New York State Court of Claims

New York State Court of Claims

CHASE MANHATTAN v. THE STATE OF NEW YORK, #2003-015-340, Claim No. 103886, Motion Nos. M-66471, M-66458


Synopsis


Court denied claimant's motion for summary judgment seeking a declaration that it could recover monies previously paid by its debtor (U.S. HomeCare) to the State pursuant to a settlement agreement arising from the overpayment of Medicaid funds. Court granted defendant's motion to dismiss for claim's failure to state a cause of action.

Case Information

UID:
2003-015-340
Claimant(s):
THE CHASE MANHATTAN BANK, As agent on behalf of secured creditors of U.S. HomeCare Corporation
Claimant short name:
CHASE MANHATTAN
Footnote (claimant name) :

Defendant(s):
THE STATE OF NEW YORK
Footnote (defendant name) :

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
103886
Motion number(s):
M-66471, M-66458
Cross-motion number(s):

Judge:
FRANCIS T. COLLINS
Claimant's attorney:
Tobin & Dempf, EsquiresBy: Raul A. Tabora, Jr., Esquire
Defendant's attorney:
Honorable Eliot Spitzer, Attorney General
By: Jacqueline E. Berkowitz, EsquireAssistant Attorney General
Third-party defendant's attorney:

Signature date:
July 28, 2003
City:
Saratoga Springs
Comments:

Official citation:

Appellate results:

See also (multicaptioned case)



Decision

Claimant's motion for summary judgment declaring that the State's recovery of Medicaid overpayments is barred under certain county contracts which specify a set price for the Medicaid services at issue and awarding claimant a refund of all amounts paid to the State in contravention of the county contracts is denied. Defendant's motion for summary judgment dismissing the claim on the ground that it fails to state a cause of action is granted and the claim is dismissed. The facts are not in dispute. Claimant is a self-styled agent acting on behalf of itself and certain unnamed secured creditors of U.S. HomeCare Corporation (USHC), a now defunct former provider of personal care services under New York State's Medical Assistance Program (Medicaid). USHC operated six licensed home health agencies throughout the State and provided personal care services to Medicaid recipients pursuant to contracts with various local county social service districts (see, exemplary contracts, claimant's Exhibits E-M attached to M-66458).

Effective January 1, 1994 the New York State Department of Social Services (DSS) amended its regulations regarding reimbursement to personal care providers at 18 NYCRR § 505.14 (h) (7) (ii) (a) (1) (i) to provide:
(1) Medical assistance payments to personal care services providers for any rate year beginning on or after January 1, 1994, are made at the lower of the following rates:

(i) the rate the provider charges the general public for personal care services; or

(ii) the rate determined by the department in accordance with subclauses (2) through (7) of this clause.

This regulation became known as the Public Charge Regulation.

At some point subsequent to 1994 the Attorney General's Medicaid Fraud Control Unit (MFCU), charged with the responsibility of overseeing the operation of the State Medicaid Program, conducted a statewide audit and investigation of Medicaid eligible personal care service providers including USHC. As part of the investigation a grand jury was empaneled in Albany County and the billing records of USHC for the period 1992 through 1997 were subpoenaed. The MFCU determined as a result of its investigation that USHC had been overpaid for personal care services rendered as a result of having billed Medicaid at rates which were higher than the rates charged by USHC to its private pay patients.

USHC and MFCU entered into negotiations aimed at resolving the matter and on February 27, 1998 USHC and the State by the Office of the Attorney General, Medicaid Fraud Control Unit, entered into a written agreement and settlement (Defendant's Exhibit 5) to "resolve the issues raised by the audit" including USHC's alleged overpayment by Medicaid during the period 1992-1997. The agreement provided in the "First" paragraph that the State was authorized to effectuate a final resolution of the Medicaid overpayment issue on behalf of itself and "those counties of the State that participated in making said payments to USHC." USHC agreed therein to remit the total sum of $1.75 million, including an initial payment of $100,000 on or before February 27, 1998 and additional payments in installments specified on an attached schedule of payments. Interest on the unpaid balance was fixed at 9% per annum increasing by 1% on January 1, 1999 and by another 1% on January 1, 2000. USHC further agreed to provide and did provide a promissory note in commercially acceptable form (attached to Defendant's Exhibit 5) and agreed that its repayment obligation would not be dischargeable in bankruptcy under 11 USC § § 523 and 1328. The "Third", "Fourth", and "Fifth" paragraphs of the agreement and settlement provide as follows:
THIRD: USHC has entered into this Agreement solely for the purpose of avoiding the burdens and expense of protracted litigation. The making of this Agreement is not intended, and shall not be construed as an admission that USHC has violated any law, ordinance or regulation. USHC maintains, and the STATE does not dispute, that it has not knowingly billed incorrectly, knowingly received any payments in excess of those to which it was entitled or engaged in any unacceptable practices within the meaning of 18 NYCRR 515.2. The STATE agrees that it shall take no action to affect, alter or modify USHC's status as a provider in the Medicaid program by reason of this Agreement.

FOURTH: In consideration for USHC's payment, the STATE agrees to accept that payment in full satisfaction of all claims the STATE could bring against USHC for recovery of Medicaid payments or other damages arising from: USHC's reimbursement for personal care services at a rate higher than that charged to the general public during the period 1992 - 1997; and, USHC's submission of cost reports pertaining to cost years 1990 through 1995.

FIFTH: The STATE further agrees that USHC shall have no further liability, administrative, civil or criminal, for the communication of general public charge information to the State of New York during the period 1992-1997, and the submission of claims and receipt of reimbursement at rates higher than those charged to the general public, during the period 1992-1997.

USHC also agreed to institute a public charge compliance protocol subject to State approval. Paragraph "Ninth" of the agreement states that the document "constitutes the complete and full agreement reached by the State and USHC and may not be changed in any respect, except by a writing duly executed by the parties or their authorized representatives."

The promissory note referenced in the agreement provided for payment of the $1.75 million in thirty-seven installments beginning with a $100,000 payment on the date of the note, a payment on March 15, 1998 in the amount of $36,458.33 and thirty-four monthly payments of $36,458.33 due on the last day of each month beginning March 31, 1998 plus a final payment of $373,958.45 on January 31, 2001.

Special Assistant Attorney General (Medicaid Fraud Control Unit) Patrick E. Lupinetti avers in his affirmation in support of the defendant's motion to dismiss that USHC made the initial $100,000 payment and monthly payments of $36,458.33 on a regular basis through April 2000 and that the instant claimant (Chase Manhattan Bank) made the required payments thereafter until September 27, 2000. It is alleged further that more than $400,000 is still owed under the terms of the agreement and note. These allegations stand unrefuted on the motion record.

The instant claim filed February 27, 2001 asserts three causes of action seeking recovery of monies paid by USHC pursuant to the agreement. The first cause of action alleges breach of contract stemming from the State's recoupment of funds previously paid to USHC under contracts with local county social services districts; the second seeks repayment of funds remitted to the defendant pursuant to an invalid and unconstitutional regulation (public charge regulation); and the third cause of action alleges that the February 27, 1998 agreement and settlement should be rescinded on the grounds that the agreement was procured by duress, i.e., under threat of criminal prosecution.

At the time this claim was filed the Public Charge Regulation (18 NYCRR § 505.14 (h) (7) (ii) (a) (1) [i]) had been declared unconstitutional by the Appellate Division, Third Department (see, Ulster Home Care v Vacco, 268 AD2d 59). Subsequently, the Court of Appeals reversed that determination finding the regulation was not unconstitutionally vague on its face and remitted the case to Supreme Court (see, Ulster Home Care v Vacco, 96 NY2d 505).

Despite the Court of Appeals' ruling claimant did not withdraw the claim or the second cause of action alleging the regulation was unconstitutional and now moves for summary judgment declaring that the recovery of funds by the State was barred under the county contracts which specified set prices for Medicaid services and awarding claimant a refund of all amounts paid to the State in alleged contravention of the county contracts. The defendant separately moved for summary judgment on the ground that the claim fails to state a cause of action.

The rules applicable to the determination of a motion for summary judgment were clearly stated by the Court of Appeals in Alvarez v Prospect Hosp., 68 NY2d 320, 324:
As we have stated frequently, the proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact (Winegrad v New York Univ. Med. Center, 64 NY2d 851, 853; Zuckerman v City of New York, 49 NY2d 557, 562; Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 404). Failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers (Winegrad v New York Univ. Med. Center, supra, at p 853). Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action (Zuckerman v City of New York, supra, at p 562).
The proponent of a summary judgment motion may only meet its initial burden through the submission of evidentiary proof in admissible form (Rifenburgh v Wilczek, 294 AD2d 653).

Here claimant's motion is supported by an affirmation of counsel (Raul A. Tabora, Jr.); a copy of the claim; copy of an agreement and settlement dated February 27, 1998; administrative directive dated June 14, 1979 regarding instructions to local county social services districts for contracting to provide, inter alia, personal care services under the Medical Assistance Program; a copy of a letter of Department of Health Chief Health Care Fiscal Analyst Kathleen E. Gill dated April 27, 1999; copy of a contract dated July 23, 1991 between Schenectady County Department of Social Services and Tri-Cities Health Services, Inc.[1]; copy of a contract dated January 20, 1997 between Nassau County and U.S. HomeCare Corporation; a copy of a contract dated December 13, 1995 between Westchester County and Affiliated Home Care of Westchester, Inc.[2]; copy of a contract dated January 10, 1993 between Ulster County Department of Social Services and U.S. HomeCare of the Hudson Valley[3]; copy of amendments 11 and 12 dated November 8, 1995 and June 24, 1996 respectively to a contract dated November 8, 1984 between the Saratoga County Department of Social Services and Tri-Cities & Helpmates, Inc. (Helpmates Nursing Services)[4]; copy of renewal agreements dated September 6, 1996, July 5, 1995 and August 10, 1994 between the Rensselaer County Department of Social Services and U.S. HomeCare of the Capital Region to a contract dated January 1, 1982 between Rensselaer County and Helpmates Nursing Services[5]; copy of a contract undated but containing the signature of the County Executive of Dutchess County acknowledged on March 18, 1996 between Dutchess County and U.S. HomeCare of the Hudson Valley[6]; copy of an addendum dated December 10, 1991 between the Washington County Department of Social Services and Tri-Cities Health Services to a contract dated August 13, 1985 between the Washington County Department of Social Services and Tri-Cities & Helpmates, Inc.[7] and a copy of a contract dated September 8, 1994 with attachments between the County of Albany and U.S. HomeCare of the Capital Region[8].

While claimant alleges in conclusory fashion in the claim and on the motion that it acts "as Agent on behalf of certain secured creditors [and] was at all pertinent time periods the principal secured creditor of U.S. HomeCare" and further alleges that U.S. HomeCare entered into a Security Agreement dated March 19, 1993 which granted claimant first priority security interest in all of its assets, claimant failed to submit a copy of the security agreement on the motion and does not allege that the security agreement was filed pursuant to Uniform Commercial Code article 9.

The defendant raised the issue of the claimant's lack of standing to assert this claim in its second affirmative defense set forth in the answer which states:
9. Claimant had no contractual relationship with the State, nor was it a Third Party Beneficiary of the State's Agreement and Settlement with U.S. HomeCare Corporation, and therefore has no standing to assert this claim against the State.
However, defense counsel has not specifically addressed claimant's lack of capacity to sue on the State's motion to dismiss except for a solitary reference to the defendant's answer contained in paragraph 13 of Special Assistant Attorney General Berkowitz's affirmation. The defendant has not moved to dismiss the claim based upon the claimant's alleged incapacity to sue pursuant to CPLR 3211 (a)(3) nor has claimant specifically responded to the issue. In her reply affirmation Special Assistant Attorney General Berkowitz argues that Chase Manhattan Bank as a mere creditor of USHC cannot seek to rescind an agreement and settlement to which it was not a party. While this argument has facial appeal defendant has not supported it with case law authority and raised the issue not in the motion but only in reply. Accordingly, no determination is made as to whether Chase Manhattan Bank lacks the capacity to bring the instant claim as agent on behalf of secured creditors of U.S. HomeCare Corporation.

Claimant asserts three separate causes of action seeking the following relief:

FIRST: Declaring that Defendant's actions to replace the reimbursement set by contract with Defendant's unilateral calculation of rate charged to the general public is in violation of the contracts entered into with local County Departments of Social Services;


SECOND: Declaring that the remittal of monies under the Agreement and Settlement of February 27, 1998 is void and requires rescission of said terms due to the unconstitutionality and inapplicability of the "public charge" regulation codified at 18 NYCRR 505.14 (h) (7);

THIRD: Declaring that the remittal of monies under the Agreement and Settlement of February 27, 1998 is void and requires rescission of said terms based upon the execution of said Agreement under duress and under threat of Grand Jury proceedings and criminal enforcement; and


FOURTH: Directing that the Defendant remit to the Plaintiff all funds previously collected from U.S. HomeCare under the Agreement and Settlement of February 27, 1998, along with interest paid thereon a well as interest at the statutory rate on said sums.


The first cause of action alleges that the defendant's imposition of the public charge regulation constituted a "breach and violation of the contracts entered into with the local County Department's of Social Services." It has been held, however, that it is "fundamental that a Medicaid provider has no property interest in or contract right to reimbursement at any specific rate or, for that matter, to continued participation in the Medicaid program at all" (Rye Psychiatric Hosp. Center, Matter of, v State of New York, 177 AD2d 834, 835, lv to appeal denied 80 NY2d 751). In Rye the Appellate Division, Third Department found that the claimant, a provider of mental health services whose reimbursement rate was adversely affected by regulatory implementation of a "minimum utilization factor" by the Office of Mental Health, had "no interest or right to enforce by means of a contract action in the Court of Claims." A similar conclusion is required in the instant matter, particularly in light of the language contained in all but two of the contracts submitted by the claimant (Exhibits E, F, G, H, I, J, K) which in substance provides that the specific reimbursement rates set forth shall be effective only if said rates do not conflict with rates authorized or accepted by the New York State Department of Social Services. The above language is not included in the contract between Washington County Department of Social Services and Tri-Cities & Helpmates, Inc., (Exhibit L) nor in the contract between Albany County Department of Social Services and U.S. HomeCare of the Capital Region (Exhibit M). Based upon both the holding of the Appellate Division, Third Department in Rye and the language of the particular contracts alleged to have been breached, the Court finds that the claim fails to state a cause of action for breach of contract and the first cause of action in the claim is dismissed.

Claimant in its second cause of action seeks to recoup monies paid to the defendant pursuant to the "Agreement and Settlement" on the basis that the public charge regulation has been declared to be unconstitutional and is void. Although the status of the subject regulation was correctly stated as of the time of filing of the instant claim on February 27, 2001, as related earlier herein the Court of Appeals subsequently reversed the Third Department's finding that the public charge regulation was unconstitutionally vague.

The Court of Claims is not an appropriate forum for litigating the constitutionality of a statute where "the demand for restitution is unquestionably incidental to and dependent upon the resolution of the underlying claims for declaratory relief" (Shields v Katz, 143 AD2d 743, 745; see, Markham, Matter of, v Comstock, 272 AD2d 971; Ozanam Hall of Queens Nursing Home v State of New York, 241 AD2d 670). Rather, the appropriate vehicle for litigating the constitutionality of a statute or regulation is a declaratory judgment action in Supreme Court (Medicon Diagnostic Labs v Perales, 74 NY2d 539; Cass v State of New York, 58 NY2d 460; New York State Assn. of Counties v Axelrod, 150 AD2d 845; Dake v Bowen, 134 AD2d 684). Monetary relief in the form of restitution or the return of monies wrongfully paid are available in a declaratory judgment action (Lawless v State of New York, 249 AD2d 173; Shields v Katz, supra) providing the claimant the opportunity for complete relief in the proper forum. The second cause of action must be dismissed as it does not state a claim which is cognizable in this Court.

Finally, the third cause of action seeking rescission of the February 27, 1998 settlement agreement and the return of monies previously paid to the State thereunder on the ground of duress must also be dismissed.

To assert a valid claim of duress entitling it to the return of monies paid a party must establish "that threats of an unlawful act compelled his or her performance of an act which he or she had the legal right to abstain from performing" (Matter of Garvin, 210 AD2d 332, 333 quoting Polito v Polito, 121 AD2d 614, 615-615). Repudiation of an agreement allegedly procured by duress "requires a showing of both 1) a wrongful threat, and 2) the preclusion of the exercise of free will" Ehrlich, P.C. v Tullo, 274 AD2d 303, 304). The threat to do that which one has a legal right to do is not wrongful and does not constitute duress (Avey v Town of Brant, 263 NY 320; Lyons v Lyons, 289 AD2d 902; Friends Lbr. v Cornell Dev. Corp., 243 AD2d 886).

In this matter the claimant does not allege that the Attorney General acted unlawfully in endeavoring to enforce the public charge regulation or seeking recoupment of alleged overpayments. Nor does claimant deny that its predecessor in interest was in fact overpaid under the terms of the regulation. All that claimant asserts is that the settlement agreement was signed against the backdrop of an investigation into alleged overpayments. In this regard it is uncontroverted that USHC was represented by counsel and received meaningful benefits, including continued participation in the Medicaid program, as a result of the settlement. The express terms of the agreement and settlement make this clear in the third paragraph referenced previously herein.

It has also been said that "stipulations of settlement are judicially favored and may not lightly be set aside (Matter of Kanter, 209 AD2d 365; Daniel v Long Is. Univ., 184 AD2d 350, 352)" (Guttenplan, Matter of, 222 AD2d 255, 256-257). In Guttenplan, the Appellate Division, First Department at p. 257 held:
[R]epudiation of an agreement on the ground that it was procured by duress requires a showing of both a wrongful threat and the effect of precluding the exercise of free will (Kranitz v Strober Org., 181 AD2d 441). An agreement procured under duress, such as a threat of criminal prosecution, which is similar to the alleged threat of deportation involved here, must be promptly disaffirmed or otherwise be deemed to have been ratified (Kranitz v Strober Org., supra; Bethlehem Steel Corp. v Solow, 63 AD2d 611, 612).
The record clearly demonstrates that neither U.S. HomeCare Corporation nor the claimant took any action aimed at repudiation of the agreement and settlement for almost three years after its execution. In fact, during much of that time payments were made and U.S. HomeCare Corporation continued to provide personal care services and receive Medicaid reimbursement for the services provided as specifically permitted by the agreement. "The law is well settled that a party seeking to repudiate a contract procured by duress must act promptly lest he be deemed to have elected to affirm it (Bethlehem Steel Corp. v Solow, 63 AD2d 611, app dsmd 45 NY2d 837; Fowler v Fowler, 197 App Div 572)" (Sheindlin v Sheindlin, 88 AD2d 930, 931). The defendant alleges on its motion without contradiction by claimant that U.S. HomeCare Corporation made its scheduled payments under the settlement agreement from February 27, 1998 until April 2000 and that the claimant itself made subsequent payments until September 27, 2000. The Appellate Division, First Department in Groper v Groper, 132 AD2d 492 at 496 found that "[b]y any measure, 21 months is a considerable length of time and is more than sufficient for a party who has acquiesced to an agreement against his better judgment, or under duress, to raise his objections and to disavow the agreement." Similarly it was held that making nineteen payments on a note over a three year period, without objection, until the defendant ran out of money "ratified the note and waived any right it might have to repudiate its obligations thereunder (Bethlehem Steel Corp. v Solow, 63 AD2d 611, mot to dismiss appeal granted 45 NY2d 837; Marine Midland Bank v Stukey, 75 AD2d 713; affd 55 NY2d 633; Port Chester Elec.Constr. Corp.v Hastings Terraces, 284 App Div 966)" (Edison Stone Corp. v 42nd St. Dev.Corp.,145 AD2d 249, 253). The failure of either USHC or the claimant, its successor, to object to the making of the required payments for a period of 32 months from the date of the agreement and settlement requires that the third cause of action be dismissed as the claimant has by its conduct affirmed the agreement and waived its right to assert a cause of action for rescission based on duress.

Claimant's motion is in all respects denied. Defendant's motion to dismiss the claim for failure to state a cause of action is granted.



July 28, 2003
Saratoga Springs, New York

HON. FRANCIS T. COLLINS
Judge of the Court of Claims


The Court considered the following papers:

Motion No. M-66458
  1. Notice of motion dated February 27, 2003;
  2. "Affirmation" of Raul A. Tabora, Jr. dated February 27, 2003 with exhibits;
  3. Affirmation of Jacqueline E. Berkowitz dated April 14, 2003;
  4. Affirmation of Raul A. Tabora, Jr. dated May 6, 2003 with exhibits.

Motion No. M-66471

  1. Notice of motion dated February 28, 2003;
  2. Affirmation of Jacqueline E. Berkowitz dated February 27, 2003 with exhibits;
  3. Affirmation of Patrick E. Lupinetti dated February 27, 2003 with exhibits.
  4. Affirmation of Raul A. Tabora, Jr. dated April 14, 2003;
  5. Affirmation of Jacqueline E. Berkowitz dated May 6, 2003.

[1]Tri-Cities Health Services, Inc.'s relationship, if any, to claimant or to U.S. HomeCare Corporation is not fully explained on the motion.
[2]Affiliated Home Care of Westchester, Inc.'s relationship, if any, to claimant or to U.S. HomeCare Corporation is not fully explained on the motion.
[3]Relationship to claimant or to U.S. HomeCare Corporation not fully explained on the motion.
[4]The 1995 and 1996 amendments were between Saratoga County Department of Social Services and U.S. HomeCare of the Capital Region while the original contractor named in the 1984 appended contract was identified as Tri-Cities & Helpmates, Inc. The relationship of either of these contractors to claimants or U.S. HomeCare Corporation is not fully explained on the motion.
[5]Relationship, if any, between Helpmate Nursing Services and claimant or U.S. HomeCare Corporation is not fully explained on the motion.
[6]Relationship, if any, between U.S. HomeCare of the Hudson Valley and claimant or U.S. HomeCare Services is not fully explained on the motion.
[7]Claimant fully explained neither the relationship of Tri-Cities Health Services, Inc. to Tri-Cities & Helpmates, Inc. nor their relationship of any to claimant or U.S. HomeCare Corporation on the motion.
[8]Relationship of U.S. HomeCare of the Capital Region to claimant or U.S. HomeCare Corporation is not fully explained on the motion.