Ron Group, LLC v. Azar

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

RON GROUP, LLC d/b/a BLUE SKY )

SPECIALTY PHARMACY, )

)

Plaintiff, )

)

v. ) CIVIL ACT. NO. 2:20-cv-1038-ECM

) [WO]

STEPHANIE MCGEE AZAR, in her official )

capacity as Commissioner of the Alabama )

Medicaid Agency, )

)

Defendant. )

MEMORANDUM OPINION and ORDER

I. INTRODUCTION

Now pending before the Court is a motion to dismiss the amended complaint filed

by Defendant Stephanie McGee Azar, in her official capacity as Commissioner of the

Alabama Medicaid Agency (“Commissioner”). (Doc. 26). Ron Group, LLC d/b/a Blue

Sky Specialty Pharmacy (“Plaintiff,” “Ron Group,” or “Blue Sky”), an Alabama Medicaid

provider, brought this action against the Commissioner pursuant to 42 U.S.C. § 1983. In

its amended complaint, (doc. 24), Blue Sky alleges that the Commissioner violated Blue

Sky’s constitutional rights in her efforts to hold Blue Sky liable for the debt of another

Medicaid provider, HemaCare Plus, LLC (“HemaCare”), without giving Blue Sky prior

notice and an opportunity to defend itself. Specifically, Blue Sky brings claims against the

Commissioner for deprivation of procedural due process in violation of the Fourteenth

Amendment (Count 1); unreasonable seizure in violation of the Fourth Amendment (Count

2); taking Blue Sky’s property for public use without just compensation in violation of the

Fifth Amendment’s Takings Clause (Count 3); and an unconstitutional exaction under the

Fifth Amendment (Count 4).1 Blue Sky seeks declaratory and injunctive relief as well as

attorney’s fees.

In her motion, the Commissioner requests dismissal of Blue Sky’s amended

complaint in its entirety, raising numerous jurisdictional, prudential, and substantive

arguments. The motion is fully briefed and ripe for review. For the reasons that follow,

the Commissioner’s motion (doc. 26) is due to be DENIED.

II. JURISDICTION AND VENUE

The Court has original subject matter jurisdiction pursuant to 28 U.S.C. § 1331.

Personal jurisdiction and venue are uncontested, and the Court concludes that venue

properly lies in the Middle District of Alabama. See 28 U.S.C. § 1391.

III. LEGAL STANDARD

A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint against the

legal standard set forth in Rule 8: “a short and plain statement of the claim showing that

the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). “To survive a motion to dismiss,

a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to

relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

1 Counts 5–7 contain requests for a declaratory judgment, preliminary injunction, and permanent injunction,

respectively. However, these are not causes of action but rather requests for relief.

2

“Determining whether a complaint states a plausible claim for relief [is] . . . a

context-specific task that requires the reviewing court to draw on its judicial experience

and common sense.” Id. at 679 (citation omitted). The plausibility standard requires “more

than a sheer possibility that a defendant has acted unlawfully.” Id. at 678. Conclusory

allegations that are merely “conceivable” and fail to rise “above the speculative level” are

insufficient to meet the plausibility standard. Twombly, 550 U.S. at 555–56. This pleading

standard “does not require ‘detailed factual allegations,’ but it demands more than an

unadorned, the-defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678

(citation omitted). Indeed, “[a] pleading that offers ‘labels and conclusions’ or ‘a formulaic

recitation of the elements of a cause of action will not do.’” Id. (citation omitted).

A motion to dismiss for lack of subject matter jurisdiction, pursuant to Rule 12(b)(1)

of the Federal Rules of Civil Procedure, may be a factual or facial attack on subject matter

jurisdiction. Barnett v. Okeechobee Hosp., 283 F.3d 1232, 1238 (11th Cir. 2002). A factual

attack permits the district court to weigh evidence outside the pleadings to satisfy itself of

the existence of subject matter jurisdiction in fact. Id. at 1237. However, a facial attack

merely questions the sufficiency of the pleading. Id. Under a facial attack, as here, the

district court accepts the plaintiff's allegations as true and need not look beyond the face of

the complaint to determine whether the court has subject matter jurisdiction. Id.

3

IV. FACTS2

A. Regulatory Background

Medicaid is a joint federal-state program that funds healthcare services for poor and

disabled patients. See generally 42 U.S.C. § 1396a et seq. (the “Medicaid Act”). “Although

participation in the Medicaid program is entirely optional, once a State elects to participate,

it must comply with the requirements of [the Medicaid Act].” Harris v. McRae, 448 U.S.

297, 301 (1980).

Federal law requires state Medicaid plans to establish programs to identify and

recoup overpayments to providers. See 42 U.S.C. § 1396a(a)(42)(B)(i). When a state

identifies an overpayment, it has one year to attempt to recover the overpayment before it

must repay the federal share of the overpayment. See id. § 1396b(d)(2)(C); 42 C.F.R.

§ 433.316(a).

Federal regulations establish the following “Requirements for Notification” that

states must follow in recouping overpayments from providers:

2 This recitation of the facts is based upon Blue Sky’s amended complaint and the two documents attached

to the Commissioner’s motion to dismiss: Blue Sky’s provider agreement and a March 29, 2021 letter from

Medicaid to Blue Sky. Although the Court ordinarily cannot consider anything outside the pleadings in

ruling on a motion to dismiss, the Court may consider materials that are “central to the plaintiff’s claim” if

no party disputes their authenticity. See U.S. ex rel. Osheroff v. Humana Inc., 776 F.3d 805, 811 (11th Cir.

2015). In its response in opposition to the motion to dismiss, Blue Sky did not argue that the documents

are not central to its claims. Based on the Court’s independent review, the Court concludes that the

documents are central to Blue Sky’s claims: in its amended complaint, Blue Sky mentions that it has a

provider agreement, (doc. 24 at 4, para. 15), and also references the March 2021 letter, (id. at 10, paras. 51–

53). Moreover, no party has disputed the authenticity of these documents.

The Court recites only the facts pertinent to resolving the Commissioner’s motion to dismiss. At this stage

of the proceedings, for purposes of ruling on the motion, the facts alleged in the amended complaint and

contained within the documents mentioned above, and the reasonable inferences drawn therefrom, are set

forth in the light most favorable to Blue Sky.

4

Unless a State official or fiscal agent of the State chooses to initiate a formal

recoupment action against a provider without first giving written notification of its

intent, a State Medicaid agency official or other State official must notify the

provider in writing of any overpayment it discovers in accordance with State agency

policies and procedures and must take reasonable actions to attempt to recover the

overpayment in accordance with State law and procedures.

42 C.F.R. § 433.316(b) (emphases added). Thus, federal law requires Alabama Medicaid

to follow its own procedures in notifying providers about overpayments.

Alabama regulations state that Medicaid “will actively seek recovery of all misspent

Medicaid funds . . . recoverable under federal law.” Ala. Admin. Code r. 560-X-33-.01.

“By entering into a contract with Medicaid, the provider acknowledges that payments

thereunder are subject to review, audit, adjustment and recoupment actions.” Id. 560-X-

1.13(3). One purpose of the recoupments is “to correct erroneous payments to providers”

through “solicitation of voluntary reimbursement and administrative and legal remedies in

keeping with limitations set by federal guidelines.” Id. 560-X-33-.02.

Alabama regulations also mandate a procedure for recoupment of overpayments to

a provider. When Medicaid originally identifies an overpayment that may be subject to

recoupment, “a letter will be sent to the recipient/authorized representative or provider

outlining the allegations and stating the amount of reimbursement and the specific dates

when overpayment or recoverable benefits occurred.” Id. 560-X-33-.04(1). This letter

takes the form of a Draft Audit Report. After receiving a Draft Audit Report, providers

have an opportunity to respond in writing and provide supporting documentation to

challenge Medicaid’s findings. See id. (stating that providers are “offered the opportunity

5

to present evidence to rebut the requirement for recoupment or to submit the

reimbursement”). Medicaid then reviews the provider’s response and reevaluates the

amount of overpayments accordingly. Medicaid then issues a Final Audit Report stating

the amount of overpayments it believes the provider is responsible for repaying. The Final

Audit Report also notifies the provider that, unless the provider agrees to directly

reimburse Medicaid, Medicaid will recoup the overpayments from the provider’s future

claims. See id.; id. 560-X-33-.04(3)(b).

Alabama regulations permit Medicaid to seek recoupment from both the original

provider who received the overpayments and any successor provider: “In the event of any

transfer, sale, assignment, merger or replacement between and among providers, Medicaid

may look both to the original provider and any successor, transferee or replacement

provider for recovery of any funds improperly paid.” Id. 560-X-1.13(3). Thus, “[p]roviders

should take this right of Medicaid into account and make appropriate provision therefor in

their business transactions.” Id.

If a provider is aggrieved by Medicaid’s decision related to recoupment, it may

appeal by requesting a fair hearing. Id. 560-X-33-.07. The fair hearing is an adversarial

proceeding: it is conducted before an impartial hearing officer, the provider may be

represented by counsel, and either side may call witnesses and put on evidence. Id. 560-X-

3-.04. However, recoupment is not automatically abated during the fair hearing. Pursuant

to the Alabama Administrative Procedure Act, an adverse decision after a fair hearing may

be appealed to the Circuit Court of Montgomery County and from there to the Alabama

6

Court of Civil Appeals or the Alabama Supreme Court. ALA. CODE § 41-22-20, -21.

B. Blue Sky and HemaCare

1. Blue Sky Becomes a Medicaid Provider

Blue Sky is a specialty pharmacy serving, among others, low-income Alabamians

who suffer from hemophilia.3 A “significant portion” of Blue Sky’s Alabama patients are

on Medicaid. (Doc. 24 at 1–2, para. 1). Blue Sky submits claims for reimbursement to the

Alabama Medicaid Agency, which in turn pays the claims through a fiscal intermediary.

On February 14, 2020, Blue Sky entered into an Asset Purchase Agreement with

HemaCare, an Alabama Medicaid provider that operated a specialty pharmacy in Daphne,

Alabama. Under the terms of the Asset Purchase Agreement, Blue Sky did not purchase

or agree to assume HemaCare’s debts or liabilities. Moreover, HemaCare’s debts or

liabilities were not reflected in the purchase price. The transaction closed on February 29,

2020.

To avoid a gap in coverage for patients’ treatments, Blue Sky entered into a

Temporary Limited Power of Attorney with HemaCare. For approximately a month, Blue

Sky submitted claims for reimbursement to Alabama Medicaid under HemaCare’s provider

number until Blue Sky could obtain its own.

On April 16, 2020, Blue Sky submitted to the Alabama Medicaid Agency a provider

enrollment application, seeking to be enrolled as a separate Medicaid provider with a

3 Hemophilia is a rare blood disorder in which the blood does not clot properly. Hemophilia, MAYO CLINIC,

https://www.mayoclinic.org/diseases-conditions/hemophilia/symptoms-causes/syc-20373327 (last visited

Nov. 27, 2021).

7

unique provider number. As part of the enrollment application, Blue Sky signed a provider

agreement. The provider agreement states in relevant part: “In the event that Provider

acquires or has acquired ownership of another MEDICAID provider through transfer, sale,

assignment, merger, replacement or any other method, whether or not a new [Provider]

Agreement is required, Provider shall be responsible for any unrecovered improper

MEDICAID payments made to the previous provider.” Doc. 26-1 at 8. On April 17, 2020,

Medicaid’s fiscal agent notified Blue Sky that its application had been processed and its

provider number was effective retroactive to April 1, 2020. Since then, Blue Sky has

submitted reimbursement claims to Medicaid pursuant to Blue Sky’s separate provider

agreement and provider number.

2. Medicaid Audits HemaCare

On December 13, 2019, Medicaid sent a Draft Audit Report to HemaCare regarding

reimbursement claims HemaCare submitted in 2018. In response, HemaCare requested

reevaluation of the results of the Draft Audit Report and submitted supporting

documentation with that request. As a result, Medicaid found that HemaCare had not been

overpaid for some of the claims, and Medicaid removed some recoupment codes from the

audit.

On February 27, 2020, the Commissioner sent HemaCare a Final Audit Report

regarding HemaCare’s 2018 claims. The Final Audit Report stated that the Commissioner

had overpaid HemaCare $5,159,042.82 for claims HemaCare submitted in 2018.

8

Blue Sky was not aware of the audit or alleged overpayments when it entered into

the Asset Purchase Agreement with HemaCare. Blue Sky did not learn about the audit or

alleged overpayments until March 8, 2020. Blue Sky had no opportunity to participate in,

nor did it have knowledge of, the Draft Audit Report process, and Blue Sky was not

involved in any stage of the audit. Additionally, Blue Sky was not involved in treating the

patients or submitting the claims identified in the Final Audit Report.

3. Medicaid Pursues Blue Sky for the Alleged Overpayments to

HemaCare

In March 2020, Medicaid began earmarking for recoupment certain amounts from

claims Blue Sky submitted under HemaCare’s provider number under the Temporary

Limited Power of Attorney. Even after Blue Sky enrolled in Medicaid under a separate

provider agreement and provider number in April 2020, Medicaid continued to earmark

certain amounts for recoupment from Blue Sky’s clean claims. According to Blue Sky, by

doing so, Medicaid has been withholding full reimbursements owed to it for its clean claims

that are separate from HemaCare’s claims that allegedly resulted in overpayments in 2018.

Blue Sky alleges that the Commissioner did not give it any notice or a hearing before she

started recouping against Blue Sky’s clean claims.

On March 19, 2020, HemaCare requested a fair hearing regarding the results of the

Final Audit Report. However, the Commissioner did not give HemaCare a fair hearing.

Instead, the Commissioner pursued Blue Sky for the alleged overpayments to HemaCare,

9

as described above. HemaCare subsequently left the State of Alabama and has not been

“seen or heard from again.” (Doc. 24 at 9, para. 47).

In September 2020, after recoupments had already begun, Blue Sky received from

Medicaid a letter addressed solely to HemaCare. The letter was Medicaid’s February 27,

2020 Final Audit Report to HemaCare finding $5,159,042.82 in overpayments to

HemaCare in 2018. The Final Audit Report does not mention Blue Sky, does not state a

basis for Blue Sky’s liability, and does not state the possibility that the $5.1 million could

be assessed against another entity. By the time Blue Sky received the Final Audit Report,

it had already become final.

Blue Sky filed this lawsuit on December 15, 2020. On March 29, 2021, Medicaid

sent Blue Sky a letter stating that Medicaid had determined Blue Sky was responsible for

the alleged overpayments to HemaCare pursuant to Blue Sky’s provider agreement. The

letter further states that Medicaid is willing to allow Blue Sky to pursue a fair hearing.

Additionally, the letter included a copy of the Final Audit Report that Medicaid had sent

to HemaCare in February 2020. According to Blue Sky, the Commissioner will not allow

HemaCare to participate in the fair hearing.

While the Commissioner agreed to temporarily cease recoupment against Blue Sky,

Blue Sky “has no assurance that she will not begin again.” (Id. at 8, para. 36). As of the

filing of the amended complaint (April 29, 2021), the Commissioner has earmarked for

recoupment a net total of $1,174,448.75 from Blue Sky’s clean claims.

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V. DISCUSSION

The Commissioner moves to dismiss Blue Sky’s amended complaint on numerous

grounds. She argues: the suit is barred by sovereign immunity, the Court should abstain

from exercising jurisdiction, Blue Sky’s due process claim is moot, Blue Sky’s claims are

really state law contract claims that cannot be brought under § 1983, Blue Sky is not

entitled to equitable relief because it has an adequate remedy at law, and all of Blue Sky’s

claims fail on the merits. The Court will address each argument.

A. Sovereign Immunity

The Commissioner argues that sovereign immunity bars Blue Sky’s suit. She

contends that this suit is not permitted under the Ex parte Young exception for declaratory

or injunctive relief because this suit is in substance a request for money damages from the

State. Alternatively, she contends that the suit is barred because it asks this Court to instruct

the Commissioner, an Alabama official, how to comply with Alabama law. Blue Sky

counters that Ex parte Young permits the suit and that Blue Sky seeks to have the

Commissioner comply with federal, not state, law. Alternatively, Blue Sky argues that the

Commissioner waived the State’s sovereign immunity.

The Eleventh Amendment provides: “The Judicial power of the United States shall

not be construed to extend to any suit in law or equity, commenced or 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. The amendment expressly forbids only suits

brought against a State by citizens of another state. Accord Papasan v. Allain, 478 U.S.

11

265, 276 (1986). However, the Supreme Court has long held that the Eleventh Amendment

similarly prohibits suits brought against a State by the State’s own citizens. See Hans v.

Louisiana, 134 U.S. 1 (1890). “Because the Eleventh Amendment represents a

constitutional limitation on the federal judicial power established in Article III, federal

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

McClendon v. Ga. Dep’t of Cmty. Health, 261 F.3d 1252, 1256 (11th Cir. 2001) (citation

omitted).4

1. Waiver

The Court is not persuaded that the State has waived its sovereign immunity.

Neither the Commissioner, the Legislature, nor any other state authority may waive

Alabama’s sovereign immunity. See Alabama v. Pugh, 438 U.S. 781, 782 (1978); Stroud v.

McIntosh, 722 F.3d 1294, 1303 (11th Cir. 2013). Further, the “test for determining whether

a State has waived its immunity from federal-court jurisdiction is a stringent one” that

requires a “clear declaration” of such waiver. Coll. Sav. Bank v. Fla. Prepaid

Postsecondary Educ. Expense Bd., 527 U.S. 666, 675–76 (1999) (citations omitted). This

test is not met when the State “merely stat[es] its intention to ‘sue and be sued,’” or even

4 But the Eleventh Amendment’s jurisdictional bar “is a ‘rather peculiar kind of “jurisdictional” issue.’

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.” Id. at 1257 (citation omitted). “Rather, the Eleventh Amendment grants the State a legal

power to assert a sovereign immunity defense should it choose to do so.” Wis. Dep’t of Corr. v. Schacht,

524 U.S. 381, 389 (1998).

12

when it “authoriz[es] suits against it ‘in any court of competent jurisdiction.’” Id. at 676

(citations omitted).

Blue Sky contends that the provider agreement’s venue provision, Alabama

Administrative Rule 560-X-33-.04(4), or both demonstrate that the State has waived its

sovereign immunity. This argument is unavailing. The provider agreement’s venue

provision does not operate to waive sovereign immunity because the provision expressly

states that it does not “enlarge the jurisdiction” of this Court but instead is a “stipulation as

to venue.” Doc. 26-1 at 7 § 1.2.8. Because sovereign immunity implicates federal

jurisdiction, the venue provision in fact expressly disclaims waiver. Nor does Rule 560-

X-33-.04(4)’s provision that “[c]ivil actions through the courts may be initiated” waive

sovereign immunity in light of College Savings Bank and the other authorities cited above.

In sum, neither the venue provision nor Rule 560-X-33-.04(4) constitute a “clear

declaration” that the State has waived its sovereign immunity.

2. Ex parte Young

Notwithstanding the State’s sovereign immunity, a suit for declaratory or injunctive

relief against a state official may be permitted under Ex parte Young, 209 U.S. 123 (1908).

One of the principles underlying Ex parte Young is that it is not offensive to state

sovereignty or federalism to instruct a state official to comply with federal law. Indeed,

“[t]he State has no power to impart to [the state official] any immunity from responsibility

to the Supreme Authority of the United States.” Id. at 160. To determine whether Ex parte

Young applies to avoid the Eleventh Amendment bar, the Court “need only conduct a

13

‘straightforward inquiry into whether [the] complaint alleges an ongoing violation of

federal law and seeks relief properly characterized as prospective.’” Verizon Md., Inc. v.

Pub. Serv. Comm’n of Md., 535 U.S. 635, 645 (2002) (alteration in original) (quoting Idaho

v. Coeur d’Alene Tribe of Idaho, 521 U.S. 261, 296 (1997) (O’Connor, J., concurring)).

This inquiry “does not include an analysis of the merits of the claim.” Id. at 646. “An

allegation of an ongoing violation of federal law . . . is ordinarily sufficient.” Coeur

d’Alene, 521 U.S. at 281 (majority opinion) (emphasis added).

Ex parte Young may permit the suit even if the equitable relief has an “ancillary

effect on the state treasury.” Edelman v. Jordan, 415 U.S. 651, 668 (1974). In fact, such

an ancillary effect is “often an inevitable consequence of the principle announced in Ex

parte Young.” Id. (emphasis added). The key inquiry is whether monetary relief is a

necessary result of compliance with a decree that is prospective. Id. For example, in

Graham v. Richardson, 403 U.S. 365 (1971), state officials were enjoined from denying

welfare benefits to otherwise qualified recipients who were noncitizens because such

denials violated the equal protection clause. And in Goldberg v. Kelly, 397 U.S. 254

(1970), New York City officials were enjoined from following New York state procedures

which allowed them to terminate welfare benefits without a prior hearing because such

terminations denied welfare recipients procedural due process. As the Supreme Court

explained, “the fiscal consequences to state treasuries in [those] cases were the necessary

result of compliance with decrees which by their terms were prospective in nature.”

Edelman, 415 U.S. at 668.

14

To be sure, Ex parte Young does not allow “any form of relief[,] . . . no matter how

closely it may in practice resemble a money judgment payable out of the state treasury, so

long as the relief may be labeled ‘equitable’ in nature.” Id. at 666. “If the prospective relief

sought is the functional equivalent of money damages,” meaning “‘[i]t is measured in terms

of a monetary loss resulting from a past breach of a legal duty,’ Ex parte Young does not

apply.” Summit Med. Assocs., P.C. v. Pryor, 180 F.3d 1326, 1337 (11th Cir. 1999) (quoting

Edelman, 415 U.S. at 669). The distinction between suits allowable and forbidden is slight.

Papasan, 478 U.S. at 279. To determine on which side a particular suit falls, courts must

look at the substance rather than the form of relief sought and be guided by the principles

underlying Ex parte Young. Id. Papasan itself illustrates the fine distinction. In Papasan,

Mississippi school officials and schoolchildren alleged that they were unlawfully being

denied the economic benefits of public school lands previously granted to Mississippi by

the United States. Id. at 267–68. The plaintiffs brought a trust claim and an equal protection

claim. Id. at 274. The Supreme Court held that the plaintiffs’ trust claim was barred by the

Eleventh Amendment, but the equal protection claim was not. Id. at 281–82. Regarding

the trust claim, the plaintiffs’ theory of the state’s continuing obligation to meet its trust

responsibilities was that the trustee was required, “because of the past loss of the trust

corpus, to use its own resources to take the place of the corpus or the lost income from the

corpus.” Id. at 281. The Court reasoned that the continuing payment of income from the

lost corpus was economically equivalent to “a one-time restoration of the lost corpus

itself”; thus, it was in substance an award of “an accrued monetary liability,” which the

15

Eleventh Amendment forbids. Id. (citation omitted). By contrast, the alleged equal

protection violation was the state’s ongoing unequal distribution of the benefits of the

state’s school lands. Id. at 282. The essence of the constitutional violation was the present

disparity in the distribution of the benefits of state-held assets and not the past actions of

the state. Id. The Court held that the “alleged ongoing constitutional violation . . . is

precisely the type of continuing violation for which a remedy may permissibly be fashioned

under [Ex parte] Young.” Id.

Blue Sky’s amended complaint “alleges an ongoing violation of federal law and

seeks relief properly characterized as prospective.” See Verizon Md., Inc., 535 U.S. at 645

(citation omitted). Blue Sky alleges that the Commissioner threatens to take, in the future,

portions of Blue Sky’s reimbursements for services rendered to Medicaid patients in order

to satisfy another Medicaid provider’s debt, despite the Commissioner never providing

Blue Sky with predeprivation notice or opportunity to be heard. Similarly, Blue Sky

alleges that the Commissioner’s threatened recoupment efforts without predeprivation

process constitute an unreasonable seizure of Blue Sky’s property, an unconstitutional

taking, and an unconstitutional exaction. This sufficiently alleges an ongoing violation of

Blue Sky’s federal constitutional rights. And viewing the facts and drawing all reasonable

inferences in Blue Sky’s favor, Blue Sky’s requested relief is prospective: it seeks to stop

the Commissioner’s future recoupment efforts against Blue Sky because such efforts will

be undertaken in violation of Blue Sky’s constitutional rights. Thus, the substance of the

16

relief sought is to remedy the Commissioner’s alleged violations of Blue Sky’s

constitutional rights.

The Commissioner contends that the Eleventh Amendment bars Blue Sky’s suit

because it is in essence a request for money damages from the State. This is so, according

to the Commissioner, because Blue Sky seeks to have the Court order the Commissioner

to remit to Blue Sky full reimbursements for its clean claims without an offset for the

alleged overpayments—in other words, to give Blue Sky more money than the

Commissioner wishes. The Commissioner also points out that Blue Sky does not request

relief in the form of notice and a hearing but rather asks the Court to declare that the

Commissioner can never recoup the alleged overpayments from Blue Sky. But the

Commissioner reads Blue Sky’s amended complaint too narrowly. The Court must read

the amended complaint as a whole, which alleges that the Commissioner seeks to hold Blue

Sky liable for another provider’s debt without giving Blue Sky predeprivation notice and

an opportunity to be heard. Based on Blue Sky’s amended complaint, each time the

Commissioner recoups against Blue Sky’s clean claims in the future would violate Blue

Sky’s Fourteenth Amendment due process rights because Blue Sky has not received

predeprivation process. And it follows that such recoupment would violate Blue Sky’s

Fourth and Fifth Amendment rights because the Commissioner will be seizing and taking

portions of Blue Sky’s reimbursements without affording Blue Sky predeprivation process.

Thus, looking at the substance rather than the form of the request relief, Blue Sky does not

seek an award of an “accrued monetary liability,” see Papasan, 478 at 281 (citation

17

omitted), but rather seeks to enjoin the Commissioner’s alleged ongoing violations of its

Fourteenth Amendment due process rights and the attendant violations of its Fourth and

Fifth Amendment rights.

Additionally, while Blue Sky does not expressly request relief in the form of notice

and a hearing, this is not dispositive. In addition to Blue Sky’s request that the Court

declare it not to be liable for the alleged overpayments to HemaCare, Blue Sky requests

“any other relief the Court deems appropriate.” (Doc. 24 at 18). The remedy for a violation

of due process is process. Thus, the “other relief” Blue Sky seeks could include a

declaration that the Commissioner’s actions violate Blue Sky’s due process rights and an

injunction prohibiting the Commissioner from recouping the alleged overpayments from

Blue Sky unless and until she affords Blue Sky adequate predeprivation process.

Moreover, Blue Sky’s requested relief could also encompass an injunction preventing the

Commissioner from recouping against Blue Sky if the Commissioner determines, during

constitutionally adequate predeprivation process, that Blue Sky does not bear successor

liability for the overpayments to HemaCare.

True, such an injunction may have an impact on the state treasury in that it would

prevent the Commissioner from immediately recouping from Blue Sky in the manner she

desires, which in turn means the Commissioner would have to pay Blue Sky the full

reimbursements it is otherwise due for its clean claims. But this would have only an

ancillary impact on the state treasury because the impact would be the “necessary result of

compliance” with a decree that prospectively enjoins the Commissioner from taking

18

actions in derogation of Blue Sky’s Fourteenth, Fourth, and Fifth Amendment rights:

withholding portions of Blue Sky’s reimbursements to satisfy the debt of another Medicaid

provider without giving Blue Sky any predeprivation process. See Edelman, 415 U.S. at

668.

The Court agrees with Blue Sky that Turner v. Ledbetter, 906 F.2d 606 (11th Cir.

1990), supports the conclusion that the Eleventh Amendment does not bar this suit. In

Turner, the State of Georgia tried to recoup money it believed was improperly overpaid to

recipients of the Aid to Families with Dependent Children (“AFDC”) program, a joint

federal-state program. See id. at 608. The district court granted summary judgment in favor

of the AFDC recipients and enjoined the recoupment because Georgia had failed to give the

recipients adequate notice that their benefits were being terminated. See id. Like the

Commissioner here, Georgia “argue[d] that the present injunction against the recoupment of

overpayment violates the [E]leventh [A]mendment because it applies retroactively and has

a direct impact on the state treasury.” Id. at 609. The Eleventh Circuit disagreed. Like

Blue Sky, the AFDC recipients were “not seeking damages, but rather [were] seeking to

prevent the state from essentially accomplishing a legal termination of . . . benefits without

providing adequate notice under federal law.” Id. at 609–10.

The Commissioner insists that Turner is inapposite because the court held that the

payments to benefit recipients were not overpayments because Georgia failed to property

terminate the benefits, and thus the payments could not be recouped. The Court is not

persuaded. The Turner plaintiffs argued that they had not received any overpayments.

19

Similarly, Blue Sky alleges that it did not receive any alleged overpayments—HemaCare

did—and that Blue Sky is not responsible for them despite the Commissioner’s insistence

that Blue Sky bears successor liability.5 Although in Turner the benefit recipients had

received the funds alleged to be overpayments, both cases present the question of whether

to characterize the funds as overpayments. In Turner, the plaintiffs argued that the state’s

attempt to terminate their benefits was illegal because the state did not provide adequate

notice of the termination. Similarly, Blue Sky asserts that the Commissioner’s attempt to

reduce its reimbursements via recoupment is illegal because the Commissioner did not

provide prior notice and opportunity to be heard. At this stage, viewing the facts and

drawing all reasonable inferences in Blue Sky’s favor, the Court finds that Blue Sky’s suit

is a permissible request for declaratory and injunctive relief under Ex parte Young and is

not barred by the Eleventh Amendment.

3. Pennhurst

It follows from the above analysis that Blue Sky’s suit is not barred by Pennhurst.

The Eleventh Amendment bars suits for injunctive relief against state officials premised on

their alleged violations of state law alone. Pennhurst State Sch. & Hosp. v. Halderman,

465 U.S. 89, 106, 121 (1984); Papasan, 478 U.S. at 277. However, Blue Sky is not asking

the Court to direct the Commissioner to comply with state law. Instead, as explained above,

Blue Sky is asking the Commissioner to comply with federal law—specifically, the

5 The procedural posture is different here than in Turner. Here, the Court is evaluating a motion to dismiss,

and it must accept Blue Sky’s well-pleaded factual allegations as true.

20

mandates of the Fourteenth, Fourth, and Fifth Amendments. Thus, Blue Sky’s suit is not

prohibited under Pennhurst.

B. Abstention

The Commissioner also argues that the Court should abstain from exercising

jurisdiction over Blue Sky’s suit. “Federal courts should abstain from exercising their

jurisdiction if doing so would ‘disregard the comity between the States and the National

Government.’” Wexler v. Lepore, 385 F.3d 1336, 1339 (11th Cir. 2004) (per curiam)

(citation omitted). “While such abstention ‘espouses a strong federal policy,’ it remains

‘the exception, not the rule’ to the federal courts’ ‘virtually unflagging’ duty ‘to adjudicate

claims within their jurisdiction.’” Id. (citations omitted).

The Commissioner argues that the Court should decline jurisdiction under either the

Burford6 or Pullman7 abstention doctrines. The Court addresses each argument in turn.

1. Burford

“Burford is ‘an extraordinary and narrow exception’ to a federal court’s ‘virtually

unflagging obligation’ to exercise jurisdiction.” Deal v. Tugalo Gas Co., Inc., 991 F.3d

1313, 1327 (11th Cir. 2021) (citations omitted). “A central purpose furthered by Burford

abstention is to protect complex state administrative processes from undue federal

interference.” Siegel v. LePore, 234 F.3d 1163, 1173 (11th Cir. 2000) (en banc) (per

curiam). However, Burford “does not require abstention whenever there exists such a

6 Burford v. Sun Oil Co., 319 U.S. 315 (1943).

7 R.R. Comm’n of Tex. v. Pullman Co., 312 U.S. 496 (1941).

21

process, or even in all cases where there is a ‘potential for conflict’ with state regulatory

law or policy.” New Orleans Pub. Serv., Inc. v. Council of City of New Orleans, 491 U.S.

350, 362 (1989) (citation omitted) (hereinafter “NOPSI”). As the Supreme Court stated in

NOPSI:

Where timely and adequate state-court review is available, a federal court

sitting in equity must decline to interfere with the proceedings or orders of

state administrative agencies: (1) when there are difficult questions of state

law bearing on policy problems of substantial public import whose

importance transcends the result in the case then at bar; or (2) where the

exercise of federal review of the question in a case and in similar cases would

be disruptive of state efforts to establish a coherent policy with respect to a

matter of substantial public concern.

Id. at 360–61.

First, the Court is not convinced that the implicit prerequisite of “timely and

adequate state-court review” is satisfied here. According to the amended complaint, the

state-court review available to Blue Sky is a “fair hearing,” which is an administrative

postdeprivation appeal. Recoupment is not automatically abated during the fair hearing.

Thus, it appears to the Court that this postdeprivation appeal is neither timely nor adequate

to remedy the denial of predeprivation process.

Additionally, this case does not threaten to interfere with all or a substantial part of

Alabama’s Medicaid regime. Rather, Blue Sky’s claims target the Commissioner’s

discrete procedures and practices regarding Medicaid’s recoupment from Blue Sky of

alleged overpayments to another Medicaid provider. See Siegel, 234 F.3d at 1173 (using

similar reasoning in holding that Burford did not warrant abstention from challenge to

22

Florida’s recount procedures during 2000 presidential election). Specifically, Blue Sky

challenges the Commissioner’s practices as constitutionally infirm because she allegedly

failed to provide Blue Sky with predeprivation process. The Court is not persuaded that

this constitutes “undue federal interference” with Alabama Medicaid processes.

The Commissioner argues that a difficult issue of state law is at stake here:

determining successor liability for Medicaid providers based on Medicaid’s provider

agreement and the Alabama administrative regulations. But the Court would not be

interfering with the determination of this difficult state law issue. Rather, the Court would

merely seek to ensure that Medicaid’s recoupment procedures comport with the United

States Constitution. Additionally, the Medicaid Act reveals Medicaid to be the subject of

both state and federal concern, see Curtis v. Taylor, 648 F.2d 946, 949 (5th Cir. 1980),

thereby undermining any argument that this Court’s review would unduly interfere with

state processes, see J.M. by and through Lewis v. Crittendon, 2018 WL 7079177, at *4

(N.D. Ga. May 21, 2018).

Similarly, the Court is not persuaded that exercising jurisdiction over suits like this

one would disrupt Alabama’s efforts to establish a coherent policy with respect to

recouping overpayments. Blue Sky does not challenge Alabama Medicaid’s recoupment

regulations themselves. Rather, Blue Sky challenges the Commissioner’s alleged failure

to provide Blue Sky with predeprivation process before taking portions of Blue Sky’s clean

claims to satisfy the debt of another provider. The Commissioner makes no argument that

ensuring compliance with federal constitutional requirements is the kind of disruption that

23

Burford abstention seeks to avoid. In sum, the Commissioner has failed to show that her

concerns “justify [the Court’s] abstention under th[e] narrow [Burford] doctrine.” Siegel,

234 F.3d at 1173.

2. Pullman

The Commissioner argues in the alternative that the Court should abstain from Blue

Sky’s suit under the Pullman abstention doctrine. Under this doctrine, federal courts defer

to “state court resolution of underlying issues of state law.” Harman v. Forssenius, 380

U.S. 528, 534 (1965). Pullman abstention is appropriate where two elements are met:

“(1) the case must present an unsettled question of state law, and (2) the question of state

law must be dispositive of the case or would materially alter the constitutional question

presented.” Siegel, 234 F.3d at 1174. “Because abstention is discretionary, it is only

appropriate when the question of state law can be fairly interpreted to avoid adjudication

of the constitutional question.” Id. (emphasis added).

The Court concludes that Pullman abstention is also not warranted. According to

the Commissioner, the unsettled questions of state law are “matters of first impression as

to Alabama Medicaid’s specific successor liability regulation and provider agreement

provision,” and also a general area of law that has seen conflict—successor liability under

Alabama law. (Doc. 26 at 21). The Commissioner then generally argues that the Court

must determine these state law issues before deciding the constitutional claims because the

constitutional claims are “explicitly premised on [Blue Sky’s] alleged status as ‘a new

party’ or ‘unrelated entity.’” (Id.). But the Commissioner does not articulate how

24

determining the state law question would “avoid adjudication of the constitutional

question,” see Siegel, 234 F.3d at 1174. And the Court does not see how the constitutional

questions would be avoided. If the Commissioner had correctly determined that Blue Sky

bears successor liability for the overpayments to HemaCare, the constitutional question

would remain regarding whether the Commissioner gave Blue Sky predeprivation process.

Moreover, it would not avoid deciding the constitutional questions of whether the

Commissioner’s recoupment efforts to satisfy the debt of another provider without

predeprivation process constitute an unreasonable seizure of Blue Sky’s property, an

unconstitutional taking, or an unconstitutional exaction. Accordingly, the Commissioner

has failed to demonstrate that this Court should abstain under the Pullman doctrine.

C. Merits

The Commissioner also argues that Blue Sky’s claims fail on the merits because

Blue Sky fails to plausibly allege a Fourteenth Amendment due process claim, a Fourth

Amendment seizure claim, a Fifth Amendment takings claim, or a Fifth Amendment

exaction claim.

1. Due Process

A procedural due process claim requires “proof of three elements: (1) the

deprivation of a constitutionally-protected liberty or property interest; (2) state action; and

(3) constitutionally-inadequate process.” Grayson v. Rhodes, 345 F.3d 1225, 1232 (11th

Cir. 2003). The presence of state action is undisputed. The Commissioner argues that Blue

25

Sky’s claim fails because it lacks a protected property interest and because adequate

process is available to it. The Court will address each argument in turn.

a. Property Interest

“[P]roperty interests subject to procedural due process protection are not limited by

a few rigid, technical forms. Rather, property denotes a broad range of interests that are

secured by existing rules or understandings.” Barnes v. Zaccari, 669 F.3d 1295, 1303 (11th

Cir. 2012) (alteration in original) (quoting Perry v. Sindermann, 408 U.S. 593, 601 (1972)).

A party may have a protected property interest in a government benefit when he or she has

“a legitimate claim of entitlement to it” based on “an independent source such as state law.”

Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 577 (1972).

Blue Sky argues that Alabama law gives it a legitimate claim of entitlement to

Medicaid reimbursements for its clean claims. The Court agrees. The Commissioner,

through Medicaid’s fiscal agent, must pay all clean claims within twelve months of receipt.

See Ala. Admin. Code r. 560-X-.17(5)(a) (“Except as otherwise provided above, the

Medicaid fiscal agent must process and pay all clean claims within 12 months of receipt of

the claim.” (emphasis added)). The Commissioner does not argue that Blue Sky lacks a

property interest in reimbursements for clean claims for services rendered. Accordingly,

any argument that Blue Sky lacks such a property interest has been forfeited.

The Commissioner argues that Blue Sky lacks a property interest in overpayments

or funds subject to recoupment. Assuming without deciding that the Commissioner is

correct, the Court disagrees with the Commissioner’s characterization of Blue Sky’s

26

asserted property interest. As explained above, Blue Sky asserts a property interest in

receiving full reimbursements for clean claims for services rendered. The Commissioner’s

argument fails to disaggregate the full reimbursements for clean claims from the alleged

overpayments. Additionally, the Commissioner’s position assumes the conclusions that

there were overpayments to HemaCare and that Blue Sky is responsible for them—

conclusions that Blue Sky disputes and asserts it had no notice of or opportunity to respond

to. In light of the foregoing, the Court concludes that Blue Sky has adequately alleged a

protected property interest in full reimbursements for services rendered to Medicaid

patients.

b. Inadequate Process

The Court now turns to the question of whether Blue Sky received due process.

“Procedural due process imposes constraints on governmental decisions which deprive

individuals of ‘liberty’ or ‘property’ interests within the meaning of” the Fourteenth

Amendment’s Due Process Clause. Mathews v. Eldridge, 424 U.S. 319, 332 (1976). Courts

consider three factors in determining whether the procedural due process provided is

adequate:

First, the private interest that will be affected by the official action; second,

the risk of an erroneous deprivation of such interest through the procedures

used, and the probable value, if any, of additional or substitute procedural

safeguards; and finally, the Government’s interest, including the function

involved and the fiscal administrative burdens that the additional or

substitute procedural requirement would entail.

Id. at 335; accord Worthy v. City of Phenix City, 930 F.3d 1206, 1223 (11th Cir. 2019).

27

“In situations where the State feasibly can provide a predeprivation hearing before

taking property, it generally must do so regardless of the adequacy of a postdeprivation tort

remedy to compensate for the taking.” Zinermon v. Burch, 494 U.S. 113, 132 (1990); see

Barr v. Johnson, 777 F. App’x 298, 301 (11th Cir. 2019) (“Generally speaking, procedural

due process requires that the state give the individual notice and an opportunity to be heard

before a deprivation.” (emphasis added)). The Supreme Court has recognized exceptions

to this general rule where predeprivation process is not feasible because the state official’s

action was random or unauthorized. In Parratt v. Taylor, the Court determined that a prison

official, in negligently mishandling and losing a prisoner’s mail, had violated the prisoner’s

due process rights, but the official’s actions were “not the result of some established state

procedure.” 451 U.S. 527, 541 (1981), overruled on other grounds by Daniels v. Williams,

474 U.S. 327, 333 (1986) (holding that process is not constitutionally required to remedy

negligent deprivations). Because the deprivation was instead the result of a “random and

unauthorized act of a state employee,” the state could not anticipate the official’s actions

in advance, and thus it was not feasible for the state to provide a predeprivation hearing.

Id. Accordingly, the Court held that the state’s availability of a postdeprivation tort remedy

cured the due process violation. Id. at 544. “Parratt is not an exception to the Mathews

balancing test, but rather an application of that test to the unusual case in which one of the

variables in the Mathews equation—the value of predeprivation safeguards—is negligible

in preventing the kind of deprivation at issue.” Zinermon, 494 U.S. at 129. And in Hudson

v. Palmer, the Court extended Parratt’s reasoning to a prison official’s intentional and

28

malicious destruction of a prisoner’s property because, as in Parratt, the official was not

acting according to an established state procedure but rather pursuant to a random and

unauthorized personal vendetta against the prisoner. 468 U.S. 517, 521 n.2, 533 (1984).

The Court reasoned that the state “can no more anticipate and control in advance the

random and unauthorized intentional conduct of its employees than it can anticipate similar

negligent conduct.” Id. at 533. Thus, the Court held that the availability of an adequate

postdeprivation tort remedy was all the process that was constitutionally required. Id.

Blue Sky alleges that it did not receive notice or an opportunity to participate in the

determination of the overpayments to HemaCare or on the issue of successor liability

before the Commissioner started recouping against Blue Sky’s clean claims. The

Commissioner argues that Blue Sky fails to state a plausible due process claim because

adequate postdeprivation remedies are available to Blue Sky in the form of a fair hearing

and subsequent appeal to the Alabama state courts. The Commissioner relies heavily on

McKinney v. Pate, 20 F.3d 1550 (11th Cir. 1994) (en banc), particularly McKinney’s

statement that “procedural due process violations do not become complete ‘unless and until

the state refuses to provide due process.’” (Doc. 26 at 25) (quoting McKinney, 20 F.3d at

1562). Blue Sky argues that McKinney is inapposite and the availability of postdeprivation

remedies are irrelevant because Blue Sky was denied predeprivation process to which it

was entitled and which the State could have feasibly provided.

The Court agrees with Blue Sky. Considering the Mathews factors, the Court

concludes that Blue Sky has plausibly alleged that it was entitled to predeprivation process.

29

Under the allegations of the amended complaint, Blue Sky has a strong private interest in

receiving full payments for services rendered to Medicaid patients. Second, allowing

providers to present their side of the story case is “of obvious value in reaching an accurate

decision.” See Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 543 (1985) (applying

Mathews factors to case involving discharge of public employees). Both overpayments

and determinations of successor liability will be fact-intensive inquiries that would be more

accurate if providers were allowed to be heard and present their own supporting evidence

predeprivation. Finally, the state’s interest in immediate recoupment does not outweigh

these interests. True, federal law requires that the state repay the federal share of

overpayments within one year of discovery. But an argument that affording providers

notice and an opportunity to respond prior to recoupment would impose either a

“significant administrative burden” or “intolerable delays,” see id., would require the type

of fact-intensive inquiry that counsels against granting a motion to dismiss. In any event,

the Commissioner does not argue that providing predeprivation notice would be

burdensome or cause intolerable delays. And with respect to overpayments, Alabama

regulations already require that providers receive notice and an opportunity to respond with

supporting documents before recoupment begins. The Commissioner gave HemaCare

notice and an opportunity to respond to the overpayment determination before she started

recoupments against HemaCare. According to the amended complaint, a little over two

months elapsed between Medicaid’s sending HemaCare the Draft Audit Report and the

Final Audit Report—much less than the one-year window in which Alabama Medicaid

30

must repay the federal share. Based on the previous—and recent—provision of

predeprivation procedures to HemaCare and the Commissioner’s failure to argue that

predeprivation process for Blue Sky was not feasible, the Court finds that Blue Sky has

plausibly alleged that it was entitled to predeprivation process under Mathews.

Additionally, the Commissioner’s reliance on McKinney is misplaced. In

McKinney, a teacher who had been fired argued that his due process rights had been

violated because the board overseeing his pre-termination hearing was biased against him.

20 F.3d at 1560–61. The teacher had undisputedly received prior written notice of the

charges against him and an “opportunity to present his side of the story” at a pre-

termination hearing. Id. at 1561–62. The court held that the teacher was due nothing more

than an adequate postdeprivation remedy. Id. at 1563. The court reasoned that, because

the alleged bias was random and unauthorized, the Parratt rationale applied, and thus “only

the state’s refusal to provide a means to correct any error resulting from the bias would

engender a procedural due process violation.” Id. at 1563. The court concluded that the

postdeprivation remedies available in the state courts were constitutionally adequate. Id. at

1563–64. Blue Sky’s claim differs from McKinney in material respects. Unlike the teacher

in McKinney who received written notice of the charges against him and a pre-termination

hearing, Blue Sky alleges that it received zero predeprivation notice or opportunity to be

heard regarding the overpayments or the Commissioner’s determination that Blue Sky bore

successor liability for them. The McKinney plaintiff’s claim was that the pre-termination

hearing was constitutionally infirm because of alleged bias, whereas Blue Sky’s claim is

31

that it received no predeprivation process whatsoever. Thus, the claims presented are

materially different.

Here, the recoupment against Blue Sky was pursuant to an established state

procedure: Alabama administrative regulations both contemplate and regulate recoupment

of overpayments, and they also contemplate collecting overpayments from a successor.

Thus, the Commissioner’s actions in depriving Blue Sky of its reimbursements via

recoupment were neither random nor unauthorized like the officials’ actions in Parratt and

Hudson. Indeed, the Commissioner makes no argument that the actions taken were random

or unauthorized or that it was not feasible to provide predeprivation process.8 Thus, the

Court concludes that Blue Sky has plausibly alleged that it was feasible to give Blue Sky

predeprivation notice and an opportunity to be heard. “Where,” as here, “a deprivation of

property is authorized by an established state procedure and it is practicable for the State

to provide pre-deprivation procedures, due process has been consistently held to require

pre-deprivation notice and a hearing in order to reduce the possibility of a wrongful

deprivation.” Fetner v. City of Roanoke, 813 F.2d 1183, 1186 (11th Cir. 1987).

8 The Commissioner briefly argues in her reply brief that, assuming Blue Sky was entitled to predeprivation

process, it is undisputed that HemaCare received such process, and “any conclusion that Blue Sky did not

receive predeprivation process necessarily would require a determination that it is not a successor entity or

‘mere continuation’ of HemaCare under Alabama law.” (Doc. 29 at 17 n.2). The Commissioner contends,

in other words, that the predeprivation process enjoyed by HemaCare inheres to Blue Sky’s benefit because

Blue Sky is a successor entity. Because this argument was made in passing in the reply brief without giving

Blue Sky the opportunity to respond, the Court is not required to consider it. See Singleton v. Taylor, 2021

WL 3862001, at *9 n.15 (M.D. Ala. Aug. 25, 2011). If the Court did consider it, the Court would not be

persuaded. The Commissioner cites no authority for the proposition that predeprivation process flows

through or inures to the benefit of a successor corporation. Even if she had, the proposition as applied here

assumes the conclusion that Blue Sky is a successor to HemaCare—a conclusion that the Commissioner

reached without allowing Blue Sky an opportunity to tell its side of the story.

32

Accordingly, because Blue Sky received no predeprivation process, and because the

Commissioner fails to explain how these facts resemble Parratt or Hudson so as to excuse

the need for predeprivation process, Blue Sky has plausibly alleged an actionable

procedural due process claim. Cf. Barr, 777 F. App’x at 302 (employing similar reasoning

to conclude that business owner had adduced enough evidence to survive city’s motion for

summary judgment in case where city allegedly closed owner’s business with no prior

notice or opportunity to be heard).9

In sum, the Commissioner’s argument hinges on the legal premise that, under

McKinney, Blue Sky has no actionable due process claim so long as postdeprivation

remedies are available. Applying McKinney to this scenario would require the Court to

“gut[] any notions of predeprivation due process and blanketly hold[] that a state can

effectuate any and all deprivations under a ‘shoot first, ask questions later’ mentality, so

long as it offers ex post facto recourse.” Id. As the Barr court stated, “[s]uch a reading

would allow the Parratt/Hudson exceptions to swallow the rules articulated in Zinermon

and Mathews.” Id. It would also ignore other binding Eleventh Circuit decisions holding

that predeprivation notice was required. See, e.g., Barnes, 669 F.3d at 1307; Fetner, 813

F.2d at 1186. The Court declines to endorse such an approach.

9 While the Court recognizes that Barr is an unpublished opinion, the Court finds its analysis persuasive.

33

2. Mootness

It follows from the above analysis that the Commissioner’s mootness argument is

unavailing. The Commissioner contends that Blue Sky’s due process claim is moot

because the March 29, 2021 letter notifies Blue Sky of the basis for its liability and reopens

the window for it to request a fair hearing. As described above, Blue Sky alleges it was

deprived of predeprivation notice and opportunity to be heard. The March 29 letter’s offer

of a postdeprivation fair hearing does not cure this problem because, as discussed above,

postdeprivation remedies do not cure a failure to provide predeprivation process where

predeprivation process was feasible.

3. Adequate Remedy at Law

Similarly, the Commissioner’s argument that Blue Sky has an adequate remedy at

law is unavailing. This argument again improperly frames Blue Sky’s suit as purely

monetary. For the reasons discussed above, it is not. Moreover, the Commissioner’s

position effectively nullifies the legal rule that postdeprivation remedies do not cure a

failure to provide predeprivation process. Thus, the Commissioner has failed to

demonstrate that Blue Sky has an adequate remedy at law that would render equitable relief

inappropriate.

4. Whether Blue Sky’s Claims are Contract Claims

Additionally, the Commissioner’s argument that Blue Sky cannot bring this suit

under § 1983 because its alleged injuries are based in contract is meritless. Blue Sky does

not claim that the Commissioner breached the provider agreement. Rather, Blue Sky

34

claims that the Commissioner deprived Blue Sky of due process, unlawfully seized its

property, unlawfully took its property, and worked an unlawful exaction—all in violation

of the United States Constitution and independent from what the provider agreement

requires. That the provider agreement is part of the Commissioner’s claimed justification

for pursuing Blue Sky for the overpayments does not transform Blue Sky’s claims into

contract claims.

5. Seizure

The Commissioner also argues that Blue Sky fails to state a seizure claim under the

Fourth Amendment. The Fourth Amendment provides: “The right of the people to be

secure in their persons, houses, papers, and effects, against unreasonable searches and

seizures, shall not be violated.” U.S. CONST. amend. IV. A seizure of property occurs when

“there is some meaningful interference with an individual’s possessory interests in that

property.” Soldal v. Cook Cnty., 506 U.S. 56, 61 (1992) (quoting United States v. Jacobsen,

466 U.S. 109, 113 (1984)). To determine whether the seizure comports with the Fourth

Amendment, the Court must determine whether it was reasonable, using a “careful

balancing of governmental and private interests.” Id. at 71 (citation omitted).

The Commissioner’s argument for dismissal rests on her contentions that (1) Blue

Sky has no property interest in funds not yet paid to it and where an obligation is owed to

Medicaid; (2) there was no seizure because Blue Sky consented to this procedure in the

provider agreement; (3) if there was a seizure of property, it was reasonable because it

comported with due process. Thus, under the Commissioner’s framing, Blue Sky’s seizure

35

claim rises and falls with the due process claim. As explained above, Blue Sky has a

legitimate property interest in receiving full reimbursement for clean claims for services

rendered. Even accepting the Commissioner’s assertion that an “obligation is owed to

Medicaid,” Blue Sky alleges that this obligation is based on overpayments allegedly made

to another entity, HemaCare, and not to Blue Sky. Additionally, the provider agreement

does not undermine a finding of a seizure here. In the provider agreement, Blue Sky

consented to be responsible for overpayments to another provider if Blue Sky “acquired

ownership” of that provider. Apparently the Commissioner determined that Blue Sky had

acquired ownership of HemaCare and thus was responsible for the overpayments pursuant

to the provider agreement. The problem is that, as discussed above, Blue Sky was neither

aware that the Commissioner made this determination nor was able to be heard on the issue

before the Commissioner started recoupments against Blue Sky. Thus, the

Commissioner’s argument that no seizure occurred is unavailing. Finally, the

Commissioner’s argument that the seizure was reasonable because it comported with due

process fails in light of the Court’s conclusion, supra Section V.C.1, that Blue Sky has

plausibly alleged that the Commissioner has failed to provide constitutionally adequate

predeprivation process. Blue Sky alleges that the Commissioner began seizing portions of

its clean claims to satisfy the debt of an unrelated entity with no prior notice that she was

doing so or an opportunity to respond. Thus, Blue Sky has plausibly alleged an

unreasonable seizure claim, and the motion to dismiss the seizure claim is due to be denied.

36

6. Taking

The Commissioner next argues that Blue Sky fails to state a plausible takings claim.

Blue Sky alleges that, by holding Blue Sky liable for a judgment of overpayments assessed

against another entity without predeprivation process, the Commissioner has taken and is

threatening to take Blue Sky’s private property for public use without just compensation.

Blue Sky further alleges that the Commissioner has not provided or offered any

compensation for the money she has taken. The Commissioner contends that Blue Sky is

in fact responsible for the overpayments because it bears successor liability; therefore, the

Commissioner is not “taking” Blue Sky’s property.

The Fifth Amendment states in relevant part: “nor shall private property be taken

for public use, without just compensation.” U.S. CONST. amend. V. This prohibition

applies against the states through the Fourteenth Amendment. Webb’s Fabulous

Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 160 (1980). The Supreme Court has found

takings where the state took money from private parties’ accounts. See id. at 164 (statute

allowing county to take interest earned on interpleader funds deposited with the court

effected a direct appropriation of private property); Brown v. Legal Found. of Wash., 538

U.S. 216, 240 (2003) (transfer of interest earned in IOLTA accounts to the government is

a per se taking). The Commissioner argues that those cases are distinguishable because

they involved money held in “specific, unidentifiable accounts,” unlike this case where

“non-specific, unidentifiable money is allegedly owed.” (Doc. 29 at 19–20). The Court

disagrees with the Commissioner’s characterization of Blue Sky’s property as “non-

37

specific, unidentifiable money [that] is allegedly owed.” As explained above, providers

submit clean claims based on services previously rendered to Medicaid patients.

Medicaid’s fiscal agent then reimburses the provider for those clean claims. Thus, the

reimbursements resulting from the submitted claims are specific, identifiable sums of

money. And under Alabama regulations, Blue Sky is entitled to receive reimbursement for

timely submitted clean claims within twelve months of Medicaid’s receipt.

The Commissioner’s remaining arguments do not persuade the Court that Blue Sky

fails to plausibly allege a cognizable takings claim. For example, this case is

distinguishable from Swisher Int’l, Inc. v. Schafer, 550 F.3d 1046, 1049 (11th Cir. 2008),

because Blue Sky is not challenging the Commissioner’s authority to recoup overpayments

from either the original provider or a successor entity. Rather, Blue Sky challenges the

Commissioner’s taking portions of its reimbursements to satisfy the debt of another

Medicaid provider without predeprivation notice and opportunity to be heard. Moreover,

while the Federal Circuit has held that a statutory right to be paid money is not a property

interest for purposes of the Fifth Amendment Takings Clause, see Adams v. United States,

391 F.3d 1212, 1225 (Fed. Cir. 2004), the Commissioner cites no binding Eleventh Circuit

or Supreme Court precedent adopting this holding. Blue Sky’s theory may be unique, but

the Court nonetheless concludes that Blue Sky has stated a plausible takings claim.

7. Exaction or Unconstitutional Condition

Finally, the Commissioner argues that Blue Sky fails to state a plausible exaction

claim. Exactions “involve a special application” of the “unconstitutional conditions”

38

doctrine “that protects the Fifth Amendment right to just compensation for property the

government takes when owners apply for land-use permits.” Koontz v. St. Johns River

Water Mgmt. Dist., 570 U.S. 595, 604 (2013) (citation omitted). The broader

“unconstitutional conditions doctrine . . . vindicates the Constitution’s enumerated rights

by preventing the government from coercing people into giving them up.” Id.

Blue Sky alleges that the Commissioner has unlawfully conditioned Blue Sky’s

property right to reimbursements for services rendered on its agreement to pay the debts of

another Medicaid provider. The Court harbors doubts as to whether Blue Sky presents a

viable exaction claim. However, the law in this area is underdeveloped and does not

directly speak to the facts and legal theory presented here. Moreover, it is possible to

construe the amended complaint as asserting a more general “unconstitutional conditions”

claim. Thus, the Court cannot say that Blue Sky fails to state a plausible claim, and the

Commissioner’s request to dismiss it is due to be denied.

VI. CONCLUSION

Accordingly, for the reasons stated, and for good cause, it is

ORDERED that the Commissioner’s motion to dismiss (doc. 26) is DENIED.

Done this 29th day of November, 2021.

/s/Emily C. Marks

EMILY C. MARKS

CHIEF UNITED STATES DISTRICT JUDGE

39