United States District Court, D. New Mexico
ADVANTAGEOUS COMMUNITY SERVICES, LLC, ARMINDER KAUR, HARASPAL SINGH, and HARCHI SINGH, Plaintiffs,
GARY KING, AMY LANDAU, ELIZABETH STALEY, MARC WORKMAN, CATHY STEVENSON, ORLANDO SANCHEZ, and WALTER RODAS, Defendants.
MEMORANDUM OPINION AND ORDER
Fashing United States Magistrate Judge.
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. 76), filed January 28, 2019.
Plaintiffs filed their Response to Defendants’ Motion
to Dismiss (Doc. 87) on February 26, 2019. State Defendants
filed their Reply in Support of Motion to Dismiss (Doc. 91)
on March 13, 2019. Having read the submissions of the parties
and being fully advised, and for the following reasons, the
Court DENIES the State Defendants’ Motion to Dismiss.
ruling on a motion to dismiss under Rule 12(b)(6) or a motion
for judgment on the pleadings under Rule 12(c), the Court
must accept as true all facts alleged in the complaint.
See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007); see also Jacobsen v. Deseret Book Co., 287
F.3d 936, 941 n.2 (10th Cir. 2002) (“We use the same
standard when evaluating 12(b)(6) and 12(c) motions.”).
It also must view these factual allegations in the light most
favorable to the plaintiff. See Twombly, 550 U.S. at
555. Viewing the facts alleged in the complaint in
this manner, the complaint establishes the following:
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.
only remaining plaintiff in this case is Advantageous,
which is a New Mexico business that provided home-based care
to Medicaid recipients pursuant to the Developmental
Disabilities Waiver Program. Id. ¶ 16.
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.
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 cost of defending against
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
disrupted Advantageous’ business activities and
impacted its ability to secure alternative business.
Id. ¶ 27.
the course of the State’s lawsuit against Advantageous,
Advantageous discovered that the State Defendants had
fabricated evidence to support the State’s case against
it. 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 Advantageous, this
conduct constituted extra-judicial forfeiture proceedings
against Advantageous without any court involvement at any
stage. Id. ¶ 33.
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.
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.
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,  based on the State’s use of
fabricated evidence. Id. ¶ 42.
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. ¶
remaining claim in Count I of the complaint, brought under 42
U.S.C. § 1983, alleges that the State Defendants
violated Advantageous’ Fourth Amendment rights by
maliciously prosecuting it and misusing judicial proceedings.
Id. ¶¶ 47–58. This claim is based on
the State Defendants’ fabrication of evidence and
Advantageous’ allegation that the State Defendants
lacked probable cause to initiate proceedings against it.
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.
State Defendants argue in their motion to dismiss that
Advantageous’ malicious prosecution claim should be
dismissed because “the Supreme Court has held that the
Fourth Amendment only applies to personal
detainment.” Doc. 76 at 4. They argue that because
Advantageous itself was never physically seized, no Fourth
Amendment violation occurred. See Id . at 5-7. The
State Defendants also argue that the attorney defendants are
absolutely immune from suit because they were performing
functions analogous to those of a prosecutor. Id. at
7-8. They further argue that all defendants are entitled to
qualified immunity essentially because Advantageous has not
identified a clearly established constitutional right that
the defendants violated. Id. at 8–11. Finally,
the State Defendants argue that Advantageous’ malicious
prosecution claim must be dismissed because it did not sue
the State or any agency within the State, and “the
State and its agencies are necessary and indispensable
parties.” Id. at 11–12.
responds that the Court already concluded that its complaint
states a claim for malicious prosecution under the Fourth
Amendment, and that that Court already held that defendants
are not entitled to dismissal based on absolute or qualified
immunity at this stage of the proceedings. Doc. 87 at 7-12.
They also correctly argue that under 42 U.S.C. § 1983,
Advantageous was required to name defendants in their
individual capacities, and that neither the State nor any of
its agencies are ...