In early 2003, California’s San Joaquin County decided to establish zones within the county which would be provided ambulance services by one exclusive provider. American Medical Response, Inc. ("AMR"), a corporation that provides ambulance services throughout the nation, the City of Stockton (the "City"), and the City of Lodi entered into what they entitled a "Joint Venture Agreement," in which they agreed to submit a joint bid to the county to provide exclusive ambulance services. The agreement contained a provision stating that any party that withdrew from the agreement could not submit an independent bid to the county. Over the course of the next year, the relationship between AMR and the City deteriorated and AMR withdrew from the agreement and announced its intention to submit its own bid to the county. The City brought breach of contract and breach of fiduciary duty claims against AMR. AMR moved for summary judgment on those claims on the ground that the Joint Venture Agreement was null and void because it violated Section 1 of the Sherman Act. In American Medical Response, Inc. v. City of Stockton, No. CIV-S-05-1316 DFL PAN (E.D. Cal. March 29, 2006), the Eastern District of California denied this motion.

The court first held that there were genuine issues of material fact as to whether a bona fide joint venture was actually formed. Citing California case law, the court listed the elements of a valid joint venture as: (1) joint interest in a common business; (2) an understanding to share profits and losses; and (3) a right to joint control. Both parties agreed that the Joint Venture Agreement did not specify key aspects of a typical joint venture, such as how the parties would combine resources, share profits and losses, or contribute capital. AMR asserted that no joint venture was formed because the Joint Venture Agreement only anticipated the forming of a joint venture that could submit a bid, the parties never agreed on how such a joint bidding entity would function, and each party continued to operate its own ambulance service exactly as it had before entering into the Joint Venture Agreement. The court, however, noted several facts that tended to support the existence of joint venture such as the fact that the parties made their respective offices available to each other for bid work, the repeated references by AMR executives to the relationship between the parties a joint venture, and memoranda and a draft LLC agreement that evinced an intent by the parties to integrate and combine resources if they received the contract. In sum, based on the evidence before the court, the existence of a bona fide joint venture was uncertain and not resolvable on a motion for summary judgment.

AMR argued that even if a valid joint venture existed, it contained a per se illegal horizontal market allocation. The court observed that the Joint Venture Agreement did indeed allocate emergency and non-emergency ambulance service between the parties. However, the court also stated that it would avoid the overly simplistic and literal application a per se standard without "some knowledge of the competitive landscape and effect of the allegedly pernicious provision." In this particular case, the court opined, "the determination of whether the market allocation provision is anti-competitive is intertwined with the question of how the joint venture would have affected competition." Since there was no evidence in the record that the allocation between the parties excluded other competitors from bidding and, in fact, two other companies submitted letters of intent to bid, genuine issues of material fact remained as to whether the allocation provision in the Joint Venture Agreement was in fact anticompetitive.

AMR also argued that a Joint Venture Agreement provision forbidding the parties from bidding independently was per se illegal under Section 1 because it amounted to an attempt by competitors to fix the amount of the bid. The City argued that this restraint was necessary to the procompetitive joint venture because it put "teeth" into the parties’ fiduciary obligations to one another and because it provided consideration to the parties for entering into the joint venture. As such, the City contended, it should be reviewed under the rule of reason. The court noted that it had little evidence on the ambulance service bidding market, what type of joint ventures, if any, would best serve it, or the competitive effects of such a restraint. Thus, the court was not in a position to decide whether per se or rule of reason analysis was appropriate and summary judgment as to this provision of the Joint Venture Agreement was denied.

The precise nature, contours, and effects of the relationship between the parties to this case, as set out in the Joint Venture Agreement, were, in the view of the Eastern District of California, uncertain and ambiguous. The existence of a legitimate, bona fide joint venture was unclear because, though the parties had not precisely delineated how they would integrate their resources and capital, they did appear to have undertaken some joint work on the bid and evidenced their intent to combine their resources and form a joint operating company in the event they received a contract from San Joaquin County. The anticompetitive effect, if any, of the Joint Venture Agreement’s provision allocating emergency and non-emergency ambulance service between the parties was uncertain in light of the fact that other competitors were not foreclosed by it from bidding and in fact did intend to bid. Finally, the court could not dismiss the City’s argument that the provision forbidding independent bidding by the Joint Venture Agreement participants was necessary to the procompetitive joint bidding venture because it simply did not have adequate evidence regarding the nature of the ambulance service bidding market and what joint bidding arrangements might most efficiently and adequately meet the San Joaquin County’s needs.

Authored by:

Anik Banerjee
213-617-4124
abanerjee@sheppardmullin.com