Foothill Church, et al. v. Rouillard

Filing 68

ORDER signed by District Judge Kimberly J. Mueller on 8/31/17 ORDERING that Defendant's MOTION to DISMISS for failure to state a claim 47 is GRANTED. The court DISMISSES Plaintiffs' claims with leave to amend. Plaintiffs shall file an amended complaint, if any, within twenty-one (21) days of the date this order is filed. (Mena-Sanchez, L)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

FOR THE EASTERN DISTRICT OF CALIFORNIA

10
11
12

FOOTHILL CHURCH; CALVARY
CHAPEL CHINO HILLS; and
SHEPHERD OF THE HILLS CHURCH,

13

Plaintiffs,

14
15
16

No. 2:15-cv-02165-KJM-EFB

ORDER

v.
MICHELLE ROUILLARD, in her official
capacity as Director of the California
Department of Managed Health Care,

17

Defendant.

18
This action arises from letters the California Department of Managed Health Care

19
20

(“DMHC”) issued to seven private health insurers, which required them to remove any limitations

21

on or exclusions of abortion services from the health care coverage they offer. First Am. Compl.

22

(“FAC”), Ex. 1, ECF No. 42-1. Plaintiffs Foothill Church, Calvary Chapel Chino Hills and

23

Shepherd of the Hills Church (“plaintiffs” or the “Churches”), three churches who allegedly offer

24

their employees DMHC-regulated health coverage through these insurers, filed this action against

25

defendant Michelle Rouillard (“defendant” or “Director”), Director of the DMHC, alleging the

26

letters violate the Churches’ constitutional rights under the First and Fourteenth Amendments.

27

This matter is before the court on defendant’s motion to dismiss the FAC. ECF No. 47. Plaintiffs

28

/////
1

1

oppose the motion. ECF No. 54. The motion was submitted without argument and, as explained

2

below, the court now GRANTS the motion.

3

I.

STATUTORY FRAMEWORK

4

In California, the DMHC and the California Department of Insurance (“CDI”)

5

oversee regulation of the health care industry. The DMHC regulates “health care service plans”

6

under the Knox–Keene Health Care Service Plan Act of 1975 (“Knox–Keene Act” or “Act”), Cal.

7

Health & Safety Code §§ 1340–1399.864, including by approving or disapproving language

8

submitted in evidence of coverage (“EOC”) filings. The Knox–Keene Act defines “health care

9

service plans” as “[a]ny person who undertakes to arrange for the provision of health care

10

services to subscribers or enrollees, or to pay for or to reimburse any part of the cost for those

11

services, in return for a prepaid or periodic charge paid by or on behalf of the subscribers or

12

enrollees.” Id. § 1345(f)(1). Health maintenance organizations (“HMOs”) and other structured

13

managed care organizations (“MCOs”) are “health care service plans” under this definition.

14

Rea v. Blue Shield of Cal., 226 Cal. App. 4th 1209, 1215 (2014).

15

The Knox–Keene Act requires health care service plans secure a license from the

16

Director of the DMHC. Cal. Health & Safety Code § 1349. One requirement for licensure is that

17

“[a] health care service plan contract [must] provide to subscribers and enrollees all the basic

18

health care services” specified in the statute. Id. § 1367(i). Relevant to this action, the Director

19

has promulgated regulations defining the scope of this requirement to include “a variety of

20

voluntary family planning services.” Cal. Code Regs. tit. 28, § 1300.67(f)(2). The letters assert

21

that, in conjunction with “the California Reproductive Privacy Act and multiple California

22

judicial decisions that have unambiguously established under the California Constitution that

23

every pregnant woman has the fundamental right to choose to either bear a child or to have a legal

24

abortion,” the Knox–Keene Act requires health care service plans to cover elective abortions.

25

FAC, Ex. 1.

26

The Knox–Keene Act also provides for a number of categorical and individualized

27

exemptions. For example, the Act offers religious employers exemptions from providing

28

coverage for “FDA-approved contraceptive methods that are contrary to [their] religious tenets,”
2

1

Cal. Health & Safety Code § 1367.25(c), or coverage for “forms of treatment of infertility in a

2

manner inconsistent with [their] religious and ethical principles,” id. § 1374.55(e).

3

II.

4

FACTUAL AND PROCEDURAL BACKGROUND
On August 1, 2016, plaintiffs filed an amended complaint, ECF No. 42, which

5

contains the following allegations that largely parallel the allegations of their original complaint.

6

On August 22, 2014, the Director of the DMHC sent letters to seven private health insurers

7

stating the DMHC had reviewed their contracts and the relevant legal authorities and “concluded

8

that it erroneously approved or did not object to” language in some previous EOC filings that may

9

discriminate against women by limiting or excluding coverage for terminations of pregnancies.

10

FAC ¶¶ 1, 47 & Ex. 1. Some private insurers had previously submitted EOC filings to the

11

DMHC notifying the defendant of benefit plan options that excluded coverage for voluntary and

12

elective abortions, and defendant and the DMHC had not objected. FAC ¶¶ 54–55.

13

Plaintiffs are three non-profit Christian churches located in Southern California.

14

Id. ¶¶ 20–22. Each plaintiff has more than fifty full-time employees and must, therefore, provide

15

health coverage for its employees under the federal Patient Protection and Affordable Care Act of

16

2010. Id. ¶¶ 77–78. The Churches offer health insurance plans to their employees through

17

various insurers, each of which received a letter from the DMHC as described above. Id. ¶¶ 20–

18

22; FAC, Ex. 1. Plaintiffs all hold what they describe as “historic and orthodox” Christian

19

teachings on the sanctity of human life. FAC ¶ 25. They “believe and teach that abortion

20

destroys an innocent human life” and that “participation in, facilitation of, or payment for an

21

elective abortion is a grave sin.” Id. ¶¶ 27–28. In furtherance of these beliefs and principles,

22

plaintiffs consulted with their insurance brokers and/or insurers in an effort to provide employee

23

group health plans that do not pay for abortions. Id. ¶¶ 36–37. However, plaintiffs’ insurance

24

brokers and/or insurers have informed them that the DMHC’s letters prevent their group health

25

insurance plans from excluding or limiting coverage for abortions. Id. ¶ 38.

26

This action followed. The original complaint alleged that the DMHC’s letters

27

violate plaintiffs’ rights under the Free Exercise, Establishment, Free Speech and Equal

28

Protection clauses of the U.S. Constitution. See Compl. ¶¶ 104, 114, 119, 126, ECF No. 1. The
3

1

court previously dismissed the Establishment and Free Speech claims with prejudice, but allowed

2

the plaintiffs to file an amended complaint to cure defects in their Free Exercise and Equal

3

Protection claims. Order 22. In support of their Free Exercise claim, plaintiffs allege “[t]he

4

Knox–Keene Act, as interpreted and applied by Defendant, is neither neutral nor generally

5

applicable.” FAC ¶ 117. Specifically, plaintiffs allege the Director has used her discretion to

6

provide exemptions to some religious employers, but refuses to give an exemption to them. Id.

7

¶ 121. Thus, they allege, “Defendant has interpreted and selectively applied the Knox–Keene Act

8

and its ‘basic health care services’ requirement against the Churches to suppress specific religious

9

beliefs about when it is morally permissible to provide health insurance coverage for elective

10

abortions.” Id. ¶ 130. Plaintiff’s Equal Protection claim is similarly based on alleged disparate

11

treatment of different religious employers. See id. ¶¶ 135–37.

12

III.

13

LEGAL STANDARD
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) tests the

14

court’s subject matter jurisdiction. See, e.g., Savage v. Glendale Union High Sch., 343 F.3d 1036,

15

1039–40 (9th Cir. 2003). When a party moves to dismiss for lack of subject matter jurisdiction,

16

“the plaintiff bears the burden of demonstrating that the court has jurisdiction.” Boardman v.

17

Shulman, No. 2:12-cv-00639-MCE-GGH, 2012 WL 6088309, at *2 (E.D. Cal. Dec. 6, 2012),

18

aff’d sub nom. Boardman v. Comm’r, 597 F. App’x 413 (9th Cir. 2015). If a plaintiff lacks

19

standing, the court lacks subject matter jurisdiction under Article III of the U.S. Constitution.

20

Cetacean Cmty. v. Bush, 386 F.3d 1169, 1174 (9th Cir. 2004).

21

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to

22

dismiss a complaint for “failure to state a claim upon which relief can be granted.”

23

Fed. R. Civ. P. 12(b)(6). The motion may be granted only if the complaint “lacks a cognizable

24

legal theory or sufficient facts to support a cognizable legal theory.” Hartmann v. Cal. Dep’t of

25

Corr. & Rehab., 707 F.3d 1114, 1122 (9th Cir. 2013) (citation omitted).

26

Although a complaint need contain only “a short and plain statement of the claim

27

showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), in order to survive a motion

28

to dismiss, this short and plain statement “must contain sufficient factual matter . . . to ‘state a
4

1

claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting

2

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include more than “an

3

unadorned, the-defendant-unlawfully-harmed-me accusation” or “‘labels and conclusions’ or ‘a

4

formulaic recitation of the elements of a cause of action.’” Id. (quoting Twombly, 550 U.S. at

5

555). Determining whether a complaint will survive a motion to dismiss for failure to state a

6

claim is a “context-specific task that requires the reviewing court to draw on its judicial

7

experience and common sense.” Iqbal, 556 U.S. at 679. Ultimately, the inquiry focuses on the

8

interplay between the factual allegations of the complaint and the dispositive issues of law in the

9

action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

10

In making this context-specific evaluation, this court must construe the complaint

11

in the light most favorable to the plaintiff and accept its factual allegations as true. Erickson v.

12

Pardus, 551 U.S. 89, 93–94 (2007). This rule, however, does not apply to “a legal conclusion

13

couched as a factual allegation,” Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S.

14

265, 286 (1986)), “allegations that contradict matters properly subject to judicial notice,”

15

Sprewell v. Golden State Warriors, 266 F.3d 979, 988–89 (9th Cir. 2001), or material attached to

16

or incorporated by reference into the complaint, see id. A court’s consideration of documents

17

attached to a complaint, documents incorporated by reference in the complaint, or matters of

18

judicial notice will not convert a motion to dismiss into a motion for summary judgment. United

19

States v. Ritchie, 342 F.3d 903, 907–08 (9th Cir. 2003); Parks Sch. of Bus. v. Symington, 51 F.3d

20

1480, 1484 (9th Cir. 1995). But cf. Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980

21

(9th Cir. 2002) (noting that even though court may look beyond pleadings on motion to dismiss,

22

generally court is limited to face of the complaint on 12(b)(6) motion).

23

IV.

24
25

ANALYSIS
A.

Standing
The court previously found that plaintiffs had sufficiently alleged standing to

26

challenge the letters. Order 12. Nevertheless, defendant again moves to dismiss on the basis that

27

plaintiffs lack standing, merely “incorporat[ing] as if set forth herein” her earlier arguments.

28

Def.’s Mot. to Dismiss 7–8. Defendant has not demonstrated the court’s prior ruling was
5

1

incorrect, and therefore the court once again finds that plaintiffs have sufficiently pleaded

2

standing to challenge the letters.

3

B.

4

Free Exercise of Religion
The Free Exercise Clause of the First Amendment, which applies to the states

5

through the Fourteenth Amendment, Cantwell v. Connecticut, 310 U.S. 296, 303 (1940), provides

6

that “Congress shall make no law respecting an establishment of religion, or prohibiting the free

7

exercise thereof,” U.S. Const. amend. I. However, the right to freely exercise one’s religion

8

“does not relieve an individual of the obligation to comply with a ‘valid and neutral law of

9

general applicability on the ground that the law proscribes (or prescribes) conduct that his religion

10

prescribes (or proscribes).’” Emp’t Div. v. Smith, 494 U.S. 872, 879 (1990) (quoting United

11

States v. Lee, 455 U.S. 252, 263 n.3 (1982) (Stevens, J., concurring in the judgment)).1 A valid

12

and neutral law of general applicability must be upheld if it is rationally related to a legitimate

13

governmental purpose. Stormans, Inc. v. Wiesman, 794 F.3d 1064, 1075–76, 1084 (9th Cir.

14

2015). In contrast, laws that are not neutral or are not generally applicable are subject to strict

15

scrutiny. Id. at 1076. Under strict scrutiny, laws “must be justified by a compelling

16

governmental interest and must be narrowly tailored to advance that interest.” Church of Lukumi

17

Bablu Aye, Inc. v. City of Hialeah, 508 U.S. 520, 531–32 (1993).

18

“The tests for ‘[n]eutrality and general applicability are interrelated, and . . . failure

19

to satisfy one requirement is a likely indication that the other has not been satisfied.’” Stormans,

20

794 F.3d at 1076 (alterations in original) (quoting Lukumi, 508 U.S. at 531).

21

1.

22

A law is not neutral if its object is to infringe upon or restrict practices because of

Neutrality

23

their religious motivation. Stormans, 794 F.3d at 1076 (citing Lukumi, 508 U.S. at 533). In

24

determining whether a law is neutral, courts consider both the text and the operation of the law.

25
26
27
28

1

Although Smith was superseded by the Religious Freedom Restoration Act of 1993
(“RFRA”), the Supreme Court later held that RFRA applies only to the federal government and
not to the states. See Holt v. Hobbs, 135 S. Ct. 853, 859–60 (2015); Stormans, Inc. v. Wiesman,
794 F.3d 1064, 1075 n.4 (9th Cir. 2015).
6

1

“A law lacks facial neutrality if it refers to a religious practice without a secular meaning

2

discernable from the language or context.” Lukumi, 508 U.S. at 533. The letters at issue here and

3

the underlying laws they purportedly enforce do not refer to any religious practice, conduct, belief

4

or motivation on their face; they are facially neutral.

5

However, even if a law or enforcement action based on the law is facially neutral,

6

it is not neutral if it operates as a “covert suppression of particular religious beliefs.” Id. at 534

7

(quoting Bowen v. Roy, 476 U.S. 693, 703 (1986)). In determining operational neutrality, a court

8

may consider “the historical background of the decision under challenge, the specific series of

9

events leading to the enactment or official policy in question, and the legislative or administrative

10

history.” Id. at 543.

11

The court previously found that plaintiffs’ original complaint failed to allege

12

sufficient facts to state a claim that the letters were not neutral in operation. Order 16. In

13

addition to the arguments plaintiffs made in opposition to defendant’s first motion to dismiss,

14

plaintiffs now argue that “the Director has suppressed the specific religious beliefs of the

15

Churches through her selective application of the law.” Pls.’ Opp’n to Mot. to Dismiss 14. They

16

also contend their new allegation that the letters affected only a “very small fraction” of

17

employers “plausibly suggest[s] that . . . the Director’s new abortion coverage requirement fell

18

only on the plans of religious employers.” Id. at 15. These new allegations, however, do not

19

change the analysis.

20

First, that the letters affected only a “very small fraction” of employers does not

21

make it any more plausible that the “object” of the letters was to “infringe upon or restrict

22

practices because of their religious motivation.” Lukumi, 508 U.S. at 533. That the amount of

23

employers affected was small does not, without more, make it plausible that the object was to

24

target religious employers. Second, as explained more fully below, plaintiffs have not alleged

25

sufficient facts to make it plausible that the Director has selectively applied the law to target the

26

plaintiffs’ religious beliefs. Plaintiffs allege that the Director granted an exemption to at least one

27

health care service plan, allowing it to exclude coverage for abortion except in the case of rape or

28

/////
7

1

incest. FAC ¶ 93. The Director previously admitted to having granted the exception in her first

2

motion to dismiss, Def.’s Mot. to Dismiss 5 n.2, ECF No. 21, and as the court noted in its prior

3

order, this exemption evinces, if anything, the Director’s “intent to accommodate, rather than

4

impose burdens on, religious belief,” Order 17.

5
6

Accordingly, plaintiffs have not alleged sufficient facts to call the letters’ facial
neutrality into question.

7

2.

8

A law is not generally applicable if it “impose[s] burdens only on conduct

9

General Applicability

motivated by religious belief” in a “selective manner.” Lukumi, 508 U.S. at 543. Plaintiffs argue

10

that the letters are not generally applicable because “the Director can and has exempted plans

11

from the abortion coverage requirement on an individualized basis” and she “has exercised her

12

discretionary exemption authority in a selective and discriminatory way.” Pls.’ Opp’n to Mot. to

13

Dismiss 12. Plaintiffs allege plans operated or administered by educational institutions,

14

employers with five or fewer subscribers and the California Small Group Reinsurance Fund are

15

exempt from the abortion coverage requirements. FAC ¶¶ 102–05. As explained in the court’s

16

prior order, “the exemptions and discretion discussed by plaintiffs are provided for by the Knox–

17

Keene Act itself, whose constitutionality plaintiffs do not challenge.” Order 17. Plaintiffs have

18

alleged no new facts that change the court’s prior conclusion.

19

3.

20

Finally, plaintiffs allege that the Director’s discretion to exempt plans from the

Individualized Assessment Exception

21

abortion coverage requirement triggers strict scrutiny because “she has . . . exercised this

22

discretion to prefer the religious beliefs of some employers to others.” Pls.’ Opp’n to Mot. to

23

Dismiss 6. An exception to the general rule that neutral and generally applicable laws are subject

24

to rational basis review prescribes that “where the State has in place a system of individual

25

exemptions, it may not refuse to extend that system to cases of ‘religious hardship’ without

26

compelling reason.” Am. Friends Serv. Comm. Corp. v. Thornburgh, 951 F.2d 957, 961 (9th Cir.

27

1991) (quoting Smith, 494 U.S. at 884). For example, the Supreme Court in Lukumi applied strict

28

scrutiny because the ordinance at issue required the city to determine when killing an animal was
8

1

necessary, and the city’s “application of the ordinance’s test of necessity devalue[d] religious

2

reasons for killing by judging them to be of lesser import than nonreligious reasons.” 508 U.S. at

3

537. Plaintiffs argue this exception applies here as provisions of the Knox–Keene Act “create[] a

4

system of ‘individualized assessments’ because they allow for ‘unfettered discretion that could

5

lead to religious discrimination.’” Pls.’ Opp’n to Mot. to Dismiss 9 (emphasis removed) (quoting

6

Stormans, 794 F.3d at 1081–82).

7

Plaintiffs, however, misconstrue the individualized assessment exception. It is not

8

enough to allege facts that show “[t]he mere possibility of the Director playing favorites and

9

granting exemptions to some but not to others” in order to trigger strict scrutiny as Plaintiffs

10

claim. Id. at 9. All of the cases cited by plaintiffs show that they must also allege that the

11

Director in fact exercised her discretion in a discriminatory manner. In Lukumi, the plaintiffs

12

showed that the determination of which killings were considered “necessary” demonstrated that

13

the city “forb[a]d[e] few killings but those occasioned by religious sacrifice.” 508 U.S. at 534.

14

Similarly, in Cottonwood Christian Center v. Cypress Redevelopment Agency, the court found the

15

individualized assessment exception applied because the land-use decisions at issue invited

16

discretion and the city denied the plaintiff permits to build a church. 218 F. Supp. 2d 1203,

17

1222–24 (C.D. Cal. 2002).

18

Plaintiffs also allege the Director has granted an exception to accommodate

19

religious employers who oppose abortion except in the case of rape or incest, but has not granted

20

an exception that would accommodate plaintiffs’ beliefs that abortion is always immoral. They

21

claim these allegations show she “has exercised her discretion in a way that prefers some

22

religious beliefs to others.” Pls.’ Opp’n to Mot. to Dismiss 10. However, plaintiffs have made

23

only the bald allegation that the Director “refuses to grant an exemption that would accommodate

24

the religious beliefs of the Churches.” Id. at 10. Plaintiffs have not alleged that any plan that

25

would be acceptable to them has been submitted to the Director for approval, nor that she rejected

26
27
28
9

1

any such plan. Thus their allegation that “she has repeatedly refused to grant them one,” FAC

2

¶ 98, is conclusory and insufficient to survive a motion to dismiss.2

3

C.

4

Equal Protection
The Equal Protection Clause of the Fourteenth Amendment prohibits a state from

5

“deny[ing] to any person within its jurisdiction the equal protection of the law,” U.S. Const.

6

amend. XIV, which essentially “direct[s] that all persons similarly situated should be treated

7

alike,” City of Cleburne v. Cleburne Living Ctr., 473 U.S. 432, 439 (1985).

8
9

Plaintiffs’ First Amended Complaint alleges that the Churches were treated
differently than other similarly situated religious employers because “Defendant has exercised her

10

discretion to exempt the health plan of some religious employers based on their religious beliefs

11

about abortion but has refused to do the same for the Churches.” FAC ¶ 137. As explained in the

12

court’s order addressing defendants’ original motion to dismiss, the challenged letters “apply to

13

Plans, not plan purchasers, and do not make any classification with respect to purchasers.” Order

14

21. As described above, plaintiffs have not now alleged that any plan has been rejected based on

15

religion. Thus, plaintiffs have not adequately pleaded a claim under the Equal Protection Clause.

16

V.

LEAVE TO AMEND

17

Federal Rule of Civil Procedure 15(a)(2) states “[t]he court should freely give

18

leave [to amend pleadings] when justice so requires” and the Ninth Circuit has “stressed Rule

19

15’s policy of favoring amendments,” Ascon Props. Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160

20

(9th Cir. 1989). “In exercising its discretion [to grant or deny leave to amend] ‘a court must be

21

guided by the underlying purpose of Rule 15—to facilitate decision on the merits rather than on

22

the pleadings or technicalities.’” DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir.

23
24
25
26
27
28

2

Plaintiffs also claim that the Director “admitt[ed] that she will not exercise her
discretionary exemption authority to accommodate the Churches,” Pls.’ Opp’n to Mot. to Dismiss
10, but they misconstrue her motion to dismiss. The Director merely argues that “even if”
plaintiffs properly pleaded that she refused to approve a plan acceptable to plaintiffs, such a
decision would survive strict scrutiny. Def.’s Mot. to Dismiss 12. Because the court finds that
plaintiffs’ First Amended Complaint fails to allege sufficient facts to merit the application of
strict scrutiny, it does not address that argument. The court only notes here that the Director has
not admitted she would not approve a plan that meets plaintiffs’ asserted needs.
10

1

1987) (quoting United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981)). However, “the

2

liberality in granting leave to amend is subject to several limitations.” Ascon Props., 866 F.2d at

3

1160. “Leave need not be granted where the amendment of the complaint would cause the

4

opposing party undue prejudice, is sought in bad faith, constitutes an exercise in futility, or

5

creates undue delay.” Id. In addition, a court should look to whether the plaintiff has previously

6

amended the complaint, as “the district court’s discretion is especially broad ‘where the court has

7

already given a plaintiff one or more opportunities to amend [its] complaint.’” Id. at 1161

8

(quoting Leighton, 833 F.2d at 186 n.3).

9

Though plaintiffs have already been given an opportunity to amend their

10

complaint, defendant has not shown it would be futile to permit plaintiff to amend their claims an

11

additional time. Plaintiffs’ claims fail because they rest on conclusory allegations, making it

12

possible that plaintiffs are able to allege additional facts that would state Free Exercise or Equal

13

Protection claims. In light of the Federal Rules’ policy of favoring amendments, and the Ninth

14

Circuit’s construction of those Rules, the court GRANTS plaintiffs leave to amend if they can do

15

so consonant with Rule 11.

16

VI.

17

CONCLUSION
For the foregoing reasons, the court GRANTS defendant’s motion to dismiss for

18

failure to state a claim. The court DISMISSES plaintiffs’ claims with leave to amend. Plaintiffs

19

shall file an amended complaint, if any, within twenty-one (21) days of the date this order is filed.

20

This order resolves ECF No. 47.

21

IT IS SO ORDERED.

22

DATED: August 31, 2017.

23
24

UNITED STATES DISTRICT JUDGE

25
26
27
28
11