## F I L E D United States Court of Appeals Tenth Circuit 

### JUL 16 2002 

### PATRICK FISHER Clerk PUBLISH
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT
ALEXIS KIM SCHRADER,

Plaintiff-Appellant,

v. FRED A. RAY, M.D., P.C., an Oklahoma Professional Corporation,

Defendant-Appellee.

UNITED STATES OF AMERICA,

Amicus Curiae. No. 00-5224

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA

(D.C. No. 99-CV-703-C)
Patrick W. Cipolla (Kristin L. Oliver with him on t he brief), Gable & Gotwals, Tulsa, Oklahoma, for Plaintiff-Appellant. F. Michael McGranahan, Tulsa, Oklahoma, for Defendant-Appellee. Seth M. Galanter, Attorney (Jessica Dunsay Silver, Attorney, with him on the brief), Department of Justice, Washington, D.C., fo r Amicus Curiae, United States of America.

Before EBEL , McKAY , and LUCERO , Circuit Judges.-2-

EBEL , Circuit Judge.

Plaintiff-appellant Alexis Kim Schrader appeals fro m the district court’s order granting summary judgment in favor of defendant-appellee Fred A. Ray, M.D., P.C. (“Ray”), on Schrader’s complaint broughtpursuant to § 504 of the Rehabilitation Act of 1973, codified at 29 U.S.C. § 794 (the “Rehabilitation Act”). The district court held that Ray is not subject to liability under § 504 because it has less than fifteen employees. In thi s appeal, we hold that § 504(d) of the Rehabilitation Act, which incorporates the s tandards of the Americans with Disabilities Act, 42 U.S.C. § 12101, et seq. (“ADA”), for purposes of determining whether the Rehabilitation Act has been violated, d oes not incorporate the ADA definition of an “employer,” and thus even employer s with fewer than fifteen employees are subject to the Rehabilitation Act’s r equirements so long as they are recipients of federal assistance. We further hold that Ray is not entitled to urge on appeal, as an alternative ground for affirmance, an argument rejected by a magistrate judge in his report and recommendation t o which Ray failed to file a timely objection. Accordingly, we REVERSE and REMAND for further proceedings.-3- BACKGROUND Ray employed Schrader as a medical records clerk/re ceptionist. In 1984, Schrader was diagnosed with kidney cancer. She und erwent surgery to remove multiple lipomas in October 1997. In November 1997 , she was diagnosed with a brain tumor. She had kidney surgery on January 12, 1998, and was unable to return to work for several months. Schrader claims that during this period, her supervisor repeatedly reassured her that her job wo uld be available when she was ready to return to work. Beginning in March 1998, after it was determined that the brain tumor was non-cancerous, Schrader alleges she was able to work and attempted to return to work on several occasions, b ut Ray rebuffed her attempts to return to work, then ultimately terminated her empl oyment because of her disability. Schrader filed a one-count suit agains t Ray under the Rehabilitation
Act. Ray moved to dismiss Schrader’s complaint on two gr ounds, arguing that (1) it was not subject to the Rehabilitation Act be cause it did not have fifteen or more employees; and (2) Schrader could not bring a cause of action against Ray under § 504 because she was not an intended benefic iary of any federal funds received by Ray. A federal magistrate judge assign ed to consider the motion to dismiss prepared a report and recommendation propos ing that the motion be denied on both grounds. Ray filed a timely objecti on to the magistrate judge’s1 Although the docket entry does not specify the scop e of the further

briefing, the district court’s subsequent order granting summary judgment sheds light on this question:

[The magistrate judge] entered a report recommendin g defendant’s motion to dismiss be denied. The Report and Recommendation addressed several different issues. The only issue objected to by the defendant was whether the Rehabi litation Act defines an employer as having 15 or more employees within the relevant 20 week time-frame. At the status confere nce this Court rejected the Report and Recommendation and took the definition of “employer” under the Rehabilitation Act under advis ement pending additional briefing

. -4- report and recommendation; however, its objection a ddressed only the magistrate judge’s determination on the “fifteen or more emplo yees” issue. Ray did not object to the magistrate judge’s recommendation that the motion be denied on the issue of whether Schrader was an intended beneficiary of federal funds. The district court subsequently held a status confe rence at which it entered an order rejecting the magistrate judge’s report an d recommendation. In this order, which appears in the record only in the formof a docket entry, the district court also converted Ray’s motion to dismiss to a m otion for summary judgment and requested further briefing from the parties. 1 Ray filed a supplemental brief in which it renewed its arguments on both the “fifteenor more employees” issue and the “intended beneficiary” issue. Schrader filed aresponse brief, also addressing both issues. The district court entered an order g ranting summary judgment to Ray only on the “fifteen or more employees” issue; it did not discuss the-5-

“intended beneficiary” issue other than to note that Ray had failed to object on this ground to the magistrate judge’s recommendatio n.

DISCUSSION
I. “We review a district court’s grant of summary judg ment de novo, applying the same legal standard used by the district court.” Hollins v. Delta Airlines , 238 F.3d 1255, 1257 (10th Cir. 2001). Summary judg ment is proper if the moving party shows “there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. ” Fed. R. Civ. P. 56(c). “When applying this standard, we view the evidence and dr aw reasonable inferences therefrom in the light most favorable to the nonmoving party.” Scull v. New Mexico , 236 F.3d 588, 595 (10th Cir. 2000) (internal quot ation marks omitted).

II. Schrader brought her cause of action under § 504 of the Rehabilitation Act, which states that “[n]o otherwise qualified individ ual with a disability in the United States . . . shall, solely by reason of her or his disability, be excluded from the participation in, be denied the benefits of, orbe subjected to discrimination under any program or activity receiving Federal fin ancial assistance.” 29 U.S.C. § 794(a). This statute makes available a private r ight of action to qualified2 The statutory definition of a “program or activity” includes “all of the

operations of . . . an entire corporation, partners hip, or other private organization, or an entire sole proprietorship . . . which is pri ncipally engaged in the business of providing . . . health care.” 29 U.S.C. § 794(b )(3)(A)(ii). -6- individuals who have been subjected to employment d iscrimination by a program or activity receiving federal financial assistance. 2 Niehaus v. Kan. Bar Ass’n , 793 F.2d 1159, 1162 (10th Cir. 1986). A plaintiff make s out a prima facie case of employment discrimination under the Rehabilitation Act by showing that (1) plaintiff is handicapped under the Act; (2) he is “otherwise qualified” to participate in the program; (3) the program receives federal financial assistance; and (4) the program d iscriminates against plaintiff. Powers v. MJB Acquisition Corp. , 184 F.3d 1147, 1151 (10th Cir. 1999). The Rehabilitation Act does not restrict its defini tion of “program or activity” in the employment discrimination context based upon the number of the defendant’s employees. In 1992, however, Congress amended the Rehabilitation Act to provide that in employment discrimination ca ses alleging violations of the Rehabilitation Act, “[t]he standards used to determ ine whether this section [of the Rehabilitation Act] has been violated . . . shall b e the standards applied under title I of the Americans with Disabilities Act.” 29 U.S. C. § 794(d). The ADA defines an employer as “a person engaged in an industry affecting commerce who has 15 or more employees for each working day in each of 20 or more calenda r weeks in the current or preceding calendar year.” 42 U.S.C. § 12111(5)(A) (emphasis3 The amicus cites Roberts v. Progressive Independence, Inc. , 183 F.3d 1215

(10th Cir. 1999), in which this court upheld an award under the Rehabilitation Act for failure to reasonably accommodate an employ ee against a firm that employed only five persons. See id. at 1217. Roberts does not discuss the “fifteen or more employees” issue, however, and thu s is of limited value here. -7- added). However, § 504 of the Rehabilitation Act d oes not use the term “employer,” but rather imposes liability upon entit ies (or programs or activities) who receive federal assistance. See 29 U.S.C. § 794. It is undisputed that Ray employs fewer than fiftee n employees. The central question posed in this case, therefore, is whether § 504(d) of the Rehabilitation Act incorporates the ADA’s “fifteen or more employees” definition of employer as a limitation on the definition of en tities covered by the Rehabilitation Act. Neither the Supreme Court nor this circuit has yet resolved this issue. 3 Other courts have analyzed whether § 504(d) makes the ADA definition of “employer” applicable to the Rehabilitation Act, an d they have reached conflicting conclusions. Compare Johnson v. N.Y. Hosp. , 897 F. Supp. 83, 86 (S.D.N.Y. 1995) (holding that 1992 amendment to Reh abilitation Act did not incorporate the ADA definition of employer), aff’d , 96 F.3d 33 (2d Cir. 1996), with Hiler v. Brown , 177 F.3d 542, 547 (6th Cir. 1999) (appearing to a ssume that Rehabilitation Act’s incorporation of ADA standards extends to definition of employer); Romand v. Zimmerman , 881 F. Supp. 806, 812 (N.D.N.Y. 1995) (“The-8-

definition of ‘employers’ found in the ADA is also applicable to the Rehabilitation Act.”); Haltek v. Vill. of Park Forest , 864 F. Supp. 802, 803 (N.D. Ill. 1994) (same). Of the cases that have thus far considered the issu e, we find the analysis in Johnson to be the most convincing:

In enacting the 1992 amendment of the Rehabilitatio n Act, Congress intended that the standard of “reasonable accommodations” that employers must make under the ADA would serve as the standard in actions alleging Rehabilitation Act violations i n the employeremployee context. 42 U.S.C. § 12112(b)(5)(A). Thi s is more easily understood once we recognize that the Rehabilitatio n Act provides a broader prohibition than one limited to discriminat ion that takes place in the employment setting . . . . [T]he Rehabilitat ion Act protects, for example, students at educational institutions and p atients at medical facilities, with no explicit exception for entities with less than 15 employees. The Rehabilitation Act’s application to the employm ent context was similarly not dependent on an [entity’s] number of empl oyees, and did not become so as a result of the 1992 amendment. The langua ge of the amendment states that the ADA’s standards are t o be used only “to determine whether [the Rehabilitation Act] has been violated.” 29 U.S.C. § 794(d). What the amendment does not state is that the standards of the ADA are to be used to determine whether an e mployer is even subject to the Rehabilitation Act in the fi rst instance. Johnson , 897 F. Supp. at 86. We find this reasoning persuasive. We believe that§ 504(d) addresses only the substantive standards for determining what conduct violates the Rehabilitation Act, not the definition of who is covered under the Rehabilitation Act. In this regard, Ray’s reliance on McDonald v. Commonwealth of Pennsylvania , 62 F.3d-9-

92 (3d Cir. 1995), is unhelpful. In that case, the Third Circuit simply recognized that “the substantive standards for determining liability are the same” in both th e ADA and the Rehabilitation Act. Id. at 95 (emphasis added). Thus, McDonald did not hold that the Rehabilitation Act incorporat ed the ADA’s definition of “employer,” but only that both statutes had nearly identical substantive definitions of the term “disability.” Id. Furthermore, § 504(c) of the Rehabilitation Act states that “[s]mall providers are not required by [§ 504(a)] to make si gnificant structural alterations to their existing facilities for the purpose of ass uring program accessibility, if alternative means of providing the services are ava ilable.” 29 U.S.C. § 794(c). The terms in § 504(c) are to be “construed with ref erence to the regulations existing on March 22, 1988.” Id. The applicable regulations specifically interpret “small providers” as recipients of federa l funds having “fewer than fifteen employees.” 7 C.F.R. § 15b.18(c); 28 C.F.R . § 42.521(c); 41 C.F.R. § 101-8.309(d) (“If a recipient with fewer than fif teen employees finds . . . that there is no available method of complying with [the accessibility requirement] other than making a significant alteration in its e xisting facilities, the recipient may, as an alternative, refer the handicapped perso n to other providers of those services that are accessible at no additional cost to the handicapped person.”). If, as Ray argues, § 504 does not apply to employers wi th fewer than fifteen4 The amendment to § 504(d) was passed as part of the Rehabilitation Act

Amendments of 1992, Pub. L. No. 102-569, 106 Stat. 4344, 4430. The House version of this law did not contain any provision tying the Rehabilitation Act standards to the ADA standards; this provision came entirely out of the Senate version and was later adopted by a joint conference committee. See H.R. Conf. (continued...) -10- employees, then § 504(c)’s exclusion of recipients with fewer than fifteen employees from the burden of making significant structural alterations to existing facilities so long as alternative means of providin g services are available is rendered meaningless. Ray argues that Congress could not have intended as a policy matter for small businesses with fewer than fifteen employees to be subject to the Rehabilitation Act. This contention, however, is b elied by the statutory definition of “program or activity.” Section 504(b)(3)(A) inc ludes within the definition of “program or activity” all the operations of “an ent ire corporation, partnership, or other private organization, or an entire sole proprietorship ,” if the assistance extended to the entity as a whole or if the entity is engaged in certain enumerated activities like health care. (Emphasis added). Th ere is no indication that Congress intended to exclude small employers like R ay from the statute’s
coverage. The legislative history of the statute also support s the application of the Rehabilitation Act to employers with fewer than fif teen employees so long as they receive federal assistance. The Senate Report 4 demonstrates that Congress4 (...continued)

Rep. No. 102-973, at 219 (1992), reprinted in 1992 U.S.C.C.A.N. 3822, 3888. The Senate Report is thus the best source for legis lative history concerning this statute. -11- intended for the Rehabilitation Act amendments to b ring the Act in line with the newly-passed ADA. “Witnesses at the Subcommitt ee hearing testified repeatedly regarding the importance of the passage of the Americans with Disabilities Act and the need to include the philos ophies embodied in the ADA in the Rehabilitation Act.” S. Rep. No. 102-357, at 7 (1992), reprinted in 1992 U.S.C.C.A.N. 3712, 3718. Congress did not wis h to water down the goals of the Rehabilitation Act to achieve this goal, how ever: As the period for reauthorization of the Rehabilitation Act draws near, we need our most creative thinking to forge a compr ehensive Act that will enable us to respond to the work preparation needs of any individual who wants to work , regardless of the severity of his or her disability. Id. at 6, reprinted in 1992 U.S.C.C.A.N. at 3717 (emphasis added) (quoting Justin Dart, Chair of the President’s Committee on the Employment of People with Disabilities). The statement of Senator Harkin (sponsor of the Sen ate bill) sheds further light on the reasoning behind the adoption of § 504 (d). It assumes that the issue of coverage has been resolved separately before the remedial purpose of the legislation takes effect:-12- Now those who are covered by title V of the Rehabilitation Act will know that these are the definitions of reasonable accommodat ion and discrimination that apply. They will also know that the standards governing preemployment inquiries and examinations, and inquiries of current employees apply. Incorporating the ADA standards into the Rehabilitation Act will assure that there will be c onsistent, equitable treatment for both individuals with disabilities an d businesses under the two laws. 138 Cong. Rec. S16611 (statement of Senator Harkin) (emphasis added). There is no suggestion that § 504 of the Act, as or iginally enacted, was limited to employers with fifteen or more employees . On the contrary, § 504 set forth a blanket prohibition of employment discrimin ation against persons with disabilities by any entity that received federal fi nancial assistance, regardless of the number of employees. The legislative history o f § 504(d) contains no indication that Congress intended to limit the prev iously broad applicability of the Rehabilitation Act by exempting employers who have less than fifteen employees from coverage. Had this been the intent of Congres s, it surely would have been explicit on this significant change. Differences in the scope of coverage afforded by th e ADA and the Rehabilitation Act also weigh against Ray’s interpr etation. This court has recognized that the ADA, in “[l]imiting liability t o employers with fifteen or more employees,” “strikes a balance between the goal of stamping out all discrimination and the goal of protecting small ent ities from the hardship of litigating discrimination claims.” Butler v. City of Prairie Vill. , 172 F.3d 736,-13-

744 (10th Cir. 1999) (internal quotation marks omitted). Unlike the blanket involuntary coverage of the ADA, however, the Rehab ilitation Act’s coverage extends only to entities that choose to receive fed eral assistance. The balance between prohibiting discrimination and protecting s mall entities is struck differently in the context of the Rehabilitation Ac t, as the entities covered by the Rehabilitation Act have chosen to receive financial benefits in exchange for prohibitions on their ability to discriminate. See Consol. Rail Corp. v. Darrone , 465 U.S. 624, 633 n.13 (1984) (noting that, in the Rehabilitation Act, “Congress apparently determined that it would require contrac tors and grantees to bear the costs of providing employment for the handicapped as a quid pro quo for the receipt of federal funds.”). Although we believe that these factors compel the c onclusion that § 504(d) does not incorporate the ADA’s definition of “emplo yer” into the Rehabilitation Act’s scope of coverage, we recognize that the Sixth Circuit reached the opposite conclusion in Hiler v. Brown , 177 F.3d 542 (6th Cir. 1999), albeit with regard to a different issue. In Hiler , the plaintiff brought a claim for retaliation und er the Rehabilitation Act and sought to impose personal li ability upon his supervisors in their individual capacities. The court concluded t hat “individuals who do not otherwise meet the statutory definition of ‘employe r’ cannot be held liable under the Rehabilitation Act’s anti-retaliation provision.” Id. at 547. Supervisors, the5 We, of course, are not presented here with the iss ue of whether the

Rehabilitation Act imposes personal liability upon a supervisor. The only issue before us is whether the Rehabilitation Act imposes liability upon a recipient of federal assistance if the recipient has fewer than fifteen employees. -14- court reasoned, are therefore not liable under the Rehabilitation Act because they are not included in Title VII’s definition of “employer.” 5 Id. at 545- 46. The court broadly stated, without analysis, that “[t]he ADA, ADEA, and the Rehabilitation Act borrowed the definition of ‘employer’ from Title VII.” Id. at 546 n.5. The Hiler court appears to have assumed that the Rehabilitat ion Act’s incorporation of the ADA’s “standards” extends to the definition of “employer.” For the reasons outlined above, we disagree, at lea st to the extent that the Sixth Circuit would construe its broad language to limit Rehabilitation Act liability to recipients of federal assistance with fifteen or mo re employees. The plain language of the statute, its legislative history, and the best-reasoned case law all support the conclusion that the ADA’s “fifteen or more employee” restriction has not been incorporated int o § 504 of the Rehabilitation Act. We therefore reverse the district court’s ent ry of summary judgment on this issue.

III. Ray argues that this court should affirm on an alte rnate basis: that Schrader was not an intended beneficiary of federal funds. We decline to reach6 Ray argues that its waiver before the magistrate ju dge was corrected by its

subsequent attempt to raise the issue for summary j udgment disposition before the district court. Under the particular facts of this case, we reject this argument. The district court declined to address the alternat ive issue because it was waived, and we agree. -15- this issue, as it has been waived. This court has adopted a “firm waiver rule” which provides that a party’s failure to file a tim ely objection to a magistrate judge’s recommended decision waives appellate revie w of both factual and legal determinations. See Vega v. Suthers , 195 F.3d 573, 579 (10th Cir. 1999). 6 As noted above, Ray’s objection to the magistrate judg e’s report and recommendation raised only the “fifteen or more employees” issue. While we may affirm on any basis supported in the record, see, e.g. , Ford v. West , 222 F.3d 767, 773 (10th Cir. 2000), we are not inclined to use that doctrine to rescue Ray from this waiver. Moreover, even if we were inclined to reach the iss ue, our review fails to reveal adequate grounds for affirmance. We therefore reje ct Ray’s argument.

CONCLUSION The judgment of the United States District Court fo r the Northern District of Oklahoma is REVERSED and REMANDED for further pr oceedings in accordance with this opinion.