Kenmore Mercy Hospital v. Daines

Filing 19

DECISION AND ORDER GRANTING Defendants' 7 Motion to Dismiss; DIRECTING the Clerk of the Court to close this case. Signed by William M. Skretny, Chief Judge U.S.D.C. on 9/17/2011. (MEAL)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
KENMORE MERCY HOSPITAL,
Plaintiff,
v.

DECISION AND ORDER
09-CV-162S

RICHARD F. DAINES, M.D.,
AS COMMISSIONER OF HEALTH OF THE
STATE OF NEW YORK,
Defendant.

I. INTRODUCTION
In this action, Plaintiff Kenmore Mercy Hospital, doing business as the McAuley
Residence, asserts claims pursuant to the Equal Protection Clause of the Fourteenth
Amendment, as well as the Supremacy clause of Article VI of the United States
Constitution, 28 U.S.C. § 2201, and 42 U.S.C. § 1983. Plaintiff’s claims arise from
Defendant’s decision to classify Plaintiff as a free-standing facility for purposes of the New
York State Medicaid program and Defendant’s application of that program’s regulations to
similarly situated nursing facilities with disparate results. Plaintiff seeks an invalidation of
Defendant’s designation of Plaintiff as a free-standing facility, a declaration that Plaintiff
is a hospital-based facility for purposes of Medicaid program reimbursement, and such
other relief as this Court deems appropriate under 42 U.S.C. § 1983. Presently before this
Court is Defendant’s motion to dismiss Plaintiff’s complaint in its entirety. For the reasons
discussed below, Defendant’s motion to dismiss is granted.1
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In support of its Motion to Dism iss, Defendant filed a Mem orandum of Law and a Reply
Mem orandum . (Docket Nos. 8, 13.)
In opposition to Defendant’s Motion to Dism iss, Plaintiff filed a Response Mem orandum and a

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II. BACKGROUND
A.

Facts
In adjudicating Defendant’s motion to dismiss, this Court assumes the truth of the

following factual allegations contained in the complaint. See Hosp. Bldg. Co. v. Trs. of Rex
Hosp., 425 U.S. 738, 740, 96 S. Ct. 1848, 1850, 48 L. Ed. 2d 338 (1976); see also
Hamilton Chapter of Alpha Delta Phi, Inc. v. Hamilton Coll., 128 F.3d 59, 63 (2d Cir. 1997).
Plaintiff, the McAuley Residence (“McAuley”), is a licensed 160-bed residential
health care facility, with its offices and principal place of business in the State of New York,
Erie County. (Complaint (“Comp.”), ¶ 2.) McAuley is located on the campus of, and
physically adjacent to, the Kenmore Mercy Hospital. (Id. at ¶ 23.) Defendant, the late
Richard F. Daines, M.D., was, at all relevant times, the Commissioner of the Department
of Health of the State of New York. (Id. at ¶ 3.)2
Prior to 1993, Plaintiff consisted of two distinct entities. The Catherine McAuley
Residence, a 79-bed nursing home operated by a New York not-for-profit corporation, was
located across the street from the Kenmore Mercy Hospital. (Id. at ¶ 21.) The Kenmore
Mercy Hospital itself owned and operated an 80-bed nursing home known as the Kenmore
Mercy Home. (Id. at ¶ 20.) In 1993 these two residences merged to form the McAuley
Residence. (Id. at ¶ 22.) As part of this merger, a Certificate of Need Application (“CoN”)
was filed for approval with the previous Commissioner of Health, the New York State
Department of Health, and the New York State Public Health Council. (Id.)

Sur-Reply Mem orandum . (Docket Nos. 11, 18.)
2

The Court notes that since this case was filed a new Com m issioner of Health, Nirav R. Shah,
M.D., M.P.H., has been confirm ed by New York State Senate.

2

The CoN submitted by Plaintiff requested a designation as a hospital-based nursing
home. (Id. at ¶ 24.) Designation as “hospital-based” results in preferential reimbursement
rates under New York’s Department of Health, through the Department’s participation in
the federal Medicaid program. (Id. at ¶¶ 13-14.) Upon review of Plaintiff’s CoN, the
Department of Health and the previous commissioner demanded that Plaintiff withdraw the
requested designation, and instead request a designation as a free-standing nursing home.
(Id. at ¶ 25.)

A designation as “free-standing” yields significantly less favorable

reimbursement rates than a hospital-based designation. (Id. at ¶ 14.) Plaintiff initially
accepted the Department of Health’s demand. (Id. at ¶ 26.) However, in May 2007
Plaintiff filed a rate appeal challenging its designation. (Plaintiff’s Memorandum of Law in
Opposition to Defendant’s Motion to Dismiss (“Pl.’s Resp.”), Docket No. 11, 7.) Plaintiff’s
appeal was denied in February 2008. (Id.) Plaintiff now seeks to invalidate Defendant’s
designation of Plaintiff as a free-standing facility, and a declaration that Plaintiff is a
hospital-based facility for purposes of Medicaid reimbursement.
B.

Procedural History

Plaintiff commenced this action on February 20, 2009, by filing a complaint in the
United States District Court for the Western District of New York. Defendant filed the
instant motion to dismiss Plaintiff’s complaint in its entirety on April 6, 2009.
III. DISCUSSION
A.

Legal Standard
Rule 12(b)(6) allows dismissal of a complaint for “failure to state a claim upon which

relief can be granted.” Fed. R. Civ. P. 12 (b)(6). Federal pleading standards are generally
not stringent: Rule 8 requires only a short and plain statement of the claim. Fed. R. Civ.
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P. 8(a)(2). But the plain statement must “possess enough heft to show that the pleader is
entitled to relief.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544,127 S.Ct. 1955, 1966, 167
L.Ed.2d 929 (2007).
When determining whether a complaint states a claim, the court must construe it
liberally, accept all factual allegations as true, and draw all reasonable inferences in the
plaintiff’s favor. ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007);
Goldstein v. Pataki, 516 F.3d 50, 56 (2d Cir. 2008). Legal conclusions, however, are not
afforded the same presumption of truthfulness. See Ashcroft v. Iqbal, 129 S.Ct. 1937,
1949, 173 L.Ed.2d 868 (2009) (“[T]he tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal conclusions.”)
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. at 1945 (quoting
Twombly, 550 U.S. at 570). Labels, conclusions, or “a formulaic recitation of the elements
of a cause of action will not do.” Twombly, 550 U.S. at 555. Facial plausibility is present
when the factual content of the complaint allows for a reasonable inference that the
defendant is liable for the misconduct alleged. Iqbal, 129 S.Ct. at 1949. The plausibility
standard is not, however, a probability requirement; the pleading must show, not merely
allege, that the pleader is entitled to relief. Id. at 1950; Fed. R. Civ. P. 8(a)(2). Wellpleaded allegations in the complaint must nudge the claim “across the line from
conceivable to plausible.” Twombly, 550 U.S. at 570.
A two-pronged approach is thus used to examine the sufficiency of a complaint.
First, statements that are not entitled to the assumption of truth — such as conclusory
allegations, labels, and legal conclusions — are identified and stripped away. See Iqbal,
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129 S.Ct. at 1950. Second, well-pleaded, non-conclusory factual allegations are presumed
true and examined to determine whether they “plausibly give rise to an entitlement to
relief.”3 Id.
B.

Statute of Limitations
Defendant argues that Plaintiff’s complaint must be dismissed for falling outside the

applicable statute of limitations.

(Defendant’s Memorandum of Law in Support of

Defendant’s Motion to Dismiss Plaintiff’s Complaint (“Def.’s Mem.”), Docket No. 8, 3-4.)
Defendant argues that the relevant statute of limitations is three-years, pursuant to New
York’s C.P.L.R. § 214(2), because Plaintiff’s action is brought under 42 U.S.C. § 1983.
Plaintiff responds that construing its causes of action as arising out of 42 U.S.C. § 1983
misunderstands the complaint. Plaintiff asserts that “there exists no statute of limitations
on the declaratory relief McAuley seeks” because Plaintiff brings its causes of action under
the Supremacy Clause of Article VI and the Fourteenth Amendment to the United States
Constitution. (Pl.’s Resp. 6.) Plaintiff further argues that even if there were a relevant
statute of limitations it would have been tolled because Defendant’s acts constitute a
continuing violation of federal law. Alternatively, the statute of limitations would not yet
have run, because Plaintiff brought an appeal in May 2007.
A declaratory judgment action does not have a set statute of limitations. Rather, the
statute of limitations for declaratory relief depends on the action’s underlying substantive

3

Although seem ingly inconsistent with the com m and to treat well-pleaded factual allegations as
true, this plausibility inquiry appears to include consideration of whether m ore likely or alternative
explanations for the com plained-of conduct exist. See, e.g., Iqbal, 129 S.Ct. at 1951-52 (“But given m ore
likely explanations, [the allegations] do not plausibly establish this purpose.”); Twom bly, 550 U.S. at 56768 (finding that plaintiff’s allegations were not suggestive of antitrust conspiracy in the face of an “obvious
alternative explanation” for the allegations in the com plaint).

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claims.

Kermanshah v. Kermanshah, 580 F. Supp. 2d 247, 268 (citing Town of

Orangetown v. Gorsuch, 718 F.2d 29, 42 (2d Cir. 1983). Although declaratory judgment
is not itself a basis for jurisdiction, and does not provide an independent cause of action,
Vaden v. Connecticut, 557 F. Supp. 2d 279, 283 (D. Conn. 2008), claims brought pursuant
to the Supremacy Clause “do not depend on the existence of a private right of action.”
Village of Westfield v. Welch’s, 170 F.3d 116, 124 n.4 (2d Cir. 1999). Courts in this Circuit
have held that the applicable statute of limitations for such an action in New York is sixyears. Niagara Mohawk Power Corp. v. F.E.R.C., 162 F. Supp. 2d 107, 137 (N.D.N.Y.
2001) (constitutionality of government conduct governed by six-year statute of limitations
provided by C.P.L.R. § 213(1)); see also Nextel of New York, Inc. v. City of Mount Vernon,
361 F. Supp. 2d 336, 340 (S.D.N.Y. 2005); New York State Elec. & Gas Corp. v. Saranac
Power Partners L.P., 117 F. Supp. 2d 211 (N.D.N.Y. 2000). Because this Court finds that
there is a relevant statute of limitations, it must consider whether Plaintiff’s cause of action
falls within that period, or whether an exception applies.
Plaintiff was originally designated as a free-standing facility in 1993. Although
Plaintiff alleges that it initially sought a designation as hospital-based, it is undisputed that
Plaintiff’s submitted its CoN having requested a free-standing designation. Therefore, if
the statute of limitations began running in 1993, Plaintiff’s action would be time-barred for
being brought sixteen years after the original injury.
Plaintiff argues that, rather than looking back to 1993, this Court should look to May
2007, when Plaintiff filed an appeal to the Department of Health seeking a reconsideration
of Defendant’s designation. However, other courts in New York have found that the statute
of limitations begins running from the date of the original determination. See City of
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Oneida v. Chassin, 645 N.Y.S.2d 912 (N.Y. App. Div. 1996); Resurrection Nursing Home
v. New York State. Dept. of Health, 749 N.Y.S.2d. 579 (N.Y. App. Div. 2002). There is no
reason why Plaintiff’s appeal for reconsideration in 2007 would have reset a clock that
began running with Plaintiff’s original designation in 1993. C.f., Henry v. Quarantillo, 684
F. Supp. 2d 298, 306-07 (E.D.N.Y. 2010) (statute of limitations began running from initial
final administrative denial, as opposed to latest in series of final denials). Consequently,
Plaintiff’s claims will be time-barred unless a relevant exception tolled the statute of
limitations.
Plaintiff argues that Defendant’s continuing violation of federal law provides such
an exception. Each year the New York Department of Health reviewed the Medicaid
reimbursement schedule for Plaintiff. Each year the Department set the reimbursement
rates on the basis of Plaintiff’s designation as a free-standing nursing home. This
constitutes, in Plaintiff’s view, an annual violation of federal law. “The continuing wrong
doctrine provides that, in certain cases involving continuous or repeated wrongs, the
statute of limitations accrues upon the date of the last wrongful act.” Margrabe v. Sexter
& Warmflash, P.C., No. 07-CV-2798, 2009 WL 361830, at *7 (S.D.N.Y. Feb. 11, 2009);
Matthews v. Connecticut Dept. of Pub. Safety, No. 3:10cv325, 2010 WL 3984645, at *5 (D.
Conn. Oct. 8, 2010) (“The continuing violation doctrine applies to ongoing circumstances
that combine to form a single violation that ‘cannot be said to occur on any particular day.’”
(quoting National R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 114-115, 122 S. Ct.
2061, 153 L. Ed. 2d 106 (2002)). The doctrine’s existence is justified by the unfairness and
impracticality of requiring a plaintiff to file suit before he can predict damages. Kahn v.
Kohlberg, Kravis, Roberts & Co., 970 F.2d 1030, 1039 (2d Cir. 1992). However, the
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doctrine applies only to continuing wrongs rather than to the continuing effects of earlier
wrongful conduct. Margrabe, 2009 WL 361830, at *7 (quoting Selkirk v. State, 671
N.Y.S.2d 824, 825 (N.Y. App. Div. 1998).
Here, the continuing wrongful conduct exception does not apply. Plaintiff was
originally classified as free-standing in 1993.

Although each year the New York

Department of Health sets reimbursement rates for every provider, it does so on the basis
of that provider’s designation. Plaintiff received that designation in 1993. Plaintiff now
argues that this designation is in violation of federal law. However, according to Plaintiff’s
contentions, the free-standing designation was already in violation of federal law when it
was made back in 1993 because it conflicted with the objectives of the Medicare
regulations under 42 C.F.R. § 413.65. (See Comp. ¶¶ 33-36, 44.) Plaintiff could have
brought suit at the time of the original designation, or within six years of that date. Instead,
Plaintiff waited sixteen years. Plaintiff has not pointed to any change that would warrant
adjustment of that designation that was not already present in 1993.

Nor has Plaintiff

alleged that it could not have predicted the damages that would result from Defendant’s
designation. Consequently, this Court finds that Plaintiff’s preemption claims under the
Supremacy Clause of Article VI of the Constitution of the United States are time-barred.4
Because Plaintiff also alleges violations of the Constitution’s Equal Protection
Clause, violations that may have arisen at a later date, this Court must separately consider
them. Plaintiff alleges that it and the Erie County Nursing Home are similarly situated

4

To the extent Plaintiff’s preem ption claim s could be read as arising under 42 U.S.C. § 1983, they
are sim ilarly tim e-barred. The applicable statute of lim itations under 42 U.S.C. § 1983 is only three years.
See Carm ichael v. Hobbs, 371 Fed. Appx. 155, 156 (2d Cir. 2010). Starting from Defendant’s designation
of Plaintiff as free-standing in 1993, this period has long since passed.

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nursing facilities. (Comp. ¶ 45.) In 2006 or 2007 the Medicare program designated the
Erie County Nursing Home as provider-based and made that designation retroactive to
2003. (Comp. ¶¶ 38-39.) Based on that designation, Defendant subsequently designated
the Erie County Nursing Home as hospital-based. (Comp. ¶¶ 41.) Because Defendant
relied on the Medicare program’s provider-based designation in making the Erie County
Nursing Home’s designation, but failed to do so in setting Plaintiff’s designation, Defendant
has allegedly violated Plaintiff’s right to equal protection.
To determine when a state supplied statute of limitations begins running on a
federally recognized harm, a court looks to when a plaintiff knew or had reason to know of
the injury. Eagleston v. Guido, 41 F.3d 865, 871 (2d Cir. 1994). Plaintiff claims the
Medicare program’s designation of the Erie County Nursing Home as provider-based
occurred in 2006 or 2007. As a result, Plaintiff’s equal protection claim did not arise until
after 2006 or 2007. Plaintiff was not harmed until Defendant designated the Erie County
Nursing Home as hospital-based because that was when Defendant engaged in differential
treatment. Therefore, because Plaintiff filed the present suit in 2009, Plaintiff’s equal
protection claim is brought within the applicable three-year statute of limitations under 42
U.S.C. § 1983. See Bishop v. Henry Modell & Co., No. 08 Civ. 7541, 2009 WL 3762119,
at *4-6 (S.D.N.Y. Nov. 10, 2009) (statutes of limitation, including three-year statute of
limitations under 42 U.S.C. § 1983, applies even where only equitable relief is sought).
C.

Equal Protection
Having satisfied itself that Plaintiff has alleged a timely claim for violation of the

Equal Protection Clause, the Court must consider whether Plaintiff’s claim survives
Defendant’s 12(b)(6) motion to dismiss. Defendant argues that Plaintiff has failed to state
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how it and the Erie County Nursing Home are similarly situated, has not alleged that
Defendant was acting with a malicious desire to target Plaintiff, and has not shown that the
differential treatment was a result of non-discretionary state action. (Def.’s Mem. 10-13.)
Plaintiff responds that it has sufficiently pled its claim to survive dismissal by giving
Defendant fair notice of its claim and the grounds on which it rests, and argues that
Defendant’s standard is erroneous.
Plaintiff does not dispute that its equal protection claim is properly characterized as
a “class of one” claim. (Pl.’s Resp. 12.) A Plaintiff bringing a “class of one” claim alleges
that he has been intentionally treated differently from others similarly situated, and that
there is no rational basis for such different treatment. Ruston v. Town Bd. for Town of
Skaneateles, 610 F.3d 55, 58 (2d Cir. 2010). This entails showing an “extremely high
degree of similarity between themselves and the persons to whom they compare
themselves.” Id. at 59 (quoting Clubside, Inc. v. Valentin, 468 F.3d 144, 159 (2d Cir.
2006)). “[T]o succeed on a class-of-one claim, a plaintiff must establish that (i) no rational
person could regard the circumstances of the plaintiff to differ from those of a comparator
to a degree that would justify the differential treatment on the basis of a legitimate
government policy; and (ii) the similarity in circumstances and difference in treatment are
sufficient to exclude the possibility that the defendants acted on the basis of a mistake.”
Id. at 59-60. Moreover, following recent Supreme Court decisions, general allegations that
would previously have overcome a motion to dismiss on a “class of one” equal protection
claim are no longer sufficient. Id. (discussing tension between standards in DeMuria v.
Hawkes, 328 F.3d 704, 707 (2d Cir. 2003) and Iqbal, 129 S. Ct. at 1950).
Plaintiff’s complaint states that Plaintiff and the Erie County Nursing Home are
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similarly situated. The complaint also states that the Erie County Nursing Home was
designated as a provider-based nursing home operated by the Erie County Medical Center
and that, unlike Plaintiff, it shares no physical connection to the Medical Center. Applying
the higher pleading requirements recognized in Ruston, this does not suffice to state a
“class of one” equal protection claim.
In Musco Propane, LLP v. Town of Wolcott the court dismissed plaintiff’s equal
protection claim that he had been singled out for differential treatment in a zoning dispute
to expand his property’s propane storage capacity. No. 3:10-cv-1400, 2011 WL 3267756,
at *3-4 (D. Conn. July 28, 2011). Although plaintiff alleged there were other, similarly
situated, landowners, he provided no details explaining the similarities. Id.; see also
Camac v. Long Beach City Sch. Dist., No. 09 CV 5309, 2011 WL 3030345, at *16
(E.D.N.Y. July 22, 2011). As in that case, Plaintiff here has not explained how the two
nursing homes are similarly situated. In fact, Plaintiff’s have highlighted the geographic
differences between the two, as well as the different years in which Plaintiff and the Erie
County Nursing Home received their designations. Defendant has submitted evidence
adding to these differences. Pursuant to Federal Rule of Evidence 201(b), this Court takes
judicial notice of the Stipulation and Order entered in County of Erie v. DeBuono, New York
State Supreme Court, Erie County, Index No. 7459/98. See 5-Star Mgmt., Inc. v. Rogers,
940 F. Supp. 512, 518 (E.D.N.Y. 1996) (taking judicial notice of attached pleadings on
motion to dismiss). This Stipulation and Order shows that the Erie County Nursing Home
was designated as hospital-based pursuant to 10 N.Y.C.R.R. § 86-2.10(a)(13)(I). That
provision applies to facilities originally certified prior to 1983. Plaintiff by contrast did not
receive its certification until 1993. This alone means that the circumstances of each
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nursing home are not “prima facie identical,” Camac, 2011 WL 3030345, at *16 (quoting
Kamholz v. Yates County, No. 08-CV-6210, 2008 WL 5114964, at *5 (W.D.N.Y. Dec. 3,
2008)), and provides a rational basis on which the nursing homes were treated differently.
Although Plaintiff argues that “[b]ecause discovery has not been conducted in this
matter, the true nature and extent of the similarities between the McAuley Residence and
Erie County Home are not known,” the higher pleading requirements earlier discussed
mean that Plaintiff must provide something more than conclusory allegations that “are not
entitled to the assumption of truth.” Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010
(quoting Iqbal, 129 S. Ct. at 1950). Consequently, this Court will grant Defendant’s motion
to dismiss Plaintiff’s “class of one” equal protection claim.
IV. CONCLUSION
For the reasons stated above, Defendant’s Motion to Dismiss is granted.
V. ORDERS
IT HEREBY IS ORDERED, that Defendants’ Motion to Dismiss (Docket No. 7) is
GRANTED.
FURTHER, that the Clerk of the Court is directed to close this case.
SO ORDERED.
Dated:

September 18, 2011
Buffalo, New York
/s/William M. Skretny
WILLIAM M. SKRETNY
Chief Judge
United States District Court

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