Smith v. Watanabe

Background

The plaintiffs were two disabled individuals and a foundation supporting Independent Living Centers and programs for people with disabilities in California. They brought a putative class action against Kaiser Foundation Health Plan, Inc., the California Department of Managed Health Care (DMHC), and DMHC Director Mary Watanabe. The plaintiffs alleged that the defendants unlawfully excluded or limited coverage for wheelchairs and that the exclusion of wheelchairs from California’s benchmark health plan discriminated against people with disabilities under Section 1557 of the Affordable Care Act.

The State Defendants—DMHC and Watanabe—moved to dismiss on several grounds, including lack of subject-matter jurisdiction, lack of standing, untimeliness, and failure to state a claim. This order addressed their motion. The opinion also noted that Kaiser filed separate motions, but the order’s conclusion ruled on the State Defendants’ motion.

Sovereign Immunity

The court first considered whether it had subject-matter jurisdiction because the State Defendants asserted sovereign immunity under the Eleventh Amendment. Sovereign immunity generally prevents private parties from suing a state, its agencies, or its officials in federal court unless the state consents or Congress clearly removes that immunity.

The plaintiffs argued that DMHC waived immunity by accepting federal financial assistance. The court found that DMHC had not received federal funds since September 2017, and the plaintiffs conceded that DMHC was not currently receiving direct federal funding. Relying on Ninth Circuit precedent, the court held that an agency’s receipt of federal funds waives immunity only during the periods when the agency accepts those funds.

The court rejected the plaintiffs’ additional waiver arguments. It ruled that federal funding received by a related agency could not be attributed to DMHC because DMHC and the Department of Health Care Services were distinct agencies with different statutory organizations and directors. The court also ruled that past federal funding and regulatory nondiscrimination assurances did not establish an ongoing statutory waiver. In addition, the court found that the plaintiffs had not shown that a database created with earlier federal funding was property that could create an ongoing waiver under the cited regulations.

Claims Against Watanabe and Requested Relief

The plaintiffs sued Watanabe only in her official capacity. The court found that the plaintiffs’ opposition did not adequately address Watanabe’s argument that the allegations lacked a sufficient connection to the alleged harm. The court described the allegations that Watanabe continued to implement a discriminatory policy as conclusory and held that dismissal of Watanabe was warranted.

The court also ruled that injunctive relief was unavailable against an entity that was not currently receiving federal financial assistance. The plaintiffs had not plausibly alleged that DMHC was likely to receive federal funding in the future. The court therefore concluded that the Eleventh Amendment barred the claim against DMHC and that the plaintiffs had not sufficiently pleaded a claim against Watanabe, which also prevented the requested injunctive relief.

Disposition

The court granted the State Defendants’ motion to dismiss with leave for the plaintiffs to amend the complaint. Any amended complaint had to be filed within 28 days from the date of the order.