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COHEN v. BANE

May 20, 1994

ALBERT S. COHEN, F & R DRUGS, INC., FAMILY PHARMACY, INC., LASID SALES, INC., ABRAHAM LOCK, M.D., LOUIS TIMOTHEE, M.D., PAUL CITRIN, M.D., and WILLIAM CAPOTE, M.D., Plaintiffs,
v.
MARY JO BANE, Commissioner of the New York State Department of Social Services, the NEW YORK STATE DEPARTMENT OF SOCIAL SERVICES, MARK R. CLASSON, as Commissioner of the Department of Health of the State of New York, the DEPARTMENT OF HEALTH OF THE STATE OF NEW YORK, CESAR A. PERALES, JOHN WILEY, NORMAN RIGHTHAND, "JOHN" MATZ, M.D., the first name being unknown, ANDREW KIM, M.D., "JOHN" HONIGAN, the first name being unknown, JULIET FISHER, R.N., JOHN ARTICOLO, EILEEN DUFFY, BARBARA FERRIES, JOAN COSTANTINO, JOHN WRAFTER, ROBERT ABRAMS as ATTORNEY GENERAL OF THE STATE OF NEW YORK, JAMES WHITE, RAUL TABORA, KATHLEEN WIPPLE, CLEMENT DEODATI, and FRITZ MEYER, Defendants.



The opinion of the court was delivered by: STERLING JOHNSON, JR.

 JOHNSON, District Judge:

 INTRODUCTION

 Plaintiffs have brought an action for permanent injunction and damages based upon allegations that Defendants deprived Plaintiffs of their civil rights in violation of 42 U.S.C. §§ 1983 *fn1" and 1985. *fn2" Defendants have moved to dismiss these claims pursuant to Fed. R. Civ. P. 12(b)(1), for lack of subject matter jurisdiction; Fed. R. Civ. P. 12(b)(2) for improper service; and Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted. Defendants have also moved for sanctions to be imposed upon the Plaintiffs pursuant to Rule 11 of the Federal Rules of Civil Procedure. For the reasons stated below, Defendants' motion is granted in its entirety.

 BACKGROUND

 When determining the sufficiency of a complaint, a federal court construes the factual allegations of the complaint in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). The court may resolve factual issues by reference to evidence outside the pleadings on a motion challenging a court's subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure. Antares Aircraft v. Federal Republic of Nigeria, 948 F.2d 90, 96 (2d Cir. 1991). In deciding this motion, the Court has examined the complaint and the exhibits to the motion before this Court.

 A. The Plaintiffs

 Plaintiffs include Albert S. Cohen ("Cohen"), a pharmacist; F & R Drugs, Inc. ("F & R"), Family Pharmacy, Inc. ("Family"), and Lasid Sales, Inc. ("Lasid"), pharmacies located in Kings County and Bronx County; and physicians Abraham Lock ("Lock"), Louis Timothee ("Timothee"), Paul Citrin ("Citrin"), and William Capote ("Capote"). Each of the Plaintiffs was enrolled and authorized by the Department of Social Services of New York State ("DSS") to participate as a Medicaid provider. As such, each provider could be reimbursed through Medicaid for services rendered, laboratory tests performed, and pharmaceuticals prescribed. Plaintiffs' participation in the Medicaid program was terminated pursuant to 18 N.Y.C.R.R. § 504.7(a) which permits termination without cause; it is this termination that is the basis of this lawsuit.

 In 1988, Governor Mario Cuomo announced that the budget for DSS would be reduced by $ 800 million over the next fiscal year. This reduction was indeed carried out and was followed by further decreases in funding. Plaintiffs allege that, in order to comply with the budget cuts as directed by the Governor of New York, Defendants conspired to target high-volume Medicaid providers. It is alleged that this conspiracy deprived the Plaintiffs of their civil rights.

 Defendants do not deny that Plaintiffs were high-volume Medicaid providers but contend that investigation of high-volume billings is rationally related to the State's interest in allocating scarce monies. Defendants allege that such investigation revealed that the practices of these providers were substandard, thus mandating their termination.

 Defendants allege that Plaintiffs Cohen and F & R were terminated because of record discrepancies; aiding and abetting the illegal diversion of drugs; employment of an unlicensed person to fill prescriptions; employment of two unlicensed persons supervised by only one pharmacist; and dirty and unsanitary conditions. In response, Cohen and F & R contend that their equal protection and due process rights have been violated by the conspiracy among the Defendants to strip Plaintiffs and other high-volume providers of their alleged property interests in remaining Medicaid providers.

 Defendants allege that Family was terminated for deficient Medicaid practices including mislabeling of drugs adulteration of drugs, and repacked drugs without labels. Similarly, Defendants contend that Las id was terminated for deficiencies in its Medicaid practices, including repacking drugs without entering such in the repacking logs and failure to use manufacturer's lot numbers.

 In a previous action, Family and Lasid filed suit in this court claiming that they were discharged without cause under 18 N.Y.C.R.R. § 504.7(b) and were entitled to a hearing. Judge Glasser granted the application for a preliminary injunction but the Second Circuit reversed, ruling that the provisions of 18 N.Y.C.R.R. § 504.7(a) which permitted terminations without cause and without a hearing did not violate the equal protection or the due process clauses. 701 Pharmacy Corp. v. Perales, 930 F.2d 163 (2d Cir.), cert. denied, 116 L. Ed. 2d 42, U.S. , 112 S. Ct. 67 (1991).

 Plaintiffs then sought relief in the state courts alleging that defendants had terminated plaintiffs arbitrarily, capriciously, and in bad faith. The Appellate Division, Second Department dismissed the claims as time barred by the statute of limitations under N.Y.C.P.L.R. § 217. Now, these same Plaintiffs have come before this Court contending that the Defendants have conspired to deprive them of their equal protection and due process rights in violation of 42 U.S.C. §§ 1983 and 1985.

 Plaintiff Citrin was terminated pursuant to 18 N.Y.C.R.R. § 515 on November 11, 1987. He filed suit in state court seeking a preliminary in junction which was denied and the case was subsequently withdrawn by stipulation. On March 23, 1990, Citrin was again terminated and in a subsequent action granted a preliminary injunction by the Supreme Court, Queens County. At an administrative hearing, Citrin and DSS entered into a settlement which Citrin now contends has been ignored by DSS. Citrin claims that his civil rights have been violated by the DSS in ignoring the settlement and terminating his provider status.

 Plaintiff Lock's status as a Medicaid provider was terminated on April 15, 1991 pursuant to 18 N.Y.C.R.R. § 515. Lock alleges that his administrative hearing has been delayed by the Defendants' conspiracy and that his termination was wrongful.

 Plaintiff Timothee's provider number was terminated pursuant to 18 N.Y.C.R.R. § 515 in May 1992. He alleges that his administrative hearing has been wrongfully delayed by the Defendants' alleged conspiracy.

 Plaintiff Capote was excluded from the Medicaid program on April 27, 1992 pursuant to 18 N.Y.C.R.R. § 515 for unacceptable Medicaid practices. He alleges that his termination was wrongful and that his administrative hearing was wrongfully delayed by DSS.

 B. The Defendants

 DSS is the state agency which administers the Medicaid program in New York state. Cesar Perales ("Perales") was Commissioner of DSS until 1991 when Mary Jo Bane ("Bane") became Commissioner. Mark Chassin ("Chassin") *fn3" is the Commissioner of the Department of Health of the State of New York. John Wiley ("Wiley") is a DSS administrative law judge. Norman Righthand ("Righthand"), John Matz ("Matz"), *fn4" Andrew S. Kim ("Kim"), and "John" Honigman ("Honigman") *fn5" are physicians either currently or formerly employed as peer reviewers by DSS. Juliet Fisher ("Fisher") is a registered nurse who audits physician provider charts for DSS. Fritz Meyer ("Meyer") is an auditor and inspector employed by DSS. Barbara Ferries ("Ferries"), John Wrafter ("Wrafter"), and James White ("White") are administrators of DSS. Raul Tabora ("Tabora") is an attorney formerly employed by DSS. Clement Deodati ("Deodati") is a pharmacist inspector for DSS. The Department of Health of New York ("DOH") assists in the review and approval of Medicaid provider claims. John Articolo ("Articolo") and Ileen Duffy ("Duffy") *fn6" are employed by DOH and they reviewed Plaintiff Citrin's claim. Jo Ann Costantino ("Costantino") was formerly employed as a DSS manager. Robert Abrams ("Abrams") was the Attorney General of the State of New York whose office represents DSS and DOH in federal and state judicial proceedings. *fn7" Kathie Whipple ("Whipple") *fn8" is an Assistant Attorney General and Deputy chief of the Litigation Bureau in the New York City office.

 ANALYSIS

 A. Rule 12(b)(1) Motion

 1. Lack of Acknowledgement ...


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