United States Court of Appeals
For the First Circuit
No. 05-2854
DR. JOSÉ S. BELAVAL, INC.,
Plaintiff/Appellant,
RIO GRANDE COMMUNITY HEALTH CENTER, INC.;
CONCILIO DE SALUD INTEGRAL DE LOIZA, INC.,
Plaintiffs,
v.
HON. ROSA PERÉZ-PERDOMO, Secretary,
Department of Health of the Commonwealth of Puerto Rico,
Defendant/Appellee,
COMMONWEALTH OF PUERTO RICO; UNITED STATES DEPARTMENT OF HEALTH
AND HUMAN SERVICES; MICHAEL O. LEAVITT, Secretary, United States
Department of Health and Human Services,
Defendants.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jay A. García-Gregory, U.S. District Judge]
Before
Lynch, Circuit Judge,
Siler,* Senior Circuit Judge,
and Lipez, Circuit Judge.
*
Of the Sixth Circuit, sitting by designation.
Robert A. Graham, with whom James L. Feldesman and Feldesman
Tucker Leifer Fidell LLP were on brief, for appellant.
Eduardo A. Vera-Ramírez, with whom Courtney R. Carroll,
Landrón & Vera LLP, Roberto Sanchez-Ramos, Secretary of Justice,
and Salvador Antonetti-Stutts, Solicitor General, were on brief,
for appellee.
October 2, 2006
LYNCH, Circuit Judge. This appeal stems from a lawsuit
filed on June 6, 2003 by three community health centers in Puerto
Rico: Rio Grande Community Health Center, Inc. ("Rio Grande"),
Concilio de Salud Integral de Loiza, Inc. ("Loiza"), and Dr. José
S. Belaval, Inc. ("Belaval"). Belaval is the sole appellant in
this action.
In their suit, the three health centers alleged that the
defendant, the Secretary of the Department of Health of Puerto
Rico,1 had failed to make required payments to them under the
federal Medicaid statute. See 42 U.S.C. § 1396a. They sought
declaratory and prospective injunctive relief. On November 1,
2004, after reviewing and adopting a magistrate judge's Report and
Recommendation, the district court issued an order granting
plaintiffs a preliminary injunction. By its terms, the order
required the defendant to implement, by November 30, 2004, a
"wraparound" payment system that complied with the Medicaid law
"for the purpose of providing such payments thereunder to
plaintiffs." In addition to giving the defendant a deadline to put
in place a system to make the required payments, the order also
provided that "[o]n or before December 10, 2004, defendant shall
pay to the appearing plaintiffs which are currently operating all
pending supplemental payments for 2004." The second part of the
1
At the commencement of this action, the Secretary of Health
was Johnny Rullan. He has since been substituted as a defendant by
the current Secretary, Rosa Peréz-Perdomo.
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order thus insured that the appearing plaintiffs would not be
irreparably harmed in the interim by the defendant's failure to
make payments. Belaval was an appearing plaintiff who was
operating at the time the order was entered, and as such was within
the terms of the November 1, 2004 order.
On March 7, 2005, the district court issued another
order, this one clarifying how the defendant was to structure its
wraparound payments in light of our decision in Rio Grande
Community Health Center, Inc. v. Rullan, 397 F.3d 56 (1st Cir.
2005), a case which affirmed earlier relief that had been granted
specifically to Loiza. Payments under the clarified formula were
required to begin with the amounts due from the fourth quarter of
2004, and were to continue until Puerto Rico established its
compliance with federal law. The order also specifically mentioned
Belaval and "reiterate[d]" the court's finding that Puerto Rico's
failure to pay Belaval was in violation of the federal Medicaid
statute. The court ordered the defendant to "establish forthwith
a provisional payment system to alleviate the shortfall."
After this second order, on March 22, 2005 the defendant
filed a motion seeking to demonstrate that it was operating in
compliance with the order's method of calculation. The plaintiffs
opposed this motion and argued there was no compliance. As to
Belaval in particular, no payments had yet been made, so it opposed
the motion.
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The magistrate judge issued a Report and Recommendation
on June 24, 2005 in which he found that the defendant was not fully
in compliance because Puerto Rico was using an incorrect method of
calculating payments. Turning to the payments owed to Belaval
specifically, the magistrate judge found that the March 7, 2005
order required only future payments be made to Belaval, and that it
did not address past payment obligations. Thus the defendant's
failure to pay Belaval up to that point did not mean that it was
out of compliance with the March 7, 2005 order. However, the
magistrate judge explicitly reserved judgment on whether any
payment was owed to Belaval under the November 1, 2004 order, and
on whether the defendant was in compliance with that order.
In response, Belaval asked the court to find the
defendant in contempt of the November 1, 2004 preliminary
injunction. On September 26, 2005, the magistrate judge agreed
that the November 1, 2004 order had established Belaval's right to
payment for the months from March 31, 2004 onward. The defendant's
failure to pay Belaval was thus not in compliance with that order.
The magistrate judge held the motion for contempt in abeyance, and
he gave the defendant Secretary several weeks to come into
compliance.
On October 6, 2005, the district court adopted the
magistrate judge's June 24 and September 26 Reports and
Recommendations finding that the defendant was generally not in
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compliance. The district court also agreed that the November 1,
2004 order entitled Belaval to payments from at least the second
quarter of 2004 onwards. As did the magistrate judge, the district
court held the motion for contempt in abeyance despite the finding
of non-compliance. The district court's decision to hold the
contempt motion in abeyance is not at issue in this appeal.
What is appealed is a separate portion of that October 6,
2005 order which modified the November 1, 2004 preliminary
injunction as to Belaval. Parts of that original injunction had
required that Belaval be paid "all pending supplemental payments
for 2004" by December 10, 2004, and had also required that the
defendant set up a federally compliant payment system, under which
Belaval would receive what were then future payments, to be
operational by November 30, 2004. The district court modified that
original obligation, saying that "in light of the confusion"
created by the magistrate judge's June 24, 2005 Report and
Recommendation, "wraparound payments to Belaval shall be made
prospectively beginning in the third quarter of Fiscal Year 2005."
This modification of the November 1, 2004 preliminary
injunction was entirely sua sponte and was not on motion of the
defendant, who had sought no such relief. The order modifying the
injunction was also entered without prior notice to the parties
that the court was considering a modification to the November 1st
order and without an opportunity to be heard. The effect of this
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unilateral change by the district court was to relieve the
defendant from making several quarters' worth of payments that
previously had been ordered. Counsel for Belaval represented at
oral argument that these payments would have totaled approximately
1.25 to 1.5 million dollars. Belaval appeals from this
modification of the earlier preliminary injunction. We reverse
this portion of the October 6, 2005 district court order and
reinstate the payment obligation to Belaval originally imposed by
the November 1, 2004 order.
I.
The defendant's initial response to the appeal is to
argue that this court lacks jurisdiction to hear an appeal from a
significant modification of a preliminary injunction. The argument
is without merit.
Under 28 U.S.C. § 1292(a), we may hear an interlocutory
appeal from a district court order "granting, continuing,
modifying, refusing or dissolving injunctions, or refusing to
dissolve or modify injunctions, except where a direct review may be
had in the Supreme Court." While § 1292(a) is to be "strictly
construed," Sierra Club v. Marsh, 907 F.2d 210, 214 (1st Cir.
1990), the reviewing court must "look to the practical effect of
the order rather than its verbiage," Morales Feliciano v. Rullan,
303 F.3d 1, 6 (1st Cir. 2002). The portion of the order appealed
from clearly modifies the November 1, 2004 preliminary injunction
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as to several quarters' worth of payments -- payments said to be
worth over a million dollars. By the terms of the November 1
preliminary injunction, these sums were to have been paid to
Belaval almost two years ago and are still unpaid. The district
court's modification affects a substantial sum of money and is
clearly "jurisdictionally significant," id. at 7; it does much more
than merely affect the conduct or progress of litigation.2
II.
The district court cited no authority for its decision to
modify the injunction in the manner it did. No party had sought
the relief the court ordered, nor had any party presented any
arguments as to why the injunction should be modified to
substantially diminish the payments that Belaval was entitled to as
a result of the November 1, 2004 injunction. Belaval was given no
notice or opportunity to object to this modification.
2
At oral argument the defendant belatedly suggested that we
lack jurisdiction under § 1292(a)(1) because Belaval had made no
showing of irreparable injury. See Morales Feliciano, 303 F.3d at
6. Even if the argument were not waived, it is without merit. Of
necessity, the original preliminary injunction rested on a finding
that Belaval would suffer irreparable injury if the injunction were
not granted and the 2004 payments were not made. Moreover, on
September 23, 2005, Belaval filed documents with the district court
indicating that it was on the brink of financial ruin due to the
defendant's failure to make the statutorily required payments. In
any event, in this case the "serious, perhaps irreparable,
consequence[s]," Carson v. Am. Brands, Inc., 450 U.S. 79, 84 (1981)
(quoting Baltimore Contractors, Inc. v. Bodinger, 348 U.S. 176, 181
(1955)) (internal quotation marks omitted), are apparent from the
size of the contested payments and the defendant's delay in making
them.
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There is an initial question whether the district court
had authority to act on its own initiative. This circuit has not
decided whether a district court may act sua sponte to modify an
injunction under Fed. R. Civ. P. 59(e) or Fed. R. Civ. P. 60(b).
The plain text of Rule 59(e) does not speak expressly to that
question.3 And whether Rule 60(b) bars a court from sua sponte
issuing relief from judgment is an issue that has divided the
circuits. Compare Eaton v. Jamrog, 984 F.2d 760, 762 (6th Cir.
1993) (holding that Rule 60(b) bars sua sponte relief), and Dow v.
Baird, 389 F.2d 882, 884-85 (10th Cir. 1968) (same), with Fort
Knox Music Inc. v. Baptiste, 257 F.3d 108, 111 (2d Cir. 2001)
(finding that Rule 60(b) permits sua sponte relief), Kingvision
Pay-Per-View, Ltd. v. Lake Alice Bar, 168 F.3d 347, 351-52 (9th
Cir. 1999) (same), McDowell v. Celebrezze, 310 F.2d 43, 44 (5th
Cir. 1962) (same), and United States v. Jacobs, 298 F.2d 469, 472
(4th Cir. 1961) (suggesting that sua sponte relief may be
appropriate under Rule 60(b) in some cases).
3
One circuit has held that the district court has the
inherent authority to act in this manner if it complies with Rule
59(e)'s ten-day limit. See Burnam v. Amoco Container Co., 738 F.2d
1230, 1232 (11th Cir. 1984); see also Sun-Tek Indus., Inc. v.
Kennedy Sky Lites, Inc., 848 F.2d 179, 181 (Fed. Cir. 1988)
(applying Eleventh Circuit procedural law). But cf. 12 Moore's
Federal Practice -- Civil § 59.33 (2006) (stating only that
"[a]rguably" the court has this authority). The order in this
case, coming some eleven months after the injunction was entered,
did not comply with the ten-day limit.
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We need not decide these issues here. Even assuming that
a court may on its own motion substantially modify the terms of a
preliminary injunction to the substantial detriment of a party's
property interest, and do so beyond the ten-day limit of Rule
59(e), both the structure of the federal rules and the
constitutional guarantee of due process require that a court not do
so without giving prior notice to the parties and an opportunity
for them to be heard. See Fed. R. Civ. P. 59, 60(b); Logan v.
Zimmerman Brush Co., 455 U.S. 422, 428-31 (1982); Memphis Light,
Gas & Water Div. v. Craft, 436 U.S. 1, 11-12 (1978); see also
Logan, 455 U.S. at 429 ("The Court traditionally has held that the
Due Process Clauses protect civil litigants who seek recourse in
the courts . . . ."); cf. Kingvision, 168 F.3d at 352 (finding that
a federal court judgment constitutes a protected property
interest). The district court was required to act in accord with
the temporal and substantive standards set by Rules 59 and 60 for
modifications.4 The district court could not deprive Belaval of
4
The defendant, citing Hammond v. United States, 786 F.2d 8
(1st Cir. 1986), argues that a preliminary injunction cannot be a
protected property interest because it is not yet a final judgment.
This argument misreads Hammond, which stands only for the
proposition that when the legislature changes the underlying law
during the pendency of litigation, there is no constitutional
violation because the litigant's property interest does not "vest"
until there has been a final judgment. See id. at 12. In the case
at hand, there has been no change in the underlying substantive
law, and thus no need to determine the point at which any property
right "vested." Defendant's reading of Hammond is also squarely in
tension with the Supreme Court's recognition in Logan that a cause
of action is a protected property interest. See Logan, 455 U.S. at
428-29.
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this property interest without notice and an opportunity to be
heard. See Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 546
(1985). Neither of those was given.
Our ruling does not foreclose the district court, on
remand and after notice and a hearing (and assuming it has
authority), from considering whether the preliminary injunctive
relief granted on November 1, 2004 may be modified under the usual
criteria for such modifications. For example, under Rule 60(b)(1)
the defendant would have to show "mistake, inadvertence, surprise,
or excusable neglect," as those terms are used within the rule.
Under Rule 60(b)(5) the defendant would have to show that "it is no
longer equitable that the judgment should have prospective
application," and that there has been the kind of "significant
change" in circumstances that the Rule requires. See, e.g., United
States v. Kayser-Roth Corp., 272 F.3d 89, 95-96 (1st Cir. 2001).
Under Rule 60(b)(6), the defendant would have to show that there
are "exceptional circumstances justifying extraordinary relief."
Ahmed v. Rosenblatt, 118 F.3d 886, 891 (1st Cir. 1997). For any
relief under Rule 60(b), the defendant would have to show that a
"motion [was] made within a reasonable time," and in the case of
Rule 60(b)(1) that a motion was made "not more than one year after
the judgment, order, or proceeding was entered or taken."
We vacate and reverse the appealed-from portion of the
October 6, 2005 order insofar as it purports to modify the November
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1, 2004 preliminary injunction's payment obligation to Belaval.
Costs are awarded to Belaval.
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