United States District Court, Southern District of New York
December 7, 1990
KELLY KARE, LTD.; JOAN C. KELLY; KEVIN MCNULLA, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARILY SITUATED; AND CHARLOTTE COHEN, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
ANDREW P. O'ROURKE, WESTCHESTER COUNTY EXECUTIVE; WESTCHESTER COUNTY; WESTCHESTER COUNTY DEPARTMENT OF SOCIAL SERVICES; JOHN J. ALLEN OR HIS SUCCESSOR, COMMISSIONER OF THE WESTCHESTER COUNTY DEPARTMENT OF SOCIAL SERVICES ("WCDSS"); S. REITANO, FIRST DEPUTY COMMISSIONER WCDSS; PHYLLIS SHEARER, DEPUTY COMMISSIONER WCDSS; JOSEPH J. CAMPANELLA, PROGRAM COORDINATOR OF WCDSS; JOSEPH LOSCRI, ACCOUNTANT WCDSS; PATRICIA QUIRK, SUPERVISING EXAMINER WCDSS; ADRIENNE YOUNG, PROGRAM COORDINATOR OF WCDSS; MS. CALIFANO, WCDSS SUPERVISOR; CINDY CAPONE, WCDSS PERSONAL CARE WORKER; AND DONALD WILLIAMS, WCDSS CASEWORKER, DEFENDANTS.
The opinion of the court was delivered by: Goettel, District Judge.
The plaintiff, Kelly Kare, Ltd., is a qualified Medicaid provider
affording personal care services to indigent, disabled persons. Joan C.
Kelly is its president and principal owner. The personal care services
provided to Medicaid recipients include homemaker and housekeeping
services. A worker generally serves only a single recipient and, indeed,
many recipients have two or more persons assigned to their care in order
to provide all-day and weekend service. The other named plaintiffs in
this action, who seek to be class representatives, are a recipient and an
employee of Kelly Kare, Ltd.
The program, under which Kelly Kare provides personal care services to
eligible recipients, is authorized by Title XIX and XX of the Social
Security Act. See 42 U.S.C. § 1396 et seq. It is funded primarily by
the federal government but also by state and county contributions. The
New York State Department of Social Services regulates the program and
makes payments to the personal care providers. Local counties administer
the personal care services by, inter alia, contracting with licensed
The Westchester County Department of Social Services contracted with
Kelly Kare, among a number of others, to provide the personal care
services to Medicaid-eligible residents in Westchester County. The
contracts are on a calendar year basis and Kelly Kare has so contracted
with Westchester since 1987. The state assigns a Medicaid management
information system number to Kelly Kare and makes payments upon receiving
appropriate invoices. The Kelly Kare contract with the County of
Westchester is the only Medicaid contract which Kelly Kare has. It does
have a number of individual clients who are not on welfare.
The contract between the County of Westchester and Kelly Kare provides
that it may be terminated without cause upon thirty days notice. This
conforms with the New York State regulations which allow such
terminations. See 1e N.Y.Comp. Codes R. & Regs. tit. 18, 504.7(a). On or
about October 26, 1990, the County notified Kelly Kare that its contract
was being terminated, without cause, at the end of November. The
contract, by its terms, does not expire until the end of December.*fn1
The County has refused to state its reasons for terminating Kelly Kare's
contract, taking the position that since it can do so without cause, it
need not have a reason and, in any event, need not disclose it.*fn2
Immediately after notifying Kelly Kare, the County started advising
Medicaid recipients serviced by Kelly Kare, as well as its employees, of
the impending contract termination and the fact that governmental funds
would not be thereafter subsidizing the program. The County contends that
most of the patients have agreed to change agencies while Kelly Kare
contends that most of the recipients have remained with them.*fn3 We do
not deem this issue material since it is enough to say that some
recipients have switched and some have not.
Plaintiffs then commenced the instant lawsuit challenging the impending
termination of the contract, alleging that it violates various federal
rights of the plaintiffs. Simultaneously, they moved for preliminary
injunctive relief. Two hearings were conducted.*fn4 While Kelly Kare
asserts a number of claims, *fn5 only three of these have sufficient
materiality to require consideration.
The general standard for granting preliminary injunctive relief in this
circuit is well settled. To justify the issuance of an injunction, the
plaintiff must show "(a) irreparable harm and (b) either (1) likelihood of
success on the merits or (2) sufficiently serious questions going to the
merits to make them a fair ground for litigation and a balance of
hardships tipping decidedly toward the party requesting the preliminary
relief." Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72
(2d Cir. 1979) (per curiam). However, where the moving party seeks to
stay governmental action taken in the public interest pursuant to a
statutory or regulatory scheme, the less rigorous
fair-grounds-for-litigation standards do not apply. Union Carbide
Agricultural Production Co. v. Costle, 632 F.2d 1014, 1018 (2d Cir.
1980), cert. denied, 450 U.S. 996, 101 S.Ct. 1698, 68 L.Ed.2d 196
(1981). Therefore, to prevail on this motion, Kelly Kare must show both
that irreparable harm to it will result if the County's termination is
not enjoined and that it is likely to prevail on the merits of the claims
For the purpose of this discussion, we will assume that Kelly Kare will
suffer irreparable harm as a result of the County action. However, this
assumption should be tempered by our observation that the termination of
the Westchester County contract has no effect upon Kelly Kare's status as
a state authorized Medicaid provider. It can obtain contracts from any
other County or governmental body which is willing to contract with it.
Next, Kelly Kare's likelihood of success on the merits must be
assessed. The initial claim is that Kelly Kare has a property interest in
the continuation of its contract. Therefore, as guaranteed by the
fourteenth amendment, due process requires that a hearing be held before
the contract is actually terminated.*fn6 We cannot recognize this
claim. As noted above, the contract in question states that it is
terminable without cause. Furthermore, as the County argues, if all
public contracts were per se a property interest, the effect would be the
constitutionalization of the contractual relationships of all
governmental contractors. No court has yet recognized such a claim of
entitlement. See, e.g., S & D Maintenance Co., Inc. v. Goldin, 844 F.2d 962
(2d Cir. 1988).
In response, Kelly Kare denies that it is attempting to vindicate its
contract rights, claiming that the County's refusal to renew its contract
deprives it of its status as a Medicaid provider. Even if Kelly Kare were
correct, this circuit has not squarely declared that Medicaid providers
have a property interest in continuing participation in the program. In
Plaza Health Laboratories, Inc. v. Perales, 878 F.2d 577, 580 (2d Cir.
1989), the court held that the health care provider's interest did not
rise to a level of a constitutionally protected property interest.
Although that same court, three years earlier, declared that health care
providers have a constitutionally protected property interest in continued
participation in the Medicare and Medicaid programs, see Patchogue Nursing
Center v. Bowen, 797 F.2d 1137, 1144-45 (2d Cir. 1986), we note that the
health care provider in that case was being terminated from the
program by the New York State Department of Health. But here, as mentioned
earlier, Kelly Kare's status as a Medicaid provider is not threatened
— Westchester County has simply declined to renew its contract.
Indeed, because Kelly Kare's status as a state authorized Medicaid
provider continues, there has been no denial of a license which would
normally support a due process claim for a hearing.*fn7
Furthermore, although the recipients (the putative McNulla class) have
a right to continued benefits, see Goldberg v. Kelly, 397 U.S. 254, 90
S.Ct. 1011, 25 L.Ed.2d 287 (1970), they have no property right to demand
a specific Medicaid provider, O'Bannon v. Town Court Nursing Center,
447 U.S. 773, 100 S.Ct. 2467, 65 L.Ed.2d 506 (1980). Finally, we can see no
possible property rights of Kelly Kare's employees that are not derivative
from Kelly Kare's own status or from those of the recipients.
Kelly Kare attempts to bolster its due process claim by arguing that it
also has liberty interests that are being "stigmatized" by the
termination of its contract without cause. To support such a claim, the
plaintiff must show that there is damage to the plaintiff's reputation
resulting from the government's release of stigmatizing information that
is false. See Wisconsin v. Constantineau, 400 U.S. 433, 437, 91 S.Ct.
507, 510, 27 L.Ed.2d 515 (1971); Senape v. Constantino, 740 F. Supp. 249,
260 (S.D.N.Y. 1990). The County is attempting to avoid fueling such a
claim by refusing to give any reason for the termination. The plaintiffs
argue that the failure to give a reason also implicates liberty interests
since the mere termination of a contract has negative implications. If
this argument was accepted, all contract, employment, or other types of
terminations, regardless of circumstances, could support a constitutional
due process claim in which the propriety of the termination could always
be litigated in federal court.
The only substantial argument made by Kelly Kare, and the one on which
it chiefly relies, is the claim that its contract has been terminated
because of an anti-union bias on the part of the County. It seems that
shortly before the contract termination, Kelly Kare gave a copy of its
union contract to the County.*fn8 Kelly Kare argues that the relatively
contemporaneous contract termination must be more than a coincidence and
has to be due to an anti-union bias on the part of the County Department
of Social Services.
The County disputes this vigorously.*fn9 It acknowledges that the
County may not discriminate against its contractors for unconstitutional
or impermissible reasons. See Rutan v. Republican Party of Illinois,
___U.S.___, 110 S.Ct. 2729, 111 L.Ed.2d 52 (1990); Golden State Transit
Corp. v. City of Los Angeles, 475 U.S. 608, 106 S.Ct. 1395, 89 L.Ed.2d
616 (1986); Perry v. Sindermann, 408 U.S. 593, 597, 92 S.Ct. 2694, 2697,
33 L.Ed.2d 570 (1972). However, the County notes that most of its
employees are unionized and that some of the other Medicaid providers who
contract with the County are unionized.*fn10 The responsible officials
of the County have, by affidavit, denied any union bias or any such
matters entering into their consideration of the contract termination.
While the plaintiffs are, of course, not bound by such a denial, they
have not made an adequate evidentiary showing of an impermissible motive
to warrant the extraordinary imposition of injunctive relief preventing
the contract termination.*fn11 We have considered the other arguments
raised by plaintiffs and find them unconvincing. Plaintiffs have not
established the likelihood of success.
Consequently, on the evidence before the court at this time, the motion
for a preliminary injunction must be denied. The court's earlier
restraining orders are dissolved.