Court Opinion

ID: 2709451
Source: CourtListenerOpinion
Date Created: 2014-08-05 15:15:53.360116+00
Date Added: 2024-06-11T09:14:18.371905
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
No. 12-3924

CITIZENS HEALTH CORPORATION,
                                                Plaintiff-Appellant,

                                v.

KATHLEEN SEBELIUS, Secretary of
Health and Human Services, et al.,
                                             Defendants-Appellees.

        Appeal from the United States District Court for the
         Southern District of Indiana, Indianapolis Division.
      No. 1:12-cv-00748-SEB-TAB — Sarah Evans Barker, Judge.

      ARGUED MAY 28, 2013 — DECIDED AUGUST 2, 2013

  Before EASTERBROOK, Chief Judge, and WILLIAMS and
HAMILTON, Circuit Judges.
    HAMILTON, Circuit Judge. Defendant Health and Hospital
Corporation of Marion County, Indiana (“Health and Hospi-
tal”) is a municipal corporation that operates a major hospital
and numerous health care facilities. This appeal arises from one
of those facilities, a federally funded health center that Health
and Hospital operated in partnership with plaintiff Citizens
2                                                    No. 12-3924

Health Corporation (“Citizens”) to serve the medically
underserved population in Indianapolis. The health center was
funded in part by a federal grant awarded to Health and
Hospital by the federal Health Resources and Services Admin-
istration (“HRSA”), which is part of the Department of Health
and Human Services. In 2012, after Citizens and Health and
Hospital had a falling out, Health and Hospital decided to
terminate its partnership with Citizens and relinquish the
federal grant, which still had several years of funding remain-
ing.
    In response, Citizens filed this suit against Health and
Hospital, HRSA, and other defendants in federal district court
in an effort to retain the grant funds. The district court granted
summary judgment in favor of all defendants, concluding that
Citizens had no contractual, statutory, or constitutionally
cognizable interest in the grant, and that Health and Hospital
and HRSA were free to terminate the grant without Citizens’
approval. Citizens appeals this decision, and we affirm.
I. Factual and Procedural Background
    A. Section 330 Grants
    Section 330 of the Public Health Services Act makes federal
funding available to qualifying health centers that provide
primary health care services to medically underserved popula-
tions. 42 U.S.C. § 254b. An entity becomes eligible for section
330 grant funds by submitting an application to HRSA. In
addition to establishing that the entity provides health care to
a medically underserved population area, the entity must
satisfy a number of additional requirements. See 42 U.S.C.
§ 254b(k)(3). Of particular relevance to this case, a qualified
No. 12-3924                                                    3

entity must be able to demonstrate its financial responsibility,
§ 254b(k)(3)(D), and must establish a governing board com-
posed of a majority of individuals who are being served by the
health center, § 254b(k)(3)(H). Entities that satisfy these
requirements and receive section 330 grant funds are desig-
nated federally qualified health centers.
    Federally qualified health centers may be public or not-for-
profit entities. Since public entities sometimes have difficulty
establishing an independent patient-controlled board, HRSA
permits public entities to form health centers with a private
not-for-profit co-applicant. See Health Resources and Services
Administration, Policy Information Notice 1999-09, Implemen-
tation of the Balanced Budget Act Amendment of the Defini-
tion of Federally Qualified Health Center Look-Alike Entities
for Public Entities (1999). Under a co-applicant structure, the
public agency partners with a co-applicant to satisfy the
statutory requirements. The co-applicant typically provides the
patient-controlled board to oversee the provision of health care
services while the public agency retains fiscal and general
policy-making authority. The entities have flexibility to
determine their responsibilities, but HRSA requires that the
entities memorialize the agreed allocation of responsibilities in
a written contract. Id. at 6-7. This contract is known as a co-
applicant agreement.
   B. Citizens and Health and Hospital
   Plaintiff Citizens is an Indiana not-for-profit corporation.
Since 1974, Citizens has operated a health center that provides
primary health care services to the medically underserved
population in Indianapolis. In 1994, Citizens began receiving
4                                                      No. 12-3924

section 330 grant funds as a federally qualified health center. In
2001, however, Citizens ran into managerial and financial
difficulties. These difficulties threatened Citizens’ eligibility for
the section 330 grant.
    To continue operating the health center with federal
funding, Citizens partnered with Health and Hospital, which
is again a public entity. Health and Hospital’s health centers
were all controlled by a central board. This meant that Health
and Hospital was not eligible to operate a federally qualified
health center on its own because it did not satisfy the section
330 requirement of having the center controlled by a board
composed of a majority of health center patients. Health and
Hospital and Citizens were therefore natural complements for
each other. Citizens was able to provide the necessary patient-
controlled governing board and Health and Hospital the
financial management responsibility.
    As required by HRSA, Health and Hospital and Citizens
formalized this relationship in a written co-applicant agree-
ment. Under the terms of the agreement, Citizens was respon-
sible for the general governance of the health center, providing
primary care medical services, and achieving several specified
performance improvement goals. Health and Hospital was to
provide financial management, approve the health center’s
budget, develop sound management procedures, assist the
Citizens’ board, and “Receive, manage, and disburse” the
section 330 grant funds, for which Health and Hospital had
“ultimate fiscal accountability … .” HRSA approved the
arrangement and awarded the section 330 grant to Health and
Hospital as grantee. The parties later renewed both the grant
and the co-applicant agreement.
No. 12-3924                                                   5

    In February 2011, the fourth of these co-applicant agree-
ments expired. Unlike in the past, Citizens and Health and
Hospital did not immediately enter into a new agreement.
Health and Hospital maintains that it was reluctant to enter
into a new agreement because, among other reservations, it
was concerned about Citizens’ financial health and stability,
and Citizens had failed to provide it with the financial state-
ments necessary to alleviate its concerns. Because HRSA
requires the public entity and the co-applicant to operate the
center under a co-applicant agreement, HRSA sent both
Citizens and Health and Hospital notice that the health center
was no longer in compliance with the grant program require-
ments and would lose eligibility for the grant funds unless they
entered into a new co-applicant agreement.
   On September 23, 2011, Citizens and Health and Hospital
entered into a new co-applicant agreement. Unlike the previ-
ous multi-year agreements, though, the new agreement was to
be in effect only through February 28, 2012. The agreement
provided options for renewal for up to four successive one-
year terms, through the end of the current grant period. The
new co-applicant agreement, however, imposed no obligation
on either party to renew the agreement. The new agreement
explicitly provided that the agreement could be renewed only
by “written notice sent by either Party and written acceptance
by the other.”
    After Health and Hospital and Citizens signed the new
agreement, their relationship did not improve. Health and
Hospital remained troubled by Citizens’ accounting and
management practices, and proposed restructuring the
relationship to give Health and Hospital greater control over
6                                                         No. 12-3924

the health center staff and the provision of medical services.
Citizens was not receptive to the proposed changes. HRSA
visited the center during November 2011 and attempted to
resolve the disagreements, but the attempt at mediating the
dispute proved unsuccessful.
    Health and Hospital then concluded that the current
arrangement was unsatisfactory. Health and Hospital told
Citizens that it would not be renewing the co-applicant
agreement and that it would accordingly relinquish the section
330 grant to HRSA when the agreement expired. Health and
Hospital also notified HRSA on February 14, 2012 that it
intended to relinquish the grant on November 30, 2012. (The
lag between expiration of the agreement and termination of the
grant was to prevent disruption of medical services.)
    Citizens, fearing loss of the grant funds and invoking
federal question and supplemental jurisdiction, filed this suit
on June 1, 2012 seeking to enjoin the defendants from terminat-
ing the section 330 grant.1 Citizens asserted constitutional and
contractual claims. Citizens alleged that HRSA’s decision to
permit Health and Hospital to relinquish the grant was both
contrary to law and a violation of Citizens’ procedural due
process rights. Citizens also alleged that Health and Hospital’s

1
    In addition to Health and Hospital and HRSA, Citizens sued the
Department of Health and Human Services and its Secretary. The claims
against these defendants are indistinguishable from the claims against
HRSA, so for simplicity we refer only to HRSA. Citizens also sued James
Minor and Matthew Gutwein, the board chair and executive director,
respectively, of Health and Hospital. Citizens has not appealed the grant
of summary judgment in favor Minor and Gutwein.
No. 12-3924                                                     7

release of the grant breached the co-applicant agreement. The
district court granted summary judgment in favor of all
defendants, finding that Citizens had no right to the grant
under federal law and that the co-applicant agreement did not
prevent Health and Hospital from relinquishing the grant after
the contract expired. Citizens Health Corp. v. Sebelius, No. 1:12-
cv-00748, 2012 WL 5985592 (S.D. Ind. Nov. 29, 2012). Citizens
appeals. We have jurisdiction under 28 U.S.C. § 1291.
II. Analysis
    Summary judgment is appropriate if there are no genuine
issues of material fact such that the moving parties are entitled
to judgment as a matter of law. Fed. R. Civ. P. 56(a). We review
the district court’s grant of summary judgment de novo, and we
give the non-moving party the benefit of reasonable inferences
that could be drawn from the record. See Good v. Univ. of
Chicago Med. Ctr., 673 F.3d 670, 673 (7th Cir. 2012).
    Citizens appeals the grant of summary judgment in favor
of both HRSA and Health and Hospital. Citizens contends that
the district court erred in determining that Citizens itself was
not the section 330 grant recipient. As a result, Citizens
maintains, the court incorrectly concluded both that HRSA
acted lawfully when it accepted Health and Hospital’s request
to relinquish the grant and that the Health and Hospital-
Citizens co-applicant agreement did not prohibit Health and
Hospital from relinquishing the grant after the agreement
expired. We find no error.
8                                                  No. 12-3924

    A. Section 330 Grantee
    Before turning to the specific claims, we begin with Citi-
zens’ contention that it was the grantee, which is the founda-
tion for all its claims. Citizens’ argument confuses its recent
position as co-applicant for the health center with its earlier
legal status as the section 330 grantee. They are not identical.
Recall that a health center with a co-applicant structure must
memorialize the division of responsibilities in a written co-
applicant agreement. In this case, the co-applicant agreement
provided that Health and Hospital was solely responsible for
receiving the grant funds. Consistent with the agreement,
HRSA treated Health and Hospital as the grantee. The undis-
puted facts show that Health and Hospital was the sole
grantee.
   The notice of grant award provides clear evidence that
HRSA considered Health and Hospital to be the sole grantee.
The grant award contains a box captioned “Grantee Name and
Address.” Health and Hospital’s is the only name listed in the
box. Citizens suggests that we should not take this seriously
because Citizens and Health and Hospital agreed that Health
and Hospital would have its name on the grant only as a
formality to comply with regulations. Citizens points to no
evidence of such a side agreement, and the co-applicant
agreement between Health and Hospital and Citizens belies
the conclusion that this was a meaningless formality. (Even if
there had been a side agreement, it would not bind HRSA
without its consent.)
   We need not consider this possibility further, however,
because the co-applicant agreement demonstrates that the
No. 12-3924                                                    9

parties understood that Health and Hospital would be in
charge of the grant. Section 2.2.4 of the agreement provided
that Health and Hospital was to “Receive, manage, and
disburse Section 330 grant funds” and “have ultimate fiscal
accountability for the Section 330 grant funds.” This language
does not suggest that Citizens had any authority over the
grant. Moreover, the “ultimate fiscal responsibility” language
tracks the definition of grantee in the federal regulations. When
a grant is made to a local government entity like Health and
Hospital, the regulations define the grantee as “the govern-
ment to which a grant is awarded and which is accountable for
the use of the funds provided.” 45 C.F.R. § 92.3. The grant
award, the co-applicant agreement, and the regulations show
beyond dispute that Health and Hospital was the sole grantee.
    The conclusion that Citizens was not a grantee does not
mean that it was at Health and Hospital’s mercy for grant
funds. Rather it means Citizens’ entitlement to grant funds
existed only by contract with Health and Hospital. Section 2.2.4
of the Health and Hospital-Citizens’ agreement provided such
an entitlement, though it was only a partial one. During the
agreement’s operation, Health and Hospital was to “ensure
that [Citizens] receives Section 330 grant funds for current
month costs.” For our purposes, though, the critical point is
that the agreement lasted for a shorter period than the grant,
providing the conditions for this dispute. We turn now to the
substance of Citizens’ claims against HRSA and Health and
Hospital.
10                                                 No. 12-3924

     B. Claims against HRSA
    Citizens invokes the Administrative Procedure Act
(“APA”) to set aside HRSA’s decision to terminate the grant on
Health and Hospital’s request. Citizens argues that the decision
was “not in accordance with law .…” See 5 U.S.C. § 706(2)(A).
Our review of APA claims is deferential to the agency. We will
defer to the judgment of the agency unless its action was
“arbitrary, capricious, or not in accordance with the law.”
Edgewater Hosp., Inc. v. Bowen, 857 F.2d 1123, 1129 (7th Cir.
1988). Citizens argues that the agency’s decision to accept
relinquishment of the grant was unlawful both because it did
not comply with the applicable regulations and because it
deprived Citizens of property without constitutionally ade-
quate process. Regardless of other obstacles these argument
might encounter, both fail for a common reason: Citizens was
not the grantee, and HRSA therefore could not have been
required to afford it any process under the regulations or the
Due Process Clause before terminating the grant. We address
first the regulatory claim and then the constitutional claim.
        1. HRSA’s Compliance with Applicable Regulations
   Section 330 grants to local governmental entities are
governed by 45 C.F.R. part 92. The regulations permit the
grantee to relinquish the entire grant by providing the award-
ing agency with written notice that sets forth the reasons for
termination and the effective date of termination. 45 C.F.R.
§ 92.44(b). There is no requirement that the grantee provide
notice to other entities that may be affected by termination or
that HRSA consult these entities before terminating the grant.
No. 12-3924                                                    11

The regulations therefore empower HRSA to accept the
relinquishment of a grant at the grantee’s request.
   The district court correctly applied 45 C.F.R. part 92 to
HRSA’s action and determined that section 92.44 permitted
HRSA to accept Health and Hospital’s relinquishment of the
grant. Because Health and Hospital was the grantee, the
regulations allowed HRSA to terminate the grant at Health and
Hospital’s request after Health and Hospital provided the
required notice. § 92.44(b). Health and Hospital provided
HRSA with the required notice on February 14, 2012, and
HRSA lawfully terminated the grant in response. The district
court applied the proper law and rendered the proper result.
    Citizens’ arguments to avoid this logic all rely on the
mistaken theory that Citizens was the grantee. Citizens
contends that the district court erred by applying 45 C.F.R. part
92 of the regulations instead of 45 C.F.R. part 74 because the co-
applicant agreement referred to part 74. According to Citizens,
the mention of part 74 in the co-applicant agreement required
HRSA and the district court to apply part 74. The only differ-
ence between part 92 and part 74 relevant to this dispute is that
part 74 governs grants to private entities while part 92 governs
grants to state and local governmental entities. Citizens is not
clear about the import of this alleged error; presumably the
significance is that if part 74 governed, it would mean that
Citizens was the grantee so that HRSA could accept relinquish-
ment of the grant only from Citizens.
    This argument, however, is simply a reframing of the
argument that Citizens is the grantee, and we have already
rejected that argument. Moreover, the co-applicant agreement
12                                                   No. 12-3924

did not purport to alter the governing law. Section 7.1 of the
agreement provided that the “agreement shall be governed
and construed in accordance with applicable federal and state
laws, regulations, and policies, including but not limited to …
45 C.F.R. Part 74 … .” This provision simply means that the
parties intended the applicable laws to govern. Because Health
and Hospital was the grantee, part 92 is the applicable law and
the regulations permitted HRSA to terminate the grant at
Health and Hospital’s request.
       2. Constitutional Due Process
    Citizens also argues that HRSA’s decision to terminate the
grant without giving it notice and an opportunity to object
violated its constitutional due process rights. To prevail on this
claim, Citizens must show that HRSA deprived it of a constitu-
tionally protected liberty or property interest and that the
deprivation occurred without constitutionally adequate
process. See Doe v. Heck, 327 F.3d 492, 526 (7th Cir. 2003). The
threshold question in any due process challenge is whether a
protected property or liberty interest actually exists. See
American Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 59 (1999);
Cole v. Milwaukee Area Technical Coll. Dist., 634 F.3d 901, 904
(7th Cir. 2011). To have a protectable property interest in a
benefit such as a grant, a person “must have more than a
unilateral expectation of [the claimed interest]. He must,
instead, have a legitimate claim of entitlement to it.” Board of
Regents of State Colleges v. Roth, 408 U.S. 564, 577 (1972). A
legitimate claim of entitlement may arise from a contract, a
statute, or a regulation, provided the source of the claim is
specific enough to require the provision of the benefit on a
No. 12-3924                                                                  13

nondiscretionary basis. Khan v. Bland, 630 F.3d 519, 528-29 (7th
Cir. 2010). Citizens’ procedural due process claim fails at this
first step. Citizens has failed to offer any evidence indicating
that it had a legitimate claim of entitlement to the grant or that
it was deprived of a protected liberty interest.2
    Citizens first contends that federal law provides it with a
claim of entitlement to the grant as grantee. We have already
rejected this argument because only Health and Hospital, as
sole grantee, had an arguable entitlement to the grant funds
from HRSA. There was therefore no basis for Citizens to
conclude that federal law provided it with a legitimate claim of
entitlement to the grant.
    Next, Citizens attempts to locate a property interest in
Indiana employment law. The argument appears to be that the
grant created an employment arrangement in which Citizens
had an expectation of employment throughout the grant term,
and that this expectation is considered a property interest
under Indiana law. Apart from other potential problems with
this argument—the contractual relationship between Citizens
and Health and Hospital would not be “employment” under
Indiana law—the argument fails because Citizens has not
identified any statute, regulation, or portion of the grant that
gave it a continued expectation of employment or any other
contractual relationship arising out of the grant funds. The
closest thing Citizens can point to is the co-applicant agree-

2
  Citizens failed to argue this point in the district court. See Citizens Health
Corp. v. Sebelius, 2012 WL 5985592, at *8. It is unclear, however, whether the
district court based its decision on waiver, so we review Citizens’ argu-
ments on this point for the sake of completeness.
14                                                    No. 12-3924

ment. But any entitlement that arose from this agreement
would be provided by Health and Hospital under the agreement,
not by HRSA under the grant. Citizens has not alleged and
could not allege that HRSA was bound by the contract, which
had expired in any event. Citizens was not the grantee, and the
applicable regulations do not provide a co-applicant with any
entitlement to the grant funds. Citizens therefore did not have
an ascertainable term of employment with the federal govern-
ment or with Health and Hospital pursuant to the grant.
    Third, Citizens argues that it has a protected liberty interest
in its reputation and that the termination of the grant harmed
its reputation. Assuming that Citizens will in fact suffer
reputational harm, not all harms to reputation violate constitu-
tionally protected interests. In Paul v. Davis, 424 U.S. 693, 711-
12 (1976), the Supreme Court held that state action that
stigmatizes a person’s reputation is not a deprivation under the
Due Process Clause unless the deprivation alters a previously
afforded right or status. Such status need not be supported by
an affirmative law, such as the freedom a person over twenty-
one enjoys to purchase liquor in a liquor store, see Wisconsin v.
Constantineau, 400 U.S. 433 (1971) (finding deprivation of
liberty interest when effect of government action was to
prohibit person from purchasing liquor), but the right or status
“must take concrete forms and extend beyond mere
reputational interests … .” Omosegbon v. Wells, 335 F.3d 668,
675 (7th Cir. 2003). Once again, because Citizens was not the
grantee, HRSA’s acceptance of the relinquishment of the grant
did not deprive Citizens of a legal right or status, a necessary
prerequisite to a finding of a reputational injury that might
violate the federal Constitution.
No. 12-3924                                                     15

    Citizens finds no support for its position in Southern Mutual
Help Ass’n, Inc. v. Califano, 574 F.2d 518, 524 (D.C. Cir. 1977),
where the D.C. Circuit held that agency regulations required
the agency to provide a grant recipient a hearing before
terminating a grant under a similar Public Health Service Act
program. In so deciding, the court did not reach the question
of whether the reputational harm from the termination of a
grant constituted a liberty interest protected by the Due
Process Clause. The court simply decided that such harm was
sufficient to convey standing under the APA, a different
question and one that does not speak to the issue in this case.
Southern Mutual Help differs from this case in two other
important respects. First, unlike Citizens, the organization in
Southern Mutual Help was itself a current grantee. Second, the
grant was terminated based on accusations that the organiza-
tion was “violating departmental regulations, misusing grant
funds, and engaging in activities that create conflicts of
interest.” Id. Neither of these conditions is present here.
Citizens was not the grantee, and there was no determination
by HRSA of any wrongdoing on the part of Citizens that might
have implicated the sort of reputational interests at issue in
Southern Mutual Help.
   C. Claims Against Health and Hospital
    We now turn to Citizens’ breach of contract claim against
Health and Hospital. Citizens argues that the district court
erred in granting summary judgment by overlooking disputed
issues of material fact. We find the plain text of the co-applicant
agreement unambiguously permitted Health and Hospital to
relinquish the grant when the contract expired. The district
16                                                 No. 12-3924

court therefore did not err by granting summary judgment in
favor of Health and Hospital.
    The co-applicant agreement makes clear that Health and
Hospital was the party responsible for administering the
section 330 grant. The provisions of the agreement that relate
to the grant provided that Health and Hospital was to “Re-
ceive, manage, and disburse” the grant funds. And Health and
Hospital was obligated to “ensure that [Citizens] receives
Section 330 grant funds for current month costs.” In sum, the
agreement provided that Health and Hospital was responsible
for securing and disbursing the grant funds to Citizens every
month. The agreement did not obligate Health and Hospital to
disburse funds over the entire course of the grant. The contrac-
tual obligation lasted for only the duration of the contract.
When the contract expired, so did Health and Hospital’s
obligation.
    The contract also imposed no obligation on either party to
renew (or attempt to renew) the contract when it expired. The
terms on the duration of the agreement are clear. Section 19.1.1
provided that the “Agreement shall be in effect March 1, 2011
– February 28, 2012.” And section 19.1.2 provided that the
agreement may be renewed, but renewal would have required
a written offer by one party and a written acceptance by the
other. No provision in the contract required the parties to
renew the agreement or even to hold discussions before
declining to renew. If the agreement was not renewed, section
19.2.1 provided that the agreement “shall terminate immedi-
ately … .” When the agreement terminated, so did the parties’
obligations, including Health and Hospital’s obligation to
disburse the grant funds to Citizens. Thus the contract did not
No. 12-3924                                                    17

prohibit Health and Hospital from declining to renew the
contract or from relinquishing the grant when the agreement
expired on February 28, 2012. The undisputed facts thus show
that Health and Hospital did not breach the contract when it
relinquished the grant.
    Citizens also suggests that Health and Hospital breached
the contract by failing to mediate the dispute that led it to
decline to renew the contract and relinquish the grant. Article
8 of the contract provided that in the event of a dispute, “the
Parties shall attempt formal mediation, if they mutually agree
to do so.” Citizens suggests that once the parties began
mediation with HRSA, there was an obligation to complete it
before Health and Hospital could terminate the grant. Quite
apart from other problems with this argument, the issue
became moot when the contract expired. Citizens does not
contend that the alleged failure to mediate caused it injury
beyond the termination of the grant, something that we have
already concluded Health and Hospital was within its rights to
do. Once the agreement expired, Health and Hospital was free
to relinquish the grant regardless of any arguable duty to
mediate. The contract did not create a duty to mediate before
declining to renew the agreement; Health and Hospital simply
exercised its right not to renew the contract.
    Because the relevant language of the contract is clear, no
disputed issues of material fact precluded summary judgment
in favor of Health and Hospital. Though Citizens makes a
rather barebones assertion that certain affidavits in the record
reveal conflicting accounts of the parties’ expectations about
the grant, the relevant terms of the contract are so clear that we
need not wade into such extrinsic evidence indicating the
18                                                 No. 12-3924

parties’ understandings of the agreement. See Louis & Karen
Metro Family, LLC v. Lawrenceburg Conservancy Dist., 616 F.3d
618, 622 (7th Cir. 2010) (applying Indiana law; extrinsic
evidence not admissible when contract is unambiguous). For
this same reason, there was no reason for the district court to
grant Citizens leave to take additional depositions.
     The judgment of the district court is AFFIRMED.