The Arc of California v. Toby Douglas

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

THE ARC OF CALIFORNIA; UNITED No. 13-16544
CEREBRAL PALSY ASSOCIATION OF
SAN DIEGO, D.C. No.
Plaintiffs-Appellants, 2:11-cv-02545-
MCE-CKD
v.

TOBY DOUGLAS, Director of the OPINION
California Department of Health
Care Services; CALIFORNIA
DEPARTMENT OF HEALTH CARE
SERVICES; TERRI DELGADILLO,
Director of the California
Department of Developmental
Services; CALIFORNIA DEPARTMENT
OF DEVELOPMENTAL SERVICES;
DOES, 1-100, inclusive,
Defendants-Appellees.

Appeal from the United States District Court
for the Eastern District of California
Morrison C. England, Jr., Chief District Judge, Presiding

Argued and Submitted
March 13, 2014—San Francisco, California

Filed June 30, 2014
2 THE ARC OF CALIFORNIA V. DOUGLAS

Before: Sidney R. Thomas, Raymond C. Fisher,
and Marsha S. Berzon, Circuit Judges.

Opinion by Judge Berzon

SUMMARY*

Medicaid Act / Preliminary Injunction

The panel dismissed an appeal in part as moot and
reversed in part the district court’s denial of a motion for a
preliminary injunction and its dismissal of Medicaid Act
claims brought by non-profit organizations representing
developmentally disabled persons, their families, and the
organizations that serve them.

The plaintiffs sought preliminary injunctive relief against
the continued enforcement of California statutes reducing the
state’s compensation, partially funded under the Medicaid
Act, of home- and community-based services provided to
developmentally disabled persons. Those statutes included a
“percentage payment reduction,” a “uniform holiday
schedule,” and a “half-day billing rule.” The plaintiffs
claimed, among other things, that California’s
implementation of those statutes was inconsistent with the
Medicaid Act.

The panel held that because the percentage payment
reduction, the primary state statute challenged by the

*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
 THE ARC OF CALIFORNIA V. DOUGLAS 3

plaintiffs, expired while the case was on appeal, that
challenge was moot. The panel held that as to the other two
statutes, the district court abused its discretion in denying the
plaintiffs’ motion for a preliminary injunction, because it
misconstrued the Medicaid Act and applied deference to a
federal agency decision where none was due. The panel also
asserted pendent appellate jurisdiction over the dismissal of
the plaintiffs’ Medicaid Act claims, and reversed.

The panel held that California’s implementation of the
half-day billing rule and uniform holiday schedule was
inconsistent with the Medicaid Act because the state failed to
study the effect of those reductions, as required by Section
30(A) of the Medicaid Act. The panel held that the district
court erred in construing the Centers for Medicare and
Medicaid Services’ approval of California’s “HCBS” waiver
renewal application, allowing a variety of noninstitutional
care options, as a determination that California’s payment
reductions complied with the Medicaid Act, and in viewing
that approval as an agency decision entitled to judicial
deference.

The panel concluded that clearly erroneous factfinding
marred the district court’s evaluation of the irreparable harms
facing the plaintiffs. The panel concluded that the current
record was inadequate to adjudge whether the impact of the
half-day billing rule and uniform holiday schedule amounted
to irreparable harm. It remanded to allow augmentation of
the record and reconsideration of the propriety of injunctive
relief in the changed circumstances, applying the correct
irreparable harm analysis.
4 THE ARC OF CALIFORNIA V. DOUGLAS

COUNSEL

Chad Carlock (argued), Law Offices of Chad Carlock, Davis,
California, for Plaintiffs-Appellants.

Rebecca M. Armstrong (argued), Deputy Attorney General,
Kamala D. Harris, Attorney General, Julie Weng-Gutierrez,
Senior Assistant Attorney General, Niromi W. Pfeiffer,
Supervising Deputy Attorney General, Grant Lien and Brenda
A. Ray, Deputy Attorneys General, California Department of
Justice, Sacramento, California, for Defendants-Appellees.

OPINION

BERZON, Circuit Judge:

This case concerns California’s generous program of
home- and community-based care for developmentally
disabled residents. To fund its program, California relies in
large part on federal money provided under the Medicaid Act
(“the Act”), 42 U.S.C. §§ 1396–1396w-5. California has
reduced the funding for this program, as it has for other
Medicaid-funded programs at various times, and, as in the
past, affected groups have challenged the reductions. We
therefore are obliged to address once again the scope of the
state’s federal obligations under the Act to compensate for
covered services. See, e.g., Managed Pharmacy Care v.
Sebelius, 716 F.3d 1235 (9th Cir. 2013); Developmental
Servs. Network v. Douglas, 666 F.3d 540 (9th Cir. 2011).

In this instance, beginning in 2009, the California
legislature enacted a series of statutes reducing the state’s
compensation, partially funded under the federal Medicaid
 THE ARC OF CALIFORNIA V. DOUGLAS 5

Act, of home- and community-based services provided to
developmentally disabled persons. The plaintiffs in this case,
Arc of California and the United Cerebral Palsy Association
of San Diego (together, “Arc”) — non-profit organizations
representing developmentally disabled persons, their families,
and the organizations that serve them — allege that
California’s implementation of those statutes was inconsistent
with the Medicaid Act; violated the federal Americans with
Disabilities Act (“ADA”), 42 U.S.C. § 12132, and the federal
Rehabilitation Act, 29 U.S.C. § 794(a); and was invalid under
California’s Lanterman Developmental Disabilities Services
Act, Cal. Welf. & Inst. Code §§ 4500–4869. Arc sought
preliminary injunctive relief against the continued
enforcement of California’s recently enacted statutes. The
district court denied that motion and, in a simultaneously
released order, dismissed Arc’s Medicaid Act claims,
reasoning that those claims are meritless and that Arc had not
demonstrated a likelihood of irreparable harm.

We hold that the district court abused its discretion in
denying Arc’s motion for a preliminary injunction, because
it misconstrued the Medicaid Act and applied deference to a
federal agency decision where none was due. We also assert
pendent appellate jurisdiction over the dismissal of Arc’s
Medicaid Act claims, which relied on exactly the same
reasoning, and reverse.

We cannot on this appeal, however, go beyond correcting
the district court’s statutory interpretation to determining the
propriety of preliminary injunctive relief. The primary state
statute Arc challenges expired while the case was on appeal,
so that challenge is moot. While the two other challenged
statutes remain in effect, their impact was not the focus of the
preliminary injunction proceeding. The current record is
6 THE ARC OF CALIFORNIA V. DOUGLAS

therefore inadequate to adjudge whether that impact amounts
to irreparable harm. We therefore remand to allow
augmentation of the record and reconsideration of the
propriety of injunctive relief in the changed circumstances,
applying the correct irreparable harm analysis.

I.

California established under its Lanterman Act, Cal. Welf.
& Inst. Code §§ 4500–4869, a comprehensive statutory
scheme that seeks

“to prevent or minimize the institu-
tionalization of developmentally disabled
persons and their dislocation from family and
community, and to enable them to approx-
imate the pattern of everyday living of non-
disabled persons of the same age and to lead
more independent and productive lives in the
community.”

Sanchez v. Johnson, 416 F.3d 1051, 1064 (9th Cir. 2005)
(quoting Ass’n for Retarded Citizens v. Dep’t of
Developmental Servs., 696 P.2d 150, 154 (Cal. 1985)).

Under the Lanterman Act, developmentally disabled
persons receive services through providers under contract
with a “regional center.” Cal. Code Regs. tit. 17,
§§ 50602(n)–(o), 54010. A regional center is “a diagnostic,
counseling, and service coordination center for
developmentally disabled persons and their families” that
operates as a “private nonprofit community agency or
corporation acting as a contracting agency.” Cal. Code Regs.
tit. 17, § 54302(a)(54). Regional centers receive funding
 THE ARC OF CALIFORNIA V. DOUGLAS 7

from the state, among other sources. See Cal. Welf. & Inst.
Code §§ 4620, 4659.

California, in turn, receives some of the funding for its
Lanterman Act programs through the federal Medicaid
program. See Cal. Welf. & Inst. Code § 4659(a)(1). State
participation in Medicaid is not compulsory, but participating
states must comply with the Act and the regulations that
implement it. See, e.g., Managed Pharmacy Care, 716 F.3d
at 1241. The Act conditions receipt of federal funds on
approval of a “state plan,” see, e.g., 42 U.S.C. §§ 1396-1,
1396b(a), which “is a comprehensive written statement
submitted by the [state] agency describing the nature and
scope of its Medicaid program and giving assurance that it
will be administered in conformity” with the Act and its
accompanying regulations, 42 C.F.R. § 430.10. The
Secretary of the Department of Health and Human Services
(“Secretary”) administers the Act, see, e.g., Managed
Pharmacy Care, 716 F.3d at 1241; 42 U.S.C. § 1396a(b), but
has delegated to the regional administrator for the Centers for
Medicare and Medicaid Services (“CMS”) the responsibility
of reviewing in the first instance state plans for compliance
with the provisions of the Act, see 42 C.F.R. § 430.15(b).
The Secretary also requires the submission of state plan
amendments (“SPAs”) for certain changes to a state plan,
which CMS again reviews in the first instance for compliance
with the Act. See 42 C.F.R. § 430.12(c).

The Medicaid Act authorizes the Secretary to waive
certain of the Act’s otherwise-applicable requirements by
granting a so-called home- and community-based services
8 THE ARC OF CALIFORNIA V. DOUGLAS

(“HCBS”) waiver. See 42 U.S.C. § 1396n(c). That waiver
provision originated

[i]n 1981, in response to the fact that a
disproportionate percentage of Medicaid
resources were being used for long-term
institutional care and studies showing that
many persons residing in Medicaid-funded
institutions would be capable of living at
home or in the community if additional
support services were available . . . . The
HCBS program allows a variety of
noninstitutional care options for persons who
would otherwise be eligible for Medicaid
benefits in an institution, but who would
prefer to live at home or in the community.

Sanchez, 416 F.3d at 1054. As with state plans, the Secretary
has delegated to CMS responsibility for reviewing HCBS
waiver requests in the first instance, to determine compliance
with applicable statutes and their regulations. See 42 C.F.R.
§ 430.25(f).

California participates in Medicaid via a state plan that
includes an HCBS waiver. In late June 2011, California
submitted an application to renew its HCBS waiver for the
five-year period between 2011 and 2016. CMS ultimately
approved the application, after extending the previous waiver
renewal, in a two-page letter.

Plaintiffs are two non-profit organizations whose
members are developmentally disabled individuals, their
families, and providers of home- and community-based
services under the Lanterman Act program. They challenge
 THE ARC OF CALIFORNIA V. DOUGLAS 9

state officials’ implementation of three new policies relating
to state funding of home- and community-based services to
developmentally disabled persons, adopted in a series of
statutes enacted beginning in 2009.

First, the California legislature directed regional centers
to reduce funding for services provided under the Lanterman
Act by three percent. See 2009 Cal. Stat. 4296, 4306, § 10(a).
That statute, which we will refer to as the “percentage
payment reduction,” was initially set to expire on June 30,
2010. Id. In three subsequent acts, the California legislature
extended the expiration date of, and modified the magnitude
of, the percentage payment reduction, first up to 4.25 percent
and later down to 1.25 percent. See 2010 Cal. Stat. 4718,
4811, § 164; 2011 Cal. Stat. 1640, 1662, § 24; 2012 Cal. Stat.
1056, 1087, § 34. Each iteration of the statute included an
exemption authorizing regional centers to avoid the
percentage payment reduction upon demonstrating that “a
nonreduced payment is necessary to protect the health and
safety of the individual for whom the services and supports
are proposed to be purchased, and the State Department of
Developmental Services has granted prior written approval.”
2009 Cal. Stat. 4296, 4306, § 10(a); 2010 Cal. Stat. 4718,
4811, § 164; 2011 Cal. Stat. 1640, 1662, § 24; 2012 Cal. Stat.
1056, 1087, § 34. The percentage payment reduction expired
on June 30, 2013, while this appeal was pending but before
we took the case under submission, and was not reenacted.
See 2012 Cal. Stat. 1056, 1087, § 34.

Second, the California legislature mandated what the
parties term the “uniform holiday schedule.” 2009 Cal. Stat.
5144, 5173, § 26 (codified at Cal. Welf. & Inst. Code
§ 4692). That provision precludes regional centers from
compensating many services rendered on 14 enumerated days
10 THE ARC OF CALIFORNIA V. DOUGLAS

over the course of each year. See Cal. Welf. & Inst. Code
§ 4692(a)–(b).

Third, the California legislature enacted what the parties
have dubbed the “half-day billing rule.” 2011 Cal. Stat. 1640,
1659–60, § 21 (codified at Cal. Welf. & Inst. Code § 4690.6).
That rule generally requires service providers seeking
reimbursement for providing services at certain types of
facilities for less than 65 percent of an approved program day
to charge the state for a half day of service, rather than a full
day. Cal. Welf. & Inst. Code § 4690.6(b).

State officials deposed in this litigation acknowledged
that the state neither conducted nor relied upon any study to
evaluate the effects of these three policies on home- and
community-based service providers or on the
developmentally disabled persons they serve. Nor does the
record indicate that California ever submitted an SPA to CMS
before implementing any of these new policies.

Arc has submitted numerous declarations from home- and
community-based service providers for the developmentally
disabled, stating that the cumulative effect of the three
payment reductions has compromised their financial viability
and forced them to reduce their services, to the detriment of
their clients. Arc has also submitted declarations from
several family members of developmentally disabled people,
who agree that payment reductions have negatively affected
the quality of the services upon which they and their disabled
family members rely.

The state officials, for their part, dispute these assertions.
They offer evidence that only two of the many declarants
receiving services under the Lanterman Act formally
 THE ARC OF CALIFORNIA V. DOUGLAS 11

complained about the quality of their care, and no regional
center sought a health and safety exemption under the
percentage payment reduction statute on behalf of any of the
declarants. They also indicate that the rate of reported
injuries, accidents, and other adverse events for
developmentally disabled persons receiving care under the
Lanterman Act has decreased slightly since California
implemented its new policies.

Arc initiated this lawsuit in late September 2011, alleging
that California’s implementation of its new policies was
inconsistent with the Medicaid Act, violated the federal ADA
and Rehabilitation Acts, and violated the Lanterman Act. It
first sought a preliminary injunction the following month.
The state officials subsequently moved to stay proceedings
pending the Supreme Court’s grant of certiorari in the cases
later remanded under the name Douglas v. Independent
Living Center of Southern California, Inc., 132 S. Ct. 1204
(2012) (“ILC II”).1 The district court granted the stay and
denied the motion for a preliminary injunction without
prejudice. After ILC II issued, Arc moved to lift the stay.
The district court did not rule on that motion, and Arc
renewed it in mid-July. Over a month later, the district court
lifted the stay, and granted leave for limited discovery for the
purposes of supporting a motion for preliminary injunctive
relief.

1
The Supreme Court granted certiorari in the cases consolidated in ILC
II “to decide whether Medicaid providers and recipients may maintain a
cause of action under the Supremacy Clause to enforce a federal Medicaid
law . . . that, in their view, conflicts with (and pre-empts) state Medicaid
statutes that reduce payments to providers.” Id. at 1207. Changed
circumstances, however, prevented the Supreme Court from addressing
the question on which it had granted certiorari. See id.
12 THE ARC OF CALIFORNIA V. DOUGLAS

In late September 2012, the state officials filed a motion
to dismiss. Several months later, Arc filed the operative
motion for a preliminary injunction on the basis of its
Medicaid Act, ADA, and Rehabilitation Act claims.2 The
district court heard oral argument on the motion for a
preliminary injunction and the motion to dismiss in late
January 2013. On July 1, 2013, the district court issued two
orders, one denying Arc’s motion for a preliminary
injunction, the other dismissing Arc’s Medicaid Act claims
but allowing its remaining claims to move forward. This
timely appeal followed.

II.

At the outset, we hold that the expiration of the statute
enacting California’s percentage payment reduction moots
Arc’s challenges to it, although its challenges to the uniform
holiday schedule and half-day billing rule, neither of which
has expired, remain live.

Ordinarily, a claim is moot on appeal if it “‘loses its
character as a live controversy,’” Cal. Ass’n of Rural Health
Clinics v. Douglas, 738 F.3d 1007, 1017 (9th Cir. 2013)
(quoting Doe v. Madison Sch. Dist. No. 321, 117 F.3d 789,
797–98 (9th Cir. 1999)), such that “‘there is no longer a
possibility that an appellant can obtain relief for his claim,’”
Li v. Kerry, 710 F.3d 995, 1001 (9th Cir. 2013) (quoting
Ruvalcaba v. City of L.A., 167 F.3d 14, 521 (9th Cir. 1999)).
Because the percentage payment reduction has expired, there
is nothing left to enjoin. This conclusion is consistent with

2
Arc did not move for preliminary injunctive relief on the basis of its
pendent state law claims under the Lanterman Act. The district court thus
did not address them. Neither do we.
 THE ARC OF CALIFORNIA V. DOUGLAS 13

the “general rule [that], if a challenged law is repealed or
expires, the case becomes moot.” Native Vill. of Noatak v.
Blatchford, 38 F.3d 1505, 1510 (9th Cir. 1994).

Arc replies that its challenge to the percentage rate
reductions is not moot, relying on the exception to the
mootness doctrine for cases that

fall[] within a special category of disputes that
are “capable of repetition” while “evading
review.” S. Pac. Terminal Co. v. ICC,
219 U.S. 498, 515 (1911). A dispute falls into
that category, and a case based on that dispute
remains live, if “(1) the challenged action [is]
in its duration too short to be fully litigated
prior to its cessation or expiration, and
(2) there [is] a reasonable expectation that the
same complaining party [will] be subjected to
the same action again.” Weinstein v.
Bradford, 423 U.S. 147, 149 (1975) (per
curiam).

Turner v. Rogers, 131 S. Ct. 2507, 2514–15 (2011) (second,
third, and fourth alteration in original). Because the
percentage payment reduction is not reasonably likely to
recur, we need not decide whether such reductions are
inherently of such short duration that they evade review.

As to repetition, Arc contends that the California
legislature’s previous reenactments of the percentage
payment reduction render reasonable the expectation of its
recurrence. See, e.g., Alcoa, Inc. v. Bonneville Power Admin.,
698 F.3d 774, 787 (9th Cir. 2012); Alaska Cntr. for Env’t v.
U.S. Forest Serv., 189 F.3d 851, 857 (9th Cir. 1999). Here,
14 THE ARC OF CALIFORNIA V. DOUGLAS

however, the predictive power of the legislature’s past
conduct is overshadowed by two other considerations, taken
together.

First, we have hesitated to hold reasonable the expectation
that complex political action motivated by fiscal scarcity will
recur. Foster v. Carson rejected as unreasonable the
expectation that Oregon would reenact a judicial-budget
austerity measure that suspended for four months the
proceedings of certain indigent criminal defendants, as well
as their access to counsel. 347 F.3d 742, 744, 748 (9th Cir.
2003). It reasoned, in part, that

[t]he economic condition of the state is
constantly fluctuating. How the political
branches of the state will choose to fund
indigent defense, how many indigent
defendants will require services, whether a
shortfall will occur, and how the state judicial
system would address such a shortfall are all
unknown. We therefore cannot say that there
is a “reasonable expectation” that . . . [a
similar austerity measure] will be issued again
in the future.

Id. at 748. Foster suggests that where, as here, challenged
conduct requires the confluence of a series of complicated
political and fiscal contingencies, the probability of its
recurrence to some extent decreases.

Second, our resolution of Arc’s remaining challenges also
contributes to our conclusion that this sort of percentage rate
reduction is unlikely to recur. As explained below, we hold
that Arc is likely to succeed on their challenges to
 THE ARC OF CALIFORNIA V. DOUGLAS 15

California’s uniform holiday schedule and half-day billing
rule, as California has taken no steps to comply with Section
30(A) with regard to them. Those policies have not expired,
and Arc’s primary procedural challenge to them is nearly
identical to its objections to the now-expired rate reductions.
Given our construction of the law as it relates to those parallel
claims, “[w]e cannot reasonably expect that [California] will
ignore” its legal obligations, which we clarify in this opinion.
Cal. Ass’n, 738 F.3d at 1018.

We turn now to those parallel claims.

III.

“‘A plaintiff seeking a preliminary injunction must
establish that he is likely to succeed on the merits, that he is
likely to suffer irreparable harm in the absence of preliminary
relief, that the balance of equities tips in his favor, and that an
injunction is in the public interest.’” Alliance for the Wild
Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011)
(quoting Winter v. Natural Res. Def. Council, 555 U.S. 7, 20
(2008)). We evaluate these factors via a “sliding scale
approach,” such that “‘serious questions going to the merits’
and a balance of hardships that tips sharply towards the
plaintiff can support issuance of a preliminary injunction, so
long as the plaintiff also shows that there is a likelihood of
irreparable injury and that the injunction is in the public
interest.” Id. at 1131, 1135.

We review for abuse of discretion the district court’s
denial of a preliminary injunction. Id. at 1131. A district
court abuses its discretion when its decision relies “‘on an
erroneous legal standard or clearly erroneous finding of
fact.’” Id. (quoting Lands Council v. McNair, 537 F.3d 981,
16 THE ARC OF CALIFORNIA V. DOUGLAS

986 (9th Cir. 2008) (en banc)). “When the district court bases
its decision on an erroneous legal standard, we review the
underlying issues of law de novo.” Valle Del Sol Inc. v.
Whiting, 709 F.3d 808, 817 (9th Cir. 2013). A factual finding
constitutes clear error if it is “‘illogical, implausible, or
without support in inferences that may be drawn from the
facts in the record.’” M.R. v. Dreyfus, 697 F.3d 706, 725 (9th
Cir. 2011) (quoting United States v. Hinkson, 585 F.3d 1247,
1263 (9th Cir. 2009) (en banc)).

We hold that the district court in this case abused its
discretion when it denied a preliminary injunction. Its
evaluation of Arc’s likelihood of success on the merits relied
on erroneous legal standards. And it premised its analysis of
irreparable harm and balancing of the equities on factual
findings that were either illogical or lacked support in the
record. We thus reverse the district court but, because of the
changed circumstances brought about by the mootness of the
percentage payment reduction challenge, remand the matter
for its reconsideration.

A.

Arc argues that California’s implementation of its half-
day billing rule and uniform holiday schedule was
inconsistent with the Medicaid Act, because the state failed
entirely to study the effects of those reductions, as required
by Section 30(A) of the Medicaid Act.3 The district court

3
The state officials suggest that, even if the state did violate the
Medicaid Act when it enacted the compensation changes to the HCBS
waiver program, the challenge cannot go forward, citing ILC II, 132 S. Ct.
1204. Not so. “[A] private party may bring suit under the Supremacy
Clause to enjoin implementation of state legislation allegedly preempted
 THE ARC OF CALIFORNIA V. DOUGLAS 17

rejected that argument, construing CMS’s approval of
California’s 2011–2016 waiver renewal application as a
determination that California’s payment reductions complied
with the Medicaid Act, and viewing that approval as an
agency decision entitled to judicial deference. In doing so,
the district court misconstrued the Medicaid Act and deferred
to an agency determination that did not address, even
implicitly, the questions raised in the district court and here.4

by federal law.” Indep. Living Ctr. of S. Cal., Inc. v. Shewry, 543 F.3d
1050, 1065 (9th Cir. 2008) (“ILC I”). ILC II vacated, on the basis of
changed circumstances, the seven judgments of this court over which the
Supreme Court had exercised jurisdiction, expressly reserving the question
we decided in ILC I. See ILC II, 132 S. Ct. at 1211. ILC I, over which the
Supreme Court had previously denied certiorari, 557 U.S. 920 (2009), was
not among those vacated decisions, see ILC II, 132 S. Ct. at 1209. ILC I
thus remains the law of this Circuit, and we continue to follow it. See
Indep. Training & Apprenticeship Program v. Cal. Dep’t of Indus.
Relations, 730 F.3d 1024, 1031–32 & n.5 (9th Cir. 2013).
4
Arc also argued that California failed to obtain CMS’s approval of the
payment reductions before implementing policies that affected the
payments service providers received under its plan. For over thirty years,
we have repeatedly held that a state must submit such an SPA and obtain
approval before implementing any material change in a plan. See
Developmental Servs., 666 F.3d at 545–46 (collecting cases); see also 42
C.F.R. § 430.12(c)(1)(ii). Consequently, “‘[a state] law that effects a
change in payment methods or standards without [federal] approval is
invalid.’” Developmental Servs., 666 F.3d at 545 (quoting Or. Ass’n of
Homes for the Aging, Inc. v. Oregon, 5 F.3d 1239, 1241 (9th Cir. 1993),
abrogation on other grounds recognized by Developmental Servs.
Network, 666 F.3d at 547). Because we conclude that the district court
abused its discretion in its legal analysis of the Section 30(A) issue, and
because the prior approval claim was not raised affirmatively on appeal,
independently of the Section 30(A) question, we do not reach the prior
approval claim at this juncture.
18 THE ARC OF CALIFORNIA V. DOUGLAS

1. Section 30(A) of the Medicaid Act conditions a state’s
receipt of Medicaid funds on its provision of

such methods and procedures relating to the
utilization of, and the payment for, care and
services available under the [state Medicaid]
plan . . . as may be necessary to safeguard
against unnecessary utilization of such care
and services and to assure that payments are
consistent with efficiency, economy, and
quality of care and are sufficient to enlist
enough providers so that care and services are
available under the plan at least to the extent
that such care and services are available to the
general population in the geographic area.

42 U.S.C. § 1396a(a)(30)(A).

The district court began its legal analysis of Arc’s
likelihood of success on the merits by accepting the state
officials’ position that a state participating in the HCBS
program, via an HCBS waiver, need not comply with Section
30(A) with regard to the HCBS program. That proposition is
incorrect.

The Medicaid Act conditions receipt of federal funds on
a state’s compliance with “a laundry list of requirements that
[a] state plan ‘must’ satisfy, 42 U.S.C. § 1396a(a), and an
extensive body of regulations implements these
requirements.” Alaska Dep’t of Health & Soc. Servs. v. Ctrs.
for Medicare & Medicaid Servs., 424 F.3d 931, 935 (9th Cir.
2005). Congress included Section 30(A) on that laundry list
of requirements. See 42 U.S.C. § 1396a(a)(30)(A).
 THE ARC OF CALIFORNIA V. DOUGLAS 19

Alongside Section 30(A) are three other rules pertinent to the
HCBS waiver program:

1. The “statewideness” rule, which requires
a state plan to “provide that it shall be in
effect in all political subdivisions of the
State, and, if administered by them, be
mandatory upon them.” 42 U.S.C.
§ 1396a(a)(1).

2. The “comparability” rule, which prohibits
a state plan from providing certain
specified recipients of medical services
with services that are “less in amount,
duration, or scope than the medical
assistance made available to” other
recipients of services under the plan.
42 U.S.C. § 1396a(a)(10)(B).

3. Various income and resource rules, which
restrict services to the very neediest
members of the community. See
42 U.S.C. § 1396a(a)(10)(C)(i)(III).

Under some circumstances, the Medicaid Act authorizes
the Secretary to waive a state plan’s compliance with certain
of the Act’s otherwise-mandatory statutory requirements. See
42 U.S.C. § 1396n(b)–(e). “Waivers are intended to provide
the flexibility needed to enable States to try new or different
approaches to the efficient and cost-effective delivery of
health care services, or to adapt their programs to the special
needs of particular areas or groups of beneficiaries.”
42 C.F.R. § 430.25(b). This appeal implicates one such
20 THE ARC OF CALIFORNIA V. DOUGLAS

statutory waiver, the HCBS waiver. See 42 U.S.C. § 1396n(c).

The Medicaid Act provision governing HCBS waivers
specifies that

[a] waiver granted under this subsection
[authorizing home- and community-based
services waivers] may include a waiver of
the requirements of section 1396a(a)(1) of
this title (relating to statewideness),
section 1396a(a)(10)(B) of this title
(relating to comparability), and section
1396a(a)(10)(C)(i)(III) of this title (relating to
income and resource rules applicable in the
community).

42 U.S.C. § 1396n(c)(3); see also 42 C.F.R. § 430.25(d)(2)
(listing only these three provisions as those which “may be
waived”). Thus, the Medicaid Act’s authorization of HCBS
waivers permits the Secretary, by granting such a waiver, to
relieve a state from compliance with three — and only three
— of the otherwise-mandatory requirements on which the
Medicaid Act conditions receipt of federal funds.5

The list of waivable requirements in 42 U.S.C.
§ 1396n(c)(3) is exclusive. Nothing in the HCBS waiver
provision provides the Secretary with authority to waive any
other of the Medicaid Act’s requirements when granting an

5
The statute also conditions the grant of an HCBS waiver on, inter alia,
assurance that the state will provide safeguards to protect the health and
welfare of beneficiaries, as well as cost-neutrality and certain financial
oversight measures. See 42 U.S.C. § 1396n(c)(2). The Secretary
implements these requirements via 42 C.F.R. §§ 441.300–441.310.
 THE ARC OF CALIFORNIA V. DOUGLAS 21

HCBS waiver. The “‘presumption that when a statute
designates certain persons, things, or manners of operation,
all omissions should be understood as exclusions’” thus
comes into play. Silvers v. Sony Pictures Entm’t, 402 F.3d
881, 885 (9th Cir. 2005) (en banc) (quoting Boudette v.
Barnette, 923 F.2d 754, 756–57 (9th Cir. 1991)). Although
that presumption may be rebutted, see, e.g., Marx v. Gen.
Revenue Corp., 133 S. Ct. 1166, 1175 (2013), two features of
this statute convince us that the presumption is particularly
appropriate here.

First, a comparison with the language of the surrounding
statutory subsections confirms that an HCBS waiver may
relieve a state of compliance with only the three otherwise-
mandatory requirements referenced in 42 U.S.C.
§ 1396n(c)(3). Consider 42 U.S.C. § 1396n(b), which
authorizes waivers designed to promote cost-effectiveness
and efficiency. That subsection provides that

[t]he Secretary, to the extent he finds it to be
cost-effective and efficient and not
inconsistent with the purposes of this
subchapter, may waive such requirements of
section 1396a of this title . . . (other than
sections 1396a(a)(15), 1396a(bb), and
1396a(a)(10)(A) of this title insofar as it
requires provision of the care and services
described in section 1396d(a)(2)(C) of this
title) as may be necessary.

42 U.S.C. § 1396n(b) (emphasis added); see also 42 C.F.R.
§ 431.55(a) (“Section 1915(b) of the Act authorizes the
Secretary to waive most requirements of section 1902 of the
Act to the extent he or she finds proposed improvements or
22 THE ARC OF CALIFORNIA V. DOUGLAS

specified practices in the provision of services under
Medicaid to be cost effective, efficient, and consistent with
the objectives of the Medicaid program.”). Section 1396n(b)
is thus structured exactly inversely to the HCBS waiver
provision; it authorizes the waiver of any otherwise-
applicable requirement, except three. The existence of
42 U.S.C. § 1396n(b) one paragraph above the subsection
authorizing HCBS waivers demonstrates that Congress
carefully structured the statute to allow broad waivers in
some instances and not others. See, e.g., United States v.
Yazzie, 743 F.3d 1278, 1292 (9th Cir. 2014). Far from
authorizing a broad waiver for HCBS services, Congress
instead chose for that purpose a narrowly circumscribed
loosening of the statutory requirements.

Second, the Secretary’s own interpretation of its authority
to grant HCBS waivers further confirms that it is permitted to
waive only the three otherwise-applicable requirements of the
Medicaid Act enumerated in 42 U.S.C. § 1396n(c). The
Secretary’s regulation implementing the HCBS program
specifies that “the following requirements may be waived”
under 42 U.S.C. § 1396n(c): the statewideness rule, the
comparability rule, and certain specified income and resource
rules. 42 C.F.R. § 430.25(d)(2). The regulation does not
indicate the availability under the HCBS waiver program of
broader permission to avoid the Medicaid Act’s requirements.
We defer to an agency’s reasonable interpretation of an
ambiguous statute it is charged with administering. See
Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc.,
467 U.S. 837, 842–44 (1984). The Secretary’s determination
that the statute permits waiver of only three of the Medicaid
Act’s provisions is certainly reasonable, for the reasons we
have explained. Thus, even if we regarded 42 U.S.C.
§ 1369n(c) as ambiguous — which we do not — as to the
 THE ARC OF CALIFORNIA V. DOUGLAS 23

otherwise-mandatory provisions of the Medicaid Act it allows
the Secretary to waive, we would still be compelled to defer
to the Secretary’s conclusion that the list of waivable
provisions in 42 U.S.C. § 1369n(c)(3) is exclusive.

Properly understood, then, the HCBS waiver provision
permits the Secretary to waive only three items on the
“laundry list” of requirements a state must fulfill to receive
funds under the Medicaid Act. Section 30(A) is not one of
those waivable requirements. To participate in Medicaid, a
state thus must comply with that provision with regard to the
program allowed by the HCBS waiver, just as it must for its
other Medicaid-covered programs.

The district court premised its contrary conclusion, in
part, on 42 C.F.R. § 441.303(g), which authorizes a state “at
its option . . . [to] provide for an independent assessment of
its waiver that evaluates the quality of care provided, access
to care, and cost-neutrality” when applying for an HCBS
waiver. The district court thought that regulation “for all
intents and purposes incorporates the considerations set forth
in Section 30(A),” but does so as an option rather than a
requirement, and so determined that compliance with Section
30(A) is not required of a state seeking an HCBS waiver.

The district court’s conclusion, however, does not follow
from its premise, for three reasons. First, and most
obviously, a regulation could not make optional a
requirement the statute mandates. Second, although
demonstrating compliance with Section 30(A) is not required
for receipt of an HCBS waiver, that observation does not
vitiate a state’s independent obligation to satisfy Section
30(A) as to the services covered by an HCBS waiver if the
waiver is obtained, as part of its overall state plan obligation.
24 THE ARC OF CALIFORNIA V. DOUGLAS

Third, the regulation allows for an “independent assessment,”
42 C.F.R. § 441.303(g) (emphasis added), but does not negate
the need for some assessment, whether by the state agency
itself or an independent analyst.

In short, 42 C.F.R. § 441.303(g) does not detract from our
conclusion that the HCBS waiver provision retains the
Section 30(A) requirement for programs permitted by the
waiver.

2. Given our understanding of the role of Section 30(A)
for states with HCBS programs, Arc has a substantial
likelihood of demonstrating that the state officials’
implementation of California’s uniform holiday schedule and
half-day billing rule was inconsistent with Section 30(A). By
adopting those policies without studying at all their likely
effects on the efficiency, economy, quality of care, and access
to care California offered the developmentally disabled, the
state officials probably disregarded Section 30(A)’s express
mandate.

Two precedents, read together, control our interpretation
of Section 30(A) — Orthopaedic Hospital v. Belshe, 103 F.3d
1491 (9th Cir. 1997), and Managed Pharmacy Care, 716 F.3d
1235.

Orthopaedic Hospital considered the meaning of Section
30(A) before the Secretary had interpreted it. See 103 F.3d
at 1495–96. Faced with CMS’s silence, we held that a state
could not comply with Section 30(A) without “responsible
cost studies, its own or others’, that provide reliable data as
a basis for its rate setting,” reasoning that a state “cannot
know that it is setting rates that are consistent with efficiency,
 THE ARC OF CALIFORNIA V. DOUGLAS 25

economy, quality of care and access without considering the
costs of providing such services.” Id. at 1496.

Managed Pharmacy Care, in turn, evaluated Section
30(A) in light of CMS’s later, formal approval of two SPAs,
communicated in letters expressly stating that the SPAs in
those instances were consistent with Section 30(A). 716 F.3d
at 1243, 1245. In support of those SPAs, the state had
submitted to CMS “access studies” that “reviewed data
focused primarily on enrollee needs, provider availability,
and utilization of services.” Id. at 1242. It also submitted
studies of provider costs for some, but not all, of the services
affected by the SPAs, as well as a detailed “monitoring plan”
designed “to ensure the SPAs do not negatively affect
beneficiary access.” Id. CMS’s approval indicated that, in
the agency’s opinion, a state’s completion of such access
studies, a monitoring plan, and some cost studies was
sufficient to comply with Section 30(A). Id. at 1245. We
deferred to that interpretation as a reasonable reading of
Section 30(A)’s ambiguous mandate, noting that enforcement
of Section 30(A) through approval or disapproval of state
plans and their implementation is committed to the Secretary
(and delegated, in large part, to CMS). Id. at 1250.

Managed Pharmacy Care emphasized that Section 30(A)
“does not prescribe any particular methodology a State must
follow before its proposed rates may be approved.” Id. at
1245 (emphasis added). It did not thereby relieve states from
doing something to comply with Section 30(A), which
expressly requires “methods and procedures” to fulfill its
mandate. 42 U.S.C. § 1396a(a)(30)(A). Instead, Managed
Pharmacy Care approved the affirmative measures
enumerated by the state in that case as sufficient to meet the
Section 30(A) requirements.
26 THE ARC OF CALIFORNIA V. DOUGLAS

Here, the state officials do not dispute that California did
nothing whatever to study the likely effects of its uniform
holiday schedule or half-day billing rule on the “efficiency,
economy, and quality of care” or the availability of service
providers, before enacting and implementing those rules. The
reasonable interpretation to which we deferred in Managed
Pharmacy Care does not condone such complete abdication.

The district court nonetheless relied on Managed
Pharmacy Care, reasoning that CMS’s approval of
California’s HCBS waiver renewal application indicates that
CMS believed California’s payment reductions consistent
with Section 30(A). Unlike in Managed Pharmacy Care,
however, CMS’s approval of California’s waiver renewal
application did not expressly conclude that the state’s new
policies comply with Section 30(A). Nor will we infer such
a conclusion, for two independently sufficient reasons.

First, California’s HCBS waiver renewal application did
not disclose its recently implemented uniform holiday
schedule or its new half-day billing rule. In approving that
application, CMS could have reviewed, even inferentially,
only matters presented in it. Because California’s HCBS
waiver renewal application discussed neither the uniform
holiday schedule nor the half-day billing rule, we have no
reason to believe that CMS was aware of those policies, let
alone that it impliedly approved them.6

6
The state officials informed CMS of the state’s now-expired percentage
rate reductions, both in a meeting and, subsequently, in a written response
to CMS’s written inquiry. They have not demonstrated, however, that
they ever informed CMS of the uniform holiday schedule or the half-day
billing rule.
 THE ARC OF CALIFORNIA V. DOUGLAS 27

The district court emphasized that California’s waiver
renewal application included over 200 pages worth of
material, some of which included data on the cost of the
programs operated under the waiver and the rates at which
those programs’ services were utilized. The Secretary
requires such information as part of the waiver approval
process, see 42 C.F.R. §§ 441.302(h), 441.303(f), so that
CMS can evaluate a state’s compliance with the statutory
requirements for an HCBS waiver. The statute requires, for
example, per capita expenditures equal to what they would
have been without a waiver and annual reporting on the type
and amount of services provided. See 42 U.S.C.
§ 1396n(c)(2)(D)–(E). That information is not directly
relevant to the considerations enumerated in Section 30(A),
which, among other things, requires comparing service
recipients’ access to care to that of the general population.

Second, the state’s failure to provide information on the
uniform holiday schedule and half-day billing rule reflects the
scope and purpose of the HCBS waiver application process.
As discussed, see supra Part III.A.1, approval of an HCBS
waiver does not affect the requirement that the state plan,
overall, comply with all provisions of the Medicaid Act,
including Section 30(A), that the Secretary has not waived.
Pursuant to 42 C.F.R. § 430.25(g)(1), CMS “approves waiver
requests [under 42 U.S.C. § 1396n(b)–(c)] if the State’s
proposed program or activity meets the requirements of the
Act and the regulations at § 431.55 or subpart G of part 441
of this chapter[, 42 C.F.R. §§ 441.300–441.310].” Section
430.25 deals only with the waivers incorporated into state
plans, not the state plans themselves. The approval of state
plans is the subject of separate regulatory provisions. See,
e.g., 42 C.F.R. §§ 430.10–430.18. In particular, 42 C.F.R.
§ 430.25(g)(1) lists § 431.55 and 42 C.F.R.
28 THE ARC OF CALIFORNIA V. DOUGLAS

§§ 441.300–441.310 as the relevant regulations considered
for purposes of waiver approval; both of those regulations
interpret only the statutory requirements for a waiver under
42 U.S.C. § 1396n(b)–(c), respectively. Thus, 42 C.F.R.
§ 430.25(g)(1) requires consideration for purposes of waiver
approval of the waiver requirements of the Act and the
implementing regulations, not of the separate, more generally
applicable state plan requirements.7

In relying on Managed Pharmacy Care, then, the district
court applied the wrong legal standard to the case before it.
Managed Pharmacy Care neither condones the sort of
complete inaction California has demonstrated here nor
compels our deference to CMS’s approval of the HCBS
waiver application.8 We conclude that California’s total

7
We note that the mention of “the Act” in 42 C.F.R. § 430.25(g)(1)
necessarily refers to the Act’s waiver provisions. Section 430.25 in its
entirety implements the waiver provisions of the Act only. In accord with
that limitation, the regulations listed right after “the Act” in subsection
(g)(1) deal only with waivers, not with state plans generally, although the
regulations governing state plans generally are extensive. Application of
the interpretive maxim that “a word is known by the company it keeps,”
Gustafson v. Alloyd Co., 513 U.S. 561, 575 (1995), counsels the
understanding that 42 C.F.R. § 430.25(g)(1), like the larger section of
which it is a part, is limited to assuring compliance with the statutory and
regulatory waiver requirements, and that its reference to “the Act” is to the
Act’s waiver provisions.
8
The district court asserted that Arc’s ADA and Rehabilitation Act
claims were premised on California’s alleged non-compliance with
Section 30(A). The district court therefore concluded that the ADA and
Rehabilitation Act claims fell alongside the Section 30(A) claim, all being
equally unlikely to succeed on the merits. Because we hold the district
court’s conclusion as to the Section 30(A) claim an abuse of discretion, its
evaluation of the ADA and Rehabilitation Act claims — which relied on
that conclusion — was equally erroneous.
 THE ARC OF CALIFORNIA V. DOUGLAS 29

abdication of its obligations under Section 30(A) indicates
that Arc is likely to prevail on the merits of its challenges
under the Medicaid Act to the uniform holiday schedule and
half-day billing rule. The district court abused its discretion
in determining otherwise, and so in assessing Arc’s likelihood
of success on the merits.

B.

“[P]laintiffs seeking preliminary relief [must] demonstrate
that irreparable injury is likely in the absence of an
injunction,” not merely that it is possible. Winter, 555 U.S.
at 22. The district court determined that no such injury was
likely here. After reviewing the record carefully, we
conclude that each of the factual bases on which the district
court premised its decision was either clearly erroneous or
legally irrelevant.

1. The district court first invoked Oakland Tribune, Inc.
v. Chronicle Publishing Co., which held that a plaintiff’s
“long delay before seeking a preliminary injunction implies
a lack of urgency and irreparable harm.” 762 F.2d 1374,
1377 (9th Cir. 1985). Because “the payment reductions at
issue were in place more than two years before suit was filed
on behalf of Plaintiffs in 2011,” the district court reasoned,
Arc’s delay “weighs against irreparable harm.”

The district court also appears to have misconstrued the scope of
Arc’s ADA and Rehabilitation Act claims. Arc premised those claims not
just on California’s alleged non-compliance with Section 30(A), but also
on the allegation that California’s policies increased the risk of
institutionalization to the disabled, and thus constituted discrimination.
See M.R., 697 F.3d at 734–35. On remand, the district court should
consider that argument to the extent, if any, pertinent to determining the
propriety of preliminary relief.
30 THE ARC OF CALIFORNIA V. DOUGLAS

The record, however, does not support the finding that
two years passed between the enactment of the relevant
statutes and the filing of this lawsuit. True, the California
legislature enacted the first percentage payment reduction
measure, which decreased payments by three percent, over
two years before Arc brought suit. But Arc also challenges
the extension and expansion of that measure in two
subsequent statutes passed one year and three months,
respectively, before this lawsuit was filed. In any case, the
expiration of that percentage payment reduction measure
during the pendency of this appeal renders it moot. See supra
Part II.

Significantly for present purposes, one of the two
provisions as to which Arc’s challenge is not moot, the half-
day billing rule, was passed only months before the initiation
of this lawsuit. Although the uniform holiday schedule had
been in effect for nearly two years, the injury Arc alleges here
is inherently cumulative, turning on the aggregate effect over
time of the several payment reductions. It is the
implementation of all the challenged statutes, not the first,
that is relevant for irreparable harm purposes. The district
court’s finding that the constellation of payment reductions
challenged here was in effect for over two years is thus
contradicted by the record, making it clearly erroneous.

For the district court’s benefit on remand, we add that it
is unlikely that Arc’s putative delay is especially probative
here. Usually, delay is but a single factor to consider in
evaluating irreparable injury; courts are “loath to withhold
relief solely on that ground.” Lydo Enters., Inc. v. City of Las
Vegas, 745 F.2d 1211, 1214 (9th Cir. 1984). Although a
plaintiff’s failure to seek judicial protection can imply “‘the
lack of need for speedy action,’” id. at 1213 (quoting Gillette
 THE ARC OF CALIFORNIA V. DOUGLAS 31

Co. v. Ed Pinaud, Inc., 178 F. Supp. 618, 622 (S.D.N.Y.
1959)), such tardiness is not particularly probative in the
context of ongoing, worsening injuries. Here, for example,
the alleged injuries resulted from various cuts in
compensation, enacted over a period of time and having a
cumulative impact. In such circumstances, the magnitude of
the potential harm becomes apparent gradually, undermining
any inference that the plaintiff was “‘sleeping on its rights.’”
Id. (quoting Gillette Co., 178 F. Supp. at 622). In particular,
we note that the harm alleged here related in part to the
continued economic viability of service providers in the face
of cuts in compensation. So the actual impact of the various
reductions in compensation might well become irreparable
only over time. Under such circumstances, waiting to file for
preliminary relief until a credible case for irreparable harm
can be made is prudent rather than dilatory. The significance
of such a prudent delay in determining irreparable harm may
become so small as to disappear.

2. The district court next emphasized Arc’s inability to
demonstrate that any regional center had sought a statutory
exemption from the percentage payment reduction as
“necessary to protect the health and safety of” service
recipients. Because Arc’s motion to enjoin that percentage
payment reduction has been mooted by its expiration, see
supra Part II, the district court’s observation is no longer
directly relevant. As the district court itself recognized, the
statutes enacting the uniform holiday schedule and half-day
billing rule authorize no parallel exemptions.

Moreover, we doubt there is a logical connection between
the regional centers’ ability to seek exemptions and
irreparable harm done to service providers. The record
suggests that at least one regional center refused to submit an
32 THE ARC OF CALIFORNIA V. DOUGLAS

exemption request on behalf of a beleaguered service
provider.

In sum, as applied to the two surviving statutes, there is
no significance to the absence of applications for statutory
exemptions from the now-expired statute.

3. Last, the district court emphasized the paucity of
evidence indicating that developmentally disabled persons
have already suffered from the payment reductions. Whether
that is so is not legally relevant. That the service providers
have managed to continue to provide care notwithstanding the
reductions does not detract from the harm the providers face
with regard to their continued viability.

Arc has brought this suit on behalf of — and moved for
preliminary injunctive relief to prevent irreparable harm to —
their members, including both the providers and the recipients
of services. Whether service recipients have already suffered
from reductions of services does not bear on whether these
payment reductions currently threaten the continued viability
of those who serve them, and so irreparably, if not
immediately, threaten the future availability of services for
the service recipients. So, to the extent the district court
extrapolated from the lack of evidence of past harm to service
recipients a lack of evidence of harm to the ability of service
providers to continue to provide care, the extrapolation was
illogical and thus an abuse of discretion.

We conclude that clearly erroneous factfinding marred the
district court’s evaluation of the irreparable harms facing Arc.
 THE ARC OF CALIFORNIA V. DOUGLAS 33

C.

When ruling on a preliminary injunction, “a court must
balance the competing claims of injury and must consider the
effect on each party of the granting or withholding of the
requested relief.” Amoco Prod. Co. v. Vill. of Gambell,
480 U.S. 531, 542 (1987). And it must “weigh in its analysis
the public interest implicated by [an] injunction.” Stomans,
Inc. v. Selecky, 586 F.3d 1109, 1138 (9th Cir. 2009). When
balancing the equities and the public interest here, the district
court relied on its evaluation of the merits and the harms
facing Arc’s members. As noted, its evaluation of both
constituted an abuse of discretion. See supra Part III.A–B.
Those errors thus infect the district court’s balancing of the
equities and its weighing of the public interest, into which
they were incorporated.

D.

In conclusion, we hold that Arc has a substantial
likelihood of success on the merits of its Medicaid Act
claims, and we hold that the district court abused its
discretion in certain respects in evaluating the harm suffered
by Arc’s members. We do not, however, direct the issuance
of a preliminary injunction.

The current record is insufficient to permit our
independent evaluation of the harms threatening Arc’s
members, the balance of the equities, or the public interest
implicated by an injunction. That record was assembled
before the expiration of the percentage payment reductions.
Although the evidence it contains describes some of the
consequences of the uniform holiday schedule and half-day
billing rule, it much more often refers to the aggregate effect
34 THE ARC OF CALIFORNIA V. DOUGLAS

of those policies and the now-expired percentage payment
reductions. Given that those reductions became moot on
appeal, the record must be developed anew to permit proper
evaluation of the motion for preliminary injunctive relief.

Where the propriety of an injunction “raise[s] intensely
factual issues,” the matter “should be decided in the first
instance by the district court.” Alaska Wilderness Recreation
& Tourism Ass’n v. Morrison, 67 F.3d 723, 732 (9th Cir.
1995) (internal quotation marks omitted). The threat of
irreparable harm to Arc, the balancing of the equities, and the
public interest implicated by an injunction present precisely
such intensely factual questions. “Because the grant of a
preliminary injunction is a matter committed to the discretion
of the trial judge, we remand this case to the district court for
consideration of the remaining Winter factors in the first
instance.” Evans v. Shoshone-Bannock Land Use Policy
Comm’n, 736 F.3d 1298, 1307 (9th Cir. 2013) (internal
quotation marks, citation, and brackets omitted); accord
Diouf v. Mukasey, 542 F.3d 1222, 1235 (9th Cir. 2008).

IV.

In addition to its preliminary injunction appeal, Arc
challenges the order dismissing its Medicaid Act claims
under Federal Rule of Civil Procedure 12(b)(6).

Standing on its own, the district court order dismissing the
Medicaid Act claims would lie beyond our jurisdiction. It
was not a final decision under 28 U.S.C. § 1291. The district
court did not dismiss Arc’s claims under the ADA,
Rehabilitation Act, and Lanterman Act and thus “did not
dispose of the action as to all claims between the parties.”
Prellwitz v. Sisto, 657 F.3d 1035, 1038 (9th Cir. 2011). Nor
 THE ARC OF CALIFORNIA V. DOUGLAS 35

does that order fall within any of the categories of
interlocutory orders the appeal of which we may consider
under 28 U.S.C. § 1292. And it is not included in that
“‘narrow class of [district court] decisions that do not
terminate the litigation, but are sufficiently important and
collateral to the merits that they should nonetheless be treated
as final’” under the collateral order doctrine. Nunag-Tanedo
v. E. Baton Rouge Parish Sch. Bd., 711 F.3d 1136, 1138 (9th
Cir. 2013) (quoting Will v. Hallock, 546 U.S. 345, 347
(2006)).

The dismissal order, however, does not appear before us
on its own. It arises in connection with the district court’s
denial of Arc’s motion for preliminary injunctive relief, an
interlocutory order over which we do have jurisdiction. See
28 U.S.C. § 1292(a)(1). Under such circumstances, “we may
also exercise pendent appellate jurisdiction over any
‘otherwise non-appealable ruling [that] is inextricably
intertwined with or necessary to ensure meaningful review of
the order properly before us on interlocutory appeal.’”
Melendres v. Arpaio, 695 F.3d 990, 996 (9th Cir. 2012)
(some internal quotation marks omitted) (quoting Meredith v.
Oregon, 321 F.3d 807, 813 (9th Cir. 2003), as amended, 326
F.3d 1030 (9th Cir. 2003)). We “exercise restraint” in
invoking our pendent appellate jurisdiction, Meredith,
321 F.3d at 812, “setting a ‘very high bar’ for [its] exercise,”
Burlington N. & Santa Fe Ry. Co. v. Vaughn, 509 F.3d 1085,
1093 (9th Cir. 2007) (quoting Poulos v. Ceasars World, Inc.,
379 F.3d 654, 669 (9th Cir. 2004)). This case clears that bar,
because the district court’s order denying preliminary
injunctive relief is “inextricably intertwined” with its order
dismissing Arc’s Medicaid Act claims.
36 THE ARC OF CALIFORNIA V. DOUGLAS

“‘[D]istrict court rulings are inextricably intertwined with
a preliminary injunction when the legal theories on which the
issues advance [are] . . . so intertwined that we must decide
the pendent issue in order to review the claims properly raised
on interlocutory appeal, or . . . resolution of the issue properly
raised on interlocutory appeal necessarily resolves the
pendent issue.’” Melendres, 695 F.3d at 996 (second
alteration in original) (some internal quotation marks omitted)
(quoting Hendricks v. Bank of Am., N.A., 408 F.3d 1127,
1134 (9th Cir. 2005)). For this latter reason, a pendent order
that concerns the same legal issue and relies on the selfsame
reasoning as the order over which this Court exercises
primary appellate jurisdiction usually qualifies as
“inextricably intertwined.”9

Conversely, two issues are not inextricably intertwined
where their resolution requires “application of separate and
distinct legal standards.” Meredith, 321 F.3d at 815.
Standards are “separate and distinct” where they “‘turn on
wholly different factors.’” Burlington N. & Santa Fe Ry.,
509 F.3d at 1093 (quoting Poulos, 379 F.3d at 670). Where
two legal standards overlap in part, we may exercise pendent
jurisdiction where we resolve the primary appeal on the basis
of that overlapping component of the analysis, in a manner

9
Streit v. County of Los Angeles, for example, exercised pendent
jurisdiction over orders that “raise[d] the same issues, use[d] the same
legal reasoning, and reach[ed] the same conclusions as the earlier orders
over which” we had original jurisdiction. 236 F.3d 552, 559 (9th Cir.
2001). Similarly, Wong v. United States exercised pendent jurisdiction
over the district court’s denial of a motion to dismiss for failure to state a
claim because that issue, like the qualified-immunity appeal over which
we had primary jurisdiction, turned on “whether the facts as alleged state
a claim for violation of constitutional or statutory rights.” 373 F.3d 952,
961–62 (9th Cir. 2004).
 THE ARC OF CALIFORNIA V. DOUGLAS 37

that resolves “‘all of the remaining issues presented by the
pendent appeal.’” Huskey v. City of San Jose, 204 F.3d 893,
905 (9th Cir. 2000) (quoting Moore v. City of Wynnewood,
57 F.3d 924, 930 (10th Cir. 1995)); see also Perfect 10, Inc.
v. Google, Inc., 653 F.3d 976, 982 n.3 (9th Cir. 2011)
(declining to exercise pendent appellate jurisdiction where we
resolved the primary appeal on a ground that did not overlap
with the pendent appeal); Wong, 373 F.3d at 962 (same).

Although the standards for a motion for preliminary
injunctive relief and dismissal under Rule 12(b)(6) are not
conterminous, they overlap where a court determines that the
plaintiff has no chance of success on the merits. “‘The
irreducible minimum [for a preliminary injunction] . . . is that
the moving party demonstrate a fair chance of success on the
merits or questions serious enough to require litigation. No
chance of success at all will not suffice.’” E. & J. Gallo
Winery v. Andina Licores S.A., 446 F.3d 984, 990 (9th Cir.
2006) (quoting Sports Form, Inc. v. United Press Int’l, Inc.,
686 F.2d 750, 753 (9th Cir. 1982)). So, too, for a motion to
dismiss: If there is “no chance of success” on the merits, E. &
J. Gallo, 446 F.3d at 990, then the complaint does not “state
a claim to relief that is plausible on its face,” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)), and must be dismissed.

Here, the district court refused to grant a preliminary
injunction on Arc’s Medicaid Act claims for the selfsame
reason it dismissed those claims. Both orders, which issued
the same day, reasoned that CMS’s approval of California’s
HCBS waiver application demonstrated the state’s
compliance with the Medicaid Act, such that Arc had no
38 THE ARC OF CALIFORNIA V. DOUGLAS

chance of succeeding on the merits. Indeed, several pages of
both orders employed identical language.10

We have held that the district court abused its discretion
in determining that Arc had no chance of success on the
merits. See supra Part III.A. To reach that holding, we
necessarily reviewed the same legal considerations as
underlay dismissal of those claims. We therefore reverse the
dismissal of Arc’s Medicaid Act claims related to the uniform
holiday schedule and half-day billing rule.

V.

In conclusion, we DISMISS as moot Arc’s challenges to
the percentage payment reductions, REVERSE the district
court’s denial of preliminary injunctive relief as an abuse of
discretion, REMAND the matter for its reconsideration in the
first instance, and REVERSE the dismissal of Arc’s Medicaid
Act challenges to the uniform holiday schedule and half-day
billing rule.

DISMISSED IN PART, REVERSED IN PART, and
REMANDED.

Each party shall bear its own costs on appeal.

10
A Second Circuit case may offer the closest analogy to the
circumstances presented here. Lamar Advertising of Penn, LLC v. Town
of Orchard Park, New York exercised pendent jurisdiction over an order
denying summary judgment “[b]ecause the district court . . . denied [the
plaintiff’s] request for a preliminary injunction for the very same reasons
it denied [the plaintiff’s] motion for summary judgment,” such that the
two orders were inextricably intertwined. 356 F.3d 365, 372 (2d Cir.
2004).