Patrick Allen v. Familycare, Inc.

FILED
NOT FOR PUBLICATION
APR 30 2020
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

PATRICK ALLEN, in his official capacity No. 18-35593
as DIRECTOR OF OREGON HEALTH
AUTHORITY, an agency of the State of D.C. No. 3:18-cv-00212-MO
Oregon,

Plaintiff-Appellant, MEMORANDUM*

v.

FAMILYCARE, INC., an Oregon non-
profit corporation,

Defendant-Appellee.

FAMILYCARE, INC., an Oregon non- Nos. 19-35103
profit corporation,

Plaintiff-Appellant, D.C. No. 6:18-cv-00296-MO

v.

OREGON HEALTH AUTHORITY, an
agency of the State of Oregon; PATRICK
ALLEN, in his official capacity as Director
of Oregon Health Authority,

Defendants-Appellees,

*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
and

LYNNE SAXTON,

Defendant.

FAMILYCARE, INC., an Oregon non- No. 18-35891
profit corporation,
D.C. No. 6:18-cv-00296-MO
Plaintiff-Appellee,

v.

PATRICK ALLEN, in his individual
capacity,

Defendant-Appellant,

and

OREGON HEALTH AUTHORITY, an
agency of the State of Oregon; LYNNE
SAXTON,

Defendants.

FAMILYCARE, INC., an Oregon non- No. 18-36009
profit corporation,
D.C. No. 6:18-cv-00296-MO
Plaintiff-Appellee,

v.

LYNNE SAXTON,

2
 Defendant-Appellant,

and

PATRICK ALLEN, in his individual
capacity; OREGON HEALTH
AUTHORITY, an agency of the State of
Oregon,

Defendants.

FAMILYCARE, INC., an Oregon non- No. 18-36048
profit corporation,
D.C. No. 6:18-cv-00296-MO
Plaintiff-Appellant,

v.

LYNNE SAXTON,

Defendant-Appellee,

and

PATRICK ALLEN, in his individual
capacity; OREGON HEALTH
AUTHORITY, an agency of the State of
Oregon,

Defendants.

Appeal from the United States District Court
for the District of Oregon
Michael W. Mosman, District Judge, Presiding

3
 Argued and Submitted March 2, 2020
Portland, Oregon

Before: WOLLMAN,** FERNANDEZ, and PAEZ, Circuit Judges.

These appeals arise out of a 2014 contract between FamilyCare, Inc.

(FamilyCare) and the Oregon Health Authority (OHA). FamilyCare was a

Coordinated Care Organization (CCO)1 and participated in Oregon’s Medicaid2

program. The contract was subject to federal oversight by the Centers for

Medicare & Medicaid Services (CMS), which must “review[] and approve[] all of

Oregon[.s] contracts with [CCOs] and requires that capitation rates . . . be

actuarially sound.” Oregon v. Campbell, 438 P.3d 448, 456 (Or. Ct. App. 2019).

**
The Honorable Roger L. Wollman, United States Circuit Judge for the
U.S. Court of Appeals for the Eighth Circuit, sitting by designation.
1
See Or. Rev. Stat. §§ 414.620(1), 414.625(1). Oregon received a
demonstration waiver from the federal government for its Medicaid program,
pursuant to which Oregon’s CCOs meet the requirements of managed care
organizations (MCOs) under federal law. See 42 U.S.C. §§ 1315(a),
1396b(m)(1)(A); see also 42 C.F.R. § 438.2 (defining “[m]anaged care
organization (MCO)”).
2
See Planned Parenthood Ariz. Inc. v. Betlach, 727 F.3d 960, 963 (9th
Cir. 2013); see also 42 U.S.C. § 1315(a); Or. Rev. Stat. § 413.032(1)(i).
4
 The district court dismissed certain claims and granted or denied summary

judgment on others. We have jurisdiction pursuant to 28 U.S.C. § 1291,3 the

collateral order doctrine,4 and the doctrine of pendent jurisdiction.5 We affirm in

part, reverse in part, and vacate in part.

No. 19-35103

The district court properly granted summary judgment to OHA on

FamilyCare’s Oregon Administrative Procedure Act (APA)6 claims that OHA

failed to set actuarially sound capitation rates in 2017 and 2018. The parties agree

that Oregon law requires OHA to comply with federal Medicaid law. See, e.g., Or.

Rev. Stat. § 413.071; Or. Admin. R. 410-141-3010(7); see also Adamson v. Or.

Health Auth., 412 P.3d 1193, 1194, 1196 (Or. Ct. App. 2017). As relevant to the

contract at issue here,7 federal law explicitly requires CMS to “review[] and

approve[]” capitation rates “as actuarially sound,” describes the standards rates

3
See Fed. R. Civ. P. 54(b).
4
Isayeva v. Sacramento Sheriff’s Dep’t, 872 F.3d 938, 944–45 (9th
Cir. 2017).
5
Cunningham v. Gates, 229 F.3d 1271, 1284–85 (9th Cir. 2000).
6
Or. Rev. Stat. § 183.484(5)(a)–(c).
7
See 42 C.F.R. § 438.3(a).
5
must satisfy to qualify for approval,8 and defines “[a]ctuarially sound capitation

rates” to include both CMS approval and the criteria CMS uses to bestow that

approval.9 Because capitation rates cannot be approved by CMS unless they are

actuarially sound,10 CMS could not approve them if they were not.11 In light of

that truism, in these circumstances neither Oregon nor federal law required OHA to

do more than seek and obtain CMS approval of the 2017 and 2018 rates. Thus, the

district court did not err in granting summary judgment to OHA as to FamilyCare’s

Oregon APA claims.12

However, the district court erred in dismissing FamilyCare’s contract claim

against OHA, in which FamilyCare alleged that OHA had breached the implied

covenant of good faith and fair dealing in their 2014 contract, as amended and

extended, by presenting FamilyCare with unreasonable capitation rates in 2017 and

8
42 C.F.R. § 438.4(b)(1)–(9); see also id. at (a).
9
Id. at (a).
10
Id. at (a)–(b).
11
Of course, this does not mean that CMS could not approve a later
adjustment. Nor would it preclude a proper attack on a CMS determination
pursuant to the provisions of federal law. See 5 U.S.C. § 706; see also Douglas v.
Indep. Living Ctr. of S. Cal., Inc., 565 U.S. 606, 614, 132 S. Ct. 1204, 1210, 182 L.
Ed. 2d 101 (2012).
12
The district court properly entered judgment on all of FamilyCare’s
Oregon APA claims, because all shared a common factual basis: OHA’s purported
failure to set rates that were actuarially sound.
6
2018. The district court determined that the implied covenant of good faith and

fair dealing was inapplicable because each annual rate-setting amendment was

essentially a new contract. The district court failed to properly apply Oregon law13

to interpret the 2014 contract. It did not identify the contractual provision it

perceived to be disputed,14 nor did it examine extrinsic evidence of the parties’

intent, or apply maxims of construction to resolve the perceived ambiguity. The

district court also erred in failing to interpret the contract alleged in the operative

complaint— the 2014 contract, as amended and extended— as a whole. Thus, we

vacate the dismissal of FamilyCare’s contract claim and remand to allow the

district court to consider the contract to which FamilyCare’s claim applies.

No. 18-35593

The district court did not err in dismissing OHA’s declaratory judgment

action, which claimed that federal law preempted FamilyCare’s state law claims.

OHA argues that because the federal regulatory scheme governing actuarial

soundness is so extensive and specific, Congress intended to foreclose all state

13
Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ.,
489 U.S. 468, 474, 109 S. Ct. 1248, 1253, 103 L. Ed. 2d 488 (1989); see also
Yogman v. Parrott, 937 P.2d 1019, 1021–22 (Or. 1997); Riverside Homes, Inc. v.
Murray, 214 P.3d 835, 841 (Or. Ct. App. 2009).
14
Oregon law requires contracts of this type have a five-year term. See
Or. Rev. Stat. § 414.652(2)(a). That itself indicates that the yearly rate changes
were not new contracts at all.
7
action in that field. See Oneok, Inc. v. Learjet, Inc., 575 U.S. 373, 377, 135 S. Ct.

1591, 1595, 191 L. Ed. 2d 511 (2015). We disagree. Congress purposefully

structured Medicaid as a cooperative endeavor between the federal government and

the governments of individual states,15 and that structure plainly requires state

regulation; thus, Congress plainly did not intend to foreclose state action in the

Medicaid field. See N.Y. State Dep’t of Soc. Servs. v. Dublino, 413 U.S. 405, 411

n.9, 93 S. Ct. 2507, 2512 n.9, 27 L. Ed. 2d 688 (1973); id. at 421, 93 S. Ct. at 2517.

We also reject OHA’s attempt to infer preemption from the comprehensive nature

of the federal regulatory scheme, which is “virtually tantamount to saying that

whenever a federal agency decides to step into a field, its regulations will be

exclusive.” Hillsborough Ctv. Automated Med. Labs., Inc., 471 U.S. 707, 717, 105

S. Ct. 2371, 2377, 85 L. Ed. 2d 714 (1985); Dublino, 413 U.S. at 415, 93 S. Ct. at

2514. Moreover, the Supreme Court’s determination in Armstrong v. Exceptional

Child Ctr., Inc., 575 U.S. 320, 323–24, 328, 135 S. Ct. 1378, 1382, 1385, 191 L.

Ed. 2d 471 (2015), that the Medicaid Act had no private enforcement mechanism

says nothing about a Congressional intent to preclude a state from imposing its

own sanctions for violating federal requirements. See Bates v. Dow Agrosciences

15
Planned Parenthood, 727 F.3d at 963.
8
LLC, 544 U.S. 431, 441–42, 125 S. Ct. 1788, 1797, 161 L. Ed. 2d 687 (2005). The

district court properly dismissed OHA’s declaratory relief action.

Nos. 18-36009, 18-35891, and 18-36048

Patrick Allen and Lynne Saxton each appeal the district court’s denial of

qualified immunity from FamilyCare’s 42 U.S.C. § 1983 claim that they retaliated

against it for its constitutionally-protected speech. See Ashcroft v. Iqbal, 556 U.S.

662, 672, 129 S. Ct. 1937, 1946, 173 L. Ed. 2d 868 (2009); Isayeva, 872 F.3d at

944–45; see also Howard v. City of Coos Bay, 871 F.3d 1032, 1044 (9th Cir.

2017). FamilyCare cross-appeals the district court’s partial grant of qualified

immunity to Saxton. See Woodward v. City of Tucson, 870 F.3d 1154, 1159 (9th

Cir. 2017). The district court erred in denying Allen qualified immunity, and it

erred in granting Saxton qualified immunity in part.

An official should receive qualified immunity “unless the official’s conduct

violated a clearly established constitutional right.” Pearson v. Callahan, 555 U.S.

223, 232, 129 S. Ct. 808, 816, 172 L. Ed. 2d 565 (2009). In order for FamilyCare

to establish that its First Amendment rights were violated,“[it] must prove that (1)

[it] engaged in protected speech; (2) the defendants took an adverse . . . action

against [it]; and (3) [its] speech was a substantial or motivating factor for the

adverse . . . action.” Howard, 871 F.3d at 1044 (internal quotation marks omitted);

9
Clairmont v. Sound Mental Health, 632 F.3d 1091, 1101, 1102–03 (9th Cir. 2011)

(applying that test to an independent contractor). In order to show that its right

was clearly established, FamilyCare must demonstrate “‘that every reasonable

official would have understood that what he is doing violates that right.’” Mullenix

v. Luna, __ U.S. __, __, 136 S. Ct. 305, 308, 193 L. Ed. 2d 255 (2015) (per

curiam).

(1) Allen

FamilyCare argues that Allen retaliated against it. We disagree. Assuming

for present purposes that an independent contractor should be treated as a public

employee in the context presented here,16 Allen was entitled to summary judgment

as to the 2018 rate-setting because there was no genuine dispute of material fact

regarding whether FamilyCare’s speech was a substantial or motivating factor for

Allen’s commissioning the independent reports and retaining the rate

methodology. See Ellins v. City of Sierra Madre, 710 F.3d 1049, 1056, 1062 (9th

Cir. 2013). FamilyCare’s speculation about Allen’s motive is insufficient to show

a genuine dispute of material fact. See Pratt v. Rowland, 65 F.3d 802, 808 (9th

Cir. 1995); see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475

U.S. 574, 586, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986); Nat’l Indus., Inc. v.

16
See Clairmont, 632 F.3d at 1101
10
Republic Nat’l Life Ins. Co., 677 F.2d 1258, 1267 (9th Cir. 1982). Because

FamilyCare failed to adduce sufficient evidence that Allen acted with a retaliatory

motive, Allen was entitled to qualified immunity as to his rate-setting conduct. See

Keyser v. Sacramento City Unified Sch. Dist., 265 F.3d 741, 752–53 (9th Cir.

2001); Pratt, 65 F.3d at 808; see also Howard, 871 F.3d at 1045 (proximity in time

must be such “that a ‘jury logically could infer’” a retaliatory motive); Coszalter v.

City of Salem, 320 F.3d 968, 978 (9th Cir. 2003).

Allen was likewise entitled to summary judgment as to his conduct in

issuing the purported ultimatum and failing to timely provide the 2018 rates to

FamilyCare. FamilyCare presented no evidence that Allen’s issuing of essentially

empty threats during a negotiation, even if done in retaliation for protected activity,

rises to the level of a constitutional violation. Cf. Alpha Energy Savers, Inc. v.

Hansen, 381 F.3d 917, 923, 928 (9th Cir. 2004) (government agency workers

“tampered with files, altered bidding sheets, manipulated the department’s

computer database, and engaged in other schemes” to divert work from a

contractor who had engaged in protected speech). And even if Allen’s negotiation

tactics could amount to a constitutional violation in certain contexts, FamilyCare

points to no authority that clearly established a violation in the particular

circumstances presented here: an agency head making empty threats, or taking

11
obdurate and intransigent (or even bad faith) positions in contract amendment

negotiations with a sophisticated contractor that was ready and able to aggressively

assert and protect its rights. See Karl v. City of Mountlake Terrace, 678 F.3d 1062,

1073–74 (9th Cir. 2012). Thus, the district court should have granted Allen

qualified immunity from FamilyCare’s § 1983 claim.

(2) Saxton

FamilyCare also brought a § 1983 claim against Saxton for speech

retaliation, alleging that she retaliated against it by cutting its 2017 contract rates

and disparaging it in a public relations campaign.

As to the 2017 retaliatory rate-setting, we decline to consider Saxton’s

argument that she was entitled to qualified immunity because she failed to present

that argument to the district court. See Greisen v. Hanken, 925 F.3d 1097, 1115

(9th Cir. 2019); Crawford v. Lungren, 96 F.3d 380, 389 n.6 (9th Cir. 1996).

Moreover, we lack jurisdiction to review the district court’s denial of Saxton’s

motion for summary judgment arising from the 2017 rate-setting, and to consider

any of her arguments on appeal that fail to view the facts in the light most

favorable to FamilyCare. See Moss v. U.S. Secret Serv., 572 F.3d 962, 972–73 (9th

Cir. 2009).

12
 As to the public relations campaign, we hold that the district court erred in

partially granting Saxton qualified immunity because, taking the facts in the light

most favorable to FamilyCare,17 it was clearly established that Saxton’s conduct

violated the Constitution. At the time Saxton acted, a reasonable official would

have been on notice that retaliating against a contractor’s protected speech with a

campaign that improperly disparaged it, while simultaneously reducing the

contractor’s compensation, violated the contractor’s First Amendment rights. See

Greisen, 925 F.3d at 1113–14; Allen v. Scribner, 812 F.2d 426, 434 & n.17 (9th

Cir.), amended by 828 F.2d 1445 (9th Cir. 1987). FamilyCare presented sufficient

evidence suggesting that Saxton retaliated against its protected speech by

implementing the campaign. On this record, whether Saxton’s statements were

accurate or she had a benign motive were quintessential disputes of fact that could

not be resolved at the summary judgment stage. See Allen, 812 F.2d at 435; see

also O’Brien v. Welty, 818 F.3d 920, 932 (9th Cir. 2016). Thus, the district court

should have denied her motion for summary judgment in full.

AFFIRMED in part and VACATED in part in No. 19-35103;

AFFIRMED in Nos. 18-35593 and 18-35891; REVERSED in Nos. 18-36009

and 18-36048. The parties shall bear their own costs in No. 19-35103.

17
See Isayeva, 872 F.3d at 945.
13