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October 30, 1984

In re: SIDNEY GREENWALD d/b/a MAPLE LEAF NURSING HOME, debtor in possession, Debtor. SIDNEY GREENWALD d/b/a MAPLE LEAF NURSING HOME, debtor in possession, Plaintiff-Appellant, against DAVID AXELROD, M.D., as Commissioner of the New York State Department of Health, BARBARA BLUM, as Commissioner of the New York State Department of Social Services, C. MARK LAWTON, as Budget Director of the State of New York, JAMES KRAUSKOPF, as Commissioner of New York City Department of Social Services, CHARLES BATES, as Commissioner of the Westchester County Department of Social Services, JOSEPH D'ELIA, as Commissioner of the Nassau County Department of Social Services, SHIRLEY HARVEY-COOK, as Commissioner of the Orange County Department of Social Services, JOHN BATTISTONI, as Commissioner of the Dutchess County Department of Social Services, and NOAH WEINBERG, as Commissioner of the Rockland County Department of Social Services, Defendants-Appellees.

The opinion of the court was delivered by: CARTER

CARTER, District Judge

Plaintiff, Sidney Greenwald, doing business as Maple Leaf Nursing Home, seeks additional reimbursement from the New York State Department of Health ("DOH") under Medicaid, Title XIX of the Social Security Act, 42 U.S.C. § 1396a-1396p. *fn1" He also seeks a declaration that defendants' failure to reimburse him properly violated his due process and equal protection rights as well as federal (Medicaid) and New York (Public Health) laws. Both plaintiff and defendants have filed motions for summary judgment.

 The bankruptcy court heard these motions pursuant to an Emergency Resolution promulgated in this District, *fn2" see Emergency Resolution § (b), N.Y.L.J., Sept. 30, 1982 at 36, col. 1, and plaintiff now appeals from the Bankruptcy Court's decision. 33 B.R. 607, Rehearing denied 34 B.R. 952. Id. at § (c)(3). The main issue is whether plaintiff can maintain his action or whether, as defendants contend, it must be dismissed due to plaintiff's failure to pursue appropriate administrative remedies and to bring this suit in a timely manner. As explained below, this issue is resolved in plaintiff's favor. He has stated a valid cause of action pursuant to 42 U.S.C. § 1983, thus overcoming defendants' arguments for dismissal. However, summary judgment is granted in part to defendants on the constitutional claims. It is denied to both parties on the statutory claim as material issues of fact remain with respect to the merits of that claim.

 The Salary Appeal


 The complaint embodies claims that plaintiff first raised in 1975. By letter, in December of that year, plaintiff filed an administrative appeal with DOH requesting an increase in his reimbursement rates under Medicaid for labor cost increments incurred in 1975. *fn3" (Complaint P69). These costs had not been considered by DOH when it initially set the reimbursement rate. Although, as a result of the appeal, DOH eventually confirmed that $250,000 *fn4" was owed to plaintiff-debtor, it determined that reimbursement should be withheld pending completion of two audits covering plaintiff's 1973-74 and 1975-76 cost reports. *fn5" This decision was communicated to plaintiff by letter in 1978. (Gormley Affidavit-Exh. H).

 After a delay of two years, plaintiff brought suit in this court, alleging that defendants' refusal to complete the processing of plaintiff's 1975 salary appeal deprived plaintiff of rights to property without due process. Greenwald v. Axelrod, 80 Civ. 2396 (May 29, 1981). Judge Sand dismissed the complaint without prejudice. He found that "in the absence of bad faith or dilatoriness . . . the procedure of consolidating the salary appeal and the base year audits [was] reasonable under the circumstances of this case. . . ." Slip op. at 4-5.

 In June, 1981, DOH completed the 1973-74 audit and bureau review. Plaintiff appealed the audit, requesting an administrative hearing pursuant to 10 NYCRR § 86-2.7(d). November, 1982, marked the completion of the 1975-79 bureau audit, and plaintiff also sought an administrative appeal on this audit. To date, these appeals remain undecided.

 In this suit, plaintiff urges the court to find "bad faith and dilatoriness" on the part of DOH so that consolidation of the salary and audits can no longer be characterized as "reasonable" within the meaning of Judge Sand's decision. Plaintiff also charges defendants with violating the Medicaid statute and the supremacy and due process clauses of the federal constitution. *fn6" In its motion for summary judgment, DOH highlights plaintiff's failure to exhaust administrative remedies and accuses plaintiff of being uncooperative, thereby himself generating the delays in reaching a final adjudication. Defendants apparently maintain the position that the salary appeal should only be considered in conjunction with the audits.

 2. Discussion

 As the bankruptcy court reasoned, the lapse of more than two years since Judge Sand warned about further delays in the audit proceedings has eroded the "reasonableness" of a consolidation of those proceedings with the salary appeal. Severance of the salary appeal from the uncompleted audits, therefore, now replaces consolidation as the proper and reasonable remedy.

 Defendants' 11th amendment immunity defense and its exhaustion argument, moreover, are rejected as bars to plaintiff's claim for the contested salary funds. In filing a proof of claim *fn7" for overpayments against debtor-plaintiff, DOH (Health Care Financing Administration) waived its immunity: the debtors' claim to $250,934.00, the unpaid reimbursement for 1975, is expressly allowable under the bankruptcy Code, 11 U.S.C. § 106(b), as an offset against the state's claim. With respect to the exhaustion defense, the Bankruptcy court concluded, and the court agrees, that plaintiff had exhausted the administrative steps available when he appealed from the 1975 reimbursement rate. Administrative procedures were only revived by the consolidation, which when dissolved, terminated the availability of the additional proceedings. Accordingly, plaintiff is entitled to offset the amount previously awarded by DOH ($250,934.00) against the state's claim filed against the estate.

 Plaintiff urges the court to decide whether the state, in filing a proof of claim against plaintiff which, plaintiff alleges, arises out of the same transaction or occurrence as plaintiff's claim, has also waived its 11th amendment immunity as to plaintiff's claim for affirmative recovery against the state. 11 U.S.C. § 106(a). There is no need to address this issue at this juncture. It appears likely, however, that the state will establish substantial overpayments as a result of the various audits still in process. (Gormley Aff. P25-26). To minimize the exchange of debts between the state and plaintiff and decrease the risk that one side will come up short in the final tally, it seems wiser, at this point, to await final determinations on the audits and plaintiff's second claim (relating to recoupment of start-up costs) before making a final determination on plaintiff's affirmative claim on its salary appeal. Therefore, the court declines to hold that plaintiff is entitled to judgment on its affirmative claim at this time. See Matter of Fahey v. Whalen, 84 Misc. 2d 1040, 376 N.Y.S.2d 819 (Sup. Ct. Onondaga Co. 1975), aff'd, 388 N.Y.S.2d 960, 54 A.D.2d 1097 (4th Dep't. 1976).

 The court will not, however, allow additional unjustified delay in the audit process to bar plaintiff's recovery of the additional salary payments. Should such delay occur, plaintiff may reapply to the court for consideration of ...

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