Shearman & Sterling LLP | Antitrust Blog | Eastern District Of Pennsylvania Dismisses Antitrust Suit Against Lab Testing Company Alleging Unfair Competition In Specialized Testing Services<br >  
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  • Eastern District Of Pennsylvania Dismisses Antitrust Suit Against Lab Testing Company Alleging Unfair Competition In Specialized Testing Services

    On October 9, 2018, Judge Gerald J. Pappert of the U.S. District Court for the Eastern District of Pennsylvania granted defendant Independence Blue Cross’s (“IBC”) and defendant Laboratory Corporation of America Holdings’s (“LabCorp”) motions for summary judgment on an unfair competition claim filed by Medical Diagnostic Laboratories, LLC (“MDL”).  MDL is a lab testing company that provides specialized testing services for sexually transmitted infections.  MDL alleged that defendants violated Sherman Act Section 1 and Pennsylvania state unfair competition law, and tortiously interfered with existing and prospective relationships with healthcare providers, by requiring IBC in-network providers to exclusively refer patients needing lab work to LabCorp.  The Court granted defendants’ motions to dismiss the Section 1 and tortious interference with existing business relationships claims on August 30, 2017, but allowed MDL to take discovery on its claims of tortious interference with prospective contractual relations and unfair competition.  In his summary judgment opinion, Judge Pappert rejected these remaining claims.

    Judge Pappert first rejected MDL’s tortious interference with prospective contractual relations claim because there was no evidence in the record that MDL had prospective contractual relations with any of the providers identified in its Amended Complaint.  Indeed, MDL admitted its lack of evidence during oral argument.  Judge Pappert noted that MDL attempted to switch its theory after the close of discovery, claiming that the prospective contractual relations were actually with patients, not providers.  The Court rejected this argument, holding that “MDL is not permitted, after discovery has concluded, to change its theory solely because the record evidence defeats its true claim.”  Because MDL could not demonstrate a contractual relationship—existing, prospective, or otherwise—between itself and any of the providers, Judge Pappert granted summary judgment for defendants on this claim.

    Judge Pappert next rejected MDL’s common law unfair competition claims.  He found that MDL and IBC were not competitors—as required for an unfair competition claim—because they do not supply similar goods or services.  He then held that because there was no evidence in the record to conclude that defendant diagnostic testing laboratory tortiously interfered with any prospective contractual relationship between MDL and healthcare providers, an unfair competition claim premised on the same conduct fails as well.

    Lastly, Judge Pappert rejected MDL’s unfair competition claim that was based on LabCorp’s supposed fraudulent misrepresentations to in-network providers that they were obligated to refer patients to LabCorp.  Judge Pappert held that MDL did not plead any theory based on fraudulent misrepresentations and first raised such a claim on summary judgment, which was alone grounds for rejecting the theory.  But, he held that the fraudulent misrepresentation claim would also fail on the merits because though in-network providers were required to refer patients to LabCorp, patients under certain benefit arrangements (i.e., PPO plans) could choose to use any laboratory.  Judge Pappert found that LabCorp had no obligation to inform in-network providers about the possibility that insured customers could choose an out-of-network laboratory and the purpose of the agreement—to keep as many medical services as possible “in the family”—was a reasonable goal of the agreement.  He continued that MDL’s interpretation of the exceptions to the in-network referral rule were “nonsensical” and would render meaningless the goal of minimizing usage of out-of-network laboratories.  As a result, Judge Pappert granted defendants’ summary judgment on MDL’s unfair competition claim.

    Judge Pappert’s admonishing of MDL for presenting new theories of recovery after the close of discovery suggests that defendants can be successful in challenging new post-discovery theories if the changes to the theories are substantial, particularly if no such allegations were ever mentioned in the complaint.