U.S. v. St. John's General Hosp.

• Decision Date: 24 May 1989
• Docket Number: 88-3748 and 88-3749,Nos. 88-3700,A-C,s. 88-3700
• Citation: 875 F.2d 1064
• Parties: UNITED STATES of America v. ST. JOHN'S GENERAL HOSPITAL, Extend-are Nursing Home, Inc., Dollar Savings Bank, Pavillion North, a Limited Partnership, Pavillion Nursing Center North, Inc. Appeal of ST. JOHN'S GENERAL HOSPITAL, Dollar Savings Bank, Pavillion North, and Pavillion Nursing Center North, Inc.
• Court: U.S. Court of Appeals — Third Circuit

Page 1064

875 F.2d 1064

UNITED STATES of America v. ST. JOHN'S GENERAL HOSPITAL, Extend-A-Care Nursing Home Inc., Dollar Savings Bank, Pavillion North, a Limited Partnership, Pavillion Nursing Center North, Inc Appeal of ST. JOHN'S GENERAL HOSPITAL, Dollar Savings Bank Pavillion North, and Pavillion Nursing Center North, Inc.

Nos. 88-3700, 88-3748 and 88-3749.

United States Court of Appeals Third Circuit.

Argued March 28, 1989.

Decided May 24, 1989.

Richard DiSalle (argued), Susan H. Malone, Rose, Schmidt, Hasley & DiSalle, Pittsburgh, Pa., John B. Nicklas, McCrady & Nicklas, Pittsburgh, Pa., for appellant, St. John's General Hosp.

Thomas J. Dempsey (argued), Pittsburgh, Pa., for appellants, Dollar Savings Bank, Pavillion North, and Pavillion Nursing Center, North, Inc.

Charles D. Sheehy Acting U.S. Atty., Bonnie R. Schlueter (argued), Asst. U.S. Atty., Pittsburgh, Pa., for appellee.

Before GIBBONS, Chief Judge, BECKER and NYGAARD, Circuit Judges.

OPINION OF THE COURT

NYGAARD, Circuit Judge.

The Hill-Burton Act of 1944, 42 U.S.C. Sec. 291 et seq., was enacted to provide federal funds for state agencies to help fund the construction of public and non-profit medical facilities. The Act provides that if such a facility is transferred to an entity not qualified to apply for Hill-Burton grant assistance within 20 years after construction is completed, the government may seek to recover the funds from either the transferor or the transferee. 42 U.S.C. Sec. 291i. These appeals stem from the efforts of the United States to recover Hill-Burton funds used to construct a non-profit medical facility which was subsequently sold to a for-profit venture. The district court granted the government's motion for summary judgment against appellants St. John's General Hospital, Dollar Savings Bank, Pavillion North, and Pavillion Nursing Center North, Inc., and awarded it a portion of the Hill-Burton grant money. Following a non-jury trial, the court also held that St. John's was not obligated to indemnify the other defendants.

Appellants contest the grant of summary judgment in favor of the United States. In addition, Dollar Savings, Pavillion North and Pavillion Nursing Center have appealed from the dismissal of their indemnity claims against St. John's. Appellants claim numerous errors with respect to the liability and indemnification issues. For the reasons that follow, we reject all of these arguments and will affirm the judgments of the district court.

I. FACTS

On May 23, 1963, the Surgeon General approved St. Johns's application for a Hill-Burton grant in the amount of $352,000 to fund construction of a diagnostic and emergency facility in the North Hills area of Pittsburgh. The facility failed and ceased operation on December 31, 1965. On July 2, 1969, the facility was transferred to Extend-A-Care Nursing Home Inc, a for-profit entity. Extend-A-Care financed the purchase in part with the proceeds of a loan from Dollar Savings Bank secured by a mortgage. At the time of this transaction, Pennsylvania's Hill-Burton program was being administered by George Kuchta, the Director of the Bureau of Medical Facilities for the Commonwealth of Pennsylvania's Department of Public Welfare. Anticipating the sale, Kuchta advised St. John's that it must escrow $352,000 to fund any recovery by the United States under the Hill-Burton Act. St. John's then placed $352,000 from the sale of the North Hills facility into a separate account.

Over the next few years, St. John's and Kuchta negotiated over the amount the government was entitled to recover under the Act. On March 10, 1970, Kuchta submitted a report to the federal program director for Hill-Burton proposing the appropriate amount of the refund to be $319,034.11. On February 18, 1972, Kuchta informed St. John's that the federal government had fixed $319,043.11 as the amount to be refunded. St. John's subtracted the facility's operating losses from this amount and estimated the government's recovery to be $241,078.46. In November, 1972, the Department of Health, Education and Welfare rejected the hospital's figures, and in a letter dated December 5, 1972, Kuchta demanded payment in the amount of $319,034.11.

During the course of these negotiations, St. John's used the money from the escrow account to purchase a non-profit alcohol and drug rehabilitation center. St. John's claims that it did so based on the assurances of Kuchta that the Hill-Burton grant money would not have to be repaid since the alcohol and drug center would substantially duplicate the purpose of the defunct North Hills facility. St. John's acquired the center on October 17, 1972.

When St. John's sold the North Hills facility to Extend-A-Care, Dollar Savings obtained title insurance from Union Title Guaranty Company. Its title search did not reveal the government's Hill-Burton claim, nor St. John's escrow account. App. of Dollar Savings Bank at 351. In 1970, the bank foreclosed on its mortgage and on February 4, 1972, conveyed the property to Pavillion North, a limited partnership. As part of the transaction, Lawyers Title Insurance Corporation performed a title search on behalf of Pavillion North, and discovered that the United States had a potential claim to recover the Hill-Burton funds. Lawyer's Title questioned Kuchta concerning the Hill-Burton grant. Kuchta responded in a letter dated January 26, 1972 that the government's right of recovery did not affect property title. When Union Title became aware of the Hill-Burton grant, it contacted St. John's concerning a possible claim by the government. St. John's responded in a letter dated February 3, 1972 that while St. John's disputed the federal claim, it had "[taken] action following the sale of the Diagnostic and Emergency Center to earmark and set aside in a separate account out of the purchase price the amount of money received from the government". App. of Dollar Savings Bank at 708. The facility was leased to Pavillion Nursing Center North, a for-profit corporation, on October 31, 1972.

In 1981, the Department of Health and Human Services made three demands upon St. John's to refund the Hill-Burton funds. St. John's made no payments and on May 19, 1983, the government filed this action against St. John's, Extend-A-Care, Dollar Savings, Pavillion North, and Pavillion Nursing Center North. Defendants denied that they were obliged to repay the Hill-Burton funds and raised several affirmative defenses, including statute of limitations, waiver, laches and estoppel. In addition, Extend-A-Care, Dollar Savings, Pavillion North and Pavillion Nursing Center North filed cross-claims against St. John's for indemnity. Both sides filed motions for summary judgment. On October 29, 1985, the district court granted the government's motion and entered judgment against all defendants jointly and severally for $319,034.11. The order was later modified to include prejudgment interest at the rate of 10.93% per annum from August 17, 1984. The court denied the indemnity claims on September 29, 1988 following a non-jury trial. These timely appeals followed.

II. ANALYSIS

A. Hill-Burton Issues

Appellants contest the grant of summary judgment in favor of the United States on its Hill-Burton claim. They argue that the government's right of recovery is barred by the six-year statute of limitations, 28 U.S.C. Sec. 2415, and the doctrines of estoppel, waiver and laches. In addition, Dollar Savings, Pavillion North and Pavillion Nursing Center North contend that the recovery provisions of the Hill-Burton Act do not apply to them since they are not "transferees" within the meaning of 42 U.S.C. Sec. 291i. Appellants also object to the award of prejudgment interest.

Our standard of review in an appeal from a grant of summary judgment is plenary. Joseph v. Hess Oil, 867 F.2d 179, 181 (3d Cir.1989). Summary judgment is proper if it is shown that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Id. at 182; Fed.R.Civ.P. 56(c).

(i) Statute of Limitations

Our initial task is to determine what limitations period, if any, applies to actions brought by the government pursuant to the Hill-Burton Act. The district court held that the government's claim was not barred by any applicable statute of limitations. Appellants argue that the six-year limitation periods contained in 28 U.S.C. Secs. 2415(a) and (b) apply to bar the government's Hill-Burton claim. We agree with the district court that Congress intended to allow the government to seek recovery under the Act at any time.

The United States is exempt from the operation of statutes of limitations except where Congress has expressly consented to a time bar. Guaranty Trust Co. v. United States, 304 U.S. 126, 132-33, 58 S.Ct. 785, 788-89, 82 L.Ed. 1224 (1938); Glenn Elec. Co. Inc. v. Donovan, 755 F.2d 1028, 1033 (3d Cir.1985). Since the Hill-Burton Act does not contain a limitations period, the government can seek recovery at any time under the Act unless the general six-year limitation on actions by the United States applies, 28 U.S.C. Sec. 2415. Section 2415(a) provides that every action for money damages brought by the United States "which is founded upon any contract express or implied in law or fact shall be barred unless the complaint is filed within six years after the right of action accrues ..." Subsection (b) applies the six-year limitation to actions by the government "to recover for diversion of money paid under a grant program" and actions "for conversion of property of the United States." Appellants assert that either one of these provisions is applicable to the government's Hill-Burton claim.

Appellants' primary argument is that a claim to recover Hill-Burton grant money after the facility ceases to be used on a non-profit basis is actually an action to recover "for diversion of money paid under a grant program," pursuant to Section 2415(b). Th...