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Affiliates, Inc.; Human Service Connection, Inc.; H.A.S., Inc v. Richard Armstrong and Leslie Clement

August 23, 2011

AFFILIATES, INC.; HUMAN SERVICE CONNECTION, INC.; H.A.S., INC.,
ALTERNATIVE NURSING SERVICES, INC.; A WAY THROUGH COUNSELING CENTER, INC.;
CENTRAL IDAHO AFFILIATES, INC.; DUNSTAN HALL & ASSOCIATES, INC.;
PROVIDER AFFILIATE AGENCY, INC.;
ROBINSON & AFFILIATES, INC.; SCOTT COMMUNITY CARE, PLLC; TOMORROW'S HOPE SATELLITE SERVICES, INC.; WILLIAMS & URALDE, INC., PLAINTIFFS,
v.
RICHARD ARMSTRONG AND LESLIE CLEMENT, IN THEIR OFFICIAL CAPACITIES, DEFENDANTS.



The opinion of the court was delivered by: B. Lynn WINMILLChief U.S. District Court Judge

MEMORANDUM DECISION AND ORDER

Before the Court is Plaintiffs' Motion for Leave to File Second Amended Complaint (Dkt. 57). The matter is fully briefed and at issue. The Court has determined that oral argument will not materially contribute to the decisional process. Being familiar with the parties' briefing and the record in this case, the Court will deny the motion for reasons set forth below.

BACKGROUND

Plaintiffs in Affiliates v. Armstrong are providers of Residential Habilitation Affiliation services who contract with the State of Idaho and its Medicaid program. Complaint, ¶ 1, Dkt. 1-4. Plaintiffs work with Certified Family Home providers in the state of Idaho to provide developmentally disabled individuals the Medicaid-covered service referred to in Idaho regulations as "affiliation." Id. "Affiliation" includes provision of "oversight, training, and quality assurance to the certified home provider," IDAPA 16.03.10.705.01, as well as development and execution of plans describing the services provided by the provider to the Medicaid participant. Scott Dec., ¶ 11, (Case No. 1:11-cv-00307) Dkt. 2-2.

In 2009, the Idaho Department of Health and Welfare (IDHW) proposed modifications to the rate structure and rates paid to the Affiliates Plaintiffs through Medicaid. Id. Plaintiffs filed suit against Richard Armstrong as Director of IDHW, and Leslie Clement, as Administrator of the Medicaid Division of IDHW. Id. ¶ 3. Plaintiffs sought a temporary restraining order, asserting that the proposed changes were preempted by federal law and prohibited by Idaho law. Id. ¶ 1. The Honorable Justin L. Quackenbush, sitting by designation for the District of Idaho, issued an order on April 30, 2009, granting the Temporary Restraining Order. Order, Dkt. 17.

The parties entered stipulated preliminary injunctions on May 27, 2009 and June 25, 2009 (Dkts. 27, 28). Defendants then filed a Motion for Permanent Injunction and Judgment (Dkt. 30). Plaintiffs stipulated to entry of a permanent injunction, but asserted that final judgment was premature. On January 22, 2010, the Honorable William F. Downes, sitting by designation for the District of Idaho, issued an order granting in part, and denying in part, Defendants' motion. Order, Dkt. 45.

Judge Downes agreed with Defendants that the Eleventh Amendment bars claims potentially resulting in retrospective relief, but agreed with Plaintiffs that exhaustion was inapplicable. Id. at 8, 11. The Court permitted Plaintiffs to amend the Complaint "to include claims challenging the current rate established in 2003," and thus found that entry of final judgment was inappropriate. Id. at 11.

In 2010 and 2011, the Idaho Legislature directed the IDHW's Division of Medicaid to implement selective contracts in order to "provide the appropriate incentives" and improve the system of payment for health care delivery, "with the objective of moving toward an accountable health care system that results in improved health outcomes." 2011 Idaho Sess. Laws ch. 160 § 12 (codified at Idaho Code § 56-261(1)). The IDHW sought proposals in February 2011, for a single contractor to provide all program coordination services in Certified Family Homes. Dunagan Dec., Dkt. 61-2, ¶ 7. On June 3, 2011, the IDHW contracted with Community Partnerships of Idaho to be the sole provider of program coordination in Certified Family Homes. Ex. 2 to Dunagan Dec., Dkt. 61-4. The IDHW informed the Plaintiffs on June 10, 2011, that its contract with Community Partnerships of Idaho would take effect August 5, 2011. Dunagan Dec., Ex. 3, Dkt. 61-5.

On July 4, 2011, Plaintiffs moved to amend its preliminary injunction to prevent the IDHW from implementing the selective contract on August 5. The Court heard from counsel on an expedited basis, and issued an order August 4, 2011, granting Plaintiffs' amended preliminary injunction.*fn1 Memorandum Decision & Order, Dkt. 69.

On May 11, 2011, before the deadline to amend the pleadings (see Case Management Order, Dkt. 56), and before filing its motion to amend the preliminary injunction, Plaintiffs filed this motion for leave to file a second amended complaint. Motion, Dkt. 57.

LEGAL STANDARD

Federal Rule of Civil Procedure 15(a) states that leave to amend "shall be freely given when justice so requires." Where a complaint has been amended once, a party may amend the complaint only with the written consent of the opposing party or with leave of the court. Fed. R. Civ. P. 15(a)(2). Despite the Rule 15's liberal amendment policy, a "district court's discretion to deny leave to amend is particularly broad where a plaintiff has previously amended the complaint." Ascon Properties, Inc. v. Mobile Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989); see Moss v. U.S. Secret Service, 572 F.3d 962, 972 (9th Cir. 2009)(policy favoring leave to amend should be applied "with extreme liberality"). The court evaluates whether to permit amendment by determining the presence of any of the following factors: bad faith, undue delay, futility, and prejudice to the opposing party. Serra v. Lappin, 600 F.3d 1191, 1200 (9th Cir. 2010) (other citations omitted).

ANALYSIS

Plaintiffs move to amend their complaint to add a claim -- under 42 U.S.C. ยง 1983 and the First Amendment -- of unlawful retaliation for bringing this lawsuit, through the IDHW's pursuit of its selective contract without prior approval from CMS. Plaintiffs also seek to remove co-Plaintiff Dunstan Hall & Associates, as that entity no longer exists. Although Plaintiffs' motion is timely -- having been filed before the deadline to amend the pleadings -- ...


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