Petition for Writ of Certiorari — Maxwell-Jolly v. Independent Living Center of Southern California (No. 08-1223)

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reme Court, U.S.

Supreme Court

(24

~ oO 081223 APR 1 - 2009

Inthe OFFICE OF THE CLERK

Supreme Court of the United States

DAVID MAXWELL-JOLLY, DIRECTOR OF THE

DEPARTMENT OF HEALTH CARE SERVICES,

STATE OF CALIFORNIA,

Petitioner,

Vv.

INDEPENDENT LIVING CENTER OF SOUTHERN

CALIFORNIA, A NONPROFIT CORPORATION, ET AL.,

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

EDMUND G. BROWN JR.

Attorney General of California

MANUEL M. MEDEIROS

State Solicitor General

DAVID S. CHANEY

Chief Assistant Attorney General

GORDON BURNS

Deputy Solicitor General

RICHARD T. WALDOW

KARIN S. SCHWARTZ*

JENNIFER M. KIM

Supervising Deputy Attorneys Gencral

*Counsel of Record

455 Golden Gate Avenue, Suite 11000

San Francisco, CA 94102

Telephone: (415) 703-1382

Fax: (415) 703-5480

Counsel for Petitioners

COCKLE LAW BRIEF PRINTING CO (800) 225-6964

OR CALL COLLECT (402) 342-2831

Of counsel:

DAN SCHWEITZER

2030 M Street, NW, 8th Floor

Washington, DC 20036

Telephone: (202) 326-6010

QUESTION PRESENTED

Under 42 U.S.C. § 1396a(a)(30)(A) of the Medi-

caid Act, a state that accepts federal Medicaid funds

must adopt a state plan containing methods and

procedures to “safeguard against unnecessary utiliza-

tion of ... [Medicaid] services and ... assure that

payments are consistent with efficiency, economy, and

quality of care and are sufficient to enlist enough

providers so that care and services are available ...

at least to the extent that such care and services are

available to the general population.” Virtually all of

the Circuits to have considered the issue, including

the Ninth Circuit, have concluded that this provision

may not be enforced by private parties under 42

U.S.C. § 1983, and respondents do not contend oth-

erwise.

The question presented is whether Medicaid

recipients and providers may nonetheless maintain a

private cause of action under the Supremacy Clause

to enforce § 1396a(a)(30)(A) by asserting that the

provision preempts a state law reducing reimburse-

ment rates.

LIST OF PARTIES

Petitioner is David Maxwell-Jolly, Director of the

Department of Health Care Services, State of Cali-

fornia, a position that he assumed effective January

1, 2009.

Respondents are Independent Living Center of

Southern California, Gray Panthers of Sacramento,

Gray Panthers of San Francisco, Gerald Shapiro,

Pharm.D (d/b/a Uptown Pharmacy and Gift Shop),

Sharon Steen (d/b/a Central Pharmacy), Mark Beck-

with, Margaret Dowling, Tran Pharmacy, Inc. (d/b/a

Tran Pharmacy), and Jason Young.

Respondent-Intervenors are Sacramento Family

Medical Clinics, Inc., Theordore Mazer, M.D., Ronald

B. Mead, D.D.S., and Acacia Adult Day Services.’

' Respondent-Intervenors did not participate in the briefing

in the Ninth Circuit, but first sought to appear in that court on

October 1, 2008, approximately two weeks after the Ninth

Circuit issued the opinion at issue here. On February 2, 2009,

the Ninth Circuit recalled its mandate, entered the appearances

of Respondent-Intervenors, and issued a new mandate providing

that “[t]he judgment of this Court, entered 9/17/08, takes effect

this date. This constitutes the formal mandate of this Court

issued pursuant to Rule 41(a) of the Federal Rules of Appellate

Procedure.”

TABLE OF CONTENTS

Page

ORE ogy 8 4 ey 1 | rs i

ee Te Pio viieiccnes snavcencosnovncvcedscdacsvecss ii

py i FOS PS byw ie oy yh +. nn Vv

PETITION FOR WRIT OF CERTIORARI] .......... 1

i I SI ovis eden pivtnidniieniasncreaaisncereerionnss 1

STATEMENT OF JURISDICTION ..................... 1

CONSTITUTIONAL AND STATUTORY PRO-

VISIONS INVOLVED................ di ataandioinews 2

STATEMENT OF THE CASE..........c..ccccesccscscsseees 3

A. The State Statutes at Issue (AB 5)........... 3

Bs Be ee FI aso iaa Si chvks tess bindccicssssiccccccs 4

C. District Court Proceedings........................ 8

D. Ninth Circuit's Decision ................c..cccsce 9

I. THE NINTH CIRCUITS DECISION

UNDERMINES THIS COURTS DECI-

SIONS LIMITING WHEN FEDERAL

STATUTES MAY BE ENFORCED IN

§ 1983 ACTIONS OR THROUGH IM-

PLIED CAUSES OF ACTION..................... 13

TABLE OF CONTENTS - Continued

Page

II. RECENT CIRCUIT COURT DECISIONS

HAVE MISREAD THIS COURT'S PRECE-

DENT AND CREATED A SPLIT WITH

THE ELEVENTH CIRCUIT REGARDING

THE AVAILABILITY OF PRIVATE PRE-

EMPTION LAWSUITS BASED ON FED-

ERAL STATUTES THAT ARE NOT

OTHERWISE PRIVATELY ENFORCE-

UE a boli svecins sendnnspilnahetsseenemdbbabaagpaantbeisadivees 21

Ill. THE NINTH CIRCUIT WRONGLY DE-

CIDED A RECURRING AND IMPOR-

TE TUE hanks ss cinidnadigicsjcidiusercchnencasies 31

TITIES Gok Sid vecdonsashcvcvensotcesntemacaemaniada 36

APPENDIX

Order and Opinion of the Ninth Circuit Court

of Appeals, filed on September 17, 2008 ................ la

District Court’s Order Denying Petitioners’

Motion for a Preliminary Injunction, filed on

SN pes eee ice Tass tomes ence cndentnraeeiovaeees 37a

Order of the Ninth Circuit Court of Appeals,

filed on November 3, 2008 .......0.0.0c0.0ccccsccscccssccseses 52a

California Assembly Bill No. 5, Chapter 3, filed

with the Secretary of State on February 16,

SND cisashitntieiniacaliiin Aisa viviveaaneia tiem 54a

State Plan Amendment 08-009, submitted by

the California Department of Health Care

Services to the Centers for Medicare & Medi-

caid Services on September 30, 2008................... 67a

TABLE OF AUTHORITIES

Page

CASES

31 Foster Children v. Bush, 329 F.3d 1255 (11th

doc snansenmaniaoniiannnenes 20

Alexander v. Sandoval, 532 U.S. 275

es iahasihanictniicn Grinshandsbenes 14, 15, 19, 20

Almendares v. Palmer, No. 3:00-CV-7524, 2002

WL 31730963 (N.D. Ohio Dec. 3, 2002).................. 21

Arrington v. Helms, 438 F.3d 1336 (11th Cir.

i ss secesctapebuonsenneedanes 20

Bell v. Food, S27 U.S. 678 (1946) ..........cccccocscesssoessess 24

Bellsouth Telecomm. v. Town of Palm Beach,

EE Me Ee TERE GAT, BE) veccesesssssseccnsessccescnssess 31

Biotechnology Indus. Org. v. District of Colum-

bia, 496 F.3d 1362 (Fed. Cir. 2007)...................2c000 28

Blessing v. Freestone, 520 U.S. 329 (1997) .......... 16, 20

Burgio & Campofelice, Inc. v. N.Y.S. Dep't of

Labor, 107 F.3d 1000 (2d Cir. 1997) ..................c000 28

Chapman v. Houston Welfare Rights Org., 441

Tee sp hdisisdvantaaubenes 20

City of Rancho Palos Verdes v. Abrams, 544

Nee so scichouiadlentinsesaiabahavenan 25

Cort v. Aeh, 422 U.S. 66 (1078) .......0c00cccorccrccsseee passim

Day v. Bond, 511 F.3d 1030 (10th Cir. 2007) ............. 28

Dennis v. Higgins, 498 U.S. 439 (1991)... ee. 20

Edelman v. Jordan, 415 U.S. 651 (1974)... 17

TABLE OF AUTHORITIES — Continued

Page

Equal Access for El Paso, Inc. v. Hawkins, 509

F.3d 697 (5th Cir. 2007), cert. denied, 129

i Se i teieiissbivakvealiindcnesdoaensvquacsocanithiabeniiaindianss 7

Ex parte Young, 209 U.S. 123 (1908)........ 28, 30, 33, 34

Golden State Transit Corp. v. City of Los Angeles,

a Be a ccide seni dasestiedas sce paciadcbatgans 19, 27

Gonzaga Univ. v. Doe, 536 U.S. 273 (2002)....... passim

Grammar v. John J. Kane Reg’ Ctrs.-Glen

Hazel, No. 06-781, 2007 WL 1087751 (W.D.

Braj HA, A PINE Fn acdabcinicsGoidencuscénvacsacuiebtsensbebeheavcsaaveian 20

Joseph A. ex rel. Corrine Wolf v. Ingram, 275

ik Re | RE SEU, DUE 6c do hv eoncsccreisivousnvensasesss 28

Lankford v. Sherman, 451 F.3d 496 (8th Cir.

ii nisaccskeccidiansctasndesWiebccidindmkaideanntactascenes 27

Lawrence County v. Lead-Deadwood School

Dist. No. 40-1, 469 U.S. 256 (1985) .................. 33, 34

Legal Envtl. Assistance Found., Inc. v. Pegues,

904 F.2d 640 (11th Cir. 1990).......... 22, 29, 30, 31, 34

Long Term Care Pharmacy Alliance v. Ferguson,

Se Be er CA Cr, BG ones vcicenssncescnvanisonesvesess 7, a0

Maine v. Thiboutot, 448 U.S. 1 (1980) ........ 0. eee ee 17

Mandy R. ex rel. Mr. & Mrs. R. v. Owens, 464

F.3d 1139 (10th Cir. 2006), cert. dented, 549

a ce asi as sncagiektin 7

Middlesex County Sewerage Authority v. Na-

tional Sea Clammers Association, 453 U.S. 1

4. SREREE ET Balam env art ane PR a eet Pale Se 29, 30

TABLE OF AUTHORITIES — Continued

Page

Newark Parents Ass’n v. Newark Pub. Sch., 547

I IE IN, SD ick ccssnsvccssnnssecvecsascenescusscscsvess 20

Owasso Independent School District v. Falvo,

See I I acces concsencuvasncnsavsossoavtasionstvanrsedsese 25

Pa. Pharmacists Ass’n v. Houstoun, 283 F.3d

ee Fe Ge ID vibcc svcceseicccessevesscversss 6, 7, 11, 17, 18

Pediatric Specialty Care, Inc. v. Ark. Dep’t of

Human Servs., 443 F.3d 1005 (8th Cir. 2006),

cert. granted, judgment vacated in part, 127

a IG Fibs Kan cnnsichaceddecnceimsantsdsicesverscercseens q

Pennhurst State Sch. & Hosp. v. Halderman,

Oe Be ai de ca stakvscnsnivacinndingeusmilebabniageson passim

Pharmaceutical Research and Manufacturers

of America v. Concannon, 249 F.3d 66 (1st

Cir. 2001), aff’d, 538 U.S. 644 (2003) .............. 22, 23

Pharmaceutical Research and Manufacturers

of America v. Thompson, 362 F.3d 817 (D.C.

2 "SSS ieee cnn Fa cote 10, 23, 24

Pharmaceutical Research and Manufacturers

of America v. Walsh, 538 U.S. 644 (2003) ...... passim

Planned Parenthood of Houston & Se. Tex. v.

Sanchez, 403 F.3d 324 (5th Cir. 2005)........ 10, 26, 28

Qwest Corp. v. City of Santa Fe, 380 F.3d 1258

I CS a 28

Sanchez v. Johnson, 416 F.3d 1051 (9th Cir.

0 SSE Sea a tees 7, 8,11, 17,18

Shaw v. Delta Air Lines, Inc., 463 U.S. 85

Ne eerie Nusa aids da ug ara sebuadpenobardaiaesteas passim

vill

TABLE OF AUTHORITIES — Continued

Page

St. Thomas-Si. John Hotel & Tourism Ass’n v.

Virgin Islands, 218 F.3d 232 (3d Cir. 2000) ........... 23

Steel Co. v. Citizens for a Better Env’t, 523 U.S.

Be NE icaixcuxsssieaaseasovadnicdejassesaateonuanaeacueaaeeee 24

Stoneridge Investment Partners v. Scientific-

Atlanta, Inc., 128 S. Ct. 761 (2008) ................00.0000 14

Texae v. Cobb, 582 U.S. 162 (ZOOL) .....crccccccsosseserccceses 33

Touche Ross & Co. v. Redington, 442 U.S. 560

De UD ick vn iax sinsdecaidestuceaswuntupayeaennseves sven aia 15

Transamerica Mortg. Advisors Inc. v. Lewis,

BE ES Ms BE CRT vss vckepiccessicnccceses sopeanp eee 15

Verizon Md., Inc. v. Public Serv. Comm’n of

Md., 535 U.S. 635 (2002) ................ 12, 24, 32, 33, 34

W. Air Lines, Inc. v. Port Auth. of N.Y. & N.d.,

SAF Fe Bae (OG Cie. BOGE} oc evcsexsvssvsnncisnanwaneneen 28

Westside Mothers v. Olszewski, 454 F.3d 532

SE i. BOD aircinconciinansssncnsnenacziuneesenatageinenneaenneenaae 7

Wilder v. Va. Hosp. Ass’n, 496 U.S. 498

CET hinsndeissvnisnconestnaesivascepinieisciaaaanee 4, 5,6, 18, 32

Williams v. U.S. Dep’t of Hous. & Urban Dev.,

No. 04-CV-3488, 2006 WL 2546536 (E.D.N.Y.

E., 1, scene caasnntvsniecndssvtenmnadsaraeeaae 21

Wyeth v. Levine, No. 06-1249, __ US.

2009 WL 529172 (March 04, 2009)..............cccceeee ees 18

TABLE OF AUTHORITIES — Continued

Page

CONSTITUTIONAL PROVISIONS

Spending Clause, United States Constitution,

Me EE MINNIE TE ss ccocescesccccasessoussescscsevesenes passim

Commerce Clause, United States Constitution,

EEE SUIS 5 sca nseneunbeedacbecsaseasscsese 20

Supremacy Clause, United States Constitution,

Es MIND SB buxcnscocciecresrescecosnssscrsnnascecsess passim

United States Constitution, amendment X1] ............. 34

STATUTES

28 U.S.C.

ee lial cc cai ciaieehisassecovencdsustusencerecniees 1

Nai sinueak histekd tb sesencvenscsstntonsdconessseue 26, 31, 33

42 U.S.C.

ia ila ac dan ah bse debiiiwsishateenubauunicesokennveds 4

ESET S UE a eee 5, 6, 11, 17, 22

§ 13896a(a)(13)(A) (1982 ed., Supp. V)....5, 6, 7, 17, 18

re ci cis iceudshnancebnesesantvevens 27

SEE ee a 22

TE i ciicasccs sasdseretecstessecssvaiversesnies passim

sks cca ncndnevuasscveniedeevisesosteasevans 5, 32

ic isa venbncbiesaneiexpeseneneduain 22

ies cna ssichcscusins ch ovaiestwccakneweniaes 22

as scx cvaicidunasedentsasosinuietensadena 22

TABLE OF AUTHORITIES - Continued

Page

49 U.S.C.

IR ne eee Ae Pe POET UT IED 28

California Welfare & Institutions Code

Ca a al a i baeeaen ge 3

a er a 3

has i ania ia acldainagelaspiinpeaaieiiasileniaaa ale 4

I ins sais ccsdvisunnciionesseurisdesebubenikvensceastiesepune 4

| ETO SOCEM MEET aE eS: 3

SIREN ROE Doe ma PRN BEN ey Be 4

Se TT is. iislddiietcguenmenanksinsicedetinsuiddiainatbalah 4

OTHER AUTHORITIES

13B C. Wright, A. Miller & E. Cooper, Federal

Practice & Procedure: Jurisdiction 2d § 3566

5 A IEA en DOLE ER NEO RSA PERMA AD TD 28, 30

ee ais ilk ccas iis eccrine cteesecpenceeneogsnacans 5

Balanced Budget Act of 1997, Pub. L. No. 105-

SS, 6 ATUL, TIT Stat. BEL (LGOTZ).....csccecccrcsccsccsscsccccsece 6

H.R. Rep. No. 105-140 (1997).......ccccrccsscccsoscccceseeees 6,17

Office of Mgmt. & Budget, A New Era of Re-

sponsibility: Renewing America’s Promise,

sg fat ENED RES LENT NOTE SRO ENE eer 35

Reply Brief of Petitioner, PhRMA v. Walsh, 538

SF ee Oe Cre) CIO, Ga iio vceccecsesessvncseccsesesescsssnans 25

PETITION FOR WRIT OF CERTIORARI

The Attorney General of the State of California,

on behalf of David Maxwell-Jolly, Director, Depart-

ment of Health Care Services, State of California,

respectfully petitions for a writ of certiorari to review

the judgment of the United States Court of Appeals

for the Ninth Circuit in this case.

OPINION BELOW

The opinion of the court of appeals, App., infra,

la, is reported at 543 F.3d 1050. The opinion of the

district court, App., infra, 37a, is unreported.

STATEMENT OF JURISDICTION

The decision under review was issued on Sep-

tember 17, 2008. App., infra, 2a. Petitioner filed a

Petition for Panel Rehearing and Petition for Rehear-

ing En Banc, which the court of appeals denied on

November 3, 2008. App., infra, 52a. On January 16,

2009, Justice Kennedy extended the time within

which to file a petition for writ of certiorari to and

including April 2, 2009. The jurisdiction of this Court

is invoked under 28 U.S.C. § 1254(1).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The Supremacy Clause of the United States

Constitution states:

This Constitution, and the Laws of the Unit-

ed States which shall be made in Pursuance

thereof; and all Treaties made, or which shall

be made, under the Authority of the United

States, shall be the supreme Law of the

Land; and the Judges in every State shall be

bound thereby, any Thing in the Constitution

or Laws of any State to the Contrary not-

withstanding.

U.S. Const. art. VI, cl. 2.

Title 42, section 1396a(a)(30)(A) of the Medicaid

Act states in pertinent part:

(a) Contents

A State plan for medical assistance must —

* oO

(30)A) provide such methods and proce-

dures relating to the utilization of, and the

payment for, care and services available un-

der the plan .. . as may be necessary to safe-

guard against unnecessary utilization of

such care and services and to assure that

payments are consistent with efficiency,

economy, and quality of care and are suffi-

cient to enlist enough providers so that care

and services are available under the plan

at least to the extent that such care and

services are available to the general popula-

tion in the geographic area. . .

STATEMENT OF THE CASE

A. The State Statutes at Issue (AB 5)

On January 10, 2008, the Governor of California

declared a fiscal emergency and directed the Califor-

nia legislature into a special session. App., infra, 59a.

In response, on February 15, 2008, the legislature

enacted Assembly Bill No. 5 (AB 5). App., infra, 54a,

66a. The legislature found “that the state faces a

fiscal crisis that requires unprecedented measures to

be taken ‘to reduce General Fund expenditures to

avoid reducing vital government services necessary

for the protection of the health, safety, and welfare of

the citizens of the State of California.” App., infra,

64a. AB 5 enacted spending reductions to a variety of

benefits programs, including Medi-Cal, the state’s

implementation of Medicaid. App., infra, 60a-66a.

Newly enacted California Welfare and Institu-

tions Code § 14105.19(b)(1) reduced by 10 percent

payments under Medi-Cal’s fee-for-service program

for physicians, dentists, pharmacies, adult day health

care centers, clinics, health systems, and other pro-

viders. Section 14105.19(b)(3) reduced payments to

managed care plans by the actuarial equivalent of 10

percent. Finally, section 14166.245(b) reduced pay-

ments to acute care hospitals not under contract with

the Department of Health Care Services (DHCS) for

inpatient services by 10 percent. Some services were

exempted from the cuts, including services provided

by certain acute care hospitals, federally qualified

health centers, rural health clinics, hospices, public

hospitals, and hospitals under contract with the state.

Cal. Welf. & Inst. Code §§ 14105.19(c), 14166.245(d).

The legislature directed DHCS to “promptly seek

any necessary federal approvals for the implementa-

tion of” the rate reductions. Cal. Welf. & Inst. Code

§ 14105.19(g); see also id., § 14166.245(f). On Septem-

ber 30, 2008, DHCS submitted a state plan amend-

ment to the Centers for Medicare and Medicaid

Services, which remains pending. App., infra, 67a-79a.

Respondents and intervenors are Medicaid

beneficiaries, service providers, and advocacy groups

that seek to enjoin DHCS’s implementation of the

payment reductions on the ground that they violate

42 U.S.C. § 1396a(a)(30)(A).

B. The Medicaid Act

Medicaid is a cooperative federal-state program

that provides federal financial assistance to partici-

pating states to reimburse certain costs of medical

treatment for the poor, elderly, and disabled. 42

U.S.C. § 1396. A state’s participation in Medicaid is

voluntary, but if it chooses to participate, it must

comply with the Medicaid Act and implementing

regulations promulgated by the Secretary of Health

and Human Services (HHS). See Wilder v. Va. Hosp.

Ass’n, 496 U.S. 498, 502 (1990). To receive funds, a

state must establish and administer its Medicaid

program through a state plan approved by HHS. 42

U.S.C. §1396a. The receipt of federal funding is

expressly conditioned on compliance with the Medi-

caid Act, and HHS is authorized to withhold funds for

noncompliance. 42 U.S.C. § 1396c; see also 42 C.F.R.

§ 430.35.

At issue here is a provision of the Medicaid Act,

42 U.S.C. § 1396a(a)(30)(A), that establishes some

general principles regarding the utilization of, and

the payment for, Medicaid care and services. A state

plan must

provide such methods and procedures relat-

ing to the utilization of, and the payment for,

care and services available under the plan

... aS may be necessary to safeguard against

unnecessary utilization of such care and ser-

vices and to assure that payments are con-

sistent with efficiency, economy, and quality

of care and are sufficient to enlist enough

providers so that care and services are avail-

able under the plan at least to the extent

that such care and services are available to

the general population in the geographic

area....

42 U.S.C. § 1396a(a)(30)(A).

This Court has not previously considered wheth-

er § 1396a(a)(30)(A) is privately enforceable. How-

ever, in Wilder, this Court considered whether a

different (now repealed) provision of the M dicaid

Act, 42 U.S.C. § 1396a(a)(13)(A) (1982 ed., Supp. V),

known as the Boren Amendment, could be privately

enforced under 42 U.S.C. § 1983. The Boren Amend-

ment required states, as part of their state plans, to

find and make assurances that payments to hospitals

under Medicaid were reasonable and adequate to

meet the costs incurred by efficiently and economi-

cally operated facilities. Wilder, 496 U.S. at 502-03;

see also Pa. Pharmacists Ass’n v. Houstoun, 283 F.3d

531, 537 (3d Cir. 2002). In Wilder, this Court held

that the Boren Amendment created an individual

“right,” enforceable by providers under § 1983, to “the

adoption of reimbursement rates that are reasonable

and adequate to meet the costs of an efficiently and

economically operated facility.” 496 U.S. at 510.

Congress subsequently repealed the Boren

Amendment. Balanced Budget Act of 1997, Pub. L.

No. 105-33, § 4711, 111 Stat. 251, 507-08 (1997). In so

doing, it stated its intent not only to reverse Wilder,

but to preclude any provider challenges to rates

under the Medicaid Act. A House Report noted that

under the Boren Amendment, “[a] number of Federal

courts have ruled that State systems failed to meet

the test of ‘reasonableness’ and some States have had

to increase payments to these providers as a result of

these judicial interpretations.” H.R. Rep. No. 105-149,

at 590 (1997). Therefore, the House Report stated: “It

is the Committee’s intention that, following enact-

ment of this Act, neither this nor any other provision

of [§ 1396a] will be interpreted as establishing a

cause of action for hospitals and nursing facilities

relative to the adequacy of the rates they receive.” Jd.

at 591. Courts have therefore concluded that “{o)ne of

Congress’s main objectives — perhaps its dominant

objective — in repealing the Boren Amendment was to

take away the right to sue under § 1983.” Pa. Phar-

macists, 283 F.3d at 540 n.15 (Alito, J.).

Since the Boren Amendment’s repeal, seven courts

of appeals have considered whether § 1396a(a)(30)(A)

may be enforced by Medicaid providers or beneficiar-

ies under 42 U.S.C. § 1983. The First, Third, Fifth,

Sixth, Ninth, and Tenth Circuits have concluded that

it does not, a conclusion that respondents do not

dispute. Long Term Care Pharmacy Alliance v. Fergu-

son, 362 F.3d 50, 56-59 (1st Cir. 2004) (not enforceable

by providers); Pa. Pharmacists, 283 F.3d at 541-42

(not enforceable by providers); Equal Access for El

Paso, Inc. v. Hawkins, 509 F.3d 697, 702-03 (5th Cir.

2007) (not enforceable by beneficiaries of services or

providers), cert. denied, 129 S. Ct. 34 (2008); Westside

Mothers v. Olszewski, 454 F.3d 532, 541-43 (6th Cir.

2006) ‘not enforceable by recipients of services);

Sanchez v. Johnson, 416 F.3d 1051, 1062 (9th Cir.

2005) (not enforceable by providers or recipients of

services); Mandy R. ex rel. Mr. & Mrs. R. v. Owens,

464 F.3d 1139, 1146-48 (10th Cir. 2006) (not enforce-

able by providers or recipients of services), cert.

denied, 549 U.S. 1305 (2007). The Eighth Circuit

alone has reached a contrary result. Pediatric Spe-

cialty Care, Inc. v. Ark. Dept of Human Servs., 443

F.3d 1005, 1013-16 (8th Cir. 2006) (enforceable by

providers and recipients of services), cert. granted,

judgment vacated in part, 127 S.Ct. 3000 (2007)

(mem.).

C. District Court Proceedings

Respondents filed their lawsuit on April 22,

2008, in Los Angeles superior court. App., infra, 37a.

DHCS removed the case to federal court. App., infra,

39a. In May 2008, respondents filed the operative

first amended complaint and a motion for prelimi-

nary injunction. App., infra, 39a. They contended

that the 10 percent payment reductions violate

§ 1396a(a)(30)(A) because, they claimed, the Califor-

nia legislature failed to consider the factors set forth

within the federal statute when it enacted the pay-

ment reductions, and because the cuts could result in

insufficient providers to provide care to Medi-Cal

recipients. App., infra, 42a.

The district court denied respondents’ motion for

preliminary injunction. App., infra, 5la. The court

observed that, in Sanchez v. Johnson, the Ninth

Circuit held that § 1396a(a)(30)(A) did not confer

individually enforceable rights. App., infra, 43a-46a.

It concluded that respondents could not use a pre-

emption claim under the Supremacy Clause to effec-

tuate an end run around Sanchez. App., infra, 46a,

50a-51la. Accordingly, the court found that respon-

dents had no likelihood of success on the merits and

denied their motion. App., infra, 50a.

D. Ninth Circuit’s Decision

The Ninth Circuit reversed the district court. As

framed by the Ninth Circuit, the question presented

on appeal was “whether the Supremacy Clause

provides a valid cause of action to seek injunctive

relief on the basis of federal preemption.” App., infra,

16a. Ultimately, the Ninth Circuit held in the af-

firmative: that private parties “maintain[] a valid

cause of action under the Supremacy Clause to assert

. a claim for injunctive relief” where they claim

that state legislation allegedly is preempted by fed-

eral law. App., infra, 36a.

The Ninth Circuit relied on a number of cases

from this Court, including Shaw v. Delta Air Lines,

Inc., 463 U.S. 85 (1983), in which this Court permit-

ted preemption claims to proceed without analyzing

whether the federal statutes at issue created pri-

vately enforceable rights. App., infra, lla-l5a. The

Ninth Circuit characterized Shaw as “reaffirml[ing]

the general rule that a plaintiff seeking to enjoin

state law based on federal preemption maintains a

valid federal cause of action.” App., infra, 14a. In

support, the Ninth Circuit quoted language from a

footnote in Shaw that only addressed the jurisdic-

tional basis for such suits. App., infra, 14a (quoting

Shaw, 463 U.S. at 96 n.14) (“It is beyond dispute that

federal courts have jurisdiction over suits to enjoin

state officials from interfering with federal rights.”).

The Ninth Circuit considered and rejected DHCS’s

suggestion that the analysis might be different as to

federal Spending Clause statutes because it believed

that this Court already had rejected such an argu-.

ment in Pharmaceutical Research and Manufacturers

of America (PhRMA) v. Walsh, 538 U.S. 644 (2003):

The Director provides little, if any, justifica-

tion for treating a claim of preemption under

a federal statute passed pursuant to Con-

gresss spending power differently from a

claim of preemption under any of the federal

statutes discussed above. But even if she

had, this argument has also been flatly re-

jected by the Supreme Court and other cir-

cuits that have addressed the question.

App., infra, 20a. According to the Ninth Circuit, in

Walsh, this Court “implicitly” assumed that “a private

party seeking to enjoin implementation of a state law

allegedly preempted by the federal Medicaid Act may

bring suit for injunctive relief directly under the

Supremacy Clause.” App., infra, 24a. The court cited

in support the fact that seven justices of this Court

reached the merits of PhRMA’s claim without ad-

dressing whether plaintiff had stated a valid claim for

relief. App., infra, 23a. The Ninth Circuit also found

“nersuasive” recent decisions from the D.C. and Fifth

Circuits that similarly construed Walsh as authoriz-

ing preemption challenges based on Spending Clause

statutes that do not themselves create privately

enforceable rights. App., infra, 24a-26a (citing

PhRMA v. Thompson, 362 F.3d 817 (D.C. Cir. 2004)

and Planned Parenthood of Houston & Se. Tex. v.

Sanchez, 403 F.3d 324 (5th Cir. 2005)).

REASONS FOR GRANTING THE PETITION

If it remains unreviewed, the Ninth Circuit’s

decision will negate the limitations on private en-

forcement of federal statutes that this Court has

carefully crafted and applied over several decades.

See, e.g., Cort v. Ash, 422 U.S. 66 (1975); Pennhurst

State Sch. & Hosp. v. Halderman, 451 U.S. 1 (1981);

Gonzaga Univ. v. Doe, 536 U.S. 273 (2002). Under the

reasoning adopted by the Ninth Circuit, a “valid

cause of action” exists to enforce a federal statute and

enjoin state conduct any time a private party alleges

a conflict between state and federal law. Thus, the

Ninth Circuit concluded that the private parties here

could state a claim under the Supremacy Clause

based solely on their allegation of a federal-state

conflict, even though § 1396a(a)(30)(A) is not pri-

vately enforceable under § 1983; even though the

Ninth Circuit and other appellate courts have found

§ 1396a(a)(30)(A) to be “ill-suited” to judicial en-

forcement; even though HiiS has not yet determined

if there really is a conflict; and despite evidence that

Congress does not want any provision of § 1396a to be

privately enforced. See Sanchez, 416 F.3d at 1060; Pa.

Pharmacists, 283 F.3d at 540 & n.15. If it stands, the

Ninth Circuit’s decision will result in a massive

expansion in the states’ liability under the Medicaid

Act and potentially other Spending Clause statutes,

and will render a nullity entire lines of cases that

previously limited the circumstances in which private

parties may sue a state.

The need for Court review is compelling because

several courts of appeals — including the D.C., First,

Second, Fifth, Eighth, Ninth, Tenth, and Federal

Circuits — have now erroneously concluded that this

Court already has resolved the question presented

here. In permitting preemption claims to proceed

based on Spending Clause legislation that is other-

wise unenforceable under § 1983, several of these

courts have relied on this Court’s decision in PhRARMA

v. Walsh, which they believed (incorrectly) foreclosed

arguments to the contrary. Walsh did not, however,

address whether petitioner there had stated a valid

cause of action under the Medicaid provision at issue,

but simply rejected its claim on the merits. The

courts of appeals’ conclusions that this Court implic-

itly reached the validity of plaintiff’s cause of action,

which they saw as “jurisdictional,” was clear error

under this Court’s precedent — error that only this

Court may correct. See Verizon Md., Inc. v. Public

Serv. Comm’n of Md., 535 U.S. 635, 642-43 (2002).

The issues in this lawsuit are important and

recurring. The federalism concerns are especially

substantial because of the Spending Clause context.

A state’s voluntary participation in Medicaid effec-

tuates a contractual relationship between that state

and the federal government. Congress itself has

specified the remedy that applies when a state

breaches the agreement and then fails to cure its

breach on proper notice: HHS may withhold federal

money. To allow private parties to sue to compel, in

effect, a different contract remedy — a state’s specific

performance — is to disrespect the voluntary nature of

the state’s continuing participation in a “cooperative”

program. Because so many state decisions are prem-

ised on funds received under exactly this type of

arrangement with the federal government, the states’

liability under the type of lawsuit sanctioned here

would be virtually unlimited.

THE NINTH CIRCUIT’S DECISION UNDER-

MINES THIS COURT’S DECISIONS LIMITING

WHEN FEDERAL STATUTES MAY BE EN-

FORCED IN § 1983 ACTIONS OR THROUGH

IMPLIED CAUSES OF ACTION

The Ninth Circuit adopted an expansive theory of

state liability that, if unaddressed, will nullify over

30 years of decisions from this Court establishing

limitations on private suits against the states. Under

the Ninth Circuit’s theory, to state a valid cause of

action for injunctive relief, all a plaintiff need do is

allege the existence of a conflict between a state

statute (here, AB 5) and a federal law (here,

§ 1396a(a)(30)(A)). Such an exceptionally broad-brush

approach cannot be reconciled with the limitations on

private suits that this Court has recognized in two

separate lines of cases: Cort v. Ash and its progeny;

and Pennhurst State School and Hospital v. Halder-

man and its progeny, including Gonzaga University v.

Doe.

1. In the Cort and Pennhurst-Gonzaga lines of

cases, this Court has repeatedly addressed and

effectively resolved a difficult problem: when to

permit private enforcement of a federal statute

enacted by Congress when Congress itself has de-

clined expressly to authorize private lawsuits. Al-

though there are analytical differences, in both

contexts this Court has explained that there must be

clear and unambiguous evidence that Congress

intended for the federal provision at issue to be

privately enforceable before a private suit may be

implied or recognized. See Gonzaga, 536 U.S. at 283

(“(T]he inquiries overlap in one meaningful respect —

in either case we must first determine whether

Congress intended to create a [privately enforceable]

federal right.”). This is because Congress, as the

authority that enacts federal statutes, has the pre-

rogative to determine when and how they may be

privately enforced. Alexander v. Sandoval, 532 U.S.

275, 286 (2001) (“Like substantive federal law itself,

private rights of action to enforce federal law must be

created by Congress.”); see also Stoneridge Investment

Partners v. Scientific-Atlanta, Inc., 128 S. Ct. 761, 773

(2008).

Thus, in Cort v. Ash, this Court recognized four

significant limitations on when a private cause of

action may be implied directly under a federal stat-

ute. The relevant considerations are: (1) “does the

statute create a federal right in favor of the plain-

tiff”; (2) “is there any indication of legislative intent,

explicit or implicit, either to create such a remedy or

to deny one”; (3) “is it consistent with the underlying

purposes of the legislative scheme to imply such a

remedy for the plaintiff”; and (4) “is the cause of

action one traditionally relegated to state law, in an

area basically the concern of the States, so that it

would be inappropriate to infer a cause of action

based solely on federal law?” 422 U.S. at 78. Since its

decision in Cort, this Court has focused on the over-

arching importance of the second factor, requiring

clear evidence of Congressional intent to create both a

private right and a private remedy. See, e.g.,

Sandoval, 532 U.S. at 286 (“The judicial task is to

interpret the statute Congress has passed to deter-

mine whether it displays an intent to create not just a

private right but also a private remedy.”); Transamerica

Mortg. Advisors Inc. v. Lewis, 444 U.S. 11, 24 (1979)

(“The dispositive question remains whether Congress

intended to create any such remedy.”); Touche Ross &

Co. v. Redington, 442 U.S. 560, 568 (1979).

The Court has also adopted significant limita-

tions on when a private suit may be brought under

§ 1983. Here, specifically with respect to Spending

Clause legislation such as the Medicaid Act, this

Court has held that, “unless Congress ‘speak[s] with

a clear voice, and manifests an ‘unambiguous’ intent

to confer individual rights, federal funding provisions

provide no basis for private enforcement.” Conzaga,

536 U.S. at 280 (quoting Pennhurst, 451 US. at 17, 28

& n.21). Thus, a “‘plaintiff must demonstrate that the

right assertedly protected by the statute is not so

“vague and amorphous” that its enforcement would

strain judicial competence,’” and the provision “‘must

be couched in mandatory, rather than precatory,

terms.’” Id. at 282 (quoting Blessing v. Freestone, 520

U.S. 329, 340-41 (1997)). “[W]here the text and struc-

ture of a statute provide no indication that Congress

intends to create new individual rights, there is no

basis for a private suit, whether under § 1983 or

under an implied right of action.” Jd. at 286.

These limitations are especially important as to

Spending Clause legislation such as the Medicaid Act.

Here, “the typical remedy for state noncompliance

with federally imposed conditions is not a private

cause of action for noncompliance but rather action

by the Federal Government to terminate funds to the

State.” Pennhurst, 451 U.S. at 28; see also Gonzaga,

536 U.S. at 280; Walsh, 538 U.S. at 675 (Scalia, J.,

concurring in judgment) (“I would reject petitioner’s

statutory claim on the ground that the remedy for the

State’s failure to comply with the obligations it has

agreed to undertake under the Medicaid Act . . . is set

forth in the Act itself: termination of funding by the

Secretary of the Department of Health and Human

Services.” (citations omitted)); 538 U.S. at 681-82

(Thomas, J., concurring in judgment).

2. The theory adopted by the Ninth Circuit

would undermine the Cort and Pennhurst-Gonzaga

lines of cases by authorizing a Supremacy Clause-

based cause of action that does not require considera-

tion of Congressional intent, judicial enforceability, or

any of the other factors previously considered so

important by this Court. The potential impact of such

a theory is dramatically demonstrated by its applica-

tion in the present case, where it was utilized by the

Ninth Circuit to revive a type of claim that heretofore

was precluded by this Court’s and the Ninth Circuit’s

own precedents.

Respondents do not dispute that the provision at

issue here, § 1396a(a)(30)(A), may not be privately

enforced under any of the traditional theories of

state liability previously recognized by this Court.

That is, respondents may not sue directly under

§ 1396a(a)(30)(A) because no implied right of action

exists under the Social Security Act, of which Medi-

caid is a part. Maine v. Thiboutot, 448 U.S. 1, 6

(1980); Edelman v. Jordan, 415 U.S. 651, 674 (1974).

In addition, private enforcement of § 1396a(aX30)(A)

is unavailable under § 1983 because, as the Ninth

and five other circuits have held (and respondents do

not dispute), § 13896a(a)(30)(A) does not create any

privately enforceable rights. See, e.g., Sanchez, 416

F.3d at 1059 (“[T]Jhe flexible, administrative stan-

dards embodied in the statute do not reflect a Con-

gressional intent to provide a private remedy for their

violation.”); see also Long Term Care Pharmacy

Alliance, 362 F.3d at 58 (concluding, based on struc-

ture and text of § 1396a(a)(30)(A), that “plan review

by the Secretary is the central means of enforcement

intended by Congress”). To the contrary, through its

repeal of the Boren Amendment, Congress indicated

its intention to preclude private suits under § 1396a.

Pa. Pharmacists, 283 F.3d at 540 n.15; H.R. Rep. No.

105-149, supra, at 590. Moreover, as the Ninth

Circuit itself explained in Sanchez: “|t|he language of

§ 30(A) is ... ill-suited to judicial remedy; the inter-

pretation and balancing of the statute’s indetermi-

nate and competing goals would involve making

policy decisions for which this court has little exper-

tise and even less authority.” 416 F.3d at 1060. In this

respect, § 1396a(a)(30)(A) contrasts significantly from

the Boren Amendment that this Court considered in

Wilder. See Pa. Pharmacists, 283 F.3d at 538 (Alito,

J.) (contrasting § 1396a(a\(30)(A) and the Boren

Amendment).

Dressing the lawsuit up as a preemption chal-

lenge should not change the conclusion that the

statute is not privately enforceable. This Court’s

preemption cases make clear that, here too, congres-

sional intent is relevant and potentially dispositive.

See Wyeth v. Levine, No. 06-1249, US. , 2009

WL 529172, at *5 (March 04, 2009) (congressional

intent is the “ultimate touchstone in every pre-

emption case”). It is entirely illogical to consider

evidence of congressional intent before permitting a

cause of action to be implied directly under the stat-

ute itself (or to authorize suit under § 1983), but to

ignore such evidence in a preemption case — indeed,

to authorize a “valid cause of action” despite evidence

that Congress intended to preclude private suits.

Further, adopting a theory under which private

preemption claims may proceed under the Supremacy

Clause as to purported conflicts with any and all

federal statutes, independent of congressional intent,

would negate the principle that “private rights of

action to enforce federal law must be created by

Congress.” Sandoval, 532 U.S. at 286.

In addition, the same cencerns about judicial

enforcement that the courts have identified with

respect to § 1396a(a)(30)(A) in the § 1983 cases also

apply here. State compliance with such policy-laden

objectives is appropriately reviewed by HHS, the

federal agency charged with enforcing the Medicaid

Act, rather than the courts acting at the request of

private parties. Indeed, implying a private cause of

action in this case would effectuate a judicial usurpa-

tion of HHS’s obligation to review California’s pend-

ing state plan amendment. See Walsh, 538 U.S. at

661 (Secretary of HHS’s determinations with respect

to proposed state plan amendments under the Medi-

caid Act are “presumptively valid”). The principle of

deference to agency decisions is substantially under-

mined if a court can determine on its own, in a pri-

vate suit brought preemptively before HHS has acted,

whether a state’s proposed plan amendment complies

with the Medicaid Act. The Court can avoid separa-

tion-of-powers problems by limiting judicial involve-

ment to that expressly contemplated by the Medicaid

Act itself —i.e., review of the Secretary’s decision. See

Walsh, 538 U.S. at 675 (Scalia, J., concurring in

judgment).

Finally, this Court already has twice rejected

efforts to convert what are, fundamentally, statutory

claims into constitutional claims via the Supremacy

Clause. See Golden State Transit Corp. v. City of Los

Angeles, 493 U.S. 103, 107 (1989) (agreeing that “the

Supremacy Clause, of its own force, does not create

rights enforceable under § 1983”); Chapman v. Hous-

ton Welfare Rights Org., 441 U.S. 600, 615 (1979)

(holding that “an allegation of incompatibility be-

tween federal and state statutes and regulations does

not, in itself, give rise to a claim ‘secured by the

Constitution’ within the meaning of § 1343”). Indeed,

the Court has contrasted the Supremacy Clause,

which cannot of its own force create a right of action,

with the Commerce Clause, which can. Dennis v.

Higgins, 498 U.S. 439, 450 (1991) (“By contrast, the

Commerce Clause of its own force imposes limitations

on state regulation of commerce and is the source of a

right of action in those injured by regulations that

exceed such limitations.”).

This Court should act to ensure that its decisions

in cases such as Cort, Pennhurst, Bless:ig, Sandoval,

and Gonzaga, and the plethora of lower court deci-

sions issued in reliance on this Court’s precedent, are

not effectively nullified.” This Court has developed a

* The courts have held that various spending statutes do

not create “rights” and therefore are not privately enforceable

under § 1983. See, e.g., Gonzaga, 536 U.S. 273 (Family Educa-

tional Rights and Privacy Act, 20 U.S.C. § 1232g); Blessing, 520

U.S. 329 (Child Support Enforcement Act, 42 U.S.C. §§ 651-

669b); Newark Parents Ass’n v. Newark Pub. Sch., 547 F.3d 199

(3d Cir. 2008) (No Child Left Behind Act, 20 U.S.C.

§§ 6311(h)\(6), 6316(b\(6)); Arrington v. Helms, 438 F.3d 1336

(llth Cir. 2006) (Temporary Assistance to Needy Families Act,

42 U.S.C. § 657(a)); 31 Foster Children v. Bush, 329 F.3d 1255

(11th Cir. 2003) (Adoption Assistance and Child Welfare Act,

42 U.S.C. § 675(5\D), (E)); Grammar v. John J. Kane Reg’l

(Continued on following page)

sensible and workable scheme for determining when

a private cause of action may be implied in the ab-

sence of express congressional authorization. That

scheme will be rendered meaningless if, as the Ninth

Circuit has held (along with the D.C., First, Fifth,

and Eighth Circuits, see infra Part II), a cause of

action for injunctive relief lies any time there is an

alleged conflict between a state and a federal statute.

II.

RECENT CIRCUIT COURT DECISIONS HAVE

MISREAD THIS COURT’S PRECEDENT AND

CREATED A SPLIT WITH THE ELEVENTH

CIRCUIT REGARDING THE AVAILABILITY OF

PRIVATE PREEMPTION LAWSUITS BASED ON

FEDERAL STATUTES THAT ARE NOT OTH-

ERWISE PRIVATELY ENFORCEABLE

There is a compelling need for this Court’s review

because of confusion and conflict among the courts of

appeal regarding the viability of private suits like the

present one, which only this Court can resolve. In

addition to the Ninth Circuit, the D.C., First, Fifth,

and Eighth Circuits also have recently authorized

Ctrs.-Glen Hazel, No. 06-781, 2007 WL 1087751 (W.D. Pa., Apr.

6, 2007) (Federal Nursing Home Reform Act, 42 U.S.C. §§ 1395i-

3 & 1396r); Williams v. U.S. Dep't of Hous. & Urban Dev., No.

04-CV-3488, 2006 WL 2546536 (E.D.N.Y. Sept. 1, 2006) (Housing

& Urban Development Act, 12 U.S.C. § 1701u); Almendares uv.

Palmer, No. 3:00-CV-7524, 2002 WL 31730963 (N.D. Ohio Dec. 3,

2002) (Food .’ -mp Act, 7 U.S.C. § 2020(e\1)(B)).

such lawsuits, based largely on a misperception that

this Court already resolved the issue presented here

in PhRMA v. Walsh. Further, the Ninth Circuit’s

decision has deepened a circuit split with the Elev-

enth Circuit, which has rejected precisely the implied

cause of action theory adopted here. See Legal Envitl.

Assistance Found., Inc. v. Pegues, 904 F.2d 640, 643-

44 (11th Cir. 1990).

1. The Ninth Circuit's decision is the latest in a

series of court of appeals decisions to permit preemp-

tion suits to go forward based on spending legislation

that is not privately enforceable under § 1983. These

decisions stem in large part from confusion over the

scope of this Court’s decision in Walsh.

On review in Walsh was the First Circuit’s deci-

sion in PhRMA v. Concannon, 249 F.3d 66 (1st Cir.

2001), aff’d, 538 U.S. 644 (2003). In Concannon, the

First Circuit rejected, on the merits, a Medicaid Act-

based preemption challenge to Maine’s Act to Estab-

lish Fairer Pricing for Prescription Drugs. Under the

Act, drug manufacturers were required to enter into

agreements with the state, similar to those used in

the state’s Medicaid program, to provide rebates for

non-Medicaid customers, or else have their drugs

subject to a prior-authorization requirement in Medi-

caid. Jd. at 71-72. Plaintiff contended that the pro-

gram conflicted with the Medicaid Act, specifically 42

U.S.C. §§ 1396a, 1396a(aX(19), 1396r-8(d)(1)(A), and

1396r-8(d)(5)(A), (B). See id. at 76-79. The First

Circuit reached the merits of the case only after

explaining that “‘a state or territorial law can be

unenforceable as preempted by federal law even when

the federal law secures no individual substantive

rights for the party arguing preemption.’” 249 F.3d at

73 (emphasis added, quoting St. Thomas-St. John

Hotel & Tourism Ass’n v. Virgin Islands, 218 F.3d 232,

241 (3d Cir. 2000)). Accordingly, the court rejected

Maine’s argument that plaintiff lacked “prudential

standing” to bring its challenge, and proceeded to an

analysis of the merits of plaintiff’s lawsuit.

This Court affirmed the First Circuit’s decision in

Walsh. However, the plurality opinion did so without

considering whether the underlying Medicaid stat-

utes created any privately enforceable rights or

whether Congress intended to create a private rem-

edy in the federal courts for violations of the statutes

at issue. Instead, this Court held, as had the First

Circuit, that on the merits, Maine’s Act did not con-

flict with the Medicaid Act. 538 U.S. at 662-68. As

alluded to earlier, two justices of this Court wrote

separately to suggest that plaintiff may not have

stated a valid cause of action, and a third to suggest

that the district court should have respected the

primary jurisdiction of HHS. Id. at 675 (Scalia, J.,

concurring in judgment); id. at 675-83 (Thomas, J.,

concurring in judgment); id. at 672-73 (Breyer, J.,

concurring in part, and concurring in judgment).

The D.C. Circuit subsequently interpreted Walsh

as having implicitly held that plaintiff had stated a

valid preemption cause of action under the Medicaid

Act. In PhRRMA v. Thompson, 362 F.3d 817 (D.C. Cir.

2004), the court rejected a preemption challenge to a

different state’s drug rebate program, the Michigan

Best Practices Initiative, again on the merits. Signifi-

cantly, the court rejected the state’s argument that

there could be no preemption lawsuit because the

Medicaid provisions at issue did not support a private

right of action. 362 F.3d at 819 n.3 (explaining that

defendant argued that there was “no private right of

action for injunctive relief against the state based on

Justices Scalia’s and Thomas’s separate opinions in

PhRMA v. Walsh.”). The court held that, “[bly ad-

dressing the merits of the parties’ arguments without

mention of any jurisdictional flaw, the remaining

seven Justices [in PhRRMA v. Walsh] appear to have

sub silentio found no flaw.” Id.

The D.C. Circuit erred to the extent that it

interpreted this Court’s willingness to review the

merits of the preemption challenge in Walsh as

containing an implicit holding that a valid cause of

action existed. This Court has repeatedly emphasized

that the absence of a valid cause of action is not a

jurisdictional flaw. See, e.g., Verizon, 535 U.S. at 642-

43 (“‘(TJke absence of a valid (as opposed to arguable)

cause of action does not implicate subject-matter

jurisdiction, i.e., the courts’ statutory or constitu-

tional power to adjudicate the case.’” (quoting Steel

Co. v. Citizens for a Better Env't, 523 U.S. 83, 89

(1998))); Bell v. Hood, 327 U.S. 678, 682 (1946).

Accordingly, this Court has often been willing to

assume ~— without deciding — that a valid cause of

action existed in order to proceed to an analysis of the

merits of plaintiffs’ claims.

Thus, in Owasso Independent School District v.

Falvo, 534 U.S. 426, 431 (2002), this Court “as-

sume[d], but without so deciding or expressing an

opinion on the question, that private pariies may sue

an educational agency under § 1983 to enforce” the

Family Educational Rights and Privacy Act (FERPA),

in order to proceed to the merits of the case. Yet, in a

separate case decided that very same term, the Court

held that no such right exists under FERPA. Gon-

zaga, 536 U.S. 273; see also City of Rancho Palos

Verdes v. Abrams, 544 U.S. 118, 120 (2005) (assuming

for the purpose of the case, based on parties’ conces-

sions, that Telecommunications Act created rights

enforceable under 42 U.S.C. § 1983).°

* There are two additional reasons why this Court did not

implicitly rule that petitioner had stated a valid cause of action

in Walsh. First, Maine did not specifically argue that petitioner

lacked a private right of action, but only that it lacked pruden-

tial standing. Indeed, Justice Thomas, in his opinion concurring

in judgment, stated that “careful consideration” should be given

“to whether Spending Clause legislation can be enforced by third

parties in the absence of a private right of action” through a

preemption lawsuit, but that the Court could not reach the issue

because “Respondents have not advanced this argument in this

case.” Walsh, 538 U.S. at 683 (Thomas, J., concurring in judg-

ment). Second, as petitioner argued in its reply brief on the

merits in this Court, Maine was foreclosed from pressing its

contention in this Court because the state did not file a cross-

petition on that issue. Reply Brief of Petitioner at 1 n.1, PhRMA

v. Walsh, 538 U.S. 644 (2002) (No. 01-88).

The Fifth Circuit also (mis)relied on this Court’s

decision in Walsh to authorize a preemption challenge

based on a federal spending statute that did not

create any “rights” enforceable by plaintiffs. In

Planned Parenthood of Houston and Southeast Texas

v. Sanchez, 403 F.3d 324 (5th Cir. 2005), family

planning and abortion services providers challenged a

Texas funding restriction on the ground that it “vio-

late[d] the Supremacy Clause ... by imposing addi-

tional eligibility requirements on Appellees’ receipt of

federal funds that are inconsistent with the federal

funding statutes,” including Title X of the Public

Health Service Act and Title XX of the Social Security

Act. 403 F.3d at 328, (footnote omitted). Citing this

Court’s decision in Shaw v. Delta Air Lines, Inc., the

court of appeals held that the district court had

“jurisdiction,” under 28 U.S.C. § 1331, over a “pre-

emption claim seeking injunctive and declaratory

relief.” Jd. at 331. The court then rejected the state’s

argument that, “even with federal jurisdiction over

the claim, it was improper for the district court to

resolve it because Appellees were not seeking to

vindicate any right or to enforce any duty running to

them.” Jd. Citing this Court’s decision in Walsh, the

court asserted that “seven Justices [there] assumed

both that the federal courts have jurisdiction and that

a claim was stated for Spending Clause preemption,

tacitly rejecting the suggestion advanced by two

concurring Justices — and today espoused by [defen-

dant] — that no claim was stated.” Jd. at 332. The

court also cited, with approval, authorities suggesting

that the Supremacy Clause may be the source of an

implied right of action to enjoin state or local regula-

tions that are federally preempted. Jd. at 334 n.47.

Based on similar reasoning, the Eighth Circuit

has also recently held that a preemption claim may

proceed under the Medicaid Act even if the provision

at issue does not create any privately enforceable

rights. In Lankford v. Sherman, 451 F.3d 496 (8th

Cir. 2006), disabled Medicaid recipients sought to

challenge a Missouri Medicaid regulation that cur-

tailed provision of durable medical equipment to most

categorically-needy Medicaid recipients on the ground

that it conflicted with, inter alia, the “reasonable-

standards” requirement of federal Medicaid Act, 42

U.S.C. § 1396a(a)(17). The court of appeals held that

§ 1396a(a)(17) does not create an “individual right,”

and that its language is “‘too vague and amorphous

for judicial enforcement.’” 451 F.3d at 509. And, the

court recognized that the Supremacy Clause “is not

the direct source of any federal right, but ‘secures

federal rights by according them priority whenever

they come in conflict with state law.’” Jd. (quoting

Golden State Transit, 496 U.S. at 107). Nonetheless,

the court allowed plaintiff’s claim to proceed because

“(plreemption claims are analyzed under a different

test than section 1983 claims, affording plaintiffs an

alternative theory for relief when a state law conflicts

with a federal statute or regulation.” Jd.

The remaining circuits have not addressed

whether a Spending Clause statute that does not

create any privately enforceable rights may nonethe-

less be the basis for a preemption claim under the

Supremacy Clause. However, the Federal,‘ Second,”

and Tenth® Circuits appear to accept that, at least

with respect to other sorts of federal claims, the

Supremacy Clause may create a preemption cause of

action independently of whether the underlying

federal statute creates privately enforceable rights.

‘ See Biotechnology Indus. Org. v. District of Columbia, 496

F.3d 1362, 1368 (Fed. Cir. 2007) (holding that court had jurisdic-

tion over preemption challenge to District of Columbia’s Pre-

scription Drug Excessive Pricing Act; “though the plaintiffs’

claim is created by principles of supremacy law, its resolution

necessarily requires us to construe the patent statutes”).

* See W. Air Lines, Inc. v. Port Auth. of N.Y. & N.J., 817 F.2d

222 (2d Cir. 1987) (holding that airline could bring Supremacy

Clause challenge to local aviation regulation as preempted by

federal statute, 49 U.S.C. § 1305(a)(1), even though no private

right of action could be implied directly under the statute);

Burgio & Campofelice, Inc. v. N.Y.S. Dep’t of Labor, 107 F.3d

1000, 1006 (2d Cir. 1997) (citing 13B C. Wright, A. Miller & E.

Cooper, Federal Practice & Procedure: Jurisdiction 2d § 3566, at

102 (1984)).

* See Qwest Corp. v. City of Santa Fe, 380 F.3d 1258, 1266

(10th Cir. 2004) (“A party may bring a claim under the Suprem-

acy Clause that a local enactment is preempted even if the

federal law at issue does not create a private right of action.”);

Joseph A. ex rel. Corrine Wolf v. Ingram, 275 F.3d 1253, 1265

(10th Cir. 2002) (explaining, in rejecting Eleventh Amendment

defense, that plaintiffs “are not trying to create a private right of

action against the Department under the Social Security Act,”

but rather were pursuing “an implied cause of action” under Ex

parte Young, 209 U.S. 123 (1908) and the Supremacy Clause);

see also Day v. Bond, 511 F.3d 1030, 1033-34 (10th Cir. 2007)

(citing Qwest, 380 F.3d 1258, with approval and harmonizing

decision with Planned Parenthcod, 403 F.3d 324), cert. denied,

128 S. Ct. 2987 (2008).

2. The Ninth Circuit’s decision, together with

those from the D.C., First, Second, Fifth, Eighth,

Tenth, and Federal Circuits, conflicts with the Elev-

enth Circuit’s decision in Legal Environmental Assis-

tance Foundation v. Pegues. In Pegues, the Eleventh

Circuit rejected the contention that a “cause of action

... may be implied from the Supremacy Clause” as to

a federal statute that is not itself a source of privately

enforceable rights. 904 F.2d at 642.

In Pegues, an environmental group sued a state

entity that issued national pollution discharge elimi-

nation system permits that purportedly did not

comply with the Federal Water Pollution Control Act.

Although the Act at issue expressly authorized cer-

tain private party suits (e.g., a citizen suit against an

alleged polluter for violating the Act), it did not

expressly authorize the type of suit at issue. The

court of appeals observed that this Court had previ-

ously concluded that no additional private causes of

action could be implied directly under the Act:

In Middlesex County Sewerage Authority v.

National Sea Clammers Association [453

U.S. 1 (1981)], the Supreme Court reviewed

the “unusually elaborate” enforcement and

review provisions of the Act, and held that

“both the structure of the Act[] and [its] leg-

islative history lead us to conclude that Con-

gress intended that private remedies in

addition to those expressly provided should

not be implied.”

904 F.2d at 643 (footnotes omitted). Consequently, the

court said that plaintiff was “[sleeking to sidestep the

holding of Sea Clammers” by arguing that “a consti-

tutional cause of action should be implied directly

from the Supremacy Clause.” Jd.

The court refused to permit plaintiff to “sidestep”

Sea Clammers, and affirmed dismissal of plaintiff’s

case because “the Supremacy Clause does not grant

an implied cause of action for the relief sought.” 904

F.2d at 641. The court recognized that some authori-

ties, including Wright and Miller’s Federal Practice

and Procedure, have suggested that the Supremacy

Clause creates an implied right of action for injunc-

tive relief:

A leading treatise has concluded that “(t]he

best explanation of Ex Parte Young and its

progeny is that the Supremacy Clause cre-

ates an implied right of action for injunctive

relief against state officials who are threat-

ening to violate the federal Constitution or

laws.” ... In addition, [plaintiff] cites dicta

in footnotes from Shaw v. Delta Air Lines ...

and Franchise Tax Board v. Construction La-

borers Vacation Trust, ... which suggest that

a federal cause of action might be implied to

permit a declaratory adjudication that fed-

eral law pre-empts a contrary state law, even

if the federal statute does not expressly pro-

vide a cause of action.

Id. at 643 (footnotes omitted). However, the court

explained that “[t)]hese expressions ... do no more

than indicate that the Supremacy Clause provides

federal jurisdiction ... for a cause of action implied

from the statute.” Id. (citing 28 U.S.C. § 1331) (foot-

note omitted).’ The court’s reasoning and holding

flatly contradicts that of the D.C., First, Second,

Fifth, Eighth, Ninth, Tenth, and Federal Circuits.

III.

THE NINTH CIRCUIT WRONGLY DECIDED A

RECURRING AND IMPORTANT ISSUE

The question presented in this lawsuit is both

important and recurring. The rule adopted by the

Ninth Circuit implicates important principles of

federalism, and could, if left unaddressed, radically

change the means by which alleged conflicts between

state and federal laws are resolved when they arise,

by shifting some of the burden of resolving such

issues from federal agencies to federal courts. The

federalism concerns are especially sensitive in this

case because of its Spending Clause context. The

Medicaid Act creates, in effect, a contractual relation-

ship between the states and the federal government

" The Eleventh Circuit has continued to insist that plain-

tiffs demonstrate congressional intent to create a private right of

action before a preemption claim may proceed. See, e.g., Bell-

south Telecomm. v. Town of Palm Beach, 252 F.3d 1169, 1189-92

(llth Cir. 2001) (holding that telecommunications companies

could bring preemption claim only after determining, based on

analysis of Congressional intent, that the “Act creates a private

right of action” for private parties seeking preemption of a state

or local statute, ordinance, or regulation).

in which the agreement itself provides the remedies

for noncompliance (i.e., potential loss of federal

funding). See 42 U.S.C. § 1396c; Gonzaga, 536 U.S. at

280; Pennhurst, 451 U.S. at 11-12, 28; see also Wilder,

496 U.S. at 527 (Rehnquist, C.J., O'Connor, J., Scalia,

J. & Kennedy, J., dissenting). To allow private parties

to sue to, in effect, compel a state’s specific perform-

ance — a contract remedy that Congress did not itself

provide — is to eviscerate the voluntary nature of the

underlying agreement in derogation of the state’s

sovereign right to choose not to comply.

As discussed in Part I, this Court’s precedents

make clear that Congress’s intent is key in determin-

ing whether and how a federal statute may be pri-

vately enforced. Consistent with this precedent, a

private preemption claim should not be authorized

where there is no evidence that Congress intended

such private enforcement and instead only provided

an administrative remedy.

Here, the Ninth Circuit erred by ignoring these

principles, and by instead relying on other decisions

from this Court for propositions that this Court did

not actually reach. The Ninth Circuit — like the D.C.

Circuit and Fifth before it — misread this Court’s

decision in PhRMA v. Walsh. It erred when it con-

cluded that this Court’s willingness to reach the

merits of petitioners’ preemption claim carried an

implicit determination that petitioner had stated a

valid, as opposed to merely arguable, cause of action

upon which relief may be granted. See supra Part

II(1) (citing Verizon, 535 U.S. at 642, and other

authorities); cf. Texas v. Cobb, 532 U.S. 162, 169

(2001) (“Constitutional rights are not defined by

inferences from opinions which did not address the

question at issue.”).

The Ninth Circuit also misread the scope of this

Court’s decision in Shaw v. Delta Air Lines and its

progeny. In Shaw, this Court stated that the courts

have “jurisdiction” over lawsuits to “enjoin state

officials from interfering with federal rights,” and did

not reach the separate issue of whether such claims

always state a “valid cause of action.” See 463 U.S. at

96 n.14. This Court explained:

It is beyond dispute that federal courts have

jurisdiction over suits to enjoin state officials

from interfering with federal rights. See Ex

parte Young, 209 U.S. 123, 160-162 (1908). A

plaintiff who seeks injunctive relief from

state regulation, on the ground that such

regulation is pre-empted by a federal statute

which, by virtue of the Supremacy Clause of

the Constitution, must prevail, thus presents

a federal question which the federal courts

have jurisdiction under 28 U.S.C. § 1331 to

resolve.

Id. This Court has reiterated the limited, purely

jurisdictional nature of this language in subsequent

cases. Verizon, 535 U.S. at 642 (citing and quoting

Shaw for proposition that claim that local regulation

is preempted “‘presents a federal question which the

federal courts have jurisdiction under 28 U.S.C. § 1331

to resolve’”); Lawrence County v. Lead-Deadwood

School Dist. No. 40-1, 469 U.S. 256, 259 n.6 (1985)

(similar); see also Pegues, 904 F.2d at 643.°

The Ninth Circuit appears to have.recognized the

limited jurisdictional nature of this language from

Shaw, but again assumed that this Court must have

implicitly determined that there always is a valid

cause of action to enjoin state action from the Court’s

willingness to reach the merits of plaintiffs’ preemp-

tion claims in Shaw and its progeny. App., infra, 11a,

13a. In this respect, the court made the same error

that it made with respect to this Court’s decision in

Walsh.

Nor could the Ninth Circuit properly rely upon

Ex parte Young for the expansive theory of state

liability that it adopted. This Court did not purport to

create, in Ex parte Young, a new, stand-alone private

cause of action t« enforce federal statutes, but only

eliminated a jurisdictional defense: it described an

“exception” to the states’ immunity under the Elev-

enth Amendment. See Pennhurst, 465 U.S. at 102.

Thus, a section 1983 action against a state official in

his or her official capacity that seeks purely injunc-

tive relief may be brought under the Ex parte Young

exception. But to go further, and construe Ex parte

* Thus, the Ninth Circuit’s belief that Verizon and Lawrence

“reaffirmed” that a plaintiff asserting preemption under the

Supremacy Clause necessarily states a valid cause of action, see

App., infra, 15a, also was incorrect as the cited portions of the

decisions only referenced jurisdiction. Verizon, 535 U.S. at 642;

Lawrence, 469 U.S. at 259 n.6.

Young as the source of a private right of action to

enforce federal statutes against state officials, would

vitiate any and all limitations on private rights of

action under federal statutes.

The issues presented here are likely to recur.

Hundreds of billions of dollars are distributed to the

states each year for cooperative federal-state pro-

grams such as Medicaid, the Temporary Assistance to

Needy Families Act, No Child Left Behind Act, Food

Stamp Act, FERPA, and Adoption Assistance and

Child Welfare Act. See Office of Mgmt. & Budget, A

New Era of Responsibility: Renewing America’s Prom-

ise, Table S-4 (2009) (proposed budget would provide,

inter alia, $695 billion for Social Security, $453 billion

for Medicare, $290 billion for Medicaid, and $571

billion for other programs in FY 2010) available at

http://www. whitehouse.gov/omb/assets/fy2010_new_era/

A_New_Era_of_Responsibility2.pdf); see also supra

n.2. These funds become the basis for an uncountable

number of program decisions at the state level. If any

program decision that allegedly is inconsistent with a

federal statute may be the basis for a federal lawsuit

— regardless of Congressional intent, and regardless

of whether a federal “right” is involved — then the

states’ liability under such programs will be com-

pletely unbounded.

CONCLUSION

For the foregoing reasons, the petition for a writ

of certiorari should be granted.

Respectfully submitted,

EDMUND G. BROWN JR.

Attorney General of California

MANUEL M. MEDETROS

State Solicitor General

Davip 8S. CHANEY

Chief Assistant Attorney General

GORDON BURNS

Deputy Solicitor General

RICHARD T. WALDOW

KARIN S. SCHWARTZ*

JENNIFER M. KIM

Supervising Deputy Attorneys General

*Counsel of Record

Counsel for Petitioners

Of counsel:

DAN SCHWEITZER

2030 M Street, NW, 8th Floor

Washington, DC 20036

(202) 326-6010

Dated: April 1, 2009

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

INDEPENDENT LIVING CENTER OF

SOUTHERN CALIFORNIA, INC., a

nonprofit corporation; GRAY

PANTHERS OF SACRAMENTO, a

nonprofit corporation; GRAY

PANTHERS OF SAN FRANCISCO, a

nonprofit corporation; GERALD

SHAPIRO, PHARM. D. doing

business as UPTOWN PHARMACY

AND GIFT SHOPPE; SHARON

STEEN doing business as

Central Pharmacy; MARK

BECKWITH; MARGARET DOWLING;

TRAN PHARMACY, INC., doing

business as TRAN PHARMACY;

JASON YOUNG,

Petitioners-Appellants,

SANDRA SHEWRY, Director of the

Department of Health Care

Services, State of California,

Respondent-Appellee.

No. 08-56061

D.C. No.

2:08-cv-03315-

CAS-MAN

OPINION

Appeal from the United States District Court

for the Central District of California

Christina A. Snyder, District Judge, Presiding

Argued and Submitted

July 11, 2008 — Pasadena, California

Filed September 17, 2008

Before: Stephen Reinhardt, Marsha S. Berzon, and

Milan D. Smith, Jr., Circuit Judges.

Opinion by Judge Berzon

COUNSEL

Lynn S. Carman and Stanley L. Friedman (argued)

for Independent Living Center of Southern Califor-

nia, et al., petitioners-appellants.

Edmund G. Brown, Jr., Attorney General of the State

of California; Richard T. Waldow, Supervising Deputy

Attorney General; Jennifer M. Kim (argued), Super-

vising Deputy Attorney General; Phillip J. Matsu-

moto, Tara L. Newman, Gregory M. Cribs, and Sara

Ugaz, Deputy Attorneys General; for Sandra Shewry,

Director of the Department of Health Care Services of

the State of California, respondent-appellee.

OPINION

BERZON, Circuit Judge:

Petitioner-appellants, a group of pharmacies,

health care providers, senior citizens’ groups, and

Medi-Cal beneficiaries (collectively “ILC”),' seek to

' Petitioner-appellants include the Independent Living Center

of Southern California, a non-profit corporation providing services

(Continued on following page)

enjoin a state official from implementing legislation

reducing payments to medical service providers under

the state’s Medicaid program, known as “Medi-Cal,”

by ten percent. ILC alleged in its complaint that the

state legislation violates certain provisions of the

federal Medicaid Act, and is therefore preempted

under the Supremacy Clause.’ Although ILC sought

preliminary relief, the district court denied any

such relief, holding that ILC could not allege any

viable claim for injunctive relief because none of the

to over 8,000 disabled individuals annually; Gray Panthers of

Sacramento and San Francisco, senior citizens’ advocacy groups

whose members include a number of Medi-Cal recipients; Gerald

Shapiro, a licensed registered pharmacist operating Uptown

Pharmacy & Gift Shoppe, which delivers prescription drugs to

roughly 5,000 home-bound patients in Los Angeles; Sharon

Steen, co-owner of Central Pharmacy in Santa Monica; Mark

Beckwith, a quadriplegic suffering from spinal muscular atrophy

who receives medical and pharmacy services under Medi-Cal;

Margaret Dowling, a paraplegic who receives part of her medical

services under Medi-Cal; Jason Young, an individual suffering

from blindness and brain damage who receives in-home support

services from a Medi-Cal managed care program; and Tran

Pharmacy, Inc., a California corporation operating a retail

pharmacy in Garden Grove. Independent Living Center, the

Gray Panthers, and the pharmacy petitioners also sued to assert

the interests of their respective patients and members. We refer

to petitioner-appellants collectively as “petitioners,” “Independ-

ent Living Center,” or “ILC.”

* The Supremacy Clause provides that “(tJhis Constitution,

and the Laws of the United States which shall be made in

Pursuance thereof ... shall be the supreme Law of the Land;

and the Judges in every State shall be bound thereby, any Thing

in the Constitution or Laws of any State to the Contrary not-

withstanding.” U.S. Const. art. VI, cl. 2.

petitioners or their members have any federal right to

Medi-Cal payments or benefits. We do not agree that

this suit fails for this threshold reason, and therefore

reverse.

Under Title XIX of the Social Security Act, 42

U.S.C. § 1396 et seg. (the “Medicaid Act”), the federal

government provides funds to participating states to

“enabl{e] each State, as far as practicable ... to

furnish [] medical assistance on behalf of families

with dependent children and of aged, blind, or dis-

abled individuals, whose income and resources are

insufficient to meet the costs of necessary medical

services[.]” 42 U.S.C. § 13896. Medicaid is a coopera-

tive federal-state program, enacted by Congress

pursuant to its powers under the Spending Clause,

see U.S. Const. art. I, § 8, cl. 1, that “‘directs federal

funding to states to assist them in providing medical

assistance to low-income individuals.’” Ball v. Rod-

gers, 492 F.3d 1094, 1098 (9th Cir. 2007) (quoting

Katie A. v. Los Angeles County, 481 F.3d 1150, 1153-

54 (9th Cir. 2007)). To receive federal funds, states

are required to administer their programs in compli-

ance with individual “State plans for medical assis-

tance” approved by the federal Secretary of Health

and Human Services. 42 U.S.C. § 1396. The Act sets

forth detailed requirements for state plans, see id.

§ 1396a(a)(1)-(71), including the specific provision at

issue in this appeal.

Under that provision, § 1396a(a)(30)(A) (“Section

30(A)”), a state plan must:

provide such methods and procedures relat-

ing to... the payment for [] care and ser-

vices ... aS may be necessary ... to assure

that payments are (consistent with efficiency,

economy, and quality of care and are suffi-

cient to enlist enough providers so that care

and services are available under the plan at

least to the extent that such care and ser-

vices are available to the general (population

in the geographic area|[.]

That is, a state plan must establish reimbursement

rates for health care providers that are both consis-

tent with high-quality medical care (the “quality of

care provision”) and sufficient to enlist enough pro-

viders to ensure that medical services are generally

available to Medicaid recipients (the “access to care

provision”). See generally Orthopaedic Hosp. v. Bel-

she, 103 F.3d 1491 (9th Cir. 1997).

California Assembly Bill X3 5 (“AB 5”), enacted

on February 16, 2008, during a special session con-

vened by the Governor to address the state’s budget

deficit, reduces payments to medical providers par-

ticipating in the state’s Medi-Cal program by ten

percent. Section 14 of AB 5 instructs the Director of

the Department of Health Care Services, the state

agency responsible for administering the Medi-Cal

program, to reduce payments to physicians, dentists,

pharmacies, adult day health care centers, clinics,

health systems and other providers participating in

Medi-Cal’s fee-for-service program by ten percent. See

CAL. WELF. & INST. CODE § 14105.19 (2008). Section

14 also reduces payments to managed health care

plans under contract with the Department by the

“actuarial equivalent” of ten percent. Jd. Section 15 of

AB 5 instructs the Director to reduce payments for

inpatient services provided by acute care hospitals

not under contract with the Department by ten

percent. See id. § 14166.245. All of these cuts were

scheduled to take effect July 1, 2008.

ILC filed this suit in California state court seek-

ing to enjoin implementation of AB 5 on April 22,

2008, maintaining that the ten-percent rate reduction

violates both the “quality of care” and “access to care”

provisions of § 30(A) and is therefore invalid under

the federal Constitution’s Supremacy Clause, as it

conflicts with governing federal law. The complaint

alleged that even prior to passage of AB 5, a substan-

tial percentage of medical care providers — 45% of

primary care providers and 50% of specialists — were

unwilling to participate in the Medi-Cal program due

to low reimbursement rates; that 90% of dentists

refused to accept Medi-Cal patients; and that Medi-

Cal’s reimbursement rates for prescription drugs

allowed pharmacies to “uniformly earn less than a

10% net profit.” By further reducing already-low

reimbursement rates, ILC argued, AB 5 would drive

even more primary care physicians, specialists,

dentists, and pharmacies out of the Medi-Cal pro-

gram and force existing providers to reduce services.

As a result, ILC contended, Medi-Cal recipients

would be “denied quality medical services and access

to quality medical services,” in violation of § 30(A).

ILC also maintained that nothing in the legislative

history of AB 5 demonstrated that the legislature had

considered whether reduced payments would be

consistent with efficiency, economy, and quality of

care, or whether such payments would be sufficient to

enlist an adequate network of health care providers.

Rather, the sole purpose cited in the legislation was

to “address [| the fiscal emergency declared by the

Governor” and “implement cost containment meas-

ures affecting health services, at the earliest possible

time.” ILC therefore requested a peremptory writ of

mandate or injunction to prevent the Department of

Health Care Services’ and its Director, Sandra She-

wry (“the Director”), from implementing AB 5.“

* ILC voluntarily dismissed the Department from suit on

June 1, 2008, leaving the Director as the sole defendant.

* ILC also alleged in its complaint that the ten-percent rate

reduction both violated and was preempted by the Americans

with Disabilities Act of 1990 (“ADA”), 42 U.S.C. § 12181 et seq.

ILC voluntarily dismissed these claims without prejudice.

The state defendants removed the suit to federal

court, where ILC filed a motion for preliminary

injunction. The district court denied relief, holding

that although it was “acutely cognizant of the poten-

tial adverse consequences of the ten percent rate

reduction,” ILC had “no likelihood of succeeding on

the merits” because they “do not have any federal

rights under § 30(A).”

In reaching this conclusion, the district court

relied heavily on this court’s decision in Sanchez v.

Johnson, which held that § 30(A) does not “create an

individual right that either Medicaid recipients or

providers would be able to enforce under [42 U.S.C.]

§ 1983.” 416 F.3d 1051, 1062 (9th Cir. 2005). Although

the district court acknowledged that ILC in this case

filed suit under 28 U.S.C. § 1331 and the Supremacy

Clause rather than under § 1983, the court viewed

this as a distinction without a difference, reasoning

that the Supremacy Clause — like § 30(A) — “‘is not a

source of any federal rights.’” Golden State Transit

Corp. v. City of Los Angeles, 493 U.S. 103, 107 (1989)

{quoting Chapman v. Houston Welfare Rights Org.,

441 U.S. 600, 613 (1979)). In the absence of any

“right,” the district court concluded, ILC almost

surely had failed to state a claim for injunctive relief.

In so ruling, the district court rebuffed ILC’s

argument that it was entitled to seek purely injunc-

tive relief — which is all it is seeking — on the basis of

federal preemption under the doctrine recognized in

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983).

Shaw held that “[a] plaintiff who seeks injunctive

relief from state regulation, on the ground that such

regulation is pre-empted by a federal statute which,

by virtue of the Supremacy Clause... , must prevail,

thus presents a federal question which the federal

courts have jurisdiction under 28 U.S.C. § 1331 to

resolve.” Id. at 96 n.14. The district court held Shaw

and its progeny — which, as we shall see, are legion —

inapplicable to ILC’s claims, holding that Shaw

preemption claims have been permitted in only three

“circumstances”: (1) “where the plaintiff claims that a

state law requires him to act in violation of federal

law;” (2) “where the plaintiff contends that his con-

duct will be restricted by a state law that is pre-

empted by federal law;” and (3) “where state law

interferes with federally created rights.” The court

concluded that ILC’s claims did not fall under any of

these three categories, as “AB 5 neither compels nor

restricts petitioners own conduct” and “§ 30(A) does

not give rise to a federally created right.” ILC’s claims

thus fell outside the Shaw Supremacy Clause doc-

trine, rendering its probability of success on the

merits “low, if not wholly lacking.”

ILC immediately sought emergency relief in this

court. We granted ILC’s motion to expedite oral

argument, but denied the balance of its emergency

motion. We heard argument on July 11, 2008, and

issued an order the same day reversing the district

10a

court’s decision and remanding for consideration of

the merits of ILC’s motion for preliminary injunction.”

This opinion more fully sets forth the rationale for

our July 11 order.

If.

We review a district court’s denial of a prelimi-

nary injunction for abuse of discretion. The Lands

Council v. McNair, __ F.3d __., 2008 WL 2640001, at

*3 (9th Cir. 2008) (en banc). “A district court abuses

its discretion in denying a request for a preliminary

injunction if it ‘base[s] its decision on an erroneous

legal standard or clearly erroneous findings of facts.’”

Id. (quoting Earth Island Inst. v. U.S. Forest Serv.,

442 F.3d 1147, 1156 (9th Cir. 2006)) (alteration in

original). We therefore review the district court’s legal

rulings de novo and its findings of fact for clear error.

Id.; see also Perfect 10, Inc. v. Amazon.com, Inc., 508

F.3d 1146, 1157 (9th Cir. 2007).

[1] In this case, the district court denied ILC’s

motion for a preliminary injunction based solely on

its legal ruling that ILC could not bring suit under

the Shaw Supremacy Clause doctrine. The only issue

* The district court heard argument on the merits of ILC’s

motion for a preliminary injunction on August 1, 2008, and

subsequently entered an order granting ILC’s motion in part.

See Indep. Living Ctr. v. Shewry, No. CV 08-3315 (C.D. Cal. Aug.

18, 2008), appeal filed, No. 08-56422 (9th Cir. 2008).

lla

before this court is thus whether ILC may maintain a

valid cause of action to enjoin implementation of AB 5

on the basis of federal preemption.

[2] The Supreme Court has repeatedly enter-

tained claims for injunctive relief based on federal

preemption, without requiring that the standards for

bringing suit under § 1983 be met, and without

intimating that such claims must fit into one of three

categories or “circumstances” in order to be cogniza-

ble. In City of Burbank v. Lockheed Air Terminal,

Inc., 411 U.S. 624 (19'73), for example, the Court

enjoined a city ordinance prohibiting jet aircraft from

taking off between 11 p.m. and 7 a.m. Id. at 625-26.

Plaintiffs, the owner and operator of a private airport,

filed suit under the Supremacy Clause, arguing that

the Federal Aviation Act preempted the city’s ordi-

nance. Id. at 626-27. As the Court noted, the Act

permitted the federal government “‘to possess and

exercise complete and exclusive national sovereignty

in the airspace of the United States,’” id. at 626-27

(quoting 49 U.S.C. § 1508(a)), displacing both state

and local regulation of airspace and — presumably —

any private “right” to occupy airspace at a given time

or place. Without questioning plaintiffs’ authority to

bring suit, the Court proceeded directly to the merits

of their claim for injunctive relief, holding the city’s

ordinance preempted under the Supremacy Clause.

See id. at 633, 640.

12a

[3] In Ray v. Atlantic Richfield Co., 435 U.S.

151 (1978), the Court proceeded along much the same

path. Ray involved a claim for injunctive relief

brought by the operators of an oil refinery and tanker

vessels, who argued that the State of Washington’s

Tanker Law, which regulated the design, size, and

movement of oil tankers in Puget Sound, was pre-

empted by the federal Ports and Waterways Safety

Act (PWSA). Jd. at 154-56. Without comment on

plaintiffs’ authority to bring suit under the Suprem-

acy Clause, the Court once again proceeded straight

to the preemption analysis. See id. at 157. Indeed,

none of the Court’s seminal preemption cases casts

any doubt on the presumptive availability of declara-

tory and injunctive relief under the Supremacy

Clause; to the contrary, the Court has consistently

assumed — without comment — that the Supremacy

Clause provides a cause of action to enjoin implemen-

tation of allegedly unlawful state legislation. See

Gade v. Natl Solid Wastes Mgmt. Ass’n, 505 U.S. 88

(1992); Pac. Gas & Elec. Co. v. State Energy Res.

Conservation & Dev. Comm’n, 461 U.S. 190 (1983);

Fla. Lime & Avocado Growers, Inc. v. Paul, 373 U.S.

132 (1963); see also RICHARD H. FALLON, DANIEL J.

MELTZER, & DAVID L. SHAPIRO, HART & WECHSLER’S

THE FEDERAL COURTS & THE FEDERAL SYSTEM 903 (5th

ed. 2003) (describing “the rule that there is an im-

plied right of action to enjoin state or local regulation

that is preempted by a federal statutory or constitu-

tional provision” as “well-established”).

13a

[4] Perhaps the most well-known in this line of

cases is Shaw v. Delta Air Lines, Inc. Shaw involved

the claims of several large employers, who brought

suit against the Acting Commissioner of the New

York State Division of Human Rights, arguing that

the State’s Human Rights and Disability Benefits

Laws — which required employers to treat pregnancy

no differently than any other non-occupational dis-

ability — were preempted by the federal Employee

Retirement Income Security Act (“ERISA”). 463 U.S.

at 92. ERISA does not confer any express cause of

action on employers to challenge state benefits laws

in federal court,° but the Court — much as it had in

City of Burbank and Ray — reached the merits of the

preemption claims anyway, holding that the state

legislation was preempted only insofar as it prohib-

ited practices that were otherwise lawful under

ERISA. 7d. at 108-09. In an oft-cited footnote, the

Court emphasized that its decision in Franchise Tax

* Section 502(a) of the Act expressly allows participants,

beneficiaries, and fiduciaries of a covered employee benefits

plan, as well as the Secretary of Labor, to maintain a cause of

action under ERISA. See 29 U.S.C. § 1132(a). The same provi-

sion, however, is silent as to employers, and has generally been

interpreted to mean that an employer cannot maintain an action

directly under ERISA. See, e.g., DeMarco v. C & L Masonry, Inc.,

891 F.2d 1236, 1240-41 (6th Cir. 1989); Tuvia Convalescent Ctr.,

Inc. v. Nat’l Union of Hosp. & Health Care Employees, 717 F.2d

726, 729-30 (2d Cir. 1983). But see Associated Builders &

Contractors v. Carpenters Vacation & Holiday Trust Fund, 700

F.2d 1269, 1278 (9th Cir. 1983) (allowing suits by employers in

narrow circumstances).

14a

Board v. Construction Laborers Vacation Trust, 463

U.S. 1 (1983), decided the same day, “does not call

into question the lower courts’ jurisdiction to decide

these cases.” 463 U.S. at 96 n.14. Rather, the Court

reaffirmed the general rule that a plaintiff seeking to

enjoin state law based on federal preemption main-

tains a valid federal] cause of action. As the Court

explained,

It is beyond dispute that federal courts have

jurisdiction over suits to enjoin state officials

from interfering with federal rights.[*] A

plaintiff who seeks injunctive relief from

state regulation, on the ground that such

" Franchise Tax Board applied the “well-pleaded complaint

rule” to hold that federal courts lacked jurisdiction to hear cases

in which a defendant asserted ERISA preemption as a defense to

an action brought by state tax authorities to enforce its levies

against funds held in ERISA-covered employee benefit plans.

463 U.S. at 28. Shaw distinguished Franchise Tax Board by

noting that the Tax Board sought a declaration that state laws

were not preempted, whereas the employers in Shaw presented

an affirmative claim that the state laws at issue were pre-

empted. See Shaw, 463 U.S. at 96 n.14.

* Although Shaw utilized the term “federal rights,” it did so

before that term had taken on the added significance attributed

to it in more recent cases such as Gonzaga University v. Doe, 536

U.S. 273 (2002), discussed below. Shaw’s description of ERISA

makes clear that the Court did not view the statute as creating

any substantive “rights” in employers. To the contrary, the Court

described ERISA as “a comprehensive statute designed to

promote the interests of employees and their beneficiaries in

employee benefit plans,” 463 U.S. at 90 (emphasis added), and

noted that the statute itself “does not mandate that employers

provide any particular benefits,” id. at 91.

l5a

regulation is pre-empted by a federal statute

which, by virtue of the Supremacy Clause of

the Constitution, must prevail, thus presents

a federal question which the federal courts

have jurisdiction under 28 U.S.C. § 1331 to

resolve.

Id. (internal citations omitted). The Court concluded

by noting that it “frequently has resolved pre-emption

disputes in a similar jurisdictional posture,” citing,

inter alia, Ray and Florida Lime & Avocado Growers.

Id. Thus, Shaw did not give rise to some unique line

of “Shaw preemption” cases, but merely reaffirmed

the traditional rule that injunctive relief is presump-

tively available in federai court to enjoin state officers

from implementing a law allegedly preempted under

the Supremacy Clause.’ See Lawrence County v. Lead-

Deadwood Sch. Dist. No. 40-1, 469 U.S. 256, 259 n.6

(1985) (describing Shaw as “reaffirming the general

rule” that a plaintiff asserting preemption under the

Supremacy Clause has stated a federal claim for

injunctive relief).

° Indeed, Shaw itself traced the roots of the doctrine to Ex

parte Young, 209 U.S. 123 (1908), decided seventy-five years

earlier. See 463 U.S. at 96 n.14. In Young, the Court found

“ample justification” in the case law to support its conclusion

that “individuals who, as officers of the state, are clothed with

some duty in regard to the enforcement of the laws of the state,

and who threaten and are about to commence proceedings . . . to

enforce against parties affected an unconstitutional act, violat-

ing the Federal Constitution, may be enjoined by a Federal court

of equity from such action.” 209 U.S. at 155-56.

16a

[5] Contrary to the district court’s conclusion

that “Shaw preemption claims” have been permitted

in only three “circumstances,” we know of no author-

ity limiting Shaw in this manner, nor has the Direc-

tor cited any. In fact, the Supreme Court recently

reaffirmed Shaw’s holding, maintaining that it had

“no doubt” as to the authority of private parties to

seek injunctive relief on the basis of federal preemp-

tion under 28 U.S.C. § 1331 and the Supremacy

Clause. See Verizon Md. Inc. v. Pub. Serv. Comm’n,

535 U.S. 635, 642-43 (2002).

Nor are we certain on what grounds the district

court concluded that ILC lacked a valid cause of

action in this case. The first two of the district court’s

three “circumstances” — whether the challenged stat-

ute “restricts” or “compels” petitioners’ own conduct —

appear to reflect traditional standing doctrine, which

requires a litigant to “demonstrate that it has suf-

fered a concrete and particularized injury that is

either actual or imminent, that the injury is fairly

traceable to the defendant, and that it is likely that a

favorable decision will redress that injury.” Massa-

chusetts v. E.P.A., 127 S. Ct. 1438, 1453 (2007). We

address [LC’s standing to bring suit separately below,

as that inquiry raises questions apart from whether

the Supremacy Clause provides a valid cause of

action to seek injunctive relief on the basis of federal

preemption.

17a

The parties have proceeded on the assumption

that the district court denied relief because ILC

lacked any judicially enforceable “rights” under the

federal statute." The Director specifically urges this

court to deny ILC relief “because [§ 30(A)} does not

confer a private right of enforcement upon petition-

ers, which is the necessary predicate to seeking relief

under the Supremacy Clause.” Were we to accept it,

this argument would work a fundamental change in

Supremacy Clause jurisprudence. We decline to do so,

and thus join several other circuits in holding that a

plaintiff seeking injunctive relief under the Suprem-

acy Clause on the basis of federal preemption need

® As noted above, the district court also concluded that the

Supremacy Clause itself does not give rise to any federal “right”

to legal relief. In reaching this conclusion, however, the district

court relied on a series of cases holding that the Supremacy

Clause does not give rise to rights enforceable under $ 1983, an

altogether separate remedial scheme. See Golden State Transit

Corp., 493 U.S. at 107-08 (“Given the variety of situations in

which preemption claims may be asserted, in state court and in

federal court, it would obviously be incorrect to assume that a

federal right of action pursuant to $ 1983 exists every time a

federal rule of law preempts state regulatory authority. Con-

versely, the fact that a federal statute has preempted certain

state action does not preclude the possibility that the same

federal statute may create a federal mght for which § 1983

provides a remedy.” (emphasis added)); Chapman, 441 U.S. at

612-15 (holding that the Supremacy Clause “is not a source of

any federal rights” falling under 28 U.S.C. § 1343(3), the

jurisdictional counterpart to § 1983). We explore the distinction

between claims for relief under § 1983 and claims for injunctive

relief on the basis of federal preemption more fully in Part B-3

below.

18a

not assert a federally created “right,” in the sense

that term has been recently used in suits brought

under § 1983, but need only satisfy traditional stand-

ing requirements.

[6] Although the Director asserts that the

express conferral of a “private right of enforcement”

on petitioners is a “necessary predicate” to a claim for

injunctive relief under the Supremacy Clause, the

well-established rule in both this court and in other

circuits is precisely the opposite. In Bud Antle, Inc. v.

Barbosa, 45 F.3d 1261 (9th Cir. 1994), we addressed a

claim for injunctive relief brought by a large agricul-

tural employer, who sought to enjoin the California

Agricultural Relations Board (ALRB) from adjudicat-

ing various unfair labor practice charges. Id. at 1264.

The employer argued that the ALRB proceedings

were preempted by the National Labor Relations Act

(NLRA), and were therefore invalid. Jd. We held that

a private party may bring an action in a federal

district court seeking to enjoin allegedly unlawful

state conduct, noting the “general rule that a private

party may seek declaratory and injunctive relief

against the enforcement of a state statutory scheme

on the ground of federal preemption.” Jd. at 1269-71

(citing Shaw). We reached this conclusion “[e]ven

in the absence of an explicit statutory provision

establishing a cause of action,” id. at 1269, and re-

gardless of whether the NLRA conferred a federal

“right” on employers, see id. at 1271 n.13 (finding it

19a

unnecessary to apply the four-factor test set forth in

Cort v. Ash, 422 U.S. 66 (1975)).

Our holding in Bud Antle is consistent with

established practice in the other circuits, which have

universally affirmed the right of private parties to

seek injunctive relief under the Supremacy Clause

regardless of whether the allegedly preemptive statute

confers any federal “right” or cause of action. As the

Tenth Circuit explained,

A federal statutory right or right of action is

not required where a party seeks to enjoin

the enforcement of a regulation on the

grounds that the local ordinance is pre-

empted by federal law. A party may bring a

claim under the Supremacy Clause that a lo-

cal enactment is preempted even if the fed-

eral law at issue does not create a private

right of action.

Qwest Corp. v. City of Santa Fe, 380 F.3d 1258, 1266

(10th Cir. 2004) (internal citations omitted); see also

Local Union No. 12004 v. Massachusetts, 377 F.3d 64,

75 (1st Cir. 2004) (holding that “in suits against state

officials for declaratory and injunctive relief, a plain-

tiff may invoke the jurisdiction of the federal courts

by asserting a claim of preemption, even absent an

explicit statutory cause of action”); Jll. Ass’n of Mort-

gage Brokers v. Office of Banks & Real Estate, 308

F.3d 762, 765 (7th Cir. 2002); St. Thomas-St. John

Hotel & Tourism Ass’n v. Virgin Islands, 218 F.3d 232,

241 (3d Cir. 2000) (holding that “a state or territorial

law can be unenforceable as preempted by federal law

20a

even when the federal law secures no individual

substantive rights for the party arguing preemp-

tion”); Village of Westfield v. Welch’s, 170 F.3d 116,

124 n.4 (2d Cir. 1999) (holding that a cause of action

under the Supremacy Clause “do[es] not depend on

the existence of a private right of action under the

[preempting statute]”); Burgio & Campofelice, Inc. v.

N.Y. State Dep’t of Labor, 107 F.3d 1000, 1005-07 (2nd

Cir. 1997) (holding that plaintiff could assert ERISA

preemption under the Supremacy Clause, even

though it was “beyond dispute” that plaintiff fell

outside ERISA’s express enforcement provisions);

First Nat'l Bank of E. Ark. v. Taylor, 907 F.2d 775, 776

n.3 (8th Cir. 1990).

{7] The Director acknowledges these general

principles but argues for a different result in this

case, based on the specific statutory provision at

issue. The Director provides little, if any, justification

for treating a claim of preemption under a federal

statute passed pursuant to Congress’s spending

power differently from a claim of preemption under

any of the federal statutes discussed above. But even

if she had, this argument has also been flatly rejected

by the Supreme Court and the other circuits that

have addressed the question.

In Pharmaceutical Research & Manufacturers of

America (“PhRMA”) v. Concannon, 249 F.3d 66 (1st

Cir. 2001), aff’d sub nom. PhRMA v. Walsh, 538 U.S.

2la

644 (2003), a pharmaceutical manufacturers trade

group challenged a Maine statute designed to lower

prescription drug prices for low-income residents by

essentially requiring manufacturers to issue re-

bates.” Id. at 71-72. PhRMA argued, inter alia, that

Maine’s statute was preempted by the federal Medi-

caid Act under the Supremacy Clause, and moved for

injunctive relief to prevent implementation of the

program. Id. at 72. In response, the defendants

contended that PhRMA could not bring suit in this

manner, as the Medicaid Act was not intended to

confer any private right on pharmaceutical manufac-

turers. Id. at 73. The First Circuit rejected the defen-

dants’ argument, explaining that “PhRMA has not

asserted an action to enforce rights under the Medi-

caid statute ... but rather a preemption-based chal-

lenge under the Supremacy Clause. In this type of

action, it is the interests protected by the Supremacy

Clause, not by the preempting statute, that are at

issue.” Jd. Citing a decision from the Third Circuit,

the court noted:

We know of no governing authority to

the effect that the federal statutory provision

which allegedly preempts enforcement of lo-

cal legislation by conflict must confer a right

To ensure pharmaceutical companies’ participation in the

program, the statute subjected all drugs produced by manufac-

turers refusing to offer rebates to “prior authorization require-

ments,” meaning that the drug could not be prescribed to a

Medicaid beneficiary unless the state Medicaid administrator

specifically approved the prescription. See id. at 71-72.

22a

on the party that argues in favor of preemp-

tion. On the contrary, a state or territorial

law can be unenforceable as preempted by

federal law even when the federal law se-

cures no individual substantive rights for the

party arguing preemption.

Id. (quoting St. Thomas-St. John Hotel & Tourism

Ass’n, 218 F.3d at 241). The court thus concluded — in

stark contrast to the Director’s position in this case —

that “regardless of whether the Medicaid statute’s

relevant provisions were designed to benefit PhRMA,

PhRMA can invoke the statute’s preemptive force.”

Id.

Although the First Circuit permitted PhRMA to

bring suit, the court ultimately held that Maine’s

statute was not preempted by federal law because

there was no conflict between its requirements and

those of the Medicaid Act. See id. at 74-79. PhRMA

successfully petitioned the Supreme Court for certio-

rari, and the state defendants renewed their claim

that PhRMA lacked any federal right to bring suit.

Like the Director in our case, defendants argued that

“ithe Supremacy Clause] does not, by its own force,

protect or regulate any interests,” and that PhRMA

must therefore “look to the allegedly preempting

federal statute to find an interest to support stand-

ing.” Brief for Respondents at 13-17, PhRMA uv.

Walsh, 538 U.S. 644 (2003) (No. 01-188). PhRMA took

issue with this claim in its reply brief, noting that the

Supreme Court and the lower federal courts had

“decided innumerable cases in which parties claiming

23a

to be injured by a state law have challenged it as

preempted by federal law” and that the Court had

never held “that a party directly claiming a Suprem-

acy Clause violation must demonstrate an enforce-

able right under the preemptive federal law.” Reply

Brief of Petitioner at 2-3, PhRMA v. Walsh, 538 U.S.

644 (2003) (No. 01-188).

Not acceding to the defendants’ argument that

PhRMA lacked a cause of action under the Suprem-

acy Clause, seven Justices reached the merits of

PhRMA’s claim for injunctive relief. See PhRMA uv.

Walsh, 538 U.S. at 668 (Stevens, J., joined by Souter,

J., and Ginsburg, J.); id. at 671 (Breyer, J.); id. at 684

(O’Connor, J., joined by Rehnquist, C.J., and Ken-

nedy, J.). Only Justices Scalia and Thomas would

have denied PhRMA’s ability to bring suit for preemp-

tion, although they ultimately concurred in the

Court’s judgment that Maine’s statute was likely not

preempted by the federal Medicaid Act. See id. at 675

(Scalia, J., concurring in judgment); id. at 675-83

(Thomas, J., concurring in judgment). Faced with

Justices Scalia would have held that PhRMA could not

bring suit, because “the remedy for the State’s failure to comply

with the obligations it has agreed to undertake under the

Medicaid Act is set forth in the Act itself: termination of fund-

ing.” See id. at 675 (Scalia, J., concurring in judgment). Justice

Thomas argued that the broad discretion conferred by statute on

the Secretary of Health and Human Services defeated any

preemption claim, and doubted whether “Spending Clause

legislation can be enforced by third parties in the absence of a

private right of action.” See id. at 675-83 (Thomas, J., concurring

in judgment).

24a

arguments similar to those presented by the Director

in this case, the Court necessarily assumed — albeit

implicitly — that a private party seeking to enjoin

implementation of a state law allegedly preempted by

the federal Medicaid Act may bring suit for injunctive

relief directly under the Supremacy Clause.

Although the Supreme Court’s decision in Walsh

affirmed PhRMA’s ability to bring swit under the

Supremacy Clause sub silentio, two circuits have

expressly relied on Walsh to permit suits for injunc-

tive relief. In PhRMA v. Thompson, 362 F.3d 817

(D.C. Cir. 2004), the D.C. Circuit addressed a similar

challenge to Michigan’s “Best Practices Initiative,”

which was designed — much like Maine’s statute — to

provide low-cost prescription drug coverage to state

residents. Jd. at 819. Citing Justice Thomas’s opinion

in Walsh, the defendants argued that there were

“serious questions as to whether third parties may

sue to enforce Spending Clause legislation — through

pre-emption or otherwise.” Jd. at 819 n.3. The D.C.

Circuit rejected defendants’ argument, holding that

by reaching the merits of PhRMA’s preemption claim

in Walsh, the Supreme Court implicitly affirmed

PhRMA’s authority to bring suit for injunctive relief

under the Supremacy Clause. Id.

In Planned Parenthood of Houston v. Sanchez,

403 F.3d 324 (5th Cir. 2005), the Fifth Circuit relied

in part on the Supreme Court’s decision in Walsh

to permit a claim for injunctive relief under the

federal Social Security and Public Health Services

Acts. Id. at 331-32. Several local branches of Planned

25a

Parenthood claimed that a Texas statute known as

“Rider 8,” which restricted the distribution of public

funds for family planning services to contractors who

pledged not to perform, or to contract with any indi-

vidual or entity that performed, any elective abortion

procedures, was preempted by federal law.” Id. at

328. Plaintiffs argued, inter alia, that the state stat-

ute violated the Supremacy Clause by imposing

eligibility requirements that were inconsistent with

those imposed under the federal funding statutes. Id.

In assessing plaintiff’s claims for injunctive

relief, the Fifth Circuit began by noting that “(i]t is

well-established that the federal courts have jurisdic-

tion under 28 U.S.C. § 1331 over a preemption claim

seeking injunctive and declaratory relief.” Jd. at 331

(citing Shaw). The court then cited Walsh and

Thompson for the principle that “asserting the pre-

emptive force of federal Spending Clause legislation”

itself states a claim for relief, even if “(Planned Par-

enthood was] not seeking to vindicate any right or to

enforce any duty running to them.” Jd. at 331-32.

After a thorough canvassing of preemption cases, see

id. at 331-34 & nn.25, 27-28, 37, 46-47, the court had

“little difficulty ... holding that (Planned Parenthood

had] an implied right of action to assert a preemption

'’ Texas accepted federal funds for family planning services

by voluntarily participating in a number of federal programs,

including the Public Health Services Act and the Social Security

Act. Id. at 327.

26a

claim seeking injunctive and declaratory relief.” Jd. at

335.

[8] We find the reasoning of the D.C. and Fifth

Circuits persuasive.* For more than a century, fed-

eral courts have entertained suits seeking to enjoin

state officials from implementing state legislation

allegedly preempted by federal law, and we see no

reason to depart from the general rule in this case, or

in this category of cases. We therefore join several

other circuits in holding that a party may seek in-

junctive relief under the Supremacy Clause regard-

less of whether the federal statute at issue confers

any substantive rights on would-be plaintiffs.

“ The district court stated that ILC’s reliance on Concan-

non was misplaced because plaintiffs in that case had “estab-

lished a concrete injury in fact” — standing language, as we shall

see — whereas “(hJere, § 30(A) does not give petitioners any right

to Medi-Cal funds.” In fact, Concannon expressly permitted

PhRMA to bring suit for injunctive relief in the absence of any

statutory right to Medicaid funds. See 249 F.3d at 73. The

pharmaceutical manufacturers bringing suit in Concannon had

no greater “right” to Medicaid funds than the pharmacies and

health care providers in this case, and ILC has adequately

alleged injury-in-fact. See Part II-C, infra.

Similarly, there is no viable distinction for present purposes

between the restrictions on Planned Parenthood’s activities

imposed by the statute at issue in Planned Parenthood uv.

Sanchez and the impact of AB 5 on the Medi-Cal providers in

this case. AB 5 allegedly prevents petitioners from providing

services to Medi-Cal beneficiaries unless they are willing to do

so at a financial loss, and thus assuredly “restricts” petitioners’

provision of professional services.

27a

[9] The reasoning adopted by the other circuits

is also helpful in identifying the fundamental flaw

with the Director’s position. By maintaining that ILC

cannot proceed unless it can demonstrate that AB 5

interferes with some federally created right, the

Director essentially asks us to apply the test for

determining whether a plaintiff may seek relief under

42 U.S.C. § 1983, which provides a remedy for “the

deprivation of any rights, privileges, or immunities

secured by the Constitution and laws.” The Supreme

Court has interpreted the text of § 1983 to require a

plaintiff to show the deprivation of “an unambigu-

ously conferred right” in order to support a cause of

action brought under § 1983. Gonzaga Univ. v. Doe,

536 U.S. 273, 283 (2002). But both the Supreme

Court and the courts of appeal have consistently

rejected attempts to extend this analysis to claims for

purely prospective injunctive relief under the Su-

premacy Clause, rendering the “rights” requirement

inapplicable to ILC’s claims in this case.

Section 1983 provides: “Every person who, under color

of any statute, ordinance, regulation, custom, or usage, of any

State, ... subjects, or causes to be subjected, any citizen of the

United States or other person within the jurisdiction thereof to

the deprivation of any rights, privileges, or immunities secured

by the Constitution and laws, shall be liable to the party injured

in an action at law, suit in equity, or other proper proceeding for

redress... .” 42 U.S.C. § 1983.

28a

The Fighth Circuit’s decision in Lankford v.

Sherman, 451 F.3d 496 (8th Cir. 2006), is instructive.

In response to severe “budget constraints,” the Mis-

souri state legislature amended its state Medicaid

plan to eliminate coverage for durable medical

equipment (“DME”) for most categorically-needy

Medicaid recipients. Jd. at 500-01. Plaintiffs, a group

of adult Medicaid recipients, brought suit under both

§ 1983 and the Supremacy Clause to enjoin state

regulations implementing the amendment, arguing

that the cuts violated certain provisions of the federal

Medicaid Act. Jd. at 500-02. Like the Director in our

case, the defendant argued “that there is no individu-

alized federal right to reasonable Medicaid stan-

dards.” Id. at 507. The court agreed with the

defendant as to the $1983 claim, holding that

“(rjather than focusing on an individualized entitle-

ment to medical services, the reasonable-standards

provision [of the Medicaid Act] focuses on the aggre-

gate practices of the states in establishing reasonable

Medicaid services.” Id. at 509. The court noted, how-

ever, that the § 1983 issue was not dispositive, as

plaintiffs had also brought suit under the Supremacy

Clause. “Preemption claims are analyzed under a

different test than section 1983 claims, affording

plaintiffs an alternative theory for relief when a state

law conflicts with a federal statute or regulation.” Jd.

The lack of any federally created “right” under the

Medicaid Act was inconsequential to the Supremacy

Clause analysis, and plaintiffs’ preemption claim

was remanded for consideration on the merits. /d. at

513.

29a

The Fifth Circuit reached a similar conclusion in

Planned Parenthood v. Sanchez. As noted above,

plaintiffs sought to enjoin implementation of Texas’s

Rider 8, which required recipients of federal funds to

cut all ties with any organization performing elective

abortions. Sanchez, 403 F.3d at 328. Advancing the

same arguments asserted by the Director in our case,

the Texas Department of Health contended that to

seek injunctive relief, “plaintiffs must meet the

requirements for an action under § 1983, as recently

enunciated in Gonzaga University v. Doe,” namely,

that the federal statutes at issue confer privately

enforceable “rights.” Jd. at 335. The Fifth Circuit

flatly rejected this argument, finding that it “mis-

characterize[d]” Planned Parenthood’s claim:

Appellees are not asking the courts to en-

force their “right” under § 1983 to secure en-

forcement of [the Public Health Safety Act],

as TDH asserts. Rather, Appellees’ Suprem-

acy Clause argument is fundamentally dif-

ferent: they argue that Rider 8 imposes

conditions on the receipt of federal funds

that are incompatible with [the Act]. There-

fore, we need not be concerned that the Su-

premacy Clause does not of its own force

create rights enforceable under § 1983.

Id. The court then noted that “Gonzaga, by its terms,

applies only to § 1983 claims.... The Supremacy

Clause claim advanced here ... is not based on a

claim of right under [the Act], nor is it a claim for

damages; it is a preemption claim. The Gonzaga

Court gave no indication that it intended to alter its

30a

prior practice regarding such claims.” Jd. The court

therefore concluded that a claim of preemption under

the Supremacy Clause “does not require a showing,

as per Gonzaga, that a § 1983 action would also be

proper.” Id.; see also Local Union No. 12004, 377 F.3d

at 75-76 (distinguishing between claims brought

under § 1983 and claims for injunctive relief under

the Supremacy Clause); Qwest, 380 F.3d at 1266 &

n.5 (same); Burgio & Campofelice, 107 F.3d at 1005-

07 & n.2 (same).

For the reasons identified by the Fifth Circuit in

Planned Parenthood v. Sanchez, the Director’s heavy

reliance on our decision in Sanchez v. Johnson, 416

F.3d 1051 (9th Cir. 2005), is misplaced. Johnson

merely applied Gonzaga to a claim seeking to enforce

the substantive provisions of § 30(A) of the Medicaid

Act brought under § 1983. We held that the quality of

care and access provisions of § 30(A) do not give rise

to the type of unambiguously conferred “rights”

required under Gonzaga. See id. at 1055-60. But our

decision ir Johnson had nothing to say about a claim

for injunctive relief brought under the Supremacy

Clause.

[10] Indeed, even as the Supreme Court has

tightened the requirements for seeking damages

under § 1983, it has consistently reaffirmed the

availability of injunctive relief to prevent state offi-

cials from implementing state legislation allegedly

preempted by federal law. In Green v. Mansour, 474

U.S. 64 (1985), two classes of plaintiffs alleged that

the State of Michigan’s method of calculating benefits

3la

under the federal Aid to Families With Dependent

Children (AFDC) program violated federal law. Jd. at

65. While the suits were pending in federal district

court, the State altered its program to comply with

recent congressional amendments. Jd. at 65-66. These

changes mooted plaintiffs’ claims for prospective

relief, since it was “undisputed that respondent’s

calculations thereafter have conformed to federal

law.” Id. at 65. Plaintiffs nonetheless sought “notice

relief” and a declaration that Michigan’s prior con-

duct violated federal law. Id.

The Court denied relief, holding that plaintiffs’

requests for notice and declaratory relief constituted

claims for retrospective damages and were thus

barred by state sovereign immunity under the Elev-

enth Amendment. Jd. at 71-74. All nine justices

agreed, however, that injunctive relief would have

been available under the Supremacy Clause if

changes to the state program had not mooted plain-

tiffs’ prospective claims. See id. at 68; id. at 77 (Bren-

nan, J., dissenting). Writing for the majority, then-

Justice Rehnquist noted that “the availability of

prospective relief of the sort awarded in Ex parte

Young gives life to the Supremacy Clause. Remedies

designed to end a continuing violation of federal law

are necessary to vindicate the federal interest in

assuring the supremacy of that law.” Jd. at 68.

[11] The Director’s arguments fail to honor this

distinction, broadly asserting instead that because

§ 30(A) of the Medicaid Act does not confer any sub-

stantive “rights,” ILC is not entitled to relief of any

32a

kind, whether prospective or retrospective. Green

cautioned against conflating claims for prospective

and retrospective relief in precisely this manner,

recognizing that a state’s interest in continuing to

flout binding federal law is illegitimate. 474 U.S. at

68; see also Idaho v. Coeur d’Alene Tribe, 521 U.S.

261, 281 (1997) (“An allegation of an ongoing viola-

tion of federal law where the requested relief is

prospective is ordinarily sufficient” to seek injunctive

relief under Ex parte Young). We therefore adhere to

the general rule that injunctive relief is presump-

tively available to remedy a state’s ongoing violation

of federal law.

[12] Because it held that ILC could not bring

suit under the Supremacy Clause, the district court

did not technically reach petitioners’ standing to

bring suit. As noted above, however, the first and

second prongs of the district court’s Shaw analysis —

which focused on whether AB 5 “restricts” or “com-

pels” petitioners’ conduct — appear to reflect the

traditional requirement that a litigant demonstrate

an injury-in-fact to establish Article III standing. See

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560

(1992). On appeal, the Director expressly “does not

allege that the named Petitioners do not have stand-

ing to bring this action on their own behalf,” but

rather argues simply that “Petitioners cannot state a

33a

claim for relief under the Supremacy Clause.” We

nonetheless recognize our “independent obligation” to

examine our own jurisdiction, see FW/PBS, Inc. v.

City of Dallas, 493 U.S. 215, 230-31 (1990), and

therefore briefly address ILC’s Article III standing."

" Although the Director does not contest petitioners’

standing, she does argue that the interests protected by § 30(A)

are not judicially enforceable because § 30(A) concerns “overall

methodology” and “merely requires states to consider various

factors in setting reimbursement rates.” We express no opinion

regarding the correct interpretation of the substantive provi-

sions of § 30(A), as such arguments are properly addressed to

the merits of petitioners’ preemption claim. See Wilder v. Va.

Hosp. Ass'n, 496 U.S. 498, 519 (1990) (“That [the statutory

provision at issue] gives the States substantial discretion in

choosing among reasonable methods of calculating rates may

affect the standard under which a court reviews whether the

rates comply with the [statute], but it does not render the

[statute] unenforceable by a court.”); Orthopaedic Hosp., 103

F.3d at 1496-1500 (interpreting the substantive provisions of

§ 30(A)).

" Unlike the Article II] standing inquiry, whether ILC

maintains prudential] standing “is not a jurisdictional limitation

on our review.” See Bd. of Natural Res. v. Brown, 992 F.2d 937,

945-46 (9th Cir. 1993). By failing to articulate any argument

challenging I[LC’s prudential standing, the Director has waived

that argument. Id. at 946; Greenwood v. F-A.A., 28 F.3d 971, 977

(9th Cir. 1994) (“We review only issues which are argued specifi-

cally and distinctly in a party’s opening brief. We will not

manufacture arguments for an appellant, and a bare assertion

does not preserve aclaim... .” (internal citation omitted)).

34a

[13] To satisfy Article II] standing require-

ments, a plaintiff must demonstrate three elements:

First, the plaintiff must have suffered an in-

jury in fact — an invasion of a legally pro-

tected interest which is (a) concrete and

particularized; and (b) actual or imminent,

not conjectural or hypothetical. Second, there

must be a causal connection between the

injury and the conduct complained of — the

injury has to be fairly traceable to the chal-

lenged action of the defendant, and not the

result of the independent action of some

third party not before the court. Third, it

must be likely, as opposed to merely specula-

tive, that the injury will be redressed by a

favorable decision.

Lujan, 504 U.S. at 560-61 (internal citations and

quotation marks omitted). “The general rule applica-

ble to federal court suits with multiple plaintiffs is

that once the court determines that one of the plain-

tiffs has standing, it need not decide the standing of

the others.” Leonard v. Clark, 12 F.3d 885, 888 (9th

Cir. 1993). In this case, we have no doubt that several

of the petitioners, at least, have standing to challenge

the implementation of AB 5.

[14] Petitioners include independent pharma-

cies and health care providers participating in the

State’s Medi-Cal program that, according to their

complaint, will be “directly injured, by loss of gross

income,” when the ten-percent rate reduction takes

effect. The Supreme Court “repeatedly has recognized

35a

that such [direct economic] injuries establish the

threshold requirements” of Article III standing. Craig

v. Boren, 429 U.S. 190, 194-95 (1976). Moreover, this

injury is directly traceable to the Director’s imple-

mentation of AB 5, and would certainly be redressed

by a favorable decision of this court enjoining the ten-

percent rate reduction.

[15] Petitioners also include several individual

Medi-Cal beneficiaries, who “will be injured or put at

risk of injury by implementation of the 10% provider

payments cuts” because those cuts will reduce “qual-

ity services, and access to quality services.” This

injury, like the injury to medical providers discussed

above, is the direct result of the Director’s implemen-

tation of AB 5, and would certainly be remedied by a

decision granting injunctive relief. Such an injury “to

those individuals most directly affected by the ad-

ministration of [a state welfare] program” is sufficient

to allow petitioners to seek injunctive relief in federal

court. Rosado v. Wyman, 397 U.S. 397, 420 (1970).

Conclusion

Under well-established law of the Supreme

Court, this court, and the other circuits, a private

party may bring suit under the Supremacy Clause to

enjoin implementation of state legislation allegedly

preempted by federal law. In this case, ILC alleges

that the cuts mandated by AB 5 violate the substan-

tive provisions of the federal Medicaid Act, and are

therefore unlawful. They do not seek to enforce any

36a

substantive “right” conferred by statute; instead, they

argue that the cuts mandated by AB 5 are themselves

unenforceable, because they exceed the scope of the

State’s discretion under the Act and violate federal

standards. As AB 5 is causing injury to one or more of

the plaintiffs and the other requirements of Article ITI

standing are met, no more is required to allow this

suit to go forward.

We express no opinion on the merits of ILC’s

preemption claim. Rather, we simply reaffirm over a

century’s worth of precedent and hold that ILC main-

tains a valid cause of action under the Supremacy

Clause to assert such a claim for injunctive relief. The

district court’s opinion is therefore REVERSED and

REMANDED for further proceedings consistent with

this opinion.

37a

UNITED STATES DISTRICT COURT

DISTRICT OF CALIFORNIA

WESTERN DIVISION

INDEPENDENT LIVING ) Case No.

CENTER OF SOUTHERN ) CV 08-3315 CAS (MANx)

Petitioners ) PETITIONERS’

) MOTION FOR A

sa ) PRELIMINARY

SANDRA SHEWRY, ) INJUNCTION

Director of Department ‘

of Health Services of the ? (Filed Jun. 25, 2008)

State of California, et al.,

)

Respondents.

I. INTRODUCTION

On April 22, 2008, petitioners filed a verified

petition for writ of mandamus in the Los Angeles

County Superior Court, seeking mandamus and injunc-

tive relief against the California Department of Health

Care Services (“the Department”), Sandra Shewry,

Director of the Department (“the Director”), and Does 1

through 50.' The Department is a California agency

‘ Petitioners are the Independent Living Center of South-

ern California, Inc.; Gray Panthers of Sacramento; the Gray

Panthers of San Francisco; Gerald Shapiro, Pham.D., d/b/a

Uptown Pharmacy and Gift Shoppe; Sharon Steen, d/b/a Central

Pharmacy; Mark Beckwith; Margaret Dowling; Tran Pharmacy,

Inc., d/b/a Tran Pharmacy; and Jason Young.

38a

charged with the administration of California’s Medi-

caid program, Medi-Cal. Petitioners are health care

advocates and Medi-Cal providers and recipients.

On February 16, 2008, the California Legislature

enacted Assembly Bill X3 5 (“AB 5”) in special ses-

sion. First Amended Petition { 20. Section 14 of AB 5

adds Cal. Welf. & Inst. Code § 14105.19, which re-

duces by ten percent payments under the Medi-Cal

fee-for-service program for physicians, dentists,

pharmacies, adult day health care centers, clinics,

health systems, and other providers for services

provided on or after July 1, 2008. Cal. Welf. & Inst.

§ 14105.19(b)(1); First Amended Petition J 22. Cali-

fornia Welfare & Institutions Code § 14105.19 also

reduces payments to managed care plans by the

actuarial equivalent of the ten percent payment

reduction. Cal. Weif. & Inst. § 14105.19(b)(3); First

Amended Petition | 22. Section 15 of AB 5 adds

Cal. Welf. & Inst. Code § 1416€.245, which reduces

payments to acute care hospitals not under contract

with the Department for inpatient services provided

on or after July 1, 2008. Cal. Welf. & Inst.

§ 14166.245(c); First Amended Petition 7 23.” These

* The Department is authorized to contract with individual

hospitals for the exclusive right to treat Medi-Cal patients. Cal.

Welf. & Inst. § 14081; Cedars-Sinai Med. Ctr. v. Shewry, 137

Cal. App. 4th 964, 969-70 (2006). Contracting hospitals are

reimbursed by the Department at the negotiated contract rate,

and once the Department has centracted with enough hospitals

to meet the needs of Medi-Cal beneficiaries in a geographic area,

it awards no further contracts in that area. Cedars-Sinai, 137

(Continued on following page)

39a

rate and payment reductions are referred to herein as

the “ten percent rate reduction.”

Petitioners allege that the ten percent rate

reduction violates Title XLX of the Social Security Act,

42 U.S.C. §§ 13896 et seg. (“the Medicaid Act”), and

therefore, may not be implemented. Petitioners seek

declaratory relief and injunctive relief to restrain the

implementation of the ten percent rate reduction.

On May 19, 2008, respondents removed this

action to this Court, based on federal question juris-

diction. On May 28, 2008, petitioners filed the opera-

tive first amended petition against the Department

and the Director. On June 1, 2008, petitioners volun-

tarily dismissed the Department as a respondent in

this case without prejudice.

On May 30, 2008, petitioners filed the instant

motion for preliminary injunction. Respondents filed

their opposition thereto on June 12, 2008.* On June

16, 2008, petitioners filed a reply. A hearing was held

on June 23, 2008, and the Court took this matter

under submission. After carefully considering the

parties arguments, the Court denies petitioners’

motion for the reasons set forth below.

Cal. App. 4th at 97”. Noucontract hospitals are only reimbursed

for treating Medi-Cal patients under certain circumstances,

including where emergency care or services are provided. /d.

* By order dated June 19, 2008, the Court granted respon-

dents’ ex parte application to allow for the late filing of their

instant opposition.

40a

Ii. BACKGROUND

The Medicaid Act authorizes the federal govern-

ment to distribute funds to participating states for

the purpose of providing medical assistance to low

income persons who are aged, blind, disabled, or

members of families with dependent children. Medi-

caid is a cooperative federal program: the federal

government provides federal funding to the states so

that states may provide medical care to their needy

citizens. State participation is voluntary; however,

once a state chooses to participate by accepting

federal funds, it must comply with requirements

imposed by the Medicaid Act.

Because California has elected to participate in

the Medicaid program, it must administer its state

Medicaid program, known as Medi-Cal, in compliance

with a state plan that has been pre-approved by the

Secretary of the U.S. Department of Health and

Human Services (“the Secretary”), and which com-

plies with the requirements set forth in 42 U.S.C.

§ 1396a(a)(1)-(70). In accordance with these require-

ments, California must also provide methods and

procedures for the payment of care and services that

are consistent with efficiency, economy, and quality of

care, and that ensure their availability to the Medi-

caid population to the same extent as they are avail-

able to the general population in the geographic area.

42 U.S.C. § 1396a(30)(A) (“§ (30)(A)”).

Further, under California law, the Department

must administer Medi-Cal in accordance with the

4la

state plan; applicable state law, as specified in the

Welfare and Institutions Code; and Medi-Cal regula-

tions. Cal. Code Regs. tit. 22, § 50004(b).

Petitioners now move to preliminary enjoin the

implementation of the ten percent rate reduction. The

request for a preliminary inji-action is predicated

only on petitioners’ first and second claims for relief.

In their first and second claims, petitioners allege the

ten percent rate reduction violates 42 U.S.C.

§ 1396a(30)(A), which requires that a state plan

must:

provide such methods and procedures relat-

ing to the utilization of, and payment for,

care and services available under the plan

. aS may be necessary ... to assure that

payments are consistent with efficiency,

economy, and quality of care and are suffi-

cient to enlist enough providers so that care

and services are available under the plan

at least to the extent that such care and

* The first amended petition asserts four claims for relief.

Petitioners’ first claim is asserted by each of the petitioners

except petitioner Jason Young. Petitioners’ second claim is

brought by petitioners Young and the Tran Pharmacy, Inc., d/b/a

Tran Pharmacy. Petitioners third and fourth claims allege that

§§ 14 and 15 of AB 5 are unenforceable because they are pre-

empted by and violate the Americans with Disabilities Act (the

“ADA”), 42 U.S.C. §§ 12181 et seg. However, because petitioners’

motion for preliminary injunction is predicated only on the first

and second claims, and only on their Supremacy Clause theory

raised in their motion papers, those are the only claims and

argument that the Court addresses herein.

42a

services are available to the general popula-

tion in the geographic area.

Petitioners allege that the Department and the

Legislature improperly failed to consider efficiency,

economy, and quality of care as required by § 30(A) in

enacting the ten percent reduction, and that as a

result of AB 5, there will not be a sufficient number of

providers to provide equal access to healthcare as

mandated by § 30(A).

lil. LEGAL STANDARD

A preliminary injunction is appropriate when the

moving party shows either (1) a combination of prob-

able success on the merits and the possibility of

irreparable harm, or (2) the existence of serious

questions going to the merits and that the balance of

hardships tips sharply in the moving party’s favor.

See Rodeo Collection, Ltd. v. West Seventh, 812 F.2d

1215, 1217 (9th Cir. 1987). These are not two distinct

tests, but rather “the opposite ends of a single ‘con-

tinuum in which the required showing of harm varies

inversely with the required showing of meritorious-

ness.’” Id. A “serious question” is one on which the

movant “has a fair chance of success on the merits.”

Sierra On-Line, Inc. v. Phoenix Software, Inc., 739

F.2d 1415, 1421 (9th Cir. 1984).

43a

IV. DISCUSSION

The “quality of care” provision of § (30)(A) pro-

vides that

[a] State plan for medical assistance must

... provide such methods and procedures re-

lating to the utilization of, and the payment

for, care and services available under the

plan ... as may be necessary to safeguard

against unnecessary utilization of such care

and services and to assure that payments are

consistent with efficiency, economy, and qual-

ity of care.

42 U.S.C. § 1396a(30)(A). The “equal access” provi-

sion of § 30(A) provides that

[a] State plan for medical assistance must

... provide such methods and procedures re-

lating to the utilization of, and the payment

for, care and services available under the

plan ... as may be necessary to safeguard

against unnecessary utilization of such care

and services and to assure that payments are

. sufficient to enlist enough providers so

that care and services are available under

the plan at least to the extent that such care

and services are available to the general

population in the geographic area.

Id.

In Sanchez v. Johnson, 416 F.3d 1051 (9th Cir.

2005), the Ninth Circuit held that § 30(A) does not

confer individual rights that are enforceable under 42

44a

U.S.C. § 1983. Id. at 1060. There, plaintiffs, consist-

ing of a class of developmentally disabled individuals

and several organizations, brought suit against

California officials charged with the administration of

programs for persons with developmental disabilities.

Id. at 1053-54. The plaintiffs asserted claims under

42 U.S.C. § 1983, alleging that the defendants vio-

lated § 30(A) by failing to fund adequately commu-

nity-based programs for persons with developmental

disabilities. Jd. at 1055. The district court found that

in light of the Supreme Court’s decision in Gonzaga

University v. Doe, 536 U.S. 273 (2002), the Medicaid

Act did not confer individual rights that were en-

forceable by recipients of Medicaid funding or provid-

ers of Medicaid services, under 42 U.S.C. § 1983.° Id.

The district court therefore granted judgment on the

pleadings in favor of the defendants. Id.

On appeal, the Ninth Circuit affirmed. The court

reasoned that § 30(A) did not “focus[] on the rights of

a specific class of beneficiaries.” Jd. at 1059. The court

found that instead, “§ 30(A) is concerned with overall

methodology rather than conferring individually

enforceable rights on individual Medicaid recipients.”

Id. at 1059-60. Because a plaintiff seeking to prose-

cute a claim under 42 U.S.C. § 1983 must “assert the

violation of an individually enforceable right con-

ferred specifically upon him, not merely a violation of

* In Gonzaga, the Supreme Court clarified the standard for

determining whether a federal statute creates rights enforceable

under 42 U.S.C. § 1983.

45a

federal law,” and because § 30(A) does not manifest a

congressional intent to confer individual rights, the

court found that the Medicaid Act did not give rise to

rights enforceable under 42 U.S.C. § 1983. Id. at 1062

(emphasis in original).°

It is true, as petitioners argue, that in Sanchez

the Ninth Circuit was presented with the question of

whether individuals may invoke 42 U.S.C. § 1983 to

sue for an alleged violation of § 30(A). However, in

order to decide that issue the Ninth Circuit was first

required to determine whether § 30(A) gives rise to

any federally created individual rights: in evaluating

“whether a statutory violation may be enforced

through § 1983 ... [a court] must first determine

whether Congress intended to create a federal right.

Gonzaga, 536 U.S. at 283 (emphasis in original).

Thus, in deciding that the Sanchez plaintiffs could

not enforce § 30(A) under 42 U.S.C. § 1983, the Ninth

Circuit necessarily concluded that § 30(A) does not

create any individual federal rights.

° The Court notes that there is a circuit split concerning

whether plaintiffs can sue for alleged violations by state officials

of § 30(A) under 42 U.S.C. § 1983. Specifically, the Fifth, Sixth,

Ninth, and Tenth Circuit Courts of Appeal have found that

Medicaid beneficiaries cannot sue for alleged violations of

§ 30(A) under 42 U.S.C. § 1983. On the other hand, the Eighth

Circuit has concluded that § 30(A) creates individual rights that

can be the subject of suit under 42 U.S.C. § 1983. There is

currently pending a petition for certiorari to the Supreme Court

from the judgment in the Fifth Circuit case, Equal Access for El

Paso, Inc. v. Hawkins, 509 F.3d 697 (5th Cir. 2007), cert. pending

(U.S. Supreme Ct. No. 07-1160) (filed March 10, 2008).

46a

Because after Sanchez, petitioners do not have

any claims for relief under 42 U.S.C. § 1983 by which

to seek redress for violations of § 30(A), petitioners

seek to avail themselves of a claim for relief allegedly

arising directly under the Supremacy Clause, Article

VI, § 2, of the United States Constitution. However,

the Supremacy Clause, of its own force, does not

create any rights enforceable under 42 U.S.C. § 1983.

See Golden State Transit Corp. v. L.A., 493 U.S. 103,

108 (1989) (“‘([The Supremacy] clause is not a source

of any federal rights’; it [‘Jsecures federal rights by

according them priority whenever they come in

conflict with state law.’”) (quoting Chapman v. Hous-

ton Welfare Rights Org., 441 U.S. 600, 613 (1979)).

In an attempt to avoid the effect of Sanchez,

petitioners rely on cases following Shaw v. Delta Air

Lines, 463 U.S. 85 (1983), to argue that AB 5 is pre-

empted by the Medicaid Act, and therefore invalid

under the Supremacy Clause, such that they are

entitled to relief based on an implied right of action

under the Supremacy Clause. In opposition, respon-

dents argue that the Supremacy Clause does not

confer any rights on petitioners. Respondents assert

that petitioners therefore lack standing to maintain

this suit.

In Shaw, the United States Supreme Court

stated that

[i]t is beyond dispute that federal courts

have jurisdiction over suits to enjoin state of-

ficials from interfering with federal rights. A

47a

plaintiff who seeks injunctive relief from

state regulation, on the ground that such

regulation is pre-empted by a federal statute

which, by virtue of the Supremacy Clause of

the Constitution, must prevail, thus presents

a federal question which the federal courts

have jurisdiction under 28 U.S.C. § 1331 to

resolve.

Shaw, 463 U.S. at 96 n.14; see e.g., Verizon Md., Inc.

v. Pub. Serv. Comm’n of Md., 535 U.S. 635, 641-43

(2002) (stating that the district court has federal

question jurisdiction under 28. U.S.C. § 1331 in a suit

where the plaintiff claimed that the Federal Commu-

nications Commission’s order was preempted by

federal law); Lawrence County v. Lead-Deadwood

School Dist., 469 U.S. 256, 259 n.6 (1985) (stating

that the Eighth Circuit erroneously concluded that a

district court lacked subject matter jurisdiction where

the affected plaintiff school district alleged that a

South Dakota statute conflicted with federal law and

was therefore invalid under the Supremacy Clause);

see also Hydrostorage, Inc. v. Northern Cal. Boiler-

makers Local Joint Apprenticeship Comm., 891 F.2d

719 (9th Cir. 1989),

Shaw preemption claims have been permitted in

three circumstances. First, where the plaintiff claims

that a state law requires him to act in violation of

federal law.’ Second, such claims have been allowed

’ See e.g., Lawrence County v. Lead-Deadwood School Dist.

No. 40-1, 469 U.S. 256, 258, 260-61 (1985) (after Lawrence

(Continued on following page)

48a

where the plaintiff contends that his conduct will

be restricted by a state law that is preempted by

federal law. Third, courts have entertained Shaw

County refused to distribute federal funds to the school district

in accordance with a state statute, arguing that federal law gave

it the discretion to spend the federal funds for any governmental

purpose it chose, the school district filed suit seeking to compel

Lawrence County to distribute the federal funds); Burgio &

Campofelice, Inc. v. N.Y. State Dep't of Labor, 107 F.3d 1000,

1005-07 (2d Cir. 1997) (suit by a public works contractor to

enjoin the New York Department of Labor from enforcing a state

wage law, alleging the state law was preempted by ERISA);

Verizon Md., Inc. v. Public Serv. Comm’n of Md., 535 U.S. 635,

641-42 (2002) (Verizon sued the Maryland Public Service

Commission alleging that the Federal Communications Com-

mission’s order requiring Verizon to make payments under a

negotiated interconnection agreement violated the Telecommu-

nications Act of 1996); Qwest Corp. v. City of Santa Fe, 380 F.3d

1258, 1264 (10th Cir. 2004) (suit by telecommunications provider

challenging local ordinance that imposed several requirements

on telecommunications providers before they could access city-

owned rights-of-way).

* See e.g., City of L.A. v. County of Kern, 509 F. Supp. 2d

865, 889 (C.D. Cal. 2007) (where the plaintiffs challenged a local

ordinance on that grounds that it was preempted by state law,

the court analogized the law of preemption under the California

Constitution to that under the Supremacy Clause, and held that

the plaintiffs had standing to bring suit because their “conduct

would be restricted by a local ordinance they challenge[d) as

preempted, even if the plaintiffs d[id) not assert rights protected

by the preempting statute itself”); Planned Parenthood of Cent.

Tex. v. Sanchez, 280 F. Supp. 2d 590, 596, 599-602 (W.D. Tex.

2003) (family planning and abortion services provider chal-

lenged state statute that precluded payment of Medicaid funds

to organizations providing abortions services); St. Thomas -— St.

John Hotel & Tourism Ass’n, Inc. v. Gov't of U.S. Virgin Islands,

218 F.3d 232, 240-42 (3d Cir. 2000) (challenge to territorial law

(Continued on following page)

49a

preemption claims where state law interferes with

federally created rights.”

Here, AB 5 neither compels nor restricts petition-

ers’ own conduct. In order to state a claim, petitioners

must therefore show that AB 5 interferes with some

individual federal right that arises under § 30(A).

However, for the reasons stated supra, § (30)(A) does

not give rise to a federally created right.”

providing that an employee discharged for any reason other

than for cause as set forth in nine enumerated reasons will be

considered to have been wrongfully discharged).

° See eg., League of Women Voters v. Blackwell, 340

F. Supp. 2d 823, 827-28 (N.D. Ohio 2004) (challenge to Ohio

Secretary of State’s directive prescribing procedures for obtain-

ing identification from first-time voters).

’ Petitioners reliance on Orthopaedic Hospital v. Belshe,

103 F.3d 1491 (9th Cir. 1997), decided before Sanchez, is mis-

placed. There, the plaintiff-providers filed suit under 42 U.S.C.

§ 1983, claiming that the Director violated § 30(A) by setting

reimbursement rates for hospital providers of outpatient

services without considering hospital costs. Orthopaedic Hosp.,

103 F.3d at 1492. In that case, however, there was no discussion

of whether plaintiffs had any federally created individual rights.

However, because Sanchez has decided that no individual right

to sue is conferred by § 30(A), it appears that the holding of

Orthopaedic Hospital is not controlling on that issue.

The cases addressed by petitioners at the hearing held

herein are similarly unavailing. In Ball v. Rodgers, 492 F.3d

1094 (9th Cir. 2007), the court, noting that after Sanchez,

§ 30(A) cannot be enforced under 42 U.S.C. § 1983, analyzed

different provisions of the Medicaid Act, which it determined,

unlike § 30(A), gave rise to individual rights. In Day v. Apoliona,

496 F.3d 1027 (9th Cir. 2007), the Ninth Circuit applied the

factors sct forth in Blessing v. Freestone, 520 U.S. 329 (1997),

(Continued on following page)

50a

Because petitioners do not have any federal

rights under § 30(A), their probability of success on

the claims at issue here is low, if not wholly lacking.”

See Golden State Transit Corp. v. L.A., 493 U.S. supra

at 108 (1989) (“‘[The Supremacy] clause is not a

source of any federal rights’; it [‘Isecures federal

rights by according them priority whenever they come

in conflict with state law.’”) (quoting Chapman ov.

Houston Welfare Rights Org., 441 U.S. 600, 613

(1979)).

In light of the Court’s finding that petitioners

have no likelihood of succeeding on the merits, the

and Gonzaga University v. Doe, 536 U.S. 273 (2002), to conclude

that beneficiaries of a trust had individual rights that could be

enforced under 42 U.S.C. § 1983. Arc of Wash. State Inc. v.

Braddock, 427 F.3d 615 (9th Cir. 2005), involved a challenge

under the ADA.

"" Petitioners’ reliance on Burgio & Campofelice, Inc. v. New

York State DOL, 107 F.3d 1000 (2d Cir. 1997) is also misplaced.

In Burgio & Campofelice, Inc., the plaintiff argued that the

allegedly preempted state statute improperly caused the with-

holding of money that it was due under a public works contract.

Burgio & Campofelice, Inc., 107 F.3d at 1005-06. In Pharm.

Research & Mfrs. of Am. v. Concannon, 249 F.3d 66 (1st Cir.

2001), the First Circuit concluded that the plaintiff had standing

to assert a claim under the Supremacy Clause reasoning that

“[wJhere a party has established a concrete injury in fact, and

otherwise has standing to challenge the lawfulness of the

statute, it is entitled to assert those concomitant rights of third

parties that would be diluted or adversely affected shou'd [its]

constitutional challenge fail and the statute[ ] remain in force.”

Id. at 74 (internal quotations omitted; alterations in original).

Here, § 30(A) does not give petitioners any right to Medi-Cal

funds.

5la

Court, while acutely cognizant of the potential ad-

verse consequences of the ten percent rate reduction,

declines to address petitioners’ arguments that they

have shown irreparable harm. See Global Horizons,

Inc. v. United States DOL, 510 F.3d 1054, 1058 (9th

Cir. 2007) (“Once a court determines a complete lack

of probability of success or serious questions going to

the merits, its analysis may end, and no further

findings are necessary.”).

V. CONCLUSION

In accordance with the foregoing, the Court

hereby DENIES petitioners’ motion for preliminary

injunction.

IT IS SO ORDERED.

Dated: June 25, 2008

/s/ Christina A. Snyder

CHRISTINA A. SNYDER

UNITED STATES

DISTRICT JUDGE

52a

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

INDEPENDENT LIVING

CENTER OF SOUTHERN

CALIFORNIA, INC., a nonprofit

corporation; GRAY PANTHERS

OF SACRAMENTO, a nonprofit

corporation; GRAY PANTHERS

OF SAN FRANCISCO, a non-

profit corporation; GERALD

SHAPIRO, PHARM. D.

doing business as UPTOWN

PHARMACY AND GIFT

SHOPPE; SHARON STEEN

doing business as CENTRAL

PHARMACY; MARK

BECKWITH; MARGARET

DOWLING; TRAN PHARMACY,

INC., doing business as TRAN

PHARMACY; JASON YOUNG,

Petitioners-Appellants,

SANDRA SHEWRY, Director of

the Department of Health Care

Services, State of California,

Respondent-Appellee.

No. 08-56061

D.C. No. 2:08-cv-

03315-CAS-MAN

Central District

of California,

Los Angeles

ORDER

(Filed Nov. 3, 2008)

Before: REINHARDT, BERZON and M. SMITH,

Circuit Judges.

53a

The panel has voted to deny (1) appellee’s peti-

tion for panel rehearing and rehearing en banc filed

with the court on July 17, 2008; and (2) appellee’s

petition for panel rehearing and rehearing en banc

filed with the court on October 8, 2008.

The full court has been advised of the petitions

for rehearing en banc, and no judge has requested a

vote on whether to rehear the matter en banc. Fed. R.

App. P. 35.

The petitions for panel rehearing and rehearing

en banc are DENIED.

IT IS SO ORDERED.

54a

Assembly Bill No. 5

CHAPTER 3

An act to amend Section 95004 of the Govern-

ment Code, and to amend Sections 4640.6, 4643,

4648.4, 4681.3, 4681.5, 4691.6, 4781.6, and 4783 of,

and to add Sections 4681.6, 4689.8, 4691.9, 14041.1,

14105.19, and 14166.245 to, the Welfare and Institu-

tions Code, relating to health, and declaring the

urgency thereof, to take effect immediately.

[Approved by Governor February 16, 2008.

Filed with Secretary of State February 16, 2008. ]

LEGISLATIVE COUNSEL’S DIGEST

AB 5, Committee on Budget. Public health pro-

grams.

Under existing law, the State Department of

Developmental Services provides funding for regional

centers for the provision or purchase of services and

supports to persons with developmental disabilities.

Existing law prescribes a specified ratio for regional

center service coordinator to consumer, which is in

effect until June 30, 2008.

This bill would extend indefinitely the effective

date of this ratio.

Existing law provides for the assessment of

certain individuals for whom benefits are provided by

regional centers. Existing law provides that if as-

sessment is needed, prior to July 1, 2008, the assess-

ment shall be performed within 120 days following

55a

initial intake, and requires that assessments after

that date shall be performed within 60 days following

intake.

This bill would extend indefinitely the 120-day

assessment requirement.

Existing law, with certain exceptions, for the

2007-08 fiscal year, prohibits a regional center from

paying any provider of specified services a rate that is

greater than the rate that is in effect on July 1, 2007,

unless the increase is required by contract between

the regional center and the vendor that is in effect on

June 30, 2007.

This bill would extend indefinitely this prohibi-

tion with respect to the payment of rates in excess of

those in effect on June 30, 2008.

Existing law provides that, during the 2007-08

fiscal year, no regional center may approve any

service level for a residential service provider.

This bill would extend indefinitely this provision.

It would also prohibit, commencing July 1, 2008, a

regional center from negotiating rates with residen-

tial care providers, except as prescribed.

Existing law requires the State Department of

Developmental Services to make payments to providers

of supported living services for adults with developmen-

tal disabilities. Under existing law, the department,

by July 1, 2002, is required to establish, by regula-

tion, an equitable and cost-effective methodology for

56a

the determination of supported living costs and a

methodology of payment for these providers.

This bill would, commencing July 1, 2008, impose

prescribed rate increase restrictions on reimburse-

ment to these service providers and would also pro-

hibit a regional center from negotiating rates with

these providers, except as prescribed.

Existing law prohibits, during the 2007-08 fiscal

year, the State Department of Developmental Ser-

vices from establishing any permanent payment rate

for a community-based day program or in-home

respite care agency that has a temporary payment

rate in effect on July 1, 2007, or from making other

specified changes or adjustments that would result in

a rate increase.

This bill would extend indefinitely this provision,

and would apply it to rates in effect June 30, 2008. It

would also prohibit a regional center from negotiating

rates with these providers, except as prescribed.

Existing law provides that, for the 2007-08 fiscal

year only, a regional center shall not expend any

purchase of service funds for the startup of any new

program unless the expenditure is necessary to

protect the consumer’s health or safety or because of

other extraordinary circumstances and the depart-

ment has granted prior written authorization.

This bill would extend indefinitely this prohibi-

tion.

57a

Under existing law, the California Early Start

Intervention Services Act, various state entities

provide coordinated services to infants and toddlers

with disabilities and their families. Existing law

requires early intervention services to be provided

directly to eligible infants ‘and toddlers and their

families through the regional center system and the

local education system. Existing law requires that, in

providing services under the act, regional centers

comply with the Lanterman Developmental Disabili-

ties Services Act, and its implementing regulations,

including, but not limited to, those provisions relating

to vendorization and ratesetting, except where com-

pliance with those provisions would result in any

delays in, or any cost to families for, the provision of

early intervention, or otherwise conflict with the act

or its implementing regulations. Existing law, until

July 1, 2009, also contains family cost participation

requirements for specified services obtained by re-

gional centers for persons with developmental dis-

abilities.

This bill would extend indefinitely the family cost

participation requirements, and would also require

that, subject to federal approval, in providing those

early intervention services under the Lanterman

Developmental Disabilities Services Act, regional

centers apply the family cost participation require-

ments that require families of children receiving

early intervention services to contribute a specified

amount to the cast of those services based on family

size and scaled income levels. It would also revise the

58a

family cost participation schedule and the procedures

governing how a parent may appeal a decision made

by the executive director of a regional center, with

respect to the amount of the parents’ cost participa-

tion.

Existing law provides for the Medi-Cal program,

administered by the State Department of Health

Care Services, under which qualified low-income

persons are provided with a variety of health services.

Existing law contains various provisions govern-

ing reimbursement rates for Medi-Cal providers.

This bill would, notwithstanding any other

provision of law, and to the extent not otherwise

conflicting with federal law, authorize the department

to withhold, or direct the medical fiscal intermediary

to withhold, payments for providers, as described, for

a period of one month for a month ending prior to

January 1, 2009. ;

Existing law creates various health programs,

including the Child Health and Disability Prevention

Program, the California Children’s Services Program,

the Genetically Handicapped Person’s Program, and

specified family planning programs.

This bill would, with certain exceptions, for

services rendered under these programs on and after

July 1, 2008, require the Director of Health Care

Services to reduce provider reimbursement rates by

10%.

59a

The bill would specify that the reductions im-

posed pursuant to the bill would apply only to the

General Fund share of the payment, and only to

payments for services from funds appropriated to the

department.

Existing law establishes the Medi-Cal Hospital/

Uninsured Care Demonstration Project Act, which

revises hospital reimbursement methodologies under

the Medi-Cal program in order to maximize the use

of federal funds consistent with federal Medicaid

law and stabilize the distribution of funding for

‘ hospitals that provide care to Medi-Cal beneficiaries

and uninsured patients. This demonstration project

provides for funding, in supplementation of Medi-Cal

reimbursement, to varicus hospitals, including desig-

nated public hospitals, nondesignated public hospi-

tals, and private hospitals, as defined in accordance

with certain provisions relating to disproportionate

share hospitals.

This bill would reduce by 10% payments for

inpatient hospital services to acute care hospitals not

under selective contracts with the department that

are provided on and after July 1, 2008.

The California Constitution authorizes’ the

Governor to declare a fiscal emergency and to call the

Legislature into special session for that purpose. The

Governor issued a proclamation declaring a fiscal

emergency, and calling a special session for this

purpose, on January 10, 2008.

60a

This bill would state that it addresses the fiscal

emergency declared by the Governor by proclamation

issued on January 10, 2008, pursuant to the Califor-

nia Constitution.

This bill would declare that it is to take effect

immediately as an urgency statute.

The People of the State of California do enact as

follows:

* * *

SEC. 14. Section 14105.19 is added to the Wel-

fare and Institutions Code, to read:

14105.19. (a) Notwithstanding any other pro-

vision of law, in order to implement changes in the

level of funding for health care services, the director

shall reduce provider payments as specified in this

section.

(b) (1) Except as provided in subdivision (c),

payments shall be reduced by 10 percent for Medi-Cal

fee-for-service benefits for dates of service on and

after July 1, 2008.

(2) Except as provided in subdivision (c), pay-

ments shall be reduced by 10 percent for non-Medi-

Cal programs described in Article 6 (commencing

with Section 124025) of Chapter 3 of Part 2 of Divi-

sion 106 of the Health and Safety Code, and Section

14105.18, for dates of service on and after July 1,

2008.

6la

(3) For managed health care plans that contract

with the department pursuant to this chapter, Chap-

ter 8 (commencing with Section 14200), and Chapter

8.75 (commencing with Section 14590), payments

shall be reduced by the actuarial equivalent amount

of the payment reduction specified in this subdivision

pursuant to contract amendments or change orders

effective on July 1, 2008.

be exempt from the payment reductions specified in

subdivision (b):

(1) Acute hospital inpatient services, except for

payments to hospitals not under contract with the

State Department of Health Care Services, as pro-

vided in Section 14166.245.

(2) Federally qualified health center services,

including those facilities deemed to have federally

qualified health center status pursuant to a waiver

under subdivision (a) of Section 1315 of Title 42 of the

United States Code.

(3) Rural health clinic services.

(4) All of the following facilities:

(A) A-skilled nursing facility pursuant to subdi-

vision (c) of Section 1250 of the Health and Safety

Code, except a skilled nursing facility that is a dis-

tinct part of a general acute care hospital. For pur-

poses of this paragraph, “distinct part” has the same

meaning as defined in Section 72041 of Title 22 of the

California Code of Regulations.

62a

(B) An intermediate care facility for the devel-

opmentally disabled pursuant to subdivision (e), (g),

or (h) of Section 1250 of the Health and Safety Code,

or a facility providing continuous skilled nursing care

to developmentally disabled individuals pursuant to

the pilot project established by Section 14495.10.

51215.5 of Title 22 of the California Code of Regula-

tions.

(5) Payments to facilities owned or operated by

the State Department of Mental Health or the State

Department of Developmental Services.

(6) Hospice.

(7) Contract services as designated by the

director pursuant to subdivision (e).

(8) Payments to providers to the extent that the

payments are funded by means of a certified public

expenditure or an intergovernmental transfer pursu-

ant to Section 433.51 of Title 42 of the Code of Fed-

eral Regulations.

(9) Services pursuant to local assistance con-

tracts and interagency agreements to the extent the

funding is not included in the funds appropriated to

the department in the annual Budget Act.

(10) Payments to Medi-Cal managed care plans

pursuant to Section 4474.5 for services to consumers

transitioning from Agnews Developmental Center

into Alameda, San Mateo, and Santa Clara Counties

63a

pursuant to the Plan for the Closure of Agnews

Developmental Center.

(11) Breast

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