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Woodruff v. Joannmason

September 5, 2008

RANDALL L. WOODRUFF, AS BANKRUPTCY TRUSTEE FOR LEGACY HEALTHCARE, INC., PLAINTIFF-APPELLANT,
v.
JOANNMASON, GERALDCOLEMAN, SUZANNEHORNSTEIN, CLARAMCGEE, KAREN POWERS, ROBERT STARK, MARGARET ELLIS, AVONACONNELL AND KAREN DAVIS, DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 00 C 306-Larry J. McKinney, Judge.

The opinion of the court was delivered by: Cudahy, Circuit Judge.

ARGUED FEBRUARY 13, 2008

Before CUDAHY, POSNER and EVANS, Circuit Judges.

Legacy Healthcare, Inc. (Legacy) and its predecessor, Community Care Centers, Inc. (Community), operated a number of long-term care facilities in Indiana. On February 18, 2000, Legacy brought this action under 42 U.S.C. § 1983, alleging that employees of the Indiana Family and Social Services Administration (FSSA) and the Indiana State Department of Health (ISDH) violated its rights under the First Amendment and Fourteenth Amendment. The FSSA administers Indiana's*fn1 Medicaid program through its Office of Medicaid Policy and Planning (OMPP); the ISDH is the state agency authorized to inspect care facilities and determine their compliance with federal Medicaid regulations. Legacy believes that FSSA employees developed an antipathy toward Legacy and Community after years of contentious litigation between the parties. It claims that the FSSA convinced the ISDH to use its regulatory authority to launch a predatory enforcement campaign aimed at driving Legacy out of business. According to Legacy, this predatory enforcement constituted First Amendment retaliation and violated the Equal Protection Clause. The district court granted summary judgment in favor of Defendants on all counts. We now affirm.

I.

The record in this case is voluminous. Any reader interested in a complete exposition of the facts is referred to the district court's lengthy background discussion. See Woodruff v. Wilson, 484 F.Supp.2d 876, 880-925 (S.D. Ind. 2007). We recite only the facts that are necessary to our decision, and we read these facts, wherever possible, in the light most favorable to Legacy.

Legacy and Community have been locked in litigation with the FSSA for years. In 1988, Community brought a challenge to state Medicaid reimbursement rules in Indiana state court. Community convinced the Delaware County Superior Court to issue an injunction requiring the Indiana Department of Public Welfare (IDPW) to pay*fn2 Community a higher reimbursement rate during the pendency of the litigation. The case was then moved to Blackford County Superior Court, which ruled in favor of Community on the merits. The IDPW appealed, and the case was consolidated with a large class action suit that challenged the same reimbursement rules. See Indiana State Bd. of Pub. Welfare v. Tioga Pines Living Center, Inc., 622 N.E.2d 935 (Ind. 1993). The cases were transferred directly to the Indiana Supreme Court, which reversed the lower courts and upheld the regulations. Id. Karen Davis, an attorney for the FSSA who had been involved in the litigation since 1990, went back to Blackford County court to recoup the millions of dollars paid to Community under the erroneous injunction. The FSSA argued that Community had been unjustly enriched by the injunction and had been misusing Medicaid funds. Community argued that it had not been unjustly enriched because it spent all of the money on patient care. In the end, the FSSA's recoupment attempts were unsuccessful.

Community also sued the IDPW in federal court over Medicaid reimbursement for its Hamilton Heights facility (later known as New Horizon). Hamilton Heights was a skilled nursing facility (SNF) that was in the process of being converted into an intermediate care facility for the mentally retarded (ICF/MR). An ICF/MR is required to provide a higher level of care than an SNF and is therefore reimbursed at a higher rate. Community sued the IDPW, arguing that it should be paid the higher ICF/MR reimbursement rate while it underwent its conversion. Community again obtained a preliminary injunction and the IDPW again paid a substantial amount of additional reimbursement ($1,783,480.20). The district court also ruled for Community on the merits, but we reversed. See Lett v. Magnant, 965 F.2d 251 (7th Cir. 1992). The FSSA attempted to recoup some of excess reimbursement paid to Hamilton Heights by withholding payment for current services. Community was able to avoid the recoupment attempts, in part by arguing that the recoupment would cause imminent business failure. Family and Social Servs. Admin. v. Cmty. Care Centers, Inc., 641 N.E.2d 1012 (Ind. Ct. App. 1994). The FSSA's subsequent attempts to recoup the money also failed. See Cmty. Care Centers, Inc. v. Sullivan, 701 N.E.2d 1234 (Ind. Ct. App. 1998).

Legacy also litigated with state agencies over whether the FSSA was required to recognize Legacy as the owner of Community facilities after Douglas Bradburn, Legacy's President, acquired all of his parents' business assets in October 1993. The FSSA eventually entered into a joint stipulation with Legacy, settling the issue. Davis allegedly became "visibly angry" when she learned of this result, presumably because the transfer of the business operations to Legacy prevented the ISDH from recouping funds by automatically deducting them from payments for current services.

In 1996, ISDH initiated proceedings against Legacy's North Vernon facility for decertification. During administrative proceedings seeking the decertification of North Vernon, Legacy discovered that on November 6, 1996, Beverly Craig of the ISDH had called a meeting, which included officials from the FSSA and the Attorney General's office, regarding the state of health care at Legacy facilities. The attendees included Davis, Jo Anne Mason, Suzanne Hornstein, Gerald Coleman and others. Craig*fn3 later testified that she called the meeting because she was concerned that Legacy was failing to provide adequate care at a number of different facilities.

Legacy claims that it had a perfect record of compliance with state regulations over the first thirty-two years of its operation, easily passing inspections and enjoying a good reputation with the public. Following the November 6, 1996 meeting, however, there was a "deluge" of allegedly predatory enforcement actions: 12 jeopardy charges, 14 licensure actions and 14 decertifications over the next three years. Legacy believes that the subsequent enforcement*fn4 campaign, which allegedly included the manipulation of survey findings, was designed to drive Legacy out of business. Legacy points to three specific examples:

(1) the withholding of North Vernon's copy of its license;

(2) the manipulation of 180-day cycles; and (3) the de-certification of New Horizon on the basis of a single standard. We will explain these actions briefly.

The dispute over the decertification of North Vernon was eventually completed in April 1997. ISDH conducted a number of recertification surveys over the next few months; Legacy was then recertified. But Legacy never received the physical copy of its license. Despite numerous calls to ISDH, Legacy was unable to obtain a copy of its license. On March 17, 1998, Legacy received its annual renewal application; the application was processed but, again, no copy of the license was issued. Because Legacy never received the license, the facility was never certified for Medicare. At a meeting in 1998 between Legacy, the ISDH and an official from the Health Care Financing Administration (HCFA), Hornstein stated that the license was not delivered because it was "in litigation." Years later, she testified that she was not aware that North Vernon had not been given its license, explaining that she assumed that it had been.

The ISDH is responsible for conducting surveys at long-term care facilities. When a survey reveals a deficiency, a 180-day cycle begins during which the facility must correct the deficiency or face decertification: if the deficiency is corrected, the cycle ends; if the deficiency is not corrected, additional surveys are undertaken and the 180-day cycle continues to run. Legacy claims that Hornstein broadened the scope of surveys at Legacy facilities to wrongfully keep it out of compliance. Specifically, Legacy asserts that the 180-day cycle was improperly applied at Legacy's Portland East facility in 1997, 1998 and 1999, at Columbus in 1998 and 1999, at New Castle in 1998, at Portland West in 1998 and at North Vernon in 1998.

Legacy also alleges that Hornstein and Coleman improperly decertified the New Horizon facility in 1998 for its failure to comply with a single "standard of participation." In early 1998, Hornstein and Coleman issued a notice of decertification to New Horizon; the decertification notice was based upon a recently conducted survey of the facility which had found three deficiencies involving "standards of participation." Two of these deficiencies were apparently corrected, but the decertification action proceeded nonetheless. Legacy believes that this was improper. Legacy claims that its "comprehensive study" of the fifteen ICF/MRs operating in Indiana revealed that eight other facilities had been certified even though they had standard-level deficiencies.

Legacy filed its complaint for injunctive relief and damages on February 18, 2000. The district court denied its motion for a preliminary injunction on March 6, 2000. Legacy filed its First Amended Complaint on April 17, 2000. The defendants filed their motion for summary judgment on August 16, 2004. On April 27, 2007, the district court granted the defendants' motion for sum-mary judgment. This appeal follows.

II.

We review a grant of summary judgment de novo. See Wyninger v. New Venture Gear, Inc., 361 F.3d 965, 974 (7th Cir. 2004). Summary judgment is appropriate only if "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). We construe facts in the light most favorable to the non-moving party but "we are not required to draw every conceivable inference from the record." Bell v. Duperrault, 367 F.3d 703, 707 (7th Cir. 2004) (quoting McCoy v. Harrison, 341 F.3d 600, 604 (7th Cir. 2003)). Instead, we draw only reasonable inferences. See McDonald v. Village of Winnetka, 371 F.3d 992, 1001 (7th Cir. 2004).

On appeal, Legacy argues that it produced enough evidence to create a material issue of fact as to both its First Amendment retaliation claim and its equal protection claim. At oral argument, counsel for Legacy*fn5 conceded, wisely we think, that the "heart" of the First Amendment retaliation claim was the November 6, 1996 meeting. Legacy claims that it was at this "clandestine summit meeting" that Davis and Mason, who worked at the FSSA, persuaded Hornstein and Coleman of the ISDH to launch a predatory enforcement campaign against Legacy in retaliation for Legacy's exercise of its First Amendment right to petition the courts. Even if the*fn6 ISDH's predatory enforcement campaign was not motivated by a spirit of retaliation, Legacy claims that the ISDH's intentional manipulation of regulatory rules was so arbitrary and irrational that it violated the Equal Protection Clause.*fn7

Ultimately, both of these arguments fail. Legacy's First Amendment claim fails because Legacy has not established that the FSSA was actually aggravated by the reimbursement litigation, or that the FSSA was the guiding hand behind the ISDH's enforcement actions. Legacy's equal protection claim fails because it has failed to indicate similarly situated facilities to which it can be compared and because it has failed to sufficiently state the factual basis of its claims. We will first discuss the First Amendment ...


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