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Unity Healthcare, Inc. v. County of Hennepin

United States District Court, D. Minnesota

December 2, 2014

Unity Healthcare, Inc., et al., Plaintiffs,
County of Hennepin, et al., Defendants.


JOAN N. ERICKSEN, District Judge.

This case was brought by two corporations, and the corporations' African-American owner, that provide housing and medical services for elderly and disabled adults. The named Defendants provide case management services to elderly and disabled adults who receive federal and state waiver benefits for services administered in community settings. Plaintiffs allege in their Second Amended Complaint that Defendants discriminated against them in violation of several federal anti-discrimination laws and deprived them of their constitutional substantive and procedural due process rights. Plaintiffs also bring state anti-discrimination, defamation, and tortious interference claims.

A joint motion to dismiss the Second Amended Complaint pursuant to Rule 12(b)(6) was filed by Defendants Meridian Services, Inc. ("Meridian"), Lucy Stewart, People Incorporated ("People"), Angela Reid, Carrie Davies, Axis Healthcare, LLC ("Axis"), and Mary Blegen.[1] Meridian and Stewart have also filed a separate motion that seeks dismissal and reasonable costs and attorney fees, pursuant to Rule 12(b)(1), Rule 12(b)(6), and Minn. Stat. §§ 554.01 et seq and 626.557.[2]

For the reasons set forth below, the joint motion to dismiss is granted in part and denied in part. The portion of Meridian and Stewart's separate motion seeking dismissal pursuant to Minn. Stat. § 626.557 is denied, and the portion seeking dismissal and costs and attorney fees pursuant to Minn. Stat. § 554.01 et seq is referred to Magistrate Judge Jeffrey J. Keyes for a report and recommendation.


Minnesota participates in a federal-reimbursement program created by Medicaid that assists certain qualified individuals in obtaining community- and home-based healthcare. The program, known generally as the "waiver program, " was designed to help disabled and elderly individuals seek treatment options that are integrated with their community and avoid institutionalized care. The Minnesota Department of Health ("MDH") licenses treatment providers in Minnesota and monitors their compliance with regulations that govern the waiver program.

Plaintiffs Unity Healthcare, Inc. ("Unity") and Dr. Thomas H. Johnson Housing With Services, Inc. ("HWS") are both Minnesota corporations owned by Plaintiff Beth Balenger, who is an African-American woman. Unity provides healthcare services to its clients, some of whom participate in the federal waiver program. HWS provides housing to these clients. Unity operates under home care licenses issued by MDH. In addition, Unity and HWS had a contract with Defendant Hennepin County known as the "Provider Agreement, " which governed the amounts Unity and HWS could charge their clients and the standards they had to follow. Under the terms of the Provider Agreement, Hennepin County could cancel the agreement and withhold payment to Unity and HWS, demand that Unity and HWS cease providing services to eligible waiver recipients, discontinue referrals of recipients to Unity and HWS, and remove recipients from Unity and HWS.

Defendants Meridian, People, and Axis provide case management services to individuals participating in the waiver program. During the relevant times, Defendant Lucy Stewart was a case manager at Meridian, Defendants Carrie Davies and Angela Reid were case managers at People, and Defendant Mary Blegen was a case manager at Axis. Through a contract with Hennepin County, these Defendants provided case management services to some of Unity's waiver clients. They did not contract directly with Unity, HWS, or Balenger.

In the spring of 2011, MDH conducted surveys of Unity's operations. In August 2011, MDH formally notified Unity of alleged violations and issued correction orders. On October 11, 2011, MDH issued Unity a publicly available Notice of Noncompliance with Correction Orders and a Notice of Conditional License. The Notice of Noncompliance described multiple instances when Unity failed to provide adequate health care and services. Under the conditional license, Unity was barred from admitting new clients and Unity had to disclose to each of its existing clients that MDH had taken this action against Unity. MDH gave Unity until February 12, 2012 to comply with the correction orders. MDH lifted the conditional license in the summer of 2013.

In December 2011, after MDH placed Unity on a conditional license, Hennepin County announced that it would not renew its Provider Agreement with Unity and HWS. In January 2012, Hennepin County reached an agreement with Unity to extend its contract for three months, subject to weekly monitoring by the County. The contract was eventually extended through 2013.

Plaintiffs allege that, after MDH placed Unity on a conditional license, a Hennepin County case management supervisor instructed case managers, including the moving Defendants, to relocate Unity's clients to other providers. Plaintiffs allege that the moving Defendants violated several federal and state laws in their attempts to relocate the clients.


When ruling on a motion to dismiss, a court must accept the facts alleged in the complaint as true and grant all reasonable inferences in favor of the plaintiff. Crooks v. Lynch, 557 F.3d 846, 848 (8th Cir. 2009). Although a complaint need not contain detailed factual allegations, "[a] pleading that offers labels and conclusions' or a formulaic recitation of the elements of a cause of action will not do.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Id. (quoting Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.


Counts I to VI of the complaint are federal anti-discrimination and federal due process claims. Counts VII to XI are state anti-discrimination, defamation, and tortious interference claims. This Court will first discuss the federal law claims.

I. Federal Law Claims

A. 42 U.S.C. § 1981

Plaintiffs allege a violation of 42 U.S.C. § 1981, which provides all persons "the same right... to make and enforce contracts... and to the full and equal benefit of all laws... as is enjoyed by white citizens." Id. at 1981(a). Plaintiffs seek to enforce section 1981's "full and equal benefit" clause against the moving Defendants. Second Amended Complaint ¶ 62. A claim under the "full and equal benefit" clause can only be asserted against state actors, Youngblood v. Hy-Vee Food Stores Inc., 266 F.3d 851, 855 (8th Cir. 2001), cert. denied, 535 U.S. 1017 (2002), and a section 1981 claim against a state actor must be asserted through section 1983. Jett v. Dallas Indep. Sch. Dist., 491 U.S. 701, 735 (1989); Jones v. McNeese, 675 F.3d 1158, 1160 n.1 (8th Cir. 2012) (" When raised directly against a state actor, a § 1981 claim must be brought under § 1983."). Therefore, if the moving Defendants are not state actors, the section 1981 claim based on the "full and equal benefit" clause should be dismissed. If they are state actors, then the claim of race discrimination should be made under section 1983. Either way, the section 1981 claim must be dismissed. The allegations of the denial of equal rights under the law will be construed to be part of Plaintiffs' section 1983 claim for race discrimination.

B. 42 U.S.C. § 1983-Racial Discrimination

Plaintiffs allege that Defendants' actions are impermissible racial discrimination in violation of 42 U.S.C. § 1983, which prohibits any person acting under color of law from depriving others of their constitutional rights. Id. To state a section 1983 race discrimination claim, a plaintiff may allege direct evidence of racial discrimination by state actors. See U.S. v. Frazier, 408 F.3d 1102, 1108 (8th Cir. 2005), cert. denied, 546 U.S. 1151 (2006). A plaintiff may also allege that state actors treated them differently than similarly situated individuals. See Klinger v. Dep't of Corr., 31 F.3d 727, 731 (8th Cir. 1994), cert. denied, 513 U.S. 1185 (1995). Under a similarly situated analysis, a plaintiff's comparators must be "similarly situated in all relevant respects." Woods v. Ark. Dep't. of Correction, 329 Fed.Appx. 688, 692 (8th Cir. 2009).

As a threshold matter, it must be determined whether Unity and HWS have standing to bring a section 1983 claim for racial discrimination, even though they are corporations and not individuals with a racial identity. Because Plaintiff Balenger does not bring the section 1983 claim, Unity and HWS must have standing for the claim to survive. Second Amended Complaint at p. 26 (Count II asserted by Plaintiffs Unity and HWS). The Eighth Circuit has not decided whether a corporation can have a racial identity for the purposes of alleging racial discrimination. See Oti Kaga, Inc. v. S.D. Hous. Dev. Auth., 342 F.3d 871, 880 (8th Cir. 2003).[3] However, several circuits that have considered the issue have held that corporations can have standing to assert a racial discrimination claim. See Carnell Constr. Corp. v. Danville Redevelopment & Hous. Auth., 745 F.3d 703, 714-15 (4th Cir. 2014), and cases cited therein. These circuit courts have taken two different approaches to establishing standing. The Fourth Circuit and Ninth Circuit have held that "a minority-owned corporation may establish an imputed racial identity' for purposes of demonstrating standing to bring a claim of race discrimination under federal law." Carnell Constr. Corp., 745 F.3d at 715 (citing Thinknet Ink Info. Res., Inc. v. Sun Microsystems, Inc., 368 F.3d 1053, 1059 (9th Cir. 2004)). The D.C. Circuit has held that, regardless of the owner's race, a corporation can assert a racial discrimination claim if it suffered an injury because of discriminatory actions that fall within the zone of interests protected by the relevant statute. Gersman v. Group Health Ass'n, Inc., 931 F.2d 1565, 1569 (D.C. Cir. 1991), vacated on other grounds, 502 U.S. 1068 (1992). For present purposes, the Court will assume that Unity and HWS have standing to assert the section 1983 race discrimination claim.

In addition to establishing standing, the corporate Plaintiffs must plead facts that plausibly suggest that the moving Defendants are state actors. "[S]tate action may be found if, though only if, there is such a close nexus between the State and the challenged action that seemingly private behavior may be fairly treated as that of the State itself." Brentwood Acad. v. Tenn. Secondary Sch. Athletic Ass'n, 531 U.S. 288, 295 (2001) (citing Jackson v. Metro. Edison Co., 419 U.S. 345, 351 (1974) (internal quotation marks omitted). To be a state actor, it is not enough that an actor have a contract with the state. See Rendell-Baker v. Kohn, 457 U.S. 830, 832-33, 840-42 (1982) (holding that a private school was not a state actor despite its operation under a contract with the state and receipt of state funds). However, both the Supreme Court and the Eighth Circuit have found state action when a private actor had a contract with the state and additional factors strengthened the nexus between the state and the challenged action. See West v. Atkins, 487 U.S. 42, 54 (1988) (holding that a physician under contract with the state to provide medical services to inmates in a state prison acted under color of law within the meaning of section 1983); Smith v. Insley's Inc., 499 F.3d 875, 880-81 (8th Cir. 2007) (holding that a towing company acted under color of state law when it had a contract with the state and towed a vehicle at the request of the sheriff's office as part of an official criminal investigation).

Plaintiffs allege that the moving Defendants had a contract with the county to provide case management services and that the county's case management supervisor, Robin Rohr, issued instructions to them. In addition, Plaintiff alleges that the case management services for disabled and elderly adults provided by the moving Defendants "is a function reserved for the state" and "non-state actors have no legal authority to provide" them. Second Amended Complaint ¶ 4. Plaintiffs specifically allege that the moving Defendants "are state actors when they provide case manager services in the place and stead of Hennepin County." Id. at ¶¶ 7-13. Drawing all inferences in favor of the Plaintiffs, it is plausible-though barely so-to infer from these allegations and facts that the moving Defendants acted under color of state law.

The next issue is whether Plaintiffs have alleged enough facts to raise an inference of race discrimination. Plaintiffs' complaint contains no allegations that Defendants ever made racially biased statements or ever discussed race in any context. Moreover, the complaint does not allege that Defendants' attempts to remove their clients from Unity are direct evidence of discrimination. The complaint appears to adopt the theory that discrimination can be shown because Defendants treated similarly situated white-owned competitors more favorably. The portion of the complaint relevant to the similarly situated analysis reads:

Caucasian owned facilities, including those owned and/or operated by Pinnacle and defendants Meridian, Axis, and People, Inc., are not held to the same standards as Plaintiffs. Indeed, Hennepin County and Rohr pushed for Pinnacle taking over Unity's operations knowing that (1) Pinnacle is a competitor of Unity; and (2) Pinnacle has allegedly had its own licensing and safety issues. Further, although it strongly urged MDH to place Pinnacle on Unity's property in October 2011 for the purpose of servicing Unity's clients, Hennepin County was also aware that Pinnacle did not have the resources or authority to care for Unity's clients. In addition, although many Caucasian owned entities within Hennepin County have received citations by MDH related to their operations, on information and belief, Hennepin County and its representatives, including the other Defendants, did not take such destructive action against those entities. In fact, some Caucasian owed [sic] facilities were found to be repeatedly non-complaint with the home health care rules for periods of 1-3 years. Yet ...

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