Antitrust Law Daily American Osteopathic Association settles tying, fraud class action
Tuesday, July 31, 2018

American Osteopathic Association settles tying, fraud class action

By Peter Reap, J.D., LL.M.

The American Osteopathic Association (AOA) and the four named class representative osteopaths have agreed to a settlement of allegations that the AOA violated federal and New Jersey antitrust law by allegedly tying board certification to professional association membership. The federal district court in Newark preliminarily approved the settlement, which will provide each of the four named plaintiffs with $15,000, and pursuant to which the AOA agrees to no longer require its board-certified physicians to maintain AOA membership (Talone v. The American Osteopathic Association, July 24, 2018, Hillman, N.).

The allegations. The plaintiffs, board-certified osteopathic physicians (DOs), alleged that the AOA notified them, along with the approximately 32,000 other board-certified AOA members, that their board certification would be invalidated and cancelled unless they purchased annual membership in the AOA. According to the plaintiffs, since the tie began in August 2012, they and the other board-certified members have been thusly forced to buy AOA membership even though it served no purpose with respect to AOA certification or their own practice as physicians.

Moreover, the DOs claim, the tying arrangement reduced the number of DOs willing to purchase membership in other professional physician associations, thereby foreclosing competition in the market for membership in such associations. This reduction in purchases of non-AOA memberships, it is further claimed, has created a barrier to entry preventing new competition, raised the costs faced by existing rivals, and softened price competition between the AOA and those rivals. By reducing competition in the professional association membership, the plaintiffs alleged, the AOA was also able to increase its membership dues to almost double those of its competing associations and still witness a reduction in competitive offerings.

In addition to the tying claims under the Sherman and New Jersey Antitrust Acts, the DOs also alleged that the AOA committed fraud in violation of the New Jersey Consumer Fraud Act by falsely promising DOs who received their board certification prior to 2000 that those certifications would never expire. That promise was allegedly renewed in 2013 through the AOA’s Osteopathic Continuous Certification program. However, the plaintiffs claimed, the AOA knowingly concealed that lifetime certification holders would have to purchase annual membership in the AOA to avoid invalidation and cancellation of those "lifetime" certifications.

Settlement terms. As requested in the DO’s joint motion for certification of the class and for preliminary approval of the settlement, and detailed in the DO’s joint brief in support, the parties agreed upon rescission of the challenged rule, such that as of the effective date of final approval of the settlement, AOA Board certification shall no longer be conditioned upon membership in the AOA. In addition, the AOA shall suspend a certification maintenance fee, reduce its annual membership dues, provide complimentary continuing medical education to its members, and make other changes. The settlement agreement provides for an award of attorney fees and costs to the plaintiffs’ counsel in an amount not to exceed $2,617,000, and provides for incentive fees of up to $15,000 to be awarded to each of the class representatives, to be paid from the amount of attorney fees awarded.

In exchange for the above benefits, the settlement provides for the dismissal with prejudice of the claims asserted in this action, and that all members of the settlement class and sub-classes will fully release the AOA from all federal and state law claims, including claims for damages, that could have been asserted in this action.

Preliminary approval. The court determined that the settlement appeared to be the product of serious, non-collusive negotiations between the parties, was well within the range of reasonableness, and had no obvious deficiencies. It also did not unreasonably favor the class representatives or any segment of the settling classes.

Rule 23(a) and 23(b)(2). The requirements of rule 23(a) were satisfied because the class was so numerous such that joinder of all members is impracticable; there were common issues of law and fact for the class members; the class representatives’ claims were typical of the class; and the class representatives would fairly and adequately represent the class. The requirements of Rule 23(b)(2) were met, namely that the AOA acted or refused to act on grounds that apply generally to the class, so that final injunctive or declaratory relief was appropriate respecting the class as a whole.

Specifically, the court reasoned that these issues were common to members of the settling class:

  • Whether the DO Board Certification Market and the Association Membership Market are separate product markets;
  • Whether, during the relevant period, the AOA had market power in the DO Board Certification Market;
  • Whether, during the relevant period, the AOA exploited its market power in the DO Board Certification Market by conditioning AOA Board certification on the purchase of annual membership;
  • Whether the challenged rule caused anticompetitive conduct effects nationally and/or in New Jersey;
  • Whether there were any procompetitive justifications for the Challenged Rule; and
  • Whether the AOA’s conduct violated Section 1 of the Sherman Act, Section 3 of the New Jersey Antitrust Act, and the New Jersey Consumer Fraud Act

The court also approved the form and methods for giving notice, and appointed Duane Morris LLP as class counsel.

The case is No. 1:16-cv-04644-NLH-JS.

Attorneys: James Greenberg (Duane Morris LLP) for Albert Talone. Jeffrey Warren Lorell (Saiber LLC) for The American Osteopathic Association.

Companies: The American Osteopathic Association

MainStory: TopStory Antitrust StateUnfairTradePractices NewJerseyNews

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