Alohacare v. Hawaii, Dept. of Human Services

• Decision Date: 02 July 2008
• Docket Number: Civil No. 08-00212 SOM/BMK.
• Citation: 567 F.Supp.2d 1238
• Parties: ALOHACARE, Plaintiff, v. State of HAWAII, DEPARTMENT OF HUMAN SERVICES and Lillian B. Roller, Director, State of Hawaii, Department of Human Services, Defendants.
• Court: U.S. District Court — District of Hawaii

567 F.Supp.2d 1238

ALOHACARE, Plaintiff, v. State of HAWAII, DEPARTMENT OF HUMAN SERVICES and Lillian B. Roller, Director, State of Hawaii, Department of Human Services, Defendants.

Civil No. 08-00212 SOM/BMK.

United States District Court, D. Hawai`i.

July 2, 2008.

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Edward C. Kemper, Kemper & Watts, Honolulu, HI, James L. Feldesman, Feldesman Tucker Leifer Fidell LLP, Washington, DC, for Plaintiff.

John F. Molay, Lee-Ann N.M. Brewer, Office of the Attorney General-State of Hawaii, Corianne W. Lau, Dianne W. Brookins, Alston Hunt Floyd & Ing, Honolulu, HI, for Defendants.

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

SUSAN OKI MOLLWAY, District Judge.

I. INTRODUCTION AND BACKGROUND FACTS.

Before this court is a disappointed bidder's challenge to the process followed by the State of Hawaii in awarding a Medicaid contract. This court dismisses the action.

Plaintiff AlohaCare is a nonprofit health maintenance organization ("HMO") based in Hawaii. AlohaCare's membership consists of federally qualified health centers ("FQHCs"), which are community health centers that serve poor and disadvantaged communities. Complaint ¶ 7.

Under the Medicaid Act, 42 U.S.C §§ 1396, et seq., a state can contract out its Medicaid obligations with a Medicaid managed care organization ("MMCO"), which is an HMO or its statutorily recognized equivalent. AlohaCare is eligible to contract with the State as an MMCO even if it does not meet Hawaii's HMO licensing requirements. See id. 42 U.S.C. §§ 1396b (m)(1)(C)(ii)(IV); (2)(B); (2)(G). Since 1994, AlohaCare has contracted with the State's Department of Human Services ("DHS") to provide services under QUEST, which is Hawaii's Medicaid managed care program. Complaint ¶ 3; Motion at 24.

In September 2000, AlohaCare filed suit ("September 2000 lawsuit") against DHS, alleging that DHS's payment rate to AlohaCare for the provision of services to native Hawaiians was not "actuarially sound" and violated 42 U.S.C § 1396b(m)(2)(A), and that the payment rates discriminated against native Hawaiians, thus allegedly violating Title VI of the Civil Rights Act of 1964. Order, Civ. No. 00-00637 SPK-BMK (May 3, 2001) at 1; see also Complaint ¶ 26. DHS and AlohaCare settled the case on March 3, 2006. The settlement agreement provided that AlohaCare was to "be treated fairly and reasonably in the future in . . . dealings with DHS." Settlement Agreement, Civ. No. 00-00636 SPK-BMK (Mar. 3, 2006) at 2.

On October 10, 2007, DHS issued a request for proposals ("RFP") for the QUEST Expanded Access ("QUEST ExA") program. QUEST ExA was designed to extend Hawaii's managed care plans to cover eligible individuals in the aged, blind, and disabled ("ABD") population. Complaint ¶ 31. The RFP involved a two-step evaluation process, the first step requiring a technical proposal and the second step requiring a business proposal. If an applicant failed to meet all minimum technical requirements, then its business proposal would not be evaluated. Id. ¶ 34.

On February 1, 2008, DHS awarded the contract to two providers. The contracts had an effective date of February 15, 2008, with services to begin on November 1, 2008. AlohaCare was not one of the winning bidders, having failed to receive passing scores in all areas of the technical review process and so not having had its business proposal considered. Id. ¶¶ 31, 34, 41. AlohaCare subsequently filed a protest of the award with the Director of DHS, Lillian B. Koller. Id. ¶ 44; see also Decision of Chief Procurement Officer (attached as Ex. A to Motion) (May 19, 2008) ("CPO Decision") at 5. On March 12, 2008, Koller upheld the procurement decision. On March 19, 2008, AlohaCare filed a request for reconsideration with the State Procurement Office, which operates independently of DHS. CPO Decision at 1-2.

On May 8, 2008, before the State Procurement Office had ruled on the reconsideration request, AlohaCare filed this action against DHS and Koller (collectively, "Defendants"). AlohaCare alleges that Defendants (1) violated AlohaCare's First Amendment rights by refusing to award AlohaCare the QUEST ExA contract, allegedly in retaliation for AlohaCare's September 2000 lawsuit; (2) violated AlohaCare's due process rights by removing its "automatic eligibility . . . to receive a contract under the QUEST ExA program"; (3) violated the Medicaid Act and its regulations by awarding the contracts to providers that failed to meet federal requirements; and (4) breached the "duty of good faith and fair dealing implicit in each and every review of a proposal submitted to a government agency in response to an RFP." Complaint ¶¶ 47-51. AlohaCare seeks to have the "awards made to the selected contractors [declared] null and void" and to have Defendants enjoined "from proceeding with the contracts awarded to the two selected contractors." AlohaCare also asks the court to "[o]rder defendants to consider AlohaCare as fully eligible in any and all future procurements involving QUEST and the QUEST ExA program." Id. ¶¶ 52A-D. On May 9, 2008, AlohaCare filed a motion for temporary restraining order and preliminary injunction, since withdrawn.

On May 19, 2008, Aaron Fujioka, the Chief Procurement Officer ("CPO"), upheld the decision of the purchasing agency, concluding that "no evidence of a violation was found":

There is no evidence from a review of the RFP, the relevant portions of AlohaCare's proposal, and the evaluation committee's score sheets that AlohaCare's technical and business proposals were improperly evaluated. . . . AlohaCare's proposal did not pass the technical proposal phase of the evaluation process; therefore, according to the RFP, its business proposal could not be evaluated, and AlohaCare's proposal could no longer be considered for award.

CPO Decision at 12.

On May 27, 2008, Defendants filed a motion to dismiss the Complaint for lack of subject matter jurisdiction or, in the alternative, for failure to state a claim upon which relief can be granted ("Motion").

On June 10, 2008, the Hawaii Coalition for Health ("HCFH") filed a separate lawsuit in the United States District Court for the District of Hawaii against Defendants, alleging violations of statutory provisions that are at issue in this case. Complaint, June 10, 2008, Civ. No. 08-00277 JMS-BMK. HCFH's membership includes individuals from the ABD population. Id. ¶ 15.

Defendants have moved to dismiss all claims. This court held a hearing on June 18, 2008, during which AlohaCare withdrew its First Amendment claim. Defendants contend that (1) the court lacks subject matter jurisdiction; (2) AlohaCare lacks statutory "standing" to allege violations of the Medicaid Act; (3) AlohaCare does not state a claim based on alleged constitutional violations; and (4) AlohaCare does not state a claim based on an alleged breach of the implicit duty of good faith and fair dealing. The court concludes that (1) the court has subject matter jurisdiction; (2) AlohaCare may not assert claims based on alleged statutory violations of the Medicaid Act; (3) AlohaCare does not state a valid due process claim; and (4) AlohaCare does not state a claim based on an alleged breach of Defendants' duty of good faith and fair dealing. Accordingly, the court dismisses Count Two (the due process claim), Count Three (the Medicaid statutory claims), and Count Four (the good faith and fair dealing claim) based on AlohaCare's failure to state a claim. Defendants' motion with respect to Count One (the First Amendment claim) is moot. To the extent anything in this order differs from the court's oral ruling of June 18, 2008, this order supersedes the oral ruling.

II. LEGAL STANDARDS.

A. Rule 12(b)(1).

Rule 12(b)(1) of the Federal Rules of Civil Procedure governs dismissal of a complaint for "lack of subject-matter jurisdiction." Rule 12(h)(3) clarifies that, "[i]f the court determines at any time it lacks subject-matter jurisdiction, the court must dismiss the action." Fed.R.Civ.P. 12(h)(3) (emphasis added); see also B.C. v. Plumas Unified Sch. Dist., 192 F.3d 1260, 1264 (9th Cir.1999) ("[F]ederal courts are required sua sponte to examine jurisdictional issues such as standing."). When a plaintiff lacks standing under the Article III "case or controversy" requirement, federal courts lack subject matter jurisdiction over the suit. Cetacean Community v. Bush, 386 F.3d 1169, 1174 (9th Cir.2004).

"For purposes of ruling on a motion to dismiss for want of standing, both the trial and reviewing courts must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party." Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975); see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). The court does not "speculate as to the plausibility of the plaintiffs allegations." Western Center for Journalism v. Cederquist, 235 F.3d 1153, 1154 (9th Cir.2000).

"A plaintiff needs only to plead general factual allegations of injury in order to survive a motion to dismiss, for `we presume that general allegations embrace those specific facts that are necessary to support the claim.'" LSO, Ltd. v. Stroh, 205 F.3d 1146, 1156 (9th Cir.2000) (quoting Lujan, 504 U.S. at 561, 112 S.Ct. 2130).

B. Rule 12(b)(6).

Rule 12(b)(6) of the Federal Rules of Civil Procedure governs dismissal of a complaint that fails "to state a claim upon which relief can be granted." Under Rule 12(b)(6), review is generally limited to the contents of the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.2001), as amended by 275 F.3d 1187 (9th Cir.2001); Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir.1996). "Dismissal of a § 1983 claim for the lack of an enforceable right amounts to dismissal for failure to state a claim, pursuant to Federal...