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Davis v. Ball Memorial Hospital Association

decided: October 3, 1980.


Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. IP 78-578-C -- Cale J. Holder, Judge .

Before Fairchild, Chief Judge, Cummings, Circuit Judge, and Grant, Senior Judge.*fn*

Author: Cummings

Plaintiffs, three indigent persons formerly patients at Ball Memorial Hospital in Delaware County, Indiana,*fn1 originally brought this suit on behalf of themselves and all low income persons who have received or will receive care there charging violations of the defendant Hospital's obligations under the Constitution and the Hill-Burton Act, 42 U.S.C. § 291, et seq.*fn2 After the Hospital moved to join as defendants the members of the Indiana State Board of Health, the State Health Commissioner and the Secretary of Health, Education and Welfare (now Health & Human Services), plaintiffs amended their complaint to include these parties and to broaden the class to all persons in Indiana eligible for uncompensated services under the Act. On September 10, 1979, the Secretary moved to be dismissed as a party to the lawsuit, and on December 17, 1979, the district court granted the motion, thus eliminating the two relevant claims of the complaint insofar as they involved allegations concerning the Secretary. The district court thereafter denied plaintiffs' motion to enter this dismissal as a final judgment under Rule 54(b), and plaintiffs appealed. We now reverse and remand the district court's order with respect to one claim and affirm with respect to the other.

Originally enacted in 1946, the Hill-Burton Act*fn3 provides federal assistance for the construction and modernization of medical facilities nationwide. As a condition of receiving funds under the program, the Act requires each facility to give "assurances" that it will provide "a reasonable volume of services to persons unable to pay therefor" to the extent that the financial condition of the facility permits. 42 U.S.C. § 291c(e).*fn4 The tortuous development of the assurances requirement since adoption of the Act is set out in detail in the two opinions in American Hospital Association v. Harris, 625 F.2d 1328 (7th Cir., 1980)*fn5 and there is no need to repeat it here. Nevertheless, a brief overview of that development as it applies to this case may be useful.

Despite the presence of the assurances requirement in the Act, the Secretary failed to take steps to implement the provision until 1972, when substantive regulations were finally promulgated.*fn6 Those regulations, amended in 1974, stipulated that a facility could meet its indigent-care obligations either by setting aside for uncompensated services 3% of its operating costs or 10% of such federal assistance, whichever is less, or by simply certifying that it would not exclude any person because of an inability to pay for medical care. 42 C.F.R. § 53.111(d). The Secretary's power to ensure compliance with the regulations was, however, diluted by the structure of the Act. The Secretary's primary role was to see that the assurances were reflected in state health plans while State authorities were otherwise responsible for specific enforcement. As a consequence, efforts to effect compliance remained lax. See S.Rep.No. 93-1285, 93d Cong., 2d Sess., reprinted in U.S.Code Cong. & Admin.News pp. 7842, 7900 (1974).

In 1974, Congress passed Title XVI of the Public Health Services Act (42 U.S.C. § 300o), amending the Hill-Burton Act in part to provide stricter enforcement of the uncompensated services program. The new legislation gave the Secretary direct investigative and enforcement power, including the authority to withhold payments (42 U.S.C. § 300p-2(c)), acknowledged the possibility of private actions against the facilities (id.), and directed the Secretary to adopt new regulations for the uncompensated services program. 42 U.S.C. §§ 300o -1(5) and (6). The Secretary was again slow to respond to this last directive. On May 18, 1979, however, the Secretary promulgated the current regulations, which inter alia set out eligibility criteria (42 C.F.R. § 124.506), prescribe the level of uncompensated services required for compliance with the assurances (42 C.F.R. § 124.503), provide for individual notice to patients regarding the availability of the services (42 C.F.R. § 124.505), and establish procedures for the determination of benefits (42 C.F.R. § 124.508). The 1979 regulations no longer allow a facility to meet its obligations by merely certifying that it will not exclude a patient because of an inability to pay. Compare 42 C.F.R. § 124.503 with 42 C.F.R. § 53.111(d).

Before the Secretary issued the 1979 regulations, plaintiffs filed this suit in federal court.*fn7 In an amended complaint, filed April 26, 1979, plaintiffs alleged*fn8 that plaintiffs Davis and Bright, formerly patients at Ball Memorial Hospital, had inadequate resources to pay for their medical services, received no notice of the availability of uncompensated services, gained no determination of eligibility, and encountered difficulties in applying after discharge for a settlement of their bills under the program.*fn9 They brought suit against a variety of defendants to compel compliance with the Act's directives, filing on behalf of themselves and "all consumers of health care services who have been, are, or will be eligible for uncompensated services from defendant ( ) Ball Memorial Hospital Association, Inc." and "all consumers of health care services who have been, are, or will be eligible for uncompensated services from any facility located in the State of Indiana which receives funds pursuant to the Hill-Burton Act." (Am.Cplt., par. 14).

Only two claims of the amended complaint are relevant to this appeal. Claim 4 charges the Secretary and the individual state defendants with violating the Due Process Clause of the Fourteenth Amendment*fn10 by failing to adopt in federal regulations or the state plan proper notice and determination procedures.*fn11 Claim 6 charges the Secretary alone with violating the Hill-Burton Act by failing to issue proper regulations or to monitor properly compliance with the assurance obligations.*fn12 Plaintiffs sought a judgment against the Secretary declaring that she has violated and continues to violate the Act and that she has violated and is still violating the Due Process Clause. They also sought an order requiring the Secretary to comply with her duties under the Act and to "inform Hospitals and enforce (her) duty to provide due process of law protection."

Shortly after amending the complaint, plaintiffs moved for a determination of their class action claims. The Secretary responded to these claims and then, relying in part on the May 18, 1979, issuance of new regulations, moved for dismissal from the lawsuit. On December 17, the district court granted the latter motion. Judge Holder found that the allegations of Claim 4 had been mooted "to a great extent" by the new regulations and to the extent they had survived, the allegations failed because plaintiffs had not exhausted their administrative remedies as provided by the Administrative Procedure Act (5 U.S.C. § 553(e))*fn13 (App. 39-40). With respect to Claim 6, the district court held that the Act provided no private right of action against the Secretary or in the alternative, that plaintiffs had failed to exhaust the administrative remedies expressly provided in the Hill-Burton statute as a prerequisite to such a suit (App. 40-42).*fn14 Judge Holder subsequently refused to enter this order as a final decision under Rule 54(b) (R. 260). Plaintiffs then appealed.


The Secretary contends first that the decision of the district court is not appealable. Clearly, Judge Holder's decision is not by its nature a final decision under 28 U.S.C. § 1291, and his refusal to grant plaintiffs' motion to enter the dismissal as a final judgment under Rule 54(b) of the Federal Rules of Civil Procedure forecloses plaintiffs' only other available means for meeting standard jurisdictional requirements. Plaintiffs assert nonetheless that as a decision denying all relief, including injunctive relief, against the Secretary, the district court's ruling is an interlocutory order "granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions," thereby qualifying for the exception to the final decision rule found in Section 1292(a)(1) of the Judicial Code. We agree.

First, it is settled that a district court's refusal to make an entry under Rule 54(b) does not preclude appellate jurisdiction under § 1292(a)(1). Tapeswitch Corp. of America v. Recora Co., 527 F.2d 1013 (7th Cir. 1976). Rule 54(b), which affords the district court an opportunity to apply its first-hand knowledge of the case to the question of the separability of certain parts of the action, provides for appellate review in some cases in which Section 1292(a)(1) does not and results in its denial by the district court in some cases in which Section 1292(a)(1) grants jurisdiction. Therefore it remains for the Court of Appeals to consider independently the availability of jurisdiction under the excepting statute. This conclusion does not mean that the policies behind Rule 54(b) regarding the inadvisability of piecemeal review and the dangers of splitting a cause of action should not be considered by this Court in the application of Section 1292(a)(1) to any particular case. Defendants are quite correct to raise those issues here. Rather, a weighing of these policies against the competing considerations this case draws from Section 1292(a)(1) results in our conclusion that the question is appealable.

Behind the exception provided by Section 1292(a)(1) lies a recognition that a request for injunctive relief inevitably presents pressing equitable issues, including the question of irreparable injury, and that such concerns require speedy settlement through prompt appellate review of the balance struck by the district court. Gardner v. Westinghouse Broadcasting Co., 437 U.S. 478, 480, 98 S. Ct. 2451, 2453, 57 L. Ed. 2d 364. Therefore, although dismissal of some but not all of the defendants to an equitable action presents four-square the dangers of piecemeal review and split causes of action that the structure of appellate jurisdiction is intended to eschew, it will often implicate the policies of Section 1292(a)(1) as well to the extent that the dismissal directly and substantially affects the character of the injunctive relief sought. Accordingly, jurisdiction in this context commonly depends on an appraisal of the significance to the action of the dropped party. Thus courts have been unwilling to allow appeal under Section 1292(a)(1) when the district court has dismissed a party that is merely "ancillary" to the request for relief. Local Union 1888 v. City of Jackson, 473 F.2d 1028 (5th Cir. 1973). Conversely, courts have found jurisdiction when the dismissed parties are the sole parties against whom injunctive relief is sought (Holton v. Crozer-Chester Medical Center, 560 F.2d 575 (3d Cir. 1977); McNally v. Pulitzer Publishing Co., 532 F.2d 69 (8th Cir. 1976), certiorari denied, 429 U.S. 855, 50 L. Ed. 2d 131, 97 S. Ct. 150 ) or when dismissal of certain defendants will significantly contact the relief that will be available should plaintiffs prevail. Build of Buffalo, Inc. v. Sedita, 441 F.2d 284 (2d Cir. 1971). See also 16 Wright & Miller, Federal Practice & Procedure § 3924 at 81-82 n.43 (reconciling Local Union 1888 and Sedita on these grounds).

This appeal resembles that permitted in Sedita, supra. In that case, plaintiffs sought preliminary and permanent injunctive relief against the Mayor of Buffalo, the Police Commissioner and various members of the Buffalo Police Department, alleging " "a systematic pattern of conduct resulting in numerous, separate and distinct violations of the rights, privileges, and immunities' of plaintiffs and the class they seek to represent." 441 F.2d at 285. When the district court dismissed the Mayor and Commissioner the Court of Appeals permitted review under Section 1292(a)(1). The court found that dismissal of those defendants would have a "decisive" effect on the plaintiffs' request for injunctive relief, particularly since the district court would be powerless to order any relief against the remaining defendants that might address the pattern of police misbehavior alleged.

Similarly here, plaintiffs have alleged that the Secretary has failed to comply with her statutory and constitutional obligations as they affect more than any particular hospital. In particular, Claim 4 charges her with failing to adopt suitable regulations and Claim 6 with failing to monitor and enforce compliance with the Act as required by the 1975 amendments. With respect to the latter claim, the amended complaint seeks relief the Secretary alone can provide and with respect to the former it requests relief that requires substantial involvement by the Secretary. Accordingly, jurisdiction under Section 1292(a)(1) is proper.

Gardner v. Westinghouse Broadcasting Co., 437 U.S. 478, 98 S. Ct. 2451, 57 L. Ed. 2d 364 cited to us by defendants, does not indicate a contrary result. That case presents the distinct issue whether a denial of class action status in an injunctive action gives rise to appellate jurisdiction under Section 1292(a)(1) on the class certification question. Clearly a rule permitting such appeals would generate a flood of appeals on an issue largely committed to the district court's discretion, an issue the Supreme Court has otherwise viewed as too unsubstantial to warrant interlocutory review. Coopers & Lybrand v. Livesay, 437 U.S. 463, 98 S. Ct. 2454, 57 L. Ed. 2d 351. Therefore, although denial of class certification may at times result in some contraction of the available relief, other policies peculiar to class actions may outweigh that concern in any particular case. Thus it will often be the case, as in Gardner, that the denial of class certification will affect neither the scope of a plaintiff's claim nor the question of the legal sufficiency of any of its parts. 437 U.S. at 480-481, 98 S. Ct. at 2453. In the present case, the district court's decision affects both questions. Consequently, the class question treated in Gardner is simply inapposite to the case at hand and cannot alter our conclusion that jurisdiction is proper.

Claim 4

As noted, Claim 4 charges the Secretary*fn15 with violating due process by failing to adopt regulations requiring each facility to employ a procedure of giving notice to indigent patients of its obligation to provide uncompensated services, and of determining eligibility while offering the patient an opportunity to present affirmative evidence to an impartial officer. The district court held that the new federal regulations have largely mooted this claim with respect to the Secretary and to the extent they have not, that plaintiffs had failed to exhaust their administrative remedies. Plaintiffs here contend that Judge Holder erred in finding mootness and that exhaustion is not necessary when the constitutionality of agency action is challenged.

On appeal the Secretary has not disputed plaintiffs' assertion regarding the inapplicability of the exhaustion requirement although their argument is not without its difficulties. They have, for example, cited no case that directly addresses the issue whether exhaustion is necessary when the constitutionality of agency action itself is not at issue but rather the sufficiency of agency-adopted procedures for meeting due process requirements is challenged. Nevertheless since the general principle is widely accepted, see Spiegel, Inc. v. FTC, 540 F.2d 287, 294 (7th Cir. 1976) (citing cases), and the demands of these plaintiffs and others for specific action from the Secretary have led her to exercise her discretion, we conclude that further exhaustion is not required and focus our consideration of Claim 4 on the issue of mootness and the more intractable question, not briefed by any party, whether plaintiffs are entitled to raise a due process claim under the Hill-Burton Act.


Plaintiffs rely upon County of Los Angeles v. Davis, 440 U.S. 625, 631, 99 S. Ct. 1379, 1383, 59 L. Ed. 2d 642 for the principle that a case is not moot unless there is no likelihood that a violation will recur and the effects of any past violation have been eradicated. Although Davis involved discrimination claims raising issues that differ in salient respects from those in this action, the spirit of that case if not its particular formula does govern the mootness issue. The question it presents here is whether the Secretary has completely filled the procedural void complained of and rendered inappropriate the relief sought. Close consideration of the amended complaint from this perspective confirms that Claim 4 is not moot.

Superficially the wording of Claim 4 and the Secretary's parsing thereof might suggest the contrary result. Claim 4 charges the Secretary with violating due process "by failing in the federal regulations * * * to require a Hill-Burton facility" to provide certain due process protections. The Secretary has, of course, now adopted regulations under the Act, thereby satisfying the basic complaint. Nowhere in this claim, meanwhile, is there stated any legal basis for an obligation on the Secretary's part to enforce such procedures, so that plaintiffs cannot overcome the appearance of mootness with respect to this claim by relying on the request in its prayer for relief for an injunction regarding such enforcement.

Furthermore, the new regulations supply most of the specific procedures plaintiffs have alleged are necessary under the Due Process Clause. Thus they provide for written notification of the availability of uncompensated services (42 C.F.R. § 124.505(d)), written notice of denial of such services (42 C.F.R. § 124.058(c)) and the use of clear eligibility standards for granting or denying such services (42 C.F.R. § 124.508(c)). With respect to submitting affirmative evidence on a claim and receiving a hearing before an impartial decision-maker-procedures also sought by these plaintiffs-the Secretary notes that the named plaintiffs never sought such relief from Ball Memorial Hospital and argues that they therefore lack standing under O'Shea v. Littleton, 414 U.S. 488, 94 S. Ct. 669, 38 L. Ed. 2d 674 to raise this issue on either their own behalf or that of the class.

The Secretary's characterization of plaintiffs' complaint is too cramped though. The amended complaint specifically seeks a declaratory judgment on the due process point by raising the question whether the Secretary has violated their due process rights in the past and whether they are suffering any lingering effects from that violation. In this context, it is inconsequential that there may be no more specific relief the court can order the Secretary to supply. Cf. Carey v. Piphus, 435 U.S. 247, 98 S. Ct. 1042, 55 L. Ed. 2d 252 (due process violation is itself an injury). Further, the Secretary's regulations have not granted plaintiffs the requested right to a hearing so that the question whether the Due Process Clause requires such a hearing remains a live issue below.

The Secretary meanwhile has supplied no authority for her suggestion that to bring suit to establish due process procedures a plaintiff must allege that he or she actually sought each particular procedure due process requires. The controlling cases reflect no such requirement. Indeed, in the seminal case of Goldberg v. Kelly, 397 U.S. 254, 90 S. Ct. 1011, 25 L. Ed. 2d 287, plaintiffs alleged merely that they were terminated from welfare or were about to be terminated without due process and did not assert that they had specifically sought the kind of hearing the Supreme Court ultimately decided was necessary. Such a requirement ...

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