N.C. Supreme Court: Quasi-municipal Corporations Are Immune from State Antitrust and Section 75-1.1 Liability
We have previously discussed whether a local-government entity can be sued for money damages based on a federal antitrust violation. Today’s post discusses a similar question: are quasi-municipal corporations—a type of local-government entity—exempt from liability under section 75-1.1 and North Carolina’s antitrust laws? Last month, the Supreme Court of North Carolina unanimously answered yes to that question.
On three occasions (here, here, and here), we’ve discussed a group of high-profile antitrust cases involving Atrium Health, the large public-hospital system in Charlotte formerly known as the Charlotte-Mecklenburg Hospital Authority. These cases target “steering restrictions” in Atrium’s contracts with insurance companies. The steering restrictions limit an insurer’s ability to direct their insureds to healthcare providers other than Atrium. The plaintiffs—insured patients who have received care at Atrium—allege that Atrium’s steering restrictions have anti-competitive effects, including that they give Atrium’s competitors less incentive to keep costs low and to be more efficient.
One case against Atrium, DiCesare v. Charlotte-Mecklenburg Hospital Authority, landed in the North Carolina Business Court. The plaintiffs alleged that Atrium’s steering restrictions violate multiple provisions of chapter 75, including section 75-1.1 and North Carolina’s antitrust laws.
In DiCesare, Atrium moved for judgment on the pleadings. It argued that Atrium is a quasi-municipal corporation, and that quasi-municipal corporations are exempt from liability under chapter 75. The Business Court agreed and dismissed the plaintiffs’ section 75-1.1 and antitrust claims based on a decision from the North Carolina Court of Appeals called Badin Shores Resort Owners Ass’n v. Handy Sanitary District.
In Badin Shores, the court held that a quasi-municipal corporation cannot be sued under section 75-1.1. The holding in Badin Shores stems from a line of cases that have repeatedly held that “the consumer protection and antitrust laws of Chapter 75 of the General Statutes do not create a cause of action against the State, regardless of whether sovereign immunity may exist.”
The North Carolina Court of Appeals first announced this rule in Sperry Corp. v. Patterson. There, the court explained that the state and its officials are not “person[s], firm[s] or corporation[s]” that are covered by section 75-16—the remedial statute for chapter 75. In later cases, like Badin Shores, North Carolina courts have extended Sperry to municipalities and to other government officials.
In DiCesare, the Business Court concluded that the holding of Badin Shores encompasses all provisions of chapter 75—including the antitrust provisions—and not just section 75-1.1.
The Supreme Court’s decision
The Supreme Court of North Carolina affirmed the Business Court’s dismissal of the plaintiffs’ chapter 75 claims.
First, the court agreed that Atrium fits the bill as a quasi-municipal corporation. The General Assembly created Atrium as a public-hospital authority under chapter 131E of the North Carolina General Statutes. Section 131E-16(14) defines a hospital authority as “a public body and a body corporate and politic organized under [North Carolina law].”
The court next addressed the plaintiffs’ attempt to characterize Atrium as a corporation subject to liability under chapter 75. Section 75-16, after all, makes clear that chapter 75 applies only to “person[s], firm[s] or corporation[s].”
The court pointed out that there are “significant differences” between ordinary corporations and quasi-municipal corporations. For starters, section 131E-16(9) defines a corporation as an entity that operates for profit. Atrium, on the other hand, is a registered non-profit corporation. Moreover, unlike ordinary business corporations, quasi-municipal corporations are created “to serve a particular government purpose.” After walking through the history of how the hospital authority was created, the court concluded that Atrium was created by the City of Charlotte “to provide public healthcare facilities for the benefit of the municipality’s inhabitants.” Thus, the court had “no hesitation in concluding” that Atrium, as a quasi-municipal corporation, is exempt from chapter 75 liability.
Next, the court considered Badin Shores. The court agreed that Badin Shores stands for the proposition that all quasi-municipal corporations are exempt from liability under chapter 75. In so holding, the court pointed out that Atrium is no different than a city or a town. After all, “quasi-municipal corporations are an extension of the government that have been created to more efficiently and effectively manage the provision of necessary services to the public.”
The plaintiffs argued that Badin Shores directly conflicts with an earlier-decided Supreme Court case called Madison Cablevision, Inc. v. City of Morganton. In Madison Cablevision, the Supreme Court held that a municipality could not be liable under chapter 75 for engaging in alleged anti-competitive activities that the legislature expressly delegated to the municipality. The DiCesare plaintiffs argued that because Atrium’s conduct—imposing steering restrictions in its contracts with insurance companies—was not specifically authorized by the legislature, Atrium could not claim immunity from chapter 75 liability.
The court was unpersuaded that Madison Cablevision applied to the claims against Atrium. Rather, because this case did not involve a challenge to conduct authorized by the legislature, Madison Cablevision had no impact on the court’s analysis.
In sum, the plaintiffs’ statutory claims under chapter 75 failed because of Atrium’s status as a quasi-municipal corporation. In a future post, we will discuss the second part of the Supreme Court’s holding, which leaves open the door for antitrust claims against government entities like Atrium under the anti-monopoly clause of North Carolina’s constitution.
Author: Scottie Lee