AIDS Healthcare Foundation v. California Department of Health Care Services

• Court: District Court, C.D. California
• Decided: March 30, 2023
• Docket: 2:22-cv-06636
• Status: Unknown

Opinion

O 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 AIDS HEALTHCARE FOUNDATION D/B/A/ Case No.: 2:22-cv-06636 MEMF-Ex PHC CALIFORNIA, 12 ORDER GRANTING IN PART MOTION TO Plaintiff, DISMISS [ECF NO. 24] AND GRANTING 13 v. REQUEST FOR JUDICIAL NOTICE [ECF NO. 24-2] 14 CALIFORNIA DEPARTMENT OF HEALTH

15 CARE SERVICES AND MICHELLE BAASS, IN HER OFFICIAL CAPACITY AS 16 DIRECTOR OF THE CALIFORNIA DEPARTMENT OF HEALTH CARE 17 SERVICES,

18 Defendants. 19 20 21 22 Before the Court are the Motion to Dismiss and Request for Judicial Notice filed by 23 Defendants California Department of Health Care Services and Michelle Baass, Director of the 24 California Department of Health Care Services. ECF Nos. 24, 24-2. For the reasons stated herein, the 25 Court hereby GRANTS IN PART the Motion to Dismiss and GRANTS the Request for Judicial 26 Notice. 27 / / / 28 / / / INTRODUCTION 2 Plaintiff AIDS Healthcare Foundation (“AHF”) is a California non-profit organization 3 headquartered in Los Angeles County which serves as the world’s largest provider of health care 4 services to people living with HIV and/or AIDS.1 Compl. ¶ 8. Defendant Department of Health Care 5 Services (“DHCS”) is the state governmental agency that oversees California’s federal Medicaid 6 program (“Medi-Cal”). Id. ¶ 11. Defendant Michelle Baass is the Department’s Director. Id.2 7 This case concerns whether DHCS and Baass violated the constitutional rights of the AIDS 8 Healthcare Foundation by declining to extend AHF’s contract with DHCS on the basis of a letter that 9 AHF sent to enrollees in its healthcare plan. The issue before the Court is whether AHF has 10 adequately alleged its constitutional claims. The Court assumes for purposes of this motion that 11 everything AHF has alleged in its Complaint is true. As a result of this Court’s Order, the question 12 of whether everything AHF has alleged is actually true will be answered at a later stage of the 13 litigation. 14 In short, AHF’s claims that Director Baass violated AHF’s federal constitutional rights 15 survive for now. First, AHF properly alleged in its Complaint that Director Baass was acting in her 16 official capacity when she declined to extend AHF’s contract; therefore, the Eleventh Amendment 17 does not bar the claims. Second, AHF has properly alleged that it was speaking on a matter of public 18 concern when it sent its letter, that it was acting in its private capacity when it sent its letter, and that 19 the Department’s declining to extend the contract because AHF failed to seek preapproval of the 20 letter was not constitutionally permissible. 21 22 23 / / / 24 / / / 25 26 1 These facts are taken from the Complaint and appear to be largely undisputed. See generally Compl. Human Immunodeficiency Virus (“HIV”) is a virus that can cause Acquired Immunodeficiency Syndrome (“AIDS”), 27 other life-threatening complications, and death. ECF No. 14-2 (“Declaration of Michael Weinstein”) ¶¶ 13, 14; ECF No. 14-3 (“Declaration of Donna Stidham”) ¶¶ 13, 14; ECF No. 14-4 (“Declaration of Michael B. 28 Wohlfeiler”) ¶ 8. BACKGROUND 2 I. Factual Background3 3 A. Overview of Medi-Cal and the Department’s Administration of Medi-Cal Benefits 4 5 In 1965, “Congress created the Medicaid program [which] authorizes federal financial 6 assistance to States that choose to reimburse certain costs of medical treatment for needy persons.” 7 Pharm. Research and Mfrs. of Am v. Wash, 538 U.S. 644, 650–51 (2003); see also 42 U.S.C. 8 §1369a. “The federal Medicaid program is administered in California by DHCS as the California 9 Medical Assistance Program, also known as ‘Medi-Cal’ in accordance with [the California] Welfare 10 and Institutions Code section 14000 et seq.” Declaration of Rafael Davtian ¶ 2. Approximately 11 thirteen million Medi-Cal beneficiaries are enrolled in a Medi-Cal managed care plan (“MCP”). Id. ¶ 12 3. “MCPs provide services to Medi-Cal beneficiaries through at-risk contracts entered into with the 13 State.” Id. 14 As part of its administration, the Department contracts with MCPs to provide covered Medi- 15 Cal services to enrolled members within a county or region, “in exchange for an actuarially certified, 16 per-member monthly capitation payment.” Declaration of Michelle Retke ¶ 2. The Department 17 oversees MCPs in accordance with federal and state Medicaid law. Id. “Each MCP contracts with its 18 own provider networks and organized systems of care to provide services to its enrolled members.” 19 Id. Coverage provides “payment of health care services covered under the federal Medicaid 20 program, the state Medi-Cal program, and additional services covered pursuant to the MCP 21 contract.” Id. 22 23

24 3 Because this section merely summarizes the background against which this dispute exists, and is largely 25 undisputed, the facts therein are taken not only from AHF’s Complaint, but also other evidence and declarations submitted by either party on the docket. See ECF No. 1 (“Complaint” or “Compl.”); Declaration 26 of Michael Weinstein; Declaration of Donna Stidham; Declaration of Michael B. Wohlfeiler; ECF Nos 14-5, 14-6 (“Declaration of Andrew F. Kim in support of Plaintiff’s Request for Judicial Notice” or “Pl.’s RFJN”); 27 ECF No. 19-1 (“Declaration of Rafael Davtian”); ECF No. 19-2 (“Declaration of Michelle Retke”); ECF No. 20 (“Defendant’s Request for Judicial Notice” or “Def.’s RFJN”); ECF No. 22 (“Plaintiff’s Supplemental 28 Request for Judicial Notice” or “Pl.’s Supp, RFJN”), Ex. 9. Unless otherwise indicated, the following facts B. AHF’s Positive Healthcare Special Needs Plan 2 AHF is a non-profit organization that originally started with “the mission to provide Los 3 Angeles residents afflicted with AIDS a place and means to die with dignity.” Declaration of 4 Michael Weinstein ¶ 3. AHF’s mission progressed over time, and now it seeks to “provide cutting 5 edge medical care to people living with HIV/AIDS regardless of their ability to pay with the goals of 6 saving the lives of as many people living with HIV/AIDS as possible and ending the HIV/AIDS 7 epidemic.” Id. ¶ 4. In “furtherance of this mission, AHF provides medical care” and services to 8 “more than 1.6 million patients in 45 countries” across the world. Id. 9 AHF is under a managed care contract, through which the Department contracts with AHF to 10 provide health care benefits and services to Medi-Cal beneficiaries with AIDS under AHF’s Positive 11 Healthcare (“PHC”) Special Needs Plan.4 Id. ¶ 5; Declaration of Michael Weinstein ¶ 6. Through 12 the PHC Special Needs Plan, AHF furnishes healthcare benefits and services to those enrolled in the 13 plan (“enrollees”), all who have been diagnosed with AIDS, in exchange for “an actuarially certified, 14 per-member monthly capitation payment” from the Department. Declaration of Michael Weinstein ¶ 15 6; Declaration of Michelle Retke ¶ 5. Around September and October of 2022, AHF had 16 approximately 800–811 PHC enrollees in its PHC Special Needs Plan. Declaration of Michael 17 Weinstein ¶ 9; Declaration of Donna Stidham ¶ 9; Declaration of Michelle Retke ¶ 5. 18 AHF’s PHC Special Needs Plan’s specialized services and benefits include access “to a team 19 of healthcare professionals—specialized Registered Nurse care managers, expert HIV primary care 20 physicians, Registered Nurses, licenses practical nurses, mental health professionals, social workers, 21 and others[.]” Declaration of Michael Weinstein ¶ 15; Declaration of Donna Stidham ¶ 15; 22 Declaration of Michael B. Wohlfeiler ¶ 8. The PHC Special Needs Plan also focuses on strictly 23 scheduled drug regimens, including anti-retroviral drugs, and the interactions between enrollees and 24 “PHC expert service providers” to ensure each enrollee receives the information and care necessary. 25 Declaration of Michael Weinstein ¶ 15; Declaration of Donna Stidham ¶ 15; Declaration of Michael 26 B. Wohlfeiler ¶ 6. Most importantly to AHF, the PHC Special Needs care model assigns a 27 28 professional Registered Nurse care manager to every enrollee. Declaration of Michael Weinstein ¶¶ 2 12, 19. Each assigned Nurse care manager “carefully monitors the care plan established by each 3 [enrollee’s] primary care physician, answers healthcare questions” and “develops an integrated care 4 plan,” among other things, for enrollees. Declaration of Michael Weinstein ¶ 19; Declaration of 5 Donna Stidham ¶ 20. No other Medi-Cal based program in Los Angeles County provides a similar 6 Registered Nurse care manager for all its enrollees living with AIDS. Declaration of Michael 7 Weinstein ¶ 19. 8 II. Factual Allegations5 9 Over the decades, the PHC contract between AHF and DHCS has been changed and 10 amended a number of times, primarily expanding the scope and range of medical care AHF 11 provides. Compl. ¶ 32. Originally, the PHC contract did not cover al care. Id. This changed over 12 time until, on January 1, 2019, PHC became a “fully capitated” program, meaning it was responsible 13 for the entirety of patient care benefits and services. Id. 14 Several contracts between AHF and DHCS have governed the Positive Healthcare special 15 needs plan. Id. ¶ 33. At all relevant times, there have been two primary contracts – Contract Number 16 11-88286, which is referred to as the “Primary Contract,” and Contract Number 20-10355, which is 17 referred to as the “Hyde Contract.” Id. There are amendments to the Primary Contract, as relevant to 18 this matter, referred to as the “Bridge Contract,” which bears Contract Number 1188286 A10. Id.6 19 These Contracts, which run concurrently and for a term of years, have been extended repeatedly over 20 the years, and the PHC special needs plan has operated without significant interruption for over 27 21 years. Id. ¶ 34. 22 On November 12, 2021, AHF sent out a letter to PHC enrollees, stating the following: 23 Dear Member: 24 AIDS Healthcare Foundation (AHF) is always here to serve your healthcare needs 25 under all circumstances. We are writing to tell you that PHC California, the Medi-Cal health plan which is operated by AHF, may sunset on December 31, 2021. If this letter 26

27 5 Unless otherwise indicated, the following description of the factual allegations is derived from the 28 Complaint. See generally Compl. ccaaulls 7e1s 1y)o. u any confusion, please call us right away at 1-800-263-0067 (TTY users 2 We want to assure you that AHF will continue trying to work with the California 3 Department of Health Care Services (DHCS) towards a solution for PHC California members so you can continue to see your doctor and enjoy the benefits that the health 4 plan offers you now. But if PHC California does end, you may receive a letter from DHCS telling you that PHC California will no longer be available to Medi-Cal 5 beneficiaries and current PHC California members after December 31, 2021. The letter 6 will also explain that you will have to choose how you will receive your healthcare after December 31. In the letter, DHCS may limit your choices to other Medi-Cal 7 managed care plans. 8 We suggest that you remain in PHC California until December 31, 2021. If PHC California ends, you can choose LA Care or HealthNet for your healthcare starting 9 January 1, 2022. With those plans, you can continue to see your AHF Healthcare Center doctor. However, you will lose your Registered Nurse Care Team Manager and the 10 Health and Wellness benefit, because these benefits are available only through PHC 11 California. 12 Twenty-seven years ago, AHF started the then-called Positive Healthcare plan, with the sole purpose of improving the quality of Medi-Cal beneficiaries’ healthcare and 13 giving them better access to the doctors they need to see. PHC California works to keep its members as healthy as possible by assigning each member a Registered Nurse Care 14 Team Manager who helps coordinate care. PHC California also offers members a 15 health and wellness benefit such as a no-cost gym membership or over-the-counter pharmacy products. These benefits are not available through other Medi-Cal managed 16 care plans or Regular Medi-Cal (fee-for-service). 17 In recent years, in spite of AHF’s best efforts, DHCS has been unable to offer AHF rates that are enough to cover the healthcare costs of PHC California members. The 18 rate is less than what PHC California pays to doctors and providers for the healthcare 19 you receive. In other words, DHCS expects AHF to cover a substantial part of your healthcare out of its own pocket. AHF is a non-profit organization and cannot afford to 20 privately fund the healthcare of PHC California members. 21 The operation of PHC California is under a contract between DHCS and AHF. That contract is set to expire on December 31, 2021. Unless DHCS acts quickly before the 22 end of the year, AHF will not be able to renew this contract and PHC California will shut down after 27 years of operation. 23 24 We want to assure you that we remain committed to finding a solution with DHCS. We also know that the state of California has experienced several years of continuous 25 budget surpluses, with another surplus protected for 2022. To us, it is unthinkable that in spite of these surpluses, DHCS would not be able to timely accommodate PHC 26 California’s best efforts for basic financial survival. DHCS’s inability to increase our rates effectively cuts into our members’ healthcare services today. And we truly believe 27 that this will add to California’s long-term healthcare costs, because studies have shown 28 time and again that those who have less access to healthcare now tend to get sicker and Iffu nydo uP HwCou Clda lliifkoer ntoia l,e yt oDuH cCanS ckanlol wth eh oDwH CyoSu O feffeilc aeb oofu tth iets O dmecbiusidosnm naont atot 1a-d8e8q8u-a4t5e2ly- 2 8609 or email mmcdombudsmanoffice@dhcs.ca.gov. You can also call or write to the DHCS Director: 3 Call: 1-800-541-5555 4 Write: Michelle Baass, Director California Department of Health Care Services 5 P.O. Box 997413, MS 0000 6 Sacramento, CA 95899-7413 Pl’s RFJN, Ex. 7 (Nov. 2021 Letter).7 7 On June 30, 2022, DHCS informed AHF that “DHCS declines to exercise its exclusive 8 option to extend the term of the Contract.” Id. ¶ 35. The Hon. Sydney Kamlager, California State 9 Senator for the 30th Senate District (covering portions of Los Angeles County), wrote to DHCS on 10 August 29, 2022, on behalf of the California legislature’s entire Los Angeles County delegation to 11 ask various questions concerning DHCS’ decision, one of which concerned the conditions or 12 circumstances under which DHCS decided not to extend or amend the Contract. Id. ¶ 36. 13 DHCS responded to Senator Kamlager’s question, among others, in a September 8, 2022, 14 letter, signed by defendant Michelle Baass. Id. ¶ 37. DHCS confirmed that it refused to extend or 15 amend the Contract because AHF engaged in speech with a presumed intent to inspire further 16 speech, protest, or petitions to the government: 17 18 However, last fall, AHF engaged in inappropriate negotiation tactics, including sending unapproved notices to their members without obtaining pre-approval of 19 those notices from DHCS. The presumed intention of those notices was to make AHF members think that they would soon lose their care manager and services from 20 AHF and cause members to contact DHCS in protest. 21 Id. 22 III. Procedural History 23 A. District Court Proceedings 24 25 On September 16, 2022, AHF filed a Complaint in this Court against the Department and 26 Defendant Baass, asserting six causes of action: (1) Violation of United States Constitution, 27

28 7 The Complaint references the Nov. 2021 Letter and the Court previously took judicial notice of the letter, Amendment I—Free Speech; (2) Violation of United States Constitution, Amendment I—Right to 2 Petition; (3) Violation of United States Constitution, Amendment I—Retaliation; (4) Violation of 3 Article 1, Sections 2(a) of the California Constitution—Free Speech; (5) Violation of Article 1, 4 Sections 3(a) of the California Constitution—Right to Petition; (6) Violation of Article 1, Sections 5 2(a) and 3(a) of the California Constitution—Retaliation. See generally Compl. 6 On October 4, 2022, AHF filed a Motion for Preliminary Injunction, seeking an order 7 “prohibiting and forbidding Defendant[s] from terminating, or refusing to amend or extend, the PHC 8 Special Needs Plan based on the exercise by AHF and/or PHC Enrollees of constitutionally 9 protected rights.” ECF No. 14 (“PI Motion”), at 1–2, 20. A hearing on the PI Motion was held on 10 November 10, 2022. ECF No. 25. On November 28, 2022, the Court issued an Order granting the PI 11 Motion and holding that 12 The Department, and its representatives, agents, and employees, and all those acting on its behalf, in concert with it, or at its direction, are preliminarily enjoined and 13 restrained for the pendency of this action from relying on AHF’s Nov. 2021 Letter 14 in terminating, or refusing to extend or amend, the PHC Special Needs Plan for operation starting January 1, 2023. 15 16 PI Order, at 41. On November 14, 2022, the DHCS Defendants filed the instant Motion to Dismiss 17 and Request for Judicial Notice. ECF Nos. 24 (“Motion” or “MTD”), 24-2 (“RJN”). The Motion was 18 fully briefed on December 29, 2022. See ECF Nos. 29 (“Opp’n”), 35 (“Reply”). The Court held oral 19 argument on the matter on March 30, 2023. 20 B. Administrative Proceedings 21 On July 8, 2022, AHF filed a Notice of Dispute challenging the Department’s decision to let 22 the Contract expire. Declaration of Michelle Retke ¶ 23, Ex. 6. The Department denied AHF’s 23 claims and AHF appealed this decision to the Department’s Office of Administrative Hearings and 24 Appeals. Id., see also id., Ex. 7. Michelle Retke, as the Contracting Officer, issued a decision stating 25 that “DHCS’s contractual dispute process is not the proper forum to decide questions of 26 constitutionality.” ECF No. 27 (“Pl.’s Notice and Update of Developments in Plaintiff’s State Court 27 28 Action and Underlying Administrative Proceeding”), Ex. 1 at 2. At the hearing before this Court, 2 AHF’s counsel explained that the appeal has been dismissed.8 3 In addition to filing an appeal with the Department, AHF has also filed a Petition for Writ of 4 Mandate in the Sacramento County Superior Court. Def.’s RFJN Ex. D. In this proceeding, AHF 5 raises issues arising under the Contract and seeks a peremptory writ of administrative mandamus and 6 preliminary and injunctive relief enjoining the Department from terminating “the Contracts or 7 otherwise allowing them to lapse[.]” Id. at 17. On November 16, 2022, the Sacramento County 8 Superior Court denied AHF’s Ex Parte Application for Stay of Administrative Decision. ECF No. 26 9 (“Def.’s Notice and Update of Developments in Plaintiff’s State Court Action”), Ex. 1. 10 REQUEST FOR JUDICIAL NOTICE AND CONSIDERATION OF EXTRINSIC EVIDENCE 11 12 I. Applicable Law 13 A court may take judicial notice of facts not subject to reasonable dispute where the facts 14 “(1) [are] generally known within the trial court’s territorial jurisdiction; or (2) can be accurately and 15 readily determined from sources whose accuracy cannot reasonably be questioned.” FED. R. EVID. 16 201(b). Under this standard, courts may take judicial notice of “undisputed matters of public record,” 17 but generally may not take judicial notice of “disputed facts stated in public records.” Lee v. City of 18 Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001), overruled on other grounds by Galbraith v. County 19 of Santa Clara, 307 F.3d 1119, 1125–26 (9th Cir. 2002). Moreover, even when documents are not 20 physically attached to the complaint, courts may nonetheless consider such documents if: “(1) the 21 complaint refers to the document; (2) the document is central to the plaintiff’s claim; and (3) no 22 party questions the authenticity of the document.” United States v. Corinthian Colleges, 655 F.3d 23 984, 999 (9th Cir. 2011); Lee, 250 F.3d at 688. 24 / / / 25 / / / 26

27 8 Counsel for the Department explained to this Court at the hearing on this matter that in view of the Court’s order on the Preliminary Injunction, the Department elected to extend the contract to the end of 2023. Counsel 28 for AHF explained that, as a result, the Department took the position that the administrative appeal was II. Discussion 2 The DHCS Defendants submit—and ask the Court to take judicial notice of—five (5) 3 exhibits in support of its Motion to Dismiss: 4 1. The original “Primary Contract” (No. 11-88286) between the parties (Exhibit 1); 5 2. The Sixth Amendment to the Primary Contract (No. 11-88286 (A06)) (Exhibit 2); 6 3. The Bridge Amendment to the Primary Contract (No. 11-88286 (A10)) (Exhibit 3); 7 4. Request for Formal Administrative Hearing, dated September 1, 2022 (Exhibit 4); 8 5. Petition for Writ of Mandate filed in Sacramento County Superior Court Case No. 34- 9 2022-80004011, dated September 16, 2022 (Exhibit 5). 10 RJN at 2. 11 With respect to Exhibits 1–3, the Court finds that these exhibits fall within the category of 12 documents referenced in the complaint and central to the plaintiff’s claim. Corinthian Colleges, 655 13 F.3d at 999. With respect to Exhibit 4, the Court finds that this exhibit falls within the category of 14 public records of administrative bodies widely recognized as proper subjects of judicial notice. See, 15 e.g., United States v. 14.02 Acres of Land More or Less in Fresno Cnty., 547 F.3d 943, 955 (9th Cir. 16 2008) (“Judicial notice is appropriate for records and ‘reports of administrative bodies.’” (quoting 17 Interstate Nat. Gas Co. v. S. Cal. Gas Co., 209 F.2d 380, 385 (9th Cir. 1954))). Lastly, the Court 18 finds that Exhibit 5 falls within the category of filings in state court related to the matter before this 19 Court. See, e.g., United States v. Black, 482 F.3d 1035, 1041 (9th Cir. 2007) (noting that a court 20 “may take notice of proceedings in other courts, both within and without the federal judicial system, 21 if those proceedings have a direct relation to matters at issue”); Reyn’s Pasta Bella, LLC v. Visa 22 USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) (taking judicial notice of pleadings, memoranda, 23 and other court filings); Asdar Group v. Pillsbury, Madison & Sutro, 99 F.3d 289, 290 n.1 (9th Cir. 24 1996) (court may take judicial notice of pleadings and court orders in related proceedings). 25 The Court therefore GRANTS the Request for Judicial Notice as to Exhibits 1–5. 26 27 / / / 28 / / / MOTION TO DISMISS 2 I. Applicable Law 3 A. Motions to Dismiss for Lack of Subject Matter Jurisdiction Under Federal Rule of Civil Procedure 12(b)(1) 4 5 Under Federal Rule of Civil Procedure Rule 12(b)(1), dismissal is proper when a plaintiff 6 fails to properly plead subject matter in the complaint. FED. R. CIV. P. 12(b)(1). A jurisdictional 7 attack may be either facial or factual. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 8 2004). The Ninth Circuit has described the difference between these two approaches: 9 In a facial attack, the challenger asserts that the allegations contained in a complaint 10 are insufficient on their face to invoke federal jurisdiction. By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would 11 otherwise invoke federal jurisdiction. 12 Id. When the motion attacks the complaint on its face, the court considers the complaint’s allegations 13 to be true, and draws all reasonable inferences in the plaintiff’s favor. Doe v. Holy See, 557 F.3d 14 1066, 1073 (9th Cir. 2009). 15 B. Motions to Dismiss for Failure to State a Claim Under Federal Rule of Civil 16 Procedure 12(b)(6) 17 Under Federal Rule of Civil Procedure Rule 12(b)(6), a party may file a motion to dismiss 18 for “failure to state a claim upon which relief can be granted.” FED. R. CIV. P. 12(b)(6). The purpose 19 of Rule 12(b)(6) is to “enable defendants to challenge the legal sufficiency of claims asserted in a 20 complaint.” Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d 729, 738 (9th Cir. 1987). A district 21 court may properly dismiss a claim under Rule 12(b)(6) if the complaint fails to allege sufficient 22 facts to support a cognizable legal theory. Caltex Plastics, Inc. v. Lockheed Martin Corp., 824 F.3d 23 1156, 1159 (9th Cir. 2016). 24 “To survive a motion to dismiss, a complaint must contain sufficient factual matter . . . to 25 ‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 26 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “The plausibility standard is not 27 akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has 28 acted unlawfully.” Id. While a complaint does not need detailed factual allegations, a plaintiff’s 2 obligation to provide the grounds of his entitlement to relief requires more than “threadbare recitals 3 of the elements of a cause of action.” Id. “Determining whether a complaint states a plausible claim 4 for relief is ‘a context-specific task that requires the reviewing court to draw on its judicial 5 experience and common sense.’” Ebner v. Fresh, Inc., 838 F.3d 958, 963 (9th Cir. 2016) (quoting 6 Iqbal, 556 U.S. at 679). 7 When evaluating a complaint under Rule 12(b)(6), the court “must accept all well-pleaded 8 material facts as true and draw all reasonable inferences in favor of the plaintiff.” Caltex, 824 F.3d at 9 1159; Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008) (“We 10 accept factual allegations in the complaint as true and construe the pleadings in the light most 11 favorable to the nonmoving party.”). This tenet, however, is “inapplicable to legal conclusions.” 12 Iqbal, 556 U.S. at 678. 13 A district court should generally grant leave to amend freely. Cervantes v. Countrywide 14 Home Loans, Inc., 656 F.3d 1034, 1041 (9th Cir. 2011). However, “a district court may dismiss 15 without leave where a plaintiff’s proposed amendments would fail to cure the pleading deficiencies 16 and amendment would be futile.” Id. at 1041. 17 C. The First Amendment 18 “The First Amendment shields public employees from employment retaliation for their 19 protected speech activities.” Karl v. City of Mountlake Terrace, 678 F.3d 1062, 1068 (9th Cir. 2012) 20 (internal quotations and citations omitted). Because “independent government contractors are similar 21 in most relevant respects to government employees,” the United States Supreme Court extended 22 similar First Amendment protections afforded to government employees to government contractors. 23 See Bd. of Cnty. Com’rs v. Umbehr, 518 U.S. 668, 684–85 (1996); see also Riley’s Am. Heritage 24 Farms v. Elsasser, 32 F. 4th 707, 722 (9th Cir. 2022) (treating school district’s long-standing 25 relationship with plaintiffs to provide educational services to students analogous to relationship 26 between government and government contractor for First Amendment retaliation claim); Alpha 27 Energy Savers, Inc. v. Hansen, 381 F.3d 917, 923 (9th Cir. 2004) (recognizing “[w]hen a business 28 vendor operates under a contract with a public agency, [the Court] analyzes its First Amendment 2 retaliation claim . . . using the same basic approach that [the Court] would use if the claim had been 3 raised by an employee of the agency”). 4 To state a claim for First Amendment retaliation, a contractor must establish 5 (1) it engaged in expressive conduct that addressed a matter of public concern; (2) the government officials took an adverse action against it; and (3) its expressive 6 conduct was a substantial or motivating factor for the adverse action. 7 Alpha Energy Savers, Inc., 381 F.3d at 923 (citation omitted). “This final element of the prima facie 8 case requires plaintiff to show causation and the defendant’s intent. . . . Where, as here, a plaintiff 9 alleges First Amendment retaliation, the plaintiff must show that the government defendant ‘acted 10 with a retaliatory motive.’” Elsasser, 32 F.4th at 721 (quoting Nieves v. Bartlett, 139 S. Ct. 1715, 11 1722 (2019)). If the contractor meets this burden, the state actor “can nonetheless escape liability if 12 [it] demonstrate[s] either that: (a) under the balancing test established by Pickering v. Bd. of Educ., 13 [391 U.S. 563 (1968)], legitimate administrative interests in promoting efficient service-delivery and 14 avoiding workplace disruption outweigh the contractor’s free speech interests”; or “(b) under a 15 mixed motives analysis established by Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, [429 U.S. 16 274, 287 (1977)], they would have taken the same actions in the absence of the contractor’s 17 expressive conduct.” Id. (citing to Umbehr, 518 U.S. at 675–76). 18 II. Discussion 19 The DHCS Defendants contend that the Motion to Dismiss should be granted because (1) 20 AHF’s claims are barred under the Eleventh Amendment, (2) AHF’s claims brought on behalf of its 21 plan members fail for lack of third-party standing, (3) AHF has failed to exhaust administrative 22 remedies, and (4) AHF’s constitutional claims fail on their merits. MTD at 6–25. AHF states that it 23 does not oppose the Court granting the Motion to Dismiss the Department as a defendant and the 24 Motion to Dismiss AHF’s Fourth, Fifth, and Sixth claims. Opp’n at 1–4. The Court will therefore 25 GRANT the Motion on these grounds. Moreover, AHF confirms—as it did at the hearing on the 26 Motion for Preliminary Injunction—that it is proceeding as the sole plaintiff and does not seek to 27 vindicate in this action the rights of PHC Enrollees. Opp’n at 4–5; PI Order at 14 n.4. As a result, the 28 Court need not address the DHCS Defendants’ second line of argument regarding third-party 2 standing. 3 Therefore, the only claims remaining that require decision are AHF’s First, Second, and 4 Third Claims with respect to the Director only. With respect to these claims, AHF contends that (1) 5 the Court has jurisdiction over a claim against Baass, in her official capacity, and therefore should 6 not dismiss claims against her, (2) AHF should not be required to exhaust any alleged contractual 7 administrative remedy, and (3) AHF has sufficiently stated claims for violation of its right to free 8 speech. Id. at 4–19. 9 A. AHF’s claims against Baass are not barred under the Eleventh Amendment. 10 The DHCS Defendants contend that AHF’s entire suit—including its claims against Director 11 Baass—is barred by the Eleventh Amendment because AHF has failed to allege that Baass was 12 acting in her official capacity. MTD at 6–7. AHF argues that it has sufficiently alleged that Baass, as 13 Director of the Department, took specific actions to violate AHF’s constitutional rights. Opp’n at 4. 14 The Eleventh Amendment prohibits federal courts from hearing suits brought by private citizens 15 against state governments without the state’s consent. Nat. Res. Def. Council v. Cal. Dept. of 16 Transp., 96 F.3d 420, 421 (9th Cir. 1996). However, the Supreme Court has recognized an exception 17 to this general rule. Id. at 422 (citing Ex parte Young, 209 U.S. 123 (1908)). Under the Ex parte 18 Young doctrine, “an action by a state officer that violates federal law is not considered an action of 19 the state and, therefore, is not shielded from suit by the state’s sovereign immunity.” Id. As a result, 20 a plaintiff may bring suit in federal court against a state officer accused of violating federal law. Id. 21 The Complaint itself identifies Baass as “the Director of DHCS,” which it notes is “a 22 governmental agency of the State of California.” Compl. ¶ 11. The Complaint further alleges that 23 Baass signed the September 8, 2022 letter to Senator Kamlager “confirm[ing] that [the Department] 24 refused to extend or amend the Contract” due to “inappropriate negotiation tactics, including sending 25 unapproved notices to their members without obtaining pre-approval of those notices from DHCS.” 26 Id. ¶ 37. The Court finds that AHF’s claims against Baass fall squarely within the exception carved 27 out of the Eleventh Amendment by Ex Parte Young, as they involve claims against a state officer, in 28 her official capacity, regarding violations of federal law.9 The Court therefore DECLINES to grant 2 the Motion on this ground. 3 B. AHF need not exhaust its administrative remedies. 4 The DHCS Defendants contend that AHF’s claims must be dismissed because (1) AHF must 5 exhaust its contractual administrative remedies, and alternatively, (2) even if the contracts do not 6 require exhaustion, the Court should nonetheless require AHF to exhaust its administrative 7 remedies.10 MTD at 8–14. AHF contends that it need not exhaust its administrative remedies. Opp’n 8 at 8–12. 9 i. The Primary Contract does not require AHF to exhaust its administrative 10 remedies. 11 The DHCS Defendants argue that under the Primary Contract, AHF must exhaust its 12 administrative remedies before pursuing this action in court. MTD at 8–12. Parties to a contract may 13 agree to require exhaustion of contractual administrative or other dispute resolution remedies before 14 seeking relief in court. See AIDS Healthcare Found. v. State Dept. of Health Care Servs., 194 Cal. 15 Rptr. 3d 425, 429 (Ct. App. 2015) (enforcing administrative exhaustion requirements in contract 16 between AHF and state department). The Primary Contract provides that the “Disputes section will 17 be used by the Contract as the means for seeking resolution of disputes on contractual issues.” RJN 18 Ex. 2, Prov. 19 (emphasis added). 19 Although disputes exist between the parties that are related to the Contract, the underlying 20 inquiry in this action is ultimately whether the Department’s conduct violated AHF’s constitutional 21 22 9 The DHCS Defendants contend that AHF’s claims against Baass should be dismissed because although 23 “AHF has sued Director Baass in her official capacity, . . . [it] has neglected to allege that Director Baass was acting in her official capacity.” Reply at 2. In support of their contention that “a plaintiff relying on Ex Parte 24 Young must specifically allege that the subject state official acted in their official capacity,” the DHCS 25 Defendants cite, as an example, Natural Resources Defense Council v. California Department of Transportation. Id. (citing 96 F.3d at 421–22). However, the Court finds no support in that case for this 26 purported requirement that the allegation be explicitly stated in the complaint for the doctrine to apply. It is clear from AHF’s allegations that AHF is bringing its lawsuit against Baass due to actions taken while she 27 was acting in her official capacity as Director of DHCS. 10 It appears that the Department may have abandoned this argument when it determined that the pending 28 administrative appeal was moot and AHF dismissed the appeal on that basis. See supra note 8. For the sake of rights. Taking the allegations in the Complaint as true, and drawing all reasonable inferences in 2 favor of AHF, as it must on a Motion to Dismiss, the Court must accept, for the purposes on this 3 Motion, that DHCS based its decision not to extend or amend the Contract on AHF’s lawful speech. 4 Moreover, regardless of whether AHF breached the Contract, questions would remain as to whether 5 AHF’s Nov. 2021 Letter was constitutionally protected speech and, if so, whether the Department’s 6 interests in enforcing the Contract terms outweigh AHF’s protected speech interest. See Board of 7 County Com’rs, Wabaunsee County, Kan. V. Umbehr, 518 U.S. 668, 685 (1996). These inquiries are 8 constitutional and not contractual. The Court therefore finds that the Contract does not require 9 exhaustion of AHF’s claims. 10 ii. The Court declines to require AHF to exhaust its administrative remedies “as a prudential matter.” 11 12 The DHCS Defendants argue, in the alternative, that even if the parties’ contracts do not 13 require exhaustion, the Court should nonetheless require AHF to exhaust its administrative remedies 14 “as a prudential matter,” under the “judicial created doctrine of exhaustion.” MTD at 12–14. Courts 15 under this doctrine 16 may still require exhaustion if: (1) agency expertise makes agency consideration 17 necessary to generate a proper record and reach a proper decision; (2) relaxation of the requirement would encourage the deliberate bypass of the administrative 18 scheme; and (3) administrative review is likely to allow the agency to correct its own mistakes and to preclude the need for judicial review. 19 20 United States v. Cal. Care Corp., 709 F.2d 1241, 1248 (9th Cir. 1983) (applying factors to a health 21 care dispute). However, the Court Concludes that these factors do not weigh in favor of requiring 22 exhaustion here. 23 First, the agency’s expertise in the unique customs and practices of Medi-Cal managed care 24 plans, and the experience the OAHA possesses in dealing with Medi-Cal health plan disputes,” MTD 25 at 13, would have little relevance in determining whether the Department violated AHF’s 26 constitutional speech rights. 27 Second, relaxation of the requirement would not encourage deliberate bypass of the 28 administrative scheme because the issues presented are specific to AHF (i.e., whether AHF’s Nov. 2021 Letter was protected speech and whether the Department’s reliance on this letter in declining to 2 extend the Contract violated AHF’s constitutional rights). In California Care Corp., the providers 3 seeking relief in the district court had for three years “abused” the agency’s appeal procedures to 4 “avoid or delay any proper repayment of their Medicare advances.” Id. at 1248. There is no evidence 5 of similar abuse here—the Department informed AHF of its decision not to extend the Contract in 6 June of 2022. AHF promptly filed its initial claim with the Department on July 8, 2022, challenging 7 the Department’s decision, and that claim was denied. Declaration of Michelle Retke ¶ 23, Exs. 6, 7. 8 AHF appealed, and its administrative appeal is currently pending. Def.’s RFJN Ex. B (setting a 9 November 30 hearing date); Pl.’s Supp. RFJN, Ex. 9 (vacating the November 30 hearing date 10 because of the need to resolve a discovery dispute).AHF has also filed a Writ of Mandate with the 11 California Superior Court, seeking a similar injunction but for reasons relevant to the contractual 12 dispute between the parties. Def.’s RFJN Ex. D. 13 Lastly, the Court finds that the third factor does not weigh in favor of requiring exhaustion. 14 Generally, the third factor tends to weigh in favor of requiring exhaustion. After all, the result of the 15 administrative proceedings could “allow the agency to correct its own mistakes,” which would avoid 16 the need for this Court to address the Constitutional issues raised in the instant suit. Montana 17 Chapter of Ass’n of Civilian Technicians, Inc. v. Young, 514 F.2d 1165, 1167–68 (9th Cir. 1975) 18 (“The necessity of deciding the constitutional issues may well be avoided by the grant of alternative 19 administrative relief.”). However, Courts have declined to require exhaustion where resort to the 20 agency would be futile. El Rescate Legal Servs., Inc. v. Exec. Office of Immigration Review, 959 21 F.2d 742, 747 (9th Cir. 1991). “[W]here the agency’s position on the question at issue ‘appears 22 already set,’ and it is ‘very likely’ what the results of recourse to administrative remedies would be, 23 such recourse would be futile and is not required.” Id. Despite AHF’s contentions that the 24 Department’s decision not to extend their Contract violated their First Amendment rights, and even 25 after public debate among California citizens, including public officials, the Department reiterated its 26 policy and stood by its decision not to extend the Contract. Taking the allegations of the Complaint 27 as true, the Court finds that resort to the agency would be futile at this time. Moreover, the Contract 28 has now been extended to December 31, 2023, and the administrative appeal has been dismissed.11 2 Should the Court require AHF to exhaust its administrative remedies and grant the Motion to 3 Dismiss, AHF would be left without the remedy it seeks during the pendency of any administrative 4 appeal it might bring. The Court therefore declines to require AHF to exhaust its administrative 5 remedies. 6 For these reasons, the Court DECLINES to grant the Motion on this ground. 7 C. AHF adequately states a claim for violation of its federal constitutional rights to free speech. 8 9 The DHCS Defendants contend that AHF’s complaint fails to state a claim for violation of its 10 federal and state constitutional rights to free speech because (1) AHF’s speech was not on a matter 11 of public concern, (2) AHF’s speech was sent in its official, not private, capacity, and (3) the 12 Department’s decision to forego extending the contracts is constitutionally permissible and justified 13 by AHF’s material breaches of contract and its refusal to cure those breaches. MTD at 12–25. AHF 14 contends that it has sufficiently stated claims for violation of its federal constitutional right to free 15 speech. Opp’n at 12–18. As discussed previously, to state a claim for First Amendment retaliation, a 16 contractor must establish 17 (1) it engaged in expressive conduct that addressed a matter of public concern; (2) 18 the government officials took an adverse action against it; and (3) its expressive conduct was a substantial or motivating factor for the adverse action. 19 20 Alpha Energy Savers, Inc., 381 F.3d at 923 (citation omitted). If the contractor meets this burden, the 21 state actor “can nonetheless escape liability if [it] demonstrate[s] either that: (a) under the balancing 22 test established by Pickering v. Bd. of Educ., [391 U.S. 563], legitimate administrative interests in 23 promoting efficient service-delivery and avoiding workplace disruption outweigh the contractor’s 24 free speech interests”; or “(b) under a mixed motives analysis established by Mt. Healthy City Sch. 25 Dist. Bd. of Educ. v. Doyle, [429 U.S. at 287], they would have taken the same actions in the absence 26 of the contractor’s expressive conduct.” Id. (citing to Umbehr, 518 U.S. at 675–76). 27 28 i. cAoHncFe hrna.s sufficiently alleged that its speech addressed a matter of public 2 The DHCS Defendants contend that (1) AHF has not alleged that the Department knew of 3 the actual substance of its communication to members and, thus, the speech’s purported connection 4 to a public concern, at the time the Department allowed the contracts to expire, and (2) AHF’s Nov. 5 2021 Letter did not address a matter of public concern because AHF sent the letter in the context of 6 contract negotiations concerning its demand for higher reimbursement rates. MTD at 16–18. 7 “[S]peech involves a matter of public concern when it fairly can be said to relate to ‘any 8 matter of political, social, or other concern to the community.’” Gibson v. Off. of Atty. Gen., 561 9 F.3d 920, 925 (9th Cir. 2009) (quoting Connick v. Myers, 461 U.S. 138, 146 (1983)). Whether the 10 contractor’s speech addresses a matter of public concern looks at the “content, form, and context of a 11 given statement, as revealed by the record as a whole.” Connick, 461 U.S. at 147–48. “Speech that 12 concerns issues about which information is needed or appropriate to enable the members of society 13 to make informed decisions about the operation of their government merits the highest degree of first 14 amendment protection.” Alpha Energy Savers, Inc., 381 F.3d at 924 (internal quotations and citation 15 omitted). “In contrast, speech that deals with individual personnel disputes and grievances and that 16 would be of no relevance to the public’s evaluation of the performance of government agencies, is 17 generally not public concern.” Id. (internal quotations omitted). 18 With respect to the DHCS Defendants’ first line of argument, AHF need not set forth the 19 contents of that letter, verbatim, in its complaint for its First Amendment claim to survive. The Court 20 finds that AHF sufficiently alleged that Baass stated in her September 8, 2022 letter to Senator 21 Kamlager that she relied on AHF’s speech in its Nov. 2021 letter in terminating and refusing to 22 extend the Contract. AHF’s Complaint alleges, in relevant part: 23 24 36. DHCS’ refusal to extend or amend the Contract inspired considerable concern and public debate among California citizens, including numerous public officials. 25 One such citizen, the Hon. Sydney Kamlager, California State Senator for the 30th Senate District (covering portions of Los Angeles County), wrote to DHCS on 26 August 29, 2022 on behalf of the California legislature’s entire Los Angeles County delegation to ask various questions concerning DHCS’ decision, one of which 27 concerned the conditions or circumstances under which DHCS decided not to 28 extend or amend the Contract. 3S7ep. tDemHbCeSr r8e,s p2o0n2d2e dl ettot eSr,e nsaitgonre dK abmyl adgeefre’ns dqaunets tiMonic, haemlleo nBg aoatshse. rsD, HinC Sa 2 confirmed that it refused to extend or amend the Contract because AHF engaged in speech with a presumed intent to inspire further speech, protest, 3 or petitions to the government. 4 However, last fall, AHF engaged in inappropriate negotiation tactics, including sending unapproved notices to their members without 5 obtaining pre-approval of those notices from DHCS. The presumed 6 intention of those notices was to make AHF members think that they would soon lose their care manager and services from AHF and cause members to 7 contact DHCS in protest. 8 38. DHCS appears to interpret the Contract to permit DHCS to retaliate against AHF for constitutionally protected speech, and to discourage constitutionally 9 protected protests by Positive Healthcare members, concerning a matter of public importance, namely, the actions and conduct of government in the expenditure of 10 taxpayer funds to treat people living with AIDS. 11 39. DHCS expressly intended that its actions, and its interpretation and attempted 12 “enforcement” of the Contracts in this matter, discourage or outright thwart AHF and Positive Healthcare members from exercising their constitutional rights to 13 speech, to engage in protest, and to petition the government regarding the services the government provides to people living with AIDS. DHCS also expressly 14 intended to punish and retaliate against, and did punish and retaliate against, AHF 15 and Positive Healthcare members for their exercise (and even potential exercise) of constitutionally protected conduct by refusing to extend or amend the Contract 16 thereby depriving Positive Healthcare members of uniquely successful treatment protocols and systems specifically developed for people living with AIDS. 17 18 Compl. ¶¶ 36–39 (emphasis added). As such, the Nov. 2021 Letter falls within the category of 19 documents referenced in the complaint and central to the plaintiff’s claim of which courts generally 20 take judicial notice. Corinthian Colleges, 655 F.3d at 999. Indeed, the Court took judicial notice of 21 this letter and listed it, verbatim, in its PI Order. See PI Order at 5–7. Moreover, the Court finds that, 22 contrary to the DHCS Defendant’s contentions, the Complaint sufficiently alleges that the 23 Department was aware of the nature of AHF’s speech. 24 Second, the Court finds that AHF has properly alleged that the Nov. 2021 Letter addressed a 25 matter of public concern. The DHCS Defendants characterize the context of the letter as revealing 26 the “inherently private nature of the dispute addressed by AHF’s speech.” MTD at 18. 27 Although the Nov. 2021 Letter addressed a dispute between two contracting parties that may 28 be characterized a private grievance, AHF has properly alleged that the letter also touched on a matter of public concern—the continuing of a healthcare plan tailored to Medi-Cal beneficiaries 2 diagnosed with AIDS. AHF has also properly alleged that the letter also addressed the State of 3 California’s budget and projected surpluses for 2022, which led AHF to believe it to be 4 “unthinkable” that the Department would not be able to increase the rates AHF demanded. Nov. 5 2021 Letter. In addition, AHF has properly alleged that the letter noted its belief that this decision 6 “will add to California’s long-term healthcare costs, because studies have shown time and again that 7 those who have less access to healthcare now tend to get sicker and need more expensive care later.” 8 Id. AHF thereafter provided contract information for enrollees to “let the DCHS” know how they 9 feel. Id. 10 Thus, the Court finds that AHF has properly alleged that the Nov. 2021 Letter involved a 11 matter of public concern. See Pickering, 391 U.S. at 565 (teacher commented on matters of public 12 concern when he sent a letter to local paper attacking School Board’s handing of fiscal issues and 13 allocation of financial resources); Johnson v. Multnomah Cnty, Or., 48 F.3d 420, 425 (9th Cir. 1995) 14 (noting that while employee’s speech may have arisen from not having been promoted it “concerned 15 information that is of inherent relevance to the public’s evaluation of the performance of government 16 agencies.” (internal quotations omitted)). The fact that it is alleged that the Nov. 2021 Letter was 17 sent to only those enrolled in the PHC Special Needs Plan and not to the general public is not 18 dispositive in determining whether AHF has properly alleged that the speech addressed a matter of 19 public concern. See Dahlia v. Rodriguez, 735 F.3d 1060, 1068 n.5 (9th Cir. 2013). As AHF has 20 properly alleged, in the letter, AHF speaks to the state’s budget surpluses received and projected for 21 2022, as well as possible increases to long term healthcare costs for California—information that is 22 more akin to “issues about which information is needed or appropriate to enable the members of 23 society to make informed decisions about the operation of their government.” See Alpha Energy 24 Savers, Inc., 381 F.3d at 924 (internal quotations and citation omitted). Moreover, AHF has properly 25 alleged that the decision to allow the Contract to expire prompted inquiries from the Los Angeles 26 County Delegation and Senator Kamlager. Compl. ¶ 36. This evidence further supports the finding 27 that the Nov. 2021 Letter addressed matters of public concern. 28 The DHCS Defendants, in their Reply, offer no additional argument in support of its 2 contention that AHF has not properly alleged its speech was not on a matter of public concern, only 3 resting on its assertion that AHF failed to plead the contents of its Nov. 2021 Letter. Reply at 7. 4 However, as the Court has already concluded, AHF’s Complaint sufficiently references the Nov. 5 2021 Letter such that judicial notice may be taken of the letter, and its contents and the Complaint 6 sufficiently allege that the Department was aware of the nature of AHF’s speech. As a result, the 7 Court concludes that AHF has sufficiently alleged that the Nov. 2021 Letter addressed matters of 8 public concern. The Court therefore DECLINES to grant the Motion on this basis. 9 ii. AHF has sufficiently alleged that its speech was sent in its private capacity. 10 Next, the DHCS Defendants contend that AHF’s speech was sent in its official, not private, 11 capacity. MTD at 18–21. When determining whether the speech is undertaken pursuant to the 12 speaker’s official duties or as a private citizen, courts consider the party’s official responsibilities. 13 See Posey v. Lake Pend Oreille Sch. Dist., No. 84, 546 F.3d 1121, 1127 (9th Cir. 2008). 14 “[S]tatements are made in the speaker’s capacity as citizen if the speaker had no official duty to 15 make the questioned statements, or if the speech was not the product of performing the tasks the 16 employee was paid to perform.” Id. at 1127 n.2 (alterations, citation, and internal quotation marks 17 omitted). The Ninth Circuit looks to “three non-exhaustive factors to make this assessment: (1) 18 whether ‘the employee confined his communications to his chain of command’; (2) whether ‘the 19 subject matter of the communication’ fell within the plaintiff’s regular job duties; and (3) whether 20 the ‘employee sp[oke] in direct contravention to his supervisor’s order[].’” Greisen v. Hanken, 925 21 F.3d 1097, 1111 (9th Cir. 2019) (quoting Dahlia v. Rodriguez, 735 F.3d 1060, 1074–75 (9th Cir. 22 2013) (en banc)) (“Dahlia Factors”). “The scope and content of a plaintiff’s official duties are 23 questions of fact, but a court must ‘independently . . . evaluate the ultimate constitutional 24 significance of the facts as found.’” Id. (quoting Posey, 546 F.3d at 1129). 25 As to the first Dahlia Factor—whether the employee confined his communications to his 26 chain of command—the Court finds this factor to be neutral as applied to the facts here. As alleged, 27 the Nov. 2021 Letter was issued to PHC California enrollees, individuals who likely expected or had 28 likely received in the past notices from AHF. Per the allegations in the complaint, AHF did not send 2 the letter to the general public, nor did it send the letter to anyone at the Department conceivably “up 3 the chain of command” which AHF might be expected to address contract or fiscal complaints. See 4 Dahlia, 735 F.3d at 1076 (concluding “the only reasonable conclusion” was that officer acted 5 pursuant to his job duties when he—as a detective investigating the . . . robbery[]—reported up the 6 chain of command to the supervising lieutenant overseeing the investigation about abuse related to 7 that same investigation.”); Freitag v. Ayers, 468 F.3d 528, 546 (9th Cir. 2006) (noting plaintiff’s 8 “internal reports of inmate sexual misconduct and documentation of the prison’s failure to respond” 9 was not constitutionally protected because she “submitted those reports pursuant to her official 10 duties as a correctional officer and thus not in her capacity as a citizen.”). 11 With respect to the second Dahlia factor, the Court recognizes that per the allegations in the 12 Complaint, the Contract’s terms support the contention that at least some of the letter’s contents was 13 AHF speaking in its official capacity as the operator of the PHC Special Needs Plan. Ultimately, 14 however, this factor weighs in favor of finding that AHF has alleged that it spoke outside of its 15 official capacity as a contractor. 16 As alleged, AHF begins the Nov. 2021 Letter by reminding members that it is AHF “is 17 always here to serve [their] healthcare needs under all circumstances” and that AHF is “writing to 18 tell [them] that PHC California, the Medi-Cal health plan which is operated by AHF, may sunset[.]” 19 Nov. 2021 Letter. AHF properly alleges that it goes on to inform members what to expect after 20 December 31, 2021, provide advice to members about what they should do in the meantime, and 21 inform members of what options they would have if the PHC plan ended on December 31, 2021. Id. 22 But although this content can be said to relate to AHF’s position in operating the PHC Special Needs 23 Plan through its Contract with the Department, AHF alleges that it did not inform enrollees about 24 what will occur, but only what “may” occur and how enrollees can petition to avoid this result. Id. 25 Moreover, AHF properly alleges that the latter part of the letter addresses different concerns 26 that tend to fall further outside of AHF’s role as a contractor and more as a private actor informing 27 others of matters of public concern. Id. As alleged, AHF discloses that the Department has not been 28 able to provide AHF with rates sufficient to cover enrollees’ healthcare costs. Id. AHF alleges that it then points out that the State “has experienced several years of continuous budget surpluses, with 2 another surplus projected for 2022” and that AHF believes it is “unthinkable that in spite of these 3 surpluses” the Department cannot meet AHF’s financial needs to continue the PHC Special Needs 4 Plan. Id. AHF also alleges that in the letter it expresses its belief that this decision “will add to 5 California’s long-term healthcare costs, because studies have shown time and again that those who 6 have less access to healthcare now tend to get sicker and need more expensive care later.” Id. AHF 7 alleges that it ends its letter by implicitly encouraging members to contact the Department if they 8 wished to let the Department know how they felt “about its decision not to adequately fund” plan. 9 Id. 10 The proper inquiry is a practical one. Formal job descriptions often bear little 11 resemblance to the duties an employee actually is expected to perform, and the 12 listing of a given task in an employee’s written job description is neither necessary or sufficient to demonstrate that conducting the task is within the scope of the 13 employee’s professional duties for First Amendment purposes.

14 Garcetti, 547 U.S. at 424–25. Applying these principles here, whether the Contract required AHF to 15 send notices to members addressing even potential changes to their PHC Special Needs Plan is also 16 “neither necessary or sufficient to demonstrate that” AHF has properly alleged that sending the Nov. 17 2021 Letter with within the scope of AHF’s professional duties for First Amendment purposes. 18 Applying a practical inquiry to the facts alleged yields the conclusion that informing enrollees that 19 the PHC Special Needs Plan may soon expire because of a financial dispute and critiquing the 20 Department’s use of funds in light of the State’s budget surpluses, as well as projecting the impact 21 on California’s long term healthcare costs does not appear to be within AHF’s role or responsibilities 22 as a contractor for the Department. Nor does it appear that AHF’s allegations indicate that it spoke as 23 a contractor for the Department when it provided contact information to enrollees implicitly 24 encouraging them to contact the Department directly and let it know how they feel about the 25 expiration of the plan. 26 Accordingly, as alleged, the letter’s contents align closer to cases which have found the 27 disclosure of misconduct or complaints to be speech conducted in a private capacity. See, e.g., 28 Greisen, 925 F.3d at 1111–12 (concerns related to “ferreting out ‘corruption or systemic abuse’ in 2 city finances and management” were not part of plaintiff’s official duties as chief of police); Freitag, 3 468 F.3d at 546 (holding it was “certainly not part of [plaintiff’s] official tasks to complain” to a 4 senator or the California Inspector General about the states failure to take corrective action regarding 5 complaints of sexual harassment); Marable v. Nitchman, 511 F.3d 924, 932 (9th Cir. 2007) 6 (plaintiff’s complaints regarding his superiors’ allegedly corrupt overpayment schemes were not part 7 of his official job duties as a Chief Engineer for a ferry); Clairmont v. Sound Mental Health, 632 8 F.3d 1091, 1104 (9th Cir. 2011) (“[S]peech discussing ‘threats to public safety’ is ‘of vital interest to 9 citizens,’ and speech exposing policies that put people in jeopardy is ‘inherently of interest to the 10 public.’” (quoting Hyland v. Wonder, 972 F.2d 1129, 1137 (9th Cir. 1992))). AHF is discussing the 11 state’s budget surplus, how that budget is being used, and AHF’s views on how to limit California’s 12 long-term healthcare costs; these are all quintessentially matters of public concern. 13 Turning to the final Dahlia factor—whether the employee spoke in direct contravention to 14 his supervisor’s order—this factor weighs in favor of finding that AHF has alleged that it spoke 15 outside of its official capacity. According to the Department, AHF’s act of sending the Nov 2021 16 Letter without their approval was in direct contravention to the Contract’s requirements. Although 17 AHF disputes that its conduct breached the Contract or was otherwise governed by the Contract, this 18 factor tends to support that AHF has alleged it acted outside its official capacity as contractor when 19 it chose to distribute the Nov. 2021 Letter to enrollees without the Department’s notice or approval, 20 whether that breached the Contract or not. 21 The DHCS Defendants’ Reply again focuses primarily on the fact that AHF’s Complaint 22 failed to allege the contents of its Nov. 2021 Letter or that the Department was aware of the nature of 23 this speech at the time the contracting decision was made. Reply at 7–8. However, as the Court has 24 already concluded, AHF’s Complaint sufficiently references the Nov. 2021 Letter such that judicial 25 notice may be taken of the letter and its contents, and the Complaint sufficiently alleges that the 26 Department was aware of the nature of AHF’s speech. As a result, the Court finds that AHF has 27 adequately alleged that its speech was sent in its private capacity. The Court therefore DECLINES to 28 grant the Motion on this basis. iii. cAoHnsFt ihtuatsi osunfaflilcyi epnetrlmy iaslsliebgleed. that the DHCS Defendants’ actions were not 2 The DHCS Defendants contend that the Department’s decision to allow the contracts to 3 expire is constitutionally permissible because AHF failed to comply with the Contract’s prior- 4 approval provisions. MTD at 21–25. 5 The Department can prevail “if it can persuade [the Court] that [its] legitimate interests as 6 contractor, deferentially viewed, outweigh the free speech interest at stake.” Umbehr, 518 U.S. at 7 685. “Independent government contractors are similar in most relevant respects to government 8 employees, although both the speaker’s and the government’s interest are typically—although not 9 always—somewhat less strong in the independent contractor case.” Id. at 694–85. “The government 10 bears the burden of showing that under the Pickering balancing test, ‘the relevant government entity 11 had an adequate justification for treating the [contractor] different from any other member of the 12 general public.” Clairmont, 632 F.3d at 1106. The Department “must establish its ‘legitimate 13 administrative interests outweigh’” AHF’s First Amendment rights. Id. (quoting Eng, 552 F.3d at 14 1071). Such interest may include “promoting efficiency and integrity in the discharge of official 15 duties and maintaining proper discipline in the public service.” Id. at 1106–07 (citing to Connick, 16 461 U.S. at 150–51). 17 The DHCS Defendants argue that the Court should apply a “rational relationship” test to 18 determine that they permissibly took adverse action against AHF based on the Nov. 2021 Letter 19 because their action was “rationally related” to the Contracts. Id. The DHCS Defendants previously 20 offered the same line of argument in its PI Motion. However, at the hearing on the PI Motion, 21 counsel for the Department could point to no authority to support the proposition that this rational 22 inquiry should be applied as part of the Pickering/Umbehr balancing test. PI Order at 30–31. The 23 DHCS Defendants have not offered any additional support here. As such, the Court again declines 24 the Department’s invitation to insert a rational basis inquiry to the issue presented. 25 The Supreme Court noted in Umbehr that the “unconstitutional conditions precedents span a 26 spectrum[.]” Umbehr, 518 U.S. at 680 (collecting cases). The Court took care to acknowledge the 27 different interests raised when the speaker has a relationship to the state actor closer to that of a 28 member of the public. Id. at 677–78. “Independent contractors appear[ed]” to the Supreme Court “to 2 lie somewhere between the case of government employees, who have the closest relationship with 3 the government” and the Court’s other precedent “which involve persons with less close 4 relationships with the government.” Id. The Court reasoned: 5 Umbehr is correct that if the Board had exercised sovereign power against him as 6 a citizen in response to his political speech, it would be required to demonstrate that 7 its action was narrowly tailored to serve a compelling government interest. But in this case, as in government employment cases, the Board exercised contractual 8 power, and its interests as a public service provider, including its interest in being free from intensive judicial supervision of its daily management functions, are 9 potentially implicated. Deference is therefore due to the government’s reasonable assessments of its interests as contractor. 10

11 We therefore see no reason to believe that proper application of the Pickering balancing test cannot accommodate the differences between employees and 12 independent contractors. 13 Id. at 678. 14 Additionally, in cases analyzing both as-applied and facial challenges to a public employer’s 15 social media policy—which also limit or regulate speech—the Ninth Circuit has applied the 16 Pickering balancing test. See, e.g., Hernandez v. City of Phoenix, 43 F.4th 966, 979 (9th Cir. 2022) 17 (in analyzing facial challenge to employer social media policy limiting speech the court applied “a 18 modified Pickering balancing analysis that closely tracks the test used for First Amendment 19 retaliation claims”); Moser v. Las Vegas Metro. Police Dep’t, 984 F.3d 900, 902 (9th Cir. 2021) 20 (applying Pickering balancing test to plaintiff’s claim for First Amendment retaliation after 21 employer enforced of social media policy and took adverse action against employee for speech made 22 on Facebook). Although the Contract’s limits on AHF’s speech may be a fact to consider, the 23 Department cannot avoid liability for First Amendment retaliation by merely arguing the Contract’s 24 terms are rationally related to the Department’s interests. 25 Thus, the Supreme Court’s framework set out under Umbehr and Pickering governs the facts 26 of this case. See Umbehr, 518 U.S. at 678, 685. The Court now turns to the merits of the balancing 27 test set out under Pickering, “adjusted to weigh the government’s interests as a contractor rather than 28 as employer[.]” Umbehr, 518 U.S. at 673. The administrative interest the Department identifies is its interest in “enforcing these valid 2 contractual provisions.” MTD at 24. This formulation of the Department’s interest is a bit circular. 3 The ultimate question before the Court will be whether terminating the Contract because of AHF’s 4 speech is constitutional. Put differently, whether the Department’s enforcement of the pre-approval 5 requirement and speech limitations—is constitutional. So, to say that the Department has an interest 6 in enforcing its Contract does not itself answer the constitutional question. The inquiry is: what 7 interest is served through enforcement of the Contract’s terms? To this end, it appears the 8 Department’s interest is ensuring “adequate and accurate communication between the Department’s 9 contracted MCPs and those beneficiaries.”12 Id. at 23. Thus, to the extent that the Department is 10 arguing that AHF’s speech disrupted its ability to ensure adequate communication with Medi-Cal 11 beneficiaries, that is a determination that must be made on the facts at a later stage of the litigation, 12 not on a Motion to Dismiss where the Court assumes the truth of the allegations in the Complaint. 13 As the Ninth Circuit has recognized “the relative value of an employee’s speech in advancing 14 First Amendment interests factors into the balancing calculus[.]” Hernandez, 43 F.4th at 977; see 15 also Connick, 461 U.S. at 152 (“We caution that a stronger showing may be necessary if the 16 employee’s speech more substantially involved matters of public concern.”) “Government employee 17 speech that exposes wrongdoing or corruption within the employee’s own agency lies at ‘the apex of 18 the First Amendment’[.]” Id. at 979 (citations omitted); see also id. (noting that police officer’s 19 Facebook posts occupied “a much lower rung on the First Amendment hierarchy,” only touching 20 21 12 At the hearing on this motion, the Department sought to clarify its interest, indicating that it also has an 22 interest in ensuring that the trust enrollees have in AHF as speaking for the Department is not eroded. According to counsel, “we need to have patient trust that when one of our contractors tells them something— 23 some important information about their medical benefits—that they are essentially speaking for the Department.” In addition, counsel argued, the contract created a “trusted channel of communication” with 24 patients and AHF “traded on that trusted channel of communication and potentially put it at risk in a way that 25 down the line creates the possibility of disruption of government services.” Leaving aside the fact that this appears to be a new argument not previously raised, it does not appear to this Court that this interest—based 26 on the allegations in the Complaint—is sufficiently weighty to tip the Pickering balancing test in the Department’s favor. Particularly given the allegations in the Complaint about the nature of the prior 27 relationship that AHF had with its enrollees, and drawing all inferences in AHF’s favor, the allegations in the complaint adequately support a conclusion that this interest is negligible and therefore AHF’s free speech 28 rights outweigh all of the Department’s interests. (There is, of course, a factual dispute as to whether any such matters of public concern in a limited sense). Taking the allegations of the Complaint as true and 2 drawing all inferences in favor of AHF, the Court concludes that AHF’s speech appears to occupy a 3 higher rung as it criticized the Department’s handling of finances and outlined possible 4 consequences to enrollees and California’s long term healthcare costs if the PHC Special Needs Plan 5 expired.13 Balancing the parties’ interest—“adjusted to weigh the government’s interests as a 6 contractor rather than as employer”—the allegations in the Complaint do not demonstrate the 7 Department’s interest outweighs AHF’s speech rights. 8 The Court therefore finds that AHF has adequately alleged facts suggesting that its interests 9 outweigh those of the Department. The Court therefore DECLINES to grant the Motion on this 10 ground. 11 CONCLUSION 12 For the foregoing reasons, the Court hereby ORDERS as follows: 13 1. The Motion is GRANTED as to all claims (Claims 1–6) against the Department WITHOUT 14 PREJUDICE; 15 2. The Motion is DENIED with respect to the federal constitutional claims (Claims 1–3) against 16 Director Baass; 17 3. The Motion is GRANTED with respect to the state constitutional claims (Claims 4–6) 18 against Director Baass WITHOUT PREJUDICE; and 19 4. The Request for Judicial Notice is GRANTED. 20 IT IS SO ORDERED. 21 22 Dated: March 30, 2023 ___________________________________ 23 MAAME EWUSI-MENSAH FRIMPONG 24 United States District Judge

25 26 13 At the hearing on this Motion, the Department argued that AHF’s speech does not occupy such a high rung because AHF agreed to the preapproval provision. Particularly given the disputes about the meaning and 27 scope of the preapproval provision, and drawing all inferences in AHF’s favor, the allegations in the Complaint adequately support heavily weighting AHF’s interest to this degree at this stage. The government’s 28 interest—even if increased negligibly by the “erosion of trust” interest articulated at the hearing and discussed