Letter from Daniel P. Ducore, Assistant Director for BC Compliance, to Kathy Fenton and Joe Sims re HCA orders D. 9161 and C-3167

8UA£AU OF COMP£T!TION
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Kathryn M. 	Fenton, 	Esquire
Joe 	Sims, 	Esquire
Jones, 	Day, 	Reavis 	& Pogue
1450 G Street, 	N.W.
Washington, 	D.C. 	20005
Dear Ms. 	Fenton 	and Mr. 	Simsz
I 	am 	writing 	in response 	to your 	letters 	of 	September 	25,
1989 	and March 	23, 	1990, 	inquiring whether, 	in 	the 	opinion of 	the
Bureau 	of 	Competition, 	the 	Commission would deem HCA Management
Company, 	Inc. 	("HMC") 	to 	be 	a 	"successor" 	to Hospital 	Corporation
of 	America 	("HCA") 	under 	the 	final 	Commission orders 	issued 	in
Docket No. 	9161 	and 	Docket 	No. 	C-3167 	("the HCA Orders"). 	These
orders 	are 	applicable 	to HCA 	"and to 	its 	... 	affiliates,
successors 	and 	assigns." 	The 	Commission's 	decision 	in 	Docket 	No.
9161, 	reported 	at 	106 	F.T.C. 	361, 	was 	affirmed on 	appeal,
Hospital 	Corporation 	of 	America v. 	F.T.C., 	807 	F.2d 	1381 	(7th
Cir. 	1986), 	f..!ll:l::. 	denied, 	481 	U.S. 	1038 	(1987).
According 	to 	your 	letter 	of 	September 	25, 	1989, 	HMC 	came
into existence 	on 	July 	31, 	1989, 	when a 	group 	of 	HCA managers 	and
an 	investment 	firm 	acquired, 	for 	approximately 	$45 	million,
"assets 	used 	in 	the 	hospital 	consulting 	and management 	business
from HCA." 	As 	a 	result 	of 	that 	acquisition, 	"HMC will 	provide
management 	and consulting 	services 	to 	some 	229 	hospitals 	and
health 	care 	systems 	with 	approximately 	38,000 	beds 	in 	the 	United
States 	and 	Canada."
In 	that 	letter, 	you 	also 	state 	that 	"HMC 	does 	not 	believe 	it
has 	any 	compliance 	obligations 	under 	the 	HCA Orders" 	on 	the
grounds 	that 	the 	"issues 	presented 	here 	are very 	similar 	to 	those
previously 	addressed by 	the 	Bureau 	of 	Competition 	in 	a 	request
for 	an 	opinion by Healthtrust, 	Inc. 	-- 	The 	Healthcare 	Company
("HTI")." 	The 	"HTI 	Letter" 	concluded that 	"HTI 	is 	not 	a
successor 	to HCA within the meaning 	of 	the 	final 	orders." 	See
Letter to 	Joe 	Sims, 	Esquire 	(March 	9, 	1988). 	HTI, 	like HMC, 	was
organized 	for 	the 	purpose 	of 	purchasing 	assets 	of 	HCA.
The 	Bureau 	of 	Competition 	is 	of 	the 	opinion that 	HMC 	is 	a
successor to HCA under 	the 	orders.. 	As 	the 	HTI 	Letter made 	clear,
the 	obligations 	imposed by 	Commission 	orders 	may 	apply 	to
purchasers, 	like 	HTI 	and HMC, 	that 	acquire 	less 	than
substantially 	all 	of 	the 	assets 	of 	the 	person 	under 	order. 	That
Letter 	suggested, 	however, 	an 	exception to 	successorship
liability 	in 	some 	circumstances 	where 	the 	respondent 	remained 	in
the 	line 	of 	business 	that 	led to 	the 	entry 	of 	the 	order. 	It 	is
now clear that 	the 	HCA 	Orders 	are 	directed 	at 	preserving
competition 	in 	local 	hospital 	markets, 	rather 	than 	solely
.JUL 2 3 1990

Kathryn M. 	Fenton, 	Esquire 	and 	Page 	2
Joe 	Sims, 	Esquire
competition 	in 	a 	national 	hospital 	line 	of 	business. 	Therefore,
the 	advice 	given 	in 	the 	HTI 	Letter has 	been 	rescinded 	and 	this
letter 	applies 	the 	general 	standard enunciated by 	the 	Commission
on 	several 	earlier 	occasions 	that 	a 	person 	is 	a 	successor 	if 	it
buys 	a 	business 	or 	a 	product 	line 	that 	is 	the 	subject 	of 	an
order.
The HCA Divestitures
At 	the 	time 	the 	HCA Orders 	were 	entered, 	HCA was 	the 	largest
operator 	of 	proprietary hospitals 	in the 	United 	States. 	It 	owned
or 	managed 	about 	400 	hospitals 	in 	the 	United 	States. 	HCA's
growth 	through 	acquisitions 	led to 	both 	of 	the 	orders 	being
considered 	here. 	Since 	that 	time, 	it 	has 	divested 	to HTI 	104 	of
its 	186 	acute 	care 	hospitals 	and 	to 	HMC 	182 	of 	the 	200 	or 	so
management 	contracts 	under which HCA operated hospitals. 	HCA 	has
also 	sold most 	of 	its 	foreign 	hospital 	operations.
The 	divestitures 	to HTI 	and HMC 	are 	strikingly 	similar 	in
one 	respect: 	they 	reflect 	more 	a 	change 	in ownership 	than of
management 	or 	operation 	of 	the 	businesses. 	In both 	instances,
senior 	managers 	of 	HCA 	joined together 	to 	acquire, 	in 	highly
leveraged buyouts, 	operations 	for 	which 	they had had management
responsibilities. 	In 	general, 	those managers 	have 	continued 	in
much 	the 	same 	capacities 	in the 	new 	corporations.
As 	HCA 	did prior 	to 	the 	divestitures, 	HMC 	intends 	to 	prosper
by 	growth. 	According 	to 	its 	statement 	filed 	with 	the 	Securities
and 	Exchange 	Commission 	on October 	20, 	1989, 	"The Company's
business 	strategy will 	focus 	on growth through expansion of 	HMC
and 	selective 	acquisitions" 	including 	the 	"acquisition of 	acute
care 	hospitals, 	lease 	arrangements, 	joint ventures 	and
profitsharing."
In 	addition, 	both HTI 	and HMC maintained 	some 	ongoing
relationships 	with 	HCA. 	As 	your 	September 	25, 	1989, 	letter
notes:
HMC 	has 	agreed 	to 	purchase 	at market 	rates
certain 	services 	(such 	as 	data 	processing
services) 	from 	HCA 	.... 	HMC 	will 	also
have 	the 	opportunity 	to 	participate 	in HCA's
bulk purchase 	supply 	agreements, 	including
one 	for 	the 	purchase 	of 	hospital 	supplies
from 	Baxter Travenol.
Pursuant to 	their 	agreements 	HCA 	also 	has 	the 	right 	to 	appoint 	a
director 	of 	HMC, 	was 	given warrants 	to 	acquire 	1,500,000 	shares
of 	HMC, 	and has 	agreed 	not 	to 	compete 	with HMC 	for 	a 	period 	of
five 	years.

Kathryn M. 	Fenton, 	Esquire 	and 	Page 	3
Joe 	Sims, 	Esquire I
Both 	HTI 	and HMC made 	their 	acquisitions 	knowing of,the 	HCA
Orders 	and 	as 	part 	of 	the 	purchase 	arrangements 	agreed 	"to be
bound by, 	and 	comply with 	[the HCA 	Orders] 	if 	and only to 	the
extent 	such 	terms 	and conditions 	are 	applicable 	to 	the 	[buying]
Company 	..•• -
Finally, 	as 	your 	September 	25, 	1989, 	letter 	states, 	"HCA
remains 	in 	the 	business 	that 	led to 	the 	imposition of 	the 	HCA
Orders. 	Along with 	its 	subsidiaries, 	it 	continues 	to 	own 	and
operate more 	than 	140 hospitals 	with 	25,000 	beds 	in 	the 	United
States 	and 	abroad." 	These 	divestitures 	have 	significantly
transformed HCA. 	It 	no 	longer 	is 	the 	largest 	operator 	of
hospitals 	in 	the United 	States. 	HMC 	operates 	more 	hospitals 	than
HCA; 	HCA now owns 	roughly 	the 	same number 	of 	hospitals 	as 	HTI.
The 	Effect 	OD 	the HCA Orders
The 	order 	in Docket No. 	9161 	requires 	that HCA 	give 	notice
to 	the 	Commission prior 	to making 	any 	acquisition 	in 	any 	area 	"in
which HCA 	already 	operates 	a hospital" 	and 	as 	a 	result 	of 	the
acquisition would 	"operate 	hospitals 	that 	combined have 	a 	twenty
(20) 	per 	cent 	or more 	share 	of 	the 	licensed 	acute 	care 	hospital
beds 	within that" 	area. 	"Acquire" 	is 	defined 	to 	include 	also 	any
arrangement 	to manage 	or 	lease 	a 	hospital. 	In 	addition, 	HCA 	is
required 	to 	obtain 	approval 	from 	the 	Commission prior 	to
purchasing 	any 	hospital 	in 	the 	Chattanooga, 	Tennessee 	area 	for
more 	than 	$1,000,000. 	Under 	the 	consent 	order, 	Docket 	No.
C-3167, 	HCA 	has 	separate 	notification 	responsibilities 	prior 	to
any 	acquisition 	of 	an 	acute 	care 	hospital 	in the Midland/Odessa,
Texas 	area 	and 	prior 	to 	any 	acquisition 	of 	a 	psychiatric 	hospital
or 	a 	hospital 	with 	a 	psychiatric 	unit 	in the 	Norfolk, 	Virginia
area.
Under 	the HCA 	Orders, 	the 	Commission 	augmented 	the 	prior
notice 	it 	receives 	about 	hospital 	acquisitions 	in many
localities. 	This 	augmentation 	is 	significant 	because 	many
hospital 	transactions 	are 	not 	reportable under 	the ·existing
premerger 	reporting 	program established by 	S 	7A of 	the 	Clayton
Act. 	In each 	of 	these many 	localities 	a 	twenty 	percent 	or
greater 	share 	of 	the 	hospital 	market 	is 	likely to 	be 	of
competitive 	significance.
The 	effect 	of 	the HTI 	Letter was 	to 	deprive 	the 	Commission
of 	the 	prior 	notice 	it 	had obtained under 	the 	HCA Orders. 	Were
the 	conclusion 	of 	that 	letter 	applied to 	the 	divestitures 	to HMC,
one 	third or 	fewer 	of 	the 	hospitals 	that 	were 	covered by the
Orders 	would remain 	subject 	to 	the 	prior 	notice 	provisions.
Indeed, 	one might 	argue 	that 	the 	logic 	of 	that 	conclusion would
not 	find 	a 	successor 	as 	long 	as 	HCA 	owned 	hospitals 	in
Chattanooga, 	Norfolk 	and Midland/Odessa 	even 	if 	HCA 	had 	divested

Kathryn M. 	Fenton, 	Esquire 	and 	Page 	4
Joe 	Sims, 	Esquire
all 	of 	its 	other 	facilities. 	There 	is 	no 	reason 	to 	believe 	that
the 	Commission 	intended 	such 	a result.
7be Standard 	for 	Successorship
The Commission has 	adopted the 	successorship standard
enunciated by 	the 	United 	States 	Supreme Court 	in Golden 	State
Bottling Co., 	Inc. 	v. 	NLRB, 	414 	u.s. 	168, 	184 	(1973) 	(employer
was 	successor where 	it 	"acquired 	substantial 	assets 	of 	its
predecessor 	and continued, 	without 	interruption or 	substantial
change, 	the 	predecessor's 	business 	operations"). 	In 	doing 	so,
the 	Commission has 	?oined 	those 	courts 	that 	have 	applied Golden
State to patent 	law 	and equal 	employment 	law 2 as 	well 	as 	labor
law 3 and did 	not 	follow 	the 	opinion of 	the 	United States 	District
Court 	in United 	States 	v. 	CPC 	International, 	Inc., 	1981-1982
Trade Cas. 	(CCH) 	164,428 	(N.D. 	Cal. 	1982). 	The 	HTI 	Letter
described 	the 	successorship 	standard 	and 	the 	Commission's 	use 	of
that 	standard:
1 See 	e.g., 	Vulcan, 	Inc. 	v. 	Fordees 	Corp., 	658 	F.2d 	1106,
1111 	(6th 	Cir. 	1981) 	(person 	held bound 	as 	successor 	who 	acquired
infringer's 	plans, 	notwithstanding 	that 	person 	did 	not 	buy 	all 	of
the 	infringer's 	assets 	and 	infringer 	continued 	to 	exist 	after
purchase); 	and 	Eli 	Lilly 	& Co. 	v. 	Premo 	Pharmaceutical 	Lab.,
Inc., 	843 	F.2d 	1378, 	1381 	(Fed. 	Cir. 	1988) 	(stating 	that 	a 	person
is 	a 	successor where 	it 	"has 	succeeded 	in 	interest 	to 	the 	subject
matter 	of 	the 	prior 	decree," 	that 	is, 	where 	it 	operates 	the
business 	that was 	subject 	of 	the 	court's 	order).
2 See 	e.g., 	EEOC v. 	MacMillan Bloedel 	Containers, 	Inc., 	503
F.2d 	1086, 	1089 	(6th Cir. 	1974) 	("the 	key 	factor" 	in determining
successor 	status 	is 	whether 	there 	is 	"substantial 	continuity 	of
identity 	in 	the 	business 	enterprise 	after 	the 	change" 	and 	not 	a
continuity 	of 	ownership or 	an 	acquisition of 	all 	assets 	of 	the
selling entity); 	and 	EEOC v. 	Local 	638, 	700 	F.Supp. 	739, 	743-6
(S.D.N.Y. 	1988) 	(holding union 	local 	the 	successor 	to 	order
binding 	defunct 	local 	on various 	grounds 	including, 	"substantial
continuity" 	of 	responsibilities, 	"notice 	of 	liabilities 	and
obligations" 	of 	defunct 	local 	under 	the 	order, 	and 	need 	to
"preserve 	the 	judgment 	and order 	of 	the 	federal 	district 	court"
that 	implemented 	"national 	policies 	protecting 	employees").
3 See e.g., 	Fall 	River 	Dyeing 	& 	Finishing 	Corp. 	v. 	NLRB, 	482
U.S. 	27, 	44 	(1987) 	(holding 	"petitioner 	[was 	a 	successor 	where
it] 	acquired most 	of 	Sterlingwale's 	real 	property, 	its 	machinery
and equipment, 	and much 	of 	its 	inventory 	and 	materials" 	and
"introduced no new product 	line"). 	See 	also, 	Restatement
(Second) 	of 	Judgments 	S 43 	comment 	a.

Kathryn M. 	Fenton, 	Esquire 	and 	Page 	5
Joe 	Sims, 	Esquire
The 	courts 	have 	held 	that, 	for 	public 	policy
reasons, 	a 	successor 	company 	may 	be 	liable 	under 	a
federal 	order despite 	the general 	rule 	that 	liabilities
do 	not 	attach to 	purchasers 	of 	assets. 	In Golden 	State
Bottling Co., 	Inc. 	v. 	NLRB, 	414 	U.S. 	168 	(1973), 	the
Court 	concluded 	that 	the NLRB could validly bind
successors 	when 	necessary 	to 	vindicate 	the 	policies 	of
the 	National 	Labor Relations 	Act. 	The 	Court 	held 	that
the 	bona 	fide 	purchaser 	of 	a business, 	who 	acquires 	and
continues 	the 	business 	knowing 	that 	his 	predecessor had
unlawfully 	discharged 	an employee, 	may be 	ordered by
the 	NLRB 	to 	reinstate 	the 	employee with back pay. 	In
this 	and 	in other 	cases, 	the Court 	balanced the 	private
interests 	of 	business 	acquirers 	against 	the 	objectives
of 	national 	labor 	law 	policy, 	including 	the 	goal 	of
avoiding 	industrial 	strife. 	John Wiley 	& Sons 	v.
Livingston, 	376 	U.S. 	543, 	549 	(1964) 	(objectives 	of
national 	labor policy require 	that 	the 	rightful
prerogatives 	of 	owners 	to 	rearrange 	their 	businesses 	or
cease 	operations 	must 	be 	balanced by the 	need 	to
protect employees 	from 	a 	sudden change 	in the
employment 	relationship).
Based 	upon 	this 	line 	of 	cases, 	I 	believe 	that
there 	may be 	circumstances 	in which 	it would be
appropriate 	to 	hold 	a 	company 	as 	a 	successor 	even 	if 	it
acquires 	only 	some 	of 	a 	respondent's 	assets. 	Such a
circumstance 	could 	arise, 	for 	example, 	when 	the 	order
provides 	a 	specific 	remedy 	that 	the 	respondent, 	because
of 	a 	transfer of 	assets, 	is 	no 	longer 	able 	to 	carry
out. 	~ Letter 	from 	the 	Secretary of 	the 	Commission
to 	James 	T. 	Halverson, 	Esquire 	(August 	20, 	1986), 	at
10, 	in 	response 	to 	petitions 	filed 	by 	Beecham, 	Inc. 	on
behalf 	of 	J.B. 	Williams 	Company, 	Inc., 	et 	al., 	Dockets
Nos. 	8547, 	C-2037 	and C-2226, 	and Merk 	& Co., 	Inc.,
trading 	as 	Quinton 	Company, 	et 	al., 	Docket 	No. 	8635.
In the 	matter of 	Allied 	Corporation, 	Docket 	No. 	C-3109, 	the
Commission also 	found 	"reason to 	believe" 	that 	a divestiture 	of
some 	assets 	created 	a 	successor 	for 	purposes 	of 	the 	order on 	the
grounds 	that, 	under 	the 	new owner, 	the 	"business 	appears 	to 	be
continuing 	in 	an essentially 	identical 	form." 	See Order
Reopening 	the 	Proceeding 	and Modifying 	Cease 	and Desist Order,
March 	18, 	1987, 	109 	F.T.C. 	at 	84.
The 	commission commonly 	applies 	order 	obligations 	to 	the
business 	rather 	than 	solely 	to 	the 	entity 	that 	owned 	it 	at 	the
time 	the 	order was 	entered. 	This 	preserves, 	but 	does 	not 	extend,
the 	scope 	of 	a 	remedy 	that 	the 	Commission 	has 	achieved 	through
litigated or consent 	orders. 	So, 	for 	example, 	the 	Compliance

Kathryn M. 	Fenton, 	Esquire 	and 	Page 	6
Joe 	Sims, 	Esquire
Division 	advised 	in the 	matter 	of 	Godfrey Company, 	Docket No.
C-3066, 	that 	Fleming Companies, 	Inc. 	did 	not 	become 	the 	successor
to 	Godfrey 	as 	a 	result 	of 	acquiring 	it; 	rather 	Fleming became
responsible 	as 	the 	parent 	corporation of 	Godfrey 	for 	Godfrey's
continued compliance with 	the 	order. 	As 	a 	result, 	Fleming was
required 	in 	the 	special 	circumstances 	described 	(concerning the
separate operation 	of 	the 	Godfrey 	stores) 	to 	assure 	that Godfrey
seek prior 	approval, 	but 	only 	for 	acquisitions 	of 	grocery 	stores
by 	Godfrey 	and 	not 	for 	unrelated 	acquisitions 	by 	other 	Fleming
entities. 	~ Letter 	to 	John M. 	Mee, 	Esquire 	(September 	28,
1987).
A similar 	result was 	reached 	in the 	matter 	of 	Germaine
Monteil 	Cosmetigues 	Corporation 	Docket 	No. 	C-3098. 	Revlon, 	Inc.
was 	advised 	by 	the 	Compliance 	Division 	that: 	nRevlon would be
bound by the 	order 	against 	Germaine 	Monteil 	after merging
Germaine 	Monteil 	into Revlon only with respect 	to 	the 	products,
as 	defined 	in 	the 	order, 	of 	Germaine 	Monteil,n 	See 	Letter 	to
Owen M. 	Johnson, 	Jr., 	Esquire 	(June 	5, 	1989). 	-
Application 	of 	the 	Successorship Standard
The 	individual 	hospitals 	owned 	and operated by 	HCA 	are 	the
businesses 	that 	are 	the 	subject 	of 	the HCA Orders. 	Those 	orders
are 	designed 	to 	preserve 	competition 	in 	local 	geographic 	markets.
Thus, 	the 	Commission's 	successorship 	standard was 	not 	correctly
applied 	in 	the 	HTI 	Letter. 	It 	should 	have been made 	clear 	that
the 	sale 	of 	HCA's 	hospitals 	and management 	contracts 	in 	a 	local
market 	is 	comparable, 	for 	antitrust 	purposes, 	to 	the 	sale 	of 	all
Allied's 	high 	purity 	acid 	business 	or Merk's 	sale 	of 	Sucrets. 	As
a 	result, 	none 	of 	the 	factors 	identified 	in my 	earlier 	letter 	as
distinguishing 	the 	HTI 	acquisition exist 	for 	localities 	in which
HCA 	has 	sold 	its 	hospital 	business: 	l) 	HCA 	transferred 	all 	or
substantially 	all 	of 	its 	assets 	in the 	relevant 	business; 	2) 	HCA
is 	no 	longer 	in business 	in 	a 	geographic 	market 	covered by 	the
order; 	and 	3) 	HCA 	is 	no 	longer 	capable 	of 	complying with the
order provision 	in 	question, 	which 	require 	advance notice 	to 	the
Commission of 	certain 	types 	of 	acquisitions.
In 	accordance with 	the 	Commission's 	application 	of 	Golden
State, 	when HCA's 	hospitals 	are 	transferred 	to 	new 	owners 	or
managers, 	the 	business 	remains 	subject 	to 	the 	Commission's
orders. 	Thus, 	because HMC 	has 	acquired 	from 	HCA 	the 	right 	to
manage 	a 	hospital 	in 	a 	locality, 	HMC 	has, 	in principle, 	the
obligation 	to 	provide 	the 	Commission 	advance 	notice 	of 	any
hospital 	acquisition, 	management 	contract, 	etc. 	it makes 	in that
area, 	if 	as 	a 	result 	of 	that 	acquisition 	it 	would 	own 	and operate
more 	than 	20 	percent 	of 	the 	hospital 	beds 	in 	that 	locality.

Kathryn M. 	Fenton, 	Esquire 	and 	Page 	7
Joe 	Sims, 	Esquire
Your 	letter of 	March 23, 	1990, 	suggests 	that 	this 	result
could 	create 	some 	anomalies. 	You 	state 	that 	HMC, 	as 	a 	successor,
would be 	obliged to obtain Commission approval 	prior to 	any
acquisition 	in 	Chattanooga. 	You 	also 	state 	that 	the 	Bureau's
view might 	result 	in two 	entities 	having 	separate 	notification
obligations 	for 	the 	same 	locality. 	For 	reasons 	described below,
the 	former 	is 	not 	true, 	and the 	latter, 	while 	possible, 	is 	not 	an
anomaly. 	Separate 	notification would 	arise 	only 	to 	protect 	the
effectiveness 	of 	the 	Commission's 	orders. 	It would be 	truly
anomalous 	if 	the 	scope 	of 	the 	Commission's 	order diminished 	as 	a
result 	of 	dividing HCA's 	business 	operations.
Ownership or management 	of 	an HCA hospital 	triggers 	a
successorship 	obligation. 	Thus, 	HMC 	does 	not 	have 	notification
obligations 	for 	hospital 	acquisitions 	in 	or 	contracts made 	for
localities 	in which 	it 	does 	not 	operate, 	own, 	etc. 	hospitals 	that
it 	acquired 	from HCA. 	See Letters, 	supra, 	to 	John M. 	Mee 	(re:
Godfrey 	Co.) 	and 	Owen M. 	Johnson, 	Jr. 	(re: 	Germaine 	Monteil)
indicating 	that 	responsibility under 	those 	orders 	extends 	only 	to
the 	business 	acquired by 	the 	successor. 	Because HMC 	did 	not
acquire 	hospitals 	in, 	or management 	contracts 	for, 	Chattanooga,
Norfolk, 	or Midland/Odessa, 	HMC 	has 	neither 	prior 	approval 	nor
prior 	notice 	obligations 	under 	the 	orders 	for 	these 	areas.
Absent 	a 	closer 	or more 	complete 	relationship between HMC 	and
HCA, 	such 	obligations 	would 	attach 	only 	if 	HMC 	had 	obtained
hospitals 	in 	those 	areas 	from 	HCA.
The 	Commission's 	decision 	in the 	Allied 	Corporation
reopening, 	supra, 	illustrates 	how 	separate 	obligations 	could
arise 	under 	an order 	addressed 	to 	one 	person. 	In that 	decision,
the 	Commission 	considered Allied's 	request 	to 	be 	relieved of
prior 	approval 	obligations 	that 	applied 	to 	acquisitions 	of 	high
purity 	acid manufacturing 	facilities. 	Allied had 	spun 	off 	all 	of
its 	facilities 	to 	Henley. 	The Commission 	rejected Allied's
request 	to 	terminate 	the 	prior 	approval 	provisions 	on the 	grounds
that 	the 	business 	that 	gave 	rise 	to 	the 	order was 	continuing.
The 	Commission went 	on to 	say 	that 	it 	believed Henley may 	be 	the
successor to 	the 	obligations 	under 	the 	order, 	citing Golden 	State
and noting 	that Henley was 	running 	the 	business 	and 	its 	liability
was 	necessary 	to 	preserve 	the 	purpose 	of 	the 	order.
The 	Commission then considered whether Allied 	should still
be bound by 	the 	order 	and 	identified 	two 	facts 	that 	led 	it to
grant Allied's 	request: 	Allied had 	sold 	its 	business 	and 	it
stated 	nthat 	it 	does 	not 	intend now 	to 	reenter 	the 	market." 	Had
Allied not made 	the 	quoted 	representation 	about 	its 	intention, 	it
appears 	the 	Collllllission would 	not 	have 	released 	Allied 	from 	those
provisions. 	In that 	event, 	two 	entities 	would 	have 	had 	separate
obligations 	under 	the 	order.

Kathryn M. 	Fenton, 	Esquire 	and 	Page 	8
Joe 	Sims, 	Esquire
Similarly, 	in 	this 	case, 	if HCA were 	to 	exit 	a 	local
geographic 	hospital 	market 	by a 	sale 	of 	management 	contracts 	to
HMC, 	the 	order obligations 	would 	follow 	the 	business 	in order 	to
preserve 	the 	effectiveness 	of 	the 	order. 	But, 	if 	HCA 	reentered
the 	geographic 	market 	it 	too would be 	subject 	to 	the 	order 	for
subsequent 	acquisitions 	in 	that market.
Like 	the 	successor 	in Golden 	State, 	HMC had knowledge 	of 	the
agency's 	orders 	before 	its 	acquisition 	and HMC 	knew 	those 	orders
applied 	to 	the HCA management 	contracts 	that 	it was 	acquiring.
As 	noted 	earlier, 	HMC 	and HCA entered 	into 	a 	"Compliance
Agreement• 	whereby 	HMC 	"agreed to 	be 	bound 	by 	the 	requirements 	of
the 	Chattanooga 	Order, 	the 	Forum Consent 	Order 	and 	the 	New
Orleans 	Judgment, 	to 	the 	extent 	such 	requirements 	are 	applicable
to 	{it] .... "
As 	in 	Golden 	State, 	the 	Commission's 	successorship 	standard
exists 	to 	implement 	the 	objectives 	of 	federal 	law, 	here 	the
effective enforcement 	of 	the 	objectives 	of 	S 7 of 	the 	Clayton
Act. 	In this 	case, 	Hospital 	Corporation 	of 	America, 	the
Commission 	rejected the 	claim 	that 	the 	prior 	notification 	remedy
was 	unwarranted 	or 	should be 	imposed only upon proof 	of 	bad
faith:
Whether 	such 	relief 	is 	appropriate 	depends 	not 	on
whether 	the 	respondent 	has 	a history 	of 	law violations
or 	otherwise 	deserves 	to 	be 	punished, 	but 	on whether,
in view 	of 	the 	violation proven 	in this 	case, 	the
relief 	is 	necessary 	to 	detect 	and 	investigate 	future
acquisitions 	that may 	significantly endanger
competition.
106 	F.T.C. 	at 	516. 	The 	Commission's 	view was 	upheld 	on 	appeal.
Hospital 	Corporation 	of 	America v. 	F.T.C., 	807 	F.2d 	1381, 	1393
(7th Cir. 	1986). 	It 	is 	reasonable 	to 	require 	prior 	notice, 	in
any 	area 	"in which 	HCA 	already 	operates 	a 	hospital," 	for 	any
acquisition resulting 	in 	a 	market 	share 	of 	twenty 	percent 	or
more. 	The 	litigation 	established 	the 	appropriateness 	of 	this
prior notice 	provision to 	the 	enforcement 	of 	S 7 of 	the 	Clayton
Act. 	Requiring 	a 	successor to 	abide 	by 	it merely 	preserves 	the
remedy 	the 	Commission has 	already 	obtained.
Other Considerations
Although 	I 	believe 	that 	HMC 	is 	a 	successor under 	the HCA
Orders, 	we 	have 	indicated 	in 	discussions 	with you 	that 	the
circumstances 	of 	HMC 	may warrant 	some 	differences 	in 	treatment.
As 	an 	initial 	matter, 	HMC 	may 	be 	able, 	until 	it 	receives 	this
letter, 	to 	assert 	good 	faith 	reliance 	on 	the 	HTI 	Letter 	as 	an
adequate 	reason 	for 	not 	h~ving 	provided 	any 	required 	notices

..
Kathryn M. 	Fenton, 	Esquire 	and 	Page 	9
Joe Sims, 	Esquire i
prior to 	its 	acquisitions. 	Also, 	it may be 	relevant 	if 	tt 	can 	be
established 	that 	the 	prior 	notice 	requirement 	burdens 	HMC's
operations 	or 	if 	HMC 	has 	taken 	actions 	to 	its 	detriment 	in
reliance 	on 	the HTI 	Letter. 	If HMC 	can make 	the 	showings
required 	by 	section 	S(b) 	of 	the 	Federal 	Trade 	Commission Act 	and
S 2.51 	of 	the 	Commission's 	Rules 	of 	Practice, 	it may 	urge 	these
as 	grounds 	for 	modification of 	the 	orders 	as 	they 	apply 	to HMC.
Furthermore, 	as 	we 	stated 	in discussions 	with you, 	we 	think
HMC's 	liability 	as 	a 	successor 	under HCA contracts 	may 	terminate
with the 	expiration of 	those 	contracts 	if 	that 	occurs 	before 	the
expiration 	of 	the 	order. 	Of 	course, 	such 	termination would 	not
occur 	as 	a 	result 	of 	a 	mere 	novation; 	consequently we 	invited you
to 	submit 	additional 	information concerning 	such contracts. 	In
the 	final 	footnote 	of your March 	23, 	1990, 	letter you 	request 	the
Bureau to 	address 	the 	effect 	of 	contract 	expiration. 	However, 	I
cannot 	go 	beyond the 	statements 	we 	have 	made 	previously 	in 	the
absence 	of 	more 	information 	about HMC's 	contracts 	and 	the
hospital 	contracting process. 4
Finally, 	your March 	23, 	1990, 	letter 	suggests 	the 	final
paragraph 	of 	the 	HTI 	Letter may 	not 	be 	clear enough 	about 	the
binding effect 	of 	the 	Bureau's 	advice 	when 	it 	expresses 	an
opinion on 	a 	Commission order. 	You 	suggest 	that 	the 	Bureau
committed 	itself 	not 	to 	change 	its 	views 	unless 	it 	discovered
dispositive 	facts 	it 	had 	not 	previously considered. 	Any 	such
interpretation 	is 	unwarranted.
The HTI 	Letter 	stated 	that 	the views 	it 	expressed were 	not
binding 	on the 	Commission; 	neither 	are 	those views 	"binding" 	on
the 	Bureau. 	They 	are 	an 	opinion on what 	the 	Commission would 	do
if 	it was 	faced 	with 	the 	question posed to 	the 	Bureau. 	The 	views
are 	a 	prediction, 	not 	a 	judgment 	subject 	to 	rules 	of 	finality.
No 	reliance 	on 	statements 	in 	a 	letter 	is 	warranted 	after those
views 	have 	been revised. 	The 	language 	quoted 	in 	footnote 	6 of
your March 	23, 	1990, 	letter·refers 	to 	circumstances 	in which 	no
reliance 	is 	ever 	justified, 	for 	example, 	to 	circumstances 	in
which relevant 	facts 	were 	not 	disclosed 	to 	the 	Bureau. 	To 	avoid
the 	possibility 	of 	any 	future 	misunderstanding, 	the 	final
paragraph of 	this 	letter 	has 	been 	reworded.
The views 	expressed 	in this 	letter 	are 	restricted 	to 	the
facts 	as 	you have 	represented 	them 	in your 	request. 	Moreover,
4 I 	have 	not 	discussed your 	argument 	concerning 	Ch, 	5.3.4.1
of 	the 	Commission's 	Operating 	Manual, 	because, 	as 	the 	Manual
states, 	the 	language you 	cite 	is 	intended 	for 	instances 	in which
the person making 	an 	acquisition 	"might 	not 	otherwise 	be 	a
successor under 	the 	law."

Kathryn M. 	Fenton, 	Esquire 	and 	Page 	10
Joe 	Sims, 	Esquire
staff 	advice 	is 	not 	binding upon 	the 	Commission, 	and 	the Bureau
may 	in 	appropriate 	circumstances 	reconsider, 	revoke, 	or 	rescind
that 	advice. 	Further, 	this 	advice 	does 	not 	preclude 	the
Commission 	from 	taking 	any 	action 	it 	deems 	appropriate, 	including
an 	action 	for 	civil 	penalties, 	for 	any violation of 	the 	order.
Sincerely,
Daniel
O~/?&~P. 	Ducore
Assistant 	Director•