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STATE OF ILL. DEPT. OF PUB. AID v. HECKLER

August 23, 1985

STATE OF ILLINOIS BY THE ILLINOIS DEPARTMENT OF PUBLIC AID, PLAINTIFF,
v.
MARGARET HECKLER, SECRETARY OF HEALTH AND HUMAN SERVICES, DEFENDANT.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Invoking federal-question jurisdiction under 28 U.S.C. § 1331, the State of Illinois ("Illinois") seeks judicial review of the disallowance by Secretary Margaret Heckler ("Secretary") of the United States Department of Health and Human Services ("HHS") of reimbursement claimed by Illinois under Title XX of the Social Security Act (the "Act"), 42 U.S.C. § 1397-1397f.*fn1 Each party has moved for summary judgment under Fed.R.Civ.P. ("Rule") 56. For the reasons stated in this memorandum opinion and order, Secretary's motion is granted and Illinois' motion is denied.

Facts*fn2

Illinois has long provided free educational services for handicapped children, consistent with the declaration in Ill. Const. art. X, § 1 that every Illinois child has the right to a "free common school education." See Ill.Rev.Stat. ch. 122, §§ 14-1 to 14-12 (in the form enacted by the School Code of 1961 and hence applicable to the years at issue in this case). In the wake of the federal Education for All Handicapped Children Act of 1975, 20 U.S.C. § 1411-1420 ("EAHCA"), Illinois stepped up its efforts to provide "a free appropriate public educational to all handicapped children" (EAHCA § 1412(3)) and sought to qualify for federal financial assistance (see Illinois Mem.Ex. E).

Local school districts, under the guidance of the Illinois Office of Education, are responsible for identifying children in need of special education (id.). Other state agencies may then participate in the treatment and education of the students, but the Office of Education is charged with overseeing the educational programs offered by the other agencies (Illinois Mem. 9; Ill.Rev. Stat. ch. 122, ¶ 14-8.01, part of the current version of the School Code).

During nearly the entire period relevant to this action, Illinois' Department of Children and Family Services ("DCFS") operated three residential schools for the education of handicapped children:*fn3

    1. the Illinois Braille and Sight Saving School
  (now renamed the Illinois School for the Visually
  Impaired);

2. the Illinois School for the Deaf; and

    3. the Illinois Children's Hospital-School (now
  called the Illinois Children's

  School and Rehabilitation Center) for children
  with orthopedic handicaps.

Students at those schools were drawn from districts all over the state that did not offer comparable programs. Indeed, the lack of classes at the local level was a prerequisite for admission to at least the first two schools (Illinois Mem. 7).

Illinois has applied to HHS for reimbursement of funds expended between October 1, 1975 and March 31, 1980 on various programs covered by Title XX. Its claim included $9,104,702 for operation of the DCFS schools, comprising:

1. $6,311,908 for educational programs and

2. $2,792,804 for room and board expenses.

Initially an HHS regional administrator disallowed all the claimed expenses. On July 29, 1983 that decision became Secretary's when the HHS Grant Appeals Board ("Board") affirmed the disallowance (Illinois Mem.Ex. A).*fn4

Timeliness of This Action

Secretary first argues this action (brought January 15, 1985) is untimely because it was filed nearly 18 months after Board's decision. Although she concedes there is no directly applicable statute of limitations, she argues alternatively:

    1. Illinois' action is barred by the equitable
  doctrine of laches.
    2. This Court should (a) borrow a 60-day
  statute of limitations from other types of
  actions authorized under the Act and (b) apply
  that statute retroactively to bar Illinois'
  Complaint.

Neither alternative is tenable.

1. Laches

Lingenfelter v. Keystone Consolidated Industries, Inc., 691 F.2d 339, 340 (7th Cir. 1982) reaffirmed that a laches defense cannot succeed without a showing of both plaintiff's lack of diligence and prejudice to defendant:

  Laches is principally a question of the inequity
  of permitting a claim to be enforced. It is
  unlike limitation, which is based merely on time.
  Rather, laches is based upon changes of
  conditions or relationships involved with the
  claim.

Only last week our Court of Appeals again confirmed that twofold aspect of a laches defense (Jeffries v. CTA, 770 F.2d 676, 679 (7th Cir. 1985)):

  Laches will bar this claim only if [plaintiff]
  had inexcusably delayed in asserting it and
  [defendant] has been materially prejudiced by the
  delay.

Secretary has simply failed to show any "changes of conditions" or other prejudice (material or otherwise) in this case. Instead her Mem. 23-28 conjures up the specter of the administrative havoc and uncertainty that could result if many other litigants delayed as long as Illinois has in seeking review of disallowances. Thus Secretary urges this Court to bar Illinois' claim strictly as a matter of policy and as a speculative means of deterring other litigants from following Illinois' example.

But an appeal to equitable relief must focus on the circumstances of this case, not another and purely hypothetical one. Effectively Secretary asks this Court, in the exercise of its equitable powers, to establish a rigid rule of law under which any petition for review of a disallowance, if filed 17 or more months after Board's decision, would be barred regardless of the individual circumstances of the case.

Such rigidity is antithetic to the very concept of equity. As Black's Law Dictionary 484 (5th ed. 1979) reflects (mirroring the origins of courts of equity), equity itself involves the rejection of rigid rules to accomplish what is fair and just in a particular situation. Absent a showing of material prejudice to Secretary (and none has been made), the equitable doctrine of laches is inapplicable to the circumstances of this case.

2. Retroactive Application of a Borrowed Statute

Secretary then argues at great length this Court should borrow and apply the 60-day statute of limitations applicable to many other Social Security Act claims, just as the Supreme Court has applied "borrowed" limitations periods in Wilson v. Garcia, ___ U.S. ___, 105 S.Ct. 1938, 85 L.Ed.2d 254 (1985) and DelCostello v. International Brotherhood of Teamsters, 462 U.S. 151, 103 S.Ct. 2281, 76 L.Ed.2d 476 (1983). She asserts courts are the appropriate governmental arm to establish a limitations period for disallowance reviews, because jurisdiction to entertain such reviews in the first place has been implied by courts rather than expressly conferred by Congress. State of Illinois, Department of Public Aid v. Schweiker, 707 F.2d 273, 275, 277 (7th Cir. 1983).

But even if it were assumed proper to apply a "borrowed" limitations period, and even if Secretary's proposal of a 60-day period were deemed appropriate to that end, that period should not be applied retroactively to bar Illinois' claim. Chevron Oil Co. v. Huson, 404 U.S. 97, 106-07, 92 S.Ct. 349, 355-56, 30 L.Ed.2d 296 (1971) teaches a decision may not be applied retroactively if each of two conditions obtains:

    1. That new decision resolves "an issue of
  first impression whose resolution was not ...

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