CC Care, LLC et al v. Norwood

Filing 30

MEMORANDUM Opinion and Order: For the more than ample reasons set out in this opinion, this Court denies defendant Norwood's Rule 12(b)(6) motion to dismiss, and Norwood is ordered to answer Operators' Complaint on or before October 7, 2016. This action is set for a status hearing at 8:45 a.m. October 14, 2016 to discuss the future course of this litigation. Signed by the Honorable Milton I. Shadur on 9/19/2016:Mailed notice(clw, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

CC CARE, LLC, et al.,

)
)
Plaintiffs,
)
)
v.
)
)
FELICIA F. NORWOOD, not individually, but )
solely in her capacity as Director of the ILLINOIS )
DEPARTMENT OF HEALTHCARE AND
)
FAMILY SERVICES,
)
)
Defendant.
)

Case No. 16 C 5765

MEMORANDUM OPINION AND ORDER
Ten operators of long-term care facilities ("nursing homes" in every-day parlance) in
Illinois (collectively "Operators") brought this action against Felicia F. Norwood ("Norwood") in
her capacity as Director of the Illinois Department of Healthcare and Family Services
("Department"), seeking injunctive and declaratory relief pursuant to 42 U.S.C. § 1983 ("Section
1983"). Operators contend that Norwood and Department failed to comply with various state
and federal statutes, including 42 U.S.C. § 1396a(a)(13)(A), 1 applicable to those nursing homes
when Operators acquired their ownership.
Norwood responded to Operators' Complaint with a Fed. R. Civ. P. ("Rule") 12(b)(6)
motion to dismiss, which has now been fully briefed. For the reasons stated in this opinion, this
Court denies Norwood's motion (Dkt. No. 16).

1

All further references to subparts of 42 U.S.C. § 1396a(a) will simply take the form
"Section 1396a(a) --," omitting the prefatory "42 U.S.C. §."

Standard of Review
Under Rule 12(b)(6) a party may move for dismissal for the "failure to state a claim upon
which relief can be granted." Familiar Rule 12(b)(6) principles require the District Court to
accept as true all of Operators' well-pleaded factual allegations and to view those allegations in
the light most reasonably favorable to them as the nonmovants (Lavalais v. Vill. of Melrose
Park, 734 F.3d 629, 632 (7th Cir. 2013)). But "legal conclusions or conclusory allegations that
merely recite a claim's elements" are not entitled to any presumption of truth (Munson v. Gaetz,
673 F.3d 630, 632 (7th Cir. 2012)).
In the past decade the Supreme Court made an important change in the evaluation of Rule
12(b)(6) motions with what this Court regularly refers to as the "Twombly-Iqbal canon," a usage
drawn from Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) as more finely tuned in Erickson v.
Pardus, 551 U.S. 89 (2007) (per curiam) and Ashcroft v. Iqbal, 556 U.S. 662 (2009). That canon
has introduced the concept of "plausibility" into the analysis, and in that respect our Court of
Appeals has "interpreted Twombly and Iqbal to require the plaintiff to provide some specific
facts to support the legal claims asserted in the complaint" (McCauley v. City of Chicago, 671
F.3d 611, 616 (7th Cir. 2011) (internal quotation marks and brackets omitted)). As McCauley,
id. (internal quotation marks again omitted) went on to reconfirm, claimants "must give enough
details about the subject-matter of the case to present a story that holds together."
Because the focus of Rule 12(b)(6) motions is on the pleadings, they "can be based only
on the complaint itself, documents attached to the complaint, documents that are critical to the
complaint and referred to in it, and information that is subject to proper judicial notice"
(Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012)). But a nonmovant has
more flexibility, for it "may elaborate on [its] factual allegations so long as the new elaborations
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are consistent with the pleadings" (id.). This opinion evaluates Norwood's motion in accordance
with those principles.
Factual Background
On June 27, 2012 each of the Operators took ownership of a separate nursing home
immediately following the purchase of those nursing homes by ten real estate companies
(Complaint ¶¶ 28-37, 44-53). Each sale involved a complete turnover of control at a market
value price (Complaint ¶ 42). On acquiring the nursing homes Operators obtained new operating
licenses from the Illinois State Board of Health, with new Medicare numbers and providers
(Complaint ¶¶ 59-62). Operators filed reports with the Department from July 1 through
December 31, 2012 (Complaint ¶ 64).
Under the guidance of Illinois statutes, the Department distributes facility-specific per
diem reimbursements for Medicaid-related costs (Complaint ¶¶ 69-93). Operators allege that
despite their complete change in ownership, the Department and Norwood have refused to reexamine the per diem, reimbursing Operators at the prior rates that were set in 2004 (Complaint
¶ 98). Operators aver that the Department never provided a "public process" where it explained
why it kept the rates the same despite that change in ownership (Complaint ¶ 100).
Operators are asking for declaratory and injunctive relief under Section 1983 for
violations of Section 1396a(a)(13)(A), the federal law that dictates the need for a public process
involving opportunities to review and comment on the determination of rates of Medicaid
payments (Complaint ¶¶ 105-06). What follows in the text treats in the first instance with the
availability of Section 1983 to address that claim for relief, then follows with a brief treatment of
Norwood's other unpersuasive contentions.

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Ability To Invoke Section 1983
Norwood's main argument is that Section 1396a(a)(13)(A) does not violate any federal
rights of Operators, who therefore cannot bring a case under Section 1983. Analysis of that
contention properly begins with a look at some history of the relationship between Sections
1396a(a) and 1983.
Section 1983 is in place to protect individuals from the deprivation of any legal or
constitutional rights "under color of law" -- that is, by governmental action. As for Section
1396a(a), it was significantly expanded in 1973, and then in 1980 Congress passed the Boren
Amendment, which requires a reasonably calculated reimbursement to Medicaid providers.
Those two statutes were linked in 1990 when Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498
(1990) held that the obligations imposed by the Boren Amendment in Section 1396a(a)(13) are
enforceable by Medicaid providers under Section 1983.
Although the Boren Amendment was repealed in 1997, Section 1396a(a)(13) continued
to be good law, but with some wording changes. 2 In the following five years the Supreme Court
decided two relevant cases clarifying that a plaintiff may bring a lawsuit under Section 1983 only
for the violation of unambiguously conferred federal rights, not a violation of federal law alone
(Blessing v. Freestone, 520 U.S. 329 (1997); Gonzaga Univ. v. Doe, 536 U.S. 273 (2002)).
Though Wilder was never explicitly overturned by Congress or the Supreme Court, an
open question was left as to whether Section 1983 applied to Section 1396a(a)(13) after the
repeal of the Boren Amendment and the explanations of Section 1983 jurisprudence in Blessing

2

In particular, the requirement that a state must pay "reasonable and adequate" rates was
replaced with language requiring a state to provide a "public process" by which rates are
determined (see Children's Seashore House v. Waldman, 197 F.3d 654, 656 (3d Cir. 1999)).
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and Gonzaga. Before the analysis here proceeds a step further, it must be emphasized that this
Court does not write on a clean slate in that respect. In Bontrager v. Indiana Family & Soc.
Servs. Admin., 697 F.3d 604, 607 (7th Cir. 2012) the state defendants argued, as do defendant
here, that the Blessing-Gonzaga duo had sapped Wilder of its vitality. But our Court of Appeals
made short shrift of that contention, stating (id.):
Although we have acknowledged that Gonzaga "may have taken a new analytical
approach," Bertrand ex rel. Bertrand v. Maram, 495 F.3d 452, 456 (7th Cir. 2007),
Wilder has not been overruled, id.; cf. State Oil Co. v. Khan, 522 U.S. 3, 20, 118
S.Ct. 275, 139 L.Ed.2d 199 (1997) ("[I]t is [the Supreme Court's] prerogative
alone to overrule one of its precedents.").
Just as our Court of Appeals has thus followed the command of what it deems basic
jurisprudential principles, so too this Court is bound to follow that same command (indeed, as an
a fortiori matter) -- so it too will treat Wilder as alive and well for purposes of this case.
That might well obviate the need to explore the subject in greater depth, but as the
ensuing discussion demonstrates, other analytical paths also lead to the same destination.
Importantly, in both Bontrager, id. at 607 and Planned Parenthood of Indiana, Inc. v. Comm'r of
Indiana State Dep't Health, 699 F.3d 962, 973 (7th Cir. 2012) our Court of Appeals employed a
three-part test to determine whether a Section 1983 action was allowed under the subparts of
Section 1396a(a) involved in those cases.
Although Bontrager and Planned Parenthood dealt with different subparts of the statute
implicated here, the logic of those decisions also calls for allowing a Section 1983 action to
proceed under Section 1396a(a)(13). Bontrager, 697 F.3d at 607 (quoting Blessing, 520 U.S. at
340-41) held that Section 1396a(a)(10) (the provision that focused on providing all Medicaid
recipients with equal access to care) created an enforceable private right of action in these terms:

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Generally, we consider three factors to determine if a statute creates an
enforceable right: (1) whether Congress intended the provision to benefit the
plaintiff, as evidenced by "rights-creating" language; 3 (2) whether the right is not
so "vague and amorphous" that its enforcement would strain judicial competence;
and (3) whether the statute unambiguously imposes a binding obligation on the
States, such that the provision is "couched in mandatory, rather than precatory,
terms."
Those three factors apply here with equal force to create an enforceable right, with the clear and
unambiguous right to a public process written into Section 1396a(a)(13). Indeed, the
Blessing-Gonzaga three-part test was adopted from Wilder itself, which used it to confirm a
private right of action under Section 1396a(a)(13).
In sum, this Court must and does reject Norwood's effort to disqualify this case in Section
1983 terms. In light of our own Court of Appeals' approach to the subject, there is no need to
address the conflicting decisions from other circuits that the competing litigants in this case seek
to call to their aid.
Norwood's Other Arguments
With the Section 1983 issues having been thoroughly vetted and resolved, this opinion
turns in the interest of completeness to a grab bag of other arguments proffered by Norwood. As
will be seen, none calls for much discussion.
Several of those arguments attempt to advance the erroneous proposition that Operators
are bringing this action under state law rather than to federal law. Not so -- although Illinois
statutes do lay out specifics for how Section 1396a(a)(13) should be implemented, the concepts
of a "public process" and justified published rates derive solely from that federal statute. It is
those requirements that provide the foundation for Operators' lawsuit -- plainly asserting a

3

[Footnote by this Court] On that score, see Gonzaga, 536 U.S. at 284.
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federal claim for relief. And that in turn sounds the death knell for Norwood's contentions that
there is no federal question jurisdiction, no Section 1983 standing and no Eleventh Amendment
standing on the premise that the Complaint derives from state statutes.
Norwood also presents other Eleventh-Amendment-grounded arguments that are
deep-sixed by the firmly-established and century-old doctrine established by Ex parte Young,
209 U.S. 123 (1908). Not only are Operators suing a state official in her official capacity, a
uniformly-applied exception to any Eleventh Amendment invocation, but Operators' wellpleaded factual allegations provide an ample claim of an ongoing injury.
Nor does Operators' prayer for injunctive and declaratory relief necessarily embrace
damages that might render their claim suspect in Eleventh Amendment terms. If such a
possibility were to arise at a future date, it could be dealt with at that time.
Lastly, Norwood's swan-song assertion as to a claimed need to exhaust all other remedies
may be the weakest of all (although this opinion's analysis to this point has demonstrated stiff
competition for that dubious distinction), relying as it does on dicta from a concurrence in a
plurality opinion (Armstrong v. Exceptional Child Ctr., 135 S.Ct. 1378, 1389-90 (2015)) that
dealt with Section 1396a(a)(30) (a provision far better suited to administrative remedies).
Norwood's expressio unius argument falls flat on its face, considering how many times courts
have found a Section 1983 remedy where none was stipulated in a statute.
Conclusion
For the more than ample reasons set out in this opinion, this Court denies Norwood's
Rule 12(b)(6) motion to dismiss, and Norwood is ordered to answer Operators' Complaint on or

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before October 7, 2016. This action is set for a status hearing at 8:45 a.m. October 14 to discuss
the future course of this litigation.

__________________________________________
Milton I. Shadur
Senior United States District Judge
Date: September 19, 2016

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