US v. McManus, 1:92CV00002.

• Decision Date: 31 March 1994
• Docket Number: No. 1:92CV00002.,1:92CV00002.
• Court: U.S. District Court — Middle District of North Carolina
• Parties: UNITED STATES of America, Plaintiff, v. Keith E. McMANUS, Defendant.

846 F. Supp. 1283

UNITED STATES of America, Plaintiff, v. Keith E. McMANUS, Defendant.

No. 1:92CV00002.

United States District Court, M.D. North Carolina, Durham Division.

March 11, 1994.

Judgment Filed March 31, 1994.

Gill P. Beck, Office of U.S. Atty., Greensboro, NC, for U.S.

Norman B. Smith, Seth R. Cohen, Smith, Follin & James, Greensboro, NC, for Keith E. McManus, M.D.

MEMORANDUM OPINION

OSTEEN, District Judge.

Plaintiff United States of America ("the Government") filed this action on behalf of the National Health Services Corps ("NHSC") against Defendant Keith E. McManus, M.D. The Government seeks statutory damages for McManus' alleged default on student loans he used to finance his medical education. After empaneling a jury and hearing the evidence, this court found that no factual issues existed and discharged the jury. Before the court now on the Government's Motion for Judgment as a Matter of Law are two legal questions: (1) Did the Secretary of Health and Human Services ("the Secretary") act contrary to law in limiting McManus' placement opportunities to those locations on the Health Manpower Shortage Area/Placement Opportunity List ("HPOL")? and (2) Was the Secretary's denial of McManus' request for waiver of his service obligation or repayment obligation arbitrary or capricious?

I. FACTUAL BACKGROUND

A. McManus' Participation in the NHSC Scholarship Program

In 1980, McManus applied for an award under the NHSC Scholarship Program to finance his medical education at the University of North Carolina School of Medicine in Chapel Hill, North Carolina. Prior to his application, McManus was provided the official NHSC Scholarship Program Applicant Information Bulletin. (Gov't Trial Ex. A.) The bulletin furnished, inter alia, the following pertinent details: (1) Locations at which participants could fulfill their service obligation would be in those designated health manpower shortage areas ("HMSAs")¹ with the greatest need at the time of assignment, id. at 3, 11; (2) The NHSC reserved the right to make final decisions on assignments, id. at 11; (3) Assignments in the private practice option ("PPO") of the NHSC Scholarship Program were limited to designated HMSAs that have priority, id. at 16-17; and (4) A scholarship recipient could be required to serve in an area not chosen by the recipient given the needs of the NHSC at the time of assignment, id. at 19.

McManus alleges that he also consulted a Public Health Service publication entitled The Medical/Dental Student Handbook prior to his application. From this publication, he ascertained that he could participate in NHSC's PPO program by practicing medicine privately in any approved HMSA. McManus further alleges that he then telephoned the NHSC in Rockville, Maryland, and was assured by an unidentified person that he would be able to fulfill his service obligation by serving in private practice within an HMSA in North Carolina.

On April 20, 1980, McManus signed the NHSC Scholarship Program Contract. In August 1980, the Secretary also signed the contract and awarded McManus a NHSC scholarship for the academic year 1980-81. The award was renewed for the next four academic years.²

Under the NHSC Scholarship Program, McManus received a total of $30,901.50, representing tuition, fees, stipends, and other reasonable costs. By accepting three full years and two partial years of support, McManus incurred a four-year service obligation.

McManus graduated from medical school in June 1985. He then requested and received three one-year conditional deferments of his service obligation in order to complete a three-year family practice residency. McManus was scheduled to begin his NHSC service obligation on or about July 1, 1988, upon completion of his residency.

During his deferment period, McManus began seeking employment in Chatham County, North Carolina. By letters dated March 9, 11, and 17, 1987, McManus submitted requests to the NHSC regional office that he be allowed to serve in either North or South Carolina. (Gov't Trial Exs. AQ-AT.) The NHSC regional office responded on March 26, 1987. McManus was informed that he could serve only at vacancies listed on the HPOL and that he would have an opportunity to match nationwide to a site on the HPOL. (Gov't Trial Ex. AU.) Again on May 4, 1987, the NHSC wrote to confirm that all placements were made from the HPOL. The letter further informed McManus that the regional office would advise him of the possibility of placing Chatham County on the HPOL. (Gov't Trial Ex. BC.) McManus was unsuccessful in having Chatham County placed on the HPOL because of the close proximity of Chatham County to major medical facilities in the vicinity of Chapel Hill, Durham, Greensboro, and Raleigh.

During the summer of 1987, McManus received the 1988 Placement Package for participation in the 1988 Placement Cycle. (Gov't Trial Exs. BE-BF.) The 1988 HPOL listed one North Carolina position (Bertie County) and two South Carolina positions (Allendale and Williamsburg Counties). None of these positions were part of the PPO program. While Chatham County, North Carolina, has been and is an HMSA, it was not and is not on the HPOL.

Also included in McManus' package was a Site Selection Questionnaire ("SSQ") which he was instructed to complete and return by August 15, 1987. The package contained information warning that scholarship recipients who failed to submit an SSQ would be assigned on a random basis according to the NHSC's needs. McManus failed to submit the SSQ by the deadline or at any other time. Moreover, he was informed on several occasions after the deadline that failure to submit the SSQ would result in random placement. Thus, McManus either refused or simply failed to participate in either of the first two phases of the 1988 Placement Cycle. As a result, he was assigned in the third phase of the Placement Cycle to a location on the HPOL — Martin Medical Center in Martin, South Dakota.

McManus was notified of his placement and informed that he would be recommended for default if he failed to contact the NHSC regional office to finalize his placement in Martin, South Dakota. (Gov't Summary Judgment Ex. A-19.) Upon his failure to do so, the NHSC informed McManus that he would be in default effective July 1, 1988. Instead of reporting to South Dakota, McManus communicated to the NHSC that he had chosen to practice medicine in Chatham County, North Carolina, and requested service credit for his practice there. McManus' request was denied, and he was declared in default for breach of his scholarship obligation. (Gov't Summary Judgment Exs. A-20, A-21.) McManus subsequently requested waiver of his repayment obligation due to extreme hardship. That request was likewise denied.

B. Damages Sought by the Government

By statute, the Government contends that McManus owes the Government liquidated damages equal to three times the total scholarship award plus interest at the maximum legal prevailing rate. 42 U.S.C. § 254o(b)(1)(A). If no payments had been made, his obligation as of March 12, 1993, included principal in the amount of $92,704.50 plus interest in the amount of $165,938.31. McManus has continued to request partial relief from his NHSC debt and, in fact, submitted a check in the amount of $60,987.74 which was received by the agency on July 21, 1989. The check was applied to the interest due on his student debt. Two offsets from the Internal Revenue Service in the total amount of $12,192.06 have also been applied to McManus' interest. Thus, this lawsuit ensued for the balance owed by McManus of $185,462.81 ($92,704.50 in principal and $92,758.31 in interest). Interest has been accruing on a daily basis.

C. Procedural History

A jury trial was held before this court beginning May 28, 1993. During trial, the Government's Motion for Judgment as a Matter of Law was granted as to McManus' defenses of wrongful inducement and estoppel. The ruling was based on the court's determination that any reliance by McManus on certain information allegedly provided by an unidentified person responding to his call to the NHSC "800" number was unreasonable as a matter of law.³

Since the trial, the parties have pursued settlement negotiations unsuccessfully. Remaining for the court's disposition are the legal questions of whether the Secretary acted contrary to law in limiting McManus' placement opportunities to those locations on the HPOL, and whether the Secretary's denial of McManus' request for waiver of his service obligation or repayment obligation was arbitrary or capricious.

II. LEGAL BACKGROUND⁴

The NHSC was established by Congress "for the purpose of eliminating health manpower shortages in health manpower shortage areas" and "to provide primary health services in health manpower shortage areas HMSAs." 42 U.S.C. § 254d(a)(1), (2) (1982).⁵ Although subsidizing the education of health care professionals was a significant consequence of the NHSC, it was never the primary purpose. Rather, the NHSC was created "as a means to overcome a geographic maldistribution of health professionals." S.Rep. No. 887, 94th Cong., 1st Sess. 201 (1975), reprinted in 1976 U.S.C.C.A.N. 4947; see also Rendleman v. Bowen, 860 F.2d 1537, 1539 (9th Cir.1988). To further the NHSC's goals and encourage participation by trained medical professionals, Congress then created the NHSC Scholarship Program. 42 U.S.C. § 254l.⁶

A medical student who chooses to participate in the NHSC Scholarship Program must submit an application and sign a contract that conforms to a detailed statutory framework. Id. § 254l(b), (c). Under the contract, the Government provides financial assistance to scholarship recipients in the form of payment of tuition and other educational expenses. Id. § 254l(g)(1). In return, the scholarship recipient signs a contract promising to serve one year in an HMSA to which he is assigned by the Secretary for each year he receives government...