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Turner v. Virginia Department of Medical Assistance Services

United States District Court, W.D. Virginia, Danville Division

February 14, 2017

DR. MARK G. TURNER, DDS, Plaintiff,


          Hon. Jackson L. Kiser Senior United States District Judge.

         Dr. Mark G. Turner (“Plaintiff”) filed the present action on September 9, 2016. (See Compl., Sept. 9, 2016 [ECF No. 1]; First Am. Compl., Nov. 15, 2016 [ECF No. 26] (hereinafter “Am. Compl.” or “the Complaint”).) Count 1 alleges that each Defendant violated Section 1 of the Sherman Act, 15 U.S.C. § 1 (“Section 1”), and also seeks treble damages under Section 4 of the Clayton Act. (Am. Compl. ¶ 67-78); 15 U.S.C. § 15. Counts 2 through 5 allege various state claims of tortious interference with existing and prospective contracts and economic advantage against the individual defendants.[1] Defendants have filed a total of four motions to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6).[2] [ECF Nos. 27, 29, 31, 39]. In addition, DentaQuest and the Virginia Department of Medical Assistance Services (“DMAS”) argue that state-action immunity shields them from any antitrust liability. For the reasons stated below, I will grant all four motions with regard to Count 1. Because the Counts 2-5 are alleged under Virginia law, I will decline to exercise supplemental jurisdiction under 28 U.S.C. § 1367(c).


         Plaintiff is a dentist who, at the time of the alleged events, was working in the Roanoke area “treating adult Medicaid patients exclusively for exams, x-rays, and [tooth] extractions.” (Am. Compl. ¶ 3.) Plaintiff provided these services through the Smiles for Children (“SFC”) program. Contrary to what its name suggests, SFC provides limited dental care to Medicaid patients over the age of 21. Plaintiff “worked exclusively with the Over 21 portion of the Medicaid Smiles For Children program” from January 2008 until early 2014. (Id. at ¶ 8.) While Medicaid provides funding, DMAS is in charge of overseeing the program in Virginia. (Id. at ¶¶ 5-6.) DMAS contracts with DentaQuest to provide day-to-day administration of SFC. (Id. at ¶ 21.) DentaQuest, through its predecessor company, Doral Dental USA, entered into a contract with Plaintiff (the “DentaQuest Agreement”) whereby Plaintiff agreed “to provide Medicaid approved dental services to individuals in the [SFC] program in the Over 21 division.” (Id. at ¶ 7). From 2008 to 2014, Plaintiff “was likely the largest safety net adult Medicaid practice in Virginia, ” and “was treating at least 75% of the eligible Medicaid adults receiving treatment in the Roanoke Valley.” (Id. at ¶ 10.)

         At the same time that Plaintiff was providing these services, the Mission of Mercy (“MOM”), a “free volunteer traveling dental clinic, ” was operating in the Roanoke area. (Id. at ¶ 13.) Defendant Terry Dickinson was the clinic's Executive Director and founder of MOM. MOM was also supported by the Virginia Dental Association (“VDA”). (Id.) The VDA is “a non-profit organization of dentists committed to enhancing the professional lives of its member dentists.” (Id. at ¶ 24.) D r. Terry Dickinson was the executive director of the VDA at the time of these events. (Id. at ¶ 13.) Plaintiff was the sole “private provider accepting Over 21 Medicaid patients in his Western Virginia service area.” (Id. at ¶ 11.) Although Plaintiff contends competition from MOM hurt his practice, he also credits his own practice as instrumental in forcing MOM to close:

The MOM organizers publicly admitted that their model no longer made any financial sense. [Plaintiff's] 6 years of treating 6, 100 patients, performing [sic] 26, 250 extractions certainly reduced he backlog demand for these services. Dr. Turner's efforts were certainly a contributing factor with the Roanoke Mission of Mercy going out of business.

(Id. at ¶ 40.)

         Plaintiff alleges that the MOM organizers used their “market power” to restructure their clinic's model “to push the Plaintiff out of his dental market niche, and out of business.” (Am. Compl. ¶ 18.) The MOM clinic was reorganized into what Plaintiff refers to as “Mini-MOMs.” He does not elaborate on this model beyond stating that the Mini-MOMS would provide free dental care to eligible patients, including Medicaid patients under the age of 21. Those over 21 were referred to the Commonwealth Dental Clinic (“CDC”). (Id. at ¶¶ 41-42.) CDC was founded by Greg Harvey to treat Medicaid patients over the age of 21 after the MOM clinic ended its operations. Because the new Mini-MOMs did not take Medicaid patients over the age of 21, it would refer those patients to CDC. (Id.) CDC took referrals from Mini-MOM but also from other clinics that did not accept Medicaid, such as Blue Ridge Dental Group (“BRDG”), a practice formerly owned by David Black but purchased by Harvey. (Id. at ¶¶ 31, 42.) The Mini-MOMs were “fully endorsed” by the VDA (Id. at ¶ 42.)

         As stated above, Plaintiff's patients came as a result of the service agreement with DentaQuest, which was acting as the third-party administrator for the SFC program overseen by DMAS. In January 2014, DentaQuest terminated its agreement with Plaintiff without cause. According to Plaintiff, “[t]he termination order came from outside of [DentaQuest headquarters], and had been requested by representatives of DMAS at least as early as January 2013.” (Id. at ¶ 43.) According to the agreement, either party could terminate the agreement without cause provided that the terminating party give 30 days' notice.[3] (Dental Provider Serv. Agmt. ¶ 15(c), July 16, 2007 [ECF No. 30-1].) Plaintiff states that, although it may be unclear why the agreement was terminated, “it is clear that Defendant Terry Dickinson was involved in the termination decision and that he was regularly advised on the progress of that decision by representatives of DMAS.” (Am. Compl. ¶ 44.)

         Plaintiff's antitrust claim can be boiled down to this: Dickinson was somehow in contact with DMAS while it was in the process of directing DentaQuest to terminate the agreement with Plaintiff.[4] At some unknown time, Plaintiff contends Dickinson told Black that Plaintiff's contract was about to be terminated. Black, along with Harvey, launched CDC in order to accept Medicaid patients over the age of 21, the patient base that had formed the entirety of Plaintiff's practice since at least 2008. (Id. at 33.) Black and Harvey purchased a building for $250, 000 to house the new clinic. (Id.) The VDA, led by Dickinson, endorsed CDC even though it had “not supported the Over 21 Benefit in the past.” (Id. at ¶ 25.) At an unspecified time, Plaintiff made a complaint to the VDA Ethics Committee regarding perceived ethical violations by Black. According to Plaintiff, “[t]he VDA Ethics Committee likely did not conduct a review of [Plaintiff's complaint], as, if they did, David Black would have been found blatantly guilty based on the facts.” (Id. ¶ 27.) It is unclear whether there is a factual overlap between the ethics complaint and these allegations.

         Plaintiff alleges several injuries as the result of Defendants' actions. For purposes of his Section 1 claim, Plaintiff determines that the relevant market for measuring antitrust injury is:

(1) adult (over 21) dental services recognized under the Medicaid approved Smiles for Children program; (2) tooth extractions and related services, as identified under the Medicaid approved Over 21 Smiles For Children program; and (3) Medicaid approved services for the Over 21 members of the Smiles For Children program in Western Virginia, and within a two hour drive of Roanoke, Virginia.

(Id. at ¶ 52.) Plaintiff claims that the market for over-21 Medicaid patients “will be significantly diminished” and will prohibit other dentists from entering the market. (Id. at ¶ 60.) CDC now has an alleged monopoly over Plaintiff's former patient base, and CDC can use its “influence” in the dental community to ensure that it maintains a monopoly. (Id.) Moreover, Plaintiff notes that Defendants' actions caused the loss of the “market value of [Plaintiff's] dental practice, ” loss of income, damage to his reputation, and legal expenses. (Id. at ¶ 63.) Plaintiff also faults Defendants for the loss of his Virginia dental license though he does not specify how Defendants are responsible.


         A. State-action Immunity

         DMAS argues that it is protected by state-action immunity, which protects state actors from liability under Section 1 of the Sherman Act. Under Section 1, “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade among the several States, or with foreign nations, is declared to be illegal.” 15 U.S.C. § 1. The doctrine of state-action immunity was first articulated in Parker v. Brown, 317 U.S. 341 (1943). In Parker, California implemented production limits among raisin farmers to keep prices from bottoming out. The “California Agricultural Prorate Act” authorized state officials to “restrict competition among [raisin farmers] and maintain prices in the distribution of their commodities . . . .” Id. at 346. The Court held that there was “nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature.” Id. at 350. The Count ruled that the Sherman Act was never intended to apply to state actors though it included an important caveat: while actions directed by the state are outside the scope of Section 1, “a state does not give immunity to those who violate the Sherman Act by authorizing them to violate it, or by declaring that their action is lawful.” Id. at 351. In turn, this begs the question: What qualifies as “the state?”

         To answer this question, the Supreme Court developed a two-part test to determine whether certain quasi-agencies qualified for state-action immunity. See generally California Retail Liquor Dealers Ass'n v. Midcal Aluminum, 445 U.S. 97 (1980). Previously, the Supreme court held that the Virginia State Bar's minimum fee schedule was not mandated by ethical rules established by the Virginia Supreme Court; as a result, the Bar was not immune to antitrust liability. See Goldfarb v. Virginia State Bar, 421 U.S. 773, 790 (1975) (“[W]e need not inquire further into the state-action question because it cannot be fairly said that the State of Virginia through its Supreme Court Rules required the anticompetitive activities of either respondent.”) In contrast, the Court had also held that the Arizona State Bar's rules on attorney advertising were immune from a Sherman Act challenge on the basis that the advertising limits were clearly mandated by the Arizona Supreme Court's established rules of professional responsibility. Bates v. State Bar of Arizona, 433 U.S. 350, 362 (1977).

         To provide greater clarity to the issue, the Supreme Court held that in order to be immune from Section 1 claims, the challenged restraint must be “one clearly articulated and affirmatively expressed as state policy, [and] the policy must be actively supervised by the State itself.” Midcal, 445 U.S. at 105 (internal quotation marks omitted). Midcal involved a system of wine pricing established by the state, but the actual prices were set by private actors with little oversight from public officials. Id. at 105-06. Parker immunity could not be had simply by “casting such a gauzy cloak of state involvement over what was essentially a private price-fixing arrangement.” Id. at 106.

         Most recently, the Supreme Court adjusted the Midcal test in North Carolina State Bd. of Dental Examin'rs v. Fed. Trade Comm'n, 135 S.Ct. 1101 (2015). Previously, in Town of Hallie v. City of Eau Claire, the Court had carved an exception into the Midcal test: municipalities were not subject to the second part of the test, the “active supervision” requirement. 471 U.S. 34, 46- 47 (1985). The “active supervision” requirement was designed to reign in incentives for private actors to engage in self-dealing. See Id. at 47 (“Where a private party is engaging in the anticompetitive activity, there is a real danger that he is acting to further his own interests, rather than the governmental interests of the State.”) In dicta, the Court suggested that its ruling could be extended to state agencies. See Id. at 46 n. 10 (“In cases in which the actor is a state agency, it is likely that active state supervision would also not be required, although we do not here decide that issue.”)

         In NC Dental, the North Carolina State Board of Dental Examiners (the “Board”) was sued after sending cease-and-desist letters to non-dentists who were providing teeth whitening services. 135 S.Ct. at 1108. After receiving these letters, many of the non-dentists stopped providing the whitening services. Id. North Carolina's Dental Practice Act gave the Board the authority to regulate the practice of dentistry, but it did not specify whether the practice of dentistry included teeth whitening. Id. at 1107-08. The Court ruled that whether an entity is exempt from the “active supervision” requirement turns not on the “formal designation given by States to regulators but on the risk that active market participants will pursue private interests in restraining trade.” Id. at 1114. Imposing the “active supervision” requirement depends on whether an entity engaging in anticompetitive conduct is “more like [a] prototypical state agenc[y]” rather than “specialized boards dominated by active market participants.” Id. The Supreme Court held that the Board had overstepped its authority: “[A] state board on which a controlling number of decisions makers are active participants in the occupation the board regulates must satisfy Midcal's active supervision requirement.” Id. (emphasis added).

         DMAS is overseen by the Virginia Secretary of Health and Human Resources and a Director of Medical Assistance Services (the “Director”), appointed by the Governor and confirmed by the General Assembly. Va. Code § 32.1-323. There is a board within DMAS, which “is authorized to prepare . . . and submit to the U.S. Secretary of Health and Human Services a state plan for medical assistance services pursuant to Title XIX of the United States Social Security Act . . . .” Va Code § 32.1-325(A). In implementing this state plan, the Director has the authority to “enter into all contracts necessary or incidental to the performance of [DMAS's] duties and the execution of its powers as provided by law.” Va Code § 32.1-325(D)(1). The Board consists of eleven Virginia residents, appointed by the Governor, “five of whom shall be health care providers and six of whom shall not . . . .” Va. Code § 32.1-324(A). The Director serves as the executive officer of the board but is not a member. Va. Code § 32.1-324(B).

         The state-action immunity analysis presents three questions: (1) was DMAS acting with “clearly articulated” state policy in directing DentaQuest to terminate its agreement with Plaintiff; (2) if yes, does DMAS qualify for the municipality exception articulated in Hallie; and (3) if DMAS does not qualify for ...

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