Court Opinion

ID: 3064582
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:25:42.886805+00
Date Added: 2024-06-11T11:41:23.113975
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

CALIFORNIA PHARMACISTS                  
ASSOCIATION; CALIFORNIA MEDICAL
ASSOCIATION; CALIFORNIA DENTAL
ASSOCIATION; CALIFORNIA
ASSOCIATION FOR ADULT DAY
SERVICES; MARIN APOTHECARY, INC.
DBA Ross Valley Pharmacy;
SOUTH SACRAMENTO PHARMACY;
FARMACIA REMEDIES, INC.; ACACIA
ADULT DAY SERVICES; FEY GARCIA;               No. 09-55365
CHARLES GALLAGHER,                              D.C. No.
                        Plaintiffs,         2:09-cv-722-CAS-
               and
                                                 MAN
                                            Central District of
CALIFORNIA HOSPITAL ASSOCIATION;
                                                California,
SHARP MEMORIAL HOSPITAL;
                                               Los Angeles
GROSSMONT HOSPITAL CORPORATION;
SHARP CHULA VISTA MEDICAL                        ORDER
CENTER; SHARP CORONADO
HOSPITAL AND HEALTHCARE CENTER,
               Plaintiffs-Appellants,
                 v.
DAVID MAXWELL-JOLLY, Director of
the Department of Health Care
Services, State of California,
                Defendant-Appellee.
                                        
                     Filed April 6, 2009

                             4215
4216         CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY
       Before: Stephen Reinhardt, Marsha S. Berzon, and
              Milan D. Smith, Jr., Circuit Judges.

                                 ORDER

   Plaintiffs-Appellants, the California Pharmacists Associa-
tion, et al., filed this suit to challenge the Medi-Cal reimburse-
ment rate reductions to various providers as set forth in AB
1183. A group of the plaintiffs, the Hospital Plaintiffs, which
comprises the California Hospital Association and some indi-
vidual hospitals, filed a motion in the district court for a pre-
liminary injunction to enjoin the defendant from reducing
Medi-Cal fee-for-service rates to hospitals,1 arguing that AB
1183 was enacted in violation of § 1396a(a)(30)(A) of Title
XIX of the Social Security Act, 42 U.S.C. § 1396 et seq.
(§ (a)(30)(A)). The district court denied the preliminary
injunction. The Hospital Plaintiffs filed an Emergency Motion
Pursuant to Circuit Rule 27-3 for Preliminary Injunction
Pending Appeal.

   We review the denial of a preliminary injunction for abuse
of discretion. Earth Island Inst. v. U.S. Forest Serv., 442 F.3d
1147, 1156 (9th Cir. 2006). A district court abuses its discre-
tion in denying a request for a preliminary injunction if it
“base[s] its decision on an erroneous legal standard or clearly
erroneous findings of fact.” Id. (citation omitted). It also does
so if in reaching its decision it makes a material error of law.
We review conclusions of law de novo and findings of fact
for clear error. Id.

  Plaintiffs seeking a preliminary injunction in a case in
which the public interest is involved must establish that they
  1
    Specifically, the Hospital Plaintiffs sought to enjoin the rate reductions
as to four types of services: (1) inpatient services for non-contract hospi-
tals, (2) outpatient services, (3) Distinct Part Nursing Facilities, and (4)
subacute services.
           CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY           4217
are likely to succeed on the merits, that they are likely to suf-
fer irreparable harm in the absence of preliminary relief, that
the balance of equities tips in their favor, and that an injunc-
tion is in the public interest. Winter v. Natural Res. Def.
Council, Inc., 129 S. Ct. 365, 376 (2008). When deciding
whether to issue a stay, including a stay of a state action that
the district court has declined to enjoin, we consider: (1)
whether the stay applicant has made a strong showing that he
is likely to succeed on the merits; (2) whether the applicant
will be irreparably injured absent a stay; (3) whether issuance
of the stay will substantially injure the other parties interested
in the proceeding; and (4) where the public interest lies. See
Humane Soc’y of U.S. v. Gutierrez, 527 F.3d 788, 789-90 (9th
Cir. 2008).

   In this case, the district court found that the Hospital Plain-
tiffs were likely to succeed on the merits, but that they failed
to demonstrate irreparable harm. We address these issues in
turn, and, in view of the time-urgency and the irreparability
of the harm, also consider the other Winter factors which nec-
essarily follow.

I.   Likelihood of Success on the Merits

   In Orthopaedic Hospital v. Belshe, 103 F.3d 1491 (9th Cir.
1997), we held that 42 U.S.C. § 1396a(a)(30)(A) requires the
state to consider efficiency, economy, quality of care, and
access before setting Medi-Cal reimbursement rates. Id. at
1496. The district court concluded that the Hospital Plaintiffs
have shown a likelihood of success on the merits under
Orthopaedic because the Legislature did not consider any
such factors before passing the rate cuts in AB 1183. The
court ruled that although the Department of Health Care Ser-
vices (the Department) had performed some studies after AB
1183’s passage, those post-hoc studies failed to meet the
requirements of Orthopaedic, 103 F.3d at 1496. It noted that
AB 1183 gives the Department no discretion to alter the rate
cuts based on the Department’s own analysis, and, therefore,
4218       CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY
the cuts were not “based on” the Department’s consideration
of the relevant factors, but instead constituted a post-hoc
rationalization for a legislative decision that had already been
made. Cal. Pharmacists Ass’n v. Jolly, No. 09-722, slip op. at
9-11 (C.D. Cal. Mar. 9, 2009). Moreover, the district court
determined that, although the state Legislative Analyst Office
issued a report analyzing the proposed cuts, there was no evi-
dence the legislature actually considered the report before
enacting AB 1183. Id. at 10 n.8.

   We conclude that the district court did not abuse its discre-
tion in concluding that the Hospital Plaintiffs demonstrated a
likelihood of success on the merits. Indeed, the Hospital
Plaintiffs made a strong showing of such likelihood.

II.    Irreparable Harm

   The Hospital Plaintiffs must also show a likelihood of
irreparable harm. See Winter, 129 S.Ct. at 375.

  A.    Harm

   We first address the type of harm we may consider in the
irreparable harm analysis. The Department argues that only
harm to Medi-Cal beneficiaries is relevant to this motion,
while the Hospital Plaintiffs assert that harm to Medi-Cal ser-
vice providers is also relevant, and that they need show only
the latter type of harm, in this case harm to themselves or
their members, in order to obtain injunctive relief. The Hospi-
tal Plaintiffs further claim that they or their members will lose
considerable revenue between the effective date of AB 1183
and the date their claims can be reviewed on the merits if
injunctive relief is denied.

   We agree with the Hospital Plaintiffs. In Independent Liv-
ing Center v. Shewry (ILC), we held that “a plaintiff seeking
injunctive relief under the Supremacy Clause on the basis of
federal preemption need not assert a federally created ‘right,’
           CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY           4219
in the sense that term has recently been used in suits brought
under § 1983, but need only satisfy traditional standing
requirements.” 543 F.3d 1050, 1058 (9th Cir. 2008). We
rejected the contention that federal statutes enacted pursuant
to Congress’s spending power, such as the one here at issue,
are excluded from this principle, id. at 1059-62, and con-
cluded that the health care providers in that case (which at
that point did not include hospitals) had standing because:

    [A]ccording to their complaint, [they] will be “di-
    rectly injured, by loss of gross income,” when the
    ten-percent rate reduction takes effect. The Supreme
    Court “repeatedly has recognized that such [direct
    economic] injuries establish the threshold require-
    ments” of Article III standing. . . . Moreover, this
    injury is directly traceable to the Director’s imple-
    mentation of AB 5 [the statute at issue in that case],
    and would certainly be redressed by a favorable
    decision of this court enjoining the ten-percent rate
    reduction.

Id. at 1065. Notably, ILC did not indicate that the service pro-
viders had standing to assert the interests of the beneficiary
plaintiffs as third parties, as, for example, the medical service
providers do in cases concerning the constitutional rights of
patients. See, e.g., Eisenstadt v. Baird, 405 U.S. 438 (1972).
A cause of action based on the Supremacy Clause obviates the
need for reliance on third-party rights because the cause of
action is one to enforce the proper constitutional structural
relationship between the state and federal governments and
therefore is not rights-based. In contrast, a case brought to
enforce the Due Process or Equal Protection Clauses is rights
based, and requires that the rights of someone be advanced,
even if not the rights of the plaintiffs who have been injured.

  Consistent with this understanding, in the various prece-
dents cited throughout the ILC opinion in which plaintiffs
brought cases directly under the Supremacy Clause, the inter-
4220      CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY
ests asserted were basically economic, and there was no
inquiry into whether the plaintiffs asserting the economic
injury were in any sense intended beneficiaries of the federal
statute on which the Supremacy Clause cause of action was
premised. For example, in Bud Antle, Inc. v. Barbosa, one of
the cases upon which we relied in ILC, we held that employ-
ers could sue to enjoin a California statute as preempted by
the National Labor Relations Act (NLRA) “regardless of
whether the NLRA conferred a federal ‘right’ on employers.”
45 F.3d 1261, 1271 n.13 (9th Cir. 1994). It was for that very
reason that we concluded the § 1983 cases were inapposite,
and that Sanchez v. Johnson, 416 F.3d 1051 (9th Cir. 2005),
did not preclude the plaintiffs’ suit. Essentially, the line of
cases on which we relied held that private parties could
enforce the structural relationship between the federal and
state governments so long as they had Article III standing as,
essentially, private enforcers of the Supremacy Clause; the
specific relationship of those parties to the federal statute on
which the Supremacy Clause cause of action is premised does
not matter.

   Given these underpinnings of ILC, there is little basis on
which to import an “intended beneficiary” concept back into
the case for purposes of determining irreparable injury.
Applying this determination to the present motion, it is clear
that AB 1183 harms the Hospital Plaintiffs and their members
through reductions in Medi-Cal revenue payments.

  B.   Irreparability of Harm

   Having determined that the Hospital Plaintiffs have shown
unlawful harm under § (a)(30)(A), we next consider whether
the harm is irreparable. Typically, monetary harm does not
constitute irreparable harm. L.A. Mem’l Coliseum Comm’n v.
Nat’l Football League, 634 F.2d 1197, 1202 (9th Cir. 1980).
The Hospital Plaintiffs argue that in this case, however, the
monetary injury is irreparable because the Eleventh Amend-
ment sovereign immunity of the Department (a branch of the
           CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY             4221
State of California government) bars the Hospital Plaintiffs
from ever recovering damages in federal court. The most rele-
vant authority on this issue—though not controlling—
supports the Hospital Plaintiffs’ argument. See Kan. Health
Care Ass’n v. Kan. Dep’t of Soc. & Rehab. Servs., 31 F.3d
1536, 1543 (10th Cir. 1994) (“Because the Eleventh Amend-
ment bars a legal remedy in damages . . . the court held that
plaintiffs’ injury was irreparable. We agree.”). We note also
that Supreme Court case law and some of our own cases clar-
ify that economic damages are not traditionally considered
irreparable because the injury can later be remedied by a
damage award. See Sampson v. Murray, 415 U.S. 61, 90
(1974) (“[I]t seems clear that the temporary loss of income,
ultimately to be recovered, does not usually constitute irrepa-
rable injury. . . . The possibility that adequate compensatory
or other corrective relief will be available at a later date, in the
ordinary course of litigation, weighs heavily against a claim
of irreparable harm.” (internal quotation omitted)); Rent-A-
Center, Inc. v. Canyon Television & Appliance Rental, Inc.,
944 F.2d 597, 603 (“It is true that economic injury alone does
not support a finding of irreparable harm, because such injury
can be remedied by a damage award.” (emphasis added));
Caribbean Marine Servs. Co. v. Baldridge, 844 F.2d 668, 676
(9th Cir. 1988); Arcamuzi v. Cont’l Air Lines, Inc., 819 F.2d
935, 938 (9th Cir. 1987); Colo. River Indian Tribes v. Town
of Parker, 776 F.2d 846, 850-51 (9th Cir. 1985); Goldie’s
Bookstore, Inc. v. Superior Court, 739 F.2d 466, 471 (9th Cir.
1984) (“Mere financial injury . . . will not constitute irrepara-
ble harm if adequate compensatory relief will be available in
the course of litigation.” (emphasis added)).

   Because the economic injury doctrine rests only on ordi-
nary equity principles precluding injunctive relief where a
remedy at law is adequate, it does not apply where, as here,
the Hospital Plaintiffs can obtain no remedy in damages
4222        CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY
against the state because of the Eleventh Amendment. See
Kan. Health Care Ass’n, 31 F.3d at 1543.2

   Considering the relevant authorities, we are persuaded that
because the Hospital Plaintiffs and their members will be
unable to recover damages against the Department even if
they are successful on the merits of their case, they will suffer
irreparable harm if the requested injunction is not granted.

III.   Equities and the Public Interest

   The district court did not reach the question of the equities
and the public interest. Although the state argues that these
factors weigh in its favor because an injunction will worsen
the state’s budget crisis, the record reflects that the impact of
a stay on the budget crisis will be minimal at most. Further,
it is clear that it would not be equitable or in the public’s
interest to allow the state to continue to violate the require-
ments of federal law, especially when there are no adequate
remedies available to compensate the Hospital Plaintiffs for
the irreparable harm that would be caused by the continuing
violation. In such circumstances, the interest of preserving the
Supremacy Clause is paramount. See Am. Trucking Ass’n v.
City of Los Angeles, ___ F.3d ___, 2009 WL 723993, at *12
(9th Cir. Mar. 20, 2009) (considering the public interest repre-
sented by “the Constitution’s declaration that federal law is to
be supreme”).
  2
    We observe that, although damages may become available to the Hos-
pital Plaintiffs in state court, persuasive authority suggests that federal
courts may consider only what federal remedies are available. See United
States v. New York, 708 F.2d 92, 93-94 (2d Cir. 1983) (per curiam) (hold-
ing that “federal courts may consider only the available federal legal rem-
edies”). But see Kan. Health Care Ass’n, 31 F.3d at 1543 (“Because the
Eleventh Amendment bars a legal remedy in damages, and the court con-
cluded no adequate state administrative remedy existed, the court held that
plaintiffs’ injury was irreparable. We agree.” (emphasis added)). We find
the reasoning of New York to be more persuasive, and consider only pro-
spective federal remedies for the purpose of gauging whether the harm
caused to the Hospital Plaintiffs and their members is irreparable.
          CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY          4223
   In light of the showing made by the Hospital Plaintiffs in
this case, we grant their motion for an order staying the rate
cuts in AB 1183 with respect to the specified hospital services
pending their appeal to this court of the district court’s order
denying the motion for preliminary injunction.

 MOTION         FOR     STAY      PENDING       APPEAL       IS
GRANTED.
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