Motion to Dismiss and Memorandum in Support

     [||8cf88b0e-76ba-46c5-afab-56638c0f7555||] * » 
IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF INDIANA 

HAMMOND DIVISION 

  

  

BERNICE TERRY, ect al., 

Plaintiffs 

-V8- H76-373 

METHODIST HOSPITAL OF GARY, 

INC. , et al. 

Defendants 

oy deo donde Leite de de luis sh id Sige dit ge 

RICHARD GORDON HATCHER, 

WILLIE LEE PAGE, 

METRO CORPS OF GARY, INC., A 
Not-For-Profit Corporation 

and others similarly situated, 

Plaintiffs 

METHODIST HOSPITAL OF GARY, 

INC., An Indiana Not~For- 

Profit Corporation and DENIS E. 
RIBORDY, As President Of The 

Board of Directors, 

JOSEPH CALIFANO, As United States 

Secretary of Health, Education & 
Welfare, : 

WILLIAM T. PAYNTER, M.D., as State 

Health Commissioner for the Indiana 

State Board of Health, 

JAMES WHITE, As Director of The 
Division of Hospital And 
Institutional Services of the 
Indiana State Board of Health, 

DAVID J. EDWARDS, M.D., as 
Director of the Health Facilities, 

Services and Review Development 
Board of Health, and 

KIPTON KAPLAN, as Executive 

Director of the Northern Indiana 

Comprehensive Health Systems Agency, 
Inc., 

Defendants 

DEFENDANT, KIPTON KAPLAN'S, MEMORANDUM 

IN SUPPORT OF MOTION TO DISMISS 
  

  

Ye INTRODUCTION 
  

This action has been brought to challenge an approval 

granted by the Department of Health, Education and Welfare 

 



  

(HEW) of government Medicare/Medicaid reimbursements and loan 

guarantee for a construction project of the Methodist Hospital 

of Gary, Inc. This project contemplates the construction of two 

health service buildings, one to be located at the Gary, Indiana 

site of Methodist Hospital and the other to be constructed 

adjacent to the hospital's faciltiy, Broadway Methodist 

Hospital, in suburban Merrillville, Indiana. In addition, 

the project includes the construction of a laundry at the 

Merrillville site. 

The plaintiffs have alleged that HEW, the State Board 

of Health, and other co-defendants have failed to comply 

with Title VI of the Civil Rights Act of 1964 (42 U.S.C. 

2000d), Section 504 of the Rehabilitation Act as amended in 

1973 ( 29 U.S.C. 794), the Civil Rights Act of 1871 (42 U.S.C. 

1983) and the Fifth and Fourteenth Amendmentsto the Constitution 

2} of the United States, in the course of.and as a result of U 

the approval of Methodist's construction project for 

Medicare, Medicaid and Maternal and Child Health reimbursement 

under Section 1122 of the Social Security Act (42 U.S.C. 

13209-1) and federal assistance and loan guarantees for 

hospital construction under the "Hill Burton Act” 

(42 U.S.C. 29 et.seq.). These decisions were made after a 

process of application, hearings, and recommendations 

embraced by "The Partnership for Health Act", Section 314 

of the Public Health Service Act , (42 U.S.C. 246) and 

"The National Health Planning and Resources Development Act 

of 1974" (42 1.8.0. 300 X et.seq.). 

This motion to dismiss is on behalf of defendant, 

KIPTON KAPLAN, in his capacity as Executive Director of the 

Northern Indiana Health Systems Agency, Inc. (NIHSA), a non- 

profit corporation designated by HEW and authorized under 

Section 1122 of the Social Security Act to perform reviews 

of health facility capital expenditure projects and to make 

 



  

recommendations concerning same to appropriate state and 

federal authorities. This memorandum addresses only those 

causes of action specified by the plaintiffs against NIHSA 

to wigs 

"28. Defendant Kaplan, Director of the 
HSA has violated Title VI by: 

(a) approving the §1122 application 
of defendant, Methodist Hospital of Gary 

which is in violation of Title V and 

§504; 

(b) performing their functions pur- 
suant to §314(b) and Title XV without 
consideration of and in violation of 
Title VI." (Complaint page 13) 

Matters leading to the institution of this action, are 

described in other pleadings to the court, and need not be 

again reviewed. However, a detailed summary of the involvement 

of the Northern Indiana Health Systems Agency, Inc. (NIHSA) is 

advisable in order to develop the factual background against 

which this litigation was commenced. 

A. BACKGROUND OF THE PROCEEDINGS. 
  

Methodist Hospital of Gary, Inc. operates two hospitals 

in Lake County, Indiana. Its Gary, Indiana facility is an inner 

city institution and has been serving the residents of Gary 

for several decades. The Broadway Methodist Hospital, located in 

Merrillville, Indiana, opened in late 1975. Merrillville is a 

suburban community located immediately south of the City of 

Gary. 

In 1974 Methodist made application to the Northwest 

Indiana Comprehensive Health Planning Council, Inc. for 

approval of full Medicare/Medicaid reimbursements for capital 

expendi tures and for Hill Burton assistance for plans for the 

construction of health services buildings both at the Gary, 

Indiana hospital and at its Broadway Methodist Hospital 

facility in Merrillville. The Comprehensive Health Planning 

 



  

Council at the time of the 1974 application of Methodist,was a 

not-for-profit corporation organizaed under the laws of the 

State of tndiana and under contract to the Indiana State Board 

of Health and the Department of Health; Education, and Welfare 

to perform reviews of proposed capital projects pyhueleh facilities 

and make recommendations to the State Board of Health and to 

HEW as to whether such projects were consistent with local and 

regional health plans,standards, and criteria. The 1974 applica- 

tion of Methodist also included the construction of a laundry 

facility at the Broadway site. The Methodist proposal was duly 

considered by the Council and approval was recommended to the 

State Board of Health which in turn reviewed the project, 

approved it, and notified HEW of that approval. Subsequently, 

HEW approved both reimbursement for capital expenditures ander 

Section 1122 and a Hill Burton Loan Guarantee and subsidy 

for construction of the facilities. 

Under Section 1122 of the Social Security Act (42 U.S.C. 

13202-1) and the regulations adopted thereunder (42 CFR 100.101 

et.seq.), health facilities securing approval for capital 

projects must implement those projects in a substantial fashion 

within one (1) year of the date of final approval thereof. 

In the event that the applicant facility fails to do so, 

re-review of the application is necessary to extend the period 

of approval. In mid-1975, Methodist made clear its desire 

for an extension of time in which to implement the previously 

approved project. The State Board of Health, as the 

designated planning agency for Indiana under Section 1122 

of the Social Security Act, required Methodist to seek a full 

review of the project a second time and in conformance with 

 



  

that ruling Methodist submitted a second application to 

the Northern Indiana Health Systems Agency, Inc. (NIHSA) for 

that review. The Health Systems Agency had been designated 

pursuant to Public Law 93-641, the National Health Planning 

& Resources Development Act (42 U.S.C. 300K et.seq.) to take 

over the responsibility for local review of health 

facility capital expenditure applications under Section 1122 

of the Social Security Act. The Secretary of HEW had designated 

NIHSA, Inc. as the Health Systems Agency for Northern Indiana 

in May of 1976. The Health Systems Agency, after holding 

public hearings, recommended approval of the application for 

Section 1122 and Hill Burton assistance to the State Board 

of Health which subsequently approved the application and 

notified the Department of Health, Education and Welfare 

of such approval. HEW then approved both Section 1122 reimburse- 

ment and Hill Burton assistance. 

It is essentially as a result of these later approvals 

that this action has been brought. 

Although the application presented for review to the 

Health Systems Agency in 1976 included health services 

buildings at both Gary and Broadway Hospitals, and a laundry, 

the application was significantly different from the previously 

approved 1974 application in several respects. The size and 

character of services to be housed in the respective health 

services buildings were changed with the result that certain 

of these services weve deleted and still others reduced in 

scope. The cost of the project had also increased from 

$4,800,000.00 in the 1974 application to $8,143,370.00 tn 

the application reviewed by the Health Systems Agency. 

These issues were brought to the attention of 

the relevant officials at the State Board of Health and the 

 



  

Department of Health, Education and Welfare by the staff of 

NIHSA, and were discussed in the course of the review of the 

project by the HSA. The executive committee of the Health 

Systems Agency also heard statements discussing the impact 

of these changes on the residents of Gary, particularly 

on those dependent on inner-city health facilities. 

Subsequent to these discussions, and as noted above, 

the application was eventually recommended for approval by 

NIHSA and was in fact approved by the State Board of Health 

HEW © 

B., THE STATUTORY SCHEME OF HEALTH PLANNING 
  

Access to adequate health care for all Americans has 

been an express goal of the Congress and a cornerstone of 

federal government health policies. 

"The achievement of equal access to 
quality health care at a reasonable 
cost is a priority of the federal 

government." 42 U.S.C. ¢$300K(a) (1) 

Indeed, this goal has been underlined by judicial 

pronouncement: 

"It is at least clear that medical 
care is . . . a basic necessity of 
life . . . and, governmental 
privileges or benefits necessary to 
basic sustainance have often been 
viewed as being of greater consti- 
tutional significance than less 
essential forms of government 

entitlement.” Memorial Hospital v. 
Maricopa County, 415 U.S. 250, 39 LEd 
2d 306, 94 Sup.Ct. 1076 (1974) 

  

  

and 

The duties, obligations, and functions of the Department 

of Health, Education and Welfare, state health planning and 

resources development agencies, and health systems agencies 

in carrying out these policies are defined in a series of 

inter-related federal statutes and regulations, which, when 

 



  

taken together, govern the operation of the health planning 

system. The operation of that system is at the very heart 

of the issues presented in this action. 

In a series of enactments beginning in 1944, Congress 

recognized the need to develop hospital facilities throughout 

the United States and provided for grants, loans and loan 

subsidies to hospitals wishing to construction or expand. 

This legislation, commonly known as the "Hill Burton Act" 

(42 U.S.C. §291, et.seq.) not only provided financial assistance 

“for hospital construction, but required state auenbies to 

survey the need for hospital facilities in their states and 

develop plans addressing lelioss needs. The Congress, twenty 

years later, recognizing the fact that the proliferation of 

unneeded hospital and health facilities ware a contributing 

factor to the upward spiraling costs of health care, enacted 

the "Partnership for Health Act" Public Law 89-749 (42 U.S.C. 

§246) subsection B of which provided for the designation by 

the Secretary of the HEW of public or non-profit private 

agencies or organizations to develop "comprehensive regional, 

metropolitan area, or other local area Blank for coordination 

of existing and planned health services, including the 

facilities and persons required for provision of such services; 

and including the provision of such services through home 

Health cardsh {42 U.8.C. §246(BY(1Y{(A)). That subsection 

also provided for federal grants to such agencies, and in 

addition, provided that the agency designated under that 

statute make "provision for assisting health care facilities 

in its area to develop a program for capital expenditures for 

replacement, modernization, and expansion which is consistent 

with an overall state plan, which will meet the needs of the 

state in the area for health care facilities, equipment, and 

services without duplication and otherwise in the most efficient 

 



  

and economical manner." (42 U.S.C. §246(B) (2)(B)). Subsection 

A of §246 provides for the granting of funds to state agencies 

to carry on state-wide comprehensive health planning. Subsections 

D and E of §246 provided for grants to public and non-profit 

entities for comprehensive public health services and project 

‘grants for health services and related training, respectively. 

Grants under these subsections were subject to review and comment 

by local comprehensive health planning councils to determine the 

conformity of such grant proposals to the plans developed pursuant 

to §246. The state agency also conducted a review before making 

final approval of the grant to determine whether or not proposals 

contorged to the relevant statewide plan. 

Under §246, the Northwest Indiana Comprehensive Health 

Planning Council, Inc., was established and did develop areawide 

plans, which were used in the review of grants pursuant to 

subsections D and E of that subsection. Section 246, however, 

had no impact on the expenditure of funds by health care providers 

or facilities which did not originate with §246. Compliance 

with the health plans developed under this section was purely 

voluntary, except for those programs under subsections D and E. 

The Congress found that some economic incentive was 

necessary to limit unneeded capital expenditures by hospitals 

and other health facilities which resulted in unnecessary 

duplication of facilities and services. As part of the Social 

Security Amendments of 1972, Public Law 92-603, the Congress 

added Section 1122 to the Social Security Act (42 U.S.C. 

1320A~1). Under §1122, any person or facility which received 

federal payments for services Later Titles V, XVIIT and XIX 

of the Social Security Act was required to secure the approval 

of the Secretary of HEW for any capital expenditure which, 

 



  

under the Act, was defined as: 

"An expenditure which, under generally 

accepted accounting principles, is not 

properly chargeable as an expense of 
operation and maintenance and which (1) 
exceeds $100,000.00, (2) changes the 
bed capacity of the facility with 
respect to which such expenditure is 
made, or (3) substantially changes the 
services of the facility with respect 
to which such expenditure is made." 
(42 U.S.C. 1320A-1(G)) 

After receiving findings and recommendations on the 

proposed capital expenditures from the comprehensive health 

Planning councils created at 42 U.S.C. §246 and the designated 

planning agencies of the state in which the applicant was located 

(these agencies were usually the same as the state agency under 

§246), the Secretary of HEW would determine whether or not to 

exclude from the payments made pursuant to Titles V, XVIII and 

XIX, that portion of the payment which defrayed the cost of 

the disapproved capital expenditure. 

Regulations adopted by the Department of Health, 

Education and Welfare under §1122 provide that both the state 

designated planning agency and the local areawide planning 

agency must take into account four criteria in the course of 

reaching its findings on the proposals submitted by applicants 

under this section: 

"Such criteria to the extent provided 
for under such standards, criteria, or 
plans, shall include the following: 
(a) whether the proposed project is 
needed or projected as necessary to meet 
the needs of the community in terms of 
health services required . . .(b) whether 
the proposed project can be adequately 
staffed and operated when completed; 
(c) whether the proposed capital 
expenditure is economically feasible 
and can be accommodated in the patient 
charge structure of the health care 
facility or health maintenance organization 
without unreasonable increases; and 

(d) whether the project will foster 

cost containment or improved quality 
of care through improved efficiency and 
productivity, including promotion of 
cost effective factors such as ambulatory 
care, preventive health care services, 

 



  

home health care, and design and con- 
struction economies, or through increased 
competition between different health 

services delivery systems." (42 C.F.R. 
100.107a~d). 

In the event that an applicant is dissatisfied with 

the ruling of the Secretary pursuant to §1122, the applicant 

‘may request a fair hearing under 42 U.S.C. 1320A-1 (4d) (1) (B) 

(ii) (II). By regulation, such fair hearing appeals are conducted 

in accordance with the applicable requirements of state law 

governing administrative hearings {42 C.F.R, 100.106c2) and are 

confined to a review of the findings made by the state designated 

planning agency in the course of its review. In the event that 

the decision of the hearing officer dur (ng a fair hearing 

reverses the findings of the state agency, the decision of the 

hearing officer reverses or revises the findings or recommendations 

of the designated planning agency, and supersedes same. (42 C.F.R. 

100.106c4) . 

The language of §1122 expressly provides that decisions 

of the Secretary made pursuant to this section are not subject to 

judicial review. "A determination by the Secretary under this 

section shall not be subject to administrative or judicial 

review." (42 U.S.C. 1320A-1(f)). However, a mechanism is 

available to secure re-review by the Secretary of any decisions 

made under §1122. "Any person dissatisfied with the 

determination by the Secretary under this section may, within 

six months following notification of such determination, request 

the Secretary to reconsider such determination." (42 C.F.R. 

1320A-1F). Requests for reconsideration under this provision 

must be in writing, addressed to the Secretary of Health, : 

Education and Welfare or to any officer, employee to whom _ 

the responsibility to receive such requests are delegated, 

and must set forth the grounds based upon the record of the 

proceedings and any issues of law upon which the reconsideration 

is requested (42 C.F.R. 100.10831l). Reconsiderations are based 

 



  

on the record of the proceedings, which includes the findings, 

redontendat iohe, and supporting materials submitted to the 

Secretary by the state designated planning agency (which 

includes the findings and recommendations of the local 

areawide agency), which relate to the findings and recommendations 

involved. the record of the hearing provided by the 

designated planning agency, if any, and comments which the 

Secretary may request from the designated planning agency. 

(42 C.7.R. 100.1084¢a)Y(2)yY, 

Responding to continuing large increases in the costs 

of health care generally, and in the federal outlay for such 

care, Congress enacted the National Health Planning and 

Resources Development Act, Public Law 93-641 in late 1974. 

The Act (42 U.S.C. §300K et.seq.) essentially supplemented 

the old comprehensive health planning legislation and gave 

new powers and new structures to local areawide health 

planning. The Act empowered the Secretary of Health, Education 

and Welfare to designate public or private non-profit agencies 

as health systems agencies for each health service area in 

the United States. Health service areas are geographic areas, 

the boundaries of which were determined in consultation with 

the Governor of each state, after taking into account population 

and geographic factors. (42 U.S.C. 300L). The governing 

bodies of private non-profit organizations which were designated 

as health systems agencies, were required to be composed of at 

least a majority of consumers with both direct and indirect 

providers of health care represented. The health systems 

agencies are required to (1) establish, annually review, and 

amend, as necessary, a health systems plan which is a detailed 

statement of goals describing a healthful environment and health 

 



  

systems in the area, which, when developed, will assure that 

quality health services will be available and accessible in a 

manner that assures continuity of care at a reasonable cost 

for all residents of the area; (2) to establish, annually 

review, and amend, as necessary, an annual implementation 

‘plan, which describes objectives which will achieve the goals 

of the health systems plan and priorities among the objectives; 

(3) to seek to the extent practicable to implement the health 

systems plan and annual implementation pian with the assistance 

of individuals of public and private encfttes in the health 

service area; (4) provide technical assistance to individuals 

and public and private entities for the development of 

projects and programs which Eis health systems agency deteruines 

are necessary to achieve the goals described in the health 

systems plan; (5) to make grants from an area health development 

fund established under the Act to public and non-profit private 

entities, to assist them in planning and developing projects 

and programs which the health systems agency determines are necessary 

for the achievement of the health systems described in the health 

systems plan; (6) the health systems agency is required to 

coordinate its activiites with professional standards, review 

organizations under §1122 of the Social Security Act, corenin 

regional and metropolitan planning agencies, and other 

Pproprinie agencies; (7) the agency is required to secure 

data for the use of the agency's planning and development 

activities and to enter into agreements with the organizations 

mentioned above to assure that actions taken by such organizations 

which alter the area's health system will be taken in a manner 

which will be consistent with the health systems plan and annual 

implementation plan that is set for that area; (8) to review and 

approve or disapprove each proposed use within the health 

service area of federal funds appropriated under the Public 

Health Service Act, the Community Mental Health Center Act, 

 



  

or the Comprehensive Alcohol Abuse and Alcoholism Prevention 

Treatment and Rehabilitation Act of 1970 for grants, contracts, 

loans, or loan guarantees for the development, expansion, or 

support of health resources; (9) health systems agencies are 

to assume the duty of assisting the state health planning and develop- 

ment agency in carrying out its functions including the review 

and recommendation to the appropriate state health planning 

agency respecting the need for mew institutional health services 

proposed to be offered in the health service area of the 

agency and to assume the duties of the local areawide planning 

agency under §1122 of the Social Security Act; (10) health systems 

agencies are to complete within chedi years of their designation 

a review of the existing institutionalized health services 

within its service area and to recommend annually thereafter 

to the state health planning and development agency projects 

for the modernization, construction and conversion of medical facilities 

in the agency's health service area, which projects will achieve 

the health systems plan and annual implementation plan of the health 

systems agency and priorities among these projects. (42 U.S.C. 

300L-2). 

In addition, the Act authorized the designation of 

state agencies to carry on che functions of planning and review 

contemplated by the Act. In most cases, as in Indiana, the 

agency designated as the state agency for the purpose of 

Public Law 93-641 was the same agency that had conducted 

state activities under §1122 of the Social Security Act, namely, 

the Indiana State Board of Health. 

JX. THE COURT IS WITHOUT JURISDICTION 

OF THE SUBJECT MATTER 
  

  

THE PLAINTIFFS HAVE FAILED TO EXHAUST ALL 

ADMINISTRATIVE REMEDIES AVAILABLE TO THEM 
  

  

It is an often enunciated principle of administrative 

law that "no one is entitled to judicial relief for a supposed 

 



  

or threatened injury until the prescribed administrative 

remedy has been exhausted”. Meyers v. Bethlehem Shipbuilding 
  

Corporation, Ltd., 303 U.S. 41 at 50, 82 LEA 638 at 644 (1938),   

Macauley V. Waterman 8.8. Corporation, 327 U.S. 540 ar, 
  

90 LEd 839 at, (1946). 

The purposes underlying this rule are to be found 

in concepts of judicial economy and efficiency along with 

proper respect for those agencies the Congress has entrusted 

with the administration of broad areas of the government's 

activity as defined by law. "Exhaustion is Ssncraliy required: 

as a matter of preventing premature interference with agency 

processes, sco that the agency may function efficiently and 

so that it may have an opportunity to correct its own errors, 

to afford the parties and the courts the penelit of its 

experience and expertise, and to compile a record which is 

adequate for judicial review." Weinberger v. Salfi, 422 U.S. 
  

749 at 765, 45 LEQ 24 '522 at 539 (1925). Indeed, the 

judicial role of evaluating facts is to be deferred to that 

agency better equipped and authorized by grant of power to 

perform such evaluation. As the United States Supreme Court 

  noted in Weinberger v., Bentex Pharmaceuticals, Ine., 412 U.S. 645, 37 

1.24 24 235 (1973).: 

"In cases raising issues of fact 

« « « Yequireing the exercise of 
administrative discretion, agencies 
created by Congress for regulating 
the subject matter should not be 
passed over. This is so even though 
the facts after they have been 
appraised by specialized competence 

serve as a premise for legal con- 
sequences to be judicially defined." 
412 U.S.iat 654, 37 1LB4d 2d at 242. 

In giving practical application to the exhaustion doctrine, 

federal courts have generally looked to the nature and extent of 

the discretionary = powers granted by the Congress. The concept 

of executive and administrative authority is given expression 

in the doctrine and is "particularly pertinent where the function 

 



  

of the agency and the particular decision sought to be reviewed 

involve the exercise of discretiancy powers granted the 

agency by Congress, or require application of special 

expertise." McKart v. United States, 395 U.S. 185 at 184," 23 1Ed 
  

+ 2d 194 at 203 ( 1969). 

The exhaustion of remedies doctrine is not absolute. 

Consistent with ‘the pragmatic approach to its application as 

noted in McCart, supra, the judiciary has limited its 

application in cases where an irreperable injury or futile 

administrative appeal or act would be the result. The doctrine 

has also been limited by mond general considerations of justice 

and equity. It has been raised when such unusual circumstances 

exist as to make application of the doctrine unjust. Bendure v.   

United States. 354 P24 427 (Ct. cl. 1971). 
  

Several approaches have been utilized in the determina- 

tion of whether,under the circumstances of a given case, 

application of the exhaustion doctrine is appropriate. In 

McKart v. United States, supra, the United States Supreme Court 
  

utilized a balancing of interests testto determine whether 

the petitioner, convicted of refusing induction to the armed 

forces, should be required to exhaust all Selective Service 

proceedings before seeking judicial relief. The court defined 

its role as follows: 

"We must ask, then,whether there is 
in this case a governmental interest 
compelling enough to outweigh the 

severe burden placed on petitioner. 
Even if there is no such compelling 

interest where petitioner's case is 

viewed in isolation, we must also 

ask whether allowing all similarly 
situated registrants to bypass ad- 
ministrative appeal procedures would 
seriously impair the Selective 
Service System's ability to perform 

its functions.” 395 D.8. at 197, 
$3 1LE4d 24 at 205. 

 



  

The Court did not require the application of the 

exhaustion doctrine in McKart but found that "use of the 

exhaustion doctrine in criminal cases can be exceedingly 

harsh. The defendant is often stripped of his only defense; 

he must go to jail without having any judicial review of an 

assertedly invalid order." 1d. 

| Where the action of an administrative agency is challenged 

as unconstitutional or beyond its power authority, a different 

test has been used to determine whether exhaustion must be 

applied. Typical of this approach is the method used in 

  

Writer's Guild of America, West, Inc. v. F.C.C., 423 :F.. Supp. 

1064 1p.C. Cal. 1976). In that cass, the court noted that 

whether or not exhaustion would be applied must be determined 

upon examination by the court of "the effont of the injury 

which would result from pursuit of an adninisiracive remedy, 

the degree of apparent clarity or doubt as to administrative 

jurisdiction, and the involvement of specialized administrative 

understanding in the question of jurisdiction." 423 F. Supp. at 

1067 » The exhaustion doctrine similarly will not be 
  

applied where the record that would be developed in the 

administrative proceeding would be the basis on which to assess 

the constitutionality of the action or statute. "Where the 

very operation of the exhaustion doctrine serves to create 

a record upon which the constitutionality of application of 

a challenged statute “ay be judged, a premature review in 

the district court is singularly inappropriate. Grutka v.   

Barbour, 549 F.24 5 at 9 (7th Cir. 1977). 

Another ground for limiting the application of 

exhaustion has centered on the lack of jurisdiction or authokity 

of the agency involved. However, it has been the policy of 

the federal courts to permit administrative agencies to 

consider issues concerning their own jurisdiction and to 

force petitioners to exhaust administrative remedies even in 

 



  

the absence of a congressional pronouncement that such 

remedies were exclusive. In Whitney National Bank wv.   

Bank of New Orleans and Trust Company, 379 U.S. 411, 13 LEd 
  

2d 386 (1965) the U. S. Supreme Court held that: 

"Congress has not expressly provided 
that the statutory procedure is to 
be exclusive does not require a 
different conclusion. For Congress 
has expressly rejected proposed 
provisions for review in these cases 

in the district courts. Moreover, 

it has enacted a specific. statutory 
scheme for obtaining review, and 

where Congress has directed such a 
procedure . . . the doctrine of 
exhaustion of administrative remedies 
comes into play and requires that 
the statutory mode of review be 
adhered to notwithstanding the absence 
of an express statutory command of 
exclusiveness.” 379 U.S. at 422 
13 LE4d 24 at 395, : 

Perhaps the most widely argued rationale for limiting 

the application of the exhaustion doctrine involves the 

principle of futility of further administrative proceedings. 

In reaching a determination as to whether further administrative 

action is unwarranted, it has been held that "parties will not 

be required to exhaust the administrative procedure 18. 4¢ 

is shown that Such procedure is ‘inadequate or unavailable'." 

United States v. Grace, 384 U.S. 424, 429-30, 16 LEd 2d 662, 667 
  

(1966) quoting United States v. Holpvch Company, 328 U.S. 234, 
  

240; 90 LEQ 1192, 1195( 1945). 

Where the scope of administrative agency. authority 

is governed by statute, exhaustion of remedies will not be 

imposed if agency regulations are clearly in excess of such 

statutory authority. As Justice Holmes wrote in Waite v.   

V., Macy, 246 0.585.606, 62 LEd 892 (1918): 

"Again, it dis true that courts will not 
issue injunctions against administrative 

officers on the mere apprehension that 
they will not do their duty or will 
not follow the law . . . But in this case 
the superior of the appellants had 

promulgated a rule for them to follow 
which is alleged to be beyond the 

 



  

power of the Secretary to make . . . 
We are satisfied that no other remedy, if 
there is any other, will secure the plain- 
tiff's rights." 246 U.S. at 609-10: 62 
LEd at 894-5. 

Indeed, access to judicial resources without exhaustion 

has also been extended to cases where no procedures exist at 

the administrative level which allow the participantion 

affected and aggrieved parties. In Rosado v. Wyman, 397 U.S. 
  

397, 25 LEd 2d 442 (1970), the U..S. Supreme Court held that 

welfare recipients contesting a state statutory scheme which 

reduced welfare payments and shunts need not first seek 

administrative review of the statute before the Department of 

Health, Education and Welfare "since HEW has no procedures 

whereby welfare recipients may trigger and participate in the 

Department's review of state welfare programs." 397 U.S. at 

406, 25 1LBEd 24 at 452. 

Where a further administrative proceeding is available 

and within the prescribed statutery or executive authorities, 

the mere fact that the agency is likely to render a decision 

adverse to the petitioner does not alone render such 

proceeding futile. This is particularly so where a statutory 

"provision is provided for administrative review and 1s a 

condition to bringing suit, "The necessity for filing a claim 

such as the statute requires is not dispensed with because 

the claim may be rejected. It is the rejection which makes 

the suit necessary. An anticipated rejection of the claim, 

which the statute contemplates, is not a ground for suspending 

its operation.” United States v. Felt & Tarrant Manufacturing 
  

Company, 283 U.S. 269, 272-3; 75 LE4 1027-8(1931), 

The plaintiffs have asserted as their claims against 

Kipton Kaplan and the Health System Agency that the review of the 

1976 Methodist Hospital Project under Section 1122 of the Social 

 



  

Security Act and Title XV of the Public Health Service Act 

is defective because said review is in violation of Title VI 

and Section 504. (See Complaint, p.13) 

Persons dissatisfied with the Sectitaty’s action after 

a Section 1122 review of a project may not secure instant 

judicial review, Buk have an administrative remedy available 

to them. The statute creating the Section 1122 review process 

specifies that: | 

“Any person dissatisfied with a determina- 
tion by the Secretary under this section 
may within six months following 
notification of such determination 

request the Secretary to reconsider 
such determination. A determination 
by the Secretary under this section shall 
not be subject to administrative or 
judicial review.” 42 U.8.C. 1320a-1({f) 

Regulations promulgated by the Department of Health, 

Education and Wlefare under this section provide that requests 

for reconsideration to the Secretary of HEW, of a decision 

made pursuant to section 1122, must be made in the following 

fashion: 

"{(1l) such request for reconsideration 
shall be in writing, addressed to the 
Secretary of Health, Education and Wel- 
fare or to any officer or employee of 
the Department of Health, Education, and 

Welfare to whom the Secretary has dele- 
gated responsibility to receive such re- 
quests, and shall set forth the grounds 
based upon the record of the proceedings 
and any issues of law, upon which such 
reconsideration is requested. 

(2) reconsideration will be based 

upon the record of the proceedings, 
which shall consist of the findings, 
recommendations and supporting materials 
submitted to the Secretary by the 
designated planning agency (including 
the findings and recommendations of 
other agencies) which relate to the 
findings and recommendations involved, 
the record of the hearing provided by 
the designatied planning agency, if any, 
and of any judicial proceedings, the 
materials submitted in connection with 
such request, and such comments as the 
Secretary may request from the designated 
planning agency. 

 



  

(3) notice of any reconsidered deter- 

mination under this paragraph shall be 
sent to the designated planning agency 
and the person requesting such recon- 
sideration. 

(e}) a determination by the Secretary 

4s under section 1122 of the Act, ’not 
subject to administrative or judicial 

review.” 42 CFR 100.108(d) and (e) 

It is clear, both by the language of the statute and the 

regulation, that reconsideration is the only remedy available 

from review of a Section 1122 determination by one who is not 

the applicant for approval of a project. Despite the 

fact that the authority for reconsideration is couched in 

terms of "may", the fact that the same statutory and regulatory 

provisions foreclose all other judicial, or administrative 

review makes reconsideration a mandatory step for a person 

dissatisfied with a Section 1122 determination of the 

Secretary. Applying the doctrine of exhaustion of administrative 

remedies, any person challenging a determination of the Secretary 

under the foregoing must first request reconsideration of same. 

The plaintiffs here have clearly failed to do so. 

On the face of the above quoted statute and regulation, 

the plaintiffs are bound to follow the scheme specified for 

relief, Whitney National Bank v. Bank of New Orleans & Trust 
  

Company, supra, and this remedy must be pursued regardless of the 

probability of success. United States v. Felt. & Tarrant Manu- 
    

facturing Co., supra. Because reconsideration is open to every 
  

person, and because the Secretary is free to reverse fully any 

previous determination, the plaintiffs may not claim that the 

remedy was unavailable or inadequate. United States v. Grace,   

supra. 

 



  

Neither should application of the exhaustion doctrine 

be denied for other reasons. The plaintiffs claim no consti- 

tutional infirmity in the action of the health systems agency 

or on the part of the Secretary that is not cognizable during 

reconsideration. Rosado v. Wyman, Grutka v. Barbour, supra. 
  

Neither has an interest as compelling as the criminal prosecution 

in McKart been shown to warrant the foregoing of exhaustion 

here. 

Yet, the Department of Health, Education and Welfare 

has been denied the opportunity to apply its established 

expertise, and has been denied a timely opportunity to correct 

its own errors, if any. Weinberger v. Salfi, supra. Taken 
  

together, all of these facts point unmistakeably to a duty on the part 

of the plaintiffs to exhaust administrative remedies of reconsidera- 

tion open to them which was statutorily created, effective, and 

available. The plaintiffs may not now mount challenges to 

determinations they could more easily, quickly, and with less 

expense, have challenged previously. 

A like argument may be made concerning the Title VI* 

claims of the plaintiffs. The enforcement procedure implementing 

Title VI of the Civil Rights Act of 1964 for the Department of 

Health, Education and Welfare have been promulgated by the 

Secretary and appears at 45 CFR 80.6 et.seq. These regulations 

were issued pursuant to the authority granted by the Congress 

". « » rules, regulations or orders of to agencies to develop 

general applicability which shall be consistent with achievement 

of the objectives of the statute authorizing the financial 

assistance in connection with which the action is taken." 

42 U.S.C. 2000d-1. 

  

*#*It should be noted here that the argument made concerning 
Title VI administrative remedies applies equally to Section 504 
since the identical complaint and enforcement process has been des 
nated for either. See 45 CFR 84.61. 

ig- 

 



  

The complaint and enforcement procedures for Title VI 

were not followed by the plaintiffs here. Although they 

maintain that objections were made to the 1976 Methodist 

application, these were not stated in the form of a complaint 

and could not be treated as such by HEW. The plaintiffs could 

not ignore such procedures when they are imposed under the same 

statutory authority under which they seek relief. As in 

Felt and Tarrant Manufacturing, (supra) the adherence to the established 

and statutorily authorized procedure is a prerequisite to 

judicial review, if any. 

The diligence with which HEW has pursued Title VI 

complaints belies any Tain of futility. The probability 

of denial of a claim being no ground on which to bypass 

administrative review, the plaintiffs have failed to allege any 

justification for seeking this premature judicial resolution 

of this claim. 

In summary, because the plaintiffs have failed to pursue 

the additional administrative remedies for the redress of their 

claim both under Section 1122 and Title VI, and having failed 

to allege any sufficient justification to excuse that failure, 

the plaintiffs have failed to exhaust their administrative 

remedies and cannot now secure judicial cognizance of claims 

that they have failed to pursue through the duly created 

administrative mechanism. 

III. THE PLAINTIFFS HAVE FAILED TO STATE A CLAIM 

UPON WHICH RELIEF MAY BE GRANTED 
  

  

1). EKIPTON KAPLAN 1S NOT A PROPER PARTY TO THIS ACTION 
  

a) DEFENDANT KIPTON KAPLAN IS NOT AN IN- 

DISPENSIBLE PARTY TO THIS ACTION 
  

  

Niether Kipton Kaplan nor the Health Systems Agency is 

a proper party to this action on the ground that they are 

 



  

, 8 

"indispensible". Rule 19(a) of the Federal Rules of Civil 

Procedure provides, in pertinent part , that: 

"A person who is subject to service of 
process and whose joinder will not deprive 
the court of jurisdiction over the 
subject matter of the action shall be 

joined as a party in the action if (1) in 
his absence complete relief cannot be 
accorded among those already parties, or 
(2) he claims an interest relating to the 

subject of the action and is so situated 

that the disposition of the action in his 
absence may (i) as a practical matter 

impair or impede his ability to protect 
that interest or (ii) leave any of the 
persons already parties subject to a 
substantial risk of incurring double, 
multiple, or otherwise inconsistent 
obligations by reason of his claimed 
interest.” 

In the event that the court finds that the party in 

question need not be joined, the court must then determine 

whether or not the action may proceed in the absence of 

such party. The procedure to be followed in making that 

determination is specified in Rule 19(b): 

"If a person as described in subdivision 
(a) (1)~(2) hereof cannot be made a party 
the court shall determine whether in 
equity and good conscience the action 
should proceed among the parties before 
it, or should be dismissed, the absent person 
being thus regarded as indispensable. The 
factors to be considered by the court 
include: first, to what extent a judg- 
ment rendred in the person's absence 
might be prejudicial to him or those 
already parties; second, the extent to 
which, by protective provisions in the 
judgment, by the shaping of relief, or 
other measures, the prejudice can be 
lessened or avoided; third, whether a 

judgment rendered in the person's absence 

will be adequate; fourth, whether the 
plaintiff will have an adequate remedy 
if the action is dismissed for nonjoinder." 

 



  

In applying the tests imposed by F.R.C.P. 19(a), the 

court is requried to look to the completeness of relief 

available to the other parties where the party in question 

is absent. As a simple matter, this test requires a finding 

that the absence of defendant, Kaplan, will not prevent the 

extension relief requested to the other parties. 

Under both the statute creating Section 1122 of the 

Social Security Act (42 U.S.C. 1320a-~1) and the 

regulation adopted thereunder, (42 C.F.R: 100 et.seq.) the 

Secretary of HEW is charged only with taking the findings and 

recommendation of the state agency concerning projects under 

review into account in reaching his decision on whether to exclude 

reimbursements under Medicare/Medicaid and Maternal and Child 

Health for capital expenditures by health providers. The state 

agency must merely establish that it had "consulted with, and 

taken into consideration the findings and recommendations of . 

the State planning agencies established pursuant to . . . 

this title (to the extent that ettheb such agency is not the 

agency so designated) as well as the public or nonprofit 

Private agency or organization responsible for the comprehensive 

regional, metropolitan area, or other local plan or plans 

referred to in section 246(6) of tile title and covering the area 

in which the health care facility . . . proposing such capital 

expenditure is located . . .T 42 U.5.C. 13209-1(d) (1) (B) (11) (I) 

In addition, the statute creating Health Systems Agencies 

authorize them to perform merely an ancillary role in the 

Section 1122 process: 

"To assist State health planning and 
development agencies in carrying out 

their functions under paragraphs (4) 
and (5) of section 300m-2(a) of this 

title each health systems agency shall 
review and make recommendations to 
the appropriate State health planning 
and development agency respecting 
the need for new institutional health 
services proposed to be offered or 

 



  

developed in the health service area 

of such health systems agency." 
42 U.S.C. 300 1-2(f) 

Among the state agency functions enumerated in 42 1.8.C. 

300m-2 is the role of designated planning agency under 

Section 1122; 

"Serve as the designated planning agency 
of the State for the purposes of section 
1320a~1 of this title.” - 42.0.8.C. 
300m=-2(a) (4) (A) 

From this language it is clear that the primary actors 

in the Section 1122 system are the state and HEW. They alone 

exercise decision-making authority in the state, makes findings 

and recommendations, and HEW evalites them and makes a final 

determination of approval or disapproval. Under this scheme, the 

Health Systems Agency does not even enjoy a right of appeal 

should its recommendations not be sustained by the state or 

HEW, neither of which are bound to adhere to HSA findings. 

Indeed, the HSA's only opportunity to affect the proceedings 

lies in request for reconsideration, the same process open to the 

plaintiffs herein and described in detail in (III) above. 

Nor does the Health Systems Agency possess the 

power, authority or discretion to alter or amend the mode, context 

and effect of its role in the Section 1122 review system. 

The entire method of making application, criteria to be taken into 

account during review, duration of the review period ofnotice to 

the applicant and appeal are strictly defined by statutes -and 

regulation promulgated by HEW (42 C.F.R. 100.101 et.seq.). 

The HSA may not add or subtract from these requirements. 

Because the Section 1122 process 1s strictly determined 

by HEW, and because HSA discretion therein is limited, and of a 

binding effect, complete relief may be accorded the parties 

to this action with out. joinder of Mr. Kaplan. In addition, 

it is apparent from the foregoing that under F.R.C.P. 19(a) (2), .the 

HSA claims no interest relating to the subject of the action that 

 



  

ve 

may impede its ability to protect its interestin the future, and 

because of the inability of the HSA to assert determinative 

authority in the Section 1122 process, no other parties will 

be exposed to the rok of double, multiple or otherwise 

inconsistent obligations. 

So too does F.R.C.P. 19(b) permit the dismissal of defendant 

Kaplan without adverse affects to the other parties herein.’ 

Because the HSA seeks no relief in the nature of enforcement of 

its tec ontoniattos since, from the above quoted statute, it cannot, 

it will not be prejudiced by dismissal from this action. Even 

if the court finds one of the other parties prejudiced by the 

dismissal of the HSA, it is within the court's power to so fashion 

relief as to lessen or completely mitigate the effects thereof. 

Finally, the court, even without the presence of Mr. Kaplan or 

the HSA as a party, may render a fully adequate remedy. The 

plaintiffs have prayed for largely injunctive relief directed 

against the defendants Methodist Hospital and the Department of 

Health, Education and Welfare. As a matter of fact, no specific 

relief agent the defendant, Kaplan or NIHSA is even requested! 

(Complaint pp. 13-16). 

It is clear, therefore, that should plaintiffs secure 

injunctive and declaratory relief against HEW and the State 

agency, that no further relief need be sought againt the HSA 

since HEW and the State hold the decision making authority 

under Section 1122, and HEW may, by regulation, prescribe new 

procedurel and criteria binding on the HSA to insure future 

compliance with Title VI, or Section 504. 

The application and interpretation of Rule 19 and the 

 



  

doctrine of indispensible parties presented above is well 

settled in case law. The fact that Rule 19 must be applied 

flexibly, with a view to the circumstances of the action has 

been clearly established. "Whether a person is ‘indispensible’, 

that is, whether a particular lawsuit must be dismissed in the 

absence of that person, can only be determined in the context of 

particular litigation.” Provident Tradesmens Bank & Trust 
  

Company v. Patterson, 390 U.S. 102, 118; 19 LEd 2d 936, 950; 
  

  

(1968). The court in Provident went on to hold that: 

"Rule 19 does not prevent the assertion 
of compelling substantive interests; 

it merely commands the courts to 
examine each controversy to make certain 
that the interest really exist. To 
say that a court 'must' dismiss in 
the absence of an indispensible party 
and that it ‘cannot proceed' without 
him puts the matter in the wrong way 
around: a court does not know whether 
a particular person is 'indispensiblef 
until it has examined the situation 
to . determine whether it can proceed 
without him." Id. (Emphasis added) 

  

Hence, in making its determination of whether a party 

must be joined for an action to proceed, the court may be 

guided by the peculiar circumstances of the litigation in an 

effort to mvaluate the intereststhat "really exist". The 

court is thus free to penetrate mere formalities to a pragma- 

tic analysis coentering on the real utility of having a particular 

party before the court. 

This particular approach has been a long standing feature 

of the federal court's handling of questions concerning 

indispensible parties, even predating the adoption of Rule 19. 

"Our former cases have established a policy under which 
\ 

indispensability of parties is determined on practical con- 

siderations." Shanghnessy v. Pedreiso, 349 U.S. 52, 55; 99 LEd 
  

868, 875 (1955). 

 



  

In utilizing this point of view it has been held that 

certain governement instrumentalities need not be joined as 

parties to an action where the government itself is a party. 

In Insurance Company of North America v. United States, 
  

159 F 2d 699 (4th Cir. 1947) the court held that "where the 

United States acts through the agency of a wholly owned 

corporation , it may sue in its own name for the protection 

of its interests, without the joinder of the corporation." 

159 F.2d at 702. Interpretation of this rule has been 

br oadened-to include a statutory designation as "an agency 

and instrumentability of the United States." United States vs. Anasol 
  

International Corporation, 197 F. Supp. 926 (S.D.N.Y. 1961) 
  

Applying the case by case pragmatic approach to the 
Bw 

- 

instant case authorized in Provident, it is clear that neither 

Kaplan or NIHSA has any interestin this litigation that "really exists" 

sufficient to require joindexr. For the iadonk expressed earlier 

in this section, the presence of Kaplan adds pothing to the 

plaintiff's ability to obtain the relief sought. Applying 

both Anasol, and Insurance Company of North America it appears   

that the presence before the court of government instrumentalities 

is not necessary where the government itself is present. Despite 

the fact that the Health Systems Agency is not a wholly owned govern- 

ment corporation or designated as an agent of the federal 

government by statute, it is, for those practical purposes which 

  

Provident subjects to scrutiny in asubstantially like position. 

Not only are its functions and procedures determined by the federal 

government, but the size, composition, and powers of its 

governing body are strictly controlled by statutes and dduintsteved 

by HEW (42 U.S.C. 3000-1). Last, but by no means least, HEW 

and the Congress control its financing as well as the proper 

uses of its funds. (42 U.S.C. 3000-5). 

 



  

The presence of HEW as a party, then is sufficient 

to exact whatever relief is required against the HSA. It has 

been a long-standing rule that in a corollary situation where the 

issue is the joinder of a superior government officer or 208003, 

the officer or agency will be joined, despite the presence of 

the subordinate before the dour, only if "the relief Bought 

will require him [the superior] to take action, either by 

exercising directly a power lodged in him or by having 

a subordinate exercise it for him." Williams v. Fanning, 332 U.S. 
  

490, 92 LEd 95 (1947). In the situation now before the court, 

the relief sought will require only Methodist and HEW to take 

action to redress any violation of Title VI and Section 504. 

The presence of the HSA before the court is not only dispensable 

but would simplify the litigation. In Hampton v. Maw Sun Wong, 
  

426 U.S. 88, 48 LEd 2d 495 (1976) the U. S. Supreme Court held that 

where the petitionerswho were aliens challenging the constitutionality 

of civil service regluations denying them government employment, 

claimed that certain government defendants failing to seek BATE 

were necessary parties, that their presence was indeed not 

necessary. "Several of the nonpetitioning defendants have no responsi- 

bility for the establishment of standards which applicants for 

federal employment must meet; accordingly theirparticipation is 

not necessary." 426 U.S. at 96, 48 LEd 2d at 505. Since NIHSA 

has no responsibility for the regulations under which it must operate, 

so tolis its presence not required as an indispensible party. 

For the reasons enumerated and/or the authorities cited 

above, Kipton Kaplan as Executive Director of NIHSA should be dis- 

misded as a party defendant to this action. 

b.) DEFENDANT KAPLAN SHOULD NOT BE JOINED 

IN THIS ACTION 
  

  

Permissive joinder of parties is governed by Rule 20 of 

the Federal Rules of Civil Procedure which provides, in pertinent 

part: 

 



  

"All parties (and any vessel, cargo or 
other nroperty subject to admiralty 
process in rem) may be joined in one 

action as defendants if there is asserted 
against them jointly, severally, or in 
the alternative, any right to relief in 
respect of or arising out of the same 
transaction, occurrence, or series of 
transactions or occurrences and if any 
question of law or fact common to all 
defendants will arise in the action. 
A plaintiff or defendant need not be 
interested in obtaining or defending 
against all the relief demanded. Judg- 
ment may be given for one or more of the 

plaintiffs according to their respective 
rights to relief, and against one or 
more defendants according to their 
respective liabilities." 

In determining whether or not a party is properly joined, 

then, the court must first ascertain whether a right to relief 

is stated out of the transaction which is the subject matter of 

the suit. Defendant Kaplan and NIHSA should be dismissed since 

no right to relief exists as to them either jointly, severally, 

or in the alternative with any of the other named defendants. 

From the statutory and regulatory scheme described above in 

Section III(1)(a) of this memorandum, it is apparent that the 

application of Title VI in the Section 1122 process is entirely 

in the hands of HEW since it alone may grant or withhold final 

Section 1122 approval. Because HEW alone may determine how 

the Health Systems Agency administratorsits responsibilities 

under Section 1122, including matters relative to Title VI and Section 

504, no right to relief is presented against the Health Systems 

Agency or Mr. Kaplan. 

Federal Courts have taken this approach i their 

application of F.R.C.P. 20. "In determining the propriety of 

joinder, then a trial court must analyze the complaint to 

determine what has been alleged and what claims are made." 

 



  

Kuechle v. Bishop, 64 F.R.D. 179, 180 (N.D. Ohio 1974). 
  

Moreover, the addition of parties is not always to be granted 

even if the face of the rule has been complied with.Rule 20 

"allows the exercise of wide discretion by the Court in 

entertaining joinder. It does not confer a right to add parties, 

though their joinder would fit the rules requirements". 

Fair Housing Development Fund Corporation v. Burke, 55 F.R.D. 
  

414, 422, (E.D.N.Y. 1972) quoting Barr Rubber Products Company vs. 
  

Sun Rubber Company, 425 F2d at 1126-7. 
  

Burke involved a class action by the black economically 

disadvantaged citizens of a New York metropolitan area who 

sought to join ten villages to an action challenging a town's 

zoning policies as discriminatory. In denying the joinder of the 

villages, the court held: 

"Thus, it is entirely clear that the 
relief requested as against the Town 
can be effectively awarded so as to 
completely adjudicate the instant 
controversy. The town and the 
villages are distinct, independent 

governmental entities, completely 

antonomous in their zoning power, 

and any relief determined to be proper 
can be adequately fashioned with 
respect to the present defendant, the 

Town. There would be nothing in- 
complete, partial or hollow in its 
effect on any of the present parties. 
It can only be concluded that there 
exists no compelling reasons for joinder 
of the incorporated villages. . ." 
Id. at 418-10, 

  

Although the HSA is not as distinct as separate entities 

as the villages in Burke, it is the power of HEW that is 

challeged here, not the HSA. As it has been pointed out 

earlier, no relief has been specifically requested against 

Kaplan or NIHSA. As in Burke, no part of the requested relief 

would be ineffective, "incomplete, partial, or hollow" in the P 

absence of Kaplan or NIHSA. 

 



  

On the contrary, the presence of defendant Kaplan 

in this action adds another party to an already complex 

multi-party suit. The expense, inconvenience and effect on 

the part of Kaplan and NIHSA is considerable, and will 

ultimately be borne by the taxpayers who fund NIHSA primarily. 

As the court noted in Burke, "The purpose of the rule [Rule 20] 

is to promote trial convenience and to expedite the final 

determination of disputes.” Id. at 422. 

The dismissal of defendant, Kaplan from this action 

will promote and facilitate the quick and just resolution of 

the claims in this action. 

c.) TITLE VI AND SECTION 504 NEED NOT 
BE CONSIDERED BY THE HEALTH SYSTEMS 

AGENCY. 

  

  

The complaint in this action fails to state a claim 

upon which relief may be granted as to the defendant Kipton 

Kaplan or Northern Indiana Health Systems Agency, Inc. The plain- 

tiffs have contended that in failing to take into account the 

impact - of the Methodist Hospital project on the minority 

and handicapped residents of Gary, the HSA violated Title VI 

and Section 504. 

Even though the defendant Kaplan is prepared to show 

that such impact was indeed considered by NIHSA in its review 

of the Methodist project should such a demonstration be 

necessary, as a matter of law, the HSA was under no duty 

to apply Title VI or Section 504 during the course of the 

review. The pertinent portion of Title VI provides that: 

"No person in the United States shall, 
on the ground of race, color, or 

national origin, be excluded from 
participation in, be denied the 

benefit of, or be subjected to 
discrimination under any program or 

activity receiving Federal financial 

assistance.” 42 U.S.C. 20004. 

 



  

This program was to be carried out pursuant to 

rules and regulations issued pursuant to the authority granted 

in 42 U.S.C. 2000d-1 which, in pertinent part, states: 

"Each Federal department and agency 
which is empowered to extend Federal 
financial assistance to any program 

or activity, by way of grant, loan 
or contract other than a contract of 

insurance or guaranty, is authorized 
and directed to effectuate the pro- 
visions of section 2000d of this title 
with respect to such program or 
activity by issuing rules, regulations, 
or orders of general applicability 
which shall be consistent with achieve- 
ment of the objectives of the statute 
authorizing the financial assistance in 
connection with which the action is 
taken. No such rule, regulation, or 
order shall become effective unless and 

until approved by the President." 
/ 

Taking these provisions together, it is clear that 

the responsibility for applying Title VI in the Section 1122 

process is onthe"Federal Department or Agency" which is actually 

"empowered." to extend Federal financial assistance. In the 

Section 1122 systerw ., it is HEW that extends to health care 

providers the reimbursement that constitutes Federal assistance. 

In addition, although the HSA receives federal funds to perform 

Section 1122 reviews, it makes no grant or loan or reimbursement 

since it has no authority to do so. As described earlier, 

the HSA's "discretion" if any, is a matter of recommendation only. 

From the foregoing NIHSA has no responsibility to 

consider Title VI related ' issues as long as HEW does. It has 

been shown earlier in this memorandum that a process exists for those 

issues to be raised before HEW makes a Section 1122 decision. 

The process discharges the duty imposed by Title VI of HEW 

and hence also discharges any responsibility the HSA could have 

as well. It is not necessary that Title VI issue be raised at 

every concievable stage of the Section 1122 process From the 

face of the statute, such issues need be considered only at the’ 

stage of Federal agency action which is empowered to grant the 

 



  

assistance in question. 

A similar argument exists for the consideration of the 

impact of proposed projects on the handicapped mandated by 

Section 504. (29 U.S.C. 794); Section 504 provides that: 

"No otherwise qualified handicapped 
individual in the United States, as 

defined in section 706(6) of this 

title, shall, solely by reason of his 
handicap, be excluded from the partici- 
pation in, be denied the benefits of, 

or be subjected to discrimination under 

any program or activity receiving 

Federal financial assistance.” 

Oa April 28. 1976, President Ford issued Executive 

Order Number 11914 (41 F.R. 17871) ordering coordination 

of enforcement of Section 504 by HEW. In part, that order states: 

“In order to implement the provisions 
of section 504 (this section), each 
Federal department and agency empow- 
ered to provide Federal financial 
assistance shall issue rules, regula- 
tions, and directives, consistent with 

the standards and procedures established 

by the Secretary of Health, Education 
and Welfare.” 

Again from this language it is clear that the duty to 

adopt rules, regulations and directives on Section 504 rests on 

HEW since it alone is ' 'empowered"” to provide Federal financial 

assistance in this case. In addition, HEW also has the OTE. 

duty to issue standards for Section 504 regulations - standards 

which at the time of the completion of the Section 1122 review 

in question here were not,to the best of Mr. Kaplan and NIHSA's 

knowledge, issued. Therefore, the consideration of the 

impact of the Methodist Hospital project on the handicapped pursuant 

to Section 504 was not a necessary part of the NIHSA review. 

This is particularly true where HEW designated (as described 

earlier) a procedure for bringing Section 504 related issues before 

it in advance of a decision under Section 1122. (The process 

for Title VI complaints was designated to be applied in 

Section 504 complaints as well. Under the Section 1122 recon- 

 



. 'Y 

  

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF INDIANA 

HAMMOND DIVISION 

  

BERNICE TERRY, et al., 

Plaintiffs 

-VS— CAUSE NUMBER: H76~373 

METHODIST HOSPITAL OF GARY, 
INC., ef al., 

Defendants 

hoof hook Kofkik fh odih Rod hid koh ff 

RICHARD GORDON HATCHER, WILLIE : 

LEE PAGE, METRO CORPS OF GARY, INC., 
a Not-For-Profit Corporation and 
others similarly situated, 

Plaintiffs 

~VS— CAUSE NUMBER: H77-154 

METHODIST HOSPITAL OF GARY, 
INC., An Indiana Not-For-Profit 

Corporation and DENIS E. RIBORDY, 

As President Of the Board of 

Directors, 

JOSEPH CALIFANO, As United States 

Secretary of Health, Education and 
Welfare, 

WILLIAM T. PAYNTER, M.D., as 

State Health Commissioner for the 

Indiana State Board of Health, 

JAMES WHITE, As Director of the 
Division of Hospital And Insitutional 

Services of the Indiana State Board 

of Health, 

DAVID J. EDWARDS, M.D., as Director 

of the Health Facilities, Services 

and Review Development Bureau of 

the Indiana State Board of Health, and 

KIPTON KAPLAN, as Executive Director 

of the Northern Indiana Comprehensive 
Health Systems Agency, Inc., 

a
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S
o
 

Na
e’
 

Sa
 

Na
o 

Na
d 

No
d 

Se
d 

N
o
 

Na
 

Na
d 

Ne
d 

Se
 

Na
f 

Na
 

Na
d 

Na
 

Ne
 

N
a
 

Na
 

Na
 

N
a
 

Na
 

Su
d 

S
a
d
 

Defendants 

MOTION TO DISMISS   

The defendant, KIPTON KAPLAN, by counsel, moves the Court pursuant 

to 12(B) of the Federal Rules of Civil Procedure to dismiss this action on 

the grounds that: 

 



  

1. The Court is without jurisdiction of the subject matter 

herein in that the plaintiffs have failed to exhaust all administrative 

remedies for the resolution of the issues in this cause. 

2. That the plaintiffs have failed to state a claim against 

the defendant, KIPTON KAPLAN, upon which relief can be granted in 

that: | 

A. the Defendant, Kipton Kaplan, is not 

a proper party to this action. 

B. that issues related to Title VI of the 

Civil Right Act of 1964 (42 U.S.C. 2000d) and the 

Rehabilitation Act (29 U.S.C. 749) need not 

be considered by a health SyoLins agency in the course 

of a review of a health facility capital expenditure 

pursuant to Section 1122 of the Social Security Act. 

(42 U.S.C. 1320a-1). 

WHEREFORE, Defendant, KIPTON KAPLAN, respectfully moves the 

Court to Dismiss this Action. 

MURPHY, McATEE, MURPHY & COSTANZA 
Attorneys for defendant, Kipton Kaplan 

a 
£ / J v ’ Id J i 

J rd B | 3 4 ? A A 4 J / Fz 3 . \ 2 

By Arline BU Cat 2A) A 
  

Anthony DeBonis, Jr. 'l/ 
720 West Chicago Avenue 
East Chicago, Indiana 46312 
219/397-2401 [||8cf88b0e-76ba-46c5-afab-56638c0f7555||]