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Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 05-1717

___________

Quentin K. Tanko, *

*

Appellant, *

* Appeal from the United States

v. * District Court for the

* District of Nebraska.

United States of America, *

Department of Health and Human *

Services, Bureau of Health Professions, *

*

Appellee. *

___________

Submitted: September 15, 2005

Filed: November 3, 2005

___________

Before LOKEN, Chief Judge, BYE and SMITH, Circuit Judges.

___________

BYE, Circuit Judge.

Quentin K. Tanko agreed to participate in the National Health Service Corps

(NHSC) Scholarship Program, a program established by Congress to address health

service shortages in medically underserved areas. Tanko accepted scholarship funds

for two years of medical school, but failed to provide the corresponding period of

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The Honorable Richard G. Kopf, United States District Judge for the District

of Nebraska.

2

An HPSA is an area of the country with a high infant mortality rate, high birth

rate, or high rate of poverty. 42 C.F.R. Part 5, App. A.

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service in a medically underserved area. He appeals the district court's1

 determination

this breach makes him liable for treble damages. We affirm.

I

On February 4, 1999, Quentin Tanko signed four one-year contracts to

participate in the NHSC Scholarship Program, 42 U.S.C. §§ 254l-q. In exchange for

the government's payment of tuition, reasonable education expenses, and a monthly

stipend while attending school, participants in the NHSC Scholarship Program agree

to provide health services in a health professional shortage area (HPSA)2

 upon

completion of their training. The four contracts Tanko signed were embodied in a

single document. The first contract covered his first school year, the 1999-2000

school year. Immediately below the signature line following the terms of the first

contract was a line which stated "Optional Contracts." The optional contracts

covered the 2000-01 school year, the 2001-02 school year, and the 2002-03 school

year, with separate signature lines for each contract. Each optional contract simply

adopted the contract terms set forth for the 1999-2000 school year, making those

terms applicable for an additional year.

The contracts set forth the government's remedies in the case of a breach. If

a student cannot provide health services in an HPSA because he must leave school

for academic or disciplinary reasons, voluntarily terminates his schooling, or "fails

to accept payment . . . in whole or in part, of a scholarship under this contract," the

student is only responsible to "repay to the United States all funds paid to the

applicant . . . within 3 years of the date the applicant becomes liable to make

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The statute was amended on October 26, 2002. See Pub. L. No. 107-251, Title

III, § 313(a), 116 Stat. 1651. The pre-amended version of the statute governs this

case.

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payment." If, however, the participant fails to provide his period of service obligation

"for any reason other than those [specified above]," the contracts provide "the United

States shall be entitled to recover an amount equal to three times the scholarship

funds awarded, plus interest." The contract terms essentially mirror the statutory

requirements set forth in 42 U.S.C. § 254o (2001)3

 which govern an NHSC

participant's obligations in the event of a breach.

Tanko attended Creighton University during all four of the relevant school

years. He accepted the scholarship funds from the government in his first two years,

for a total of $88,731. On May 5, 2001, however, Tanko advised the government he

was declining scholarship money for the 2001-02 school year. Likewise, on February

10, 2002, Tanko advised the government he was declining scholarship money for the

2002-03 school year.

Tanko graduated from Creighton University School of Medicine in May 2003.

In July 2003, he entered an orthopedic surgery residency training program, a program

not approved as an NHSC postgraduate training program. On September 8, 2003, the

government notified Tanko he was in default for failing to begin his service

obligation of two years. The government told Tanko his debt, including treble

damages, was due on July 1, 2004, and provided him with a schedule showing the

amounts the government paid on his behalf, the dates of those payments, and the

principal and interest due (including treble damages). At that time, Tanko's

obligation totaled $380,964.45.

On February 13, 2004, Tanko brought this action for declaratory relief in

federal district court asking the court to declare the NHSC Scholarship Program

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enforceable only to the extent of the actual amounts disbursed to him. Tanko argued

the contracts he signed were a single contract for a four-year period, not four separate

one-year contracts, and thus his refusal to accept payments for the last two

scholarship years triggered the statutory and contract terms which allowed him to

repay just the funds paid to him because he "fail[ed] to accept payment . . . in whole

or in part, of a scholarship under this contract."

The government filed a counterclaim contending it should recover treble

damages. The government argued each school year constituted a separate contract,

and Tanko accepted full payment of scholarship funds for the first two contracts. The

government contended the payment-in-part provision did not apply to those two

years, and Tanko's breach therefore triggered treble damages.

The parties filed cross-motions for summary judgment. The district court

granted the government's motion, concluding Tanko signed four separate contracts,

accepted full payment for the first two contract years, and was responsible for treble

damages for failing to provide the government with two years of service. Tanko

timely appealed.

II

This case involves the interpretation of a contract and the statute upon which

the contract is based. Our review of both is de novo. See Advantage Consulting

Group, Ltd. v. ADT Sec. Sys., Inc., 306 F.3d 582, 585 (8th Cir. 2002) (contract); Am.

Simmental Ass'n v. Coregis Ins. Co., 282 F.3d 582, 591 (8th Cir. 2002) (statute).

The treble damage provisions of the NHSC program, while severe and onerous,

provide no basis for reversing the district court. The treble damages have been

upheld as reasonable because the injury caused by a participant's breach – the loss of

a medical doctor's service in an HPSA – is difficult to calculate. See Buongiorno v.

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Sullivan, 912 F.2d 504, 510 (D.C. Cir. 1990); see also United States v. Citrin, 972

F.2d 1044, 1051 (9th Cir. 1992) (concluding NHSC's treble damage provisions are

not a "penalty" which violates the Due Process Clause).

The governing statute sets forth four instances in which a participant who fails

to provide his service obligation will be required to repay only "the amount which has

been paid." Those four instances are when the participant:

A) fails to maintain an acceptable level of academic standing in the

educational institution in which he is enrolled (such level determined by

the educational institution under regulations of the Secretary),

(B) is dismissed from such educational institution for disciplinary

reasons,

(C) voluntarily terminates the training in such an educational institution

for which he is provided a scholarship under such contract, before the

completion of such training, or

(D) fails to accept payment, or instructs the educational institution in

which he is enrolled not to accept payment, in whole or in part, of a

scholarship under such contract[.]

42 U.S.C. § 254o(a)(1)(A)-(D) (2001). In all other situations where a participant

breaches a contract by failing to begin the service obligation, the statute provides "the

United States shall be entitled to recover from the individual an amount determined

in accordance with" a formula for treble damages. Id. at § 254o(b)(1)(A).

None of the four exceptions to the trebling provision applies to Tanko's first

two contract years. For the 1999-2000 and 2000-01 school years, he accepted the

government funds in whole and did not leave school voluntarily or for academic or

disciplinary reasons. At the end of his training, he breached those two contracts by

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failing to begin his service obligation. Thus, the statute – and the contracts which

directly incorporate the statutory provisions – require Tanko to pay treble damages.

Tanko argues his four separate one-year contracts should be construed as a

single four-year contract. Such an interpretation would place Tanko within the

exception for failing to accept payment "in part" because he declined the scholarship

funds for his last two years of schooling. Tanko relies upon the fact he signed all four

contracts on the same day as part of a single transaction. See Lippo v. Mobil Oil

Corp., 776 F.2d 706, 713 n.13 (7th Cir. 1985) ("Although the franchise agreement is

evidenced by five separate documents, they were executed at the same time between

the same parties, for the same purpose and as parts of a single transaction, and so are

to be read together and construed as a single contract.").

The format and language of the contracts Tanko signed do not support his

argument. The primary contract prominently identifies itself as a contract for the

1999-2000 school year alone. The language used in the "Optional Contracts" which

follow clearly identify them as separate contracts for separate school years, merely

incorporating the language used in the primary contract. In addition, section B.7 of

each contract obligated the applicant to "serve one year of obligated service for each

school year the scholarship is provided, with a minimum obligation of two years."

This language shows the parties intended to enter four separate contracts with a

concomitant period of obligated service tied to each separate year scholarship funds

were provided.

The Ninth Circuit addressed this issue, concluding the exception for failing to

accept payment "in part" applies only when the participant fails to accept partial

payment for any given year, and does not exempt the participant from treble damages

for any year in which he receives full funding:

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The ability to sign all four contracts before the first year of medical school

primarily benefits the participant, not the government. A student who may not

otherwise be able to commit to medical school for financial reasons obtains the

government's guarantee of assistance prior to the start of his or her schooling.

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We construe subsection (a)(1)(D) to treat each year that a recipient

receives scholarship funds as separate and independent. This is

consistent with the overall incremental structure of the scholarship

program, which imposes a one-year service obligation for each year of

funding (with a two-year minimum). Subsection (a)(1)(D) applies only

in situations where a scholarship recipient signs a written contract for a

given year, and then later, during the course of that year, fails to accept

payment or directs his or her school not to accept payment, in whole or

in part, for that given year. In such situations, the individual does not

incur a service obligation for that specific year, but instead must repay

the government only those funds that had in fact been paid to him or her,

or on his or her behalf, under the contract.

United States v. Williams, 994 F.2d 646, 649 (9th Cir. 1993).

We agree with the reasoning and result in Williams. In this case, Tanko's

refusal of scholarship funds for the last two years of medical school did not affect his

previously-incurred obligation to provide service for the two years for which he did

receive full funding.

Tanko contends Williams is distinguishable because Williams signed his

contracts in three successive fiscal years one at a time, whereas Tanko signed all four

contracts on the same day at the beginning of his schooling. This slight factual

difference is not sufficient to produce a different outcome.4

 The relationship between

the government and participants in the NHSC program is not only contractual, but

statutory. United States v. Vanhorn, 20 F.3d 104, 100 (4th Cir. 1994). Tanko's

contention the length of a contract turns upon whether a participant signed multiple

contracts on a single day or in successive years conflicts with the statutory scheme,

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which clearly defines scholarships as "single, one-year unit[s] corresponding to a

given school year." Williams, 994 F.2d at 649 (citing 42 U.S.C. § 254l(f)(1)(B)(iv)).

Thus, neither the contracts nor the statutory scheme supports Tanko's claim.

III

We affirm the judgment of the district court in all respects.

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