Opinion
NO. CIV. S-08-1443 LKK/GGH.
June 26, 2008
ORDER
Plaintiffs are a group of California pharmacies who brought suit in state court against the California Department of Health Care Services and its Director, seeking to prevent the implementation of a state law scheduled to go in effect on July 1, 2008. Pending before the court is plaintiffs' emergency motion to remand. For the reasons discussed herein, the court grants the motion.
I. BACKGROUND
All allegations are derived from plaintiffs' complaint, unless otherwise noted.
Defendant Department of Health Care Services ("DHCS") administers California's Medicaid program, Medi-Cal. The administration of Medi-Cal must be conducted with the approval of the Centers for Medicare and Medicaid Services ("CMS"), a federal agency under the Department of Health and Human Services. Pharmacies, including the plaintiffs, are reimbursed by Medi-Cal for prescription drugs they have dispensed to Medi-Cal patients.
On February 16, 2008, the California Legislature enacted The 10% Rate Reduction Act, AB X3-5, which will go into effect on July 1, 2008. The Act provides that payments to providers for fee-for-service benefits would be reduced by ten percent. Plaintiffs allege that the Act is unenforceable because the Act itself states that it may only be implemented upon federal approval.
Plaintiffs filed their action in state court on June 9, 2008. Plaintiffs sought: 1) a writ of mandate for violation of California law, 2) an injunction preventing the implementation of the Act, and 3) a declaration that the Act is unenforceable and invalid. Concurrent with their complaint, plaintiffs filed an ex parte application for a temporary restraining order and preliminary injunction. On June 9, 2008, the state court judge set a hearing on this motion for June 20, 2008. On June 19, 2008, defendants removed the case to this court.
II. STANDARD
The removing defendant always has the burden of establishing federal jurisdiction. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). A defendant may remove any state court action to federal district court if the latter court has original jurisdiction under "a claim or right arising under the Constitution, treaties or laws of the United States." 28 U.S.C. § 1441; see also 28 U.S.C. § 1331. Whether a cause of action arises under the Constitution, treaties, or laws of the United States must be determined solely from what is contained in the plaintiff's well-pleaded complaint. Taylor v. Anderson, 234 U.S. 74, 75-76 (1914). Federal jurisdiction is not proper when the federal question only arises through the defendant's defense or the plaintiff's necessary response thereto. Id.; Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 809 (1988).
Civil actions not involving a federal question are removable to a federal district court only if there is diversity of citizenship between the parties. 28 U.S.C. § 1332(a)(1). The defendants do not predicate removal on this basis, nor could they. Rather, they assert that removal is proper because the action implicates federal law. The court cannot agree.
III. ANALSIS
District courts have original jurisdiction over civil actions that arise under any Act of Congress. 28 U.S.C. § 1331. Jurisdiction under § 1331 extends to cases where federal law creates a cause of action within the constraints of the well-pleaded complaint or where the resolution of a substantial question of federal law is necessary for recovery on plaintiff's claim. Christianson, 486 U.S. at 809; Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318, 1328-29 (Fed. Cir. 1998), overruled on other grounds by Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356 (Fed. Cir. 1999). Notwithstanding a plaintiff's artful pleading, a federal court may assert jurisdiction where the causes of action are completely preempted by federal law or where the state law claims implicate "a substantial federal question." Lippitt v. Raymond James Fin. Servs., 340 F.3d 1033, 1041 (9th Cir. 2003); see also Baker v. BDO Seidman, L.L.P., 390 F. Supp. 2d 919, 924 (N.D. Cal. 2005) (observing that the Ninth Circuit's construction of the artful pleading rule favors remand more often than the Second Circuit's more liberal construction of the rule). A substantial federal question exists where "a substantial, disputed question of federal law is a necessary element of the well-pleaded state claim" or where the plaintiff's right to relief depends on the resolution of a substantial, disputed question of federal law.Lippitt, 340 F.3d at 1042 (emphasis in original).
Where a plaintiff has pled alternative grounds for relief, some of which do not rely on federal law, assertion of federal jurisdiction is improper. Rains v. Criterion Systems, Inc., 80 F.3d 339, 346 (9th Cir. 1996) (holding federal jurisdiction improper in a suit for discrimination, where plaintiff has alleged both state and federal theories). Lippitt, 340 F.3d 1033, is informative on this point. There, the plaintiff filed a complaint in state court, alleging that defendants had violated the UCL, Cal. Bus. Prof. Code § 17200 et seq., in their marketing of certain "callable certificates of deposit (CDs)."Id. at 1036. Defendants removed on the basis that the complaint appeared to seek enforcement of the New York Stock Exchange's rules and regulations, under the federal Exchange Act. Id. The district court agreed, asserting jurisdiction on the basis that plaintiff appeared to seek a ban on the sale of the callable CDs. Id. at 1040.
The Ninth Circuit reversed, holding that the complaint could be read as seeking to enforce only state law, not federal law. Id. at 1037, 1040. Specifically, the complaint could be interpreted to only challenge the marketing techniques of the defendants, not necessarily requiring a ban on sale of the callable CDs for relief. Id. That the defendants' misconduct under state law "overlaps with conduct that is likewise proscribed by" federal law did not transform the complaint into one that was necessarily federal in character. Id.
Here, the defendants have not shown that there is a substantial federal question that makes the assertion of the court's jurisdiction proper. The plaintiffs allege that defendants have failed to comply with Cal. Wel. Inst. Code § 14105.19, which requires DHCS to "promptly seek any necessary federal approval for the implementation of this Section." Plaintiffs correctly assert that they could succeed in their claims by showing that DHCS did not "promptly" seek any federal approval for the implementation of the Act. This is a route to relief that only requires consideration of the meaning of "promptly seek" under state law and would not require a court to interpret or apply federal regulations.
This is true too of the statute's reference to "necessary federal approval." Although "necessary" suggests it is defined by federal law, i.e., what approval the federal regulations require, the plaintiff has pled an alternate route to relief here, as well. Plaintiffs allege that "CMS has informed DHCS that implementation of [the Act] requires a State Plan Amendment." Compl. ¶ 5. A court could find that this sufficiently demonstrates that the approval is necessary and an inquiry into the federal regulations is not necessary. Cf. Lippitt, 340 F.3d at 1042 (complaint not a substantial federal question although the alleged misconduct "overlaps with conduct that is likewise proscribed by" federal law). Even if the determination of the agency is in error, that is a matter not of the contents of the well pleaded complaint, but of the answer. Thus federal question jurisdiction cannot be determined from the contents of plaintiff's complaint, and accordingly, the matter must be remanded. Taylor, 234 U.S. at 75-76.
Finally, plaintiff seeks attorneys fees related to the remand motion. The court retains jurisdiction to consider a motion for attorneys' fees at a later date upon more complete briefing by the parties. This issue need not be resolved in the instant, expedited motion. The court notes, however, that upon careful consideration, it does not appear that the removal was frivolous. And the plaintiffs might well consider the court's judgment in pursuing the aspect of its motion.
IV. CONCLUSION
Plaintiffs' motion to remand is GRANTED. The action is REMANDED to the Superior Court of the State of California, County of Sacramento.IT IS SO ORDERED.