Shire v. Harpstead

Decision Date30 December 2019
Docket NumberA19-0807
PartiesZayna Shire, et al., Appellants, v. Jodi Harpstead, Respondent.
CourtMinnesota Court of Appeals

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2018).


Smith, Tracy M., Judge

Ramsey County District Court

File No. 62-CV-18-6048

Samuel D. Orbovich, Pari I. McGarraugh, Fredrikson & Byron, P.A., Minneapolis, Minnesota (for appellants)

Keith Ellison, Attorney General, Brandon Boese, Scott H. Ikeda, Assistant Attorneys General, St. Paul, Minnesota (for respondent)

Considered and decided by Hooten, Presiding Judge; Smith, Tracy M., Judge; and Kalitowski, Judge.*



Appellants provide services to Medicaid recipients. In July 2017, the Minnesota Department of Human Services (DHS) temporarily suspended Medicaid payments to appellants pending investigation of what DHS had determined to be credible allegations of fraud. Approximately one year later, with the investigation neither closed nor having resulted in further legal action, appellants sued respondent, the commissioner of human services, challenging the continuing withholding of payments. The district court dismissed appellants' complaint for failing to state a claim upon which relief can be granted. Appellants argue that (1) the district court erred by concluding that their due-process claim failed due to lack of a protected interest in continued Medicaid participation, and (2) the district court erred by concluding that the commissioner acted within her authority when she applied a temporary suspension of payment, or payment withhold, to appellants. We affirm.


Appellants are two business owners and their corresponding business entities.1 Appellant Zayna Shire is the owner of appellant Brighter Home Health Care, LLC (Brighter Home), and appellant Abdi Ahmed is the owner of appellant Family CareTransportation, LLC (Family Care). Both businesses served Medicaid recipients in the Twin Cities area. Respondent is the current commissioner of the human services, acting in her official capacity.2 The complaint alleges the following facts, which we take as true for purposes of this appeal.

Brighter Home provided personal-care-assistance (PCA) services from April 2014 until July 2017. On July 21, 2017, the Office of Inspector General of DHS issued a notice of payment withhold to Brighter Home. The notice stated that DHS had determined that there was a "credible allegation of fraud" and that DHS had information that Brighter Home shared an owner with Immediate Care Transportation, LLC, which had "billed for trips not supported by documentation, billed for trips that never took place, participated in kickbacks to the riders, and billed rides with multiple riders as separate trips rather than prorated." DHS addressed the notice to Ahmedweli Farah, Shire's former husband, who owned Immediate Care Transportation and who owned 50% of Brighter Home from January 2016 through July 2017. Shire claims that she had no ownership interests in Immediate Care Transportation and that Farah played no meaningful role in the operations of Brighter Home.

The notice of payment withhold indicated that all Minnesota Health Care Programs (MHCP) payments to Brighter Home would be withheld starting August 21, 2017. The notice informed Brighter Home that DHS would continue to withhold the payments untilDHS or a prosecuting authority determined that there was insufficient evidence of fraud or until the completion of any legal proceedings related to the alleged fraud. It stated that Brighter Home could submit written evidence to DHS to explain why payments should not be withheld. The notice also stated that Brighter Home must notify affected clients and assist them in transitioning to other services if Brighter Home was unable to continue providing services.

Brighter Home, through an attorney, responded to DHS with documents and a letter stating that Brighter Home agreed to disassociate from Farah and asking that the payment withhold be lifted. DHS did not lift the payment withhold; rather, it issued a notice of continued payment withhold to Shire in November. It described how, after investigating Brighter Home's claims and service documentation, DHS determined that Brighter Home had submitted claims with mismatched numbers of units, claims that had no timesheet or a timesheet that indicated no work had been done, and claims for services that could not have been provided. DHS concluded that these suspicious claims, plus Farah's operational control and access to Brighter Home's business holdings, amounted to a credible allegation of fraud. This second notice again explained the circumstances under which the hold would be lifted, informed Brighter Home that it could submit evidence and explanations to DHS, and informed Brighter Home of its obligations to notify affected clients and assist them in transitioning to other services if Brighter Home could not continue to serve them.

Appellant Family Care, meanwhile, was subject to a similar action. Family Care provided transportation services to Medicaid recipients from 2011 until July 2017. On July 21, 2017, it received a notice of payment withhold from DHS. The notice stated thatDHS had determined that there was a credible allegation of fraud and that it had information that Family Care had "billed trips without documentation to support the claim, billed rides with multiple riders as separate trips rather than prorated, and participated in a kickback scheme with recipients."

This notice was structured the same way as the notices received by Brighter Home, stating that the MHCP payment withhold would start July 21, 2017, and that the payment withhold would last until either a determination that there was insufficient evidence of fraud or the completion of any legal proceedings related to the alleged fraud. The notice also informed Family Care that it could submit written evidence to DHS about why payments should not be withheld and that, if Family Care was unable to continue providing services to its clients, it would need to notify them and assist them in transitioning to other providers.

On September 5, 2018, Shire, Ahmed, and their business entities sued the commissioner in her official capacity. They allege that the commissioner deprived them of their protected interests without due process and that the commissioner engaged in ultra vires actions. The commissioner moved the district court, pursuant to Minn. R. Civ. P. 12.02(e), to dismiss the case for failure to state a claim upon which relief could be granted. The district court granted the motion and dismissed the complaint.

This appeal follows.


When reviewing the dismissal of a complaint for failure to state a claim under Minn. R. Civ. P. 12.02(e), appellate courts "review the legal sufficiency of the claim de novo todetermine whether the complaint sets forth a legally sufficient claim for relief." Graphic Commc'ns Local 1B Health & Welfare Fund "A" v. CVS Caremark Corp., 850 N.W.2d 682, 692 (Minn. 2014). Appellate courts "accept the facts alleged in the complaint as true and construe all reasonable inferences in favor of the nonmoving party." Walsh v. U.S. Bank, N.A., 851 N.W.2d 598, 606 (Minn. 2014).

In their complaint, appellants seek declaratory and injunctive relief based on two legal theories. They allege that the commissioner violated their due-process rights and that she acted in excess of her authority. Both theories relate to the commissioner's authority to temporarily suspend Medicaid payments to providers.

Medicaid is a cooperative federal-state program, which states may administer and regulate consistent with federal law. Getz v. Peace, 934 N.W.2d 347, 356-57 (Minn. 2019). Under the Minnesota Medicaid statutory scheme, which reflects federal requirements, the DHS commissioner is required to withhold payments to a Medicaid provider if "the commissioner determines there is a credible allegation of fraud for which an investigation is pending." Minn. Stat. § 256B.064, subd. 2(b) (2018); see also 42 C.F.R. § 455.23(a)(1) (2018). An allegation is considered credible when it has "indicia of reliability and the state agency has reviewed all allegations, facts, and evidence carefully and acts judiciously on a case-by-case basis." Minn. Stat. § 256B.064, subd. 2(b). A payment withhold must end "after the commissioner determines there is insufficient evidence of fraud by the vendor, or after legal proceedings relating to the alleged fraud are completed." Minn. Stat. § 256B.064, subd. 2(c) (2018); see also 42 C.F.R. § 455.23(c) (2018).

With that background, we turn to the legal sufficiency of each of appellants' claims.

I. The complaint fails to state a due-process claim because appellants lack a protected interest.

Appellants argue that the payment withholds violate their due-process rights under the United States and Minnesota Constitutions because the payment withholds effectively deprive them permanently of a protected interest without procedural due process. The district court rejected the due-process claim, concluding that appellants do not have a constitutionally protected interest in the receipt of Medicaid payments.

"Procedural due process protections restrain government action which deprives individuals of 'liberty' or 'property' interests within the meaning of the due process clause of the Fifth and Fourteenth Amendments of the United States Constitution and Article I, Section 7 of the Minnesota Constitution." Sweet v. Comm'r of Human Servs., 702 N.W.2d 314, 318 (Minn. App. 2005) (quotation omitted), review denied (Minn. Nov. 15, 2005). The due-process protections under the United States and Minnesota Constitutions are identical. Sartori v. Harnischfeger Corp., 432 N.W.2d 448, 453 (Minn. 1988).

In evaluating a procedural due-process claim, courts must first identify "whether the government has deprived the individual of a protected life,...

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