The Arc of California v. Toby Douglas

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

THE ARC OF CALIFORNIA; UNITED No. 13-16544

CEREBRAL PALSY ASSOCIATION OF

SAN DIEGO, D.C. No.

Plaintiffs-Appellants, 2:11-cv-02545-

MCE-CKD

v.

TOBY DOUGLAS, Director of the OPINION

California Department of Health

Care Services; CALIFORNIA

DEPARTMENT OF HEALTH CARE

SERVICES; TERRI DELGADILLO,

Director of the California

Department of Developmental

Services; CALIFORNIA DEPARTMENT

OF DEVELOPMENTAL SERVICES;

DOES, 1-100, inclusive,

Defendants-Appellees.

Appeal from the United States District Court

for the Eastern District of California

Morrison C. England, Jr., Chief District Judge, Presiding

Argued and Submitted

March 13, 2014—San Francisco, California

Filed June 30, 2014

2 THE ARC OF CALIFORNIA V. DOUGLAS

Before: Sidney R. Thomas, Raymond C. Fisher,

and Marsha S. Berzon, Circuit Judges.

Opinion by Judge Berzon

SUMMARY*

Medicaid Act / Preliminary Injunction

The panel dismissed an appeal in part as moot and

reversed in part the district court’s denial of a motion for a

preliminary injunction and its dismissal of Medicaid Act

claims brought by non-profit organizations representing

developmentally disabled persons, their families, and the

organizations that serve them.

The plaintiffs sought preliminary injunctive relief against

the continued enforcement of California statutes reducing the

state’s compensation, partially funded under the Medicaid

Act, of home- and community-based services provided to

developmentally disabled persons. Those statutes included a

“percentage payment reduction,” a “uniform holiday

schedule,” and a “half-day billing rule.” The plaintiffs

claimed, among other things, that California’s

implementation of those statutes was inconsistent with the

Medicaid Act.

The panel held that because the percentage payment

reduction, the primary state statute challenged by the

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

THE ARC OF CALIFORNIA V. DOUGLAS 3

plaintiffs, expired while the case was on appeal, that

challenge was moot. The panel held that as to the other two

statutes, the district court abused its discretion in denying the

plaintiffs’ motion for a preliminary injunction, because it

misconstrued the Medicaid Act and applied deference to a

federal agency decision where none was due. The panel also

asserted pendent appellate jurisdiction over the dismissal of

the plaintiffs’ Medicaid Act claims, and reversed.

The panel held that California’s implementation of the

half-day billing rule and uniform holiday schedule was

inconsistent with the Medicaid Act because the state failed to

study the effect of those reductions, as required by Section

30(A) of the Medicaid Act. The panel held that the district

court erred in construing the Centers for Medicare and

Medicaid Services’ approval of California’s “HCBS” waiver

renewal application, allowing a variety of noninstitutional

care options, as a determination that California’s payment

reductions complied with the Medicaid Act, and in viewing

that approval as an agency decision entitled to judicial

deference.

The panel concluded that clearly erroneous factfinding

marred the district court’s evaluation of the irreparable harms

facing the plaintiffs. The panel concluded that the current

record was inadequate to adjudge whether the impact of the

half-day billing rule and uniform holiday schedule amounted

to irreparable harm. It remanded to allow augmentation of

the record and reconsideration of the propriety of injunctive

relief in the changed circumstances, applying the correct

irreparable harm analysis.

4 THE ARC OF CALIFORNIA V. DOUGLAS

COUNSEL

Chad Carlock (argued), Law Offices of Chad Carlock, Davis,

California, for Plaintiffs-Appellants.

Rebecca M. Armstrong (argued), Deputy Attorney General,

Kamala D. Harris, Attorney General, Julie Weng-Gutierrez,

Senior Assistant Attorney General, Niromi W. Pfeiffer,

Supervising Deputy Attorney General, Grant Lien and Brenda

A. Ray, Deputy Attorneys General, California Department of

Justice, Sacramento, California, for Defendants-Appellees.

OPINION

BERZON, Circuit Judge:

This case concerns California’s generous program of

home- and community-based care for developmentally

disabled residents. To fund its program, California relies in

large part on federal money provided under the Medicaid Act

(“the Act”), 42 U.S.C. §§ 1396–1396w-5. California has

reduced the funding for this program, as it has for other

Medicaid-funded programs at various times, and, as in the

past, affected groups have challenged the reductions. We

therefore are obliged to address once again the scope of the

state’s federal obligations under the Act to compensate for

covered services. See, e.g., Managed Pharmacy Care v.

Sebelius, 716 F.3d 1235 (9th Cir. 2013); Developmental

Servs. Network v. Douglas, 666 F.3d 540 (9th Cir. 2011).

In this instance, beginning in 2009, the California

legislature enacted a series of statutes reducing the state’s

compensation, partially funded under the federal Medicaid

THE ARC OF CALIFORNIA V. DOUGLAS 5

Act, of home- and community-based services provided to

developmentally disabled persons. The plaintiffs in this case,

Arc of California and the United Cerebral Palsy Association

of San Diego (together, “Arc”) — non-profit organizations

representing developmentally disabled persons, their families,

and the organizations that serve them — allege that

California’s implementation of those statutes was inconsistent

with the Medicaid Act; violated the federal Americans with

Disabilities Act (“ADA”), 42 U.S.C. § 12132, and the federal

Rehabilitation Act, 29 U.S.C. § 794(a); and was invalid under

California’s Lanterman Developmental Disabilities Services

Act, Cal. Welf. & Inst. Code §§ 4500–4869. Arc sought

preliminary injunctive relief against the continued

enforcement of California’s recently enacted statutes. The

district court denied that motion and, in a simultaneously

released order, dismissed Arc’s Medicaid Act claims,

reasoning that those claims are meritless and that Arc had not

demonstrated a likelihood of irreparable harm.

We hold that the district court abused its discretion in

denying Arc’s motion for a preliminary injunction, because

it misconstrued the Medicaid Act and applied deference to a

federal agency decision where none was due. We also assert

pendent appellate jurisdiction over the dismissal of Arc’s

Medicaid Act claims, which relied on exactly the same

reasoning, and reverse.

We cannot on this appeal, however, go beyond correcting

the district court’s statutory interpretation to determining the

propriety of preliminary injunctive relief. The primary state

statute Arc challenges expired while the case was on appeal,

so that challenge is moot. While the two other challenged

statutes remain in effect, their impact was not the focus of the

preliminary injunction proceeding. The current record is

6 THE ARC OF CALIFORNIA V. DOUGLAS

therefore inadequate to adjudge whether that impact amounts

to irreparable harm. We therefore remand to allow

augmentation of the record and reconsideration of the

propriety of injunctive relief in the changed circumstances,

applying the correct irreparable harm analysis.

I.

California established under its Lanterman Act, Cal. Welf.

& Inst. Code §§ 4500–4869, a comprehensive statutory

scheme that seeks

“to prevent or minimize the institu-

tionalization of developmentally disabled

persons and their dislocation from family and

community, and to enable them to approx-

imate the pattern of everyday living of non-

disabled persons of the same age and to lead

more independent and productive lives in the

community.”

Sanchez v. Johnson, 416 F.3d 1051, 1064 (9th Cir. 2005)

(quoting Ass’n for Retarded Citizens v. Dep’t of

Developmental Servs., 696 P.2d 150, 154 (Cal. 1985)).

Under the Lanterman Act, developmentally disabled

persons receive services through providers under contract

with a “regional center.” Cal. Code Regs. tit. 17,

§§ 50602(n)–(o), 54010. A regional center is “a diagnostic,

counseling, and service coordination center for

developmentally disabled persons and their families” that

operates as a “private nonprofit community agency or

corporation acting as a contracting agency.” Cal. Code Regs.

tit. 17, § 54302(a)(54). Regional centers receive funding

THE ARC OF CALIFORNIA V. DOUGLAS 7

from the state, among other sources. See Cal. Welf. & Inst.

Code §§ 4620, 4659.

California, in turn, receives some of the funding for its

Lanterman Act programs through the federal Medicaid

program. See Cal. Welf. & Inst. Code § 4659(a)(1). State

participation in Medicaid is not compulsory, but participating

states must comply with the Act and the regulations that

implement it. See, e.g., Managed Pharmacy Care, 716 F.3d

at 1241. The Act conditions receipt of federal funds on

approval of a “state plan,” see, e.g., 42 U.S.C. §§ 1396-1,

1396b(a), which “is a comprehensive written statement

submitted by the [state] agency describing the nature and

scope of its Medicaid program and giving assurance that it

will be administered in conformity” with the Act and its

accompanying regulations, 42 C.F.R. § 430.10. The

Secretary of the Department of Health and Human Services

(“Secretary”) administers the Act, see, e.g., Managed

Pharmacy Care, 716 F.3d at 1241; 42 U.S.C. § 1396a(b), but

has delegated to the regional administrator for the Centers for

Medicare and Medicaid Services (“CMS”) the responsibility

of reviewing in the first instance state plans for compliance

with the provisions of the Act, see 42 C.F.R. § 430.15(b).

The Secretary also requires the submission of state plan

amendments (“SPAs”) for certain changes to a state plan,

which CMS again reviews in the first instance for compliance

with the Act. See 42 C.F.R. § 430.12(c).

The Medicaid Act authorizes the Secretary to waive

certain of the Act’s otherwise-applicable requirements by

granting a so-called home- and community-based services

8 THE ARC OF CALIFORNIA V. DOUGLAS

(“HCBS”) waiver. See 42 U.S.C. § 1396n(c). That waiver

provision originated

[i]n 1981, in response to the fact that a

disproportionate percentage of Medicaid

resources were being used for long-term

institutional care and studies showing that

many persons residing in Medicaid-funded

institutions would be capable of living at

home or in the community if additional

support services were available . . . . The

HCBS program allows a variety of

noninstitutional care options for persons who

would otherwise be eligible for Medicaid

benefits in an institution, but who would

prefer to live at home or in the community.

Sanchez, 416 F.3d at 1054. As with state plans, the Secretary

has delegated to CMS responsibility for reviewing HCBS

waiver requests in the first instance, to determine compliance

with applicable statutes and their regulations. See 42 C.F.R.

§ 430.25(f).

California participates in Medicaid via a state plan that

includes an HCBS waiver. In late June 2011, California

submitted an application to renew its HCBS waiver for the

five-year period between 2011 and 2016. CMS ultimately

approved the application, after extending the previous waiver

renewal, in a two-page letter.

Plaintiffs are two non-profit organizations whose

members are developmentally disabled individuals, their

families, and providers of home- and community-based

services under the Lanterman Act program. They challenge

THE ARC OF CALIFORNIA V. DOUGLAS 9

state officials’ implementation of three new policies relating

to state funding of home- and community-based services to

developmentally disabled persons, adopted in a series of

statutes enacted beginning in 2009.

First, the California legislature directed regional centers

to reduce funding for services provided under the Lanterman

Act by three percent. See 2009 Cal. Stat. 4296, 4306, § 10(a).

That statute, which we will refer to as the “percentage

payment reduction,” was initially set to expire on June 30,

2010. Id. In three subsequent acts, the California legislature

extended the expiration date of, and modified the magnitude

of, the percentage payment reduction, first up to 4.25 percent

and later down to 1.25 percent. See 2010 Cal. Stat. 4718,

4811, § 164; 2011 Cal. Stat. 1640, 1662, § 24; 2012 Cal. Stat.

1056, 1087, § 34. Each iteration of the statute included an

exemption authorizing regional centers to avoid the

percentage payment reduction upon demonstrating that “a

nonreduced payment is necessary to protect the health and

safety of the individual for whom the services and supports

are proposed to be purchased, and the State Department of

Developmental Services has granted prior written approval.”

2009 Cal. Stat. 4296, 4306, § 10(a); 2010 Cal. Stat. 4718,

4811, § 164; 2011 Cal. Stat. 1640, 1662, § 24; 2012 Cal. Stat.

1056, 1087, § 34. The percentage payment reduction expired

on June 30, 2013, while this appeal was pending but before

we took the case under submission, and was not reenacted.

See 2012 Cal. Stat. 1056, 1087, § 34.

Second, the California legislature mandated what the

parties term the “uniform holiday schedule.” 2009 Cal. Stat.

5144, 5173, § 26 (codified at Cal. Welf. & Inst. Code

§ 4692). That provision precludes regional centers from

compensating many services rendered on 14 enumerated days

10 THE ARC OF CALIFORNIA V. DOUGLAS

over the course of each year. See Cal. Welf. & Inst. Code

§ 4692(a)–(b).

Third, the California legislature enacted what the parties

have dubbed the “half-day billing rule.” 2011 Cal. Stat. 1640,

1659–60, § 21 (codified at Cal. Welf. & Inst. Code § 4690.6).

That rule generally requires service providers seeking

reimbursement for providing services at certain types of

facilities for less than 65 percent of an approved program day

to charge the state for a half day of service, rather than a full

day. Cal. Welf. & Inst. Code § 4690.6(b).

State officials deposed in this litigation acknowledged

that the state neither conducted nor relied upon any study to

evaluate the effects of these three policies on home- and

community-based service providers or on the

developmentally disabled persons they serve. Nor does the

record indicate that California ever submitted an SPA to CMS

before implementing any of these new policies.

Arc has submitted numerous declarations from home- and

community-based service providers for the developmentally

disabled, stating that the cumulative effect of the three

payment reductions has compromised their financial viability

and forced them to reduce their services, to the detriment of

their clients. Arc has also submitted declarations from

several family members of developmentally disabled people,

who agree that payment reductions have negatively affected

the quality of the services upon which they and their disabled

family members rely.

The state officials, for their part, dispute these assertions.

They offer evidence that only two of the many declarants

receiving services under the Lanterman Act formally

THE ARC OF CALIFORNIA V. DOUGLAS 11

complained about the quality of their care, and no regional

center sought a health and safety exemption under the

percentage payment reduction statute on behalf of any of the

declarants. They also indicate that the rate of reported

injuries, accidents, and other adverse events for

developmentally disabled persons receiving care under the

Lanterman Act has decreased slightly since California

implemented its new policies.

Arc initiated this lawsuit in late September 2011, alleging

that California’s implementation of its new policies was

inconsistent with the Medicaid Act, violated the federal ADA

and Rehabilitation Acts, and violated the Lanterman Act. It

first sought a preliminary injunction the following month.

The state officials subsequently moved to stay proceedings

pending the Supreme Court’s grant of certiorari in the cases

later remanded under the name Douglas v. Independent

Living Center of Southern California, Inc., 132 S. Ct. 1204

(2012) (“ILC II”).1 The district court granted the stay and

denied the motion for a preliminary injunction without

prejudice. After ILC II issued, Arc moved to lift the stay.

The district court did not rule on that motion, and Arc

renewed it in mid-July. Over a month later, the district court

lifted the stay, and granted leave for limited discovery for the

purposes of supporting a motion for preliminary injunctive

relief.

1

The Supreme Court granted certiorari in the cases consolidated in ILC

II “to decide whether Medicaid providers and recipients may maintain a

cause of action under the Supremacy Clause to enforce a federal Medicaid

law . . . that, in their view, conflicts with (and pre-empts) state Medicaid

statutes that reduce payments to providers.” Id. at 1207. Changed

circumstances, however, prevented the Supreme Court from addressing

the question on which it had granted certiorari. See id.

12 THE ARC OF CALIFORNIA V. DOUGLAS

In late September 2012, the state officials filed a motion

to dismiss. Several months later, Arc filed the operative

motion for a preliminary injunction on the basis of its

Medicaid Act, ADA, and Rehabilitation Act claims.2 The

district court heard oral argument on the motion for a

preliminary injunction and the motion to dismiss in late

January 2013. On July 1, 2013, the district court issued two

orders, one denying Arc’s motion for a preliminary

injunction, the other dismissing Arc’s Medicaid Act claims

but allowing its remaining claims to move forward. This

timely appeal followed.

II.

At the outset, we hold that the expiration of the statute

enacting California’s percentage payment reduction moots

Arc’s challenges to it, although its challenges to the uniform

holiday schedule and half-day billing rule, neither of which

has expired, remain live.

Ordinarily, a claim is moot on appeal if it “‘loses its

character as a live controversy,’” Cal. Ass’n of Rural Health

Clinics v. Douglas, 738 F.3d 1007, 1017 (9th Cir. 2013)

(quoting Doe v. Madison Sch. Dist. No. 321, 117 F.3d 789,

797–98 (9th Cir. 1999)), such that “‘there is no longer a

possibility that an appellant can obtain relief for his claim,’”

Li v. Kerry, 710 F.3d 995, 1001 (9th Cir. 2013) (quoting

Ruvalcaba v. City of L.A., 167 F.3d 14, 521 (9th Cir. 1999)).

Because the percentage payment reduction has expired, there

is nothing left to enjoin. This conclusion is consistent with

2

Arc did not move for preliminary injunctive relief on the basis of its

pendent state law claims under the Lanterman Act. The district court thus

did not address them. Neither do we.

THE ARC OF CALIFORNIA V. DOUGLAS 13

the “general rule [that], if a challenged law is repealed or

expires, the case becomes moot.” Native Vill. of Noatak v.

Blatchford, 38 F.3d 1505, 1510 (9th Cir. 1994).

Arc replies that its challenge to the percentage rate

reductions is not moot, relying on the exception to the

mootness doctrine for cases that

fall[] within a special category of disputes that

are “capable of repetition” while “evading

review.” S. Pac. Terminal Co. v. ICC,

219 U.S. 498, 515 (1911). A dispute falls into

that category, and a case based on that dispute

remains live, if “(1) the challenged action [is]

in its duration too short to be fully litigated

prior to its cessation or expiration, and

(2) there [is] a reasonable expectation that the

same complaining party [will] be subjected to

the same action again.” Weinstein v.

Bradford, 423 U.S. 147, 149 (1975) (per

curiam).

Turner v. Rogers, 131 S. Ct. 2507, 2514–15 (2011) (second,

third, and fourth alteration in original). Because the

percentage payment reduction is not reasonably likely to

recur, we need not decide whether such reductions are

inherently of such short duration that they evade review.

As to repetition, Arc contends that the California

legislature’s previous reenactments of the percentage

payment reduction render reasonable the expectation of its

recurrence. See, e.g., Alcoa, Inc. v. Bonneville Power Admin.,

698 F.3d 774, 787 (9th Cir. 2012); Alaska Cntr. for Env’t v.

U.S. Forest Serv., 189 F.3d 851, 857 (9th Cir. 1999). Here,

14 THE ARC OF CALIFORNIA V. DOUGLAS

however, the predictive power of the legislature’s past

conduct is overshadowed by two other considerations, taken

together.

First, we have hesitated to hold reasonable the expectation

that complex political action motivated by fiscal scarcity will

recur. Foster v. Carson rejected as unreasonable the

expectation that Oregon would reenact a judicial-budget

austerity measure that suspended for four months the

proceedings of certain indigent criminal defendants, as well

as their access to counsel. 347 F.3d 742, 744, 748 (9th Cir.

2003). It reasoned, in part, that

[t]he economic condition of the state is

constantly fluctuating. How the political

branches of the state will choose to fund

indigent defense, how many indigent

defendants will require services, whether a

shortfall will occur, and how the state judicial

system would address such a shortfall are all

unknown. We therefore cannot say that there

is a “reasonable expectation” that . . . [a

similar austerity measure] will be issued again

in the future.

Id. at 748. Foster suggests that where, as here, challenged

conduct requires the confluence of a series of complicated

political and fiscal contingencies, the probability of its

recurrence to some extent decreases.

Second, our resolution of Arc’s remaining challenges also

contributes to our conclusion that this sort of percentage rate

reduction is unlikely to recur. As explained below, we hold

that Arc is likely to succeed on their challenges to

THE ARC OF CALIFORNIA V. DOUGLAS 15

California’s uniform holiday schedule and half-day billing

rule, as California has taken no steps to comply with Section

30(A) with regard to them. Those policies have not expired,

and Arc’s primary procedural challenge to them is nearly

identical to its objections to the now-expired rate reductions.

Given our construction of the law as it relates to those parallel

claims, “[w]e cannot reasonably expect that [California] will

ignore” its legal obligations, which we clarify in this opinion.

Cal. Ass’n, 738 F.3d at 1018.

We turn now to those parallel claims.

III.

“‘A plaintiff seeking a preliminary injunction must

establish that he is likely to succeed on the merits, that he is

likely to suffer irreparable harm in the absence of preliminary

relief, that the balance of equities tips in his favor, and that an

injunction is in the public interest.’” Alliance for the Wild

Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011)

(quoting Winter v. Natural Res. Def. Council, 555 U.S. 7, 20

(2008)). We evaluate these factors via a “sliding scale

approach,” such that “‘serious questions going to the merits’

and a balance of hardships that tips sharply towards the

plaintiff can support issuance of a preliminary injunction, so

long as the plaintiff also shows that there is a likelihood of

irreparable injury and that the injunction is in the public

interest.” Id. at 1131, 1135.

We review for abuse of discretion the district court’s

denial of a preliminary injunction. Id. at 1131. A district

court abuses its discretion when its decision relies “‘on an

erroneous legal standard or clearly erroneous finding of

fact.’” Id. (quoting Lands Council v. McNair, 537 F.3d 981,

16 THE ARC OF CALIFORNIA V. DOUGLAS

986 (9th Cir. 2008) (en banc)). “When the district court bases

its decision on an erroneous legal standard, we review the

underlying issues of law de novo.” Valle Del Sol Inc. v.

Whiting, 709 F.3d 808, 817 (9th Cir. 2013). A factual finding

constitutes clear error if it is “‘illogical, implausible, or

without support in inferences that may be drawn from the

facts in the record.’” M.R. v. Dreyfus, 697 F.3d 706, 725 (9th

Cir. 2011) (quoting United States v. Hinkson, 585 F.3d 1247,

1263 (9th Cir. 2009) (en banc)).

We hold that the district court in this case abused its

discretion when it denied a preliminary injunction. Its

evaluation of Arc’s likelihood of success on the merits relied

on erroneous legal standards. And it premised its analysis of

irreparable harm and balancing of the equities on factual

findings that were either illogical or lacked support in the

record. We thus reverse the district court but, because of the

changed circumstances brought about by the mootness of the

percentage payment reduction challenge, remand the matter

for its reconsideration.

A.

Arc argues that California’s implementation of its half-

day billing rule and uniform holiday schedule was

inconsistent with the Medicaid Act, because the state failed

entirely to study the effects of those reductions, as required

by Section 30(A) of the Medicaid Act.3 The district court

3

The state officials suggest that, even if the state did violate the

Medicaid Act when it enacted the compensation changes to the HCBS

waiver program, the challenge cannot go forward, citing ILC II, 132 S. Ct.

1204. Not so. “[A] private party may bring suit under the Supremacy

Clause to enjoin implementation of state legislation allegedly preempted

THE ARC OF CALIFORNIA V. DOUGLAS 17

rejected that argument, construing CMS’s approval of

California’s 2011–2016 waiver renewal application as a

determination that California’s payment reductions complied

with the Medicaid Act, and viewing that approval as an

agency decision entitled to judicial deference. In doing so,

the district court misconstrued the Medicaid Act and deferred

to an agency determination that did not address, even

implicitly, the questions raised in the district court and here.4

by federal law.” Indep. Living Ctr. of S. Cal., Inc. v. Shewry, 543 F.3d

1050, 1065 (9th Cir. 2008) (“ILC I”). ILC II vacated, on the basis of

changed circumstances, the seven judgments of this court over which the

Supreme Court had exercised jurisdiction, expressly reserving the question

we decided in ILC I. See ILC II, 132 S. Ct. at 1211. ILC I, over which the

Supreme Court had previously denied certiorari, 557 U.S. 920 (2009), was

not among those vacated decisions, see ILC II, 132 S. Ct. at 1209. ILC I

thus remains the law of this Circuit, and we continue to follow it. See

Indep. Training & Apprenticeship Program v. Cal. Dep’t of Indus.

Relations, 730 F.3d 1024, 1031–32 & n.5 (9th Cir. 2013).

4

Arc also argued that California failed to obtain CMS’s approval of the

payment reductions before implementing policies that affected the

payments service providers received under its plan. For over thirty years,

we have repeatedly held that a state must submit such an SPA and obtain

approval before implementing any material change in a plan. See

Developmental Servs., 666 F.3d at 545–46 (collecting cases); see also 42

C.F.R. § 430.12(c)(1)(ii). Consequently, “‘[a state] law that effects a

change in payment methods or standards without [federal] approval is

invalid.’” Developmental Servs., 666 F.3d at 545 (quoting Or. Ass’n of

Homes for the Aging, Inc. v. Oregon, 5 F.3d 1239, 1241 (9th Cir. 1993),

abrogation on other grounds recognized by Developmental Servs.

Network, 666 F.3d at 547). Because we conclude that the district court

abused its discretion in its legal analysis of the Section 30(A) issue, and

because the prior approval claim was not raised affirmatively on appeal,

independently of the Section 30(A) question, we do not reach the prior

approval claim at this juncture.

18 THE ARC OF CALIFORNIA V. DOUGLAS

1. Section 30(A) of the Medicaid Act conditions a state’s

receipt of Medicaid funds on its provision of

such methods and procedures relating to the

utilization of, and the payment for, care and

services available under the [state Medicaid]

plan . . . as may be necessary to safeguard

against unnecessary utilization of such care

and services and to assure that payments are

consistent with efficiency, economy, and

quality of care and are sufficient to enlist

enough providers so that care and services are

available under the plan at least to the extent

that such care and services are available to the

general population in the geographic area.

42 U.S.C. § 1396a(a)(30)(A).

The district court began its legal analysis of Arc’s

likelihood of success on the merits by accepting the state

officials’ position that a state participating in the HCBS

program, via an HCBS waiver, need not comply with Section

30(A) with regard to the HCBS program. That proposition is

incorrect.

The Medicaid Act conditions receipt of federal funds on

a state’s compliance with “a laundry list of requirements that

[a] state plan ‘must’ satisfy, 42 U.S.C. § 1396a(a), and an

extensive body of regulations implements these

requirements.” Alaska Dep’t of Health & Soc. Servs. v. Ctrs.

for Medicare & Medicaid Servs., 424 F.3d 931, 935 (9th Cir.

2005). Congress included Section 30(A) on that laundry list

of requirements. See 42 U.S.C. § 1396a(a)(30)(A).

THE ARC OF CALIFORNIA V. DOUGLAS 19

Alongside Section 30(A) are three other rules pertinent to the

HCBS waiver program:

1. The “statewideness” rule, which requires

a state plan to “provide that it shall be in

effect in all political subdivisions of the

State, and, if administered by them, be

mandatory upon them.” 42 U.S.C.

§ 1396a(a)(1).

2. The “comparability” rule, which prohibits

a state plan from providing certain

specified recipients of medical services

with services that are “less in amount,

duration, or scope than the medical

assistance made available to” other

recipients of services under the plan.

42 U.S.C. § 1396a(a)(10)(B).

3. Various income and resource rules, which

restrict services to the very neediest

members of the community. See

42 U.S.C. § 1396a(a)(10)(C)(i)(III).

Under some circumstances, the Medicaid Act authorizes

the Secretary to waive a state plan’s compliance with certain

of the Act’s otherwise-mandatory statutory requirements. See

42 U.S.C. § 1396n(b)–(e). “Waivers are intended to provide

the flexibility needed to enable States to try new or different

approaches to the efficient and cost-effective delivery of

health care services, or to adapt their programs to the special

needs of particular areas or groups of beneficiaries.”

42 C.F.R. § 430.25(b). This appeal implicates one such

20 THE ARC OF CALIFORNIA V. DOUGLAS

statutory waiver, the HCBS waiver. See 42 U.S.C. § 1396n(c).

The Medicaid Act provision governing HCBS waivers

specifies that

[a] waiver granted under this subsection

[authorizing home- and community-based

services waivers] may include a waiver of

the requirements of section 1396a(a)(1) of

this title (relating to statewideness),

section 1396a(a)(10)(B) of this title

(relating to comparability), and section

1396a(a)(10)(C)(i)(III) of this title (relating to

income and resource rules applicable in the

community).

42 U.S.C. § 1396n(c)(3); see also 42 C.F.R. § 430.25(d)(2)

(listing only these three provisions as those which “may be

waived”). Thus, the Medicaid Act’s authorization of HCBS

waivers permits the Secretary, by granting such a waiver, to

relieve a state from compliance with three — and only three

— of the otherwise-mandatory requirements on which the

Medicaid Act conditions receipt of federal funds.5

The list of waivable requirements in 42 U.S.C.

§ 1396n(c)(3) is exclusive. Nothing in the HCBS waiver

provision provides the Secretary with authority to waive any

other of the Medicaid Act’s requirements when granting an

5

The statute also conditions the grant of an HCBS waiver on, inter alia,

assurance that the state will provide safeguards to protect the health and

welfare of beneficiaries, as well as cost-neutrality and certain financial

oversight measures. See 42 U.S.C. § 1396n(c)(2). The Secretary

implements these requirements via 42 C.F.R. §§ 441.300–441.310.

THE ARC OF CALIFORNIA V. DOUGLAS 21

HCBS waiver. The “‘presumption that when a statute

designates certain persons, things, or manners of operation,

all omissions should be understood as exclusions’” thus

comes into play. Silvers v. Sony Pictures Entm’t, 402 F.3d

881, 885 (9th Cir. 2005) (en banc) (quoting Boudette v.

Barnette, 923 F.2d 754, 756–57 (9th Cir. 1991)). Although

that presumption may be rebutted, see, e.g., Marx v. Gen.

Revenue Corp., 133 S. Ct. 1166, 1175 (2013), two features of

this statute convince us that the presumption is particularly

appropriate here.

First, a comparison with the language of the surrounding

statutory subsections confirms that an HCBS waiver may

relieve a state of compliance with only the three otherwise-

mandatory requirements referenced in 42 U.S.C.

§ 1396n(c)(3). Consider 42 U.S.C. § 1396n(b), which

authorizes waivers designed to promote cost-effectiveness

and efficiency. That subsection provides that

[t]he Secretary, to the extent he finds it to be

cost-effective and efficient and not

inconsistent with the purposes of this

subchapter, may waive such requirements of

section 1396a of this title . . . (other than

sections 1396a(a)(15), 1396a(bb), and

1396a(a)(10)(A) of this title insofar as it

requires provision of the care and services

described in section 1396d(a)(2)(C) of this

title) as may be necessary.

42 U.S.C. § 1396n(b) (emphasis added); see also 42 C.F.R.

§ 431.55(a) (“Section 1915(b) of the Act authorizes the

Secretary to waive most requirements of section 1902 of the

Act to the extent he or she finds proposed improvements or

22 THE ARC OF CALIFORNIA V. DOUGLAS

specified practices in the provision of services under

Medicaid to be cost effective, efficient, and consistent with

the objectives of the Medicaid program.”). Section 1396n(b)

is thus structured exactly inversely to the HCBS waiver

provision; it authorizes the waiver of any otherwise-

applicable requirement, except three. The existence of

42 U.S.C. § 1396n(b) one paragraph above the subsection

authorizing HCBS waivers demonstrates that Congress

carefully structured the statute to allow broad waivers in

some instances and not others. See, e.g., United States v.

Yazzie, 743 F.3d 1278, 1292 (9th Cir. 2014). Far from

authorizing a broad waiver for HCBS services, Congress

instead chose for that purpose a narrowly circumscribed

loosening of the statutory requirements.

Second, the Secretary’s own interpretation of its authority

to grant HCBS waivers further confirms that it is permitted to

waive only the three otherwise-applicable requirements of the

Medicaid Act enumerated in 42 U.S.C. § 1396n(c). The

Secretary’s regulation implementing the HCBS program

specifies that “the following requirements may be waived”

under 42 U.S.C. § 1396n(c): the statewideness rule, the

comparability rule, and certain specified income and resource

rules. 42 C.F.R. § 430.25(d)(2). The regulation does not

indicate the availability under the HCBS waiver program of

broader permission to avoid the Medicaid Act’s requirements.

We defer to an agency’s reasonable interpretation of an

ambiguous statute it is charged with administering. See

Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc.,

467 U.S. 837, 842–44 (1984). The Secretary’s determination

that the statute permits waiver of only three of the Medicaid

Act’s provisions is certainly reasonable, for the reasons we

have explained. Thus, even if we regarded 42 U.S.C.

§ 1369n(c) as ambiguous — which we do not — as to the

THE ARC OF CALIFORNIA V. DOUGLAS 23

otherwise-mandatory provisions of the Medicaid Act it allows

the Secretary to waive, we would still be compelled to defer

to the Secretary’s conclusion that the list of waivable

provisions in 42 U.S.C. § 1369n(c)(3) is exclusive.

Properly understood, then, the HCBS waiver provision

permits the Secretary to waive only three items on the

“laundry list” of requirements a state must fulfill to receive

funds under the Medicaid Act. Section 30(A) is not one of

those waivable requirements. To participate in Medicaid, a

state thus must comply with that provision with regard to the

program allowed by the HCBS waiver, just as it must for its

other Medicaid-covered programs.

The district court premised its contrary conclusion, in

part, on 42 C.F.R. § 441.303(g), which authorizes a state “at

its option . . . [to] provide for an independent assessment of

its waiver that evaluates the quality of care provided, access

to care, and cost-neutrality” when applying for an HCBS

waiver. The district court thought that regulation “for all

intents and purposes incorporates the considerations set forth

in Section 30(A),” but does so as an option rather than a

requirement, and so determined that compliance with Section

30(A) is not required of a state seeking an HCBS waiver.

The district court’s conclusion, however, does not follow

from its premise, for three reasons. First, and most

obviously, a regulation could not make optional a

requirement the statute mandates. Second, although

demonstrating compliance with Section 30(A) is not required

for receipt of an HCBS waiver, that observation does not

vitiate a state’s independent obligation to satisfy Section

30(A) as to the services covered by an HCBS waiver if the

waiver is obtained, as part of its overall state plan obligation.

24 THE ARC OF CALIFORNIA V. DOUGLAS

Third, the regulation allows for an “independent assessment,”

42 C.F.R. § 441.303(g) (emphasis added), but does not negate

the need for some assessment, whether by the state agency

itself or an independent analyst.

In short, 42 C.F.R. § 441.303(g) does not detract from our

conclusion that the HCBS waiver provision retains the

Section 30(A) requirement for programs permitted by the

waiver.

2. Given our understanding of the role of Section 30(A)

for states with HCBS programs, Arc has a substantial

likelihood of demonstrating that the state officials’

implementation of California’s uniform holiday schedule and

half-day billing rule was inconsistent with Section 30(A). By

adopting those policies without studying at all their likely

effects on the efficiency, economy, quality of care, and access

to care California offered the developmentally disabled, the

state officials probably disregarded Section 30(A)’s express

mandate.

Two precedents, read together, control our interpretation

of Section 30(A) — Orthopaedic Hospital v. Belshe, 103 F.3d

1491 (9th Cir. 1997), and Managed Pharmacy Care, 716 F.3d

1235.

Orthopaedic Hospital considered the meaning of Section

30(A) before the Secretary had interpreted it. See 103 F.3d

at 1495–96. Faced with CMS’s silence, we held that a state

could not comply with Section 30(A) without “responsible

cost studies, its own or others’, that provide reliable data as

a basis for its rate setting,” reasoning that a state “cannot

know that it is setting rates that are consistent with efficiency,

THE ARC OF CALIFORNIA V. DOUGLAS 25

economy, quality of care and access without considering the

costs of providing such services.” Id. at 1496.

Managed Pharmacy Care, in turn, evaluated Section

30(A) in light of CMS’s later, formal approval of two SPAs,

communicated in letters expressly stating that the SPAs in

those instances were consistent with Section 30(A). 716 F.3d

at 1243, 1245. In support of those SPAs, the state had

submitted to CMS “access studies” that “reviewed data

focused primarily on enrollee needs, provider availability,

and utilization of services.” Id. at 1242. It also submitted

studies of provider costs for some, but not all, of the services

affected by the SPAs, as well as a detailed “monitoring plan”

designed “to ensure the SPAs do not negatively affect

beneficiary access.” Id. CMS’s approval indicated that, in

the agency’s opinion, a state’s completion of such access

studies, a monitoring plan, and some cost studies was

sufficient to comply with Section 30(A). Id. at 1245. We

deferred to that interpretation as a reasonable reading of

Section 30(A)’s ambiguous mandate, noting that enforcement

of Section 30(A) through approval or disapproval of state

plans and their implementation is committed to the Secretary

(and delegated, in large part, to CMS). Id. at 1250.

Managed Pharmacy Care emphasized that Section 30(A)

“does not prescribe any particular methodology a State must

follow before its proposed rates may be approved.” Id. at

1245 (emphasis added). It did not thereby relieve states from

doing something to comply with Section 30(A), which

expressly requires “methods and procedures” to fulfill its

mandate. 42 U.S.C. § 1396a(a)(30)(A). Instead, Managed

Pharmacy Care approved the affirmative measures

enumerated by the state in that case as sufficient to meet the

Section 30(A) requirements.

26 THE ARC OF CALIFORNIA V. DOUGLAS

Here, the state officials do not dispute that California did

nothing whatever to study the likely effects of its uniform

holiday schedule or half-day billing rule on the “efficiency,

economy, and quality of care” or the availability of service

providers, before enacting and implementing those rules. The

reasonable interpretation to which we deferred in Managed

Pharmacy Care does not condone such complete abdication.

The district court nonetheless relied on Managed

Pharmacy Care, reasoning that CMS’s approval of

California’s HCBS waiver renewal application indicates that

CMS believed California’s payment reductions consistent

with Section 30(A). Unlike in Managed Pharmacy Care,

however, CMS’s approval of California’s waiver renewal

application did not expressly conclude that the state’s new

policies comply with Section 30(A). Nor will we infer such

a conclusion, for two independently sufficient reasons.

First, California’s HCBS waiver renewal application did

not disclose its recently implemented uniform holiday

schedule or its new half-day billing rule. In approving that

application, CMS could have reviewed, even inferentially,

only matters presented in it. Because California’s HCBS

waiver renewal application discussed neither the uniform

holiday schedule nor the half-day billing rule, we have no

reason to believe that CMS was aware of those policies, let

alone that it impliedly approved them.6

6

The state officials informed CMS of the state’s now-expired percentage

rate reductions, both in a meeting and, subsequently, in a written response

to CMS’s written inquiry. They have not demonstrated, however, that

they ever informed CMS of the uniform holiday schedule or the half-day

billing rule.

THE ARC OF CALIFORNIA V. DOUGLAS 27

The district court emphasized that California’s waiver

renewal application included over 200 pages worth of

material, some of which included data on the cost of the

programs operated under the waiver and the rates at which

those programs’ services were utilized. The Secretary

requires such information as part of the waiver approval

process, see 42 C.F.R. §§ 441.302(h), 441.303(f), so that

CMS can evaluate a state’s compliance with the statutory

requirements for an HCBS waiver. The statute requires, for

example, per capita expenditures equal to what they would

have been without a waiver and annual reporting on the type

and amount of services provided. See 42 U.S.C.

§ 1396n(c)(2)(D)–(E). That information is not directly

relevant to the considerations enumerated in Section 30(A),

which, among other things, requires comparing service

recipients’ access to care to that of the general population.

Second, the state’s failure to provide information on the

uniform holiday schedule and half-day billing rule reflects the

scope and purpose of the HCBS waiver application process.

As discussed, see supra Part III.A.1, approval of an HCBS

waiver does not affect the requirement that the state plan,

overall, comply with all provisions of the Medicaid Act,

including Section 30(A), that the Secretary has not waived.

Pursuant to 42 C.F.R. § 430.25(g)(1), CMS “approves waiver

requests [under 42 U.S.C. § 1396n(b)–(c)] if the State’s

proposed program or activity meets the requirements of the

Act and the regulations at § 431.55 or subpart G of part 441

of this chapter[, 42 C.F.R. §§ 441.300–441.310].” Section

430.25 deals only with the waivers incorporated into state

plans, not the state plans themselves. The approval of state

plans is the subject of separate regulatory provisions. See,

e.g., 42 C.F.R. §§ 430.10–430.18. In particular, 42 C.F.R.

§ 430.25(g)(1) lists § 431.55 and 42 C.F.R.

28 THE ARC OF CALIFORNIA V. DOUGLAS

§§ 441.300–441.310 as the relevant regulations considered

for purposes of waiver approval; both of those regulations

interpret only the statutory requirements for a waiver under

42 U.S.C. § 1396n(b)–(c), respectively. Thus, 42 C.F.R.

§ 430.25(g)(1) requires consideration for purposes of waiver

approval of the waiver requirements of the Act and the

implementing regulations, not of the separate, more generally

applicable state plan requirements.7

In relying on Managed Pharmacy Care, then, the district

court applied the wrong legal standard to the case before it.

Managed Pharmacy Care neither condones the sort of

complete inaction California has demonstrated here nor

compels our deference to CMS’s approval of the HCBS

waiver application.8 We conclude that California’s total

7

We note that the mention of “the Act” in 42 C.F.R. § 430.25(g)(1)

necessarily refers to the Act’s waiver provisions. Section 430.25 in its

entirety implements the waiver provisions of the Act only. In accord with

that limitation, the regulations listed right after “the Act” in subsection

(g)(1) deal only with waivers, not with state plans generally, although the

regulations governing state plans generally are extensive. Application of

the interpretive maxim that “a word is known by the company it keeps,”

Gustafson v. Alloyd Co., 513 U.S. 561, 575 (1995), counsels the

understanding that 42 C.F.R. § 430.25(g)(1), like the larger section of

which it is a part, is limited to assuring compliance with the statutory and

regulatory waiver requirements, and that its reference to “the Act” is to the

Act’s waiver provisions.

8

The district court asserted that Arc’s ADA and Rehabilitation Act

claims were premised on California’s alleged non-compliance with

Section 30(A). The district court therefore concluded that the ADA and

Rehabilitation Act claims fell alongside the Section 30(A) claim, all being

equally unlikely to succeed on the merits. Because we hold the district

court’s conclusion as to the Section 30(A) claim an abuse of discretion, its

evaluation of the ADA and Rehabilitation Act claims — which relied on

that conclusion — was equally erroneous.

THE ARC OF CALIFORNIA V. DOUGLAS 29

abdication of its obligations under Section 30(A) indicates

that Arc is likely to prevail on the merits of its challenges

under the Medicaid Act to the uniform holiday schedule and

half-day billing rule. The district court abused its discretion

in determining otherwise, and so in assessing Arc’s likelihood

of success on the merits.

B.

“[P]laintiffs seeking preliminary relief [must] demonstrate

that irreparable injury is likely in the absence of an

injunction,” not merely that it is possible. Winter, 555 U.S.

at 22. The district court determined that no such injury was

likely here. After reviewing the record carefully, we

conclude that each of the factual bases on which the district

court premised its decision was either clearly erroneous or

legally irrelevant.

1. The district court first invoked Oakland Tribune, Inc.

v. Chronicle Publishing Co., which held that a plaintiff’s

“long delay before seeking a preliminary injunction implies

a lack of urgency and irreparable harm.” 762 F.2d 1374,

1377 (9th Cir. 1985). Because “the payment reductions at

issue were in place more than two years before suit was filed

on behalf of Plaintiffs in 2011,” the district court reasoned,

Arc’s delay “weighs against irreparable harm.”

The district court also appears to have misconstrued the scope of

Arc’s ADA and Rehabilitation Act claims. Arc premised those claims not

just on California’s alleged non-compliance with Section 30(A), but also

on the allegation that California’s policies increased the risk of

institutionalization to the disabled, and thus constituted discrimination.

See M.R., 697 F.3d at 734–35. On remand, the district court should

consider that argument to the extent, if any, pertinent to determining the

propriety of preliminary relief.

30 THE ARC OF CALIFORNIA V. DOUGLAS

The record, however, does not support the finding that

two years passed between the enactment of the relevant

statutes and the filing of this lawsuit. True, the California

legislature enacted the first percentage payment reduction

measure, which decreased payments by three percent, over

two years before Arc brought suit. But Arc also challenges

the extension and expansion of that measure in two

subsequent statutes passed one year and three months,

respectively, before this lawsuit was filed. In any case, the

expiration of that percentage payment reduction measure

during the pendency of this appeal renders it moot. See supra

Part II.

Significantly for present purposes, one of the two

provisions as to which Arc’s challenge is not moot, the half-

day billing rule, was passed only months before the initiation

of this lawsuit. Although the uniform holiday schedule had

been in effect for nearly two years, the injury Arc alleges here

is inherently cumulative, turning on the aggregate effect over

time of the several payment reductions. It is the

implementation of all the challenged statutes, not the first,

that is relevant for irreparable harm purposes. The district

court’s finding that the constellation of payment reductions

challenged here was in effect for over two years is thus

contradicted by the record, making it clearly erroneous.

For the district court’s benefit on remand, we add that it

is unlikely that Arc’s putative delay is especially probative

here. Usually, delay is but a single factor to consider in

evaluating irreparable injury; courts are “loath to withhold

relief solely on that ground.” Lydo Enters., Inc. v. City of Las

Vegas, 745 F.2d 1211, 1214 (9th Cir. 1984). Although a

plaintiff’s failure to seek judicial protection can imply “‘the

lack of need for speedy action,’” id. at 1213 (quoting Gillette

THE ARC OF CALIFORNIA V. DOUGLAS 31

Co. v. Ed Pinaud, Inc., 178 F. Supp. 618, 622 (S.D.N.Y.

1959)), such tardiness is not particularly probative in the

context of ongoing, worsening injuries. Here, for example,

the alleged injuries resulted from various cuts in

compensation, enacted over a period of time and having a

cumulative impact. In such circumstances, the magnitude of

the potential harm becomes apparent gradually, undermining

any inference that the plaintiff was “‘sleeping on its rights.’”

Id. (quoting Gillette Co., 178 F. Supp. at 622). In particular,

we note that the harm alleged here related in part to the

continued economic viability of service providers in the face

of cuts in compensation. So the actual impact of the various

reductions in compensation might well become irreparable

only over time. Under such circumstances, waiting to file for

preliminary relief until a credible case for irreparable harm

can be made is prudent rather than dilatory. The significance

of such a prudent delay in determining irreparable harm may

become so small as to disappear.

2. The district court next emphasized Arc’s inability to

demonstrate that any regional center had sought a statutory

exemption from the percentage payment reduction as

“necessary to protect the health and safety of” service

recipients. Because Arc’s motion to enjoin that percentage

payment reduction has been mooted by its expiration, see

supra Part II, the district court’s observation is no longer

directly relevant. As the district court itself recognized, the

statutes enacting the uniform holiday schedule and half-day

billing rule authorize no parallel exemptions.

Moreover, we doubt there is a logical connection between

the regional centers’ ability to seek exemptions and

irreparable harm done to service providers. The record

suggests that at least one regional center refused to submit an

32 THE ARC OF CALIFORNIA V. DOUGLAS

exemption request on behalf of a beleaguered service

provider.

In sum, as applied to the two surviving statutes, there is

no significance to the absence of applications for statutory

exemptions from the now-expired statute.

3. Last, the district court emphasized the paucity of

evidence indicating that developmentally disabled persons

have already suffered from the payment reductions. Whether

that is so is not legally relevant. That the service providers

have managed to continue to provide care notwithstanding the

reductions does not detract from the harm the providers face

with regard to their continued viability.

Arc has brought this suit on behalf of — and moved for

preliminary injunctive relief to prevent irreparable harm to —

their members, including both the providers and the recipients

of services. Whether service recipients have already suffered

from reductions of services does not bear on whether these

payment reductions currently threaten the continued viability

of those who serve them, and so irreparably, if not

immediately, threaten the future availability of services for

the service recipients. So, to the extent the district court

extrapolated from the lack of evidence of past harm to service

recipients a lack of evidence of harm to the ability of service

providers to continue to provide care, the extrapolation was

illogical and thus an abuse of discretion.

We conclude that clearly erroneous factfinding marred the

district court’s evaluation of the irreparable harms facing Arc.

THE ARC OF CALIFORNIA V. DOUGLAS 33

C.

When ruling on a preliminary injunction, “a court must

balance the competing claims of injury and must consider the

effect on each party of the granting or withholding of the

requested relief.” Amoco Prod. Co. v. Vill. of Gambell,

480 U.S. 531, 542 (1987). And it must “weigh in its analysis

the public interest implicated by [an] injunction.” Stomans,

Inc. v. Selecky, 586 F.3d 1109, 1138 (9th Cir. 2009). When

balancing the equities and the public interest here, the district

court relied on its evaluation of the merits and the harms

facing Arc’s members. As noted, its evaluation of both

constituted an abuse of discretion. See supra Part III.A–B.

Those errors thus infect the district court’s balancing of the

equities and its weighing of the public interest, into which

they were incorporated.

D.

In conclusion, we hold that Arc has a substantial

likelihood of success on the merits of its Medicaid Act

claims, and we hold that the district court abused its

discretion in certain respects in evaluating the harm suffered

by Arc’s members. We do not, however, direct the issuance

of a preliminary injunction.

The current record is insufficient to permit our

independent evaluation of the harms threatening Arc’s

members, the balance of the equities, or the public interest

implicated by an injunction. That record was assembled

before the expiration of the percentage payment reductions.

Although the evidence it contains describes some of the

consequences of the uniform holiday schedule and half-day

billing rule, it much more often refers to the aggregate effect

34 THE ARC OF CALIFORNIA V. DOUGLAS

of those policies and the now-expired percentage payment

reductions. Given that those reductions became moot on

appeal, the record must be developed anew to permit proper

evaluation of the motion for preliminary injunctive relief.

Where the propriety of an injunction “raise[s] intensely

factual issues,” the matter “should be decided in the first

instance by the district court.” Alaska Wilderness Recreation

& Tourism Ass’n v. Morrison, 67 F.3d 723, 732 (9th Cir.

1995) (internal quotation marks omitted). The threat of

irreparable harm to Arc, the balancing of the equities, and the

public interest implicated by an injunction present precisely

such intensely factual questions. “Because the grant of a

preliminary injunction is a matter committed to the discretion

of the trial judge, we remand this case to the district court for

consideration of the remaining Winter factors in the first

instance.” Evans v. Shoshone-Bannock Land Use Policy

Comm’n, 736 F.3d 1298, 1307 (9th Cir. 2013) (internal

quotation marks, citation, and brackets omitted); accord

Diouf v. Mukasey, 542 F.3d 1222, 1235 (9th Cir. 2008).

IV.

In addition to its preliminary injunction appeal, Arc

challenges the order dismissing its Medicaid Act claims

under Federal Rule of Civil Procedure 12(b)(6).

Standing on its own, the district court order dismissing the

Medicaid Act claims would lie beyond our jurisdiction. It

was not a final decision under 28 U.S.C. § 1291. The district

court did not dismiss Arc’s claims under the ADA,

Rehabilitation Act, and Lanterman Act and thus “did not

dispose of the action as to all claims between the parties.”

Prellwitz v. Sisto, 657 F.3d 1035, 1038 (9th Cir. 2011). Nor

THE ARC OF CALIFORNIA V. DOUGLAS 35

does that order fall within any of the categories of

interlocutory orders the appeal of which we may consider

under 28 U.S.C. § 1292. And it is not included in that

“‘narrow class of [district court] decisions that do not

terminate the litigation, but are sufficiently important and

collateral to the merits that they should nonetheless be treated

as final’” under the collateral order doctrine. Nunag-Tanedo

v. E. Baton Rouge Parish Sch. Bd., 711 F.3d 1136, 1138 (9th

Cir. 2013) (quoting Will v. Hallock, 546 U.S. 345, 347

(2006)).

The dismissal order, however, does not appear before us

on its own. It arises in connection with the district court’s

denial of Arc’s motion for preliminary injunctive relief, an

interlocutory order over which we do have jurisdiction. See

28 U.S.C. § 1292(a)(1). Under such circumstances, “we may

also exercise pendent appellate jurisdiction over any

‘otherwise non-appealable ruling [that] is inextricably

intertwined with or necessary to ensure meaningful review of

the order properly before us on interlocutory appeal.’”

Melendres v. Arpaio, 695 F.3d 990, 996 (9th Cir. 2012)

(some internal quotation marks omitted) (quoting Meredith v.

Oregon, 321 F.3d 807, 813 (9th Cir. 2003), as amended, 326

F.3d 1030 (9th Cir. 2003)). We “exercise restraint” in

invoking our pendent appellate jurisdiction, Meredith,

321 F.3d at 812, “setting a ‘very high bar’ for [its] exercise,”

Burlington N. & Santa Fe Ry. Co. v. Vaughn, 509 F.3d 1085,

1093 (9th Cir. 2007) (quoting Poulos v. Ceasars World, Inc.,

379 F.3d 654, 669 (9th Cir. 2004)). This case clears that bar,

because the district court’s order denying preliminary

injunctive relief is “inextricably intertwined” with its order

dismissing Arc’s Medicaid Act claims.

36 THE ARC OF CALIFORNIA V. DOUGLAS

“‘[D]istrict court rulings are inextricably intertwined with

a preliminary injunction when the legal theories on which the

issues advance [are] . . . so intertwined that we must decide

the pendent issue in order to review the claims properly raised

on interlocutory appeal, or . . . resolution of the issue properly

raised on interlocutory appeal necessarily resolves the

pendent issue.’” Melendres, 695 F.3d at 996 (second

alteration in original) (some internal quotation marks omitted)

(quoting Hendricks v. Bank of Am., N.A., 408 F.3d 1127,

1134 (9th Cir. 2005)). For this latter reason, a pendent order

that concerns the same legal issue and relies on the selfsame

reasoning as the order over which this Court exercises

primary appellate jurisdiction usually qualifies as

“inextricably intertwined.”9

Conversely, two issues are not inextricably intertwined

where their resolution requires “application of separate and

distinct legal standards.” Meredith, 321 F.3d at 815.

Standards are “separate and distinct” where they “‘turn on

wholly different factors.’” Burlington N. & Santa Fe Ry.,

509 F.3d at 1093 (quoting Poulos, 379 F.3d at 670). Where

two legal standards overlap in part, we may exercise pendent

jurisdiction where we resolve the primary appeal on the basis

of that overlapping component of the analysis, in a manner

9

Streit v. County of Los Angeles, for example, exercised pendent

jurisdiction over orders that “raise[d] the same issues, use[d] the same

legal reasoning, and reach[ed] the same conclusions as the earlier orders

over which” we had original jurisdiction. 236 F.3d 552, 559 (9th Cir.

2001). Similarly, Wong v. United States exercised pendent jurisdiction

over the district court’s denial of a motion to dismiss for failure to state a

claim because that issue, like the qualified-immunity appeal over which

we had primary jurisdiction, turned on “whether the facts as alleged state

a claim for violation of constitutional or statutory rights.” 373 F.3d 952,

961–62 (9th Cir. 2004).

THE ARC OF CALIFORNIA V. DOUGLAS 37

that resolves “‘all of the remaining issues presented by the

pendent appeal.’” Huskey v. City of San Jose, 204 F.3d 893,

905 (9th Cir. 2000) (quoting Moore v. City of Wynnewood,

57 F.3d 924, 930 (10th Cir. 1995)); see also Perfect 10, Inc.

v. Google, Inc., 653 F.3d 976, 982 n.3 (9th Cir. 2011)

(declining to exercise pendent appellate jurisdiction where we

resolved the primary appeal on a ground that did not overlap

with the pendent appeal); Wong, 373 F.3d at 962 (same).

Although the standards for a motion for preliminary

injunctive relief and dismissal under Rule 12(b)(6) are not

conterminous, they overlap where a court determines that the

plaintiff has no chance of success on the merits. “‘The

irreducible minimum [for a preliminary injunction] . . . is that

the moving party demonstrate a fair chance of success on the

merits or questions serious enough to require litigation. No

chance of success at all will not suffice.’” E. & J. Gallo

Winery v. Andina Licores S.A., 446 F.3d 984, 990 (9th Cir.

2006) (quoting Sports Form, Inc. v. United Press Int’l, Inc.,

686 F.2d 750, 753 (9th Cir. 1982)). So, too, for a motion to

dismiss: If there is “no chance of success” on the merits, E. &

J. Gallo, 446 F.3d at 990, then the complaint does not “state

a claim to relief that is plausible on its face,” Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 570 (2007)), and must be dismissed.

Here, the district court refused to grant a preliminary

injunction on Arc’s Medicaid Act claims for the selfsame

reason it dismissed those claims. Both orders, which issued

the same day, reasoned that CMS’s approval of California’s

HCBS waiver application demonstrated the state’s

compliance with the Medicaid Act, such that Arc had no

38 THE ARC OF CALIFORNIA V. DOUGLAS

chance of succeeding on the merits. Indeed, several pages of

both orders employed identical language.10

We have held that the district court abused its discretion

in determining that Arc had no chance of success on the

merits. See supra Part III.A. To reach that holding, we

necessarily reviewed the same legal considerations as

underlay dismissal of those claims. We therefore reverse the

dismissal of Arc’s Medicaid Act claims related to the uniform

holiday schedule and half-day billing rule.

V.

In conclusion, we DISMISS as moot Arc’s challenges to

the percentage payment reductions, REVERSE the district

court’s denial of preliminary injunctive relief as an abuse of

discretion, REMAND the matter for its reconsideration in the

first instance, and REVERSE the dismissal of Arc’s Medicaid

Act challenges to the uniform holiday schedule and half-day

billing rule.

DISMISSED IN PART, REVERSED IN PART, and

REMANDED.

Each party shall bear its own costs on appeal.

10

A Second Circuit case may offer the closest analogy to the

circumstances presented here. Lamar Advertising of Penn, LLC v. Town

of Orchard Park, New York exercised pendent jurisdiction over an order

denying summary judgment “[b]ecause the district court . . . denied [the

plaintiff’s] request for a preliminary injunction for the very same reasons

it denied [the plaintiff’s] motion for summary judgment,” such that the

two orders were inextricably intertwined. 356 F.3d 365, 372 (2d Cir.

2004).