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Westminster Nursing Center v. Cohen

United States District Court, E.D. North Carolina, Western Division

November 22, 2017

MANDY K. COHEN, in her official capacity as the Secretary of the North Carolina Department of Health and Human Services, Defendant.[1]



         This matter is before the court on defendant's motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1), (2) and (6). (DE 18). The motion has been fully briefed, and the issues presented are ripe for ruling. For the reasons that follow, the motion is granted in part and denied in part.


         Under the Medicaid Act and implementing regulations, Medicaid recipients who require long-term care in a nursing home facility are required to use some of their income to pay for the cost of care. The parties refer to this payment as “patient monthly liability.” Regulations promulgated by the Centers for Medicare & Medicaid Services (“CMS”) include instructions directed to state Medicaid authorities specifying how the state must calculate patient monthly liability.

         Plaintiff initiated this action February 17, 2017, seeking relief based upon defendant's alleged miscalculation of the residents' patient monthly liability and refusal to adjust the same. In counts one and seven, plaintiff seeks declaratory judgment and injunctive relief hinged on violations of substantive law described in counts two through six. In count two, plaintiff alleges violations of the Medicaid Act's medical assistance and nursing facility services mandate. 42 U.S.C. §§ 1396a(a)(10)(A), 1396d(a)(4)(A). In count three, plaintiff alleges violations of the Medicaid Act's reasonable promptness requirement. 42 U.S.C. § 1396a(a)(8). In count four, plaintiff alleges violations of the Americans with Disabilities Act (“ADA”). 42 U.S.C. § 12132 et seq. In count five, plaintiff alleges violations of the Rehabilitation Act of 1973 (“Rehabilitation Act”). 29 U.S.C. § 794 et seq. In count six, plaintiff alleges violations of the Due Process and Equal Protection Clauses of the Fourteenth Amendment to the Constitution. U.S. Const. amend. XIV. Plaintiff asserts counts two, three, and six through the vehicle of 42 U.S.C. § 1983. The parties dispute whether the relief plaintiff seeks properly may be characterized as monetary or injunctive.

         Defendant filed the instant motion June 19, 2017, seeking dismissal for lack of standing, failure to exhaust administrative remedies, failure to state a claim, and under principles of Eleventh Amendment immunity. Plaintiff responded in opposition, and defendant replied.


         The facts alleged in the complaint may be summarized as follows. Plaintiff is engaged in the business of providing long-term nursing home care at various locations within North Carolina. (DE 20 ¶ 1). The residents are Medicaid recipients who live at plaintiff's facilities. (Id. ¶¶ 3-8). Defendant is Secretary of the North Carolina Department of Health and Human Services (“NCDHS”), which agency is charged with administration of North Carolina's Medicaid program. (Id. ¶ 2).

         At some point while receiving care at plaintiff's facilities, each resident was assigned a patient monthly liability. (Id. ¶¶ 3-8). However, in each case, there was a gap in time between assignment of patient monthly liability and plaintiff's receipt of any payment. (See id.). The complaint does not explain why any of the residents failed to tender certain patient monthly liability payments, but documents submitted by defendant suggest that at least some of the residents are victims of fraud whereby a third party intercepted social security payments that a resident could have used to discharge patient monthly liability. (See DE 19-2 at 2). During periods in which the residents failed to pay their patient monthly liability, each resident incurred a negative account balance with plaintiff. (DE 20 ¶¶ 3-8).

         To address any negative balance, each resident applied to defendant for a deviation in patient monthly liability. (Id.). However, applying section MA-2270 VIII(A)(7) of the NCDHS Aged, Blind and Disabled Medicaid Manual, Long Term Care Need and Budgeting (“section MA-2270”), under which provision defendant will not cover an arrearage in patient monthly liability, defendant denied each application. (DE 20 ¶ 20). Section MA-2270 was never submitted to CMS for approval as part of North Carolina's Medicaid state plan. (DE 20 ¶ 26).

         Following, in some cases, defendant's inaction on the residents' claims and, in other cases, denial of the same, plaintiff initiated this action.


         A. Standard of Review

         A motion to dismiss under Rule 12(b)(1) challenges the court's subject matter jurisdiction. Under Rule 12(b)(1), the plaintiff bears the burden of showing that subject matter jurisdiction is appropriate. See McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178 (1936); Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). Such motion may either 1) assert the complaint fails to state facts upon which subject matter jurisdiction may be based, or 2) attack the existence of subject matter jurisdiction in fact, apart from the complaint. Adams, 697 F.2d at 1219. When the defendant challenges the factual predicate of subject matter jurisdiction, a court “is to regard the pleadings' allegations as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment.” Richmond, Fredericksburg & Potomac R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991). The nonmoving party “must set forth specific facts beyond the pleadings to show that a genuine issue of material fact exists.” Id.

         A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the complaint but “does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” Republican Party v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). A complaint states a claim if it contains “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “Asking for plausible grounds . . . does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal [the] evidence” required to prove the claim. Twombly, 550 U.S. at 556. In evaluating the complaint, “[the] court accepts all well-pled facts as true and construes these facts in the light most favorable to the plaintiff, ” but does not consider “legal conclusions, elements of a cause of action, . . . bare assertions devoid of further factual enhancement[, ] . . . unwarranted inferences, unreasonable conclusions, or arguments.” Nemet Chevrolet, Ltd. v., Inc., 591 F.3d 250, 255 (4th Cir. 2009).

         B. Analysis

         1. Standing

         “Without jurisdiction the court cannot proceed at all in any cause. Jurisdiction is the power to declare the law, and when it ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause.” Stop Reckless Economic Instability Caused by Democrats v. Fed. Election Com'n., 814 F.3d 221, 228 (4th Cir. 2016) (citations omitted). Accordingly, “federal courts are not free to simply assume that they possess subject-matter jurisdiction and then proceed to decide the merits of the issue before them when their jurisdiction remains in doubt.” Id. “Rather, federal court must determine whether they have subject-matter jurisdiction over a claim before proceeding to address its merits.” Id.

         Article III of the United States Constitution restricts federal court jurisdiction to actual “cases” and “controversies.” U.S. Const. art. III, § 2. The requirement that a party invoking jurisdiction must have standing “is an essential and unchanging part of the case-or-controversy requirement of Article III.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). To establish standing, “a plaintiff must show (1) it has suffered an ‘injury in fact' that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical, (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.” Friends of the Earth, Inc., v. Laidlaw Envtl. Servs., 528 U.S. 167, 180-81 (2000) (citing Lujan, 504 U.S. at 560-61); see also Allen v. Wright, 468 U.S. 737, 751 (1984) (“A plaintiff must allege personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief.”). The court's standing inquiry is “focused on whether the party invoking jurisdiction had the requisite stake in the outcome when the suit was filed.” Davis v. Fed. Election Comm'n, 554 U.S. 724, 734 (2008).

         “An association can allege standing based upon two distinct theories.” Md. Hwys. Contractors Ass'n, Inc. v. State of Md., 933 F.2d 1246, 1250 (4th Cir. 1991). “First, the association may have standing in its own right to seek judicial relief from injury to itself and to vindicate whatever rights and immunities the association itself may enjoy.” Id. “Second, the association may have standing as the representative of its members.” Id.

         Plaintiff has standing to sue in its own right for claims pertaining to residents Morton, Patterson, and Shook, where those residents assigned their right to receive Medicaid benefits to plaintiff. See Sprint Commc'ns. Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 285 (2008) (“Lawsuits by assignees . . . are “cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process.”); (DE 22-8 at 5 (Morton assignment provision), 10 (Patterson assignment provision), 11 (Shook assignment provision). Plaintiff does not dispute that it has no standing to sue in its own right as to other residents where entitlement to Medicaid benefits is the property of the recipient, not of any healthcare provider, unless assigned. See O'Bannon v. Town Court Nursing Ctr., 447 U.S. 773, 787 (1980) (holding that “direct benefits” under Medicaid “give the patients an opportunity to obtain medical services from provides of their choice” and holding that such direct benefits constitute the recipient's property).

         An organization has standing to seek redress for the injuries of its members if it satisfies the three prong Hunt test. Hunt v. Washington State Apple Advertising Comm'n., 432 U.S. 333, 343 (1977); United Food and Commercial Workers Union Local 751 v. Brown Grp, Inc., 517 U.S. 544, 555 (1996). First, an organization's membership must “include at least one member with standing to present, in his or her own right, the claim (or type of claim) pleaded by the [organization.]” Local 751, 417 U.S. at 555; see Sierra Club v. Morton, 405 U.S. 727, 735 (1972) (plaintiff lacked standing where it failed to allege that “it or its members would be affected in any of their activities or pastimes by the [challenged] development.”). Second, an organization must “be organized for a purpose germane to the subject of its member's ...

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