25-466 Principle Homecare, LLC v. McDonald

United States Court of Appeals For the Second Circuit

August Term 2025

Argued: September 11, 2025 Decided: October 21, 2025

No. 25-466

PRINCIPLE HOMECARE, LLC, MARTON CARE INC., PROMPT HOME CARE LLC, CARE CONNECT CDPAP, INC.,

Plaintiffs-Appellants,

v.

JAMES V. MCDONALD, in his official capacity as Commissioner of the New York State Department of Health,

Defendant-Appellee.

Appeal from the United States District Court for the Southern District of New York No. 24-cv-7071, Margaret M. Garnett, Judge.

Before: WALKER, CARNEY, and SULLIVAN, Circuit Judges.

New York State’s Consumer Directed Personal Assistance Program (“CDPAP”) allows Medicaid beneficiaries who need help with daily living to hire their own personal assistants at public expense. Until recently, the program relied on a vast network of private organizations, referred to as “fiscal intermediaries,” to handle most of the administrative, financial, and compliance responsibilities associated with those employment relationships. But in 2024, the State amended the program, replacing the existing network of fiscal intermediaries with a single, statewide fiscal intermediary.

Plaintiffs – a group of companies that served as fiscal intermediaries under the pre-amendment CDPAP – brought suit in the United States District Court for the Southern District of New York (Margaret M. Garnett, Judge), alleging that the 2024 amendment violates the Takings Clause, Contracts Clause, and Due Process Clause of the United States Constitution. The district court dismissed Plaintiffs’ complaint for failure to state a claim. For the following reasons, we hold that the CDPAP amendment neither effected a taking of private property nor disrupted Plaintiffs’ reasonable expectations under their contracts. We also hold that the State had a rational basis for preferring a single, statewide fiscal intermediary. We therefore affirm the district court’s judgment dismissing Plaintiffs’ claims.

AFFIRMED.

AKIVA SHAPIRO (Mylan Denerstein, William J. Moccia, Jason Bressler, on the brief), Gibson, Dunn & Crutcher LLP, New York, NY, for Plaintiffs- Appellants.

BLAIR J. GREENWALD, Assistant Solicitor General (Barbara D. Underwood, Solicitor General, Judith N. Vale, Deputy Solicitor General, on the brief), for Letitia James, Attorney General of the State of New York, New York, NY, for Defendant-Appellee.

PER CURIAM:

New York State’s Consumer Directed Personal Assistance Program

(“CDPAP”) allows Medicaid beneficiaries who need help with daily living to hire

their own personal assistants at public expense. Until recently, the program

2 relied on a vast network of private organizations, referred to as “fiscal

intermediaries,” to handle most of the administrative, financial, and compliance

responsibilities associated with those employment relationships. But in 2024, the

State amended the program, replacing the existing network of fiscal intermediaries

with a single, statewide fiscal intermediary.

Plaintiffs – a group of companies that served as fiscal intermediaries under

the pre-amendment CDPAP – brought suit in the United States District Court for

the Southern District of New York (Margaret M. Garnett, Judge), alleging that the

2024 amendment violates the Takings Clause, Contracts Clause, and Due Process

Clause of the United States Constitution. The district court dismissed Plaintiffs’

complaint for failure to state a claim. For the following reasons, we hold that the

CDPAP amendment neither effected a taking of private property nor disrupted

Plaintiffs’ reasonable expectations under their contracts. We also hold that the

State had a rational basis for preferring a single, statewide fiscal intermediary.

We therefore affirm the district court’s judgment dismissing Plaintiffs’ claims.

I. BACKGROUND

CDPAP is a statewide, Medicaid-funded healthcare program established by

the State of New York. The program “is intended to permit chronically ill and/or

physically disabled individuals receiving home care services . . . greater flexibility

3 and freedom of choice in obtaining such services.”

-f(1).

To that end, CDPAP enables consumers to directly hire personal care assistants,

who may include friends, non-spousal family members, and other trusted

individuals. These personal assistants provide a wide variety of home care

services, including assistance with daily activities like toileting and bathing.

There are currently around 280,000 consumers in New York who receive home

care services through CDPAP.

To facilitate the compensation of personal assistants, CDPAP provides

consumers with individual budgets to hire and pay their personal assistants. In

enrolling in CDPAP, however, the consumer also takes on many of the

administrative, financial, and compliance responsibilities associated with being an

employer. Consumers, for instance, must recruit, supervise, and set the terms of

employment for their personal assistants.

Prior to the amendment at issue in this appeal, CDPAP authorized a

network of “fiscal intermediaries” to assist consumers in managing these

responsibilities. The statute defined the term “fiscal intermediary” as an entity

that provides “fiscal intermediary services” and has a contract to provide such

services with the New York State Department of Health, which followed a

4 specified procurement process.

-f(4-a)(i) (2022). These

“fiscal intermediary services” encompassed most functions “performed on behalf

of the consumer to facilitate the consumer’s role as the employer.”

§ 365-f(4-

a)(ii). Those functions included administrative and compliance tasks such as

“wage and benefit processing for consumer directed personal assistants,”

“processing all income tax and other required wage withholdings,” and

“complying with workers’ compensation, disability and unemployment

requirements.” Id. § 365-f(4-a)(ii)(A)–(C). Altogether, around 600 companies

provided fiscal-intermediary services to CDPAP consumers before the at-issue

amendment took effect.

As relevant to this case, Medicaid managed care organizations (“MMCOs”)

compensated fiscal intermediaries that provided services to consumers receiving

care through CDPAP. These MMCOs are private companies that contract with

states, like New York, to provide healthcare services to Medicaid beneficiaries.

The MMCOs, in turn, contracted with fiscal intermediaries to provide fiscal-

intermediary services to consumers. Those contracts – which all contained

materially identical terms – entitled fiscal intermediaries to seek payment from the

5 MMCOs at a specified rate for fiscal-intermediary services provided to consumers

under CDPAP.

In April 2024, Governor Kathy Hochul approved the State budget for fiscal

year 2024–25, which included the CDPAP amendment at issue in this case. That

amendment restructured the program by doing away with the network of

dispersed fiscal intermediaries and replacing them with a single, statewide fiscal

intermediary chosen by the Department of Health through a bidding process.

The amendment accomplishes that restructuring through several changes to

the CDPAP statute. Among other things, the amendment strikes the preexisting

definition of “fiscal intermediary” and replaces it with a new defined term,

“statewide fiscal intermediary.”

-f(4-a)(a)(i). The

amendment defines “statewide fiscal intermediary” as the “entity that provides

fiscal intermediary services and has a contract for providing such services with the

department of health and is selected through the procurement process described”

elsewhere in the statute.

The amendment directs MMCOs “offering

consumer directed personal assistance services to contract with the statewide fiscal

intermediary . . . to provide all fiscal intermediary services to consumers.”

§ 365-f(4-a)(a)(ii-a). Finally, the amendment provides that, with the sole

6 exception of the statewide fiscal intermediary and its subcontractors, “no entity

shall provide, directly or through contract, fiscal intermediary services” as of April

1, 2025. Id. § 365-f(4-a-1)(a).

Plaintiffs, each of which served as a fiscal intermediary under the pre-

amendment CDPAP, filed this action on September 18, 2024, alleging that the

CDPAP amendment prevents them from performing their MMCO contracts and

thereby destroyed the value of those contracts in violation of the Takings Clause,

Contracts Clause, and the Fourteenth Amendment’s Due Process Clause.

Plaintiffs also asserted a cause of action under the Equal Protection Clause of the

Fourteenth Amendment based on the CDPAP amendment.

On February 26, 2025, the district court dismissed Plaintiffs’ complaint in its

entirety for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

In particular, the district court determined that Plaintiffs had failed to plausibly

allege (1) a protected property interest for purposes of the Takings Clause and the

Due Process Clause, (2) that the CDPAP amendment had impaired Plaintiffs’

MMCO contracts within the meaning of the Contracts Clause, and (3) that the

amendment lacked a rational basis under the Equal Protection Clause. Plaintiffs

7 timely appealed the dismissal of their claims under the Takings Clause, Contracts

Clause, and Due Process Clause.

II. DISCUSSION

We review de novo a district court’s dismissal of a complaint under Federal

Rule of Civil Procedure 12(b)(6), “accepting the allegations in the complaint as true

and drawing all reasonable inferences in favor of the plaintiff.” Palmer v.

Amazon.com, Inc.,

(2d Cir. 2022). To survive a motion to dismiss,

a plaintiff must plead “enough facts to state a claim to relief that is plausible on its

face,” Bell Atl. Corp. v. Twombly,

(2007), which would “allow[] the

court to draw the reasonable inference that the defendant is liable for the

misconduct alleged,” Ashcroft v. Iqbal,

(2009). Thus, the

complaint “must ‘raise a reasonable expectation that discovery will reveal

evidence’ of the wrongdoing alleged.” Citizens United v. Schneiderman,

(2d Cir. 2018) (quoting Twombly,

).

A. Takings Clause

On appeal, Plaintiffs argue that the district erred in dismissing their

regulatory takings claim. We disagree.

8 The Takings Clause of the Fifth Amendment commands that “private

property” shall not “be taken for public use, without just compensation.” U.S.

Const. amend. V. As relevant here, a law regulating the use of private property

amounts to a per se taking if the law “completely deprive[s] an owner of

all economically beneficial use of her property.” Lingle v. Chevron U.S.A. Inc.,

(2005) (alteration adopted and internal quotation marks omitted).

All other regulatory takings claims are evaluated under the multi-factor test set

forth in Penn Central Transportation Co. v. New York City,

(1978) to

determine whether the regulation “goes too far.” Pa. Coal Co. v. Mahon,

(1922) (Holmes, J.).

Under the per se theory or otherwise, Plaintiffs’ takings claim fails at the

outset because the CDPAP amendment is not a “government regulation of private

property.” Lingle,

. Although contractual rights are forms of

private property that may generally be protected by the Takings Clause, see, e.g.,

Omnia Com. Co. v. United States,

(1923), the CDPAP amendment

does not regulate Plaintiffs’ rights in their MMCO contracts as such. The

amendment does not, for instance, prevent fiscal intermediaries from demanding

the payment of past-due sums or from assigning their rights under those contracts.

9 Nor does the amendment purport to nullify any other right that Plaintiffs are

entitled to under their MMCO contracts. While it is true that the amendment

“made it impossible for [Plaintiffs] to perform” their MMCO contracts going

forward by requiring MMCOs to contract with the new statewide fiscal

intermediary instead, the State “did not appropriate any of the rights [Plaintiffs]

had under [those] contract[s].” Kearney & Trecker Corp. v. United States,

(Ct. Cl. 1982). Under these circumstances, “the fact that [the CDPAP

amendment] disregards . . . existing contractual rights” does not “transform the

regulation into an illegal taking.” Connolly v. Pension Ben. Guar. Corp.,

(1986).

At its essence, Plaintiffs’ takings claim seeks to perpetuate their

participation in CDPAP as fiscal intermediaries. But given states’ “traditionally

high degree of control over” the existence and structure of Medicaid-funded

programs like CDPAP, Plaintiffs “ought to [have been] aware of the possibility

that new regulation might” affect their ability to participate in the program, and

thereby “render [their MMCO contracts] economically worthless.” Lucas v. S.C.

Coastal Council,

, 1027–28 (1992); see also Mitchell Arms, Inc. v. United

States,

(Fed. Cir. 1993) (“[E]nforceable rights sufficient to support a

10 taking claim . . . cannot arise in an area voluntarily entered into and one which,

from the start, is subject to pervasive Government control.” (internal quotation

marks omitted)). Thus, Plaintiffs’ “mere unilateral expectation” of continued

participation in CDPAP “is not a property interest entitled to protection” under

the Takings Clause. Webb's Fabulous Pharmacies, Inc. v. Beckwith,

(1980).

Indeed, while Plaintiffs’ MMCO contracts provided a mechanism through

which they would be paid for providing fiscal-intermediary services, that money

flowed entirely from Medicaid funds provided by the State. And critically,

nothing in those private agreements granted – or could have granted – Plaintiffs a

perpetual right to participate in CDPAP as fiscal intermediaries or compelled the

State to maintain the program in its then-existing form. Cf. Hudson Water Co. v.

McCarter,

(1908) (Holmes, J.) (“One whose rights, such as they

are, are subject to state restriction, cannot remove them from the power of the State

by making a contract about them.”). The ability to continue participating in

CDPAP as fiscal intermediaries therefore forms no part of Plaintiffs’ “group of

rights inhering in [their] relation to the [MMCO contracts].” United States v. Gen.

Motors Corp.,

(1945).

11 Accordingly, we agree with the district court that Plaintiffs have not

plausibly alleged that the CDPAP amendment effected a regulatory taking of

private property.

B. Contracts Clause

Plaintiffs also argue that the district court erred in dismissing their Contracts

Clause claim. Again, we disagree.

The Contracts Clause prevents states from enacting any “Law impairing the

Obligation of Contracts.” U.S. Const. art. I, § 10. To determine whether a law

runs afoul of the Contracts Clause, we first consider the threshold question of

“whether the state law has operated as a substantial impairment of a contractual

relationship.” Sveen v. Melin,

(2018) (internal quotation marks

omitted). That inquiry depends on “the extent to which the law undermines the

contractual bargain, interferes with a party’s reasonable expectations, and

prevents the party from safeguarding or reinstating his rights.”

If these

factors reveal a substantial impairment, “the inquiry turns to . . . whether the state

law is drawn in an appropriate and reasonable way to advance a significant and

legitimate public purpose.”

(internal quotation marks omitted).

Plaintiffs contend that the CDPAP amendment permanently destroyed the

contractual bargain reflected in their MMCO agreements by preventing them from

12 performing those contracts. The Supreme Court, however, has declined to

subject state legislation to heightened scrutiny under the Contracts Clause “simply

because it has the effect of restricting, or even barring altogether, the performance

of duties created by contracts entered into prior to its enactment.” Exxon Corp. v.

Eagerton,

(1983). Since virtually all commercial and economic

regulation has the potential to impair the performance of preexisting contracts,

such heightened scrutiny risks opening a “backdoor to Lochner-type

jurisprudence.” Buffalo Tchrs. Fed’n v. Tobe,

, 371 (2d Cir. 2006). We

have therefore emphasized that “[t]he primary consideration in determining

whether [an] impairment is substantial is the extent to which reasonable

expectations under the contract have been disrupted.” Sanitation & Recycling

Indus., Inc. v. City of New York,

, 993 (2d Cir. 1997).

Here, Plaintiffs’ complaint lacks factual allegations plausibly showing that

their MMCO contracts created a reasonable expectation of unending participation

in CDPAP as fiscal intermediaries. Those contracts were little more than a

mechanism for Plaintiffs to receive compensation for their fiscal intermediary

services from Medicaid funds ultimately provided by the State. As such, the

MMCO contracts necessarily depended on CDPAP’s then-existing fiscal

13 intermediary structure. And as explained above, those private agreements

neither granted Plaintiffs a perpetual right to participate in CDPAP as fiscal

intermediaries, nor reasonably could have suggested that the State would forever

maintain the program in its then-existing form. Indeed, the contracts obligated

the parties to comply with all applicable laws and regulations governing CDPAP

and contemplated “unilateral[] and automatic[]” amendment to account for any

“changes in state law or regulation.” E.g., J. App’x at 95. At most, therefore, the

MMCO contracts support a reasonable expectation of payment contingent upon

Plaintiffs’ ability to participate in CDPAP as fiscal intermediaries.

For these reasons, Plaintiffs failed to state a claim under the Contracts

Clause.

C. Due Process Clause

Finally, Plaintiffs contend that the district court erred in dismissing their

substantive due process claim. We remain unpersuaded.

“To establish a substantive due process violation, a plaintiff must show both

(1) that [it] has an interest protected by the Fourteenth Amendment, and (2) that

the statute, ordinance, or regulation in question is not rationally related to a

legitimate government interest.” Winston v. City of Syracuse,

(2d

14 Cir. 2018). Under that test, “[t]o uphold the legislative choice, a court need only

find some reasonably conceivable state of facts that could provide a rational basis

for the legislative action.” Molinari v. Bloomberg,

(2d Cir. 2009)

(internal quotation marks omitted). Here, it is readily conceivable that by

replacing around 600 individual fiscal intermediaries with a single, statewide

fiscal intermediary, the State could decrease its oversight burden. Plaintiffs have

therefore failed to plausibly allege “that there is no rational connection between

the [CDPAP amendment] and the promotion of public health[,] safety or welfare.”

Beatie v. City of New York,

(2d Cir. 1997).

Accordingly, Plaintiffs have failed to state a claim under the Due Process

Clause.

III. CONCLUSION

For these reasons, we AFFIRM the judgment of the district court.

15