Arizona Integrated Telepsychiatry and Telemedicine Services LLC et al v. Arizona Health Care Cost Containment System et al

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
WO
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
Arizona Integrated Telepsychiatry and
Telemedicine Services LLC, et al.,
Plaintiffs,
v.
Arizona Health Care Cost Containment
System, et al.,
Defendants.
No. CV-25-01525-PHX-JJT
ORDER
At issue is Defendant Arizona Health Care Cost Containment System’s
(“AHCCCS”) Motion to Dismiss (Doc. 8, MTD), to which Plaintiffs Arizona Integrated
Telepsychiatry and Telemedicine Services, LLC (“AZITTS”) and John Kamau filed a
Response (Doc. 16, Resp.) and AHCCCS filed a Reply (Doc. 20, Reply). For the reasons
set forth below, the Court grants in part and denies in part AHCCCS’s Motion.
I. BACKGROUND1
Plaintiffs provide psychiatric telemedicine services in Mesa, Arizona. (Compl. ¶ 1.)
In or around 2018, Mr. Kamau noticed medical billing irregularities by a healthcare
investment group that leased office space in the same building as Plaintiffs. (Id. ¶¶ 8–10.)
Suspicious that the investment group was committing billing fraud, Mr. Kamau reported
the irregularities to the FBI and AHCCCS. (Id. ¶ 9.)
1 The following facts are uncontested or—to the extent they are contested—are drawn from
Plaintiffs’ Complaint (Doc. 1, Compl.) and are taken as true and construed in the light most
favorable to Plaintiffs. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009).
Case 2:25-cv-01525-JJT Document 23 Filed 03/02/26 Page 1 of 7

- 2 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
In May 2020, Mr. Kamau attended a meeting at AHCCCS headquarters where he
was detained and questioned by agents. (Id. ¶ 12.) A few months later, agents raided
Plaintiffs’ facility and seized computers and papers. (Id.) Plaintiffs were ultimately cleared
from any suspected involvement in fraudulent activities. (Id. ¶ 13.) As a result of
AHCCCS’s failure to timely investigate Mr. Kamau’s reports of fraud, “billions of
taxpayer dollars [were] stolen.” (Id.)
In September 2023, AHCCCS “suddenly stopped paying valid claims submitted by
AZITTS,” and Plaintiffs began laying off employees and falling behind on financial
obligations. (Id. ¶ 14.) In December 2024, an independent class action was filed against
AHCCCS and clearly named Mr. Kamau as “the whistleblower.” (Id.) Plaintiffs assert that
AHCCCS’s nonpayment of their claims was in retaliation for Mr. Kamau exposing the
agency’s failure to investigate his earlier complaints of fraud. (Id. ¶¶ 15–16.)
Plaintiffs sue AHCCCS on the following claims: (1) violation of the False Claims
Act (“FCA”) in qui tam; (2) retaliation against Plaintiffs in violation of the FCA; (3)
violation of procedural due process rights; (4) violation of substantive due process rights;
and (5) injunctive relief. (Id. ¶¶ 17–46.)
II. LEGAL STANDARD
Rule 12(b)(6) is designed to “test[] the legal sufficiency of a claim.” Navarro v.
Block, 250 F.3d 729, 732 (9th Cir. 2001). A dismissal under Rule 12(b)(6) for failure to
state a claim can be based on either: (1) the lack of a cognizable legal theory; or (2) the
absence of sufficient factual allegations to support a cognizable legal theory. Balistreri v.
Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). When analyzing a complaint for
failure to state a claim, the well-pled factual allegations are taken as true and construed in
the light most favorable to the nonmoving party. Cousins, 568 F.3d at 1067. A plaintiff
must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007). “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.” Ashcroft v. Iqbal, 556 U.S. 662, 678
Case 2:25-cv-01525-JJT Document 23 Filed 03/02/26 Page 2 of 7

- 3 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
(2009) (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a
‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has
acted unlawfully.” Id.
“While a complaint attacked by a Rule 12(b)(6) motion does not need detailed
factual allegations, a plaintiff’s obligation to provide the grounds of his entitlement to relief
requires more than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Twombly, 550 U.S. at 555 (citation modified). Legal
conclusions couched as factual allegations are not entitled to the assumption of truth and
therefore are insufficient to defeat a motion to dismiss for failure to state a claim. Iqbal,
556 U.S. at 679–80. However, “a well-pleaded complaint may proceed even if it strikes a
savvy judge that actual proof of those facts is improbable, and that recovery is very remote
and unlikely.” Twombly, 550 U.S. at 556 (citation modified).
III. ANALYSIS
a. Violation of FCA in Qui Tam
The FCA prohibits any “person” from knowingly presenting a false or fraudulent
claim to the federal government. 31 U.S.C. § 3729(a)(1). The statute’s qui tam provision
allows a private party—often called a “relator”—to file suit for a violation of the FCA in
the name of the government. 31 U.S.C. § 3730(b)(1). “It is commonly recognized that the
central purpose of the qui tam provisions of the FCA is to set up incentives to supplement
government enforcement of the Act by encouraging insiders privy to a fraud on the
government to blow the whistle on the crime.” United States ex rel. Green v. Northrop
Corp., 59 F.3d 953, 963 (9th Cir. 1995) “The Government may choose to take over the
litigation, but the relator otherwise has the right to conduct the action alone.” Am. Bankers
Mgmt. Co. v. Heryford, 885 F.3d 629, 634 (9th Cir. 2018) (citation modified).
AHCCCS argues, and Plaintiffs concede, that the FCA claim fails because
AHCCCS, as a state agency, is not a “person” under the FCA. (MTD at 3–4; Resp. at 2).2
2 This is, after all, a clearly established legal principle in the Ninth Circuit. See, e.g., Stoner
v. Santa Clara Cnty. Office of Ed., 502 F.3d 1116, 1120 (9th Cir. 2007).
Case 2:25-cv-01525-JJT Document 23 Filed 03/02/26 Page 3 of 7

- 4 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
This pleading defect, then, is fatal to Plaintiffs’ qui tam claim. The Court, with the
Government’s consent pursuant to § 3730(b)(1) (Doc. 22), dismisses this claim.
In the Ninth Circuit, courts freely grant leave to amend a pleading when justice so
requires. Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000). Leave must be granted after
a pleading is dismissed “if it appears at all possible that the plaintiff can correct the defect.”
Id. (citation modified). Here, amendment of Count One would be futile as no amount of
pleading would cure the defect that AHCCCS is not a “person” within the scope of the
FCA, so no leave will be granted.
b. Retaliation Under the FCA
The FCA provides protections to employees, contractors, or agents who either
attempted to stop a violation of the FCA or furthered an action under the FCA against his
or her principal and was consequently discriminated against “in the terms and conditions
of employment.” 31 U.S.C. § 3730(h).
AHCCCS argues that it does not employ Plaintiffs, so they cannot seek the statute’s
protections. (MTD at 4.) In response, Plaintiffs contend that the “FCA retaliation
protections broadly [] extend to contractors and agents.”3 (Resp. at 3.) Even so, Plaintiffs
do not allege that they are employees, contractors or agents of AHCCCS or plead any facts
to allow for that inference, so they do not fall within the class for whom the FCA’s
retaliation protection apply. It is possible, though, that Plaintiffs can cure this specific
pleading defect by alleging additional facts. See Lopez, 203 F.3d at 1130. Accordingly, the
Court grants Plaintiffs leave to amend Count Two.
c. Section 1983 Claims
Plaintiffs’ third and fourth claims arise under 42 U.S.C. § 1983 of the Civil Rights
Act of 1871 and allege that AHCCCS violated their substantive and procedural due process
rights by “withholding” payment of Plaintiffs’ claims. (Compl. ¶¶ 34–40.) Plaintiffs also
3 Plaintiffs cite United States ex. Rel Guzman v. Insys Therapeutic, Inc., No.
213CV05861JLSAJW, 2021 WL 4306020, at *3 (C.D. Cal. May 19, 2021), but that case
concerned an entirely different aspect of the FCA. Plaintiffs also incorrectly cited the court,
year, and reporter, see People v. Carramusa, No. D073484, 2019 WL 1034229 (Cal. App.
Mar. 5, 2019) (a California state criminal appeal), leading this Court to devote its time and
resources to locate the correct case that Plaintiffs relied upon.
Case 2:25-cv-01525-JJT Document 23 Filed 03/02/26 Page 4 of 7

- 5 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
briefly allege that their Thirteenth Amendment rights were violated by AHCCCS requiring
Plaintiffs to “continue providing services” to AHCCCS members. (Id. ¶ 39.)
AHCCCS argue that these claims must be dismissed because Plaintiffs failed to
exhaust administrative remedies4 for the denial of claim payment. (MTD at 5–6.)
Administrative exhaustion may be a prerequisite for some federal claims, but it is not for
§ 1983 claims. Knick v. Twp. of Scott, 588 U.S. 180, 185 (2019) (“[T]he settled rule is that
exhaustion of state remedies is not a prerequisite to an action under 42 U.S.C. § 1983.”)
(citation modified); Patsy v. Bd. of Regents, 457 U.S. 496, 500 (1982) (“[W]e have on
numerous occasions rejected the argument that a § 1983 action should be dismissed where
the plaintiff has not exhausted state administrative remedies.”); see Williams v. Reed, 604
U.S. 168, 174 (2025).
AHCCCS cites various cases in support of imposing the exhaustion requirement
here. (MTD at 5.) But these cases are inapposite: none of them concerned § 1983 claims.
See Mich. Ass’n of Homes & Servs. for the Aging v. Shalala, 127 F.3d 496 (6th Cir. 1997)
(constitutional challenge to administrative regulations); Bowen v. Mich. Acad. of Family
Physicians, 476 U.S. 667 (1986) (same); Samaritan Health Sys. v. Ariz. Health Care Cost
Containment Sys. Admin., 11 P.3d 1072 (Ariz. App. 2000) (same); FTC v. Standard Oil
Co., 449 U.S. 232 (1980) (violations of the Federal Trade Commission Act); Phx.
Children’s Hosp. v. Ariz. Health Care Cost Containment Sys. Admin., 987 P.2d 763 (Ariz.
App. 1999) (constitutional challenge to an unpromulgated administrative rule).
Accordingly, the Court declines to dismiss Counts Three and Four for lack of
administrative exhaustion.
Next, AHCCCS argues that “Plaintiffs cannot show a deprivation of procedural or
substantive due process unless and until their administrative remedies are exhausted and a
final decision issued.” (MTD at 6.) Whether Plaintiffs can ultimately prove their claims,
however, is not the correct standard at this stage of the proceedings.5 Rather, the standard
4 According to AHCCCS, the Arizona legislature has established an administrative
procedure for disputes regarding AHCCCS’s non-payment for services. (See MTD at 5.)
5 It is possible that one or more of Plaintiffs’ § 1983 claims may ultimately be premature if
they failed to use an available administrative process to address their grievances. For
Case 2:25-cv-01525-JJT Document 23 Filed 03/02/26 Page 5 of 7

- 6 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
is whether Plaintiffs sufficiently state a claim based on a cognizable legal theory when
taking the well-pled factual allegations as true and construing them in the light most
favorable to Plaintiffs. Because AHCCCS advances no other arguments that the § 1983
claims or facts supporting those claims are insufficiently pled, those claims survive.
d. Injunctive Relief
Styled as their fifth claim, Plaintiffs assert that they are entitled to injunctive relief.
(Compl. ¶¶ 41–46.) Even if they are, “[i]njunctive relief is a remedy, not an independent
cause of action,” Long v. JP Morgan Chase Bank, 848 F. Supp. 2d 1166, 1180 (D. Haw.
2012) (citation modified), and “a separately pled claim or cause of action for injunctive
relief is inappropriate,” Jensen v. Quality Loan Serv. Corp, 702 F. Supp. 2d 1183, 1201
(E.D. Cal. 2010). The Court dismisses this claim with prejudice. Omar v. Sea-Land Serv.,
Inc., 813 F.2d 986, 991 (9th Cir. 1987) (“A trial court may dismiss a claim sua sponte
under Fed. R. Civ. P. 12(b)(6). Such a dismissal may be made without notice where the
claimant cannot possibly win relief.”) (citation modified).
e. Monell Claims
Plaintiffs request that they “should be granted leave to amend to enhance Monell
allegations showing AHCCCS maintained official policies and practices resulting in
systemic constitutional violations.” (Resp. at 4.) Federal Rule of Civil Procedure 15(a)(2)
provides that leave to amend should be freely granted “when justice so requires.” But, as
AHCCCS points out (Reply at 5), Plaintiffs’ request is procedurally deficient. Plaintiffs
fail to attach a copy of the proposed amendment as required by Local Rule 15.1(a).
Accordingly, the Court denies Plaintiffs’ request to amend their pleading to “enhance”
potential Monell claims.
IT IS THEREFORE ORDERED granting in part and denying in part Defendant’s
Motion to Dismiss (Doc. 8).
instance, “a procedural due process claim is not complete when the deprivation occurs.
Rather, the claim is complete only when the State fails to provide due process.” See
Williams, 604 U.S. at 176 n.4 (noting that “a plaintiff who asserts a due process claim
without exhausting will usually lose because of the requirement that the challenged
procedural deprivation must have already occurred”). But the Court need not address the
merits of Plaintiffs’ due process claims now.
Case 2:25-cv-01525-JJT Document 23 Filed 03/02/26 Page 6 of 7

- 7 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
IT IS FURTHER ORDERED dismissing Counts One, Two, and Five of Plaintiffs’
Complaint for Violation of 31 U.S.C. §§ 3729–3733; 42 U.S.C. § 1983; Declaratory Relief;
and Injunctive Relief (Doc. 1).
IT IS FURTHER ORDERED that, no later than fourteen days from the date of
this Order, Plaintiffs may file an amended pleading that cures only the defects identified in
Count Two. Should Plaintiffs desire to add other claims or parties, they shall separately
move the Court for leave to do so and abide by the requirements of Federal Rule of Civil
Procedure 15 and Local Rule 15.1.
Dated this 2nd day of March, 2026.
Honorable John J. Tuchi
United States District Judge
Case 2:25-cv-01525-JJT Document 23 Filed 03/02/26 Page 7 of 7