Mercatus Group LLC v. Lake Forest Hospital, 641 F.3d 834 (7th Cir. 2011)
In 2004, plaintiff-appellant Mercatus Group LLC began plans to construct a medical office center for physicians to serve the village of Lake Bluff, Illinois. Defendant-appellee Lake Forest Hospital (the “hospital”) is located in nearby Lake Forest. Mercatus’ partner was Evanston Northwestern Healthcare (“ENH”), with which Mercatus planned several such physician centers. The hospital considered the proposed Mercatus Lake Bluff center a threat to its ability to compete in the local market for medical services. To protect itself, the hospital launched a multipronged campaign designed to prevent Mercatus from opening the physician center.
The hospital lobbied members of the Lake Bluff Board of Village Trustees to deny Mercatus approvals necessary to begin construction, launched a public relations campaign encouraging hospital employees, donors and the local community to put political pressure on the village board to oppose the Mercatus center, told ENH to stay out of Lake Bluff, and made derogatory statements about Mercatus to ENH and other health care providers.
Further, the hospital identified two hospital-affiliated physician practice groups that planned to move their practices to the new Mercatus physician center and offered those groups various incentives not to do so. The hospital’s efforts were successful. Both physician practice groups pulled out of their conditional agreements with Mercatus, the village board denied Mercatus the needed approvals, and ENH terminated its business relationship with Mercatus, which never opened a physician center in Lake Bluff.
Mercatus brought this suit in federal district court, alleging the hospital monopolized or attempted to monopolize alleged markets for “comprehensive physician services” and “diagnostic imaging services” in Eastern Lake County, Illinois, in violation of the Sherman Act, 15 U.S.C. § 2. 1 On the hospital’s motion, the district court dismissed some Mercatus claims against the hospital for failure to state a claim. Mercatus Group LLC v. Lake Forest Hosp., 528 F. Supp. 2d 797 (N.D. Ill. 2007) (“Mercatus I”).
Mercatus filed an amended complaint and, following extensive discovery, the district court granted the hospital’s motion for summary judgment on that amended complaint. Mercatus Group LLC v. Lake Forest Hosp., 695 F. Supp. 2d 811 (N.D. Ill. 2010) (“Mercatus II”). The court concluded the hospital’s efforts before the village board were protected from antitrust liability by the First Amendment right to petition the government for the redress of grievances. Id. at 818-21. The court held the hospital’s other conduct as mere misrepresentations and disparaging comments and, as a matter of law, insufficient to give rise to antitrust liability. Id. at 823; see also Mercatus I, 528 F. Supp. 2d at 810 (dismissing part of original complaint on similar grounds).
Mercatus’ primary argument on appeal was that the First Amendment did not protect the hospital’s conduct in the village board proceedings. It said the hospital allegedly made numerous misrepresentations and material omissions of fact to the village board that ultimately caused the board to deny Mercatus permission to build the physician center.
The Supreme Court has not yet explicitly spoken as to “whether and, if so, to what extent Noerr-Pennington permits the imposition of antitrust liability for a litigant’s fraud or other misrepresentations.” Professional Real Estate Investors, 508 U.S. at 61 n.6. Nevertheless, both of the sources cited in that footnote, Fed. R. Civ. P. 60(b)(3) and Walker Process Equip. Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 86 S. Ct. 347, 15 L. Ed. 2d 247 (1965), support this formulation of the fraud exception. See Id. at 177 (concluding that proof that a party “obtained a patent by knowingly and willfully misrepresenting facts … would be sufficient to strip that party of protection from the antitrust laws”); Id. at 179-80 (Harlan, J., concurring) (agreeing that antitrust liability may lie when a “patent is shown to have been procured by knowing and willful fraud” and when “monopolization is knowingly practiced under the guise of a patent procured by deliberate fraud”); Walsh v. McCain Foods Ltd., 81 F.3d 722, 726 (7th Cir. 1996) (to obtain relief from a judgment under Rule 60(b)(3), moving party must show, among other elements, that because of fraud or misrepresentation “it was prevented from fully and fairly presenting its case at trial”).
The fraud exception is based on the Supreme Court’s desire to protect the integrity of nonpolitical governmental proceedings and contains, in addition to its substantive components, a threshold procedural component: the fraud exception does not apply at all outside of adjudicatory proceedings. See Allied Tube & Conduit Corp. v. Indian Head, 486 U.S. at 499-500 (“A publicity campaign directed at the general public, seeking legislation or executive action, enjoys antitrust immunity even when the campaign employs unethical and deceptive methods.”); California Motor Transp. v. Trucking, 404 U.S. at 513 (noting that misrepresentations are “condoned in the political arena”). “There is an emphasis on debate in the political sphere, which could accommodate false statements and reveal their falsity. In the adjudicatory sphere, however, information … is relied on as accurate for decision making and dispute resolving.” Clipper Express v. Rocky Mountain Motor Tariff Bureau Inc., 690 F.2d 1240, 1261 (9th Cir. 1982).
As a result, fraudulent statements in the adjudicatory context “threaten the fair and impartial functioning of these agencies and do not deserve immunity from the antitrust laws.” Id. Recognizing this threshold procedural requirement, the district court here concluded the fraud exception did not apply because the proceedings before the village board were legislative (i.e., political) in nature. Mercatus II, 695 F. Supp. 2d at 821.
The appeals court affirmed the district court decision; even if the court assumed that the hospital made material misrepresentations during and relating to the village board proceedings concerning Mercatus’ physician center, such misrepresentations were legally irrelevant because those meetings were inherently political in nature.
The same is true of the hospital’s public relations campaign, which was inextricably intertwined with the hospital’s efforts before the board. The hospital’s contacts with ENH and other health care providers constituted mere speech that was not actionable under the Sherman Act. Finally, the appeals court ruled that no reasonable trier of fact could conclude from this record that the Hospital’s successful effort to convince physicians not to relocate their practices to Mercatus’ proposed physician center constituted predatory conduct forbidden by the antitrust laws.
Significantly, most of the conduct of which Mercatus complained was ruled a legitimate exercise of the hospital’s right to petition the government for redress, regardless of how dishonest or distasteful that conduct might have been. None of the remaining complained-of conduct, competition for key physicians, empty territorial statements to a competitor, and false derogatory statements about Mercatus, gives rise to liability under the antitrust laws, whether considered in isolation or taken together as a whole. In affirming the judgment of the district court, the appeals court said that to the extent Mercatus was harmed by the hospital’s actions, any remedies might arise under Illinois tort law, not federal antitrust law.
Rubloff Development Group Inc. v. SuperValu Inc. and Saint Consulting Group Inc., 2013 U.S. Dist. LEXIS 15239 (D. Ill. 2013)
Plaintiffs are commercial real estate developers who sought government approval to build large shopping centers. In this lawsuit, plaintiffs alleged that Saint, at the behest of SuperValu, “directed,” “orchestrated,” “spurred,” “funded” and “backed” citizen petitions in opposition to its developments in Mundelein and New Lenox, Illinois, which would have provided lease-hold space for Wal-Mart Stores Inc. Further, plaintiffs alleged that outside of two locations, the defendants operate in various states, including Illinois, and injure developers like plaintiffs in order to defeat the establishment of new Wal-Mart stores that compete with SuperValu.
In August of 2007, two groups of Mundelein residents who owned properties contiguous to the proposed shopping center filed suit against the village of Mundelein, members of the plan commission and board of trustees in the Lake County Circuit Court. The plaintiffs were individual homeowners whose land bordered the proposed development to the north and two groups whose property bordered the development to the west. The lawsuits alleged violations of the property owners’ due process rights during plan commission and board of trustees public hearings, and other failures of these bodies to follow the law.
These lawsuits were ultimately consolidated, and proceeded to a bench trial that lasted 11 days and continued through post-trial briefing requested by both parties. None of the defendants challenged the suit under Illinois Supreme Court Rule 137 as baseless, frivolous, or as interposed to cause unnecessary delay. In a 27-page decision, the court ruled that while perhaps a different group of elected officials would have reached a different conclusion, the Mundelein board’s decision was not “irrational, arbitrary, or capricious.” Plaintiffs appealed.
Rubloff then settled the consolidated lawsuit, explicitly acknowledging the risks of continued litigation. Rubloff made substantial concessions to adjoining landowners by reducing the size of the proposed Wal-Mart, agreeing to construct berms to screen the homes, relocating the road bisecting the development, eliminating a loading dock, building a tall masonry wall to shield Walmart’s back-of-the-store operations, and paying each of the plaintiffs tens of thousands of dollars.
In its Feb. 5, 2013 ruling, the court found that the First Amendment provided defendants with immunity from certain governmental petitioning activities as described in the Noerr-Pennington doctrine. See Eastern R.R. Presidents Conference v. Noerr Motor Freight Inc., 365 U.S. 127 (1961); United Mine Workers of Am. v. Pennington, 381 U.S. 657 (1965). The court found the doctrine protected defendants for their admittedly misleading petitioning of various villages and administrative agencies regarding the development. It also found the accompanying public relations campaign regarding those activities similarly protected, citing Mercatus Group LLC v. Lake Forest Hosp., 641 F.3d 834, 841, 844 (7th Cir. 2011) (noting that the doctrine provides absolute immunity for petitioning legislative and executive bodies, as well as the accompanying public relations campaigns, even if the campaigns employ unethical and deceptive methods).
The court also recognized, however, that fraudulent representations could destroy such immunity in adjudicative proceedings. Id. at 641 F.3d at 842. The court examined the two main exceptions to such immunity (sham lawsuits and fraudulent misrepresentation) and determined that neither applied in this case because (1) any misrepresentations alleged in the complaint were not material to the government’s (i.e., the judge’s) action in the litigation and, (2) since Rubloff had paid a substantial sum to settle the litigation, the litigation could not be objectively meritless as required by Professional Real Estate Investors Inc. v Columbia, 508 U.S. 49, 60 (1993); see also New West LP v. City of Joliet, 491 F.3d 717, 722 (7th Cir. 2007) (ruling that a lawsuit settled for a significant amount could not form the basis for the sham litigation exception).
Rubloff’s chief argument was that California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508 (1972), provided the framework under which its case could succeed. That case, Rubloff argued, outlines an exception to Noerr-Pennington where there is a pattern of baseless, repetitive litigation made without respect to merit. California Motor Transport, 404 U.S. at 513, 515-516. However, the Seventh Circuit had not yet recognized such a “pattern” exception. Mercatus Group LLC v. Lake Forest Hosp., 641 F.3d 834, 842 n.3 (7th Cir. 2011) (noting that the Ninth Circuit recognized such an exception in-dictum, but the Seventh Circuit has not yet faced such a fact pattern).
The strictures of PREI (which was issued 21 years after California Motor Transport) require that to invoke the Noerr-Pennington “sham” litigation exception, legal claims filed by a competitor must be objectively meritless, and this requirement foreclosed such an exception in this case. Rubloff did not think PREI foreclosed its “pattern” exception, and cited Ninth Circuit law that has harmonized California Motor Transport and PREI. See USS-POSCO Industries v. Contra Costa County Bldg. & Constr. Trades Council, 31 F.3d 800, 810 (9th Cir. 1994) (“USS-POSCO”).
One court has gone so far as to characterize the Seventh Circuit’s Mercatus case as “implicitly rejecting the POSCO rule.” Waugh Chapel S. LLC v. United Food & Commer. Workers Union Local 27, 855 F.Supp.2d 476, 488 n.18 (N.D. Md. 2012). The court did not go that far, but did agree with Waugh’s characterization that PREI seemed to clarify that California Motor Transport requires litigation to be objectively baseless in order to provide an exception to the Noerr-Pennington doctrine. Waugh, 855 F.Supp.2d at 488 n.17.
Because Rubloff settled the lawsuits at issue for a substantial sum, the court said the lawsuits could not be objectively meritless. See PREI, 508 U.S. 49, 60 n.5 (1993) (“A winning lawsuit is by definition a reasonable effort at petitioning for redress and therefore not a sham.”). The court believed the lawsuits at issue were additionally problematic for Rubloff because the Ninth Circuit, which Rubloff cited to for the “pattern” exception, does not see a “pattern” in so few lawsuits. See Amarel v. Connell, 102 F.3d 1494, 1519 (9th Cir. 1996) (ruling two lawsuits did not qualify as “a whole series of legal proceedings” which could potentially qualify for the California Motor Transport sham litigation exception, whereas the 29 lawsuits of USS-POSCO did constitute a “series” or “pattern”).
The court agreed and did not find the lawsuits filed against Rubloff’s interests to constitute a whole series of legal proceedings for the purposes of the “pattern” exception. Rubloff argued that the court’s lens was too small: It should consider the litigation against Wal-Mart that defendants conducted nationwide rather than just the two lawsuits it funded against the Rubloff development, even though Rubloff was not involved in or affected by those other lawsuits. The court believed it more appropriate to refer directly to California Motor Transport, which noted that a successfully pled pattern exception would allege “not that competitors sought ‘to influence public officials,’ but that they sought to bar their competitors from meaningful access to adjudicatory tribunals and so to usurp that decision making process.” California Motor Transport, 404 U.S. at 511-512.
Rubloff had not alleged it was a competitor of either defendant. Quite the opposite: It had steadfastly asserted that defendants’ intended target in all of this was its competitor, Wal-Mart. In light of antitrust law’s strict insistence on the proper plaintiff in terms of antitrust standing and injury, the court thought it incongruous to expand the possible Noerr-Pennington exception (if it even exists in the Seventh Circuit) of California Motor Transport beyond the target of the anticompetitive behavior to collaterally affected victims like Rubloff. See Serfecz v. Jewel Food Stores, No. 92-C-4171, 1994 U.S. Dist. LEXIS 12239, at 27-28 (N.D. Ill. August 31, 1994) (“Where a more directly injured class of potential plaintiffs exists, we are left with very little leeway to address the likelihood of whether any members of that class would actually bring suit. While the result may be somewhat frustrating in this particular case, it does provide a straightforward rule of law.”)
The court also believed that California Motor Transport must be read in the light of more recent U.S. Supreme Court precedent. Rubloff insisted that undertaking litigation without regard to merit is enough to invoke the exception, but that is precisely what PREI declined to do. See PREI, 508 U.S. at 56 (Plaintiff “invites us to adopt an approach under which … indifference to outcome … would expose a defendant to antitrust liability under the sham exception. We decline plaintiff’s invitation.”). Defendants’ “pattern” of sham litigation consisted of two lawsuits that plaintiffs paid handsomely to settle, and were therefore not meritless. The court found that the remainder of defendants’ petitioning activity involved petitioning legislative and executive bodies, and its accompanying public relations campaign, which is protected by Noerr-Pennington. Mercatus, 641 F.3d at 841, 844.
The court ultimately dismissed Rubloff’s claims against Supervalu and Saint, upholding the defendants’ right to engage in petitioning activity under the First Amendment and the Noerr-Pennington Doctrine. Thereafter, Rubloff waived its right to appeal and the case officially ended.
—By Jeffrey Gould, The Saint Consulting Group
Jeffrey Gould is general counsel of The Saint Consulting Group, a land use political consultancy.
This information can be downloaded as a comprehensive white paper here.
Saint Consulting Group was a defendant in the Rubloff lawsuit, and won that lawsuit in a motion to dismiss the Rubloff complaint. After Saint won the first motion to dismiss, Rubloff filed a second amended complaint, which Saint also won in a second motion to dismiss.
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