                                                                           FILED
                           NOT FOR PUBLICATION                              JAN 09 2014

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U.S. COURT OF APPEALS



                            FOR THE NINTH CIRCUIT


SANTA ROSA MEMORIAL HOSPITAL,                    No. 09-17633
a California corporation; ST. HELENA
HOSPITAL, a California corporation;              D.C. No. 3:08-cv-05173-SC
QUEEN OF THE VALLEY MEDICAL
CENTER, a California corporation;
CENTRAL VALLEY GENERAL                           MEMORANDUM*
HOSPITAL, a California corporation;
SAN JOAQUIN COMMUNITY
HOSPITAL, a California corporation;
SAN ANTONIO COMMUNITY
HOSPITAL, a California corporation;
CHILDREN’S HOSPITAL AT MISSION,
a California corporation, dba as CHOC at
Mission; SADDLEBACK MEMORIAL
MEDICAL CENTER, a California
corporation; ORANGE COAST
MEMORIAL MEDICAL CENTER, a
California corporation; ANAHEIM
MEMORIAL MEDICAL CENTER, a
California corporation; HOAG
MEMORIAL HOSP., a California
corporation; HEART HOSPITAL OF BK,
LLC, a North Carolina limited liability
company, dba Bakersfield Heart Hospital;
JOHN MUIR HEALTH, a California
corporation, dba John Muir Medical
Center-Concord Campus and as John Muir
Medical Center-Walnut Creek Campus;


        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
SRM ALLIANCE HOSPITAL
SERVICES, a California corporation dba
Petuluma Valley Hospital; LANCASTER
HOSPITAL CORPORATION, a
California corporation, dba Lancaster
Community Hospital; FOUNTAIN
VALLEY REGIONAL HOSPITAL AND
MEDICAL CENTER, a California
corporation; MISSION HOSPITAL
REGIONAL MEDICAL CENTER, a
California corporation, dba Mission
Hospital,

              Plaintiffs - Appellees,

  v.

Toby Douglas, Director of the California
Department of Health Care Services,

              Defendant - Appellant.


                On Remand from the United States Supreme Court

Before: HUG, SILVERMAN, and McKEOWN, Circuit Judges.**

       The Director of the California Department of Health Care Services

(“DHCS”) appeals the district court’s order granting Plaintiffs, which are various

hospitals providing Medi-Cal services, a preliminary injunction prohibiting DHCS




        ** On August 12, 2013, Judge Silverman was drawn to replace the late
Judge Pamela Rymer.

                                         2
from implementing Medicaid reimbursement rate reductions. The district court

held that Plaintiffs had demonstrated a likelihood of succeeding on the merits of

their claim that the rate reductions violate 42 U.S.C. § 1396a(a)(30)(A), reasoning

that the statute required DHCS to consider cost studies and specified factors before

making the rate changes and that DHCS had not complied with these procedural

requirements. We initially affirmed. See Santa Rosa Mem’l Hospital v. Maxwell-

Jolly, 380 F. App’x 656 (9th Cir. 2010). However, there have been a number of

developments since this appeal initially was before us. The rate reductions have

been repealed, the Centers for Medicare and Medicaid Services (“CMS”) approved

rate reductions for a particular period prior to the effective repeal date, and, in

Douglas v. Indep. Living Ctr. of S. Cal., Inc., 132 S. Ct. 1204 (2012), the Supreme

Court vacated our previous memorandum disposition and remanded the case to us

to consider what impact CMS’s approval of the rate reductions has on this case. In

addition, we recently recognized in Managed Pharmacy Care v. Sebelius, 716 F.3d

1235, 1249-50 (9th Cir. 2013), that § 30(A) does not require a state to employ any

particular methodology, such as cost studies, when deciding to change Medicaid




                                            3
reimbursement rates. We now reverse the district court’s order, vacate the

preliminary injunction, and remand.1

      As an initial matter, because the preliminary injunction continues to prevent

DHCS from implementing rate cuts for the period between January 1, 2011 and

April 12, 2011, we deny Plaintiffs’ June 26, 2013 motion to dismiss this appeal as

moot. See In re Thorpe Insulation Co., 677 F.3d 869, 880 (9th Cir. 2012); see also

Firefighters Local Union No. 1784 v. Stotts, 467 U.S. 561, 571-72 (1984); Dexter

v. Kirschner, 984 F.2d 979, 981 n.2 (9th Cir. 1992).

      We also deny Plaintiffs’ request that we dismiss the entire case without

prejudice. In their supplemental brief, Plaintiffs suggest that the § 30(A) issue no

longer should be resolved in this Supremacy Clause case, but instead should now

be litigated in an action under the Administrative Procedure Act action, which is an

action in federal court. However, Plaintiffs then contend that their Supremacy

Clause action is moot, and they ask us to vacate the preliminary injunction and

dismiss the entire case without prejudice so that they can pursue their § 30(A)

claim in state court. If an action becomes moot pending appeal, we have the

authority to consider mootness in the first instance and to order the district court to


      1
        We also grant DHCS’s October 9, 2013 Request for Judicial Notice and
Plaintiffs’ October 22, 2013 Request for Judicial Notice.

                                           4
dismiss an action. United States v. Munsingwear, Inc., 340 U.S. 36, 39 (1950);

Funbus Sys., Inc. v. Cal. Pub. Utils. Comm’n, 801 F.2d 1120, 1131-32 (9th Cir.

1986). However, this case has not become moot pending appeal. There remains a

live controversy concerning whether DHCS may implement the rate cuts for the

disputed 2011 period.2

      Plaintiffs direct us to no authority permitting us to decide, in the first

instance, whether to grant an appellee’s request for voluntary dismissal of an action

without prejudice while the appeal of a preliminary injunction is before us.

Moreover, even if we had such authority, we would decline to grant Plaintiffs’

request because it appears that Plaintiffs seek the dismissal in an attempt to deny

DHCS a sovereign immunity defense, to evade a federal forum for the litigation of

federal issues after final action by a federal agency, and to avoid adverse rulings by

federal courts interpreting federal law. See Westlands Water Dist. v. United States,




      2
       Plaintiffs contend that the case will be moot due to DHCS’s sovereign
immunity defense to Plaintiffs’ request for retrospective relief. However, Plaintiffs
are confusing the merits of their case with mootness. Contrary to Plaintiffs’
contentions, even assuming that sovereign immunity ultimately will provide DHCS
with a complete defense on remand, the case is not moot. See Chafin v. Chafin,
133 S. Ct. 1017, 1023-25 (2013) (explaining that the prospects for success in an
action are “not pertinent to the mootness inquiry”); see also Powell v. McCormack,
395 U.S. 486, 500 (1969).

                                           5
100 F.3d 94, 97 (9th Cir. 1996); Kern Oil & Refining Co. v. Tenneco Oil Co., 792

F.2d 1380, 1389-90 (9th Cir. 1986).

      We now proceed to the merits of the appeal. We review the grant of a

preliminary injunction for abuse of discretion, and a district court necessarily

abuses its discretion when it applies an incorrect legal standard with regard to the

underlying issues in the case. McCormack v. Hiedeman, 694 F.3d 1004, 1010 (9th

Cir. 2012). We therefore review the district court’s legal rulings de novo. Indep.

Living Ctr. of S. Cal., Inc. v. Shewry, 543 F.3d 1050, 1055 (9th Cir. 2008). In light

of Managed Pharmacy Care, the district court abused its discretion when it

erroneously interpreted § 30(A) to include procedural requirements such as cost

studies. See Managed Pharmacy Care, 716 F.3d at 1249-50. Because the briefing

and record are inadequate, we do not decide what impact CMS approval has on the

propriety of granting Plaintiffs a preliminary injunction. Instead, we remand to the

district court. Cf. Flexible Lifeline Sys., Inc. v. Precision Lift, Inc., 654 F.3d 989,

1000 (9th Cir. 2011) (per curiam); Diouf v. Mukasey, 542 F.3d 1222, 1234-35 (9th

Cir. 2008).

      We REVERSE the district court’s order granting Plaintiffs’ motion for a

preliminary injunction, VACATE the preliminary injunction, and REMAND for

further proceedings consistent with this disposition.

                                            6
