34 F.4th 190
3rd Cir.2022Background
- PriMed Pharmaceuticals and Oak Drugs are secondary wholesale drug distributors that lost substantial business after OptumRx (a pharmacy benefit manager) required its network pharmacies to source only from distributors accredited by NABP’s VAWD program.
- NABP is a nationwide nonprofit whose members include the 50 state boards of pharmacy and which operates the Verified Accredited Wholesale Distributor (VAWD) accreditation program.
- PriMed and Oak applied for VAWD accreditation; initial applications were canceled with minimal explanation, and accreditation came only on subsequent attempts after customers were lost.
- Plaintiffs sued NABP and OptumRx in New Jersey court alleging § 1983 claims (due process, Supremacy Clause, violation of the Drug Supply Chain Security Act), a New Jersey common-law due-process claim, and tortious interference claims against OptumRx; defendants removed and moved to dismiss.
- The District Court dismissed the complaint; the Third Circuit affirmed dismissal of all federal/statutory claims for failure to plead state action under § 1983 and affirmed dismissal of tortious interference, but reversed and remanded the New Jersey common-law due-process claim as plausibly alleged.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NABP (and thus OptumRx) are state actors for § 1983 purposes | NABP is quasi-public (state boards are members and participate in leadership) and its accreditation functions are effectively state action | NABP is a private, nationwide membership organization; plaintiffs fail to tie NABP’s challenged conduct to any particular state so it is not acting under color of state law | Dismissed: plaintiffs failed to plead the requisite close nexus to a particular state; § 1983 claims dismissed |
| Whether federal common law supplies a due-process right to challenge NABP accreditation | Federal common-law due process should check private accrediting bodies exercising public authority | No uniquely federal interest here (unlike higher-education accreditation), so federal common law shouldn’t be created or extended | Dismissed: court declines to apply federal common-law due process in this context |
| Whether New Jersey common law recognizes due-process review for accreditation decisions by quasi-public bodies | NABP is quasi-public and its accreditation denials caused severe economic harm; New Jersey precedent on quasi-public associations (e.g., membership exclusion) supports review | State cases limit review to exclusion/discipline of members; plaintiffs are not NABP members and seek accreditation, so claim falls outside precedent | Reversed and remanded: court finds plaintiffs plausibly allege NABP is quasi-public and acted arbitrarily, so New Jersey common-law due-process claim may proceed |
| Whether OptumRx tortiously interfered with plaintiffs’ customer relationships | OptumRx knowingly required VAWD accreditation, causing loss of business intentionally and without justification | OptumRx’s sourcing requirement was a legitimate business decision to address sourcing concerns and not fraudulent, dishonest, or illegal; thus lawful competition, not malice | Affirmed dismissal: plaintiffs failed to plead malice/unjustified means necessary for tortious interference |
Key Cases Cited
- Borrell v. Bloomsburg Univ., 870 F.3d 154 (3d Cir.) (explaining the § 1983 state-actor nexus test)
- NCAA v. Tarkanian, 488 U.S. 179 (1988) (membership in a nationwide private association does not by itself make the association a state actor)
- Brentwood Acad. v. Tenn. Secondary Sch. Athletic Ass'n, 531 U.S. 288 (2001) (private association can be state actor when its actions are closely tied to a single State)
- McKeesport Hosp. v. Accreditation Council for Graduate Med. Educ., 24 F.3d 519 (3d Cir.) (use of accreditation decisions by a state board does not convert accreditor into state actor)
- Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) (no federal general common law)
- Rodriguez v. Fed. Deposit Ins. Corp., 140 S. Ct. 713 (2020) (limits on creating federal common law without uniquely federal interests)
- Thomas M. Cooley Law Sch. v. Am. Bar Ass'n, 459 F.3d 705 (6th Cir.) (recognition of federal common-law due process in higher-education accreditation context)
- Pro. Massage Training Ctr. v. Accred. All. of Career Sch. & Colls., 781 F.3d 161 (4th Cir.) (federal interests justify review of Department of Education–related accreditors)
- Falcone v. Middlesex Cnty. Med. Soc'y, 170 A.2d 791 (N.J. 1961) (judicial review when quasi-public association arbitrarily excludes members with serious economic effects)
- Matthews v. Bay Head Improv. Ass'n, 471 A.2d 355 (N.J. 1984) (quasi-public association standard for exclusion/discipline)
- Lamorte Burns & Co. v. Walters, 770 A.2d 1158 (N.J.) (malice requirement and justification analysis for tortious interference)
- Beretta U.S.A. Corp. v. City of Philadelphia, 277 F.3d 415 (3d Cir.) (caution against extending state law beyond precedential foreshadowing)