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STERN v. LUCY WEBB HAYES NATL. TRAINING SCH. FOR D

November 30, 1973

David M. Stern et al., Plaintiffs
v.
Lucy Webb Hayes National Training School For Deaconesses And Missionaries, et al., Defendants


Gesell, D.J.


The opinion of the court was delivered by: GESELL

GESELL, D.J..

 This is a class action. The amended complaint filed April 17, 1973, claims in several counts that patients of Sibley Hospital have been damaged in that they were required to pay excessive amounts for hospital services as a result of a conspiracy among certain trustees and their affiliated businesses. The conspiracy is alleged to constitute a breach of trust and a violation of the Clayton Act, 15 U.S.C. ยง 15. The Hospital is named defendant only in the antitrust count.

 The Hospital has informally afforded substantial discovery to plaintiffs. There have been extensive pretrial proceedings. As a result, the list of defendants was revised and the theory of the action sharpened. A motion by plaintiffs to certify the classes and motions of various defendants for partial summary judgment challenging the standing of plaintiffs to proceed with the antitrust count are now before the Court. The motions are opposed and ripe for determination following receipt of various undisputed documents, consideration of voluminous briefs and full argument.

 Antitrust

 The question of plaintiffs' standing, individually or as a class, to assert the antitrust claim must first be considered.

 The amended complaint charges that commencing before 1960 various institutions, primarily banks and savings associations, and their officials on the Hospital Board conspired with the Hospital itself "to allocate Sibley's financial service business among themselves on terms and rates specially favorable to defendant financial institutions, and imposing excessive costs for financial services on the patients utilizing Sibley's alleged 'without profit' services." Particularized references are made to interest-free bank accounts, charging of excessive interest rates on loans to the Hospital, and the alleged imposition of other financial charges on the Hospital which the Hospital could have reduced by competitive means. The agreement is claimed to have included a plan ultimately to recoup these losses to Hospital income by raising the charges for patient services. Treble damages for all members of the class against all defendants except the Hospital are sought.

 Plaintiffs contend that they have standing for two principal reasons. First, they assert that they have been directly injured by the alleged conspiracy, and, second, they emphasize that because the Hospital has declined to proceed against the other conspirators there is no one other than the patients of this non-profit hospital who can act to correct the abuses claimed to exist.

 Upon careful analysis of the statute, it is apparent that plaintiffs' alleged injuries do not satisfy the requirements of standing under the Clayton Act. Section 4 of the Act provides relief through treble damages to "[any] person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws . . . ." As the Supreme Court has noted, "[the] lower courts have been virtually unanimous in concluding that Congress did not intend the antitrust laws to provide a remedy in damages for all injuries that might conceivably be traced to an antitrust violation." Hawaii v. Standard Oil Co., 405 U.S. 251, 263 n. 14, 31 L. Ed. 2d 184, 92 S. Ct. 885 (1972). The courts have evolved essentially two tests -- (1) the direct injury test, and (2) the target area test -- to determine whether a sufficient nexus exists between an alleged antitrust violation and an injury allegedly caused thereby, so as to confer standing upon the injured party to bring a treble damage action.

 It must be recognized at the outset that plaintiffs are unable to show that the alleged conspiracy to monopolize the Hospital's financial services on terms disadvantageous to the Hospital was directed at the patients. To be sure, it was apparent that overhead would rise and that this, in turn, might be a factor, among many others, in raising Hospital charges; but the object was to obtain economic benefit from the Hospital, not to overcharge. The damage, in short, while somewhat foreseeable, was indirect, and only remotely consequential. While the Hospital itself is named a conspirator, the plaintiffs cannot show any deliberate participation of this entity in the combination. Indeed, they want no damages from it. If some of its trustees abused their trust for their own advantage, this conduct is not sufficient to change the Hospital from a victim to a conspirator. It is the theory of the amended complaint that the Hospital itself was injured by being overcharged for financial services and such documentary proof as there appears to be is to this effect.

 Plaintiffs were purchasers of a variety of hospital health services from the Hospital, and they say they sustained injury through their contractual relationship with it. The law is well settled, however, that the losses suffered by the customers of a directly injured party are remote and indirect, and do not give rise to standing under the antitrust laws. Commonwealth Edison Co. v. Allis-Chalmers Manufacturing Co., 315 F.2d 564 (7th Cir.), cert. denied sub nom., Illinois v. Commonwealth Edison Co., 375 U.S. 834, 11 L. Ed. 2d 64, 84 S. Ct. 64 (1963); United Egg Producers v. Bauer International Corp., 312 F. Supp. 319 (S.D.N.Y. 1970); City of Philadelphia v. Westinghouse Electric Corp., 1961 TRADE CASES P70,143 (E.D. Pa. 1961).

 This is true even where the effect was foreseeable and demonstrable, *fn2" as these and other cases have repeatedly emphasized. See Nationwide Auto Appraiser Service, Inc. v. Association of Casualty and Surety Companies, 382 F.2d 925 (10th Cir. 1967); Productive Inventions, Inc. v. Trico Products Corp., 224 F.2d 678 (2d Cir. 1955), cert. denied, 350 U.S. 936, 100 L. Ed. 818, 76 S. Ct. 301 (1956); Minersville Coal Co., Inc. v. Anthracite Export Association, 335 F. Supp. 360 (M.D. Pa. 1971); Snow Crest Beverages v. Recipe Foods, 147 F. Supp. 907 (D. Mass. 1956).

 The parties have relied heavily on the Supreme Court's decision in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 20 L. Ed. 2d 1231, 88 S. Ct. 2224 (1968). Defendants assert that Hanover Shoe bars recovery by an injured party's customers unless that injury is passed on by means of an explicit cost-plus arrangement. Plaintiffs argue that a non-profit hospital necessarily passes on increased expenses to its patients in a manner which satisfies the Hanover Shoe exception. The parties probably read too much into the decision, which dealt with a vendor's defense rather than the standing of his customers. However, when read in light of the earlier cases cited above, Hanover Shoe is at least consistent with the ruling that an ultimate purchaser can only sue under the Clayton Act if he can establish that the alleged conspiracy increased the cost to the vendor of a discrete product which was then sold to him at a necessarily higher price. Compare Mangano v. American Radiator & Standard Sanitary Corp., 438 F.2d 1187 (3rd Cir. 1971), and Donson Stores, Inc. v. American Bakeries Co., 58 F.R.D. 481, 1973-1 TRADE CASES P74,387 (S.D.N.Y. 1973), with In re Master Key Antitrust Litigation, 1973 TRADE CASES P74,680 (D. Conn. 1973), and Boshes v. General Motors Corp., 59 F.R.D. 589, 1973-1 TRADE CASES P74,483 (N.D. Ill. 1973). ...


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