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Davis & Associates, Inc. v. District of Columbia

August 16, 2007

DAVIS & ASSOCIATES, INC., PLAINTIFF,
v.
DISTRICT OF COLUMBIA, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Gladys Kessler United States District Judge

MEMORANDUM OPINION

Plaintiff Davis & Associates ("Davis"), a minority-owned contractor, brings this action under 42 U.S.C. §§ 1981 and 1983 against Defendants, the District of Columbia ("District"), Mayor of the District of Columbia Adrian Fenty, Chief Financial Officer of the District of Columbia Natwar Ghandi, former Chief Financial Officer of the District of Columbia Valerie Holt, and Health Management Systems, Inc.*fn1 Plaintiff alleges that Defendants, excluding HMS, violated 42 U.S.C. §§ 1981 and 1983. Plaintiff seeks compensatory damages in excess of $268 million and reasonable attorney's fees and costs pursuant to 42 U.S.C. § 1988.

This matter is before the Court on the following motions: (1) the District's Motion to Dismiss for Failure to State a Claim under Fed. R. Civ. P. 12(b)(6) [Dkt. No. 5]; (2) HMS' Motion to Dismiss under Fed. R. Civ. P. 12(b)(1) and 12(b)(6) [Dkt. No. 25]; (3) Defendants Ghandi's and Holt's Motion to Dismiss under Fed. R. Civ. P. 12(b)(5) for Failure to Effect Service of Process under Fed. R. Civ. P. 4(m) [Dkt. No. 21]; (4) the District's Motion to Stay Discovery and Quash Deposition Notice [Dkt. No. 39]; and (5) Davis' Motion to Compel Discovery [Dkt. No. 43]. Upon consideration of the Motions, Oppositions, Replies, and the entire record herein, and for the reasons stated below, the Motions to Dismiss by the District and HMS are granted and Ghandi and Holt's Motion to Dismiss, the District's Motion to Stay Discovery and Quash Deposition Notice, and Davis' Motion to Compel Discovery are denied as moot.

I. BACKGROUND*fn2

On January 26, 1998, Health Management Systems ("HMS") entered into a contingency fee contract with the District of Columbia Public Schools ("DCPS"). Under the terms of the contract, HMS would identify the amounts of money to be collected on behalf of DCPS, under Medicaid, from third parties such as health insurance providers. HMS would then receive as payment a percentage of the amount actually recovered in accordance with a declining formula that reduced the percentage paid as the amount collected increased. HMS then entered into a subcontract with Davis for performance of the work described in this contract. Davis alleges it identified more than $68 million for collection under this subcontract.

On March 10, 2000, Davis entered into a contingency fee contract with the District of Columbia Health and Hospitals Public Benefit Corporation ("PBC"), which operated D.C. General Hospital. Under the terms of the contract, Davis would complete certain Medicare and Medicaid cost reports for the PBC and receive as payment an amount equal to ten percent of the revenue collected above a set baseline. Davis alleges it identified more than $200 million for collection under this contract.

Neither contract contained a certification of prior available appropriated funds as required by 27 D.C. Mun. Regs. § 3240. The Chief Financial Officer is responsible for certifying the amount collected under each of these two contracts. Davis has not been paid under either contract, and alleges that the District has received the amounts identified for collection from the federal government. Davis also alleges that a white-owned contractor was paid for the work that Davis "performed exclusively." Compl. ¶ 32.

Plaintiff's Complaint has two counts. Count I alleges violations of 42 U.S.C. § 1981. Count II alleges violations of 42 U.S.C. § 1983. Plaintiff seeks $268 million in compensatory damages plus attorney's fees.

II. STANDARD OF REVIEW

"A motion to dismiss for failure to state a claim upon which relief can be granted is generally viewed with disfavor and rarely granted." Doe v. United States Dep't of Justice, 753 F.2d 1092, 1102 (D.C. Cir. 1985). As stated above, the factual allegations of the complaint must be presumed true and liberally construed in favor of the plaintiff. Shear, 606 F.2d at 1253. "However, the court need not accept inferences drawn by plaintiffs if such inferences are unsupported by the facts set out in the complaint. Nor must the court accept legal conclusions cast in the form of factual allegations." Kowal v. MCI Comm. Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994) (internal citations omitted).

III. ANALYSIS

A. Plaintiff Fails to State a Claim Under 42 U.S.C. § 1981 Because the Contracts Between Plaintiff and the District of Columbia Were Void Ab Initio

42 U.S.C. § 1981(a) provides, in relevant part, that "[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts. . .as is enjoyed by white citizens." In Count I of the Complaint, Plaintiff alleges that the District's failure to pay for services rendered under the two contracts, when it was making payments to white-owned contractors under similar contracts, violated Section 1981.

A valid or prospective contractual relationship between the parties is required for a claim brought under 42 U.S.C. § 1981. Domino's Pizza, Inc. v. McDonald, 546 U.S. 470, 476 (2006). The District offers two ...


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