National Pharmacy Board Group Cannot Be Sued as a State Actor – 3rd Circuit

(Reuters) – Two drug distributors can’t bring federal civil rights lawsuits against UnitedHealthcare’s Pharmacy Benefits Manager Optum Unit and an association of state pharmacy boards for allegedly shutting them out of the market in denying accreditation to state boards, a federal appeals court ruled Thursday.

A three-judge panel of the 3rd U.S. Circuit Court of Appeals largely confirmed a lower court judge’s dismissal of a lawsuit brought by distributors PriMed Pharmaceuticals LLC and Oak Drugs Inc against Optum and the National Association of Boards of Pharmacy (NABP), finding that the defendants could not be prosecuted under federal civil rights law for not being state actors.

However, the panel revived a due process claim against NABP under the common law of New Jersey, where the 2018 lawsuit was filed.

Linda Clark of Barclay Damon, an attorney for the distributors, said she believed the state’s claim would provide a “complete remedy”.

Optum said in a statement that it was satisfied with the dismissal of the complaints against it. NABP did not immediately respond to a request for comment.

According to the lawsuit, filed in federal court in Newark, PriMed and Oak Drugs, which both operate in multiple states, were put out of business because Optum, one of the nation’s leading drug benefit managers, demanded that the pharmacies he works with buy only from NABP-accredited distributors.

The distributors said the NABP had denied their applications for certification without just cause, violating their due process rights. They filed their claims under the Federal Civil Rights Act known as Section 1983, which permits civil rights suits against states or entities acting on behalf of states, and under the common law of New Jersey.

U.S. District Judge Kevin McNulty fired the case in December 2020, finding that the defendants were not state actors under Section 1983. It also found that New Jersey courts had not recognized any comparable due process claims in the past.

Circuit Judge Thomas Ambro, writing for the panel, agreed that the plaintiffs had not shown how NABP or Optum acted on behalf of a particular state.

However, he said the New Jersey Supreme Court recognized a comparable due process claim in a 1961 decision, Falcone v. Middlesex County Medical Society, siding with a doctor challenging his exclusion from a medical society.

Circuit Judges Jane Roth and Stephanos Bibas joined in the opinion, although a footnote indicates that Bibas would have upheld the denial of the state’s request.

The case is Matrix Distributors Inc et al v. National Association of Boards of Pharmacy et al, 3rd US Circuit Court of Appeals, No. 20-3638.

For Oak Drugs and PriMed: Linda Clark and Brian Culnan of Barclay Damon

For NABP: Brian Casey of Barnes & Thornburg

For Optum: Jason Asmus of Taft Stettinius & Hollister

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