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California Advocates for Nursing Home Reform, Inc. v. Chapman

United States District Court, Ninth Circuit

November 5, 2013

RON CHAPMAN, et al., Defendants.


JON S. TIGAR, District Judge.

In this action for declaratory and injunctive relief, Plaintiffs California Advocates for Nursing Home Reform, Inc. and Gail Dawson allege that the Federal Nursing Home Reform Act ("NHRA") preempts California's nursing facility licensing laws. In particular, Plaintiffs challenge the State's approval of management agreements entered into between licensed operators of California skilled nursing facilities and Defendant Country Villa Service Corp., a nursing facility management company, on the grounds that the agreements delegate operational control of the facilities to a third party in contravention of the NHRA. The State Defendants and the nursing home operators and management company separately move to dismiss Plaintiffs' First Amended Complaint on several grounds. Because the Court again concludes that Plaintiffs lack Article III standing, the Court will grant the motions.


A. Statutory and Regulatory Framework

The Court summarized the statutory and regulatory framework governing nursing homes in California in its order granting the Defendants' prior motions to dismiss. ECF No. 35 at 2-4.

B. The Parties and Claims

Plaintiff California Advocates for Nursing Home Reform, Inc. ("CANHR") is a non-profit organization that "has been dedicated to improving care, quality of life, and choices for California's long term care consumers" since 1983. First Am. Compl. ("FAC"), ECF No. 36 ¶ 3. CANHR "provide[s] consumers with information, legal referrals, and advocacy assistance to deter elder abuse and to improve the long term care system." Id . In service of its mission, CANHR is engaged in community education, direct advocacy, litigation, and policy work. CANHR alleges that it is a "beneficially interested party" in this action because it has an interest in seeking "enforcement of federal laws prescribing the organization and administration of skilled nursing facility businesses in order to promote the health and wellbeing of nursing home residents, and also to avoid fraud on the federal and state governments." Id . In addition, "[o]ne or more members of CANHR are residents of facilities operated by" Defendants Country Villa Service Corp., Country Villa East, L.P., and C.V. Westwood Single Purpose Entity, LLC, and Defendant Steven Reissman, as trustee for The Reissman Family Trust (collectively, "the Country Villa Defendants"). Id . "Residents of such facilities lack the time, energy, attention and resources required to actively prosecute and participate in litigation." Id.

Plaintiff Gail Dawson is a Nevada resident and the "duly appointed and acting Administrator with Will Annexed of the Estate of Minnie Bell Green." Prior to her death, Green was a resident at a skilled nursing facility operated by the Country Villa Defendants, each of which Plaintiffs allege is owned and controlled by Defendant Steven Reissman as trustee of the Reissman Family Trust. The Complaint alleges that Ms. Green "received inadequate care, was subjected to cruel and inhumane conditions, suffered, sickened, and died while a patient at the facility." Id . ¶ 2.

Plaintiffs allege that Defendant Country Villa Service, Corp. ("CVSC") has entered into management agreements with more than forty Skilled Nursing Facilities in the state of California. Id . ¶ 9. According to Plaintiffs, CVSC takes "operational control" of the facilities, including "the duty and authority to hire and fire employees." Id . "The only power reserved to the licensee in the management agreements is the power to consent to certain capital expenses." Id . The agreements typically provide for payment to CVSC of five percent of the facility's gross revenue. Id.

Each management agreement is approved by the California Department of Public Health ("CDPH") and its director, Defendant Ron Chapman. Id . ¶ 10. Plaintiffs assert that CDPH relies on California Health & Safety Code sections 1265 and 1267.5 as authority for approving the agreements. Id.

The Complaint asserts that management agreements that delegate operational control of Skilled Nursing Facilities ("SNFs") and Nursing Facilities ("NFs") violate the provisions of the NHRA and its implementing regulations because SNFs and NFs participating in Medicare and Medicaid must be "under the operational control of and managed by an Administrator licensed by the State of California and employed by the licensee (and not by an outside management company), " and because the Administrator must be "directed by and answerable only to the skilled nursing facility's own governing body.'" Id . ¶ 11 (citing 42 U.S.C. § 1395i-3(d)(1)(C) and 42 CFR 483.75(d)).

In addition, the Complaint alleges that the fee structure for CVSC's services has no "relation to the actual cost of providing management services to the licensee's business activity... and substantially exceeds the cost of said services." Id . ¶ 12. Plaintiffs assert that the fee structure violates the NHRA's admonition that SNFs must be administered "in a manner that enables [them] to use [their] resources effectively and efficiently to attain or maintain the highest practicable physical, mental, and psychological well-being of each resident." Id . (quoting 42 U.S.C. 1395i-3(d)(1)(A)).

The Complaint asserts three causes of action. First, as to the State of California, Governor Brown, the CDPH, and Ron Chapman, Plaintiffs seek declaratory relief in the form of an order finding the provisions of the California statutory framework for licensing nursing facilities preempted by the NHRA and its implementing regulations. The first cause of action also seeks a declaration that the State is prohibited by the NHRA from authorizing payment of a licensee's financial resources to an outside management company based on a percentage of revenue or any other formula not directly tied to the actual cost of management services.

Second, Plaintiffs seek a declaration as to the Country Villa Defendants that their management agreements are legally invalid, and an injunction ordering CVSC to disgorge all sums paid to it by a nursing facility in the last four years, including both its five percent fee and reimbursement for operating costs. Alternatively, the second cause of action seeks an accounting from CVSC of all sums it claims represent proper charges for services rendered to a nursing facility in the last four years followed by disgorgement of a sum excluding "appropriate credit" for those services.

Third, Plaintiffs seek a permanent injunction prohibiting the Country Villa Defendants from receiving funds from licensee-operators' budgets on any account until those defendants can demonstrate they are in compliance with the state and federal laws set forth above.

C. Procedural History

Plaintiffs filed this action in state court on October 22, 2012, and the State Defendants removed to this Court. ECF No. 1. The Country Villa ...

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