National Ass'n of Regional Medical Programs, Inc. v. Mathews

• Court: U.S. Court of Appeals — District of Columbia Circuit
• Writing for the Court: Before TAMM, MacKINNON, and ROBB; TAMM
• Citation: National Ass'n of Regional Medical Programs, Inc. v. Mathews, 551 F.2d 340, 179 U.S.App.D.C. 154 (D.C. Cir. 1977)
• Decision Date: 06 June 1977
• Docket Number: 75-2001,Nos. 75-1615,s. 75-1615
• Parties: NATIONAL ASSOCIATION OF REGIONAL MEDICAL PROGRAMS, INC., et al. v. Honorable F. David MATHEWS, Individually and as Secretary of Health, Education and Welfare, et al., Appellants (two cases). Appeal of Jerome S. WAGSHAL.

Page 340

551 F.2d 340

179 U.S.App.D.C. 154

NATIONAL ASSOCIATION OF REGIONAL MEDICAL PROGRAMS, INC., et al. v. Honorable F. David MATHEWS, Individually and as Secretary of Health, Education and Welfare, et al., Appellants (two cases) Appeal of Jerome S. WAGSHAL.

Nos. 75-1615, 75-2001.

United States Court of Appeals District of Columbia Circuit.

Submitted without Argument Dec. 2, 1976.

Decided Dec. 13, 1976.

Certiorari Denied June 6, 1977.

See 97 S.Ct. 2674.

Rex E. Lee, Asst. Atty. Gen., Earl J. Silbert, U. S. Atty., Leonard Schaitman and Eloise E. Davies, Attys., Appellate Section Civil Division, Dept. of Justice, Washington, D. C., were on the brief for appellant, Secretary of Health, Education and Welfare.

Jerome S. Wagshal, Washington, D. C., was on the brief for appellees.

Before TAMM, MacKINNON, and ROBB, Circuit Judges.

Opinion for the Court filed by Circuit Judge TAMM.

TAMM, Circuit Judge:

The facts and issues of this case are closely analogous to those found in National Council of Community Mental Health Centers, Inc. v. Mathews, 178 U.S.App.D.C. 237, 546 F.2d 1003 (1976) (hereinafter NCCMHC ). Two basic issues are presented here. The first concerns the district court's award of an attorney's fee out of federal grant funds; the second involves the power of the district court to award that fee against the individual class members. As we find that the NCCMHC decision is controlling here, we reverse the judgment of the district court.

I. FACTUAL BACKGROUND

As in NCCMHC, this case arises out of a district court order awarding Jerome Wagshal an attorney's fee for successfully prosecuting a class action claim against the Department of Health, Education and Welfare (HEW) which resulted in the release of illegally impounded funds exceeding one hundred million dollars. ¹ The funds involved were appropriated by Congress for the Regional Medical Programs (RMPs) under two amendments to the Public Health Service Act, 84 Stat. 1298 (1970) and 87 Stat. 93 (1973), as amended 42 U.S.C. § 299a (Supp. V 1975). The purpose of these grants is to assist in the establishment of regional cooperative arrangements among medical institutions for research and training in the fields of heart disease, cancer, stroke, and kidney disease. After plaintiffs' success on the merits, the district court ordered the defendant-Secretary of HEW to deposit up to $200,000 of unexpended funds into the registry of the court. ² Pursuant to this order HEW obligated $180,000 of unexpended direct operations funds. ³ The disposition of these funds is now at issue.

The district court determined that it had power to award a fee from grant funds because all of the grant funds were obligated to the grantees pursuant to its decision on the merits and therefore the government was nothing more than a stakeholder of these monies. ⁴ It reasoned that as long as the funds belonged to the grantees, an award of attorney's fees was not barred by 28 U.S.C. § 2412 (1970). ⁵ As precedent for its ruling, the court relied on National Council of Community Mental Health Centers, Inc. v. Weinberger, 387 F.Supp. 991 (D.D.C.1974), which we recently overruled in NCCMHC, supra.

In addition to finding that it had authority to award an attorney's fee from grant funds, the district court held that it had in personam jurisdiction over the individual RMP class members, and thus could order each member to pay the designated fee. The court based its in personam jurisdiction on the fact that each class member had litigated the merits of the case before the court and had benefitted therefrom, and in addition, that each had had actual notice of the fee proceeding and an opportunity to participate in it. ⁶

In view of its finding that it had in personam jurisdiction over the class as well as authority to compel disbursal of grant funds for attorney's fees, the district court devised a somewhat convoluted formula for the payment of such fees. It first assessed an attorney's fee amounting to $105,500 against the benefitting class. Each member was to pay its pro rata share ostensibly from non-grant funds but if these proved insufficient, grant funds could be used to make up the difference. The court then ordered HEW to simultaneously supplement each RMP's grant by transferring from unexpended direct operations funds an amount identical to the legal expense incurred by each. ⁷ Without waiting for this court to make a determination as to the legality vel non of the fee award from grant funds, the plaintiff class proceeded to pay Wagshal's fee mostly from such monies; this fee, Wagshal now contends, was not commensurate with the value of his services. NARMP Reply Brief at 3 n.5. Reimbursement to the class by HEW from the unexpended direct operations funds has been stayed pending the outcome of this appeal.

II. THE SOURCE OF THE FEE PAYMENT

The first problem confronting us is to determine exactly what funds are actually being used to pay the attorney's fee. As 28 U.S.C. § 2412 prohibits an award of attorney's fees against the government, we must unravel the payment scheme devised by the district court in order to uncover the true source of the funds from which the fee must be paid. If the source is the government section 2412 mandates that another statute specifically provide for the attorney's fee recovery or else such recovery is clearly prohibited.

There seems to be considerable confusion both in the trial court's opinion and in the briefs as to where this money is to come from. The district court discussed at length its power to award a fee from grant funds ⁸ but then ordered the class to pay the fee from non-grant funds to the fullest extent possible. ⁹ At the same time, it ordered HEW to make a similar amount of money available to the class from unexpended direct operations funds, but in the same paragraph it refers to these monies as unexpended grant funds. ¹⁰ The parties further complicate the matter. Wagshal contends that HEW failed to follow the district court's pendente lite order to obligate unspent grant funds to the reserve fund. ¹¹ HEW in turn objects to the use of program income monies to partially pay the fee, ¹² an objection which was not voiced at the district court level. ¹³

The conclusion which we draw from all of this is that the district court appears to have engaged in a valiant effort to avoid the strictures of section 2412. The court's payment formula makes it appear as if the RMPs are the source of the fee payment, when in fact it is the government which is ultimately being charged with the award. This device cannot camouflage the true payor of the fee: the government.

Whether these monies are labeled unexpended direct operations or unexpended grant funds is not important. Both of these funds were part of the same congressional appropriation and subject to the same general rules and regulations. Both lapse at the end of the budget period into the United States treasury and cannot again be reached by the grantees without an authorization from HEW. ¹⁴ We held in NCCMHC that such unexpended funds properly belong to the government and therefore an award of attorney's fees from these funds would be an award against the United States prohibited by section 2412, unless otherwise specifically authorized by another statute. At 241 of 178 U.S.App.D.C., at 1007 of 546 F.2d.

No other statute specifically authorizes this award. The Public Health Service Act clearly sets forth the purposes for which the appropriated funds are to be used; attorney's fees are not mentioned. See 42 U.S.C. §§ 229-299j (1970). A specific authorization allowing attorney's fees cannot be found in the HEW regulations implementing the grant program. See 42 C.F.R. §§ 54.401-414 (1975). In fact, these implementing regulations very pointedly state that "(t)he grantee will use grant funds solely for the purposes for which the grant was made . . . ." 42 C.F.R. § 54.405(a) (1975). The only mention of attorney's fees is in the uniform administrative requirements and cost principles regulations which clearly provide that all legal costs incurred in a suit against the government are not allowable. ¹⁵ As in NCCMHCthe court is thus left with no equitable jurisdiction to award attorney's fees in this case where the payment would come from the United States government. NCCMHC, supra, at 241 - 242 of 178 U.S.App.D.C., at 1007-1008 of 546 F.2d. Since we hold that the district court is prohibited by statute from awarding Wagshal a fee from government funds, we must proceed to the question of whether the individual class members could be charged with the fee payment. ¹⁶

III. THE NEED FOR ADEQUATE REPRESENTATION

Contrary to the situation in NCCMHC, the class members in this action were given actual notice of the proposed settlement on the merits, along with an opportunity to object to any of its provisions, as well as actual notice of the fee application and of each member's right to participate in this proceeding. ¹⁷ As in NCCMHC however, none of the individual class members actually appeared before the court. On the basis of these facts and the court's prior certification of the class on the merits pursuant to Fed.R.Civ.P. 23(b)(1) and (2), it found continuing in personam jurisdiction over the individual RMP class members.

It is important to note at the outset that the parties have switched positions. In this fee application, Jerome Wagshal, the attorney for the class on the merits, is suing both HEW and the class members for an attorney's fee. Even though Wagshal is proceeding pro se in the instant litigation, he also is serving as counsel for the National Association of Regional Medical Programs, Inc. (NARMP), an association which includes all 53 RMPs. ¹⁸ NARMP retained Wagshal to bring a class action to compel release of the illegally impounded grant funds. The retainer agreement was modeled after the one employed in the NCCMHC case. ¹⁹ This agreement was a contract exclusively between...