Oregon v. Legal Services Corp.

• Decision Date: 08 January 2009
• Docket Number: No. 06-36012.,06-36012.
• Citation: 552 F.3d 965
• Parties: State of OREGON, Plaintiff-Appellant, v. LEGAL SERVICES CORPORATION, Defendant-Appellee, United States of America, Intervenor-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

552 F.3d 965

State of OREGON, Plaintiff-Appellant, v. LEGAL SERVICES CORPORATION, Defendant-Appellee, United States of America, Intervenor-Appellee.

No. 06-36012.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 23, 2008.

Filed January 8, 2009.

Hardy Myers, Mary H. Williams, Stephen K. Bushong, and Jacqueline Sadker, Oregon Department of Justice, Salem, OR, for the plaintiff-appellant.

William S. Freeman, Cooley Godward Kronish LLP, Palo Alto, CA; Alan Levine, Rachel B. Kane, and Allison Hersh, Cooley Godward Kronish LLP, New York, NY, for the defendant-appellee.

Peter D. Keisler, Karin J. Immergut, Barbara L. Herwig, and Matthew M. Collette, United States Department of Justice, Civil Division, Washington, D.C., for the intervenor-appellee.

Appeal from the United States District Court for the District of Oregon; Robert E. Jones, District Judge, Presiding. D.C. No. CV-05-01443-REJ/PP.

Before: A. WALLACE TASHIMA and MILAN D. SMITH, JR., Circuit Judges, and GEORGE WU,^* District Judge.

MILAN D. SMITH, JR., Circuit Judge:

Plaintiff-Appellant the State of Oregon (Oregon) appeals the district court's dismissal of its claims under Federal Rule of Civil Procedure 12(b)(6). Oregon brought suit against the Legal Services Corporation (LSC) for an alleged violation of its rights under the Tenth Amendment to the United States Constitution. LSC has required the recipients of its funding to maintain legal, physical, and financial separation from organizations that engage in certain prohibited activities. Oregon alleges that this restriction has effectively thwarted its ability to regulate the practice of law in the State of Oregon and to provide legal services to its citizens. The district court dismissed the suit on the basis that Oregon's allegations of injury were not recoverable, and Oregon appealed. Because we conclude that Oregon lacks standing, we vacate the district court's dismissal of this action on the merits and remand with instructions that the action be dismissed for lack of subject matter jurisdiction.

FACTUAL AND PROCEDURAL BACKGROUND

I. Statutory Background: The Program Integrity Regulation

LSC is a private nonprofit corporation established by the United States for the purpose of providing financial support to individuals who would otherwise be unable to afford legal assistance. 42 U.S.C. § 2996b(a). To accomplish this purpose, LSC provides federal funds to local legal assistance programs throughout the United States. Id. § 2996e(a). See generally Legal Services Corporation Act of 1974 (LSC Act), Pub.L. No. 93-355, 88 Stat. 378 (1974) (codified as amended at 42 U.S.C. §§ 2996-2996l).

By regulation, LSC places certain restrictions on the use of its funds. Id. § 2996e(b)(1). These restrictions include, for example, a prohibition on the use of LSC funding for such activities as lobbying, participating in class action lawsuits, and advocating for the redistricting of political districts. 45 C.F.R. §§ 1612.3, 1617.3, 1632.3. Additionally, LSC requires its recipients to maintain "objective integrity and independence from any organization that engages in restricted activities." Id. § 1610.8(a).¹ Requirements for this "objective integrity" are codified in what is now denominated the "program integrity" rule or regulation. The requirements include: (1) legal separation of the recipient from the unrestricted organizations; (2) no transfer of LSC funds between the recipient and the unrestricted organization; and (3) the recipient's physical and financial separation from the unrestricted organization.² Id.

Whether an LSC fund recipient is sufficiently physically and financially separated from non-compliant legal services providers is determined on a case-by-case basis, based upon the totality of the circumstances. Id. § 1610.8(a)(3). The program integrity regulation specifies that "mere bookkeeping separation of LSC funds from other funds is not sufficient." Id. Other factors, such as having separate personnel, separate accounting and timekeeping records, separate facilities, and distinguishing forms of identification are relevant but not all-encompassing. Id. Fund recipients must annually certify to the LSC that they comply with the program integrity regulation. Id. § 1610.8(b).

In this appeal, Oregon contends that the program integrity regulation violates its Tenth Amendment rights.

II. Factual and Procedural History: Conflict with Oregon's Guidelines

In April 2005, the Oregon State Bar amended its guidelines for Oregon's legal services program, directing service providers to integrate their operations and staff in places where separate organizations provide services to the same geographic area. While some of Oregon's service providers are LSC fund recipients, others are not and engage in restricted activities. Legal Aid Services of Oregon (LASO), a legal services provider, is a recipient of LSC funds, which account for approximately 45% of its $6.5 million annual budget. Oregon Law Center (OLC), another large legal services provider, is not an LSC fund recipient and engages in LSC-restricted activities.

In response to the State Bar's amended guidelines, LASO submitted a configuration proposal to LSC that would combine the LASO and OLC corporations into one non-profit corporation. Under the proposal, the newly constituted corporation would have two divisions, one of which would be subject to the LSC restrictions and the other of which would not. The two divisions would also maintain separate financial books and records, and would notify the public of their distinct functions in letterheads, business cards, and signage. However, the two divisions of the proposed new entity would share personnel and equipment, and would operate in the same physical premises. LSC's Office of Legal Affairs reviewed the proposal and concluded that it would not comply with LSC's requirements for program integrity.

In September 2005, LASO and OLC filed a complaint against LSC in district court, alleging that the LSC restrictions violated their First Amendment rights. On the same day and in the same court, Oregon filed this action against LSC alleging that the program integrity regulation effectively thwarted Oregon's policies governing its legal services program, in violation of the Tenth Amendment. Oregon sought to enjoin LSC from enforcing the program integrity regulation in Oregon. The two suits were consolidated and assigned to a magistrate judge.

The magistrate judge recommended that the district court grant LSC's motion to dismiss as to all of LASO's claims except its as-applied challenge to the program integrity rule. The magistrate judge also recommended granting LSC's motion to dismiss Oregon's complaint, because the state itself was not regulated by the LSC and because Oregon's claims of coercion did not meet the high standard required under Ninth Circuit precedents. See California v. United States, 104 F.3d 1086 (9th Cir.1997); Nevada v. Skinner, 884 F.2d 445 (9th Cir. 1989).

The district court adopted the magistrate judge's recommendations and re-severed the lawsuits. Oregon appealed its claims to this court.

JURISDICTION

The jurisdiction of the federal courts is limited to "cases" and "controversies." U.S. CONST., Art. III, sec. 2. "Whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action." FED. R. CIV. P. 12(h)(3). An objection that a federal court lacks subject matter jurisdiction may be raised at any time, even after trial and the entry of judgment. Arbaugh v. Y & H Corp., 546 U.S. 500, 506, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006). The objection, made under Federal Rule of Civil Procedure 12(b)(1), may be raised by a party or by the court on its own initiative.³ Id. While we have jurisdiction over this appeal under 28 U.S.C. § 1291, we found reason to question whether the district court had subject matter jurisdiction over this case. As analyzed in this opinion, we conclude that Oregon lacks standing to bring a claim under the Tenth Amendment or the Spending Clause because it has not alleged a sufficiently concrete and particularized injury. We therefore vacate the district court's judgment and remand for an entry of dismissal for lack of subject matter jurisdiction.

DISCUSSION

I. Standing Requirements

A plaintiff must demonstrate standing "for each claim he seeks to press" and for "`each form of relief sought.'" DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352, 126 S.Ct. 1854, 164 L.Ed.2d 589 (2006) (quoting Friends of the Earth, Inc. v. Laidlaw Envt'l Servs., Inc., 528 U.S. 167, 185, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000)); see also Allen v. Wright, 468 U.S. 737, 752, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984) ("the standing inquiry requires careful judicial examination of a complaint's allegations to ascertain whether the particular plaintiff is entitled to an adjudication of the particular claims asserted"). The plaintiff bears the burden of proof to establish standing "with the manner and degree of evidence required at the successive stages of the litigation." Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). When, as here, the plaintiff defends against a motion to dismiss at the pleading stage, "general factual allegations of injury resulting from the defendant's conduct may suffice," because we "`presume that general allegations embrace those specific facts that are necessary to support the claim.'" Id. (quoting Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 889, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990)).

The "irreducible constitutional minimum" requirements for standing were described in Lujan as follows:

First, the plaintiff must have suffered an "injury in fact"—an invasion of a legally protected interest which is (a) concrete and particularized, and (b) "actual or imminent, not `conjectural' or `hypothetical,' "Whitmore [v. Arkansas...