Court Opinion

ID: 6464
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:17:35+00
Date Added: 2024-06-11T15:04:35.838687
License: Public Domain

United States Court of Appeals,

                               Fifth Circuit.

                                No. 93-4621.

            UNITED STATES of America, Plaintiff-Appellee,

                                       v.

            VERNON HOME HEALTH, INC., et al., Defendants,

   Vernon Home Health Care Agency, Inc., Defendant-Appellant.

                               June 1, 1994.

Appeal from the United States District Court for the Eastern
District of Texas.

Before KING and SMITH, Circuit Judges, and KAZEN,* District Judge.

     JERRY E. SMITH, Circuit Judge:

     Vernon   Home    Health    Care   Agency,   Inc.   ("Vernon   II"),   a

purchaser of the corporate assets of a medicare provider, Vernon

Home Health, Inc. ("Vernon I"), appeals a summary judgment in favor

of the government for repayment of medicare overpayments made to

Vernon I.     Finding that the Social Security Act and federal

regulations preempt state corporate law in this regard, we affirm.

                                       I.

     In March 1985, Vernon I, a Texas non-profit corporation, sold

its assets to Vernon II, a Texas corporation.           Under the terms of

the purchase agreement, Vernon II paid $23,051.96 for the assets of

Vernon I and assumed no liabilities.

     Vernon II provides home health care to Medicare patients.

Pursuant to the provisions of Medicare, a provider number is

     *
      District Judge of the Southern District of Texas, sitting
by designation.

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assigned to each participant in the Medicare programs.           Vernon I

held Provider No. 45-7124, which was automatically transferred to

Vernon II in October 1985.

     The government filed a civil action in federal court alleging

Medicare overpayments to Vernon I in the amount of $30,072.08 for

the fiscal year ending June 30, 1984.        The district court granted

summary judgment, finding Vernon II jointly and severally liable

with Vernon I for the overpayments.

                                  II.

                                   A.

     We review a grant of summary judgment de novo.              Hanks v.

Transcontinental Gas Pipe Line Corp., 953 F.2d 996, 997 (5th

Cir.1992).    Summary judgment is appropriate "if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that 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).     The party

seeking summary judgment carries the burden of demonstrating that

there is an absence of evidence to support the non-moving party's

case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548,

2554, 91 L. Ed. 2d 265 (1986).      After a proper motion for summary

judgment is made, the non-movant must set forth specific facts

showing that there is a genuine issue for trial.          Hanks, 953 F.2d

at 997.

     We   begin   our   determination   by   consulting   the   applicable

substantive law to determine what facts and issues are material.

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King v. Chide, 974 F.2d 653, 655-56 (5th Cir.1992).       We then review

the evidence relating to those issues, viewing the facts and

inferences in the light most favorable to the non-movant.          Id.    If

the non-movant sets forth specific facts in support of allegations

essential to his claim, a genuine issue is presented.         Celotex, 477
U.S. at 327, 106 S.Ct. at 2555.

         Both the government and Vernon II filed affidavits of expert

witnesses. John Singer, Vernon II's expert witness, stated that he

did not know of any policy that would obligate the purchaser of

assets of a provider for overpayments made to the prior provider.

He claimed that representatives of Health Care and Financing

Administration had made statements to him that such a policy would

seriously     disrupt   health    care    services.1   John    Eury,     the

government's expert, claimed in his affidavit that the purchaser of

assets does become liable for overpayments made to the prior

provider.

     Vernon II claims that these conflicting affidavits create a

genuine issue of material fact that cannot be resolved on summary

judgment.     We disagree.       The affidavits express opinions about

legal issues that we must resolve de novo.        International Ass'n of

Machinists & Aerospace Workers v. Texas Steel Co., 538 F.2d 1116,

1119 (5th Cir.1976), cert. denied, 429 U.S. 1095, 97 S. Ct. 1110, 51

     1
      Because we conclude that the interpretation of the statute
and regulations is a legal issue that we must resolve at this
stage, we do not reach the issue of whether the affidavit
violates FED.R.CIV.P. 56(e), requiring affidavits to be made "on
personal knowledge" and not on what the affiant "heard" from
someone else. See Leonard v. Dixie Well Serv. & Supply, 828 F.2d
291, 295 (5th Cir.1987).

                                      3
L. Ed. 2d 542 (1977).

                                  B.

       Vernon II argues that the purchaser of corporate assets does

not assume any liabilities under Texas corporate law because the

imposition of liability would amount to a prohibited de facto

merger.   See Mudgett v. Paxson Mach. Co., 709 S.W.2d 755, 758

(Tex.App.—Corpus Christi 1986, writ ref'd n.r.e.).         And as Vernon

II paid Vernon I a reasonable value for the assets, the sale is not

subject to attack as a fraudulent transfer.       TEX.BUS. & COM.CODE ANN.

ch. 24.    Thus, Vernon II concludes that the government is not

entitled to recover against Vernon II for the overpayments.

       Regardless of the result under state corporate law, federal

law governs cases involving the rights of the United States arising

under a nationwide federal program such as the Social Security Act.

United States v. Jon-T Chems., 768 F.2d 686, 690 n. 6 (5th

Cir.1985) (citing United States v. Kimbell Foods, 440 U.S. 715, 99
S. Ct. 1448, 59 L. Ed. 2d 711 (1979)), cert. denied, 475 U.S. 1014,

106 S. Ct. 1194, 89 L. Ed. 2d 309 (1986).       The authority of the United

States in relation to funds disbursed and the rights acquired by it

in relation to those funds are not dependent upon state law.

Kimbell Foods, 440 U.S. at 726, 99 S.Ct. at 1457.        Moreover, when

a dispute involves the validity of an agency action, the preemptive

force of the action does not depend upon express congressional

authorization to displace state law.          NCNB Texas Nat'l Bank v.

Cowden, 895 F.2d 1488, 1494 (5th Cir.1990).        Instead, if Congress

has   authorized   an   administrator   to   exercise   his   discretion,

                                   4
judicial review is limited to determining whether the administrator

has exceeded his authority or acted arbitrarily.                   Fidelity Fed.

Sav. & Loan Ass'n v. De la Cuesta, 458 U.S. 141, 154, 102 S. Ct.
3014, 73 L. Ed. 2d 664 (1982).               See First Gibraltar Bank, FSB v.

Morales,    19 F.3d 1032    (5th    Cir.1994).       Similarly,    when      the

administrator promulgates regulations that preempt state law, the

court's     inquiry      is   limited     to   whether     the   regulations       are

reasonable, authorized, and consistent with the statute.                     Id.

      The   regulations       were     promulgated    pursuant    to   the   Social

Security Act, and there is no question that they preempt state law

in this area.      Thus, the only question is whether the regulations

unambiguously require the purchaser of a provider agreement to

assume liability for Medicare overpayments made to the prior

provider.

                                          C.

        The controlling regulation is Title 42 C.F.R. § 489.18(d)

which   requires:         "An     assigned     agreement    is   subject     to    all

applicable statutes and regulations and to the terms and conditions

under which it was originally issued...."                  Thus, any purchase of

assets that involves the assignment of the provider agreement is

subject to the relevant statutory and regulatory conditions.                       One

of these conditions is that adjustments are made for overpayments,

pursuant     to   42     U.S.C.    §     1395g(a):       "The    Secretary    shall

periodically determine ... necessary adjustments on account of

previously made overpayments...." See Beverly Enters. v. Califano,

460 F. Supp. 830    (D.D.C.1978)      (holding    purchaser    of     stock    of

                                           5
corporate owners of nursing home liable for medicare overpayments

to corporation);     see also In re Metro. Hosp., 131 B.R. 283, 291

(E.D.Pa.1991)     (holding    that   the   Secretary's   right      to   offset

overpayments is mandated by 42 U.S.C. § 1395g, which serves as a

limitation   on   the   assignment    in   bankruptcy    of   the    provider

payments).

     We also note that the Secretary's interpretation of the

regulation and statute is eminently reasonable.          By encompassing a

system of interim payments on an estimated cost basis, subject to

year-end accounting, the program ensures Medicare providers a

steady flow of income sufficient to provide service.           The assignee

of a provider number is subject to this accounting procedure in

order to provide continuous service.

     The operative effect of section 498.18(d) is that all assigned

provider agreements are subject to the rules and regulations of the

Social Security Act.         Thus, the state corporate law provisions

recognizing Vernon II's right to purchase only assets is preempted

by the federal law mandating that all assignments of provider

agreements be subject to federal terms and conditions.

     Vernon II could have chosen not to accept the automatic

assignment of the provider agreement.            Indeed, the government

acknowledges that the case would be different if Vernon II had not

assumed Vernon I's provider number.         In that case, Vernon II would

have had to apply as a new applicant to participate in the Medicare

program.   But Vernon II accepted the automatic assignment because

it did not want a break in service while it awaited approval.

                                      6
Provider No. 45-7124 was automatically assigned to Vernon II

pursuant to 42 U.S.C. § 1395cc.    By accepting that assignment,

Vernon II agreed (albeit unknowingly) to accept the terms and

conditions of the regulatory scheme.   Thus, it is liable for the

overpayments.

     AFFIRMED.

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