Alabama Home Health Care, Inc. v. Schweiker, Civ. A. No. 81-C-1583-S.
| Decision Date | 01 December 1981 |
| Docket Number | Civ. A. No. 81-C-1583-S. |
| Citation | 527 F. Supp. 849 |
| Parties | ALABAMA HOME HEALTH CARE, INC., Plaintiff, v. Richard S. SCHWEIKER, as Secretary of Health and Human Services, Defendant. |
| Court | U.S. District Court — Northern District of Alabama |
Joe R. Whatley, Stewart, Falkenberry & Whatley, Birmingham, Ala., for plaintiff.
Frank W. Donaldson U. S. Atty., Herbert J. Lewis, III, Asst. U. S. Atty., Birmingham, Ala., for defendant.
Congress has provided for judicial review of decisions of Secretary of the Department of Health and Human Services (HHS) regarding reimbursement to Medicare providers after a final decision by the HHS Secretary. 42 U.S.C. § 1395oo. The first issue with which this Court must grapple is whether it has jurisdiction to grant interim injunctive relief so as to maintain the status quo pending a final decision by the Secretary on a provider reimbursement claim. If such jurisdiction exists, then the Court must determine whether plaintiff, Alabama Home Health Care, Inc., has satisfied the requirements for such interim relief. For the reasons discussed in this opinion, the Court concludes that it is amply possessed of the requisite jurisdiction; and that plaintiff has shown its entitlement to a preliminary injunction pending a final decision by the Secretary.
Alabama Home Health Care, Inc. ("Alacare") is a not-for-profit corporation organized in the early seventies under the laws of Alabama. Alacare was organized by Charles D. Beard, Jr., his wife, Mary Sue Beard, and his brother, Robert L. Beard. Charles and Mary Sue Beard have three sons — John G., Charles, III, and William G., — and two daughters — Margaret Susan, and Susan Ann.
During the first several years of its existence, Alacare was managed by its president, Robert L. Beard, who devoted all of his time to the business. Charles Beard, Jr. was the executive vice-president, and roughly twenty percent of his time was devoted to the business. Mary Sue Beard was Alacare's Secretary-Treasurer — drawing a modest salary as only five percent of her time was consumed by the business. During these years, William G. and Charles III worked on a parttime basis for Alacare while they pursued their undergraduate and professional studies.
In 1976, Robert Beard left Alacare; and for several months thereafter, Charles Beard, Jr. assumed the presidency of the corporation. He convinced his son John Beard to take the job. Before assuming this position, John divested himself of his interest in Health Systems Medical Supply (for no consideration, since the stock had no value) and Professional Services Leasing Corporation (for $8,000.00). John Beard has been president and General Manager of Alacare ever since; Charles Beard, Jr. and Mary Sue Beard have resumed and remained in their original positions with the corporation.
Business Interests of Charles Beard, Jr.
Charles Beard, Jr. has several business interests. He is the sole owner and president of Trinidad Petroleum, Inc., an Alabama corporation whose assets are apparently substantial. He also owns ninety-four percent (94%) of the stock and is president of Med-A-Par, Inc. Within the past five years, he set up a family partnership, E&T Realty, for the purpose of buying a building which would house his various business interests. Through Trinidad Petroleum, he owns a one-half interest in E&T Realty; each of his children has a one-tenth (.1) interest in this company.
Health Services Medical Supply, Inc. (HSMS) was incorporated in July, 1975, by the three sons of Charles Beard, Jr. Charles, III is the president of this corporation. HSMS sells medical supplies and rents durable medical equipment; and one of its principal customers is the plaintiff Alacare. However, since 1978 between 55% and 60% of HSMS's business has been transacted with customers other than Alacare — including Mid-South Home Health Care Center, Spain Rehabilitation Center, and Lakeshore Hospital.
HSMS has 50,000 authorized shares of stock; 5,000 of which are voting shares. The voting shares are held by the following persons in the amount indicated:
Charles D. Beard, III 875
William G. Beard 875
Mrs. Johnny G. Kessler 1,625
Mrs. Doris Jean Graham 1,625
Non-voting stock is held by Professional Services Leasing, Inc. (34,115 shares) and Trinidad Petroleum (3,700 shares). The balance of the authorized shares is held as treasury stock.
Charles Beard, Jr., through Trinidad Petroleum at times and at other times directly, has made several loans to HSMS upon the request of Charles, III. Between October, 1975, and April, 1977, Charles, Jr. loaned his son and namesake some $18,674.00 for use by HSMS. These loans have all been repaid in full — the last payment having been made on April 17, 1981. In addition, Charles Beard, Jr., through Trinidad Petroleum, owns 3,700 of the non-voting shares of HSMS.1
HSMS was a response by Charles, III to problems being encountered by his father in the operation of Alacare. Prior to the organization of HSMS, Alacare had rented durable medical equipment from a company whose services were highly unsatisfactory. Charles Beard, Jr., expressed his dissatisfaction with the quality, or lack of it, of this service on many occasions, but to no avail as the company felt that its services were the only one available. Charles, III, being aware of the problem, came to his father and sought his financial assistance in setting up a durable medical equipment corporation. While declining to definitely commit Alacare's business to the proposed new corporation, Charles, Jr. assured his son that if the proposed corporation offered competitive prices and quality service, it could reasonably expect Alacare's business.
In its first few years, HSMS depended heavily on Alacare for its business. Even so, HSMS offered no discounts to Alacare; and it sold supplies and rented equipment to Alacare at the same prices and rates as it charged its other customers. These charges are well within the prevailing rates in the Birmingham area.
Alacare's general policy and practice is to purchase its medical supplies and equipment at the least expensive prices. It has, on several occasions since the inception of HSMS, refused to purchase or lease various items from HSMS because it was able to obtain them elsewhere at less expensive prices.
Other than his 3,700 non-voting shares in HSMS, Charles Beard, Jr. has no equity in the corporation. He has never owned any voting stock of the corporation. He has never influenced or interfered in the affairs of the corporation; and the Court based on Charles, III's demeanor while testifying, doubts that Charles, Jr. has the power to influence the affairs of HSMS.
Professional Services Leasing Corporation (PSL) was organized as a business corporation under the laws of Alabama on April 12, 1974. Its incorporators, together with their respective shares, were as follows:
John Beard 98 shares
Johnnie Kessler 1 share
Doris Graham 1 share
PSL was initially capitalized with $1,000.00; divided into 100 shares of capital stock with a par value of $10.00. Cash was paid in for the subscriptions to this capital stock.
John Beard, the first president of PSL, left it in 1976 to become president of Alacare. As stated earlier, he divested himself of his shares in PSL for a price of $8,000.00. Today, Mesdames Kessler and Graham each own 33% of the stock of PSL; and William Gary Beard owns the remaining 34% of its stock. William Gary acquired his interest in PSL in exchange for the "few thousands of dollars" owed to him by the corporation for previous services he rendered to the corporation. The evidence reasonably supports the inference that Mrs. Kessler and Mrs. Graham each paid John Beard $2,600.00 for the increase in their respective shares of PSL's stock.
Initially, PSL principally rented automobiles, trucks, and medical equipment. Today, it is an office products company — selling office supplies and leasing office equipment — primarily typewriters and desks.
In 1976, Alacare was the major customer of PSL—accounting for well more than half of its business. By 1978, approximately eighty percent (80%) of PSL's business was transacted with business organizations and/or persons other than Alacare. In the current year, Alacare accounts for only one and a half percent (1.5%) of PSL's business.
PSL's charges to Alacare are the same as its charges for similar items to other customers; and its prices compare favorably with those of other office suppliers in the highly competitive Birmingham market.
Charles Beard, Jr., through Trinidad, has loaned a total of not more than $5,000.00 over the past five years to William Gary for the use of PSL. These loans were secured by promissory notes; and they bear interest at the rate of twelve percent (12%).
PSL owns 34,115 of the non-voting shares of HSMS. William Gary used his personal savings and bonds to acquire this interest.
HSMS and Trinidad Petroleum respectively account for less than one half of one percent (.5%) of the annual business of PSL.
Based on the testimony of the witnesses, their demeanor and the facts recited herein, the Court doubts that Charles Beard, Jr. has the power, directly or indirectly, to control PSL.
Alacare readily concedes that E&T Realty, Trinidad Petroleum, and Med-A-Par are related organizations; and the books and records of these companies have been made available to the Secretary of his designees.
Alacare is a provider of "home health services," under the Medicare Act, to eligible individuals under the applicable provisions of the Social Security Act. 42 U.S.C. § 1395 et seq. The home health services covered by ...
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