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Toomey v. State

United States District Court, D. Arizona

December 20, 2019

Russell B Toomey, Plaintiff,
v.
State of Arizona, Defendants.

          ORDER

          HONORABLE ROSEMARY MARQUEZ, UNITED STATES DISTRICT JUDGE

         Pending before the Court are Defendants State of Arizona, Gilbert Davidson, and Paul Shannon's (collectively, “State Defendants”) Motion to Dismiss (Doc. 24), Magistrate Judge Leslie A. Bowman's Report and Recommendation (“R&R”) on the Motion to Dismiss (Doc. 46), and the parties' Objections to the R&R (Docs. 49, 51, 52.)[1] The Court held oral argument on October 2, 2019, at which time it took under advisement the Motion, the R&R, and the Objections. (Doc. 65.) For the following reasons, the R&R will be adopted in part, modified in part, and rejected in part, and State Defendants' Motion to Dismiss will be denied. . . . . . . . .

         I. Background

         Plaintiff Dr. Russell B. Toomey is a transgendered male. (Doc. 1 at 12.) “He has a male gender identity, but the sex assigned to him at birth was female.” (Id.) Dr. Toomey has been living as a male since 2003 and has received medically necessary hormone therapy and chest reconstruction surgery as treatment for diagnosed gender dysphoria. (Doc. 1 at 12; Doc. 24 at 2.) Dr. Toomey is employed as an Associate Professor at the University of Arizona. (Doc. 1 at 4.) His health insurance (“the Plan”) is a self-funded plan provided by the State of Arizona. (Id. at 3, 10.) While the Plan provides coverage for most medically necessary care, including care related to transsexualism and gender dysphoria such as mental health counseling and hormone therapy, “gender reassignment surgery” is excluded from coverage. (Id. at 3, 10, 13; Doc. 24 at 3.)

         At the recommendation of his doctor, Dr. Toomey sought preauthorization for a total hysterectomy from his provider, Blue Cross Blue Shield of Arizona (“BCBSAZ”). (Doc. 24 at 3.) BCBSAZ refused to approve the procedure due to the Plan's exclusion of “gender reassignment surgery.” (Id. at 4.) Subsequently, Dr. Toomey filed an Equal Employment Opportunity Commission (“EEOC”) Charge against the Arizona Board of Regents (“ABOR”) alleging sex discrimination under Title VII. (Doc. 24-1.) Upon receiving a Notice of Right to Sue, he filed this lawsuit. (Doc. 39 at 15.) Plaintiff seeks declaratory relief, “including but not limited to a declaration that Defendants . . . violated Title VII and . . . the Equal Protection Clause, ” as well as permanent injunctive relief “requiring Defendants to remove the Plan's categorical exclusion of coverage for gender reassignment surgery and evaluate whether [Plaintiff's] . . . surgical care for gender dysphoria is ‘medically necessary' in accordance with the Plan's generally applicable standards and procedures.” (Doc. 1 at 22.)

         State Defendants filed the pending Motion to Dismiss on March 18, 2019. (Doc. 24.) State Defendants argue this action should be dismissed because: (1) Plaintiff failed to exhaust the Plan's internal appeals process before bringing suit; (2) Plaintiff fails to properly state a Title VII sex discrimination claim; (3) Plaintiff fails to properly state a Fourteenth Amendment Equal Protection claim; (4) sovereign immunity bars Plaintiff's claims against State Defendants; and (5) Plaintiff failed to exhaust his Title VII remedies because he failed to file an EEOC charge against the State of Arizona or the Arizona Department of Administration (“ADOA”) (Doc. 24; see also Doc. 41).

         On June 24, 2019, Magistrate Judge Bowman issued an R&R recommending that State Defendants' Motion to Dismiss be partially granted and partially denied. (Doc. 46.) The R&R rejects State Defendants' argument concerning failure to exhaust the Plan's internal appeals process, finding that the Plans' exhaustion provision was ambiguous and that it was unclear whether the parties intended the appeals process to apply to Title VII and Equal Protection challenges. (Id. at 5.) The R&R recommends dismissing Plaintiff's Title VII claim as non-viable and therefore does not reach the issue of administrative exhaustion with respect to the Title VII claim. (Id. at 5-8, 11.) The R&R recommends denying State Defendants' Motion to Dismiss with respect to Plaintiff's Equal Protection claim on the grounds that Plaintiff has “alleged facts that, if true, could justify a heightened level of scrutiny” under the Equal Protection Clause. (Id. at 9.) With respect to sovereign immunity, the R&R finds that this case “falls comfortably within the Ex Parte Young exception.” (Id. at 10.)

         All parties filed Objections (Docs. 49; 51; 52) and Plaintiff and State Defendants filed Responses (Docs. 56; 57; 60). Defendants Arizona Board of Regents, Ron Shoopman, Larry Penley, Ram Krishan, Bill Ridenour, Lyndel Manon, Karrin Taylor Robson, Jay Heiler, and Fred DuVal object to the R&R only “to the extent that the dismissal of the Title VII claim does not apply to all parties.” (Doc. 51.) State Defendants object to the R&R's findings and recommendations regarding Plaintiff's Equal Protection claim, exhaustion of the Plan's internal appeals process, and sovereign immunity. (Doc. 52.) Plaintiff objects to the R&R's findings and recommendations regarding his Title VII claim. (Doc. 49.)

         On October 22, 2019, Judge Bowman denied State Defendants' Motion to Stay Proceedings Pending U.S. Supreme Court Decision in R.G. & G.R. Harris Funeral Homes v. EEOC, 2019 WL 1756679 (2019). (Docs. 41, 66.)

         II. Standard of Review

         A. Review of Report and Recommendation

         A district judge “may accept, reject, or modify, in whole or in part, the findings or recommendations” made by a magistrate judge. 28 U.S.C. § 636(b)(1). The district judge must “make a de novo determination of those portions” of the magistrate judge's “report or specified proposed findings or recommendations to which objection is made.” Id.

         B. Motion to Dismiss

         Federal Rule of Civil Procedure 12(b)(6) permits a defendant to file a motion to dismiss for failure “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A dismissal under Rule 12(b)(6) “may be based on either a lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” Johnson v. Riverside Healthare Sys., LP, 534 F.3d 1116, 1121 (9th Cir. 2008) (internal quotation omitted). To survive a Rule 12(b)(6) motion, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court evaluating a motion to dismiss must view the complaint “in the light most favorable to the plaintiff.” Abramson v. Brownstein, 897 F.2d 389, 391 (9th Cir. 1990). All well-pleaded factual allegations of the complaint must be accepted as true; however, legal conclusions and other conclusory statements are not entitled to a presumption of truth. Iqbal, 556 U.S. at 678-79, 681.

         Federal Rule of Civil Procedure 12(b)(1) permits dismissal of a claim when the Court lacks subject-matter jurisdiction over the claims presented. Fed.R.Civ.P. 12(b)(1). “[W]hen a federal court concludes that it lacks subject-matter jurisdiction, [it] must dismiss the complaint in its entirety.” Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006). A failure to exhaust administrative remedies bars federal subject-matter jurisdiction “where the exhaustion statute explicitly limits the grant of subject matter jurisdiction and is an integral part of the statute granting jurisdiction.” McBride Cotton & Cattle Corp. v. Veneman, 290 F.3d 973, 979 (9th Cir. 2002).

         III. Discussion

         A. Administrative Exhaustion

         Regulations implementing the Public Health Services Act require health insurance plans to provide internal processes for “full and fair review” of adverse benefits decisions. See 45 C.F.R. § 147.136(b); 29 C.F.R. § 2560.503-1(h). These requirements apply both to those health plans subject to the Employee Retirement Income Security Act (“ERISA”) and those not subject to ERISA. Although ERISA does not explicitly require exhaustion of administrative remedies, federal courts have held that “an ERISA plaintiff claiming a denial of benefits must avail himself or herself of a plan's own internal review procedures before bringing suit in federal court.” Vaught v. Scottsdale Healthcare Corp. Health Plan, 546 F.3d 620, 626 (9th Cir. 2008) (internal quotation omitted); see also Amato v. ...


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