Circumstantial Evidence Batting .500 In Seventh Circuit This Month With Omnicare Defeat

Proponents of proving antitrust conspiracies with circumstantial evidence are one for two in Seventh Circuit decisions decided in the last two weeks with the plaintiff’s summary judgment loss in Omnicare Inc. v. UnitedHealth Group, Inc.

The decision by the U.S. Court of Appeals for the Seventh Circuit affirming Judge Rebecca Pallmeyer’s grant of summary judgment to the defendants in Omnicare is that court’s second antitrust opinion in as many weeks that pivots on circumstantial evidence.  As discussed in a previous post, the Seventh Circuit found allegations of a price-fixing conspiracy – based on circumstantial evidence – sufficient to withstand a motion to dismiss at the pleading stage two weeks ago in In re: Text Messaging Antitrust Litigation.

This week, however, the Seventh Circuit affirmed the district court’s ruling that the circumstantial evidence submitted by OmniCare Inc., an institutional pharmacy, failed to raise any issue of material fact as to whether defendants UnitedHealth Group Inc. and PacifiCare Health Systems Inc. conspired to depress Omnicare’s reimbursement rates.  Omnicare charged that United and Pacific conspired to depress these rates after they entered into a merger agreement, but before the merger was consummated.

OmniCare sued in 2006 when UnitedHealth, after the merger, scrapped its reimbursement rate contract with the pharmacy company for the more favorable agreement PacifiCare had entered into with Omnicare before the merger.

In appealing the district court’s grant of summary judgment for the defendants, Omnicare set forth what the Seventh Circuit called a “richly detailed narrative” that was both “complex and compelling.”  Yet the appeals court stated that “Omnicare cannot get to trial based on the elegance of its theory alone.”

Citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986) and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554 (2007), the Seventh Circuit held that the only evidence presented by Omnicare was “circumstantial,” rather than “direct.”  Accordingly, the Seventh Circuit held that, to survive summary judgment, Omnicare had to “show that the inference of conspiracy is reasonable in light of the competing inferences of independent action or collusive action that could not have harmed it,” and that Omnicare’s “offer of conspiracy evidence must tend to rule out the possibility that the defendants were acting independently.”

The court specifically held that pricing and strategy information exchanged between the parties in the context of their merger negotiations did “not tend to exclude the possibility that United and PacifiCare were acting to advance their own legitimate interests,” as opposed to illegally colluding.  Further, the court concluded that “the ample evidence offered by Omnicare does not on the whole tend to negate the reasonable inference of independent action.”

It is interesting that just two weeks ago, in In re: Text Messaging Antitrust Litigation, the Seventh Circuit rejected defendants’ argument that circumstantial evidence was insufficient to support allegations of a price-fixing conspiracy, noting the court did not need to “decide whether the circumstantial evidence that we have summarized is sufficient to compel an inference of conspiracy; the case is just at the complaint stage and the test for whether to dismiss a case at that stage turns on the complaint’s ‘plausibility.’”

While the two opinions could be read together as simply reflecting the higher burden imposed on plaintiffs at the summary judgment stage – when they need to come up with evidence to back up the well-pleaded allegations that defeated any motion to dismiss – the opinions could also signal that the Seventh Circuit may be taking a more jaundiced view of circumstantial evidence in general once parties get past the pleading stage.