McClendon v. Georgia Department of Community Health

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED

U.S. COURT OF APPEALS

ELEVENTH CIRCUIT

______________________ AUGUST 17, 2001

THOMAS K. KAHN

No. 00-15005 CLERK

______________________

D.C. Docket No. 00-00026-CV-HLM-4

NICCIE MCCLENDON,

Individually and as Administrator of

the Estate of Alton McClendon and on

behalf of those similarly situated, BESSIE

HOGAN , individually and on behalf of

those similarly situated, et al.,

Plaintiffs-Appellants,

versus

GEORGIA DEPARTMENT OF COMMUNITY HEALTH,

RUSSELL TOAL, in his official capacity as

Commissioner of the Department of Community Health, et al.,

Defendants-Appellees.

______________________

Appeal from the United States District Court for the

Northern District of Georgia

______________________

(August 17, 2001)

Before CARNES, COX and NOONAN*, Circuit Judges.

CARNES, Circuit Judge:

This lawsuit is an attempt by Medicaid recipients in Georgia who have been

injured by the use of tobacco products to obtain from the State a portion of the

proceeds that it is due to receive under the $206 billion “Master Settlement

Agreement” consummated by the tobacco industry and 46 states in 1998. Georgia

is scheduled to receive $4.8 billion under that agreement, and the plaintiffs contend

that the Medicaid Act, 42 U.S.C. §§ 1396 et seq., entitles them to some of that

money. The defendants, who are various Georgia officials and a State agency,

think otherwise. The district court held that the lawsuit was barred by the Eleventh

Amendment. We affirm that holding as to the state agency, but do not reach the

more difficult issue of whether the Eleventh Amendment bars the lawsuit insofar as

the state officials are concerned, because we conclude that it lacks merit anyway.

I. BACKGROUND

On August 19, 1997, the State of Georgia and two State officials filed suit in

the superior court of Fulton County against six cigarette manufacturers and others

(“tobacco companies”), alleging that they had “unlawfully shifted the financial

*

Honorable John T. Noonan, Jr., U. S. Circuit Judge for the Ninth Circuit, sitting by

designation.

2

responsibility” to the State for the health care costs attributable to their “addictive,

injurious, and unreasonably dangerous products.” The complaint contained eleven

counts alleging violations of state law and requesting monetary and equitable

relief.1 It sought restitution “in excess of 2.78 billion dollars” for medical

assistance that the State estimated it had paid on behalf of Medicaid recipients who

suffered from tobacco-related injuries and illnesses.

The lawsuit was settled. On November 23, 1998, Georgia, and 45 other

states, entered into an agreement with the Tobacco companies known as the

“Master Settlement agreement.” As part of that agreement, the tobacco companies

agreed to pay Georgia an estimated $4.8 billion over the course of 25 years, with

the first payment of $58.9 million coming in December of 1999.

The settlement agreement stipulates that the payments are in settlement of

“antitrust, consumer protection, common law negligence, statutory, common law

and equitable claims for monetary, restitutionary, equitable and injunctive relief”

1

Specifically, the complaint alleged: (1) violations of Georgia’s RICO statute,

O.C.G.A. § 16-14-1 et seq.; (2) violations of the Georgia Uniform Deceptive Trade Practices

Act, O.C.G.A. § 10-1-372; (3) violations of the Georgia Fair Business Practices Act, O.C.G.A. §

10-1-393; (4) conspiracy; (5) negligence; (6) strict product liability; (7) that the State was

entitled to Medicaid reimbursement from the Tobacco companies under O.C.G.A. § 49-4-148 “in

excess of 2.78 billion dollars”; (8) that the State was entitled to restitution for its tobacco-related

expenses; (9) violation of the Tobacco companies’ “special duty” to the public; and (10) fraud

and deceit. Count eleven, which contained the prayer for relief, sought various forms of

injunctive and compensatory relief.

3

brought by the settling states against the tobacco companies. It defines “Released

Claims” as follows:

(1) for past conduct, acts or omissions (including any damages

incurred in the future arising from such past conduct, acts, or

omissions), those Claims directly or indirectly based on, arising out of

or in any way related, in whole or in part, to (A) the use, sale,

distribution, manufacture, development, advertising, marketing or

health effects of, (B) the exposure to, or (C) research, statements, or

warnings regarding, Tobacco Products (including, but not limited to,

the Claims asserted in the actions identified in Exhibit D, or any

comparable Claims that were, could be or could have been asserted

now or in the future in those actions or in any comparable action in

federal, state or local court brought by a Settling State or a Releasing

Party (whether or not such Settling State or Releasing Party has

brought such action)), except for claims not asserted in the actions

identified in Exhibit D for outstanding liability under existing

licensing (or similar) fee laws or existing tax laws (but not excepting

claims for any tax liability of the Tobacco-Related Organizations or of

any Released Party with respect to such Tobacco-Related

Organizations, which claims are covered by the release and covenants

set forth in this Agreement);

(2) for future conduct, acts or omissions, only those monetary Claims

directly or indirectly based on, arising out of or in any way related to,

in whole or in part, the use of or exposure to Tobacco Products

manufactured in the ordinary course of business, including without

limitation any future Claims for reimbursement of health care costs

allegedly associated with the use of or exposure to Tobacco Products.

The settlement agreement also defines the “Releasing Parties”:

(pp) “Releasing Parties” means each Settling State and any of its past,

present, and future agents, officials acting in their official capacities,

legal representatives, agencies, departments, commissions and

divisions; and also means, to the full extent of the power of the

signatories hereto to release past, present, and future claims, the

4

following: (1) any Settling State’s subdivisions (political or

otherwise, including, but not limited to, municipalities, counties,

parishes, villages, unincorporated districts and hospital districts),

public entities, public instrumentalities and public educational

institutions; and (2) persons or entities acting in a parents patriae,

sovereign, quasi-sovereign, private attorney general, qui tam,

taxpayer, or any other capacity, whether or not any of them participate

in this settlement, (A) to the extent that any such person or entity is

seeking relief on behalf of or generally applicable to the general

public in such Settling State or the people of the State, as opposed

solely to private or individual relief for separate and distinct injuries,

or (B) to the extent that any such entity (as opposed to an individual)

is seeking recovery of health-care expenses (other than premium or

capitation payments for the benefit of present or retired state

employees) paid or reimbursed, directly or indirectly, by a Settling

State.

As the quoted provisions indicate, by entering into the settlement agreement

Georgia released its past and future claims against the tobacco companies relating

to the manufacture and use of tobacco products, but it did not purport to release

private or individual claims based on separate and distinct injuries; those were

expressly excepted from release.

The plaintiffs in this case are individuals who suffer or have suffered from a

variety of illnesses caused by the use of tobacco products, and who have been

recipients of medical assistance payments under Georgia’s federally supported

Medicaid program. They brought this putative class action in January 27, 2000

on behalf of themselves and others similarly situated, alleging violations of the

Medicaid Act and the Fifth and Fourteenth Amendments to the United States

5

Constitution. They contend that federal law, 42 U.S.C. § 1396k(b), entitles them to

that amount of the settlement proceeds Georgia is scheduled to receive which

exceeds the amount the State has actually expended on medical assistance. The

defendants are the Georgia Department of Community Health, which, through its

Division of Medical Assistance, is responsible for administering Georgia’s

Medicaid program,2 as well as various State officials.

The complaint in this case asks for declaratory and injunctive relief,

specifically requesting that orders be issued requiring the defendants “to disburse

to the Plaintiffs ... that portion of the tobacco litigation settlement proceeds that

belong to the Plaintiffs,” and enjoining the defendants “to provide to each and

every member of the plaintiff class due process of law concerning all property

previously taken,” including notice, information and documents regarding each

plaintiff’s share of the settlement proceeds, and hearings to allow individual

plaintiffs to challenge denials of those proceeds. The complaint includes claims

that the defendants violated the Medicaid Act, 42 U.S.C. § 1396a(25)(A)-(B), by

failing to seek reimbursement from third parties for medical assistance payments

made by the State, and that the defendants “have violated and are violating federal

2

The Georgia Department of Community Health has assumed “powers and

responsibility with respect to the expenditure of any funds appropriate to the department,

including, without being limited to, funds received by the state pursuant to the [settlement

agreement.]” O.C.G.A. § 31-5A-4(a).

6

law” by failing to distribute a portion of the settlement proceeds to the plaintiffs.

However, at least before this Court, the plaintiffs have abandoned any claims about

past violations of federal law, and insist that they seek only “future compliance

with federal law at each future point when the federal law becomes applicable to

collected funds.” Brief for Appellant at 26, McClendon v. Ga. Dept. of Cmty.

Health, ___ F.3d ___ (11th Cir. 2001) (No. 00-15005).

The district court granted the defendants’ motion to dismiss on the ground

that, under the Eleventh Amendment, the court lacked subject-matter jurisdiction

to entertain the plaintiffs’ suit.

II. CONTENTIONS OF THE PARTIES

The plaintiffs contend that notwithstanding the dictates of the Eleventh

Amendment, their suit is permissible under the doctrine announced in Ex Parte

Young, 209 U.S. 123, 28 S. Ct. 441 (1908). The Young doctrine permits federal

courts to entertain suits against state officers seeking prospective equitable relief to

end continuing violations of federal law. See Summit Med. Assocs., P.C. v. Pryor,

180 F.3d 1326, 1336 (11th Cir. 2000), cert. denied, 120 S. Ct. 1287 (2000)

(“Summit Medical”). According to the plaintiffs, the relief they seek is prospective

because the defendants will not violate federal law, 42 U.S.C. § 1396k(b), until

some time in the future, when Georgia receives settlement proceeds from the

7

tobacco companies in excess of the State’s actual medical assistance payments, and

unlawfully fails to disburse those excess proceeds to them. The plaintiffs claim

that point has not yet been reached and will not be reached until years in the future.

The defendants argue that the district court correctly determined that the

Eleventh Amendment bars the plaintiffs’ claims because those claims are not for

prospective relief, but instead are claims for money damages based on a past

violation of federal law. The defendants also argue that, even if the plaintiffs’ suit

fits within the Ex Parte Young doctrine, it is still barred by the Eleventh

Amendment because the relief the plaintiffs seek would infringe on Georgia’s

“special sovereignty interests” in controlling property received in the settlement of

a lawsuit. In the alternative, the defendants argue, the plaintiffs have failed to state

a claim upon which relief can be granted. The plaintiffs, of course, maintain that

they have stated a valid claim for relief.

III. DISCUSSION

A. THE ELEVENTH AMENDMENT

The Eleventh Amendment provides that “[t]he judicial power of the United

States shall not be construed to extend to any suit in law or equity, commenced or

8

prosecuted against one of the United States by Citizens of another State, or by

Citizens or subjects of any Foreign State.” U.S. Const. Amend. XI. Though by its

plain terms the Eleventh Amendment only precludes federal courts from

entertaining suits against a state brought by citizens of another state, it has been

construed to bar suits against a state brought by that state’s own citizens as well.

See, e.g., Bd. of Trs. of Univ. of Ala. v. Garrett, 531 U.S. 356, 121 S. Ct. 955, 961-

62 (2001). The Amendment is rooted in the recognition that states, though part of

a union, retain attributes of sovereignty, including immunity from being compelled

to appear in the courts of another sovereign against their will. See Puerto Rico

Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 146 & n.5, 113 S.

Ct. 684, 689 & n.5 (1993); Dekalb County Sch. Dist. v. Schrenko, 109 F.3d 680,

688 (11th Cir. 1997). In short, the Eleventh Amendment’s ultimate guarantee is

that nonconsenting states may not be sued by private individuals in federal court.

See Garrett, 531 U.S. 356, 121 S. Ct. at 962; Kimel v. Fla. Bd. of Regents, 528

U.S. 62, 72-73, 120 S. Ct. 631, 640 (2000).

Because the Eleventh Amendment represents a constitutional limitation on

the federal judicial power established in Article III, see Pennhurst State Sch. &

Hosp. v. Halderman, 465 U.S. 89, 98, 104 S.Ct. 900, 906-07 (1984), federal courts

lack jurisdiction to entertain claims that are barred by the Eleventh Amendment.

9

See Vermont Agency of Natural Res. v. United States, 529 U.S. 765, 778, 120 S.

Ct. 1858, 1865 (2000); Pennhurst, 465 U.S. at 98, 104 S.Ct. at 906 (The

significance of the Eleventh Amendment “lies in its affirmation that the

fundamental principle of sovereign immunity limits the grant of judicial authority

in Art. III.”) (internal marks and citation omitted). In accordance with the

jurisdictional nature of the Eleventh Amendment’s limitation on judicial authority,

the Supreme Court has held that the “Eleventh Amendment defense ... need not be

raised in the trial court,” Edelman v. Jordan, 415 U.S. 651, 678, 94 S. Ct. 1347,

1363 (1974), and may be raised for the first time by a state on appeal, see Ford

Motor Co. v. Dept. of Treasury, 323 U.S. 459, 467, 65 S. Ct. 347, 352 (1945).

But the jurisdictional bar embodied in the Eleventh Amendment is a “rather

peculiar kind of ‘jurisdictional’ issue.” United States v. SCS Bus. & Tech. Inst.,

Inc., 173 F.3d 890, 892 (D.C. Cir. 1999). Unlike most subject matter jurisdiction

issues, which cannot be waived by the parties and must be raised by a court on its

own initiative, the Eleventh Amendment does not automatically deprive a court of

original jurisdiction. Wisconsin Dept. of Corrections v. Schacht, 524 U.S. 381,

389, 118 S. Ct. 2047, 2052 (1998); see Calderon v. Ashmus, 523 U.S. 740, 745

n.2, 118 S. Ct. 1694, 1697 n.2 (1998) (“While the Eleventh Amendment is

jurisdictional in the sense that it is a limitation on the federal court’s judicial

10

power, ... we have recognized that it is not coextensive with the limitations on

judicial power in Article III.”). “Rather,” the Supreme Court has explained, “the

Eleventh Amendment grants the State a legal power to assert a sovereign immunity

defense should it choose to do so.” Schacht, 524 U.S. at 389, 118 S. Ct. at 2052.

This understanding of the Eleventh Amendment as a volitional defense is manifest

in decisions allowing it to be waived by the state, see, e.g., Atascadero State Hosp.

v. Scanlon, 473 U.S. 234, 241, 105 S. Ct. 3142, 3146-47 (1985), or ignored by the

court if not raised, see, e.g., Patsy v. Bd. of Regents of Fla., 457 U.S. 496, 515

n.19, 102 S. Ct. 2557, 2567, n.19 (1982). Thus, unlike other jurisdictional bars,

federal courts are required to consider whether the Eleventh Amendment strips

them of jurisdiction only if the state defendant insists that it does.

The Supreme Court’s decision in Patsy illustrates the elective nature of the

Eleventh Amendment’s jurisdictional bar. See 457 U.S. 496, 102 S. Ct. 2557. In

that case the defendant, the Board of Regents of the State of Florida, raised an

Eleventh Amendment defense in its brief to the original court of appeals panel, and

in its response in opposition to the plaintiff’s petition for certiorari. See id. at 515

n.19, 102 S. Ct. at 2567 n.19. Although the Eleventh Amendment defense had

been raised by the defendant before the case reached that level, the Supreme Court

declined to consider whether it barred the plaintiff’s suit, explaining that “we have

11

never held that [the Eleventh Amendment] is jurisdictional in the sense that it must

be raised and decided by this Court on its own motion.” Id. The defendant in

Patsy had “expressly requested” that the Court not pass on the State’s potential

Eleventh Amendment immunity and, consequently, the Court disposed of the case

solely on the merits. Id. In doing so, the Court noted that its disposition of the

case did not “preclude[] the Board of Regents from raising its Eleventh

Amendment claim on remand.” Id.

The defendants in this case have put forth two alternative bases for affirming

the district court’s dismissal of the plaintiffs’ claims. They contend that we can

dismiss this lawsuit either because the Eleventh Amendment deprives us of

jurisdiction to consider it, or because the plaintiffs’ complaint fails to state a claim

upon which relief can be granted. After summarizing their Eleventh Amendment

defense, the defendants stated in their reply brief that “[t]he dismissal of [the

plaintiffs’] complaint can also be affirmed on the ground that [their] complaint

failed to state a claim upon which relief could be granted.” Brief for Appellant at

11, McClendon v. Ga. Dept. of Cmty. Health, ___ F.3d ___ (11th Cir. 2001) (No.

00-15005). At oral argument before this Court, counsel for the defendants stated

that “[e]ither [the Eleventh Amendment or the plaintiffs’ failure to state a claim] is

sufficient basis to affirm [the district court’s] decision.”

12

We interpret the defendants’ position as a conditional assertion of Eleventh

Amendment sovereign immunity – they insist upon that defense only if it is

necessary to prevent judgment against them on the merits. In other words, the

defendants are willing to withhold the assertion of the Eleventh Amendment

provided that our disposition of the merits issue is favorable to them. Only if we

are going to decide the merits issue against them do they insist upon a ruling on the

Eleventh Amendment issue. Because the Eleventh Amendment “grants the State a

legal power to assert a sovereign immunity defense should it choose to do so,”

Schacht, 524 U.S. at 389, 118 S. Ct. at 2052, the defendants are free to

conditionally assert that defense in order to allow a federal court to decide in their

favor on the merits. Accord United States ex rel. Long v. SCS Bus. & Tech. Inst.,

Inc., 173 F.3d 890, 893 (D.C. Cir. 1999); Parella v. Ret. Bd., 173 F.3d 46, 53-57

(1st Cir. 1999); see also Floyd v. Thompson, 227 F.3d 1029, 1035 (7th Cir. 2000).

But see United States v. Tex. Tech Univ., 171 F.3d 279 (5th Cir. 1999) (holding

that federal courts must consider Eleventh Amendment defense before addressing

merits).1

1

The defendants are represented by Georgia’s Attorney General. In Lapides v. Board of

Regents, 251 F.3d 1372, 1374-76 (11th Cir. 2001), we held that Georgia’s Attorney General

does not possess the authority to waive the State’s Eleventh Amendment immunity from suit.

But that case dealt with an unconditional waiver of the Eleventh Amendment, not the conditional

assertion of it. Accordingly, the holding of Lapides is not controlling here.

13

The proposition that a federal court may consider the merits before

determining the applicability of an Eleventh Amendment immunity defense when a

state invites it to do so may appear to conflict with our decision in Seaborn v.

Florida, 143 F.3d 1405 (11th Cir. 1998), but we do not believe there is a conflict

when the holding of that case is limited to the circumstances that gave rise to it. In

Seaborn, we did say that “an assertion of Eleventh Amendment immunity must be

resolved before a court may address the merits of the underlying claim(s).” Id. at

1407 (citing Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 93-101, 118 S.

Ct. 1003, 1012-16 (1998)).2 However, in contrast to the defendants here, there is

no indication that the defendants in Seaborn expressed a willingness to permit the

court to reach the merits instead of considering the Eleventh Amendment issue.

Because the defendants in this case have conditionally consented to us bypassing

2

The Supreme Court in Steel Co. rejected the doctrine of “hypothetical jurisdiction,” a

practice previously adopted by this Court whereby we would hypothetically assume jurisdiction

over a case and then proceed to dismiss the case on the merits. See, e.g., Smith v. Avino, 91

F.3d 105, 107 (11th Cir. 1996), abrogated by Steel Co., 523 U.S. at 93-101, 118 S. Ct. at 1012-

16. The Court in Steel Co. reasoned that courts should confront jurisdictional questions before

delving into the merits of a particular case, because jurisdiction is a “question the court is bound

to ask and answer for itself, even when not otherwise suggested ....” Id. at 94, 118 S. Ct. at 1012

(internal marks and citation omitted). Two of our sister circuits have questioned the applicability

of Steel Co.’s holding in the context of Eleventh Amendment sovereign immunity. See United

States ex rel. Long v. SCS Bus. & Tech. Inst., Inc., 173 F.3d 890, 893-97 (D.C. Cir. 1999)

(“[T]he quasi-jurisdictional or ‘hybrid’ status of the Eleventh Amendment raises questions about

Steel Co.’s applicability in this context ....”) (citations omitted); Parella v. Ret. Bd., 173 F.3d 46,

54-57 (1st Cir. 1999) (“Eleventh Amendment issues do not fall into the category of Article III

questions that Steel Co. would define as necessarily antecedent.”).

14

the Eleventh Amendment issue and proceeding directly to the merits, this is a

different case than Seaborn. See generally United States v. Aguillard, 217 F.3d

1319, 1321 (11th Cir. 2000) (“The holdings of a prior decision can reach only as

far as the facts and circumstances presented to the Court in the case which

produced that decision.”) (quoting, Carnes, J., concurring in United States v.

Hunter, 172 F.3d 1307, 1309 (11th Cir. 1999)).

The Seventh Circuit faced virtually identical issues to those we face here, in

a lawsuit brought by plaintiffs in the State of Wisconsin seeking part of that

State’s tobacco settlement proceeds. Floyd v. Thompson, 227 F.3d 1029 (7th Cir.

2000). Recognizing that the Eleventh Amendment issues were “complex,” the

Court declined to decide them. Instead, explaining “[t]he Supreme Court has

indicated that the Eleventh Amendment occupies its own unique territory,” the

Seventh Circuit concluded that it could sidestep the Eleventh Amendment issues

because the claims lacked merit, anyway. Id. at 1035 - 37. We agree that such an

approach is permissible, at least where it is invited by the defendants as it is in this

case. See generally Patsy, 457 U.S. at 515 n.19, 102 S. Ct. at 2567 n.19 (“[W]e

have never held that [the Eleventh Amendment] is jurisdictional in the sense that it

must be raised and decided by this Court on its own motion.”).

15

Of course, a state or its officials cannot force a federal court to decide the

merits of a claim before addressing the Eleventh Amendment issue, and we can

raise an Eleventh Amendment issue on our own motion. Whiting v. Jackson State

University, 616 F.2d 116, 126 n.8 (5th Cir. 1980). Our holding is limited to the

conclusion that the conditional assertion of the Eleventh Amendment gives a

federal court the discretion to dispose of the merits favorably to the state or its

officials if it chooses to do so. Given modern caseload burdens, one of the

paramount considerations in deciding whether to accept such an invitation will be

the difficulty of the Eleventh Amendment issues compared to the merits issues.

See Parella, 173 F.3d at 56 (“[A]voiding Eleventh Amendment questions where

there are other dispositive issues ... permits courts to avoid squandering judicial

resources.”). Here, there is nothing difficult about the Eleventh Amendment issue

as it relates to the claims against the Georgia Department of Public Health – those

claims are clearly barred by the Amendment. See Alabama v. Pugh, 438 U.S. 781,

782, 98 S.Ct. 3057, 3057 (1978). So, we affirm the district court’s dismissal of the

state agency on that ground. However, the Eleventh Amendment issues involving

the state officials, which entail the application of the Ex Parte Young exception,

are much thornier. See Floyd, 227 F.3d at 1034-35. The difficulty of those

Eleventh Amendment issues, coupled with the fact that the merits issues are open

16

and shut in favor of the defendants, causes us to exercise our discretion to look

around the Eleventh Amendment issues involving the state official defendants to

the merits.

B. FAILURE TO STATE A CLAIM

We begin our discussion of the merits of the plaintiffs’ claims with a sketch

of the relevant statutory and regulatory provisions that form the basis for those

claims.

Medicaid is a cooperative federal and state program designed to finance

health care services for the indigent. It was established by Title XIX of the Social

Security Act, 42 U.S.C. §§ 1396 et seq. (“Medicaid Act”), and is administered in

Georgia by the Department of Community Health, see O.C.G.A. § 49-4-142(a). As

a voluntary participant in the Medicaid program, Georgia is “obligated to comply

with the requirements of the Medicaid Act and corresponding regulations.” Fla.

Ass’n. of Rehab. Facilities, Inc. v. Fla. Dep’t of Health & Rehab. Servs., 225 F.3d

1208, 1216 n.5 (11th Cir. 2000); see 42 U.S.C. § 1396a; O.C.G.A. § 49-4-157 (“It

is the intention of [the State of Georgia] that this article be construed consistently

with Title XIX ....”).

One requirement of the Medicaid Act is that Georgia provide, as a condition

of eligibility to receive benefits under its Medicaid program, that individuals assign

17

to the State any rights to payment for medical care from third parties. See 42

U.S.C. § 1396k(a).3 Georgia has implemented this federal command through

Section 49-4-149 of its state code, which provides that:

A recipient of medical assistance who receives medical care for which

the department may be obligated to pay shall be deemed to have made

assignment to the department of any rights of such person to any

payments for such medical care from a third party, up to the amount

of medical assistance actually paid by the department .... The

assignment created by this subsection shall be effective until the

recipient of medical assistance is no longer an eligible recipient for

medical assistance.

O.C.G.A. § 49-4-149(d); see also id. § 49-4-148 (Georgia Department of

Community Health may seek reimbursement from third party who is legally liable

3

Section 1396k(a) states:

(a) For the purpose of assisting in the collection of medical support payments for

medical care owed to recipients of medical assistance under the State plan

approved under this subchapter, a State plan for medical assistance shall –

(1) provide that, as a condition of eligibility for medical assistance under

the State plan to an individual who has the legal capacity to execute an

assignment for himself, the individual is required –

(A) to assign the State any rights, of the individual or of any other person

who is eligible for medical assistance under this subchapter and on whose

behalf the individual has the legal authority to execute an assignment of

such rights, to support (specified as support for the purpose of medical

care by a court or administrative order) and to payment for medical care

from a third party.

42 U.S.C. § 1396k(a).

18

to pay for recipient’s medical assistance and may be subrogated “only to the extent

of such reasonable value of the medical assistance paid”).

The Medicaid Act regulates the distribution of proceeds collected by states

from third parties under an assignment of rights “in a manner that parallels the

usual subrogation rules.” Floyd v. Thompson, 227 F.3d 1029, 1032 (7th Cir.

2000). The Act provides that:

Such part of any amount collected by the State under an assignment

made under the provisions of this section shall be retained by the State

as is necessary to reimburse it for medical assistance payments made

on behalf of an individual with respect to whom such assignment was

executed (with appropriate reimbursement of the Federal Government

to the extent of its participation in the financing of such medical

assistance), and the remainder of such amount collected shall be paid

to such individual.

42 U.S.C. § 1396k(b). As this provision indicates, in the event that Georgia

recovers monies from a third party under the Medicaid recipients’ assignment of

rights, the State must retain only that amount of money necessary to reimburse it

for its actual medical assistance payments, must reimburse the federal government

to the extent of its participation in financing those payments and, lastly, must pay

“the remainder of such amount collected” to individual Medicaid recipients. See

also 42 C.F.R. § 433.154 (the state must distribute collections to itself, to the

federal government and, lastly, to individual recipients).

19

The plaintiffs contend that Georgia’s portion of the settlement proceeds is

subject to the disbursement requirements in § 1396k(b), because those proceeds are

being collected by the State “under an assignment of rights.” They maintain that

the total amount Georgia is scheduled to receive under the settlement agreement,

roughly $4.8 billion, exceeds the amount the State spent on medical assistance.

Accordingly, the plaintiffs argue, § 1396k(b) of the Medicaid Act requires Georgia

to distribute that excess money to them.

In deciding the merits of the plaintiffs’ claims, we will assume as they

contend, that Georgia’s $4.8 billion recovery is being or will be collected “under

an assignment” within the meaning of 42 U.S.C. § 1396k(b). Still, that provision

states that Georgia shall retain “[s]uch part of any amount collected by the State

under an assignment made under the provisions of this section ... necessary to

reimburse it for medical assistance payments made on behalf of an individual with

respect to whom such assignment was executed ....” Id. That clearly means

plaintiffs have a valid claim, if at all, only to amounts Georgia has or will receive

under the settlement agreement that exceed what the State spent providing medical

assistance. See 42 U.S.C. § 1396k(b); see also 42 C.F.R. § 433.154.

The problem for the plaintiffs is that Georgia cannot collect “under an

assignment” anything beyond what it actually spent on medical assistance, because

20

under the state’s Medicaid law the only thing the plaintiffs assigned to Georgia

were their rights to collect payments “up to the amount of medical assistance

actually paid by the [State].” See O.C.G.A. § 49-4-149(d) (“A [Medicaid]

recipient ... shall be deemed to have made assignment to the [State] of any rights of

such person to any payments for such medical care from a third party, up to the

amount of medical assistance actually paid by the [State] ....”); see also 42 C.F.R. §

433.146(c). The plaintiffs assigned to Georgia their rights to collect only the

amount the State had spent on medical treatment, which under § 1396k(b) is the

State’s own share of the settlement proceeds. We agree with the Seventh Circuit

that because “there is nothing in the [settlement agreement] to which the plaintiffs

may assert a claim,” Floyd, 227 F.3d at 1037, they have failed to state a claim upon

which relief may be granted. Accord Skillings v. Illinois, 121 F. Supp.2d 1235,

1237-38 (C.D. Ill. 2000); Clark v. Stovall, No. 00-4054 (D. Kan. March 2, 2001);

see also Strawser v. Lawton, 126 F. Supp. 2d 994, 1001 (S.D. W.Va. 2001) (dicta);

Cal. v. Superior Court, 99 Cal. Rptr. 2d 735, 742 n.10 (Cal. Ct. App. 2000).

Our conclusion is reinforced by the terms of the settlement agreement, which

defines “Releasing Parties” as the various settling states, their subdivisions, and

representatives, but which explicitly excludes from the release persons seeking

“solely ... private or individual relief for separate and distinct injuries.” By that

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means, the agreement preserves the plaintiffs’ right to sue the tobacco companies

for their tobacco-related injuries and illnesses. See Floyd, 227 F.3d at 1037 (“[The

settlement agreement] did not purport to extinguish the claims of individual

persons who were not part of the settlement process...”); Strawser, 126 F. Supp. 2d

at 1001-02. The reason the agreement preserved all claims of these plaintiffs and

those like them is that the settlement proceeds were paid only for other claims –

those covering the interests of the settling states themselves. The plaintiffs are not

entitled to any of the settlement proceeds now or in the future.

IV. CONCLUSION

We AFFIRM the dismissal of the complaint on Eleventh Amendment

grounds as to the Georgia Department of Public Health. Whether the complaint

should have been dismissed on Eleventh Amendment grounds insofar as the state

official defendants are concerned is an issue we need not address, because the

complaint clearly fails to state a claim upon which relief can be granted. We

VACATE the district court’s dismissal on Eleventh Amendment grounds as to the

state official defendants and REMAND with instructions that the complaint be

dismissed under Fed. R. Civ. P. 12(b)(6).

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NOONAN, Circuit Judge, concurring in the judgment:

This action is barred by 42 U.S.C. § 1396b(d)(3)(B)(ii).

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