“In the age of COVID-19 and other public health challenges, supply levels in the medical industry occupy a prominent place in our national consciousness,” an Illinois federal judge noted earlier this month while dismissing a proposed class action against manufacturers of intravenous (IV) saline solution. This marked the second dismissal of the proposed class action because the plaintiffs failed to sufficiently back up antitrust allegations that the defendants conspired to manipulate the supply of the product.
In Washington County Health Care Authority, et al. v. Baxter International Inc., et al., No. 16-cv-10324, the plaintiffs, a would-be class of direct purchasers of IV saline solution, twice alleged, on two different, but equally unsuccessful, theories that defendants Baxter International Inc. and Hospira, Inc. violated Section I of the Sherman Act, which prohibits “[e]very contract, combination … or conspiracy, in restraint of trade or commerce.”
Dismissal of the Initial Complaint Without Prejudice
Initially, the plaintiffs alleged the defendants violated antitrust laws by using a series of bogus voluntary recalls designed to reduce supply and increase prices in the market. The Hon. John J. Tharp, Jr. granted defendants’ motion to dismiss the initial complaint after finding the allegations insufficient to plausibly show an agreement between Baxter and Hospira to restrict output. The court permitted the plaintiffs to amend their pleading.
The Plaintiffs’ New Theory of Conspiracy
In the amended complaint, the plaintiffs abandoned their recall theory and asserted a new theory based on information provided by an anonymous former Hospira production line employee. The plaintiffs alleged the defendants violated the Sherman Act by restricting output of the solution through internal production quotas and by discarding solution that was manufactured in excess of such quotas. According to the former employee, Hospira line workers had “standing instructions from their supervisors not to produce IV saline solution above a certain supply quota and to discard any IV saline solution that had been produced above that limit.” Plaintiffs also added a new defendant, ICU Medical, which had acquired the division of Hospira responsible for IV saline solution during the alleged conspiracy period.
The amended pleading’s new theory focused on Hospira and contained virtually no allegations about the other defendants. The court noted there was a “vacuum” of allegations about Baxter. The only allegations about ICU Medical were that it received and complied with subpoenas issued by the DOJ Antitrust Division and the NY Attorney General’s Office, which were ultimately resolved without any action taken against the defendants. Significantly, unlike their claims against Hospira, the plaintiffs did not allege that either Baxter or IMU Medical imposed any internal quotas on their production of IV saline solution. The plaintiffs presented no direct evidence of a production quota policy at Baxter, but insisted that Hospira would only have enacted such a measure if it were in agreement with competitors (i.e., Baxter) to do so. According to the plaintiffs, it would have been “economically irrational” for Hospira to unilaterally restrict its output otherwise. The court rejected that inference.
Dismissal of the Amended Complaint with Prejudice
The court held the plaintiffs’ new production quota “theory suffer[ed] all the defects of the plaintiffs’ ‘voluntary recall’ theory and then some.” In further shredding the plaintiffs’ attempted amendment, the court opined, “new or old, alone or in combination, the facts set forth in the” amended complaint “continue[d] to fall short of plausibly alleging an agreement between the defendants to restrict the supply of IV saline solution.” Nailing the lid on the coffin of the proposed class, the court refused to infer a collusive agreement between the defendants for four reasons.
- First, even if the assertions regarding a Hospira production quota were true, such allegations could not enable the court to infer that Hospira limited its production of IV saline solution. The “bare facts alleged” suffered from a “dearth of detail” that left too much unknown, such as the details regarding the purported quota itself or how much saline was allegedly discarded. Per the court, the allegations fell “well short of plausibly showing that Hospira was seeking to materially reduce the supply of saline solution in order to drive up its price.”
- Second, even if such an inference were warranted, the premise that Hospira’s conduct was rational only if it had an agreement with Baxter to jointly restrict production was flawed, because there is “nothing inherently irrational (or unlawful) about an oligopolist’s unilateral limitation on its production.” The court stressed that if “Hospira wanted to limit production, the rational way to do that would be … well, to limit production, not to spend, produce, and discard.”
- Third, even if Hospira restricted its output in hopes Baxter would do the same, the plaintiffs alleged no basis from which to infer that Baxter followed suit in any manner. The court found plaintiffs’ allegation that “Defendants began instructing their production line employees to adhere to artificially low production quotas” to be “a conclusion masquerading as an allegation of fact.”
- Fourth, even if Baxter had followed suit, there was no evidence that would allow the court to infer an agreement between the defendants from such parallel conduct. The plaintiffs’ premise that Baxter’s engagement in output restriction could be inferred from Hospira’s unilateral conduct was “infirm” under Twombly, and undermined by other facts alleged in the amended complaint. This included allegations that Baxter actually gained market share in the two years before the amended complaint was filed. The court held “[t]here must, in short, be more than parallel conduct to plausibly infer antitrust conspiracy, but here the plaintiffs have not alleged even that much.”
Ultimately, the court’s decision rested on and reinforces the principle that plaintiffs must have facts to back up their allegations. Here, the plaintiffs had more than three years and multiple attempts to demonstrate the plausibility of their theory that the defendants created a public health crisis by conspiring to reduce the supply of IV solution. Because the plaintiffs were unable to do so, the court dismissed their complaint with prejudice. This decision serves as a reminder that insufficiently plead claims will not survive the motion to dismiss phase, even if somehow connected to real-world medical supply shortages.