Petitioner corporation, which operates a 49-bed proprietary
hospital (Mary Elizabeth) in Raleigh, N.C. brought this antitrust
action alleging that respondents, a private, tax-exempt hospital
(Rex) in Raleigh, two of its officers, and a health planning
officer, had violated the Sherman Act by conspiring along with
others to block the relocation and expansion within Raleigh of Mary
Elizabeth, for the purpose of enabling Rex to monopolize the
business of providing hospital services in Raleigh. Petitioner
alleged that a substantial portion of its medicines and supplies
comes from out-of-state sellers; that a large portion of its
revenue comes from out-of-state insurance companies or the Federal
Government; that it pays a management service fee to its parent
company, a Georgia-based Delaware corporation; and that the planned
expansion would be largely financed through out-of-state lenders.
Concluding that petitioner's business was strictly local, and that
respondents' alleged conduct only incidentally and insubstantially
affected interstate commerce, the District Court granted
respondents' motion to dismiss the complaint. The Court of Appeals
affirmed.
Held: Petitioner's complaint states a cause of action
upon which relief can be granted under the Sherman Act, the
combination of factors involving petitioner in interstate commerce
being sufficient to establish a "substantial effect" on interstate
commerce, within the meaning of the Sherman Act, as a result of
respondents' alleged conduct. Pp.
425 U. S.
743-747.
(a) That respondents may not have had the intentional goal of
affecting interstate commerce does not exempt their conduct from
Sherman Act coverage.
Burke v. Ford, 389 U.
S. 320. Pp.
425 U. S.
744-745.
(b) The "substantial effect" test can be satisfied even if the
impact on interstate commerce of the conduct alleged falls short of
causing petitioner's out-of-state suppliers to go out of business
or the market price to be affected by the conspiracy. Pp.
425 U. S.
745-746.
511 F.2d 678, reversed and remanded.
Page 425 U. S. 739
MARSHALL, J., delivered the opinion for a unanimous Court.
MR. JUSTICE MARSHALL delivered the opinion of the Court.
This is a suit brought under § § 1 and 2 of the Sherman Act, 26
Stat. 209, as amended, 15 U.S.C. §§ 1-2. Petitioner has alleged
that respondents are engaged in an unlawful conspiracy to restrain
trade and commerce in the furnishing of medical and surgical
hospital services, and that they are attempting to monopolize the
hospital business in the Raleigh, N.C. metropolitan area. The
District Court dismissed petitioner's amended complaint on the
pleadings, finding that petitioner had not alleged a sufficient
nexus between the alleged violations of the Sherman Act and
interstate commerce. The Court of Appeals for the Fourth Circuit,
sitting en banc, affirmed the judgment of the District Court,
holding that the provision of hospital services is only a "local"
activity, 511 F.2d 678, 682 (1975), and that the amended complaint
did not adequately allege a "substantial effect"
id. at
684, on interstate commerce. We granted certiorari, 423 U.S. 820
(1975), and now reverse. We hold that the amended complaint,
fairly
Page 425 U. S. 740
read, adequately alleges a restraint of trade substantially
affecting interstate commerce, and that dismissal on the pleadings
of petitioner's amended co,plaint was therefore inappropriate.
I
A
Since we are reviewing a dismissal on the pleadings, we must, of
course, take as true the material facts alleged in petitioner's
amended complaint.
See, e.g., Mandeville Island Farms, Inc. v.
American Crystal Sugar Co., 334 U. S. 219,
334 U. S. 222
(1948). Petitioner is a corporation organized for profit under the
laws of North Carolina. It operates the Mary Elizabeth Hospital, a
49-bed proprietary hospital in Raleigh, N.C., which offers a
general range of medical and surgical services to the public.
Respondent Trustees of Rex Hospital (Rex) is a North Carolina
corporation which operates Rex Hospital, a private, tax-exempt
hospital also located in Raleigh. The other three respondents are
the administrator of Rex, one of its individual trustees, and the
executive secretary of the local agency responsible for making
recommendations to state officials concerning the Raleigh
community's need for additional hospital beds. The amended
complaint alleges that respondents, along with several
coconspirators not named as defendants in this action, have acted
in concert to block the planned relocation of Mary Elizabeth
Hospital within the city of Raleigh and its expansion from 49 beds
to 140 beds. According to the amended complaint, respondents and
their coconspirators orchestrated a plan to delay and, if possible,
prevent, the issuance of the state authorization that was a
necessary prerequisite to the expansion of Mary Elizabeth. After a
delay of some months, the authorization was finally granted, but
since then, it is alleged, respondents and
Page 425 U. S. 741
their coconspirators have employed a series of bad faith
tactics, including the bringing of frivolous litigation, to block
the implementation of the expansion. The amended complaint also
alleges that respondents have maliciously instigated the
publication of adverse information about petitioner's expansion
plan in order to block the expansion. All these actions, it is
contended, have been taken as part of an attempt by Rex to
monopolize the business of providing compensated medical and
surgical services in the Raleigh area.
Petitioner identifies several areas of interstate commerce in
which it is involved. According to the amended complaint,
petitioner purchases a substantial proportion -- up to 80% -- of
its medicines and supplies from out-of-state sellers. In 1972, it
spent $112,000 on these items. A substantial number of the patients
at Mary Elizabeth Hospital, it is alleged, come from out of State.
Moreover, petitioner claims that a large proportion of its revenue
comes from insurance companies outside of North Carolina or from
the Federal Government through the Medicaid and Medicare programs.
Petitioner also pays a management service fee based on its gross
receipts to its parent company, a Delaware corporation based in
Georgia. Finally, petitioner has developed plans to finance a large
part of the planned $4 million expansion through out-of-state
lenders. All these involvements with interstate commerce, the
amended complaint claims, have been and are continuing to be
adversely affected by respondents' anticompetitive conduct.
B
Respondents' motion to dismiss asserted both that the District
Court had no jurisdiction over the subject matter of the amended
complaint, Fed.Rule Civ.Proc. 12(b)(1), and that the amended
complaint failed to
Page 425 U. S. 742
state a claim upon which relief could be granted. Rule 12(b)(6).
Critical to respondents' motion was their contention that the
amended complaint failed "to allege facts sufficient to state the
requisite effect upon interstate commerce as required under the
Sherman Act." App. 32. The District Court granted the motion to
dismiss, concluding that the provision of hospital and medical
services "is strictly a local, intra-state business," Pet. for
Cert., App. D-3, and that
"the conduct of the defendants complained of in this case
directly affects only a local activity of the plaintiff, and only
incidentally and insubstantially does it affect interstate
commerce."
Id. at D-3 - D-4.
A three-judge division of the Court of Appeals for the Fourth
Circuit affirmed the ruling of the District Court. Thereupon,
petitioner filed a motion for rehearing en banc, which was granted,
and the division opinion was withdrawn. On rehearing en banc, the
ruling of the District Court was again affirmed. 511 F.2d 678
(1975). While the Court of Appeals perceived some ambiguity as to
whether the District Court decision was grounded on Rule 12(b)(1)
or Rule 12(b)(6), it treated the decision as holding that, under
Rule 12(b)(6) petitioner had failed to state a claim upon which
relief could be granted. [
Footnote
1] The court then held that the allegations in the amended
complaint, even if true, were inadequate to support a conclusion
that the alleged anticompetitive conduct was occurring in
interstate commerce, or that it had or would have a substantial
effect on interstate commerce.
Page 425 U. S. 743
II
The Sherman Act prohibits every contract, combination, or
conspiracy "in restraint of trade or commerce among the several
States," 15 U.S.C. § 1, and also prohibits monopolizing "any part
of the trade or commerce among the several States." 15 U.S.C. § 2.
It is settled that the Act encompasses far more than restraints on
trade that are motivated by a desire to limit interstate commerce
or that have their sole impact on interstate commerce. "[W]holly
local business restraints can produce the effects condemned by the
Sherman Act."
United States v. Employing Plasterers Assn.,
347 U. S. 186,
347 U. S. 189
(1954). As long as the restraint in question "substantially and
adversely affects interstate commerce,"
Gulf Oil Corp. v. Copp
Paving Co., 419 U. S. 186,
419 U. S. 195
(1974);
Mandeville Island Farms, Inc. v. American Crystal Sugar
Co., 334 U.S. at
334 U. S. 234,
the interstate commerce nexus required for Sherman Act coverage is
established. "
I
f it is interstate commerce that feels the pinch, it does not
matter how local the operation which applies the squeeze.'"
Gulf Oil Corp. v. Copp Paving Co., supra, at
419 U. S. 195,
quoting
United States v. Women's Sportswear Assn.,
336 U. S. 460,
336 U. S. 464
(1949). [
Footnote 2]
In this case, the Court of Appeals, while recognizing
Page 425 U. S. 744
that Sherman Act coverage requires only that the conduct
complained of have a substantial effect on interstate commerce,
concluded that the conduct at issue did not meet that standard. We
disagree. The complaint, fairly read, alleges that, if respondents
and their coconspirators were to succeed in blocking petitioner's
planned expansion, petitioner's purchases of out-of-state medicines
and supplies, as well as its revenues from out-of-state insurance
companies, would be thousands and perhaps hundreds of thousands of
dollars less than they would otherwise be. Similarly, the
management fees that petitioner pays to its out-of-state parent
corporation would be less if the expansion were blocked. Moreover,
the multimillion-dollar financing for the expansion, a large
portion of which would be from out of State, would simply not take
place if the respondents succeeded in their alleged scheme. This
combination of factors is certainly sufficient to establish a
"substantial effect" on interstate commerce under the Act.
The Court of Appeals found two considerations crucial in its
refusal to find that the complaint alleged a substantial effect on
interstate commerce. The Court's reliance on neither was warranted.
First, the Court observed: "The effect [on interstate commerce]
here seems to us the indirect and fortuitous consequence of the
restraint of the intrastate Raleigh area hospital market, rather
than the result of activity purposely directed toward interstate
commerce." 511 F.2d at 684 (footnote omitted). But the fact that an
effect on interstate commerce might be termed "indirect" because
the conduct producing it is not "purposely directed" toward
interstate commerce does not lead to a conclusion that the conduct
at issue is outside the scope of the Sherman Act. For instance, in
Burke v. Ford,
389 U. S. 320
(1967), Oklahoma liquor retailers brought a Sherman Act action
against liquor wholesalers in the State, alleging that the
wholesalers
Page 425 U. S. 745
had restrained commerce by dividing up the state market into
exclusive territories. While the market division was patently not
"purposely directed" toward interstate commerce, we held that it
nevertheless substantially affected interstate commerce because, as
a matter of practical economics, [
Footnote 3] that division could be expected to reduce
significantly the magnitude of purchases made by the wholesalers
from out-of-state distillers.
"The wholesalers' territorial division . . . almost surely
resulted in fewer sales to retailers -- hence fewer purchases from
out-of-state distillers -- than would have occurred had free
competition prevailed among the wholesalers."
Id. at
389 U. S. 322
(footnote omitted). Whether the wholesalers intended their
restraint to affect interstate commerce was simply irrelevant to
our holding.
See also United States v. McKesson &
Robbins, 351 U. S. 305
(1956). In the same way, the fact that respondents in the instant
case may not have had the purposeful goal of affecting interstate
commerce does not lead us to exempt that conduct from coverage
under the Sherman Act.
The Court of Appeals further justified its holding of "no
substantial effect" by arguing that
"no source of supply or insurance company or lending institution
can be expected to go under if Mary Elizabeth doesn't expand, and
no market price likely will be affected."
511 F.2d at 684. While this may be true, it is not of great
relevance to the issue of whether the "substantial effect" test is
satisfied. An effect can be "substantial" under the Sherman Act
even if its impact on interstate commerce falls far short of
causing enterprises to fold or affecting market price. For
instance, in
United States v. Employing Plasterers Assn.,
supra, we considered a
Page 425 U. S. 746
Sherman Act challenge to an alleged conspiracy between a trade
association and union officials to restrain competition among
Chicago plastering contractors. As in the instant case, the
District Court dismissed the action on the pleadings. It did so on
the ground that the complaint amounted to no more than charges of
"local restraint and monopoly," 347 U.S. at
347 U. S. 188,
not reached by the Sherman Act. The United States appealed directly
to this Court under § 2 of the Expediting Act, 32 Stat. 823, as
amended, 15 U.S.C. § 29, and we reversed. It was sufficient for us
that the allegations in the complaint, if proved, could show that
the conspiracy resulted in "
unreasonable burdens on the free
and uninterrupted flow of plastering materials into Illinois."
347 U.S. at
347 U. S. 189
(emphasis added). We did not demand allegations, either express or
implied, that the conspiracy threaten the demise of out-of-state
businesses or that the conspiracy affect market prices. [
Footnote 4] Thus, since, in this case,
the allegations fairly claim that the alleged conspiracy, to the
extent it is successful, will place "unreasonable burdens on the
free and uninterrupted flow" of interstate commerce, they are
wholly adequate to state a claim.
We have held that
"a complaint should not be dismissed for failure to state a
claim unless it appears beyond doubt that the plaintiff can prove
no set of facts in support of his claim which would entitle him to
relief."
Conley v. Gibson, 355 U. S. 41,
355 U. S. 45-46
(1957) (footnote omitted). And in antitrust cases, where "the proof
is largely in the hands of the alleged conspirators,"
Poller v.
Columbia Broadcasting, 368 U. S. 464,
368 U. S. 473
(1962), dismissals prior to giving the plaintiff ample opportunity
for discovery should be granted very sparingly. Applying this
concededly rigorous standard, we conclude that
Page 425 U. S. 747
the instant case is not one in which dismissal should have been
granted. Petitioner's complaint states a claim upon which relief
can be granted under the Sherman Act. [
Footnote 5] Accordingly, the judgment of the Court of
Appeals is reversed, and the case is remanded for further
proceedings consistent with this opinion.
So ordered.
[
Footnote 1]
We, too, will treat the dismissal as having been based on Rule
12(b)(6). However, our analysis in this case would be no different
if we were to regard the District Court's action as having been a
dismissal for want of subject matter jurisdiction under Rule
12(b)(1). In either event, the critical inquiry is into the
adequacy of the nexus between respondents' conduct and interstate
commerce that is alleged in the complaint.
[
Footnote 2]
When Congress passed the Sherman Act in 1890, it took a very
narrow view of its power under the Commerce Clause.
See,
e.g., H.R.Rep. No. 1707, 51st Cong., 1st Sess., 1 (1890);
Slater, Antitrust and Government Action: A Formula for Narrowing
Parker v. Brown, 69 Nw.U.L.Rev. 71, 84 (1974). Subsequent
decisions by this Court have permitted the reach of the Sherman Act
to expand along with expanding notions of congressional power.
See Gulf Oil Corp. v. Copp Paving Co., 419 U.S. at
419 U. S.
201-202.
Compare United States v. E. C. Knight
Co., 156 U. S. 1 (1895),
with Mandeville Island Farms, Inc. v. American Crystal Sugar
Co., 334 U. S. 219
(1948),
and United States v. Employing Plasterers Assn.,
347 U. S. 186
(1954).
[
Footnote 3]
We have noted that "[i]t is in a practical sense that we must
view an effect on interstate commerce."
Goldfarb v. Virginia
State Bar, 421 U. S. 773,
421 U. S. 784
n. 11 (1975).
[
Footnote 4]
See also Goldfarb v. Virginia State Bar, supra at
421 U. S.
783-785.
[
Footnote 5]
It may, of course, be that, even though petitioner's complaint
adequately alleges an effect on interstate commerce, further
proceedings in this case will demonstrate that respondents'
conduct, in fact, involves no violation of law, or indeed no
substantial effect on interstate commerce.
Cf. United States v.
Oregon Medical Soc., 343 U. S. 326
(1952).