RICHARD K. LOVELL v. SUSAN CHANDLER, IN HER OFFICIAL CAPACITY AS THE DIRECTOR OF THE DEPARTMENT OF HUMAN SERVICES OF THE STATE OF HAWAII STATE OF HAWAII, DOUGLAS D. DELMENDO, AN INCAPACITATED PERSON, BY HIS APPOINTED GUARDIAN ZOSIMA ORILLO DELMENDO v. SUSAN CHANDLER, IN HER OFFICIAL CAPACITY AS THE DIRECTOR OF THE DEPARTMENT OF HUMAN SERVICES OF THE STATE OF HAWAII STATE OF HAWAII

Citations: 303 F.3d 1039; 2002 Cal. Daily Op. Serv. 8110; 2002 Daily Journal DAR 10203; 13 Am. Disabilities Cas. (BNA) 918; 2002 U.S. App. LEXIS 18286Docket: 99-15930

Court: Court of Appeals for the Ninth Circuit; September 5, 2002; Federal Appellate Court

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In the case of Richard K. Lovell and Douglas D. Delmendo v. Susan Chandler, Director of the Department of Human Services of the State of Hawaii, the United States Court of Appeals for the Ninth Circuit reviewed a partial summary judgment granted to the plaintiffs in a class action lawsuit. The district court found the State of Hawaii liable for unlawful discrimination under Title II of the Americans with Disabilities Act (ADA) and § 504 of the Rehabilitation Act (RA) for excluding certain disabled individuals from health insurance programs. The class included disabled individuals who would otherwise qualify for Hawaii's QUEST medical coverage if not for their disabilities. 

The court certified the class retroactively for general liability and prospectively for punitive damages, but did not certify it for determining individual compensatory damages, directing class members to file individual suits instead. Lovell and Delmendo's individual suits resulted in awards of compensatory damages, which are now consolidated for appeal. 

The State of Hawaii challenges the jurisdiction of the appeal due to the ongoing nature of the class action concerning punitive damages and contests the findings of discrimination, the entitlement to compensatory damages, and the awarded litigation expenses. The Ninth Circuit affirmed its jurisdiction under 28 U.S.C. § 1291 and upheld the district court's determinations on the merits. Prior to August 1, 1994, Hawaii’s Medicaid program provided medical benefits to low-income residents, including the aged, blind, and disabled, though eligibility was contingent upon income and asset limits.

The State recognized that existing income and asset tests left a significant portion of the poor, particularly the working poor, uninsured. To address this, it extended medical and dental benefits to a 'gap group' earning up to 300% of the federal poverty level through the State Health Insurance Program (SHIP), which did not impose an asset test. SHIP included participants who were aged, blind, or disabled but could not meet the stricter criteria of the Medicaid program.

On August 1, 1994, the State introduced the QUEST program, shifting from a fee-for-service (FFS) model to a cost-effective health maintenance organization (HMO) based plan. Eligible recipients included those on General Assistance (GA), Aid to Families with Dependent Children (AFDC), and SHIP participants, provided their income remained at or below 300% of the federal poverty level. However, individuals who were aged, blind, or disabled (ABD) were categorically excluded from QUEST due to concerns about high costs and unpredictability affecting insurer participation.

The program's design led to the elimination of prior FFS programs, although ABD individuals qualifying under earlier Medicaid guidelines retained their benefits. Nonetheless, many blind and disabled former SHIP members were left without coverage under QUEST. The State justified the exclusion of ABD individuals by citing the lack of actuarial data and the anticipated high costs associated with their special needs, asserting that these concerns were critical for the program’s implementation.

On March 30, 1996, the State amended QUEST, maintaining the exclusion of ABD individuals and introducing an asset test for all participants, which further excluded non-ABD former SHIP members. The compliance of QUEST with federal law was not in question; the focus was on the program as it existed from August 1, 1994, to March 30, 1996.

Procedurally, on November 2, 1995, Shea Burns-Vidlak, a disabled minor, and George Cohn, a blind adult, filed a class action lawsuit against the Director of the Hawaii Department of Human Services and later the State of Hawaii, claiming that the exclusion of persons with disabilities from QUEST violated the Americans with Disabilities Act (ADA) and Section 504 of the Rehabilitation Act (RA). In response, the State argued that the plaintiffs were not discriminated against solely based on disability but also on financial criteria. It also claimed a waiver from HCFA, asserting that QUEST was an experimental program, and contended that the exclusion was necessary for the program's financial viability.

On April 12, 1996, the district court granted partial summary judgment to the plaintiffs, determining that the State violated the Americans with Disabilities Act (ADA) and the Rehabilitation Act (RA) by excluding qualified disabled individuals from the QUEST program between August 1, 1994, and March 30, 1996. While the court ruled that the plaintiffs were entitled to recover compensatory damages, it did not specify individual amounts. Following this, on May 15, 1996, plaintiffs amended their complaint to seek punitive damages. On June 27, 1996, the court partially certified a class for the previously decided compensatory damages liability and the undecided punitive damages liability but required individual actions for specific compensatory damage amounts.

On December 19, 1997, the district court clarified its April ruling, affirming that the State's actions constituted intentional discrimination justifying compensatory damages, which would include both general and special damages assessed in individual actions. Over 300 class members subsequently filed for compensatory damages in the Hawaii district court. In July 1998, Lovell and Delmendo received awards of $10,192.22 and $1,053.21, respectively, along with attorney fees and costs. The trial court certified these rulings as final judgments under Federal Rule of Civil Procedure 54(b). The State has appealed these judgments, claiming caution regarding appellate jurisdiction under 28 U.S.C. § 1291, which permits appeals of final decisions that end litigation on the merits.

Under Federal Rule of Civil Procedure 54(b), a district court can issue a final judgment on one or more claims if it determines there is no just reason for delay. The State challenges the finality of the judgments in this case, arguing that the unresolved punitive damages issue in the Burns-Vidlak class action affects the appealability of compensatory damages awarded to Lovell and Delmendo. The State cites Arizona State Carpenters Pension Trust Fund v. Miller, where it was determined that a punitive damages count was not separate from other claims and thus not final. The State contends that because punitive damages are still pending in Burns-Vidlak, the judgments for compensatory damages are similarly not final.

However, the appeals in the current case arise from individual lawsuits where only compensatory damages were sought, and there were no punitive damages claims made by Lovell and Delmendo. The trial court affirmed that Rule 54(b) certification was unnecessary since there were no multiple claims requiring it. The court noted that issues regarding punitive damages for the Burns-Vidlak class remain unresolved and are on appeal in a separate case, which does not affect the finality of the compensatory damages awarded in the individual actions. The claims for compensatory and punitive damages are distinct and not "inextricably intertwined" as in Miller, leading to the conclusion that the trial court's compensatory damages ruling is final. The necessity to review the merits of the Burns-Vidlak judgment for context does not alter the finality of the individual judgments.

The court determined that it could affirm the judgment without directly referencing the Burns-Vidlak order, and this does not impact the appealability of the case. An appeal from a final judgment encompasses all prior non-final orders, including the partial summary judgment from Burns-Vidlak, which is critical for a thorough review of the related Lovell and Delmendo judgments. Denying appellate jurisdiction could disrupt judicial efficiency, especially given over 300 pending individual compensatory damages actions linked to the Burns-Vidlak class action. With the class action's only remaining issue being punitive damages, delaying appellate review would lead to unnecessary complications and delays.

The State contended that the individual actions were not final due to unresolved claims for injunctive or declaratory relief. However, Lovell and Delmendo argued that these claims were abandoned, supported by their pre-trial statements and the trial court's belief that all issues were resolved in its judgment. Abandoned claims do not affect the finality of a judgment if it is clear that the court intended to adjudicate all claims, as seen in relevant case law. The trial court’s characterization of the actions as seeking only damages further indicates that any equitable claims were indeed abandoned. Thus, the court concluded that Lovell and Delmendo’s requests for equitable relief do not hinder appellate jurisdiction regarding the final rulings on compensatory damages.

Additionally, the State claimed sovereign immunity under the Eleventh Amendment for the ADA and Rehabilitation Act claims, with such immunity issues subject to de novo review.

States are protected by the Eleventh Amendment through the principle of sovereign immunity, which prevents individuals from suing states without consent. Two exceptions to this immunity are relevant: Congress may abrogate it under Section Five of the Fourteenth Amendment, and states may waive their Eleventh Amendment defense. The State contends that neither exception applies, referencing the Supreme Court's decision in Board of Trustees of the University of Alabama v. Garrett, which ruled that Title II of the ADA does not abrogate state immunity due to Congress exceeding its authority. However, prior rulings from the Ninth Circuit (Clark and Dare) established that Title II validly abrogates immunity, a position reaffirmed in Hason v. Medical Board of California, which concluded that claims against the State under Title II of the ADA are permissible. Regarding claims under § 504 of the Rehabilitation Act (RA), the State argues that acceptance of federal RA funds does not waive its immunity. This argument is countered by Douglas v. California Department of Youth Authority, which confirmed that federal funding conditions can constitute a waiver of Eleventh Amendment immunity. The State's acceptance of such funds is undisputed.

Congress's conditioning of federal RA funds on a waiver of sovereign immunity does not exceed its Spending Clause powers nor violate the conditions outlined in South Dakota v. Dole. The arrangement meets Dole's 'relatedness' requirement and is not deemed unduly coercive, as Congress has a legitimate interest in preventing discriminatory use of federal funds and holding states accountable for funding conditions. The term 'program or activity' in section 504 is interpreted to apply only to the specific department or agency receiving federal funds, rather than all state activities. States can avoid relinquishing immunity by choosing not to accept federal funds. There is insufficient evidence of 'extraordinary circumstances' to suggest Congress has overstepped constitutional limits.

Consequently, the Eleventh Amendment does not obstruct Lovell and Delmendo's claims under § 504 or Title II of the ADA, making the state’s late assertion of the Eleventh Amendment defense irrelevant. The district court previously granted summary judgment in favor of the Burns-Vidlak class, finding the state unlawfully discriminated against qualified disabled individuals by excluding them from the QUEST program based on disability. This ruling was used to award damages in the individual actions of Lovell and Delmendo.

Both Title II of the ADA and § 504 of the RA prohibit discrimination based on disability, with the ADA specifically addressing public entities and the RA covering all federally funded programs. To prove a violation under Title II, a plaintiff must demonstrate they are a qualified individual with a disability, that they faced exclusion or discrimination concerning public entity services, and that such treatment was due to their disability.

To establish a violation of § 504 of the Rehabilitation Act (RA), a plaintiff must demonstrate four elements: (1) they are handicapped as defined by the RA; (2) they are qualified for the sought benefits or services; (3) they were denied these benefits solely due to their handicap; and (4) the program in question receives federal financial assistance. The district court found no material dispute regarding these elements and confirmed that Lovell and Delmendo, as part of a certified class, established prima facie cases of violations under both Title II of the Americans with Disabilities Act (ADA) and § 504 of the RA.

The court also addressed and rejected three defenses put forth by the State: (1) the claim that discrimination was based on financial criteria alongside disabilities; (2) the assertion that a waiver from the Health Care Financing Administration (HCFA) for the QUEST program exempted it from anti-discrimination laws; and (3) the 'necessity' exception in federal regulations that could absolve the State from liability. The State raised additional defenses, some previously unmentioned, but all were found meritless; thus, the court did not need to consider if the new arguments were waived due to prior proceedings.

The State contended that its Medicaid program should be viewed holistically to determine accessibility for disabled individuals. It argued that disabled individuals who qualified financially for the Fee-for-Service/Aged, Blind, and Disabled (FFS/ABD) program received benefits, implying that the true barrier was financial eligibility rather than a categorical exclusion from the QUEST program. However, the court maintained that plaintiffs’ claims specifically challenged the discriminatory denial of QUEST benefits based on disability.

Furthermore, the State argued that the existence of the FFS/ABD program post-QUEST implementation meant that disabled individuals had not been denied meaningful access to public benefits. Lovell and Delmendo disputed this standard but, assuming it were applicable, the court concluded that the State’s healthcare provisions still violated § 504 of the RA and Title II of the ADA.

The State asserts that the fee-for-services (FFS) delivery system offers disabled individuals equal and potentially superior medical care due to a wider choice of physicians. However, the State overlooks the reality faced by disabled individuals like Lovell and Delmendo, who, despite qualifying financially for the QUEST program, were excluded due to their disability and could not participate in the FFS program either. This selective treatment does not conform to the concept of 'meaningful access' as it discriminates against certain disabled individuals.

The State claims that including disabled persons in the QUEST program could fundamentally alter it, referencing the case Crowder v. Kitagawa, which highlights that modifications are required under the ADA unless they fundamentally alter the service. The State argues that there is a factual dispute regarding whether such inclusion would constitute a reasonable modification. However, previous rulings have established that the fundamental alteration test does not apply in cases of facial discrimination, as seen in Bay Area Addiction Research, Treatment, Inc. v. City of Antioch. The court concluded that the only way to avoid discrimination in a facially discriminatory law is to remove the discriminatory provisions, which would inherently alter the law. Thus, the State's defense based on fundamental alteration is rejected.

Moreover, the State contends that there are factual issues regarding whether the exclusion of disabled individuals from QUEST and the use of two separate delivery systems were necessary for the financial viability of the healthcare program. Under relevant regulations, public entities may provide different benefits only if necessary to ensure that individuals with disabilities receive services as effective as those provided to others.

The regulations prohibit the State from excluding disabled individuals from the QUEST program unless it offers them benefits that are as effective as those provided to others. For individuals like Lovell and Delmendo, the State's provision amounted to no benefit at all. The district court's ruling in Burns-Vidlak supports that the State cannot invoke a 'necessity' exception to avoid liability. 

The State argues that the ADA does not apply to experimental programs, citing the Supreme Court's decision in Albertson's, Inc. v. Kirkingburg. However, this case indicates that while an employer can deny an accommodation based on participation in an experimental program, it does not exempt such programs from ADA compliance. The court rejects the State's broad interpretation of Albertson's regarding the ADA's applicability to experimental programs.

In July 1993, the State received approval for QUEST from HCFA, which included waivers for certain Medicaid requirements but explicitly stated compliance with the ADA and the RA. The State's assertion that these waivers exempted it from ADA compliance is incorrect, as the waivers do not reference the ADA or the RA. Furthermore, even if DHHS could grant such exemptions, the State explicitly represented its commitment to ADA compliance during the waiver request.

Lastly, the State contends there is a factual dispute regarding Lovell and Delmendo's entitlement to compensatory damages, claiming that its exclusion of disabled individuals from QUEST was not intentional discrimination due to its "good faith" intentions.

Lovell and Delmendo are entitled to compensatory damages as a matter of law under Title II of the ADA and Section 504 of the Rehabilitation Act, with remedies aligned to those in Title VI of the Civil Rights Act. Compensatory damages under these laws require a demonstration of discriminatory intent, as established in Ferguson v. City of Phoenix. The "deliberate indifference" standard applies for such intent, necessitating knowledge of a likely harm to federally protected rights and a failure to act on that knowledge. This standard is met if the public entity is aware that an accommodation is necessary and fails to respond in a manner that goes beyond mere negligence. The entity must consider individual needs when determining reasonable accommodations. The cases cited illustrate failures to provide necessary accommodations or policies with disparate impacts on disabled individuals. In contrast, the current case involves facial discrimination by outright excluding disabled persons from a public program, which inherently demonstrates deliberate indifference and intentional discrimination.

The State's actions towards disabled individuals in relation to the QUEST program were found to demonstrate "deliberate indifference," constituting "intentional discrimination." The court determined that Hawaii had notice of the need for modifications due to its facially discriminatory policies, particularly by excluding disabled persons from QUEST, which resulted in some individuals lacking coverage. This intentional discrimination aligns with legal precedents indicating that public entities must have knowledge of violations to be held liable for monetary damages. The State's exclusion of all disabled persons from QUEST indicated awareness of its discriminatory conduct and its effects on individuals like Lovell and Delmendo. Consequently, Lovell and Delmendo are entitled to compensatory damages as a matter of law.

Regarding expert witness fees, the State acknowledges that Lovell and Delmendo are entitled to attorneys' fees, costs, and prejudgment interest following the affirmations of unlawful discrimination and compensatory damages. However, the State contests the trial court's decision to award expert witness fees exceeding $40 per day, arguing that such fees should be limited under 28 U.S.C. § 1821(b) and § 1920(3). Fee awards are typically reviewed for abuse of discretion, while the legal standard applied is subject to de novo review. Without explicit statutory authority for higher expert witness fees, reimbursement is restricted to the limits set forth in the aforementioned statutes.

The ADA allows courts to award attorneys' fees, litigation expenses, and costs to the prevailing party, as outlined in 42 U.S.C. 12205 and 28 C.F.R. 35.175. Litigation expenses include expert witness fees and related costs, as clarified in the ADA Title II regulations. This inclusion is supported by legislative history indicating that Congress intended to authorize cost-shifting for items like expert witness fees and travel expenses. The State's argument that "litigation expenses" is too vague to permit the shifting of expert fees is rejected. The term is understood to encompass such fees directly. Additionally, regulations promulgated by the Attorney General under the ADA must be adhered to unless deemed arbitrary or contrary to the statute. Therefore, even if ambiguity exists in the term, the regulations interpret it reasonably, leading to the affirmation of the trial court's awards of expert witness fees to Lovell and Delmendo. The court concluded by affirming the judgments in full. Further notes mention amendments to eligibility criteria for QUEST and a Supreme Court ruling disallowing punitive damages in private ADA actions.

The lower court declined to certify the compensatory damage award for the named plaintiff in the Burns-Vidlak case as a final judgment under Rule 54(b) due to the pending claim for punitive damages. The court referenced the ruling in Clark, which indicated that Congress, under Section Five of the Fourteenth Amendment, had abrogated state immunity under the Eleventh Amendment in relation to the Rehabilitation Act, although this has not been reaffirmed after the Garrett decision regarding Title I of the ADA. However, since Title II of the ADA and Section 504 of the Rehabilitation Act are similar in their provisions, the court suggested that the ruling in Hason would likely apply to claims under Section 504 as well. The State was determined to have waived its sovereign immunity by accepting funds from the Rehabilitation Act, making it unnecessary to address whether Congress validly abrogated state immunity under that Act. Additionally, the amended Rehabilitation Act specifies that states cannot claim Eleventh Amendment immunity in federal court for violations of Section 504. In the Lovell proceedings, the State sought a ruling on whether it could contest the unlawful discrimination finding under the ADA and RA from the Burns-Vidlak case, but no such ruling was issued, and the trial court adopted the finding of discrimination. While the State did not present one of its arguments in its current appeals, it had raised it in related cases arising from the Burns-Vidlak class action. The court considered all of the State's defenses collectively for clarity and completeness.