Prime Healthcare Servs., Inc. v. Harris

• Decision Date: 16 August 2017
• Docket Number: Case No.: 3:16-cv-00778-GPC-AGS
• Parties: PRIME HEALTHCARE SERVICES, INC., and PRIME HEALTHCARE FOUNDATION, INC., Plaintiffs, v. KAMALA D. HARRIS, in her personal capacity, and XAVIER BECERRA, in his official capacity as the Attorney General of the State of California, Defendants.
• Court: U.S. District Court — Southern District of California

PRIME HEALTHCARE SERVICES, INC.,and PRIME HEALTHCARE FOUNDATION, INC., Plaintiffs, v. KAMALA D. HARRIS, in her personal capacity, and XAVIER BECERRA,

in his official capacity as the Attorney General of the State of California, Defendants.

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

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

August 16, 2017

ORDER DENYING DEFENDANTS' MOTION TO STRIKE AND GRANTING DEFENDANTS' MOTION TO DISMISS

[ECF No. 62.]

Before the Court is Defendants Kamala D. Harris ("Defendant" or "Harris") and Attorney General of California Xavier Becerra's¹ ("Defendant's" or "Becerra's") (collectively, "Defendants'") motion to dismiss Plaintiffs Prime Healthcare Services, Inc. and Prime Healthcare Foundation, Inc.'s ("Plaintiffs'" or "Prime's") Second Amended Complaint ("SAC") pursuant to Federal Rule of Civil Procedure 12(b)(6) and to strike thequid pro quo allegations in Plaintiffs' SAC pursuant to Federal Rule of Civil Procedure 12(f).² (Dkt. No. 62.) The motion has been fully briefed. (Dkt. Nos. 69, 74.)

The Court conducted a hearing on April 28, 2017. (Dkt. No. 76.) John Alfred Mills, Esq. appeared on behalf of Plaintiffs. (Id.) S. Michele Inan, Esq. and Sharon O'Grady, Esq. appeared on behalf of Defendants. (Id.)

Having reviewed the parties' arguments and the applicable law, and for the reasons set forth below, the Court DENIES Defendants' motion to strike Prime's quid pro quo allegations, GRANTS Defendants' motion to dismiss Prime's 42 U.S.C. § 1983 claim against Harris in her personal capacity for violation of the Equal Protection Clause, and GRANTS Defendants' motion to dismiss Prime's 42 U.S.C. § 1983 claim against Becerra in his official capacity for prospective injunctive relief. (Dkt. No. 62.)

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. 57, SAC ¶ 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, in various states.³ (Id. ¶ 22.) Defendant Kamala D. Harris was the Attorney General of California during the events giving rise to the instant litigation and at the time the instant action was filed. (Id. ¶ 24.) Defendant Xavier Becerra is the current Attorney General of California. This action stems from Harris's allegedly improper, de facto denial of Prime's proposed acquisition of the Daughters of Charity Health System ("DCHS"), a group of five financially distressed hospitals and a skilled nursing facility. (Id. ¶¶ 1, 2, 14, 90.) Prime's core contention is this—at the behest of Service Employees International Union-United Healthcare Workers West, Harris effectively denied the Prime-DCHS transaction by imposing untenable requirements on Prime to continue operating five of the six DCHS facilities in their current state for ten years. (Id. ¶¶ 1, 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.⁴ Pursuant to California Corporations Code §§ 5914-5925 ("the Nonprofit Hospital Transfer Statute" or "the 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.⁵ 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." Id. § 5917.

In making this determination, the Attorney General "shall consider any factors that the Attorney General deems relevant," including, but not limited to, a non-exhaustive list of nine factors specified by the Statute and the corresponding implementing regulations. Id.; see also Cal. Code Regs. tit. 11, § 999.5(f). The factors span an expansive range of considerations, from the terms of the agreement to antitrust concerns and the public interest. See Cal. Corp. Code § 5917; Cal. Code Regs. tit. 11, § 999.5(f). They include, inter alia, whether "[t]he terms and conditions of the agreement or transaction are fair and reasonable to the nonprofit corporation," whether the transaction "will result ininurement to any private person or entity," whether the transaction "is at fair market value," with "fair market value" meaning "the most likely price that the assets being sold would bring in a competitive and open market under all conditions requisite to a fair sale," whether "[t]he market value has been manipulated by the actions of the parties in a manner that causes the value of the assets to decrease," whether "[t]proposed use of the proceeds from the agreement or transaction is consistent with the charitable trust on which the assets are held by the health facility or by the affiliated nonprofit health system," whether the transaction "involves or constitutes any breach of trust," whether "[t]he Attorney General has been provided . . . with sufficient information and data by the nonprofit corporation to evaluate adequately the agreement or transaction or the effects thereof on the public," whether the transaction "may create a significant effect on the availability or accessibility of health care services to the affected community," and whether the transaction is "in the public interest." Cal. Corp. Code § 5917; see also Cal. Code Regs. tit. 11, § 999.5(f).

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). It is also the policy of the Attorney General "to require for a period of at least five years that a minimum level of annual charity costs be incurred by the hospitals that are the subject of the agreement or transaction." Id. § 999.5(f)(8)(B). 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. § 999.5(f)(8)(B)-(C). Further, "[p]otential adverse effects on availability or accessibility of health care may be mitigated through provisions negotiated between the parties to the transaction, through conditions adopted by the Attorney General in consenting to the proposed transaction, or through any other appropriate means." Id. § 999.5(f)(8)(A).

The Attorney General considers information from a variety of sources in making the determination on a proposed transaction. The selling entity must submit to the Attorney General details 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 written notice must include a section entitled "Impacts on Health Care Services." Cal. Code Regs. tit. 11, § 999.5(d)(5). This section of the written notice must include, inter alia, a "description of all charity care provided in the last five years by each health facility"; a "description of all services provided by each health facility . . . in the past five years to Medi-Cal patients, county indigent patients, and any other class of patients," including details about "the type and volume of services provided, the payors for the services provided, the demographic characteristics of and zip code data for the patients served by the health facility . . . and the costs and revenues for the services provided"; a "description of current policies and procedures on staffing for patient care areas; employee input on health quality and staffing issues; and employee wages, salaries, benefits, working conditions and employment protections," including "a list of all existing staffing plans, policy and procedure manuals, employee handbooks, collective bargaining agreements or similar employment-related documents"; "all existing documents setting forth any guarantees made by any entity that would be taking over operation or control of the health facility . . . relating to employee job security and retraining, or the continuation of current staffing levels and policies, employee wages, salaries, benefits, working conditions and employment protections"; and a "statement describing all effects that the proposed agreement or transaction may have on health care services provided by each facility proposed to be transferred." Id. The Attorney General may also request that the seller provide additional information that he or she deems reasonably necessary to make the determination. Id. § 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. Id. § 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. Id. § 999.5(e). The independent statement may assess factors such as the...