WILLIS v. SANTA ANA COMMUNITY HOSPITAL ASS

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District Court of Appeal, Fourth District, California.

H. B. K. WILLIS, Plaintiff and Appellant, v. SANTA ANA COMMUNITY HOSPITAL ASS'N, a corporation, et al., Defendants and Respondents.*

Civ. 6658.

Decided: March 29, 1962

Jacobs, Jacobs, Nelson & Witmer, by M. Lyle Nelson, Santa Ana, for appellant. W. Mike McCray and H. Warren Knight Santa Ana, for respondents.

This is an appeal by plaintiff from a judgment of dismissal after defendant's demurrer to plaintiff's complaint was sustained and plaintiff declined to amend.

PROCEEDINGS HAD

Plaintiff filed a complaint for damages for alleged conspiracy by defendants to dominate and control the practice of medicine in Orange County by maliciously and without lawful cause interfering with plaintiff's association with other members of the profession and preventing his use of the best hospitals for his patients. A demurrer thereto was sustained, a first amended complaint was filed and again a demurrer thereto was sustained. Plaintiff did nothing to further amend, judgment of dismissal was entered, and plaintiff appeals therefrom. While the record shows that a special demurrer was filed in addition to general demurrer, the parties do not discuss nor make any points in their briefs regarding the special demurrer and on oral argument stipulated that the trial court's ruling was only on the general demurrer. We will therefore confine our discussion to the general demurrer. On demurrer the complainant's allegations must be accepted as true. We are not concerned with proof.

THE COMPLAINT

Plaintiff's complaint is set forth in two causes of action. In substance it alleges in the first cause of action that defendants West, Finley, George, Carmichael, Knickerbocker, Thornton and Hellis are directors of defendant hospital; that defendants Tiffany, Leecing and Carroll are licensed osteopathic physicians (hereinafter that term will be called D.O.); that defendants Clark and Pearlman are licensed doctors of medicine (hereinafter that term will be called M.D.); that defendant Malinowski is administrator of defendant hospital; that plaintiff is a D.O.; that

‘* * * during all of the times herein mentioned, the defendants and each of them have combined, conspired, confederated and agreed together, and do now combine, conspire, confederate and agree together through coercive and oppressive methods and otherwise to: dominate and control the practice of medicine in the County of Orange, State of California by licensed osteopathic physicians and surgeons; dominate and control the hospitals in the vicinity of the City of Santa Ana, County of Orange, State of California in which staff membership is necessary in order that a licensed osteopathic physician or surgeon may have the use of the facilities necessary for the proper treatment of his patients in and around the vicinity of said City; prevent competition from osteopathic physicians moving to the County of Orange from other counties or states, even though such out of county osteopathic physicians and surgeons are duly licensed to practice medicine in the State of California, by means of preventing such doctors from acquiring the use of hospital facilities necessary in connection with the conduct of their profession; determine the terms upon which licensed osteopathic physicians and surgeons may employ or associate with other licensed osteopathic physicians and surgeons and doctors of medicine in a professional capacity; and by denying the use of hospital facilities to such osteopathic physicians and surgeons and controlling the terms upon which such osteopathic physicians and surgeons and doctors of medicine may associate with each other, and by other coercive and oppressive methods to limit and restrict and restrain fair competition in the medical field as between osteopathic physicians and surgeons, and as between licensed osteopathic physicians and surgeons and doctors of medicine; that at all of the said times, the defendants and each of them, have unlawfully created and carried out restraints and restrictions upon the business and business methods of osteopathic physicians and surgeons and upon fair competition in rendering medical treatment to the public in the County of Orange, State of California;’ (Clerk's Transcript pp. 40–41, pg. VII)

that pursuant to said conspiracy, in order to destroy the business of competing D.O.'s and to preclude competition from D.O's, defendants prevented D.O.'s from using the better hospitals in Orange County and advised members of the public that D.O.'s who do not have the use of said hospital facilities have been rejected therefrom because of questionable personal or professional reputations and ability and have established restraints and conditions upon which D.O.'s may associate with each other; that defendant hospital directors have unlimited power to determine what doctors may use defendant hospital's facilities and have used said power to carry out said conspiracy; that prior to November 1953 plaintiff resided in Los Angeles County, practicing therein; that after said date plaintiff has resided and practiced in Orange County; that from May 1954 to January 1959 plaintiff was a member of the D.O. staff of defendant hospital and all his activities as such staff member were completely satisfactory; that ‘plaintiff, in his private and professional life, has at all times maintained the highest moral, ethical and professional standards; that plaintiff's professional training, experience and qualifications are of the very highest caliber;’ that in January 1959 plaintiff was deprived of staff membership in defendant hospital without assigned reason and was refused any hearing thereon; that the defendant hospital's D.O. staff unanimously requested the hearing for him but said request was denied; that pursuant to said conspiracy and subsequent to plaintiff's said expulsion from staff membership, defendants indicated to the public that the reason therefor was questionable professional or personal competence, ability and reputation. Then follow allegations of loss of patients by plaintiff, loss of income, and damage.

The second cause of action re-pleads most of the first cause of action but narrows the purposes of the conspiracy to apply with malicious intent directly to plaintiff.

THE ISSUE

The issue, as stated by both parties, is whether or not plaintiff's complaint states a cause of action for unlawful restraint of trade under the Cartwright Act of California (Stat.1907, p. 984, now Secs. 16700–16758, Bus. & Prof.Code) and under common law principles.

In basic effect the Cartwright Act prohibits any combination of capital, skill or acts of two or more persons to restrict trade or commerce. Section 16700 specifically provides that the chapter is cumulative with other provisions of law. Section 16720 details various types of specifically prohibited acts, all of which relate to the main purpose. It then provides specified exceptions and gives any person injured by such unlawful combination a right to recover damages therefor. Section 16756 provides for simplification of pleading and other sections set up civil and criminal penalties. It has been recognized that both the Sherman Act (15 U.S.C.A. §§ 1, 2) and the Cartwright Act are merely legislative efforts to put into statutory form some of the already recognized principles of the common law. (Speegle v. Board of Fire Underwriters, 29 Cal.2d 34, 44, 172 P.2d 867.)

Under pleadings very similar to those in the case here at bar the problem was thoroughly discussed and analyzed in Tatkin v. Superior Court, 160 Cal.App.2d 745, 754–765, 326 P.2d 201. The majority opinion therein concludes (p. 764, 326 P.2d p. 213) that ‘plaintiff has sufficiently alleged a purpose on the part of the defendants to restrain competition by him, as well as acts done in pursuance of that purpose to state a cause or causes of action under common law principles.’ The dissenting opinion discusses and analyzes the same subject and comes to an opposite conclusion. On petition for hearing in our Supreme Court the petition was, by a divided court, denied. Defendant contends that what was said in the majority opinion in Tatkin was dicta. It is true that the proceeding there was in mandamus to set aside an order sustaining defendant's refusal to answer certain questions. We are not, however, prepared to say that the discussion above referred to was wholly unnecessary to the decision of the case. At any rate, we are convinced that the majority opinion in the Tatkin case above referred to satisfactorily analyzes the problem and reaches the correct conclusion.

Due to the similarity of the general purpose of the Sherman Antitrust Act (15 U.S.C.A. §§ 1, 2) and the anti-monopoly policies developed by most of the individual states during the past century, Federal court decisions have been repeatedly examined with care by state courts and are often used as precedents by state courts in like problems. Defendants contend that Federal decisions relating to group health insurance involve essentially different problems from those in the case at bar and are therefore not persuasive. However, an examination of the United States Supreme Court decisions referred to persuades us that this contention is unrealistic. Thus, in American Medical Ass'n v. United States, 317 U.S. 519, 63 S.Ct. 326, p. 330, 87 L.Ed. 434, in discussing a conspiracy of defendants in which an indictment and conviction of conspiring to violate section 3 of the Sherman Act by restraining trade or commerce in the District of Columbia was upheld, the Supreme Court approved the following language of the court of appeal in construing the indictment to charge a similar conspiracy,

‘The charge, stated in condensed form, is that the medical societies combined and conspired to prevent the successful operation of Group Health's plan and the steps by which this was to be effectuated were as follows: (1) to impose restraints on physicians affiliated with Group Health by threat of expulsion or actual expulsion from the societies; (2) to deny them the essential professional contacts with other physicians; and (3) to use the coercive power of the societies to deprive them of hospital facilities for their patients.’

In discussing why the defendants were amenable to a charge of violation of the Sherman Act and were not within the exception of the Clayton and Norris-LaGuardia Acts, the Supreme Court further stated, (63 S.Ct. p. 332)

‘The petitioners were not an association of employes in any proper sense of the term. They were an association of individual practitioners each exercising his calling as an independent unit. These independent physicians, and the two petitioning associations which represent them, were interested solely in preventing the operation of a business conducted in corporate form by Group Health.’

In United States v. Oregon State Medical Soc. et al., 343 U.S. 326, 72 S.Ct. 690, p. 694, 96 L.Ed. 978, in which certain medical societies and individual doctors were defendants, the government brought a

‘* * * suit against the doctors, their professional organizations and their prepaid medical care company, asserting two basic charges: first, that they conspired to restrain and monopolize the business of providing prepaid medical care in the State of Oregon, and second, that they conspired to restrain competition between doctor-sponsored prepaid medical plans within the State of Oregon in that Oregon Physicians' Service would not furnish prepaid medical care in an area serviced by a local society plan.’

The problem before the court was stated in the following language (72 S.Ct. p. 696):

‘Appellees, in providing prepaid medical care, may engage in activities which violate the antitrust laws. They are now competitors in the field and restraints, if any are to be expected, will be in their methods of promotion and operation of their own prepaid plan. Our duty is to inquire whether any restraints have been proved of a character likely to continue if not enjoined.’

While the Court did comment (on page 697 of 72 S.Ct.), that there is a difference between the ethical considerations of doctor and patient and those involved in the business world, it nevertheless did not even suggest that a conspiracy and restraint of trade by doctors would not be cognizable under the Sherman Act. We take the comment referred to to mean only that the application of the Sherman Act might require variations in the proofs sometimes required in the ordinary business world.

In United States v. American Medical Ass'n, 72 App.D.C. 12, 110 F.2d 703, p. 710 (certiorari denied by U.S. Supreme Court, 308 U.S. 599, 60 S.Ct. 131, 84 L.Ed. 502), in which the Court upheld an indictment against the defendants for violation of the Sherman Act, the Court said, in discussing the precise question posed by defendant in the case here before us,

‘The defendant insists there is a distinction between a business and a profession; that, while the period of restriction as to a business may be unlimited, the rule should not apply to a profession, since it is a purely personal relation whose benefits cease upon death or the cessation from practice. We do not think the distinction tenable. A profession partakes on its financial side of a commercial business, and its good will is often a valuable asset.’

In American Medical Ass'n v. United States, 76 U.S.App.D.C. 70, 130 F.2d 233, p. 235, which was an appeal after conviction and involves the same indictment discussed in United States v. American Medical Ass'n, supra, the Court reviews its language in the former opinion and states,

‘In the United States v. American Medical Association, we held that the term ‘in restraint of trade’ as used in Section 3 of the Sherman Act, 15 U.S.C.A. § 3, had its genesis in the common law; that the practice of medicine was recognized by the English cases as constituting trade; that a restraint imposed upon the practice of medicine may constitute a restraint of trade; that restraints imposed upon the operation of hospitals and upon Group Health Association, designed to prevent it from making available to and financing medical services on behalf of its members may constitute restraint of trade; that the indictment under which appellants were charged stated a case under Section 3 of the Sherman Act.'

In upholding the conviction discussed in this opinion, the United States Supreme Court found it unnecessary to discuss the question of whether or not the practice of medicine constituted a trade within the meaning of the Sherman Act. There is no active disapproval of the statements made by the Court of Appeal in its two opinions in the case.

In Group Health Cooperative of Puget Sound v. King County Medical Soc., 39 Wash.2d 586, 237 P.2d 737, p. 765 the Court said,

‘[14] At the common law, the term ‘restraint of trade’ was deemed to cover the practice of medicine. [Citas.] The corporate activity of offering, entering into, and performing contracts providing for prepaid medical service, is also a business or trade at common-law. [Cita.]

‘[15] As our constitutional provision bespeaks the common law, so it should be permitted to afford the same protection and serve the same broad public interest which is available at common law. Monopolies affecting price or production in essential service trades and professions can be as harmful to the public interest as monopolies in the sale or production of tangible goods. The constitutional provision was designed to safeguard this public interest from whatever direction it may be assailed. The language used must therefore be liberally construed with that end in view.

‘[16] It is our conclusion that medical and related services, rendered in connection with prepaid contracts of the kind here in question, are ‘products' within the meaning of Article XII, § 22.’

It is perfectly true that a private hospital has the right to exclude, within the authority of its by-laws or other organizational structure, any physician from practice therein (Levin v. Sinai Hospital of Baltimore City, 186 Md. 174, 46 A.2d 298, 301[6–11], and may expel a member for unethical practice. (Smith v. Kern County Medical Ass'n, 19 Cal.2d 263, 120 P.2d 874. Defendants' quotation and citation to this effect from Group Health Cooperative v. King County Medical Society, supra, 39 Wash.2d 586, 237 P.2d p. 780 goes no further than the Levin case for the statement is based on the finding that the Swedish hospital was not a part of the conspiracy restraining competition as charged.

We are not here required to hold, nor do we suggest, that doctors who join together in good faith with honest intention, to uphold and advance the good ethics of their profession and the cause of good health in general, can properly be interfered with, even though as an incident to such efforts, it should happen that hospital use or consultation between some types of doctors suffer some restriction.

What we do hold is that the law affords redress to any victim of a combination which has for its purpose and does act with malicious intent through coercive and oppressive methods; to prevent the proper use by qualified persons of hospital facilities; to restrict legitimate consultation between doctors; to indicate falsely to the public that such facilities are denied the victim because of the victim's questionable professional or personal conduct or qualifications when in truth and in fact the victim's conduct and qualifications are of the highest order; and that the Courts should be and are open to afford such redress in a properly proven case.

We think the facts stated constitute a cause of action and that the general demurrer should not have been sustained.

Judgment of dismissal is reversed.

SHEPARD, Justice.

GRIFFIN, P. J., and COUGHLIN, J., concur.

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