ANGELOTTI CHIROPRACTIC, INC.; Mooney & Shamsbod Chiropractic, Inc.; Christina-Arana & Associates, Inc.; Joyce Altman Interpreters, Inc.; Scandoc Imaging, Inc.; Buena Vista Medical Services, Inc.; David H. Payne M.D., Inc., Plaintiffs-Appellants, v. Christine BAKER, in her official capacity as Director of the California Department of Industrial Relations; Ronnie Caplane, in her official capacity as Chair of the Workers’ Compensation Appeals Board; Destie Lee Overpeck, in her official capacity as Acting Administrative Director of the California Division of Workers Compensation, Defendants-Appellees. Angelotti Chiropractic, Inc.; Mooney & Shamsbod Chiropractic, Inc.; Joyce Altman Interpreters, Inc.; Scandoc Imaging, Inc.; Buena Vista Medical Services, Inc.; David H. Payne M.D., Inc.; Christina-Arana & Associates, Inc., Plaintiffs-Appellees, v. Christine Baker, in her official capacity as Director of the California Department of Industrial Relations; Ronnie Caplane, in her official capacity as Chair of the Workers’ Compensation Appeals Board; Destie Lee Overpeck, in her official capacity as Acting Administrative Director of the California Division of Workers Compensation, Defendants-Appellants.
Nos. 13-56996, 13-57080.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted Nov. 18, 2014. Filed June 29, 2015.
791 F.3d 1075
VACATED AND REMANDED.
Glenn E. Summers (argued), Sundeep K. Addy, and Daniel C. Taylor, Bartlit Beck Herman Palenchar & Scott LLP, Denver, CO; Paul Murphy and Mark Nagle, Murphy Rosen LLP, Santa Monica, CA, for Plaintiffs-Appellees & Cross-Appellants.
Nicholas P. Roxborough and Anne S. Kelson, Roxborough, Pomerance, Nye, & Adreani, LLP, Woodland Hills, CA, for Amicus Curiae California Society of Industrial Medicine and Surgery.
Michael A. Marks, Allweiss & McMurtry, Tarzana, CA, for Amicus Curiae California Workers’ Compensation Institute & American Insurance Association.
Ellen Sims Langille and Katherine F. Theofel, Finnegan, Marks, Theofel & Desmond, San Francisco, CA, for Amicus Curiae California Chamber of Commerce.
Eric S. Boorstin (argued) and Jeremy B. Rosen, Horvitz & Levy LLP, Encino, CA, for Amicus Curiae State Compensation Insurance Fund.
Donna M. Dean (argued), Deputy Attorney General, Joel A. Davis, Supervising Deputy Attorney General, Kristin G. Hogue, Senior Assistant Attorney General, Kathleen A. Kenealy, Chief Assistant Attorney General, and Kamala D. Harris, Attorney General of California, Los Angeles, CA, for Defendants-Appellants & Cross-Appellees.
Before: MARY M. SCHROEDER and JACQUELINE H. NGUYEN, Circuit Judges and JACK ZOUHARY,* District Judge.
* The Honorable Jack Zouhary, District Judge for the U.S. District Court for the Northern District of Ohio, sitting by designation.
NGUYEN, Circuit Judge:
In 2012, California enacted Senate Bill 863 (“SB 863“) to combat an acute “lien crisis” in its workers’ compensation system. These liens are filed by medical providers and other vendors to seek payment for services provided to an injured worker with a pending claim. In an effort to clear an enormous and rapidly growing backlog of these liens, SB 863 imposes a $100 “activation fee” on entities like plaintiffs for each workers’ compensation lien filed prior to January 1, 2013. Plaintiffs sued, claiming that SB 863 violates the Takings Clause, the Due Process Clause, and the Equal Protection Clause of the United States Constitution.
We affirm the district court‘s dismissal of plaintiffs’ claims under the Takings Clause and Due Process Clause. As to the Equal Protection claim, however, we vacate the preliminary injunction and, through pendent appellate jurisdiction, reverse the district court‘s denial of the motion to dismiss this claim.
BACKGROUND
A. Overview of the Workers’ Compensation System
Employers in California typically provide medical care and other services to employees for work-related injuries. See generally
In certain cases, an employer or its insurer might decline to provide medical treatment to an injured employee on the grounds that an injury is not work-related or the treatment is not medically necessary. An injured worker may then seek medical treatment on his or her own, and, if the injury is later deemed work-related and the treatment medically necessary, the employer is liable for the “reasonable expense” incurred in providing treatment, which may include ancillary services such as an interpreter to facilitate treatment.
A provider of services—whether for medical treatment, ancillary services, or medical-legal services—may not seek payment directly from the injured worker.
Whether a provider of medical or ancillary services obtains payment on its lien depends on the result reached in the underlying case. These providers are entitled to payment of their liens if the injured worker establishes that the injury was work-related and that the medical treatment provided was “reasonably required to cure or relieve the injured worker from the effects of his or her injury.”
Providers of medical-legal services must demonstrate that the expense was “reasonably, actually, and necessarily incurred,”
B. The Lien Crisis and SB 863
The parties do not dispute that California‘s workers’ compensation system is overwhelmed by liens, with a substantial backlog that is growing rapidly. On September 18, 2012, California enacted SB 863, which aims to address the “lien crisis,” described in a January 5, 2011 report prepared by the California Commission on Health and Safety and Workers’ Compensation (“Commission Report“). The Commission Report noted that the workers’ compensation courts lacked “the capacity to handle all the lien disputes” that were filed. For example, the Los Angeles Office of the Workers’ Compensation Appeals Board devotes 35 percent of its time to lien-related matters, and even though it resolves liens at the rate of approximately 2,000 per month as of October 2010, the rate of filings is such that the backlog of unresolved liens grows by approximately 2,000 per month, on top of the pre-existing backlog of 800,000. According to the Commission Report, the backlog has two effects. First, frivolous liens remain pending for years rather than being denied outright, resulting in the employer paying to settle just to close the case. Second, meritorious liens are delayed, which means that employers can deny these claims with impunity for years. One of the reforms recommended by the Commission Report is the institution of a lien filing fee in order to deter the filing of liens generally, and particularly to deter the filing of frivolous liens.
SB 863 imposes a $150 filing fee for all liens filed on or after January 1, 2013.
a health care service plan licensed pursuant to Section 1349 of the Health and Safety Code, a group disability insurer under a policy issued in this state pursuant to the provisions of Section 10270.5 of the Insurance Code, a self-insured employee welfare benefit plan, as de-
fined in Section 10121 of the Insurance Code, that is issued in this state, a Taft-Hartley health and welfare fund, or a publicly funded program providing medical benefits on a nonindustrial basis. Id. § 4903.06(b) .
A lien claimant may recover reimbursement for the activation fee by taking the following steps: first, 30 or more days prior to filing a lien or a declaration of readiness for a lien conference, the lien claimant must make a “written demand for settlement of the lien claim for a clearly stated sum;” second, the defendant (i.e., the entity owing on the lien) must fail to accept the settlement within 20 days of receipt of the settlement demand; and third, after submission of the lien dispute to an arbitrator or the Workers’ Compensation Appeals Board, “a final award is made in favor of the lien claimant of a specified sum that is equal to or greater than the amount of the settlement demand.”
C. The Present Action
Plaintiffs sued various state officials and agencies1 asserting claims for violations of the Takings Clause, the Due Process Clause, and the Equal Protection Clause of the United States Constitution.2 Plaintiffs filed a motion for a preliminary injunction, and defendants moved to dismiss plaintiffs’ complaint for failure to state a claim. After hearing argument and issuing multiple written tentative rulings, the district court dismissed plaintiffs’ Due Process and Takings claims without leave to amend and entered final judgment as to those claims pursuant to Federal Rule of Civil Procedure 54(b). The court denied defendants’ motion to dismiss the Equal Protection claim. The court also issued a preliminary injunction in plaintiffs’ favor as to the Equal Protection claim, but not as to the other claims. Defendants appeal the district court‘s issuance of the preliminary injunction and its denial of the motion to dismiss the Equal Protection claim. Plaintiffs cross-appeal as to the dismissal of their Takings and Due Process claims.
JURISDICTION AND STANDARD OF REVIEW
The district court had jurisdiction pursuant to
DISCUSSION
Plaintiffs challenge the district court‘s dismissal of their Takings and Due Process claims. On cross-appeal, defendants challenge the district court‘s issuance of the preliminary injunction on the Equal Protection claim. Defendants also argue that the court erred in denying their motion to dismiss the Equal Protection claim. We address each claim in turn.
A. Takings
Plaintiffs contend that the lien activation fee violates the Takings Clause of the Fifth Amendment, which prohibits the taking of private property “for public use, without just compensation.”
Here, the workers’ compensation liens are not property interests protected by the Takings Clause. First, the right to workers’ compensation benefits is “wholly statutory,” and such rights are not vested until they are “reduced to final judgment.” Graczyk v. Workers’ Comp. Appeals Bd., 184 Cal. App. 3d 997, 1006, 229 Cal. Rptr. 494 (1986). In Graczyk, plaintiff Ricky Graczyk, a varsity football player at California State University, Fullerton (“CSUF“), sustained a series of head, neck, and spine injuries in 1977 and 1978. Id. at 1000. Graczyk sought workers’ compensation benefits from CSUF on the grounds that his status as a student athlete qualified him as an employee of CSUF within the definition of the California Labor Code.
The Workers’ Compensation Appeals Board reversed, and the Court of Appeal affirmed. Id. at 1001-09.
Since an injured workers’ right to benefits does not vest until final judgment, the same is true for the liens at issue here, which are derivative of the underlying workers’ compensation claim. See Perrillo v. Picco & Presley, 157 Cal. App. 4th 914, 929, 70 Cal. Rptr. 3d 29 (2007) (noting that a lien claimant‘s rights to medical-legal costs are “derivative” of the injured worker‘s rights). Medical and ancillary lienholders have the right to recover on the lien only upon a determination that the expense was “reasonably required to cure or relieve the injured worker from the effects of his or her injury.”
Plaintiffs’ reliance on In re Aircrash in Bali, Indonesia on April 22, 1974, 684 F.2d 1301, 1312 (9th Cir. 1982), is unpersuasive. There, the claim for compensation at issue was a jury verdict for damages, id. at 1304, and even though it was not reduced to a final judgment because it was still pending on appeal,
Finally, plaintiffs argue that the lien activation fee constitutes a taking of the services that they have already provided to injured workers because the fee requires them to pay large sums of money ($100, many times over) to save their liens from
B. Due Process
We next turn to plaintiffs’ claim that the lien activation fee violates their due process rights. The Due Process Clause of the Fourteenth Amendment provides that “[n]o State shall ... deprive any person of life, liberty, or property, without due process of law.”
Plaintiffs argue that the lien activation fee provisions burden their substantive due process right of access to the courts, as set forth in Boddie v. Connecticut, 401 U.S. 371, 91 S. Ct. 780, 28 L. Ed. 2d 113 (1971), and Payne v. Superior Court, 17 Cal. 3d 908, 132 Cal. Rptr. 405, 553 P.2d 565 (1976). In Boddie, the Supreme Court struck down a filing fee that prevented indigent litigants from obtaining a divorce. 401 U.S. at 380-82. The Court reasoned that court proceedings were “the sole means in Connecticut for obtaining a divorce,” id. at 380, and noted the “basic importance” of marriage in society, id. at 376. In Payne, the California Supreme Court held that a prisoner had a due process right to attend, or at least meaningfully participate in, civil proceedings initiated against him despite his incarceration. 132 Cal. Rptr. 405, 553 P.2d at 570-73. Citing Boddie, the California Court explained that “a defendant in a civil case seeks not merely the benefit of a statutory expectancy, but the protection of property he already owns or may own in the future.” Payne, 132 Cal. Rptr. 405, 553 P.2d at 571. Thus, the prisoner had been “[f]ormally thrust into the judicial process,” and therefore had “no alternative to the court system to protect his interests.” Id., 132 Cal. Rptr. 405, 553 P.2d at 572.
Here, by contrast, plaintiffs have not been “thrust” into the judicial process. Cf. id. Nor is formal adjudication of the lien the only way for plaintiffs to obtain payment, cf. Boddie, 401 U.S. at 380, since they are not barred from settling lien disputes out of court. Moreover, this case does not present a weighty societal concern on the level of the institution of marriage. Cf.
We also reject plaintiffs’ claim that the retroactive nature of the lien activation fee violates the Due Process Clause. While courts will presume that statutes are intended to operate prospectively, Landgraf v. USI Film Products, 511 U.S. 244, 265-73, 114 S. Ct. 1483, 128 L. Ed. 2d 229 (1994), and “stricter limits may apply to [a legislature‘s] authority when legislation operates in a retroactive manner,” Eastern Enters. v. Apfel, 524 U.S. 498, 524 (1998) (plurality opinion), a statute that the legislature clearly intended to operate retroactively will be upheld if its retroactivity is “justified by a rational legislative purpose.” United States v. Carlton, 512 U.S. 26, 31, 114 S. Ct. 2018, 129 L. Ed. 2d 22 (1994) (quoting Pension Benefit Guaranty Corporation v. R.A. Gray & Co., 467 U.S. 717, 729-30, 104 S. Ct. 2709, 81 L. Ed. 2d 601 (1984)).
Here, there is no dispute that the California Legislature intended for the lien activation fee to operate retroactively. See
Plaintiffs’ reliance on Untermyer v. Anderson, 276 U.S. 440, 48 S. Ct. 353, 72 L. Ed. 645 (1928) and Nichols v. Coolidge, 274 U.S. 531, 47 S. Ct. 710, 71 L. Ed. 1184 (1927), is unpersuasive. In those cases, the Supreme Court invalidated taxes that operated retroactively. The Court recently cited those cases for the proposition that the retroactive application of a “wholly new tax” may be constitutionally problematic. See Carlton, 512 U.S. at 34. However, the Court also expressed skepticism as to the degree to which Nichols and Untermyer still apply, since “those cases were decided during an era characterized by exacting review of economic legislation under an approach that has long since been discarded.”
C. Equal Protection
Finally, we turn to defendants’ claim that the district court abused its discretion
1. Preliminary Injunction
The Equal Protection Clause of the Fourteenth Amendment provides that “[n]o State shall ... deny to any person within its jurisdiction the equal protection of the laws.”
Plaintiffs contend that
Under rational basis review, legislation that does not draw a distinction along suspect lines such as race or gender passes muster under the Equal Protection Clause as long as “there is any reasonably conceivable state of facts that could provide a rational basis for the classification.” FCC v. Beach Comm‘cns, Inc., 508 U.S. at 313. Thus, a legislative classification must be upheld so long as there is a plausible policy reason for the classification, the legislative facts on which the classification is apparently based rationally may have been considered to be true by the governmental decisionmaker, and the relationship of the classification to its goal is not so attenuated as to render the distinction arbitrary or irrational. Nordlinger v. Hahn, 505 U.S. 1, 11, 112 S. Ct. 2326, 120 L. Ed. 2d 1 (1992) (citations omitted); see also Armour v. City of Indianapolis, ___ U.S. ___, 132 S. Ct. 2073, 2079-80, 182 L. Ed. 2d 998 (2012).
Here, one “plausible policy” goal, see Nordlinger, 505 U.S. at 11, for the imposition of the lien activation fee is to help clear the lien backlog by forcing lienholders to consider whether a lien claim is sufficiently meritorious to justify spending $100 to save it from dismissal. In turn, the California Legislature‘s decision to impose the activation fee on entities like plaintiffs, while exempting other entities, is rationally related to the goal of clearing the backlog because the Legislature might have rationally concluded that the non-exempt entities are primarily responsible for the backlog. In this regard, the Commission Report states that ten of the eleven top electronic lien filers are independent providers. Thus, the Legislature could have rationally found that independent service providers bore primary responsibility for the lien backlog, and therefore elected to focus on those entities in imposing the activation fee.
The Legislature‘s approach also is consistent with the principle that “the legislature must be allowed leeway to approach a perceived problem incrementally.” Beach Comm‘cns, 508 U.S. at 316; see also Silver v. Silver, 280 U.S. 117, 124, 50 S. Ct. 57, 74 L. Ed. 221 (1929) (stating that “[i]t is enough that the present statute strikes at the evil where it is felt and
Moreover, on rational basis review, the burden is on plaintiffs to negate “every conceivable basis” which might have supported the distinction between exempt and nonexempt entities. See Armour, 132 S. Ct. at 2080-81. The district court did not put plaintiffs to their burden of demonstrating a “likelihood” or “serious question” that they would be able to refute all rationales for this distinction and its relationship to the goal of clearing the backlog. See Winter v. Natural Res. Def. Council, 555 U.S. 7, 20 (2008); Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1134-35 (9th Cir. 2011). Rather, the district court rejected defendants’ argument that the activation fee was aimed at clearing the lien backlog, stating:
the backlog is the backlog, and if clearing it is your purpose, then you attempt to clear it. It makes little sense to clear only part of it. The court might also question the basis for the legislature‘s belief in its apparent conclusion that the exempted entities, in particular, are not major contributors to the backlog (and why other contributors who might also not be major contributors are not also exempted from the activation fee).
This reasoning runs contrary to Beach Communications and Silver because it denies the Legislature the leeway to tackle the lien backlog piecemeal, focusing first on a source of liens that it could have rationally viewed as the biggest contributor to the backlog. Also, the district court‘s skepticism of the notion that the exempted entities were not major contributors of the backlog ran afoul of the principle that “a legislative choice is not subject to courtroom fact-finding and may be based on rational speculation unsupported by evidence or empirical data.” See Beach Comm‘cns, 508 U.S. at 315; see also City of New Orleans v. Dukes, 427 U.S. 297, 303, 96 S. Ct. 2513, 49 L. Ed. 2d 511 (1976) (per curiam) (stating that “rational [legislative] distinctions may be made with substantially less than mathematical exactitude“).3
Finally, we are not persuaded by plaintiffs’ reliance on Lindsey v. Normet, 405 U.S. 56, 77-80, 92 S. Ct. 862, 31 L. Ed. 2d 36 (1972). In Lindsey, an Oregon statute required tenants wishing to appeal an order of eviction to file “an undertaking with two sureties for the payment of twice the rental value of the premises.” Id. at 75-76. This amount would be forfeited by the tenant if the appeal was unsuccessful.
In sum, we conclude that the district court abused its discretion in finding that a “serious question” exists as to the merits of plaintiffs’ Equal Protection claim. In the absence of a “serious question” going to the merits of this claim, the preliminary injunction must be vacated. See Alliance for the Wild Rockies, 632 F.3d at 1134-35.
2. Motion to Dismiss
In addition to challenging the preliminary injunction, defendants seek reversal of the district court‘s denial of their motion to dismiss plaintiffs’ Equal Protection claim because it is “inextricably intertwined” with the resolution of the court‘s ruling on the preliminary injunction.
Denial of a motion under
“Although the standards for a motion for preliminary injunctive relief and dismissal under
CONCLUSION
The district court properly dismissed plaintiffs’ Takings and Due Process claims. We likewise conclude dismissal without leave to amend is proper because “it is clear, upon de novo review, that the [claims] could not be saved by ... amendment.” Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1296 (9th Cir. 1998). However, because the district court abused its discretion in concluding that “serious questions” exist as to the merits of plaintiffs’ Equal Protection claim, we vacate the preliminary injunction. We also reverse the district court‘s denial of defendants’ motion to dismiss the Equal Protection claim because our ruling on the preliminary injunction necessarily resolves the motion to dismiss.
AFFIRMED in part, VACATED in part, and REVERSED in part.
Costs are awarded to defendants.
JACQUELINE H. NGUYEN
UNITED STATES CIRCUIT JUDGE