District Court Denies Most Recent FTC Attempt to Stop Novant/CHS Transaction

We reported last week on the U.S. District Court’s denial of an FTC request for a preliminary injunction to block Novant Health’s “Novant) purchase of Lake Norman Regional Medical Center (LNR) and Davis Regional Psychiatric Hospital (Davis) from Community Health Systems (CHS). The FTC sought the injunction pending the conclusion of its administrative process.

Following the denial, the FTC petitioned the Court to issue, for an indeterminate period of time, the injunction that the Court had refused to grant while the FTC pursued a planned appeal to the Fourth Circuit Court of Appeals.

Yesterday, the Court entered an order declining to grant the FTC’s requested injunction. However, the Court did grant the FTC’s alternate request to extend the temporary restraining order that has been in place until June 21 to allow the FTC time to seek an injunction from the Fourth Circuit. From the standpoint of Novant and CHS, this will stay the closing of the transaction, which had been planned to take place this week.

By way of background, the Court in initially denying the FTC’s request for the injunction applied the statutory standard in Section 13(b) of the Federal Trade Commission Act. As more fully explained in our June 6 post, the Court, weighing the equities and considering the FTC’s likelihood of ultimate success, concluded that issuance of the injunction pending the conclusion of the FTC’s administrative process would not be in the public interest.

Among other things, the Court found that:

1. Absent the transaction, Davis will close
2. There is no plausible alternative buyer for LNR or Davis
3. LNR is unlikely in the near term to resume important services in cardiology, newborn care and oncology because of CHS’s decision not to invest in the growth of the hospital
4. LNR’s external competitive challenges, particularly the opening of a hospital by Atrium Health to be located between LNR and Novant

The Court concluded that all of this, especially the closure of the hospitals, will reduce rather than enhance competition. Therefore, the proposed merger carried at least as much likelihood of competitive benefits as it did competitive harm and the FTC is unlikely to ultimately be successful in proving that the transaction may “substantially lessen competition.”

In declining yesterday to issue the injunction as requested by the FTC, the Court applied Federal Rule of Civil Procedure 62(d) under which the FTC must show: (1) a likelihood of success on the merits of its appeal of the denial of the preliminary injunction; (2) a likelihood of irreparable harm absent relief; (3) that the injunction will not substantially harm the other party; and (4) that an injunction benefits the public.

Applying in substantial part the reasoning contained in its initial denial, the Court yesterday concluded that the FTC had failed to satisfy the requirements for the issuance of the injunction emphasizing that:

• The weighing of the equities fully supports the Court’s ruling, regardless of its assessment of the FTC’s likelihood of success, which the Court believes to be correct in any event
• In contrast to the harm that will follow an injunction, there will likely be no actual, immediate competitive harm if Novant begins to operate Davis and LNR
• It is in their best interests that Novant be permitted to purchase and operate Davis and LNR during the FTC’s administrative process
• The public (including patients, doctors, nurses and the community) are better served by Novant operating Davis and LNR while the litigation goes forward rather than CHS closing Davis and running LNR on a shoestring