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holding that under California's "Medi-Cal" program, the California insurance program analogous to Tenncare, a provider "does not have a protected property interest in continued participation in the Medi-Cal program."
Summary of this case from Latimer v. RobinsonOpinion
CASE NO. CV 02-06539 MMM (CTx)
August 29, 2003
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS THE FIRST AMENDED COMPLAINT
This action concerns an investigation of plaintiff Dr. Walter Maynard by the California Department of Health Services ("State DHS"). State DHS sanctioned Dr. Maynard for Medi-Cal fraud following an unannounced inspection of his offices in April 2002. Dr. Maynard challenged the agency's findings over a two year period, invoking its administrative appeals process and filing a petition for writ of mandamus in the Sacramento Superior Court. Eventually, the court determined that State DHS had not had grounds to withhold plaintiff's Medi-Cal payments or suspend/deactivate his medical provider number. Following conclusion of the state court proceedings, Dr. Maynard sued in this court for violation of his constitutional right to procedural due process, alleging damage to his medical practice and his reputation. Defendants have moved to dismiss the first amended complaint.
I. FACTUAL BACKGROUND
Plaintiff Dr. Walter Maynard resides in the County of Los Angeles. He has been licensed to practice medicine in California since 1971. Dr. Maynard was a radiology resident at Harbor General Hospital in Torrance, California in 1971, and a radiology resident at Martin Luther King Jr. General Hospital in Los Angeles between 1971 and 1974. He has been board certified in radiology and nuclear medicine since 1974. In addition to these specialties, Dr. Maynard has practiced general medicine in Inglewood, California since 1974. In 1999, he expanded the practice to a second office in Los Angeles, California.
First Amended Complaint, ¶ 3.
Id., ¶ 3.
Id., ¶ 10.
Id.
A/., ¶ 11.
Id.
In addition to numerous other professional activities, Dr. Maynard is currently a clinical associate professor of radiology at the University of Southern California Keck School of Medicine. He is a member of various professional associations, including the National Medical Association, the Radiological Society of North America, and the Los Angeles Radiological Society. He is active in community activities, having held leadership positions in the Boy Scouts of America, and served as a Past President of the Los Angeles Chapter of the Meharry Medical College Alumni Association and a former vice-chair of the Board of Trustees of the University of West Los Angeles Law School. Throughout his professional career, Dr. Maynard has provided services to all types of patients, including Medi-Cal and other indigent patients.
Id., ¶ 12.
Id.
Id.
Id., ¶ 13.
Defendant Diana M. Bonta is currently Director of the State Department of Health Services. Defendant Alan J. Eng is Chief of the Administrative Sanctions Unit of State DHS. In October 1999, Bonta announced that Governor Gray Davis had recently signed new state laws that would assist in detecting and preventing Medi-Cal fraud and abuse, and punishing persons who committed it. According to Bonta's October 4, 1999, letter, the responsibility for implementing a coordinated Fraud Prevention Initiative and convening a Medi-Cal Fraud Task Force was delegated to State DHS. To implement the Fraud Prevention Initiative, Bonta announced that State DHS had established the "Medi-Cal Fraud Prevention Bureau." The State DHS Medi-Cal Fraud Prevention Bureau is distinct and separate from the federally mandated state Medicaid Fraud Control Unit, which is located in the California Attorney General's Office.
Id., ¶ 4.
Id., ¶ 6.
Id., ¶ 21.
Id., ¶ 21.
Id.
Id.
Defendant J. Alan Cates has headed the State DHS Medi-Cal Fraud Prevention Bureau since its inception in 1999. On December 30, 1999, in his capacity as Chief of the new Medi-Cal Fraud Prevention Bureau, Cates informed Medi-Cal providers that State DHS would be making "on-site visits" to Medi-Cal providers to assess the risk of fraud and abuse. Cates stated that individual appointments would not be feasible because State DHS "specialists" would be visiting all providers. He explained that on-site visits would thus be "unannounced" and executed without search warrants or subpoenas.
Id.
Id., ¶ 22.
Id.
Id.
Defendant Anna Nieto Gomez is the Section Chief of the Medical Review Branch of the Audits and Investigations Division of State DHS in Santa Ana. Defendant Maureen Bertrand is an employee of the Audits and Investigations Branch of State DHS. One of her responsibilities is to conduct reviews and audits of Medi-Cal payments made to physicians and other providers. Prior to April 11, 2000, Bertrand performed an internal review of the Medi-Cal payments made to Dr. Maynard at his Los Angeles and Inglewood offices between February 28 and April 3, 2000. During her internal review, Bertrand determined that approximately 75% of Dr. Maynard's Medi-Cal revenues at the Los Angeles office resulted from pregnancy testing and new patient office visits. She also performed an internal investigation of Dr. Maynard's Medi-Cal claims for his Inglewood office prior to April 11, 2000, and found that his Medi-Cal billings had increased significantly during the review period. Bertrand made no attempt to contact Dr. Maynard before conducting unannounced visits of Dr. Maynard's Los Angeles and Inglewood offices.
Id., ¶ 7.
Id., ¶ 8.
Id., ¶ 33.
Id., ¶ 33.
Id., ¶ 33.
Id., ¶ 34.
Id., ¶ 34.
Id., ¶ 34.
On the morning of April 11, 2000, Bertrand made an unannounced visit to Dr. Maynard's Los Angeles office. She did not have a warrant to search the office nor did she have any type of documents subpoena. Dr. Maynard was not present at the office when she arrived, as he was in the Inglewood office. Bertrand demanded records regarding ten Medi-Cal patients and also demanded an immediate tour of the office. Dr. Maynard rushed from Inglewood to Los Angeles to speak with Bertrand. He did not voluntarily consent to her search of his office or records. When Bertrand insisted, however, he informed her that the records requested were located elsewhere and told her to go there to review them. Bertrand refused, and insisted that Dr. Maynard copy and submit the records to her. She then proceeded to conduct a search of the office. Bertrand next proceeded to Dr. Maynard's Inglewood office, where she inspected the facility and records. Once again, Bertrand had no search warrant or subpoena, and Dr. Maynard did not voluntarily consent to a search. Bertrand's search of the Los Angeles office lasted approximately one to two hours; her search of the Inglewood office lasted approximately thirty minutes. While on the premises, she discussed certain Medi-Cal billing issues with Dr. Maynard, and insisted that he was required to obtain "prior approval" from the Medi-Cal program before performing ultrasound services for Medi-Cal beneficiaries. Dr. Maynard disagreed with Bertrand regarding this requirement. He also stated that he would produce copies of the records Bernard had requested.
Id., ¶ 35.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id., ¶ 36.
Id.
Id., ¶ 37.
Id.
Id.
On April 20, 2000, before he had provided the requested records, Bertrand and her supervisor, defendant Gomez, caused State DHS to issue a letter summarily imposing severe Medi-Cal sanctions on Dr. Maynard. The letter stated that State DHS was (1) immediately withholding 100% of Dr. Maynard's Medi-Cal payments and (2) temporarily suspending and deactivating his Medi-Cal provider numbers effective May 1, 2000. Payments were withheld based on Bertrand's determination that (1) Dr. Maynard had received Medi-Cal payments for ultrasound studies that were not provided at the "claimed address" and that were "mobile x-ray studies"; (2) he was unable to describe who performed the ultrasound studies and did not supervise, refer or provide the services as claimed; and (3) he was unable to "provide evidence that the claimed services were actually rendered to Medi-Cal beneficiaries." Based on these findings, State DHS concluded that Dr. Maynard "ha[d] committed fraud, abuse, or willful misrepresentation under the Medi-Cal program with regard to [his] Medi-Cal practice." The letter advised Dr. Maynard that he had limited "appeal rights" respecting the withhold decision, and that withholding would continue until Medi-Cal or prosecutorial agencies concluded there was insufficient evidence of fraud or legal proceedings regarding the alleged fraud were completed. State DHS also suspended and deactivated Dr. Maynard's Medi-Cal provider numbers, effective May 1, 2000, because he was "under investigation for fraud or abuse." The April 20, 2000, letter stated that the temporary suspension and deactivation would continue until State DHS determined that the fraud investigation was concluded or until legal proceedings regarding the alleged fraud terminated.
Id., ¶ 38.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
On June 19, 2000, Dr. Maynard filed a written appeal with the State DHS Office of Administrative Hearings and Appeal, challenging both the withholding of payments and the suspension/deactivation of his Medi-Cal provider numbers. The appeal asserted that Bertrand had not given Dr. Maynard a reasonable opportunity to produce copies of the records she requested before concluding that he had engaged in fraud; it attached copies of the records for review. The appeal further contended that Dr. Maynard did, in fact, oversee, review and supervise the provision of services to various patients, and disputed the "prior authorization" requirement on which Bertrand had insisted. It characterized the fraud charges as "absurd," and accused State DHS of a "blatant abuse of power." Dr. Maynard included in his letter a bound and indexed volume of complete medical records for all requested patients with "soft" copies of all requested ultrasound examinations. Additionally, he included "realtime" videotapes of the examinations.
Id., ¶ 39.
Id.
Id.
Id.
Id.
Id.
On October 19, 2000, the State DHS Office of Administrative Hearing and Appeals summarily upheld the sanctions. The hearing officer found that Dr. Maynard had billed the Medi-Cal program for services that were "medically unnecessary or were never provided to Medi-CaI beneficiaries," and that he had operated a mobile service that required him to obtain prior authorization before rendering services. The hearing officer also upheld the temporary suspension/deactivation of Dr. Maynard's provider numbers because he was "currently under investigation." Dr. Maynard was thus deprived temporarily of the Medi-Cal payments that State DHS withheld. Because he continued to provide some services to needy Medi-Cal patients, primarily prenatal patients, and was prohibited from billing Medi-Cal for such services, he was also permanently deprived of the right to be paid for post-May 1, 2000, services furnished to Medi-Cal beneficiaries.
Id., ¶ 40.
Id.
Id.
Id., ¶ 41.
After making repeated, unsuccessful attempts to convince defendants to lift the sanctions, Dr. Maynard filed a petition for writ of mandate in Sacramento Superior Court in late 2001. His petition contended that the allegations giving rise to the Medi-Cal sanctions were baseless, and that the sanctions had to be lifted because they were no longer temporary. Defendant Bonta responded to Dr. Maynard's lawsuit, contending that the sanctions were justified and that Dr. Maynard remained under investigation for Medi-Cal fraud. State DHS submitted the declaration of a California Department of Justice special agent in December 2001, who stated that his office was actively investigating Dr. Maynard for Medi-Cal fraud.
Id., ¶ 42.
Id.
Id., ¶ 43.
Id.
On January 4, 2002, the Superior Court ordered State DHS to complete its investigation of Dr. Maynard within thirty days or show good cause why the investigation could not be completed within that time. On February 15, 2002, counsel for State DHS advised the court that efforts to obtain more information regarding the status of the investigation "had not been fruitful." Counsel's letter stated that "because [the state was] unable to provide additional evidence of the status of [the] investigation . . ., [it did] not oppose th[e] Court's issuance of a Writ of Mandate directing the Department to reinstate [Dr. Maynard's] provider numbers." On March 22, 2002, State DHS advised Dr. Maynard's lawyer that, pursuant to the state court's March 1, 2002, judgment, it had rescinded the withhold order on his Medi-Cal payments and lifted the suspension/deactivation of his Medi-Cal provider numbers.
Id.
Id.
Id.
Id., ¶ 44.
On August 21, 2002, Dr. Maynard filed this action, seeking damages pursuant to 42 U.S.C. § 1983. On September 30, 2002, defendants filed a motion to dismiss, which was granted on November 18, 2002. Plaintiff then filed a first amended complaint on November 22, 2002. The first amended complaint seeks damages under 42 U.S.C. § 1983 against the state employees in their individual capacities, alleging that their withholding of Dr. Maynard's Medi-Cal payments, their suspension/deactivation of his provider numbers, and their unannounced searches of his offices deprived him of due process, and violated his rights under 42 C.F.R. § 455.13 and 455.23. As a result of these alleged violations, Dr. Maynard contends he has suffered damages, including (1) harm to his professional reputation and reputation for honesty and veracity; (2) deprivation of Medi-Cal income in the approximate amount of $15,000 per month since May 1, 2000; (3) loss of his private radiological practice and forced sale of his Los Angeles medical practice; (4) inability to obtain employment as a hospital radiologist because of the Medi-Cal sanctions, depriving him of a monthly income of $25,000 since August 2001; (5) financial ruin; (6) attorneys' fees and litigation expenses; and (7) emotional distress. Dr. Maynard seeks compensatory damages, punitive damages, attorneys' fees and costs.
First Amended Complaint, ¶¶ 47-51.
Id., ¶ 52.
On January 14, 2003, defendants filed a motion to dismiss the first amended complaint. A corrected motion was filed on March 3, 2003. Defendants argue that the complaint must be dismissed because it fails to state a claim for relief under § 1983 against all defendants. Defendants further assert that the claims against defendant Gonzales must be dismissed because she has not been properly added as a new defendant and has not been properly served. Plaintiff filed opposition to the motion on March 3, 2003, and supplemental opposition to the corrected motion on March 5, 2003.
II. DISCUSSION
A. Legal Standard Governing Motions To Dismiss
A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint. FED. R. Civ. PROC. 12(b)(6). A court may not dismiss a complaint for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). See also Moore v. City of Costa Mesa, 886 F.2d 260, 262 (9th Cir. 1989); Haddock v. Board of Dental Examiners, 777 F.2d 462, 464 (9th Cir. 1985) (stating that a court should not dismiss a complaint if it states a claim under any legal theory, even if plaintiff erroneously relies on a different theory). In other words, a Rule 12(b)(6) dismissal is proper only where there is either a "lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988).
In deciding a motion to dismiss for failure to state a claim, the court's review is limited to the contents of the complaint. Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir. 1996); Allarcom Pay Television. Ltd. v. General Instrument Corp., 69 F.3d 381, 385 (9th Cir. 1995). The court must accept all factual allegations pleaded in the complaint as true, and must construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996); Mier v. Owens, 57 F.3d 747, 750 (9th Cir. 1995) (citing Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987)); NL Indus. Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). It need not, however, accept as true unreasonable inferences or conclusory legal allegations cast in the form of factual allegations. Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981), cert. denied, 454 U.S. 1031 (1981).
B. Whether Anna Nieto Gomez Has Been Properly Added as a New Defendant
Defendants assert that the first amended complaint must be dismissed against defendant Anna Nieto Gomez because the court's order dismissing the original complaint did not grant plaintiff leave to add new defendants. The addition of new parties is governed by Rule 21 of the Federal Rules of Civil Procedure. This rule states, in relevant part, that "parties may be dropped or added by order of the court on motion of any party or of its own initiative at any stage of the action and on such terms as are just." FED.R.ClV.PROC. 21. Therefore, pursuant to Rule 21, new parties may only be added "by order of the court. " Rule 15(a), however, provides that "a party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served. . . ." FED.R.CIV.PROC. 15(a). Arguably, therefore, Rule 15(a) provides an exception to Rule 21.
Federal courts are divided as to whether, despite the first sentence of Rule 15(a), an amendment naming a new defendant may be filed only with leave of court prior to the time an answer is filed. Several courts have held that Rule 15(a) allows amendment of a pleading to add a party as a matter of course before a responsive pleading is filed. See, e.g., United States ex rel Precision Co., v. Koch Indus., Inc., 31 F.3d 1015, 1018-19 (10th Cir. 1994) ("'There is a division of authority among the circuits concerning the allowance of amendments which involve the adding of parties. However, we believe the philosophy underlying the federal rules [has been] well expressed by the Supreme Court . . . and is controlling: The Federal Rules reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome and accept the principle that the purpose of pleading is to facilitate a proper decision on the merits/ This purpose is not furthered by giving Rule 15 lip service rather than full fealty. Nor is the purpose of the federal rules furthered by denying the addition of a party who has a close identity of interest with the old party when the added party will not be prejudiced. The ends of justice are not served when forfeiture of just claims because of technical rules is allowed. Because the amendment was made before defendants had filed a responsive pleading, plaintiffs were entitled to the amendment as a matter of right, " quoting Travelers Indent. Co. v. United States ex rel. Construction Specialties Co., 382 F.2d 103, 105-06 (10th Cir. 1967), and Conley v. Gibson, 355 U.S. 41, 48 (1957)); McLellan v. Mississippi Power Light Co., 526 F.2d 870, 872-73 (5th Cir. 1976) ("Which rule takes precedence if a party attempts to drop or add parties by an amended pleading filed before a responsive pleading is served? May the amending party file his amendment as a matter of course (first sentence of Rule 15) or must he obtain leave (Rule 21)? The district court cases are divided. The question has not been squarely decided at the circuit level. The District Court in this case gave precedence to Rule 21. We reach the opposite conclusion").
Other courts, however, have held that a party must obtain leave of court before amending a complaint to add a party, even where no other amendments have been made and no responsive pleading has been filed. See, e.g., Moore v. State of Indiana, 999 F.2d 1125, 1128 (7th Cir 1993) ("Although Rule 15(a) generally permits the plaintiff to amend his complaint once as a matter of course before a responsive pleading is served, here, the plaintiff's requested amendment required leave from the court because it sought to assert claims against additional defendants," citing LaBatt v. Twomey, 513 F.2d 641, 651, n. 9 (7th Cir. 1975) ("[I]t is clear that, while the amended complaint could not, as a matter of course, add new parties defendant, this does not destroy the effect of the amended complaint as an amendment as of right as to the defendant Twomey")); Gordon v. Lipoff, 320 F. Supp. 905, 923 (W. D. Mo. 1970) ("We recognize, of course, that the Federal Rules of Civil Procedure should be liberally construed and applied in accordance with their declared purpose. But we also recognize, as the cases cited illustrate, that the question of whether parties should or should not be dropped from or added to an action presents problems of judicial administration over which the Court, rather than the parties and their counsel, should maintain control at every stage of the action. Rule 21 so provides. Neither Rule 15(a) nor the Notes of the Advisory Committee intimate[s] than an exception to Rule 21 was intended by the provision of Rule 15(a) which permits a party to amend without leave of court before a responsive pleading is filed"); International Broth, of Teamsters, Chauffeurs, Warehousemen and Helpers of America v. American Federation of Labor and Congress of Indus. Organizations, 32 F.R.D. 441, 442 (E.D. Mich. 1963) ("An amendment to a complaint which adds or drops a party requires an order of the Court (Rule 21, F.R, Civ. P.), regardless of whether it precedes or follows the first responsive pleading of any defendant. Rule 15(a), F.R.Civ.P., refers, in general terms, to the broad subject of changes in the parties to the action, by adding or dropping some of such parties. Any conflict or ambiguity which results from a comparison of the two rules must be resolved in favor of the specific and against the general. Thus, when a proposed amendment to a complaint seeks to effect a change in the parties to the action, Rule 21, F.R.Civ.P., controls and, to that extent, limits Rule 15(a), F.R.Civ.P."). The Ninth Circuit has not addressed the issue.
The court finds the analysis set forth in the opinions of the Fifth and Tenth Circuits more persuasive. The language of Rule 15(a) appears to establish an exception to the strict requirements of Rule 21. Moreover, defendants are not prejudiced in any way by an amendment of the type proposed at this stage of the proceedings. Finally, even if the court were to find that Rule 15(a) does not control, and that leave of the court is required, it would find, given the early stage of the proceedings and the good cause for the proposed amendment shown, that plaintiff should be given leave to add Gomez as a defendant pursuant to Rule 21. Accordingly, the court concludes that Gomez's addition as a defendant is proper despite the fact that the court's prior order did not specifically grant plaintiff leave to add new party defendants. C. Whether the Complaint States a Claim Under 42 U.S.C. § 1983
To the extent that Gomez has not been personally served with summons and complaint in the action, the court directs that plaintiff effect service on her within seven days of the date of this order.
Defendants argue second that the first amended complaint must be dismissed as to all defendants because it fails to state a claim under 42 U.S.C. § 1983. To state a claim under § 1983, Dr. Maynard must allege that (1) defendants violated his federal rights (2) while acting under color of state law. See West v. Atkins, 487 U.S. 42, 48 (1988). As the Supreme Court has stated, § 1983 "is not itself a source of substantive rights," but merely provides "a method for vindicating federal rights elsewhere conferred." Baker v. McCollan, 443 U.S. 137, 144, n. 3 (1979). Thus, "[t]he first step in [adjudicating] any such claim is to identify the specific constitutional right allegedly infringed." Albright v. Oliver, 510 U.S. 266, 271 (1994) (citing Graham v. Connor, 490 U.S. 386, 394 (1989), and Baker, supra, 443 U.S. at 140).
Defendants argue that the first amended complaint fails adequately to allege a § 1983 claim for multiple reasons: (1) claim preclusion bars Dr. Maynard from pursuing these claims; (2) the complaint fails sufficiently to allege that defendants were acting under color of state law; (3) the complaint fails sufficiently to allege a deprivation of due process under the Fourteenth Amendment; (4) the complaint fails sufficiently to allege a violation of Dr. Maynard's federal rights; (5) the complaint fails sufficiently to allege that each defendant was personally involved in a violation of Dr. Maynard's civil rights; and (6) the complaint fails sufficiently to allege that each defendant supervised the violation of Dr. Maynard's civil rights. The court analyzes each argument in turn.
1. Whether Claim Preclusion Bars Plaintiff's Claims
Defendants first argue that the doctrine of claim preclusion bars Dr. Maynard from pursuing his claims. They offer no substantive argument in support of this assertion, noting only that "Maynard filed an appeal in the superior court in which the court found that the results of the administrative hearing were 'proper and reasonable in upholding the imposition of the temporary withhold and suspension.' The doctrines of res judicata, claim preclusion and collateral estoppel preclude Maynard from relitigating the lawfulness of the imposition of these sanctions."
a. Legal Standard Governing Res Judicata
The doctrine of res judicata accords preclusive effect to prior judgments. Robi v. Five Platters, Inc., 838 F.2d 318, 321 (9th Cir. 1988). Claim preclusion "'prevents litigation of all grounds for, or defenses to, recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior proceeding.'" Id. at 322 (quoting Brown v. Felsen, 442 U.S. 127, 137 (1979)). Claim preclusion "'treats a judgment, once rendered, as the full measure of relief to be accorded between the same parties on the same "claim" or "cause of action."'" Id. at 321 (quoting Kaspar Wire Works, Inc. v. Leco Engineering Mach., Inc. 575 F.2d 530, 535 (5th Cir. 1978)).
The Full Faith and Credit Act requires that federal courts give judgments issued by the courts of a state the same preclusive effect they would have in state proceedings. Id. See 28 U.S.C. § 1738. Because the judgment at issue here was rendered by a California state court, the California law of res judicata must be applied. Parsons Steel, Inc. v. First Alabama Bank, 474 U.S. 518, 523 (1986) (" . . . under the Full Faith and Credit Act a federal court must give the same preclusive effect to a state-court judgment as another court of that State would give"); Skillsky v. Lucky Stores, Inc., 893 F.2d 1088, 1095 (9th Cir. 1990) ("Title 28 U.S.C. § 1738 requires federal courts to apply the preclusory rules of a particular state to judgments issued by courts of that state"); Robi, supra, 838 F.2d at 322 ("federal courts must give state judicial proceedings 'the same full faith and credit . . . as they have by law or usage in the courts of [the] State . . . from which they are taken. . . . This Act requires the federal courts to apply the res judicata rules of a particular state to judgments issued by courts of that state").
"The application of claim preclusion in California focuses on three questions: (1) was the previous adjudication on the merits, (2) was it final, and (3) does the current dispute involve the same 'claim' or 'cause of action'?" Robi, supra, 838 F.2d at 324 (citing Slater v. Blackwood, 15 Cal.3d 791, 795 (1975)). In Warga v. Cooper, 44 Cal.App.4th 371, 377-78 (1996), the court noted that the res judicata scope of a prior judgment includes not only issues "actually raised by proper pleadings and treated as an issue in the cause, " but also matters that could have been raised, but were not expressly pleaded or argued. "The reason for this is manifest. A party cannot by negligence or design withhold issues and litigate them in consecutive actions." Id.
b. Whether Dr. Maynard's Claims Are Barred By The State Court Proceedings
Defendants argue that the state court order issued by Judge Ohanesian on March 1, 2002, bars relitigation of the reasonableness of the original withholding and sanctions order. Defendants have attached a copy of the state court judgment to the motion to dismiss. In his judgment, Judge Ohanesian found that "the results of the [administrative] hearing were proper and reasonable in upholding the imposition of the temporary withhold and suspension." The order notes, however, that the action is in the nature of a mandamus proceeding. As noted in the court's order dismissing the original complaint, to the extent defendants argue that Dr. Maynard is precluded from pursuing damage claims because he failed to raise them while seeking a writ of mandamus, their argument fails. Under California law, Dr. Maynard was barred from bringing a damages action until he had first challenged the denial of his administrative appeal by filing a petition for writ of mandamus pursuant to California Code of Civil Procedure § 1085. See Briggs v. City of Rolling Hills Estates, 40 Cal.App.4th 637 (1995). In Briggs, plaintiffs wanted to build an addition to their home, but the city required that they make other alterations as a condition of constructing the addition. Plaintiffs did not seek judicial review of the condition by filing a petition for writ of mandamus under Code of Civil Procedure § 1094.5, but sued in state court for damages pursuant to 42 U.S.C. § 1983. Id. at 641. The court held it was improper for plaintiffs to bypass the administrative mandamus procedure and denominated their failure to challenge the administratively imposed condition "a form of res judicata." Because the validity of the condition was at issue in the prior administrative proceeding, the court held, the homeowners' failure to utilize the means of judicial review available for challenging it (i.e., administrative mandamus) estopped them from relitigating the issue in an action for damages. Id. at 645-46. Briggs stands clearly for the proposition that a plaintiff may not sue for damages without first seeking to set aside an administrative decision pursuant to a writ of mandamus.
Notice of Errata to Defendants' Motion to Dismiss, Exh. A.
Code of Civil Procedure § 1085 applies when a writ is sought to compel the enforcement of a ministerial duty, or to review a discretionary or quasi-legislative decision where an evidentiary hearing is not required by law. See, e.g., Court House Plaza Co. v. City of Palo Alto, 117 Cal.App.3d 871, 883 (1981); Shuffer v. Board of Trustees, 67 Cal.App.3d 208, 218 (1977). Code of Civil Procedure § 1094.5 governs review of an adjudicative decision by an administrative agency where an evidentiary hearing is legally required. Unless the applicable statute expressly states otherwise, this type of administrative decision can be reviewed only by administrative mandate under § 1094.5, not by traditional mandamus under § 1085. Venice Town Council, Inc. v. City of Los Angeles, 47 Cal.App.4th 1547, 1566 (1996). See Hixon v. County of Los Angeles, 38 Cal.App.3d 370, 379 (1974).
California courts have held, conversely, that where a writ of mandamus is properly sought, the mandamus proceeding will not bar a later damages action under § 1983. Mata v. City of Los Angeles, 20 Cal.App.4th 141, 149 (1993) (44 In this case, the 'second suit,' i.e., the 42 United States Code section 1983 action, is on a different cause of action. In fact, the mandamus proceeding is technically not regarded as an action at all. It is, instead, described as a special proceeding. Therefore, appellant's section 1983 action is not barred by the doctrine of claim preclusion"). See also Honey v. Distelrath, 195 F.3d 531, 533 (9th Cir. 1999) ("Because the state proceeding was a mandamus action, the ordinary claim preclusion rules that bar parties from relitigating claims already decided by courts on the merits do not apply here. . . . The rule in California state courts was set out in Mata[, supra,] in which the California supreme court held that a mandamus action is a 'special proceeding' and does not bar a subsequent § 1983 action. Therefore, claim preclusion does not bar Honey's § 1983 action").
Under the rule enunciated in Briggs, Dr. Maynard was unable to bring an action for damages until he had sought a writ of mandamus. Since Judge Ohanesian's March 1, 2002, order clearly states that the earlier proceeding was a mandamus action, under Mata, the order does not bar Dr. Maynard's § 1983 claims under the doctrine of claim preclusion.
2. Whether The First Amended Complaint Sufficiently Alleges Action Under Color Of State Law
Defendants next assert that the first amended complaint fails to state a claim for relief under § 1983 because it fails to allege that defendants acted "under color of state law." Because I they were managing the Medi-Cal program, which is administered under color of federal law, defendants contend they did not act "under color of state law."
In Tongol v. Usery, 601 F.2d 1091 (9th Cir. 1979), the Ninth Circuit rejected the argument that § 1983 provides a remedy only for violations of state law, as opposed to violations of federal government enforced by state government employees. As the Tongol court explained: "The 'color of state law' requirement of section 1983 has consistently been treated as the same thing as the 'state action' requirement of the Fourteenth Amendment. Courts applying the 'color of state law' requirement have indicated that the relevant inquiry focuses not on whose law is being implemented, but rather on whether the authority of the state was exerted in enforcing the law. Thus the actions of state agencies administering federally-funded programs have been held to be actions undertaken under color of state law for the purposes of section 1983." Id. at 1097. See also Rose v. Heintz, 806 F.2d 389, 392 (2d Cir. 1986) ("In Tongol the Ninth Circuit stated that section 1983's color of state law requirement depends 'not on whose law is being implemented, but rather on whether the authority of the state was exerted in enforcing the law,' " citing Tongol, supra, 601 F.2d at 1097). Although the program in question was established pursuant to federal law, the complaint adequately alleges that defendants acted "under color of state law."
3. Whether The First Amended Complaint Sufficiently Alleges A Due Violation Under The Fourteenth Amendment
Even if the court were to disagree with the rule announced in Tongol, it would still find that defendants were acting "under color of state law." It is undisputed that defendants were acting on behalf of the California Department of Health Services pursuant to California statutes governing Medi-Cal. As such, although the California statutes were enacted pursuant to federal law, the defendants were also acting under color of California state law sufficient for purposes of section 1983.
Defendants also argue that the first amended complaint fails to allege a deprivation of Dr. Maynard's due process rights under the Fourteenth Amendment. The Due Process Clause of the Fourteenth Amendment protects individuals against governmental deprivations of "life, liberty or property" without due process of law. See Board of Regents v. Roth, 408 U.S. 564, 570-71 (1972); Mullins v. Oregon, 57 F.3d 789, 795 (9th Cir. 1995). To maintain a due process claim under the Fourteenth Amendment, a plaintiff must allege the existence of facts that, if proven, would establish that defendant deprived him of a constitutionally protected property or liberty interest. See Roth, supra, 408 U.S. at 569; Burnsworth v. Gunderson, 179 F.3d 771, 774 (9th Cir. 1999) ("'[a] due process claim is cognizable only if there is a recognized liberty or property interest at stake'"); McLean v. Crabtree, 173 F.3d 1176, 1184 (9th Cir. 1999) ("'A due process claim is cognizable only if there is a recognized liberty or property interest at stake,'" quoting Schroeder v. McDonald, 55 F.3d 454, 462 (9th Cir. 1995)).
The First Amended Complaint alleges that defendants violated Dr. Maynard's due process rights by temporarily suspending him from the Medi-Cal program, temporarily withholding his Medi-Cal funds, and performing unannounced searches of his offices. Defendants contend that these allegations do not state a deprivation of due process claim because (1) Dr. Maynard had no property or liberty interest in continued participation in the Medi-Cal program; (2) he had no property interest in the withheld funds; (3) even assuming Dr. Maynard had a property or liberty interest in continued participation in the Medi-Cal program or in the withheld funds, he was not deprived of his due process rights; and (4) the unannounced searches did not deprive Dr. Maynard of any due process right. The court evaluates each of these arguments in turn.
a. Temporary Suspension Of Medi-Cal Provider Numbers
Defendants first argue that Dr. Maynard cannot base a deprivation of due process claim on the temporary suspension of his Medi-Cal provider numbers because he had no protected property or liberty interest in continued participation in the Medi-Cal Program.
(1) Whether Dr. Maynard Had A Property Interest In Continued Participation In The Medi-Cal Program
A person has a property interest in a benefit or program if he or she has "a legitimate claim of entitlement to it." Roth, supra, 408 U.S. at 577. See also Newman v. Sathyavaglswaran, 287 F.3d 786, 795 (9th Cir. 2002) ("'To have a property interest . . . a person clearly must have more than an abstract need or desire' for the thing in question, '[the person] must, instead, have a legitimate claim of entitlement to it'"); Brooks v. United States, 127 F.3d 1192, 1194 (9th Cir. 1997) (44 To have a property interest in panel membership, the appellant must have a 'legitimate claim of entitlement to it;' an 'abstract need or desire' or a "unilateral expectation of it" will not suffice' "). "'Entitlements are created by 'rules or understandings' from independent sources, such as statutes, regulations, and ordinances, or express or implied contracts.'" Erickson v. United States ex rel. Dept. of Health and Human Services, 67 F.3d 858, 862 (9th Cir. 1995) (quoting Orloff v. Cleland, 708 F.2d 372, 377 (9th Cir. 1983)).
The Ninth Circuit has squarely held that a Medi-Cal provider does not have a protected property interest in continued participation in the Medi-Cal program. Erickson, supra, 67 F.3d at 862 ("[T]he First and Tenth Circuits have provided reasoned analyses for their conclusion that physicians do not have a property interest in continued participation in Medicare. We choose to follow the reasoning of those circuits and hold that plaintiffs do not possess a property interest in continued participation in Medicare, Medicaid, or the federally-funded state health care programs"). Other circuits also adhere to this rule. See, e.g., Plaza Health Laboratories, Inc. v. Perales, 878 F.2d 577, 582 (2d Cir. 1989) ("The present structure of the State's Medicaid laws suggests that a provider does not have a property interest in continued participation in the program"); Koerpel v. Heckler, 797 F.2d 858, 865 (10th Cir. 1986) ("We conclude that Dr. Koerpel has shown no property interest in his continuing eligibility for Medicare reimbursement. His contentions that he has such an interest do not rise to the level of a colorable constitutional claim"); Cervoni v. Secretary of Health, Ed. and Welfare, 581 F.2d 1010, 1019 (1st Cir. 1978) ("The Medicare Part B program is nothing more than a governmental insurance program for the aged. As such the real parties in interest are the beneficiaries; physicians are parties in interest only as assignees of the beneficiaries. Unlike the welfare benefits of Goldberg v. Kelly, which were 'a matter of statutory entitlement for persons qualified to receive them,' 397 U.S. at 262, 90 S.Ct. at 1017, physicians do not have a protectable property interest in their continuing eligibility to bill for reimbursement under Part B. If services rendered by a physician are disentitled from Part B eligibility, the physician can either not perform the services or bill the patient directly"). Given this authority, the court finds that Dr. Maynard did not have a property interest in continued participation in the Medi-Cal program.
(2) Whether Dr. Maynard Had A Liberty Interest in Participation in the Medi-Cal Program
The liberty interest guaranteed by the due process clause of the Fourteenth Amendment has not been defined with exactness and is necessarily broad. Roth, supra, 408 U.S. at 572 ("'While this court has not attempted to define with exactness the liberty . . . guaranteed (by the Fourteenth Amendment), the term has received much consideration and some of the included things have been definitely stated. Without doubt, it denotes not merely freedom from bodily restraint but also the right of the individual to contract, to engage in any of the common occupations of life, to acquire useful knowledge, to marry, establish a home and bring up children, to worship God according to the dictates of his own conscience, and generally to enjoy those privileges long recognized . . . as essential to the orderly pursuit of happiness by free men.' In a Constitution for a free people, there can be no doubt that the meaning of 'liberty' must be broad indeed," quoting Meyer v. Nebraska, 262 U.S. 390, 399 (1923)).
The Ninth Circuit has held that a person's liberty interest is implicated if a charge impairs his reputation for honesty or morality. Erickson, supra, 67 F.3d at 862 (citing Vanelli v. Reynolds School Dist. No. 7, 667 F.2d 773, 777 (9th Cir. 1982) and Roth, supra, 408 U.S. at 573). It has also held, however, that potential injury to reputation alone is not sufficient to establish a liberty interest protected by the Constitution. Ulrich v. City and County of San Francisco, 308 F.3d 968, 982 (9th Cir. 2002) ("Out of a concern that the Fourteenth Amendment not become 'a font of tort law to be superimposed upon whatever systems may already be administered by the States,' soon after Roth the Court held that injury to reputation alone is not sufficient to establish a deprivation of a liberty interest protected by the Constitution," citing Paul v. Davis, 424 U.S. 693, 701 (1976)); Mustafa v. Clark County School Dist., 157 F.3d 1169, 1179 (9th Cir. 1998) ("Moreover, harm to reputation alone is insufficient to implicate an individual's liberty interest"). Rather, "'[t]he procedural protections of due process apply if the accuracy of the charge is contested, there is some public disclosure of the charge, and it is made in connection with the termination of employment or the alteration of some right or status recognized by [ ] law.'" Erickson, supra, 67 F.3d at 862 (quoting Vanelli, supra, 667 F.2d at 777-78). See also Weidenfeld v. Correctional Medical Services of St. Louis, 34 Fed. Appx. 325, 2002 WL664152, * 2 (9th Cir. April 12, 2002) (Unpub. Disp.) ("'One's liberty interest is implicated only when the state makes a charge against [her] that might seriously damage [her] standing and associations in [her] community'").
In the employment context, the Ninth Circuit has explained that, to give rise to a protectable liberty interest, a charge must constitute more than a "brief interruption" in one's ability to pursue an occupation or profession. A liberty interest deprivation occurs only when there is stigmatizing governmental action that so negatively affects a person's professional reputation that it effectively forecloses his or her opportunity to practice a chosen profession. Dittman v. California, 191 F.3d 1020, 1029 (9th Cir. 1999) ("Although the precise contours of that liberty interest remain largely undefined, the Supreme Court observed recently that the line of authorities establishing the liberty interest 'all deal[t] with a complete prohibition of the right to engage in a calling/ and not merely a 'brief interruption' in one's ability to pursue an occupation or profession," quoting Conn v. Gabbert, 526 U.S. 286, 312 (1999)); Orloff v. Cleland, 708 F.2d 372, 378 (9th Cir. 1983) ("In the context of Roth-type cases, a charge which infringes one's liberty can be characterized as an accusation or label given the individual by his employer which belittles his worth and dignity as an individual and, as a consequence is likely to have severe repercussions outside of professional life," quoting Stretten v. Wadsworth Veterans Hospital, 537 F.2d 361, 367 (9th Cir. 1976)).
Applying the standards set forth in Erickson and Dittman, the complaint sufficiently alleges that State DHS "charged" Dr. Maynard with Medi-Cal fraud. Indeed, the letter State DHS sent Dr. Maynard rather clearly contains such a charge: "This evidence leads the program to conclude that you have committed fraud, abuse or willful misrepresentation under the Medi-Cal program with regard to your Medi-Cal practice." The complaint also alleges that Dr. Maynard contested the accuracy of the charge, and that it had a severe impact on his professional reputation. It fails, however, to allege that the charge was "publicly disclosed" in any way. See Clarinda Home Health v. Shalala, No. 1-96-CV-10003, 1996 WL 211799, * 4 (S.D. Iowa Feb. 16, 1996) (holding that the temporary suspension of Medicare provider numbers did not implicate physicians' liberty interests because "[p]laintiffs have not presented any evidence of public notification by the Defendant of the Plaintiffs' temporary suspension from the Medicare program"). See also Bishop v. Wood, 426 U.S. 341, 348 (1976) ("In this case the asserted reasons for the City Manager's decision [to terminate plaintiff] were communicated orally to the petitioner in private and also were stated in writing in answer to interrogatories after this litigation commenced. Since the former communication was not made public, it cannot properly form the basis for a claim that petitioner's interest in his 'good name, reputation, honor, or integrity' was thereby impaired. And since the latter communication was made in the course of a judicial proceeding which did not commence until after petitioner had suffered the injury for which he seeks redress, it surely cannot provide retroactive support for his claim").
First Amended Complaint, Exh. D at 1.
While Maynard cites several reporting requirements imposed by federal statute and regulations, none of these mandates that the fraud charge be publicly disclosed. 42 C.F.R. § 455.17 requires that State DHS report cases of suspected fraud or abuse to the appropriate federal officials. Similarly, 42 U.S.C. § 1396a(a)(41) requires that State DHS notify the state licensing board when a physician is suspended or otherwise sanctioned. Disclosure to the officials of another involved agency, however, does not constitute public disclosure as that term is used in deprivation of liberty due process jurisprudence. See Bank of Jackson County v. Cherry, 980 F.2d 1362, 1367-68 (11th Cir. 1992) ("A stigmatizing allegation does not implicate liberty interests unless it is publicized. . . . In the instant case, FmHA communicated its accusations of BJCs bad faith only to BJC itself and to two FmHA county supervisors in Florida. In addition, appellees communicated the facts of the Ferris cow dispute to an assistant U.S. attorney for the Northern District of Florida and to Department of Agriculture lawyers. As in Bishop and Sutton, where the courts found no deprivation of liberty, appellees did not disclose any negative information about BJC to the public. And, although appellees discussed BJCs case with government lawyers, they did not communicate the allegations of BJCs misconduct to any other government agency"); Hannon v. Turnage, 892 F.2d 653, 660 (7th Cir. 1990) ("Dr. Harmon also argues that the VA deprived him of a liberty interest when it provided the reason for his dismissal to the Office of Personnel Management ('OPM'). This information, however, was only provided after Dr. Hannon had asked the OPM for a refund of $30,000 in retirement funds. . . . [E]xcept when interagency sharing of information stigmatizes the plaintiff throughout the federal government, . . . there is generally no abridgement of a liberty interest when the government circulates information among a limited number of agencies for a specified purpose"); Asbill v. Housing Authority of Choctaw Nation, 726 F.2d 1499, 1503 (10th Cir. 1984) (holding that the Housing Authority's dissemination within state government of a letter dismissing plaintiff from her public employment did not deprive her of a liberty interest because "it [did] not appear from the record that Thompson's statements were published outside the state government; such intra-government dissemination, by itself, falls short of the Supreme Court's notion of publication: 'to be made public'"); Durham v. Stegman, Civ. A. No. 93-1425-MLB, 1994 WL 326757, * 4 (D. Kan. June 22, 1994) ("Defendants argue they did not disclose the stigmatizing information publicly. Information concerning Durham's termination was first provided to the Hospital's Nursing Peer Review Committee. This information was later turned over to the Kansas State Board of Nursing. Defendants [argue], . . that intra-government dissemination of the allegedly stigmatizing information falls short of the requirement that the statement 'be made public.' This court agrees with defendants' argument. In this case, there was no publication of the information beyond governmental channels. Durham therefore cannot show a deprivation of a liberty interest"); Ventetuolo v. Burke, 470 F. Supp. 887, 895-96 (D.R.I. 1978) (". . . the crucial element of public disclosure has not been sufficiently established. Assuming the letters were in fact sent to those persons listed as receiving carbon copies, this is not a disclosure that threatens plaintiffs' standing in the community. The persons listed by Dr. Martinez were either associated with AMIDS on the national level or responsible for the northeast region at the federal funding agency. Disclosure within an agency may implicate a liberty interest if the disclosure is gratuitous to persons with absolutely no responsibility for or interest in the local project; by contrast, these officials either had direct dealings with the local office or had been consulted previous to the August charges about the office conflicts"). Cf. San Lazaro Ass'n., Inc. v. Cornell, 286 F.3d 1088, 1092 (9th Cir. 2002) ("Under the Medicaid Act, the federal government underwrites part of the costs of state programs providing medical care to eligible needy individuals. In order to receive federal support, the States must comply with requirements of the Medicaid Act and with regulations promulgated by the Department of Health and Human Services . . ."); id. at 1100 (stating that the Medicaid Act's single state agency requirement "was intended primarily to ensure systemwide accountability of state Medicaid programs to the federal government"), cert. denied, 123 S.Ct. 78 (2002).
Section 455.17 provides: "The agency must report the following fraud or abuse information to the appropriate Department officials at intervals prescribed in instructions, (a) The number of complaints of fraud and abuse made to the agency that warrant preliminary investigation, (b) For each case of suspected provider fraud and abuse that warrants a full investigation — (1) The provider's name and number; (2) The source of the complaint; (3) The type of provider; (4) The nature of the complaint' (5) The approximate range of dollars involved; and (6) The legal and administrative disposition of the case, including actions taken by law enforcement officials to whom the case has been referred."
Section 1396a(a)(41) states: "A State plan for medical assistance must — (41) provide that whenever a provider of services or any other person is terminated, suspended, or otherwise sanctioned or prohibited from participating under the State plan, the State agency shall promptly notify the Secretary and, in the case of a physician and notwithstanding paragraph (7), the State medical licensing board of such action." It is not clear that this statute is even applicable in Dr. Maynard's case, as he was never finally suspended from participating in Medi-Cal, but only temporarily suspended.
Moreover, Dr. Maynard's own disclosure of the charge cannot constitute "public disclosure," particularly since he points to no statute or regulation that requires self-reporting of pending State DHS investigations. See Llamas v. Butte Community College District, 238 F.3d 1123, 1130-31 (9th Cir. 2001) ("Llamas argues that his truthful response to law enforcement application questions regarding his discharge from employment is sufficient to satisfy the public disclosure requirement of a deprivation of liberty interest under the Due Process Clause. However, the cases cited by Llamas in support of the proposition that his own disclosure can implicate due process protections all involve continuing maintenance of the stigmatizing information in the personnel file. . . . We acknowledge that the publication prong of the due process test does not specify which party must have publicized the stigmatizing charges in order to implicate due process protections. . . . However, to allow the potentially stigmatized party to satisfy the publication prong by disseminating the details surrounding his termination would contradict the purposes of the publication requirement as made clear in subsequent Supreme Court precedent"); Wasson v. Sonoma County Junior College District, 4 F. Supp.2d 893, 907 (N.D. Cal. 1997) ("There is no allegation in the complaint, as defendants point out, that they made public the charges against Wasson prior to the filing of Wasson's state court complaint. There is no allegation that Wasson was forced to go public with the allegations because defendants refused to provide her with a hearing prior to her termination. Wasson could have remained silent pending the hearing on her termination. Under these circumstances, as alleged, any damage to Wasson's liberty interest was caused by her own publication of the charges against her"). Finally, plaintiff cites no cases to support his allegation that he had a liberty interest in continued participation in the Medi-Cal program. As such, the court cannot find that plaintiff has alleged that he had a protected liberty interest in continued participation in the Medi-Cal program under the standards announced in Erickson and Dittman.
Since Dr. Maynard cannot allege that he had a protected property interest in continued participation in the Medi-Cal program, and has failed to allege that he had a protected liberty interest in continued participation, the court need not reach address whether the complaint sufficiently alleges that the temporary suspension deprived Dr. Maynard of due process of law. Because there is a possibility that Dr. Maynard may be able to allege the public disclosure necessary to state a claim for deprivation of a liberty interest without due process of law, however, the court grants him leave to amend for this purpose.
Dr. Maynard relies on Golden Day Schools, Inc. v. State Dept. of Educ., 83 Cal.App.4th 695 (2000), as support for his contention that he had a protected liberty interest in continued participation in the Medi-Cal program. In Golden Day, the court held that a state child care contractor that was debarred by the state administering agency from applying for further contracts for three years had a due process liberty interest that entitled it to a hearing on the justification for the debarment. The court defined the liberty interest involved as "the right to be considered for, not to receive, a government contract." Id. at 706. The court notes first that Golden Day is a decision of the California Court of Appeal; to the extent it is inconsistent with federal authority defining protected a liberty interest, this court is bound to adhere to federal law. As noted, federal law recognizes that a party may have a protected liberty interest if it is debarred (i.e., if its status vis-a-vis a government program is altered) for stigmatizing reasons. See Erickson, supra, 67 F.3d at 862; Vanelli, supra, 667 F.2d at 777. In Golden Day, plaintiff was debarred because of deficient audit reports, a reason that federal courts have characterized as not stigmatizing, and have held is not sufficient to trigger liberty interest protections. See Golden Day, supra, 83 Cal.App.4th at 701-02, 705-06. See also Heck v. City of Freeport, 985 F.2d 305, 311 (7th Cir. 1993) ("As we have held on numerous occasions, 'a mere charge of mismanagement is not enough to give rise to a liberty interest requiring a hearing'"); Southeast Kansas Community Action Program Inc. v. Secretary of Agriculture of the United States, 967 F.2d 1452, 1458 (10th Cir. 1992) ("We have carefully reviewed the monitoring report and conclude it is not stigmatizing. At best, the report contains charges involving negligence and neglect of duties. While under the right circumstances these claims could give rise to a state law defamation claim, they are insufficient to establish a liberty interest deprivation"); Kraft v. Jacka, 872 F.2d 862, 870 (9th Cir. 1989) ("The statements at issue must involve charges which rise to the level of 'moral turpitude;' 'charges that do not reach this level of severity do not infringe constitutional liberty interests,'" quoting Bollow v. Federal Reserve Bank of San Francisco, 650 F.2d 1093, 1101 (9th Cir. 1981), cert. denied, 455 U.S. 948 (1982)), abrogated on other grounds by Dennis v. Higgins, 498 U.S. 439 (1991); Ivy Hall Geriatric and Rehabilitation Center v. Shalala, 50 F. Supp.2d 447, 454 (D. Md. 1999) (holding that Medicare provider had no protectable liberty interest because it had "not been accused of immorality or moral turpitude. The surveyors' findings revealed that Ivy Hall was not complying with federal regulations. Arguably, this is analogous to a finding of incompetence, but certainly is nothing more hurtful than that. Even a finding that Ivy Hall allegedly mishandled certain residents' funds does not translate into moral misfeasance, justifying recognition of a liberty interest. The charge against Ivy Hall was not that it committed Medicare fraud, nor was it even close to such an accusation"). Nor is it clear from the facts recited in the court's opinion that the charges against Golden Day were publicized, as is required by federal law before a protected liberty interest arises. See Erickson, supra, 67 F.3d at 862. Accordingly, the court declines to follow Golden Day to the extent it suggests a test for determining the existence of a protected liberty interest that is different than that set forth in Erickson and other relevant federal authorities.
Plaintiff also cites Bothke v. Fluor Engineers and Constructors, Inc., 713 F.2d 1405 (9th Cir. 1983), in support of his assertion that he had a protected liberty interest. This case too is inapposite. In Bothke, the Ninth Circuit explained that "[u]njustified governmental invasion of property rights by seizure can occasion physical hardship, but the affront to the citizen's notions of the place of government in our society, when personally confronting the misuse of its awesome power, may engender a turmoil that is more profound than the physical effects of the deprivation.' Id. at 1413. Because Dr. Maynard has failed to demonstrate that he had a protectable property right in continued participation in the Medi-Cal program, the analysis in Bothke is inapplicable.
b. Temporary Withholding Of Medi-Cal Funds
(1) Whether Dr. Maynard Had A Property Interest In The Withheld Medi-Cal Funds
Defendants next argue that Dr. Maynard cannot base his deprivation of due process claim on their temporary withholding of his Medi-Cal funds since he had no protected property interest in these funds. As noted, a person has a property interest in a benefit if they have "a legitimate claim of entitlement to it" that derives from statute, regulation or contract. Roth, supra, 408 U.S. at 577; Erickson, supra, 67 F.3d at 862. Federal law requires that state Medicaid plans "provide for procedures of prepayment and postpayment claims review, including review of appropriate data with respect to the . . . provider of service." 42 U.S.C. § 1396a(a)(37)(B). Federal regulations provide that a "State Medicaid agency may withhold Medicaid payments, in whole or in part, to a provider upon receipt of reliable evidence that the circumstances giving rise to the need for a withholding of payments involve fraud or willful misrepresentation under the Medicaid program." 42 C.F.R. § 455.23(a). California statutes governing the Medi-Cal program are similar. See CAL. WEL. INST. CODE § 14107.11 (State DHS may withhold payment to a Medi-Cal provider "[u]pon receipt of reliable evidence" of fraud or willful misrepresentation). The governing statutes and regulations, therefore, do not create any entitlement to funds withheld pending a fraud investigation. See Yorktown Medical Laboratory, Inc. v. Perales, 948 F.2d 84, 89 (2d Cir. 1991) (citing similar provisions and stating that "Yorktown has no property interest grounded in either the Medicaid Act or New York regulations to payment for claims pending investigation to determine illegality"). Dr. Maynard's complaint, however, alleges that he was "entitled" to the Medi-Cal funds that were withheld. Given the federal statutes and regulations cited above, courts have generally held that a plaintiff is not "entitled" to Medicaid funds that are the subject of a pending investigation. See Clarinda Home Health v. Shalala, 100 F.3d 526, 531 (8th Cir. 1996) ("During the investigation, Medicare payments to Peterson were temporarily suspended. Peterson brought suit alleging, among other things, that his property was taken without due process. The Fifth Circuit rejected Peterson's argument, determining that a Medicare provider has no due process right to a hearing during the course of an investigation for acts of fraud and misrepresentation. Because Clarinda has failed to establish that the temporary suspension of Medicare payments without a hearing is a colorable constitutional claim, it has failed the first part of the test for an exception to the exhaustion requirement"); Yorktown, supra, 948 F.2d at 89 ("Plaintiff's first claim — that the Commissioner denied its due process right to payment for services rendered — fails for lack of a cognizable property interest. Yorktown has not demonstrated a legitimate claim of entitlement to the payments withheld"); Tekkno Laboratories, Inc. v. Perales, 933 F.2d 1093, 1098-99 (2d Cir. 1991) (". . . the district court stated that it was persuaded '[by two cases] that plaintiffs like Tekkno have a constitutionally protected property interest in reimbursement for Medicaid services already performed.' Neither of those cases, however, involved the State's withholding of payments pending investigation. . . . 'An important government interest, accompanied by a substantial assurance that the deprivation is not baseless or unwarranted, may in limited cases demanding prompt action justify postponing the opportunity to be heard until after the initial deprivation,'" quoting Federal Deposit Insurance Corp. v. Mallen, 486 U.S. 230, 240-47 (1988)); Abba Pharmacy Inc. v. Perales, No. 87 Civ. 0266 (MGC), 1987 WL 13277, * 5 (S.D.N. Y. June 29, 1987) ("The Medicaid prepayment audit procedures pursuant to 18 NYCRR § 540 have also withstood constitutional challenges where plaintiffs claimed that the withholding of reimbursement monies deprived Medicaid service providers of their property without due process of law. . . . 'There is no merit to petitioner's contention that failure to afford a hearing before delay in payment of its claims during the preaudit procedure constitutes a denial of due process. There is no property interest in prompt payment of claims to be protected by due process,'" quoting Siddiqui v. New York State Dep't of Social Services, 498 N.Y, So.2d 504, 509 (1986)).
Other federal courts have found no due process "property interest" in similar circumstances. See, e.g., American Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 61 (1999), (holding that disabled employees failed to state a claim under § 1983 because they did not have a "property interest" in payments withheld for disputed medical treatment pending independent review of the claims); Kreschollek v. Southern Stevedoring Co., 223 F.3d 202, 204 (3rd Cir. 2000) ("[E]mployees do not have a property interest in workers compensation benefits when they have not demonstrated that they are entitled to them and a state statute requires that they prove "that an employer is liable for a work-related injury, and . . . that the particular medical treatment at issue is reasonable and necessary,'" quoting American Mfrs., supra, 526 U.S. at 61).
Plaintiff does not dispute that the funds at issue were the subject of a pending fraud investigation. Indeed, he so alleges in his complaint. Given this factual allegation, the court cannot accept as true his pleading of the legal conclusion that he was "entitled" to the funds. See Western Mining Council, supra, 643 F.2d at 624. Plaintiff contends, however, that State DHS had no "reliable evidence" of fraud sufficient to permit initiation of an investigation, and that the investigation lasted more than two years. At some point, he contends, the withholding of funds ceased to be temporary, rendering the cases cited above distinguishable.
Although plaintiff cites Bergeron v. Department of Health Services, 71 Cal.App.4th 17 (1999), for its holding that a Medi-Cal provider has a protected property interest in withheld Medi-Cal funds, plaintiff's reliance on Bergeron is misplaced. Unlike the payments at issue in this case, the payments at issue in Bergeron were already "approved" by the State DHS. Additionally, and more importantly, the Bergeron court based its reasoning entirely on G G Fire Sprinklers, Inc. v. Bradshaw, 156 F.3d 893 (9th Cir. 1998), a case that has since been overruled. See Lujan v. G G Fire Sprinklers, Inc., 532 U.S. 189 (2001). The court thus finds Bergeron unpersuasive.
While holding generally that a provider has no property interest in Medicaid funds that are withheld pending an investigation of alleged fraud or illegality, federal courts have stated that the government may not deprive a provider of such funds indefinitely without a hearing. See Yorktown, supra, 948 F.2d at 89 ("DSS, however, may not withhold payment indefinitely without some findings as to unacceptable practices"); Krebsbach v. Heckler, 617 F. Supp. 548, 551 (D. Nebr. 1985) ("This absence of a hearing does not violate plaintiff's right to due process of law. It is appropriate that the Secretary may temporarily suspend payments in order to conduct an investigation when confronted with reliable evidence of fraud. Such a suspension cannot continue indefinitely, but may be of a reasonable duration. The Court cannot say that the suspension in the instant case has exceeded a reasonable period for the Secretary's investigation"). See also Ivy Hall, supra, 50 F. Supp.2d at 456 ("I am persuaded that, notwithstanding defendants' assertions, Ivy Hall enjoys a limited property interest in the continuation of its NATCEP insofar as an arbitrary termination of the program would impose increased costs upon it in the operation of its SNF. The government having authorized the operation of a certified training program for two years, it may not revoke Ivy Hall's NATCEP arbitrarily, for no reason. It may only act within certain parameters. This constrained discretion supports Ivy Hall's claim of a property interest. . . . Accordingly, Ivy Hall has demonstrated a property interest, to be sure a limited one, in the continued expectancy of pursuing its business at a reduced cost"). Cf. Abba Pharmacy, supra, 1987 WL 13277 at * 4 ("Plaintiffs also have a property interest in the payments which the State cannot permanently deprive them of absent a hearing. The withholding of payments pending a hearing in the present case is permissible because it is based on an investigative procedure designed to protect the administration of the Medicaid program and because a reasonably prompt hearing is available to challenge the Department's actions usually within thirty-five to forty-five days after the provider has requested one. . . . Plaintiffs argue that because the Department can withhold payments pending the final determination of a legal action involving the Department's liability for payments, . . . it could be years until the Department reaches a final determination and that in the meantime, the providers will be forced out of business. This argument is premature. The regulations provide for a reasonably prompt hearing. At the present time, there is no reason to believe that the Department will not comply with the regulations, or any reason to foresee that the hearings will take years to complete"). These cases support the proposition that where the governing statutes and regulations provide that withholding may be "temporary" only, a provider can "regain" his property interest in the withheld funds if the investigation continues indefinitely.
It is undisputed that the state and federal regulations governing the Medi-Cal withholding at issue in this case state that withholding of Medicaid funds pending a fraud investigation may only be "temporary." It is also undisputed that the State DHS investigation of Dr. Maynard lasted almost two years, beginning in April 2000 and concluding in March 2002. It ended only because Dr. Maynard brought a mandamus action and the state court ordered that the state complete its investigation within a specified period. Even as of that date, the state was unable to state whether the charges against Dr. Maynard could be substantiated, and represented to the state court that its investigation was ongoing. The court cannot find as a matter of law that a two-year investigation is "temporary" in duration. Rather, there is a question of fact as to whether such a long investigation was permissible given the language of the statute and regulations, and whether, if it was not, Dr. Maynard reacquired a property interest in the withheld funds because State DHS acted outside the parameters imposed upon it. Accordingly, the court concludes that Dr. Maynard has adequately alleged a limited property interest in the withheld funds, and that defendants' motion to dismiss this aspect of his due process claim must be denied.
(2) Whether Dr. Maynard Received All The Process He Was Due
42 C.F.R. § 455.23(b)(2) (notice to provider must " . . . [s]tate that the withholding is for a temporary period, as stated in paragraph (c) of this section, and cite the circumstances under which withholding will be terminated"); CAL. WELF. INST. CODE § 14107.11(a)(2)(A) (notice must ". . . [s]tate that payments are being withheld in accordance with this subdivision and that the withholding is for a temporary period and will not continue after it is determined that the evidence of fraud or willful misrepresentation is insufficient or when legal proceedings relating to the alleged fraud or willful misrepresentation are complete").
The court notes, in fact, that Dr. Maynard availed himself of the procedures available under state law for challenging the withholding decision. See CAL. WEL. INST. CODE §§ 14107.11, 14043.65.
Defendants next assert that, even if Dr. Maynard has adequately alleged a property interest in the withheld funds, he cannot allege a due process violation, since State DHS provided adequate post-deprivation procedures for challenging the withholding. Due process requires that certain procedures be followed before an individual can be deprived of a protected property interest. "The fundamental requirement of due process is the opportunity to be heard 'at a meaningful time and in a meaningful manner.'" Securities and Exchange Commission v. McCarthy, 322 F.3d 650, 659 (9th Cir. 2003) (quoting Mathews v. Eldridge, 424 U.S. 319, 333 (1976)). The nature of this constitutional guarantee is flexible, however, and varies with the particular situation. Gilbert v. Homar, 520 U.S. 924, 928 (1997) ("4[D]ue process is flexible and calls for such procedural protections as the particular situation demands,'" quoting Morrissey v. Brewer, 408 U.S. 471, 481 (1972)); Brewster v. Board of Education of Lynwood Unified School Dist., 149 F.3d 971, 983 (9th Cir. 1998) ("Precisely what procedures the Due Process Clause requires in any given case is a function of context. After all, 'unlike some legal rules, ' due process 'is not a technical conception with a fixed content unrelated to time, place and circumstances/ Rather, it 'is flexible and calls for such procedural protections as the particular situation demands,'" quoting Cafeteria Restaurant Workers Union v. McElroy, 367 U.S. 886, 895 (1961), and Morrissey, supra, 408 U.S. at 481); Butler v. Apfel, 144 F.3d 622, 626-27 (9th Cir. 1998) ("The Supreme Court has not set any fixed rule for determining the adequacy of process. Rather, it has held that 'due process is flexible and calls for such procedural protections as the particular situation demands,'" quoting Mathews, supra, 424 U.S. at 333).
For this reason, due process does not require that the state provide a plenary hearing before depriving individuals of every cognizable liberty or property interest. Rather, as the Supreme Court has recognized, the practical exigencies of a situation often counsel against affording plenary pre-deprivation process. See, e.g., Cleveland Board of Education v. Loudermill, 470 U.S. 532, 545-47 (1985). When this is true, an abbreviated pre-deprivation hearing will suffice, provided the government offers a more complete opportunity to be heard within a reasonable time. Id. As the Supreme Court has noted, an "important government interest, accompanied by a substantial assurance that the deprivation is not baseless or unwarranted, may in limited cases demanding prompt action justify postponing the opportunity to be heard until after the initial deprivation." Fed. Deposit Ins. Corp. v. Mallen, 486 U.S. 230, 240 (1988). See also Gilbert, supra, 520 U.S. at 930-31. Whether such a procedure is constitutional, however, frequently turns on the availability of a sufficiently prompt post-deprivation hearing.
"To determine what procedural protections the Constitution requires in a particular case, we weigh several factors: 'First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail,'" Zinermon v. Burch, 494 U.S. 113, 127 (1990) (quoting Mathews, supra, 424 U.S. at 335); Hufford v. McEnaney, 249 F.3d 1142, 1150 (9th Cir. 2001) ("The determination of the procedure necessary to satisfy due process requirements in a particular context is guided by the three-part balancing test described in Mathews"); Walters v. Reno, 145 F.3d 1032, 1043 (9th Cir. 1998) ("As the Mathews balancing test makes clear, whether a particular procedure is sufficient to satisfy due process depends on the circumstances"); Erickson, supra, 67 F.3d at 863 ("To determine what process is due, [a court] must balance the risk of an erroneous deprivation, the [government's] interest in providing specific procedures and the strength of the individual's interest,'" quoting Cassim v. Bowen, 824 F.2d 791, 797 (9th Cir. 1987)).
The court has found that Dr. Maynard may be able to prove that he had a limited property interest in the withheld payments, i.e., an interest in having the payments withheld only "temporarily" while the state conducted a reasonably prompt fraud investigation. The question, therefore, is what level of procedural protection the State was required to afford Dr. Maynard in connection with the deprivation of that interest. The first amended complaint alleges that the state's failure to complete its investigation for almost two years deprived him of Medi-Cal income of approximately $15,000 a month, from May 1, 2000 to sometime after March 2002. It also allegedly forced him to sell his Los Angeles practice at a substantial loss and ruined him financially. This sufficiently alleges that the withhold decision affected a substantial private interest.
Defendants assert that Dr. Maynard had no substantial property interest in the funds, citing Lujan v. G G Fire Sprinklers, Inc., 532 U.S. 189 (2001). The Lujan Court, however, assumed that the contractor in that case had a property interest. See id. at 189 ("We assume, without deciding, that . . . respondent has a property interest of the kind we considered in Logan v. Zimmerman Brush Co., 455 U.S. 422 . . . (1982), in its claim for payment under its contracts").
Balancing Dr. Maynard's substantial interest is the equally significant interest of State DHS in maintaining the integrity of the Medi-Cal system and preserving limited Medi-Cal/Medicare resources for those in need. See Erickson, supra, 67 F.3d at 863. Dr. Maynard does not dispute the significance of the State's concern. Thus, the court must examine the procedures employed by State DHS, evaluate how great a risk they created that Medi-Cal payments would be withheld in error, and whether additional or substitute procedural safeguards would have reduced that risk significantly.
Dr. Maynard received notice of the withhold decision and the temporary suspension of his provider numbers in late April 2000. He exercised his right to file a written appeal with the State DHS Office of Administrative Hearings and Appeal on June 19, 2000. The reviewing office upheld the sanctions in October 2000. Over the course of the next year, although Dr. Maynard continued to protest the imposition of the sanctions and assert his innocence, he was not granted a hearing. After making repeated but unsuccessful attempts to convince defendants to lift the sanctions, Dr. Maynard eventually filed a petition for writ of mandate in Sacramento Superior Court in late 2001. On January 4, 2002, the Superior Court ordered State DHS to complete its investigation of Dr. Maynard within thirty days or show good cause why the investigation could not be completed within that time. On March 22, 2002, the charges against Dr. Maynard were dismissed and the withheld funds were released to him.
The first amended complaint alleges that, contrary to state and federal regulations authorizing only "temporary" withholding of payments and suspension of provider numbers, State DHS has adopted a practice of imposing such sanctions on an "indefinite" basis. In Dr. Maynard's case, the complaint alleges, State DHS failed to refer the matter to the Medicaid Fraud Control Unit until May 2001, approximately one year after the initial withhold decision and suspension of his provider numbers, and ignored his requests for administrative review or termination of the investigation for almost two years. During this two-year period, Dr. Maynard was afforded no form of post-deprivation hearing regarding the fraud charges.
First Amended Complaint, ¶¶ 28, 30.
Id., ¶¶ 31, 41.
Defendants do not explain this substantial delay. Nor do they assert that it was necessary to achieve any legitimate governmental interest. Rather, defendants argue that Dr. Maynard received all the process he was due, citing the United States Supreme Court's recent decision in Lujan v. G G Fire Sprinklers, Inc., 532 U.S. 189 (2001). In Lujan, a public works subcontractor sued the State of California Labor Commissioner, arguing that his due process rights were violated by a statute authorizing the Commissioner "to order withholding of payments due a contractor on a public works project if a subcontractor on the project fails to comply with [prevailing wage] requirements." Id. at 191. The Supreme Court rejected the subcontractor's challenge, holding that the subcontractor had not met its burden of demonstrating a due process violation. The Court offered its "tentative" conclusion that, under California law, the subcontractor had an adequate means of recovering wrongfully withheld payments by filing a common law breach of contract suit. Id. at 198 ("Our view is necessarily tentative, since the final determination of the question rests in the hands of the California courts, but respondent has not convinced us that this avenue of relief is closed to it").
Defendants argue that Maynard received more due process than the court found sufficient in Lujan since he was entitled to pursue an administrative appeal as well as file a petition for writ of mandate under Code of Civil Procedure § 1085. The court cannot agree. Under California Welfare Institutions Code § 14043.65, Dr. Maynard was entitled to file a written appeal with the State DHS director or the director's designee "limited to the issue of reliability of the evidence supporting the withhold." The appeal could "not encompass fraud or abuse." CAL. WEL. INST. CODE § 14043.65(a). Dr. Maynard was not entitled to a formal administrative hearing in connection with this appeal. Id. Moreover, although the director or the director's designee was statutorily required to issue a decision within ninety days of receipt of the appeal, it allegedly took approximately 120 days before a decision upholding the sanctions issued.
Only after the director or his designee rendered a final decision could Dr. Maynard file a petition for writ of mandate in state court pursuant to Code of Civil Procedure § 1085. Id. To prevail in such a proceeding, a petitioner must show that a public official or agency has acted arbitrarily, capriciously, fraudulently, or without due regard for his rights, and that he has been prejudiced by the action. See Miller Family Home, Inc. v. Department of Social Services, 57 Cal.App.4th 488, 491 (1997). Because it is an appeal challenging earlier administrative action or inaction, it would appear that such a mandate proceeding could raise such matters as the propriety of the hearing officer's decision, the unavailability of a full administrative hearing addressing the propriety of the withhold decision, or perhaps in a case such as Dr. Maynard's, the failure of the agency to complete its investigation of the fraud charges within a reasonable time. It does not appear that it would provide a forum to adjudicate whether the provider in fact committed fraud in Medi-Cal/Medicare billing. See Mobley v. Los Angeles Unified School Dist., 90 Cal.App.4th 1221, 1244-45 (2001) (discussing a petition for writ of mandate under Code of Civil Procedure § 1085, and concluding that it was properly used to challenge the agency's failure to provide a hearing that comported with due process). See also J K Painting Co. v. Bradshaw, 45 Cal.App.4th 1394, 1398, 1400 (1996) (petition for writ of mandate challenged as unlawful the Labor Commissioner's practice of assessing penalties for prevailing wage violations, and withholding such amounts from the payments due on a public works contract prior to investigation).
In Mobley, the California Court of Appeal interpreted the statutory scheme at issue in Lujan, and specifically considered the Supreme Court's "tentative" conclusion that California law provided the subcontractor from whom payments had been withheld an adequate post-deprivation remedy in the form of a suit against contractor for the amounts owed. See Mobley, supra, 90 Cal.App.4th at 1232 (citing Lujan, supra, 532 U.S. at 198). The court concluded that, in fact, such a remedy had serious legal and practical limitations. Id. at 1237. It further held that the "reasonable cause" hearing conducted by the Department of Labor Standards Enforcement did not afford the subcontractor an adequate hearing on whether a prevailing wage violation had occurred. Id. at 1242. See also 8 C.C.R. § 16414(a) (a contractor or subcontractor from whom payments have been withheld is entitled to a hearing before the Labor Commissioner to "determine whether reasonable cause exists for the withholding, retention or forfeiture of funds pursuant to Labor Code § 1727. [The] hearing . . . shall not be deemed to be dispositive as to the contractor's (or affected subcontractor's) compliance with prevailing wage laws"). Evaluating the adequacy of the hearing in light of Lujan, the Mobley court stated that the procedure did not satisfy the requirements of due process because
". . . instead of a trial-like administrative proceeding to resolve the issue of whether the prevailing wage laws had in fact been violated, the regulations offer a preliminary hearing. They leave to some other forum — the forum in which the parties are pursuing an unidentified and possibly nonexistent 'remedy provided by existing law' — the chore of deciding whether a violation did or did not actually occur. . . . On this record, we do not see how it can be said that appellant has had the hearing to which he is entitled addressing whether a prevailing wage violation occurred." Mobley, supra, 90 Cal.App.4th at 1241.
Like the regulation at issue in Mobley, the administrative hearing mandated by Welfare Institutions Code § 14043.65 is strictly limited to evaluating the reliability of the evidence supporting the withhold decision. It may not "encompass fraud or abuse." CAL. WEL. INST. CODE § 14043.65(a). The writ of mandate proceeding available following the administrative decision can only address some action or inaction by State DHS. In the context of a case such as Dr. Maynard's, this would appear to encompass the "preliminary hearing" decision of the State DHS, the failure of the agency to afford the petitioner a full hearing, or the failure of the agency to complete its investigation of the charges in a reasonably prompt fashion. Given Dr. Maynard's allegation that State DHS had a practice of withholding funds and suspending provider numbers for an indefinite, as opposed to temporary, period, and the apparent lack of any procedure that permitted Dr. Maynard to challenge the merits of the fraud finding during that period, the court concludes that he has adequately pleaded he was not afforded all the process he was due with respect to the alleged deprivation of his limited property interest in the withheld payments. Accordingly, the complaint adequately states a claim of constitutional deprivation.
While the complaint asserts Dr. Maynard's petition for writ of mandate contended that the fraud allegations were baseless, and that the sanctions should have been lifted (First Amended Complaint, ¶ 42), it does not allege the specific claims pleaded or relief sought by Dr. Maynard in the petition, and the court bases its interpretation of the relief available in such a proceeding on the statutory language and the construction accorded it by the California courts. See CAL. CODE ClV. PROC. § 1085 (" 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, or to compel the admission of a party to the use and enjoyment of a right or office to which the party is entitled, and from which the party is unlawfully precluded by such inferior tribunal, corporation, board, or person"); Mobley, supra, 90 Cal.App.4th at 1244.
Because of the incomplete state of the record, the court's conclusions regarding the nature of Dr. Maynard's mandate proceeding are necessarily preliminary. If appropriate, and upon the presentation of competent evidence indicating that it should do so, the court will revisit the issue at a later stage of the proceeding.
Defendants also cite Erickson for its rule that requiring full-blown predeprivation hearings would frustrate congressional intent, impede the Secretary's ability to act quickly, and impose significant administrative costs. Defendants, however, offer no explanation why a post-deprivation hearing would suffer the same disadvantages. The court thus finds this argument unpersuasive.
c. Unannounced Searches Of Dr. Maynard's Offices
Defendants' final attack on Dr. Maynard's deprivation of due process claim asserts that Dr. Maynard was afforded all the process he was due under California law in connection with the unannounced searches of his office. They cite Welfare Institutions Code §§ 14043.7, 14124.1, 14124.2 and title 22 of the California Code of Regulations, section 51476, as authority for the searches they conducted, and assert that, by participating in the state Medi-Cal program, Dr. Maynard effectively consented to searches pursuant to these provisions. See Bergeron, supra, 71 Cal.App.4th at 19 ("The relationship between appellant, as a Medi-Cal service provider, and the Department, as the Medi-Cal payer, is a contractual one governed by applicable state and federal regulations"). Maynard counters that defendants' adherence to California procedure does not immunize them from liability for depriving him of his due process rights under the federal constitution. Plaintiff is correct as a general proposition that the fact that state officials acted in accordance with state regulations does not, standing alone, defeat his claim that he was deprived of due process under the Fourteenth Amendment. As the Supreme Court has explained, "'minimum [procedural] requirements [are] a matter of federal law, they are not diminished by the fact that the State may have specified its own procedures that it may deem adequate for determining the preconditions to adverse official action.'" Cleveland Board of Education v. Loudermill, 470 U.S. 532, 541 (1985) (quoting Vitek v. Jones, 445 U.S. 480, 491 (1980)). See also Spence v. South, 107 F.3d 17, 1997 WL 51532, * 5 (9th Cir. Feb. 5, 1997) (Unpub. Disp.) ("Although state statutes and regulations can create property interests protected by the Due Process Clause, they do not supplant the procedural protections the clause guarantees. Those protections are 'a matter of federal law, [and] they are not diminished by the fact that the State may have specified its own procedures that it may have deemed adequate.' The Fourteenth Amendment, not California statutes, prescribes the process that was due"); Voigt v. Savell, 70 F.3d 1552, 1563 (9th Cir. 1995) ("What procedures are constitutionally required if the state seeks to deprive the defendant of a protected interest is determined by federal law").
The question, however, is whether, given the facts alleged in the complaint, there is any federal due process violation stated. Federal courts have rejected Fourth Amendment illegal search claims similar to the procedural due process claim Dr. Maynard asserts here. See, e.g., Beverly California Corp. v. Shalala, 78 F.3d 403, 408-09 (8th Cir. 1996) (rejecting a Medicare provider's claim that an unannounced inspection of its facility violated the Fourth Amendment because it was conducted by federal rather than state agents, the court observed: " Applegate, like any other Medicaid provider, participates in the program voluntarily. By agreeing to the terms of its participation, a provider is put on notice that its compliance with federal health and safety requirements will be monitored by frequent, random, unannounced state and federal surveys. Applegate simply cannot claim that the government violated any reasonable expectation of privacy. Moreover, contrary to Applegate's assertion, the scope of the federal survey was far from unbounded. Although the parties disagree about what standards, if any, the federal survey team was obliged to follow, it is clear from the record that the federal surveyors conducted the April 1988 survey in substantial accordance with the regulations governing state surveys. Those regulations inform Medicaid providers like Applegate what is expected of them and control the scope of the search. . . . We find no merit to Applegate's arguments that it lacked notice of the federal survey and that the scope of the federal survey was in any way unbridled; and, therefore, we reject the nursing home's assertion that its Fourth Amendment rights were violated"); United States v. Brown, 763 F.2d 984, 987-88 (8th Cir. 1985) ("Appellants do not contend that the Corporation did not knowingly and voluntarily enter into a contract with [Arkansas Social Services]. Rather, they challenge, on two levels, the district court's finding, based on the contractual language, that the Corporation explicitly consented to warrantless searches of pharmacy records. First, they broadly assert that the Corporation did not consent, by entering into the contract with ASS, to waive its fourth amendment right to be free from warrantless searches. The thrust of this argument apparently is that the commands of the fourth amendment are inviolable. We disagree. . . . The government has a substantial interest in establishing methods by which it can effectively monitor compliance with the regulations governing the Medicaid Program and root out opportunities for and instances of fraud. We see no constitutional infirmity in the government requiring a provider to agree to maintain records of Medicaid transactions and to permit periodic audits of those records as a condition for participation in the Medicaid Program. In this case, the appellants were aware of this condition, and voluntarily entered into a contract with ASS in which they authorized such audits in exchange for obtaining the benefits attendant to participation in the Medicaid Program. Accordingly, we hold that the appellants explicitly consented to reasonable warrantless inspections of the pharmacy records by entering into the contract with ASS. The June 7 inspection occurred during business hours and in the presence of Brown and nothing in the record suggests that the inspection was conducted in an unreasonable manner"); United States v. Griffin, 555 F.2d 1323, 1324-25 (5th Cir. 1977) (holding that the trial court properly admitted evidence seized during a warrantless search of the office of a pharmacist convicted of filing fraudulent Medicaid claims, the court stated: I "Warrantless searches are per se unreasonable subject to a few narrowly drawn exceptions. . . . One such exception is the knowing and voluntary consent of the person subject to the search. . . . In the instant case defendant knowingly and voluntarily agreed by contract to maintain records of the prescriptions which he billed to the state and to make these records available for inspection at any time").
The contract into which Dr. Maynard and the state entered is not before the court, and the court cannot assume, based solely on the generalized statement set forth in Bergeron, that it explicitly incorporated the state and federal regulations governing participation in the Medi-Cal program. Nor does the court have before it any evidence as to what manuals or documents Dr. Maynard received when his participation in the program began or at any time thereafter. On the present record, therefore, the court cannot determine as a matter of law that Dr. Maynard consented to unannounced inspections of his offices.
Plaintiff, moreover, does not allege a Fourth Amendment Claim, but a Fourteenth Amendment procedural due process claim. The complaint does not articulate the deprivation of property without due process of law that was accomplished by the unannounced searches. See Roth, supra, 408 U.S. at 569 (to maintain a Fourteenth Amendment due process claim, plaintiff must allege the existence of facts that, if proven, would establish that defendant deprived him of a constitutionally protected property or liberty interest"; Burnsworth, supra, 179 F.3d at 774 ('"[a] due process claim is cognizable only if there is a recognized liberty or property interest at stake'"); McLean, supra, 173 F.3d at 1184 ("'A due process claim is cognizable only if there is a recognized liberty or property interest at stake'"). To the extent the claim rests on the property and liberty interests discussed above — i.e., a property interest in continued participation in the Medi-Cal program, a liberty interest in not being stigmatized by public charges that damage one's reputation, and a property interest in the funds withheld pending a fraud investigation, it is essentially duplicative of other aspects of plaintiff's due process claim, and stands or falls for the reasons they do. To the extent the claim is based on an alleged deprivation of property taken during the search, it appears from the allegations of the complaint that no records were in fact taken. Because the basis of the claim is unclear, and because at least certain possible bases upon which it may rest are legally insufficient, the court grants defendants' motion to dismiss the claim with leave to amend.
4. Whether The First Amended Complaint Sufficiently Alleges A Violation Of Dr. Maynard's Federal Rights
Defendants also contend that the complaint fails sufficiently to allege a violation of Maynard's federally-protected rights. Plaintiff's second cause of action asserts that his federal rights were violated because defendants "violate[d] the governing provisions of the federal Medicaid statutes and regulations, including 42 C.F.R. § 455.13 . . . and 42 C.F.R. § 455.23." Defendants argue that plaintiff cannot base his § 1983 action on rights conferred by agency regulations where such rights are not provided either explicitly or implicitly by an underlying statute.
There is currently a Circuit split as to whether a plaintiff can base a § 1983 claim solely on agency regulations. The Third, Fourth and Eleventh Circuits have held that regulatory provisions that are not also present in the underlying statute do not confer rights that can form the basis for a § 1983 claim. South Camden Citizens in Action v. New Jersey Department of Environmental Protection, 274 F.3d 771, 783 (3d Cir. 2001) ("[A] regulation alone — i.e., where the alleged right does not appear explicitly in the statute, but only appears in the regulation — may [not] create an enforceable federal right"); Harris v. James, 127 F.3d 993, 1008-09 (11th Cir. 1997) (" Wright v. Roanoke Redevelopment and Housing Authority, 479 U.S. 418 (1987), would seem to indicate that so long as the statute itself confers a specific right upon the plaintiff, and a valid regulation merely further defines or fleshes out the content of that right, then the statute — 'in conjunction with the regulation' — may create a federal right as further defined by the regulation . . . [I]f the regulation defines the content of a statutory provision that creates no federal right under the three-prong test, or if the regulation goes beyond explicating the specific content of the statutory provision and imposes distinct obligations in order to further the broad objectives underlying the statutory provision, . . . the regulation is too far removed from Congressional intent to constitute a 'federal right' enforceable under § 1983. To hold otherwise would be inconsistent with the driving force of the Supreme Court precedent requiring a Congressional intent to create federal rights and with the Supreme Court's directive that courts must find that Congress has unambiguously conferred federal rights on the plaintiff); Smith v. Kirk, 821 F.2d 980, 984 (4th Cir. 1987) ("An administrative regulation, however, cannot create an enforceable § 1983 interest not already implicit in the enforcing statute").
The Sixth Circuit, however, has held that language in federal regulations alone, independent of any statutory language, may create enforceable rights. Loschiavo v. City of Dearborn, 33 F.3d 548, 551 (6th Cir. 1994) ("As federal regulations have the force of law, they likewise may create enforceable rights"). The Ninth Circuit has yet to address the issue. See Hill v. San Francisco Housing Authority, 207 F. Supp.2d 1021, 1025-26 (N.D. Cal. 2002) ("As a preliminary matter, the Court must consider whether a federal right may arise from a HUD regulation. Defendant contends that a federal right must be based on a statute and therefore the Court may look only to section 1437d(f)(2), and not its implementing regulations, to determine if plaintiffs have identified a federal right. The Courts of Appeal are split on this issue. . . . The Ninth Circuit has not directly considered the issue").
The court finds the position adopted by the Third, Fourth and Eleventh Circuits to be the more persuasive. Regulations are not enacted or approved by Congress; they are drafted and promulgated solely by administrative agencies. Agencies, however, are not granted law-making authority under the Constitution. This role is reserved exclusively to Congress. Absent an express or implied delegation of authority by Congress to the agencies, the Supreme Court has explained that regulations cannot have the "force and effect of law." Chrysler Corp. v. Brown, 441 U.S. 281, 302-03 (1979). See also Hodge v. Dalton, 107 F.3d 705, 708 (9th Cir. 1997) ("[B]ecause this substantive rule was promulgated under a specific grant of congressional authority, it has the 'force and effect of law'"). Section 1982, moreover, is designed not to remedy violations of federal law but violations of federal rights. See Suter v. Artist M., 503 U.S. 347, 357 (1992) ("'[s]ection 1983 speaks in terms of "rights, privileges, or immunities," not violations of federal law,'" quoting Wilder v. Virginia Hospital Ass'n., 496 U.S. 498, 509 (1990)). See also San Lazaro Ass'n., supra, 286 F.3d atlO97. Where Congress has not expressly or implicitly delegated law-making authority to an agency, or where a regulation creates law independent of the parameters established by an underlying statute, the regulation is too far removed from Congressional intent to constitute a "federal right" enforceable under § 1983. The court must thus examine whether 42 C.F.R. § 455.13 and 455.23 define the content of a right created by 42 U.S.C. § 1396a(a)(37), or whether they impose distinct obligations that cannot be said to create federal rights enforceable under § 1983.
The connection between 42 U.S.C. § 1396a(a) and 42 C.F.R. § 455.13 and 445.23 is as follows: To implement the requirements of § 1396a(a)(37), the Department of Health and Human Services enacted various federal Medicaid regulations, including 42 C.F.R. § 447.45. Under § 447.45, state Medicaid plans must make timely payment of undisputed claims. 42 C.F.R. § 447.45(d). Section 447.45 also requires that state Medicaid officials conduct various prepayment and postpayment claims reviews. 42 C.F.R. § 447.45(f). The postpayment claims review process must comply with the requirements of Parts 455 and 466 of Title 42. 42 C.F.R. § 447.45(0(2). Part 455 concerns Medicaid "program integrity," and requires that a state have a State Fraud and Abuse Detection and Investigation Program. Sections 455.13 and 455.23 are included in Part 455.
Plaintiff argues that his claim under §§ 455.13 and 455.23 survives because, read together, the language of the authorizing statute, § 1396a(a)(37), and the regulations creates a framework that "requires the prompt payment of Medicaid claims and the efficient administration of a postpayment Medicaid review process." The first amended complaint sets forth this statutory and regulatory scheme, and plaintiff's second cause of action appears to incorporate the allegations by reference. The Ninth Circuit has yet to determine whether "42 C.F.R. § 455.23 creates a private right of action that a provider may enforce under § 1983." San Lazaro Ass'n., supra, 286 F.3d at 1102, n. 12. See also Levin v. Childers, 101 F.3d 44, 47 (6th Cir. 1996) ("We need not decide whether this test [for determining whether regulations give rise to rights enforceable under § 1983] is satisfied by whatever hearing requirement 42 C.F.R. § 455.23(a) may have imposed"). To determine whether a statute confers federal rights, courts consider three factors: (1) whether the statute was intended to benefit the plaintiff; (2) whether the statute imposes a binding obligation on a governmental unit rather than merely expressing a congressional preference for a certain kind of conduct, and (3) whether the interest asserted by the plaintiff is so vague or amorphous that it is beyond the competence of the judiciary to enforce. Legal Services of Northern California, Inc. v. Arnett, 114 F.3d 135, 138 (9th Cir. 1997). See also San Lazaro Ass'n., supra, 286 F.3d at 1097.
First Amended Complaint, ¶¶ 14-20.
Addressing the second prong of the test first, it appears clear that the obligation to establish such prepayment and postpayment procedures is a binding one. See 42 U.S.C. § 1396a(a)(37) ("A State plan for medical assistance must . . . provide for procedures of prepayment and postpayment claims review"). See also Frazar v. Gilbert, 300 F.3d 530 (5th Cir. 2002) (noting that "U.S.C. § 1396a(a) provides that state Medicaid plans 'must' meet the federal mandates set out in that statute, " and holding that EPSDT provisions of the statute imposed binding obligations, but noting that "[t]he Medicaid Act is . . . a large and complex statute, and whether plaintiffs seeking to enforce a federal right under the Medicaid Act can meet this requirement depends on which statutory provision or provisions they rely"). Application of the remaining two factors, however, does not indicate that Congress intended to create federally enforceable rights when it enacted § 1396a(a)(37)(B).
Section 1396a(a)(37)(B) requires that state Medicaid programs provide procedures for prepayment and postpayment claims review "to ensure the proper and efficient payment of claims and management of the program." Some courts have suggested that medical providers such as Dr. Maynard may be intended beneficiaries of the provision. See, e.g., K A Radiologic Technology Services, Inc. v. Commissioner of Department of Health of the State of New York, 189 F.3d 273, 280 (2d Cir. 1999) (stating, without deciding, that § 1396a(a)(37) was "arguably intended to benefit" medical services providers); Methodist Hospitals, Inc. v. Indiana Family and Social Services Administration, 860 F. Supp. 1309, 1325 (N.D. Ind. 1990) ("As with the other rights asserted by Plaintiffs in this action, the appeals mechanism regulation provides specific and definite rights in favor of Medicaid providers to challenge payment rates, and to submit additional evidence and receive prompt administrative review. The Medicaid Act and its implementing regulations require in clear and mandatory terms that such a procedure is provided by the state"). A review of the legislative history of the provision, however, indicates strongly that the intended beneficiary of the provision was the Medicaid program as a whole rather than individual Medicaid providers, as the statute was designed to provide additional tools to state Medicaid agencies to counter the pervasive growth of Medicaid fraud.
The Medicaid Anti-Fraud and Abuse Amendments were enacted in 1977 with the stated purpose of "strengthen[ing] the capability of the Government to detect, prosecute, and punish fraudulent activities under the medicare and medicaid programs. . . . " The legislative history of the law indicates a Congressional concern that insufficient efforts had been made to identify and prosecute cases of Medicaid fraud in a number of states. The purpose and background section of the House Report concerning the bill states:
Pub.L. No. 95-142.
"In recent years, numerous hearings, studies, and investigations undertaken by this committee and other committees of the Congress, the General Accounting Office, and other Federal and State agencies have demonstrated that there exist, to a disturbing degree, fraudulent and abusive practices associated with the provision of health services financed by the medicare and medicaid programs. The disclosures to date have focused on a broad range of improper activities which are not restricted to one particular class of providers or treatment settings. In whatever form it is found, however, fraud in these health care financing programs adversely impacts on all Americans. It cheats taxpayers who must ultimately bear the financial burden of misuse of funds in any government-sponsored program. It diverts from those most in need, the nation's elderly and poor, scarce program dollars that were intended to provide vitally needed quality health services. The wasting of program funds through fraud also further erodes the financial stability of those state and local governments whose budgets are already overextended and who must commit an ever-increasing portion of their financial resources to fulfill the obligations of their medical assistance programs. In addition to these adverse financial consequences, the activities of those who seek to defraud these programs unfairly call into question and honesty and integrity of the vast majority of practitioners and health care institutions."
P.L. 95-142, MEDICARE-MEDICAID ANTIFRUAD AND ABUSE AMENDMENTS, HOUSE REPORTNO. 95-393(11) July 12, 1977, at 44.
The report lists a variety of different providers whose billings reflect the most pervasive fraud, including shared health facilities, nursing homes, and independent practitioners. As a result of this pervasive level of Medicare/Medicaid fraud, it indicates that strengthened penalties had to be coupled with increased investigative powers to assure that those engaging in criminal activities were identified and prosecuted:
Id. at 45-48.
"H.R, 3 is designed to strengthen the ability of the Federal and State governments to find and correct abuse and to detect and prosecute fraud. Fraud involves an intentional deception or misrepresentation, with the intent of receiving some unauthorized benefit for the individual engaged in fraud. In the health area, examples of fraud may include: billing for services not rendered, misrepresentation of services rendered, kickbacks, deliberate duplicate billing, false or misleading entries on cost reports, and so forth. Program abuse is less clearly defined and includes activity wherein providers, practitioners, and suppliers of services operate in a manner inconsistent with accepted, sound medical or business practices resulting in excessive and unreasonable financial cost to either medicare or medicaid. Included in the area of abuse are the provision of unnecessary health services and the provision of necessary care in unnecessarily costly settings. To deal with the problem of fraud, more effective prosecution efforts and stiffer criminal penalties are proposed. Additionally, since issues of medical necessity and quality of care may be present in cases of possible program abuse (as distinct from criminal fraud), PSRO's can be a valuable resource for the exercise of the professional medical judgment that may need to be made in certain of such cases. The committee believes that every effort must be made to encourage the rapid implementation of the PSRO program. To achieve this end, H.R. 3 includes several provisions making modifications in the administrative structure of the program to enhance the capacity of individual PSRO's to effectively review matters of quality and necessity."
Id. at 48.
As these excerpts make clear, the underlying purpose of the authorizing statute was to give state enforcement agencies additional tools to investigate, prosecute and prevent Medicaid fraud. It was not to confer additional rights on Medicaid providers. See San Lazaro Ass'n., supra, 286 F.3d at 1099-1100 (looking to legislative history of Medicaid's single state agency requirement to determine if medical providers were among the intended beneficiaries).
Moreover, the interest plaintiff asserts in the procedures mandated by § 1396a(a)(37)(B) is so vague and amorphous that it is not judicially enforceable. See Blessing v. Freestone, 520 U.S. 329, 345 (1997) (holding that it would strain judicial competence to enforce provisions in the Social Security Act and accompanying regulations that required participating states to establish a separate child support enforcement unit that had "sufficient staff " to fulfill specified functions). See also Suter, supra, 503 U.S. at 360 (holding that a statute that required that State make "reasonable efforts" to prevent a child from being removed from his home, and once removed, to reunify the child with his family provided was "[n]o . . . statutory guidance . . . as to how 'reasonable efforts are to be measured," and could not be enforced under § 1983). Similar provisions of the Medicaid Act have been held not to create rights enforceable under § 1983 for this reason. See Harris, supra, 127 F.3d at 1010, n. 24 (stating that § 1396a(a)(19), which requires that a state plan for medical assistance "must . . . provide such safeguards as may be necessary to assure that . . . care and services will be provided . . . in a manner consistent with simplicity of administration and the best interests of the recipients" was not enforceable under § 1983, inter alia, because it was "insufficiently specific to confer enforceable rights on the plaintiff," and thus created "an obligation [that was] "too vague and amorphous' to be capable of judicial enforcement. To ask a court to determine whether a State practice complies with the broad, and sometimes competing, goals of 'simplicity of administration' and 'the best interests of the recipients' would likely strain judicial competence"). See also Bumpus v. Clark, 681 F.2d 679, 683 (9th Cir. 1982) ("Section 1396a(a)(19) is not the sort of specific condition for receipt of federal funds which can be said to create substantive rights in Medicaid recipients"), opinion withdrawn as moot, 702 F.2d 826 (9th Cir. 1983); Prestera Center for Mental Health Services, Inc. v. Lawton, 111 F. Supp.2d 768, 776 (S.D.W.V. 2000) (holding that § 1396a(a)(30)(A), which mandates that states provide "methods and procedures relating to the utilization of, and the payment for, care and services available under the plan . . . as may be necessary to safeguard against unnecessary utilization of such care and services" was too vague and amorphous to create enforceable rights under § 1983, because "[m]ethods and procedures in the state plan are to be judged by whether they are 'necessary to safeguard against unnecessary utilization.' This is not a judicial standard (unlike reasonableness standards previously found to pass the non-vague test)"); Graus v. Kaladjian, 2 F. Supp.2d 540, 543-44 (S.D.N.Y. 1998) (holding that § 1396a(a)(19), which mandates that state plans contain "such safeguards as may be necessary to assure that eligibility for care and services under the plan will be determined, and such care and services will be provided, in a manner consistent with simplicity of administration and the best interests of recipients," was unenforceable under § 1983 because it "simply express in vague and general forms the overall goals of the program"). Compare Evergreen Presbyterian Ministries, Inc. v. Hood, 235 F.3d 908 (5th Cir. 2000) (holding that § 1396a(a)(30)(A), the so-called "equal access" provision, which mandates that state plans enlist sufficient providers that "care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area, " is enforceable under § 1983 because it "affords the 'objective benchmark' of access to medical care equal to that of the general population in the same geographic area"); Antrican v. Buell, 158 F. Supp.2d 663, 670 (E.D.N.C. 2001) ("Additionally, equal access and quality of care are sufficiently specific and detailed to create an enforceable right under § 1983. . . . [T]he Supreme Court held that 'reasonable access' to medical care was not sufficiently vague and amorphous to defeat a cause of action under the Borden Act, and the term 'equal access,' arguably provides a more concrete standard than 'reasonable access.' . . . Moreover, because equal access and quality of care are measured against the access and care rendered to the general population in the same geographic area, there is an 'objective benchmark' for measurement").
The "mere fact that an obligation is couched in a requirement that the State file a plan is not itself sufficient grounds for finding the obligation unenforceable under § 1983." Harris, supra, 127 F.3d at 1003. In the case of the prepayment/postpayment claims review procedures the states must establish under § 1396a(a)(37), however, the only benchmark against which the court could measure the adequacy of the state's plan is whether it "ensures the proper and efficient payment of claims and management of the program." This is distinctly less specific than § 1396a(a)(30)'s mandate that the states provide access and quality of care to Medicaid recipients that are equal to those available to the general population in the same geographic area. It is, rather, like § 1396a(a)(19)'s requirement that the states create "safeguards . . . to assure that . . . care and services will be provided consistent with simplicity of administration and the best interests of the recipients." As the statute was not intended to benefit medical providers such as Dr. Maynard, and as it does not provide an objective benchmark against which to measure whether the state has met its obligations, it does not create federally enforceable rights.
In Wilder, the Supreme Court considered the so-called Boren Amendment, which mandated that states reimburse medical providers at rates that the "State finds, and makes assurances satisfactory to the Secretary," are "reasonable and adequate" to meet the costs of "efficiently and economically operated facilities." See Wilder, supra, 496 U.S. at 498. The Boren Amendment tied the concepts of efficiency and economy to the cost of operating a facility, and thus provided an inherently more specific standard than ensuring "proper and efficient payment of claims and management of the program."
As in Harris, the court notes plaintiff's argument that regulations adopted by the Department of Health and Human Services provide the content the statute lacks. As the Harris court stated:
"We recognize that the Supreme Court has sometimes looked to regulations in determining whether the interest asserted by the plaintiff is 'too vague and amorphous' to be judicially enforceable, . . . We find significant the fact that in each case the statute itself set out a particular right, and the regulation only further defined the content of that right. In our view, the Court's approach in these cases is closely related to our holding above. We have held that where a statute confers a specific right upon the plaintiff, and a valid regulation further defines or fleshes out the precise content of that right, then the statute 'in conjunction with' the regulation may create a federal right as further defined by the regulation. Similarly, the quoted portions of Wright and Wilder suggest that courts can look to regulations to flesh out the precise content of specific rights conferred by statute and, thus, bring those rights within the realm of judicial enforceability. As we have stated above, we simply cannot conclude that § 1396a(a)(19) confers any specific right upon the plaintiffs." Harris, supra, 127 F.3d at 1011, n. 24.
Even were the court's conclusion otherwise, however, it would find that 42 C.F.R. § 455.13 and 455.23 confer additional rights that are not explicitly or implicitly authorized by the statute. Section 1396a(a)(37)(B), provides, in relevant part:
"A State plan for medical assistance must provide for claims payment procedures which . . . (B) provide for procedures of prepayment and postpayment claims review, including review of appropriate data with respect to the recipient and provider of a service and the nature of the service for which payment is claimed, to ensure the proper and efficient payment of claims and management of the program." 42 U.S.C. § 1396a(a)(37)(B).
The interpretive regulations Dr. Maynard seeks to enforce go far beyond the express or implied content of the statute. Section 455.13 requires that the state Medicaid agency establish methods and criteria for identifying and investigating suspected Medicaid fraud and abuse, which "do not infringe on the legal rights of persons involved" and "afford [them] due process of law." Similarly expansive language is found in § 455.23, which provides that a state Medicaid agency may withhold Medicaid payments in whole or in part from a provider upon receipt of reliable evidence that the payment requests involve fraud or willful misrepresentation. Section 455.23 requires that a state agency send notice of its intent to withhold program payments to the provider within five days of taking such action. It permits withholding only "for a temporary period."
42 C.F.R, § 455, 23(b), (c).
In effect, the regulations "define the content of a statutory provision that creates no federal right. . . . " Harris, supra, 127 F.3d at 1009. At a minimum, they "go beyond explicating the specific content" of the provision, and impose distinct obligations that are not clearly envisioned by the statute but are designed to further the broad objectives underlying it. Id. Accordingly, they create no federal rights that are enforceable under § 1983. Compare Buckley v. City of Redding, Cal, 66 F.3d 188, 192-93 (9th Cir. 1995) (allowing a claim based on a statute and implementing regulations to proceed because the statute clearly created federal rights, and the enabling regulation was clearly authorized by the statute). Because this is so, defendants' motion to dismiss plaintiff's second cause of action for violation of federal rights must be granted.
5. Whether The First Amended Complaint Sufficiently Alleges Each Defendant's Personal Involvement In The Violation Of Plaintiff's Civil Rights
Defendants also argue that the first amended complaint fails adequately to allege each defendant's personal involvement in the purported violations. As noted, to state a claim under § 1983 against individual defendants, plaintiff must allege that each defendant personally violated his constitutional rights. West, supra, 487 U.S. at 48. Collective allegations regarding the activities of "defendants" are insufficient as a matter of law to state a claim upon which relief can be granted. See Barren v. Harrington, 152 F.3d 1193, 1194 (9th Cir. 1998) ("A plaintiff must allege facts, not simply conclusions, that show that an individual was personally involved in the deprivation of his civil rights. Liability under § 1983 must be based on the personal involvement of the defendant"); Ortez v. Washington County, State of Oregon, 88 F.3d 804, 809 (9th Cir. 1996) ("The district court dismissed Ortez's 42 U.S.C. § 1983 claims against the individual defendants for failure to allege specific facts linking each defendant to a § 1983 violation. We conclude that the dismissals of the claims against defendants Burrows, Cameron, Dies, Fowler, Girad-Hanson, and Zodrow were proper because Ortez failed to allege that those defendants knew of or participated in activities connected to the alleged § 1983 violations").
Defendants contend the complaint fails to allege personal involvement by defendants Bertrand and Gomez in the initial withholding. The court disagrees. The complaint clearly alleges that defendant Bertrand and her supervisor, defendant Gomez, caused State DHS to issue a letter on April 20, 2000, summarily imposing severe Medi-Cal sanctions on Dr. Maynard. Although defendants argue that Bertrand did not in fact cause this letter to be issued, this statement merely disputes the allegations of the complaint, which, for purposes of this motion to dismiss must be accepted as true. Dr. Maynard has alleged that the initial withholding of Medi-Cal payments violated his constitutional and federal rights, and that Gomez and Bertrand were both personally involved in the decision to initiate withholding. Therefore, the court finds that the complaint has sufficiently alleged Gomez's personal involvement in the initial withholding of plaintiff's funds, and that it states a claim against her under § 1983.
Defendants next argue that the complaint fails to allege personal involvement by defendants Bertrand and Gomez in the continued withholding. The court agrees. Although the complaint alleges that both Bertrand and Gomez "did not make any inquiry regarding the status of the 'investigation' until April 2001," it fails to allege that defendants Bertrand and Gomez had any duty to make such inquiry. Since the complaint fails to allege any other type of personal involvement by either Bertrand or Gomez in the continued withholding of plaintiff's funds, it fails to allege that either was personally involved in the continued withholding and/or the continued suspension/deactivation of Dr. Maynard's provider numbers.
Defendants finally argue that the complaint fails to allege personal involvement by defendants Bonta, Cates and Eng in the initial withholding, the continued withholding or the alleged illegal searches. The court agrees. The complaint does not specifically allege that defendants Bonta, Cates and Eng were personally involved in the events that gave rise to the alleged violation of plaintiff's rights. Rather, the pleading asserts generally that these defendants were responsible for establishing and administering the "methods and criteria" governing the Medi-Cal program at issue in this case. These general allegations do not sufficiently allege personal involvement by the three defendants in the alleged violation of plaintiff's federal and constitutional rights.
6. Whether The Complaint Alleges Sufficient Facts To State A Claim For Supervisory Liability Under 42 U.S.C. § 1983
Defendants finally argue that the complaint fails to allege sufficient facts to state a claim against any defendant for supervisory liability under § 1983. "A supervisor may be liable based on either (1) the supervisor's personal involvement in the constitutional deprivation, or (2) a sufficient causal connection between the supervisor's wrongful conduct and the constitutional violation." Armendariz v. Penman, 31 F.3d 860, 871 (9th Cir. 1994), aff'd. in part, rev'd. in part on other grounds, 75 F.3d 1311 (9th Cir. 1996) (en banc). Where personal involvement is not alleged, a supervisor may be held liable if he or she "implement[ed] a policy so deficient that the policy 'itself is a repudiation of constitutional rights' and is 'the moving force of the constitutional violation.'" Redman v. County of San Diego, 942 F, 2d 1435, 1446 (9th Cir. 1991) (quoting Hansen v. Black, 885 F.2d 642, 646 (9th Cir. 1989) and Thompkins v. Belt, 828 F.2d 298, 303-04 (5th Cir. 1987)). Liability under this theory is direct, not vicarious; it emanates from the supervisor's breach of a duty that is causally connected to the injury allegedly suffered. Applying this rule, supervisors may be held liable in their individual capacity if they "set[ ] in motion a series of acts by others, or knowingly refused to terminate a series of acts by others, which [they] kn[e]w or reasonably should [have] know[n], would cause others to inflict the constitutional injury." Larez v. City of Los Angeles, 946 F.2d 630, 646 (9th Cir. 1991) (internal citations and quotation marks omitted). The conduct on which liability is based may consist of the supervisor's "own culpable action or inaction in the training, supervision, or control of his [or her] subordinates," of "[acquiescence] in the [alleged] constitutional deprivations," or "conduct that show[s] a reckless or callous indifference to the rights of others." Id.
Here, as noted above, Dr. Maynard fails to allege that any of Bonta, Cates or Eng was personally involved in the purported constitutional deprivation. To state a claim for supervisory liability against these individuals, he must plead that each, as a supervisor, "set[ ] in motion a series of acts by others, or knowingly refused to terminate a series of acts by others, which he [or she] kn[e]w or reasonably should [have] know[n], would cause others to inflict the constitutional injury." Judging the complaint against this standard, the court finds that the allegations are more than sufficient. The complaint specifically alleges (1) that the defendants have implemented and allowed a practice and policy of imposing summary Medi-Cal sanctions in "ordinary" Medi-Cal payment disputes, disputes that should be processed through the traditional Medi-Cal audit and appeal process; (2) that they have implemented and allowed a practice and policy of imposing summary sanctions against providers on an indefinite basis, in violation of the controlling federal Medicaid laws and regulations, which require that such sanctions be imposed only temporarily; (3) that they have failed to establish and/or implement effective practices and policies to monitor the continuing imposition of Medi-Cal sanctions to determine whether an act of investigation is occurring, thus causing sanctions to be imposed indefinitely, rather than temporarily; (4) that they have failed to implement an effective practice or policy to assure that cases of suspected fraud and abuse are referred promptly to the Medicaid Fraud Control Unit; and (5) that they failed to establish reasonable procedures for determining if and when the premises and papers of a provider may be searched without first giving the provider reasonable notice of the search. The court finds these allegations sufficient to allege supervisory liability against defendants Bonta, Cates and Eng.
First Amended Complaint, ¶ 27.
W., ¶ 28.
Id., ¶ 30.
Id., ¶ 31.
Id., ¶ 32.
Finally, as respects defendants Gomez and Bertrand, the court has previously found that the complaint adequately alleges their personal involvement in the initial decision to withhold payments and suspend/deactivate Dr. Maynard's provider numbers. Additionally, defendants do not dispute that Gomez and Bertrand were personally involved in the alleged illegal searches of the offices. The court thus considers the issue of these defendants' supervisory liability only as respects allegations that the continued withholding of payments and continued suspension/deactivation of the provider numbers violated Dr. Maynard's constitutional rights.
While the complaint alleges that Bertrand and Gomez set the sanctions process in motion, it does not plead that either was involved in, or supervised anyone responsible for, investigating Dr. Maynard's submission of fraudulent claims following the initial imposition of sanctions. Nor does the complaint allege any other facts from which it could be inferred that Bertrand knew or should have known that her initial decision to withhold payments and suspend/deactivate Dr. Maynard's provider numbers would result in an unconstitutionally long deprivation of the benefit of participating in the Medi-Cal program. Accordingly, the court finds that the complaint does not adequately allege that Bertrand or Gomez are liable as supervisors for damages resulting from the continued withholding of Medi-Cal payments or the continued suspension/deactivation of Dr. Maynard's provider numbers during the investigation period.
In summary, while Dr. Maynard has failed adequately to allege personal involvement on the part of defendants Bonta, Cates or Eng, he has adequately alleged supervisory liability on the part of these defendants. Dr. Maynard has also adequately alleged that defendants Bertrand and Gomez were personally involved in the initial decision to withhold Medi-Cal payments and suspend/deactivate his provider numbers. He has not, however, sufficiently pleaded Bertrand or Gomez's personal involvement in, or supervisory liability for, the continued withholding of payments and continued suspension/deactivation of his provider numbers during the course of the subsequent investigation. To the extent Dr. Maynard's § 1983 claims against Bertrand and Gomez are based on continued withholding of payments and continued suspension/deactivation of his provider numbers, therefore, Bertrand and Gomez's motions to dismiss are granted.
III. CONCLUSION
For the foregoing reasons, the court denies defendants' motion to dismiss plaintiff's due process claim based on the temporary withholding of Medi-Cal funds. The court grants defendants' motion to dismiss the remainder of plaintiff's claims. Plaintiff is granted leave to amend his claim for deprivation of due process based on a purported liberty interest in continued participation in the Medi-Cal program. Plaintiff is also granted leave to amend his due process claim based on the unannounced searches of his offices. Plaintiff is directed to file any amended complaint within twenty days of the date of this order.