Court Opinion

ID: 3064889
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:27:32.108502+00
Date Added: 2024-06-11T11:49:42.363052
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

INDEPENDENT LIVING CENTER OF            
SOUTHERN CALIFORNIA, INC., a
nonprofit corporation; GRAY
PANTHER SOF SACRAMENTO, a
nonprofit corporation; GRAY
PANTHERS OF SAN FRANCISCO, a
nonprofit corporation; GERALD
SHAPIRO, Pharm. D. doing business
as Uptown Pharmacy and Gift
Shoppe; SHARON STEEN doing
business as Central Pharmacy;
MARK BECKWITH; MARGARET                        No. 08-56422
DOWLING; TRAN PHARMACY, INC.,
doing business as Tran Pharmacy;                 D.C. No.
                                            2:08-cv-03315-CAS-
JASON YOUNG,
               Petitioners-Appellees,              MAN
SACRAMENTO FAMILY MEDICAL
CLINICS, INC.; THEODORE MAZER
M.D.; RONALD B. MEAD; ACACIA
ADULT DAY SERVICES,
              Interveners-Appellees,
                  v.
DAVID MAXWELL-JOLLY, Director of
the Department of Health Care
Services, State of California,
              Respondent-Appellant.
                                        

                             8989
8990        INDEPENDENT LIVING v. MAXWELL-JOLLY

INDEPENDENT LIVING CENTER OF           
SOUTHERN CALIFORNIA, INC., a
nonprofit corporation; GRAY
PANTHERS OF SACRAMENTO, a
nonprofit corporation; GRAY
PANTHERS OF SAN FRANCISCO, a
nonprofit corporation; GERALD
SHAPIRO, Pharm. D. doing business
as Uptown Pharmacy and Gift
Shoppe; SHARON STEEN doing
business as Central Pharmacy;
MARK BECKWITH; MARGARET                       No. 08-56554
DOWLING; TRAN PHARMACY, INC.,                    D.C. No.
doing business as Tran Pharmacy;          2:08-cv-03315-CAS-
JASON YOUNG                                       MAN
             Petitioners-Appellants,            OPINION
SACRAMENTO FAMILY MEDICAL
CLINICS, INC.; THEODORE MAZER
M.D.; RONALD B. MEAD; ACACIA
ADULT DAY SERVICES,
                        Interveners,
                 v.
DAVID MAXWELL-JOLLY, Director of
the Department of Health Care
Services, State of California,
               Respondent-Appellee.
                                       
       Appeal from the United States District Court
           for the Central District of California
       Christina A. Snyder, District Judge, Presiding
        INDEPENDENT LIVING v. MAXWELL-JOLLY       8991
             Argued and Submitted
  February 18, 2009—San Francisco, California

                Filed July 9, 2009

Before: Stephen Reinhardt, William A. Fletcher, and
        Milan D. Smith, Jr., Circuit Judges.

      Opinion by Judge Milan D. Smith, Jr.
            INDEPENDENT LIVING v. MAXWELL-JOLLY          8995

                         COUNSEL

Richard T. Waldow and Jennifer M. Kim, Supervising Deputy
Attorneys General, Carmen D. Snuggs, Tara L. Newman,
Andrew Dhadwal, and Sara Ugaz, Deputy Attorneys General,
Office of the Attorney General of the State of California, Los
Angeles, California, for respondent-appellant/appellee David
Maxwell-Jolly, Director of the Department of Health Care
Services for the State of California.

Lynn S. Carman, Medicaid Defense Fund, Novato, California,
and Stanley L. Friedman, Los Angeles, California, for
appellees-appellees/appellants Independent Living Center of
Southern California, et al.

Craig J. Cannizzo, Felicia Y. Sze, Hooper, Lundy & Book-
man, Inc., San Francisco, California, and Lloyd A. Bookman,
Byron J. Gross, Jordan B. Reveille, Hooper, Lundy & Book-
man, Inc., Los Angeles, California, for interveners Sacra-
mento Family Medical Clinics, Inc. et al.

William A. Gould, Jr., Kevin C. Khasigian, Wilke, Floury,
Hoffelt, Gould & Birney, LLP, Sacramento, California, for
Amicus Curiae California Optometric Association.

Rochelle Bobroff and Harper Jean Tobin, Washington, DC,
for Amicus Curiae National Senior Citizens’ Law Center.

Jane Perkins, Chapel Hill, North Carolina, for Amicus Curiae
National Health Law Program, Inc.
8996            INDEPENDENT LIVING v. MAXWELL-JOLLY
Barbara A. Jones, Pasadena, California, for Amicus Curiae
AARP Foundation Litigation.

                               OPINION

MILAN D. SMITH, JR., Circuit Judge:

   Petitioners-Appellees/Appellants (Independent Living), a
group of pharmacies, health care providers, senior citizens’
groups, and beneficiaries of the State’s Medicaid program,
Medi-Cal,1 seek to enjoin the California Department of Health
Care Services (Department) Director, David Maxwell-Jolly
(Director)2 from implementing state legislation reducing pay-
ments to certain medical service providers under Medi-Cal by
ten percent. We hold that the district court did not abuse its
discretion in granting Independent Living’s motion for a pre-
liminary injunction, because the Director failed to “rely on
responsible cost studies, its own and others,” Orthopaedic
Hosp. v. Belshe, 103 F. 3d 1491, 1496 (9th Cir. 1997), in
determining the effect of the rate cuts mandated by AB 5 on
the statutory factors of efficiency, economy, quality, and
access to care before implementing those cuts. We also hold
that the district court’s preliminary injunction should be modi-
fied to cover payments for medical services provided on or
after July 1, 2008, because the Director waived the State’s
sovereign immunity in both state and federal court.
  1
     For simplicity, we attribute to Independent Living generally the collec-
tive arguments of Independent Living, Interveners, and Amicus Curiae
supporting Independent Living.
   2
     Sandra Shewry served as the Department’s director when this suit was
filed and held that position until April 9, 2009, when she was replaced by
Mr. Maxwell-Jolly. Because the distinction between the two directors is
irrelevant for the purposes of this case, we use the term “Director” to refer
to them both.
               INDEPENDENT LIVING v. MAXWELL-JOLLY                    8997
      FACTUAL AND PROCEDURAL BACKGROUND

   On February 16, 2008, the California Assembly passed AB
5, which added §§ 14105.19 and 14166.245 to the California
Welfare and Institutions Code. Section 14105.19 reduces pay-
ments under the Medi-Cal fee-for-service program to physi-
cians, dentists, pharmacies, adult health care centers, clinics,
health systems, and other providers by ten percent. Section
14166.245 similarly reduces payments for inpatient services
provided by acute care hospitals not under contract with the
State by ten percent. Both of these rate reductions were sched-
uled to take effect on July 1, 2008.

   On April 22, 2008, Independent Living filed a verified peti-
tion for a writ of mandamus in Los Angeles County Superior
Court, seeking to enjoin the Director from implementing AB
5.3 Independent Living argued that the ten percent rate reduc-
tion violates Title XIX of the federal Social Security Act (the
Medicaid Act), 42 U.S.C. § 1396 et seq., and is therefore
invalid under the Supremacy Clause.4 Specifically, Indepen-
dent Living alleged that AB 5 is inconsistent with 42 U.S.C.
§ 1396(a)(30)(A) (hereafter§ 30(A)), which requires that a
state plan

      provide such methods and procedures relating to the
      utilization of, and payment for, care and services
      available under the plan . . . as may be necessary . . .
      to assure that payments are consistent with effi-
      ciency, economy, and quality of care and are suffi-
      cient to enlist enough providers so that care and
      services are available under the plan at least to the
  3
     Independent Living voluntarily dismissed the Department from suit on
June 1, 2008, leaving the Director as the sole Respondent.
   4
     Independent Living also alleged in their complaint that the ten-percent
rate reduction both violated and was preempted by the Americans with
Disabilities Act of 1990, 42 U.S.C. § 12181 et seq. Independent Living
dismissed these claims without prejudice, and they are not before us.
8998         INDEPENDENT LIVING v. MAXWELL-JOLLY
    extent that such care and services are available to the
    general population in the geographic area.

   On May 19, 2008, the Director removed this action to fed-
eral court based on federal question jurisdiction. On May 30,
2008, Independent Living filed a motion for a preliminary
injunction. The district court heard argument on June 23,
2008. Two days later, the court entered an order denying the
motion, holding that Independent Living had not demon-
strated a likelihood of success on the merits of their preemp-
tion claim because § 30(A) did not create any judicially
enforceable “rights.”

   Independent Living then sought emergency relief from this
court. After full briefing and argument, we vacated the district
court’s order, holding that Independent Living could bring
suit directly under the Supremacy Clause to enjoin a state law
allegedly preempted by federal law. See Indep. Living Ctr. v.
Shewry, 543 F.3d 1050 (9th Cir. 2008). We remanded to the
district court for reconsideration of Independent Living’s
motion for a preliminary injunction.

   On remand, the district court issued an order granting in
part and denying in part Independent Living’s motion for a
preliminary injunction. The district court held that Indepen-
dent Living had demonstrated a likelihood of success on the
merits of its Supremacy Clause claim, as the Director failed
to provide any evidence that the Department had considered
the impact of the ten percent rate reduction on quality and
access to care, as required by § 30(A). The court also held that
Independent Living had demonstrated a risk of irreparable
injury as to some—but not all—of the challenged Medi-Cal
services. The district court thus granted the motion “to the
extent that it seeks to enjoin enforcement of Cal. Welf. & Inst.
Code § 14105.19(b)(1), which reduces by ten percent pay-
ments under the Medi-Cal fee-for-service program for physi-
cians, dentists, pharmacies, adult day health care centers,
clinics, health systems, and other providers for services pro-
                INDEPENDENT LIVING v. MAXWELL-JOLLY                     8999
vided on or after July 1, 2008.” The court denied the motion
to enjoin enforcement of the rate reductions for managed care
plans and non-contract acute care hospitals, as Independent
Living had not shown a risk of irreparable injury as to those
services.

   On August 27, 2008, the Director filed a motion “to alter
or amend, and clarify” the August 18 order. The Director
argued that the injunction should apply only to payments for
services provided on or after August 18, because requiring
full reimbursement for services provided prior to the court’s
order would violate the State’s Eleventh Amendment sover-
eign immunity. The Director also argued that the order was
vague and ambiguous and that the Ninth Circuit had yet to
rule on the Director’s petition for rehearing and rehearing en
banc regarding the Supremacy Clause right of action issue.5
The district court granted the motion in part the same day,
issuing an order in chambers modifying the preliminary
injunction to apply only to payments “for services provided
on or after August 18, 2008.” Although the order itself did not
provide any explanation for the modification, the district court
later stated that it was its “intention only to issue an order that
would provide for prospective relief,” and that it agreed with
the Director “that the order as it was phrased violates the
Eleventh Amendment.” The district court also indicated that
it would not grant the Director’s request for a stay and that
Independent Living’s request for a contempt citation was prema-
ture.6 The district court did not afford Independent Living an
  5
     The Director’s Petition for Panel Rehearing and Petition for Rehearing
En Banc was denied on November 3, 2008. On June 22, 2009, the
Supreme Court of the United States denied the Director’s Petition for Writ
of Certiorari.
   6
     On September 15, 2008, pursuant to the Director’s motion to alter or
amend, the district court further modified its August 18, 2008 order to
clarify that the order regarding pharmacies applied only to the relief
sought, i.e., to rates for prescription drugs, including previously
prescription-only prescribed over-the-counter drugs. The district court fur-
ther struck “health systems, and other providers” from the order. Finally,
the district court clarified that the order did not apply to payments for hos-
pitals, including payments for inpatient services, outpatient services, dis-
tinct part nursing facility services, and sub-acute services.
9000            INDEPENDENT LIVING v. MAXWELL-JOLLY
opportunity to respond to the Director’s argument before issu-
ing its order.

   The August 18 order, as modified, generated three appeals,
two of which remain before us. In case number 08-56422, the
Director appeals the district court’s decision to grant the
motion for preliminary injunction in part, arguing primarily
that the analysis of AB 5 conducted by the Department was
legally sufficient and Independent Living therefore cannot
demonstrate a likelihood of success on the merits.7 In case
number 08-56554, Independent Living appeals the district
court’s August 27 order modifying the injunction to apply
only to payments for services provided on or after August 18,
arguing that the earlier order—which would have granted
relief for services provided on or after July 1—did not violate
the State’s sovereign immunity.8 We address these arguments
in turn.

      JURISDICTION AND STANDARD OF REVIEW

   We have jurisdiction over this appeal pursuant to 28 U.S.C.
§ 1292(a)(1). We review a district court’s decision to grant or
deny a preliminary injunction for abuse of discretion. Sw.
Voter Registration Educ. Project v. Shelley, 344 F.3d 914,
918 (9th Cir. 2003). “[A] district court abuses its discretion by
basing its decision on either an erroneous legal standard or
clearly erroneous factual findings.” Walczak v. EPL Prolong,
  7
     The Director also argues that Independent Living’s claim is not cogni-
zable under the Supremacy Clause. Because we have already ruled on that
issue and the court has denied the Director’s petition for rehear-
ing/rehearing en banc, the issue is now moot.
   8
     Independent Living also initially appealed the district court’s denial of
their motion to enjoin the Department from reducing payments to Medi-
Cal managed care plans by the “actuarial equivalent” of ten percent. See
Case 08-56551. After filing their notice of appeal, Independent Living dis-
missed the claim underlying their appeal in district court. We granted
Independent Living’s motion for dismissal without prejudice in case 08-
56551 on January 30, 2009.
             INDEPENDENT LIVING v. MAXWELL-JOLLY             9001
Inc., 198 F.3d 725, 730 (9th Cir. 1999). “The district court’s
interpretation of the underlying legal principles . . . is subject
to de novo review,” Sw. Voter Registration, 344 F.3d at 918,
but its factual findings are reviewed for clear error, Walczak,
198 F.3d at 730. Factual findings are clearly erroneous “if the
reviewing court on the entire evidence is left with the definite
and firm conviction that a mistake has been committed.” Id.
(internal citation omitted).

   To warrant injunctive relief, a plaintiff “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,
129 S. Ct. 365, 374 (2008); see also Am. Trucking Ass’ns v.
City of L.A., 559 F.3d 1046, 1052 (9th Cir. 2009). “In each
case, courts ‘must balance the competing claims of injury and
must consider the effect on each party of the granting or with-
holding of the requested relief.’ ” Winter, 129 S. Ct. at 376
(quoting Amoco Prod. Co. v. Vill. of Gambell, Alaska, 480
U.S. 531, 542 (1987)).

                        DISCUSSION

I.   Independent Living’s Likelihood of Success on the
     Merits

   [1] This is not the first time that we have interpreted the
substantive and procedural requirements of § 30(A). In Ortho-
paedic Hospital v. Belshe, 103 F.3d 1491 (9th Cir. 1997), sev-
eral hospitals and health care associations alleged that the
Department violated § 30(A) by setting provider reimburse-
ment rates “without proper consideration of the effect of hos-
pital costs on the relevant statutory factors [of] efficiency,
economy, quality of care, and access.” Id. at 1492. We inter-
preted § 30(A) to require the Director to set reimbursement
rates that “bear a reasonable relationship to efficient and eco-
nomical hospitals’ costs of providing quality services, unless
9002           INDEPENDENT LIVING v. MAXWELL-JOLLY
the Department shows some justification for rates that sub-
stantially deviate from such costs.” Id. at 1496. To meet this
statutory requirement, we held that the Director “must rely on
responsible cost studies, its own or others’, that provide reli-
able data as a basis for its rate setting.” Id.

   Under the standards established in Orthopaedic Hospital, it
is clear that the Director violated § 30(A) when he imple-
mented the rate reductions mandated by AB 5. The Director
failed to provide any evidence that the Department or the leg-
islature studied the impact of the ten percent rate reduction on
the statutory factors of efficiency, economy, quality, and
access to care prior to enacting AB 5, nor did he demonstrate
that the Department considered reliable cost studies when
adjusting its reimbursement rates. Several of the declarations
submitted by the Director candidly admit that the Department
does not maintain information on provider costs for covered
services.9 See, e.g., Declaration of Linda Machado at 5
(“[T]here is no established mechanism for obtaining cost data
from physicians on the costs they incur for providing each of
these [covered] services. Therefore, [the Department] has no
data from which it can determine how well Medi-Cal rates
  9
    Moreover, almost all of the declarations provided by the Director rely
on past studies, prepared long before AB 5 was contemplated, that simply
compiled average provider costs and reimbursement rates without assess-
ing how a ten percent rate reduction might affect the statutory factors of
efficiency, economy, quality, and access to care. See, e.g., Declaration of
Linda Machado at 1-7 & exs. A & B (discussing various studies from
1997, 1999, and 2000, but not a single study prepared in anticipation of
AB 5); Declaration of Jon Chin at 1-6 & ex. B (relying on a DHS report
prepared in November 2005); Declaration of Kevin Gorospe at 1-4 (rely-
ing almost exclusively on a December 2007 study of pharmaceutical costs
prepared by Myers & Stauffer); Declaration of Kevin Gorospe at 1-8
(relying on studies from 2004 and 2007). The district court was well
within its discretion in concluding that such post hoc rationalizations fall
short of the procedural requirements established in Orthopaedic Hospital.
See Ark. Med. Soc’y v. Reynolds, 6 F.3d 519, 530 (8th Cir. 1993) (refusing
to rely on speculative evidence that could “only be confirmed by historical
data accumulated after the cuts were made”).
              INDEPENDENT LIVING v. MAXWELL-JOLLY                9003
compensate physician costs.”); id. at 3 (admitting same lack
of cost data for hospital outpatient services); Declaration of
Jon Chin at 2 (“DHCS has no available cost data [on covered]
dental procedures”). In the absence of such cost data, the
Director could not have complied with § 30(A) as interpreted
in Orthopaedic Hospital.

   Perhaps as a result, the Director’s primary argument on
appeal is that the standards established in Orthopaedic Hospi-
tal are inapplicable, for several reasons. We address each of
them.

  A.    Action Under the Supremacy Clause

   [2] First, the Director argues that Orthopaedic Hospital is
inapplicable because the plaintiffs in that case were not assert-
ing a claim of federal preemption directly under the Suprem-
acy Clause. As the Director notes, Orthopaedic Hospital
addressed claims brought to enforce the provisions of § 30(A)
under 42 U.S.C. § 1983, which provides a remedy for depri-
vation of any “rights . . . secured by the Constitution and
laws” of the United States.10 See Orthopaedic Hosp., 103 F.3d
at 1495. In this case, by contrast, Independent Living does not
seek direct enforcement of any “rights” created by § 30(A),
but rather argues that the ten percent rate reduction conflicts
with the federal requirements established in § 30(A). The
question is whether this difference in the theory of recovery
renders Orthopaedic Hospital’s interpretation of § 30(A) any
less persuasive. To answer this question, we turn to basic
principles of conflict preemption.

  [3] Conflict preemption arises “when compliance with both
federal and state regulations is a physical impossibility, or
where state law stands as an obstacle to the accomplishment
  10
    Orthopaedic Hospital preceded our subsequent decision in Sanchez v.
Johnson, 416 F.3d 1051, 1068 (9th Cir. 2005), which held that § 30(A)
does not create any federal “rights” enforceable under § 1983.
9004         INDEPENDENT LIVING v. MAXWELL-JOLLY
and execution of the full purposes and objectives of Con-
gress.” PG&E Co. v. State Energy Res. Conservation & Dev.
Comm’n, 461 U.S. 190, 204 (1983) (internal quotation marks
and citations omitted); see also Ting v. AT&T, 319 F.3d 1126,
1136 (9th Cir. 2003). Under this latter strand of so-called “ob-
struction” preemption, “an aberrant or hostile state rule is pre-
empted to the extent it actually interferes with the ‘methods
by which the federal statute was designed to reach [its]
goal.’ ” Id. at 1137 (alteration in original) (quoting Int’l Paper
Co. v. Ouellette, 479 U.S. 481, 494 (1987)). “Thus, obstruc-
tion preemption focuses on both the objective of the federal
law and the method chosen by Congress to effectuate that
objective, taking into account the law’s text, application, his-
tory, and interpretation.” Id.

   [4] As the description above makes clear, the first step in
any conflict preemption analysis is to determine the purpose
of the federal law at issue. See id. at 1138. Orthopaedic Hos-
pital discussed the purpose underlying § 30(A) at length,
reading its text and legislative history as demonstrating that
“Congress intended payments to be flexible within a range;
payments should be no higher than what is required to provide
efficient and economical care, but still high enough to provide
for quality care and to ensure access to services.” 103 F.3d at
1497. We held that the Department could not accomplish this
purpose in the absence of some determination of “what it
costs an efficient hospital economically to provide quality
care.” Id. at 1498. Thus, while the Department “need not fol-
low a rigid formula of payments equal to an efficiently and
economically operated hospital’s costs regardless of other fac-
tors,” § 30(A) required the Department to at least ascertain
provider costs when it adjusted reimbursement rates. Id.

   [5] The Director has not provided any coherent reason why
the purpose underlying § 30(A) would be different for pur-
poses of federal preemption than it was for direct enforcement
under § 1983, and we see none. That Independent Living in
this case has proceeded under a different cause of action than
             INDEPENDENT LIVING v. MAXWELL-JOLLY             9005
the plaintiffs in Orthopaedic Hospital is therefore an inconse-
quential distinction. In both cases, the central question is the
purpose underlying § 30(A), and as to that question, Ortho-
paedic Hospital clearly controls.

  B.   Continuing Validity of Orthopaedic Hospital

   Second, the Director argues that our more recent decision
in Sanchez, 416 F.3d 1051, “effectively overruled” Orthopae-
dic Hospital, and that the district court’s analysis of the merits
was thus based on legal error. This argument is unavailing.
Sanchez did not overrule Orthopaedic Hospital’s interpreta-
tion of § 30(A).

   [6] Sanchez addressed the narrow question of “whether
developmentally disabled recipients of Medicaid funds and
their service providers have a private right of action against
state officials to compel the enforcement of a federal law gov-
erning state disbursement of such funds.” 416 F.3d at 1053.
Applying the Supreme Court’s decision in Gonzaga Univer-
sity v. Doe, 536 U.S. 273 (2002), we held that § 30(A) does
not create any federal “rights” enforceable under § 1983. San-
chez, 416 F.3d at 1068. In so holding, we did not reach the
substantive requirements of § 30(A), as we were concerned
solely with whether the plaintiffs in that case could bring suit
in federal court. In fact, Sanchez does not explore the congres-
sional “purpose” underlying § 30(A), the touchstone of fed-
eral preemption analysis. If the Sanchez court had any qualms
about Orthopaedic Hospital’s substantive interpretation of
§ 30(A), it did not say so.

   [7] More fundamentally, Sanchez cannot be read to have
overruled Orthopaedic Hospital, for three reasons. First, San-
chez does not even cite Orthopaedic Hospital, much less
overrule its holdings. Second, Sanchez was decided by a
three-judge panel that, under our circuit rules, was powerless
to overturn one of our prior decisions in the absence of inter-
vening authority, Hart v. Massanari, 266 F.3d 1155, 1171
9006         INDEPENDENT LIVING v. MAXWELL-JOLLY
(9th Cir. 2001). Third, we affirmed the “continuing vitality”
of Orthopaedic Hospital in a published opinion filed one
month after Sanchez. See Alaska Dep’t of Health & Soc.
Servs. v. Ctrs. for Medicare & Medicaid Servs., 424 F.3d 931,
940 (9th Cir. 2005). In that case, the State argued—much as
the Director has here—that subsequent developments ren-
dered Orthopaedic Hospital anachronistic. See id. We were
“not persuaded,” and we noted that “the relevant language of
§ 30(A) remains unchanged since Orthopaedic Hospital, and
thus our interpretation of its purpose, and the State’s obliga-
tions thereunder, still holds.” Id. at 940-41.

   Aside from his misreading of Sanchez, the Director also
argues that Orthopaedic Hospital is no longer good law
because its interpretation of § 30(A) “conflicts with the inter-
pretation of the federal agency that Congress vested with
authority to enforce and implement” the statute. By this, the
Director apparently means that Orthopaedic Hospital con-
flicts with the interpretation of § 30(A) presented in an amicus
brief filed by the Solicitor General when the Supreme Court
asked him to opine on whether our decision in Orthopaedic
Hospital was worthy of a grant of certiorari. In the process of
recommending denial of certiorari, the Solicitor General
opined that requiring states to reimburse medical providers at
rates roughly equal to their costs ran counter to the text and
legislative history of § 30(A). From this, the Director con-
cludes that a “federal agency” repudiated our interpretation of
§ 30(A).

   [8] Whatever the merits of the Solicitor General’s views,
we owe them no deference in this case. Although at one time
the Supreme Court suggested that a legal opinion expressed
by an agency in the course of litigation may be entitled to def-
erence, Auer v. Robbins, 519 U.S. 452, 461-63 (1997), it sub-
sequently limited such deference to an agency’s interpretation
of ambiguities in its own regulations, Christensen v. Harris
County, 529 U.S. 576, 586-88 (2000).
                INDEPENDENT LIVING v. MAXWELL-JOLLY                    9007
   [9] The Director also contends that our holding in Ortho-
paedic Hospital has been undermined by Congress’s subse-
quent repeal of the so-called “Boren Amendment,” which
required states to set hospital inpatient reimbursement rates
that were “reasonable and adequate to meet the costs which
must be incurred by efficiently and economically operated
facilities.” This argument is not persuasive either, as Ortho-
paedic Hospital itself expressly distinguished the require-
ments of the Boren Amendment, previously codified at
§ 1396a(a)(13)(A), from the “more flexible” requirements of
§ 30(A). See 103 F.3d at 1499. The fact that Congress
repealed the more rigid requirements of the Boren Amend-
ment does not speak to the propriety of our past interpretation
of § 30(A). Moreover, we have previously rejected the same
argument made by the Director in this case, noting that the
repeal of the Boren Amendment, “like its enactment, modified
§ 13(A) alone; it effected no change to § 30(A).”11 Alaska
DHSS, 424 F.3d at 941.

   Finally, the Director urges us to reconsider our interpreta-
tion of § 30(A) in Orthopaedic Hospital, noting that several
courts have disagreed with its reasoning. See, e.g., Rite Aid v.
Houstoun, 171 F.3d 842, 851 (3d Cir. 1999) (holding that
“section 30(A) requires the state to achieve a certain result but
does not impose any particular method or process for getting
   11
      The Director also attempts to graft past judicial interpretation of the
Boren Amendment onto this court’s interpretation of § 30(A). The Direc-
tor argues that because (1) Orthopaedic Hospital described § 30(A)’s
requirements as “more flexible” than the Boren Amendment, and (2)
courts held that rates covering only 85-95% of provider costs were reason-
able under the Boren Amendment, then (3) reimbursement rates within the
same “range of reasonableness” must easily meet the requirements of
§ 30(A). See Reply Brief 08-56422 at 10-11. This argument is a non-
sequitur, as Orthopaedic Hospital described the procedural requirements
of § 30(A) as “more flexible” than those of the Boren Amendment, which
required “periodic cost reports from hospitals subject to audit by the
Department.” See 103 F.3d at 1499. While § 30(A) requires less formal-
ized procedures than the Boren Amendment, it does not follow that
§ 30(A)’s substantive requirements are also less demanding.
9008         INDEPENDENT LIVING v. MAXWELL-JOLLY
to that result,” expressly disagreeing with Orthopaedic Hospi-
tal); Methodist Hosps., Inc. v. Sullivan, 91 F.3d 1026,
1029-30 (7th Cir. 1996) (holding that “[n]othing in the lan-
guage of § 1396a(a)(30) . . . requires a state to conduct studies
in advance of every modification,” as the statute merely “re-
quires each state to produce a result”). But see Ark. Med.
Soc’y, 6 F.3d at 530 (holding that § 30(A) requires the state
to “consider the relevant factors of equal access, efficiency,
economy, and quality of care as designated in the statute
when setting reimbursement rates”); Minn. Homecare Ass’n v.
Gomez, 108 F.3d 917, 918 (8th Cir. 1997) (holding that Med-
icaid Act “mandates consideration of the equal access factors
of efficiency, economy, quality of care and access to services
in the process of setting or changing payment rates,” although
“it does not require the State to utilize any prescribed method
of analyzing and considering said factors” and no “formal
analysis” is required). Even if we were at liberty to overrule
Orthopaedic Hospital, we would nonetheless affirm the dis-
trict court’s injunction, for several reasons.

   [10] First, even those courts that have rejected Orthopaedic
Hospital’s procedural requirements have generally recognized
that state Medicaid rate reductions may not be based solely on
state budgetary concerns. See Rite Aid, 171 F.3d at 856
(“[B]udgetary considerations may not be the sole basis for a
rate revision . . . .”); see also Beno v. Shalala, 30 F.3d 1057,
1069 n.30 (9th Cir. 1994); Amisub (PSL), Inc. v. Colo. Dep’t
of Soc. Servs., 879 F.2d 789, 800-01 (10th Cir. 1989); Ark.
Med. Soc’y, 6 F.3d at 531 (“Abundant persuasive precedent
supports the proposition that budgetary considerations cannot
be the conclusive factor in decisions regarding Medicaid.”).
But see Am. Soc’y of Consultant Pharmacists v. Garner, 180
F. Supp. 2d 953, 974-75 (N.D. Ill. 2001). In this case, the
record supports the district court’s conclusion that “the only
reason for imposing the cuts was California’s current fiscal
emergency.” The legislation was passed in an emergency ses-
sion called to “address[ ] the fiscal emergency declared by the
Governor.” See Declaration of Stan Rosenstein at 1 (describ-
               INDEPENDENT LIVING v. MAXWELL-JOLLY                    9009
ing the ten percent rate reduction as one option at the State’s
disposal “for dealing with the fiscal crisis”). Thus, quite apart
from any procedural requirements established by Orthopaedic
Hospital, the State’s decision to reduce Medi-Cal reimburse-
ment rates based solely on state budgetary concerns violated
federal law.

   Second, even if we were in a position to relax the proce-
dural requirements established in Orthopaedic Hospital, the
Director’s failure to study the effect of the rate reduction in
any meaningful way would still lead us to enjoin implementa-
tion of AB 5. Those courts that have criticized Orthopaedic
Hospital’s reasoning have not simply rubber-stamped rate
reductions imposed by state agencies; rather, reviewing courts
typically subject state rate-making to something akin to “arbi-
trary and capricious” review. See Rite Aid, 171 F.3d at 853
(requiring the agency’s “process of decision-making” to be
“reasonable and sound”); id. at 857 (holding that the agency’s
“11-month period of data gathering, consultation, and review
before promulgating the [rate reduction] was not so deficient
as to be arbitrary and capricious”); see also Ark. Med. Soc’y,
6 F.3d at 529-30 (noting that “[r]eview under the arbitrary and
capricious standard” is appropriate).

   In this case, the State’s own Legislative Analyst warned
that the ten percent rate reduction had “the potential to nega-
tively impact the operation of the Medi-Cal Program and the
services provided to beneficiaries by limiting access to pro-
viders and services,” and on that basis recommended that the
legislature “reject the Governor’s proposal to reduce pay-
ments for all providers except hospitals.” Nothing in the
record indicates that any other State official considered—let
alone studied—these possibilities prior to enacting the cuts.
Thus, it is far from clear that the Director would prevail under
a different standard, as there is no evidence that the agency’s
decision-making process was “reasonable and sound.”12
  12
    The Director urges us to adopt a standard similar to the Third Circuit’s
“reasonable and sound” decision-making requirement, asserting that he
9010            INDEPENDENT LIVING v. MAXWELL-JOLLY
   Third, those courts that have resisted interpreting § 30(A)
to include certain procedural requirements have nonetheless
held that § 30(A) imposes substantive obligations on states
that elect to participate in Medicaid. See Rite Aid, 171 F.3d at
851 (“Section 30(A) requires the state to achieve a certain
result.”); Methodist Hosps., 91 F.3d at 1030 (holding that if
rates are inadequate to attract sufficient providers, then “under
§ 1396a(a)(30), [the state] must raise the price until the mar-
ket clears”). In this case, Independent Living alleges that at
least some medical providers have refused to treat Medi-Cal
recipients since the ten percent rate reduction was imple-
mented. See, e.g., Supplemental Declaration of Thu-Hang
Tran at 3-5. Even if we were to interpret § 30(A) to mandate
a substantive rather than procedural result, the ten percent rate
reduction might still conflict with the quality of care and
access provisions of § 30(A), as the cuts have apparently
forced at least some providers to stop treating Medi-Cal bene-
ficiaries.

  The potential difficulties inherent in assessing substantive
compliance with the factors laid out in § 30(A) demonstrate

was required—at most—to conduct a “reasonably principled analysis” of
the rate reductions under Folden v. Wash. State Dep’t of Soc. & Health
Servs., 981 F.2d 1054, 1057 (9th Cir. 1992). We decline to do so, as Fol-
den pre-dates Orthopaedic Hospital and interpreted a separate, now
repealed section of the Medicaid Act, § 1396a(a)13(A).
   Even if we were to do so, however, we fail to see how adopting Fol-
den’s standard would aid the Director in this case. Folden held that while
“states are left considerable latitude” under the Medicaid Act and are not
required to prepare “any special studies or written findings,” state agencies
must “engage[ ] in a bona fide fact-finding process” and base their rates
on those findings. Id. Nothing in the record connects the decision to cut
Medi-Cal reimbursement rates by ten percent across-the-board to a fact-
finding process initiated by state officials. To the contrary, the record quite
plainly establishes that rates were cut to respond to the fiscal emergency.
Thus, even under Folden, the district court did not abuse its discretion in
holding that Independent Living was likely to demonstrate that AB 5 frus-
trates the purpose of § 30(A).
               INDEPENDENT LIVING v. MAXWELL-JOLLY                   9011
why the more process-oriented view of the statute espoused
in Orthopaedic Hospital has much to recommend it. As Judge
Levi stated in Clayworth v. Bonta,

       [Orthopaedic Hospital’s] approach has substantial
       practical benefits. The Medicaid Act is clearly
       intended to give states discretion and flexibility in
       setting reimbursement rates, within the limits of fed-
       eral law. The arbitrary and capricious standard[13]
       limits the court’s review of the State’s rate setting
       and permits the court to defer to the judgment of spe-
       cialists in a complex regulatory field. Furthermore,
       it is fair to assume that a rate that is set arbitrarily,
       without reference to the Section 30(A) requirements,
       is unlikely to meet the equal access and quality
       requirements.

295 F. Supp. 2d 1110, 1127 (E.D. Cal. 2003), rev’d, 140 F.
App’x 677 (9th Cir. 2005) (internal citations omitted). As
Judge Levi recognized, the framework established in Ortho-
paedic Hospital allows reviewing courts to defer to a state
agency’s balancing of competing interests, so long as the
record created by the agency demonstrates that the State con-
sidered the factors mandated by statute. In this sense, the pro-
cedural approach is far less intrusive than the “substantive
compliance” standard espoused by the Third and Seventh Cir-
cuits.

  [11] In sum, the Director has not demonstrated that Ortho-
paedic Hospital has been overruled or undermined in the past
twelve years, and a recent decision of this court expressly
  13
    Judge Levi traced the roots of Orthopaedic Hospital’s procedural
requirements to the “arbitrary and capricious” standard of review of
agency action. See 295 F. Supp. 2d 1126 & n.18. As noted above, other
courts have applied the “arbitrary and capricious” standard even after dis-
claiming the precise procedural requirements established in Orthopaedic,
which specifically mandates consideration of provider costs.
9012           INDEPENDENT LIVING v. MAXWELL-JOLLY
reaffirmed its central holding. Moreover, even if we were not
bound by Orthopaedic Hospital, there are compelling reasons
to retain Orthopaedic Hospital’s process-oriented focus. The
district court thus correctly applied binding precedent to Inde-
pendent Living’s claims in this case. Its conclusion that Inde-
pendent Living had demonstrated a likelihood of success on
the merits was not an abuse of discretion.

II.    Irreparable Harm

   [12] The Director also argues that the district court commit-
ted clear error by holding that Independent Living had dem-
onstrated a likelihood of irreparable harm. The bulk of the
Director’s argument, however, focuses on the alleged harm to
the State in light of its current fiscal crisis.14 The district court
clearly considered the hardship to the State but concluded that
any such harm was outweighed by the hardships likely to be
suffered by Medi-Cal beneficiaries, who would be forced to
go without medical care. We have previously held that it is
not legal error to conclude, when balancing “the medical or
financial hardship to [Medi-Cal recipients] against the finan-
cial hardship to the state,” that the balance of hardships
“tipped sharply” in favor of the plaintiffs, see Beltran v.
Myers, 677 F.2d 1317, 1322 (9th Cir. 1982), and we reach the
same conclusion in this case.

   The Director argues that whatever harm Independent Liv-
ing will suffer if the injunction is reversed, the State will suf-
fer more harm if the injunction is upheld. To support this
argument, the Director cites Coalition for Economic Equity v.
Wilson for the proposition that the State will be most harmed
by losing this appeal. See 122 F.3d 718, 719 (9th Cir. 1997)
(stating, in dicta, that “it is clear that a state suffers irreparable
injury whenever an enactment of its people or their represen-
  14
    This argument simply reinforces the fact that the driving force behind
the rate reduction was the State budget crisis.
               INDEPENDENT LIVING v. MAXWELL-JOLLY                   9013
tatives is enjoined”)); see also New Motor Vehicle Bd. v.
Orrin W. Fox Co., 434 U.S. 1345, 1351 (1977) (same).

   [13] As the cited authority suggests, a state may suffer an
abstract form of harm whenever one of its acts is enjoined. To
the extent that is true, however, it is not dispositive of the bal-
ance of harms analysis. If it were, then the rule requiring “bal-
ance” of “competing claims of injury,” Winter, 129 S. Ct. at
376, would be eviscerated. Federal courts instead have the
power to enjoin state actions, in part, because those actions
sometimes offend federal law provisions, which, like state
statutes, are themselves “enactment[s] of its people or their
representatives,” Coal. for Econ. Equity, 122 F.3d at 719.
Here, Independent Living alleges that allowing AB 5’s imple-
mentation would violate the Medicaid Act and the Constitu-
tion. If we uphold the injunction and interfere with AB 5’s
implementation, then we will have determined that to do oth-
erwise would permit a violation of a federal law which, like
AB 5, was produced by a democratic process. Therefore, in
assessing the relative harms to the parties, we reject the Direc-
tor’s suggestion that, merely by enjoining a state legislative
act, we create a per se harm trumping all other harms.

   [14] The Director also challenges the evidence of irrepara-
ble injury provided by certain Independent Living entities,
taking issue with the gravity of the economic harms alleged
by pharmacists and other medical providers. The Director
fails to acknowledge, however, that several of the entities are
Medi-Cal recipients. This court has previously held that
Medi-Cal recipients may demonstrate a risk of irreparable
injury by showing that enforcement of a proposed rule “may
deny them needed medical care.” Beltran, 677 F.2d at 1322.
In this case, the district court carefully considered the volumi-
nous evidence presented by the parties, concluding that Inde-
pendent Living had made such a showing with respect to
some medical services and failed to do so with respect to others.15
   15
      The district court found that the Independent Living failed to demon-
strate irreparable harm as to non-contract hospitals and managed care
plans. 2008 WL 3891211, at *9-10. Independent Living does not chal-
lenge these findings on appeal.
9014           INDEPENDENT LIVING v. MAXWELL-JOLLY
Aside from restating its own evidence, the Director does not
present any specific reason why the district court’s weighing
of Independent Living’s evidence was erroneous. We there-
fore refuse to disturb the district court’s factual findings
regarding irreparable injury, which we review for clear error.16

III.   Balance of Equities and the Public Interest

   [15] Finally, the Director contends that the district court
erred in its assessment of the public interest. The public inter-
est analysis for the issuance of a preliminary injunction
requires us to consider “whether there exists some critical
public interest that would be injured by the grant of prelimi-
nary relief.” Hybritech Inc. v. Abbott Labs., 849 F.2d 1446,
1458 (Fed. Cir. 1988). The district court held that, although
“there is a public interest in ensuring that the State has enough
money to meet its financial obligations,” this interest was out-
weighed by the public interest “in ensuring access to health
care.” The Director argues that, in light of the State budget
crisis, the balance of hardships tips in his favor, as the cuts
mandated under AB 5 are necessary to help reduce the State
budget deficit.

   [16] We do not doubt the severity of the fiscal challenges
facing the State of California. State budgetary concerns can-
not, however, be “the conclusive factor in decisions regarding
Medicaid.” Ark. Med. Soc’y, 6 F.3d at 531. A budget crisis
does not excuse ongoing violations of federal law, particularly
when there are no adequate remedies available other than an
injunction. Ala. Nursing Home Ass’n v. Harris, 617 F.2d 388,
396 (5th Cir. 1980) (“Inadequate appropriations do not excuse
noncompliance.”); see also Beno v. Shalala, 30 F.3d 1057,
1069 (9th Cir. 1994) (rejecting budget cutting as grounds for
waiver of federal AFDC requirements). State budgetary con-
  16
    Independent Living has not appealed that portion of the district court’s
order concluding that they failed to demonstrate irreparable injury as to
some services. Those findings are therefore not before us.
                INDEPENDENT LIVING v. MAXWELL-JOLLY                    9015
siderations do not therefore, in social welfare cases, constitute
a critical public interest that would be injured by the grant of
preliminary relief. In contrast, there is a robust public interest
in safeguarding access to health care for those eligible for
Medicaid, whom Congress has recognized as “the most needy
in the country.” Scweiker v.. Hogan, 457 U.S. 569, 590,
(1982) (quoting H.R. Rep. No. 213 89th Conf. 1st Sess., 66
(1965)). We therefore hold that the district court did not abuse
its discretion in concluding that the balance of hardships and
the public interest weighed in favor of enjoining implementa-
tion of the ten percent rate reduction required by AB 5. See
Beltran, 677 F.2d at 1322.

IV.    Sovereign Immunity and the Order Modifying the
       Injunction

   On cross-appeal, Independent Living challenges the district
court’s August 27, 2008 order modifying its August 18, 2008
order granting Independent Living’s motion for a preliminary
injunction. Independent Living principally argues that, in
modifying the earlier order to eliminate its retroactive effect,
the district court misconstrued the extent of the State’s sover-
eign immunity.17 Independent Living contends that the State
of California has consented to actions in state court for retro-
active awards of unlawfully withheld funds. Independent Liv-
ing further maintains that, by removing this case to federal
  17
    Independent Living also argues that the Director waived the argument
that it enjoys sovereign immunity from suit separate from its Eleventh
Amendment immunity. It did so, Independent Living maintains, because
before the district court, the Director claimed only that it was protected by
Eleventh Amendment immunity, not any other form of sovereign immu-
nity. Indeed, sovereign immunity “derives not from the Eleventh Amend-
ment but from the structure of the original Constitution itself.” Alden v.
Maine, 527 U.S. 706, 728 (1999) (citing Idaho v. Coeur d’Alene Tribe of
Idaho, 521 U.S. 261, 267-268 (1997)). However, the Supreme Court has
also noted that the term “Eleventh Amendment Immunity” is “convenient
shorthand . . . for the sovereign immunity of the states.” Id. at 713. We
will not penalize the Director for employing an established semantic con-
vention.
9016          INDEPENDENT LIVING v. MAXWELL-JOLLY
court, the Director waived whatever immunity he had in state
court. The Director responds that the district court correctly
modified the August 18 order. He contends that requiring a
state agency to expend state funds based on past conduct vio-
lates state sovereign immunity, which, the Director insists,
was never waived in either the state or federal forum.

   The doctrine of state sovereign immunity generally prohib-
its damage suits against states in both state and federal court
without their consent. The doctrine comes from the Eleventh
Amendment, but its essence “derives . . . from the structure
of the original Constitution itself.” Alden, 527 U.S. at 728; see
id. at 713 (characterizing sovereign immunity as “a funda-
mental aspect of the sovereignty which the States enjoyed
before ratification of the Constitution, and which they retain
today”).

   The Supreme Court has held that state sovereign immunity
bars citizens of any state from bringing a lawsuit for damages
against a state or state agency. Will v. Mich. Dep’t of State
Police, 491 U.S. 58, 71 (1989); see also Edelman v. Jordan,
415 U.S. 651, 662-63 (1974); Hans v. Louisiana, 134 U.S. 1,
10 (1890). However, there are three well-established excep-
tions to this general rule. Two of them—Ex parte Young and
state waiver (both explicit consent and implied removal
waiver)—are relevant here, and we consider them below.18

  A.    The Order’s Validity Under Ex parte Young

  Although the Eleventh Amendment expressly prohibits
suits against states in both law and equity, a plaintiff may
nonetheless maintain a federal action to compel a state offi-
  18
    The other exception is that Congress may validly abrogate a state’s
sovereign immunity through legislation passed pursuant to the Fourteenth
Amendment. Fitzpatrick v. Bitzer, 427 U.S. 445, 456 (1976) (holding that
Congress may abrogate states’ sovereign immunity via legislation enacted
pursuant to Fourteenth Amendment).
                INDEPENDENT LIVING v. MAXWELL-JOLLY                    9017
cial’s prospective compliance with the plaintiff’s federal
rights. Ex parte Young, 209 U.S. 123, 156 (1908); id. at 160
(“The State has no power to impart to [its officer] any immu-
nity from responsibility to the supreme authority of the United
States.”); see also Quern v. Jordan, 440 U.S. 332, 337 (1979)
(citing Young, 209 U.S. 123). The court may order such an
injunction even if the state’s compliance will have an “ancil-
lary effect” on the state treasury. Edelman, 415 U.S. at 667-68
(citing Young, 209 U.S. 123). This exception applies only to
prospective relief; it does not permit retroactive injunctive
relief. Id. at 668.

   In this case, the August 18 order constituted retroactive
relief under our controlling precedent. In Native Village of
Noatak v. Blatchford, we held that, “[i]n requesting an order
requiring the Commissioner to perform his ‘legal duty’ to dis-
burse . . . funds” to him, the plaintiff “essentially seeks an
injunction directing the state to pay damages.” 38 F.3d 1505,
1512 (9th Cir. 1994). What the plaintiff sought, we held, was
“precisely the type of retroactive relief that the Supreme
Court refused to allow in Edelman,” and therefore his “at-
tempt to characterize its claim as one for prospective relief
fail[ed] to avoid the bar of the Eleventh Amendment.” Id.

   In this matter, the August 18 order provided retroactive
relief that required the State to pay monetary compensation to
affected providers.19 Therefore, under Native Village of
Noatak, the retroactive portion of that order does not fall
under the Ex parte Young exception to the sovereign immu-
nity doctrine. As a result, the order violated the State’s sover-
  19
    In so deciding, we employ the approach used by the Second, Fourth,
and Seventh Circuits, i.e., whether relief is prospective or retrospective in
the Medicaid payment context turns on the date of service, not the date of
payment. See, e.g., New York City Health & Hosps. Corp. v. Perales, 50
F.3d 129, 137 (2d Cir. 1995); Wisc. Hosp. Ass’n v. Reivitz, 820 F.2d 863,
867 (7th Cir. 1987). Therefore, an order enjoining payment reductions for
services that had been delivered before August 18 services is retroactive,
even if the Department had not yet tendered payment for the services.
9018         INDEPENDENT LIVING v. MAXWELL-JOLLY
eign immunity unless the Director waived that immunity—
impliedly through removal, explicitly through consent to suit
in state court, or through some combination thereof—an issue
we now consider.

    B.   The State’s Waiver of Sovereign Immunity

   [17] Even if a plaintiff seeks damages for past conduct,
sovereign immunity will not insulate a state from suit in state
court, provided the state has previously consented to be sued
in state court under like circumstances. See Carey v. Nev.
Gaming Control Bd., 279 F.3d 873, 877 (9th Cir. 2002).
While a state’s consent to suit in its own courts does not
waive sovereign immunity against suit in federal court, Carey,
279 F.3d at 877 (noting that waiver of sovereign immunity
“only gives [the state’s] consent to suits in its own courts”),
a state that consents to suit in state court cannot invoke the
sovereign immunity defense after removing the suit to federal
court, Embury v. King, 361 F.3d 562, 566 (9th Cir. 2004);
Stewart v. North Carolina, 393 F.3d 484, 488 (4th Cir. 2005).
As a result, given that the Director removed the case, sover-
eign immunity will not protect him if the State has previously
consented to suits like this one in state court.

   Here, Independent Living points to several state authorities
it claims constitute such consent. First, it notes that California
Code of Civil Procedure § 1085 provides:

       A writ of mandate may be issued by any court to
    any inferior tribunal, corporation, board, or person,
    to compel the performance of an act which the law
    specially enjoins, as a duty resulting from an office,
    trust, or station.

Though it does not explicitly waive sovereign immunity
against retroactive disbursements, this provision can be read
to sanction judicially ordered fund disbursements generally.
             INDEPENDENT LIVING v. MAXWELL-JOLLY          9019
   California state courts, some interpreting California Code
of Civil Procedure § 1085, have condoned such orders in
more explicit terms. Various decisions have interpreted state
law to permit mandamus actions seeking disbursement of
unlawfully withheld funds. See, e.g., County of L.A. v. Riley,
128 P.2d 537, 543 (Cal. 1942); L.A. County v. State Dep’t of
Pub. Health, 158 Cal. App. 2d 425, 443 (1958). Notably,
some of these cases have specifically recognized the availabil-
ity of monetary awards against a state agency or official
resulting from unlawfully withheld health and welfare pay-
ments. See Mission Reg’l Med. Ctr. v. Shewry, 168 Cal. App.
4th 460, 480 (Cal. Ct. App. 2008) (citing Code of Civil Proce-
dure § 1085); Santa Ana Hosp. Med. Ctr. v. Belshi, 56 Cal.
App. 4th 819, 837 (Cal. Ct. App. 1997) (noting that “[a]ctions
seeking traditional mandamus to compel a state officer to
comply with a mandatory duty to disburse funds do not
invade sovereign immunity, even though they involve an inci-
dental monetary award” (citing of Sacramento v. Lackner, 97
Cal. App. 3d 576, 587-88 (Cal. Ct. App. 1979))). In County
of Los Angeles v. Riley, the court authorized back payments
for needy services against the State and noted that “[t]he rule
is well established in this state that where the action is one
simply to compel an officer to perform a duty expressly
enjoined upon him by law, it may not be considered a suit
against the state.” 128 P.2d at 543 (citing, e.g., Bd. of Dirs.
of Woman’s Relief Corps Home Ass’n of Cal. v. Nye, 8 Cal.
App. 527 (Cal. Ct. App. 1908)); see also L.A. County v. State
Dep’t of Pub. Health, 158 Cal. App.2d at 442-43; id. at 443
(holding that because “the object of the present suits is to
compel state officers to disburse funds specifically appropri-
ated for tuberculosis subsidies in the manner provided by the
statute,” the order involves “no invasion of state sovereignty
and does not fall within the rule precluding suits against the
state without its consent”).

   [18] Thus, California has construed the scope of its sover-
eign immunity as it relates to awards of unlawfully withheld
funds more narrowly than have the federal courts. Compare,
9020            INDEPENDENT LIVING v. MAXWELL-JOLLY
e.g., L.A. County, 158 Cal. App.2d at 442-43 with Edelman,
415 U.S. at 668, and Noatak, 38 F.3d at 1512. Under Califor-
nia law, an action seeking injunctive relief that requires a state
official to disburse funds is not an action against the State.
Thus, it does not implicate the State’s sovereign immunity
against liability in its own courts. Had this action remained in
state court, the Director would not have enjoyed sovereign
immunity against a order directing payment of retroactive
benefits.

   [19] Under our precedent, because the Director enjoyed no
sovereign immunity in state court against a order directing
payment of retroactive benefits, it follows that the Director—
by removing the case to federal court—waived sovereign
immunity in that forum as well. See Embury, 361 F.3d at 566
(citing Lapides v. Board of Regents, 535 U.S. 613, 623-24
(2002)) (holding that, in removing a case to federal court, a
state defendant waives its Eleventh Amendment immunity);
see also Stewart, 393 F.3d at 488. Embury’s rule is grounded
on the Supreme Court’s holding in Lapides, which held that
where a state removed a state law defamation action to federal
court, it waived its sovereign immunity against the state
claim. Id. at 624. Embury extended Lapides’s principle to fed-
eral claims.20 361 F.3d at 565-66 (citing Lapides, 535 U.S. at
  20
     The Director argues that Lapides and Embury should essentially be
confined to their facts. Under this reading, the rule applies only where a
state has already consented to suit in its own state courts and thus, a state
defendant removing a case to federal court takes with it whatever sover-
eign immunity it had in state court. Other courts have endorsed this nar-
row view of Lapides’s waiver rule. E.g., Stewart, 393 F.3d at 488 (stating
that Lapides “does not resolve whether a state that has not consented to
suit in its own courts maintains [immunity] upon voluntarily removing a
case to federal court”); id. at 490 (construing Lapides to mean that in such
an instance, a state does not waive sovereign immunity by removal); see
also Watters v. Wash. Metro. Area Transit Auth., 295 F.3d 36, 42 n.13
(D.C. Cir. 2002) (noting that “[a]s the [states] have not waived immunity
from attorney’s liens in their own courts, the narrow holding of Lapides
does not apply to this case,” and the defendant’s removal did not waive
its sovereign immunity). While our Embury holding strongly suggests a
broader interpretation of Lapides, our conclusion that the Director con-
sented to suit in state court renders the issue moot for the purpose of this
case.
             INDEPENDENT LIVING v. MAXWELL-JOLLY             9021
620, 623-24). Under Embury, the Director, having waived
state court immunity, also waived federal court sovereign
immunity by voluntarily removing the action. Because the
Director lacked sovereign immunity against retroactive
orders, the district court’s August 18 order should have
applied retroactively. As a result, by basing its order on an
erroneous legal standard, the district court erred in eliminating
the injunction’s retroactive effect. We hold that the district
court’s injunction should extend to all services covered by
that injunction and provided on or after July 1, 2008.

  C.   Other Claims of Error Regarding the August 27,
       2008 Order

   Independent Living also contends that the district court’s
August 27, 2008 order violated their right to due process,
namely, their property right in the judgment reflected in the
court’s August 18, 2008 order. They also allege that, in modi-
fying the August 18 order, the district court abused its discre-
tion under Federal Rule of Civil Procedure 59(e). Based on
our conclusion that the August 27, 2008 order erroneously
construed the State’s sovereign immunity, we do not reach
these claims.

                        CONCLUSION

   The district court properly applied this court’s prior deci-
sion in Orthopaedic Hospital to hold that Independent Living
has demonstrated a likelihood of success on the merits. More-
over, the district court did not abuse its discretion in determin-
ing that the balance of hardships tips sharply in Independent
Living’s favor, as the ten percent rate reduction threatens
access to much-needed medical care. We therefore affirm the
district court’s order granting in part Independent Living’s
motion for a preliminary injunction.

   However, the district court’s subsequent order modifying
the injunction to apply only to payments for services provided
9022         INDEPENDENT LIVING v. MAXWELL-JOLLY
on or after August 18 was based on an erroneous legal stan-
dard. The State of California has waived its sovereign immu-
nity against mandamus actions in state courts seeking
reimbursement of unlawfully withheld funds, and the Direc-
tor, by voluntarily removing this case to federal court, waived
the State’s sovereign immunity in federal court. We therefore
reverse the district court’s August 18 order modifying the
injunction and remand to the district court for further proceed-
ings consistent with this opinion.

 AFFIRMED          in   part,   REVERSED        in   part,   and
REMANDED.