Bevin et al v. Stewart et al

Filing 37

MEMORANDUM OPINION & ORDER: 1) Defendants' Motion to Dismiss 25 is GRANTED; 2) Judgment in favor of Defendants shall be entered contemporaneously herewith; 3) Kentucky Association of Health Plans, Inc.s Motion to Intervene 4 is DENIED AS MOOT; and 4) Kentucky Hospital Associations Motion to Intervene 7 is DENIED AS MOOT. Signed by Judge Gregory F. VanTatenhove on 8/20/2018. (CBD)cc: COR

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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
FRANKFORT
MATTHEW G. BEVIN, ex rel
COMMONWEALTH OF KENTUCKY,
et al.,
Plaintiffs,
V.
RONNIE MAURICE STEWART, et al.,

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Civil No. 3:18-cv-00008-GFVT

MEMORANDUM OPINION
&
ORDER

Defendants.
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This matter is before the Court on Defendants’ Motion to Dismiss. [R. 25.] Defendants,
sixteen Kentucky residents who participate in expanded Medicaid, seek dismissal of the
Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) on the grounds that Plaintiffs
lack standing to assert the claims set forth in the Complaint. Alternatively, Defendants move to
dismiss the Complaint for failure to state a claim for which relief can be granted, pursuant to
Rule 12(b)(6). Further, Defendants ask the Court to exercise its discretion and dismiss the
Complaint under the first-to-file rule, stating any litigation under this Complaint would be
duplicative to an action brought initially in the United States District Court for the District of
Columbia. The Court, having reviewed the record and the pleadings therein, will, for the reasons
stated below, GRANT Defendants’ Motion to Dismiss.

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I
In 2014, under a previous administration, the Commonwealth of Kentucky opted to
participate in expanded Medicaid, which had been authorized by the Patient Protection and
Affordable Care Act of 2010. [R. 1 at 6-7.] In June 2016, under the current administration, the
Commonwealth announced it would seek a Section 1115 waiver from the United States
Secretary of Health and Human Services in order to implement Kentucky HEALTH. [Id. at 8.]
Plaintiffs claim “Kentucky HEALTH contains numerous innovative provisions, all of which are
likely to promote the objectives of Medicaid.” [Id. at 11.] Kentucky’s initial Section 1115
waiver application was submitted to the HHS Secretary on August 24, 2016, and modified in
July 2017. [Id. at 8-9.] On January 12, 2018, Kentucky received notice that its Section 1115
waiver had been approved. [Id. at 9.]
On January 24, 2018, sixteen Kentucky Medicaid recipients brought an action in the
United States District Court for the District of Columbia (D.C. Action) challenging the approved
Section 1115 waiver. [R. 1 at 13; R. 25-1 at 2-3.] The individuals brought the suit both
individually and on behalf of all Kentucky residents enrolled in the Kentucky Medicaid program
on or after January 12, 2018. [R. 1-5 at 10.] The Kentucky Medicaid recipients claimed the
Secretary’s waiver was unconstitutionally granted and that it violated the Administrative
Procedure Act, the Social Security Act, and the Medicaid Act. [See generally R. 1-5.]
Importantly, they did not claim that Kentucky HEALTH or its provisions were unconstitutional.
[See id.] The Commonwealth of Kentucky initially was not named as a party to the D.C. Action
but later intervened as a defendant. [See R. 35 at 6.] However, before Kentucky intervened in
the D.C. Action, it filed this suit in the Eastern District of Kentucky on February 19, 2018.
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In this action for a Declaratory Judgment, the Commonwealth of Kentucky has brought
suit against the same sixteen Kentucky Medicaid recipients that initiated the D.C. Action against
federal actors. [See R. 1.] Count One of the Complaint alleges that “[t]he named Kentucky
residents who brought the D.C. Action have alleged that Kentucky HEALTH violates the Social
Security Act and the Administrative Procedure Act.” [Id. at 15.] Count Two states that the same
individuals claim, again in the D.C. Action, that “the approval of Kentucky HEALTH otherwise
violates the Medicaid Act, was arbitrary and capricious and an abuse of discretion, and ran
counter to the evidence in the record.” [Id. at 17.] Count Three indicates that that the D.C.
Plaintiffs “alleged that the approval of Kentucky HEALTH violates the Take Care Clause of the
United States Constitution.” [Id. at 18.] As to each of the counts, the Commonwealth claims an
actual case or controversy exists as to the veracity of those claims being litigated in the D.C.
Action. [Id. at 15-18.]
The D.C. Court determined in the D.C. Action that the Secretary acted arbitrarily and
capriciously in granting the Kentucky HEALTH waiver, and the Court remanded the matter to
HHS. See Memorandum Opinion, Stewart v. Azar II, No. 1:18-cv-00152-JEB (D.D.C. June 29,
2018, ECF No. 74). That ruling effectively forces the Secretary to revisit its obligations under
the Administrative Procedure Act regarding the Kentucky HEALTH waiver; thus, there remains
at least some possibility that the waiver—or some version of it—could still be granted. The
result of the D.C. Action, however, does not change this Court’s standing analysis, which
follows.
The Commonwealth has brought this action seeking declarations that Kentucky
HEALTH, and its individual provisions, do not violate the Social Security Act or the
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Administrative Procedure Act, and that the Kentucky HEALTH waiver is within the HHS
Secretary’s Section 1115 waiver authority. [Id. at 16.] Additionally, The Commonwealth asks
this Court to declare “that the HHS Secretary’s approval of Kentucky HEATH, and all of its
contested provisions,” complied with legal mandates. [Id. at 15-19.] Defendants now move to
dismiss this action for a lack of standing under Federal Rule of Civil Procedure 12(b)(1) and
failure to state a claim under Rule 12(b)(6). [R. 25.] Because Plaintiffs lack Article III standing,
this case will be dismissed.
II
When a defendant’s motion to dismiss raises the question of subject-matter jurisdiction,
the plaintiff “bears the burden of proving jurisdiction in order to survive the motion.” Mich. S.
R.R. Co. Branch & St. Joseph Counties Rail Users Ass’n, 287 F.3d 568, 573 (6th Cir. 2002).
“Specifically, the plaintiff must show that the complaint ‘alleges a claim under federal law, and
that the claim is substantial.’” Id. (quoting Musson Theatrical, Inc. v. Federal Express Corp., 89
F.3d 1244, 1248 (6th Cir. 1996)). A plaintiff may survive the motion “by showing ‘any arguable
basis in law’ for the claims set forth in the complaint.” Id.
Rule 12(b)(1) motions “generally come in two varieties: a facial attack or a factual
attack.” Gentek Bldg. Prods., Inc., v. Sherwin-Williams Co., 491 F.3d 320, 330 (6th Cir. 2007).
A facial attack “questions merely the sufficiency of the pleading. Id. When a motion raises a
facial attack, the Court must accept all the “allegations in the complaint as true,” and “if those
allegations establish federal claims, jurisdiction exists.” Id. On the other hand, a factual attack is
“not a challenge to the sufficiency of the pleading’s allegations, but a challenge to the factual
existence of subject matter jurisdiction.” United States v. Ritchie, 15 F.3d 592, 598 (6th Cir.
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1994). When the 12(b)(1) motion factually attacks subject matter jurisdiction, “no presumptive
truthfulness applies to the allegations,” and the court “must weigh the conflicting evidence to
arrive at the factual predicate that subject-matter does or does not exist.” Gentek Bldg. Prods.,
Inc., 492 F.3d at 330. A challenge to a plaintiff’s standing is a facial attack. See Gaylor v.
Hamilton Crossing CMBS, 582 Fed. App’x 576, 579 (6th Cir. 2014). Therefore, the Court must
accept the allegations of the Commonwealth’s Complaint as true. Gentek Bldg. Prods., Inc.,
492 F.3d at 330
“Standing is a threshold question in every federal case,” Coal Operators & Assocs., Inc.
v. Babbitt, 291 F.3d 912, 915 (6th Cir. 2002) (quoting Warth v. Seldin, 422 U.S. 490, 498
(1975)). Article III’s “irreducible constitutional minimum” of standing has three elements: (1)
“the plaintiff must have suffered an ‘injury-in-fact’ – an invasion of a legally protected interest
which is (a) concrete and particularized, and (b) actual an imminent, not conjectural and
hypothetical”; (2) “there must be a causal connection between the injury and the conduct
complained of”; and (3) “it must be likely, as opposed to merely speculative, that the injury will
be redressed by a favorable decision.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)
(citations omitted). As to the second prong, “the injury has to be fairly traceable to the
challenged action of the defendant, and not the result of the independent action of some third
party not before the court.” Id. (quoting Simon v. Eastern Ky. Welfare Rights Organization, 426
U.S. 26, 41-42 (1976)). See also White v. United States, 601 F.3d 545, 551 (6th Cir. 2010).
“The party invoking federal jurisdiction bears the burden of establishing these three elements.”
Lujan, 504 U.S. at 561.

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Here, Defendants effectively challenge Plaintiffs’ standing on all three elements.
Defendants argue the Commonwealth lacks standing because “Defendants have not caused the
Commonwealth any cognizable harm,” and because Plaintiffs cannot “establish that any alleged
injury it might suffer is fairly traceable to any alleged unlawful conduct by the Defendants.” [R.
25 at 1.] Additionally, Defendants opine that any alleged injury suffered by the Plaintiffs cannot
be redressed through this action. [R. 25-1 at 6.] The Court will take each element in order.
A
Defendants first argue that Plaintiffs have not suffered an invasion of a legally protected
interest and, even if they do allege an injury, that injury is neither concrete and particularized nor
actual and imminent. Defendants assert that “the Commonwealth’s mere disagreement with
Defendants’ arguments in the D.C. Action cannot establish a constitutionally protected interest.”
[Id. at 7.] Moreover, Plaintiffs “cannot claim to have a legally protected interest in insulating the
Secretary’s grant of a federal waiver for Kentucky HEALTH from judicial review under the
Constitution or the APA.” [Id. at 7-8.] According to Defendants, the Complaint only alleges a
possible future injury, which is “too speculative to satisfy the well-established requirement that
threatened injury must be certainly impending.” [Id. at 8 (quoting Clapper v. Amnesty Int’l USA,
568 U.S. 398, 401 (2013)).] “The only injury the Complaint can allege is the possible
invalidation of the federal waiver . . . in the D.C. Action.” [R. 25-1 at 8.] Defendants cite the
United States Supreme Court’s opinion in Whitmore v. Arkansas, 495 U.S. 149 (1990), to
support its argument that, “[w]hen the potential outcome of a case is the only arguable source of
injury, ‘there is no amount of evidence that potentially c[an] establish that [the plaintiff’s]
asserted future injury is real and immediate.’” [Id. (quoting Whitmore, 495 U.S. at 160).]
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Plaintiffs respond by stating that, in cases invoking the Declaratory Judgment Act, the
three-element standing analysis is “reduce[d] to whether ‘the parties have “adverse legal
interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment”
even though the injury-in-fact has yet to be completed.’” [R. 35 at 9 (quoting Nat’l Rifle Ass’n of
Am. v. Magaw, 132 F.3d 272, 280 (6th Cir. 1997)).] The Commonwealth seems to suggest,
without explicitly stating as much, that the injury it has or will sustain would only result if the
Commonwealth is prevented from implementing Kentucky HEALTH. [See R. 35 at 9-10.]
“[W]ithout Kentucky HEALTH, the Commonwealth will be forced, due to budgetary constraints,
to ‘un-expand’ from expanded Medicaid.” [Id. at 10.] Plaintiffs later argue, though, that,
[t]he injury alleged by Plaintiffs is not that the D.C. Action could undo Kentucky
HEALTH, although that certainly would injure the Commonwealth and its citizens.
Rather, Plaintiffs injury-in-fact is that the Kentucky Defendants have taken
concrete steps to invalidate and enjoin Kentucky HEALTH, a program that the
Commonwealth developed, is currently implementing, and soon will be enforcing.
[Id. at 12.] In rebutting Defendants’ speculative-harm argument, Plaintiffs state that they need
only show “actual present harm or a significant possibility of future harm,” because they brought
their action under the Declaratory Judgment Act. [Id. (quoting Magaw, 132 F.3d at 279).]
While it is true that “[d]eclaratory judgments are typically sought before a completed
‘injury-in-fact’ has occurred,” the party claiming harm still must allege some “significant
possibility of future harm.” Magaw, 132 F.3d at 279. Additionally, any declaration sought by a
plaintiff “must be limited to the resolution of an ‘actual controversy.’” Id. Here, Plaintiffs
explicitly argue that “the Kentucky Defendants have taken concrete steps to invalidate and enjoin
Kentucky Health.” [R. 35 at 12.] By “concrete steps,” the Court can only presume that the
Commonwealth means the Kentucky Medicaid recipients initiated the D.C. Action. In fact,
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though, the Kentucky Defendants brought the D.C. Action challenging not Kentucky HEALTH
or its provisions but the Secretary’s conduct in approving the waiver that would allow the
Commonwealth to implement Kentucky HEALTH. [See generally R. 1-5.] That the Kentucky
Defendants brought such an action does not establish a “significant possibility of future harm.”
And, while the Commonwealth posits that it would be forced to “un-expand” from Medicaid if
Kentucky HEALTH is prevented, that conclusory statement implying an economic injury,
without more, does not explain how the Commonwealth would be injured.
B
Even assuming that the Commonwealth suitably alleges an injury-in-fact, the
Commonwealth’s causation argument fails. According to Defendants, “[e]ven if the
Commonwealth could show some concrete harm traceable to the D.C. Action . . ., any interest in
implementing a waiver that [might be] declared unlawful is not a legally protected interest.” [R.
36 at 6.] Defendants claim their initiation of the D.C. Action “neither repealed Kentucky
HEALTH nor ‘forced’ the Commonwealth to do anything,” and opine that any alleged future
harm would be traceable to the entity that might invalidate the Secretary’s waiver. [Id. at 7; R.
25-1 at 9.] The essence of Defendants argument is that the intervening action of the D.C. District
Court, if it ultimately invalidates the Secretary’s waiver, would break any chain of causation that
existed between the Commonwealth’s alleged future economic injury and the Kentucky
Medicaid recipients’ conduct.
In response to Defendants traceability arguments, Plaintiffs state only that “the success of
this lawsuit in protecting Kentucky HEALTH does not depend upon what occurs in the D.C.
Action. This action and the D.C. [A]ction stand on equal footing. One is not subordinate to the
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other at this stage.” [R. 35 at 13.] The Commonwealth attempts to distinguish the cases cited for
support by the Defendants [see id. at 13-15], but offers no authority in support of its position that
any future economic harm it might suffer would be traceable to Defendants. The
Commonwealth states that “[i]n its motion to intervene, the Commonwealth cited a wealth of
case law allowing a sovereign state to intervene as a right into litigation challenging federal
action or decision making that affects the state intervenor,” and that Defendants make no attempt
to rebut that case law here. [Id. at 15.] However, precedent that supports the Commonwealth
intervening as a defendant in a suit challenging federal action or decision making does not
automatically confer Article III standing to the Commonwealth as a plaintiff to bring an
independent suit against those challenging the federal action or decision making.
As Lujan counseled, “the injury has to be ‘fairly traceable to the challenged action of the
defendant, and not the result of the independent action of some third party not before the court.’”
Lujan, 504 U.S. at 560-61. It is clear that the United States District Court for the District of
Columbia is not before this Court as a party in this suit. It is also clear that if the Commonwealth
ever suffers any economic injury as a result of not being able to implement Kentucky HEALTH,
that injury will be traceable to whatever entity last affected its implementation, not these
Defendants. The Court agrees with Defendants that there is no clear traceability between these
Defendants’ conduct and any future harm the Commonwealth claims will occur. Furthermore,
even assuming the D.C. Action ultimately runs its full course and prevents the Commonwealth
from implementing Kentucky HEALTH, any action thereafter concerning expanded Medicaid in
Kentucky would be based on a policy decision by the Commonwealth. Such a decision might
cause injury to the Commonwealth, at least the pleadings suggest as much [see R. 35 at 10-11],
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but that injury would be traceable to the Commonwealth’s intervening policy decision and, again,
not a result of any conduct by these Defendants.
C
Lastly, related to standing, Defendants attack standing’s redressability requirement. [See
R. 25-1 at 10.] “[P]revailing against these Defendants will not redress the Commonwealth’s
supposed potential injury, because that injury, if it occurs at all, will not be caused by the
Defendants.” [Id.] In its argument, Defendants acknowledge that causation and redressability
are often linked, and “if a plaintiff can demonstrate that his injuries were caused by the
defendant, the courts are in a position to redress the situation.” [Id. (quoting Kardules v. City of
Columbus, 95 F.3d 1335, 1352 (6th Cir. 1996)).] In support of their redressability argument,
Defendants point to the fact that Plaintiffs are not seeking to have the D.C. Action dismissed.
[R. 25-1 at 10.] The D.C. District Court therefore will be free to invalidate the Section 1115
waiver if it so deems appropriate. Therefore, a favorable result in this Court will not redress any
of the Commonwealth’s alleged injuries. Presumably relying on the fact that causation and
redressability are often considered together, and believing it suitably argued causation, the
Commonwealth fails to respond to Defendants’ redressability arguments.
The Commonwealth seeks, in this action, a declaratory judgment that Kentucky
HEALTH and all of its provisions comply with statutory mandates and that Kentucky HEALTH
falls within the HHS Secretary’s waiver authority. [R. 1 at 16-19.] It further seeks a declaration
that the HHS Secretary’s approval of the Kentucky HEALTH waiver complied with the
Medicaid Act and “was not arbitrary and capricious, was not an abuse of discretion, and was
supported by the evidence in the record.” [Id. at 18-19.] Lastly, the Commonwealth seeks a
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declaration that Kentucky HEALTH and the Secretary’s approval of the Kentucky HEALTH
waiver was otherwise constitutional. [Id. at 19.] Comparatively, in the D.C. Action, the
Kentucky Medicaid recipients seek a declaration, in relevant part, that the HHS Secretary’s
“approval of the Kentucky HEALTH waiver application violates the Administrative Procedure
Act, the Social Security Act, and the United States Constitution. . . .” [R. 1-5 at 79.] Because
the declarations sought by the parties in the two independent actions are at polar opposites from
each other, a favorable opinion for the Commonwealth in this action is not likely to redress the
injury it supposedly alleged, that is “the Kentucky Defendants . . . concrete steps to invalidate
and enjoin Kentucky HEALTH. . . .” [See R. 35 at 12.]
Article III’s “irreducible constitutional minimum” of standing has three elements: injury,
causation, and redressability. Because the Commonwealth fails to establish any of those three
elements, this case will be dismissed for lack of subject matter jurisdiction. Moreover, because
the Court disposes of this case on Defendants’ Rule 12(b)(1) motion, the Court need not address
the merits of Defendants’ Rule 12(b)(6) arguments.
III
Not all disputes are capable of federal judicial review. Federal courts are limited in their
jurisdiction, and they can only hear cases where the plaintiff can establish jurisdiction. Here, the
Commonwealth failed to do so. Moreover, the Commonwealth has intervened in the D.C.
Action, which, based on the Commonwealth’s articulation of its filings in that case [see R. 35 at
17], allows the Commonwealth to protect its interests in implementing Kentucky HEALTH. In
fact, Plaintiffs acknowledge that the Commonwealth intervened in the D.C. Action “to ‘fully
participate as a defendant. . . .’” [Id.] To fully participate as a defendant means a defendant is
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free to file a counterclaim against any plaintiff. [See Fed. R. Civ. P. 13.] The Commonwealth,
therefore, could, but was not required to, protect its interests and seek the same declaratory relief
it seeks here in the D.C. Action.
Accordingly, and the Court being otherwise sufficiently advised, it is hereby ORDERED
as follows:
1) Defendants’ Motion to Dismiss [R. 25] is GRANTED;
2) Judgment in favor of Defendants shall be entered contemporaneously herewith;
3) Kentucky Association of Health Plans, Inc.’s Motion to Intervene [R. 4] is DENIED
AS MOOT; and
4) Kentucky Hospital Association’s Motion to Intervene [R. 7] is DENIED AS MOOT.

This the 20th day of August, 2018.

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