Advisory Opinion to Fancher (12-22-97)

December 22, 1997

Darrell O. Fancher
Fancher & Gatch, P.C.
507 Lay Dam Road
Clanton, Alabama 35046

Dear Mr. Fancher:

This letter responds to your request for an advisory opinion concerning a proposed corporate restructuring of Community Hospital, Inc. ("Community"). Based on your conversation with a member of my staff, I understand that you are not requesting an opinion concerning the antitrust implications of any specific conduct proposed to be undertaken by Community or the new corporations. Rather, your inquiry concerns whether the restructuring creates a risk that coordinated actions of the parent and subsidiary companies would be considered concerted action under Section 1 of the Sherman Act.

Description

As we understand the facts based on the information you have supplied, Community is presently organized as an Alabama nonprofit corporation and is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. Community is governed by a self- perpetuating Board of Trustees.

Community proposes to create a new Alabama nonprofit corporation that is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. This new company, "NewCo", would wholly own and control subsidiary companies, both for profit and nonprofit, and would be the sole member of Community. The responsibility over certain activities that Community currently conducts or plans would then be transferred to these newly created subsidiaries.

Analysis

Concerted action by persons within a single corporation generally is not "a contract, combination ... or conspiracy" within the meaning of the Sherman Act. The Supreme Court, in Copperweld Corp. v. Independence Tube Corp.,(1) held that "coordinated activity of a parent and its wholly-owned subsidiary must be viewed as that of a single enterprise for purposes of § 1 of the Sherman Act."(2) SinceCopperweld, courts have applied the rule to alleged conspiracies between sister corporations. In Directory Sales Management Corp. v. Ohio Bell Telephone Co.,(3) the Sixth Circuit held that two subsidiaries wholly owned by the same parent were not separate enterprises under Copperweld. However, there has been a split among the courts as to whether Copperweld extends to subsidiaries that are less than wholly owned.(4)

Conclusion

Since Community proposes to create NewCo as a parent entity that will wholly own all subsidiaries, the proposed corporate structure falls squarely within the bounds of Copperweld. For this reason, it does not appear that the corporate restructuring would create entities that would be deemed capable of engaging in concerted action with one another, within the terms of Section 1 of the Sherman Act.

This letter sets out the views of the staff of the Bureau of Competition, as authorized by the Commission’s Rules of Practice. Under Commission Rule § 1.3(c), 16 C.F.R. § 1.3(c), the Commission is not bound by this staff opinion and reserves the right to rescind it at a later time. In addition, this office retains the right to reconsider the questions involved, and with notice to the requesting party, to rescind or revoke the opinion if implementation of the proposed program results in substantial anticompetitive effects, if the program is used for improper purposes, if facts change significantly, or if it would be in the public interest to do so.

Sincerely yours,

Robert F. Leibenluft
Assistant Director

(1) 467 U.S. 752 (1984).

(2) Id. at 771.

(3) 833 F.2d 606 (6th Cir. 1987).

(4) See Novatel Communications v. Cellular Telephone Supply, 1986-2 Trade Cas. (CCH) ¶ 67, 172-73 (N.D. Ga. 1986) (parent can assert control over a 51 percent-owned subsidiary, and therefore, the two entities cannot conspire with one another); cf. Aspen Title & Escrow, Inc. v. Jeld-Wen, Inc., 667 F. Supp. 1477 (D. Or. 1987) ("only corporations which are owned 100% in common or a de minimisamount less than 100%, are covered by the Copperweld rule.")