Columbus Reg'l Hosp. v. United States

• Citation: 990 F.3d 1330
• Decision Date: 10 March 2021
• Docket Number: 2020-1226
• Parties: COLUMBUS REGIONAL HOSPITAL, Plaintiff-Appellant v. UNITED STATES, Defendant-Appellee
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

990 F.3d 1330

COLUMBUS REGIONAL HOSPITAL, Plaintiff-Appellant

v.UNITED STATES, Defendant-Appellee

2020-1226

United States Court of Appeals, Federal Circuit.

Decided: March 10, 2021

Derek Read Molter, Ice Miller LLP, Indianapolis, IN, argued for plaintiff-appellant. Also represented by Brent W. Huber.

Mariana Teresa Acevedo, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Deborah Ann Bynum, Jeffrey B. Clark, Robert Edward Kirschman, Jr.; Ramoncito Jose Deborja, Office of General Counsel, United States Federal Emergency Management Agency, Washington, DC.

Before Taranto, Bryson, and Hughes, Circuit Judges.

Bryson, Circuit Judge.

Columbus Regional Hospital ("Columbus") appeals from two orders of the United States Court of Federal Claims ("the Claims Court") in which the court dismissed all the claims of Columbus's complaint against the United States. The complaint relates to the action of the Federal Emergency Management Agency ("FEMA") in recovering certain disaster-assistance funds that had previously been distributed to Columbus.

In its complaint, Columbus alleged that FEMA's recovery of those funds breached Columbus's contractual rights and constituted an illegal exaction. The Claims Court dismissed Columbus's illegal exaction claim under Rule 12(b)(6) of the Rules of the Court of Federal Claims. In a separate order, the court dismissed Columbus's contract claims for lack of jurisdiction under Rule 12(b)(1) of those rules after concluding that Columbus had not established that it had an express or implied contract with FEMA, or that it was a third-party beneficiary of an agreement between FEMA and the State of Indiana.

We affirm the court's dismissal of the illegal exaction claim. With regard to the express and implied contract claims, we agree with the Claims Court that those claims should be dismissed, but we hold that they should be dismissed on the merits under Rule 12(b)(6) rather than for lack of jurisdiction under Rule 12(b)(1). With regard to the third-party beneficiary claim, we vacate the court's dismissal of that claim and remand for further proceedings on that issue.

I

A

The underlying facts are largely undisputed. In 2008, severe storms hit the State of Indiana, causing extensive flooding in several counties. Columbus Regional Hospital, a hospital in Bartholomew County south of Indianapolis, sustained significant damage as a result of the flooding. In response, President Bush declared a regional disaster under the Stafford Act, 42 U.S.C. §§ 5121 – 5206, which authorized FEMA to provide assistance to the affected regions through disaster grants. Indiana; Major Disaster and Related Determinations, 73 Fed. Reg. 35,146 -02 (June 20, 2008).

Pursuant to the disaster declaration, FEMA and the State of Indiana entered into an agreement for disaster assistance. FEMA agreed to provide federal assistance, and the State agreed to be the grantee for all grant assistance provided under the Stafford Act, with the exception of assistance provided to individuals and households. The agreement required Indiana to comply with all applicable laws and regulations, including relevant provisions of the Stafford Act, FEMA regulations, and OMB circulars. Those sources of law were incorporated into the agreement by reference. FEMA also reserved the right to recover assistance funds if they were spent inappropriately or if they were distributed through error, misrepresentation, or fraud.

Following the execution of the FEMA-Indiana agreement, Columbus submitted its official request for assistance to FEMA pursuant to 44 C.F.R. § 206.202(c).¹ Columbus asserts that it sent the request directly to FEMA, instead of through the State of Indiana. After receiving the request, FEMA collaborated with Columbus to prepare project worksheets in which the two defined the scope of work and the amount of funding for individual recovery projects. FEMA approved more than 75 of the project worksheets, totaling approximately $94 million in recovery funds.

Columbus received assistance funds under the FEMA-Indiana agreement according to the approved project worksheets. The funds were transmitted to Columbus through the State of Indiana, and Columbus applied the funds to designated restoration and mitigation contracts.

In 2013, the Inspector General of the Department of Homeland Security issued an audit report finding that Columbus had committed procurement violations in connection with four of those contracts. The report recommended that FEMA recover $10.9 million of the assistance funds because of the violations. FEMA adopted the Inspector General's recommendations. FEMA initially concluded that recovery of the full $10.9 million was justified, but it later reduced that amount to $9,612,831.19.

Columbus appealed FEMA's decision within the agency. In 2017, FEMA denied Columbus's appeal, finding that the agency had correctly applied 2 C.F.R. § 215.62 when recovering the disputed costs. Columbus did not seek judicial review of the agency's decision. Columbus represents that FEMA recovered the disputed costs from Columbus in April 2014.

B

In 2018, Columbus filed its complaint in the Claims Court, alleging four counts of contract breach and a fifth count of illegal exaction.

Columbus first alleged that there was an express contract between FEMA and Columbus, and that FEMA's recovery of the disputed costs breached statutes and regulations incorporated by reference, including section 705 of the Stafford Act. Relatedly, Columbus alleged that FEMA's recovery of the disputed costs breached 2 C.F.R. § 215.62, a FEMA regulation. In the alternative, Columbus alleged that there was an implied-in-fact contract between FEMA and Columbus, and that FEMA breached the same provisions, section 705 of the Stafford Act and 2 C.F.R. § 215.62. Columbus further alleged that even if there was no express or implied contract between Columbus and FEMA, Columbus was a third-party beneficiary of the FEMA-Indiana agreement, and that FEMA breached Columbus's third-party rights by recovering the disputed costs. Lastly, Columbus alleged that FEMA's recovery of the disputed costs amounted to an illegal exaction because it violated section 705 of the Stafford Act.

In response to the government's motion to dismiss, the Claims Court issued two dismissal orders. First, the court dismissed Columbus's illegal exaction claim for failure to state a claim on which relief could be granted. Columbus Reg'l Hosp. v. United States , No. 18-1299C, slip op. at 2 (Fed. Cl. Aug. 14, 2019). The court held that there could be no illegal exaction because Columbus did not have a property interest in the disputed funds and because FEMA's appeal process protected Columbus's rights to due process. Id. at 1–2.

In a second order, the court dismissed Columbus's contract-based claims for lack of jurisdiction. Columbus Reg'l Hosp. v. United States , 145 Fed. Cl. 217, 228 (2019). Although the court found the FEMA-Indiana agreement to be a binding contract, the court concluded that Columbus had no rights against FEMA under that contract or otherwise. Id. at 223–28. According to the court, Columbus failed to plead "jurisdictional facts" demonstrating the existence of a contract over which the court had Tucker Act jurisdiction. Id. The court therefore dismissed Columbus's express contract, implied contract, and third-party beneficiary claims under Rule 12(b)(1). Id.

Columbus appealed both orders. The parties raise a total of seven issues on appeal.

II

A

At the outset, we address the government's argument that the FEMA-Indiana agreement cannot be treated as a binding contract, but instead must be regarded as a gratuitous contribution, and that all of Columbus's contract-based claims should be dismissed for that reason.

The Claims Court held the FEMA-Indiana agreement to be a binding contract. Columbus , 145 Fed. Cl. at 223. The court based its ruling on State of Texas v. United States , 537 F.2d 466 (Ct. Cl. 1976), which the court viewed as controlling on the question whether the disaster-assistance agreement in this case can qualify as a binding contract. Columbus , 145 Fed. Cl. at 222–23.

The government argues that the FEMA-Indiana agreement constitutes a gratuitous grant from a sovereign, not a binding contract. According to the government, State of Texas is distinguishable because the Court of Claims in that case "did not ‘hold’ the agreement was a contract, but instead simply accepted that premise for purposes of reaching the merits and finding in the Government's favor." Appellee's Br. 41. The government also argues that the FEMA-Indiana agreement lacks consideration, and that State of Texas is not controlling authority on that question because the court's opinion in that case was silent regarding the terms of the pertinent agreement.

We hold that the FEMA-Indiana agreement constitutes a binding contract between FEMA and Indiana. In prior cases, we have followed our predecessor court in treating federal grant agreements as contracts when the standard conditions for a contract are satisfied, including that the federal entity agrees to be bound. See, e.g. , San Juan City Coll. v. United States , 391 F.3d 1357, 1360–62 (Fed. Cir. 2004) (treating a "Program Participation Agreement" and related grants under the Higher Education Act as a contract); see also , in addition to the State of Texas case, Dep't of Nat. Res. v. United States , 227 Ct. Cl. 552, 554 (1981) ; Kania v. United States , 650 F.2d 264, 268 (Ct. Cl. 1981) ; and Arizona v. United States , 494 F.2d 1285, 1287–88 (Ct. Cl. 1974).

In State of Texas , the Court of Claims applied that principle in a decision involving a disaster-assistance grant agreement under the Federal Disaster Act, 42 U.S.C. § 1855 (1950). Following a devastating hurricane, the federal Office of Emergency Planning ("OEP") agreed to provide financial assistance to two Texas counties. Dissatisfied with the...