Rochester Methodist Hosp. v. Travelers Ins. Co., s. 83-1190

Citation728 F.2d 1006
Decision Date23 February 1984
Docket Number83-1260 and 83-1261,Nos. 83-1190,s. 83-1190
Parties, Medicare&Medicaid Gu 33,636 ROCHESTER METHODIST HOSPITAL, a Minnesota non-profit corporation, Appellee, v. The TRAVELERS INSURANCE COMPANY, a Connecticut corporation, U.S. Department of Health and Human Services, Appellant. ROCHESTER METHODIST HOSPITAL, a Minnesota non-profit corporation, Appellee, v. The TRAVELERS INSURANCE COMPANY, a Connecticut corporation, Appellant, U.S. Department of Health and Human Services. ROCHESTER METHODIST HOSPITAL, a Minnesota non-profit corporation, Appellant, v. The TRAVELERS INSURANCE COMPANY, a Connecticut corporation, and U.S. Department of Health and Human Services, Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

James M. Rosenbaum, U.S. Atty., Minneapolis, Minn., J. Paul McGrath, Asst. Atty. Gen., Anthony J. Steinmeyer and Peter R. Maier, Appellate Staff, Civil Div., Dept. of Justice, Washington, D.C., for appellant.

Dorsey & Whitney, William J. Keppel, Charles L. Sweeris, Minneapolis, Minn., for Rochester Methodist Hosp.

Before LAY, Chief Judge, HENLEY, Senior Circuit Judge, and ARNOLD, Circuit Judge.

ARNOLD, Circuit Judge.

Rochester Methodist Hospital of Rochester, Minnesota, seeks to obtain reimbursement from Travelers Insurance Company, a fiscal intermediary under the Medicare program, of costs incurred in connection with a nursing-education program. We affirm the District Court's 1 holding in favor of Rochester. The principal defense offered by Travelers is that it is protected by the sovereign immunity of the United States, its principal. We hold that this immunity does not protect Travelers from personal liability for its own tort.

I. BACKGROUND

In 1970 Rochester State Junior College agreed with Rochester Methodist Hospital to operate jointly a nursing-education program. The College made a similar agreement with St. Mary's Hospital, 2 which is also located in Rochester, Minnesota. Under these agreements, the College provided classroom instruction, and the hospitals provided dormitory space to the nursing students, among other things.

In its Medicare cost report for the accounting period ending September 30, 1971, Rochester sought reimbursement from Travelers for costs associated with the provision of dormitory space, but, in 1972, Travelers denied the claim. Rochester protested this decision and met with Russell Mossberg, Travelers' Regional Medicare Supervisor and the "number one man" in this area, to discuss whether further action should be taken. Mossberg told Rochester that an internal appeal 3 would be fruitless. He said that the "pursuit of [further relief] would be futile because it was a closed case based on this [sic] opinion," that "there was no validity to any claim" and that Rochester should not "waste [its] time by claiming because [it was] not going to get it." Tr. 64. The District Court found, and Travelers does not contest, that Mossberg knew that St. Mary's was being reimbursed for its dormitory costs when he made these statements. Relying on Mossberg's statements, Rochester did not appeal the disallowance for 1971 and, further, did not claim the dormitory costs in its cost reports for the following cost years through 1976. 4

In early 1977 Rochester hired an accounting firm, Robert G. Engelhart & Co., to review its Medicare reimbursement program. In February 1977 Patrick Finn of Engelhart told Rochester officials that Travelers had been reimbursing St. Mary's for its dormitory costs in connection with the joint nursing program. Rochester immediately sought reimbursement from Travelers for its dormitory costs for all prior years--from 1971 through 1976--and told Travelers that, if necessary, it would appeal to the Provider Reimbursement Review Board (PRRB). 5 On March 1, 1977, Rochester officials again met with Mossberg and agreed that, because of the amount of paperwork involved, Rochester would refile and appeal to the PRRB only the 1976 cost report, and that if the PRRB ruled in Rochester's favor, Travelers would apply the ruling retroactively. The PRRB did rule in Rochester's favor, but Travelers refused to adjust the cost reports for years prior to 1975, and this action ensued.

The only factual dispute in this suit concerns the meaning of the retroactivity term in this agreement. Under HHS regulations, either an intermediary or a provider may move to reopen the intermediary's final determination of reimbursable costs with respect to matters at issue in the determination, but the motion must be filed within three years from the date of the Notice of Program Reimbursement (NPR) issued by the intermediary. 42 C.F.R. Sec. 405.1885(a) (1982). Travelers argues that the parties agreed that it would apply the PRRB decision on 1976 only "to all prior years for which a request to reopen a prior NPR remained possible under Medicare regulations," Brief for Travelers at 12, i.e., to all prior years for which a motion to reopen was not barred by the three-year limitations period. The District Court found, however, that the agreement was not so qualified, that "Mossberg represented to the plaintiff that Travelers would pay its dormitory costs for all previous years--from 1971 through 1976--if plaintiff prevailed in its PRRB appeal." Slip op. at 4.

Travelers relies on a letter written by Mossberg in 1979 in which he set forth his version of the understanding that the parties had reached in 1977. The letter states, in pertinent part, that

this is to acknowledge that we were aware that Methodist Hospital of Rochester, Minnesota did intend to refile previously settled Medicare cost reports if the ruling on the refiled cost report for cost year ending 1976 was that costs for lodging of student nurses housed in the hospital dormitory was an allowable expense of the hospital for Medicare cost reporting purposes.

* * *

* * *

It was agreed that all previously settled or submitted cost reports that fell within the refiling time frame guidelines could be refiled claiming these expenses and in this manner a ruling could be obtained. As there were several years involved, in the interest of possibly saving much unnecessary time and paper work, it was agreed that only one report for the cost year ending 1976 would be refiled at this time for the purpose of obtaining a ruling on this and if the ruling were that these expenses could be included, the other years [sic] cost reports could be refiled for proper adjustment.

Plff's Ex. 22 (emphasis added). Travelers argues that the italicized language demonstrates that reopening was subject to the three-year limitations period, and that, consequently, the District Court's finding is clearly erroneous. We disagree. Even though the letter supports Travelers' interpretation, the District Court pointed to several other items of evidence which support its conclusion. For example, Gary F. Harmon, Rochester's Director of Finance, testified that "Mossberg indicated that if we could prove our case for [1976], there would be made retroactive adjustments for all years in question, irrespective of the time frame." Tr. 67. On April 13, 1977, the Engelhart firm wrote Rochester a letter which noted that "your intermediary has already indicated that all reports from 1971 onward could be reopened if it was agreed that this area was treated improperly." Plff's Ex. 12. Kenneth Peterson, co-author of that letter, testified that the letter reflected his understanding of the agreement and that this understanding was confirmed in "numerous" subsequent conversations with Mossberg. Tr. 35-36; 37-38; 47. This issue hinges on a determination of credibility, and the District Court credited Rochester's evidence rather than Travelers'. We cannot say that this choice was clearly erroneous.

On the basis of these findings of fact, the District Court held that Travelers had committed the tort of fraud under the common law of Minnesota. Judgment was entered in favor of Rochester and against Travelers in the amount of $142,320, the total amount claimed as reimbursable for all cost years since 1971, plus interest. The District Court rejected Rochester's alternative theories of liability based on breach of implied warranty of authority and tortious misrepresentation of authority. These appeals followed.

II. JURISDICTION
A.

The threshold question is whether Travelers' and the government's notices of appeal are timely. This issue hinges on an understanding of the unusual procedural history of this case.

Rochester filed its initial complaint against Travelers and the Department of Health and Human Services (HHS) on October 16, 1980, alleging, in substance, that both defendants were estopped to deny its claims for reimbursement and that, in the alternative, Travelers had exceeded its authority in its dealings with Rochester. HHS, arguing that it was the real party in interest, moved to dismiss Travelers as a defendant. The District Court denied the motion on the ground that if Travelers had exceeded its authority, Rochester's remedy might be against Travelers rather than HHS. Then, one day before trial, the defendants moved to dismiss the complaint for want of jurisdiction. The Court took the motion under advisement and held a one-day bench trial. Some six months later, the District Court granted the defendants' motion to dismiss. 6 Subsequently, however, on August 30, 1982, the Court granted Rochester's motion to reconsider, transferred Rochester's claim against HHS to the United States Claims Court, and held that, since the United States was no longer a party to the case, the Court had diversity jurisdiction to hear Rochester's state-law claims against Travelers. Rochester then filed an amended complaint naming only Travelers as a defendant, alleging fraud, breach of implied warranty of authority, and tortious misrepresentation of authority. HHS responded by filing a motion to intervene which the District...

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