Neo Gen Screening v. N.E. Newborn

• Court: Court of Appeals for the First Circuit
• Decided: July 26, 1999
• Docket: 99-1100
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 99-1100



                     NEO GEN SCREENING, INC.,



                      Plaintiff, Appellant,



                                v.



              NEW ENGLAND NEWBORN SCREENING PROGRAM,

      d/b/a NEW ENGLAND REGIONAL NEWBORN SCREENING PROGRAM,

UNIVERSITY OF MASSACHUSETTS, UNIVERSITY OF MASSACHUSETTS MEDICAL 

               CENTER, HOWARD KOH, RALPH TIMPERI,



                      Defendants, Appellees.


APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



        [Hon. George A. O'Toole, Jr., U.S. District Judge]


Before



                     Boudin, Circuit Judge,

                                

                Campbell, Senior Circuit Judge,

                                

                   and Lipez, Circuit Judge.


Kenneth P. McKay with whom Law Offices of K. Patrick McKay was

on brief for appellant.

     Jane L. Willoughby, Assistant Attorney General, with whom

Thomas F. Reilly, Attorney General, was on brief for appellees.


July 14, 1999


BOUDIN, Circuit Judge.  The present appeal arises out of

a federal antitrust case dismissed by the district court on the

ground that it was barred by the Eleventh Amendment.  We assume to

be true, for purposes of this appeal, the facts as alleged in the

complaint.  Duckworth v. Pratt & Whitney, Inc., 152 F.3d 1, 3 (1st

Cir. 1998).  However, the district court also considered, as do we,

uncontroverted facts furnished by affidavit pertaining to the

status of the defendants under the Eleventh Amendment.

  The plaintiff-appellant in this case is Neo Gen

Screening, Inc., a private, for-profit Pennsylvania corporation

whose business is the medical screening of newborn children.  In

Massachusetts, as elsewhere, newborns must be tested for specified

diseases, some of which can be remedied if promptly detected. 

Mass. Gen. Laws ch. 111,  4E, 110A; see also id.  3, 5, 6. 

According to the complaint, Neo Gen provides hospitals in various

states with screening services to detect disorders in newborns but

is being prevented by the defendants from doing so in

Massachusetts.

  The principal defendants named in the complaint as

currently amended are the University of Massachusetts, a not-for-

profit corporation linked to the state through governance and

financing, its  New England Newborn Screening Program ("the

Screening Program"),  and two individuals--Howard Koh and Ralph

Timperi--who are or were respectively the Commissioner of the

Massachusetts Department of Public Health and an Assistant

Commissioner responsible for laboratory testing.  Several other

defendants were named in the original complaint but later dismissed

by consent.  

  The original complaint was filed on March 5, 1998, and

contained eleven counts; but it was thereafter amended and reduced

to two counts, the second of which was later voluntarily withdrawn. 

The remaining count (count I) is subcaptioned:  "PLAINTIFF

CORPORATION VS. DEFENDANTS NENSP AND UMASS VIOLATION OF THE SHERMAN

ANTI-TRUST LAWS."; and it expressly charges the Screening Program

and University of Massachusetts, in concert with the Massachusetts

Department of Public Health, with monopolizing, attempting to

monopolize and/or conspiring to monopolize "newborn screening

services" in Massachusetts and surrounding states.

  Although there are some collateral allegations, the main

thrust of count I is an attack on the University of Massachusetts

for seeking and obtaining a monopoly in the provision of the

newborn screening services in Massachusetts.  The only relief

sought by the complaint is injunctive relief, apart from attorneys'

fees, and the injunctive relief sought includes a request to bar

the Commissioner and Assistant Commissioner from issuing permanent

regulations that maintain the screening program's monopoly over the

provision of the testing services in question.  The complaint

provides a history, which can be summarized briefly, as to how the

supposed monopoly came about.

  The Screening Program, a collection of personnel and a

laboratory, had at one time been a unit of the Department of Public

Health.  At some point in the 1980s, the Screening Program was

taken over by Tufts University and later, beginning in 1997, by the

medical school of the University of Massachusetts.  The Screening

Program currently operates, under a contract between the University

of Massachusetts and the Department of Public Health, to provide

screening for specified disorders of newborn infants.  A blood

sample is taken by the hospital where the child is delivered and

submitted to the Screening Program for testing, and a charge is

paid by the hospital to the Screening Program.

  In the fall of 1997, Neo Gen set about trying to persuade 

Massachusetts hospitals to let Neo Gen screen their newborns.  It

solicited hospitals in Massachusetts and purported to offer more

modern, comprehensive screening at half the fee charged by the

Screening Program.  According to the complaint,  the University of

Massachusetts and its Screening Program responded by seeking

adoption of regulations by the Department of Public Health that

would give the Screening Program a monopoly in the provision of

screening services in Massachusetts.

  The complaint charges that the Screening Program

"influenced" the Department of Public Health to issue emergency

regulations that required testing for nine diseases and required

that the blood samples be submitted to the Department itself.  See

105 C.M.R. 270.000 et seq..  Also appended to the complaint is a

contract entered into between the Department of Public Health and

the University of Massachusetts requiring the latter to provide

newborn screening laboratory work, clinical follow-up and research

services.  The proposed regulations were adopted on an emergency

basis in November 1997, accompanied by statements that the

Department of Public Health would thereafter study the possibility

of allowing other entities to perform the screening.  

  The defendants moved to dismiss the amended complaint as

barred by the Eleventh Amendment, asserting as well that the

complaint failed to state a claim under the federal antitrust laws

and was barred by various antitrust doctrines.  In a decision

issued on December 3, 1998, the district court held that the only

claim remaining in the case was count I, that this count was

directed against the University of Massachusetts and the Screening

Program, and that both entities were arms of the state and were

entitled to dismissal under the Eleventh Amendment.  This appeal

followed.

  Under the Eleventh Amendment, a state or an arm of the

state is normally immune from suits by citizens in federal court,

Edelman v. Jordan, 415 U.S. 651, 662-63 (1974); see Chemerinsky,

Federal Jurisdiction  7.4, at 403 (3d ed. 1999), unless the state

waives its immunity, Idaho v. Coeur d'Alene Tribe of Idaho, 521

U.S. 261, 267 (1997), or Congress overrides that immunity as it may

do in limited situations, Seminole Tribe v. Florida, 517 U.S. 44,

57-68 (1996).  Neo Gen has not argued either that there was any

waiver of Eleventh Amendment immunity by defendants or any

abrogation of that immunity by Congress.

  Whether and when state universities are arms of the state

for Eleventh Amendment purposes have long vexed the federal courts. 

The multi-part tests that we have used are not easy to apply, and,

confusingly, overlap but do not quite duplicate tests that

determine whether a university is an independent entity for

purposes of diversity jurisdiction.  Cf. University of Rhode Island

v. A.W. Chesterton Co., 2 F.3d 1200, 1202-05 (1st Cir. 1993).  A

number of decisions have held that individual state universities

are arms of the state for Eleventh Amendment purposes, but the

inquiry tends to turn on facts peculiar to each university, and

there are cases denying protection.  See Chemerinsky, supra,  7.4,

at 407 & nn.33-34 (collecting cases).

  In its decision under review, the district court

explicitly found that the University in conducting the Screening

Program was "acting as an agency or arm of the Commonwealth of

Massachusetts."  It rested this legal conclusion on a detailed

discussion of the University's mission, its governance, its

financial relationship to the state and similar matters.  Its

conclusion that the University is an arm of the Commonwealth

accords with the view of another district court involving the

University of Massachusetts.  Daniel v. American Board of Emergency

Medicine, 988 F. Supp. 127, 178-81 (W.D.N.Y. 1997).

  On this appeal, Neo Gen has effectively failed to dispute

the district court's holding that the University and its Screening

Program are covered by the Eleventh Amendment.  Since that ruling

is at least colorable and certainly not plain error, cf. Beatty v.

Michael Business Machines Corp., 172 F.3d 117, 121 (1st Cir. 1999),

we treat the dismissal of the case against these two defendants as

conceded.  However, Neo Gen argues that Koh and Timpari were also

intended defendants in count I and that despite the Eleventh

Amendment these state officials are subject to injunctive relief

under the doctrine of Ex Parte Young, 209 U.S. 123 (1908).

  Ex Parte Young is one of several major qualifications on

Eleventh Amendment immunity.  Chemerinsky, supra,  7.5-7.7, at

411-46.  Ignoring some refinements, the doctrine removes the

Eleventh Amendment bar where the private suit is directed not

against the state or a state agency eo nomine but instead against

state officials acting in violation of federal law and where (in

addition) retrospective damages or property transfers are not

sought for official acts.  Coeur d'Alene Tribe, 521 U.S. at 269,

277-80; Strahan v. Coxe, 127 F.3d 155, 166-67 (1st Cir. 1997),

cert. denied, 119 S. Ct. 81 (1998); Chemerinsky, supra, at  7.5,

at 411-30.  This exception is Neo Gen's main argument on this

appeal.

  The Commonwealth replies that the claims in count I were

asserted only against the University of Massachusetts and the

Screening Program and that no relief was sought under that count

against the two named state officers.  That is certainly what the

district court thought, and its view is supported by the subcaption

of the count (quoted above), which referred to those institutional

defendants and no others.  By contrast, count II, which was

voluntarily withdrawn, specifically mentions Koh and Timperi as

defendants in the corresponding subcaption.

  Neo Gen counters that state officials were named as

defendants in the complaint, that the Department of Public Health

itself is mentioned in count I, that complaints are liberally

construed, and that at worst it is entitled to leave to amend.  The

latter claim fails since leave to amend was not requested in the

district court, but the construction of count I in its present form

is open to reasonable dispute.  We think that the injunctive relief

against the two state officials is so clearly barred for a

substantive reason that we prefer to affirm on that ground rather

than because of a possible pleading error.

  It is quite true that Ex Parte Young avoids the Eleventh

Amendment defense where prospective injunctive relief, not

involving damages or property transfer, is sought against named

state officials for a violation of federal law.  See Coeur d'Alene

Tribe, 521 U.S. at 276-77.  Usually, such injunctions are sought to

require compliance with the Constitution; but the Ex Parte Young

doctrine is equally applicable to compel state officials to comply

with a valid federal statute that must be obeyed under the

Supremacy Clause of the Constitution.  Id. at 273-77.  Thus, if the

state officials were violating the Sherman Act, in principle the

Eleventh Amendment would not bar injunctive relief against them.

  The difficulty for Neo Gen is that it is clearly

established that the Sherman Act does not itself apply to state

action.  In Parker v. Brown, 317 U.S. 341, 350-51 (1943), the

Supreme Court determined that Congress had not meant to require

states to comply with the Sherman Act.  Accordingly, a state is

free to regulate, or act on its own behalf, in ways that are anti-

competitive and would not be permitted to a private individual. 

Id.  This doctrine is so well settled that its rationale and

underpinnings are scarcely worth discussing.  See I Areeda &

Hovenkamp, Antitrust Law,  221-222 (1997).

  No doubt the emergency regulations, coupled with the ten-

year renewable contract already described, create an effective

monopoly for the University of Massachusetts  in conducting the

screening of Massachusetts newborns.  By regulation, the blood must

be made available to the Department, and the Department has chosen

to contract with the University to do the testing.  Although a

hospital could also choose to engage Neo Gen, no hospital is likely

to pay twice for the same service.  But a regulation or purchase of

services made by the state is classic state action immunized from

the Sherman Act.  Cf. Hoover v. Ronwin, 466 U.S. 558, 567-73

(1984); Tri-State Rubbish, Inc. v. Waste Management, Inc., 998 F.2d

1073, 1076 (1st Cir. 1993).

  Neo Gen mistakenly attempts to distinguish Parker v.

Brown and the long line of cases that have followed it by arguing

that the Massachusetts legislature did not "clearly articulate" a

purpose to supplant competition with monopoly.  The cases on which

Neo Gen relies, such as City of Columbia v. Omni Outdoor

Advertising, Inc., 499 U.S. 365 (1991), and City of Lafayette v.

Louisiana Power & Light Co., 435 U.S. 389 (1978), do impose a

requirement of this kind (the details are not important here) where

the acts sought to be shielded under Parker v. Brown are those of

municipalities or other local public entities.  But no such

requirement exists where the acts are those of the state itself. 

Hoover, 466 U.S. at 568.

  Whether executive branch action is that of the state is

a different issue.  The Supreme Court has held that acts of the

state legislature or state supreme court are protected under

Parker, but it reserved decision as to whether state-level

executive branch departments or agencies are entitled to similar

treatment.  Hoover, 466 U.S. at 568 n.17 (reserving question). 

However, both circuits that have squarely faced the issue have

extended Parker's ordinary protection to actions of the state

executive branch.  We agree, with possible caveats that do not

affect the outcome in this case.  

  Broadly speaking, the Parker doctrine represents a

judgment by the Supreme Court that, in regulating anti-competitive

business conduct, Congress was not seeking to regulate the states

themselves; and "the states" include their executive branches quite

as much as their legislatures and their courts.  The municipalities

have been given less protection under Parker on the stated ground

that technically speaking, they are not "the state," Lafayette, 435

U.S. at 412-13, while the status of state boards or commissions is

open to dispute, see Areeda, supra,  224; id.  212.2d at 141 &

n.48 (1992 Supp.).  And there is still less of an analogy to

private carriers or utilities, operating under some measure of

state supervision, whose protection under Parker is even more

restricted.  Southern Motor Carriers Rate Conference, Inc. v.

United States, 471 U.S. 48, 57-62 (1985).

  The question remains whether and to what extent a

plaintiff should be able to pierce the Parker defense on the ground

that the state official or agency was acting in excess of his (or

its) authority under state law.  On the one hand, the Supreme Court

has made clear that the Eleventh Amendment is not to be avoided

under Ex Parte Young merely in order to enforce state law. 

Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 106

(1984).  On the other hand, extreme cases can be imagined: suppose

a state executive official entered into an exclusive-dealing

contract for the state that would violate the principles of Tampa

Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961), if done by

a private party, and suppose further that the state legislature had

expressly banned such a contract.

  We need not resolve such conundrums here.  Neo Gen argues

that the Massachusetts legislature did not expressly approve or

authorize the kind of regulation or contract involved in this case;

but we have rejected a "clear articulation" test as applied to the

state's executive branch, at least where a full-fledged department

is concerned.  Given the Commonwealth statutes that authorize

testing, there is nothing extraordinary or unforeseeable about the

Department of Public Health's regulation requiring testing or its

decision to do the testing itself or through a chosen instrument.

Even if a patent lack of authority could ever be an exception to

Parker, it is certainly not so in a case of this kind.

  There are a scattering of other allegations in count I in

addition to the charge that the University of Massachusetts sought

and acquired a monopoly over newborn screening.  These include

claims that the "defendants" fixed the price of services at $42 per

infant (whereas Neo Gen offered testing at $25), and that the

defendants "influenc[ed]" the adoption of the regulations.  These

undeveloped allegations are not pursued in Neo Gen's brief and

deserve no further comment.  King v. Town of Hanover, 116 F.3d 965,

970 (1st Cir. 1997).

  It may be, as Neo Gen charges, that the defendants'

actions reflect a cozy arrangement that gives newborns inferior

screening at higher cost and that everyone--except possibly the

Screening Program--would be better off if hospitals could contract

competitively for screening services, just as they procure drugs,

bandages, and other resources.  The state, in turn, says that its

contract provides for extra research and follow-up that Neo Gen

fails to provide; such cross-subsidy arguments are traditional

defenses for monopoly but not invariably without merit. At bottom,

this is a policy matter to be resolved by the Commonwealth. 

  Affirmed.