Medical Devel. Intern. v. Ca. Corrections & Rehab.

• Decision Date: 30 October 2009
• Docket Number: No. 08-15759.,No. 08-16858.,08-15759.,08-16858.
• Citation: 585 F.3d 1211
• Parties: MEDICAL DEVELOPMENT INTERNATIONAL, a Delaware corporation, Plaintiff-Appellant, v. CALIFORNIA DEPARTMENT OF CORRECTIONS AND REHABILITATION; Robert Sillen, individually and as Receiver; J. Clark Kelso, Receiver, Defendants-Appellees. Marciano Plata, Plaintiff, and Medical Development International, a Delaware corporation, Petitioner-Appellant, v. Arnold Schwarzenegger, Governor, Defendant, and California Department of Corrections and Rehabilitation; J. Clark Kelso, Receiver, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

585 F.3d 1211

MEDICAL DEVELOPMENT INTERNATIONAL, a Delaware corporation, Plaintiff-Appellant, v. CALIFORNIA DEPARTMENT OF CORRECTIONS AND REHABILITATION; Robert Sillen, individually and as Receiver; J. Clark Kelso, Receiver, Defendants-Appellees.

Marciano Plata, Plaintiff, and Medical Development International, a Delaware corporation, Petitioner-Appellant, v. Arnold Schwarzenegger, Governor, Defendant, and California Department of Corrections and Rehabilitation; J. Clark Kelso, Receiver, Defendants-Appellees.

No. 08-15759.

No. 08-16858.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 16, 2009.

Filed October 30, 2009.

Bennett J. Lee (argued) and Garrett E. Dillon, Watt, Tieder, Hoffar & Fitzgerald, LLP, San Francisco, CA, for the appellant.

Michelle M. Mitchell (argued), Deputy Attorney General, Sacramento, CA, for appellee California Department of Corrections and Rehabilitation; Martin H. Dodd

(argued), Futterman & Dupree LLP, San Francisco, CA, for the appellee J. Clark Kelso, as Receiver; John W. Fowler, Bergeson, LLP, San Jose, CA, for appellee Robert Sillen.

Appeal from the United States District Court for the Eastern District of California, William B. Shubb, District Judge, Presiding. D.C. No. 2:07-CV-02199-WBS-EFB.

Appeal from the United States District Court for the Northern District of California, Thelton E. Henderson, District Judge, Presiding. D.C. No. 3:01-CV-01351-TEH.

Before: BARRY G. SILVERMAN, RICHARD R. CLIFTON, and MILAN D. SMITH, JR., Circuit Judges.

CLIFTON, Circuit Judge:

A receiver appointed by a federal district court currently oversees the delivery of medical care to prisoners incarcerated by the California Department of Corrections and Rehabilitation (CDCR). Medical Development International (MDI) provided medical services for two of CDCR's prisons, without a finalized contract. The Receiver¹ terminated MDI's services. MDI was not paid for much of its work and filed suit against the Receiver and CDCR. MDI's claim has been before two different federal district courts, but MDI did not obtain relief from either of them. Appeals have been taken by MDI from both and have been consolidated before us.

The primary question presented to us is whether the Receiver is immune from suit for MDI's claim. We conclude that in the circumstances presented here the Receiver may be sued in his official capacity and he is not covered by judicial immunity. We also conclude that the federal district court had subject matter jurisdiction over MDI's lawsuit after it was removed from state court, and that MDI was not required to obtain permission from the court that appointed the Receiver prior to filing suit against him, under 28 U.S.C. § 959(a). As a result, we affirm in part and vacate in part the orders that are the subject of this appeal, and we remand for further proceedings.

I. Background

In June 2005, the U.S. District Court for the Northern District of California established a receivership to take control of the delivery of medical services to all California state prisoners confined by CDCR. Plata v. Schwarzenegger, No. C01-1351 TEH, 2005 WL 2932253, at *1 (N.D.Cal. Oct.3, 2005). The court explained that "[i]t is clear ... that [an] unconscionable degree of suffering and death is sure to continue if the system is not dramatically overhauled," id., and determined that the only solution to the systemic failures that had led to these problems was "the drastic but necessary remedy of a Receivership." Id. at *1; see also id. at *23-33.

The court charged the Receiver with "provid[ing] leadership and executive management" to CDCR, "with the goals of restructuring day-to-day operations and developing, implementing, and validating a new, sustainable system." In particular, it assigned the Receiver the "duty to control, oversee, supervise, and direct all administrative, personnel, financial, accounting, contractual, legal, and other operational functions of the medical delivery component of the CDCR," and equipped the Receiver with all powers vested by law in the Secretary of the CDCR as they relate to the above functions.

Shortly thereafter, the Northern District entered another order relating specifically to contracts for medical services entered into by CDCR. It did so because the court perceived what it described as "yet another chilling example of the inability of the CDCR to competently perform the basic functions necessary to deliver constitutionally adequate medical health care." CDCR contracts with third parties for most of the medical care it provides to inmates, but, the court explained, in doing so CDCR had failed to competitively bid the contracts, had used flawed negotiating practices, had agreed to excessive rates of compensation, and had failed to secure necessary approvals. To make matters worse, the court concluded that CDCR's response to the failures was simply to stick its "head[ ] in the sand," causing "the ... process for negotiating, processing, renewing, and payment of medical contracts [to] collapse[]."

To address this problem, the Northern District ordered CDCR to develop new processes for entering into and managing medical contracts. It also ordered CDCR to "pay all current outstanding, valid, and CDCR-approved medical invoices ... within 60 days" and authorized CDCR to enter into contracts without competitive bidding while it developed the new processes.

In that context, CDCR entered into a relationship with MDI. MDI is an administrator of prison health care systems, headquartered in Florida, providing "services designed to facilitate the timely and cost-effective delivery of health care to incarcerated persons." CDCR sought MDI's services as part of a pilot program in two facilities, the California State Penitentiary, Los Angeles, and the California Correctional Institution in Tehachapi. Specifically, it was proposed that MDI would (1) enter into agreements with physicians and hospitals, (2) assist prison staff in locating medical specialists, (3) implement a centralized system for scheduling and tracking inpatient and outpatient care, and (4) create a centralized billing system for payment claims by health-care providers.

After months of negotiation the parties still had not finalized a contract. Nonetheless, CDCR permitted MDI to begin working in the two institutions, purportedly in reliance on the Northern District's orders described above.

Sometime after that, CDCR staff began to worry that because MDI was not licensed to practice medicine in California, MDI might be violating California's prohibition on the corporate practice of medicine. As a result of that concern, in January 2007 the Receiver ordered CDCR to stop all payments on MDI's invoices. At a meeting with MDI representatives, the Receiver indicated that MDI would be paid only if it was determined that MDI was lawfully providing services in California. In the meantime, MDI was instructed to continue working in the two institutions. Despite efforts by MDI to show that its services were lawful, the Receiver ended the relationship on April 7, 2007, and expelled MDI from the two institutions.

MDI filed suit in Sacramento County Superior Court against the Receiver and CDCR. Pursuant to 28 U.S.C. § 1442, the Receiver removed MDI's lawsuit to the U.S. District Court for the Eastern District of California.

The Receiver and CDCR then moved the court to dismiss the complaint for lack of subject matter jurisdiction. The Eastern District granted the motion and dismissed the action. The court, citing Barton v. Barbour, 104 U.S. 126, 127, 26 L.Ed 672 (1881), explained that "[t]he United States Supreme Court has held that federal common law bars suits against receivers in courts other than the court charged with the administration of the estate" unless the suit is approved by the appointing court. Based on reasoning that will be described in greater detail below, the court rejected MDI's argument that the bar did not apply to this action because it fit within a statutory exception codified at 28 U.S.C. § 959(a). Because approval of the lawsuit by the court that appointed the Receiver, the Northern District, had not been obtained, the action against the Receiver was dismissed.

The motion to dismiss as to CDCR was granted as well. The Eastern District noted that "[t]he bulk of [MDI]'s allegations against the CDCR arise from the CDCR's compliance with [the Receiver]'s orders." Because of this, the court concluded that "due to the significant overlap in[MDI]'s allegations, the interests of judicial economy also support the accompanying dismissal of [MDI]'s causes of action with respect to the CDCR." Accordingly, the court dismissed the action as to both the Receiver and CDCR.

MDI appealed to this court, but the appeal was stayed by a stipulation of the parties to allow MDI to seek leave from the Northern District to sue the Receiver. MDI sought such leave, but the Northern District denied the request. It held that MDI failed to set forth a prima facie case because "the Receiver would be immune from MDI's suit." It explained that "a receiver is absolutely immune from suit for functions `intimately connected with his receivership duties.'" (quoting New Alaska Dev. Corp. v. Guetschow, 869 F.2d 1298, 1304 (9th Cir.1989)). Since the court had charged the Receiver with the "duty to control, oversee, supervise, and direct all ... contractual ... functions," and MDI was suing the Receiver for "terminating whatever quasi-contractual relationship may have existed when he suspected illegality," MDI was challenging the Receiver's conduct in performing the very duties the court had set up the receivership to perform.

MDI then filed a motion for clarification. The motion explained that MDI intended to file a state court lawsuit against CDCR alone and sought guidance as to whether the court also intended its earlier order to rule on CDCR's immunity. The Northern District declined to provide such...