In re St. Mary Hosp.

• Decision Date: 05 April 1991
• Docket Number: Adv. No. 91-0038S.,Bankruptcy No. 88-11421S
• Citation: 125 BR 422
• Parties: In re ST. MARY HOSPITAL, Debtor. Roger HISER, Trustee in Bankruptcy, Plaintiff, v. COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE and John M. White, Jr., Secretary, Commonwealth of Pennsylvania, Department of Public Welfare, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

125 B.R. 422 (1991)

In re ST. MARY HOSPITAL, Debtor Roger HISER, Trustee in Bankruptcy, Plaintiff, v. COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE and John M. White, Jr., Secretary, Commonwealth of Pennsylvania, Department of Public Welfare, Defendants.

Bankruptcy No. 88-11421S, Adv. No. 91-0038S.

United States Bankruptcy Court, E.D. Pennsylvania.

April 5, 1991.

W. Thomas Berriman, Jeffrey B. Schwartz, David S. Fishbone, Ciardi, Fishbone and DiDonato, Philadelphia, Pa., for trustee.

John A. Kane, Chief Counsel, Thomas B. York, Chief of Litigation, Office of Legal Counsel, Harrisburg, Pa., Thomas Blazusiak, Northeastern Regional Counsel, Allentown, Pa., for defendants.

MEMORANDUM

DAVID A. SCHOLL, Bankruptcy Judge.

A. HISTORY OF THE MATTERS IN DISPUTE.

On January 15, 1991, the instant adversary action was instituted by ROGER HISER ("the Trustee"), the trustee in bankruptcy for ST. MARY HOSPITAL ("the Debtor"), against the COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF PUBLIC WELFARE ("DPW") and JOHN H. WHITE, JR., the Secretary of DPW.

The history of the underlying Chapter 11 case, filed April 27, 1988, is set forth in five prior Opinions arising out of this case, reported at 86 B.R. 393 (Bankr.E.D.Pa.1988) (court enjoins hospital closure); 89 B.R. 503 (Bankr.E.D.Pa.1988) (court refuses to require the Debtor to repay Medicare overpayments to retain Medicare affiliation); 97 B.R. 199 (Bankr.E.D.Pa.1989), aff'd, 120 B.R. 25 (E.D.Pa.1990), aff'd, 931 F.2d 51 (3d Cir.1991) (court declines a request for an award of attorneys' fees from the estate of counsel for community participants); 101 B.R. 451 (Bankr.E.D.Pa.1989) (court awards the Trustee certain damages from doctors who removed a clinic from the hospital); and 117 B.R. 125 (Bankr.E.D.Pa. 1990) (court resolves disputes between the Debtor and the purchaser of its assets) (cited hereafter as "St. Mary V"). The history of this case can be ascertained chiefly from review of the first of these Opinions, 86 B.R. at 395-97, and the third, 97 B.R. at 200-02. We note that this court, on April 5, 1989, confirmed a Plan of Reorganization submitted by the Trustee and Franciscan Health Services, Inc. ("FHS"), the centerpiece of which was the sale of the Debtor's assets.

The Complaint in this proceeding attacks the accuracy of a Termination Cost Report filed by DPW on June 5, 1989, addressing reimbursement due to the Debtor for treatment of Medicaid beneficiaries for the period from July 1, 1988, to December 31, 1988. In the Complaint, the Trustee avers, in four Counts of the Complaint, that DPW, by way of the Amended Financial Report, improperly—

(1) disallowed in full $200,000.00 in Medicaid claims submitted following the Final Audit without a rational basis, and without providing a reasonable explanation to enable the Trustee to form a conclusion or basis for the disallowance;

(2) disallowed in full $274,602.00 for capital costs for buildings and fixtures; $126,021.00 in professional fees approved by Orders of this court; $91,202.00 in pension costs paid by FHS on behalf of the Debtor; and $39,086.00 in collection fees paid by Debtor estate without requesting information from the Trustee which may have reduced the amount of some of the disallowances;

(3) disallowed in full, through the application of inaccurately low "ceilings" on Medicaid reimbursement, $251,726.00 relating to the operating costs of the Debtor's psychiatric unit and $727,218.00 of the Debtor's capital costs without a rational basis; and

(4) applied the "ceilings" referenced in Count Three in a manner inconsistent with the approved Commonwealth of Pennsylvania Medicaid Plan ("the Plan").

The Trustee prayed that this court enter an Order requiring that DPW reimburse the Debtor for the disallowed amounts by recalculating the Medicaid reimbursements in conformity with federal law and regulations; enter an order declaring that disallowance of the psychiatric unit operating costs and of the reimbursable capital costs violated federal regulations and gave rise to relief under 42 U.S.C. § 1983; and grant him monetary damages, including, but not limited to, attorneys' fees and costs, as well as any further appropriate relief.

Attached as an Exhibit to the Complaint was a Stipulation settling a previous proceeding in this case, Adversary No. 89-0646, brought by the Trustee to challenge DPW's Medicaid reimbursements to the Debtor in fiscal years 1987 and the early part of 1988, which was approved by our Order of September 27, 1989. Also accompanying the Complaint was DPW's Amended Financial Report which contained a statement of the contested disallowances.

In response to the Complaint, DPW, on February 19, 1991, filed a Motion to Dismiss, Motion for Summary Judgment, and Motion for More Definite Statement ("the Motion") and a Memorandum of Law Supporting the Motion. In the Motion, DPW sought dismissal of the Complaint on two bases: (1) sovereign immunity arising from the Eleventh Amendment to the federal Constitution; and (2) the Trustee's failure to allege a factual basis upon which relief could be granted or a sufficient factual basis for entitlement to relief under § 1983. DPW sought summary judgment on the ground that the Trustee had failed to exhaust applicable administrative remedies before filing suit. Finally, in the alternative, DPW requested that this court enter an Order requiring the Trustee to file a more definite statement of his claims within certain specified time constraints.

Upon becoming aware of the Motion and noting that a March 6, 1991, trial date had been established, this court entered an Order of February 28, 1991, deferring the disposition of the Motion until the trial date. On the trial date, the Trustee handed up to the court an Answer to the Motion and a Memorandum of Law in Support of the Answer. Accompanying these documents was an Affidavit of Jeffrey Schwartz, Esquire, special counsel for the Trustee, attesting to a letter received from Michael J. Mahoney, a DPW Claims Investigation Agent, making certain modest claims for Medicaid reimbursement subsequent to July 1, 1988. The Affidavit stated further that during the course of negotiation of the Stipulation resolving Adversary No. 89-0646, DPW had requested, but was denied, insertion therein of language specifically preserving its Eleventh Amendment sovereign immunity rights. All of the foregoing was presented in support of contentions that DPW had made an "informal proof of claim" regarding the post-July 1, 1988, Medicaid reimbursement in issue and had waived any defense based upon the Eleventh Amendment.

The parties also agreed, on March 6, 1991, that the trial should be continued until April 24, 1991, and a Pre-Trial Order geared to that trial date was entered. DPW also requested until March 18, 1991, later extended to March 25, 1991, to further support the Motion in response to the contents of the Trustee's documents. On April 3, 1991, the parties submitted a further Stipulation requesting a postponement of the trial until June, 1991, and a rescheduling the dates on the Pre-Trial Order accordingly.

In its reply to the Trustee's submissions, DPW argued that the mere dispatch of the aforementioned letter by Mahoney did not submit the DPW to this court's jurisdiction and that the absence of an agreement on the language regarding preservation of Eleventh Amendment rights foreclosed the possibility that there had been a waiver of DPW's rights in this regard. Further, in conjunction with its exhaustion of remedies argument, the DPW argued, alternatively, that this court should stay the administrative review process pursuant to the doctrine of "primary jurisdiction."

B. THE SOVEREIGN IMMUNITY OF DPW HAS BEEN WAIVED BY THE FILING OF PROOFS OF CLAIMS BY TWO OTHER AGENCIES OF THE COMMONWEALTH OF PENNSYLVANIA.

DPW concedes that proofs of claims were filed in the instant bankruptcy case by Commonwealth's Department of Revenue and its Department of Labor and Industry. However, it contends that the filing of proofs of claim by two other state agencies did not effect a waiver of DPW's sovereign immunity because "each of these departments is a separate governmental unit with a discrete function," and that its own failure to file a proof of claim preserved its sovereign immunity under the Eleventh Amendment on the basis of Hoffman v. Connecticut Dep't of Income Maintenance, 492 U.S. 96, 109 S.Ct. 2818, 106 L.Ed.2d 76 (1989).

Unfortunately for DPW, this court addressed this same issue in an almost identical factual setting in In re St. Joseph's Hospital, 103 B.R. 643, 651 (Bankr.E.D.Pa. 1989), and concluded as follows:

Eleventh Amendment immunity applies to the states, and through them to their agencies. A state may not selectively waive its immunity. Hoffman establishes that "a State that files no proof of claim . . . would not be subjected to monetary recovery." 109 S.Ct. at 2823 (emphasis added). In Hoffman, the court had before it two cases where agencies of a state had been sued by a trustee in bankruptcy court despite the fact that neither these agencies, nor, apparently, any other agencies of the same state, had filed proofs of claim in the case in which suit was brought. The court had the opportunity to state, in its holding, that the state agencies could not be sued for money damages if they did not file proofs of claim. Instead, the Court, in its holding, used the broad term "State." The Court thus left open the possibility that, in cases where any agency of the state has filed a proof of claim, this act constituted a waiver by the state of its sovereign immunity.

The Defendants\' argument that a waiver by other agencies of Pennsylvania does not destroy DPW\'s immunity is based upon the language of 11 U.S.C. § 106(a) and (b) of the Code. It is true, as the Defendants argue that those sections provide a basis for jurisdiction only as to claims arising out of the same transaction or occurrence, or to

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