Darjee et al v. Betlach

Filing 85

ORDER that Judge Ferraros Report and Recommendation (Doc 72 ) is accepted and adopted in part and rejected in part. Defendant's Motion to Dismiss (Doc. 35 ) is granted in part and denied in part as follows: Plaintiff Aita Darjee's claim under Count 2 is dismissed without prejudice. Defendant's Motion is otherwise denied. Signed by Judge Rosemary Marquez on 3/31/2017. (see Order for additional details)(SIB)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Aita Darjee, et al., Plaintiffs, 10 11 ORDER v. 12 No. CV-16-00489-TUC-RM (DTF) Thomas Betlach, 13 Defendant. 14 15 Pending before the Court is a Report and Recommendation issued by Magistrate 16 Judge D. Thomas Ferraro. Doc. 72. Judge Ferraro recommends that this Court grant 17 Defendant’s Motion to Dismiss (Doc. 35) and dismiss the Complaint with prejudice, and 18 deny as moot Plaintiffs’ Motion for Class Certification (Doc. 5), Plaintiffs’ Motion for 19 Preliminary Injunction (Doc. 15), and the related motions to strike (Docs. 59, 62, 65). 20 Plaintiffs objected to a majority of the conclusions in Judge Ferraro’s recommendation.1 21 Doc. 77. The Court reviews those conclusions de novo. 28 U.S.C. § 636(b)(1) (“A judge 22 of the court shall make a de novo determination of those portions of the report . . . to 23 which objection is made.”). 24 .... 25 .... 26 .... 27 1 28 Defendant also filed an objection. Doc. 75. Defendant’s only objection concerns a clerical error which has no bearing on the motion to dismiss. Id. Plaintiffs did not respond to this objection. 1 I. Background 2 A. 3 Plaintiffs filed this putative class action on behalf of low-income Arizona 4 immigrant residents who qualify for Arizona’s Medicaid program, the Arizona Health 5 Care Cost Containment System (“AHCCCS”). Compl. ¶ 1, Doc. 1. Plaintiffs allege that 6 AHCCCS, under Defendant’s supervision, improperly reduced immigrant beneficiaries’ 7 full-scope AHCCCS benefits to emergency-only AHCCCS benefits.2 Id. ¶¶ 2, 10. 8 Plaintiffs claim that Defendant improperly transferred over 3,500 individuals, and further 9 claim that such transfers continue today. Id. ¶¶ 40–41. Plaintiffs seek only declaratory 10 relief affirming the unlawfulness of Defendant’s practices and injunctive relief enjoining 11 further improper reductions. 12 1. The Complaint Medicaid Framework 13 In 1965, Congress created the Medicaid program by adding Title XIX to the Social 14 Security Act. 42 U.S.C. §§ 1396–1396w-5. The purpose of Medicaid is to enable each 15 state “to furnish . . . medical assistance on behalf of families with dependent children and 16 of aged, blind, or disabled individuals, whose income and resources are insufficient to 17 meet the costs of necessary medical services.” Id. § 1396-1. To participate in Medicaid, a 18 state must implement the program through a state plan which has been submitted to and 19 approved by the Secretary of the U.S. Department of Health and Human Services. Id. §§ 20 1396-1, 1396a(b). Arizona participates in Medicaid through the AHCCCS program. Ariz. 21 Rev. Stat. §§ 36-2901 et seq. 22 State plans must “provide that all individuals wishing to make application for 23 medical assistance under the plan shall have opportunity to do so, and that such 24 assistance shall be furnished with reasonable promptness to all eligible individuals.” 42 25 U.S.C. § 1396a(a)(8). Regulations implementing state Medicaid plans, such as AHCCCS, 26 27 28 2 Full-scope AHCCCS benefits provide medically necessary care. (Compl. ¶ 28 (citing Ariz. Admin. Code § R9-22-202).) Emergency-only AHCCCS benefits are much more limited, providing care only for conditions which place a person’s health in serious jeopardy. (Id. ¶ 29 (citing Ariz. Admin. Code § R9-22-217).) -2- 1 require that states “[c]ontinue to furnish Medicaid regularly to all eligible individuals 2 until they are found to be ineligible.” 42 C.F.R. § 435.930(b). 3 The eligibility of a Medicaid beneficiary must be renewed every 12 months. Id. § 4 435.916(a). Recertification is required to be done through an ex parte process, whereby a 5 state makes the eligibility redetermination without requiring information from the 6 beneficiary, if able to do so based upon reliable information already available to the state. 7 Id. § 435.916(a)(2). If a state cannot make the eligibility redetermination based upon 8 available data, it must send the beneficiary a “pre-populated renewal form” requesting 9 only the information needed to renew eligibility. Id. § 435.916(a)(3). 10 Generally, immigrants who enter the United States after August 22, 1996 do not 11 qualify for Medicaid unless they have been “qualified aliens” for 5 years, as that term is 12 defined in the code. 8 U.S.C. § 1613(a). Certain immigrants are exempt from this 13 requirement, including refugees and victims of domestic battery. Id. §§ 1613(a)–(b), 14 1641(c). 15 2. Defendant’s Alleged Practices 16 Plaintiffs allege their counsel sent AHCCCS a letter in October 2015 concerning 17 the improper reduction of immigrant beneficiaries’ Medicaid benefits. Compl. ¶ 9. In 18 response, AHCCCS admitted that the errors were caused by its computer systems and 19 worker errors.3 Id. AHCCCS subsequently admitted that over 3,500 immigrants were 20 improperly transferred to emergency-only benefits. Id. The improper transfers continue to 21 the present, and some immigrant beneficiaries have had their benefits improperly reduced 22 a second time. Id. ¶ 41. 23 3 24 25 26 27 28 For example, the computer system improperly applied the 5-year requirement to those who were exempt from it. Thus, a refugee who recently became a legal permanent resident would be processed as a qualified alien with less than the required 5 years, rather than as an exempt refugee. Compl. ¶ 45. Plaintiffs also allege on information and belief that Medicaid redeterminations are processed through the Health-e Arizona Plus (“HEAPlus”) system, and food stamp eligibility determinations are processed through the AZTECS system. Id. ¶¶ 42–43. While thousands of immigrants were improperly transferred to emergency benefits under the HEAPlus system, they were properly found eligible for food stamps under the AZTECS system. Id. ¶ 44. -3- 1 Plaintiffs allege that Defendant fails to process eligibility renewals consistent with 2 the ex parte process mandated by federal law. Id. ¶¶ 32, 51. Specifically, federal law 3 requires States to make the eligibility redeterminations without requiring information 4 from the beneficiary, if able to do so based on reliable information already available to 5 the States. Id. ¶ 32. If a State must obtain additional information, it must use a pre- 6 populated form which seeks only the missing information. Id. The purpose of the ex parte 7 process is to reduce errors that occur at recertification and lessen the burden on 8 beneficiaries to submit duplicative or unchanging information. Id. 9 Arizona Administrative Code § R9-22-306(c) is Arizona’s method of 10 implementing the ex parte process. Id. ¶ 46. This rule is not as comprehensive as the 11 federal regulation. Id. Additionally, Defendant’s policy manual, which instructs workers 12 how to process renewals, does not implement the ex parte process. Id. ¶¶ 47–48. The 13 manual lists information that does not need to be obtained for benefit renewal 14 determinations. Id. ¶ 48. Immigrant alien numbers, which are similar to social security 15 numbers, are not included on this list. Id. Plaintiffs allege on information and belief that 16 Defendant’s employees improperly request alien numbers at each recertification, which 17 can lead to errors in the renewal decision. Id. 18 The manual lists “non-citizen status” as not needing to be verified at renewal 19 unless there has been a change in immigration status. Id. ¶ 49. Plaintiffs allege on 20 information and belief that Defendant’s employees routinely ask about immigration status 21 at each recertification although such information is readily available in each beneficiary’s 22 case file. Id. This too can lead to errors in the renewal decision. Id. 23 Plaintiffs also allege deficiencies in the notices Defendant sends to those who are 24 transferred from full-scope benefits to emergency-only benefits. Id. ¶ 52. Federal law 25 requires the notices to contain a statement of what action is being taken, “a clear 26 statement of the specific reasons” for the action, the specific regulations or the change in 27 law that requires the action, and an explanation of the hearing process for appeals. Id. ¶¶ 28 33–37 (citing 42 C.F.R. § 431.210). -4- 1 According to Plaintiffs, the notices state that the beneficiary’s “Medical 2 Assistance Changed,” the beneficiary’s “full medical services” will “stop,” and “Federal 3 Emergency Services” will “start.” Id. ¶ 53. The reason for this action is “your 4 immigration status does not let you get full medical services.” Id. The notices do not 5 explain the difference between emergency and full-scope benefits or provide a 6 meaningful explanation for the change in eligibility. Id. Recipients of the notice would 7 not be able to tell whether Defendant made a mistake. Id. Additionally, the notices 8 contain legal citations without explanation; they incorrectly inform the recipient that they 9 can review portions of their case file; and information about “Options to Continue 10 11 Benefits” is confusing. Id. ¶ 55. 3. Plaintiff Aita Darjee 12 Plaintiff Aita Darjee (“Darjee”) is a refugee from Nepal who lives in Tucson, 13 Arizona. Id. ¶ 8. Prior to 2016, Darjee, her husband, and her minor child all received full- 14 scope benefits without interruption. Id. Plaintiffs allege that the Darjees’ full-scope 15 benefits have been improperly reduced to emergency-only benefits twice since 2015. Id. 16 ¶¶ 58–59. Defendant restored the benefits after the first error, and restoration of her 17 benefits from the second error is “imminent if not complete.” Id. 18 Darjee suffers from a cold approximately 4-5 times per month, and she goes to the 19 doctor when her symptoms “get bad” so that she can be put on a machine that makes her 20 feel better. Id. ¶ 64. She also suffers from a gastric problem for which she takes 21 medication. Id. ¶ 65. Darjee’s husband suffers from diabetes, high blood pressure, high 22 cholesterol, and asthma, and he takes several medications to treat these conditions. Id. ¶ 23 60. Darjee’s son must see a doctor before he starts school, and he also has an allergy for 24 which a doctor prescribed a lotion. Id. ¶ 66. 25 Darjee learned about the second reduction in benefits after a doctor’s office called 26 and canceled her husband’s appointment; she did not receive any notice explaining the 27 reduction. Id. ¶ 62. The Darjees fear they will lose their benefits again and are worried 28 about their health if they cannot see doctors and obtain medications. Id. ¶¶ 67, 69–70. -5- 1 4. Plaintiff Alma Sanchez Haro 2 Plaintiff Alma Sanchez Haro (“Sanchez Haro”) is a resident of Tucson who 3 received full-scope AHCCCS benefits based on her status as a battered immigrant who 4 entered the United States prior to 1996. Id. ¶ 9. Sanchez Haro became a legal permanent 5 resident in January 2015. Id. ¶ 73. In April 2016, Sanchez Haro received a notice that she 6 was no longer eligible for full-scope benefits and would receive emergency-only benefits. 7 Id. ¶¶ 75, 77. Sanchez Haro could not understand from the notice why she was no longer 8 eligible, so she called the phone number printed on the notice to inquire about the change 9 to her benefits. Id. ¶¶ 75–76. 10 Sanchez Haro was informed that she was ineligible because she had not been a 11 legal permanent resident for 5 years. Id. ¶ 76. Although Sanchez Haro entered the United 12 States prior to 1996 and was a victim of domestic battery, both of which exempt her from 13 the 5-year requirement, she was further informed (incorrectly) that the law had changed 14 in January 2016. Id. ¶¶ 24, 26–27, 76. 15 Sanchez Haro suffers from severe depression, anxiety, type II diabetes, high blood 16 pressure, high cholesterol, and muscle cramps. Id. ¶¶ 78–79. She takes several 17 medications for these conditions. Id. She sees a doctor once per month at La Frontera for 18 her depression and anxiety issues, and she receives all other medical care from El Rio. Id. 19 ¶¶ 78, 80. 20 Now that Sanchez Haro is no longer receiving full-scope benefits, she has not been 21 able to see a doctor at El Rio, which now wants her to pay for her appointments, and she 22 is not guaranteed future care at La Frontera, which is attempting to find an insurance 23 company to pay for her care. Id. ¶¶ 81, 83. Although she is receiving her medication, she 24 worries that the pharmacy will start making her pay for them, and she is stressed about 25 her future health. Id. ¶¶ 81–85. 26 5. Plaintiffs’ Claims 27 Based on the foregoing, Plaintiffs assert two Counts. In Count 1, Plaintiffs allege 28 that Defendant is violating § 1396a(a)(8)’s “reasonable promptness” requirement by -6- 1 improperly reducing the benefits of eligible immigrant residents from full-scope to 2 emergency-only. In Count 2, Plaintiffs allege Defendant is violating the Due Process 3 Clause of the United States Constitution by sending deficient notices to immigrant 4 residents who had their benefits reduced. 5 B. 6 Defendant moved to dismiss the Complaint on August 29, 2016. Def.’s Mot. 7 Dismiss, Doc. 35. Defendants argued that (1) Plaintiffs failed to state a claim under 42 8 U.S.C. § 1396a(a)(8) because the statute applies only to initial applications for Medicaid 9 benefits and, therefore, does not provide a cause of action for errors caused on renewals; 10 (2) Plaintiffs failed to state a due process claim because they allege no facts showing that 11 Defendant failed to comply with the statutory notice requirements; and (3) Plaintiffs lack 12 standing to pursue their claims or their claims are moot. Id. Motion to Dismiss and Report and Recommendation 13 Plaintiffs opposed. Pls.’ Opp’n, Doc. 38. Plaintiffs argued the Complaint contains 14 sufficient factual allegations to state a claim for statutory and due process violations. Id. 15 They further argued that they do have standing and their claims are not moot. Id. Finally, 16 Plaintiffs requested leave to file an amended complaint should the Court determine that 17 any of Defendant’s arguments have merit. Id. at 17. 18 On October 25, 2016, Judge Ferraro issued a Report and Recommendation 19 recommending that this Court grant Defendant’s motion and dismiss this action. R. & R. 20 18, Doc. 72. Judge Ferraro found that Plaintiff Darjee did not have standing to bring her 21 claims when this action was filed, and although Plaintiff Sanchez Haro had standing, her 22 claims became moot once her full-scope benefits were restored.4 Id. at 6–8. 23 Alternatively, Judge Ferraro recommended that the Complaint be dismissed 24 because Plaintiffs failed to state a claim. Id. at 9. Regarding Count 1, Judge Ferraro 25 agreed with Defendant and found that (1) the plain language of 42 U.S.C. § 1396a(a)(8) 26 did not support a cause of action for benefit-renewal errors, and (2) Plaintiffs did not 27 28 4 Sanchez Haro’s full-scope benefits were restored on August 22, 2016, subsequent to the filing of the Complaint. See Doc. 33. -7- 1 provide sufficient factual allegations linking Plaintiffs’ benefit reduction to an unlawful 2 policy or practice. Id. at 13. Regarding Count 2, Judge Ferraro found that Darjee could 3 not state a due process claim because she did not receive a benefit-reduction notice at all, 4 and Sanchez Haro failed to state a claim because there are insufficient factual allegations 5 explaining why the notice is insufficient. Id. at 16–17. 6 II. Standing 7 A. 8 “[A]ny person invoking the power of a federal court must demonstrate standing to 9 do so. This requires the litigant to prove that he has suffered a concrete and particularized 10 injury that is fairly traceable to the challenged conduct, and is likely to be redressed by a 11 favorable judicial decision.” Hollingsworth v. Perry, 133 S. Ct. 2652, 2661 (2013) (citing 12 Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992)). When evaluating whether 13 a plaintiff has standing, courts look to the facts as they existed when the complaint was 14 filed. Slayman v. FedEx Ground Package Sys., Inc., 765 F.3d 1033, 1047 (9th Cir. 2014) 15 (citing Am. Civil Liberties Union of Nev. v. Lomax, 471 F.3d 1010, 1015 (9th Cir. 2006)). 16 Standing relates to the Court’s subject matter jurisdiction. White v. Lee, 227 F.3d 17 1214, 1242 (9th Cir. 2000). It is therefore proper to raise this issue in a motion to dismiss 18 pursuant to Federal Rule of Civil Procedure 12(b)(1). Id. Depending on whether the 19 attack on subject matter jurisdiction is “factual” or “facial,” courts may look beyond the 20 allegations of the complaint in determining whether a plaintiff lacks standing. Id. Legal Principles 21 “‘A facial attack accepts the truth of the plaintiff’s allegations but asserts that they 22 are insufficient on their face to invoke federal jurisdiction.’” NewGen, LLC v. Safe Cig, 23 LLC, 840 F.3d 606, 614 (9th Cir. 2016) (quoting Leite v. Crane Co., 749 F.3d 1117, 1121 24 (9th Cir. 2014)). “[A] facial attack is easily remedied by leave to amend jurisdictional 25 allegations pursuant to 28 U.S.C. § 1653.” Id. 26 “By contrast, a factual attack contests the truth of the plaintiff’s factual 27 allegations, usually by introducing evidence outside the pleadings.” Id. at 614 (emphasis 28 in original). A factual attack imposes upon the plaintiff “an affirmative obligation to -8- 1 support jurisdictional allegations with proof.” Id. Additionally, upon a factual attack, 2 courts may consider “matters of public record without having to convert the motion into 3 one for summary judgment” and “need not presume the truthfulness of the plaintiff’s 4 allegations.” White, 227 F.3d at 1242 (citations omitted). 5 6 B. Discussion 1. Plaintiff Darjee 7 Defendant argued that Darjee lacks standing because, when the Complaint was 8 filed, “restoration of the Darjees’ benefits was ‘imminent if not complete.’” Def.’s Mot. 9 Dismiss 11 (quoting Compl. ¶ 59). Judge Ferraro accepted this argument and found that 10 Darjee lacks standing for Count 1. R. & R. 7. Defendant’s argument is a facial attack on 11 Darjee’s standing because it assumes the truthfulness of the Complaint’s allegations. 12 Plaintiffs objected to Judge Ferraro’s finding on two grounds. First, Plaintiffs 13 argued they were not given the presumption of standing afforded those who are subjected 14 to unlawful government action. Pls.’ Objs. 3, Doc. 77 (citing L.A. Haven Hospice, Inc. v. 15 Sebelius, 638 F.3d 644, 655 (9th Cir. 2011)). Second, Plaintiffs argue that the 16 Complaint’s allegations suffice to show Darjee has standing. Id. at 4–7. 17 18 19 20 21 22 23 The Supreme Court has stated: When the suit is one challenging the legality of government action or inaction, the nature and extent of facts that must be averred (at the summary judgment stage) or proved (at the trial stage) in order to establish standing depends considerably upon whether the plaintiff is himself an object of the action (or forgone action) at issue. If he is, there is ordinarily little question that the action or inaction has caused him injury, and that a judgment preventing or requiring the action will redress it. 24 Defenders of Wildlife, 504 U.S. at 561–62. The Ninth Circuit described the foregoing 25 passage as creating a “presumption” of standing for plaintiffs who “seek injunctive relief 26 when [they are] the direct object of regulatory action challenged as unlawful[.]” Sebelius, 27 638 F.3d at 655. Here, Darjee was subject to the governmental action challenged in her 28 Complaint: Defendant’s allegedly unlawful policies or practices caused the improper -9- 1 reduction of Darjee’s benefits on two occasions. Assuming the truthfulness of Plaintiffs’ 2 allegations, a favorable judgment would redress Darjee’s injury by requiring Defendant 3 to comply with federal law, thereby preventing further reductions. This is sufficient to 4 support Darjee’s claim of standing. 5 The Court is not convinced that Darjee lacks standing because Plaintiffs alleged 6 that restoration of her benefits was imminent. It is true that a past injury by itself is 7 generally insufficient to seek injunctive relief. Steel Co. v. Citizens for a Better Env’t, 523 8 U.S. 83, 108 (1998) (holding that a generalized interest in deterrence is insufficient to 9 confer standing). Plaintiffs who seek injunctive relief must allege a future injury that is 10 “certainly impending”; allegations of a “possible” injury are insufficient. Whitmore v. 11 Arkansas, 495 U.S. 149, 158 (1990). Here, Darjee fears that another improper reduction 12 will occur. Compl. ¶ 70. Defendant allegedly conceded that some 3,500 immigrants had 13 their benefits reduced, and errors allegedly continue despite Defendant’s assertion that 14 the purported cause was corrected. Id. ¶¶ 40–41. Given that Darjee’s benefits were 15 reduced twice within a single year, and the second reduction came months after 16 Defendant acknowledged errors were occurring, Darjee has alleged a sufficient threat of 17 impending injury. See Doe v. U.S., 419 F.3d 1058, 1062 (9th Cir. 2005) (“[T]he court 18 must construe the complaint in the light most favorable to plaintiff, taking all her 19 allegations as true and drawing all reasonable inferences from the complaint in her 20 favor.”). 21 Turning to Count 2, Judge Ferraro found that Darjee lacks standing to pursue the 22 due process claim because she specifically pled that she did not receive a notice. R. & R. 23 7. She thus could not have been injured by the notice. Id. 24 Plaintiffs’ due process claim is premised on the alleged substantive deficiency of 25 the notices. Compl. ¶¶ 52–55; see Pls.’ Objs. 18 (“The heart of Plaintiffs’ due process 26 claim is when Defendant reduced their benefits from full to emergency-only medical 27 services, Defendant then sent a benefits notice that failed to provide adequate information 28 for the reason for the action.”). Darjee did not receive a notice regarding the reduction of - 10 - 1 her benefits. Id. ¶ 62. At first glance, it would seem incongruous to hold that Darjee lacks 2 standing to pursue the due process claim when the notice would allegedly have been of 3 no use to her anyway. This may seem especially unfair when one acknowledges that the 4 absence of required notice is a violation of due process. NewGen, F.3d at 615 n.5 (“The 5 essence of due process is the requirement of notice and an opportunity to respond.” 6 (citing Mathews v. Eldridge, 424 U.S. 319, 348 (1976))). 7 However, Plaintiffs chose to predicate their claim on the notices’ content. Darjee’s 8 lack of exposure to that content necessarily precludes the existence of an injury from it. 9 She thus lacks standing to pursue Count 2.5 10 2. Plaintiff Sanchez Haro 11 Judge Ferraro found that Sanchez Haro had standing to pursue both Counts when 12 the Complaint was filed. R. & R. 7. Defendant did not object to this finding. See Doc. 75. 13 After reviewing for clear error, Joshua David Mellberg LLC v. Will, 96 F. Supp. 3d 953, 14 960 (D. Ariz. 2015), the Court agrees and accepts Judge Ferraro’s finding. 15 III. Mootness 16 A. 17 Like standing, mootness pertains to the Court’s subject matter jurisdiction and is 18 properly raised in a Rule 12(b)(1) motion to dismiss. White, 227 F.3d at 1242. “To 19 qualify as a case fit for federal-court adjudication, ‘an actual controversy must be extant 20 at all stages of review, not merely at the time the complaint is filed.’” Arizonans for 21 Official English v. Arizona, 520 U.S. 43, 67 (1997) (quoting Preiser v. Newkirk, 422 U.S. 22 395, 401 (1975)). If the same personal interest required for standing does not continue 23 throughout the action, the case is moot. Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. 24 (TOC), Inc., 528 U.S. 167, 189 (2000) (citing Arizonans for Official English, 520 U.S. at 25 68 n.22). 26 .... Legal Principles 27 5 28 Because Darjee may be able to state a due process claim predicated on a theory of deprivation of any notice, her claim under Count 2 will be dismissed without prejudice. - 11 - 1 B. 2 Discussion 1. Plaintiff Darjee 3 Judge Ferraro reasoned that the mootness doctrine was inapplicable to Darjee 4 because she lacks standing. R. & R. 8 (citing Friends of the Earth, 528 U.S. at 191). The 5 Court agrees with respect to Count 2. Because Darjee does not have standing to pursue 6 Count 2, she cannot show an ongoing live controversy. See Friends of the Earth, 528 7 U.S. at 191. 8 However, as discussed above, standing for injunctive relief requires a plaintiff to 9 show a sufficient threat of future injury. Whitmore, 495 U.S. at 158. This Court’s finding 10 that Darjee has standing to pursue injunctive relief on Count 1 necessarily means there is 11 presently a live controversy. Accordingly, her claim under Count 1 is not moot. 12 2. Plaintiff Sanchez Haro 13 Judge Ferraro found that Sanchez Haro’s claims were moot and did not fall under 14 the “capable of repetition yet evading review” exception. R. & R. 8–9. Plaintiffs objected 15 to these findings, arguing their claims were not moot, or, alternatively, fell within the 16 aforementioned exception. Pls.’ Objs. 7–10. 17 The Court concludes that Sanchez Haro’s claims are not moot. Like Darjee, 18 Sanchez Haro was allegedly injured by Defendant’s unlawful policies and practices. 19 Although her benefits were reduced only once, she remains subject to the same risk of 20 future reductions caused by the same policies and practices. Accordingly, a live 21 controversy exists and her claim under Count 1 is not moot. 22 Turning to Count 2, Sanchez Haro alleges she was unable to understand from the 23 notice why her benefits were reduced. Plaintiffs allege the boilerplate notices lack 24 information required by statute. The notices are sent to all beneficiaries who are 25 transferred from full-scope benefits to emergency benefits. At this point, it is reasonable 26 to infer from the Complaint that Sanchez Haro, who is allegedly at risk of losing her 27 benefits, is also at risk of receiving the notice again. Accordingly, Sanchez Haro’s claim 28 under Count 2 is not moot. - 12 - 1 IV. Failure to State a Claim 2 A. 3 The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the legal 4 sufficiency of the complaint. N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th 5 Cir. 1983). “Dismissal can be based on the lack of a cognizable legal theory or the 6 absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica 7 Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A plaintiff is required to allege “enough 8 facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 9 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads 10 factual content that allows the court to draw the reasonable inference that the defendant is 11 liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Legal Standard 12 In determining whether a complaint states a claim on which relief may be granted, 13 the court accepts as true the allegations in the complaint and construes the allegations in 14 the light most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 15 (1984); Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1989). However, the court 16 need not assume the truth of legal conclusions cast in the form of factual allegations. 17 United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). While 18 Rule 8(a) does not require detailed factual allegations, “it demands more than an 19 unadorned, the defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. A 20 pleading is insufficient if it offers mere “labels and conclusions” or “a formulaic 21 recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555; see also Iqbal, 22 556 U.S. at 676 (“Threadbare recitals of the elements of a cause of action, supported by 23 mere conclusory statements, do not suffice.”). Moreover, it is inappropriate to assume 24 that the plaintiff “can prove facts which it has not alleged or that the defendants have 25 violated the . . . laws in ways that have not been alleged.” Associated Gen. Contractors of 26 Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). 27 In ruling on a motion to dismiss brought pursuant to Rule 12(b)(6), the court is 28 permitted to consider material which is properly submitted as part of the complaint, - 13 - 1 documents that are not physically attached to the complaint if their authenticity is not 2 contested and the plaintiff's complaint necessarily relies on them, and matters of public 3 record. Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). 4 5 B. Count 1 – Violation of 42 U.S.C. § 1396a(a)(8) 1. Plaintiffs’ Claim is Cognizable Under § 1396a(a)(8) 6 Section 1396a(a)(8) provides that state Medicaid plans must “provide that all 7 individuals wishing to make application for medical assistance under the plan shall have 8 opportunity to do so, and that such assistance shall be furnished with reasonable 9 promptness to all eligible individuals[.]” After analyzing the cases cited by both parties, 10 none of which he found on point, Judge Ferraro found that Plaintiffs’ claim is not 11 cognizable under the plain language of 42 U.S.C. § 1396a(a)(8). R. & R. 13. Judge 12 Ferraro agreed with Defendant and found that, because § 1396a(a)(8) was enacted to 13 prevent waiting lists, it applies only to initial applications for Medicaid and not to 14 subsequent renewal determinations. Id. (citing Sobky v. Smoley, 855 F. Supp. 1123 (D. 15 Ariz. 1994)). Plaintiffs received full benefits for years and continued to receive benefits 16 after the improper reduction, albeit in a reduced scope; thus, § 1396a(a)(8) does not apply 17 to Plaintiffs’ claims. Id. 18 Plaintiffs objected to this finding. Pls.’ Objs. 10–18. They argue that cases 19 examining § 1396a(a)(8) establish that the provision extends beyond initial applications 20 and covers prompt access to medical care in general. Id. at 13 (citing O.B. v. Norwood, 21 838 F.3d 837 (7th Cir. 2016); Rosie D. v. Romney, 410 F. Supp. 2d 18 (D. Mass. 2006)). 22 Contrary to Judge Ferraro’s finding, Plaintiffs argue, a violation of the “reasonable 23 promptness” provision occurs where the state fails to promptly provide all medical 24 services for which the beneficiary is eligible. Id. Accordingly, the prompt provision of 25 only some services—here, emergency benefits instead of full-scope benefits—does not 26 save the state from violating § 1396a(a)(8). Id. 27 At the outset, the Court does not agree with Defendant that § 1396a(a)(8) “[o]n its 28 face . . . applies [only] to initial applications, not renewals.” Def.’s Mot. Dismiss 4. - 14 - 1 Nothing in the plain language limits the “reasonable promptness” requirement to the 2 initial provision of medical assistance. Moreover, § 1396a(a)(8) must be read in 3 conjunction with other Medicaid statutes and implementing regulations. U.S. v. McIntosh, 4 833 F.3d 1163, 1176 (9th Cir. 2016) (“[T]he words of a statute must be read in their 5 context and with a view to their place in the overall statutory scheme.” (citation and 6 quotation marks omitted)). “Medical assistance” is defined as including payment for 7 services and the services themselves. 42 U.S.C. § 1396d(a). Medical assistance must be 8 “furnished” to eligible persons, which means both that services must be initially provided 9 without delay—which Defendant asserts is all it means—and be provided continually 10 until a person is found ineligible. 42 C.F.R. § 435.930(a)–(b). Therefore, “furnishing” 11 “medical assistance” with reasonable promptness includes the prompt provision of 12 medical services even after the initial eligibility determination and commencement of 13 benefits. 14 Defendant argues that he provides medical assistance promptly, and the Complaint 15 fails because “it alleges a failure to make determinations correctly, rather than a failure to 16 complete them promptly.” Def.’s Mot. Dismiss 4 (emphasis in original). First, Defendant 17 ignores the obvious inference arising from an incorrect eligibility determination: 18 Defendant cannot promptly provide the services for which a beneficiary is eligible if he 19 incorrectly determines the beneficiary is not eligible for those services. Second, 20 Defendant provides no direct citation for his argument. This is not surprising; the 21 assertion that inaccuracy is acceptable, so long as it is prompt, is an odd one. 22 Defendant relies on the Sobky court’s discussion regarding an analogous 23 “reasonable promptness” provision contained elsewhere in the Social Security Act. 855 24 F. Supp. at 1148 (citing Jefferson v. Hackney, 406 U.S. 535, 545 (1972)). However, while 25 Sobky and Jefferson acknowledge that the “reasonable promptness” provision prohibits 26 waiting lists, neither case holds that it exists only to prohibit waiting lists. Indeed, the 27 Supreme Court’s explanation of the Social Security Act’s requirement indicates the 28 purpose is broader: “The statute was intended to prevent the States from denying benefits - 15 - 1 even temporarily, to a person who has been found fully qualified for aid.” Jefferson, 406 2 U.S. at 544–45. 3 Further, case law supports Plaintiffs’ assertion that § 1396a(a)(8) extends beyond 4 the initial processing of Medicaid applications. In Norwood, the state determined that the 5 plaintiff, a minor who was already receiving Medicaid benefits, was eligible for 6 subsidized home-nursing care. 838 F.3d at 839. However, the state offered no assistance 7 to the plaintiff’s parents in finding nurses, which caused the plaintiff to remain in the 8 hospital for almost a year before being sent home. Id. at 840. Both the district and circuit 9 courts found a likelihood that plaintiff would prevail on his claim that the state failed to 10 arrange, with reasonable promptness, the home nursing to which he was entitled. Id. at 11 840–42. 12 The Fourth Circuit addressed a similar issue in an unpublished opinion. Doe v. 13 Kidd, 419 Fed. Appx. 411 (4th Cir. 2011). Kidd involved a Medicaid waiver program 14 which permitted the state to waive the requirement that persons with mental retardation 15 live in an institution in order to receive Medicaid. Id. at 413. As part of the waiver 16 program, the state determined which among three environments, each with varying 17 degrees of restrictiveness, was most appropriate for the applicant. Id. at 351–53. The 18 plaintiff, who was already receiving Medicaid benefits, applied and was found eligible 19 for the program. Id. at 414. The state determined that a less restrictive environment was 20 appropriate for plaintiff. Id. However, she spent multiple years in a more restrictive 21 facility while awaiting placement in a less restrictive facility. Id. 22 The Fourth Circuit held as a matter of law that the state violated the Medicaid Act 23 by failing to place plaintiff in an appropriate facility in a reasonably prompt manner. Id. 24 at 415. The court disagreed that the state’s subsidization of plaintiff’s stay in the more 25 restrictive facility precluded a violation of § 1396a(a)(8) because, as the state argued, 26 plaintiff was being provided with some service in a prompt manner, albeit not the service 27 for which she was eligible. Id. at 417. In other words, the state’s provision of a service 28 other than the one for which plaintiff was eligible was “the same as a failure to provide - 16 - 1 any services.” Id. 2 Although not binding, the foregoing authority persuades the Court that violations 3 of the “reasonable promptness” provision are not limited to delays in processing initial 4 Medicaid applications. Further, the fact Defendant provided some level of benefits (i.e., 5 emergency benefits) does not by itself preclude a violation of § 1396a(a)(8), since 6 Plaintiffs allegedly were eligible at all times for full benefits. See Kidd, 419 Fed. Appx. at 7 417. Plaintiffs’ claim for delay in medical services is thus cognizable under § 8 1396a(a)(8). 9 2. Plaintiffs State a Claim 10 Judge Ferraro alternatively found that, even if Plaintiffs’ claims are cognizable 11 under § 1396a(a)(8), Plaintiffs failed to sufficiently allege facts demonstrating they are 12 entitled to relief. R. & R. 14. First, Plaintiffs alleged the improper reductions “were” 13 caused by a computer programming error, the use of “were” indicating that the error was 14 fixed and is not continuing. Id. Second, there are no factual allegations linking the two 15 named Plaintiffs’ injuries to any of Defendant’s other alleged unlawful policies or 16 practices. Id. at 15. 17 Plaintiffs argue they were not given the benefit of all favorable inferences. Pls.’ 18 Objs. 15–18. First, according to Plaintiffs, their use of the term “were” was taken out of 19 context, and this Court should infer that the computer errors continue because Plaintiffs 20 did not allege the errors were fixed. Id. at 15–16. Second, Plaintiffs allege they provide 21 sufficient factual allegations to plausibly allege injury from Defendant’s conduct. Id. at 22 16–17. Finally, Plaintiffs argue that, if their allegations are deficient, they must be 23 allowed leave to amend. Id. at 17–18. 24 Viewing the allegations in the light most favorable to Plaintiffs, the Court does not 25 find that Plaintiffs’ use of “were” is an admission that the computer error was fixed. In 26 late 2015, Defendant informed Plaintiffs’ counsel that a computer error caused the 27 eligibility problems. Compl. ¶ 40 (“AHCCCS admitted the eligibility errors were caused 28 by its computer systems”). In Paragraph 40, Plaintiffs summarized Defendant’s - 17 - 1 allegations without admitting their truthfulness. Beyond Paragraph 40, nothing in the 2 Complaint indicates that Plaintiffs accept Defendant’s claim that the error has been 3 fixed.6 4 To the contrary, the Complaint may plausibly be read as alleging that Plaintiffs’ 5 injuries were caused in part by a continuing computer error. In the very next paragraph, 6 Plaintiffs allege that “[t]he improper reductions . . . continue.”7 Id. ¶ 41. This is supported 7 by the allegations that Darjee and Sanchez Haro’s benefits were improperly reduced in 8 2016 – months after Defendant conceded a computer error contributed to the reductions. 9 Id. ¶¶ 41, 59, 72. Further, Plaintiffs allege that the beneficiaries whose benefits were 10 improperly reduced under the HEAPlus computer system were properly found eligible 11 for food stamps under the AZTECS computer system, which may support the existence 12 of a continuing problem in the former system. Id. ¶¶ 42–44. 13 Under a liberal construction, the foregoing allegations reasonably support an 14 inference that the error has not been fixed and did contribute to Plaintiffs’ alleged 15 reductions. Those reductions in benefits allegedly prevented Plaintiffs from accessing the 16 medical care to which they were entitled, in violation of § 1396a(a)(8)’s “reasonable 17 promptness” requirement. Therefore, Plaintiffs have sufficiently stated at least one 18 ground to support their claims under Count 1, and the Court need not address whether 19 Plaintiffs sufficiently alleged injury caused by Defendant’s failure to adhere to the ex 20 parte renewal process. 21 C. 22 Judge Ferraro found that the Complaint lacks sufficient factual information to 23 support Plaintiffs’ due process claim. R. & R. 16–17. He found that, while the Complaint 24 detailed the various regulations dictating the notices’ content, Plaintiffs failed to allege Count 2 – Violation of Due Process 25 26 27 6 Objs. 15–16. The record indicates Plaintiffs do not accept Defendant’s claim. See Pls.’ 7 28 Defendants argue the Complaint’s allegations are insufficient because Plaintiffs do not specifically allege that the computer error continues. Def.’s Resp. to Pls.’ Objs. 4, Doc. 78. The Court does not read the Complaint so narrowly. - 18 - 1 that the notice received by Sanchez Haro lacked that information. Id. Further, Judge 2 Ferraro dismissed as conclusory the allegations that the notice lacked a “meaningful 3 explanation” regarding the reduction in benefits, and that certain language was 4 “confusing.” Id. Plaintiffs objected to these findings, arguing that Judge Ferraro failed to 5 consider all relevant factual allegations and draw all reasonable inferences in Plaintiffs’ 6 favor. Pls.’ Objs. 18. 7 States are prohibited from terminating a Medicaid recipient’s benefits without first 8 providing adequate notice and a hearing. See Goldberg v. Kelly, 397 U.S. 254 (1970); 9 Perry v. Chen, 985 F. Supp. 1197 (D. Ariz. 1996); 42 C.F.R. § 431.210. The Complaint 10 details what information must be contained within the notices. Compl. ¶¶ 33–38 (citing 11 various statutes and regulations). Among the various requirements is a “clear statement of 12 the specific reasons supporting the intended action[.]” 42 C.F.R. § 431.210(b). 13 Judge Ferraro correctly recognized that Plaintiffs do not specifically allege that the 14 disputed notices lack the required information. However, a liberal construction of the 15 Complaint reasonably supports an inference that at least some of the required information 16 is missing. Plaintiffs allege the notices provide that the beneficiary’s “full medical 17 services” will “stop” and “Federal Emergency Services” will “start” because “your 18 immigration status does not let you get full medical services.” Compl. ¶ 53. Sanchez 19 Haro received this notice and did not understand why her benefits were changed. Id. ¶¶ 20 75–76. She had to call and ask someone why her benefits changed. Id. ¶ 76. 21 The foregoing allegations support an inference that “your immigration status does 22 not let you get full medical services” is not a “clear statement of the specific reason” for 23 reducing Sanchez Haro’s benefits. 42 C.F.R. § 431.210(b). As Plaintiffs point out, the 24 proffered reason could have a number of meanings, e.g., Sanchez Haro’s immigration 25 status changed unbeknownst to her, or Defendant changed which immigration statuses 26 are eligible for full benefits. Sanchez Haro’s inability to understand the notice’s reason 27 for the reduction supports an inference that the notice is “confusing” and is not in 28 - 19 - 1 compliance with federal regulations and due process.8 2 A motion to dismiss may not properly be granted if the plaintiff states at least one 3 cognizable ground for relief. Hartford Fire Ins. Co. v. California, 509 U.S. 764, 811 4 (1993) (courts should only dismiss a complaint where “it appears beyond doubt that the 5 plaintiff can prove no set of facts in support of his claim” (citations and internal quotation 6 marks omitted)). Plaintiffs have stated at least one ground for both Counts. The motion 7 must therefore be denied.9 8 Accordingly, 9 IT IS HEREBY ORDERED that Judge Ferraro’s Report and Recommendation 10 11 12 (Doc. 72) is accepted and adopted in part and rejected in part. IT IS FURTHER ORDERED that Defendant’s Motion to Dismiss (Doc. 35) is granted in part and denied in part as follows: 13 1. Plaintiff Aita Darjee’s claim under Count 2 is dismissed without prejudice. 14 2. Defendant’s Motion is otherwise denied. 15 Dated this 31st day of March, 2017. 16 17 18 Honorable Rosemary Márquez United States District Judge 19 20 21 22 23 24 25 26 27 8 The Court is not convinced that a notice is sufficient if it causes the recipient to take action. At this juncture, the allegation that Sanchez Haro called the phone number on the notice for an explanation is equally supportive of an inference that the notices are legally defective. 9 28 The pending motions to strike (Docs. 59, 62, 65), motion for preliminary injunction (Doc. 15), and motion for class certification (Doc. 5) will be addressed in a separate Order. - 20 -

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