Court Opinion

ID: 3173930
Source: CourtListenerOpinion
Date Created: 2016-02-05 08:28:00.691998+00
Date Added: 2024-06-11T07:38:50.789170
License: Public Domain

Case: 15-50618      Document: 00513369117         Page: 1    Date Filed: 02/04/2016

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                             United States Court of Appeals
                                                                                      Fifth Circuit

                                    No. 15-50618
                                                                                    FILED
                                                                              February 4, 2016
                                  Summary Calendar
                                                                               Lyle W. Cayce
                                                                                    Clerk
MED RX/SYSTEMS, P.L.L.C., doing business as Alimentos, doing business
as Med Care Pharmacy, doing business as Good Start,

              Plaintiff - Appellant

v.

TEXAS DEPARTMENT OF STATE HEALTH SERVICES; COMMISSIONER
KIRK COLE, In His Official Capacity,

              Defendants - Appellees

                   Appeal from the United States District Court
                        for the Western District of Texas
                             USDC No. 1:15-CV-324

Before WIENER, HIGGINSON, and COSTA, Circuit Judges.
STEPHEN A. HIGGINSON, Circuit Judge:*
       Plaintiff Med RX/Systems, P.L.L.C. appeals the district court’s grant of
a motion for judgment on the pleadings filed by Defendants the Texas
Department of State Health Services (DSHS) and its Commissioner, Kirk Cole,
in his official capacity. We affirm.

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
    Case: 15-50618    Document: 00513369117     Page: 2   Date Filed: 02/04/2016

                                 No. 15-50618
                                       I.
      The Special Supplemental Nutrition Program for Women, Infants and
Children (WIC) is a federal program through which states receive grants to
provide food to low-income beneficiaries.        In Texas, defendant DSHS
administers that program. DSHS enters into vendor agreements with retail
stores, which accept vouchers from WIC beneficiaries and submit those
vouchers to the state for reimbursement. Each vendor must retain invoices
and receipts for its purchases and sales; when a vendor fails to do so, DSHS
must recover the money it paid for so-called “unsubstantiated sales” and, upon
finding a pattern of such sales, disqualify the vendor from program
participation for three years.
      Plaintiff, which operates multiple retail stores, became a WIC vendor on
October 1, 2010, when its initial one-year vendor agreements with DSHS
became effective. Plaintiff and DSHS entered into similar one-year contracts
in subsequent years. In these contracts, Plaintiff agreed to “[c]omply with the
Vendor Agreement and Federal and State statutes, regulations, policies, and
procedures governing [the WIC program], including any changes made during
the Agreement period.” Each agreement incorporated by reference certain
state WIC policies and all revisions thereto, which Plaintiff acknowledged
having received and accepted at the time it entered into the vendor
agreements.
      When Plaintiff became a WIC vendor, one of these policies—“WIC Policy
WV:1.0”—explained that the state would recover funds it paid for
unsubstantiated sales.    That policy also stated that DSHS would provide
“administrative review for any adverse action affecting participation in” the
WIC program, with some exceptions—including “[d]isputes regarding food
transaction payments and vendor claims (other than the opportunity to justify
or correct a vendor overcharge or other errors, as permitted by 7 C.F.R. Section
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                                       No. 15-50618
246.12(k)(3)).” 1   This limitation on administrative review echoes a federal
regulation that prohibits state agencies administering the WIC program from
providing administrative review of such disputes.                       See 7 C.F.R. §
246.18(a)(1)(iii)(J). The version of WIC Policy WV:01.0 effective on October 1,
2011, and thereafter, also stated: “The vendor claim determination by the
[state agency] regarding the amount of the unsubstantiated WIC sales is not
subject to administrative review.”            Plaintiff does not contest that these
provisions apply to the unsubstantiated sale determinations at issue, but
argues instead that denying administrative review of such decisions is illegal.
       In August 2012, Defendant notified Plaintiff that it would be subject to
an invoice audit for the period of August 1, 2011, through July 31, 2012. After
Plaintiff submitted the requested purchase invoices and other records, DSHS
determined that those records showed unsubstantiated WIC sales of
approximately $42,000. DSHS gave Plaintiff an additional twenty days to
“submit additional or clarifying invoices and information,” warning that
“[a]fter this time has elapsed no additional invoices or other requested
materials will be considered” and that “[f]ailure to comply with [the] request
will result in disqualification pursuant to WIC Policy WV:01.0.” Plaintiff then
submitted additional documentation. Then, in a letter dated July 26, 2013,
DSHS told Plaintiff that its review of the additional invoices supported an
upward adjustment of the amount of unsubstantiated sales to approximately
$125,000. That letter informed Plaintiff that it would be disqualified from the
WIC program and included the following statement:
       Federal WIC regulations at 7 CFR, Section 246.18(a)(1)(iii)(J)
       prohibit the State agency from providing administrative reviews

       1 The version of WIC Policy WV:01.0 that became effective on October 2012 explains
that the agency’s provision of a twenty-day period to submit additional or clarifying purchase
invoices “is considered an opportunity to justify or correct a vendor overcharge or error”
within the meaning of section 246.12(k)(3).
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                                      No. 15-50618
      for disputes regarding vendor claims, other than the opportunity
      to justify a vendor overcharge or other error, as permitted by 7
      CFR, Section 246.12(k)(3)] [sic]. No hearing will be available
      to appeal the State agency’s determination that Med/RX
      Systems PLLC has unsubstantiated WIC sales in the
      amount of $125,257.20, which the State agency must
      recover.

Plaintiff, which denies having any unsubstantiated sales, requested rescission
of the adverse action and an additional twenty days to “respond to the new
allegations”; in the alternative, Plaintiff requested an administrative review
hearing.
      DSHS granted such a hearing, after which the hearing officer issued an
order finding that Plaintiff had unsubstantiated sales in the amount of
$126,863.08 2 during the relevant period, had violated WIC Policy WV:01.0, and
had received a fair opportunity to contest the charges.               She rejected the
argument that DSHS should have provided an additional twenty days to
submit     documentation      after    DSHS      adjusted      its   determination    of
unsubstantiated WIC sales, reasoning that the same audit period was involved
and finding that “[t]he evidence establishes that [Plaintiff] was provided 20
days to respond to the allegation of unsubstantiated sales as outlined in the
July 26, 2013 letter.” She also dismissed Plaintiff’s argument that it did not
own or operate some of the stores to which unsubstantiated sales were
attributed, noting that each of Plaintiff’s vendor agreements included account
numbers that corresponded to those stores. Finally, she stated that “federal
law precludes this tribunal from reviewing [Defendants’] vendor claim
determination regarding the amount of the unsubstantiated WIC sales.” As

      2 It is unclear what accounts for the slight difference between this figure and the
$125,257.20 figure referenced in earlier correspondence.
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                                       No. 15-50618
such, she excluded evidence that Plaintiff attempted to introduce to controvert
the unsubstantiated WIC sales determination.
       Plaintiff filed suit in Texas state court, alleging that despite the federal
regulation and WIC policies noted above, the Constitution entitled it to
challenge     Defendants’       unsubstantiated         sales    determination        through
administrative review. Plaintiff brought procedural due process and Contract
Clause claims pursuant to 42 U.S.C. § 1983 and sought damages and
declaratory and injunctive relief.        3   Defendants removed the case to federal
court and filed a motion for judgment on the pleadings, which the district court
granted.     This appeal timely followed the district court’s entry of final
judgment.
                                              II.
       We review de novo dismissals pursuant to Federal Rule of Civil
Procedure 12(c). Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co.,
313 F.3d 305, 312 (5th Cir. 2002). The standards to be applied to a Rule 12(c)
motion are the same as those governing motions brought under Federal Rule
of Civil Procedure 12(b)(6). Id. at 313 n.8. Thus, taking the complaint’s well-
pleaded facts as true and viewing them in the light most favorable to the
plaintiff, we ask whether “the complaint states a valid claim for relief.” Id. at
312–13 (citation omitted); see also Turbomeca, S.A. v. Era Helicopters LLC, 536
F.3d 351, 354 (5th Cir. 2008). Documents attached to the defendant’s motion
“are considered part of the pleadings if they are referred to in the plaintiff’s
complaint and are central to her claim.” Bosarge v. Miss. Bureau of Narcotics,
796 F.3d 435, 440 (5th Cir. 2015) (citation omitted). 4

       3  Plaintiff’s complaint also references the Texas Constitution and a general “right to
judicial review under state and federal law,” but its appellate brief only presses arguments
based on the federal Constitution’s Due Process and Contract Clauses.
        4 Defendants submitted vendor agreements and letters between the parties in support

of their Rule 12(c) motion. Plaintiff’s complaint refers to these documents in detail; moreover,
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                                      No. 15-50618
                                            III.
                                             A.
       Plaintiff brought two causes of action under 42 U.S.C. § 1983 for alleged
violations of its constitutional rights under the Fifth and Fourteenth
Amendments, as well as the Contracts Clause. We first explain that the
district court did not err in concluding that Plaintiff cannot seek damages
under § 1983.
       “Section 1983 provides a private right of action for damages to
individuals who are deprived of ‘any rights, privileges, or immunities’ protected
by the Constitution or federal law by any ‘person’ acting under the color of state
law.” Stotter v. Univ. of Tex. at San Antonio, 508 F.3d 812, 821 (5th Cir. 2007)
(quoting 42 U.S.C. § 1983). The Supreme Court has “held that a State is not a
‘person’ against whom a § 1983 claim for money damages might be asserted.”
Lapides v. Bd. of Regents, 535 U.S. 613, 617 (2002) (citing Will v. Mich. Dep’t
of State Police, 491 U.S. 58, 66 (1989)). This rule extends to “arms of the state,”
Howlett v. Rose, 496 U.S. 356, 365 (1990), and to a state’s “officials acting in
their official capacities,” Will, 491 U.S. at 71. Thus, Plaintiff’s § 1983 claims
against DSHS and Cole in his official capacity are barred insofar as Plaintiff
seeks economic damages or other retrospective relief. See Machete Prods.,
L.L.C. v. Page, --- F.3d ---, 2015 WL 9487714, at *3 (5th Cir. 2015).
       Nonetheless, “a state official in his or her official capacity, when sued for
injunctive relief, [is] a person under § 1983 because ‘official-capacity actions
for prospective relief are not treated as actions against the State.’” Will, 491
U.S. at 71 n.10 (quoting Kentucky v. Graham, 473 U.S. 159, 167 n.14 (1985)).

Plaintiff has not objected to their consideration. See Great Plains Trust, 313 F.3d at 313–14
(noting that a plaintiff had waived any objection to consideration of documents attached to a
Rule 12(c) motion by failing to argue such consideration was erroneous). We therefore include
these documents in our review.
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                                       No. 15-50618
Thus, the remaining question is whether the district court erred in concluding
that Plaintiff had not stated a claim for prospective relief against Cole.
                                             B.
       Plaintiff’s primary argument on appeal, tendered as an independent
ground of error and raised in support of each of Plaintiff’s claims, is that the
district court failed to recognize that 42 U.S.C. § 1786(n) evinces congressional
intent to make administrative review available for unsubstantiated sale
determinations. Plaintiff did not so much as hint at this argument—or even
cite § 1786(n)—in its complaint or opposition to Defendants’ Rule 12(c) motion
below. We “will not consider an issue that a party fails to raise in the district
court absent extraordinary circumstances.”               Sw. Bell Tel., LP v. City of
Houston, 529 F.3d 257, 263 (5th Cir. 2008) (citation omitted). Plaintiff has not
attempted to demonstrate “extraordinary circumstances” sufficient to escape
this general rule; indeed, after Defendants pointed out Plaintiff’s failure to
raise this issue below, Plaintiff declined to file a reply brief. Accordingly, “[t]his
issue is waived.” Id. 5
       We turn now to Plaintiff’s claim under the Due Process Clause, which
guarantees notice and an opportunity to be heard before the deprivation of a
constitutionally protected interest. See LaChance v. Erickson, 522 U.S. 262,
266 (1998); Franceski v. Plaquemines Parish Sch. Bd., 772 F.2d 197, 199 (5th
Cir. 1985). “To bring a procedural due process claim under § 1983, a plaintiff
must first identify a protected life, liberty or property interest and then prove
that governmental action resulted in a deprivation of that interest.” Baldwin
v. Daniels, 250 F.3d 943, 946 (5th Cir. 2001). The Constitution does not itself
create property interests, which instead “stem from independent sources such

       5In any event, the district court’s dismissal of Plaintiff’s claims was not based on an
erroneous interpretation of 42 U.S.C. § 1786(n), but instead on the independent grounds
discussed below.
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                                   No. 15-50618
as state statutes, local ordinances, existing rules, contractual provisions, or
mutually explicit understandings.” Blackburn v. City of Marshall, 42 F.3d 925,
936–37 (5th Cir. 1995). A property interest created by contract is “defined by
[its] terms.” Bd. of Regents v. Roth, 408 U.S. 564, 578 (1972).
      In support of its due process claim, Plaintiff argues that it had an
“unfettered entitlement” to the money and WIC program participation at issue,
and that due process required the opportunity to present evidence in an
administrative appeal of Defendants’ decision. Plaintiff’s claim fails because,
when Plaintiff became a WIC vendor, it agreed that DSHS (1) would recover
funds from and disqualify vendors with unsubstantiated sales and (2) would
not provide administrative review for “[d]isputes regarding food transaction
payments and vendor claims,” except for providing the opportunity to submit
additional invoices to the state agency (as Plaintiff did here). Plaintiff cannot
now disregard these contractual limitations while relying on the remainder of
the contracts to support its due process claim. See Bullard v. Webster, 623 F.2d
1042, 1046–47 (5th Cir. 1980) (holding that a federal employee could not show
a due process violation based on his interoffice transfer because he
contractually agreed to move to any location the government required). And
to the extent Plaintiff argues that WIC Policy WV:01.0 and 7 C.F.R.
§ 246.18(a)(1)(iii)(J)   themselves   abridge     due   process   by   precluding
administrative     review   for   unsubstantiated   sales   determinations,    the
Constitution does not guarantee a right to a live hearing or appeal on all
government decisions. See, e.g., Ohio ex rel. Bryant v. Akron Metro. Park Dist.,
281 U.S. 74, 80 (1930) (“As to the due process clause of the Fourteenth
Amendment . . . the right of appeal is not essential to due process, provided
that due process has already been accorded in the tribunal of first instance.”);
Gregory v. Merit Sys. Protection Bd., 96 F. App’x 690, 694 (Fed. Cir. 2004)
(holding that internal review procedures satisfied due process, even though
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                                    No. 15-50618
employee could not appeal her demotion to the Merit Systems Protection
Board); Kramer v. Jenkins, 806 F.2d 140, 141 (7th Cir. 1986) (“The due process
clause does not require a hearing; it requires an opportunity to be heard.”); cf.
Halbert v. Michigan, 545 U.S. 605, 610 (2005) (noting that the Constitution
does not require states to provide appellate review even of criminal
convictions).
      Nor has Plaintiff stated a claim under the Contract Clause, which
provides: “No State shall . . . pass any . . . Law impairing the Obligation of
Contracts.” U.S. Const. art. I, § 10, cl. 1. Courts apply a three-part test to
Contract Clause claims. Lipscomb v. Columbus Mun. Separate Sch. Dist., 269
F.3d 494, 504 (5th Cir. 2001). “[T]he threshold inquiry”—and the only one we
reach here—“is whether the state law has, in fact, operated as a substantial
impairment of a contractual relationship.” Id. (quoting Energy Reserves Grp.,
Inc. v. Kan. Power & Light Co., 459 U.S. 400, 411 (1983)). As discussed above,
Plaintiff’s vendor agreements provided that administrative review would not
be provided for the type of dispute that led to the complained-of sanctions. So
in the words of the district court, Plaintiff cannot “show an impairment of
contract as the contract included the very provision now challenged.” Plaintiff
waived its only counterargument—that WIC Policy WV:01.0 is “contrary to the
legislative intent of” 42 U.S.C. § 1786(n) and “therefore, was not incorporated
into the vendor agreements”—by failing to raise it below.           See Ellison v.
Software Spectrum, Inc., 85 F.3d 187, 191 (5th Cir. 1996) (refusing to consider
argument not presented in district court). In sum, the district court did not err
in dismissing Plaintiff’s claims.
                                        IV.
      For the foregoing reasons, we AFFIRM the district court’s dismissal of
this action.

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