Willamette Family, Inc. v. Allen

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

EUGENE DIVISION

WILLAMETTE FAMILY, INC., Civ. No. 6:22-cv-00978-AA

Plaintiff, OPINION AND ORDER

v.

PATRICK ALLEN; DAVID BADEN;

and FRITZ JENKINS in their official

capacities,

Defendants.

________________________________________

AIKEN, District Judge:

Willamette Family Inc. (“Plaintiff”) brings this action under 42 U.S.C. § 1983

seeking declaratory judgment and injunctive relief, claiming deprivation of civil

rights in contravention of the Due Process Clause of the Fourteenth Amendment.

Plaintiff alleges that Oregon Health Authority (“OHA”) audits violate its right to be

meaningfully heard and that the audits are conducted according to Oregon

Administrative Rules (“OAR[s]s”) that are constitutionally void for vagueness. Before

the Court is Defendants’ Motion to Dismiss, Defendants’ Motion for Stay of Discovery,

and Plaintiff’s Motion for Preliminary Injunction or in the alternative, for Expedited

Discovery. For the reasons explained, Defendants’ Motion to Dismiss, ECF No. 19, is

GRANTED. Defendants’ Motion to Stay Discovery, ECF No. 24, is DENIED as moot.

Plaintiff’s Motion for Preliminary Injunction, ECF No. 26, is DENIED.

BACKGROUND

I. Parties

Plaintiff is an Oregon non-profit corporation providing last-resort services for

critical substance abuse and mental health treatment in Eugene and Lane County

for over 55 years. First Am. Compl. (“FAC”) ¶ 6. The majority of Plaintiff’s clients

participate in public health programs the State of Oregon operates through OHA. Id.

Depending on the client and the services provided, Plaintiff is reimbursed either

directly by OHA through its Division of Medical Assistance Programs (“DMAP”) or by

the Coordinated Care Organization (“CCO”) of which Plaintiff is a member. Id.

OHA is an agency of the State of Oregon responsible for administering

Oregon’s public health programs, including Medicaid, and reimbursing providers like

Plaintiff for health services to its participants. Id. ¶ 7. Defendant Patrick Allen is

the current director of OHA and is sued in his official capacity. Id. Defendant David

Baden is OHA’s Chief Financial Officer and oversees the Fiscal and Operations

Division within OHA. FAC ¶ 8. Baden is sued in his official capacity as Chief

Financial Officer of OHA. Defendant Fritz Jenkins is the Administrator of Program

Integrity in the Fiscal and Operations Division at OHA. FAC ¶ 9. Plaintiff alleges

that Jenkins oversaw the persons auditing Plaintiff and served as the primary point

of contact at OHA for Plaintiff’s appeals of the audits. Plaintiff contends that Jenkins

has appeared on many occasions as OHA’s representative during the administrative

proceedings and played a key role making decisions for OHA on both the procedural

and substantive issues in dispute in this case. Id. The Court refers to those

individually named collectively as “Defendants” and to “OHA” when referring

generally to the agency action challenged in this lawsuit.

II. Mental Health Crisis in Oregon

Plaintiff alleges that the United States is experiencing an unprecedented

behavioral health and substance abuse crisis which has been exacerbated by the

Covid-19 pandemic. Id. ¶ 11. Between 1991 and 2011, the number of opioid

prescriptions issued in the United States tripled, and as prescriptions increased, so

did abuse and diversion. Id. ¶ 12.

In its FAC, Plaintiff maintains that a study by the National Institutes of

Health found that between 2002 and 2012, the rates of nonmedical use of prescription

opioids more than doubled from 1.8 percent to 4.1 percent of the United States adult

population. As abuse and diversion of prescription opioids skyrocketed, so did heroin

use. Id. Over that same period, 2002 and 2012, the number of people in the United

States abusing heroin doubled—from 240,000 in 2002 to over 480,000 in 2012. Id.

Four years later in 2016, more than two million Americans qualified for an opioid use

disorder diagnosis. Id. In 2013, synthetic opioids such as fentanyl became much

more common and largely replaced prescription drug abuse. In 2017, the age-

adjusted rate of all drug overdose deaths in the United States was nearly 22 per

100,000. The following year, in 2018, deaths due to drug overdose were four times

higher than in 1999, driven largely by the opioid crisis. Id. ¶ 14. By 2019, just before

the COVID-19 pandemic, more than 20 million Americans over the age of 12 reported

having a substance use disorder, but only ten percent of those individuals reported

receiving care. Id. ¶ 13.

Plaintiff further contends that alcohol abuse has also increased, alleging that

between 2000 and 2016, alcohol-induced deaths claimed the lives of nearly half a

million people in the United States. Id. ¶ 16. Moreover, before the COVID-19

pandemic, nearly 20 percent of U.S. adults (around 47 million people) reported having

a mental illness. Id. Ten percent of adults reported symptoms of anxiety and/or

depressive disorder. After the pandemic, more than one in ten adults reported

starting or increasing the use of alcohol or drugs to cope with the pandemic and nearly

one-third of people in the in the U.S. who drink alcohol have increased their

consumption since the pandemic began. Id. ¶ 18. According to the Centers for

Disease Control, more than 93,000 people died from drug overdoses in 2020, the

highest number on record and a 29 percent increase from 2019. Id.

In Oregon, in 2017, Plaintiff states that “one in ten Oregonians suffered from

a substance use disorder; seven percent suffered from alcohol use disorder; four

percent suffered from illegal drug use disorder; and one percent suffered from pain

reliever use disorder.” Id. ¶ 20. In 2016 and 2017, an estimated 329,000 Oregonians

needed treatment for substance use disorder. Id. ¶ 21. On March 27, 2018, Oregon

Governor Kate Brown issued an Executive Order declaring alcohol and substance

abuse addiction as a public health crisis in Oregon, stating that “addiction treatment

and recovery support services are unfortunately beyond reach for many Oregonians

in need[.]” Id. ¶ 22.

Plaintiff states that the 2020 National Survey of Drug Use and Health,

conducted by the Substance Abuse and Mental Health Services Administration under

the United States Department of Health and Human Services, found that Oregon

ranked as the worst state for addiction, down from fourth worst the year before. Id.

¶ 25. Oregon ranked first for methamphetamine use, first for prescription drug

abuse, second for marijuana use, seventh for cocaine use, and eleventh for heroin use.

Id.

Plaintiff asserts that the 2020 National Survey of Drug Use and Health found

that Oregon ranked as the worst state in the nation for access to substance abuse

treatment, down from 47th in 2019. Id. ¶ 26. By some estimates, since the beginning

of the COVID-19 pandemic, Oregon has lost 40 percent of its addiction treatment beds

for adults and 60 percent of its beds for adolescents. Id. ¶ 27.

Plaintiff maintains that it is a recognized leader in the field of alcoholism and

drug addiction treatment. Id. ¶ 30. In recent years, Plaintiff has served tens of

thousands of people who struggle with mental health and substance abuse. Id. ¶ 31.

In 2021, Plaintiff served over 7,000 people with alcohol and/or drug addiction. Id.

Plaintiff offers seven different facilities with 106 residential and detox beds and 20

Recovery Living and Transitional Housing units that provide clean, safe, drug-free

living environments for clients and their families. Id. ¶ 32.

III. OHA Audit Process

The State contracts with providers such as Plaintiff to deliver healthcare

services to Oregonians in certain public health programs. Id. ¶¶ 6-7, 58 (alleging that

Plaintiff is a “provider” subject to OAR chapter 407, division 120); see also OAR 407-

120-0100(31) (defining “provider” as an “individual, facility, institution corporate

entity, or other organization which supplies or provides” services “pursuant to a

contract.”). OHA reimburses providers for the services delivered to covered

individuals. FAC ¶¶ 6-7. Because it participates in these programs, and receives

public funding, Plaintiff is subject to regulations administered by OHA. Defs. Mot.

to Dismiss (“MTD”) at 3; see generally OAR Chapter 309, OAR Chapter 407, OAR

Chapter 410.

The OARs set forth requirements for providers to document the healthcare

services delivered to Oregonians and for which providers received reimbursement

from OHA. See, e.g., OAR 309-019-0135(3) (requiring providers to conduct an entry

assessment to ensure that an individual receives certain services and that those

services are documented). Among other things, a provider’s documentation must

support the reimbursements that the provider obtained from OHA, must describe the

relationship of the services to the treatment objective described in the service plan,

and must include periodic updates regarding the patient’s progress. OAR 410-120-

1360(2) (stating that documentation must “support[s] the specific care, items, or

services for which payment has been requested.”); OAR 309-019-0140(3)(d) (stating

that documentation must include “relationship of the services provided to the

treatment objective described in the service plan”); OAR 309-019-0140(3)(g) (stating

that documentation must include “[p]eriodic updates describing the individual’s

progress”).

The regulatory scheme also subjects providers such as Plaintiff to potential

audits from OHA to ensure compliance with rules governing reimbursement from

state public health programs. OAR 410-120-1396(1). OHA can recover an

“overpayment” if an audit reveals that a provider submitted a claim for payment that

did not comply with the agency’s statutes and rules. Id. Audits under OAR Division

410, Chapter 120 are a multi-step process. First, after reviewing information

submitted by the provider, the OHA auditor produces a preliminary audit report.

OAR 410-120-1396(10). If the provider disagrees with the preliminary audit report’s

findings, the provider can submit additional information. Id. Then, the auditor

prepares a final audit report. OAR 410-120-1396(11).

The final audit report includes an overpayment amount, findings, and

recommendations. Id. Once a provider receives a final audit report, it can submit a

“written request for either an administrative review or a contested case hearing” if

the provider disagrees with the report or the overpayment amount. OAR 410-120-

1396(11)(c). Contested case hearings challenging audit findings are conducted in

front of an administrative law judge (“ALJ”). OAR 137-003-501, et seq. The hearings

are full adversarial proceedings in which the parties are represented by counsel, may

present evidence and witnesses, and may cross-examine the other side’s witnesses.

OAR 137-003-0600.

Prior to the hearing, the agency or party may request discovery in five different

categories: (1) a list of witnesses expected to testify at the hearing; (2) documents that

the party or agency plans to offer as evidence; (3) objects for inspection if the party or

agency intends to offer the objects as evidence; (4) responses to no more than 20

requests for admission; and (5) responses to no more than 20 written interrogatories.

OAR 137-003-0566(1)(a)-(e). If a party desires additional discovery, it can request it

from the agency and if the request is denied, file a motion with the ALJ for an order

requiring the discovery. OAR 137-003-0568(7). The ALJ may authorize discovery

“reasonably likely to produce information that is generally relevant to the case and

necessary or likely to facilitate resolution of the case.” OAR 137-003-0568(4).

Further, a party before an agency can issue public records requests for additional

information. OAR 137-003-0566(9). However, a party in a contested case proceeding

is not entitled to take discovery depositions. Instead, depositions are generally used

to preserve the testimony of witnesses who will be unavailable for the hearing, not

for discovery purposes. OAR 137-003-0572(2).

IV. OHA Audit of Willamette Family

In February 2014, OHA reviewed Plaintiff’s documentation of its services to

determine whether it was “delivering services in compliance with the [OARs].” FAC

¶ 41. OHA found that Plaintiff used an electronic service plan that, at least in part,

did not comply with the OARs. Id. OHA and Plaintiff worked together to create a

new service plan compliant with the OARs. Id. In 2015, Plaintiff submitted a “Plan

of Correction” which included staff training to use the new service plan Plaintiff

created with OHA. Id. ¶ 42. OHA approved of the plan and issued a Certificate of

Approval set to expire on February 28, 2018. Id. Plaintiff believed it was in full

compliance with all OHA’s directives for that period. Id. ¶ 43.

On February 27 and 28, 2018, OHA initiated six audits of Plaintiff’s services

rendered between January 2014 and December 2015, involving around 84,000

individual claims, the results of which amount to $10 million dollars in potential

liability if OHA finds Plaintiff out of compliance and does not adjust its calculation.

Id. ¶ 45. The overarching error described in the audits is Plaintiff’s “insufficient

descriptions for services provided.” Id. ¶ 48. In response to the audits, Plaintiff has

produced over 220,000 documents to OHA. Id. ¶ 46.

OHA auditors possess broad discretion in conducting audits and, in this case,

did not review each of the 84,000 claims, but reviewed a small, randomized sample,

identified documentation errors, and multiplied that error rate across the entire

range of claims for all six audits, regardless of the size, scope, amount, or nature of

the claims. Id. ¶¶ 47, 49. OHA did not dispute that Plaintiff rendered the services

for which OHA paid Plaintiff, but nevertheless sought full reimbursement based on

deficient descriptions of those services. Id. ¶ 49.

Plaintiff alleges that it has been unsuccessful in obtaining from OHA

information concerning the methodology auditors followed and whether it comports

with generally accepted principles, standards, or applicable law and cannot

determine from OHA what sample of claims chosen for the audits was random. Id. ¶

50. Since the audit began, Plaintiff asserts that OHA has reassigned the audit to

several different auditors who, in turn, revised upward or downward the “sample

error rate” used in the calculation of the amount Plaintiff owes. Id. ¶¶ 50-56. Of the

six audits undertaken by OHA, only three final audit reports have been issued. Id.

The first final audit report recommended that OHA recover $6,089.71 in

overpayments. Id. ¶ 51; Jindal Decl. Ex. 1 at 8. The second final audit report

recommended that OHA recover $52,879.29. Id. ¶ 52; Id. Ex. 2 at 12. The third final

audit report recommended that OHA recover $2,618,655.21. Id. ¶ 53; Id. Ex. 3 at 1.

Plaintiff requested contested case hearings in response to all three final audit

reports. FAC ¶¶ 51-53. In advance of those hearings, Plaintiff requested certain

discovery. Id. ¶¶ 60-63, 75-76. Plaintiff sought to take the deposition of the original

OHA auditor assigned to the audits, Deborah Larkins. Id. ¶¶ 75-76. OHA denied

those deposition requests, citing deficiencies in the requests and the rule that only

permits pre-hearing perpetuation depositions, not discovery depositions. Id. ¶¶ 58,

63, 66-78, 90-92; Jindal Decl. Exs. 4-5. OHA also noted that any OHA witnesses

would be subject to cross-examination at the hearing. Jindal Decl. Ex. 5 at 2.

Plaintiff asserts that OHA has produced “some documents” in response to

Plaintiff’s discovery requests, but not “sufficient data[.]” FAC ¶¶ 60, 62, 89. Plaintiff

has not yet sought an order from the ALJ requiring OHA to produce additional

document discovery. See id. ¶¶ 59-63 (describing discovery efforts).

The contested case hearings on the first two audits were consolidated into a

single proceeding, and the parties have agreed to defer a hearing on the third audit

until after the hearing on the first and second is complete. MTD at 6; Jindal Decl.

Ex. 7. In July 2022, the ALJ overseeing the hearing scheduled OHA to present its

case-in-chief the week of January 30, 2023, and six weeks later, the ALJ will hear

Plaintiff’s defensive case, starting March 13, 2023. Jindal Decl. Ex. 8. The parties

will exchange witness lists and proposed exhibits two weeks before OHA begins its

case-in-chief. Id.

V. Plaintiff’s Legal Challenges to OHA Audit Process

In its First Claim for Relief, Plaintiff alleges that OHA’s audit process violates

its due process right to property under the Fourteenth Amendment. FAC ¶¶ 85-94.

Plaintiff contends that, by refusing to produce sufficient information about the

methodology of the audits and make auditors available for deposition, OHA has

denied Plaintiff basic procedural protections against the financial liability OHA may

assess against Plaintiff. Id. ¶¶ 86-89. The property interest Plaintiff identifies is its

“interest in reimbursement by OHA for the services that [Plaintiff] provided to its

patients during the audit year.” Id. ¶ 88. If forced to repay “even a fraction” of the

potential $10 million dollar liability assessed, “it would force [Plaintiff] to close its

doors forever.”

In its Second Claim for Relief, Plaintiff asserts that OAR 309-019-0140(3)(d),

and OAR 309-019-0140(3)(g) are each unconstitutionally vague as applied to Plaintiff.

Plaintiff maintains that the challenged rules “leave unfettered discretion in the

hands of OHA auditors” leading to “arbitrary and discriminatory enforcement.” FAC

¶¶ 98, 99.

In its Third and Fourth Claims for Relief, Plaintiff seeks declaratory

judgement on its first two Claims. Id. ¶¶ 100-102, 103-105. In its Prayer for Relief,

Plaintiff asks the Court to order Defendants to produce discovery related to the

audits; for an injunction dismissing any claims OHA has against Plaintiff for errors

that rely on the challenged OARs; for an injunction staying the contested case hearing

until Defendants have complied with all the above. Id. at p. 37 (prayer for relief).

Plaintiff’s Motion for Preliminary Injunction seeks an order enjoining the

hearing set for January 2023 to maintain the status quo until this Court hears

Plaintiff’s claims alleged in its FAC. Pl.’s Mot. Prelim. Inj. at 14. In the alternative,

Plaintiff asks the Court to order, in Plaintiff’s pending administrative case, expedited

discovery into the details of the audits so that Plaintiff can learn—before the

hearing—the facts OHA plans to unveil. Defendants move to dismiss all claims under

FRCP 12(b)(1) and 12(b)(6), as well as invoking the abstention doctrine first

announced in Younger v. Harris, 401 U.S. 37 (1971).

LEGAL STANDARDS

I. Motion to Dismiss

Under FRCP 12(b)(6) a claim must be dismissed when it “fail[s] to state a claim

upon which relief can be granted.” The facts alleged in the complaint must amount

to a claim for relief “that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 622, 677-

78 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). A claim is

plausible on its face if it contains “factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged.” Id. at

678. The complaint must be dismissed if the factual allegations allow only “a sheer

possibility that the defendant has acted unlawfully.” Id. When a court considers a

motion to dismiss, the court construes all allegations of the complaint in the plaintiff’s

favor. Sun Sav. & Loan Ass’n v. Dierdorff, 825 F.2d 187, 191 (9th Cir. 1987).

A motion seeking dismissal on abstention grounds can be filed under Rule

12(b)(1). See Applied Underwriters, Inc. v. Lara, 530 F. Supp. 3d 914, 923 (E.D. Cal.

2021) (“A motion to dismiss on Younger abstention grounds is . . . properly brought

under Rule 12(b)(1).”). Rule 12(b)(1) authorizes a court to dismiss claims over which

it lacks proper subject matter jurisdiction. “[U]nlike a Rule 12(b)(6) motion, in a Rule

12(b)(1) motion, the district court is not confined to the four corners of the complaint—

it may consider facts and need not assume the truthfulness of the complaint[,]” and

the existence of disputed material facts will not preclude the court from evaluating

the existence of subject matter jurisdiction. Americopters, LLC v. Fed. Aviation

Admin., 441 F.3d 726, 732 n. 4 (9th Cir. 2006).

II. Preliminary Injunction

Granting a preliminary injunction is “an extraordinary remedy that may only

be awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter

v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 22 (2008). “The proper legal standard for

preliminary injunctive relief requires a party to demonstrate (1) ‘that he is likely to

succeed on the merits, (2) that he is likely to suffer irreparable harm in the absence

of preliminary relief, (3) that the balance of equities tips in his favor, and (4) that an

injunction is in the public interest.’” Stormans, Inc. v. Selecky, 586 F.3d 1109, 1127

(9th Cir. 2009) (citing Winter, 555 U.S. at 20).

DISCUSSION

Defendants move to dismiss based on the Younger abstention doctrine under

Rule 12(b)(1) and 12(b)(6). MTD at 8. Specifically, Defendants maintain that this

Court must abstain from enjoining ongoing state enforcement proceedings and assert

that Plaintiff has no constitutionally protected property interest in healthcare

reimbursements from the State; that Oregon administrative hearings comport with

due process; that OHA’s audit regulations provide fair notice of the information

Medicaid providers must include in their bills; and that Plaintiff’s claims are unripe.

I. Motion to Dismiss / Younger Abstention Doctrine

The Younger doctrine requires federal courts to abstain from exercising

jurisdiction over claims that implicate ongoing state proceedings. Younger, 401 U.S.

at 43–44. The Younger doctrine reflects “a strong federal policy against federal-court

interference with pending state judicial proceedings absent extraordinary

circumstances.” Middlesex County Ethics Comm. v. Garden State Bar Ass'n, 457 U.S.

423, 431 (1982). The Ninth Circuit recently explained the Younger framework as

follows:

Younger applies only to three categories of cases. . . 1) ongoing state

criminal prosecutions; 2) certain civil enforcement proceedings; and 3)

civil proceedings involving certain orders ... uniquely in the furtherance

of the state courts' ability to perform their judicial functions. If a state

proceeding falls into one of these three categories, Younger abstention is

applicable, but only if the three additional factors . . . are also met: that

the state proceeding is 1) ongoing; 2) implicate[s] important state

interests; and 3) provide[s] adequate opportunity . . . to raise

constitutional challenges.

Applied Underwriters, 37 F.4th at 588 (citing Sprint Commc'ns, Inc. v. Jacobs, 571

U.S. 69, 78 (2013) (other citations and quotations omitted). Finally, for Younger to

apply, the federal court action must enjoin the state proceeding or have the practical

effect of doing so. Gilbertson v. Albright, 381 F.3d 965, 978 (9th Cir. 2004). In this

case, all elements for Younger abstention are met.

A. Case Characteristics Meet “Civil Enforcement” Category

First, Plaintiff’s underlying administrative case falls into the category of “civil

enforcement” proceedings. See Trainor v. Hernandez, 431 U.S. 434, 444 (1977)

(applying Younger to civil suit by the state’s human services department to recover

welfare payments wrongfully obtained).

Plaintiff asserts that OHA’s audit is too far removed from those civil cases in

which the Supreme Court or the Ninth Circuit apply the Younger abstention. Pl.’s

Resp. at 12. Plaintiff reasons that its administrative proceeding is not “quasi-

criminal” in that OHA does not accuse it of failing to provide the services it billed for,

or of fraud, and that OHA is not imposing penalties or filing charges, and that the

audits are not accompanied by any parallel state criminal proceeding. Id.

However, civil enforcement actions to which Younger has been held to apply

include administrative proceedings, and are characteristically initiated to sanction

the federal plaintiff, i.e., the party challenging the state action, for some wrongful act.

Sprint, 571 U.S. at 79. In cases of this category, a state actor is routinely a party to

the state proceeding; a state actor initiates the action; investigations are commonly

involved; and the investigations often culminate in the filing of a formal complaint or

charges. Id. at 79-80.

Moreover, the sanctions or penalties involved in civil cases where abstention

was held proper are not necessarily “quasi-criminal” in the nature that Plaintiff

describes. See Middlesex, 457 U.S. at 427, 433–34 (state-initiated disciplinary

proceedings against lawyer for violating ethics rules could result in “private

reprimand”). Contrary to Plaintiff’s characterization, the range of penalized

activities in Younger abstention cases are not necessarily quasi-criminal in nature—

e.g. fraud—or accompanied by a parallel criminal case or charge. See Ohio Civ. Rights

Comm'n v. Dayton Christian Schools, Inc., 477 U.S. 619, 629 (1986) (commission

investigated employment discrimination claim, issued a proposed “consent order”

requiring reinstatement of employee with backpay, and initiated administrative

proceedings to enforce).

Here, OHA’s audit proceedings are “state-initiated” proceedings to investigate

Plaintiff for the act of obtaining state public health funds in violation of OHA’s

regulations. OHA’s audits include investigative activities. OAR 410-120-1396(5)

(permitting auditors to gather evidence and interview witnesses). After reviewing

information from the provider, OHA’s auditors issue a preliminary report, review any

additional information from the provider, before issuing a formal complaint or charge:

the final audit report. OAR 410-120-1396(7). Accordingly, the Court finds that the

administrative audits and contested case Plaintiff seeks to enjoin constitute a civil

enforcement action—the threshold determination in Younger analysis.

B. State Proceeding is Ongoing; Implicates Important Interests;

and Provides Opportunity for Constitutional Challenge

Courts also consider whether the challenged state proceeding is ongoing;

implicates important state interests; and provides adequate opportunity to raise

constitutional challenges—the three “additional factors” identified in Sprint that

must be satisfied before a court may invoke the Younger abstention doctrine. Sprint,

571 U.S. at 70.

First, the state proceeding must be “ongoing.” Id. Here, the parties do not

appear to dispute that factor. OHA initiated its audits in March 2018 and requested

and received information pertinent to all six audits. FAC ¶¶ 45, 51-56. OHA’s

auditors issued final audit reports for three of the six audits in 2018, 2019, and 2021,

respectively. Id. ¶¶ 50-52. Plaintiff requested contested case proceedings challenging

each audit report within 30 days of each audit report’s issuance. Id. ¶¶ 51-53. At the

time Plaintiff filed its initial Complaint, an ALJ had been assigned to oversee

Plaintiff’s contested case with OHA and a hearing was pending. See Pl.’s Compl. at

31 (requesting stay of pending contested case hearing). Accordingly, these audit

proceedings are decisively “ongoing.” See Hirsh v. Justices of Supreme Court of State

of Cal., 67 F.3d 708, 712 (9th Cir. 1995) (holding that state proceedings were ongoing

where state filed notice to show cause prior to full administrative hearing).

Second, the state proceeding must implicate important state interests. Sprint,

571 U.S. at 70. When evaluating Younger's second factor, this Court must look to

“the importance of the generic proceedings to the state,” not to the specific concern of

the particular proceeding. New Orleans Pub. Serv. Inc. v. Council of New Orleans

(NOPSI), 491 U.S. 350, 365 (1989). As the Supreme Court has held, an enforcement

action “vindicate[s] important state policies” when the state seeks to “safeguard[] the

fiscal integrity of” a public assistance program. Trainor, 431 U.S. at 444 (state

administration of welfare program). Similarly, the Ninth Circuit has explained that

state regulations governing the reimbursement rates for healthcare providers are

specifically an important state interest because such regulations are designed to

“insure low-cost, high quality health care” for citizens. Delta Dental Plan of

California, Inc. v. Mendoza, 139 F.3d 1289, 1295 (9th Cir. 1998) (disapproved of on

other grounds by Green v. City of Tucson, 255 F.3d 1086 (9th Cir. 2001)) (addressing

California regulations governing insurance reimbursement rates for dentists).

OHA administers state healthcare programs, including the Oregon Health

Plan and state Medicaid, and has a budget of nearly $30 billion, Oregon’s largest

budget item. H.B. 5024, 81st Leg. Assembly, Reg. Sess. (Or. 2021); MTD at 10. The

purpose of those government programs is “to achieve the goals of universal access to

an adequate level of high quality health care at an affordable cost.” ORS 414.018(1).

As an entity that contracts with OHA to provide health services to Oregonians in

these programs, those contracted providers, like Plaintiff, are subject to a body of

state statutes and regulations that ensure, among other things, that taxpayer funded

healthcare services are adequately and accurately documented. See, e.g., OAR 410-

120-1360(2) (requiring documentation that “supports the specific care, items, or

services for which payment has been requested”). The statute delegating authority

to OHA to audit providers such as Willamette Family explains that the purpose of

auditing is to “discover possible instances of fraud, waste, and abuse in the Medicaid

member program.” OAR 410-120-1396.

Accordingly, the Court finds that enforcing state statutes and regulations

pertaining to the expenditure of public healthcare funds is therefore an important

state interest, because it furthers the legislative purpose of providing low-cost, high-

quality healthcare and discovering waste, fraud, and abuse in Oregon’s largest budget

item. “The goal of Younger abstention is to avoid federal court interference with

uniquely state interests such as preservation of these states' peculiar statutes,

schemes, and procedures.” AmerisourceBergen Corp. v. Roden, 495 F.3d 1143, 1150

(9th Cir. 2007). Here, the “uniquely state interests” in administering its regulatory

schemes and procedures are at the core of this dispute.

Third, the state proceeding must provide an adequate opportunity to raise

federal constitutional challenges. Sprint, 571 U.S. at 70. “[A] federal court should

assume that state procedures will afford an adequate remedy, in the absence of

unambiguous authority to the contrary.” Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 15

(1987). To avoid abstention, Plaintiff must demonstrate that “[s]tate procedural law

bar[s] presentation of [Plaintiff’s] claims.” Id. at 14.

Here, Plaintiff may raise federal constitutional challenges—including those

raised here—at the pending contested case hearings. See Ceaser v. Dep't of Hum.

Servs., 311 Or. App. 702, 712, 493 P.3d 66, 73 (2021) (review of ALJ’s final order

involving petitioner’s federal due process challenge raised in contested case with

Department of Human Services); cf. Llewellyn v. Board of Chiropractic Examiners,

318 Or. 120, 127-28 (1993) (holding that appellant failed to preserve procedural due

process challenge by not raising it with the agency first). In state judicial review

proceedings challenging administrative decisions, Oregon’s appellate courts can also

address challenges to OARs on “void for vagueness” grounds. See Ceaser., 311 Or.

App. at 712 (reviewing petitioner’s claim that agency rule was “vaguely crafted as to

permit arbitrary or unequal application and uncontrolled discretion.”); see also Pulito

v. Oregon State Bd. of Nursing, 366 Or. 612, 624 (2020) (invalidating OAR for lacking

“discernable, predictable” terms on other grounds where petitioner had abandoned

her Fourteenth Amendment argument on review).

Finally, for Younger to apply, the federal court action must enjoin the state

proceeding or have the practical effect of doing so. Gilbertson, 381 F.3d at 978. There

is no dispute that an injunction of the state proceeding is what Plaintiff seeks here.

See FAC at 37 (“prayer for relief”); see generally Pl. Mot. Prelim. Inj. (ECF No. 26).

No party addresses whether any exceptions to the Younger abstention doctrine apply.

Therefore, the Court concludes that it must abstain from deciding this case and that

Plaintiff’s claims must be dismissed.

II. Motion for Preliminary Injunction

As previously noted, granting a preliminary injunction is “an extraordinary

remedy that may only be awarded upon a clear showing that the plaintiff is entitled

to such relief.” Winter, 555 U.S. at 22. Here, Plaintiff cannot demonstrate

satisfaction of the first two elements necessary to succeed on its motion for

preliminary injunction. Specifically, Plaintiff has not demonstrated that it is “likely

to succeed on the merits” or that it is “likely to suffer irreparable harm in the absence

of preliminary relief.” Id. at 20. First, the Court is barred from deciding merits. See

Nationwide Biweekly Admin., Inc. v. Owen, 873 F.3d 716, 731 (9th Cir. 2017) (“If the

cases had been properly dismissed on Younger grounds, there would be no need to

reach the merits of the preliminary injunctions.”). Second, “[s]peculative injury does

not constitute irreparable injury sufficient to warrant granting a preliminary

injunction.” Caribbean Marine Servs. Co. v. Baldrige, 844 F.2d 668, 674 (9th Cir.

1988). Plaintiff alleges that “Defendants threaten $10.4 million in recoupment from

Willamette Family,” and that “[w]ithout disclosure of the underlying audit data or

limited depositions of key individuals, [Plaintiff] cannot have a meaningful

opportunity to respond to the charges against it.” Mot. Prelim. Inj. at 17-18.

Whether it concerns the three final or three incomplete audits, Plaintiff’s due

process claims allege injury that is speculative. For the incomplete audits, they

remain in an investigative stage. Id. ¶¶ 54-56. OHA has yet to execute final audit

reports with respect to those remaining investigations and it is speculative whether

OHA will ever issue audit reports with adverse findings against Plaintiff, whether

Plaintiff will disagree with the findings, or whether Plaintiff will pursue contested

case proceedings. For the complete audits at issue in Plaintiff’s pending contested

case, it is speculative what level of pre-hearing discovery Plaintiff will obtain,

whether OHA or the ALJ will deny Plaintiff’s hypothetical discovery requests, and

whether those hypothetical denials will violate due process as applied to Plaintiff. “A

plaintiff must demonstrate immediate threatened injury as a prerequisite to

preliminary injunctive relief.” Caribbean Marine Servs., 844 F.2d at 674.

Accordingly, Plaintiff’s Motion for Preliminary Injunction must be denied.

III. Attorney Fees

Defendants move for attorney fees. MTD at 26. This Court, under 42 U.S.C. §

1988(b), has discretion to award reasonable attorney’s fees to the prevailing party in

an action under 42 U.S.C. § 1983. Fee awards to defendants in Section 1983 actions

are only awarded in “exceptional circumstances.” Barry v. Fowler, 902 F.2d 770, 773

(9th Cir. 1990); see also Patton v. Cnty. of Kings, 857 F.2d 1379, 1381 (9th Cir. 1988)

(“The mere fact that a defendant prevails does not automatically support an award

of fees.”). Finally, a fee award is appropriate to prevailing defendant only where a

plaintiff’s suit is unreasonable, frivolous, or without foundation. Vernon v. City of Los

Angeles, 27 F.3d 1385, 1402 (9th Cir. 1994) (quotations omitted). The Court finds

that Plaintiff’s suit is neither unreasonable, frivolous, nor without foundation.

Therefore, the Court declines to exercise its discretion to award fees.

CONCLUSION

Plaintiff’s suit raises alarm at an urgent situation in Oregon: a crisis of mental

health and dangerous levels of substance abuse, combined with the dire need for the

services Plaintiff provides to thousands facing those exact devastating challenges.

Because the factors of the Younger framework are met, no exceptions apply, and

Plaintiff’s federal action would enjoin the ongoing state proceedings, the Court finds

abstention is required as a matter of law. To rule on the constitutional issues in these

circumstances would interfere with the state’s interest in the administration of its

regulations and would “put the federal court in the position of making a premature

ruling on a matter of constitutional law.” Gilbertson, 381 F.3d at 984. Thus, even in

this desperate situation, the interests of comity counsel restraint.

For the reasons explained, Defendants’ Motion to Dismiss, ECF No. 19, is

GRANTED. Plaintiff’s Motion for Preliminary Injunction, ECF No. 26 is DENIED.

Defendants’ Motion for Stay of Discovery and Depositions, ECF No. 24, is DENIED

as moot.

IT IS SO ORDERED.

Dated this 30th day of November 2022.

________/s_/_A_n__n_ A__ik__e_n_______

Ann Aiken

United States District Judge