Santa Rosa Memorial Hospital et al v. Shewry

Filing 124

Order by Hon. Samuel Conti denying 117 Motion to Dismiss.(sclc2, COURT STAFF) (Filed on 5/30/2014)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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United States District Court

For the Northern District of California

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) Case No. CV 08-5173 SC
)
SANTA ROSA MEMORIAL HOSPITAL, et ) ORDER DENYING PLAINTIFFS'
al.,
) MOTION TO DISMISS
)
Plaintiffs,
)
)
v.
)
)
DAVID MAXWELL-JOLLY, Director
)
of the California Department of )
Health Care Services,
)
)
Defendant.
)
)
)

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Now before the Court is the above-captioned Plaintiffs' motion

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to voluntarily dismiss their case without prejudice.

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("Mot.").

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Department of Health Care Services ("DHCS"), opposes the motion.

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ECF No. 118 ("Opp'n").

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("Reply"), and appropriate for decision without oral argument, Civ.

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L.R. 7-1(b).

ECF No. 117

Defendant Toby Douglas, 1 Director of the California

The matter is fully briefed, ECF No. 120

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Ruling on this motion requires some procedural background,

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since this case's posture has changed drastically after several

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Mr. Douglas's predecessor, David Maxwell-Jolly, is named in the
caption, but Mr. Douglas is now the Director of DHCS.

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intervening appellate rulings and agency actions.

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Plaintiffs filed this case in November 2008.

They moved for a

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preliminary injunction barring DHCS from prospectively implementing

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a 10 percent Medi-Cal payment reduction enacted pursuant to

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California Assembly Bill 5 2008 ("AB 5").

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that motion based on then-standing Ninth Circuit law, which held

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that the federal Medicaid Act required states to conduct cost

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studies before reducing Medicaid reimbursements -- studies the

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state did not conduct pursuant to the law at that time.

The undersigned granted

ECF No. 68

United States District Court

For the Northern District of California

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("PI Order") at 4-10.

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affirmed in May 2010, ECF No. 92 ("USCA Mem."), after which DHCS

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filed a petition for certiorari before the Supreme Court.

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Supreme Court granted that petition in January 2011.

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("Cert.").

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still pending, the Centers for Medicare and Medicaid Services

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("CMS"), divisions of the federal Department of Health and Human

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Services ("HHS"), approved California's Medicaid State Plan

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Amendment ("SPA") concerning the rate reductions that Plaintiffs

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challenged in this case.

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DHCS appealed, and the Ninth Circuit

The

ECF No. 104

In October 2011, while DHCS's Supreme Court case was

The question presented to the Supreme Court in DHCS's case,

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Douglas v. Independent Living Center of Southern California, Inc.,

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132 S. Ct. 1204 (2012), was "whether Medicaid providers and

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recipients may maintain a cause of action under the Supremacy

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Clause to enforce a federal Medicaid law -- a federal law that, in

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their view, conflicts with (and pre-empts) state Medicaid statutes

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that reduce payments to providers."

Id. at 1207.

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The Supreme Court did not specifically rule on that question,

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because it held that CMS's intervening approval of the SPA changed

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the case's posture such that decision on the merits was

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inappropriate at that time.

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expressed some doubt that Plaintiffs could succeed on a Supremacy

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Clause cause of action, suggesting that, under the circumstances, a

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case brought against the federal agency under the Administrative

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Procedure Act ("APA"), 5 U.S.C. § 701 et seq., would be more apt

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after the agency had acted.

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remanded to the Ninth Circuit the question of whether the

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plaintiffs could proceed under the Supremacy Clause after the

See id. at 1210-12.

Id.

The Court

The Supreme Court therefore

United States District Court

For the Northern District of California

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agency had made a final decision.

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in dissent, would have held directly that the Supremacy Clause does

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not supply a private right of action under its own force when

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Congress did not create such a right by statute.

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(Roberts, J., dissenting).

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Id. at 1211.

Justice Roberts,

Id. at 1213-14

On remand, in January 2014, the Ninth Circuit reversed the

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Court's preliminary injunction order.

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Douglas, -- Fed. App'x --, 2014 WL 68485 (9th Cir. Jan. 9, 2014).

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Rather than ruling on the Supremacy Clause issue, the Ninth Circuit

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based its reversal on the fact that the cost studies requirement,

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which was the basis of the undersigned's PI Order, had been

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overruled during the pendency of Plaintiffs' appeal in Managed

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Pharmacy Care v. Sebelius, 716 F.3d 1235 (9th Cir. 2013).

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Pharmacy Care involved both Supremacy Clause and APA claims against

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state and federal agencies.

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held that HHS's reasonable final decision to approve the SPA had

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foreclosed both claims.

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specifically rule on whether there could be a right of action under

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the Supremacy Clause after HHS had acted, though like the Supreme

Id.

Santa Rosa Mem'l Hosp. v.

Id. at 1243-44.

Managed

The Ninth Circuit

The Ninth Circuit did not

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Court, it doubted whether such a claim could succeed.

Id. at 1252.

Plaintiffs evidently understand that this line of precedent is

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adverse to their present claim.

They now contend that their case

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is futile in its current posture, and that it is best brought as an

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APA action against CMS, though they also seek to pursue a state

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court action against DHCS.

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Ninth Circuit's instructions on remand -- to decide the issue of

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what impact CMS approval has on the propriety of granting

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Plaintiffs a preliminary injunction in a Supremacy Clause case --

See Reply at 5-6.

However, despite the

United States District Court

For the Northern District of California

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the merits of Plaintiffs' case are still not yet before the Court.

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Plaintiffs now ask the Court to grant an order under Federal Rule

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of Civil Procedure 41(a)(2) voluntarily dismissing this case

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without prejudice.

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Mot. at 1-2.

Plaintiffs made the same request of the Ninth Circuit.

Santa

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Rosa Mem'l Hosp., 2014 WL 68485, at *2.

The Ninth Circuit held

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that it could not decide Plaintiffs' request for dismissal while an

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appeal of a preliminary injunction was before it.

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could have decided that request, the Ninth Circuit stated, it would

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have denied it, since it appeared that Plaintiffs sought dismissal

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"in an attempt to deny DHCS a sovereign immunity defense, to evade

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a federal forum for the litigation of federal issues after final

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action by a federal agency, and to avoid adverse rulings by federal

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courts interpreting federal law."

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Dist. v. United States, 100 F.3d 94, 97 (9th Cir. 1996); Kern Oil &

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Refining Co. v. Tenneco Oil Co., 792 F.2d 1380, 1389-90 (9th Cir.

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1986)).

Id.

But if it

Id. (citing Westlands Water

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In their present motion to voluntarily dismiss their case

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without prejudice, Plaintiffs urge the Court not to follow the

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Ninth Circuit's suggestions, reminding the Court that the

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statements were dicta, and that the Ninth Circuit did not actually

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rule on the dismissal issue.

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Even so, the Ninth Circuit is correct.

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Reply at 2.

The Court is aware.

Plaintiffs contend that they are not trying to evade a federal

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forum for the litigation of federal issues, because as the Supreme

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Court (both majority and dissent) noted in Douglas, and as Managed

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Pharmacy Care implies, Plaintiffs' Supremacy Clause suit against

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DHCS is effectively foreclosed at this point.

Reply at 4 ("[T]he

United States District Court

For the Northern District of California

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existing litigation . . . is now pointless and futile.").

But the

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Ninth Circuit remanded this case to the undersigned to determine,

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as a legal matter, whether Plaintiffs could bring a Supremacy

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Clause case (a federal issue) in this court (a federal forum) after

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CMS's decision on the SPA (a final decision by a federal agency).

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The Ninth Circuit did not instruct the Court not to hear

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Plaintiffs' claims, a holding that would have made colorable

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Plaintiffs' contention that it is not just trying to avoid the

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federal courts at this point.

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The Court finds that in this posture, Plaintiffs' Rule 41

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motion is an attempt to avoid litigating this federal issue in

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federal court after a federal agency's final decision, as the Ninth

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Circuit stated.

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and Managed Pharmacy Care, as well as Plaintiffs' evident concern

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that they have no way to obtain a favorable ruling on their claim

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against DHCS, see Reply at 3-4, the Court finds that Plaintiffs are

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seeking to avoid an adverse ruling by a federal court interpreting

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federal law.

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Moreover, given the legal holdings from Douglas

Finally, as further argument in favor of dismissal, Plaintiffs

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contend that it would be futile for the Court to decide Defendant's

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planned summary judgment motion.

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to grant Plaintiffs' motion on those grounds.

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judgment motion will be determined on its merits, not Plaintiffs'

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predictions.

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Mot. at 5-6.

The Court declines
Any future summary

Plaintiffs' motion for voluntary dismissal without prejudice
is accordingly DENIED.

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United States District Court

For the Northern District of California

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IT IS SO ORDERED.

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Dated: May 30, 2014

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UNITED STATES DISTRICT JUDGE

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