In re Town & Country Home Nursing Services, Inc., BAP No. CC-88-1281 VMoP
| Decision Date | 30 March 1990 |
| Docket Number | BAP No. CC-88-1281 VMoP,Adv. No. SA 85-0627 JR.,Bankruptcy No. SA 85-02781 JR |
| Citation | 112 BR 329 |
| Parties | In re TOWN & COUNTRY HOME NURSING SERVICES, INC., Debtor. TOWN & COUNTRY HOME NURSING SERVICES, INC., Appellant, v. BLUE CROSS OF CALIFORNIA; Health Care Financing Administration; Blue Cross of America; and Otis Bowen, as Secretary of Health and Human Services, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Carl Grumer, Cooper, Epstein & Hurewitz, Beverly Hills, Cal., for appellant.
Carolyn M. Reynolds, Asst. U.S. Atty., Los Angeles, Cal., for appellees.
Before VOLINN, MOOREMAN and PERRIS, Bankruptcy Judges.
OVERVIEW
Appellant/debtor Town & Country Home Nursing Services, Inc. ("Town & Country") commenced an adversary proceeding asserting various claims for relief against defendants/appellees Blue Cross of California and Blue Cross of America (jointly referred to as "Blue Cross"), Health Care Financing Administration ("HCFA"), and the Secretary of Health and Human Services ("Secretary"). Town & Country appeals the bankruptcy court's dismissal of two of its claims for relief, which the bankruptcy court dismissed based on the sovereign immunity doctrine. We reverse and hold that the defendants waived sovereign immunity under § 106(a).1
Town & Country also appeals from the bankruptcy court's dismissal of HCFA as a party defendant. We affirm the bankruptcy court's dismissal of HCFA because HCFA is not a suable entity.
Town & Country is a provider of in-home nursing services. It entered into a health insurance benefits agreement ("the provider agreement") with the Secretary in 1970, pursuant to the Medicare program. The Medicare program is administered by HCFA, which is part of the Department of Health and Human Services.
Since 1971, Blue Cross has acted as a fiscal intermediary with administrative responsibilities for the program. Town & Country submitted cost reports to Blue Cross at the end of each fiscal year and was audited from time to time by Blue Cross. In late 1984, Blue Cross asserted that Town & Country had been overpaid approximately $555,000. According to provisions of the Medicare statute and regulations, the Secretary can obtain repayment of any overpayments made to a provider. 42 U.S.C. § 1395g; 42 C.F.R. § 413.64(f) (1987). To resolve the overpayment dispute, Town & Country executed a promissory note on February 27, 1985 in the principal amount of $555,539. The note was made payable to the United States and required payment in monthly installments of not less than $16,835 plus interest.
From November 1984 through September 1985, the defendants offset approximately $21,000 per month against provider payments otherwise due and payable to the debtor. Blue Cross later determined that it had made an error in its calculation of the alleged overpayment and determined that the correct amount should have been $250,000, rather than $555,539.
Town & Country filed a chapter 11 bankruptcy petition on July 19, 1985. After the case was filed, the defendants continued to offset the amount of the overpayment to which they asserted they were entitled against the provider payments due the debtor, ultimately offsetting the full amount that they claimed the debtor owed.2
Town & Country initiated an adversary proceeding against defendants Blue Cross of California and HCFA for damages allegedly arising from the events outlined above. The defendants answered and moved for judgment on the pleadings. At a hearing on March 14, 1986, the bankruptcy court ruled that Town & Country had failed to name proper and indispensable parties, and gave Town & Country thirty days to amend its complaint.
On April 29, 1986, Town & Country filed its first amended complaint, adding as additional defendants Blue Cross of America and the Secretary of Health and Human Services. Among the six claims for relief asserted in the first amended complaint, the fourth and fifth are germane to this appeal. In its fourth claim for relief, Town & Country contended that the defendants breached their implied covenant of good faith and fair dealing and their fiduciary duties to Town & Country by compelling it to execute the note and by carrying out the offsets. The fifth claim for relief is for intentional and/or negligent interference with prospective economic advantage, and for unfair business practices under § 17200 et seq. of the California Business and Professions Code.
After the debtor filed the first amended complaint, the defendants again moved for judgment on the pleadings on the grounds that the bankruptcy court lacked subject matter jurisdiction and that the amended complaint failed to state a claim upon which relief could be granted. In addition, HCFA asserted that it is not a suable entity and Blue Cross asserted that it is a subcontractor of the Secretary and is entitled to sovereign immunity. The court heard the defendants' motion on October 15, 1987, and subsequently issued a memorandum opinion and order. Defendants then moved for reconsideration and, following a hearing, the court revised its rulings on the issues that are the subject of this appeal, that is, whether sovereign immunity was waived under § 106(a), and whether HCFA may be sued.
In its initial memorandum opinion, the bankruptcy court ruled that the requirements of § 106(a) for a waiver of sovereign immunity had been met with respect to the fourth and fifth claims for relief. However, on reconsideration, the bankruptcy court dismissed those claims based on its conclusion that sovereign immunity was not waived because the defendants had filed no proof of claim. Town & Country appeals the dismissal of those claims.
The bankruptcy court at first denied the motion to dismiss HCFA because it is a governmental unit and sovereign immunity had been waived. But on reconsideration, the court granted the motion to dismiss HCFA on the basis that it is not a suable entity. Town & Country appeals from the dismissal of HCFA.
1. Did the federal government waive its sovereign immunity as to compulsory counterclaims, pursuant to § 106(a), where the government did not file a formal proof of claim, but asserted and recovered on its claim by offset against payments owed to debtor?
2. Is jurisdiction of the bankruptcy court limited by the judicial review provisions of the Medicare statute, the Tucker Act, and the Federal Tort Claims Act?
3. In the absence of sovereign immunity, is the Health Care Financing Administration a suable entity?
This appeal involves interpretation of statutory provisions and issues of constitutional law. We review de novo the bankruptcy court's statutory interpretation and other legal conclusions. In re Klein, 57 B.R. 818, 819 (9th Cir. BAP 1985).
Under the Eleventh Amendment and the doctrine of sovereign immunity, "the United States, as sovereign, is immune from suit save as it consents to be sued . . ., and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit." United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1351, 63 L.Ed.2d 607, 613 (1980) (quoting United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 769, 85 L.Ed. 1058, 1061 (1941)). The defendants assert that the doctrine of soverign immunity applies to them and precludes the debtor's assertion against them of the fourth and fifth claims for relief in the first amended complaint, absent a waiver of sovereign immunity.
The debtor has not challenged the defendants' assertion that they have standing to assert sovereign immunity, and therefore that issue is not before us. Thus the only issue before us is whether sovereign immunity has been waived.
A waiver of sovereign immunity "cannot be implied but must be unequivocally expressed." Mitchell, 445 U.S. at 538, 100 S.Ct. at 1351, 63 L.Ed.2d at 613 (quoting United States v. King, 395 U.S. 1, 4, 89 S.Ct. 1501, 1502, 23 L.Ed.2d 52, 56 (1969)). "Waivers of immunity must be `construed strictly in favor of the sovereign,' and not `enlarged . . . beyond what the language requires.'" Ruckelshaus v. Sierra Club, 463 U.S. 680, 685-86, 103 S.Ct. 3274, 3277-78, 77 L.Ed.2d 938, 944 (1983) (citations omitted) (quoting McMahon v. United States, 342 U.S. 25, 27, 72 S.Ct. 17, 18, 96 L.Ed. 26, 30 (1951); Eastern Transportation Co. v. United States, 272 U.S. 675, 686, 47 S.Ct. 289, 291, 71 L.Ed. 472, 475 (1927)). However, this does not mean that waivers of sovereign immunity are to be read overly formalistically or restrictively; intent to waive immunity and the scope of the waiver are ascertained by interpreting the words of the statute in light of the underlying congressional policy. Franchise Tax Bd. of Cal. v. United States Postal Serv., 467 U.S. 512, 521, 104 S.Ct. 2549, 2554, 81 L.Ed.2d 446, 453-54 (1984) (citations omitted).
The debtor asserts that sovereign immunity has been waived under § 106(a), which provides:
A governmental unit is deemed to have waived sovereign immunity with respect to any claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which such governmental unit\'s claim arose.
This is an "unequivocally expressed" waiver of sovereign immunity with respect to certain claims by a bankruptcy estate against a governmental unit.3 By the clear terms of the statute, the waiver applies whenever (1) the governmental unit also has a "claim" against the estate, and (2) the estate's claim against the governmental unit "arose out of the same transaction or occurrence out of which such governmental unit's claim arose." In re Davis, 20 B.R. 519, 520-21 (Bankr.M.D.Ga.1982); In re Adirondack Ry. Corp., 28 B.R. 251, 257 (Bankr.N.D.N.Y.1983).
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