JAMES O. BROWNING, District Judge.
The Court must make findings of fact to order a preliminary injunction. See Herrera v. Santa Fe Pub. Sch., 792 F.Supp.2d 1174, 1179 (D.N.M.2011) (Browning, J.). "[T]he findings of fact and conclusions of law made by a court granting a preliminary injunction are not binding at trial on the merits." Attorney Gen. of Okla. v. Tyson Foods, Inc., 565 F.3d 769, 776 (10th Cir.2009) (quoting Univ. of Tex. v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981)). "The Federal Rules of Evidence do not apply to preliminary injunction hearings." Heideman v. S. Salt Lake City, 348 F.3d 1182, 1188 (10th Cir.2003).
1. This case arises from the Navajo Area Office of the Indian Health Service's ("NAIHS")
2. The Navajo Nation Council has formally designated Sage Hospital a Navajo "tribal organization"
3. Sage Hospital employs approximately 200 people on a campus in Ganado, Arizona — which lies within the Navajo Nation. See Declaration of Christi El-Meligi ¶ 3, at 5, filed December 22, 2014 (Doc. 17-1)("El-Meligi 1st Decl.").
4. From 1974 to 2007, Sage Hospital's facilities grew increasingly obsolete, and the quality of its healthcare services plummeted. See Declaration of Ahmad Razaghi ¶ 3, at 21, filed December 22, 2014 (Doc. 17-1)("Razaghi 1st Decl.").
5. Consequently, by 2007, Sage Hospital was fighting multiple regulatory and financial battles to stay afloat. See Razaghi 1st Decl. ¶ 3, at 21. See id. ¶¶ 7-8, at 23.
6. The Centers for Medicare and Medicaid Services
7. Sage Hospital was also in violation of Administrative Orders that the Environmental Protection Agency ("EPA") issued in 1999 and 2006, and was also in ongoing litigation against the NAIHS. See Razaghi 1st Decl. ¶ 7, at 23.
8. Because of its substandard employee housing and benefits, and its precarious financial condition, Sage Hospital struggled to recruit and retain top-quality staff. See Razaghi 1st Decl. ¶ 13, at 25.
9. Consequently, Sage Hospital was forced to close its general surgery and obstetric care departments before January, 2007. See Razaghi 1st Decl. ¶ 8, at 23.
10. In October, 2007, Sage Hospital's Board of Directors (the "Board") rejected a plan to close the hospital, and instead chose to hire M. Morgan & Associates — a third-party management company
11. The Board hired Ahmad Razaghi — one of M. Morgan & Associates' principals — to serve as its temporary Chief Executive Officer ("CEO"). Wauneka 1st Decl. ¶ 5, at 1.
12. Under Razaghi's tutelage, Sage Hospital's turnaround effort succeeded. See Razaghi 1st Decl. ¶ 10, at 23.
13. From 2007 to 2009, Sage Hospital negotiated with the Centers for Medicare and Medicaid Services and the Arizona Department of Health Services to keep Sage Hospital open without losing additional healthcare services. See Razaghi 1st Decl. ¶ 9, at 23.
14. In 2009, Sage Hospital settled its lawsuit against the NAIHS. See Razaghi 1st Decl. ¶ 9, at 23.
15. In September, 2009 — for the first time in a decade — Sage Hospital received both an unconditional Arizona Department of Health Services license, and its Centers for Medicare and Medicaid Services certification. See Razaghi 1st Decl. ¶ 10, at 23-24.
16. On May 4, 2009, the Joint Commission awarded Sage Hospital its "Gold Seal of Approval," signifying that Sage Hospital exemplified the highest quality of patient care. Razaghi 1st Decl. ¶ 10, at 23-24.
17. In March, 2010, the United States Surgeon General, Vice Admiral Dr. Regina M. Benjamin, on behalf of the Department of Health and Human Services ("HHS"), awarded Razaghi the "Chief Executive Officer Managerial Excellence Award" for "leadership, successes and improvements which equate to improved and enhanced patient care." Razaghi 1st Decl. ¶ 10, at 23-24.
18. In June, 2012, Sage Hospital received the American Hospital Association Institute for Diversity's "Best in Class Hospital Award" for leadership in addressing health disparities and improving diversity in governance; the award recognized Sage Hospital and only one other hospital out of 900 hospitals nationwide. Wauneka 1st Decl. ¶ 7, at 2.
19. In a January 10, 2012, letter, the EPA informed Sage Hospital that it had fulfilled all of the requirements of the EPA's 1999 and 2006 Administrative Orders. See Razaghi 1st Decl. ¶ 11, at 24.
20. On September 12, 2013, the Arizona Department of Health Services licensed Sage Hospital as a Rural General Hospital through September 30, 2016. See Razaghi 1st Decl. ¶ 11, at 24.
21. In March, 2014, the Joint Commission granted Sage Hospital "Critical Access Hospital Accreditation," stating that it could not identify any requirements for improvements. Razaghi 1st Decl. ¶ 11, at 24.
22. Each year, from 2007 to 2013, Sage Hospital also received an unqualified — i.e., "clean" — audit from its independent auditors. Razaghi 1st Decl. ¶ 11, at 24.
23. Sage Hospital completed its turnaround effort without eliminating any services, and began expanding its services in 2009. See Razaghi 1st Decl. ¶ 12, at 24.
24. Sage Hospital's overhead — which includes Board stipends and payments to Razaghi and his related companies — has decreased steadily from $9 million in FY 2006, which constituted 41.9% of total expenses for that year, to $8 million in FY 2013, which constituted 24.5% of total expenses for that year. See Declaration of Michael Katigbak ¶ 8(D), at 37, filed December 22, 2014 (Doc 17-1)("Katigbak 1st Decl.").
25. During the turnaround effort, Sage Hospital terminated or allowed to resign several employees, many of whom were politically active in the Navajo Nation. See Razaghi 1st Decl. ¶ 14, at 26.
26. In July, 2013, Dr. Douglas Peter — the NAIHS' Chief Medical Officer — began receiving reports from current and former Sage Hospital senior management employees that the hospital was misusing federal funds. See Declaration of John Hubbard, Jr. ¶ 3, at 2-3, filed February 5, 2015 (Doc. 36-1)("Hubbard Decl.").
27. The current and former employees alleged that Razaghi had diverted millions of dollars to his companies over several years. See Hubbard Decl. ¶ 3, at 2-3.
28. They further alleged that Razaghi had used Sage Hospital's operating funds to settle a lawsuit that his brother had filed against him, even though Sage Hospital was not a named party in the suit. See Hubbard Decl. ¶ 3, at 3.
29. Sage Hospital and the NAIHS entered into a three-year contract in 2010, which was set to expire on September 30, 2013. See 2010 Contract; Razaghi Decl. ¶ 6, at 22-23.
30. Sage Hospital and the NAIHS also agreed to an annual funding agreement ("AFA") for the 2013 Fiscal Year ("FY"). See 2013 AFA.
31. In the 2013 AFA, Sage Hospital and the NAIHS agreed that the NAIHS would fund Sage Hospital at a total amount of $18,044,042.00, with $11,481,661.00 in base funding and $6,562,381.00 for direct and indirect contract support costs. See 2013 AFA at 22, 30.
32. On August 22, 2013, Sage Hospital submitted a proposed three-year renewal of the 2010 Contract and a successor AFA for FY 2014. See Renewal No. 1 and Amendment No. 1 to the Indian Self-Determination Act Contract Between Navajo Health Foundation/Sage Memorial Hospital, Inc. and the Secretary of the Department of Health and Human Services, filed January 13, 2015 (Doc. 21-3)("2013 Renewal"); Annual Funding Agreement Between Navajo Health Foundation — Sage Memorial Hospital, Inc., and The Secretary of the Department of Health and Human Services Fiscal Year 2014, filed January 13, 2015 (Doc. 21-3)("2014 AFA"); Hubbard Decl. ¶ 4, at 3; Razaghi 1st Decl. ¶ 16, at 26.
33. The 2013 Renewal proposed the following amendments to the 2010 Contract — the added sections are underlined and the deleted sections are crossed out:
2013 Renewal at 5-6.
34. The 2014 AFA contains only minor amendments to the 2013 AFA. Compare 2014 AFA passim, with 2013 AFA passim.
35. The 2014 AFA proposed modest increases in Sage Hospital's funding from the 2013 AFA: base funding would increase from $11,481,661.00 to $13,222,149.00 and contract support costs would increase from $6,562,381.00 to $7,516,697.00. Compare 2013 AFA at 22, 30, with 2014 AFA at 2-3.
36. Because of the mounting allegations against Sage Hospital, the NAIHS did not approve either the 2013 Renewal or the 2014 AFA, opting instead to provide Sage Hospital funding on a month-to-month basis while investigating the allegations. See Hubbard Decl. ¶ 4, at 3; Razaghi Decl. ¶ 16, at 26.
37. Although the NAIHS generally must approve or decline a contract proposal within ninety days, the NAIHS requested, and Sage Hospital agreed to, a series of extensions of the ninety-day periods. See Hubbard Decl. ¶ 4, at 3.
38. In September, 2013, and early October, 2013, the local media in and around Ganado contained reports of intense public criticism of Sage Hospital's management and allegations that Sage Hospital was misusing federal funds. See Hubbard Decl. ¶ 5, at 3; Arlyssa Becanti, Ganado Officials Want Razaghi Out, The Gallup Independent (Oct. 9, 2013), filed December 22, 2014 (Doc. 17-1)("Becanti Article").
39. On October 9, 2013, The Gallup Independent — a newspaper with a wide circulation in the Navajo Nation-published an article entitled Ganado Officials Want Razaghi Out. See Becanti Article at 30.
40. The article reported that, at an October 8, 2013, meeting, the Ganado Chapter of the Navajo Nation passed a resolution requesting that "Mr. Ahman [sic] Razaghi, Chief Executive Officer of Sage Memorial Hospital be terminated and immediately escorted off the Navajo Nation land." Becanti Article at 31.
41. The article explained that multiple former Sage Hospital employees spoke at the meeting in favor of the resolution, and alleged that Sage Hospital had unlawfully terminated them and had misused millions of dollars in federal funds. See Becanti Article at 31.
42. On September 30, 2013, The Gallup Independent published a second article — on the front page above the fold — with the headline: Ex-employees: `This is illegal.' Sage Memorial Hospital operations a tangled web. See Sherry Robinson, Ex-employees: `This is illegal.' Sage Memorial Hospital operations a tangled web at 32, The Gallup Independent (Sept. 30, 2013), filed December 22, 2014 (Doc. 17-1)("Robinson Article").
43. That article detailed how Caleb Lauber — a former director of Sage Hospital's outpatient clinic and diabetic grant program — had filed a complaint with the Navajo Labor Commission, in which he stated:
Robinson Article at 33 (internal quotation marks omitted).
44. According to the article, Lauber "discovered that there was $256,000 unaccounted for from the 2009 fiscal year, along with financial irregularities for fiscal 2010," which prompted him to make his accusations public. Robinson Article at 33 (internal quotation marks omitted).
45. On October 16, 2013, Jonathan Hale — the Chairman of the Health, Education and Human Services Committee of the Navajo Nation Council — wrote a letter to the former HHS Secretary — Kathleen Sebelius — voicing a number of concerns about Sage Hospital. See Letter from Jonathan Hale, Chairman of the Health, Education and Human Services Committee of the Navajo Nation Council, to Kathleen Sebelius, Secretary of the U.S. Department of Health and Human Services at 11 (Oct. 16, 2013), filed February 5, 2015 (Doc. 36-1)("Hale Ltr."); Hubbard Decl. ¶ 5, at 3-4.
46. Hale said that, "[r]ecently, through newspapers, community meetings, and meetings with federal and state officials, significant concerns have been raised that Sage Memorial Hospital and its managing companies may have mismanaged federal funds, diverted funds for personal use, set up corporate schemes to hide improprieties and falsified credentials." Hale Ltr. at 11.
47. Hale noted that, without a thorough investigation, "the Navajo Nation cannot be assured that funds designated for the health of its people are being properly managed." Hale Ltr. at 11.
48. Accordingly, Hale requested that the NAIHS: (i) conduct an immediate investigation into Sage Hospital's alleged misuse of federal funds; (ii) determine whether Sage Hospital was performing the contracted programs, functions, services, and activities ("PFSAs") to acceptable standards; and (iii) conduct a performance monitoring review. See Hale Ltr. at 1112; Hubbard Decl. ¶ 5, at 3-4.
49. Because of the Hale Ltr. and the NAIHS' growing concerns about Sage Hospital's possible misuse of federal funds, the NAIHS organized a performance monitoring review to occur during the week of January 6, 2014. See Hubbard Decl. ¶ 6, at 4.
50. The NAIHS informed Sage Hospital that it would receive a copy of the final performance monitoring review report, see Hubbard Decl. ¶ 6, at 7, and promised to provide draft reports for Sage Hospital to review, so that it could correct any errors and discuss any adverse findings with the NAIHS, see Razaghi 1st Decl. ¶ 4, at 21-22.
51. On January 15, 2014, the NAIHS contracted with Moss Adams — an accounting firm — to conduct a forensic audit of Sage Hospital's financial records and accounting practices. See Declaration of James Thompson ¶ 3, at 2-3, filed February 5, 2015 (Doc. 36-2)("Thompson Decl.").
52. Moss Adams performed its audit in two phases. See Thompson Decl. ¶ 3, at 2-3.
53. During Phase I, Moss Adams reviewed Sage Hospital's financial transactions and operations from October 1, 2009, to December 31, 2013. See Thompson Decl. ¶ 3, at 2-3.
54. During Phase II, Moss Adams reviewed Sage Hospital's financial transactions and operations from October 1, 2007,
55. Moss Adams completed Phase I on February 10, 2014, and Phase II on July 2, 2014. See Thompson Decl. ¶ 3, at 2-3.
56. On April 29, 2014, the NAIHS sent a letter to Sage Hospital. See Letter from Floyd F. Thompson, Executive Office of the Navajo Area Indian Health Service, to Stenson D. Wauneka, President of the Board of Directors of Sage Hospital (Apr. 29, 2014), filed February 5, 2015 (Doc. 36-1)("Thompson's 1st Ltr.").
57. Thompson's 1st Ltr. said that the NAIHS was "pleased to see that Sage will continue to cooperate with [the NAIHS'] review," and explained that the NAIHS would continue its review, because "there is reasonable cause to believe that grounds for re-assumption[
58. On July 11, 2014, the NAIHS sent a second letter to Sage Hospital. See Letter from Floyd F. Thompson, Executive Office of the Navajo Area Indian Health Service, to Stenson D. Wauneka, President of the Board of Directors of Sage Hospital (July 11, 2014), filed February 5, 2015 (Doc. 36-1)("Thompson's 2nd Ltr.").
59. In Thompson's 2nd Ltr., the NAIHS warned Sage Hospital that "there remain outstanding requests for information relevant to the forensic audit requested by our contracted auditors (Moss Adams) and request that any and all out-standing responses be submitted to the Attention of Moss Adams no later than close of business on July 16, 2014...." Thompson's 2nd Ltr. at 16.
60. The NAIHS also reiterated that there is "reasonable cause to believe that grounds for re-assumption of the contract or suspension of contract payments, or other serious contract performance deficiencies may exist." Thompson's 2nd Ltr. at 16.
61. On July 15, 2014, Sage Hospital sent a letter to the NAIHS in response to Thompson's 2nd Ltr. See Letter from Stenson D. Wauneka, President of the Board of Directors of Navajo Health Foundation — Sage Memorial Hospital, Inc. (July 15, 2014), filed February 11, 2015 (Doc. 41-1)("Response to Thompson's 2nd Ltr.").
62. In the Response to Thompson's 2nd Ltr., Sage Hospital wrote:
Response to Thompson's 2nd Ltr. At 11-12.
63. On July 25, 2014, Moss Adams submitted its final report to the NAIHS, which contained its findings from both Phase I and Phase II. See Report of Independent Accountants Forensic Consulting Procedures, filed January 13, 2015 (Doc. 21-18)("Moss Adams Report"); Thompson Decl. ¶ 3, at 2-3; Hubbard Decl. ¶ 7, at 4.
64. Although Sage Hospital produced approximately 23,000 pages of documents, it did not cooperate fully with the NAIHS' and Moss Adams' requests. See Thompson Decl. ¶ 4, at 3.
66. When Moss Adams requested copies of all contracts between Sage Hospital and Razaghi, or his related companies, Sage Hospital provided duplicate copies of certain contracts and did not provide copies of other contracts at all. See Thompson Decl. ¶ 13, at 6-7.
67. From FY 2007 through FY 2014, Sage Hospital employed three auditing firms — Eide Bailey, LLP from 2007 to 2010, Wipfli, LLP in 2011, and Bradshaw, Smith & Co., LLP, from 2012 to 2014.
68. Moss Adams asked Sage Hospital for a listing of its annual audits from prior auditors; Moss Adams also sought to ask the prior auditors about the financial information that Sage Hospital provided, obtain a copy of their audit adjustments, and inquire whether they had any disagreements with Sage Hospital concerning accounting matters. See Thompson Decl. ¶ 6, at 4.
69. Sage Hospital's counsel would not, however, allow Moss Adams to speak with its prior auditors. See Thompson Decl. ¶ 6, at 4.
70. Moss Adams also had numerous concerns regarding payments to, and approved by, the Board. See Thompson Decl. ¶¶ 7-12, at 4-7.
71. Sage Hospital's payments to its Board, and the Board's credit card expenses, tripled between 2010 and 2014; Board meetings at offsite resorts also became increasingly frequent. See Thompson Decl. ¶ 7, at 4.
72. In 2013, Board reimbursements and stipends exceeded $230,000.00; the Board's credit card expenses reached $348,000.00. See Thompson Decl. ¶ 7, at 4.
73. The total of Board travel expenses for FY 2013 was $61,942.00 — $645 per month per Board member — which is less than Sage Hospital's five-year average of $66,820.00. See Declaration of Stenson D.
74. The Board authorized the purchase of computers and iPads, apparently for the Board members' personal use.
75. Moss Adams asked Sage Hospital to provide invoices for those purchases; Sage Hospital provided copies of invoices totaling approximately $32,000.00 for purchases made in 2011, but did not provide any documentation for the purchases that it made in 2012. See Thompson Decl. ¶ 7, at 4.
76. The Board approved a $1.8 million bonus for Razaghi Healthcare on August 6, 2012.
77. Although Moss Adams found no evidence that the Board had reviewed an independent fair market analysis before approving the $1.8 million bonus, the Board did conduct a fair market review before approving the bonus, and also performed a confirming study after Sage Hospital's former employees criticized the bonus amount in the press.
78. Both the initial review and the confirming study found that the bonus amount was reasonable and well within fair-market parameters. See Razaghi 2nd Decl. ¶ 3, at 1.
79. At an August 6, 2012, meeting, the Board approved an increase in its stipend from $250.00 per meeting to $500.00 per meeting. See Thompson Decl. ¶ 7, at 5.
80. By comparison, each of the twelve members of the Board of Directors of the American Indian hospital in Fort Defiance receives a stipend of $1,200.00 per meeting plus expenses. See Wauneka 2nd Decl. ¶ 5, at 3.
81. The vote whether to increase the Board's stipend was not on the initial meeting agenda, but was added after the Board approved Razaghi Healthcare's $1.8 million bonus. See Thompson Decl. ¶ 7, at 5.
82. Sage Hospital paid Razaghi "severance" compensation from 2011 to 2013 for a total of $523,905.00, but Moss Adams could not determine whether the Board properly approved those payments. Thompson Decl. ¶ 7, at 5.
83. Razaghi's contract provided that he would receive a severance package only upon the termination of his contract. See Thompson Decl. ¶ 7, at 5.
84. Sage Hospital paid over $13 million to Razaghi and to his companies between October 1, 2009, and December 31, 2013; Razaghi's management personnel did not comply with Sage Hospital's "procurement
85. Moss Adams also reviewed payments that Sage Hospital made to one of its vendors: Four Seasons Construction. See Thompson Decl. ¶ 11, at 7.
86. Sage Hospital paid Four Seasons Construction approximately $2.1 million between October, 2009, and December, 2013, but Moss Adams found that the work may have been awarded without a bidding process, as Moss Adams never found a bid file for that project.
87. A number of Four Seasons Construction employees were on Sage Hospital's payroll. See Thompson Decl. ¶ 11, at 7.
88. At least one invoice that Moss Adams uncovered during its audit showed that Sage Hospital was charged twice for the same services that those employees provided — once from Sage Hospital directly and a second time through Sage Hospital's payments to Four Seasons Construction. See Thompson Decl. ¶ 11, at 7.
89. Moss Adams asked Sage Hospital for time sheets/records for the payroll periods under review, but Sage Hospital never provided them. See Thompson Decl. ¶ 11, at 7.
90. Sage Hospital paid approximately $500,000.00 towards the settlement of a lawsuit between Razaghi and his brother, even though Sage Hospital was not a named party in the case.
91. Sage Hospital provided only redacted invoices for legal services to Moss Adams, so Moss Adams was unable to verify the nature of the charges. See Thompson Decl. ¶ 11, at 7.
92. Razaghi received $231,560.72 for the settlement from a liability insurer not associated with Sage Hospital; he promptly remitted that exact amount to Sage Hospital. See Check to Morgan & Associates, LLC for $231,560.72 Re: Razaghi et. al. v. Razaghi et. al. (Aug. 21, 2013), filed
93. Moss Adams interviewed the Board members as a group with their attorney present; as the interview questions were presented "each member looked to their attorney and answered questions carefully in a manner which suggested scripted answers. In the event that members did not know an answer, their attorney would lead them to answer questions and identify a certain Board member to answer."
94. The NAIHS completed its performance monitoring review report on September 15, 2014. See NAIHS Report; Hubbard Decl. ¶ 8, at 4-5.
95. The NAIHS Report's major findings include, in pertinent part:
96. On September 19, 2014, Sage Hospital was unaware that Moss Adams had completed its audit report on July 25, 2014, and that the NAIHS had completed its performance monitoring review report on September 15, 2014. See El-Meligi 1st Decl. ¶ 7, at 6.
97. With the end of FY 2014 looming, and without a decision from the NAIHS regarding the 2013 Renewal or the 2014 AFA, Sage Hospital submitted a proposed three-year contract renewal and a successor AFA for FY 2015. See Renewal No. 1 and Amendment No. 1 to the Indian Self-Determination Act Contract Between Navajo Health Foundation/Sage Memorial Hospital, Inc. and the Secretary of the Department of Health and Human Services,
98. The 2015 AFA proposed that the NAIHS would fund Sage Hospital at a total amount of $32,614,916.00, with $19,995,900.00 in base funding and $12,619,016.00 for direct and indirect contract support costs. See Letter from Christi-El-Meligi, Chief Executive Officer of Sage Hospital to Alva Tom, Acting Director of the Office of Indian Self-Determination (Sept. 19, 2014) at 2-3, filed January 13, 2015 (Doc. 21-10)("El-Meligi Ltr.").
99. The NAIHS communicated its decision to decline the 2013 Renewal and 2014 AFA in a letter to Sage Hospital dated September 26, 2014, which Sage Hospital did not receive until September 29, 2014 — one day before the end of FY 2014. See Letter from the Department of Health and Human Services to Stenson Wauneka, President of the Board of Directors of the Navajo Health Foundation (Sept. 26, 2014), filed December 22, 2014 (Doc. 17-1)("1st Declination"); Katigbak 1st Decl. ¶ 4, at 35.
100. The 1st Declination explains the NAIHS' decision as follows:
1st Declination at 14-15.
101. As examples of Sage Hospital's misconduct, the 1st Declination restates the NAIHS Report's and the Moss Adams Report's conclusions. See 1st Declination passim.
102. The 1st Declination also informed Sage Hospital that, given the nature and seriousness of the NAIHS' concerns about Sage Hospital's ability to properly manage federal funds, the NAIHS "does not believe that technical assistance could be provided at this time that would allow [Sage Hospital] to overcome the stated objections in this letter." 1st Declination at 15.
103. The 1st Declination stated, however, that the NAIHS "is willing to provide technical assistance and work with the Navajo Nation with respect to future contracting concerning Sage Memorial Hospital." 1st Declination at 15-16.
104. On or about September 29, 2014, Sage Hospital's pharmaceutical supplier in
105. Sage Hospital responded to the 1st Declination with a letter dated October 2, 2014. See Letter from Stenson D. Wauneka, Chairman, Board of Directors, to John Hubbard, filed November 25, 2014 (Doc. 8-3)("1st Declination Response"). In the 1st Declination Response, Sage Hospital demanded that the NAIHS immediately rescind the 1st Declination for the following reasons:
1st Declination Response at 3.
106. On October 12, 2014, in a press release entitled "HHS Announces Change in Health Care Services for beneficiaries in the Ganado Service Area," the NAIHS announced that it would "change how it is providing health care services to its beneficiaries in the Ganado Service Area who were formerly served by the Navajo Health Foundation — Sage Memorial Hospital (NHF-SMH)," and that it "no longer provides funding to NHF-SMH for delivery of health care services in Ganado." NAIHS Announces Change in Health Care Services for Beneficiaries in the Ganado Service Area (Oct. 12, 2014) at 19, filed Feb. 5, 2015 (Doc. 36-1)("Press Release").
107. The Press Release also stated that the NAIHS' staff had been working with the Navajo Nation and other NAIHS facilities to review and address the future delivery of health care services in the Ganado service area, and stated that NAIHS facilities in Chinle, Arizona; Fort Defiance, Arizona; and Gallup, New Mexico could provide healthcare services. See Press Release at 19.
108. Although the NAIHS and its staff never told Sage Hospital's patients that Sage Hospital was closing, they did make it known that the hospital would no longer receive ISDEA funding. See Hubbard Decl. ¶ 14, at 8.
109. The NAIHS did not tell Ganadoarea schools that Sage Hospital was closing. See Hubbard Decl. ¶ 14, at 8.
110. The NAIHS communicated its decision to decline the 2014 Renewal and the 2015 AFA in a letter to Sage Hospital
111. The 2nd Declination explained that the NAIHS would not agree to the 2014 Renewal and 2015 AFA for the same reasons that it declined the 2013 Renewal and 2014 AFA. See 2nd Declination passim.
112. Similar to the 1st Declination, the NAIHS noted that "it did not believe that technical assistance could be provided at this time that would allow [Sage Hospital] to overcome the objections stated in this letter." 2nd Declination at 11.
113. The NAIHS added, however, that, "if [Sage Hospital] would like to discuss assistance that it believes NAIHS could provide that would eliminate the reasons for this declination, please call the Area office." 2nd Declination at 12.
114. Aside from this line in the 2nd Declination, the NAIHS did not offer Sage Hospital any technical assistance from 2007 to the present.
115. The NAIHS funds provide approximately fifty-five percent of Sage Hospital's revenues. See Katigbak 1st Decl. ¶ 10, at 38.
116. Without a reversal of the 1st Declination, Sage Hospital will lose that revenue, while still performing its full array of healthcare services. See Katigbak 1st Decl. ¶ 10, at 38.
117. Because of the 1st Declination, Sage Hospital has to purchase pharmaceutical supplies from commercial vendors rather than from the Gallup Regional Supply Service Center, a low-cost federal supplier. See El-Meligi 1st Decl. ¶ 14, at 8.
118. The 1st Declination also forced Sage Hospital to purchase professional liability insurance for its doctors at a cost of approximately $50,000.00 per month rather than relying on the protections of the FTCA at no cost.
220. Cash-flow projections for FY 2014 — which ends on September 30, 2015 — indicate that, if the 1st Declination is not reversed, Sage Hospital will be on the brink of insolvency before December 22, 2015. See Katigbak 1st Decl. ¶ 10, at 38-39.
Sage Hospital filed the Complaint on October 23, 2014. See Doc. 1 ("Complaint"). Sage Hospital filed the First Amended Complaint on November 24, 2014, asserting four causes of action. See Doc. 5 ("FAC"). First, Sage Hospital contends that the 1st Declination violates 25 U.S.C. § 450f(b)(2), and 25 C.F.R. §§ 900.32 and 900.33. See FAC ¶ 55, at 23. Sage Hospital asks the Court for immediate injunctive relief to: (i) reverse the 1st Declination; (ii) compel Burwell to award and fund the 2013 Renewal and the 2014 AFA; (iii) provide FTCA coverage for Sage Hospital and its employees; (iv) restore Sage Hospital's ability to purchase pharmaceuticals and other supplies from its suppliers; and (v) cease the NAIHS' public disparagement of Sage Hospital. See FAC ¶¶ 54-56, at 23-24. Sage Hospital points out that, because the ISDEA provides for both injunctive and mandamus relief to remedy violations of the ISDEA and its implementing regulations, Sage Hospital does not need to prove the traditional equitable grounds for obtaining injunctive relief. See FAC ¶ 56, at 24.
Sage Hospital argues that, even if it had to demonstrate the traditional equitable grounds for obtaining injunctive relief, those traditional grounds are easily met here. See FAC ¶ 57, at 24. Sage Hospital contends that the 1st Declination is causing Sage Hospital immediate and irreparable injury, because it threatens to ruin Sage Hospital's healthcare business, force it to close, and cause it to lose goodwill among its patients. See FAC ¶ 57A, at 24. Sage Hospital asserts that it will likely succeed on the merits of its case, because the Defendants clearly violated the ISDEA and its promulgating regulations. See FAC ¶ 57B, at 24. Sage Hospital points out that 25 C.F.R. § 900.33 prohibits the NAIHS from declining to the 2013 Renewal based on performance concerns if
Second, Sage Hospital contends that the 2nd Declination — to the extent that the 2014 Renewal and the 2015 AFA are substantially the same as the 2013 Renewal and 2014 AFA, respectively — violates 25 U.S.C. § 450f(b)(2) and 25 C.F.R. §§ 900.32 and 900.33. See FAC ¶¶ 59-60, at 25. Sage Hospital asks the Court for immediate injunctive relief to: (i) reverse the 2nd Declination — to the extent that the 2014 Renewal and the 2015 AFA are substantially the same as the 2013 Renewal and 2014 AFA, respectively; (ii) compel Burwell to award and fund the 2014 Renewal to the extent that it is substantially the same as the 2013 Renewal; (iii) provide FTCA coverage for Sage Hospital and its employees; (iv) restore Sage Hospital's ability to purchase pharmaceuticals and other supplies from its suppliers; and (v) cease the NAIHS' disparagement of Sage Hospital's business. See FAC ¶¶ 61, at 25. Sage Hospital reiterates that, because the ISDEA provides for both injunctive and mandamus relief to remedy violations of the ISDEA and its implementing regulations, it does not need to prove the traditional equitable grounds for obtaining injunctive relief. See FAC ¶ 61, at 25. Sage Hospital argues that, even if it had to demonstrate the traditional equitable grounds for obtaining injunctive relief, those grounds are easily met here. See FAC ¶ 62, at 25-26. Sage Hospital then reiterates the same arguments that it made for obtaining injunctive relief for the 1st Declination. See FAC ¶ 62, at 25-26.
Third, Sage Hospital asserts that, because it is entitled to immediate injunctive relief to reverse the 1st Declination and to compel Burwell to award and fund the 2013 Renewal, the Defendants are required to pay Sage Hospital the full amount requested in the 2014 AFA. See FAC ¶ 64, at 27. Sage Hospital contends that, under 25 U.S.C. § 450m-1(a), it is entitled to an accounting of funds that the NAIHS provided to Sage Hospital from October 1, 2013, to the date of judgment. See FAC ¶ 66, at 27.
Fourth, Sage Hospital argues that the NAIHS violated 41 U.S.C. § 7103(f)(3). See FAC ¶¶ 67-72, at 27-29. Sage Hospital explains that, on August 25, 2014, it submitted to the NAIHS a Contract Support Costs
Sage Hospital filed the Motion on December 22, 2014. See Motion at 1. In the Motion, Sage Hospital requests immediate injunctive relief under the ISDEA to: (i) reverse the 1st Declination and the 2nd Declination; and (ii) compel Burwell to award and fund the 2013 Renewal and the 2014 and 2015 AFAs. See Motion at 7. Sage Hospital argues that the NAIHS cannot refuse to renew a contract that is substantially the same as its predecessor. See Motion at 18 (citing 25 C.F.R. § 900.33 ("Are proposals to renew term contracts subject to the declination criteria? [HHS] will not review the renewal of a term contract for declination issues where no material and substantial change to the scope or funding of a program, functions, services, or activities has been proposed by the ... tribal organization.")(modifications in Motion, but not § 900.33)(emphases omitted)). Sage Hospital asserts that, similarly, the NAIHS cannot decline a proposed successor AFA if it is substantially the same as its predecessor:
Motion at 19 (quoting 25 C.F.R. § 900.32)(modifications in Motion, but not § 900.32)(internal quotation marks omitted).
Sage Hospital asserts that, where a proposed AFA or contract renewal is not substantially the same as its predecessor, the ISDEA sets forth specific "declination criteria" — i.e., conditions under which the NAIHS may decline a contract proposal:
Motion at 19-20 (quoting 25 U.S.C. § 450f(a)(2))(internal quotation marks omitted).
According to Sage Hospital, § 450f(a)(2) provides the only permissible grounds for the NAIHS to decline a tribal organization's contract proposal. See Motion at 20 (citing 25 C.F.R. § 900.22). Sage Hospital contends that courts do not give any deference to the IHS' declination decisions, and that the NAIHS must prove its declination findings by clear and convincing evidence. See Motion at 20 (citing 25 U.S.C. § 450f(a)(2)); id. at 24 (citing S. Ute Indian Tribe v. Sebelius, 657 F.3d 1071, 1078 (10th Cir.2011); Ramah Navajo Sch. Bd., Inc. v. Babbitt, 87 F.3d 1338, 1344 (D.C.Cir.1996); Shoshone-Bannock Tribes of Fort Hall Reservation v. Shalala, 988 F.Supp. 1306, 1313 (D.Or.1997)). Sage Hospital asserts that, if the NAIHS may only properly decline a portion of a contract proposal, it must approve all other severable portions of the proposal. See Motion at 20-21 (citing 25 C.F.R. § 900.25). Sage Hospital argues that, even where the NAIHS may decline a proposal in whole or in part, it "shall ... provide assistance to the tribal organization to overcome the stated objections." Motion at 21 (quoting 25 U.S.C. § 450f(b)(2))(omissions in Motion, but not in § 450f(b)(2))(internal quotation marks omitted).
Sage Hospital argues that, because the 2013 Renewal and the 2014 AFA are substantially the same as the 2010 Contract and 2013 AFA, respectively, §§ 900.32 and 900.33 requires the Defendants to approve those proposals. See Motion at 25-26 (citations omitted). Sage Hospital asserts that the IHS also violated the ISDEA when it failed to share information that may have helped Sage Hospital avoid the 1st Declination and refused to provide Sage Hospital with any technical assistance to overcome the NAIHS' concerns. See Motion at 26 (citing 25 U.S.C. § 450f(b)(2); 25 C.F.R. §§ 900.28, 900.30). Sage Hospital adds, without further explanation, that "[t]he same is true" of the 2014 Renewal and the 2015 AFA to the extent that they are substantially the same as the 2010 Contract and the 2013 AFA. Motion at 26.
Sage Hospital next addresses the potential remedies available to the Court. See Motion at 27-30. Sage Hospital asserts that the ISDEA provides for: (i) money damages typically recoverable in contract actions, including consequential damages; (ii) contract support costs; (iii) injunctive relief; and (iv) "mandamus to compel an officer or employee of the United States... to perform a duty provided under [the ISDEA] (including immediate injunctive relief to reverse a declination finding under section 450f(a)(2) of this title or to compel the Secretary to award and fund an approved self-determination contract)." Motion at 26-27 (quoting 25 U.S.C. § 450m-1)(alterations in Motion, but not in § 450m-1)(emphases omitted)(internal quotation marks omitted). Sage Hospital
Sage Hospital explains that, without an order compelling the Defendants to reverse the 1st Declination, and to fund the 2013 Renewal and successor AFAs, Sage Hospital will lose approximately fifty-three percent of its revenue and would be on the brink of insolvency in less than a year. See Motion at 27 (citations omitted). Sage Hospital says that the Court's failure to act would also lead to the following repercussions: (i) 200 Navajo employees would lose their jobs within eight months; (ii) the Ganado area's struggling economy would go into a tailspin; (iii) Sage Hospital's patients would have to seek medical services at great distances from their homes and schools; and (iv) Sage Hospital would have to purchase pharmaceutical supplies at a higher cost from commercial vendors and purchase medical malpractice insurance for its doctors at a cost of $50,000.00 per month rather than maintaining the FTCA's protections for free. See Motion at 27-29.
Sage Hospital asserts that, because it is bringing the Motion under § 450m-1(a), rather than rule 65 of the Federal Rules of Civil Procedure, it does not have to satisfy rule 65's factors to obtain equitable relief. See Motion at 29 (citing Crownpoint Inst. of Tech v. Norton, No. CIV 04-0531 JP/DJS, Findings of Fact and Conclusions of Law at 26, filed Sept. 16, 2005 (D.N.M.) (Parker, J.) (Doc. 86) ("Crownpoint"). Sage Hospital argues that, if the Court determines otherwise, it has wide discretion to determine whether a bond is required for Sage Hospital to obtain a preliminary injunction, and, if so, the amount of any such bond. See Motion at 30 (citing, e.g., Winnebago Tribe of Neb. v. Stovall, 341 F.3d 1202, 1206 (10th Cir.2003) (affirming grant of injunction without bond requirement where there was no proof of likelihood of harm to other party); Temple Univ. v. White, 941 F.2d 201, 219 (3d Cir.1991) (affirming grant of injunction without requiring hospital to post bond where hospital served mostly low-income people and would have become insolvent without the relief requested)). Sage Hospital argues that the United States "has ample ways of recouping any money not properly devoted to patient care," a factor which, in Sage Hospital's view, militates against requiring a bond. Motion at 30.
The Defendants responded to the Motion on February 5, 2015. See Defendants' Opposition to Plaintiff's Motion for Immediate Injunctive Relief (Doc. 17), filed February 5, 2015 (Doc. 36)("Response"). The Defendants say that the cases on which Sage Hospital relies are distinguishable and do not support Sage Hospital's contention that "the Court should not reach the merits of NAIHS's declination decision." Response at 18. The Defendants point out that, in Crownpoint, the Honorable James A. Parker, Senior United States District Judge for the District of New Mexico, held that the Bureau of Indian Affairs failed to issue its declination within the ISDEA's prescribed timeframe. See Response at 18. The Defendants argue that, unlike in that case, "there can be no question that NAIHS acted within the statutorily — allowed time frame ... and applied the proper criteria to decline Sage's proposal...." Response at 18. The Defendants assert that, unlike in Cheyenne River Sioux Tribe v. Kempthorne, 496 F.Supp.2d 1059 (D.S.D.2007), where the Secretary of
The Defendants contend that
Response at 19-20 (citations omitted).
The Defendants assert that Sage Hospital can obtain injunctive relief only if it can prove: (i) the likelihood of success on the merits; (ii) the likelihood of irreparable harm; (iii) the existence of serious questions going to the merits and that the balance of hardships tips sharply in its favor; and (iv) an injunction is in the public interest. See Response at 17 (citing Wyandotte Nation v. Sebelius, 443 F.3d 1247, 1254-55 (10th Cir.2006)). The Defendants argue that Sage Hospital has not established these elements. See Response at 17.
The Defendants assert that the United States Court of Appeals for the Tenth Circuit has identified three disfavored preliminary injunctions: (i) those that "alter the status quo"; (ii) mandatory preliminary injunctions; and (iii) preliminary injunctions that afford the movant all the relief that it could recover at the conclusion of a full trial on the merits. Response at 17 (quoting Schrier, M.D. v. Univ. of Colo., 427 F.3d 1253, 1258-59 (10th Cir. 2005)) (internal quotation marks omitted). The Defendants argue that Sage Hospital seeks a mandatory preliminary injunction that would "disturb the status quo ante," because the NAIHS has been funding the hospital's operations "through monthly contract modifications based on the FY 2013 AFA, which in fact expired ... on September 30, 2014." Response at 17-18. The Defendants assert that the relief that the Motion seeks is disfavored, because it would afford Sage Hospital "substantially all the relief it seeks and would render a trial on the merits largely or completely meaningless." Response at 18.
The Defendants argue that Sage Hospital has not demonstrated a likelihood of success on the merits. See Response at 20. The Defendants assert that the ISDEA's plain language requires the NAIHS to approve contract proposals from tribal organizations unless they fall within one of § 450f(a)(2)'s declination criteria. See Response
The Defendants contend that § 900.33 did not prevent them from applying § 450f(a)(2)'s declination criteria to the 2013 Renewal, because there was a material and substantial change in the scope or funding of Sage Hospital's PFSAs. See Response at 21-22. The Defendants assert that the NAIHS Report and the Moss Adams Report put the NAIHS on notice that Sage Hospital did not have a financial management system or the necessary internal controls in place to ensure that its ISDEA funds would be used only for lawful purposes. See Response at 22. The Defendants contend that, because the NAIHS was previously unaware of this information, the PFSAs in the 2013 Renewal "were not the same as they were previously viewed by NAIHS." Response at 22.
The Defendants argue that, because the 2014 AFA and the 2015 AFA were not substantially the same as the 2013 AFA, § 900.32 did not preclude them from applying § 450f(a)(2)'s declination criteria to those proposals. See Response at 23-24. The Defendants argue that the NAIHS may decline an AFA as not being "substantially the same" as its predecessor "when there is information that was not known to the [HHS] Secretary that rendered the successor proposal not the same as it was previously viewed by the [HHS] Secretary." Response at 24. The Defendants argue that the HHS Secretary articulated this interpretation in the final agency decision in Mashantucket Pequot Tribal Nation v. IHS, DHHS Departmental Appeals Board, Appellate Division, No. A-06-60, Decision No. 2028, 2006 WL 1337439 (May 3, 2006)("Pequot"). Response at 25.
According to the Defendants, in Pequot, § 900.32 "was implicated regarding language that had existed in a prior contract between the Pequot Nation and IHS, but had taken on new meaning in light of an intervening report conducted by the DHHS Office of the Inspector General." Response at 25. The Defendants assert that the report led the IHS to decline the Pequot Nation's contract proposal to provide pharmacy services to its employees who were not members of the tribe. See Response at 25. According to the Defendants, the HHS Departmental Appeals Board ("DAB") determined that the proposal was not a successor AFA under § 900.32, noting that the HHS Office of the Inspector General ("OIG") had issued a report questioning the inclusion of these services in Pequot Nation's ISDEA contract. Response at 25. The Defendants say that the DAB held that the OIG report "rendered the successor AFA not the same as it was previously viewed by the IHS." Response at 25 (citation omitted)(internal quotation marks omitted). The Defendants add that the HHS Secretary's interpretation of HHS regulations is controlling "unless plainly erroneous or inconsistent with the regulation." Response at 25 (citing Auer v. Robbins, 519 U.S. 452, 461, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997)).
The Defendants contend that whether a proposed AFA is substantially similar to its predecessor does not turn on whether it is for the same amount, but instead on "whether the proposals are alike in substance." Response at 25. The Defendants argue that, just as the HHS Office of Inspector General report led the IHS to
The Defendants assert that the Moss Adams Report "disclosed serious deficiencies in the Board's governance over the ISDEAA funds and its seeming relinquishment of control of ISDEAA funds to a contracted management company." Response at 26. The Defendants argue that the NAIHS Report revealed, among other things, that Sage Hospital "does not have a functioning electronic health records system and the existence of numerous potential health and safety violations that impeded satisfactory health care services." Response at 26. In the Defendants' view, because the NAIHS was previously unaware of this information, it rendered the 2014 AFA and 2015 AFA "not substantially the same" as the 2013 AFA. Response at 26.
The Defendants contend that the NAIHS' failure to offer Sage Hospital technical assistance did not invalidate its declination decisions. See Response at 27. According to the Defendants, the ISDEA provides that, when the HHS Secretary declines a proposed contract, he or she must state any objections in writing to the tribal organization and "provide assistance to the tribal organization to overcome the stated objections." Response at 27 (quoting 25 U.S.C. § 450f(b)(2))(internal quotation marks omitted). The Defendants argue, however, that "[n]o amount of technical assistance could have overcome the fact that the current Sage Board of Directors breached its duties of fiduciary responsibilities and accountability to the hospital and effectively relinquished its oversight responsibility to a contracted management company." Response at 27. The Defendants contend that the ISDEA does not require the NAIHS to engage in "exercises of futility." Response at 27. The ISDEA adds that Sage Hospital has not identified what information the NAIHS failed to share or how that information would have helped Sage Hospital avoid the declination. See Response at 26.
The Defendants contend that Sage Hospital has failed to demonstrate irreparable injury. See Response at 28. The Defendants assert that Sage Hospital waited for months before bringing this action for injunctive relief, and "`delay in seeking preliminary relief cuts against finding irreparable injury.'" Response at 28 (quoting Kan. Health Care Ass'n v. Kan. Dep't of Soc. & Rehab. Servs., 31 F.3d 1536, 1543-44 (10th Cir.1994)). The Defendants point out that, after the 1st Declination, Sage Hospital sent a notice to the community, expressly stating that it was not in danger of closing and that it would continue to provide healthcare services. See Response at 28. The Defendants assert that Sage Hospital does not contend that it is in any danger of imminent closure and has presented no evidence that it would have to close before the case could be heard on its merits. See Response at 28. The Defendants note that, even in the absence of ISDEA funding, the federal government reimburses Sage Hospital as a Critical Access Hospital under Medicare and Medicaid. See Response at 28.
The Defendants contend that Sage Hospital has presented no evidence that the Court's failure to order injunctive relief would require Sage Hospital to obtain pharmaceutical supplies from commercial vendors. See Response at 29. The Defendants say that, moreover, "whatever may have been the immediate effect of the termination of [Sage Hospital's] federal supply
Medical Malpractice Claims
Response at 29 (citation omitted). The Defendants argue that, accordingly, Sage Hospital's own audited financial statements belie its assertions. See Response at 29.
The Defendants contend that Sage Hospital's argument that forcing Sage Hospital's patients to seek medical services at great distances from their homes and schools similarly does not establish irreparable harm, because only third parties — i.e., Sage Hospital's patients — would suffer. See Response at 30 (citing Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008)). The Defendants note that, in FY 2014, Ganado-area IHS beneficiaries went to IHS hospitals in Fort Defiance, Arizona; Chinle, Arizona; and Gallup, New Mexico, for outpatient care at almost twice the rate as they went to Sage Hospital. See Response at 30. The Defendants argue that, although the hospitals in Chinle, Gallup, and Fort Defiance are not as close to the Ganado-area beneficiaries as Sage Hospital, they offer health services and medical specialties that are more comprehensive than those that Sage Hospital offers. See Response at 30.
The Defendants assert that the balance of hardships weighs against granting the injunction. See Response at 30. The Defendants argue that Sage Hospital has more than sufficient cash reserves of approximately $15,878,00.00 to continue operations as a private hospital during the time that it will take to litigate this case. See Response at 31. The Defendants reiterate that Sage Hospital has not shown that there are any exigent circumstances — such as the imminent closure of the hospital — to justify issuing a preliminary injunction. See Response at 31. The Defendants say that, on the other hand, granting the injunction would force the NAIHS into signing a contract when its findings show that Sage Hospital lacks the internal controls and financial management systems to ensure that ISDEA funds would be used only for lawful purposes. See Response at 31. The Defendants contend that, consequently, the balance of harms actually weighs against granting the injunction. See Response at 31.
The Defendants argue that the public interest will not be served by allowing Sage to "potentially continue its waste and/or abuse of ISDEAA funds." Response at 31. The Defendants argue that, when the IHS determines that spending has become "possibly unlawful and improper," it has a responsibility to rectify the situation. Response at 31. The Defendants contend that, "[i]n that regard, Sage should not be relieved of the obligation to provide a bond or other security
Sage Hospital replied to the Response on February 11, 2015. See Plaintiff's Reply to Defendants' Opposition to Plaintiff's Motion for Immediate Injunctive Relief, filed February 11, 2015 (Doc. 41)("Reply"). In the Reply, Sage Hospital reiterates its arguments from the Motion — namely, that § 900.33 prevented the NAIHS from rejecting the 2013 Renewal, because it was substantially the same as its predecessor; and that § 900.32 prevented the NAIHS from rejecting the 2014 AFA, because it was substantially the same as its predecessor. See Reply at 6-7. Sage Hospital asserts that, although the applicable regulations are unequivocal and clear, the IHS seeks to avoid their application by arguing that contract renewal proposals and AFAs are not "substantially the same" if "information was not known to the Secretary that rendered the successor proposal not the same as it was previously viewed by the Secretary." Reply at 7 (quoting Response at 24). Sage Hospital asserts that the NAIHS relies on only one unpublished administrative decision — Pequot — to support its argument. See Reply at 10.
Sage Hospital argues that Pequot does not support the NAIHS' position for the following reasons:
Reply at 11 (emphasis in original).
Sage Hospital asserts that, even if §§ 900.32 or 900.33 were ambiguous, courts must strictly construe all ISDEA regulations in favor of tribal organizations like Sage Hospital. See Reply at 11 (citing Salazar v. Ramah Navajo Chapter, ___ U.S. ___, 132 S.Ct. 2181, 2194, 183 L.Ed.2d 186 (2012) (stating that ISDEA "is construed in favor of tribes"); 25 C.F.R. § 900.3(a)(5) ("[E]ach provision of the Act and each provision of contracts entered into thereunder shall be liberally construed for the benefit of ... tribal organizations." (alterations in Reply but not § 900.3(a)(5))). Sage Hospital contends that this rule trumps any agency deference, regardless whether the agency's position
Sage Hospital argues that an ISDEA proposal is "a physical document or set of documents submitted by a tribal organization to IHS, not some brooding omnipresence or evolving performance assessment by IHS." Reply at 12 (citing 25 U.S.C. § 450f(a)(2) ("[A] tribal organization may submit a proposal to ... renew a self-determination contract, to the Secretary for review." (alterations in Reply, but not in § 450f(a)(2))); 25 C.F.R. § 900.8 (specifying contents of initial contract proposal); 25 C.F.R. § 900.9 (prohibiting the Secretary from requiring a tribal organization to submit any other information beyond that identified in § 900.8); 25 C.F.R. § 900.12 (specifying the proposal content requirements for renewal of a contract or a successor AFA)).
Sage Hospital explains that the IHS is not powerless to take action if it determines that a tribal organization is misusing federal funds. See Reply at 13. According to Sage Hospital, if a tribal organization's performance under an ISDEA contract
Reply at 13 (quoting 25 U.S.C. § 450m)(alterations in Reply but not § 450m). Sage Hospital asserts that the IHS sidestepped the procedural safeguards in the ISDEA to which Sage Hospital is entitled, including: (i) advance notification of alleged deficiencies in contract performance; (ii) a forty-five-day period for the tribal organization to address any alleged deficiencies; (iii) mandatory technical assistance from the NAIHS; (iv) a second written notice from the NAIHS if the deficiencies are not remedied; (v) a hearing on the record if the tribal organization disagrees with the Secretary's findings; and (vi) "windup" cost reimbursement to the tribal organization if the tribal organization ultimately loses. Reply at 14 (citing 25 U.S.C. § 450m; 25 C.F.R. §§ 900.248-.254).
Sage Hospital contends that the Defendants' argument on why the Court should deny injunctive relief "proceeds from two principal misunderstandings." Reply at 14. First, Sage Hospital says that it is not seeking a traditional preliminary injunction, but instead requests immediate injunctive relief under § 450m-1(a). See
Sage Hospital next attacks the findings on which the NAIHS relied in issuing the 1st Declination. See Reply at 16. Sage Hospital says that one of the 1st Declination's findings was that Sage Hospital had eliminated services since its first contract was awarded in 2003. See Reply at 16 (citing Response at 4). Sage Hospital asserts that, to the extent that this statement is true, it is irrelevant to whether Sage Hospital has properly performed the PFSAs listed in the 2010 Contract that Sage Hospital proposed to continue to perform in the 2013 Renewal. See Reply at 16. Sage Hospital explains that, before 2007, it had to terminate its general surgery and obstetric care departments for lack of adequate facilities or qualified staff. See Reply at 16. Sage Hospital says that its agreements with the IHS through 2008 required Sage Hospital to perform only "contract health services," and "dispensing pharmaceutical drugs and medical supplies." Reply at 17. Sage Hospital asserts that, after settling its litigation against the NAIHS in 2009, it agreed to perform a wide range of PFSAs in a 2009 agreement and has performed those PFSAs ever since. See Reply at 17. According to Sage Hospital, the NAIHS has never asserted otherwise. See Reply at 17.
Sage Hospital contends that the 1st Declination improperly relies on the NAIHS Report's conclusion that, in FY 2014, the Board "failed to comply with I.H.S. Grant Management requirements for Special Diabetes Program Initiative funding resulting in a lost revenue opportunity." Reply at 17 (quoting NAIHS Report at 16)(internal quotation marks omitted). Sage Hospital asserts, without further explanation, that this finding is "similarly irrelevant and, in any event, false." Reply at 17 (citing Declaration of Christi El-Meligi ¶ 3, at 2, filed February 11, 2015 (Doc. 41-4)("El-Meligi 2nd Decl."); Notice of Award (Nov. 13, 2014), filed February 11, 2015 (Doc. 41-4)(noting that the IHS awarded Sage Hospital a grant for the "Special Diabetes Program for Indians")).
Sage Hospital argues that the 1st Declination's other findings concern potential Occupational Safety and Health Administration ("OSHA") violations, supposed violations of Sage Hospital's own policies — including Board members' self-dealing, payments to or for the benefit of Razaghi under his contracts with the Board, and concerns about Sage Hospital's internal controls. Reply at 17. Sage Hospital asserts:
Reply at 17-18 (citations omitted)(emphasis in Reply).
Sage Hospital asserts that these concerns are irrelevant to this case. See Reply at 18. Sage Hospital says that, consistent with the ISDEA, the 2010 Contract provides that, "`[e]xcept as specifically provided in the [ISDEA], Sage is not required to abide by guidelines, manuals, or policy directives of the Secretary....'" Reply at 18 (quoting 2010 Contract at 18-19)(alterations in Reply but not in 2010 Contract)(citing Handbook at 3-4 (stating that a tribal organization's performance of a contract shall have "no effect" on the contract renewal process)). Sage Hospital asserts that the HHS Secretary "has no lawful power to oversee the internal governance of any tribal organization and unilaterally sever the contractual relationship if she disapproves of the manner in which the organization chooses to carry out its PFSAs." Reply at 18. Sage Hospital asserts that "[w]hat is missing from IHS' and Moss Adams' concerns" is any recognition that Sage Hospital's overhead, which includes Board stipends and payment to Razaghi Healthcare and its related companies, has decreased steadily over the years in both percentage — "from 41.9% to 24.5%" — and absolute — from $9 million per year to $8 million per year-terms, even as total revenues have almost doubled. Reply at 16.
On February 12, 2015, the Court held a hearing on the Motion. See Transcript of Motion Proceedings Before the Honorable James O. Browning, United States District Judge, Albuquerque, Bernalillo County, New Mexico, commencing on February 12, 2015, filed February 27, 2015 (Doc. 49)("Tr."). Sage Hospital took the floor first, reiterating many of its arguments from the briefing and clarifying a few points in response to the Court's questions. See Tr. at 4:14-32:8 (Frye, Court). The Court asked Sage Hospital how it would reconcile § 450f(a)(2) — which gives the NAIHS five permissible grounds to decline a contract proposal — with § 900.33 — which says that the NAIHS must approve a renewal proposal unless there is a material and substantial change to the scope or funding of the contractor's PFSAs. See Tr. at 21:15-18 (Court). The Court asked why the agency would narrow its own discretion by enacting § 900.33. See Tr. at 6:22-7:1 (Court); id. at 22:4-5 (Court). Sage Hospital responded that § 900.33 was enacted for two reasons. See Tr. at 7:2-8:12 (Frye). First, Sage Hospital explained that, in 1988, Congress "beefed up" the procedural protections for tribal organizations that contracted with the federal government, because it found a history of federal agencies being unwilling to "contract away their jobs and resources" to tribal organizations. Tr. at 7:2-8 (Frye). Second, Sage Hospital said that the IHS also has separate contract "rescission procedures," which allow the IHS to rescind a contract in a number of situations, including when the tribal organization has demonstrated gross negligence in administering federal funds. Tr. at 7:16-8:12 (Frye)(citing 25 U.S.C. § 450m).
The Court asked Sage Hospital to explain the rescission process and how it differs from the declination process. See Tr. at 11:10-12 (Court). Sage Hospital said:
Tr. at 11:13-12:14 (Frye).
The Court asked Sage Hospital whether it could explain why Moss Adams had such a hard time obtaining documents from Sage Hospital throughout the auditing process. See Tr. at 12:23-25 (Court). Sage Hospital responded that it gave Moss Adams access to every document that an auditor would want to examine and only refused to provide documents that were more than three years old, because the NAIHS had no legal authority to ask for them. See Tr. at 13:59 (Frye). The Court expressed skepticism, pointing to the multiple entries in the Moss Adams Report that noted Sage Hospital's failure to respond to a variety of document requests. See Tr. at 14:13-17. Sage Hospital replied that Moss Adams was sloppy, "and they just overlooked what we did give them." Tr. at 14:18-19 (Frye).
When asked about the $1.8 million bonus to Razaghi Healthcare, Sage Hospital explained that, before it hired Razaghi Healthcare, it employed a person who was doing the work of a contract management company at the rate of $300.00 an hour. See Tr. at 15:15-19 (Frye). Sage Hospital said that, when Razaghi Healthcare took over the hospital, it offered to receive only $140.00 an hour for a five-year period in exchange for a $1.8 million bonus if the turnaround effort was successful — for a total sum that was slightly less than $300.00 an hour. See Tr. at 15:19-16:6 (Frye). According to Sage Hospital, this payment structure meant that Razaghi Healthcare bore some of the risk that the turnaround effort would not succeed. See Tr. at 16:610 (Frye).
The Court asked Sage Hospital if, assuming § 900.33 did not circumscribe the NAIHS' declination authority, the NAIHS could decline the 2013 Renewal under § 450f(a)(2)(C), which says that "[t]he Secretary provides written notification to the applicant that contains specific finding that clearly demonstrates that, or that is supported by controlling legal authority that adequate protection of trust resources is not assured." Tr. at 22:16-23:6 (Court)(quoting 25 U.S.C. § 450f(a)(2)(C))(internal quotation marks omitted). Sage Hospital replied, without further explanation, that § 450f(a)(2)(C) is referring to resources held in trust by the United States rather than money that comes from the NAIHS directly, so it does not apply here. See Tr. at 23:8-12 (Frye). The Court asked whether the NAIHS could decline the 2013 Renewal under § 450f(a)(2)(A), which says that "the service to be rendered to the Indian beneficiaries of a particular program or function to be contracted will not be satisfactory." Tr. at 23:13-16 (Court)(quoting 25 U.S.C. § 450f(a)(2)(A))(internal quotation marks omitted). Sage Hospital responded that § 450f(a)(2)(A) is also inapplicable, because Sage Hospital has performed its PFSAs satisfactorily, as its certifications from multiple state and federal agencies demonstrate. See Tr. at 23:17-24:2 (Frye). Sage Hospital said that the NAIHS' concerns about Sage Hospital's "financial irregularities," and not its ability to provide quality medical care to its patients, drove the declination decisions. Tr. at 24:3-9 (Court, Frye).
The following exchange then occurred between Sage Hospital and the Court:
Tr. at 32:19-33:11 (Court, Frye). The Court noted that it seemed odd to order relief without a trial, to which Sage Hospital replied that the Motion is not about the merits of the 1st Declination or the 2nd Declination, but instead about the NAIHS' authority to issue those declinations under these circumstances. See Tr. at 34:16-35:5 (Court, Frye). Sage Hospital said that, in other words, this case turns on a legal dispute, and not a factual one. See Tr. at 35:3-35:13 (Frye).
The Defendants began their response by reiterating many of the arguments from their briefs — namely, that the NAIHS Report's and the Moss Adams Report's conclusions demonstrated that the 2013 Renewal and 2014 AFA were not "substantially the same" as their predecessors. Tr. at 40:18-24 (Belgrove). The Court asked the Defendants whether a tribal organization's financial irregularities would affect "the scope or funding" of the tribal organization's PFSAs. Tr. at 41:9-13 (Court)(quoting 25 C.F.R. § 900.33)(internal quotation marks omitted). The Defendants replied that those irregularities would change the PFSAs' scope. See Tr. at 41:14 (Belgrove). The Defendants added that, more than just financial irregularities, the 1st Declination talks about how Sage Hospital did not fulfill its fiduciary duties and did not properly administer its contract with the NAIHS. See Tr. at 48:7-10 (Belgrove). The Defendants explained that, in other words, the NAIHS "thought that the Board was properly overseeing the functions of the different executives of the hospital, and that there was accountability ... there were internal controls. And that's what the difference is. That's the PFSA that materially changed." Tr. at 48:11-17 (Belgrove).
Turning to § 450f(a)(2)'s declination criteria, the Court asked the Defendants to point to any findings in the Moss Adams Report or the NAIHS Report, which demonstrate that "`the service to be rendered to the Indian beneficiaries of the particular program or function to be contracted will not be satisfactory.'" Tr. at 48:18-49:5 (Court)(quoting 25 U.S.C. § 450f(a)(2)(A)). The Defendants responded that "it's not necessarily [Sage Hospital's] medical
The Defendants argue that the cases that Sage Hospital cites in support of its request for immediate injunctive relief are inapposite. See Tr. at 55:14-17 (Belgrove). According to the Defendants, those cases involved declination letters that were either not issued within the requisite ninety-day period or contained no detailed declination findings. See Tr. 55:14-24 (Belgrove). The Defendants said that, in this case, because there are specific and detailed declination findings, the NAIHS should be permitted to demonstrate the merits of its declination decisions. See Tr. at 55:25-26:5 (Belgrove).
The Defendants then explained their decision to use § 450f(a)(2)'s declination procedure rather than § 450m's rescission procedure:
Tr. at 57:17-58:8 (Belgrove). The Defendants then reiterated their arguments from the Response regarding the Pequot decision — i.e., where the IHS receives an intervening report indicating that the services in the successor AFA would be unlawful, the successor AFA is not "substantially the same" as the prior AFAs under § 900.32. Tr. at 60:5-62:9 (Court, Belgrove). The Court expressed some skepticism about deferring to the Burwell's interpretation of HHS regulations, pointing out that there is an ongoing debate among the justices of the Supreme Court of the United States about the issue. See Tr. at 61:8-20 (Court).
When Sage Hospital took the podium for its rebuttal, the Court asked it to explain the standard for rescinding an ISDEA contract under § 450m. See Tr. at 63:2-64:1 (Court). Sage Hospital said that § 900.247 sets forth the standards for emergency and non-emergency rescissions.
Addressing the Defendants' other arguments, Sage Hospital argued that courts have routinely rejected the idea of deferential review for agency actions under the ISDEA. See Tr. at 67:16-68:15 (Frye)(citing S. Ute Indian Tribe v. Sebelius, 657 F.3d at 1078; Ramah Navajo Sch. Bd., Inc. v. Babbitt, 87 F.3d at 1344; Shoshone-Bannock Tribes of Fort Hall Reservation v. Shalala, 988 F.Supp. at 1313)). Sage Hospital then reiterated the distinctions between this case and Pequot, and the criticisms of the declinations' findings that it noted in the Reply. See Tr. at 69:6-75:21 (Court, Frye).
The Court said it would take the matter under advisement, but that it was inclined to grant the Motion. See Tr. at 78:13-14 (Court); id. at 79:24 (Court). The Court said that it did not think that it had to defer to Pequot's interpretation of § 900.32, and that, even if it did, the case did not seem to avoid § 900.32's plain language. See Tr. at 78:22-79:3 (Court). The Court said that, given §§ 900.32's and 900.33's plain language, it likely would not have to decide some of the merits issues, but would only have to decide whether the 2013 Renewal and 2014 AFA were substantially similar to their predecessors. See Tr. at 79:15-20 (Court).
The ISDEA authorizes American Indian tribes and tribal organizations to contract with either the DOI or the HHS Secretary
An ISDEA contract proposal typically consists of two parts: (i) a multi-year agreement that satisfies 25 U.S.C. § 450l(c); and (ii) an AFA. See 25 U.S.C. § 450j(c). The AFA must contain: (i)
The ISDEA contracting process begins when a tribe or tribal organization submits a contract proposal to the Secretary. See 25 U.S.C. § 450a(2). Unless the tribe or tribal organization agrees to an extension, the Secretary must approve or decline the proposal within ninety days. See 25 U.S.C. § 450a(2)(A); 25 C.F.R. §§ 900.16, 900.17. Otherwise, the proposal is deemed approved. See 25 U.S.C. § 450j-1(a); 25 C.F.R. § 900.18.
Should the Secretary decide to decline the proposal in part of in its entirety, he or she must do so based on one of these five reasons:
25 U.S.C. § 450f(a)(2). See 25 C.F.R. § 900.22 (setting forth the same declination criteria).
There are a number of limitations on the Secretary's authority to apply § 450f(a)(2)'s declination criteria. The Secretary cannot decline a contract renewal proposal "where no material and substantial change to the scope or funding of a program, functions, services, or activities has been proposed by the Indian tribe or tribal organization." 25 C.F.R. § 900.33. Similarly, the Secretary cannot decline a successor AFA proposal that is "substantially the same" as its predecessor. 25 C.F.R. § 900.32. The Secretary also cannot decline any proposal based on any objections "that will be overcome through the contract." 25 C.F.R. § 900.33. Moreover, if the Secretary can decline only a portion of a contract proposal, he or she must approve all other severable portions of the proposal. See 25 C.F.R. § 900.25.
After the Secretary declines a proposal, he or she must: (i) state any objections in writing to the tribe or tribal organization; (ii) provide assistance to the tribe or tribal organization to overcome the stated objections; and (iii) provide the tribe or tribal organization with a hearing on the record with the right to engage in full discovery on any issue raised in the matter and the opportunity to appeal the Secretary's objections. See 25 U.S.C. § 450f(b). The tribe or tribal organization may, in lieu of filing an appeal, initiate an action in federal district court. See 25 U.S.C. §§ 450f(b)(3), 450m-1. In any hearing, appeal, or action in federal court regarding a contract declination, the Secretary bears "the burden of proof to establish by clearly
The Secretary also has the authority to reassume ISDEA contracts. See 25 U.S.C. § 450m. Reassumption means "rescission, in whole or in part, of a contract and assuming or resuming control or operation of the contracted program ... without consent of the Indian tribe or tribal organization." 25 C.F.R. § 900.246. A federal agency within the HHS or the DOI may unilaterally reassume a contract on either an emergency or non-emergency basis. See 25 C.F.R. § 900.246. An emergency reassumption is permitted when a tribe or tribal organization fails to fulfill the ISDEA contract's requirements and that failure poses: (i) an immediate threat of imminent harm to the safety of any person; or (ii) an imminent substantial and irreparable harm to trust funds, trust lands, or interest in such lands. See 25 C.F.R. § 900.247. A non-emergency reassumption is permitted when there has been: (i) a violation of the rights or endangerment of the health, safety, or welfare of any person; or (ii) gross negligence or mismanagement in the handling or use of contract funds, trust funds, trust lands, or interest in trust lands under the contract. See 25 C.F.R. § 900.247.
In an emergency reassumption, the Secretary must: (i) immediately rescind, in whole or in part, the contract; (ii) assume control or operation of all or part of the program; and (iii) give written notice of the rescission to the tribe or tribal organization, and to the community that the contract serves. See 25 C.F.R. § 900.252. The written notice must include: (i) a detailed statement of the findings that support the Secretary's decision; (ii) a statement explaining the tribe or tribal organization's right to a hearing on the record within ten days of the reassumption, or such later date as the tribe or tribal organization may approve; (iii) an explanation that the tribe or tribal organization may be reimbursed for actual and reasonable "wind up costs" incurred after the effective date of the reassumption; and (iv) a request for the return of property, if any. 25 C.F.R. § 900.253.
In a non-emergency reassumption, the Secretary must: (i) notify the tribe or tribal organization in writing of the deficiencies in contract performance; (ii) ask the tribe or tribal organization to take specific corrective action within a reasonable period of time, which cannot be less than forty-five days; and (iii) offer and provide, if requested, the necessary technical assistance and advice to help the tribe or tribal organization overcome the deficiencies. See 25 C.F.R. § 900.248. If the tribal organization fails to ameliorate the deficiencies, the Secretary shall provide a second written notice to the tribe or tribal organization that the Secretary will reassume the contract, in whole or in part. See 25 C.F.R. § 900.249. The second written notice shall include: (i) the intended effective date of the reassumption; (ii) the details and facts supporting the intended reassumption; and (iii) an explanation of the tribe or tribal organization's right to a formal hearing within thirty days of receiving the notice. See 25 C.F.R. § 900.250. The Secretary cannot reassume the contract before the issuance of a final decision in any administrative hearing or appeal. See 25 C.F.R. § 900.251.
The ISDEA provides a comprehensive range of remedies for a tribe or tribal organization whose contract the Secretary unlawfully terminates. See 25 U.S.C. § 450m-1(a). Section 450m-1(a) provides that, in an ISDEA action, a federal district court "may order appropriate relief," including
25 U.S.C. § 450m-1(a).
Applying the § 450m-1(a) to the DOI Secretary's contract declination decision in Crownpoint, Judge Parker said that "[t]he specific mandamus relief authorized by the ISDA relieves [the plaintiff] of proving the usual equitable elements including irreparable injury and absence of an adequate remedy at law." Crownpoint at 26 (citations omitted). Other federal district courts have similarly concluded that a tribe or tribal organization does not need to demonstrate the traditional grounds for equitable relief to obtain injunctive or mandamus relief under the ISDEA. See, e.g., Pyramid Lake Paiute Tribe v. Burwell, 70 F.Supp.3d 534, 544-45, No. CIV 13-1771 CRC, 2014 WL 5013206, at *7 (D.D.C. Oct. 7, 2014) ("Because the IDEAA specifically provides for both injunctive and mandamus relief to remedy violations of the Act, 25 U.S.C. § 450m-1(a), however, the Tribe need not demonstrate the traditional equitable grounds for obtaining the relief it seeks."); Red Lake Band of Chippewa Indians v. Dep't of the Interior, 624 F.Supp.2d 1, 25 (D.D.C.2009) (granting specific performance on an ISDEA contract without considering the ordinary grounds for such relief because injunctive relief is provided for in the statute); Susanville Indian Rancheria v. Leavitt, No. CIV 07-259 GEB/DAD, 2008 WL 58951, at *10-11 (E.D.Cal. Jan. 3, 2008) (holding that a plaintiff seeking injunctive relief under the ISDEA need not satisfy the traditional equitable requirements); Cheyenne River Sioux Tribe v. Kempthorne, 496 F.Supp.2d at 1068 (ordering a writ of mandamus where the plaintiffs had not established the traditional equitable requirements, but had established that the DOI Secretary's contract declination decision violated the ISDEA).
When faced with an ambiguous federal statute, federal courts typically defer to the administering agency's interpretation. See Chevron U.S.A. v. Natural Res. Def. Council, 467 U.S. 837, 842-45, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984); State of Utah v. Babbitt, 53 F.3d 1145, 1148 (10th Cir. 1995). In cases involving American Indians, however, the Tenth Circuit has "taken a different approach to statutory interpretation," holding that "normal rules of construction do not apply when Indian treaty rights, or even non-treaty matters involving Indians, are at issue." Ramah Navajo Chapter v. Lujan, 112 F.3d 1455, 1461 (10th Cir.1997) (quoting EEOC v. Cherokee Nation, 871 F.2d 937, 939 (10th Cir.1989)) (internal quotation marks omitted). Consequently, the Tenth Circuit has held that federal statutes "are to be construed liberally in favor of Native Americans, with ambiguous provisions interpreted to their
The ISDEA is designed to "circumscribe as tightly as possible the discretion of the Secretary." Ramah Navajo Sch. Bd. v. Babbitt, 87 F.3d at 1344. The ISDEA instructs that "[e]ach provision of [the ISDEA] and each provision of contracts entered into thereunder shall be liberally construed for the benefit of the tribes or tribal organizations...." 25 C.F.R. § 900.3(a)(5). The Tenth Circuit has confirmed that the canon of construction favoring American Indian tribes applies to ISDEA claims, noting that "it would be entirely inconsistent with the purpose of the [ISDEA], as well as with the federal policy of Native American self-determination in general, to allow the canon favoring Native Americans to be trumped in this case." Ramah Navajo Chapter v. Lujan, 112 F.3d at 1462. The Tenth Circuit has explained that this canon of construction "controls over more general rules of deference to an agency's interpretation of an ambiguous statute." S. Ute Indian Tribe v. Sebelius, 657 F.3d at 1078. Consequently, in the Tenth Circuit, federal courts must not afford any deference to the HHS or the DOI's interpretation of ambiguous provisions of the ISDEA.
Only a few federal district courts have addressed whether the "arbitrary and capricious standard" of the Administrative Procedure Act, 5 U.S.C. §§ 701-06 ("APA"), applies to ISDEA claims. The majority of district courts have concluded that ISDEA's text, its legislative history, and the general presumption favoring Indian tribes dictates a de novo review of ISDEA claims. See, e.g., Seneca Nation of Indians v. Dep't of Health and Human Servs., 945 F.Supp.2d at 141-42 & n. 5; Cheyenne River Sioux Tribe v. Kempthorne, 496 F.Supp.2d at 1066-67; Cherokee Nation of Okla. v. United States, 190 F.Supp.2d 1248, 1258 (E.D.Okla.2001), rev'd on other grounds by, 543 U.S. 631, 125 S.Ct. 1172, 161 L.Ed.2d 66 (2005); Shoshone-Bannock Tribes of the Fort Hall Reservation v. Shalala, 988 F.Supp. at 1318. A minority of district court cases — three of which are unpublished — used the APA's arbitrary and capricious standard to review ISDEA claims. See, e.g., Citizen Potawatomi Nation v. Salazar, 624 F.Supp.2d 103, 108 (D.D.C.2009); Suquamish Tribe v. Deer, CIV No. 96-5468 (W.D.Wash. Sept. 2, 1997); Cal. Rural Indian Health Bd., Inc. v. Shalala, CIV No. 96-3526 (N.D.Cal. Apr. 24, 1997); Yukon-Kuskokwim Health Corp. v. Shalala, CIV No. 96-155 (D.Alaska Apr. 15, 1997). Those courts have reasoned that, because the ISDEA does not provide a standard of review, courts must use the APA's arbitrary-and-capricious standard. See Citizen Potawatomi Nation v. Salazar, 624 F.Supp.2d at 108 ("Both the Supreme Court and our Court of Appeals have declared that, where a statute does not provide a standard of review, as is true of the ISDA, courts must look to the APA standard.").
"It is well settled that a preliminary injunction is an extraordinary remedy, and that it should not be issued unless the movant's right to relief is clear and unequivocal." Kikumura v. Hurley, 242 F.3d 950, 955 (10th Cir.2001) (internal quotation marks omitted). To show that the extreme remedy of a preliminary injunction should issue, "[a] party seeking an injunction from a federal court must invariably show that it does not have an adequate remedy at law." N. Cal. Power Agency v. Grace Geothermal Corp., 469 U.S. 1306, 1306, 105 S.Ct. 459, 83 L.Ed.2d 388 (1984). Before a district court may
"[T]he limited purpose of a preliminary injunction `is merely to preserve the relative positions of the parties until a trial on the merits can be held....'" Schrier v. Univ. of Colo., 427 F.3d 1253, 1258 (10th Cir.2005) (quoting Univ. of Tex. v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981)). The Tenth Circuit has identified the following three specifically disfavored preliminary injunctions: "(1) preliminary injunctions that alter the status quo; (2) mandatory preliminary injunctions; and (3) preliminary injunctions that afford the movant all the relief that it could recover at the conclusion of a full trial on the merits." Schrier v. Univ. of Colo., 427 F.3d at 1258 (quoting O Centro Espirita Beneficiente Uniao Do Vegetal v. Ashcroft, 389 F.3d 973, 977 (10th Cir.2004) (en banc) ("O Centro Espirita"), aff'd on other grounds, 546 U.S. 418, 126 S.Ct. 1211, 163 L.Ed.2d 1017 (2006)) (internal quotation marks omitted). Accord Westar Energy, Inc. v. Lake, 552 F.3d 1215, 1224 (10th Cir.2009) (citing O Centro Espirita, 389 F.3d at 975). With respect to preliminary injunctions that will change the status quo, "the movant has an even heavier burden of showing that the four factors listed above weigh heavily and compellingly in movant's favor before such an injunction can be issued." Salt Lake Tribune Publ'g Co. v. AT & T Corp., 320 F.3d 1081, 1099 (10th Cir.2003) (quoting SCFC ILC, Inc. v. Visa USA, Inc., 936 F.2d 1096, 1098-99 (10th Cir.1991)) (internal quotation marks omitted).
"[I]n an action for money damages, the district court does not have the power to issue a preliminary injunction...." United States ex rel. Rahman v. Oncology Assocs., 198 F.3d 489, 495-96 (4th Cir.1999) (citing Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 324-25, 119 S.Ct. 1961, 144 L.Ed.2d 319 (1999)). See Gelco Corp. v. Coniston Partners, 811 F.2d 414, 418-20 (8th Cir.1987) (finding that a preliminary injunction should not issue where a remedy of money damages was available). Federal courts have the inherent equitable power to issue a preliminary injunction only when it is necessary to protect a movant's entitlement to a final equitable remedy. See, e.g., De Beers Consol. Mines v. United States, 325 U.S. 212, 219-23, 65 S.Ct. 1130, 89 L.Ed. 1566 (1945); Reebok Int'l, Ltd. v. Marnatech Enter., Inc., 970 F.2d 552, 559-60 (9th Cir.1992).
The Court will grant the Motion in part and deny it in part. The Court will not order permanent injunctive relief at this
The Court will not order permanent injunctive relief at this stage. Section 450m-1 affords federal district courts broad discretion to award permanent injunctive relief in ISDEA cases:
25 U.S.C. § 450m-1. Accordingly, if the Court determines that the NAIHS has violated the ISDEA, it may award immediate injunctive relief without proceeding to summary judgment or to trial.
As explained in more detail in the remainder of this Memorandum Opinion and Order, Sage Hospital has shown that: (i) the NAIHS cannot rely on information beyond the four corners of Sage Hospital's contract proposals to determine whether those proposals are substantially the same as their predecessors under §§ 900.32 and 900.33; and (ii) Sage Hospital's contract proposals' contents are substantially the same as their predecessors' contents. Based on the record before the Court, therefore, the Court is inclined to find that the Defendants violated the ISDEA and award a permanent injunction. A few considerations counsel against awarding a permanent injunction at this stage, however.
First, although the Defendants have not made any arguments or submitted any evidence regarding issue (ii), they also have not expressly conceded it. Perhaps relying on their mistaken assumption that the Court cannot award a permanent injunction at this stage, the Defendants have focused exclusively on their argument that the NAIHS may consider the NAIHS Report and the Moss Adams Report in determining whether Sage Hospital's contract proposals are substantially the same as their predecessors under §§ 900.32 and 900.33. See Response passim. Accordingly, the Defendants have not offered any arguments or evidence on why Sage Hospital's contract proposals' contents are not substantially the same as their predecessors' contents. In the most extreme example, the Defendants have said nothing about the fact that the 2015 AFA proposes a fifty-five percent increase in funding from the 2013 AFA — an increase which, at face value, suggests that the 2015 AFA is not "substantially the same" as the 2013 AFA. Compare El-Meligi Ltr. at 2-3 (setting forth Sage Hospital's request that the NAIHS fund Sage Hospital at a total amount of $32,614,916.00, with
It is possible that the Defendants want the Court only to resolve the legal questions and do not intend to challenge the factual issues. In that case, a summary judgment motion from Sage Hospital or settlement should lead to a relatively speedy resolution of those claims. If the Defendants have additional arguments on why the Sage Hospital's contract proposals' contents are not substantially similar to their predecessors' contents, and have evidence to support those arguments, however, ordering a preliminary injunction while proceeding to summary judgment gives the Defendants an opportunity to hash out those arguments and have their full day in court. With such a bare record, the Court is reluctant to foreclose the Defendants from offering any evidence or arguments on those issues.
This caution is not to say that ordering a permanent injunction this early in an ISDEA case is never appropriate. If the parties explicitly concede all factual disputes — in a stipulation, the briefing, or their oral arguments — and are solely looking for the court to resolve the legal issues in a case, permanent injunctive relief may be appropriate at this early stage. As a further development of the record in such situations would not help the court resolve the legal issue, forcing the parties to proceed to summary judgment would be a waste of time. Erring on the side of ordering a preliminary injunction in close cases, however, resolves the legal disputes while allowing the parties to raise any remaining factual disputes that may not have been front and center in their mind this early in the case.
Second, the Court has been unable to find a case in which a court faced with an ISDEA claim has awarded a permanent injunction at this early stage in a case. In all but one ISDEA case that Sage Hospital cites in its Motion and Reply, the district court ordered a permanent injunction only after litigating the tribe or tribal organization's motion for summary judgment. See Pyramid Lake Paiute Tribe v. Burwell, 70 F.Supp.3d at 544-46, 2014 WL 5013206, at *7-8; Red Lake Band of Chippewa Indians v. Dep't of the Interior, 624 F.Supp.2d at 27; Susanville Indian Rancheria v.
Third, a permanent injunction is unnecessary this stage of the case. A preliminary injunction can address the large majority of Sage Hospital's concerns about facing insolvency and losing its patients' goodwill. As the Court will order the Defendants to fully fund Sage Hospital under the 2013 AFA and the 2010 Contract until the resolution of this case on the merits, and the Defendants will be ordered to comply with all of the terms and conditions of those contracts, Sage Hospital should be able to avoid insolvency and continue operating at its pre-1st Declination levels. Because a permanent injunction is unnecessary at this stage, the Court will not order one at this point. To the extent that Sage Hospital succeeds on the merits of its claims — at either the summary judgment stage or at trial — the Court will order any necessary and appropriate permanent injunctive relief at that point. Instead of ordering any relief under § 450m-1, the Court will award a preliminary injunction under rule 65 of the Federal Rules of Civil Procedure. This approach preserves the status quo while giving the Defendants an opportunity to add evidence to the record to support their decision to apply § 450f(a)(2)'s declination criteria to Sage Hospital's contract proposals.
To establish its right to preliminary relief, a moving party must demonstrate that the following factors weigh in its favor:
Wyandotte Nation v. Sebelius, 443 F.3d at 1254-55. Rather than setting forth a strict checklist, "these factors provide guideposts for a court in its attempt to minimize any harm that would result from the grant or denial of preliminary relief." O Centro Espirita, 389 F.3d at 999. If the moving party demonstrates that the first, third, and fourth factors "tip strongly in his favor," the test is relaxed and the moving party "may meet the requirement for showing success on the merits by showing that questions going to the merits are so serious, substantial, difficult, and doubtful as to make the issue for litigation and deserving of more deliberate investigation." Okla. ex rel. Okla. Tax Comm'n v. Int'l Registration Plan, Inc., 455 F.3d 1107, 1113 (10th Cir.2006) (internal quotation marks omitted). The Court will order
There are three types of specifically disfavored preliminary injunctions, only two of which are relevant here: (i) injunctive relief that would alter the status quo; and (ii) mandatory injunctive relief. See O Centro Espirita, 389 F.3d at 975. The Tenth Circuit has cautioned that "movants seeking such an injunction are not entitled to rely on this Circuit's modified-likelihood-of-success-on-the-merits standard. Instead, a party seeking such an injunction must make a strong showing both with regard to the likelihood of success on the merits and with regard to the balance of harms...." O Centro Espirita, 389 F.3d at 976. Here, a preliminary injunction in which the NAIHS must continue funding Sage Hospital according to the 2013 Renewal and 2014 AFA does not alter the status quo and is not mandatory.
Ordering the NAIHS to continue funding Sage Hospital according to the 2013 Renewal and 2014 AFA would not alter the status quo. The status quo is when the NAIHS was funding Sage Hospital under the 2010 Contract and the 2013 AFA and abiding by the terms of those agreements. See Dominion Video Satellite, Inc. v. EchoStar Satellite Corp., 269 F.3d 1149, 1155 (10th Cir.2001) ("[T]he status quo is the last uncontested status between the parties which preceded the controversy until the outcome of the final hearing." (internal quotation marks omitted)). Whether the NAIHS properly declined the contract proposal is not outcome determinative. Rather, the Court "looks to the reality of the existing status and relationship between the parties and not solely to the parties' legal rights." Dominion Video Satellite, Inc. v. EchoStar Satellite Corp., 269 F.3d at 1155.
A preliminary injunction would require the NAIHS to fund Sage Hospital and abide by the terms of its agreements with Sage Hospital as it has done since at least 2010. The situation is similar to that in Dominion Video Satellite, Inc. v. EchoStar Satellite Corp., where EchoStar Satellite had long been activating Dominion Video's subscribers and the injunction required that EchoStar not depart from that course, but continue activating subscribers. See 269 F.3d at 1155. In that case, the Tenth Circuit noted that "the injunction ... prohibits EchoStar from refusing to activate new Dominion customers on the same terms and conditions previously applicable. It does not compel EchoStar to do something it was not already doing during the last uncontested period preceding the injunction." 269 F.3d at 1155. Likewise, ordering a preliminary injunction in this case does not compel the NAIHS to do something that it has not already been doing for years. The NAIHS has funded Sage Hospital under ISDEA contracts since at least 2007, and was doing so before the present disputes and subsequent litigation began. Accordingly, ordering a preliminary injunction in this case would not alter the status quo.
Although a preliminary injunction in this case escapes being disfavored as altering the status quo, it must also not be mandatory in nature. That point is more complicated, but ultimately the preliminary injunction in this case is also not mandatory. The Tenth Circuit has upheld both the grant and the denial of injunctions in circumstances
In Guidance Endodontics, LLC v. Dentsply Intern., Inc., the Court found a temporary restraining order ("TRO") that required the defendant to continue performing its duties under the contract which was in place before the litigation, to be prohibitory rather than mandatory. See 633 F.Supp.2d at 1276. The Court noted that "enforcing a contract tends to be mandatory when the nature of the breach can only be remedied by the performance of actions different than those provided in the contract." 633 F.Supp.2d at 1276. Similar to the TRO in Guidance Endodontics, LLC v. Dentsply Intern., Inc., ordering a preliminary injunction in this case does not impose any additional duties on the NAIHS beyond what is included in its ISDEA contract with Sage Hospital. Accordingly, Guidance Endodontics, LLC v. Dentsply Intern., Inc. suggests that preliminary injunctive relief in this situation would be prohibitory rather than mandatory.
The most important factor in determining whether a preliminary injunction is mandatory, however, is the negligible chance that the Court will find itself having to perpetually supervise the preliminary injunction. The Tenth Circuit indicated in SCFC ILC, Inc. v. Visa USA, Inc., that this concern is largely what motivates the rule. See 936 F.2d at 1099 (noting that mandatory injunctions "affirmatively require the nonmovant to act in a particular way, and as a result they place the issuing court in a position where it may have to provide ongoing supervision to assure that the nonmovant is abiding by the injunction" (emphasis added)). Any preliminary injunction, of course, might end up placing the Court in such a role. Simply funding a contract and abiding by its terms, however, is a relatively routine activity for the NAIHS, and thus should not require an intensive amount of court supervision. Whether the NAIHS is complying with the terms of the preliminary injunction will be readily ascertainable. As a more general matter, regardless whether this assumption is justified, the Court trusts the federal government to more readily comply with an order from a federal district court judge than a private party. Enforcing a preliminary injunction in this case is thus unlikely to place a heavy burden on the Court.
The Court does not see any significant feature that would make this preliminary injunction mandatory, and the Court will thus follow the approach taken in Dominion Video Satellite, Inc. v. EchoStar Satellite Corp. Because a preliminary injunction in this case is neither mandatory nor disruptive of the status quo, the Court
The first element of the test for injunctive relief is whether Sage Hospital is in danger of irreparable harm if the Court does not grant a preliminary injunction. The evidence reveals that Sage Hospital is in a precarious financial situation and that it is unlikely to obtain needed funding from any source other than the NAIHS. That Sage Hospital is threatened with irreparable injury weighs in favor of granting a preliminary injunction.
Sage Hospital faces a dire financial situation if the Court does not award a preliminary injunction. ISDEA funds provide approximately fifty-five percent of Sage Hospital's revenue. See Katigbak 1st Decl. ¶ 10, at 38. The 1st Declination cut off those funds entirely on September 30, 2014. See 1st Declination passim. Without a reversal of the 1st Declination, Sage Hospital will lose that revenue, while still performing its full array of healthcare services. See Katigbak 1st Decl. ¶ 10, at 38. Moreover, because of the 1st Declination, Sage Hospital has to purchase pharmaceutical supplies from commercial vendors rather than from the Gallup Regional Supply Service Center, a low-cost federal supplier. See El-Meligi 1st Decl. ¶ 14, at 8. The 1st Declination also forced Sage Hospital to purchase professional liability insurance for its doctors at a cost of approximately $50,000.00 per month rather than relying on the FTCA's protections at no cost. See El-Meligi 1st Decl. ¶ 11, at 7. If injunctive relief is not promptly granted, Sage Hospital's approximately 200 employees will likely lose their jobs before December 22, 2015. See El-Meligi 1st Decl. ¶ 15, at 9. Sage Hospital's cash-flow projections for FY 2014 indicate that, if the Court does not reverse the 1st Declination, Sage Hospital will be on the brink of insolvency before December 22, 2015. See Katigbak 1st Decl. ¶ 10, at 38-39. At the February 12, 2015, hearing, Sage Hospital updated this assessment by noting that it would be in a precarious financial position if the Court does not order injunctive relief within two months or "a little longer than that" — placing Sage Hospital's potential insolvency date closer to April 12, 2015. Tr. at 80:3-19 (Frye, Court).
As the Supreme Court of the United States has noted, where a business "would suffer a substantial loss of business and perhaps even bankruptcy ... the latter type of injury sufficiently meets the standards for granting interim relief, for otherwise a favorable final judgment might well be useless." Doran v. Salem Inn, Inc., 422 U.S. 922, 932, 95 S.Ct. 2561, 45 L.Ed.2d 648 (1975). See Commodity Futures Trading Comm'n v. British Am. Commodity Options Corp., 434 U.S. 1316, 1322, 98 S.Ct. 10, 54 L.Ed.2d 28 (1977) (upholding stay of regulation on the grounds that the regulation would cause irreparable harm because it would have "potentially fatal consequences for a number of the firms" involved in the case). The Tenth Circuit has held that "[a] threat to trade or business viability may constitute irreparable harm." Tri-State Gen. & Transmission Ass'n, Inc. v. Shoshone River Power, Inc., 805 F.2d 351, 356 (10th Cir.1986). Similarly, other circuit courts have held that the potential destruction of the plaintiff's business can constitute an irreparable harm justifying injunctive relief. See Performance Unlimited, Inc. v. Questar Publishers, Inc., 52 F.3d 1373, 1382 (6th Cir.1995); Fla. Businessmen for Free Enter. v. City of Hollywood, 648 F.2d 956, 958 nn. 2-3 (5th Cir.1981); Wash. Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C.Cir.
Sage Hospital has said that it will be in a precarious financial position if the Court does not award a preliminary injunction before April 12, 2015, or "a little longer than that," and will face insolvency by December 22, 2015, at the latest. Tr. at 80:15-19 (Frye). Generally, the Court gives parties at least 120 days to conduct discovery. Add to that consideration that the parties have not yet conducted a status conference, and the earliest that this case could go to trial would be late-August of this year. Most likely, this case would be tried at the end of the year or early in 2016. In light of that projected trial date, and the fact that Sage Hospital has already gone more than six months without half of its revenue, failing to order a preliminary injunction would cause Sage Hospital irreparable harm. See Temple Univ. v. White, 941 F.2d 201, 213-15 (3d Cir. 1991) (upholding district court's ruling that plaintiff faced irreparable harm from loss of forty-four percent of its revenue from state funding). It is often tricky to determine precisely when a company will become insolvent — particularly one with annual expenses upwards of $30 million a year. See Bradshaw Audit at 12. Even if Sage Hospital is not technically insolvent before this case goes to trial, its patients, employees, and creditors may see the writing on the wall and begin jumping ship well before then. It is particularly important that Sage Hospital not begin to lose its professionals — both doctors and nurses — for fear that the facility is becoming insolvent. Even in this best-case scenario, Sage Hospital's losses before trial will be difficult to calculate with certainty, a factor that cuts in favor of finding irreparable harm. See Dominion Video Satellite, Inc. v. Echostar Satellite Corp., 356 F.3d 1256, 1263 (10th Cir.2004) (identifying the inability to ascertain damages as a factor supporting an irreparable harm determination).
The Defendants assert that Sage Hospital will not suffer irreparable harm, because Sage "has more than sufficient cash reserves of approximately $15,878,000.00 to continue operations as a private hospital during the time it will take to litigate this case." Response at 31 (citing Bradshaw Audit at 12). The figure that the Defendants cite, however, comes from a report that last analyzed Sage Hospital's cash accounts on September 30, 2013. See Bradshaw Audit at 12. By contrast, Sage Hospital has offered sworn declarations from its CEO and its CFO, both of which state that Sage Hospital will face insolvency before December 22, 2015. See Katigbak 1st Decl. ¶ 10, at 30-39; El-Meligi 1st Decl. ¶ 15, at 9. As those declarations were executed on December 22, 2014, they provide a more recent assessment of Sage Hospital's financial health. Accordingly, the Court will credit those statements over the statement from the Bradshaw Audit's evaluation from 2013.
The Defendants also contend that "[i]t is undisputed that Sage delayed for months before bringing this action for injunctive relief, and `delay in seeking preliminary relief cuts against finding irreparable injury.'" Response at 28 (quoting Kan. Health Care Ass'n v. Kan. Dep't of Soc. & Rehab. Servs., 31 F.3d 1536, 1543-44 (10th Cir.1994)). The evidence belies the Defendants' assertion. Rather than waiting "for months" before bringing this action, Sage Hospital received the 1st Declination on September 29, 2014, see Katigbak 1st Decl. ¶ 4, at 35, and promptly filed the Complaint, requesting immediate injunctive relief, less than a month later, on October 23, 2014, see Complaint at 1. Sage Hospital's one-month delay in filing the Complaint is significantly shorter than the plaintiffs' three-month delay in Kansas
Sage Hospital has shown a likelihood of success on the merits, a factor that weighs heavily in favor of ordering a preliminary injunction. Section 900.32 of the ISDEA likely prohibits the NAIHS from declining the 2014 AFA and the 2015 AFA. Section 900.33 of the ISDEA likely prohibits the NAIHS from declining the 2013 Renewal and the 2014 Renewal. Even if §§ 900.32 and 900.33 permitted the NAIHS to apply § 450f(a)(2)'s declination criteria to Sage Hospital's contract proposals, those criteria likely did not permit the NAIHS to decline any of those proposals. Even if the NAIHS permissibly applied § 450f(a)(2)'s declination criteria to the 2013 Renewal and the 2014 AFA, it violated § 450f(b)(2) of the ISDEA by failing to provide Sage Hospital technical assistance.
Section 900.32 likely prohibits the NAIHS from declining the 2014 AFA. Section 900.32 prohibits the NAIHS from declining a successor AFA proposal that is "substantially the same" as its predecessor. 25 C.F.R. § 900.32. The text of the 2014 AFA is substantively identical to the text of the 2013 AFA. Compare 2014 AFA passim, with 2013 AFA passim. Section 900.32 affords no discretion to the NAIHS to decline or approve such a proposal. When faced with such a proposal, the NAIHS' duty is clear and unambiguous: it "shall approve and add to the contract the full amount of funds to which the contractor is entitled, and may not decline, any portion of a successor annual funding agreement." 25 C.F.R. § 900.32. Accordingly, the NAIHS likely violated the ISDEA when it declined the 2014 AFA.
The Defendants do not contend that the Court should disregard § 900.32 and apply only § 450f(a)(2)'s declination criteria. Nor do they challenge Sage Hospital's argument that the 2014 AFA's text is substantially the same as its predecessor's. Instead, they seek to avoid the straightforward application of § 900.32 by arguing that the 2014 AFA is not substantially the same as the 2013 AFA, because the Moss Adams Report and the NAIHS Report uncovered information about Sage Hospital's operations that was previously unknown to the NAIHS. See Response at 24.
The Defendants rely only on Pequot — an unpublished administrative decision — to support their position. In that case, a tribal organization sought, as part of a proposed successor AFA with the HHS, authorization to sell pharmaceuticals to non-Indian employees of one of its casinos. See Pequot, 2006 WL 1337439, at *1. The AFA for the previous year included the following language: "The Nation agrees to provide all medically necessary pharmacy services for the Mashantucket Pequot Tribe, beneficiaries of the Tribe's health
After the tribal organization submitted the proposed successor AFA, the OIG issued a report from an audit of the tribal organization's healthcare services, which uncovered that the tribal organization "had extended eligibility for federally discounted drugs to its non-Indian employees without making the required determination that reasonable alternative drug services were not available to these employees." Pequot, 2006 WL 1337439, at *4. Donna E. Shalala, then-HHS Secretary — who was apparently unaware that the tribal organization had been providing pharmaceutical services to non-Indians — declined the proposed successor AFA on the ground that it included "activities that cannot lawfully be carried out by the contractor." Pequot, 2006 WL 1337439, at *1. The tribal organization appealed the decision to an Administrative Law Judge, who found that the declination was unlawful and reversed Shalala's decision. See Pequot, 2006 WL 1337439, at *1.
Thereafter, the DAB reversed the ALJ's decision and upheld the declination for four reasons. See Pequot, 2006 WL 1337439, at *4-17. First, the DAB concluded that Shalala could not lawfully contract with the tribal organization to provide healthcare services to non-Indians under the ISDEA. See Pequot, 2006 WL 1337439, at *4-7. Second, the DAB determined that the tribal organization failed to comply with the Indian Health Care Improvement Act, 25 U.S.C. § 1680c(b)("IHCIA"), which required the organization to determine that there were no reasonable alternative services available to meet the non-Indians pharmaceutical needs. See Pequot, 2006 WL 1337439, at *8-11. Third, the DAB held that no reasonable person could have concluded that alternative services were unavailable to meet the non-Indians pharmaceutical needs. See Pequot, 2006 WL 1337439, at *11-15. Thus, even if the tribal organization had conducted the requisite alternative-services analysis and determined that no alternative services existed, such a conclusion would have been unreasonable. See Pequot, 2006 WL 1337439, at *11-15. Fourth, and finally, the DAB determined that § 900.32 could not supply an independent basis for requiring Shalala to approve that portion of the proposed AFA, because that regulation is limited to programs that the HHS had previously funded. See Pequot, 2006 WL 1337439, at *15-17. In other words, the DAB concluded that, because the HHS had never funded the pharmaceutical program for non-Indians, § 900.32 did not apply. See Pequot, 2006 WL 1337439, at *15-17.
At the end of the decision, the DAB noted:
Pequot, 2006 WL 1337439, at *17 (footnote omitted)(emphasis added).
The Defendants assert that, just as the OIG report led Shalala to decline the successor AFA proposal in Pequot as "not substantially the same" as its predecessor, the Moss Adams Report and the NAIHS Report properly led the NAIHS to decline the 2014 AFA as not substantially the same as the 2013 AFA. See Response at 25-26 (citation omitted)(internal quotation marks omitted). The Defendants add that the HHS Secretary's interpretation of her own regulations — even in administrative decisions like Pequot — is controlling "unless plainly erroneous or inconsistent with the regulation." Response at 25 (citing Auer v. Robbins, 519 U.S. at 461, 117 S.Ct. 905). The Court disagrees on both counts.
As an initial matter, Tenth Circuit law suggests that the Court should not give any deference to Pequot's interpretation of § 900.32. When agencies interpret their own regulations — to, for example, adjudicate whether a regulated party was in compliance with them — courts accord agencies what is known as Auer or Seminole Rock deference. See Auer v. Robbins; Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 65 S.Ct. 1215, 89 L.Ed. 1700 (1945). The Court has previously said that Auer deference "is applied in the same manner as Chevron deference and is substantively identical." Jarita Mesa Livestock Grazing Ass'n v. U.S. Forest Service, 305 F.R.D. 256, 286 (D.N.M.2015) (Browning, J.). Although the Tenth Circuit has not ruled on whether courts should apply Auer deference to an agency's interpretation of the ISDEA's promulgating regulations, Tenth Circuit precedent indicates that courts should not. The Tenth Circuit observed in Ramah Navajo Chapter v. Lujan that the ISDEA's purpose is "to assure maximum participation by Indian tribes in the planning and administration of federal services, programs and activities for Indian communities." 112 F.3d at 1461 (citations omitted)(internal quotation marks omitted). The Tenth Circuit thus held that the canon of statutory construction favoring American Indian tribes applies to ISDEA claims, noting that "it would be entirely inconsistent with the purpose of the [ISDEA], as well as with the federal policy of Native American self-determination in general, to allow the canon favoring Native Americans to be trumped in this case." Ramah Navajo Chapter v. Lujan, 112 F.3d at 1462. The Tenth Circuit has explained that this canon of construction "controls over more general rules of deference to an agency's interpretation of an ambiguous statute." S. Ute Indian Tribe v. Sebelius, 657 F.3d at 1078. See Cobell v. Norton, 240 F.3d 1081, 1101 (D.C.Cir.2001) ("While ordinarily we defer to an agency's interpretations of ambiguous statutes entrusted to it for administration, Chevron deference is not applicable in this case.").
While the Court recognizes that Chevron deference is distinct from Auer deference, the Tenth Circuit's rationale for not applying Chevron deference to the ISDEA's statutory provisions applies with equal force to Auer deference. Moreover, the ISDEA's promulgating regulations explicitly instruct that "[e]ach provision of [the ISDEA] and each provision of contracts entered into thereunder shall be liberally construed for the benefit of the tribes or tribal organizations...." 25 C.F.R. § 900.3(a)(5). Given Tenth Circuit precedent mandating that courts should not apply Chevron deference in ISDEA cases, and § 900.3(a)(5)'s explicit instruction that courts should construe the ISDEA's
Even giving careful consideration to Pequot, however, the Court will not adopt its interpretation of § 900.32. The relevant paragraph of the decision states:
Pequot, 2006 WL 1337439, at *17 (footnote omitted). The second and third sentences of the paragraph refer to the IHCIA's requirement that a tribal organization take into account the availability of alternative services in making its decision to provide those services to non-Indians. See Pequot, 2006 WL 1337439, at *7-8. Because this determination must be contemporaneous, it stands to reason that every successor AFA "can be viewed as substantively different" from its predecessor. Pequot, 2006 WL 1337439, at *17. Because this contemporaneous alternative-service-determination requirement is unique to the IHCIA, and the IHCIA does not apply in this case, those sentences are inapplicable here. See Pequot, 2006 WL 1337439, at *17.
The paragraph's final sentence — which states that "the OIG report raised legal issues concerning the proposal which might not have been apparent to IHS when it approved the FY 1999 AFA" — is the only line in the decision that can be construed as supporting the Defendants' argument. Arguably, it suggests that the NAIHS may consider information beyond the proposed AFA's text — like the Moss Adams Report and the NAIHS Report's findings — in determining whether the proposal is "substantially the same" as its predecessor. 25 C.F.R. § 900.32. A few considerations counsel against adopting its interpretation of § 900.32, however.
First, Pequot's expansive interpretation of § 900.32 conflicts with a plain-text reading of the ISDEA. Section 900.32 states:
25 C.F.R. § 900.32. Section 900.32 makes clear that whether the HHS Secretary may apply § 450f(a)(2)'s declination criteria to a proposed successor AFA turns on the proposal's contents rather than on a holistic assessment of the tribe or tribal organization's performance of the existing AFA that includes information from out-side sources. Section 900.6 underscores this interpretation by defining an AFA narrowly as "a document that represents the negotiated agreement of the Secretary to fund, on an annual basis, the programs, services, activities and functions transferred to an Indian tribe or tribal organization under the Act." 25 C.F.R. § 900.6. See 25 C.F.R. § 900.12 (detailing the requirements for a proposed successor AFA, and stating that "[t]he proposal shall provide funding information in the same detail and format as the original proposal and may also identify any significant proposed changes").
Second, the ISDEA's legislative history indicates that courts should interpret § 900.32 narrowly. The ISDEA originally delegated the DOI and HHS Secretaries broad authority to "perform any and all acts and to make such rules and regulations as may be necessary and proper for the purposes of carrying out" the ISDEA. 25 U.S.C. § 450k(a)(1983). Their failure to adequately enact regulations that transferred their contracting authority to American Indian tribes, however, ultimately motivated Congress to amend the ISDEA twice — first in 1988 and again in 1994. Among the many problems that Congress noted in enacting its 1988 amendments to the ISDEA were:
Shoshone-Bannock Tribes of Fort Hall Reservation v. Shalala, 988 F.Supp. at 1316 (quoting 1987 Senate Report at 7-8)(alterations in Shoshone-Bannock Tribes of Fort Hall Reservation v. Shalala but not 1987 Senate Report). Accordingly, Congress proposed not to apply "otherwise applicable federal procurement law and acquisition regulations," to ISDEA contracts to "decrease the volume of contract compliance and reporting requirements associated with tribal contracts, and to decrease the volume of unnecessary contract monitoring requirements on the Federal agencies." 1987 Senate Report at 19. Congress thus expected that "the federal contract monitoring bureaucracy that has replaced the federal service bureaucracy will be greatly reduced over the next three years." 1987 Senate Report at 19.
As an added protection against agency malfeasance, Congress gave tribes and tribal organizations the option to circumvent the ISDEA's administrative hearing process and bring their ISDEA claims straight to federal court. See 25 U.S.C. § 450m-1. Congress explained that amendment as follows:
1987 Senate Report at 37.
Even after Congress enacted the 1988 amendments, the DOI and HHS Secretaries' reluctance to hand over contracting authority to Indian tribes continued. Six years later, "frustrated with the Secretary's resistance to the 1988 amendments, Congress reinforced almost every section of the ISDEA, adopted a model self-determination contract ..., and stripped the Secretary of all her delegated rulemaking authority except for 16 narrow areas." Shoshone-Bannock Tribes of Fort Hall Reservation v. Shalala, 988 F.Supp. at 1316 (citing 25 U.S.C. §§ 450l, 450k(a)(1)). Accordingly, nearly every significant amendment that Congress has made to the ISDEA since its inception reflects a desire to curtail the DOI and HHS Secretaries' authority to administer ISDEA contracts, and to expand tribes and tribal organizations' authority to administer those contracts themselves. In light of this legislative history, the Court is reluctant to read § 900.32 expansively as allowing the DOI and HHS Secretaries to apply § 450f(a)(2)'s declination criteria to a proposed successor AFA based on information beyond the proposal's four corners.
Third, the ISDEA already provides a remedy for the NAIHS in these situations. Where the NAIHS can establish that the tribe or tribal organization is violating its patients' rights, endangering its patients' health or safety, or committing gross negligence or mismanagement in handling ISDEA funds, it can cancel the ISDEA contract. The ISDEA authorizes the NAIHS to reassume unilaterally a contract on either an emergency or a non-emergency basis. See 25 C.F.R. § 900.246. An emergency reassumption is permitted when a tribe or tribal organization fails to fulfill the ISDEA contract's requirements and that failure poses: (i) an immediate threat of imminent harm to the safety of any person; or (ii) an imminent substantial and irreparable harm to trust funds, trust lands, or interest in such lands. See 25 C.F.R. § 900.247. A non-emergency reassumption is permitted when there has been: (i) a violation of the rights or endangerment of the health, safety, or welfare of any person; or (ii) gross negligence or mismanagement in the handling or use of contract funds, trust funds, trust lands, or interest in trust lands under the contract. See 25 C.F.R. § 900.247. That the ISDEA provides a specific procedure for rescinding a contract where a tribe or tribal organization commits the malfeasance that the Defendants have accused Sage Hospital of committing underscores the Court's narrow interpretation of § 900.32.
Given the clarity of § 900.32's text, the ISDEA's explicit instruction to courts to construe its regulations in favor of tribal organizations like Sage Hospital, the ISDEA's legislative history indicating Congress' repeated concern about agency malfeasance in administering ISDEA contracts, and that the ISDEA already provides the NAIHS a remedy in these situations, the Court will not adopt Pequot's broad interpretation of § 900.32. As the
The 2nd Declination explains that the NAIHS would not agree to the 2015 AFA for the same reasons that it declined the 2014 AFA. See 2nd Declination passim. The text of the 2015 AFA appears substantively identical to the text of the 2013 AFA. Compare 2015 AFA passim, with 2013 AFA passim. The cover letter for the 2014 AFA, however, explains that the 2015 AFA requests that the NAIHS fund Sage Hospital at a total amount of $32,614,916.00, with $19,995,900.00 in base funding and $12,619,016.00 for direct and indirect contract support costs.
Section 900.33 likely prohibits the NAIHS from declining the 2013 Renewal, because it did not contain a "material and substantial change to the scope or funding" of one of Sage Hospital's PFSAs. Section 900.33 says that proposals for term contract renewals are not subject to § 450f(a)(2)'s declination criteria "where no material and substantial change to the scope or funding of a program, functions, services, or activities has been proposed by the Indian tribe or tribal organization." 25 C.F.R. § 900.33. The 2013 Renewal proposed the following amendments to the 2010 Contract — the added sections are underlined and the deleted sections are crossed out:
Article I, Section 2(B):
Article II, Section 1:
Article II, Section 7(D):
2013 Renewal at 5-6.
The 2013 Renewal proposes only minor amendments to update the 2013 Renewal for a new three-year term and to fix a few typographical errors. The 2013 Renewal offers no modifications to the provisions of the 2010 Contract that speak to the scope and funding of Sage Hospital's PFSAs. Compare 2013 Renewal at 5-6, with 2010 Contract passim. Because the 2013 Renewal did not propose a substantial and material change to Sage Hospital's PFSAs in the 2010 Contract, § 900.33 precluded the NAIHS from applying § 450f(a)(2)'s declination criteria to it. Accordingly, the NAIHS likely violated § 900.33 when it declined the 2013 Renewal.
The Defendants urge the Court to adopt the same expansive interpretation of § 900.33 that they propose for § 900.32. In their view, the information that the Moss Adams Report and NAIHS Report uncovered about Sage Hospital's performance of the 2010 Contract effected a substantial and material change in the scope of the PFSAs in the 2013 Renewal. See Tr. at 41:14 (Belgrove). The Defendants argue that the NAIHS "thought that the Board was properly overseeing the functions of the different executives of the hospital, and that there was accountability.... [T]here were internal controls. And that's what the difference is. That's the PFSA that materially changed." Tr. at 48:11-17 (Belgrove). The Court will not adopt the Defendants' interpretation of § 900.33 for three reasons.
First, the Defendants' interpretation conflicts with § 900.33's plain language. Section 900.33 reads:
25 C.F.R. § 900.33. By using the words "has been proposed by," § 900.33 indicates that the NAIHS' authority to decline a contract renewal proposal turns on the proposal's contents rather than on information that an outside report uncovers about the tribal organization's performance of the existing contract. 25 C.F.R. § 900.33. If § 900.33 provided the NAIHS authority to consider such outside information in determining whether to apply § 450f(a)(2)'s declination criteria, it would read as follows:
25 C.F.R. § 900.33. That § 900.33 contains no such language or deletions shows that the NAIHS' authority is strictly limited to the contract renewal proposal's contents.
Second, the DOI and HHS Handbook — which sets forth those agencies' internal procedures — expressly rejects the Defendants' approach. It states that the tribe or tribal organization's "performance under the existing contract shall have no effect on the contract renewal process...." Handbook at 4. Third, the Court's concerns about adopting an expansive interpretation of § 900.32 apply with equal force here. Both the ISDEA's text and its legislative history indicate that courts should err on the side of interpreting the ISDEA's regulations narrowly. As the Defendants have presented no authority to suggest otherwise, the Court concludes that § 900.33 does not allow the NAIHS to consider information beyond a contract renewal proposal's four corners in determining whether to apply § 450f(a)(2)'s declination criteria. Because there is no substantial and material change in the scope or funding of Sage Hospital's PFSAs in the 2013 Renewal, the NAIHS violated § 900.33 of the ISDEA when it declined the 2013 Renewal.
The 2nd Declination explains that the NAIHS would not agree to the 2014 Renewal for the same reasons that it declined the 2013 Renewal. See 2nd Declination passim. The 2014 Renewal appears to offer no modifications to the provisions of the 2010 Contract that speak to the scope and funding of Sage Hospital's PFSAs. Compare 2014 Renewal at 7-9, with 2010 Contract passim. As the NAIHS cannot decline a contract renewal proposal "where no material and substantial change to the scope or funding of a program, functions, services, or activities has been proposed by the Indian tribe or tribal organization," 25 C.F.R. § 900.33, the NAIHS likely violated the § 900.33 when it declined the 2014 Renewal.
Even if §§ 900.32 and 900.33 permits the NAIHS to apply § 450f(a)(2)'s declination criteria to Sage Hospital's contract proposals, those criteria likely do not permit the NAIHS to decline any of those proposals. Upon satisfying §§ 900.32 and 900.33's threshold requirements, the NAIHS may decline a contract proposal only based on one of these five reasons:
25 U.S.C. § 450f(a)(2). See 25 C.F.R. § 900.22 (setting forth the same declination criteria). The NAIHS must justify its contract declination decision "by clearly demonstrating the validity of the grounds for declining the contract proposal (or portion thereof)." 25 U.S.C. § 450f(e)(1).
The Defendants contend that the NAIHS properly declined Sage Hospital's contract proposals on two grounds: (i) "the service to be rendered to the Indian beneficiaries of the particular program or function to be contracted will not be satisfactory," 25 U.S.C. § 450f(a)(2)(A); and (ii) "the proposed project or function to be contracted for cannot be properly completed or maintained by the proposed contract," 25 U.S.C. § 450f(a)(2)(C). Addressing both factors together, the Defendants argue that the Moss Adams Report and the NAIHS Report demonstrate that the Board "failed to fulfill its fiduciary duties to the hospital, and this led to serious issues with hospital operations that impeded satisfactory healthcare services." Response at 28. Based on the evidence before the Court, the Defendants will likely fail to meet their burden under either § 450f(a)(2)(A) or § 450f(a)(2)(C).
First, the Defendants will likely fail to "clearly demonstrat[e]," 25 U.S.C. § 450f(e)(1), that the quality of Sage Hospital's healthcare services "will not be satisfactory," 25 U.S.C. § 450f(a)(2)(A). Fifteen of the 1st Declination's nineteen adverse findings focus exclusively on criticisms of Sage Hospital's internal financial controls — or lack thereof — and are thus inapplicable here. See 1st Declination at 1-7. Another finding discusses Sage Hospital's "potential" OSHA violations, which "affect the safety of employees, visitors, and patients":
1st Declination at 8. As this paragraph mentions nothing about Sage Hospital's ability to provide satisfactory care to its patients, it is also inapplicable. Only three of the 1st Declination's nineteen adverse findings mention the quality of Sage Hospital's healthcare services:
1st Declination at 8.
As an initial matter, the NAIHS has offered no evidence to support the first paragraph's implication that Sage Hospital eliminated those services during its performance of the 2010 Contract. To the contrary, the evidence suggests that Sage Hospital eliminated those services before 2007. The 1st Declination is taken almost verbatim from the NAIHS Report, but omits the NAIHS Report's qualification that Sage Hospital has eliminated those services "since the first [Sage Hospital] contract was awarded in 2003." NAIHS Report at 14. Razaghi states that, "[p]rior to January 2007, Sage was forced to terminate general surgery (including orthopedics and opthalmolology [sic]) and obstetrical care for lack of adequate facilities and/or qualified staff." Razaghi's 2nd Decl. ¶ 7 at 23. Moreover, Razaghi explains:
Razaghi 2nd Decl. ¶ 12 at 24-25. It appears that Sage Hospital reinstated its dental and podiatry services with the 2010 Contract, and has continued to provide those services ever since then. See 2013 AFA at 9 (listing podiatry and dental care among Sage Hospital's PFSAs). The Defendants have offered no evidence to the contrary.
Sage Hospital has not provided the other services — general surgery, obstetric care, ophthalmology, and pediatrics — since 2007. Neither the 2013 Renewal nor the 2014 AFA, however, include those services in Sage Hospital's PFSAs. A tribe or tribal organization's elimination of services that are not a part of its ISDEA proposal can cut one of two ways. It may demonstrate that the tribe or tribal organization is falling apart and that the problems that plagued the eliminated services will likely soon spread to the proposed PFSAs. On the other hand, it may allow the tribe or tribal organization to divert more resources to the contracted PFSAs to improve patient care in those areas. The evidence in the record shows that Sage Hospital's elimination of services fell into the latter category: it was a key component of Sage Hospital's turnaround effort and allowed the hospital to stabilize and ultimately improve the quality of patient
The second and third paragraphs suffer from a different flaw. Each pairs a fact that the NAIHS Report of Moss Adams Report supports — e.g., "the Board has failed to authorize sufficient funds to maintain a functional health information system for electronic health records" — with a conclusory statement about that fact's impact on the quality of Sage Hospital's healthcare services. As far as the Court can tell, there is no evidence in the record to support these statements. The 1st Declination does not point to any evidence in support of these conclusory statements. The Moss Adams Report says nothing about the quality of Sage Hospital's patient services. Only three sentences in the forty-two-page NAIHS Report imply that Sage Hospital's healthcare services are unsatisfactory: "Several concerns were expressed regarding the delivery of patient care. Patients feel they were unable to get access to some services as in the past. There were also concerns that a lot of good doctors have left [Sage Hospital] employment." NAIHS Report at 24. The NAIHS Report states that these sentences are summaries of the NAIHS' interviews of two "community members representing the Ganado and Cornfields Chapters," who apparently "requested to be interviewed." NAIHS Report at 24. Aside from these three sentences, the NAIHS has not offered — and the Court has been unable to find — any other evidence to indicate that Sage Hospital provides unsatisfactory healthcare services to its patients.
These findings are insufficient to "clearly demonstrat[e]," 25 U.S.C. § 450f(e)(1), at the summary judgment stage or at trial that "the service to be rendered to the Indian beneficiaries of the particular program or function to be contracted will not be satisfactory," 25 U.S.C. § 450f(a)(2). The Court is reluctant to rely on the NAIHS' unsworn summary of its interviews with two "community members" who are relaying third- or fourth-hand information from purported patients of Sage Hospital. At a minimum, the NAIHS should provide this information in the form of reliable evidence — e.g., sworn affidavits or witness testimony — from the patients themselves. Additionally, it is hard for the Court to determine whether Sage Hospital's healthcare services "will be satisfactory," 25 U.S.C. § 450f(a)(2), without some indication of how Sage Hospital stacks up against its peers. The NAIHS should provide, for example, evidence that a state or federal agency recently refused to certify Sage Hospital for providing substandard care; testimony or sworn affidavits from expert witnesses explaining the standard for patient care in hospitals in general — or among hospitals that serve American Indian tribes in particular — and why Sage Hospital's care falls below that standard; or testimony or sworn affidavits from patients comparing their recent experiences receiving treatment at Sage Hospital to experiences at other hospitals. Simply put, the Court would need more than bare conclusory allegations about the quality of Sage Hospital's healthcare services to uphold the NAIHS' declination decisions under § 450f(a)(2).
Indeed, the weight of evidence in the record suggests that Sage Hospital has offered exemplary care to its patients since at least 2009. In September, 2009, Sage
Second, the Defendants likely will not be able to establish that "the proposed project or function to be contracted for cannot be properly completed or maintained by the proposed contract." 25 U.S.C. § 450f(a)(2)(C). Neither the ISDEA nor the case law interpreting it have explained what the phrase "cannot be properly completed or maintained" in § 450f(a)(2)(C) means. Black's Law Dictionary gives six definitions of "proper," only two of which are potentially applicable here: (i) "[a]ppropriate, suitable, right, fit, or correct; according to the rules ... a proper request"; and (ii) "Conforming to the best ethical or social usage; allowable, right, and becoming.... Using only proper means." Black's Law Dictionary, "proper" (10th ed., 2014). Section 450f(a)(2)(C)'s text thus suggests that it authorizes the NAIHS to decline contract proposals where the tribe or tribal organization will not comply with federal law or regulations in administering the contract.
The rest of the ISDEA also supports this interpretation. Sections 900.35-.60 set forth myriad standards for tribes and tribal organizations' financial-management, procurement-management, and property-management systems. See 25 C.F.R. §§ 900.33-60. Outside of § 450f(a)(2)(C), however, the ISDEA provides no mechanism for the NAIHS to enforce these standards. Accordingly, reading § 450f(a)(2)(C) as providing such a mechanism gives those provisions teeth rather than rendering them effectively advisory.
Applying this interpretation of § 450f(a)(2)(C), the Defendants likely will not be able to establish that "the proposed project or function to be contracted for cannot be properly completed or maintained by the proposed contract." 25 U.S.C. § 450f(a)(2)(C). Although the 1st Declination is filled with allegations that Sage Hospital has allowed its programs to
As the Court has mentioned previously, the Defendants bear "the burden of proof to establish by clearly demonstrating the validity of the grounds for declining the contract proposal (or portion thereof)." 25 U.S.C. § 450f(e)(1). Bare conclusory allegations that Sage Hospital violated federal law will not suffice. Instead, the Defendants must come forward with evidence — in the form of witness testimony, sworn affidavits, or documents — that clearly establishes those violations. Without more than the bare record before the Court, the Defendants likely will not be able to establish that "the proposed project or function to be contracted for cannot be properly completed or maintained by the proposed contract." 25 U.S.C. § 450f(a)(2)(C).
Even if the 1st Declination permissibly declined the 2013 Renewal and 2014 AFA, it likely violated § 450f(b)(2) by failing to provide Sage Hospital assistance to overcome the NAIHS' objections to the 2013 Renewal and the 2014 AFA. The 1st Declination sets forth the NAIHS' obligation under § 450f(b)(2): "Pursuant to 25 U.S.C. § 450f(b)(2), IHS must offer to provide technical assistance to a Tribal contractor when the Secretary declines to enter into an ISDEAA contract with the Tribal contractor." 1st Declination at 15. The 1st Declination said, however, that "given the nature and seriousness of IHS's concerns about NHF's ability to manage ISDEAA funds properly, IHS does not believe that technical assistance could be provided at this time that would allow [Sage Hospital] to overcome the stated objections in this letter." 1st Declination at 15. The Defendants urge that § 450f(b)(2) did not require the NAIHS to offer Sage Hospital assistance to overcome the stated objections, because "[n]o amount of technical assistance could have overcome the fact that the current Sage Board of Directors breached its duties of fiduciary responsibilities and accountability to the hospital and effectively relinquished its oversight responsibility to a contracted management company." Response at 27. They add that the ISDEA does not require the NAIHS to engage in "exercises of futility." Response at 27. The Defendants' argument lacks a sound basis in law.
Contrary to the Defendants' suggestions, § 450f(b)(2) contains no "futility" exception. It creates a clear non-discretionary
Moreover, the Defendants do not cite, and the Court has been unable to find, a case in which a court has afforded the NAIHS — or any agency for that matter — any discretion to refuse to provide technical assistance to a tribe or tribal organization after a declination decision. Because the 1st Declination failed to offer Sage Hospital technical assistance, and the Defendants failed to provide Sage Hospital any technical assistance to overcome the 1st Declination's stated objections, the NAIHS likely violated § 450f(b)(2) of the ISDEA.
Accordingly, Sage Hospital has shown a likelihood of success on the merits of its ISDEA declination claim. This factor, thus, cuts in favor of granting a preliminary injunction.
The next prong is whether "the threatened injury to" Sage Hospital "outweighs whatever damage" the preliminary injunction may inflict on the NAIHS. SCFC ILC, Inc. v. Visa USA, Inc., 936 F.2d at 1098. Sage Hospital has already demonstrated that it faces irreparable harm and will likely face insolvency if the Court does not order a preliminary injunction. The scales thus already tip in Sage Hospital's favor. By contrast, any harm flowing to the NAIHS from a preliminary injunction is minimal. Although Sage Hospital has not provided the Court with a specific figure that it seeks from the NAIHS in a preliminary injunction, adding the $11,481,661.00 in base funding to the $6,562,381.00 for contract support costs — both of which are set forth in the 2013 AFA — brings Sage Hospital's total funding request to approximately $18,044,042.00 for a full year. See 2013 AFA at 22, 30. The Court is skeptical that it would take a full year for the parties to go to trial, but even in that worst-case scenario, that figure is a drop in the bucket when compared to the size of the annual federal budget — which typically ranges between $3 trillion and $4 trillion.
More importantly, however, the Defendants have not provided any evidence of concrete harms that they will suffer if the Court awards a preliminary injunction. They have only vaguely asserted that "granting Sage's request would force NAIHS into signing a contract when its performance monitoring review and its forensic consultant's findings show that Sage lacks the internal controls and well-functioning and efficient accounting and financial management systems procedures to ensure that ISDEAA funds would be used only for lawful purposes." Response at 31. Consequently, it is unlikely that the NAIHS will suffer greatly, if at all, if its decades-long relationship with Sage Hospital is continued for a short while until trial. In light of the potential repercussions that Sage Hospital faces if the Court does not
Sage Hospital asserts that a preliminary injunction would not be adverse to the public interest, because, if injunctive relief is not granted, "it is likely that 200 Navajo employees at Sage will lose their jobs within eight months and the struggling economy in the Ganado area would go into a tailspin." Motion at 29. The Defendants have offered only a cursory argument why granting a preliminary injunction is not in the public interest: "The IHS, as a federal agency, has a duty not only to serve its beneficiaries, but also to protect the public fisc.... Thus, when IHS determines that spending has become possibly unlawful and improper, it has a responsibility to rectify the situation, as it did here." Response at 31. The Court concludes that ordering a preliminary injunction in this case would not be adverse to the public interest.
In addition to the likelihood that Sage Hospital's employees may lose their jobs without a preliminary injunction, Sage Hospital has conclusively demonstrated that it provides valuable high-quality healthcare services to members of the Navajo Nation and the surrounding community surrounding Ganado. To force those patients to go to other facilities at much greater distances is not in the public interest. Accordingly, the Court concludes that a preliminary injunction in this case would not be adverse to the public interest.
The Court has a few options from which to choose in determining the appropriate level of funding for this preliminary injunction. In the 2013 AFA, Sage Hospital and the NAIHS agreed that the NAIHS would fund Sage Hospital at a total amount of $18,044,042.00, with $11,481,661.00 in base funding and $6,562,381.00 for direct and indirect contract support costs. See 2013 AFA at 22, 30. The 2014 AFA proposes that the NAIHS fund Sage Hospital at a total amount of $20,738,846.00, with $13,222,149.00 in base funding, and $7,516,697.00 for direct and indirect contract support costs. See 2014 AFA at 2-3. The 2015 AFA proposes that the NAIHS would fund Sage Hospital at a total amount of $32,614,916.00, with $19,995,900.00 in base funding, and $12,619,016.00 for direct and indirect contract support costs. See El-Meligi Ltr. at 2-3. As the "main purpose of a ... preliminary injunction is to preserve the status quo," and the 2013 AFA is the most recent document to which both parties agreed, the Court concludes that it provides the most appropriate funding level until the parties can resolve this case on the merits. Stein v. Disciplinary Bd. of the Supreme Ct. of N.M., No. CIV 04-0840 JB/DJS, 2005 WL 2313607, at *3 (Aug. 26, 2005) (Browning, J.) (unpublished). Accordingly, the Court will order the Defendants to fund Sage Hospital according the 2013 AFA and the 2010 Contract going forward.
The Court also orders the parties to abide by their existing obligations under the 2010 Contract and the 2013 AFA. For example, Sage Hospital must continue to
Sage Hospital contends that, because the "United States has ample ways of recouping any money not properly devoted to patient care," the Court should not require it to post substantial bond or other security. Motion at 30. The Defendants assert that,
Response at 31-32. The Court will not require Sage Hospital to post a bond.
Rule 65(c) provides: "The court may issue a preliminary injunction or a temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained." Fed.R.Civ.P. 65(c). The rule's language appears mandatory, but the Tenth Circuit has held that "a trial court has `wide discretion under Rule 65(c) in determining whether to require security.'" Winnebago Tribe of Neb. v. Stovall, 341 F.3d 1202, 1206 (10th Cir.2003) (quoting Cont'l Oil Co. v. Frontier Refining Co., 338 F.2d 780, 782 (10th Cir.1964)). The Tenth Circuit has said that "a trial court may, in the exercise of discretion, determine a bond is unnecessary to secure a preliminary injunction if there is an absence of proof showing a likelihood of harm." Coquina Oil Corp. v. Transwestern Pipeline Co., 825 F.2d 1461, 1462 (10th Cir.1987) (internal quotation marks omitted).
The United States Courts of Appeals for the First and Third Circuits have held that, in determining whether to order a bond "the court should consider the possible loss to the enjoined party together with the hardship that a bond requirement would impose on the applicant." Crowley v. Local No. 82, Furniture & Piano, 679 F.2d 978 (1st Cir.1982), rev'd on other grounds, 467 U.S. 526, 104 S.Ct. 2557, 81 L.Ed.2d 457 (1984). For instance, in Temple University v. White, 941 F.2d 201, 219 (3d Cir.1991), the plaintiff — Sacred Heart hospital — was on the brink of financial ruin and would have become insolvent absent a preliminary injunction ordering the Pennsylvania Department of Public Works to continue funding the hospital. See 941 F.2d at 219. Upholding the district court's decision to waive the bond requirement, the Third Circuit highlighted that, because of Sacred Heart's financial state, it likely would not have been able to post a bond, and, had the hospital collapsed, it would not have been able to pursue its claim for increased Medicaid payments or serve its Medicaid patients. See 941 F.2d at 219.
While a preliminary injunction does not place a substantial burden on the Defendants, requiring Sage Hospital to post a bond may force it into insolvency. Based on the figures set forth in the 2013 AFA, it appears that funding Sage Hospital for a year will cost the NAIHS approximately $18,044,042.00. See 2013 AFA at 22, 30. At this point, the Court expects the case to go to trial in approximately 120 days. Taking Sage Hospital's yearly ISDEA support figure and dividing it roughly
25 U.S.C. § 450b(l)(emphasis in original).
Although the ISDEA may not have entitled Moss Adams and the NAIHS to all of the documents that it requested, Sage Hospital's refusal to provide those documents demonstrates that it did not "cooperate[] fully" with their requests. Motion at 11. James Thompson — who is a partner at Moss Adams, a Certified Public Accountant, and led the Sage Hospital audit — also provided multiple examples of Sage Hospital's failure to fully cooperate with the audit:
Thompson Decl. ¶ 6, at 4; id. ¶ 13, 7-8. Accordingly, the Court will not credit Sage Hospital's assertion that it "cooperated fully with IHS and Moss Adams," but instead qualify the statement and explain how Sage Hospital did not cooperate fully with those entities. Motion at 11.
The paragraph that the Defendants cite in the Thompson Decl. in support of its assertion cites page three of the Moss Adams Report. See Thompson Decl. ¶ 6, at 4 (citing Moss Adams Report at 3). Page three of the Moss Adams Report states: "SMH routinely terminated auditors each year.... The fiscal year 2010 audit was performed by E[id]e Bailly LLP, ... the 2011 audit was performed by Wipfli LLP, ... and the 2012 and 2013 audits were performed by Bradshaw, Smith & Company LLP...." Moss Adams Report at 3. The Defendants cite the Katigbak 2nd Decl., in which Katigbak says that "[f]or the audits for fiscal years 2007 through 2014, the audit firms used were Eide Bailly for 2007 to 2010, WIPFLI for 2011, and Bradshaw Smith for 2012 to 2014." Katigbak 2nd Decl. ¶ 8, at 3.
Thus, the Defendants' assertion — which omits the fact that Sage Hospital employed Eide Bailey, LLP from 2007 to 2010, and implies that it only employed that firm for one year — is incomplete and misleading. That Sage Hospital terminated one auditing firm — WIPFLI — after one year does not establish that it "routinely terminated auditors each year." Response at 8. Accordingly, rather than adopting the Defendants' unsupported assertion, the Court will include the full timeline of Sage Hospital's auditing firms to provide a more accurate and more complete picture of its auditing history.
The Defendants' assertion is taken verbatim from the Thompson Decl., which, in turn, cites page eleven of the Moss Adams Report. See Thompson Decl. ¶ 7, at 5 (citing Moss Adams Report at 11). The only mention of a $1.8 million bonus on page ten of the Moss Adams Report is in this paragraph:
Moss Adams Report at 10-11. Although "CEO bonus" suggests that Razaghi, and not his management company, received the $1.8 million bonus, the Moss Adams Report later says that "[t]he 2012 payment of a $1.8 million management bonus to Razaghi Healthcare was based on the results of 2011 financials...." Moss Adams Report at 14 (emphasis added). Moreover, Razaghi states that the Board
Razaghi 2nd Decl. ¶ 3, at 1. Razaghi's statements and the Moss Adams Report both indicate that the Board approved a $1.8 million bonus for Razaghi Healthcare, rather than Razaghi personally.
Neither party has explained the governance structure of Razaghi Healthcare, how many people it employs, or what, if any, ownership interest Razaghi has in the company. If Razaghi is the sole owner of Razaghi Healthcare and does not distribute bonuses among his employees, he may have received the entire bonus personally through his company. In that case, whether Razaghi or Razaghi Healthcare received the bonus would be a distinction without a difference. Based on the evidence in the record, however, the Court can conclude only that Sage Hospital paid the $1.8 million bonus to Razaghi Healthcare.
Razaghi 1st Decl. ¶ 3, at 1. Although direct evidence that the Board conducted a fair-market-value assessment of the $1.8 million would be more helpful and persuasive than relying solely on Razaghi's 2nd Decl., that Moss Adams did not find evidence of a fair-market-value assessment does not contradict Razaghi's statements that the Board performed two of them. Accordingly, the Court will include both facts in its factual background.
Response at 29 (quoting Sage Hospital's Independent Auditor's Report at 12, filed January 13, 2015 (Doc. 21-11)("Bradshaw Audit"))(omission in Response, but not in Bradshaw Audit). This passage from the Bradshaw Audit does not contradict Sage Hospital's statement. That Sage Hospital already has medical malpractice insurance does not mean that losing the FTCA's protections would have no impact on its malpractice insurance needs. If the FTCA covered Sage Hospital and its employees when they were "providing services within the scope of employment" included under FQHC activities, Sage Hospital likely had the additional malpractice insurance to cover its employees when they were not providing such services. Bradshaw Audit at 25. Although Sage Hospital lost its FTCA coverage after the 1st Declination, it has continued to provide "its full array of healthcare services for its Navajo patient population" — i.e., services that the FTCA previously covered. Katigbak 1st Decl. ¶ 10, at 38-29. Accordingly, it stands to reason that Sage Hospital would need to protect itself from the gap in coverage left by losing the FTCA's protections through purchasing additional malpractice insurance.
Decker v. Nw. Envtl. Def. Ctr., 133 S.Ct. at 1339-42 (Scalia, J., dissenting). Justice Scalia's attack on Auer was in a dissent, but another two Justices, the Honorable John G. Roberts and Samuel A. Alito, joined in a concurring opinion stating that "[i]t may be appropriate to reconsider [Auer deference] in an appropriate case. But this is not that case." 133 S.Ct. at 1338 (Roberts, C.J., concurring). Although the Court shares Justice Scalia's concerns about Auer deference, it is, for the time being, the law of the land, and, as a federal district court, the Court must apply it. Accordingly, were this case brought under another statute rather than the ISDEA, the Court would have to accord Auer deference to the HHS Secretary's interpretation of § 900.32.
