Foothill Church v. Watanabe, 2:15-cv-02165

Background

DMHC Director sent letters to seven private insurers instructing them to remove limitations or exclusions for elective abortion coverage from plans regulated under the Knox–Keene Act; some insurers had previously filed EOCs excluding such coverage.
Plaintiffs are three Christian churches that provide group health plans to employees through those insurers and object to mandatory abortion coverage on religious grounds.
Plaintiffs sued the DMHC Director alleging violations of the Free Exercise and Equal Protection Clauses; earlier the court dismissed Establishment and Free Speech claims with prejudice and allowed amendment on the other claims.
The FAC alleges the Director selectively enforces the Knox–Keene Act, granting exemptions to some employers but refusing to accommodate the Churches’ absolute opposition to abortion.
Defendant moved to dismiss for failure to state a claim; the court found plaintiffs had standing but dismissed the FAC for conclusory pleading and failure to plausibly allege nonneutral or non‑generally applicable enforcement or disparate treatment.
Court granted leave to amend (21 days) because plaintiffs might be able to plead additional nonconclusory facts to trigger strict scrutiny or equal protection review.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the DMHC letters violate the Free Exercise Clause by not being neutral	Director applied the law selectively and targeted plaintiffs’ religious beliefs; individualized exemptions exist but were denied to plaintiffs	Letters and underlying law are facially neutral and generally applicable; exemptions originate in the statute and do not show discriminatory enforcement	Dismissed: Plaintiffs failed to plead sufficient facts to show nonneutrality or non‑general applicability; strict scrutiny not triggered
Whether an individualized‑assessment exception applies to force strict scrutiny	Director has discretion to grant exemptions and has given some accommodations to religious employers but refuses to accommodate plaintiffs’ absolute belief	Even if discretion exists, plaintiffs must allege actual discriminatory exercise of that discretion (not mere possibility)	Dismissed: Allegations were conclusory; plaintiffs did not allege any submitted plan was rejected or that the Director in fact discriminated
Whether the letters violate Equal Protection by treating similarly situated religious employers differently	Director exempted some religious plans but refused to exempt plaintiffs, showing disparate treatment	Letters regulate plans not purchasers; plaintiffs did not allege any plan-level classification or a rejected plan based on religion	Dismissed: PLA failed to plead facts showing differential treatment of similarly situated plans
Whether plaintiffs have Article III standing to sue	Plaintiffs allege injury from inability to secure plans excluding abortion and plan administrators declined their desired plan options	Defendant renewed earlier standing arguments (previously rejected)	Standing sufficiently pleaded (court reaffirmed earlier finding)

Key Cases Cited

Cantwell v. Connecticut, 310 U.S. 296 (1939) (incorporation of Free Exercise to states)
Employment Div. v. Smith, 494 U.S. 872 (1990) (neutral, generally applicable laws subject to rational basis review)
Church of Lukumi Babalu Aye, Inc. v. City of Hialeah, 508 U.S. 520 (1993) (laws not neutral if targeting religious conduct; strict scrutiny where ordinances singled out religious sacrifice)
Stormans, Inc. v. Wiesman, 794 F.3d 1064 (9th Cir. 2015) (discussing neutrality/general applicability tests post‑Smith)
City of Cleburne v. Cleburne Living Ctr., 473 U.S. 432 (1985) (equal protection principle that similarly situated persons must be treated alike)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (complaint must plead factual matter sufficient to state a plausible claim)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)