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Advantageous Community Services, LLC v. King

United States District Court, D. New Mexico

September 27, 2019

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[1] (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.

         I. Relevant Facts

         In 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:

         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.

         The only remaining plaintiff in this case is Advantageous, [2] which is a New Mexico business that provided home-based care to Medicaid recipients pursuant to the Developmental Disabilities Waiver Program. Id. ¶ 16.

         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 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.

         During 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.

         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, [3] 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

         The 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.

         III. Discussion

         The 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.”[4] 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.

         Advantageous 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 ...


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