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Law360, New York (February 10, 2011) -- On Jan. 10, 2011, the Seventh Circuit affirmed the district court's decision in Omnicare Inc. v. UnitedHealth Group Inc., et al. No. 09-1152 ( 7th Cir. Jan. 10, 2011),which granted summary judgment to defendants UnitedHealth and PacifiCare on plaintiff Omnicare's claims for antitrust violations and fraud.
The Seventh Circuit agreed with the district court that Omnicare had failed to show anything more than conduct that was as consistent with independent lawful action as it was with an anticompetitive agreement - making summary judgment proper for defendants. Along the way, the court crafted an opinion notable for its expansive treatment of the standards for evaluating circumstantial evidence of a conspiracy and for the guidance it provides on information sharing during corporate-merger due diligence.
The claims of institutional pharmacy Omnicare arose out of contracts it signed with both UnitedHealth and PacifiCare Health Systems Inc. for drugs to be dispensed under the Medicare Part D program. While the UnitedHealth contract with Omnicare had favorable terms, the PacifiCare contract, executed without negotiation, did not.
Omnicare claimed that UnitedHealth and PacifiCare had traded competitively sensitive information during pre-merger due-diligence exchanges that allowed them to coordinate their negotiations with Omnicare and dupe the pharmacy into signing its bargain-basement contract with PacifiCare.
After the companies merged, UnitedHealth abandoned its higher-rate contract and used PacifiCare's. Omnicare brought suit against UnitedHealth and PacifiCare claiming they had illegally conspired to depress the reimbursement rate they paid Omnicare, creating a buyer's cartel in violation of the Sherman Act and relevant state fraud statutes.
Robins, Kaplan, Miller & Ciresi L.L.P. defended UnitedHealth during the discovery and summary-judgment phases of the litigation, which involved millions of pages of document production, 62 depositions and a dozen expert reports.
On defendants' motion for summary judgment, Judge Rebecca Pallmeyer of the Northern District of Illinois carefully scrutinized the factual support for Omnicare's claim that the insurance companies had conspired during pre-merger talks and determined that the "exchange of information was necessary to due diligence and was performed in a reasonably sensitive manner."
For those and other reasons, the court then granted defendants' motion for summary judgment. Judge Pallmeyer's summary-judgment opinion is now one of the leading authorities on when "gun-jumping" can trigger liability under Section 1 of the Sherman Act. See Omnicare v. UnitedHealth Group Inc., 594 F. Supp. 2d 945 (N.D. III. 2009).
The Seventh Circuit's Decision
On appeal, handled by the Hogan Lovells law firm, Omnicare argued that the district court erred by evaluating its evidence of conspiracy in a piecemeal rather than "properly holistic" fashion.
Rejecting that contention, a unanimous panel said that with all facts and inferences construed in its favor, Omnicare claims could not survive summary judgment because the circumstantial evidence offered to support inferences of conspiracy never ruled out the possibility that PacifiCare and UnitedHealth's conduct was the result of independent action.
Evaluation of Circumstantial Evidence
Without an evidentiary "smoking gun" establishing conspiracy, Omnicare had to prove its conspiracy allegations through circumstantial evidence. A two-part standard, established in Market Force Inc. v. Wauwatosa Realty Co., 906 F.2d 1167 (7th Cir. 1990), controls determination of the sufficiency of circumstantial evidence and associated inferences at summary judgment.
Under Market Force's framework, the court first determines whether the evidence of agreement is ambiguous - equally supporting an inference of permissible independent activity as well as of illegal conduct. If open to both inferences, the court then looks for evidence that tends to exclude the possibility of independent action. If evidence excluding the possibility of independent action does not exist, then the otherwise ambiguous evidence cannot support an inference of conspiracy as a matter of law.
Based on the record on appeal, Omnicare's evidence failed to satisfy Market Force's standard. Omnicare identified seven different instances where it claimed the circumstantial evidence gave rise to an inference of a collusive agreement between PacifiCare and UnitedHealth. Omnicare also claimed that the totality of its evidence supported its conspiracy allegations.
The Seventh Circuit thoroughly reviewed all possible inferences arising from the evidence cluster surrounding each of the allegedly suspicious circumstance. The court agreed that a jury could reach at least a part of the inferences Omnicare propounded, but also found that a jury could just as easily infer the circumstances arose through independent action as PacifiCare and UnitedHealth claimed.
The court then looked for evidence negating the inference of independent action established by defendants - and found none. The court's examination included each of the circumstantial instances identified by Omnicare and a "big picture" holistic review of all of evidence dictated by In re High Fructose Corn Syrup Antitrust Litigation, 295 F.3d 651 (7th Cir. 2006).
Thus, despite voluminous discovery and a "richly detailed narrative" that was both "complex and compelling," Omnicare simply could not establish a material issue of fact for the jury to consider.
Rather, based on the theories and evidence established by the defendants at summary judgment, the Seventh Circuit found the inference of independent action the more reasonable of the competing inferences presented to the court. In particular, the generalized and averaged nature of the pricing information exchanged, as well as the chronology of events and Omnicare's independence during negotiation persuaded the court that Omnicare could not sustain its evidentiary burden.
A key portion of Omnicare's rejected conspiracy allegations involved the pricing information PacifiCare and UnitedHealth exchanged as part of their pre-merger due diligence. Omnicare claimed the exchange was improper and allowed PacifiCare and UnitedHealth to began coordinating the strategy for their alleged collusive behavior.
Examining the specifics of the exchange between PacifiCare and UnitedHealth, the court concluded the parties had undertaken sufficient precautions to preclude an overwhelming inference of conspiracy. The details the court noted provide guidance on the level of generality necessary to keep due diligence information exchanges from veering into prohibited, anticompetitive territory.
The court noted that the parties had:
- answered certain pricing questions in general terms and, in some instance, disclosed less information than requested at their attorneys' instructions.
- restricted exchanges of sensitive information to "sample regions," "high level review" and "estimates" and used general terms like "higher," "consistent" and "roughly" when comparing pricing and benefits in due diligence documentation.
- policed exchanges by sending sensitive information to outside counsel for review and then restricted access to the information counsel cleared.
Obtaining summary judgment in a complex antitrust matter evidences the successful execution of a high-level tactical case plan. In Omincare, the defendants used the applicable evidentiary standard and a carefully executed and comprehensive strategy to push an antitrust plaintiff past theory and into proof where - given the nature of the evidence defendants developed - its claims could not survive.
--By Stacey Slaughter, Robins Kaplan Miller & Ciresi LLP
Stacey Slaughter (firstname.lastname@example.org) is a partner in the Minneapolis office of Robins Kaplan Miller & Ciresi.
Robins Kaplan Miller & Ciresi LLP defended UnitedHealth during the discovery and summary-judgment phases of the litigation.
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