Grzan v. Charter Hosp. of Northwest Indiana

• Decision Date: 09 January 1997
• Docket Number: No. 96-2023,96-2023
• Citation: 104 F.3d 116
• Parties: , 9 NDLR P 117 Cherilynn GRZAN, Plaintiff-Appellant, v. CHARTER HOSPITAL OF NORTHWEST INDIANA, a member of the Charter Medical Corporation, and Simon Greer, Jr., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 116

104 F.3d 116

19 A.D.D. 774, 9 NDLR P 117

Cherilynn GRZAN, Plaintiff-Appellant, v. CHARTER HOSPITAL OF NORTHWEST INDIANA, a member of the

Charter Medical Corporation, and Simon Greer, Jr.,

Defendants-Appellees.

No. 96-2023.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 19, 1996.

Decided Jan. 9, 1997.

Earl I. Studtmann, Portage, IN, Ivan E. Bodensteiner (argued), Valparaiso, IN, for plaintiff-appellant.

Kathleen M. Maicher, Carl A. Greci, Spangler, Jennings & Dougherty, Merrillville, IN, Gilbert F. Blackmun (argued), Peter C. Bomberger, Blackmun, Bomberger & Moran, Highland, IN, for defendants-appellees.

Before COFFEY, FLAUM, and MANION, Circuit Judges.

MANION, Circuit Judge.

Cherilynn Grzan sued Charter Hospital of Northwest Indiana and Simon Greer under both section 504 of the Rehabilitation Act of 1973, 29 U.S.C. §§ 794, et seq., and Indiana tort law. The district court dismissed Grzan's section 504 claim under Fed.R.Civ.P. 12(b)(6), and dismissed without prejudice the supplemental common law state claims. Grzan appeals. We affirm.

I.

Because this case was decided on a motion to dismiss, we accept as true all relevant facts alleged in Grzan's complaint. Jenkins v. Heintz, 25 F.3d 536, 537 (7th Cir.1994). The complaint, and thus the available facts, are brief.

Cherilynn Grzan was admitted to Charter Hospital as a psychiatric patient on March 6, 1992. Her diagnosis upon admission included "major depressive episode," "borderline personality disorder," and "post-traumatic stress disorder," which, the hospital concedes for purposes of the appeal, constitute a "handicap" under section 504 of the Rehabilitation Act. In addition to the above psychological handicap, Grzan had a history that included "sexual abuse, low self esteem and value, and feelings of inferiority."

Simon Greer, Jr. was employed by Charter as a "counselor." According to the complaint, his duties included "contact" with Grzan. ¹ Shortly after Grzan's admission to Charter, Greer "took advantage of his position as a counselor and [Grzan's] vulnerable condition and entered into a relationship with her that included sexual relations in the hospital and at his home while [Grzan] was on a 'therapeutic pass.' " Grzan was discharged from the hospital on April 14, 1992, but continued her relationship with Greer. She moved in with him for two months and then moved into her own apartment which Greer rented for her. A month after moving into her own apartment, according to the complaint, she "escaped" from Greer. Two years later she sued both Greer and the hospital, alleging that Greer had caused her psychological and emotional harm requiring additional counseling and treatment.

Grzan's complaint bases federal liability on provisions of section 504, which prohibit recipients of federal funds from discriminating against persons who are handicapped. ² Grzan claims the hospital discriminated against her because of her disability by depriving her of equal treatment for her condition. Additionally, Grzan alleges the hospital and Greer committed negligence, assault and battery, intentional infliction of emotional distress, and malpractice under Indiana tort law.

Charter and Greer successfully moved to dismiss Grzan's section 504 complaint for failure to state a claim. In granting their motions, the magistrate judge first reviewed the legislative history of section 504 and concluded that no evidence existed that Congress intended the Act to cover Grzan's complaint. Rather, Congress intended to provide equal employment opportunities and program accessibility to people denied employment or access solely because of their disability. Specifically, the magistrate found no case law applying section 504 to tortious conduct arising during a handicapped person's receipt of benefits. Further, the magistrate judge reasoned that dismissal was appropriate because Grzan's complaint failed to set out a prima facie case, specifically by failing to allege how she was otherwise qualified to receive the benefits of the psychiatric hospital and also how she was discriminated against solely because of her handicap. Because all federal claims were dismissed, the magistrate judge refused to exercise jurisdiction over Grzan's pendent state claims. Accordingly, the district court dismissed them as well. Grzan appeals to this court. ³

II.

We review de novo the dismissal of a complaint for failure to state a claim. Jenkins v. Heintz, 25 F.3d at 537. In doing so, we accept as true all well-pleaded allegations in the complaint. Albright v. Oliver, 510 U.S. 266, 268, 114 S.Ct. 807, 810, 127 L.Ed.2d 114 (1994). We will affirm the dismissal if "the plaintiff's claim, as set forth by the complaint, is without legal consequence." Gomez v. Illinois State Bd. of Educ., 811 F.2d 1030, 1039 (7th Cir.1987). We do so here because even accepting as true what Grzan alleges in her complaint, she has failed to state a cause of action under section 504 of the Rehabilitation Act.

Section 504 of the Rehabilitation Act prohibits a federal grant recipient from discriminating against an otherwise qualified handicapped individual solely because of that disability. Byrne v. Board of Educ., School of West Allis-West Milwaukee, 979 F.2d 560, 563 (7th Cir.1992). The act provides, in relevant part:

No otherwise qualified handicapped individual in the United States, ... shall, solely by reason of his handicap, be excluded from the participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance....

29 U.S.C. § 794. ⁴

To survive a motion to dismiss, Grzan's prima facie case must set out four elements: "(1) that [she] is a 'handicapped individual' under the Act, (2) that [she] is 'otherwise qualified' for the [benefit] sought, (3) that [she] was [discriminated against] solely by reason of [her] handicap, and (4) that the program or activity in question receives federal financial assistance." Johnson by Johnson v. Thompson, 971 F.2d 1487, 1492 (10th Cir.1992) (quoting Strathie v. Department of Transp., 716 F.2d 227, 230 (3d Cir.1983)), cert. denied, 507 U.S. 910, 113 S.Ct. 1255, 122 L.Ed.2d 654 (1993). See also Byrne, 979 F.2d at 563 (setting out four elements of § 504 claim in employment context); Cushing v. Moore, 970 F.2d 1103, 1107 (2d Cir.1992) (setting out four elements in provision of medical services context).

We begin with Grzan's section 504 claim against Greer. The claim fails for a fundamental reason--Greer is not a recipient of federal funds, the fourth element above. Grzan's complaint does not allege that Greer was the recipient of federal funds, only that he was an employee of Charter and that Charter was the recipient of federal funds through the Medicaid and Medicare programs. This is not enough to implicate Greer under section 504. In United States Dept. of Transp. v. Paralyzed Veterans of America, 477 U.S. 597, 605, 106 S.Ct. 2705, 2710, 91 L.Ed.2d 494 (1986), the Supreme Court focused on who could and who could not be held liable as recipient of federal funds under section 504. "Congress limited the scope of § 504 to those who actually 'receive' federal financial assistance because it sought to impose § 504 coverage as a form of contractual cost of the recipient's agreement to accept the federal funds." 477 U.S. at 605, 106 S.Ct. at 2711. By accepting the funds, one accepts the obligations that go along with it, namely, the obligation not to exclude from participation, deny benefits to, or subject to discrimination an otherwise qualified handicapped individual solely by reason of her handicap. Only by declining the federal financial assistance can one avoid this obligation. "By limiting coverage to recipients, Congress imposes the obligation of § 504 upon those who are in a position to accept or reject those obligations as a part of the decision whether or not to 'receive' federal funds." Id. at 606, 106 S.Ct. at 2711.

"The coverage of the Rehabilitation Act does not follow federal aid past the intended recipient to those who merely derive a benefit from the aid or receive compensation for services rendered pursuant to a contractual arrangement." Gallagher v. Croghan Colonial Bank, 89 F.3d 275, 278 (6th Cir.1996) (internal quotations omitted). Employees of the recipients of federal financial assistance are not in themselves the recipients of such assistance. Absent specific allegations to the contrary, we can only assume that as an employee who merely was paid a wage or salary, Greer was never in such a position and thus was never a recipient of federal funds. See Paralyzed Veterans at 608-10 (differentiating between indirect recipients of federal funds and indirect beneficiaries; benefitting from a federally financed program, even where the benefits are financial, does not necessarily constitute the receipt of federal funding).

Charter Hospital admits for purposes of the appeal that it receives federal financial assistance and thus potentially is subject to liability under section 504. ⁵ Nonetheless, Charter argues that Grzan's complaint fails to allege two elements of the prima facie case: (1) that she was "otherwise qualified," and (2) that she received discriminatory treatment solely because of her handicap. To address this argument, it is important to understand exactly what Grzan alleges in her complaint.

Grzan alleges that by entering into a sexual relationship with her, Greer interfered with her treatment. She is not alleging discrimination based on her sex, but discrimination based on her handicap. Thus she claims the sexual relationship was discriminatory not because it was sexual but because it interfered with the treatment for her disability.

Grzan does not allege she was barred access or denied treatment by Charter Hospital. Instead she alleges she received poor treatment, defective treatment, and thereby different and unequal treatment from the hospital by...