Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_10-cv-00344/USCOURTS-cand-4_10-cv-00344-1/pdf.json

Nature of Suit Code: 950
Nature of Suit: Constitutionality of State Statutes
Cause of Action: 42:1395 HHS: Adverse Reimbursement Review

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

EVELYN PUTZ, et al.,

Plaintiffs,

 v.

ARNOLD SCHWARZENEGGER, et al.,

Defendants. /

No. 10-00344 CW

ORDER DENYING

PLAINTIFFS’

MOTION FOR A

PRELIMINARY

INJUNCTION AND

GRANTING IN PART

DEFENDANTS’

MOTION TO DISMISS

Plaintiffs, In-Home Supportive Services (IHSS) consumers and

two associations, the California Association of Public Authorities

and the In-Home Supportive Services Consumer Alliance, filed suit

against various state officials seeking to enjoin reductions in the

funding of public authorities. A public authority is a “corporate

governing body” that has “all powers necessary or convenient to

carry out the delivery of in-home supportive services.” Cal. Welf.

& Inst. Code § 12301.6(b)(2)(B). Plaintiffs have filed a motion

for a preliminary injunction. Defendants oppose the motion and

have filed a motion to dismiss some of the causes of action

asserted in Plaintiffs’ complaint. The matter was heard on April

15, 2010. Having heard oral argument and considered all of the

papers filed by the parties, the Court DENIES Plaintiffs’ motion

for a preliminary injunction and GRANTS IN PART Defendants’ motion

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1The Court takes judicial notice of the state and county

records submitted by both Plaintiffs and Defendants.

2

to dismiss.

BACKGROUND1

Under the 1965 federal Medicaid Act, the federal government

financially assists participating states that provide medical

services to eligible beneficiaries. California participates in

Medicaid through the Medi-Cal Program. In 1973, California

established the IHSS program to provide assistance with the tasks

of daily living to low-income elderly and disabled persons. IHSS

is funded with a combination of state, county and federal Medicaid

monies. Cal. Welf. & Inst. Code § 12306. IHSS providers give

services such as assistance with bathing, dressing, cooking,

feeding, bowel and bladder care, self-administration of medication

and cleaning. Id. § 12300(b), (c). Over 360,000 IHSS providers

serve over 440,000 individuals in California. Over sixty-two

percent of IHSS recipients are served by a relative.

To qualify for federal matching funds for care and services, a

state must establish and administer its Medicaid program through a

state plan approved by the federal Secretary of Health and Human

Services. 42 U.S.C. § 1369b(a)(7). The California Department of

Health Care Services (DHCS) is the single state agency designated

to administer California’s state plan under Medi-Cal. The

Department of Health Care Services has delegated authority to the

California Department of Social Services (CDSS) to implement the

IHSS program. 

IHSS is administered by the state’s counties. To provide for

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the delivery of in-home supportive services, counties have the

option of administering the IHSS program themselves, contracting

with a non-profit consortium or establishing, by ordinance, a

public authority for the delivery of in-home supportive services. 

Cal. Welf. & Inst Code § 12301.6(a), (b). This case concerns the

funding of public authorities. 

If a county chooses to administer IHSS through a public

authority, the public authority must carry out the following

specific “functions”: (1) help recipients find IHSS providers by

maintaining a provider registry, (2) conduct background checks on

potential providers, (3) establish a provider referral system and

(4) provide training for providers and recipients. Id.

§ 12306.1(e)(1)-(4). Public authorities must also perform “any

other functions related to the delivery of in-home supportive

services.” Id. § 12306.1(e)(5). However, the work of public

authorities “shall not be limited to those functions.” Id.

§ 12306.1(e).

Public authorities are not the employers of the individual

caregivers who provide IHSS to recipients. Although they are

“deemed” to be the employer of individual providers for purposes of

collective bargaining regarding provider wages and benefits,

recipients retain full authority to hire, fire and supervise the

work of their providers. Id. § 12301.6(c)(1). Also, public

authorities are not the employers of IHSS providers for purposes of

liability for a provider’s negligent or intentional conduct. Id.

§ 12301.6(f)(1). 

Public authorities are funded according to a public authority

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rate. A public authority rate is the hourly rate paid to public

authorities to run a county’s IHSS program. The rate is comprised

of two components: an hourly rate for administrative costs to run

the public authority and an hourly rate for provider wages,

benefits and taxes. The public authority rate must be approved by

the county, CDSS and DHCS before providers and public authorities

will be reimbursed for their work. Each county public authority

has its own public authority rate. 

For instance, on August 1, 2008, San Bernardino was approved

for a public authority rate of $10.54 per hour. This included a

wage of $9.25 per hour for IHSS providers, payroll taxes of $.74

per hour, health benefits of $.38 per hour and administrative costs

of $.17 per hour. Lopez Decl., Exh. 3.

San Bernardino’s administrative costs for fiscal year 2008-

2009 include: salary and benefits for twenty-five employees, leases

for office space and copy machines, maintenance of computers and

software, postage and mailing, office supplies, telephones and cell

phones, workshop and seminar registration fees, travel expenses,

costs to perform background checks on IHSS providers, advertising,

insurance, legal services and funds to pay for emergency back-up

provider services. Id. The budget for San Bernardino’s

administrative costs for 2008-2009 was $3,238,266. Id. The hourly

rate for administrative costs ($.17/hour) was calculated by

dividing the total amount of administrative costs for 2008-2009

($3,238,266) by the total number of projected hours to be worked by

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2Although San Bernardino states that its rate for

administrative costs is $.17 per hour, after dividing the total

administrative costs by the total number of IHSS hours, the Court

calculated the rate to be $.16 per hour. Either San Bernardino

miscalculated the rate or the Court has not accounted for a

rounding error not explained in San Bernardino’s financial report

to the state. 

5

IHSS providers in 2008-2009 (20,129,420).2 DHCS must provide these

hourly rates for administrative costs to Medicaid in order to be

reimbursed. Lopez Decl. ¶ 12. 

Public authorities do not receive payments directly from the

State for their operations. Rather, the counties advance funds to

public authorities and the counties are reimbursed by the State for

the state and federal share of the public authorities’

administrative costs. IHSS providers are paid in a different

manner. Depending on the county, IHSS providers submit their

timesheets to the county or the public authority and the

information on the timesheets is entered into a state-wide payroll

system called the Case Management, Information and Payrolling

System. The State Controller’s Office then pays the IHSS providers

directly. The State seeks reimbursement from the counties and

federal government for their respective shares of the IHSS provider

wages. Public authorities neither receive nor pass-through

payments for the care and services provided by IHSS providers. 

In response to California’s current budget crisis, the

California Legislature passed AB X4 1 on July 23, 2009. AB X4 1

contained a variety of cost cutting measures, including reductions

to various appropriations previously set forth in the Budget Act of

2009, which was signed into law on February 20, 2009. One such

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3Plaintiffs do not rely on their line-item veto claim as a

basis for seeking a preliminary injunction. 

6

cost cutting measure reduced the appropriation for the IHSS

program. At issue in this case is the Legislature’s $4.7 million

reduction for public authorities. Before signing AB X4 1 into law,

the governor used his line item veto power to reduce public

authority funding by an additional $8.6 million. In total, these

reductions resulted in a fifty-seven percent reduction in the money

the State contributed to the operations and services provided by

public authorities. The new law also capped the amount of money

the state general fund can contribute to the operation of public

authorities at $10 million. 

More than seven months after AB X4 1 became law, Plaintiffs

filed this suit. Plaintiffs challenge AB X4 1 on several grounds. 

Plaintiffs assert that the law is preempted by 42 U.S.C

§ 1396a(a)(30)(A) (hereinafter Section 30(A)) because the

Legislature and Governor failed to conduct and consider a

substantive analysis of the effects of AB X4 1 and because the

funding reductions failed to meet the substantive requirements of

Section 30(A). Plaintiffs also argue that AB X4 1 violates the

Americans with Disabilities Act (ADA) and Section 504 of the

Rehabilitation Act because it discriminates against IHSS recipients

on the basis of disability and will lead to their unnecessary

institutionalization. Lastly, Plaintiffs claim that the Governor

abused the line-item veto power granted under Article IV, Section

10 of the California Constitution.3

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DISCUSSION

I. Preliminary Injunction

“A plaintiff seeking a preliminary injunction must establish

that he is likely to succeed on the merits, that he is likely to

suffer irreparable harm in the absence of preliminary relief, that

the balance of equities tips in his favor, and that an injunction

is in the public interest.” Winter v. Natural Res. Def. Council,

Inc., ___ U.S. ___, 129 S. Ct. 365, 374 (2008). “In each case,

courts ‘must balance the competing claims of injury and must

consider the effect on each party of the granting or withholding of

the requested relief.’” Id. at 376 (quoting Amoco Prod. Co. v.

Vill. of Gambell, Alaska, 480 U.S. 531, 542 (1987)). 

A. Likelihood of Success on the Merits 

1. State Sovereignty

Defendants first argue that Plaintiffs’ claims fail because

the remedy they seek impermissibly intrudes upon California’s

sovereign immunity. Under Ex Parte Young, 209 U.S. 123 (1908), the

Eleventh Amendment does not provide immunity to state officials for

claims of equitable relief that would have an ancillary effect on a

state budget. See Suever v. Connell, 579 F.3d 1047, 1060 n.7 (9th

Cir. 2009) (“The scope of the Ex Parte Young exception has since

been limited to claims for prospective equitable relief and state

funds ‘ancillary’ to such relief . . . .”). Defendants assert that

Ex Parte Young does not extend to the type of challenge Plaintiffs

make in this case. The Court disagrees.

 Courts routinely rely on the Ex Parte Young exception to the

Eleventh Amendment to ensure sufficient appropriations to comply

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with the Medicaid Act. See Washington State Health Facilities Ass’n

v. State of Washington Dep’t of Social & Health Servs., 698 F.2d

964, 966 (9th Cir. 1982); Dominguez v. Shwarzenegger, 596 F.3d 1087

(9th Cir. 2010). Here, Plaintiffs seek declaratory and injunctive

relief to compel Defendants to comply with federal laws; Plaintiffs

do not seek retrospective damages. Plaintiffs’ claim for this type

of equitable relief does not violate the Eleventh Amendment. 

Plaintiffs seek a prospective order preventing Defendants from

applying reductions to public authorities in the future. This is

similar to the injunction enjoining the State from decreasing the

wage that it would reimburse IHSS providers which was recently

upheld by the Ninth Circuit in Dominguez. 596 F.3d at 1097.

1. Medicaid Act Claims

Plaintiffs’ first two causes of action allege that Defendants

violated the substantive and procedural requirements of Section

30(A) of the Medicaid Act. To receive federal financial

participation in payment for services that states provide to low

income persons who are aged, blind, disabled or members of families

with dependent children, states must agree to comply with

applicable federal Medicaid law. Orthopaedic Hosp. v. Belshe, 103

F.3d 1491, 1493 (9th Cir. 1997). As noted above, the Medicaid Act

requires a participating state to develop a state plan which

describes the policy and methods to be used to set payment rates

for each type of service included in the program. 42 C.F.R.

§ 447.201(b). Section 30(A) of the Medicaid Act requires, in

relevant part, that a state’s Medicaid plan:

provide such methods and procedures relating to the

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utilization of, and the payment for, care and services

available under the plan . . . as may be necessary . . . to

assure that payments are consistent with efficiency, economy,

and quality of care and are sufficient to enlist enough

providers so that 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.

(Emphasis added). Rather than argue that they have complied with

the requirements of Section 30(A), Defendants argue that these

requirements do not apply to payments to public authorities because

public authorities do not provide any “care and services” to IHSS

recipients. 

Plaintiffs disagree and point to a 1994 letter written by a

Deputy Director of the Department of Health Services, John

Rodriguez. In this letter, Rodriguez noted that, irrespective of

whether IHSS was administered by counties, public authorities or

non-profit consortiums, rate changes are “subject to the provisions

of [Section] 30(A).” Rolfe Decl., Exh. 16. However, Rodriguez’s

statement refers generally to the total public authority rate

methodology, not specifically the administrative cost rate

component of the total public authority rate. Thus, his comment

cannot be read to imply that the public authority’s administrative

costs go toward providing personal “care and services.”

Plaintiffs also argue that, because the state plan “deems” an

IHSS public authority to be a “Medi-Cal provider,” payments to

public authorities are necessarily made for care and services. 

This argument has no merit. The section of the state plan to which

Plaintiffs cite addresses the relationship between public

authorities and individual service providers for purposes of

collective bargaining. It states, “Within the meaning of . . .

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[the sections of] the California Government Code relating to

collective bargaining by employee organizations that include

employees of a public agency, any public authority created pursuant

to this section is deemed to be the employer of persons referred to

recipients to provide personal care services and is also deemed to

be the Medi-Cal provider of record.” Gomez Decl., Exh. 3. By

deeming public authorities the employers of the IHSS providers for

collective bargaining purposes, this provision placed the public

authorities on the opposite site of the bargaining table from the

IHSS providers for purposes of negotiating wages and benefits. 

Thus, this section of the state plan cannot fairly be read to imply

that public authorities provide care and services to IHSS

recipients. Moreover, Plaintiffs’ argument carries even less

weight now that the current version of the state plan contains no

reference to public authorities being “deemed” to be Medi-Cal

providers of record. Gomez Decl., Exh. 4. 

Plaintiffs also emphasize that the state plan discusses public

authority rates in the section entitled, “Payment for Services,”

not the section entitled “Administration.” However, this is not

surprising considering that the total public authority rate

consists primarily of the wages and benefits paid to IHSS

providers. The fact that the total public authority rate also

contains a small portion of administrative costs associated with

providing those services is not inconsistent with placing the

description of the entire public authority rate in the “Payment for

Services” section of the state plan. 

Plaintiffs lastly rely on the manner in which California has

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sought reimbursement for IHSS costs from the federal government

under the Medicaid Act. Under the Act, state expenditures for

“care and services” are subject to a different level of federal

funding than administrative costs. Specifically, expenditures for

“care and services” may receive federal funding at a state’s

Federal Medical Assistance Percentage (FMAP). See 42 U.S.C.

§ 1396b(a)(1); 42 C.F.R. § 433.10. As noted above, FMAP is a

higher reimbursement rate than the federal matching provided for

amounts spent “for the proper and efficient administration of the

State plan,” otherwise called, Federal Financial Participation

(FFP). 42 U.S.C. § 1396b(a)(7); see also 42 C.F.R. § 433.15. 

Prior to 2009, all expenditures associated with the IHSS program,

including expenditures for administering public authorities, were

subject to federal reimbursements at the rate of the state’s FMAP. 

Thus, Plaintiffs argue, because the federal government reimbursed

public authorities as if they provided “care and services,” payment

to them should be subject to the requirements of Section 30(A). 

Plaintiffs’ argument has been called into question in light of

the California Department of Health Care Services’ (DHCS)

interpretation of the recently passed American Recovery and

Reinvestment Act of 2009 (ARRA). Under the ARRA, section 5001,

states may receive an enhanced share of federal funding at a higher

level for expenditures for “medical assistance,” compared to

“administrative” costs. On September 2, 2009, Plaintiffs’ attorney

wrote to the DHCS and asserted that public authority expenditures

should be classified as “medical assistance,” not “administrative.” 

Gomez Decl, Exh. 1. DHCS disagreed and concluded that all public

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authority costs “cannot be appropriately classified as ‘medical

assistance’” for purposes of the ARRA and, therefore, those costs

are ineligible for funding at the higher reimbursement rate. Id.,

Exh. 3. The Department relied on the following three facts in

rendering its conclusion: “(1) PA employees do not provide any

direct services to beneficiaries whatsoever, even case management

services; (2) the PA is not considered to be the actual employer of

the individual IHSS providers for purposes outside of the

collective bargaining setting; and (3) the PA does not directly pay

the wages of the IHSS providers.” Id. at 3. Therefore, DHCS found

that all public authority expenses are “necessarily administrative

in nature.” Id. 

Although the Court is not bound by the DHCS’s interpretation

of a federal statute, see Orthopaedic Hospital, 103 F.3d at 1495

(“We review de novo a state agency’s interpretation of a federal

statute.”), its analysis of the ARRA’s application to the funding

of public authorities is instructive. Plaintiffs do not dispute

the three facts underlying the DHCS’s conclusion. Public

authorities do not provide any direct services to IHSS recipients;

they do not employe IHSS providers; and they do not directly pay

the wages of IHSS providers. However, Plaintiffs argue that the

administrative work of public authorities is so integral to the

proper functioning of delivery of services to IHSS recipients that

it should be considered “care and services,” and subject to Section

30(A).

The Court concludes that, although most of the work performed

by public authorities is purely administrative in nature,

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Plaintiffs have submitted evidence that at least some of the work

performed by public authorities provides for the care and services

of IHSS recipients. For instance, the public authorities in San

Francisco, San Bernardino and Tulare Counties provide IHSS

recipients with emergency replacement services from employed home

care workers in the event that a recipient’s regularly scheduled

provider is unable to provide services on any given day. Calame

Supp. Decl. ¶¶ 3-5, Lopez Supp. Decl. ¶¶ 10-11, Tarvin Decl. ¶ 4. 

These emergency on-call services prevent unnecessary and more

costly public expenses through 9-1-1 calls and emergency room

visits. Moreover, Plaintiffs have shown that public authorities

train IHSS providers in various care-related skills, such as

properly lifting an individual out of bed or bath, properly

ambulating a bed-ridden individual and changing bandages. Calame

Supp. Decl. ¶ 8, Lopez Supp. Decl. ¶ 10, Tarvin Decl. ¶ 3. 

Thus, although public authorities do not directly care for

IHSS recipients in the same way that IHSS providers do, Plaintiffs

have submitted evidence that public authorities provide integral

services that directly impact the care IHSS recipients receive. 

Accordingly, Plaintiffs have shown at least some likelihood of

success on the merits of their Medicaid claims. 

2. Americans with Disabilities Act and Rehabilitation

Act Claims

The Americans with Disabilities Act (ADA) and the

Rehabilitation Act prohibit discrimination based on disability. 42

U.S.C. § 12132; 29 U.S.C. § 794(a). Unnecessary isolation is a

form of discrimination against people with disabilities. As the

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Supreme Court has explained, “[u]njustified isolation of the

disabled” amounts to discrimination because institutional placement

“perpetuates unwarranted assumptions that persons so isolated are

incapable or unworthy of participating in community life” and

“severely diminishes everyday life activities of individuals,

including family relations, social contacts, work options, economic

independence, educational advancement, and cultural enrichment.” 

Olmstead v. L.C. ex rel. Zimring, 527 U.S. 581, 597, 60-61 (1999). 

Thus, both the ADA and the Rehabilitation Act contain an

“integration mandate” which “serves one of the principal purposes

of Title II of the ADA: ending the isolation and segregation of

disabled persons.” Arc of Washington State v. Braddock, 427 F.3d

615, 618 (9th Cir. 2005). States are required to provide care in

integrated environments for as many disabled persons as is

reasonably feasible, so long as such an environment is appropriate

to their health needs. Specifically, the ADA regulations provide:

“A public entity shall administer services, programs, and

activities in the most integrated setting appropriate to the needs

of qualified persons with disabilities.” 28 C.F.R. § 35.130(d). 

“The ‘most integrated setting’ is defined as ‘a setting that

enables individuals with disabilities to interact with non-disabled

persons to the fullest extent possible.’” Brantley, 2009 WL

2941519, at *6 (citing 28 C.F.R. pt. 35 app. A; Olmstead, 527 U.S.

at 592). 

Plaintiffs allege that AB X4 1 violates the “integration

mandate” of the ADA and the Rehabilitation Act by placing people in

serious risk of being forced to move out of their homes to the less

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integrated setting of institutions. Although Olmstead addressed

ongoing institutionalization, persons who currently reside in

community settings may assert ADA integration claims to challenge

state actions that give rise to a risk of unnecessary

institutionalization. See Fisher v. Oklahoma Health Care Auth.,

335 F.3d 1175, 1181-82 (10th Cir. 2003) (imposition of cap on

prescription medications placed participants in community-based

program at high risk for premature entry into nursing homes in

violation of ADA); Ball v. Rogers, 2009 WL 1395423, at *5 (D.

Ariz.) (failure to provide them with needed services “threatened

Plaintiffs with institutionalization, prevented them from leaving

institutions, and in some instances forced them into institutions

in order to receive their necessary care” in violation of the ADA

and Rehabilitation Act); Mental Disability Law Clinic v. Hogan,

2008 WL 4104460, at *15 (E.D.N.Y.) (“even the risk of unjustified

segregation may be sufficient under Olmstead”).

AB X4 1 was implemented on October 1, 2009, more than six

months ago, and the individual Plaintiffs have not asserted that,

in that time, they have been threatened with institutionalization

because of decreased funding for public authorities. Neither have

Plaintiffs identified any particular future threat of

institutionalization. Although funding cuts to public authorities

may affect IHSS recipients’ ability to find qualified providers,

Plaintiffs have not supported this assertion with persuasive

evidence. At most, Plaintiffs have presented declarations from

IHSS recipients who describe their fears of institutionalization if

public authorities were no longer able to provide any assistance. 

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However, Plaintiffs’ evidence does not suggest that the present

budget cuts have threatened the very existence of public

authorities. Accordingly, Plaintiffs have not shown a likelihood

of success on their ADA and Rehabilitation Act claims. 

B. Irreparable Harm, Balance of Hardships and the Public

Interest

Plaintiffs must show that they are likely “to suffer

irreparable harm in the absence of preliminary relief.” Winter,

129 S. Ct. 374. Because injunctive relief is an “extraordinary

remedy,” the Court will not issue a preliminary injunction “based

only on a possibility of irreparable harm.” Id. at 375-76. Here,

Plaintiffs’ evidence does not establish that they are likely to

suffer irreparable harm absent an injunction while this action

proceeds to a judgment on the merits. 

As noted above, AB X4 1 was signed into law on July 28, 2009

and the State issued its allocations of funding to public

authorities under the new law on October 1, 2009; however,

Plaintiffs did not seek a preliminary injunction until February 24,

2010. “Plaintiff’s long delay before seeking a preliminary

injunction implies a lack of urgency and irreparable harm.” 

Oakland Tribune, Inc. v. Chronicle Pub. Co., Inc., 762 F.2d 1374,

1377 (9th Cir. 1985). By now, Plaintiffs have lived with reduced

funding for public authorities for over one-half of a year, but

have not produced evidence of any specific injuries they have

suffered as a result of AB X4 1. 

The balance of hardships and the public interest does not

clearly weigh in either side’s favor. If the preliminary

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injunction issues, the State Defendants’ sole injury will be the

financial costs associated with continuing to provide services

under the status quo. The Court weighs California’s budget crisis

in the balance. However, “[a] budget crisis does not excuse

ongoing violations of federal law, particularly when there are no

adequate remedies available other than an injunction.” Independent

Living Ctr., 572 F.3d at 659. Although budget cuts to the public

authorities makes administering IHSS more difficult, Plaintiffs

have not demonstrated that AB X4 1 has harmed IHSS recipients in

any significant and immediate manner. Therefore, the public does

not have a strong interest in enjoining the law. 

In sum, Plaintiffs have not demonstrated a strong likelihood

of success on the merits of their Section 30(A), ADA and

Rehabilitation Act claims. Moreover, Plaintiffs have not shown

that, absent a preliminary injunction, they are likely to suffer

irreparable harm. Further, neither the balance of hardships nor

the public interest demand an issuance of an injunction. 

Accordingly, the Court denies Plaintiffs’ motion for a preliminary

injunction. 

II. Motion to Dismiss for Failing to State a Claim

A complaint must contain a “short and plain statement of the

claim showing that the pleader is entitled to relief.” Fed. R.

Civ. P. 8(a). When considering a motion to dismiss under Rule

12(b)(6) for failure to state a claim, dismissal is appropriate

only when the complaint does not give the defendant fair notice of

a legally cognizable claim and the grounds on which it rests. 

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). In

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considering whether the complaint is sufficient to state a claim,

the court will take all material allegations as true and construe

them in the light most favorable to the plaintiff. NL Indus., Inc.

v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). However, this

principle is inapplicable to legal conclusions; "threadbare

recitals of the elements of a cause of action, supported by mere

conclusory statements," are not taken as true. Ashcroft v. Iqbal,

___ U.S. ___, 129 S. Ct. 1937, 1949-50 (2009) (citing Twombly, 550

U.S. at 555). 

Defendants move to dismiss Plaintiffs’ first, second and fifth

causes of action. Plaintiffs’ first and second causes of action

concern claims under the procedural and substantive requirements of

Section 30(A) of the Medicaid Act. Although the Court denied

Plaintiffs’ motion for a preliminary injunction based on these

claims, the Court notes that, as plead, they state proper claims

for relief. Accordingly, the Court will allow the first and second

causes of action to proceed beyond the pleadings stage and into

discovery. 

Plaintiffs’ fifth cause of action asserts that Governor

Schwarzenegger exceeded the line-item veto authority granted to him

under Article IV, Section 10(e) of the California Constitution. 

Plaintiffs seek an injunction against implementation of the

Governor’s reductions to public authority funding for fiscal year

2009-2010 and a declaratory judgment that his line-item veto

reducing public authority funding violates the California

Constitution and is thus null and void. 

The Eleventh Amendment bars claims in federal court that

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allege that state officials acting in their official capacities

violated state law. Pennhurst State School & Hospital v.

Halderman, 465 U.S. 89, 117 (1984) (“A federal suit against a state

official on the basis of state law contravenes the Eleventh

Amendment when -- as here -- the relief sought and ordered has an

impact directly on the State itself.”). Plaintiffs claim that the

Eleventh Amendment does not bar this claim because the Governor was

acting “ultra vires” when he exercised his line-item veto power to

further reduce funding for public authorities. However, it is

irrelevent whether the Governor acted “ultra vires.” Because

Plaintiffs seek to sue the Governor based on an alleged violation

of state law, any relief a federal court could provide would not

“vindicate the supreme authority of federal law.” Id. at 105

(“[I]t is difficult to think of a greater intrusion on state

sovereignty than when a federal court instructs state officials on

how to conform their conduct to state law. Such a result conflicts

directly with the principles of federalism that underlie the

Eleventh Amendment.”). Therefore, no exception to the application

of the Eleventh Amendment applies. Accordingly, the Court grants

Defendants’ motion to dismiss Plaintiffs’ fifth cause of action.

III. Standing

Article III limits the jurisdiction of the federal courts to

“cases” and “controversies.” In order to satisfy the “case or

controversy” requirement, a plaintiff must show that: “(1) he or

she has suffered an injury in fact that is concrete and

particularized, and actual or imminent; (2) the injury is fairly

traceable to the challenged conduct; and (3) the injury is likely

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to be redressed by a favorable court decision.” Salmon Spawning &

Recovery Alliance v. Gutierrez, 545 F.3d 1220, 1225 (9th Cir.

2008). “Article III standing requires an injury that is actual or

imminent, not conjectural or hypothetical.” Cole v. Oroville Union

High Sch. Dist., 228 F.3d 1092, 1100 (9th Cir. 2000) (internal

quotation marks omitted). 

An entity has associational standing where “(a) its members

would otherwise have standing to sue in their own right; (b) the

interests it seeks to protect are germane to the organization’s

purpose; and (c) neither the claim asserted nor the relief

requested requires the participation of individual members in the

lawsuit.” Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333,

343 (1977). 

Defendants argue that Plaintiff California Association of

Public Authorities does not have standing because it cannot meet

the first element of Hunt. Defendants assert that, because public

authorities are “political subdivisions of a state,” they “may not

challenge the validity of a state statute in a federal court on

federal constitutional grounds.” Palomar Pomerado Health System v.

Belshe, 180 F.3d 1104, 1107 (9th Cir. 1999) (internal quotation

marks and citation omitted). In Palomar, the Ninth Circuit

concluded that Palomar Pomerado Health System, a health care

district, was a political subdivision of California because it was

a “public corporation formed under California law,” and the State

granted it “limited governmental functions within a particular

area of the state.” Id. at 1107. For example, Palomar Pomerado

possessed the power to levy taxes, issue bonds and the power of

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eminent domain. Id. 

Similar to the hospital district in Palomar, a public

authority is authorized pursuant to state law as a “corporate

public body, exercising public and essential governmental

functions” within a particular county. Cal. Welf. & Inst. Code

§ 12301.6(b)(2)(B). However, public authorities do not exercise

any governmental functions similar in scale to those excercised by

the hospital district in Palomar. Public authorities do not levy

taxes, issue bonds or have the power of eminent domain. Rather,

public authorities are established for the sole and limited purpose

of “provid[ing] for the delivery of in-home supportive services.” 

Id. § 12301.6(a)(2). Their delineated powers consist of the powers

to contract for services and to pay for such services. These

powers are much more limited than those of the health care district

in Palomar. Therefore, public authorities are not political

subdivisions for purposes of standing. Accordingly, Defendants’

challenge to Plaintiffs’ standing fails. 

CONCLUSION

For the foregoing reasons, the Court denies Plaintiffs’ motion

for a preliminary injunction (Docket No. 10) and grants in part

Defendants’ motion to dismiss (Docket No. 11). Plaintiffs fifth

cause of action for violation of the California Constitution is

dismissed with prejudice because amendment would be futile. 

IT IS SO ORDERED.

Dated: 05/05/10 

CLAUDIA WILKEN

United States District Judge

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