KADEL v. FOLWELL, 446 F.Supp.3d 1

Background

North Carolina’s State Health Plan (NCSHP) contains a categorical Exclusion denying coverage for treatment "in conjunction with proposed gender transformation" or "sex changes or modifications."
Plaintiffs are current/former employees of UNC/NC State/UNCG or their dependents; they are transgender or parents of transgender minors with diagnosed gender dysphoria and allege medically necessary transition-related care is denied under the Exclusion.
Plaintiffs sued: (1) State Treasurer Dale Folwell and Executive Administrator Dee Jones (official-capacity) under the Equal Protection Clause; (2) University employers under Title IX; and (3) NCSHP under Section 1557 of the ACA. Relief sought includes declaratory, injunctive relief, and damages.
Defendants moved to dismiss under Rules 12(b)(1), (6), and (7), arguing (inter alia) lack of standing/traceability, sovereign immunity under the Eleventh Amendment for the ACA claim, failure to state Title IX/Equal Protection claims, and necessary-party nonjoinder.
The court found Plaintiffs sufficiently pleaded Article III standing and statutory causes of action, concluded Section 1557 is actionable notwithstanding sovereign-immunity arguments (via CRREA reasoning), found the Exclusion facially discriminates on the basis of sex triggering heightened scrutiny, and denied motions to dismiss and the requested stay.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Title IX viability / standing and zone of interests	Plaintiffs: universities offered/participated in the Plan so their hiring/enrollment links the universities to the harm; dependents and parents are within Title IX’s broad ‘person’ protection.	University Defs: Plan terms set by state actors so universities lack traceability and cannot redress; parents/minors fall outside Title IX’s zone.	Court: At pleading stage traceability and redress are plausibly alleged; minor and parent plaintiffs fall within Title IX’s wide scope; Title IX claim survives.
Section 1557 (ACA) sovereign immunity waiver	Plaintiffs: §1557 prohibits sex-based discrimination in federally funded health programs; read with CRREA, states waived Eleventh Amendment immunity.	State Defs: §1557 does not explicitly waive immunity and does not reference gender identity; CRREA catch-all shouldn’t reach §1557.	Court: §1557 is sufficiently like statutes named in CRREA and, together with CRREA, plausibly effects waiver; ACA claim survives.
Equal Protection (Fourteenth Amendment)	Plaintiffs: Exclusion expressly targets treatment tied to gender/sex and treats natal sexes differently; classification triggers heightened scrutiny.	State Defs: Exclusion targets medical diagnoses, not gender; savings justify exclusion.	Court: Exclusion facially discriminates on sex and tethering to sex stereotypes; heightened scrutiny applies and the State’s proffered justification (cost savings) is insufficient at pleading stage; claim survives.
Request to stay pending Supreme Court decision and joinder	Plaintiffs: delay causes ongoing harm (denial of medically necessary care); Board of Trustees not required to afford complete relief.	Defendants: stay warranted because Harris Funeral Homes may control; Plan Board is a required party under Rule 19.	Court: Declined stay (delay harms plaintiffs, no clear & convincing reason); Board’s joinder not required to accord complete relief; case proceeds.

Key Cases Cited

Price Waterhouse v. Hopkins, 490 U.S. 228 (1989) (sex stereotyping can constitute discrimination "because of sex")
EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., 884 F.3d 560 (6th Cir. 2018) (applied Price Waterhouse to transgender status discrimination)
Boyden v. Conlin, 341 F. Supp. 3d 979 (W.D. Wis. 2018) (upheld challenge to state-plan exclusion for gender-confirming care)
G.G. ex rel. Grimm v. Gloucester Cty. Sch. Bd., 822 F.3d 709 (4th Cir. 2016) (Title IX framework and elements)
Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) (Article III standing requirements)
Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (standing principle; pleading-stage burdens)
Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014) (limits on proximate causation in standing; "fairly traceable" explained)
Litman v. George Mason Univ., 186 F.3d 544 (4th Cir. 1999) (CRREA waives state immunity when liability is "unmistakably clear")
Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1 (1981) (states cannot accept conditions of which they are unaware; notice in waiver context)
United States v. Virginia, 518 U.S. 515 (1996) (demanding "exceedingly persuasive justification" for sex-based classifications)
City of Cleburne v. Cleburne Living Ctr., 473 U.S. 432 (1985) (standard for rational-basis review vs. heightened scrutiny)
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)