author: URBOM, Chief Judge.

text:
    Beulah Arlene WOODRING, Plaintiff, v. JENNINGS STATE BANK, Defendant.
    No. CV82-O-691.
    United States District Court, D. Nebraska.
    March 1, 1985.

      P. Shawn McCann, Omaha, Neb., and John E. Dier, Holdredge, Neb., for plaintiff.
    Stephen H. Nelsen, Lincoln, Neb., for defendant.
   MEMORANDUM ON MOTIONS FOR SUMMARY JUDGMENT

URBOM, Chief Judge.

The plaintiff and the defendant have filed motions for summary judgment, filings 26 and 24.

Under Rule 56(c) of the Federal Rules of Civil Procedure, the moving party bears the burden of showing that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law. All doubts are to be resolved against the moving party, and the non-moving party is to receive the benefit of all favorable inferences that reasonably may be drawn from the evidence. Walling v. Fairmont Creamery Co., 139 F.2d 318, 322 (8th Cir.1943); Ramsouer v. Midland Valley R. Co., 135 F.2d 101, 106 (8th Cir. 1943). Whether factual disputes are material depends upon what the applicable law shows to be relevant. In testing the sufficiency of a complaint to state a cause of action, the allegations of the complaint should be construed favorably to the pleader, and the complaint should not be dismissed 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. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

The pertinent uncontroverted facts, as established by the complaint, the pretrial order, and the evidence submitted by the defendant and not contradicted by the plaintiff’s evidence, are as follows:

The plaintiff, Beulah Arlene Woodring, and her husband, Gary L. Woodring, are joint owners of a tract of land in Thayer County, ten contiguous lots of real estate in Davenport, Nebraska, and personal property located in a residence on the lots, including furniture, appliances, jewelry, and other property.

The defendant in this case, Jennings State Bank, filed a lawsuit against Gary Woodring in the District Court of Thayer County, Nebraska, on July 19, 1982, seeking judgment on five promissory notes exeeuted by Gary Woodring; Mrs. Woodring was neither a signatory on any of the notes nor a party to the state court lawsuit. On August 2, 1982, the bank filed a motion for attachment of the property of Gary Woodring. The same day the district judge signed an attachment order finding, in essence, that the bank had satisfied the requirements of the attachment statute, Neb. Rev.Stat. §§ 25-1001 et seq. (Cum.Supp. 1980) — a matter not disputed here — and ordering the Thayer County sheriff “to attach the real and personal property belonging to the defendant, Gary Woodring, as described in Exhibit ‘A’ attached hereto and incorporated herein by this reference and all other lands, tenements, goods, chattels, stocks or interest in stocks, rights, credits, money and effects in Thayer County not exempt by law as can be found by the Sheriff.” Exhibit A — which also was attached to the bank’s motion for attachment — lists the ten lots and tract of land that are mentioned above as jointly owned; furniture, appliances, jewelry, and miscellaneous household goods and personal effects, in general terms; and many other items, including another Davenport lot, furniture store inventory, tools and equipment, and several motor vehicles, none of which Mrs. Woodring claims to be jointly owned.

The sheriff carried out the attachment order on August 12 and 13, 1982, and filed an inventory and appraisement list on August 23, listing the real estate described in Exhibit A and a substantial amount of personal property, including many household items. Gary Woodring moved in state court to discharge the attachment. After an evidentiary hearing, the state court determined on October 25, 1982, that the attachment was proper. No evidence was presented at the hearing to show that any property of Mrs. Woodring , had been attached. A pretrial conference was conducted on December 2, 1982, and a jury trial was set for December 14, 1982. However, Gary Woodring filed a suggestion in bankruptcy on December 15, 1982, resulting in a stay of the state proceedings. The property attached by the sheriff remains under the sheriff’s control pursuant to the August 2, 1982, attachment order, except for certain records released by the district judge for use in the bankruptcy action.

Mrs. Woodring filed the action in this court on December 8, 1982; Mr. Woodring’s voluntary petition in bankruptcy — to which the plaintiff is not a party — was filed December 13, 1982. No officer or employee of the defendant has received a demand from Mrs. Woodring to release property from the attachment order, and she did not advise the defendant of any specific personal property attached by the sheriff that she claims to own individually until her deposition on March 7, 1984, when she named a few items she said were hers alone. Nor did she take any action in state court to have the attachment order discharged or released with respect to property she claims to own individually, although she did ask the sheriff to allow her to take personal items and was told she could take nothing. Despite her mentioning individually owned property at her deposition, Mrs. Woodring has not raised in the complaint or in the pretrial order any issue other than attachment of jointly owned property, and she admits in the pretrial order that Gary Woodring had an ownership interest in the three pieces of real estate that were attached and in furniture, appliances, jewelry, and other miscellaneous property in the Davenport residence. There is no evidence that any officers of the bank believed at the time of the attachment that the jointly owned property belonged solely to Gary Woodring; further, the circumstances permit an inference that the bank officials knew or should have known that at least part of the property listed to be attached was owned jointly by the Woodrings.

Mrs. Woodring contends that the bank, by obtaining the attachment order, by not releasing it, and by failing to secure the property seized, has converted her interest in the property owned jointly and has violated her due process rights by employing the attachment procedures to deprive her of her property without notice or a hearing. It is uncontroverted that she did not reeeive notice or a hearing before the attachment order was entered.

With respect to the conversion claim, the defendant asserts that (1) a conversion claim lies only with respect to personal property; (2) the bank is not liable for conversion because it did not direct the sheriff to attach Mrs. Woodring’s property and did not ratify any improper attachment; (3) attachment of jointly held property does not constitute conversion; and (4) the plaintiff is not entitled to maintain a conversion action because she never made demand for possession of her property. Concerning the due process claim, the defendant asserts that (1) the Nebraska prejudgment attachment statute is constitutional, but if it is not, (2) the bank is entitled as a matter of law to good-faith immunity because of its reliance on the state law.

Conversion

The Nebraska Supreme Court has defined the tort of conversion as

any distinct act of dominion wrongfully exerted over another’s personal property in denial of or inconsistent with his rights therein.... The “tort of conversion has been confined to those major interferences with the chattel, or with the plaintiff’s rights in it, which are so serious, and so important, as to justify the forced judicial sale to the defendant which is the distinguishing feature of the action.” Prosser, Law of Torts, s. 15, at pp. 80, 81 (4th Ed., 1972). In Restatement, Torts 2d, s. 222A, 431, it is stated: “(1) Conversion is an intentional exercise of dominion or control over a chattel which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel.” Therefore it can be seen that not all exercise of dominion over or interferences with the use of chattels constitute conversion.

Polley v. Shoemaker, 201 Neb. 91, 95, 266 N.W.2d 222, 225 (1978).

For example, the garnishment and sale of a wife’s separately owned chattels in the possession of a warehouseman, without notice to the wife, in order to satisfy her husband’s debt, renders the warehouseman and creditor liable to the wife for conversion. Sprague v. Allied Mills, Inc., 129 Neb. 394, 261 N.W. 892 (1935). Similarly, a sheriff who levies on the separate property of a wife under an execution against her husband is liable for resulting damages, and a judgment creditor who knowingly advises or ratifies an abuse of process resulting in a temporary wrongful seizure of personal property to satisfy the judgment is liable as a trespasser. Gilbert v. Rothe, 106 Neb. 549, 552, 184 N.W. 119, 121 (1921).

The plaintiffs to the writ of attachment are jointly liable with the attaching officer for abuse of process “if they direct the unlawful acts, or subsequently adopt or ratify them.” Cole v. Edwards, 52 Neb. 711, 713, 72 N.W. 1045, 1046 (1897). In that case, a stranger to the underlying action claimed ownership of chattels after they were seized by the constable and demanded release of the levies. The plaintiffs to the writ refused, the goods were sold, and the proceeds were divided among the plaintiffs to the writ. The court held that even though the plaintiffs to the writ had not directed a levy on the property in controversy,

before its sale they were notified of its ownership, and requested to release it, and they refused to do so. We have no doubt that this was an adoption and ratification of the constable’s acts, and rendered them liable as trespassers ab initio. It is said that the goods were not then in possession of the creditors, but in that of the constable, and that, therefore, it was not in their power to comply with the demand. But the plaintiff has control of such a writ, and may require the officer to release his levy. To release the property of a stranger, which has been seized under a writ, does not even operate as a satisfaction. The creditor may require its release for his own protection without jeopardizing his judgment.... The writ was therefore within their control, and they are chargeable with the consequences of their refusal to exercise that control in favor of the rightful owner of the goods. Moreover, after so learning of plaintiff’s claim to the goods, it is inferable that they became purchasers at the sale, and then appropriated the goods to their own use, by reselling. This would be a clear case of conversion.... Still further, it appears that, with knowledge of the true ownership, they received the proceeds of the sale. It has been held that this would be sufficient to charge them. Hyde v. Cooper, 26 Vt. 552. In the case cited the court distinguished between such a case and one where the plaintiff was ignorant of the true ownership, and also one where the officer had been guilty merely of a mistake of law, although the plaintiff had knowledge thereof.... [Rjeception of the proceeds of a writ will not render the plaintiff thereto liable, when he was ignorant of the abuse of process.

Id. at 713-14, 72 N.W. at 1046-47.

On the other hand, refusal by the attaching plaintiff to return goods is not a ratification of the undirected seizure by the sheriff of a stranger’s property where the owner merely demands possession but does not demand a release of the levy. Omaha National Bank v. Robinson, 56 Neb. 590, 77 N.W. 73 (1898).

In light of this authority, the present facts, when viewed most favorably to the plaintiff, demonstrate participation in or adoption of the levy by the bank, although not by a post-sale acceptance of the benefits in the face of knowledge of the adverse claim or by refusing a demand for the release of the levy. Here, the only demand that might have occurred was one made to the sheriff for delivery of some of the goods — not to the bank for release of the levy, but by more direct means. The levy was made on the basis on a two-page list of property purportedly belonging to Gary Woodring. Although the sheriff received the list from the judge, the judge apparently had merely passed on the list supplied by the bank when it applied for the writ of attachment. The property list explicitly named the real property, and the household chattels were described with enough detail that the sheriff cannot be said to have gone beyond the list in levying against personal property now claimed to be jointly owned by Mrs. Woodring. If attachment of jointly held property as security for an action against only one of the joint owners was wrongful, then no demand was necessary because the bank was sufficiently involved in and knowledgeable of the levy against Mrs. Woodring’s joint interest to be held liable for conversion. Although, here, demand upon the sheriff was ineffectual, no demand was needed to establish a ratification: the bank was a participant in the seizure from the start.

However, Nebraska law is clear that conversion lies only for serious interference with possessory interests in personal property, not real property. The reason is apparent in the attachment context from comparing the effects of the attachment on the different types of property: the sheriff takes custody of personal property, but for real property the sheriff merely leaves a copy of the attachment order with the occupant or in a conspicuous place. Neb.Rev.Stat. § 25-1008 (Reissue 1979). Thus, the owner is dispossessed of the personal property and may bring a conversion action for wrongful interference with her possessory interest, but her possessory interest in real property is not disturbed, although the attachment lien may be a burden on title interfering with her ability to convey the property.

The conversion issue, therefore, is reduced to one crucial issue: Is seizure of jointly held personal property to secure the debt of one joint owner a wrongful interference with the possessory interest of the other?

No Nebraska case accessible through legal digests has addressed the question of attachment, garnishment, or execution against jointly owned property. However, the general common law rule is that the interest of a party in property held jointly with others is liable to attachment in an action against him, and an officer may take possession of the whole. 7 C.J.S. Attachment § 90 (1937); 6 Am.Jur.2d Attachment & Garnishment § 98 (1963); e.g., Fisher v. Jacobs, 39 Ill.App.2d 332, 188 N.E.2d 505, 508 (1963) (garnishment of joint bank account: “[A] creditor makes a prima facie case when he garnishes a joint account to which the judgment debtor is a party, and ‘[t]he burden is then upon the other party to the joint account to prove what part, if any, of the funds in such account belonged to him.' ”); Conolley v. Power, 70 Cal.App. 70, 232 P. 744 (1924) (sheriff attaching hogs owned by debtor and plaintiff as tenants in common held not guilty of converting plaintiff’s share merely for taking possession, but held guilty of conversion for making partition of the herd before selling — sheriff should have sold only debtor’s undivided interest, and plaintiff was entitled to actual damages); Quaranto v. Silverman, 845 Mass. 423, 187 N.E.2d 859 (1963) (husband had no claim for abuse of process based on attachment of realty jointly owned with wife, even if attaching party had claim against only wife, especially where husband did not seek to discharge the attachment as it related to his interest); State ex rel. Stevenson v. Hatch, 41 Or.App. 609, 598 P.2d 1234 (1979) (check jointly owned by debtor and another may be attached, citing Sharp v. Johnson, 38 Or. 246, 249, 63 P. 485, 485 (1901) (attachment of one-third interest of one tenant in common in racehorse for his individual debt and seizure of entire horse was not conversion as to other tenant’s share: “ ‘This ... is merely one of the disagreeable incidents of their joint ownership.’ ”); cf. Frederick v. Shorman, 259 Iowa 1050,147 N.W.2d 478 (1966) (in execution upon judgment against one joint tenant of realty, levy and sale severs joint tenancy and purchaser becomes tenant in common with other co-owners).

Therefore, attachment of the interest of one co-owner does not, without more, amount to a conversion of or trespass upon the interest of another co-owner. The conversion claim cannot stand.

Due Process

The due process claim is based on the fact that Mrs. Woodring was not notified of the seizure of her property before the attachment was carried out or given a hearing on the lawfulness of the seizure. The defendant asserts that it is entitled to good faith immunity from liability for any constitutional violation that may have occurred and that the Nebraska prejudgment attachment statutes are constitutional.

The constitutional requirement of due process, as secured by the Fourteenth Amendment, applies to garnishment and prejudgment attachment procedures whenever officers of the state act jointly with a creditor in securing the property in dispute; moreover, private use of challenged state procedures with the help of state officials constitutes state action under the fourteenth amendment, and that conduct also is action under color of state law such that suit may be brought against the private party under 42 U.S.C. § 1983. Lugar v. Edmondson Oil Co., 457 U.S. 922, 932-33, 935, 102 S.Ct. 2744, 2751-52, 2753, 73 L.Ed.2d 482 (1982). Conduct allegedly causing the deprivation of a federal right is “fairly attributable” to the state and therefore constitutes “state action” if (1) the deprivation is caused by the exercise of some right or privilege created by the state, by a rule of conduct imposed by the state, or by a person for whom the state is responsible, and (2) the party charged with the deprivation is a person who may fairly be said to be a state actor, either because he is a state official, because he has acted together with or has obtained significant aid from state officials, or because his conduct is otherwise chargeable to the state. Id. at 937,102 S.Ct. at 2754. While private misuse of a state statute does not describe conduct attributable to the state, the procedural scheme for prejudgment attachment is a product of state action and the statutes may be challenged under § 1983 as violative of procedural due process. Id. at 941, 102 S.Ct. at 2756.

Here, the bank’s invocation of state-created attachment procedures involving seizure of property by a state officer satisfies the “state action” requirement of Lugar. The pretrial order stipulates that the defendant followed the statutory procedure. As discussed above, it is permissible under the laws of the state to attach and seize jointly owned property to secure debts owed by only one of the co-owners. Therefore, the constitutional question presented is whether the procedural scheme adequately protects the property interests of the nonparty joint owner of the attached property.

The first question must address the nature of the property interest involved. The record is not clear as to the exact nature of the co-ownership of the attached property. However, the nature of both a joint tenancy and a tenancy in common is that the plaintiff and her husband each had the right to possess the whole and the possessory right of each was subject to the possessory right of the other. As discussed above, the nature of a joint estate is such that the possessory interest of one co-tenant is subject to temporary disruption when necessary to protect the rights of a creditor of another co-tenant. Because Mrs. Woodring’s possessory interest arises from the state law defining her estate, she has no more substantive rights under the due process clause than she does under state property law. Any constitutional violation that may exist must be found in the procedural aspects of due process.

The defendant’s brief analyzes this question from the perspective of the property owner who is a party to the suit in which the attachment occurs — in this case, Gary Woodring. However, the proper focus is upon the other owner, Mrs. Woodring.

The United States Court of Appeals for the Eighth Circuit in Lewis Service Center, Inc. v. Mack Financial Corp., 696 F.2d 66, 68 (8th Cir.1982), has qualifiedly endorsed the guidelines set forth in Aaron Ferer & Sons Co. v. Berman, 431 F.Supp. 847 (U.S.D.C.Neb.1977), for testing the constitutionality of prejudgment attachment procedure:

(1) The writ must issue only upon an affidavit containing facts. The affidavit must be by the creditor or his attorney who has personal knowledge of the facts.
(2) The writ must be issuable by a judge or at least involve judicial participation.
(3) The creditor must be required to indemnify the debtor from the risk and damages of a wrongful taking.
(4) The debtor must be able to dissolve the attachment by filing a bond.
(5) The debtor must be afforded an immediate post-seizure hearing wherein the creditor shall have to prove the grounds upon which the writ was issued.

Id. at 852. The Eighth Circuit noted that an “early” hearing is needed, rather than an immediate one, and the requirements that the creditor post a bond to obtain the order and that the debtor be allowed to post a bond to dissolve it are unnecessary if the debtor is allowed to retain possession pending the provision of a prompt hearing. 696 F.2d at 69. The same test, adjusted to account for the fact that the plaintiff is not the debtor who was the intended subject of the state lawsuit, would be helpful on the present question.

Neb.Rev.Stat. § 25-1002 (Cum.Supp. 1982) (amended eff. July 1, 1985), required that an order of attachment be approved by a judge after presentation of affidavits based upon personal knowledge that the petition: state a valid cause of action and the amount the plaintiff is entitled to recover is true; describe the existence and approximate value of any of the defendant’s property known to the plaintiff to be subject to the jurisdiction of the court; and state “specific facts demonstrating reasonable cause” that one or more of the statutory grounds for attachment exists.

Neb.Rev.Stat. § 25-1003 (Cum.Supp. 1984) requires the judge “to determine the amount of the undertaking the plaintiff shall be required to file,” taking into account the “probable damage that will be suffered by the defendant if his or her property is wrongfully attached” and the value of the defendant’s property as described in the plaintiff’s affidavits, and to “direct the clerk to issue, after the necessary bond is filed, an order of attachment.” (Although the attachment order issued by the state court did not provide for a bond, the judge having found that the bank would be able to reimburse the defendant without the need for sureties, the issue of violation of the attachment statutes was stricken by the magistrate from the list of controverted issues because of failure to disclose the issue in answers to interrogatories, see Memorandum and Order of Nov. 29, 1984, filing 21. However, the question of compliance with the statute requiring an undertaking to the defendant in the state court action is not determinative of the present question addressing the adequacy of the protection accorded a nonparty co-owner.)

Neb.Rev.Stat. § 25-1024 (Cum.Supp. 1984) allows the defendant, or any other person on his or her behalf, to obtain discharge of the attachment and restitution of the attached property by executing an undertaking to the plaintiff to the effect that the defendant shall perform the judgment of the court. Neb.Rev.Stat. § 1040 (Reissue 1979) allows the defendant to move to discharge an attachment as to all or part of the property attached at any time before judgment, and § 1041 (Cum.Supp.1984) requires the judge to discharge the order unless the plaintiff proves by a preponderance of the evidence one of the alleged statutory grounds for attachment.

Whether or not these statutes fulfill the Aaron Ferer criteria as to a debtor who is the defendant in the state court suit, they fall short of protecting nonparty co-owners. The first two criteria, concerning affidavits and judicial participation, are satisfied, but the third and fourth clearly fail because the bond required of the attachment plaintiff is designed to protect the defendant against loss for wrongful attachment and it is the defendant who has the right to discharge the attachment and recover his property by filing a bond; nonparty claimants are simply not contemplated by this part of the statutory scheme.

As to the fifth element — the right to a prompt post-seizure hearing to test the grounds for attachment — again, it is the defendant debtor who is entitled to a hearing on the grounds for attachment. A third person claiming an interest in or lien upon the attached property cannot intervene in the attachment suit to question the grounds for issuance of the writ or the validity of the underlying claim, either under the attachment provisions or the general intervention statute, Neb.Rev.Stat. § 25-328 (Reissue 1979), Drainage District No. 1 of Lincoln County v. Kirkpatrick-Pettis Co., 140 Neb. 530, 300 N.W. 582 (1941). Nor may a third party who claims ownership of attached property intervene to have the question of ownership determined in the attachment suit. Geis v. Geis, 125 Neb. 394, 250 N.W. 252 (1933). The only attachment statute recognizing the interests of third parties is § 25-1036 (Reissue 1979):

If personal property which has been attached be claimed by any person other than the defendant, it shall be the duty of the officer to have the validity of such claim tried, and such proceedings must be had thereon, with the like effect, as in case the property had been seized upon execution and claimed by a third person.

The relevant execution statutes, §§ 25-1521 to -1523 (Reissue 1979), impose on the officer a duty “forthwith” to give notice to the court that he has levied on goods and chattels claimed by a person other than the defendant and the court has the duty “immediately upon the receipt of such notice” and property schedule to enter the matter on the docket and determine the right of the claimant to the property; if the court finds the right to the goods and chattels to be in the claimant, then the claimant is entitled to restitution of the property and recovery of costs against the plaintiff in execution. Thus, the nonparty claimant’s ability to recover prompt relief from the seizure is dependent upon the officer’s compliance with his duty to present the intervening claim to the court for determination, and even this is limited to personal property. Whatever cloud the attachment may effect on the nonparty’s title to real property apparently cannot be cleared until after judgment and execution in the original suit, because the nonparty claimant cannot intervene and is not bound by the results of the suit.

Here, the plaintiff stated in her deposition that she did make a demand upon the sheriff for return of some of the seized personal property but this was refused. Apparently, the sheriff did not inform the state court of the demand to allow a judicial determination of Mrs. Woodring’s right to the property. However, given the allegation that all attached property is jointly owned by the Woodrings and the rule of law that jointly owned property may be seized to secure the separate liability of one co-owner, no hearing and determination of title, either under § 25-1036 or as a result of her direct intervention in the original suit, would have gained for Mrs. Woodring any relief from the seizure. Her property interest is not one that entitles her to possession of the jointly owned property as against the sheriff acting under an attachment order.

Even though there may have been no prejudice to Mrs. Woodring from denying her an opportunity to establish her ownership interest, a question remains about whether due process requires that a nonparty co-owner have an independent right to challenge the grounds for the attachment in an immediate hearing, an opportunity denied nonparty claimants under Nebraska law. Due process certainly requires that the attachment defendant have such a right. North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601, 95 S.Ct. 719, 42 L.Ed.2d 751 (1975); Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972); Guzman v. Western State Bank of Devils Lake, 516 F.2d 125 (8th Cir.1975). Logic dictates, and no authority contradicts, a similar right in a non-party owner to obtain an immediate hearing to test whether the allegations supporting the deprivation of her property are supported by fact. The fact that the debt- or possesses a right to challenge the grounds for the attachment order does not mean that the co-owner has no such right; were the rule otherwise, the nonparty co-owner would have no opportunity to challenge the grounds for the attachment should the debtor, for some reason, fail to exercise his statutory right to a discharge hearing. Mrs. Woodring’s interest in the property entitles her to its exclusive possession as against all the world except her husband, and the seizure pursuant to the attachment order, although temporary, deprives her of her possessory interest and triggers the due process restraints outlined in Fuentes and North Georgia Finishing, as measured under the Aaron Ferer criteria. The provision of protection from unreasonable deprivation of Mr. Woodring’s possessory interest does not discharge the state’s obligation to protect Mrs. Woodring’s possessory interest.

It follows that Mr. Woodring’s exercise of his statutory right to a discharge hearing did not dissolve his wife’s due process right to similar protection, even though the factual issues may be the same. She was not a party to the state proceeding and, with respect to their separate possessory interests in the attached property, the spouse cannot be said to have been in privity-

Therefore, viewing the record most favorably for the plaintiff, the final three criteria of Aaron Ferer, concerning a bond by the attachment plaintiff for the benefit of the nonparty co-owner, discharge of the attachment upon posting of a bond by the nonparty co-owner, and co-owner’s entitlement to a hearing to challenge the grounds for attachment, were not satisfied and the bank’s invocation of the Nebraska attachment mechanism deprived the plaintiff of property rights without due process of law.

Good Faith Immunity

Finally, the bank argues that even though there may have been a constitutional violation, it is entitled to good faith immunity from liability for damages.

In the course of holding that private individuals could be liable under 42 U.S.C. § 1983 when they invoke state attachment procedures involving the participation of state officers, the Supreme Court suggested in Lugar v. Edmondson Oil Co., 457 U.S. 922, 942 n. 23, 102 S.Ct. 2744, 2757 n. 23, 73 L.Ed.2d 482 (1982), that the concern about holding responsible “private individuals who innocently make use of seemingly valid state laws ..., if the law is subsequently held to be unconsitutional [sic] ... should be dealt with not by changing the character of the cause of action but by establishing an affirmative defense. A similar concern is at least partially responsible for the availability of a good-faith defense, or qualified immunity, to state officials.” The Eighth Circuit heeded this suggestion in Buller v. Buechler, 706 F.2d 844 (8th Cir.1983), by recognizing a qualified immunity patterned on that applying to government officials:

[W]e conclude that in enacting section 1983 Congress did not intend to subject to liability private individuals who in good faith resorted to state garnishment or prejudgment attachment procedures____
In Harlow v. Fitzgerald, [457 U.S. 800, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982)], the Supreme Court ... articulated its qualified immunity test: a good faith defense will be defeated if the defendant’s conduct violated a clearly established statutory or constitutional right of which he or she knew or should have known. Id. [at 818,102 S.Ct. at 2738]; id. [at 821, 102 S.Ct. at 2740] (Brennan, J., concurring). If the law at the time of the defendant’s conduct was not clearly established, he or she could not reasonably be expected to anticipate subsequent developments, nor could he or she be fairly said to “know” that the law proscribed conduct not previously identified as unlawful. Id.

Id. at 852. The court remanded the immunity question because the South Dakota garnishment law involved in the case was declared unconstitutional prior to, rather than subsequent to, the defendants’ invocation of the statute’s procedures, and that fact “obviously is extremely important to the determination of whether the defendants here acted in good faith.” Id.

As is apparent in my discussion finding that the Nebraska prejudgment attachment laws are violative of the due process rights of nonparty co-owners of attached property, that holding was based upon the general principles for testing prejudgment seizure laws against the due process clause, as adapted for application in the non-party claimant situation, rather than upon specific precedent on that point. This was because I was unable to find authority on how the due process standards apply in the nonparty situation, and the parties cited none. Additionally, a key premise for my constitutional ruling, that jointly held property is subject to attachment and seizure to secure the debts of only one of the co-owners, had not been spelled out in any reported Nebraska decision, or at least none discoverable through the normal means of legal research. While it may be that the due process rights of a defendant in an attachment action to notice and a prompt hearing on the grounds for the seizure were clearly established by the time the bank invoked the Nebraska attachment procedure, it cannot be said that the right of a nonparty co-owner to separate due process protection was clearly established in this jurisdiction until today.

Therefore, under Buller, the bank is entitled to qualified immunity from liability because it reasonably could not have known it was violating Mrs. Woodring’s constitutional rights. Because the plaintiff seeks only monetary relief, the controversy ends here with the granting of the defendant’s motion for summary judgment.


source: Caselaw Access Project

author: CRABB, Chief Judge.

license: Public Domain

text:
    DEL'S BIG SAVER FOODS, INC., a Wisconsin corporation, and Burdell Robish and Janis Robish, Plaintiffs, v. CARPENTER COOK, INC., a Michigan corporation, Farm House Foods Corp., a Wisconsin corporation, Doyle, Ladd and Philips, P.C., a Michigan professional corporation, Philip Strohl, United States Fidelity & Guaranty Co., a foreign insurance corporation, Defendants.
    No. 84-C-191-C.
    United States District Court, W.D. Wisconsin.
    March 1, 1985.

      Rhea A. Myers, Terwilliger, Wakeen, Piehler, Conway & Klingberg, S.C., Wausau, Wis., for plaintiffs.
    Eugene O. Gehl, Brynelson, Herrick, Gehl & Bucaida, Madison, Wis., for defendant Doyle, Ladd & Philips, P.C.
    Charles H. Bohl and Thomas J. Arenz, Frisch, Dudek & Slattery, Ltd., Milwaukee, Wis., for remaining defendants.
   CRABB, Chief Judge.

This is a civil action for monetary relief brought pursuant to 42 U.S.C. § 1983 for violation of plaintiffs’ constitutional rights. Plaintiffs also assert state law claims against defendants under the principle of pendent jurisdiction. The case is before the court pursuant to defendants’ motion to dismiss plaintiff’s first amended complaint for failure to state a claim upon which relief can be granted.

Reading the allegations of the complaint and the exhibits attached to it liberally in favor of plaintiffs, I find that the plaintiffs have alleged the following facts. For the purpose of deciding this motion, I accept their allegations as true.

FACTS

Before December of 1983, plaintiffs Bur-dell and Janice Robish owned and operated Del’s Big Saver Foods, Inc., a retail grocery store. In July of 1983, in order to finance their business, the plaintiffs individually and as officers of their incorporated store, signed a note and security agreement, giving defendant Carpenter Cook Company, a subsidiary of defendant Farm House Foods Corporation, a security interest in “[a]ll furniture, fixtures, equipment, now owned or hereafter acquired by the [b]orrower, together with all inventory ... [and] the proceeds from the sale thereof.”

On December 6, 1983, the defendant law firm of Doyle, Ladd & Philips, P.C. filed a complaint in the Circuit Court of Vilas County, Wisconsin on behalf of defendant Carpenter Cook, alleging among other things that Burdell and Janis Robish had repeatedly defaulted on their note, that Carpenter Cook had a security interest in some of the Robishes’ property, and that pursuant to Wis.Stats. § 409.503 (Wisconsin’s Commercial Code), Carpenter Cook was entitled to possession of the property. Along with the complaint, defendant Carpenter Cook submitted an affidavit in support of its motion for possession of the secured property. In the affidavit, Philip Strohl, an officer of Carpenter Cook, stated that the Robishes had defaulted repeatedly on their loan and had breached other covenants of the security agreement. Strohl asserted that the collateral would deteriorate in the hands of the Robishes. Also, Strohl stated the value of the collateral and its location. Defendant Carpenter Cook submitted to the court a $100,000 indemnity bond issued by defendant United States Fidelity & Guaranty Company.

On December 6, 1983, the day the complaint was filed in the Vilas County court, the state trial judge issued an order granting defendant Carpenter Cook immediate possession of the collateral, the right to operate the Robishes’ store as a going concern, and the right to use the proceeds from the sale of the collateral “in the operation of the store.” That same day, defendant Strohl, as agent for defendant Carpenter Cook, with the aid of the defendant law firm, obtained certification of the order from the deputy clerk of the Circuit Court of Vilas County. Members of the defendant law firm then proceeded to plaintiffs’ store, claiming that if plaintiffs did not turn over possession of the store, the county sheriff would be summoned pursuant to the court order to serve the documents and remove the plaintiffs bodily. In response to these demands, plaintiffs turned over the premises to defendant Carpenter Cook.

Plaintiffs had no notice of defendant Carpenter Cook’s intent to take possession of the store, or of the court proceedings to gain possession, until the order was presented to them on December 6, 1983. Plaintiffs would not have relinquished possession of the store but for the court order signed by the circuit judge.

OPINION

Plaintiffs set out four causes of action in their complaint, in each of which they claim a deprivation of their property and livelihood without notice and opportunity to be heard as required by the Fourteenth Amendment to the United States Constitution. In their first cause of action, they allege that Wis.Stats. § 409.503 of the Wisconsin Commercial Code is unconstitutional as applied to them. Specifically, they allege that § 409.503 “in the manner in which the defendant’s used it, is unconstitutional as to its effect in that it denied the plaintiff their property rights ...” and that the state trial judge assisted the defendants in this unconstitutional application of the statute.

Plaintiffs’ second cause of action is essentially the same as the first, adding only that the defendants “intentionally” deprived plaintiffs of their constitutional rights.

For their third cause of action, plaintiffs allege breaches of the due process clause in even more general terms, but add various state law claims for the intentional infliction of harm to their business reputation.

In the fourth cause of action it appears at first that plaintiffs are alleging that Wisconsin’s repossession procedures are unconstitutional on their face. In paragraph 41 they allege that “[t]he state created the attachment procedure used in the case when the court order was issued.” I conclude however that, read in its entirety, the fourth cause of action merely realleges the unconstitutional application of Wisconsin statutes to plaintiffs. In sum, plaintiffs have alleged two causes of action: (1) that in concert with defendants Carpenter Cook (through its agent Strohl) and Doyle, Ladd and Philips, the state trial judge applied Wisconsin’s repossession procedures in violation of plaintiffs’ due process rights; and (2) that these same defendants intentionally damaged plaintiffs’ business reputation in violation of state law. Plaintiffs alleged no cause of action against defendant United States Fidelity & Guaranty Company and its motion to dismiss will be granted.

Plaintiffs Claim under 42 U.S. C. § 1983

Before a plaintiff can prevail on a claim brought pursuant to 42 U.S.C. § 1983, he must prove (1) that the defendant has deprived him of a right secured by the Constitution or the laws of the United States; and (2) that the defendant has deprived him of this right under color of state law. Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970).

I. Deprivation of a Constitutional Right

Plaintiffs contend that the state judge’s application of Wis.Stats. § 409.503 to them deprived them of their Fourteenth Amendment right to due process because their property was taken without notice or an opportunity to contest the repossession. Plaintiffs cite the line of Supreme Court cases beginning with Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969) and culminating in North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601, 95 S.Ct. 719, 42 L.Ed.2d 751 (1975), for the proposition that it is a denial of due process for a creditor to repossess property upon ex parte application to a court without giving the debtor notice or an opportunity to contest the taking. Not surprisingly, the defendants cite those same cases to support their claim that plaintiffs in this case have not been denied their constitutional rights.

1. Due Process Precedent

Sniadach arose out of a challenge to a Wisconsin statute permitting a creditor to freeze the debtor’s wages upon application to the clerk of the state court without affording the debtor notice or an opportunity to be heard. The United States Supreme Court ruled that in the context of wages a debtor’s property may not be taken without notice and a prior hearing. Sniadach v. Family Finance Corp., 395 U.S. at 340-342, 89 S.Ct. at 1822-1823.

In Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972), the Court reviewed a state procedure under which a creditor could obtain a prejudgment writ of replevin through a summary process of ex parte application to a court clerk, upon the posting of a bond for double the value of the property to be seized. The Supreme Court held that these state replevin procedures were unconstitutional because they deprived the debtor of notice and an opportunity to be heard before his property was seized. Id. at 96, 92 S.Ct. at 2002. The Court explained that even though the debt- or had access to certain post-deprivation remedies, those remedies were only “another factor to weigh in determining the appropriate form of hearing, [and were] not decisive of the basic right to a prior hearing of some kind.” Id. at 86, 92 S.Ct. at 1997.

In Mitchell v. W.T. Grant Co., 416 U.S. 600, 94 S.Ct. 1895, 40 L.Ed.2d 406 (1974), the Court retreated from its position in Fuentes. In Mitchell, the Court was reviewing provisions of the Louisiana Code of Civil Procedure that made available to a lien holder a writ of sequestration to forestall waste or alienation of the encumbered property. Although the writ was obtainable on the. creditor’s ex parte application, without notice to the debtor or an opportunity for a hearing, the writ would issue only upon a detailed affidavit by the creditor and only upon a judge’s authorization after the creditor had filed a sufficient bond. The debtor could seek immediate dissolution of the writ, which had to be ordered unless the creditor proved the grounds for issuance (existence of the debt, lien, and delinquency), failing which the court could order return of the property and assess damages in the debtor’s favor. The Court found that the Louisiana procedures satisfied the requirements of the due process clause despite the fact that they permitted an ex parte deprivation of property: the statutory scheme decreased the likelihood of an erroneous pre-hearing deprivation because the creditor had to present detailed factual allegations to a judicial officer before a sequestration order could be issued, Id. at 616-617, 94 S.Ct. at 1904-1905, and statutory procedures did not effect a final deprivation of property because the debtor had an immediate right to a post-seizure hearing. Id. at 609-610, 94 S.Ct. at 1900-1901. From this, the Court concluded that because the statute provided certain pre-deprivation procedures designed to reduce erroneous deprivations, and because the deprivation was only temporary, the Louisiana procedures effected a constitutional accommodation of the interests of debtors and creditors. Id. at 607, 94 S.Ct. at 1900.

Finally, in North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. at 601, 95 S.Ct. at 720, the Supreme Court examined a Georgia statutory scheme that permitted a creditor to obtain a writ of garnishment issued by a court clerk on an affidavit containing only conclusory allegations and that permitted the debtor to dissolve the garnishment only by filing a bond with the court. The Court held that the garnishment of the debtor’s bank account was unconstitutional because there were no predeprivation protections as in Mitchell, and because the debtor was not entitled to an immediate hearing after seizure to dissolve the writ. Id. at 607, 95 S.Ct. at 722.

From these cases, I conclude that in creditor repossession or garnishment cases, the due process clause requires either (1) that the debtor be provided a hearing before his property is taken, or (2) that the debtor be provided certain pre-seizure procedural safeguards, coupled with a prompt post-deprivation hearing before final judgment. Those pre-seizure safeguards need not include a hearing, but must include a deprivation order issuable only by a judicial officer based upon detailed factual allegations provided by the party seeking possession.

In this case, since I must accept as true plaintiffs’ allegation that they did not receive a hearing prior to the seizure of their property, I can grant defendants’ motion for summary judgment only if I am satisfied that plaintiffs had the benefit of the requisite pre-deprivation procedures and the right to a post-deprivation hearing pending final judgment.

2. Wisconsin Procedures

The plaintiffs base their claim on what they contend is the state judge’s unconstitutional application of Wis.Stats. § 409.503. That section, which corresponds to § 9.503 of the Uniform Commercial Code, gives a secured creditor the right to take possession of a defaulting debtor’s secured property. It provides that “[i]n taking possession a secured party may proceed without judicial process if this can be done without breach of the peace or may proceed by action.” (Emphasis added.) Since the defendants Carpenter Cook, Philip Strohl, and Doyle, Ladd & Philipps resorted to the courts to seize plaintiffs’ property, they proceeded “by action.” Plaintiffs’ claim is that the state judge misapplied the “by action” method of repossession by permitting a deprivation which fell short of plaintiffs’ right to due process.

The text of the UCC and the Official Comments to § 9-503 fail to provide any guidance to the meaning of “by action.” However, the courts and commentators agree that “by action” refers to the applicable state’s replevin procedures. Honstein Trucking v. Sandhills Beef, Inc., 209 Neb. 422, 308 N.W.2d 331, 335 (1981) (an action for replevin is provided for under the plain terms of § 9-503); Wolf v. Kutch, 147 Wis. 209, 132 N.W. 981 (1911) (under a clause on a chattel mortgage authorizing the mortgagee to take possession at any time he shall deem himself insecure, he may demand possession immediately, and if refused, bring replevin for the property); J. White & R. Summers, Handbook of the Law Under the Uniform Criminal Code, § 26-27 (2d ed. 1980).

It appears that the 1977 revisions of the Wisconsin replevin procedures were drafted specifically in response to the Supreme Court’s holdings in Mitchell and North Georgia Finishing. The pre-seizure requirements set out in those cases are satisfied by the provision in the Wisconsin replevin procedures that an order directing a return of the property may be issued only by a judge or other judicial officer and only after the creditor has submitted a verified complaint or affidavit containing several detailed allegations specified in the statute. Also, the replevin statutes provide that at any time the debtor may request a hearing before the judge for vacation or modification of the possession order “for any sufficient cause.” Wis.Stats. § 810.05. Moreover, the statutes make it clear that the ex parte seizures merely provide for delivery before final judgment.

3. Application of § 409.503 and Chapter 810

The undisputed facts of the seizure in this case reveal that the state court judge did not deprive plaintiffs of their constitutional rights. Carpenter Cook’s state court affidavit and complaint incorporated by exhibit into the Robishes’ complaint in this case establish that defendants complied with Wis.Stats. § 810.02. Thus plaintiffs cannot contend that the judge abridged their pre-seizure rights. Also, because the judge merely granted an order for possession, rather than entering a final judgment, plaintiffs had an opportunity to seek an immediate post-seizure hearing. Whether plaintiffs exercised their right to a hearing is irrelevant to this discussion. The due process clause guarantees only the “right to an opportunity to be heard ... [and thus] ... no hearing need be held unless the [debtor], having received notice of his opportunity, takes advantage of it.” Fuentes v. Shevin, 407 U.S. at 92 n. 29, 92 S.Ct. at 2000 n. 29 (emphasis in original). Because the judge complied with the plaintiffs’ pre-seizure procedural rights and did not deny them a post-seizure hearing, plaintiffs cannot prevail on their claim that their due process rights were violated.

II. State Law Claims

Because there is not complete diversity of citizenship among the parties in this case, this court’s jurisdiction is based solely on plaintiffs’ federal claims which must be dismissed. There remains the question whether to exercise jurisdiction over plaintiffs’ pendent state law claim of intentional damage to their business reputation.

The exercise of jurisdiction in this case is discretionary. Perdido v. Immigration and Naturalization Service, 420 F.2d 1179 (5th Cir.1969). However, the Supreme Court has made it clear that “if the federal claims are dismissed before trial, even though [the federal claims are] not insubstantial in a jurisdictional sense, the state claims should be dismissed as well.” United Mine Workers of America v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966). See also Wright, Law of Federal Courts 106 (4th ed. 1983). Thus, the plaintiffs’ state law claims must be dismissed and left to the state courts for resolution.

III. Claim Against United States Fidelity & Guaranty Co.

Defendant United States Fidelity & Guaranty supplied the indemnity bond required by Wis.Stats. § 810.03 to acquire an order for repossession. Plaintiffs have joined United States Fidelity & Guaranty as a co-defendant in this action. However, they have alleged no cause of action against it. Although the pleadings are to be liberally construed in the litigant’s favor, a complaint must set forth as to each defendant “a short and plain statement of the claim showing that the pleader is entitled to relief.” Rule 8(a)(2), Federal Rules of Civil Procedure. Even assuming for the purpose of argument that plaintiffs have satisfied this minimal burden through the incorporation of defendant United States Fidelity & Guaranty’s indemnity contract into their pleadings, plaintiffs must first allege a justiciable claim against defendant Carpenter Cook as the party primarily liable on the bond in order to trigger any potential liability on the part of defendant United States Fidelity & Guaranty. Wis. Stats. § 810.15. Since plaintiffs’ claims against defendant Carpenter Cook will be dismissed for failure to state a claim for relief and for lack of jurisdiction, any claims against defendant United States Fidelity & Guaranty must fail also.

ORDER

IT IS ORDERED that defendants’ motion to dismiss this case is GRANTED. Plaintiffs’ motion to strike the reply brief of defendants Doyle, Ladd and Philips, P.C. is DENIED.

      . Plaintiffs have moved to strike the section of the reply brief filed by defendants Doyle, Ladd, and Philips, P.C. in which these defendants argued that defendants followed the procedures outlined in the replevin statutes (Chapter 810, Wis.Stats.) Plaintiffs contend that this argument had never been raised before and should not be considered by the court. I reject plaintiffs' contention. Defendants did refer to the requirements of Chapter 810 in their first brief and plaintiffs had an opportunity to respond. Moreover, I would be free to consider the applicability of Chapter 810 to plaintiffs’ claims even if defendants had not raised it. In deciding questions of law, courts are not prohibited from going beyond the arguments and precedent raised by counsel to reach what the court believes to be a correct interpretation of the constitutional or statutory provision at issue.

      . Wis.Stats. § 810.02 provides:
      An order directing the return of property to the plaintiff at any time before final judgment in a replevin action shall be issued only by a judge or other judicial officer on the affidavit of the plaintiff made after summons is issued. The affidavit or verified complaint shall set forth specific factual allegations to show the following:
      (1) That the plaintiff is entitled to the possession of the property claimed, particularly describing it;
      (2) That the property is wrongfully detained by the defendant;
      (3) The alleged cause of detention according to his best knowledge, information and belief;
      (4) That the property has not been taken for a tax, assessment or fine or seized under any execution or attachment against the property of the plaintiff, or that if so seized that it is exempt from the seizure;
      (5) The value of the property; and
      (6) The location of the property claimed by the plaintiff with sufficient specific factual allegations for the judge or judicial officer to determine that there is reason to believe that the property is in the location described or in the possession of the defendant or any person acting on behalf of, subject to or in concert with the defendant.

      . Wis.Stats. § 810.01 provides:
      The plaintiff in a replevin action may claim the delivery of the property prior to final judgment in a manner provided in this chapter. (Emphasis added.)

      . See R & W Farms, Inc. v. Grand River Co-op, 589 F.Supp. 860 (E.D.Wis.1984) and Franco v. County of Marin, 579 F.Supp. 1032 (N.D.Cal. 1984), for the proposition that 42 U.S.C. § 1983 is not a substitute for pursuing claims under established state procedures in state tribunals.


author: STECKLER, District Judge.

text:
    BALL MEMORIAL HOSPITAL, INC., et al., Plaintiffs, v. MUTUAL HOSPITAL INSURANCE, INC., d/b/a Blue Cross of Indiana, and Mutual Medical Insurance, Inc., d/b/a Blue Shield of Indiana, Defendants.
    No. IP 84-1536-C.
    United States District Court, S.D. Indiana, Indianapolis Division.
    March 1, 1985.

      Dutton, Kappes & Overman by Douglas B. McFadden, Indianapolis, Ind., for plaintiffs.
    Kirkland & Ellis, by James W. Rankin, Chicago, III., Donald C. Trigg, Associate Gen. Counsel, Blue Cross/Blue Shield of Indiana, Indianapolis, Ind., for defendants.
   ORDER

STECKLER, District Judge.

Eighty acute-care hospitals brought this action under Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, and 28 U.S.C. § 1337 to recover three-fold the damages sustained by Plaintiffs by reason of Defendants’ alleged violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and to obtain injunctive relief against threatened loss and damage by reason of such violations. The action was also instituted under Sections 1, 2, and 7 of the Indiana Monopoly Act, I.C. § 24-1-2-1, I.C. § 24-1-2-2 and I.C. § 24-1-2-7. By their complaint Plaintiffs also seek declaratory relief pursuant to Rule 57 of the Federal Rules of Civil Procedure on Defendants’ alleged violations of I.C. § 16-12.1-3-11, I.C. § 16-12.1-1-1, et seq., I.C. § 16-10-1-6.5, I.C. § 16-12.1-5-1, I.C. § 34-4-12.6-1(b), I.C. § 34-4-12.6-2, and I.C. § 27-8-11-3 and -4.

The matter is now before the Court on Plaintiffs’ motion for preliminary injunction pendente lite seeking to enjoin Blue Cross/Blue Shield from implementing its Preferred Provider Organization in Indiana, to enjoin Defendants from advertising the Preferred Provider Organization and to enjoin Defendants’ merger planned for March 1, 1985.

Defendants have developed and intend to implement, on March 1, 1985, a Preferred Provider Organization (“PPO”) in the State of Indiana. The concept of PPO is to provide subscribers with incentives to use those providers of health care services who hold potential for reducing the rate of increase in health care benefit costs. Two key characteristics in combination differentiate PPO’s from other forms of health care coverage: (1) subscribers are given incentives to use a limited panel of providers, but retain freedom of choice to use other qualified providers, and (2) preferred providers are defined by specific health care cost containment characteristics, such as competitive charges and participation in utilization control programs.

A hearing on Plaintiffs’ motion for preliminary injunction commenced on February 7, 1985, and extended over a period of eleven days during which the Court heard testimony and argument regarding identification of the relevant product market, identification of the relevant geographic market, market power and market share, price shifting, patient steering, “discounts,” and coercion. The record generated by the hearing contains hundreds of exhibits, affidavits, and depositions, and the transcript encompasses eleven volumes.

Plaintiffs contend that Defendants' purpose in offering the PPO is to exclude others seeking to offer a PPO from entering the market, to discourage major companies from self-insuring, to extract through coercion unreasonable discounts from health care providers, and to extend Defendants’ market position. Plaintiffs’ asserted purpose in initiating the action is to maintain the status quo, to continue the parties’ longstanding relationship, and to preserve competition. Defendants on the other hand state that the PPO is being offered in response to consumer demands and represents another option for the consumer that should be made available in the market place. Defendants point out that participation in the PPO program is voluntary, but for those who choose the PPO option, defendants have established a network of hospitals which includes over 50% of the acute care hospitals in the state to provide participants with access to health care. Defendants claim PPO will enhance competition in the provision of health care financing and health care hospital services, and that what Plaintiffs are seeking is an anti-competitive injunction.. It is Defendants’ position that they are offering the PPO option to preserve, not extend, their market position.

While not singling out a particular facet of the evidence, in passing the Court would note the bargaining leverage Defendants are alleged to be able to employ by virtue of Defendants’ advantageous position as the Medicare Intermediary and Rate Review Administrator in Indiana. Notwithstanding Plaintiffs’ charges, the Court finds that Plaintiffs have failed to establish that Defendants have monopoly power or the ability to exclude others from the relevant market. For this reason and other reasons as set out in the Court’s findings and conclusions the Court concludes that it must find for the Defendants and against the Plaintiffs on Plaintiffs’ motions for injunctive relief.

Having considered the evidence, the briefs of the parties, together with the oral arguments, and being fully informed, the Court makes the following findings of fact and conclusions of law.

Findings of Fact

1. Defendants Mutual Hospital Insurance, Inc., d/b/a Blue Cross of Indiana, and Mutual Medical Insurance, Inc., d/b/a Blue Shield of Indiana (“Blue Cross/Blue Shield”) are nonprofit Indiana corporations engaged in the business of offering health care insurance to Indiana residents. Blue Cross offers hospital care insurance; Blue Shield offers medical and surgical insurance.

2. Though technically separate, Blue Cross and Blue Shield have for more than thirty years acted as one company to offer health care in Indiana. Blue Cross/Blue Shield offers health insurance both to groups, such as employers who purchase on behalf of their employees, and to individuals who purchase for themselves. Blue Cross/Blue Shield also offers administrative services to companies in Indiana which have their own self-insurance programs.

3. Blue Cross and Blue Shield are nonprofit corporations. All of the revenue is used to pay claims and expenses. Any excess revenue is put in a statutorily required reserve to pay future claims, or returned to subscribers through refunds or reduced premiums.

4. Plaintiffs are eighty Indiana hospitals offering general acute-care hospital services. Many of the Plaintiffs are competitors in the market for hospital services.

5. On November 14, 1984 Plaintiffs filed their complaint asking for emergency relief to prevent the implementation of the Blue Cross/Blue Shield Preferred Provider Organization (“PPO”). Plaintiffs allege that, through its PPO, Blue Cross/Blue Shield is monopolizing or attempting to monopolize the market for health care financing and hospital services in violation of Section 2 of the Sherman Act. They also complain that the Blue Cross/Blue Shield Preferred Care Hospital Agreements are unreasonable restraints of trade in violation of Section 1 of the Sherman Act.

6. Plaintiffs’ state antitrust claims are identical to their federal claims. In addition, Plaintiffs allege the PPO violates the Indiana County Hospital Statute, I.C. § 16-12.1-3-11, by requiring county hospitals to charge Blue Cross/Blue Shield a different price than they charge other patients. Plaintiffs further allege that the PPO requires them to divulge rate review information protected by I.C. § 34-4-12.6-2. Plaintiffs seek monetary damages, declaratory judgment, and the extraordinary relief of a preliminary injunction.

7. On December 5, 1984, Defendants counterclaimed against Plaintiff-counterdefendant Methodist Memorial Hospital, alleging that Methodist, the Indiana Hospital Association, other hospitals and individuals acting on their behalf, have violated Sections 1 and 2 of the Sherman Act, and the Indiana Monopoly Act by their concerted actions in opposition to the Blue Cross/Blue Shield PPO. Defendants also allege that Methodist tortiously interferred with Blue Cross/Blue Shield’s business relationships and prospective economic advantage. At this preliminary injunction hearing the allegations of the counterclaim are not properly before the Court for decision.

8. The relevant market in which Blue Cross/Blue Shield competes is the market for health care financing for consumers. Health care financing is a way for consumers to pay for their hospital and health care needs.

There is a high cross-elasticity of demand between the various products in the health care financing market, and there are no submarkets. Consumers are extremely price sensitive and will readily switch on the basis of price from one company or form of financing to another. Consequently, no competitor, including Blue Cross/Blue Shield, in the health care financing market has the power to control prices or exclude competitors. If Blue Cross/Blue Shield raised its premiums above competitive levels, customers would quickly abandon Blue Cross/Blue Shield in favor of alternative sources of health care financing. Competitors in this market can succeed only by offering quality and innovative products and services at attractive prices.

9. The relevant geographic health care financing market is regional, if not national. Indiana consumers are not confined by the states’ boundaries in their purchases of health care financing. International and national insurance companies, regional insurance companies, and local companies all offer plans to Indiana residents. In addition, multi-state employers can shop for insurance programs nationally. Accordingly, there are no grounds for restricting the health insurance market to the boundaries of Indiana, and there are no submarkets.

10. There is vigorous competition in the health care financing market, and there are many competitors offering a wide variety of financing options to consumers. Consequently, Blue Cross/Blue Shield, as a seller of health insurance and administrative service, faces intense competition from other insurance companies, health maintenance organizations, administrative services only providers, third party administrators, and hospitals which operate preferred provider organizations. In addition to competing among themselves to win the accounts of their rivals, these entities compete for the business of companies which are self-insured. Finally, government programs such as Medicaid and Medicare are also significant factors in the market.

11. Entry barriers into the market for health care financing are extremely low. All that is needed to compete in Indiana, for example, is sufficient capital to underwrite the policies and a license from the Indiana Insurance Commissioner.

12. More than 1,000 companies are licensed to finance health care in Indiana; over 500 are actively selling such insurance. The competitors include companies like Prudential, Aetna, Metropolitan and Equitable, each of which have premium income and assets in the tens of billions of dollars and operate nationally. In addition, there are a number of health maintenance organizations in Indiana providing health benefits to thousands of people, and there is a strong movement both nationwide and in Indiana to form preferred provider programs as an additional health care financing option.

13. Like employers elsewhere, many of Indiana’s employers, such as Eli Lilly, do not use traditional third party insurance. Rather, they are self-insured, an increasingly popular alternative due in part to the development of a broad range of “administrative services only” (“ASO”) contracts with third party administrators, data processing firms and others which can easily and quickly implement a wide variety of self-insurance programs. Under these contracts the third party administrator provides administrative services, such as claims processing, to companies who self insure and underwrite their own insurance.

14. In light of the dynamic character of the health care financing industry, a firm’s share of premium revenues reflects no more than its ability to compete successfully in meeting consumer demands. Indeed, even measurements of premium revenues are misleading indicators of competition in the health care financing market because they fail to include revenues from sales of other competitive products such as ASO services, health maintenance organizations, and preferred provider programs. Both revenue statistics and patient population statistics similarly distort the nature of competition because they fail to account for the regional to national scope of the health care financing market.

15. The statistics do, however, demonstrate that Indiana hospitals have a wide variety of revenue sources, and that Blue Cross/Blue Shield faces vigorous competition in Indiana. This competition has in fact steadily eroded Blue Cross/Blue Shield’s subscriber base over the last five years as Blue Cross/Blue Shield lacks the power to exclude other competitors from the market.

16. A preferred provider organization is a competitive option for financing health care that provides incentives for consumers to choose low cost hospitals. One form of a preferred provider organization is an arrangement between an insurance company and a provider of health care, such as a hospital.

17. The high cost of health care is a national concern. In 1968, health care costs were $57 billion and represented 6.7% of the GNP. By 1980, health care costs had risen to $247 billion and represented 9.4% of the GNP. By the end of this year, health care costs are expected to rise to $460 billion, accounting for 10% of the GNP. In Indiana, health care costs have far outpaced the national average, rising 24% for employers during each of the last three years.

18. Preferred provider programs contain costs by promoting price competition among hospitals and implementing prudent hospital utilization control. In a typical preferred provider organization, an insurance company (or other third party payor) and provider agree on the maximum price that the insurer will pay to that provider for services rendered to that company’s insureds for the contract period. In return for that price stability the insurance company typically offers financial incentives for insureds to be treated at the “preferred” providers. Most preferred provider arrangements, like traditional arrangements between insurance companies and providers, specify steps for providers to take to minimize unnecessary use of the provider’s facilities.

19. Currently in Indiana there are over a dozen operating or developing preferred provider organizations. Moreover, it is only a matter of time before many of the large national insurance companies which have preferred provider programs in other states market their programs in Indiana. Lincoln National Insurance Company and Equitable Life Assurance Company intend to set up a preferred provider organization in Indiana. Prudential Insurance Company, Humana Health Care, and other industry giants which also operate in Indiana, have recently set up experimental preferred provider programs in several states. PPO’s are having a significant impact nationwide on the health care finance industry. The Directory of Preferred Provider Organizations published by the American Medical Care Review Association lists 141 preferred provider programs as of late 1984.

20. Many of the Plaintiffs in this case (and other hospitals) have developed or are developing their own preferred provider programs which they are marketing in competition with Blue Cross/Blue Shield. By thus offering financing arrangements to consumers to pay for hospital services, these hospitals are vertically integrating into the health care financing market and will be marketing their preferred provider programs in competition with Blue Cross/Blue Shield and other providers of health care financing. Plaintiffs who now have or soon will have their own preferred provider programs include St. Mary’s Medical Center, St. Vincent Hospital, Methodist Hospital, Riverview Hospital, Winona Memorial Hospital, South Bend Memorial Hospital, and St. Margaret’s Hospital. Plaintiff Hancock Memorial Hospital has joined with five other hospitals, which are not Plaintiffs, to form a preferred provider program known as the Pro-Health Network.

21. Methodist Hospital’s preferred provider program (known as “MMA”), also scheduled to begin on March 1, 1984, is an example of a hospital’s program. It is a joint effort by Methodist, Hendricks County Hospital, University Heights Hospital, Riverview Hospital, and Witham Memorial Hospital. As of November 1984 it included over 550 physicians and enrolled over 10,-000 insureds. MMA functions like a typical provider-sponsored preferred provider program, and requires 5 or 10% discounts off physicians’ usual and customary fees.

22. MMA vigorously marketed its product across the state and tried to encourage many of Indiana’s largest employers, including Blue Cross/Blue Shield customers, to switch from their present form of health care financing to MMA.

23. Business leaders are in accord that preferred provider organizations have great potential benefits. The Business Roundtable, a group composed of the chief executive officers of more than one hundred of the nation’s major corporations, estimates that business accounts for 25% of total health care spending. The Business Roundtable endorses preferred provider organizations as a way of using the incentives of market forces, rather than regulation, to generate more efficient utilization and more favorable prices.

24. In April 1984 the Indiana General Assembly passed P.L. 140-1984, Indiana’s Preferred Provider Law, I.C. § 27-8-11. That law is designed to lower health care costs and specifically authorizes insurance companies to develop and operate preferred provider organizations in the state. Under the authority of that law, on July 30, 1984, Blue Cross/Blue Shield’s presidents authorized the company to develop its preferred provider organization (“PPO”).

25. Blue Cross/Blue Shield canvasses of Indiana employers found a number of them wanted the option of preferred provider programs for their employees. In response to this demand it developed its PPO product.

26. Consistent with the Indiana statute, Blue Cross/Blue Shield offered all 115 general acute care Indiana hospitals the opportunity to bid for membership in the PPO. All of the Plaintiffs, as well as nearly every other Indiana hospital, have signed Participating Hospital contracts with Blue Cross/Blue Shield, and thus are known as participating hospitals. When participating hospitals provide services to an insured, Blue Cross/Blue Shield pays that hospital directly for the insured’s covered expenses in accordance with the charges determined by rate review; the hospitals bill the insured for any noncovered expenses. Since every hospital was given a chance to bid, the PPO is an “open-panel” program. Hospitals were not compelled to submit bids; their participation was purely voluntary. Ninety-one hospitals chose to submit proposals.

27. Blue Cross/Blue Shield did not demand discounts. For administrative reasons hospitals were requested to express their bids as a percentage of the hospital’s October 1, 1984 rates. But hospitals were free to bid whatever price they wanted, and they did. The vast majority of the ninety-one proposals Blue Cross/Blue Shield received were higher than the hospitals’ October 1, 1984 rates.

28. After receiving the proposals, Blue Cross/Blue Shield began individual negotiations with each hospital over the level of the hospital’s proposed rate. How rates were ultimately determined was each hospital’s unilateral business decision after arms-length negotiations with Blue Cross/Blue Shield. Each hospital remained free to charge any of their other customers, such as other PPO’s or commercial insurers, whatever price it wished.

29. On January 21, 1985, Blue Cross/Blue Shield entered into Preferred Care Hospital Agreements with sixty-one of the hospitals located throughout the state. The Preferred Care Hospital Agreements specify the prices to be charged all Blue Cross/Blue Shield insureds during the remainder of 1985. The contracts will be renegotiated prior to expiration, and any preferred hospital can terminate the contract at the term’s end if satisfactory prices cannot be agreed upon. The agreements also specify certain steps for the hospitals to take to minimize medically unnecessary use of their facilities. These utilization controls, developed originally by an independent research company, are widely accepted and have been used by the federal government in the Medicare program.

30. Blue Cross/Blue Shield selected the preferred hospitals for its PPO network after an analysis and inquiry of each proposal submitted. In making its selection Blue Cross/Blue Shield used objective criteria to identify the hospitals offering quality care at competitive prices conveniently located for Blue Cross/Blue Shield’s insureds.

31. Blue Cross/Blue Shield will market its preferred provider product to employers and individuals throughout Indiana. Through reimbursement incentives, the PPO will encourage insureds to seek treatment at its preferred hospitals. The anticipated standard policy will provide that Blue Cross/Blue Shield will pay 100% of covered expenses whenever a preferred hospital is used and some lesser percentage, such as 75%, when a participating hospital is used. When a participating hospital is used by an insured covered by the PPO, the insured will be responsible for paying the hospital the difference, if any, between what it charges and what Blue Cross/Blue Shield pays.

32. Because of the anticipated lower costs of utilizing preferred hospitals, Blue Cross/Blue Shield expects to offer lower premiums to new customers and potential customers who purchase the preferred provider product. Blue Cross/Blue Shield estimates that the PPO will enable it to reduce premium charges to its PPO customers between 10-20% in 1985.

33. Blue Cross/Blue Shield has announced that it will solicit physicians to join its PPO. Physicians will be asked to agree to admit patients with PPO coverage, wherever possible, to preferred hospitals and to help reduce unnecessary costs by using various utilization controls. Blue Cross/Blue Shield will identify those physicians to insureds as preferred providers and will pay them in full, under its usual, customary and reasonable policies, for covered services.

34. The Blue Cross/Blue Shield PPO does not prevent any hospital from participating in any other preferred provider program, or from establishing its own such program. To illustrate, Plaintiff Riverview Hospital is already a member of three PPO’s: the Blue Cross/Blue Shield PPO, the MMA, and the Pro-Health Network.

35. In implementing its PPO, Blue Cross/Blue Shield first wrote every hospital in the state, explaining that the PPO would be announced, and expressing the hope that its “close relationship” with Indiana hospitals would continue. It wrote to the heads of every professional medical association in Indiana enclosing complimentary copies of the original Request for Proposal. Blue Cross/Blue Shield met with employees from numerous hospitals to explain the PPO, the proposal process, and to answer any questions. It held a comprehensive question and answer program for all hospitals, and then prepared and distributed further written responses to over 100 questions posed by the hospitals.

36. As a result of hospital feedback, Blue Cross/Blue Shield amended the Preferred Care Hospital Agreement in several significant respects. It deleted an indemnification provision in the Agreement; it revised a list of Outpatient Ambulatory Surgical Procedures; it added a provision allowing hospitals to bill insureds for noncovered, nonhealth services; and, it clarified the utilization review appeal procedure. The Outpatient Surgical Ambulatory Procedures list is a utilization control which specifies the procedures which have to be performed on an outpatient basis in order to qualify for reimbursement from Blue Cross/Blue Shield. Blue Cross/Blue Shield worked on this list in close consultation with physicians to be sure that the procedures could be safely and effectively performed on an outpatient basis. Blue Cross/Blue Shield also circulated the list to various surgical societies in Indiana before finalizing it, and revised the list to accommodate concerns of Indiana hospitals, and others.

37. Since these amendments changed the terms of the PPO, Blue Cross/Blue Shield reopened the Request For Proposals (“RFP”) to allow hospitals which did not previously submit proposals to do so.

38. To prepare to implement the PPO, Blue Cross/Blue Shield has developed insurance packages containing the PPO product and presented these packages to customers and potential customers directly and through mass media advertising. It put the mechanisms in place for the PPO to become operational, conducted actuarial studies, developed its program for making doctors and other health care providers part of the PPO, and set up a PPO organization in-house. It has obtained the necessary approval from the Indiana Insurance Commissioner.

39. As a result of these efforts, the Blue Cross/Blue Shield PPO will be ready on March 1, 1985. The product has the potential to save Indiana consumers millions of dollars in health care premiums. The PPO’s utilization controls and procedures are intended to generate savings .by eliminating needless in-patient admissions and unnecessary operations. The PPO’s incentives that encourage patients to choose lower priced hospitals are intended to further reduce the public’s health care bill.

40. The product market for hospital services consists of a cluster of health care services delivered in a hospital setting. Blue Cross/Blue Shield does not now and has never competed in this market. Rather, it is a buyer of hospital services for its insureds.

41. The relevant geographic hospital services market is localized, generally on a county basis, and the barriers to entry are substantial.

42. As one of many purchasers of hospital services, Blue Cross/Blue Shield’s effect on the market is measured against the aggregate of all hospital revenues received from selling all in-patient and out-patient services to all consumers — including Medicare/Medicaid, HMO’s, vertically integrated PPO’s, self-insured plans, other commercial insurers, Blue Cross/Blue Shield, and all other consumers of hospital services.

43. If a preliminary injunction were issued, it would prevent Blue Cross/Blue Shield from offering its competitive PPO product to the market. The public would be injured, and would forfeit the benefits of competition and the opportunity for decreased health care costs. Competition would be restrained in the health care financing market because Blue Cross/Blue Shield cannot offer its product to the public, who thus would have their available options of health care financing reduced. Competition would also be restrained in the hospital services market because hospitals would not have to compete against one another on the basis of price for Blue Cross/Blue Shield insureds. In addition, the public would lose the improved hospital utilization control which the PPO would sponsor.

44. If an injunction were entered, Blue Cross/Blue Shield would also be injured. It would lose its substantial investment of time, money and resources in preparing the PPO for a March 1 implementation. It would lose some of its major accounts who expected the PPO to be available, and lose the ability to compete for other potential accounts through the PPO.

45. Denying an injunction would not cause any efficient hospital to go out of business. Through its PPO, Blue Cross/Blue Shield asked hospitals to offer their best price for Blue Cross/Blue Shield’s purchases of hospital services for its insureds. If a hospital bid prices below its cost, that choice was the hospital’s independent business decision and not a basis for legal redress.

46. Denying an injunction would not cause hospitals to shift costs to non-Blue Cross/Blue Shield insureds. Plaintiffs’ theory of “cost-shifting” is without merit. It refers to the common phenomenon of a seller charging different prices to different customers. Far from signifying “anti-competitive behavior” on the part of the buyer, it simply reflects the seller’s decision and ability to charge different buyers different prices.

Conclusions of Law

1. Granting a preliminary injunction is the exercise of an extraordinary power not to be indulged in except in cases clearly warranting it. Fox Valley Harvestore, Inc. v. A.O. Smith Harvestore Products, Inc., 545 F.2d 1096, 1097 (7th Cir. 1976). This is not such a case.

2. To be entitled to a preliminary injunction, Plaintiffs have the burden of showing:

(a) that granting the requested injunction will serve, not disserve, the public interest;
(b) that the threatened injury to Plaintiffs outweighs the threatened harm an injunction may inflict on Defendants;
(c) that Plaintiffs have no adequate remedy at law and will be irreparably harmed if an injunction does not issue, and
(d) that Plaintiffs have a reasonable likelihood of success on the merits. Technical Publishing Co. v. Lebhar-Friedman, Inc., 729 F.2d 1186,1138 (7th Cir.1984); Dos Santos v. Columbus-Cuneo Cabrini Medical Center, 684 F.2d 1346, 1349 (7th Cir.1982).

3. Buyers, such as Blue Cross/Blue Shield in this case, are the intended beneficiaries of the antitrust laws. See Kartell v. Blue Shield of Massachusetts, Inc., 749 F.2d 922 (1st Cir.1984); Quality Auto Body, Inc. v. Allstate Insurance Co., 660 F.2d 1195 (7th Cir.1981), cert. denied, 455 U.S. 1020, 102 S.Ct. 1717, 72 L.Ed.2d 138 (1982).

4. Anything that prevents or suppresses competition among sellers for the business of the buyer has an anti-competitive effect. The requested preliminary injunction would have an anti-competitive effect on buyers of health care financing, such as employers, groups and individuals, and on buyers of hospital services, such as Blue Cross/Blue Shield.

5. If an injunction were entered the harm to the public would be substantial and would outweigh the harms, if any, which Plaintiffs are likely to suffer as a result of this denial of the preliminary injunction.

6. If an injunction were entered, Blue Cross/Blue Shield would be subjected to the risk of losing major accounts, such as General Motors and U.S. Steel, to other providers of health care financing which have PPO options.

7. Similarly, Blue Cross/Blue Shield could suffer significant damage to its reputation as an innovative, progressive provider of health care financing. In light of all Blue Cross/Blue Shield’s public promotion of its PPO, a failure to deliver on promises of timely implementation could cause significant customer antagonism.

8. An injunction would restrain Blue Cross/Blue Shield from competing with Plaintiffs and others through its PPO and would give competing PPO’s a head start in the market.

9. Finally, Blue Cross/Blue Shield would forfeit most of its significant investment in its PPO if its implementation were enjoined.

10. A preliminary injunction would further reduce price competition between Indiana hospitals, and would thwart Blue Cross/Blue Shield’s attempt to implement widely accepted utilization controls.

11. If an injunction were entered, the harm to Blue Cross/Blue Shield could be substantial and would outweigh the harms, if any, which Plaintiffs are likely to suffer as a result of this denial of the preliminary injunction.

12. Plaintiffs have failed to demonstrate that any injuries they will allegedly suffer as a result of the timely implementation of the Blue Cross/Blue Shield PPO are irreparable and that they have no adequate remedy at law.

13. To constitute irreparable harm the threatened injury must be, in some way, “peculiar.” E.g., American Hospital Association v. Harris, 625 F.2d 1328, 1331. Claims of injury should be based on more than mere speculation. E.g., Associated General Contractors v. California State Council, 459 U.S. 519, 542, 103 S.Ct. 897, 911, 74 L.Ed.2d 723 (1983); Treasure Valley Potato Bargaining Ass’n v. Ore-Ida Foods, Inc., 497 F.2d 203, 218 (9th Cir.), cert. denied, 419 U.S. 999, 95 S.Ct. 314, 42 L.Ed.2d 273 (1974).

14. Plaintiffs must show that they have a reasonable likelihood of success on the merits. Signode Corp. v. Weld-Loc Systems, Inc., 700 F.2d 1108, 1111 (7th Cir.1983). However, where there is a clear imbalance in the harms to the respective parties, the plaintiff need only show that he has raised a “substantial question on the merits,” or that his chances of success on the merits are “better than negligible.” General Leaseways, Inc. v. National Truck Leasing Ass’n, 744 F.2d 588 (7th Cir.1984); Roland Machinery v. Dresser, 1984-2 Trade Cases, ¶ 66, 175 (CCH) (7th Cir.1984).

15. Plaintiffs have no reasonable likelihood of success on their claims, nor have they raised a substantial question or have a better than negligible chance of success on the merits.

16. The weight of authority holds that a contract that sets the price for services between a buyer such as Blue Cross/Blue Shield and a seller such as a hospital is neither per se unlawful nor an unreasonable restraint of trade. E.g., Kartell, 749 F.2d at 924-929; Pennsylvania Dental Association v. Medical Service Association, 574 F.Supp. 457 (M.D.Pa.1983), aff’d, 745 F.2d 248 (3d Cir.1984); Royal Drug Co. v. Group Life & Health Insurance Co., 737 F.2d 1433 (5th Cir.1984), cert. denied, — U.S. —, 105 S.Ct. 912, 83 L.Ed.2d 925 (1985); Klamath-Lake Pharmaceutical Association v. Klamath Medical Service Bureau, 701 F.2d 1276 (9th Cir.1983), cert. denied, —U.S. —, 104 S.Ct. 88, 78 L.Ed.2d 96 (1984); Medical Arts Pharmacy of Stamford, Inc. v. Blue Cross & Blue Shield of Connecticut, Inc., 518 F.Supp. 1100 (D.Conn.1981), aff’d per curiam, 675 F.2d 502 (2d Cir.1982); Quality Auto Body, 660 F.2d 1195; Proctor v. State Farm Mutual Insurance Co., 675 F.2d 308 (D.C.Cir.), cert. denied, 459 U.S. 839, 103 S.Ct. 86, 74 L.Ed.2d 81 (1982); Webster County Memorial Hospital, Inc. v. United Mine Workers of America Welfare & Retirement Fund of 1950, 536 F.2d 419 (D.C. Cir.1976) (per curiam); Travelers Insurance Co. v. Blue Cross of Western Pennsylvania, 481 F.2d 80 (3rd Cir.1973); Brillhart v. Mutual Medical Insurance, Inc., No. IP 83-1133-C (S.D.Ind., July 16, 1984), appeal docketed, No. 84-2259 (7th Cir., July 30, 1984); Feldman v. Health Care Service Corp., 562 F.Supp. 941 (N.D.Ill. 1982); Sausalito Pharmacy, Inc. v. Blue Shield, 544 F.Supp. 230, 235 (N.D.Cal. 1981), aff’d per curiam, 677 F.2d 47 (9th Cir.), cert. denied, 459 U.S. 1016, 103 S.Ct. 376, 74 L.Ed.2d 510 (1982).

17. Because the same elements must be proved to establish a violation of the Indiana Monopoly Act, I.C. § 24-1-2-1, as must be proved to establish a violation of the Sherman Act, § 1, or § 2, Photovest Corp. v. Fotomat Corp., 606 F.2d 704 (7th Cir.1979), cert. denied, 445 U.S. 917, 100 S.Ct. 1278, 63 L.Ed.2d 601 (1980), there need be no separate discussion of Plaintiffs’ state antitrust claims. Those fail along with their Sherman Act claims.

18. To prove monopolization Plaintiffs must show Blue Cross/Blue Shield possesses monopoly power within a relevant market and willfully acquired or maintained that power as distinguished from growth or development as a consequence of a superior product, business acumen or historic accident. United States v. Grinnell Corp., 384 U.S. 563, 571, 86 S.Ct. 1698, 1704, 16 L.Ed.2d 778 (1966).

19. To prove attempt to monopolize Plaintiffs must show that Blue Cross/Blue Shield specifically intended to monopolize, engaged in predatory conduct directed toward accomplishing the monopoly, and has a dangerous probability of achieving monopoly. Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255 (7th Cir.1981), cert. denied, 455 U.S. 921,102 S.Ct. 1277, 71 L.Ed.2d 461 (1982); General Business Systems v. North American Philips Corp., 699 F.2d 965, 975 (9th Cir.1983).

20. Monopoly power is the power to control prices or exclude competitors. United States v. DuPont, 351 U.S. 377, 391, 76 S.Ct. 994, 1005, 100 L.Ed. 1264 (1956).

21. Blue Cross/Blue Shield does not have monopoly power in the health care financing market. Because of the number, size, and variety of competitors and competing plans, Blue Cross/Blue Shield cannot control prices as customers could immediately select alternative financing arrangements in response to any price increase above competitive levels. General Business Systems, 699 F.2d at 972.

22. Blue Cross/Blue Shield’s attempt to compete vigorously in the health care financing market through its PPO is not predatory nor does it establish an intent to monopolize. United States Steel Corp. v. Fortner Enterprises, 429 U.S. 610, 613 n. 1, 97 S.Ct. 861, 864 n. 1, 51 L.Ed.2d 80 (1977); White & White, Inc. v. American Hospital Supply Corp., 723 F.2d 495, 507 (6th Cir.1983).

23. Because of the size of the regional and national health care financing market, the size of Blue Cross/Blue Shield’s competitors, and the wide variety of alternative forms of health care financing, there is. little likelihood that Blue Cross/Blue Shield could obtain a monopoly in the health care financing market.

24. Blue Cross/Blue Shield cannot, as a matter of law, monopolize or attempt to monopolize the hospital services industry because Blue Cross/Blue Shield has never and does not now compete in that market.

25. Blue Cross/Blue Shield PPO cannot coerce unfavorable contract terms, cause cost-shifting or force price discrimination from a preferred hospital. All pricing decisions are within the exclusive business judgment of each hospital. Sausalito Pharmacy, Inc., 544 F.Supp. at 238 n. 2; Kartell, 749 F.2d at 924-929; Travelers Insurance Co., 481 F.2d at 82, 84-85.

26. Indiana’s Preferred Provider Law specifically, pre-empts any conflicting statute, and any claim based on an alleged conflict with another statutory provision is facially defective. Burks v. Bolerjack, 427 N.E.2d 887, 890 (Ind.1981).

27. The PPO does not compel any hospital to price discriminate in violation of the County Hospital Statute. County Hospitals may join the PPO and charge all patients the same price they bid to Blue Cross/Blue Shield.

28. The PPO does not require preferred hospitals to breach any peer review confidence under I.C. § 34-4-12.6-2.

29. The merger of Defendants will not irreparably alter the market structure in the prepaid health insurance and hospital services in the State of Indiana and will not be anti-competitive.

By reason of the foregoing Plaintiffs’ motions to enjoin Defendants from implementing its Preferred Provider Organization and from merging are hereby DENIED.

IT IS SO ORDERED.