Mercatus Group, LLC v. Lake Forest Hosp. (Full Text)

In th e
Un ited S tates Court o f Appea ls
F o r th e S ev en th C ircu it

No . 10-1665

M ERCATUS GROUP , LLC ,

LAKE FOREST HOSP ITAL,

P la in ti f f-Appel lan t,

v .

D efendant-A pp ellee .

Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 07 cv 2042—Blanche M. Manning, Judge.

ARGUED NOVEMBER 4 , 2010—D EC IDED M AY 26 , 2011

Be fore BAUER, MAN ION, and HAM ILTON, C ircu it Judges .
H AM ILTON, C ircu it Judge . The F irs t Am endm en t of th e
Cons t itu t ion sta tes tha t Congress sha l l m ake no law
abridg ing the “righ t of the peop le peaceab ly to assemb le ,
and to p e t it ion the Governm en t for a redress of griev –
ances .” Under the N oerr-Penn ing ton doc trine , federa l
an t i t ru s t law s have been in terpre ted to pro tec t these
F irs t Am endm en t r igh ts by immun iz ing pet it ion ing
ac t iv ity from l iab ility . In th is app ea l from the d is tr ic t

No . 10-1665

judgm en t for de fendan t –
court ’s gran t of summ ary
ap p e l lee L ake Fo re s t H o sp ita l , w e mu s t d ec id e
whe ther tha t d oc tr ine she lters from an t itrus t liab ility
one compe titor ’s a lleged m is rep re sen ta t ion s abou t
ano the r made du r ing and in re la t ion to local zon ing
p roceed ings . W e conc lud e tha t it doe s . Becau se noth ing
else in the record i s su fficien t to m ake ou t a cla im
for liab ility under the an t itrus t law s , we affirm .

I . Background
In 2004 , p la in t iff-appe l lan t M erca tus Group , LLC , began
p lan s to con stru ct a phys ic ian cen t e r— essen tia lly , a
m ed ica l office bu ild ing from wh ich phys ic ian s can p rov id e
m ed ica l services— in the V i llage of Lake B lu ff , Illino is .
M e rcatus sough t to bu ild th is cen te r on a p la t of land
occup ied a t tha t t im e by an au tom ob ile deale rsh ip (the
“Shepard Land ”) . M erca tu s ’ par tn er in th is ven tu re
w as Evans ton Nor thwes tern H ea lthcare (“ENH ” ), w i th
wh ich M erca tus p lanned to cons truc t a num ber of such
phys ic ian cen ters .
Appellee Lake Fores t H osp i ta l (the “Hosp ita l”) is
located in nearby Lake Fo re s t , a short d is tance from
the Sh ep ard Land . The Hosp ita l recogn ized the “huge
threa t” tha t the proposed M erca tus Lake B lu f f cen ter
posed to its ab ility to com p e te in the loca l m arke t for
m ed ical se rv ices . To p ro tec t it se lf from th is threa t , the
Hosp ita l lau n ched a mu l ti-pronged campa ign des igned
to p reven t M erca tu s from open ing the phys ic ian cen ter .
F irs t , the H osp i ta l lobb ied m em bers of the Lake B luff
Board of V illage Trus tees— bo th ind iv idua lly and a t a

No . 10-1665

num ber of pub lic V illag e B oa rd m ee tings held on th is
m a t ter— to deny M erca tus the app rova ls necessary to
beg in con stru ct ion on
th e Sh epa rd Land . Second ,
the Hosp ital launched a pub lic re la tion s campa ign en –
cou raging Hosp ital emp loyees and donors , a s we ll a s the
loca l c omm un i ty , to pu t po lit ica l pressure on the V i llage
Board to oppose the M erca tu s cen ter . Th ird , the Hosp ita l
to ld ENH to s tay ou t o f Lake B lu ff and mad e a num ber
of deroga to ry s ta temen ts abou t M e rcatus to ENH and
other healthcare p rovid ers . Finally , the H osp ita l iden ti-
fied two Hosp ita l-a ffilia ted phys ic ian p rac t ice groups
tha t p lanned to move the ir p ract ices to the new M e rcatu s
phys ic ian cente r and offe red those group s va riou s incen-
t ives no t to do so .
The Hosp ita l’s e fforts w ere success fu l . Bo th phys ician
prac tice groups pu lled ou t o f the ir cond it iona l agree –
m ent s w ith M e rcatus , the V illage Boa rd den ied M e rcatus
th e approva ls necessary to d ev e lop th e Sh epard Land ,
and ENH term ina ted its bus iness rela t ionsh ip w ith
M erca tus . M erca tus never opened a phys ic ian cen ter
in Lake B luff .
M erca tus brough t th is su i t in federal d is tric t cour t ,
a lleg ing in relevan t par t tha t the Hosp ita l had m onop o –
lized and /or a t temp ted to m onopo lize a lleged m arke ts
for “com p rehen sive phys ician serv ices” and “d iagnos tic
im ag ing services”
in eastern Lake C oun ty , Illino is ,
in v io la tion of the She rm an Ac t , 15 U .S .C . § 2 . On the
1

1
M e rca tu s ’ am end ed com p la in t d e fin es “d iagno st ic im ag ing
serv ices” as “m agne t ic resonance im ag ing , com pu te rized
(con t inued . . .)

No . 10-1665

Hosp ita l’s mo t ion , the d is tr ic t cour t d ism issed som e of
M erca tus ’ c la im s aga ins t the Hosp ita l for fa ilure to s tate
a c laim . M ercatus Group LLC v . Lake Forest H osp ., 528
F . Supp . 2d 797 (N .D . Il l. 2007) (“M erca tus I” ). M e rcatus
filed an am ended comp lain t and , fo llow ing ex tens ive
d iscovery , the d is tr ic t cou r t gran ted the H osp i ta l ’s
m ot ion for summ ary judgm en t on tha t am ended com –
p lain t . M ercatus Group LLC v . Lake Forest H osp ., 695 F . Supp .
2d 811 (N .D . Il l. 2010) (“M ercatus II”) . Th e d is t r ic t cour t
conc lud ed tha t the Hosp i ta l’s e f forts be fore the V illage
Boa rd we re p ro tec ted from an t it ru s t liability by the
F irst Am endm en t righ t to pe t it ion the governm en t for
th e red ress of grievances . Id . at 818-21 . A s for th e H osp i-
ta l ’s o ther conduc t , the cou r t he ld tha t w h a t i t charac ter-
ized as m ere m isrep re sen ta t ions and d isparag ing com –
m en ts w ere , as a m a t ter o f law , insu f fic ien t to g ive r ise
to an tit ru st liab ility . Id . a t 823 ; see also M erca tus I , 528
F . Supp . 2d at 810 (d ism is sing part of or ig ina l comp la in t
on s im i lar ground s) .
On appea l , M erca tu s f irs t argues tha t th e Hosp i ta l ’s
pe t it ion ing conduc t re la t ing to the V i llage Board m ee tings

1
( . . .con t inued )
tom og raphy , nuc lea r m ed ic ine , rad iog raphy , and u l tra –
sonography , so ld to p a t ien ts” and “comp reh en siv e phy sic ian
serv ices” a s “b us iness se rv ices such as b i l ling ass is tance ,
c l in ica l se rv ice s su ch as on -s i te d iagno st ic im ag ing se rv ice s ,
and rea l esta te s e rv i ce s , su ch as leas ing sp ace to phy s ic ian s .”
W e do no t add ress in th is app ea l the v iab i l i ty o f p la in t i ff’s
p roposed p rodu c t and geog rap h ic m ark e t d e f in i t ion s .

No . 10-1665

is not p ro tec ted by the F ir s t Am endm ent becau se the
Hosp ita l m ade a num b er of m isrepresen ta tions tha t
a ltered the ou tcom e of those m ee tings . M erca tus argues
in the a lterna t ive tha t the Ho sp i ta l’s other conduc t— its
pub lic rela t ions campa ign , its commun icat ions w ith
ENH and o ther hea lthcare prov iders , and its e fforts to
conv ince the phys ic ian prac tice groups no t to re locate
the ir prac t ices to M erca tus ’ phys ic ian cen ter— v io la ted
the Sherman A c t even if the V i llage Board proceed ings
are d isregard ed .
W e affirm . Even if w e assum e that th e H o sp i ta l mad e
m a te ria l m i srep re sentat ion s du ring and re la ting to the
V i llage Board proceed ings concern ing M erca tus ’ phys ic ian
cen te r, such m i srep re sen ta tion s are lega lly irre levan t
becau se those m ee tings were inheren tly polit ica l in
na ture . The sam e is true o f the Hosp i ta l’s pub lic re la –
t ions campa ign , wh ich was inex tr icab ly in ter tw ined
w ith the Hosp ita l’s efforts be fo re the Board . A s for
the Hosp i ta l ’ s con tac t s w i th ENH and o ther hea l thcare
prov iders , those con tac ts cons titu ted m ere speech tha t
wa s no t ac tionab le under the Sherm an Ac t . F ina lly , no
reasonab le tr ier of fac t cou ld conc lud e from th is rec –
o rd that th e Hosp ita l’s su ccess fu l effort to conv in c e
phys ic ians not to reloc a te the ir prac tices to M erca tus ’
p roposed phys ic ian center con st itu ted p redatory con –
du c t forb idd en by the an t itrus t law s .

II . Standard o f R eview
W e rev iew de novo the d istric t cou rt ’s gran t of sum –
m ary judgm en t . Omn icare , Inc . v . Un ited H ea lth G roup ,

No . 10-1665

Inc ., 629 F .3d 697 , 705 (7 th C ir . 2011 ). Summ a ry judgm ent
is appropr ia te when the p lead ings and subm iss ions in
the record ind ica te the absence of any genu ine issues
o f m a ter ia l fac t , such tha t the m ov ing party is en t it led
to judgm en t as a m at te r of law . M idw est Imports , L td . v .
Cova l , 71 F .3d 1311 , 1317 (7 th C ir . 1995 ). Becau se M e rcatus
opposed summ ary judgm en t , w e d raw all rea sonab le
fac tua l inferen ce s f rom the record in M erca tu s ’ favor .
Jakubiec v . C ities Serv ice Co ., 844 F .2d 47 0 , 471 (7 th C ir .
1988) . W e w i ll a ffirm on ly if , v iew ing the record in such
a favo rab le ligh t to M ercatus , no reasonab le jury cou ld
have rendered a verd ic t in M erca tus ’ favor on any of
its cla im s . W i lson v . W i l l iam s , 9 97 F .2d 348 , 350 (7 th C ir .
1993 ) .
In evalua t ing mu l t ip le c la im s under these s tandards ,
w e recall that a p lain tiff “shou ld be given the fu ll benefit
of [it s] p roof w ithou t t igh t ly compa rtmen ta liz ing the
var iou s fac tual compon en ts and w ip ing th e s la te c lean
a fter scru t iny o f each .” Con tinen ta l O re Co . v . Un ion Carbide
& Carbon Corp ., 370 U .S. 690 , 699 (1962) . Tha t does not
m ean , however , tha t we w ill aggregate the effec ts of
conduc t immun ized from an t it ru s t liability w i th the
e ffec ts of conduc t no t so immun ized . Tha t app roach
wou ld nu l lify the immun i ty . For tha t reason , we mus t
first iden t ify any conduc t tha t is immun ized . A fter
w e do so , w e cons ider the ev idence of the rem a in ing
cha l lenged conduc t in the aggrega te to see if it is su f-
fic ien t to support an t itrus t liab ility .

No . 10-1665

III. Lobby ing the V il lage Board— the N oerr-Penn ington D oc-
trine
M e rcatus ’ p rim a ry a rgum ent on appeal is tha t the
Hosp ita l ’s conduc t in the V i llage Board proceed ings
is not p ro tec ted by the F irs t Am endm ent . Th is , M e rcatus
argues , is becau se the Hosp i ta l a l leged ly m ade num er-
ous m isrepresen ta tions and m a ter ia l om iss ions o f fac t
to the V illage Board tha t u lt im a tely cau sed the Board to
deny M e rcatus pe rm is sion to begin con st ruc tion on the
Sh epard Land .

A . Facts on Summ ary Judgm en t
M erca tus first appeared be fore the V i llage Bo ard a t
an Ap r il 2006 boa rd m ee t ing , at wh ich t im e M e rcatus
m ade an in form a l pre-filing presen tat ion of its pre –
l im inary p lans for a phys ic ian cen ter on the Shep ard
Land . M erca tus represen ta t ives argued tha t the phys ic ian
cen ter wou ld be “a good pro jec t for the commun i ty
of Lake B lu ff .” The V illage Boa rd a lso hea rd from the
Hosp ita l’s ou tgo ing pres iden t , B ill R ies , who c la im ed
th a t the M erca tus phys ic ian cen ter wou ld no t be good
for the commun i ty because i t w ou ld ex trac t “the mos t
pro fitab le ou tpa t ien t serv ices” from loca l hosp i ta ls . R ies
al so ques tioned M ercatus’ comm itm en t to char itab le
m ed ica l care and c la im ed tha t the Hosp i ta l “comm it –
ted over $25 m i l lion in sub sidy and char ity to the
peop le of Lake C oun ty ,” rep re sent ing “nea rly 13 pe rcen t
o f our ne t revenue .” V i llage Board trus tee M ichae l
Pe ters , a phys ic ian a t the Hosp ita l, a lso expressed

No . 10-1665

conce rn tha t the M e rcatus p lan m igh t jeopa rd ize the
Hosp ita l and cou ld lead to h igher hea lthcare prices .
In Sep tem ber 2006 , the Lake B luff A rch i tec tu ra l Board
of Rev iew reviewed the p roposed s i te p lan for the
M erca tu s phys ic ian cen ter . The A rch i tec tu ra l Board
recomm ended app rova l o f the s ite p lan , wh ich was
th en taken und e r con s id era t ion by th e V illage Board .
A ccord ing to Lake B lu f f ord inances , on ly a vote by two –
th irds of th e V illage Board cou ld overtu rn th e A rch it e c –
tu ra l Board ’s s i t e p lan app rova l . A t the V i l lage Board ’s
Oc tober 2006 m ee ting , however , Lake B lu ff’s at torney
in form ed the V i llage Board tha t , in add it ion to s ite
p lan app rova l , M erca tu s needed separa te V i llage Boa rd
app roval even to develop the Shepa rd L and . A s he ex-
p lained , a spec ial u se ord inan ce had been app licab le
to
the Shepard Land s ince 1 972 . Tha t ord inance
“sp ec ia lly c lass ified” th e Sh epard Land “ for u sage as a
new re tail au tom ob i le . . . fac ility .” Any “new uses or
d i fferen t u se s” w ere to be “subm it ted to the [V i llage
Boa rd ] for a pub lic hea ring to asce rtain whethe r the
sam e w ill be approved .” The 1976 and 1979 am endm en ts
to the ord inance reaffirm ed th a t any proposed fu ture
deve lopm en t or use o f the Shepard Land requ ired V i llage
Board approva l. M er ca tus ’ a t torney at temp ted
to
con vince the Board tha t the ord inance and its am end –
m ent s d id not requ ire a sepa ra te vote on developm ent
approva l , bu t to no ava il . Th e V illage Board ele c t ed
to con s id e r
i s s u e o f d ev e lopm en t app rova l
t h e
separa te ly be fore add ress ing th e issu e of s ite p lan ap –
p rova l .

No . 10-1665

Represen ta t ives o f M erca tus and the H osp ita l both
made sta tem en ts to th e V illage Board regard ing d eve lop –
m en t app rova l . On beha lf of M erca tu s , B i ll M aggard
argued for app rova l becau se the phy s ic ian cen te r wou ld
“prov ide [ ] new so lu t ions to the hea lthcare cris is by
e lim ina t ing ine ffic ienc ies in hea lthcare .” He a lso argued
tha t the Hosp i ta l “doesn ’ t have a m onopo ly on pro –
v id ing hea lthcare serv ices to the c ommun ity” and
po in ted ou t tha t th e M e rca tus agreem en t w ith ENH
ob liga ted it to prov ide charity care .
In re spon se , Ho sp ital CEO Tom M cA fee po in ted ou t
tha t the Hosp i ta l is a no t-for-pro fit charity and vo iced
concern tha t M erca tus wou ld “cherry p ick the mos t
p ro f i tab le services ou t o f commun ities for for -p ro fit
ven ture backed opera tions a t the expense of commun i ty
hea l thcare p rov ide rs .” If the M erca tu s p ro jec t w en t for-
w ard , M cA fee es tim a ted , it wou ld cos t the Hosp ita l “at
leas t $2 m illion a year in los t bot tom line .” He add ed
tha t “m illions o f do llars [for] th is hosp ita l is n u rses a t
the bed s ide” and “ l itera lly [r isked ] the su rv ival of the
ins t itu t ion .” M cA fee a lso no ted tha t M erca tus ’ par tner
ENH was being inve st iga ted by the FTC for an ti-com pet i-
t ive a c t iv it ies . In sum , he sa id , “enab ling M erca tus to
develop a fac ility that w ill com pete w i th the hosp ita l . . .
w i l l no t advance the hea lthcare need s of th is comm u –
n ity . It w ill defin ite ly dam age them .”
A f te r fu rthe r statem ent s by the H o sp ital’s CEO and
a numbe r of Ho sp i ta l phys ic ians who opposed the
M e rcatus p ro ject , as we ll a s from som e local c it izen s
who spoke ou t in favo r of the pro jec t , V i llage Boa rd

No . 10-1665

t ru s tee D r . Peters aga in exp re s sed conce rn tha t the
M erca tus phys ic ian cen ter cou ld have a nega t ive
impac t on the Hosp ita l. Dr . Pe ters a lso specu la ted
tha t M erca tus wou ld u l tim a tely ra ise pr ices , no ting that
the FTC had found M erca tus ’ par tner ENH “gu i lty o f
rais ing pr ices”
in 2005 . The Board then voted to
approve the deve lopm en t of the Shepard Land bu t de –
ferred its vo te on s ite p lan app rova l to its Novem ber
m ee ting .
A t the Boa rd ’s Novem ber mee ting , howeve r, the
Board vo ted to r e con sid er its gran t of d eve lopm en t ap –
p rova l . The Board then tab led the m a t ter to i ts Janua ry
m ee ting . A t that m ee ting , Hosp ita l CEO M cA fee again
vo iced h is belie f tha t the M erca tus p hys ician cen ter
wou ld “rem ove m illions o f d o l lars” from the H osp ita l ,
wh ich “s imp ly [d id no t] have the resources to de –
fend [i tse lf] .” W i th D r . Pe te rs abs ta in ing , the Board
th en unan imous ly vo ted to d eny d eve lopm en t ap –
p rova l . The Boa rd also den ied site p lan app rova l .

B . The N oerr-Penn ing ton D octrine
In it s am ended comp la in t , M e rca tu s c la im ed tha t the
Hosp i ta l shou ld be he ld liab le in an t itrus t because
it d ra st ica lly m i srep re sented , am ong othe r th ings , the
ex ten t to w h ich the M ercatus phys ician cen te r wou ld
harm the Ho sp ital . In it s am ended comp la in t , M e rcatus
a lleged tha t th e Hosp ital lied when it c la im ed tha t the
M e rcatus cen te r wou ld “cau se a $2 m i ll ion los s to [the
Hosp ital] , d rive the Ho sp ital ou t of bu s ine s s , and

No . 10-1665

preven t [the Hosp i ta l] from prov id ing char ity care .” For
pu rposes o f th is dec is ion on ly , we w ill assum e tha t all of
the sta tem en ts cha llenged by M erca tus w ere in fac t fa lse .2
In gran t ing summ a ry
jud gm ent aga in st M e rcatus
on th is c la im , the d is tr ic t cour t he ld tha t any m isrepre –
sen tat ions to the Board were immun ized from an t itrus t
liab il i ty under the N oerr-Penn ing ton doc tr ine . M ercatus II,
695 F . Supp . 2d a t 818 -21 . Th is doc tr ine takes it s nam e
from Eastern R .R . Presiden ts Con ference v . N oerr M o tor
Freight , Inc ., 365 U .S . 127 (1961) (ho ld ing th a t ra ilroads ’
pub lic ity campa ign to p rom o te support for law s harm fu l
to tru cking in te rest was immune from an tit ru s t liab il-
ity ) , and Un ited M ine W orkers o f Am erica v . Penn ing ton ,
381 U .S . 657 (1965) ( jo in t effort s by m ine rs ’ un ion and
large coa l compan ies to have federal agency im p ose
h igher m in imum wage for coa l supp l iers to TVA were

2
A cco rd ing to M e rca tus , the fa lsi ty o f the H osp i ta l ’s c la im tha t
M e r ca tu s posed a th rea t to th e Ho sp ita l can b e shown “by
s im p ly ob serv ing [the H osp i ta l ’s ] ac tu a l f inan c ia l s ta tu s”— th e
fa ct tha t th e Ho sp ita l had “ sub s tan tia l a sse ts in c lud ing
cash , stock , land [ ,] a nd bu i ld ings” as w e l l as “subs tan t ia l ex tra
cap ita l capac i ty fo r expan s ion .” M e r ca tu s a lso c la im s tha t th e
H o sp i ta l ’s in terna l no tes rev ea l th e fa lsi ty o f the H o sp i ta l ’s
c la im tha t i t prov id ed $25 m i l l ion in sub s idy and cha r i ty to
the comm un i ty . Because , as w e exp la in be low , the a l leged
fa ls i ty o f th e Ho sp ita l ’s sta t em en t s to th e V i l lag e Boa rd is o f
no lega l s ign ifican ce in th is ca se , w e exp re ss no op in ion on
wh e th e r M e rca tu s m u s te red su ffic ien t ev id en ce to p rov e th e
fa ls i ty o f th e Ho sp ita l ’s p red ic t iv e s ta tem en ts to th e V i l lag e
Boa rd .

No . 10-1665

imm une from an titru st liab i lity ) . Th e doc tr in e ex tends
ab so lu te immun ity under the an tit ru st law s to “busi-
nesses and oth er associa t ions when they jo in toge ther to
pe t it ion leg is la t ive bod ies , adm in is tra t ive agenc ies , or
cou rts for ac tion that m ay have an ticom pet itive e ffec ts .”
W i lk v . Am erican M ed ica l Ass ’n , 719 F .2d 207 , 229 (7 th C ir .
1983) ; see LaSa l le N a t ’ l B ank o f Ch icago v . DuP age County ,
777 F .2d 377 , 384 n .6 (7 th C ir . 1985) (N oerr-Penn ing ton
doc tr ine “bars Sherm an Ac t su it s aga in st pe rson s
who a s soc ia te for the pu rpose of re st ra in ing trade and
compe t it ion
if
they pursue
th is pu rp ose
through
leg it im a te po l it ica l m ean s”) .
Th is immun ity i s ex tended “ in part becau se the
or ig inal pu rposes of th e Sh erman A c t d id not in clude
regu lat ing polit ica l a c tiv ity and in par t becau se it is
ques t ionab le whe ther the first am endm en t a llows such
regu la t ion .” P rem ier E lec . Constr . Co . v . N at ’ l E lec . Contrac-
tors Ass’n , Inc . , 814 F .2d 358 , 371 (7 th C ir . 1987 ). The N oerr-
Penn ing ton doc t rine recogn izes that our dem oc ra tic
system of governm en t derives its very v i ta lity from
its c it izens ’ ab i lity to re jec t the sta tus quo and to
advocate for change s in the law . “The Sh e rm an Ac t ex –
p resses on e po licy ; peop le are free to try to persuad e
th eir rep resen ta tives that monopoly is p re ferab le . . . .
Th e f irs t am endm en t p ro tec ts th e r igh t of th e p eop le to
ask for th is boon .” Id .

1 . The Sham Excep tion to Noerr-Penn ing ton
M erca tus concedes tha t the N oerr-Penn ing ton doc tr ine
wou ld immun ize tru th fu l s ta tem en ts m ade to the V i llage

No . 10-1665

Boa rd . Rathe r, it a rgues tha t , because a number of the
Hosp i ta l ’s s ta tem en ts to the Boa rd were fa lse (or w ere
so ma ter ia lly incomp le te a s to be con s ide red fa lse) , the
“sham ” excep t ion to N oerr-Penn ing ton immun ity shou ld
app ly . The sham ex cep tion was firs t m en tioned in
N oerr it se lf , wh ich specu la ted : “There m ay be s itua tion s
in wh ich a pub lic ity campa ign , os tens ib ly d irec ted
toward in f luenc ing governm en ta l ac tion , is a m ere sham
to cover wha t is ac tually no th ing m o re than an a t temp t
to in terfere d irec t ly w i th the bus iness rela t ionsh ips o f
a compe t itor and the app l ica t ion of the Sherm an A c t
wou ld be jus t ified .” 365 U .S . a t 144 . In th e years since ,
courts have recogn ized tw o spec ific k ind s of conduc t tha t
can tr igge r the sham excep tion : (1 ) sham law su it s ; and
(2 ) fraudu len t m isrepresen ta tions . See Ko ttle v . N orthw est
K idn ey C enters , 146 F .3d 1056 , 1060 -62 (9 th C ir . 1998) .3
M erca tu s re lies on th e fraud bran ch of th e sham ex cep –
t ion to N oerr-Penn in g ton . Th is excep t ion trace s it s or ig in s

3
Th e N in th C ir cu i t has sa id in d ic ta tha t th e sham ex cep tion
can a l so app ly if a pa r ty b r ing s a se r ie s o f law su i ts w i thou t
reg ard to the ir m er i ts , ev en i f a few hav e som e m er i t as a
m a t te r o f ch ance . See K o ttle , 146 F .3d a t 1060 . W e hav e no t
faced tha t issue . See P ro fe ss iona l R ea l E s ta te Inv e sto rs , In c . v .
C o lum b ia P ic tu re s In du s ., 508 U .S . 49 , 60 n .5 (1993 ) (“A w inn ing
law su i t is by d e fin it ion a reasonab l e e f fo r t a t p e t i t ion ing fo r
red re ss and therefo re no t a sh am .” ) ; C a liforn ia M o tor T ransp or t
C o . v . Tru ck ing U n lim ited , 404 U .S . 508 , 513 (197 2 ) (“One c la im ,
wh i ch a c ou r t o r agency m ay th ink base le ss , m ay go
unno t iced ; bu t a pa t tern o f base less , repe t i tive c la im s m ay
em erg e wh ich l e ad s th e fac t finder to conc lud e th at th e ad –
m in ist ra t iv e and jud ic ia l p ro ce sse s hav e b een abu sed .”) .

No . 10-1665

back to the Sup rem e Cou rt ’s h in t that “[t ]here are m any . . .
form s of illegal and reprehens ib le prac t ice wh ich m ay
corrup t the adm inistra t iv e or jud icia l processes and wh ich
m ay resu lt in an t itrus t vio la t ions . M isrepresen ta tions ,
condoned in the po lit ica l arena , are not immun ized
when used in th e adjudica tory process.” Ca l iforn ia M o tor
Transp ., 404 U .S. a t 513 (em ph ases added ) ; see id . a t 512
(“[U ]ne th ica l conduc t in the se t t ing of the ad jud ic a tory
process o f t en resu lts in sanc tions . Per jury o f w i tnesses
is one examp le .” ). The Cou r t la ter added tha t “une th ica l
and de cep t ive p ract ices can con st itu te abu se s of adm in –
ist ra t ive or
in
that m ay resu lt
jud icia l processes
an t itrus t vio la t ion s .” A l lied Tube & Conduit Corp . v . Ind ian
H ead , Inc ., 486 U .S . 492 , 500 (1988 ) (c i ta t ion om i t ted ) .
A lthough these s tatem en ts w ere techn ica l ly d ic ta—
ne i ther Ca lifo rnia M o tor T ran spo rt nor A llied Tube invo lved
per jury or fa lse s tatem en ts b e fore an ad jud ica t ive or
adm in is tra t ive bod y— the re is lit tle doub t tha t fraudu lent
m is rep re sentat ion s may rende r pu rported pet it ion ing
ac t iv ity a sham no t protec ted from an t itru s t l iab ility . See
Chem inor D rugs , L td . v . E thy l C o rp . , 168 F .3d 119 , 124 (3d
C ir . 1999 ) ; Kott le , 146 F .3d at 10 60 ; P o tters M edica l C enter
v . C ity H osp . Ass ’n , 800 F .2d 568 , 580-81 (6 th C ir . 1986) ;
St . Joseph ’s H osp ita l , Inc . v . H osp ita l Co rp . o f Am erica , 795
F .2d 948 , 955 (11th C ir . 1986 ) ; O ttensm eyer v . Chesapeake &
P o tom ac Te l . Co . o f M d ., 756 F .2d 986 , 994 (4 th C ir . 1985) ;
Israe l v . Baxter Labs., Inc ., 466 F .2d 272 , 278 (D .C . C ir . 1972) .
Bu t see A rm strong Surg ica l Center , Inc . v . Arm strong County
M em ’ l H osp ., 185 F .3d 154 , 160 (3d C ir . 1 99 9 ) (ca lling in to
doub t ex is tence of fraud excep t ion) .

No . 10-1665

No t every fraudu len t m isrepresen ta tion dur ing an
ad jud ica t ive or adm in is tra t ive proceed ing can g ive rise
to an t i trus t l iab i l i ty , how ever . A s the Sup rem e Cou r t
has exp la ined , “ the sham excep t ion con ta in s an ind is –
pensab le ob jec t ive componen t ,” P ro fessiona l Rea l Esta te
Inv estor s , Inc . v . Co lum bia P ictures Indu s ., 508 U .S. 49 , 58
(1993 ) , bu t a lso “d ep end s on the ex ist ence o f an ti-
compe t it ive in ten t ,” id . at 57 n .4 . In the con tex t of the
fraud ex cep t ion ,
tha t
ind ica te
requ irem en ts
th ese
ne ither inadver ten t m isrepresen ta tions , nor m isrepre –
sen ta t ion s lack ing any ascerta inab le effec t on the pro-
ceed ings in wh ich they we re m ad e , are w i th in the
fraud excep t ion ’s am b it .
Fo r
th is reason , a m isrepresen ta tion renders an
ad jud ica t ive p roceed ing a sham on ly if the m isrepre –
sen tat ion (1 ) was in ten t iona lly made , w i th know ledge of
its fa ls i ty ; and (2) w as m ater ial , in the sen se that it
ac tua lly altered the ou tcom e of the proceed ing . See B a lt i-
m o re Scrap Corp . v . D av id J. Joseph C o . , 237 F .3d 394 , 401 -02
(4 th C ir . 2001 ) (conc lud ing that any fraud excep t ion to
N oerr-Penn ing ton “ex tends on ly to the type of fraud tha t
dep rives litiga tion of its legit im acy” ) ; Chem inor D rugs,
168 F .3d a t 124 (“ If the governm en t ’s ac t ion was no t
dependen t upon the m i srep re sented in form a tion , the
m isrepresen ted in form a t ion was no t m a ter ia l. . . . [On ly ]
a m a teria l m isrepresen ta tion tha t affec ts the very core of
a lit igan t ’s . . . cas e w i ll prec lud e N oerr-Penn ing ton immu –
n ity . . . .”) ; Ko tt le , 146 F .3d a t 1060 (“ lit iga tion can be
d e em ed a sham if a party ’s know ing fraud upon , o r i t s
in tent iona l m i srep re sentat ion s to , the cou rt dep rive the
litigat ion of its legit im acy” ) (quotat ion om itted ) ; P o t ters

No . 10-1665

M edica l C enter , 800 F .2d a t 580 (“ [K ]now ing ly fa lse sub –
m iss ions or in ten t iona l m isrepresen ta tions cons t i tu te
an abuse of governm en t p rocess es . . . . On ly known
fa ls ity support s an an t it ru s t offense .” ). So formu la ted , the
4
fraud excep t ion c loses a s izab le loopho le in the Sup rem e
Cour t ’s d e f in it ion of sham lit iga tion , see Pro fessiona l Rea l
E state Investors , 508 U .S. a t 60-61— a lthough succe ss fu l
pe t it ion ing act iv ity m ay no t , as a genera l m a t ter , be
deem ed a sham , the fraud excep t ion can rem ove tha t
immun i ty if success is ach ieved by m eans o f in ten t iona l
fa lsehoods .

4
The Sup rem e Cou r t ha s no t ye t exp l i c i t ly spoken as to
“w he the r and , i f so , to wha t ex ten t N oerr p erm i ts th e im po s i t ion
o f an t it rus t l iab i l ity fo r a li tigan t ’s fraud o r o the r m isrep resen ta –
t ions .” P ro fession a l R ea l E s ta te Inves tors, 508 U .S . a t 61 n .6 .
N ev er th e less , bo th o f the sou rces c i ted in tha t foo tno te— Fed . R .
C iv . P . 60 (b )(3 ) and W a lk e r P roce ss E qu ip . , In c . v . Food M ach . &
C h em . C o rp . , 382 U .S . 172 (1965 )— suppo r t th is fo rm u la t ion o f
the fraud excep t ion . See id . a t 177 (con c lud ing tha t p roo f tha t a
pa r ty “ob ta ined [a ] pa ten t by know ing ly and w i ll fu l ly m isrep re –
sen t ing fa c t s . . . wou ld b e su ffic ien t to str ip [tha t pa rty o f
p ro tect ion ] from th e an t it ru st law s” ) ; id . a t 179 -80 (H a r lan , J .,
con cu rr ing ) (ag ree ing tha t an t i tru s t l iab i l i ty m ay l ie w h e n a
“pa ten t is shown to hav e b een p ro cu red by know ing and w i ll fu l
fraud ” and w hen “m onop o l iza t ion [ is ] know ing ly p rac ticed
und er th e g u i se o f a p a ten t p ro cu red by d e l ib era te fraud ” ) ;
W a lsh v . M cC a in Food s L td . , 81 F .3d 722 , 726 (7 th C ir . 1 9 9 6 ) ( to
ob ta in re lie f from a judgm en t und er Ru l e 60(b )(3 ), m ov ing
pa r ty m u s t show , am on g o the r e lem en ts , tha t b ecau se o f fraud
o r m isrep resen ta tio n “ i t was p rev en ted from fu lly and fair ly
presen t ing i ts case a t tr ia l” ) .

No . 10-1665

A s no ted , the fraud excep t ion is based on the Sup rem e
Cou rt ’s d es ire to p ro tec t th e in tegr ity of non -polit ica l
governm ental p roceed ing s . For tha t reason , the fraud
excep t ion con ta ins , in add i t ion to its subs tan t ive compo –
n en ts , a th reshold procedura l com pon en t : th e ex cep –
t ion does no t app ly a t a ll ou ts ide o f ad jud ica t ive pro –
ceed ings . See A l lied Tube, 486 U .S . a t 499 -500 (“A pub l ic ity
campa ign d irec ted a t the genera l pub l ic , seek ing leg is la –
t ion o r execu t ive ac t ion , en joys an t itrus t immun i ty even
when the campa ign emp loys une th ica l and decep t ive
m e thod s .”) (c i ta t ion om i t ted ) ; Ca li forn ia M o tor Transp .,
404 U .S . at 513 (not ing tha t m is rep re senta t ion s are “con –
doned in the po lit ica l arena” ). “There is an emphas is on
deba te in the po lit ica l sphere , wh ich cou ld accom –
m oda te fa lse s ta tem en ts and revea l the ir fa ls ity . In th e
ad jud ica tory sphere , however , in forma t ion . . . is re lied
on as accura te for dec is ion m ak ing and d ispu te resolv –
ing .” C lipper Exxpress v . Rocky M oun ta in M o to r Ta r i f f
Bureau , Inc ., 690 F .2d 1240 , 1261 (9 th C ir . 1982) . A s a resu lt ,
fraudu lent s ta temen ts
in
the ad jud icat ive con t ex t
“ threa ten [ ] the fa ir and impar t ia l func t ion ing o f these
agenc ie s and do[ ] not d e se rve immun ity from the
an t itrus t law s .” Id . Recogn iz ing th is thresho ld procedura l
requ irem en t , the d is tr ic t cour t in th is case conc lud ed
th a t the fraud excep t ion d id no t app ly because the pro –
ceed ings be fore the V illage Board w ere leg is la t ive (i .e .,
polit ica l) in natu re . M ercatus II, 695 F . Supp . 2d a t 821 .5

5
In acco rd w i th th e bu lk o f th e ca se law u s ing th is te rm ino logy ,
w e re fe r t o a l l de c is ion -m ak ing d r iv en who l ly o r p r im ar i ly
(con t inued . . .)

No . 10-1665

2 . D raw ing the Lin e : Adjudica tive or Leg isla tive?
On appeal , the part ie s focu s the ir argum ent s on N oerr-
Penn ing ton a lm os t en t irely on wh e ther the Board pro-
ceed ings w ere leg is la t ive or ad jud ica t ive . Bu t wha t makes
a proceed ing ad jud ica t ive or leg is la t ive for the pu rposes
o f the e xcep t ions to N oerr-Penn ing ton? The answ er to th is
ques t ion is no t a s obv ious as it m igh t seem at firs t . Som e
proceed ings— c iv il or cr im inal tria ls , for exam p le— are ,
by the ir very na ture , a lw ays ad jud ica tory . O ther t im es ,
how ever , a governm en ta l body w ill ac t in a leg is la t ive
capac ity in som e cases bu t in an ad jud ica t ive capac ity
in o thers .
A leg is la ture c learly ac ts in a po lit ica l, leg is la t ive capac –
ity when it con temp lates the pas sage of a new law , for
ex amp le , bu t the Sup rem e Court has ind ica ted tha t a
leg is la ture m igh t a lso ac t in an ad jud icat ive capac ity in
certa in c ircum s tances , a t leas t so far as N oerr-Penn ing ton
immun i ty is concerned . Compare A l lied Tube , 486 U .S .
a t 504 (express ing doubt that “m is rep resen ta t ion s mad e
under oa th at a legis la tive comm it tee hea r ing in the
hop es o f spurring leg is la t ive ac t ion” are pro tec ted under
N oerr-Penn ing ton) , w ith F .T .C . v . Superior C ourt Tr ia l
Lawyers A ss ’n , 493 U .S. 411 , 424 (1990) (“ It of course
rem a ins true tha t no v io la t ion of th e [Sherm an ] A c t can
be p red icated up on m e re a ttemp t s to in fluence the

5
( . . .con t inued )
by po l icy and po l i t ica l cons id era t ion s as “ leg is la t iv e ,” fu l ly
cogn izan t o f th e fac t th at m any su ch d ec is ions are m ad e by
execu t ive b ran ches ra th er than leg is la tu res .

No . 10-1665

passage or enforcem en t of law s .” (quo ta t ion om i t ted )).
G iven the coun t le ss var ia tion s on state and federa l agen-
c ies , i t may o f ten no t be c lear whe ther , in a g iven c ir-
cum s tance , an agency is ac t ing leg is la t ive ly , ad jud ica –
t ive ly , or perhap s som ehow even in both capac ities s i-
mu ltaneously . See Dan iel J . Dav is , Comm en t , The Fraud
Excep tion to the N o err -Penn ing ton D octrine in Jud ic ia l and
Adm in is tra tive Proceed ings, 69 U . Ch i . L . Rev . 325 , 333
(20 02 ) (observ ing that “som e federal s ta tu tes manda te
tha t ce rtain agenc ie s u se hyb rid p roces se s tha t com b ine
leg is la t ive and ad jud ica tory p rocedures” and tha t ad –
m in is tra t ive proceed ings “can exh ib it charac ter is t ics of
bo th leg is la t ive and jud ic ia l ac t ions”) . The d is tr ic t cou r t
correc t ly observed tha t “the line between leg is la t ion
and ad jud ica t ion is no t a lw ays easy to draw .” M ercatus II,
695 F . Supp . 2d a t 819 (quo ta t ion om i t ted ) .
In the ir br ie fs , the par t ies ca ll to our a t ten t ion on ly a
single dec ision from th is cou rt d iscuss ing in any d etail
whe ther a p roceed ing was ad jud ica t ive or leg is la t ive for
th e purpose of app ly ing th e fraud ex cep t ion to N o err-
Penn ing ton . In M etro Cab le Co . v . CATV o f Rock ford , Inc ., w e
con s ide red whe ther a mayor and c ity counc i l ac ted in a
legis la tive or ad jud icat ive capac ity w hen they den ied the
p lain tiff a fran ch ise to const ru c t and operate a cab le
te lev ision system . 516 F .2d 220 , 222 (7 th C ir . 1975 ) . In
so do ing , we iden t ified a numbe r of character is tic s in –
d icat ing that the franch ising dec is ion was leg is la t ive
rather than ad jud ica t ive .
F irst , w e cons idered the general na ture of the au thority
ex erc ised by the m ayor and c ity counc il . The counc il

No . 10-1665

possessed leg is la t ive pow er and , in fac t , “ the on ly way
it [w as ] organ ized and equ ipped to ac t” w as “as a leg is la –
t ive body .” Id . a t 228 . The m ayor , for h is part , was “an
execu t ive o fficer w i th som e leg is la t ive du t ies , wh ich
inc lude [d ] p re s id ing over the c ity counc il and vo t ing
when the a lderm en are equa l ly d iv ided .” Id . Second , w e
con s ide red the form a lity of the counc il’s fact -f ind ing
p rocesses . Un like a cou rt or oth er ad jud ica t iv e body
whe re evidence mu s t sat is fy s tr ic t ru le s of re levance and
adm iss ib i li ty , the counc i l d id no t “comp i le an ev iden t iary
record through form a l proceed ings” and was “ fr ee to
base its ac t ions on in fo rm a t ion and argum en ts tha t com e
to it from any sou rc e .” Id . Th ird , we con s ide red the
ex ten t to wh ich the fac t -find ing process was sub jec t to
po lit ica l in f luences , no ting that the counc i l was “sub jec t
to lobbying and o ther form s of ex parte in f lu en ce” tha t
typ ify th e legis lat ive or polit ica l process . Id . Based on
the totality of these factors , we conc lud ed tha t the
m ayor and c ity c ounc il had ac ted in a leg is la t ive
capac ity , so th e comp lained -of pe t it ion ing act iv ity w as
immun e from an t i tru s t l iab i l ity under N oerr-Penn ing ton . Id .
The M etro C able fac tors are not exc lus ive . A num ber of
o the r factors m ay a lso p rove help fu l in determ in ing
whe ther a proceed ing is ad jud ica t ive or leg is la t ive .
Though perhap s encompassed by the M etro C able fac tor
rega rd ing the form a li ty of the fact -find ing p roces s , the
Sup reme Cou r t has t reated as s ign ifican t whe ther any
test im ony a t the proceed ing in ques t ion was g iven
und er oa th or a ffirma t ion , under pena lty o f per jury .
See A ll ied Tube , 486 U .S. a t 504 (ques t ion ing wh e ther
“m isrepresen ta t ions m ade under oa th” are pro tec ted

No . 10-1665

under N oerr-Penn ing ton) ; Ca l i forn ia M o tor Transp ., 404
U .S . a t 512 (“ [U ]ne th ica l conduc t in the se t t ing o f th e
ad jud ica tory process of ten resu l ts in sanc t ions . Per jury
o f w i tnesses is one examp le .” ). An oa th or a ffirma t ion
backed by pena lty o f per jury shou ld im press upon
a w i tne ss the solemn ity of the occa sion and the
impor tance o f te lling the tru th , and shou ld m ak e c lear
tha t the w i tness is not “a t liberty to exaggera te or co lor
h is vers ion of an even t ,” a s m igh t be pos sib le in a
m ore po litical or leg isla tive set ting . See , e .g ., United Sta tes
ex re l. H ayw ood v . W o l f f, 658 F .2d 455 , 463 (7 th C ir . 1981) .6
In c lassify ing proceed ings as leg is la t ive or ad jud ica t ive
for an t itrus t pu rp oses , other cour ts have found s ig –
n ifican t whe th e r the governm ental ac tion s at is sue
w ere ma t ters of d iscre t ionary au thority or were ins tead
gu ided by more de fin ite s tandards suscep t ib le to jud ic ia l
review . Kott le , 146 F .3d at 1062 ; Boone v . Redevelopm en t
Agen cy of San Jo se , 841 F .2d 886 , 896 (9 th C i r . 1988 ). The
absence of de fin ite s tandards is more charac ter is t ic of
pu re ly po lit ical or legis la tive ac tiv ity than of ad jud icat ion .
See Franch ise Rea lty In tersta te Corp . v . San Francisco Loca l

6
W e r e je ct M e rca tu s ’ un suppo r ted con t en t ion tha t a gov ern-
m en t proce ed ing is m ore l ike ly t o be ad jud ica t iv e i f a p ar ty
is rep resen ted b y lega l counse l a t tha t p ro ceed ing . A f ter a l l ,
the p resence o r absence o f counse l a t a p roceed ing te l ls ve ry
l i t t le abou t the na tu re o f the p ro ceed ing i tse l f— a c iv i l t r ia l
rem a ins ad jud ica t ive rega rd less o f whe the r a pa r ty appea rs
pro se , and d e c is ion -m ak ing in form ed by lobby ing is no less
po l i t ica l m e re ly because the lobb y is rep resen ted b y lega l
counse l .

No . 10-1665

Jo int Exec . Bd . o f Culinary W orkers , 5 42 F .2d 1076 , 1079
(9 th C ir . 1976 ) (no t ing tha t p rec ise s tandard s “are
s imp ly absen t from the rough and tum b le of the po lit ica l
arena ; a lm os t any pos it ion , inc lud ing the self-in teres ted
p lea of on e comp e t itor that anoth er shou ld be d en ied a
perm i t , m ay be u rged before such a po l i t ica l body”) .7

7
M erca tu s argues tha t w e sh ou ld g iv e s ign i f ican t w e igh t to
whe the r , in o the r con texts , the law t rea ts the gov e rnm en ta l
a c t iv i ty a t issue as leg is la t iv e o r ad jud ica t iv e . W e be l iev e
tha t su ch c la ss i fica t ion s , m ad e fo r d i ffe ren t pu rpo se s no t
conne c t ed to th e F ir st Am endm en t con ce rn s und er ly ing th e
N o er r-P enn ing ton doc tr ine , are un l ik e ly t o b e u se fu l
in
app ly ing tha t doct r ine . Und e r I l l ino is law , for exam p le , a
hea r ing m igh t be cha rac te r ized as “ leg isla tive” fo r pu rposes
o f
jud ic ia l rev iew , se e 65 ILCS 5 /11-13 -25 (m ak ing any
d ec is ion regard ing an app l ica t ion for a spec ia l u se “sub jec t to
d e novo jud ic ia l rev iew as a leg is la t ive d ec is ion , reg ard less
o f wh eth er th e p ro cess in re la t ion th ere to is cons id ered ad –
m in is tra t ive for o the r pu rposes” ) , a t the sam e t im e i t is
deem ed “ad jud ica t ive” fo r the pu rp ose o f de te rm in ing w ha t
p roc es s is du e a t tha t hea r ing , see P eop le ex r el. K la er en v .
V illag e o f L isle , 781 N .E .2d 223 , 234 (I ll . 2002 ) (d e em ing
h ea r ings concern ing sp ec ia l u se app lica t ions “adm in is tra t iv e
or qu as i – jud ic ia l” for pu rpose s o f d e term in ing whe the r p e t i –
t ion er s re c e iv ed du e p ro ce ss , no t b ecau se o f po li t ica l con –
s ide ra t ions bu t because “p ro p e r ty r igh ts a re a t stake” ). See
Ou r S av ior E vang elic a l Lu th eran C hu rch v . S av i lle , 922 N .E .2d
1143 , 1162 (I l l . App . 2 0 0 9 ) ( in terp re t ing 65 ILCS 5 /11 -13 -25 to
add r e s s on ly “ th e m od e o f d ir ec t jud ic ia l rev iew ov er th e
l is ted zon ing d ec is ion s , no t the app l ica t ion o f d u e p ro cess to
any o f tho se . . . dec is ion s” ) (quo ta t ion om itted ) .

No . 10-1665

Before app ly ing these fa c tors to the ca se now before
u s , how ever , w e mu st no te th e s ign ifican t con st itu tiona l
concerns imp l ic a ted by the fraud excep t ion ’s app lica t ion
to pet ition ing ac tiv ity . N oerr-P enn ing ton w as crafted to
p ro tec t the freedom to pe t it ion guaran teed under the
First Am endm en t . See , e .g ., P rem ier E lec . Constr . Co . , 814
F .2d a t 371 . Th is freedom has long been r ecogn ized as a
corn er s tone of dem ocra t ic governm en t itself . See United
M ine W orkers o f Am erica , D ist . 12 v . Il l ino is S ta te Bar
A ss’n , 389 U .S . 217 , 222 (1967) (“ [T ]he righ ts to assem b le
peaceab ly and to pe t i t ion for a red ress of gr ievan ces are
among the mos t prec ious of th e l iber t ies sa feguarded by
th e B ill of Righ ts .”) ; D e Jonge v . O regon , 299 U .S. 353 , 364
(1937 ) (“The very idea of a gove rnm en t , repub lican in
form , imp l ies a righ t on the par t o f i t s c it izens to m ee t
p eaceab ly for con su ltat ion in re spect to pub lic a ffa ir s
and to pe t it ion for a redress of grievances .” ) (quo ta t ion
om it ted ) ; M cD ona ld v . Sm ith , 472 U .S. 479 , 486 (1985)
(B rennan , J., concu rr ing) (not ing tha t , “excep t in the
m os t ex t reme circum s tances ,” the r igh t to pet it ion the
governm ent “cannot be pun ish ed . . . w ithou t v io la ting
those fund am en ta l pr inc ip les of
jus tice
liberty and
wh ich lie a t the base o f a ll c iv il and po lit ica l ins t itu t ions” )
(quo ta t ion om i t ted ) .
A ccord ing ly , we have recogn ized tha t the app l ica t ion
of the sham excep tion m igh t inadverten t ly st ifle the
leg itim ate exerc ise of th is core righ t . H avoco o f Am er ic a ,
L td . v . H o llobow , 702 F .2d 643 , 651 (7 th C ir . 1983) (decla ring
tha t the fraud excep t ion “canno t be used to ch ill [the ]
cons titu t iona l righ t” to “pe t it ion w i thou t fear of sanc –
tions” ) ; Stern v . U .S . Gypsum , Inc ., 547 F .2d 1329 , 1345 (7 th

No . 10-1665

C ir . 1977 ) (conc lud ing , in con tex t o f c iv il righ ts su it , “ tha t
the rea l if periph era l ch ill of the r igh t to pe t it ion wh ich
[the ] know ing fa l s ity ru le cou ld engende r is s ign ifican t
enough for the F irs t Am endm en t va lue s to p lay a p a r t
in cons tru ing federal leg is la t ion” ); see also BE & K
Constr . Co . v . NLRB , 536 U .S . 516 , 529-33 (2002) (con –
s ide r ing F irs t Am endm en t bu rd en imposed by NLRB ’s
effec t ive expan s ion of the sham e x cep t ion in labor case s) ;
Forro Prec ision , Inc . v . IBM Corp ., 67 3 F .2d 1045 , 1060 (9 th
C ir . 1982 ) (ex tend ing N oerr-Penn ing ton to commun ica –
t ions w ith law en forcem en t based on concern tha t a
con trary ru l ing wou ld d iscourage c it izens from pro-
v id ing inform a t ion to the po l ice) .
That r isk g row s when , as m ay often be the case , a
layp erson is un certa in wh eth er th e governm en ta l ac t ion
a t i s sue is ad jud ica tory or leg is la t ive . See Jam es M .
Sabov ich , Pe tition W ithou t Prejud ice: Aga inst the Fraud
Exception to N oerr-P enn ing ton Immun ity From the Toxic Tort
Perspec t ive , 17 Penn . St . Env t l . L . Rev . 1 , 12 (2008) (ob –
serv ing tha t th e “fact -spec ific” te st u sed to determ ine
“w he ther the p roceed ing is jud ic ia l , leave [s ] the im –
mun i ty for m any pe tit ions uncer ta in .” ) (footn o t e om it –
ted ) . Such uncer ta in ty m ay stem either from an un fam il-
iarity w ith the re levan t legal pr in c ip les due to a lack
o f legal coun se l , or from a m ore bas ic un fam iliarity
w ith the spec ific p roceed ings at issue . For exam p le , a
pe t it ioner m igh t not know tha t one mun ic ipa l body ,
u n like its coun terparts in other mun ic ipa lit ies , forb id s
ex parte lobbying of its m em bers , or sh e m igh t s imp ly
be unaware tha t a proh ib it ion on such lobbying has
any legal s ign ificance for her pe t it ion ing act iv ity .

No . 10-1665

Rega rd le ss of it s sou rce , the greater the unce rtain ty , the
m or e like ly tha t laypeop le w i ll hes ita te to seek redress ,
ou t o f fear th a t the ir pe t it ion ing act iv ity w ill sub jec t
them to legal liab ility . G iven the “broad spec trum of
poss ib ilit ies” imp l ica ted whenever a person con temp lates
engaging in legit im a te F i rs t Am endm ent pe tit ion ing
ac t iv ity , a law ’s ch illing e ffec t is part icu larly grea t when
it is unc lear whe ther tha t law ac tua lly fo rb id s the con –
temp lated ac tiv ity . See Sch irm er v . N agode, 621 F .3d 581 ,
586 (7 th C ir . 2010) . Such ch i ll ing effec t w i ll be par-
t icu la rly p ronounced w hen , as is the case w ith the
an t itrus t law s , the a l leged ly fraudu len t s ta tem en ts m ay
be pun ishab le by t reb le dam ages . Tha t is not to say tha t
any such ch ill wou ld be con fined to on ly tha t narrow
c lass of pe t it ion ing act iv ity forb idd en by the an t i tru s t
law s , of cou rse . A fte r all , “N oerr-Penn ing ton has been
ex tended beyond th e an titru st law s , where it or ig inated ,
and is tod ay u nders tood as an app l ica t ion of the first
am endm en t ’s speech and pe t it ion ing c lauses .” See N ew
W est , L .P . v . City of Jo liet , 491 F .3d 717 , 722 (7 th C ir . 2007 ) .
For these reasons , we mus t ensure tha t we do no t trans –
form the Sh erm an A c t in to a m eans by wh ich to ch ill
v i ta l conduc t pro tec ted under the F irs t Am endm en t . C f .
La ird v . Ta tum , 408 U .S . 1 , 11 (1972) (not ing tha t “con st itu-
tional v iola tions m ay a rise from the d eterren t , or ‘ch illing ,’
effec t of governm en ta l regu la t ions tha t fa ll shor t of a
d irec t p roh ib it ion aga in st th e ex erc is e o f F irs t Am end –
m en t r igh ts”) .
App ly ing the fac tor s we se t ou t above , it is c lear tha t
the V illage Board ac ted in a leg is la t ive capac i ty wh en
it dec lined to app rove the p roposed M ercatus phys i-
c ian cen ter . L ike the c ity counc il in M et ro Cab le , the

No . 10-1665

Boa rd gene ra lly ac ts in a po licym aking capac ity . The
Board also appears ill-equ ipped to condu ct ad jud ica –
t ive proceed ings . It conduc ts the vas t m a jority o f its
bus iness through rela t ive ly in forma l pub l ic m ee t ings
and hold s form a l hea r ing s on ly once a year rega rd ing
the Lake B lu f f budge t .
M ore spec if ica l ly , the p roce s s by wh ich the Board
cons idered wh e ther to gran t M erca tus approva l to
deve lop the Shepard Land was dec ided ly leg is la t ive or
po lit ical in na tu re . Both M e rca tu s and the Ho sp ital en –
gaged in ex parte lobby ing of ind iv idua l Board m em bers
pr ior to the hear ings . M erca tus execu t ives con tac ted or
m e t persona lly w i th ind iv idua l Board m embers , and a t
least one Board m ember even took a tou r o f M erca tus ’
fac ilit ies . A number of Lake B lu ff res iden ts a ls o con –
tac ted the Boa rd m embers to vo ice th e i r v iew s on the
M erca tus pro jec t . Th is lobbying act iv ity by advoca tes
on both s ides was p erfec t ly leg it im a te , as wou ld no t be
the ca se in an ad jud icat ive p roceed ing . In fact , the
lobby ing wa s encou raged by the v illage p re siden t , who
de sc ribed the dec is ion as “ [e ]s sent ia lly . . . p o lit ical” and
pre ferred to g ive par t ies “ the op p or tun ity to lobby
d irec t ly the trus tees .” Le tch inger Dep . a t 18 , 20 .
The processes by wh ich the Board ga thered in forma –
t ion to gu ide its dec is ion -m ak ing , un l ike the processes
in ad jud ica t ive p roceed ings , were d ec ided ly in form al .
None o f the ev idence the Board con s id ered w as sub jec t
to st ric t ru le s of adm is sib ility or any recogn izab le eviden-
t ia ry ru le s , for tha t m a tter . A t leas t one Boa rd m embe r ,
on h is own in i t ia t ive , con tac ted independen t th ink tanks

No . 10-1665

for gu idan ce . M em bers of the genera l pub l ic w ere
a l low ed to voice the ir op in ions regard ing M erca tus ’
p roposed s ite p lan . N one of the te st im ony be fore the
Board was g iven under oa th or on pena lty o f per jury .
The Board ’s dec is ion on deve lopm en t app rova l was
no t gu ided by en forceab le , de fin ite s tandards sub jec t to
review . The sp ec ia l use ord inance app licab le to the
8

8
W e dec l ine M e rca tu s ’ inv i ta t ion to de te rm ine fo r ou rse lves
w h eth er th e v il lag e ’s sp ec ia l u se o rd in an ce ac tu a l ly g ran t ed
the Boa rd b road au th o r i ty to d eny d ev e lopm en t app rova l .
M e rca tu s had th e oppo r tun ity to p r esen t th is a rgum en t to th e
Z on ing Bo a rd o f App ea ls , 65 ILC S 5 /11 -13 -3 (f) ; 65 ILC S 5 /11 -13 –
12 , and then to the sta te cou r ts o n adm in is tra t ive rev iew , 65
ILC S 5 /11 -13 -1 3 , b u t the re is no ind ica tion in the reco rd tha t
M e rca tu s ev e r d id so . Hav ing esch ew ed tha t oppo rtun ity ,
M e rca tu s canno t now tu rn to th e an t i trus t law s to avo id th e
consequences o f tha t dec ision . The an t it rus t laws a re des igned
to p ro te ct com p e ti t ion . Th ey ar e no t a gua ran te e o f good
gov e rnm en t . See C ity o f C o lum b ia v . Om n i Ou tdoo r A dv e r. , In c . ,
499 U .S . 365 , 378 (1991 ) (no ting tha t th e an t i trus t law s w e re no t
crea ted to “ v ind ica te [ ] . . . p r in c ip le s o f good gov ernm en t” ) ;
N o e r r , 3 6 5 U .S . a t 140 (“ In so fa r as [th e Sh erm an A c t ] se ts up a
cod e o f e th ics a t a l l , i t is a cod e tha t cond em ns trad e res tra in ts ,
no t po l i t ica l ac t iv i ty . . . .” ) . And they ce r ta in ly a re no t a l icense
for the fed era l cou r t s to d isp la ce the S ta te o f I l l ino is to s i t in
rev iew o f wha t is en t ir e ly a m a tter o f loca l law . C f . C ity o f
C o lum b ia , 499 U .S . a t 372 (“ ‘W e shou ld no t l igh t ly assum e
th at [th e an ti tru st law ] d ic ta tes tran s fo rm a t ion o f sta te ad –
m in i s tra t iv e r ev iew in to a fed era l an t i trus t job .’ ” ), quo t ing P .
A reed a & H . Hov enkam p , A n t itru st Law ¶ 212 .3b , p . 145 (Supp .
(con t inued . . .)

No . 10-1665

Shepa rd Land requ ired tha t the Boa rd app rove any
add it iona l deve lopm en t of tha t land , bu t the ord in an ce
prov ided no s t andards govern ing the gran t or den ial of
that approva l . A s severa l Board m emb ers recogn ized ,
th is broad language gave the Board s ign ifican t d iscre –
t ion wh eth er or not to gran t M erca tu s approva l to
d eve lop th e Sh epard Land .
The record thus show s beyond reasonab le d ispu te
tha t the proceed ings be fore th e Board were leg is la t ive
in natu re . It was , as th e v illage p res id en t exp la in ed ,
“u lt im a te ly a po lit ical dec is ion” not to gran t M e rca tu s
app roval to develop the Shepa rd Land . B ecause the
fraud excep t ion does no t app ly to leg is la t ive pro –
ceed ings , gu ided as they are by po l i tica l cons idera –
tions , N oerr-Penn ing ton immun i ty app lies . W e need no t
add ress whe ther the Hosp ita l’s alleged m isrepresen ta –
t ions rendered the Board proceed ings a sham . Th e
d is tr ic t cour t proper ly gran ted summ ary judgm en t for
the Hosp ital on Me rcatus ’ an t it ru s t c la im s based on the
Hosp ita l’s ac t iv it ies du r ing the V illage Board proceed ings .

8
( . . .con t inued )
1989 ) . I f M e rca tu s can invok e fed era l an t i trus t law s by c la im ing
tha t the V i l l ag e B o ard had no au tho r i ty to re jec t M erca tu s ’ s i te
p l an on ce th e A rch itec tu ra l Boa rd had app roved it , and c an
th er eby ob ta in a fed era l fo rum to rev iew th e m e r i ts o f th e
V i l lag e Boa rd ’s d e c is ion to re je ct th e p lan , “w e canno t
im ag ine w ha t zon ing d ispu te cou ld no t be shoehorned in to
fede ra l cou r t .” C on is ton C orp . v . V illage o f H o ffm an E s t a tes , 844
F .2d 46 1 , 467 (7th C ir . 1988 ) .

No . 10-1665

IV . The H osp ita l’s Publ ic Re la tions Cam pa ign
M erca tu s nex t argues tha t , even if N oerr-Penn ing ton
immun izes the Hosp ital’s a lleged m is rep re sentat ion s
d irec t ly to the Board , it does no t app ly to m isrepresen ta –
t ion s made to the p ub l ic du r ing the cou rse of the
Hosp ita l’s pub lic re la t ions campa ign . W e d isagree .

A . Facts on Summ ary Judgm en t
To en cou rage Lake B lu ff c it izen s to pu t po lit ica l
pressure on the Board , the Hosp i ta l lau n ched a broad
pub lic re la t ions campa ign p or tray ing M erca tus as a
th rea t to “charity care and general hea lth care serv ices .”
A s part o f th is campa ign , the Hosp ita l con tac ted its
emp loyees , phys ic ians , and donors to w arn them of th e
danger M erca tus posed to the Hosp ita l’s ab i lity to
p rov ide care and encou raged them to con tac t Board
m em bers to vo ice their oppos ition to the M ercatus phys i-
c ian cen te r . Hosp ita l phys ic ian s also sen t a let te r , al-
leged ly d ra fted by the Ho sp i ta l’s pub lic re la tion s con –
su lt ing firm , to a local new spape r saying tha t the
M erca tus cen ter wou ld o ffer services the Hosp i ta l
a lready prov ided and urging Lake B lu ff res iden ts to
ask the Board to recons ider its approva l of the proposed
M erca tu s phys ic ian cen ter .

B . Pub lic Re la tions Cam pa igns—A N ecessary Corol lary
o f N oerr-Penn ing ton
Th is pub lic re la t ion s campa ign , d es ign ed to en cou rag e
the pub lic to u rge the Boa rd to d isapp rove M e rcatus ’ p lans

No . 10-1665

to deve lop the Shepard Land , is also she l tered by N oerr-
Penn ing ton . N o err itse lf he ld tha t a pub lic re la t ions cam –
pa ign to in fluence governm ent ac t ion wa s beyond the
re ach o f the Sherm an A ct . 365 U .S . at 140 -42 . A s th e
Sup rem e Cou rt has exp la in ed , a “pub lic ity campa ign
d irec ted a t the general pub l ic , seek ing leg is la t ion or
execu t iv e ac t ion , en joys an t itrus t immun i ty even when
th e cam paign em p loys uneth ica l and decep tive m ethod s .”
A l l ied Tube, 486 U .S. a t 499 -500 ; see id . a t 504 (s ta t ing
that “round ing up suppor te rs is an accep tab le and const i-
tu t iona l ly p ro tec ted m e thod of inf luenc ing e lec t ions”) .
Desp ite M ercatus’ in sis tence to the con trary , th e H osp i-
ta l’s pub lic re la t ions campa ign does no t lose its p ro tec –
t ion even if it cau sed M e rcatus in ju ry un re la ted to the
B oa rd ’s den ia l of deve lopm en t app rova l. “ It is inev itab le ,
whenever an at temp t is made to in f luence leg is la t ion by
a campa ign of pub l ic ity , tha t an inc iden ta l e ffec t o f tha t
cam pa ign m ay be the inf lic t ion of som e d irec t in jury
upon the in te re st s of the pa rty aga in st whom the
campa ign is d irec ted .” N oerr , 365 U .S . a t 143 ; see id . a t 144
(“Inh eren t in [f igh ts be tw een compe t i tors] , wh ich are
comm onp lace in the halls of legis la tive bod ie s , is the
poss ib ility , and in m any ins tances even the probab ility ,
tha t one group or the o ther w ill get hur t by the argum en ts
tha t a re m ade .” ). A ll bu t the mo s t s tunn ing ly un succe ss fu l
pub lic re la t ions cam pa igns w i ll persuade a t least som e
m embers of the pub lic . Those ind iv idu a l s m ay , in tu rn ,
re fu se or hes itate to do bu s ines s w ith the ta rge t , caus ing
tha t targe t som e in jury desp i te the governm en t ’s re fusa l to
ac t . Such in jur ies are inev itab le whenever a bus iness
a t tem p t s to ra lly the pub lic to encou rage governm ent

No . 10-1665

ac t ion tha t w ill adverse ly a ffec t one o f its compe t itors .
To make such in ju r ie s from pub lic re la tion s campa ign s
ac t ionab le under the an t itrus t law s wou ld “be tan ta –
moun t to ou tlaw ing a ll su ch campa ign s .” Id . a t 143 -44 .
That wou ld grea tly lim it peop le’s ab ility to ra l ly pub lic
support to the ir causes , thereby lim it ing the ab ility o f
all bu t the m os t pow er fu l and influ en tia l ind ividuals
to pe t it ion effec t ive ly for red re ss . Such an invas ive reg –
u la tion of the po lit ical p roces s “has no t been done
by any th ing in the Sherm an A c t .” Id . a t 144 . Summ ary
9
jud gm en t
fo r
th e H osp i ta l
r e g a rd in g
i ts pub l ic
re la t ions camp aign w as correc t as a m a t ter of law .

V . The H osp ita l’s D eroga tory and Territoria l Commun ications
M e rcatus a lso argues tha t a number of statem ent s the
Hosp ita l m ade ou tside o f its pub lic re la t ions campa ign
v io la ted
impa ired
law s because they
the an titrus t
M ercatus’ ab ility to compete w ith the H osp ita l .

9
Ou r sta tem en t in P rem ier E lec tr ic tha t , “ if . . . in ju ry o ccu rs no
m a tte r how th e g ov e rnm ent re spond s to th e requ e st fo r
a id— then w e hav e an an t i tru s t c a se ,” 814 F .2d a t 376 , shou ld
no t b e con stru ed to th e con trary o r a s con fl ic t ing w i th A llied
Tu be o r N oerr . Ou r sta tem en t add ressed on ly tho se c ircum –
s tan ces in w h ich a pa r ty im p oses an un law fu l res tra in t o f
trad e , su ch a s a b oy co tt , a s pa rt o f a la rg er a ttemp t to p e t i t ion
the gov e rnm en t . See id . (no ting tha t th e d e fendan t ’s p e t i t ion ing
ac t iv i ty w as “an unv a rn ished e ffo r t to en fo rce a p r iva te p r ice-
f ix ing ag reem en t” ) .

No . 10-1665

A . Facts on Summ ary Judgm en t
In add it ion to its pub lic re la t ion s campa ign aga in s t
M erca tus , the Hosp ita l a lso a lleged ly commun icated w i th
o ther bus inesses to m ake it m or e d ifficu lt for M erca tus to
en ter the Lake B lu f f m arke t . For examp le , the Hosp ita l
con tac ted M erca tus ’ bus iness par tner ENH to ques t ion
why it wou ld suppor t a phys ic ian c en ter “ tha t was
idea l ly des igned to lure [aw ay] phys ic ians th a t w ere
a ligned w ith the hosp ital ,” and to wa rn ENH to stay ou t
o f Lake B lu ff . A Hosp ita l emp loye e also con tac ted other
h ea lth care p rov id ers to d iscu ss M e rca tu s ’ CEO ’s rude
trea tm en t o f her du r ing her v is it to M erca tus ’ Vernon
H ills fac ility and to w arn them of the compe t it ive threa t
M erca tus posed to the ir bus iness . M erca tus a lso a lleges
tha t
the Ho sp ital made fa lse sta tem ent s as se rt ing
“that M ercatus w as not in com p lian ce w ith fed eral an ti-
kickback regu lat ion s .”

B . “M ere” Sp eech and the Law of Antitru st
Un like the H osp ita l’s pub lic re la t ions camp aign , w e
see no d is ce rn ib le connec t ion be tw een any of these com –
mun icat ions and the proceed ings be fore the Board ; as a
resu lt , th ey are simp ly ou ts ide N oerr-Penn ing ton ’s reach .
See MC I Commun ications Corp . v . Am . Te l . & Te legraph Co . ,
708 F .2d 1081 , 1159 (7 th C ir . 1983 ) (“The N oerr-Penn ing ton
doc t r in e is con cern ed so le ly w ith th e righ t to at temp t
to in f luence gove rnm en t ac t ion .” ). Tha t is not to say , of
cou rse , that these s ta tem en ts are n ecessa rily ac tionab le
in an t itrus t . To reso lve tha t part icu lar ques t ion , w e
mus t cons ider the prec ise speech at issue here .

No . 10-1665

1 . The H osp ita l ’s W a rn ing to ENH
W e first turn to the Hosp ita l’s warn ing that ENH s tay
ou t o f the H osp ita l’s terr itory . Under c ircu it preceden t ,
such a terr itoria l adm on it ion to a compe t itor— like o ther
speech made in the comm e rc ia l con text—does no t vio la te
the an t it ru s t law s un le ss it lead s to an agreem ent
to re st ra in trade or i s accompan ied by som e sort of “en-
forcem en t m echan ism ” des igned som eh ow to coerce or
compe l tha t compe t itor to heed the adm on it ion . See
Sanderson v . Cu ll igan In t’ l Co ., 415 F .3d 620 , 623 (7 th C ir .
2005) (a ffirm ing summ ary judgm en t aga ins t an t i trus t
c la im based on alleged ly de fama tory s ta tem en ts , due to
lack of “an en fo rcem en t m echan ism ”) ; Schachar v .
Am erican A cadem y o f Ophtha lm o logy , Inc ., 870 F .2d 397 , 400
(7 th C ir . 1989 ) (“W ithou t [an en forcem en t m echan ism ]
the re
is on ly uncoord ina ted
ind iv idua l ac tion , the
essen ce of compe t i t ion .”).
W e find no th ing in th e record to ind ica te tha t the Hos –
p i ta l’s warn ings to ENH were backed by any sort of
coerc ive conduc t tha t m igh t g ive r ise to an t itrus t liab ility .
The Hosp ita l d id no t th rea ten to spearhead a boyco t t of
ENH ’s serv ices or to have ENH ’s supp l iers w i thho ld
m ed ica l supp l ies if it en tered Hosp ita l territory . See
Scha ch ar, 870 F .2d at 399 (not ing that boyco t ts and agre e –
m en ts no t to d is tr ibu te certa in produc ts are the types of
enforcem ent m echan ism s tha t may rende r speech ac tion –
ab le under the an t itrus t law s ). Nor d id the Hosp i ta l
possess any inheren t au thor ity tha t it cou ld leverage to
com p e l ENH to s tay ou t o f Lake B lu ff . See id . a t 398
(find ing s ign ifican t tha t de fendan t had “no au thority

No . 10-1665

insurers , s ta te m ed ica l soc ie t ies or
over hosp ita ls ,
licensing boa rd s , and other persons who m igh t b e ab le
to govern the pe r fo rm ance o f surgery” ). Regard less of
wha t the Hosp ita l sa id , ENH was free to choose for
itself whether to compete c lose to the H osp ita l .
Pu t s im p ly , a ll the Hosp ita l d id w as say a loud wha t
every bus iness a lready th inks abou t its compe t itors : s tay
ou t o f my terr itory . See O lym p ia E qu ip . Leasing Co . v . W .
Un ion Te legraph Co . , 797 F .2d 37 0 , 379 (7 th C ir . 1986 )
(“M os t bus inessm en don ’t like the ir compe t itors , or for
that ma tter comp e t it ion .” ) . Su ch a s ta tem ent , absen t an
agreem en t or any coerc ive en forcem en t m echan ism s to
back it up , is simp ly no t ac tionab le under the Sherman A c t .

2 . The H osp ita l’s D eroga tory Comm en ts Abou t M ercatus
W e nex t tu rn to the rem a inder of t he H o sp ita l’s com –
mun ica t ions , a ll of wh ich served to d isparage e ither
M e rcatus it se lf or the se rv ice s it offe red . L ike the
Hosp ita l’s terr itoria l adm on it ions to ENH , these sta te –
m en ts w ere not backed by threa t s des igned to coerce
accep tance of the Hosp ita l’s view s abou t M erca tus . See
Sanderson , 415 F .3d at 623 ; Schachar, 870 F .2d a t 400 . A s a
re su l t , th is speech can be compared to a k ind of comm er-
c ia l speech fam i liar to a l l: adver t isem en ts . L ike an adver-
t isem en t (th ink of App le ’s long-runn ing “M ac vs . PC”
comm erc ia ls , for examp le ) , the Hosp ita l’s sta tem en ts
imp lic it ly tou ted the Hosp ital’s s treng ths wh i le calling
in to ques t ion the w isdom of do ing bus iness w ith
M erca tu s . A s a gen era l ma t ter , su ch s ta tem en ts are ou t –
s id e the reach of the an t itrus t law s , however crit ica l they

No . 10-1665

m ay be of a com pet itor’s p rodu c t or business m od el .
“An t itrus t law doe s not compe l your compe t itor to
p ra ise your p roduc t o r sp onsor your work . To requ ire
coope ra tion or fr iend lines s am ong rivals is to undercu t
the in te llec tua l founda t ions o f an t itrus t law .” Id . a t 399 .
Th is ana lys is holds tru e even if the Hosp ita l’s sta te –
m en ts abou t M ercatus w ere fa lse . A s w e recogn ized in
Sanderson , even fa lse s tatem en ts abou t a compe t itor serve
to “set the s tage for compe tit ion .” 415 F .3d a t 623 . If the
Hosp ita l fa lse ly c la im ed tha t M erca tus wou ld d r ive
loca l commun i ty -based hosp ita ls ou t of bus iness , for
examp le , M erca tus cou ld respond w ith in forma t ion to
refu te tha t c la im . If the Hosp ita l fa lse ly cla im ed tha t
M e rcatus v io la ted an t i-k ickback regu la tion s , M e rcatus
cou ld respond w i th fa c ts ind ica t ing the fa ls ity o f tha t
c laim .
By engaging in th is p rocess , M e rcatus cou ld
1 0
have d er ived a d is tinc t compe t it ive advantage: a fa lse –
hood , when exposed , w ill like ly “gen erate bad w ill
toward the firm by wh ich [the pub lic ] was m is led .” Covad
Commun ications Co . v . Be l l A t lan tic Corp ., 398 F .3d 666 ,
674 (D .C . C ir . 2005) .
The genu ine an t icompe t it ive e ffec ts of fa lse and m is –
lead ing s ta tem en ts abou t a compe t itor are m in im a l, a t
bes t . A lthough fa lse s tatem en ts abou t a riva l “ can [theo-
re t ica l ly] obs truc t com pe t i t ion on the m er i ts ,” i t is d if-
ficu lt to iden t ify those “ fa lse s tatem en ts on wh ich

10
M er ca tu s c la im s tha t , “ in [ its ] sub stan t ia l ly w eaken ed sta te . . .
[ i t] d id no t hav e the luxu ry o f m ore speech ,” bu t w e fa i l to
se e how i t wa s rend e red unab le to sp eak .

No . 10-1665

buyers do, or ough t reasonab ly to , re ly .” 3 P . A reeda & D .
Tu rner , An t itrust Law , ¶ 737b a t 280 -81 (1978) , quo ted
in Am erican Pro f ’ l Testing S erv ice, Inc . v . H arcourt Brace
Jovanov ich Lega l & Pro f ’ l Pub l icat ions, Inc ., 108 F .3d 1147 ,
1152 (9 th C ir . 1997 ). M any consum ers w i ll “recogn ize
d isparagem en t as non -ob jec t ive and h igh ly biased .” Id .
A s a resu lt , cour ts mus t exerc ise “c au t ion . . . aga ins t
a t tach ing much w e igh t to iso la ted examp les of d isparage –
m en t ,” and c la im s based on one compe t ito r ’s d isparage –
m en t of another “shou ld presump t ive ly be ignored .”
Id . Recogn iz ing these conce rn s , othe r c ircu it s have con –
c lud ed tha t the an t icompe t it ive e ffec ts of fa lse speech
are p resump tively m in im al . See , e .g ., Am erican Counc i l
o f Certi f ied Pod ia tric Physic ians & Surgeons v . Am erican Bd .
o f Pod iatric Surgery , Inc ., 323 F .3d 366 , 370 (6 th C ir .
2003 ) ; Am erican Pro f ’ l Testing Serv ice , 108 F .3d a t 1152 ;
N a tiona l A ss’n o f Pha rm ac eutica l M frs . v . Ayerst Labs ., 850
F .2d 904 , 916 (2d C ir . 1988) .
A s w e s a id in Sanderson , ab sent an accompany ing
coerc ive en for cem en t m echan ism of som e kind , even
dem on st rab ly false “[c ]omm erc ial sp eech is not ac tionab le
und er the an t itrus t law s .” 415 F .3d a t 624 ; see Schachar,
870 F .2d a t 400 (no t ing th a t , w henever one compe t i tor ’s
s tatem en ts abou t ano ther are “fa lse or m is lead ing or
incomp lete or jus t p la in m is taken , the rem edy is not
an t itrus t lit iga tion bu t m ore speech— the marke tp lace
of ideas” ) ; cf . Assoc iated Gen . Con tra ctors o f Ca l iforn ia , Inc .
v . Ca lifo rnia Sta te Coun cil o f Carpen ters, 459 U .S . 519 , 526 –
27 (1983) (ob se rv ing tha t even conduc t tha t m igh t con –
s t itu te “comm on -law fraud or dece it” is “p la in ly no t
sub jec t to rev iew under the federa l an t i trus t law s”) .

No . 10-1665

To the ex ten t tha t a fa lsehood r esu lts in som e harm to
a comp et itor , tha t is a m a t ter be t ter su ited for the law s
aga in st un fa ir compe tit ion or fa lse advert is ing , not the
an t itrus t law s , wh ich are “concerned w i th the protec –
t ion of com pe t it ion , no t compe t itors .” M u l l is v . A rco
Pe tro leum Corp ., 502 F .2d 290 , 298 (7 th C ir . 1974) (quo ta t ion
om it ted ) ; see N orthw est Pow er Products , Inc . v . Om ark
Indus ., Inc ., 576 F .2d 83 , 88 (5 th C ir . 1978 ) (“The thrus t of
an t it ru s t law is to p revent re st ra in ts on compe tit ion .
Un fair compe t it ion is st ill compe t it ion and the pu rpose
o f the law o f un fa ir compe t it ion is to impose re s tra in ts
on tha t com pe t i t ion .”). “ Som e o the r law m ay requ ire
jud ic ia l in terven t ion in order to increase the por tion of
tru th in advert is ing ; the Sherm an A c t does not .” Sanderson ,
415 F .3d a t 624 .
N e ither the Hosp ita l’s terr itor ia l comm en ts nor its
a lleg ed deroga tory sta tem en ts abou t M erca tus are a
va lid bas is , wh e ther cons id er ed a lone or in con junc t ion
w ith the Hosp ita l’s other comp lained -of conduc t , for an
an t itrus t c la im . The d is tr ic t cou rt correc t ly gran ted sum –
m ary judgm en t for the Hosp ita l regard ing these m a t ters .

V I . The H osp ita l’s “Physic ian S tra tegy”
Thus far , we have d eterm ined that the bu lk of the H osp i-
tal’s comp la ined -of conduc t is e ithe r (1 ) pet it ion ing
ac t iv i ty immun e from an t i tru s t l iab i l ity under N oerr-
P enn ing ton ; or (2 ) spee ch tha t fa lls ou ts ide the scope o f
the an t it ru s t law s . The on ly rema in ing is sue to w a rran t
d iscuss ion re la tes to the Hosp i ta l’s “phys ic ian s trat –

No . 10-1665

egy”— i t s a t t em p ts
to conv in ce c er ta in H osp i ta l –
affilia ted phys ician p rac tice group s not to relocate their
p rac t ices to the M erca tu s phys ic ian cen ter .

A . Facts on Summ ary Judgm en t
Beg inn ing in 2004 , M erca tus app roached a num ber of
phys ic ians to d iscus s re locat ing their prac tices to its
proposed phys ic ian cen ter . By M ay 2006 , a num ber of
H o s p i t a l – a f f i l i a t e d p h y s i c i a n s h a d c o n d i t i o n a l l y
accep ted offers to re loca te to the phys ic ian cen ter .
Fou rteen of the seven teen phys ic ians whom M e rcatus
recru ited were on the Hosp ita l’s sta ff , and s ix o f tha t
num ber w ere tenan ts of Hosp i ta l office space . In par-
t icu lar , two phys ic ian prac tice group s , North Suburban
M ed ica l A ssoc ia tes (“NSM ” ) and Lake Forest M ed ica l
A ssoc ia tes (“LFM ” ), agreed to move the ir prac t ices to
th e M ercatus phys ician cen te r if M ercatus m et ce rtain
con trac tua l m iles tones . A s par t of those agreem en ts ,
those prac t ice group s signed “no -shop” agreem en ts
tha t forbade them from pu rsu ing or en te rtain ing a “con –
trac tua l re la t ionsh ip or other agreem en t w i th any o ther
en t ity o r person engaged in a bus iness s im ilar to
[M ercatus] .”
The Hosp ita l wan ted th ese phys ic ian groups— s ign if-
ican t revenue producers impor tan t to the Hosp i ta l— to
ge t ou t of the ir dea ls w i th M erca tus . To do so , the Hos –
p i ta l offered a number of incen t ives to N SM and LFM to
ent ice them not to re locate to the p roposed M e rcatus
phys ic ian cen ter . The Hosp i ta l offered to assum e NSM ’s

No . 10-1665

office lease and then to sub lease a m ore m anageab le
por t ion of th a t space ba ck to N SM , to he lp N SM
negot ia te a lease ex tens ion from its land lord , and to
m ake N SM a par tn er in the d evelopm en t o f an elec tron ic
m ed ica l records in terface— essen t ia lly “the sam e th ings
tha t M erca tus h ad agreed to prov ide .” The Hosp i ta l a lso
offe red LFM a chance to par tn er w ith the H osp ita l in
develop ing an elec tron ic m ed ica l record s sys tem , as w ell
as a subs idy to imp lem en t tha t sys tem in LFM ’s of-
fices . The Hosp ita l a lso announced th a t i t wou ld freeze
LFM ’s lease ra te and o ffered to prov ide LFM ass is tance
in recru i ting a new phys ic ian to its prac tice .
A lleged ly ,
1 1
the Hosp i ta l a lso fa lse ly to ld these phys ic ians tha t
M erca tus had v io la ted certa in an t i -k ickback regu la t ions .
Bo th NSM and LFM even tua lly term ina ted the ir rela –
t ionsh ips w ith M erca tus , bu t the Hosp i ta l has fo llowed
th rough on on ly som e , bu t no t a ll , of its offers to thos e
prac tice group s .

B . Lack o f Ev idence o f Predatory Conduct
On appea l , M e rca tu s argu es that th is condu ct was no t
p ro tec t ed by N oerr-Penn ing ton and wa s not (a s the
d is tr ic t cou rt con cluded ) m ere sp eech ou ts id e th e s cop e

11
M e rca tu s c la im s tha t th e Ho sp i ta l a lso p rom ised th e
p h y s i c ian g roup s “equ ity in [the H o sp ita l ’s] rea l esta te .”
N o th ing in th e p o r t ion s o f th e re co rd r e l ied on by M e rca tu s
suppo r ts th is con ten t io n . A t m os t , the reco rd ind ica tes tha t
the H osp i ta l w a s cons ide r ing whe the r to o ffe r the phy s ic ian
g roup s su ch an equ ity op tion .

No . 10-1665

of the an t it ru s t law s . A l thou gh we agree w ith M e rcatus
on both po in ts , M e rcatus has fa iled to p re sent suffic ient
ev idence tha t the Hosp ita l’s ac t ions cons titu ted ac tua l
or a ttemp ted m onop o l iza t ion under the Sherman A c t .
See P rofessi on a l R eal E state Investors , 508 U .S . at 61 (not ing
that “even a p lain tiff who defeat s [a ] defendan t’s cla im
to N oerr immun i ty . . . mus t st ill prove a subs tan t ive
an t itrus t vio la t ion” ) . To prove ac tua l monopo liza t ion of
a m arke t , M erca tus mus t show (1 ) tha t the Hosp ita l
possessed m onopo ly pow er in tha t m arke t ; and (2 ) tha t
the Hosp i ta l w i llfu l ly a cqu ired or m a in ta ined tha t
pow er by m eans o ther than the qua lity o f i ts produ c t , its
bu siness acum en , or h istor ica l acc iden t . Ch i ll icothe Sand
& Gravel Co . v . M artin M arietta Corp ., 61 5 F .2d 427 , 430
(7 th C ir . 1980 ). To p rove at temp ted monopo lizat ion ,
M erca tus mus t show (1 ) the Hosp ita l’s spec ific in ten t to
ach ieve monop o ly power in a re levan t m arke t ; (2 ) preda –
tory or an t icom pe t it ive conduc t d irec ted to accom –
p l ish ing th is purpose ; and (3 ) a d angerous probability
that the a ttem p t a t m onopolizat ion w ill succeed . Lek tro –
Vend Corp . v . The Vendo Co . , 660 F .2d 255 , 270 (7 th C ir .
1981) . The second e lem en t of each c la im can be m e t by
show ing tha t the Hosp ita l engaged in preda to ry or
an t icompe t it ive conduc t o f som e kind . See Ch i ll icothe
Sand & Grave l , 615 F .2d at 430 ; Am erican Academ ic
Supp l iers , Inc . v . B eck ley-Cardy , Inc ., 922 F .2d 1317 , 1320 (7 th
C ir . 1991 ) (“The o ffen se of m onopolizat ion is the acqu isi-
t ion of m onopo ly by im p roper m e thod s or , m ore com –
m on ly . . . the abuse of monopo ly , the la tter occu rr ing
for examp le w h en a m onopo lis t by pr ic ing below cos t
succeeds in repe lling or in t im ida t ing new en tran ts or

No . 10-1665

ex tend ing h is m onopoly in to n ew m arke ts .”) ; S ta te o f
Il l ino is ex rel . Burr is v . Panhand le Eastern P ipe L ine Co .,
935 F .2d 1469 , 1481 (7 th C ir . 1991 ) (“Sec t ion 2 forb ids no t
the in ten t iona l pu rsu it of m onopo ly pow er bu t the em –
p loym en t of un jus t ifiab le m ean s to ga in tha t pow er .”) .
Turn ing to M erca tus ’ su bm iss ions to th is cour t , we see
lit t le to ind ica te why the Hosp ita l’s ac t ions m igh t be
con sid ered an ticom pet itive or p redatory . Th is issue is
neve r rea lly add ressed in M erca tus ’ open ing br ie f, wh ich
focu se s pr im arily on argu ing that N oerr-Penn ing ton im –
mun i ty does not app ly . A nd M erca tus ’ bare c la im tha t
the Hosp ital’s conduc t “p revented [M e rcatus ’] en try and
reduced compet ition” s imp ly does not su ffice . A fte r all ,
m any k ind s o f conduc t m ay preven t or d iscourage a
po ten t ia l compe t itor from en ter ing a par t icu lar m arke t .
Federa l an t itrus t law s are imp l ica ted on ly when tha t
condu c t is p redatory or un just ifiab le . See , e .g ., Burris,
935 F .2d a t 1481 (“Sec t ion 2 forb ids no t the in t en t iona l
pu rsu it of monopo ly powe r bu t th e emp loym en t o f un just i-
f iab le m ean s to ga in tha t pow er .”) .
To the ex ten t tha t M erca tus add resses th is issue , it on ly
fur ther mudd ies wha t are already murky wa ters . Its
rep ly brie f argues tha t the H osp i ta l “ tort ious ly vio la ted
M erca tus ’ no -shop agreem en ts .” The Hosp i ta l w as no t
pa rty to those agreem ent s and cou ld n o t b reach a
con trac t to wh ich it w as no t a par ty . A ssum ing tha t
M erca tu s m ean t to say tha t the H o sp i ta l tor t ious ly in ter-
re la tion sh ip s w i th
it s con tractua l
fe red w i th
the
phys ic ians , an allegat ion
tha t
the H osp ita l ac ted
“ tort iou s ly” doe s lit tle to advance Mercatus’ argum ent . The

No . 10-1665

an tit ru st law s are des igned to p ro tec t com p e tit ion , wh ile
bu sines s tort law is gene ra lly des igned to p ro tec t the
com pet itors them selves . See , e .g ., Am erican Counc il o f
Certi f ied Pod ia tric Physic ians & Surgeons v . Am erican B d . o f
P od iatr ic Surgery , Inc ., 323 F .3d 366 , 372 (6 th C ir . 2003 )
(“ Isola ted bu s ine s s tort s . . . do not typ ically rise to the
leve l of [an an t i tru s t] v io la t ion u n less there is a harm
to compe t i t ion itse lf .”) .
Fo r th e Hosp i ta l ’s a l leged in ter-
1 2
ference to have v io la ted the an titrus t law s , then , its
spec i f ic ac ts of in terference mus t have had a nega tive
effec t on com pe t i t ion . The prob lem is , any in terfer-
ence w ith the no -shop agreem en ts w as arguab ly pro –
com petitive to a t least som e ex ten t , g iven tha t the no -shop
agreem en ts w ere des igned to p reven t the Hosp i ta l or
anyone e lse from com p e t ing for the phys ic ians of LFM
and N SM . Tha t rem a ins true whe ther or no t th e
Hosp ita l , w h ich was adm it ted ly aware o f the no -shop
ag reem en ts ’ ex is tence , ac tua lly knew the subs tance of
those agreem en ts .

12
W e a g re e w i th the H osp i ta l tha t M e rca tus ’ c la im app ea rs
som ew ha t ak in to a b reed o f an t i tru s t v io la t ion recogn iz ed in
the N in th C i rcu it as “p reda to ry h i r in g .” “Un law fu l p red a to ry
h ir ing occu rs wh en ta len t is a cqu ir ed no t fo r pu rpo se s o f u s ing
tha t ta len t bu t fo r pu rp o se s o f d eny ing it to a com p et ito r .”
U n iv er sa l A na ly t ic s , In c . v . M a cN ea l-S chw end le r C o rp . , 914
F .2d 1256 , 1258 (9 th C i r . 1990 ) (ad d ress ing “ the fi rs t repo r ted
case o f a c la im ed v io la t io n o f sec tion 2 as a resu lt o f a l leged
emp loy ee ra id ing or p r ed a tory h ir ing” ) . W e hav e n ev e r re cog –
n iz ed p red a to ry h ir ing as a v a l id theo ry o f an t i tru s t l iab i l i ty
and need no t d o s o a t th is t im e s ince M erca tu s has sa id i t
does no t asser t a p red a to ry h ir ing c la im .

No . 10-1665

To show that th e Hosp ita l’s “phys ic ian s tra t egy”
v io la ted the an t it ru s t law s , M e rcatus had to p re sen t
e v i d e n c e
t h a t
t h e H o s p i t a l e n g a g e d
i n s om e
an t icompe tit ive conduc t in add it ion to it s a lleged in –
terferen ce w ith th e no-shop agreem en ts . To that end ,
M erca tus a lleges tha t th e H osp ita l fa lse ly
imp l ied
tha t M erca tus w as in v io la t ion of an t i-k ickback regu la –
t ion s , bu t w e have a lready con cluded that s ta tem en ts o f
th is sort are either p ro -com pet itive or have , at best , a
m in im a l an t icompe t it ive e ffec t . Se t ting aside tha t a lleged
fa lse sta tem en t , we ju s t cannot see any reason to be t rou –
b led by the manne r in w h ich the Ho sp ital wen t abou t
conv inc ing these phys ic ians not to m ov e the ir prac tices
to M erca tus ’ phys ic ian cen ter. The Hosp ita l d id no t
leverage i ts m arke t p ow e r to m ake the phys ic ians offers
on sup ra-compe t it ive term s imposs ib le for any compe t itor
to ma tch . The Ho sp ital s imp ly offe red the phys ic ians
m any of the sam e
incen t ives M erca tus o ffered to
induce them to re locate the ir pract ices in the first p lace .
Nor is there any evidence tha t the Hosp ita l resor ted to
un fa ir or coe rc ive tact ic s , such as threat s to revoke the
phys ic ians ’ Hosp ita l s ta ff pr iv ileges i f they re located to
M erca tu s ’ phys ic ian cen ter .1 3
To the ex tent tha t M e rcatus t rie s to a rgue tha t the
Hosp ita l, in the course o f m ak ing its o f fers , “exer ted

13
In h is dep os it ion test im ony , M e rca tus ’ CEO im p l ied tha t
the H osp i ta l th rea tened to m ake pub l ic one phys ic ian ’s “pe r –
sona l condu c t issue” i f tha t phy s ic ian con t inued to suppo r t
M e rca tus . I f t rue , th is w ou ld b e troub l ing , bu t the phy s ic ian
d en ied tha t th e H osp i ta l ev er m ad e such a threa t . No adm is –
s ib le ev id en ce suppo r ts M e rca tu s ’ a llega t ion .

No . 10-1665

ext reme p re ssure” on the phys ic ians , th is a rgum ent
founders for two reasons . F irst , the ev idence ind ica tes
tha t at leas t som e of the “p re ssure” of wh ich M e rcatus
comp lains w as no t exerted by the Hosp ita l bu t w as an
ind irec t resu lt of the Hosp ita l’s pub lic re la t ions cam –
paign . A ccord ing to M ercatus’ own CEO ’s d epos i-
t ion tes t im ony , the Hosp ita l’s “m is in form at ion in com –
mun ica t ing w i th a l l cons t i tuen ts . . . su l lied the en t ire
phys ic ian m arke t” for M erca tus . For examp le , one key
phys ic ian fe l t “os trac ized from the . . . commun i ty
becau se . . . of h is support of the p ro jec t in the face of the
hosp ita l’s ob jec tions .” Another phys ician was “fa irly
shaken” by “buzz in the commun ity .” Bu t such com –
mun ity reac tion wa s
the
inev itab le re su l t of
the
Hosp ita l’s robus t pub lic re la t ions campa ign . W e have
a lready exp la ined tha t the pub lic re la t ions campa ign
fa lls und er the p ro tec t ion of N oerr-Penn ing ton .
Second , to wha tever ex ten t the Hosp ita l d irec t ly exer ted
p ressu re on LFM and NSM to rem ain w ith the H osp ita l ,
the Hosp i ta l had good compe t it ive r eason to do so .
M erca tu s read i ly adm i ts tha t i t was try ing to lure
away from the Hosp ita l a group o f doc tors w i th “a
cr it ica l m ass” o f more than 30 ,000 pa t ien ts . The loss of
th is many pa t ien ts w as app ar en t ly fa ta l to M erca tus ’
p lans to bu ild a phys ic ian cen ter anywhere in Lake
B lu ff . Th e e ffec ts of su ch a loss on the H osp ita l wou ld
undoub ted ly have been sign ifican t as w e ll . It is not t rou –
b l ing , then , tha t the H o sp i ta l m ade an ex traord inary
e ffo r t to re ta in these phys ic ians (and , th rough them , the

No . 10-1665

And even if such
revenue from trea ting their pa t ien ts ).
1 4
e ffort s we re som ewhat aggre ss ive or heavy -hand ed , the
an tit ru st law s do not p roh ibit “conduc t that is on ly
un fa ir , impo lite , or une th ica l.” Scha char, 870 F .2d a t 400
(c i ta t ion om i t ted ) .
W e a lso s ee noth ing p redatory or an ticom pet itive in
the fac t tha t the Hosp ita l fa iled to fo llow through w ith
a few of the prom ises it made to conv ince these prac tice
group s no t to re loca te to the M erca tu s phys ic ian cen ter .
For s tar ters , w e re jec t M erca tu s ’ econom ic exper t ’s
a t temp t to argue tha t any fa ilu re to keep a p rom –
ise— apparen tly , regard less o f the reason for that fail-
ure— is an t icompe tit ive . If tha t we re the case , even the
m o s t mundan e b reach of con trac t cou ld vio late the an ti-
trus t law s . Les t w e t ransform every inadver ten t fa ilure
to keep a comm erc ia l prom ise
in to an an t itrus t
v io la t ion , we conc lud e tha t the Hosp i tal’s conduc t can
be con sid ered predatory on ly if its p rom ises w ere mad e
not to com pete in the m arke t , bu t on ly to un fair ly
s tym ie unwan ted compe tit ion .
Tha t m igh t be the case if , for examp le , it cou ld be
shown tha t the Hosp ita l’s prom ises were m ade w i th
no in ten t of ever be ing kep t , or if th e Hosp ita l’s p rom is e s
w ere broken on ly af te r the Hosp i ta l rea lized tha t

14
I t is qu es t ionab le wh e th er th e Ho sp ita l ev en exer ted su ch
p re s su r e . Du r ing h is d epos it ion , a phy sic ian w i th N SM m ad e
qu i te c lear tha t he d id no t fee l any p r e ssu r e from the H osp i ta l ,
wh ich he sa id had “o ffe red ano ther oppo r tun i ty th a t I cou ldn ’t
exp lo re wh i le I w as und er the no -shop” ag reem en t .

No . 10-1665

M e rcatus ’ compe tit ive th rea t had pas sed . Bu t noth ing
in the record , even when v iewed in the ligh t mo s t favo r –
able to M e rca tu s , ind icates tha t th is wa s the ca se . The
ev idence show s on ly tha t the H osp ita l fu lfilled som e
bu t no t qu ite a ll of the prom ises it made to each
phys ic ian group . NSM agreed to partne r w i th the
Hosp ita l to deve lop an elec tron ic m ed ica l rec ords sys-
tem . NSM has no t ye t s igned a con trac t to pu rchase
that sys tem , though it has expressed “verba l in ten t” to do
so . A nd though the Hosp ita l he lped N SM ob ta in an
ex ten sion of its office lease , th e Hosp ita l has ne ith er
a s sum ed that lease nor subleased a port ion of th e offic e
space thereund er back to N SM . The Hosp i ta l froze LFM ’s
lease ra te a s p rom ised , bu t has not ye t p rov ided the
p rom ised rec ru itm en t ass istan ce to L FM , apparen tly
because LFM never recru ited another phys ic ian . A s a
resu l t , we have , a t best , a c la im for breach of con trac t by
the phys ic ians aga ins t the Hosp ita l (or perhaps a c la im for
prom issory estoppe l) , no t an an t itrus t case by M erca tus .
Because of the p o ten t ia l ch ill tha t an t itrus t lit iga tion
can h ave on leg it im a te pro-compe t it ive prac tices , see
M a tsush ita E lec . Indus . Co . v . Zen ith Rad io Corp ., 475 U .S .
5 74 , 594 (1986 ) , M erca tus w as ob liged , in oppos ing th e
Hosp ital’s m o t ion for summ a ry judgm en t , to “p re sent
ev idence tha t tends to exc lud e the possib ility tha t
th e [H osp i tal’s ] conduc t w as as consis ten t w ith compet i-
t ion as w i th illegal conduc t .” N e lson v . M onroe Reg ’ l
M ed . C en ter , 925 F .2d 1555 , 1578 (7 th C ir . 1991 ) (quo ta t ion
om it ted ) . Desp i te th is burden , M erca tus appears to
m ere ly comp lain tha t the Hosp i ta l had the audac ity to
t ry to re ta in th e bu sin ess of th e phys ic ian s th rough

No . 10-1665

whom M erca tus adm it ted ly sou gh t to draw subs tan t ia l
incom e away from the Hosp ita l. Bu t th is is an ex am p le
of the very typ e o f com pe t i t ion the an t i trus t law s w ere
des igned to protec t . It wou ld be p erverse if M erca tus ’
failu re to p reva il in tha t com petition gave it a gr ievance
cogn izab le under the She rm an A c t . Even if the Hosp ita l
had monopo ly power in the geograph ic and produc t
m a rke ts M e rcatus ’ econom ic expe rt endorsed ,
the
Hosp ital had no du ty to step as ide and a llow M e rcatus
to m ake off w i th i ts phys ic ians , pa t ien t s , and revenue . Cf .
O lymp ia Equip . Leasing , 797 F .2d a t 379 (“Con sum ers
wou ld be worse off if a firm w i th monopo ly p ow er had
a du ty to ex tend pos i tive assis tance to new en tran ts , or
hav ing ex tended it vo lun ta rily a du ty to c on t inue it
indefin ite ly .” ) . Noth ing in the volum inou s record cou ld
enab le any reason ab le finder of fac t to render a verd ic t
for M erca tus regard ing the Hosp i ta l’s pursu i t of these
two phys ic ian pract ice group s .

V II . Conclusion
In th e end , the vas t m a jority o f the conduc t o f wh ich
M e rcatus comp la in s wa s a legit im a te exe rc ise of the
Hosp i ta l’s righ t to pe t it ion the governm en t for redress ,
regard less o f how d ishonest or d is tas te fu l tha t conduc t
m igh t have been . None o f the rem a in ing comp lained -of
conduc t— com p e t i t ion for key phys ic ians , emp ty ter-
r i tor ia l s ta tem en ts to a compe t i tor , and fa lse de roga tory
s tatem ent s abou t M e rcatus— g ives rise
to
liab ility
und er the an t i trus t law s , wh e ther cons idered in iso la –
t ion or taken toge ther as a who le . To the ex tent M e rcatus

No . 10-1665

w as harm ed by the Hosp i ta l’s ac t ions , any rem ed ies
m igh t ar ise under Illino is tort law , no t federal an t itrus t
law . The judgm en t of the d is tr ic t cour t is AFFIRMED .

5 -2 6 -1 1

Mercy Hosp., Inc. v. Baumgardner

MALPRACTICE
– HOSPITAL LIABILITY FOR INDEPENDENT CONTRACTOR

Mercy Hosp., Inc. v. Baumgardner,

Nos. 3D02-3095, 3D02-2686 (Fla. Dist. Ct.
App. December 24, 2003)

A physician filed for bankruptcy soon after receiving
two adverse malpractice judgments. The plaintiffs then sued the hospital
where the malpractice occurred
to recover the damages they were awarded.

Florida’s financial responsibility statutes require a physician to either
be insured or have the ability to pay up to $250,000 per malpractice claim
in order to obtain hospital privileges. The lower court found that it was the
intent of the statutes to ensure that a person injured by the medical malpractice
of a physician with privileges would be able to recover at least $250,000 and
that a hospital is liable when a physician with privileges fails to comply
with the statute. The appellate court affirmed the lower court’s decision and
found that the statutes imposed a duty on hospitals to ensure compliance.

Merce v. Greenwood

IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
FILED
CLERK, U.S. DISTRICT COURT
December 17, 2004 (12:49pm)
DISTRICT OF UTAH

ADAM MERCE, an individua l, and EMILY
DEMONG, an individual,
Plaintiffs,

vs.

MARK W. GREENWOOD, M.D ., DAVID
M. POPE, M.D., KIRK R. ANDERSON,
M.D., IHC HEALTH SERVICES, INC., dba
SEVIER VALLEY HOSPITAL and IHC
HEALTH SERVICES, INC., dba UTAH
VALLEY REGIONAL MEDICAL CENTER,
Defendants.

ORDER DISMISSING
PLAINTIFFS’ EMTALA CLAIMS
AND DENYING PLAINTIFFS’
MOTION TO AMEND THE
COMPLAINT

Case No. 2:04-CV-00610 PGC

This case presents a statute of limitations question under the Emergency Medical

Treatment and Liability Act (EMTALA). In June 2002, plaintiff Adam Merce was discharged

from emergency room treatment by defendant doctors David M. Pope and Mark W. Greenwood.

Shortly after that discharge, he suffered serious injuries – injuries, he alleges, the doctors should

have discovered in his emergency room visits. More than two years later (in July 2004), Merce

filed the lawsuit alleging several claims, including violations of EMTALA’s anti-dumping

provisions. The doctors moved to dismiss the EMTALA claims, citing EMTALA’s two-year

statute of limitations. Merce responded that the two-year statute had not run because of various

state law tolling provisions, including tolling provisions for pre-litigation screening procedures

and for delayed discovery of an injury.

The court rejects Merce’s argument that EMTALA’s two-year statute of limitations is

tolled by these state law provisions. Congress chose to adopt an iron-clad two-year statute, rather

than allow tolling for such reasons. The court must therefore follow the congressional

determination and dismiss Merce’s EMTALA’s claims.

Background

For purposes of this motion, the court finds the following facts. Plaintiff Adam Merce

began feeling sick on June 15, 2002. On June 18, 2002, during a CT scan, Merce suffered a

grand mal seizure and was taken to the emergency room at Sevier Valley Hospital in Richfield,

Utah. Dr. Pope was the emergency room physician who examined Mr. Merce there. Dr. Pope

diagnosed a grand mal seizure, prescribed Dilantin and told Mr. Merce to go home. Merce went

home as ordered, but his problems continued. In the early morning hours of June 19, 2002,

Merce returned to the emergency room. Dr. Greenwood examined him, gave him a spinal tap

and, diagnosed viral spinal meningitis. Dr. Greenwood prescribed morphine and antibiotics and

admitted Merce to the hospital.

The next day, worried by his apparent lack of improvement and ultimately dissatisfied

with the care at Sevier Valley hospital, Merce’s companion, plaintiff Emily Demong, drove

Merce to Utah Valley Medical Center in Provo. His condition continued to worsen until, on June

Page 2 of 13

22, 2002, an MRI was finally performed. The MRI revealed that Merce suffered from herpes

simplex encephalitis. Merce slipped into a coma that same afternoon.

Plaintiffs allege that Merce suffered acute brain injury as a result of the failure to

accurately diagnose or treat his condition. Plaintiffs have brought state law medical malpractice

and EMTALA claims against Drs. Pope and Greenwood in connection with these events.

II.

Pope’s and Greenwood’s Motion to Dismiss Plaintiffs’ EMTALA claims

Dr. Pope’s alleged EMTALA violation occurred on June 18, 2002. Dr. Greenwood’s

allegedly occurred on June 19, 2002. But plaintiffs did not file their present EMTALA claims

until July 1, 2004, more than two years after these alleged violations took place. Dr. Pope has

therefore moved to dismiss plaintiffs’ EMTALA claims under EMTALA’s two-year statute of

limitation, and Dr. Greenwood has joined that motion.

In response, plaintiffs argue that EMTALA’s two-year statute of limitations is tolled by

the pre-litigation procedures required under Utah State law and that EMTALA’s statute of

limitations does not run until a claimant “discovers” the violation.

Odd ly, neither defendant has raised a st raightforward challenge to plain tiffs ’ EMTALA

claim against him: namely, that under the plain language of the Act, only hospitals can be sued

for violations.1 A private right of action against an individual doctor does not appear to be

authorized. However, because the court disposes of plaintiffs’ EMTALA claims against Drs.

Pope and Greenwood on statute of limitations grounds, it has no need to further address this

issue.

142 U.S.C. § 1395dd(d)(2)(A).

Page 3 of 13

EMTALA provides a private cause of action for its violation and contains its own statute

of limitations provision: “[n]o action may be brought under this paragraph more than two years

after the date of the violation with respect to which the action is brought.”2 In addition,

EMTALA contains a preemption provision, which states that nothing in the act “preempt[s] any

State or local law requirement, except to the extent that the requirement directly conflicts with a

requirement of this section.”3 EMTALA is a separate federal statute, not merely an outgrowth of

state malpractice law. As the Tenth Circuit has repeatedly noted, EMTALA “[s]ection 1395dd is

an anti-dumping provision, not a federal medical malpractice law.”4 EMTALA does, however,

incorporate state law provisions regarding available damages.5

Utah state law contains several provisions circumscribing the statute of limitations in

medical malpractice cases. Under Utah law, the two-year limitations period is expressly tolled

while plaintiffs comply with the required pre-litigation screening procedures.6 Pre-litigation

screening and certification of claims is required under Utah law before a medical malpractice

claim can be filed7 and a request for panel review must be made within 60 days after service of

242 U.S.C. § 1395dd(d)(2)(C).

342 U.S.C. § 1395dd(f).

4St. Anthony Hospital v. U.S. Dept. of Health and Human Services, 309 F.3d. 680, 694
(10th Cir. 2002) (citing Bryan v. Rectors & Visitors of University of Virginia, 95 F.3d 349, 351
(4th Cir. 1996); Repp v. Anadarko Municipal Hosp., 43 F.3d 519, 522 (10th Cir. 1994)).

542 U.S.C. § 1395dd(d)(2)(A).

6UTAH CODE ANN. § 78-14-12(3)(a).

7UTAH CODE ANN. § 78-14-12(2)(a).

Page 4 of 13

the statutorily-required notice of intent to commence a medical malpractice action.8 The

Division of Professional Licensing must complete its pre-litigation hearing within 180 days of

the date a request for review is filed9 or else its jurisdiction terminates and a claimant is held to

have complied with all requirements for commencement of a court action.10 In addition to these

pre-litigation requirements, Utah law also provides that the statute of limitations does not begin

to run unt il “discovery” of the conduct giving rise to the alleged in jury.11

Plaintiffs argue that because EMTALA adopts substantive state law provisions governing

available damages, it also incorporates substantive state law procedural provisions governing

malpractice claims (including provisions tolling the statute of limitations) and that EMTALA’s

two-year statute of limitations is thus tolled by these provisions. While the Tenth Circuit has not

addressed this issue, the Fourth Circuit has squarely rejected plaintiffs’ argument. In Vogel v.

Linde,12 the Fourth Circuit held that EMTALA’s two-year limitations period is not tolled by

infancy or incompetency (as limitations periods would be under Virginia state law) because it is

black letter law that statutes of limitation do not toll unless the statute expressly so provides.

Subsequently, in Power v. Arlington Hospital,13 the Fourth Circuit concluded that pre-litigation

8Id.

9UTAH CODE ANN. § 78-14-12(3)(b)(i).

10UTAH CODE ANN. § 78-14-12(3)(b)(ii).

11UTAH CODE ANN. § 78-14-4(1) (2002).

1223 F.3d 78 (4th Cir. 1994).

1342 F.3d 851 (4th Cir. 1994).

Page 5 of 13

claim screening provisions required under Virginia state law did not toll EMTALA’s two-year

limitations period because the state law provisions conflicted with the federal statute and were

thus preempted by EMTALA.

Power involved a situation inverse to the situation here; it was the defendant seeking to

incorporate state law restrictions on the statute of limitation, rather than the defendant. But the

principle remains the same: state law does not alter EMTALA’s congressionally-determined

procedural requirements regardless of whom they benefit. Thus, the defendant hospital in Power

had moved to dismiss plaintiff’s EMTALA claim because she had failed to submit her claim for

pre-litigation review by a medical malpractice review panel as required under Virginia law. The

district court denied the hospital’s motion to dismiss and the Fourth Circuit affirmed, holding

that EMTALA does not “expressly or impliedly incorporat[e] state-mandated procedural

requirements for EMTALA claims.”14 The Circuit agreed with a previous ruling by the Virginia

Supreme Court that Virginia’s “notice of claim provision, and its requirement that suits cannot be

filed until after they are reviewed by a malpractice review panel, directly conflicts with

EMTALA.”15 The Circuit then noted that “[n]otwithstanding the fact that the Virginia Act tolls

the statute of limitations during compliance with its procedural prerequisites, these state law

tolling provisions cannot toll the running of EMTALA’s statute of limitations,”16 and cited as

support for this position the U.S. Supreme Court’s recognition that “‘[i]f Congress expressly puts

14Id. at 866.

15Id. (citing Smith v. Richmond Memorial Hosp., 416 S.E.2d 689, 695 (Va. 1992).

16Id.

Page 6 of 13

a limit upon the time for enforcing a right which it created, there is an end of the matter.’”17 The

Circuit thus concluded that because Virginia’s pre-litigation procedures had the potential to

directly conflict with EMTALA, they were “not applicable to an EMTALA claim.” Failure to

comply with state procedures, in other words, would not bar plaintiff’s EMTALA claim.

The U.S. District Court for the District of Colorado also recently reached a similar

conclusion. In Bird v. Pioneers Hospital,18 plaintiff Bird brought an EMTALA claim against

Pioneers Hospital after she was discharged during labor and told to drive herself to another

hospital in Grand Junction, Colorado. She started to deliver her baby en route and due to

complications that developed, her baby suffered severe injuries and died 15 days later. Pioneers

Hospital moved to dismiss plaintiff’s EMTALA claim on the ground that she had failed to

comply with the notice-of-claim requirements under the Colorado Governmental Immunity Act

(CGIA). The district court rejected this argument. The court held that EMTALA preempts the

state law notice-of-claim requirement “because the state statute . . . is potentially in direct

conflict with EMTALA’s statute of limitations.” In so doing, the district court followed the

Fourth Circuit’s reasoning in Power:

Under the CGIA . . . a plaintiff’s notice requirement is triggered by the
“discovery” of his injury, whereas EMTALA’s statute of limitations commences
as of the date of the violation of the Act. Further, the CGIA tolls statutes of
limitations pending compliance with the CGIA’s procedural requirements where
the time necessary for such compliance would otherwise exceed the limitations
period. Consequently, a plaintiff may discover his injuries and provide notice
within EMTALA’s statute of limitations but still fail to complete the CGIA’s pre-

17Id. (quot ing Holmberg v. Armbrecht, 327 U.S. 392, 395 (1946)).

18121 F.Supp.2d. 1321 (D.Colo. 2000).

Page 7 of 13

suit compliance procedures and file his complaint within the federal limitations
period. As a result, there is a potential direct conflict between compliance with
the CGIA’s procedural requirements and EMTALA’s statute of limitations.
Accordingly, I conclude that EMTALA preempts the CGIA’s notice of claim
statute because the state procedural requirement stands as an obstacle to the
accomplishments and execution of Congress’ objectives in enacting EMTALA.19

The reasoning of both the Fourth Circuit in Power and the District of Colorado in Bird is

persuasive here. State procedural requirements could stand as an obstacle to the congressional

determination that a two-year statute of limitations is appropriate for EMTALA claims. The

court therefore holds that because a potential direct conflict exists between Utah’s pre-litigation

claim screening requirements and EMTALA’s statute of limitations, EMTALA preempts state

law on this point. As a result, Utah state pre-litigation screening requirements are not

“incorporated” into EMTALA and do not toll EMTALA’s two-year limitations period.

The Second Circuit’s decision in Hardy v. New York City Health & Hospitals Corp.20 and

the Ninth Circuit’s decision in Draper v. Chiapuzio21 do not alter the court’s conclusion. Both

Draper and Hardy involved the interrelationship between state law notice-of-claim provisions

and EMTALA’s statute of limitations. In both cases, the Circuits held that EMTALA did not

preempt the state law notice-of-claim requirements. The Circuits reasoned that compliance with

both EMTALA’s two-year statute of limitations and the state law notice-of-claim provisions at

issue was not an impossibility and thus, that no direct conflict between state and federal law

existed.

19Id. at 1326.

20164 F.3d 789 (2nd Cir. 1999).

219 F.3d 1391 (9th Cir. 1993).

Page 8 of 13

Draper and Hardy may be incorrectly decided. The New Mexico Court of Appeals came

to this conclusion in Godwin v. Memorial Medical Center.22 In Godwin, the state trial court had

granted summary judgment to the hospital on Godwin’s EMTALA claim finding that Godwin

had not filed a notice-of-claim within 90 days of the event giving rise to the injury as required

under New Mexico’s Tort Claims Act and that this notice-of-claim provision was incorporated

into EMTALA thus barring Godwin’s suit. The Court of Appeals reversed, holding that the

notice-of-claim provision in the state’s Tort Claims Act did not apply to EMTALA actions. The

Court of Appeals thus rejected the reasoning of Draper and Hardy, instead concluding that

[t]he fact of the matter is that if failure to give a 90-day notice bars an Emergency Act
claim, the two-year period given [under EMTALA] is taken away. The two-year
limitations period in effect is reduced to 90 days or less and effectively vitiated. These
circumstances create a direct conflict between the Tort Claims Act notice-of-claim
requirement and the Emergency Act’s statute of limitations and purposes. We hold that
the Tort Claims Act notice-of-claim requirement is preempted by the Emergency Act and
therefore not applicable to an Emergency Act claim.23

The court need not go so far as the New Mexico Court of Appeals, however, because

Draper and Hardy are distinguishable from the case at hand. Both Draper and Hardy involved

state law requirements that at least arguably created no conflict with EMTALA. Both cases

involved state laws requiring merely that a notice of claim be filed – and nothing more – before a

plaintiff could file suit. Such laws are different than Utah’s medical malpractice scheme, which

requires not only the simple filing of a notice-of-claim but also undergoing a pre-litigation panel

review process during which the statute of limitations is tolled. This difference is crucial because

2225 P.3d 273 (N.M. 2001).

23Id. at 282.

Page 9 of 13

while a state law requiring a plaintiff to give notice of claim does not clearly conflict with

EMTALA’s statute of limitations, an express tolling provision such as Utah’s certainly may in

some circumstances. Thus, Hardy and Draper can ultimately be harmonized with Power and

Bird by recognizing that the simple state law notice-of-claim provisions at issue there were not

inconsistent with EMTALA. As the District Court for the District of Colorado persuasively

explained in Bird,

Hardy and Draper are distinguishable from the circumstances presented here because
unlike the notice-of-claim statute in [CIGA], the statutes in Hardy and Draper only
require timely notice and do not mandate further compliance with any pre-suit
procedures. Therefore, Hardy and Draper did not address tolling provisions similar to
those found in [CIGA], which I conclude are in conflict with EMTALA’s statute of
limitations. I thus find that [CIGA] is more analogous to the Virginia notice-of-claim
statute in Power which contained similar tolling provisions.24

Here, as in Power and Bird, the pre-litigation claim screening requirements – with their

attendant tolling provisions – do pose a potential direct conflict with EMTALA’s statute of

limitations and are therefore preempted by EMTALA.

Plaintiffs would also have the court hold that EMTALA’s two-year statute of limitations

is tolled until the discovery of the conduct giving rise to the injury, just as it is under state law.

Plaintiffs reiterate their “incorporation” arguments and raise equitable concerns in support of this

position. But any state law provision about “tolling until discovery” directly conflicts with the

plain language of 42 U.S.C. § 1395dd(d)(2)(C), which provides that EMTALA’s limitations

period begins to run from the “date of the violation.” And as for plaintiffs’ argument that it

would be unfair to more seriously injured patients not to toll EMTALA’s statute of limitations

24Bird,121 F.Supp.2d at 1324 n.1 (internal citations omitted).

Page 10 of 13

until discovery of violations, some potential unfairness is inherent in the very conception of a

statute of limitations. That unfairness to the plaintiff must, of course, be balanced against the

need for defendants to know in a timely way whether they will be sued. In enacting EMTALA,

Congress certainly could have expressly provided for tolling of the limitations period until

discovery of the conduct giving rise to the injury. The fact that it chose not do so likely reflects

an attempt to strike the proper balance between the harm to patients and the legitimate concern

providers have in being able to predict their potential liabilities for insurance and other reasons.

In any event, the weighing of the competing concerns is for Congress, and not this court, to

tackle.

Finally, plaintiffs argue that failure to allow tolling of EMTALA’s two-year statute of

limitations until the date of discovery of the injury would violate their rights to due process and

equal protection under the 14th Amendment to the United States Constitution. The court will not

address the merits of these dubious arguments for lack of adequate briefing of the issues.

III.

Plaintiffs’ Motion to Amend the Complaint

Plaintiffs have moved to amend their complaint to add facts establishing that Mr. Merce

was incapacitated until July 7, 2002, and thus could not have discovered the EMTALA violation

prior to that date. But because the court has already rejected plaintiffs’ argument that

EMTALA’s statute of limitation runs from the date of discovery of the injury instead of from the

date of the violation, plaintiffs’ amendment, even if allowed, would not prevent dismissal of the

EMTALA claims and would thus be futile.25 Because plaintiffs’ proposed amendment would be

25See Watson v. Beckel, 242 F.3d 1237 (10th Cir. 2001).

Page 11 of 13

futile, leave to amend need not be granted26 and p la in ti ffs’ mo tion to amend is, accordingly,

denied.

IV.

Sevier Valley Hospital’s and Utah Valley Regional Medical Center’s Motion to Dismiss
Plaintiff’s EMTALA claims

IHC Health Services, Inc., doing business as both Sevier Valley Hospital and Utah Valley

Regional Medical Center, have also filed a motion to dismiss plaintiffs’ EMTALA claims on

statute of limitations grounds. They filed this motion after briefing and oral argument on Drs.

Pope and Greenwood’s motion had been completed. Although the court fails to see why the

reasoning of this opinion would not apply with equal force to this later-filed motion to dismiss,

the court nonetheless gives plaintiffs three weeks in which to either oppose the motion to dismiss

or to indicate their lack of objection to dismissal of the remaining EMTALA claims.

Conclusion

Because plaintiffs’ EMTALA claims were not filed until more than two years after the

date of the alleged violations of the act, and because the court finds that EMTALA does not

incorporate state law pre-litigation claim screening requirements and that its two-year limitations

period begins to run from the date of the alleged violations, plaintiffs’ EMTALA claims were

26See Foman v. Davis, 371 U.S. 178 (1962).

Page 12 of 13

untimely filed and defendants Pope and Greenwood’s motion to dismiss (9-1; 12-2) is

GRANTED. Because the proposed amendment would be futile, plaintiffs’ motion to amend the

complaint (14-1) is DENIED. The case will proceed, of course, on the state law medical

malpractice claims.

DATED this _____ day of December, 2004.

BY THE COURT:

_______/S/________________
Paul G. Cassell
United States D istr ict Judge

Page 13 of 13

Mendez-Arriola v. White Wilson Med. Ctr. (Summary)

DISCRIMINATION, RETALIATION, BREACH OF CONTRACT

Mendez-Arriola v. White Wilson Med. Ctr., No. 3:09cv495/MCR/EMT (N.D. Fla. Aug. 25, 2010)

The United States District Court for the Northern District of Florida denied a medical clinic’s motion for a more definite statement and granted in part and denied in part its motion to dismiss various discrimination and breach of contract claims brought by a radiologist.

The radiologist was a shareholder employee of the clinic and acquired a partnership interest in the entity that owned the property on which the clinic was located. Over time, the radiologist claimed that her work conditions deteriorated because of her “female gender and the Clinic’s perception that she was mentally or psychologically disabled.” Eventually, the radiologist was summarily suspended for 90 days. She was not granted a hearing. Shortly after asserting a belief that the clinic was violating federal and state discrimination laws by, among other things, conditioning her return to work on a psychological examination, the radiologist was fired.

The radiologist filed suit claiming that the clinic and associated entities and persons violated state and federal discrimination laws, retaliated against her for complaining about the suspected discrimination, and breached their contract with her. The court made numerous rulings on the parties’ motions. Most significantly, the court allowed the radiologist’s claim that the clinic required that she submit to a medical examination, which was neither job-related nor consistent with business necessity, to proceed, acknowledging that such a claim was separate from her federal disability discrimination claim. However, under Florida state law, there was no authority for a separate medical examination claim. Accordingly, that claim was dismissed. The court also concluded that any waiver that may have been contained in the Bylaws was ineffective because “an employee’s rights under the ADA may not be prospectively waived.”

Additionally, the district court denied the defendants’ motion to dismiss the radiologist’s claim for breach of the clinic bylaws. According to the court, the clinic offered no evidence to counter the radiologist’s allegations that the clinic violated the due process protections therein by failing to invite her to discuss, explain or refute the charges after she was advised of the charges.

Lastly, the radiologist’s claim of breach of fiduciary duty as to the clinic was dismissed because the radiologist’s claim focused on her termination as an employee of the clinic and the duty owed to her was only in her capacity as a shareholder, not an employee.

Merce v. Greenwood

EMTALA

Merce v. Greenwood, No. 2:04-CV-00610 PGC (D. Utah Dec. 17, 2004)

A
patient suffered injuries soon after being treated and discharged from a hospital’s
emergency room. Over two years later, he brought a lawsuit against two of
the treating physicians for violations of EMTALA’s anti-dumping provisions.
The United States District Court for the District of Utah granted the physicians’
motions to dismiss, finding that EMTALA’s two-year statute of limitations
period is not altered by provisions of state law such as pre-litigation screening
requirements. Also, the court noted that the statute begins to run on the
date of the violation, not when the violation is discovered. The court also
observed that, "oddly,
neither [physician] has raised a straightforward challenge to plaintiffs’ EMTALA
claim against him: namely, that under the plain language of the Act, only hospitals
can be sued for violations."

Mercatus Group, LLC v. Lake Forest Hosp. (Summary)

ANTITRUST

Mercatus Group, LLC v. Lake Forest Hosp., No. 10-1665 (7th Cir. May 26, 2011)

The United States Court of Appeals for the Seventh Circuit upheld summary judgment in favor of a hospital that was sued for allegedly violating federal antitrust laws. The suit was brought by a corporation that planned to construct a physician center that would compete with the hospital. The physician center alleged that the hospital mounted a public relations campaign laced with misrepresentations and designed to convince the community board to deny the request to develop the project. It also claimed that the hospital improperly offered incentives to two hospital-affiliated physician groups to keep them from relocating their practices to the physician center.

The court concluded that the hospital’s efforts to lobby the community board, acting in a legislative capacity, and its campaign to sway the public were immunized from antitrust liability under free speech principles dealing with the hospital’s right to petition the government for redress. Similarly, the hospital’s “derogatory” comments about the physician center to other businesses in the community and warnings to the physician center’s hospital partner to “stay out of its territory,” when not backed by any coercive conduct, were not actionable under the federal antitrust laws.

Lastly, the court found that the hospital’s conduct in attempting to retain physicians that the physician center was trying to lure away did not constitute actual or attempted monopolization under federal antitrust laws. According to the court, absent predatory conduct by the hospital, there could be no antitrust liability in the hospital trying to retain the business of its physicians and “the Hospital had no duty to step aside and allow [the physician center] to make off with its physicians, patients, and revenue.”

Memphis Health Ctr., Inc. v. Grant

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
November 2005 Session

MEMPHIS HEALTH CENTER, INC., by Sadie Davis and Cornelia Berry,
Directors, and Morristein J. Holman, Chief Executive Officer and Director
v.
GREGORY GRANT, DEAN JOHNSON, CYNTHIA COMBS, CLAUDETTE
BRANCH, ERNEST HUGHES, LEAOLA CRUTCHFIELD, BETTY
MILLER, FREDERICK SANDERS, EDDIE DANDRIDGE, DYRIE GOODS,
and BROWN McGHEE, individually and in their capacity as the Board of
Governors of Memphis Health Center, Inc.

An Appeal from the Chancery Court for Shelby County
No. CH-04-1188-2 D. J. Alissandratos, Chancellor

No. W2004-02898-COA-R3-CV – Filed July 28, 2006

This is a derivative action. The board chairman of a nonprofit health care center was found guilty
of submitting false claims in violation of federal law. Thereafter, the health care center’s chief
executive officer and two of its board members filed a derivative action on behalf of the health care
center against the chairman and health care center’s remaining board members for violating their
fiduciary duties to the corporation. The derivative suit sought, inter alia, injunctive relief to require
the board to take action against the board chairman, and to enjoin the board from allegedly violating
the CEO’s employment agreement by terminating her. The trial court issued a temporary restraining
order, enjoining the board from violating the health care center’s bylaws, from violating federal
regulations, and from terminating the employment of the CEO. Subsequently, the trial court found
the defendant board members guilty of contempt for violating that order and entered a permanent
injunction against the defendants. The permanent injunction awarded in the contempt action
removed the defendants from the board and permanently barred them from the premises. The
defendants appealed. We affirm, finding that the trial court’s action was warranted in the face of the
board’s failure to take action regarding the board chairman after the federal judgment for filing false
claims was entered against him.

Tenn. R. App. P. 3; Judgment of the Chancery Court is Affirmed

HOLLY M. KIRBY , J., delivered the opinion of the Court, in which ALAN E. HIGHERS, J., and DAV ID
R. FARMER , J., joined.

Kathleen L. Caldwell, Memphis, Tennessee, for Defendants/Appellants, Gregory Grant, Dean
Johnson, Cynthia Combs, Claudette Branch, Ernest Hughes, Leaola Crutchfield, Betty Miller,
Frederick Sanders, Eddie Dandridge, Dyrie Goods, and Brown McGhee, individually and in their
capacity as the Board of Governors of Memphis Health Center, Inc.

Robin H. Rasmussen, Memphis, Tennessee, for Plaintiff/Appellee, Memphis Health Center, Inc.,
by Sadie Davis and Cornelia Berry, Directors, and Morristein J. Holman, Chief Executive Officer
and Director.

OPINION

This appeal arises out of a derivative action initiated in the Chancery Court for Shelby
County on behalf of Memphis Health Center, Incorporated (“Memphis Health Center”), a Tennessee
non-profit corporation, by Plaintiff/Appellee Morristein J. Holman (“Holman”), the chief executive
officer of Memphis Health Center, against the Board of Governors of Memphis Health Center
(collectively, “Board” or “Defendants”).

On June 18, 2004, Holman, individually and as Chief Executive Officer of Memphis Health
Center, filed a verified complaint in the Chancery Court for Shelby County on behalf of Memphis
1
Health Center against the Defendant/Appellant Board members, individually and in their capacity
as the Board of Governors of Memphis Health Center. The complaint sought injunctive relief, both
temporary and permanent, prohibiting the Board from violating the Bylaws of Memphis Health
Center, violating the rules and regulations of the United States Department of Health and Human
Services (“HHS”), violating Holman’s employment contract with Memphis Health Center,
interfering with the day-to-day operations of Memphis Health Center, coming upon the premises of
Memphis Health Center without furnishing prior notice to Holman, and taking any action to amend
the Bylaws until the court made a final decision in the case. Additionally, Holman requested
reimbursement for her attorney’s fees and expenses incurred in prosecuting the derivative claim
against the Board.

The complaint stated that Holman was the Chief Executive Officer of Memphis Health
Center and named the following Board members as Defendants: Gregory Grant, the Chairman of
the Board (“Chairman Grant”); Dr. Dean Johnson, Vice Chairman; Cynthia Combs, Secretary;
Claudette Branch, Treasurer; Cornelia Berry; Sadie Davis; Reverend Ernest Hughes; Leaola
Crutchfield; Betty Miller; Dr. Frederick Sanders; Eddie Dandridge; Dyrie Goods; and, Dr. Brown
McGhee. Additionally, the complaint alleged that the Board failed to comply with the Bylaws of
Memphis Health Center and interfered with Holman’s performance of her responsibilities as Chief
Executive Officer pursuant to her employment agreement. Holman asserted as well that the Board
failed to comply with the HHS regulations regarding the operation of non-profit facilities.

1
V e r ific a t io n o f th e c om p la in t b y a p la in t iff is re q u ire d in a d e r iv a tiv e su i t , p u r su a n t to T e nn e sse e C o d e
A nno ta ted § 4 8 -5 6 -4 0 1 ( c ) (20 0 2 ) .

-2-

In support of the assertion that the Board failed to comply with the Bylaws of the corporation,
a copy of the Memphis Health Center Bylaws was attached to the complaint. The alleged violations
of the Bylaws included the following: (1) that two Board members did not meet the qualification
requirements for Board service; (2) that the Board did not maintain a vita on each Board member as
required in the Bylaws; (3) that the Board did not comply with the Bylaw requirements for
termination of board members who fail to attend meetings, specifically, Defendants Cynthia Combs
and Claudette Branch; and (4) violation of the Bylaws by Defendant Board Secretary Cynthia Combs
by not attending all meetings, recording all votes, keeping minutes of all proceedings, distributing
minutes to Board members, and giving notice of all board meetings. The complaint also alleged that
the Board acted outside its scope of responsibility of establishing corporate policy, as set out in the
Bylaws, by interfering with Holman’s responsibilities as the Chief Executive Officer in the day-to-
day operation of Memphis Health Center. Holman averred that Chairman Grant frequently interfered
“with the daily operation and staff of [Memphis Health Center]” and took “unilateral action to
obligate the corporation without [Holman’s] knowledge.” The complaint further alleged that the
Board failed to hold meetings specifically provided for in the Bylaws, instead rescheduling those
meetings for later dates and failing to give notice of the specially scheduled meetings.

The complaint also alleged that Chairman Grant told others that he intended to terminate
Holman’s employment. Holman maintained that Grant’s statements compromised and undermined
her ability to discharge her responsibilities as Chief Executive Officer.

Finally, the complaint set forth allegations that the Board had violated federal rules and
regulations. In support of this contention, Holman attached a December 4, 2001 letter from HHS,
detailing various conditions to be remedied in order to continue receiving federal grant funding.
Holman acknowledged that the issues set forth in the letter had been addressed, except for one issue.
The letter expressed concern about the Board’s interference in the day-to-day operations of Memphis
Health Center:

There is a serious breakdown of organizational discipline due to the Board’s
involvement in the day-to-day operation of the health center. The CEO’s inability
to exert control in this environment raises concern about the ability of the health
center to serve its patients and to safeguard federal funds.

The complaint alleged that, despite this warning from HHS, Chairman Grant continued to interfere
with the day-to-day operations of Memphis Health Center.

The complaint sought temporary and permanent injunctive relief, to enjoin Grant and the
Board from (1) violating the Bylaws, (2) violating the HHS rules and regulations, (3) violating
Holman’s employment agreement or taking any action to terminate her employment, or (4) amending
the Bylaws. It also sought an injunction prohibiting Grant from contacting Memphis Health Center
staff members, being involved in its day-to-day operations, or coming onto the premises of Memphis
Health Center without giving Holman 24 hours notice. On June 21, 2004, Chancellor Arnold Goldin
issued the temporary restraining order as requested, granting Holman all of the relief sought except

-3-

for the request to enjoin Grant from contacting staff members, being involved in the day-to-day
operations or coming onto the premises without prior notice to Holman.

On June 25, 2004, Chancellor Goldin entered an order, indicating that counsel for the
Defendants had sought clarification of the temporary restraining order, and directing the Board to
conduct a meeting to determine whether Holman should be suspended, with pay, during the
prosecution of the instant derivative suit. The Chancellor appointed a special master to monitor the
Board meeting and ensure that the meeting was conducted in accord with both court-imposed
directions for the meeting and the Memphis Health Center Bylaws.

On June 28, 2004, the Special Master filed a report recommending certification of the vote
in the court-ordered Board meeting. In the report, the Special Master detailed the Board’s
approximately ten-minute meeting and the Board’s nine-to-four vote on a resolution to suspend
Holman from her duties as Chief Executive Officer of Memphis Health Center with pay. The
2
resolution claimed that Holman had “covered up” sexual harassment complaints and had not
informed the Board of the matter, resulting in the filing of a sexual harassment lawsuit against
Memphis Health Center. It stated that the suspension with pay was “not to be construed . . . as
termination” of Holman’s employment.

The next day, June 29, 2004, Holman filed notices of voluntary dismissal of the claims
against Defendants Sadie Davis and Cornelia Berry, both individually and in their capacity as
members of the Board.

On the same day, June 29, 2004, prior to the filing of any responsive pleadings and only
eleven days after filing her original complaint, Holman filed an amended complaint. The amended
complaint reiterated the allegations of the original complaint, but also added two plaintiffs, Memphis
Health Center Board members Sadie Davis and Cornelia Berry (collectively with Holman,
“Plaintiffs”). The amended complaint also claimed that Holman, as Chief Executive Officer of
Memphis Health Center, was an ex officio member of the Memphis Health Center Board. The

2
A l th o u gh ta n ge n tia l to h e r so le c o u r t-d e f in e d d u ty a s S p e c ia l M a s te r , th e S p e c ia l M a s te r ’s re p o r t sp e c ifie d
o th e r m a t te rs re la tin g to th e d a i ly o p e r a tio n s o f M em p h is H e a l th C e n te r o f w h ic h th e S p e c ia l M a s te r th o u gh t th e tr ia l
co u r t sho u ld b e aw a r e . T h e r epo r t e xp la in ed th a t th e B o a rd shou ld a p p o in t a n ind iv id u a l to a s sum e th e ro l e o f th e a c ting
C h ie f E x e cu t ive O f fic e r :

Em p lo yee s com p la in tha t the y d o no t kn ow w ho ha s the au tho r i ty to g ive o rd e r s o r m ak e d ec is io n s .
A c co rd ing to th e unn am ed em p lo y e e s , th e r e a r e two (2 ) bo a rd m em b e r s who s im p ly to o k on th e
re sp o n s ib i l i ty o f g iv i n g o rd e r s . T h e re ha s b e e n n o th in g in w r i t in g to in fo rm th e s ta ff o f th e p r o p e r
c ha nn e ls fo r p ro b lem s . I t ap p e a r s th a t th e imm e d ia te a ss is ta n t to [H o lm a n ] h a s a lso b e en re lie ve d o f
h e r du t ie s by th e s e two bo a rd m em b e r s , n am e ly [Ch a irm a n G r an t] and B e t ty M i l le r .

T h e re p o r t a lso sa id th a t som e em p lo ye es ha d to ld th e S p e c ia l M a ste r th a t B o a rd m em b e r s h a d rem o ve d b o x e s o f re co rd s
a n d d o c um e n ts f rom M em p h is H e a lth C e n te r a n d h a d a t tem p te d to a c ce ss p a yro l l r e c o rd s th a t th e y w e re no t a u th o r iz e d
to ob ta in . T h e Sp e c ia l M a s te r ’s r epo r t ind ic a ted th a t th is w a s s ign ific an t b e c au s e H o lm an w a s en jo in ed f rom th e
p rem ise s a nd “h a s h ad no w ay to o b ta in r e co rd s w h ich w i l l a ss is t h e r in p ro se cu t ing he r c a se .”

-4-

amended complaint specified that it was a derivative action, filed pursuant to Tennessee Code
Annotated section 48-56-401, et seq., sought the same injunctive relief and explained why the
Plaintiffs had not made any demand to the Board for redress of the claimed violations:

Plaintiffs would further show that any demand upon the Defendants to correct the
willful, wanton and grossly negligent conduct in which they have engaged would be
futile in that the Defendants have a direct interest in continuing to breach their
fiduciary duty and violate the Bylaws and federal rules and regulations and, therefore,
are not independent and that the conduct of the Defendants is not protected by the
business judgment rule. In support of this allegation, Plaintiffs would show that in
spite of the issuance of a temporary restraining order by this Honorable Court, the
Defendants have violated the spirit of the restraining order by suspending [Holman]
from her position as Chief Executive Officer. Further Defendants have continued to
engage in the day-to-day operation of [Memphis Health Center] rather than confining
their role to that of setting policy and procedure and have engaged in the specific acts
as alleged in [this complaint].

The amended complaint was verified by both Holman and Sadie Davis.

In July 2004, at the Plaintiffs’ request, Chancellor D. J. Alissandratos extended the temporary
restraining order until trial, which was then set for August 18, 2004. As a result, the Defendants
remained temporarily enjoined from violating the Memphis Health Center Bylaws, violating the
HHS rules and regulations, taking any action to terminate Holman, or taking any action to amend
the MHC bylaws.

On August 3, 2004, the Defendants filed answers to the original and amended complaints.
Each answer asserted the same affirmative defenses and asserted that the Plaintiffs were not entitled
to any relief sought. Primarily, the Defendants argued that Plaintiffs did not meet the requirements
for a derivative action, in part, because Holman, as an ex officio non-voting member of the Board
of Directors, did not qualify as a “director” within the meaning of the applicable statutes. The
Defendants also asserted affirmatively that the Board had acted appropriately, exercising good
business judgment.

On August 13, 2004, the Plaintiffs filed a petition for civil contempt against the Defendants,
arguing, inter alia, that the Defendants had not complied with the injunctive orders issued by the trial
court. The Plaintiffs asserted that, after issuance of the TRO, the Defendants continued to violate
several provisions of the Bylaws, particularly by failing to remove Chairman Grant from the Board
for conduct unbecoming a Board member—a ground for removal in the Bylaws. In support of this
allegation, the Plaintiffs asserted that, on June 17, 2004, the United States District Court for the
Western District of Tennessee found that Chairman Grant violated the federal False Claims Act, 31
U.S.C. § 3729-33, by submitting 3,306 false claims. Consequently, a judgment was entered against
Grant for $5,929,719.21. The petition for civil contempt alleged additional violations of the Bylaws,
including: the improper administration of Board elections; inadequate record keeping; Chairman

-5-

Grant’s unauthorized signing of medical service provider contracts without Board approval; the
Secretary’s failure to provide the requisite notice to Board members of impending Board meetings;
insufficient public notice of Board meetings for public attendance in violation of the Tennessee Open
Meetings Act; unauthorized Board members redeeming certificates of deposit and converting funds
to other accounts; unauthorized Board action against Holman by suspending her without Bylaw
authorization to suspend the Chief Executive Officer; improper Board involvement in the day-to-day
operation of MHC; and unauthorized payment of attorney fees.

A month later, on September 13, 2004, the Defendants filed a motion for summary judgment.
The motion simply stated that summary judgment was appropriate because there were no issues of
material fact and “Defendants are entitled to judgment as to a matter of law, as to all issues in this
action.” Any accompanying memorandum of law in support of this motion was not made part of the
record on appeal.

On September 30, 2004, the trial court held a hearing on the Plaintiffs’ petition for civil
contempt. At the outset of the hearing, the Defendants made an ore tenus motion to dismiss, arguing
primarily that the Plaintiffs lacked standing to bring a derivative action. In the oral motion, the
3
Defendants contended that Holman lacked standing to bring a derivative action under Tennessee
Code Annotated section 48-56-401 because she was only an ex officio member of the Memphis
Health Center Board, and not a director or member within the meaning of the statute. The
Defendants also argued that Holman did not comply with Tennessee Code Annotated section 48-56-
401(c) in that she neither made a demand on the Board nor alleged that her failure to make a demand
was excused on the basis of futility. The Defendants maintained that Plaintiffs Sadie Davis and
Cornelia Berry, although members of the Board, lacked standing because they failed to meet the
pleading requirements of Rule 23.06 of the Tennessee Rules of Civil Procedure, requiring that the
complaint set forth with particularity the reasons for not making a demand on the Board. Finally,
the Defendants asserted that the only two plaintiffs with standing to bring a derivative action, Davis
and Berry, failed to verify the complaint.4

In response, the Plaintiffs argued that the Board was interested and controlled by the
Chairman, and therefore any demand on the Board for remedial action would be futile, citing the
assertion to that effect in the amended complaint. Additionally, Plaintiffs maintained that Holman
was a member of the Board, citing Article VI, section 7, of the Bylaws, stating that the Chief
Executive Officer shall serve as an ex officio non-voting member of the Board.

3
C o un s e l fo r th e D e fend an ts o r ig in a l ly f ram ed th e o r a l m o t io n in te rm s o f ju r isd ic t io n , bu t no is su e s reg a rd ing
ju r isd ic tio n w e re a rgu e d .

4
E v e n th o u gh P la in tiff S a d ie D a v is v e r ifie d th e am e n d e d c om p la in t, c o u n se l fo r th e D e fe n d a n ts c la im e d th a t
D a v i s t e s t i f i e d in a d is cov e ry d ep o s it io n th a t , co n tr a ry to th e v e r ific a t io n sh e s ign ed , sh e w a s un ab l e to sw e a r to th e
a l leg a t io n s in th e o r ig in a l c om p la in t in co rp o r a ted b y r e fe r en c e in to th e am end ed com p la in t . A p p a r en tly , th e tr ia l co u r t
d id no t c r ed i t th is a rg um en t . D av is ’ d ep o s i t io n is n o t in the re co rd , so th is C o u r t h a s no m e an s b y wh ich to re v iew th is
a rg um en t .

-6-

After hearing the arguments, the trial court concluded that Holman was a member of the
Board for the purposes of Tennessee’s derivative action statute. The court also found that Plaintiffs
Davis and Berry were members of the Board, and that paragraph 9 of the amended complaint stated
sufficient justification for excusing the demand. Consequently, the trial court denied the Defendants’
motion to dismiss.

After determining that the Plaintiffs had standing and that the demand requirement had been
met, the trial court examined the contempt issues raised by the Plaintiffs—the first being whether
the Board violated the Bylaws by not taking action to remove, or at least investigate, Chairman Grant
for conduct unbecoming a Board member. In support of this claim, the Plaintiffs submitted to the
5
court a copy of the United States District Court’s judgment against Chairman Grant, finding him
guilty of 3,306 counts of fraud under the federal False Claim Act. The Plaintiffs maintained that this
was sufficient proof to obligate the Board, in its fiduciary capacity, to investigate the truth of the
claims against Grant and consider terminating him for conduct unbecoming a Board member.

Counsel for the Defendants stipulated that there were no issues of material fact on this issue
and did not dispute the authenticity of the federal judgment against Grant. The Defendants admitted
that the federal judgment against Grant was public knowledge and that the Board had made no
inquiries into it. In defense of the Board, counsel for the Defendants argued only that the federal
judgment against Grant was not final because it was being appealed, and, consequently, it was
reasonable for the Board to refrain from taking any action to investigate the claims until the federal
appeal was resolved. The Defendants also noted that the Board had “been extraordinarily busy
handling what they have been handling,” and argued that only three months of inaction was
insufficient to hold the Board in contempt. Addressing the judgment against Grant, counsel for the
Defendants asked rhetorically, “Is it conduct unbecoming? I am not going to argue that it is not
unbecoming. It is not something that any organization would like. It is not something Mr. Grant
would like.”

Next, the trial court heard argument on the issue of whether the Board’s suspension of
Holman with pay violated the injunctive order directing the Board to refrain from taking any action
to terminate Holman’s employment. The parties agreed that, on this issue, there were no material
facts in dispute. The Plaintiffs argued that the Board’s suspension of Holman “violated the spirit of
the Court’s injunction,” effectively terminating Holman’s employment by suspending her and barring
her from the premises. The Plaintiffs argued that the Bylaws did not authorize such action. In
response, the Defendants noted that Holman was suspended with pay, not terminated, and argued
that this was done in order to put Holman in a position where she could do no harm to Memphis
Health Center while the derivative suit was pending.

5
A r t ic le I I I , se c t io n 5 , sub s ec tio n c , o f th e M H C B y law s p ro v id e s , “A n y B o a rd m em b e r who d o e s no t
d isc h a rg e h is /h e r d u tie s , o r is c o n v ic te d o f a fe lo n y o r e x h ib i ts c o n d u c t u nb e c om in g a B o a r d m em b e r , m a y b e te rm in a te d
b y tw o -th ird s (2 /3 ) vo te o f th e e n t ire m em b e r sh ip o f th e B o a rd o f G o v e rno r s a t a re gu la r o r sp e c ia l m e e ting c a lle d fo r
tha t p u rp o se .”

-7-

Finally, the Plaintiffs alleged that the Defendants violated the provision in the injunctive
order prohibiting the Board from violating HHS rules and regulations regarding the operation of a
nonprofit health care center. First, the Plaintiffs alleged that Chairman Grant improperly negotiated
a $100,000 certificate of deposit without Board approval. Secondly, the Plaintiffs alleged that
Memphis Health Center’s Chief Financial Officer expressed concern to its interim Chief Executive
Officer regarding the mishandling of certain cashier’s checks. In response, on the issue regarding
the $100,000 certificate of deposit, the Defendants maintained that Grant in fact obtained Board
approval for his actions, so a factual issue was presented. On the other allegations on the
mishandling of cashier’s checks, the trial court found from argument of counsel that the Plaintiffs’
evidence was insufficient. Consequently, the trial court heard testimony only on the issue of whether
the Board approved the cashing of the $100,000 certificate of deposit.

The first witness the Plaintiffs called to testify was Betty Miller, the acting secretary of the
Board who was responsible for the minutes of all Board meetings. Despite the fact that the minutes
were subpoenaed for the hearing, Miller testified that she did not bring the minutes to the hearing.
She first stated that the Executive Committee of the Board approved Grant’s negotiation of the
certificate of deposit, and then later recanted that assertion. Miller testified she did not recall any
full Board vote on negotiation of the $100,000 certificate of deposit, which was required under the
Bylaws.

Memphis Health Center’s interim Chief Executive Officer, Sandra Randolph, asserted that
the proceeds from the certificate of deposit were used for the Center’s payroll, but had no direct
knowledge of Board approval of the negotiation of the certificate of deposit. Likewise, the Chief
Financial Officer, Carolyn Tippet, had no direct knowledge of Board approval. Finally, the
Defendants called Claudette Branch, a Board member and Defendant, who testified that she recalled
a Board meeting in which the Board ratified a report of the financial committee that included
redemption of the certificate of deposit. No minutes of such a Board meeting were produced at the
hearing.

At the close of the hearing, the trial court stated, “There is zero proof in this Court’s record
that is credible to this Court that indeed the Board has approved the cashing of this $100,000
[certificate of deposit].” The trial judge noted that Branch was the only Board member who testified,
without later recanting, that the Board approved redemption of the certificate of deposit, and the trial
judge stated that he did not “find her very credible.” The trial court emphasized that the Defendants’
witnesses “did nothing meaningful to try to comply with [the subpoena for financial records and
meeting minutes].” The court continued:

They all do know . . . or some of them have testified that they knew that the
Department of Health and Human Services had forewarned them over two years ago
about cashing these [certificates of deposit], how careful they should really be about
that. And here’s this cavalier approach, so cavalier that even today on this moment
of trial, no minutes are brought, no person other than one that the Court has found to
be not credible who even attended such a Board meeting.

-8-

The trial court held the Defendants in contempt with respect to each of the three issues. It found that
the Board had an affirmative obligation to address conduct unbecoming a Board member, and a
particular obligation to at least investigate the judgment of violation of the federal False Claims Act
against Chairman Grant, and that it failed to do so on the four occasions that the Board met after the
entry of the federal judgment, even once after the temporary restraining order went into effect.
Second, the trial court found that the Bylaws authorized the Board to either select or dismiss the
CEO, but that it had no authority to suspend the CEO with pay. On this basis, the trial court found
that the suspension of Holman with pay was a violation of the injunctive order. Third, the trial court
concluded that the $100,000 certificate of deposit was redeemed without Board approval, also in
violation of the injunctive order. Therefore, the trial court held the Defendant Board members in
contempt of court. After the hearing, the Plaintiffs filed a motion for their attorney’s fees and
expenses.

A written order to the effect of the trial court’s oral ruling was entered on October 14, 2004.
In the written order, the trial court also set out its equitable remedy to address the violation of the
injunctive order. First, the trial court removed all Board members with the exception of Plaintiffs
Sadie Davis and Cornelia Berry. Special Master Deborah Henderson was ordered to act as
Chairperson of the Board and, with the assistance of the remaining Board members, to select new
Board members. The Special Master was also directed to investigate and determine whether to
remove Dr. Sandra Randolph as Chief Executive Officer, to determine whether other employees
hired by the Defendants during the pendency of the litigation should be removed, and to investigate
and determine whether Holman should be reinstated as chief executive officer “pending any action
by the newly-selected Board of Governors pursuant to the Bylaws.” Finally, the trial court instructed
the Special Master to make any further recommendations deemed necessary for the continued
operation of Memphis Health Center.

On October 6, 2004, one week before the trial court entered its final order in this matter,
counsel for the Plaintiffs had filed a motion for an award of reasonable attorney’s fees and expenses.
On October 25, 2004, the trial court granted the Plaintiffs’ motion for attorney’s fees and expenses,
noting that counsel for the Defendants did not object to the motion. Memphis Health Center was
ordered to pay over $25,000 in attorney’s fees and expenses to the attorneys for the Plaintiffs.

Finally, on October 25, 2004, the trial court entered a consent order on the Plaintiffs’ motion
for additional time to respond to the Defendants’ September 13, 2004 motion for summary judgment.
The consent order acknowledged that the trial court’s contempt order disposed of all of the issues
raised in the Defendants’ motion for summary judgment. Consequently, the Plaintiffs’ motion for
additional time was deemed moot, and the October 14, 2004 contempt order was deemed a final
order. The defendants now appeal the contempt order.

On appeal, the Defendant Board members urge this Court to reverse the trial court on three
grounds. First, the Defendants argue that the trial court erred in denying the Defendants’ oral motion
to dismiss and in failing to hear the Defendants’ motion for summary judgment. In support of this
argument, the Defendants assert that the Plaintiffs lacked standing to bring a derivative action, failed

-9-

to fulfill the statutory prerequisites for bringing such an action, and also argue that the derivative
action failed to state a claim upon which relief could be granted. In addition, the Defendants argue
that the trial court exceeded its jurisdictional powers. Finally, the Defendants contend that the trial
court erred in granting the Plaintiffs’ petition for civil contempt.

On appeal, this Court reviews the trial court’s findings of fact de novo upon the record,
accompanied by a presumption of correctness, unless the evidence preponderates otherwise. Tenn.
R. App. P. 13(d). The trial court’s legal conclusions, however, are reviewed de novo and are not
entitled to any presumption of correctness. Union Carbide Corp. v. Huddleston, 854 S.W.2d 87,
91 (Tenn. 1993).

The Defendants’ first assignment of error stems from the trial court’s denial of the oral
motion to dismiss, made by the Defendants at the outset of the September 30, 2004 hearing on the
Plaintiffs’ petition for contempt. On appeal, the Defendants essentially urge this Court to find that
the trial court erred in denying the motion to dismiss on several grounds: (1) the Plaintiffs did not
have standing to bring a derivative action; (2) the lawsuit failed to meet statutory prerequisites for
a derivative action; (3) the verification requirement for a derivative action was not met; (4) the
complaint failed to state a claim upon which relief could be granted; and, (5) the court failed to hear
and rule on the Defendants’ motion for summary judgment.

Generally, the proper party to bring a lawsuit on behalf of a corporation is the corporation
itself, acting through its directors or a majority of its shareholders. Lewis v. Boyd, 838 S.W.2d 215,
221 (Tenn. Ct. App. 1992) (citing Daily Income Fund, Inc. v. Fox, 464 U.S. 523, 531-32 (1984);
State v. Mitchell, 58 S.W. 365, 368 (Tenn. 1899)). Tennessee courts have historically been reluctant
to interfere with the internal workings of corporations or intrude on the managerial responsibilities
of directors. Id. at 220 (citing Chism v. Mid-South Milling Co., 762 S.W.2d 552, 556 (Tenn. 1988);
Wallace v. Lincoln Sav. Bank, 15 S.W. 448, 449–50 (Tenn. 1891)). Where disinterested directors
act in good faith and with an honest belief that their decisions further the corporation’s interests, the
court will decline to substitute its judgment for that of the board of directors. Id. (citing French v.
Appalachian Electric Coop., 580 S.W.2d 565, 570 (Tenn. Ct. App. 1978)). This is referred to as
the business judgment rule.

The derivative action is a limited exception to the rule that the corporation itself is the proper
party to bring a lawsuit on its own behalf. “A derivative action is an extraordinary, equitable remedy
available to shareholders when a corporate cause of action is, for some reason, not pursued by the
corporation itself.” Id. at 221 (citing Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (1991)).
Essentially, a derivative action is a suit brought by one or more members, directors, or shareholders
of a corporation, “on a corporation’s behalf to redress an injury sustained by, or to enforce a duty
owed to, a corporation.” Id. (citing Daily Income Fund, Inc. v. Fox, 464 U.S. 523, 527-29 (1984);
Bourne v. Williams, 633 S.W.2d 469, 471 (Tenn. Ct. App. 1981)). In Tennessee, derivative actions
are largely governed by statute.

-10-

To guard against misuse of the derivative action, preconditions to such lawsuits are imposed.
Tennessee Code Annotated section 48-56-401(2002) sets forth the requirements for a derivative
action filed on behalf of a nonprofit corporation. We review only those provisions relevant to the
instant action. First, to bring a proceeding on behalf of a domestic or foreign corporation to procure
a judgment in the corporation’s favor, the plaintiff must be a “director” of the corporation. T.C.A.
§ 48-56-401(a)(2). Second, each plaintiff must be a director at the initiation of the proceeding. Id.
§ 48-56-401(b). In addition, several pleading requirements must be fulfilled. The complaint must
be verified and must allege, with particularity, the demand made to obtain action by the directors.
Id. § 48-56-401(c). It must explain either why the action sought from the directors was not obtained
or why no demand was made on the directors. Id. This is known as the demand requirement. See
Lewis, 838 S.W.2d at 221.

In this case, the Defendants first argue that the trial court erred in denying their motion to
dismiss because the Plaintiffs lacked standing to bring a derivative action. The Defendants contend
that Holman was not a “director” of Memphis Health Center, as required in Tennessee Code
Annotated section 48-56-401(a)(2), and therefore had no authority under the statute to bring a
derivative action on behalf of Memphis Health Center to procure a judgment in its favor. Tennessee
Code Annotated section 48-51-201(10) defines “director” as “natural persons, designated in the
charter or bylaws or elected by the incorporators . . . to act as members of the board, irrespective of
the names or titles by which such persons are described.” T.C.A. § 48-51-201(10) (emphasis added).
Article III, section 3, subsection d, of the Memphis Health Center Bylaws governs the composition
of the Board of Directors; it states that the Chief Executive Officer is an “ex-officio non-voting
member to the Board.” Article VI, section 7, of the Memphis Health Center Bylaws provides that
“[n]o employee of MHC [Memphis Health Center] shall be eligible for election to the Board while
still in employment status . . . . Notwithstanding the above, the Chief Executive Officer shall serve
as ex-officio non-voting member of the Board.” In Article X, the Bylaws provide that the Chief
Executive Officer, as an ex-officio member of the Board, is considered “an ex-officio member of all
committees except the Executive Committee.” Finally, under the Bylaws, while the general public
is permitted to attend Memphis Health Center board meetings, the chief executive officer as an ex
officio member of the Board is also entitled to attend standing committee meetings. The issue, then,
is whether the term “director” under section 48-51-201(10) is limited to full voting members of the
corporate board of directors or whether it can include an ex officio member of the Board such as
Holman. The question is close, but on balance we must conclude that, considering all of the Bylaw
provisions set forth above, an ex officio member of the Memphis Health Center Board of Directors
falls within the meaning of the term “director” in section 48-51-201(10) and therefore has standing
to maintain a derivative action against the corporation.

The Defendants also assert that Plaintiff Cornelia Berry lacked standing because her term as
a director was scheduled to end in October 2004, and she was not eligible for renewal. The statute,
however, clearly provides that, to bring such a proceeding, each plaintiff need only be a director “at
the time of bringing the proceeding.” T.C.A. § 48-56-401(b). It is undisputed that Plaintiff Berry
was a director at the time she and the other Plaintiffs filed the amended complaint. This argument
is without merit.

-11-

The Defendants next argue that the Plaintiffs failed to comply with the statutory demand
requirement for a derivative action. Tennessee Code Annotated section 48-56-401(c) requires the
complaint to “allege with particularity the demand made, if any, to obtain action by the directors .
. . or why [the plaintiffs] did not make the demand.” Tennessee courts have imposed a demand
requirement on derivative actions for more than a century. Lewis, 838 S.W.2d at 221 (citing Akin
v. Mackie, 310 S.W.2d 164, 167 (Tenn. 1958); Deaderick v. Wilson, 67 Tenn. (8 Baxt.) 108, 131
(Tenn. 1874)). However, when such a demand would be futile, that is, “idle ceremony,” Tennessee
caselaw provides that the demand requirement may be excused. Humphreys v. Plant Maint. Serv.,
Inc., 1999 WL 553715, at *6 (Tenn. Ct. App. July 30, 1999); Lewis, 838 S.W.2d at 221. Typically,
in a “demand excused” case, a plaintiff claims that a demand would be futile because the board is
interested and not independent, and, consequently, the court examines the interest and independence
of the corporate decision-makers. Humphreys, 1999 WL 553715, at *6 (citing Aronson v. Lewis,
473 A.2d 805, 814 (Del. 1984)).

In the case at bar, the original complaint did not include any reference to the demand
requirement, either by alleging that a demand was made or that a demand would be futile. The
amended complaint, however, included such an allegation. Paragraph nine of the amended
complaint alleged that any demand “would be futile in that the Defendants have a direct interest in
continuing to breach their fiduciary duty and violate the Bylaws and federal rules and regulations,
and, therefore, are not independent.” The trial court heard this argument as part of the Defendants’
oral motion to dismiss; it noted that while the evidence at trial might show that the demand should
not be excused, the allegation in the amended complaint was sufficient to survive the motion to
dismiss. We find no error in the trial court’s conclusion on this issue.

The Defendants next argue that the trial court erred in denying the motion to dismiss because
the derivative action was brought without being verified. Tennessee Code Annotated section 48-56-
401(c) provides that a complaint in a derivative action must be verified. T.C.A. § 48-56-401(c). The
Defendants acknowledge that the original complaint was verified by Plaintiff Holman, but contend
that she was not competent to do so because, as only an ex officio member of the Board, she had no
standing to file the derivative action. As noted above, we conclude that, under the circumstances of
this case, Holman had standing to file the lawsuit, and therefore her verification of the original
complaint is sufficient. We find no error in the trial court’s holding on this issue.

The Defendants next argue that the complaint fails to state a claim upon which relief could
be granted. Without citation to authority, the Defendants assert that a violation of the bylaws of a
corporation, violation of an employment contract, and violation of federal rules and regulations are
not recognized causes of action on behalf of a corporation in Tennessee. From our review of the
amended complaint, however, the Plaintiffs primarily allege a breach of the Board members’
fiduciary duty to the corporation. It is undisputed that the directors of a corporation owe a fiduciary
duty to the corporation to “faithfully pursue the interest of the organization, and its nonprofit
purpose, rather than his or her own financial or other interests, or those of another person or
organization.” Summers v. Cherokee Children & Family Serv., Inc., 112 S.W.3d 486, 504 (Tenn.
Ct. App. 2002); see also Nelms v. Weaver, 681 S.W.2d 547, 549 (Tenn. 1984). If the directors

-12-

breach their fiduciary duty, they may be held jointly and severally liable to the corporation.
Resolution Trust Corp. v. Block, 924 S.W.2d 354, 357 (Tenn. 1996). Consequently, this argument
is without merit.

Here, one of the Plaintiffs’ primary allegations was that the Chairman of the Board was found
to have committed thousands of violations of the federal False Claims Act, and that the Board
refused to take action to remove him or even to investigate, and that this inaction was a violation of
their fiduciary duty to Memphis Health Center. This allegation was clearly actionable.
Consequently, this argument is without merit.6

The Defendants argue as well that the trial court erred by failing to hear and rule on the
Defendants’ motion for summary judgment at the September 30, 2004 hearing. The Tennessee
7
Rules of Civil Procedure provide that a motion for summary judgment must be served at least thirty
days before the time fixed for a hearing. Tenn. R. Civ. P. 56.04. This rule is mandatory, not
discretionary, and exists to ensure that the responding party will have sufficient time to file, among
others, any responsive affidavits and discovery depositions. Craven v. Lawson, 534 S.W.2d 653,
655 (Tenn. 1976). The Defendants’ motion for summary judgment was filed only seventeen days
before the September 30, 2004 hearing, and the Plaintiffs explicitly declined to waive the thirty day
requirement. Under these circumstances, the trial court did not err in refusing to address the
Defendants’ motion for summary judgment at the September 30, 2004 hearing on the Plaintiffs’
petition for contempt.

The Defendants’ next assertion of error by the trial court is that the trial court exceeded its
jurisdictional powers. The Defendants argue first that the trial court’s consideration of general
allegations of violations of federal rules and regulations “created a mixed bag of jurisdictional issues
making [Memphis Health Center] a quasi-federal agency with the opportunity to be defended by the
U.S. Attorney General in Federal Court.” The Defendants continue, “The lower court refused to
recognize this jurisdictional issue and erred by denying Defendants’ Motion for Summary Judgment
issue of lack of jurisdiction controverted to a Motion to Dismiss issue.” After a sincere attempt to

6
P a r t o f th e b a s is fo r o u r h o ld in g s tem s from th e p r o c e d u ra l p o s tu re o f th is c a se . T h e law su it w a s , in e sse n ce ,
re so lv e d w he n th e tr ia l c o u r t a d d r e sse d th e a lle g a t io n s o f c o n tem p t o f c o u r t . C o n se q u e n t ly , w e re v iew wh e th e r th e tr ia l
c o u r t h ad su ffic ie n t b a s is to issu e th e in ju nc tiv e o r d e r , c o n s id e r th e P la in tiffs ’ a l le g a t io n s th a t th e D e fe n d a n ts h a d v io la te d
the in ju nc t ive o rd e r , an d g ra n t the re l ie f o rd e re d fo r the D e fen d an t’s co n tem p t o f co u r t . T o d o s o , w e n ee d no t p a r se
th rough th e num e rou s a l leg a t io n s in th e com p l a in t to d e t e rm in e wh ich a r e a c t io n ab le ; it is su ffic ien t if th e p r im a ry
a l leg a t io n o f fa i lu re to tak e a c t io n a ga in s t C ha irm an G ran t wa s ad eq ua te b a s i s fo r the tr ia l co u r t ’s ac t io n s .

In d e ed , th e re m ay b e se r io u s q u e s t io n o f wh e the r a d e r iv a t ive a c t io n is the ap p ro p r ia te ve h ic le fo r a p la in t i f f
su ch a s CEO H o lm an to s e e k r e l i e f fo r a v io la t io n o r ev en , in th is c a s e , an an tic ip a ted v io la t io n o f h e r emp lo ym en t
a g re em e n t . E v en a ssum ing , how ev e r , th a t su c h a l le ga tio n s a re no t a c tio n a b le in a d e r iv a tiv e law su i t , th e a lle ga tio n o f
in a c t io n in th e fa ce o f C h a irm a n G ra n t’s m isc o nd u c t w e re am p le b a sis fo r th e tr ia l co u r t to p ro c ee d .

7
O n O c to b e r 2 5 , 2 0 0 4 , th e D e fe nd a n ts en te re d in to a co n se n t o rd e r s ta ting th a t “ th e D e fe nd a n ts ’ M o t io n fo r
S umm a ry J ud gm e n t h a s b e e n d e c id e d p u rsu a n t to th e O rd e r o n P e ti t io n fo r C i ta tio n fo r C iv il C o n tem p t h e re to fo r e e n te re d
o n O c to b e r 1 4 , 2 0 0 4 and tha t sa id O rd e r sh o u ld b e t re a ted a s a f in a l o rd e r .”

-13-

understand this issue as stated, the Court is simply unable to do so. No legal authority is cited in
support of this argument. This Court has previously held that the “failure to cite authority for
propositions in arguments submitted on appeal constitutes a waiver of the issue.” Messer Griesheim
Industries, Inc. v. Cryotech of Kingsport, Inc., 131 S.W.3d 457, 474 (Tenn. Ct. App. 2003); see
also Hawkins v. Hart, 86 S.W.3d 522, 531 (Tenn. Ct. App. 2001) (explaining that a party’s failure
to make a legal argument and cite authority in support of the party’s position on appeal will
constitute a waiver of that issue). Therefore, we deem this issue, as stated, to be waived.

The Defendants also contend that the trial court exceeded its jurisdictional powers by
allowing the Special Master to exceed her appointed duties. Again, no legal authority is offered to
support the argument, nor do the Defendants explain how the outcome of this case was affected by
allegedly permitting the Special Master to exceed her designated duties, nor how this deprived the
trial court of jurisdiction. This argument is without merit.

The Defendants maintain as well that the trial court exceeded its jurisdictional authority in
that the October 14, 2004 order on contempt “deprives the Defendants of their rights.” Claiming that
some of the Defendants have “urgent medical needs, including diabetes and other conditions that
require regular monitoring,” the Defendants argue that the trial court’s order enjoining the
Defendants from entering onto the premises of Memphis Health Center “constitutes a violation of
federal law and as such violates the constitutional rights of the Defendants and could deprive them
of life and liberty under color of state law.” No legal authority is cited in support of this grab bag
of conclusory allegations. This argument is also without merit.

The Defendants assert further that the removal of the Defendants from the Memphis Health
Center Board violates the federal Volunteer Protection Act of 1997, codified at 42 U.S.C. § 14501,
et seq. The Defendants’ argument, in its entirety, is as follows:

The law governing volunteers is encompassed in Federal Law, i.e., the Volunteer
Protection Act of 1997. This Act provides certain protections to volunteers,
nonprofit organizations and governmental entities in lawsuits based on the activities
of volunteers. Tennessee law is not broader than said Act, and therefore the doctrine
of federal pre-emptions (sic) should be applied.

In general, the Act seeks “to provide certain protections from liability abuses related to volunteers
serving nonprofit organizations and governmental entities.” 42 U.S.C. § 14501(b). The Act,
however, is not applicable when a civil action is brought “by any nonprofit organization . . . against
any volunteer of such organization or entity.” Id. § 14503(b). In this case, a derivative suit was
brought on behalf of Memphis Health Center, a nonprofit organization, seeking primarily injunctive
relief against the volunteer Board member Defendants. We must conclude that the federal Volunteer
Protection Act of 1997 is not applicable under these circumstances.

Finally, the Defendants’ argue that the trial court erred in granting the Plaintiffs’ petition for
contempt, primarily on the basis that the Defendants did not violate the trial court’s injunctive order.

-14-

In order to address this assertion of error, the appellate court must ascertain whether the trial court’s
order was one of civil or criminal contempt. See, e.g., LeCroy-Schemel v. Cupp, 2000 WL
1130683, at *3 (Tenn. Ct. App. Aug. 10, 2000). The distinction between the two has both
substantive and procedural ramifications. See Bailey v. Crum, 183 S.W.3d 383, 387 (Tenn. Ct. App.
2005); Sanders v. Sanders, 1997 WL 15228, at *3 (Tenn. Ct. App. Jan. 17, 1997). The rights of the
parties, the quantum of proof, and the procedural due process afforded to the respondents depends
on the classification of the contempt; consequently, the label attached by the petitioners or the trial
court is not dispositive. Instead, this Court looks at the nature of the proceedings below, and not the
name attached to the proceedings, to determine whether they were in prosecution of civil or criminal
contempt. See Sanders, 1997 WL 15228, at *2.

Civil contempt proceedings are often initiated by a private party when another party has not
complied with a court order; the initiation of the action is for the benefit of the petitioning litigant.
Doe v. Bd. of Prof. Responsibility of the Supreme Court of Tennessee, 104 S.W.3d 465, 473 (Tenn.
2003); Sanders, 1997 WL 15228, at *2. To find the respondent guilty of civil contempt, only a
preponderance of the evidence is required. Doe, 104 S.W.3d at 474. The punishment for civil
contempt is intended to be coercive; the remedy is temporary by nature. Id. at 473; Sanders, 1997
WL 15228, at *2. Holding an individual in civil contempt is an available remedy “only when the
individual has the ability to comply with order at the time of the contempt hearing.” Ahern v.
Ahern, 15 S.W.3d 73, 79 (Tenn. 2000). It is often said that the party held in civil contempt holds
the keys to the jail because he may purge himself of contempt by complying with the court order.
Id.

Criminal contempt proceedings also punish an individual for failing to comply with a court
order, but are intended to be punitive and unconditional, not coercive and temporary. See, e.g.,
Sanders, 1997 WL 15228, at *2. Criminal contempt is a tool to “vindicate the dignity and authority
of the law, and the court as an organ of society.” Black v. Blount, 938 S.W.2d 394, 398 (Tenn.
1996). Criminal contempt may arise during a civil proceeding, but, more so than civil contempt,
“raise[s] an issue between the public and the accused.” Id. Because of the finality of the
punishment, the accused in a criminal contempt proceeding is entitled to greater procedural
protections than the accused in a civil contempt proceeding. For instance, the respondent is
presumed innocent, and must be proven guilty beyond a reasonable doubt. See, e.g., id. The
respondent is entitled to the privilege against self-incrimination. Sanders, 1997 WL 15228, at *3.
Criminal contempt also requires more exacting procedural safeguards than civil contempt; for
criminal contempt, the respondent is entitled to notice that he faces criminal contempt sanctions and
must be afforded an opportunity to present evidence of innocence or any other available defense.
Id. (citing Cooke v. United States, 267 U.S. 517, 537 (1925)).

In this case, the petition for contempt filed by the Plaintiffs stated that it was for civil
contempt, asking only that the Defendants be found in contempt, that Plaintiff Holman be permitted
to resume her duties as CFO, and for “other, further and general relief. . . .” However, the
classification of contempt as either civil or criminal does not depend on the nomenclature used by
the petitioners, but rather depends “upon the action taken by the court to address the contempt.”

-15-

Ahern v. Ahern, 15 S.W.3d 73, 78 (Tenn. 2000). Here, the remedy imposed did not involve the
typical remedies for criminal contempt, i.e. fines or jail time. Nevertheless, the remedy imposed by
the trial court, removal of all of the Defendants from the Memphis Health Center Board, was
certainly permanent in nature; these Defendants were afforded no opportunity to eventually comply
with the injunctive order. Under these circumstances, we must conclude that the contempt was
criminal in nature and review it as such. 8

In Barber v. Chapman, this Court articulated the appropriate standard for reviewing criminal
contempt cases on appeal:

In a criminal contempt case, the guilt of the accused must be established beyond a
reasonable doubt. Black v. Blount, 938 S.W.2d 394, 398 (Tenn. 1996) (citing
Robinson v. Air Draulics Engineering Co., 377 S.W.2d 908, 912 (Tenn. 1964)).
However, on appeal, individuals convicted of criminal contempt lose their
presumption of innocence and must overcome the presumption of guilt. “Appellate
courts do not review the evidence in a light favorable to the accused and will reverse
criminal contempt convictions only when the evidence is insufficient to support the
trier-of-fact’s finding of contempt beyond a reasonable doubt.” Thigpen v. Thigpen,
874 S.W.2d 51, 53 (Tenn. Ct. App. 1993) (citing Tenn. R. App. P. 13(e)).
Furthermore, appellate courts review a trial court’s decision of whether to impose
contempt sanctions using the more relaxed abuse of discretion standard of review.
Hawk v. Hawk, 855 S.W.2d 573, 583 (Tenn. 1993).

Barber v. Chapman, 2004 WL 343799, at *2 (Tenn. Ct. App. Feb. 23, 2004). Accord Moody v.
Hutchison, 159 S.W.3d 15, 25 (Tenn. Ct. App. 2004).

In this case, the first and most serious allegation of contempt stemmed from the Board’s
failure to consider removal, or even investigate, Chairman Grant’s conduct after the United States
District Court entered a judgment against him, finding him guilty of 3,306 acts of fraud. Notably,
the facts regarding this allegation were undisputed; the Defendants took no action to investigate the
judgment despite the fact that the full Board convened on four occasions following the rendering of
the federal judgment and at least once after the trial court’s injunctive order was entered. The
authenticity of the federal judgment was not called into question. The legal duty of the Board to take
action to protect the corporation was likewise not questioned; the Defendants never contested the
Plaintiffs’ assertion that the Bylaws imposed a duty on the Board to address the unbecoming conduct
of any Board member. Astonishingly, the only defense presented for the Board’s inaction was that
the final order of the United States District Court was being appealed to the United States Court of
Appeals. The trial court rightfully found this excuse wholly inadequate.

8
T h e D e fend an ts r a is e no i ssu e o n a p p e a l r eg a rd ing w h e th e r th e no t ic e th ey r e c e iv ed w a s su ffic ien t to m e e t th e
r equ i rem en ts fo r no t ic e o f a c r im in a l co n tem p t p ro c e ed ing .

-16-

Under these circumstances, we cannot conclude that the trial court erred in finding that the
Board violated the injunctive order by failing to comply with the Memphis Health Center Bylaws
and act in the best interests of the corporation. Indeed, the contempt is established based on
undisputed facts, and therefore guilt is proven beyond a reasonable doubt.

Certainly the remedy imposed by the trial court, wholesale removal of the entire Board except
for the Plaintiffs, is breathtaking in scope. Even so, given the grave nature of the federal court’s
judgment against Chairman Grant and the inexplicable indifference to it exhibited by the Board, the
trial court’s remedy is not unreasonable. Clearly the Defendants were not going to protect Memphis
Health Center from Grant. The trial court was left with little choice. We find no abuse of discretion
in the trial court’s decision to impose criminal contempt sanctions and in the remedy ordered.

Since the remedy imposed was warranted to address this first allegation of contempt, it
becomes unnecessary for this Court to review the Defendants’ remaining factual arguments regarding
the findings of contempt. Therefore, all other issues raised on appeal are pretermitted.

The decision of the trial court is affirmed. The costs of this appeal are assessed to the
Appellants/Defendants Gregory Grant, Dean Johnson, Cynthia Combs, Claudette Branch, Ernest
Hughes, Leaola Crutchfield, Betty Miller, Frederick Sanders, Eddie Dandridge, Dyrie Goods, and
Brown McGhee, individually and in their capacity as the Board of Governors of Memphis Health
Center, Inc., and their surety(ies), for which execution may issue, if necessary.

___________________________________
HOLLY M. KIRBY, JUDGE

-17-

Mercer v. HCA Health Serv. of Tennessee, Inc.

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
October 10, 2001 Session

RENE C. MERCER, ET AL. v. HCA HEALTH SERVICES OF
TENNESSEE, INC., ET AL.

Appeal from the Circuit Court for Davidson County
No. 98C-3458 Barbara N. Haynes, Judge

No. M2000-02785-COA-R3-CV – Filed February 7, 2002

A widow claimed that her husband’s suicide was caused by the negligence of the defendant hospital
and the defendant psychiatrist in releasing him prematurely from involuntary commitment. The trial
court granted summary judgment to the defendants, finding that the hospital was obligated to release
the patient when ordered to do so by the psychiatrist, and that the psychiatrist was entitled to absolute
immunity for actions undertaken under the involuntary commitment statutes. We reverse the trial
court.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
Reversed and Remanded

BEN H. CANT RELL , P.J., M.S., delivered the opinion of the court, in which PATR ICIA J. COTT RELL ,
J. and J. S. DAN IEL, SP . J., joined.

Daniel L. Clayton, Nashville, Tennessee and Steven R. Walker, Memphis, Tennessee, for the
appellants, Rene C. Mercer, Sarah Lynne Mercer and David Leigh Mercer.

C. J. Gideon, Jr., Dixie W. Cooper, and Christi D. Griffin, Nashville, Tennessee, for the appellee,
HCA Health Services of Tennessee, Inc.

Phillip North and Robert Briley, Nashville, Tennessee, for the appellee, Steven R. Nyquist, M.D.

OPINION

I. A SU IC IDE

On December 22, 1997, John Mercer was brought to the emergency room at Summit Medical
Center, a hospital operated by HCA Health Services of Tennessee. Mr. Mercer had threatened to
commit suicide. He had also imbibed two quarts of liquor a day for the previous three days, and had
a potentially lethal blood alcohol level of .40. He was admitted to the hospital, where psychiatrist

Dr. Steven Nyquist ordered that Mr. Mercer be put on suicide watch. The following day, Dr. Nyquist
obtained an emergency commitment order from the General Sessions Court, which authorized the
hospital to hold Mr. Mercer until December 31, 1997.

Mr. Mercer’s prior history included depression, psychiatric admissions, suicide threats, and
head injury. He and his wife Rene had recently separated. He was living alone, and was under
financial stress. Even though this information was available as a result of interviews with the patient
by HCA staff members, and through HCA’s own medical records, Dr. Nyquist was apparently not
made aware of very much of Mr. Mercer’s history when he ordered the patient discharged on
December 24. Mr. Mercer was found dead in his home of a self-inflicted gunshot wound on
Christmas Day.

On December 17, 1998, Rene Mercer, individually and on behalf of the couples’ two minor
children, filed a Complaint in the Circuit Court of Davidson County, naming Dr. Nyquist and HCA
Health Services of Tennessee d/b/a Summit Hospital as defendants. The plaintiffs claimed that Dr.
Nyquist had acted negligently in discharging Mr. Mercer, and that the discharge led directly to his
death. They also claimed that Dr. Nyquist’s decision was induced in part by the negligent failure of
nurses and social workers employed by HCA to no ti fy the psychiatrist of numerous factors that
would have alerted him to the potential danger of such a discharge.

Both defendants filed answers, followed by separate motions for summary judgment. The
defendant healthcare company claimed that once Dr. Nyquist ordered the discharge of Mr. Mercer,
it had a legal duty to release him, and that as a matter of law it could not be held liable for so doing.
The defendant psychiatrist claimed that because he was operating under the Involuntary Admission
statutes, his discharge of Mr. Mercer amounted to a quasi-judicial act, and he was therefore entitled
to abso lu te immuni ty.

The plaintiffs filed Memoranda in Opposition to both motions, accompanied by the affidavits
of two psychiatrists and two psychiatric nurses. The affiants stated that they had reviewed Mr.
Mercer’s medical records, and the policies and procedures of Summit Medical Center. After
describing in some detail the deficiencies in the process that led to Mr. Mercer’s discharge, they
declared that the actions of Dr. Nyquist and the HCA staff fell below the recognized standards of
acceptable professional practice, and were the causes in fact of Mr. Mercer’s death.

Following a hearing on HCA’s motion, the trial court agreed with the defendant that its
employees were only performing their legal duty when they discharged Mr. Mercer on the orders of
Dr. Nyquist, and that HCA was therefore entitled to judgment as a matter of law. The court’s
summary judgment order, filed on September 20, 2000, granted the defendant’s request to certify the
judgment as final under Tenn. R. Civ. Proc. 54.02. The plaintiffs promptly filed a Notice of Appeal.

Dr. Nyquist’s Motion for Summary Judgment was heard on October 23, 2000, and was
subsequently granted as well. The trial court acknowledged that the defendant’s immunity argument
was a question of first impression in Tennessee. The court declared, however, that it was important

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for mental health professionals to be involved in the legal process for involuntary commitment and
discharge of persons with mental illness, and that granting them immunity for their actions and
decisions would promote the broad public policy underlying the process. The court accordingly
deemed Dr. Nyquist’s discharge of Mr. Mercer to be a quasi-judicial act, and declared him to be
protected by judicial immunity. The court also certified this judgment as final under Tenn. R. Civ.
Proc. 54.02, and the plaintiffs filed another Notice of Appeal. On January 9, 2001, the Court of
Appeals ordered consolidation of the two pending appeals.

II. JUD IC IAL AND QUASI -JUD IC IAL IMM UN ITY

The standards for summary judgment are well-known, and need not be discussed in great
detail here. To demonstrate entitlement to summary judgment, the moving party must demonstrate
that there is no genuine issue of material fact, and that the moving party is entitled to judgment as
a matter of law. Rule 56.04, Tenn. R. Civ. Proc.; Byrd v. Hall, 847 S.W.2d 208 (Tenn. 1993).

In the great majority of summary judgment cases reviewed by this court, the question for our
decision has been whether the allegations of the non-moving party are sufficient to raise a genuine
issue of material fact such as would preclude summary judgment for the moving party. In this case,
however, it appears that the affidavits of the plaintiffs’ experts have raised questions of material fact
as to the existence of all the elements of negligence in the context of a medical malpractice action.
The defendants therefore cannot demonstrate an entitlement to summary judgment except on the
basis of immunity or some other legal defense that would allow them to avoid entirely the question
of negligence.

It has long been a part of the common law that judges enjoy absolute immunity for acts
performed in the exercise of their judicial functions. Webb v. Fisher, 109 Tenn. 701, 72 S.W. 110
(1902). Neither the correctness of a judge’s decisions, nor his motives, affect this immunity. Heath
v. Cornelius, 511 S.W.2d 683 (Tenn. 1974). A more limited form of immunity extends to testifying
witnesses, including those who testify by sworn affidavit. Dyer v. Dyer, 156 S.W.2d 445 (Tenn.
1941). We note that although witnesses cannot be subjected to civil liability for their testimony, they
may in appropriate cases be prosecuted for perjury.

Generally, individuals who act both at the direction of the court, and in aid of the court’s
funct ioning, such as guardians ad litem, enjoy absolute immunity from liability for their acts.
Winchester v. Little, 996 S.W.2d 152 (Tenn. Ct. App. 1998). However, this only applies when the
actions involve the exercise of discretion. In Miller v. Niblack, 942 S.W.2d 533 (Tenn. Ct. App.
1996), this court found that a laboratory that negligently performed a paternity blood test was not
entitled to immunity, even though the trial court had ordered the test, because the court’s order
allowed no room for discretion as to the type of tests to be performed, the manner of performing
them, or the interpretation of the results.

Outside of the courts, members of official bodies that perform judicial functions are entitled
to what is some times cal led quasi-jud ic ia l immun ity. These include the Board of Law Examiners,

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Hampton v. Tennessee Board of Law Examiners, 770 S.W.2d 755 (Tenn. Ct. App. 1988), the Board
of Professional Responsibility, Cawood v. Davis, 680 S.W.2d 795 (Tenn. Ct. App. 1984), and the
Board of Claims, Schoenly v. Nashville Speedways, Inc. 344 S.W.2d 349 (Tenn. 1961).

Judicial and quasi-judicial immunities exist only under circumstances where they appear to
be absolutely necessary for the proper functioning of courts and other bodies. It is significant that
the United States Supreme Court has declared its reluctance to extend immunities beyond those
mandated by constitutional and statutory requirements, noting in particular that “[a]bsolute immunity
is ‘strong medicine,’ justified only when the danger of officials’ being deflected from the effective
performance of their duties is very great.” Forrester v. White, 484 U.S. 219, 230 (1988).

III. THE INVOLUNTARY COMM ITMENT STATUTES

The statutes that governed involuntary commitment at the time of the events discussed above1
included a section that dealt with the liabilities and immunities of parties acting under its provisions.
Subsections (a) and (b) of Tenn. Code. Ann. § 33-3-102 set out criminal penalties for intentionally
causing an individual to be detained under its provisions without probable cause, while Subsection
(c) entitled hospital administrators and others to rely in good faith on representations made by
qualified individuals for involuntary admissions. Subsection (d) of that statute read:

All persons acting in good faith, reasonably and without negligence in connection
with the preparation of petitions, applications, certificates or other documents or the
apprehension, detention, discharge, examination, transportation or treatment of an
individual under the provisions of this title shall be free from all liability, civil or
criminal, by reason of such acts.

[Acts 1965, ch. 38, § 6].

The appellees urge us to ignore Subsection (d), or to treat it as meaningless verbiage, since
an individual who is not negligent would not be liable in any case. Although it may be difficult to
divine the legislature’s purpose in enacting Subsection (d), it appears to us that they chose not to
grant immunity to individuals who have acted negligently in the involuntary commitment process.

The involuntary commitment statutes as a whole describe a series of escalating steps for the
detention of individuals against their will, when required for emergency mental health diagnosis,
evaluation , and treatment. On ly the firs t few of these steps are relevant to our inqu iry.

Under former Tenn. Code. Ann. § 33-6-103(a) (and current Tenn. Code. Ann. § 33-6-402
and 403), a physician or a police officer can take a person into custody for immediate examination

1Th e i n v o lu n t a r y c omm i tm e n t s t a tu t e s we r e m o d i f ie d a n d r e n um b e r e d a ft e r th e ev e n t s t h at gave r ise to th is
lawsu i t . In t he f o llow ing d i s cu s s ion , w e r e f e r to tho s e s t a tu te s in a c co rd an c e w i th th e ir p r io r numb e r ing . Wh e r e th e
s ta tu tes a r e sub s tan t ia l ly unc hang ed , we have s ome t imes re fe r red to them by the i r c u r ren t des ign a t ions a s we l l .

-4-

without a civil order or warrant if the person is mentally ill and he “poses an immediate substantial
likelihood of serious harm” to himself or to others “because of the mental illness.”2 If a physician
determines after examination that the person is subject to involuntary hospital admission, then he
must complete a certificate of need, showing the factual foundation for his conclusions. Tenn. Code.
Ann. § 33-6-103(h) (now § 33-6-404).

The certificate is submitted to a general sessions court, which upon a finding of probable
cause, “may order the defendant admitted for not more than five (5) days from the date of the order,
excluding Saturdays, Sundays and holidays, for emergency diagnosis, evaluation and treatment
pending a probable cause hearing . . . .” Tenn. Code. Ann. § 33-6-103(l) (now 33-6-413).

It is not disputed that a physician acting under this statute is entitled to release a patient after
obtaining an order from the General Sessions court , and before the probable cause hearing. In fact,
Tenn. Code. Ann. § 33-6-109 read, “a patient admitted to a hospital under any provision of this title
other than Tenn. Code. Ann. § 33-6-104 shall be discharged” if “he no longer meets the standards
under which the admission took place, AND the patient’s detention is not otherwise authorized under
the admission statute.” See current Tenn. Code. Ann. § 33-6-705.

Dr. Nyquist argues that Tenn. Code. Ann. § 33-6-109 and related statutes showed a clear
legislative bias towards personal liberty and against involuntary commitment. The appellee testified
that he conducted several interviews with Mr. Mercer and that he concluded on the basis of their
conversations that the patient was not mentally ill. He argues that once he made that determination,
he had no choice under Tenn. Code. Ann. § 33-6-109 but to discharge his patient. It appears to us,
however, that the appellants are entitled to inquire into the process whereby Dr. Nyquist determined
Mr. Mercer’s mental status.

IV. CONST ITUT IONAL AND PUBL IC POL ICY CONS IDERAT IONS

Dr. Nyquist argues that confining an individual against his will implicates Article 1, § 8 of
the Tennessee Constitution, which prohibits such imprisonment except “by the judgment of his peers
or the law of the land.” Since judges involved in the conviction and sentencing of criminals may not
be prosecuted for judicial acts that lead to imprisonment or to release for an accused person, he
argues that a doctor who is entrusted with a decision that involves a similar loss of liberty should
enjoy the same legal immunity.

We note that another sec tion o f ou r Const itution, A rticle I, § 17, provides that “every man,
for an injury done him in his lands, goods, person or reputation, shall have remedy by due course of
law.” Thus, if we declared Dr. Nyquist to be entitled to judicial immunity, we would be depriving
the Mercer fami ly and others simi larly si tuated of a remedy to wh ich they would otherwise be
constitutionally entitled. See Whisnant v. Byrd, 525 S.W.2d 152 (Tenn. 1975).

2Te nn . Co de . A nn . § 3 3 -6 -4 03 a dds “o r se r ious em o t ion a l d is tu rb ance .”

-5-

Courts may sometimes be forced to choose between competing constitutional principles, but
judicial immunity (unlike legislative immunity, see Article II, § 13) is not a constitutional
requirement. It is a common law ru le of venerab le lineage, while quasi-judicial immunity is
sometimes (but not in the circumstances present here) a statutory requirement. In the absence of any
constitutional or statutory authority to extend judicial immunity to health providers acting under the
involuntary commitment statutes, we are left with the public policy argument as the sole rationale
for the trial court’s decision.

We must note, however, that our courts have stated on more than one occasion that the public
policy of this state is to be found in its Constitution and statutes, and that the judiciary has a very
limited power to declare what public policy is, in the absence of an unambiguous constitutional,
statutory, or regulatory provision. See Stein v. Davidson Hotel Co., 945 S.W.2d 714 (Tenn. 1997),
Whisnant v. Byrd, 525 S.W.2d 152 (Tenn. 1975).

Further, even if we were required to declare what the public policy of this state should be in
regard to judicial immunity for physicians involved in commitment proceedings, we think the
arguments in favor of immunity are less compelling than the arguments against it. The trial court
stated that giving physicians “judicial immunity for decisions made and actions taken during the
involuntary commi ttal and discharge proces s wil l promote the broad publ ic pol icy underlying the
judicial proceeding.” There is, however, more than one way to look at the effects of liability and
immunity on the conscientious performance of public duties. In Forrester v. White, 484 U.S. 219
(1988), the United States Supreme Court recognized the complexity of the question:

“Suits for monetary damages are meant to compensate victims of wrongful actions
and to discourage conduct that may result in liability. Special problems arise,
however, when government officials are exposed to liability for damages. To the
extent that the threat of liability encourages these officials to carry out their duties in
a lawful and appropriate manner, and to pay their victims when they do not, it
accomplishes exactly what it should. By its nature, however, the threat of liability
can create perverse incentives that inhibit officials in the proper performance of their
duties.” (emphasis in the original)

284 U.S. at 230.

In Forrester, the Supreme Court dealt with the question of whether an Illinois Circuit Court
judge was immune from a civil rights discrimination lawsuit for his action in discharging a female
employee of the court on account of her sex. The court held that he was not, and drew a distinction
between judicial acts (for which a judge is entitled to immunity) and the “administrative, legislative
or executive functions that judges may on occasion be assigned by law to perform.” 284 U.S. at 227.

The Court spoke in terms of a functional approach to the question of immunity, declaring that
the function for which it is sought is a more important consideration in determining whether
immunity is appropriate than is the title of the individual exercising the function. The appellant has

-6-

seized on this question of a functional approach, and argued that the function of a physician in
confining a patient against his will is almost identical to the function of a judge sentencing a
convicted criminal to prison. However, the Forrester Court also said,

“. . . we examine the functions with which a particular official, or class of officials
has been lawfully entrusted, and we seek to evaluate the effect that various forms of
liability would likely have on the appropriate exercise of those functions. Officials
who seek exemption from personal liability have the burden of showing that such an
exemption is justified by overriding considerations of public policy . . . .”

284 U.S. at 224.

When we analyze the possible effects of liability versus immunity on involuntary
commitment decisions, we discover dangers in both. The trial court inferred (without any
evidentiary support that we can find) that it would be difficult to find physicians willing to make
involuntary commitment decisions in the absence of a guarantee of absolute protection against
lawsuits. Of more significance, perhaps, is the possibility that a medical professional faced with the
danger of liability may allow that concern to take priority over the exercise of sound medical
judgment. But one who is endowed with immunity for his acts will be able to neglect his/her
medical duties without fear of consequences. We find pitfalls along both pathways.

Decisions to discharge or hold patients are discretionary ones, and in that respect they are
somewhat akin to those for which judges and certain other government officials receive immuni ty.
But one vital difference is that there are no recognized or ascertainable standards of care judges and
government officials must adhere to in reaching their decisions, that are analogous to those that apply
to medical professionals. Faithful adherence to these standards provides an effective shield against
liability for the conscientious medical professional. The stringent evidentiary requirements of the
medical malpractice statutes provide further protection for such an individual.

Tenn. Code. Ann. § 29-26-115(a) declares that the plaintiff has the burden of proving the
relevant standard of care, deviation from the standard, and that the injury complained of resulted
from that deviation. These elements can only be proven by expert testimony, except where the act
of alleged malpractice lies within the knowledge of ordinary laymen. Stokes v. Leung, 651 S.W.2d
704 (Tenn. Ct. App. 1982); Baldwin v. Knight, 569 S.W.2d 450 (Tenn. 1978).

Tenn. Code. Ann. § 29-26-115(b) sets out stringent requirements of licensure and practice
for healthcare professionals to satisfy before they are permitted to testify as to the necessary
elements. Section (c) of the same statute states that there will be no presumption of negligence in
a medical malpractice action, while Section (d) requires the court to instruct the jury in such an
action that “injury alone does not raise a presumption of the defendant’s negligence.” Thus, the
outcome of a medical malpractice lawsuit against a physician who has made an involuntary
commitment decision may not be determined by the correctness of the decision or by its result, but

-7-

solely by the question of whether the defendant followed the relevant standard of care in reaching
it.

It appears to us that these statutes meet the concerns voiced by the Supreme Court in
Forrester v. White, supra, far more effectively than blanket immunity would. Accordingly, we
conclude that considerations of public policy do not require a grant of judicial immunity for doctors
involved in involuntary commitment proceedings.

V. THE ROLE OF HCA HEALTH SERV ICES

As we stated above, the trial court granted summary judgment to HCA Health Services
because it found that the defendant had a legal duty under Tenn . Code. Ann . § 33-6-109 to discharge
Mr. Mercer once Dr. Nyquist ordered it. The plaintiffs vigorously disputed this interpretation of the
statute, and argued that Tenn. Code. Ann. § 33-6-103 and Tenn. Code. Ann. § 33-6-108 placed the
ultimate responsibility for discharge on the superintendent of the hospital. We do not think it
necessary to express an opinion on this question of statuto ry interpretation, however, because it
appears to us that the plaintiffs have alleged facts sufficient to support a claim against HCA upon
an entirely different basis.

According to Dr. Nyquist’s deposition, the responsibility for Mr. Mercer’s care lay with a
treatment team led by the psychiatrist, and which included registered nurses and a social worker
employed by HCA. Two registered psychiatric nurses retained as experts testified that the standard
of care required the treatment team to assess Mr. Mercer’s potential for suicide, to document their
observations, and to communicate those observations to each other and to Dr. Nyquist. They
concluded, after examining the hospital’s records that this was not done, even though Mr. Mercer
presented numerous risk factors for possible suicide.

Among other things, team members apparently failed to review the medical records of Mr.
Mercer’s previous hospitalization, despite hospital policy requiring such review. Those records
would have revealed a history of head trauma, which according to the affidavits of the two expert
psychiatrists, increases the risk of suicide because of poor judgment. Also, social worker Glenn
Vann learned from Mrs. Mercer that there had been a similar episode of alcohol intoxication and
threats of suicide the previous Christmas, but he did not convey the info rma tion to Dr . Nyquist. If
he had done so, Dr. Nyquist might have been less likely to believe Mr. Mercer’s denial of suicidal
ideation.

Dr. Nyquist himself testified at his deposition that to determine the mental status of a patient,
he needed to know about his “psychosocial world”, as well as “elements of current medical history,
past medical h is tory, of fami ly psychiatric his tory, personal psychiatric history.” This testimony was
consistent with the explanation of the standard of care presented by the plaintiff’s psychiatric experts.
The record indicates, however, that Dr. Nyquist’s determination that Mr. Mercer should be
discharged was based solely on a few interviews he conducted with the patient. He also testified that

-8-

prior to releasing Mr. Mercer, he never attempted to obtain any other records involving his previous
hospitalizations.

Dr. Nyquist’s testimony raises the question as to what extent the alleged negligence in this
case should be imputed to HCA for the failure of its employees to convey important information to
the psychiatrist, and to what extent Dr. Nyquist was obligated to seek or request this information
from the treatment team. It does not, however, negate the questions of material fact raised by the
allegations of negligence against HCA.

VI.

The judgment of the trial court is reversed. Remand this cause to the Circuit Court of
Davidson County for further proceedings consistent with this opinion. Tax the costs on appeal
equally between the appellees, HCA Healthcare Services of Tennessee and Steven R. Nyquist, M.D.

_________________________________________
BEN H. CANTRELL, PRESIDING JUDGE, M.S.

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Mercatus Group, LLC v. Lake Forest Hosp. (Summary)

ANTITRUST

Mercatus Group, LLC v. Lake Forest Hosp., No. 07 C 2042 (N.D. Ill. Feb. 16, 2010)

The United States District Court for the Northern District of Illinois granted the hospital’s motion for summary judgment on federal antitrust claims and declined to exercise jurisdiction over the remaining state law claims in a case involving a physician practice that was denied, by the city Board of Trustees, both development and site plan approval for a new physician center. The plaintiff claimed that the hospital’s influence on the Board’s decision was an attempt to monopolize the market for both diagnostic imaging services and comprehensive physician services. The district court held that the Noeerr-Pennington doctrine applied to the Board of Trustees’ legislative activity, granting the hospital immunity from liability based on, among other things, lobbying efforts and public statements. The court also noted that the hospital’s non‑petitioning conduct did not constitute sufficient evidence that gave rise to an anticompetitive violation. As summary judgment was granted to the hospital on the federal claims, the district court, in exercise of its discretion, declined to exercise supplemental jurisdiction over the state law claims.

Mendez v. White

Mendez v White

2007 NY Slip Op 04610

Decided on May 29, 2007

Appellate Division, Second Department

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on May 29, 2007

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE DIVISION : SECOND JUDICIAL DEPARTMENT
A. GAIL PRUDENTI, P.J.
STEVEN W. FISHER
MARK C. DILLON
THOMAS A. DICKERSON, JJ.

2006-03323
(Index No. 18195/04)

[*1]Orlando Mendez, etc., appellant,

v

John White, etc., et al., defendants, New York Methodist Hospital, respondent.

The Pagan Law Firm, P.C., New York, N.Y. (Tania M. Pagan of
counsel), for appellant.
Aaronson, Rappaport, Feinstein & Deutsch, LLP, New York,
N.Y. (Elliott J. Zucker of counsel), for
respondent.

DECISION & ORDER

In an action, inter alia, to recover damages for medical malpractice, the plaintiff appeals, as limited by his brief, from so much of an order of the Supreme Court, Kings County (Steinhardt, J.), entered February 27, 2006, as granted that branch of the motion of the defendant New York Methodist Hospital which was for summary judgment dismissing the cause of action predicated on a theory of vicarious liability.

ORDERED that the order is reversed insofar as appealed from, on the law, with costs, and that branch of the motion of the defendant New York Methodist Hospital which was for summary judgment dismissing the cause of action predicated on a theory of vicarious liability is denied.

“Under the doctrine of respondeat superior, a hospital may be vicariously liable for the medical malpractice of physicians who act in an employment or agency capacity” (Boone v North Shore Univ. Hosp. at Forest Hills, 12 AD3d 338, 339; see Hill v St. Clare’s Hosp., 67 NY2d 72, 79). In support of its motion for summary judgment, the defendant New York Methodist Hospital (hereinafter the Hospital) tendered some evidence showing that the defendant Dr. John White was not its employee, but merely enjoyed hospital affiliations and surgical privileges as part of his membership in Bronster, Abrams and White, a pediatric surgical practice that had a referral [*2]relationship with the Hospital. The Hospital failed, however, to tender competent evidence establishing that Dr. White did not act as its agent, or that the Hospital exercised no control over him (see Brown v Speaker, 33 AD3d 446; Finnin v St. Barnabas Hosp., 306 AD2d 189; Harrington v Neurological Inst. of Columbia Presby. Med. Ctr., 254 AD2d 129, 130). Moreover, the Hospital’s proof left unresolved material issues of fact as to whether the plaintiff’s guardian reasonably believed that Dr. White had been provided by the Hospital and was ostensibly acting as its agent in providing care to the plaintiff (see Hill v St. Clare’s Hosp., supra at 80; Monostori v Murphy, 34 AD3d 882; Santiago v Brandeis, 309 AD2d 621, 622; Finnin v St. Barnabas Hosp., supra). Therefore, the Hospital failed to establish its prima facie entitlement to judgment as a matter of law (see Ayotte v Gervasio, 81 NY2d 1062, 1063).
PRUDENTI, P.J., FISHER, DILLON and DICKERSON, JJ., concur.

ENTER:

James Edward Pelzer

Clerk of the Court

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