its psychiatrists based upon Board certification. Kaneria presently earns $ 89,500 annually as a "Psychiatrist I." If Board certified, Kaneria would be eligible to become a "Psychiatrist II," with an annual salary of $ 96,500. Additional benefits attendant to Board certification include the opportunity to advance into administrative and/or executive positions, the opportunity to appear as an expert witness in judicial and administrative proceedings, and a generally enhanced recognition in the psychiatric field.
Kaneria initially applied for Board certification in 1977 and first took the written and oral examinations in 1978. After passing the written examination, Kaneria took the oral examination in Denver, Colorado. The oral examination is administered in various cities throughout the United States and consists of two parts: (1) a thirty-minute interview of a patient followed by a thirty-minute interview with the Board's examiners; and (2) an observation of an audiovisual tape of a psychiatric examination that is followed by an interview with the Board's examiners who question the candidate about the content of the tape. After administering the oral examination to Kaneria in Denver, the Board informed him that he had failed.
Thus began an odyssey that took Kaneria to a myriad of cities throughout the United States, including New York, Atlanta, San Diego, San Francisco, Los Angeles, Baltimore, Philadelphia, Chicago, and Seattle in pursuit of a passing grade on the Board's oral examination. Between 1978 and 1990, Kaneria failed a total of ten times, either the first part, the second part, or both parts of the oral examination. The Board informed Kaneria at one point during this period that the passing grade that he received on the written examination would expire after seven years. Kaneria responded by again taking and passing the written examination in 1988.
Upon notification of his most recent failure to pass the oral examination, Kaneria requested information from the Board concerning the reasons for his failing grade. The Board responded by informing Kaneria that he had failed both parts of the oral examination, but the Board did not provide Kaneria with the reasons for his failing grade. Kaneria then pursued an appeal of the Board's "negative determination" in accordance with the Board's appeal procedures by paying $ 400.00 and providing the Board with a written rebuttal to the Board's determination, though he had not been informed of the Board's analysis in deciding to fail him. The Board subsequently advised Kaneria that no personal appearance before the Board was permitted and that the submission of his appeal would be forwarded to the Board's review committee. The Board ultimately sustained Kaneria's failing grade without providing any additional information.
Kaneria alleges that the Board's administration of the oral examination is arbitrary and capricious both as a general procedure by which to measure a candidate's knowledge and skills and as the particular examination was administered to him. In addition, Kaneria alleges that the Board's failure to provide reasons explaining his failing grade and conduct an adequate appeal procedure are arbitrary and capricious. He claims that this arbitrary and capricious conduct caused the Board to: (1) breach the implied covenant of good faith contained within the application for certification agreement; (2) fail to exercise reasonable care in the development and administration of the oral examination; and (3) breach the fiduciary duty that Kaneria claims the Board owes each of its candidates.
III. Procedural History
Kaneria originally filed his complaint in the United States District Court for the Northern District of New York, asserting federal diversity of jurisdiction. The Board moved for dismissal or transfer on the grounds of lack of personal jurisdiction and improper venue. During the pendency of this motion, Kaneria filed an Amended Complaint. At the hearing on the motion to dismiss, the United States District Judge Thomas J. McAvoy granted Kaneria time to conduct discovery limited to the issues of jurisdiction venue, and thereafter ordered Kaneria to amend his complaint. Kaneria subsequently filed a Second Amended Complaint, and the Board filed a motion to dismiss and for summary judgment on the jurisdiction and venue issues. Following oral argument, Judge McAvoy determined that venue was improper, and transferred this matter to the Northern District of Illinois pursuant to 28 U.S.C. § 1406(a). The case was then assigned to Judge Brian B. Duff of this District.
The Board once again filed a motion to dismiss, asserting that Kaneria had failed to state a claim upon which relief could be granted. Senior District Judge Milton J. Shadur, sitting in for Judge Duff, granted the Board's motion, but based his ruling solely upon Kaneria's failure to properly allege diversity of citizenship between the parties.
Kaneria was subsequently granted leave to file a Third Amended Complaint to rectify the jurisdictional flaw, which he did. The parties, however, agreed to allow the Board's existing motion to dismiss to stand as against the Third Amended Complaint. The entire matter was then reassigned to this court.
Although neither party has expressly addressed the issue, we consider as an initial matter the law applicable to this proceeding. When a case is transferred pursuant to 28 U.S.C. § 1406(a) because venue was improper in the transferor court, the law of the state in which the transferee court sits applies in diversity actions. See Gonzalez v. Volvo of Am. Corp., 734 F.2d 1221, 1223 (7th Cir. 1984). Accordingly, we shall apply Illinois law in considering this motion to dismiss.
The availability of judicial review to examine a private association's decision to deny an applicant membership in the association, or the benefits thereof, was first considered in Illinois in Treister v. American Academy of Orthopaedic Surgeons, 78 Ill. App. 3d 746, 396 N.E.2d 1225, 33 Ill. Dec. 501 (Ill. App. Ct. 1979). The plaintiff, Treister, was an orthopaedic surgeon who was licensed to practice in the State of Illinois. He applied for membership in the American Academy of Orthopaedic Surgeons, which selected orthopaedic surgeons for membership on the basis of standards and rules adopted by the Academy and published in its bylaws. His application was denied, and he filed suit, claiming that the application procedure was fundamentally unfair because it violated the Academy's own bylaws. In his complaint, Treister alleged that
active fellowship in the academy is a factor relied upon by hospitals in the granting of orthopaedic surgical privileges, by insurance companies in the establishment of malpractice rates, by courts in determining the expertise of an orthopaedic surgeon whose testimony is offered as expert and by young physicians selecting a clinic in which to practice.
Treister, 396 N.E.2d at 1227. He further claimed that membership in the academy was a practical necessity for an orthopaedic surgeon who wishes to realize maximum potential achievement and recognition in his specialty." Id. In his lawsuit, Treister sought a declaration that the rejection of his application was void. He also requested a full explanation of the reasons that his application had been rejected, and an opportunity to be heard at a hearing before an impartial adjudicator.
In considering Treister's claim, the court observed that the propriety of judicial review of a private association's decision to exclude an applicant was a question of first impression in Illinois.
The court noted that New Jersey and Arizona courts had previously allowed judicial review of such decisions "when the society controls access to local hospital facilities and thus can deprive the applicant of his ability to practice medicine." Treister, 396 N.E.2d at 1231. The court also considered a decision in California, which went further and allowed review of an association's application procedure where membership in the association was a "practical necessity . . . to realize maximum potential achievement and recognition in [a] specialty." Treister, 396 N.E.2d at 1230 (quoting Pinsker v. Pacific Coast Society of Orthodontists, 1 Cal. 3d 160, 460 P.2d 495, 81 Cal. Rptr. 623 (Cal. 1969)).
After surveying the legal landscape, the Treister court held that judicial review of a private association's application procedure was only available when membership in the organization was an "economic necessity." The court then considered the facts of Treister's case, and concluded:
We find that the plaintiff has not alleged that membership in the [Academy] is an economic necessity. Membership is not a requisite to hospital staff privileges as evidenced by the fact that the plaintiff is a member of the attending staff at seven Chicago hospitals.
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