Ann L. Morrow, Ma/LPCC, PC v. Mexico

Decision Date11 March 2016
Docket NumberNo. CV 15-00026 WJ/WPL,CV 15-00026 WJ/WPL
PartiesANN L. MORROW, MA/LPCC, PC, Plaintiff, v. THE STATE OF NEW MEXICO, et al., Defendants.
CourtU.S. District Court — District of New Mexico

THIS MATTER comes before the Court upon Defendants State of New Mexico Human Services Department ("HSD") together with HSD-named Defendants Sandra Chavez, Sidney Squire, and Brent Earnest's ("Defendants") Motion to Dismiss Plaintiff's Amended Complaint for Failure to State a Claim Upon Which Relief Can be Granted (Doc. 49). Having considered the parties' written arguments and the applicable law, the Court finds that Defendants' Motion is well-taken as to Count II, and therefore, GRANTED.


Plaintiff Ann L. Morrow, MC/LPCC, PC ("Morrow") is a New Mexico professional corporation that provided behavioral healthcare services to New Mexico Medicaid beneficiaries through contracts with HSD, including a MAD 335 Provider Participation Agreement. The individual Defendants all work at HSD.

In early 2012, Defendants made a decision to suspend Medicaid payments to Morrow based upon a "credible allegation of fraud" under 42 C.F.R. § 455.23(a)(1). Morrow alleges that this was done without properly determining that there actually existed a credible allegation of fraud as defined by 42 C.F.R. § 455.2, which requires that fraud allegations "have indicia of reliability" and that the State Medicaid agency review "all allegations, facts, and evidence carefully and acts judiciously on a case-by-case basis." This payment suspension may only be "temporary." See 42 C.F.R. § 455.23(c). Morrow alleges that the MAD 335 Provider Agreement incorporates the provider's right to administrative review when state law requires and that a payment withhold may only be temporary. On or about February 20, 2012, HSD sent a letter to Morrow notifying them that HSD would be immediately suspending Medicaid payments. Morrow alleges that HSD did not indicate what the "credible allegation of fraud" was and did not provide sufficient information for Morrow to respond to the allegation, despite 42 C.F.R. § 455.23(b)(2)(ii) requirement that the State agency "[s]et forth the general allegations as to the nature of the suspension action . . . ." Morrow alleges that HSD's decision to suspend Medicaid payments without having to show that credible allegations of fraud have indicia of reliability and without having to provide an administrative review of the decision to suspend payments amounts to a denial of due process. Count I of Morrow's Amended Complaint requested a declaratory judgment for a provider hearing. Both parties have agreed to a stipulated dismissal to this Count, as a provider hearing has been scheduled (Doc. 59). Morrow alleges in Count II a violation of 42 U.S.C. § 1983 based upon federal statutory rights under 42 C.F.R. § 455 to not have Medicaid payments suspended without a proper determination that there was a "credible allegation of fraud" and for the payment suspension to be "temporary." Plaintiff's payments have been suspended for over forty-two months. In Count III, Morrow alleges a breach of contract by the State of New Mexico and HSD. Specifically, Morrow alleges that Defendants have breachedtheir provider agreement, which is "governed by the laws of the State of New Mexico," by withholding payments for an indefinite period of time without giving a provider hearing.

Defendants filed their Motion to Dismiss (Doc. 49) on December 10, 2015. Plaintiff filed their Response on January 11, 2016 (Doc. 55). Defendants filed their Reply (Doc. 62) on February 22, 2016.


Federal Rule of Civil Procedure 12(b)(6) allows a party to move for dismissal of a case for failure to state a claim upon which relief can be granted. Rule 8(a)(2), in turn, requires a complaint to contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Thus, "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Although a court must accept all the complaint's factual allegations as true, the same is not true of legal conclusions. See id. Mere "labels and conclusions" or "formulaic recitation[s] of the elements of a cause of action" will not suffice. Twombly, 550 U.S. at 555. "Thus, in ruling on a motion to dismiss, a court should disregard all conclusory statements of law and consider whether the remaining specific factual allegations, if assumed to be true, plausibly suggest the defendant is liable." Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011).


Defendants present three main arguments: (1) Count II should be dismissed because Plaintiff has not alleged a violation of a federal right because the regulations relied upon do not create federal rights and because the Medicaid Act does not create federal rights; (2) Defendants are entitled to qualified immunity; and (3) Plaintiff has failed to allege that HSD breached acontractual provision, so Count III should be dismissed.

I. Plaintiff Has Not Alleged a Violation of a Federal Right

Defendants argue first that in order to assert a § 1983 claim, Plaintiff must show a violation of a federal right, not merely a violation of federal law. Plaintiff does not argue that the Medicaid Act creates any right to sue. Plaintiff instead relies upon federal regulations 42 C.F.R. §§ 455.12-23 for its claim. A private right of action may be conceived only by a statute that clearly evinces congressional intent to bestow such a right. See Alexander v. Sandoval, 532 U.S. 275, 286-87 (2001). Further, an administrative regulation alone "cannot create an enforceable § 1983 interest not already implicit in the enforcing statute." Smith v. Kirk, 821 F.2d 980, 984 (4th Cir. 1987). Defendants argue that a second major obstacle to Count II of Plaintiff's claim lies in the focus of the regulation. The regulations at issue focus on the agency regulated (here, HSD), not providers such as the Plaintiff. 42 C.F.R. § 455 regulates the steps a state must follow in order to receive Medicaid funds. Defendants note that though the regulations state that the regulated agency must not infringe on the legal rights of the persons involved, these regulations are primarily focused on the conduct of the states, and say nothing about protecting providers such as Plaintiff or affording them due process. Further, 42 C.F.R. § 455 does not regulate a provider's activities, but only regulates the state. Thus, the regulations create no implication of an intent to confer rights on a particular class of persons. Alternatively, Defendants argue that the Medicaid Act provides that the sole remedy provided for by Congress for states that do not comply with the Medicaid Act is the withholding of federal funding for failure to comply. See Armstrong v. Exceptional Child Center, Inc., 135 S. Ct. 1378, 1387 (2015). Defendants conclude that the Medicaid Act was intended to benefit Medicaid recipients, not Medicaid providers, and therefore, Plaintiff cannot sue to enforce the Act. See Providence Pediatric Med. Daycare, Inc. v.Alaigh, 112 F. Supp. 3d 234, 251 (D.N.J. 2015).

Plaintiff responds that the state plan requirements under 42 C.F.R. § 455.12 include the mandate that state Medicaid agencies must have methods for investigating cases of suspected fraud to ensure they "(1) [d]o not infringe on the legal rights of persons involved; and (2) [a]fford due process of law." 42 C.F.R. § 455.13. Plaintiff argues that such requirements are clearly intended to benefit Medicaid providers like Plaintiff by protecting them from abuse of power and arbitrary imposition of payment suspensions. Further, the mandate in 42 C.F.R. § 455.23(c) that a payment suspension be temporary exists to prevent a provider from being deprived of payments and potentially going out of business. Plaintiff also argues that Defendants overstate the breadth of Armstrong, noting that the Supreme Court there held that the Medicaid Act prohibited a suit in equity because a remedy already existed for the conduct. 135 S. Ct. at 1383. By contrast, the Supreme Court has not addressed the issue of whether the Medicaid Act or any regulations thereunder create federal rights enforceable under § 1983. Here, there is no remedy in 42 C.F.R. § 455 for redress of arbitrary payment suspensions. Plaintiff continues that there certainly exists "rights containing" language in the regulation, as it mandates that state Medicaid agencies have methods for investigating cases of suspected fraud. Moreover, nothing in the Medicaid program regulations forbid recourse to § 1983, and the burden is on the State to show that Congress intended to foreclose such private enforcement. See Wright v. City of Roanoke Redevelopment and Housing Authority, 479 U.S. 418, 423 (1987).

The Court finds that while the regulations cited by Plaintiff may contain some language designed to help protect Plaintiff and other providers from arbitrary state Medicaid agencies, such language is merely an incidental benefit and does not suggest that Plaintiff is the intended beneficiary of the regulations. The regulations in 42 C.F.R. §§ 455 "set forth requirements for aState fraud detection and investigation program" and "provide[] State plan requirements for the identification, investigation, and referral of suspected fraud and abuse cases." See 42 C.F.R. § 455.1. Rather than creating individual entitlements for Medicaid providers, the regulations "facilitate[] federal oversight of state Medicaid programs" and ensure that the State has a method to verify whether services reimbursed by Medicaid providers were...

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