ELLISON v. AMERICAN BOARD OF ORTHOPAEDIC SURGERY, INC.

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

BRUCE E. ELLISON, M.D., Civ. No. 16-8441 (KM) (JBC)

Plaintiff,

OPINION

v.

AMERICAN BOARD OF

ORTHOPAEDIC SURGERY, INC.,

Defendant.

KEVIN MCNULTY, U.S.D.J.:

Pending before the Court is the motion of defendant American Board of

Orthopaedic Surgery, Inc. (“‘ABOS’), to dismiss the Second Amended Complaint

filed by plaintiff Bruce E. Ellison, M.D. (“Dr. Ellison”) (DE 48). Two predecessor

complaints have already been dismissed on motion of ABOS.

Dr. Ellison’s Second Amended Complaint! asserts one count based on

alleged violations of federal antitrust law in relation to the certifications ABOS

provides to certain qualifying physicians (“Board Certification”). Dr. Ellison

asserts that ABOS improperly restrains trade by colluding with hospitals in

requiring orthopedic surgeons to obtain Board Certification as a condition of

practicing at those hospitals. ABOS allegedly prevents Dr. Ellison from

obtaining Board Certification unless he first has hospital medical staff

privileges, thereby reducing competition at hospitals by excluding surgeons

who, like Dr. Ellison, practice exclusively at ambulatory surgery centers or

other places that do not offer those medical staff privileges. Dr. Ellison

1 The following abbreviations are used herein:

Docket Entry in this case

“Q2AC” = Second Amended Complaint (DE 48)

primarily seeks declaratory and injunctive relief, but also damages, costs, and

fees. ABOS has moved to dismiss the Second Amended Complaint, asserting

grounds similar to those in its prior motion to dismiss the First Amended

Complaint (see DE 29).

For the reasons stated in this opinion, I will dismiss the Second

Amended Complaint pursuant to Rule 12(b)(6) for failure to state a claim upon

which relief may be granted.

I. Summary

a. Factual background

I recap the factual background from my prior opinion, supplementing as

necessary with facts newly asserted in the Second Amended Complaint.

Dr. Ellison holds a medical license in California, where he currently

treats patients as an orthopedic surgeon. (2AC qf 11, 32) For “personal and

professional reasons, Dr. Ellison would like to obtain medical staff privileges”

at a hospital in northern New Jersey. (id. § 11) The hospitals to which he says

he would apply for privileges—but has not actually applied—require that he

possess Board Certification provided by ABOS. (id. 29)

Defendant ABOS—the only defendant in this action—oversees the Board

Certification program for physicians specializing in orthopedic surgery. (Jd. | 3)

Defendant ABOS is incorporated in Delaware. (Jd. J 12) It has directors and

officers who reside in many different states, although the 2AC does not specify

where these members reside. (Id. 12) ABOS arranges for the administration of

the written portion of its Board Certification exam through a third-party

subcontractor at testing locations throughout the United States, including in

New Jersey, collects “up to a million dollars or more annually” from physicians

located in New Jersey, and communicates with hospitals and patients in New

Jersey about which physicians hold Board Certifications. (Id. J] 36-39)

Defendant ABOS does not maintain any offices, records, property, or staff in

New Jersey. (DE 49-3 { 4)

ABOS is a member of the American Board of Medical Specialties

(“ABMS”). (Jd. J 2) ABMS is not a defendant here, nevertheless, the Second

Amended Complaint provides additional color with respect to this entity.

According to one article cited in the Second Amended Complaint, ABMS

continues to be the leading not-for-profit organization overseeing

physician certification in the United States. ABMS establishes the

standards its 24 Member Boards use to develop and implement

educational and professional evaluation, assessment, and

certification of physician specialists. More than 860,000 physicians

are certified in one or more of the approved 37 specialties and 86

subspecialties offered by the ABMS Member Boards.

(id. 7 6, n.2 (citing https: {www.prnewswire.com/news-releases/the-

american-hospital-association-joins-abms-multi-specialty-portfolio-

program-300435665.html))

The Second Amended Complaint includes additional details about

another entity, the American Hospital Association (“AHA”), which is also nota

defendant. Nearly 90% of all hospitals are members of AHA (Jd. 4) AHA is a

non-profit that provides “education for health care leaders and is a source of

information on health care issues and trends.” (Id. 6, n.2) AHA and ABMS

have interlocking memberships. (Id. { 5).

The 2AC asserts that AHA and ABMS (again, not defendants here)

entered into an agreement in April 2017 to “provide money-making programs in

connection with board certification by [defendant] ABOS and other specialty

groups.” (Id. | 6) The Second Amended Complaint adds that AHA announced in

2017 that it had joined the ABMS Multi-Specialty Portfolio Program. This

program allows

Hospitals and health systems participating in the AHA’s Health

Research & Educational Trust (HRET) Hospital Improvement

Innovation Network (HIIN) [to] facilitate Maintenance of

Certification (MOC) Improvement in Medical Practice (Part IV)

credit for physicians who are Board Certified by one of the 21 of 24

ABMS Member Boards participating in the Portfolio Program.

The HRET HIIN is the first HIIN in the country to offer this

service to its more than 1,600 participating hospitals. Through

ABMS MOC Part IV credit, physicians can meet the requirements

for maintaining their certification while meaningfully participating

in quality improvement programs in their organizations. Partnering

on ABMS MOC Part IV also will reduce duplication of quality

improvement efforts; HRET HIIN hospitals currently are engaged in

improvement efforts across 11 hospital-acquired condition topics.

Physicians’ roles in these projects may vary from team member to

physician champion. Projects will be data-driven, focused on

patient safety, and designed to implement evidence-based best

practices. AHA hopes this program will encourage the development

of long-lasting improvements, while strengthening physicians’

connection to the improvement efforts of their broader

organizations.

“We are very pleased to be the first HIIN to provide this

valuable service,” said Jay Bhatt, DO, HRET President and AHA

Chief Medical Officer. “Aligning physicians’ pursuit of their Board

Certification with hospitals’ quality improvement efforts will

accelerate our collective efforts to improve patient safety by

promoting team-based care delivery.”

(See Id. n.2 (citing https: / /www.prnewswire.com/news-releases/the-american-

hospital-association-joins-abms-multi-specialty-portfolio-program-

300435665.html))? Dr. Ellison does not contend that this recent agreement to

provide continuing certification impacts him. Rather, Dr. Ellison alleges that

ABMS and AHA have previously entered into “similar agreements” to promote

ABOS and other specialty groups. As part of this “arrangement,” “ABOS

excludes Plaintiff from obtaining board certification by ABOS unless he first

has hospital medical staff privileges, and AHA member hospitals exclude

physicians unless they have board certification.” (2AC J 6, 7) To achieve this

agreement, “ABMS and its members put pressure on hospitals through AHA, to

2 Dr. Ellison cites to a number of other articles in the 2AC. Many of these articles

are from the early 2000s, and they do not specifically refer to ABOS. (See 2AC 7f 15

(citing a CMS Director Survey and Certification Group article from 2004 concerning

the requirements for hospital medical staff privileging}; J 16 (citing two studies from

2007 and 2009 regarding hospital privileging as it relates to board certification); { 18

(citing a 2005 article titled “Board Certification as Prerequisite for Hospital Staff

Privileges”)

require ABMS specialty board certification, which includes ABOS.” (Id. J 18;

see also id. Jf 19, 20)

According to the Second Amended Complaint, the largest hospital

systems in northern New Jersey, like RWJ Barnabas, have joined into a

conspiracy to make money since they are members of the AHA and require the

hospitals under their purview to provide medical staff privileges only to doctors

who have obtained Board Certification. (Id. ]] 4, 23-26) St. Peter’s University

Hospital, located in New Brunswick, New Jersey, also requires Board

Certification as a condition of obtaining medical staff privileges. (Id. | 27)

Similarly, Rutgers University Hospital requires Board Certification in order to

obtain medical staff privileges and will not process the applications for

employment of prospective doctors unless the applicant has acquired Board

Certification within seven years after completing residency training. (Id. J 26)

The Board Certification process is controlled by ABMS and, for Dr. Ellison,

ABOS such that other equally rigorous board certification programs offered by

other organizations are not recognized. (Id. ]] 28, 48) Thus, says Ellison,

ABMS and its members ABOS, AHA, and member hospitals all have an

arrangement to exclude Dr. Ellison from obtaining board certification. (Id. J 7)

Dr. Ellison alleges that the requirement for Board Certification precludes

him from obtaining medical staff privileges “at the major hospitals in the

regions of northern New Jersey.” (Id. | 29; see also { 9) Dr. Ellison successfully

passed the written portion of ABOS’s exam (“Part I”) in Chicago, Illinois. (Jd J

53; DE 49-3 q 6} This qualified him to take the oral portion of the exam (“Part

II”), which is only administered in Chicago. (2AC J 53-59; DE 49-3 { 7)

However, ABOS subsequently refused to allow him to take Part Il of the exam

because he did not have medical staff privileges. (Id. 1 44, 56)

This, says Dr. Ellison, confronted him with the proverbial catch-22:

without medical staff privileges he cannot take Part II of the certification exam,

but without certification he cannot acquire medical staff privileges. This

practice, Dr. Ellison alleges, reduces competition to hospitals by shutting out

surgeons, like himself, who practice exclusively at ambulatory surgery centers

(which do not provide medical staff privileges}, thereby reducing the number of

orthopedic surgeons available to patients. (Id. | 43) There is an exception to the

staff-privileges prerequisite for physicians who have completed their residency

within the last seven years, but that exception is unavailable to Dr. Ellison at

this later stage of his career. (Id. J 7}

Dr. Ellison has not applied for medical staff privileges at these New

Jersey hospitals because, he says, without board certification, rejection is

likely. He is therefore unwilling to apply, because a rejection of an application

for medical staff privileges allegedly “results in an automatic adverse entry in

the National Practitioner Data Bank, which severely damages the reputation of

a physician.” (Id. 7 30)

Dr. Ellison asserts that ABOS has unlawfully acted in concert with

hospitals to require Board Certification as a precondition for employment, thus

interfering with the market for orthopedic surgery services at hospitals in

northern New Jersey. (Id. 1] 41, 57) He also claims that ABOS has engaged in

an anticompetitive tying arrangement in violation of Section 1 of the Sherman

Act. (id. J 60) In this respect, ABOS and the hospitals are allegedly acting in

concert for ABOS’s pecuniary benefit. (Jd. | 58) This pecuniary benefit for these

organizations is the only justification suggested by Dr. Ellison for the Board

Certification precondition for obtaining medical staff privileges. He suggests

that this must be the case because, from 2007-2017, the use of board

certification in hospital privileging significantly increased, but that increase

was not accompanied by improved physician competence or better outcomes

for patients. (Id. □□ 15-22) Instead, the only reason for the increase in Board

Certification is ABOS’s and ABMS’s continued pressure on hospitals to require

Board Certification as a condition of medical staff privileges. {Jd}

This restraint, Dr. Ellison asserts, reduces “the availability of physicians

in the relevant market, which reduces patient choice and increases health care

costs.” (Id. | 61) He seeks damages, a declaratory judgment that ABOS has

violated the Sherman Act, injunctive relief allowing Dr. Ellison to take Part II of

the exam, and an order requiring ABOS to cease requiring surgical privileges as

a precondition for taking Part II of the exam. (Id. 1 56-61)

b. Procedural history

This case, or some version of it, has been pending for over four years.

In December 2015, Ellison first brought suit against ABOS in the district

where it is located, i.e., the United States District Court for the Northern

District of Illinois (the “Illinois Complaint”), seeking the same relief he seeks in

this action. See Ellison v. American Board of Orthopaedic Surgery, Inc., No. 15-

cv-11848, Docket Entry 1, Illinois Complaint {{ 3, 28-32. However, Dr. Ellison

voluntarily dismissed the Illinois Complaint in April 2016. Id.

That same month, Dr. Ellison filed a factually similar complaint in the

Superior Court of New Jersey, Law Division, Union County, alleging that ABOS

violated the New Jersey Consumer Fraud Act (“NJCFA”), N.J. Stat. Ann. § 56:8-

1, et seq., and the New Jersey Antitrust Act, N.J. Stat. Ann. § 56:9-1, et seq.

(See DE 1) Dr. Ellison sought treble damages, attorneys’ fees, and declaratory

and injunctive relief requiring ABOS to allow him to take the Part II exam.

In November 2016, ABOS removed the case to federal court (“Removed

Complaint”) on the basis of diversity of citizenship. See 28 U.S.C. § 1332(a).

The notice of removal stated that Dr. Ellison is domiciled in California, and that

ABOS is a Delaware corporation with its principal place of business in North

Carolina. (DE 1 11-15)

In February 2017, ABOS moved to dismiss the Removed Complaint on a

variety of grounds. (DE 4) I granted that motion and dismissed the Removed

Complaint pursuant to Rule 12(b)(6) for failure to meet the minimal pleading

standards of Rule 8. (DE 17) In that opinion I noted, inter alia, that “[t]he

3 The Removed Complaint alleged, less specifically, that Dr. Ellison is located in

California and that ABOS is headquartered in North Carolina. (DE no 1-1 2, 3; DE

1-3, Civil Cover Sheet}

vagueness of the Complaint makes it difficult to discern what, if anything,

connects Dr. Ellison, ABOS, and any wrongful acts to the State of New Jersey.”

(id. at p. 5.) Additionally, without any allegation of a concrete injury in fact, I

could not “accept that Dr. Ellison possesse{d] a cause of action in any

jurisdiction where he theoretically could have sought, and been refused,

admitting privileges.” (Jd.) Finding that Dr. Ellison had failed to state a claim, |

did “not reach, or prejudge” the issues related to personal jurisdiction, venue,

or standing raised by ABOS and entered the dismissal of the Removed

Complaint without prejudice to the filing of a motion to amend. (/d.) However, I

flagged numerous challenges facing plaintiff. including the issues of personal

jurisdiction and venue, as follows: “the plaintiff may wish to consider whether

it make more sense to file this lawsuit in a district where the defendant is

incorporated and has its principal place of business, or in the alternative in a

district where the acts complained of actually took place.” (Id. at p.5.)

Dr. Ellison subsequently moved for leave to amend, which was granted,

and filed an Amended Complaint. (DE 21, 27, 28) See Ellison v. Am. Bd. of

Orthopaedic Surgery, Inc., No. 16-8441, 2018 WL 1919953, at *1 (D.N.J. Apr.

24, 2018). The Amended Complaint dropped the counts alleging violations of

New Jersey state law and instead alleged a single count of restraint of trade in

violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. (See DE 28)

ABOS again moved to dismiss the Amended Complaint for lack of

personal jurisdiction, improper venue, lack of standing, and failure to state a

claim, pursuant to Fed. R. Civ. P. 12(b)(2), (3), and (6). (DE 29) In October

2018, I issued a second opinion, again dismissing the complaint for failure to

meet the pleading standards of Rule 8. (DE 34) Like the Removed Complaint,

the Amended Complaint still stated “only in a conclusory manner that northern

New Jersey hospitals conspired and knew about the alleged plan to bolster

ABOS’s market position.” (/d. p. 8.) I found that the “Amended Complaint does

not assert any plausible basis for a conspiracy between ABOS and the vast

network of New Jersey hospitals, nor does the Amended Complaint include any

plausible allegations that place the hospitals’ conduct in a context that raises a

suggestion of a preceding agreement.” (Jd. p. 9.)

Dr. Ellison then filed for leave to file a Second Amended Complaint (DE

41), which was granted (DE 47). On June 13, 2019, Dr. Ellison filed the Second

Amended Complaint. (DE 48) Eight days later, on June 21, 2019, ABOS again

moved to dismiss on the basis that the Second Amended Complaint still

suffered from the same deficiencies as the Removed Complaint and the

Amended Complaint, namely that the

Second Amended Complaint does not cure the standing and

jurisdictional flaws identified by the Court when it granted ABOS’

first motion to dismiss. Nor does it adequately allege 1) an

anticompetitive conspiracy between ABOS and any specified New

Jersey hospitals or 2) an illegal tying arrangement, as the Court, in

granting ABOS’ most recent motion to dismiss, advised Plaintiff he

would be required to do.

(DE 49). Plaintiff opposed the motion (DE 51), and defendant filed a reply (DE

54).

Il, ANALYSIS

Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a

complaint, in whole or in part, if it fails to state a claim upon which relief can

be granted. The defendant, as the moving party, bears the burden of showing

that no claim has been stated. Animal Science Products, Inc. v. China Minmetals

Corp., 654 F.3d 462, 469 n. 9 (3d Cir. 2011). For the purposes of a motion to

dismiss, the facts alleged in the complaint are accepted as true and all

reasonable inferences are drawn in favor of the plaintiff. New Jersey Carpenters

& the Trustees Thereof v. Tishman Const. Corp. of New Jersey, 760 F.3d 297,

302 (3d Cir. 2014).

Federal Rule of Civil Procedure 8(a) does not require that a complaint

contain detailed factual allegations. Nevertheless, “a plaintiffs obligation to

provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and

conclusions, and a formulaic recitation of the elements of a cause of action will

not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, the

complaint’s factual allegations must be sufficient to raise a plaintiffs right to

relief above a speculative level, so that a claim is “plausible on its face.” Id. at

570; see also West Run Student Housing Assocs., LLC v. Huntington Nat. Bank,

712 F.3d 165, 169 (3d Cir. 2013). That facial-plausibility standard is met

“when the plaintiff pleads factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged.”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).

While “(t]he plausibility standard is not akin to a ‘probability requirement’...

it asks for more than a sheer possibility.” Iqbal, 556 U.S. at 678.

A. Sherman Act claim

The Sherman Anti-Trust Act declares “every contract, combination in the

form of trust or otherwise, or conspiracy, in restraint of trade or commerce

among the several States ... to be illegal.” 15 U.S.C. § 1. “Although this

prohibition is literally all-encompassing, the courts have construed it as

precluding only those contracts or combinations which ‘unreasonably’ restrain

competition.” Animal Sci. Prod., Inc., 34 F. Supp. 3d at 480 (quoting Northen

Pacific Ry. Co. v. United States, 356 U.S. 1, 4-5 (1958)).

“In order to sustain a cause of action under § 1 of the Sherman Act, the

plaintiff must prove: (1) that the defendants contracted, combined, or conspired

among each other; (2) that the combination or conspiracy produced adverse,

anti-competitive effects within relevant product and geographic markets; (3)

that the objects of and the conduct pursuant to that contract or conspiracy

were illegal; and (4) that the plaintiff was injured as a proximate result of that

conspiracy.” Martin B. Glauser Dodge Co. v. Chrysler Corp., 570 F.2d 72, 81-82

(3d Cir. 1977). Accord Howard Hess Dental Laboratories Inc. v. Dentsply Int'l,

Inc., 602 F.3d 237, 253 (3d Cir. 2010); cf. Franco v. Connecticut Gen. Life Ins.

Co., 818 F.Supp.2d 792, 829 (D.N.J. 2011) (“Pleading a colorable Sherman Act

section 1 claim requires a plaintiff to allege (1) an agreement (2) imposing an

unreasonable restraint of trade within a relevant product market and (3)

resulting in antitrust injury, that is ‘injury of the type the antitrust laws were

10

intended to prevent and ... that flows from that which make defendants’ acts

unlawful.”).

“The existence of an agreement is the hallmark of a Section 1 claim.

Liability is necessarily based on some form of concerted action.... The

agreement, of course, must pertain to some unlawful conduct within the

meaning of the antitrust laws. To establish liability under section 1, a plaintiff

must demonstrate that the challenged practice imposed an unreasonable

restraint on trade. The illegality of the restraint may be demonstrated in one of

two ways: under the per se standard or under a rule of reason analysis.”

Franco, 818 F.Supp.2d at 829-30 (D.N.J. 2011) (internal citations and

quotations omitted).

“The rule of reason requires courts to conduct a fact-specific assessment

of ‘market power and market structure ... to assess the [restraint]’ s actual

effect’ on competition.” Ohio v. Am. Express Co., 138 S. Ct, 2274, 2284 (2018)

(citation omitted). “While the rule of reason typically mandates an elaborate

inquiry into the reasonableness of a challenged business practice, there are

certain agreements or practices which because of their pernicious effect on

competition and lack of any redeeming virtue are conclusively presumed to be

unreasonable. Such plainly anticompetitive agreements or practices are

deemed to be illegal per se.” United States v. Brown Univ. in Providence in State

of R.L, 5 F.3d 658, 669 (3d Cir. 1993) (internal quotations and citations

omitted). The types of “agreements or practices which because of their

pernicious effect on competition and lack of any redeeming virtue are

conclusively presumed to be unreasonable and therefore illegal without

elaborate inquiry as to the precise harm they have caused or the business

excuse for their use ... are price fixing, division of markets, group boycotts, and

tying arrangements.” N. Pac, Ry. Co., 356 U.S. 1, 5 (1958). Accord Arizona v.

Maricopa County Med. Soc., 457 U.S. 332, 345 (1982); Deutscher Tennis Bund

v. ATP Tour, Inc., 610 F.3d 820, 830 (3d Cir, 2010) (“Some categories of

restraints, such as horizontal price-fixing and market allocation agreements

11

among competitors, ‘because of their pernicious effect on competition and lack

of any redeeming virtue are conclusively presumed to be unreasonable.”)

(quoting Brown Univ. in Providence in State of R.L, 5 F.3d at 669); In re Ins.

Brokerage, 618 F.3d at 316 (“Paradigmatic examples [of per se illegal restraints]

are ‘horizontal agreements among competitors to fix prices or to divide

markets.” (quoting Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S.

877, 886 (2007))).

1. Agreement

“To allege such an agreement between two or more persons or entities, a

plaintiff must allege facts plausibly suggesting ‘a unity of purpose or a common

design and understanding, or a meeting of minds in an unlawful

arrangement.” Howard Hess Dental Labs. Inc., 602 F.3d at 254 (quoting

Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 755 (1984)). With respect

to the alleged conspiracy between ABOS and northern New Jersey hospitals,

Dr. Ellison has failed to allege facts that plausibly suggest such an unlawful

arrangement.

Dr. Ellison has alleged no facts supporting a per se restraint of trade. The

Second Amended Complaint, like the complaints that preceded it, states only in

a conclusory manner that northern New Jersey hospitals “conspired” with

ABOS to require certification. But “[rlesort to per se rules is confined to

restraints. . . that would always or almost always tend to restrict competition

and decrease output.” Leegin, 551 U.S. at 886. There are no facts alleging any

type of agreement suggestive of plainly anticompetitive conduct that amounts

to a per se unlawful restraint.

The claim is tantamount to one that hospitals cannot require physician

qualifications unless they run their certification programs themselves, lest they

“conspire.” But there is nothing inherently harmful or unlawful about a

hospital requiring physicians to be certified. It cannot be said that such a

practice has no legitimate purpose, and can only be aimed at restraining trade.

It has an obvious medical rationale. For this reason, a hospital’s requirement

12

that physicians meet certain qualifications will rarely if ever found to be per se

unreasonable. See, e.g., Weiss v. York Hosp., 745 F.2d 786, 820 (3d Cir. 1984)

(“The Medical Staff is, however, entitled to exclude individual doctors, including

osteopaths, on the basis of their lack of professional competence or

unprofessional conduct ... We recognize, therefore, that in many cases

involving exclusion from staff privilege, courts will, more or less openly, have to

utilize a rule of reason balancing approach.”); Miller v. Indiana Hosp., 843 F.2d

139, 144 (3d Cir. 1988) (“We recognized that in a hospital staff privilege case in

which the hospital defends on lack of professional ability, the rule of reason

test would apply.”); see also BCB Anesthesia Care Ltd. v. Passavant Mem. Area

Hosp. Ass’n, 36 F.3d 664, 667 (7th Cir. 1994) (noting that courts “invariably

analyze” antitrust claims based on hospital credentialing decisions under the

rule of reason because “there is nothing obviously anticompetitive about a

hospital choosing one staffing pattern over another or in restricting the staffing

to some rather than many or all”).

The allegations in the 2AC also fail under the Rule of Reason analysis.

The Second Amended Complaint reiterates, for instance, that “Defendant ABOS

has undertaken its actions with a common design and understanding with

hospitals to exclude some competent orthopedic surgeons from the relevant

market, including Dr. Ellison.” (2AC J 62) This type of conclusory allegation is

found throughout the 2AC. (E.g., id. J] 6, 9, 14, 41, 44, 57, 58, 60, 61, 62, 63).

“But to survive dismissal it does not suffice to simply say that the defendants

had knowledge; there must be factual allegations to plausibly suggest as

much.” Howard Hess Dental Labs. Inc., 602 F.3d at 255 (citing Twombly, 550

U.S. at 564).

There are no such allegations here. Without more, the mere fact that

certain hospitals require Board Certification for admitting privileges combined

with a bare assertion that hospitals conspired with ABOS is not a sufficient

allegation of an unlawful agreement. See Twombly, 550 U.S. at 556-57 (“[A]n

allegation of parallel conduct and a bare assertion of conspiracy will not

13

suffice. Without more, parallel conduct does not suggest conspiracy, and a

conclusory allegation of agreement at some unidentified point does not supply

facts adequate to show illegality. Hence, when allegations of parallel conduct

are set out in order to make a [Sherman Act] § 1 claim, they must be placed in

a context that raises a suggestion of a preceding agreement, not merely parallel

conduct that could just as well be independent action.”).

Nothing in this complaint goes beyond an allegation that the hospitals

chose to require certification by an outside organization, ABOS. These entities

do not conspire any more than the hospitals “conspire” with medical schools by

virtue of requiring their doctors to possess a medical degree. The facts to

support a conspiratorial agreement or a coercive arrangement are lacking.

Dr. Ellison attempts to bridge that gap with public statements made by

ABMS (to which Defendant ABOS is alleged to belong). According to the

complaint, ABMS stated that it “encourages hospitals and insurers to consider

it when granting or delineating clinical privileges.” (2AC | 64; see also § 18). To

begin with, these statements are attributable to ABMS and AHA—not

defendant ABOS. In any event, they continue to miss the mark. There is

nothing inherently unlawful about ABMS “encouraging” certain hospitals to

accept its certification program. These vague allegations that ABMS influenced

or pressured hospitals into requiring board certification actually suggest just

the opposite. Lacking any actual agreement with hospitals, ABMS engaged in

public marketing efforts in an attempt to expand the reach of its programs. The

statements cited by Dr. Ellison confirm as much:

We all know that the hospital business is a competitive one, and

the more we can do to ensure patients, our insurers, and patient

advocacy groups that we deliver the highest quality care, the better

off we are. There has also been pressure from specialty boards

encouraging us to restrict staff privileges to those physicians who

have board certification. Our Board of Trustees has been struggling

with the issue for more than a year, and, after many rounds of

talks, they have decided that we will begin to require board

certification for all physicians who have staff privileges.

14

(2AC 4 18). Implicit in this statement is the recognition by that hospital that it

must compete for patients by offering high quality services. While this

particular hospital struggled with the decision, its trustees ultimately agreed

that one way to compete and ensure quality care was to require board

certification for its physicians. There is no allegation, by the way, that this

article refers to any of the hospitals mentioned in the complaint. (See 2AC { 25)

In any event, the 2AC asserts nothing to suggest that this large collection

of New Jersey hospitals decided to require board certification as a prerequisite

to medical staff privileges based on an illicit agreement, rather than as the

result of their own independent calculation that this requirement would

improve the quality of care or make them more competitive in attracting

patients. The time, place, or manner of the alleged “agreement” is not specified.

The Second Amended Complaint does not assert any facts directly suggesting

such an between ABOS and the New Jersey hospitals; nor does it indirectly

state a factual context that implies a preexisting agreement with ABOS. Dr.

Ellison has not pled “enough fact[s] to raise a reasonable expectation that

discovery will reveal evidence of illegal agreement.” Twombly, 550 U.S. at 556.

Nor has Dr. Ellison alleged facts sufficient to suggest that ABOS has

sufficient market power to affect a restraint of trade. Dr. Ellison in one sense

frames the allegations in the 2AC as restricting trade because ABOS prevents

him from getting certified by other equally rigorous board certification

programs offered by other organizations. (2AC {{ 28, 48) Of course,

“exclusionary practices in themselves are not sufficient. There must be proof

that competition, not merely competitors, has been harmed” United States v.

Dentsply Int'l, Inc., 399 F.3d 181, 187 (3d Cir. 2005). To overcome this hurdle,

Dr. Ellison must allege that there are somehow fewer surgeons available to

treat patients because of ABOS’s restrictions. But all the 2AC can manage is a

conclusory assertion that “ABOS’s actions significantly reduce the availability

of orthopedic surgeons in the relevant market, which reduces patient choice

and increases health care costs.” (2AC { 61) There are no well-pled factual

15

allegations to support this sweeping conclusion. For example, Dr. Ellison does

not point to any reduction of the number of surgeons available to treat

patients, or resulting inflation of prices to consumers. Indeed, it is far from

evident that the purported agreement between ABOS and northern New Jersey

hospitals would operate in that manner. Failure to be certified, for example,

does not render a surgeon unable to practice. See Sanjuan v. Am. Bd. of

Psychiatry & Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994), as amended on

denial of reh’g (Jan. 11, 1995) (explaining that it is “hard to see how the

[defendant psychiatric board’s] activities could amount to an exercise of market

power, which entails cutting back output in the market and thus driving up

prices to consumers’ where “plaintiffs already are sellers in the market for

psychiatric services [and] turning down their applications for certification does

not remove their output from the market and therefore does not raise prices to

consumers”) (internal citation omitted).

Even if the relevant market is considered to consist only of surgeons

admitted to practice at these New Jersey hospitals—an unsupported

contention—the necessary facts are lacking. The complaint alleges that Dr.

Ellison, a competitor, has been excluded from a market segment, but gives no

reason to think that competition has been harmed—for example, that the total

number of such surgeons admitted to practice at New Jersey hospitals has

been reduced. That prices for surgical services are indirectly affected cannot

simply be assumed, given the complex manner in which the (highly insurance-

driven) market for surgical services functions.

“(I]t is commonplace, and often very useful, for organizations to

recommend quality standards .. . or adopt them as part of a certification

process. .. Merely to say that the standards are disputable or have some

market effects has not generally been enough to condemn them as

‘unreasonable’ under the Sherman Act.” DM Research, Inc. v. Coll. of Am.

Pathologists, 170 F.3d 53, 57 (1st Cir. 1999). Dr. Ellison fails to sufficiently

state a claim for an improper agreement under Section 1 of the Sherman Act.

16

The failure to allege an unlawful agreement alone warrants dismissal for failure

to state a claim.

2. Tying Allegations

Dr. Ellison simultaneously asserts that defendant ABOS engaged in an

improper tying arrangement. He alleges both a per se and a “rule of reason”

tying violation. (2AC 64-65) “Tying is defined as selling one good (the tying

product) on the condition that the buyer also purchase another, separate good

(the tied product).” Town Sound and Custom Tops, Inc. v. Chrysler Motors Corp.,

959 F.2d 468, 475 (3d Cir. 1992). “[T]he essential characteristic of an invalid

tying arrangement lies in the seller’s exploitation of its control over the tying

product to force the buyer into the purchase of a tied product that the buyer

either did not want at all, or might have preferred to purchase elsewhere on

different terms. When such ‘forcing’ is present, competition on the merits for

the tied item is restrained and the Sherman Act is violated.” Id. at 476 {quoting

Jefferson Parish Dist. No. 2 v. Hyde, 466 U.S. 2, 12 (1984)).

“(W]here (1) a defendant seller ties two distinct products; (2) the seller

possesses market power in the tying product market; and (3) a substantial

amount of interstate commerce is affected, then the defendant’s tying practices

are automatically illegal without further proof of anticompetitive effect.” Id. at

477. That is, under these circumstances, a defendant’s acts amount to a “per

se” violation.

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 some particular competitor. Eisai, Inc. v. Sanofi

Aventis U.S., LLC, 821 F.3d 394, 402-03 (3d Cir. 2016) (citations and

quotations omitted).

17

Under the rule of reason test, a plaintiff must show a substantial

foreclosure of the market for the relevant product. Jd. (citations and quotations

omitted). Although the test does not require total foreclosure, the challenged

practices must bar a substantial number of rivals or severely restrict the

market’s ambit. Id. The “concern is not about which products a consumer

chooses to purchase, but about which products are reasonably available to

that consumer. For example, if customers are free to switch to a different

product in the marketplace but choose not to do so, competition has not been

thwarted—even if a competitor remains unable to increase its market share.”

Id. (citations and quotations omitted). However, even in cases where consumers

have a choice between products, the market is foreclosed if the defendant’s

anticompetitive conduct renders that choice meaningless. Id. (citations and

quotations omitted).

Here, Dr. Ellison conclusorily asserts that ABOS’s board certification

requirements amount to an anticompetitive tying arrangement and defines the

“tying market” as “board certification for orthopedic surgeons holding an ‘M.D.’

degree as required by hospitals in northern New Jersey as a condition of

practicing medicine there.” (2AC § 45) The 2AC fails to describe the operation

of the alleged tying arrangement very clearly. Presumably the “tying product” is

ABOS’s board certification, and the the “tied product” would be hospital

medical staff privileges, or the other way around.

The relevant analysis fails at the first phase of either a per se analysis or

rule of reason analysis. This purported tying arrangement makes little sense. A

tying arrangement must be viewed in light of the power wielded by the

purported seller to force a consumer to buy other products it did not want, or

did not want on those terms. ABOS is not plausibly alleged to possess that

power. It would be ABOS’s alleged “exploitation of its control over the tying

product to force the buyer into the purchase of a tied product that the buyer

either did not want at all, or might have preferred to purchase elsewhere on

different terms” that drives the inquiry. Town Sound and Custom Tops, Inc.,

18

959 F.2d at 476.4 “[T]he essence of illegality in tying agreements is the wielding

of monopolistic leverage; a seller exploits his dominant position in one market

to expand his empire into the next.” Times-Picayune Publishing Co. v. United

States, 345 U.S. 594, 611 (1953). There are no allegations that ABOS has

influence over who is granted staffing privileges or that staffing privileges can

be provided or sold by ABOS. (I set aside the difficulties in treating hospital

staff status as a tied “product” sold in a market.) There are no well-pled

allegations that ABOS is provided any direct monetary or other benefits as a

result of a hospital issuing a surgeon staffing privileges. There are no facts

tending to demonstrate that ABOS—the defendant here—is conditioning staff

privileges on participation in its certification program, or profiting therefrom.

The theory, then, must be some highly attenuated one, for which the necessary

facts are not pled.

Because the 2AC fails to assert a tying arrangement or illicit agreement,

the Court need not opine on whether the other elements of a Section 1

Sherman Act violation are sufficiently pled; the failure to allege an unlawful

agreement alone warrants dismissal for failure to state a claim. See Howard

Hess Dental Labs. Inc., 602 F.3d at 254 (“Section 1 claims are limited to

combinations, contracts, and conspiracies, and thus always require the

existence of an agreement.”).5

4 To be clear, there is no allegation that Dr. Ellison is being forced to buy two

products, when he only wanted one. Instead, he alleges that he wants both products:

(1) to sit for phase II of the ABOS board certification test so that he can obtain board

certification (2AC J 70), and thereby obtain (2) staffing privileges from a northern New

Jersey hospital. (See, e.g., id. J 67)

I therefore express no further opinion on other issues raised by ABOS. These

include questions of venue, jurisdiction and standing raised by a speculative allegation

that a California physician theoretically would apply for, but is likely to be denied,

staff privileges at any one of a number of New Jersey hospitals.

19

Ili, CONCLUSION

ABOS’s motion to dismiss the Second Amended Complaint is granted on

Rule 12(b)(6) grounds, for failure to state a claim under Section 1 of the

Sherman Act. Because this complaint is in its third iteration (in this district), it

appears that further amendment would be futile. This dismissal of the Second

Amended Complaint as against ABOS is therefore entered with prejudice. An

appropriate Order follows.

Dated: March 12, 2020

20