Case spotlights exclusive contracts for veterinary diagnostic laboratory services
Antech, one of the world's largest veterinary diagnostic laboratories, is known among veterinarians as being litigious, a reputation earned from years of lawsuits against private practitioners involving business contract disputes. In a role-reversing case in California, the plaintiff has become the defendant.
Dr. Jill Patt and her practice in Arizona, Little Critters Veterinary Hospital, is suing Antech Diagnostics in U.S. District Court for the Central District of California. The complaint alleges unlawful business practices, attempted monopolization and breach of contract. Antech is headquartered in Southern California; Mars Inc. is its corporate parent.
The suit, which seeks certification as a class action, challenges the legality of exclusive, extended contracts that are common among customers of Antech as well as of its chief competitor, Idexx Corp. According to the complaint, Antech and Idexx each control 45% of the U.S. market for private veterinary diagnostic laboratory services.
Under the contracts, veterinary practices typically commit to a certain dollar value of business with the lab for a period of years, and to use only that laboratory for the great majority of their business. In exchange, the practices receive what they believe to be preferential pricing and sometimes sweeteners such as in-house diagnostic equipment or cash in the form of forgivable loans. The contracts generally extend for four years or longer, with automatic renewals that are difficult to cancel.
Patt has one such contract with Antech and is trying to nullify it. Her complaint alleges that Antech, by pressing veterinarians into exclusive contracts, is engaging in monopolistic behavior in violation of federal antitrust law and state law governing business practices. Antech denies the allegations and is countersuing Patt and Little Critters for contract breach.
In spotlighting the contracts, Patt's case raises provocative questions about the accuracy of private veterinary laboratory diagnostic results. The reason she's seeking to end her contract before it expires is because, the claim alleges, Antech repeatedly returned incorrect, sometimes inexplicable, results. The complaint describes 25 instances of inaccurate or questionable findings or otherwise unsatisfactory service involving 15 dogs, five reptiles, two rabbits, two cats and a bird.
"Antech's faulty laboratory practices threaten not only the health of animals, but of humans," the suit alleges, noting that some of the conditions for which the laboratory produced false negatives are transmissible to people, including infections of parasites such as Giardia and hookworms.
Further, the suit charges, "By providing invalid results to veterinarians across the country, Antech is also, in effect, providing invalid results to pet owners. As a result, pet owners lost pets needlessly and had to experience their pets suffering prolonged treatment, with concomitant psychic and economic costs ..."
Whether the reliability of Antech's results is unacceptable in a legal sense won't be resolved by this case, however. In a ruling in May on a motion by Antech to dismiss the claim, U.S. District Court Judge Josephine Staton said Antech marketing language cited by Patt is not specific or measurable in such a way as to prove false. The language is:
No one better understands the importance of quality patient care and the value of accurate dependable care than VCA Antech ... Dependable testing is more than technology; accurate and dependable results rely on highly skilled and trained technicians. Each and every Antech Laboratory Technician is under daily QA/QC programs designed to ensure accurate results while receiving annual mandatory testing to insure their skills and knowledge are second to none.
The judge concluded that Antech's "representation that it provides accurate, dependable diagnostic testing is nonactionable puffery ..."
She elaborated: "[T]he issue with the alleged misrepresentation here is not that it concerns an unmeasurable subject matter. The problem is that the statement itself, viewed in context, is a generalized and unspecified statement of product superiority."
Staton gave more weight to Patt's argument that contract terms could be challenged based on antitrust law, finding that the plaintiffs "sufficiently allege clearly exclusionary conduct in the form of actionable exclusive dealing ..."
Exclusivity is the nub:
"[T]he Services Agreement plausibly impedes competitors' ability to meaningfully reach veterinarians like Dr. Patt. The agreement mandates 90% exclusivity and a minimum annual spending amount. Even if reaching 10% of Dr. Patt's (and similar situated veterinarians') business could be considered a meaningful alternative channel, such veterinarians are unable to fully give their business to competitors for several years while they are tied down by Defendant's Services Agreement."
Foreclosing 45% of the market to competition is "sufficiently significant" to establish a claim, according to the ruling. "In sum," the judge wrote, "Plaintiffs have plausibly stated an attempted monopolization claim ..."
Patt declined to be interviewed for the story while the case is active. Antech declined to comment for the same reason.
Questionable results raise doubts
Seeds of the conflict were planted on July 6, 2017, when Patt signed a six-year contract with Antech, pledging to buy at least $24,000 in diagnostic services from the lab per year (for a total of $144,000) and to use the company exclusively, with limited exceptions, for diagnostic services performed outside her clinic.
Quality control 'all voluntary'
in private veterinary laboratories
In return, Little Critters received several incentives, including a $12,000 loan at 7% interest, portions of which would be forgiven each year that the practice met its minimum purchase obligations.
The agreement includes a clause by which the contract automatically renews for two more years absent written notice of nonrenewal at least one year before the term ends. The suit states: "Antech provides no reminder of the approaching deadline for providing notice and is evasive about whether it will accept emails as written notice. Nor does Antech specify to whom in the organization the written notice must be provided."
Trouble arose five months into the contract. According to the suit, Little Critters began to wonder about Antech's reliability in December 2017, when it questioned negative results from fecal tests that the lab subsequently changed to positive. The suit doesn't say what the fecal samples were positive for, nor why the clinic doubted the negative results.
In any case, at that time, "Dr. Patt began watching more closely for errors in the results and found numerous ones," the suit says.
The complaint recounts that starting in January 2018, Patt had 30 dogs tested by Antech for Ehrlichia Canis, a bacteria transmitted by tick bites; all results were negative. The suit indicates that that outcome was implausible: "Based on the known prevalence of disease in the surrounding Phoenix area, one would expect a minimum of 4% of dogs would be Ehrlichia positive, but this figure could well be as high as 15-20% depending on seasonal conditions."
Patt submitted samples to Antech competitor Idexx, which found three to be positive. She submitted one sample to a laboratory at North Carolina State University, which confirmed an Ehrlichia infection.
The suit quotes Jim Church — who, according to his LinkedIn page, is vice president of Antech's Southwest operations — as saying, after being told about Little Critters' experience and asked whether he trusted his company's test: "Well I work for the company so it's difficult to say but what I will say is that I don't trust it today as much as I did yesterday."
The suit goes on to describe a variety of tests that the clinic found incorrect. A notable case is that of a lizard name Lizzy, who was found to have a low potassium level of 0.9 and a uric acid level of 0.0, which, the complaint states, "made no clinical sense" because "any lizard of that species with a potassium level below 1.5 would die of heart failure."
The suit opines: "Antech should never have reported the results to Dr. Patt in the first place as they should know that such absurd results indicate a problem with the test rather than the patient's condition."
In one instance described, Antech simply couldn't produce results. The case involved a bird named Charlie, whose "entire sample was consumed in multiple 'machine failures.' " The lab requested a new sample "but unfortunately, the bird died while awaiting results."
The suit further alleges that Antech sometimes changed laboratory results without recording the change as a correction — in effect, altering medical records via the lab's interface with the clinic practice management software.
"In practice, Antech's 'updating' approach leaves practitioners unable to check Antech's error rate," the suit states. "More fundamentally, it puts practitioners at risk of failing to abide by licensing board dictates that they maintain accurate medical records or to comply with prevailing guidelines of veterinary care.
"To state the problem differently," the suit offers, "if a veterinarian communicates the first test result from Antech to clients and the result is later changed by Antech without clear demarcation, the veterinarian has no record proving that her statements to the client were true at the time of her client communication. The veterinarian is legally responsible to document all findings that lead to diagnoses. These unannounced changes to test results by Antech thus place her license in jeopardy."
In its legal response, Antech answers the allegations with this general repeated statement: "Antech denies that Plaintiffs' characterization ... is accurate and denies Plaintiffs' framing of these issues."
A history of litigation
Patt learned of similar experiences by other practitioners after she posted about her concerns on an online forum for veterinarians, according to the suit. The other veterinarians and the forum are not identified. The suit proposes that the complaint be treated as a class action representing "all veterinarians and/or their associated practice entities that are parties to an Exclusive Laboratory Services Agreement with Antech or have been such parties at any time since four years prior to September 19, 2018."
In deciding whether to certify the case as a class action, the court must determine how broadly the alleged wrongdoing extends, according to Raphael Moore, general counsel for the Veterinary Information Network, an online community for the profession. A class "is a group that has similar grievances and is similarly situated," he explained.
If certified, he said, "It will open the floodgates. It will allow others to join in the claim and reduce the costs of individual plaintiffs, which is one of the purposes of class litigation." It also could be beneficial to the defendant as a way to avoid having to defend future claims like Patt's one at a time, Moore said.
Arguments for class certification are due to the court by Dec. 22.
For more than a decade, Antech has engaged veterinarians in years-long service agreements. By 2011, the practice was engendering litigation. The VIN News Service reported in March 2012 that Antech had filed at least eight suits in federal court within the previous 10 months against veterinarians and veterinary practices, alleging contract breach. The contracts were for sales in the range of $234,000 to $798,000 over durations ranging from four to seven years.
The clinics being sued had ended their relationships with Antech before their contracts expired, citing a variety of reasons. For instance, some alleged that the laboratory's service was unacceptably poor. Some received a more attractive offer from Idexx.
In May 2014, VIN News reported that the number of Antech contract breach suits had risen to 21. At that time, two cases had been decided in Antech's favor, although the monetary awards were smaller than what Antech sought. Another ended in Antech's favor by default because the defendant did not respond to the suit. Eleven ended in confidential settlements.
Cases decided by a judge generally were viewed in simple business terms: Break a contract you signed, pay consequences.
In an interview in 2014, Bob Antin, then president and CEO of VCA, which owned Antech at the time, said the company did not relish taking veterinarians to court but resorted to it to collect money it was entitled to under the agreements and to reinforce the validity of all such contracts.
"Most people realize when you enter into a contract, there's an obligation," he said. "My personal desire isn't to enforce all the time by legal means, but some of the cases have been rather egregious, so we've pursued them."
Today, Antech and VCA are owned by the international conglomerate Mars Inc., operating under Mars Petcare's Veterinary Health division. Mars bought VCA in 2017. It is the largest owner of veterinary practices in the world, with more than 2,500 locations.
The change in ownership has not diminished Antech's legal actions against veterinarian clients. A search of pacer.gov, a database of federal court cases, shows 10 complaints filed by Antech against veterinarians or veterinary practices since it was acquired by Mars.
The total number is multiple times that. According to Patt's complaint, "Antech has filed over 55 federal lawsuits against its veterinarian clients since February 2013" — a statement that Antech confirms in its court response. The figure may be notably higher than 55 because VCA is the plaintiff in some suits.
Besides the counterclaim against Patt and Little Critters Vet, only one other case is active; the rest are closed, court records show. Most were resolved without going to trial.
Patt's claim against Antech, in challenging the legality of the contracts themselves, has potentially significant ramifications, according to Moore, VIN's general counsel. "It's a large risk for a business to be told that the way you're doing business is monopolistic; that it's wrong," he said.
Furthermore, he said, "It's an industry practice, so I'm sure others are sitting and looking, or they would be smart to sit and look, and potentially preemptively change their business practices quietly so they don't end up here, as well. Because win or lose, this is not good publicity."
Should Antech prevail, Moore said, it would mean "they get a stamp of approval that these types of contracts are acceptable business practices," in which case, veterinarians should approach such contracts with "consumer beware" caution. "There is no free lunch," he said.
Although the questions Patt's case raises are far-reaching, the suit asks only that she be released from the contract; that she not be required to repay the incentive loan; and that Antech pay her court costs and attorney fees.
A resolution could be some time away. A scheduling order from the judge last month provides for discovery until Aug. 13, 2021, and out-of-court settlement proceedings through Oct. 15, 2021. A pretrial conference is set for Dec. 17, 2021.
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