488 F.3d 11 (1st Cir. 2007), 07-1240, Dr. Jose S. Belaval, Inc. v. Perez-Perdomo

Docket Nº:07-1240.
Citation:488 F.3d 11
Party Name:DR. JOS
Case Date:May 18, 2007
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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488 F.3d 11 (1st Cir. 2007)

DR. JOSÉ S. BELAVAL, INC., Plaintiff, Appellant,

Rio Grande Community Health Center, Inc.; Concilio De Salud Integral De Loiza, Inc. (CSILO), Plaintiffs,

v.

Rosa PÉREZ-PERDOMO, Secretary, Department of Health of the Commonwealth of Puerto Rico, Defendant, Appellee,

Commonwealth of Puerto Rico; United States Department of Health and Human Services; Michael Leavitt, Secretary, United States Department of Health and Human Services, Defendants.

No. 07-1240.

United States Court of Appeals, First Circuit.

May 18, 2007

Heard May 7, 2007.

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Robert A. Graham, with whom James L. Feldesman, Feldesman Tucker, Leifer Fidell LLP and Ignacio Fernandez de Lahongrais were on brief, for appellant.

Francisco J. Amundaray and Mercado & Soto, P.S.C. on brief for Municipality of San Juan, amicus curiae.

Luis A. Rodriguez-Muñoz, with whom Eduardo Vera-Ramírez, Eileen Landrón-Guardiola, Landrón & Vera, LLP, Roberto Sánchez-Ramos, Secretary of Justice, and Salvador Antonetti-Stutts, Solicitor General, were on brief for appellee.

Before LYNCH, LIPEZ, and HOWARD, Circuit Judges.

LYNCH, Circuit Judge.

This case is part of a continuing saga of Puerto Rico's attempts to avoid paying money owed to a medical provider under federal Medicaid law. Plaintiff Dr. José S. Belaval, Inc. is a federally-qualified health center ("FQHC") under the federal Medicaid statute. Federal law entitles Belaval to certain payments from Puerto Rico, see 42 U.S.C. § 1396a(bb), and when Puerto Rico failed to set up a system for making those payments, Belaval successfully obtained a preliminary injunction in 2004 requiring Puerto Rico to do so prospectively. Much of the background behind this case is set out in our two earlier opinions pertaining to this litigation. See Dr. José S. Belaval, Inc. v. Pérez-Perdomo, 465 F.3d 33 (1st Cir.2006) (reinstating an injunction that required payment to Belaval and that had been erroneously modified); Rio Grande Cmty. Health Ctr., Inc. v. Rullan, 397 F.3d 56 (1st Cir.2005) (affirming an order of relief requiring prospective payment to one of Belaval's co-plaintiffs).

The Commonwealth's third appearance before us stems from the Puerto Rico Supreme Court's decision in Municipality of San Juan v. Board of the José S. Belaval Community Health Center, Inc., No. CC-2005-716 (P.R. Oct. 10, 2006). In that decision, the Puerto Rico Supreme Court determined that Belaval had been operating its facilities without a valid contract with its landlord, the Municipality of San Juan. The Commonwealth sought to use this decision as a basis for avoiding its obligation to make the federally required payments. The federal district court decided that Belaval lacked "clean hands," and the court deprived Belaval of over a year's worth of payments it had been owed under the earlier injunction. The district court erred in its application of the unclean hands doctrine and in the relief it granted

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the Commonwealth. We reverse and remand to the district court.

I.

We recount only the key points from the history of this litigation, supplemented with the facts that arose after our October 2, 2006 decision in Belaval.

Because of Puerto Rico's failure to make the statutorily required Medicaid payments, three FQHCs filed suit in June 2003 seeking prospective injunctive relief from the federal district court. Belaval, the sole appellant now before us, was one of the three FQHC plaintiffs. The defendant was the Secretary of the Department of Health of the Commonwealth of Puerto Rico.

On November 1, 2004, the district court adopted a magistrate judge's report and recommendation, and it granted the plaintiffs a preliminary injunction. Under the terms of the injunction, the defendant was required (among other things) to make quarterly "wraparound" payments starting from the second quarter of 2004. Several months later, we issued our decision in Rio Grande, which pertained to a similar injunction previously issued for one of Belaval's co-plaintiffs. We rejected the Commonwealth's arguments that it was improper for a federal court to issue such an injunction. See Rio Grande, 397 F.3d at 68-75.

Yet by August 12, 2005, Puerto Rico still had failed to make a single payment to Belaval, and so on that date Belaval asked the district court to issue an order to show cause why the defendant Secretary should not be held in contempt. The magistrate judge issued the order, and then after receiving the defendant's response, issued a report and...

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