Scottie Forbes Lee

Last month, we discussed an important decision from the Supreme Court of North Carolina involving antitrust claims against Atrium Health, the large public-hospital system in Charlotte. In DiCesare v. Charlotte-Mecklenburg Hospital Authority, the Supreme Court held that quasi-municipal corporations like Atrium are exempt from liability under chapter 75—including section 75-1.1 and North Carolina’s antitrust laws. But the Supreme Court held open the door for another type of antitrust claim against quasi-municipal entities: a claim under the anti-monopoly clause of North Carolina’s constitution. This post discusses the Supreme Court’s treatment of that claim.

Background

In DiCesare, healthcare consumers filed a putative class action against Atrium because of “steering restrictions” in Atrium’s contracts with insurance companies. The steering restrictions limit an insurer’s ability to direct their insureds to healthcare providers other than Atrium. The plaintiffs alleged that Atrium violated chapter 75’s prohibitions on restraints of trade and monopolization by entering into contracts with steering restrictions that reduce competition in the relevant market. They also alleged that Atrium violated the “anti-monopoly clause” in article 1, section 34 of North Carolina’s constitution, which provides that “monopolies are contrary to the genius of a free state and shall not be allowed.” 

In the North Carolina Business Court, Atrium moved for judgment on the pleadings. As we previously discussed, the Business Court dismissed the chapter 75 claims against Atrium based on its status as a quasi-municipal corporation. But Atrium’s success in the Business Court was limited: the Business Court denied Atrium’s motion as to the anti-monopoly-clause claim.

Plaintiffs’ claim under the anti-monopoly clause

Unlike chapter 75, the “anti-monopoly clause” in article 1, section 34 applies only to state action. Thus, Atrium’s status as a quasi-municipal corporation—a type of governmental entity—made the hospital fair game for a section 34 claim.

The Business Court evaluated the plaintiffs’ section 34 claim under a case called American Motors Sales Corp. v. Peters from the Supreme Court of North Carolina. In American Motors, the court defined a monopolist under section 34 as “an organization or entity so magnified that it suppresses competition and acquires a dominance in the market.” The court identified four defining characteristics of a monopoly: (1) control of so large a portion of a relevant market that (2) competition is stifled, (3) freedom of commerce is restricted, and (4) the monopolist controls prices. The court explained that “to monopolize, one must control a consumer’s access to new goods by being the only reasonably available source of those goods.” Importantly, the American Motors court explained that “[m]ore than a mere adverse effect on competition must arise before a restraint of trade becomes monopolistic.”

Atrium argued that under American Motors, a section 34 claim required the plaintiffs to plead that competition in the relevant market had been eliminated, not just reduced. The Business Court disagreed. It concluded that even though the complaint acknowledged that Atrium had at least two competitors, Atrium could still hold a monopoly over hospital services in the Charlotte area.

The Supreme Court’s decision

Like the Business Court, the Supreme Court applied American Motors to the plaintiffs’ section 34 claim, but it reached a different result.

The Supreme Court concluded that the plaintiffs failed to plead that Atrium controlled “‘so large a portion of the market’ that it not only stifled competition and restricted freedom of commerce, but also controlled prices.”

First, the court found it significant that the complaint alleged that Atrium possessed “an approximately fifty percent share of the relevant market.” While courts have not identified a fixed market share that an entity must hold to have monopoly power, courts are “skeptical” of monopoly claims when an entity holds less than a 50% share. The court was careful to note, however, that it does “not wish to be understood as holding that a monopolization claim cannot proceed unless all competition has been eliminated” and does not understand American Motors to impose that requirement.

Second, the court explained that in light of the 50% market share alleged in the complaint, the plaintiffs needed to allege that Atrium had the ability to control prices in the relevant market. The plaintiffs did not do so. Instead, the complaint alleged only that Atrium used its market power to “insulate itself from competition” so that it could charge “higher prices.” This was not the same as showing that Atrium was able to effectively control prices in the relevant market.

In sum, because the complaint alleged that Atrium held a 50% share in the relevant market and faced sizeable competition within the market but failed to show that Atrium controlled prices in the market, the plaintiffs failed to state a claim under the anti-monopoly clause.

Takeaways

The DiCesare opinion provides important takeaways for practitioners.

First, the State’s immunity from suit under section 75-16—the remedial statute for chapter 75—categorically extends to all quasi-municipal corporations, simply by virtue of their quasi-public status.

Second, a plaintiff can bring a claim against quasi-municipal corporations like Atrium under the anti-monopoly clause of North Carolina’s constitution. But such a claim is unlikely to survive unless the plaintiff can allege that the defendant controls such a large portion of the relevant market that it not only stifles competition, but also controls prices.

Author: Scottie Lee