As explained in prior posts, the Federal Trade Commission (“FTC”) filed suit in April of this year in Federal District Court for the District of Columbia seeking to enjoin Louisiana Children’s Medical Center (“LCMC”) from continuing to integrate the three New Orleans area hospitals that it had acquired from HCA Healthcare, Inc. (“HCA”) because the parties had not satisfied the pre-merger notification and waiting period requirements that the FTC argued were required of the parties pursuant to Section 7A of the Clayton Antitrust Act, i.e., the Hart-Scott-Rodino Act (“HSR Act”).
Simultaneously, LCMC, HCA and the Louisiana Attorney General (“AG”) filed suit in the District Court for the District of Louisiana seeking a declaratory judgment that the HSR Act did not apply to the transaction because the state had issued the parties a Certificate of Public Advantage (“COPA”) under Louisiana law approving the acquisition.
Subsequently, the D.C. District case was transferred to the Louisiana District Court.
On Wednesday, the court issued an order granting motions for summary judgment in favor of LCMC, HCA and the AG, holding that the state’s issuance of the COPA constituted “state action” such that the transaction was exempt from federal antitrust laws including the filing and waiting period requirements under the HSR Act.
In reaching its conclusion, the court undertook a two-step approach. It first considered the question whether the issuance of the COPA exempted the transaction from federal antitrust enforcement because the issuance constituted state action. Because the court concluded that it did, the court next considered whether, as parties to a transaction exempt from the federal antitrust laws pursuant to the state action doctrine, the parties were bound by the requirements of Section 7A of the Clayton Act and were required to make an HSR filing.
Did the Issuance of the COPA Exempt the Transaction from Federal Antitrust Enforcement Because It Constituted State Action?
The state action doctrine emanates from a number of U.S. Supreme Court cases that have held that, absent a clear statement from Congress to the contrary, “federal antitrust laws are subject to supersession by state regulatory programs.” F.T.C. v. Ticor Title Ins. Co., 504 U.S. 621, 632 (1992).
As explained by the Court in Parker v. Brown, 317 U.S. 341, 350-51 (1943) “nothing in the language of the Sherman Act or in its history . . . suggest[ed] that its purpose was to restrain a state or its officers or agents from activities directed by its legislature.” And the state action doctrine has been held to apply equally to Section 7 of the Clayton Act under which the HSR Act was promulgated. See FTC. v. Phoebe Putney Health Sys., Inc., 568 U.S. 216, 222, 227-29 (2013).
The requirements that must be satisfied for the state action doctrine to apply are succinctly set forth in the Supreme Court’s decision in California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980). There the Court held that the doctrine applies to the anticompetitive acts of private parties only where “the challenged restraint” is “clearly articulated and affirmatively expressed as state policy” and where that policy is “actively supervised by the State.” 445 U.S. at 105.
The COPA as State Action
In concluding that the issuance of the COPA constituted state action and that the transaction was exempt from antitrust enforcement, the court examined the Louisiana COPA statute and its application to the transaction applying the Midcal principles.
Clearly Articulated State Policy
With respect to the requirement of a clearly articulated state policy, the court found that this was easily satisfied as the Louisiana statute provides Louisiana’s Department of Justice (the “LADOJ”) with “direct supervision and control over the implementation of cooperative agreements, mergers, joint ventures, and consolidations among health care facilities for which certificates of public advantage are granted.”
The statute further states that “[i]t is the intent of the legislature that supervision and control over [such transactions] . . . have the effect of granting the parties to [such transactions] state action immunity for actions that might otherwise be considered to be in violation of state antitrust laws, federal antitrust laws, or both.”
With respect to the requirement of active supervision, the court explained that the state must exercise ultimate control over the challenged anticompetitive conduct and this requires that state officials have and exercise power to review particular anticompetitive acts of private parties and disapprove those that fail to accord with state policy.
The court examined the Louisiana COPA statute and the process by which the COPA was issued for the transaction and concluded that the active supervision requirement had been satisfied:
- Louisiana’s COPA statute makes clear that its purpose is to provide the state, through the LADOJ, with direct supervision and control over the implementation of transactions such as the transaction involved in this case;
- Pursuant to the statute, the LADOJ has the power to veto or modify an acquisition;
- The LADOJ may not issue a certificate unless it finds that the transaction agreement is likely to result in lower health care costs or is likely to result in improved access to health care or higher quality health care without any undue increase in health care costs;
- The LADOJ reviewed the substance of the transaction as required for application of the state action doctrine;
- The parties’ application extensively detailed the substance of the transaction and its likely effects on health care and competition; and
- The LADOJ considered the application and after extensive analysis by it and its attorneys and staff as well as expert consultants regarding the transaction, the facilities and the likely effects on health care and competition in the state, determined that the application materials satisfied the statutory requirements and that a COPA should be issued.
Were the Parties Bound by the Requirements of Section 7A of the Clayton Act and Required to Make an HSR Filing?
In order to answer this question, the court examined the text of Section 7 and 7A and considered whether there was a sufficiently clear statement of Congressional intent to displace state action.
Text of the Statute
Section 7A provides that, “[e]xcept as exempted pursuant to subsection (c), no person (emphasis supplied) shall acquire …any voting securities or assets of any other person, unless both persons . . . file notification [with the FTC and the United States Department of Justice] . . . and [a 30-day] waiting period . . . has expired.”
According to the court, the question in this case is, therefore, whether private parties to a transaction consummated pursuant to a COPA issued by the LADOJ in accordance with Louisiana’s COPA statute qualify as “persons” within the meaning of Section 7A.
The FTC argued that the HSR Act is clear on this question, emphasizing that Section 7A enumerates certain transactions that are exempted from its requirements and states: “Except as exempted pursuant to subsection (c), no person shall [acquire assets without complying with notification and waiting period requirements].” Based on this, the FTC asserted that any transactions not explicitly appearing on the list of exemptions (which would be the case as to the parties’ transaction) should not be exempted, i.e., the court should not “invent an implied exemption by extending the state action doctrine to the procedural requirements of the HSR Act.”
The court disagreed noting that the state action doctrine has been applied to Section 7, which, like Section 7A, contains its own set of enumerated exceptions and does not specifically refer to the state action doctrine.
Significantly, the court stated that the FTC was not contesting that “person” in the context of Section 7 does not reach private entities covered by the state action doctrine, yet was “inexplicably” arguing that the exemptions in Section 7A preclude such a reading of “person” without adequately explaining why the exemptions in Section 7 do not preclude that same reading of “person.”
The court’s bottom line was that neither the statute nor the FTC’s regulations address the question actually at issue in this case, i.e., whether a transaction is exempt from Section 7A if that transaction was consummated pursuant to a COPA statute that exempts private parties from federal antitrust laws under the state action doctrine.
According to the court, what the back-and-forth between the parties and the FTC and the court’s own analysis demonstrated is that—contrary to the FTC’s position— “the HSR Act is not clear about whether the term ‘person’ in Section 7A encompasses private parties who consummate their transaction pursuant to a state COPA statute exempting them from the federal antitrust laws.
With respect to the need for a clear statement, the court emphasized that the state action doctrine is motivated by respect for ongoing regulation by the state and that concerns about federalism had prompted the Supreme Court to “apply the well-established principle that it is incumbent upon the federal courts to be certain of Congress’ intent (emphasis supplied) before finding that federal law overrides the usual constitutional balance of federal and state powers” and displacing a state’s ability to regulate its own commerce.
Having found that Section 7A of the Clayton Act is ambiguous with respect to its application to private party transactions which are exempt from federal antitrust laws pursuant to the state action doctrine, and that there is a conflict between the HSR Act and Louisiana’s COPA law sufficient to implicate the federalism concerns motivating the clear statement rule, the court concluded that there was not the requisite clear statement. Accordingly it ruled in favor of LCMC, HCA and the AG and granted motions for summary judgment in their favor.
The court’s decision will undoubtedly be appealed to the Fifth Circuit. As explained in our prior posts, this is the first time the FTC has taken affirmative action to require parties who have obtained a COPA to make an HSR filing and submit to the HSR Act’s requirements including the waiting periods. The ultimate outcome in this case will therefore be significant both with respect to the effect of COPAs and how they are assessed and also with respect to the application of the state action doctrine generally.
As explained in our September 2022 post, the FTC has made clear its dislike of COPAs. In August 2022, the FTC issued a Staff Policy Paper in which it strongly urged states to avoid using COPAs and invited state lawmakers to work collaboratively with competition policy experts to “minimize” what it believes are “the harmful effects of further hospital consolidation on local patients, employers, and hospital employees.”
According to the Source on Healthcare Price & Competition, as of August 2021, there were 19 states with COPA laws (including Oregon with a limited law) and five states with COPA laws that have been repealed.
Arguing for a different analytical approach, the FTC asserted that the state action question was not relevant to the question of whether the parties were obligated to file under the HSR Act and that instead the court should begin its analysis by interpreting the text of Section 7A.
 Making unlawful contracts, combinations in restraint of trade and monopolization or attempts to monopolize
 Prohibiting mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly”