Wee Care Child Center, Inc. v. Lumpkin

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 12a0110p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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WEE CARE CHILD CENTER, INC. and TONYA

Plaintiffs-Appellants, --

L. BROWN,

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No. 10-4160

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v.

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DOUGLAS E. LUMPKIN, IAN MCDOUGALL,

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DAN LANTZ, DEBBIE HATFIELD, DIANNE

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BRIDGES, CAROL A. ANKROM, KRISTIN S.

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SMITH, PEGGY BLEVINS, LEMUEL HARRISON,

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JR., MICHELLE M. VENT, HELEN E. JONES-

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KELLEY, BARBARA RILEY, JOHN DOE I, JOHN

DOE II, MATTHEW MURRAY, and MICHELLE -

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Defendants-Appellees. -

ALBAST,

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Appeal from the United States District Court

for the Southern District of Ohio at Columbus.

No. 2:09-cv-01059—Edmund A. Sargus, Jr., District Judge.

Argued: April 12, 2012

Decided and Filed: April 27, 2012

Before: COLE and McKEAGUE, Circuit Judges; ZATKOFF, District Judge.*

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COUNSEL

ARGUED: H. Macy Favor, Jr., FAVOR LEGAL SERVICES, Columbus, Ohio, for

Appellants. Henry G. Appel, OFFICE OF THE OHIO ATTORNEY GENERAL,

Columbus, Ohio, Mary Jane Martin, PROSECUTING ATTORNEY’S OFFICE,

Columbus, Ohio, for Appellees. ON BRIEF: H. Macy Favor, Jr., FAVOR LEGAL

SERVICES, Columbus, Ohio, for Appellants. Henry G. Appel, OFFICE OF THE OHIO

ATTORNEY GENERAL, Columbus, Ohio, Mary Jane Martin, PROSECUTING

ATTORNEY’S OFFICE, Columbus, Ohio, for Appellees.

*

The Honorable Lawrence P. Zatkoff, United States District Judge for the Eastern District of

Michigan, sitting by designation.

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No. 10-4160 Wee Care Child Center, et al. v. Lumpkin, et al. Page 2

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OPINION

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COLE, Circuit Judge. Plaintiffs-Appellants Wee Care Child Center, Inc. and

Tonya Brown appeal the district court’s grants of the Defendants’ motion to dismiss

under Federal Rule of Civil Procedure Rule 12(b)(6) and cross-motion for judgment on

the pleadings under Rule 12(c). This case comes to us as the latest in a long history of

litigation between the Plaintiffs and various state and local government agencies and

officials over the licensing of Wee Care Child Center. After reviewing this lengthy

procedural history, we find many of the Plaintiffs’ current claims waived. Because we

also find the remaining unwaived claims barred by the Local Government Antitrust Act

of 1984, we AFFIRM.

I.

A. Factual Background

Plaintiff Brown is the owner and operator of Wee Care Child Center, Inc., (“Wee

Care”), a now-defunct Columbus, Ohio, day care center that provided child care services

for children of low-income parents. The Ohio Department of Job and Family Services

(“ODJFS”) originally granted Wee Care an operating license under Ohio Revised Code

§ 5104.02 et seq., and when this license expired in December 2005, Wee Care timely

applied for a renewal. This renewal application remained pending without any official

decision for fifteen months, from December 2005 to March 2007. During this time

period, ODJFS issued three expired licenses, in July 2006, August 2006, and January

2007, gradually reducing Wee Care’s capacity from eighty-eight to thirty-eight children.

These expired licenses remained valid operating licenses throughout the pendency of the

renewal process. See Ohio Rev. Code § 119.06.

To provide its service, Wee Care primarily relied on funding contracts under

Title XX, which provides government assistance for child care. See 42 U.S.C. § 1397

et seq. In May or June 2006, the Franklin County Department of Job and Family

No. 10-4160 Wee Care Child Center, et al. v. Lumpkin, et al. Page 3

Services (“FCDJFS”)—the agency responsible for distributing and negotiating Title XX

funding contracts—decided to discontinue providing public assistance for Wee Care’s

child care services. FCDJFS based this decision on a proposed adjudication order from

ODJFS, which would reject Wee Care’s renewal application based on its failure to

provide a safe environment for children. Among ODJFS’s justifications for rejecting the

renewal application were Wee Care’s alleged improper use of physical discipline and

failure to adequately ensure that its employees did not have disqualifying criminal

convictions.

In July 2006, Wee Care requested an evidentiary hearing from ODJFS on the

proposed adjudication order. This hearing was originally scheduled for October 2006,

but was later delayed until November 2006. Prior to the scheduled hearing, ODJFS

withdrew the proposed adjudication order, purportedly with the intent to re-file it at a

later date with an additional charge. Wee Care, however, contends that ODJFS

withdrew the order because it had insufficient evidence to prove its allegations against

Wee Care.

Although ODJFS permitted Wee Care to continue operating its day care center

under the expired licenses, Wee Care experienced difficulty negotiating and renewing

third-party contracts, including its liability insurance contract and renewal certification

from the Ohio Bureau of Workers’ Compensation, as well as its Title XX contract.

These losses eventually forced Wee Care to go out of business on March 3, 2007.

B. Procedural Background

Wee Care’s long-fought battle with Ohio state and local government over its

renewal application and Title XX funding contract began in November 2007 when Wee

Care filed suit in the United States District Court for the Southern District of Ohio (“Wee

Care I”). Wee Care raised a claim under 42 U.S.C. § 1983, as well as state law tort

claims of tortious interference with contracts and business relationships. Wee Care

requested eighty-eight million dollars in damages against ODJFS and three individuals,

Helen Jones-Kelly, Barbara Riley, and Peggy Blevins. ODJFS filed a motion to dismiss

and Wee Care voluntarily dismissed the suit without prejudice.

No. 10-4160 Wee Care Child Center, et al. v. Lumpkin, et al. Page 4

In February 2008, Wee Care again filed suit in the United States District Court

for the Southern District of Ohio, asserting the same § 1983 and state tort law causes of

action. This suit (“Wee Care II”) also named Tonya Brown as a plaintiff and added an

allegation that the defendants’ actions were motivated by racial animus. The suit again

requested eighty-eight million dollars in damages and was filed against ODJFS and the

three original individual defendants as well as ODJFS employees, Lemuel Harrison and

Michelle Vent. In December 2008, while Wee Care II was pending, Wee Care and

Brown filed suit in the Ohio Court of Claims against ODJFS and the State of Ohio (“Wee

Care III”), requesting the same monetary damages and alleging similar legal issues as

the prior lawsuits.

After Wee Care III was filed in the Ohio Court of Claims, the Wee Care II

defendants filed a motion to dismiss, arguing that the plaintiffs’ claims against the

individual defendants had been waived under § 2743.02(A)(1) of the Ohio Revised

Code. The Wee Care II court “found that, by electing to sue ODJFS in the Court of

Claims, Plaintiffs had waived their claims against the individual State Defendants” and

granted the motion to dismiss as to the individual defendants. Wee Care Child Center,

Inc. v. Lumpkin, No. 2:09-cv-1059, 2010 WL 3463369, at *2 (S.D. Ohio Aug. 30, 2010).

The state also argued that Eleventh Amendment sovereign immunity barred the

plaintiffs’ claims against the state, and the court dismissed the claims against ODJFS on

that basis.

Following the dismissal of Wee Care II, the Wee Care III plaintiffs requested a

hearing to determine whether the individual defendants were entitled to immunity as

government defendants. See Ohio Revised Code § 9.86. The Wee Care III court

decided, over the plaintiffs’ objection, to hold the immunity hearing at the same time as

the trial on the merits. Thereafter, the plaintiffs voluntarily dismissed Wee Care III.

Three days after voluntarily dismissing Wee Care III, Wee Care again filed suit

in the United States District Court for the Southern District of Ohio (“Wee Care IV”).

In Wee Care IV, Wee Care and Brown named sixteen employees of ODJFS and FCDJFS

as defendants. An amended complaint named eleven ODJFS employees (“State

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Defendants”) and five FCDJFS employees (“County Defendants”). Wee Care raised

four causes of action, alleging that the State and County Defendants violated Section 1

of the Sherman Antitrust Act, and that the County Defendants tortiously interfered with

Wee Care’s contracts and business relationships, and engaged in a civil conspiracy. The

State Defendants filed a motion to dismiss under Rule 12(b)(6) on the basis of Ohio

Revised Code § 2743.02(A)(1) waiver, qualified immunity, the state action doctrine, and

a failure to satisfy pleading standards. The district court granted this motion, concluding

that Wee Care’s claims were waived because Wee Care IV involves the same act or

omission alleged in Wee Care III. The court further concluded that § 2743.02(A)(1)

waiver applied irrespective of Wee Care’s attempt to couch Wee Care IV in a new

antitrust cause of action.

The County Defendants and Wee Care also both filed motions for judgment on

the pleadings under Rule 12(c). The County Defendants alleged immunity from money

damages under the Local Government Antitrust Act of 1984 (“LGAA”), 15 U.S.C.

§§ 34-36, as well as asserted qualified immunity, the state action doctrine, and failure

to satisfy pleading standards as additional bases for judgment in their favor. The district

court granted the County Defendants’ motion, finding the LGAA to bar Wee Care’s

request for relief on the antitrust claim and then declined to exercise supplemental

jurisdiction over the remaining state law claims. Wee Care timely appeals the district

court’s orders and it is Wee Care IV that is currently before this Court.

In November 2010, following the district court’s decision in Wee Care IV, Wee

Care again filed suit in the Ohio Court of Claims (“Wee Care V”), against ODJFS and

five individual defendants, raising allegations nearly identical to Wee Care III. The

Ohio Court of Claims has stayed proceedings in Wee Care V in response to the appeal

of Wee Care IV currently before this Court.

No. 10-4160 Wee Care Child Center, et al. v. Lumpkin, et al. Page 6

II.

A. Standard of Review

We review a district court’s grant of a motion to dismiss under Federal Rule of

Civil Procedure 12(b)(6) de novo. Turker v. Ohio Dep’t of Rehab. & Corr., 157 F.3d

453, 456 (6th Cir. 1998). “To survive a motion to dismiss, [the plaintiff] must allege

‘enough facts to state a claim to relief that is plausible on its face.’” Traverse Bay Area

Intermediate Sch. Dist. v. Mich. Dep’t of Educ., 615 F.3d 622, 627 (6th Cir. 2010)

(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “The Court must

construe the complaint in light most favorable to the plaintiff, accept all the factual

allegations as true, and determine whether the plaintiff can prove any set of facts in

support of her claim that would entitle her to relief.” Turker, 157 F.3d at 456. We also

review the “district court’s decision regarding a motion for judgment on the pleadings

pursuant to Federal Rule of Civil Procedure 12(c) . . . using the same de novo standard

of review” as a motion to dismiss under Rule 12(b)(6). Tucker v. Middleburg-Legacy

Place, 539 F.3d 545, 549 (6th Cir. 2008).

B. Wee Care’s Claims Against the State Defendants

The Wee Care IV complaint raises one claim against the State Defendants, a per

se violation of Section 1 of the Sherman Antitrust Act. Wee Care bases its antitrust

action on ODJFS’s allegedly improper process of responding to license renewal

applications, which involves a procedure Wee Care characterizes as a “zero out scheme.”

Under this alleged zero out scheme, Wee Care contends that ODJFS would not respond

timely to renewal applications and, with the cooperation of FCDJFS, would deny Title

XX funding to day care centers awaiting a renewal decision. As the day care centers

were left to operate under expired licenses that often reduced the number of children the

center could serve, the day care centers would have trouble negotiating necessary

third-party contracts. With fewer clients and no Title XX funding, the businesses

eventually would be forced to close.

No. 10-4160 Wee Care Child Center, et al. v. Lumpkin, et al. Page 7

Wee Care alleges that ODJFS implemented this zero out procedure as a means

to control the day care market and drive disfavored businesses out of the market without

providing the due process hearing required by Ohio law. Section 119.06(C) of the Ohio

Revised Code requires any licensing agency to “afford a hearing upon the request of a

person whose application for a license has been rejected . . . .” Ohio Rev. Code

§ 119.06(C). Wee Care alleges that when ODJFS wanted to deny an application, rather

than affording the day care operator a hearing, the State Defendants would delay the

hearing for such lengthy periods of time that the day care center eventually went out of

business, mooting the request for a hearing.

Wee Care’s attempt to establish an antitrust claim against the State Defendants

based on this alleged zero out scheme fails both as a matter of state and federal law. As

a threshold matter, as the district court correctly concluded, § 2743.02(A)(1) expressly

prohibits Wee Care from raising any claims regarding any such zero out procedure

against individual government employees. In this section, Ohio law provides a limited

waiver of sovereign immunity and consent to suit in the Court of Claims. However, it

also provides that a plaintiff who elects to sue the state in that court waives the right to

raise claims against individual employees of the state. Section 2743.02(A)(1) states that

“filing a civil action in the court of claims results in a complete waiver of any cause of

action, based on the same act or omission, which the filing party has against any officer

or employee . . . .” This waiver is void if “the court determines that the act or omission

was manifestly outside the scope of the officer’s or employee’s office or employment

or that the officer or employee acted with malicious purpose, in bad faith, or in a wanton

or reckless manner.” Id.; see Leaman v. Ohio Dep’t of Mental Retardation & Dev.

Disabilities, 825 F.2d 946, 953 (6th Cir. 1987) (en banc).

When Wee Care filed Wee Care III in the Court of Claims against ODFJS and

the State of Ohio, it waived any claims against the individual officers and employees that

arose from the same act or omission. Wee Care contends that Wee Care III does not

involve the same acts or omissions as Wee Care IV, because its current complaint

couches its causes of action in terms of antitrust and conspiracy violations, whereas prior

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iterations of the complaint were presented as due process violations. Although the

parties dispute whether Wee Care even raised this new claim of conspiracy against the

State Defendants, even assuming that the conspiracy claim was properly raised, we have

previously rejected the argument that a plaintiff may evade the reach of § 2743.02(A)(1)

by employing a new cause of action. In Thomson v. Harmony, we held that because

§ 2743.02(A)(1) “specifically refers to an ‘act’ rather than an ‘allegation’ or ‘claim,’”

waiver applies if the two cases involve the same acts or omissions regardless of whether

they “share the same legal or theoretical foundation . . . .” 65 F.3d 1314, 1319 (6th Cir.

1995) (emphasis omitted). Because the case before this Court involves the same issue

previously raised in the Court of Claims in Wee Care III—the impropriety of ODJFS and

FCDJFS’s purported zero out scheme—under § 2743.02(A)(1), Wee Care is barred from

suing individual government employees and the district court properly dismissed the

case.

Regardless of the waiver issue, the State Defendants are further entitled to

dismissal under Rule 12(b)(6) because Wee Care has failed to state a claim to relief that

is plausible on its face. Viewing Wee Care’s complaint in the light most favorable to it

and accepting all its well-pleaded allegations as true, Wee Care has not alleged facts that

would plausibly allow it to show that the State Defendants violated antitrust laws. “To

prove antitrust injury, the key inquiry is whether competition—not necessarily a

competitor—suffered as a result of the challenged business practice.” CBC Cos., Inc.

v. Equifax, Inc., 561 F.3d 569, 571-72 (6th Cir. 2009) (emphasis omitted). “Because

protecting competition is the sine qua non of the antitrust laws, a complaint alleging only

adverse effects suffered by an individual competitor cannot establish an antitrust injury.”

Care Heating & Cooling, Inc., v. Am. Standard, Inc., 427 F.3d 1008, 1014-15 (6th Cir.

2005).

A review of Wee Care’s complaint reveals that it has not set forth “sufficient

factual matter . . . to state a claim to relief that is plausible on its face,” Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009) (internal quotation marks and citations omitted), because it

lacks any factual basis for concluding a harm to competition beyond “adverse effects

No. 10-4160 Wee Care Child Center, et al. v. Lumpkin, et al. Page 9

suffered by an individual competitor,” Care Heating & Cooling, Inc., 427 F.3d at 1014-

15. Wee Care provides no facts, beyond mere conclusory statements, to support the

allegation that ODJFS’s procedures harmed competition. “While legal conclusions can

provide the framework of a complaint, they must be supported by factual allegations.”

Iqbal, 556 U.S. at 679. A complaint, such as that in Wee Care IV, that solely “tenders

naked assertion[s] devoid of further factual enhancement,” cannot survive a motion to

dismiss under Rule 12(b)(6). Id. at 678 (internal quotation marks omitted) (alteration

in original). As such, the district court properly granted the State Defendants’ motion

to dismiss and we need not address the State Defendants’ defenses under qualified

immunity and the state action doctrine.

C. Wee Care’s Claims Against the County Defendants

The Wee Care IV complaint raises four claims against the County Defendants:

a per se violation of Section 1 of the Sherman Antitrust Act, tortious interference with

contract, tortious interference with business relationships, and civil conspiracy. The

district court dismissed all four causes of action, finding the LGAA to bar the antitrust

claim and declining to exercise supplemental jurisdiction under 28 U.S.C. § 1367(c)(3)

on the remaining state law claims. The LGAA, enacted in response to the voluminous

antitrust litigation against local governments, provides that “[n]o damages, interest on

damages, costs, or attorney’s fees may be recovered [for antitrust violations] . . . from

any local government, or official or employee thereof acting in an official capacity.”

15 U.S.C. § 35(a). Wee Care contends that the County Defendants’ actions underlying

the antitrust claim were not made in their official capacity because they participated in

the allegedly improper zero out scheme and, therefore, asks this Court to deny LGAA

immunity.

As the question of whether the County Defendants were “acting in an official

capacity” is dispositive to Wee Care’s argument, we must first explore the meaning of

this requirement. We have not previously defined, for purposes of the LGAA, the phrase

“acting in an official capacity.” However, the Fourth Circuit has reasoned that:

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Our position [is] that an affirmative grant of explicit authority is not

required for an employee or government official to be acting in an

official capacity under the LGAA . . . . [T]he phrase ‘acting in an official

capacity’ includes those lawful actions, undertaken in the course of a

defendant’s performance of his duties, that reasonably can be construed

to be within the scope of his duties and consistent with the general

responsibilities and objectives of his position.

Sandcrest Outpatient Servs., P.A. v. Cumberland Cnty. Hosp. Sys., Inc., 853 F.2d 1139,

1145 (4th Cir. 1988) (citing Montauk-Caribbean Airways, Inc. v. Hope, 784 F.2d 91, 94

(2d Cir. 1986)). We agree with the Fourth Circuit that “acting in an official capacity”

should be read broadly for purposes of the LGAA. See Montauk-Caribbean Airways,

784 F.2d at 94 (“[T]he phrase ‘acting in an official capacity’ [was intended to] be given

broad meaning.”).

Applying this broad reading, Wee Care’s argument that the County Defendants

were acting outside the scope of their official capacity when negotiating Title XX

funding contracts is untenable. Municipal employees act within their official capacity

when conducting duties that are “consistent with the general responsibilities and

objectives” of their positions. Sandcrest Outpatient Servs., P.A., 853 F.2d at 1145.

There is no question that the negotiation of Title XX funding contracts falls within the

“general responsibilities and objectives” of the County Defendants’ positions. And, to

the extent that Wee Care seeks to argue that the County Defendants undertook this

general responsibility with an improper motive, that argument fails because “[t]he

LGAA makes no provision for consideration of a defendant’s motives . . . .” Id. at 1146.

Therefore, the LGAA shields the County Defendants from antitrust liability and the

district court properly granted their cross-motion for judgment on the pleadings under

Rule 12(c).

As Wee Care’s one federal claim was properly dismissed, it was likewise proper

for the district court to decline to exercise supplemental jurisdiction over the remaining

state law claims. A district court may exercise supplemental jurisdiction over state law

claims under 28 U.S.C. § 1367(a); however, the court may decline to do so if, for

example, it “has dismissed all claims over which it has original jurisdiction . . . .”

No. 10-4160 Wee Care Child Center, et al. v. Lumpkin, et al. Page 11

28 U.S.C. § 1367(c)(3). This Court reviews “the district court’s decision to exercise or

not to exercise, supplemental jurisdiction” for an abuse of discretion, Campanella v.

Commerce Exch. Bank, 137 F.3d 885, 892 (6th Cir. 1998), and will affirm the district

court’s decision “unless we are left with a definite and firm conviction that the trial court

committed a clear error of judgment,” United States v. Mack, 159 F.3d 208, 217 (6th Cir.

1998) (internal quotation marks omitted). As § 1367(c)(3) expressly permits the district

court to decline supplemental jurisdiction in the event, as was the case here, the federal

claims are resolved, there was no abuse of discretion.

III.

The district court’s grants of the State Defendants’ motion to dismiss under Rule

12(b)(6) and the County Defendants’ cross-motion for judgment on the pleadings under

Rule 12(c) are AFFIRMED.