Indep. Living Ctr. of S. Cal. v. Jennifer Kent

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

INDEPENDENT LIVING CENTER OF No. 15-56142

SOUTHERN CALIFORNIA, INC., a

nonprofit corporation; GRAY D.C. No.

PANTHERS OF SACRAMENTO, a 2:08-cv-03315-

nonprofit corporation; GRAY CAS-MAN

PANTHERS OF SAN FRANCISCO, a

nonprofit corporation; GERALD

SHAPIRO, Pharm. D., DBA Uptown

Pharmacy and Gift Shoppe; SHARON

STEEN, DBA Central Pharmacy;

TRAN PHARMACY, INC.; MARK

BECKWITH; MARGARET DOWLING,

Petitioners-Appellants,

v.

JENNIFER KENT, Director of

Department of Health Care Services

of the State of California;

DEPARTMENT OF HEALTH CARE

SERVICES,

Respondents-Appellees.

2 INDEP. LIVING CTR. V. KENT

SACRAMENTO FAMILY MEDICAL No. 15-56154

CLINICS, INC.; ACACIA ADULT DAY

SERVICES; RONALD B. MEAD, D.C. No.

D.D.S.; THEODORE M. MAZER, M.D., 2:08-cv-03315-

Intervenors-Appellants, CAS-MAN

v.

OPINION

JENNIFER KENT, Director of

Department of Health Care Services

of the State of California;

DEPARTMENT OF HEALTH CARE

SERVICES,

Respondents-Appellees.

Appeal from the United States District Court

for the Central District of California

Christina A. Snyder, District Judge, Presiding

Argued and Submitted September 26, 2018

Pasadena, California

Filed November 21, 2018

Before: WILLIAM A. FLETCHER, MILAN D. SMITH,

JR., and MORGAN CHRISTEN, Circuit Judges.

Opinion by Judge Milan D. Smith, Jr.;

Concurrence by Judge Christen

INDEP. LIVING CTR. V. KENT 3

SUMMARY *

Attorneys’ Fees

The panel reversed the district court’s denial of

plaintiffs’ request for attorneys’ fees following the

settlement of litigation concerning California’s Assembly

Bill X3 5, which reduced the Medi-Cal rate of

reimbursement for healthcare providers by ten percent.

Plaintiffs sought a writ of mandamus under Cal. Civ.

Proc. Code § 1085 on the ground that AB 5 violated Section

30(A) of the Medicaid Act, thereby conflicting with federal

law and violating the Supremacy Clause. The Ninth Circuit

upheld the district court’s preliminary injunction against

enforcement of the ten percent reduction, to apply both

prospectively and retroactively. The Supreme Court vacated

and remanded in light of the Centers for Medicare &

Medicaid Services’ approval of certain plan amendments to

implement AB 5. The parties subsequently entered into a

settlement agreement in which plaintiffs reserved the right

to move for attorneys’ fees. Plaintiffs did so pursuant to Cal.

Civ. Proc. Code § 1021.5, and the district court denied their

motions.

The panel held that, even though the case was properly

removed from state court based on federal question

jurisdiction, plaintiffs brought a state-law claim and were

therefore permitted to seek attorneys’ fees pursuant to

§ 1021.5. The panel concluded that plaintiffs’ § 1085 Writ

*

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

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

4 INDEP. LIVING CTR. V. KENT

was not a federal claim following Armstrong v. Exceptional

Child Care Ctr., Inc., 135 S. Ct. 1378 (2015), which held

that neither the federal Medicaid statute nor the Constitution

provides a cause of action for enforcement of Section 30(A).

The panel concluded that the § 1085 Writ endured as a state-

law claim because, under California law, § 1085 Writs may

issue to compel state agencies to comply with federal

requirements. The panel held that federal common law did

not govern the award of fees and preclude an award pursuant

to state law. The panel concluded that the Erie doctrine

supported allowing plaintiffs to seek fees under § 1021.5.

The panel reversed the district court’s holding that plaintiffs

were precluded from seeking an award of attorneys’ fees

under § 1021.5, and remanded to the district court to

determine whether plaintiffs met the requirements of

§ 1021.5 to obtain a fee award, and if so, to calculate that

award.

The panel further held that the district court abused its

discretion in denying plaintiffs’ motion to set aside funds for

attorneys’ fees following the decision permitting retroactive

monetary relief from the Medi-Cal reimbursement

reduction. The panel remanded for a determination of

whether plaintiffs could recover any fees from the

retroactive relief.

Concurring, Judge Christen wrote that she concurred in

the result reached by the majority opinion but reached the

same conclusion in a different way. Judge Christen wrote

that plaintiffs could seek attorneys’ fees under § 1021.5

because the parties’ settlement included a state-law request

for declaratory relief under § 1085. Judge Christen agreed

that it was an abuse of discretion to deny plaintiffs’ motion

to set aside attorneys’ fees from the reimbursement.

INDEP. LIVING CTR. V. KENT 5

COUNSEL

Erwin Chemerinsky (argued), University of California,

Berkeley, School of Law, Berkeley, California; Stanley L.

Friedman and Rafael Bernardino, Jr., Law Offices of Stanley

L. Friedman, Los Angeles, California; for Petitioners-

Appellants.

Craig J. Cannizzo (argued), Hooper, Lundy & Bookman,

P.C., San Francisco, California; Lloyd A. Bookman and

Jordan B. Keville, Hooper, Lundy & Bookman, P.C., Los

Angeles, California; for Intervenors-Appellants.

Susan M. Carson (argued), Supervising Deputy Attorney

General; Julie Weng-Gutierrez, Senior Assistant Attorney

General; Xavier Becerra, Attorney General of California;

Office of the Attorney General, San Francisco, California;

for Respondents-Appellees.

OPINION

M. SMITH, Circuit Judge:

This case comes before us once again after a decade-long

journey within the federal court system. In these final stages

of the litigation, Petitioners-Appellants (Independent

Living), a group of health care advocacy organizations and

medical care providers, and Intervenors-Appellants

(Intervenors, and together with Independent Living,

Appellants), another group of health care providers and

organizations, seek an award of attorneys’ fees from the

Director of the California Department of Health Care

Services (the Director), and possibly others. We hold that

the district court erroneously concluded that Appellants were

6 INDEP. LIVING CTR. V. KENT

not entitled to seek fees pursuant to California Civil

Procedure Code § 1021.5. In addition, we hold that the

district court abused its discretion in denying Independent

Living’s motion to set aside fees from the retroactive

monetary relief obtained in 2010. Accordingly, we remand

to the district court to determine whether, in light of our

ruling, Appellants meet the requirements to obtain attorneys’

fees pursuant to § 1021.5 and Section III (C)(1)(a) and (b) of

the Settlement Agreement (infra), and whether it is possible

and appropriate at this stage of the litigation for Independent

Living to recoup attorneys’ fees “from Medicaid providers

that purportedly obtained a benefit from counsel’s work,”

pursuant to Section III (C)(1)(c) of the Settlement

Agreement, and that received payments from the

Department of Health Care Services (DHCS) as a result of

this litigation.

FACTUAL AND PROCEDURAL BACKGROUND

I. Factual Background

The Medicaid Act authorizes the federal government to

distribute funds to states for the purpose of providing

medical assistance to low-income persons. Participating

states are subject to certain conditions. Armstrong v.

Exceptional Child Care Ctr., Inc., 135 S. Ct. 1378, 1382

(2015). One such condition is the “equal access” provision

(Section 30(A)), which requires that states set provider

reimbursement rates that 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).

On February 16, 2008, the California legislature enacted

Assembly Bill X3 5 (AB 5). AB 5 reduced the Medi-Cal—

INDEP. LIVING CTR. V. KENT 7

California’s Medicaid program—rate of reimbursement for

healthcare providers by ten percent. These cuts took effect

on July 1, 2008.

II. Procedural Background

On April 22, 2008, Independent Living filed in Los

Angeles County Superior Court a petition for a writ of

mandamus against the DHCS and the Director, pursuant to

California Code of Civil Procedure § 1085 (the § 1085

Writ). The petition alleged that the ten percent rate reduction

enacted pursuant to AB 5 violated Section 30(A), thereby

conflicting with federal law, and violating the Supremacy

Clause. In addition to the § 1085 Writ, Independent Living

sought an injunction preventing the implementation of AB

5, as well as attorneys’ fees pursuant to California’s Private

Attorney General Act, Cal. Civ. Proc. Code § 1021.5. On

May 19, 2008, the Director removed this action to federal

court based on federal question jurisdiction, and Independent

Living filed the § 1085 Writ in federal court. On June 1,

2008, Independent Living dismissed the DHCS from its

action, leaving only the Director as a defendant.

On June 25, 2008, the district court denied Independent

Living’s motion for a preliminary injunction preventing the

enforcement of AB 5. We vacated that decision on July 11,

2008, holding that a plaintiff “may bring suit under the

Supremacy Clause to enjoin implementation of a state law

allegedly preempted by federal statute.” Indep. Living Ctr.

of S. Cal. v. Shewry, 543 F.3d 1047, 1049 (9th Cir. 2008)

(per curiam); see Indep. Living Ctr. of S. Cal. v. Shewry,

543 F.3d 1050 (9th Cir. 2008) (Shewry).

On August 18, 2008, the district court enjoined

enforcement of the ten percent reduction. On August 27,

2008, the court modified its injunction to apply only

8 INDEP. LIVING CTR. V. KENT

prospectively from the date of the injunction because

sovereign immunity purportedly barred retroactive relief.

On appeal, we analyzed whether retroactive application

of the injunction violated California’s sovereign immunity.

Indep. Living Ctr. of S. Cal. v. Maxwell-Jolly, 572 F.3d 644,

660–63 (9th Cir. 2009), vacated and remanded on other

grounds sub nom. Douglas v. Indep. Living Ctr. of S. Cal.,

132 S. Ct. 1204 (2012). We first found this retroactive relief

would violate California’s sovereign immunity absent the

Director’s waiver of that immunity. Id. at 661. We then

noted that the Director would have waived sovereign

immunity by removing the suit to federal court if California

had previously consented to similar suits in state court. Id.

Consequently, after reviewing numerous California state

court decisions that permitted § 1085 mandamus actions

seeking disbursement of unlawfully withheld funds, we held

that the Director had waived sovereign immunity. Id. at 663.

Therefore, we concluded that the injunction should also have

applied retroactively to Medi-Cal payments between the

time of AB 5’s implementation and the date of the district

court’s injunction (the retroactive period). Id.

On March 15, 2010, Independent Living moved to set

aside a portion of the monies paid, or to be paid, to Medicaid

providers for the retroactive period to set up a fund from

which attorneys’ fees could be paid. The district court

dismissed this motion because it believed it was premature

and that “[n]either side has provided any reason why [the

court] at the conclusion of the case could not fashion an order

requiring . . . California to pay attorneys’ fees based on what

is ultimately the value of any judgment or settlement.”

In 2011, the United States Supreme Court granted the

Director’s petition for a writ of certiorari with respect to the

Supremacy Clause issue. Preceding oral argument before

INDEP. LIVING CTR. V. KENT 9

the Supreme Court, the Centers for Medicare & Medicaid

Services (CMS), the federal agency in charge of

administering Medicaid, disapproved the Director’s

submitted plan amendments to implement AB 5 because

they did not satisfy Section 30(A). Douglas, 132 S. Ct. at

1209. However, after oral argument, and before the

Supreme Court issued its opinion, CMS approved some of

the pending amendments. Id.

The Supreme Court ultimately held that CMS’s

decisions regarding the plan amendments changed the

procedural posture of the case, and remanded it to our court

to consider whether the providers could maintain an action

pursuant to the Supremacy Clause. Id. at 1209–11. The

Supreme Court thus vacated, but did not reverse, our

decision affirming the preliminary injunction.

Following Douglas, the parties resolved this case in

mediation, and produced a Settlement Agreement specifying

the terms of their concord. In Sections III (C)(1)(a) and (b)

of the Settlement Agreement, Appellants reserved the right

to move for attorneys’ fees before the district court. The

state retained the right to oppose any such request. In

addition, Section III (C)(1)(c) of the Settlement Agreement

permitted “any plaintiffs’ attorney” who had appeared in one

of the listed cases to seek attorneys’ fees “from Medicaid

providers that purportedly obtained a benefit from counsel’s

work,” but not from “DHCS or any of the State Released

Entities.”

Independent Living and Intervenors separately moved

for attorneys’ fees pursuant to § 1021.5. The district court

denied the motions, reasoning that this case involved only

federal law claims, so the district court could not award

attorneys’ fees pursuant to a state-law provision like

10 INDEP. LIVING CTR. V. KENT

§ 1021.5. Independent Living and Intervenors timely

appealed, and their consolidated appeals are before us now.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction over this appeal pursuant to

28 U.S.C. § 1291. We review a district court’s decision to

deny attorneys’ fees for abuse of discretion. Labotest, Inc.

v. Bonta, 297 F.3d 892, 894 (9th Cir. 2002). Abuse of

discretion occurs if the district court based its decision “on

an erroneous legal conclusion or a clearly erroneous finding

of fact.” Id. We review de novo whether the district court

“applied the correct legal standard in determining

entitlement to attorneys’ fees.” Klein v. City of Laguna

Beach, 810 F.3d 693, 698 (9th Cir. 2016).

ANALYSIS

I. Availability of Attorneys’ Fees Under § 1021.5

The central question in this appeal is whether Appellants

brought a state-law claim or a federal claim, for the answer

to that question will determine whether they are entitled to

seek attorneys’ fees pursuant to California’s § 1021.5 in

federal court. We hold that Appellants brought a state-law

claim, and that they are therefore permitted to seek fees

pursuant to § 1021.5.

A. Federal Question Jurisdiction

The Director argues that despite Appellants’ only cause

of action being the § 1085 Writ, their action involved

“solely” federal law, which permitted the federal courts to

exercise federal question jurisdiction. However, the fact that

the federal courts exercised federal question jurisdiction

INDEP. LIVING CTR. V. KENT 11

does not automatically determine whether Appellants’ claim

was based on federal or state-law.

The Director removed this case based on federal question

jurisdiction. With good reason, we originally understood

Appellants’ cause of action to constitute a suit pursuant to

the Supremacy Clause to enjoin state legislation allegedly

preempted by a federal statute (here, the Medicaid Act).

Shewry, 543 F.3d at 1062, 1065–66. In so concluding, we

relied in part on Shaw v. Delta Air Lines, Inc., in which the

Supreme Court observed that a plaintiff bringing such a suit

“presents a federal question which the federal courts have

jurisdiction under 28 U.S.C. § 1331 to resolve.” 463 U.S.

85, n.14 (1983).

Of course, federal question jurisdiction encompasses

more than just federal causes of action. Federal courts have

jurisdiction to hear “cases in which a well-pleaded complaint

establishes either that federal law creates the cause of action

or that the plaintiff’s right to relief necessarily depends on

resolution of a substantial question of federal law.”

Franchise Tax Bd. v. Constr. Laborers Vacation Tr. for S.

Cal., 463 U.S. 1, 27–28 (1983). Where, as here, state law

creates the cause of action, federal jurisdiction may also lie

if “it appears that some substantial, disputed question of

federal law is a necessary element of one of the well-pleaded

state claims.” Id. at 13. Quiet title actions, for example, have

prompted the exercise of federal question jurisdiction. See,

e.g., Grable & Sons Metal Prods., Inc. v. Darue Eng’g &

Mfg., 545 U.S. 308, 315–16 (2005) (exercising federal

question jurisdiction over a quiet title action that required

analysis of the federal notice statute).

In Merrell Dow Pharmaceuticals, Inc. v. Thompson, the

Court held that federal question jurisdiction was unavailable

over a state tort claim alleging a violation of a federal

12 INDEP. LIVING CTR. V. KENT

misbranding prohibition, in part because Congress had not

provided a private federal cause of action for that violation.

478 U.S. 804, 812 (1986). However, the Court has since

noted Merrell Dow did not “convert[] a federal cause of

action from a sufficient condition for federal-question

jurisdiction into a necessary one.” Grable & Sons, 545 U.S.

at 317. Rather, a federal right of action is “evidence relevant

to, but not dispositive of” federal question jurisdiction. Id.

Federal question jurisdiction over state-law claims will lie if

a federal issue is “(1) necessarily raised, (2) actually

disputed, (3) substantial, and (4) capable of resolution in

federal court without disturbing the federal-state balance

approved by Congress.” Gunn v. Minton, 568 U.S. 251, 258

(2013).

We conclude that the § 1085 Writ meets the

requirements of the Gunn/Grable & Sons inquiry, and arises

under federal law within the meaning of 28 U.S.C. § 1331.

To prevail on the § 1085 Writ, Appellants would necessarily

have had to show that AB 5 violated the requirements of

Section 30(A). This purported violation was the “central

point of dispute.” Gunn, 568 U.S. at 259. While the claim

only called for a determination of the validity of California

legislation, it more broadly raised the question of whether

state legislation conflicted with Medicaid requirements.

Given the ubiquitous reliance on Medicaid funding

nationwide, the claim therefore had substantial “importance

. . . to the federal system as a whole.” Id. at 260. Indeed, the

Supreme Court confronted this very issue in Armstrong just

three years after its decision in Douglas. Additionally, the

role of the Supremacy Clause in this case invokes the

essence of the “federal-state balance.” Id. at 258. Therefore,

the Director’s removal was proper, as was the court’s

exercise of federal question jurisdiction over the § 1085

Writ. However, the exercise of federal question jurisdiction

INDEP. LIVING CTR. V. KENT 13

did not itself transform the § 1085 Writ into a federal claim.

Determination of whether the § 1085 Writ constituted a

state-law or a federal claim requires further analysis.

B. State Claim or Federal Claim?

Appellants seek an award of attorneys’ fees pursuant to

California Code of Civil Procedure§ 1021.5. The Director

argues that fees are unavailable pursuant to § 1021.5 because

Appellants’ claim was federal—a conclusion also reached

by the district court.

However, during the period between Shewry and this

appeal, the Supreme Court in Armstrong considered a suit

similar to the one at hand. In that case, health providers sued

officials in Idaho’s Department of Health and Welfare,

claiming that Idaho violated Section 30(A) of the Medicaid

Act by reimbursing providers of habilitation services at

impermissible rates. Armstrong, 135 S. Ct. at 1382. We had

affirmed the district court’s grant of summary judgment for

the providers and stated that the providers had an implied

right of action pursuant to the Supremacy Clause. Id. at 1383

(citing Inclusion, Inc. v. Armstrong, 567 F. App’x 496

(2014)). The Supreme Court reversed, holding that the

Supremacy Clause is “not the source of any federal rights

and certainly does not create a cause of action.” Id. (citation

omitted). The Court also determined that the suit against

Idaho for enforcement of Section 30(A) of the Medicaid Act

could not proceed in equity because Section 30(A) implicitly

precluded private enforcement. Id. at 1385. Finally, the

Court held that Section 30(A) of the Medicaid Act did not

confer a private right of action under federal law. Id. at 1387.

Thus, in short order, the Supreme Court determined that

neither the federal statute nor the Constitutional provision at

issue here provides similar plaintiffs a cause of action.

Accordingly, Appellants’ cause of action must be grounded

14 INDEP. LIVING CTR. V. KENT

in state law, if a cause of action is to exist under the

circumstances alleged.

Appellants argue that “the gist of [their] claim was that

California breached its contract with the federal

government,” and that breach of contract is a claim arising

under state law. This argument is meritless. In order to

prevail on a contract theory, Appellants would have had to

show that, at the least, they were third-party beneficiaries

entitled to enforce a valid contract between the federal and

state governments—a requirement that might have been

impossible to show. See Sanchez v. Johnson, 416 F.3d 1051,

1059 (9th Cir. 2005) (holding that Medicaid providers “are,

at best, indirect beneficiaries [of 42 U.S.C.

§ 1396a(a)(30)(A)] and it would strain common sense to

read § 30(A) as creating a ‘right’ enforceable by them”).

Regardless, Appellants never attempted or needed to make

that showing, because this case was not litigated as an action

on a contract. Therefore, in order for Appellants to recover

fees under § 1021.5, the § 1085 Writ must stand on its own

as a state-law cause of action. 1

1

The parties dispute whether a writ under § 1085 is best described

as a remedial mechanism or a cause of action under California law; in

reality, California courts have employed both descriptors. Compare

Kreeft v. City of Oakland, 80 Cal. Rptr. 2d 137, 141 (Cal. Ct. App. 1998)

(“Ordinary mandamus is the appropriate procedural mechanism for

resolving the dispute in this case. A traditional writ of mandate under

Code of Civil Procedure section 1085 is a method for compelling a City

to perform a legal, usually ministerial duty.” (citations omitted)) with Lee

v. Blue Shield of Cal., 65 Cal. Rptr. 3d 612, 619 (Cal. Ct. App. 2007)

(referring to “a cause of action for a writ of mandate,” as well as a

“declaratory relief cause of action”); see also Hayes v. County of San

Diego, 305 P.3d 252, 257 (Cal. 2013) (ruminating on the precise

meaning of “cause of action” under California law). We need not wade

into this dilemma, because as will be shown, regardless of whether the

INDEP. LIVING CTR. V. KENT 15

Although Appellant’s breach-of-contract theory is

unavailing, we conclude that in this case the § 1085 Writ

endured as a state-law claim. A brief survey of relevant

cases clearly shows that California courts have deployed

§ 1085 much as it was used in this case. Section 1085

provides that “any court may” issue a writ “to any inferior

tribunal, corporation, board, or person, to compel the

performance of an act which the law specially enjoins, as a

duty resulting from an office, trust, or station . . . .” Cal. Civ.

Proc. Code. § 1085(a). Therefore, writ relief is available to

compel a public agency to perform an act prescribed by law.

See, e.g., Berkeley Unified Sch. Dist. v. City of Berkeley,

297 P.2d 710, 715 (Cal. Ct. App. 1956) (mandamus

appropriate to direct city auditor to release funds from tax

levies for school purposes pursuant to city charter). Writ

relief is available even where state action implicates federal

issues. See Conlan v. Bonta, 125 Cal. Rptr. 2d 788, 803 (Cal.

Ct. App. 2002) (writ of mandate issued to provide Medi-Cal

recipient with proper reimbursements under the Medicaid

Act). Even more relatedly, in Mission Hospital Regional

Medical Center v. Shewry, the California Court of Appeal

considered whether the Medicaid Act’s notice and comment

requirements applied to the California legislature’s action to

freeze the Medicaid rate of reimbursement during the 2004–

2005 fiscal year, after a group of hospitals sought writ relief

under § 1085. 85 Cal. Rptr. 3d 639, 642–43, 649 (Cal. Ct.

App. 2008). The court agreed with the hospitals, remanding

the case to the trial court to issue a writ of mandate enjoining

the DHCS from utilizing the freeze provision. Id. at 661.

Particularly pertinent to this case, California courts have

previously enforced Section 30(A) by issuing writs of

§ 1085 Writ is a procedural mechanism or a cause of action, its use to

enjoin state action is well recognized.

16 INDEP. LIVING CTR. V. KENT

mandate to the DHCS. See, e.g., Cal. Ass’n for Health Servs.

at Home v. State Dep’t of Health Care Servs., 138 Cal. Rptr.

3d 889, 900 (Cal. Ct. App. 2012) (further rate review of

Medi-Cal reimbursement rates required in accordance with

Section 30(A) and the state plan). However, a recent

California appellate court decision called into question the

future viability of using § 1085 Writs to enforce Section

30(A) violations. See Santa Rosa Mem’l Hosp., Inc. v. Kent,

236 Cal. Rptr. 3d 199, 207 (Cal. Ct. App. 2018). Relying

heavily on the Supreme Court’s decision in Armstrong, the

California Court of Appeal held that a § 1085 Writ could not

issue where the Medicaid Act did not provide for private

enforcement of Section 30(A) and Section 30(A)’s broad

standards for rate setting impeded a clear duty to perform.

Id. at 206–207. The California Supreme Court has not

decided this issue and, arguably, the California Court of

Appeal decisions are split. Still, the potential ability of

Appellants to prosecute this precise case under § 1085 if they

filed again today is largely immaterial to whether they could

have properly initiated such a state-court action in 2008.

Ultimately, it is clear that, under California law, § 1085

Writs may issue to compel state agencies to comply with

federal requirements. That is the essence of Appellants’

claim. Moreover, a significant portion of Appellants’

success was due to our interpretation of state law. In

Maxwell-Jolly, we analyzed California law to determine

whether sovereign immunity precluded Appellants’ claim

for retroactive relief. We held that it did not,

acknowledging, “Under California law, an action seeking

injunctive relief that requires a state official to disburse

funds is not an action against the State.” Maxwell-Jolly,

572 F.3d at 662. Thus, had the action remained in state

court, the Director would “not have enjoyed sovereign

immunity” against an order for retroactive payments. Id.

INDEP. LIVING CTR. V. KENT 17

Accordingly, we conclude that Appellants’ claim

pursuant to § 1085 is properly characterized as a state-law

cause of action and its removal to federal court does not

compel a conclusion otherwise. The overlapping concerns

of federal law did not transform the § 1085 Writ into a

federal claim, for as Armstrong elucidated, there was simply

no federal right of action to be had. Since the § 1085 Writ

was a state-law claim, we now turn to whether Appellants

were entitled to seek attorneys’ fees pursuant to § 1021.5.

C. State Law Fee Awards in Federal Court

The general rule in federal courts is that “absent statute

or enforceable contract, litigants pay their own attorneys’

fees.” Alyeska Pipeline Serv. Co v. Wilderness Soc’y,

421 U.S. 240, 257 (1975). We have stated that in a “pure

federal question case” in federal court, federal law governs

attorneys’ fees. Disability Law Ctr. of Alaska, Inc. v.

Anchorage Sch. Dist., 581 F.3d 936, 940 (9th Cir. 2009). By

contrast, “so long as ‘state law does not run counter to a valid

federal statute or rule of court . . . state law denying the right

to attorney’s fees or giving a right thereto, which reflects a

substantial policy of the state, should be followed.’” MRO

Commc’ns, Inc. v. Am. Tel. & Tel. Co., 197 F.3d 1276, 1281

(9th Cir. 1999) (quoting Alyeska, 421 U.S. at 259 n.31).

Our previous cases in which we denied plaintiffs an

award of fees under state law do not preclude recovery here.

In Klein, we denied the plaintiff attorneys’ fees under

§ 1021.5 because although he pleaded both federal and state-

law claims, he did not prevail on the state-law claims.

810 F.3d at 702. 2 In Home Savings Bank, F.S.B. v. Gillam,

2

Incidentally, Klein clearly states “federal courts apply state law for

attorneys’ fees to state claims because of the Erie doctrine.” Id. at 701.

18 INDEP. LIVING CTR. V. KENT

952 F.2d 1152, 1163 (9th Cir. 1991), we reversed the district

court’s award of attorneys’ fees based on Alaska law.

Gillam concerned the control and disposition of a legal

indemnification fund set up by Home Savings Bank (HSB)

with the Federal Home Loan Bank Board. Id. at 1154. The

conservator of HSB sued Gillam, the former chief executive

officer of HSB, to recover severance benefits paid to Gillam

upon his resignation and to contest control over the legal

indemnification fund. Id. We first held that the conservator

had a right of action under the federal Financial Institutions

Reform, Recovery, and Enforcement Act of 1989 (FIRREA)

to sue Gillam. Id. at 1157 (“FIRREA expressly provides for

federal court jurisdiction over actions to which the

[conservator] is a party.”). We then held that the district

court improperly relied on Alaska law to award attorneys’

fees because the federal common law disfavoring non-

statutory awards of fees directly conflicted with the state rule

relied upon by the district court. Id. at 1162.

Similarly, in Bass v. First Pacific Networks, Inc.,

219 F.3d 1052 (9th Cir. 2000), we considered whether

federal or state law governed the award of attorneys’ fees

incurred in filing a motion under Federal Rule of Civil

Procedure 65.1 for a supersedeas bond posted under Federal

Rule of Civil Procedure 62(d). The plaintiff originally filed

in state court alleging state claims and a federal RICO claim.

Id. at 1053. After the defendant removed the action to

federal court, the district court dismissed the RICO claim but

retained supplemental jurisdiction over the state claims. Id.

The plaintiffs then filed a motion under Rule 65.1 to enforce

a supersedeas bond, which the court granted. Id. at 1054.

This court affirmed the district court’s denial of attorneys’

fees under California state law because the bond was “posted

pursuant to Rule 62(d) and enforced pursuant to Rule 65.1.”

Id. at 1055. The court noted that it had “no opinion” on the

INDEP. LIVING CTR. V. KENT 19

availability of attorneys’ fees in a removed action seeking

judgment “on a surety pursuant to state statute,” as opposed

to enforcement of a surety bond issued pursuant to the

Federal Rules. Id. at 1056 n.4.

This case presents a different issue than those we

confronted in Klein, Gillam, and Bass. Unlike in Klein,

Appellants here prevailed on a state-law claim by succeeding

on the § 1085 Writ. As determined by the Supreme Court,

neither Section 30(A) nor the Constitution provided a federal

right of action for Appellants, so there were no independent

federal claims in this case. Thus, Gillam and Bass, in which

federal provisions provided the right of action or the rule of

decision, are inapposite. In short, federal common law does

not govern the award of fees here, and an award pursuant to

state law would not be improper.

D. Erie

Erie 3 principles further persuade us that Appellants are

entitled to seek fees pursuant to § 1021.5. As the Supreme

Court has noted, nothing in Erie requires a departure from

the principle that “a state statute requiring an award of

attorneys’ fees should be applied in a case removed from the

state courts to the federal courts.” Alyeska Pipeline,

421 U.S. at 259 n.31. Although this footnote referred to

diversity jurisdiction cases, we have noted that the Erie

doctrine “applies irrespective of whether the source of

subject matter jurisdiction is diversity or federal question.”

Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1102 (9th

Cir. 2003). Indeed, Erie itself was partially rooted in a desire

to prevent the “result of a litigation materially to differ

because the suit had been brought in a federal court.” Hanna

3

Erie R. Co. v. Tompkins, 304 U.S. 64 (1938).

20 INDEP. LIVING CTR. V. KENT

v. Plumer, 380 U.S. 460, 467 (1965). Further, Erie sought

to avoid the forum shopping that had arisen after Swift v.

Tyson, 41 U.S. 1 (1842). Id.

Because the § 1085 Writ is a state-law cause of action,

we look to California law to determine whether attorneys’

fees are available to Appellants under § 1021.5 of the

California Code of Civil Procedure. Section 1021.5 is

California’s “private attorney general” fee statute.

Woodland Hills Residents Ass’n, Inc. v. City Council,

593 P.2d 200, 208 (Cal. 1979). It states, “Upon motion, a

court may award attorneys’ fees to a successful party against

one or more opposing parties in any action which has

resulted in the enforcement of an important right affecting

the public interest.” Cal. Civ. Proc. Code § 1021.5.

Pursuant to § 1021.5, a court may award attorneys’ fees to a

“successful party” in any action that

has resulted in the enforcement of an

important right affecting the public interest

if: (a) a significant benefit, whether pecuniary

or nonpecuniary, has been conferred on the

general public or a large class of persons,

(b) the necessity and financial burden of

private enforcement are such as to make the

award appropriate, and (c) such fees should

not in the interest of justice be paid out of the

recovery, if any.

Maria P. v. Riles, 743 P.2d 932, 935 (Cal. 1987).

In determining whether a plaintiff is a successful party

for purposes of § 1021.5, “the critical fact is the impact of

the action, not the manner of its resolution.” Id. at 937.

Accordingly, the California Supreme Court has held that a

plaintiff securing a preliminary injunction may be awarded

INDEP. LIVING CTR. V. KENT 21

attorneys’ fees under § 1021.5. Press v. Lucky Stores, Inc.,

667 P.2d 704, 710 (1983) (preliminary injunction restraining

defendant from denying plaintiffs access to the store

premises fulfilled § 1021.5’s requirements for an award of

fees).

In Maria P., for example, the plaintiffs sought a

preliminary injunction to prevent the school district from

denying a student admission to school based on her

noncitizen immigration status, and to prevent the school

district and State superintendent from complying with

California Education Code § 6957, which required the

district to report the child’s immigration status to the board

of supervisors and Immigration and Naturalization Service.

Maria P., 43 Cal. 3d at 934. The trial court issued the

preliminary injunction, ruling that Education Code § 6957

conflicted with the federal Family Education Rights and

Privacy Act of 1974, and was therefore void under the

Supremacy Clause. Id. Between the trial court’s issuance of

the preliminary injunction and the plaintiffs’ motion for

attorneys’ fees, the California legislature amended the

Education Code to delete all reporting requirements. Id. at

935. Due to the legislative amendment, the trial court

awarded attorneys’ fees to the plaintiffs based only on their

work obtaining the preliminary injunction. Id. The

California Court of Appeal reversed the fee award, but the

California Supreme Court held that plaintiffs were

successful parties because the state’s posture changed as a

result of their lawsuit and thus it served the public interest

purposes of § 1021.5. Id. at 935, 938.

Similarly, here, Appellants secured a preliminary

injunction against the enforcement of California state

legislation on the ground that it violated a federal statute.

Further, Maria P. establishes that CMS’s subsequent

22 INDEP. LIVING CTR. V. KENT

approval of California’s amended reimbursement rates does

not necessarily preclude Appellants’ recovery of attorneys’

fees. Thus, California law appears to demonstrate

Appellants are “successful” parties under § 1021.5 and

would have been entitled to move for attorneys’ fees in state

court.

Thus, to permit the Director to evade attorneys’ fees by

removing this action to federal court would violate the spirit

of Erie and its twin aims. As here, when fees would

probably be available in state court, to preclude a similar

award in federal court would likely lead to forum shopping,

among other maladies. Moreover, such a divergent result

would foster the very “inequitable administration of the

laws” that Erie sought to rectify. Plumer, 380 U.S. at 468.

Therefore, we conclude that the district court erred in

holding that Appellants were precluded from seeking an

award of attorneys’ fees under California Civil Code of

Procedure § 1021.5. 4

We remand to the district court to determine whether

Appellants meet the requirements of § 1021.5 to obtain a fee

award, and if so, to calculate that award. We express no

opinion as to how the Settlement Agreement may affect such

an award and leave that issue to the district court to consider

in the first instance on remand.

4

Appellants also argue that the district court erred by not employing

the doctrine of judicial estoppel against the Director. In light of our

ruling, we find no need to consider this additional argument.

INDEP. LIVING CTR. V. KENT 23

II. Motion to Set Aside Attorneys’ Fees from the

Common Fund

After our decision in Maxwell-Jolly permitted

retroactive monetary relief from the Medi-Cal

reimbursement reduction, Independent Living moved to set

aside 25 percent of the $70 million reimbursement to set up

a fund for attorneys’ fees. The district court denied the

motion to set aside funds, finding the request “premature”

because there had not yet been a final adjudication or

settlement, and determining that a set-aside was not in the

public interest. Appellants now argue that the district court

abused its discretion when it denied their motion to set aside

funds. We agree.

“[A] litigant or a lawyer who recovers a common fund

for the benefit of persons other than himself or his client is

entitled to a reasonable attorney’s fee from the fund as a

whole.” Boeing Co. v. Van Gemert, 444 U.S. 472, 478

(1980). The principle justifying this doctrine is that

persons who obtain the benefit of a lawsuit

without contributing to its cost are unjustly

enriched at the successful litigant’s expense.

Jurisdiction over the fund involved in the

litigation allows a court to prevent this

inequity by assessing attorney’s fees against

the entire fund, thus spreading fees

proportionately among those benefited by the

suit.

Id. (citations omitted). An award of fees from a common

fund applies only if “(1) the class of beneficiaries is

sufficiently identifiable, (2) the benefits can be accurately

traced, and (3) the fee can be shifted with some exactitude to

those benefiting.” Paul, Johnson, Alston & Hunt v. Graulty,

24 INDEP. LIVING CTR. V. KENT

886 F.2d 268, 271 (9th Cir. 1989) (quoting In re Hill,

775 F.2d 1037, 1041 (9th Cir. 1985)). We have referred to

the percentage requested by Appellants, 25 percent of the

fund, as a standard or benchmark amount. Six (6) Mexican

Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1311 (9th

Cir. 1990).

We conclude that the district court abused its discretion

when it denied Appellants’ motion to set aside funds. First,

the retroactive relief obtained satisfied the common fund

requirements. The identifiable class of beneficiaries was

comprised of Medi-Cal health providers who received

reduced reimbursement for services provided between July

1, 2008 and August 18, 2008. Each member of this class had

an “undisputed and mathematically ascertainable claim to

part of a lump sum judgment recovered on his behalf.” Van

Gemert, 444 U.S. at 749.

Second, contrary to the district court’s statement, a final

settlement agreement or adjudication on the merits is not a

prerequisite to the formation of a common fund. See Reiser

v. Del Monte Properties Co., 605 F.2d 1135, 1140 n.4 (9th

Cir. 1979) (noting that it is not necessary to an award of

attorneys’ fees that a suit be litigated on the merits). We

observed that the Supreme Court “has refused to place form

over substance, focusing instead on the actual effect of a

plaintiff’s suit.” Id. at 1140. The question is thus “whether

a plaintiff . . . has conferred a benefit on others.” Id. Here,

the procurement of $70 million retroactive relief on behalf

of Medi-Cal providers, many of whom were not plaintiffs in

the case, undoubtedly conferred a benefit onto them

irrespective of a final settlement or adjudication. In finding

otherwise, and denying the motion to set aside funds, the

district court abused its discretion. See Hill, 775 F.2d at

1040 (holding that a district court abuses its discretion if its

INDEP. LIVING CTR. V. KENT 25

decision is based on an erroneous conclusion of law or if the

record contains no evidence on which it rationally could

have based its decision).

The Director’s arguments to the contrary are unavailing.

She primarily argues that the district court’s denial of

Appellants’ motion to set aside funds was not a final

judgment, and therefore we lack jurisdiction to review it

under 28 U.S.C. § 1291. However, “[a] necessary corollary

to the final judgment rule is that a party may appeal

interlocutory orders after entry of final judgment because

those orders merge into that final judgment.” Am. Ironworks

& Erectors, Inc. v. N. Am. Constr. Corp., 248 F.3d 892, 897

(9th Cir. 2001). Appellants could not, and did not, appeal

the denial of their motion to set aside funds at the time that

decision was made. Appellants were only able to appeal that

decision after the district court entered final judgment.

The Director also summarily argues that Appellants

cannot appeal the motion to set aside attorneys’ fee because

the Settlement Agreement bars this relief. The Settlement

Agreement specifies that the released claims either were

“asserted” in the various cases between the parties (including

this case) or “could have been asserted” in those cases. Yet,

any relief that may result from this claim would likely not

run against the Director, but rather against the recipients of

the $70 million. See Vincent v. Hughes Air W., Inc.,

557 F.2d 759, 770 (9th Cir. 1977) (stating the “the original

client’s attorney’s fees are not shifted to . . . the adversary-

losing party; rather, fees are shifted to third parties, people

viewed as beneficiates of the fund in some way”).

Furthermore, the Settlement Agreement permitted

Appellants to move for attorneys’ fees under the “common

benefit” theory provided they sought payment “exclusively

and directly from Medicaid providers that purportedly

26 INDEP. LIVING CTR. V. KENT

obtained a benefit from counsel’s work, and not from [the

Director].” Therefore, it is doubtful that the Settlement

Agreement serves as a complete bar to this relief, unless the

Director were ordered to pay. In any event, determination of

the Settlement Agreement’s effects, if any, on this issue are

for the district court to ascertain in the first instance.

We remand this issue to the district court acknowledging

the potential difficulty or impossibility of reversing its denial

of the set aside for attorneys’ fees, given the possible

disposition of the funds to the various Medi-Cal providers

and that some recipient providers may not still be operating.

Nevertheless, the district court is better positioned than we

are to determine if any non-disbursed funds remain, or if

other funds could be recouped from which to award

appropriate attorneys’ fees.

CONCLUSION

We remand to the district court to determine whether

Appellants should recover attorneys’ fees under Cal. Civ. P.

Code § 1021.5, and, if so, the amount of the award. We also

remand for a determination of whether Appellants can

recover any fees from the retroactive relief obtained in 2010.

REVERSED and REMANDED.

INDEP. LIVING CTR. V. KENT 27

CHRISTEN, Circuit Judge, concurring:

I concur in the result reached by the majority opinion. I

write separately because I reach the same conclusion in a

different way.

1. Attorneys’ Fees Under Cal. Civ. Proc. Code § 1021.5

As the majority explains, in February 2008, the

California legislature enacted legislation reducing the

Medicaid reimbursement rate for California healthcare

providers by ten percent. Several Medicaid providers and

recipients (the Appellants here) claimed that the discounted

reimbursement rate was so low that it was inconsistent with

the mandate in § 30(A) of the Medicaid Act, which requires

states to keep the rate high enough to ensure that there are

sufficient provider options. 1 Appellants’ argument was that

the California Legislature’s action ran afoul of the

Supremacy Clause.

Appellants petitioned for a Writ of Mandate in state court

pursuant to § 1085 of California’s Code of Civil Procedure.

They sought to bar the California Department of Health Care

Services (“DHCS”) and its director from imposing the

discounted reimbursement rate. The Director removed the

action to federal court, and after several years of litigation,

the parties settled their dispute. Appellants now seek

1

See 42 U.S.C. §1396a(a)(30)(A), under which states accepting

federal Medicaid funds must “provide such methods and procedures

relating to . . . the payment for, care and services available under the plan

. . . 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[.]”

28 INDEP. LIVING CTR. V. KENT

attorneys’ fees under California’s private attorney general

provision, Cal. Civ. Proc. Code § 1021.5.

District courts in our circuit have concluded that “federal

courts are without power to issue writs of mandamus to

direct state agencies in the performance of their duties.” See,

e.g., Robinson v. Cal. Bd. of Prison Terms, 997 F. Supp.

1303, 1308 (C.D. Cal. 1998); Dunlap v. Corbin, 532 F. Supp.

183, 187 (D. Ariz. 1981), aff’d, 673 F.2d 1337 (9th Cir.

1982) (table) (finding federal courts lacked the power to

issue a writ of mandamus “directing a state agency to

exercise its discretionary power”); see also Clemes v. Del

Norte Cty. Unified Sch. Dist., 843 F. Supp. 583, 596 (N.D.

Cal. 1994) (concluding district court lacked jurisdiction to

issue a state law writ). 2 The majority cites to a number of

California state court cases to illustrate that writs of mandate

are available, including against the DHCS, to compel

compliance with § 30(A), ante at 15–16, but that authority

does not establish that a federal court is similarly authorized

to order relief pursuant to § 1085. Our court has never

precisely defined whether and when a federal court may

issue a § 1085 Writ of Mandate or injunction, but the State

offers no persuasive support for its argument that federal

courts cannot provide any relief pursuant to that provision.

Appellants’ basic requested relief did not change when

the State removed their case to federal court. Suits with

federal and state claims are removed in their entirety—“the

entire action may be removed”—and any claims for which

the district court lacks jurisdiction must subsequently be

remanded. 28 U.S.C. § 1441(c)(1)(B) and (2) (emphasis

added). Here, nothing was ever remanded, and as they had

2

Abrogated on unrelated grounds by Maynard v. City of San Jose,

37 F.3d 1396, 1403–04 (9th Cir. 1994), as amended (Nov. 22, 1994).

INDEP. LIVING CTR. V. KENT 29

done from the beginning, Appellants continued to seek a

judgment establishing that California’s imposition of a cut

reimbursement rate was unlawful because it conflicted with

§ 30(A)’s mandate. In other words, they sought both

injunctive and declaratory relief.

Appellants were entitled to continue pressing their claim

because a petition for a § 1085 Writ necessarily includes a

request for a determination and declaration of rights. A court

ruling on a § 1085 petition is required to first determine

whether the requesting party is, or is not, entitled to the “use

and enjoyment of [the] right” at issue. Cal. Civ. Proc. Code

§ 1085(a). Indeed, California case law recognizes that

declaratory relief is the foundation for a § 1085 Writ of

Mandate. See, e.g., Beach & Bluff Conservancy v. City of

Solana Beach, No. D072304, 2018 WL 5023596, at *1 (Cal.

Ct. App. Oct. 17, 2018) (explaining that plaintiff “brought

the present action for declaratory relief and traditional

mandate under Code of Civil Procedure section 1085”). We

need not be concerned with whether the district court could

have issued an injunction or a writ of mandate in Appellants’

favor had this case proceeded to judgment because the

district court certainly could have entered a declaratory

judgment establishing whether the discounted

reimbursement rate was inconsistent with § 30(A), and that

request for declaratory relief is enough to anchor Appellants’

fees petition. 3

3

The State argued that § 1085 is only a procedural mechanism, not

a cause of action. But there is no question that requests for declaratory

relief can be stand-alone causes of action under California law. See Cal.

Civ. Proc. Code § 1060 (allowing a party who desires a declaration of

his or her rights or duties with respect to another to ask for such a

declaration, either alone or with other relief).

30 INDEP. LIVING CTR. V. KENT

The majority explains that Armstrong v. Exceptional

Child Care Ctr., Inc., essentially foreclosed Appellants’

federal law claims by holding that neither the Supremacy

Clause, the Medicaid statute, nor even general principles of

equity provide a federal basis for challenging a state’s use of

Medicaid funds under § 30(A). 135 S. Ct. 1378, 1383–87

(2015). Armstrong’s limitation may apply to challenges

based on state law as well, because the Court held that “the

Medicaid Act implicitly precludes private enforcement of

§ 30(A),” and thus may preempt suits bringing § 30(A)

challenges under state law. Id. at 1385. If we were ruling

on the merits, Armstrong likely would require dismissal of

Appellants’ claims, but the parties settled their dispute

before Armstrong was decided and we are tasked only with

identifying the nature of the claims the parties resolved. Pre-

Armstrong, California state courts had issued writs of

mandate to force compliance with § 30(A), see ante at 15–

16, and Appellants’ insistence that the State had violated

§ 30(A) presented significant litigation risk to the State.

Both parties were aware of this and their settlement was

global; it encompassed not only the Appellants’ remaining

federal claims but also their state § 1085 claim (or what

remained of it).

So what state claim was settled? If nothing else, the

settlement included that portion of Appellants’ claim that

constituted a request for declaratory relief; that much of the

§ 1085 claim surely survived. From there, Erie dictates that

California’s substantive law on attorneys’ fees applies. Erie

R. Co. v. Tompkins, 304 U.S. 64 (1938); ante at 19–22. Just

as the State could not escape its waiver of sovereign

immunity by removing the case to federal court, Indep.

Living Ctr. of S. Cal., Inc. v. Maxwell-Jolly, 572 F.3d 644,

INDEP. LIVING CTR. V. KENT 31

661–63 (9th Cir. 2009) 4, it could not avoid exposure to

attorneys’ fees through removal. On remand, the district

court must decide whether Appellants’ counsel is eligible for

attorneys’ fees pursuant to Cal. Civ. Proc. Code § 1021.5.

2. Motion to Set Aside Attorneys’ Fees

I also agree that it was an abuse of discretion to deny

Appellants’ motion to set aside attorneys’ fees from the

$70 million reimbursement. Moreover, it is hard to see

anything that would prevent the district court from recouping

funds to which the Appellants’ attorneys may be entitled, as

long as the relief ultimately comes from providers who

received a windfall as a result of the earlier reimbursement,

and those providers have an opportunity to be heard on any

proposed plan for recoupment.

Although we lack jurisdiction over the individual

beneficiaries of the original reimbursement fund (i.e., the

various medical care providers), the court continues to have

jurisdiction over the Director and presumably it will be the

Director who will be responsible for reimbursing providers

for services yet to be furnished. I see no absolute obstacle to

gradually recouping an appropriate fee amount either as part

of a fractionally reduced reimbursement payment to the

overcompensated providers or through some comparable

process. The Director pointed out in her briefing at the time

the Appellants moved for a set aside that there are

inefficiencies and transaction costs associated with adjusting

the department’s automated payouts. However, those

difficulties do not appear to be sufficiently onerous to

4

Vacated and remanded on other grounds sub nom. Douglas v.

Indep. Living Ctr. of S. Cal., Inc., 132 S. Ct. 1204 (2012).

32 INDEP. LIVING CTR. V. KENT

warrant denying Appellants’ counsel a fee award to which

they may be entitled.