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Education Networks of America, Inc. v. Wasden

United States District Court, D. Idaho

January 30, 2017

EDUCATION NETWORKS OF AMERICA, INC., a Delaware Corporation, Plaintiff,
v.
LAWRENCE G. WASDEN, Attorney General for the State of Idaho; J. MICHAEL GWARTNEY, in his official capacity and personal capacity as the former Director and Chief Information Officer of the Idaho Department of Administration; AMERICAN FALLS SCHOOL DISTRICT #381; ANOTHER CHOICE VIRTUAL CHARTER SCHOOL; BOUNDARY COUNTY SCHOOL DISTRICT #101; BRUNEAU-GRAND VIEW JOINT SCHOOL DISTRICT #365; CAMAS COUNTY DISTRICT #121; CASCADE SCHOOL DISTRICT #422; CASTLEFORD DISTRICT #417; COTTONWOOD JOINT SCHOOL DISTRICT #242; EMMETT INDEPENDENT SCHOOL DISTRICT #221; FIRTH SCHOOL DISTRICT #59; FREMONT COUNTY JOINT SCHOOL DISTRICT #215; HIGHLAND SCHOOL DISTRICT #305; IDAHO ARTS CHARTER SCHOOL; IDAHO EDUCATIONAL SERVICES FOR THE DEAF AND THE BLIND #596; IDAHO DIGITAL LEARNING ACADEMY; JEROME SCHOOL DISTRICT #261; SALMON RIVER SCHOOL DISTRICT #243; KAMIAH JOINT SCHOOL DISTRICT #304; KUNA SCHOOL DISTRICT #3; MELBA SCHOOL DISTRICT #136; MERIDIAN TECHNICAL CHARTER HIGH SCHOOL; MIDDLETON SCHOOL DISTRICT #134; MOSCOW SCHOOL DISTRICT #281; MOUNTAIN HOME SCHOOL DISTRICT #193; MOUNTAIN VIEW SCHOOL DISTRICT #244; NAMPA SCHOOL DISTRICT #131; NEW PLYMOUTH SCHOOL DISTRICT #372; OROFINO JOINT SCHOOL DISTRICT #171; PAYETTE SCHOOL DISTRICT #371; POCATELLO/ CHUBBUCK SCHOOL DISTRICT #25; RIRIE SCHOOL DISTRICT #252; SNAKE RIVER SCHOOL DISTRICT #52; TETON COUNTY SCHOOL DISTRICT #401; TWIN FALLS SCHOOL DISTRICT #411; WEST BONNER COUNTY SCHOOL DISTRICT #83; WEST JEFFERSON SCHOOL DISTRICT #253; WEST SIDE JOINT SCHOOL DISTRICT #202; SNAKE RIVER SCHOOL COMMUNITY LIBRARY, Defendants.

          MEMORANDUM DECISION AND ORDER

          B. Lynn Winmill, United States District Court Chief Judge.

         INTRODUCTION

         Pending before the Court is a Motion to Dismiss filed by Defendants J. Michael Gwartney and Lawrence G. Wasen. (Dkt. 21). The Court heard oral argument on January 11, 2017 and took the motion under advisement. For the reasons explained below, the Court will GRANT the motion.

         BACKGROUND

         This action stems from the State of Idaho's efforts to establish the Idaho Education Network (IEN), a high-bandwidth telecommunications distribution system for public schools in the state. Plaintiff ENA Services, LLC filed this action to recover compensation for services it rendered under the IEN and to enjoin the state from attempting to recover state funds ENA has already received for such work.

         The Idaho Legislature authorized the creation of the IEN in 2008 to facilitate distance education, teacher training, and other related services for Idaho public schools. First Amended Compl. ¶ 29, Dkt. 14. In December 2008, the Idaho Department of Administration (DOA), the agency responsible for administering state contracts, issued a Request for Proposals (RFP) for the first phase of the IEN. Id. ¶ 24. Defendant J. Michael Gwartney was the Director of the Department of Administration at that time. Id. ¶ 11. ENA and Qwest Communications Company both submitted bids to provide telecommunication services for the project. Id. ¶ 25. In January 2009, the Department of Administration awarded identical purchase order contracts-known as Statewide Blanket Purchase Orders (SBPOs)-to both ENA and Qwest. Id. ¶ 29. One month later, the Department of Administration unilaterally amended the SBPOs to allocate certain portions of the IEN work exclusively to ENA and other portions exclusively to Qwest. Id. ¶¶ 29, 37. The providers then designed, engineered, and priced the circuits for the IEN, and the State ordered services from the providers under the SBPOs. Id. ¶¶ 46, 87.

         In December 2009, the State, ENA, and Qwest became involved as co-defendants in state-court litigation filed by Syringa Networks, LLC, in which Syringa challenged the bidding process for the IEN. Id. ¶¶ 50-84. While this litigation was pending, the State continued to order and accept services from ENA. Id. ¶¶ 64, 84. In a decision entered on November 10, 2014, the Idaho district court granted summary judgment for Syringa, holding that the Department of Administration's unilateral contract amendments violated state procurement laws and for that reason, the SBPOs were void ab initio. Id. ¶ 73. It entered a final judgement to that effect in February 2015. Def.'s Br. at 4. At that point, the Idaho legislature withdrew its appropriation of funds for the IEN and the State ceased all orders under the project. Id. On March 1, 2016, the Idaho Supreme Court upheld the district court's determination that tainted contracts were void ab initio. First Amended Compl. ¶¶ 79-83; Syringa Networks, LLC v. Idaho Dep't of Admin. (“Syringa II”), 367 P.3d 208, 223 (Idaho 2016).

         Following the Idaho Supreme Court's Syringa II decision, the Idaho Attorney General Lawrence G. Wasden demanded repayment of all sums “advanced” to ENA for IEN services, pursuant to Idaho Code § 67-9213 (formerly § 67-5725).[1] ENA brings this lawsuit to enjoin Wasden from seeking repayment and to recover additional compensation from designated school districts and libraries throughout the state of Idaho for services rendered by ENA to said Defendants. Additionally, ENA asserts constitutional claims against Wasden and Gwartney, pursuant to 42 U.S.C. § 1983, for a deprivation of rights secured by the Contracts Clause, Due Process Clause, and Takings Clause of the U.S. Constitution.

         LEGAL STANDARD

         1. Rule 12(b)(6) Standard

         Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief, ” in order to “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While a complaint attacked by a Rule 12(b)(6) motion to dismiss “does not need detailed factual allegations, ” it must set forth “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. at 555. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Id. at 570. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 556. The plausibility standard is not akin to a “probability requirement, ” but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are “merely consistent with” a defendant's liability, it “stops short of the line between possibility and plausibility of ‘entitlement to relief.'” Id. at 557.

         The Supreme Court identified two “working principles” that underlie Twombly in Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). First, the court need not accept as true, legal conclusions that are couched as factual allegations. Id. Rule 8 does not “unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Id. at 678-79. Second, to survive a motion to dismiss, a complaint must state a plausible claim for relief. Id. at 679. “Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id.

         A dismissal without leave to amend is improper unless it is beyond doubt that the complaint “could not be saved by any amendment.” Harris v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir. 2009) (issued 2 months after Iqbal). The Ninth Circuit has held that “in dismissals for failure to state a claim, a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts.” Cook, Perkiss and Liehe, Inc. v. Northern California Collection Service, Inc., 911 F.2d 242, 247 (9th Cir. 1990). The issue is not whether plaintiff will prevail but whether he “is entitled to offer evidence to support the claims.” Diaz v. Int'l Longshore and Warehouse Union, Local 13, 474 F.3d 1202, 1205 (9th Cir. 2007) (citations omitted).

         Under Rule 12(b)(6), the Court may consider matters that are subject to judicial notice. Mullis v. United States Bank, 828 F.2d 1385, 1388 (9th Cir. 1987). The Court may take judicial notice “of the records of state agencies and other undisputed matters of public record” without transforming the motions to dismiss into motions for summary judgment. Disabled Rights Action Comm. v. Las Vegas Events, Inc., 375 F.3d 861, 866, n.1 (9th Cir. 2004). The Court may also examine documents referred to in the complaint, although not attached thereto, without transforming the motion to dismiss into a motion for summary judgment. See Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).

         2. Rule 12(b)(1) Standard

         Although styled as a motion to dismiss pursuant to Rule 12(b)(6), Defendants' motion also argues that the Rooker-Feldman doctrine deprives this Court of subject matter jurisdiction. For purposes of that jurisdictional challenge, the Court will consider the motion as one brought pursuant to Federal Rule of Civil Procedure 12(b)(1).

         When subject matter jurisdiction is challenged pursuant to Rule 12(b)(1), the plaintiff bears the burden of persuasion. Indus. Tectonics, Inc. v. Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990) (citing McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189 (1936)). A party who brings a Rule 12(b)(1) challenge may do so by referring to the face of the pleadings or by presenting extrinsic evidence. See White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000) (“Rule 12(b)(1) jurisdictional attacks can be either facial or factual . . . .”). In the former, the challenger asserts that the allegations contained in a complaint are insufficient on their face to establish federal jurisdiction. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). “By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.” Id. In resolving a factual attack on jurisdiction, the court need not presume the truthfulness of the plaintiff's allegations, and may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment. Id.

         ANALYSIS

         1. Rooker-Feldman Doctrine Does Not Apply

         Before addressing the merits of Plaintiff's First Amended Complaint, the Court must determine whether it has proper subject matter jurisdiction. The Rooker-Feldman doctrine provides that “a federal district court does not have subject matter jurisdiction to hear a direct appeal from the final judgment of a state court.” Noel v. Hall, 341 F.3d 1148, 1154 (9th Cir. 2003) (citing Rooker v. Fidelity Trust Co., 263 U.S. 413, 415-16 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 476 (1983)). Review of such state court decisions may be conducted only by the United States Supreme Court. Id.; see also 28 U.S.C. § 1257.

         “The doctrine bars a district court from exercising jurisdiction not only over an action explicitly styled as a direct appeal, but also over the ‘de facto equivalent' of such an appeal.” Cooper v. Ramos, 704 F.3d 772, 777 (9th Cir. 2012) (internal citation omitted). A forbidden de facto appeal is defined as a case “brought by [a] state-court loser[] complaining of injuries caused by [a] state-court judgment[] rendered before the district court proceedings commenced and inviting district court review and rejection of [that] judgment[].” Exxon Mobil Corp. v. Saudi Basic Indust. Corp., 544 U.S. 280, 284 (2005). To the extent that another part of the federal plaintiff's suit is “inextricably intertwined” with the forbidden de facto appeal, that issue is also barred. Noel v. Hall, 341 F.3d 1148 (9th Cir. 2003); see also Maldonado v. Harris, 370 F.3d 945, 950 (9th Cir. 2004) (clarifying that the “inextricably intertwined” test comes into play only after the Court determines that some issue in the complaint seeks an impermissible appeal of the state court judgment).

         Plaintiff's lawsuit does not fall within the narrow class of cases to which Rooker-Feldman applies. First, although the Complaint refers to perceived errors by the Idaho courts, it does not seek to overturn or challenge those decisions. Nor does ENA dispute that the amended contract was void. Second, the legal wrong alleged is not an erroneous decision by the state court, but rather the independent constitutional violations of state actors. Specifically, Plaintiff challenges: (1) Attorney General Wasden's demands for repayment from ENA pursuant to Idaho Code § 67-9213; and (2) Gwartney's unilateral amendments, which converted ENA's agreement with the state into a void contract. Even if the state court orders were valid, these actions may amount to independent constitutional violations.

         Defendants argue that ENA attempts to circumvent the jurisdictional bar by seeking to enjoin enforcement of the Syringa II judgment, thereby obtaining indirect federal review of the state case. Def.'s Br. at 4. However, the Idaho Supreme Court did not, as Defendants assert, “direct[] the State . . . to recover the substantial funds . . . advanced by the state to the vendors under the void contracts.” Id. The Court expressly declined to interpret the meaning of “advances” as used by Idaho Code § 67-5725 (since re-codified at § 67-9213) or to issue such an order:

Section 67-5725 does impose an obligation on the proper officer “of the state of Idaho” to seek repayment of money advanced under the void SBPOs, if repayment is refused or delayed. But it imposes no obligation on the district court to preemptively order that DOA comply with this obligation.

Syringa Networks, LLC v. Idaho Dep't of Admin., 367 P.3d 208, 224-25 (2016) (emphasis added). For these reasons, the Court concludes that the Rooker-Feldman doctrine does not deprive the Court of jurisdiction to consider ENA's claims.

         2. Plaintiff Fails to State a Valid § 1983 Claim

         We next consider whether the Complaint sufficiently alleges a claim under 42 U.S.C. § 1983. Section 1983 provides a basis for relief where the challenged action (1) occurred “under color of state law, ” and (2) resulted in the deprivation of a constitutional or federal statutory right. Leer v. Murphy, 844 F.2d 628, 632-33 (9th Cir. 1988) (internal citations omitted). Defendants' Motion challenges the second element: whether Gwartney and ...


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