[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
______________________ AUGUST 17, 2001
THOMAS K. KAHN
No. 00-15005 CLERK
______________________
D.C. Docket No. 00-00026-CV-HLM-4
NICCIE MCCLENDON,
Individually and as Administrator of
the Estate of Alton McClendon and on
behalf of those similarly situated, BESSIE
HOGAN , individually and on behalf of
those similarly situated, et al.,
Plaintiffs-Appellants,
versus
GEORGIA DEPARTMENT OF COMMUNITY HEALTH,
RUSSELL TOAL, in his official capacity as
Commissioner of the Department of Community Health, et al.,
Defendants-Appellees.
______________________
Appeal from the United States District Court for the
Northern District of Georgia
______________________
(August 17, 2001)
Before CARNES, COX and NOONAN*, Circuit Judges.
CARNES, Circuit Judge:
This lawsuit is an attempt by Medicaid recipients in Georgia who have been
injured by the use of tobacco products to obtain from the State a portion of the
proceeds that it is due to receive under the $206 billion “Master Settlement
Agreement” consummated by the tobacco industry and 46 states in 1998. Georgia
is scheduled to receive $4.8 billion under that agreement, and the plaintiffs contend
that the Medicaid Act, 42 U.S.C. §§ 1396 et seq., entitles them to some of that
money. The defendants, who are various Georgia officials and a State agency,
think otherwise. The district court held that the lawsuit was barred by the Eleventh
Amendment. We affirm that holding as to the state agency, but do not reach the
more difficult issue of whether the Eleventh Amendment bars the lawsuit insofar as
the state officials are concerned, because we conclude that it lacks merit anyway.
I. BACKGROUND
On August 19, 1997, the State of Georgia and two State officials filed suit in
the superior court of Fulton County against six cigarette manufacturers and others
(“tobacco companies”), alleging that they had “unlawfully shifted the financial
*
Honorable John T. Noonan, Jr., U. S. Circuit Judge for the Ninth Circuit, sitting by
designation.
2
responsibility” to the State for the health care costs attributable to their “addictive,
injurious, and unreasonably dangerous products.” The complaint contained eleven
counts alleging violations of state law and requesting monetary and equitable
relief.1 It sought restitution “in excess of 2.78 billion dollars” for medical
assistance that the State estimated it had paid on behalf of Medicaid recipients who
suffered from tobacco-related injuries and illnesses.
The lawsuit was settled. On November 23, 1998, Georgia, and 45 other
states, entered into an agreement with the Tobacco companies known as the
“Master Settlement agreement.” As part of that agreement, the tobacco companies
agreed to pay Georgia an estimated $4.8 billion over the course of 25 years, with
the first payment of $58.9 million coming in December of 1999.
The settlement agreement stipulates that the payments are in settlement of
“antitrust, consumer protection, common law negligence, statutory, common law
and equitable claims for monetary, restitutionary, equitable and injunctive relief”
1
Specifically, the complaint alleged: (1) violations of Georgia’s RICO statute,
O.C.G.A. § 16-14-1 et seq.; (2) violations of the Georgia Uniform Deceptive Trade Practices
Act, O.C.G.A. § 10-1-372; (3) violations of the Georgia Fair Business Practices Act, O.C.G.A. §
10-1-393; (4) conspiracy; (5) negligence; (6) strict product liability; (7) that the State was
entitled to Medicaid reimbursement from the Tobacco companies under O.C.G.A. § 49-4-148 “in
excess of 2.78 billion dollars”; (8) that the State was entitled to restitution for its tobacco-related
expenses; (9) violation of the Tobacco companies’ “special duty” to the public; and (10) fraud
and deceit. Count eleven, which contained the prayer for relief, sought various forms of
injunctive and compensatory relief.
3
brought by the settling states against the tobacco companies. It defines “Released
Claims” as follows:
(1) for past conduct, acts or omissions (including any damages
incurred in the future arising from such past conduct, acts, or
omissions), those Claims directly or indirectly based on, arising out of
or in any way related, in whole or in part, to (A) the use, sale,
distribution, manufacture, development, advertising, marketing or
health effects of, (B) the exposure to, or (C) research, statements, or
warnings regarding, Tobacco Products (including, but not limited to,
the Claims asserted in the actions identified in Exhibit D, or any
comparable Claims that were, could be or could have been asserted
now or in the future in those actions or in any comparable action in
federal, state or local court brought by a Settling State or a Releasing
Party (whether or not such Settling State or Releasing Party has
brought such action)), except for claims not asserted in the actions
identified in Exhibit D for outstanding liability under existing
licensing (or similar) fee laws or existing tax laws (but not excepting
claims for any tax liability of the Tobacco-Related Organizations or of
any Released Party with respect to such Tobacco-Related
Organizations, which claims are covered by the release and covenants
set forth in this Agreement);
(2) for future conduct, acts or omissions, only those monetary Claims
directly or indirectly based on, arising out of or in any way related to,
in whole or in part, the use of or exposure to Tobacco Products
manufactured in the ordinary course of business, including without
limitation any future Claims for reimbursement of health care costs
allegedly associated with the use of or exposure to Tobacco Products.
The settlement agreement also defines the “Releasing Parties”:
(pp) “Releasing Parties” means each Settling State and any of its past,
present, and future agents, officials acting in their official capacities,
legal representatives, agencies, departments, commissions and
divisions; and also means, to the full extent of the power of the
signatories hereto to release past, present, and future claims, the
4
following: (1) any Settling State’s subdivisions (political or
otherwise, including, but not limited to, municipalities, counties,
parishes, villages, unincorporated districts and hospital districts),
public entities, public instrumentalities and public educational
institutions; and (2) persons or entities acting in a parents patriae,
sovereign, quasi-sovereign, private attorney general, qui tam,
taxpayer, or any other capacity, whether or not any of them participate
in this settlement, (A) to the extent that any such person or entity is
seeking relief on behalf of or generally applicable to the general
public in such Settling State or the people of the State, as opposed
solely to private or individual relief for separate and distinct injuries,
or (B) to the extent that any such entity (as opposed to an individual)
is seeking recovery of health-care expenses (other than premium or
capitation payments for the benefit of present or retired state
employees) paid or reimbursed, directly or indirectly, by a Settling
State.
As the quoted provisions indicate, by entering into the settlement agreement
Georgia released its past and future claims against the tobacco companies relating
to the manufacture and use of tobacco products, but it did not purport to release
private or individual claims based on separate and distinct injuries; those were
expressly excepted from release.
The plaintiffs in this case are individuals who suffer or have suffered from a
variety of illnesses caused by the use of tobacco products, and who have been
recipients of medical assistance payments under Georgia’s federally supported
Medicaid program. They brought this putative class action in January 27, 2000
on behalf of themselves and others similarly situated, alleging violations of the
Medicaid Act and the Fifth and Fourteenth Amendments to the United States
5
Constitution. They contend that federal law, 42 U.S.C. § 1396k(b), entitles them to
that amount of the settlement proceeds Georgia is scheduled to receive which
exceeds the amount the State has actually expended on medical assistance. The
defendants are the Georgia Department of Community Health, which, through its
Division of Medical Assistance, is responsible for administering Georgia’s
Medicaid program,2 as well as various State officials.
The complaint in this case asks for declaratory and injunctive relief,
specifically requesting that orders be issued requiring the defendants “to disburse
to the Plaintiffs ... that portion of the tobacco litigation settlement proceeds that
belong to the Plaintiffs,” and enjoining the defendants “to provide to each and
every member of the plaintiff class due process of law concerning all property
previously taken,” including notice, information and documents regarding each
plaintiff’s share of the settlement proceeds, and hearings to allow individual
plaintiffs to challenge denials of those proceeds. The complaint includes claims
that the defendants violated the Medicaid Act, 42 U.S.C. § 1396a(25)(A)-(B), by
failing to seek reimbursement from third parties for medical assistance payments
made by the State, and that the defendants “have violated and are violating federal
2
The Georgia Department of Community Health has assumed “powers and
responsibility with respect to the expenditure of any funds appropriate to the department,
including, without being limited to, funds received by the state pursuant to the [settlement
agreement.]” O.C.G.A. § 31-5A-4(a).
6
law” by failing to distribute a portion of the settlement proceeds to the plaintiffs.
However, at least before this Court, the plaintiffs have abandoned any claims about
past violations of federal law, and insist that they seek only “future compliance
with federal law at each future point when the federal law becomes applicable to
collected funds.” Brief for Appellant at 26, McClendon v. Ga. Dept. of Cmty.
Health, ___ F.3d ___ (11th Cir. 2001) (No. 00-15005).
The district court granted the defendants’ motion to dismiss on the ground
that, under the Eleventh Amendment, the court lacked subject-matter jurisdiction
to entertain the plaintiffs’ suit.
II. CONTENTIONS OF THE PARTIES
The plaintiffs contend that notwithstanding the dictates of the Eleventh
Amendment, their suit is permissible under the doctrine announced in Ex Parte
Young, 209 U.S. 123, 28 S. Ct. 441 (1908). The Young doctrine permits federal
courts to entertain suits against state officers seeking prospective equitable relief to
end continuing violations of federal law. See Summit Med. Assocs., P.C. v. Pryor,
180 F.3d 1326, 1336 (11th Cir. 2000), cert. denied, 120 S. Ct. 1287 (2000)
(“Summit Medical”). According to the plaintiffs, the relief they seek is prospective
because the defendants will not violate federal law, 42 U.S.C. § 1396k(b), until
some time in the future, when Georgia receives settlement proceeds from the
7
tobacco companies in excess of the State’s actual medical assistance payments, and
unlawfully fails to disburse those excess proceeds to them. The plaintiffs claim
that point has not yet been reached and will not be reached until years in the future.
The defendants argue that the district court correctly determined that the
Eleventh Amendment bars the plaintiffs’ claims because those claims are not for
prospective relief, but instead are claims for money damages based on a past
violation of federal law. The defendants also argue that, even if the plaintiffs’ suit
fits within the Ex Parte Young doctrine, it is still barred by the Eleventh
Amendment because the relief the plaintiffs seek would infringe on Georgia’s
“special sovereignty interests” in controlling property received in the settlement of
a lawsuit. In the alternative, the defendants argue, the plaintiffs have failed to state
a claim upon which relief can be granted. The plaintiffs, of course, maintain that
they have stated a valid claim for relief.
III. DISCUSSION
A. THE ELEVENTH AMENDMENT
The Eleventh Amendment provides that “[t]he judicial power of the United
States shall not be construed to extend to any suit in law or equity, commenced or
8
prosecuted against one of the United States by Citizens of another State, or by
Citizens or subjects of any Foreign State.” U.S. Const. Amend. XI. Though by its
plain terms the Eleventh Amendment only precludes federal courts from
entertaining suits against a state brought by citizens of another state, it has been
construed to bar suits against a state brought by that state’s own citizens as well.
See, e.g., Bd. of Trs. of Univ. of Ala. v. Garrett, 531 U.S. 356, 121 S. Ct. 955, 961-
62 (2001). The Amendment is rooted in the recognition that states, though part of
a union, retain attributes of sovereignty, including immunity from being compelled
to appear in the courts of another sovereign against their will. See Puerto Rico
Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 146 & n.5, 113 S.
Ct. 684, 689 & n.5 (1993); Dekalb County Sch. Dist. v. Schrenko, 109 F.3d 680,
688 (11th Cir. 1997). In short, the Eleventh Amendment’s ultimate guarantee is
that nonconsenting states may not be sued by private individuals in federal court.
See Garrett, 531 U.S. 356, 121 S. Ct. at 962; Kimel v. Fla. Bd. of Regents, 528
U.S. 62, 72-73, 120 S. Ct. 631, 640 (2000).
Because the Eleventh Amendment represents a constitutional limitation on
the federal judicial power established in Article III, see Pennhurst State Sch. &
Hosp. v. Halderman, 465 U.S. 89, 98, 104 S.Ct. 900, 906-07 (1984), federal courts
lack jurisdiction to entertain claims that are barred by the Eleventh Amendment.
9
See Vermont Agency of Natural Res. v. United States, 529 U.S. 765, 778, 120 S.
Ct. 1858, 1865 (2000); Pennhurst, 465 U.S. at 98, 104 S.Ct. at 906 (The
significance of the Eleventh Amendment “lies in its affirmation that the
fundamental principle of sovereign immunity limits the grant of judicial authority
in Art. III.”) (internal marks and citation omitted). In accordance with the
jurisdictional nature of the Eleventh Amendment’s limitation on judicial authority,
the Supreme Court has held that the “Eleventh Amendment defense ... need not be
raised in the trial court,” Edelman v. Jordan, 415 U.S. 651, 678, 94 S. Ct. 1347,
1363 (1974), and may be raised for the first time by a state on appeal, see Ford
Motor Co. v. Dept. of Treasury, 323 U.S. 459, 467, 65 S. Ct. 347, 352 (1945).
But the jurisdictional bar embodied in the Eleventh Amendment is a “rather
peculiar kind of ‘jurisdictional’ issue.” United States v. SCS Bus. & Tech. Inst.,
Inc., 173 F.3d 890, 892 (D.C. Cir. 1999). Unlike most subject matter jurisdiction
issues, which cannot be waived by the parties and must be raised by a court on its
own initiative, the Eleventh Amendment does not automatically deprive a court of
original jurisdiction. Wisconsin Dept. of Corrections v. Schacht, 524 U.S. 381,
389, 118 S. Ct. 2047, 2052 (1998); see Calderon v. Ashmus, 523 U.S. 740, 745
n.2, 118 S. Ct. 1694, 1697 n.2 (1998) (“While the Eleventh Amendment is
jurisdictional in the sense that it is a limitation on the federal court’s judicial
10
power, ... we have recognized that it is not coextensive with the limitations on
judicial power in Article III.”). “Rather,” the Supreme Court has explained, “the
Eleventh Amendment grants the State a legal power to assert a sovereign immunity
defense should it choose to do so.” Schacht, 524 U.S. at 389, 118 S. Ct. at 2052.
This understanding of the Eleventh Amendment as a volitional defense is manifest
in decisions allowing it to be waived by the state, see, e.g., Atascadero State Hosp.
v. Scanlon, 473 U.S. 234, 241, 105 S. Ct. 3142, 3146-47 (1985), or ignored by the
court if not raised, see, e.g., Patsy v. Bd. of Regents of Fla., 457 U.S. 496, 515
n.19, 102 S. Ct. 2557, 2567, n.19 (1982). Thus, unlike other jurisdictional bars,
federal courts are required to consider whether the Eleventh Amendment strips
them of jurisdiction only if the state defendant insists that it does.
The Supreme Court’s decision in Patsy illustrates the elective nature of the
Eleventh Amendment’s jurisdictional bar. See 457 U.S. 496, 102 S. Ct. 2557. In
that case the defendant, the Board of Regents of the State of Florida, raised an
Eleventh Amendment defense in its brief to the original court of appeals panel, and
in its response in opposition to the plaintiff’s petition for certiorari. See id. at 515
n.19, 102 S. Ct. at 2567 n.19. Although the Eleventh Amendment defense had
been raised by the defendant before the case reached that level, the Supreme Court
declined to consider whether it barred the plaintiff’s suit, explaining that “we have
11
never held that [the Eleventh Amendment] is jurisdictional in the sense that it must
be raised and decided by this Court on its own motion.” Id. The defendant in
Patsy had “expressly requested” that the Court not pass on the State’s potential
Eleventh Amendment immunity and, consequently, the Court disposed of the case
solely on the merits. Id. In doing so, the Court noted that its disposition of the
case did not “preclude[] the Board of Regents from raising its Eleventh
Amendment claim on remand.” Id.
The defendants in this case have put forth two alternative bases for affirming
the district court’s dismissal of the plaintiffs’ claims. They contend that we can
dismiss this lawsuit either because the Eleventh Amendment deprives us of
jurisdiction to consider it, or because the plaintiffs’ complaint fails to state a claim
upon which relief can be granted. After summarizing their Eleventh Amendment
defense, the defendants stated in their reply brief that “[t]he dismissal of [the
plaintiffs’] complaint can also be affirmed on the ground that [their] complaint
failed to state a claim upon which relief could be granted.” Brief for Appellant at
11, McClendon v. Ga. Dept. of Cmty. Health, ___ F.3d ___ (11th Cir. 2001) (No.
00-15005). At oral argument before this Court, counsel for the defendants stated
that “[e]ither [the Eleventh Amendment or the plaintiffs’ failure to state a claim] is
sufficient basis to affirm [the district court’s] decision.”
12
We interpret the defendants’ position as a conditional assertion of Eleventh
Amendment sovereign immunity – they insist upon that defense only if it is
necessary to prevent judgment against them on the merits. In other words, the
defendants are willing to withhold the assertion of the Eleventh Amendment
provided that our disposition of the merits issue is favorable to them. Only if we
are going to decide the merits issue against them do they insist upon a ruling on the
Eleventh Amendment issue. Because the Eleventh Amendment “grants the State a
legal power to assert a sovereign immunity defense should it choose to do so,”
Schacht, 524 U.S. at 389, 118 S. Ct. at 2052, the defendants are free to
conditionally assert that defense in order to allow a federal court to decide in their
favor on the merits. Accord United States ex rel. Long v. SCS Bus. & Tech. Inst.,
Inc., 173 F.3d 890, 893 (D.C. Cir. 1999); Parella v. Ret. Bd., 173 F.3d 46, 53-57
(1st Cir. 1999); see also Floyd v. Thompson, 227 F.3d 1029, 1035 (7th Cir. 2000).
But see United States v. Tex. Tech Univ., 171 F.3d 279 (5th Cir. 1999) (holding
that federal courts must consider Eleventh Amendment defense before addressing
merits).1
1
The defendants are represented by Georgia’s Attorney General. In Lapides v. Board of
Regents, 251 F.3d 1372, 1374-76 (11th Cir. 2001), we held that Georgia’s Attorney General
does not possess the authority to waive the State’s Eleventh Amendment immunity from suit.
But that case dealt with an unconditional waiver of the Eleventh Amendment, not the conditional
assertion of it. Accordingly, the holding of Lapides is not controlling here.
13
The proposition that a federal court may consider the merits before
determining the applicability of an Eleventh Amendment immunity defense when a
state invites it to do so may appear to conflict with our decision in Seaborn v.
Florida, 143 F.3d 1405 (11th Cir. 1998), but we do not believe there is a conflict
when the holding of that case is limited to the circumstances that gave rise to it. In
Seaborn, we did say that “an assertion of Eleventh Amendment immunity must be
resolved before a court may address the merits of the underlying claim(s).” Id. at
1407 (citing Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 93-101, 118 S.
Ct. 1003, 1012-16 (1998)).2 However, in contrast to the defendants here, there is
no indication that the defendants in Seaborn expressed a willingness to permit the
court to reach the merits instead of considering the Eleventh Amendment issue.
Because the defendants in this case have conditionally consented to us bypassing
2
The Supreme Court in Steel Co. rejected the doctrine of “hypothetical jurisdiction,” a
practice previously adopted by this Court whereby we would hypothetically assume jurisdiction
over a case and then proceed to dismiss the case on the merits. See, e.g., Smith v. Avino, 91
F.3d 105, 107 (11th Cir. 1996), abrogated by Steel Co., 523 U.S. at 93-101, 118 S. Ct. at 1012-
16. The Court in Steel Co. reasoned that courts should confront jurisdictional questions before
delving into the merits of a particular case, because jurisdiction is a “question the court is bound
to ask and answer for itself, even when not otherwise suggested ....” Id. at 94, 118 S. Ct. at 1012
(internal marks and citation omitted). Two of our sister circuits have questioned the applicability
of Steel Co.’s holding in the context of Eleventh Amendment sovereign immunity. See United
States ex rel. Long v. SCS Bus. & Tech. Inst., Inc., 173 F.3d 890, 893-97 (D.C. Cir. 1999)
(“[T]he quasi-jurisdictional or ‘hybrid’ status of the Eleventh Amendment raises questions about
Steel Co.’s applicability in this context ....”) (citations omitted); Parella v. Ret. Bd., 173 F.3d 46,
54-57 (1st Cir. 1999) (“Eleventh Amendment issues do not fall into the category of Article III
questions that Steel Co. would define as necessarily antecedent.”).
14
the Eleventh Amendment issue and proceeding directly to the merits, this is a
different case than Seaborn. See generally United States v. Aguillard, 217 F.3d
1319, 1321 (11th Cir. 2000) (“The holdings of a prior decision can reach only as
far as the facts and circumstances presented to the Court in the case which
produced that decision.”) (quoting, Carnes, J., concurring in United States v.
Hunter, 172 F.3d 1307, 1309 (11th Cir. 1999)).
The Seventh Circuit faced virtually identical issues to those we face here, in
a lawsuit brought by plaintiffs in the State of Wisconsin seeking part of that
State’s tobacco settlement proceeds. Floyd v. Thompson, 227 F.3d 1029 (7th Cir.
2000). Recognizing that the Eleventh Amendment issues were “complex,” the
Court declined to decide them. Instead, explaining “[t]he Supreme Court has
indicated that the Eleventh Amendment occupies its own unique territory,” the
Seventh Circuit concluded that it could sidestep the Eleventh Amendment issues
because the claims lacked merit, anyway. Id. at 1035 - 37. We agree that such an
approach is permissible, at least where it is invited by the defendants as it is in this
case. See generally Patsy, 457 U.S. at 515 n.19, 102 S. Ct. at 2567 n.19 (“[W]e
have never held that [the Eleventh Amendment] is jurisdictional in the sense that it
must be raised and decided by this Court on its own motion.”).
15
Of course, a state or its officials cannot force a federal court to decide the
merits of a claim before addressing the Eleventh Amendment issue, and we can
raise an Eleventh Amendment issue on our own motion. Whiting v. Jackson State
University, 616 F.2d 116, 126 n.8 (5th Cir. 1980). Our holding is limited to the
conclusion that the conditional assertion of the Eleventh Amendment gives a
federal court the discretion to dispose of the merits favorably to the state or its
officials if it chooses to do so. Given modern caseload burdens, one of the
paramount considerations in deciding whether to accept such an invitation will be
the difficulty of the Eleventh Amendment issues compared to the merits issues.
See Parella, 173 F.3d at 56 (“[A]voiding Eleventh Amendment questions where
there are other dispositive issues ... permits courts to avoid squandering judicial
resources.”). Here, there is nothing difficult about the Eleventh Amendment issue
as it relates to the claims against the Georgia Department of Public Health – those
claims are clearly barred by the Amendment. See Alabama v. Pugh, 438 U.S. 781,
782, 98 S.Ct. 3057, 3057 (1978). So, we affirm the district court’s dismissal of the
state agency on that ground. However, the Eleventh Amendment issues involving
the state officials, which entail the application of the Ex Parte Young exception,
are much thornier. See Floyd, 227 F.3d at 1034-35. The difficulty of those
Eleventh Amendment issues, coupled with the fact that the merits issues are open
16
and shut in favor of the defendants, causes us to exercise our discretion to look
around the Eleventh Amendment issues involving the state official defendants to
the merits.
B. FAILURE TO STATE A CLAIM
We begin our discussion of the merits of the plaintiffs’ claims with a sketch
of the relevant statutory and regulatory provisions that form the basis for those
claims.
Medicaid is a cooperative federal and state program designed to finance
health care services for the indigent. It was established by Title XIX of the Social
Security Act, 42 U.S.C. §§ 1396 et seq. (“Medicaid Act”), and is administered in
Georgia by the Department of Community Health, see O.C.G.A. § 49-4-142(a). As
a voluntary participant in the Medicaid program, Georgia is “obligated to comply
with the requirements of the Medicaid Act and corresponding regulations.” Fla.
Ass’n. of Rehab. Facilities, Inc. v. Fla. Dep’t of Health & Rehab. Servs., 225 F.3d
1208, 1216 n.5 (11th Cir. 2000); see 42 U.S.C. § 1396a; O.C.G.A. § 49-4-157 (“It
is the intention of [the State of Georgia] that this article be construed consistently
with Title XIX ....”).
One requirement of the Medicaid Act is that Georgia provide, as a condition
of eligibility to receive benefits under its Medicaid program, that individuals assign
17
to the State any rights to payment for medical care from third parties. See 42
U.S.C. § 1396k(a).3 Georgia has implemented this federal command through
Section 49-4-149 of its state code, which provides that:
A recipient of medical assistance who receives medical care for which
the department may be obligated to pay shall be deemed to have made
assignment to the department of any rights of such person to any
payments for such medical care from a third party, up to the amount
of medical assistance actually paid by the department .... The
assignment created by this subsection shall be effective until the
recipient of medical assistance is no longer an eligible recipient for
medical assistance.
O.C.G.A. § 49-4-149(d); see also id. § 49-4-148 (Georgia Department of
Community Health may seek reimbursement from third party who is legally liable
3
Section 1396k(a) states:
(a) For the purpose of assisting in the collection of medical support payments for
medical care owed to recipients of medical assistance under the State plan
approved under this subchapter, a State plan for medical assistance shall –
(1) provide that, as a condition of eligibility for medical assistance under
the State plan to an individual who has the legal capacity to execute an
assignment for himself, the individual is required –
(A) to assign the State any rights, of the individual or of any other person
who is eligible for medical assistance under this subchapter and on whose
behalf the individual has the legal authority to execute an assignment of
such rights, to support (specified as support for the purpose of medical
care by a court or administrative order) and to payment for medical care
from a third party.
42 U.S.C. § 1396k(a).
18
to pay for recipient’s medical assistance and may be subrogated “only to the extent
of such reasonable value of the medical assistance paid”).
The Medicaid Act regulates the distribution of proceeds collected by states
from third parties under an assignment of rights “in a manner that parallels the
usual subrogation rules.” Floyd v. Thompson, 227 F.3d 1029, 1032 (7th Cir.
2000). The Act provides that:
Such part of any amount collected by the State under an assignment
made under the provisions of this section shall be retained by the State
as is necessary to reimburse it for medical assistance payments made
on behalf of an individual with respect to whom such assignment was
executed (with appropriate reimbursement of the Federal Government
to the extent of its participation in the financing of such medical
assistance), and the remainder of such amount collected shall be paid
to such individual.
42 U.S.C. § 1396k(b). As this provision indicates, in the event that Georgia
recovers monies from a third party under the Medicaid recipients’ assignment of
rights, the State must retain only that amount of money necessary to reimburse it
for its actual medical assistance payments, must reimburse the federal government
to the extent of its participation in financing those payments and, lastly, must pay
“the remainder of such amount collected” to individual Medicaid recipients. See
also 42 C.F.R. § 433.154 (the state must distribute collections to itself, to the
federal government and, lastly, to individual recipients).
19
The plaintiffs contend that Georgia’s portion of the settlement proceeds is
subject to the disbursement requirements in § 1396k(b), because those proceeds are
being collected by the State “under an assignment of rights.” They maintain that
the total amount Georgia is scheduled to receive under the settlement agreement,
roughly $4.8 billion, exceeds the amount the State spent on medical assistance.
Accordingly, the plaintiffs argue, § 1396k(b) of the Medicaid Act requires Georgia
to distribute that excess money to them.
In deciding the merits of the plaintiffs’ claims, we will assume as they
contend, that Georgia’s $4.8 billion recovery is being or will be collected “under
an assignment” within the meaning of 42 U.S.C. § 1396k(b). Still, that provision
states that Georgia shall retain “[s]uch part of any amount collected by the State
under an assignment made under the provisions of this section ... necessary to
reimburse it for medical assistance payments made on behalf of an individual with
respect to whom such assignment was executed ....” Id. That clearly means
plaintiffs have a valid claim, if at all, only to amounts Georgia has or will receive
under the settlement agreement that exceed what the State spent providing medical
assistance. See 42 U.S.C. § 1396k(b); see also 42 C.F.R. § 433.154.
The problem for the plaintiffs is that Georgia cannot collect “under an
assignment” anything beyond what it actually spent on medical assistance, because
20
under the state’s Medicaid law the only thing the plaintiffs assigned to Georgia
were their rights to collect payments “up to the amount of medical assistance
actually paid by the [State].” See O.C.G.A. § 49-4-149(d) (“A [Medicaid]
recipient ... shall be deemed to have made assignment to the [State] of any rights of
such person to any payments for such medical care from a third party, up to the
amount of medical assistance actually paid by the [State] ....”); see also 42 C.F.R. §
433.146(c). The plaintiffs assigned to Georgia their rights to collect only the
amount the State had spent on medical treatment, which under § 1396k(b) is the
State’s own share of the settlement proceeds. We agree with the Seventh Circuit
that because “there is nothing in the [settlement agreement] to which the plaintiffs
may assert a claim,” Floyd, 227 F.3d at 1037, they have failed to state a claim upon
which relief may be granted. Accord Skillings v. Illinois, 121 F. Supp.2d 1235,
1237-38 (C.D. Ill. 2000); Clark v. Stovall, No. 00-4054 (D. Kan. March 2, 2001);
see also Strawser v. Lawton, 126 F. Supp. 2d 994, 1001 (S.D. W.Va. 2001) (dicta);
Cal. v. Superior Court, 99 Cal. Rptr. 2d 735, 742 n.10 (Cal. Ct. App. 2000).
Our conclusion is reinforced by the terms of the settlement agreement, which
defines “Releasing Parties” as the various settling states, their subdivisions, and
representatives, but which explicitly excludes from the release persons seeking
“solely ... private or individual relief for separate and distinct injuries.” By that
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means, the agreement preserves the plaintiffs’ right to sue the tobacco companies
for their tobacco-related injuries and illnesses. See Floyd, 227 F.3d at 1037 (“[The
settlement agreement] did not purport to extinguish the claims of individual
persons who were not part of the settlement process...”); Strawser, 126 F. Supp. 2d
at 1001-02. The reason the agreement preserved all claims of these plaintiffs and
those like them is that the settlement proceeds were paid only for other claims –
those covering the interests of the settling states themselves. The plaintiffs are not
entitled to any of the settlement proceeds now or in the future.
IV. CONCLUSION
We AFFIRM the dismissal of the complaint on Eleventh Amendment
grounds as to the Georgia Department of Public Health. Whether the complaint
should have been dismissed on Eleventh Amendment grounds insofar as the state
official defendants are concerned is an issue we need not address, because the
complaint clearly fails to state a claim upon which relief can be granted. We
VACATE the district court’s dismissal on Eleventh Amendment grounds as to the
state official defendants and REMAND with instructions that the complaint be
dismissed under Fed. R. Civ. P. 12(b)(6).
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NOONAN, Circuit Judge, concurring in the judgment:
This action is barred by 42 U.S.C. § 1396b(d)(3)(B)(ii).
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