878 F.2d 577 (2nd Cir. 1989), 1102, Plaza Health Laboratories, Inc. v. Perales

Docket Nº:1102, Docket 89-7146.
Citation:878 F.2d 577
Party Name:Medicare&Medicaid Gu 37,922 PLAZA HEALTH LABORATORIES, INC., Plaintiff-Appellant, v. Cesar A. PERALES, Commissioner of the New York State Department of Social Services, New York State Department of Social Services, Defendants-Appellees.
Case Date:June 21, 1989
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 577

878 F.2d 577 (2nd Cir. 1989)

Medicare&Medicaid Gu 37,922



Cesar A. PERALES, Commissioner of the New York State

Department of Social Services, New York State

Department of Social Services,


No. 1102, Docket 89-7146.

United States Court of Appeals, Second Circuit

June 21, 1989

Argued May 12, 1989.

Page 578

Richard S. Bernstein (Samuel A. Bernstein, Roberta C. Pike, New York City, on the brief), for plaintiff-appellant.

Lawrence S. Kahn (Robert Abrams, Atty. Gen. of the State of N.Y., Robert A. Forte, Asst. Atty. Gen., New York City, on the brief), for defendants-appellees.

Before KEARSE, CARDAMONE, and PIERCE, Circuit Judges.

KEARSE, Circuit Judge:

Plaintiff Plaza Health Laboratories, Inc. ("Plaza"), a suspended provider of health-care services in the New York State Medical Assistance Program ("Medicaid"), appeals from an order of the United States District Court for the Southern District of New York, Peter K. Leisure, Judge, denying its motion for a preliminary injunction requiring defendants Cesar A. Perales and the New York State Department of Social Services (collectively "DSS") to refrain from suspending or terminating Plaza's participation as a Medicaid provider, following a New Jersey indictment of Plaza and one of its owners for dumping hazardous medical wastes into the Hudson River. Plaza, suing under 42 U.S.C. Sec. 1983 (1982), contended that the suspension violated its rights to due process and to be free of ex post facto application of certain laws. The district court denied the motion on the ground that Plaza had not shown a likelihood of success on the merits of its claims. On appeal, Plaza contends principally that the district court did not apply the proper standard for decision of preliminary injunction motions and did not appropriately assess the likelihood of Plaza's success on the merits of its claims. For the reasons below, we find no abuse of discretion in the denial of the injunction.


The underlying facts, undisputed for present purposes, may be summarized as follows.

Plaza operates a clinical medical laboratory in Brooklyn, New York. DSS is the New York State ("State") agency charged with the administration of the Medicaid program in the State. In January 1988, Plaza became a DSS-approved Medicaid provider of laboratory services, authorized to perform services for eligible Medicaid patients and to bill the State for its fees. The competence of Plaza's laboratory performance has not been challenged.

On November 18, 1988, Plaza and one of its 50% owners, who was an employee of Plaza, were indicted in New Jersey on charges of, inter alia, knowingly causing the release of hazardous substances from the Plaza laboratory, including medical waste posing a threat to human health, into the Hudson River. The unlawful releases

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were alleged to have taken place between June 18 and September 26, 1988.

By letter dated November 23, 1988, DSS notified Plaza that, effective five days thereafter, Plaza was to be suspended from participation in the Medicaid program. The notice, entitled "NOTICE OF IMMEDIATE AGENCY ACTION," stated, in pertinent part, as follows:


1. You have violated the provisions of the Department's regulations authorizing immediate action (18 NYCRR 515.7(b)), effective June 6, 1988.

2. We made this determination based upon the fact that you were charged with a crime relating to the furnishing or billing for medical care, services or supplies.

Section 515.7(b), referred to in the notice, provided, in pertinent part, as follows:

(b) Upon receiving notice of an indictment which charges a person with committing an act which would be a felony under the laws of New York and which relates to or results from: (1) furnishing or billing for medical care, services or supplies ... the department may immediately suspend the person and any affiliates, and may continue the suspension for 90 days following receipt of notice of the disposition of the indictment.

N.Y. Comp. Codes R. & Regs. tit. 18, Sec. 515.7(b) (1988). The DSS notice to Plaza stated that within 30 days of receipt of the notice Plaza could submit to DSS written arguments or documentation challenging the suspension on the basis of (a) mistake of fact, (b) lack of relationship between the indictment and the provision of medical care, services, or supplies, or (c) inappropriateness of suspension as a sanction. It also stated that Plaza could, upon a favorable disposition of the indictment, request reinstatement as a Medicaid provider.

Pursuing its administrative remedy, Plaza sent DSS a letter on December 22, 1988, challenging the suspension on several grounds and attempting to persuade DSS to rescind the suspension. Referring to the New York Environmental Conservation Law ("ECL"), Plaza argued that the suspension was not authorized by Sec. 515.7(b) because the ECL provisions that were "similar" to the pertinent New Jersey provisions had not made Plaza's acts a felony in New York until November 1, 1988, i.e., after Plaza's dumpings allegedly occurred. Plaza also disputed DSS's contention that the New Jersey indictment related to the furnishing of medical services.

In the meantime, on December 16, 1988, Plaza commenced the present action for monetary and injunctive relief. The complaint alleges principally (a) that DSS gave Plaza no meaningful notice or opportunity to be heard and thus violated Plaza's due process rights, and (b) that suspension on the ground that Plaza had been charged with a felony violated Plaza's rights under the Ex Post Facto Clause of the Constitution, U.S. Const. art. I, Sec. 9, cl. 3, since the ECL section on which Plaza assumed its suspension was predicated, ECL Sec. 71-2704(2)(c) (McKinney Supp.1989) (making it a felony to "knowingly and/or recklessly engage[ ] in conduct which causes the release to the environment of infectious waste" where such release creates "substantial risk of physical injury"), did not make such conduct a felony in New York at the time the unlawful dumpings allegedly occurred.

Plaza promptly moved for a preliminary injunction prohibiting DSS from suspending or terminating Plaza's participation as a Medicaid provider, arguing that its due process and ex post facto rights had been violated as alleged in the complaint. In support of its contention that in the absence of such an injunction it would suffer irreparable harm, Plaza stated that 25% of its business had been Medicaid business; that it had employed some 20 persons prior to the suspension and had been forced to lay off 10 of them in the wake of the suspension; and that Plaza could not remain in business without Medicaid payments as a source of income.

Page 580

In an Opinion and Order dated January 3, 1989, published at 702 F.Supp. 86, the district court denied Plaza's motion for a preliminary injunction, concluding that, although Plaza's continuation in business was in doubt, Plaza had not demonstrated a likelihood of success on the merits of any of its claims. The court concluded that Plaza's ex post facto claim was without merit, evaluating that claim as follows:

The present case does not fall into that category of cases where essentially criminal laws violate the ex post facto clause, despite their denomination as "civil" actions. The "sanction" imposed by the Department here is clearly not intended as punishment, ... nor does it in any way constitute a quasi-criminal proceeding....

Id. at 89. The court found no likelihood of success with respect to the due process claim because it concluded that a health-care provider's "interest does not rise to the level of a constitutionally protected property interest," id. at 90 (emphasis in original), and that, in any event, the procedures afforded were not inadequate.

On January 25, 1989, Plaza appealed. On February 22, DSS issued its decision denying Plaza's administrative appeal of the suspension. With regard to Plaza's ex post facto argument, DSS stated that Plaza's alleged conduct would be a felony under ECL Sec. 71-2713 (McKinney Supp.1989), which prohibits, inter alia, the knowing or reckless release to the environment of hazardous wastes that enter a primary water supply. That section's prohibition, creating a felony, had been in effect since November 1, 1986.


On appeal, Plaza argues principally that the district court erred in applying only a likelihood-of-success test in ruling on the preliminary injunction motion and that, even under that test, the injunction should have been granted. We conclude that the court did not apply an improper standard and that its denial of the injunction was not an abuse of discretion.

  1. The Standard for Deciding a Motion for Preliminary Injunction

    In general, the district court may grant a preliminary injunction if the moving party establishes (1) irreparable harm and (2) either (a) a likelihood of success on the merits, or (b) sufficiently serious questions going to the merits of its claims to make them fair ground for litigation, plus a balance of the hardships...

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