New York Association of Homes for Aging v. Toia Court Opinion

    NAACP Legal Defense Fund
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UNITED STATES COURT OF APPEALS
AUG 5 1977

F or the Second Circuit

Nos. 1136 and 1137—September Term, 1976. 

(Argued April 11, 1977 Decided July 27, 1977.)

Docket Nos. 77-7102 and 77-7114

New  Y ork A ssociation of H omes for A ging, et al.,

Plaintiffs-Appellants, 
v.

P hilip L. T oia, as Commissioner of Social Services 
of the State of New York, et al.,

Defendant s-A ppellees.

J oseph B ulla, et al.,

Plaintiff s-Appellants, 
v.

Philip L. T oia, as Commissioner of Social Services 
of the State of New York, et al.,

Defendants-Appellees.

B e f o r e  :
Clark, Associate Justice,* 

A nderson and M ulligan, Circuit Judges.

Pursuant to $0.14 of the Rules o f this Court, this appeal is being 
determined by Judges Anderson and Mulligan who are in agreement 
on this opinion.

4959



Appeals from orders denying preliminary injunctions 
to plaintiffs as a class in the United States District Court, 
Southern District of New York, Thomas P. Griesa, Judge. 
Appeals dismissed for lack of appellate jurisdiction.

D avid J. S teen, Esq., New York, New York 
(Proskauer Rose Goetz & Mendelsohn, 
Jeffrey A. Mishkin, Esq., and Stephen E. 
Tisman, Esq., New York, N.Y., on the 
brief), for Plaintiffs-Appellants in Docket 
No. 77-7102.

Geoege C. M antzoeos, Assistant Attorney Gen­
eral, State of New York (Louis J. Lefko- 
witz, Attorney General, Samuel A. Hirsho- 
witz, First Assistant Attorney General, 
State of New York, on the brief), for De­
fendants-Appellees in Docket No. 77-7102.

A ndbew P. Z weben, Esq., Legal Services for 
the Elderly Poor, New York, N.Y. (Stephen 
M. Jacoby, Esq., American Jewish Con­
gress, New York, N.Y., on the brief), for 
Plaintiff s-Appellant s in Docket No. 77-7114.

Chaeles A. B badley, Assistant Attorney Gen­
eral, State of New York (Louis J. Lefko- 
witz, Attorney General, and Samuel A. 
Hirshowitz, First Assistant Attorney Gen­
eral, State of New York, on the brief), for 
Defendants-Appellees in Docket No. 77-7114.

A ndeeson, Circuit Judge:

In these two actions the respective plaintiffs contest the 
validity of the medicaid reimbursement formula established

4960



on September 30, 1976 for residential health care facilities 
under regulations promulgated by the Commissioner of 
Health of the State of New York, 10 New York Code of 
Rules and Regulations (N.Y.C.R.R.) Part 86-2, pursuant to 
Chapter 76 of the New York Session Laws of 1976, which 
added §2807(2) (e) to the New York Public Health Law. 
The medicaid reimbursements of approximately 60% of 
the residential health care facilities in the State have been 
reduced as a result of these new regulations.1 Both cases 
are claimed class actions in which each group of plaintiffs 
seeks a declaratory judgment that reimbursement under 
Part 86-2 is in violation of various state and federal stat­
utory provisions and of the Due Process Clause of the 
federal Constitution for failure to give adequate notice 
and an opportunity to be heard prior to the reduction in 
benefits. Plaintiffs also seek to enjoin the application of 
the rates calculated in accordance with Part 86-2 and to 
compel the promulgation of new rates which they assert 
are necessary to comply with the applicable state and fed­
eral statutes. Plaintiffs in both actions sought preliminary 
injunctive relief, on a class basis, to prohibit the imple­
mentation of Part 86-2 and to maintain the reimbursement 
levels in effect prior to the adoption of the new rates until 
the resolution of their claims on the merits.

In case No. 77-7102 the named plaintiffs, two medical 
facility associations and five residential health care facil­
ities, seek to represent all nonprofit residential health care 
facilities in New York that provide services to medicaid 
sponsored patients. The thrust of plaintiffs’ complaint, 
filed November 16, 1976, is that the new reimbursement 
rates are invalid under the governing federal statute, 42

1 As a result o f upward adjustments in the rate schedules since the 
institution o f these actions, a much smaller percentage of nursing homes 
is now receiving lower reimbursement rates than those in effect prior 
to November 1, 1976.

4961



U.S.C. §1396a(a)(13)(E), in that they do not provide
for a “ reasonable cost related basis” in determining ap­
propriate reimbursement. Plaintiffs also assert that the 
rates were promulgated in violation of various federal and 
state procedural requirements, including notice and hear­
ing provisions, and a federal regulation (45 C.F.R. §246.10 
(a )(3 )) wdiich provides that a medical care advisory com­
mittee have an opportunity to participate in the adminis­
tration of the state’s medicare program. After several 
hearings were held in December and January on the plain­
tiffs’ motion for a preliminary injunction, the district 
court ruled from the bench on February 9, 1977, that 
because of the disparity in the affect of the new computa­
tion of reimbursement upon the individual members of the 
purported class of nursing homes, preliminary injunctive 
relief on a class basis was not appropriate. The court 
clearly stated that it was denying the requested relief only 
because of the class nature of the action and not with 
respect to the claims by individual homes. It offered 
separate members of the alleged class the opportunity to 
present evidence of the irreparable harm, suffered by an 
individual member, on a case-by-case basis.2

The nursing homes have appealed the district court’s 
denial of preliminary injunctive relief on a class basis. 
The questions of whether this action is maintainable as a 
class action and whether the named plaintiffs are appro­
priate representatives of the purported class under Rule 
23(c)(1) Fed. R. Civ. P. have not yet been ruled upon.

In No. 77-7114, an action commenced February 1, 1977, 
eight medicaid sponsored patients residing in nursing 
homes in New York, seek to represent the class of all

2 Through the New York Association of Homes for the Aging, the 
nursing home class members that are not nominal plaintiffs apparently 
have been kept fully informed o f the proceedings in this action.

4962



medicaid sponsored patients in New York whose nursing 
care and benefits have been reduced as a result of the 
promulgation of the new medicaid reimbursement levels 
for residential health care facilities. Plaintiffs assert that 
the across-the-board adoption of newT rates without grant­
ing the medicaid sponsored patients notice and a fair 
hearing, violates their right to procedural due process, the 
federal regulations guaranteeing notice and a hearing 
prior to the reduction of medicaid benefits, 45 C.F.R. 
§§205.10(a)(4), (a )(5 ), (a )(6), and various state regula­
tions governing the procedures to be followed.

At a hearing held on February 28, 1977 on plaintiffs’ 
request for preliminary injunctive relief, the district court 
refused the relief sought on a class basis for the reasons 
stated from the bench in No. 77-7102 on February 9, 1977. 
The district court told the professed class representatives 
that medicaid patients at individual nursing homes could 
seek to prove that irreparable harm was caused them by 
the reductions in nursing care brought about by the lower 
reimbursement. Plaintiffs appeal from this ruling. The 
district court and this court have denied motions made by 
plaintiffs in both actions to stay the application of the 
new rates of reimbursement, pending resolution of this 
appeal.

Extensive hearings were held during December and 
January on the nursing homes’ motion for a preliminary 
injunction in case No. 77-7102. The district court indicated 
concern over the manner in which the State had adopted 
the new reimbursement rates, but it never reached the 
issue of whether the claims of the individual nursing homes 
were sufficiently serious or meritorious to justify a pre­
liminary injunction. The hearings concentrated upon 
plaintiffs’ allegations that as a result of the new reim­
bursement rates the nursing homes, generally, were suffer-

4963



ing irreparable barm and were having to cut back on 
essential services and that several facilities were on the 
verge of ceasing operations. During the course of the 
hearings in December, 1976, the State announced that 
effective January 1, 1977, the reimbursement rates would 
be increased to offset inflation. The district court, there­
fore, delayed consideration of the necessity for prelim­
inary injunctive relief for the period after January 1st, 
pending plaintiffs’ analysis of the effect of the increase 
upon the financial conditions at the homes.

This left for the court’s consideration whether the re­
imbursement rates in effect during November and Decem­
ber, 1976 should be preliminarily enjoined. On December 
22, 1976, the court decided that before it could rule upon 
the issue of irreparable harm, the State should expedite 
the process of administrative appeals by the homes con­
testing their classification and the Health Department’s 
recommendations concerning the curtailment in services.3 
Its reasoning was that if the homes could procure relief 
from the State through the administrative process, the 
court would not be placed in the position of adding to the 
State’s fiscal woes by compelling the payment of higher 
rates pending a resolution of the case on the merits.

On February 4, 1977, plaintiffs renewed their motion for 
a preliminary injunction. The nursing homes asserted that 
the expedited state administrative proceedings had not 
resulted in significant relief and that the increase of Jan­
uary 1, 1977, designed to compensate for inflation, was 
insufficient to prevent the ongoing hardships suffered by 
a large portion of the homes in the class. On February

3 Through the administrative appeals the nursing homes were only able 
to contest the manner in whieh the Part 86-2 regulations were applied in 
their cases and the reasonableness o f the State’s recommended service 
reductions. They were not able to procure review o f the regulations 
themselves or the manner in which they were promulgated.

4964



9th, plaintiffs presented witnesses from three nursing 
homes, who testified extensively as to the amount of the 
reduction on the reimbursement rate and its effect upon 
each individual home. Plaintiffs also attempted to show 
that the administrative appeals and the claimed offset 
for inflation did not alleviate their financial problems. At 
the conclusion of the hearing, the court denied the motion 
for a preliminary injunction on a class basis stating:

“ Then I will tell you right here and now that I will 
deny the motion for preliminary injunction on a class 
basis. I do so on the basis of the record that demon­
strates to me that when the facts are gone into as to 
the individual homes, there is a wide and substantial 
discrepancy as to the issues as to each individual home. 

* # * * *
The record amply demonstrates that there are differ­
ences in the rates granted to the homes. . . . There are 
differences with respect to the procedures engaged in 
by the Department of Health and the Department of 
the Budget with respect to these homes. There are 
differences, substantial differences, in the financial con­
dition of the different homes. There are substantial 
differences in the effect of the various rates.”

Although the district court offered to establish a procedure 
whereby those homes seriously affected could have the 
issue of irreparable harm and the appropriateness of pre­
liminary injunctive relief adjudicated on a case-by-case 
basis, it is not apparent from the record which of the indi­
vidual homes have followed that course.

In the action instituted on behalf of the patients, No. 
77-7114, the record indicates that the district court initially 
denied preliminary injunctive relief on a class basis on 
February 18, 1977. On February 28th, the district court

4965



held a hearing to determine whether the State should be 
enjoined from applying the new rate to Beth Abraham 
Hospital. It was clear that the facility was operating at 
a loss but the State contended that cuts which it recom­
mended could be made without any detriment to the 
patients. The plaintiffs disagreed and presented substan­
tiating proof. At the conclusion of the hearing, the court 
directed the State to evaluate the reasonableness of the 
recommended cuts in light of the testimony that such de­
creases in care would adversely affect the health of the 
patients. I f significant relief was not afforded through the 
administrative process, the court would resume hearings 
on the preliminary injunction motion in the case of the 
Abraham Hospital. Once again plaintiffs argued that pre­
liminary injunctive relief ivas necessary for the entire class 
to avoid the irreparable harm caused by reduced nursing 
care. The court, however, reaffirmed its position that, for 
the reasons stated in the nursing home case, No. 77-7102, 
class based relief was not appropriate and would not be 
granted.

The parties to these appeals ha\Te assumed that the 
orders appealed from have in fact denied preliminary in­
junctions and, therefore, are appealable under 28 U.S.C. 
§1292(a) (1), but they have reached this conclusion without 
giving any consideration to this court’s jurisdiction to en­
tertain the appeals.4 In so doing they ha\re failed to show 
that the attempted appeals do not violate the cardinal prin­
ciple that “no unauthorized extension or reduction of juris­
diction, direct or indirect, occurs in the federal system,”

4 As Judge Timbers stated in dissent in Diversified Mortgage Investors 
v. TJ. S. L ife Insurance Co., 544 F.2d 571 (2d Cir. 1976):

" I t  . . .  is our duty independently to examine the jurisdictional 
underpinning of any case that comes before us, including our ap­
pellate jurisdiction, regardless of whether the issue is raised by 
counsel.” Id. at 579.

4966



Baltimore Contractors, Inc. v. Bodinger, 348 U.S. 176, 181 
(1955). Inasmuch as the orders appealed from do not 
“ deny” injunctions within the meaning of 28 U.S.C. §1292 
(a )(1 )6 and because there is no other statute providing 
appellate jurisdiction,6 the appeals are dismissed by this 
court without any consideration of the merits.

The district court never explicitly ruled upon the main­
tainability of either suit as a class action. Instead hear­
ings were held on plaintiffs’ motion to enjoin the State 
from putting the new reimbursement rates into effect pen­
dente lite. Under the preliminary injunction test estab­
lished in this Circuit in Sonesta International Hotels Corp. 
v. Wellington Associates, 483 F.2d 247 (2d Cir. 1973), 
plaintiffs must show either:

“ (1) probable success on the merits and possible ir­
reparable injury, or (2) sufficiently serious questions 
going to the merits to make them a fair ground for 
litigation and a balance of hardships tipping decid­
edly toward the party requesting the preliminary re­
lief.” Id. at 250.

Under either test, the movant must show a threat of ir­
reparable harm. Jacobson <& Co. v. Armstrong Cork Co.,

5 28 U.S.C. §1292(a) (1 ) provides:
" (a )  the courts o f appeals shall have jurisdiction o f appeals from: 

(1 ) Interlocutory orders of the district courts o f the United 
States . . . granting, continuing, modifying, refusing, or dis­
solving injunctions, or refusing to dissolve or modify injunc­
tions, except where a direct review may be had in the Supreme 
Court . . . . ”

6 It is clear that the denial of class action status regarding the issue 
o f irreparable harm on plaintiffs’ motions for preliminary injunctions 
will not effectively terminate this litigation, and, therefore, the orders 
appealed from are not appealable final decisions under the death knell 
doctrine and this court has no jurisdiction under 28 U.S.C. §1291. See,
Williams v. Wallace Silversmiths, Inc., ------- F.2d -------, ------- n. 2 (2d
Cir. March 4, 1977), slip op. 2181, 2184 n. 2.

4967



548 F.2d 438, 441 n. 2 (2d Cir. 1977); Triebwasser & Katz 
v. American Tel. & Tel. Co., 535 F.2d 1356, 1359 (2d Cir. 
1976). The district court never passed upon the sufficiency 
of plaintiffs’ actions on the merits, nor did it rule that indi­
vidual nursing homes or patients therefrom had failed to 
establish irreparable harm. Rather, in deciding whether 
irreparable harm had been established, its ruling related 
solely to the inappropriateness of grouping a diverse class 
of nursing homes, which had been affected in different ways 
and to varying degrees by the new reimbursement rates. 
The district court has decided that it is appropriate to pro­
ceed on an individual case-by-case basis and has offered 
plaintiffs in both actions an opportunity to do so.

This court recently held in Williams v. Wallace Silver­
smiths, Inc.,------F .2 d -------- (2d Cir. March 4, 1977), slip
op. 2181, that an order denying class action certification 
pursuant to Fed. R. Civ. P. 23(c) when the complaint in­
cluded a request for class based injunctive relief was not 
an appealable interlocutory order under §1292(a)(l). In 
Williams, plaintiffs brought a class action against their 
employer under Title YII of the Civil Rights Act, 42 U.S.C. 
§2000e, et seq., and 42 U.S.C. §1981, charging the employer 
with discrimination in its employment policies on the basis 
of race. In addition to damages, plaintiffs sought a per­
manent injunction prohibiting the employer from discrim­
inating in the future and also calling for an affirmative 
action program to remedy the consequences of past dis­
crimination. They claimed to represent all persons who 
had been or would be discriminated against. The court 
held that the district court ruling denying class action 
status did not so contract the scope of ultimate injunctive 
relief as effectively to deny the remedy plaintiffs sought, 
Id. at 2188, and, therefore, was not appealable under

4968



§1292(a)(l). See also, Build of Buffalo, Inc. v. Sedita, 
441 F.2d 284, 287 (2d Cir. 1971).7

The district court’s rulings in these cases have served 
only to determine that separate or individual claims of 
nursing homes or patients cannot be consolidated for trial 
as class actions. They have not limited the scope of the 
injunctive relief sought nor have they denied it. National 
Machinery Co. v. Waterbury Farrel Foundry & Machine 
Co., 290 F.2d 527, 528 (2d Cir. 1961); see, Stewart-Warner 
Cory. v. Westinghouse Electric Cory., 325 F.2d 822, 828- 
829 (2d Cir. 1963) (Friendly, J., dissenting), cert, denied, 
376 U.S. 944 (1964). The rulings do require that separate 
nursing homes and individuals must establish for them­
selves irreparable harm to qualify for preliminary in­
junctive relief. This is not to say that two or more claim­
ants may not form an appropriate subclass pursuant to 
Fed. R. Civ. P. 23(c)(4).

Congress provided for interlocutory appeals from the 
orders specified in §1292(a)(l) “ to permit litigants to 
effectually challenge interlocutory orders of serious, per­
haps irreparable, consequence.” Baltimore Contractors, 
Inc. v. Bodinger, suyra, 348 U.S. at 181. Fed. R. Civ. P.

7 As in Williams v. Wallace Silversmiths, Inc., supra, the present cases 
are distinguishable from Build o f Buffalo, Inc. v. Sedita, supra, in 
which the plaintiffs appealed the district court’s dismissal of their civil 
rights claims as to three of many defendants. This court held that in 
granting the motion to dismiss as to the Mayor, Police Commissioner, 
and Department o f Human Relations for the City o f Buffalo, the dis­
trict court had effectively denied plaintiffs’ request for preliminary in­
junctive relief because enjoining only the remaining defendants, who 
were members of the police department, would not provide the broad 
relief from alleged systematic misbehavior in the operation o f the police 
department. Id. at 286-87. In the present cases, plaintiffs are not sim­
ilarly limited in the nature o f the injunctive relief available to them. 
Each nursing home can still have the merits o f its motion for a pre­
liminary injunction tried before the district court with the prospect of 
securing on an individual basis the same relief sought on the original 
motions for preliminary injunctions.

4969



23(c)(4) permits the maintenance of a class action with 
respect to particular issues when “ appropriate.”  The dis­
trict court’s order only established that class action status 
as to the preliminary injunction motion was not appropri­
ate although maintenance of both suits as class actions 
with respect to the remaining issues might be entirely 
proper. Although the denial of class based preliminary 
injunctive relief delays the grant of such relief as a re­
sult of the necessary individual hearings, it does not, how­
ever, produce the type of irreparable consequences that 
were meant to be encompassed within the interlocutory 
orders appealable under §1292(a)(l).

Furthermore, the district court’s rulings were founded 
upon the factors established by Fed. R. Civ. P. 23 for the 
determination of the appropriateness of class based re­
lief. As such, the orders only prescribe the nature and 
course that the hearings on plaintiffs’ motions for pre­
liminary injunctions will take in the district court and are 
not appealable under §1292(a) (1). See, Switzerland Cheese 
Association, Inc. v. E. Horne’s Market, Inc., 385 U.S. 23, 
25 (1966); Williams v. Mumford, 511 F.2d 363, 370 (D.C. 
Cir. 1975), cert, denied, 423 U.S. 828 (1975).

Appeals dismissed.

4970
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