Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-04027/USCOURTS-cand-3_06-cv-04027-1/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1441 Petition for Removal

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

CALIFORNIA HEALTHCARE

ASSOCIATION, on behalf of its member

hospitals,

Petitioner,

 v.

SANDRA SHEWRY, Director of the

California Department of Health Services; and

the CALIFORNIA DEPARTMENT OF

HEALTH SERVICES,

Respondents. /

No. C 06-04027 JSW

ORDER GRANTING MOTION TO

REMAND

Now before the Court is the motion to remand this action to state court filed by

Petitioner California Healthcare Association (“CHA”). The Court finds that this matter is

appropriate for disposition without oral argument and the matter is deemed submitted. See N.D.

Civ. L.R. 7-1(b). Accordingly, the hearing set for September 15, 2006 is VACATED. Having

carefully reviewed the parties’ papers, considered their arguments and the relevant authority,

and good cause appearing, the Court hereby GRANTS the CHA’s motion to remand.

BACKGROUND

CHA originally filed its petition for writ of mandate (“Petition”) in the Superior Court of

California in the County of San Francisco on June 7, 2006. The Petition seeks to address the

way in which the Department of Health Services (“DHS”) has been paying hospitals that

operate distinct part nursing facilities (“DP/NF”) for providing skilled nursing services to

beneficiaries of California’s Medicaid program, known as MediCal. On July 29, 2006,

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For the Northern District of California

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Respondents removed this matter under 28 U.S.C. § 1441, citing federal question jurisdiction as

the basis for removal. CHA filed a notice of motion to remand on July 28, 2006.

Medicaid was established through passage of Title XIX of the Social Security Act, 42

U.S.C. § 1396 et seq. The program provides for federal financial assistance to states when they

supply medical care to needy individuals. The State of California has elected to participate in

the Medicaid program and Respondent DHS is the “single state entity” responsible for

implementing and administering the MediCal program for the state. See Cal. Welf. & Inst.

Code §§ 10740, 14000 et seq.; 22 Cal. Code Regs. § 50000 et seq.; and 42 U.S.C. § 1396(a)(5). 

In order to qualify for federal financial assistance, states that participate in the Medicaid

program must comply with certain statutory requirements imposed by the Social Security Act as

well as regulations promulgated by the United States Department of Health and Human

Services, through the Centers for Medicare and Medicaid Services (“CMS”). Thus, in order to

qualify as an approved plan and receive federal funding, each participating state’s plan shall:

Provide such methods and procedures relating to the utilization of, and the payment for,

current services available under the plan ... that may be necessary to safeguard against

unnecessary utilization of such care and services and to assure that payments are

consistent with efficiency, economy and quality of care, and are available to enlist

enough providers so that the care and services are available under the plan at least to the

extent that such care and services are available to the general population in the

geographic area.

42 U.S.C. § 1396a(a)(30)(A). 

According to the Petition, pursuant to the applicable statutes and regulations, DHS

submits amendments for its state plan for approval to CMS which provide for MediCal

reimbursement rates for DP/NF providers for the next plan rate year. (See Writ Petition at ¶

14.) Prior to July 31, 1995, the approved state plan for DP/NFs provided for a reimbursement

rate on the lesser of the facility’s costs as projected by DHS or a prospective “median rate.” (Id.

at ¶ 15.) The methodology then used to establish the projected reimbursement rate was based

on the historical costs, adjusted for inflation, for each participating facility in the state. The

maximum allowable payment rate was then set at the median of all such projected facility rates

throughout the state. (Id.) 

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On September 29, 1995, DHS submitted to CMS an amendment to the plan which

intended to reduce the DP/NF reimbursement rate in the 1995-1996 rate year by changing the

methodology to exclude those participating providers whose MediCal patient days accounted

for less than 20 percent of their total patient days. (Id. at ¶ 16.) Although CMS notified DHS

that it would not approve the amendment, according to the Petition, DHS caused to be filed as

an emergency regulation to the California Code of Regulations (“CCR”) certain amendments to

Title 22, section 51511 which, in effect, incorporated the unapproved methodology for

calculating the median rate for DP/NFs into the regulation. (Id. at ¶¶ 17-18.) 

On April 23, 1996, CHA filed the first of three actions in California state court

challenging the new regulation and the exclusion methodology based on DHS’s failure to

comply with state and federal law. (CHA v. Belshe, No. 977772.) Final judgment and a

peremptory writ of mandate were entered on June 16, 1999, ordering DHS to set aside the new

reimbursement methodology, to recalculate the reimbursement rates for the subject period

without excluding those facilities with less than 20 percent MediCal utilization, and to pay

CHA’s member hospitals any additional reimbursement still owing under the recalculated rates. 

(See Petition at ¶ 19.) 

As a result of Respondents’ renewed attempt to apply the 20 percent exclusion

methodology for calculating DP/NF reimbursement rates for the 1996-1997 rate year, CHA

filed its second California state court action. (CHA v. DHS, No. 312880.) Final judgment and a

peremptory writ of mandate were entered on July 9, 2002, ordering DHS to recalculate and pay

the DP/NF rates in conformity with federal requirements. (See Petition at ¶¶ 20-21.) 

The Petition here alleges that, despite the fact that the California state courts have twice

found the 20 percent exclusion methodology to be unsupported, arbitrary and capricious, DHS

has continued to use the same methodology for the rate years 2001-2002, 2002-2003, 2003-

2004 and 2004-2005, and the 20 percent exclusion methodology has remained part of 22 C.C.R. 

§ 51511. The Petition further alleges that DHS has implemented the same methodology for the

current 2005-2006 rate year. (Id. at ¶¶ 22-23.) 

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Petitioner, CHA, filed the current and third action in California state court, seeking to

challenge the utilization of the 20 percent exclusion methodology (and rate freeze) for the rate

years following the last state court judgment, from 2001 through 2005. CHA asserts that the

methodology violates both state and federal law, principally 42 U.S.C. § 1396a(a)(30)(A),

because DHS did not provide procedures necessary to assure that payments are consistent with

efficiency, economy and quality of care, and sufficient to enlist enough providers to treat

MediCal patients at least to the extent that such care is available generally in the same

geographic area. 

CHA’s three causes of action are: (1) to compel DHS to comply with its statutory duties

for reimbursement payments under 42 U.S.C. § 1396a(a)(30)(A) and California Civil Code of

Procedure § 1085; (2) to obtain declaratory relief to resolve an actual controversy between CHA

and DHS concerning their respective rights and duties as to the validity of Title 22 of the Code

of California Regulations, Section 51511; and (3) permanently to enjoin DHS from utilizing the

20 percent exclusion methodology in calculating reimbursement rates. 

Respondents removed this action to federal court pursuant to 28 U.S.C. § 1441(b) based

on the contention that Petitioner asserts causes of action for violations of federal Medicaid

statutes and regulations, including 42 U.S.C. § 1396a(a)(30)(A).

ANALYSIS

A. Legal Standards Relevant to Removal Jurisdiction. 

“[A]ny civil action brought in a State court of which the district courts of the United

States have original jurisdiction, may be removed by the defendant ... to the district court of the

United States for the district and division embracing the place where such action is pending.” 

Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 7-8 (1983) (citation

omitted); see also 28 U.S.C. § 1441. However, federal courts are courts of limited jurisdiction. 

See, e.g., Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). An action

originally filed in state court may be removed to federal court only if the district court could

have exercised jurisdiction over such action if initially filed there. 28 U.S.C. § 1441(a);

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Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987). A district court must remand the case if

it appears before final judgment that the court lacks subject matter jurisdiction. 28 U.S.C. 

§ 1447(c). Accordingly, the burden of establishing federal jurisdiction for purposes of removal

is on the party seeking removal. Valdez v. Allstate Ins. Co., 372 F.3d 1115, 1117 (9th Cir.

2004); see also Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). Moreover, a court must

construe the removal statute strictly and reject jurisdiction if there is any doubt regarding

whether removal was proper. Duncan v. Stuetzle, 76 F.3d 1480, 1485 (9th Cir. 1996); see also

Gaus, 980 F.2d at 566 (“Federal jurisdiction must be rejected if there is any doubt as to the right

of removal in the first instance.”) 

“The presence or absence of federal-question jurisdiction is governed by the ‘wellpleaded complaint rule.’” Caterpillar Inc. v. Williams, 482 U.S. 382, 392 (1987). The wellpleaded complaint rule recognizes that the plaintiff is the master of his or her claim. “[H]e or

she may avoid federal jurisdiction by exclusive reliance on state law.” Id. Thus, under the

well-pleaded complaint rule, federal-question jurisdiction arises where the “complaint

establishes either that federal law creates the cause of action or that the plaintiff’s right to relief

necessarily depends on resolution of a substantial question of federal law.” Franchise Tax Bd.,

463 U.S. at 27-28. 

B. Jurisdictional Issues for Federal and State Claims Under Medicaid Regulation.

Federal law provides that a civil action begun in state court may be removed if a district

court would have original jurisdiction over the action. 28 U.S.C. § 1441(a). Respondents here

contend that this Court has original jurisdiction because the case concerns a federal question. 

The federal question statute extends federal jurisdiction to “all civil actions arising under the

Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. In most cases, the

claims arise under federal law because federal law creates the cause of action. However, claims

grounded in state law may invoke the arising under jurisdiction when they present a substantial

and disputed question of federal law. See Franchise Tax Bd., 463 U.S. at 13. 

Petitioner readily concedes that the “thrust of [its] lawsuit is that the Department’s

methodology for reimbursing DP/NF providers during the subject fiscal years, as well as the

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way it was implemented, violates the ‘efficiency, economy and quality of care’ clause of

Section 1396a(a)(30)(A) and is not sufficient to enlist enough providers to care for MediCal

patients in a manner equal to the care available to the general public.” (Motion at 8.) However,

in recent decisional law, the Ninth Circuit has unequivocally determined that 42 U.S.C. 

§ 1396a(a)(30)(A) does not confer a private right of action for enforcement through 42 U.S.C. 

§ 1983 on either Medicaid providers or beneficiaries. Sanchez v. Johnson, 416 F.3d 1059-1062

(9th Cir. 2005). In light of this recent decision, Petitioner contends that it would have been

fruitless to pursue this action originally in federal court and therefore removal was improper. 

Petitioner argues that because the claim for enforcement of the federal Medicaid statute does

not give rise to a federal cause of action, Petitioner could not have originally filed this action in

federal court. On this basis, Petitioner contends that this Court does not have removal

jurisdiction. 

Further, while federal law prevents the federal courts from granting relief to parties to

enforce the provision of the Medicaid law at issue here, California state courts do not create a

bar to such a private right of enforcement. Under Section 1085 of the California Code of Civil

Procedure, a private party may petition for a writ of mandate to compel performance of an act

which the federal Medicaid laws and regulations specifically enjoin. See Doctor’s Med. Lab.,

Inc. v. Connell, 69 Cal. App. 4th 891, 896 (1999); see also RCJ Medical Services, Inc. v. Bonta,

91 Cal. App. 4th 986, 1003 (2001) (distinguishing between federal decisional law limiting the

rights of providers in federal court from the state decisional law and statutory authority

permitting a private party to enforce federal law under California’s writ of mandate proceedings

in state court). 

Petitioner also relies on the Supreme Court’s decision in Merrell Dow Pharmaceuticals,

Inc. v. Thompson, 478 U.S. 804 (1986), in which the Court held that a complaint alleging a

violation of a federal statute as an element of a state claim was not sufficient to invoke federal

jurisdiction where the federal statute did not confer a private right of action. The Merrell Dow

Court stated that “determinations about federal jurisdiction require sensitive judgments about

congressional intent, judicial power, and the federal system.” Id. at 810. In this regard, the

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Court considered the lack of a private right of action particularly probative of congressional

intent and concluded that “congressional determination that there should be no federal remedy

for the violation of this federal statute is tantamount to a congressional conclusion that the

presence of a claimed violation of the statute as an element of a state cause of action is

insufficiently ‘substantial’ to confer federal-question jurisdiction.” Id. at 814.

Respondents contend that the action was properly removed because there is federal

jurisdiction over Petitioner’s claims. Respondents rely on a recent Supreme Court case, Grable

& Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 125 S. Ct. 2363, 2368

(2005), in which the Court held that a state law claim is removable if it presents a disputed and

substantial question of federal law which a federal court may entertain without disturbing any

congressionally approved balance of federal and state judicial responsibilities. The Court held

that “federal jurisdiction demands not only a contested federal issue, but a substantial one,

indicating a serious federal interest in claiming the advantages thought to be inherent in a

federal forum.” Id. at 2367. Further, the Court held that “the federal issue will ultimately

qualify for a federal forum only if federal jurisdiction is consistent with congressional judgment

about the sound division of labor between state and federal courts governing the application of 

§ 1331. ... [T]he presence of a disputed federal issue and the ostensible importance of a federal

forum are never necessarily dispositive; there must always be an assessment of any disruptive

portent in exercising federal jurisdiction.” Id. at 2367-68. In addition, although not overturning

Merrell Dow, the Grable Court specifically held that the absence of a federal private right of

action is not determinative of the question of federal jurisdiction. Id. at 2366. Rather, the Court

found that the absence of a private cause of action in federal court is still “evidence relevant to”

whether federal question jurisdiction should extend to particular cases. Id.

The Grable Court found that removal to federal court was appropriate where the federal

statute upon which the state claims were based lacked a private right of action. Id. at 2365. In

doing so, however, the Court emphasized that federal concerns should guide lower courts tasked

with considering whether to shift litigation from state to federal court. The Court stated that

even where the state action discloses a contested and substantial federal question, the lower

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 The state court decisions in CHA v. Belshe and CHA v. DHS held that the 20

percent exclusion methodology violated the Boren Amendment, 42 U.S.C. § 1396a(13)(A),

which has since been repealed by § 4711 of Balanced Budge Act of 1997. In the case at bar,

under 42 U.S.C. § 1396a(30)(A), payments are consistent with efficiency, economy, and

quality of care if they bear a reasonable relationship to provider costs, unless there is some

justification for the rates that do not substantially reimburse providers costs. See

Orthopaedic Hospital v. Belshe, 103 F.3d 1491, 1499 (9th Cir. 1997). To the extent that the

state court found that the 20 percent exclusion methodology was “arbitrary” and bore “no

rational relationship to the efficiency and economy of the facility’s operation,” the state court

has invested time and resources toward the resolution of the issue of whether the same

methodology violates 42 U.S.C. § 1396a(30)(A). Belshe, No. 977772, Judgment dated June

16, 1999 at 12, 18-19.

2

 The Eleventh Amendment analysis is irrelevant because immunity applies to suits

in both state and federal court. Alden v. Maine, 527 U.S. 706, 748 (1999).

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court should be wary to find the claim qualifies for a federal forum if, after careful

consideration, the lower court finds that such a shift would upset the balance between state and

federal courts. Id. at 2367-68.

Here, the Court finds that the balance of factors weighs in favor of remand. First, the

fact that under Ninth Circuit precedent, there is no federal private right of action under the

disputed federal statute, although not determinative, weighs in favor of remand. Second, the

fact that the state court has invested significant time and resources toward the resolution of the

disputed issues at stake in this matter also weighs in favor of remand.1 Lastly, this Court must

construe the removal statute strictly and reject jurisdiction if there is any doubt regarding

whether removal was proper. Duncan, 76 F.3d at 1485. Therefore, although the claims raise an

issue of federal law, the Court finds that, in this case, removal would disturb the sound division

of labor between state and federal courts. Petitioner’s motion to remand is GRANTED.2

C. Petitioner’s Request for Attorneys’ Fees.

Pursuant to 28 U.S.C. § 1447(c), Petitioner seeks an order from the Court requiring

Respondents to pay Petitioner’s costs and expenses, including attorneys’ fees, incurred as a

result of removal of this action. Because Respondents’ removal was not “wrong as a matter of

law,” an award of fees and costs would not be appropriate here. See Balcorta v. Twentieth

Century-Fox Film Corp., 208 F.3d 1102, 1106 n.6 (9th Cir. 2002) (awarding attorneys’ fees

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when “when a defendant’s removal, while ‘fairly supportable,’ was wrong as a matter of law”). 

Therefore, Petitioner’s request for fees and costs is DENIED.

CONCLUSION

For the foregoing reasons, the Court GRANTS Petitioner’s motion to remand and

DENIES Petitioner’s request for costs and fees. The case is remanded to the Superior Court for

County of San Francisco. The Clerk shall close this Court’s file.

IT IS SO ORDERED.

Dated: September 8, 2006 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

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