Appeal from Circuit Court of Sangamon County No. 98L138 Honorable Robert J. Eggers, Judge Presiding.
The opinion of the court was delivered by: Justice Cook
Plaintiff, Illinois Department of Public Health (Department), brought this action against defendant, April Jackson, M.D., alleging that she had violated the terms of her scholarships under the Family Practice Residency Act (Act) (110 ILCS 935/1 through 10 (West 1998)) in that she had failed to practice medicine in a "[d]esignated [s]hortage [a]rea." 110 ILCS 935/3.07(d) (West 1998). The Department sought treble damages. See 110 ILCS 935/10 (West 1998). On January 14, 2000, the circuit court entered summary judgment in favor of the Department in the amount of $67,175, plus prejudgment interest of $14,911.16. Jackson appeals, arguing that she substantially performed her obligations under the scholarship agreements and that the imposition of treble damages on the facts of this case is contrary to public policy. We reverse and remand.
The Department presented the following facts in support of its motion for summary judgment. Jackson is a physician, who received her medical degree from the University of Illinois Medical School at Peoria in 1989. While she was in medical school, Jackson and the Department entered into written contracts pursuant to the Act. Under those contracts, the Department paid the medical school $40,305 on Jackson's behalf for the three academic years prior to 1989.
Section 3.07(d) of the Act (110 ILCS 935/3.07(d) (West 1998)) defines an "eligible medical student" as one who "agrees to practice full-time in a [d]esignated [s]hortage [a]rea as a primary care physician one year for each year he or she is a scholarship recipient."
Jackson completed her residency in internal medicine on June 30, 1992. Thomas A. Yocom, the Department's coordinator of the Medical Student Scholarship Program, stated in an affidavit that "between 1986 and 1995, no proposal for practice in a designated shortage area was received by the affiant or the Department from April Jackson before she commenced medical practice in Illinois." Beginning April 1, 1994, Jackson practiced medicine at Holy Cross Family Medical Center (Holy Cross) in Chicago. Jackson left Holy Cross in October 1994 and began practicing at Chatham Health Associates (Chatham) in Chicago, continuing to practice at that location through March 31, 1997. Jackson accordingly practiced at Holy Cross and Chatham for three years. The Department filed this action on April 3, 1998. Jackson's practice at Holy Cross and Chatham was in a "primary care" specialty and was a "full-time" endeavor. Holy Cross and Chatham were located in a "designated shortage area" (110 ILCS 935/3.04 (West 1998)). However, Jackson did not obtain written approval from the Department prior to her commencement of medical practice, nor did Jackson practice medicine in Illinois between the June 1992 completion of her residency and the April 1994 commencement of her practice at Holy Cross. The record fails to account for Jackson's activities during that period.
The Department, in its motion for summary judgment, sought treble damages of $120,915. The Department stated, however, that "except for the defendant's failure to seek and obtain [the Department's] advance approval of her specific practice site or location, her 16 months of service would have partially fulfilled her contractual service obligation." Accordingly, the Department was willing to grant Jackson a credit of $53,740 for her 16 months of practice which fell within the first three years after her residency. The credit reduced the amount of damages to $67,175, and the trial court granted summary judgment in that amount.
The record does not reflect whether the Department was aware that Jackson was working at Holy Cross or at Chatham. Nor does the record reflect whether the Department had any contact with Jackson while she was doing that work, or whether the Department was aware that Jackson expected credit for that work. The Department did not order Jackson to work at any location other than Holy Cross or Chatham. The record does not indicate why the Department waited until April 1998 to file this action.
The Department argues in its brief that Jackson breached her contract and that the Department was damaged in that "it was deprived of the medical services for which it bargained." The Department argues that Jackson was required to work in an area that the Department approved, not wherever she wanted, and that Jackson was required to begin her service within 30 days after her residency ended, not when she felt like it.
The Act lists among its purposes the providing of "a loan repayment program for physicians who will agree to practice in areas of the State demonstrating the greatest need for more professional health care." 110 ILCS 935/2 (West 1998). A scholarship recipient who fails to fulfill the practice requirement "shall pay to the Department a sum equal to [three] times the amount of the annual scholarship grant for each year the recipient fails to fulfill such obligation," and "shall have 30 days from the date on which that failure begins in which to enter into a contract with the Department that sets forth the manner in which that sum is required to be paid." 110 ILCS 935/10 (West 1998). The Department's regulations provide that "service shall be deferred by the Department until recipient completes a primary care residency; service shall begin no later than 30 days after completion." 77 Ill. Adm. Code §590.240(b)(1) (1994). The Act does not contain that 30-day limitation, although it is clear the service is due upon completion of residency.
The Act bears some similarities to the National Health Service Corps (NHSC) scholarship program. 42 U.S.C. §§254l through 254s (1988). Although the Act is in many ways unique, it is useful to consider cases decided under the federal statute.
There are certainly differences between the NHSC or the Act and a contract with a private lender. We should reject a construction of the statute which allows a scholarship recipient to simply rescind the contract and pay back the money. In the interest of servicing the policy goals of the statute, the service obligation was intended to be one not easily avoided. United States v. Melendez, 944 F.2d 216, 219 (5th Cir. 1991). The NHSC scholarship program is not intended as a mechanism solely to subsidize health profession education, but as a means to overcome a geographic maldistribution of health professionals. Rendleman v. Bowen, 860 F.2d 1537, 1541 (9th Cir. 1988). Prior written approval of a location is important to assure that the services are actually going to people who are in need and that health care is actually being given to the underserved. The Secretary of Health, Education, and Welfare (Secretary) must be able to retain control over where the scholarship recipients serve or the program is meaningless. The recipients cannot unilaterally, without proper approval, decide where they wish to serve if the program is to be effective. United States v. Vanhorn, 20 F.3d 104, 108 n.9, 114 (4th Cir. 1994).
It has been said that the conditions imposed upon an NHSC scholarship recipient arise from statutory directives, not from a negotiated agreement between the parties. Rendleman, 860 F.2d at 1541. "Statutory intent, therefore, is more relevant to the interpretation of these conditions than are common[-]law contract principles." Rendleman, 860 F.2d at 1541-42. NHSC scholarships are said to be analogous to grants in aid under the Hill-Burton Act, formally known as Title VI of the Public Health Services Act (42 U.S.C. §291 (1988)), where the federal government gave money to the states to develop and improve hospital physical facilities and research, and the health care facilities were required to provide no-cost health services to the poor. Vanhorn, 20 F.3d at 111. The argument of the health care facilities that the Hill-Burton Act's requirement to provide no-cost services to the poor deprived them of freedom of contract was rejected because the grant-in-aid program was not much like a voluntary agreement negotiated between two parties. It was instead an exercise by the federal government of its authority under the spending power to bring about certain public policy goals. American Hospital Ass'n v. Schweiker, 721 F.2d 170, 182-83 (7th Cir. 1983).
It may be questioned whether NHSC scholarships issued on an individual basis are all that similar to health care grants in aid under the Hill-Burton Act. If the government chooses to enter into contracts with an individual, why should the individual be subject to the law of contracts, but the government not be? The Rendleman language "does not mean that the government and Becker did not have a contract, of course; the statute describes the scholarship agreement as a 'contract.'" United States v. Becker, 995 F.2d 779, 783 n.3 (7th Cir. 1993). Military enlistment contracts, also entered into pursuant to statute, are decided according to principles of traditional contract law. Vanhorn distinguished the military enlistment cases on the basis that they "do not arise under a detailed statutory scheme like the one governing NHSC scholarships." Vanhorn, 20 F.3d at 111. That argument is unavailing with the Illinois Act. The Illinois statutory scheme is nowhere near as detailed as the federal NHSC program.
The Fourth Circuit in Vanhorn held that ordinary contract principles did not apply to NHSC recipients, but it also addressed those principles in the case before it, determining there was no contract defense. Vanhorn, 20 F.3d at 112 n.19. The Fourth Circuit went on to stress that the inapplicability of contract principles did not leave the scholar without recourse. An appeal could be taken to the Secretary, who in proper circumstances could cancel, waive, or suspend the scholar's obligation. 42 U.S.C. §254o(c)(3) (1988). The Secretary's action could be overturned by a court if arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. Vanhorn, 20 F.3d at 112; see also Melendez, 944 F.2d at 219 (idea that contract principles do not apply "is not to say that the acts or omissions of the Secretary *** can never provide a basis for relief"). Relief is available "whenever compliance by the individual is impossible or would involve extreme hardship to the individual and if enforcement of such obligation with respect to any individual would be unconscionable." 42 U.S.C. §254o(d)(2). There is no similar provision in the Illinois statute, but clearly the Department has the power in individual cases to take action to prevent injustice or undue hardship, which power ...