Prime Healthcare Servs., Inc. v. Harris

• Citation: 216 F.Supp.3d 1096
• Decision Date: 31 October 2016
• Docket Number: Case No.: 3:16-cv-00778-GPC-RBB
• Court: U.S. District Court — Southern District of California
• Parties: PRIME HEALTHCARE SERVICES, INC., and Prime Healthcare Foundation, Inc., Plaintiffs, v. Kamala D. HARRIS, in her personal capacity and in her official capacity as the Attorney General of the State of California, Defendant.

216 F.Supp.3d 1096

PRIME HEALTHCARE SERVICES, INC., and Prime Healthcare Foundation, Inc., Plaintiffs,

v.Kamala D. HARRIS, in her personal capacity and in her official capacity as the Attorney General of the State of California, Defendant.

Case No.: 3:16-cv-00778-GPC-RBB

United States District Court, S.D. California.

Signed October 31, 2016

Gregory Keith Hafif, Law Offices of Herbert Hafif, Claremont, CA, John Alfred Mills, Nelson Hardiman LLP, Los Angeles, CA, Mark Hardiman, Hooper Lundy and Bookman, Los Angeles, CA, for Plaintiffs.

Michele S. Inan, Department of Justice, San Francisco, CA, Ausa-Office of US Attorney, Los Angeles, CA, Lowell Stewart Finley, California Attorney Generals Office, San Francisco, CA, Sharon L. O'Grady, California Department of Justice, San Francisco, CA, for Defendant.

ORDER:

(1) DENYING DEFENDANT'S MOTION TO DISMISS PLAINTIFFS' FIRST AMENDED COMPLAINT PURSUANT TO FED. R. CIV. P. 12(b)(1)

(2) GRANTING DEFENDANT'S MOTION TO DISMISS PLAINTIFFS' FIRST AMENDED COMPLAINT PURSUANT TO FED. R. CIV. P. 12(b)(6)

(3) DENYING AS MOOT PLAINTIFFS' EX PARTE APPLICATION TO STRIKE NEW ARGUMENTS AND EVIDENCE IN DEFENDANT'S REPLY BRIEF

[ECF Nos. 49, 50.]

Before the Court is Defendant Kamala D. Harris's ("Defendant's" or "Harris's") motion to dismiss Plaintiffs Prime Healthcare Services, Inc. and Prime Healthcare Foundation, Inc.'s ("Plaintiffs' " or "Prime's") First Amended Complaint ("FAC") pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).¹ (Dkt. No. 49.)² The motion has been fully briefed. (Dkt. Nos. 26–28, 31–33.) Plaintiffs also filed an Ex Parte Application to Strike New Arguments and Evidence in Defendant's Reply Brief on March 3, 2016. (Dkt. No. 50.)³ The Ex Parte Application has been fully briefed. (Dkt. No. 36.)

The Court held a hearing on the motions on September 30, 2016. (Dkt. No. 51.) John Mills, Esq. appeared on behalf of Plaintiffs. (Id. ) S. Michele Inan, Esq., Marc LeForestier, Esq., and Sharon O'Grady, Esq. appeared on behalf of Defendant. (Id. )

Having reviewed the parties' motions and the applicable law, and for the reasons set forth below, the Court (1) DENIES Defendant's motion to dismiss Plaintiffs' FAC pursuant to Federal Rule of Civil Procedure 12(b)(1), (2)GRANTS Defendant's motion to dismiss Plaintiffs' FAC pursuant to Federal Rule of Civil Procedure 12(b)(6), and (3)DENIES AS MOOT Plaintiffs' Ex Parte Application to Strike New Arguments and Evidence in Defendant's Reply Brief.⁴

BACKGROUND

I. The Parties

Plaintiff Prime Healthcare Services, Inc. is a California corporation that owns and operates twenty-eight hospitals throughout the country. (Dkt. No. 14, FAC ¶ 21.) Plaintiff Prime Healthcare Foundation, Inc. is a nonprofit public charity that owns seven nonprofit hospitals, each of which was donated by Prime Healthcare Services, Inc., in various states.⁵ (Id. ¶ 22.) Defendant Kamala D. Harris is the Attorney General of California. (Id. ¶ 24.) This action stems from Harris's allegedly improper, de facto denial of Prime's proposed acquisition of the Daughters of Charity Health System ("DCHS"). (Id. ¶¶ 1, 2, 14.)

II. Statutory and Regulatory Background

The Attorney General supervises all charitable organizations and enforces the obligations of trustees, nonprofits, and fiduciaries that hold or control property in trust for charitable purposes.⁶ Pursuant to California Corporations Code §§ 5914 –5925 ("Nonprofit Hospital Transfer Statute" or "Statute"), a nonprofit corporation that operates a health facility must provide notice to and obtain the written consent of the Attorney General prior to entering into an agreement to sell a material amount of its assets to a for-profit corporation.⁷ Cal. Corp. Code § 5914(a)(1). The Attorney General has "discretion to consent to, give conditional consent to, or not consent to any agreement or transaction." Cal. Corp. Code § 5917.

In making her determination, the Attorney General "shall consider any factors that the Attorney General deems relevant," including, but not limited to a list of nine factors specified by the Statute. Id. ; Cal. Code Regs. tit. 11, § 999.5(f). The factors include, inter alia , whether the transaction "may create a significant effect on the availability or accessibility of health care services to the affected community," Cal. Corp. Code § 5917(h), and whether the transaction is "in the public interest," Cal. Corp. Code § 5917(i). If consent is granted to a transaction, the Attorney General's policy is to "require for a period of at least five years the continuation at the hospital of existing levels of essential healthcare services, including but not limited to emergency room services." Cal. Code Regs. tit. 11, § 999.5(f)(8)(C). Notwithstanding this policy, the Attorney General "retain[s] complete discretion to determine whether this policy shall be applied in any specific transaction under review." Id.

The Attorney General considers information from a variety of sources in making her determination on a proposed transaction. The selling entity must submit to the Attorney General information about the transaction, reasons for the sale, the fair market value of the transaction, and the impact of the sale on the availability and accessibility of healthcare services in the community affected by the sale, among other information. Cal. Corp. Code § 5914(b) ; Cal. Code Regs. tit. 11, § 999.5(d). The Attorney General may also request that the seller provide additional information that she deems reasonably necessary to make her determination. Cal. Code Regs. tit. 11, § 999.5(c)(2). Before issuing a written decision, the Attorney General must conduct one or more public meetings in order to hear comments from interested parties. Cal. Corp. Code § 5916. The Attorney General's policy is to receive and consider all relevant information concerning the proposed transaction from "[a]ny interested person." Cal. Code Regs tit. 11, § 999.5(e)(7). The Attorney General may contract with consultants and experts to review the proposed sale or receive expert opinion from any state agency. Cal. Code Regs. tit. 11, § 999.5(e)(4).

If a proposed transaction affects an acute care hospital with more than fifty beds or may result in a significant effect on the availability or accessibility of existing healthcare services, the Attorney General prepares an independent healthcare impact statement that evaluates the transaction's potential impact on the availability and accessibility of services to the affected community. Cal. Code Regs. tit. 11, § 999.5(e). The independent statement may assess factors such as the transaction's potential impact on the "level and type of charity care that the hospital has historically provided" and the "provision of health care services to Medi-Cal patients, county indigent patients, and any other class of patients." Cal. Code Regs. tit. 11, § 999.5(e)(6). The information in the statement is then used to consider whether the proposed transaction may "create a significant effect on the availability or accessibility of health care services," one of the nine factors listed in Cal. Corp. Code § 5917. Cal. Code Regs. tit. 11, § 999.5(e). The statement is public. Cal. Code Regs. tit. 11, § 999.5(e)(3)(D).

The Attorney General notifies the applicant of her decision in writing. Cal. Corp. Code § 5915. Her decision is reviewable in state court in an administrative mandamus proceeding. Cal. Civ. Proc. Code § 1085.

III. Factual Background

A. The Alleged Illegal Agreement Between Harris and SEIU-UHW

Since 2009, Prime has been engaged in a protracted dispute with the Service Employees International Union-United Healthcare Workers West ("SEIU-UHW"), a labor union that represents California hospital workers, in part due to its unwillingness to allow SEIU-UHW to unionize Prime's California hospitals.⁸ (FAC ¶ 10.) Prime alleges that Harris entered into an illegal scheme with SEIU-UHW: in exchange for SEIU-UHW's political and financial support, Harris would prevent Prime from acquiring nonprofit hospitals in California until Prime agreed to allow SEIU-UHW to unionize its hospital workers. (Id. ¶ 93.) Prime alleges that pursuant to this unlawful scheme, Harris "refused to reasonably approve the sale of [DCHS] to [Prime] because Prime rejected SEIU-UHW's extortionate demands to unionize workers at all Prime hospitals and did so in quid pro quo exchange for the union's continuing financial support of her political career, including her current candidacy for the U.S. Senate." (Id. ¶ 1.)

As evidence for this scheme, Prime cites SEIU-UHW's donations to Harris's 2010 and 2014 campaigns for Attorney General. (Id. ¶ 40.) Prime alleges on information and belief that SEIU-UHW promised Harris up to $25 million in political contributions to her U.S. Senate campaign if she denied Prime's acquisition or imposed conditions that would effect a de facto denial of the DCHS sale. (Id. ¶ 41.)

B. The VVCH Transaction⁹

In 2011, Harris denied consent to Prime's proposed acquisition of Victor Valley Community Hospital ("VVCH"). (Id. ¶¶ 45–48.) Prime asserts that Harris's denial of the VVCH transaction was the first and only time Harris has denied the sale of a California nonprofit hospital. (Id. ¶ 54.)

Prime asserts that Harris denied the 2011 VVCH sale pursuant to her unlawful agreement with SEIU-UHW. (Id. ¶ 93.) As evidence, Prime cites examples of statements and conduct by SEIU-UHW. An SEIU-UHW attorney stated at a bankruptcy hearing that Harris would deny the VVCH transaction; SEIU-UHW campaigned against the sale; and SEIU-UHW opposed the sale at the Attorney General's public hearing on the transaction. (Id. ¶¶ 45, 47, 50.) After Harris denied Prime's proposed acquisition of VVCH, SEIU-UHW publicly claimed credit for the decision. (Id. ¶ 62.) During labor negotiations with Prime in July 2014, Dave Regan, president of SEIU-UHW, stated that Harris denied the VVCH sale to Prime at the union's request. (Id. ¶ 53.)

C. The DCHS Transaction

Facing financial...