U.S. v. Hatcher

• Decision Date: 05 October 1990
• Docket Number: No. 89-55922,89-55922
• Citation: 922 F.2d 1402
• Parties: , 65 Ed. Law Rep. 99 UNITED STATES of America, Plaintiff-Appellee, v. Gary D. HATCHER, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1402

922 F.2d 1402

108 A.L.R.Fed. 299, 65 Ed. Law Rep. 99

UNITED STATES of America, Plaintiff-Appellee, v. Gary D. HATCHER, Defendant-Appellant.

No. 89-55922.

United States Court of Appeals Ninth Circuit.

Submitted Oct. 5, 1990 ^*.

Decided Jan. 8, 1991.

Gary D. Hatcher, Modesto, Cal., defendant-appellant in pro. per.

Jennifer H. Zacks, U.S. Dept. of Justice, Civ. Div., Washington, D.C., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of California.

Before BEEZER and TROTT, Circuit Judges, and CROCKER, District Judge ^**.

TROTT, Circuit Judge:

Gary D. Hatcher appeals a summary judgment in which the district court found the United States was entitled to stipulated losses resulting from Hatcher's breach of a government-awarded scholarship agreement. United States v. Hatcher, 716 F.Supp. 447 (S.D.Cal.1989). Hatcher makes three claims on appeal, each of which lacks merit. We affirm.

I Facts and Proceedings Below

A thorough statement of the facts appears in the district court's published opinion. Id. at 447-49. Our discussion of the facts is therefore abridged.

In 1976 Congress enacted the National Health Service Corps ("NHSC") Scholarship Program. See Pub.L. No. 94-484, 90 Stat. 2270 (1976) (codified as amended at 42 U.S.C. Secs. 254d-254q (1988)). The program was designed to "address the maldistribution of health care manpower in the United States." Rendleman v. Bowen, 860 F.2d 1537, 1539 (9th Cir.1988). ¹ Under the program, the NHSC grants eligible medical students scholarships covering their educational costs and living expenses. 42 U.S.C. Sec. 254l (g) (1988). In return, the students sign a written contract promising to serve in a Health Manpower Shortage Area ("HMSA") for a term equal in duration to the number of years they received scholarship support (but not to exceed four years). 42 U.S.C. Secs. 254e, 254l (b)(4), 254l (f)(1)(B)(iv), 254m (1988); 42 C.F.R. Sec. 62.8 (1989). The NHSC requires scholars to complete a one-year internship after graduating from medical school and before beginning their service. 42 C.F.R. Sec. 62.9(b) (1989). However, scholars are encouraged to apply for deferments of their service obligation (of up to three additional years) in order to participate in a residency program. 42 C.F.R. Sec. 62.9(a) (1989).

Congress has given the Secretary discretion to designate certain regions of the country as HMSAs, taking into account various factors indicating the need for medical services. 42 U.S.C. Sec. 254e (1988). It has also given the Secretary essentially uncircumscribed authority in assigning scholars to HMSAs. See 42 U.S.C. Sec. 254m(d) (1988); Rendleman, 860 F.2d at 1543; Duffy, 879 F.2d at 195-97; Keepers v. Bowen, 687 F.Supp. 1497, 1498 (D.Or.1986).

Although every attempt is made to assign scholarship recipients to an HMSA in the location of their choice, some regions are substantially more popular than others. The very purpose of this Congressional program is to have new health care professionals deliver medical services to areas suffering shortages of medical personnel. Thus, the Secretary must locate some recipients in less desirable areas.

Rendleman, 860 F.2d at 1543. The NHSC has not promulgated a regulation describing the process by which scholars are assigned to particular HMSAs, however it has developed a formal three-phase placement procedure. In the first phase, scholars apply to specific sites within HMSAs and a lucky few are granted their first choices. The rest continue to the next phase, where they specify a state or region of the country in which they would like to work. Those who remain after this stage are given the opportunity to find an HMSA site on their own, but if they fail to do so they are assigned to an HMSA by the NHSC.

Many scholars are unhappy with their service assignments and therefore choose to default on their obligations. Consequences of a default are severe. Congress has provided that a scholar who defaults shall pay stipulated damages according to a formula which triples the dollar value of the scholar's education. 42 U.S.C. Sec. 254o (1988); 42 C.F.R. Sec. 62.14(b)(3) (1989). The amount owed in this case, for example, exceeds $500,000 including interest.

On April 8, 1980, Gary Hatcher signed a scholarship contract and enclosed it with his application. The agreement tracked the language of the statute and pertinent regulations, warning Hatcher of the consequences of default. His application was approved, and the NHSC paid his educational and other expenses until spring 1984, when he graduated from medical school with a degree in osteopathic medicine. Upon graduating Hatcher entered a one year internship program, and in addition obtained from the NHSC a three year deferment of his service obligation in order to undertake a residency.

During his internship Hatcher began to experience financial difficulties, so he decided to cancel his three year deferment and begin his service obligation as soon as his internship ended. He wrote the NHSC an ambiguous letter on June 8, 1984, which he now claims was a request that NHSC cancel his deferment and place him in the pool of applicants to be assigned to HMSAs in the coming fall. The NHSC did not understand Hatcher's letter to request these responses, and therefore did not put him in the pool. After another series of mix-ups and misunderstandings (caused by Hatcher), he was finally enrolled in the placement process. By that time, however, many of the more "choice" HMSA sites were taken. Hatcher tried to find a suitable site on his own, but failed. The NHSC then assigned him to an HMSA in Texas, where he declined to serve. The NHSC repeatedly offered Hatcher amnesty if he would agree to fulfil his obligation, but he refused each time, and eventually was placed in default and asked to pay stipulated damages.

In the district court, the parties framed the issues in terms of contract law. ² Hatcher raised various contract defenses to the government's claim of breach, of which two originally survived the government's motion for summary judgment. The district court initially determined disputed material facts existed as to whether NHSC had breached its duties under the contract, and whether NHSC was estopped from bringing the default claim on grounds it had misled Hatcher. Meanwhile, in Rendleman we held the parties' obligations in this context are defined by statutory and not contract principles. 860 F.2d at 1541-42. Based on Rendleman, the district court examined Hatcher's claims under the Administrative Procedure Act, 5 U.S.C. Sec. 706(2)(A) (1988), and awarded summary judgment to the government. Hatcher, 716 F.Supp. at 449-50. Hatcher timely appeals.

II

We review de novo a grant of summary judgment. Kruso v. Int'l Telephone & Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied, --- U.S. ----, 110 S.Ct. 3217, 110 L.Ed.2d 664 (1990). We may affirm only if we find no genuine issue of material fact exists, and that the moving party is entitled to judgment as a matter of law. Figueroa v. Sunn, 884 F.2d 1290, 1292 (9th Cir.1989). We will uphold an agency decision unless it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law...." 5 U.S.C. Sec. 706(2)(A) (1988); Simpson v. Hegstrom, 873 F.2d 1294, 1297 (9th Cir.1989).

III Whether Common Law Contract Principles Apply

As an initial matter, we must decide whether contract principles are relevant to this case in any respect. Each applicant for a scholarship must

sign and submit to the Secretary, at the time of submittal of [the] application, a written contract (described in subsection (f) of this section) to accept payment of a scholarship and to serve (in accordance with this subpart) for the applicable period of obligated service in a health manpower shortage area.

42 U.S.C. Sec. 254l (b)(4) (1988). Though the statute uses the word "contract," Rendleman offers a convincing basis for rejecting the argument that contract law applies here.

Appellant in Rendleman, a medical student who signed a scholarship agreement with the NHSC, sued in federal court for an order declaring him not in default. Like Hatcher, he applied for and received a three year deferment of his service obligation in order to participate in a residency program. He later dropped out of the program without prior approval from the NHSC and began to work at a hospital near Portland, in the belief that he was satisfying the terms of his service obligation. The NHSC notified him that the hospital was not within a designated HMSA, but gave him a chance to find an appropriate work site. When Rendleman failed to do so, the NHSC assigned him to an HMSA in Alabama, where he refused to go. Eventually he was placed in default and asked to pay stipulated treble damages.

At the outset, we disposed with the idea that contract law governed Rendleman's dispute:

In passing the statute, Congress intended to implement certain public policy goals by conditioning receipt of scholarship aid upon compliance by the recipient with federal statutory and administrative directives. These conditions do not arise from a negotiated agreement between the parties; rather, they are provided for in the statute. Statutory intent, therefore, is more relevant to the interpretation of these conditions than are common law contract principles. ³

In addition, the plain language of the statute demonstrates that Congress did not intend that contract principles govern the interpretation of the relationship between the Secretary and a scholarship recipient. [citation omitted] The only terms contained in the written agreement signed by a recipient are those required by the statute--that the recipient agrees to accept the aid, that upon completion of the educational program the recipient will serve in an HMSA, and that the recipient will pay triple damages if found in default on the obligation. 42 U.S.C. Sec. 254l (f). ...