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.
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")
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"),
Andrew S. Kim ("Kim"), and "John" Honigman ("Honigman")
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")
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.
Kathie Whipple ("Whipple")
is an Assistant Attorney General and Deputy chief of the Litigation Bureau in the New York City office.
A. Rule 12(b)(1) Motion
1. Lack of Acknowledgement and Notice
Rule 4(c)(2)(C)(ii) of the Federal Rules of Civil Procedure requires service of a summons and complaint to be accompanied by an acknowledgement and notice. Defendants contend, and Plaintiffs concede, that such acknowledgement was not enclosed; therefore Defendants have moved to dismiss the complaint for defective service.
Plaintiffs have responded that this deficiency is not fatal to the service, citing Lee v. Carlson, 645 F. Supp. 1430, 1432-33 (S.D.N.Y. 1986), aff'd, 812 F.2d 712 (2d Cir. 1987). Yet Lee is distinguishable from the case at bar because there the plaintiff was pro se whereas here the Plaintiffs are represented by a duly admitted attorney who is presumed to understand the Federal Rules of Civil Procedure.
Plaintiffs next contend that even if this Court finds the service to have been defective, service should only be quashed and opportunity be given them to amend service. In support of this proposition they cite Montalbano v. Easco Hand Tools, Inc., 766 F.2d 737, 740 (2d Cir. 1985) and Alexander v. Unification Church of America, 634 F.2d 673, 675-76 (2d Cir. 1980) which note that although courts have broad discretion to quash service and to dismiss an action, quashing service and preserving the action is preferred where "there is a reasonable prospect that plaintiff ultimately will be able to serve defendant[s] properly." Montalbano, 766 F.2d at 740 (quoting 5 C. Wright 7 A. Miller, Federal Practice and Procedure § 1354, at 585 (1969)). It is likely that Plaintiffs would be able to cure the defects in service; however such an opportunity is unavailable as the claims have been dismissed for reasons stated below.
2. Lack of Service
Defendants further allege that some Defendants were never served or service was attempted at the wrong location. According to the Defendants, Honigman and Tabora no longer work for the State of New York and neither has designated DSS as its agent for purposes of service of process. In addition, no papers were received by Perales, Wiley, Wrafter, or White. As with the Acknowledgement and Notice, these defects could be cured; however, such an opportunity is unavailable given the outcome of this motion.
B. Rule 12(b)(2) Motions
Defendants contend that this Court does not have subject matter jurisdiction over Plaintiffs' claims.
1. Eleventh Amendment Bar
The Eleventh Amendment bars suits for damages against states. Absent an explicit abrogation of these immunities by an act of Congress or a particular state statute, claims cannot be lodged against states or their agencies for monetary damages. Ex parte Young, 209 U.S. 123, 52 L. Ed. 714, 28 S. Ct. 441 (1908); Angrisani v. City of New York, 639 F. Supp. 1326, 1336-37 (E.D.N.Y. 1986). Claims for prospective injunction of state action, however, can be lodged. Young, 209 U.S. 123, 52 L. Ed. 714, 28 S. Ct. 441; Edelman v. Jordan, 415 U.S. 651, 666-69, 39 L. Ed. 2d 662, 94 S. Ct. 1347 (1974).
In the instant action, Plaintiff has brought an action for damages and a prospective injunction against the DOH and DSS of New York State. Any claims against these agencies for money must be dismissed. Young, 209 U.S. 123, 52 L. Ed. 714, 28 S. Ct. 441 (1908). Similarly, money damage actions brought against state officials in their official capacity must be dismissed as they are, in reality, against the State. Will v. Michigan Dept. of State Police, 491 U.S. 58, 70, 71, 105 L. Ed. 2d 45, 109 S. Ct. 2304 (1989); Kentucky v. Graham, 473 U.S. 159, 87 L. Ed. 2d 114, 105 S. Ct. 3099 (1985). Thus, only those claims for prospective injunctive relief against officials in their official capacity may stand.
In contrast, money damages claims against the state officials in their individual capacity are allowed to stand. Under Scheuer v. Rhodes, 416 U.S. 232, 237-38, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974), the Eleventh Amendment provides no shield of immunity for a state official who deprived another individual of her constitutional rights under color of state law. Monroe v. Pape, 365 U.S. 167, 170-71, 5 L. Ed. 2d 492, 81 S. Ct. 473 (1961).
2. State Law Claims
Plaintiffs Citrin, Timothee, Capote, and Lock have asserted claims for termination of their Medicaid provider status under 42 U.S.C. § 1983 which Defendants assert would more properly be brought before a state court in an Article 78 proceeding.
Plaintiffs respond that these claims are properly brought into federal court as part of their claims under 42 U.S.C. § 1983 as they allege that their terminations were arbitrary and capricious and did not receive adequate process. To the extent that they seek to merely have the termination reviewed, these claims should be brought before state court in an Article 78 hearing; however, to the extent that a conspiracy is alleged to have been the cause of this deprivation the claims are properly before a federal court. See Cepeda v. Coughlin, 785 F. Supp. 385, 387 (S.D.N.Y. 1992). Thus, that part of the claims which concerns review of the termination should not be before this Court and only that part which pertains to a deprivation of civil rights can be considered.
3. Res Judicata
The doctrine of res judicata holds that "a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." Paganucci v. City of New York, 785 F. Supp. 467, 475 (S.D.N.Y. 1992) (quoting Saud v. Bank of New York, 929 F.2d 916, 918 (2d Cir. 1991) (quoting Federated Dept. Stores, Inc. v. Moitie, 452 U.S. 394, 398, 69 L. Ed. 2d 103, 101 S. Ct. 2424 (1981))). Thus, plaintiffs must raise all of the claims in a litigation; they simply cannot wait and get a second chance at litigating the same issues under different guises.
a. Prior Federal Proceedings
Plaintiffs Family and Lasid were involved in litigation of this very issue before. See 701 Pharmacy Corp., 930 F.2d 163. Defendants allege that Plaintiffs Las id and Family are barred entirely from this action in that they failed to raise their conspiracy claims in the prior federal litigation. Plaintiffs contend that the first litigation was a challenge to the State's termination of their Medicaid provider status without a hearing whereas in this litigation they are alleging the existence of a conspiracy to discriminate against high volume Medicaid providers. Plaintiffs assert that the two litigations are entirely different and that the conspiracy could not have been raised at the first litigation.
It is true that Plaintiffs assert that the state trials are evidence of the conspiracy, yet the majority of their claims involve the same Defendants and the same terminations. The Plaintiffs raised claims of equal protection and due process then and are precluded from raising claims based on similar facts now. It would appear that this is merely Plaintiffs' attempt to get a second bite of the apple, which is strictly forbidden.
b. Prior State Proceedings
Plaintiffs Lasid and Family initiated Article 78 proceedings concerning their terminations and these proceedings were delayed for a variety of reasons that ultimately resulted in their dismissal on the basis of time. It is a prerequisite that appeals of state proceedings be appealed to the highest court of the state or as far as such claims are permitted to be appealed. Here, the appellate process has not been exhausted, therefore this Court is precluded from examining those claims. District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 75 L. Ed. 2d 206, 103 S. Ct. 1303 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 413, 68 L. Ed. 362, 44 S. Ct. 149 (1923); Zimmerman v. Grievance Committee, 726 F.2d 85, 86 (2d Cir.), cert. denied, 467 U.S. 1227, 81 L. Ed. 2d 876, 104 S. Ct. 2681 (1984). Although Plaintiffs claim that these state actions involved different allegations because conspiracy was not alleged at he state trials and that, in fact, these very state trials are further evidence of the conspiracy, this Court will not sit as an appellate court to state trial courts. Accordingly, this Court will only consider those trials as possible evidence of the conspiracy claims and will not review the dismissals.
C. Defendants Abrams and Whipple Have Prosecutorial Immunity
Plaintiffs have brought claims against State Attorney General Abrams and Assistant Attorney General Whipple for their handling of the administrative proceedings. Defendants correctly point out that absolute immunity has been extended to government attorneys handling administrative proceedings and to the initiation of civil litigation. Butz v. Economou, 438 U.S. 478, 512-17, 57 L. Ed. 2d 895, 98 S. Ct. 2894 (1978); Barrett v. United States, 798 F.2d 565, 572 (2d Cir. 1986). Plaintiffs assert that Whipple and Abrams cannot benefit from prosecutorial immunity because their authority was discretionary and they exercised their functions on behalf of the conspiracy.
Defendant Whipple acted within the scope of her authority in prosecuting these cases and is immunized from this action. Prosecutors must be free from the fear of liability for bringing cases. Defendant Abrams oversaw the Attorney General's office and therefore, Whipple's actions, but no specific allegations that Mr. Abrams was personally involved have been made. See Cepeda, 785 F. Supp. at 390-91. The doctrine of respondeat superior does not apply to section 1983 claims and thus, the claims against Defendant Abrams too must fail.
D. Rule 12(b)(6) Motion
A motion to dismiss for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure should be granted only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Green v. Maraio, 722 F.2d 1013, 1015-16 (2d Cir. 1983), quoting Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). The court must accept as true all material facts well-pleaded in the complaint and must make all reasonable inferences in the light most favorable to the plaintiff. In re Energy Sys. Equip. Leasing Sec. Litig., 642 F. Supp. 718, 723 (E.D.N.Y. 1986).
Plaintiffs here allege that the Defendants conspired to discriminate against high volume Medicaid providers. This allegation presupposes that being a Medicaid provider is a property right protected by the Constitution. This presumption is clearly erroneous.
1. Section 1983 Claims
In order to prevail on a section 1983 claim, it is necessary to show 1) the deprivation of rights, privileges, or immunities secured by the Constitution or laws of the United States, 2) by a person acting under color of state law. Parratt v. Taylor, 451 U.S. 527, 535, 68 L. Ed. 2d 420, 101 S. Ct. 1908 (1981), overturned on other grounds by Daniels v. Williams, 474 U.S. 327, 88 L. Ed. 2d 662, 106 S. Ct. 662 (1986); Day v. Morgenthau, 909 F.2d 75, 77 (2d Cir. 1990). The analysis for such claims is well-established:
We must decide, first, whether [state action] operates to the disadvantage of some suspect class or impinges upon a fundamental right explicitly or implicitly protected by the Constitution, thereby requiring strict judicial scrutiny. . . . If not, the [legislative] scheme must still be examined to determine whether it rationally furthers some legitimate, articulated state purpose and therefore does not constitute an invidious discrimination . . .