Bio-Medical Laboratories, Inc. v. Trainor

• Decision Date: 17 October 1977
• Docket Number: No. 49337,BIO-MEDICAL,49337
• Citation: 370 N.E.2d 223,68 Ill.2d 540,12 Ill.Dec. 600
• Parties: , 12 Ill.Dec. 600 LABORATORIES, INC., Appellee, v. James L. TRAINOR, Director of Public Aid, Appellant.
• Court: Illinois Supreme Court

Page 223

370 N.E.2d 223

68 Ill.2d 540, 12 Ill.Dec. 600

BIO-MEDICAL LABORATORIES, INC., Appellee, v. James L. TRAINOR, Director of Public Aid, Appellant.

No. 49337.

Supreme Court of Illinois.

Oct. 17, 1977.

William J. Scott, Atty. Gen., Chicago (William A. Wenzel, III, Asst. Atty. Gen., of counsel), for appellant.

Burke, Weber & Egan, Chicago (Edward J. Egan, Chicago, of counsel), for appellee.

THOMAS J. MORAN, Justice.

Plaintiff, Bio-Medical Laboratories, Inc., filed suit in the circuit court of Cook County seeking to restrain the defendant, James L. Trainor, Director of the Illinois Department of Public Aid, or his successor from suspending plaintiff's right to participate in the Illinois medical assistance program (Medicaid) (Ill.Rev.Stat.1975, ch. 23, par. 5-1 et seq.). The trial court granted a "Temporary Restraining Order," and, after briefing and argument, denied defendant's motion to dismiss and entered a preliminary injunction, having found defendant to be without express or implied statutory authority to suspend or terminate plaintiff's participation. Because the issue of the defendant's authority has arisen in other cases presently pending before the circuit court, we ordered defendant's appeal taken directly to this court pursuant to Rule 302(b)(58 Ill.2d R. 302(b) ).

Plaintiff has participated in the Medicaid program since 1969. In 1976, after it was discovered that the Department of Public Aid's (Department) reimbursements to plaintiff had increased 58% Over a three-month period, defendant ordered an audit of plaintiff's clinic billing and record-keeping procedures. On November 24, 1976, Robert G. Wessel, defendant's chief assistant, notified plaintiff that it would be terminated from further participation if it failed to submit certain business records to the Department within 15 days. Two days later, representatives of both parties met and allegedly reached an agreement regarding plaintiff's duty to disclose certain records. According to the defendant, plaintiff was thereafter notified that no further action would be taken pursuant to the Department's threat of suspension. On November 30, the Department's auditors filed their report citing certain discrepancies in plaintiff's billing procedures which had resulted in alleged overpayments of $9,990.75. By extrapolation, the auditors determined that an estimated $321,291 in overpayments had been paid to plaintiff during an 18-month period. As a result of these alleged improper billing procedures and plaintiff's refusal to turn over records, the Department's auditors recommended to the defendant that plaintiff be suspended from further participation as a Medicaid vendor, and that action be taken to recoup the overpayments.

One week later, plaintiff filed its suit for injunctive relief alleging that defendant had indicated his intention to suspend plaintiff from the program forthwith. It also alleged that 90% Of its business involved Medicaid payments, and asserted that defendant was without authority to suspend.

In an affidavit filed with the defendant's motion to dismiss, defendant stated that any action taken by the Department would be subject to the Department's rules and regulations, and that plaintiff would not be terminated until procedural requirements in accordance with those rules had been met.

Defendant has raised several threshold issues challenging plaintiff's legal authority to maintain this action. He asserts plaintiff lacks standing in that no formal notice of intent to terminate had been served pursuant to rule, and that no other formal action had been taken to implement the auditors' recommendation to suspend or recoup overpayments. Despite defendant's characterization of this issue as one involving standing, the real question is whether there is a controversy ripe for adjudication.

It is elementary that a motion to dismiss admits all facts well pleaded. We therefore must assume plaintiff's allegation that "defendant, James Trainor, has informed the plaintiff that he intends to forthwith suspend the plaintiff from the Public Aid Program" is a true statement. The auditors' report recommended that plaintiff be suspended from the program, and all that remained for the defendant to decide was whether action would be taken on the basis of that report.

The basic rationale of the ripeness doctrine as it relates to challenges against unlawful administrative action "is to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements over administrative policies, and also to protect the agencies from judicial interference until an administrative decision has been formalized and its effects felt in a concrete way by the challenging parties." (Abbott Laboratories v. Gardner (1967), 387 U.S. 136, 148-49, 87 S.Ct. 1507, 1515, 18 L.Ed.2d 681, 691). Absent defendant's announced intention, we would agree that plaintiff's action was premature. Defendant's threat of action, however, along with the recommendation of the auditors, constituted a sufficient final determination to warrant judicial consideration.

Defendant also asserts that plaintiff lacks standing in that it has no protectible interest at stake. It is argued that no vendor, medical or otherwise, has a substantive legal right to do business with the State against the State's will, and that no medical vendor has "a right or interest either recognized by common law or created by statute" to continue participation in the Medicaid program. Defendant cites Perkins v. Lukens Steel Co. (1940), 310 U.S. 113, 60 S.Ct. 869, 84 L.Ed. 1108, for the proposition that no citizen has the "right" to do business with the government, and, therefore, has no standing to challenge the rules and regulations imposed as a condition of doing business. Perkins, however, is not applicable to this case. There, certain iron and steel manufacturers sought to restrain the Secretary of Labor from carrying out an administrative determination that all future government contracts require, as a contractual condition, that the supplier pay its employees the minimum wage prevailing in a given locality. The Supreme Court held that, as prospective bidders, the steel and iron manufacturers did not have standing to challenge the Secretary's determination because (1) the government was entitled to impose contractual conditions on parties it had chosen to contract with, and (2) the steel and iron manufacturers were unable to show that a legal right had been invaded or threatened. Here, however, the plaintiff possesses a legal interest which is threatened, that being its expectation of continuing to receive Medicaid payments on behalf of the Medicaid recipients it services. Contrary to defendant's contention, this "expectation interest" has been recognized as a protectable legal interest. (See, e. g., Hathaway v. Mathews (7th Cir. 1976), 546 F.2d 227, 230; Case v. Weinberger (2d Cir. 1975), 523 F.2d 602, 606.) "Interruption of an existing relationship between the government and a contractor places the latter in a different posture from one initially seeking government contracts and can carry with it grave economic consequences." (Gonzalez v. Freeman (1964), 118 U.S.App.D.C. 180, 184, 334 F.2d 570, 574.) In Gonzalez, plaintiff sought to challenge the Secretary of Agriculture's authority to terminate its eligibility to participate in the Commodity Credit Corporation's contracting program. The court there stated:

"Thus to say that there is no 'right' to government contracts does not resolve the question of justiciability. Of course there is no such right ; but that cannot mean that the government can act arbitrarily, either substantively or procedurally, against a person or that such person is not entitled to challenge the processes and the evidence before he is officially declared ineligible for government contracts. An allegation of facts which reveal an absence of legal authority or basic fairness in the method of imposing debarment presents a justiciable controversy in our view." (118 U.S.App.D.C. 180, 184, 334 F.2d 570, 574-75.)

See also Buettell v. Walker (1974), 59 Ill.2d 146, 151-52, 319 N.E.2d 502, wherein this court held a State contractor had standing to challenge the Governor's authority to require him to disclose political contributions as a condition of doing business with the State.

We hold, therefore, that plaintiff has standing to challenge the defendant's authority to suspend.

A challenge is also made on the grounds that plaintiff's action is barred by the doctrine of sovereign immunity. It is argued that, in essence, this action is one against the State, seeking to have it continue to do business with plaintiff. Plaintiff is not attempting to enforce a present claim against the State but, rather seeks to enjoin the defendant from taking actions in excess of his delegated authority and in violation of plaintiff's protectible legal interests. Such a suit does not contravene the immunity prohibition. (E. g., County of Cook v. Ogilvie (1972), 50 Ill.2d 379, 383, 280 N.E.2d 224; Owens v. Green (1948), 400 Ill. 380, 408-09, 81 N.E.2d 149; People ex rel. Freeman v. Department of Public Welfare (1938), 368 Ill. 505, 506-07, 14 N.E.2d 642.) For reasons the same as expressed above, we also reject defendant's contention that the Court of Claims has exclusive jurisdiction over the subject matter of this action.

A final threshold contention raised by the defendant is the appropriateness of injunctive relief. He argues that plaintiff should have first submitted itself to the hearing procedures established by the Department's rules and regulations, and then sought a review of the Director's authority by writ of certiorari. This argument must be rejected, for a party need not exhaust his administrative remedies where the statute, or in this instance, administrative rule, is attacked on its face. Walker v. State Board of Elections (1976), 65 Ill.2d...