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YAPALATER v. BATES

July 30, 1980

ALVIN R. YAPALATER, M.D., F.A.P.A., Plaintiff,
v.
CHARLES W. BATES, Individually and as Westchester County Commissioner of Social Services; BARBARA BLUM, Individually and as New York State Commissioner of the Department of Social Services; WILLIAM STEIBEL, Individually and as Deputy Commissioner of the New York State Department of Social Services (Division of Medical Assistance); ROBERT P. WHALEN, Individually and as Commissioner of The New York State Department of Health; ALBERT DEMARTINO, Individually and as Director of the White Plains Regional Office of the New York State Department of Health; LOIS EIL, Individually and as Medical Director, Westchester County Division of Medical Assistance of the New York State Department of Health; HENRY J. LEFKOWITS, M.D., Individually and as Westchester County, Department of Social Services, Psychiatric Consultant, Defendants.



The opinion of the court was delivered by: HAIGHT

MEMORANDUM OPINION AND ORDER

Plaintiff Alvin R. Yapalater, M.D., is a psychiatrist practicing in White Plains, Westchester County, New York. He is a provider of services under New York State's Medicaid Plan, which is funded in part by the federal government pursuant to Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq.

Defendants Charles W. Bates, Albert DeMartino, Lois Eil, and Henry J. Lefkowits, M.D. (the "County defendants") are concerned with the administration of the Medicaid program on the Westchester County level. Defendants Barbara Blum, William Steibel, and Robert P. Whalen (the "State defendants") are charged with administration of the Medicaid program on the State level. Plaintiff's claims for Medicaid reimbursement are submitted in the first instance to the County defendants, who make an initial evaluation, and determine whether or not to pay them, thereafter making claims for partial reimbursement from the State, which in turn makes a claim for partial reimbursement from the federal government. In their evaluation of Medicaid-reimbursement claims, the County defendants are guided by regulations and policy decisions emanating from the State defendants.

 Plaintiff has been practicing psychiatry in White Plains for a number of years. Medicaid patients have formed a significant part of his practice. At present, about 75% of his 300 patients are Medicaid recipients. *fn1" In his practice Dr. Yapalater employs psychologists, psychiatric social workers, psychiatric nurses, and behavioral therapists. These individuals work with patients, under plaintiff's supervision. The State defendants have refused to approve reimbursement of Dr. Yapalater for the services of these individuals. The County defendants have consequently declined to process plaintiff's reimbursement claims.

 Plaintiff claims that this refusal violates Title XIX and federal regulations promulgated thereunder. He also asserts constitutional deprivations of due process and equal protection. Dr. Yapalater sues for declaratory and injunctive relief, punitive damages, and costs including attorney's fees. Jurisdiction was originally asserted under 28 U.S.C. § 1331(a), *fn2" it being alleged that the matter in controversy exceeds the sum of $ 10,000. Following filing of the first amended complaint, the Supreme Court decided Maine v. Thiboutot, 448 U.S. 1, 100 S. Ct. 2502, 65 L. Ed. 2d 555 (1980). The plaintiff thereupon moved to amend his complaint further, so as to state a cause of action under 42 U.S.C. § 1983, *fn3" and to claim attorney's fees under § 1988. That application was granted, and the complaint deemed amended accordingly.

 The action first came before the Court on plaintiff's motion for preliminary injunction pursuant to Rule 65, F.R.Civ.P., and defendants' cross-motion under Rule 12(b) to dismiss the complaint for legal insufficiency. The Court directed that the trial of the action be advanced and consolidated with the hearing of the application for preliminary injunction. Rule 65(a)(2). The parties having offered the testimony of witnesses and documentary exhibits, briefs having been submitted and oral argument heard, the case is now ready for final adjudication. The following constitute the Court's Findings of Fact and Conclusions of Law. Rule 52(a), F.R.Civ.P.

 I.

 At the threshold defendants challenge the Court's subject matter jurisdiction.

 In Chapman v. Houston Welfare Rights Organization, 441 U.S. 600, 99 S. Ct. 1905, 60 L. Ed. 2d 508 (1979), the Supreme Court held that 28 U.S.C. § 1343(3) and (4) *fn4" did not encompass, within its jurisdictional grant, claims by welfare recipients that a state welfare regulation was invalid because it conflicted with the Social Security Act. Section 1343 did not confer federal jurisdiction over claims based on the Social Security Act, the Court held, because the Act did not secure "equal rights," the predicate to jurisdiction under § 1343(3), or "civil rights," the jurisdictional predicate under § 1343(4). Since the recipients' claims did not exceed $ 10,000, general federal-question jurisdiction was not available under § 1331(a). Even assuming there was a viable claim under the Civil Rights Act, 42 U.S.C. § 1983, the Court concluded that statute did not secure "equal rights" or "civil rights" within the meaning of § 1343, and afforded no independent basis for jurisdiction, since in the words of the Third Circuit's opinion, affirmed in Chapman, § 1983 "is not a jurisdictional statute; it only fashions a remedy." 441 U.S. at 606, 99 S. Ct. at 1910.

 Maine v. Thiboutot, supra, answering the question assumed in Chapman, held that 42 U.S.C. § 1983 encompassed welfare recipients' claims based upon a state's purely statutory violations of the Social Security Act, thereby making available the right to claim attorney's fees under § 1988. The case commenced in the state court, and so no federal jurisdictional question arose; but the Court, in dictum, reconciled its decision with Chapman by recognizing that § 1983 was broader than its so-called jurisdictional counterpart in § 1343. -- - U.S. at -- n.6, 100 S. Ct. at 2506 n.6. The gap in jurisdictional coverage could, as in Thiboutot, be filled by a state court's general subject matter jurisdiction, or, as recognized in Chapman, by general federal-question jurisdiction under § 1331, and presumably by the grant of diversity jurisdiction under 28 U.S.C. § 1332.

 Defendants argue, within the context of what is said to be a jurisdictional defense, that Thiboutot, which involved welfare recipients, did not overrule sub silentio Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975); and that under the Cort analysis, *fn5" plaintiff as a welfare provider has no federal right of action for an alleged violation of the Social Security Act under color of state law.

 Defendants' Cort v. Ash argument, even if sound, does not defeat the Court's jurisdiction. Rather, the argument goes to the merits, and is addressed infra. Jurisdiction of the plaintiff's § 1983 claim for violations of the Social Security Act is properly founded upon 28 U.S.C. § 1331(a), as "arising under the Constitution, laws, or treaties of the United States." The district court in Cort held that it had jurisdiction under § 1331, Ash v. Cort, 350 F. Supp. 227, 232 (E.D.Pa.1972), a conclusion which the Supreme Court did not question, although holding that the underlying federal statute did not create a private cause of action.

 To be sure, § 1331(a) requires a $ 10,000 jurisdictional amount. The present defendants contend that the $ 10,000 jurisdictional amount is not satisfied.

 Where the question is raised at the pleading stage, a complaint alleging the jurisdictional amount will stand unless "upon the face of the complaint, it is obvious that the suit cannot involve the necessary amount," Saint Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 292, 58 S. Ct. 586, 591-92, 82 L. Ed. 845 (1937). The affidavits accompanying the complaint and motion for preliminary injunction alleged that plaintiff was owed $ 20,375 as the result of defendants' allegedly wrongful interpretation of the Medicaid regulations. While defendants argue that a number of these claims have been held up because of facial or other irregularities not related to the regulations at issue in the case, it is not necessary to inquire further into the details of these invoices, in order to determine the existence vel non of the jurisdictional amount. First, even if we were concerned solely with plaintiff's claim for invoices previously rendered, one cannot say from the face of his complaint that the jurisdictional amount could not be met; and it is well settled that a federal court does not lose jurisdiction over a case originally well-founded, simply because the amount ultimately recovered falls short of $ 10,000. Rosado v. Wyman, 397 U.S. 397, 405 n.6, 90 S. Ct. 1207, 1214, 25 L. Ed. 2d 442 (1970). A leading commentator has stated: ". . . the jurisdictional amount test is not dependent upon the amount actually recovered by plaintiff. Otherwise, the court's jurisdiction would be uncertain and some adjudications of the merits would be subject to a condition subsequent." 14 Wright-Miller-Cooper, Federal Practice and Procedure (1976) at § 3702, p. 381.

 Secondly, the present complaint also contains a prayer for injunctive relief, "ordering defendants to conform their policy and procedure for outpatient services to federal law. . . ." Thus the object of the suit is to enjoin the enforcement of the state regulations and policy declarations. It is "the value of this object thus sought to be gained that determines the amount in dispute." Packard v. Banton, 264 U.S. 140, 142, 44 S. Ct. 257, 258, 68 L. Ed. 596 (1924). Plaintiff presently treats about 300 patients, of which 75% are Medicaid recipients, and employs a number of ancillary personnel in furtherance of their treatment, for whose services defendants refuse reimbursement. These are circumstances from which it sufficiently appears that the value of plaintiff's right to conduct his practice free of the reimbursement limitations presently imposed by the state exceeds the jurisdictional amount. Packard v. Banton, supra, at 143, 44 S. Ct. at 258; Allway Taxi, Inc. v. The City of New York, 340 F. Supp. 1120, 1126 (S.D.N.Y.1972).

 Accordingly, I conclude that jurisdiction over plaintiff's claims for federal statutory violations may be had under § 1331(a).

 As an alternative basis of jurisdiction, plaintiff asserts a constitutional claim under the Equal Protection Clause. That claim arises from the undisputed fact that the state reimburses under Medicaid the services of ancillary personnel rendered under a physician's supervision in psychiatric clinics, while refusing to reimburse comparable services supervised by a physician in private practice such as plaintiff. Defendants dispute the merits of the equal protection claim. But the claim supports jurisdiction under 28 U.S.C. § 1343(3) unless it is "either frivolous or so insubstantial as to be beyond the jurisdiction of the District Court." Hagans v. Lavine, 415 U.S. 528, 539, 94 S. Ct. 1372, 1380, 39 L. Ed. 2d 577 (1974); and see cases cited at 542-543, 94 S. Ct. at 1382. Plaintiff's equal protection claim cannot be so characterized. I am cited to no case which clearly forecloses it. The state's conceded granting of Medicaid reimbursement for services rendered by ancillary personnel in clinics, and denial of reimbursement for the same services in a private practice setting, require equal protection analysis. It follows that § 1343(3) gives this Court jurisdiction over plaintiff's equal protection claim, no jurisdictional amount being required, and over the statutory claim on principles of pendent jurisdiction, Hagans at 536, 94 S. Ct. at 1378, the jurisdictional amount in those circumstances no longer being applicable. *fn6"

 Defendants' jurisdictional challenge is rejected.

 II.

 Plaintiff's Statutory Claim

 Plaintiff claims that the defendants' refusal to reimburse him for services rendered by his ancillary personnel violates pertinent federal regulations. In a series of letters directed to the state agencies by the regional office of the United States Department of Health, Education and Welfare (now the Department of Health and Human Services, and referred to hereinafter as "HHS"), the federal agency has articulated an interpretation of its regulations consistent with plaintiff's claim, which would mandate Medicaid reimbursement for the services of plaintiff's ancillary personnel. Those letters were prompted by inquiries concerning other physicians, but plaintiff summons them to his aid. The regional office has also written to the Court in response to my inquiry concerning this litigation. *fn7"

 The State defendants have adopted, and urge in this litigation, an interpretation of the pertinent federal regulations which permits the state to deny plaintiff Medicaid reimbursement for his ancillary personnel. The State defendants do not, as I understand them, deny that their regulations and practices must conform to federal regulations. The issue is whether or not the state regulations and practices are consistent with federal regulations.

 As noted ante, the State defendants first contend that plaintiff, a provider of Medicaid services rather than a recipient, has no private federal cause of action under the Social Security Act and regulations. Defendants framed their initial attack on the complaint before the Supreme Court decided Maine v. Thiboutot, supra. They relied upon Chapman, supra, for the proposition that an alleged conflict between federal and state regulations did not give rise to a constitutional claim under 28 U.S.C. § 1343(3); and that plaintiff could not prevail under § 1331(a) because no cause of action on behalf of a provider could be implied from the Social Security Act, relying upon Cort v. Ash, supra, and its progeny.

 During the pendency of this trial, the Supreme Court decided Maine v. Thiboutot, supra. We must conjure with its effect upon the case at bar. Thiboutot involved claims by welfare recipients that state action violated the Social Security Act. The Court held that 42 U.S.C. § 1983 fashioned a remedy for such claims; and that 28 U.S.C. § 1331(a) conferred jurisdiction if the $ 10,000 amount was present. *fn8" Applicability of the § 1983 remedy to a claim of state Medicaid inconsistency with the Social Security Act is recognized by the Thiboutot majority's reference to Blue v. Craig, 505 F.2d 830 (4th Cir. 1974) (claim by recipients that North Carolina's Medicaid plan was inconsistent with the Social Security Act), -- - U.S. at -- , 100 S. Ct. at 2507, and by Mr. Justice Powell's observation in dissent that among other areas, "Medicaid . . . may provide particularly inviting subjects of litigation." Id. at -- , 100 S. Ct. at 2514.

 Defendants say Thiboutot avails plaintiff nothing because he is a welfare provider, not a recipient, and that the Cort v. Ash analysis, not overruled by Thiboutot, precludes a private right of action. Defendants stress the first Cort element, that the plaintiff be "one of the class for whose especial benefit the statute was enacted" (emphasis added), and make the point that the Social Security Act was specially intended to benefit needy recipients, not practicing physicians or other providers of welfare services.

 I agree with defendants that Thiboutot does not overrule Cort ; but I conclude that the Thiboutot rationale necessarily limits the applicability of the Cort analysis, where deprivation results from state action conflicting with federal statutory law. Mr. Justice Powell, dissenting in Thiboutot, described its impact on litigation:

 
"In practical effect, today's decision means that state and local governments, officers, and employees may now face liability whenever a person believes he has been injured by the administration of any federal-state cooperative program, whether or not that program is related to equal or civil rights." -- - U.S. at -- , 100 S. Ct. at 2513 (emphasis in original).

 In a footnote appended to this language, Mr. Justice Powell continues:

 
"The only exception will be in cases where the governing statute provides an exclusive remedy for violations of its terms." Ibid.

 That summary of Thiboutot's effect appears entirely accurate. On what basis, then, is plaintiff to be denied a § 1983 remedy? If plaintiff is correct in his interpretation of governing regulations, the state has deprived him of Medicaid reimbursement to which he is legally entitled. He has, therefore, "been injured by the administration" of a federal-state cooperative program. The State defendants' contention concedes plaintiff's injury and, arguendo, their own maladministration, but would rebuff plaintiff without remedy because he is a mere "provider." I perceive nothing in § 1983 or the Court's rationale in Thiboutot which would permit, let alone require, such a limitation. Furthermore, within the § 1983 context, it distorts reality to characterize plaintiff as nothing but a "provider." To be sure, it was as a "provider" that plaintiff furnished Medicaid services; but the case at bar turns upon the legal measure of his reimbursement. Thus he may be just as accurately described as a "recipient of reimbursement." He claims that wrongful administration of the Medicaid program by the state deprives him of reimbursement to which federal law entitles him. In my judgment, § 1983 as interpreted by the Thiboutot majority furnishes this plaintiff a remedy.

 Had Mr. Justice Powell's analysis constituted the majority opinion in Thiboutot, then the existence vel non of a private cause of action on plaintiff's behalf may well have turned upon the analysis in Cort v. Ash and its progeny: a more doubtful proposition from plaintiff's point of view. However, the precise effect of Thiboutot is to create a remedy where (as the present plaintiff clearly alleges) injury flows from a state's violation of governing federal law in a joint federal-state cooperative program. If those elements are present, § 1983 provides the private remedy; and there is simply no occasion to inquire whether the underlying statute also provides one, by express terms or implication. The only pertinent inquiry, as Mr. Justice Powell pointed out in his footnote, is whether the governing statute "provides an exclusive remedy for violations of its terms" (emphasis added). No such provision appears in the Social Security Act.

 I conclude, therefore, that plaintiff is entitled to assert his claim under § 1983. I have previously held that the jurisdictional amount under 28 U.S.C. § 1331(a) is satisfied.

 I now consider the pertinent statute and regulations, together with the differing interpretations put forward by federal and state agencies. Since, as we shall see, the decisive regulation was promulgated by the federal agency, pursuant to authority derived from the Social Security Act, I must consider the Court's proper role. "In construing administrative regulations, "the ultimate criterion is the administrative interpretation, which becomes of controlling weight unless it is plainly erroneous or inconsistent with the regulation.' " United States v. Larionoff, 431 U.S. 864, 872, 97 S. Ct. 2150, 2155, 53 L. Ed. 2d 48 (1977), quoting from Bowles v. Seminole Rock Co., 325 U.S. 410, 414, 65 S. Ct. 1215, 1217, 89 L. Ed. 1700 (1945). But the degree of deference may vary with circumstances. In Kurcsics v. Merchants Mutual Ins. Co., 49 N.Y.2d 451, 459, 426 N.Y.S.2d 454, 458, 403 N.E.2d 159, 163 (1980), the New York Court of Appeals stated:

 
"Where the interpretation of a statute or its application involves knowledge and understanding of underlying operational practices or entails an evaluation of factual data and inferences to be drawn therefrom the courts regularly defer to the governmental agency charged with the responsibility for administration of the statute. If its interpretation is not irrational or unreasonable, it will be upheld. (Matter of Howard v. Wyman, 28 N.Y.2d 434, 322 N.Y.S.2d 683, 271 N.E.2d 528; cf. Ostrer v. Schenck, 41 N.Y.2d 782, 786, 396 N.Y.S.2d 335, 337, 364 N.E.2d 1107, 1109.) Where, however, the question is one of pure statutory reading and analysis, dependent only on accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the administrative agency and its interpretative regulations are therefore to be accorded much less weight. And, ...

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