Petition — Patch v. White

Supreme Court brief1977

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€ Supreme Court, U.S.

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SEP 22 1977

MICHAEL ROVAN LER

—_——

IN THE SUPREME COURT OF THE UNI TERZSTATES

October Term 197/7

—9'7- 456

Vernon D. Patch, M.D., et al,

No.

Plaintiff-Petitioners

Vv.

Kevin H. White, et al,

Defendant-Respondents

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

FIRST CIRCUIT

Harvey W. Freishtat

Neil L. Chayet

Alan H. Einhorn

CHAYET & SONNENREICH, P.C.

Counsel for Plaintiff

6 Fayette Street

Boston, Massachusetts

02116

TABLE OF CONTENTS

SpSmsems BSsee « 6 ew teste te ww wo eo

wun 4 6 +e 6. 6-0 0 * #) a etree

CepeSEene FEOCENCOE «a ss & ce eine ee SS

Statement of the Case ........ 3

Reasons for Granting the Writ... . 7

l. Plaintiffs Have a Cause

of Action for Both Pro-

cedural and Substantive

Violations of Their Federal

Rights as a Result of Trus-

tees' Actions in Abruptly

Closing Four Drug Treatment

ek ie ee ok ee hs 5 oe

A. Procedural Violations . . . 8

B. Substantive Violations. . . 12

2. Dr. Patch's Summary Discharge

Deprived Him of Fundamental

Rights Guaranteed Him by the

First and Fourteenth Amend-

a! .-~ - «+ »s 6:9 4 ‘se 4 0 6» Be

Conclusion . . a a aa ee a oy oe ae

TABLE OF CONTENTS

Appendices:

Opinion of the United States

Court of Appeals for the

First Circuit .

Opinion of the District

Court for the District of

Massachusetts

Report of the Finance Com-

mission of the City of Bos-

ton on Certain Aspects of

the Management of Health and

Hospitals Funds in the City

of Boston - Excerpts

offe

Al-17

Bl-5

C1-25

TABLE OF AUTHORITIES

Constitutional Provisions

First Amendment to the United

States Consitution '

Fourteenth Amendment to the

United States Constitution.

Statutes

21 U.S.C. §1120 et seq.

(P.L. 92-255). .

42 U.S.C. §2688k et seq.

(P.L. 91-513). .

Regulations

21 C.F.R. §1402.03(f) .

Municipal Ordinances

City of Boston Code, Statutes,

5, §108.

City of Boston Code, Statutes,

5, §109.

-iii-

8,14

TABLE OF CASES

Bishop v. Woods,

eRe ws aterm 18

Cook v. Ochsner Foundation

Hospital, 319 F.Supp. 603

cE Db La ree: o's. » ers a 13

Euresti v. Stenner,

Cir. 1972) . . 13,14

Glover v. McMurray,

361 F.Supp. 23 .D.N.Y. 1973),

remanded with instructions to

dismiss, 487 F.2d 403 (2d Cir.

vacated and remanded,

417 U. Ss. 963 (1974), remanded,

507 F2d 1325 (2d Cir. 1974)... 9,10

Goldberg v. Kelly,

397 U.S. 254 71540) at ee ag ae ae

Johnson V. Vaughn,

370 S.W. 2d pI Pe 6 ing . eee a 16

Haricope County, 7 Vv.

Maricopa County, 415 U.S.

250 CIS 7G) “care a ee ll

Roto-Lith Ltd v. F.P.

Bartlett £9. 707 F.2d 497

(Ist Cir 1962) oe aos + a 20

-iv-

TABLE OF CASES

Silva v. East Providence

Housing Authority, 423 F.Supp.

453 (D.R.1L. 1o76y. ieee a

Wilmington General Hospital

v. Manlove, 174 A2dd 136 (1961)

IN THE SUPREME COURT OF THE UNITED STATES

October Term 1977

No.

Vernon D. Patch, M.D.,

Anthony E. Raynes, M.D.,

Lawrence F. Berley, M.D.,

Joanne Simon, Jane S. Murphy,

John Doe, and James Coe,

Plaintiff-Petitioners

Vv.

Kevin H. White, as he is Mayor of the

City of Boston and Acting Commissioner

of Health and Hospitals

Herbert P. Gleason, as he is Chairman

of the Board of Health and Hospitals,

and as he is President of Trustees of

Health and Hospitals of the City of

Boston, Inc.,

Leon White, Mary Fidler, George Munoz,

Michael McCusker, Doris Graham, John

Vitagliano, and William Morrissey, as

they are or were members of the Board

of Health and Hospitals and as they are

members of Trustees of Health and Hos-

pitals of the City of Boston, Inc.

David L. Rosenbloom, Acting Executive

Director of the Department of Health

and Hospitals,

Defendant~-Respondents

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

FIRST CIRCUIT

Plaintiff-Petitioners respectfully

request this Court to is ‘ue a writ of

certiorari to the United States Court of

Appeals for the First Circuit to review

its Judgment in the above-captioned case.

CITATION TO OPINIONS BELOW

The opinion of the United States

Court of Appeals for the First Circuit is

not officially reported and is set out in

Appendix A, pages Al-Al7. The opinion of

the United States District Court for the

District of Massachusetts is also not of-

ficially reported and is set out in Appen-

dix B, pages B1-B5.

JURISDICTION

The Judgment of the United States

Court of Appeals for the First Circuit was

entered on April 25, 1977. Jurisdiction

of this Court is invoked under 28 U.S.C.

§1254(1) to review that judgment. No re-

quest for rehearing was made in that

court.

QUESTIONS PRESENTED

1. Whether drug-dependent patients termin-

ated without notice or hearing from a drug

treatment program that is publicly funded

and operated have a right to invoke pro-

cedures required by federal regulations

and constitutional due process whether

they are terminated individually or as a

group?

2. Whether the Medical Director and pa-

tients ofa drug treatment program have a

right to require treatment once begun to

continue in accordance with contractural

assurances made by the Medical Director

as a condition of receiving federal fund-

ing?

3. Whether the discharge of the Medical

Director of a publicly funded drug treat-

ment program without notice or hearing as

required by city ordinance deprived him of

property rights under the Due Process

Clause of the Fourteenth Amendment?

4. Whether the firing of a public employee

who refuses to participate in a scheme in-

volving the diversion of hundreds of

thousands of federal dollars and who files a

lawsuit to protect his own rights and the

rights of others violates the employee s

rights under the First Amendment?

STATEMENT OF THE CASE

The City of Boston Drug Treatment

Program (Program) was established in 1970

to provide drug treatment and rehabilita-

tive services for drug addicted and drug

dependent persons in the Boston area. The

Program was funded initially by the City

of Boston and offered only limited ser-

vices. However, in response to the nation-

wide epidemic of drug abuse and heroin ad-

diction, the Program received substantial

federal funding in 1972, in the form of a

four million dollar eight-year grant from

the Department of Health, Education and

Welfare (HEW). This grant was awarded to

Trustees for Health and Hospitals for the

City of Boston, Inc. (Trustees), the pri-

vate grant-receiving arm of the City's

Department of Health and Hospitals whose

Board membership is co-extensive with that

of Trustees. Dr. Vernon Patch, the Pro-

gram's Medical Director was designated by

HEW to be Project Director for: the grant.

In accepting this designation, Dr. Patch

accepted the specific obligation to comply

with applicable federal statutes and poli-

cies in effect at the time of the award.

By 1975, with the aid of federal

funds, the Drug Treatment Program had ex-

panded to include eleven treatment units

and more than six hundred patients.

However, during this period of growth, Dr.

Patch became aware that the cost figures

being submitted by Trustees to HEW for the

operation of the Program were being arti-

ficially inflated. He learned, in addition,

that portions of the federal funds awarded

to the Program were being systematically

diverted by Trustees to other unauthorized

uses. Dr. Patch believed that Trustees’

fiscal irregularities deprived his patients

of needed resources, jeopardized further

federal funding of the Program, and consti-

tuted a fraud on the federal pees

He therefore wrote the Mayor in July 1974,

met with the Mayor in August 1974, and

wrote Corporation Counsel in September

1974 to notify them of the situation and

request their advice. No response was

forthcoming.

By July 1975, the federal government

had become aware of the situation and had

ordered a suspension of the payment of

indirect costs under the grant. On Janu-

ary 6, 1976, the United States General

Accounting Office (GAO), following its re-

view of Trustees’ books, concluded that

Trustees had requested and received excess

federal reimbursement and had thereby

violated federal guidelines.

In spite of the GAO report, the fis-

cal irregularities continued. In mid-

January, 1976, Dr. Patch was notified by

Trustees that in preparing the Program's

grant renewal application for the year

commencing July 1, 1976, he was to continue

to use the artificially inflated figures.

Failure to comply with Trustees' directive,

he was told, would result in Trustees' re-

fusal to process the application and for-

ward it to HEW. This would mean the dis-

mantling of the Program. Dr. Patch was

also informed that four of the eleven

treatment units, including both of the Pro-

gram's inpatient units, were to be closed

by February 20. All inpatients in those

units were to be released by that date and

all staff members were to be discharged.

Dr. Patch knew that such an abrupt termin-

ation of services violated the specific

assurances which both he and Trustees had

ves to HEW as a condition of further

unding of the Program. Specifically,

they had ethane in that year's annual

grant application that all eleven treatment

units would continue to operate through

June 30, 1976, and that the City's matching

contribution would include the operation of

at least one inpatient unit.

Once again, Dr. Patch reminded Trus-

tees of its legal obligation to keep the

units open. He also reminded them that a

grant application with inflated indirect

costs was improper and illegal. When

Trustees refused to change its course, this

action was commenced on February 20, 1976

in the Federal District Court of Massachu-

setts. The original plaintiffs included

Dr. Patch and five staff members of the

Program suing on behalf of themselves and

the Program's other staff members and

patients to enforce Trustees’ obligations

and to prevent the closure of the four

units. Plaintiffs also requested that the

Program be placed in receivership. Defend-

ants were the Mayor and Corporation Counsel

of the City of Boston, members of the

City's Board of Health and Hospitals (and

Trustees), and the Executive Director of

the Department of Health and Hospitals

(and Trustees).

The District Court denied plaintiffs'

motion for a temporary restraining order,

and the four units including both inpatient

units were closed with remaining inpatients

discharged. Following additional hearings

and while the District Court decision on

the merits was pending, Dr. Patch was

summarily dismissed by defendants as Medi-

cal Director of the Program and as Project

Director under the federal grant. Plain-

tiffs thereupon amended their complaint to

include causes of action relating to

Dr. Patch's discharge. In addition, two

pseudonymous patients joined the action on

behalf of the 600 patients enro]led in the

Program.

On June 30, 1976, the District Court

dismissed plaintiff's complaint, ruling

that the original plaintiffs lacked stand-

ing to sue and that the two patient-

plaintiffs, while — standing, were

without a remedy under federal law. The

Court further ruled that Dr. Patch's

discharge did not violate any of his

rights.

On appeal, the Court of Appeals for

the First Circuit affirmed, holding that

plaintiffs had failed to state a claim

upon which relief could be granted. This

petition for writ of certiorari followed.

REASONS FOR GRANTING THE WRIT

This petition raises important ques-

tions concerning the administration of

federal grants, the legal responsibilities

of those charged with disbursing grant funds

and directing grant activities, and the

rights of beneficiaries of federal grants.

The Court should entertain this Petition

to redress significant error made by the

Court of Appeals below; to resolve con-

flicts which now exist among the federal

circuits relative to the procedural and

substantive claims of patients whose bene-

fits have been summarily terminated; and to

respond to issues and delineate rights never

previously addressed by this Court.

The issues here involved present vital

questions relative to the rights of drug

dependent persons to continued treatment

once their treatment has begun. They also

raise the frightening spectre of judicial

indifference to the plight of the rare public

employee who is willing to risk his career

and his reputation to assure compliance

with federal law and to prevent the fraudu-

lent diversion of federal funds. Resolu-

tion of these issues is crucial not only

to petitioners, but to all others who look

to the federal judiciary for relief when

waste and dishonesty involving federal

funds threaten the very programs they were

earmarked to support.

ae Plaintiffs Have a Cause of Action for

Both Procedural and Substantive Violations

of Their Federal Rights as a Result of

Trustees’ Actions in Abruptly Closing

Four Drug Treatment Centers.

A. Procedural Violations

The abrupt closure of the treatment

units and the sudden termination of patients

without any prior written notice or adminis-

trative review has violated pre-termination

rights specifically guaranteed to Program

patients by the Drug Abuse Office and

Treatment Act of 1972 and by federal regu-

lation promulgated thereunder. The regu-

lation states as follows:

{[I]n any case in which a decision

is made that a patient's treatment

8 (is to) be terminated or sub-

Stantially changed... _ the

patients shall be given written

notice of this fact and the right

to have such decision reviewed.

21 C.F.R. §1402.03(f£).

The Court of Appeals declined to apply

this regulation to cases where entire units

were being closed. The Court stated that

since such decisions were of a legislative

nature, no pre-termination hearing was

necessary. However, so restrictive an in-

terpretation of 21 C.F.R. §1402.03(f) is

not supported by the regulation on its

face. To the contrary, the language is

unmistakably clear: notice and onkaes are

to be afforded in "any case" in which a

-8-

patient's treatment is to be terminated or

substantially changed. No distinction is

mde between cases of a quasi-legislative

and a quasi-adjudicative nature. Procedur-

al fairness must be accorded regardless of

whether an entire unit or a single patient's

treatment is being terminated. In either

case, the patient is severely impacted.

Arbitrary conduct with respect to a class

of individuals -- drug dependent persons

—o inpatient care -- is no less a

danger than arbitrary conduct in the case

of a single individual.

Further, the Court of Appeals opinion

conflicts with a recent case in the Second

Circuit involving a similar regulation.

Glover v. McMurray, 361 F.Supp. 235

(S.D.N.Y. 1973), remanded with instructions

to dismiss, 487 F. 2d 403 (2d Cir. 1973),

vacated and remanded, 417 U.S. 963 (1974),

remanded, 507 2d 1325 (2d Cir. 1974).

Plaintiffs in Glover were a group of

publicly-funded day care centers joining

together with the parents and children who

received their services. Defendants were

the public officials administering the day

care program who were seeking to terminate

several of the centers without providing

notice and hearing to the recipients under

federal regulation. In Glover, as here,

there was no question that the regulation

was not followed; the issue was whether it

was applicable. Defendants claimed that

the regulation was not applicable where

entire centers were being terminated. The

District Court rejected this argument.

[T]he decision to close the centers

without offering immediate alterna-

tive day care services... affect[ed]

the claims of the parents and child-

ren who used the centers, and there-

fore triggered the fair hearing

provisions. Id., at 243.

While the Second Circuit vacated this

decision on appeal, the United States

Supreme Court reversed the Second Circuit

and ordered the matter remanded for further

hearing.

Here, as in Glover, no alternative

provisions were made available for patients

when the four treatment units were closed.

Numerous patients were released during the

several weeks prior to February 20, and

five inpatients were still being treated

in the units on the day they were finally

closed. It is inconceivable that the

protections of 21 C.F.R. §1402.03(f) were

not intended to apply when patients’ health

and welfare were so drastically affected.

In addition to their rights to prior

notice and hearing under federal regulation,

plaintiffs are entitled to constitutional

protection under the Due Process Clause of

the Fourteenth Amendment. Plaintiffs rely

upon the principles set forth by this

Court in Goldberg v. Kelly, 397 U.S. 254,

261-2 (1970):

The extent to which procedural

due process must be afforded the

recipient is influenced by the

extent to which he may be con-

demned to suffer grievous loss....

-10-

To cut off a recipient in the

face of...'brutal need' without

a prior hearing of some sort is

unconscionable, unless overwhelming

considerations justify it.

The principles articulated in Goldberg

apply equally to patients receiving needed

medical treatment, since "...medical care

is as much a basic necessity of life to an

indigent as welfare assistance." Memorial

Hospital v. Maricopa County, 415 U.S. 250,

259 (1974).

The record here attests dramatically

to the "brutal needs" of drug addicted/de-

pendent persons for drug treatment services

and the “grievous loss" they suffer when

treatment units are closed. Without access

to care, these persons are not likely to be

able to hold down steady jobs. They are

forced back out on the streets where their

risk of sickness, infection, and death is

vastly increased. To deny these persons

needed care is to deprive them of perhaps

their only realistic opportunity to lead

stable and productive lives.

Nonetheless, the Court of Appeals

denied plaintiffs’ constitutional claim

based on the "fiscal and administrative

burdens that .. . hearings would create"

(App. A-8). However, plaintiffs do not

request a full-scale adjudicatory hearing

for each individual patient terminated.

All that is sought is a forum in which de-

fendants are obliged to articulate the

reasons for their action and to demonstrate

that they considered other less restrictive

often

alternatives to the outright termination

of services. In the face of plaintiffs'

demonstrated need for those services and

the unavailability of therapeutic alterna-

tives, plaintiffs are entitled to something

more than Trustees’ unilateral and insensi-

tive decision-making process.

B. Substantive Violations

Plaintiffs’ substantive claims for

federal relief derive primarily from the

contractual assurances given by Dr. Patch

and the defendants pursuant to federal

Statutes as a condition for federal funding

of the Program. Specifically, both parties

guaranteed:

(a) a continuation of the operation

of all eleven units throughout

the grant year;

(b) the continuation of city matching

services toward the operation of

at least one inpatient unit;

of city support as had occurred

during the prior twelve months;

(d) the delivery of all drug abuse

services promised in the appli-

cation;

-(e) the availability of drug abuse

services without exclusion of

any person solely by reason of

the ability to pay.

oft.

SHE EES

(f) compliance with the provisions

of all applicable laws, regula-

tions, and policies relating to

the project.

Defendants’ closure of the four

treatment units violated the foregoing

assurances. Dr. Patch was co-signatory to

these assurances and his patients were

their intended beneficiaries. Thus in

suing to enforce compliance with these

assurances, plaintiffs brought their case

squarely within the doctrine of Euresti

v. Stenner 458 F.2d 1115 (5th Cir. 1972).

See also Cook v. Ochsner Foundation Hospital

319 F. Supp. E.D.La. : ain-

tiffs in Euresti were intended recipients

of health care services who sued to compel

a hospital administrator to provide the

low-cost services he had promised in ex-

change for receiving federal Hill-Burton

funds. Plaintiffs prevailed in that action.

The Court of Appeals has sought to

distinguish Euresti on the basis that while

the duty breached in that case “had its

source in a federal statute or an inter-~-

pretive regulation" (App. A-9), the duty

breached here was merely contractual.

However, the Euresti decision, written by

Mr. Justice Clark, was based not only on

the Hill-Burton statute but also on specific

contractual assurances given by the defend-

ants in exchange for poe 3 Hy sens

(See Silva v. East Providence Housin

Authority 423 F. Supp. 453, 465 (D.R.I

1976), Shere the Euresti decision is

specifically interpreted as having relied

-13-

on both statute and contract). Here,

similarly, plaintiffs’ claims are based on

contractual assurances derived in accord-

ance with the two statutes under which the

Program was funded. Comprehensive Drug

Abuse Prevention and Control Act of 1970,

42 U.S.C. §§2688k et seq; the Drug Abuse

Office and Treatment Act of 1972, 21 U.S.C.

§§ 1120 et seq. Since there is no material

basis for distinguishing Euresti from the

facts of this case, plaintiffs submit that

the First and Fifth Circuits are now in

conflict. Plaintiffs are entitled to treat-

ment in accordance with the aforementioned

assurances.

The Court of Appeals' rejection of

plaintiffs' contractual claims was also

explained in terms of preventing an encroach-

ment upon administrative flexibility. The

Court feared that "If third parties had

the right to enforce the terms of the

grant, it would effectively preclude the

[federal grantor] from permitting changes

in any grantee's program during a project

period" (App. A-11). However, any focus

upon “administrative flexibility" side-

steps the thrust of this action.

At stake here is plaintiffs' right

to continued treatment. The record amply

demonstrates that methadone maixutenance is

viewed by the federal government and by

the medical profession as a life-saving

medical treatment for a life-threatening

medical illness. Barbiturate addiction is

similarly viewed as a life-threatening

medical illness and withdrawal from

-14-

barbiturate addiction is considered a

medical emergency for which the only

acceptable treatment is detoxification on

an inpatient basis. Among the units

abruptly closed on February 20, 1976 was

the only Program unit which provided this

treatment. Its closure has entirely elimi-

nated the possibility of treating barbitu-

rate addicts in the Program. Patients en-

tered the Program with the hope of conquer-

ing a condition they were powerless to

overcome alone. In the case of those

addicted to heroin, treatment required

immediate placement on methadone -- a

drug from which patients could be gradu-

ally withdrawn under strict medical super-

vision. In embarking on such a long-term

commitment, patients relied on the expected

continuity of the Program as reflected both

in the duration of the grant and the ~

assurances which were made to receive it.

Certainly for these patients already re-

ceiving treatment and now left without any

viable therapeutic alternative when the

Program units were closed, the interest

in enforcing contractual assurances far

outweighs any interest in administrative

flexibility.

It is well established that where

patients have reasonably relied upon a

course of treatment at a facility which

offers such treatment on a regular basis,

they have a right to receive that treat-

ment. See Wilmington General Hos ital

v. Manlove, 174 A.2d 135 (1961) Thus, as

recipients of Program services, plaintiff-

patients have a right to expect the

o }S-

continuation of services assured to them

by agreement under the federal grant.

It is also well established that

where a provider of medical services has

begun to render care to a patient, the

abrupt termination of care without affording

the patient a therapeutic alternative con-

oth uae wetees. abandonment. Johnson

v. Vaughn, 370 S.W.2d 591 (1963). As

Medicat Director of the Program and as

co-signatory on the federal grant, Dr. Patch

had both the right and the duty to continue

to deliver services in accordance with his

best medical judgment and the specific

assurances of the grant.

2. Dr. Patch's Summary Discharge Deprived

Him of Fundamental Rights Guaranteed Him by

the First and Fourteenth Amendments.

Dr. Patch joined the medical staff of

Boston City Hospital (BCH) in 1962 as an

employee of the City of Boston and as a

member of the BCH Department of Psychiatry.

He remained an employee of the City until

his dismissal in March 1976. Throughout

this fourteen year period, Dr. Patch worked

under the supervision and direction of the

Director of the Department of Psychiatry

with ultimate responsibility to defendants

Board and Executive Director who determined

his apoointment and yearly salary. Dr.

Patch was listed in the annual City budget

as a ‘permanent" employee.

Early in 1970, while serving on the

BCH staff, Dr. Patch was asked to develop

-16-

a drug program for the City. When the

Program received City funding, Dr. Patch

was appointed its first Director. There-

after, as federal funds became available

for drug treatment, Dr. Patch prepared and

negotiated all of the Program's federal

grant praperene and submitted these proposals

through defendants Board and Executive

Director. HEW's eight-year grant to the

Program in 1972 was awarded to defendants

as grantees and to Dr. Patch as both Medi-

cal and Project Director.

It is in this context that the summary

dismissal of Dr. Patch without notice or

hearing only one month after he initiated

this lawsuit has violated his property

rights under the Due Process Clause of the

Fourteenth Amendment and his rights of

free speech under the First Amendment.

In the courts below, Dr. Patch rested

his due process claim upon numerous factors,

each of which created and supported his

expectation of continued employment with

the City. These included: municipal

ordinances; federal grant provisions;

federal regulations; and the Medical Staff

bylaws of BCH. In rejecting Dr. Patch's

claim, the District Court considered only

the BCH bylaws and did not even discuss

any of the other factors cited. The Court

of Appeals misinterpreted this silence as

rejection and consequently applied an in-

correct standard in reviewing the District

Court decision. As a result, Dr. Patch

has never received due consideration of

his property claim. The municipal ordin-

ance exemplifies the problem.

of%e

The ordinance makes unmistakably

clear that any "subordinate" of a City

department cannot be discharged without

cause, C.B.C. St.5, §109, and thereby has

a protected property interest. See

Bishop v. Woods 426U.S. 341 (1976). The

term “subordinate” is defined to include

"all assistants, deputies, clerks, and

other officers appointed by an officer or

board in charge of a department and paid a

yearly salary’. C.B.C, St. 5, §108.' Inas-

much as Dr. Patch was appointed by defendants

Board and Executive Director, was paid a

yearly salary, and served under the Director

of the Department of Psychiatry, he was

without question a "subordinate" employee.

Nevertheless, without citing any municipal

or state authority in its support, the

Court of Appeals construed the ordinance in

so restrictive a manner as to deny Dr.

Patch the benefit of its protection. A

writ of certiorari is sought to cure this

manifest error.

With respect to Dr. Patch's First

Amendment claim, the Court of Appeals label-

ed it "extremely tenuous" (App. A-16), sug-

gesting that defendants’ summary dismissa

of Dr. Patch was not unreasonable in the

light of the criticism and lawsuit which he

had initiated. Should such a decision be

allowed to stand, its implications will be

staggering for public service. It will

chi i the future exercise of First Amendment

liberties by employees who learn of their

employers’ dishonesty. And it will

severely detract from current efforts to

- 18-

protect our... employees from

harrassment and dismissal if they

find out and report waste or dis-

honesty by their superiors. The. .

case where a dedicated civil servant

was fired from the Defense Department

for ay igor. cost-overruns must

never be repeated. (Statement of

President Jimmy Carter at "Whistle-

blowers’ Convention", Washington,

D.C., October 3, 1976).

When Dr. Patch first learned that Trus-

tees had artificially inflated their costs

to HEW and that federal funds had been

diverted from the Program, he was con-

fronted with a dilemma. He knew that his

participation in such a scheme would violate

the assurances he had given the federal

government, deny his patients needed care,

and contribute to what he regarded as

criminal fraud. On the other hand, he

also knew that to report defendants'

dishonesty was to place his employment, in-

come, status, and reputation squarely on

the line. First he tried bringing his con-

cerns to the attention of Program and City

officials. However, his efforts met with

either no response or a warning that his

refusal to g° along with their directives

would effectively terminate the Program.

When he took the matter to federal officials

he was advised that the law forbade com-

pliance with defendants' directives. As

a result (and contrary to the statement by

the Court of Appeals (App. A-4)), Dr. Patch

chose steadfastly to refuse to prepare any

submission to the federal government which

-19-

involved a distortion of Program costs.

It was when this refusal brought him into

a position of unavoidably direct confront-

ation with his superiors that Dr. Patch

sought judicially to prevent the unlawful

closure of the treatment centers and to

ask for a declaration of his rights and

responsibilities.

The federal government's interests

have now been fully served by the reports

of the General Accounting Office and the

Boston Finance Commission (See Appendix C)

which detail Trustees’ fiscal irregularities.

Even though Dr. Patch's charges have now

been proven accurate, he has received no

vindication from the federal judiciary --

his forum of last resort. Certiorari is

sought in this case "to prevent a clear

miscarriage of justice". Roto-Lith, Ltd.

v. F. P. Bartlett & Co. (297 F.2d, 207,

- st re,

CONCLUSION

For the reasons set forth above, the

petition for writ of certiorari should be

granted.

Respe¢tfully submitted,

Alan H. nhorn

-20-

CHAYET & SONNENREICH, P.C.

Counsel for Plaintiff-

Petitioners

6 Fayette Street

Boston, Massachusetts 02116

Appendix A

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

VERNON D. PATCH, et al.,

Plaintiffs, Appellants,

KEVIN H. WHITE, et al.,

Defendants, Appellees.

Before Coffin, Chief Judge,

Moore and Aldrich, Circuit Judges.

April 25, 1977

COFFIN, Chief Judge. This case pre-

sents the unhappy tale of the administra-

tive and other problems which Boston's

Drug Treatment Program encountered during

the years 1974 through 1976. While the

case raises a number of delicate questions

of social policy and may also present some

substantial issues of state law, it does

not, in its present procedural posture,

present any federal claims upon which re-

lief may be granted. We affirm the dis-

trict court's dismissal of plaintiff's

complaint.

Appendix A

The allegations of plaintiffs' com-

plaint, which we assume to be true, re-

flect the following. Boston's drug pro-

gram was established in 1970 under the

sponsorship of the city's Department of

Health and Hospitals (Department) to pro-

vide drug detoxification, methadone main-

tenance, and rehabilitative services for

drug addicted and drug dependent persons.

One of the plaintiffs, Dr. Vernon Patch,

was appointed director of the program.

Initially the program was funded entirely

by the city of Boston, but soon after it

was established, the program began receiv-

ing a number of federal grants. The most

significant of these was an eight year,

four million dollar grant awarded by the

National Institute of Mental Health (NIMH)

pursuant to the Comprehensive Drug Abuse

and Control Act of 1970, 42 U.S.C. §§

2688k et seq. Although this Act was

amended in its entirety by the Community

Health Centers Amendment of 1975, 42

U.S.C. §§ 2689 et seq., the amended stat-

ute explicitly authorized grantees like

the city of Boston to continue receiving

funds under the terms of the prior law.

Id. § 2689b(e)(1). Through the combin-

ation of federal and municipal support,

the program by 1974 included eleven units:

two in-patient detoxification centers, six

out-patient clinics, a halfway house, a

sheltered workshop/work training program

for heroin addicts, and a 24 hour drug in-

formation service "hot line".

A-2

Appendix A

The NIMH grant, the administration o

which was evansforred to the National

Institute on Drug Abuse (NIDA) in 1974,

had to be renewed annually. The city s

renewal applications were filed by _

Trustees of the Health and Hospitals o

the City of Boston, Inc. (Trustees), -

nonprofit corporation established by =

to apply for grants and hold property for

the benefit of the Department. As program

director, Dr. Patch would prepare the re-

newal applications for the Trustees, nego-

tiate federal approval, and attempt to ion

ensure that the drug program complied he

all applicable laws and regulations. e

Trustees, however, had final control over

the renewal applications.

me during 1974, Patch became

nual Gaae fiscal irregularities in the

administration of the program. Of great-

est concern to him was that the Trustees

had been billing the federal government

for the city's general overhead expenses

"indirect costs") at the "on-site rate

that applied to services performed at

Boston City Hospital. In fact, most : :

the city's services had een performed a

other locations, and the city should have

been reimbursed at a lower “off-site

rate. Patch took this matter directly to

the Mayor, labelling it a multi-million

dollar scandal", but the mayor s office

took no action. Thereafter, Patch dis-

cussed the problem with several ee

officials who had become aware of it =

with the grants management office of the

Trustees, and decided that it was

A -3

Appendix A

imperative that an indirect off-sit

rate be included in all future nent “v9

applications. However, David Rosenbloom

the acting executive director of the board

of the Department told Patch that the

Trustees would not submit any grant appli-

cation unless it provided for reimburse-

ment at the on-site indirect cost rate,

and Rosenbloom directed Patch to prepare

the applications accordingly. Patch re-

sponded by informing Rosenbloom that such

action would jeopardize the funding for

and existence of the drug program and that

it would constitute a fraud on the federal

government. However, after consulting

with the responsible federal officials,

Patch complied with Rosenbloom's directive.

A second problem which was of concern

to Patch was that the Trustees, which is a

juridical entity independent of the city

of Boston, had frequently failed to trans-

fer federal funds to the city. This mat-

ter too had come to the attention of the

federal officials, and Patch discussed the

problem with them. Patch was particularly

distressed by the fact that many members

of the board of the Trustees were also

city officials and thus in a conflict of

interest situation.

Notwithstanding these problems with

the administration of the program, the

applications for the fiscal years July l,

1974 to June 30, 1975 and July 1, 1975 to

June 30, 1976 were both approved, and the

program continued, subject to several con-

ditions. One of these conditions was that

A-4

SHH EEE

Appendix A

the city guarantee the continued operation

of all eleven program sites for the coming

fiscal year.

However, on January 26, 1976, Rosen-

bloom advised Patch that it was necessary

that four units of the program be closed

down on February 20, 1976: the two in-

patient clinics, the hot line, and the

sheltered workshop/work training program.

Patch resisted this directive in a number

of ways: suggesting to Rosenbloom that he

could not order such action without formal

board approval and strenuously urging that

the closings would be contrary to the

terms of the federal grant, violative of

the federal regulations, and contrary to

the needs of the program's patients. When

these protestations proved unavailing,

Patch and several other employees of the

program instituted an action in Massachu-

setts Superior Court on February 18 to

enjoin the closings and to obtain other

relief. When the state court refused to

enter a temporary restraining order,

plaintiffs filed a similar complaint in

federal court, naming certain members of

the boards of the Department and the

Trustees as defendants. Count one of the

complaint challenged the closure of the

four units of the drug program on the

ground that it violated the rights of the

program's patients and prayed for tempor-

ary and final injunctive relief enjoining

the closings. Count two charged the de-

fendants with mismanagement that jeopar-

dized the continued existence of the pro-

gram and prayed for the appointment of a

A-5

Appendix A

receiver to take control of the assets of

the Trustees. Count three charged that

those defendants who were both members of

the board of Trustees and members of the

board of the Department were guilty of a

conflict of interest in violation of Mas-

sachusetts law. The district court denied

all temporary relief, and the four units

were closed.

While the suit was still pending, on

May 22, 1976, Rosenbloom summarily dis-

charged Patch as director of the prcgram.

Patch thereafter requested a hearing be-

fore the full board, but this request was

denied. Plaintiffs then filed an amended

complaint which added a fourth count chal-

lenging the summary discharge on the sole

ground that Patch had had a right to a

hearing under the Fourteenth Amendment.

The amended complaint also added two of

the program's patients as party plaintiffs.

Defendants then filed a motion to dismiss

for failure to state a claim upon which

relief could be granted. Following a

hearing, the district court granted the

motion as to counts one, two, and four

and declined to exercise pendent jurisdic-

pe Pas count three. This appeal fol-

owed.

Plaintiffs' challenge to the city's

decision that eliminated the four treat-

ment units from the drug program is based

upon two distinct grounds. First, they

contend that the city officials failed to

follow the required procedures in reaching

the decision to close the units. They

A-6

Appendix A

urge that the operations at these units

could not lawfully be terminated without

first affording each affected patient a

right to be heard. Although plaintiffs

also rely on the due process clause, this

contention is based primarily upon a fed-

eral regulation that provides that when

"a decision is made that a patient's

treatment . . [is to] be terminated or

substantially changed . the patient

shall be given written notice of this

fact and the right to have such decision

reviewed." 21 C.F.R. § 1402.03(f).1

While we assume, arguendo, that this regu-

lation applied to the city's drug treat-

ment program, that patients have a private

right of action to redress violations of

Be Plaintiffs also urge that the

city officials acted in violation of

42 C.F.R. & 52.20(b) which provides that a

grantee, who is “uncertain as to whether a

change in a project" is permissible under

the regulations, shall refer the question

to the Secretary for a final determination.

We note first that it is far from clear

that this regulation has any applicability

to the drug program, since 42 C.F.R. Part

52 appears to cover only grants for re-

search projects. But even if applicable,

we find it impossible to believe that this

regulation, the violation of which arises

because a grantee acted when “uncertain ,

creates any private rights.

A-7

Appendix A

the regulation, and that the decision to

close the four facilities "substantially

changed" the treatment being received by

some of the program's patients, we agree

with the district court's conclusion that

the regulation does not apply to decisions

to close some units in a program. Such

decisions are of a legislative nature,

involving, as they do, the policy judgment

as to whether the benefits to be derived

from the continued operation of the units

outweighs the costs. There is nothing in

the regulation that suggests it was inten-

ded to create a forum to debate such is-

sues of policy. The hearings for which

the regulation provides must by their

nature be narrow in scope, focusing on the

adjudicatory fact whether a patient's

situation has so changed that it is no

longer appropriate for him to receive a

certain type of treatment. There is no

warrant for interpreting the regulation as

affording the patients a legislative type

hearing on issues of policy.

# Insofar as plaintiffs also rely

upon the due process clause, the short

answer to their contention is that the

fiscal and administrative burdens that such

hearings would create far outweigh the

risk that the responsible officials would

erroneously conclude that the facilities

should be closed. See generally Mathews

v. Eldridge, 424 u.3 395, 335 11396).

A -8

Appendix A

Second, plaintiffs urge that the city

committed a substantive violation of fed-

eral law by closing the four units and

that they, as the intended beneficiaries

of the federal grant, should have a right

of action to redress the wrongful acts.

The sole basis for their claim that the

reconstituted drug program is contrary to

federal law is that the "contract" be-

tween the federal government and the Trus-

tees provided that the four units would

operate through at least July, 1976. The

district court assumed that the city's

actions were in fact violative of the

terms of the federal grant, but it conclu-

ded that plaintiffs, as nonparties to the

contract, had no right to enforce its pro-

visions against the city.

Plaintiffs argue that the district

court erred in failing to imply a private

right of action on their behalf under the

governing federal statute. They reason

that they are, or at least include, the

intended beneficiaries of the federal

grant program and that they should have

the right to force the city to comply

with its legal obligations thereunder. _

Plaintiffs' position might be well take in

a case in which the duty allegedly breach-

ed had its source in a federal statute or

an interpretative regulation. Com are os

Z (sth a.

‘Euresti v. Stenner, 458 F2d 111

1972) (patients have right of action to

compel grantee hospitals to comply with

provisions of the Hill-Burton Act). Pri-

vate rights of action are often inferred

A-9

Appendix A

to ensure the implementation of Con-

aed (sic) established federal

policies. See generally Cort v. Ash, 422

U.S. 66, 78 C1995) Here, however, the

elimination of the four units from the

city's drug program was in no way incon-

sistent with any provision of the author-

izing statutes, since nothing therein re-

quired grantees to have the specific types

of treatment facilities which the city

discontinued. 3

3. Plaintiffs do argue that the

closing of the four units violated 21

U.S.C. § 1174, but this argument has no

merit. That section provides only that

"drug abusers who are suffering from emer-

gency medical conditions shall not be de-

nied [treatment in federally funded hos-

pitals] solely because of their drug abuse

or drug dependence." It does not create

any obligation that such hospitals have

specific types of treatment facilities or

treatment programs.

If, as plaintiffs allege, Boston hos-

pitals have violated § 1174, there are

administrative or other remedies which

possibly may be pursued. But these vio-

lations do not permit plaintiffs to chal-

lenge the decision to terminate the four

units of the drug program.

A-10

Appendix A

The only possible theory upon which

plaintiffs could have a right of action is

that they are third party beneficiaries of

the federal grant contract. But, assuming

that there are circumstances in which the

violation of a federal grant contract can

give rise to a right of action by nonpar-

ties thereto, we see no basis for the

recognition of such a right of action here.

Common law contract principles would not

support one. There is no indication in

the documents or otherwise that the fed-

eral government contemplated that the

city's performance of its obligations

would bestow the kind of benefits on

plaintiffs that would render them some-

thing other than "incidental beneficiaries"

to the contract. See 4 Corbin on Contracts

§ 775. More significantly, the recognition

of a third party action would substantially

reduce the federal officials' flexibility

in administering grants like the one in-

volved in the case at bar. If third par-

ties had the right to enforce the terms of

the grants it would effectively preclude

the NIDA from permitting changes in any

grantee's program during a project period.

Since it strikes us as highly desirable

that administrative flexibility exist, we

decline to allow a third party beneficiary

action, and we affirm the district court's

dismissal of count one.

In count two, plaintiffs alleged that

the Trustees' mismanagement of the federal

funds had jeopardized continued federal

funding and prayed that the Trustees be

placed in a receivership. Although we

A-11

Appendix A

must assume that plaintiffs' contentions

regarding the actions of the Trustees are

true, we agree with the district court's

conclusion that the plaintiffs have no

federal right of action. While plaintiffs

conceivably have a state law claim akin to

an action for breach of a fiduciary duty,

they cannot state a federal claim for

relief unless they have alleged the breach

of some duty created by federal law. The

only possible source of such a duty is the

Comprehensive Drug Abuse and Control Act

of 1970. Although its principal objective

was to benefit drug dependent persons,

that Act makes clear that whether a muni-

cipality is to receive federal funds is a

matter that is committed exclusively to

the responsibile federal and local offi-

cials. There is no warrant for interpret-

ing this Act as creating a federal right

to requir that municipal officials manage

city af airs in such a way that the like-

lihoo. of continued federal funding is

enhanced.

We also agree that count three was

properly dismissed. Even assuming that

this state law claim arose from the same

“nucleus of operative facts" as did counts

one and two, the district court unques-

tionably had the discretion to decline to

exercise pendent jurisdiction over count

three after dismissing counts one and two.

See United Mine Workers v. Gibbs, 238 U.S.

715 (1966).

The final issues in this appeal arise

from Dr. Patch's discharge as director of

A-12

Appendix A

the drug program. Count four of the

amended complaint challenged this dis-

charge on the sole ground that Patch was

denied the process which was his due under

the Fourteenth Amendment. Dr. Patch re-

cognizes that under presently governing

federal law, see Bishop v. Woods, 426 U.S.

341 (1976), he had no federal right to

procedural safeguards unless state or _

municipal law created some kind of entitle-

ment to continued employment. See also

Board of Regents v. Roth, 408 U.S. 564

(1972). He refers to several different

sources for the proposition that he had a

substantive right to continue as director

of the program. The district court re-

jected each claim, and we find no error.

Dr. Patch places his principal re-

liance on a bylaw of the Boston City Hos-

pital which guarantees that no staff mem-

ber of the hospital will have "his appoint-

ment or status as a member of the staff"

adversely affected without first receiving

certain procedural safeguards. While we.

are willing to assume both that these by-

laws have the force of state law and that

they afford substantive protections, we

fail to see how they are applicable to

Dr. Patch's position as director of the

drug program. There is no indication in

plaintiffs' complaint that the discharge

from this administrative position in any

way affected Dr. Patch's status as a staff

member of the Boston City Hospital, a

position he has held since 1963. Although

plaintiffs' appellate brief contains a

A-13

Appendix A

number of factual allegations not contained

in their complaint, they all support the

district court's conclusion that his staff

appointment at the hospital was entirely

independent of his position in the drug

program.

Dr. Patch also relies on a municipal

ordinance that guarantees that no "subor-

dinate" of a department in the city of

Boston will be discharged absent cause.

C.B.C. St. 5, § 109. While this ordinance

apparently confers substantive protections,

we think the district court correctly con-

cluded that it too is inapplicable. The

ordinances provide that the term "subordi-

nate" includes only "assistants, deputies,

clerks, and other officers, appointed by

an officer or board in charge of a depart-

ment and paid a yearly salary."' C.B.C.

St. 5, § 108. We cannot say that the

district court erred in apparently* con-

cluding that the designation "subordinate"

includes only individuals performing minis-

terial duties within a department and does

not refer to individuals like Dr. Patch

who have been hired to administer specific

programs and are invested with broad dis-

cretionary responsibilities.

* In the opinion as it was presented to

the plaintiffs, the word "apparently" was

inserted into the text by the use of a

caret.

A-14

Appendix A

Dr. Patch's other claims to federal

due process protection can be treated sum-

marily. The federal regulation he relies

upon as creating a "property" interest, 42

C.F.R. § 52.21 seems to be inapplicable to

the drug program, see note 1 supra, and

does not, in any event, purport to create

either substantive or procedural protec-

tions for program directors. Compare

Arnett v. Kennedy, 416 U.S. 13 .

nsofar as Dr. Patch bases his claim

upon the damage to his reputation, the

short answer is that he has not alleged

the kind of damage thereto which is pro-

tected by the due process clause. See

enerally Codd v. Velger, SS Seam

as U.S.L.W. 4175 (Feb. 22, 1977).

Although we have disposed of all the

questions plaintiffs raised below, a final

issue remains to be addressed. Dr. Patch

raises, for the first time on appeal, a

claim that his discharge was in retali-

ation for his having exercised his First

Amendment right of free speech. It is

elementary that an appellant is not normal-

ly permitted to have the benefit of a new

theory on appeal. While the court in its

discretion may relax the rule to prevent

a clear miscarriage of justice, Rote ie

Ltd. v. F. P. Bartlett & Co., 29/7 F> ;

500-01 (Ist Cir. 1962), this case strikes

us as an inappropriate one to deviate from

the normal practice. In light of our

recently expressed view that « aims of

this nature must be prosecute. expeditious-

ly. See Graffals Gonzalez v. Garcia

A-15

Appendix A

Santiago, F.2d (lst Cir. March 2,

1977), a party who fails to raise such a

claim in the district court is in a poor

position to appeal to this court's discre-

tion to recognize procedurally tardy

claims.

And we see little likelihood that a

miscarriage of justice will result. Dr.

Patch's claim is an extremely tenuous one.

Assuming that private criticism of the

city officials and the act of filing a law-

suit constitute "speech" and also that

Patch can show that he was discharged be-

cause he engaged in these activities, it

is extremely doubtful that the city offi-

cials could not establish a sufficient

justification for their action. Patch's

employment relationship with the Trustees

and with the Department seemed to involve

the kind of close working relationship for

which it can be persuasively claimed that

personal loyalty and the confidence of

superiors are essential to the proper

functioning of the government unit, and

under such circumstances the Court has

indicated that activities such as Dr.

Patch's are permissible grounds for a dis-

charge. See Pickering v. Bd. of Ed., 391

U.S. 563, 570 ; ef. Elrod v. Burns,

427 U.S. 347, 367-68 (1976) (plurality

opinion). While it might not be proper

to dismiss such First Amendment claims

when properly raised in the pleadings, the

foregoing considerations persuade us that

it would be inappropriate to permit Dr.

Patch to inject this issue into the case

for the first time on appeal.

A-16

Appendix A

We thus affirm the district court's

dismissal of plaintiffs’ amended complaint.

We emphasize that this dismissal was of

course without prejudice as to any state

law claims arising from these causes of

action.

So ordered.

A-17

Appendix B

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

VERNON D. PATCH, ET AL.

Plaintiffs

v. CIVIL ACTION

NO. 76-690-S

+e e+ + + +

KEVIN H. WHITE, ET AL.

Defendants

MEMORANDUM AND ORDER ON MOTIONS

TO DISMISS

June 30, 1976

SKINNER, D.J.

This is an action by the Medical Dir-

ector and various staff members of the City

Of Boston Drug Treatment Program to enjoin

the closing of various in-patient care faci-

lities formerly operated as part of the Pro-

gram. After the commencement of this action,

the plaintiff, Patch, was summarily discharged

as Medical Director of the Program. There-

after, the Complaint was amended to seek his

reinstatement and to add two patients of the

Program as plaintiffs, purportedly represent-

ing a class.

The obligation of the defendant city

officials to maintain the Program intact dur-

ing any fiscal year is found in an agreement

with the United States Department of Health,

Education and Welfare under which federal

Appendix B

funds are provided to pay the cost of the

Program. The federal agency has not been

made a party to the suit and, through the

United States Attorney, has informed the

Court that it does not desire to enforce the

agreement through legal action.

The defendants’ motion to dismiss is

directed to the standing of the plaintiffs

to bring suit. The contract was entered in-

to under the provisions of The Comprehensive

Drug Abuse Prevention and Control Act, 21

U.S.C. §§801 et seq., 1101 et seq. This Act

provides no private rights.

The contract provides that it may be

enforced by the United States. A regulation

of HEW provides that a patient is entitled to

notice and hearing before his treatment in

an ongoing program is terminated.

The plaintiff staff members, including

the Director, do not have any express right

of action, and they are not within the zone

of interest to be protected or regulated by

The Comprehensive an Abuse Prevention and

Control Act. Plaintiff Patch asserts that as

a signatory of the agreement he is entitled

to enforce it. It is clear, however, that

Patch signed as an agent of the City, and

the flow of mutual obligations runs between

him and the United States, not between him

and the City.

The plaintiff Director and staff men-

bers also assert a right to sue on behalf of

their patients as an incident of the doctor-

patient relationship. Given the elaborate

Appendix B

procedural safeguards which Massachusetts

attaches to guardianships and conservator-

ships, it seems unlikely that Massachusetts

law attaches such consequences to what could

be a relatively casual relationship. The

short answer, however, is that these patients

were patients of the Program, not of what-

ever individual staff members might be from

time to time assigned to them.

None of the original plaintiffs have

standing to sue.

The patients are clearly within the

zone of interests protected by the Act. If

there were a statutory scheme providing for

suit by “aggrieved persons" they would clear-

ly have standing. Bradley v. Weinberger,

483 F.2d 410 (lst Cir. 1973). Some courts

have engrafted a private right of action

where Congress has provided none, on the

theory that Congress did not intend statu-

tory obligations to be unenforceable. The

problem is that Congress may very well have

intended just that, since its draftsmen know

how to provide private rights when they choose.

In Euresti v. Stenner, 458 F.2d 1115

(Sth Cir. 1972), and Cook v. Ochsner Found-

ation Hospital, 319 F. Supp. 603 (E.D. La.

1970), individual potential patients were

held to have standing to enforce the obli-

gations of hospitals which receive Hill-

Burton Act funds to provide care for the

indigent. As previously stated, these cases

rest on a hypothesis concerning the intent

of Congress which is suspect at least. In

the present case, moreover, the regulations

B -3

Appendix B

are specifically addressed to the rights of

patients. 21C.F.R. §1402.03(f£). These

rights are defined in terms of termination

of an individual patient from an ongoing

program. Cf. Goldberg v. Kelly, 397 U.S.

254 (1970). e inclusion of this specific

provision suggests that no broader rights

were intended to be implied.

Count II of the Complaint accuses the

defendant of fiscal mismanagement and Count

III charges defendants White and Gleason

with conflict of interest under M.G.L. c.

268A. It is clear from the above discussion

that the plaintiffs have no standing with

respect to Count II. Count III is a matter

of state law. Since there is a pending

state action alleging the same grounds, there

is no need for this Court to exercise pendant

jurisdiction, particularly since the matter

is within the special competence of the state

courts.

Lastly, the plaintiff Patch says that

his discharge should be enjoined because he

was deprived of procedural due process in

the form of a hearing. The Supreme Court

has recently held that a discharged public

official has no such right unless the enm-

ployer failed to satisfy its own procedural

requirements. Bishop v. Wood, 44 U.S.L.W.

4820 (June 10, 1976). The By-laws of the

Boston City Hospital provide that no doctor

shall suffer a change in his status or priv-

ileges on the staff of the Hospital without

aortas, The short answer to this claim is

that the allegations of the Complaint do not

reveal that the plaintiff's discharge as

Appendix B

Director of the Drug Treatment Program af-

fects either his status or his privileges

as a member of the staff of the Boston City

Hospital.

Many of the arguments of the plaintiffs,

and the affidavits of the plaintiff patients,

are in reality addressed to the policy rather

than the legality of closing the Program faci-

lities. This Court might well be sympathetic

to these claims if it had authority to decide

such matters, but it does not.

The plaintiffs' arguments relative to

discovery are well taken, but rendered moot

by the above.

The Complaint is DISMISSED, and judg-

ment will enter accordingly.

Walter J. Skinner

United States District Judge

Appendix C

REPORT OF THE FINANCE COMMISSION

OF THE CITY OF BOSTON

ON CERTAIN ASPECTS OF THE MANAGEMENT

OF HEALTH AND HOSPITALS FUNDS

IN THE CITY OF BOSTON - EXCERPTS

SUMMARY OF INVESTIGATION

On October 14, 1975, the Finance Com-

mission of the City of Boston voted to con-

duct an investigation into the accounting

by the Trustees of Health and Hospitals of

the City of Boston, Inc. ("'Trustees Corp-

oration") of public fumds under its control

including the question of whether the cor-

poration had made prompt and full payment

into the City Treasury of all funds paya-

ble to the City. At its meetings on Nov-

ember 20, 1975, the Finance Commission au-

thorized, in furtherance of the investiga-

tion, the issuance of summonses for the at-

tendance of witnesses and the production of

documents. The primary purpose of the in-

vestigation was to ascertain whether certain

funds received by Trustees Corporation from

the federal government to cover costs of ac-

tivities conducted upon city premises should

have been paid to the City of Boston. The

investigation included a review of the his-

tory and administration of Trustees Corpor-

ation, and its relationship to the city.

Appendix C

In the course of its investigation

the Finance Commission reviewed the laws

which created and authorized the activities

of Trustees Corporation. The Commission ob-

tained from the United States Department

of Health, Education and Welfare ("HEW")

copies of correspondence between it and

Trustees Corporation. The Commission re-

ceived and reviewed relevant records and

documents held by Trustees Corporation, other

government agencies and former employees of

the corporation, including management studies

and audits of the corporation. The Finance

Commission interviewed several persons and

also conducted hearings and received sworn

testimony from six witnesses.

OVERHEAD FUND DISPUTE

Since 1965 the principal activity of

Trustees Corporation has become the admini-

stration of grants (primarily federal). In

the typical grant administered by Trustees

Corporation, it applies for and obtains a

grant from the federal government. The re-

search called for by the grant is then carried

out by a so-called principal investigator ,

which is either an individual or an organiza-

tion. The grant activity normally takes place

either at Boston City Hospital or on other

city-owned premises. Trustees Corporation

receives payment of its costs for administer-

ing the grant which are payable according to

federal guidelines. They typically amount ‘co

a few per cent of the total grant and are in-

tended to cover personnel and administrative

C-2

Appendix C

expenses of the grantee. Additionally,

“overhead expenses" are included in the

grant to cover the indirect costs incurred

in carrying out the grant activity. They

include, for example, the costs incurred by

the facility used by a grantee when grant

activities take place upon the premises of

someone other than the grantee (i.e. the

costs of rent, heat, utilities and the use

of equipment at the facility). In the case

of Trustees Corporation, it received substan-

tial amounts of overhead funds from the fed-

eral government because the premises of Bos-

ton City Hospital and other city-owned faci-

lities were used by the principal investiga-

tors in carrying out the different grant ac-

tivities.

Not only was Trustees Corporation paid

overhead expenses from the federal government,

but it also received payments from other grant-

ees, particularly medical schools, when the

grant activities they were administering took

place in city-owned institutions. Trustees

Corporation's balance sheet for its fiscal

year ending June 30, 1974, contains an esti-

mated liability to the city for reimbursement

of indirect costs of $1,787,000.

The problem which has arisen with re-

spect to the overhead costs for federal grants

is what the appropriate disposition of such

payments should have been. Whether Trustees

Corporation was obliged to turn over to the

city the overhead payments it received from

the federal government and from other grantees

has been a long-standing issue. In fact, as

long ago as April, 1971, an Arthur D. Little

C-3

Appendix C

Inc., report on the Department of Health

and Hospitals ("DHH") of the City of Boston

stated as follows (page 23):

"Research grant funds go

either to the DHH Trustees Corporation

or to the medical schools. DHH does

not benefit from the monies provided

for overhead in connection with grants

handled through the schools, regard-

less of the use of DHH resources

involved in the grant work."

The Arthur D. Little report then re-

commends that "DHH should receive an equi-

table share of grant overhead monies and

benefits according to the use made of its

resources."

The question of the status of the over-

head funds received by Trustees Corporation

has been raised in the Price, Waterhouse

& Company audits of the corporation's books

for the fiscal years ending June 30, 1971-

1974. The audit for the years 1971-1972

contains the following statement:

"Trustees shares in and reports

as revenue certain reimbursements for

the cost of administration and facili-

ties absorbed by Boston City Hospital.

We have been unable to satisfy ourselves

that it is appropriate for Trustees

to report such reimbursements as re-

venues."

i Note I to the Audit further states:

Revenues of Trustees relating to the faci-

c-4

Appendix C

lities and services provided by the Hospital

have significantly exceeded expenditures on

behalf of the hospital for the two years en-

ded July 31, 1972."

The audit for the two years ending June

30, 1974 notes the following:

"Trustees changed the manner

in which it accounts for reimburse-

ments it receives from affiliated

medical schools for indirect costs

incurred and absorbed by Boston City

Hospital, the use of the facilities

at Boston City Hospital, for its pro-

jects and expenditures it considers

to be made on behalf of the Hospital.

Previously these reimbursements were

recorded as revenues and the expendi-

tures were recorded as expenses; a

charge to operations was not recog-

nized for the facilities used. These

changes, which were adopted to re-

flect Trustees’ current understanding

of the intention of the granting a-

gencies and affiliated medical schools

in making such reimbursements, as well

as the intention of Boston City Hos-

pital in providing facilities, result

in recording the reimbursements as a

liability, the expenditures as a reduc-

tion of the liability and recognizing

the use of the facilities as an expense.

Although all of the expenditures

made by Trustees and charged to the

liability to the City of Boston were

either for the direct benefit of the

C-5

Appendix C

Hospital, or were approved by Trus-

tees' Board as being for the indi-

rect benefit of the Hospital, it is

uncertain that this definition of

chargeable expenditures will be a-

greed to by the parties involved."

The city billed Trustees Corporation

a total of $2,994,145 for the overhead costs

incurred on behalf of Trustees Corporation

research projects performed at Boston City

Hospital during 1969, 1970 and 1971. How-

ever, the city has never made any effort to

obtain payment for these years, and it has

submitted no bills for any subsequent years.

Trustees Corporation's stated liabilities

find no counterpart in any record of accounts

receivable in the annual reports of the Au-

ditor or of the Department of Health and Hos-

pitals.

On July 24, 1974, Dr. Vernon Patch,

then Director of Boston's Drug Program and a

professor at Harvard Medical School, wrote

Mayor White requesting a meeting "to dis-

cuss a multi-million dollar scandal". Dr.

Patch testified at the Finance Commission

that he met with Mayor White on August 20,

1974, at which time he told the Mayor that

for the past several years he had been aware

of a problem in the use by Trustees Corpora-

tion of overhead funds, and he explained to

the Mayor in detail the reasons why he believed

that the overhead funds received by Trustees

Corporation were payable to the City. Accord-

ing to Dr. Patch, the Mayor assured him that

he would have the Deputy Mayor, Robert Kiley,

look into the matter and get in touch with

C-6

Appendix C

him. Dr. Patch testified that he never

heard further about the matter from either

the Mayor or from Mr. Kiley.

In early 1975 the HEW Regional Office

questioned officials of Trustees Corporation

in meetings and by letters regarding the

corporation's use of the overhead funds it

had received. At first Trustees Corporation

claimed that it was billed annually by Bos-

ton City Hospital for activities performed

at the hospital. Later the General Manager

of Trustees Corporation stated in a letter

to Dr. Patch, then. Director of Boston's

Drug Program, that overhead funds received

by the Corporation were reimbursed to Bos-

ton City Hospital. However, a letter from

HEW to Trustees Corporation dated August

6, 1975, makes it clear that Trustees Cor-

poration was claiming that it had spent the

overhead funds on behalf of Boston City Hos-

pital rather than directly reimbursing it.

This letter further states that Trustees

Corporation could not give a full accounting

of how it had spent the overhead funds with-

out the expenditure of an inordinate amount

of effort.

In July, 1975, HEW suspended the pay-

ment of overhead funds on grants to Trustees

Corporation, pending the resolution of the

question of whether Trustees Corporation had

disposed of overhexd funds in accordance with

applicable federal guidelines.

The Trustees themselves have had doubts

about the legal relationship of the corpora-

tion to the city and whether the corporation

C-7

Appendix C

had the right to accept payment of the over-

head costs of Boston City Hospital. At their

meeting on November 1, 1972, the Trustees ex-

tablished a committee which was charged with

returning recommendations on various matters,

including:

"The legal status of the Cor-

poration, with special reference to

the Corporation's capacity to receive

payment of BCH's overhead costs."

"Policy matters relating to

overhead expenses, charges, and both

their collection and disbursement."

Again, On December 3, 1975, the Trus-

tees requested the Acting President, Herbert

Gleason, to report to them upon the legal

nature of the Corporation. The minutes of

that meeting contain the following informa-

tion:

"Mr. Gleason said the issue

is whether overhead money which is

paid to an operating foundation must

be paid over to the hospital or whe-

ther that money can be used by the

operating foundation for hospital

purposes. It was his contention that

all monies have been used for purposes

that the Board would have voted to

spend them for."

It was then voted "to request a ruling

from the Law Department relative to the legal-

ity of the expenditure of certain Trustees

overhead monies by the Board and a further

C-8

SHG

Appendix C

clarification of the legal responsibility

in this whole area of Trustee funds”.

However, whatever private doubts the

Trustees have had, their public position

is that the corporation's use of the over-

head funds was strictly in accordance with

its corporate authority to use its property

"for any purpose connected with the public

health or with any hospital owned and opera-

ted by the City of Boston" (St. 1880, c.

174, s.2, as appearing in St. 1965, c.656

s.4). Moreover, in its dispute with HEW,

Trustees Corporation has taken the position

that its use of overhead funds for health

purposes better reflected the intent of the

HEW guidelines than if the corporation had

paid the fund into the city treasury. The

Acting President of Trustees Corporation, in

a letter to HEW dated January 9, 1976, set

forth the corporation's position as follows:

"Because it is impossible to

pay monies directly to the Department

of Health and Hospitals or to the Bos-

ton City Hospital which is a part there-

of, the Board of Trustees which is by

legislative direction (St. 1965, c.656)

identical with the Board of Health and

Hospitals, has treated the overhead

funds which it has received on research

grants as a liability to be expended

according to the direction of the

Board of Health and Hospitals.

As you will see from the en-

closed financial summaries, a sub-

stantial amount of overhead received

C-9

Appendix C

by Trustees ($1,547,000) in the

years 1972-1974 had been expended.

($1,215,000) for the purposes of

the Department of Health and Hospi-

tals. So will the remaini

($332,000). ning balance

Trustees believes that it

is thus carrying out the purposes

which the HEW policies are intended

to achieve. If these monies were

paid over to the general fund of the

City, it is very likely that they

would be shared with the Police, Fire

and Public Works Department rather than

being used to reduce the costs of pa-

tient care at Boston City Hospital

where these expenses are largel -

erated." st 5 Cae

Despite the suspension by HEW of over-

head payments to Trustees Corporation since

July 1, 1975, there is evidence that the

Acting Executive Director of Health and

Hospitals, David Rosenbloom, as recently as

last January stated that he would hold up a

grant application until a claim was made for

full overhead costs. Dr. Vernon Patch, for-

mer Director of Boston's Drug Program, tes-

tified that he presented an application for

a renewal of a grant from the National Insti-

tute of Drug Abuse which provided for a wai-

ver of indirect costs because the program

would not take place on city-owned property.

He further testified that at a meeting with

Mr. Rosenbloom on January 19, 1976, also

attended by Dr. Patch's assistant, Anthony

C-10

Appendix C

Raynes, (who corroborates Dr. Patch's tes-

timony), Mr. Rosenbloom insisted that he

would not approve any grant application un-

less it made provision for the full on-

site indirect cost rate.

Mr. Rosenbloom, although he did not

specifically refute Dr. Patch's allegations,

testified that any delay upon his part in

granting filing approval was occasioned by

his desire to review the entire overhead

payments question and was not motivated by

any intent to make unjustified claims for

overhead payments. However, Dr. Patch main-

tains that neither in his meetings with Mr.

Rosenbloom nor in their correspondence was

there any suggestion by Mr. Rosenbloom that

he was delaying the grant solely for the pur-

pose of reviewing this question. According

to Dr. Patch, “At no time was, there any ques-

tion about his [Rosenbloom's] demand that the

full on-site indirect cost rate must be ap-

plied for." Mr. Rosenbloom contends that he

wanted to study the administration of the

drug program for himself as he had just been

appointed as Acting Executive Director. In

fact, when the application was approved by

Mr. Rosenbloom in March, it did not include

a request for the full on-site rate.

It is neither the responsibility nor

the intention of the Finance Commission to

intervene in a dispute between the federal

government and the City of Boston regarding

the city's compliance with federal require-

ments. However, it is a matter of vital in-

terest to the Finance Commission and to the

residents of Boston when funds paid for the

Appendix C

use of the city's property and facilities

are withheld from the city and expended with-

out either appropriation or proper account-

ability. The overhead funds received by

Trustees Corporation were paid by the fed-

eral government and by other grantees to

compensate the City of Boston for the use

of its property and facilities. Although

the Trustees have now conceded that these

funds constitute a liability they have never

turned over any of this money to the city,

nor are they fully able to account for how

all of these monies have been spent.

The Board of Health and Hospitals

has the general care and control of Boston

City Hospital and all other public health

facilities in the city. Obviously the use

of the city's health facilities for sub-

stantial amounts of health research activi-

ties could only take place with the permis-

sion of the Board. If the Board had received

these overhead funds in its municipal capa-

city it would have been obliged under state

law to pay them into the city treasury, and

they would thereafter have been available for

use only after appropriation. See G.L. c.

44, s. 53. However, the Board claims that it

received overhead funds in its corporate capa-

city and used them in accordance with its

corporate powers for the benefit of the City.

EXPENDITURES OF OVERHEAD FUNDS

The Finance Commission has attempted

to examine the uses made by Trustees Cor-

poration of the overhead funds to determine

to what extent they were in furtherance of

Appendix C

the public health or of any hospital owned

or operated by the city. Unfortunately,

the records of the Corporation prior to

1974 were, in the words of John Christian,

the General Manager, in a "shambles", and

they have never been reconstructed. For

that reason it is impossible for anyone to

know all the uses made of the overhead funds.

With regard to the period prior to 1974 this

Report has already noted the statement in

the Price, Waterhouse audit for the two

years ending June 30, 1972, that ‘Revenues

of Trustees relating to the facilities and

services provided by the hospital have sig-

nificantly exceeded expenditures on behalf

of the hospital..."

The Finance Commission does not con-

test the claim of Trustees Corporation that

it used overhead funds for public health

purposes. However, the Commission has found

instances in which the use of overhead funds

was of questionable value to the furtherance

of public health. In fact, a review of the

available minutes of the meetings of Trustees

Corporation shows that the Trustees appeared

to regard the millions of dollars of overhead

funds as monies which they could spend with-

out the need to justify their decisions to

either the federal or city governments, and

without the need, therefore, to keep full and

accurate records.

In the discussion and the votes author-

izing expenditures of overhead funds which

were recorded in the minutes of the November

19, 1975, meeting of Trustees Corporation,

the Trustees approved retroactively, from

C-13

Appendix C

April 1, 1973 through June 30, 1975, the

payment of the salaries of the public re-

lations staff of the Department of Health

and Hospitals, amounting to more than

$53,000 and they also approved projected

expenditures of $34,000 for the same pur-

pose. The Trustees approved retroactively

from July 1, 1973, to June 30, 1975, pay-

ment of the salaries of the Commissioner's

staff, amounting to more than $14,000 and

they approved a projected expenditure for

the Commissioner's office of $124,000. The

minutes of the meeting, with regard to this

item, contain the following:

"The average yearly expense over

the past two years has been $100,333.95.

A Board appropriation of $124,223.58

would cover anticipated payrolls to

the end of the fiscal period of $120,223

(which includes fringe benefits and a

Board authorized 8% general cost of

living increase), $2,400 of which is to

cover anticipated merit increases for

employees, and, lastly, at the Commi-

ssioner's request, $500 for miscel-

laneous costs incidental to the op-

eration of his office for local tra-

vel reimbursements and the like."

The Trustees also approved a project-

ed expenditure of $15,000 for the Executive

Director's office which, according to the

minutes, “is used for miscellaneous purposes

.58

such as conference attendance and recruitment

not budgeted for the City." The minutes fur-

ther noted that the average annual expense

of this item during the previous three years

C-14

Appendix C

had been $9,591.25, and that the account

had a deficiency of $3,773.75.

At the same meeting the Trustees also

authorized retroactively, from July 1, 1972

through June 30, 1975, the payment of more

than $39,000 to the retired nurses fund.

This money had been used to hire nurses who

had previously retired from public employ-

ment on pensions. This method of compensa-

tion avoided the prohibition in the state

retirement law against the rehiring by the

city of municipal employees who have retired

with pensions.

The payment of the salaries of a public

relations staff and assistants to the Commi-

ssioner and the establishing of a fund for

the use by the Executive Director were items

requested for the Department of Health and

Hospitals budget which the Maycr did not ap-

prove and did not include in his annual bud-

get request, but they were authorized anyway

by the Trustees to be paid with overhead funds.

In other instances, the salaries of Depart-

ment of Health and Hospitals personnel were

paid by Trustees Corporation before the De-

partment had formally requested that these

persons be added to the city's personnel

roster. In fact, in the case of Mary Fallon,

a Volunteer Worker Administrator, it was ex-

plicitly recognized at the time of her em-

ployment by Trustees Corporation that the

funding of her position might not be approved

by the City Council. The June 28, 1972,

Minutes of Trustees Corporation states:

Appendix C

"Dr. Sherman informed the Board

that this item was eliminated from the

Department's 1972 budget, but was re-

submitted in the 1972 supplementary

budget request. However, there is no

assurance that this item will be ap-

proved by the City Council and there-

fore no guarantee of reimbursement to

the Trustees."

On one occasion the Trustees author-

ized a "grant" of $2,000 to the Boston Con-

sumers Council "for a study of the costs of

certain pharmaceutical products within the

City of Boston." The Consumers Council ex-

plained at the Trustees Corporation meeting

on April 23, 1970, that the money was to be

used to buy drugs. Apparently the then

Commissioner of Health and Hospitals, Dr.

Andrew P. Sackette, was not willing that

this expenditure be publicized, because the

minutes of the meeting record that he re-

quested that this matter be kept confiden-

tial.

MANAGEMENT AND RECORD KEEPING DEFICIENCIES

In the past eight years Trustees Cor-

poration has had a record of severe manage-

ment problems and crises marked by personnel

disputes, management turnover, a collapse in

record keeping and acute cash flow problems.

The Price Waterhouse audits for the years

ending 1970-1974 are qualified to the ex-

tent that they do not express an opinion on

the corporation's financial statements. The

audit for the two years ending June 30, 1972

Appendix C

s "the system of internal accounting

samanbhe cad th accounting records of -

General Fund inadequate for the purpose of

providing reliable financial information.

The draft audit for the two years ming

June 30, 1974, finds that “the system o

internal accounting controls and the =

counting records were inadequate for t .

purpose of providing appropriate contro "

over cash and other transactions during the

period ended June 30, 1974.

report by a committee of the Trus-

tees, fives to Gueiuate the corporation,

was presented at the Trustees meeting on

October 11, 1972. The report referred =

" a dire need of a systematic audit of the

Office of the Trustees" and it found a

"serious morale problem".

The Finance Commission has heard tes-

timony from two employees and two aspen Saal

ployees of the corporation who have 7 ae

ed in detail the types of problems re _

to in the Price Waterhouse audits. oe

Christian, the General Manager, testi -

that the records were in a ‘shambles a. .

he took office in January 1974, and =

was not until February of this year : at :

they had been made current and were ' or

der for the period beginning January },

1974.

Appendix C

Mr. Christian also stated that the Corpor-

ation lacks the capacity and has no plans

to reconstruct the records prior to 1974.*

Linda Mills, former Assistant Chief

Accountant, testified that she was concern-

ed throughout her employment about manage-

ment deficiencies of the Corporation, in-

cluding failure to obtain timely authori-

zation from the Trustees for expenditures,

lack of definition or guidelines regarding

the relationship of Trustees Corporation

and the Department of Health and Hospitals,

failure to maintain accounts receivable and

accounts payable on a current basis, and re-

curring cahs flow crises. She felt that

her attempts to bring problems to the at-

tention of her superiors were unwelcome and

led to a lack of a merit increase which in

the normal course she would have received.

As she testified:

"It was a case where I felt

that there was something illegal go-

ing on, that the corporation was not

being run properly, and that's the

reason I felt he didn't give me a

merit increase."

* Mr. Christian showed Finance Commission

staff members the corporation's records for

the period 1965-1973. They were piled in

a corner of a women's rest room and are

obviously unusable.

Appendix C

Ralph LePore, former Director of

Purchasing and Materials and still an em-

ployee of Trustees Corporation, has had a

running dispute with Trustees Corporation

management for several years. He has cri-

ticized the management of the corporation

on a variety of grounds, including its dis-

position of overhead funds. He was also

worried about the possibility of his per-

sonal legal liability arising from his au-

thorization of purchases on behalf of the

corporation if it should be determined that

the corporation was acting beyond the scope

of its powers. Mr. LePore brought his cri-

ticisms of the operation of Trustees Cor-

poration to the attention of various agen-

cies, including the Boston City Council

and the Finance Commission.

It appears that since John Christian

became General Manager of Trustees Corpor-

ation on January, 1974, there has been a

noticeable improvement in the management

and record keeping of the corporation. Mr.

Christian testified that by February of

this year he had succeeded in bringing the

records up to date from 1974 onwards. He

also testified that accounts receivable

and payable are now generally on a current

basis and that the corporation is able to

handle its cash flow needs even though the

federal government has suspended overhead

payments. There is still a high rate of

employee turnover, but Mr. Christian be-

lieves, and the Finance Commission agrees,

that this is caused at least in part by

reliance upon a personnel system and pay

Cc-19

Appendix C

schedule developed for Trustees Corporation

by Paul Dorr in 1972. This plan provides

for a high percentage of low paying cleri-

cal positions and it is questionable whe-

ther the pay scales are competitive for

the qualifications required for the posi-

tions to be filled.

USE OF TRUSTEES CORPORATION TO AVOID

AL I S

Mr. Gleason told the Finance Commi-

ssion that he was the architect of the ar-

rangement whereby Trustees Corporation was

used to carry out functions of the Depart-

ment of Health and Hospitals. He said that

after becoming a member of the Board of

Trustees Corporation he urged that the cor-

poration be used to obtain the same kind of

flexibility as that of the Trustees of Bos-

ton Public Library. Mr. Gleason states:

"Yes, to be sure we could be

criticized in some respects for doing

things to avoid city procedures, but

I think it is not a fault. I think

we have done so in order to do things,

to be able to accomplish things, par-

ticularly in a situation where we are

frequently in competition with the

private sector. We are able to do

things as a public agency the Depart-

mezt of Health and Hospitals has not

been able to do."

C- 20

Appendix C

Mr. Gleason believes that without the

flexibility of using Trustees Corporation,

the Department of Health and Hospitals

could never have achieved the accomplish-

ments it did in establishing a community

health care system. The particular advan-

tages he listed were greater speed in per-

sonnel appointments and in payments than

the city's procedures would allow, and the

ability to avoid the Civil Service system.

Whatever advantages were perceived in

the use of Trustees Corporation, there is

no doubt that the city's personnel, fiscal

and administrative requirements were re-

peatedly avoided. In 1974, the Finance

Commission objected to the practice of the

Department of Health and Hospitals obtain-

ing personnel services by contracting to

obtain them from Trustees Corporation. At

the Trustees meeting on June 11, 1974, they

approved contracts to provide the Department

with certain personnel, but they noted that

because of the Finance Commission s objec-

tions, the positions would in the future be

classified in the city's compensation plan.

Whenever the Department of Health and

Hospital's personnel are paid for from over-

head funds there is no need for a contract

with the City, and the positions have been

filled without the requirement of advertise-

ment in the City Record or notification of

the Finance Commission. In this manner,

the Commissioner's assistants, the Depart-

ment's public relations staff and various

other persons have been employed without

C-21

Appendix C

regard to Civil Service qualification or

to other municipal requirements.

The lack of financial and administra-

tive controls applicable to Trustees Cor-

poration has enabled the Trustees to au-

thorize such matters as (1) retroactive

employment, (2) the pledging of the cor-

poration's credit as surety for a $40,000

bank loan to a health center, and (3) re-

peated instances of expenditures without

advance authorization from the Trustees

and without any concern for the source of

the funds to be used. As a result, all

non-grant funds and non-trust funds recei-

ved by the corporation from any source and

for whatever purpose have been held in one

bank account and have been subject to ex-

penditure by Trustees Corporation simply

on the basis of availability. .

RECOMMENv« . LONS

(1) Trustees should not pay the sa-

laries of Department of Health and Hospi-

tals personnel except in accordance with

the terms of a gift or grant. Nor should

the Department take any other action which

is designed to permit it to avoid budget-

ary examination.

(2) The Department of Health and

Hospitals should accept responsibility for

the future employment of Department per-

sonnel and the financing of health pro-

grams, which presently are being paid for

C-22

Appendix C

by Trustees Corporation from overhead

funds.

(3) Trustees Corporation should end

at once its practice of permitting the

Commissioner of Health and Hospitals to

spend the corporation's funds in his own

discretion.

(4) Trustees Corporation votes

which require the expenditure of funds

should always state the source of the

funds, and this information should appear

in the minutes of the meetings.

(5) The Board of Health and Hospitals

should not have as its Chairman or as a

member the city's Corporation Counsel.

(6) Trustees Corporation should re-

tain the services of independent legal

counsel to advise it upon all matters rela-

ting to its legal organization and author-

ity, its relationship to the city, its com-

pliance with all applicable provisions of

law and its accountability to other govern-

mental bodies.

(7) Trustees Corporation should ob-

tain an independent legal opinion includ-

ing, if necessary, a judicial declaratory

judgment as to whether the board members

are invested with the powers of both cor-

poration members and directors or only

those of corporation members. If they are

invested with only the latter powers, they

should create a board of directors.

C-23

Appendix C

(8) Trustees Corporation should

pay to the city all overhead funds it re-

ceives from the federal government or other

grantor for the use of city property and

facilities.

(9) Trustees Corporation and the

city should noti all grantee institutions

which use city prdperty and facilities that

payments for its use are to be made to the

city and not to Trustees Corporation.

(10) Since Mr.\ Rosenbloom and Mr.

Gleason, speaking for the Board and for

Trustees, contend that subjecting the ex-

penditure of these overhead funds to muni-

cipal controls would seriously hinder their

ability to provide good health care pro-

grams, the Finance Commission suggests that

the Board seek an amendment to its own en-

abling statute which would (1) specifically

set out the ability of the Trustees to ac-

cept such funds on behalf of the city and

(2) specifically set out!an internal over-

sight mechanism for dealing with the Trus-

tees for use of these funds ( the most ob-

vious one would be for the Board members to

be different people from the corporation

members and to have the ability to vote on

the Trustees programs). The Finance Com-

mission would offer its aid to the Board in

seeking such legislation.

Respectfully submitted

FOR THE FINANCE COMMISSION

C-24

Appendix C

Andrea Wasserman Gargiulo

Chairwoman

Frederick R.H. Witherby

Esquire

Percy C. Wilson

Barbara Cheney

C-25

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