Texas Clinical Labs, Inc. v. Leavitt

• Citation: 535 F.3d 397
• Decision Date: 15 July 2008
• Docket Number: No. 07-10760.,07-10760.
• Parties: TEXAS CLINICAL LABS, INC., also known as Texas Clinical Labs, LLC; Texas Clinical Labs-Gulf Division, Inc., also known as Texas Clinical Labs-Gulf Division, LLC; Estate of Daniel P. Campbell, Plaintiffs-Appellants, v. Michael LEAVITT, Secretary, Department of Health & Human Services and Unknown Employees and Agents of the Department of Health & Human Services, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

535 F.3d 397 TEXAS CLINICAL LABS, INC., also known as Texas Clinical Labs, LLC; Texas Clinical Labs-Gulf Division, Inc., also known as Texas Clinical Labs-Gulf Division, LLC; Estate of Daniel P. Campbell, Plaintiffs-Appellants,
v.
Michael LEAVITT, Secretary, Department of Health & Human Services and Unknown Employees and Agents of the Department of Health & Human Services, Defendants-Appellees. No. 07-10760. United States Court of Appeals, Fifth Circuit. July 15, 2008.

[535 F.3d 399]

William C. Brittan, Richard O. Campbell, Campbell Bohn Killin Brittan & Ray LLC, Denver, CO, Kurt Allen Schwarz (argued), Jackson Walker, Dallas, TX, for Plaintiffs-Appellants.

James Patrick Laurence (argued), Dallas, TX, for Michael Leavitt.

Appeal from the United States District Court for the Northern District of Texas.

Before JONES, Chief Judge, and WIENER and CLEMENT, Circuit Judges.

WIENER, Circuit Judge:

Plaintiffs-Appellants Texas Clinical Laboratories, Inc., Texas Clinical Laboratories-Gulf Division, Inc., Texas Clinical Labs, LLC, Texas Clinical Labs-Gulf Division, LLC, and the Estate of Daniel P. Campbell (collectively, the "Appellants") initiated this action against the Department of Health and Human Services (the "DHHS"). In their original and amended complaints, the Appellants (1) sought review of an administrative decision denying them additional interest on the principal of a Medicare reimbursement judgment rendered by an administrative law judge ("ALJ") in favor of Texas Clinical Laboratories, Inc. and Texas Clinical Laboratories-Gulf Division, Inc., and (2) asserted that the DHHS, through repeated misrepresentations throughout the Medicare reimbursement proceedings, deprived them of specified entitlements due under the Social Security Act, 42 U.S.C. §§ 301-1397jj. The district court dismissed the Appellants' action with prejudice, ruling that none of the Appellants was a proper plaintiff because each lacked either standing or capacity to proceed. Convinced that the district court erred as a matter of

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law when it ruled that Texas Clinical Laboratories, Inc. and Texas Clinical Laboratories-Gulf Division, Inc. lacked capacity under Texas law, we reverse and remand to the district court to conduct further proceedings for the purpose of determining whether the Appellants are entitled to the additional interest they seek, and, if so, how much. Also, we affirm the district court's dismissal of the Appellants' due-process claim, but we do so on different grounds.

I. FACTS AND PROCEEDINGS

A. The Appellants

The Appellants comprise (1) two defunct Texas corporations (Texas Clinical Laboratories, Inc. ("Texas TCL") and Texas Clinical Laboratories-Gulf Division, Inc. ("Texas TCL-Gulf") (collectively, the "Texas TCLs")); (2) two Colorado limited liability companies with names similar to those of the Texas TCLs (Texas Clinical Labs, LLC and Texas Clinical Labs-Gulf Division, LLC (collectively, the "Colorado TCLs")); and (3) the Estate of Daniel P. Campbell (the "Estate").

Before they ceased doing business, the Texas TCLs provided clinical laboratory services to long-term care facilities under the Medicare program, deriving approximately 80 to 90 percent of their income from Medicare reimbursements. The Colorado TCLs were formed in 2003, purportedly to receive, on behalf of the Texas TCLs, payment of the Medicare reimbursement judgment underlying this interest dispute. Daniel P. Campbell was the sole shareholder of the Texas TCLs, and his estate is the sole member of each of the Colorado TCLs.

B. Origin of the Dispute

The Texas TCLs' dispute with the DHHS began around 1986, when Blue Cross/Blue Shield of Texas (the "Carrier"), a private insurance carrier administering the Medicare program in the State of Texas on behalf of the DHHS, implemented a new formula for calculating travel allowances. The new formula was grounded in the Carrier's assumption that healthcare technicians travel at an average speed of thirty-five miles per hour ("35 m.p.h.") when driving to and from the facilities they service. In May 1988, the Texas TCLs objected to this new methodology and urged that a lower, more accurate m.p.h. component be used. This would result in a higher overall reimbursement for all healthcare providers in Texas, including the Texas TCLs. In an unrelated move in July 1988, shortly after the Carrier rejected this request, the Texas Secretary of State ordered that Texas TCL-Gulf be involuntarily dissolved for failure to maintain a registered agent in the State of Texas.

C. First Action

In March 1989, after their initial request for adjustment was rejected, the Texas TCLs filed suit against the Carrier and the DHHS in the federal district court in Colorado. The Texas TCLs alleged, inter alia, that the defendants' manner and method of determining the Medicare reimbursement travel allowance fee, especially the m.p.h. component, violated the Administrative Procedure Act, 5 U.S.C. § 551 et seq. The action was transferred from Colorado to the Northern District of Texas, where, in March 1990, the district court dismissed it without prejudice because the Texas TCLs had failed to exhaust their administrative remedies.

D. Administrative Proceedings

In July 1990, the Texas TCLs requested that the Carrier review its initial determination ("Carrier Review"). Following a

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hearing, the hearing officer denied additional reimbursement. The Texas TCLs then requested a hearing before the Office of Hearings and Appeals ("OHA") at which to dispute the Carrier Review decision. In the meantime, on September 17, 1990, Texas TCL-Gulf was reincorporated;¹ and, on November 18, 1991, Texas TCL forfeited its right to do business in the State of Texas by failing to pay franchise taxes.

During the OHA hearing in December 1991, the Texas TCLs presented evidence and data to support their contention that a lower m.p.h. figure should be used. Neither the DHHS nor the Carrier made an appearance at the hearing or submitted evidence. In January 1992, the ALJ ruled in favor of the Texas TCLs, finding that there was no evidence to support the use of the 35 m.p.h. component in the travel allowance formula. The OHA Appeals Council (the "Appeals Council") reversed the ALJ's decision, however, and remanded the action so that the Carrier and the DHHS could present evidence.

In February 1993, the same ALJ issued another ruling in favor of the Texas TCLs, again finding that the Carrier and the DHHS had failed to produce evidence to support their travel allowance formula. The Appeals Council, though, was persuaded by the Carrier's and the DHHS's conclusional representation that evidence existed to support the 35 m.p.h. figure and once again reversed. This time, the Appeals Council remanded the matter to a different ALJ.

In June 1995, the successor ALJ rendered the third decision in favor of the Texas TCLs; however, the Appeals Council reversed yet again, concluding that the Carrier and the DHHS presented sufficient evidence to support their use of the 35 m.p.h. component.

Meanwhile, in February 1996, Texas TCL-Gulf forfeited its charter by failing to pay franchise taxes.²

E. Second Action

That same month, the Texas TCLs re-instituted their suit against the DHHS in the Northern District of Texas, again objecting to its methodology for calculating travel allowances. The district court granted summary judgment to the DHHS and dismissed the Texas TCLs' action. On appeal, though, we concluded that the record did not include any objective evidence to support the DHHS's use of the 35 m.p.h. figure. We nevertheless remanded the matter to the administrative level based on representations made to us by the DHHS that objective evidence did exist to support its formula.

F. Administrative Proceedings Re-opened

The administrative proceedings were re-opened in March 2002. In September 2002, Campbell, the sole shareholder of the Texas TCLs, died. That same month, the DHHS introduced into evidence an e-mail in which for the first time it admitted that the 35 m.p.h. figure was based solely on the Carrier staff's personal belief regarding

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travel time in Texas, rather than being based on any objective evidence. The following March, the ALJ ruled in favor of the Texas TCLs for the fourth time, awarding them $581,157.00 plus accrued interest. This time, the DHHS did not appeal.

Approximately one month before the DHHS issued checks to satisfy the judgment, the Colorado TCLs were formed, purportedly to receive payment from the DHHS because the Texas TCLs had gone out of business. In December 2003, the DHHS issued two checks: The first, in the amount of $297,644.51, was made payable to "Texas Clinical Laboratories & Estate of D Campbell"; the second, in the amount of $324,617.24, was made payable to "Texas Clinical Laboratories and Est of D P Campbell." These checks included interest of $41,104.75, which the DHHS had calculated only from the March 2003 date of the fourth decision of the ALJ.

G. Administrative Proceedings Concerning Interest

The Texas TCLs objected to the DHHS's calculation of interest, and in May 2004, requested that the ALJ rule supplementally that interest began to accrue as of January 31, 1992, the date of the first of the four ALJ decisions rendered in their favor. The ALJ held that he did not have the authority to rule on the issue, so the Texas TCLs appealed. The Appeals Council ruled that (1) the ALJ did have the authority to rule on the matter, and (2) no additional interest was owed to the Texas TCLs.

H. This Action

The Appellants filed this action in the United States District Court for the District of Colorado in October 2005 to (1) determine the proper amount of accrued interest owed to them, and (2) assert a due-process claim against the DHHS for misrepresenting, throughout the Medicare reimbursement proceedings, that there was evidence supporting the m.p.h. component of its travel allowance...