California Pharmacists Assoc. v. David Maxwell -Jolly

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

CALIFORNIA PHARMACISTS 

ASSOCIATION; CALIFORNIA MEDICAL

ASSOCIATION; CALIFORNIA DENTAL

ASSOCIATION; CALIFORNIA

ASSOCIATION FOR ADULT DAY

SERVICES; MARIN APOTHECARY, INC.

DBA Ross Valley Pharmacy;

SOUTH SACRAMENTO PHARMACY;

FARMACIA REMEDIES, INC.; ACACIA

ADULT DAY SERVICES; FEY GARCIA; No. 09-55365

CHARLES GALLAGHER, D.C. No.

Plaintiffs, 2:09-cv-722-CAS-

and

 MAN

Central District of

CALIFORNIA HOSPITAL ASSOCIATION;

California,

SHARP MEMORIAL HOSPITAL;

Los Angeles

GROSSMONT HOSPITAL CORPORATION;

SHARP CHULA VISTA MEDICAL ORDER

CENTER; SHARP CORONADO

HOSPITAL AND HEALTHCARE CENTER,

Plaintiffs-Appellants,

v.

DAVID MAXWELL-JOLLY, Director of

the Department of Health Care

Services, State of California,

Defendant-Appellee.



Filed April 6, 2009

4215

4216 CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY

Before: Stephen Reinhardt, Marsha S. Berzon, and

Milan D. Smith, Jr., Circuit Judges.

ORDER

Plaintiffs-Appellants, the California Pharmacists Associa-

tion, et al., filed this suit to challenge the Medi-Cal reimburse-

ment rate reductions to various providers as set forth in AB

1183. A group of the plaintiffs, the Hospital Plaintiffs, which

comprises the California Hospital Association and some indi-

vidual hospitals, filed a motion in the district court for a pre-

liminary injunction to enjoin the defendant from reducing

Medi-Cal fee-for-service rates to hospitals,1 arguing that AB

1183 was enacted in violation of § 1396a(a)(30)(A) of Title

XIX of the Social Security Act, 42 U.S.C. § 1396 et seq.

(§ (a)(30)(A)). The district court denied the preliminary

injunction. The Hospital Plaintiffs filed an Emergency Motion

Pursuant to Circuit Rule 27-3 for Preliminary Injunction

Pending Appeal.

We review the denial of a preliminary injunction for abuse

of discretion. Earth Island Inst. v. U.S. Forest Serv., 442 F.3d

1147, 1156 (9th Cir. 2006). A district court abuses its discre-

tion in denying a request for a preliminary injunction if it

“base[s] its decision on an erroneous legal standard or clearly

erroneous findings of fact.” Id. (citation omitted). It also does

so if in reaching its decision it makes a material error of law.

We review conclusions of law de novo and findings of fact

for clear error. Id.

Plaintiffs seeking a preliminary injunction in a case in

which the public interest is involved must establish that they

1

Specifically, the Hospital Plaintiffs sought to enjoin the rate reductions

as to four types of services: (1) inpatient services for non-contract hospi-

tals, (2) outpatient services, (3) Distinct Part Nursing Facilities, and (4)

subacute services.

CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY 4217

are likely to succeed on the merits, that they are likely to suf-

fer irreparable harm in the absence of preliminary relief, that

the balance of equities tips in their favor, and that an injunc-

tion is in the public interest. Winter v. Natural Res. Def.

Council, Inc., 129 S. Ct. 365, 376 (2008). When deciding

whether to issue a stay, including a stay of a state action that

the district court has declined to enjoin, we consider: (1)

whether the stay applicant has made a strong showing that he

is likely to succeed on the merits; (2) whether the applicant

will be irreparably injured absent a stay; (3) whether issuance

of the stay will substantially injure the other parties interested

in the proceeding; and (4) where the public interest lies. See

Humane Soc’y of U.S. v. Gutierrez, 527 F.3d 788, 789-90 (9th

Cir. 2008).

In this case, the district court found that the Hospital Plain-

tiffs were likely to succeed on the merits, but that they failed

to demonstrate irreparable harm. We address these issues in

turn, and, in view of the time-urgency and the irreparability

of the harm, also consider the other Winter factors which nec-

essarily follow.

I. Likelihood of Success on the Merits

In Orthopaedic Hospital v. Belshe, 103 F.3d 1491 (9th Cir.

1997), we held that 42 U.S.C. § 1396a(a)(30)(A) requires the

state to consider efficiency, economy, quality of care, and

access before setting Medi-Cal reimbursement rates. Id. at

1496. The district court concluded that the Hospital Plaintiffs

have shown a likelihood of success on the merits under

Orthopaedic because the Legislature did not consider any

such factors before passing the rate cuts in AB 1183. The

court ruled that although the Department of Health Care Ser-

vices (the Department) had performed some studies after AB

1183’s passage, those post-hoc studies failed to meet the

requirements of Orthopaedic, 103 F.3d at 1496. It noted that

AB 1183 gives the Department no discretion to alter the rate

cuts based on the Department’s own analysis, and, therefore,

4218 CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY

the cuts were not “based on” the Department’s consideration

of the relevant factors, but instead constituted a post-hoc

rationalization for a legislative decision that had already been

made. Cal. Pharmacists Ass’n v. Jolly, No. 09-722, slip op. at

9-11 (C.D. Cal. Mar. 9, 2009). Moreover, the district court

determined that, although the state Legislative Analyst Office

issued a report analyzing the proposed cuts, there was no evi-

dence the legislature actually considered the report before

enacting AB 1183. Id. at 10 n.8.

We conclude that the district court did not abuse its discre-

tion in concluding that the Hospital Plaintiffs demonstrated a

likelihood of success on the merits. Indeed, the Hospital

Plaintiffs made a strong showing of such likelihood.

II. Irreparable Harm

The Hospital Plaintiffs must also show a likelihood of

irreparable harm. See Winter, 129 S.Ct. at 375.

A. Harm

We first address the type of harm we may consider in the

irreparable harm analysis. The Department argues that only

harm to Medi-Cal beneficiaries is relevant to this motion,

while the Hospital Plaintiffs assert that harm to Medi-Cal ser-

vice providers is also relevant, and that they need show only

the latter type of harm, in this case harm to themselves or

their members, in order to obtain injunctive relief. The Hospi-

tal Plaintiffs further claim that they or their members will lose

considerable revenue between the effective date of AB 1183

and the date their claims can be reviewed on the merits if

injunctive relief is denied.

We agree with the Hospital Plaintiffs. In Independent Liv-

ing Center v. Shewry (ILC), we held that “a plaintiff seeking

injunctive relief under the Supremacy Clause on the basis of

federal preemption need not assert a federally created ‘right,’

CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY 4219

in the sense that term has recently been used in suits brought

under § 1983, but need only satisfy traditional standing

requirements.” 543 F.3d 1050, 1058 (9th Cir. 2008). We

rejected the contention that federal statutes enacted pursuant

to Congress’s spending power, such as the one here at issue,

are excluded from this principle, id. at 1059-62, and con-

cluded that the health care providers in that case (which at

that point did not include hospitals) had standing because:

[A]ccording to their complaint, [they] will be “di-

rectly injured, by loss of gross income,” when the

ten-percent rate reduction takes effect. The Supreme

Court “repeatedly has recognized that such [direct

economic] injuries establish the threshold require-

ments” of Article III standing. . . . Moreover, this

injury is directly traceable to the Director’s imple-

mentation of AB 5 [the statute at issue in that case],

and would certainly be redressed by a favorable

decision of this court enjoining the ten-percent rate

reduction.

Id. at 1065. Notably, ILC did not indicate that the service pro-

viders had standing to assert the interests of the beneficiary

plaintiffs as third parties, as, for example, the medical service

providers do in cases concerning the constitutional rights of

patients. See, e.g., Eisenstadt v. Baird, 405 U.S. 438 (1972).

A cause of action based on the Supremacy Clause obviates the

need for reliance on third-party rights because the cause of

action is one to enforce the proper constitutional structural

relationship between the state and federal governments and

therefore is not rights-based. In contrast, a case brought to

enforce the Due Process or Equal Protection Clauses is rights

based, and requires that the rights of someone be advanced,

even if not the rights of the plaintiffs who have been injured.

Consistent with this understanding, in the various prece-

dents cited throughout the ILC opinion in which plaintiffs

brought cases directly under the Supremacy Clause, the inter-

4220 CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY

ests asserted were basically economic, and there was no

inquiry into whether the plaintiffs asserting the economic

injury were in any sense intended beneficiaries of the federal

statute on which the Supremacy Clause cause of action was

premised. For example, in Bud Antle, Inc. v. Barbosa, one of

the cases upon which we relied in ILC, we held that employ-

ers could sue to enjoin a California statute as preempted by

the National Labor Relations Act (NLRA) “regardless of

whether the NLRA conferred a federal ‘right’ on employers.”

45 F.3d 1261, 1271 n.13 (9th Cir. 1994). It was for that very

reason that we concluded the § 1983 cases were inapposite,

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

did not preclude the plaintiffs’ suit. Essentially, the line of

cases on which we relied held that private parties could

enforce the structural relationship between the federal and

state governments so long as they had Article III standing as,

essentially, private enforcers of the Supremacy Clause; the

specific relationship of those parties to the federal statute on

which the Supremacy Clause cause of action is premised does

not matter.

Given these underpinnings of ILC, there is little basis on

which to import an “intended beneficiary” concept back into

the case for purposes of determining irreparable injury.

Applying this determination to the present motion, it is clear

that AB 1183 harms the Hospital Plaintiffs and their members

through reductions in Medi-Cal revenue payments.

B. Irreparability of Harm

Having determined that the Hospital Plaintiffs have shown

unlawful harm under § (a)(30)(A), we next consider whether

the harm is irreparable. Typically, monetary harm does not

constitute irreparable harm. L.A. Mem’l Coliseum Comm’n v.

Nat’l Football League, 634 F.2d 1197, 1202 (9th Cir. 1980).

The Hospital Plaintiffs argue that in this case, however, the

monetary injury is irreparable because the Eleventh Amend-

ment sovereign immunity of the Department (a branch of the

CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY 4221

State of California government) bars the Hospital Plaintiffs

from ever recovering damages in federal court. The most rele-

vant authority on this issue—though not controlling—

supports the Hospital Plaintiffs’ argument. See Kan. Health

Care Ass’n v. Kan. Dep’t of Soc. & Rehab. Servs., 31 F.3d

1536, 1543 (10th Cir. 1994) (“Because the Eleventh Amend-

ment bars a legal remedy in damages . . . the court held that

plaintiffs’ injury was irreparable. We agree.”). We note also

that Supreme Court case law and some of our own cases clar-

ify that economic damages are not traditionally considered

irreparable because the injury can later be remedied by a

damage award. See Sampson v. Murray, 415 U.S. 61, 90

(1974) (“[I]t seems clear that the temporary loss of income,

ultimately to be recovered, does not usually constitute irrepa-

rable injury. . . . The possibility that adequate compensatory

or other corrective relief will be available at a later date, in the

ordinary course of litigation, weighs heavily against a claim

of irreparable harm.” (internal quotation omitted)); Rent-A-

Center, Inc. v. Canyon Television & Appliance Rental, Inc.,

944 F.2d 597, 603 (“It is true that economic injury alone does

not support a finding of irreparable harm, because such injury

can be remedied by a damage award.” (emphasis added));

Caribbean Marine Servs. Co. v. Baldridge, 844 F.2d 668, 676

(9th Cir. 1988); Arcamuzi v. Cont’l Air Lines, Inc., 819 F.2d

935, 938 (9th Cir. 1987); Colo. River Indian Tribes v. Town

of Parker, 776 F.2d 846, 850-51 (9th Cir. 1985); Goldie’s

Bookstore, Inc. v. Superior Court, 739 F.2d 466, 471 (9th Cir.

1984) (“Mere financial injury . . . will not constitute irrepara-

ble harm if adequate compensatory relief will be available in

the course of litigation.” (emphasis added)).

Because the economic injury doctrine rests only on ordi-

nary equity principles precluding injunctive relief where a

remedy at law is adequate, it does not apply where, as here,

the Hospital Plaintiffs can obtain no remedy in damages

4222 CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY

against the state because of the Eleventh Amendment. See

Kan. Health Care Ass’n, 31 F.3d at 1543.2

Considering the relevant authorities, we are persuaded that

because the Hospital Plaintiffs and their members will be

unable to recover damages against the Department even if

they are successful on the merits of their case, they will suffer

irreparable harm if the requested injunction is not granted.

III. Equities and the Public Interest

The district court did not reach the question of the equities

and the public interest. Although the state argues that these

factors weigh in its favor because an injunction will worsen

the state’s budget crisis, the record reflects that the impact of

a stay on the budget crisis will be minimal at most. Further,

it is clear that it would not be equitable or in the public’s

interest to allow the state to continue to violate the require-

ments of federal law, especially when there are no adequate

remedies available to compensate the Hospital Plaintiffs for

the irreparable harm that would be caused by the continuing

violation. In such circumstances, the interest of preserving the

Supremacy Clause is paramount. See Am. Trucking Ass’n v.

City of Los Angeles, ___ F.3d ___, 2009 WL 723993, at *12

(9th Cir. Mar. 20, 2009) (considering the public interest repre-

sented by “the Constitution’s declaration that federal law is to

be supreme”).

2

We observe that, although damages may become available to the Hos-

pital Plaintiffs in state court, persuasive authority suggests that federal

courts may consider only what federal remedies are available. See United

States v. New York, 708 F.2d 92, 93-94 (2d Cir. 1983) (per curiam) (hold-

ing that “federal courts may consider only the available federal legal rem-

edies”). But see Kan. Health Care Ass’n, 31 F.3d at 1543 (“Because the

Eleventh Amendment bars a legal remedy in damages, and the court con-

cluded no adequate state administrative remedy existed, the court held that

plaintiffs’ injury was irreparable. We agree.” (emphasis added)). We find

the reasoning of New York to be more persuasive, and consider only pro-

spective federal remedies for the purpose of gauging whether the harm

caused to the Hospital Plaintiffs and their members is irreparable.

CALIFORNIA PHARMACISTS v. MAXWELL-JOLLY 4223

In light of the showing made by the Hospital Plaintiffs in

this case, we grant their motion for an order staying the rate

cuts in AB 1183 with respect to the specified hospital services

pending their appeal to this court of the district court’s order

denying the motion for preliminary injunction.

MOTION FOR STAY PENDING APPEAL IS

GRANTED.

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