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Advantageous Community Services, LLC v. King

United States District Court, D. New Mexico

March 21, 2018

ADVANTAGEOUS COMMUNITY SERVICES, LLC, ARMINDER KAUR, HARASPAL SINGH, and HARCHI SINGH, Plaintiffs,
v.
GARY KING, AMY LANDAU, ELIZABETH STALEY, MARC WORKMAN, CATHY STEVENSON, ORLANDO SANCHEZ, and WALTER RODAS, Defendants.

          MEMORANDUM OPINION AND ORDER

          Laura Fashing, United States Magistrate Judge

         THIS MATTER comes before the Court on defendants Gary King, Amy Landau, Elizabeth Staley, Mark Workman, Cathy Stevenson, Orlando Sanchez, and Walter Rodas's (collectively “State Defendants”) Motion to Dismiss (Doc. 20), filed July 12, 2017. Plaintiffs filed their Response to Defendants' Motion to Dismiss (Doc. 25) on August 7, 2017. State Defendants filed their Reply in Support of Motion to Dismiss (Doc. 26) on August 22, 2017. Having read the submissions of the parties and being fully advised, and for the following reasons, the Court GRANTS the State Defendants' Motion to Dismiss in part, and DENIES it in part.

         I. Relevant Facts

         In ruling on a motion to dismiss under Rule 12(b)(6), the Court must accept as true all facts alleged in the complaint. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). It also must view these factual allegations in the light most favorable to the plaintiff. See Id. Viewing the facts alleged in the complaint in this manner, the complaint establishes the following:

         In September 2009, the State of New Mexico, through the New Mexico Attorney General's Office, brought a lawsuit against Advantageous Community Services, LLC (“Advantageous”). Doc. 1-1 ¶ 22. The case was captioned State of New Mexico ex rel. Gary K. King, Attorney General v. Advantageous Community Services, LLC, D-202-CV-2009-11396. Doc. 1-1 ¶ 22. At the time, Gary King was the New Mexico Attorney General, and Amy Landau was an attorney in his office. Id. ¶¶ 6, 7. Elizabeth Staley also was an attorney at the Attorney General's Office, and was Director of the Medicaid Fraud and Elder Abuse Division there. Id. ¶ 8. Marc Workman was an investigator for the Attorney General's Office. Id. ¶ 9. Cathy Stevenson was the Director of the Developmental Disabilities Support Division for the New Mexico Department of Health. Id. ¶ 10. Orlando Sanchez and Walter Rodas both were employees of the New Mexico Department of Health. Id. ¶¶ 11, 12.

         Advantageous is a New Mexico business that provided home-based care to Medicaid recipients pursuant to the Developmental Disabilities Waiver Program. Id. ¶ 16. Dr. Arminder Kaur is the owner of Advantageous. Id. ¶ 2. Haraspal and Harchi Singh are Dr. Kaur's sons and were employed by Advantageous. Id. ¶¶ 3, 4.

         The State's lawsuit against Advantageous alleged that between 2004 and 2007, six Advantageous caregivers billed and were paid for services while the caregivers lacked appropriate criminal history screening, which allegedly violated federal Medicaid statutes. Id. ¶ 23. None of the caregivers, however, had any disqualifying criminal convictions, which the State readily could have discovered with adequate investigation. Id. ¶ 24. Plaintiffs allege that the State and the defendants involved in the prosecution of the State's lawsuit did not have a factual or legal basis to pursue the State's claims against Advantageous under the New Mexico Medicaid Fraud Act. Id. ¶ 35.

         The State, through Attorney General King, attorneys Landau and Staley, and investigator Workman (collectively referred to as the “AG Defendants”), brought suit against Advantageous and other similar providers in an effort to force the providers to make payments to the State regardless of the merits of the State's claims. Id. ¶ 25. The AG Defendants engaged in this practice over a period of time in a “Shake-down” program designed to collect nuisance settlements that providers like Advantageous would pay to avoid the costs of defending the State's lawsuits or to avoid other negative consequences stemming from such suits. Id. The AG Defendants, in preparing the State's case against Advantageous, used discovery and other evidence gathering procedures to enable the State to pursue criminal charges against Advantageous under the New Mexico Fraud Act or other criminal statutes if it so chose. Id. ¶ 26. The State's claims and allegations against Advantageous involved Dr. Kaur and his sons' work at Advantageous, and those claims and allegations disrupted Advantageous's business activities, impacted its ability to secure alternative business, and impacted Dr. Kaur and his sons' ability to obtain alternative employment. Id. ¶ 27

         During the course of the State's lawsuit against Advantageous, plaintiffs discovered that the State Defendants had fabricated evidence to support the State's case against Advantageous. Id. ¶ 28. Advantageous brought this conduct to the attention of the court in the state case. Id. In retaliation, the AG Defendants, in conjunction with Director Stevenson, in 2011 withheld substantial funds that were owed to Advantageous for Medicaid services it provided during the term of its state contract. Id. ¶ 31. The AG Defendants and Director Stevenson effectuated improper recoupments to the State before proving any claims against Advantageous. Id. Even before 2011, the AG Defendants and Director Stevenson for years applied unwarranted withholdings from funds owed to Advantageous before proving any claims against Advantageous. Id. ¶ 32. In connection with the State's lawsuit against Advantageous, the AG Defendants and Director Stevenson imposed an improper moratorium on business with Advantageous, again before proving any claims against Advantageous. Id. According to plaintiffs, this conduct constituted extra-judicial forfeiture proceedings against Advantageous without any court involvement at any stage. Id. ¶ 33.

         Meanwhile, the New Mexico Department of Health, through Director Stevenson, terminated and refused to renew Advantageous's Medicaid contract. Id. ¶ 29. During a deposition in May, 2011, Attorney Landau stated on the record that the New Mexico Attorney General's Office consulted with the New Mexico Department of Health on the Department's decision to terminate Advantageous's Medicaid contract. Id. ¶ 30. Plaintiffs believe that Attorney General King and attorney Staley also were involved in this decision, which was part of the improper conduct intended to damage Advantageous. Id. ¶ 29. Plaintiffs allege that the termination and refusal to renew Advantageous's Medicaid contract was done in violation of Advantageous's substantive Due Process rights, in particular because the decision was arbitrary, irrational, and/or shocking to the contemporary conscience. Id. ¶ 34.

         The judge presiding over the state court proceeding granted summary judgment in favor of Advantageous based on the lack of evidence to support the State's claims as well as the State's fabrication of evidence submitted in connection with that proceeding. Id. ¶ 36. Because the State failed to keep adequate records, it could not present competent evidence to support any of its claims against Advantageous. Id. ¶ 37. The State also had no legal basis to pursue its claims against Advantageous under the Medicaid Fraud Act or any other law. Id. The regulations that the State accused Advantageous of violating were not an appropriate basis for the State's claims against Advantageous because compliance with the regulations was not a condition of payment for moneys owed to Advantageous. Id. Further, there were never grounds to pursue claims against Advantageous for violations of the criminal-history screening requirements under the Medicaid Fraud Act because that Act does not provide for such a claim. Id. ¶ 44.

         The judge also ruled that the State engaged in egregious misconduct by fabricating evidence. Id. ¶ 38. The judge found that Attorney Landau used a letter in the litigation that had been fabricated by Investigator Workman and Department of Health employees Sanchez and Rodas. Id. Specifically, Investigator Workman was unable to find clearance letters for two of Advantageous's caregivers in the State's own records. Id. Investigator Workman contacted Rodas at the Department of Health to see if the Department of Health had copies of the letters. See Id. Department of Health employees informed Investigator Workman that the Department did not keep copies of the requested clearance letters, and informed Workman of the inaccuracies that would be contained in re-created letters. See Id. Department of Health employees Sanchez and Rodas re-created the letters even though they knew the letters would contain inaccurate information. See Id. Investigator Workman received the re-created letters and provided them to attorney Landau knowing that they were false and inaccurate. See Id. Investigator Workman knew that the fabricated letters were to be used in connection with the litigation against Advantageous. See id.

         The state judge entered summary judgment against the State with prejudice. Id. ¶ 40. The State appealed the judge's ruling. Id. The New Mexico Court of Appeals affirmed the state district court's ruling on June 9, 2014, [1] based on the State's use of fabricated evidence. Id. ¶ 42.

         Advantageous administratively appealed the State's decision to terminate and refusal to renew its Medicaid contract. Id. ¶ 43. Those proceedings terminated on July 2, 2014. Id. Advantageous asserts that it has exhausted its administrative remedies. Id. ¶ 45.

         II. The Complaint

         Count I of the complaint, brought under 42 U.S.C. § 1983, alleges that the State Defendants violated the plaintiffs' Fourth and Fourteenth Amendment rights by maliciously prosecuting Advantageous and misusing judicial proceedings. Id. ¶¶ 47-58. This claim is based on the State Defendants' fabrication of evidence and the plaintiffs' allegation that the State Defendants lacked probable cause to initiate proceedings against Advantageous. See Id. Count I further alleges that the State Defendants used extra-judicial forfeiture proceedings against Advantageous to withhold and recoup funds owed to Advantageous for Medicaid services it had provided. Id. ¶ 59.

         Count II of the complaint, also brought under 42 U.S.C. § 1983, alleges that the State Defendants violated the plaintiffs' rights under the Fourth and Fourteenth Amendments by fabricating evidence against the plaintiffs. Id. ¶¶ 62-65. Count III of the complaint, also brought under 42 U.S.C. § 1983, alleges that the State Defendants violated the plaintiffs' Due Process rights under the Fourteenth Amendment by terminating and refusing to renew Advantageous's Medicaid contract in an arbitrary and capricious manner, and in a manner that shocks the conscience. Id. ¶¶ 67-71.

         III. Discussion

         The State Defendants argue in their motion to dismiss that the individual plaintiffs' claims should be dismissed because they lack standing to sue. Doc. 20 at 5-6. The State Defendants also argue that plaintiffs lack a protected property interest necessary to state a constitutional claim under 42 U.S.C. § 1983. Id. at 6-7. The State Defendants further argue that they are absolutely immune from suit, but if not absolutely immune, they are entitled to qualified immunity. Id. at 7-11. And lastly, the State Defendants claim that the plaintiffs' claims are barred by the statute of limitations. Id. at 11-12.

         Plaintiffs respond that they have standing to sue because they suffered damages as a result of the State Defendants' misconduct. Doc. 25 at 2-4. They also argue that they have protected property and liberty interests sufficient to state a constitutional claim under 42 U.S.C. § 1983, and that they have adequately alleged violations of their Fourth Amendment rights as well as violations of their procedural and substantive Due Process rights. Id. at 4-15. They further contend that no defendant is entitled to either absolute or qualified immunity. Id. at 15-21. And finally, they argue that their claims are timely. Id. at 22-24. The Court will address the parties' arguments with respect to each count of the complaint as necessary.

         A. Motions to ...


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