Arc California v. Douglas

• Decision Date: 30 June 2014
• Docket Number: No. 13–16544.,13–16544.
• Citation: 757 F.3d 975
• Parties: The ARC OF CALIFORNIA; United Cerebral Palsy Association of San Diego, Plaintiffs–Appellants, v. Toby DOUGLAS, Director of the California Department of Health Care Services; California Department of Health Care Services; Terri Delgadillo, Director of the California Department of Developmental Services; California Department of Developmental Services; Does, 1–100, inclusive, Defendants–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

757 F.3d 975

The ARC OF CALIFORNIA; United Cerebral Palsy Association of San Diego, Plaintiffs–Appellants,

v.Toby DOUGLAS, Director of the California Department of Health Care Services; California Department of Health Care Services; Terri Delgadillo, Director of the California Department of Developmental Services; California Department of Developmental Services; Does, 1–100, inclusive, Defendants–Appellees.

No. 13–16544.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 13, 2014.

Filed June 30, 2014.

Chad Carlock (argued), Law Offices of Chad Carlock, Davis, CA, for Plaintiffs–Appellants.

Rebecca M. Armstrong (argued), Deputy Attorney General, Kamala D. Harris, Attorney General, Julie Weng–Gutierrez, Senior Assistant Attorney General, Niromi W. Pfeiffer, Supervising Deputy Attorney General, Grant Lien and Brenda A. Ray, Deputy Attorneys General, California Department of Justice, Sacramento, CA, for Defendants–Appellees.

Appeal from the United States District Court for the Eastern District of California, Morrison C. England, Jr., Chief District Judge, Presiding. D.C. No. 2:11–cv–02545–MCE–CKD.

Before: SIDNEY R. THOMAS, RAYMOND C. FISHER, and MARSHA S. BERZON, Circuit Judges.

OPINION

BERZON, Circuit Judge:

This case concerns California's generous program of home- and community-based care for developmentally disabled residents. To fund its program, California relies in large part on federal money provided under the Medicaid Act (“the Act”), 42 U.S.C. §§ 1396–1396w–5. California has reduced the funding for this program, as it has for other Medicaid-funded programs at various times, and, as in the past, affected groups have challenged the reductions. We therefore are obliged to address once again the scope of the state's federal obligations under the Act to compensate for covered services. See, e.g., Managed Pharmacy Care v. Sebelius, 716 F.3d 1235 (9th Cir.2013); Developmental Servs. Network v. Douglas, 666 F.3d 540 (9th Cir.2011).

In this instance, beginning in 2009, the California legislature enacted a series of statutes reducing the state's compensation, partially funded under the federal Medicaid Act, of home- and community-based services provided to developmentally disabled persons. The plaintiffs in this case, Arc of California and the United Cerebral Palsy Association of San Diego (together, “Arc”)—non-profit organizations representing developmentally disabled persons, their families, and the organizations that serve them—allege that California's implementation of those statutes was inconsistent with the Medicaid Act; violated the federal Americans with Disabilities Act (“ADA”), 42 U.S.C. § 12132, and the federal Rehabilitation Act, 29 U.S.C. § 794(a); and was invalid under California's Lanterman Developmental Disabilities Services Act, Cal. Welf. & Inst.Code §§ 4500–4869. Arc sought preliminary injunctive relief against the continued enforcement of California's recently enacted statutes. The district court denied that motion and, in a simultaneously released order, dismissed Arc's Medicaid Act claims, reasoning that those claims are meritless and that Arc had not demonstrated a likelihood of irreparable harm.

We hold that the district court abused its discretion in denying Arc's motion for a preliminary injunction, because it misconstrued the Medicaid Act and applied deference to a federal agency decision where none was due. We also assert pendent appellate jurisdiction over the dismissal of Arc's Medicaid Act claims, which relied on exactly the same reasoning, and reverse.

We cannot on this appeal, however, go beyond correcting the district court's statutory interpretation to determining the propriety of preliminary injunctive relief. The primary state statute Arc challenges expired while the case was on appeal, so that challenge is moot. While the two other challenged statutes remain in effect, their impact was not the focus of the preliminary injunction proceeding. The current record is therefore inadequate to adjudge whether that impact amounts to irreparable harm. We therefore remand to allow augmentation of the record and reconsideration of the propriety of injunctive relief in the changed circumstances, applying the correct irreparable harm analysis.

I.

California established under its Lanterman Act, Cal. Welf. & Inst.Code §§ 4500–4869, a comprehensive statutory scheme that seeks

“to prevent or minimize the institutionalization of developmentally disabled persons and their dislocation from family and community, and to enable them to approximate the pattern of everyday living of nondisabled persons of the same age and to lead more independent and productive lives in the community.”

Sanchez v. Johnson, 416 F.3d 1051, 1064 (9th Cir.2005) (quoting Ass'n for Retarded Citizens v. Dep't of Developmental Servs., 38 Cal.3d 384, 211 Cal.Rptr. 758, 696 P.2d 150, 154 (1985)).

Under the Lanterman Act, developmentally disabled persons receive services through providers under contract with a “regional center.” Cal.Code Regs. tit. 17, §§ 50602(n)-( o), 54010. A regional center is “a diagnostic, counseling, and service coordination center for developmentally disabled persons and their families” that operates as a “private nonprofit community agency or corporation acting as a contracting agency.” Cal.Code Regs. tit. 17, § 54302(a)(54). Regional centers receive funding from the state, among other sources. SeeCal. Welf. & Inst.Code §§ 4620, 4659.

California, in turn, receives some of the funding for its Lanterman Act programs through the federal Medicaid program. SeeCal. Welf. & Inst.Code § 4659(a)(1). State participation in Medicaid is not compulsory, but participating states must comply with the Act and the regulations that implement it. See, e.g., Managed Pharmacy Care, 716 F.3d at 1241. The Act conditions receipt of federalfunds on approval of a “state plan,” see, e.g.,42 U.S.C. §§ 1396–1, 1396b(a), which “is a comprehensive written statement submitted by the [state] agency describing the nature and scope of its Medicaid program and giving assurance that it will be administered in conformity” with the Act and its accompanying regulations, 42 C.F.R. § 430.10. The Secretary of the Department of Health and Human Services (“Secretary”) administers the Act, see, e.g., Managed Pharmacy Care, 716 F.3d at 1241; 42 U.S.C. § 1396a(b), but has delegated to the regional administrator for the Centers for Medicare and Medicaid Services (“CMS”) the responsibility of reviewing in the first instance state plans for compliance with the provisions of the Act, see42 C.F.R. § 430.15(b). The Secretary also requires the submission of state plan amendments (“SPAs”) for certain changes to a state plan, which CMS again reviews in the first instance for compliance with the Act. See42 C.F.R. § 430.12(c).

The Medicaid Act authorizes the Secretary to waive certain of the Act's otherwise-applicable requirements by granting a so-called home- and community-based services (“HCBS”) waiver. See42 U.S.C. § 1396n(c). That waiver provision originated

[i]n 1981, in response to the fact that a disproportionate percentage of Medicaid resources were being used for long-term institutional care and studies showing that many persons residing in Medicaid-funded institutions would be capable of living at home or in the community if additional support services were available.... The HCBS program allows a variety of noninstitutional care options for persons who would otherwise be eligible for Medicaid benefits in an institution, but who would prefer to live at home or in the community.

Sanchez, 416 F.3d at 1054. As with state plans, the Secretary has delegated to CMS responsibility for reviewing HCBS waiver requests in the first instance, to determine compliance with applicable statutes and their regulations. See 42 C.F.R. § 430.25(f).

California participates in Medicaid via a state plan that includes an HCBS waiver. In late June 2011, California submitted an application to renew its HCBS waiver for the five-year period between 2011 and 2016. CMS ultimately approved the application, after extending the previous waiver renewal, in a two-page letter.

Plaintiffs are two non-profit organizations whose members are developmentally disabled individuals, their families, and providers of home- and community-based services under the Lanterman Act program. They challenge state officials' implementation of three new policies relating to state funding of home- and community-based services to developmentally disabled persons, adopted in a series of statutes enacted beginning in 2009.

First, the California legislature directed regional centers to reduce funding for services provided under the Lanterman Act by three percent. See 2009 Cal. Stat. 4296, 4306, § 10(a). That statute, which we will refer to as the “percentage payment reduction,” was initially set to expire on June 30, 2010. Id. In three subsequent acts, the California legislature extended the expiration date of, and modified the magnitude of, the percentage payment reduction, first up to 4.25 percent and later down to 1.25 percent. See 2010 Cal. Stat. 4718, 4811, § 164; 2011 Cal. Stat. 1640, 1662, § 24; 2012 Cal. Stat. 1056, 1087, § 34. Each iteration of the statute included an exemption authorizing regional centers to avoid the percentage payment reduction upon demonstrating that “a nonreduced payment is necessary to protect the health and safety of the individual for whom the services and supports are proposed to be purchased,and the State Department of Developmental Services has granted prior written approval.” 2009 Cal. Stat. 4296, 4306, § 10(a); 2010 Cal. Stat. 4718, 4811, § 164; 2011 Cal. Stat. 1640, 1662, § 24; 2012 Cal. Stat. 1056, 1087, § 34. The percentage payment reduction expired on June 30, 2013, while this appeal was pending but before we took the case under submission, and was not reenacted. See 2012 Cal. Stat. 1056, 1087, § 34.

Second, the California legislature...