Opinion ID: 389276
Heading Depth: 2
Heading Rank: 1

Heading: Controlling Law: Federal or State

Text: 8 This court must first determine whether federal or New Jersey law controls the issue of Pisani's individual liability for overpayments to the corporation. We hold that federal law applies under Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838 (1943). (F)ederal law governs questions involving the rights of the United States arising under nationwide federal programs. United States v. Kimbell Foods, Inc., 440 U.S. 715, 726, 99 S.Ct. 1448, 1457, 59 L.Ed.2d 711 (1979). Kimbell Foods stated: 9 (T)he priority of liens stemming from federal lending programs must be determined with reference to federal law. The SBA (Small Business Administration) and FHA (Farmers Home Administration) unquestionably perform federal functions within the meaning of Clearfield. Since the agencies derive their authority to effectuate loan transactions from specific Acts of Congress passed in the exercise of a 'constitutional function or power,' Clearfield Trust Co. v. United States, supra, at 366 (63 S.Ct. at 574), their rights, as well, should derive from a federal source In such contexts, federal interests are sufficiently implicated to warrant the protection of federal law. 10 Id. at 726-27, 99 S.Ct. at 1457-58. Cf. United States v. Yazell, 382 U.S. 341, 357, 86 S.Ct. 500, 509, 15 L.Ed.2d 404 (1966) (not reaching issue whether federal law governed since federal rule would incorporate state rule). 11 The federal statute which sets guidelines for the Medicare program is the source of the Government's right to recover overpayments. Thus, federal law governs. 12 In deciding what law to adopt as the federal rule for this case, this court could adopt New Jersey law or fashion a uniform federal rule of decision. See Kimbell Foods, 440 U.S. at 728, 99 S.Ct. at 1458. Several factors are relevant to this choice. First is whether a need for national uniformity exists. Second is the extent to which a federal rule would disrupt commercial relationships predicated on state law. Id. at 729, 99 S.Ct. at 1459. Finally, and most important here, we must also determine whether application of state law would frustrate specific objectives of the federal programs. If so, we must fashion special rules solicitous of those federal interests. Id. at 728, 99 S.Ct. at 1458. 13 We hold that here a uniform federal rule is needed since state law could frustrate specific objectives of the Medicare program. 3 One objective is prompt reimbursements to providers. Interim payments to providers must be made quickly so that they will be encouraged to treat Medicare patients. If HEW did not make prompt payments (including those by intermediaries) because it had to carefully investigate each provider's actual costs and financial condition prior to making payments, many providers might be unwilling or unable to offer Medicare services. To fulfill the goals of the Medicare program, HEW must be able to make prompt payments without the fear that doctors will use corporations with no assets to avoid returning overpayments. As discussed in part II-B below, a court should not permit avoidance of liability for overpayments by a person who is the alter ego of a defunct corporation. 14 Another specific objective of the Medicare program is that providers of services receive payments only for the reasonable costs of their services. See Monmouth Medical Center v. Harris, 646 F.2d 74 (3d Cir. 1981). 4 This goal also makes a uniform federal rule desirable. Return of overpayments is crucial to this goal. If Congress had intended that Medicare be a welfare program for doctors and hospitals, then the return of overpayments would not be so important. The overpayments would be going to those Congress intended to benefit. We believe, however, that Medicare was intended solely to assist patients. The Small Business Administration (SBA) loans in United States v. Yazell, 382 U.S. 341, 86 S.Ct. 500, 15 L.Ed.2d 404 (1966), and Kimbell Foods went to the parties Congress intended to benefit. Although the United States sued a third party in Kimbell Foods (over conflicting security interests), that third party had loaned money to the recipient of an SBA loan, thus aiding the person Congress intended to help. These cases also held that the Government agency could adequately protect its interests under state law, and thus adopted state law as the federal rule of decision. 15 Another factor favoring a federal rule is the need for uniformity in the Medicare program. SBA loans are not intended to be uniform nationwide, but the system for Medicare reimbursements is intended to be uniform. Medicare reimbursements are unlike the voluntary SBA loans in Yazell and Kimbell Foods. Yazell incorporated state law because: (1) the loan was individually negotiated and apparently was intended to be governed by Texas law, (2) applying Texas law impaired no substantial federal interest, and (3) no need for national uniformity existed. None of these factors apply to Pisani and his Medicare overpayments. In Yazell, the parties looked at least partially to Texas law when they negotiated the custom-made, hand-tailored loan transaction. 382 U.S. at 346, 348, 86 S.Ct. at 503, 504. Pisani, however, received payments under a uniform statutory scheme. HEW pays all providers of Medicare services, even before their costs are audited. The statute requires HEW to pay each provider of services with respect to the services furnished by it not less often than monthly and prior to audit or settlement with necessary adjustments on account of previously made overpayments or underpayments. 42 U.S.C.A. § 1395g(a) (Supp.1980). Payments are based on the provider's reported costs, not on any perceived ability to repay. HEW's only control is the day of reckoning for overpayments. The nonuniform law of different states, some of which may apply a restrictive test for piercing the corporate veil, could frustrate this day of reckoning. 16 Cases have recognized a need for uniformity in certain areas. United States v. Sommerville, 324 F.2d 712 (3d Cir. 1963), cert. denied, 376 U.S. 909, 84 S.Ct. 663, 11 L.Ed.2d 608 (1964), fashioned a uniform federal rule to govern the liability of an auctioneer who sells livestock covered by an FHA security agreement without actual knowledge of that coverage. Id. at 714. United States v. Carson, 372 F.2d 429, 431, 433 (6th Cir. 1967), followed Sommerville, holding that Yazell did not affect its validity. Carson held that Yazell did not apply because in Carson the contract was not individually negotiated, 372 F.2d at 433-34, and the defendant was not a party to the contract, id. at 434. Both considerations apply to Pisani, although the second consideration is not as significant, since the defendant in Kimbell Foods was a third party. Unlike the defendant in Kimbell Foods, however, Pisani is not truly a distinct third party, see part II-B below, and here no interest of a distinct third party is affected. See generally United States v. Independent School Dist. No. 1, 209 F.2d 578, 580-81 (10th Cir. 1954); Stone v. United States, 286 F.2d 56, 59 (8th Cir. 1961).