Harris v. Owens

• Decision Date: 10 September 2001
• Docket Number: No. 00-1292,00-1292
• Citation: 264 F.3d 1282
• Parties: (10th Cir. 2001) WILFRED L. HARRIS, Individually and as Proposed Class Representative on Behalf of All Others Similarly Situated, Plaintiff - Appellant, v. BILL OWENS, in his official capacity as Governor of the State of Colorado; JIM RIZZUTO, in his official capacity as Executive Director of the Colorado Department of Health Care Policy and Financing, Defendants - Appellees, STATE OF NEW MEXICO; STATE OF CALIFORNIA; STATE OF GEORGIA; STATE OF HAWAII; STATE OF KANSAS; STATE OF MARYLAND; STATE OF MONTANA; STATE OF NEVADA; STATE OF NORTH CAROLINA; STATE OF TENNESSEE; STATE OF UTAH; STATE OF WEST VIRGINIA, Amici Curiae
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1282

264 F.3d 1282 (10th Cir. 2001)

WILFRED L. HARRIS, Individually and as Proposed Class Representative on Behalf of All Others Similarly Situated, Plaintiff - Appellant, v. BILL OWENS, in his official capacity as Governor of the State of Colorado; JIM RIZZUTO, in his official capacity as Executive Director of the Colorado Department of Health Care Policy and Financing, Defendants - Appellees, STATE OF NEW MEXICO; STATE OF CALIFORNIA; STATE OF GEORGIA; STATE OF HAWAII; STATE OF KANSAS; STATE OF MARYLAND; STATE OF MONTANA; STATE OF NEVADA; STATE OF NORTH CAROLINA; STATE OF TENNESSEE; STATE OF UTAH; STATE OF WEST VIRGINIA, Amici Curiae.

No. 00-1292

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

September 10, 2001

Appeal from the United States District Court for the District of Colorado

(D.C. No. 99-S-953)

[Copyrighted Material Omitted] William E. Zimsky of Abadie & Zimsky, Durango, Colorado, for Plaintiff-Appellant.

Andrew Patrick McCallin, Assistant Attorney General (Ken Salazar, Attorney General and Jan Michael Zavislan, Assistant Attorney General, with him on the brief), Denver, Colorado, for Defendants-Appellees.

Patricia A. Madrid, Attorney General, Santa Fe, New Mexico; John H. Clough, Assistant Attorney General, Albuquerque, New Mexico, filed a brief for Amici Curiae.

Before EBEL, Circuit Judge, McWILLIAMS, Senior Circuit Judge, and OWEN,^* District Judge.

EBEL, Circuit Judge.

In recent years society has begun to recognize smoking as an important public-health issue. The historic 1998 agreement between most of the states and the major tobacco companies was a milestone in the ongoing attempt to address this issue. As part of a broad settlement of the states' claims, the tobacco companies agreed to pay over time hundreds of billions of dollars to the states. In view of the enormous amount of money at stake, it is perhaps not surprising that there has been considerable controversy about the status of the settlement funds.

In this case, a recipient of Medicaid benefits for smoking-related illnesses seeks a share of the settlement funds. He argues that when he applied for Medicaid benefits from Colorado, he assigned to the state his right to sue the tobacco companies for the injuries he has suffered from their products. He asserts that the state's comprehensive settlement covered his individual claims, and that under federal Medicaid law, after the state has reimbursed itself for the benefits it has paid out it must then turn over the excess funds attributed to the Medicaid settlement to the individuals whose claims were settled.

Contrary to a number of district courts that have considered similar cases, we hold that this suit is not barred by the Eleventh Amendment. It seeks prospective relief for an alleged ongoing violation of federal law, and the requested relief does not implicate special sovereignty interests. On the merits, however, we find the suit foreclosed by a recent federal law amending the Medicaid statute. We hold that this law, passed in response to similar controversy over the federal government's right to control part of the tobacco settlement funds, releases the state from having to reimburse individual Medicaid recipients. We therefore affirm the district court's dismissal of the complaint in this case.

BACKGROUND

Medicaid is a cooperative federal-state program that provides medical services to those without resources to pay for them. See generally 42 U.S.C. 1396-1396u. The federal government provides funding to a state's Medicaid program if it meets various statutory and regulatory requirements. At issue in this case is the requirement that the state condition eligibility for Medicaid benefits on recipients' assigning to the state any claims they have "to support . . . and to payment for medical care from any third party." 1396k(a)(1)(A). The state's program must also provide that when a third party is found to be legally liable for the costs of a recipient's medical care, the state will seek reimbursement "to the extent of such legal liability," so long as the amount the state can reasonably expect to recover exceeds the costs of recovery. 1396a(25)(B). Part of any money the state collects under this assignment

shall be retained by the State as is necessary to reimburse it for medical assistance payments made on behalf of an individual with respect to whom such assignment was executed (with appropriate reimbursement of the Federal Government to the extent of its participation in the financing of such medical assistance), and the remainder of such amount collected shall be paid to such individual.

1396k(b) (emphasis added). Colorado administers a Medicaid program and requires that an applicant assign to the state "all rights the applicant may have to medical support or payments for medical expenses from any other person." Colo. Rev. Stat. 26-4-106(4).

In 1997, Colorado sued several major tobacco companies in Colorado state court for a number of violations of state law related to the manufacturing and marketing of tobacco products such as cigarettes, including false representations, restraint of trade, and racketeering. Although the complaint did not set forth a separate cause of action under Medicaid law, it requested (among other relief) damages (including treble damages) "in the amount of increased health care costs paid by the State," including "increased Medicaid payments."

In 1998, Colorado and most other states settled their lawsuits with the tobacco companies in what is called the "Master Settlement Agreement." It released the companies from past, present, and future claims by Colorado, including all health-related claims. The settlement required the tobacco companies to comply with various conditions, such as limitations on advertising. It also required the companies to make regular payments into an escrow fund, the amounts of which are subject to adjustment as market conditions change. Once the settlement agreement was finalized through a consent decree, Colorado became entitled to a share (about 1.37%) of these funds. The complaint estimates Colorado's share over the next 25 years at about $2.6 billion.

Wilfred Harris is a recipient of Colorado's Medicaid program who has been treated for smoking-related illnesses.¹ He filed this action under 42 U.S.C. 1983, alleging that (1) he assigned his right to sue the tobacco companies to Colorado; (2) Colorado settled his individual claims against the tobacco companies in its broad release in the Master Settlement Agreement; (3) part of the settlement funds therefore are subject to the distribution requirements of 1396k(b); and consequently (4) he is entitled to some portion of the funds once the state reimburses itself for its Medicaid expenses.² The complaint asked for declaratory and injunctive relief against Governor Bill Owens and Jim Rizzuto, Executive Director of the Colorado Department of Health Care Policy and Financing. In particular, Harris sought to enjoin Defendants from depositing the settlement funds into the state treasury until entitlement to the funds was resolved.

Defendants moved to dismiss for lack of subject-matter jurisdiction due to Eleventh Amendment sovereign immunity and failure to state a claim upon which relief can be granted. A magistrate judge recommended dismissing on both grounds. Over Harris's objection, the district court dismissed the case on both grounds.

Similar cases have been filed in at least twenty-five other states. Twelve of these states have joined an amicus brief filed in this case. Virtually every court, state or federal, that has considered one of these cases has dismissed it either because of sovereign immunity or because the Master Settlement Agreement was not a Medicaid settlement subject to 1396k(b). E.g., Watson v. Texas, 261 F.3d 436, (5th Cir. 2001) (merits); Floyd v. Thompson, 227 F.3d 1029 (7th Cir. 2000) (merits); Cardenas v. Anzai, 128 F. Supp. 2d 704 (D. Haw. 2001) (Eleventh Amendment); Strawser v. Lawton, 126 F. Supp. 2d 994 (S.D. W. Va. 2001) (merits); Skillings v. Illinois, 121 F. Supp. 2d 1235 (C.D. Ill. 2000) (merits); Martin v. New Mexico, 197 F.R.D. 694 (D.N.M. 2000) (Eleventh Amendment); Barton v. Summers, 111 F. Supp. 2d 989 (M.D. Tenn. 2000) (Eleventh Amendment); State v. Superior Court, 99 Cal. Rptr. 2d 735 (Ct. App. 2000) (merits). The sole exception of which we are aware is Lewis v. State, No. LACV-037031 (Iowa Dist. Ct. July 21, 2000), an unreported decision denying Iowa's motion to dismiss with little discussion.

DISCUSSION

A. Jurisdiction and Standard of Review

Putting aside for a moment the Eleventh Amendment issue discussed below, the district court had jurisdiction under 28 U.S.C. 1331. We have jurisdiction under 28 U.S.C. 1291. We review de novo the district court's decision to dismiss this case on Eleventh Amendment grounds and for failure to state a claim. Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999) (failure to state a claim); ANR Pipeline Co. v. Lafaver, 150 F.3d 1178, 1186 (10th Cir. 1998) (Eleventh Amendment). On a motion to dismiss for failure to state a claim, we accept all well-pleaded allegations as true and view them in the light most favorable to the non-moving party. Sutton, 173 F.3d at 1236.

B. Order of Issues

We first address the threshold question whether we must decide the Eleventh Amendment issue before we reach the merits of this case. In similar cases in other states, two federal courts have bypassed the Eleventh Amendment and dismissed on the merits. See Floyd v. Thompson, 227 F.3d 1029, 1034-35 (7th Cir. 2000); Strawser v. Lawton, 126 F. Supp. 2d 994, 999-1000 (S.D. W. Va. 2001). Although we agree with the Seventh Circuit that the merits of this case are more easily resolved than is the Eleventh Amendment issue, see Floyd, 227 F.3d at 1034-35, we are compelled by our precedent to decide the Eleventh Amendment issue first. See Martin v. Kansas, 190 F.3d 1120, 1126 ...