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VENCOR NURSING CENTERS, L.P. v. SHALALA

July 8, 1999

VENCOR NURSING CENTERS, L.P., D/B/A VILLAGE SQUARE NURSING AND REHABILITATION CENTER, PLAINTIFF,
v.
DONNA E. SHALALA, DEFENDANT.



The opinion of the court was delivered by: Urbina, District Judge.

  MEMORANDUM OPINION
Denying the Plaintiff's Motion for a Temporary Restraining Order
  and Denying the Defendant's Request for a Transfer of Venue

I. Introduction

This matter comes before the court on an application by the plaintiff Vencor Nursing Centers, L.P. ("Vencor") for an order temporarily restraining the defendant, Secretary of the United States Department of Health and Human Services Donna E. Shalala ("HHS") from terminating one of Vencor's California facilities from the Medicare and Medicaid programs, and seeking other declaratory and injunctive relief. In opposition, HHS contends that this court lacks subject matter jurisdiction, that venue does not lie in this District or that the action should be transferred to California, and that Vencor has not met the criteria for preliminary injunctive relief. For the reasons which follow, the court finds that it has jurisdiction and that a transfer of venue is not warranted. The court also finds that Vencor has not met the criteria for issuance of a TRO and denies Vencor's application.*fn1

II. Background

Vencor owns and operates Village Square Nursing and Rehabilitation Center, a 120-bed skilled nursing facility in San Marcos, San Diego County, California ("Village Square"). During the relevant period, Village Square had between 92 and 104 residents, including about fifty Medicare and Medicaid beneficiaries. Id. ¶ 2. The defendant, HHS, is the federal agency responsible for administering the Medicare Act, 42 U.S.C. § 1395 et seq., and the Medicaid Act, 42 U.S.C. § 1396 et seq. The California Department of Human Services ("the survey agency" or "SA") is the state agency that inspected Village Square on behalf of HHS. From November 1998 through May 1999, HHS authorized the SA to carry out three on-site surveys of Village Square.

The SA conducted the first survey on November 25, 1998 and issued a Statement of Deficiencies on November 28, 1998. Village Square filed a Plan of Correction (POC) on December 18, 1998 and notified the SA that it had regained substantial compliance as of January 9, 1999. See Compl. ¶ 30; Mot. to Dis., Ex. A at 1. The SA conducted a follow-up survey on April 1, 1999 and issued a Statement of Deficiencies, and Village Square submitted a POC. See Mot. to Dis., Ex. B; Compl. ¶ 31. On May 12, 1999, HCFA notified Village Square that it concurred with the SA's findings and terminated Village Square effective May 29, 1999 for failure to maintain substantial compliance for six months. See Mot. to Dis., Ex. D. In response to Village Square's representation that it was in substantial compliance, the SA conducted a third survey on May 28, 1999 and issued a Statement of Deficiencies on June 8, 1999.

HCFA exercised its discretion to continue payments until June 28, 1999, thirty days from the effective date of termination. See Mot. to Dis., Ex. D. Village Square relocated 18 Medicare and Medicaid residents by July 2, 1999 and it planned to relocate the others by July 5, 1999.*fn2

III. Discussion

A. Subject-Matter Jurisdiction

Vencor appealed Village Square's termination and requested expedited administrative review to challenge the findings of non-compliance. HHS contends that 42 U.S.C. § 405(g), (h) deprive this court of subject-matter jurisdiction during the pendency of that review. For the reasons which follow, the court disagrees and finds that it does have subject-matter jurisdiction.

1. The Statutory Administrative-Exhaustion Requirement

A claimant challenging the denial of a claim for Medicare benefits must pursue its administrative remedies before seeking judicial review:

    Any individual, after any final decision by the
  Commissioner of Social Security made after a hearing
  to which he was a party, irrespective of the amount
  in controversy, may obtain a review of such decision
  by a civil action commenced within sixty days after
  the mailing to him of notice of such decision or
  within such further time as the Commissioner of
  Social Security may allow.

42 U.S.C. § 405(g). A parallel provision, § 405(h), imposes an exhaustion requirement on Medicaid benefit claims. HHS contends that these provisions bar this court from exercising jurisdiction until Vencor receives a final decision on its administrative appeal. In Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975), the Supreme Court explained, "Exhaustion is generally required . . . so that the agency may function effectively and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefit of its experience and expertise, and to compile a record which is adequate for judicial review." Id. at 765, 95 S.Ct. 2457.

  2. Exception to Exhaustion Requirement for Colorable Claims
    Which are "Collateral" to Any Claim for Benefits

3. What Constitutes A Colorable Claim. A claimant cannot circumvent an exhaustion requirement by asserting specious "constitutional" claims to "dress up" what is essentially a claim for benefits. See Bartlett v. Bowen, 816 F.2d 695, 702 (D.C.Cir. 1987) ("This holding will not afford much opportunity for frivolous claims since aggrieved claimants must find a way to connect their claims for benefits to a constitutional infirmity. . . ."). Rather, the constitutional claim must be "colorable," i.e., it must not be "wholly insubstantial, immaterial or frivolous." Boettcher v. HHS, 759 F.2d 719, 722 (9th Cir. 1985); see, e.g., Thorbus v. Bowen, 848 F.2d 901, 903 (8th Cir. 1988) ("Although we deem the facts marginal to support a colorable claim, we assume without deciding that Dr. Thorbus has stated a constitutional claim sufficiently colorable for the purposes of jurisdiction in federal court."). Whether or not Vencor's claims are meritorious remains to be seen, but they are not "wholly insubstantial, immaterial or frivolous."

  4. Claims which are Collateral to any Claim for Payment of
    Benefits.

The next inquiry is whether Vencor's claims are "collateral to [its] substantive claim of entitlement. . . ." Mathews, 424 U.S. at 329-331, 96 S.Ct. 893. The Court of Appeals has not addressed this issue. Three consecutive decisions of this court, however, have held that a claim challenging HHS's constitutional authority to terminate or asserting that HHS failed to adhere to the requirements of the Medicare Act in terminating benefits is "entirely collateral" to a claim for benefits. Therefore, these decisions concluded, the challenges to termination were not subject to the requirement of exhaustion of administrative remedies in section 405. See Mediplex v. Shalala, No. 98-CV-2440 (D.D.C. Nov. 11, 1998); Libbie Rehab. Ctr. v. Shalala, 26 F. Supp.2d 128, 130-31 (D.D.C. 1998); International Long Term Care v. Shalala, 947 F. Supp. 15, 17-19 (D.D.C. 1996). No decision in this Circuit has held to the contrary. Accordingly, it does not appear likely that the court will depart from the "strong presumption that Congress intends judicial review of administrative action. . . ." Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 670, 106 S.Ct. 2133, 90 L.Ed.2d 623 (1986). Vencor was not required to exhaust administrative remedies,*fn3 and this court has general federal-question jurisdiction pursuant to 28 U.S.C. § 1331.

B. Venue

HHS also argues that 42 U.S.C. § 405(g) provides only one appropriate venue for this action — the United States District Court for the Southern District of California. In the alternative, HHS moves for transfer of venue pursuant to 28 U.S.C. § 1404(a). For the reasons which follow, the court denies HHS's request to transfer.

1. 42 U.S.C. § 405(g) does not apply.

Under § 405(g), a lawsuit challenging an administrative denial of benefits "shall be brought in the district court of the United States for the judicial district in which the plaintiff resides, or has his principal place of business. . . ." 42 U.S.C. § 405(g). In this case, however, § 405(g) and (h) do not apply, because this action is collateral to any claim for benefits.

Accordingly, venue will be determined in accordance with the customary principles:

  A civil action wherein jurisdiction is not founded
  solely on diversity of citizenship may, except as
  otherwise provided by law, be brought only in . . .
  (2) a judicial district in which a substantial part
  of the events or omissions giving rise to the claim
  occurred, or a substantial part of property that is
  the subject of the action is situated. . . .

28 U.S.C. § 1391(b). Under § 1391(b), venue is proper in this District, as the Secretary is deemed to reside here when she is sued in her official capacity. See Archuleta v. Sullivan, 725 F. Supp. 602, 605 (D.D.C. 1989). Venue would also lie, however, in California, where ...


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