Date: 06-13-2002

Case Style: Beverly K. Barton v. Paul G. Summers, et al.

Case Number: 00-5942/6282

Judge: Boggs

Court: United States Court of Appeals for the Sixth Circuit

Plaintiff's Attorney: Antonio Ponvert III, KOSKOFF, KOSKOFF & BIEDER, Bridgeport, Connecticut, Cecil Dewey Branstetter, Jr., James G. Stranch III, BRANSTETTER, KILGORE, STRANCH & JENNINGS, Nashville, Tennessee, Edmund L. Carey, Jr., George E. Barrett, BARRETT, JOHNTSON & PARSLEY, Nashville, Tennessee, Richard M. Guarnieri, J. Guthrie True, JOHNSON, JUDY, TRUE & GUARNIERI, Frankfort, Kentucky, for Appellants.

Defendant's Attorney: Russell T. Perkins, S. Elizabeth Martin, OFFICE OF THE ATTORNEY GENERAL, Nashville, Tennessee, Scott White, OFFICE OF THE ATTORNEY GENERAL, Frankfort, Kentucky, for Appellees. James C. Gulick, N. C. DEPARTMENT OF JUSTICE, Raleigh, North Carolina, for Amici Curiae.

Description: Plaintiffs-appellants, Medicaid recipients with tobacco-related illnesses, appeal the dismissal of their actions seeking injunctions against two states, Kentucky and Tennessee (the States). Plaintiffs seek to intercept tobacco settlement money due to the States under the Master Settlement Agreement between a number of settling states and tobacco manufacturers. We affirm the dismissal of Plaintiffs' claims, because actions seeking money damages from a state contravene the Eleventh Amendment of the United States Constitution. We also hold that Plaintiffs' suits fail because they have not asserted a valid claim.

I

Plaintiffs seek to represent Kentucky and Tennessee Medicaid recipients with tobacco-related illnesses, for whom the States paid medical bills. Under to the November 1998 Tobacco Master Settlement Agreement (MSA) between 45 states and many tobacco manufacturers, both Kentucky and Tennessee will receive large payments in settlement of their claims. The monies to be paid were placed in escrow, pending the time that a specified percentage of the signatory states achieved "finality" under the terms of the agreement. Now that finality has been achieved, payments are being made from escrow to the States.

In order to implement the national settlement, the MSA required states that did not have a pending lawsuit to institute proceedings in the appropriate state courts. Both of the States filed, and then settled, their MSA-required suits. Plaintiffs, claiming that the States' recoveries were in the form of subrogation actions (i.e., that the States were actually suing on Plaintiffs' behalf), have brought this 42 U.S.C. § 1983 action. Plaintiffs claim that federal law entitles them to any excess money the States will receive over the actual state outlay for Plaintiffs' treatment. Plaintiffs also argue that because they have sued state officials in their official capacities, their action is not barred by state sovereign immunity.

. This suit is part of a nationwide series of suits in which Medicaid recipients are seeking to recoup "overage" amounts from a number of settling states. All but one of the Medicaid recipient suits, including the two instant cases, have been dismissed for failure to state a claim upon which relief could be granted or for Eleventh Amendment immunity. See Strawser v. Atkins, No. 01-1175, 2002 U.S. App. LEXIS 9648 (4th Cir. May 22, 2002); Greenless v. Almond, 277 F.3d 601 (1st Cir. 2002); Harris v. Owens, 264 F.3d 1282 (10th Cir. 2001); Watson v. Texas, 261 F.3d 436 (5th Cir. 2001); McClendon v. Georgia Dep't of Cmty. Health, 261 F.3d 1252 (11th Cir. 2001); Tyler v. Douglas, 280 F.3d 116 (2d Cir. 2001); Floyd v. Thompson, 227 F.3d 1029 (7th Cir. 2000); Lewis v. State ex rel. Miller, 2002 Iowa App. LEXIS 436 (Iowa Ct. App. Apr. 24, 2002); Cardenas v. Anzai, 128 F. Supp. 2d 704 (D.C. Haw. 2001); Clark v. Stovall, 158 F. Supp. 2d 1215 (D.C. Kan. 2001); Skillings v. Illlinois, 121 F. Supp. 2d 1235 (C.D. Ill. 2000); Martin v. New Mexico, 197 F.R.D. 694 (D.N.M. 2000); Brown v. State, 617 N.W.2d 421 (Minn. Ct. App. 2000); State v. Superior Court, 83 Cal. App. 4th 597 (Cal. App. 2d Dist. 2000); Oliva v. Florida, No. 99-2234 (Leon Co. Cir. Ct., 2d Cir. May 12, 2000); Gomer v. Philip Morris Inc., 106 F. Supp. 2d 1262 (M.D. Ala. 2000) (Eleventh Amendment immunity and no valid claim). In one case, the state's motions to dismiss have been denied. Lewis v. Iowa, No. LACV 037031 (Linn Co. D. Ct. July 21, 2000). II

A.The Eleventh Amendment Bars Suits Seeking to Intercept Future Payments to the States.

This case poses the question of whether Plaintiffs can escape the Eleventh Amendment bar blocking suits for money damages against the states by phrasing their requests for monetary relief as requests for future payments. We hold that they cannot.

Whether an action is barred by the Eleventh Amendment is a question of law, and is reviewed de novo. Timmer v. Michigan Dep't of Commerce, 104 F.3d 833, 836 (6th Cir. 1997). The Eleventh Amendment provides:

The 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. Although the amendment does not address the possibility of suit against a state by one of its own citizens, unassailable case law has interpreted the amendment in such a way as to close that gap. Hans v. Louisiana, 134 U.S. 1 (1890). A state is sovereign within the structure of the federal system, and "it is inherent in the nature of sovereignty not to be amenable to the suit of an individual without its consent." Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 54 (1996).

). States are, therefore, immune from private suit in both federal and state courts. There are three generally recognized exceptions to this rule. First, a state may consent to suit. Alden v. Maine, 527 U.S. 706 (1999). The States have not consented to this suit. Second, Congress may, pursuant to its powers under the Fourteenth Amendment, abrogate the state's immunity. Seminole Tribe, 517 U.S. at 72-73. Congress has provided in 42 U.S.C. § 1396b(d) a scheme for allowing the federal government to recoup its share of third-party recoveries (and expressly noted that this right does not apply to the tobacco settlement money), but has not made any provision, based on the Fourteenth Amendment, for suits against states by Medicaid recipients.

The third exception is the one at issue here. Ex Parte Young, 209 U.S. 123 (1908), holds that the Eleventh Amendment does not bar a federal court from issuing an injunction ordering prospective relief against a state official in order to prevent future constitutional violations. Id. at 159-60. However, it is "well established that even though a State is not named as a party to the action, the suit may nonetheless be barred by the Eleventh Amendment." Edelman v. Jordan, 415 U.S. 651, 663 (1974).

"[W]hen the action is in essence one for the recovery of money from the state, the state is the real, substantial party in interest and is entitled to invoke its sovereign immunity from suit even though individual officials are nominal defendants." Ford Motor Co. v. Dept. of Treasury of the State of Indiana, 323 U.S. 459, 464 (1945). Thus, "the rule has evolved that a suit by private parties seeking to impose a liability which must be paid from public funds" is barred. Edelman, 415 U.S. at 663.

As a result, even though the formal requirements of Ex Parte Young may be met by naming officials (rather than the state) as defendants, and seeking injunctive relief, relief should not be granted if "the relief is tantamount to an award of damages for a past violation of federal law, even though styled as something else." Papasan v. Allain, 478 U.S. 265, 278 (1986).

There is an exception to the exception, of course. If the injunctive relief sought by the plaintiff is truly prospective non-monetary relief, sovereign immunity will not bar the suit simply because the state may be required to make incidental expenditures in complying with the injunction. Milliken v. Bradley, 433 U.S. 267, 289 (1977) (federal courts are permitted to enjoin state officials to conform their conduct to requirements of federal law via injunction, notwithstanding a direct and substantial impact on the state treasury); Edelman v. Jordan, 415 U.S. 651 (1974) (suit was proper to the extent it sought "payment of state funds as a necessary consequence of compliance with a substantive federal-question determination"). The dividing line, therefore, is whether the money or the non-monetary injunction is the primary thrust of the suit.

Plaintiffs have couched their claim in prospective language: in essence, they seek an order forcing the States to turn over portions of future installments of the monies due under the States' settlement agreement with the tobacco manufacturers. Plaintiffs claim that these monies are not yet sufficiently the property of the States for such an order to be an order for monetary relief. Plaintiffs thereby hope to escape the Eleventh Amendment bar on suits for monetary relief against states.

Plaintiffs argue that their action is, in fact, merely one to force the States to comply with the federal distribution scheme for Medicaid recoupments, under 42 U.S.C. § 1396. They argue that each failure to turn over the money constitutes a future failure to comply with federal law. This, they say, was the root of the district court's error: Plaintiffs consider their demands to receive money in the future to be prospective relief. Plaintiffs assert that retroactive monetary relief must apply to a loss that they have already suffered. Plaintiffs argue that they have not yet suffered a loss, since they only claim future payments, rather than payments that have already been made to the state.

However, attempts to seize upon a state's "continuing income" by means of a prospective injunction have been held by the Supreme Court to be attempts to obtain compensation for an "accrued monetary liability." Papasan, 478 U.S. at 281. In Papasan, several Mississippi school districts sued state officials, claiming that those officials had breached trust obligations under federal law in managing school trust lands. Id. at 274. The districts sought compensation for their losses; they phrased their claim as one seeking an injunction forcing the state officials to meet their continuing federal obligations to fund the schools properly. The Supreme Court rejected this argument, determining that the claim served a purely compensatory purpose. Id. at 281. In the case at hand, Plaintiffs seek court orders requiring the States to hand over money. This does not make the relief sought nonmonetary or prospective. As the Papasan Court stated:

[C]ontinuing payment of the income from the lost corpus is essentially equivalent in economic terms to a one-time restoration of the lost corpus itself: It is in substance the award, as continuing income rather than as a lump sum, of an accrued monetary liability.

Ibid. (internal citations omitted). The attempt to seize on the settlement monies awarded to the States is an attempt to recover money damages and is barred by the Eleventh Amendment.

The case law does not support an argument that the requested relief has a purely "ancillary" effect on the States' treasuries. A court may enter a prospective injunction that costs the state money, but only if the monetary impact is ancillary, i.e., not the primary purpose of the suit. Edelman, 415 U.S. at 668; see also Quern v. Jordan, 440 U.S. 332, 349 (1979) (enjoining a state to provide notice to recipients of welfare as to how to collect welfare benefits). For example, in Milliken v. Bradley, the Court enjoined a state to provide education programs in order to remedy racial discrimination; the expenditure of funds was ancillary to the non-compensatory goal. 433 U.S. at 289-90.

However, in Kelley v. Metropolitan County Bd. of Educ., 836 F.2d 986 (6th Cir. 1987), the Sixth Circuit held that the relief sought, an order requiring the state to assume a percentage of the costs to a school of desegregating, was not ancillary. The court noted that when "[t]he order to pay is ancillary only to itself . . ." the Eleventh Amendment bar applies. Id. at 992. In the instant case, an order to pay out future amounts awarded to the States under the MSA would be "ancillary only to itself": there is no other purpose underlying the requested "injunctive" relief other than the recovery of cash that is the property of the state. It is therefore barred by the Eleventh Amendment.

Plaintiffs' reliance on the Tenth Circuit's decisions in Elephant Butte Irrigation Dist. v. Dep't of the Interior, 160 F.3d 602, 610 (10th Cir. 1998), and Harris v. Owens, 264 F.3d 1282 (10th Cir. 2001), on the issue of sovereign immunity is misplaced. In Elephant Butte, a local water district sued the federal government and state officials claiming that the state violated federal law by retaining net profits under a recreational land lease with the federal government. The Elephant Butte court determined that relief would not be retrospective: the interference was not with a present entitlement but with a future possibility of earnings. Elephant Butte, 160 F.3d at 610. The difference between that case and this is obvious: the States here have a present and settled interest in payments that happen to be made in installments. If the settlement were already paid over as a lump sum, Plaintiffs would clearly have no case: the States' established property interest would be unassailable. Plaintiffs recognize this when they assert that they are not claiming funds already paid to the States from escrow. The States have a present financial interest in the payment of the settlement, even though that payment will occur in installments rather than a lump sum.

For similar reasons, therefore, Plaintiffs cannot rely on Harris v. Owens, 264 F.3d 1282 (10th Cir. 2001). In that case, the Tenth Circuit determined that the Eleventh Amendment did not bar a suit by a Medicaid recipient. Id. at 1297. However, the court found that an amendment to the Medicaid Act did block the Medicaid-recipient suit (a discussion of which is found below). Ibid.

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Click the case caption above for the full text of the Court's opinion.

Outcome: Affirmed

Plaintiff's Experts: Unavailable

Defendant's Experts: Unavailable

Comments: None