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March 18, 1992

MEDCARE HMO, an Illinois not-for-profit corporation, Plaintiff,
PHIL BRADLEY, individually and in his capacity as Director of the Illinois Department of Public Aid, Defendant.


The opinion of the court was delivered by: CHARLES P. KOCORAS


CHARLES P. KOCORAS, District Judge:

 This matter is before the Court on plaintiff's motion for a permanent injunction. We have jurisdiction pursuant to 28 U.S.C.A. §§ 1331, 1343 (West 1976). For the following reasons, we grant the permanent injunction based on the findings and conclusions set forth below.


 Plaintiff, MEDCARE HMO ("MEDCARE"), is an Illinois not-for-profit health maintenance organization ("HMO") serving individuals in and around Chicago. Defendant, Phil Bradley ("Defendant"), is the Director of the Illinois Department of Public Aid ("IDPA"). As Director, Mr. Bradley is responsible for administering the Illinois Medicaid program authorized by Title XIX of the Social Security Act. 42 U.S.C.A. § 1396 et. seq (West 1992).

 In 1986, MEDCARE and the IDPA entered into a contract. Pursuant to this contract, MEDCARE agreed to provide its services as an HMO to Illinois medicaid recipients. In return, the IDPA agreed to pay MEDCARE a monthly fee that was based on the number of medicaid recipients enrolled by MEDCARE ("enrollees").

 The parties periodically renewed and amended the 1986 contract. The last such renewal occurred in September, 1990. Like the 1986 agreement, the 1990 contract required IDPA to pay a monthly fee to MEDCARE based on the number of MEDCARE medicaid enrollees. IDPA promised to pay this fee by the tenth calendar day of each month. The parties agreed that this fee would constitute payment for all of the medical needs incurred by these enrollees during that month. In turn, MEDCARE promised to pay the members of its health care network--those agreeing to do business with MEDCARE, including hospitals, clinics, pharmacies, and physicians--for the services they performed for MEDCARE's medicaid enrollees. MEDCARE promised to provide these payments by the fifteenth of every month or within forty-eight hours after receipt of payment from the IDPA if the IDPA was late in paying MEDCARE.

 Under the 1990 provisions, both parties were entitled to terminate the contract with or without cause upon proper notice. An additional thirty days notice was required if either party terminated the contract without cause. Moreover, according to its terms, the 1990 contract would "automatically terminate on September 30, 1992."

 Currently, MEDCARE serves the medical needs of approximately 57,000 Illinois citizens. Approximately 43,500 of these citizens are poor people who rely on Medicaid for their health needs. MEDCARE is the second largest Illinois HMO that provides such services. Additionally, MEDCARE operates four wholly-owned clinics, two of which serve the residents of the Robert Taylor Homes and Cabrini Green.

 The stimulus, at least in part, for this lawsuit was a meeting attended by both parties on August 27, 1991. According to both Sondra Rafferty and Senator Ted Leverenz, the meeting was requested by them so that a planned recapitalization and reorganization program of MEDCARE could be presented to the IDPA for their information and, hopefully, tentative approval. Under its planned reorganization, MEDCARE would become a for-profit corporation and receive a capital infusion of eight million dollars. The goal of the restructuring was to provide a financial cushion so that MEDCARE could pay its medical care providers on a timely basis even when the IDPA was late in its payments to it. MEDCARE had previously received tentative approval of its plans from the Illinois Department of Insurance, another State agency with some oversight responsibility over MEDCARE.

 Although the witnesses who testified at the hearing differed as to many of the specifics about the August 27, 1991 meeting, there was not much dispute that it was a one-sided meeting. Believing that the purpose of the meeting was to inform Director Bradley and other IDPA personnel in attendance about the planned reorganization, Ms. Rafferty began detailing her financial reorganization proposal. Director Bradley, however, abruptly cut her off and asserted that MEDCARE's performance under its contract was deficient in a variety of respects and that these deficiencies would have to be cured prior to any discussion about the reorganization and any possible approval of it. Included as an important aspect of MEDCARE's performance was, per Director Bradley, MEDCARE's tendency to run to Senator Leverenz for his help in dealing with IDPA's criticisms and complaints.

 As previously stated, there was substantial disagreement among the testifying witnesses who attended the August 27, 1991 meeting as to what exactly was said, but all agree that Ms. Rafferty never got a chance to tell the Director and his staff how the reorganization would solve, or help solve, the Department's biggest criticism of MEDCARE's performance under the contract, specifically its late or non-existent payments to its sub-contractor and out-of-plan providers. Although highlighting this and other concerns, Director Bradley refused to discuss specifics at the meeting. There was no exchange of views or airing of differences over MEDCARE's contract performance, and no structure was afforded by IDPA to challenge and disprove, if possible, the criticisms leveled.

 One of the disputed issues about the August meeting was whether Director Bradley told the MEDCARE people that the contract would be terminated if MEDCARE sought Senator Leverenz's assistance after the meeting or whether MEDCARE was simply "challenged" not to do so and urged to directly address its claimed performance deficiencies on its own. Director Bradley denied making an overt threat to terminate, although that is how the MEDCARE people viewed his remarks.

 In light of the necessary legal outcome of MEDCARE's First Amendment and Fourteenth Amendment claims, it is not necessary for thin court to make specific findings as to the content of the meeting, or whether the Director's decision to terminate MEDCARE's contract was based, in whole or in part, on its communications with Senator Leverenz and his efforts on MEDCARE's behalf. Nor do we find it necessary to attempt to define, in this context, proper and politically protected entreaties to an elected legislator as opposed to attempts to use the "clout" of a legislator's office on matters uniquely regulatory in nature. There is no doubt, however, that Senator Leverenz's appearances on behalf of MEDCARE nettled the IDPA people and probably contributed to the decision to terminate in some small way. At the least, his involvement made the Director's decision to terminate the contract unremorseful.

 Soon after the August meeting, Ms. Rafferty spoke with Senator Leverenz. In response, in early September, 1991, Senator Leverenz arranged a meeting with Defendant. Some time later, Defendant wrote a letter, dated January 30, 1992, informing MEDCARE that the IDPA was terminating its 1990 contract without cause. Termination was to become effective on April 1, 1992. In response to this letter, Senator Leverenz scheduled another meeting with Defendant on February 3, 1992. At this meeting, Defendant relied on the "without cause" contractual provision and refused to explain his reasons for the cancellation.

 After the senator's unsuccessful meeting, MEDCARE filed this suit. In requesting injunctive relief, MEDCARE alleges that Defendant, as the Director for the IDPA, violated 28 U.S.C.A. § 1983 by infringing on MEDCARE's rights under the First and Fourteenth Amendments. In Count I, MEDCARE contends that the IDPA violated MEDCARE's First Amendment rights because its decision to terminate the contract was primarily motivated by the HMO's lobbying activities and communications with elected state representatives. Additionally, in Count II, MEDCARE contends that the IDPA violated its Fourteenth Amendment due process rights by denying it a meaningful hearing before cancellation. Finally, in its prayer for relief, MEDCARE also seeks to recover attorneys' fees and costs.


 I. Injunctive Relief

 MEDCARE seeks a permanent injunction. Defendant's primary argument against such relief is that MEDCARE cannot succeed on the merits. Because we disagree and conclude that Defendant has proved all the other elements necessary to grant injunctive relief, we grant the requested relief.

 A. Success on the Merits

 We will first address whether MEDCARE can succeed on the merits. This is the only requirement that Defendant specifically contests. MEDCARE has brought suit under 42 U.S.C.A. § 1983. Section 1983 provides plaintiffs with a remedy for the deprivation of rights occurring under color of state law. Section 1983, however, does not provide plaintiffs with any substantive rights. Oklahoma City v. Tuttle, 471 U.S. 808, 816, 85 L. Ed. 2d 791, 105 S. Ct. 2427 (1985). Rather, it merely provides remedies for deprivations of rights established elsewhere, such as the Constitution and laws of the United States. Id. MEDCARE has alleged that Defendant's actions violate both the First and Fourteenth Amendment. Thus, in order to grant a permanent injunction, MEDCARE must demonstrate that Defendant: (1) acted under color of state law, and (2) either violated the First Amendment or the Fourteenth Amendment's due process clause.

 MEDCARE has sufficiently established that Defendant acted under color of state law. MEDCARE's complaint states that "Defendant was at all relevant times acting under color of Illinois" laws, regulations, and policies. Defendant does not contest this statement. Therefore, we need only ...

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