NOEL L. HILLMAN, District Judge.
This case concerns antitrust and fraud claims brought by osteopathic physicians against the American Osteopathic Association for its alleged unlawful tying of board certification and professional association membership. Presently before the Court is the motion of the American Osteopathic Association to dismiss Plaintiffs' claims, or in the alternative, transfer venue to the Northern District of Illinois. For the reasons expressed below, Defendant's motion will be denied in its entirety.
Plaintiffs are osteopathic physicians ("DOs") who have been board certified as medical specialists by the American Osteopathic Association ("AOA"), and who have also purchased membership in the AOA. Approximately 48,000 practicing DOs are members of the AOA, and approximately 32,000 of those DOs are AOA board certified. The AOA has notified Plaintiffs and AOA board certified DOs that their board certification will be invalidated and cancelled unless they purchase annual membership in the AOA. Plaintiffs claim that in order to avoid the loss of their board certification, Plaintiffs and AOA board certified DOs have been forced to purchase AOA membership even though it serves no purpose with respect to, and has no actual connection with, AOA board certification or their practice as physicians.
Plaintiffs further claim that the AOA's unlawful tying arrangement has reduced the number of DOs willing to purchase membership in other professional physician associations and has thereby foreclosed competition in the market for membership in professional physician associations (the "Association Membership Market"). Plaintiffs claim that the reduction in purchases by AOA board certified DOs of non-AOA professional physician association memberships has erected barriers to entry, and thus has prevented potential rivals to the AOA from entering the Association Membership Market. In addition, Plaintiffs claim that the AOA's unlawful tying arrangement has raised the costs faced by its existing rivals, as well as softened price competition between the AOA and its existing rivals.
By reducing competition in the Association Membership Market through its unlawful tying arrangement, Plaintiffs claim that the AOA has been able to increase the price of its annual membership dues to almost double the price that its competitors in the Association Membership Market charge for membership in their associations, and there has been a corresponding reduction in competitive offerings.
In addition to the tying arrangement, Plaintiffs claim that DOs who received their AOA board certification prior to 2000 were promised by the AOA that it was a "lifetime" certification that would never expire, and that promise was renewed in 2013, when the AOA initiated its Osteopathic Continuous Certification program ("OCC"). Plaintiffs claim, however, that the AOA knowingly concealed that lifetime certification holders would also have to purchase annual membership in the AOA to avoid the invalidation and cancellation of their prior "lifetime" certifications.
Based on the foregoing, Plaintiffs, on their own behalf and on behalf of the class and sub-classes, have brought the present action to obtain injunctive and monetary relief against the AOA for this alleged anticompetitive tying arrangement, alleging that it violates Section 1 of the Sherman Act, 15 U.S.C. § 1 ("Section 1") and Section 3 of the New Jersey Antitrust Act ("NJAA"), N.J.S.A. 56:9-3 ("Section 3"), and the New Jersey Consumer Fraud Act ("NJCFA") N.J.S.A. 56:8-1, et. seq.
The AOA has moved to dismiss Plaintiffs' claims, or in the alternative, transfer venue to the Northern District of Illinois. Plaintiffs have opposed the AOA's motion on both premises.
A. Subject matter jurisdiction
This Court has jurisdiction over Plaintiffs' federal claims under 28 U.S.C. § 1331, and supplemental jurisdiction over Plaintiffs' state law claims under 28 U.S.C. § 1367.
B. Standard for Motion to Dismiss
When considering a motion to dismiss a complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), a court must accept all well-pleaded allegations in the complaint as true and view them in the light most favorable to the plaintiff.
A district court, in weighing a motion to dismiss, asks "`not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claim.'"
A court in reviewing a Rule 12(b)(6) motion must only consider the facts alleged in the pleadings, the documents attached thereto as exhibits, and matters of judicial notice.
Before addressing the viability of Plaintiffs' antitrust and fraud claims, some background information on the AOA board certification process explained in Plaintiffs' complaint is helpful to put Plaintiffs' claims in the proper context.
In the United States, physicians who practice medicine either hold a Doctor of Medicine degree ("MD") or a Doctor of Osteopathic Medicine degree ("DO"). MDs are trained in the principles and approaches of allopathic medicine, while DOs are trained in the principles and approaches of osteopathic medicine.
After graduating from medical school and obtaining a medical degree, and in order to practice medicine and obtain a medical license in the U.S., a physician is required to complete an accredited residency training program. The AOA is the only accrediting agency for osteopathic graduate medical education, while the American College of Graduate Medical Education ("ACGME") accredits medical residency programs traditionally filled by MD post-graduates.
Board certification is another component to practicing medicine. Board certification is the process by which a MD or DO demonstrates a mastery of basic knowledge and skills in a particular specialty. In order to obtain board certification, physicians must meet certain requirements and successfully pass a series of examinations that demonstrate their mastery of their skills in a particular medical specialty.
The AOA has established 18 Specialty Certifying Boards ("AOA Board") and the AOA's Department of Certifying Board Services ("ADCBS") to administer the process of board certification for DOs based on the principles of allopathic medicine. The American Board of Medical Specialties ("ABMS") also offers board certification to physicians in various specialties and sub-specialties. DOs who complete their residencies at an AOA accredited program are currently not eligible for ABMS board certification. Only MDs and DOs who complete an ACGME residency are eligible to seek board certification from one of the ABMS' 24 Member Boards. Because completion of an ACGME accredited residency program is one of the prerequisites for ABMS Member Board certification eligibility, ABMS board certification is not a viable alternative for the majority of DOs who complete their residencies in an AOA certified program and thus ABMS board certification is not interchangeable with AOA board certification.
In order to become board certified, the AOA charges examination, processing and administrative fees, typically in excess of $1,000. The AOA then charges an annual board certification maintenance fee. Prior to about 2000, most DOs who earned board certification from an AOA Board were promised by the AOA that it was a "lifetime" board certification. From 2000 on, most if not all AOA board certifications have had six, eight, or 10 year terms.
Since August 1, 2012, in addition to their annual board certification maintenance fee, the AOA has required all AOA board certified DOs to purchase and maintain annual membership in the AOA and pay the AOA's annual membership dues in order to avoid the AOA's deactivation of their AOA board certification. This requirement serves the basis for Plaintiffs' claims. As noted above, Plaintiffs claim that the AOA's tying scheme violates Section 1 of the Sherman Act, 15 U.S.C. § 1 ("Section 1") and Section 3 of the New Jersey Antitrust Act ("NJAA"), N.J.S.A. 56:9-3 ("Section 3"), and the New Jersey Consumer Fraud Act ("NJCFA") N.J.S.A. 56:8-1, et. seq.
The AOA has moved to dismiss Plaintiffs' antitrust claims because they fail to provide sufficient facts to demonstrate foreclosure of competition in the Association Membership Market or that they have suffered any antitrust injury. The AOA has moved to dismiss Plaintiffs' consumer fraud claim because it fails to meet the heightened pleading standard for fraud claims. The AOA has also moved, in the alternative, for the transfer of the case to the Northern District of Illinois. Each of the AOA's arguments will be addressed in turn.
Plaintiffs' antitrust claims
For plaintiffs suing under federal antitrust laws, one of the prudential limitations is the requirement of "antitrust standing."
Generally, antitrust injury — which is "`injury of the type the antitrust laws were intended to prevent and that flows from that which makes [the] defendants' acts unlawful'" — "`is limited to consumers and competitors in the restrained market and to those whose injuries are the means by which the defendants seek to achieve their anticompetitive ends.'"
Establishing the requisite standing by showing an antitrust injury thus depends upon the type of antitrust violation alleged. In this case, Plaintiffs allege a per se tying violation, and a "rule of reason" tying violation. "Tying is defined as selling one good (the tying product) on the condition that the buyer also purchase another, separate good (the tied product)."
The U.S. Supreme Court long ago established a "per se" rule against tying arrangements in cases where it thought exploitation of leverage is "probable."
While the "per se illegality rule applies when a business practice on its face has no purpose except stifling competition," conduct that does not trigger a per se analysis is analyzed under a "rule of reason" test, which focuses on the particular facts disclosed by the record to determine whether the probable effect of the tying arrangement is to substantially lessen competition, rather than merely disadvantage rivals.
Under the rule of reason test, a plaintiff must show a substantial foreclosure of the market for the relevant product.
Here, the AOA contends that Plaintiffs have failed to plead an antitrust injury because Plaintiffs are not competitors of the AOA who have lost members due to the AOA's alleged anticompetitive actions. The AOA further argues that Plaintiffs' claims that they purchased AOA memberships even though they did not want AOA memberships is not sufficient to show that the AOA possesses market power over the Association Membership Market, or that the AOA has foreclosed other association membership organizations from competition, both of which are fatal to Plaintiffs' antitrust claims.
Plaintiffs counter that their injuries are not as simple as characterized by the AOA. Plaintiffs claim that AOA board certified DOs have no choice but to purchase AOA memberships because they would lose their board certifications if they did not purchase AOA memberships. Plaintiffs claim that even though they have the option of choosing another association membership, and they would want to choose a different, less costly membership, it is a meaningless choice because (1) they would lose AOA certification and have to repeat the very time consuming and expensive residency and board certification process with the ACGME and ABMS, or (2) purchase a second association membership, which is an additional yearly expense and duplicative of many of the AOA membership benefits. Plaintiffs further claim that the AOA's tying arrangement and the resulting lack of AOA board certified DOs' meaningful choice forecloses competition from other membership associations. Plaintiffs also claim that the AOA's tying arrangement allows the AOA to inflate the price of its membership to almost double the cost of other physician association memberships.
The Court finds at this pleading stage that Plaintiffs have sufficiently stated claims for per se and "rule of reason" antitrust violations. Plaintiffs have pleaded that 32,000 AOA board certified DOs from around the country have no choice but to purchase AOA memberships that cost significantly more than other physician association memberships with similar benefits, resulting in almost $9 million in dues since August 2012, and preventing other membership associations from competing for those DOs' business. Plaintiffs have also pleaded that they would choose a different membership association if they were not tied to the AOA membership.
Consequently, the factual underpinning of Plaintiffs' antitrust claims are sufficiently pleaded to move forward with discovery. The AOA's motion to dismiss Counts I through IV of Plaintiffs' complaint must be denied.
Plaintiffs' NJCFA claim (Count V)
Plaintiffs claim that DOs who received their AOA board certification prior to 2000 were promised by the AOA that it was a "lifetime" certification that would never expire, and that promise was renewed in 2013, when the AOA initiated its Osteopathic Continuous Certification program ("OCC"). In 2013, the AOA issued a brochure to "lifetime" board certification holders that stated,
(Docket No. 16 at 20, ¶ 114.)
Plaintiffs claim, however, that the AOA knowingly concealed that lifetime certification holders would also have to purchase annual membership in the AOA to avoid the invalidation and cancellation of their prior "lifetime" certifications. Plaintiffs claim that this deception constitutes a violation of New Jersey's Consumer Fraud Act, N.J.S.A. 56:8-2.
A claim under NJCFA must meet the Federal Civil Procedure Rule 9(b) heightened pleading standard.
The NJCFA imposes liability on any person who uses: "any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission." N.J.S.A. 56:8-2. Consumer fraud violations are divided broadly into three categories: affirmative acts, knowing omissions, and regulatory violations.
The AOA argues that Plaintiffs' NJCFA claim fails because in August 2012, "lifetime" board certified DOs were aware of the AOA's new rule that AOA board certified DOs were required to purchase AOA memberships in order to retain their board certifications, and it is not actionable fraud that that AOA did not remind them of this requirement in its 2013 brochure.
The AOA's view of what the "lifetime" board certification holders knew cannot defeat Plaintiffs' NJCFA claim as it is pleaded. The "lifetime" Plaintiffs allege that when they obtained their "lifetime" status, AOA membership was not a requirement to maintain their board certification. In a publication issued to all "lifetime" board certification holders titled, "Introduction to the AOA Osteopathic Continuous Certification Process," the AOA informed them in unambiguous wording, "If you have a lifetime certification, you will not be required to participate in OCC at this time." Plaintiffs claim the AOA knew that "lifetime" board certification holders would rely upon this statement, and the AOA knowingly and intentionally omitted that the AOA was nonetheless going to require "lifetime" board certification holders to purchase membership in the AOA in order to avoid the deactivation of their "lifetime" board certifications, causing them injury in having to purchase AOA memberships.
These allegations satisfy the Rule 9(b) heightened pleading standard and state a viable NJCFA claim. Accordingly, the AOA's motion to dismiss Plaintiffs' count alleging NJCFA violations must be denied.
Whether the action should be transferred to the Northern District of Illinois
The AOA argues that this case should be transferred to the Northern District of Illinois pursuant to 28 U.S.C. § 1404(a). Under § 1404(a), "[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." The goals of 28 U.S.C. § 1404(a) are "to prevent the waste of time, energy and money and to protect litigants, witnesses and the public against unnecessary inconvenience and expense."
In considering a § 1404(a) motion, a court must take into account public and private interests in determining whether transfer is appropriate.
Although a plaintiff's choice of forum is not entitled to dispositive weight in the § 1404(a) calculus, it is black-letter law that "`the plaintiff's choice of venue should not be lightly disturbed.'"
In this case, the only factor in the AOA's favor is its own desire to litigate in the Northern District of Illinois. All other relevant factors favor Plaintiffs: Plaintiffs' choice of forum is New Jersey; even though the AOA's policy of tying board certification with AOA membership arguably took place at its headquarters in Illinois, the effect of that policy has been felt by 32,000 AOA board certification holders residing throughout the country, with thousands located in New Jersey; the AOA is not financially incapable of litigating in New Jersey, while forcing Plaintiffs to litigate in Illinois could cost more than their individual recovery and hinder their medical practices; even though some witnesses and documents are located in Illinois, there is no indication that those witnesses will not voluntarily travel to New Jersey or that those documents cannot be sent, by paper copy or electronically, to New Jersey
This case is not similar to cases cited by the AOA to support its position. For example, the AOA cites to this Court's decision in
Here, in contrast, the AOA has not identified related actions pending in the Northern District of Illinois, the AOA's alleged anti-competitive actions are directed to and felt in New Jersey, three of four Plaintiffs are citizens of New Jersey and maintain practices in New Jersey, the other Plaintiff lives and practices two miles away in Philadelphia, and, according to Plaintiffs' complaint, thousands of similarly situated class members live and practice in New Jersey.
The AOA also cites
In short, the AOA's preference to transfer this action to the Northern District of Illinois does not meet the purpose of § 1404(a), and its arguments cannot override the paramount consideration accorded to Plaintiffs' choice of venue. Accordingly, the AOA's request to transfer this case must be denied.
For the foregoing reasons, the AOA's motion to dismiss Plaintiffs' antitrust and NJCFA claims must be denied. The AOA's alternative relief seeking the transfer of the action to the Northern District of Illinois must also be denied. An appropriate Order will be entered.