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BEECHWOOD RESTORATIVE CARE CENTER v. LEEDS

May 4, 2004.

BEECHWOOD RESTORATIVE CARE CENTER, et al., Plaintiffs,
v.
LAURA E. LEEDS, et al., Defendants



The opinion of the court was delivered by: DAVID LARIMER, Chief Judge, District

DECISION AND ORDER

Plaintiffs Brook and Olive Chambery ("the Chamberys") commenced this action against various state and federal officials, alleging that defendants, through the deliberate misuse of their regulatory powers, forced a nursing home owned by the Chamberys, Beechwood Restorative Care Center ("Beechwood" or "the facility") to be permanently shut down. Plaintiffs allege that defendants did so to punish the Chamberys for having pointed out problems with respect to defendants' own actions and practices.

Plaintiffs have asserted several claims under 42 U.S.C. § 1983, and a claim against the federal defendants pursuant to Bivens v. Six Unknown Named Agents of the Federal Bureau of Narcotics, 403 U.S. 388 (1971). They seek compensatory and punitive damages for the alleged violations of their rights. Defendants have moved for summary judgment dismissing the complaint, and plaintiffs move for summary judgment on the issue of liability as to one of their claims against two of the defendants.

  I. FACTUAL BACKGROUND*fn1

 A. Events Leading up to Revocation of Plaintiffs' Operating Certificate

  Prior to being shut down, Beechwood was a skilled nursing facility on Culver Road in Rochester, New York, and was operated by the Chamberys as a partnership. Complaint ¶¶ 10, 12, 14. As a skilled nursing facility, Beechwood held an operating certificate from the New York State Department of Health ("DOH").

  As a requirement of its operating certificate, Beechwood became certified as a participant in the Medicare and Medicaid programs ("Medicare/Medicaid").*fn2 One of the consequences of this was that Beechwood was subject to inspections by DOH to evaluate its compliance with federal and state regulations. Any deficiencies that are found are ranked from "A" (an isolated deficiency causing no actual harm and only the potential for minimal harm to a resident) to "L" (a widespread deficiency causing immediate jeopardy to residents' health or safety).

  Plaintiffs allege that DOH generally found few or no violations until 1996, when Brook Chambery*fn3 began sending what eventually became a "voluminous" series of letters and other papers to DOH and other state officials protesting various aspects of DOH's policies and practices, and advocating a number of changes. Plaintiffs Rule 56.1 Statement ¶ 59. The details of these complaints need not be set forth here, but the gist of them was that certain DOH practices and requirements were illogical, unnecessary, or unduly burdensome.

  In November 1996, DOH surveyors conducted their annual review of the facility, and alleged three level "D" deficiencies at Beechwood. (A "D" deficiency is defined as an isolated deficiency with no actual harm, but with the potential for more than minimal harm that would not put residents' health or safety in immediate jeopardy.) Beechwood opposed the deficiency charges, and one of them was later rescinded by DOH. Affidavit of Brook Chambery (Docket #66) ¶ 63.

  A series of deficiency charges followed over the next few weeks, however, along with Chambery's opposition to those charges. Chambery wrote to DOH officials during this time and complained about improprieties and flaws in the survey process. Again, some of the deficiencies were eventually rescinded. Plaintiffs' Rule 56.1 Statement ¶¶ 64-68. Other problems and conflicts between Beechwood and DOH occurred over the next several years. These included an Article 78 proceeding ("the Langeveld litigation") brought by Beechwood against DOH in late 1996 concerning the proposed discharge of a certain patient (which was resolved by a consent order in March 1997), and a series of letters from Chambery to DOH officials complaining about various matters. In particular, from 1997 through 1999, Chambery wrote and called various DOH officials, arguing for the elimination of Medicaid Access Agreements, which required that, in order to receive state approval for any major changes, the facility had to agree to admit a certain percentage of Medicaid patients. Chambery Aff. ¶ 49.

  Plaintiffs state that they refused to sign such an agreement, because-due to the low levels of Medicaid reimbursement-it would have imposed a severe economic hardship on Beechwood. As a result, plaintiffs allege, they were unable to expand or make desired changes to Beechwood. At the same time, however, plaintiffs allege that other facilities in the area had signed such agreements and were not complying with them, yet DOH did nothing to enforce those agreements. Therefore, Chambery (who states that he was too conscientious to sign a Medicaid Access Agreement with the intention of not complying with it, see Chambery Aff. ¶ 51), engaged in a "multi-year campaign with DOH to either enforce or eliminate this [Medicaid Access Agreement] requirement. . . ." Chambery Aff. ¶ 53.

  Plaintiffs allege that due to Chambery's activities in this regard, DOH officials developed a high level of hostility toward Chambery and Beechwood. According to plaintiffs, Chambery was a thorn in DOH's side because he exposed problems with DOH requirements and procedures, and because of the time that DOH officials were forced to spend in order to address Chambery's complaints.

  As a result, plaintiffs allege, DOH stepped up its deficiency charges against Beechwood. Chambery, frustrated with DOH, complained to HCFA about DOH's conduct and asking HCFA to conduct an investigation. Plaintiffs' Rule 56.1 Statement ¶ 95(c). Plaintiffs allege that DOH was aware of Chambery's complaints to HCFA, and that this only increased the DOH officials' animosity toward Chambery. More-and more serious-deficiency findings continued during 1998. (Again, some of these would eventually be reduced or rescinded.)

  All of these events, however, are only a prelude to what plaintiffs call "the Offensive," which began in the Spring of 1999. According to plaintiffs, this was a multi-pronged effort by all the defendants to force plaintiffs out of the health-care industry altogether, and to cause them financial ruin and public humiliation. Plaintiffs allege that DOH officials' actions included, among other things: enlisting the support of certain HCFA officials; conducting excessive surveys of Beechwood; trumping up charges against Beechwood; revoking Beechwood's operating certificate; and annulling its establishment approval, which in effect meant that the Chamberys could not sell the facility to a different operator.

 B. State Administrative Proceedings

  On June 23, 1999, DOH commenced an administrative hearing ["DOH hearing"] seeking to revoke Beechwood's operating certificate. At the hearing, which lasted fourteen days, DOH presented evidence to substantiate its claims of deficiencies, and plaintiffs attempted to show that the charges were false.*fn4

  Following the conclusion of the hearing, the administrative law judge ("ALJ") issued a 97-page report finding that DOH had proven most of the charges against Beechwood by a preponderance of the evidence. It is unnecessary here to summarize each of his findings, but a sample of some of the ALJ's findings will indicate the nature of the problems that he found existed at Beechwood.

  The ALJ found, for example, that certain "residents were neglected by Beechwood in several significant aspects of care," such as failing to notify a resident's physician of significant changes in the resident's condition. See ALJ's decision (Affidavit of Anna Colello (Docket #53) Ex. A) at 66-67. In one instance, the ALJ found that Beechwood had failed to timely notify a resident's physician regarding a "potentially serious or life threatening illness. . . ." Id. at 68. With respect to another resident, the ALJ found that Beechwood had failed to fulfill its obligation to provide appropriate care and monitoring, and that "the record [wa]s devoid of documentation as to the last 5 hours of the resident's life. . . ." Id. at 67.*fn5

  The ALJ found that Beechwood failed to take adequate measures to prevent or treat some residents' pressure sores. Id.at 71-72. He found that one resident has been "subjected, without any reasonable explanation, to an indwelling catheter in place for almost 9 days instead of Beechwood following a physician order of 3 to 4 days." Id.at 76. With respect to certain residents who were at risk of falling, the ALJ also found that Beechwood had failed to meet its obligation to take sufficient steps to try to prevent injury to the residents. Id. at 74. He also found that "a number of Beechwood residents were not provided adequate pain control," and that in several instances various physicians' orders were not carried out. Id. at 78. The ALJ also found that DOH "took numerous steps in its attempt to keep Beechwood open," and that Beechwood failed to take advantage of the opportunities given it by DOH to rectify the problems with the facility. Id. at 65. Instead, he stated, plaintiffs' "plans of correction" submitted to DOH consisted in large part of "denials of events that were found, attacks on the messengers (surveyors) and a barrage of information not relevant or consequential to the cited deficiencies." Id. at 90. In fact, the ALJ found, "no correction was taking place." Id.

  Although the ALJ found a number of specific deficiencies, he also concluded that "[t]he major problem, however, lies in Beechwood's management philosophy which appears to be more interested in arguing and fighting all attempts for compliance than at actually correcting deficiencies." Id. at 91. As the ALJ put it, "the combat should have occurred AFTER substantial compliance had been obtained." Id. at 66.

  In his report, the ALJ also stated that he "found Beechwood's claims of a conspiracy against it and/or Mr. Chambery to be a total, complete, and ridiculous fabrication without a shred of evidence or support." Id. at 55. He stated that he "did not perceive any bias or ill will from the Department [of Health] witnesses against Beechwood, its' [sic] employees or owners." Id. With regard to certain "internal E-mails, memos and other communications between Department employees," the ALJ stated, "I cannot see the sinister motives the Mr. Brook Chambery seems to attach to everyone [sic] of them. . . . Mr. Chambery attempts to allege poisonous motives where none exists." Id. at 64. The ALJ concluded that "there [wa]s nothing in the record which indicate[d] to [him] that the actions taken and/or conduct of the Department was motivated by or taken in retaliation for Brook Chambery's exercise of any of his rights." Id. Based on his deficiency findings, the ALJ recommended that Beechwood's operating certificate be revoked, and that a civil penalty of $54,000 be assessed. Id. at 92. Based upon the ALJ's report and recommendations, DOH in turn issued an order revoking Beechwood's operating certificate, and imposing a $54,000 penalty, on December 23, 1999. Colello Aff. Ex. B. Plaintiffs allege that DOH also refused to allow them to sell Beechwood's operating certificate or their establishment approval*fn6 unless plaintiffs agreed to certain conditions, including releasing all the DOH defendants from liability for their actions, and agreeing that Chambery would never again take a management or ownership position in the health care field in New York.

  In addition, in a letter to plaintiffs' counsel dated February 2, 2000, defendant Henry M. Greenberg, DOH's general counsel, stated, in response to plaintiffs' prior inquiry concerning whether and under what conditions plaintiffs could transfer Beechwood to a third party, that "since the operating certificate of Beechwood has been revoked and the facility closed, Beechwood no longer is considered an existing resource of residential health care facility (`RHCF') beds and there is no `certificate of need or establishment approval' to be transferred." Plaintiffs' App. vol. II at M002049. Greenberg stated that any potential buyer of the facility's land, building and equipment who wished to use the property as an RHCF would be required to submit a certificate of need ("CON") application to DOH, but that in general, DOH was "not reviewing and acting on new CON applications for additional RHCF beds in the state at th[at] time." Id. at M002050. According to plaintiffs, this had the effect not only of prohibiting plaintiffs themselves from operating the facility, but also of making it impossible for anyone to do so, thereby rendering the facility almost worthless. Plaintiffs contend that this was contrary to New York statutes and regulations.

  On February 28, 2000, plaintiffs filed an Article 78 petition in New York State Supreme Court, Monroe County, seeking, inter alia, a declaration that the DOH administrative proceeding, the ALJ's report, and the DOH's December 23 order were null and void, for a number of reasons. The petition alleged in part that "DOH's misconduct was in retaliation against and to penalize Petitioners for their exercise of constitutional rights in vigorously advocating for improvements in the nursing home industry and regulatory system over the last three years." Steinman Aff. Ex. A 126.

  On May 15, 2000, Justice Francis A. Affronti issued a decision finding that plaintiffs' petition "raise[d] a question relative to the sufficiency of the evidence at the [DOH] hearing . . .," which required that the Article 78 proceeding be transferred to the appellate division under C.P.L.R. § 7804(g).*fn7 Following that ruling, however, the proceeding seems to have stalled. At oral argument in this action, plaintiffs' counsel indicated that, through inaction or error by the Monroe County Clerk's office, or for other unknown reasons, the proceeding never actually got transferred to the appellate division. Plaintiffs candidly admit, however, that they had "no incentive to press the Article 78" proceeding, Plaintiff's Memorandum of Law at 71, so they simply ceased prosecuting it. That lack of incentive, plaintiffs state, arose partly from the fact that Beechwood had already been closed, and, since damages are not available in an Article 78 proceeding, a favorable outcome in that proceeding would have been a Pyrrhic victory. Plaintiff's counsel also conceded at oral argument, however, that plaintiffs were concerned that if the Article 78 proceeding were prosecuted to its conclusion, the state court's rulings on the issues presented in the Article 78 petition might be given collateral estoppel effect in any later actions initiated by plaintiffs, such as the instant lawsuit. Counsel stated that this was a concern in part because plaintiffs would not have had the same opportunities for discovery in the Article 78 proceeding that they do in this action, and because plaintiffs could not have raised in that proceeding the full range of constitutional claims that they do here. See also Plaintiff's Memorandum of Law at 72 (noting that plaintiffs "chose not to press for an adjudication" in the Article 78 proceeding due to the risk of a "premature adjudication" of plaintiffs' constitutional claims).

 C. Federal Administrative Proceedings

  Contemporaneously with the state administrative proceedings, events concerning Beechwood were taking place at the federal administrative level as well. In a letter to Olive Chambery dated June 29, 1999, HCFA informed her that it had terminated Beechwood's Medicare and Medicaid provider agreement effective June 17, 1999. Plaintiffs'App. vol. II, at M001281. The letter stated that this decision was based on DOH's determination that the facility had not achieved substantial compliance with federal requirements. Beechwood then requested a federal administrative hearing to challenge the termination and the findings on which it was based. An ALJ held a hearing on April 3 and 17, 2001, and issued a decision in which he concluded that Beechwood was not in substantial compliance as of DOH's May and June 1999 surveys. Prior to the hearing, the ALJ also ruled, inter alia, that he lacked authority to hear and decide Beechwood's challenges both to the actions taken against it by DOH, and to the constitutionality of those actions. Ultimately, however, he did sustain HCFA's determination to terminate Beechwood.

  Beechwood appealed the ALJ's decision to the Department of Health and Human Service's Departmental Appeals Board ("DAB"), alleging various prejudicial errors by the ALJ. Without reaching the merits of whether Beechwood was in substantial compliance at the time of the relevant surveys, the Board reversed and remanded the case to the ALJ for further proceedings, including a new decision. In so doing, the DAB instructed the ALJ regarding a number of procedural matters concerning which it found that the ALJ had erred.

  On remand, the ALJ made certain additional findings and rulings, but again upheld HCFA's termination of Beechwood. Beechwood again appealed to the DAB, which held that the ALJ's findings of fact and conclusions of law in both of his decisions should be sustained except as to two specific examples regarding individual residents. See Beechwood Sanitarium v. Centers for Medicare & Medicaid Services, DAB No. 1906, 2004 HHSDAB LEXIS 3 (H.H.S. Jan. 23, 2004). The DAB added that since its reversal of the ALJ's findings regarding those two allegations did not affect the outcome of its evaluation of the deficiency findings to which the allegations were directed, the DAB declined Beechwood's request that it overrule the ALJ's findings and conclusions sustaining deficiencies found in DOH's surveys. 2004 HHSDAB LEXIS 3, at *240. The DAB further declined Beechwood's request that it remand to the ALJ to consider additional deficiency findings from those surveys which he had found unnecessary to address. The DAB stated that "[i]n the context of this case and the findings which [the DAB] ha[d] sustained, any outcome of any further review of findings not already evaluated could not alter the clear evidence of noncompliance of a kind more than adequate to support the imposition of the appealed remedies." Id. at *240-41. The DAB concluded that the ALJ did not err in concluding that HCFA had the authority to impose the remedies appealed by Beechwood.

 D. Actions in this Court

  On June 8, 1999, while the state administrative charges were pending against Beechwood, plaintiffs filed an action in this Court seeking to enjoin DOH from taking further action to revoke their operating certificate. The Court denied plaintiffs' request for a temporary restraining order on June 17, 1999, on the grounds of both Younger abstention, see Younger v. Harris, 401 U.S. 37, 47-53 (1971), and because plaintiffs had not exhausted their administrative remedies. See Transcript, Beechwood v. Leeds ("Beechwood I"), 99-CV-6235 (Ex. A to Affidavit of Darren Longo (Docket #57 in the instant action)). That action was ultimately dismissed by stipulation of the parties in August 1999.

  In 2002, however, while the federal administrative proceedings were continuing, plaintiffs commenced the instant action. The complaint names seventeen DOH defendants and two federal defendants. The complaint asserts: (1) a § 1983 claim for denial of procedural due process, based on DOH's annulment of Beechwood's establishment approval; (2) a § 1983 claim for First Amendment retaliation; (3) a § 1983 claim for denial of equal protection; (4) a § 1983 claim for "abuse of governmental power" and denial of substantive due process, see Complaint at 75; (5) a § 1983 claim for "denial of [plaintiffs'] right to federal law supremacy," see Complaint at 76; and (7) Bivens claims against the federal defendants.*fn8

  In separate motions, the DOH and the federal defendants have moved for summary judgment dismissing the complaint. Plaintiffs have cross-moved for "partial" summary judgment on the issue of liability on their procedural due process claim against two of the DOH defendants, Greenberg and Edmund Altone.

  II. DISCUSSION

 A. Collateral Estoppel

  The DOH defendants assert that plaintiffs are barred from raising most, if not all, of their claims under the doctrine of collateral estoppel. Collateral estoppel, also known as issue preclusion, "means simply that when an issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in any future lawsuit." Leather v. Eyck, 180 F.3d 420, 424 (2d Cir. 1999) (quoting Schiro v. Farley, 510 U.S. 222, 232 (1994)). Defendants contend that plaintiffs should be precluded from relitigating in this action the issues that the DOH ALJ decided in his 97-page report.

  A "federal court must give to a state-court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered" pursuant to both the United States Constitution and the Full Faith and Credit Act, 28 U.S.C. § 1738. Migra v. Warren City Sch. Dist. Ed. of Educ., 465 U.S. 75, 81 (1984); accord Leather, 180 F.3d at 424. The same is true of decisions by state agencies. "[W]hen a state agency acting in a judicial capacity resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate . . . federal courts must give the agency's factfinding the same preclusive effect to which it would be entitled in the State's courts." University of Tennessee v. Elliott, 418 U.S. 788, 799(1986) (internal punctuation and quotation marks omitted). See also Kosakow v. New Rochelle Radiology Associates, P.C., 274 F.3d 706, 728 (2d Cir. 2001) ("in § 1983 actions, the factual determinations of a state administrative agency, acting in a judicial capacity, are entitled to the same issue and claim preclusive effect in federal court that the agency's determinations would receive in the State's courts") (citing Elliott, 478 U.S. at 798-99)

  Under New York law,
[c]ollateral estoppel, or issue preclusion, gives conclusive effect to an administrative agency's quasi-judicial determination when two basic conditions are met: (1) the issue sought to be precluded is identical to a material issue necessarily decided by the administrative agency in a prior proceeding; and (2) there was a full and fair opportunity to contest this issue in the administrative tribunal. The proponent of collateral estoppel must show identity of the issue, while the opponent must demonstrate the absence of a full and fair opportunity to litigate.
Jeffreys v. Griffin, 1 N.Y.3d 34, 39 (2003) (citations omitted). The party opposing the application of estoppel has the burden of proving that it did not have a full and fair opportunity to litigate the claims in question. Kosakow, 274 F.3d at 733 (citing Ryan v. New York Tel. Co., 62 N.Y.2d 494, 501 (1984)).

  The New York Court of Appeals has also stated that in the context of determinations of administrative agencies, "the doctrine [of collateral estoppel] is applied more flexibly, and additional factors must be considered by the court. These additional requirements are often summed up in the beguilingly simple prerequisite that the administrative decision be `quasi-judicial' in character." Allied Chemical, an Operating Unit of Allied Corp. v. Niagara Mohawk Power Corp., 72 N.Y.2d 271, 276 (1988) (citations omitted), cert. denied, 488 U.S. 1005 (1989).

  Plaintiffs contend that this doctrine does not apply here, first, because the ALJ did not (in fact, could not) resolve the identical issues presented in the case at bar. Plaintiffs assert that they could not litigate their constitutional claims in the DOH hearing. Furthermore, plaintiffs argue, even if they could have presented their constitutional claims before the ALJ, he lacked jurisdiction and authority to pass on them. In support of this assertion, plaintiffs rely on the principle that "[c]onstitutional questions obviously are unsuited to resolution in administrative hearing procedures. . . ." Califano v. Sanders, 430 U.S. 99, 109 (1977); see also Hurlbut v. Whalen, 58 A.D.2d 311, 317 (4th Dep't 1977) ("the administrative agency lacked both the power and competence to pass on the constitutionality of its own actions and procedures").

  Plaintiffs, however, are blurring the distinction between res judicata, or claim preclusion, and collateral estoppel, or issue preclusion. "Under the doctrine of claim preclusion, [a] final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." Rivet v. Regions Bank of Louisiana, 522 U.S. 470, 476 (1998) (internal quotation marks omitted; alteration in original); see also Blonder-Tongue Labs., Inc. v. University of Ill. Found., 402 U.S. 313, 350 (1971). Collateral estoppel, on the other hand, "means simply that when an issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in any future lawsuit." Schiro v. Farley, 510 U.S. 222, 232 (1994) (internal quotation marks omitted). Although plaintiffs may not have been able to litigate their constitutional claims before the ALJ, they could, and did, litigate many of the factual issues upon which those claims are based. That is made clear by the ALJ's report, in which he expressly "found Beechwood's claims of a conspiracy against it and/or Mr. Chambery to be a total, complete, and ridiculous fabrication without a shred of evidence or support," and that "there [wa]s nothing in the record which indicate[d] to [the ALJ] that the actions taken and/or conduct of [DOH] was motivated by or taken in retaliation for Brook Chambery's exercise of any of his rights." See Parker v. Blauvelt Volunteer Fire Co., Inc., 93 N.Y.2d 343, 350 (1999) ("all of the factual issues dispositive of the constitutional claims being raised in the instant [§ 1983] action were necessarily decided in the prior article 78 proceeding").

  It is also clear that the standards for application of collateral estoppel have been met here. First of all, the DOH proceedings were quasi-judicial in nature. In Jeffreys v. Griffin, 1 N.Y.3d 34 (2003), the New York Court of Appeals addressed the issue of whether a finding of sexual misconduct by a disciplinary hearing committee of the DOH's Board for Professional Medical Conduct precluded the defendant physician from contesting liability for assault and battery in the plaintiff patient's civil action to recover money damages. The court stated that such disciplinary hearings "are `quasi-judicial' in the general sense required for application of the doctrine of collateral estoppel." Id. at 42. The court added that "[t]his is so notwithstanding the differences between these proceedings and a civil trial . . . the absence of juries, the absence of CPLR article 31 disclosure and the inapplicability of the rules of evidence followed in a civil trial." Id. *fn9 Although the DOH hearing in the instant case was not a physician's disciplinary hearing, it too was "`quasi-judicial' in the general sense required for application of the doctrine of collateral estoppel." Plaintiffs were given notice of the charges against Beechwood, and had the right to present evidence and examine witnesses. The ...


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