Opinion ID: 852061
Heading Depth: 2
Heading Rank: 2

Heading: New Horizon's Quantum Meruit Claim Fails

Text: The other path, New Horizon contends, is the common-law remedy called quantum meruit. Also called unjust enrichment or quasi-contract, the claim is a legal fiction invented by the common-law courts in order to permit a recovery ... where, in fact, there is no contract, but where the circumstances are such that under the law of natural and immutable justice there should be a recovery as though there had been a promise. Clark v. Peoples Sav. & Loan Ass'n, 221 Ind. 168, 171, 46 N.E.2d 681, 682 (1943). Indiana courts articulate three elements for these claims: (1) a benefit conferred upon another at the express or implied request of this other party; (2) allowing the other party to retain the benefit without restitution would be unjust; and (3) the plaintiff expected payment. Kelly v. Levandoski, 825 N.E.2d 850, 861 (Ind.Ct.App.2005), trans. denied. Put another way, a plaintiff must establish that a measurable benefit has been conferred on the defendant under such circumstances that the defendant's retention of the benefit without payment would be unjust. One who labors without an expectation of payment cannot recover in quasi-contract. Bayh v. Sonnenburg, 573 N.E.2d 398, 408 (Ind.1991). Our analysis, however, necessarily begins from the view that this is not the typical quantum meruit case in which there was no contract whatsoever, and one party seeks restitution for services it provides to the benefit of another. See, e.g., Bayh, 573 N.E.2d at 398; see also Kelly, 825 N.E.2d at 850. Quite to the contrary, in this case there was an explicit contract in the form of a Medicaid provider agreement. Thus, the posture of this quantum meruit action is a situation in which a contract existed, one party breached the contract, and now that same breaching party seeks restitution for services it purportedly continued providing after the contract was terminated, and for which the other party was no longer contractually obligated to pay. At the outset, the doctrine of unclean hands certainly gives us pause in this circumstance. [5] After all, this was no mere technical breach of the Provider Agreement by New Horizon. The survey report by the State Department of Health was apparently sixty-two pages long, and revealed disturbing deficiencies such as patients wearing soiled clothing, an incontinent patient wetting herself and going unnoticed by staff until ISDH's surveyor pointed it out, patients with dried feces on their backs, and flies crawling on their arms and faces. Legacy Healthcare, Inc. v. Barnes & Thornburg, 837 N.E.2d 619, 643 (Ind.Ct.App.2005), reh'g denied, trans. denied. The report was convincing enough that the Court of Appeals used it as prima facie evidence that New Horizon could not have prevailed even if it had properly appealed the ISDH survey, id., and probably reflects enough wrongdoing on New Horizon's part to deny it recovery on an equitable claim flowing from that wrongful conduct. This is particularly true when the claim arises in such a highly regulated field and otherwise risks incentivizing additional facilities to follow New Horizon's lead: provide grossly substandard care to some of our state's most vulnerable citizens and then demand repayment for that care from the public coffers. Nevertheless, we also find that the claim fails on its own merits. New Horizon contends that it is entitled to restitution because FSSA has been unjustly enriched by accepting New Horizon's provision of care for Medicaid dependent residents from January 29, 2000 to November 6, 2000 without reimbursing or otherwise compensating Legacy, where Legacy reasonably expected to receive reimbursement. (Appellant's Br. at 15-16.) FSSA counters that New Horizon ownership was well versed and proficient in the network of rules and regulations that create the Medicaid processincluding the consequences of adverse actions. (Appellee's Br. at 17.) Therefore, FSSA says, Legacy should have known in September of 1999 that its Medicaid reimbursement was going to cease, that the 131 residents would most likely remain at New Horizon, and that Legacy would have to pay for their care. (Appellee's Br. at 18.) The evidence does show that New Horizon could not, under any level of reasonableness, have expected payment from FSSA once it had been decertified. The evidence shows that New Horizon's Medicaid provider agreement, establishing New Horizon as a provider of Medicaid-covered services, imposed the following obligations on New Horizon (among others): 1. To continually comply with all enrollment requirements established under rules adopted by the State of Indiana Family and Social Services Administration (IFSSA). 2. To abide by and comply with all federal and state statutes and regulations pertaining to the Medicaid Program, as they may be amended from time to time. 3. To continually meet the state and federal licensure, certification or other regulatory requirements for Provider's specialty including all provisions of the State of Indiana Medical Assistance law or any rule or regulation promulgated pursuant thereto. (App. at 50.) The provider agreement also stipulates that it could be terminated for Provider's breach of any provision of this Agreement as determined by IFSSA. (App. at 53.) It was signed by Douglas A. Bradburn, President of New Horizon. And as Bradburn states in his first affidavit, Legacy was contracted by FSSA to provide Medicaid-covered supplies and services to these individuals who were placed in the New Horizon facility by FSSA. Under the contract, a Medicaid Provider Agreement, FSSA paid Legacy for care and services to the residents. (App. at 78.) FSSA's September 9, 1999 letter effectively terminated this contract as a result of New Horizon's breachits failure to satisfy an ISDH inspection. Douglas Bradburn is no mean affiant. In addition to the standard language affirming that he had personal knowledge of all the representations he gave in his affidavits as a representative of New Horizon, he stated that he had been the President of New Horizon since 1993, participated in the facility's opening in 1972, and participated, as a party, witness and litigation assistant, in legal proceedings concerning the payment, admission and transfer of Mentally Retarded and Developmentally Disabled individuals. (App. at 93.) He was highly proficient in the areas of State and Federal Rules and Regulations and all of the peripheral activities that go along with compliance issues and adverse actions. (App. at 94.) He had taken new facilities through the licensing and certification processes, taken part in over one thousand certification surveys, and participated in every stageand roleof proceedings involving both ISDH and FSSA. (App. at 94.) Further, as noted above, the Medicaid process is subject to a complex and interwoven scheme of federal and state statutes and regulations. The end result of this scheme is that the State of Indiana may provide federal Medicaid funding only to those facilities that have been properly certified by ISDH and FSSA. And if there is no federal funding for the facility, the General Assembly has declared, there can be no State Medicaid funding either. Ind. Code § 12-15-5-2 (2004) (Medicaid does not include a service or supply for which federal financial participation is not available.). Moreover, the General Assembly has not imposed upon FSSA, its secretary, or its subordinate offices any broad, sweeping duty to pay for the long-term medical care of Medicaid-eligible individuals out of any other coffers. FSSA is charged with acting as the agent to the federal government in ... [t]he administration of federal money granted to Indiana to aid the welfare functions of the state, Ind.Code § 12-8-1-8(c) (2004), not to back-fill those federal monies with state funds if a provider fails to meet the federal regulatory requirements. The closest thing to such a duty that New Horizon points us to is contained in the State Operations Manual, a document produced by the Centers for Medicare & Medicaid Services (CMS). This document states that the State's Medicaid agency has the primary responsibility for relocating Medicaid patients and for ensuring their safe and orderly transfer from a facility that no longer participates in Medicaid to a participating facility. (Appellant's Add'l Auth. at 5.) This is because the State remains responsible for the care and services provided to Medicaid patients. (Appellant's Add'l Auth. at 5.) It then goes on to list the considerations the State must apply in developing a transfer or relocation plan after decertifying a Medicaid facility. (Appellant's Add'l Auth. at 5-6.) Even accepting any deference we might give to a regulatory agency like CMS, we cannot read an isolated provision in a federal handbook to trump Indiana's own statutory law prohibiting the expenditure of state funds with no federal Medicaid participation, Ind.Code § 12-15-5-2, and constitutional prohibition against the expenditure of funds from the Treasury in the absence of such statutory authorization. Ind. Const. art. 10, § 3. This brings us back to the original point: New Horizon was led by people extremely knowledgeable about all of this. Bradburn knew the regulations and requirements needed to enter into a provider agreement, as well as the standards his facility was compelled to meet in order to comply with that agreement. He understood well the survey process and the implications of a failed survey on a facility's continued receipt of Medicaid funds. Moreover, he was well versed in the operation and application of the governing statutes and regulationsall of which mandate the termination of Medicaid funding (both state and federal) upon termination of a provider agreement, and none of which provide for state funding from other sources in that instanceand could not have been surprised that his post-decertification bills were denied by FSSA. So not only could New Horizon not have reasonably foreseen payment from FSSA for its Medicaid-eligible patients after it was decertified, the evidence clearly shows that it was aware that decertification would notcould notresult in the immediate (or even reasonably fast) transfer of its Medicaid-eligible patients to other facilities by the State. As such, New Horizon cannot succeed, as a matter of law, in its claim for quantum meruit because it cannot show that it expected payment for any services it might have provided. We therefore affirm the trial court with respect to this issue. Having said that, our affirmance should not be understood to mean that under different facts, timetables, and circumstances, common-law remedies might not of necessity need to intertwine to make adequate provision for developmentally impaired people whose well-being rests on actions by caregivers and public officers. But to insert the common law in this case at this point runs a substantial risk of damaging regular Medicaid processes designed to help the disabled, and potentially creating perverse incentives for substandard behavior.