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Monday, July 22, 2024 | Back issues
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Ninth Circuit orders new trial in antitrust case against major California hospital chain

A split Ninth Circuit panel ordered a new trial against Sutter Health, saying a 2022 jury didn't see key evidence of anticompetitive behavior.

SAN FRANCISCO (CN) — A Ninth Circuit Court of Appeals panel majority took a rare step Tuesday when it ordered a new trial after finding that a federal judge mishandled a sprawling class action accusing Northern California's largest hospital chain of anticompetitive contracting practices.

After jurors cleared Sutter Health of wrongdoing in a 2022 trial, the network must once again face claims that it abused its market power and charged supracompetitive rates, the panel determined.

The lower court contravened California law by removing the word "purpose" from jury instructions, the circuit said, thus failing to instruct jurors to consider Sutter’s anticompetitive purpose when weighing a claim of unreasonable course of conduct.

In addition, the panel concluded that Northern District of California U.S. Magistrate Judge Laurel D. Beeler was wrong to exclude evidence of Sutter's conduct before 2006 — five years before the specific contracts in question were negotiated and took effect.

"The excluded evidence concerned the inception, Sutter’s stated purpose, and effects of the conduct challenged during the trial," U.S. Circuit Judge Lucy Koh, a Biden appointee, wrote for the panel.

"Sutter failed to rebut the presumption that the error prejudiced plaintiffs because, among other things, the excluded evidence would have rebutted Sutter’s testimony and arguments at trial."

Matthew Cantor, an attorney with Constantine Cannon LLP representing the plaintiffs, applauded the decision.

"The jury did not see or hear critical evidence, including Sutter’s admissions of its anticompetitive purpose and the anticompetitive effects that it caused, due to erroneous rulings of the district court," Cantor said Tuesday.

Attorneys for Sutter did not immediately respond to requests for comment. 

A handful of individuals and two small businesses brought the claims under California’s Cartwright Act in 2012, claiming Sutter's contracting practices with insurers caused 3 million California families and businesses to collectively pay nearly $411 million in insurance premium overcharges between 2011 and 2017.

In several regions of California, there are few or no providers besides Sutter for inpatient hospital services. The plaintiffs say that helped Sutter hold market power and charge higher service prices. 

Sutter in the early 2000s formed contracts with health plans on a “system-wide” basis after determining that would give it more leverage and increase profits by nearly $200 million per year, the plaintiffs say — and then coerced health plans into contracts on its terms by terminating all existing contracts and controlling the new system.

The network also used three contract terms in its contracts to insulate itself from competition and prevent health plans from “steering” patients toward lower-priced providers, according to the plaintiffs.

With this context in mind, the federal judge did not consider the history of Sutter’s conduct to be an essential aspect of the plaintiffs’ legal theory, Judge Koh explained in the opinion, which was joined by U.S. Circuit Judge Roopali Desai. As a result, the jury could only compare Sutter’s practices between 2006 and 2010 with practices during the damages period starting in 2011.

U.S. Circuit Judge Patrick J. Bumatay, a Donald Trump appointee, wrote in dissent that the panel should have let the federal court choose a reasonable cutoff date for evidence. 

The dissenting judge, who would have affirmed the jury verdict, made a lengthy comparison of the litigation to the long-running soap opera “Days of Our Lives" to argue that in cases with many episodes, courts must seek to include only the most relevant evidence. 

He said the majority's ruling will mean that federal courts cannot exclude historical evidence from trials whenever “history” is relevant — which he called a mistake.

“The parties want to litigate disputes that sometimes have long histories but only involve more recent conduct," Bumatay wrote. "When that’s the case, we rely on the district court’s discretion to fashion reasonable limits for admissible historical evidence. After all, trials can’t last forever and jurors can’t always process five, 10 or 20 years of evidence.”

The judge accused the majority of crafting a new antitrust rule which has no Supreme Court nor California precedent and which makes finding anticompetitive purpose essential in every antitrust case.

Judge Koh said in response that her dissenting colleague had mischaracterized the majority’s decision.

“Nothing in our decision today prevents district courts from setting reasonable limits on the introduction of evidence or from conducting the proper balancing test under Rule 403,” Koh said. “All we hold is that, in this particular case, the district court used too blunt an instrument.”

The case was the first antitrust class action against the hospital network to go before a jury. In 2016, the appellate court reversed a federal judge’s order dismissing the case, finding the plaintiffs had alleged sufficiently detailed geographic markets for inpatient hospital services.

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Categories / Appeals, Business, Courts

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