Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-00435/USCOURTS-caed-2_06-cv-00435-2/pdf.json

Nature of Suit Code: 444
Nature of Suit: Civil Rights Welfare
Cause of Action: 42:1983 Civil Rights Act

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

INDEPENDENT LIVING CENTER OF No. 2:06-cv-0435-MCE-KJM

SOUTHERN CALIFORNIA, INC., a 

nonprofit California 

corporation; MARGARET DOWLING, 

NATHAN THORNTON, SYLVIA HEDBIG, 

LINDA BLOCK, HECTOR REYES, 

MICHAEL FERONA, HOMA KARIMZAD, 

and BLANE BECKWORTH,

Plaintiffs,

v. MEMORANDUM AND ORDER

MICHAEL LEAVITT, Secretary of

U.S. Department of Health and

Human Services; SANDRA SHEWRY,

Director of California

Department of Health Services;

and STEVE WESTLY, Controller

of the State of California,

Defendants.

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Plaintiffs include the Independent Living Center of 1

Southern California, Inc. (“ILC”), an independent living center

established under the auspices of California Welfare and

Institutions Code § 19801 to provide services to disabled

persons, as well as eight individuals who qualify as dual

eligibles and who claim to have been impacted by implementation

of the MMA. 

All further references to “Rule” or “Rules” are to the 2

Federal Rules of Civil Procedure unless otherwise noted.

Defendants Shewry and Westly will be collectively referred 3

to as “State Defendants” throughout the remainder of this

Memorandum and Order.

2

Through the present action, Plaintiffs seek to enjoin 1

implementation of the Medicare Prescription Drug, Modernization

and Improvement Act of 2003, 42 U.S.C. § 1395w-101, et seq.

(“MMA”) to the extent that changes in prescription drug coverage

available to individuals who are both eligible for benefits under

Medicare and Medicaid (so-called “dual eligibles”) are

unconstitutional. Defendant Sandra Shewry, Director of the

California Department of Health Services, now moves to dismiss

Plaintiffs’ claims pertaining to the State of California,

pursuant to Federal Rule of Civil Procedure 12(b)(1), on grounds 2

that this Court lacks subject matter jurisdiction over such

claims. Alternatively, Defendant Shewry requests that

Plaintiffs’ claims be dismissed for failure to state a claim upon

which relief can be granted under Rule 12(b)(6). Defendant Steve

Westly, Controller of the State of California, has joined in

Defendant Shewry’s Motion. For the reasons set forth below, the 3

State Defendants’ Motion will be granted on jurisdictional

grounds. 

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3

BACKGROUND

Title XVIII of the Social Security Act, commonly known as

the Medicare Act, establishes a program of federally subsidized

health insurance for the elderly and disabled. 42 U.S.C. §§

1395, et seq. Coverage available under Medicare includes

hospital inpatient and related care (Part A), supplemental

coverage for outpatient services (Part B), and a managed-care

alternative to Part B (known as Part C). Through enactment of

the MMA, Congress provided Medicare coverage for drugs. Part D

became effective on January 1, 2006.

Another portion of the Social Security Act, Title XIX,

establishes a separate federal-state program providing medical

assistance for categorically low-income persons. 42 U.S.C. §§

1396, et seq. This coverage, known as Medicaid, or MediCal in

California, is administered by the states and funded in part

through federal aid so long as each state’s program complies with

applicable Medicaid laws and regulations. See Alexander v.

Choate, 469 U.S. 287, 289 n.l (1985). California’s MediCal

program is administered by the California Department of Health

Services.

So-called “dual eligibles” qualify for both Medicare and

Medicaid benefits. For those individuals, Medicare generally

pays first and Medicaid provides protection for services not

covered under Medicare. Prior to enactment of the MMA, Medicaid

paid for dual eligibles’ prescription drugs. 

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4

In addition to receiving a fifty percent contribution from the

federal government for benefits provided under Medicaid,

including prescription drugs, the Medicaid Act also required

pharmaceutical companies to make substantial rebate payments in

return for dispensing their products under Medicaid.

Exclusive provision of prescription drugs through Medicaid

has changed with the advent of the MMA. Under Part D, Medicare

becomes the primary payer for dual eligibles as to all drugs

covered under Medicare. The Medicaid Act was consequently

amended to provide that Medicaid is not available for such drugs. 

42 U.S.C. § 1396u-5(d)(1). The State of California similarly

enacted Welfare and Institutions Code § 14133.23, which

eliminated the provision of drug benefits under MediCal to dualeligible beneficiaries that would otherwise now be covered under

Medicare, Part D.

In order to ease transition difficulties between drug

payment under MediCare and reassignment of dual eligibles to

coverage under Medicare Part D, the California Legislature

enacted legislation on an emergency basis to pay for Part D

drugs. California Welfare and Institutions Code § 14133.23(f). 

That emergency legislation was subsequently extended until May

16, 2006. 

Plaintiffs name the State Defendants in this litigation in

an attempt to compel California to continue payment for

prescription drug coverage to dual eligibles under its MediCal

program. 

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5

Plaintiffs contend that transfer of dual eligibles’ prescription

drug coverage to Medicare has created a “dire situation” rife

with the potential for damage to dual eligibles’ health if needed

medications cannot be obtained. Plaintiffs also contend that

formularies assigned by Medicare are less comprehensive than the

drug benefits formerly available under MediCal. 

STANDARD

In moving to dismiss for lack of subject matter jurisdiction

pursuant to Rule 12 (b)(1), the challenging party may either make

a “facial attack” on the allegations of jurisdiction contained in

the complaint or can instead take issue with subject matter

jurisdiction on a factual basis (“factual attack”). Thornhill

Publ’n Co. v. Gen. Tel. & Elect. Corp., 594 F.2d 730, 733 (9th

Cir. 1979); Mortensen v. First Fed. Sav. & Loan Ass’n, 549 F.2d

884, 891 (3d Cir. 1977). If the motion constitutes a facial

attack, the Court must consider the factual allegations of the

complaint to be true. Williamson v. Tucker, 645 F.2d 404, 412

(5 Cir. 1981); Mortensen, 549 F.2d at 891. If the motion th

constitutes a factual attack, however, “no presumptive

truthfulness attaches to plaintiff’s allegations, and the

existence of disputed material facts will not preclude the trial

court from evaluating for itself the merits of jurisdictional

claims.” Thornhill, 594 F.2d at 733 (quoting Mortensen, 549 F.2d

at 891).

If the Court grants a motion to dismiss a complaint, it must

then decide whether to grant leave to amend. 

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6

Generally, leave to amend should be denied only if it is clear

that the deficiencies of the complaint cannot be cured by

amendment. Broughton v. Cutter Labs., 622 F.2d 458, 460 (9th

Cir. 1980).

ANALYSIS

The State Defendants argue that Plaintiffs’ lawsuit against

them must fail under the Eleventh Amendment because Plaintiffs in

effect seek damages against the State of California, in the form

of continued payment for prescription drugs under MediCal,

despite the advent of prescription benefits under Medicare Part D

as provided by the MMA. The Court agrees with the State

Defendants’ position.

The Eleventh Amendments bars federal courts for exercising

jurisdiction over a suit brought against a state in federal court

by its own citizens. A state is immune from such an action. 

Papasan v. Allain, 478 U.S. 265, 276 (1986). In addition, naming

state officials rather than the state itself, as Plaintiffs have

done here by designating Sandra Shewry and Steve Westly as

Defendants, does not save a lawsuit from the bar imposed by the

Eleventh Amendment if the state is deemed the real party in

interest. Idaho v. Coeur d’Alene Tribe, 521 U.S. 261, 277-78

(1997). Where a lawsuit seeks relief that must be paid by the

state treasury, the state is deemed the real party in interest

even though individual officials are denominated as nominal

defendants. Ford Motor Co. v. Dep’t of Treasury, 323 U.S. 459,

464 (1945).

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7

As indicated above, the State Defendants argue that this

lawsuit effectively seeks monetary relief because Plaintiff seek

reversion to the previous system under which dual eligibles

received prescription drugs under MediCal, a program funded in

part by state dollars. They point out that Plaintiffs seek an

injunction ordering “the Director... [to] pay and Dual Eligible

prescription,” (Compl., 43:17-21), as well as ordering “the

Director... [to] receive, accept, process, and treat all

prescription drug claims of non-enrolled Dual Eligibles as being

prescriptions required to be paid in the Medi-Cal program and not

under any Medicare program.” (Compl., 44:14-17). 

Any such payments would constitute damages against the State

of California prohibited under the Eleventh Amendment. Those

damages would unquestionably impact the state treasury, and could

have an even more pronounced result than the previously

administered MediCal system for two reasons. First, with the

dismantling of the Medicaid drug reimbursement system, the State

argues that rebates previously required from pharmaceutical

companies might no longer available. Secondly, if California

were to pay for dual eligible provisions in contravention of Part

D Medicare, it might no longer be entitled to the matching

federal funds it had previously received under the old system. 

Both these factors could well make exclusive state payment for

prescriptions considerably more expensive.

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Plaintiffs in fact have offered no substantive opposition 4

to the State Defendants’ Motion to Dismiss. Procedurally, they

contend that both the State’s Motion to Dismiss, and a

corresponding motion filed on behalf of the Federal Defendant,

should be stayed pending the Ninth Circuit’s consideration of

Plaintiffs’ appeal from this Court’s denial of Plaintiffs’ Motion

for Preliminary Judgment on May 19, 2006. That position is

wrong, however, since an appeal from a preliminary injunction

does not deprive a district court of jurisdiction. See Moltan

Co. v. Eagle-Picher Indus., Inc., 55 F.3d 1171, 1174 (6 Cir. th

1995) (district court may proceed with action on the merits where

order denying preliminary injunction appealed). Otherwise,

Plaintiffs state only that they oppose both Motions “upon each of

the grounds which are set forth in the Plaintiffs’ Memorandum in

Support of First Amended Motion for Preliminary Injunction, filed

April 2, 2006.” (Opp’n, 2:15-17). That Memorandum, however,

does not include any discussion of the State Defendants’ claim

for immunity under the Eleventh Amendment as posited by the

Motion presently before the Court. 

8

Plaintiffs cannot avoid the import of these concerns by

arguing that this case falls within the limited exception to 4

Eleventh Amendment preclusion established by Ex Parte Young, 209

U.S. 123 (1908). In that case, suit against a state was

permitted where only prospective equitable relief was sought as

opposed to any form of money damages or other legal relief. 

Plaintiffs here argue that the relief requested is prospective

and equitable only despite the obvious fiscal impact as well as

the fact that individual Plaintiffs would appear to seek the

equivalent of money damages in the form of co-pay recoupment.

In determining whether the Ex Parte Young exception applies,

courts should look to the substance rather than the form of the

relief sought. Papasan, 478 U.S. at 278-79. As the State points

out, the primary purpose driving this lawsuit is State payment

for prescription drugs. That goes beyond mere equitable relief,

as does the Plaintiffs’ demand that no co-payments be required.

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It should also be noted that even aside from Eleventh 5

Amendment concerns, granting the relief sought by Plaintiffs

would amount to a mandate that the State of California reinstate

MediCal coverage to dual eligibles when it has already, in the

wake of MMA, enacted legislation withdrawing such coverage. See

California Welfare and Institutions Code § 14133.23(a) and

(b)(1). This Court cannot issue a mandate to compel fiscal

appropriations; only the state legislature can authorize such

expenditures. Hopkins v. Saunders, 93 F.3d 522, 527 (8th Cir.

1996).

9

If any doubt remained as to the propriety of maintaining

this action under Ex Parte Young on the basis of the relief

sought, that doubt is put to rest by the additional requirement

of the Young doctrine that “the underlying authorization upon

which the named official acts is asserted to be illegal.” Id. at

277. Here there can be no doubt that the Director acted legally

in coordinating California’s MediCal system with the changes

authorized by Congress in enacting Medicare’s new Part D

provision for providing prescription drugs. Plaintiffs cannot

dispute this, and consequently Plaintiffs’ claims against the

State of California fail.5

CONCLUSION

As set forth above, the Eleventh Amendment precludes this

Court from exercising jurisdiction over Plaintiffs’ claims

against the State Defendants in this matter. 

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Because oral argument will not be of material assistance, 6

the Court orders this matter submitted on the briefing. E.D.

Cal. Local Rule 78-230(h).

Given the Court’s determination that Plaintiffs are 7

jurisdictionally barred from proceeding against the State

Defendants, it need not address alternative contentions advanced

by said Defendants that Plaintiffs’ Complaint also fails to state

a claim upon which relief can be granted under Rule 12(b)(6).

10

The State Defendants’ Motion to Dismiss is accordingly GRANTED6

under Rule 12(b)(1). No leave to amend will be permitted 7

inasmuch as the Court does not believe the jurisdictional defects

implicit in Plaintiffs’ claims against the State Defendants can

be rectified through amendment of its Complaint.

IT IS SO ORDERED.

DATED: June 28, 2006

_____________________________

MORRISON C. ENGLAND, JR

UNITED STATES DISTRICT JUDGE

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