Prime Healthcare Services, Inc. et al v. Kamala D. Harris, No. 3:2016cv00778 - Document 78 (S.D. Cal. 2017)

Court Description: ORDER Denying 62 Defendants' Motion to Strike and Granting 62 Defendants' Motion to Dismiss. The Court DENIES Defendants' motion to strike Plaintiffs' quid pro quo allegations and GRANTS Defendants' motion to dismiss Plaintiffs' SAC. Signed by Judge Gonzalo P. Curiel on 8/16/2017. (All non-registered users served via U.S. Mail Service)(aef)

Download PDF

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 PRIME HEALTHCARE SERVICES, INC., and PRIME HEALTHCARE FOUNDATION, INC., 13 14 15 16 17 Plaintiffs, v. KAMALA D. HARRIS, in her personal capacity, and XAVIER BECERRA, in his official capacity as the Attorney General of the State of California, 18 Case No.: 3:16-cv-00778-GPC-AGS ORDER DENYING DEFENDANTS’ MOTION TO STRIKE AND GRANTING DEFENDANTS’ MOTION TO DISMISS [ECF No. 62.] Defendants. 19 20 Before the Court is Defendants Kamala D. Harris (“Defendant” or “Harris”) and 21 22 Attorney General of California Xavier Becerra’s1 (“Defendant’s” or “Becerra’s”) 23 (collectively, “Defendants’”) motion to dismiss Plaintiffs Prime Healthcare Services, Inc. 24 and Prime Healthcare Foundation, Inc.’s (“Plaintiffs’” or “Prime’s”) Second Amended 25 Complaint (“SAC”) pursuant to Federal Rule of Civil Procedure 12(b)(6) and to strike the 26 27 1 28 Pursuant to Federal Rule of Civil Procedure 25(d), Attorney General Becerra is automatically substituted as a party for former Attorney General Harris. 1 3:16-cv-00778-GPC-AGS 1 quid pro quo allegations in Plaintiffs’ SAC pursuant to Federal Rule of Civil Procedure 2 12(f).2 (Dkt. No. 62.) The motion has been fully briefed. (Dkt. Nos. 69, 74.) 3 The Court conducted a hearing on April 28, 2017. (Dkt. No. 76.) John Alfred 4 Mills, Esq. appeared on behalf of Plaintiffs. (Id.) S. Michele Inan, Esq. and Sharon 5 O’Grady, Esq. appeared on behalf of Defendants. (Id.) 6 Having reviewed the parties’ arguments and the applicable law, and for the reasons 7 set forth below, the Court DENIES Defendants’ motion to strike Prime’s quid pro quo 8 allegations, GRANTS Defendants’ motion to dismiss Prime’s 42 U.S.C. § 1983 claim 9 against Harris in her personal capacity for violation of the Equal Protection Clause, and 10 GRANTS Defendants’ motion to dismiss Prime’s 42 U.S.C. § 1983 claim against 11 Becerra in his official capacity for prospective injunctive relief. (Dkt. No. 62.) 12 BACKGROUND 13 I. 14 The Parties Plaintiff Prime Healthcare Services, Inc. is a California corporation that owns and 15 operates twenty-eight hospitals throughout the country. (Dkt. No. 57, SAC ¶ 21.) 16 Plaintiff Prime Healthcare Foundation, Inc. is a nonprofit public charity that owns seven 17 nonprofit hospitals, each of which was donated by Prime Healthcare Services, in various 18 states.3 (Id. ¶ 22.) Defendant Kamala D. Harris was the Attorney General of California 19 during the events giving rise to the instant litigation and at the time the instant action was 20 filed. (Id. ¶ 24.) Defendant Xavier Becerra is the current Attorney General of California. 21 This action stems from Harris’s allegedly improper, de facto denial of Prime’s proposed 22 acquisition of the Daughters of Charity Health System (“DCHS”), a group of five 23 financially distressed hospitals and a skilled nursing facility. (Id. ¶¶ 1, 2, 14, 90.) 24 Prime’s core contention is this—at the behest of Service Employees International Union- 25 26 27 2 Citations are based upon CM/ECF pagination. Prime Healthcare Services, Inc. and Prime Healthcare Foundation, Inc. will hereinafter be referred to collectively as “Plaintiffs” or “Prime.” 3 28 2 3:16-cv-00778-GPC-AGS 1 United Healthcare Workers West, Harris effectively denied the Prime-DCHS transaction 2 by imposing untenable requirements on Prime to continue operating five of the six DCHS 3 facilities in their current state for ten years. (Id. ¶¶ 1, 14.) 4 II. Statutory and Regulatory Background 5 The Attorney General supervises all charitable organizations and enforces the 6 obligations of trustees, nonprofits, and fiduciaries that hold or control property in trust for 7 charitable purposes.4 Pursuant to California Corporations Code §§ 5914–5925 (“the 8 Nonprofit Hospital Transfer Statute” or “the Statute”), a nonprofit corporation that 9 operates a health facility must provide notice to and obtain the written consent of the 10 Attorney General prior to entering into an agreement to sell a material amount of its 11 assets to a for-profit corporation.5 Cal. Corp. Code § 5914(a)(1). The Attorney General 12 has “discretion to consent to, give conditional consent to, or not consent to any agreement 13 or transaction.” Id. § 5917. 14 In making this determination, the Attorney General “shall consider any factors that 15 the Attorney General deems relevant,” including, but not limited to, a non-exhaustive list 16 of nine factors specified by the Statute and the corresponding implementing regulations. 17 Id.; see also Cal. Code Regs. tit. 11, § 999.5(f). The factors span an expansive range of 18 considerations, from the terms of the agreement to antitrust concerns and the public 19 interest. See Cal. Corp. Code § 5917; Cal. Code Regs. tit. 11, § 999.5(f). They include, 20 inter alia, whether “[t]he terms and conditions of the agreement or transaction are fair 21 and reasonable to the nonprofit corporation,” whether the transaction “will result in 22 23 24 25 26 27 28 4 Supervisory and enforcement authority is granted to the Attorney General under the Supervision of Trustees and Fundraisers for Charitable Purposes Act, Cal. Gov’t Code §§ 12580–12599.8; the Nonprofit Corporation Law, Cal. Corp. Code §§ 5000–6216; the Solicitations for Charitable Purposes Law, Cal. Bus. & Prof. Code §§ 17510–17510.95; and provisions of the California Business and Professions Code that prohibit unlawful, unfair, or fraudulent business acts or practices within California, id. §§ 17200–17210. 5 Cal. Corp. Code §§ 5914–5919 govern transactions from nonprofit entities to for-profit entities. Cal. Corp. Code §§ 5920–5923 govern transactions between nonprofit entities. 3 3:16-cv-00778-GPC-AGS 1 inurement to any private person or entity,” whether the transaction “is at fair market 2 value,” with “fair market value” meaning “the most likely price that the assets being sold 3 would bring in a competitive and open market under all conditions requisite to a fair 4 sale,” whether “[t]he market value has been manipulated by the actions of the parties in a 5 manner that causes the value of the assets to decrease,” whether “[t]proposed use of the 6 proceeds from the agreement or transaction is consistent with the charitable trust on 7 which the assets are held by the health facility or by the affiliated nonprofit health 8 system,” whether the transaction “involves or constitutes any breach of trust,” whether 9 “[t]he Attorney General has been provided . . . with sufficient information and data by the 10 nonprofit corporation to evaluate adequately the agreement or transaction or the effects 11 thereof on the public,” whether the transaction “may create a significant effect on the 12 availability or accessibility of health care services to the affected community,” and 13 whether the transaction is “in the public interest.” Cal. Corp. Code § 5917; see also Cal. 14 Code Regs. tit. 11, § 999.5(f). 15 If consent is granted to a transaction, the Attorney General’s policy is to “require 16 for a period of at least five years the continuation at the hospital of existing levels of 17 essential healthcare services, including but not limited to emergency room services.” 18 Cal. Code Regs. tit. 11, § 999.5(f)(8)(C). It is also the policy of the Attorney General “to 19 require for a period of at least five years that a minimum level of annual charity costs be 20 incurred by the hospitals that are the subject of the agreement or transaction.” Id. § 21 999.5(f)(8)(B). Notwithstanding this policy, the Attorney General “retain[s] complete 22 discretion to determine whether this policy shall be applied in any specific transaction 23 under review.” Id. § 999.5(f)(8)(B)–(C). Further, “[p]otential adverse effects on 24 availability or accessibility of health care may be mitigated through provisions negotiated 25 between the parties to the transaction, through conditions adopted by the Attorney 26 General in consenting to the proposed transaction, or through any other appropriate 27 means.” Id. § 999.5(f)(8)(A). 28 4 3:16-cv-00778-GPC-AGS 1 The Attorney General considers information from a variety of sources in making 2 the determination on a proposed transaction. The selling entity must submit to the 3 Attorney General details about the transaction, reasons for the sale, the fair market value 4 of the transaction, and the impact of the sale on the availability and accessibility of 5 healthcare services in the community affected by the sale, among other information. Cal. 6 Corp. Code § 5914(b); Cal. Code Regs. tit. 11, § 999.5(d). The written notice must 7 include a section entitled “Impacts on Health Care Services.” Cal. Code Regs. tit. 11, § 8 999.5(d)(5). This section of the written notice must include, inter alia, a “description of 9 all charity care provided in the last five years by each health facility”; a “description of 10 all services provided by each health facility . . . in the past five years to Medi-Cal 11 patients, county indigent patients, and any other class of patients,” including details about 12 “the type and volume of services provided, the payors for the services provided, the 13 demographic characteristics of and zip code data for the patients served by the health 14 facility . . . and the costs and revenues for the services provided”; a “description of 15 current policies and procedures on staffing for patient care areas; employee input on 16 health quality and staffing issues; and employee wages, salaries, benefits, working 17 conditions and employment protections,” including “a list of all existing staffing plans, 18 policy and procedure manuals, employee handbooks, collective bargaining agreements or 19 similar employment-related documents”; “all existing documents setting forth any 20 guarantees made by any entity that would be taking over operation or control of the 21 health facility . . . relating to employee job security and retraining, or the continuation of 22 current staffing levels and policies, employee wages, salaries, benefits, working 23 conditions and employment protections”; and a “statement describing all effects that the 24 proposed agreement or transaction may have on health care services provided by each 25 facility proposed to be transferred.” Id. The Attorney General may also request that the 26 seller provide additional information that he or she deems reasonably necessary to make 27 the determination. Id. § 999.5(c)(2). 28 5 3:16-cv-00778-GPC-AGS 1 Before issuing a written decision, the Attorney General must conduct one or more 2 public meetings in order to hear comments from interested parties. Cal. Corp. Code § 3 5916. The Attorney General’s policy is to receive and consider all relevant information 4 concerning the proposed transaction from “[a]ny interested person.” Cal. Code Regs. tit. 5 11, § 999.5(e)(7). The Attorney General may contract with consultants and experts to 6 review the proposed sale or receive expert opinion from any state agency. Id. § 7 999.5(e)(4). 8 If a proposed transaction affects an acute care hospital with more than fifty beds or 9 may result in a significant effect on the availability or accessibility of existing healthcare 10 services, the Attorney General prepares an independent healthcare impact statement that 11 evaluates the transaction’s potential impact on the availability and accessibility of 12 services to the affected community. Id. § 999.5(e). The independent statement may 13 assess factors such as the transaction’s potential impact on the “level and type of charity 14 care that the hospital has historically provided” and the “provision of health care services 15 to Medi-Cal patients, county indigent patients, and any other class of patients.” Id. § 16 999.5(e)(6). The information in the statement is then used to consider whether the 17 proposed transaction may “create a significant effect on the availability or accessibility of 18 health care services,” one of the nine factors listed in Cal. Corp. Code § 5917. Id. § 19 999.5(e). The statement is public. Id. § 999.5(e)(3)(D). 20 The Attorney General notifies the applicant of the decision in writing. Cal. Corp. 21 Code § 5915. The decision is reviewable in state court in an administrative mandamus 22 proceeding. Cal. Civ. Proc. Code § 1085. 23 III. 24 A. The Alleged Agreement Between Harris and SEIU-UHW Factual Background 25 Since 2009, Prime has been engaged in a protracted dispute with Service 26 Employees International Union-United Healthcare Workers West (“SEIU-UHW”), a 27 labor union that represents California hospital workers, in large part due to Prime’s 28 6 3:16-cv-00778-GPC-AGS 1 unwillingness to allow SEIU-UHW to unionize Prime’s California hospitals.6 (SAC ¶ 2 10.) Prime alleges that Harris entered into an unlawful scheme with SEIU-UHW: in 3 exchange for SEIU-UHW’s political and financial support of her United States Senate 4 campaign, Harris would prevent Prime from acquiring nonprofit hospitals in California 5 unless Prime agreed to allow SEIU-UHW to unionize its hospital workers. (Id. ¶¶ 112– 6 14.) Prime alleges that pursuant to this unlawful scheme, Harris “refus[ed] to reasonably 7 approve the sale of [DCHS] to [Prime] because Prime rejected [SEIU-UHW’s] 8 extortionate demands . . . to unionize workers at all Prime hospitals.” (Id. ¶ 1.)7 9 As evidence for this scheme, Prime cites SEIU-UHW’s donations to Harris’s 2010 10 and 2014 campaigns for Attorney General. (Id. ¶ 37.) Prime alleges on information and 11 belief that SEIU-UHW promised Harris up to $25 million in political contributions to her 12 United States Senate campaign if she denied Prime’s acquisition or imposed conditions 13 that would effect a de facto denial of the DCHS sale. (Id. ¶ 38.) Prime also alleges on 14 information and belief that SEIU-UHW advised Harris that the union would support 15 Harris’s opposing candidates if she refused to comply with the union’s demands. (Id.) 16 B. The Prime-VVCH Transaction 17 On September 20, 2011, Harris denied consent to Prime Healthcare Foundation’s 18 proposed acquisition of Victor Valley Community Hospital (“VVCH”). (Id. ¶¶ 42–60.) 19 Prime asserts that Harris’s denial of the VVCH transaction was the first and only time 20 21 22 23 24 25 26 27 28 6 In 2011, Prime Healthcare Services, Inc. filed suit alleging that SEIU, UHW, Kaiser Permanente, and several Kaiser-related entities engaged in an antitrust conspiracy to eliminate Prime from the healthcare market and increase healthcare workers’ wages. Prime Healthcare Servs., Inc. v. Serv. Employees Int’l Union, No. 11-CV-2652-GPC-RBB, 2013 WL 3873074, at *1 (S.D. Cal. July 25, 2013), aff’d, 642 F. App’x 665 (9th Cir. 2016). In 2014, Prime filed suit alleging that the SEIU, UHW, and other related entities and individuals engaged in a Racketeering Influenced and Corrupt Organization Act conspiracy to unionize Prime or force Prime out of the healthcare market. Prime Healthcare Servs., Inc. v. Servs. Employees Int’l Union, 147 F. Supp. 3d 1094, 1097 (S.D. Cal. 2015). 7 Prime maintains its stance that Harris formed a quid pro quo agreement with SEIU-UHW, despite the Court’s previous finding that the quid pro quo allegations failed to pass muster under Federal Rule of Civil Procedure 12(b)(6). (SAC at 2 n.1.) The Court reiterates its conclusion that its dismissal of Prime’s FAC did not depend on the plausibility of Prime’s quid pro quo allegations. (See Dkt. No. 54 at 16 n.14.) 7 3:16-cv-00778-GPC-AGS 1 Harris denied the sale of a California nonprofit hospital. (Id. ¶¶ 51, 94.) Prime does not 2 appear to seek relief with respect to the VVCH transaction. 3 Prime alleges on information and belief that Harris denied the 2011 VVCH sale at 4 SEIU-UHW’s request. (Id. ¶¶ 44–45, 50.) In support of its assertion, Prime cites 5 examples of statements and conduct by SEIU-UHW. An SEIU-UHW attorney stated at a 6 bankruptcy hearing that Harris would deny the VVCH transaction; SEIU-UHW 7 campaigned against the sale; and SEIU-UHW opposed the sale at the Attorney General’s 8 public hearing on the transaction. (Id. ¶¶ 42, 44, 47.) Harris denied the sale, stating 9 generally that it was not in the public’s best interest. (Id. ¶ 49.) After Harris denied 10 Prime’s proposed acquisition of VVCH, SEIU-UHW publicly claimed credit for the 11 decision. (Id. ¶¶ 42, 59.) 12 During labor negotiations with Prime in July 2014, Dave Regan, president of 13 SEIU-UHW, stated that Harris denied the VVCH sale to Prime at the union’s request. 14 (Id. ¶ 50.) In 2015, a senior staff member in the Attorney General’s Office informed 15 Prime that Harris had “made a mistake and was inexperienced and new to the job” when 16 she denied consent to the VVCH transaction. (Id.) 17 C. The Prime-DCHS Transaction 18 Facing financial difficulty in 2014, the Daughters of Charity Health System 19 decided to sell five nonprofit hospitals and a skilled nursing facility that it owned and 20 operated in California.8 (Id. ¶¶ 3, 62, 91.) After a thirteen-month bidding process, DCHS 21 selected Prime’s bid to purchase the hospitals on October 10, 2014. (Id. ¶¶ 4, 7, 75.) 22 Alongside acknowledging Prime’s strengths, DCHS identified the potential shortcomings 23 of a Prime transaction, citing resistance from SEIU-UHW, potential transaction resistance 24 from the Attorney General and California politicians, and Prime’s litigious history. (Id. ¶ 25 26 8 27 28 The hospitals are (1) Seton Medical Center in Daly City, California, (2) O’Connor Hospital in San Jose, California, (3) Saint Louise Regional Hospital in Gilroy, California, (4) St. Francis Medical Center in Lynwood, California, and (5) St. Vincent Medical Center in Los Angeles, California. (SAC ¶ 3.) The skilled nursing facility is Seton Coastside in Moss Beach, California. (Id.) 8 3:16-cv-00778-GPC-AGS 1 6.) DCHS and Prime’s sale agreement required Prime to keep each of the hospitals open 2 and to “maintain all existing healthcare services, including emergency rooms and trauma 3 centers, for at least five years.” (Id. ¶ 75.) DCHS submitted written notice of the 4 proposed sale to the Attorney General on October 24, 2014. (Id. ¶¶ 8, 78.) Prime alleges 5 that its proposed acquisition was “the single largest hospital transaction ever reviewed by 6 the Attorney General’s office” and “the largest bail-out of non-profit hospitals in 7 California history.” (Id. ¶¶ 8–9.) 8 9 The Attorney General’s Office made public five healthcare impact statements prepared by MDS Consulting. (Id. ¶ 79.) Harris allegedly requested that these 10 statements recommend requiring Prime to continue operating five of the six DCHS 11 facilities in their current state for a period of ten years. (Id. ¶¶ 15, 79, 88, 122.) On 12 information and belief, Prime alleges that Harris made this request “before the report or 13 any studies had been generated.” (Id. ¶¶ 79, 83.) In January 2015, the Attorney General 14 received written comments and held multiple public hearings over a period of five days to 15 receive input on the proposed sale. (Id. ¶ 82.) 16 In February 2015, prior to Harris’s issuance of her final decision, Prime met with 17 staff members of the Attorney General’s Office to express its concerns about the 18 proposed ten-year conditions. (Id. ¶ 85.) The Attorney General’s Office stated that the 19 ten-year conditions were non-negotiable, and that Harris would require a ten-year 20 commitment for future sales of nonprofit hospitals to for-profit operators in California. 21 (Id. ¶ 86.) 22 D. The Attorney General’s Decision 23 On February 20, 2015, the Attorney General conditionally consented to the Prime- 24 DCHS transaction. (Id. ¶¶ 14, 87, 93.) Harris imposed numerous conditions on the sale. 25 (Id. ¶ 87.) Harris’s conditions effectively required Prime to operate five hospitals as 26 acute care facilities for ten years and to maintain the majority of current hospital services 27 at each hospital, with the exception of St. Vincent Medical Center, for ten years. (Id.) 28 Staff members of the Attorney General’s Office informed Prime that Harris personally 9 3:16-cv-00778-GPC-AGS 1 requested the ten-year conditions. (Id. ¶¶ 15, 79, 83, 88.) Harris allegedly stated that the 2 conditions were “unique and tailored to Prime.” (Id. ¶ 120.) 3 Prime alleges that the Attorney General’s unprecedented ten-year conditions 4 rendered the proposed transaction financially unviable, requiring Prime to operate the 5 financially failing hospitals at a loss for ten years. (Id. ¶¶ 18, 89–91, 93.) Accordingly, 6 Prime characterizes the Attorney General’s conditional approval of the DCHS sale as a 7 de facto denial, as an outright denial of consent to the transaction was “politically 8 impossible” for Harris. (Id. ¶¶ 14, 83, 91–92.) On March 10, 2015, Prime withdrew its 9 bid to purchase the DCHS hospitals because of the ten-year conditions. (Id. ¶¶ 18, 90.) 10 E. SEIU-UHW’s Alleged Involvement 11 Prime asserts that Harris de facto denied Prime’s acquisition at the bidding of 12 SEIU-UHW. (Id. ¶¶ 1–2, 17, 38.) As evidence, Prime cites various statements and 13 conduct by SEIU-UHW. SEIU-UHW comprised the main source of public opposition to 14 the Prime-DCHS deal, (id. ¶¶ 76–77, 81–82), and publicly took credit for Harris’s 15 decision to impose “unprecedented conditions” on Prime’s acquisition of DCHS, (id. ¶ 16 89). Prime alleges on information and belief that SEIU-UHW’s actions were “all 17 political theater, designed to mask the fact that . . . Harris would ultimately follow the 18 bidding of SEIU-UHW regardless of the true merits of Prime’s bid to acquire the DCHS 19 hospitals.” (Id. ¶ 76.) For example, SEIU-UHW created a website to oppose Prime’s 20 bid.9 (Id. ¶ 65.) SEIU-UHW aired television ads and initiated a calling campaign urging 21 Harris to deny consent to the sale. (Id. ¶ 76.) SEIU-UHW and a competing bidder, Blue 22 Wolf Capital Partners LLC (“Blue Wolf”), met with Harris to show Harris that an 23 24 25 26 27 28 9 Prime alleges that DCHS filed a lawsuit against SEIU-UHW and Blue Wolf in state court. (SAC ¶ 81.) In the state lawsuit, DCHS alleged that SEIU-UHW represented to DCHS and Prime that it could “exert influence over the California Attorney General,” that “[t]he SEIU Defendants . . . openly and explicitly threatened administrative action by the Attorney General against DCHS and Prime unless Prime agreed to provide unrelated benefits to these Defendants relating to non-DCHS hospitals,” and that “[s]tatements and actions by the Attorney General confirm that the SEIU Defendants’ extortionate scheme caused a delay in the [Attorney General’s] approval process.” (Id. (alterations in original).) 10 3:16-cv-00778-GPC-AGS 1 alternative buyer existed. (Id. ¶ 80.) SEIU-UHW passed a resolution calling on Harris to 2 halt the sale of any hospital to Prime during the pendency of investigations of Prime for 3 alleged Medicare fraud. (Id. ¶ 70.) 4 Prime alleges that SEIU-UHW threatened to withdraw its support for any 5 Democratic politician who accepted contributions from Prime. (Id. ¶ 71.) SEIU-UHW 6 issued a press release announcing that twenty-seven state legislators had submitted a 7 letter to Harris asking her to stop the sale to Prime. (Id.) SEIU-UHW issued a 8 subsequent announcement that thirty-eight state legislators, two United States 9 Representatives, and other elected officials had signed the letter to Harris. (Id.) 10 Dave Regan, the president of SEIU-UHW, repeatedly informed Prime and DCHS 11 that Harris would approve Prime’s acquisition only if Prime agreed to allow SEIU-UHW 12 to unionize workers at Prime’s hospitals. (Id. ¶¶ 9 –11, 39–40, 61, 68–69, 83.) Regan 13 boasted to Prime that “he has the influence with Harris to either make or break Prime 14 with respect to the Prime-DCHS sale transaction,” that Harris “would do what she was 15 told and nothing more,” that “a SEIU-UHW deal was the price for doing business in 16 California and obtaining a sale approval from Harris,” and that Regan “control[s] Harris 17 and the political process in California.” (Id. ¶¶ 39, 68, 83.) 18 Similarly, during Prime’s 2014 labor negotiations with SEIU-UHW, Conway 19 Collis (DCHS’s senior advisor and primary lobbyist) and former Attorney General 20 William Lockyer (a mediator for Prime’s negotiations with SEIU-UHW) informed Prime 21 that Harris would deny Prime’s acquisition or require financially unviable conditions 22 unless Prime agreed to SEIU-UHW’s demands. (Id. ¶¶ 9, 12–13.) Collis and Lockyer 23 allegedly informed Prime that they had learned of this condition from Harris. (Id. ¶¶ 12– 24 13.) 25 26 F. The BlueMountain-DCHS Transaction After Prime withdrew its bid to acquire DCHS, DCHS opened a new round of 27 bidding for potential buyers. (Id. ¶ 103.) On or about July 17, 2015, DCHS entered into 28 a System Restructuring and Support Agreement with BlueMountain Capital 11 3:16-cv-00778-GPC-AGS 1 Management, LLC (“BlueMountain”) and Integrity Healthcare, LLC (“Integrity”), a 2 company owned by BlueMountain. (Id.) Unlike Prime, BlueMountain received political 3 support from SEIU-UHW. (Id. ¶ 102.) Pursuant to the restructuring agreement, Integrity 4 would manage DCHS in exchange for a management fee of 4% of DCHS’s annual 5 operating revenue, and BlueMountain would have the option to purchase the hospitals, 6 beginning three years from the closing date. (Id. ¶ 103.) The agreement required 7 BlueMountain to maintain the DCHS hospitals for five years. (Id.) 8 Prime distinguishes the BlueMountain-DCHS agreement from its proposed 9 acquisition of DCHS. (Id.) Prime avers that the agreement posed “little, if any, financial 10 risk” for BlueMountain, as BlueMountain did not agree to actually purchase the hospitals. 11 (Id.) If the hospitals closed within a year, BlueMountain would not be held responsible 12 for the closure and would have no legal responsibility to keep the facilities open. (Id.) 13 On information and belief, Prime alleges that BlueMountain and DCHS, pursuant 14 to a mitigation and performance improvement plan, collaboratively closed certain 15 services—including ones that Harris had required Prime to maintain for ten years—and 16 reduced labor and physician costs prior to submitting the DCHS-BlueMountain 17 transaction to Harris for review. (Id. ¶¶ 104–05, 107.) Prime surmises that Harris 18 informed DCHS and BlueMountain that she would approve the transaction before they 19 even submitted it for review. (Id. ¶ 106.) 20 In August 2015, DCHS submitted notice to the Attorney General of a proposed 21 transaction with BlueMountain. (Id. ¶ 109.) Harris conditionally approved the 22 transaction in December 2015. (Id.) As she did with the Prime-DCHS transaction, 23 Harris required that existing service lines be maintained for ten years. (Id. ¶ 109.) 24 Notwithstanding Harris’s imposition of ten-year conditions on the BlueMountain-DCHS 25 transaction, Prime alleges BlueMountain received “less onerous” conditions than the ones 26 Harris imposed on Prime, largely due to the fact that DCHS and BlueMountain closed 27 several service lines and programs before submitting the transaction to Harris for review. 28 12 3:16-cv-00778-GPC-AGS 1 (Id. ¶¶ 110–11.) Prime alleges on information and belief that Harris imposed the ten-year 2 conditions on account of Prime filing the instant lawsuit in September 2015. (Id. ¶ 109.) 3 4 IV. Procedural Background Prime filed a Complaint in the United States District Court for the Central District 5 of California on September 21, 2015, (Dkt. No. 1), and filed a FAC on November 12, 6 2015, (Dkt. No. 14). Prime asserted five claims for relief in the FAC: (1) a 42 U.S.C. § 7 1983 claim for violation of Prime’s rights under the Due Process Clause of the Fourteenth 8 Amendment; (2) a 42 U.S.C. § 1983 claim for violation of Prime’s rights under the Equal 9 Protection Clause of the Fourteenth Amendment; (3) a 42 U.S.C. § 1983 claim for 10 violation of Prime’s rights under the National Labor Relations Act, 29 U.S.C. §§ 151– 11 169; (4) a declaratory judgment that Cal. Corp. Code §§ 5914–5925 is unconstitutional 12 under the Fourteenth Amendment, both facially and as applied to Prime; and (5) a 13 permanent injunction enjoining Harris from enforcing Cal. Corp. Code §§ 5914–5925, 14 both generally and with respect to Prime. (Dkt. No. 14.) 15 Harris moved to transfer the case to the United States District Court for the 16 Southern District of California or, in the alternative, to dismiss Prime’s FAC on 17 November 30, 2015. (Dkt. Nos. 17, 18.) Harris’s motion to transfer was granted on 18 March 31, 2016 by Chief Judge George H. King of the United States District Court for 19 the Central District of California. (Dkt. No. 38.) Accordingly, Harris’s motion to 20 dismiss, (Dkt. No. 18), and Prime’s Ex Parte Application to Strike New Arguments and 21 Evidence in Defendant’s Reply Brief, (Dkt. No. 35), were denied without prejudice to 22 their reassertion in the transferee court, (Dkt. No. 38). On April 12, 2016, the parties 23 jointly moved the Court to accept as reasserted and filed Harris’s motion to dismiss 24 Prime’s FAC and Ex Parte Application, together with all related briefing. (Dkt. No. 42.) 25 Judge John A. Houston of the United States District Court for the Southern District of 26 California granted the parties’ joint motion on April 12, 2016. (Dkt. No. 43.) The case 27 was reassigned to the undersigned judge on July 11, 2016. (Dkt. No. 44.) 28 13 3:16-cv-00778-GPC-AGS 1 The Court held a hearing on Harris’s motion to dismiss Prime’s FAC on September 2 30, 2016. (Dkt. No. 51.) On October 31, 2016, the Court granted in part and denied in 3 part Harris’s motion to dismiss Prime’s FAC. (Dkt. No. 54.) The Court dismissed all 4 claims with prejudice except for Prime’s § 1983 claim for violation of Prime’s rights 5 under the Equal Protection Clause of the Fourteenth Amendment. (Dkt. No. 54 at 44– 6 45.) 7 Prime filed a SAC on November 30, 2016. (Dkt. No. 57.) In the SAC, Prime 8 asserts a 42 U.S.C. § 1983 claim against Harris in her personal capacity for violation of 9 its equal protection rights under the Fourteenth Amendment. (SAC ¶¶ 117–24.) Prime 10 also seeks injunctive relief under 42 U.S.C. § 1983, requesting a permanent injunction 11 preventing the Attorney General of California from enforcing Cal. Corp. Code §§ 5914– 12 5925 in a manner that violates its equal protection rights. (SAC ¶ 126.) 13 Harris and Becerra filed the instant motion to dismiss on January 27, 2017. (Dkt. 14 No. 62.) Prime responded on March 17, 2017, (Dkt. No. 69), and Defendants replied on 15 April 7, 2017, (Dkt. No. 74). The Court conducted a hearing on April 28, 2017 and took 16 the matter under submission. (Dkt. No. 76.) 17 18 19 LEGAL STANDARDS A. Rule 12(b)(6) A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the 20 sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). 21 Dismissal is warranted under Rule 12 (b)(6) where the complaint lacks a cognizable legal 22 theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984); see 23 also Neitzke v. Williams, 490 U.S. 319, 326 (1989) (“Rule 12(b)(6) authorizes a court to 24 dismiss a claim on the basis of a dispositive issue of law.”). Alternatively, a complaint 25 may be dismissed where it presents a cognizable legal theory yet fails to plead essential 26 facts under that theory. Robertson, 749 F.2d at 534. While a plaintiff need not give 27 “detailed factual allegations,” a plaintiff must plead sufficient facts that, if true, “raise a 28 right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 14 3:16-cv-00778-GPC-AGS 1 545 (2007). “To survive a motion to dismiss, a complaint must contain sufficient factual 2 matter, accepted as true, to ‘state a claim to relief that is plausible on its face.” Ashcroft 3 v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 547). A claim is 4 facially plausible when the factual allegations permit “the court to draw the reasonable 5 inference that the defendant is liable for the misconduct alleged.” Id. In other words, 6 “the non-conclusory ‘factual content,’ and reasonable inferences from that content, must 7 be plausibly suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret 8 Service, 572 F.3d 962, 969 (9th Cir. 2009). “Determining whether a complaint states a 9 plausible claim for relief will . . . be a context-specific task that requires the reviewing 10 11 court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679. In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the 12 truth of all factual allegations and must construe all inferences from them in the light 13 most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 14 2002); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 1996). Legal 15 conclusions, however, need not be taken as true merely because they are cast in the form 16 of factual allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003); W. 17 Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). When ruling on a motion to 18 dismiss, the court may consider the facts alleged in the complaint, documents attached to 19 the complaint, documents relied upon but not attached to the complaint when authenticity 20 is not contested, and matters of which the court takes judicial notice. Lee v. Los Angeles, 21 250 F.3d 668, 688–89 (9th Cir. 2001). 22 23 B. Rule 12(f) Under Federal Rule of Civil Procedure 12(f), the Court may, by motion or on its 24 own initiative, strike “an insufficient defense or any redundant, immaterial, impertinent 25 or scandalous” matter from the pleadings. Fed. R. Civ. P. 12(f). The purpose of Rule 26 12(f) is “to avoid the expenditure of time and money that must arise from litigating 27 spurious issues by disposing of those issues prior to trial.” Whittlestone, Inc. v. Handi- 28 Craft Co., 618 F.3d 970, 973 (9th Cir. 2010) (quoting Fantasy, Inc. v. Fogerty, 984 F.2d 15 3:16-cv-00778-GPC-AGS 1 1524, 1527 (9th Cir. 1993), rev’d on other grounds by Fogerty v. Fantasy, Inc., 510 U.S. 2 517 (1994)). 3 The Court must view the pleading in the light more favorable to the pleader when 4 ruling on a motion to strike. In re 2TheMart.com, Inc. Sec. Litig., 114 F. Supp. 2d 955, 5 965 (C.D. Cal. 2000) (citing California v. United States, 512 F. Supp. 36, 39 (N.D. Cal. 6 1981)). Motions to strike are regarded with disfavor because striking is such a drastic 7 remedy. Freeman v. ABC Legal Servs., Inc., 877 F. Supp. 2d 919, 923 (N.D. Cal. 2012). 8 If a claim is stricken, leave to amend should be freely given when doing so would not 9 cause prejudice to the opposing party. Vogel v. Huntington Oaks Delaware Partners, 10 LLC, 291 F.R.D. 438, 440 (C.D. Cal. 2013) (citing Wyshak v. City Nat’l Bank, 607 F.2d 11 824, 826 (9th Cir. 1979)). 12 C. Requests for Judicial Notice 13 Defendants filed a request for judicial notice in support of their motion, (Dkt. No. 14 64), to which Plaintiffs objected, (Dkt. No. 70), and Defendants replied, (Dkt. No. 74-1). 15 Plaintiffs separately filed a request for judicial notice in support of the opposition to 16 Defendants’ motion, (Dkt. No. 71), to which Defendants objected, (Dkt. No. 74-2). 17 Generally, a court may not consider materials outside of the pleadings in ruling on 18 a Rule 12(b)(6) motion without converting the motion into a Rule 56 motion for summary 19 judgment. See Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). Two 20 exceptions to this general rule exist—”documents incorporated into the complaint by 21 reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor 22 Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). 23 First, “a court may consider ‘material which is properly submitted as part of the 24 complaint’ on a motion to dismiss without converting the motion to dismiss into a motion 25 for summary judgment.” Id. (citation omitted). “Even if a document is not attached to a 26 complaint, it may be incorporated by reference into a complaint if the plaintiff refers 27 extensively to the document or the document forms the basis of the plaintiff’s claim.” 28 United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Put simply, “a court may 16 3:16-cv-00778-GPC-AGS 1 consider evidence on which the complaint necessarily relies if: (1) the complaint refers to 2 the document; (2) the document is central to the plaintiff’s claim; and (3) no party 3 questions the authenticity of the copy attached to the 12(b)(6) motion.” Daniels-Hall v. 4 Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010) (citation and internal quotation 5 marks omitted); see also Lee, 250 F.3d at 688. A “defendant may offer such a document, 6 and the district court may treat such a document as part of the complaint, and thus may 7 assume that its contents are true for purposes of a motion to dismiss under Rule 8 12(b)(6).” Ritchie, 342 F.3d at 908. To illustrate, “[t]he doctrine of incorporation by 9 reference may apply . . . when a plaintiff’s claim about insurance coverage is based on 10 the contents of a coverage plan, or when a plaintiff’s claim about stock fraud is based on 11 the contents of SEC filings.” Id. (citations omitted). Second, a “court may judicially notice a fact that is not subject to reasonable 12 13 dispute because it: (1) is generally known within the trial court’s territorial jurisdiction; 14 or (2) can be accurately and readily determined from sources whose accuracy cannot 15 reasonably be questioned.” Fed. R. Evid. 201(b). “[U]nder Fed. R. Evid. 201, a court 16 may take judicial notice of ‘matters of public record,’” Lee, 250 F.3d at 688–89 (citation 17 omitted)), such as “information . . . made publicly available by government entities,” 18 Daniels-Hall, 629 F.3d at 998–99 (citing cases), and “records and reports of 19 administrative bodies,” Ritchie, 342 F.3d at 909. It follows, accordingly, that “disputed 20 matters of fact”—or, phrased differently, facts “subject to reasonable dispute,” Fed. R. 21 Evid. 201(b)—are not properly subject to judicial notice, even if they are stated in public 22 records. Lee, 250 F.3d at 690. On the other hand, courts “are not . . . required to accept 23 as true allegations that contradict exhibits attached to the Complaint or matters properly 24 subject to judicial notice, or allegations that are merely conclusory, unwarranted 25 deductions of fact, or unreasonable inferences.” Daniels-Hall, 629 F.3d at 998. 26 //// 27 //// 28 //// 17 3:16-cv-00778-GPC-AGS 1 1. Defendants’ RJN (Dkt. No. 64) 2 a. Exhibits 1–6, 9–30 3 Exhibits 1–6 and 9–30 consist of Harris’s decisions regarding healthcare facility 4 transactions, healthcare impact reports prepared by her consultant, and a 2007 decision by 5 former Attorney General Edmund G. Brown, Jr. concerning Prime’s acquisition of 6 Anaheim Memorial Medical Center. (Dkt. No. 64 at 2.) The Court GRANTS 7 Defendants’ RJN with respect to these exhibits because Exhibits 1–30 consist of matters 8 of public record, and because Prime’s SAC refers to the transactions detailed in Exhibits 9 1–29. The Court SUSTAINS Plaintiffs’ objections insofar as Defendants seek judicial 10 11 notice of disputed matters of fact. b. Exhibits 7, 7.1, and 7.2 12 Exhibits 7, 7.1, and 7.2 consist of the agreement between DCHS and 13 BlueMountain. (Dkt. No. 64 at 2–3.) The Court GRANTS Defendants’ RJN with 14 respect to these exhibits because Exhibits 7, 7.1, and 7.2 consist of matters of public 15 record. The Court SUSTAINS Plaintiffs’ objections insofar as Defendants seek judicial 16 notice of disputed matters of fact. 17 c. Exhibit 8 18 Exhibit 8 is an email dated September 3, 2015 from the Office of the Attorney 19 General distributing the DCHS mitigation plan to interested parties, including Prime. 20 (Dkt. No. 64 at 3.) The Court DENIES Defendants’ RJN with respect to this exhibit. 21 Although Plaintiffs reference in their SAC the mitigation plan distributed by the email, 22 the email itself is not incorporated by reference, is not “generally known within the trial 23 court’s territorial jurisdiction,” and does not appear to “be accurately and readily 24 determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. 25 Evid. 201(b). 26 27 28 d. Exhibits 31, 32, 35 Exhibits 31, 32, and 35 consist of (1) Harris’s memorandum of points and authorities in opposition to a motion for peremptory writ of mandate filed in Victor 18 3:16-cv-00778-GPC-AGS 1 Valley Community Hospital v. Kamala D. Harris, et al. in the Superior Court of 2 California, County of San Bernardino County (case no. CIV VS 11055565); (2) the 3 petitioner Victor Valley Community Hospital’s request for dismissal of the petition filed 4 in the same action; and (3) the complaint in intervention filed June 2016 in United States 5 of America ex rel. Karin Berntsen v. Prime Healthcare Services Inc., et al. in the United 6 States District Court for the Central District of California (case no. CV-11-08214). (Dkt. 7 No. 64 at 3–4.) The Court GRANTS Defendants’ RJN with respect to these exhibits 8 because Exhibits 31, 32, and 35 are state and federal court documents not subject to 9 reasonable dispute. The Court SUSTAINS Plaintiffs’ objections insofar as Defendants 10 11 12 seek judicial notice of disputed matters of fact. e. Exhibits 33 and 34 Exhibits 33 and 34 are press articles reporting United States Senator Barbara 13 Boxer’s announcement that she would not seek reelection and Harris’s announcement 14 that she would run for election to Senator Boxer’s seat. (Dkt. No. 64 at 4.) The Court 15 GRANTS Defendants’ RJN with respect to the dates of the two announcements, as they 16 are facts not subject to reasonable dispute. The Court SUSTAINS Plaintiffs’ objections 17 insofar as Defendants seek judicial notice of disputed matters of fact. 18 19 20 2. Plaintiffs’ RJN (Dkt. No. 71) a. Exhibits A, C, D, and E Exhibit A is purportedly a copy of Centinela Hospital Medical Center’s website as 21 it appeared on February 6, 2015. (Dkt. No. 71 at 2.) Exhibit C is purportedly a copy of 22 PIH Health Hospital Downey’s website as it appeared on or about February 2015. (Id.) 23 Exhibit D is purportedly a copy of Whittier Hospital Medical Center’s website as it 24 appeared on or about March 2016. (Id.) Exhibit E is purportedly a copy of Kaiser 25 Permanente Downey Medical Center’s website as it appeared on March 13, 2017. (Id.) 26 Plaintiffs assert that each of the exhibits are copies of webpages taken from the 27 Internet Archive, and are thus not subject to reasonable dispute. See Erickson v. 28 Nebraska Mach. Co., No. 15-CV-01147-JD, 2015 WL 4089849, at *1 (N.D. Cal. July 6, 19 3:16-cv-00778-GPC-AGS 1 2015) (“Courts have taken judicial notice of the contents of web pages available through 2 the [Internet Archive’s] Wayback Machine as facts that can be accurately and readily 3 determined from sources whose accuracy cannot reasonably be questioned.” (citing Pond 4 Guy, Inc. v. Aquascape Designs, Inc., No. 13–13229, 2014 WL 2863871, at *4 (E.D. 5 Mich. Jun. 24, 2014); In re Methyl Tertiary Butyl Ether (MTBE) Products Liab. Litig., 6 2013 WL 6869410 (S.D.N.Y. Dec. 30, 2013)). 7 This assertion is not clear, however, with respect to Exhibit E, which does not bear 8 the Internet Archive Wayback Machine watermark on the top of the exhibit. (See Dkt. 9 No. 71-1 at 33–34.) With respect to Exhibit A, the date listed in the Internet Archive 10 Wayback Machine watermark, although unclear, appears to indicate February 12, 2015, 11 rather than February 6, 2015, as Plaintiffs suggest. (See Dkt. No. 71-1 at 2.) With 12 respect to Exhibit C, the first page reflects February 15, 2015, but the second through 13 fourth pages reflect dates in March 2015, contrary to Plaintiffs’ representation that the 14 exhibit reflects the website as it appeared on or about February 2015. (See Dkt. No. 71-1 15 at 19–22.) Finally, with respect to Exhibit D, the first page does not bear the Internet 16 Archive Wayback Machine watermark, and the year of the date is obscured for the 17 remaining pages. (See Dkt. No. 71-1 at 24–31.) These exhibits are in fact subject to 18 reasonable dispute. The Court DENIES Plaintiffs’ RJN with respect to Exhibits A, C, D, 19 and E. 20 b. Exhibit B 21 Exhibit B is a copy of the Office of Statewide Health Planning and Development 22 2015 Financial and Utilization Data Report. (Dkt. No. 71 at 2.) The Court GRANTS 23 Plaintiffs’ RJN with respect to Exhibit B because it is a public government report from a 24 governmental website. However, the Court observes that the Court’s ability to make use 25 of this document is limited. The excerpt Plaintiffs provide to the Court is incomplete and 26 largely consists of data and figures which are difficult to comprehend without 27 explanation. 28 //// 20 3:16-cv-00778-GPC-AGS 1 c. Exhibit F 2 Exhibit F consists of a copy of the docket in United States of America, ex rel. Marc 3 Osheroff v. Tenet HealthCare Corporation, et al. (case no. CV22253-PCH); the docket in 4 United States of America ex rel. Ralph Williams v. Health Management Associates, Inc., 5 et al. (case no. CV-00130-CDL); and the docket in United States of America ex rel. 6 Leatrice Ford v. Abbot Northwestern Hospital, et al. (case no. CV-20071-PCH). (Dkt. 7 No. 71 at 3.) The Court GRANTS Plaintiffs’ RJN with respect to Exhibit F, as the 8 dockets are judicial records not subject to reasonable dispute. 9 10 d. Exhibits G, H, and I Exhibit G is a copy of a letter dated January 2, 2015 from Robert Issai, former 11 CEO of DCHS, to Deputy Attorney General Wendi A. Horwitz. (Dkt. No. 71 at 3.) 12 Exhibit H is a copy of a letter dated February 9, 2015 from Troy Schell, Plaintiffs’ 13 General Counsel, to the Attorney General’s Chief of Staff, Nathan Barankin. (Id.) 14 Exhibit I is a copy of a letter dated February 27, 2015 from Troy Schell to Nathan 15 Barankin. (Id.) The Court GRANTS Plaintiffs’ RJN with respect to Exhibits G, H, and 16 I, as they are matters of public record not subject to reasonable dispute. 17 18 e. Exhibit J Exhibit J is a copy of a report prepared by Verite Healthcare Consulting, LLC for 19 the Office of the Attorney General regarding the University of Southern California’s 20 acquisition of Verdugo Hills Hospital. (Dkt. No. 71 at 3.) The Court GRANTS 21 Plaintiffs’ RJN with respect to Exhibit J, as it is a matter of public record not subject to 22 reasonable dispute. 23 24 DISCUSSION Defendants move to strike Prime’s quid pro quo allegations, arguing that the new 25 allegations violate the Court’s ruling on the prior motion to dismiss, and that the 26 allegations do not pass muster under Twombly and Iqbal. (Dkt. No. 62-1 at 25–26.) 27 Defendants move to dismiss Prime’s SAC on three grounds: (1) the SAC fails to state a 28 claim under the Equal Protection Clause; (2) Harris is entitled to qualified immunity on 21 3:16-cv-00778-GPC-AGS 1 the claim brought against her in her personal capacity; and (3) Prime’s claim for 2 injunctive relief is barred by the Eleventh Amendment, moot, non-justiciable, and 3 improperly seeks an advisory opinion. (Id. at 27–42.) In the alternative, Defendants 4 request that the Court abstain and dismiss this case under the Younger abstention 5 doctrine. (Id. at 42–44.) 6 I. 7 Motion to Strike Defendants move to strike Prime’s allegations of a quid pro quo conspiracy 8 between Harris and SEIU-UHW on two grounds. First, Defendants raise the Court’s 9 prior conclusion that the quid pro quo scheme was implausible. (Dkt. No. 62-1 at 25.) 10 Defendants argue that leave to amend the quid pro quo allegations was not granted, and 11 that Prime fails to justify its late disclosure of its new quid pro quo allegations.10 (Id. at 12 14, 25.) Prime responds that its equal protection claim does not depend on the existence 13 of a quid pro quo scheme.11 (Dkt. No. 69 at 21–22.) Rather, its core theory is that 14 “Harris imposed the onerous and unprecedented conditions” on Prime “because of her 15 political alignment (irrespective of any quid pro quo exchange) with SEIU-UHW.” (Dkt. 16 No. 69 at 21–22.) 17 Second, Defendants argue that Prime’s two nonconclusory allegations—that (1) 18 Collis and Lockyer informed Prime that it would not be able to obtain Harris’s consent to 19 the DCHS transaction unless Prime agreed to SEIU-UHW’s unionization demands, and 20 that (2) Collis and Lockyer learned of this condition directly from Harris—are 21 implausible.12 (Dkt. No. 62-1 at 25–26.) Specifically, Defendants contend that neither 22 23 10 24 25 26 27 28 Defendants’ citation to Federal Rule of Civil Procedure 60(b)(2) is misguided. (Dkt. No. 74 at 6.) Prime does not presently move for reconsideration of the Court’s prior ruling on the plausibility of the quid pro quo scheme, (Dkt. No. 69 at 21–22), and does not need to present “newly discovered evidence” to justify amendment of its FAC. 11 The Court reiterates its prior conclusion that its dismissal of Prime’s FAC did not depend on the plausibility of Prime’s quid pro quo allegations. (Dkt. No. 54 at 16 n.14.) 12 Defendants argue that “at least some of the statements” by Collis and Lockyer were made in the course of mediation negotiations, which are privileged and inadmissible under California law. (Dkt. No. 62-1 at 26 n.15.) However, federal common law generally governs claims of privilege. Fed. R. Evid. 22 3:16-cv-00778-GPC-AGS 1 Collis nor Lockyer are alleged to represent or speak for Harris. (Id.) Somewhat 2 unclearly, Defendants argue that “some events” detailed in Prime’s SAC “allegedly 3 occurred in November 2014 . . . two months before U.S. Senator Barbara Boxer 4 announced her retirement and Harris announced that she would run for her Senate seat.” 5 (Id.) Defendants have not shown how the quid pro quo allegations are “1) an 6 7 insufficient defense; (2) redundant; (3) immaterial; (4) impertinent; or (5) scandalous.” 8 Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 973–74 (9th Cir. 2010). It is true 9 that the Court did not expressly permit Prime to amend its quid pro quo allegations. 10 Nonetheless, such allegations are not necessarily immaterial—they may bear on the 11 rational basis inquiry for Prime’s equal protection claim, to the extent the allegations pass 12 muster under Iqbal and Twombly. 13 Moreover, Defendants’ arguments about the plausibility of Prime’s two 14 nonconclusory allegations are more properly brought under Rule 12(b)(6) than under 15 Rule 12(f). See Whittlestone, 618 F.3d at 974 (observing that “allow[ing] litigants to use 16 [Rule 12(f)] as a means to dismiss some or all of a pleading . . . would . . . creat[e] 17 redundancies within the Federal Rules of Civil Procedure, because a Rule 12(b)(6) 18 motion . . . already serves such a purpose”). In any event, Defendants do not cite 19 authority requiring Prime to allege that Collis and Lockyer represented or spoke for 20 Harris. Nor does the timing of Harris’s Senate campaign announcement dislodge Prime’s 21 allegations regarding Harris’s political alignment with SEIU-UHW. 22 Accordingly, the Court DENIES Defendants’ motion to strike Prime’s quid pro 23 quo allegations. 24 //// 25 26 27 28 501. The instant action solely involves federal claims; there is no claim or defense for which state law supplies the rule of decision. See id.; see also Agster v. Maricopa County, 422 F.3d 836, 839 (9th Cir. 2005) (“Where there are federal question claims and pendent state law claims present, the federal law of privilege applies.”). 23 3:16-cv-00778-GPC-AGS 1 2 3 II. Motion to Dismiss A. Class-of-One Equal Protection Claim Prime alleges a class-of-one equal protection claim against Harris in her personal 4 capacity. (SAC ¶ 118.) To state a valid “class-of-one” claim under the Equal Protection 5 Clause, Prime must allege that it has “been intentionally treated differently from others 6 similarly situated and that there is no rational basis for the difference in treatment.” 7 Engquist v. Oregon Dep’t of Agr., 553 U.S. 591, 601 (2008) (quoting Vill. of 8 Willowbrook v. Olech, 528 U.S. 562, 564 (2000)). Here, the elements at issue are (1) 9 whether purchasers of nonprofit hospitals were similarly situated to Prime, and (2) 10 11 12 whether there was a rational basis for the difference in treatment. 1. Similarly Situated The Equal Protection “does not forbid classifications. It simply keeps 13 governmental decisionmakers from treating differently persons who are in all relevant 14 respects alike.” Nordlinger v. Hahn, 505 U.S. 1, 10 (1992) (emphasis added). Parties are 15 similarly situated when their “situations are arguably indistinguishable.” Ross v. Moffitt, 16 417 U.S. 600, 609 (U.S. 1974); see also Erickson v. Cty. of Nevada ex rel. Bd. of 17 Supervisors, 607 F. App’x 711, 712 (9th Cir. 2015) (“Parties allegedly treated differently 18 in violation of the Equal Protection Clause are similarly situated only when they are 19 ‘arguably indistinguishable.’” (citation omitted)). 20 The Court makes a number of threshold observations. To start, Prime conflates its 21 “similarly situated” arguments with its allegations of disparate treatment and pretext. 22 (See Dkt. No. 69 at 24–37.) Prime argues that it was (1) treated disparately under (2) 23 pretextual justifications. Prime misses the initial step of showing that the entities treated 24 more favorably than Prime were similarly situated. (See, e.g., Dkt. No. 69 at 32 (“The 25 purported distinction is just another example of Defendants contriving an after-the-fact 26 basis to justify disparate treatment.”).) 27 Prime’s arguments stem from a fundamental misunderstanding. Pretext affects the 28 rational basis element of a class-of-one claim; it does not diminish a plaintiff’s obligation 24 3:16-cv-00778-GPC-AGS 1 to show similarly situated comparators. (Dkt. No. 62-1 at 33–34 (citing Dkt. No. 54 at 2 29–30).) Prime revives its argument, based on the Seventh Circuit’s decision in Swanson 3 v. City of Chetek, 719 F.3d 780 (7th Cir. 2013), that where there is “readily obvious 4 animus” on a defendant’s part, a plaintiff need not show an exact, one-to-one comparison 5 with similarly situated comparators. (Dkt. No. 69 at 25.) In so arguing, Prime misstates 6 the Court’s prior Order. (See id.) Rather than adopting the Seventh Circuit’s reasoning, 7 the Court expressly indicated otherwise: “Contrary to Prime’s contention, a finding of 8 pretext on Defendants’ part affects the ‘rational basis’ element of a class-of-one claim, 9 not the ‘similarly situated’ element.”13 (Dkt. No. 54 at 29–30.) 10 The similarly situated inquiry’s focus on comparing individuals does not square 11 easily with this case. It is difficult, if not unrealistic, to effectively disentangle the 12 individuals—the nonprofit hospital purchasers—from the transactions. A comparison of 13 purchasers cannot be done without reference to the entities being purchased and the 14 communities being affected. The statutory and regulatory framework governing the 15 Attorney General’s review process underscores the same—the terms of the transaction 16 factor into the picture, as do broader considerations implicating the public interest. Even 17 a cursory review of the information that must be submitted for each nonprofit hospital 18 19 20 21 22 23 24 25 26 27 28 13 In reaching this conclusion, the Court examined the Ninth Circuit’s decision in Squaw Valley Dev. Co. v. Goldberg, 375 F.3d 936 (9th Cir. 2004). (See No. 54 at 29–30.) Although the plaintiff in Squaw Valley asserted a class-of-one claim without presenting evidence of other similarly situated entities, see 375 F.3d at 945, the Ninth Circuit, in declining to rehear the case, subsequently clarified that the similarly situated prong was not raised or contested on summary judgment, see Squaw Valley Dev. Co. v. Goldberg, 395 F.3d 1062, 1063–64 (9th Cir. 2005) (denying petition for rehearing or rehearing en banc). In fact, the defendant had conceded on appeal that the plaintiff had been subjected to more oversight and regulatory and enforcement action than other similarly situated parties. See id. The Ninth Circuit emphasized that its statement about the lack of similarly situated comparators “was made in the context of demonstrating that the record supports that [the defendant] had a rational basis for his exceptionally close scrutiny and oversight of [the plaintiff].” Id. at 1063 (emphasis added). Accordingly, the Court declines to adopt the principle that a defendant’s animus may diminish a plaintiff’s obligation to show similarly situated comparators. If anything, the parties’ continuing debate over the relationship between animus, the similarly situated element, and the rational basis element underscores the lack of clearly established law in this matter. See infra Part II.B. 25 3:16-cv-00778-GPC-AGS 1 transfer illustrates the complex web of community-specific variables implicated by each 2 transaction. See, e.g., Cal. Code Regs. tit. 11, § 999.5(d)(5). As is evident from their 3 arguments, both parties appear to tacitly recognize that the similarly situated inquiry 4 requires a holistic evaluation of entire transactions. The Court faces a dilemma in 5 attempting to apply equal protection law to this case—there may simply be no similarly 6 situated comparators to the Prime-DCHS transaction. 7 8 Having observed the above, the Court concludes that Prime has failed to plead facts plausibly showing that similarly situated comparators exist. 9 a. Transactions Before the Prime-DCHS Agreement 10 SAC ¶ 95 provides a summary of nonprofit hospital transfers Harris approved 11 between denying the Prime-VVCH transaction and de facto denying the Prime-DCHS 12 deal. Four of the seven transactions Prime raises were transfers to nonprofit entities, not 13 to for-profit entities. (See SAC ¶ 95.) The three remaining transactions are also 14 dissimilar. The St. Rose Hospital transaction was a single-hospital transaction. (See id.) 15 Moreover, the transaction was not an outright purchase and sale agreement—it was a 16 management agreement with an option to purchase. (See id.) Both the Emanuel Medical 17 Center and VVCH transactions were single-hospital transfers. (See id.) 18 19 b. Transactions After the Prime-DCHS Agreement SAC ¶¶ 96–97 provides a summary of nonprofit hospital transfers after Harris’s de 20 facto denial of the Prime-DCHS deal. Three of the five transactions were transfers to 21 nonprofit entities. (See id. ¶¶ 96–97.) The remaining two transactions are also 22 dissimilar. The Keiro transaction involved no hospitals—it entailed a transfer of a 23 retirement home, an intermediate care facility, and two skilled nursing facilities. (See id.) 24 The Gardens Regional transaction was a single-hospital transaction. (See id.) 25 c. The BlueMountain-DCHS Agreement 26 Perhaps most tellingly, Prime distinguishes itself from BlueMountain in both its 27 SAC and in its opposition brief. (See id. ¶ 103; Dkt. No. 69 at 34.) Prime alleges that 28 BlueMountain is “a New York hedge fund with no healthcare experience and known as a 26 3:16-cv-00778-GPC-AGS 1 company that profited on the poor and was instrumental in the credit swap debacle that 2 contributed to the 2008 Great Recession.” (SAC ¶ 102.) Prime alleges that the 3 BlueMountain-DCHS agreement posed “little, if any, financial risk” for BlueMountain, 4 because BlueMountain did not agree to purchase the hospitals—it had an option to 5 purchase the hospitals after a term of years.14 (Id. ¶ 103.) Prime alleges that as a result, 6 BlueMountain would not be held responsible for the closure and would have no legal 7 responsibility to keep the facilities open. (Id.) Prime’s takeaway is that “the 8 BlueMountain transaction was quite different from the Prime-DCHS transaction.” (Dkt. 9 No. 69 at 34.) 10 Prime cannot have it both ways. Prime avers generally that other transactions were 11 similar to the Prime-DCHS transaction on a macroscopic level, yet carefully distinguishes 12 the BlueMountain-DCHS transaction based upon the particular terms of the agreement. 13 Prime asserts that the unique circumstances of each transaction, such as the location of 14 the subject nonprofit hospital, do not render transactions dissimilar, yet argues that 15 “[e]ach of the DCHS hospitals was a separate facility serving a distinct community” and 16 should be evaluated independently. (Dkt. No. 69 at 33.) Indeed, each of the DCHS 17 hospitals—some large, some small—served entirely different geographic locations across 18 California, (SAC ¶ 3), yet Prime omits any mention of the locations of the majority of the 19 transactions it alleges are similarly situated comparators, (see id. ¶¶ 95–97). Prime 20 asserts that the size of a transaction does not matter to the similarly situated inquiry, yet 21 emphasizes in its SAC that the Prime-DCHS transaction was the single largest bailout of 22 nonprofit hospitals reviewed by the Attorney General’s Office. (Id. ¶¶ 8–9.) And while 23 Prime alleges that Harris treated BlueMountain more leniently, Prime’s allegations speak 24 to disparate treatment, not whether BlueMountain was similarly situated. 25 26 27 14 28 This distinction further belies how transactions such as the St. Rose Hospital transaction were not similar to the Prime-DCHS transaction. 27 3:16-cv-00778-GPC-AGS 1 Prime cannot allege that each transfer involved a transfer to a for-profit entity, or 2 that the terms of each transaction were arguably indistinguishable. Prime ignores the 3 circumstances of each transaction, such as the existing level of medical services 4 maintained by the hospitals, the geographic location of the hospitals, the size of the 5 facilities, the medical needs and demographics of the surrounding communities, and the 6 availability of alternative medical services, among others. As Prime admits, each 7 nonprofit hospital serves a “distinct community,” and even slight differences in 8 transaction terms can render transactions dissimilar at their core. 9 10 11 12 In light of the above, the Court concludes that Prime has not alleged facts plausibly showing the existence of similarly situated comparators. 2. Rational Basis “[T]he rational basis prong of a ‘class of one’ claim turns on whether there is a 13 rational basis for the distinction, rather than the underlying government action.” Gerhart, 14 637 F.3d at 1023 (emphasis in original). “Unless a classification trammels fundamental 15 personal rights or implicates a suspect classification, to meet constitutional challenge the 16 law in question needs only some rational relation to a legitimate state interest.” Lockary 17 v. Kayfetz, 917 F.2d 1150, 1155 (9th Cir. 1990). Where there is “any reasonably 18 conceivable state of facts that could provide a rational basis for the classification,” the 19 inquiry ends. FCC v. Beach Commc’ns, Inc., 508 U.S. 307, 313–14 (1993). 20 “This deferential standard of review is a paradigm of judicial restraint.” Id. at 314. 21 “‘The Constitution presumes that, absent some reason to infer antipathy, even 22 improvident decisions will eventually be rectified by the democratic process and that 23 judicial intervention is generally unwarranted no matter how unwisely we may think a 24 political branch has acted.’” Id. (quoting Vance v. Bradley, 440 U.S. 93, 97 (1979)). The 25 Equal Protection Clause “applies equally to executive and legislative action.” See Lazy Y 26 Ranch Ltd. v. Behrens, 546 F.3d 580, 590 n.4 (9th Cir. 2008) (citing Nordlinger, 505 U.S. 27 at 16 n.8); Immigrant Assistance Project of Los Angeles Cty. Fed’n of Labor (AFL-CIO) 28 v. I.N.S., 306 F.3d 842, 872 (9th Cir. 2002)). 28 3:16-cv-00778-GPC-AGS “Plausible reasons” support Harris’s imposition of ten-year conditions on Prime. 1 2 The Attorney General has discretion to consider whether each individual transaction 3 “may create a significant effect on the availability or accessibility of health care services 4 to the affected community” and whether the transaction is “in the public interest.” Cal. 5 Corp. Code § 5917. Further, “[p]otential adverse effects on availability or accessibility of 6 health care may be mitigated through provisions negotiated between the parties to the 7 transaction, through conditions adopted by the Attorney General in consenting to the 8 proposed transaction, or through any other appropriate means.” Cal. Code Regs. tit. 11, § 9 999.5(f)(8)(A). Requiring Prime to continue services for ten years, instead of merely five 10 years, plausibly appears to support the purposes enumerated in the Nonprofit Hospital 11 Transfer Statute and its implementing regulations. (See Dkt. No. 62-1 at 35–36; Dkt. No. 12 74 at 21.) Moreover, Harris had “complete discretion” to determine whether her policy 13 of requiring existing levels of essential healthcare services to be continued for at least 14 five years would “be applied in any specific transaction under review.” Cal. Code Regs. 15 tit. 11, § 999.5(f)(8)(B)–(C). Harris had the authority to vary upward from a minimum 16 floor of five years. 17 Prime complains that Defendants’ proffered reasons are merely a post hoc 18 justification. (Dkt. No. 69 at 38.) However, the Nonprofit Hospital Transfer Statute does 19 not require the Attorney General to provide reasons for the decision. Nor does the Equal 20 Protection Clause so require. See Beach Commc’ns, 508 U.S. at 315 (“[T]he absence of 21 legislative facts explaining the distinction on the record has no significance in rational- 22 basis analysis.” (citation, internal quotation marks, alteration omitted) (citing Nordlinger, 23 505 U.S. at 15 (equal protection “does not demand for purposes of rational-basis review 24 that a legislature or governing decisionmaker actually articulate at any time the purpose 25 or rationale supporting its classification”))). 26 //// 27 //// 28 //// 29 3:16-cv-00778-GPC-AGS 1 3. Pretext 2 “[A]cts that are malicious, irrational, or plainly arbitrary do not have a rational 3 basis.”15 Engquist v. Oregon Dep’t of Agric., 478 F.3d 985, 993 (9th Cir. 2007), aff’d sub 4 nom. Engquist v. Oregon Dep’t of Agr., 553 U.S. 591 (2008). “[I]n an equal protection 5 claim based on selective enforcement of the law, a plaintiff can show that a defendant’s 6 alleged rational basis for his acts is a pretext for an impermissible motive.” Id. 7 Prime argues that it has provided sufficient allegations of an impermissible motive 8 on Harris’s part, regardless of the plausibility of the alleged quid pro quo scheme. (Dkt. 9 No. 69 at 39–40.) Specifically, Prime contends that “a plausible inference can certainly 10 be raised . . . that Harris’ motivation to impose the disputed conditions was because the 11 SEIU-UHW opposed the Prime-DCHS transaction when Prime refused to unionize 12 unrelated hospitals.” (Id. at 39.) 13 At bottom, Prime alleges that Harris was motivated by politics: 14 Prime is informed and believes that Defendant Harris selectively enforced the NonProfit Hospital Transfer Statute against Plaintiffs using arbitrary, capricious, onerous and unprecedented approval conditions because she is politically aligned 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 As Prime points out, (Dkt. No. 69 at 25 n.6), Defendants overstate the Seventh Circuit’s holding in Brunson v. Murray, 843 F.3d 698 (7th Cir. 2016). Brunson does not hold that both animus and the lack of any conceivable legitimate purpose must be demonstrated by a class-of-one plaintiff. See 843 F.3d at 705–08. Rather, the Seventh Circuit observed that “[t]he elements of class-of-one claims have remained unsettled” since a 2012 en banc decision, in which three opinions articulated three different standards for class-of-one claims. Id. at 706. One standard considers whether a rational basis can be conceived, regardless of whether it is established in the record or whether the basis occurred to the defendant, and gives intent no role in class-of-one suits outside of showing that discrimination exists. Id. A second standard requires the plaintiff to show that he or she was singled out for intentional discrimination by state actors who knew or should have known that they had no justification for singling the plaintiff out for unfavorable treatment. Id. A third standard articulates a multi-part test: a plaintiff must show that he or she was the victim of intentional discrimination at the hands of a state actor, that the state actor lacked a rational basis for so doing, and that the plaintiff had been injured by the intentional discrimination. Id. Instead of deciding which class-of-one standard to adopt, the Seventh Circuit expressly stated that the claim in Brunson survived summary judgment under all three standards raised in the intra-circuit doctrinal debate. See id. (“While we await a final resolution of the doctrinal debate, Brunson’s claim survives summary judgment under all three standards.”). While Brunson does not bind this Court or provide doctrinal clarity, Brunson underscores the unsettled nature of class-of-one law and the live questions with which courts continue to wrestle in this area of law. 30 3:16-cv-00778-GPC-AGS 1 against Plaintiffs as the result of her relationship with SEIU-UHW and Regan, and because Plaintiffs rejected SEIU-UHW’s demands to unionize other Prime hospitals unrelated to the Prime-DCHS transaction. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 (SAC ¶ 120; see also ¶ 6 (alleging that DCHS’s list of weaknesses for Prime’s bid “was short and primarily based on political opposition to the Prime proposal,” and that Harris’s review of Prime’s bid “would likely be biased by her political relationship with unions”); ¶¶ 17, 19 (noting that SEIU-UHW is Harris’s “political ally”); ¶¶ 18, 76 (alleging that Harris’s conditional approval of the Prime-DCHS transaction was “political theater designed to protect her from political fallout”); ¶ 35 (alleging that Harris “curr[ied] favor with political campaign contributors”); ¶ 40 (detailing meetings with several of Harris’s unnamed “political advisors”); ¶ 53 (positing that Harris “act[ed] as SEIU-UHW’s political agent”); ¶ 83 (noting that it would be “politically impossible” for Harris to outright deny consent to the Prime-DCHS transaction); ¶ 83 (alleging that Harris and Regan aimed “to further their own political agenda” and recounting Regan’s “boast[s] about his ability to control Harris and the political process in California”); ¶ 85 (noting “the transparently political nature of the Attorney General’s approval process”); ¶ 102 (noting that “BlueMountain received praise and political support from SEIU-UHW”); ¶¶ 109, 111 (alleging that it was not “politically feasible” for Harris to impose five-year conditions on the BlueMountain-DCHS deal, and that unlike Prime, BlueMountain had the support of SEIU-UHW); ¶ 112 (alleging that SEIU-UHW agreed to provide political and financial support of Harris’s Senate campaign).) Do political motivations or considerations constitute a legally impermissible 22 23 24 25 motive? Does acceding to union political pressure dislodge all of the rational reasons underlying Harris’s disparate treatment of Prime, rendering her acts malicious, irrational, or plainly arbitrary? The answer remains unclear.16 26 27 28 16 The lack of clarity further amplifies the Court’s qualified immunity analysis. See infra Part II.B. 31 3:16-cv-00778-GPC-AGS 1 In RUI One Corp. v. City of Berkeley, 371 F.3d 1137 (9th Cir. 2004), an employer 2 challenged on equal protection grounds the “Living Wage Ordinance” imposed by the 3 City of Berkeley, “claim[ing] it was unfairly targeted when the City expanded coverage 4 of the Living Wage Ordinance to only a handful of employers—between one and five— 5 due to the geographical restrictions, as well as the limitations on the number of 6 employees . . . and annual revenue.” 371 F.3d at 1154–55. Like Prime, the employer 7 contended that the City’s true motive was to aid a unionization campaign directed at one 8 of the employers which would be negatively impacted by the ordinance. See id. The 9 Ninth Circuit deemed this argument “unpersuasive,” as “it is entirely irrelevant for 10 constitutional purposes whether the conceived reason for the challenged distinction 11 actually motivated the legislature.” Id. (quoting Beach Commc’ns, 508 U.S. at 315).17 12 The Ninth Circuit concluded that the plaintiff’s equal protection claim failed. See id. at 13 1155–56. To the extent the plaintiff raised a class-of-one claim, it, too, failed, because 14 there was a rational basis for the City to treat the allegedly “targeted” businesses 15 differently from their competitors. See id. at 1155–56. 16 While the Ninth Circuit wrote off as irrelevant the City’s alleged motive to aid a 17 unionization campaign in RUI One, see id., the Ninth Circuit recently issued a decision 18 suggesting a different course, see Fowler Packing Co., Inc. v. Lanier, 844 F.3d 809 (9th 19 Cir. 2016). In Fowler, two employers challenged on equal protection grounds the 20 California legislature’s addition of carve-outs to safe harbor legislation that would 21 otherwise protect employers from minimum wage liability. See 844 F.3d at 811–16. The 22 plaintiffs—two of the only three corporate employers affected by the carve-outs—alleged 23 that state legislators added the carve-outs to obtain the support of a labor union. See id. 24 Tellingly, the three affected corporate employers were the defendants in the only three 25 26 17 27 28 The Ninth Circuit also cited Int’l Paper Co. v. Town of Jay, 928 F.2d 480 (1st Cir. 1991), wherein the First Circuit “specifically rejected a claim that an environmental ordinance violated the Equal Protection Clause because its challengers alleged that its passage was motivated by a desire to restrict a business’s power in dealing with unions.” 371 F.3d at 1154–55 (citing Int’l Paper, 928 F.2d at 485). 32 3:16-cv-00778-GPC-AGS 1 pending wage-and-hour class actions filed by the labor union in the seven preceding 2 years. See id. As a result of the carve-outs, the three employers would be precluded from 3 using the safe harbor in the pending litigation. See id. Plaintiffs argued that the 4 legislation failed to satisfy even rational basis review, because the only reason the carve- 5 outs were included in the legislation was to procure the support of the union. See id. The 6 Ninth Circuit agreed. Id. The Ninth Circuit observed, “[W]e can conceive of no other 7 reason why the California legislature would choose to carve out these three employers 8 other than to respond to the demands of a political constituent.” Id. “Because that 9 justification would not survive even rational basis scrutiny,” the Ninth Circuit held that 10 plaintiffs plausibly stated a claim that the carve-out provisions violated the Equal 11 Protection Clause. Id. 12 The instant case bears more resemblance to the facts of RUI One than Fowler. In 13 Fowler, the California legislature evinced an utter lack of any rational basis for adding 14 the carve-outs, beyond currying political favor. That is not the present case. Here, there 15 is a “reasonably conceivable state of facts that could provide a rational basis” for Harris’s 16 imposition of ten-year conditions on Prime. Beach Commc’ns, 508 U.S. at 313. 17 Notwithstanding the above, the Court need not resolve any apparent tension between RUI 18 One, Fowler, and the instant case today. If anything, the Ninth Circuit’s recent holding 19 in Fowler further militates in favor of concluding that the contours of class-of-one law 20 were not clearly established at the time of Harris’s conditional approval of the Prime- 21 DCHS deal. 22 The Court’s conclusion that Prime has insufficiently alleged the existence of 23 similarly situated individuals, see supra Part II.A.1, and the Court’s conclusion that 24 Prime lacked a clearly established right at the time Harris conditionally consented to the 25 Prime-DCHS deal, see infra Part II.B, supply independent grounds to dismiss Prime’s 26 SAC. 27 //// 28 //// 33 3:16-cv-00778-GPC-AGS 1 2 B. Qualified Immunity “Qualified immunity balances two important interests—the need to hold public 3 officials accountable when they exercise power irresponsibly and the need to shield 4 officials from harassment, distraction, and liability when they perform their duties 5 reasonably.” Pearson v. Callahan, 555 U.S. 223, 231 (2009). “Qualified immunity 6 shields federal and state officials from money damages unless a plaintiff pleads facts 7 showing (1) that the official violated a statutory or constitutional right, and (2) that the 8 right was ‘clearly established’ at the time of the challenged conduct.” Ashcroft v. al- 9 Kidd, 563 U.S. 731, 735 (2011). Lower courts have discretion to decide which prong to 10 11 address first. Id. “A clearly established right is one that is ‘sufficiently clear that every reasonable 12 official would have understood that what he is doing violates that right.’” Mullenix v. 13 Luna, 136 S. Ct. 305, 308 (2015) (per curiam) (quoting Reichle v. Howards, 566 U.S. 658 14 (2012)). While there need not be “a case directly on point, . . . existing precedent must 15 have placed the statutory or constitutional question beyond debate.” Id. (quoting al-Kidd, 16 563 U.S. at 741)). “Put simply, qualified immunity protects ‘all but the plainly 17 incompetent or those who knowingly violate the law.’” Id. (quoting Malley v. Briggs, 18 475 U.S. 335, 341 (1986)). 19 The Supreme Court has “repeatedly told courts—and the Ninth Circuit in 20 particular—not to define clearly established law at a high level of generality.” al-Kidd, 21 563 U.S. at 742; see also City & Cty. of San Francisco v. Sheehan, 135 S. Ct. 1765, 1776 22 (2015) (stating the same). “The dispositive question is ‘whether the violative nature of 23 particular conduct is clearly established.’” Mullenix, 136 S. Ct. at 308 (quoting al-Kidd, 24 563 U.S. at 742). The clearly established inquiry “‘must be undertaken in light of the 25 specific context of the case, not as a broad general proposition.’” Id. (quoting Brosseau 26 v. Haugen, 543 U.S. 194, 198 (2004) (per curiam)). “[T]he clearly established law must 27 be ‘particularized’ to the facts of the case.” White v. Pauly, 137 S. Ct. 548, 552 (2017) 28 (per curiam) (quoting Anderson v. Creighton, 483 U.S. 635, 640 (1987)). “Otherwise, 34 3:16-cv-00778-GPC-AGS 1 ‘[p]laintiffs would be able to convert the rule of qualified immunity . . . into a rule of 2 virtually unqualified liability simply by alleging violation of extremely abstract rights.’” 3 Id. (quoting Anderson, 483 U.S. at 639). 4 “[I]n the last five years” the Supreme Court “has issued a number of opinions 5 reversing federal courts in qualified immunity cases.” White, 137 S. Ct. at 551 (citing 6 Sheehan, 135 S. Ct. at 1774 n.3 (collecting cases)). The Supreme Court has found it 7 necessary to do so “both because qualified immunity is important to ‘society as a whole,’ 8 and because as ‘an immunity from suit,’ qualified immunity ‘is effectively lost if a case is 9 erroneously permitted to go to trial.’” Id. (citations omitted). 10 Here, Harris asserts the qualified immunity defense in response to Prime’s equal 11 protection claim against her in her personal capacity. (Dkt. No. 62-1 at 37–39.) For the 12 reasons set forth in prior sections of this Order, supra Part II.A, Harris is entitled to 13 qualified immunity on the first prong alone. While the qualified immunity Court need 14 not continue on to discuss the second prong, the clearly established inquiry offers an 15 additional, independent ground entitling Harris to qualified immunity. 16 Harris asserts that “the contours of the law existing at the time of Harris’s decision 17 would not have alerted her that imposing a mix of five and 10-year requirements on the 18 maintenance of medical services was unconstitutional.” (Id. at 38–39.) Harris states that 19 she “know[s] of no case law imposing civil rights damage liability against a state 20 Attorney General for discretionary conduct overseeing and protecting a state’s charitable 21 trusts for the public in a manner within her statutory authority.” (Id. at 39.) 22 Prime cites the Ninth Circuit’s qualified immunity analysis in Gerhart v. Lake Cty., 23 Mont., 637 F.3d 1013 (9th Cir. 2011) to argue that it had a clearly established right. (Dkt. 24 No. 69 at 40–42.) In Gerhart, the plaintiff challenged the county commissioners’ denial 25 of his permit application for a lane approach on equal protection grounds. See 637 F.3d 26 at 1014–15. Evidence showed that the “outright denial of an approach permit application 27 [was] incredibly uncommon” in the county. See id. at 1018. The Ninth Circuit denied 28 the defendant commissioners’ qualified immunity defense, concluding that plaintiff’s 35 3:16-cv-00778-GPC-AGS 1 “constitutional right not to be intentionally treated differently than other similarly situated 2 property owners without a rational basis was clearly established at the time his permit 3 application was denied” in 2008, eight years after the Supreme Court decided Vill. of 4 Willowbrook v. Olech, 528 U.S. 562 (2000). Id. at 1025. 5 Gerhart is distinguishable. As the Ninth Circuit observed, Olech and Gerhart 6 presented “exceptionally similar” facts. Gerhart, 637 F.3d at 1025. The facts of Olech 7 are simple. 8 9 10 11 [A] property owner had asked the village of Willowbrook to connect her property to the municipal water supply. Although the village had required only a 15–foot easement from other property owners seeking access to the water supply, the village conditioned Olech’s connection on a grant of a 33–foot easement. Olech sued the village, claiming that the village’s requirement of an easement 18 feet longer than the norm violated the Equal Protection Clause. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Engquist, 553 U.S. at 601. Like Olech, Gerhart involved state action which was not “based on a vast array of subjective, individualized assessments.” Id. at 603. Rather, Gerhart’s limited universe of facts involved a lane approach permit denial. This case involves broad amounts of discretion and complex facts, and the specific context of the case does not square easily with a class-of-one challenge. Did former Attorney General Harris violate clearly established law by imposing more stringent conditions on a nonprofit hospital transaction in response to political pressure from a labor union, where the law expressly conferred upon her broad discretion to impose such conditions, where the transaction—the largest of its kind—affected multiple communities, and where the conditions were otherwise supported by plausible reasons? Neither Olech nor Gerhart “placed the statutory or constitutional question beyond debate,” such that it was “sufficiently clear that every reasonable official would have understood that what [Harris was] doing violates that right.” Mullenix, 136 S. Ct. at 308 (citation and quotation marks omitted). Allowing Plaintiffs to constitutionalize their disagreement with what is, at bottom, discretionary state decisionmaking by alleging a 28 36 3:16-cv-00778-GPC-AGS 1 violation of an abstract right would disregard qualified immunity’s “importan[ce] to 2 society as a whole.” White, 137 S. Ct. at 551 (citation and quotation marks omitted). 3 The Court is tasked with applying a legal test derived from the straightforward, 4 confined facts of Olech to the sprawling facts of this case—facts which implicate, inter 5 alia, former Attorney General Harris’s broad statutory and regulatory discretion to 6 impose conditions on nonprofit hospital transfers, her oversight over charitable 7 organizations, complex business transactions between sophisticated parties, public 8 comment and input from various groups, distinct communities’ access to continuing 9 health services, and the political process. It is unclear whether the similarly situated 10 inquiry should—or can—be conducted without reference to the totality of the 11 transactions; whether any two nonprofit hospital transfers can in fact be arguably 12 indistinguishable; whether pretext reduces a plaintiff’s obligation to show similarly 13 situated comparators; whether responding to political pressure from a labor union can 14 entirely dislodge the rational basis underlying the Attorney General’s conditional consent 15 to a nonprofit hospital transfer; and whether the Attorney General’s discretionary 16 decisionmaking is properly subject to a class-of-one claim. 17 “‘It seems unlikely that the Supreme Court intended such a dramatic result in its 18 per curiam opinion in Olech.’” Engquist, 478 F.3d at 996 (quoting Campagna v. Mass. 19 Dep’t of Envtl. Prot., 206 F. Supp. 2d 120, 127 (D. Mass. 2002), aff’d, 334 F.3d 150 (1st 20 Cir. 2003)). In holding that class-of-one claims have no application in the public 21 employment context, the Supreme Court observed in Engquist, 22 23 24 25 What seems to have been significant in Olech and the cases on which it relied was the existence of a clear standard against which departures, even for a single plaintiff, could be readily assessed. There was no indication in Olech that the zoning board was exercising discretionary authority based on subjective, individualized determinations—at least not with regard to easement length, however typical such determinations may be as a general zoning matter. 26 27 Engquist, 553 U.S. at 602–03. 28 37 3:16-cv-00778-GPC-AGS 1 The instant factual scenario is far less clear-cut than a straightforward zoning or 2 “arm’s-length regulation” matter. Id. at 602–04. This case foregrounds a “form[] of state 3 action . . . which by [its] nature involve[s] discretionary decisionmaking based on a vast 4 array of subjective, individualized assessments.” Id. at 603; see also Towery v. Brewer, 5 672 F.3d 650, 660 (9th Cir. 2012) (quoting the same). Here, “allowing a challenge based 6 on the arbitrary singling out of a particular person would undermine the very discretion 7 that such state officials are entrusted to exercise.” Engquist, 553 U.S. at 603. Not only 8 would the Attorney General’s statutory discretion be undermined—federal courts would 9 be assigned the daunting task of reviewing complex business transactions and state 10 officials’ decisions spanning broad domains, from public health to antitrust regulation. 11 In light of the above, the Court concludes that Harris is entitled to qualified 12 immunity. Prime has not stated that Harris violated a constitutional right, and the right 13 was not clearly established at the time of the challenged conduct. 14 15 C. Injunctive Relief “The Eleventh Amendment bars a suit against state officials when ‘the state is the 16 real, substantial party in interest.’” Pennhurst State Sch. & Hosp. v. Halderman, 465 17 U.S. 89, 101 (1984) (citation omitted). As a suit against a state official in his or her 18 official capacity is effectively a suit against the state itself, “state officials sued in their 19 official capacities are not ‘persons’ within the meaning of § 1983.” Doe v. Lawrence 20 Livermore Nat. Lab., 131 F.3d 836, 839 (9th Cir. 1997) (citing Will v. Michigan Dep’t of 21 State Police, 491 U.S. 58, 70 (1989)). There is, however, one exception to this rule under 22 the Ex parte Young doctrine: “When sued for prospective injunctive relief, a state official 23 in his official capacity is considered a ‘person’ for § 1983 purposes.” Id. (citing Ex parte 24 Young, 209 U.S. 123, 159–160 (1908)). Put simply, the Ex parte Young exception “is 25 available where ‘a plaintiff alleges an ongoing violation of federal law, and where the 26 relief sought is prospective rather than retrospective.’” Id. (quoting Idaho v. Coeur 27 d’Alene Tribe of Idaho, 521 U.S. 261, 294 (1997) (O’Connor, J., concurring)). 28 38 3:16-cv-00778-GPC-AGS 1 2 3 4 5 6 Prime seeks the following injunctive relief against the Attorney General in his official capacity: Entry of a permanent injunction . . . that enjoins the Attorney General of California from enforcing, directly or indirectly through third parties, the Non-Profit Hospital Transfer Statute, Corporations Code §§ 5914–5925, against Plaintiffs, including with respect to the DCHS Sale Agreement, in a manner that violates their right to equal protection of laws under the Fourteenth Amendment to the U.S. Constitution[.] 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (SAC at 79.) Prime asserts that it will suffer irreparable injury because the Attorney General will prevent it from acquiring other nonprofit hospitals in California due to its continued rejection of SEIU-UHW’s unionization demands. (SAC ¶ 126.) Although unclear, Prime asserts that absent injunctive relief, it will “potentially” be liable to DCHS for breach of the DCHS Sale Agreement, and will “be prevented from lawfully acquiring and operating the DCHS hospitals pursuant to the terms of the DCHS Sale Agreement should Prime and DCHS attempt to negotiate a sale/purchase of the DCHS hospitals in the future.” (Id.) First, to the extent Prime seeks relief against the Attorney General in his official capacity “with respect to the DCHS Sale Agreement,” the Eleventh Amendment bars Prime from seeking such retrospective relief. Second, while “[a]n allegation of an ongoing violation of federal law where the requested relief is prospective is ordinarily sufficient to invoke the Young fiction,” Coeur d’Alene Tribe, 521 U.S. at 281, Prime’s recital of Harris’s past denials, both outright and allegedly de facto, of Prime’s proposed nonprofit hospital transactions does not show that Becerra is committing an ongoing violation of federal law. Prime’s allegations are inextricably intertwined with Harris and her alleged actions. Prime has not shown—or even attempted to show—that the allegations underlying its prayer for injunctive relief apply to Becerra. Indeed, both Prime’s SAC, filed at the end of Harris’s tenure as Attorney General, and Prime’s opposition brief are devoid of any mention of Becerra. (See Dkt. Nos. 57, 69.) 39 3:16-cv-00778-GPC-AGS 1 2 3 4 [W]hen a public official is sued in his official capacity and the official is replaced or succeeded in office during the pendency of the litigation, the burden is on the complainant to establish the need for declaratory or injunctive relief by demonstrating that the successor in office will continue the relevant policies of his predecessor. 5 Kincaid v. Rusk, 670 F.2d 737, 741 (7th Cir. 1982); see also Mayor of Philadelphia v. 6 Educ. Equal. League, 415 U.S. 605, 622 (1974) (“Where there have been prior patterns of 7 discrimination by the occupant of a state executive office but an intervening change in 8 administration, the issuance of prospective coercive relief against the successor to the 9 office must rest, at a minimum, on supplemental findings of fact indicating that the new 10 officer will continue the practices of his predecessor.”); Spomer v. Littleton, 414 U.S. 11 514, 689–90 (1974) (holding that there may no longer be a controversy where the 12 wrongful conduct charged in plaintiffs’ § 1983 claim for injunctive relief was personal to 13 the former state attorney and inapplicable to the succeeding state attorney, 14 notwithstanding the fact that the former state attorney had also been sued in his official 15 capacity). Here, although Prime originally sued Harris in her official and individual 16 capacities, it is plain that Prime’s allegations are personal to Harris and shed no light on 17 Becerra’s prospective practices and policies. Prime, despite the opportunity to do so in 18 its opposition brief, did not attempt to provide supplemental facts to substantiate its claim 19 for prospective injunctive relief against Attorney General Becerra. (See Dkt. No. 69.) 20 Nor did it request leave to amend to do so. (See id.) 21 22 23 24 Accordingly, the Court GRANTS Defendants’ motion to dismiss Prime’s claim for injunctive relief against Attorney General Becerra in his official capacity. D. Younger Abstention Defendants request, in the alternative, that the Court abstain and dismiss the instant 25 action under the Younger abstention doctrine. (Dkt. No. 62-1 at 42–44.) In Younger v. 26 Harris, the Supreme Court set forth the principles underlying what is now known as 27 Younger abstention. See 401 U.S. at 37, 43–54 (1971). At its core, Younger “reaffirmed 28 the long-standing principle that federal courts sitting in equity cannot, absent exceptional 40 3:16-cv-00778-GPC-AGS 1 circumstances, enjoin pending state criminal proceedings.” ReadyLink Healthcare, Inc. 2 v. State Comp. Ins. Fund, 754 F.3d 754, 758 (9th Cir. 2014) (citing Younger, 401 U.S. at 3 43–54). The Supreme Court “later extended the Younger principle to civil enforcement 4 actions ‘akin to’ criminal proceedings and to suits challenging ‘the core of the 5 administration of a State’s judicial system.’” Id. (citations omitted). Younger abstention is available only in “three exceptional categories” of cases. 6 7 Sprint Commc’ns, Inc. v. Jacobs, 134 S. Ct. 584, 592 (2013). These categories are: “(1) 8 ‘parallel, pending state criminal proceeding[s],’ (2) ‘state civil proceedings that are akin 9 to criminal prosecutions,’ and (3) state civil proceedings that ‘implicate a State’s interest 10 in enforcing the orders and judgments of its courts.’” ReadyLink, 754 F.3d at 759 11 (quoting Sprint, 134 S. Ct. at 588). 12 In civil cases, Younger abstention is appropriate only when the following elements are satisfied: the state proceedings: (1) are ongoing, (2) are quasi-criminal enforcement actions or involve a state’s interest in enforcing the orders and judgments of its courts, (3) implicate an important state interest, and (4) allow litigants to raise federal challenges. 13 14 15 16 Id. If these four elements are met, federal courts then proceed to “consider whether the 17 federal action would have the practical effect of enjoining the state proceedings and 18 whether an exception to Younger applies.” Id. 19 This case does not satisfy the requirements for Younger abstention. Relying on 20 nonbinding case law,18 Defendants frame the instant action as a “quasi-judicial 21 proceeding” that falls within the second category of Younger cases. (Dkt. No. 62-1 at 22 23 18 24 25 26 27 28 The Eighth Circuit held in a pair of decisions that a state insurance commissioner’s rejection of plaintiff’s application to acquire control of in-state insurance companies was judicial in nature and constituted an ongoing state proceeding for Younger purposes. See Alleghany Corp. v. McCartney, 896 F.2d 1138, 1143 (8th Cir. 1990); Alleghany Corp. v. Pomeroy, 898 F.2d 1314, 1316 (8th Cir. 1990). The Eighth Circuit observed that the director of insurance “investigated the facts surrounding [plaintiff’s] proposed acquisition, and based on this fact-intensive inquiry, refused to permit the acquisition.” McCartney, 896 F.2d at 1132. Even if the Court were bound by these Eighth Circuit decisions, it is unsettled whether or not the quasi-criminal enforcement action was ongoing. See infra n.19. 41 3:16-cv-00778-GPC-AGS 1 42–44; Dkt. No. 74 at 24.) Specifically, Defendants point out that the Attorney General’s 2 review of Prime’s proposed acquisition involved a fact-based investigation, public 3 hearing and comment, and a written decision that may be reviewed in state court for an 4 abuse of discretion. (Id.) Further, Defendants analogize the Attorney General’s exercise 5 of discretion to a license revocation proceeding, reasoning that “a decision not to consent 6 amounts to a rejection that deprives an acquiring entity of its ability to acquire the 7 facility.” (Dkt. No. 62-1 at 43.) 8 9 10 11 12 13 Defendants’ attempt to analogize the Attorney General’s review process to a criminal prosecution is strained. For civil enforcement actions that are akin to criminal proceedings, however, “a state actor is routinely a party to the state proceeding and often initiates the action,” the proceedings “are characteristically initiated to sanction the federal plaintiff . . . for some wrongful act,” and “[i]nvestigations are commonly involved, often culminating in the filing of a formal complaint or charges.” 14 ReadyLink, 754 F.3d at 759 (quoting Sprint, 134 S. Ct. at 592). Here, the Attorney 15 General’s review of Prime’s proposed acquisition does not bear any of the characteristics 16 enumerated above. The Supreme Court has warned against “divorc[ing]” the Younger 17 abstention factors “from their quasi-criminal context,” as doing so “would extend 18 Younger to virtually all parallel state and federal proceedings, at least where a party could 19 identify a plausibly important state interest.” Sprint, 134 S. Ct. at 593. Heeding the 20 Supreme Court’s guidance that “abstention from the exercise of federal jurisdiction is the 21 ‘exception, not the rule,’” id. (citation omitted), the Ninth Circuit has likewise cautioned 22 against indiscriminately construing the initiation of any quasi-judicial administrative 23 proceeding as a quasi-criminal civil enforcement action, see ReadyLink, 754 F.3d at 760. 24 Even if this case presented a quasi-criminal enforcement action, it remains 25 unsettled whether or not the state proceeding would be considered ongoing. The Ninth 26 Circuit has expressly declined to decide if a state proceeding is ongoing where “a state 27 administrative proceeding is final, and state-court judicial review is available but has not 28 42 3:16-cv-00778-GPC-AGS 1 been invoked.”19 San Jose Silicon Valley Chamber of Commerce Political Action Comm. 2 v. City of San Jose, 546 F.3d 1087, 1093 (9th Cir. 2008). Indeed, the Supreme Court has 3 stated that this is an open question. Id. (citing New Orleans Pub. Serv., Inc. v. Council of 4 New Orleans, 491 U.S. 350, 370 n.4 (1989)). Given the uncertainty surrounding this 5 open question of law, this Court declines to hold that a state proceeding is ongoing in the 6 instant case. 7 8 This case does not satisfy the requirements for Younger abstention. Defendants’ request for Younger abstention is DENIED. 9 CONCLUSION 10 For the foregoing reasons, the Court DENIES Defendants’ motion to strike 11 Plaintiffs’ quid pro quo allegations and GRANTS Defendants’ motion to dismiss 12 Plaintiffs’ SAC. (Dkt. No. 62.) 13 14 IT IS SO ORDERED. Dated: August 16, 2017 15 16 17 18 19 20 21 22 23 24 25 26 19 27 28 The Ninth Circuit withdrew the opinion on which Defendants rely. See San Jose Silicon Valley, 546 F.3d at 1094 (citing Nev. Entm’t Indus., Inc. v. City of Henderson, 8 F.3d 1348 (9th Cir. 1993) (per curiam), withdrawn by 21 F.3d 895 (9th Cir.), on reh’g 26 F.3d 131 (9th Cir. 1994) (unpublished disposition) (holding that the Younger abstention question was moot)). 43 3:16-cv-00778-GPC-AGS

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.