E.D.Ky.: State MR facility operator not a state actor

A Kentucky federal district court held that a private contractor operating a state-owned and –funded institution for the mentally retarded is not a state actor. Cox by and through Dermitt v. Liberty Healthcare Corp., 2008 WL 113993 (No. 3:07-CV-49-KKC); Brown by and through Thomas v. Fletcher, 2008 WL 113986 (No. 3:07-CV-11-KKC) (E.D.Ky. Jan. 7, 2008) .

     Nevertheless, the court refused to dismiss on the pleadings a claim against the contractor under the Rehabilitation Act. 

 

            Both cases were brought by residents of the Oakwood Community Center against Liberty Healthcare – which operates the facilities under contract with Kentucky – and several of its employees. Both cases alleged severe physical abuse by personnel at Oakwood, and alleged claims under the Due Process Clause, the Fourth Amendment, the Rehabilitation Act, 29 U.S.C. § 794, and the Medicaid Act, 42 U.S.C. § 1396 et seq.

 

            The court dismissed the constitutional and Medicaid claims on the basis that there was no state action – a requirement for constitutional and statutory claims under 42 U.S.C. § 1983. The court discussed the issue at length, considering three separate state-action tests under Sixth Circuit precedent: whether Liberty was performing a traditional public function; whether the allegedly illegal conduct was compelled by the state; and whether there was otherwise a close nexus between the state and Liberty’s challenged conduct.

 

            Under the first test, the court relied on circuit precedent that neither involuntary commitment nor the provision of mental health services is a traditional and exclusive public function. The court stated that in light of these precedents it could not “find that the housing, care and treatment of involuntarily committed individuals is a function traditionally and exclusively reserved to the state.”

 

            The court treated the second test in a cursory fashion, noting the absence of any allegation “that the Defendants were coerced or encouraged by the state” to engage in abuse against the plaintiffs.

 

            As to the “nexus” test, the court acknowledged that this test is very fact-sensitive and that “there are few very clear guiding principles” in its application, but emphasized “the restrictive approach of the Sixth Circuit.” The court cited a number of circuit precedents involving private entities operating state-owned and –funded facilities and finding no state action. The court emphasized that the most important factor under this test is whether “the state had any influence or role in the specific challenged actions themselves,” and since there were no allegations to that effect, held that the test was not met.

 

             The court took pains to distinguish West v. Atkins, 487 U.S. 42 (1988) (prison physician under contract with state was state actor for Eighth Amendment claim), following circuit precedent characterizing this case as merely an application of the public-function test, rather than representing any different and more malleable state action test.

 

            Because it found no state action, the court assumed but did not decide that the asserted sections of the Medicaid Act, 42 U.S.C. §§ 1396d(d)(1), 1396d(d)(2) and 1396a(a)(31), provide a private right of action under § 1983. However, the court dismissed the Medicaid Act claims.  The court stated: “Since the Defendants are not state actors, § 1983 cannot be utilized for relief against any harms they may have committed.”

 

            The court refused to dismiss the plaintiffs’ claims under the Rehabilitation Act, since they had alleged disability discrimination and it was undisputed that Oakwood was a federally-funded state facility covered by the Act. The court sidelined Liberty’s argument that the plaintiffs were “actually asserting discrimination based on the degree of [their] disability versus that of other residents” rather than discrimination because of disability itself, reserving for consideration after discovery. The court did, however, dismiss Rehabilitation Act claims against individual Liberty employees, as it was not alleged that the individuals “were in a position to accept or reject federal funds,” as required by precedent.

 

            Finally, the court rejected diversity jurisdiction over several state law claims, but accepted supplemental jurisdiction because these claims were alleged to arise out of the same acts as the plaintiffs’ Rehabilitation Act claims.