Plaza Health Laboratories, Inc. v. Perales

• Decision Date: 03 January 1989
• Docket Number: No. 88 CIV. 8930 (PKL).,88 CIV. 8930 (PKL).
• Citation: 702 F. Supp. 86
• Parties: PLAZA HEALTH LABORATORIES, INC., Plaintiff, v. Cesar A. PERALES, Commissioner of the New York State Department of Social Services, and New York State Department of Social Services, Defendants.
• Court: U.S. District Court — Southern District of New York

702 F. Supp. 86

PLAZA HEALTH LABORATORIES, INC., Plaintiff, v. Cesar A. PERALES, Commissioner of the New York State Department of Social Services, and New York State Department of Social Services, Defendants.

No. 88 CIV. 8930 (PKL).

United States District Court, S.D. New York.

January 3, 1989.

Roberta C. Pike, Richard S. Bernstein, New York City, for plaintiff.

Robert J. Schack, Carol Schecter, Robert Abrams, Atty. Gen., State of N.Y., New York City, for defendants.

OPINION AND ORDER

LEISURE, District Judge.

This action is brought pursuant to 42 U.S.C. § 1983, alleging various constitutional violations, including violations of the due process clause of the fourteenth amendment, and the ex post facto clause. Plaintiff seeks injunctive relief and damages.

Plaintiff moved for a preliminary injunction by way of order to show cause, signed by this Court on December 16, 1988, and returnable December 29, 1988. Based on the following findings of fact and conclusions of law, plaintiff's motion is denied.

Findings of Fact.

The essential facts relative to this injunction are not in dispute, and are briefly summarized here. Plaintiff Plaza Health Laboratories, Inc. ("Plaza") is a licensed clinical medical laboratory. It was organized under the laws of New York in 1985, and, since January, 1988, has been performing various medical laboratory services for physicians and clinics throughout the metropolitan area.

The defendant New York State Department of Social Services (the "Department") is the "single state agency" charged with administration of New York's program of Medical Assistance for Needy People under Article 5, Title 11, of the New York Social Services Law and 42 U.S.C. § 1396a et seq. That program is commonly called "Medicaid." Medicaid is a jointly funded federal-state program, providing for the furnishing of medically necessary care, services and supplies to the needy and impoverished of the State. Plaza was a participant in the New York Medicaid system, providing its services to Medicaid recipients and receiving Medicaid payments as payment in full.

Plaza provided services for both Medicaid and non-Medicaid patients. It provides laboratory testing services for approximately 40 patients daily, twenty-five percent of whom are Medicaid recipients. Plaza maintains a weekly payroll of approximately $6000, and employs approximately 20 persons, including a number of licensed laboratory technicians.

Plaza has service relationships with many physicians and clinics located in low-income areas. Those physicians and clinics refer individual patients to Plaza for medical testing, which is often of a daily or regular nature. Plaza is a minority-owned enterprise, and approximately 70% of its employees are minority. Proficiency ratings by state and city administrative agencies have consistently been high; there is no issue as to the competency of Plaza's performance in its specific medical testing capacity.

On November 18, 1988, Plaza and Geronimo B. Villegas ("Villegas"), an employee, 50% shareholder, and former officer of Plaza, were indicted in New Jersey for purposely and knowingly causing the release of hazardous waste and harmful and destructive substances, including biologically infectious and pathogenic viruses which pose a threat to human health, and for willful and negligent discharge of pollutants into the Hudson River. The indictment charges that the illegal waste release occurred "on or about June 18, 1988 and on or about September 25, 1988."

That indictment consists of four counts against Plaza and Villegas, all arising out of the same event. Essentially, it is charged that Villegas improperly dumped allegedly hazardous wastes from the laboratory into dumpsters in New Jersey. Plaza alleges in this proceeding that Villegas' actions were without the knowledge or authorization of Plaza or its President, Dennis Chaundra ("Chaundra"). Exhibit B, attached to Affidavit of Dennis Chaundra, sworn to on December 16, 1988 ("Chaundra Affidavit").

By letter dated November 23, 1987, the Department notified Plaza that, pursuant to 18 NYCRR § 515.7(b), it would be suspended from participation in the Medicaid program. That suspension was to become effective five days thereafter, pending outcome of the criminal proceeding. The stated reason for that suspension was the charge of a crime "relating to the furnishing or billing for medical care, services or supplies." Exhibit B, attached to Affidavit of Raul A. Tabora, Esq., sworn to on December 28, 1988 ("Tabora Affidavit"). The letter did not explicitly refer to the New Jersey indictment.

Plaza was given the opportunity to submit arguments and written documentation within 30 days of the date of notice on the following issues: (1) whether the determination to sanction was based upon a mistake of fact; (2) whether any crime charged in an accusatory instrument, or a conviction of a crime, resulted from the furnishing of, or billing for medical care, services or supplies; and (3) whether the sanction imposed was appropriate.

Plaza appealed the Department's action by letter dated December 22, 1988. The Department will consider that appeal and render a decision shortly. Tabora Affidavit ¶ 12. Meanwhile, Plaza made the present application to this Court.

As a result of the termination of Plaza's participation in the Medicaid program, its financial viability has been threatened. Plaza cannot now perform services for Medicaid patients. Physicians who typically refer both Medicaid and non-Medicaid patients for medical laboratory testing have begun to look to other laboratories who can handle all of their referrals, and may continue those referral relationships even if Plaza is ultimately exonerated.

As a result of this drain, Plaza has had to lay off ten, or 50%, of its employees. The relationship with the remaining employees is strained; some have allegedly sought employment elsewhere because of the uncertainty of Plaza's continued existence. The reduction in staff has also affected the efficiency of Plaza's performance, further jeopardizing its client base.

Conclusions of Law.

As the Second Circuit has often noted, a preliminary injunction is "an extraordinary and drastic remedy which should not be routinely granted." Medical Society of the State of New York v. Toia, 560 F.2d 535, 538 (2d Cir.1977); see Buffalo Courier-Express, Inc. v. Buffalo Evening News, Inc., 601 F.2d 48, 59 (2d Cir.1979); Gerard v. Almouli, 746 F.2d 936 (2d Cir.1984). To obtain a preliminary injunction, the movant must generally demonstrate:

(a) irreparable harm; and (b) either (i) likelihood of success on the merits, or (ii) sufficiently serious questions going to the merits to be a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief.

Inverness Corporation v. Whitehall Laboratories, 819 F.2d 48, 50 (2d Cir.1987). The burden upon plaintiff to establish preliminary injunctive relief is heavy, and "where the grant of interim relief may adversely affect the public interest in a manner which cannot be compensated for by an injunction bond, plaintiffs undertake an even greater burden of persuasion." Medical Society of the State of New York v. Toia, 560 F.2d at 538.

Defendant claims that the "fair ground of litigation" test in not applicable to the present situation, because the preliminary injunction implicates the public interest. In such a case, "more than a `fair ground for litigation' must be shown before the action will be stopped in its tracks by a court order." Union Carbide Agricultural Products Co. v. Costle, 632 F.2d 1014, 1018 (2d Cir.1980), cert. denied, 450 U.S. 996, 101 S.Ct. 1698, 68 L.Ed.2d 196 (1981). The Court agrees that plaintiff here must show a likelihood of success on the merits. See, Medical Society v. Toia, 560 F.2d at 538; Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247, 250 (2d Cir.1973).

Likelihood of Success on the Merits.

Plaintiff asserts three constitutional bases for its claimed relief. Essentially, plaintiff claims that (1) the state regulations and law that justified termination of Plaza's participation in Medicaid had an impermissible ex post facto effect, as applied to it; (2) plaintiff was denied due process through deprivation of a property interest without a hearing; and (3) the New York law violates due process because it imposes sanctions based upon charge, not conviction, of a crime.

With regard to the likelihood of success on the underlying claims, the Court initially notes problems with a suit against the State, as an entity, under § 1983. Alabama v. Pugh, 438 U.S. 781, 98 S.Ct. 3057, 57 L.Ed.2d 1114 (1978). Damage claims asserted against defendant Perales, in his official capacity only, also implicate Eleventh Amendment concerns. Defendant raises questions as to this District being the proper venue, which may become the basis of a Fed.R.Civ.P. 12 motion to dismiss. Furthermore, examination of the merits of plaintiff's actual asserted bases for injunctive relief do not reveal a likelihood of success.

A. Ex Post Facto Clause.

The crimes charged against Villegas and Plaza in New Jersey would be felonies in New York under N.Y.Envtl.Conserv. § 71-2704(2)(c). That law, making those acts felonious in New York, became effective on November 1, 1988. Prior to that, the acts would have been a violation, but not a felony, under New York law. As noted, the notice of suspension by the Department occurred on November 23, 1988. The acts that formed the basis of the indictment in New Jersey occurred in June and September of 1988.

The Department suspended Plaza's participation in Medicaid under current 18 NYCRR 515.7(b)¹. That regulation provides that the Department will immediately suspend a provider's participation in Medicaid, upon the Department's "receiving notice" that an indictment has been filed which charges a provider with an act that would be a felony...