Opelika Nursing Home, Inc. v. Richardson

• Decision Date: 16 September 1971
• Docket Number: No. 71-1296.,71-1296.
• Citation: 448 F.2d 658
• Parties: OPELIKA NURSING HOME, INC., et al., Plaintiffs-Appellants, v. Elliott L. RICHARDSON, Secretary of the United States Department of Health, Education and Welfare, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

448 F.2d 658 (1971)

OPELIKA NURSING HOME, INC., et al., Plaintiffs-Appellants, v. Elliott L. RICHARDSON, Secretary of the United States Department of Health, Education and Welfare, et al., Defendants-Appellees.

No. 71-1296.

United States Court of Appeals, Fifth Circuit.

September 16, 1971.

COPYRIGHT MATERIAL OMITTED

Alvin T. Prestwood, Montgomery, Ala., for plaintiffs-appellants; Volz, Capouano, Wampold & Prestwood, Montgomery, Ala., of counsel.

Michael Goldman, Dept. of Justice, Washington, D. C., Ira DeMent, U. S. Atty., William J. Baxley, Atty. Gen. of Ala., Montgomery, Ala., John N. Mitchell, Atty. Gen. of U. S., Judith S. Seplowitz, Atty., Dept. of Justice, Washington, D. C., Herman H. Hamilton, Jr., Sp. Asst. Atty. Gen., Montgomery, Ala., John M. Broeker, Minneapolis, Minn., Alan S. Rosenthal, Alexander P. Humphrey, Dept. of Justice, Civil Div., Appellant Section, L. Patrick Gray, III, Asst. Atty. Gen., U. S. Dept. of Justice, Washington, D. C., for defendants-appellees; Capell, Howard, Knabe & Cobbs, P. A., Montgomery, Ala., of counsel.

Before COLEMAN, GOLDBERG, and DYER, Circuit Judges.

GOLDBERG, Circuit Judge:

In this case the trial court, on the basis of the barebone pleadings, denied plaintiffs access to a federal forum, 323 F.Supp. 1206. Recognizing that jurisdictional facts are the very marrow of federal litigation, we remand for a fleshing out of the bones.

I.

By means of Title XIX of the Social Security Act of 1965, 42 U.S.C.A. § 1396 et. seq., Congress established a federal program to provide medical assistance to individuals whose economic resources are insufficient to meet the cost of necessary medical services. Denominated "Medicaid," this program is funded by the Secretary of Health, Education, and Welfare hereinafter referred to as Secretary, but is administered by participating states. Essentially, federal matching funds, used to finance a state medical-assistance plan which comports with certain federal statutory requirements,¹ are disbursed to the state by the Secretary. The state, in turn, channels the money through an appropriate state agency to various providers of medical services, including skilled nursing homes. The amount of such payments is largely within the discretion of the state, subject only to the limitation that a state plan must not make provision for reimbursement to facilities furnishing medical services in excess of "reasonable charges consistent with efficiency, economy, and quality of care." 42 U.S.C.A. § 1396a(30). By virtue of 42 U.S.C.A. § 1302, the Secretary has the authority to "make and publish such rules and regulations, not inconsistent with this chapter, as may be necessary to the efficient administration of the functions with which he is charged under this chapter." In exercising this authority in conjunction with the "reasonable charges" limitation, the Secretary promulgated a regulation, effective July 1, 1970, providing that payments made by a state agency to skilled nursing homes could not exceed the "reasonable cost," as that term is defined by additional regulations, of the medical services rendered by such facilities.²

While the Medicaid program is funded primarily with federal and state monies, providers of medical services, including skilled nursing homes, are not precluded by statute from receiving payments from sources other than the appropriate state agency. On the contrary, Title XIX of the Act seemingly permits the receipt of supplementary payments from a patient, his family, or his friends. See U.S.C.A. § 1396a(17). However, the Secretary, asserting control over supplementation payments by virtue of 42 U.S.C.A. § 1396a(14), promulgated a regulation requiring those states with existing supplementation programs for skilled nursing homes to submit to the secretary, prior to January 1, 1971, a plan for phasing out such programs. See 45 C.F.R. 249.31.

On January 1, 1970, the State of Alabama began its participation in the Medicaid program with the implementation of an approved plan. Shortly thereafter, plaintiffs, as owners and operators of skilled nursing homes in the State of Alabama, initiated their participation in Alabama's medical assistance program. On July 1, 1970, the Secretary's "reasonable cost" regulation became effective, and the defendant Ira L. Meyers, as administrator of Alabama's Medicaid program, notified plaintiffs that any Medicaid payments received from any source which were in excess of the "reasonable cost" standard had to be reimbursed to the agency or person making such payments. Furthermore, the Secretary, pursuant to his "supplementation" regulation, directed the defendant Meyers to begin planning a program to phase out the plaintiffs right to collect supplementation payments from sponsors or relatives of Medicaid patients.³

As a result of these actions, plaintiffs instituted suit in federal district court, seeking, on behalf of themselves and all others similarly situated, declaratory relief and an injunction restraining the Secretary and defendant Meyers, and their agents and representatives, from enforcing the foregoing regulations. Specifically, plaintiffs asserted (1) that the Secretary's "reasonable cost" regulation contravenes the express statutory limitation of "reasonable charges consistent with efficiency, economy, and quality of care," and (2) that the Secretary is without statutory authority to phase out Alabama's supplementation program. In response to the complaint, the defendant Meyers moved to dismiss the action on the ground that the plaintiffs failed to state a claim upon which relief could be granted. Similarly, the Secretary moved to dismiss pursuant to Rule 12(b) (6) of the Fed.R.Civ.P., and, in addition, asserted that the trial court lacked jurisdiction over both the subject matter of the action and the person of the Secretary.

In their complaint plaintiffs posited subject matter jurisdiction under 28 U.S. C.A. § 1331(a).⁴ To this end the complaint contained a formal allegation that the matter in controversy exceeded, exclusive of interest and costs, the sum of $10,000. However, plaintiffs failed to allege any jurisdictional facts tending to support this formal allegation. Indeed, plaintiffs admitted in their complaint that skilled nursing homes in Alabama might suffer no pecuniary loss by virtue of the "reasonable cost" regulation, for the complaint stated that "reasonable cost" might be "higher or lower" than "reasonable charges." On the basis of this admission, the trial judge concluded that any pecuniary loss which the plaintiffs might incur as a result of the enforcement of the "reasonable cost" regulation was "too speculative" to satisfy the "matter in controversy" requirement of 28 U.S.C.A. § 1331(a).⁵ Therefore, the court below concluded, solely upon the basis of the pleadings, that it did not have jurisdiction over the subject matter of the action. However, in addition to, and notwithstanding this holding of a lack of subject matter jurisdiction, the trial court held that the plaintiffs' complaint failed to state a claim upon which relief could be granted.

As a result of these adverse rulings, plaintiffs appeal, contending, inter alia, that the district court erred in denying them an opportunity to discharge their burden of proving that the claim satisfied the requisite jurisdictional amount. We agree with this contention, for we are convinced that the pleadings alone are not so conclusive that the plaintiffs should have been denied an opportunity to present facts in support of their jurisdictional claim.⁶ Accordingly, we remand for full development of the jurisdictional facts.

II.

The jurisdiction of a federal district court in a civil action involving a federal question under 28 U.S.C.A. § 1331 is statutorily limited to situations in which the matter in controversy exceeds $10,000. Under Fed.R.Civ.P. 12(h) (3), which provides that "whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action," a district court is charged with the duty of enforcing this jurisdictional limitation. Therefore, it becomes necessary in some cases for a federal district court to enter upon a determination as to whether its jurisdiction has been properly invoked.

In order to prevent any such preliminary jurisdictional determination from unfairly depriving a party of a trial on the merits, the Supreme Court has formulated a fairly rigorous standard governing dismissal for want of jurisdiction. In St. Paul Mercury Indemnity Co. v. Red Cab Co., 1938, 303 U.S. 283, 288-289, 58 S.Ct. 586, 590, 82 L.Ed. 845, the Court enunciated that standard in the following words:

"The rule governing dismissal for want of jurisdiction in cases brought in the federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal. The inability of plaintiff to recover an amount adequate to give the court jurisdiction does not show his bad faith or oust the jurisdiction. Nor does the fact that the complaint discloses the existence of a valid defense to the claim. But if, from the face of the pleadings, it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction, the suit will be dismissed." footnotes omitted

Whether expressed in terms of "good faith" or "legal certainty,"⁷ the standard clearly favors those parties seeking to invoke the jurisdiction of a federal district court.

Turning our attention to the instant case, we first note that the court below was correct in concluding...