalf of members, and LabCorp might have had economic motives for the alleged conduct in the Amended Complaint “does not give rise to a plausible inference of an agreement” between the two. Howard Hess Dental Labs., 602 F.3d at 255. For all of the foregoing reasons, MDL has once again failed to state a Sherman Act claim, and thus Count I of the Complaint should be dismissed with prejudice. II. MDL’s Amendments Do Not Save Its Tortious Interference Claims In Counts II and III of the Amended Complaint, MDL asserts claims under Pennsylvania law for tortious interference with existing and prospective business relations. To establish intentional interference with existing or prospective contractual relations, MDL must plausibly allege: (1) the existence of a contractual or prospective contractual relation between the complainant and a third party; (2) purposeful action on the part of defendant, specifically intended to harm the existing relation, or to prevent a prospective relation from occurring; (3) the absence of privilege or justification; and (4) actual legal damage as a result of defendant’s conduct. CGB Occupational Therapy, Inc. v. RHA Health Servs. Inc., 357 F.3d 375, 384 (3d Cir. 2004); see also Brotech Corp. v. White Eagle Int’l Techs. Grp., Inc., No. 03-cv-232, 2003 WL 22797730, at *8 (E.D. Pa. Nov. 18, 2003) (“The elements of claims for tortious interference with existing and prospective business relations under Pennsylvania law are identical to the elements of claims for tortious interference with existing and prospective contractual relations . . . .”). MDL has still failed to plausibly allege the required elements of its tortious interference claims. Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 27 of 33 21 A. MDL Has Not Identified Existing or Prospective Contractual Relations with Which Defendants Interfered MDL has failed to identify actual or prospective contractual relations with which there could be interference and with which Independence interfered. To survive a 12(b)(6) motion to dismiss on its claim of tortious interference with existing contractual relations, MDL must allege a contractual relationship with an identified third party. See Council for Educ. Travel, USA v. Czopek, No. 11-cv-0672, 2011 WL 3882474, at *6 (E.D. Pa. Sept. 2, 2011); DePuy Synthes Sales, Inc. v. Globus Med., Inc., No. 17-1068, 2017 WL 1493365, at *12 (E.D. Pa. Apr. 26, 2017). Such contractual relationships are “susceptible of definite, exacting identification.” Kelly-Springfield Tire Co. v. D’Ambro, 596 A.2d 867, 871 (Pa. Super. Ct. 1991). Accordingly, a claim for tortious interference with existing business relations must be dismissed where a plaintiff “fail[s] to identify with specificity the ‘existing clients’ . . . with whom they had contracts,” and “fail[s] to identify the existence of any specific contracts, or the type or nature of business relationships that were interfered with.” Cannella v. Brennan, No. 12-cv-1247, 2014 WL 3855331, at *12 (E.D. Pa. Aug. 6, 2014). For claims of interference with prospective contractual relations, Pennsylvania courts consider whether “there was a reasonable likelihood that the contemplated contract would have materialized absent the defendant’s interference.” Devon Robotics v. Deviedma, No. 09-cv- 3552, 2009 WL 4362822, at *7 (E.D. Pa. Nov. 30, 2009) (citations omitted). A “reasonable likelihood” is something less than a contractual right but more than a “mere hope,” and must be based on “something other than an existing or current relationship.” Acumed LLC v. Advanced Surgical Servs., Inc., 561 F.3d 199, 213 (3d Cir. 2009) (citations omitted). Here, MDL has not and cannot allege interference with actual or prospective contracts. With respect to existing contracts, MDL has “failed to identify with specificity the ‘[patients]’ . . Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 28 of 33 22 . with whom [MDL] had contracts,” and “fail[ed] to identify the existence of any specific contracts, or the type or nature of business relationships [with the patients] that were interfered with.” Cannella, 2014 WL 3855331, at *12. MDL’s boilerplate assertion of “contractual relationships with consumers/insureds of IBC” (Am. Compl. ¶ 116) fails to provide the specificity required to state a claim. Cannella, 2014 WL 3855331, at *11. MDL also has not set forth facts to establish that Independence actually interfered with a contract between MDL and the “consumer/IBC insured.” “A defendant is liable for intentional interference with contract only when the defendant induces or otherwise causes a third party not to perform a contract,” i.e., a situation in which “A causes B to choose one course of conduct rather than another.” Charbonneau v. Chartis Prop. Cas. Co., --F. App’x--, No. 15-3549, 2017 WL 715067, at *3 (3d Cir. Feb. 23, 2017) (citations omitted). Here, MDL contends that Independence interfered with unspecified contracts with patients by “refusing to provide [MDL with] reimbursement for [STI testing services]” and by making it more difficult for MDL to monitor the status of reimbursements on the NaviNet platform. (Am. Compl. ¶¶ 115-18.) Absent from the Amended Complaint is any allegation that Independence prevented patients from reimbursing MDL. Simply put, MDL has failed to allege how Independence “cause[d] [patients] to choose one course of conduct rather than another,” and for this additional reason MDL’s claim that Independence tortiously interfered with its unidentified contracts with Independence’s members in Count II of the Amended Complaint fails. Charbonneau, 2017 WL 715067, at *3. MDL also has not and cannot allege that Independence interfered with prospective contractual relationships with Independence’s in-network providers. Although MDL was placed on notice previously that it cannot “base its claim that there was a prospective contractual Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 29 of 33 23 relationship on . . . an existing or current relationship,” Acumed, 561 F.3d at 213, MDL nevertheless cites only to providers’ past practices in alleging the existence of prospective contractual relationships (Am. Compl. ¶ 125). But these allegations do not plausibly suggest that MDL had a “reasonable likelihood” that new contractual relationships with providers would have formed in the absence of Independence’s alleged conduct. On the contrary, MDL’s allegations concerning past relationships with providers describe them as one-sided, informal arrangements where MDL “served [] [Independence’s] in-network healthcare providers,” and with some had “longstanding relationships.” (Am. Compl. ¶¶ 76, 91.) Nowhere does MDL plead that it was, for example, in contract negotiations with a provider and that a contractual relationship would have materialized absent Independence’s conduct. See TriState HVAC Equip., LLP v. Big Belly Solar, Inc., 836 F. Supp. 2d 274 (E.D. Pa. 2011) (finding plaintiff sufficiently alleged existence of prospective contractual relationship to sell compactors to City where plaintiff directed marketing efforts to the City and had submitted a proposal to the City for the sale of compactors). This failure is fatal to MDL’s tortious interference with prospective contractual relations claim in Count III. Larry Pitt & Assocs. v. Lundy Law, LLP, No. 13-cv-2398, 2013 WL 6536739, at *7 (E.D. Pa. Dec. 13, 2013).5 B. MDL Has Failed to Plausibly Allege that Independence Specifically Intended to Harm an Existing or Prospective Contract MDL’s tortious interference claims fail for the additional reason that MDL has not plausibly alleged that Independence specifically intended to harm MDL’s existing or prospective contracts. The tort of tortious interference “is an intentional one,” meaning that liability for 5 MDL also does not explain how it could have binding provider relationships without running afoul of the federal anti-kickback law. See 42 U.S.C. § 1320a-7b(b); see also OIG Advisory Opinion 15-04 (Mar. 18, 2015), available at https://oig.hhs.gov/fraud/docs/advisoryopinions/2015/AdvOpn15-04.pdf (concluding that certain types of agreements between a laboratory and physicians practices to provide laboratory services could “potentially generate prohibited remuneration under the Anti-Kickback Statute”). Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 30 of 33 24 tortious interference arises only if the defendant acted “[f]or the purpose of causing harm to the plaintiff . . . .” Glenn v. Point Park Coll., 272 A.2d 895, 899 (Pa. 1971). Thus, “to succeed on [a] [tortious interference] claim, [a plaintiff] must demonstrate that [the] defendant acted solely, or at least primarily, to cause specific harm to [plaintiff’s] relationship . . .” Gelman v. Citizens Bank of Pa., No. 332, 2010 WL 7786113 (Pa. Com. Pl. Oct. 18, 2011); see also Chrysler Credit Corp. v. B.J.M., Jr., Inc., 834 F. Supp. 813, 843 (E.D. Pa. 1993) (“[T]he gist of tortious interference with a business relationship is the intent to destroy plaintiff’s good will and reputation.”). The Amended Complaint does nothing more than assert the legal conclusion that Independence’s actions were “undertaken for the express purpose of interfering with . . . MDL’s business relations.” (Am. Compl. ¶¶ 120, 129.) A more plausible inference to be drawn from MDL’s allegations is not that Independence acted with the express purpose to interfere with MDL’s alleged contracts or prospective contracts, but that Independence was acting to advance its and its members’ interests of ensuring that STI tests were sent to a lower-cost, in-network provider of laboratory services. (See id. ¶ 6.) MDL’s tortious interference claims should be dismissed for this additional reason.6 6 MDL’s tort claims also fail because MDL has not shown that Independence acted in the absence of privilege or justification. Assembly Tech. Inc. v. Samsung Techwin Co., No. 09-cv- 00798, 2009 WL 4430020, at *5 (Nov. 16, 2009); see also Nat’l Data Payment Sys., Inc. v. Meridian Bank, 212 F.3d 849, 857 (3d Cir. 2000) (citing Restatement (Second) of Torts § 768) (describing qualified privilege for parties to interfere with contracts of a business competitor). First, MDL has not alleged conduct amounting to an unlawful restraint of trade. See Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 530-31 (3d Cir. 1998). Second, MDL does not identify any independently actionable conduct for its tortious interference claims, which is required to establish that Independence employed wrongful means. Acumed, 561 F.3d at 215- 216; Alpha Pro Tech, Inc. v. VWR Int’l LLC, 984 F. Supp. 2d 425, 449 (E.D. Pa. 2013). Third, according to the allegations of the Amended Complaint, Independence acted in its own interests. (See Am. Compl. ¶¶ 12, 135-36.) Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 31 of 33 25 III. MDL’s Duplicative Unfair Competition Should be Dismissed MDL’s claim for unfair competition is unaltered and continues to refer to the same alleged conduct that MDL uses to support the Sherman Act and tort claims. (Am. Compl. ¶¶ 132-137.) MDL’s entirely duplicative unfair competition claim thus fails as well and should be dismissed as a matter of law. See Larry Pitt & Assocs., 2013 WL 6536739, at *7 (dismissing plaintiff’s unfair competition claim where plaintiff “relie[d] on the same deficient factual allegations to support both his antitrust claims and his state law unfair competition claims”); Fresh Made, Inc., 2002 WL 31246922, at *9 (dismissing plaintiff’s unfair competition claim where plaintiff alleged same facts as Sherman Act violation and court found plaintiff had failed to plausibly allege violation of Sherman Act). IV. MDL’s Claims Should be Dismissed with Prejudice. MDL has failed to correct the defects in its claims even after having been placed on notice of those flaws by Defendants and having the benefit of oral argument at which they were discussed at length. See Krantz v. Prudential Invs., 305 F.3d 140, 144 (3d Cir. 2002) (finding no abuse of discretion where leave to amend was denied after motion to dismiss original complaint put plaintiff on notice of deficiencies and plaintiff failed to rectify them). MDL’s failure to correct the defects in its claims also shows that additional amendment would be futile. See Lum v. Bank of Am., 361 F.3d 217, 229 (3d Cir. 2004) (affirming with prejudice dismissal of antitrust claims because amendment was futile). For both of these reasons, dismissal of the Amended Complaint should be with prejudice. CONCLUSION For the foregoing reasons, MDL’s Amended Complaint fails to state a claim against Independence and thus should be dismissed with prejudice. Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 32 of 33 26 Dated: June 23, 2017 Respectfully submitted, MORGAN, LEWIS & BOCKIUS LLP /s/ Steven A. Reed Eric Kraeutler eric.kraeutler@morganlewis.com Steven A. Reed steven.reed@morganlewis.com R. Brendan Fee brendan.fee@morganlewis.com Zachary M. Johns zachary.johns@morganlewis.com 1701 Market Street Philadelphia, PA 19103 Telephone: +1.215.963.5000 Facsimile: +1.215.963.5001 Case 2:16-cv-05855-GJP Document 44-1 Filed 06/23/17 Page 33 of 33 UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA MEDICAL DIAGNOSTIC LABORATORIES LLC, Plaintiff, v. INDEPENDENCE BLUE CROSS, et al., Defendants. Case No. 2:16-cv-5855 Hon. Gerald J. Pappert JURY TRIAL DEMANDED [PROPOSED] ORDER AND NOW, this _____ day of ___________________ 2017, upon consideration of Defendant Independence Blue Cross, LLC’s Motion to Dismiss and any response thereto, IT IS HEREBY ORDERED that, for the reasons set forth in Defendant’s motion and supporting memorandum, Plaintiff’s Amended Complaint is DISMISSED WITH PREJUDICE as to Defendant Independence Blue Cross, LLC. BY THE COURT: Hon. Gerald J. Pappert Case 2:16-cv-05855-GJP Document 44-2 Filed 06/23/17 Page 1 of 1 CERTIFICATE OF SERVICE I hereby certify that on this 23rd day of June, 2017, the undersigned filed the foregoing Memorandum of Law in Support of Defendant Independence Blue Cross, LLC’s Motion to Dismiss Plaintiff’s Amended Complaint via the Court’s CM/ECF system, which sent notice to all Counsel of record in this action. /s/ R. Brendan Fee Counsel for Defendant Independence Blue Cross, LLC Case 2:16-cv-05855-GJP Document 44-3 Filed 06/23/17 Page 1 of 1