Opinion ID: 6342248
Heading Depth: 3
Heading Rank: 2

Heading: Common Law Due Process Claims

Text: Pivoting from their constitutional arguments, PriMed and Oak Drugs next contend NABP must comply with due process requirements because, under federal and New Jersey common law, “quasi-public” entities must provide fair procedures when making accrediting decisions. Their due process arguments fare slightly better here. We begin with the federal common law. It is well established that there is “no federal general common law.” Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). But “limited areas exist in which federal judges may appropriately craft the rule of decision.” Rodriguez v. Fed. Deposit Ins. Corp., 140 S. Ct. 713, 717 (2020). PriMed and Oak Drugs insist federal courts have crafted a federal common law right to due process “as a check on organizations that exercise significant authority in areas of public concern such as accreditation and professional licensing.” Appellant Br. at 35 (quoting Thomas M. Cooley L. Sch. v. ABA, 459 F.3d 705, 712 (6th Cir. 2006)). To be sure, some of our sister circuits have recognized a federal common law due process right. But the cases PriMed and Oak Drugs cite have a specific context: challenges to a higher education accreditation decision by an accrediting 4 Because the plaintiffs cannot meet the threshold showing that NABP and OptumRx are state actors, we do not reach the merits of their constitutional and federal law claims. 11 agency.5 This makes sense. When deciding whether to craft federal common law, “one of the most basic” conditions is that the rule is “necessary to protect uniquely federal interests.” Rodriguez, 140 S. Ct. at 717 (quoting Tex. Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 640 (1981)). And those interests are present in the college accreditation agency cases. Courts have mentioned several federal hooks—the Department of Education’s involvement in approving accrediting agencies and Title IV funding depending on accreditation, to name a few—to justify creating federal common law. See, e.g., Pro. Massage Training Ctr. (PMTC) v. Accreditation All. of Career Sch. & Colls., 781 F.3d 161, 170–71 (4th Cir. 2015). Congress has also given federal courts exclusive jurisdiction over any action brought by a school challenging an accreditation decision made by a Department of Education-approved accrediting agency. See id.; 20 U.S.C. § 1099b(f). So, the courts have reasoned, it would “make little sense” to apply state common law to claims that could not be heard in state court. Cooley, 459 F.3d at 712; see also PMTC, 781 F.3d at 170. Unlike the school accreditation cases, here PriMed and Oak Drugs identify no “uniquely federal interest[]” that would justify expanding federal common law to govern accreditation of pharmaceutical distributors. Rodriguez, 140 S. Ct. at 717 (internal quotation marks omitted). There is no allegation, for 5 PriMed and Oak Drugs cite one case that does not deal with college accreditation, Hospital v. Accreditation Council for Graduate Medical Education, 24 F.3d 519 (3d Cir. 1994). But they fail to mention the only discussion of the federal common law due process right in that case was in the concurrence. See id. at 534–35 (Becker, J., concurring). 12 example, that the federal Government participates in approving accrediting agencies like NABP, or that VAWD accreditation is required for PriMed and Oak Drugs to receive federal funding. There may, of course, be other ways for them to show a uniquely federal interest, but they do not try to do so here. So we will not consider whether NABP violated federal common law due process standards. Next, New Jersey common law. In a handful of cases, the New Jersey Supreme Court has recognized a right to judicial review when quasi-public associations have improperly excluded or expelled members. For instance, in Falcone v. Middlesex County Medical Society, the Court determined a medical society improperly excluded a doctor from membership for reasons that were “patently arbitrary and unreasonable and beyond the pale of the law.” 170 A.2d 791, 800 (N.J. 1961). Although the plaintiff “received a full medical course” at an accredited school of osteopathy and had “an unrestricted license to practice medicine and surgery” in New Jersey, he was barred from membership because he didn’t meet the society’s unwritten requirement that applicants attend four years at a medical college approved by the American Medical Association. Id. at 793–94, 800. The Court was reluctant to interfere with the “internal affairs of membership associations,” id. at 796, but it did so for a few reasons. For one, the medical society’s “declaration of [the doctor’s] ineligibility and its refusal to admit him to membership . . . had seriously adverse economic and professional effects on Dr. Falcone.” Id. at 794. He was let go from the staff of two hospitals because they, “like other hospitals in the area,” required doctors to be members of the society. Id. The “virtual monopoly” that the society had over 13 the hospitals meant that Falcone could not “successfully continue his practice”; to earn a livelihood, he needed “to belong to the local society.” Id. (internal quotation marks omitted). Another factor was that the society was an association “with which the public is highly concerned and which engages in activities vitally affecting the health and welfare of the people.” Id. at 799. So the Court needed to step in to limit the society’s “unbridled” power to exclude a doctor from a profession based on arbitrary criteria. Id.; see also Matthews v. Bay Head Improv. Ass’n, 471 A.2d 355, 366 (N.J. 1984) (“The general rule is that courts will not compel admission to a voluntary association,” but when “an organization is quasi-public, its power to exclude must be reasonably and lawfully exercised in furtherance of the public welfare related to its public characteristics.”); Moore v. Loc. Union No. 483, Int’l Ass’n of Bridge, Structural & Ornamental Ironworkers, AFL-CIO, 334 A.2d 1, 5–6 (N.J. 1975) (reviewing a union’s “arbitrary” refusal to accept transferring members because union membership “affect[s] the economic welfare of the individual applicant” and the union has “public importance”). Here the District Court dismissed the plaintiffs’ New Jersey common law due process claim because the state courts had all recognized this “right in the context of associations’ exclusion or discipline of members.” Dist. Ct. Op. at 26 (emphasis in original). PriMed and Oak Drugs were “not members of NABP and do not seek membership.” Id. The plaintiffs pointed to “no New Jersey case . . . in which a court recognized that common-law due process extends to accreditation decisions like NABP’s,” so the Court refused to expand state law beyond what was “foreshadowed by state 14 precedent.” Id. (quoting City of Philadelphia v. Beretta U.S.A. Corp., 277 F.3d 415, 421 (3d Cir. 2002)). While the District Court was right to be cautious, we are not convinced PriMed and Oak Drugs’ claim moves the needle “in ways not foreshadowed” by the New Jersey Supreme Court. Beretta, 277 F.3d at 421. Indeed, if we take the plaintiffs’ allegations as true and “construe the amended complaint in the light most favorable to [them],” Newman, 617 F.3d at 779, as we must, this case bears a strong resemblance to Falcone. The complaint plausibly alleges NABP is a “quasi- public” association because (1) it is “dedicated . . . to the vital public use” of (among other things) “improv[ing] the standards of pharmacist education, licensure, and practice,” see Matthews, 471 A.2d at 366 (internal quotation marks omitted); Am. Compl. ¶ 15, and (2) it has “enjoyed monopoly power with respect to pharmaceutical wholesale distributor accreditation” since establishing the VAWD accreditation program, Am. Compl. ¶ 337; see Matthews, 471 A.2d at 366; Falcone 170 A.2d at 799. And, as in Falcone, the plaintiffs allege NABP’s denial of accreditation has “had seriously adverse economic and professional effects on [them].” 170 A.2d at 794; see Am. Compl. ¶¶ 257–70. There, Dr. Falcone could not work for any New Jersey hospital absent membership in the County Medical Society. And here, the plaintiffs allege they were cut off from serving most pharmacies nationwide because OptumRx required pharmacies to source only from VAWD-accredited distributors. Am. Compl. ¶ 18 (“OptumRx maintains a nationwide network of approximately 67,000 pharmacies, 15 which is about the same as the total number of pharmacies located in the United States.”). In both cases, the denial of membership or accreditation substantially limited the plaintiffs’ ability to work in their chosen professions. That the necessary professional qualification was, in one case, membership in a medical society and, in the other, accreditation by a pharmaceutical association, is a distinction without a difference. The final question, then, is whether the plaintiffs sufficiently alleged the cancelation of their applications was arbitrary. See Falcone, 170 A.2d at 800; Matthews, 471 A.2d at 367; Moore, 334 A.2d at 6. Though this is a close question, we think that, when construing the allegations in the plaintiffs’ favor, they have met the low plausibility threshold. NABP sets out criteria for applicants to comply with before receiving accreditation. But PriMed and Oak Drugs suggest that, when evaluating their applications, NABP ignored evidence showing compliance with those criteria and canceled their accreditation applications by adopting an unreasonable and overbroad interpretation of certain criteria. If this is true, the plaintiffs may be able to show NABP’s denial of accreditation was “patently arbitrary and unreasonable” conduct. Falcone, 170 A.2d at 800. We thus will reverse the dismissal of the plaintiffs’ New Jersey common law due process claim and remand.6 6 Judge Bibas would affirm on this issue. New Jersey has not yet recognized a due-process right for entities to challenge accreditation decisions made by nationwide organizations. Thus, recognizing that right here, he thinks, “expand[s] state law in ways not foreshadowed by state precedent.” Beretta, 277 F.3d at 421. 16