IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 92-8623

 

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

NBC BANK-ROCKDALE,

Defendant-Appellant.

 

Appeal from the United States District Court

for the Western District of Texas 

 

(October 29, 1993)

Before HIGGINBOTHAM, DAVIS, and SMITH, Circuit Judges.

HIGGINBOTHAM, Circuit Judge:

Federal grants to a hospital under the Hill-Burton Act are

conditioned on the hospital maintaining its non-profit status for

the twenty years following the grant. A transferee within the

twenty year period failing to abide the non-profit condition faces

certain repayment obligations. Today we decide that such a

transfer after the twenty year period does not carry to the

transferee the liability to repay.

I

In the early sixties, Newton Memorial Hospital, Inc., a nonprofit corporation, received $182,694.67, as a grant under Title VI

of the Public Health Service Act, 42 U.S.C. § 291i(a), for
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construction of a non-profit hospital. Newton completed the

project by July 1962.

In 1978, Newton sold the hospital to Innovative Management

Incorporated and/or Innovative Medical Incorporated, a for-profit

corporation. On the same day, IMI sold the hospital to Realty

Mortgage Investors, a limited partnership.

Four years later, Realty sold the hospital to Vista Medical,

Inc., a for-profit corporation, which sold the facility to National

Hospital Systems, Inc., also a for-profit entity. As

consideration, National signed notes, secured by a lien against the

real property at the hospital site, payable to NBC Bank-Rockdale.

In 1989, after National defaulted on its loans, NBC Bank

purchased the hospital at a foreclosure sale. The government sued

for recovery of Hill-Burton funds. The district court denied the

bank's motion for summary judgment. NBC Bank appealed. We

reverse.

II

The government can recover Hill-Burton funds used to construct

a non-profit hospital if the hospital changes its non-profit status

within twenty years of its substantial completion. 42 U.S.C.

§ 291i(a); United States v. Palm Beach Gardens, 635 F.2d 337, 341

n.4 (5th Cir.), cert. denied, 454 U.S. 1081 (1981). Newton

Memorial Hospital ceased to operate as a non-profit facility after

its 1978 sale to IMI, sixteen years after its substantial

completion. NBC Bank acquired the facility twenty seven years

after its substantial completion.
 

1 (a) Persons liable

If any facility with respect to which funds have been

paid under section 291f of this title shall, at any time

within 20 years after the completion of construction or

modernization--

 (1) be sold or transferred to any entity (A)

which is not qualified to file an application under

section 291e of this title, or (B) which is not

approved as a transferee by the State agency designated

pursuant to section 291d of this title, or its

successor, or

 (2) cease to be a public health center or a

public or other nonprofit hospital, outpatient

facility, facility for long-term care, or

rehabilitation facility,

the United States shall be entitled to recover, whether from

the transferor or the transferee (or, in the case of a

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Health and Human Services has interpreted the Hill-Burton Act

to create joint and several liability among transferees. 42 C.F.R.

§ 124.703(a). Courts have reinforced this interpretation by

applying the recovery provision to all transferees within the

twenty year period. United States v. St. John's Gen. Hosp., 875

F.2d 1064, 1072 (3rd Cir. 1989); United States v. Brady, 385 F.

Supp. 1347, 1350 (S.D. Fla. 1974). We have not decided the

liability of a transferee who, after the twenty year period has

lapsed, acquires a Hill-Burton hospital that changed to for-profit

status within the twenty years.

The government urges that the transferee liability of the

statute and regulations reaches transfer made after the twenty year

period. We do not agree. The relevant language of the Hill-Burton

Act creating liability refers only to "the transferor or

transferee." 42 U.S.C. § 291i(a) (emphasis supplied)1--a reference
facility which has ceased to be public or nonprofit, from

the owners thereof) an amount determined under subsection

(c) of this section.

42 U.S.C. § 291i(a) (emphasis supplied).

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to transferees within the twenty year period. Similarly, the

Secretary's regulation setting forth joint and several liability

does not necessarily broaden the recovery right, beyond the twenty

year period. 42 C.F.R. § 124.703(a). It is true that the

regulation refers to any successive transferee. The regulation

does not state whether the regulation speaks to all transferees

within the twenty year period or extends liability to transferees

regardless of when the transfer occurred.

The government urges that its construction is necessary to

prevent manipulative avoidance of the statutory command that the

price of a grant under Hill-Burton is twenty years of non-profit

use. A transferee who acquires a Hill-Burton hospital within

twenty years could escape liability, as St. John's and Brady noted,

by use of a shell corporation to convert the hospital to a forprofit enterprise within the twenty year period. A solvent

transferee may not appear within twenty years. This policy

argument first runs afoul of the statute and that is answer enough.

It is in any event flawed on its own terms.

All transferees within the twenty year period are liable so

that transfer of the hospital to the shell corporation before the

twenty year period had lapsed does not defeat the liability of

these entities. The government can sue the transferor or

transferee in the transaction changing a Hill-Burton hospital from
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a non-profit status. The government is at risk only if it fails to

reduce its debt to judgment. A judgment lien would burden the

property long after twenty years, with no serious risk of an

innocent purchaser.

Finally, the construction of the regulation urged by the

government would contravene the plain language of the statute and

would be invalid to that extent. We are not persuaded by the

government's reading of the regulation. Arguably, the regulation

unambiguously reaches the transaction in this case, but cannot be

given effect because it is contrary to the unambiguous statute. By

either path, the bank is not liable to the government as a

transferee of a Hill-Burton funded hospital. See Chevron, U.S.A.,

Inc. v. Natural Resources Defense, 467 U.S. 837 (1984).

REVERSED.