Asah v. N.J. Dep't of Educ.
Opinion
WOLFSON, United States District Judge:
Plaintiffs ASAH, Spectrum360, Verona, Spectrum360, Livingston, Michele Homa, the HollyDELL School, Hurffville ("HollyDELL"), and Maureen Grossi (collectively, "Plaintiffs") bring this case against Defendants the New Jersey Department of Education (the "Department" or "DOE"), Kimberly Harrington, in her official capacity as the Department's Commissioner of Education, Kevin Dahmer, in his official capacity as the Department's Chief Financial Officer and Assistant Commissioner in the Division of Finance, and Elise Sadler-Williams, in her official capacity as the Department's Planning Associate (collectively, "Defendants"), asserting various state and federal constitutional claims challenging the Department's regulations governing tuition reimbursement for approved private schools for students with disabilities. Presently before the Court is Defendants' Motion to Dismiss Plaintiffs' Amended Complaint, pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), for lack of subject matter jurisdiction *986and failure to state a claim upon which relief can be granted. For the reasons that follow, Defendants' Motion to Dismiss is granted in part and denied in part, as follows: (i) Defendants' Motion is granted, insofar as Defendants seek to dismiss Plaintiffs' federal claims, asserted in Counts One, Two, Three, and Five of the Amended Complaint; and (ii) because this Court declines to exercise supplemental jurisdiction over Plaintiffs' remaining state law claims, Defendants' Motion is denied without prejudice as to those claims.
I. FACTUAL BACKGROUND 1
Before recounting the relevant factual background and procedural history of this case, I will briefly review the relevant statutory and regulatory context in which Plaintiffs' claims arise.
A. Statutory and Regulatory Framework
Under the Individuals with Disabilities Education Act ("IDEA"),
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WOLFSON, United States District Judge:
Plaintiffs ASAH, Spectrum360, Verona, Spectrum360, Livingston, Michele Homa, the HollyDELL School, Hurffville ("HollyDELL"), and Maureen Grossi (collectively, "Plaintiffs") bring this case against Defendants the New Jersey Department of Education (the "Department" or "DOE"), Kimberly Harrington, in her official capacity as the Department's Commissioner of Education, Kevin Dahmer, in his official capacity as the Department's Chief Financial Officer and Assistant Commissioner in the Division of Finance, and Elise Sadler-Williams, in her official capacity as the Department's Planning Associate (collectively, "Defendants"), asserting various state and federal constitutional claims challenging the Department's regulations governing tuition reimbursement for approved private schools for students with disabilities. Presently before the Court is Defendants' Motion to Dismiss Plaintiffs' Amended Complaint, pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), for lack of subject matter jurisdiction *986and failure to state a claim upon which relief can be granted. For the reasons that follow, Defendants' Motion to Dismiss is granted in part and denied in part, as follows: (i) Defendants' Motion is granted, insofar as Defendants seek to dismiss Plaintiffs' federal claims, asserted in Counts One, Two, Three, and Five of the Amended Complaint; and (ii) because this Court declines to exercise supplemental jurisdiction over Plaintiffs' remaining state law claims, Defendants' Motion is denied without prejudice as to those claims.
I. FACTUAL BACKGROUND 1
Before recounting the relevant factual background and procedural history of this case, I will briefly review the relevant statutory and regulatory context in which Plaintiffs' claims arise.
A. Statutory and Regulatory Framework
Under the Individuals with Disabilities Education Act ("IDEA"),
New Jersey has adopted a host of regulations that are designed to fulfill the state's responsibilities under the IDEA. P.N. v. Greco ,
Private schools that seek to contract with public schools to accept students with disabilities on a tuition basis must first be approved by the Department. See N.J.S.A. § 18A:46-15 ; N.J.A.C. § 6A:14-7.2. As part of the approval process, APSSDs must submit an affidavit attesting that they will comply with, inter alia , the IDEA and all applicable New Jersey statutes and regulations, including those governing tuition reimbursement. See N.J.A.C. § 6A:14-7.2(a)(3). To receive students with disabilities from a sending district, APSSDs are required to enter into a mandated form tuition contract (the "Tuition Contract") with the sending district. N.J.A.C. § 6A:14-7.8(b) ("The district board of education shall establish a written contract for each student with a disability it places in a program approved under this subchapter.... For students placed in an [APSSD], the district board of education shall use the mandated tuition contract according to N.J.A.C. 6A:23A-16 through 22."); N.J.S.A. § 6A:23A-18.5(a)(13). Here, the Tuition Contract provides, in relevant part, as follows:
3. ... The SENDING DISTRICT and APPROVED PRIVATE SCHOOL agree to comply with all the requirements promulgated by the Commissioner of Education and the State Board of Education, as applicable.
4. Tuition charges, as part of this AGREEMENT, as well as the payment of the same shall be made in accordance with the applicable New Jersey Statutes and the rules and regulations of the State Board of Education.
Amended Verified Complaint ("Am. Compl."), Ex. A at ¶¶ 3-4.3
As noted, APSSD tuition reimbursement is governed by New Jersey law and the *988Department's regulations. Specifically, New Jersey law provides that the tuition rates charged by APSSDs cannot "exceed the actual cost per pupil as determined under rules prescribed by the commissioner and approved by the State Board of Education." N.J.S.A. § 18A:46-21 ; see N.J.A.C. § 6A:23A-18.3(a) ("The board of directors of an APSSD ... shall determine the final tuition rate charged to be an amount less than or equal to the certified actual cost per student as determined by an independent school auditor."). To ensure compliance with this statutory requirement, the Department has promulgated a set of administrative regulations that "establish requirements for accounting, financial reporting, and tuition rate setting by [APSSDs]." N.J.A.C. § 6A:23A-18.1, et seq.4 In the case at bar, Plaintiffs challenge the Department's enforcement of these regulations governing APSSD tuition reimbursement.
As an initial matter, the Department's rules define "actual costs per student," in relevant part, as "the actual allowable cost for the entire school year," N.J.A.C. § 6A:23A-18.2, and state that APSSDs "may charge one tuition rate per school location for the school year." N.J.A.C. § 6A:23A-18.3(b). When determining the actual allowable costs for the program, APSSDs must ensure that the costs are:
i. Based on all costs required for student instruction from July 1 through June 30;
ii. Consistent with the students' [IEPs];
iii. Inclusive of all costs required to implement all students' IEPs and all related services,5 except as set forth in [ N.J.A.C. § 6A:23A-18.3(a)(5) ];
iv. Reasonable, that is, ordinary and necessary and not in excess of the cost that would be incurred by an ordinarily prudent person in the administration of public funds; and v. Based on goods actually received and placed in service and/or services rendered in the fiscal year expensed.
N.J.A.C. § 6A:23A-18.3(a)(1). The regulations further provide that, with the exception *989of extraordinary services,6 APSSDs "shall provide required related services in the scope of services rendered pursuant to the tuition contract and may not bill the sending district board of education separately for related services that are required by a student's initial or any subsequent IEP with limited exception." N.J.A.C. § 6A:23A-18.3(a)(5) (emphasis added). In short, with the exception of extraordinary services, which are billed separately, an APSSD must include the cost of all services necessary7 to implement a student's IEP in the tuition rate charged to the sending district. See N.J.A.C. § 6A:23A-18.3(a).
As a condition for their continued approval to accept students from sending districts, APSSDs must submit audited financial statements for the Department's review. N.J.A.C. § 6A:23A-18.10(a). As part of this process, the APSSD must "ensure the audited financial statements reflect the certified actual cost(s) per student as determined by an independent auditor and final tuition rate(s) charged at the end of the school year as determined by the APSSD's management." N.J.A.C. § 6A:23A-18.10(c). Failure to comply with the audit requirement may result in the APSSD being placed on conditional approval status. N.J.A.C. § 6A:23A-18.10(j).
Plaintiffs' Amended Complaint challenges both the Department's regulations that were in place prior to July 3, 2017 (the "Prior Regulations"), as well as the regulations that went into effect after July 3, 2017 (the "July 2017 Regulations"). The Prior Regulations provided that if the APSSD paid a salary for certain positions that exceeded the salary maximum set forth in (prior) N.J.A.C. § 6A:23A-18.2(o ), the excess was a non-allowable cost, which could not be included in calculating tuition. N.J.A.C. § 6A:23A-18.5(a)(8)-(9). The Prior Regulations further provided that an APSSD's allowable salary costs had to conform to "the list of maximum allowable salaries by job title and county according to the job titles contained in N.J.A.C. 6A:9B." N.J.A.C. § 6A:23A-18.2(o ). Except for administrative job titles, maximum allowable salaries were based on the highest contracted salary in the prior year for the same job title and county.
On July 3, 2017, the New Jersey State Board of Education amended the regulations governing the maximum allowable salary rates that APSSDs could include in the costs of tuition. Specifically, although the July 2017 Regulations set the maximum salary rate for each position as they were determined under the Prior Regulations, N.J.A.C. § 6A:23A-18.3(o )(1), they also provide exceptions for the positions of occupational therapist, physical therapist, and speech and language specialist (the "Relevant Positions") at issue in this case. In that regard, the July 2017 Regulations provide, in relevant part, as follows:
(o) An APSSD shall reference as guidance the Commissioner-published list of maximum allowable salaries by job title and county, according to the job titles contained in N.J.A.C. 6A:9B relevant to APSSDs. Except for administrative job titles referenced in (p) below, maximum allowable salaries are based on the highest contracted salaries (not including payment of unused sick and vacation days and severance pay) of certified staff by job title in a district board of education for any prior year, indexed by the average increase in salary between the two preceding school years for each *990job title. The salaries are based on a 12-month contract period from July 1 through June 30 and the maximum allowable salary of an APSSD staff member shall be prorated for staff employed for less than 12 months. Under no circumstances shall the maximum allowable salary calculated be less than the corresponding salary in the prior year for the same job title and county. Unrecognized job titles shall be correlated to similar job titles in public schools based on their functional activities. The maximum allowable salary of a staff member holding a part-time or split-time position shall be prorated including the salary of staff employed in entities defined in (e) and (f) above.
1. Effective July 1, 2017, through June 30, 2024, maximum allowable salaries pursuant to (o) above shall be published at the rates contained in the maximum allowable salary list published for the 2016-2017 school year, with the following exceptions:
i. Beginning July 1, 2017, the maximum published salaries for the job titles of occupational therapist, physical therapist, and speech and language specialist shall increase annually from the 2016-2017 published list of maximum allowable salaries by CPI8 determined consistent with N.J.S.A. 18A:7F-45 ;
ii. Beginning July 1, 2017, the Commissioner, or his or her designee, shall publish a maximum allowable salaries list that contains the total maximum hourly rate for occupational therapists, physical therapists, and speech and language specialists contracted by APSSDs as purchased service providers or independent contractors. The published total hourly rates shall include an allowance of 35 percent more than the maximum allowable salary rate calculated and published pursuant to [ (o)(1)(i) ] above for the same job titles. The total maximum hourly rates shall be applicable only to contracted service providers.
iii. Beginning July 1, 2017, an APSSD may contract with an approved clinic and agency pursuant to N.J.A.C. 6A:14-5.1(c) and 5.2 and may pay the approved clinic or agency for the contracted services at a rate above the maximum allowable salary published rate detailed in (o) above, so long as the APSSD:
(1) Acquires quotes for the contracted services from at least three approved clinics or agencies prior to contracting with an approved clinic or agency. If any of the three approved clinics or agencies are a related party, the APSSD shall contract with the lowest of the three quotes; and
(2) Provides documentation of the three quotes required by [ (o)(1)(iii)(1) ] above to the Department upon request.
N.J.A.C. § 6A:23A-18.3(o ). Finally, under the July 2017 Regulations, APSSDs can request that the Commissioner of Education approve a salary higher than the maximum allowable salary for "no more than two APSSD employees in any fiscal year in which the APSSD demonstrates, to the Commissioner's or his or her designee's satisfaction, the maximum allowable salary is inadequate and would cause a hardship to the APSSD." N.J.A.C. § 6A:23A-18.3(r).
B. The Parties
ASAH is a not-for-profit organization, comprised of approximately 160 private *991schools and agencies in New Jersey. Am. Compl. ¶¶ 1, 48-49. Spectrum3609 and HollyDELL10 are APSSDs. Id. at ¶¶ 2-3, 5. Michele Homa is an occupational therapist and the co-owner of AJL Therapy for Kids ("AJL"), a New Jersey entity that provides occupational therapy services to public and private students, including students attending Spectrum360. Id. at ¶ 4. Maureen Grossi is a physical therapist at HollyDELL. Id. at ¶ 6.
The New Jersey Department of Education is a state agency that administers state and federal programs affecting more than 1.4 million public and non-public elementary and secondary school children in New Jersey. Id. at ¶ 6. Kimberly Harrington is the Department's Commissioner of Education. Id. at ¶ 8. Kevin Dahmer is the Department's Chief Financial Officer and Assistant Commissioner in the Division of Finance. Id. at ¶ 9. Elise Sadler-Williams is the Department's Planning Associate. Id. at ¶ 10.
C. Plaintiffs' Claims
According to the Amended Complaint, prior to June 2015, the Department had a decades-long practice of permitting APSSDs "to obtain full reimbursement for related-services [provided to students with disabilities], provided that the related-services were administered in fulfillment of students' IEPs and were provided by qualified employees or approved agencies." Id. at ¶ 85. Plaintiffs allege that the Department also permitted sending districts to send their own staff to assist APSSDs in providing related services to students with disabilities, without charge to these APSSDs. See id. at ¶ 86. Plaintiffs further allege that APSSDs, such as Spectrum360 and HollyDELL, relied on the Department's practice of permitting full reimbursement in annually acquiring related services at an amount sufficient to fulfill the requirements of students' IEPs. See id. at ¶ 87.
On June 16, 2015, the Department issued a memorandum entitled, "Private Schools for Students with Disabilities Costs for Related Services" (the "June Memorandum"), which states:
It has come to the attention of the Department of Education that some [APSSDs] are charging sending districts separately for related services, or requiring districts to provide their own related services staff to implement IEPs. Department regulations require [APSSDs] to include the costs of special education related services in their tuition rates and that they can only charge separately for one-to-one aides for students ....
...
Therefore, the [APSSDs] must immediately cease this practice and ensure that all educational and related services are delivered, as specified in the students' IEPs.
Am. Compl., Ex. B.
On February 9, 2016, the Department issued a follow up memorandum (the "February Memorandum") that addressed frequently asked questions regarding the June Memorandum. See id. at Ex. C. After setting forth the definitions of extraordinary *992services under N.J.A.C. § 6A:23A-18.1 and related services under N.J.A.C. § 6A:14-1.3 and 3.9, the February Memorandum provides, in pertinent part:
3. Who pays for the cost of related services in an [IEP] for a student placed in an APSSD?
For students placed in APSSDs, the cost of all related services within an IEP must be included in the tuition rate. See N.J.A.C. 6A:23A-18.2(a)1 and 18.2(a)5. The APSSDs shall not charge sending districts separately for related services that are required by a student's IEP. An APSSD shall only charge separately for extraordinary services .... All other services shall be included as part of the tuition rate.
By way of example, if a student enrolled in an APSSD has an IEP that requires counseling services twice per week individually, the APSSD must implement the IEP to ensure that the required counseling services are provided. The cost for the provision of the counseling services, pursuant to N.J.A.C. 6A:23A-18.5(a), shall be included in the calculation of the certified actual cost per student and final tuition rate charged to sending districts. The APSSD cannot separately bill the sending district for any IEP required services other than extraordinary services ....
...
5. What if the related service(s) contained in a student's IEP are unique and/or need to be provided after school hours?
Given the nature of related services and the broad definition within the IDEA, it is possible that an IEP may require the provision of uncommon or unique related services. The type of related service must be clearly delineated in the IEP. Additionally, some related services may need to be provided after hours if required by a student's IEP.
The APSSD must determine whether it can provide the related service(s) detailed in the student's IEP. If it can, the cost of same must be included within the tuition rate for the sending district. If the APSSD cannot provide the service, the APSSD must immediately notify the sending district that the student will need to be placed elsewhere because it cannot provide the required service(s).
...
12. Can the APSSD pay more than the maximum salary for related service providers?
No, pursuant to N.J.A.C. 6A:23A-18.5(a)8 and 9, staff members or consultants cannot be paid in excess of the applicable maximum allowable salary.
Id. at 1-3.
Plaintiffs allege that the Department "announced a reversal of its prior practices" through the June Memorandum and the February Memorandum (collectively, the "Memoranda"), and that "[t]his reversal occurred at the end of the 2014-15 school year - after IEPs had been developed for the 2015-16 school year, after [APSSDs] had admitted students in reliance on the [Department's] past permissions regarding [the] related-service provision, and after [APSSDs] had already established their budgets for the coming 2015-16 school year." Am. Compl. ¶¶ 91-92. Additionally, despite this alleged reversal of practice, Plaintiffs aver that the Department nonetheless "required [APSSDs] to provide all mandated IEP services - without the use of district personnel and without billing districts separately in order to afford the services." Id. at ¶ 93. In short, Plaintiffs allege that the Department "abruptly increased the *993amount of related-services [that APSSDs] would be required to provide directly, while limiting the funds [APSSDs] might use to purchase the services."11 Id. at ¶ 95.
According to the Amended Complaint, the alleged reversal in the Department's policies regarding tuition reimbursement for APSSDs resulted in a myriad of consequences for both APSSDs and related service providers. With respect to HollyDELL and Ms. Grossi, Plaintiffs allege that as a result of the Department's "decision to enforce its unlawful maximum salary," HollyDELL could not give Ms. Grossi an annual increase in salary. Id. at ¶ 104. Plaintiffs further allege that, in order to maintain Ms. Grossi's income for the 2015-16 school year, HollyDELL "was forced to increase Ms. Grossi's hours from 27 per week to 32 per week, while reducing her hourly rate from $80.39 to $68.38." Id. at ¶ 105. Plaintiffs aver that Ms. Grossi's plans for retirement have been delayed as a result of these salary limitations. Id. at ¶ 108. Additionally, Plaintiffs allege that an experienced occupational therapist declined HollyDELL's offer of employment, because her "then-current rate for services exceeded the maximum salary permitted by the DOE." Id. at ¶ 112. Plaintiffs further allege that, although HollyDELL eventually filled the occupational therapist position, due to the salary limitations imposed by the Department, it was forced to hire a recent graduate with little experience. Id. at ¶ 113.
Plaintiffs also assert that the Department's salary restrictions adversely affected Spectrum360 and its related service providers, including Ms. Homa. Specifically, Plaintiffs allege that Spectrum360 had to adjust its speech therapists' salaries to comply with the Department's maximum allowable salary for speech language therapists in Essex County during the 2014-2015 school year, $74 per hour, which was "far below market value and far below what public entities servicing students with special needs are permitted to spend on speech language services." Id. at ¶¶ 114-18. Additionally, Plaintiffs allege that one Spectrum360 student needed a highly specialized feeding therapy, and that the speech therapist who was qualified to provide that service had an hourly rate of $180 per hour. See id. at ¶¶ 119-120. According to the Amended Complaint, although Spectrum360 was able to obtain the specialized therapy for $130 per hour, the arrangement still exceeded the Department's maximum allowable salary by $50 per hour. Id. at ¶ 121. Similarly, Plaintiffs allege that Spectrum360 was unable to acquire physical and occupational therapy services for less than $88 per hour during the 2014-2015 school year, which exceeded the Department's maximum of $72 per hour for Essex County and was "far below market value and far below what public entities servicing students with special needs are permitted to spend on physical and occupational therapy services." Id. at ¶¶ 124-27. In total, Plaintiffs allege that, as of June 2016, Spectrum360 "stood to lose almost $150,000 for related-service costs in excess of the DOE's maximum." Id. at ¶ 139.
With respect to AJL and Ms. Homa, the Amended Complaint alleges that, prior to the Department's Memoranda, AJL's occupational and physical therapists generally earned $88-95 per hour from APSSDs, as compared to $95-150 hourly from public *994entity schools servicing students with disabilities. See id. at ¶¶ 127-28. Plaintiffs allege that as a result of the Department's maximum salary restrictions, AJL was forced to reduce the rates of all of its therapists and implement a salary freeze. See id. at ¶¶ 129-30. According to the Amended Complaint, AJL anticipates that it may lose two experienced therapists as a result of the salary reduction and freeze and does not anticipate being able to replace those therapists with other experienced therapists at the lower rate. Id. at ¶¶ 131-32.
Plaintiffs further allege that, despite the change in the Department's treatment of maximum salaries for related service providers - as reflected in the enactment of N.J.A.C. § 6A:23-18(o )(1) - the Department "has continued to enforce the terms of its challenged [M]emoranda and the challenged regulations in financial audits for the 2014-15 school year."Id. at ¶¶ 147-48. Plaintiffs also aver that "the new regulations have done nothing to eliminate the inequities between [APSSD] and public school related-service cost limitations." Id. at ¶ 150.
Based on these allegations, the Amended Complaint asserts eight claims against Defendants. Count One asserts that Defendants discriminated against APSSDs and their affiliates, in violation of the Equal Protection Clause of the Fourteenth Amendment, by: (i) requiring Plaintiffs to adhere to the Department's Memoranda and regulations; (ii) prohibiting APSSDs from being able to procure identical related services for students with disabilities at the same rate as public entities; and (iii) prohibiting APSSD related service providers from receiving the same compensation as service providers for public schools. See id. at ¶¶ 151-56. In connection with Count One, Plaintiffs seek a declaration that the Memoranda and the Department's regulations violate the Equal Protection Clause, as well as an order "permitting [APSSDs] to procure related-services at any rate and amount necessary to implement students' [IEPs] or permitting [APSSDs] to procure related-services in amounts and at rates equal to public entity schools." Id. at 24.
In Count Two, Plaintiffs raise a procedural due process claim, alleging that Defendants violated the Due Process Clause of the Fourteenth Amendment when the Department "reversed its position regarding the enforcement of maximum salaries for related-service providers and its requirement that related-services be provided directly by [APSSDs], absent notice and opportunity to be heard." Id. at ¶¶ 158-161. In connection with Count Two, Plaintiffs seek a declaration that the Department's actions amounted to a taking of Plaintiffs' liberty and property without due process of law, and thus, request an order invalidating the Memoranda "and the restraints imposed therein." Id. at 25.
In Count Three, Plaintiffs assert a related substantive due process claim, alleging that Defendants deprived Plaintiffs "of economic liberty via unlawful contract and compensation limitations." Id. at ¶¶ 163-66. In connection with Count Three, Plaintiffs seek a declaration that the Memoranda, the Prior Regulations, and the July 2017 Regulations violate the Due Process Clause, and request the entry of an order: (i) "establishing that [APSSD] related-service providers may contract for compensation at market rate or for any rate allowed for related-service providers servicing disabled students in public entity schools"; (ii) "establishing that work hours for [APSSD] related-service providers may not be reduced or increased to meet any maximum salary amount determined by the [DOE]"; and (iii) "granting [APSSD] related-service providers compensation for any sums to which they were previously entitled, but *995for the imposition of the [DOE's] salary limitation." Id. at 26-27.
In Count Four, Plaintiffs allege that by causing "municipalities and school boards to remove, or seek to remove, disabled students from their appropriate placements at [APSSDs] based on related-service provision and associated costs," the Department has deprived these students of a thorough and efficient education, in violation of Article VIII, Section IV of the New Jersey Constitution. Id. at ¶¶ 167-71. In connection with Count Four, Plaintiffs seek a "declaration that local municipalities and school board may not insist that students be removed from appropriate [APSSDs] or forfeit their related-services in order to remain."Id. at 28.
In Count Five, Plaintiffs assert a claim for "unconstitutional impairment of contracts" under Article I, Section 10 of the United States Constitution and Article IV, Section 7 of the New Jersey Constitution, alleging that: (i) Defendants "mandated the form of contract that [APSSDs] must utilize in accepting students with disabilities for their respective districts"; (ii) "[t]hese contracts require [APSSDs] to ensure students' receipt of all related-services ... prescribed by their IEPs"; and (iii) that Defendants, "by way of [the] maximum salary imposition, [have] simultaneously impaired [APPSDs'] ability to meet related-service requirements in accordance with students' mandated tuition contracts." Id. at ¶¶ 172-76. In connection with Count Five, Plaintiffs seek a declaration that the Department's maximum salary requirements "unconstitutionally impaired [APSSDs'] related-service obligations under their mandated tuition contracts," and, accordingly, request an order "invaliding maximum salary requirements for [APSSD] related-service providers." Id. at 29.
In Count Six, Plaintiffs allege that Defendants violated the mandatory rule-making procedures set forth under the New Jersey Administrative Procedure Act ("NJAPA"), N.J.S.A. § 54:14B-1, et seq. , by reversing the Department's practice of permitting APSSDs to receive full reimbursement for the costs of related services and allowing sending districts to have their own staff provide related services to students in APSSDs. Id. at ¶¶ 177-81. In connection with Count Six, Plaintiffs seek a declaration that Defendants violated the NJAPA and an order invalidating the Department's Memoranda. Id. at 30.
In Counts Seven and Eight, Spectrum360 and HollyDELL, respectively, assert standalone claims for declaratory and injunctive relief, alleging that the Department's enforcement of its maximum salary limitations prevents Spectrum360 and HollyDELL from honoring their legal obligation to implement students' IEPs. See id. at ¶¶ 182-85. In connection with those claims, Spectrum360 and HollyDELL seek declarations that the Department's regulations prevent them from fulfilling their legal obligations under the IDEA. Id. at 31-32. Spectrum360 also seeks an order compelling the Department to permit Spectrum360 "to receive full payment for all of its related-service expenses incurred in implementing students' IEPs using approved agencies and/or qualified personnel." Id. at 31.
II. PROCEDURAL HISTORY
On June 30, 2016, ASAH, the Children's Institute ("TCI"), Ms. Homa and Grossi, HollyDELL, B.R. on behalf of M.R., and S.D. on behalf of W.D., commenced this action against the Department, asserting the following claims: (i) Count One-violation of the right to equal protection under the Fourteenth Amendment; (ii) Count Two-violation of the right to procedural due process under the Fourteenth Amendment; (iii) Count Three-violation of the *996right to substantive due process under the Fourteenth Amendment; (iv) Count Four-violation of the IDEA; (v) Count Five-violation of the right to a thorough and efficient education under the New Jersey Constitution; (vi) Count Six-impairment of contract under the United States and New Jersey Constitutions; and (vii) Count Seven-violation of the NJAPA. See ASAH v. New Jersey Dep't of Educ. , No. 16-3935,
On November 4, 2016, the Department moved to dismiss the original Complaint in this matter. ECF No. 8. On June 30, 2017, this Court issued an Opinion and entered a corresponding Order dismissing the original Complaint. ECF Nos. 17-18. Specifically, this Court found, first, that, pursuant to the Eleventh Amendment, the Department was immune from the federal claims asserted in Counts One, Two, Three, and Six. See ASAH ,
On October 2, 2017, Plaintiffs, with the exception of the parents of the individual students and TCI, filed the Amended Complaint, naming as Defendants the Department, as well as Harrington, Dahmer, and Sadler-Williams (collectively, the "State Officials") in their official capacities. ECF No. 23. As noted, the Amended Complaint alleges that the Department's regulations violated their federal and state constitutional rights to equal protection, due process, and contract, their state rights under New Jersey's corollary to the Contracts Clause, the thorough and efficient education clause of the New Jersey Constitution, and under the NJAPA. See id. Spectrum360 and HollyDELL also asserted separate stand-alone claims for declaratory and injunctive relief. See id. On December 13, 2017, Defendants filed the instant Motion to Dismiss Plaintiffs' Amended Complaint, pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). ECF No. 28. That Motion has been fully briefed. ECF Nos. 31, 33.
III. LEGAL STANDARD
A. Federal Rule of Civil Procedure 12(b)(1)
Under Federal Rule of Civil Procedure 12(b)(1), a court must grant a motion to dismiss if it lacks subject matter jurisdiction to hear a claim. See FED. R. CIV. P. 12(b)(1). "A motion to dismiss for want of standing is ... properly brought pursuant to Rule 12(b)(1), because standing is a jurisdictional matter." Ballentine v. United States ,
In evaluating a Rule 12(b)(1) motion to dismiss, the reviewing court must first determine whether the motion "presents a 'facial' attack or a 'factual' attack on the claim at issue, because that distinction determines how the pleading must be reviewed." Constitution Party of Pennsylvania v. Aichele ,
B. Federal Rule of Civil Procedure 12(b)(6)
In reviewing a motion to dismiss for failure to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6), "courts accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Fowler v. UPMC Shadyside ,
In accordance with the pleading requirements set forth in Twombly and Iqbal , the Third Circuit has formulated "a three-step process for district courts to follow in reviewing the sufficiency of a complaint." Robinson v. Family Dollar Inc. ,
IV. DISCUSSION
Defendants argue that the Amended Complaint should be dismissed for three reasons. First, Defendants maintain that Plaintiffs' state and federal constitutional claims are barred under the Eleventh Amendment doctrine of sovereign immunity, and that no exceptions to immunity exist. Second, Defendants contend that Plaintiffs' challenges to the Department's July 2017 Regulations are not justiciable, because Plaintiffs have failed to sufficiently allege the existence of an actual and imminent threat of future harm, as required under the doctrines of standing and ripeness. Third, Defendants argue that even if this Court has subject matter jurisdiction, Plaintiffs' claims fail on the merits. Because Plaintiffs' sovereign immunity and justiciability arguments implicate this Court's subject matter jurisdiction, the Court will address those arguments before turning to Defendants' non-jurisdictional bases for dismissal.13 See Sinochem Int'l Co. v. Malay. Int'l Shipping Corp. ,
A. Eleventh Amendment Sovereign Immunity
The Eleventh Amendment to the United States Constitution provides that "[t]he judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state." U.S. CONST. amend. XI. "Under the Eleventh Amendment, 'an unconsenting State is immune from suits brought in federal courts by [its] own citizens.' " Hyatt v. Cty. of Passaic ,
As noted, the Eleventh Amendment bars not only suits against states themselves, "but also suits for damages against 'arms of the State'-entities that, by their very nature, are so intertwined with the State that any suit against them renders the State the 'real, substantial party in interest.' " Maliandi v. Montclair State Univ. ,
Here, in arguing that the Department must be dismissed on sovereign immunity grounds, Defendants note that the Court already found that the Department was entitled to sovereign immunity in its June 30, 2017 Opinion. See Defs.' Br. at 14. Indeed, in my prior decision, I rejected Plaintiffs' argument that the exception to sovereign immunity set forth in Ex parte Young ,
The Court's finding that Department is entitled to sovereign immunity does not end the inquiry, however, because in the Amended Complaint, Plaintiffs assert federal claims against the State Officials in their official capacities. In the context of sovereign immunity, actions against state officers are subject to a slightly different standard than actions against state *1000entities. Specifically, while suits against a non-consenting state are barred by the Eleventh Amendment, under the Supreme Court's holding in Ex parte Young , "a private plaintiff may sue state officials for prospective injunctive relief to end ongoing violations of federal law." Williams by & through Bookbinder v. Connolly , No. 17-3569,
This "bar on retroactive relief includes forms of equitable relief that are functionally equivalent to damage awards." Christ the King ,
In reversing the Court of Appeals' finding that the Eleventh Amendment did not bar the portion of the District Court's order that required a retroactive payment of benefits, the Edelman Court explained that although "the Court of Appeals described this retroactive award of monetary relief as a form of 'equitable restitution,' it is in practical effect indistinguishable in many aspects from an award of damages against the State."
Following Edelman , the label given to a plaintiff's requested relief "is of no importance" and courts "look to the substance rather than the form of the relief requested to determine whether [the plaintiff's] claims are barred by the Eleventh Amendment." Blanciak ,
Here, Defendants raise two sovereign immunity arguments with respect to the State Officials. First, Defendants argue that under Ex parte Young and its progeny, Plaintiffs' request in Count Three (Plaintiffs' substantive due process claim) - seeking an "Order granting [APSSD] related-service providers compensation for any sums to which they were previously entitled" - must be dismissed, because it is akin to a request for retroactive monetary damages. Second, Defendants contend that each of Plaintiffs' federal claims should be dismissed, because Ex parte Young only provides an exception to sovereign immunity for claims seeking injunctive relief to remedy a continuing violation of federal law, and "Plaintiffs have failed to allege any facts showing that there is indeed an ongoing violation of federal law." Pls.' Br. at 16.
With respect to Defendants' first argument, the Court agrees that Plaintiffs' request in Count Three - seeking an "Order granting [APSSD] related-service providers compensation for any sums to which they were previously entitled" - must be dismissed, because such an award would more closely approximate an award of retroactive monetary damages than prospective injunctive relief. Accordingly, that request is stricken from Count Three as barred under the doctrine of sovereign immunity.
Nonetheless, the Court finds that the State Officials are not entitled to immunity with respect to the remainder of Plaintiffs' federal claims. Specifically, contrary to Defendants' assertion, Plaintiffs do allege that Department's enforcement of its APSSD tuition reimbursement regulations amounts to a violation of federal law, and thus, that Defendants should be enjoined from continued enforcement of the same. For the purposes of the Ex parte Young exception, Plaintiffs need not establish that Defendants' conduct is, in fact, unconstitutional.14 Accordingly, the *1002Court proceeds to Defendants' other arguments for dismissing Plaintiffs' federal claims.15
B. Justiciability of Plaintiffs' Challenges to the Department's July 2017 Regulations
Next, Defendants argue that Plaintiffs' claims challenging the July 2017 Regulations should be dismissed for lack of standing and because those claims are not ripe for judicial review.16 Specifically, Defendants contend that Plaintiffs have failed to allege that the July 2017 Regulations pose an imminent threat of future harm, and thus, that Plaintiffs have failed to satisfy the Article III requirement of injury in fact. Relatedly, Defendants contend that Plaintiffs' claims challenging the July 2017 Regulations are not ripe, because Plaintiffs have not alleged a non-speculative threat of future harm. See Defs.' Br. at 20 ("Whether Plaintiffs have standing or their claims are ripe both turn on whether the threat of future harm is sufficient to constitute a cognizable injury."). Because Plaintiffs' standing and ripeness arguments boil down to the same question in this case, the Court will address standing and ripeness in tandem. See Free Speech Coal., Inc. v. Attorney Gen. United States ,
Article III of the United States Constitution confines the scope of federal judicial power to the adjudication of "cases" or "controversies." U.S. CONST. art. III, § 2. This "bedrock requirement," Valley Forge Christian Coll. v. Ams. United for Separation of Church & State, Inc. ,
Courts have developed several justiciability doctrines to enforce the "case" or "controversy" requirement. See Warth v. Seldin ,
To satisfy the "irreducible constitutional minimum" of Article III standing, the plaintiff must establish three well-settled elements:
First, the plaintiff must have suffered an injury in fact-an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical.
Second, there must be a causal connection between the injury and the conduct complained of-the injury has to be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court.
Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.
Lujan v. Defenders of Wildlife ,
The standing inquiry in this case centers on the " '[f]irst and foremost' of standing's three elements," injury-in-fact. Spokeo ,
To carry its burden on the injury-in-fact requirement, a "plaintiff must claim 'the invasion of a concrete and particularized legally protected interest' resulting in harm 'that is actual or imminent, not conjectural or hypothetical.' " Finkelman v. Nat'l Football League ,
Here, I note, as an initial matter, that Defendants' justiciability arguments focus solely on Plaintiffs' ability to assert claims based on the Department's July 2017 Regulations, not the Prior Regulations that were in place at the time of Plaintiffs' original Complaint. That is significant, because each of Plaintiffs' claims is premised on both the Department's Prior Regulations and the July 2017 Regulations. See, e.g. , Am. Compl. at 24 (seeking a "declaration that the enactment of N.J.A.C. 6A:23A-18.5(a)8 and 9 (in affect as of the original June 30, 2016 filing of this complaint) ... and N.J.A.C. 6A:23A-18.3(o )(1) (in effect currently) ... violate the Equal Protection Clause of the United States Constitution."). Equally important, Plaintiffs allege that, despite the enactment of the July 2017 Regulations, the Department "has continued to enforce the terms of its challenged memoranda and the challenged regulations in financial audits for the 2014-15 school year" and "has commenced retroactive enforcement of the terms of its challenged memoranda and the challenged regulations, seeking to disallow related-service costs in excess of past maximum salary limitations in financial audits for school years prior to 2014-15."
*1005at ¶¶ 148-49 (emphasis in original). While, as this Court has already found, Plaintiffs are limited to seeking prospective relief against the State Officials, to the extent that these audits have not yet occurred, and to the extent Plaintiffs allege that Defendants continue to enforce the Department's Prior Regulations, Plaintiffs have standing to challenge the constitutionality of those regulations.
The analysis with respect to Plaintiffs' standing to challenge the Department's July 2017 Regulations is slightly different. In that regard, while the Amended Complaint places emphasis on the impact of the Department's Prior Regulations on the Plaintiff-APSSDs and related service providers, these allegations of past injury under a previous regulatory scheme, standing alone, are insufficient to confer standing on Plaintiffs to seek prospective injunctive and declaratory relief regarding the July 2017 Regulations. See Free Speech ,
In arguing that Plaintiffs have failed to present a justiciable controversy with respect to the July 2017 Regulations, Defendants contend that the Amended Complaint fails to address the added flexibility provided under those regulations. Defs.' Br. at 18. Specifically, Defendants note that, although the amended regulations set the maximum salary rate for each position in reference to the 2016-2017 school year, N.J.A.C. § 6A:23A-18.3(o )(1), they provide exceptions for the Relevant Positions at issue in this case. In that regard, Defendants submit that, beginning July 1, 2017, the regulations provide that: (i) maximum published salaries for the Relevant Positions shall increase annually by the CPI from the 2016-17 published salary, see N.J.A.C. § 6A:23A-18.3(o )(1)(i); (ii) the published maximum allowable salaries list containing the total maximum hourly rate for the Relevant Positions will include an allowance of 35 percent more than the maximum allowable salary rate calculated and published pursuant to N.J.A.C. § 6A:23A-18.3(o )(1)(i) for those positions, see N.J.A.C. § 6A:23A-18.3(o )(1)(ii); (iii) that APSSDs may contract with approved clinics or agencies for contracted services above the maximum allowable published rates detailed in N.J.A.C. § 6A:23A-18.3(o )(1)(i), so long as the APSSD complies with certain requirements; see N.J.A.C. § 6A:23A-18.3(o )(1)(iii); and (iv) APSSDs can request that the Commissioner of Education approve a salary higher than the maximum allowable salary for "no more than two APSSD employees in any fiscal year in which the APSSD demonstrates, to the Commissioner's or his or her designee's satisfaction, the maximum allowable salary is inadequate and would cause a hardship to the APSSD." N.J.A.C. § 6A:23A-18.3(r). Defendants argue that the Amended Complaint is devoid of any allegations explaining how these regulations will negatively impact Plaintiffs, and thus, that Plaintiffs' alleged injury is conjectural. I disagree.
Despite the lack of specific allegations concerning the impact of the "flexibility" provisions cited by Defendants, Plaintiffs have sufficiently alleged a real and immediate injury with respect to the July 2017 Regulations - that they will suffer "real costs as a condition of compliance with a regulation that they urge is unconstitutional." Free Speech ,
Notwithstanding the lack of an existing inspection regime, the Third Circuit found that the plaintiffs had standing to pursue their constitutional claims, and that such claims were ripe, because, "even without a formal inspection regime in place, [the plaintiffs] ... still [had to] comply with [the statutes'] requirements and be prepared to face an inspection without warning and at law enforcement's discretion."
For similar reasons, here, the Court finds that Plaintiffs have sufficiently alleged an immediate threat of future harm, such that Plaintiffs' constitutional claims are justiciable. Significantly, as in Free Speech , here, there can be no dispute that APSSDs and their related service providers are the direct targets of the Department's July 2017 Regulations, and that failure to comply with those regulations would expose APSSDs to the threat of losing their approved status. Additionally, the threat alleged by Plaintiffs - that APSSDs will not be fully reimbursed for the costs of related services provided students and that related service providers will not be compensated at the market rate - is not remote. The July 2017 Regulations indicate that they went into effect beginning July 1, 2017, and thus, directly impact APSSD tuition reimbursement and related service provider salaries on an ongoing basis.
Nor can the Court find that the provisions cited by Defendants - allegedly providing added flexibility for APSSDs to compensate related service providers - render Plaintiffs' claimed injuries entirely speculative. In that regard, even accepting Defendants' argument that these provisions give APSSDs added flexibility, the Court cannot conclude that the mere possibility that an exception to the general provisions governing tuition reimbursement may apply renders Plaintiffs' claims academic. Indeed, the Amended Complaint's *1007allegations concerning the Department's enforcement of the maximum salary limitations set forth in the Prior Regulations, as well as the impact of that enforcement on related service provider salaries, lends credence to Plaintiffs' alleged future injury. See Susan B. Anthony List v. Driehaus ,
C. Plaintiffs' Federal Claims
Having found that this Court has jurisdiction to consider Plaintiffs' federal claims against the State Officials, the Court must determine whether Plaintiffs have met the pleading standard with respect to each of their federal claims. As noted above, Plaintiffs assert federal claims for: (1) violation of the Equal Protection Clause; (2) violation of the Due Process Clause; and (3) Violation of the Contracts Clause. The Court will examine each of these claims, in turn.
1. Equal Protection Claim
In Count One of the Amended Complaint, Plaintiffs allege that the Department's regulations governing APSSD reimbursement tuition, including the disallowance of related service provider salaries that exceed the regulatory maximum, amount to discrimination in violation of the Equal Protection Clause of the Fourteenth Amendment of the Constitution. See Am. Compl. ¶¶ 151-57. Specifically, Plaintiffs allege that the Department's regulations discriminate against APSSDs, because they prohibit APSSDs from procuring related services for students with disabilities at the same cost as public entities. Id. at ¶ 154.
The Equal Protection Clause "is essentially a direction that all persons similarly situated should be treated alike." City of Cleburne, Tex. v. Cleburne Living Ctr. ,
Here, the parties dispute the standard of review that governs Plaintiffs' Equal Protection Claim. In that regard, Defendants contend that rational basis review applies, because Plaintiffs are not members of a suspect class and the regulations do not implicate a fundamental right. Conversely, Plaintiffs argue that the Department's regulations both target a suspect class and burden a fundamental right. In that regard, Plaintiffs contend that the Department's regulations impose salary limitations on APSSDs and their related service providers, without imposing similar limitations on public schools and their related service providers. See Pls.' Br. at 17. Additionally, Plaintiffs argue that students with disabilities are a suspect class and, "[d]ue to their association with private school students with disabilities, [APSSDs] and [APSSD] related-service providers are also members of a protected class and entitled to equal protection."Id. Finally, Plaintiffs maintain that the Department's regulations limit the ability of students with disabilities to receive the educational services mandated by their IEPs, and thus, that these regulations threaten the fundamental right to education. See id. at 18-19.
Plaintiffs' arguments in support of applying a strict scrutiny standard of review are without merit. At the outset, APSSDs and their related service providers are not suspect classes for the purposes of the Equal Protection Clause, because these groups are not "discrete and insular" minorities that have been " 'subjected to such a history of purposeful unequal treatment, or relegated to such a position of political powerlessness as to command extraordinary protection from the majoritarian political process.' " Massachusetts Bd. of Ret. v. Murgia ,
Finally, although Plaintiffs cite Abbott v. Burke ,
Under the rational basis standard of review, state regulations that "neither employ a suspect classification nor impinge a fundamental right are 'entitled to a presumption of validity against attack under the Equal Protection Clause.' " Schumacher ,
A state "need not provide justification or rationale" for its regulatory decision. State Troopers Non-Commissioned Officers Ass'n of New Jersey v. New Jersey ,
Here, Defendants cite two main justifications for the Department's regulations governing the calculation of APSSD tuition reimbursement: (i) promoting fiscal accountability in the provision of educational support services, in order to avoid the potential mismanagement of public monies; and (ii) ensuring consistency and transparency through the promulgation of regulations that set forth the exact means by which tuition reimbursement shall be provided. See Defs.' Br. at 27-29. Given the "deferential standard" that must be employed when considering a state regulation under rational basis review, Steel Valley ,
2. Due Process Claims
In Counts Two and Three of the Amended Complaint, Plaintiffs assert claims under the Due Process Clause of the Fourteenth Amendment. The Due Process Clause of the Fourteenth Amendment provides that "[n]o State shall ... deprive any person of life, liberty, or property, without due process of law." U.S. CONST. amend. XIV, § 1. In the case at bar, Plaintiffs assert that the Department's regulations violate both the procedural and substantive components of the Due Process Clause.
*1011a. Procedural Due Process
In Count Two of the Amended Complaint, Plaintiffs assert a claim for violation of procedural due process. See Am. Compl. ¶¶ 158-62. Specifically, Plaintiffs allege that the Department "deprived [Plaintiffs] of their liberty when it reversed its position regarding its enforcement of maximum salaries for related-service providers and its requirement that related-service be provided directly by [APSSDs]," without affording Plaintiffs notice or an opportunity to be heard. Id. at ¶ 160
To state a claim for violation of procedural due process, Plaintiffs must allege that: "(1) they were deprived of an individual interest encompassed by the Fourteenth Amendment's protection of life, liberty, or property; and (2) that the procedures available did not provide due process of the law." State Troopers ,
As noted, the threshold inquiry in determining whether Plaintiffs have sufficiently alleged a procedural due process claim is whether Plaintiffs have alleged the deprivation of a protected liberty or property interest. Culinary Serv. of Delaware Valley, Inc. v. Borough of Yardley, Pa ,
" 'To have a property interest in a benefit, a person clearly must have more than an abstract need or desire" and "more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it.' " Town of Castle Rock, Colo. v. Gonzales ,
Here, even accepting as true Plaintiffs' allegation that, prior to the Department's June Memorandum, the Department reimbursed APSSDs for the costs of providing all related services, the Court cannot find that Plaintiffs have a legitimate entitlement to the unregulated receipt of public funds covering the costs of any and all related services. Significantly, Plaintiffs have failed to identify any statutory or constitutional provision guaranteeing APSSDs a specific level of funding as compensation for providing related services to students with disabilities. Rather, the Plaintiff-APSSDs' entitlement to tuition reimbursement funds stems from the Tuition Contract, which requires APSSDs "to comply with all requirements promulgated by the [Department]," and states that "[t]uition charges ... as well as the payment of the same shall be made in accordance with the applicable New Jersey Statutes and the rules and regulations of the State Board of Education." Am. Compl., Ex. A at ¶¶ 3-4. In turn, New Jersey confers upon the Commissioner of Education and the State Board of Education the authority to prescribe rules governing the calculation of APSSD tuition. See N.J.S.A. § 18A:46-2. Under this regulatory scheme, the Court cannot find that Plaintiffs had a legitimate entitlement to an unfettered amount of tuition reimbursement funds. To the contrary, Plaintiffs were on notice that their receipt of tuition reimbursement funds was conditioned on compliance with the Department's regulations. Accordingly, because Plaintiffs did not have a legitimate claim to unencumbered tuition reimbursement, or to particular regulations being in place, they have not sufficiently alleged a deprivation of a property right protected by procedural due process. See McLemore v. City of Trenton , No. 05-4631,
b. Substantive Due Process
In Count Three of the Amended Complaint, Plaintiffs assert a substantive due process claim, alleging that the state deprived Spectrum360, HollyDELL, Ms. Grossi, and Ms. Homa "of economic liberty via unlawful contract and compensation limitations." Am. Compl. ¶ 166.
In evaluating Plaintiffs' substantive due process claim, I note, at the outset, that "different standards govern depending on whether an individual challenges a legislative act or a nonlegislative state action." Loscombe v. City of Scranton ,
In contrast, when a plaintiff challenges a non-legislative action as violative of substantive due process, the plaintiff must demonstrate: (1) "that a state *1013actor engaged in conduct that deprived him of a protected property interest and [2] that the deprivation shocks the conscience." Edwards v. Dep't of Human Servs. ,
Here, the parties dispute whether Plaintiffs' substantive due process claim challenges a legislative act and thus is subject to rational basis scrutiny, or challenges a non-legislative state action and thus is subject to the "shock the contemporary conscience" test. In that regard, Defendants argue that Plaintiffs' substantive due process challenge goes to the Department's broad regulations concerning APSSD tuition reimbursement, and thus, need only withstand rational basis review. See Defs.' Br. at 29-30. Defendants further contend that the "Department's regulatory scheme sets forth a well-reasoned policy judgment regulating the means by which all APSSDs should calculate their tuition costs and setting the maximum salary costs comparable to the highest salaries charged in comparable jobs in the country," and thus, is rationally related to a legitimate state interest. Id. at 30. Conversely, Plaintiffs' briefing regarding their substantive due process claim focuses on the standard governing non-legislative acts. See Pls.' Br. at 20-26. In that regard, Plaintiffs argue that the Department's actions have deprived them of "fundamental interests in contracting, working and earning a living, and maintaining specific private employment." Id. at 22. Plaintiffs further contend that the state action shocks the conscience, because it precludes disabled students attending APSSDs from receiving the support of the most experienced related service providers. Id. at 25-26.
Contrary to Plaintiffs' arguments, the Court finds that Plaintiffs' substantive due process claim challenges a regulatory act, and thus, is subject to rational basis review. In distinguishing legislative acts and non-legislative or executive acts, the Third Circuit has explained that " '[e]xecutive acts, such as employment decisions, typically apply to one person or to a limited number of persons, while legislative acts, generally laws and broad executive regulations, apply to large segments of society.' " Nicholas ,
Moreover, even if Plaintiffs' substantive due process claim could be construed as a challenge to a non-legislative act, Plaintiffs' claim still fails, because Plaintiffs have not sufficiently alleged that the Department's regulations deprived them of a fundamental right that is protected by substantive due process. To reiterate, Plaintiffs allege that the Department deprived them of their "fundamental interests in contracting, working and earning a living, and maintaining specific private employment." Pls.' Br. at 22. While Plaintiffs are correct that "the right ... to engage in any of the common occupations of life" is a fundamental liberty protected under the Constitution, Whitman ,
3. Contracts Clause
In Count Five of the Amended Complaint, Plaintiffs assert a claim under the Contracts Clause of the United States Constitution.22 Am. Compl. ¶¶ 172-76. Specifically, the Plaintiff-APSSDs allege that, under the Department-mandated Tuition Contract, they are required to provide all of the services required under a student's IEP. See id. at ¶¶ 175-76. Plaintiffs further allege that, as a result of the Department's maximum salary limitations, they cannot provide the related services set forth in students' IEPs; and thus, that the maximum salary limitations impair their ability to fulfill a requirement of the Tuition Contract.23 See id.
*1015"The Contracts Clause restricts the power of States to disrupt contractual arrangements." Sveen v. Melin , --- U.S. ----,
If the state law constitutes a substantial impairment, "the inquiry turns to the means and ends of the legislation"; namely, "whether the state law is drawn in an 'appropriate' and 'reasonable' way to advance 'a significant and legitimate public purpose.' " Sveen ,
Here, Plaintiffs have not stated a claim under the Contracts Clause, because they fail to sufficiently allege that the Department's regulations substantially impair a contractual obligation, such that the legitimate expectations of the parties were thwarted. See Transp. Workers Union of Am., Local 290 By & Through Fabio v. Se. Pennsylvania Transp. Auth. ,
Indeed, in light of the fluid regulatory environment in which the Tuition Contract was executed, this Court cannot find that Plaintiffs' legitimate expectations were thwarted when the Department enforced its regulations governing APSSD tuition reimbursement. See Energy Reserves ,
Significant here is the fact that the parties are operating in a heavily regulated industry. State authority to regulate natural gas prices is well established. At the time of the execution of these contracts, Kansas did not regulate natural gas prices specifically, but its supervision of the industry was extensive and intrusive. Moreover, under the authority of § 5(a) of the 1938 Natural Gas Act, the Federal Power Commission (FPC) set "just and reasonable" rates for prices of gas both at the wellhead and in pipelines. Although prices in the intrastate market have diverged somewhat from those in the interstate market due to the recent shortage of natural gas, the regulation of interstate prices effectively limits intrastate price increases.
*1017It is in this context that the indefinite escalator clauses at issue here are to be viewed. In drafting each of the contracts, the parties included a statement of intent, which made clear that the escalator clause was designed to guarantee price increases consistent with anticipated increases in the value of ERG's gas. While it is not entirely inconceivable that ERG in September 1975 anticipated the deregulation of gas prices introduced by the Act in 1978, we think this is highly unlikely and we read the statement of intent to refer to nothing more than changes in value resulting from changes in the federal regulator's "just and reasonable" rates. In exchange for these anticipated increases, KPL agreed to accept gas from the Spivey-Grabs field for the lifetime of that field. Thus, at the time of the execution of the contracts, ERG did not expect to receive deregulated prices. The very existence of the governmental price escalator clause and the price redetermination clause indicates that the contracts were structured against the background of regulated gas prices. If deregulation had not occurred, the contracts undoubtedly would have called for a much smaller price increase than that provided by the Kansas Act's adoption of the § 109 ceiling.
Moreover, the contracts expressly recognize the existence of extensive regulation by providing that any contractual terms are subject to relevant present and future state and federal law. This latter provision could be interpreted to incorporate all future state price regulation, and thus dispose of the Contract Clause claim. Regardless of whether this interpretation is correct, the provision does suggest that ERG knew its contractual rights were subject to alteration by state price regulation. Price regulation existed and was foreseeable as the type of law that would alter contract obligations. Reading the Contract Clause as ERG does would mean that indefinite price escalator clauses could exempt ERG from any regulatory limitation of prices whatsoever. Such a result cannot be permitted . In short, ERG's reasonable expectations have not been impaired by the Kansas Act.
Similarly, here, the regulatory climate in which the Tuition Contract was executed lends credence to this Court's finding that *1018Plaintiffs' reasonable expectations were not thwarted by the Department's regulations. In that regard, the state's authority to regulate tuition reimbursement for private schools for students with disabilities is well-established. See Windsor ,
In arguing that they have sufficiently alleged a claim for violation of the Contracts Clause, Plaintiffs point to the Third Circuit's decision in United Steel Paper & Forestry Rubber Mfg. Allied Indus. & Serv. Workers Int'l Union AFL-CIO-CLC v. Gov't of Virgin Islands ,
The Third Circuit reversed, holding that "VIESA substantially impaired the ... collective bargaining agreements, and such impairment was unreasonable."
Contrary to Plaintiffs' arguments, however, United Steel is distinguishable from the present case. As an initial matter, unlike in United Steel , here, the Tuition Contract does not set forth a specific payment schedule; to the contrary, it provides that tuition payments shall be made in accordance with the Department's regulations. See Am. Compl., Ex. A at ¶ 3. Nor have Plaintiffs pointed to any provision of the Tuition Contract providing that the same cannot be modified without mutual consent. As such, the Court cannot find that Plaintiffs had a legitimate expectation that sending districts would reimburse APSSDs for any and all costs incurred in providing related services to students. Accordingly, because Plaintiffs have failed to allege that the Department's regulations substantially impaired an existing contract, Plaintiffs' Contracts Clause claim is dismissed.
*1019D. Supplemental Jurisdiction
Having found that dismissal is warranted as to Plaintiffs' federal claims, asserted in Counts One, Two, Three, and Five of the Amended Complaint, the Court next addresses Plaintiffs' remaining state law claims. In that regard, the Amended Complaint contains five state law claims: (i) Count Four - Plaintiffs' claim for violation of the right to a thorough and efficient education under the New Jersey Constitution; (ii) Count Five - Plaintiffs' claim for impairment of the New Jersey Constitution's corollary to the Contracts Clause; (iii) Count Six - Plaintiffs' claim for violation of the NJAPA; (iv) Count Seven - Spectrum360's stand-alone claim for a declaratory judgment and injunctive relief; and (v) Count Eight - HollyDELL's stand-alone claim for a declaratory judgment and injunctive relief.25
Under
V. CONCLUSION
For the foregoing reasons, Defendants' Motion to Dismiss Counts One, Two, Three, and Five of the Amended Complaint, insofar as Plaintiffs assert federal claims, is GRANTED. The Court declines to exercise supplemental jurisdiction over Plaintiffs' remaining state law claims, and thus, Defendants' Motion is DENIED without prejudice as to the remainder of the Amended Complaint.
Footnotes
330 F. Supp. 3d 975 (Asah v. N.J. Dep't of Educ.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.